<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998.
REGISTRATION NO. 333-46539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-1
------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NAVIGANT INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 4700 52-2080967
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
84 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112-5314
(303) 706-0800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
EDWARD S. ADAMS
CHIEF EXECUTIVE OFFICER
NAVIGANT INTERNATIONAL, INC.
84 INVERNESS CIRCLE EAST
ENGLEWOOD, COLORADO 80112-5314
(303) 706-0800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH A COPY TO:
GEORGE P. STAMAS, ESQ.
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037
(202) 663-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as possible after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the offering. / /______
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /______
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE (2) OFFERING PRICE FEE (3)
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Common Stock, par value $.001 per share, to be
distributed to holders of U.S. Office Products
Company common stock............................ 100,000,000(1) $.984 $98,384,000 $29,024
</TABLE>
(1) Approximate number of shares of Navigant International, Inc. common stock
expected to be distributed based upon an assumed distribution ratio of one
share of Navigant International, Inc. common stock for every one share of
U.S. Office Products Company common stock held by each stockholder of U.S.
Office Products Company on the record date for the distribution. The actual
distribution ratio will be determined prior to effectiveness of this
Registration Statement, and is expected to be less than one share of
Navigant International, Inc. common stock for every one share of U.S. Office
Products Company common stock.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f)(2) of the Securities Act based on book value of
$98,384,000 as of October 27, 1997.
(3) The Company has previously paid the Securities and Exchange Commission the
registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION STATEMENT/PROSPECTUS
[LOGO]
DISTRIBUTION OF UP TO 10,968,951 SHARES OF COMMON STOCK OF
NAVIGANT INTERNATIONAL, INC. TO STOCKHOLDERS OF U.S. OFFICE PRODUCTS COMPANY
This Information Statement/Prospectus is being furnished by U.S. Office
Products Company ("U.S. Office Products") in connection with the distribution to
its stockholders of the stock of Navigant International, Inc. ("Navigant" or the
"Company"). Navigant is a Delaware corporation formed by U.S. Office Products
that will own substantially all the assets of, and will be responsible for
substantially all the liabilities associated with, U.S. Office Products'
Corporate Travel Services Division. Pursuant to this distribution (the "Travel
Distribution" or the "Distribution"), all of the issued and outstanding shares
of the common stock, $.001 par value per share, of Navigant (the "Navigant
Common Stock") will be distributed to holders of record as of 5:00 p.m. EDT on
June 9, 1998 (the "Record Date") of the common stock, par value $.001 per share,
of U.S. Office Products ("U.S. Office Products Common Stock"). Each such holder
will receive one share of Navigant Common Stock for every ten shares of U.S.
Office Products Common Stock held on the Record Date (the "Distribution Ratio").
Fractional shares will be aggregated into whole shares of Navigant Common Stock
and sold on the open market by the Distribution Agent (as defined herein). The
proceeds of such sales will be distributed to holders who otherwise would be
entitled to receive fractional shares. See "The Travel Distribution-- General."
Holders of U.S. Office Products Common Stock will not be required to pay any
consideration for the shares of Navigant Common Stock they receive in the
Distribution. There is no current public trading market for Navigant Common
Stock. The shares of Navigant Common Stock have been approved for inclusion,
subject to notice of issuance, on the National Market System of the Nasdaq Stock
Market under the symbol "FLYR." There is no assurance that an active trading
market for Navigant Common Stock will develop following the Travel Distribution.
The Travel Distribution is an element of a comprehensive restructuring plan
adopted by the Board of Directors of U.S. Office Products, including
modifications made by the Board of Directors of U.S. Office Products since first
adopting this plan (as so modified, the "Strategic Restructuring Plan"). The
principal elements of the Strategic Restructuring Plan are (1) a self-tender
offer by U.S. Office Products (the "Tender Offer") to purchase 37,037,037 shares
of U.S. Office Products Common Stock (including shares that may be issued on
exercise of vested and unvested options for U.S. Office Products Common Stock)
at a price of $27.00 per share (or, in the case of shares underlying stock
options, at $27.00 minus the exercise price of the options) and the incurrence
of debt to pay a portion of the purchase price in the Tender Offer; (2) after
acceptance of shares in the Tender Offer, the pro rata distribution to U.S.
Office Products stockholders of shares of four companies that will conduct U.S.
Office Products' current print management, technology solutions, educational
supplies and corporate travel services businesses (the "Distributions"); and (3)
the sale to an affiliate ("CD&R") of an investment fund managed by Clayton,
Dubilier & Rice, Inc. ("CD&R, Inc.") of equity interests in U.S. Office Products
(the "Equity Investment") following acceptance of shares in the Tender Offer and
the Record Date for the Distributions.
All holders of U.S. Office Products Common Stock, including the executive
officers and directors of the Company, had the right to participate in the
Tender Offer. The Company was advised that its executive officers and directors
who held shares (or options to purchase shares) of U.S. Office Products Common
Stock tendered shares (or options) in the Tender Offer.
IN REVIEWING THIS INFORMATION STATEMENT/PROSPECTUS, STOCKHOLDERS SHOULD
CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE HEADING "RISK FACTORS"
BEGINNING ON PAGE 7.
THIS INFORMATION STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
ABOUT BUSINESS STRATEGIES, MARKET POTENTIAL, FUTURE FINANCIAL PERFORMANCE AND
OTHER MATTERS. IN ADDITION, WHEN USED IN THIS INFORMATION STATEMENT/ PROSPECTUS,
THE WORDS "INTENDS TO," "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS
INVOLVE MANY RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH STATEMENTS, INCLUDING, WITHOUT LIMITATION, THOSE RISKS AND
UNCERTAINTIES DESCRIBED UNDER THE HEADING "RISK FACTORS" BEGINNING ON PAGE 7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED
IF THIS INFORMATION STATEMENT/PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
------------------------
THIS INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
THE DATE OF THIS INFORMATION STATEMENT/PROSPECTUS IS JUNE 9, 1998
<PAGE>
ADDITIONAL INFORMATION
Navigant has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-1 (including exhibits, schedules and amendments
thereto, the "Navigant Form S-1") pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Navigant Common Stock. This
Information Statement/ Prospectus, while forming a part of the Navigant Form
S-1, does not contain all of the information set forth in the Navigant Form S-1.
Reference is hereby made to the Navigant Form S-1 for further information with
respect to Navigant and the securities to be distributed to U.S. Office Products
stockholders in the Travel Distribution. Statements contained herein concerning
the provisions of documents filed as exhibits to the Navigant Form S-1 are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
SEC.
The Navigant Form S-1 is available for inspection and copying at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the Regional Offices of the SEC at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such information can be obtained by mail from the Public Reference
Branch of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates, or on the Internet at http://www.sec.gov.
Following the Travel Distribution, Navigant will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the SEC that will be available for
inspection and copying at the SEC's public reference facilities referred to
above. Copies of such material can be obtained by mail at prescribed rates by
writing to the Public Reference Branch of the SEC at the address referred to
above.
Additional information regarding the Strategic Restructuring Plan and
Navigant may be found in reports, proxy statements and other information filed
by U.S. Office Products with the SEC, including U.S. Office Products Tender
Offer Statement on Schedule 13E-4 filed on May 4, 1998 and U.S. Office Products
Proxy Statement filed on April 30, 1998.
Navigant intends to furnish its stockholders annual reports containing
financial statements audited by its independent accountants. Navigant does not
intend to furnish its stockholders quarterly reports.
Questions concerning the Travel Distribution should be directed to Mark D.
Director, Executive Vice President--Administration, General Counsel and
Secretary of U.S. Office Products, or Donald H. Platt, Executive Vice President,
Chief Financial Officer and Treasurer of U.S. Office Products, at 1025 Thomas
Jefferson Street, N.W., Suite 600 East, Washington, D.C. 20007, telephone (202)
339-6700. After the Travel Distribution, holders of Navigant Common Stock having
inquiries related to their investment in Navigant should contact Robert C.
Griffith, Chief Financial Officer and Treasurer of Navigant, at 84 Inverness
Circle East, Englewood, Colorado 80112, telephone (303) 706-0800.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
------------------------
Until July 4, 1998 (the expiration of the twenty-fifth calendar day
following the Travel Distribution) all dealers effecting transactions in the
Navigant Common Stock, whether or not participating in this distribution, may be
required to deliver an Information Statement/Prospectus.
<PAGE>
TABLE OF CONTENTS
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PAGE
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SUMMARY................................................................................................... 1
RISK FACTORS.............................................................................................. 7
THE TRAVEL DISTRIBUTION................................................................................... 16
ARRANGEMENTS AMONG U.S. OFFICE PRODUCTS, NAVIGANT AND THE OTHER SPIN-OFF COMPANIES AFTER THE
DISTRIBUTIONS........................................................................................... 27
DIVIDEND POLICY........................................................................................... 29
CAPITALIZATION............................................................................................ 30
SELECTED FINANCIAL DATA................................................................................... 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NAVIGANT......... 33
INDUSTRY OVERVIEW......................................................................................... 42
BUSINESS.................................................................................................. 42
MANAGEMENT OF NAVIGANT.................................................................................... 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................ 58
PRINCIPAL STOCKHOLDERS OF NAVIGANT........................................................................ 59
DESCRIPTION OF NAVIGANT CAPITAL STOCK..................................................................... 60
EXPERTS................................................................................................... 63
LEGAL MATTERS............................................................................................. 63
INDEX TO FINANCIAL STATEMENTS............................................................................. F-1
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS INFORMATION
STATEMENT/PROSPECTUS. STOCKHOLDERS SHOULD READ THE INFORMATION
STATEMENT/PROSPECTUS IN ITS ENTIRETY. UNLESS THE CONTEXT INDICATES OTHERWISE,
THE INFORMATION HEREIN (A) ASSUMES CONSUMMATION OF THE TRANSACTIONS DESCRIBED
UNDER "THE TRAVEL DISTRIBUTION," (B) DOES NOT REFLECT THE UNDERWRITTEN PUBLIC
OFFERING (THE "OFFERING") OF UP TO 2,000,000 SHARES OF COMMON STOCK OF NAVIGANT
INTERNATIONAL, INC., PAR VALUE $.001 PER SHARE (THE "NAVIGANT COMMON STOCK" OR
THE "COMPANY COMMON STOCK"), (EXCLUDING 300,000 SHARES SUBJECT TO THE
UNDERWRITERS' OVER-ALLOTMENT OPTION) BY NAVIGANT INTERNATIONAL, INC. ("NAVIGANT"
OR THE "COMPANY") AND (C) HAS BEEN ADJUSTED IN A RATIO (THE "DISTRIBUTION
RATIO") OF ONE SHARE OF NAVIGANT COMMON STOCK FOR EVERY TEN SHARES OF U.S.
OFFICE PRODUCTS COMPANY'S COMMON STOCK, PAR VALUE $.001 PER SHARE (THE "U.S.
OFFICE PRODUCTS COMMON STOCK").
UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO (I) U.S. OFFICE
PRODUCTS AND NAVIGANT SHALL INCLUDE THEIR RESPECTIVE SUBSIDIARIES, AND (II)
NAVIGANT PRIOR TO THE DISTRIBUTION DATE SHALL REFER TO THE CORPORATE TRAVEL
SERVICES DIVISION OF U.S. OFFICE PRODUCTS.
NAVIGANT INTERNATIONAL, INC.
Navigant International, Inc. ("Navigant" or the "Company"), one of the five
largest providers of corporate travel management services in the United States
based on airline ticket sales, was formed by U.S. Office Products Company ("U.S.
Office Products") through the acquisition of twelve regional corporate travel
agencies. In calendar year 1997, the travel agencies that form Navigant booked
$1.38 billion in airline ticket sales, or approximately 2.5 million airline
tickets. With locations throughout the United States, in Canada, and in the
United Kingdom, Navigant provides its corporate customers with a wide range of
corporate travel management services through several channels, including on-site
travel agencies, regional travel agency offices and satellite ticket printers.
Navigant also provides group and leisure travel services, largely to its
corporate customers.
The travel agency industry in the United States is highly fragmented and
characterized by intense competition. There are more than 30,000 travel agencies
producing an estimated $70 billion in annual airline ticket sales. Airline
ticket sales by travel agencies increased at a rate of approximately 10.5% for
calendar year 1997. The business travel agency industry has undergone
significant changes since 1995, due in part to the reduction in commission
revenues from airline carriers, increasing industry reliance on technology and
the concentration of the industry's customer base. Navigant believes that
significant technological and financial resources are required to compete in
today's corporate travel market, and that larger corporate travel agencies may
therefore have a competitive advantage. Accordingly, Navigant believes the
business travel agency industry is undergoing a period of consolidation and that
significant growth opportunities exist.
Navigant's objective is to be a premier provider of corporate travel
management services to middle market and larger companies in North America and,
increasingly, around the world. Navigant intends to pursue this objective by
implementing the following business strategies: (i) focusing on corporate
travel; (ii) maintaining personalized customer service; (iii) operating with a
decentralized management structure; (iv) achieving operating efficiencies; and
(v) utilizing technology to improve service and reduce costs.
In addition, Navigant intends to execute a focused growth strategy by
implementing an internal growth strategy and by pursuing an aggressive
acquisition program to further consolidate the corporate travel agency industry.
The key elements of Navigant's internal growth strategy are as follows: (i)
generating new customers through an aggressive marketing program; (ii)
continuing to reduce customer costs; (iii) implementing best practices as
developed in its different operating units; and (iv) achieving economies of
scale.
U.S. Office Products began building Navigant with the acquisition of
Professional Travel Corporation in January 1997 and thereafter acquired 11
additional corporate travel management companies. Navigant currently has 129
offices, including offices in 16 of the 25 largest U.S. business travel markets.
Navigant is a Delaware corporation with its principal executive offices located
at 84 Inverness Circle East, Englewood, Colorado, 80112-5314. Navigant's
telephone number is 303-706-0800.
<PAGE>
BACKGROUND OF THE TRAVEL DISTRIBUTION
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THE DISTRIBUTION............. Shares of Navigant Common Stock are being distributed to the
stockholders of record of U.S. Office Products (the "Travel
Distribution" or the "Distribution") as of 5:00 p.m. EDT on
June 9, 1998 (the "Record Date"). The Travel Distribution is
part of a comprehensive restructuring plan adopted by the
U.S. Office Products' Board of Directors. The principal
elements of the plan (including modifications the Board of
Directors has made since first adopting this plan, as so
modified, the "Strategic Restructuring Plan") are as
follows:
- Pursuant to a self-tender offer, U.S. Office Products is
purchasing 37,037,037 shares of U.S. Office Products
Common Stock, including shares that may be issued upon
exercise of vested and unvested options for U.S. Office
Products Common Stock, at a price of $27.00 per share
(or, in the case of shares underlying stock options, at
$27.00 minus the exercise price of the options) (the
"Tender Offer").
- After acceptance of shares in the Tender Offer, U.S.
Office Products is distributing to U.S. Office Products'
stockholders the shares of four separate companies:
Aztec Technology Partners, Inc. ("Aztec"), Workflow
Management, Inc., School Specialty, Inc., and Navigant
(collectively, the "Spin-Off Companies"). The
distributions of the shares of the Spin-Off Companies is
referred to in this Information Statement/Prospectus as
the "Distributions." The Spin-Off Companies hold U.S.
Office Products' current technology solutions, print
management, educational supplies, and corporate travel
services businesses, respectively.
- Following the Record Date, an affiliate ("CD&R") of an
investment fund managed by Clayton, Dubilier & Rice,
Inc. ("CD&R, Inc."), a private investment firm, is
acquiring for $270.0 million, approximately 36,368,426
shares of U.S. Office Products Common Stock representing
24.9% of the outstanding equity of U.S. Office Products
(after giving effect to the Tender Offer and the
issuance of shares to CD&R) and warrants to purchase
additional U.S. Office Products Common Stock (the
"Equity Investment"). CD&R will not acquire any
interests in the Spin-Off Companies.
U.S. Office Products will retain its North American Office
Products Group (which includes the office supply, office
furniture, and office coffee and beverage services
businesses), Mail Boxes, Etc., its New Zealand and Australia
operations, and its 49% interest in Dudley Stationery
Limited (a U.K. contract stationer).
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2
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In conjunction with the Strategic Restructuring Plan, U.S.
Office Products is undertaking the following transactions
(the "Financing Transactions"):
- Pursuant to a tender offer, U.S. Office Products is
purchasing $222.2 million principal amount of its 5 1/2%
Convertible Subordinated Notes due 2003 (the "2003
Notes") for a purchase price of 94.5% of the principal
amount and accrued interest (the "2003 Note Tender").
- Pursuant to an exchange offer, U.S. Office Products has
exchanged approximately $131 million principal amount of
its 5 1/2% Convertible Subordinated Notes due 2001 (the
"2001 Notes") for 8,100,741 shares of U.S. Office
Products Common Stock (the "2001 Note Offer") at an
exchange rate of 61.483 shares per $1,000 principal
amount, which effectively reduced the conversion price
on the 2001 Notes from $19.00 to $16.17 while the 2001
Note Offer was open.
- U.S. Office Products is entering into a new $1.225
billion senior credit facility pursuant to an agreement
dated the date of this Information Statement/Prospectus.
- U.S. Office Products is issuing and selling $400.0
million in 9 3/4% Senior Subordinated Notes in a private
placement.
REASONS FOR THE
DISTRIBUTIONS.............. The Distributions are intended to separate the Spin-Off
Companies from U.S. Office Products' other businesses so
that each can:
- adopt strategies and pursue objectives that are
appropriate to its respective industry, geographic
territories and stage of growth;
- pursue an independent acquisition program that allows for
a more focused use of resources and, where stock is used
as consideration, provide stock of a public company that
is in the same industry as the businesses being
acquired;
- be recognized by the financial community as a distinct
business that can be evaluated more readily and compared
more easily to industry peers; and
- implement more focused incentive compensation packages
that respond to specific industry and market conditions
and enhance employee retention objectives.
The Distributions are also integral to the objectives of the
Equity Investment, which is conditioned on completion of all
of the Distributions. See "The Travel Distribution--Reasons
for the Distributions."
SHARES TO BE DISTRIBUTED..... Approximately 10,968,951 shares of Navigant Common Stock are
being distributed to stockholders of U.S. Office Products in
the Travel Distribution.
DISTRIBUTION RATIO........... Each U.S. Office Products stockholder will receive one share
of Navigant Common Stock for every ten shares of U.S. Office
Products Common Stock held on the Record Date.
FRACTIONAL SHARE INTERESTS... Fractional share interests will be aggregated and sold by
the Distribution Agent and the cash proceeds will be
distributed to those
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3
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U.S. Office Products stockholders entitled to a fractional
interest. See "The Travel Distribution--General."
RECORD DATE.................. 5:00 p.m. EDT on June 9, 1998.
DISTRIBUTION DATE............ The effective date of the Distribution is expected to be
11:59 p.m. EDT on June 9, 1998 (the "Distribution Date").
MAILING DATE................. Certificates representing shares of Navigant Common Stock
are expected to be mailed to U.S. Office Products
stockholders on or about June 12, 1998 (the "Mailing Date").
DISTRIBUTION AGENT........... American Stock Transfer & Trust Company
TAX CONSEQUENCES............. Wilmer, Cutler & Pickering has delivered an opinion stating
that, subject to the matters discussed therein, for U.S.
federal income tax purposes the receipt of Navigant Common
Stock by U.S. Office Products stockholders will be tax-free
to U.S. Office Products and the U.S. Office Products
stockholders (except with respect to cash received in lieu
of fractional shares). See "The Travel Distribution-- U.S.
Federal Income Tax Consequences of the Travel Distribution."
ARRANGEMENTS AMONG U.S.
OFFICE PRODUCTS, NAVIGANT
AND THE OTHER SPIN-OFF
COMPANIES AFTER THE
DISTRIBUTIONS.............. Navigant, U.S. Office Products and the other Spin-Off
Companies are entering into an agreement (the "Distribution
Agreement") in connection with the Distribution pursuant to
which, among other things, (i) equity interests in the U.S.
Office Products subsidiaries that engage in the business of
corporate travel services are being transferred to Navigant,
(ii) liabilities are being allocated among Navigant, U.S.
Office Products and the other Spin-Off Companies, and (iii)
Navigant, U.S. Office Products and the other Spin-Off
Companies will indemnify one another for liabilities
allocated to them under the Distribution Agreement and a
share of certain other liabilities.
Navigant, U.S. Office Products and the other Spin-Off
Companies are also entering into an agreement (the "Tax
Allocation Agreement") (i) allocating to each Spin-Off
Company responsibility for its share of U.S. Office
Products' consolidated tax liability for the years that it
was included in U.S. Office Products' consolidated federal
income tax returns, (ii) sharing certain state, local and
foreign taxes, and (iii) providing for (a) indemnification
by Navigant for certain taxes if they are assessed against
U.S. Office Products as a result of the Distributions and
(b) joint and several indemnification by Navigant and the
other Spin-Off Companies for such taxes resulting from
certain acts taken by Navigant or any of the other Spin-Off
Companies. The liability to U.S. Office Products for taxes
resulting from such acts will be allocated among the
Spin-Off Companies pursuant to a separate agreement (the
"Tax Indemnification Agreement"). As a consequence, Navigant
will be primarily liable for taxes resulting from acts taken
by Navigant and liable (subject to indemnification by the
other Spin-Off Companies) for any taxes resulting from acts
taken by the other Spin-Off Companies.
Navigant, U.S. Office Products and the other Spin-Off
Companies are also entering into an agreement (the "Employee
Benefits
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4
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Agreement") relating to the allocation of assets,
liabilities and responsibilities with respect to employee
benefit plans and programs and certain related matters. See
"Arrangements Among U.S. Office Products, Navigant and the
Other Spin-Off Companies After the Distributions."
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SUMMARY RISK FACTORS
In reviewing this Information Statement/Prospectus, stockholders should
carefully consider the matters described under the heading "Risk Factors"
beginning on page 7, including, among others, (i) risks associated with
potential volatility of stock prices, and with shares eligible for future sale,
(ii) risks related to revenue, customer fees and airline commissions, (iii)
risks related to substantial competition and industry consolidation, and new
methods of distribution, (iv) risks related to rapid growth and the absence of
history as a stand-alone company, (v) dependence on travel suppliers, (vi)
dependence upon technology, (vii) risks associated with the business travel
industry and general economic conditions, (viii) risks related to the
integration of operations and acquisitions, (ix) conflicts of interest resulting
from the fact that (a) the Distribution Agreement is not the result of
arms'-length negotiation and (b) stock options are being issued to certain
officers and directors of Navigant in connection with the transactions, (x) tax
consequences of the Distribution, (xi) potential liability for taxes related to
the distributions, and (xii) dependence upon acquisitions for future growth.
5
<PAGE>
SUMMARY FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
FISCAL YEAR ENDED APRIL 26,
FOUR MONTHS -----------------------------------
ENDED PRO
YEAR ENDED DECEMBER 31, ------------ PRO FORMA
------------------------------------------ APRIL 30, FORMA AS ADJUSTED
1992 1993 1994 1995 1996 1997 1997(2) 1997(2)(6)
--------- --------- --------- --------- ------------ --------- ----------- -----------
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(UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME DATA:
Revenues...................... $ 28,853 $ 32,838 $ 34,569 $ 45,267 $ 18,009 $ 57,677 $ 146,981 $ 146,981
Operating expenses............ 14,244 17,153 19,692 25,836 9,491 31,541 80,513 80,513
--------- --------- --------- --------- ------------ --------- ----------- -----------
Gross profit.................. 14,609 15,685 14,877 19,431 8,518 26,136 66,468 66,468
General and administrative
expenses.................... 10,588 11,647 11,651 15,221 6,660 19,684 47,261 47,261
Amortization expense.......... 203 197 221 342 128 548 2,997 2,997
Non-recurring acquisition
costs....................... 1,156 1,156 1,156
--------- --------- --------- --------- ------------ --------- ----------- -----------
Operating income.............. 3,818 3,841 3,005 3,868 1,730 4,748 15,054 15,054
Interest expense.............. 125 139 118 515 173 587 1,388
Interest income............... (173) (231) (253) (352) (109) (445)
Other (income) expense........ 55 48 42 20 118 312 312
--------- --------- --------- --------- ------------ --------- ----------- -----------
Income before provision for
income taxes................ 3,866 3,878 3,092 3,663 1,646 4,488 13,354 14,742
Provision for income taxes.... 188 97 18 565 255 1,145 6,143 6,781
--------- --------- --------- --------- ------------ --------- ----------- -----------
Net income.................... $ 3,678 $ 3,781 $ 3,074 $ 3,098 $ 1,391 $ 3,343 $ 7,211 $ 7,961
--------- --------- --------- --------- ------------ --------- ----------- -----------
--------- --------- --------- --------- ------------ --------- ----------- -----------
Net income per share:
Basic..................... $ 0.83 $ 0.85 $ 0.67 $ 0.52 $ 0.18 $ 0.37 $ 0.66 $ 0.63
Dilluted.................. $ 0.83 $ 0.85 $ 0.67 $ 0.52 $ 0.18 $ 0.36 $ 0.66 $ 0.63
Weighted average shares
outstanding:
Basic..................... 4,426 4,426 4,556 5,906 7,750 9,003 10,969 (3) 12,635(4)
Diluted................... 4,426 4,426 4,570 6,002 7,910 9,176 10,969 (3) 12,635(4)
<CAPTION>
NINE MONTHS ENDED
---------------------------------------------------------------
PRO FORMA
PRO FORMA PRO FORMA AS ADJUSTED
JANUARY 25, JANUARY 24, JANUARY 25, JANUARY 24, JANUARY 24,
1997 1998 1997(2) 1998(2) 1998(2)(6)
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME DATA:
Revenues...................... $ 41,527 $ 80,706 $ 105,362 $ 119,693 $ 119,693
Operating expenses............ 22,656 47,172 59,550 67,869 67,869
----------- ----------- ----------- ----------- -----------
Gross profit.................. 18,871 33,534 45,812 51,824 51,824
General and administrative
expenses.................... 15,011 26,274 34,491 38,608 38,608
Amortization expense.......... 471 1,509 2,336 2,418 2,418
Non-recurring acquisition
costs....................... 284 284
----------- ----------- ----------- ----------- -----------
Operating income.............. 3,105 5,751 8,701 10,798 10,798
Interest expense.............. 415 399 1,041 1,041
Interest income............... (382) (338)
Other (income) expense........ 40 (71) 178 (118) (118)
----------- ----------- ----------- ----------- -----------
Income before provision for
income taxes................ 3,032 5,761 7,482 9,875 10,916
Provision for income taxes.... 551 2,823 3,442 4,543 5,021
----------- ----------- ----------- ----------- -----------
Net income.................... $ 2,481 $ 2,938 $ 4,040 $ 5,332 5,895
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income per share:
Basic..................... $ 0.29 $ 0.26 $ 0.37 $ 0.49 $ 0.47
Dilluted.................. $ 0.28 $ 0.25 $ 0.37 $ 0.49 $ 0.47
Weighted average shares
outstanding:
Basic..................... 8,598 11,476 10,969 ) 10,969 (3) 12,635 (4)
Diluted................... 8,782 11,719 10,969 ) 10,969 (3) 12,635 (4)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(UNAUDITED)
------------------------------------------ APRIL 30,
1992 1993 1994 1995 1996
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 4,172 $ 5,051 $ 4,366 $ 4,288 $ 4,338
Total assets......................................................... 15,040 15,487 14,602 25,258 25,692
Long-term debt, less current portion................................. 4,048 3,909 3,455 8,160 6,366
Long-term payable to U.S. Office Products............................
Stockholder's equity................................................. 6,723 7,914 7,736 9,187 11,221
<CAPTION>
JANUARY 24, 1998
-----------------------------------
PRO FORMA
APRIL 26, PRO AS
1997 ACTUAL FORMA(5) ADJUSTED(5)(6)
----------- --------- --------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital...................................................... $ 1,281 $ 8,580 $ 3,027 $ 8,072
Total assets......................................................... 29,339 137,661 134,249 138,669
Long-term debt, less current portion................................. 2,012 2,664 17,175 1,400
Long-term payable to U.S. Office Products............................ 787 10,027
Stockholder's equity................................................. 13,483 100,111 92,270 113,090
</TABLE>
- ------------------------
(1) The historical financial information of the businesses that were acquired in
business combinations accounted for under the pooling-of-interests method
(the "Pooled Companies") have been combined on a historical cost basis in
accordance with generally accepted accounting principles ("GAAP") to present
this financial data as if the Pooled Companies had always been members of
the same operating group. The financial information of the businesses
acquired in the business combinations accounted for under the purchase
method (the "Purchased Companies") is included from the dates of their
respective acquisitions. The Purchased Companies and their respective
acquisition dates are as follows: Associated Travel International, June 26,
1997; Evans Travel Group, July 25, 1997; Atlas Travel Services, September
26, 1997; OmniTravel, September 26, 1997; McGregor Travel Management,
October 24, 1997; Travel Consultants, Inc., October 24, 1997; and Wareheim
Travel Services, December 23, 1997. The pro forma financial data reflect
acquisitions completed by Navigant through May 1, 1998. See Note 4 of the
Company's Notes to Consolidated Financial Statements for a description of
the number and accounting treatment of the acquisitions by the Company.
(2) Gives effect to the Travel Distribution and the purchase acquisitions
completed by Navigant since May 1, 1996 as if all such transactions had been
made on May 1, 1996. The pro forma statement of income data are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be construed
as representative of future operating results.
(3) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the nine months ended January 24,
1998 and January 25, 1997, see Note 2(j) of Notes to Pro Forma Combined
Financial Statements included herein.
(4) For calculation of the pro forma as adjusted weighted average shares
outstanding for the nine months ended January 24, 1998, see Note 2(l) of
Notes to Pro Forma Combined Financial Statements.
(5) Gives effect to the Travel Distribution and the purchase acquisition
completed by Navigant subsequent to January 24, 1998 as if such transaction
had been made on January 24, 1998. The pro forma balance sheet data are not
necessarily indicative of the financial position that would have been
achieved had these events actually then occurred and should not be construed
as representative of future financial position.
(6) As adjusted to give effect to the sale of the shares of Navigant Common
Stock by Navigant pursuant to the Offering (assuming an initial public
offering price of $12.00 per share, which is equal to the mid-point of the
range set forth in the preliminary prospectus dated May 18, 1998 related to
the Offering) after deducting underwriting discounts and estimated offering
expenses payable by Navigant and the use of the estimated net proceeds
therefrom. Navigant expects that the initial public offering price in the
Offering will be determined after the close of markets on the date of this
Information Statement/Prospectus. There can be no assurance that the initial
public offering price will be set at that time, that the price will be
within the range set forth in the preliminary prospectus, or that the
Offering will be completed. Information regarding the initial public
offering price, and "as adjusted" pro forma financial statements based on
that price, will be set forth in the final prospectus related to the
Offering, which will be publicly available within two business days after
the price is determined. See "Additional Information."
6
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED IN ADDITION TO OTHER INFORMATION
INCLUDED IN THIS INFORMATION STATEMENT/PROSPECTUS.
POTENTIAL VOLATILITY OF STOCK PRICE AND OTHER RISKS ASSOCIATED WITH SHARES
ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Navigant Common Stock in the public market
following the Travel Distribution and the Offering could have an adverse effect
on the market price of the Navigant Common Stock. In the Travel Distribution,
stockholders of U.S. Office Products will acquire approximately 10,968,951
shares of Navigant Common Stock (approximately 85% of the total outstanding
shares upon completion of the Travel Distribution and the Offering) that will be
freely tradeable without restrictions or further registration under the
Securities Act of 1933, as amended (the "Securities Act"), except that any
shares held by "affiliates" of Navigant within the meaning of the Securities Act
will be subject to the resale limitations of Rule 144 promulgated under the
Securities Act ("Rule 144"). Because the Travel Distribution is being made to
existing stockholders of U.S. Office Products, who have not made an affirmative
decision to invest in Navigant Common Stock, there can be no assurance that some
or all of these stockholders will not sell the shares of Navigant Common Stock
into the market shortly after the Travel Distribution. In addition, U.S. Office
Products is included in certain broad-based indices tracked by a number of
investment companies and other institutional investors, and such investors can
be expected to sell the shares of Navigant Common Stock they receive in the
Travel Distribution shortly thereafter. Such sales could exert downward pressure
on the price of Navigant Common Stock.
In addition, upon completion of the Travel Distribution and the Offering,
Navigant will have outstanding (i) 2,000,000 shares of Navigant Common Stock
expected to be issued in the Offering, all of which will be freely tradeable
unless held by affiliates of Navigant and (ii) immediately exercisable options
and options exercisable in the future to acquire shares of Navigant Common
Stock. Navigant intends to register the shares of Navigant Common Stock reserved
for issuance pursuant to its stock incentive plan following the Travel
Distribution and the Offering. Following the Travel Distribution and the
Offering, in view of the large number of shares freely tradeable and available
for immediate sale, the market for Navigant Common Stock could be highly
volatile and the trading price of Navigant Common Stock could be adversely
affected. In addition, a substantial number of additional options to acquire
shares of Navigant Common Stock may be awarded by Navigant to employees under
its 1998 Stock Incentive Plan.
RISKS RELATED TO REVENUE, CUSTOMER FEES AND AIRLINE COMMISSIONS
Navigant derives the major portion of its revenues from commissions paid by
airlines. Since 1995, most airlines have substantially reduced the amount of
commissions paid to travel agents for booking domestic flights. The airlines
have both capped the total commissions paid per ticket and reduced the
commission rates per ticket payable to travel agents. See "Business--Revenue
Sources." There can be no assurance that the airlines will not further reduce
commissions.
In response to reductions in the commissions paid to travel agents and
consistent with growing industry practice, Navigant has entered into management
contracts with many of its corporate customers. Under these contracts, Navigant
typically deducts its direct operating expenses, indirect overhead costs and a
management fee from commission revenues collected for travel arrangements made
on behalf of the customer. If the commission revenues collected exceed the
amounts deducted, Navigant may share a negotiated amount of the excess with the
customer. If the commission revenues do not cover the amounts deducted, the
customer pays the difference to Navigant. See "Business--Revenue Sources." In
addition, Navigant typically charges a fee for each ticket and other
transactions to customers who do not have a management contract with Navigant.
There can be no assurance that Navigant will be able to maintain or continue to
negotiate management contracts or continue to receive current levels of revenues
from those contracts, or that Navigant will be able to charge transaction fees
or maintain the level of such fees.
7
<PAGE>
Navigant also derives part of its revenues from incentive override
commissions paid by the major airlines. See "Business--Revenue Sources." If,
during any period, Navigant fails to meet incentive levels, revenues could
decrease. There also can be no assurance that the airlines will not reduce or
terminate incentive override commissions or that Navigant will be able to extend
its current incentive override commission arrangements or enter into new
arrangements that are as favorable as Navigant's current arrangements.
SUBSTANTIAL COMPETITION AND INDUSTRY CONSOLIDATION; NEW METHODS OF DISTRIBUTION
The corporate travel management industry is extremely competitive and has
relatively low barriers to entry. Navigant competes primarily with travel
agencies and other distributors of travel services, some of which are larger and
have greater brand name recognition and financial resources than Navigant.
Competition within the corporate travel agency industry is increasing as the
industry undergoes a period of consolidation and certain of Navigant's
competitors are expanding their size and financial resources through
consolidation. Certain agencies and distributors may have relationships with
certain travel suppliers which give them access to favorable availability of
products (including airplane seats and hotel rooms) or more competitive pricing
than that offered by Navigant. Furthermore, some travel agents have a strong
presence in particular geographic areas which may make it difficult for Navigant
to attract customers in those areas. As a result of competitive pressures,
Navigant may suffer a loss of customers and its revenues or margins may decline.
Navigant also competes with travel suppliers, including airlines, hotels and
rental car companies. Innovations in technology such as the Internet and
computer on-line services have increased the ability of travel suppliers to
distribute their travel products and services directly to consumers. Although
travel agencies remain the primary channel for travel distribution, businesses
and consumers can now use the Internet to access information about travel
products and services and to purchase such products and services directly from
the suppliers, thereby bypassing travel agents. Navigant believes that no single
Internet-based service presently provides access to the full range of
information available to Navigant and its agents. There can be no assurances,
however, that an Internet-based travel service will not provide such access in
the future. In addition, although Navigant believes the service, knowledge and
skills of its employees and its incorporation of new, alternative distribution
channels position it to compete effectively in the changing industry, there can
be no assurance that Navigant will compete successfully or that the failure to
compete successfully will not have a material adverse effect on the financial
condition and results of operations of Navigant.
RISK OF RAPID GROWTH; ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
Navigant has been formed through the consolidation by U.S. Office Products
of twelve separate corporate travel agency companies and expects to continue to
grow in part through acquisitions. All twelve companies have been acquired since
January 1997. The rapid pace of acquisitions has, and will continue to, put
pressure on Navigant's executive management, personnel and corporate support
systems. Any inadequacy of such systems to manage the increased size and scope
of operations resulting from growth could adversely affect Navigant's
operations, business and financial results and condition.
Prior to the Travel Distribution, certain general and administrative
functions relating to Navigant's business (including some legal and accounting
services) were handled by U.S. Office Products. Navigant's future performance
will depend on its ability to function as a stand-alone entity, and on its
ability to finance and manage expanding operations and to adapt its information
systems to changes in its business. As a result, certain of Navigant's expenses
are likely to be higher than when it was a part of U.S. Office Products, and
Navigant may experience disruptions it would not encounter as a part of U.S.
Office Products. Furthermore, the financial information included herein may not
necessarily reflect what the results of operations and financial condition would
have been had Navigant been a separate, stand-alone
8
<PAGE>
entity during the periods presented or be indicative of future results of
operations and financial condition of Navigant.
DEPENDENCE ON TRAVEL SUPPLIERS
Navigant is dependent upon travel suppliers for access to their products and
services (including airplane seats and hotel rooms). Certain travel suppliers
offer Navigant pricing that is preferential to published fares, enabling
Navigant to offer prices lower than would be generally available to travelers
and other travel agents. Travel suppliers can generally cancel or modify their
agreements with Navigant upon relatively short notice. The loss of contracts,
changes in Navigant's pricing agreements, commission schedules or incentive
override commission arrangements, or more restricted access to travel suppliers'
products and services could have a material adverse effect on Navigant's
business, financial condition and results of operations.
DEPENDENCE UPON TECHNOLOGY
Navigant's business is dependent upon a number of different information and
telecommunication technologies to access information and manage a high volume of
inbound and outbound telephone calls. Any failure of this technology could have
a material adverse effect on Navigant's business, financial condition and
results of operations. In addition, Navigant's ability to quote air travel
ticket prices, make reservations and sell tickets is dependent upon its
contractual right to use, and the performance of, computer reservation systems
operated by SABRE, Galileo/Apollo and Worldspan. Any technical failures of these
systems or restrictions on Navigant's access to these systems could have a
material adverse effect on Navigant's business, financial condition and results
of operations.
RISKS ASSOCIATED WITH THE BUSINESS TRAVEL INDUSTRY
Navigant's results of operations will depend upon factors affecting the
business travel industry generally. Navigant's revenues and earnings are
especially sensitive to events that affect domestic and international air
travel, and the level of car rentals and hotel reservations. A number of
factors, including recession or slower economic growth, rising travel costs,
extreme weather conditions, and concerns about passenger safety could result in
a temporary or longer-term overall decline in demand for business travel.
Advances in technology and communications, such as videoconferencing and
Internet-based teleconferencing, may also adversely impact travel patterns and
travel demand. Navigant believes that price-based competition will continue in
the airline industry for the foreseeable future. The continuation of such
competition and the occurrence of any of the events described above could have a
material adverse effect on Navigant's business, financial condition and results
of operations.
RISKS RELATED TO INTEGRATION OF OPERATIONS AND ACQUISITIONS
One of Navigant's strategies is to increase operating margins by
consolidating and integrating certain administrative functions common to all of
its operating subsidiaries. Such integration will require substantial attention
from senior management and may also require substantial capital expenditures.
The integration of operations may disrupt the operations of Navigant and the
operating subsidiaries, as management attention is diverted from other tasks,
and as technological, practical or personnel issues arise. There can be no
assurance that the integration and consolidation will be completed, or that, if
completed, Navigant will recognize economic benefit.
Currently, Navigant and each of its subsidiaries operate on separate
computer and telephone systems, several of which use different technologies.
Navigant expects that it will integrate these systems, but it has not yet
established a definitive timetable for integration of all of such systems or its
definitive capital needs for such integration. There can be no assurance that
the contemplated integration of these systems will be successful, will be
completed without disruption to Navigant's business or will result in the
intended cost
9
<PAGE>
efficiencies. In addition, rapid changes in technologies may require capital
expenditures to improve or upgrade customer service.
Integration of acquisitions may also involve a number of special risks
including adverse short-term effects on its reported operating results
(including those caused by severance payments to employees of acquired
companies, restructuring charges associated with the acquisitions and other
expenses associated with a change of control, as well as non-recurring
acquisition costs including accounting and legal fees, investment banking fees,
recognition of transaction-related obligations and various other acquisition-
related costs); diversion of management's attention; difficulties with
retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets, including goodwill. Furthermore, although Navigant conducts
due diligence and generally requires representations, warranties and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies. If an acquired company's financial or
operating results were misrepresented, the acquisition could have a material
adverse effect on the results of operations and financial condition of Navigant.
POTENTIAL CONFLICTS OF INTEREST IN THE DISTRIBUTIONS
Navigant is currently a wholly-owned subsidiary of U.S. Office Products.
Navigant, U.S. Office Products and the other Spin-Off Companies are entering
into the Distribution Agreement, the Tax Allocation Agreement, and the Employee
Benefits Agreement, and the Spin-Off Companies are entering into the Tax
Indemnification Agreement. See "Arrangements Among U.S. Office Products,
Navigant and the Other Spin-Off Companies After the Distributions." These
agreements provide, among other things, for U.S. Office Products and Navigant to
indemnify each other from tax and other liabilities relating to their respective
businesses prior to and following the Distribution.
Certain indemnification obligations of Navigant and the other Spin-Off
Companies to U.S. Office Products are joint and several. Therefore, if one of
the other Spin-Off Companies fails to satisfy its indemnification obligations to
U.S. Office Products when such a loss occurs, Navigant may be required to
reimburse U.S. Office Products for all or a portion of the losses that otherwise
would have been allocated to such other Spin-Off Company. In addition, the
agreements will allocate certain liabilities, including general corporate and
securities liabilities of U.S. Office Products not specifically related to the
specific businesses to be conducted by the Spin-Off Companies and
post-Distribution U.S. Office Products, among U.S. Office Products and each of
the Spin-Off Companies. Adverse developments involving U.S. Office Products or
the other Spin-Off Companies, or material disputes with U.S. Office Products
following the Distribution, could have a material adverse effect on Navigant.
The terms of the agreements that will govern the relationship among
Navigant, U.S. Office Products and the other Spin-Off Companies were established
by U.S. Office Products in consultation with the management of Navigant and the
other Spin-Off Companies prior to the Distributions and while Navigant and the
other Spin-Off Companies were wholly-owned subsidiaries of U.S. Office Products.
The terms of these agreements, including the allocation of general corporate and
securities liabilities among U.S. Office Products, Navigant and the other
Spin-Off Companies, may not be the same as they would be if the agreements were
the result of arms'-length negotiations. In addition, the agreements must
contain certain terms specified in U.S. Office Products' agreement with CD&R
relating to the Equity Investment and must otherwise be reasonably acceptable to
CD&R. CD&R will not be a stockholder in any of the Spin-Off Companies and its
interests may be adverse to those of the Spin-Off Companies. See "Arrangements
Among U.S. Office Products, Navigant and the Other Spin-Off Companies After the
Distributions." Accordingly, there can be no assurance that the terms and
conditions of the agreements are not less favorable to Navigant than those that
might have been obtained from unaffiliated third parties.
10
<PAGE>
On the Distribution Date, Jonathan J. Ledecky, Chairman of the U.S. Office
Products Board of Directors, will receive options for shares of each of the
Spin-Off Companies exercisable for up to 7.5% of the common stock of each
Spin-Off Company. See "Management of Navigant--Director Compensation and Other
Arrangements." As a result, Mr. Ledecky has interests in the Distributions that
differ in certain respects from, and may conflict with, the interests of other
stockholders of U.S. Office Products and Navigant.
TAX MATTERS
Wilmer, Cutler & Pickering has delivered an opinion (the "Tax Opinion")
stating that for U.S. federal income tax purposes, the Distributions (including
the Travel Distribution) will qualify as tax-free spin-offs under Section 355 of
the Internal Revenue Code of 1986, as amended (the "Code") and will not be
taxable under Section 355(e) of the Code. The Tax Opinion is based on the
accuracy as of the time of the Distributions of factual representations made by
U.S. Office Products, the Spin-Off Companies and CD&R, and certain other
information, data, documentation and other materials as Wilmer, Cutler &
Pickering has deemed necessary. See "The Travel Distribution--U.S. Federal
Income Tax Consequences of the Travel Distribution."
The Tax Opinion represents Wilmer, Cutler & Pickering's best judgment of how
a court would rule. However, the opinion is not binding upon either the Internal
Revenue Service (the "IRS") or any court. A ruling has not been, and will not
be, sought from the IRS with respect to the U.S. federal income tax consequences
of the Travel Distribution. Accordingly, the IRS and/or a court could reach a
conclusion that differs from the conclusions in the Tax Opinion.
If the Travel Distribution fails to qualify under Section 355 as a tax-free
spin-off, each holder of U.S. Office Products Common Stock on the Record Date
will be treated as having received a taxable corporate distribution in an amount
equal to the fair market value (on the Distribution Date) of the Navigant Common
Stock distributed to such holder of U.S. Office Products Common Stock including
fractional shares. In addition, U.S. Office Products will recognize gain equal
to the difference between the fair market value of the Navigant Common Stock (on
the Distribution Date) and U.S. Office Products' adjusted tax basis in the
Navigant Common Stock (on the Distribution Date). If U.S. Office Products were
to recognize gain on the Travel Distribution, such gain would likely be
substantial.
If the Travel Distribution is taxable under Section 355(e), but otherwise
satisfies the requirements for a tax-free spin-off, U.S. Office Products will
recognize gain equal to the difference between the fair market value of the
Navigant Common Stock (on the Distribution Date) and U.S. Office Products'
adjusted tax basis in the Navigant Common Stock (on the Distribution Date).
However, no gain or loss will be recognized by holders of U.S. Office Products
Common Stock (except with respect to cash received in lieu of fractional
shares). If U.S. Office Products were to recognize gain on the Travel
Distribution, such gain would likely be substantial.
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS
In connection with the Distributions, U.S. Office Products is entering into
a tax allocation agreement with Navigant and the other Spin-Off Companies (the
"Tax Allocation Agreement"), which provides that the Spin-Off Companies will
jointly and severally indemnify U.S. Office Products for any losses associated
with taxes related to the Distributions ("Distribution Taxes") if an action or
omission (an "Adverse Tax Act") of any of the Spin-Off Companies materially
contributes to a final determination that any or all of the Distributions are
taxable. Navigant is also entering into a tax indemnification agreement with the
other Spin-Off Companies (the "Tax Indemnification Agreement") under which the
Spin-Off Company that is responsible for the Adverse Tax Act will indemnify the
other Spin-Off Companies for any liability to indemnify U.S. Office Products
under the Tax Allocation Agreement. As a consequence, Navigant will be liable
for any Distribution Taxes resulting from any Adverse Tax Act by Navigant and
liable (subject to
11
<PAGE>
indemnification by the other Spin-Off Companies) for any Distribution Taxes
resulting from an Adverse Tax Act by the other Spin-Off Companies. If there is a
final determination that any or all of the Distributions are taxable and it is
determined that there has not been an Adverse Tax Act by either U.S. Office
Products or any of the Spin-Off Companies, U.S. Office Products and each of the
Spin-Off Companies will be liable for its pro rata portion of the Distribution
Taxes based on the value of each company's common stock after the Distributions.
As a result, Navigant could become liable for a pro rata portion of any
Distribution Taxes with respect not only to the Travel Distribution, but also
any of the other Distributions. See "Arrangements Among U.S. Office Products,
Navigant and the Other Spin-Off Companies After the Distributions--Tax
Allocation Agreement and Tax Indemnification Agreement" for a detailed
discussion of the Tax Allocation Agreement and the Tax Indemnification
Agreement.
RISKS RELATED TO ALLOCATION OF CERTAIN LIABILITIES
Under the Distribution Agreement, Navigant will be liable for (i) any
liabilities arising out of or in connection with the business conducted by it or
its subsidiaries, (ii) its liabilities under the Employee Benefits Agreement,
Tax Allocation Agreement and related agreements described under "Arrangements
Among U.S. Office Products, Navigant and the Other Spin-Off Companies After the
Distributions", (iii) the U.S. Office Products debt that has been allocated to
Navigant (see "Arrangements Among U.S. Office Products, Navigant and the Other
Spin-Off Companies After the Distributions--Distribution Agreement--Debt"), (iv)
liabilities under the securities laws relating to the Prospectus related to the
Offering and portions of this Information Statement/Prospectus, as well as other
securities law liabilities related to the Navigant business that arise from
information supplied to U.S. Office Products (or that should have been supplied,
but was not) by Navigant, (v) U.S. Office Products' liabilities for earn-outs
from acquisitions in respect of Navigant and its subsidiaries, (vi) Navigant's
costs and expenses related to the Offering and its bank financing, and (vii)
$1.0 million of the transaction costs (including legal, accounting, investment
banking and financial advisory) and other fees incurred by U.S. Office Products
in connection with its Strategic Restructuring Plan. Each of the other Spin-Off
Companies will be similarly obligated to U.S. Office Products. Navigant and the
other Spin-Off Companies have also agreed to bear a pro rata portion of U.S.
Office Products' liabilities under the securities laws (other than claims
relating solely to a specific Spin-Off Company or relating specifically to the
continuing businesses of U.S. Office Products) and U.S. Office Products' general
corporate liabilities (other than debt, except for that specifically allocated
to the Spin-Off Companies) incurred prior to the Distribution Date (I.E.,
liabilities not related to the conduct of a particular distributed or retained
subsidiary's business) (the "Shared Liabilities"). If one of the Spin-Off
Companies defaults on an obligation owed to U.S. Office Products, the
non-defaulting Spin-Off Companies will be obligated on a pro rata basis to pay
such obligation ("Default Liability"). As a result of the Shared Liabilities and
Default Liability, Navigant could be obligated to U.S. Office Products in
respect of obligations and liabilities not related to its business or operations
and over which neither it nor its management has or has had any control or
responsibility. The aggregate of the Shared Liabilities and Default Liability
for which any Spin-Off Company may be liable is, however, limited to $1.75
million. See "--Potential Liability for Taxes Related to the Distributions" and
"Arrangements Among U.S. Office Products, Navigant and the Other Spin-Off
Companies After the Distributions." The Company's pro rata share of Shared
Liabilities and Default Liability is described below in "Arrangements Among U.S.
Office Products, Navigant and the Other Spin-Off Companies After the
Distributions--The Distribution Agreement--Liabilities."
DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH
One of Navigant's strategies is to increase its revenues and the markets it
serves through the acquisition of additional corporate travel businesses. There
can be no assurance that suitable candidates for acquisitions can be identified
or, if suitable candidates are identified, that acquisitions can be completed on
acceptable terms. See "--Risk Related to Acquisition Financing; Additional
Dilution." In addition, prior to the Travel Distribution, Navigant's
acquisitions were completed with substantial business,
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<PAGE>
legal and accounting assistance from U.S. Office Products, and most of the
acquisitions were paid for with U.S. Office Products Common Stock. Furthermore,
Navigant's ability to pay for acquisitions with stock may be materially limited
in the two-year period following the Travel Distribution. See "--Possible
Limitations on Issuances of Common Stock." The pace of Navigant's acquisition
program may be adversely affected by the absence of U.S. Office Products support
for the acquisitions and Navigant's limited ability to issue Navigant Common
Stock.
Navigant's acquisition of corporate travel businesses outside the United
States may subject it to certain risks inherent in conducting business
internationally, including fluctuations in currency exchange rates. Changes in
exchange rates could have a significant effect on Navigant's business, financial
condition and results of operations.
POSSIBLE LIMITATIONS ON ISSUANCES OF COMMON STOCK
Section 355(e) of the Code, which was added in 1997, generally provides that
a company that distributes shares of a subsidiary in a spin-off that is
otherwise tax-free will incur U.S. federal income tax liability if 50% or more,
by vote or value, of the capital stock of either the company making the
distribution or the spun-off subsidiary is acquired by one or more persons
acting pursuant to a plan or series of related transactions that includes the
spin-off. Stock acquired by certain related persons is aggregated in determining
whether the 50% test is met. There is a presumption that any acquisition
occurring two years before or after the spin-off is pursuant to a plan that
includes the spin-off. However, the presumption may be rebutted by establishing
that the spin-off and such acquisition are not part of a plan or series of
related transactions. As a result of the provisions of Section 355(e), there can
be no assurance that issuances of stock by Navigant, including issuances in
connection with an acquisition of another business by Navigant, will not create
a tax liability for U.S. Office Products.
Navigant is entering into a Tax Allocation Agreement and a Tax
Indemnification Agreement pursuant to which Navigant will be liable to U.S.
Office Products and the other Spin-Off Companies if its actions or omissions
materially contribute to a final determination that the Travel Distribution is
taxable. See "Arrangements among U.S. Office Products, Navigant and the other
Spin-Off Companies after the Distribution--Tax Allocation Agreement and Tax
Indemnification Agreement."
This limitation could adversely affect the pace of Navigant's acquisitions
and its ability to issue Navigant Common Stock for other purposes, including
equity offerings.
RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION
Navigant currently intends to finance its future acquisitions by using
shares of Navigant Common Stock, cash, borrowed funds or a combination thereof.
If Navigant Common Stock does not maintain a sufficient market value, if the
price of Navigant Common Stock is highly volatile or if potential acquisition
candidates are otherwise unwilling to accept Navigant Common Stock as part of
the consideration for the sale of their businesses, Navigant may be required to
use more of its cash resources or more borrowed funds, in order to initiate and
maintain its acquisition program. See "--Possible Limitations on Issuances of
Common Stock." If Navigant does not have sufficient cash resources, its growth
could be limited unless it is able to obtain additional capital through debt or
equity financings. Prior to the Travel Distribution, Navigant was not
responsible for obtaining external sources of funding. There can be no assurance
that Navigant, as a stand alone company, will be able to obtain such financing
if and when it is needed or that any such financing will be available on terms
it deems acceptable.
Navigant will have 150,000,000 authorized shares of Navigant Common Stock, a
portion of which could be available (subject to the rules and regulations of
federal and state securities laws, applicable limits under U.S. federal income
tax laws and rules, and rules of the Nasdaq Stock Market) to finance
acquisitions without obtaining stockholder approval for such issuance. See
"--Possible Limitations on Issuances of Common Stock." Existing stockholders may
suffer dilution if Navigant uses Navigant
13
<PAGE>
Common Stock as consideration for future acquisitions. Moreover, the issuance of
additional shares of Navigant Common Stock may negatively impact earnings per
share and the market price of Navigant Common Stock.
RELIANCE ON KEY PERSONNEL
Navigant's operations depend on the continued efforts of Edward S. Adams,
its President and Chief Executive Officer, Robert C. Griffith, its Chief
Financial Officer and Treasurer, its other executive officers and the senior
management of its subsidiaries. Furthermore, Navigant's operations will likely
depend on the senior management of the companies that may be acquired in the
future. If any of these people becomes unable to continue in his or her present
role, or if Navigant is unable to attract and retain other skilled employees,
its business could be adversely affected. In addition, Jonathan J. Ledecky will
serve as a director and employee of Navigant and is expected to provide services
to Navigant after the Travel Distribution pursuant to an expected employment
agreement with Navigant and an agreement entered into between Mr. Ledecky and
U.S. Office Products, which provides that Navigant and the other Spin-Off
Companies will succeed to certain rights of, and obligations under, such
agreement following the Distribution. See "Management of Navigant--Ledecky
Services Agreement." Mr. Ledecky will also serve as a director of each of the
other Spin-Off Companies, and is the director or an officer of two other public
companies. Mr. Ledecky may be unable to devote substantial time to the
activities of Navigant.
ABSENCE OF PUBLIC MARKET
Prior to the Travel Distribution and the Offering there will be no public
market for Navigant Common Stock. The initial public offering price of Navigant
Common Stock in the Offering will be determined through negotiations among
Navigant and the underwriters of the Offering and may not be indicative of the
market price for Navigant Common Stock after the Offering and the Travel
Distribution. The trading price of the Navigant Common Stock also could be
subject to wide fluctuations in response to variations in Navigant's quarterly
operating results, changes in earnings estimates by analysts, conditions in
Navigant's businesses, general market or economic conditions or other factors.
In addition, in recent years the stock market has experienced extreme price and
volume fluctuations. These fluctuations have had a substantial effect on the
market prices for many companies, often unrelated to the operating performance
of the specific companies. Such market fluctuations could have a material
adverse effect on the market price of Navigant Common Stock. See "--Potential
Volatility of Stock Price and Other Risks Associated With Shares Eligible for
Future Sale."
MATERIAL AMOUNT OF GOODWILL
On a pro forma basis as of January 24, 1998, approximately $87.6 million, or
65.2%, of Navigant's pro forma total assets and 94.9% of Navigant's pro forma
stockholders' equity represent intangible assets, the significant majority of
which is goodwill. Goodwill represents the excess of cost over the fair market
value of net assets acquired in business combinations accounted for under the
purchase method. Navigant amortizes goodwill on a straight line method over a
period of 35 years with the amount amortized in a particular period constituting
a non-cash expense that reduces Navigant's net income. Amortization of goodwill
resulting from certain past acquisitions, and additional goodwill recorded in
certain future acquisitions may not be deductible for tax purposes. In addition,
Navigant will be required periodically to evaluate the recoverability of
goodwill by reviewing the anticipated undiscounted future cash flows from the
operations of the acquired companies and comparing such cash flows to the
carrying value of the associated goodwill. If management determines that
goodwill has become impaired in later years, earnings in such years will be
significantly adversely affected. A reduction in net income resulting from the
amortization or write down of goodwill would currently affect financial results
and could have a material and adverse impact upon the market price of Navigant
Common Stock. Navigant believes that anticipated cash flows associated with
intangible assets recognized in the acquisitions completed during the nine
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<PAGE>
months ended January 24, 1998 will continue over the period during which the
associated goodwill will be amortized, and there is no persuasive evidence that
any material portion will dissipate during such period.
RISKS RELATED TO INABILITY TO USE POOLING-OF-INTERESTS METHOD TO ACCOUNT FOR
FUTURE ACQUISITIONS
Generally accepted accounting principles require that an entity be
autonomous for a period of two years before it is eligible to complete business
combinations under the pooling-of-interests method. Navigant will be unable to
satisfy this criterion for a period of two years following the Travel
Distribution. Therefore, Navigant will be precluded from completing business
combinations under the pooling-of-interests method for a period of two years,
and any business combinations completed by Navigant during such period will be
accounted for under the purchase method resulting in the recording of goodwill.
The amortization of the goodwill will reduce net income reported by the Company
below that which would have been reported if the pooling-of-interests method had
been used by the Company. See "--Material Amount of Goodwill."
SEASONALITY AND QUARTERLY FLUCTUATIONS
The domestic and international travel industry is extremely seasonal. The
results of Navigant have fluctuated because of seasonal variations in the travel
industry. Net revenues and net income for Navigant are generally higher in the
second and third calendar quarters. Navigant expects this seasonality to
continue in the future. Navigant's quarterly results of operations may also be
subject to fluctuations as a result of the timing and cost of acquisitions, fare
wars by travel suppliers, changes in relationships with certain travel
suppliers, changes in the mix of services offered by Navigant, the timing of the
payment of incentive override commissions by travel suppliers, extreme weather
conditions or other factors affecting travel. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Navigant--Fluctuations in Quarterly Results of Operations."
DEPENDENCE ON ARC AGREEMENTS
Navigant depends on the ability to sell airline tickets for a substantial
portion of its revenue. To sell airline tickets, Navigant must enter into, and
maintain, an Agent Reporting Agreement with the Airlines Reporting Company
("ARC"). The Agent Reporting Agreement imposes numerous financial, operational,
and administrative obligations on Navigant. The agreement allows ARC to cancel
an Agent Reporting Agreement for failure to meet any of these obligations. If
Navigant's Agent Reporting Agreement is cancelled by ARC, Navigant would be
unable to sell airline tickets and its results of operations would be materially
adversely affected.
NO DIVIDENDS
Navigant does not expect to pay cash dividends on Navigant Common Stock in
the foreseeable future. The decision whether to apply legally available funds to
the payment of dividends on Navigant Common Stock will be made by the Board of
Directors of Navigant (the "Board of Directors") from time to time in the
exercise of its business judgment, taking into account, among other things,
Navigant's results of operations and financial condition, any then existing or
proposed commitments by Navigant for the use of available funds, and Navigant's
obligations with respect to the holders of any then outstanding indebtedness or
preferred stock. As a result of the allocation of debt to Navigant in the Travel
Distribution, immediately after the Travel Distribution, Navigant's retained
earnings will be zero, which could limit funds available for payment of
dividends. Furthermore, Navigant's ability to pay dividends may be restricted
from time to time by financial covenants in its credit agreements. See "Dividend
Policy."
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<PAGE>
THE TRAVEL DISTRIBUTION
GENERAL
Each holder of shares of U.S. Office Products Common Stock of record as of 5
p.m. EDT on June 9, 1998 (the "Record Date"), will receive one share of Navigant
Common Stock for every ten shares of U.S. Office Products Common Stock held on
the Record Date. Navigant Common Stock will be distributed on behalf of U.S.
Office Products by American Stock Transfer & Trust Company as the Distribution
Agent. No certificates or scrip representing fractional shares of Navigant
Common Stock will be issued. Fractional share interests will be aggregated and
sold by the Distribution Agent at such time or times as it shall determine in
open market transactions effected through broker-dealers selected by it. The
cash proceeds will be distributed to those stockholders entitled to a fractional
interest with the distribution of payment for the tendered shares or as soon
thereafter as practicable. Certificates representing shares of Navigant Common
Stock are expected to be distributed on the Mailing Date.
Navigant is a newly formed subsidiary of U.S. Office Products that holds
substantially all of the businesses and assets of, and will be responsible for
substantially all of the liabilities associated with, U.S. Office Products'
Corporate Travel Services Division. See "Arrangements Among U.S. Office
Products, Navigant and the Other Spin-Off Companies After the
Distributions--Distribution Agreement." Navigant includes the businesses of the
following wholly-owned subsidiaries of U.S. Office Products: Professional Travel
Corporation; Mutual Travel; Travel Arrangements, Inc. and St. Pierre Enterprises
(Supertravel); Simmons Associates, Inc.; Associated Travel; Evans Travel Group;
Atlas Travel Services; Omni Travel; Travel Consultants, Inc.; McGregor Travel
Management; Wareheim Travel Services (Travel Guide); and TravelCorp, Inc.
Immediately prior to the Travel Distribution, U.S. Office Products will hold all
the issued and outstanding shares of Navigant Common Stock. Approximately
10,968,951 shares of Navigant Common Stock will be distributed to stockholders
of U.S. Office Products in the Travel Distribution.
THE STRATEGIC RESTRUCTURING PLAN
The Travel Distribution is part of the Strategic Restructuring Plan. The
principal elements of the Strategic Restructuring Plan are:
- Pursuant to the Tender Offer, U.S. Office Products is purchasing
37,037,037 shares of U.S. Office Products Common Stock (including shares
that may be issued upon exercise of vested and unvested options for U.S.
Office Products Common Stock) at a price of $27.00 per share (or in the
case of shares underlying stock options, at $27.00 minus the exercise
price of the options) and is incurring additional indebtedness to pay a
substantial portion of the purchase price for these shares.
- Pursuant to the Distributions, U.S. Office Products is distributing the
shares of the Spin-Off Companies to U.S. Office Products' stockholders
based on the shares of U.S. Office Products Common Stock outstanding after
acceptance of shares in the Tender Offer. Each U.S. Office Products
Company stockholder will receive such stockholder's pro rata share of the
stock of each Spin-Off Company.
- Following the Record Date, CD&R will make the Equity Investment in U.S.
Office Products. CD&R will not acquire any interests in the Spin-Off
Companies.
Following completion of the Distributions, U.S. Office Products will retain
its North American Office Products Group (including its office supply, office
furniture, and office coffee and beverage services businesses), Mail Boxes,
Etc., its New Zealand and Australia operations, and its 49% interest in Dudley
Stationery Limited (a U.K. contract stationer). U.S. Office Products' print
management, technology solutions, educational supplies and corporate travel
services businesses will be operated by the Spin-Off Companies.
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<PAGE>
In conjunction with the Strategic Restructuring Plan, U.S. Office Products
is undertaking or plans to undertake the following Financing Transactions:
- Pursuant to the 2003 Note Tender, U.S. Office Products is repurchasing
$222.2 million principal amount of its 2003 Notes for a purchase price of
94.5% of the principal amount and accrued interest.
- Pursuant to the 2001 Note Offer, U.S. Office Products exchanged
approximately $131.0 million principal amount of its 2001 Notes for
8,100,741 shares of U.S. Office Products Common Stock at an exchange rate
of 61.483 shares per $1,000 principal amount, which effectively reduced
the conversion price on the 2001 Notes from $19.00 to $16.17 while the
offer was open.
- U.S. Office Products is entering into a new $1.225 billion senior credit
facility pursuant to an agreement dated the date of this Information
Statement/Prospectus.
- U.S. Office Products is issuing and selling $400.0 million in 9 3/4%
Senior Subordinated Notes in a private placement.
REASONS FOR THE DISTRIBUTIONS
The Board of Directors of U.S. Office Products has approved the Strategic
Restructuring Plan, including the Distributions. The U.S. Office Products Board
of Directors determined that separation of the businesses of the Spin-Off
Companies and the continuing business of U.S. Office Products as part of the
Strategic Restructuring Plan would have advantages for the Spin-Off Companies
and U.S. Office Products. The Distributions allow U.S. Office Products and the
Spin-Off Companies to adopt strategies and pursue objectives that are more
appropriate to their respective industries and geographic territories. After the
Distributions, U.S. Office Products will be focused on a more narrow group of
businesses that involve primarily the distribution of office products and
business services. Each of the Spin-Off Companies will be focused primarily on
their individual businesses.
The Distributions will allow the Spin-Off Companies to pursue independent
acquisition programs with a more focused use of resources and, where stock is
used as consideration, provide stock of a public company that is in the same
industry as the businesses being acquired. Before the Distributions, U.S. Office
Products acquired companies in, for example, the corporate travel services
business, using the U.S. Office Products Common Stock. Sellers were thus
required to accept stock in a business that included office products,
educational supplies, print management and technology solutions businesses.
Following the Travel Distribution, Navigant will be able to offer stock in its
own business, which will be substantially the same as the businesses Navigant
expects to acquire.
The Distributions will enable the financial community to evaluate U.S.
Office Products and the Spin-Off Companies as distinct businesses and compare
them more easily to industry peers. U.S. Office Products believes that this will
allow the financial community to better understand the businesses carried on by
U.S. Office Products and the Spin-Off Companies and more accurately value those
businesses.
The Distributions also will allow U.S. Office Products and the Spin-Off
Companies to offer their respective employees more focused incentive
compensation packages. The incentive compensation packages (which are expected
to consist primarily of stock options) will offer the officers and other key
employees of each Spin-Off Company equity interests in a company whose
performance is tied directly to the business for which they work. Navigant's
ability to issue stock options (as well as other equity) will be subject to
certain limitations in order to avoid triggering certain adverse federal income
tax consequences. See "--U.S. Federal Income Tax Consequences of the Travel
Distribution."
The Equity Investment is conditioned on completion of all of the
Distributions (as well as completion of the Tender Offer). U.S. Office Products'
Board of Directors recognized that U.S. Office Products was making a transition
from an acquisition-oriented company to a business more focused on growth
through improvement and expansion of existing operations. U.S. Office Products'
Board of Directors concluded that the investment by CD&R in U.S. Office
Products, and support of the management of U.S. Office Products by CD&R Inc.
would contribute to U.S. Office Products' development. CD&R Inc. has
17
<PAGE>
substantial experience in providing companies in which its affiliates invest
with financial and managerial advisory services aimed at building value and
improving operational, marketing and financial performance. CD&R Inc. is also
experienced in advising and assisting companies in managing high levels of debt.
OTHER ELEMENTS OF THE STRATEGIC RESTRUCTURING PLAN
TENDER OFFER. Pursuant to the Tender Offer, U.S. Office Products is
repurchasing 37,037,037 shares (including shares that may be issued on exercise
of vested and unvested stock options) of U.S. Office Products Common Stock at a
price of $27.00 per share (or, in the case of shares underlying stock options,
at $27.00 minus the exercise price of the options).
U.S. Office Products is financing the aggregate tender price through a
combination of a new senior credit facility for $1.225 billion (the "USOP Credit
Facility"), the net proceeds of the Equity Investment and issuance of $400.0
million of 9 3/4% senior subordinated debt securities in a private placement.
U.S. Office Products anticipates that the foregoing borrowings will increase its
outstanding debt by approximately $454.2 million. Approximately $377.4 million
was outstanding under the existing bank credit facility as of May 23, 1998. U.S.
Office Products has entered into a commitment for the USOP Credit Facility.
The Record Date for the Distributions is occurring after acceptance of
shares in the Tender Offer. Accordingly, U.S. Office Products stockholders who
tendered their shares of U.S. Office Products Common Stock in the Tender Offer
will not receive the Distributions to the extent their U.S. Office Products
shares have been accepted in the Tender Offer. Because the Tender Offer was for
37,037,037 shares of U.S. Office Products Common Stock (including shares that
may be issued upon exercise of vested and unvested options for U.S. Office
Products Common Stock) and 160.0 million shares were validly tendered in the
Tender Offer approximately 23.2% of the shares tendered by any U.S. Office
Products stockholder has been accepted. U.S. Office Products stockholders who
tendered their shares and do not otherwise dispose of shares that are not
accepted before the Distributions will therefore receive the Distributions with
respect to approximately 76.8% of their shares of U.S. Office Products Common
Stock.
EQUITY INVESTMENT. Pursuant to the Investment Agreement dated as of January
12, 1998, as amended, between U.S. Office Products and CD&R (the "Investment
Agreement"), U.S. Office Products will, following the Tender Offer and the
Distributions, issue and sell approximately 36,368,426 shares of U.S. Office
Products Common Stock and warrants to purchase additional shares of U.S. Office
Products Common Stock to CD&R (as described below) for a purchase price of
$270.0 million. As a result of the Equity Investment, CD&R will acquire (a)
shares of U.S. Office Products Common Stock representing 24.9% of the
outstanding shares of U.S. Office Products Common Stock after giving effect to
the issuance of such shares; (b) rights ("Special Warrants") to receive for
nominal consideration additional shares of U.S. Office Products Common Stock
equal to 24.9% (after giving effect to issuance of such additional shares upon
exercise of the Special Warrants) of the additional shares that are issuable
upon the conversion of certain outstanding convertible debentures of U.S. Office
Products and shares of U.S. Office Products Common Stock that are actually
issued pursuant to certain contingent rights under existing acquisition
agreements; and (c) warrants ("Common Stock Warrants") representing the right to
purchase one share of U.S. Office Products Common Stock for each share of U.S.
Office Products Common Stock purchased by CD&R at the date of the closing under
the Investment Agreement (the "Closing Date") and for each share of U.S. Office
Products Common Stock into which the Special Warrants become exercisable. The
Special Warrants are exercisable from and after the Closing Date until the 12th
anniversary thereof, subject to certain limitations, and the warrants described
in clause (c) above are exercisable from and after the second anniversary of the
Closing Date until such 12th anniversary. The aggregate exercise price of the
warrants described in clause (c) above is $405.0 million.
CD&R has contracted to purchase a 24.9% equity interest in U.S. Office
Products, including the shares issued to CD&R (the "Initial CD&R Acquisition").
CD&R's percentage ownership of U.S. Office Products will not increase or
decrease depending on the actual number of shares of U.S. Office Products Common
Stock outstanding on the closing date of the Initial CD&R Acquisition. The
Special Warrants will be issued to allow CD&R to maintain its 24.9% ownership
interest if (i) 2001 Notes that remained
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outstanding after the 2001 Note Offer were converted into U.S. Office Products
Common Stock at the conversion price in effect after adjusting for the Tender
Offer and Distributions, or (ii) additional shares are issued under contracts
for acquisitions completed by U.S. Office Products.
Assuming (i) exercise of options outstanding after the Tender Offer and (ii)
all 2003 Notes that remain outstanding following the 2003 Note Tender were
converted in accordance with their existing terms, in each case without any
adjustment for the restructuring transactions and (a) exercise of the Special
Warrants in full, and (b) exercise of the Common Stock Warrants in full, CD&R
could own approximately 37.0% of outstanding U.S. Office Products Common Stock
on a fully-diluted basis. U.S. Office Products expects to make adjustments to
the number and exercise price of outstanding options and to the conversion price
of 2001 Notes and 2003 Notes remaining after the 2001 Note Offer and the 2003
Note Tender, on account of the restructuring transactions, and these adjustments
will result in a greater number of shares that may be issued upon exercise of
the options and conversion of the notes. Although the amount of these
adjustments will not be known until after the completion of the Strategic
Restructuring Plan, the effect of these reductions will be to reduce CD&R's
fully-diluted ownership interest in U.S. Office Products from the amounts set
forth above. If no currently exercisable outstanding options are exercised,
exercises of the Special Warrants and Common Stock Warrants could give CD&R
approximately 39.9% of outstanding U.S. Office Products Common Stock after
implementation of the Strategic Restructuring Plan. Because the Record Date for
the Distributions is before the closing of the Equity Investment, CD&R will not
receive any shares of the Spin-Off Companies in the Distributions.
Prior to the closing of the Initial CD&R Acquisition, the Board of Directors
of U.S. Office Products will consist of nine persons, including the chief
executive officer of U.S. Office Products, three designees of CD&R, three
designees of the U.S. Office Products' Board and two persons who are
satisfactory to both CD&R and the U.S. Office Products' Board. After the closing
of the Initial CD&R Acquisition, the existing members of the U.S. Office
Products Board will have the right to nominate six directors, which will include
the chief executive officer. CD&R will have the right to nominate three
directors. So long as CD&R has the right to nominate two or more directors, one
of CD&R's nominees will serve as Chairman of the Board. CD&R can nominate one
additional person to the U.S. Office Products' Board, if the directors of U.S.
Office Products do not nominate its chief executive officer to the Board.
In addition, 75% of the directors of U.S. Office Products must approve the
following transactions: (i) the sale by U.S. Office Products of equity
securities, other than (A) a specified amount made available under employee
benefit plans, such as option plans, or (B) a specified amount issued to acquire
companies or issued in public offerings; (ii) any merger, tender offer involving
U.S. Office Products' equity securities or sale, lease or disposition of all or
substantially all of U.S. Office Products assets or other business combination
involving U.S. Office Products, unless the consideration for such sale is all
cash or is freely tradeable common stock of a public company with a specified
level of market capitalization; (iii) any major recapitalization; (iv) certain
amendments to stockholder rights plans; (v) any dissolution or partial
liquidation of U.S. Office Products; or (vi) any modification to U.S. Office
Products' organization documents or by-laws that is inconsistent with CD&R's
rights under the Investment Agreement or any other agreements between U.S.
Office Products and CD&R. The effect of this provision is that as long as CD&R
can nominate three directors, at least one of them must vote in favor of any of
the above actions for it to be approved.
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This table shows CD&R's rights with respect to the nomination of directors
and how they will change if CD&R disposes of equity securities of U.S. Office
Products. This table also shows the conditions under which the 75%
super-majority voting requirement will apply:
<TABLE>
<CAPTION>
NUMBER OF DIRECTORS
PERCENTAGE OF SHARES OF U.S. CD&R IS ENTITLED TO RIGHT TO 75% BOARD
OFFICE PRODUCTS VOTING STOCK NOMINATE (OUT OF DESIGNATE APPROVAL
RETAINED BY CD&R(1)(2) NINE)(3)(4) CHAIRMAN FOR CERTAIN TRANSACTIONS(2)
- ----------------------------------------------- --------------------------- ------------- -----------------------------
<S> <C> <C> <C>
66 2/3% to 100%................................ Three Yes Yes
33 1/3% to 66 2/3%............................. Two Yes Yes
Less than 33 1/3% (but CD&R holds at least 5%
of the then outstanding U.S. Office Products
voting stock)................................ One No No
Less than 5% of the then outstanding U.S.
Office Products voting stock................. None No No
</TABLE>
- ------------------------
(1) Includes shares CD&R can acquire by exercising the Special Warrants.
(2) All of CD&R's corporate governance rights will expire on the earlier of the
fifth anniversary of the closing of the Initial CD&R Acquisition or if CD&R
ever acquires more than 50% of the voting power represented by U.S. Office
Products' then outstanding voting securities.
(3) CD&R can approve one additional nominee if the Chief Executive Officer of
U.S. Office Products is not a member of the Board or is not a Board nominee.
(4) The size of the Board can be increased up to a total of 12 members, in which
case the number of directors that CD&R has the right to nominate will
increase proportionately.
CD&R's obligation to consummate the Equity Investment is subject to the
satisfaction or waiver of various conditions. These include, among others: (i)
accuracy of U.S. Office Products' representations and warranties and compliance
by U.S. Office Products with its obligations under the Investment Agreement;
(ii) receipt of necessary antitrust and other regulatory clearance; (iii)
absence of material litigation; (iv) U.S. Office Products stockholder approval
of issuance of shares in the Equity Investment; (v) consummation of the
Distributions in accordance with a Distribution Agreement containing certain
terms specified in the Investment Agreement and otherwise as reasonably approved
by CD&R; (vi) execution and delivery of the Tax Allocation Agreement containing
certain terms specified in the Investment Agreement and otherwise as reasonably
approved by CD&R; (vii) execution of documents relating to financing for the
Tender Offer satisfactory in form and substance to CD&R; (viii) consummation of
the Tender Offer; (ix) execution of a consulting agreement with CD&R Inc.
providing for payment of an annual consulting fee of $500,000 and a registration
rights agreement with CD&R; (x) absence of any development since October 25,
1997 that would have a material adverse effect on U.S. Office Products after
giving effect to the Distributions; (xi) no person or group (other than CD&R)
acquiring beneficial ownership of 15% or more of the U.S. Office Products Common
Stock and no person or group (other than CD&R or its affiliates) having entered
into an agreement with U.S. Office Products with respect to a tender or exchange
offer for any shares of U.S. Office Products Common Stock, or a merger,
consolidation or other business combination with or involving U.S. Office
Products; and (xii) U.S. Office Products' existing debt immediately following
completion of the transactions contemplated by the Strategic Restructuring Plan
not exceeding $1.4 billion (assuming conversion of certain convertible debt) and
the outstanding debt of the Spin-Off Companies being at least $130.0 million
plus expenditures by such entities for acquisitions after the date of the
Investment Agreement. See "Arrangements Among U.S. Office Products, Navigant and
the Other Spin-Off Companies After the Distributions--Distribution Agreement"
and "--Tax Allocation Agreement." If U.S. Office Products does not proceed with
the Distributions, or if the Equity Investment does not occur for certain other
reasons, CD&R can terminate the Investment Agreement and CD&R, Inc. would
receive a termination fee of $25.0 million plus CD&R's reasonable fees and
expenses. If the Equity Investment is completed, CD&R Inc. will receive a
transaction fee of $15.0 million and CD&R will receive reimbursement for
expenses it incurs in connection with the transaction. For additional
information concerning the Equity Investment, investors should refer to U.S.
Office Products' Proxy Statement for its special meeting of stockholders held to
consider the issuance of shares in the Equity Investment. See "Additional
Information."
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RELATED TRANSACTIONS. Jonathan J. Ledecky, the founder, Chairman of the
Board and former Chief Executive Officer of U.S. Office Products, will resign as
Chairman of the Board of U.S. Office Products when the Distributions are
completed. The U.S. Office Products' Board of Directors and Mr. Ledecky
concluded that it was important to the achievement of the objectives of the
Strategic Restructuring Plan that the Spin-Off Companies obtain the benefit of
Mr. Ledecky's skills and experience. Accordingly, U.S. Office Products entered
into a services agreement with Mr. Ledecky (the "Ledecky Services Agreement").
It is expected that Navigant will enter into an employment agreement with Mr.
Ledecky to implement its assigned portion of the Ledecky Services Agreement. The
Ledecky Services Agreement provides for non-competition and non-solicitation
restrictions that will continue for four years after the Travel Distribution has
been completed. U.S. Office Products is permitted to (and will) assign to
Navigant the ability to enforce the non-competition provisions described above
as to its own business, which will then constitute part of Mr. Ledecky's
employment agreement with Navigant. Mr. Ledecky will receive options to purchase
up to 7.5% of the outstanding common stock of each Spin-Off Company as of the
Distribution Date, without regard to the Offering. For additional information on
the terms of the Ledecky Services Agreement and options to be granted by
Navigant to Mr. Ledecky, see "Management of Navigant-- Ledecky Services
Agreement."
On March 6, 1998, Navigant filed a Registration Statement with the
Commission for the issuance of shares of Navigant Common Stock in the Offering.
The Offering is expected to be for 2,000,000 shares (plus 300,000 shares subject
to the underwriters' option to purchase shares to cover over-allotments). A
preliminary prospectus dated May 18, 1998 estimated that the initial public
offering price will be between $11.00 and $13.00 per share. Navigant expects
that the initial public offering price in the Offering will be determined after
the close of markets on the date of this Information Statement/Prospectus. There
can be no assurance that the initial public offering price will be set at that
time, that the price will be within the range set forth in the preliminary
prospectus, or that the Offering will be completed. Information regarding the
initial public offering price, and "as adjusted" pro forma financial statements
based on that price, will be set forth in the final prospectus related to the
Offering, which will be publicly available within two business days after the
price is determined. See "Additional Information."
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TRAVEL DISTRIBUTION
Wilmer, Cutler & Pickering has delivered an opinion (the "Tax Opinion") on
the material U.S. federal income tax consequences of the Travel Distribution to
U.S. Office Products and holders of U.S. Office Products Common Stock on the
Record Date. The Tax Opinion is based on the Code, and regulations, rulings, and
judicial decisions as of the date thereof, all of which may be repealed,
revoked, or modified so as to result in U.S. federal income tax consequences
different from those described below. Such changes could be applied
retroactively in a manner that could adversely affect a holder of U.S. Office
Products Common Stock. In addition, the authorities on which the Tax Opinion is
based are subject to various interpretations. It is therefore possible that the
U.S. federal income tax treatment of the Travel Distribution and of the holding
and disposition of the Navigant Common Stock may differ from the treatment
described below.
The Tax Opinion applies only to holders of U.S. Office Products Common Stock
who are U.S. persons and who hold U.S. Office Products Common Stock as a capital
asset (generally, property held for investment) within the meaning of Section
1221 of the Code. A U.S. person is the beneficial owner of U.S. Office Products
Common Stock that is (i) for U.S. federal income tax purposes a citizen or
resident of the United States (including certain former citizens and former
long-term residents), (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate the income of which is subject to U.S.
federal income taxation regardless of its source or (iv) a trust with respect to
the administration of which a court within the United States is able to exercise
primary supervision and one or more U.S. persons have the authority to control
all substantial decisions of the trust. The Tax Opinion does not address tax
considerations applicable to a holder of U.S. Office Products Common Stock's
particular circumstances or to a holder that may be
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subject to special tax rules (such as holders subject to the alternative minimum
tax) or others with special situations, such as those of dealers in securities
or currencies, financial institutions, insurance companies, persons holding U.S.
Office Products Common Stock as part of a hedging or conversion transaction or a
straddle, persons whose "functional currency" is not the U.S. dollar, and
certain U.S. expatriates.
The Tax Opinion does not address all aspects of U.S. federal income taxation
that may be relevant to holders of U.S. Office Products Common Stock in light of
their particular circumstances, nor will it address any tax consequences arising
under the laws of any state, local, or foreign taxing jurisdiction. Holders of
U.S. Office Products Common Stock should consult their tax advisors about the
particular U.S. federal income tax consequences to them of the Travel
Distribution, or the holding and disposition of the Navigant Common Stock, as
well as any tax consequences arising under the laws of any state, local, or
foreign taxing jurisdiction.
EFFECT ON U.S. OFFICE PRODUCTS AND HOLDERS OF U.S. OFFICE PRODUCTS COMMON
STOCK. Subject to the foregoing, the Tax Opinion states Wilmer Cutler &
Pickering's opinion that for U.S. federal income tax purposes the Distributions
(including the Travel Distribution) will qualify as tax-free spin-offs under
Section 355 of the Code, and will not be taxable under Section 355(e) of the
Code. The Tax Opinion is based on the accuracy as of the time of the
Distributions of factual representations made by U.S. Office Products, Navigant,
the Spin-Off Companies and CD&R and certain other information, data,
documentation and other materials that Wilmer, Cutler & Pickering has deemed
necessary.
The Tax Opinion represents Wilmer, Cutler & Pickering's best judgment of how
a court would rule. However, the Tax Opinion is not binding upon either the IRS
or any court. A ruling has not been, and will not be, sought from the IRS with
respect to the U.S. federal income tax consequences of the Travel Distribution.
Assuming the Travel Distribution qualifies as a tax-free spin-off under
Section 355 and is not taxable under to Section 355(e):
1. No gain or loss will be recognized by holders of U.S. Office Products
Common Stock as a result of their receipt of Navigant Common Stock in the Travel
Distribution. Holders of U.S. Office Products Common Stock will recognize gain
or loss on the receipt of cash in lieu of fractional shares (as discussed
below).
2. No gain or loss will be recognized by U.S. Office Products as a result of
the Travel Distribution.
3. A stockholder's tax basis in such stockholder's U.S. Office Products
Common Stock immediately before the Travel Distribution will be allocated among
the U.S. Office Products Common Stock and the Spin-Off Companies' common stock
(including any fractional shares) received with respect to such U.S. Office
Products Common Stock in proportion to their relative fair market values on the
Distribution Date. Such allocation must be calculated separately for each block
of U.S. Office Products Common Stock (shares purchased at the same time and at
the same cost) with respect to which the Spin-Off Companies' common stock is
received.
4. The holding period of the Navigant Common Stock (including any fractional
shares) received in the Travel Distribution will include the holding period of
the U.S. Office Products Common Stock with respect to which it was distributed.
Treasury regulations governing Section 355 require that each holder of U.S.
Office Products Common Stock who receives shares of Navigant Common Stock
pursuant to the Travel Distribution attach a statement to the U.S. federal
income tax return that will be filed by such stockholder for the taxable year in
which the stockholder receives Navigant Common Stock in the Travel Distribution.
The regulations require that the statement show the applicability of Section 355
to the Travel Distribution. U.S. Office Products will provide each U.S. Office
Products stockholder of record on the Record Date with information necessary to
comply with this requirement.
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CONSEQUENCES OF FAILURE TO QUALIFY AS A TAX-FREE DISTRIBUTION. As noted
above the Tax Opinion is not binding on the IRS or the courts. Holders of U.S.
Office Products Common Stock should be aware that the requirements of Section
355 pertaining to business purpose active trade or business, and absence of a
device for distribution of earnings and profits, as well as the requirements of
Section 355(e) pertaining to a plan or series of related transactions to acquire
50% or more by vote or value of a company, are highly dependent on factual
interpretations, are to a significant extent subjective in nature, and have a
relative absence of authority addressing their application to the particular
facts presented by the Travel Distribution. Accordingly, the IRS and/or a court
could reach a conclusion that differs from the conclusions in the Tax Opinion.
BUSINESS PURPOSE. In order for the Travel Distribution to qualify as a
tax-free spin-off under Section 355, it must be motivated, in whole or
substantial part, by one or more valid business purposes. U.S. Office Products
has represented that the Travel Distribution was motivated, in whole or
substantial part, to allow U.S. Office Products and Navigant to adopt strategies
and pursue objectives that are more appropriate to their respective industries
and stages of growth; to allow Navigant to pursue an independent acquisition
program with a more focused use of resources and, where stock is used as
consideration, to allow Navigant to provide stock of a public company that is in
the same industry as the business being acquired; to allow U.S. Office Products
and Navigant to offer their respective employees more focused compensation
packages; and to make possible the Equity Investment which the Board of
Directors of U.S. Office Products concluded would contribute to U.S. Office
Products' development, based on the skills and experience of CD&R, Inc. Based on
these representations and certain other information, data, documentation, and
other materials, Wilmer, Cutler & Pickering has delivered an opinion that the
Travel Distribution satisfies the business purpose requirement of Section 355.
However, although similar rationales have been accepted by the IRS in other
circumstances as sufficient to meet the business purpose requirement of Section
355, there can be no assurances that the IRS will not assert that the business
purpose requirement is not satisfied.
ACTIVE TRADE OR BUSINESS. In order for the Travel Distribution to qualify
as a tax-free spin-off under Section 355, substantially all of the assets of
Navigant must consist of the stock of Professional Travel Corporation ("PTC")
and PTC and U.S. Office Products must be engaged in an active trade or business
that has been actively conducted for the five-year period preceding the Travel
Distribution, taking into account only businesses that have been acquired in
transactions in which no gain or loss was recognized. Whether current and
historical business activity constitutes an active trade or business, and
whether any gain or loss should have been recognized in an acquisition
structured and reported as a nontaxable transaction, turn in some instances on
the application of subjective legal standards and on factual determinations,
such as intentions of the parties involved. Based on the representations of U.S.
Office Products and Navigant, Wilmer, Cutler & Pickering has delivered an
opinion that the Travel Distribution satisfies the active trade or business
requirement. However, because of the inherently subjective nature of important
elements of the active trade or business requirement, and because the IRS may
challenge the representations upon which Wilmer, Cutler & Pickering relies,
there can be no assurance that the IRS will not assert that the active trade or
business requirement is not satisfied.
ABSENCE OF A DEVICE FOR DISTRIBUTION OF EARNINGS AND PROFITS. The Travel
Distribution will not qualify as a tax-free spin-off under Section 355 if the
Travel Distribution was used principally as a device for the distribution of the
earnings and profits of U.S. Office Products or Navigant. Treasury regulations
provide that this test is applied based on all the facts and circumstances,
including the presence or absence of factors described in the Regulations as
"device factors" and "nondevice factors." Application of this test is uncertain
in part because of its subjective nature. Based on the representations of U.S.
Office Products and Navigant, Wilmer, Cutler & Pickering has delivered an
opinion that the Travel Distribution is not a transaction used principally as a
device for the distribution of earnings and profits of either U.S. Office
Products or Navigant. However, because of the inherently subjective nature of
the device test (including the subjectivity involved in assigning weight to
various factors), and because the IRS may challenge the
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representations upon which Wilmer, Cutler & Pickering relies, there can be no
assurance that the IRS will not assert that the Travel Distribution is a
transaction used principally as a device for the distribution of earnings and
profits of U.S. Office Products or Navigant.
If the Travel Distribution fails to qualify as a tax-free spin-off under
Section 355:
1. U.S. Office Products will recognize gain equal to the difference between
the fair market value of the Navigant Common Stock on the Distribution Date and
the U.S. Office Products' adjusted tax basis in the Navigant Common Stock on the
Distribution Date. If U.S. Office Products were to recognize gain on the Travel
Distribution, such gain would likely be substantial.
2. Each holder of U.S. Office Products Common Stock will be treated as
having received a taxable corporate distribution in an amount equal to the fair
market value (on the Distribution Date) of the Navigant Common Stock distributed
to such stockholder, including fractional shares. The distribution would
generally be treated as ordinary dividend income to a U.S. Office Products
stockholder to the extent of such U.S. Office Products stockholder's pro rata
share of U.S. Office Products' accumulated and current earnings and profits. To
the extent the amount of the distribution exceeds such U.S. Office Products
stockholder's pro rata share of U.S. Office Products' accumulated and current
earnings and profits, such excess would be treated first as a basis-reducing,
tax-free return of capital to the extent of the stockholder's tax basis in his
or her U.S. Office Products Common Stock and then as capital gain. For corporate
stockholders, the portion of the taxable distribution that constitutes a
dividend would be eligible for the dividends-received deduction (subject to
certain limitations in the Code) and could be subject to the Code's
extraordinary dividend provisions which, if applicable, would require a
reduction in a corporate stockholder's basis in its U.S. Office Products Common
Stock to the extent of such deduction and the recognition of gain to the extent
the deduction exceeds the corporate stockholder's tax basis in its U.S. Office
Products Common Stock.
3. Each U.S. Office Products stockholder's tax basis in the Navigant Common
Stock would equal the fair market value on the Distribution Date of the Navigant
Common Stock (including fractional shares) distributed to such stockholder.
4. The holding period of the Navigant Common Stock (including fractional
shares) received in the Travel Distribution would begin with, and include, the
day after the Distribution Date.
Whether or not the Travel Distribution is taxable, cash received by a holder
of U.S. Office Products Common Stock in lieu of a fractional share of Navigant
Common Stock will be treated as received in exchange for such fractional share
and the stockholder will recognize gain or loss for U.S. federal income tax
purposes measured by the difference between the amount of cash received and the
stockholder's tax basis in the fractional share. Such gain or loss will be
capital gain or loss to the stockholder.
EFFECT OF POST-DISTRIBUTION TRANSACTIONS. Section 355(e) of the Code, which
was added in 1997, generally, provides that a company that distributes shares of
a subsidiary in a spin-off that is otherwise tax-free will incur U.S. federal
income tax liability if 50% or more, by vote or value, of the capital stock of
either the company making the distribution or the subsidiary is acquired by one
or more persons acting pursuant to a plan or series of related transactions that
includes the spin-off. Stock acquired by certain related persons is aggregated
in determining whether this 50% test is met. There is a presumption that any
acquisition of 50% or more, by vote or value, of the capital stock of the
company or the subsidiary occurring two years before or after the spin-off is
pursuant to a plan that includes the spin-off. However, the presumption may be
rebutted by establishing that the spin-off and the acquisition are not part of a
plan or series of related transactions. Based on the representations of U.S.
Office Products, Navigant and CD&R, and the assumption that the Travel
Distribution is not part of a plan that is outside the knowledge of U.S. Office
Products and Navigant pursuant to which one or more persons will acquire
directly or indirectly 50% or more by vote or value of the capital stock of U.S.
Office Products or Navigant, Wilmer, Cutler & Pickering has delivered an opinion
that the Travel Distribution will not be taxable under section
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355(e). However, there can be no assurance that the IRS will not assert that the
Travel Distribution is taxable under Section 355(e).
If the Travel Distribution is taxable under Section 355(e) of the Code, U.S.
Office Products will recognize gain equal to the difference between the fair
market value of the Navigant Common Stock on the Distribution Date and U.S.
Office Products' adjusted tax basis in the Navigant Common Stock on the
Distribution Date. However, no gain or loss will be recognized by holders of
Common Stock (except with respect to cash received in lieu of fractional
shares). If U.S. Office Products were to recognize gain on the Travel
Distribution, such gain would likely be substantial.
LIABILITY FOR DISTRIBUTION TAXES. Under the Tax Allocation Agreement,
Navigant and the other Spin-Off Companies will jointly and severally indemnify
U.S. Office Products for any Distribution Taxes assessed against U.S. Office
Products if an Adverse Tax Act of any of the Spin-Off Companies materially
contributes to a final determination that any of the Distributions is taxable.
Navigant is also entering into the Tax Indemnification Agreement with the other
Spin-Off Companies under which the Spin-Off Company that is responsible for the
Adverse Tax Act will indemnify the other Spin-Off Companies for any liability to
U.S. Office Products under the Tax Allocation Agreement. As a consequence,
Navigant will be liable for any Distribution Taxes resulting from any Adverse
Tax Act by Navigant and liable (subject to indemnification by the other Spin-Off
Companies) for any Distribution Taxes resulting from an Adverse Tax Act by the
other Spin-Off Companies. Additionally, U.S. Office Products and each of the
Spin-Off Companies will be liable for its pro rata portion of any Distribution
Taxes, based on the value of each company's common stock after the
Distributions, if it is determined that there has not been an Adverse Tax Act by
either U.S. Office Products or any of the Spin-Off Companies. As a result,
Navigant could become liable for a pro rata portion of any Distribution Taxes
with respect not only to the Travel Distribution, but also to any of the other
Distributions. See "Arrangements Among U.S. Office Products, Navigant and the
Other Spin-Off Companies After the Distributions--Tax Allocation Agreement and
Tax Indemnification Agreement" for a detailed discussion of the Tax Allocation
Agreement and Tax Indemnification Agreement.
WILMER CUTLER & PICKERING'S OPINION OF THE MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES TO HOLDERS OF U.S. OFFICE PRODUCTS COMMON STOCK DOES NOT PURPORT TO
COVER ALL U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MIGHT APPLY TO EVERY HOLDER
OF U.S. OFFICE PRODUCTS COMMON STOCK. ALL HOLDERS OF U.S. OFFICE PRODUCTS COMMON
STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR U.S.
FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE TRAVEL DISTRIBUTION TO
THEM.
REPLACEMENT OF OUTSTANDING U.S. OFFICE PRODUCTS OPTIONS HELD BY NAVIGANT
EMPLOYEES
All or substantially all vested and unvested options to acquire U.S. Office
Products Common Stock that are held by Navigant employees ("U.S. Office Products
Options") on the Distribution Date are being replaced with options to acquire
shares of Navigant Common Stock ("Navigant Options"). As of the Distribution
Date, approximately 975,332 U.S. Office Products Options are held by employees
of Navigant (assuming all optionholders tendered all the shares underlying their
options in the Tender Offer).
The number and exercise price of Navigant Options that will be outstanding
after the Distributions will depend on the trading prices of U.S. Office
Products Common Stock around the time of the Distributions and the public
offering price of the Navigant Common Stock in the Offering. Thus, the number
and exercise price of Navigant Options into which the U.S. Office Products
Options will convert is not yet determinable. The following formulas will be
used to determine the number and exercise price of Navigant Options resulting
from conversion of U.S. Office Products Options. Such formulas will adjust
solely for the Travel Distribution and not for other events, such as the Tender
Offer. The exercise price of U.S. Office Products Options will be adjusted by
applying the following formula:
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Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price
of Navigant Common Stock in the Offering
Trading Price of U.S. Office Products Common
Stock Pre-Travel Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products Common Stock Pre-Travel
Distribution
Initial Public Offering Price of
Navigant Common Stock in the
Offering
For all optionees, the "Trading Prices of U.S. Office Products Common Stock
Pre-Travel Distribution" will be the average closing price of U.S. Office
Products Common Stock for the lesser of (a) ten business days preceding the
Distribution Date and (b) the number of business days falling between the
expiration of the Tender Offer and the Distribution Date. If the initial public
offering price cannot be determined at the time of the adjustment, the closing
price on June 10, 1998 will be substituted for the initial public offering price
in the formula. The foregoing formula adjustments are intended to preserve for
the holder of U.S. Office Product Options the intrinsic value per option,
measured as the difference between the market value of one share of U.S. Office
Products Common Stock at the time of the Travel Distribution and the exercise
price of such option. The intrinsic value of the Navigant Options will be no
greater than the intrinsic value of the U.S. Office Products Options immediately
before the Distribution, and the ratio of exercise price to market price will be
not less than the ratio immediately before the Distributions. As a result of the
foregoing adjustments, options held by Navigant employees after the Travel
Distribution will represent a greater percentage interest in Navigant than the
percentage interest in U.S. Office Products represented by such options before
the Distributions.
It is anticipated that all other terms of the Navigant Options will be the
same as the terms of the U.S. Office Products Options they replace.
RESTRICTIONS ON TRANSFER
Shares of Navigant Common Stock distributed to the U.S. Office Products
stockholders pursuant to the Travel Distribution will be freely transferable
under the Securities Act, except for shares received by any persons who may be
deemed to be "affiliates" of Navigant as that term is defined in Rule 144
promulgated under the Securities Act. Persons who may be deemed to be affiliates
of Navigant after the Travel Distribution generally include individuals or
entities that control, are controlled by, or are under common control with,
Navigant and may include certain officers and directors of Navigant as well as
principal stockholders of Navigant. Persons who are affiliates of Navigant will
be permitted to sell their shares of Navigant Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemptions
provided for private transactions or Rule 144 under the Securities Act.
EXPENSES OF THE DISTRIBUTIONS
U.S. Office Products estimates that legal, financial advisory, investment
banking, financing, accounting, printing, mailing and other expenses (including
the fees of U.S. Office Products' and Spin-Off Companies' transfer agents) of
the Strategic Restructuring Plan (including CD&R's fees and expenses) including
the Distributions, will total approximately $75.0 million. Upon request, U.S.
Office Products will pay the reasonable expenses of brokerage firms, custodians,
nominees and fiduciaries who are record holders of U.S. Office Products Common
Stock for forwarding this Information Statement/Prospectus to the beneficial
owners of such shares. The foregoing expenses will be allocated among U.S.
Office Products and the Spin-Off Companies pursuant to a formula to be
determined. See "Arrangements Among U.S. Office Products, Navigant and the Other
Spin-Off Companies After the Distributions--Distribution Agreement."
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ARRANGEMENTS AMONG U.S. OFFICE PRODUCTS, NAVIGANT
AND THE OTHER SPIN-OFF COMPANIES AFTER THE DISTRIBUTIONS
Following the Travel Distribution, U.S. Office Products and Navigant will
operate independently, and (except for interests U.S. Office Products may retain
pursuant to certain pledge agreements) neither will have any stock ownership,
beneficial or otherwise, in the other. For the purposes of governing certain of
the ongoing relationships of U.S. Office Products, Navigant and the other
Spin-Off Companies after the Distributions, and to provide mechanisms for an
orderly transition, U.S. Office Products, Navigant and the other Spin-Off
Companies are entering into the Distribution Agreement, the Tax Allocation
Agreement and the Employee Benefits Agreement, and the Spin-Off Companies are
entering into the Tax Indemnification Agreement. The terms of the Distribution
Agreement, Tax Allocation Agreement Tax Indemnification Agreement and Employee
Benefits Agreement described herein have been determined while Navigant is a
wholly-owned subsidiary of U.S. Office Products. In addition, the Investment
Agreement specifies certain terms of these agreements and provides that they are
subject to CD&R's reasonable approval. Therefore, these agreements are not the
result of arm's- length negotiations between independent parties.
DISTRIBUTION AGREEMENT
TRANSFER OF SUBSIDIARIES AND ASSETS. The Distribution Agreement provides
for the transfer from U.S. Office Products to Navigant of substantially all of
the equity interests in the U.S. Office Products subsidiaries that are engaged
in the business of Navigant as well as the transfer, in certain instances, of
other assets related to the business of Navigant. It also provides that the
recovery on any claims under applicable acquisition agreements that U.S. Office
Products may have against the persons who sold businesses to U.S. Office
Products that will become part of Navigant in connection with the Travel
Distribution (the "Navigant Acquisition Indemnity Claims") will be allocated
100% to Navigant. In addition, to the extent that the Navigant Acquisition
Indemnity Claims are currently secured by the pledge of stock of U.S. Office
Products that is owned by persons who sold businesses to U.S. Office Products
that will become part of Navigant (and no previous claims have been made against
such shares), the pledged shares will be used, subject to final resolution of
the claim, to reimburse Navigant for its damages and expenses.
DEBT. The Distribution Agreement allocates a specified amount of U.S.
Office Products' debt outstanding under its credit facilities to each Spin-Off
Company and requires each Spin-Off Company, on or prior to the Distribution, to
obtain credit facilities, to borrow funds under such facilities and to use the
proceeds of such borrowing to pay off the U.S. Office Products' debt so
allocated plus any additional debt incurred by U.S. Office Products after
January 12, 1998 (the date of the Investment Agreement) in connection with the
acquisition of any entity that has become or will become a subsidiary of such
Spin-Off Company. Under the Distribution Agreement, $16.4 million of U.S. Office
Products' debt has been allocated to Navigant.
LIABILITIES. Under the Distribution Agreement, Navigant will be responsible
for (i) any liabilities arising out of or in connection with the businesses
conducted by Navigant and/or its subsidiaries, (ii) its liabilities under the
Employee Benefits Agreement, the Tax Allocation Agreement and related
agreements, (iii) the U.S. Office Products debt that has been allocated to the
Company as described above, (iv) liabilities under the securities laws relating
to the Prospectus related to the Offering and certain sections of this
Information Statement/Prospectus, as well as securities law liabilities related
to the Navigant business that arise from information supplied to U.S. Office
Products (or that should have been supplied but was not) by Navigant, (v) any
liabilities of U.S. Office Products relating to earn-out or bonus payments in
respect of Navigant or its subsidiaries, (vi) the Company's costs and expenses
related to the Offering and its bank credit facility, and (vii) $1.0 million of
transaction costs (including legal, accounting, investment banking and financial
advisory) and other fees incurred by U.S. Office Products in connection with the
Strategic Restructuring Plan. Each of the other Spin-Off Companies will be
similarly obligated to U.S. Office Products. Navigant and the other Spin-Off
Companies have also agreed to bear a pro rata share of
27
<PAGE>
(i) any liabilities of U.S. Office Products under the securities laws (other
than claims relating solely to a specific Spin-Off Company or relating
specifically to the continuing businesses of U.S. Office Products), and (ii)
U.S. Office Products' general corporate liabilities (other than debt, except for
that specifically allocated to the Spin-Off Companies) incurred prior to the
Distribution Date (I.E., liabilities not related to the conduct of a particular
distributed or retained subsidiary's business) (the "Shared Liabilities"). If
one of the Spin-Off Companies defaults on an obligation owed to U.S. Office
Products, the non-defaulting Spin-Off Companies will be obligated, on a pro rata
basis, to pay such obligation ("Default Liability"). The aggregate of the Shared
Liabilities and Default Liability for which any Spin-Off Company may be liable
is, however, limited to $1.75 million.
The Spin-Off Companies' pro rata share of Shared Liabilities will be, based
upon the fiscal year ended April 25, 1998, the average of (a) their revenues
relative to those of U.S. Office Products and (b) their operating income
relative to that of U.S. Office Products; the residual will be U.S. Office
Products' pro rata share. Based upon financial data for the nine-month period
ended January 24, 1998, the Company's pro rata share of Shared Liabilities would
have been 5.2%, the other Spin-Off Companies' pro rata share would have
aggregated 29.2% and U.S. Office Products' pro rata share would have been 65.6%.
As to any Default Liability, each non-defaulting Spin-Off Company's pro rata
share will be increased to include a portion of the defaulting Spin-Off
Company's pro rata share.
The Distribution Agreement provides that each party will indemnify and hold
all of the other parties harmless from any and all liabilities for which the
former assumed liability under the Distribution Agreement. All indemnity
payments will be subject to adjustment upward or downward to take account of tax
costs or tax benefits as well as insurance proceeds. If there are any claims
made under U.S. Office Products' existing insurance policies, the amount of any
deductible or retention will be allocated by U.S. Office Products among the
claimants in a fair and reasonable manner.
OTHER PROVISIONS. The Distribution Agreement will have other customary
provisions including provisions relating to mutual release, access to
information, witness services, confidentiality and alternative dispute
resolution.
TAX ALLOCATION AGREEMENT AND TAX INDEMNIFICATION AGREEMENT
The Tax Allocation Agreement provides that each Spin-Off Company will be
responsible for its respective share of U.S. Office Products' consolidated tax
liability for the years that each such corporation was included in U.S. Office
Products' consolidated U.S. federal income tax return. The Tax Allocation
Agreement also provides for sharing, where appropriate, of state, local and
foreign taxes attributable to periods prior to the Distributions.
The Tax Allocation Agreement further provides that the Spin-Off Companies
will jointly and severally indemnify U.S. Office Products for any Distribution
Taxes assessed against U.S. Office Products if an Adverse Tax Act of any of the
Spin-Off Companies materially contributes to a final determination that any or
all of the Distributions are taxable. Navigant is also entering into the Tax
Indemnification Agreement with the other Spin-Off Companies under which the
Spin-Off Company that is responsible for the Adverse Tax Act will indemnify the
other Spin-Off Companies for any liability to U.S. Office Products under the Tax
Allocation Agreement. As a consequence, Navigant will be liable for any
Distribution Taxes resulting from any Adverse Tax Act by Navigant and liable
(subject to indemnification by the other Spin-Off Companies) for any
Distribution Taxes resulting from an Adverse Tax Act by the other Spin-Off
Companies. If there is a final determination that any or all of the
Distributions are taxable and it is determined that there has not been an
Adverse Tax Act by either U.S. Office Products or any of the Spin-Off Companies,
each of U.S. Office Products and the Spin-Off Companies will be liable for its
pro rata portion of such Distribution Taxes based on the value of each company's
common stock after the Distributions. As a result, Navigant could become liable
for a pro rata portion of any Distribution Taxes with respect to not only the
Travel
28
<PAGE>
Distribution but also any of the other Distributions. The liabilities of
Navigant under the Tax Allocation Agreement and the Tax Indemnification
Agreement are not subject to any limits.
EMPLOYEE BENEFITS AGREEMENT
In connection with the Distributions, U.S. Office Products is entering into
the Employee Benefits Agreement with Navigant and the other Spin-Off Companies
to provide for an orderly transition of benefits coverage between U.S. Office
Products and the Spin-Off Companies. Pursuant to this agreement, the respective
Spin-Off Companies will retain or assume liability for employment-related claims
and severance for persons currently or previously employed by the respective
Spin-Off Companies and their subsidiaries, while U.S. Office Products and its
post-Distribution subsidiaries will retain or assume responsibility for their
current and previous employees. The Employee Benefits Agreement reflects U.S.
Office Products' expectation that each of the Spin-Off Companies will establish
401(k) plans for their respective employees effective as of, or shortly after,
the Distribution Date and that U.S. Office Products will transfer 401(k)
accounts to those plans as soon as practicable. The agreement also provides for
spinning off portions of the U.S. Office Products' cafeteria plan that relate to
employees of the Spin-Off Companies (and their subsidiaries) and having those
spun-off plans assume responsibilities for claims submitted on or after the
Distribution Date.
DIVIDEND POLICY
Navigant does not expect to pay cash dividends on Navigant Common Stock in
the foreseeable future. The decision whether to apply legally available funds to
the payment of dividends on Navigant Common Stock will be made by the Board of
Directors from time to time in the exercise of its business judgment, taking
into account, among other things, Navigant's results of operations and financial
condition, any then existing or proposed commitments by Navigant for the use of
available funds, and Navigant's obligations with respect to the holders of any
then outstanding indebtedness or preferred stock. As a result of the allocation
of debt to Navigant in the Travel Distribution, immediately after the Travel
Distribution, Navigant's retained earnings will be zero, which could limit funds
available for payment of dividends, Furthermore, Navigant's ability to pay
dividends may be restricted from time to time by financial covenants in its
credit agreements.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Navigant at January 24,
1998, (i) on an actual basis; (ii) on a pro forma basis to reflect the Travel
Distribution, the allocation of debt by U.S. Office Products and the purchase
acquisition to be completed subsequent to January 24, 1998 and (iii) on a pro
forma as adjusted basis to give effect to the sale of the 2,000,000 Navigant
Common Stock being offered hereby, at an assumed initial public offering price
of $12.00 per share (which is equal to the mid-point of the range set forth in
the preliminary prospectus dated May 18, 1998 related to the Offering) and after
deduction of estimated offering expenses and underwriting discounts and
commissions and application of the net proceeds therefrom. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Position and Results of Operations of Navigant," the historical consolidated
financial statements and the pro forma combined financial statements of
Navigant, and the related notes to each thereof, included elsewhere in this
Information Statement/Prospectus.
<TABLE>
<CAPTION>
JANUARY 24, 1998
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(2)
---------- ------------ --------------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash................................................................... $ 5,919 $ $ 4,420
---------- ------------ --------------
---------- ------------ --------------
Short-term debt........................................................ $ 625 $ 625
---------- ------------ --------------
---------- ------------ --------------
Short-term payable to U.S. Office Products............................. $ 217 $ $
---------- ------------ --------------
---------- ------------ --------------
Long-term debt......................................................... $ 2,664 $ 17,175 1,400
Long-term payable to U.S. Office Products.............................. 10,027
Stockholder's equity:
Preferred Stock, $0.001 par value, 5,000,000 shares authorized; no
shares outstanding
Common Stock, $0.001 par value, 150,000,000 shares authorized;
10,968,951 shares pro forma; 12,968,951 shares pro forma as
adjusted(1) 11 13
Additional paid-in capital........................................... 92,389 113,207
Divisional equity.................................................... 94,140
Cumulative translation adjustment.................................... (130) (130) (130)
Retained earnings.................................................... 6,101
---------- ------------ --------------
Total stockholder's equity....................................... 100,111 92,270 113,090
---------- ------------ --------------
Total capitalization............................................. $ 112,802 $ 109,445 $ 114,490
---------- ------------ --------------
---------- ------------ --------------
</TABLE>
- ------------------------
(1) Excludes options to acquire shares of Navigant Common Stock to be reserved
for issuance upon exercise of options. See "Management of Navigant--1998
Stock Incentive Plan."
(2) The net proceeds of the Offering are estimated to be $20,820,000
($24,168,000 if the underwriters' over-allotment option is exercised in
full) based on an assumed initial offering price of $12.00 per share. Those
net proceeds will be used to repay indebtedness allocated to Navigant by
U.S. Office Products in connection with the Travel Distribution and for
general corporate purposes, including future acquisitions. Navigant expects
that the initial public offering price in the Offering will be determined
after the close of markets on the date of this Information
Statement/Prospectus. There can be no assurance that the initial public
offering price will be set at that time, that the price will be within the
range set forth in the preliminary prospectus, or that the Offering will be
completed. Information regarding the initial public offering price, and "as
adjusted" pro forma financial statements based on that price, will be set
forth in the final prospectus related to the Offering, which will be
publicly available within two business days after the price is determined.
See "Additional Information."
30
<PAGE>
SELECTED FINANCIAL DATA
The historical Statement of Income Data for the year ended December 31, 1994
and 1995, the four months ended April 30, 1996, the fiscal year ended April 26,
1997 and the nine months ended January 24, 1998 and the Balance Sheet Data at
April 30, 1996, April 26, 1997 and January 24, 1998 have been derived from
Navigant's consolidated financial statements that have been audited and are
included elsewhere in this Prospectus. The historical Statement of Income Data
for the years ended December 31, 1992 and 1993 and the Balance Sheet Data at
December 31, 1992, 1993, 1994 and 1995 have been derived from unaudited
consolidated financial statements which are not included elsewhere in this
Prospectus or incorporated herein by reference. The Selected Financial Data for
the nine months ended January 25, 1997 (except pro forma amounts) have been
derived from unaudited consolidated financial statements that appear elsewhere
in this Prospectus. These unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented.
The pro forma financial data gives effect, as applicable, to the Travel
Distribution and the acquisitions completed by Navigant after May 1, 1996 as if
all such transactions had been consummated on May 1, 1996. In addition, the pro
forma information is based on available information and certain assumptions and
adjustments.
The Selected Financial Data provided herein should be read in conjunction
with the historical financial statements, including the notes thereto, the pro
forma financial information, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Navigant" that appear elsewhere in this Information Statement/Prospectus.
31
<PAGE>
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26,
FOUR MONTHS -------------------------------------
ENDED PRO
YEAR ENDED DECEMBER 31, APRIL 30, PRO FORMA
------------------------------------------ ------------- FORMA AS ADJUSTED
1992 1993 1994 1995 1996 1997 1997(2) 1997(2)(6)
--------- --------- --------- --------- ------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME
DATA:
Revenues................ $ 28,853 $ 32,838 $ 34,569 $ 45,267 $ 18,009 $ 57,677 $ 146,981 $ 146,981
Operating Expenses...... 14,244 17,153 19,692 25,836 9,491 31,541 80,513 80,513
--------- --------- --------- --------- ------------- --------- ------------ ------------
Gross profit............ 14,609 15,685 14,877 19,431 8,518 26,136 66,468 66,468
General and
administrative
expenses.............. 10,588 11,647 11,651 15,221 6,660 19,684 47,261 47,261
Amortization expense.... 203 197 221 342 128 548 2,997 2,997
Non-recurring
acquisition costs..... 1,156 1,156 1,156
--------- --------- --------- --------- ------------- --------- ------------ ------------
Operating income........ 3,818 3,841 3,005 3,868 1,730 4,748 15,054 15,054
Interest expense........ 125 139 118 515 173 587 1,388
Interest income......... (173) (231) (253) (352) (109) (445)
Other (income)
expense............... 55 48 42 20 118 312 312
--------- --------- --------- --------- ------------- --------- ------------ ------------
Income before provision
for income taxes...... 3,866 3,878 3,092 3,663 1,646 4,488 13,354 14,742
Provision for income
taxes................. 188 97 18 565 255 1,145 6,143 6,781
--------- --------- --------- --------- ------------- --------- ------------ ------------
Net income.............. $ 3,678 $ 3,781 $ 3,074 $ 3,098 $ 1,391 $ 3,343 $ 7,211 $ 7,961
--------- --------- --------- --------- ------------- --------- ------------ ------------
--------- --------- --------- --------- ------------- --------- ------------ ------------
Net income per share:
Basic................. $ 0.83 $ 0.85 $ 0.67 $ 0.52 $ 0.18 $ 0.37 $ 0.66 $ 0.63
Diluted............... $ 0.83 $ 0.85 $ 0.67 $ 0.52 $ 0.18 $ 0.36 $ 0.66 $ 0.63
Weighted average common
shares outstanding:
Basic................. 4,426 4,426 4,556 5,906 7,750 9,003 10,969 (3) 12,635(4)
Diluted............... 4,426 4,426 4,570 6,002 7,910 9,176 10,969 (3) 12,635(4)
<CAPTION>
NINE MONTHS ENDED
--------------------------------------------------------------------
PRO PRO PRO FORMA
FORMA FORMA AS ADJUSTED
JANUARY 25, JANUARY 24, JANUARY 25, JANUARY 24, JANUARY 24,
1997 1998 1997(2) 1998(2) 1998(2)(6)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
STATEMENT OF INCOME
DATA:
Revenues................ $ 41,527 $ 80,706 $ 105,362 $ 119,693 $ 119,693
Operating Expenses...... 22,656 47,172 59,550 67,869 67,869
------------ ------------ ------------ ------------ ------------
Gross profit............ 18,871 33,534 45,812 51,824 51,824
General and
administrative
expenses.............. 15,011 26,274 34,491 38,608 38,608
Amortization expense.... 471 1,509 2,336 2,418 2,418
Non-recurring
acquisition costs..... 284 284
------------ ------------ ------------ ------------ ------------
Operating income........ 3,105 5,751 8,701 10,798 10,798
Interest expense........ 415 399 1,041 1,041
Interest income......... (382) (338)
Other (income)
expense............... 40 (71) 178 (118) (118)
------------ ------------ ------------ ------------ ------------
Income before provision
for income taxes...... 3,032 5,761 7,482 9,875 10,916
Provision for income
taxes................. 551 2,823 3,442 4,543 5,021
------------ ------------ ------------ ------------ ------------
Net income.............. $ 2,481 $ 2,938 $ 4,040 $ 5,332 $ 5,895
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share:
Basic................. $ 0.29 $ 0.26 $ 0.37 $ 0.49 $ 0.47
Diluted............... $ 0.28 $ 0.25 $ 0.37 $ 0.49 $ 0.47
Weighted average common
shares outstanding:
Basic................. 8,598 11,476 10,969 (3) 10,969 (3) 12,635 (4)
Diluted............... 8,782 11,719 10,969 (3) 10,969 (3) 12,635 (4)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(UNAUDITED)
------------------------------------------ APRIL 30,
1992 1993 1994 1995 1996
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................... $ 4,172 $ 5,051 $ 4,366 $ 4,288 $ 4,338
Total assets.............................................................. 15,040 15,487 14,602 25,258 25,692
Long-term debt, less current portion...................................... 4,048 3,909 3,455 8,160 6,366
Long-term payable to U.S. Office Products.................................
Stockholder's equity...................................................... 6,723 7,914 7,736 9,187 11,221
<CAPTION>
JANUARY 24, 1998
--------------------------------------
PRO FORMA
APRIL 26, PRO AS
1997 ACTUAL FORMA(5) ADJUSTED(5)(6)
----------- --------- ----------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Working capital........................................................... $ 1,281 $ 8,580 $ 3,027 $ 8,072
Total assets.............................................................. 29,339 137,661 134,249 138,669
Long-term debt, less current portion...................................... 2,012 2,664 17,175 1,400
Long-term payable to U.S. Office Products................................. 787 10,027
Stockholder's equity...................................................... 13,483 100,111 92,270 113,090
</TABLE>
- ------------------------
(1) The historical financial information of the Pooled Companies have been
combined on a historical cost basis in accordance with GAAP to present this
financial data as if the Pooled Companies had always been members of the
same operating group. The financial information of the Purchased Companies
is included from the dates of their respective acquisitions. The Purchased
Companies and their respective acquisition dates are as follows: Associated
Travel International, June 26, 1997; Evans Travel Group, July 25, 1997;
Atlas Travel Services, September 26, 1997; Omni Travel, September 26, 1997;
McGregor Travel Management, October 24, 1997; Travel Consultants, Inc.,
October 24, 1997; and Wareheim Travel Services, December 23, 1997. The pro
forma financial data reflect acquisitions completed by Navigant through May
1, 1998. See Note 4 of the Company's Notes to Consolidated Financial
Statements for a description of the number and accounting treatment of the
acquisitions by the Company.
(2) Gives effect to the Travel Distribution and the purchase acquisitions
completed by Navigant since May 1, 1996 as if all such transactions had been
made on May 1, 1996. The pro forma statement of income data are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be construed
as representative of future operating results.
(3) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the nine months ended January 24,
1998 and January 25, 1997, see Note 2(j) of Notes to Pro Forma Combined
Financial Statements included herein.
(4) For calculation of the pro forma as adjusted weighted average shares
outstanding for the nine months ended January 24, 1998, see Note 2(l) of
Notes to Pro Forma Combined Financial Statements.
(5) Gives effect to the Travel Distribution and the purchase acquisition
completed by Navigant subsequent to January 24, 1998 as if such transactions
had been made on January 24, 1998. The pro forma balance sheet data are not
necessarily indicative of the financial position that would have been
achieved had these events actually then occurred and should not be construed
as representative of future financial position.
(6) As adjusted to give effect to the sale of the shares of Navigant Common
Stock by Navigant pursuant to this offering (assuming an initial public
offering price of $12.00 per share, which is equal to the mid-point of the
range set forth in the preliminary prospectus dated May 18, 1998 related to
the Offering) after deducting underwriting discounts and estimated offering
expenses payable by Navigant and the use of the estimated net proceeds
therefrom. Navigant expects that the initial public offering price in the
Offering will be determined after the close of markets on the date of this
Information Statement/Prospectus. There can be no assurance that the initial
public offering price will be set at that time, that the price will be
within the range set forth in the preliminary prospectus, or that the
Offering will be completed. Information regarding the initial public
offering price, and "as adjusted" pro forma financial statements based on
that price, will be set forth in the final prospectus related to the
Offering, which will be publicly available within two business days after
the price is determined. See "Additional Information."
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF NAVIGANT
INTRODUCTION
Navigant, which combines twelve regional corporate travel agencies acquired
by U.S. Office Products, provides corporate travel management services and, to a
more limited extent, other travel services, throughout the United States, in
Canada and in the United Kingdom.
The Company's consolidated financial statements give retroactive effect to
the four business combinations accounted for under the pooling-of-interests
method during the period from January 1997 through April 1997 (the "Pooled
Companies") and include the results of companies acquired in business
combinations accounted for under the purchase method from their respective dates
of acquisition. Prior to their respective dates of acquisition by U.S. Office
Products, the Pooled Companies reported results on years ending on December 31.
Upon acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from December 31 to conform to U.S. Office Products' fiscal year, which ends on
the last Saturday in April.
The Company generates revenues principally from (i) base and incentive
override commissions on air travel tickets, (ii) fees for services rendered to
customers and (iii) commissions on hotel reservations and car rentals. Air
travel ticketing generates the largest portion of the Company's revenues. In the
fiscal year ended April 30, 1997 and the calendar years ended December 31, 1995
and 1994, air travel commissions, including both base commissions and incentive
override commissions, accounted for approximately 73.1%, 78.9% and 79.1%,
respectively, of the Company's revenues.
The methods by which the airlines compensate travel agents have changed
considerably in recent years and continue to be in flux. Historically, the
airlines paid a percentage commission on ticket price for each domestic and
international air travel ticket issued by a travel agent. Subsequent to 1995,
most major United States airlines imposed commission caps of $25 on domestic
one-way air travel and $50 on domestic round-trip tickets. Commissions on
international tickets are not subject to a cap. In October 1997, the airlines
reduced base commissions on tickets to approximately 8% of the ticket price. The
reduction of base commissions has reduced the Company's gross revenue and gross
margin below historical levels.
In response to the reductions in the commissions paid to travel agents,
travel agents are in the process of changing their financial arrangements with
their corporate customers either by implementing management contracts, in the
case of middle market and larger customers, or by charging transaction fees.
Under management contracts, the Company typically deducts its direct operating
expenses, indirect overhead costs and a management fee from commission revenues
collected for travel arrangements made on behalf of the customer. If the
commission revenues exceed the amounts deducted, the Company may share a
negotiated amount of the excess with the customer. If the commission revenues do
not cover the amounts deducted, the customer pays the difference to the Company.
Fee income recognized under management contracts has historically been derived
from commissions paid by the airlines. As a result, the Company does not prepare
separate reports distinguishing payments under management contracts from air
travel commission income. Management believes that the implementation of these
measures will ultimately mitigate the negative impact that the commission
reduction has had on gross revenue and gross margin.
After the airlines instituted the commission cap in 1995 and reduced base
commissions in October 1997, travel agencies, including the Company, began
charging transaction fees for some services to non-contract customers. The
Company typically charges between $10 and $15 per ticket for tickets issued to
customers that do not have a management contract with the Company.
The remainder of Navigant's revenues derive largely from commissions on
hotel reservations and car rentals. In accordance with industry practice, the
Company receives a commission equal to approximately
33
<PAGE>
10% of the hotel rate for each hotel reservation and 5% of the base rental car
rate for each rental car reservation that it makes. Some of the Company's
customers negotiate special hotel rates that do not produce commissions. In the
fiscal year ended April 26, 1997 and the calendar years ended December 31, 1995
and 1994, hotel and rental car commissions accounted for approximately 11.9%,
9.4% and 7.4% respectively, of Navigant's revenues.
On March 13, 1998, the Company received 90 days notice of termination of a
business relationship. The Company had provided travel administration services
to this customer under a five year agreement based on a fee per transaction
basis, with all commissions being remitted back to this customer. During the
nine months ended January 24, 1998, this relationship contributed approximately
$400,000 to net operating income. The Company has approximately $635,000 in
intangible assets recorded as of January 24, 1998 relating to the original
acquisition of this contract that will be written off within the next reporting
period as a charge to income. In addition to this charge, the Company
anticipates taking an additional charge in the next reporting period of
approximately $565,000 associated with the severance charge and other costs
associated with a change in operational strategy to a centralized management
structure at one of its locations. This switch to a centralized management
structure from a regional structure at this location is consistent with the
existing structure at the other regional travel agencies acquired. The total
charge to income in the next reporting period is expected to be $1.2 million.
As part of the Company's increased focus on operational matters, the Company
expects to undertake cost reduction measures including the elimination of
duplicative facilities, the consolidation of certain operating functions, and
the deployment of common information systems. The implementation of the cost
reduction measures may involve the incurrence by the Company of certain
restructuring costs. However, at the present time, no formal plans to implement
any restructuring have been developed. Once developed, any such plans will
necessarily require review by the Company's senior management and the
implementation of such plans would not be initiated prior to the receipt of
proper authorization of the Company's Board of Directors. Based on the
additional time and resources expected to be involved in the development, review
and approval of any such restructuring plans, the Company cannot presently
predict if a restructuring charge will be incurred and, if incurred, the timing
or overall magnitude of such a charge.
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto and pro forma
financial statements and related notes thereto appearing elsewhere in this
Information Statement/Prospectus.
34
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the years ended December 31, 1994 and 1995, the fiscal year ended April 26, 1997
and for the nine months ended January 25, 1997 and January 24, 1998, as well as
for the fiscal year ended April 26, 1997 and for the nine months ended January
25, 1997 and January 24, 1998 on a pro forma basis reflecting the Travel
Distribution and the results of companies acquired in business combinations
accounted for under the purchase method as if such transactions had occurred on
May 1, 1996.
<TABLE>
<CAPTION>
FOR THE FISCAL
YEAR ENDED FOR THE NINE MONTHS ENDED
FOR THE YEAR ENDED ------------------------ -------------------------------------------
-------------------------------- PRO FORMA PRO FORMA
DECEMBER 31, DECEMBER 31, APRIL 26, APRIL 26, JANUARY 25, JANUARY 24, JANUARY 25,
1994 1995 1997 1997 1997 1998 1997
--------------- --------------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses..... 57.0 57.1 54.7 54.8 54.6 58.4 56.5
----- ----- ----- ----- ----- ----- -----
Gross profit......... 43.0 42.9 45.3 45.2 45.4 41.6 43.5
General and
administrative
expenses............. 33.7 33.6 34.1 32.2 36.1 32.6 32.7
Amortization expense... 0.6 0.8 1.0 2.0 1.1 1.9 2.2
Non-recurring
acquisition costs.... 2.0 0.8 0.7 0.3
----- ----- ----- ----- ----- ----- -----
Operating income..... 8.7 8.5 8.2 10.2 7.5 7.1 8.3
Interest expense,
net.................. (0.4) 0.4 0.3 0.9 0.1 0.1 0.9
Other (income)
expense.............. 0.1 0.1 0.1 0.1 0.1 (0.1) 0.2
----- ----- ----- ----- ----- ----- -----
Income before provision
for income taxes..... 9.0 8.0 7.8 9.2 7.3 7.1 7.2
Provision for income
taxes................ 0.1 1.2 2.0 4.2 1.3 3.5 3.3
----- ----- ----- ----- ----- ----- -----
Net income............. 8.9% 6.8% 5.8% 5.0% 6.0% 3.6% 3.9%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----
<CAPTION>
PRO FORMA
JANUARY 24,
1998
-------------
<S> <C>
Revenues............... 100.0%
Operating Expenses..... 56.7
-----
Gross profit......... 43.3
General and
administrative
expenses............. 32.3
Amortization expense... 2.0
Non-recurring
acquisition costs....
-----
Operating income..... 9.0
Interest expense,
net.................. 0.8
Other (income)
expense.............. (0.1)
-----
Income before provision
for income taxes..... 8.3
Provision for income
taxes................ 3.8
-----
Net income............. 4.5%
-----
-----
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 24, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 25,
1997
Consolidated revenues increased 94.3%, from $41.5 million for the nine
months ended January 25, 1997, to $80.7 million for the nine months ended
January 24, 1998. This increase was primarily due to the inclusion of the
revenues from the Fiscal 1998 Purchased Companies, from their respective dates
of acquisition and to sales to new and existing customer accounts.
Gross profit increased 77.7%, from $18.9 million, or 45.4% of revenues, for
the nine months ended January 25, 1997 to $33.5 million, or 41.6% of revenues,
for the nine months ended January 24, 1998. The decrease in gross profit as a
percentage of revenues was due primarily to the inclusion of the Fiscal 1998
Purchased Companies. The Fiscal 1998 Purchased Companies have lower gross
margins as a percentage of revenue due to a lower proportion of revenues being
derived from international air sales and to higher operating cost structures as
a result of their geographic locations.
General and administrative expenses increased 75.0%, from $15.0 million, or
36.1% of revenues, for the nine months ended January 25, 1997 to $26.3 million,
or 32.6% of revenues, for the nine months ended January 24, 1998. The decrease
in general and administrative expenses as a percentage of revenues was due
primarily to a reduction in executive compensation expense at the Pooled
Companies. Prior to being
35
<PAGE>
acquired by the Company, many of the Pooled Companies were privately held
corporations that paid compensation and bonuses substantially in the amount of
their net income. Additionally, the fixed general and administrative expenses
were spread over a larger revenue base.
Amortization expense increased from $471,000, or 1.1% of revenues, for the
nine months ended January 25, 1997 to $1.5 million, or 1.9% of revenues, for the
nine months ended January 24, 1998. This increase is due exclusively to the
increase in the number of purchase acquisitions included in the results for the
nine months ended January 25, 1997 versus the nine months ended January 24,
1998.
The Company incurred non-recurring acquisition costs of $284,000 during the
nine months ended January 25, 1997, in connection with the acquisition of the
Pooled Companies. These non-recurring acquisitions costs included accounting,
legal and investment banking fees, real estate and environmental assessments and
appraisals and various regulatory fees.
Provision for income taxes increased from $551,000 for the nine months ended
January 25, 1997 to $2.8 million for the nine months ended January 24, 1998,
reflecting effective income tax rates of 18.2% and 49.0%, respectively. The low
effective income tax rate for the nine months ended January 25, 1997, compared
to the federal statutory rate of 35.0%, was primarily due to the fact that
several of the companies included in the results of such period, which were
acquired in business combinations accounted for under the pooling-of-interests
method, were not subject to federal income taxes on a corporate level as they
had elected to be treated as subchapter S corporations prior to being acquired
by the Company ("Subchapter S Companies"). The high effective income tax rate
for the nine months ended January 24, 1998 was due primarily to certain of the
Pooled Companies no longer being treated as subchapter S corporations and,
therefore, being subject to federal income taxes and due to an increase in
nondeductible goodwill amortization resulting from the acquisitions of the
Fiscal 1998 Purchased Companies.
YEAR ENDED APRIL 26, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenues increased 27.4%, from $45.3 million in 1995, to $57.7
million in fiscal 1997. This increase was due primarily to the inclusion of
revenues from a company acquired by one of the Pooled Companies during 1995 in a
business combination accounted for under the purchase method (the "1995
Purchased Company") for all of fiscal 1997 and only a portion of 1995.
Gross profit increased 34.5%, from $19.4 million, or 42.9% of revenues, in
1995 to $26.1 million, or 45.3% of revenues, in fiscal 1997. The increase in
gross profit as a percentage of revenues was due primarily to a shift in the mix
of revenues to higher margin services such as international air sales and tours
and cruise sales.
General and administrative expenses increased 29.3%, from $15.2 million, or
33.6% of revenues, in 1995 to $19.7 million, or 34.1% of revenues, in fiscal
1997. The increase in general and administrative expenses as a percentage of
revenues was primarily due to the inclusion, for all of fiscal 1997 and a
portion of 1995, of the 1995 Purchased Company, which had higher general and
administrative expenses as a percentage of revenues.
The Company incurred non-recurring acquisition costs of $1.2 million in
fiscal 1997, in connection with the acquisition of the Pooled Companies. These
non-recurring acquisitions costs included accounting, legal and investment
banking fees, real estate and environmental assessments and appraisals and
various regulatory fees.
Provision for income taxes increased from $565,000 in 1995 to $1.1 million
in fiscal 1997, reflecting effective income tax rates of 15.4% and 25.5%,
respectively. The low effective income tax rates in 1995 and fiscal 1997,
compared to the federal statutory rate of 35.0%, was primarily due to the fact
that several of the companies included in the results of such periods, which
were acquired in business combinations accounted for under the
pooling-of-interests method, were Subchapter S Companies. The difference in the
effective tax rate between the two periods was attributable principally to
differences in the relative
36
<PAGE>
operating performance in such periods of such Subchapter S Companies and
companies subject to federal income taxes on a corporate level.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated revenues increased 30.9%, from $34.6 million in 1994, to $45.3
million in 1995. This increase was primarily due to the inclusion of the
revenues from the 1995 Purchased Company from its date of acquisition. This
increase was partially offset by a reduction in revenues due to a change in the
commission structure paid by the airlines. In April 1995 most airlines reduced
the commissions paid to travel agents by imposing a cap on commissions earned
from the booking of domestic flights. Per-ticket commissions are generally
capped at $25 for one-way domestic tickets and $50 for round-trip domestic
tickets.
Gross profit increased 30.6%, from $14.9 million, or 43.0% of revenues, in
1994 to $19.4 million, or 42.9% of revenues, in 1995. The decrease in gross
profit margin as a percentage of revenues was due to the change in air sale
commissions described above, partially offset by the inclusion of the 1995
Purchased Company, which had a higher gross profit percentage than the Company.
General and administrative expenses increased 30.6%, from $11.7 million, or
33.7% of revenues, in 1994 to $15.2 million, or 33.6% of revenues, in 1995. The
increase in general and administrative expenses as a percentage of revenues was
due to the inclusion of the 1995 Purchased Company, which had higher general and
administrative expenses as a percentage of revenues than the Company and as a
result of the change in airline ticket sale commissions described above.
Provision for income taxes increased from $18,000 in 1994 to $565,000 in
1995, reflecting effective income tax rates of 0.6% and 15.4%, respectively. The
low effective income tax rates in 1994 and 1995, compared to the federal
statutory rate of 35.0%, was primarily due to the fact that several of the
companies included in the results for such periods, which were acquired in
business combinations accounted for under the pooling-of-interests method, were
Subchapter S Companies. The difference in the effective tax rate between the two
periods was attributable principally to differences in the relative operating
performance in such periods of such Subchapter S Companies and companies subject
to federal income taxes on a corporate level.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The unaudited pro forma combined financial data discussed herein does not
purport to represent the results that the Company would have obtained had the
transactions which are the subject of pro forma adjustments occurred at the
beginning of the applicable periods, as assumed, and are not necessarily
representative of the Company's results of operations in any future period.
NINE MONTHS ENDED JANUARY 24, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 25,
1997
Pro forma revenues increased 13.6%, from $105.4 million for the nine months
ended January 25, 1997, to $119.7 million for the nine months ended January 24,
1998. This increase was primarily due to sales to new and existing customer
accounts.
Gross profit increased 13.1%, from $45.8 million, or 43.5% of revenues, for
the nine months ended January 25, 1997 to $51.8 million, or 43.3% of revenues,
for the nine months ended January 24, 1998. The decrease in gross profit as a
percentage of revenues was due primarily to the seven companies acquired in
business combinations accounted for under the purchase method during the nine
months ended January 24, 1998 (the "Fiscal 1998 Purchased Companies") becoming a
higher proportion of the Company's overall revenues. The Fiscal 1998 Purchased
Companies have lower gross margins as a percentage of revenue due to a lower
proportion of revenues being derived from international air sales and to higher
operating cost structures as a result of their geographic locations. Unlike
commissions earned on domestic
37
<PAGE>
air sales, commissions earned on international air sales are not subject to
limitations by the airlines, and therefore result in higher margins.
General and administrative expenses increased 11.9%, from $34.5 million, or
32.7% of revenues, for the nine months ended January 25, 1997 to $38.6 million,
or 32.3% of revenues, for the nine months ended January 24, 1998. The decrease
in general and administrative expenses as a percentage of revenues was primarily
due to the spreading of fixed general and administrative expenses over a larger
revenue base.
The Company incurred non-recurring acquisition costs of $284,000 during the
nine months ended January 25, 1997, in connection with the acquisition of the
Pooled Companies. These non-recurring acquisitions costs included accounting,
legal and investment banking fees, real estate and environmental assessments and
appraisals and various regulatory fees. Generally accepted accounting principles
("GAAP") require the Company to expense all acquisition costs (both those paid
by the Company and those paid by the sellers of the acquired companies) related
to business combinations accounted for under pooling-of-interests method of
accounting. In accordance with GAAP, the Company will be unable to utilize the
pooling-of-interests method to account for acquisitions for a period of two
years following the completion of the Strategic Restructuring Plan. During this
period, the Company will not reflect any non-recurring acquisition costs in its
results of operations, as all costs incurred of this nature would be related to
acquisitions accounted for under the purchase method and would, therefore, be
capitalized as a portion of the purchase consideration.
Provision for income taxes has been estimated using an effective income tax
rate of 46.0%. The high effective income tax rate, compared to the federal
statutory rate of 35.0%, was primarily due to nondeductible goodwill
amortization resulting from acquisition of the Fiscal 1998 Purchased Companies.
LIQUIDITY AND CAPITAL RESOURCES
At January 24, 1998, the Company had cash of $5.9 million and working
capital of $8.6 million. The Company's capitalization, defined as the sum of
long-term debt, long-term payable to U.S. Office Products and stockholder's
equity, at January 24, 1998 was approximately $112.8 million. On a pro forma
basis at January 24, 1998, the Company had working capital of $3.0 million and
capitalization of $109.4 million. The decreases in pro forma working capital and
capitalization are a result of pro forma adjustments reflecting the Company's
(i) using its cash to pay a long-term payable to U.S. Office Products and (ii)
assuming certain liabilities in connection with the Distribution Agreement. See
"The Spin-Offs From U.S. Office Products--Distribution Agreement."
During the nine months ended January 24, 1998, net cash provided by
operating activities was $2.0 million. Cash flow from operating activities was
primarily impacted by a significant increase in deposits made on the behalf of
customers for advance travel reservations. Net cash used in investing activities
was $1.2 million, including $2.3 million for additions to property and
equipment, such as computer equipment and office furniture and $617,000 to pay
non-recurring acquisition costs, partially offset by $1.6 million of cash
acquired with the Fiscal 1998 Purchased Companies. Net cash used in financing
activities was $1.8 million, consisting of $7.1 million for the repayment of
indebtedness, partially offset by advances to the Company of $5.2 million from
U.S. Office Products.
During the nine months ended January 25, 1997, net cash provided by
operating activities was $4.6 million. Net cash used in investing activities was
$2.7 million, including $1.3 million paid for acquisitions, $888,000 related to
additions to property and equipment, such as computer equipment and office
furniture and $284,000 to pay non-recurring acquisition costs. Net cash used in
financing activities was $2.2 million, including $1.7 million for the repayment
of indebtedness and $2.8 million for the payment of dividends, partially offset
by advances to the Company of $1.1 million from U.S. Office Products.
During fiscal 1997, net cash provided by operating activities was $6.5
million. Net cash used in investing activities was $3.1 million, including $1.8
million for an acquisition, $769,000 for additions to
38
<PAGE>
property and equipment, such as computer equipment and office furniture and
$539,000 to pay non-recurring acquisition costs. Net cash used in financing
activities was $2.1 million, including $4.6 million for the repayment of
indebtedness and $3.0 million for the payment of dividends, partially offset by
advances to the Company of $5.0 million from U.S. Office Products.
During 1995, net cash provided by operating activities was $4.2 million. Net
cash provided by investing activities was $561,000, including $2.3 million of
cash received in conjunction with a purchase acquisition partially offset by
$1.9 million paid for additions to property and equipment, such as computer
equipment and office furniture. Net cash used by financing activities was $3.1
million, including $2.0 million for the repayment of indebtedness and $2.4
million for the payment of dividends, partially offset by proceeds from the sale
of $800,000 of common stock of one of the pooled companies.
During 1994, net cash provided by operating activities was $3.0 million. Net
cash used in investing activities was $676,000, including $804,000 for additions
to property and equipment, such as computer equipment and office furniture. Net
cash used in financing activities was $4.0 million, including $707,000 to repay
indebtedness and $3.3 million for the payment of dividends.
The Company expects that the Distribution Agreement with U.S. Office
Products will call for an allocation of $16.4 million of debt by U.S. Office
Products resulting in incremental debt of $7.4 million at January 24, 1998,
which will be reflected in the financial statements as a reduction in
stockholder's equity. The Company intends to use a portion of the net proceeds
of this offering to repay such debt. The remainder of the net proceeds from this
offering will be retained by the Company and used for general corporate
purposes, including acquisitions.
Under the Distribution Agreement, the Company is required, on or prior to
the Travel Distribution, to obtain a credit facility, to borrow funds under such
facility and to use the proceeds of such borrowings to pay off approximately
$16.4 million of U.S. Office Products' debt, as described under "Arrangements
Among U.S. Office Products, Navigant and the Other Spin-Off Companies After the
Distributions-- Distribution Agreement--Debt". The Company has received a
committment letter for a secured $75.0 million revolving credit facility from
NationsBank, N.A. as Administrative Agent. NationsBanc Montgomery Securities
LLC, one of the underwriters and an affiliate of NationsBank, N.A., is the
Arranger and Syndication Agent. The credit facility will terminate five years
from the effective date of the credit facility. Interest on borrowings under the
credit facility will accrue at a rate of, at the Company's option, either (i)
LIBOR plus a margin of between 1.00% and 2.00%, depending on the Company's
funded debt to EBITDA ratio, or (ii) the Alternative Base Rate (defined as the
higher of (x) the NationsBank, N.A. prime rate and (y) the Federal Funds rate
plus .50%) plus a margin of between 0% and .75%, depending on the Company's
funded debt to EBITDA ratio. Indebtedness under the credit facility will be
secured by substantially all of the assets of the Company. The credit facility
will be subject to terms and conditions typical of facilities of such size and
will include certain financial covenants. The Company will borrow under the
credit facility to repay the U.S. Office Products' debt which it is obligated
under the Distribution Agreement to repay. The balance of the credit facility
will be available for working capital, capital expenditures and acquisitions,
subject to compliance with the applicable covenants.
On March 6, 1998, Navigant filed a Registration Statement with the SEC for
the issuance of Common Stock in the Offering. The Offering is expected to be for
2,000,000 shares (plus 300,000 shares subject to the underwriters' option to
purchase shares to cover over-allotments). A preliminary prospectus dated May
18, 1998 estimated that the initial public offering price will be between $11.00
and $13.00 per share. Navigant expects that the initial public offering price in
the Offering will be determined after the close of markets on the date of this
Information Statement/Prospectus. There can be no assurance that the initial
public offering price will be set at that time, that the price will be within
the range set forth in the preliminary prospectus, or that the Offering will be
completed. Information regarding the initial public offering price, and "as
adjusted" pro forma financial statements based on that price, will be set forth
in the
39
<PAGE>
final prospectus related to the Offering, which will be publicly available
within two business days after the price is determined. See "Additional
Information."
Navigant intends to use a portion of the net proceeds from the Offering to
repay the approximately $16.4 million to be borrowed under the $75.0 million
credit facility to refinance all amounts payable to U.S. Office Products. After
such repayment, approximately $75.0 million will be available under the credit
facility.
Capital expenditures for fiscal year 1998 are expected to be approximately
$3.5 million.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The domestic and international travel industry is extremely seasonal. The
results of the Company have fluctuated because of seasonal variations in the
travel industry, especially the leisure travel segment. Net revenues and net
income for the Company are generally higher in the second and third calendar
quarters. The Company expects this seasonality to continue in the future. The
Company's quarterly results of operations may also be subject to fluctuations as
a result of fare wars by travel suppliers, changes in relationships with certain
travel suppliers, changes in the mix of services offered by the Company, extreme
weather conditions or other factors affecting travel. Unexpected variations in
quarterly results could also adversely affect the price of the Company Common
Stock, which in turn could limit the ability of the Company to make
acquisitions.
As the Company continues to complete acquisitions, it may become subject to
additional seasonal influences. Quarterly results also may be materially
affected by the timing of acquisitions, the timing and magnitude of costs
related to such acquisitions, variations in the prices paid by the Company for
the products it sells, the mix of products sold and general economic conditions.
Moreover, the operating margins of companies acquired may differ substantially
from those of the Company, which could contribute to the further fluctuation in
its quarterly operating results. Therefore, results for any quarter are not
necessarily indicative of the results that the Company may achieve for any
subsequent fiscal quarter or for a full fiscal year.
The following table sets forth certain unaudited consolidated quarterly
financial data for the year ended December 31, 1995, the fiscal year ended April
26, 1997 and the fiscal year ending April 25, 1998 (in thousands). The
information has been derived from unaudited consolidated financial statements
that in
40
<PAGE>
the opinion of management reflect all adjustments, consisting only of normal
recurring accruals, necessary for a presentation of such quarterly information.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................................... $ 8,486 $ 13,241 $ 12,005 $ 11,535 $ 45,267
Gross profit................................................ 3,142 6,305 5,093 4,891 19,431
Operating income............................................ 188 2,091 1,000 589 3,868
Net income.................................................. 217 1,558 792 531 3,098
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 26, 1997
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 15,243 $ 13,770 $ 12,514 $ 16,150 $ 57,677
Gross profit............................................... 7,637 6,276 4,958 7,265 26,136
Operating income (loss).................................... 2,186 1,131 (212) 1,643 4,748
Net income (loss).......................................... 1,753 937 (209) 862 3,343
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING APRIL 25, 1998
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 19,530 $ 27,027 $ 34,149 $ 80,706
Gross Profit............................................... 8,637 11,705 13,192 33,534
Operating income (loss).................................... 2,565 2,138 1,048 5,751
Net income (loss).......................................... 1,358 1,207 373 2,938
</TABLE>
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company intends to
adopt SFAS No. 130 in fiscal 1999.
41
<PAGE>
INDUSTRY OVERVIEW
The travel agency industry in the United States is highly fragmented and
characterized by intense competition. There are more than 30,000 travel agencies
producing an estimated $70 billion in annual airline ticket sales. Approximately
seven of those agencies, including Navigant, have more than $1.0 billion each in
annual airline sales. Navigant believes that approximately 75% of the United
States market for air travel is booked through travel agencies. Business travel
accounts for approximately 60% of all travel expenditures, with leisure travel
accounting for the balance. Airline ticket sales by travel agencies increased at
a rate of approximately 10.5% for calendar year 1997, and have increased
approximately 66% since 1988, according to recent industry reports.
Travel agencies serve both their customers and travel suppliers. The
agencies have traditionally served their customers by booking travel
reservations with travel suppliers and providing information regarding the array
of travel services available. The agencies review, analyze and simplify the
range of information concerning competing suppliers, schedules and prices to
provide customers with relevant and useful choices. In addition, agencies
servicing corporate customers offer customized reports and other management
tools that facilitate the development and monitoring of corporate travel
policies. Agencies also serve travel suppliers by acting as their primary
distribution channel for information and booking services. Travel agencies
derive their revenue from commissions generated by airline, rental car and hotel
bookings and from service fees paid by customers.
The business travel agency industry has undergone significant changes since
1995, due in part to the reduction in commission revenues from airline carriers,
increasing industry reliance on technology and the concentration of the
industry's customer base. Navigant believes that significant technological and
financial resources are required to compete in today's corporate travel market,
and that larger corporate travel agencies may therefore have a competitive
advantage. Accordingly, Navigant believes the business travel agency industry is
undergoing a period of consolidation and that significant growth opportunities
exist. Navigant believes that large agencies providing integrated systems from
purchasing to payment will eventually dominate the industry.
The industry's role and capacity as a distribution channel, and its
relationship with both customers and suppliers, is also undergoing significant
changes as a result of the Internet, computer on-line services and other
technological innovations. Navigant believes these innovations offer
opportunities for travel agencies to increase the efficiency of their
distribution capacities and enhance services provided to travelers and corporate
travel managers.
BUSINESS
GENERAL
Navigant, one of the five largest providers of corporate travel management
services in the United States based on airline ticket sales, was formed by U.S.
Office Products through the acquisition of twelve regional corporate travel
agencies. In calendar year 1997, the travel agencies that form Navigant booked
$1.38 billion in airline ticket sales, or approximately 2.5 million airline
tickets. With locations throughout the United States, in Canada, and in the
United Kingdom, Navigant provides its corporate customers with a wide range of
corporate travel management services, including reservations by telephone,
facsimile, e-mail, Internet and direct access; ticketing; accounting;
information and management reporting; assistance in planning and organizing
incentive trips, corporate meetings and events; and travel management consulting
services. Navigant provides corporate travel management services to its
customers through several channels, including on-site travel agencies, regional
travel agency offices and satellite ticket printers. Navigant receives
commissions and fees from airlines, hotels, car rental companies and other
travel suppliers, and service and management fees from its customers. As a small
portion of Navigant's overall business, Navigant provides travel services to
leisure customers and groups.
42
<PAGE>
Navigant employs approximately 2,460 people at 129 offices and 219 on-site
locations in the United States, Canada and the United Kingdom. U.S. Office
Products began building Navigant with the acquisition of Professional Travel
Corporation in January 1997 and thereafter acquired eleven additional corporate
travel management companies. The following table sets forth each of the acquired
agencies.
<TABLE>
<CAPTION>
NAME HEADQUARTERS DATE FOUNDED
- ------------------------------------------------ ------------------------------------------------ -------------
<S> <C> <C>
Professional Travel Corporation Englewood, Colorado 1983
Mutual Travel Seattle, Washington 1985
Travel Arrangements, Inc. and
St. Pierre Enterprises (Super Travel) Houston, Texas 1975/1985
Simmons Associates, Inc. Alexandria, Virginia 1976
Associated Travel International Santa Ana, California 1961
Evans Travel Group New Orleans, Louisiana 1986
Atlas Travel Services Vancouver, British Columbia 1961
Omni Travel Cambridge, Massachusetts 1979
Travel Consultants, Inc. Grand Rapids, Michigan 1972
McGregor Travel Management Stamford, Connecticut 1953
Wareheim Travel Services
(Travel Guide) Baltimore, Maryland 1951
TravelCorp, Inc. Edina, Minnesota 1974
</TABLE>
BUSINESS STRATEGY
Navigant's objective is to be a premier provider of corporate travel
management services to middle market and larger companies around the world. To
accomplish this objective, Navigant has a focused business strategy based upon
the following key principles:
- FOCUSING ON CORPORATE TRAVEL. Navigant's customers are primarily middle
market and larger corporations, which typically require the expertise and
efficiencies offered by multi-regional professional service providers.
Navigant provides these customers with end-to-end systems integration of
their corporate travel: from consulting on the development of corporate
travel policies, negotiating with frequently-used travel suppliers and
making reservations to providing corporate management with detailed
accounting, travel expense and travel activity reports.
- MAINTAINING PERSONALIZED CUSTOMER SERVICE. Navigant's strategy is to
combine the resources and efficiencies of a large, national "mega-agency"
with the responsive, personalized service of local and regional travel
agencies. Although the mega-agencies have the resources to manage and
service large national accounts efficiently, they have not maintained a
reputation for delivery of personal service. Navigant believes that its
regional business focus, which allows it to emphasize customer service and
to offer its customers dedicated, local service, is a key feature
differentiating it from its other large competitors.
- OPERATING WITH DECENTRALIZED MANAGEMENT STRUCTURE. Navigant believes that
its local management teams have a thorough understanding of their
respective geographic markets and businesses and have developed strong
relationships with their customers and suppliers. Navigant intends to
capitalize on its local market expertise and client relationships by
utilizing a decentralized management structure. Even as Navigant
centralizes administrative and technology systems, local management will
continue to handle daily interactions with customers and operate their
businesses with an appreciation of their particular local and regional
markets. Navigant's executive management team will work closely with local
and regional offices to coordinate, integrate and expand their service
43
<PAGE>
offerings. Navigant also intends to use appropriate incentive
compensation, including stock ownership, to ensure that local management
interests and Navigant objectives remain aligned.
- ACHIEVING OPERATING EFFICIENCIES. Navigant's strategy is to reduce costs
as a percentage of sales by taking advantage of purchasing, administrative
and other operating efficiencies which it believes can be achieved with
Navigant's existing and potentially increasing size and scale. Navigant
believes that it will be able to achieve operating efficiencies by
eliminating redundant facilities, reducing overhead and combining certain
general and administrative functions, such as ARC processing, 24-hour
toll-free number service, research and development, purchasing, data
processing and the process of securing accounting, insurance, financial
management, human resources and legal support.
- UTILIZING TECHNOLOGY TO IMPROVE SERVICE AND REDUCE COST. Navigant intends
to continue pursuing systems and technological advancement to provide the
most complete, accurate and current information about travel services and
reservations to Navigant's customers. Certain of Navigant's subsidiaries
have developed operating and technology systems designed to improve and
enhance their operations, including a fully-automated quality assurance
and cost savings program. See "-- Services--Use of Technology." Navigant
intends to utilize the Internet, computer on-line booking services and
other technological innovations to enhance its ability to interface with
its customers efficiently and conveniently and to reduce the cost of
transactions to its customers.
GROWTH STRATEGIES
Navigant plans to achieve its objective of being a premier provider of
corporate travel management services to middle market and larger companies
around the world by implementing an internal growth strategy and pursuing an
aggressive acquisition program.
- IMPLEMENTING INTERNAL GROWTH STRATEGY. The key elements of Navigant's
internal growth strategy are as follows:
Generate new customers through an aggressive marketing
program. Navigant intends to expand its customer base by capitalizing on
the breadth of its services, its size, its geographic scope and its
financial resources. Navigant believes that it will be able to leverage its
nationwide presence to attract corporate customers that have locations in
more than one geographic region.
Continue to reduce customer costs. Navigant intends to continue
developing its planning, consulting and other management services to help
clients achieve their travel objectives at the lowest feasible cost. In
addition, Navigant's shift toward a revenue structure based primarily on
management fees enables Navigant to share with customers the cost savings it
achieves through operating efficiencies. See "--Revenue Sources."
Implement best practices. Navigant believes that the ability of its
different operating units to access and share the collective experience and
expertise of its management gives it competitive advantages in the industry.
Navigant seeks to identify certain best practices in each of its operating
units that can be implemented in other operating units, and therefore
generate incremental revenue, reduce costs, and enhance profitability. For
example, Navigant intends to identify the best applications among the
software and information technology of each of its subsidiaries.
Achieve economies of scale. Navigant believes that it can achieve
economies of scale through the integration of its back-office operations,
technology development and information and management systems at its current
operations. For instance, Navigant has begun implementing a single,
Company-wide information technology platform to service its accounting and
reporting requirements. Navigant believes that it can benefit from greater
purchasing power in such key expense areas as telecommunications,
advertising, insurance, courier expenses and employee benefits. Navigant
also believes that it can reduce total operating expenses by eliminating or
consolidating certain duplicative
44
<PAGE>
administrative functions, such as ARC processing, 24-hour toll-free number
services and research and development.
- PURSUING AN AGGRESSIVE ACQUISITION PROGRAM TO FURTHER CONSOLIDATE THE
INDUSTRY. Navigant believes that the travel service industry is highly
fragmented with significant opportunities to consolidate through selective
acquisitions of leading regional and local companies. Navigant will seek
to acquire companies that (i) have demonstrated growth and profitability,
(ii) have desirable geographic locations, (iii) are run by successful,
experienced entrepreneurs whom Navigant will generally endeavor to retain,
(iv) predominantly serve the corporate market and (v) have an emphasis on
customer service. Navigant believes that its acquisition strategy will
enable it to achieve operating efficiencies through consolidation of
purchasing and various administrative functions, while freeing regional
and local management to focus on service and customer satisfaction.
Navigant believes that opportunities exist for global expansion. Navigant,
which already has operations in Canada and the United Kingdom, also
intends to continue seeking opportunities for international expansion
through strategic international acquisitions and through internal
expansion into global markets.
Navigant routinely reviews, and conducts investigations of, potential
acquisitions of domestic and foreign travel agencies. When Navigant
believes a favorable opportunity exists, Navigant seeks to enter into
discussions with the owners of such businesses regarding the possibility of
an acquisition by Navigant. At any given time, Navigant may be in
discussions with one or more travel agency owners.
SERVICES
TRAVEL MANAGEMENT SERVICES
Navigant provides the full range of corporate travel management services,
including: reservations by telephone, facsimile, Internet and direct access;
ticketing; accounting; information and management reporting; assistance in
planning and organizing incentive trips, corporate meetings and events; and
travel management consulting services. In providing these services, Navigant
seeks to assist corporations in managing and controlling their travel costs.
Navigant books travel reservations for its customers with a variety of
travel suppliers, including airlines, hotels and rental car companies. In
calendar year 1997 Navigant, on a pro forma basis, booked $1.38 billion in
airline ticket sales, or approximately 2.5 million airline tickets. In order to
improve customer value, Navigant uses several computer reservation systems to
book airline tickets, hotel reservations and rental car reservations. Navigant
uses three major systems, SABRE, Galileo/Apollo and Worldspan. After reserving
travel arrangements for its customers, Navigant issues tickets, both paper and
electronic, and provides its customers with detailed itineraries, which include
confirmation numbers for hotel and car rental reservations. Navigant also
provides a 24-hour toll-free number which its customers can access for emergency
assistance.
For its business customers, Navigant provides various travel management
services. These include tracking and reporting travel expenses, providing
reports to management summarizing travel patterns and policy, and identifying
deviations from the customer's travel policies. See "--Use of Technology."
Navigant can also assist its business customers in the creation of their travel
policies and can manage customer costs by negotiating discounts and other
benefits with travel suppliers, such as airlines, hotels and car rental
companies.
In addition to corporate travel management, Navigant provides leisure travel
services to individuals and groups, as a small portion of Navigant's overall
business. Navigant derives part of its leisure travel business through its
existing corporate customer base. Certain of Navigant's regional offices also
actively advertise in the leisure travel market.
45
<PAGE>
USE OF TECHNOLOGY
Navigant embraces technology as a key to future success in the travel
industry. Navigant's information technology can provide corporate travel
managers with extensive feedback about individual, departmental and company
travel activity and patterns. Navigant can use this information to consult with
its customers regarding the structure, operation and efficiency of a variety of
corporate travel policies. In addition, Navigant can provide corporate travel
managers with comprehensive information about cost saving opportunities for the
travel undertaken by their companies' employees.
Navigant has developed a fully-automated quality assurance program,
AQUA-Registered Trademark-, which features both a quality auditing system and a
computerized cost avoidance system. AQUA's Trip Auditor system checks each
travel record for accuracy and completeness and repetitively searches airline
seat maps for each traveler's preferred seat assignments and frequent flier
upgrade opportunities. AQUA's FareBuster-TM- system is a computerized cost
avoidance program which checks each record for a lower airline fare or hotel
rate and continuously checks wait list flights and flight inventories for
discount fares that become available prior to travel. AQUA also advises travel
managers of travelers who are not taking advantage of the lowest fare. Although
certain of Navigant's regional agencies cannot yet access the AQUA system,
Navigant intends to install the system throughout its offices.
In addition, Navigant has recently developed an Internet system that allows
travel managers and other executives to view their company's travel activities
24 hours a day using a password protected system. The user can view both
pre-trip and post-trip information sorted at every level of corporate
organization, from individual traveler to department, division or company.
DISTRIBUTION OF SERVICES
Navigant provides corporate travel management services to its customers
through several channels, including on-site travel agencies, regional travel
agency offices and on-site satellite ticket printers ("STP").
Navigant currently has 219 on-site travel operations on customer premises,
where it provides customized trip planning, reservation and ticketing services
to the employees of corporate customers. On-site operations are typically
desirable for customers with airline expenditures in excess of $1.0 million per
year. Through an on-site office, Navigant is able to work one-on-one with the
customer's travel manager to meet the customer's travel needs, including the
need for customized corporate travel information and negotiations with travel
suppliers frequently used by the customer.
Navigant has 129 regional travel agency offices. These offices are typically
used by corporate customers with less than $1.0 million in travel expenditures
per year. The regional travel agency offices provide local companies with
comprehensive travel management services, including trip planning, reservation
and ticketing services, accounting, corporate travel reporting, negotiations
with frequently used travel suppliers and consulting. The regional nature of
these offices allows them to leverage their local market expertise and to
provide quick, responsive and personalized service. In addition, regional travel
agency offices provide backup to nearby on-site locations.
Navigant also operates over 300 STPs at customer locations across the
country. Navigant uses these printers to distribute tickets instantly to
customers' field locations that have enough volume to justify the STP. Locations
with lower volume can receive tickets via overnight delivery services. Navigant
believes that the advent of electronic ticketing will eventually eliminate the
need for STPs and overnight delivery.
Navigant has entered into arrangements with third parties pursuant to which
it fulfills travel reservations placed on the Internet. In addition, Navigant
has several sites on the World Wide Web where individual customers can, among
other things, check flight times, make reservations, access and sort
password-protected corporate travel data, find restaurants and automatic teller
machines, and access the latest currency conversions.
46
<PAGE>
Navigant also offers desktop reservation services to its customers. This
distribution method offers customers the option of performing reservation
services directly, while the travel agent provides a supporting role. The travel
agent's role includes performing quality control on the reservation, assisting
the traveler with the use of the reservation system and issuing and delivering
tickets reserved by the customer. Additionally, the travel agent reports to
management on matters such as pre- and post-travel activity, cost saving
opportunities and the development and assessment of the company's travel policy
and negotiated rate opportunities.
REVENUE SOURCES
Navigant generates revenues principally from (i) base and incentive override
commissions on air travel tickets, (ii) fees for services rendered to customers
and (iii) commissions on hotel reservations and car rentals. In accordance with
industry practice, Navigant receives a commission on each domestic and
international air travel ticket that it issues of approximately 8%, with a
commission cap of $25 on domestic one-way air travel tickets and $50 on domestic
round-trip tickets. Commissions on international tickets are not subject to a
commission cap. Navigant has also entered into agreements with major airlines
for the payment of "incentive override commissions" in addition to the base
commissions Navigant receives. Under such agreements, the airlines generally
award additional commissions on domestic and international air travel if the
volume of Navigant's ticket sales surpasses specified thresholds, which
typically are based on the airlines' share of the relevant markets. Furthermore,
Navigant receives a commission equal to approximately 10% of the hotel rate for
hotel reservations that it makes and a commission equal to 5% of the base rental
car rate for rental car reservations that it makes.
In response to reductions in the commissions paid to travel agents and
consistent with growing industry practice, Navigant has entered into management
contracts with many of its corporate customers. Under these contracts, Navigant
typically deducts its direct operating expenses, indirect overhead costs and a
management fee from commission revenues collected from travel arrangements made
on behalf of the customer. If the commission revenues collected exceed the
amounts deducted, Navigant may share a negotiated amount of the excess with the
customer. If the commission revenues do not cover the amounts deducted, the
customer pays the difference to Navigant. Fee income recognized under management
contracts has historically been paid from commissions paid by travel suppliers.
As a result, Navigant does not prepare separate reports distinguishing payments
under management contracts from commission income.
After the airlines instituted the commission cap in 1995, and reduced base
commissions to approximately 8% in October 1997, travel agencies, including
Navigant, began charging transaction fees for some services to non-contract
customers. Navigant typically charges between $10 and $15 per ticket for tickets
issued to customers who do not have a management contract with Navigant.
Despite the management fees, increasingly being charged to customers since
airlines reduced commissions, it is Navigant's belief that corporate customers
will continue to use travel agents for their service and knowledge capabilities.
The expense and opportunity costs to a corporate customer of processing
reservations and comprehending the magnitude of information available regarding
travel services would probably exceed the fees charged by a travel agency. In
addition, the management fee structure enables the customer to benefit from
operating efficiencies and other cost reductions that Navigant is able to
achieve. Moreover, an internal travel management capability would fall outside
the core business expertise of most companies. Customers have the option of
contracting directly with airlines and other travel suppliers, but at the risk
of increased costs, inadequate information and a substantial time investment.
Navigant also provides group and leisure travel services, largely to its
corporate customers. Navigant's leisure travel services include booking airline
tickets, hotel reservations, car rentals, tours, cruises and specialty travel
packages. As is the case with non-contract corporate customers, Navigant usually
charges between $10 and $15 per airline ticket for tickets issued to leisure
customers.
47
<PAGE>
COMPETITION
Navigant competes with a variety of other providers of travel and
travel-related products and services. Its principal competitors are (i) other
travel agencies and other distributors of travel services, (ii) travel suppliers
offering their products and services directly to consumers and (iii) various
on-line services available on the Internet.
Navigant faces competition from local, regional and large travel agencies.
Local and regional agencies often have a strong presence in particular
geographic areas and benefit from a detailed knowledge of their particular
markets. Large travel agencies and other travel distributors may have
substantial resources and the leverage to achieve certain purchasing and
operating efficiencies. In addition, travel suppliers, including airlines,
hotels and rental car companies, are increasingly offering their products and
services directly to consumers through the Internet and computer on-line
services. Because of low barriers to entry in the travel service industry,
Navigant constantly faces competition from possible new entrants. See "Risk
Factors--Substantial Competition and Industry Consolidation; New Methods of
Distribution."
Navigant believes that it competes for customers based upon service, price
and specialized knowledge. Navigant believes that it is well-positioned to
compete on these bases due to its combination of size and regional focus.
Navigant uses its size to achieve operating efficiencies by implementing
customized and industry-standard technologies and by consolidating
administrative functions. Navigant's size also provides opportunities to
negotiate favorable arrangements with travel suppliers, such as airlines, hotels
and rental car companies. Navigant's regional focus, conversely, fosters
personalized customer service and specialized local market knowledge, which
helps improve customer service and expand Navigant's customer base.
MARKETING AND SALES
Navigant's marketing continually targets both new and existing customers.
Navigant's sales staff identifies potential customers and develops opportunities
to provide additional travel services to existing customers. Over the past few
years, travel policy and travel purchasing decisions in larger companies have
been centralized in purchasing departments, with travel managers, or within the
offices of chief financial officers. The selection of a travel agency has also
become more formal, with larger accounts soliciting bids through "requests for
proposals." Navigant has adapted to these changes by relying on a sales force
specially trained in the business of corporate travel, supported by experienced
marketing staff. Navigant has approximately 100 employees in its sales and
marketing departments.
Navigant also plans to utilize co-branding to enhance its national identity.
Navigant expects that each of its subsidiaries will use Navigant's name and its
own name together in its advertising and marketing efforts.
MANAGEMENT INFORMATION SYSTEMS
Navigant uses networked management information systems for financial
management, reporting, and communication. These systems provide management with
current financial information from all Navigant's offices and allow management
to share that information easily and quickly with others. The systems also allow
management to communicate efficiently with employees and each other throughout
the business day. Navigant employs technicians to administer, install, and
maintain its computer hardware and software, as well as computer programmers to
create software solutions for Navigant and its customers. Navigant has begun
implementing a single, Company-wide information technology platform to service
its accounting and reporting requirements and expects the new system to be in
place Company-wide by the first quarter of calendar 1999.
YEAR 2000 ISSUES
Navigant is addressing the Year 2000 issues relating to its financial
accounting system by upgrading its financial accounting software to a program
that is Year 2000 compliant. This upgrade is being done in
48
<PAGE>
conjunction with Navigant's shift towards an integrated system for all of its
operating subsidiaries and, therefore, Navigant expects that the upgrade to Year
2000 compliant software will not result in any material capital expenditure
above and beyond that which would have been incurred to integrate Navigant's
systems. Navigant expects the new system to be in place Company-wide by the
first quarter of calendar 1999. Other significant software used in Navigant's
operations, such as its computerized reservation system, is provided by
third-party vendors, who have represented that their software will be Year 2000
compliant.
EMPLOYEES
As of May 31, 1998, Navigant had approximately 2,460 full time employees,
none of which is subject to collective bargaining agreements. Navigant believes
that it enjoys good relations with its employees.
PROPERTIES
As of May 31, 1998, Navigant operated at 129 travel agency facilities, three
of which are owned and 126 of which are leased. The following are material
properties:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/
LOCATION FOOTAGE LEASED EXPIRATION
- ------------------------------------------------------------------ ------------- --------- ----------------------
<S> <C> <C> <C>
Santa Ana, California............................................. 22,852 Leased October 31, 1998
Alexandria, Virginia.............................................. 6,000 Leased December 13, 1998
New Orleans, Louisiana............................................ 2,521 Leased June 30, 1998
Stamford, Connecticut............................................. 10,000 Owned N/A
Seattle, Washington............................................... 1,200 Leased January 31, 1999
Seattle, Washington............................................... 560 Leased October 31, 1998
Cambridge, Massachusetts.......................................... 15,500 Leased December 31, 2001
Englewood, Colorado............................................... 49,900 Owned N/A
Grand Rapids, Michigan............................................ 29,142 Owned N/A
</TABLE>
The office building owned by Navigant and located at 84 Inverness Circle
East, Englewood, Colorado is subject to first and second deeds of trust. The
first deed of trust secures payment of a Promissory Note dated May 16, 1995 and
payable to Colorado National Bank, in the principal amount of $1,650,000. The
second deed of trust secures payment of a Promissory Note dated June 20, 1995
and payable to Colorado National Bank, in the principal amount of $225,000.
The portions of the office building owned by Navigant and located at 112
Prospect Street, Stamford, Connecticut are subject to a mortgage securing
payment of a Promissory Note payable to First County Bank, in the principal
amount of $585,000.
Navigant is evaluating the possibility of entering into sale-leaseback
transactions with respect to its owned properties in Stamford, Connecticut and
Grand Rapids, Michigan.
Navigant believes that its properties are adequate to support its operations
for the foreseeable future.
LEGAL PROCEEDINGS
Navigant is involved in various legal actions arising in the ordinary course
of business. Navigant believes that none of these actions will have a material
adverse effect on its business, financial condition and results of operations.
49
<PAGE>
MANAGEMENT OF NAVIGANT
EXECUTIVE OFFICERS AND DIRECTORS
It is anticipated that the executive officers and directors of Navigant
following the closing of the Offering will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
Edward S. Adams........................... 47 Chairman of the Board, Chief Executive
Officer, President and Director(3)
Robert C. Griffith........................ 48 Chief Financial Officer and Treasurer
Douglas R. Knight......................... 40 Chief Operating Officer
Eugene A. Over, Jr........................ 40 General Counsel and Secretary
Jonathan J. Ledecky....................... 40 Director(1)
Vassilios Sirpolaidis..................... 50 Director(3)
Ned A. Minor.............................. 52 Director(2)
D. Craig Young............................ 44 Director(2)
</TABLE>
- ------------------------
(1) Term expires in 1999.
(2) Term expires in 2000.
(3) Term expires in 2001.
EDWARD S. ADAMS has served as Chairman of the Board, Chief Executive
Officer, President and Director of Navigant since February 1998. He has served
as Chairman and Chief Executive Officer of Professional Travel Corporation
("PTC"), a subsidiary of Navigant, since 1983, as President of PTC from 1983
through April 1998, and as President of the U.S. Office Products Corporate
Travel Services Division from January 1997 through the Distribution Date.
ROBERT C. GRIFFITH has served as Chief Financial Officer and Treasurer of
Navigant since February 1998. He has served as Chief Financial Officer of PTC
since January 1997 and as Chief Financial Officer of the U.S. Office Products
Corporate Travel Services Division from January 1997 through the Distribution
Date. Mr. Griffith served as Vice President of Finance and Administration of PTC
from June 1993 through January 1997. Prior to joining PTC, Mr. Griffith served
as Senior Manager and Area Director of IDS Tax and Business Services, a
subsidiary of American Express, from September 1991 to June 1993. Before joining
IDS, Mr. Griffith was employed by Deloitte & Touche. Mr. Griffith is licensed as
a certified public accountant in the state of Colorado.
DOUGLAS R. KNIGHT has served as Chief Operating Officer of Navigant since
May 1998. Mr. Knight has served as President of McGregor Travel Management,
Inc., a subsidiary of Navigant ("McGregor"), since April 1993 and as Chairman of
McGregor since October 1997. Mr. Knight joined McGregor in 1987 as Controller
and became Vice President of Finance in 1989. From 1984 to 1987, Mr. Knight
worked for American Airlines and was responsible for implementing and
maintaining American Airline's travel agency accounting system, ADS, in travel
agencies across the United States.
EUGENE A. OVER, JR. has served as General Counsel and Secretary of Navigant
since February 1998. He has also served as Legal Affairs and Administrative
Officer of PTC since December 1997. Mr. Over was an attorney at Clanahan Tanner
Downing & Knowlton, P.C. from December 1994 through November 1997. From January
1994 through November 1994, he served as General Counsel of GSA Corporation, a
private investment company. Prior to January 1994, Mr. Over was an attorney at
Montgomery, Little & McGrew, P.C.
JONATHAN J. LEDECKY will serve as a Director and employee of Navigant and
each of the other Spin-Off Companies. He founded Consolidation Capital
Corporation in February 1997 and serves as its Chairman and Chief Executive
Officer. Mr. Ledecky founded U.S. Office Products in October 1994 and will serve
as its Chairman of the Board until the Distribution Date and served as its Chief
Executive Officer until
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<PAGE>
November 5, 1997. Mr. Ledecky has also served as the Non-Executive Chairman of
the Board of USA Floral Products, Inc. since April 1997 and as a director of
UniCapital Corporation since October 1997. Mr. Ledecky served from 1989 to 1991
as the President of The Legacy Fund, Inc., and from 1991 to September 1994 as
President and Chief Executive Officer of Legacy Dealer Capital Fund, Inc., a
wholly-owned subsidiary of Steelcase Inc. Prior to his tenure at The Legacy
Fund, Inc., Mr. Ledecky was a partner at Adler and Company and a Senior Vice
President at Allied Capital Corporation, an investment management company.
VASSILIOS SIRPOLAIDIS will serve as a Director of Navigant. He has been
President of Mile High Office Supply Company, Inc. ("Mile High") since 1978.
U.S. Office Products acquired Mile High in July 1996. Mr. Sirpolaidis has also
served as a District President of U.S. Office Products since August 1996 and as
President of Arizona Office Products, a subsidiary of U.S. Office Products,
since May 1997.
NED A. MINOR will serve as a Director of Navigant. Mr. Minor has served as
Director, President and Vice-President of Minor & Brown, P.C., a private law
firm, since 1977. Mr. Minor is a practicing attorney in the state of Colorado,
specializing in the areas of general corporate law and mergers and acquisitions.
D. CRAIG YOUNG will serve as a Director of Navigant. Mr. Young currently
serves as Director, President and Chief Executive Officer of Metronet
Communications, a telecommunications company. From 1995 through 1998, Mr. Young
served as the President and Chief Operating Officer of Brooks Fiber Properties,
Inc. Mr. Young served from 1993 to 1995 as Vice President of Custom Business for
Ameritech Corp., a telecommunications company based in Chicago, Illinois.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by all persons for services rendered to Navigant and its subsidiaries
during the fiscal years ended April 26, 1997 and April 25, 1998 to the Chief
Executive Officer and to the other most highly compensated officers of Navigant
(the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2)
- ------------------------------------------------------------------ --------- ---------- --------- -----------------
<S> <C> <C> <C> <C>
Edward S. Adams................................................... 1998 $ 250,000 -- $ 8,554
Chairman of the Board, Chief Executive Officer, President and
Director
Robert C. Griffith................................................ 1998 150,000 -- 5,256
Chief Financial Officer and
Treasurer
Douglas R. Knight................................................. 1998 382,000 -- 3,563
Chief Operating Officer
</TABLE>
- ------------------------
(1) Upon the completion of the Travel Distribution, the annual salaries of the
named executives will be: Mr. Adams--$300,000, Mr. Griffith--$200,000 and
Mr. Knight--$250,000.
(2) Represents automobile expenses paid by Navigant.
51
<PAGE>
The following table sets forth certain information regarding U.S. Office
Products Options granted to the Named Officers during the year ended April 25,
1998. All options were granted by U.S. Office Products as U.S. Office Products
Options and are expected to be replaced with Navigant Options in connection with
the Travel Distribution. See "The Travel Distribution--Replacement of
Outstanding U.S. Office Products Options Held by Navigant Employees."
OPTIONS GRANTED IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF APPRECIATION FOR
TOTAL OPTIONS OPTION TERM
OPTIONS GRANTED IN EXERCISE EXPIRATION ----------------------------
NAME GRANTED(1) FISCAL YEAR PRICE(1) DATE 5% 10%
- -------------------------- ------------- --------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward S. Adams........... 22,500 2.1% $ 15.17 4/28/2007 $ 214,657 $ 543,984
480,000 44.8 18.50 3/20/2008 5,584,584 14,152,433
Robert C. Griffith........ 15,000 1.4 15.17 4/28/2007 143,105 362,656
120,000 10.0 18.50 3/20/2008 1,396,146 3,538,108
Douglas R. Knight......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products Common Stock Pre-Travel
Distribution
Initial Public Offering Price of
Navigant Common Stock in the
Offering
The exercise price of the U.S. Office Products Options will be adjusted by
applying the following formula:
Exercise Price (New) = Exercise Price (Old) XInitial Public Offering Price
of Navigant Common Stock in the Offering
Trading Price of U.S. Office Products Common
Stock Pre-Travel Distribution
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Travel Distribution" will be the average closing price of U.S. Office
Products Common Stock for the lesser of ten business days preceding the
Distribution Date or the business days falling between the expiration of the
Tender Offer and the Distribution Date. If the initial public offering price
cannot be determined at the time of the adjustment, the closing price on
June 10, 1998 will be substituted for the initial public offering price in
the formula.
52
<PAGE>
The following table sets forth certain information regarding option
exercises and unexercised options held by the Named Officers at April 25, 1998.
All options were granted by U.S. Office Products as U.S. Office Products Options
and are expected to be replaced with Navigant Options in connection with the
Travel Distribution. See "The Travel Distribution--Replacement of Outstanding
U.S. Office Products Options held by Navigant Employees."
AGGREGATED OPTION EXERCISES IN FISCAL YEAR ENDED APRIL 25, 1998
AND FISCAL YEAR-END 1998 OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE- MONEY OPTIONS
OPTIONS HELD AT APRIL 25, AT APRIL 25, 1998
1998(1) ($)(1)(2)(3)
SHARES ACQUIRED VALUE ---------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Edward S. Adams............ -- - 5,625 496,875 $ 9,591 $ 28,772
Robert C. Griffith......... -- -- 3,750 131,250 6,394 19,181
Douglas R. Knight.......... -- -- -- -- -- --
</TABLE>
- ------------------------
(1) The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products Common Stock Pre-Travel
Distribution
Initial Public Offering Price of
Navigant Common Stock in the
Offering
The exercise price of the U.S. Office Products Options will be adjusted by
applying the following formula:
Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price
of Navigant Common Stock in
the Offering
Trading Price of U.S. Office
Products Common Stock
Pre-Travel Distribution
For all optionees, the "Trading Price of U.S. Office Products Common Stock
Pre-Travel Distribution" will be the average closing price of U.S. Office
Products Common Stock for the lesser of ten business days preceding the
Distribution Date or the business days falling between the expiration of the
Tender Offer and the Distribution Date. If the initial public offering price
cannot be determined at the time of the adjustment, the closing price on
June 10, 1998 will be substituted for the initial public offering price in
the formula.
(2) Options are "in-the-money" if the closing market price of U.S. Office
Products Common Stock exceeds the exercise price of the options.
(3) The value of unexercised options represents the difference between the
exercise price of such options and $16.875, the closing market price of U.S.
Office Products Common Stock at April 24, 1998.
1998 STOCK INCENTIVE PLAN
Navigant has adopted the 1998 Stock Incentive Plan (the "Plan"). The purpose
of the Plan is to promote the long-term growth and profitability of the Company
by providing employees with incentives to improve stockholder value and
contribute to the growth and financial success of the Company, and by enabling
the Company to attract, retain and reward highly motivated and qualified
employees. The maximum percentage of shares of Navigant Common Stock that may be
issued with respect to awards granted under the Plan is 25% of the outstanding
Navigant Common Stock following the Travel Distribution and the Offering. The
maximum number of shares that may be issued with respect to awards granted under
the Plan to an individual in a calendar year may not exceed 1,100,000 shares.
The Plan will be administered by the Compensation Committee of the Board of
Directors. All employees of the Company and its subsidiaries, as well as
non-employee directors of the Company, are eligible to receive awards under the
Plan. The Plan authorizes the Compensation Committee to make awards of stock
options, restricted
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stock and other stock-based awards. The Compensation Committee will determine
the prices, vesting schedules, expiration dates and other material conditions
under which such awards may be exercised.
Mr. Ledecky is receiving a stock option for Navigant Common Stock, pursuant
to the Plan, as of the Distribution Date. The option is intended to compensate
Mr. Ledecky for services to Navigant as an employee. The option covers 7.5% of
the outstanding Navigant Common Stock determined as of the Distribution Date,
without regard to the Offering. The option will have a per share exercise price
equal to the initial public offering price of the Navigant Common Stock. The
estimated value of this option depends on its exercise price. Based on an
assumed exercise price of $12.00 per share (which is equal to the mid-point of
the price range set forth in the preliminary prospectus for the Offering) and an
assumed trading volatility index of the Navigant Common Stock of 45%, the
estimated value of the option is approximately $2.1 million, net of taxes at an
assumed 40% rate.
Mr. Ledecky's option is fully vested when granted but will not be
exercisable until the 12-month anniversary of the Distribution Date. Mr.
Ledecky's option from the Company will be exercisable immediately if Mr. Ledecky
dies before the option expires or, if and to the extent that, Navigant
accelerates the exercise schedule of options for substantially all management
option holders. All unexercised portions of the option will expire ten years
after its date of grant or, if applicable, as of the date Mr. Ledecky violates
his non-competition agreement with Navigant.
The Company expects that Edward Adams will also receive an option (the
"Adams Option") pursuant to the Plan for 4.0% of the outstanding Navigant Common
Stock as of the Distribution Date. The Adams Option is anticipated to have the
same terms as Mr. Ledecky's option, including an exercise price equal to the
initial public offering price of the Navigant Common Stock. The estimated value
of the Adams Option depends on its exercise price. Based on an assumed exercise
price of $12.00 per share (which is equal to the mid-point of the price range
set forth in a preliminary prospectus for the Offering) and an assumed trading
volatility index of Navigant Common Stock of 45%, the estimated value of the
Adams Option is approximately $1.1 million, net of taxes at an assumed 40% rate.
In addition, management currently expects to recommend option grants to certain
executive officers and directors of the Company for approximately 3.5% of the
outstanding Navigant Common Stock following the Travel Distribution, also at an
exercise price equal to the initial public offering price of the Navigant Common
Stock.
COMMITTEES OF THE BOARD
The Board of Directors has created an Audit Committee consisting of Messrs.
Sirpolaidis, Minor and Young. The Audit Committee is charged with reviewing
Navigant's annual audit and meeting with Navigant's independent accountants to
review Navigant's internal control and financial management practice.
The Board of Directors has created a Compensation Committee consisting of
Messrs. Sirpolaidis, Minor and Young. The Compensation Committee is charged with
determining the compensation of executive officers of Navigant and administering
any stock option plan Navigant may adopt.
DIRECTOR COMPENSATION
Non-management directors are expected to be compensated with $10,000 of
airline tickets and other travel accommodations for their services as directors.
In addition, such directors will be paid $2,500 in cash for each committee of
the Board of Directors on which they serve and may be granted Navigant Options
under the Plan. Non-management directors will also be reimbursed for all
out-of-pocket expenses related to their service as directors.
LEDECKY SERVICES AGREEMENT
Jonathan J. Ledecky entered into the Ledecky Services Agreement with U.S.
Office Products on January 13, 1998, effective on the Distribution Date and
contingent on the consummation of the Distributions, which agreement has been
amended as of June 8, 1998. The Ledecky Services Agreement
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will expire on September 30, 1998 if none of the Distributions has occurred by
that date. If the Ledecky Services Agreement becomes effective, it will replace
his employment agreement with U.S. Office Products as amended November 4, 1997.
The principal terms of the Ledecky Services Agreement, as amended, are
summarized below.
The Ledecky Services Agreement governs Mr. Ledecky's continuing obligations
to U.S. Office Products. Under the Ledecky Services Agreement, Mr. Ledecky will
report to the U.S. Office Products Board of Directors and will provide
high-level acquisition negotiation services and strategic business advice. Under
the agreement, Mr. Ledecky will remain an employee of U.S. Products, at an
annual salary of $48,000 through June 30, 2001. Mr. Ledecky will also retain his
existing U.S. Office Products options; the number of shares subject to these
options, and their exercise price, will be adjusted to take account of the
Distributions. As a continuing employee, Mr. Ledecky is entitled to retain his
options despite his reduction in services to U.S. Office Products. U.S. Office
Products can terminate Mr. Ledecky's employment only for "cause" where cause
consists of (i) his conviction of or guilty or nolo contendere plea to a felony
demonstrably and materially injurious to U.S. Office Products or (ii) his
violation of the noncompetition provision as it relates to U.S. Office Products.
If Mr. Ledecky resigns or is terminated, he will cease to vest in his U.S.
Office Products Options and will have 90 days to exercise any vested options (as
under his existing options).
Navigant is entering into an employment agreement with Mr. Ledecky,
effective as of June 10, 1998 that will implement its assigned portion of the
Ledecky Services Agreement. Under the employment agreement, Mr. Ledecky will
report to the Board of Directors and senior management of Navigant. In such
capacity, Mr. Ledecky will provide high-level acquisition negotiation services
and strategic business advice. Navigant can require Mr. Ledecky's performance of
such services, consistent with his other contractual obligations to
Consolidation Capital Corporation, U.S. Office Products and the other Spin-Off
Companies. As an employee, Mr. Ledecky will also be subject to the generally
applicable personnel policies of Navigant and will be eligible for such benefit
plans in accordance with their terms. Navigant will pay Mr. Ledecky an annual
salary of $48,000 for up to two years. The Company may terminate Mr. Ledecky's
employment with "cause," where cause has the same definition as in the Ledecky
Services Agreement, as modified to refer to Navigant.
The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions that continue until the end of the specified
restricted period, which, for Navigant, means the later of June 10, 2000 or the
date one year after Mr. Ledecky leaves Navigant's employ. These provisions
generally restrict Mr. Ledecky from, among other things, investing in or working
for or on behalf of any business selling any products or services in direct
competition with U.S. Office Products or the Spin-Off Companies (collectively,
the "U.S. Office Products Companies"), within 100 miles of any location where
the relevant U.S. Office Products Company regularly maintains an office with
employees. (For this purpose, "products or services" are those that U.S. Office
Products offered on January 13, 1998.) Notwithstanding this prohibition, Mr.
Ledecky may serve in a policy making role (but not engage in direct personal
competition) with respect to the following businesses: (i) certain businesses
potentially competitive with Aztec Technology Partners, Inc.; (ii) businesses
selling, supplying, or distributing janitorial or sanitary products or services;
(iii) businesses managing or servicing office equipment (other than computers);
(iv) businesses providing internet access services; (v) UniCapital Corporation's
current businesses (which include equipment leasing); or (vi) U.S. Marketing
Services' shelf-stocking and merchandising, point-of-purchase display creation,
and incentive marketing businesses (as currently publicly described to include
travel incentives), but Mr. Ledecky must cease serving as a director and be
solely an investor after that company is public. The Ledecky Services Agreement
prohibits Mr. Ledecky from trying to hire away managerial employees of the U.S.
Office Products Companies or calling upon customers of the U.S. Office Products
Companies to solicit or sell products or services in direct competition with the
U.S. Office Products Companies. Mr. Ledecky also may not hire away for
Consolidation Capital Corporation any person then or in the preceding one year
employed by the U.S. Office Products Companies. U.S. Office Products is
permitted to (and will) assign to Navigant and the other Spin-Off Companies the
ability to enforce the non-competition
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provisions described above as they apply to the Spin-Off Companies' respective
businesses, which will then constitute part of his employment agreement with
each Spin-Off Company.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
In January 1997, PTC entered into an employment agreement with Edward S.
Adams, its President and Chief Executive Officer. The employment agreement
provides for an initial two-year term and successive one-year extensions at the
option of PTC. Pursuant to this agreement, Mr. Adams is entitled to receive
minimum annual compensation of $250,000 (which will be increased to $300,000
upon completion of the Travel Distribution), incentive bonuses as determined by
the Board of Directors of PTC (and approved by the U.S. Office Products Board of
Directors), all perquisites and benefits customarily provided by PTC to its
employees and reimbursement for the actual cost of leasing an automobile for
business use (not to exceed $712 per month). The agreement also provides for the
issuance of options to purchase 60,000 shares of U.S. Office Products Common
Stock for every $10 million increase in commission revenue earned by U.S. Office
Products after the date of the agreement (up to a maximum of 600,000 shares) .
As of the date of this Information Statement/Prospectus, Mr. Adams has earned
and been granted options for the maximum number of shares. Mr. Adams has
assigned 20% of these options to Mr. Griffith. In the event that Mr. Adams'
employment is terminated for any reason other than cause, Mr. Adams' employment
agreement provides that Mr. Adams is entitled to receive his base salary and
benefits for the longer of (i) six months from the date of termination, or (ii)
the remaining time under the initial term of the employment agreement, subject
to a right of offset if Mr. Adams secures other employment during the period
that payment is continuing under the agreement. The employment agreement also
prohibits Mr. Adams from engaging in certain activities deemed competitive with
PTC or its affiliates during the duration of his employment with PTC and for the
longer of (i) a period of two years thereafter, or (ii) as long as Mr. Adams
continues to receive severance payments from PTC.
In January 1997, PTC entered into an employment agreement with Robert C.
Griffith, its Chief Financial Officer and Treasurer. The employment agreement
provides for an initial two-year term and successive one-year extensions at the
option of PTC. Pursuant to this agreement, Mr. Griffith is entitled to receive
minimum annual compensation of $150,000 (which will be increased to $200,000
upon completion of the Travel Distribution), incentive bonuses as determined by
the President of PTC (and approved by the U.S. Office Products Board of
Directors), all perquisites and benefits customarily provided by PTC to its
employees and reimbursement for the actual cost of leasing an automobile for
business use (not to exceed $438 per month). In the event that Mr. Griffith's
employment is terminated for any reason other than cause, Mr. Griffith's
employment agreement provides that Mr. Griffith is entitled to receive his base
salary and benefits for the longer of (i) four months from the date of
termination, or (ii) the remaining time under the initial term of the employment
agreement, subject to a right of offset if Mr. Griffith secures other employment
during the period that payment is continuing under the agreement. The employment
agreement also prohibits Mr. Griffith from engaging in certain activities deemed
competitive with PTC or its affiliates during the duration of his employment
with PTC and for the longer of (i) a period of two years thereafter, or (ii) as
long as Mr. Griffith continues to receive severance payments from PTC.
In October 1997, McGregor entered into an employment agreement with Douglas
R. Knight, its President. The agreement provides for a two year term, with a
base salary of $250,000 per year, all perquisites and benefits customarily
provided by McGregor to its employees and reimbursement for the actual cost of
leasing an automobile for business use (not to exceed $550 per month). If
McGregor terminates Mr. Knight's employment without cause, Mr. Knight is
entitled to compensation at the rate of $250,000 per year for the time period
remaining under the term of the employment agreement, subject to a right of
offset if Mr. Knight secures other employment during the period that payment is
continuing under the agreement. The employment agreement also prohibits Mr.
Knight from engaging in certain activities deemed competitive with McGregor or
its affiliates during the duration his employment with McGregor or its
affiliates and for the longer of (i) a period of one year thereafter or (ii) as
long as Mr. Knight continues to receive severance payments from McGregor.
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Effective as of the Distribution Date, PTC will assign Messrs. Adams' and
Griffith's employment agreements, and McGregor will assign Mr. Knight's
employment agreement to Navigant and, thereafter, all decisions formerly made by
PTC's or McGregor's Board of Directors (and approved by the U.S. Office Products
Board of Directors) will be made by Navigant's Board of Directors. After the
Distribution Date, Navigant's Board of Directors may consider amending these
employment agreements or entering into separate severance agreements with these
and other officers to provide for additional compensation if their employment is
terminated following a change of control of Navigant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has created a Compensation Committee consisting of
Messrs. Sirpolaidis, Minor and Young. The Compensation Committee is charged with
determining the compensation of all executive officers. No member of the
Compensation Committee has ever been an officer of Navigant or any of its
subsidiaries.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 24, 1997, U.S. Office Products acquired PTC, which will be a
wholly-owned subsidiary of Navigant following the Distribution, from Edward S.
Adams, Navigant's Chairman of the Board, Chief Executive Officer and President,
for 725,923 shares of U.S. Office Products Common Stock valued at $22.725 per
share (the "PTC Acquisition"). In connection with the PTC Acquisition, PTC also
entered into an employment agreement with Mr. Adams at an annual base salary of
$250,000 per year and an employment agreement with Robert C. Griffith,
Navigant's Chief Financial Officer and Treasurer, at an annual base salary of
$150,000 per year. See "Management of Navigant--Employment Contracts and Related
Matters." The Company believes that the terms of this transaction are as
favorable as could be negotiated with third parties.
On January 24, 1997, in a transaction related to the PTC Acquisition, PTC
acquired a commercial office building at 84 Inverness Circle East, Englewood,
Colorado from Marcono LLC ("Marcono"), a Colorado limited liability company, for
an aggregate purchase price of approximately $3.4 million, consisting of 68,154
shares of U.S. Office Products Common Stock valued at $22.725 per share and
PTC's assumption of certain notes from Marcono in the aggregate amount of
$1,846,721. Marcono is owned as follows: 2% by Edward S. Adams, 2% by Mr. Adams'
wife and 48% by each of two trusts established for the benefit of Mr. Adams' two
children. Vassilios Sirpolaidis, who is expected to be a director of Navigant,
is the trustee of the two trusts. Prior to the purchase of the office building
by PTC, PTC leased the office building from Marcono for approximately $22,000
per month. The office building purchased by PTC is used as its headquarters. The
Company believes that the terms of this transaction are as favorable as could be
negotiated with third parties.
On October 24, 1997, U.S. Office Products acquired McGregor, which will be a
wholly-owned subsidiary of Navigant following the Travel Distribution, from its
stockholders (the "McGregor Acquisition") for approximately 1,273,432 shares of
U.S. Office Products Common Stock valued at approximately $24.54 per share (the
"Purchase Price"). The McGregor Acquisition included the purchase of portions of
an office building at 112 Prospect Street, Stamford, Connecticut from DeFranco &
Knight, LLC. $450,000 of the Purchase Price was allocated to the purchase of the
building and $585,000 of debt related to the building was assumed by McGregor.
One of McGregor's beneficial owners was Douglas R. Knight, who will be
Navigant's Chief Operating Officer following the Distribution. In connection
with the McGregor Acquisition, Mr. Knight received approximately 676,293 shares
of U.S. Office Products Common Stock and DeFranco & Knight, LLC, of which Mr.
Knight is a 50% owner, received approximately 18,336 shares of U.S. Office
Products Common Stock. Also in connection with the McGregor Acquisition,
McGregor entered into an employment agreement with Mr. Knight at an annual base
salary of $250,000 per year. The Company believes that the terms of this
transaction are as favorable as could be negotiated with third parties. See
"Management of Navigant--Employment Contracts and Related Matters."
De Franco & Knight, LLC owns a portion of a property in Stamford,
Connecticut which is leased to McGregor for approximately $142,000 per year. In
addition, Mr. Knight is a partner in an emergency travel service provider that
contracts with McGregor to provide emergency travel service to customers of
McGregor at a rate of $12.00 per emergency call. During the fiscal year ended
April 25, 1998, McGregor paid approximately $472,000 to such emergency travel
service provider.
Mr. Minor, who will serve as a director of Navigant at the Effective Date,
has, since 1977, served as Director, President and Vice-President of Minor &
Brown, P.C., a law firm that PTC has retained from time to time during the
previous three fiscal years.
For a discussion of matters related to the spin-off of Navigant from U.S.
Office Products, see "The Travel Distribution" and "Arrangements Among U.S.
Office Products, Navigant and the Other Spin-Off Companies After the
Distributions."
For a discussion of transactions between Navigant and Mr. Ledecky, see
"Management of Navigant-- Ledecky Services Agreement."
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PRINCIPAL STOCKHOLDERS OF NAVIGANT
The following table sets forth the number and percentage of outstanding
shares of U.S. Office Products Common Stock beneficially owned as of May 15,
1998 and as adjusted to reflect the Travel Distribution and the Offering
(assuming no exercise of the underwriters' over-allotment option) by (i) all
persons known by Navigant to own beneficially more than 5% of the U.S. Office
Products Common Stock, (ii) each director and each Named Officer of Navigant who
is a stockholder of U.S. Office Products, and (iii) all directors and executive
officers of Navigant as a group. Except as otherwise indicated, the business
address of each of the following is 84 Inverness Circle East, Englewood,
Colorado, 80155.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF PERCENT OF
SHARES OF U.S. SHARES OF SHARES OF
OFFICE PERCENT OF U.S. NAVIGANT NAVIGANT
PRODUCTS OFFICE PRODUCTS COMMON STOCK, COMMON STOCK,
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK AS ADJUSTED AS ADJUSTED
- ------------------------------------------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Edward S. Adams.................................. 699,702(2) * 53,279 *
Robert C. Griffith............................... 3,750(3) * 0 0.0%
Douglas R. Knight(4)............................. 694,629 * 53,322 *
Jonathan J. Ledecky(5)........................... 2,428,125 1.8% 186,390 1.4%
Vassilios Sirpolaidis(6)......................... 1,182,724(7) * 90,070 *
All current executive officers and directors as a
group (7 persons).............................. 5,008,930 3.6% 383,061 3.0%
5% STOCKHOLDERS
FMR Corp.(8)..................................... 15,754,406 11.7% 1,209,355 9.3%
82 Devonshire Street
Boston, MA 02109
Massachusetts Financial Services
Company(8)..................................... 8,262,886 6.1% 634,284 4.9%
500 Boylston Street
Boston, MA 02116
</TABLE>
- ------------------------
* Less than 1%.
(1) The "Number of Shares of Navigant Common Stock, As Adjusted" will reflect
the results of the Tender Offer (assuming each person tendered all their
shares and all their shares underlying options in the Tender Offer), the
application of the Distribution Ratio and the Offering. It assumes no
options are exercisable within 60 days.
(2) Includes 5,625 shares of U.S. Office Products Common Stock which may be
acquired upon exercise of options exercisable within 60 days following the
Travel Distribution. Excludes Mr. Adams' option for 4.5% of the Navigant
Common Stock that the Company expects to grant under the 1998 Stock
Incentive Plan, which will not be exercisable until the 12-month anniversary
of the Travel Distribution. See "Management of Navigant--1998 Stock
Incentive Plan."
(3) Includes 3,750 shares of U.S. Office Products Common Stock which may be
acquired upon exercise of options exercisable within 60 days following the
Travel Distribution.
(4) Includes 18,336 shares of U.S. Office Products Common Stock with respect to
which Mr. Knight shares investment and voting power.
(5) Excludes U.S. Office Products Options that will not be converted into
Navigant Options at the time of the Travel Distribution. Also excludes Mr.
Ledecky's option for up to 7.5% of the Navigant Common Stock that will be
granted under the Company's 1998 Stock Incentive Plan, which will not be
exercisable until the 12-month anniversary of the Travel Distribution. See
"Management of Navigant--Ledecky Services Agreement."
(6) Includes 48,000 shares of U.S. Office Products Common Stock held by Mr.
Sirpolaidis' wife.
(7) Includes 9,375 shares of U.S. Office Products Common Stock which may be
acquired upon exercise of options exercisable within 60 days following the
Travel Distribution.
(8) Based upon a Schedule 13G filed with the SEC with respect to U.S. Office
Products Common Stock.
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DESCRIPTION OF NAVIGANT CAPITAL STOCK
GENERAL
Set forth below is a summary of Navigant's authorized capital stock. At the
time of the Travel Distribution and the Offering, Navigant's authorized capital
stock is expected to consist of 150,000,000 shares of Navigant Common Stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share (the "Preferred Stock"). Immediately following the Travel Distribution
and the Offering, Navigant is expected to have outstanding approximately
12,968,951 shares of Navigant Common Stock and no shares of Preferred Stock.
NAVIGANT COMMON STOCK
The holders of Navigant Common Stock are entitled to one vote for each share
on all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of Navigant Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy." The holders of Navigant Common Stock
are entitled to share ratably in the net assets of Navigant upon liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any Preferred Stock then outstanding. The holders of Navigant Common
Stock have no preemptive rights to purchase shares of stock of Navigant. Shares
of Navigant Common Stock are not subject to any redemption provisions and are
not convertible into any other securities of Navigant. All of the shares of
Navigant Common Stock to be distributed pursuant to the Travel Distribution will
be fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of Navigant's certificate of incorporation (the "Certificate of Incorporation")
and limitations prescribed by law, the Board of Directors is expressly
authorized to adopt resolutions to issue the shares, to fix the number of shares
and to change the number of shares constituting any series, and to provide for
or change the voting powers, designations, preferences and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions thereof, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights and liquidation preferences of
the shares constituting any class or series of the Preferred Stock, in each case
without any further action or vote by the stockholders. Navigant has no current
plans to issue any shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of Navigant by means of a tender offer, proxy contest, merger or
otherwise, and thereby to protect the continuity of Navigant's management. The
issuance of shares of the Preferred Stock pursuant to the Board of Directors'
authority described above may adversely affect the rights of the holders of
Navigant Common Stock. For example, Preferred Stock issued by Navigant may rank
prior to Navigant Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Navigant Common Stock. Accordingly, the issuance of shares of Preferred Stock
may discourage bids for Navigant Common Stock or may otherwise adversely affect
the market price of Navigant Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
Navigant is subject to the provisions of Section 203 of the Delaware General
Corporation Law ("Section 203"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not
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engage in any of a broad range of business combinations with a person or an
affiliate, or associate of such person, who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is: (i) the owner of 15%
or more of the outstanding voting stock of the corporation; or (ii) an affiliate
or associate of the corporation if such affiliate or associate was the owner of
15% or more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. Navigant has not adopted such an amendment
to its Certificate of Incorporation or bylaws (the "Bylaws"). Under Navigant's
Certificate of Incorporation, the affirmative vote of a majority of the
directors is required to approve an interested stockholder transaction.
PROVISIONS OF NAVIGANT'S CERTIFICATE OF INCORPORATION AND BYLAWS AFFECTING
CHANGE OF CONTROL
The Board of Directors has adopted certain provisions in the Certificate of
Incorporation or Bylaws that may provide the Board of Directors with more
negotiating leverage by delaying or making more difficult unsolicited
acquisitions or changes of control of Navigant. It is believed that such
provisions will enable Navigant to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by Navigant's Board of Directors to be in the best interests
of Navigant and its stockholders. Such provisions could have the effect of
discouraging third parties from making proposals involving an unsolicited
acquisition or change of control of Navigant, although such proposals, if made,
might be considered desirable by a majority of Navigant's stockholders. Such
provisions may also have the effect of making it more difficult for third
parties to cause the replacement of the management of Navigant without
concurrence of Navigant's Board of Directors. These provisions include: (i) the
availability of capital stock for issuance from time to time at the discretion
of Navigant's Board of Directors (see "--Preferred Stock" above); (ii) the
classification of Navigant's Board of Directors into three classes, each of
which serves for a term of three years; (iii) limitation on stockholders calling
a special meeting of stockholders; (iv) prohibition on stockholders acting by
written consent in lieu of a meeting; (v) requirements for advance notice for
raising business or making nominations at stockholders' meetings; and (vi) the
requirement of a supermajority vote to amend the Bylaws.
CLASSIFIED BOARD
The Certificate of Incorporation includes provisions dividing the Board of
Directors into three classes, each of which serves until the third succeeding
annual meeting with one class being elected at each annual meeting of
stockholders. Under Delaware law, each class will be as nearly equal in number
as possible. As a result, at least two annual meetings of stockholders may be
required for Navigant's stockholders to change a majority of the members of the
Board of Directors. Navigant believes that a classified board of directors will
assure continuity and stability of Navigant's management and policies, without
diminishing
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accountability to stockholders. Navigant's classified Board of Directors will
ensure that a majority of directors at any given time will have experience in
the business and competitive affairs of Navigant.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate of Incorporation and Bylaws provide that stockholder action
can be taken only at an annual or special meeting and cannot be taken by written
consent in lieu of a meeting.
ADVANCE NOTICE FOR RAISING BUSINESS AT MEETINGS
The Bylaws establish an advance notice procedure for stockholder proposals
to be brought before an annual meeting of stockholders. Only such business may
be conducted at an annual meeting of stockholders as has been brought before the
meeting by, or at the direction of, the Board of Directors, or by a stockholder
who has given to the Secretary of Navigant timely written notice, in proper
form, of the stockholder's intention to bring that business before the meeting.
The chairman of such meeting has the authority to make the determination of
whether business has been properly brought before such meeting. These provisions
are intended to establish orderly procedures for the conduct of Navigant's
business and to allow the Board of Directors adequate time to evaluate and
respond to stockholder initiatives. They may have the effect of impeding the
ability of a stockholder to present proposals or make nominations in a control
context if the requisite notice provisions cannot be satisfied.
AMENDMENT OF BYLAWS
The Certificate of Incorporation requires a vote of at least 75% of the
outstanding Navigant Common Stock for the stockholders to amend the Bylaws. This
super-majority requirement could make it more difficult for stockholders to
compel action by the Board of Directors by amending the Bylaws to require
actions not presently permitted by the Bylaws.
RIGHTS PLAN
Navigant may consider adoption of a shareholder rights plan or "poison
pill." As with the Certificate of Incorporation and Bylaw provisions discussed
above, if such a plan is adopted, it could render more difficult or discourage
an attempt to obtain control of Navigant. However, such a plan might also
provide the Board of Directors with more negotiating leverage by delaying or
making more difficult unsolicited acquisitions or changes of control of
Navigant.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Certificate of Incorporation and under Delaware law,
directors of Navigant are not liable to Navigant or its stockholders for
monetary damages for breach of fiduciary duty, except for liability in
connection with a breach of duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
dividend payments or stock repurchases illegal under Delaware law or any
transaction in which a director has derived an improper personal benefit.
Navigant's By-Laws provide that Navigant will, to the fullest extent permitted
under Delaware law, indemnify its officers and directors against any damages
arising out of their actions as officers or directors of Navigant.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Navigant Common Stock will be
American Stock Transfer & Trust Company.
62
<PAGE>
EXPERTS
The consolidated financial statements of Navigant International, Inc. as of
April 30, 1996, April 26, 1997 and January 24, 1998 and for the years ended
December 31, 1994 and December 31, 1995, for the four months ended April 30,
1996, for the year ended April 26, 1997 and for the nine months ended January
24, 1998 included in this Prospectus, except as they relate to MTA, Inc. as of
December 31, 1995 and for the period from January 25, 1995 (date of
incorporation) to December 31, 1995, have been so included in reliance on the
March 27, 1998 (except for the first paragraph of Note 1 and the last paragraph
of Note 3, which are as of May 14, 1998), report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated balance sheet of MTA, Inc. as of December 31, 1995 and the
related consolidated statements of income and retained earnings and of cash
flows for the period from January 25, 1995 (date of incorporation) to December
31, 1995 (not presented separately or incorporated separately by reference
herein), have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report which is included herein given on the authority of said
firm as experts in accounting and auditing.
The financial statements of Associated Travel Services, Inc. as of December
31, 1996 and 1995 and for each of the three years in the period ended December
31, 1996 included in this Prospectus have been so included in reliance on the
May 22, 1997 report of Deloitte & Touche LLP, independent auditors, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Evans Travel Group, Inc. and Evans Consulting
Services, Inc. as of July 25, 1997 and for the year then ended included in this
Prospectus have been so included in reliance on the February 3, 1998 report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of McGregor Travel Management, Inc. as of December
31, 1996 and 1995 included in this Prospectus have been so included in reliance
on the March 6, 1997 report, except for Note 10, Note 12 and the last paragraph
of Note 1, as to which the date is January 29, 1998 of Walter J. McKeever &
Company, independent auditors, given on the authority of said firm as experts in
auditing and accounting.
The financial statements as of December 31, 1996 for Omni Travel Service,
Inc. included in this Prospectus have been so included in reliance on the August
22, 1996 (except for Note 10 as to which the date is January 30, 1998) report of
Nardella & Taylor, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
The combined financial statements of Travel Consultants, Inc. and Envisions
Vacations, Inc. as of October 24, 1997 and for the year then ended included in
this Prospectus have been so included in reliance on the January 23, 1998 report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of shares of Navigant Common Stock and certain tax matters
relating to the Distributions will be passed upon on behalf of Navigant and U.S.
Office Products by Wilmer, Cutler & Pickering, Washington, D.C.
63
<PAGE>
NAVIGANT INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
NAVIGANT INTERNATIONAL, INC.
Report of Price Waterhouse LLP, Independent Accountants.................................................. F-3
Report of Deloitte & Touche LLP, Independent Auditors.................................................... F-4
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and January 24, 1998..................... F-5
Consolidated Statement of Income for the years ended December 31, 1994 and 1995, the four months ended
April 30, 1996, the fiscal year ended April 26, 1997 and the nine months ended January 25, 1997
(unaudited) and January 24, 1998....................................................................... F-6
Consolidated Statement of Stockholder's Equity for the years ended December 31, 1994 and 1995, the four
months ended April 30, 1996, the fiscal year ended April 26, 1997 and the nine months ended January 24,
1998................................................................................................... F-7
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and 1995, the four months
ended April 30, 1996, the fiscal year ended April 26, 1997 and the nine months ended January 25, 1997
(unaudited) and January 24, 1998....................................................................... F-8
Notes to Consolidated Financial Statements............................................................... F-10
Introduction to Pro Forma Financial Information.......................................................... F-26
Pro Forma Combined Balance Sheet as of January 24, 1998 (unaudited)...................................... F-28
Pro Forma Combined Statement of Income for the nine months ended January 24, 1998 (unaudited)............ F-29
Pro Forma Combined Statement of Income for the nine months ended January 25, 1997 (unaudited)............ F-30
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997 (unaudited).............. F-31
Notes to Pro Forma Combined Financial Statements (unaudited)............................................. F-32
ASSOCIATED TRAVEL SERVICES, INC.
Report of Deloitte and Touche LLP, Independent Auditors.................................................. F-34
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)........................... F-35
Statements of Income for the years ended December 31, 1994, 1995 and 1996 and the three months ended
March 31, 1996 (unaudited) and 1997 (unaudited)........................................................ F-37
Statements of Shareholder's Equity for the years ended December 31, 1994, 1995 and 1996 and the three
months ended March 31, 1997 (unaudited)................................................................ F-38
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the three months ended
March 31, 1996 (unaudited) and 1997 (unaudited)........................................................ F-39
Notes to Financial Statements............................................................................ F-41
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
Report of Price Waterhouse LLP, Independent Accountants.................................................. F-49
Combined Balance Sheet as of July 25, 1997............................................................... F-50
Combined Statement of Income and Retained Earnings for the year ended July 25, 1997...................... F-51
Combined Statement of Cash Flows for the year ended July 25, 1997........................................ F-52
Notes to Combined Financial Statements................................................................... F-53
</TABLE>
F-1
<PAGE>
NAVIGANT INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
---------
MCGREGOR TRAVEL MANAGEMENT, INC.
<S> <C>
Report of Walter J. McKeever & Company, Independent Accountants.......................................... F-57
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (unaudited)....................... F-58
Statement of Income and Retained Earnings for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1996 (unaudited) and 1997 (unaudited)....................................... F-60
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1996 (unaudited) and 1997 (unaudited).................................................... F-61
Notes to Financial Statements............................................................................ F-63
OMNI TRAVEL SERVICE, INC.
Report of Nardella & Taylor, Independent Accountants..................................................... F-70
Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)..................................... F-71
Statements of Income and Retained Earnings for the year ended June 30, 1996, the six months ended
December 31, 1996 and the six months ended June 30, 1996 (unaudited) and 1997 (unaudited).............. F-72
Statements of Cash Flows for the year ended June 30, 1996, the six months ended December 31, 1996 and the
six months ended June 30, 1996 (unaudited) and 1997 (unaudited)........................................ F-73
Notes to Financial Statements............................................................................ F-74
TRAVEL CONSULTANTS, INC. AND ENVISIONS VACATIONS, INC.
Report of Price Waterhouse LLP, Independent Accountants.................................................. F-80
Combined Balance Sheet as of October 24, 1997............................................................ F-81
Combined Statement of Income and Retained Earnings for the year ended October 24, 1997................... F-82
Combined Statement of Cash Flows for the year ended October 24, 1997..................................... F-83
Notes to Combined Financial Statements................................................................... F-84
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of
Navigant International, Inc.
In our opinion, based upon our audits and the report of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Navigant International, Inc. (the
"Company") and its subsidiaries at April 30, 1996, April 26, 1997 and January
24, 1998, and the results of their operations and their cash flows for the
fiscal years ended December 31, 1994 and 1995, the four months ended April 30,
1996, the fiscal year ended April 26, 1997 and the nine months ended January 24,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of MTA, Inc., a
wholly-owned subsidiary, which statements reflect total revenues of $11,418,751
for the period from January 25, 1995 (date of incorporation) to December 31,
1995. Those statements were audited by other auditors whose report thereon has
been furnished to us, and our opinion expressed herein, insofar as it relates to
the amounts included for MTA, Inc., is based solely on the report of the other
auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the report of other auditors provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
March 27, 1998, except for the first paragraph of Note 1
and the last paragraph of Note 3, which are as of May 14, 1998
F-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MTA, Inc.
We have audited the consolidated balance sheet of MTA, Inc. as of December
31, 1995 and the related consolidated statements of income and retained earnings
and of cash flows for the period from January 25, 1995 (date of incorporation)
to December 31, 1995 (not presented separately herein). These financial
statements are the responsibility of MTA, Inc.'s management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit provides 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 MTA, Inc. as
of December 31, 1995, and the results of its operations and its cash flows for
the period from January 25, 1995 (date of incorporation) to December 31, 1995,
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Seattle, Washington
September 23, 1996
F-4
<PAGE>
NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
--------- --------- ----------- PRO FORMA
(NOTE 3)
JANUARY 24,
1998
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 5,646 $ 6,952 $ 5,919 $
Accounts receivable, less allowance for doubtful accounts of
$96, $271 and $198, respectively............................. 5,449 5,965 24,171 24,171
Prepaid expenses and other current assets...................... 655 775 1,638 1,638
--------- --------- ----------- -----------
Total current assets....................................... 11,750 13,692 31,728 25,809
Property and equipment, net...................................... 7,947 7,954 19,406 19,406
Intangible assets, net........................................... 5,456 7,112 85,525 85,525
Other assets..................................................... 539 581 1,002 1,002
--------- --------- ----------- -----------
Total assets............................................... $ 25,692 $ 29,339 $ 137,661 $ 131,742
--------- --------- ----------- -----------
--------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt................................................ $ 2,059 $ 456 $ 625 $ 625
Short-term payable to U.S. Office Products..................... 4,221 217 217
Accounts payable............................................... 2,385 3,226 5,918 5,918
Accrued compensation........................................... 1,508 1,085 4,916 4,916
Other accrued liabilities...................................... 1,460 3,423 11,472 11,472
--------- --------- ----------- -----------
Total current liabilities.................................. 7,412 12,411 23,148 23,148
Long-term debt................................................... 6,366 2,012 2,664 2,664
Long-term payable to U.S. Office Products........................ 787 10,027 11,494
Deferred income taxes............................................ 190 196
Other long-term liabilities...................................... 503 450 1,711 1,711
--------- --------- ----------- -----------
Total liabilities.......................................... 14,471 15,856 37,550 39,017
--------- --------- ----------- -----------
Commitments and contingencies
Stockholder's equity:
Divisional equity.............................................. 4,093 10,320 94,140 92,855
Cumulative translation adjustment.............................. (130) (130)
Retained earnings.............................................. 7,128 3,163 6,101
--------- --------- ----------- -----------
Total stockholder's equity................................. 11,221 13,483 100,111 92,725
--------- --------- ----------- -----------
Total liabilities and stockholder's equity................. $ 25,692 $ 29,339 $ 137,661 $ 131,742
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
FOR THE YEAR ENDED FOR THE FOUR FISCAL MONTHS ENDED
-------------------------- MONTHS ENDED YEAR ENDED ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, JANUARY 25, JANUARY 24,
1994 1995 1996 1997 1997 1998
------------ ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues.............................. $ 34,569 $ 45,267 $ 18,009 $ 57,677 $ 41,527 $ 80,706
Operating expenses.................... 19,692 25,836 9,491 31,541 22,656 47,172
------------ ------------ ------------ ------------- ----------- -----------
Gross profit.................... 14,877 19,431 8,518 26,136 18,871 33,534
General and administrative expenses... 11,651 15,221 6,660 19,684 15,011 26,274
Amortization expense.................. 221 342 128 548 471 1,509
Non-recurring acquisition costs....... 1,156 284
------------ ------------ ------------ ------------- ----------- -----------
Operating income................ 3,005 3,868 1,730 4,748 3,105 5,751
Other (income) expense:
Interest expense.................. 118 515 173 587 415 399
Interest income................... (253) (352) (109) (445) (382) (338)
Other............................. 48 42 20 118 40 (71)
------------ ------------ ------------ ------------- ----------- -----------
Income before provision for income
taxes............................... 3,092 3,663 1,646 4,488 3,032 5,761
Provision for income taxes............ 18 565 255 1,145 551 2,823
------------ ------------ ------------ ------------- ----------- -----------
Net income............................ $ 3,074 $ 3,098 $ 1,391 $ 3,343 $ 2,481 $ 2,938
------------ ------------ ------------ ------------- ----------- -----------
------------ ------------ ------------ ------------- ----------- -----------
Weighted average shares outstanding:
Basic............................... 4,556 5,906 7,750 9,003 8,598 11,476
Diluted............................. 4,570 6,002 7,910 9,176 8,782 11,719
Income per share:
Basic............................... $ 0.67 $ 0.52 $ 0.18 $ 0.37 $ 0.29 $ 0.26
Diluted............................. $ 0.67 $ 0.52 $ 0.18 $ 0.36 $ 0.28 $ 0.25
Unaudited pro forma net income (see
Note 9)............................. $ 2,289 $ 1,546 $ 2,938
------------- ----------- -----------
------------- ----------- -----------
Unaudited pro forma income per share:
Basic............................... $ 0.25 $ 0.18 $ 0.26
Diluted............................. $ 0.25 $ 0.18 $ 0.25
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
DIVISIONAL TRANSLATION RETAINED STOCKHOLDER'S
EQUITY ADJUSTMENT EARNINGS EQUITY
----------- ----------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................................... $ 1,668 $ $ 6,246 $ 7,914
Cash dividends of Pooled Companies........................... (3,252) (3,252)
Net income................................................... 3,074 3,074
----------- ----------- --------- -------------
Balance at December 31, 1994................................... 1,668 6,068 7,736
Transactions of Pooled Companies:
Issuance of Pooled Company common stock for cash........... 800 800
Cash dividends............................................. (2,447) (2,447)
Net income................................................... 3,098 3,098
----------- ----------- --------- -------------
Balance at December 31, 1995................................... 2,468 6,719 9,187
Transactions of Pooled Companies:
Issuance of Pooled Company common stock for cash........... 1,625 1,625
Cash dividends............................................. (982) (982)
Net income................................................... 1,391 1,391
----------- ----------- --------- -------------
Balance at April 30, 1996...................................... 4,093 7,128 11,221
Transactions of Pooled Companies:
Issuance of Pooled Company common stock for cash........... 142 142
Capital contribution....................................... 43 43
Cash dividends............................................. (3,038) (3,038)
Discontinuance of subchapter S corporation election........ 4,270 (4,270)
Issuance of U.S. Office Products common stock for repayment
of debt.................................................... 1,772 1,772
Net income................................................... 3,343 3,343
----------- ----------- --------- -------------
Balance at April 26, 1997...................................... 10,320 3,163 13,483
Issuance of U. S. Office Products common stock in conjunction
with acquisitions.......................................... 83,820 83,820
Cumulative translation adjustment............................ (130) (130)
Net income................................................... 2,938 2,938
----------- ----------- --------- -------------
Balance at January 24, 1998.................................... $ 94,140 $ (130) $ 6,101 $ 100,111
----------- ----------- --------- -------------
----------- ----------- --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
---------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, JANUARY 25,
1994 1995 1996 1997 1997
------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income....................................... $ 3,074 $ 3,098 $ 1,391 $ 3,343 $ 2,481
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.......... 679 986 452 1,660 1,236
Non-recurring acquisition costs................ 1,156 284
Other.......................................... (82) 137 (27) 6 (75)
Changes in current assets and liabilities (net
of assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable.......................... (772) 679 (361) (106) 235
Prepaid expenses and other current assets.... 12 46 (43) 6 426
Accounts payable............................. 464 124 453 755 166
Accrued liabilities.......................... (380) (909) (985) (323) (152)
------------- ------------- ------------- ------------- -----------
Net cash provided by operating activities.. 2,995 4,161 880 6,497 4,601
------------- ------------- ------------- ------------- -----------
Cash flows from investing activities:
Additions to property and equipment, net of
disposals...................................... (804) (1,858) (486) (769) (888)
Cash paid in acquisitions, net of cash received.. 2,293 (1,758) (1,293)
Payments of non-recurring acquisition costs.... (539) (284)
Other............................................ 128 126 (129) (197)
------------- ------------- ------------- ------------- -----------
Net cash (used in) provided by investing
activities............................... (676) 561 (615) (3,066) (2,662)
------------- ------------- ------------- ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 72 3,800 362 907
Payments of long-term debt....................... (518) (1,968) (5,594) (3,039) (1,651)
Proceeds from (payments of) short-term
debt, net...................................... (189) 424 801 (1,603) 211
Payments of dividends of Pooled Companies........ (3,252) (2,447) (982) (3,038) (2,837)
Proceeds from issuance of common stock........... 800 1,625 142 112
Capital contributed by stockholders of Pooled
Companies...................................... 43
Net advances from U.S. Office Products Company... 5,008 1,061
------------- ------------- ------------- ------------- -----------
Net cash used in financing activities...... (3,959) (3,119) (350) (2,125) (2,197)
------------- ------------- ------------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents...................................... (1,640) 1,603 (85) 1,306 (258)
Cash and cash equivalents at beginning of period... 5,768 4,128 5,731 5,646 5,646
------------- ------------- ------------- ------------- -----------
Cash and cash equivalents at end of period......... $ 4,128 $ 5,731 $ 5,646 $ 6,952 $ 5,388
------------- ------------- ------------- ------------- -----------
------------- ------------- ------------- ------------- -----------
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 161 $ 562 $ 189 $ 579 $ 365
Income taxes paid................................ $ 9 $ 361 $ 364 $ 453 $ 375
<CAPTION>
JANUARY 24,
1998
-----------
<S> <C>
Cash flows from operating activities:
Net income....................................... $ 2,938
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization expense.......... 3,143
Non-recurring acquisition costs................
Other.......................................... (132)
Changes in current assets and liabilities (net
of assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable.......................... (6,887)
Prepaid expenses and other current assets.... 105
Accounts payable............................. (918)
Accrued liabilities.......................... 3,726
-----------
Net cash provided by operating activities.. 1,975
-----------
Cash flows from investing activities:
Additions to property and equipment, net of
disposals...................................... (2,345)
Cash paid in acquisitions, net of cash received.. 1,570
Payments of non-recurring acquisition costs.... (617)
Other............................................ 204
-----------
Net cash (used in) provided by investing
activities............................... (1,188)
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt......... 66
Payments of long-term debt....................... (4,697)
Proceeds from (payments of) short-term
debt, net...................................... (2,425)
Payments of dividends of Pooled Companies........
Proceeds from issuance of common stock...........
Capital contributed by stockholders of Pooled
Companies......................................
Net advances from U.S. Office Products Company... 5,236
-----------
Net cash used in financing activities...... (1,820)
-----------
Net increase (decrease) in cash and cash
equivalents...................................... (1,033)
Cash and cash equivalents at beginning of period... 6,952
-----------
Cash and cash equivalents at end of period......... $ 5,919
-----------
-----------
Supplemental disclosures of cash flow information:
Interest paid.................................... $ 136
Income taxes paid................................ $ 17
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
NAVIGANT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
The Company issued common stock, notes payable and cash in connection with
certain business combinations accounted for under the purchase method in the
year ended December 31, 1995, the fiscal year ended April 26, 1997, the nine
months ended January 25, 1997 and the nine months ended January 24, 1998. The
fair values of the assets and liabilities of the acquired companies at the dates
of the acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
FOR THE FISCAL MONTHS ENDED
YEAR ENDED YEAR ENDED ------------------------
DECEMBER 31, APRIL 26, JANUARY 25, JANUARY 24,
1995 1997 1997 1998
------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable......................................................... $ 2,406 $ 410 $ 410 $ 11,119
Prepaid expenses and other current assets................................... 248 99 99 1,279
Property and equipment...................................................... 928 348 348 10,450
Intangible assets........................................................... 5,109 2,127 1,682 79,704
Other assets................................................................ 176 70 70 1,508
Short-term debt............................................................. (859) (2,593)
Accounts payable............................................................ (817) (86) (86) (3,974)
Accrued liabilities......................................................... (1,610) (1,167) (334) (8,415)
Long-term debt.............................................................. (43) (896) (5,119)
Other long-term liabilities................................................. (520) (1,709)
------------- ------------- ----------- -----------
Net assets acquired..................................................... $ 5,061 $ 1,758 $ 1,293 $ 82,250
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
The acquisitions were funded as follows:
U.S. Office Products common stock........................................... $ $ $ $ 83,820
Notes payable............................................................... 7,354
Cash paid, net of cash received............................................. (2,293) 1,758 1,293 (1,570)
------------- ------------- ----------- -----------
Total................................................................... $ 5,061 $ 1,758 $ 1,293 $ 82,250
------------- ------------- ----------- -----------
------------- ------------- ----------- -----------
</TABLE>
Noncash transactions:
- - During the fiscal year ended April 26, 1997, the Company used U.S. Office
Products common stock to repay $1,772 of indebtedness.
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND
Navigant International, Inc. (the "Company") is a Delaware Corporation which
is a wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Corporate Travel Services division as an independent publicly owned
company. This transaction is expected to be effected through the distribution of
shares of the Company to U.S. Office Products shareholders effective on or about
June 9, 1998 (the "Distribution"). Prior to the Distribution, U.S. Office
Products plans to contribute its equity interests in certain wholly-owned
subsidiaries associated with U.S. Office Products' Corporate Travel Services
division to the Company. U.S. Office Products and the Company will enter into a
number of agreements to facilitate the Distribution and the transition of the
Company to an independent business enterprise. At the date of Distribution, U.S.
Office Products has agreed to allocate $15,000 in debt plus any additional debt
incurred by U.S. Office Products for acquisitions through the date of
Distribution to the Company. The debt payable to U.S. Office Products will be
payable upon the completion of the Distribution. Additionally, in connection
with the Distribution, the Company anticipates selling 2.0 million shares of the
Company's Common Stock (2.3 million shares if the Underwriters' over-allotment
is sold) in an initial public offering ("IPO").
The Corporate Travel Services division was created by U.S. Office Products
in January 1997 and completed four business combinations accounted for under the
pooling-of-interests method during the period from January 1997 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.
The Company's operations are primarily concentrated in one market
segment--airline travel--and the customers are geographically diverse with no
single customer base concentrated in a single industry. Management considers a
downturn in this market segment to be unlikely. The Company's operations are
seasonal, with the November and December periods having the lowest airline
bookings.
NOTE 2--BASIS OF PRESENTATION
The consolidated financial statements reflect the assets, liabilities,
divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities expected to be
transferred to the Company prior to the Distribution were included in the
Company's separate consolidated balance sheet. The Company's statement of income
includes all of the related costs of doing business including an allocation of
certain general corporate expenses of U.S. Office Products which were not
directly related to these businesses including certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing, human resources as well as other general overhead
costs. These allocations were based on a variety of factors, dependent upon the
nature of the costs being allocated, including revenues, number and size of
acquisitions and number of employees. Management believes these allocations were
made on a reasonable basis.
U.S. Office Products uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents and an agreed upon amount of debt will be allocated to the Company
at the time of the Distribution. The consolidated statement of income
F-10
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--BASIS OF PRESENTATION (CONTINUED)
includes an allocation of interest expense on all debt allocated to the Company.
See Note 8 for further discussion of interest expense.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE 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 the
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.
CHANGE IN FISCAL YEAR
Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on December 31. Upon
acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from December 31 to conform to U.S. Office Products' fiscal year, which ends on
the last Saturday in April. A four month fiscal transition period from January
1, 1996 through April 30, 1996 has been presented for the Company to conform its
fiscal year-end.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
F-11
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of goodwill, which represents the excess of cost
over the fair value of assets acquired in business combinations accounted for
under the purchase method. Substantially all goodwill is amortized on a straight
line basis over an estimated useful life of 35 years. Management periodically
evaluates the recoverability of goodwill, which would be adjusted for a
permanent decline in value, if any, by comparing anticipated undiscounted future
cash flows from operations to net book value.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholder's equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities approximate fair value.
INCOME TAXES
As a division of U.S. Office Products, the Company does not file separate
federal income tax returns but rather is included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements, the Company's
allocated share of U.S. Office Products' income tax provision was based on the
"separate return" method. Certain companies acquired in pooling-of-interests
transactions elected to be taxed as Subchapter S corporations, and accordingly,
no federal income taxes were recorded by those companies for periods prior to
their acquisition by U.S. Office Products.
REVENUE RECOGNITION
The Company records revenues from air reservations and hotel and car
reservations when earned, which is at the time a reservation is booked and
ticketed. The Company provides a reserve for cancellations and reservation
changes, and provisions for such amounts are reflected in net revenues. The
reserves that have been netted against net revenues are not material in the
periods reflected. The Company estimates and records accruals for cancellations
and changes to reservation revenues booked. However, such estimates could vary
significantly based upon changes in economic and political conditions that
impact corporate travel patterns. Cruise revenues are recorded when the customer
is no longer entitled to a full refund of the cost of the cruise. The Company
records override commissions on an accrual basis in the month it is earned based
upon the Company's estimated ticket sales in excess of required thresholds.
Revenues consist of commissions on travel services and year-end volume bonuses
from travel service providers.
F-12
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OPERATING EXPENSES
Operating expenses include travel agent commissions, salaries,
communications and other costs associated with the selling and processing of
travel reservations.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement occurs.
Advertising costs are included in the consolidated statement of income as a
component of general and administrative expenses.
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include accounting, legal, and investment banking fees, real
estate and environmental assessments and appraisals, various regulatory fees and
recognition of transaction related obligations. Generally accepted accounting
principles require the Company to expense all acquisition costs (both those paid
by the Company and those paid by the sellers of the acquired companies) related
to business combinations accounted for under the pooling-of-interests method.
NET INCOME PER SHARE
Net income per share is calculated in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share ("EPS").
SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statement. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The difference between the
weighted-average number of common shares used for the calculation of basic EPS
and the weighted-average number of shares of common shares used for the diluted
EPS is comprised of the dilutive effect of outstanding common stock options.
However, a portion of the Company's employee stock options outstanding during
the periods presented were not included in the computation of diluted EPS as
they were anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 130. "Reporting Comprehensive
income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
fiscal 1999.
F-13
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL DATA (UNAUDITED)
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results of operations and of cash flows for the nine months ended January
25, 1997, as presented in the accompanying unaudited consolidated financial
data.
PRO FORMA INFORMATION (UNAUDITED)
The pro forma balance sheet at January 24, 1998 adjusts the historical
January 24, 1998 balances to give effect to the payment of debt with available
cash and the allocation of a total of $15,000 of debt to the Company at the date
of the Distribution. The incremental debt allocated to the Company has been
reflected as a $6,101 distribution of retained earnings and the remaining $1,285
as a reduction of capital. See additional discussion in Note 1.
DISTRIBUTION RATIO
On May 14, 1998, the U.S. Office Products Board of Directors approved the
distribution ratio for the Company in connection with the Distribution. At the
date of Distribution, the Company will issue to U.S. Office Products
shareholders one share of its common stock for every ten shares of U.S. Office
Products common stock held by each respective shareholder. The share data
reflected in the accompanying financial statements represents the historical
share data for U.S. Office Products for the period or as of the date indicated,
and retroactively adjusted to give effect to the one for ten distribution ratio.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1997, the Company issued 3,731,152 shares of U.S. Office Products
common stock to acquire the Pooled Companies. The Pooled Companies and the
number of shares issued in each business combination are as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMPANY NAME SHARES ISSUED
- ------------------------------------------------------------------------------- -------------
<S> <C>
Professional Travel Corporation................................................ 794,078
Travel Arrangements, Inc. and St. Pierre Enterprises (Supertravel)............. 1,293,713
Simmons Associates, Inc........................................................ 611,607
MTA, Inc....................................................................... 1,031,754
-------------
Total shares issued............................................................ 3,731,152
-------------
-------------
</TABLE>
The Company's consolidated financial statements give retroactive effect to
the acquisitions of the Pooled Companies for all periods presented. Prior to
being acquired by U.S. Office Products, the Pooled Companies all reported on
years ending on December 31. Upon completion of the acquisitions of the Pooled
Companies, their year-ends were changed to U.S. Office Products' year-end of the
last Saturday in April.
F-14
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:
<TABLE>
<CAPTION>
NAVIGANT
INTERNATIONAL, POOLED
INC. COMPANIES COMBINED
----------------- ----------- -----------
<S> <C> <C> <C>
For the year ended December 31, 1994
Revenues............................................................. $ $ 34,569 $ 34,569
Net income........................................................... $ $ 3,074 $ 3,074
For the year ended December 31, 1995
Revenues............................................................. $ $ 45,267 $ 45,267
Net income........................................................... $ $ 3,098 $ 3,098
For the four months ended April 30, 1996
Revenues............................................................. $ $ 18,009 $ 18,009
Net income........................................................... $ $ 1,391 $ 1,391
For the fiscal year ended April 26, 1997
Revenues............................................................. $ 6,135 $ 51,542 $ 57,677
Net income........................................................... $ 231 $ 3,112 $ 3,343
For the nine months ended January 25, 1997 (unaudited):
Revenues............................................................. $ $ 41,527 $ 41,527
Net income........................................................... $ $ 2,481 $ 2,481
For the nine months ended January 24, 1998:
Revenues............................................................. $ 80,706 $ 80,706
Net income........................................................... $ 2,938 $ 2,938
</TABLE>
PURCHASE METHOD
During 1995, the Company made one acquisition accounted for under the
purchase method for an aggregate purchase price of $5,061, consisting of $7,354
of notes payable and net of $2,293 of cash acquired. The total assets related to
the acquisition were $8,867, including goodwill of $5,109. The results of the
acquisition have been included in the Company's results from the date of
acquisition.
In fiscal 1997, the Company made one acquisition accounted for under the
purchase method for an aggregate cash purchase price of $1,758. The total assets
related to the acquisition were $3,054, including goodwill of $2,127. The
results of the acquisition have been included in the Company's results from the
date of acquisition.
During the nine months ended January 24, 1998 the Company made seven
acquisitions accounted for under the purchase method for an aggregate purchase
price of $82,250, consisting of 3,805,379 shares of common stock with a market
value of $83,820 and net of $1,570 of cash acquired. The total assets related to
these seven acquisitions were $104,060, including intangible assets of $79,704.
The results of these acquisitions have been included in the Company's results
from their respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and the fiscal year ended April 26,
1997 and includes the Company's
F-15
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
consolidated financial statements, which give retroactive effect to the
acquisitions of the Pooled Companies for all periods presented, and the results
of the companies acquired in purchase acquisitions as if all such purchase
acquisitions had been made at the beginning of 1995. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, adjustments in executive compensation of $7,100 for the fiscal year
ended April 26, 1997 and $265,000 for the nine months ended January 24, 1998,
and the inclusion of a federal income tax provision on all earnings:
<TABLE>
<CAPTION>
FOR THE FOR THE
FISCAL YEAR NINE MONTHS
ENDED ENDED
APRIL 26, JANUARY 24
1997 1998
----------- -----------
<S> <C> <C>
(UNAUDITED)
Revenues............................................................. $ 144,394 $ 117,324
Net income........................................................... 7,267 5,209
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred on May 1, 1996 or the results which may
occur in the future.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
Land....................................................... $ 325 $ 325 $ 325
Buildings.................................................. 3,605 3,088 7,679
Furniture and fixtures..................................... 7,013 7,934 15,396
Leasehold improvements..................................... 667 1,273 2,277
--------- --------- -----------
11,610 12,620 25,677
Less: Accumulated depreciation............................. (3,663) (4,666) (6,271)
--------- --------- -----------
Net property and equipment................................. $ 7,947 $ 7,954 $ 19,406
--------- --------- -----------
--------- --------- -----------
</TABLE>
Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the
nine months ended January 24, 1998 was $458, $644, $324, $1,112 and $1,634,
respectively.
F-16
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Goodwill.................................................... $ 6,103 $ 8,138 $ 88,139
Less: Accumulated amortization.............................. (647) (1,026) (2,614)
----------- ----------- -----------
Net intangible assets....................................... $ 5,456 $ 7,112 $ 85,525
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, the fiscal year ended April 26, 1997 and the
nine months ended January 24, 1998 was $221, $342, $128, $548, and $1,509
respectively.
NOTE 7--OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Customer deposits........................................... $ 142 $ 1,198 $ 5,286
Deferred revenue............................................ 1,761
Customer Revenue Share...................................... 407 521 1,295
Accrued acquisition costs................................... 618
Accrued income taxes........................................ 314 917 1,276
Other....................................................... 597 169 1,854
----------- ----------- -----------
Total other accrued liabilities......................... $ 1,460 $ 3,423 $ 11,472
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 8--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Other....................................................... $ 705 $ $ 151
Current maturities of long-term debt........................ 1,354 456 474
----------- ----------- -----
Total short-term debt................................... $ 2,059 $ 456 $ 625
----------- ----------- -----
----------- ----------- -----
</TABLE>
F-17
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--CREDIT FACILITIES (CONTINUED)
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Notes payable, secured by certain assets of the Company,
interest rates ranging from 9.04% to 9.4%, maturities from
October 1997 through 2015................................. $ 7,720 $ 2,393 $ 3,051
Capital lease obligations................................... 75 87
----------- ----------- -----------
7,720 2,468 3,138
Less: Current maturities of long-term debt.................. (1,354) (456) (474)
----------- ----------- -----------
Total long-term debt.................................... $ 6,366 $ 2,012 $ 2,664
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1998................................................................ $ 474
1999................................................................ 414
2000................................................................ 154
2001................................................................ 109
2002................................................................ 115
Thereafter.......................................................... 1,872
---------
Total maturities of long-term debt $ 3,138
---------
---------
</TABLE>
PAYABLE TO U.S. OFFICE PRODUCTS
The short-term payable to U.S. Office Products was incurred by the Company
primarily as a result of U.S. Office Products repaying short-term debt
outstanding at the businesses acquired by U.S. Office Products at or soon after
the respective dates of acquisition and through the centralized cash management
system, which involves daily advances or sweeps of cash to keep the cash balance
at or near zero on a daily basis. U.S. Office Products has charged the Company
interest on the short-term payable at U.S. Office Products weighted average
interest rate during the applicable periods.
F-18
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--CREDIT FACILITIES (CONTINUED)
The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses. An
analysis of the activity in this account is as follows:
<TABLE>
<S> <C>
Balance at April 30, 1996.......................................... $
Payments of long-term debt of Pooled Companies upon acquisition.... 394
Payments of acquisition costs...................................... 263
Allocated corporate expenses....................................... 107
Normal operating costs paid by U.S. Office Products................ 23
---------
Balance at April 26, 1997.......................................... 787
Payments of long-term debt of acquired companies upon
acquisition...................................................... 4,174
Normal operating costs paid by U.S. Office Products................ 3,003
Payments of acquisition costs...................................... 1,370
Allocated corporate expenses....................................... 693
---------
Balance at January 24, 1998........................................ $ 10,027
---------
---------
</TABLE>
The average outstanding long-term payable to U.S. Office Products during the
fiscal year ended April 26, 1997 and the nine months ended January 24, 1998 were
$43 and $4,538, respectively. Interest has been allocated to the Company based
upon the Company's average outstanding payable balance with U.S. Office Products
at U.S. Office Products' weighted average interest rate during such period.
The Company's financial statements include allocations of interest expense
from U.S. Office Products totaling $58 during the year ended April 26, 1997 and
$245 during the nine months ended January 24, 1998.
The debt payable to U.S. Office Products will be payable upon the completion
of the Distribution.
F-19
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9--INCOME TAXES
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE
FOUR FOR THE FOR THE
MONTHS FISCAL NINE MONTHS
FOR THE YEAR ENDED ENDED YEAR ENDED ENDED
-------------------------------- ----------- ----------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, JANUARY 24,
1994 1995 1996 1997 1998
--------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income taxes currently
payable:
Federal..................... $ $ 435 $ 348 $ 991 $ 2,666
State....................... 18 75 43 159 562
----- ----- ----- ----------- -----------
18 510 391 1,150 3,228
----- ----- ----- ----------- -----------
Deferred income tax expense
(benefit)................... 55 (136) (5) (405)
----- ----- ----- ----------- -----------
Total provision for income
taxes................... $ 18 $ 565 $ 255 $ 1,145 $ 2,823
----- ----- ----- ----------- -----------
----- ----- ----- ----------- -----------
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
Current deferred tax assets:
Allowance for doubtful accounts........................... $ 28 $ 36 $ 86
Accrued liabilities....................................... 191 229 662
----- ----- -----
Total current deferred tax assets....................... 219 265 748
----- ----- -----
Long-term deferred tax liabilities:
Property and equipment.................................... (409) (680) (647)
Intangible assets......................................... (3) (2)
Other..................................................... 222 106
----- ----- -----
Total long-term deferred tax liabilities................ (409) (461) (543)
----- ----- -----
Net deferred tax liability $ (190) $ (196) $ 205
----- ----- -----
----- ----- -----
</TABLE>
F-20
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE
FOUR FOR THE
MONTHS FISCAL FOR THE NINE
FOR THE YEAR ENDED ENDED YEAR ENDED MONTHS ENDED
-------------------------------- ----------- ----------- -------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, JANUARY 24,
1994 1995 1996 1997 1998
--------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
U.S. federal statutory rate....................... 35.0% 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit......................................... 0.6 1.8 1.7 2.3 6.3
Subchapter S corporation income not subject to
corporate level taxation........................ (35.0) (21.4) (21.2) (24.7)
Nondeductible Goodwill............................ 5.8
Nondeductible acquisition costs................... 6.8 1.3
Other............................................. 6.1 0.6
----- ----- ----- ----- ---
Effective income tax rate......................... 0.6% 15.4% 15.5% 25.5% 49.0%
----- ----- ----- ----- ---
----- ----- ----- ----- ---
</TABLE>
Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Pooled Company had been subject to federal
income taxes for the fiscal year ended April 26, 1997. There was no pro forma
adjustment for income taxes for the nine months ended January 24, 1998.
<TABLE>
<CAPTION>
FOR THE
FISCAL
YEAR ENDED
APRIL 26,
1997
-------------
<S> <C>
Net income per consolidated statement of income................................ $ 3,343
Pro forma income tax provision adjustment...................................... 1,054
------
Pro forma net income......................................................... $ 2,289
------
------
</TABLE>
F-21
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--LEASE COMMITMENTS
The Company leases various types of office facilities, equipment, and
furniture and fixtures under noncancelable lease agreements, which expire at
various dates. Future minimum lease payments under noncancelable capital and
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998..................................................................... $ 79 $ 1,726
1999..................................................................... 14 2,330
2000..................................................................... 2,042
2001..................................................................... 1,536
2002..................................................................... 766
Thereafter............................................................... 92
--- -----------
Total minimum lease payments............................................. 93 $ 8,492
-----------
-----------
Less: Amounts representing interest...................................... (6)
---
Present value of net minimum lease payments.............................. $ 87
---
---
</TABLE>
Rent expense for all operating leases for the years ended December 31, 1994
and 1995, the four months ended April 30, 1996, the fiscal year ended April 26,
1997, and the nine months ended January 24, 1998 was $1,791, $1,811, $573,
$1,903 and $2,345, respectively.
NOTE 11--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996, April 26,
1997 and January 24, 1998 related to these agreements, as no change of control
has occurred.
DISTRIBUTION
On or immediately after the Distribution, the Company expects to have a
credit facility in place. The terms of the credit facility are expected to
contain customary covenants including financial covenants. See additional
discussion in Note 15. The Company plans to use a portion of the proceeds from
the credit facility to repay certain amounts payable to U.S. Office Products.
On or before the date of the distribution, the Company, U.S. Office Products
and the other Spin-Off Companies will enter into the Distribution Agreement, the
Tax Allocation Agreement and the Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement and may enter into
other agreements, including agreements related to referral of customers to one
another.
F-22
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED)
These agreements are expected to provide, among other things, for U.S. Office
Products and the Company to indemnify each other from tax and other liabilities
relating to their respective businesses prior to and following the Distribution.
Certain of the obligations of the Company and the other spin-off companies to
indemnify U.S. Office Products are joint and several. Therefore, if one of the
other spin-off companies fails to indemnify U.S. Office Products when such a
loss occurs, the Company may be required to reimburse U.S. Office Products for
all or a portion of the losses that otherwise would have been allocated to other
spin-off companies. In addition, the agreements will allocate liabilities,
including general corporate and securities liabilities of U.S. Office Products
not specifically related to the business travel agency business, between U.S.
Office Products and each spin-off company.
NOTE 12--EMPLOYEE BENEFIT PLANS
Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For the years ended December 31, 1994
and 1995, the four months ended April 30, 1996, the fiscal year ended April 26,
1997 and the nine months ended January 24, 1998, the subsidiaries incurred
expenses totaling $194, $204, $73, $249 and $208 respectively, related to these
plans.
NOTE 13--STOCKHOLDER'S EQUITY
EMPLOYEE STOCK PLANS
Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan ("the Plan") covering
employees of U.S. Office Products. The Company intends to adopt an employee
stock option plan at approximately the time of the Distribution. The Company
expects to replace the options to purchase shares of common stock of U.S. Office
Products held by employees with options to purchase shares of common stock of
the Company.
U.S. Office Products granted 105,948 and 1,106,274 options to Company
employees under the Plan during fiscal 1997 and the nine months ended January
24, 1998, respectively; the Company accounted for these options in accordance
with APB Opinion No. 25. Accordingly, because the exercise prices of the options
have equaled the market price on the date of grant, no compensation expense was
recognized for the options granted. Had compensation expense been recognized
based upon the fair value of the stock options on the grant date under the
methodology prescribed by SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's net income would have been reduced by approximately
$15 and $550 for the year ended April 26, 1997 and the nine months ended January
24, 1998, respectively. Additionally, the impact on the net income per share is
less than $.005 per share for the respective periods.
Under a service agreement entered into with Jonathan J. Ledecky, the Board
of Directors of U.S. Office Products has agreed that Jonathan J. Ledecky will
receive a stock option for the Company common
F-23
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 13--STOCKHOLDER'S EQUITY (CONTINUED)
stock from the Company as of the date of the Distribution. The Board intends the
option to be compensation for Mr. Ledecky's services as a director of the
Company, and certain services as an employee of the Company. The option will
cover 7.5% of the outstanding Company common stock determined as of the date of
the Distribution, with no anti-dilution provisions in the event of issuance of
additional shares of common stock (other than with respect to stock splits or
reverse stock splits). The option will have a per share exercise price equal to
the IPO price.
Immediately following the effective date of the registration statements
filed in connection with the IPO and the Distribution, the Company's Board of
Directors is expected to grant options covering 15.0% of the outstanding shares
of the Company's common stock, immediately following the Distribution, to
certain executive management personnel and non-employee directors. The options
will be granted under the 1998 Stock Incentive Plan (the "Plan") and will have a
per share exercise price equal to the IPO price, with other terms to be
determined by the Company's Board of Directors. Total options available for
grant under the Plan will be 23.0% of the outstanding shares of the Company's
common stock immediately following the Distribution and the IPO, including the
options to be granted to Mr. Ledecky on that date.
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995 and the fiscal year ended April 26, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
Revenues.................................................... $ 8,486 $ 13,241 $ 12,005 $ 11,535 $ 45,267
Gross profit................................................ 3,142 6,305 5,093 4,891 19,431
Operating income............................................ 188 2,091 1,000 589 3,868
Net income.................................................. 217 1,558 792 531 3,098
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
Revenues................................................... $ 15,243 $ 13,770 $ 12,514 $ 16,150 $ 57,677
Gross profit............................................... 7,637 6,276 4,958 7,265 26,136
Operating income (loss).................................... 2,186 1,131 (212) 1,643 4,748
Net income (loss).......................................... 1,753 937 (209) 862 3,343
Pro forma net income (see Note 9).......................... 1,964 1,771 284 3,257 7,276
<CAPTION>
YEAR ENDING APRIL 25, 1998
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 19,530 $ 27,027 $ 34,149 $ 80,706
Gross Profit............................................... 8,637 11,705 13,192 33,534
Operating income (loss).................................... 2,565 2,138 1,048 5,751
Net income (loss).......................................... 1,358 1,207 373 2,938
</TABLE>
F-24
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 15--SUBSEQUENT EVENTS
NON-RECURRING CHARGE
On March 13, 1998, the Company received 90 days notice of termination of a
business relationship. The Company had provided travel administrative services
to this customer under a five year agreement based on a fee per transaction
basis, with all commissions being remitted back to this customer. During the
nine months ended January 24, 1998, this relationship contributed approximately
$400 to net operating income. The Company has approximately $635 in intangible
assets recorded as of January 24, 1998 relating to the original acquisition of
this contract that will be written off within the next reporting period as a
charge to income.
PROPOSED CREDIT FACILITY (UNAUDITED)
The Company has received a commitment letter with NationsBank, N.A. for a
$75,000 Proposed Credit Facility. The Proposed Credit Facility will mature five
years from the effective date of the credit facility; will be secured by all
material assets of the Company; and will be subject to terms and conditions
customary for facilities of this kind, including certain financial covenants.
Interest rate options will be available to the Company depending upon the
satisfaction of certain specified financial ratios.
F-25
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements give effect to the spin-off of
Navigant International, Inc. (the "Company"), formerly the Corporate Travel
Services division of U.S. Office Products Company ("U.S. Office Products"),
through the distribution of shares of the Company to U.S. Office Products
shareholders (the "Distribution") and acquisitions completed through March 5,
1998.
The pro forma combined balance sheet gives effect to the Distribution and to
all acquisitions completed through May 1, 1998 as if such transactions had
occurred as of the Company's most recent balance sheet date, January 24, 1998.
The pro forma combined statement of income for the fiscal year ended April
26, 1997 gives effect to (i) the Distribution; (ii) the acquisition of one
individually insignificant company acquired in a business combination accounted
for under the purchase method completed during the fiscal year ended April 26,
1997 (the "Fiscal 1997 Purchase Acquisition"); and (iii) the acquisitions of
Associated Travel Services, Inc. ("Associated Travel"), Evans Travel Group, Inc.
and Evans Consulting Services, Inc. ("Evans Travel"), McGregor Travel
Management, Inc. ("McGregor Travel"), Omni Travel Service, Inc. ("Omni Travel"),
Travel Consultants, Inc. and Envisions Vacations, Inc. ("Travel Consultants")
and two other individually insignificant companies in business combinations
accounted for under the purchase method and completed during the fiscal year
ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"), as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the year ended April 26, 1997 includes (i) the audited financial
information of the Company for the year ended April 26, 1997; (ii) the unaudited
financial information of the Fiscal 1997 Purchase Acquisition for the period May
1, 1996 through its respective date of acquisition; and (iii) the unaudited
financial information of the Fiscal 1998 Purchase Acquisitions for the period
from May 1, 1996 through April 26, 1997.
The pro forma combined statement of income for the nine months ended January
24, 1998 gives effect to the Distribution and the Fiscal 1998 Purchase
Acquisitions, as if all such transactions had occurred on April 27, 1997. The
pro forma combined statement of income for the nine months ended January 24,
1998 includes the audited financial information of the Company for the nine
months ended January 24, 1998 and the unaudited financial information of the
Fiscal 1998 Purchase Acquisitions for the period from April 27, 1997 through the
earlier of their respective dates of acquisition or January 24, 1998.
The pro forma combined statement of income for the nine months ended January
25, 1997 gives effect to (i) the Distribution; (ii) the fiscal 1997 Purchase
Acquisition; and (iii) the Fiscal 1998 Purchase Acquisitions, as if all such
transactions had occurred on May 1, 1996. The pro forma combined statement of
income for the nine months ended January 25, 1997 includes (i) the unaudited
financial information of the Company for the nine months ended January 25, 1997;
(ii) the unaudited financial information of the fiscal 1997 Purchase Acquisition
for the nine months ended January 25, 1997; and (iii) the unaudited financial
information of the Fiscal 1998 Purchase Acquisitions for the nine months ended
January 25, 1997.
The historical financial statements of the Company give retroactive effect
to the results of the four companies acquired by the Company during the year
ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.
The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs and interest expense incurred by
U.S. Office Products. The allocated general and administrative costs include
expenses such as: certain corporate executives' salaries, accounting and legal
fees, departmental costs for accounting, finance, legal, purchasing, marketing
and human resources, as well as other general overhead costs. These corporate
overheads have been allocated to the Company using one of several factors,
dependent on the nature of the costs being allocated, including, revenues,
number and
F-26
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
size of acquisitions and number of employees. Interest expense has been
allocated to the Company based upon the Company's average outstanding
intercompany balance with U.S. Office Products at U.S. Office Products' weighted
average interest rate during such periods.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent what the Company's financial position or results of operations would
have been had the transactions which are the subject of pro forma adjustments
occurred on those dates, as assumed, and are not necessarily representative of
the Company's financial position or results of operations in any future period.
The pro forma combined financial statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Information Statement/Prospectus.
F-27
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED BALANCE SHEET
JANUARY 24, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NAVIGANT POST JANUARY 24, PRO FORMA
INTERNATIONAL, 1998 PURCHASE PRO FORMA OFFERING PRO FORMA
INC. ACQUISITION ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- ----------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash Equivalents........... $ 5,919 $ 622 $ (5,141)(b) $ $ 20,820(d) $ 4,420
Accounts receivable, net............ 24,171 252 (1,400)(a) 24,423 (16,400)(d) 24,423
Prepaid and other current assets.... 1,638 46 1,684 1,684
------------- ------ ----------- --------- ------------- -----------
Total current assets.............. 31,728 920 (6,541) 26,107 4,420 30,527
Property and equipment, net........... 19,406 62 19,468 19,468
Intangible assets, net................ 85,525 2,029(a) 87,554 87,554
Other assets.......................... 1,002 118 1,120 1,120
------------- ------ ----------- --------- ------------- -----------
Total assets...................... $ 137,661 $ 1,100 $ (4,512) $ 134,249 $ 4,420 $ 138,669
------------- ------ ----------- --------- ------------- -----------
------------- ------ ----------- --------- ------------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short term debt..................... $ 625 $ $ $ 625 $ (625)(d) $
Short term payable to U.S. Office
Products.......................... 217 (217)(b)
Accounts payable.................... 5,918 17 5,935 5,935
Accrued compensation................ 4,916 127 5,043 5,043
Other accrued liabilities........... 11,472 5 11,477 11,477
------------- ------ ----------- --------- ------------- -----------
Total current liabilities......... 23,148 149 (217) 23,080 (625) 22,455
Long-term debt........................ 2,664 167 1,400(a) 17,175 (15,775)(d) 1,400
12,944(b)
Long-term payable to U.S. Office
Products............................ 10,027 (10,027)(b)
Deferred income taxes................. 13 13 13
Other long-term liabilities........... 1,711 1,711 1,711
------------- ------ ----------- --------- ------------- -----------
Total liabilities................. 37,550 329 4,100 41,979 (16,400) 25,579
Stockholder's Equity:
Common stock........................ 11(c) 11 2(d) 13
Additional paid-in capital.......... (1,740)(b) 92,389 20,818(d) 113,207
94,129(c)
Divisional equity................... 94,140 (94,140)(c) 92,855
Cumulative translation adjustment... (130) (130) (130)
Retained earnings................... 6,101 (6,101)(b)
Equity in purchased company......... 771 (771)(a)
------------- ------ ----------- --------- ------------- -----------
Total stockholder's equity........ 100,111 771 (8,612) 92,270 20,820 113,090
------------- ------ ----------- --------- ------------- -----------
Total liabilities and
stockholder's equity............ $ 137,661 $ 1,100 $ (4,512) $ 134,249 $ 4,420 $ 138,669
------------- ------ ----------- --------- ------------- -----------
------------- ------ ----------- --------- ------------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-28
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 24, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY
INSIGNIFICANT
NAVIGANT FISCAL 1998
INTERNATIONAL, ASSOCIATED EVANS MCGREGOR OMNI TRAVEL PURCHASE
INC. TRAVEL TRAVEL TRAVEL TRAVEL CONSULTANTS ACQUISITIONS
------------- ----------- --------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 80,706 $ 7,146 $ 1,524 $ 13,134 $ 2,983 $ 7,052 $ 7,148
Operating expenses.................. 47,172 4,034 669 7,887 1,259 3,955 2,893
------------- ----------- --------- ----------- --------- ------ ------
Gross profit...................... 33,534 3,112 855 5,247 1,724 3,097 4,255
General and administrative
expenses.......................... 26,274 2,169 401 3,182 1,132 2,159 3,556
Amortization expense................ 1,509 17 15 53 26
------------- ----------- --------- ----------- --------- ------ ------
Operating income.................. 5,751 926 439 2,012 592 912 699
Other (income) expense:
Interest expense.................. 399 32 4 63 1 41 38
Interest income................... (338) (35) (61) (28) (26)
Other............................. (71) (47)
------------- ----------- --------- ----------- --------- ------ ------
Income before provision for income
taxes............................. 5,761 976 435 2,010 619 871 687
Provision for income taxes.......... 2,823 252 7 137
------------- ----------- --------- ----------- --------- ------ ------
Net income.......................... $ 2,938 $ 724 $ 435 $ 2,003 $ 619 $ 871 $ 550
------------- ----------- --------- ----------- --------- ------ ------
------------- ----------- --------- ----------- --------- ------ ------
Weighted average shares outstanding:
Basic............................. 11,476
Diluted........................... 11,719
Income per share:
Basic............................. $ 0.26
Diluted........................... $ 0.25
<CAPTION>
PRO FORMA
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues............................ $ $ 119,693 $ $ 119,693
Operating expenses.................. 67,869 67,869
------------- --------- ----------- -----------
Gross profit...................... 51,824 51,824
General and administrative
expenses.......................... (265)(e) 38,608 38,608
Amortization expense................ 798(g) 2,418 2,418
------------- --------- ----------- -----------
Operating income.................. (533) 10,798 10,798
Other (income) expense:
Interest expense.................. 463(h) 1,041 (1,041)(k)
Interest income................... 488(h)
Other............................. (118) (118)
------------- --------- ----------- -----------
Income before provision for income
taxes............................. (1,484) 9,875 1,041 10,916
Provision for income taxes.......... 1,324(i) 4,543 478(i) 5,021
------------- --------- ----------- -----------
Net income.......................... $ (2,808) $ 5,332 $ 563 $ 5,895
------------- --------- ----------- -----------
------------- --------- ----------- -----------
Weighted average shares outstanding:
Basic............................. 10,969(j) 12,635(l)
Diluted........................... 10,969(j) 12,635(l)
Income per share:
Basic............................. $ 0.49 $ 0.47
Diluted........................... $ 0.49 $ 0.47
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-29
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
NAVIGANT FISCAL 1998 FISCAL 1997
INTERNATIONAL, ASSOCIATED EVANS MCGREGOR OMNI TRAVEL PURCHASE PURCHASE
INC. TRAVEL TRAVEL TRAVEL TRAVEL CONSULTANTS ACQUISITIONS ACQUISITIONS
------------- ----------- --------- ----------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 41,527 $ 21,532 $ 3,700 $ 16,379 $ 4,549 $ 8,532 $ 6,513 $ 2,630
Operating expenses...... 22,656 12,981 2,196 9,543 1,893 5,498 2,778 2,005
------------- ----------- --------- ----------- --------- ------ ------ ------
Gross profit.......... 18,871 8,551 1,504 6,836 2,656 3,034 3,735 625
General and
administrative
expenses.............. 15,011 7,190 1,215 6,247 1,930 2,628 3,422 1,446
Amortization expense.... 471 194 12 90 41 6 8
Non-recurring
acquisition costs..... 284
------------- ----------- --------- ----------- --------- ------ ------ ------
Operating income...... 3,105 1,167 277 499 726 365 307 (829)
Other (income) expense:
Interest expense...... 415 74 10 104 3 74 35
Interest income....... (382) (57) (42) (103) (18)
Other................. 40 138
------------- ----------- --------- ----------- --------- ------ ------ ------
Income before provision
for income taxes...... 3,032 1,012 267 437 826 291 290 (829)
Provision for income
taxes................. 551 647 30 52 62
------------- ----------- --------- ----------- --------- ------ ------ ------
Net income.............. $ 2,481 $ 365 $ 237 $ 385 $ 826 $ 291 $ 228 $ (829)
------------- ----------- --------- ----------- --------- ------ ------ ------
------------- ----------- --------- ----------- --------- ------ ------ ------
Weighted average shares
outstanding:
Basic................. 8,598
Diluted............... 8,782
Income per share:
Basic................. $ 0.29
Diluted............... $ 0.28
<CAPTION>
PRO FORMA
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $ $ 105,362 $ $ 105,362
Operating expenses...... 59,550 59,550
------------- --------- ----------- -----------
Gross profit.......... 45,812 45,812
General and
administrative
expenses.............. (5,339)(e) 34,491 34,491
741(f)
Amortization expense.... 1,514(g) 2,336 2,336
Non-recurring
acquisition costs..... 284 284
------------- --------- ----------- -----------
Operating income...... 3,084 8,701 8,701
Other (income) expense:
Interest expense...... 326(h) 1,041 (1,041)(k)
Interest income....... 602(h)
Other................. 178 178
------------- --------- ----------- -----------
Income before provision
for income taxes...... 2,156 7,482 1,041 8,523
Provision for income
taxes................. 2,100(i) 3,442 478(i) 3,920
------------- --------- ----------- -----------
Net income.............. $ 56 $ 4,040 $ 563 $ 4,603
------------- --------- ----------- -----------
------------- --------- ----------- -----------
Weighted average shares
outstanding:
Basic................. 10,969(j) 12,635(l)
Diluted............... 10,969(j) 12,635(l)
Income per share:
Basic................. $ 0.37 $ 0.36
Diluted............... $ 0.37 0.36
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-30
<PAGE>
NAVIGANT INTERNATIONAL, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 26, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
INDIVIDUALLY INDIVIDUALLY
INSIGNIFICANT INSIGNIFICANT
NAVIGANT FISCAL 1998 FISCAL 1997
INTERNATIONAL, ASSOCIATED EVANS MCGREGOR OMNI TRAVEL PURCHASE PURCHASE
INC. TRAVEL TRAVEL TRAVEL TRAVEL CONSULTANTS ACQUISITIONS ACQUISITIONS
------------- ----------- --------- ----------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 57,677 $ 31,289 $ 5,662 $ 22,445 $ 6,351 $ 11,850 $ 9,077 $ 2,630
Operating expenses...... 31,541 18,098 2,948 12,443 2,346 7,347 3,785 2,005
------------- ----------- --------- ----------- --------- ----------- ------ ------
Gross profit.......... 26,136 13,191 2,714 10,002 4,005 4,503 5,292 625
General and
administrative
expenses.............. 19,684 10,999 2,007 8,103 2,792 3,650 4,831 1,446
Amortization expense.... 548 213 18 120 63 8 8
Non-recurring
acquisition costs..... 1,156
------------- ----------- --------- ----------- --------- ----------- ------ ------
Operating income...... 4,748 1,979 689 1,779 1,213 790 453 (829)
Other (income) expense:
Interest expense...... 587 95 14 127 4 105 46
Interest income....... (445) (62) (1) (45) (66) (38)
Other................. 118 194
------------- ----------- --------- ----------- --------- ----------- ------ ------
Income before provision
for income taxes...... 4,488 1,752 676 1,697 1,275 685 445 (829)
Provision for income
taxes................. 1,145 1,048 (50) 104
------------- ----------- --------- ----------- --------- ----------- ------ ------
Net income.............. $ 3,343 $ 704 $ 676 $ 1,697 $ 1,325 $ 685 $ 341 $ (829)
------------- ----------- --------- ----------- --------- ----------- ------ ------
------------- ----------- --------- ----------- --------- ----------- ------ ------
Weighted average shares
outstanding:
Basic................. 9,003
Diluted............... 9,176
Income per share:
Basic................. $ 0.37
Diluted............... $ 0.36
<CAPTION>
PRO FORMA
PRO FORMA OFFERING PRO FORMA
ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
------------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................ $ $ 146,981 $ $ 146,981
Operating expenses...... 80,513 80,513
------------- --------- ----------- -----------
Gross profit.......... 66,468 66,468
General and
administrative
expenses.............. (7,119)(e) 47,261 47,261
868(f)
Amortization expense.... 2,019(g) 2,997 2,997
Non-recurring
acquisition costs..... 1,156 1,156
------------- --------- ----------- -----------
Operating income...... 4,232 15,054 15,054
Other (income) expense:
Interest expense...... 410(h) 1,388 (1,388)(k)
Interest income....... 657(h)
Other................. 312 312
------------- --------- ----------- -----------
Income before provision
for income taxes...... 3,165 13,354 1,388 14,742
Provision for income
taxes................. 3,896(i) 6,143 638(i) 6,781
------------- --------- ----------- -----------
Net income.............. $ (731) $ 7,211 $ 750 $ 7,961
------------- --------- ----------- -----------
------------- --------- ----------- -----------
Weighted average shares
outstanding:
Basic................. 10,969(j) 12,635(l)
Diluted............... 10,969(j) 12,635(l)
Income per share:
Basic................. $ 0.66 $ 0.63
Diluted............... $ 0.66 $ 0.63
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-31
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect purchase price adjustments associated with the
Post January 24, 1998 Purchase Acquisition. The portion of the consideration
assigned to goodwill ($2,029) in the transaction accounted for under the
purchase method represents the excess of the cost over the fair market value of
the net assets acquired. The Company amortizes goodwill over a period of 35
years. The recoverability of the unamortized goodwill will be assessed on an
ongoing basis by comparing anticipated undiscounted future cash flows from
operations to net book value.
(b) Represents payment of debt with available cash and the allocation of a
total of $16,400 of debt to the Company at the date of the Distribution. The
incremental debt allocated to the Company has been reflected as a $6,101
distribution of retained earnings and the remaining $1,740 as a reduction of
capital.
(c) Adjustment to reflect the reclassification of divisional equity to
common stock and additional paid-in-capital as a result of the Navigant
Distribution. The Navigant Distribution will result in the issuance of 10,969
shares of Common Stock.
(d) Adjustment to reflect $20,820 of proceeds (net of expenses and
underwriting discounts) from the sale of 2,000 shares of Common Stock as part of
the Offering (assuming an initial public offering price of $12.00 per share,
which is equal to the mid-point of the range set forth in the preliminary
prospectus dated May 18, 1998 related to the Offering) and the utilization of
shares aggregating $17,345 in proceeds to repay debt. Navigant expects that the
initial public offering price in the Offering will be determined after the close
of markets on the date of this Information Statement/Prospectus. There can be no
assurance that the initial public offering price will be set at that time, that
the price will be within the range set forth in the preliminary prospectus, or
that the Offering will be completed.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(e) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions. The
Company believes that these reductions are expected to remain in place for the
foreseeable future and are not reasonably likely to affect the operating
performance of the Company.
(f) Adjustment to reflect additional corporate overhead during the period
prior to the formation of the Corporate Travel Services division by U.S. Office
Products as if the division had been formed at May 1, 1996.
(g) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition. The
Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over an estimated life of 35 years.
(h) Adjustment to reflect the increase in interest expense. Interest expense
is being calculated on the debt outstanding at January 24, 1998 of $17,345 at a
weighted average interest rate of approximately 8.0%. Pro forma interest expense
will fluctuate $22 on an annual basis for each 0.125% change in interest rates.
The adjustment also reflects a reduction in interest income to zero as the
Company expects to use all available cash to repay debt rather than for
investment purposes.
F-32
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
(i) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 46%. The
difference between the effective tax rate of 46% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill. This
adjustment assumes that all companies were taxed at 46% regardless of how they
were taxed prior to being acquired by the Company, including those companies
that previously paid no taxes due to their Subchapter S status.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share of 10,969 is calculated based upon approximately 109,690
shares of U.S. Office Products common stock outstanding on the date of the
Travel Distribution divided by ten, which is the Distribution Ratio.
(k) Adjustment to reflect a decrease in interest expense as a result of the
utilization of a portion of the net proceeds from the Offering of $17,345 to
repay debt at an annual interest rate of 8.0%
(l) The weighted average shares outstanding used to calculate pro forma as
adjusted earnings per share of 12,635 is based upon the 10,969 shares of common
stock issued as a result of the Navigant Distribution and 1,666 shares issued in
the Offering that were used to pay debt.
F-33
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Associated Travel Services, Inc.:
We have audited the accompanying balance sheets of Associated Travel
Services, Inc. (the "Company") as of December 31, 1995 and 1996, and the related
statements of income, shareholder's equity and cash flows for the years ended
December 31, 1994, 1995 and 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, such financial statements present fairly, in all material
respects, the financial position of Associated Travel Services, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years ended December 31, 1994, 1995 and 1996, in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Costa Mesa, California
May 22, 1997
F-34
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents (Note 2).................................. $ 218,192 $ 2,584,552 $ 468,041
Short-term investment (Note 2)...................................... 10,000
Investment securities available for sale, at estimated fair value
(Notes 2 and 3)................................................... 1,359,894 116,575 167,073
Trade receivables, less allowance for doubtful accounts of $41,911,
$42,203 and $42,203 (unaudited), respectively..................... 1,938,435 2,711,671 3,383,654
Other receivables (Note 8).......................................... 699,865 1,655,783 1,541,389
Note receivable (Note 8)............................................ 200,000
Prepaid expenses.................................................... 149,487 93,895 96,390
Deferred income taxes (Note 4)...................................... 175,211 458,118 510,918
------------- ------------ -------------
Total current assets.............................................. 4,741,084 7,630,594 6,167,465
Deferred income taxes (Note 4)........................................ 32,721 32,721
Property and equipment (Note 2):
Furniture, fixtures and equipment................................... 2,227,482 2,789,023 4,158,883
Leasehold improvements.............................................. 321,088 366,009 347,464
------------- ------------ -------------
2,548,570 3,155,032 4,506,347
Less accumulated depreciation and amortization.................... (1,660,671) (2,032,366) (2,159,952)
------------- ------------ -------------
Property and equipment, net....................................... 887,899 1,122,666 2,346,395
Other assets (Note 2):
Goodwill, net....................................................... 427,824 388,931 1,462,395
Covenants not-to-compete, net....................................... 255,561 39,825 368,919
Customer lists, net................................................. 41,643 26,912 1,484,231
Other, net.......................................................... 90,712 61,258 69,637
------------- ------------ -------------
Total other assets................................................ 815,740 516,926 3,385,182
------------- ------------ -------------
$ 6,444,723 $ 9,302,907 $ 11,931,763
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
BALANCE SHEETS (CONTINUED)
AS OF DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1995 1996 1997
------------- ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt (Note 7).......................... $ 235,281 $ 117,580 $ 557,579
Accounts payable.................................................... 1,125,209 1,063,485 1,550,609
Accrued expenses.................................................... 520,961 1,481,006 1,426,109
Accrued payroll and related costs................................... 937,385 1,645,706 1,650,706
Deferred revenue and customer deposits.............................. 215,013 850,015 901,515
------------- ------------ -------------
Total current liabilities......................................... 3,033,849 5,157,792 6,086,518
Deferred income taxes (Note 4)........................................ 58,474
Long-term debt (Note 7)............................................... 1,870,402 1,055,520 2,551,267
Commitments and contingencies (Note 5)
Shareholder's equity (Notes 2 and 3):
Common stock, no par value; 11,000,000 shares authorized; 10,000,088
shares issued and outstanding..................................... 682,080 682,080 682,080
Additional paid-in capital.......................................... 43,505 43,505 43,505
Retained earnings................................................... 785,433 2,355,717 2,560,100
Net unrealized gain (loss) on investment securities available for
sale, net of deferred tax of $25,079, $5,528 and $5,528
(unaudited), respectively......................................... (29,020) 8,293 8,293
------------- ------------ -------------
Total shareholder's equity........................................ 1,481,998 3,089,595 3,293,978
------------- ------------ -------------
$ 6,444,723 $ 9,302,907 $ 11,931,763
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
YEAR ENDED DECEMBER 31,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Travel commissions and fees (Note
2).................................. $ 20,541,061 $ 22,849,253 $ 26,304,860 $ 6,022,588 $ 8,765,598
Rebates (Note 2)...................... (4,028,845) (5,976,240) (6,186,654) (1,345,466) (1,230,457)
------------- ------------- ------------- ------------- -------------
Travel commissions and fees, net...... 16,512,216 16,873,013 20,118,206 4,677,122 7,535,141
Operating Expenses--Selling, general
and administrative (Notes 5 and
9).................................. (15,231,476) (15,481,639) (17,846,826) (4,086,334) (7,165,894)
------------- ------------- ------------- ------------- -------------
Operating Income...................... 1,280,740 1,391,374 2,271,380 590,788 369,247
Other income (expense):
Interest expense...................... (188,291) (146,297) (102,539) (31,298) (50,566)
Investment income..................... 82,279 209,094 279,189 26,446 9,479
Other................................. (539,767) 93,603 197,672 16,484 35,067
------------- ------------- ------------- ------------- -------------
Other income (expense), net......... (645,779) 156,400 374,322 11,632 (6,020)
------------- ------------- ------------- ------------- -------------
Income before extraordinary item and
provision for income taxes.......... 634,961 1,547,774 2,645,702 602,420 363,227
Provision for income taxes (Notes 2
and 4).............................. (272,973) (629,995) (1,075,418) (259,758) (158,844)
------------- ------------- ------------- ------------- -------------
Net income............................ $ 361,988 $ 917,779 $ 1,570,284 $ 342,662 $ 204,383
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
NET
UNREALIZED
(LOSS) GAIN
COMMON STOCK ADDITIONAL RETAINED ON
-------------------------- PAID-IN EARNINGS INVESTMENT
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES TOTAL
------------ ------------ ---------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES,
January 1, 1994............. 10,000,088 $ 682,080 $ 43,505 $ (494,334) $ -- $ 231,251
Net income.................... 361,988 361,988
Net unrealized loss on
investment securities
available for sale
(Note 3).................... (65,333) (65,333)
------------ ------------ ---------- ------------ ------------- ------------
BALANCES,
December 31, 1994........... 10,000,088 682,080 43,505 (132,346) (65,333) 527,906
Net income.................... 917,779 917,779
Net unrealized gain on
investment securities
available for sale
(Note 3).................... 36,313 36,313
------------ ------------ ---------- ------------ ------------- ------------
BALANCES,
December 31, 1995........... 10,000,088 682,080 43,505 785,433 (29,020) 1,481,998
Net income.................... 1,570,284 1,570,284
Net unrealized gain on
investment securities
available for sale
(Note 3).................... 37,313 37,313
------------ ------------ ---------- ------------ ------------- ------------
BALANCES,
December 31, 1996........... 10,000,088 682,080 43,505 2,355,717 8,293 3,089,595
Net income (Unaudited)........ 204,383 $ 204,383
------------ ------------ ---------- ------------ ------------- ------------
BALANCES,
March 31, 1997
(Unaudited)................. 10,000,088 $ 682,080 $ 43,505 $ 2,560,100 $ 8,293 $ 3,293,978
------------ ------------ ---------- ------------ ------------- ------------
------------ ------------ ---------- ------------ ------------- ------------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 361,988 $ 917,779 $ 1,570,284 $ 342,662 $ 204,384
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 578,431 584,465 664,718 125,527 189,276
Realized gain on disposal of investments........ (110,988) (45,698) (131,356) 0 0
Bad debt expense................................ 26,964 40,435 0 (649)
Deferred income taxes........................... (442,789) 248,067 (404,709) 116,830 (52,800)
Loss on disposal of property and equipment...... 9,643 263 2,433
Changes in assets and liabilities:
Trade receivables............................... 225,670 (1,063,805) (813,671) 172,151 (671,334)
Other receivables............................... (81,262) (162,902) (955,918) (167,727) 114,394
Prepaid expenses................................ 75,186 (34,592) 85,046 33,695 (2,495)
Income taxes receivable......................... 203,389 0 0
Accounts payable................................ 16,024 (61,724) 90,000 487,124
Accrued expenses................................ 309,348 (389,809) 960,045 131,533 (54,897)
Accrued payroll and related costs............... 32,893 20,434 708,321 17,373 5,000
Deferred revenue and customer deposits.......... 37,459 82,222 635,002 (215,013) 51,500
----------- ----------- ----------- --------- ------------
Net cash provided by operating activities....... 1,189,325 199,149 2,306,116 647,294 271,936
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities............... (2,589,105) (3,229,309) (8,079,244) (126,326) (50,498)
Proceeds from sale of investment securities..... 2,020,208 3,617,096 9,511,839 0 10,000
Acquisition of travel agency.................... (2,000,000)
(Increase) decrease in note receivable.......... (200,000) 200,000 0 0
Purchase of property and equipment.............. (261,178) (274,693) (639,768) (55,013) (368,897)
Increase in other assets........................ (52,818) (121,421) 85,203
----------- ----------- ----------- --------- ------------
Net cash (used in) provided by investing
activities.................................... (1,082,893) 113,094 992,827 (302,760) (2,324,192)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........ 138,269 (79,251) 0
Repayments of long-term debt.................... (575,180) (485,598) (932,583) 0 (64,255)
----------- ----------- ----------- --------- ------------
Net cash used in financing activities........... (436,911) (485,598) (932,583) (79,251) (64,255)
----------- ----------- ----------- --------- ------------
Net (decrease) increase in cash and cash
equivalents................................... (330,479) (173,355) 2,366,360 265,283 (2,116,511)
Cash and cash equivalents, beginning of year.... 722,026 391,547 218,192 218,192 2,584,552
----------- ----------- ----------- --------- ------------
Cash and cash equivalents, end of year.......... $ 391,547 $ 218,192 $ 2,584,552 $ 483,475 $ 468,041
----------- ----------- ----------- --------- ------------
----------- ----------- ----------- --------- ------------
SUPPLEMENTAL INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest........................................ $ 191,766 $ 179,853 $ 101,955 $ 703 $ 20,000
----------- ----------- ----------- --------- ------------
----------- ----------- ----------- --------- ------------
Income taxes.................................... $ 573,794 $ 248,745 $ 1,176,875 $ 38,259 $ 301,500
----------- ----------- ----------- --------- ------------
----------- ----------- ----------- --------- ------------
</TABLE>
F-39
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased various assets of Sunbelt Travel, Inc., a Texas
corporation, and Sunbelt Travel of Houston, Inc., a Texas corporation,
(collectively, Sunbelt) for $2,000,000 in exchange for the issuance of a
long-term note for $2,000,000. In conjunction with the acquisition, assets and
liabilities were assumed as follows:
<TABLE>
<S> <C> <C>
Customer lists acquired..................................................... $1,461,000
Convenant not to compete.................................................... $ 400,000
Property and equipment...................................................... $ 139,000
Long-Term Debt Issued....................................................... $2,000,000
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
1. GENERAL
OPERATIONS--Associated Travel Services, Inc. (the "Company"), a California
corporation, was incorporated on July 24, 1979. The Company is in the travel
agency business and has offices located in several states, primarily California.
INTERIM UNAUDITED FINANCIAL INFORMATION--In the opinion of management, the
accompanying unaudited financial statements contain all adjustments (consisting
only of various normal accruals) necessary to present fairly the Company's
financial position, results of operations and cash flows. The financial position
at March 31, 1997 is not necessarily indicative of the financial position to be
expected at December 31, 1997 and the results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results of operations
to be expected for the year ending December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The Company operates on a fiscal year ending on the Sunday
closest to December 31. For fiscal 1994, the last day was January 1, 1995. For
fiscal 1995, the last day was December 31, 1995. For fiscal 1996, the last day
was December 29, 1996. For convenience of presentation, the Company has
indicated its fiscal years end as December 31, 1994, 1995 and 1996.
CASH EQUIVALENTS--Cash equivalents include highly-liquid investments with
original maturities of 90 days or less.
SHORT-TERM INVESTMENT--Short-term investment consists of a certificate of
deposit with an original maturity of greater than three months and a remaining
maturity of less than one year. Short-term investment is stated at cost which
approximates market value.
INVESTMENT SECURITIES--The Company has classified its investment portfolio
as "available for sale." In accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, investments classified as available for sale are
carried at fair value, and unrealized gains and losses, net of applicable income
taxes, are reported as a separate component of shareholder's equity.
Investments consist principally of marketable equity securities, tax-exempt
bonds and taxable bonds with maturities in excess of 90 days. Marketable equity
securities are not considered cash equivalents for purposes of the statement of
cash flows. The cost of marketable equity securities sold is based on the
average cost of all shares of each security held at the time of sale.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost. The
Company provides for depreciation and amortization of the cost of property and
equipment, principally on the straight-line method over the estimated useful
lives or lease periods, as applicable. Useful lives range from three to five
years. Depreciation and amortization expense amounted to $337,418, $352,085 and
$395,357 for the years ended December 31, 1994, 1995 and 1996, respectively.
GOODWILL--Goodwill, which relates to the acquisition of Sunbelt, is being
amortized on the straight-line method over 20 years. Accumulated amortization of
goodwill amounted to $487,864 and $526,757 at December 31, 1995 and 1996,
respectively. The Company periodically evaluates the recoverability of goodwill
by comparing the carrying value of goodwill to estimated future operating income
from the related operations.
ACQUISITIONS OF TRAVEL AGENCIES--The Company periodically buys the assets of
travel agencies in certain prime locations. These transactions are treated as
purchases of assets. Assets acquired typically include covenants not-to-compete,
customer lists, and property and equipment (Note 10).
F-41
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
COVENANTS NOT-TO-COMPETE--In conjunction with the acquisition of certain
travel agencies, the Company has negotiated covenants not-to-compete with the
prior owners. These agreements are being amortized on the straight-line method
over the periods specified in the agreements, which range from three to five
years. Accumulated amortization of covenants not-to-compete amounted to $674,939
and $890,676 at December 31, 1995 and 1996, respectively.
CUSTOMER LISTS--Customer lists purchased in connection with the acquisition
of certain travel agencies are being amortized using the straight-line method
over the shorter of their useful lives or ten years. Accumulated amortization of
customer lists amounted to $105,257 and $119,987 at December 31, 1995 and 1996,
respectively.
REVENUE RECOGNITION--Travel commissions and fees from ticketing,
reservations and other transaction services are recognized as earned. Included
in such revenues are certain amounts based on the volume of business with
various travel vendors. The amount which the Company will receive relative to
any given fiscal year is determined by the travel vendors, generally on a
quarterly basis.
REBATES--Rebates represent a portion of the travel commissions earned by the
Company which are rebated to certain commercial customers based on business
volume and other factors. Rebates are recognized when the travel commissions are
earned from ticketing, reservations and other transaction services.
GROSS REVENUES--Gross revenues, presented for information purposes,
represent the gross amount of transportation ticket revenue generated for and on
behalf of air, ground and sea carriers and other travel-related services sold by
the Company and on which the Company earns commissions and fees.
INCOME TAXES--The Company recognizes income tax expense and deferred taxes
in accordance with SFAS No. 109.
USE 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 at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
STOCK SPLIT--On November 30, 1996, the Company amended its Articles of
Incorporation to increase the number of authorized shares of common stock from
5,000,000 to 11,000,000 and effected a 9.905-for-one stock split of its common
stock. All share amounts included in the accompanying financial statements and
footnotes have been restated to reflect the stock split.
LONG-LIVED ASSETS--The Company accounts for the impairment and disposition
of long-lived assets in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In
accordance with SFAS No. 121, long-lived assets to be held are reviewed for
events or changes in circumstances which indicate that their carrying value may
not be recoverable. The Company periodically reviews the carrying value of
long-lived assets to determine whether or not an impairment to such value has
occurred.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1994 and
1995 financial statements to conform to the 1996 presentation.
F-42
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
3. INVESTMENT SECURITIES AVAILABLE FOR SALE
The following table summarizes the Company's investment securities available
for sale as of December 31.
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
<CAPTION>
1995
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Taxable bonds................................................ $ 500,388 $ 13,576 $ (900) $ 513,064
Equity securities............................................ 913,605 10,145 (76,920) 846,830
------------ ----------- ----------- ------------
Total available for sale................................... $ 1,413,993 $ 23,721 $ (77,820) $ 1,359,894
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
<CAPTION>
1996
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
Taxable bonds................................................ $ 100,599 $ 9,938 $ -- $ 110,537
Equity securities............................................ 2,155 3,883 $ -- 6,038
------------ ----------- ----------- ------------
Total available for sale................................... $ 102,754 $ 13,821 $ -- $ 116,575
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The contractual maturities of investments at December 31 are shown below.
Expected maturities may differ from contractual maturities.
<TABLE>
<CAPTION>
1995 1996
-------------------------- ------------------------
ESTIMATED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
Taxable bonds:
Due in one year or less.................................. $ 14,795 $ 14,795 $ -- $ --
Due after ten years...................................... 485,593 498,269 100,599 110,537
------------ ------------ ------------ ----------
500,388 513,064 100,599 110,537
Equity securities.......................................... 913,605 846,830 2,155 6,038
------------ ------------ ------------ ----------
$ 1,413,993 $ 1,359,894 $ 102,754 $ 116,575
------------ ------------ ------------ ----------
------------ ------------ ------------ ----------
</TABLE>
The Company determined that certain marked table securities are available
for use in current operations and, accordingly, classified such securities as
current assets without regard to the securities' contractual maturity dates.
F-43
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
4. INCOME TAXES
Components of the provision for income taxes for the year sended December 31
are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- ------------
<S> <C> <C>
Current income taxes:
Federal.............................................................................. $ 282,836 $ 1,104,936
State................................................................................ 99,092 347,934
----------- ------------
Total current income taxes....................................................... 381,928 1,452,870
Deferred income taxes:
Federal.............................................................................. 211,542 (265,674)
State................................................................................ 36,525 (111,778)
----------- ------------
Total deferred income taxes...................................................... 248,067 (377,452)
----------- ------------
Total provision for income taxes....................................................... $ 629,995 $ 1,075,418
----------- ------------
----------- ------------
</TABLE>
The following is a reconciliation of the provision for income taxes computed
by applying the federal statutory tax rate to pretax income and the recorded
provision for income taxes for the years ended December 31:
<TABLE>
<CAPTION>
1994 1995 1996
--------------------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNT % AMOUNT % AMOUNT %
---------- --- ---------- --- ------------ ---
Statutory federal income tax............................. $ 222,236 35% $ 541,721 35% $ 925,995 35%
State tax, net of federal benefit........................ 41,373 7% 89,507 6% 158,742 6%
Amortization of intangibles.............................. 13,612 2% 13,224 1% 14,911 1%
Other.................................................... (4,248) (1)% (14,457) (1)% (24,230) (1)%
---------- --- ---------- --- ------------ ---
Total provision for income taxes......................... $ 272,973 43% $ 629,995 41% $ 1,075,418 41%
---------- --- ---------- --- ------------ ---
---------- --- ---------- --- ------------ ---
</TABLE>
F-44
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
4. INCOME TAXES (CONTINUED)
The major components of the Company's deferred income taxes are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Accrued vacation and bonuses............................................. $ 111,291 $ 109,981 $ 202,376
Deferred revenue......................................................... 259,077
State income taxes....................................................... 44,824 33,691
Allowance for doubtful accounts.......................................... 10,752 18,147 17,998
Amortization of intangibles.............................................. 81,680 123,205 213,278
Litigation settlement accrual............................................ 270,683
Other.................................................................... 49,287 13,392 26,736
----------- ----------- -----------
Total deferred tax assets............................................ 568,517 298,416 719,465
Deferred tax liabilities:
Book versus tax basis in property and equipment, after depreciation and
amortization........................................................... (203,713) (181,679) (128,418)
Unrealized gain on investment securities................................. (5,528)
State income taxes....................................................... (44,630)
Other.................................................................... (50,050)
----------- ----------- -----------
Total deferred tax liabilities....................................... (203,713) (181,679) (228,626)
----------- ----------- -----------
Deferred income taxes, net................................................. $ 364,804 $ 116,737 $ 490,839
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Management believes it is more likely than not that the Company will utilize
a portion of its deferred tax assets by applying them against taxable income to
be generated in future years. The Company estimates that the majority of its
deferred tax assets will be realized during the next three years.
5. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS--The Company has entered into operating leases for its
sales and administrative offices, certain equipment and automobiles, which
expire at various dates through 1999. At December 31, 1996, future minimum lease
payments under noncancelable operating leases which have initial or remaining
terms in excess of one year are as follows:
<TABLE>
<CAPTION>
OFFICE EQUIPMENT AND
FISCAL YEAR FACILITIES AUTOMOBILES TOTAL
- --------------------------------------------------------------------- ------------ -------------- ------------
<S> <C> <C> <C>
1997................................................................. $ 616,859 $ 46,600 $ 663,459
1998................................................................. 439,596 36,217 475,813
1999................................................................. 176,948 31,290 208,238
2000................................................................. 154,578 2,666 157,244
2001................................................................. 125,056 125,056
------------ -------------- ------------
$ 1,513,037 $ 116,773 $ 1,629,810
------------ -------------- ------------
------------ -------------- ------------
</TABLE>
Rent expense was $709,254, $622,497 and $702,008 for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-45
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
RESERVATION SYSTEM--The Company entered into an operating lease agreement
with a major airline for use of the airline's reservation system. The agreement
states that no lease payments have to be made by the Company if the Company
maintains a specified level of transactions per terminal per month. In the event
the Company does not achieve this average transaction level, it is required to
pay an amount per terminal, per month, per transaction deficiency.
LITIGATION:
(I) LITIGATION WITH DEVELOPER OF CERTAIN OF THE COMPANY'S QUALITY CONTROL
SOFTWARE--The Company has been named in a lawsuit alleging breach of an alleged
joint venture agreement, breach of fiduciary duty, breach of contract, bad faith
denial of existence of a contract and conversion. The formal lawsuit was
dismissed on May 14, 1996, concurrent with the parties entering into a
settlement agreement. Such settlement agreement specifies the manner in which
the settlement amount is to be determined. As the settlement amount has not been
finalized, the ultimate outcome of this matter cannot presently be determined.
Accordingly, no provision for any loss that may result upon resolution of this
matter has been made in the accompanying financial statements.
(II) LITIGATION WITH PRIOR OWNER OF AN ACQUIRED TRAVEL AGENCY--The Company
was party to arbitration which arose from the fiscal year 1993 termination (as
employees) of the prior owners of an acquired travel agency. The matter was
arbitrated in November and December 1994, and the Company paid approximately
$632,000 in 1995, in full payment of all amounts owing under the employment
agreement of one of said employees and all other matters related to this
litigation. Such amount was fully expensed in the fiscal 1994 financial
statements.
(III) NORMAL COURSE OF BUSINESS LITIGATION--The Company is involved in
litigation arising in the normal course of business. It is the opinion of
management that the outcome of this litigation will have no material adverse
effect on the financial position of the Company.
BONUS AGREEMENT--In February 1989, the Company entered into a deferred bonus
agreement with an officer which entitles such officer to 5% of all consideration
received in the event of a sale of the Company. Pursuant to the terms of the
agreement, the officer must be employed with the Company at the time of the sale
in order to receive such benefits. As the Company has no liability to the
officer if a sale is not consummated, no compensation expense has been
recognized as of December 31, 1996 by the Company related to this agreement.
STOCK APPRECIATION RIGHTS--In July 1992, the Company granted 100,000 stock
appreciation rights units to an officer which entitles the holder to receive a
cash payment equal to any increase between the unit's initial value and the
value upon the exercise of the units. The initial value is zero for 50,000 of
the units and $.85 per unit for the remaining 50,000 units. The rights to the
units vest over a period of seven years. The Company recorded compensation
expense of approximately $10,000 in 1996 related to such stock appreciation
rights.
6. LINE OF CREDIT
The Company has available two credit facilities with a commercial bank that
expire on March 1, 1998. Under the terms of the first facility, a line of credit
is available under which the Company may borrow up to $1,000,000 through April
15, 1997, at which time the maximum available borrowings will be reduced to
$600,000. Borrowings thereunder bear interest at the bank's prime rate plus .5%
and are collateralized by substantially all of the Company's assets. As of
December 31, 1995 and 1996, no amounts were outstanding
F-46
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
6. LINE OF CREDIT (CONTINUED)
on the line. This facility also provides for standby letters of credit up to
$150,000. This letter of credit expires on March 2, 1997. The terms of the
second facility provide for a standby letter of credit not to exceed $1,082,500.
The maximum amount available reduces to $866,000 on February 11, 2000 and to
$433,000 on February 11, 2001. These facilities are guaranteed by the sole
shareholder. No amounts were outstanding on the letters of credit as of December
31, 1996.
7. LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
5.7% unsecured promissory note to shareholder, with interest payable in monthly
installments through November 25, 2003, principal due in full on December 1, 2003... $ 1,742,776 $ 1,042,776
Noninterest-bearing leasehold improvement loan, principal due in monthly installments
of $1,417, maturing October 1, 1998................................................. 46,747 29,744
Unsecured promissory note, subordinated to all other debt, personally guaranteed by
the sole shareholder with interest at the daily average of the bank's prime interest
rate for the preceding calendar year, principal due in October 1997................. 81,160 40,580
Unsecured promissory note, subordinated to all other debt, personally guaranteed by
the sole shareholder with interest at 6.25%, repaid in 1996......................... 15,000
8 1/2% unsecured promissory note, personally guaranteed by the sole shareholder,
principal due in fiscal 1997........................................................ 120,000 60,000
Unsecured promissory note with interest at 9% per annum through October 1995 and 12%
per annum from November 1995 through October 1996, repaid in 1996................... 100,000
------------ ------------
Total debt............................................................................ 2,105,683 1,173,100
Current portion....................................................................... (235,281) (117,580)
------------ ------------
$ 1,870,402 $ 1,055,520
------------ ------------
------------ ------------
</TABLE>
Future principal payments required on long-term debt are as follows:
<TABLE>
<CAPTION>
SUBORDINATED
PROMISSORY
FISCAL YEAR NOTE OTHER TOTAL
- ----------------------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
1997................................................................... $ 40,580 $ 77,000 $ 117,580
1998................................................................... 12,744 12,744
1999...................................................................
2000...................................................................
2001...................................................................
Thereafter............................................................. 1,042,776 1,042,776
------------ ------------ ------------
$ 40,580 $ 1,132,520 $ 1,173,100
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-47
<PAGE>
ASSOCIATED TRAVEL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 (CONTINUED)
8. RELATED-PARTY TRANSACTIONS
The Company pays certain expenses on behalf of an affiliated entity. The
Company is subsequently reimbursed by the affiliate for such amounts. Accounts
receivable from the affiliate were $687,696 and $1,399,165 at December 31, 1995
and 1996, respectively, and have been included in other receivables in the
accompanying balance sheets. The Company also had a note receivable from its
sole shareholder at December 31, 1995 in the amount of $200,000 which bore
interest at 6% and was repaid during 1996.
9. EMPLOYEE BENEFIT PLANS
The Associated Travel Services, Inc. Cash Option Profit-Sharing Plan (the
Plan) is a defined contribution plan covering substantially all employees who
have completed at least 1,000 hours of service. The Plan, which commenced
January 1, 1985, is subject to the provisions of the Employee Retirement Income
Security Act of 1974 and is qualified under Section 401(k) of the Internal
Revenue Code and, therefore, is exempt from federal and state income taxes. The
Company's contributions amounted to $55,629, $56,229 and $60,000 for the years
ended December 31, 1994, 1995 and 1996, respectively, and are included in
selling, general and administrative expenses in the accompanying financial
statements.
10. SUBSEQUENT EVENT
ACQUISITION--On January 6, 1997, the Company acquired the travel agency
business and substantially all of the related assets of Sunbelt Travel, Inc., a
Texas corporation, and Sunbelt Travel of Houston, Inc., a Texas corporation,
(collectively, Sunbelt). The aggregate purchase price of the acquisition was
$3,000,000, consisting of $2,000,000 in cash, and a $1,000,000 promissory note.
The promissory note is collateralized by an irrevocable letter of credit issued
by a bank. This acquisition was accounted for as a purchase.
In connection with the purchase, the Company entered into an employment
agreement and two consulting agreements expiring on December 31, 1998 with the
three former stockholders of Sunbelt. Minimum annual aggregate compensation
under those agreements is $91,000 plus an annual travel account of $20,000. The
Company has also agreed to additional aggregate compensation ranging from a
minimum of $300,000 to a maximum of $500,000, annually, based on the pre-tax
profit of the Company during 1997 and 1998. This compensation is due annually on
March 15, 1998 and 1999. As a condition of the purchase, the Company has pledged
280,024 shares of the Company's common stock as collateral for the additional
compensation.
POTENTIAL SALE--The Company is currently negotiating the potential sale of
the Company to outside investors. There can be no assurance that the sale will
be consummated.
F-48
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Shareholders of
Evans Travel Group, Inc. and Evans Consulting Services, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the financial position of Evans Travel Group,
Inc. and its subsidiary and Evans Consulting Services, Inc. (collectively, the
"Company") at July 25, 1997, and the results of their operations and their cash
flows for the year then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Denver, Colorado
February 3, 1998
F-49
<PAGE>
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
COMBINED BALANCE SHEET
JULY 25, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 629,263
Receivables, less allowance for doubtful accounts of $13,328.................. 345,449
Other receivables............................................................. 637,434
Receivable from shareholder................................................... 95,816
Other current assets.......................................................... 19,359
---------
Total current assets...................................................... 1,727,321
Property and equipment, net..................................................... 128,476
Intangible assets, net of accumulated amortization of $318,865.................. 271,887
Other assets.................................................................... 1,313
---------
Total assets.............................................................. $2,128,997
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 24,592
Accrued liabilities:
Compensation................................................................ 49,427
Rebates..................................................................... 85,375
Customer deposits........................................................... 77,293
Other....................................................................... 4,508
Income taxes payable.......................................................... 41,000
Current portion of notes payable.............................................. 52,664
Current portion of deferred income............................................ 156,757
---------
Total current liabilities................................................. 491,616
Notes payable................................................................... 79,778
Deferred income................................................................. 298,670
---------
Total liabilities......................................................... 870,064
Commitments (Note 4)
Shareholders' equity:
Common stock (no par value; 300 shares authorized;
299 shares issued and outstanding)............................................
Additional paid-in capital.................................................... 91,746
Retained earnings............................................................. 1,167,187
---------
Total shareholders' equity................................................ 1,258,933
---------
Total liabilities and shareholders' equity................................ $2,128,997
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE>
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED JULY 25, 1997
<TABLE>
<S> <C>
Commission revenue.............................................................. $4,214,177
Other operating revenue......................................................... 1,907,971
---------
Total revenue............................................................... 6,122,148
Rebates......................................................................... 317,716
---------
Net revenue..................................................................... 5,804,432
Operating expenses:
Salaries...................................................................... 3,830,521
General and administrative.................................................... 1,670,718
---------
Total operating expenses.................................................... 5,501,239
---------
Income from operations.......................................................... 303,193
Other income (expense):
Interest income............................................................... 16,224
Interest expense.............................................................. (16,560)
---------
Total other income (expense)................................................ (336)
---------
Income before income taxes...................................................... 302,857
Income tax expense.............................................................. 19,984
---------
Net income...................................................................... 282,873
Retained earnings at beginning of year.......................................... 884,314
---------
Retained earnings at end of year................................................ $1,167,187
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-51
<PAGE>
EVANS TRAVEL GROUP, INC. AND CONSULTING SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JULY 25, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 282,873
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................ 107,371
Deferred revenue............................................................. 307,427
Change in assets and liabilities:
Receivables.............................................................. (38,237)
Other receivables........................................................ (460,334)
Other assets............................................................. (4,912)
Accounts payable......................................................... (141,536)
Income taxes payable..................................................... 17,000
Accrued liabilities...................................................... (9,186)
---------
Net cash provided by operating activities................................ 60,466
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (21,194)
Cash proceeds from sale of assets................................................ 42,521
---------
Net cash provided by investing activities................................ 21,327
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in receivable from shareholder............................................ 36,619
Payments on long-term debt....................................................... (131,191)
---------
Net cash used in financing activities.................................... (94,572)
---------
Net decrease in cash and cash equivalents........................................ (12,779)
Cash and cash equivalents at beginning of year................................... 642,042
---------
Cash and cash equivalents at end of year......................................... $ 629,263
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 16,558
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-52
<PAGE>
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. REPORTING ENTITY AND BASIS OF ACCOUNTING
Effective July 25, 1997, Evans Consulting Services, Inc. was contributed to
Evans Travel Group, Inc. (collectively, the "Company"), and a subsidiary of U.S.
Office Products Company, a Delaware company, merged with Evans Travel Group,
Inc. The Company is a full-service travel agency, providing reservation services
and information for travel, lodging and tours to commercial, individual and
group customers from offices throughout Louisiana and northern Florida. The
Company's operations are primarily concentrated in one market segment--airline
travel--and its customers are geographically concentrated primarily in
Louisiana; management considers a downturn in this market segment and
geographical location to be unlikely.
The Company's combined financial statements includes the balances of Evans
Travel Group, Inc. and its wholly owned subsidiary, and Evans Consulting
Services, Inc. Both companies have common ownership and operate in the same line
of business. All significant intercompany balances and transactions have been
eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Commissions from ticketing, reservations and other transportation services
are recognized when the ticket is validated or reservation utilized. Revenue
from certain incentive plans offered by major airlines are accrued as earned.
The Company sells tours sponsored by other companies. Commissions received
from the sale of tours are recognized, net of estimated cancellation
adjustments, when payment is made to the tour company. All customer receipts for
such tours are recorded as a customer deposit liability until paid.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents generally consist of money market funds, for which cost approximates
fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, generally five to seven years. Capital leases and leasehold improvements
are amortized over the shorter of their economic useful lives or the lease term.
INTANGIBLE ASSETS
The cost of purchased companies in excess of the underlying fair value of
net assets at the date of acquisition are recorded as goodwill and amortized
over five years on a straight-line basis. Purchase price allocated to covenants
not-to-compete are amortized over the term of the agreement which is typically
five years. As of July 25, 1997, intangible assets consisted of net goodwill of
$202,000, net covenants not-to-compete of $56,000 and other intangible assets of
$13,887. The carrying value of intangible assets is assessed for recoverability
by management based on an analysis of undiscounted expected future cash flows
F-53
<PAGE>
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
from the related acquired entities. The Company believes that there has been no
impairment thereof as of July 25, 1997.
DEFERRED INCOME
The Company received a one-time promotional support payment from the entity
that leases the Company its reservation system. The Company is required to
utilize the reservation system throughout the contract term and there is
substantial penalty for early termination of the contract. The Company has
deferred the payment and is recognizing income using the straight-line method
over the five year term of the contract.
INCOME TAXES
Prior to January 1, 1997, Evans Travel Group, Inc. accounted for income
taxes in accordance with the provisions of Statement of Financial Accounting
Standards No. 109. Deferred income taxes are provided for temporary differences
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. As of January 1, 1997, there were no
deferred tax assets or liabilities.
Effective January 1, 1997, the Evans Travel Group, Inc. was granted
S-Corporation reporting status by the Internal Revenue Service. The notice of
acceptance was received in May 1997. As a result, there is no federal or state
income tax liability of Evans Travel Group, Inc. for the period from January 1,
1997 through July 25, 1997 reflected in the combined financial statements. Evans
Consulting Services, Inc. has been an S-Corporation since inception. Any
liability arising during this period is the responsibility of the shareholders
of the Company. The income tax payable of $41,000 and tax expense of $20,000
relates to tax liabilities arising prior to January 1, 1997 which were paid in
August 1997. The Company's S corporation status terminated on consummation of
the merger discussed in Note 1 above.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, receivables and payables and long-term debt, approximate
their fair values.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities. Actual results could differ from those estimates. Management
believes that the estimates used are reasonable.
F-54
<PAGE>
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at July 25, 1997:
<TABLE>
<S> <C>
Furniture and fixtures............................................ $ 230,560
Computer and telephone equipment.................................. 38,512
Computer software................................................. 23,804
---------
292,876
Less: accumulated depreciation and amortization................... 164,400
---------
Net property and equipment........................................ $ 128,476
---------
---------
</TABLE>
4. COMMITMENTS
The Company leases certain office space and furniture under noncancelable
operating leases. Rent expense for the year ended July 25, 1997 was
approximately $74,000. Future minimum lease payments under these operating
leases as of July 25, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 162,400
1999.............................................................. 150,200
2000.............................................................. 85,400
2001.............................................................. 42,600
---------
Total............................................................. $ 440,600
---------
---------
</TABLE>
5. RELATED PARTY TRANSACTIONS
The $95,816 receivable from shareholder at July 25, 1997 was paid in full
during August 1997. Additionally, immediately following the merger with U.S.
Office Products Company discussed in Note 1, real estate with a book value of
approximately $210,000 was sold to the shareholder for the assumption of a note
payable aggregating $167,479 and cash of $42,521. The book value approximated
fair market value.
6. INDEBTEDNESS
The Company's outstanding indebtedness at July 25, 1997 is comprised of the
following:
<TABLE>
<S> <C>
Promissory note to former shareholder, interest at 8%, payable
monthly installments of $376 principal plus interest through
December 1, 1999................................................ $ 9,873
Promissory note to former shareholder, noninterest bearing,
payable monthly installments of $3,150 through December 1,
1999............................................................ 90,138
Various capital lease obligations, payable in monthly installments
of principal plus interest through October 2001................. 32,431
---------
132,442
Less current maturities........................................... 52,664
---------
Long-term portion of notes payable................................ $ 79,778
---------
---------
</TABLE>
F-55
<PAGE>
EVANS TRAVEL GROUP, INC. AND EVANS CONSULTING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. INDEBTEDNESS (CONTINUED)
Scheduled maturities at July 25, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 52,664
1999.............................................................. 49,951
2000.............................................................. 23,663
2001.............................................................. 6,164
---------
$ 132,442
---------
---------
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) defined contribution plan to provide
benefits based on a percentage of contributions made by eligible employees.
During the year ended July 25, 1997, the Company contributed approximately
$18,000 to this plan.
F-56
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders of
McGregor Travel Management, Inc.
We have audited the accompanying balance sheets of McGregor Travel
Management, Inc. as of December 31, 1995 and 1996, and the related statements of
income and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 financial statements referred to above present fairly,
in all material respects, the financial position of McGregor Travel Management,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
As discussed in Note 10 to the financial statements, certain errors
resulting in the understatement of accounts receivable, goodwill and
stockholders' equity as of December 31, 1995 and 1996, were discovered by
management in the current year. Accordingly, the 1995 and 1996 financial
statements have been restated (and an adjustment has been made to retained
earnings as of January 1, 1995) to correct these errors.
Walter J. McKeever & Company
Greenwich, Connecticut
March 6, 1997, Except for Note 10, Note 12 and the last paragraph of Note 1,
as to which the date is January 29, 1998
F-57
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996 SEPTEMBER 30, 1997
------------ ------------ ------------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current Assets
Cash and Cash Equivalents....................................... $ 785,600 $ 611,063 $ 1,909,576
Marketable Equity Securities (Cost 1995: $128,625
Note 1)....................................................... 328,500
Accounts Receivable--Trade...................................... 207,705 155,539 398,401
--Other (Note 10)......................................... 925,156 1,552,456 1,537,019
Due from Employees (Note 5)..................................... 68,250 85,858 2,002,927
Prepaid Insurance............................................... 97,007 28,816 20,982
Prepaid Expenses--Other......................................... 80,025 15,533 15,516
------------ ------------ ------------------
Total Current Assets........................................ 2,492,243 2,449,265 5,884,421
------------ ------------ ------------------
Property and Equipment
Automobiles..................................................... 251,136 75,792 181,156
Office Furniture and Equipment.................................. 360,634 641,897 1,134,769
Real Property................................................... 325,500 325,500 323,451
Leasehold Improvements.......................................... 212,263 272,925 299,742
------------ ------------ ------------------
1,149,533 1,316,114 1,939,118
Less Accumulated Depreciation................................... 314,888 358,042 461,866
------------ ------------ ------------------
Net Property and Equipment.................................. 834,645 958,072 1,477,252
------------ ------------ ------------------
Intangible Assets (Note 1)
Goodwill (Note 10).............................................. 2,437,154 2,437,154 3,387,084
Customer List................................................... 148,418 148,418 148,418
Restrictive Covenant............................................ 186,919 186,919 555,585
------------ ------------ ------------------
2,772,491 2,772,491 4,091,087
Less Accumulated Amortization............................... 503,173 641,649 765,642
------------ ------------ ------------------
Net Intangible Assets............................................. 2,269,318 2,130,842 3,325,445
Other Assets
Cash Surrender Value of Life...................................... 52,232 10,943 10,943
Insurance
Building Deposit (Note 4)....................................... 100,000
Security Deposits............................................... 7,957 7,957 7,957
Other........................................................... 1,400 1,400 24,372
------------ ------------ ------------------
Total Other Assets.......................................... 161,589 20,300 43,272
------------ ------------ ------------------
Total Assets.............................................. $ 5,757,795 $ 5,558,479 $ 10,730,390
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>
F-58
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996 SEPTEMBER 30, 1997
------------ ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable................................................ $ 1,182,897 $ 1,637,395 $ 2,835,397
Accrued Taxes................................................... 16,532 37,044 1,654
Accrued Interest................................................ 43,397 30,544 30,434
Deferred Income Taxes (Note 6).................................. 418,786 713,213
Note Payable, Bank Line of Credit (Note 2)...................... 617,250 1,493,274
Notes Payable, Shareholders (Note 5)............................ 983,702 41,550 366,550
Current Portion of Long-Term Debt (Note 3)...................... 786,217 899,325 1,223,699
------------ ------------ ------------------
Total Current Liabilities................................... 3,431,531 3,976,321 5,951,008
Noncurrent Liabilities
Long-term debt, less current Portion (Note 3)................... 922,493 176,666 35,051
------------ ------------ ------------------
Total Liabilities........................................... 4,354,024 4,152,987 5,986,059
------------ ------------ ------------------
Stockholders' Equity
Common Stock, no par value......................................
5,000 shares authorized.......................................
1,000 shares issued (Note 10)................................. 165,333 165,333 165,333
Retained Earnings............................................... 1,038,563 1,240,159 4,578,998
Net unrealized gain on current
Marketable securities (Note 1)................................ 199,875
------------ ------------ ------------------
Total Stockholders' Equity.................................. 1,403,771 1,405,492 4,744,331
------------ ------------ ------------------
Total Liabilities and Stockholders' Equity.................... $ 5,757,795 $ 5,558,479 $ 10,730,390
------------ ------------ ------------------
------------ ------------ ------------------
</TABLE>
See auditor's report and accompanying notes to financial statements.
F-59
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED:
YEAR ENDED DECEMBER 31 : ----------------------------
---------------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
INCOME
Commissions Earned................................ $ 10,257,855 $ 19,292,560 $ 15,625,051 $ 18,065,333
------------- ------------- ------------- -------------
Total Income.................................... 10,257,855 19,292,560 15,625,051 18,065,333
OPERATING EXPENSES
Salaries.......................................... 5,255,320 10,585,438 7,814,144 7,251,445
General and administrative........................ 4,227,246 8,378,982 6,934,108 8,091,213
------------- ------------- ------------- -------------
Total Operating Expenses........................ 9,482,566 18,964,420 14,748,252 15,342,658
------------- ------------- ------------- -------------
Income From Operations.......................... 775,289 328,140 876,799 2,722,675
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES)
Interest Income................................... 37,233 43,116 26,105 65,702
Interest Expense.................................. (230,457) (179,742) (135,067) (153,716)
Gains realized on sale of marketable securities 368,858
Other, net........................................ (25,665) (16,468) (6,706) (1,415)
------------- ------------- ------------- -------------
Other Income (Expenses), Net.................... (218,889) 215,764 (115,668) (89,429)
------------- ------------- ------------- -------------
Income Before Income Taxes...................... 556,400 543,904 761,131 2,633,246
------------- ------------- ------------- -------------
PROVISION FOR TAXES
Federal (Note 6).................................. 230,918 259,325 185,470 (548,795)
State (Note 6).................................... 67,888 82,983 52,990 (156,798)
------------- ------------- ------------- -------------
Total Taxes..................................... 298,806 342,308 238,460 (705,593)
------------- ------------- ------------- -------------
Net Income.................................... 257,594 201,596 522,671 3,338,839
Retained Earnings, January 1........................ 772,710 1,038,563 1,038,563 1,240,159
Prior Period Adjustments, Net of Applicable Income
Taxes of $109,620--Note 10)....................... 8,259
------------- ------------- ------------- -------------
Retained Earnings, end of period.................... $ 1,038,563 $ 1,240,159 $ 1,561,234 $ 4,578,998
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See auditor's report and accompanying notes to financial statements.
F-60
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: NINE MONTHS ENDED:
------------------------- ----------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
----------- ------------ ------------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from Operating Activities:
Net Income............................................ $ 257,594 $ 201,596 $ 522,671 $ 3,338,839
----------- ------------ ------------- -------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and Amortization......................... 256,932 250,158 173,585 227,817
Gains realized, sales of marketable securities........ (368,858)
Loss on Disposition of Fixed Assets................... 16,426
Noncash officers' compensation (Note 5)
Marketable securities............................... 708,174
Automobiles......................................... 106,817
Building Deposit.................................... 100,000
Cash value of life insurance........................ 65,732
Decrease (Increase) in Accounts Receivable............ (93,252) 52,166 (45,814) (242,862)
Decrease (Increase) in Other Receivables.............. (573,071) (627,300) (696,036) 15,437
Increase in Due From Employees........................ (8,823) (17,608) (9,336) (1,917,069)
Decrease (Increase) in Prepaid Insurance.............. (71,313) 68,191 38,579 7,834
Decrease (Increase) in Prepaid Expenses-- Other....... (68,032) 64,492 112,421 (22,956)
Decrease in Prepaid Taxes............................. 15,375
Increase in Accounts Payable and Accrued Expenses....... 565,599 441,645 2,149,803 1,197,893
Increase (Decrease) in Accrued Taxes.................. (2,636) 20,512 33,853 (35,390)
Increase in Deferred Taxes............................ 274,512 294,427 227,641 (713,213)
----------- ------------ ------------- -------------
Total Adjustments....................................... 311,717 1,158,548 1,984,696 (1,482,509)
----------- ------------ ------------- -------------
Net Cash provided by Operating Activities............... $ 569,311 $ 1,360,144 $ 2,507,367 $ 1,856,330
----------- ------------ ------------- -------------
</TABLE>
See auditor's report and accompanying notes to financial statements.
F-61
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31: NINE MONTHS ENDED :
------------------------ ----------------------------
<S> <C> <C> <C> <C>
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997
----------- ----------- ------------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from Investing Activities:
Purchases of marketable securities....................... $ (117,625) $ (210,692) $ (64,625)
Purchases of property and equipment...................... (154,250) (341,926) (289,090) $ (623,004)
Increase in cash surrender value life insurance.......... (24,605) (24,443)
Proceeds on sale of fixed assets......................... 6,848
Purchase of travel agency................................ (103,000) (1,318,596)
Decrease in security deposit............................. 1,750
----------- ----------- ------------- -------------
Net cash used by Investing Activities.................... (390,882) (577,061) (353,715) (1,941,600)
----------- ----------- ------------- -------------
Cash flows from Financing Activities
Borrowing on line of credit.............................. 617,250 2,596,279
Borrowing from stockholders.............................. 983,702 325,000
Borrowing on long-term notes Payable..................... 50,000 741,728
Principal payments, loans from Stockholders.............. (452,595) (942,152) (983,702)
Principal payments on line of credit..................... (1,720,255)
Principal payments, long-term notes Payable.............. (387,898) (632,718) (383,083) (558,969)
----------- ----------- ------------- -------------
Cash (used) provided by Financing Activities............. 193,209 (957,620) (1,366,785) 1,383,783
----------- ----------- ------------- -------------
Net (decrease) increase in cash.......................... 371,638 (174,537) 786,867 1,298,513
Cash and cash equivalents, beginning of period........... 413,962 785,600 785,600 611,063
----------- ----------- ------------- -------------
Cash and cash equivalents, end of period................. $ 785,600 $ 611,063 $ 1,572,467 $ 1,909,576
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest expense....................................... $ 148,089 $ 192,595 $ 150,186 $ 80,006
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
Income taxes........................................... $ 26,930 $ 25,533 $ 14,201 $ 25,535
----------- ----------- ------------- -------------
----------- ----------- ------------- -------------
</TABLE>
See auditor's report and accompanying notes to financial statements.
F-62
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
McGregor Travel Management, Inc., incorporated in 1977, provides travel
management services to corporate clients throughout the U.S. Its main office is
located in Stamford, Connecticut. The Company's name was changed from McGregor
Travel, Inc. in 1995.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
MARKETABLE EQUITY SECURITIES
As required by Statement of Financial Accounting Standards No. 115 for years
beginning after December 15, 1993, the Company records its investments in
marketable equity securities at market value as of the balance sheet date.
Unrealized gains are reported in the Stockholders' Equity section of the balance
sheet.
PROPERTY AND EQUIPMENT
Property and Equipment are recorded at cost. Acquisitions made prior to 1989
are depreciated under the Accelerated Cost Recovery System (as modified by the
Tax Reform Act of 1986), using the applicable recovery periods. The difference
between straight-line and accelerated methods is considered to be immaterial for
those years. Personal property acquired after December 31, 1988 is depreciated
over five to seven years using the straight-line method for financial reporting
and accelerated methods for tax purposes. Real property is depreciated over 27
1/2 to 39 years using the straight-line method for both financial statement and
tax reporting purposes.
INTANGIBLE ASSETS
Intangible assets are recorded at cost. Intangible assets acquired in the
purchase of Riis family stock in 1993 (Note 10) and in connection with the
purchases of travel agencies in 1992 and 1995, are amortized over the following
estimated useful lives:
<TABLE>
<S> <C>
Goodwill...................................................... 25--40 years
Customer Lists................................................ 5 years
Restrictive Covenant.......................................... 3 years
</TABLE>
Goodwill is not amortized for tax purposes. In years prior to 1992, goodwill
was immaterial and was not amortized for financial statement purposes.
RECLASSIFICATION OF PRIOR YEAR'S STATEMENTS
In addition to the prior period adjustments described in Note 10, certain
items previously reported have been reclassified to conform with the current
year's presentation.
F-63
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE 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.
INTERIM FINANCIAL DATA
The interim financial data as of September 30, 1997 and for the nine months
ended September 30, 1996 and 1997 is unaudited; however, in the opinion of
management of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
results for the interim periods presented.
Effective January 1, 1997, the Company was granted S-Corporation reporting
status by the Internal Revenue Service. As a result, there is no federal or
state income tax liability of the Company for the period subsequent to January
1, 1997. Any liability arising during this period is the responsibility of the
shareholders of the Company. As a result of the election to be taxed under the
provisions of Subchapter S of the Internal Revenue Service, deferred income
taxes of $705,593 that existed prior to the election of Subchapter S have been
eliminated and recognized as income during the nine months ended September 30,
1997.
NOTE 2. LINE OF CREDIT
On November 6, 1996 the Company obtained a line of credit from Merrill Lynch
Business Financial Services, Inc. which allows the Company to borrow up to
$1,400,000. This credit limit was increased to $1,700,000 in January 1997.
Amounts borrowed under the line of credit must be repaid November 30, 1997.
Interest at the 30-Day Commercial Paper Rate, as published in the Wall Street
Journal, plus 2.3% is payable monthly. Principal outstanding at December 31,
1996 was $617,250.
In connection with the line of credit the Company paid in advance an annual
fee of $7,000 of which $6,417 is included in prepaid expenses at December 31,
1996. An additional fee of $1,500 was paid in January 1997 when the credit limit
was increased.
The line of credit is secured by marketable securities owned by stockholders
Douglas R. Knight and Sam A. DeFranco and held in Merrill Lynch pledged
collateral accounts.
F-64
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 3. LONG-TERM NOTES PAYABLE
Long-term notes payable are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ -------------
<S> <C> <C>
Notes payable to former shareholders (Note 10). Interest at prime plus 2% and
principal aggregating $112,745 payable quarterly from March 31, 1994 to March 31,
1995, based on a seven-year amortization of principal. Payments of interest and
principal aggregating $174,278 payable quarterly from June 30, 1995 to March 31,
1998, based on a three-year amortization of principal. Secured by Treasury stock
and guaranteed by Douglas Knight and Sam DeFranco.
The balances of the individual notes are:
John Riis............................................................................ $ 684,135 $ 431,778
Marie-Therese Riis................................................................... 228,042 143,924
Johan Riis (in trust)................................................................ 166,470 105,064
Elise Bohner......................................................................... 166,470 105,064
Mette Riis........................................................................... 166,470 105,064
Siri Riis............................................................................ 166,470 105,064
------------ -------------
Total............................................................................ 1,578,057 995,958
Mortgage note payable to Citibank, N.A. Interest at 12.00% and principal of $2,135
are payable monthly until April, 1997 when the remaining balance of $59,045 is due.
Secured by condominium............................................................. 91,070 65,450
Note payable to Jack Skloff (Note 11) Non-interest bearing. Principal payments of
$2,083, payable monthly until July 1, 1997......................................... 39,583 14,583
------------ -------------
Total................................................................................ 1,708,710 1,075,991
Less Current Portion................................................................. (786,217) (899,325)
------------ -------------
Long-Term Notes Payable.............................................................. $ 922,493 $ 176,666
------------ -------------
------------ -------------
</TABLE>
Long-term notes are scheduled to mature as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1997.......................................................................... $ 899,325
1998.......................................................................... 176,666
------------
Total....................................................................... $ 1,075,991
------------
------------
</TABLE>
NOTE 4. COMMITMENTS
On November 30, 1996, the Company began leasing its headquarters in
Stamford, Connecticut, from DeFranco & Knight, LLC (Note 5), which bought the
building from John Riis (Note 10), the former landlord. The lease calls for
annual minimum lease payments of $190,091 for five years. The Company assumed
the lease of the Washington, DC agency purchased in 1995 (Note 11). This lease
had a remaining
F-65
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 4. COMMITMENTS (CONTINUED)
term of 8 months at December 31, 1996. The Company has also entered into several
noncancellable leases for furniture and office equipment.
Future minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1997............................................................................ $ 257,696
1998............................................................................ 207,939
1999............................................................................ 193,066
2000............................................................................ 174,250
----------
Total......................................................................... $ 832,951
----------
----------
</TABLE>
The Company also has several other small leases for office space at branch
locations.
<TABLE>
<CAPTION>
Total Rent Expense is:
1995 1996
--------- ---------
<S> <C> <C>
Office Space.......................................... $ 305,924 $ 384,728
Furniture & Telephone................................. 133,723 140,668
--------- ---------
$ 439,647 $ 525,396
--------- ---------
--------- ---------
</TABLE>
The Company is committed to pay the following amounts to John Riis under the
covenant not to compete described in Note 10:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ----------------------------------------------------------------------------------
<S> <C>
1997............................................................................ $ 64,599
1998............................................................................ 64,599
1999............................................................................ 64,599
----------
Total......................................................................... $ 193,797
----------
----------
</TABLE>
Non-Compete Payments are included in salary expense in the year they are
paid.
NOTE 5. RELATED PARTY TRANSACTIONS
Starting in 1996, the Company has a client support agreement with McGregor
Travel Management (UK) Limited, a United Kingdom corporation owned by Douglas
Knight and Sam DeFranco. McGregor Travel Management (UK) Limited provided travel
management services to the clients of McGregor Travel Management, Inc. In
connection with this agreement the Company paid McGregor Travel Management (UK)
Limited $377,476 for 1996 This amount is included in client support
expense-overseas in the statement of income for 1996.
F-66
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 5. RELATED PARTY TRANSACTIONS (CONTINUED)
Amounts due to and from McGregor Travel Management (UK) Limited are included
on the Company's balance sheets as follows:
<TABLE>
<S> <C>
Payable at December 31, 1996...................................... $ 283,849
Receivable at December 31, 1995................................... 80,025
</TABLE>
1996 transactions relating to demand notes payable to Douglas Knight and Sam
DeFranco were:
<TABLE>
<CAPTION>
DOUGLAS KNIGHT SAM DEFRANCO
-------------- -------------
<S> <C> <C>
Note payable balance 12/31/95..................................................... $ 507,620 $ 476,083
Principal Repaid in 1996.......................................................... (466,070) (476,083)
-------------- -------------
Note payable balance 12/31/96..................................................... $ 41,550 $ 0
-------------- -------------
-------------- -------------
Interest paid in 1996 at 12%...................................................... $ 15,280 $ 6,961
-------------- -------------
-------------- -------------
</TABLE>
The Company also made short-term advances of $23,167 to Mr. Knight and
$42,924 to Mr. DeFranco which are included in Due from Employees on the balance
sheet at December 31, 1996
During 1996 the Company transferred certain non-cash assets to Mr. Knight
and Mr. DeFranco. These amounts were included in their 1996 salaries:
<TABLE>
<S> <C>
Marketable securities............................................. $ 708,174
Automobiles....................................................... 106,817
Building deposit.................................................. 100,000
Cash value of life insurance...................................... 65,732
</TABLE>
NOTE 6. INCOME TAXES
Federal income tax expense is calculated after adding back to income
non-deductible expenses (mainly officers' life insurance premiums and
nondeductible meals and entertainment) totaling $157,750 in 1996 and $43,094 in
1995. Financial statement net income also differs from Federal taxable income
because of timing differences in reporting certain income items (Note 10), as
well as depreciation and amortization expense. These timing differences result
in deferred tax liabilities at December 31, 1996 and 1995.
F-67
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 6. INCOME TAXES (CONTINUED)
Federal and State income tax amounts consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
FEDERAL INCOME TAX EXPENSE
Current tax expense....................................................................... $ 14,495 $ 30,735
Deferred tax expense...................................................................... 216,423 228,590
---------- ----------
Total................................................................................. $ 230,918 $ 259,325
---------- ----------
---------- ----------
STATE INCOME TAX EXPENSE
Current tax expense....................................................................... $ 9,799 $ 17,146
Deferred tax expense...................................................................... 58,089 65,837
---------- ----------
Total................................................................................. $ 67,888 $ 82,983
---------- ----------
---------- ----------
TOTAL DEFERRED TAX LIABILITY:
Federal................................................................................... $ 329,377 $ 557,967
State..................................................................................... 89,409 155,246
---------- ----------
Total................................................................................. $ 418,786 $ 713,213
---------- ----------
---------- ----------
</TABLE>
NOTE 7. RETIREMENT PLAN
The Company adopted a 401 (k) retirement plan effective July 1, 1990. All
employees are eligible to participate in the plan on the quarterly entry date
following completion of 6 months of employment and attainment of age 18. Each
participant may elect to contribute up to 15% of base compensation to an annual
maximum of $9,240 (adjusted annually for inflation). The Company matches 50% of
the first 5% of employee contributions (up to 2.50% of base compensation) for
participants employed on the last day of the plan year. Profit-sharing expense
was $39,996 in 1995 and $59,119 in 1996.
NOTE 8. DEPRECIATION
For the year ended December 31, 1995, depreciation expense of $110,679 and
$11,835 is included in general and administrative expenses and other expenses,
respectively. For the year ended December 31, 1996, depreciation expense of
$99,850 and $11,832 is included in general and administrative expenses and other
expenses, respectively.
NOTE 9. CONCENTRATION OF CREDIT RISK
At December 31, 1996, the Company had cash deposits at one banking
institution in excess of federally insured limits. A possible loss exists for
the amount in excess of $100,000.
NOTE 10. RESTATEMENT OF FINANCIAL STATEMENTS
On April 14, 1993, the Company repurchased 3,600 shares of its common stock
in return for notes payable to former stockholders John Riis, Marie-Therese Riis
and their children totaling $2,400,000 (Note 3). Also on April 14, 1993, a total
of 800 new shares were issued to remaining stockholders Douglas Knight
F-68
<PAGE>
MCGREGOR TRAVEL MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996 AND 1995
NOTE 10. RESTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
and Sam DeFranco for a total of $105,833. Because of the resulting change of
ownership, the $2,400,000 has been reclassified as goodwill and is being
amortized over 25 years according to generally accepted accounting principles.
Previously this transaction was treated as a purchase of treasury stock.
Also, income receivable from override commissions and SABRE automation
incentives earned in the fourth quarter of each year, totaling $894,094 as of
December 31, 1995 and $1,552,456 as of December 31, 1996 was not previously
considered to be accruable at year-end. This income has now been accrued and is
included in Accounts Receivable--Other on the Balance Sheet. Deferred taxes on
these amounts were $312,932 as of December 31, 1995 and $543,358 as of December
31, 1996.
The effect of these restatements on Retained Earnings at January 1, 1995 is
as follows:
<TABLE>
<S> <C>
Additional commission income receivable........................... $ 313,200
Amortization of goodwill.......................................... (164,000)
Deferred taxes.................................................... (140,941)
---------
Prior Period Adjustment, Net...................................... $ 8,259
---------
---------
</TABLE>
NOTE 11. PURCHASE OF TRAVEL AGENCY ASSETS
On July 1, 1995, the Company purchased the assets of the Washington, D.C.
travel agency, Dimensions Travel Company, Inc., from Jack Skloff for $150,000.
The assets are recorded at cost as follows:
<TABLE>
<S> <C>
Customer List..................................................... $ 50,000
Furniture & Equipment............................................. 50,000
Restrictive Covenant.............................................. 25,000
Goodwill.......................................................... 25,000
---------
Total......................................................... $ 150,000
---------
---------
</TABLE>
The assets were purchased for $100,000 down and a $50,000, 24 month,
non-interest bearing note, with a monthly payment of $2,083.33, commencing
August 1, 1995.
NOTE 12. SUBSEQUENT EVENT
Effective October 24, 1997, the Company and its stockholders entered into a
definitive agreement with U.S. Office Products Company ("U.S. Office Products")
pursuant to which U.S. Office Products acquired all outstanding shares of the
Company's common stock in exchange for common stock of U.S. Office Products.
F-69
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Omni Travel Service, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of income and retained earnings and of cash flows present fairly, in all
material respects, the financial position of Omni Travel Service, Inc. at
December 31, 1996, and the results of their operations and their cash flows for
the year ended June 30, 1996 and the six months ended December 31, 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 10 of the financial statements, certain adjustments
have been made to the previously issued financial statements for the year ended
June 30, 1996. These adjustments were discovered subsequent to the issuance of
the financial statements. The financial statements have been restated to reflect
these corrections.
NARDELLA & TAYLOR
Lexington, Massachusetts
August 22, 1996, except for Note 10, as to which the date is January 30,
1998, for the audited financial statements as of June 30, 1996, and January 30,
1998 for the audited financial statements as of December 31, 1996
F-70
<PAGE>
OMNI TRAVEL SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents............................................................... $1,443,151 $ 1,435,442
Accounts receivable, trade......................................................... 318,500 328,383
Prepaid expenses and other current assets.......................................... 28,491 32,674
------------ ------------
Total current assets........................................................... 1,790,142 1,796,499
------------ ------------
Property and equipment, at cost (note 4)
Office furniture and equipment..................................................... 840,862 867,808
Computer equipment................................................................. 603,422 635,245
Leasehold improvements............................................................. 440,548 448,194
Motor vehicles..................................................................... 11,434 11,434
------------ ------------
1,896,266 1,962,681
Less accumulated depreciation.................................................. 1,114,024 1,162,023
------------ ------------
Property and equipment, net.................................................. 782,242 800,658
------------ ------------
Total assets................................................................. $2,572,384 $ 2,597,157
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................................. $ 343,653 $ 566,367
Deferred revenue................................................................... 388,648 337,629
Current maturities of capital lease obligation (note 4)............................ 18,341 12,730
------------ ------------
Total current liabilities...................................................... 750,642 916,726
Capital lease obligation, net of current maturities (note 4)......................... 3,280 --
Deferred rent........................................................................ 206,610 208,917
Deferred income taxes (note 6)....................................................... -- --
------------ ------------
Total liabilities.............................................................. 960,532 1,125,643
------------ ------------
Commitments and contingent liabilities (note 7)
Stockholders' equity:
Common stock, no par value; 100 shares authorized, issued and outstanding.......... 55,000 55,000
Retained earnings.................................................................. 1,556,852 1,416,514
------------ ------------
Total stockholders' equity..................................................... 1,611,852 1,471,514
------------ ------------
Total liabilities and stockholders' equity..................................... $2,572,384 $ 2,597,157
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-71
<PAGE>
OMNI TRAVEL SERVICE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------- -----------------------------------------------
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1996 1997
------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
Sales.......................................... $ 49,934,464 $ 26,302,520 $ 22,403,211 $ 28,795,132
Direct commissions............................. 622,953 314,694 301,748 408,057
Override commissions........................... 520,918 202,171 311,813 199,988
Administrative and management fees (note 9).... 156,566 -- -- --
------------- ------------- ----------------- -------------
51,234,901 26,819,385 23,016,772 29,403,177
Cost of revenues................................. 45,518,045 23,817,096 20,320,222 26,057,637
------------- ------------- ----------------- -------------
Net commission revenue....................... 5,716,856 3,002,289 2,696,550 3,345,540
Selling, general and administrative expenses..... 5,620,614 2,474,588 2,553,851 2,663,645
------------- ------------- ----------------- -------------
Operating income............................. 96,242 527,701 142,699 681,895
------------- ------------- ----------------- -------------
Other income (expense):
Interest income (note 8)......................... 57,812 33,608 43,407 29,753
Interest expense................................. (6,112) (2,326) (2,752) (1,986)
Other income (expense)........................... (790) -- (7,579) --
------------- ------------- ----------------- -------------
Total other income (expense)................. 50,910 31,282 33,076 27,767
------------- ------------- ----------------- -------------
Income before income taxes................... 147,152 558,983 175,775 709,662
Income tax benefit (provision) (note 6).......... (54,850) 52,961 (54,850) --
------------- ------------- ----------------- -------------
Net income................................... 92,302 611,944 120,925 709,662
------------- ------------- ----------------- -------------
Retained earnings, beginning of period, as
previously stated.............................. 900,122 992,516 871,591 1,556,852
Prior period adjustment.......................... 92 -- -- --
------------- ------------- ----------------- -------------
Retained earnings, beginning of period, as
restated....................................... 900,214 992,516 871,591 1,556,852
Distributions to stockholders.................... -- (47,608) -- (850,000)
------------- ------------- ----------------- -------------
Retained earnings, end of period................. $ 992,516 $ 1,556,852 $ 992,516 $ 1,416,514
------------- ------------- ----------------- -------------
------------- ------------- ----------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-72
<PAGE>
OMNI TRAVEL SERVICE, INC.
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
----------- -----------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1996 1997
----------- ------------- ----------- -------------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 92,302 $ 611,944 $ 120,925 $ 709,662
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 78,023 42,150 42,023 48,000
Deferred income taxes.............................. 5,905 (52,961) 5,907 --
Changes in operating assets and liabilities:
Accounts receivable, trade....................... (19,634) 64,632 (11,234) (9,883)
Refundable income taxes.......................... 24,077 -- 3,503 --
Prepaid expenses and other current assets........ (6,151) (12,917) 502,018 (4,183)
Accounts payable and accrued expenses............ (139,012) (156,455) (288,715) 222,714
Deferred revenue................................. 9,615 234,437 (38,789) (51,019)
Deferred rent.................................... 35,304 12,687 12,687 2,307
----------- ------------- ----------- -------------
Net cash provided by operating activities.............. 80,429 743,517 348,325 917,598
----------- ------------- ----------- -------------
Cash flows from investing activities:
Purchase of property and equipment..................... (73,534) (73,194) (51,657) (66,417)
----------- ------------- ----------- -------------
Cash flows from financing activities:
Repayment of advances to stockholder................... 486,200 -- -- --
Distributions to stockholders.......................... -- (47,608) -- (850,000)
Repayments of capital lease obligations................ (15,272) (8,364) (7,868) (8,890)
----------- ------------- ----------- -------------
Net cash provided (used) by financing activities....... 470,928 (55,972) (7,868) (858,890)
----------- ------------- ----------- -------------
Net increase (decrease) in cash and
equivalents.................................... 477,823 614,351 288,800 (7,709)
Cash and equivalents, beginning of period................ 350,977 828,800 540,000 1,443,151
----------- ------------- ----------- -------------
Cash and equivalents, end of period...................... $ 828,800 $ 1,443,151 $ 828,800 $ 1,435,442
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Supplemental disclosures of cash flow information:
Cash paid for: Interest..................... $ 6,112 $ 2,326 $ 2,752 $ 1,986
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Income taxes................... $ 15,870 $ 49,165 $ 5,085 $ --
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-73
<PAGE>
OMNI TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL DATA
The interim financial data for the six months ended June 30, 1996 and June
30, 1997 is unaudited, however, in the opinion of management of the Company, the
interim data includes all adjustments, consisting only of normal adjustments,
necessary for a fair presentation of the results for the interim periods
presented. All data presented in these notes for such periods is unaudited.
(2) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION AND NATURE OF BUSINESS
Omni Travel Service, Inc. (the "Company") was incorporated in March, 1979.
The Company is a full-service travel agency, providing reservation services and
information for travel, lodging and tours to commercial, individual and group
clients from offices in Cambridge, Massachusetts. The Company's operations are
primarily concentrated in one market segment--airline travel--and the customers
are geographically concentrated primarily in Massachusetts; management considers
a downturn in this market segment and geographical location to be unlikely.
Effective September 26, 1997, the Company and its stockholders entered into
a definitive agreement with U.S. Office Products Company ("U.S. Office
Products") pursuant to which U.S. Office Products acquired all outstanding
shares of the Company's common stock in exchange for common stock of U.S. Office
Products.
(b) REVENUE RECOGNITION
Commissions from ticketing, reservations and other transportation services
are recognized when the ticket is validated or reservation utilized. Revenue
from certain incentive plans offered by major airlines are accrued as earned.
The Company sells tours sponsored by other companies. Commissions received
from the sale of tours are recognized when payment is made to the tour company.
Costs for tours which have not yet departed are recorded as a deposit in
receivables and all customer receipts for such tours are recorded as a customer
deposit liability in deferred revenue.
(c) ACCOUNTS RECEIVABLE
Management has determined that all accounts receivable are collectible and
that there is no requirement for an allowance for doubtful accounts as of
December 31, 1996.
(d) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
provided using straight-line and accelerated methods over the estimated useful
lives of the assets.
(e) DEFERRED REVENUE
Deferred revenue represents travel revenue received in the current year
which relates to a future reporting period.
(f) INCOME TAXES
Prior to July 1, 1996, income taxes are accounted for in accordance with the
provisions of Statement of Financial Accounting Standards No. 109. Deferred
income tax assets and liabilities are computed annually
F-74
<PAGE>
OMNI TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
for differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
The provision for income taxes for the year ended June 30, 1996 includes
federal and state income taxes currently payable and those deferred because of
temporary differences between financial statement and tax bases of assets and
liabilities.
Effective on July 1, 1996, the Company was granted S-Corporation reporting
status by the Internal Revenue Service. As a result, there is no federal or
state income tax liability of the Company for the period subsequent to July 1,
1996. Any liability arising during this period is the responsibility of the
shareholders of the Company.
As a result of the election to be taxed under the provisions of Subchapter S
of the Internal Revenue Code, deferred income taxes in the amount of $52,961
that existed prior to the election of Subchapter S status have been eliminated
and recognized as income during the six months ended December 31, 1996.
(g) CASH AND EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments with an original maturity of three months or less
to be cash equivalents.
(h) CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to credit risk consist
principally of temporary cash investments and trade receivables. The Company
places its temporary cash investments ($1,443,151 at December 31, 1996) with
high quality financial institutions. At times such investments may be in excess
of the FDIC limit. The Company's policy with respect to the credit risk of trade
receivables is to evaluate, prior to completion of travel reservations, each
customer's financial condition and determine the amount of open credit to be
extended.
(i) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash
and equivalents, receivables and payables and the capital lease obligation,
approximates fair market value.
(j) USE 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 amount 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.
(3) LINE OF CREDIT
The Company has a line of credit agreement with a bank due upon demand,
bearing interest at the bank's prime rate plus 1% per annum (9.25% at December
31, 1996). The note is secured by substantially all assets of the Company. The
agreement is subject to an Intercreditor and Subordination Agreement between and
among the bank, the Company, its stockholders and a related party, Bow Street
Properties,
F-75
<PAGE>
OMNI TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) LINE OF CREDIT (CONTINUED)
Inc. (note 7). The maximum borrowings allowed under this agreement are $250,000.
At December 31, 1996, no borrowings were outstanding under this agreement.
The agreement is subject to various affirmative, negative and financial
covenants including, among others, profitability and debt to net worth
covenants. At December 31, 1996, the Company was deemed by the lending
institution to be in substantial compliance with the covenants.
(4) CAPITAL LEASE OBLIGATION
The Company leases certain office equipment under a capital lease. Equipment
held under the capital lease as of December 31, 1996 is as follows:
<TABLE>
<S> <C>
Cost............................................................... $ 65,722
Accumulated amortization........................................... 26,289
---------
Net book value..................................................... $ 39,433
---------
---------
</TABLE>
Future minimum lease payments due under the capital lease and the present
value of the net minimum lease payments as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------
<S> <C>
1997............................................................................... $ 19,985
1998............................................................................... 3,331
---------
Total minimum lease payments....................................................... 23,316
Less amount representing interest.................................................. 1,695
---------
Present value of net minimum lease payments........................................ 21,621
Less current maturities............................................................ 18,341
---------
Capital lease obligation, net of current maturities................................ $ 3,280
---------
---------
</TABLE>
(5) PROFIT-SHARING RETIREMENT PLAN
The Company has in effect a qualified profit-sharing retirement plan
covering substantially all employees. The plan includes an employee thrift
savings plan established under Internal Revenue Code Section 401(k). Each
eligible participant may elect to defer up to 15% of compensation subject to
Internal Revenue Code limitations. The Company's profit-sharing contributions to
the plan are made at the discretion of the Board of Directors, but may not
exceed the maximum allowable deduction permitted under the Internal Revenue Code
at the time of the contribution. During the six months ended December 31, 1996
and the year ended June 30, 1996, the Company made no contributions to the plan.
F-76
<PAGE>
OMNI TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
The provision for income taxes for the year ended June 30, 1996 is comprised
of the following:
<TABLE>
<S> <C>
Current provision:
Federal............................................................ $ 35,151
State.............................................................. 13,792
---------
48,943
---------
Deferred provision:
Federal............................................................ 4,549
State.............................................................. 1,358
---------
5,907
---------
$ 54,850
---------
---------
</TABLE>
Temporary differences which give rise to deferred tax liabilities are
comprised of financial and tax reporting depreciation differences.
The differences between the statutory federal income tax rate of 34% and
income taxes reported in the statement of income for the year ended June 30,
1996 are as follows:
<TABLE>
<S> <C>
Statutory rate..................................................... $ 47,273
Reduction due to graduated income tax rates........................ (7,573)
State and local taxes, net of federal benefit...................... 9,999
Other.............................................................. 5,151
---------
$ 54,850
---------
---------
</TABLE>
The federal and state income tax benefit for the six months ended December
31, 1996 is the result of the Company's election to be taxed under the
provisions of Subchapter S of the Internal Revenue Code, whereby deferred income
taxes in the amount of $52,961 that existed prior to the election of Subchapter
S status have been eliminated and recognized as income during the six months
ended December 31, 1996.
As a result of the Company's election of Subchapter S, there was no income
tax provision or benefit for the six months ended December 31, 1996 other than
the reversal of the deferred income taxes as discussed above.
(7) COMMITMENTS AND CONTINGENT LIABILITIES
The Company leased a sales office facility under a noncancellable operating
lease agreement which expired in December, 1995. The agreement required the
payment of utilities, real estate taxes and insurance. The Company also leases
certain vehicles under noncancellable operating leases expiring through
September, 2000 and additional equipment on a month to month basis. Rent expense
under these operating leases amounted to $15,550 for the six months ended
December 31, 1996 and $52,696 for the year ended June 30, 1996.
In addition, the Company leases its administrative and sales office facility
from Bow Street Properties, Inc., a related party (note 8), under a long-term
noncancellable operating lease agreement expiring in
F-77
<PAGE>
OMNI TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
December, 2001. The agreement provides for monthly rental payments, utilities,
real estate taxes, insurance and repairs. Total rent expense, excluding
operating expenses, paid to Bow Street Properties, Inc. amounted to $208,380 for
the six months ended December 31, 1996 and $406,830 for the year ended June 30,
1996.
At December 31, 1996, future minimum annual rental payments required under
the noncancellable operating leases, are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 448,440
1999............................................................ 470,880
2000............................................................ 494,400
2001............................................................ 519,000
Thereafter...................................................... 265,800
---------
$2,198,520
---------
---------
</TABLE>
In connection with the Intercreditor and Subordination Agreement, the
Company has guaranteed certain debt obligations of Bow Street Properties, Inc.,
a related party, amounting to $1,125,000 as of December 31, 1996.
(8) RELATED PARTY TRANSACTIONS
The Company leases its administration and sales office from Bow Street
Properties, Inc., a corporation owned by the Company's principal stockholder. In
addition, the Company has guaranteed certain debt obligations of Bow Street
Properties, Inc. (note 7).
The Company, from time to time, has made interest bearing advances to a
stockholder. The advances, which are unsecured, bear interest at 6% per annum.
At December 31, 1996, no amounts were due from the stockholder. Interest income
earned and accrued on these advances during the year ended June 30, 1996
amounted to $29,772.
(9) CONTRACTUAL ARRANGEMENTS
During the year ended June 30, 1996, the Company, under a five-year
contractual agreement which expired in December 1995, provided administrative
and management services to another travel agency. Under this agreement, the
Company recorded all travel revenues, and related travel operating costs of the
agency. The Company received a management fee which is included in travel
revenues in the accompanying income statement. Management fees earned, net of
certain related operating costs, amounted to approximately 22% of the Company's
net income before taxes for the year ended June 30, 1996.
F-78
<PAGE>
OMNI TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(10) REISSUANCE ADJUSTMENTS
Two adjustments were made to the previously issued financial statements for
the year ended June 30, 1996. The net effect of these adjustments was a $92
increase in prior period retained earnings. However, the adjustments were made
to ensure adherence to generally accepted accounting principles. Detail of the
two reissuance adjustments follows:
(a) OVERRIDE COMMISSIONS
Subsequent to the issuance of the financial statements for the year ended
June 30, 1996, it was determined that the Company was not recording revenue from
override commissions in the proper periods. Accordingly, current year and prior
period adjustments were made to properly state the related accounts receivable,
revenue, expense, and retained earnings accounts. The net effect of these
adjustments was a $43,418 increase in override commissions revenue for the year
ended June 30, 1996 and a $158,711 increase in prior period retained earnings.
(b) DEFERRED RENT
Generally accepted accounting principles require that rental expense must be
recorded on a straight-line basis over the rental term. Previously, the Company
was expensing actual rent payments. Accordingly, adjustments were made to
properly record the related expense and retained earnings accounts. The net
effect of these adjustments was a $35,304 increase in rent expense for the year
ended June 30, 1996 and a $158,619 decrease to retained earnings.
(11) SUBSEQUENT EVENTS
During September and October 1997, the airlines implemented a commission cap
of 8% on all domestic travel (maximum commission on a round trip flight remained
$50) and international travel (no maximum commission amount) which should
negatively impact the Company's operating results, although an amount cannot be
determined at this time.
On November 7, 1997, the Company was released from its guaranty obligations
relating to the entity owned by the Company's principal shareholder (note 8).
F-79
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Shareholders
of Travel Consultants, Inc. and Envisions Vacations, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statements of income and retained earnings and of cash flows present
fairly, in all material respects, the financial position of Travel Consultants,
Inc. and Envisions Vacations, Inc. (collectively, the "Company") at October 24,
1997, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Denver, Colorado
January 23, 1998
F-80
<PAGE>
TRAVEL CONSULTANTS, INC. AND ENVISION VACATIONS, INC.
COMBINED BALANCE SHEET
OCTOBER 24, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 3,018
Receivables, less allowance for doubtful accounts of $20,000.................. 1,410,799
Other receivables............................................................. 741,337
Receivable from affiliates.................................................... 911,124
Receivable from shareholders.................................................. 244,365
Other current assets.......................................................... 89,267
---------
Total current assets...................................................... 3,399,910
Property and equipment, net..................................................... 1,564,496
Intangible assets, net of accumulated amortization of $404,777.................. 234,814
Investments..................................................................... 156,355
Other........................................................................... 13,835
---------
Total assets.............................................................. $5,369,410
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................................... $ 186,037
Line of credit................................................................ 489,908
Accounts payable.............................................................. 1,683,431
Accrued liabilities:
Compensation................................................................ 357,653
Rebates..................................................................... 287,425
Other....................................................................... 347,255
Customer deposits............................................................. 306,164
Deferred income--current portion.............................................. 195,996
---------
Total current liabilities................................................. 3,853,869
Long-term debt.................................................................. 315,637
Deferred income--long-term portion.............................................. 192,004
---------
Total liabilities......................................................... 4,361,510
Commitments (Note 5)
Shareholders' equity:
Common stock ($1 par value; 100,000 shares authorized; 38,432 shares
issued)..................................................................... 38,432
Common stock ($5 par value; 60,000 shares authorized; 2,000 shares issued).... 10,000
Additional paid-in capital.................................................... 156,906
Retained earnings............................................................. 802,562
---------
Total shareholders' equity................................................ 1,007,900
---------
Total liabilities and shareholders' equity................................ $5,369,410
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-81
<PAGE>
TRAVEL CONSULTANTS, INC. AND ENVISIONS VACATIONS, INC.
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED OCTOBER 24, 1997
<TABLE>
<S> <C>
Commission revenue.............................................................. $9,163,283
Other operating revenue......................................................... 3,510,597
---------
Total revenue............................................................... 12,673,880
Rebates......................................................................... 673,123
---------
Net revenue..................................................................... 12,000,757
Operating expenses:
Salaries...................................................................... 6,462,100
General and administrative.................................................... 4,453,509
---------
Total operating expenses.................................................... 10,915,609
---------
Income from operations.......................................................... 1,085,148
Interest expense................................................................ 109,466
---------
Net income...................................................................... 975,682
Retained deficit at beginning of year........................................... (173,120)
---------
Retained earnings at end of year................................................ $ 802,562
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-82
<PAGE>
TRAVEL CONSULTANTS, INC. AND
ENVISIONS VACATIONS, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED OCTOBER 24, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 975,682
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization................................................ 473,005
Deferred revenue............................................................. 54,000
Change in assets and liabilities:
Receivables................................................................ (44,260)
Other receivables.......................................................... (265,144)
Other assets............................................................... 33,645
Accounts payable........................................................... 614,392
Accrued liabilities........................................................ 19,481
---------
Net cash provided by operating activities................................ 1,860,801
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................. (943,239)
Purchase of investments.......................................................... (98,098)
---------
Net cash used in investing activities.................................... (1,041,337)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in receivable from shareholders and affiliates...................... (389,641)
Payments on long-term debt....................................................... (266,713)
Net proceeds on line of credit................................................... 269,908
Payment of shareholder distributions............................................. (430,000)
---------
Net cash used in financing activities.................................... (816,446)
---------
Net increase in cash............................................................. 3,018
Cash at beginning of year........................................................ 0
---------
Cash at end of year.............................................................. $ 3,018
---------
---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................................... $ 106,030
---------
---------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-83
<PAGE>
TRAVEL CONSULTANTS, INC. AND
ENVISIONS VACATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. REPORTING ENTITY AND BASIS OF ACCOUNTING
Effective October 24, 1997, a subsidiary of U.S. Office Products Company, a
Delaware company, merged with Travel Consultants, Inc. and Envision Vacations,
Inc. (collectively, the "Company"). Travel Consultants, Inc. is a full-service
provider of travel reservation services and information to commercial,
individual and group customers. Envision Vacations, Inc. is a leisure travel
company servicing the needs of specific member groups and individual customers.
The Company is located in Grand Rapids, Michigan. The Company's operations are
primarily concentrated in one market segment--airline travel--and the customers
are geographically concentrated in Michigan; management considers a downturn in
this market segment and geographical location to be unlikely.
The Company's combined financial statements include the accounts of Travel
Consultants, Inc. and Envision Vacations, Inc. Both companies have common
ownership and operate in the same line of business. All significant intercompany
accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Commissions from ticketing, reservations and other transportation services
are recognized when the ticket is validated or reservation utilized. Revenue
from certain incentive plans offered by major airlines are accrued as earned.
The Company sells tours sponsored by other companies. Commissions received
from the sale of tours are recognized, net of estimated cancellation
adjustments, when payment is made to the tour company. All customer receipts for
such tours are recorded as a customer deposit liability until paid.
INVESTMENTS
All investments are classified as available-for-sale and are available to
support current operations or to take advantage of other investment
opportunities. Accordingly, these investments have been recorded at cost which
approximates fair market value. There were no significant differences between
cost and estimated fair value at October 24, 1997.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets, generally five to seven years, and leasehold improvements are amortized
over the shorter of their economic useful lives or the lease term.
INTANGIBLE ASSETS
The cost of purchased companies in excess of the underlying fair value of
net assets at the date of acquisition are recorded as goodwill and amortized
over 15 years on a straight-line basis. Purchase price allocated to covenants
not-to-compete are amortized over the term of the agreement which is typically
five years. As of October 24, 1997, intangible assets consisted of net covenants
not-to-compete of $221,867 and other assets of $12,947. The carrying value of
intangible assets is assessed for recoverability by management based on an
analysis of undiscounted expected future cash flows from the related acquired
entities. The Company believes that there has been no impairment thereof as of
October 24, 1997.
F-84
<PAGE>
TRAVEL CONSULTANTS, INC. AND
ENVISIONS VACATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
DEFERRED INCOME
The Company received a one-time promotional support payment from the entity
that leases the Company its reservation system. The Company is required to
utilize the reservation system throughout the contract term and there is
substantial penalty for early termination of the contract. The Company has
deferred the payment and is recognizing income using the straight-line method
over the five year term of the contract.
INCOME TAXES
The Company is an S corporation for income tax purposes and, accordingly,
any income tax liabilities are the responsibility of the shareholders. The
Company's S corporation status terminated on consummation of the merger
discussed in Note 1 above.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, receivables and payables and long-term debt, approximate
their fair values.
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of certain assets and
liabilities. Actual results could differ from those estimates. Management
believes that the estimates used are reasonable.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at October 24, 1997:
<TABLE>
<S> <C>
Office and computer equipment................................... $2,437,391
Furniture and fixtures.......................................... 983,778
Leasehold improvements.......................................... 158,875
Vehicles........................................................ 24,886
---------
3,604,930
Less: accumulated depreciation and amortization................. 2,040,434
---------
Net property and equipment...................................... $1,564,496
---------
---------
</TABLE>
F-85
<PAGE>
TRAVEL CONSULTANTS, INC. AND
ENVISIONS VACATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
<TABLE>
<S> <C>
Promissory notes, interest at 9.3%, payable in monthly
installments of $13,600 principal plus interest through
November 1, 2000................................................ $ 444,674
Non-interest bearing promissory note, payable in annual
installments of $57,000 through November 4, 1997................ 57,000
---------
501,674
Less current maturities........................................... 186,037
---------
Long-term debt.................................................... $ 315,637
---------
---------
</TABLE>
The Company's borrowed funds provided by commercial promissory notes require
maintenance of certain ratios, and are secured by substantially all assets of
the Company.
Scheduled maturities of long-term debt at October 24, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 186,037
1999.............................................................. 141,562
2000.............................................................. 154,900
2001.............................................................. 19,175
---------
$ 501,674
---------
---------
</TABLE>
At October 24, 1997, the Company has drawn $489,908 on a $1,250,000 line of
credit with a financial institution which bears interest at the bank's prime
rate (8.5% at October 24, 1997) and expires on April 1, 1998. The line is
secured by the Company's accounts receivable and other assets. The Company also
maintains a $90,000 letter of credit which was unused at October 24, 1997.
5. COMMITMENTS
The Company leases office space under various noncancelable operating leases
for several locations. Rent expense for the year ended October 24, 1997 was
approximately $901,104. Future minimum rental payments for these leases are
summarized as follows as of October 24, 1997:
<TABLE>
<S> <C>
1998............................................................ $ 810,000
1999............................................................ 719,000
2000............................................................ 688,000
2001............................................................ 607,000
2002............................................................ 238,000
---------
$3,062,000
---------
---------
</TABLE>
The Company has guaranteed approximately $2,644,000 of outstanding debt
related to the office space leased from a related party as described in Note 7.
F-86
<PAGE>
TRAVEL CONSULTANTS, INC. AND
ENVISIONS VACATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) defined contribution plan to provide
benefits based on a percentage of contributions made by eligible employees.
During the year ended October 24, 1997, the Company contributed approximately
$39,000 to this plan.
7. RELATED PARTY TRANSACTIONS
The Company leases office space for its headquarters from an entity in which
the Company's shareholders are partners. Rent expense for this facility was
approximately $195,000 during the year ended October 24, 1997.
In conjunction with the merger discussed in Note 1, U.S. Office Products
Company purchased the headquarters facility for $3,125,000 in stock prior to the
assumption of related debt of $2,644,112 on October 24, 1997. Additionally,
$901,000 of receivables from shareholders and affiliates was distributed in the
form of a dividend to shareholders in conjunction with the merger discussed in
Note 1.
F-87
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses payable by Navigant in
connection with the issuance and distribution of the securities. All of such
expenses except the Securities and Exchange Commission registration fee are
estimated:
<TABLE>
<S> <C>
SEC Registration................................................................ $ 29,024
Nasdaq Listing Fee.............................................................. $ 43,500
Legal Fees and Expenses......................................................... $ 500,000
Accounting Fees and Expenses.................................................... $ 500,000
Printing Fees and Expenses...................................................... $ 350,000
Miscellaneous................................................................... $ 77,476
---------
Total........................................................................... $1,500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eight of the Amended and Restated Certificate of Incorporation
provides that Navigant shall indemnify its directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Seven of the Amended Restated Certificate of Incorporation states
that personal liability of directors of Navigant to Navigant or its stockholders
for monetary damages for any breach of fiduciary duty as a director is limited
to the fullest extent permitted by the General Corporation Law of the State of
Delaware.
Article IV of the Bylaws provides that Navigant shall indemnify its officers
and directors (and those serving at the request of Navigant as an officer or
director of another corporation, partnership, joint venture, trust or other
enterprise), and may indemnify its employees and agents (and those serving at
the request of Navigant as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise), against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred, if such officer, director, employee or agent
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the Corporation, and,
II-1
<PAGE>
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In a derivative action, indemnification shall
be limited to expenses (including attorneys' fees) actually and reasonably
incurred by such officer, director, employee or agent in the defense or
settlement of such action or suit, and no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to Navigant unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
Unless the Board of Directors of Navigant otherwise determines in a specific
case, expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding shall be paid by Navigant in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the officer or director to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
Navigant.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See index to exhibits.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Englewood, State of Colorado, on June 8, 1998.
NAVIGANT INTERNATIONAL, INC.
By: /S/ EDWARD S. ADAMS
-----------------------------------------
Name: Edward S. Adams
Title: CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Edward S. Adams his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him or in his name, place and stead, in any and all capacities to sign any
and all amendments or post-effective amendments to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
/s/ EDWARD S. ADAMS Chief Executive Officer June 8, 1998
- ------------------------------ (Principal Executive
Edward S. Adams Officer); Director
Chief Financial Officer and June 8, 1998
/s/ ROBERT C. GRIFFITH Treasurer (Principal
- ------------------------------ Financial and Accounting
Robert C. Griffith Officer)
/s/ VASSILIDS SIRPOLAIDIS Director June 8, 1998
- ------------------------------
Vassilids Sirpolaidis
/s/ NED A. MINOR Director June 8, 1998
- ------------------------------
Ned A. Minor
/s/ D. CRAIG YOUNG Director June 8, 1998
- ------------------------------
D. Craig Young
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.1+ Form of Amended and Restated Certificate of Incorporation
3.2+ Bylaws
3.3+ Form of Amendment to Bylaws
4.1+ Form of certificate representing shares of Common Stock
5 Opinion of Wilmer, Cutler & Pickering as to legality of securities being offered
8 Tax opinion of Wilmer, Cutler & Pickering
10.1+ Form of Distribution Agreement among U.S. Office Products Company, Workflow Management, Inc., Aztec
Technology Partners, Inc., Navigant International, Inc. and School Specialty, Inc.
10.2+ Form of Tax Allocation Agreement among U.S. Office Products Company, Workflow Management, Inc., Aztec
Technology Partners, Inc., Navigant International, Inc. and School Specialty, Inc.
10.3+ Form of Tax Indemnification Agreement among Workflow Management, Inc., Aztec Technology Partners, Inc.,
Navigant International, Inc. and School Specialty, Inc.
10.4+ Employment Agreement dated as of January 24, 1997 between Edward S. Adams and Professional Travel
Corporation.
10.5+ Employment Agreement dated as of January 24, 1997 between Robert C. Griffith and Professional Travel
Corporation.
10.6 Form of Agreement between U.S. Office Products and Jonathan J. Ledecky, as amended.
10.7+ Form of Employee Benefits Agreement among U.S. Office Products Company, Workflow Management, Inc., Aztec
Technology Partners, Inc., Navigant International, Inc. and School Specialty, Inc.
10.8+ Form of Agent Reporting Agreement with Airline Reporting Company.
10.9+ Employment Agreement dated as of October 24, 1997 between Douglas R. Knight and McGregor Travel
Management, Inc.
10.10 Form of Employment Agreement between Jonathan J. Ledecky and Navigant International, Inc.
10.11 Form of 1998 Stock Incentive Plan of Navigant International, Inc.
10.12+ Form of Credit Agreement between NationsBank, N.A., as Agent, and Navigant International, Inc.
10.13 Form of Amendment to Employment Agreement between Edward S. Adams, Professional Travel Corporation and
Navigant International, Inc.
10.14 Form of Amendment to Employment Agreement between Robert C. Griffith, Professional Travel Corporation
and Navigant International, Inc.
10.15 Form of Amendment to Employment Agreement between Douglas R. Knight, McGregor Travel Management, Inc.
and Navigant International, Inc.
21+ Subsidiaries of Registrant
23.1 Consent of Price Waterhouse LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Walter J. McKeever & Company
23.5 Consent of Nardella & Taylor
23.6+ Consent of Jonathan Ledecky to be named as a director
23.7+ Consent of Vassilios Sirpolaidis to be named as a director
23.8+ Consent of Ned A. Minor to be named as a director
23.9+ Consent of D. Craig Young to be named as a director
23.10 Consent of Wilmer, Cutler & Pickering (contained in Exhibit 5 hereto)
23.11 Consent of Wilmer, Cutler & Pickering (contained in Exhibit 8 hereto)
24 Power of Attorney (included on signature page hereto)
27+ Financial data schedule
</TABLE>
- ------------------------
+ Previously filed
<PAGE>
Exhibit 5
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
June 8, 1998
Navigant International, Inc.
84 Inverness Circle East
Englewood, Colorado 80112
Gentlemen:
As special counsel for Navigant International, Inc., a Delaware
corporation (the "Company"), we are familiar with the Company's Registration
Statement on Form S-1, first filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Act"), on February 19, 1998, as amended by Amendment No. 1 to the
Registration Statement filed with the Commission on May 5, 1998, Amendment
No. 2 to the Registration Statement filed with the Commission on May 18, 1998
and Amendment No. 3 to the Registration Statement filed with the Commission on
June 3, 1998, as may be further amended or supplemented (collectively, the
"Registration Statement"), with respect to the distribution (the
"Distribution") of up to 10,968,951 shares of the Company's Common Stock,
$.001 par value, by U.S. Office Products Company (the "Shares") in a spin-off
transaction.
In connection with the foregoing, we have examined (i) the Certificate of
Incorporation of the Company filed with the Secretary of State of Delaware on
February 12, 1998; (ii) the Amended and Restated Certificate of Incorporation
filed with the Secretary of State of Delaware on June 5, 1998; (iii) the
By-Laws of the Company; (iv) the form of stock certificate for common stock of
the Company, and (v) such records of the corporate proceedings of the Company,
such certificates of public officials and such other documents as we deemed
necessary to render this opinion.
Based on such examination and assumption, we are of the opinion that:
1. The Company is a corporation duly incorporated and existing under the
laws of the State of Delaware.
2. The Shares have been duly authorized and when distributed in
accordance with the Registration Statement will be validly issued, fully paid
and nonassessable.
<PAGE>
Navigant International, Inc.
June 8, 1998
Page 2
We hereby consent to the filing of this Opinion as Exhibit 5 to the
Registration Statement and the reference to us in the Prospectus which is
part of the Registration Statement.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ Thomas W. White
----------------------------------
Thomas W. White, a partner
<PAGE>
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
June 9, 1998
To the Persons on the Attached Schedule A:
We have represented U.S. Office Products Company ("U.S. Office
Products") in connection with the distributions (each, a "Distribution" and
collectively, the "Distributions") by U.S. Office Products of all of the common
stock of Aztec Technology Partners, Inc., Workflow Management, Inc., School
Specialty, Inc., and Navigant International, Inc. ("Navigant"), all Delaware
corporations (collectively, the "Spin-Off Companies"), and the registration of
the common stock of the Spin-Off Companies pursuant to Registration Statements
on Forms S-1 as originally filed with the Securities and Exchange Commission on
February 19, 1998 as amended through the date of the final amendment dated June
9, 1998 (the "Information Statements"). We have also represented U.S. Office
Products in connection with the proposed equity investment in U.S. Office
Products by an affiliate (the "Investor") of Clayton, Dubilier & Rice, Inc.
("CD&R") and in connection with the other transactions described in the
Information Statements that are taking place in connection with the
Distributions. Professional Travel Corporation ("Professional Travel"),
Associated Travel, Inc., Aztec International, Inc., Bay State Computer Group,
Inc., Compel Corporation, School Specialty, Inc., a Wisconsin Corporation, The
Re-Print Corporation, SFI Corporation, United Envelope Company, Inc., Mile High
Office Supply, Inc., J. Thayer Company, Carithers-Wallace-Courtenay, Inc., W.J.
Saunders & Company, Inc., Office Connection, Inc., and Brasan, Inc. will be
referred to herein as the "Lead Companies." Capitalized terms not otherwise
defined in this letter shall have the meaning given such terms in the
Information Statements.
For purposes of rendering this opinion, we have reviewed the
Information Statements, including all exhibits thereto; the Investment
Agreement; the Distribution Agreement; the Tax Allocation Agreement; the Tax
Indemnification Agreement; the Employee Benefits Agreement; certain
documentation relating to the organization of the Spin-Off Companies; agreements
of merger pursuant to which U.S. Office Products acquired all of the stock of
each Lead Company through the merger of a subsidiary of U.S. Office Products
into each Lead Company; certain agreements, tax returns, and financial records
relating to past and
<PAGE>
current activities of the Lead Companies; agreements of merger and other
documentation relating to transactions pursuant to which U.S. Office Products,
Professional Travel, and the Spin-Off Companies (other than Navigant) have
acquired the assets and businesses of the Lead Companies; agreements and other
documentation pursuant to which Navigant acquired the stock of Professional
Travel; agreements and other documentation pursuant to which Professional Travel
and the Spin-Off Companies (other than Navigant) have acquired the stock of
certain subsidiaries of U.S. Office Products; and such other documents as we
have deemed relevant for purposes of this opinion. We have assumed that all
parties to agreements that we have examined have acted, and will act, in
accordance with the terms of such agreements.
We have also relied on the accuracy of the representations contained
in the letter from U.S. Office Products to us, the letters from each Spin-Off
Company to us, and the letter from the Investor to us of even date herewith
containing certain factual representations. We have also relied on the views of
Morgan Stanley & Co. Incorporated contained in its letter to us of even date
herewith (the "Morgan Stanley Letter"). We have not attempted to verify
independently such representations and opinion, but in the course of our
representation, nothing has come to our attention which would cause us to
question the accuracy thereof.
We have assumed the genuineness of all signatures, the proper
execution of all documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, and the authenticity of the originals of any such copies. The letters
of representation referenced in the preceding paragraph include representations
that, based on the knowledge of those parties, no Distribution is part of a plan
or series of transactions pursuant to which one or more persons will acquire
directly or indirectly stock representing 50% or more of either the voting power
or value of U.S. Office Products or any of the Spin-Off Companies. We have also
assumed that no Distribution is or will be part of any such plan that is outside
the knowledge of such parties as of the date of this opinion.
This opinion represents our best judgement of how a court would rule
if presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinions will not be challenged by the IRS or rejected by a
court.
On the basis of the foregoing, and our consideration of such other
matters of fact and law as we have deemed necessary or appropriate, it is our
opinion, under presently applicable U.S. federal income tax law, that:
1. Each Distribution will qualify under Section 355 of the Code.
2. No Distribution will be taxable under Section 355(e) of the
Code.
3. With respect to each Spin-Off Company, the transactions
pursuant to which such Spin-Off Company acquires the assets that it
will hold at the time of
2
<PAGE>
the Distribution, together with the Distribution of the common stock
of such Spin-Off Company, will qualify as reorganizations described in
Section 368 of the Code.
4. No gain or loss will be recognized by holders of U.S. Office
Products Common Stock as a result of their receipt of Common stock of
any Spin-Off Company. Holders of U.S. Office Products Common Stock
will recognize gain or loss on the receipt of cash in lieu of
fractional shares.
5. No gain or loss will be recognized by U.S. Office Products or
any of the Spin-Off Companies as a result of any of the Distributions.
6. A stockholder's basis in such stockholder's U.S. Office
Products Common Stock immediately before the Distributions will be
allocated among the U.S. Office Products Common Stock and the Spin-Off
Companies' common stock (including any fractional shares) received
with respect to such U.S. Office Products Common Stock in proportion
to their relative fair market values on the date of the Distributions.
Such allocation must be calculated separately for each block of U.S.
Office Products Common Stock (shares purchased at the same time and at
the same cost) with respect to which the Spin-Off Companies' common
stock is received.
7. The holding period of the Spin-Off Companies' common stock
(including any fractional shares) received in the Distributions will
include the holding period of the U.S. Office Products Common Stock
with respect to which it was distributed.
You should be aware, however, that the requirements of Code Section 355
pertaining to business purpose, active trade or business, and absence of a
device for distribution of earnings and profits, as well as the requirement of
Code Section 355(e) pertaining to a plan or series of related transactions to
acquire 50% or more by vote or value of a company, are highly dependent on
factual interpretations, are to a significant extent subjective in nature, and
have a relative absence of authority addressing their application to the
particular facts presented by the Distributions. Accordingly, the IRS and/or a
court could reach a different conclusion.
BUSINESS PURPOSE. In order for a distribution of the stock of a
subsidiary to qualify under Section 355, it must be motivated, in whole or
substantial part, by one or more corporate business purposes. U.S. Office
Products has represented that the Distributions were motivated, in whole or
substantial part, to allow U.S. Office Products and the Spin-Off Companies to
adopt strategies and pursue objectives that are more appropriate to their
respective industries and stages of growth; to allow the Spin-Off Companies to
pursue independent acquisition programs with a more focused use of resources
and, where stock is used as consideration, provide stock of a public company
that is in the same industry as the business
3
<PAGE>
being acquired; to allow U.S. Office Products and the Spin-Off Companies to
offer their respective employees more focused compensation packages; and to make
possible the Equity Investment by the Investor and the consulting agreement with
CD&R, which the Board of Directors of U.S. Office Products concluded would
contribute to U.S. Office Products' development, based on the skills and
experience of CD&R. These representations of U.S. Office Products have been
supplemented and supported by the representations made by the Investor and by
the Morgan Stanley Letter. Based on these representations and the Morgan
Stanley Letter, it is our opinion that each Distribution satisfies the business
purpose requirement of Code Section 355. Although similar rationales have been
accepted by the IRS in other circumstances as sufficient to meet the business
purpose requirement of Code Section 355, there can be no assurances that the IRS
will not assert that the business purpose requirement is not satisfied.
ACTIVE TRADE OR BUSINESS. In order for the distribution of the stock
of a Spin-Off Company (other than Navigant) to qualify under Code Section 355,
both the Spin-Off Company and U.S. Office Products must be engaged in an active
trade or business that was actively conducted for the five year period preceding
the Distribution, taking into account only businesses that have been acquired in
transactions in which no gain or loss was recognized. In order for the
distribution of the stock of Navigant to qualify under Code Section 355,
substantially all of the assets of Navigant must consist of the stock of
Professional Travel, and Professional Travel and U.S. Office Products must meet
the requirements described in the preceding sentence. Whether current and
historical business activity constitutes an active trade or business, and
whether any gain or loss should have been recognized in an acquisition
structured and reported as a nontaxable transaction, turn in some instances on
the application of subjective legal standards and on factual determinations,
such as intentions of the parties involved. Based on the representations made
to us and our review of documents, both as referenced above, it is our opinion
that each Distribution satisfies the active trade or business requirement.
However, because of the inherently subjective nature of important elements of
the active trade or business requirement, and because the IRS may challenge the
representations upon which we rely, there can be no assurance that the IRS will
not assert that the active trade or business requirement is not satisfied in the
case of any of the Distributions.
ABSENCE OF A DEVICE FOR DISTRIBUTION OF EARNINGS AND PROFITS. Code
Section 355 does not apply to a transaction used principally as a device for the
distribution of the earnings and profits of the distributing corporation or the
corporation being distributed. Treasury regulations provide that this test is
applied based on all the facts and circumstances, including the presence or
absence of factors described in the Regulations as "device factors" and
"nondevice factors." Application of this test is uncertain in part because of
its subjective nature. Based on the representations made to us, it is our
opinion that none of the Distributions is a transaction used principally as a
device for the distribution of earnings and profits of either U.S. Office
Products or any of the Spin-Off Companies. However, because of the inherently
subjective nature of the device test (including the subjectivity involved in
assigning weight to various factors), and because the IRS may challenge the
representations upon which we rely, there can be
4
<PAGE>
no assurance that the IRS will not assert that any of the Distributions are
transactions used principally as a device for the distribution of earnings and
profits.
This opinion is based on relevant provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), the Treasury Regulations promulgated
thereunder, and interpretations of the foregoing as expressed in court decisions
and administrative determinations, as currently in effect. We undertake no
obligation to update or supplement this opinion to reflect any changes in laws
that may occur.
This opinion does not address all aspects of U.S. federal income
taxation that may be relevant to particular holders of U.S. Office Products
Common Stock and may not be applicable to holders who are not citizens or
residents of the United States. This opinion may not apply to certain classes
of taxpayers, including, without limitation, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who have
acquired U.S. Office Products Common Stock pursuant to the exercise or
termination of employee stock options or otherwise as compensation, or persons
who hold their U.S. Office Products Common Stock in a hedging transaction or as
a part of a straddle or conversion transaction.
This opinion has been prepared in connection with the filing of the
Information Statements and should not be quoted in whole or in part or otherwise
be referred to, nor otherwise be filed with or furnished to any governmental
agency or other person or entity, without our express prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Information Statements and to the references to this opinion in the Information
Statement. In giving this consent, we do not hereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/ William J. Wilkins
-----------------------
William J. Wilkins
A Partner
5
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SCHEDULE A
U.S. Office Products Company
Aztec Technology Partners, Inc.
Navigant International, Inc.
School Specialty, Inc.
Workflow Management, Inc.
The Lenders party from time to time to that certain Credit Agreement dated as
of June 9, 1998 among U.S. Office Products, Blue Star Group Limited, Merrill
Lynch Capital Corporation as Documentation Agent, Bankers Trust Company as
Syndication Agent and The Chase Manhattan Bank as Administrative Agent.
6
<PAGE>
/__/ Employee's Copy
/__/ Company's Copy
AMENDED SERVICES AGREEMENT
To Jonathan J. Ledecky:
This Agreement, amended as of June 8, 1998, establishes the terms of your
continuing employment with U.S. Office Products Company, a Delaware
corporation (the "Company"), and replaces your amended and restated
employment agreement with the Company dated as of November 4, 1997 (the "1997
Agreement"), as amended. This Agreement is contingent on and subject to the
closing of the distributions (the "Distributions") to the Company's
stockholders of the stock of Aztec Technology Partners, Inc., Navigant
International, Inc., School Speciality, Inc., and Workflow Management, Inc.
(the "Spincos"). If the Distributions do not close by September 30, 1998,
this Agreement will have no force or effect and your 1997 Agreement will
remain in place and in effect. You are resigning from the Board effective as
of and contingent on the Distributions.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level
acquisition negotiations. In that capacity, you will report
to the Company's Board of Directors (the "Board"). The Board
can require such reports of your activities on the Company's
behalf as it reasonably deems appropriate. It can require
your services to the extent consistent with your other
contractual employment obligations to Consolidation Capital
Corporation ("CCC") and the Spincos, with the specific timing
of your services to be mutually agreed. You agree to comply
with the Company's generally applicable personnel policies to
the extent applicable to a person working on your schedule
and consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distributions (the "Closing Date")
through June 30, 2001, unless earlier terminated as provided
in this Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll
policies.
Company Your Company options will continue to vest and be exercisable
on their
<PAGE>
Options current schedules unless and until the Company properly
terminates your employment for Cause under this Agreement.
The Company will adjust the exercise price of your options
consistent with adjustments for substantially all of the
other optionholders' options.
Your existing Company options will not convert into Spinco
options.
The Company will accelerate your options if and to the extent
that the Company accelerates the exercisability of options
for substantially all management optionholders.
You waive any claim to participate in any matching or reload
program that may apply to other employees of the Company.
The unexercised portions of your Company options will expire
under their current terms or if, as finally determined by a
court, you violate the No Competition provision as it applies
to the Company.
Disgorging If a court finds that you violated the No
Option Competition provision, you agree that your
Gain unexercised options are retroactively
forfeited as of the date of the violation and
that, if you have exercised the options since
the violation began, you will promptly pay the
Company any Option Gain, net of any taxes
actually paid on the options. For purposes
of this Agreement, the "Option Gain" per share
you received on exercise of options on or
after the violation is
Stock for stock you have sold, the greater
Sold of (i) the spread between closing price
on the date of exercise and the exercise
price paid ("Exercise Spread") and (ii)
the spread between the price at which you
sold the stock and the exercise price
paid, and
Stock for stock you have retained, the greater
Retained of (i) Exercise Spread and (ii) the
spread between the closing price on the
date of the court's final determination
and the exercise price paid.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k)
Plan) to the extent you satisfy their terms for
participation.
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial
assistance, and supplies for the direct performance of your
services to the Company. It will pay or reimburse
Amended Services Agreement with Jonathan J. Ledecky Page 2 of 12
<PAGE>
you for reasonable business expenses relating to the
direct performance of such services to the Company
(including expenses incurred before the date of this
Agreement but not previously submitted, as long as you
submit the expenses by June 30, 1998), subject to limits
to be mutually agreed in advance, upon proper and timely
substantiation.
Amended Services Agreement with Jonathan J. Ledecky Page 3 of 12
<PAGE>
Spinco You will receive options in the Spincos in consideration for
Compensation your services as an employee of each Spinco.
Option Your Spinco options will cover 7.5% of the
outstanding common stock of each Spinco
determined as of the Distribution Date
(excluding the stock under the Spinco's
initial public offering), with no
anti-dilution provisions in the event of
issuance of additional shares of common stock
(other than with respect to stock splits or
reverse stock splits).
Term Each Spinco option will expire ten years from
the Closing Date.
Price Each Spinco option will have a per share
exercise price equal to the offering price in
the initial public offerings for each
Spinco or, if no initial public offering
commences on the Closing Date, at the fair
market value of the Spinco's common stock,
as determined under the Spinco's option
plan, for the date of the grant.
Schedule Each Spinco option will be fully vested when
granted, but may not be exercised until the
first anniversary of the Closing Date.
Your Spinco options with respect to a
particular Spinco will become exercisable
before that first anniversary if and to the
extent the relevant Spinco accelerates the
options for substantially all management
optionholders.
All unexercised portions of Spinco options
with respect to a particular Spinco will
expire if, as finally determined by a court,
you violate the No Competition provision as it
applies to the respective Spinco.
If a court finds that you violated the No
Competition provision with respect to a
particular Spinco, you agree that your
unexercised options from that Spinco are
retroactively forfeited as of the date of the
violation and that, if you have exercised the
options from that Spinco since the violation
began, you will promptly pay that Spinco any
Option Gain, net of any taxes actually paid
on the options.
All unexpired options will vest and be
exercisable at your death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction
of or guilty or nolo contendere plea to a felony demonstrably
and materially injurious to the Company's business, and
resulting in a sentence of imprisonment, or (ii), as finally
determined by a court, violation of the No Competition
provision as it applies to the Company, provided that the
Company will give you 10 days to resolve the violation before
attempting to invoke this termination provision. For a
termination under (ii), you agree to repay any
Amended Services Agreement with Jonathan J. Ledecky Page 4 of 12
<PAGE>
salary you received from the Company between the date of the
violation and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay, your salary will end, and your Company
options will cease vesting. Except to the extent the law or
the terms of an applicable plan requires otherwise, neither
you nor your beneficiary or estate will have any rights or
claims under this Agreement or otherwise to receive severance
or any other compensation or to participate in any other
plan, arrangement, or benefit, after your termination of
employment, other than with respect to your options.
No Competition The Company hereby releases you, effective for acts or
omissions after the Closing Date, from any obligation under
your 1997 Agreement to notify the Company regarding corporate
opportunities.
Consistent with certain of your prior obligations under the
1997 Agreement, you will not, until after the end of the
Restricted Period, for any reason whatsoever, directly or
indirectly, for yourself or on behalf of or in conjunction
with any other person, persons, company, partnership,
corporation, or business of whatever nature:
Competition (i) engage, as an officer, director,
shareholder, owner, partner, joint venturer,
or in a managerial capacity, whether as an
employee, independent contractor, consultant,
or advisor, or as a sales representative, in
any business (other than an Excluded Business,
as defined below) selling any products or
services in direct competition with the
Company within 100 miles of where the Company
or where any of the Company's subsidiaries or
affiliates regularly maintains any of its or
their offices with employees (the
"Territory"), where "products or services" are
determined for this clause with respect to
products or services offered on or before
January 13, 1998 by the Company and/or any of
the Spincos and where the geographic
limitation is determined with reference to the
applicable entity and its subsidiaries (e.g.,
competition with respect to a Spinco is
determined by reference to the location where
that Spinco has an office with employees and
not to the locations of others);
Employees (ii) call upon any person who is, at that
time, within the Territory, an employee of the
Company (including the respective subsidiaries
and/or affiliates thereof) in a managerial
capacity for the purpose
Amended Services Agreement with Jonathan J. Ledecky Page 5 of 12
<PAGE>
or with the intent of enticing such employee
away from or out of the Company's employ
(including the respective subsidiaries and/or
affiliates thereof) other than a member of
your immediate family; or
Customers (iii) call upon any person or entity that is,
at that time, or that has been, within one
year prior to that time, a customer of the
Company (including the respective subsidiaries
and/or affiliates thereof) within the
Territory for the purpose of soliciting or
selling products or services in direct
competition with the Company (including the
respective subsidiaries and/or affiliates
thereof) within the Territory other than on
behalf of an Excluded Business.
For purposes of this Agreement, the
"Restricted Period" ends, for the Company and
its subsidiaries and affiliates after the
Closing Date, on the second anniversary of the
Closing Date, and ends, for each Spinco and
its subsidiaries and affiliates after the
Closing Date, on the later of the second
anniversary of the Closing Date and the date
one year after you leave employment with the
Spinco and its subsidiaries and affiliates.
For purposes of this Agreement, the "Excluded
Businesses" are the following
(i) any electrical contracting
business that, at the time of its
creation or acquisition and at all
later times, derives more than 50% of
its revenues from electrical
contracting and maintenance services,
without regard to whether it would
otherwise violate the No Competition
clause because it is also engaged in a
business directly competitive with
Aztec Technology Partners, Inc. or any
of its subsidiaries (together,
"Aztec"), provided that this exclusion
does not permit the business to engage
in any of the lines of business
described under "Consulting and
Engineering Services," "Systems and
Network Design and Implementation
Services" and "Software Development
and Implementation Services" in the
Aztec Form S-1 filed on June 3, 1998
(the "Aztec Specified Businesses")
other than as provided under (ii) or (vi)
in the Excluded Businesses;
Amended Services Agreement with Jonathan J. Ledecky Page 6 of 12
<PAGE>
(ii) any business whose revenue from
activities that compete with Aztec and
its subsidiaries, at the time of the
business's creation or acquisition and
at all later times, is less than $15
million per year, provided that this
exclusion does not permit the business
to engage in the Aztec Specified
Businesses other than (i) as provided
under (vi) in the Excluded Businesses
or (ii) through the pending CCC
acquisitions of National Network
Systems in Denver, Colorado and of
Chambers Electronics Communications in
Phoenix, Arizona;
(iii) any business engaged, and only to
the extent it is so engaged, in computer
monitoring for facilities management;
(iv) any business engaged, and only to
the extent that it is so engaged, in the
business of selling, supplying, or
distributing janitorial or sanitary
products or services;
(v) any business engaged, and only to
the extent it is so engaged, in the
managing or servicing of office
equipment (other than computers);
(vi) any business engaged, and only to
the extent it is so engaged, in providing
internet access services and
activities supportive of such services;
(vii) UniCapital Corporation's
business as described in its prospectus
as of the date of this Agreement; and
(viii) U.S. Marketing Services Inc.'s
("USM") shelf-stocking and merchandising,
and point of purchase display creation
and incentive marketing businesses,
as described in its registration
statement filed on the date of this
Agreement, so long as you are solely
an investor in USM and not an officer,
director, or employee of or consultant
to, USM; provided however, that your
service as a director will not violate
the foregoing requirement as long as
you cease to be a director no later
than the 90th day after the effective
date of USM's initial public offering;
Amended Services Agreement with Jonathan J. Ledecky Page 7 of 12
<PAGE>
provided, that in each case you are engaged in
such business only in a policy making role and
not in the entity's business in a manner that
would involve you in direct personal
competition with the Company (and its
subsidiaries) or the applicable Spinco (and
its subsidiaries), provided further that
this proviso does not prevent your
activities in furtherance of acquisitions
of Excluded Businesses, and provided further
that you will comply with your fiduciary
duties as a director of each of the Spincos
in connection with the Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the
Company and each Spinco (or their subsidiaries), you will
inform the relevant entity of any opportunities for it
associated with any of the Excluded Businesses.
In addition to (and not in lieu of) the restriction contained
in the Employees clause above, you agree that, during the
period that the restrictions contained in this No Competition
provision remain in effect, and so long as you are employed
by, or otherwise affiliated with, CCC, you will not, directly
or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who
is employed by the Company or a subsidiary of the
Company at the time; or
was so employed by the Company or a subsidiary of the
Company within one year prior to such time; or
provides (or within the prior year provided) substantial
service to the Company or a subsidiary of the Company as
part of an entity that is or was a vendor or other
outside service provider to the Company or any
subsidiary; provided, however, that this provision
regarding vendors and outside service providers will not
apply after the Closing Date. In addition, the Company
specifically agrees that you may hire Jackie Scott and
Amy Blodgett, notwithstanding anything to the contrary
in the 1997 Agreement.
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit you from acquiring capital stock
in CCC or any Excluded Business or serving as an officer,
director or employee or consultant to CCC, or acquiring as
an investment not more than 4.9% of the capital stock of a
competing business, whose stock is traded on a national
securities exchange or over-the-counter, provided that
such actions do not otherwise breach your obligations
hereunder; and provided further that actions of CCC after
you have ceased to be a director, officer, and employee of
CCC will not constitute a breach of this covenant despite
your continued stock ownership, so long as you are not
then directly assisting any competitive actions.
Amended Services Agreement with Jonathan J. Ledecky Page 8 of 12
<PAGE>
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that
could be caused to the Company for which it would have no
other adequate remedy, you agree that the Company may enforce
the No Competition provisions by injunctions and restraining
orders.
You and the Company agree that you will not be in
violation of the No Competition provisions by virtue of
your investment in or other relationship to the Company,
any of the Spincos, or their respective subsidiaries, even
if one of those entities engages in direct competition
with another. You and the Company agree that CCC's
acquisition or retention of Wilson Electric Company, Inc.
("Wilson") and Wilson's engaging in any lines of business
in place as of the Closing Date do not violate the No
Competition provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the
Company's activities and business (including the Company's
subsidiaries and/or affiliates) on the date of the execution
of this Agreement.
The Company agrees to consider reasonably and within two
weeks of receipt any requests you make for a waiver from the
No Competition provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with
the Company (including the Company's subsidiaries), or
similar activities or business in locations the operation of
which, under such circumstances, does not violate the
Competition clause of this No Competition provision, and in
any event such new business, activities, or location is not
in violation of this No Competition provision or of your
obligations under this No Competition provision, if any, you
will not be chargeable with a violation of this provision if
the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar, or a competitive (i)
business, (ii) course of activities, or (iii) location, as
applicable.
The covenants in this No Competition provision are severable
and separate, and the unenforceability of any specific
covenant does not affect the provisions of any other
covenant. Moreover, if any court of competent jurisdiction
shall determine that the scope, time, or territorial
restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced
to the fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall
be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim
or cause of action by you against the Company, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the Restricted
Period, during which your
Amended Services Agreement with Jonathan J. Ledecky Page 9 of 12
<PAGE>
agreements and covenants made in this provision shall be
effective, is computed by excluding from such computation any
time during which you are in violation of any provision of
the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this
provision, you agree that the period for prohibition shall be
the maximum time permitted by law.
You specifically agree that the Company and the Spincos have
provided you with sufficient consideration for the
enforcement of the No Competition obligations for the
Restricted Period and for the assignment of this provision to
the Spincos.
After the Distributions, you agree that the Company will
assign to each Spinco the ability to enforce the
noncompetition provisions as to its own business.
Other The Company acknowledges that you are also employed by CCC
Employment and the Spincos, and agrees that such dual employment does
not breach this Agreement, unless and to the extent that you
thereby violate the No Competition provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the
Company (including the respective subsidiaries thereof) or
their representatives, vendors, or customers that pertain to
the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and
control. Likewise, you will make reasonably available at the
Company's request during business hours all correspondence,
reports, records, acquisition materials, charts, advertising
materials and other similar data pertaining to the business,
activities, or future plans of the Company that you have
collected or obtained.
Trade You agree that you will not, during or after the term of this
Secrets Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or
proposed, to any person, firm, partnership, corporation or
business for any reason or
Amended Services Agreement with Jonathan J. Ledecky Page 10 of 12
<PAGE>
purpose whatsoever. For CCC or any other businesses with
which you are affiliated or in which you are a stockholder,
you may reach agreement on comparable terms with significant
vendors to the Company, so long as you do not provide copies
of or otherwise disclose the specific terms of the Company's
relationships or agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by the Company against you), by reason of the fact
that you are or were performing services under this Agreement
or the 1997 Agreement then the Company must indemnify you
against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, as actually and
reasonably incurred by you in connection therewith to the
fullest extent provided by Delaware law and in accordance
with the Company's Bylaws. Further, while you are expected at
all times to use your best efforts to faithfully discharge
your duties under this Agreement, the Company will not hold
you liable to itself or its subsidiaries or affiliates for
errors or omissions made in good faith where you have not
exhibited gross, willful, or wanton negligence or misconduct
or performed criminal or fraudulent acts that materially
damage the business of the Company; provided, however, that
this sentence shall not apply to acts or omissions between
the effective date of the 1997 Agreement and the Closing
Date.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company,
and the performance of your agreements hereunder will not
violate or be a breach of any agreement with a former or
current employer, client, or any other person or entity.
Further, you agree to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses
of investigation, by any such third party that such third
party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition
agreement, invention, or secrecy agreement between you and
such third party that was in existence as of the date of this
Agreement.
Complete This Agreement is not a promise of future employment. You
Agreements have no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or
representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete, and
exclusive statement and expression of the agreement between
the Company and you with respect to all the terms of this
Agreement, and it
Amended Services Agreement with Jonathan J. Ledecky Page 11 of 12
<PAGE>
cannot be varied, contradicted, or supplemented by evidence
of any prior or contemporaneous oral or written agreements.
This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the
Company and you, and no term of this Agreement may be waived
except by writing signed by the party waiving the benefit of
such term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
Attention: General Counsel
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after
the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt
requested, or when actually received. Either party may change
the address for notice by notifying the other party of such
change in accordance with this Notice provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and
possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. This severability
provision shall be in addition to, and not in place of, the
comparable provisions in the No Competition provision.
Governing Law This Agreement shall in all respects be construed according
to the laws of the State of Delaware, other than those
relating to conflicts of laws. Any decision as to breaches of
this Agreement or any provision herein shall be made pursuant
to a final, nonappealable decision of a court.
Binding Effect This Agreement binds and benefits the Company and each of the
and Assignment Spincos, each of their respective successors or assigns, and
your heirs and the personal representatives of your estate.
Without the Company's prior written consent, you may not
assign or delegate this Agreement or any or
Amended Services Agreement with Jonathan J. Ledecky Page 12 of 12
<PAGE>
all rights, duties, obligations, or interests under it. You
specifically agree that the Company may assign its rights
under No Competition, in whole or in part, to each Spinco
with respect to such Spinco's business.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written
employment or severance agreements between you and the
Company (including specifically your 1997 Agreement
(including but not limited to its Change of Control
provisions) but specifically excluding your options to
purchase Company stock). Contingent upon the Closing and
effective only in that event, the 1997 Agreement will
terminate as of the Closing Date. Except as set forth above,
this Agreement supersedes all prior or contemporaneous
negotiations, commitments, agreements, and writings with
respect to the subject matter of this Agreement. All such
other negotiations, commitments, agreements, and writings
will have no further force or effect; and the parties to any
such other negotiation, commitment, agreement, or writing
will have no further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement
with the Company. You and the Company agree that this
Agreement should not be construed against either party as the
"drafter."
U.S. OFFICE PRODUCTS COMPANY
Date: By:
-------------------- -----------------------------------
Thomas Morgan
President and Chief Executive Officer
I agree to and accept these terms:
Date:
-------------------- -----------------------------------
Jonathan J. Ledecky
Amended Services Agreement with Jonathan J. Ledecky Page 13 of 12
<PAGE>
/__/ Employee's Copy
/__/ Employer's Copy
FORM OF
NAVIGANT INTERNATIONAL, INC.
EMPLOYMENT AGREEMENT
To Jonathan J. Ledecky:
This Agreement establishes the terms of your employment with Navigant
International, Inc., a Delaware corporation (the "Company"), as of June 10,
1998. This Agreement is contingent on and subject to the closing of the
distribution (the "Distribution") to the U.S. Office Products Company
("USOP") stockholders of the Company's stock. If the Distribution does not
close by September 30, 1998, this Agreement will have no force or effect.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level
acquisition negotiations. In that capacity, you will report
to the Company's senior management and its Board of Directors
(the "Board"). The Board can require such reports of your
activities on the Company's behalf as it reasonably deems
appropriate. It can require your services to the extent
consistent with your other contractual employment obligations
to Consolidation Capital Corporation ("CCC"), USOP, and the
other subsidiaries ("Other Spincos") of USOP whose common
stock will be distributed to the USOP stockholders concurrent
with the Company's stock, with the specific timing of your
services to be mutually agreed. You agree to comply with the
Company's generally applicable personnel policies to the
extent applicable to a person working on your schedule and
consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distribution (the "Closing Date")
through June 30, 2000, unless earlier terminated as provided
in this Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll
policies.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k)
Plan) to the extent you satisfy their terms for
participation.
Employment Agreement between Navigant and Jonathan J. Ledecky
<PAGE>
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial
assistance, and supplies for the direct performance of your
services to the Company. It will pay or reimburse you for
reasonable business expenses relating to the direct
performance of such services, to limits to be mutually agreed
in advance, upon proper and timely substantiation.
Options You are receiving options for the Common Stock of the Company
in consideration for services as an employee of the Company.
Option Your options will cover 7.5% of the Company's
outstanding common stock determined as of the
Distribution Date (excluding the stock under the
Company's initial public offering), with no
anti-dilution provisions in the event of issuance of
additional shares of common stock (other than with
respect to stock splits or reverse stock splits).
Term Your option will expire ten years from the Closing Date.
Price Your option will have a per share exercise price equal
to the offering price in the Company's initial public
offering, or if no initial public offering commences
on the Closing Date, at the fair market value of the
Company's common stock, as determined under the
Company's option plan, for the date of grant.
Schedule Your option will be fully vested when granted, but may
not be exercised until the first anniversary of the
Closing Date.
Your option will become exercisable before that first
anniversary if and to the extent that the Company
accelerates the exercisability of the options for
substantially all management optionholders.
All unexercised portions of your options will expire if,
as finally determined by a court, you violate the No
Competition provision.
Disgorging If a court finds that you violated the No Competition
Option provision, you agree that your unexercised options are
Gain retroactively forfeited as of the date of the violation
and that, if you have exercised the options since the
violation began, you will promptly pay the Company any
Option Gain, net of any taxes actually paid on the
options. For purposes of this Agreement, the "Option
Gain" per share you received on exercise of options on
or after the violation is
Stock for stock you have sold, the greater of (i) the spread
Sold between closing price on the date of exercise and the
exercise price paid ("Exercise Spread") and (ii) the
spread between the price at which you sold the stock and
the exercise price paid, and
Employment Agreement between Navigant and Jonathan J. Ledecky Page 2 of 10
<PAGE>
Stock for stock you have retained, the greater of (i) Exercise
Retained Spread and (ii) the spread between the closing price on
the date of the court's final determination and the
exercise price paid.
All unexpired options will vest and be exercisable at your
death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction
of or guilty or nolo contendere plea to a felony demonstrably
and materially injurious to the Company's business, and
resulting in a sentence of imprisonment, or (ii), as finally
determined by a court, violation of the No Competition
provision as it applies to the Company, provided that the
Company will give you 10 days to resolve the violation before
attempting to invoke this termination provision. For a
termination under (ii), you agree to repay any salary you
received from the Company between the date of the violation
and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay and your salary will end. Except to the
extent the law or the terms of an applicable plan requires
otherwise, neither you nor your beneficiary or estate will
have any rights or claims under this Agreement or otherwise
to receive severance or any other compensation or to
participate in any other plan, arrangement, or benefit, after
your termination of employment, other than with respect to
your options.
No Competition Consistent with certain of your prior obligations to USOP,
you will not, until after the end of the Restricted Period,
for any reason whatsoever, directly or indirectly, for
yourself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation, or
business of whatever nature:
Competition (i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor,
consultant, or advisor, or as a sales representative, in
any business (other than an Excluded Business, as
defined below) selling any products or services in
direct competition with the Company within 100 miles of
where the Company or where any of the Company's
subsidiaries or affiliates regularly maintains any of
its or their offices with employees (the "Territory"),
where "products or services" are determined for this
clause with respect to products or services offered on
or before January 13, 1998 by the Company and/or any of
its subsidiaries or
Employment Agreement between Navigant and Jonathan J. Ledecky Page 3 of 10
<PAGE>
the predecessor companies combined to form the Company
in connection with Distribution and where the geographic
limitation is determined with reference to the Company
and its subsidiaries and not to USOP or the other
Spincos (e.g., competition with respect to the
Company is determined by reference to the location
where the Company or its subsidiary has an office
with employees and not to the locations of offices of
other Spincos);
Employees (ii) call upon any person who is, at that time, within
the Territory, an employee of the Company (including the
respective subsidiaries and/or affiliates thereof) in a
managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the
Company's employ (including the respective subsidiaries
and/or affiliates thereof) other than a member of your
immediate family; or
Customers (iii) call upon any person or entity that is, at that
time, or that has been, within one year prior to that
time, a customer of the Company (including the
respective subsidiaries and/or affiliates thereof)
within the Territory for the purpose of soliciting or
selling products or services in direct competition with
the Company (including the respective subsidiaries
and/or affiliates thereof) within the Territory other
than on behalf of an Excluded Business.
For purposes of this Agreement, the "Restricted Period"
ends, on the later of the second anniversary of the
Closing Date and the date one year after you leave
employment with the Company and its subsidiaries and
affiliates.
For purposes of this Agreement, the "Excluded
Businesses" are the following:
(i) any electrical contracting business that, at
the time of its creation or acquisition and at
all later times, derives more than 50% of its
revenues from electrical contracting and
maintenance services, without regard to whether
it would otherwise violate the No Competition
clause because it is engaged in a business
directly competitive with Aztec Technology
Partners, Inc. or any of its subsidiaries
(together, "Aztec"), provided that this
exclusion does not permit the business to engage
in any of the lines of business described under
"Consulting and Engineering Services," "Systems
and Network Design and Implementation Services,"
and "Software Development and Implementation
Services" in the Aztec Form S-1 filed on June 3,
1998 (the "Aztec Specified Businesses") other
than as provided under (ii) or (vi) in the
Excluded Businesses;
Employment Agreement between Navigant and Jonathan J. Ledecky Page 4 of 10
<PAGE>
(ii) any business whose revenue from activities
that compete with Aztec and its subsidiaries, at
the time of the business's creation or
acquisition and at all later times, is less than
$15 million per year, provided that this
exclusion does not permit the business to engage
in the Aztec Specified Businesses other than (i)
as provided under (vi) in the Excluded
Businesses or (ii) through the pending CCC
acquisitions of National Network Systems in
Denver, Colorado and of Chamber Electronics
Communications in Phoenix, Arizona
(iv) any business engaged, and only to the extent
that it is so engaged, in the business of selling,
supplying, or distributing janitorial or sanitary
products or services;
(v) any business engaged, and only to the extent
it is so engaged, in the managing or servicing of
office equipment (other than computers);
(vi) any business engaged, and only to the extent
it is so engaged, in providing internet access
services and activities supportive of such
services;
(vii) UniCapital Corporation's business as
described in its prospectus as of the date of
this Agreement; and
Employment Agreement between Navigant and Jonathan J. Ledecky Page 5 of 10
<PAGE>
(viii) U.S. Marketing Services Inc's ("USM")
shelf-stocking and merchandising, and point of
purchase display creation and incentive
marketing businesses, as described in its
registration statement filed on the date of this
Agreement, so long as you are solely an investor
in USM and not an officer, director, or employee
of, or consultant to, USM; provided, however,
that your service as a director will not violate
the foregoing requirement as long as you cease
to be a director no later than the 90th day
after the effective date of the registration of
USM's initial public offering;
provided, that in each case you are engaged in such
business only in a policy making role and not in the
entity's business in a manner that would involve you in
direct personal competition with the Company (and its
subsidiaries), provided further that this proviso does
not prevent your activities in furtherance of
acquisitions of Excluded Businesses, and provided
further that you will comply with your fiduciary
duties as a director of the Company in connection
with the Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the
Company (or its subsidiaries), you will inform the relevant
entity of any opportunities for it associated with any of the
Excluded Businesses.
In addition to (and not in lieu of) the restriction contained
in the Employees clause above, you agree that, during the
period that the restrictions contained in this No Competition
provision remain in effect, and so long as you are employed
by, or otherwise affiliated with, CCC, you will not, directly
or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who
is employed by the Company or a subsidiary of the
Company at the time; or
was so employed by the Company or a subsidiary of the
Company within one year prior to such time.
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit you from acquiring capital stock
in CCC or any Excluded Business or serving as an officer,
director or employee or consultant to CCC, or acquiring as
an investment not more than one percent (1%) of the
capital stock of a competing business, whose stock is
traded on a national securities exchange or
over-the-counter, provided that such actions do not
otherwise breach your obligations hereunder; and provided
further that actions of CCC after you have ceased to be a
director, officer, and employee of CCC will not constitute
a breach of this covenant, despite your continued stock
ownership, so long as you are not then directly assisting
any competitive actions.
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that
could be caused to the Company for which it would have no
other adequate remedy, you agree that the Company may enforce
the No Competition provisions by injunctions and restraining
orders.
You and the Company agree that you will not be in
violation of the No Competition provisions by virtue of
your investment in or other relationship to USOP, any of
the Spincos, or their respective subsidiaries, even if one
of those entities engages in direct competition with
another. You and the Company agree that CCC's acquisition
or retention of Wilson Electric Company, Inc. ("Wilson")
and Wilson's engaging in any lines of business in place as
of the Closing Date do not violate the No Competition
provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the
Company's activities and
Employment Agreement between Navigant and Jonathan J. Ledecky Page 6 of 10
<PAGE>
business (including the Company's subsidiaries and/or
affiliates) on the date of the execution of this Agreement.
The Company agrees to consider reasonably and within two
weeks of receipt any requests you make for a waiver from the
No Competition provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with
the Company (including the Company's subsidiaries), or
similar activities or business in locations the operation of
which, under such circumstances, does not violate the
Competition clause of this No Competition provision, and in
any event such new business, activities, or location is not
in violation of this No Competition provision or of your
obligations under this No Competition provision, if any, you
will not be chargeable with a violation of this provision if
the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar, or a competitive (i)
business, (ii) course of activities, or (iii) location, as
applicable.
The covenants in this No Competition provision are severable
and separate, and the unenforceability of any specific
covenant does not affect the provisions of any other
covenant. Moreover, if any court of competent jurisdiction
shall determine that the scope, time, or territorial
restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced
to the fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall
be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim
or cause of action by you against the Company, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the Restricted
Period, during which your agreements and covenants made in
this provision shall be effective, is computed by excluding
from such computation any time during which you are in
violation of any provision of the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this
provision, you agree that the period for prohibition shall be
the maximum time permitted by law.
Employment Agreement between Navigant and Jonathan J. Ledecky Page 7 of 10
<PAGE>
You specifically agree that USOP and the Company have
provided you with sufficient consideration for the
enforcement of the No Competition obligations for the
Restricted Period and for the assumption of such benefits by
the Company. You specifically consent to USOP's assignment to
the Company of the right to enforce the No Competition
provisions of the Amended Ledecky Services Agreement, as
those provisions are incorporated in this Agreement.
Other The Company acknowledges that you are also employed by CCC,
Employment USOP, and the Other Spincos, and agrees that such dual
employment does not breach this Agreement, unless and to the
extent that you thereby violate the No Competition
provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the
Company (including the respective subsidiaries thereof) or
their representatives, vendors, or customers that pertain to
the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and
control. Likewise, you will make reasonably available at the
Company's request during business hours all correspondence,
reports, records, acquisition materials, charts, advertising
materials and other similar data pertaining to the business,
activities, or future plans of the Company that you have
collected or obtained.
Trade Secrets You agree that you will not, during or after the term of this
Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or
proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever. For CCC or any
other businesses with which you are affiliated or in which
you are a stockholder, you may reach agreement on comparable
terms with significant vendors to the Company, so long as you
do not provide copies of or otherwise disclose the specific
terms of the Company's relationships or agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by the Company against you), by reason of the fact
that you are or were performing services under this Agreement
then the Company must indemnify you against all expenses
(including attorneys'
Employment Agreement between Navigant and Jonathan J. Ledecky Page 8 of 10
<PAGE>
fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by you in connection
therewith to the fullest extent provided by Delaware law and
in accordance with the Company's Bylaws.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company,
and the performance of your agreements hereunder will not
violate or be a breach of any agreement with a former or
current employer, client, or any other person or entity.
Further, you agree to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses
of investigation, by any such third party that such third
party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition
agreement, invention, or secrecy agreement between you and
such third party that was in existence as of the date of this
Agreement.
Complete This Agreement is not a promise of future employment. You
Agreement have no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or
representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete, and
exclusive statement and expression of the agreement between
the Company and you with respect to all the terms of this
Agreement, and it cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral
or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly
authorized officer of the Company and you, and no term of
this Agreement may be waived except by writing signed by the
party waiving the benefit of such term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Navigant International, Inc.
Attention: Chief Executive Officer
84 Inverness Circle East
Englewood, Colorado 80112
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after
the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt
requested, or when actually received. Either party
Employment Agreement between Navigant and Jonathan J. Ledecky Page 9 of 10
<PAGE>
may change the address for notice by notifying the other
party of such change in accordance with this Notice
provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and
possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. This severability
provision shall be in addition to, and not in place of, the
comparable provisions in the No Competition provision.
Governing Law This Agreement shall in all respects be construed
according to the laws of the State of Delaware, other than
those relating to conflicts of laws. Any decision as to
breaches of this Agreement or any provision herein shall be
made pursuant to a final, nonappealable decision of a court.
Binding Effect This Agreement binds and benefits the Company, each of its
and Assignment successors or assigns, and your heirs and the personal
representatives of your estate. Without the Company's prior
written consent, you may not assign or delegate this
Agreement or any or all rights, duties, obligations, or
interests under it.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written
employment or severance agreements between you and the
Company (specifically excluding your options to purchase
Company stock). Except as set forth above, this Agreement
supersedes all prior or contemporaneous negotiations,
commitments, agreements, and writings with respect to the
subject matter of this Agreement. All such other
negotiations, commitments, agreements, and writings will have
no further force or effect; and the parties to any such other
negotiation, commitment, agreement, or writing will have no
further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement
with the Company. You and the Company agree that this
Agreement should not be construed against either party as the
"drafter."
NAVIGANT INTERNATIONAL, INC.
Date: By:
-------------------- -----------------------------------
Employment Agreement between Navigant and Jonathan J. Ledecky Page 10 of 10
<PAGE>
I agree to and accept these terms, specifically including the assignment of the
No Competition provision.
Date:
-------------------- -----------------------------------
Jonathan J. Ledecky
Employment Agreement between Navigant and Jonathan J. Ledecky Page 11 of 10
<PAGE>
Exhibit 10.11
NAVIGANT INTERNATIONAL, INC.
1998 Stock Incentive Plan
Purpose NAVIGANT INTERNATIONAL, INC., a Delaware corporation (the
"Company"), wishes to recruit, reward, and retain employees
and outside directors. To further these objectives, the
Company hereby sets forth the Navigant International, Inc.
1998 Stock Incentive Plan (the "Plan") to provide options
("Options") or direct grants ("Stock Grants" and, together
with the Options, "Awards") to employees and outside directors
with respect to shares of the Company's common stock (the
"Common Stock"). The Plan is effective as of the effective
date (the "Effective Date") of the Company's registration
under Section 12 of the Securities Exchange Act of 1934 (the
"Exchange Act") with respect to its initial public offering
("IPO").
Participants All Employees of the Company and any Eligible Subsidiaries are
eligible for Options and Stock Grants under this Plan, as are
the directors of the Company and the Eligible Subsidiaries who
are not employees ("Eligible Directors"). Eligible employees
and directors become "optionees" when the Administrator grants
them an option under this Plan or "recipients" when they
receive a direct grant of Common Stock. (Optionees and
recipients are referred to collectively as "participants." The
term participant also includes, where appropriate, a person
authorized to exercise an Award in place of the original
optionee.) The Administrator may also grant Options or make
Stock Grants to consultants and other service providers.
Employee means any person employed as a common law employee of
the Company or an Eligible Subsidiary.
Administrator The Administrator will be the Compensation Committee of the
Board of Directors of the Company (the "Compensation
Committee"), unless the Board specifies another committee.
The Board may also act under the Plan as though it were the
Compensation Committee. The Board of Directors of U.S. Office
Products Company ("U.S. Office Products"), directly or through
a committee of directors, may act as Administrator before U.S.
Office Products distributes the Common Stock to U.S. Office
Products' stockholders (the "Distribution").
- -------------------------------------------------------------------------------
Navigant International, Inc.
1998 Stock Incentive Plan
Page 1 of 15
<PAGE>
The Administrator is responsible for the general operation and
administration of the Plan and for carrying out its provisions
and has full discretion in interpreting and administering the
provisions of the Plan. Subject to the express provisions of
the Plan, the Administrator may exercise such powers and
authority of the Board as the Administrator may find necessary
or appropriate to carry out its functions. The Administrator
may delegate its functions (other than those described in the
Granting of Awards section) to officers or other employees of
the Company.
The Administrator's powers will include, but not be limited
to, the power to amend, waive, or extend any provision or
limitation of any Award. The Administrator may act through
meetings of a majority of its members or by unanimous consent.
Granting of Subject to the terms of the Plan, the Administrator will,
Awards in its sole discretion, determine
the participants who receive Awards,
the terms of such Awards,
the schedule for exercisability or nonforfeitability
(including any requirements that the participant or the
Company satisfy performance criteria),
the time and conditions for expiration of the Award, and
the form of payment due upon exercise, if any.
The Administrator's determinations under the Plan need not be
uniform and need not consider whether possible participants
are similarly situated.
Options granted to employees may be nonqualified stock options
("NQSOs") or "incentive stock options" ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986,
as amended from time to time (the "Code"), or the
corresponding provision of any subsequently enacted tax
statute. Options granted to Eligible Directors must be NQSOs.
The Administrator will not grant ISOs unless the stockholders
either have already approved the granting of ISOs or give such
approval within 12 months after the grant.
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 2 of 15
<PAGE>
The Administrator may impose such conditions on or charge
such price for the Stock Grants as it deems appropriate.
Substitutions The Administrator may also grant Awards in substitution
for options or other equity interests held by individuals
(i) as a result of their employment by or services to
U.S. Office Products before the Distribution or (ii) who
become Employees of the Company or of an Eligible
Subsidiary as a result of the Company's acquiring or
merging with the individual's employer or acquiring its
assets. If necessary to conform the Awards to the
interests for which they are substitutes, the
Administrator may grant substitute Awards under terms and
conditions that vary from those the Plan otherwise
requires. Awards in substitution for U.S. Office
Products' options in connection with the Distribution
will retain their pre-Distribution exercise schedule and
terms (including Change of Control provisions) and
expiration date.
Date of Grant The Date of Grant will be the date as of which this Plan or
the Administrator grants an Award to a participant, as
specified in the Plan or in the Administrator's minutes.
Exercise Price The Exercise Price is the value of the consideration that a
participant must provide in exchange for one share of Common
Stock. The Administrator will determine the Exercise Price
under each Award and may set the Exercise Price without
regard to the Exercise Price of any other Awards granted at
the same or any other time. The Company may use the
consideration it receives from the participant for general
corporate purposes.
The Exercise Price per share for NQSOs may not be less
than 80% of the Fair Market Value of a share on the Date
of Grant. If an Option is intended to be an ISO, the
Exercise Price per share may not be less than 100% of the
Fair Market Value (on the Date of Grant) of a share of
Common Stock covered by the Option; provided, however,
that if the Administrator decides to grant an ISO to
someone covered by Sections 422(b)(6) and 424(d) (as a
more-than-10%-stock-owner), the Exercise Price of the
Option must be at least 110% of the Fair Market Value (on
the Date of Grant).
The Administrator may satisfy any state law requirements
regarding adequate consideration for Stock Grants by (i)
issuing Common Stock held as treasury stock or (ii)
charging the recipients at least the par value for the
shares covered by the Stock Grant. The Administrator may
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 3 of 15
<PAGE>
designate that a recipient may satisfy (ii) either by direct
payments or by the Administrator's withholding from other
payments due to the recipient.
Fair Fair Market Value of a share of Common Stock for purposes of the
Market Plan will be determined as follows:
Value
if the Common Stock trades on a national securities
exchange, the closing sale price on that date;
if the Common Stock does not trade on any such exchange,
the closing sale price as reported by the National
Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq") for such date;
if no such closing sale price information is available,
the average of the closing bid and asked prices that
Nasdaq reports for such date; or
if there are no such closing bid and asked prices, the
average of the closing bid and asked prices as reported
by any other commercial service for such date.
For any date that is not a trading day, the Fair Market Value
of a share of Common Stock for such date shall be determined
by using the closing sale price or the average of the closing
bid and asked prices, as appropriate, for the immediately
preceding trading day.
The Fair Market Value will be deemed equal to the IPO price
for any Options granted as of the date on which the IPO's
underwriters price the IPO or granted on the following day
before trading opens in the Common Stock.
Exercisability The Administrator will determine the times and conditions for
exercise of or purchase under each Award but may not extend
the period for exercise beyond the tenth anniversary of its
Date of Grant (or five years for ISOs granted to 10% owners
covered by Code Sections 422(b)(6) and 424(d)).
Awards will become exercisable at such times and in such
manner as the Administrator determines and the Award
Agreement, if any, indicates; provided, however, that the
Administrator may, on such terms and conditions as it
determines appropriate, accelerate the time at which the
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 4 of 15
<PAGE>
participant may exercise any portion of an Award or at which
restrictions on Stock Grants lapse. For Stock Grants,
"exercise" refers to acceptance of the Award or lapse of
restrictions, as appropriate in context.
If the Administrator does not specify otherwise, Options will
become exercisable and restrictions on Stock Grants will lapse
as to one-third of the covered shares on each of the first
three anniversaries of the Date of Grant; provided, however,
that, unless the Administrator specifies otherwise, Options
granted on or after the Distribution (other than in
substitution for options on USOP stock) will not become
exercisable before the second anniversary of the Distribution,
will then become exercisable as to 50% of the shares subject
to those Options, and will become further exercisable as to an
additional 25% on and after the third anniversary and
exercisable as to the final 25% on and after the fourth
anniversary.
No portion of an Award that is unexercisable at a
participant's termination of employment will thereafter become
exercisable, unless the Award Agreement provides otherwise,
either initially or by amendment.
Change Upon a Change of Control (as defined below), all Options held by
of current Employees and directors will become fully exercisable
Control and all restrictions on Stock Grants will lapse. A Change of
Control for this purpose means the occurrence, after the
Company's IPO, of any one or more of the following events:
the acquisition by any person, entity, or "group,"
within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, other than the Company or any of its
wholly-owned subsidiaries, or any employee benefit plan
of the Company and/or any of its wholly-owned subsidiaries,
of beneficial ownership (within the meaning of Rule 13d-3
issued under the Exchange Act) of 40% or more of either
the then outstanding shares of the Company's Common Stock
or the combined voting power of the Company's then
outstanding voting securities in a single transaction or
series of related transactions; or
individuals who, as of the Effective Date, constitute the
Board of Directors of the Company (the "Board") (as of
the date hereof, the "Continuing Directors") cease for
any reason to constitute at least a majority of the
Board; provided that any person becoming a director after
the Effective Date whose election, or nomination for
election by the Company's stockholders, was approved in
advance by a vote of at least two-thirds of the
Continuing Directors (other than a nomination of an
individual whose initial assumption of office is in
connection with an actual or threatened solicitation with
respect to the election or removal of the directors of
the Company, as such terms are used in Rule 14a-11 of
Regulation 14A issued under the Exchange Act) shall be,
for purposes of this Agreement, considered as though such
person were a Continuing Director; or
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Navigant International, Inc.
1998 Stock Incentive Plan
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<PAGE>
approval by the stockholders of the Company of a
reorganization, merger, consolidated, liquidation, or
dissolution of the Company or of the sale (in one
transaction or a series of related transactions) of all
or substantially all of the assets of the Company
(excluding a transaction in which the stockholders of the
Company immediately before such transaction retain
beneficial ownership, directly or indirectly, of 75% or
more of the outstanding equity of the resulting or successor
entity from such transaction).
The Adjustment Upon Changes in Capital Stock provisions will
also apply if the Change of Control is a Substantial Corporate
Change (as defined in those provisions). If a Change of
Control is also a Substantial Corporate Change, the Change of
Control provision will apply before the application of the
Substantial Corporate Change provision.
Limitation on An Option granted to an employee will be an ISO only to the
ISOs extent that the aggregate Fair Market Value (determined at the
Date of Grant) of the stock with respect to which ISOs are
exercisable for the first time by the optionee during any
calendar year (under the Plan and all other plans of the
Company and its subsidiary corporations, within the meaning of
Code Section 422(d)), does not exceed $100,000. This
limitation applies to Options in the order in which such
Options were granted. If, by design or operation, the Option
exceeds this limit, the excess will be treated as an NQSO.
Method of To exercise any exercisable portion of an Award, the participant
Exercise must:
Deliver a written notice of exercise to the Secretary of
the Company (or to whomever the Administrator
designates), in a form complying with any rules the
Administrator may issue, signed by the participant, and
specifying the number of shares of Common Stock
underlying the portion of the Award the participant is
exercising;
Pay the full Exercise Price, if any, by cashier's or
certified check for the shares of Common Stock with
respect to which the Award is being exercised, unless the
Administrator consents to another form of payment (which
could include the use of Common Stock); and
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Navigant International, Inc.
1998 Stock Incentive Plan
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<PAGE>
Deliver to the Administrator such representations and
documents as the Administrator, in its sole discretion,
may consider necessary or advisable.
Payment in full of the Exercise Price need not accompany the
written notice of exercise provided the notice directs that
the stock certificates for the shares issued upon the exercise
be delivered to a licensed broker acceptable to the Company as
the agent for the individual exercising the option and at the
time the stock certificates are delivered to the broker, the
broker will tender to the Company cash or cash equivalents
acceptable to the Company and equal to the Exercise Price.
If the Administrator agrees to allow an optionee to pay
through tendering Common Stock to the Company, the individual
can only tender stock he has held for at least six months at
the time of surrender. Shares of stock offered as payment will
be valued, for purposes of determining the extent to which the
participant has paid the Exercise Price, at their Fair Market
Value on the date of exercise. The Administrator may also, in
its discretion, accept attestation of ownership of Common
Stock and issue a net number of shares upon Option exercise.
Award No one may exercise an Award more than ten years after its
Expiration Date of Grant (or five years, for an ISO granted to a
more-than-10% shareholder). Unless the Award Agreement
provides otherwise, either initially or by amendment, no one
may exercise an Award after the first to occur of:
Employment The 90th day after the date of termination of
Termination employment (other than for death or Disability), where
termination of employment means the time when the
employer-employee or other service-providing relationship
between the employee and the Company ends for any reason,
including retirement. Unless the Award Agreement provides
otherwise, termination of employment does not include
instances in which the Company immediately rehires a
common law employee as an independent contractor. The
Administrator, in its sole discretion, will determine all
questions of whether particular terminations or leaves of
absence are terminations of employment;
Disability For disability, the earlier of (i) the first anniversary
of the participant's termination of employment for
disability and
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 7 of 15
<PAGE>
(ii) 30 days after the participant no longer has a
disability, where "disability" means the inability to
engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment
that can be expected to result in death or that has
lasted or can be expected to last for a continuous period
of not less than twelve months; or
Death The date 24 months after the participant's death.
If exercise is permitted after termination of employment, the
Award will nevertheless expire as of the date that the former
service provider violates any covenant not to compete in
effect between the Company and the former employee. In
addition, an optionee who exercises an Option more than 90
days after termination of employment with the Company and/or
the Eligible Subsidiaries will only receive ISO treatment to
the extent permitted by law, and becoming or remaining an
employee of another related company (that is not an Eligible
Subsidiary) or an independent contractor to the Company will
not prevent loss of ISO status because of the formal
termination of employment.
Nothing in this Plan extends the term of an Award beyond the
tenth anniversary of its Date of Grant, nor does anything in
this Award Expiration section make an Award exercisable that
has not otherwise become exercisable.
Award Award Agreements will set forth the terms of each Award and
Agreement will include such terms and conditions, consistent with the
Plan, as the Administrator may determine are necessary or
advisable. To the extent the agreement is inconsistent with
the Plan, the Plan will govern. The Award Agreements may
contain special rules. The Administrator may, but is not
required to, issue agreements for Stock Grants.
Stock Subject Except as adjusted below under Corporate Changes,
to Plan
the aggregate number of shares of Common Stock that may
be issued under the Awards (whether ISOs, NQSOs, or Stock
Grants) may not exceed 25% of the Common Stock
outstanding immediately following the Distribution and
the closing of the IPO,
the maximum number of shares that may be subject to ISOs
may not exceed 600,000, and
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 8 of 15
<PAGE>
the maximum number of shares that may be granted under
Awards for a single individual in a calendar year may not
exceed 1,100,000. (The individual maximum applies only to
Awards first made under this Plan and not to Awards made
in substitution of a prior employer's options or other
incentives, except as Code Section 162(m) otherwise
requires.)
The Common Stock will come from either authorized but unissued
shares or from previously issued shares that the Company
reacquires, including shares it purchases on the open market.
If any Award expires, is canceled, or terminates for any other
reason, the shares of Common Stock available under that Award
will again be available for the granting of new Awards (but
will be counted against that calendar year's limit for a given
individual).
No adjustment will be made for a dividend or other right for
which the record date precedes the date of exercise.
The participant will have no rights of a stockholder with
respect to the shares of stock subject to an Award except to
the extent that the Company has issued certificates for, or
otherwise confirmed ownership of, such shares upon the
exercise of the Award.
The Company will not issue fractional shares pursuant to the
exercise of an Award, but the Administrator may, in its
discretion, direct the Company to make a cash payment in lieu
of fractional shares.
Person who During the participant's lifetime, only the participant or his
may Exercise duly appointed guardian or personal representative may
exercise the Awards. After his death, his personal
representative or any other person authorized under a will or
under the laws of descent and distribution may exercise any
then exercisable portion of an Award. If someone other than
the original recipient seeks to exercise any portion of an
Award, the Administrator may request such proof as it may
consider necessary or appropriate of the person's right to
exercise the Award.
Adjustments Subject to any required action by the Company (which it shall
upon Changes promptly take) or its stockholders, and subject to the provisions
in Capital of applicable corporate law, if, after the Date of Grant of
Stock an Award,
the outstanding shares of Common Stock increase or
decrease or change into or are exchanged for a different
number or kind of
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 9 of 15
<PAGE>
security because of any recapitalization,
reclassification, stock split, reverse stock split,
combination of shares, exchange of shares, stock
dividend, or other distribution payable in capital stock,
or
some other increase or decrease in such Common Stock
occurs without the Company's receiving consideration,
the Administrator may make a proportionate and appropriate
adjustment in the number of shares of Common Stock underlying
each Award, so that the proportionate interest of the
participant immediately following such event will, to the
extent practicable, be the same as immediately before such
event. (This adjustment does not apply to Common Stock that
the optionee has already purchased nor to Stock Grants that
are already nonforfeitable, except to the extent of similar
treatment for most stockholders.) Unless the Administrator
determines another method would be appropriate, any such
adjustment to an Award will not change the total price with
respect to shares of Common Stock underlying the unexercised
portion of the Award but will include a corresponding
proportionate adjustment in the Award's Exercise Price.
The Administrator will make a commensurate change to the
maximum number and kind of shares provided in the Stock
Subject to Plan section.
Any issue by the Company of any class of preferred stock, or
securities convertible into shares of common or preferred
stock of any class, will not affect, and no adjustment by
reason thereof will be made with respect to, the number of
shares of Common Stock subject to any Award or the Exercise
Price except as this Adjustments section specifically
provides. The grant of an Award under the Plan will not
affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structure, or to merge or to
consolidate, or to dissolve, liquidate, sell, or transfer all
or any part of its business or assets.
Substantial Upon a Substantial Corporate Change, the Plan and any
Corporate unexercised Awards will terminate unless provision is made in
Change writing in connection with such transaction for
the assumption or continuation of outstanding Awards, or
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 10 of 15
<PAGE>
the substitution for such options or grants of any
options or grants covering the stock or securities of a
successor employer corporation, or a parent or subsidiary
of such successor, with appropriate adjustments as to the
number and kind of shares of stock and prices, in which
event the Awards will continue in the manner and under
the terms so provided.
Unless the Board determines otherwise, if an Award would
otherwise terminate under the preceding sentence, participants
who are then Employees or directors of the Company will have
the right, at such time before the consummation of the
transaction causing such termination as the Board reasonably
designates, to exercise any unexercised portions of the Award,
whether or not they had previously become exercisable.
However, unless the Board determines otherwise, the
acceleration will not occur if it would render unavailable
"pooling of interest" accounting for any reorganization,
merger, or consolidation of the Company.
A Substantial Corporate Change means the
dissolution or liquidation of the Company,
merger, consolidation, or reorganization of the Company
with one or more corporations in which the Company is not
the surviving corporation,
the sale of substantially all of the assets of the
Company to another corporation, or
any transaction (including a merger or reorganization in
which the Company survives) approved by the Board that
results in any person or entity (other than any affiliate
of the Company as defined in Rule 144(a)(1) under the
Securities Act any Company Subsidiary, any Company
benefit plan, or any underwriter temporarily holding
securities for an offering of such securities) owning
100% of the combined voting power of all classes of stock
of the Company.
Subsidiary Employees of Company Subsidiaries will be entitled to
Employees participate in the Plan, except as otherwise designated by the
Board of Directors or the Committee.
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 11 of 15
<PAGE>
Eligible Subsidiary means each of the Company's Subsidiaries,
except as the Board otherwise specifies. For ISO grants,
Subsidiary means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if, at the time an ISO is granted to a Participant under the
Plan, each corporation (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in another
corporation in such chain. For ISO purposes, Subsidiary also
includes a single-member limited liability company included
within the chain described in the preceding sentence. For
NQSOs, the Board or the Administrator can use a different
definition of Subsidiary in its discretion.
Legal The Company will not issue any shares of Common Stock under an
Compliance Award until all applicable requirements imposed by Federal and
state securities and other laws, rules, and regulations, and
by any applicable regulatory agencies or stock exchanges, have
been fully met. To that end, the Company may require the
participant to take any reasonable action to comply with such
requirements before issuing such shares. No provision in the
Plan or action taken under it authorizes any action that is
otherwise prohibited by Federal or state laws.
The Plan is intended to conform to the extent necessary with
all provisions of the Securities Act of 1933 ("Securities
Act") and the Securities Exchange Act of 1934 and all
regulations and rules the Securities and Exchange Commission
issues under those laws. Notwithstanding anything in the Plan
to the contrary, the Administrator must administer the Plan,
and Awards may be granted and exercised, only in a way that
conforms to such laws, rules, and regulations. To the extent
permitted by applicable law, the Plan and any Awards will be
deemed amended to the extent necessary to conform to such
laws, rules, and regulations.
Purchase for Unless a registration statement under the Securities Act
Investment covers the shares of Common Stock a participant receives upon
and Other exercise of his Award, the Administrator may require, at the
Restrictions time of such exercise or receipt of a grant, that the
participant agree in writing to acquire such shares for
investment and not for public resale or distribution, unless
and until the shares subject to the Award are registered under
the Securities Act. Unless the shares are registered under
the Securities Act, the participant must acknowledge:
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 12 of 15
<PAGE>
that the shares purchased on exercise of the Award are not
so registered,
that the participant may not sell or otherwise transfer the
shares unless
the shares have been registered under the Securities
Act in connection with the sale or transfer thereof, or
counsel satisfactory to the Company has issued an
opinion satisfactory to the Company that the sale or
other transfer of such shares is exempt from
registration under the Securities Act, and
such sale or transfer complies with all other
applicable laws, rules, and regulations, including all
applicable Federal and state securities laws, rules,
and regulations.
Additionally, the Common Stock, when issued upon the exercise
of an Award, will be subject to any other transfer
restrictions, rights of first refusal, and rights of
repurchase set forth in or incorporated by reference into
other applicable documents, including the Company's articles
or certificate of incorporation, by-laws, or generally
applicable stockholders' agreements.
The Administrator may, in its sole discretion, take whatever
additional actions it deems appropriate to comply with such
restrictions and applicable laws, including placing legends on
certificates and issuing stop-transfer orders to transfer
agents and registrars.
Tax The participant must satisfy all applicable Federal, state,
Withholding and local income and employment tax withholding requirements
before the Company will deliver stock certificates upon the
exercise of an Award. The Company may decide to satisfy the
withholding obligations through additional withholding on
salary or wages. If the Company does not or cannot withhold
from other compensation, the participant must pay the Company,
with a cashier's check or certified check, the full amounts
required by withholding. Payment of withholding obligations
is due before the Company issues shares with respect to the
Award. If the Administrator so determines, the participant may
instead satisfy the withholding obligations by directing the
Company to retain shares from the Award exercise, by tendering
previously owned shares,
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 13 of 15
<PAGE>
or by attesting to his ownership of shares (with the
distribution of net shares).
Transfers, Unless the Administrator otherwise approves in advance in
Assignments writing for estate planning or other purposes, an Award may
and Pledges not be assigned, pledged, or otherwise transferred in any way,
whether by operation of law or otherwise or through any legal
or equitable proceedings (including bankruptcy), by the
participant to any person, except by will or by operation of
applicable laws of descent and distribution. If Rule 16b-3
then applies to an Award, the participant may not transfer or
pledge shares of Common Stock acquired under a Stock Grant or
upon exercise of an Option until at least six months have
elapsed from (but excluding) the Date of Grant, unless the
Administrator approves otherwise in advance in writing. The
Administrator may, in its discretion, expressly provide that a
participant may transfer his Award without receiving
consideration to (i) members of his immediate family
(children, grandchildren, or spouse); (ii) trusts for the
benefit of such family members; or (iii) partnerships where
the only partners are such family members.
Amendment or The Board may amend, suspend, or terminate the Plan at any
Termination time, without the consent of the participants or their
of Plan and beneficiaries; provided, however, that no amendment will
Options deprive any participant or beneficiary of any previously
declared Award. Except as required by law or by the Corporate
Changes section, the Administrator may not, without the
participant's or beneficiary's consent, modify the terms and
conditions of an Award so as to adversely affect the
participant. No amendment, suspension, or termination of the
Plan will, without the participant's or beneficiary's consent,
terminate or adversely affect any right or obligations under
any outstanding Awards.
Privileges of No participant and no beneficiary or other person claiming
Stock under or through such participant will have any right, title,
Ownership or interest in or to any shares of Common Stock allocated or
reserved under the Plan or subject to any Award except as to
such shares of Common Stock, if any, already issued to such
participant.
Effect on Whether exercising or receiving an Award causes the
Other Plans participant to accrue or receive additional benefits under any
pension or other plan is governed solely by the terms of such
other plan.
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 14 of 15
<PAGE>
Limitations Notwithstanding any other provisions of the Plan, no individual
on acting as a director, employee, or agent of the Company shall
Liability be liable to any participant, former participant, spouse,
beneficiary, or any other person for any claim, loss,
liability, or expense incurred in connection with the Plan,
nor shall such individual be personally liable because of any
contract or other instrument he executes in such other
capacity. The Company will indemnify and hold harmless each
director, employee, or agent of the Company to whom any duty
or power relating to the administration or interpretation of
the Plan has been or will be delegated, against any cost or
expense (including attorneys' fees) or liability (including
any sum paid in settlement of a claim with the Board's
approval) arising out of any act or omission to act concerning
this Plan unless arising out of such person's own fraud or bad
faith.
No Employment Nothing contained in this Plan constitutes an employment
Contract contract between the Company and the participants. The Plan
does not give any participant any right to be retained in the
Company's employ, nor does it enlarge or diminish the
Company's right to end the participant's employment.
Applicable Law The laws of the State of Delaware (other than its choice of law
provisions) govern this Plan and its interpretation.
Duration of Unless the Board extends the Plan's term, the Administrator
Plan may not grant Awards after June 8, 2008. The Plan will then
terminate but will continue to govern unexercised and
unexpired Awards.
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 15 of 15
<PAGE>
Exhibit 10.13
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made
and entered into as of June ___, 1998 by and among Professional Travel
Corporation, a Colorado corporation (the "Assignor"), Navigant International,
Inc., a Delaware corporation ("Assignee"), and Edward S. Adams ("Employee").
This Amendment will become effective on the date of the consummation of the
transactions contemplated by the Agreement and Plan of Distribution by and
among U.S. Office Products Company, Assignee, and certain other parties, to
be dated as of June 9, 1998 (the "Distribution Agreement").
RECITAL
WHEREAS Assignor and Employee are parties to an Employment
Agreement, dated as of January 24, 1997 (the "Agreement"), which Assignor now
desires to assign to Assignee and which Assignor, Assignee and Employee now
desire to amend as set forth herein; and
WHEREAS U.S. Office Products Company, a Delaware corporation, has
certain rights and obligations under the Agreement, and desires to assign all
of such rights (other than with respect to its "Confidential Information" as
defined in the Agreement) and obligations to Navigant International, Inc., a
Delaware corporation, and Navigant International, Inc. desires to accept and
assume all of such rights and obligations;
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises herein made
and for other good and valuable consideration, the sufficiency of which is
hereby acknowledged, Assignor, Assignee and Employee hereby agree as follows:
Section 1. Assignment. Assignor hereby assigns to Assignee all of
Assignor's right, title and interest in and to the Agreement, and Assignee
hereby accepts such assignment and assumes, accepts responsibility for, and
agrees to pay, perform, and discharge all of Assignor's liabilities and
obligations under the Agreement. Employee hereby consents to such assignment
and assumption. As a result of this assignment and assumption, all of the
rights and obligations of Assignor under the Agreement hereby become the
rights and obligations of Assignee, and Assignor will have no further rights
or obligations under the Agreement, and all provisions of the Agreement,
including any accompanying Exhibits or Schedules, relating or referring to
Assignor or the "Company" will hereafter be deemed to relate or refer to
Assignee.
Section 2. Amendments.
(a) Names. Throughout the Agreement, including any
accompanying Exhibits or Schedules, the words "U.S. Office Products
Company" and "Professional Travel Division of USOP" are hereby deleted
and replaced with the words "Navigant International, Inc." and the
abbreviation "USOP" is hereby deleted and replaced with the
abbreviation "Navigant," except that any reference to the agreement
pursuant to which U.S. Office Products Company acquired its interest
in Assignor will be deemed to refer to such agreement as the rights
and obligations of U.S. Office Products Company thereunder have been
assigned to Navigant International, Inc.
1
<PAGE>
(b) Effect. As a result of the amendments set forth in
Section 2(a), all of the rights and obligations of U.S. Office
Products Company under the Agreement will become the rights and
obligations of Navigant International, Inc., and U.S. Office Products
Company will have no further rights or obligations under the
Agreement, and all provisions of the Agreement, including any
accompanying Exhibits or Schedules, relating or referring to U.S.
Office Products Company, USOP, or USOP's Travel Division will
hereafter be deemed to relate or refer to Navigant International,
Inc., except that any reference to the agreement pursuant to which
U.S. Office Products Company acquired its interest in Assignor will
be deemed to refer to such agreement as the rights and obligations
of U.S. Office Products Company thereunder have been assigned to
Navigant International, Inc. Notwithstanding anything to the
contrary contained in this Amendment, U.S. Office Products Company
will continue to enjoy its pre-existing third-party beneficiary
rights under provisions of the Agreement concerning "Confidential
Information" (as defined in the Agreement).
(c) Position and Duties. Section 2 of the Agreement is
hereby amended to delete the first two sentences of such Section in
their entirety and replace them with the following:
"The Company hereby employs Employee as President and Chief
Executive Officer of the Company. As such, Employee shall
have the responsibilities, duties and authority reasonably
accorded to and expected of the President and Chief
Executive Officer of the Company."
(d) Base Salary. Section 3(a) (Base Salary) of the Agreement
is hereby amended to delete the word "$250,000" and replace it with
the word "$300,000".
(e) Incentive Bonus. Section 3(b) (Incentive Bonus) of the
Agreement is hereby amended to delete the first sentence of such
Section in its entirety and replace it with the following:
"During the Term, Employee shall be eligible to earn up to
100% of Employee's base salary in bonus compensation, payable
out of a bonus pool determined solely in the discretion of
the Board of Directors of the Company or a compensation
committee thereof, depending upon the achievement of specified
criteria and payable in the form of cash, stock options, or
other non-cash awards, in such proportions, and in such forms,
as are determined solely by the Board of Directors of the
Company or a compensation committee thereof. Bonuses under
the preceding sentence will be determined by measuring
Employee's performance and the Company's performance based on
criteria, weighted and measured against target performance
levels established by the Board of Directors of the Company
or such compensation committee."
As a result of the amendment set forth in this Section 2(e), the
second paragraph of Exhibit A is deleted in its entirety.
(f) Stock Options. Throughout the Agreement, but not
Exhibit A, any references to options to purchase common stock of
U.S. Office Products Company are hereby deleted
2
<PAGE>
and replaced with references to options to purchase common stock of
Navigant International, Inc. Such options will be authorized and
issued under the terms of Navigant International, Inc.'s 1998
Incentive Stock Option Plan and will be subject to the prior approval
of the Board of Directors of Navigant International, Inc. or a
compensation committee thereof. Prior to the date of this Amendment,
Employee has earned and been granted 400,000 options to purchase
shares of Common Stock of U.S. Office Products Company pursuant to
Exhibit A of the Agreement. Pursuant to the Distribution Agreement,
such options will be converted into options to purchase shares of
Common Stock of Navigant International, Inc., as described on page 27
of the Navigant International, Inc. Information Statement/Prospectus
dated May 18, 1998. The first paragraph of Exhibit A is deleted in its
entirety.
(g) Notice. The "Notice" provision of the Agreement is
hereby amended to delete the names and addresses of Professional
Travel Corporation and U.S. Office Products Company and replace
them with the following:
"To the Company: Navigant International, Inc.
84 Inverness Circle East
P.O. Box 6604
Englewood, CO 80155-6604
Attention: Chief Executive Officer
with a copy to: Navigant International, Inc.
84 Inverness Circle East
P.O. Box 6604
Englewood, CO 80155-6604
Attention: General Counsel"
Section 3. Effect. Except as specifically amended by this
Amendment, the Agreement will remain in full force and effect. All
references to the "Agreement" in the Agreement will hereafter be deemed to
refer to the Agreement as amended hereby.
Section 4. Miscellaneous.
(a) Definitions. Capitalized terms used and not defined
herein have the meanings given to such terms in the Agreement.
(b) Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument.
3
<PAGE>
(c) Governing Law. This Amendment will be governed by the
Governing Law provision contained in the Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
IN WITNESS WHEREOF, the Assignor, the Assignee and Employee have
executed this Amendment as of the date first above written.
ASSIGNOR EMPLOYEE
PROFESSIONAL TRAVEL
CORPORATION
By:
----------------------------- ---------------------------
Regina Q. Keating Edward S. Adams
President
ASSIGNOR EMPLOYEE
NAVIGANT INTERNATIONAL, INC.
By:
-----------------------------
Edward S. Adams
President & Chief Executive Officer
Acknowledged and agreed:
U.S. OFFICE PRODUCTS COMPANY
By:
-----------------------------
Mark D. Director
Executive Vice President -
Administration
<PAGE>
Exhibit 10.14
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made and
entered into as of June ___, 1998 by and among Professional Travel
Corporation, a Colorado corporation (the "Assignor"), Navigant International,
Inc., a Delaware corporation ("Assignee"), and Robert C. Griffith
("Employee"). This Amendment will become effective on the date of the
consummation of the transactions contemplated by the Agreement and Plan of
Distribution by and among U.S. Office Products Company, Assignee, and
certain other parties, to be dated as of June 9, 1998.
RECITAL
WHEREAS Assignor and Employee are parties to an Employment Agreement,
dated as of January 24, 1997 (the "Agreement"), which Assignor now desires to
assign to Assignee and which Assignor, Assignee and Employee now desire to
amend as set forth herein; and
WHEREAS U.S. Office Products Company, a Delaware corporation, has
certain rights and obligations under the Agreement, and desires to assign all
of such rights (other than with respect to its "Confidential Information" as
defined in the Agreement) and obligations to Navigant International, Inc., a
Delaware corporation, and Navigant International, Inc. desires to accept and
assume all of such rights and obligations;
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises herein made and
for other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Assignor, Assignee and Employee hereby agree as follows:
Section 1. Assignment. Assignor hereby assigns to Assignee all of
Assignor's right, title and interest in and to the Agreement, and Assignee
hereby accepts such assignment and assumes, accepts responsibility for, and
agrees to pay, perform, and discharge all of Assignor's liabilities and
obligations under the Agreement. Employee hereby consents to such assignment
and assumption. As a result of this assignment and assumption, all of the
rights and obligations of Assignor under the Agreement hereby become the
rights and obligations of Assignee, and Assignor will have no further rights
or obligations under the Agreement, and all provisions of the Agreement,
including any accompanying Exhibits or Schedules, relating or referring to
Assignor or the "Company" will hereafter be deemed to relate or refer to
Assignee.
Section 2. Amendments.
(a) Names. Throughout the Agreement, including any accompanying
Exhibits or Schedules, the words "U.S. Office Products Company" are hereby
deleted and replaced with the words "Navigant International, Inc." and the
abbreviation "USOP" is hereby deleted and replaced with the abbreviation
"Navigant," except that any reference to the agreement pursuant to which U.S.
Office Products Company acquired its interest in Assignor will be deemed to
refer to such agreement as the rights and obligations of U.S. Office Products
Company thereunder have been assigned to Navigant International, Inc.
1
<PAGE>
(b) Effect. As a result of the amendments set forth in Section
2(a), all of the rights and obligations of U.S. Office Products Company under
the Agreement will become the rights and obligations of Navigant
International, Inc., and U.S. Office Products Company will have no further
rights or obligations under the Agreement, and all provisions of the
Agreement, including any accompanying Exhibits or Schedules, relating or
referring to U.S. Office Products Company, USOP, or USOP's Travel Division
will hereafter be deemed to relate or refer to Navigant International, Inc.,
except that any reference to the agreement pursuant to which U.S. Office
Products Company acquired its interest in Assignor will be deemed to refer to
such agreement as the rights and obligations of U.S. Office Products Company
thereunder have been assigned to Navigant International, Inc.
Notwithstanding anything to the contrary contained in this Amendment, U.S.
Office Products Company will continue to enjoy its pre-existing third-party
beneficiary rights under provisions of the Agreement concerning "Confidential
Information" (as defined in the Agreement).
(c) Position and Duties. Section 2 of the Agreement is hereby
amended to delete the first two sentences of such Section in their entirety
and replace them with the following:
"The Company hereby employs Employee as Treasurer and
Chief Financial Officer of the Company. As such,
Employee shall have the responsibilities, duties and
authority reasonably accorded to and expected of the
Treasurer and Chief Financial Officer of the Company."
(d) Base Salary. Section 3(a) (Base Salary) of the Agreement is
hereby amended to delete the word "$150,000" and replace it with the word
"$200,000".
(e) Incentive Bonus. Section 3(b) (Incentive Bonus) of the
Agreement is hereby amended to delete the text of such Section in its
entirety and replace it with the following:
"Incentive Bonus. During the Term, Employee shall be
eligible to receive an incentive bonus up to the amount,
based upon the criteria and payable at such time or times
as are determined by the President of the Company, in
accordance with the Company's practices and policies
and consistent with the Company's budgets, as approved
by the Board of Directors of the Company."
(f) Notice. The "Notice" provision of the Agreement is hereby
amended to delete the names and addresses of Professional Travel Corporation
and U.S. Office Products Company and replace them with the following:
"To the Company: Navigant International, Inc.
84 Inverness Circle East
P.O. Box 6604
Englewood, CO 80155-6604
Attention: Chief Executive Officer
with a copy to: Navigant International, Inc.
84 Inverness Circle East
P.O. Box 6604
Englewood, CO 80155-6604
2
<PAGE>
Attention: General Counsel"
Section 3. Effect. Except as specifically amended by this Amendment,
the Agreement will remain in full force and effect. All references to the
"Agreement" in the Agreement will hereafter be deemed to refer to the
Agreement as amended hereby.
Section 4. Miscellaneous.
(a) Definitions. Capitalized terms used and not defined herein
have the meanings given to such terms in the Agreement.
(b) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(c) Governing Law. This Amendment will be governed by the
Governing Law provision contained in the Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the Assignor, the Assignee and Employee have
executed this Amendment as of the date first above written.
ASSIGNOR EMPLOYEE
PROFESSIONAL TRAVEL
CORPORATION
By: _____________________________ _____________________________
Regina Q. Keating Robert C. Griffith
President
ASSIGNEE
NAVIGANT INTERNATIONAL, INC.
By: _____________________________
Edward S. Adams
President & Chief
Executive Officer
Acknowledged and agreed:
U.S. OFFICE PRODUCTS COMPANY
By: _____________________________
Mark D. Director
Executive Vice President -
Administration
4
<PAGE>
Exhibit 10.15
AMENDMENT TO EMPLOYMENT AGREEMENT
This AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made and
entered into as of June ___, 1998 by and among McGregor Travel Management,
Inc., a Connecticut corporation (the "Assignor"), Navigant International,
Inc., a Delaware corporation ("Assignee"), and Douglas R. Knight
("Employee"). This Amendment will become effective on the date of the
consummation of the transactions contemplated by the Agreement and Plan of
Distribution by and among U.S. Office Products Company, Assignee, and
certain other parties, to be dated as of June 9, 1998.
RECITAL
WHEREAS Assignor and Employee are parties to an Employment Agreement,
dated as of October 24, 1997 (the "Agreement"), which Assignor now desires to
assign to Assignee and which Assignor, Assignee and Employee now desire to
amend as set forth herein; and
WHEREAS U.S. Office Products Company, a Delaware corporation, has
certain rights and obligations under the Agreement, and desires to assign all
of such rights (other than with respect to its "Confidential Information" as
defined in the Agreement) and obligations to Navigant International, Inc., a
Delaware corporation, and Navigant International, Inc. desires to accept and
assume all of such rights and obligations;
AGREEMENT
NOW THEREFORE, in consideration of the mutual promises herein made and
for other good and valuable consideration, the sufficiency of which is hereby
acknowledged, Assignor, Assignee and Employee hereby agree as follows:
Section 1. Assignment. Assignor hereby assigns to Assignee all of
Assignor's right, title and interest in and to the Agreement, and Assignee
hereby accepts such assignment and assumes, accepts responsibility for, and
agrees to pay, perform, and discharge all of Assignor's liabilities and
obligations under the Agreement. Employee hereby consents to such assignment
and assumption. As a result of this assignment and assumption, all of the
rights and obligations of Assignor under the Agreement hereby become the
rights and obligations of Assignee, and Assignor will have no further rights
or obligations under the Agreement, and all provisions of the Agreement,
including any accompanying Exhibits or Schedules, relating or referring to
Assignor or the "Company" will hereafter be deemed to relate or refer to
Assignee.
Section 2. Amendments.
(a) Names. Throughout the Agreement, including any accompanying
Exhibits or Schedules, the words "U.S. Office Products Company" are hereby
deleted and replaced with the words "Navigant International, Inc." and the
abbreviation "USOP" is hereby deleted and replaced with the abbreviation
"Navigant," except that any reference to the agreement pursuant to which U.S.
Office Products Company acquired its interest in Assignor will be deemed to
refer to such agreement as the rights and obligations of U.S. Office Products
Company thereunder have been assigned to Navigant International, Inc.
1
<PAGE>
(b) Effect. As a result of the amendments set forth in Section
2(a), all of the rights and obligations of U.S. Office Products Company under
the Agreement will become the rights and obligations of Navigant
International, Inc., and U.S. Office Products Company will have no further
rights or obligations under the Agreement, and all provisions of the
Agreement, including any accompanying Exhibits or Schedules, relating or
referring to U.S. Office Products Company, USOP, or USOP's Travel Division
will hereafter be deemed to relate or refer to Navigant International, Inc.,
except that any reference to the agreement pursuant to which U.S. Office
Products Company acquired its interest in Assignor will be deemed to refer to
such agreement as the rights and obligations of U.S. Office Products Company
thereunder have been assigned to Navigant International, Inc.
Notwithstanding anything to the contrary contained in this Amendment, U.S.
Office Products Company will continue to enjoy its pre-existing third-party
beneficiary rights under provisions of the Agreement concerning "Confidential
Information" (as defined in the Agreement).
(c) Position and Duties. Section 2 of the Agreement is hereby
amended to delete the first sentence of such Section in its entirety and
replace it with the following:
"The Company hereby employs Employee as Chief Operating Officer of the
Company."
(d) Notice. The "Notice" provision of the Agreement is hereby
amended to delete the names and addresses of McGregor Travel Management, Inc.
and U.S. Office Products Company and replace them with the following:
"To the Company: Navigant International, Inc.
84 Inverness Circle East
P.O. Box 6604
Englewood, CO 80155-6604
Attention: Chief Executive Officer
with a copy to: Navigant International, Inc.
84 Inverness Circle East
P.O. Box 6604
Englewood, CO 80155-6604
Attention: General Counsel"
Section 3. Effect. Except as specifically amended by this Amendment,
the Agreement will remain in full force and effect. All references to the
"Agreement" in the Agreement will hereafter be deemed to refer to the
Agreement as amended hereby.
Section 4. Miscellaneous.
(a) Definitions. Capitalized terms used and not defined herein
have the meanings given to such terms in the Agreement.
(b) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
2
<PAGE>
(c) Governing Law. This Amendment will be governed by the
Governing Law provision contained in the Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the Assignor, the Assignee and Employee have
executed this Amendment as of the date first above written.
ASSIGNOR EMPLOYEE
MCGREGOR TRAVEL MANAGEMENT, INC.
By:____________________________ ___________________________
Salvatore A. DeFranco Douglas R. Knight
President
ASSIGNEE
NAVIGANT INTERNATIONAL, INC.
By:_____________________________
Edward S. Adams
President & Chief Executive Officer
Acknowledged and agreed:
U.S. OFFICE PRODUCTS COMPANY
By:______________________________
Mark D. Director
Executive Vice President -
Administration
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 27, 1998 (except
for the first paragraph of Note 1 and the last paragraph of Note 3, which are as
of May 14, 1998) relating to the consolidated financial statements of Navigant
International, Inc., our report dated February 3, 1998 relating to the combined
financial statements of Evans Travel Group, Inc. and Evans Consulting Services,
Inc., and our report dated January 23, 1998 relating to the combined financial
statements of Travel Consultants, Inc. and Envisions Vacations, Inc., all of
which appear in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Denver, Colorado
June 3, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-Effective Amendment
No. 4 to Registration Statement No. 333-46539 of Navigant International, Inc.,
of our report dated September 23, 1996 relating to the financial statements of
MTA, Inc. (not presented separately herein) as of December 31, 1995, and for the
period from January 25, 1995 (date of incorporation) to December 31, 1995, and
to the reference to us under the heading "Experts" in the Prospectus, which is
part of this Registration Statement.
/s/ Deloitte & Touche, LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
June 3, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Navigant
International, Inc. on Form S-1 of our report dated May 22, 1997 on the
financial statements of Associated Travel Services, Inc., appearing in the
Prospectus, which is a part of this Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/Deloitte & Touche LLP
Costa Mesa, California
June 3, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 6, 1997 (except for
Note 10, Note 12 and the last paragraph of Note 1, as to which the date is
January 29, 1998) relating to the financial statements of McGregor Travel
Management, Inc. which appears in such prospectus, and to the reference to us
under the heading "Experts" in the Prospectus, which is also part of this
Registration Statement.
Walter J. McKeever & Company
Greenwich, Connecticut
June 3, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 22, 1996 (except
for Note 10 as to which the date is January 30, 1998) relating to the financial
statements of Omni Travel Service, Inc., which appears in such Prospectus, and
to the reference to us under the heading "Experts" in the Prospectus, which is
also part of this Registration Statement.
Nardella & Taylor
Lexington, Massachusetts
June 3, 1998
