<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1998.
REGISTRATION NO. 333-46539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE AMENDMENT NO. 3
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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<S> <C> <C>
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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<CAPTION>
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)
<S> <C> <C> <C> <C>
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 CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE DISTRIBUTED
PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS INFORMATION
STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 4, 1998
INFORMATION STATEMENT/PROSPECTUS
[LOGO]
DISTRIBUTION OF UP TO 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"). The Company
currently estimates that 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. Navigant has applied for quotation of the shares of Navigant Common Stock
on the National Market System of the Nasdaq Stock Market under the symbol
"FLYR." There is no assurance that such quotation will be approved or 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 hold shares (or options to purchase shares) of U.S. Office Products Common
Stock intended to tender 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 8.
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 8.
------------------------
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.
------------------------
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 , 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 , 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
<TABLE>
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PAGE
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SUMMARY................................................................................................... 1
RISK FACTORS.............................................................................................. 8
THE TRAVEL DISTRIBUTION................................................................................... 17
ARRANGEMENTS AMONG U.S. OFFICE PRODUCTS, NAVIGANT AND THE OTHER SPIN-OFF COMPANIES AFTER THE
DISTRIBUTIONS........................................................................................... 28
DIVIDEND POLICY........................................................................................... 30
CAPITALIZATION............................................................................................ 31
SELECTED FINANCIAL DATA................................................................................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NAVIGANT......... 34
INDUSTRY OVERVIEW......................................................................................... 43
BUSINESS.................................................................................................. 43
MANAGEMENT OF NAVIGANT.................................................................................... 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................................................ 59
PRINCIPAL STOCKHOLDERS OF NAVIGANT........................................................................ 60
DESCRIPTION OF NAVIGANT CAPITAL STOCK..................................................................... 61
EXPERTS................................................................................................... 64
LEGAL MATTERS............................................................................................. 64
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") AT A PRICE RANGE OF $11.00 TO $13.00 PER SHARE 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 OTHERWISE INDICATED, ALL REFERENCES TO "COMMON STOCK OUTSTANDING
AFTER THE TRAVEL DISTRIBUTION" ON A PRO FORMA BASIS SHALL MEAN 11,070,000 SHARES
OF NAVIGANT COMMON STOCK. THIS AMOUNT IS EQUAL TO (A) APPROXIMATELY 110,700,000
SHARES OF U.S. OFFICE PRODUCTS COMMON STOCK EXPECTED TO BE OUTSTANDING AT THE
DATE OF THE TRAVEL DISTRIBUTION (WHICH IS EQUAL TO (I) APPROXIMATELY 133,800,000
SHARES OF U.S. OFFICE PRODUCTS COMMON STOCK OUTSTANDING ON APRIL 25, 1998; PLUS
(II) APPROXIMATELY 8,900,000 SHARES OF U.S. OFFICE PRODUCTS COMMON STOCK ASSUMED
TO BE ISSUED BY U.S. OFFICE PRODUCTS COMPANY ("U.S OFFICE PRODUCTS") ON
CONVERSION OF THE U.S. OFFICE PRODUCTS 5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE
2001 (THE "2001 NOTES"); PLUS (III) APPROXIMATELY 5,000,000 SHARES OF U.S.
OFFICE PRODUCTS COMMON STOCK ASSUMED TO BE ISSUED BY U.S. OFFICE PRODUCTS ON
EXERCISE OF STOCK OPTIONS ACCEPTED INTO THE TENDER OFFER (AS DEFINED BELOW); AND
LESS (IV) 37,037,037 SHARES OF U.S. OFFICE PRODUCTS COMMON STOCK (INCLUDING
SHARES THAT MAY BE ISSUED ON EXERCISE OF VESTED AND UNVESTED STOCK OPTIONS)
TENDERED AND ACCEPTED UPON COMPLETION OF THE TENDER OFFER BY U.S. OFFICE
PRODUCTS 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")), (B) DIVIDED BY THE DISTRIBUTION RATIO.
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
<PAGE>
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.
2
<PAGE>
BACKGROUND OF THE TRAVEL DISTRIBUTION
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THE DISTRIBUTION............. Shares of Navigant Common Stock, will, subject to certain
conditions, be 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
offered to purchase 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 will distribute to U.S. Office Products'
stockholders the shares of four separate companies:
Aztec Technology Partners, Inc. ("Aztec"), Workflow
Graphics, 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 will 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, will
acquire for $270.0 million, 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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3
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In conjunction with the Strategic Restructuring Plan, U.S.
Office Products has undertaken or plans to undertake the
following transactions (the "Financing Transactions"):
- Pursuant to a tender offer, U.S. Office Products will
purchase any or all 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 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.
- Pursuant to a commitment letter from a group of lenders,
U.S. Office Products plans to enter into a new $1.225
billion senior credit facility.
- U.S. Office Products plans to issue and sell at least
$400.0 million in 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 11,070,000 shares of Navigant Common Stock
will be distributed to stockholders of U.S. Office Products
in the Travel Distribution. This amount is equal to (a)
approximately 110,700,000 shares of U.S. Office Products
Common Stock expected to be outstanding at the date of the
Travel Distribution (which is equal to (i) approximately
133,800,000 shares of U.S. Office Products Common Stock
outstanding on April 25, 1998, plus (ii) approximately
8,900,000 shares assumed to be issued by U.S. Office
Products on conversion of the 2001 Notes, plus (iii)
approximately 5,000,000 shares assumed to be issued by U.S.
Office Products on exercise of stock options accepted in the
Tender Offer, and less (iv) 37,037,037 shares (including
shares that may be issued upon exercise of vested and
unvested options for U.S. Office Products Common Stock) to
be
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4
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repurchased in the Tender Offer) divided by (b) the
Distribution Ratio. The number of shares to be distributed
could be greater if additional shares of U.S. Office
Products Common Stock are issued prior to the Record Date
pursuant to outstanding convertible debt securities or stock
options of U.S. Office Products.
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 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 a date (the "Mailing Date") as soon as
practicable after the Distribution Date.
DISTRIBUTION AGENT........... American Stock Transfer & Trust Company
TAX CONSEQUENCES............. Wilmer, Cutler & Pickering expects to deliver an opinion at
the time of the Distributions 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 will enter 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 will be transferred to Navigant,
(ii) liabilities will be 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 will also enter 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
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 will also enter into an agreement (the "Employee
Benefits 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."
</TABLE>
SUMMARY RISK FACTORS
In reviewing this Information Statement/Prospectus, stockholders should
carefully consider the matters described under the heading "Risk Factors"
beginning on page 8, 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.
6
<PAGE>
SUMMARY FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<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)
--------- --------- --------- --------- ------------ --------- ----------- -----------
<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 $ 0.65 $ 0.62
Dilluted.................. $ 0.83 $ 0.85 $ 0.67 $ 0.52 $ 0.18 $ 0.36 $ 0.65 $ 0.62
Weighted average shares
outstanding:
Basic..................... 4,426 4,426 4,556 5,906 7,750 9,003 11,070 (3) 12,781(4)
Diluted................... 4,426 4,426 4,570 6,002 7,910 9,176 11,070 (3) 12,781(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 $ 0.36 $ 0.48 $ 0.46
Dilluted.................. $ 0.28 $ 0.25 $ 0.36 $ 0.48 $ 0.46
Weighted average shares
outstanding:
Basic..................... 8,598 11,476 11,070 ) 11,070 (3) 12,781 (4)
Diluted................... 8,782 11,719 11,070 ) 11,070 (3) 12,781 (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 $ 7,127
Total assets......................................................... 29,339 137,661 134,249 137,724
Long-term debt, less current portion................................. 2,012 2,664 16,720
Long-term payable to U.S. Office Products............................ 787 10,027
Stockholder's equity................................................. 13,483 100,111 92,725 113,545
</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 this offering (assuming an initial public
offering price of $12.00 per share) after deducting underwriting discounts
and estimated offering expenses payable by Navigant and the use of the
estimated net proceeds therefrom.
7
<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 11,070,000
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
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.
8
<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 eleven separate corporate travel agency companies and expects to continue to
grow in part through acquisitions. All eleven 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
9
<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
10
<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. On
or before the Distribution Date, Navigant, 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. See "Arrangements
Among U.S. Office Products, Navigant and the Other Spin-Off Companies After the
Distributions." These agreements are expected to 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 will be
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 are 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 will not be less
favorable to Navigant than those that might have been obtained from unaffiliated
third parties.
11
<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 expects to deliver an opinion (the "Tax Opinion")
at the time of the Distributions 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.
U.S. Office Products will not complete the Travel Distribution unless it
receives the Tax Opinion. The Tax Opinion will be 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 will represent 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 will enter into a
tax allocation agreement with Navigant and the other Spin-Off Companies (the
"Tax Allocation Agreement"), which will provide 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 will also enter 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,
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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,
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
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addition, prior to the Travel Distribution, Navigant's acquisitions were
completed with substantial business, legal and accounting assistance from U.S.
Office Products, and 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 will enter 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. Navigant intends to enter
into credit facilities with one or more lenders to obtain financing to be used
in connection with future acquisitions. 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
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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 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 94.4% 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
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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
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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THE TRAVEL DISTRIBUTION
GENERAL
The Company currently estimates that 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. Following the
announcement of the proration results of the Tender Offer, 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 will, as
of the Distribution Date, hold 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 will
include 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; and Wareheim Travel
Services (Travel Guide). Immediately prior to the Travel Distribution, U.S.
Office Products will hold all the issued and outstanding shares of Navigant
Common Stock. Approximately 11,070,000 shares of Navigant Common Stock will be
distributed to stockholders of U.S. Office Products in the Travel Distribution.
This amount is equal to (a) approximately 110,700,000 shares of U.S. Office
Products Common Stock expected to be outstanding at the date of the Travel
Distribution (which is equal to (i) approximately 133,800,000 shares of U.S.
Office Products Common Stock outstanding on April 25, 1998, plus (ii)
approximately 8,900,000 shares assumed to be issued by U.S. Office Products on
conversion of the 2001 Notes, plus (iii) approximately 5,000,000 shares assumed
to be issued by U.S. Office Products on exercise of stock options accepted in
the Tender Offer, less (iv) 37,037,037 shares (including shares that may be
issued on exercise of vested and unvested options for U.S. Office Products
Common Stock) to be repurchased in the Tender Offer) divided by (b) the
Distribution Ratio. The number of shares to be distributed could be greater if
additional shares of U.S. Office Products Common Stock are issued pursuant to
outstanding convertible debt securities or stock options of U.S. Office
Products.
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 has offered to purchase
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 will incur additional indebtedness to pay a
substantial portion of the purchase price for these shares.
- Pursuant to the Distributions, U.S. Office Products will distribute 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.
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- 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.
In conjunction with the Strategic Restructuring Plan, U.S. Office Products
has undertaken or plans to undertake the following Financing Transactions:
- Pursuant to the 2003 Note Tender, U.S. Office Products will purchase any
or all 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 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.
- Pursuant to a commitment letter from a group of lenders, U.S. Office
Products plans to enter into a new $1.225 billion senior credit facility.
- U.S. Office Products plans to issue and sell at least $400.0 million in
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
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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 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 offered to
repurchase 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). Acceptance of and payment
for shares of U.S. Office Products Common Stock under the Tender Offer is
subject to a number of conditions. These conditions include: (i) U.S. Office
Products having obtained financing sufficient to fund the Tender Offer; (ii) all
conditions to the completion of the Equity Investment having been satisfied or
waived, except for completion of the Tender Offer and the Distributions; (iii)
registration statements relating to the Distributions having become effective;
and (iv) all other conditions to the completion of the Distributions, including
U.S. Office Products having received an opinion of Wilmer, Cutler & Pickering
regarding the tax treatment of the Distribution, having been satisfied, except
for completion of the Tender Offer.
The Tender Offer expired on June 1, 1998, and preliminary results indicated
that approximately 167.3 million shares of U.S. Office Products Common Stock and
shares of U.S. Office Products Common Stock underlying stock options were
tendered in accordance with the terms of the tender offer (including
approximately 42.6 million shares tendered through guaranteed delivery
procedures). According to the preliminary count, the number of shares tendered,
together with the number of shares subject to guaranteed delivery, exceeds the
total number of shares of U.S. Office Products Common Stock available for tender
(including shares underlying stock options). Based upon the number of shares of
U.S. Office Products Common Stock outstanding and the total number of shares
that may be issued upon exercise of options, U.S. Office Products has determined
that the proration factor should not be less than 22.5%. The preliminary count
is subject to verification, and U.S. Office Products expects to announce the
final results of the equity self-tender offer on June 8, 1998.
U.S. Office Products expects to finance 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 senior subordinated debt securities in a private placement. U.S.
Office Products anticipates that the foregoing borrowings will increase its
outstanding debt by approximately $441.0 million. Approximately $362.0 million
was outstanding under the existing bank credit facility as of March 20, 1998.
U.S. Office Products has entered into a commitment for the USOP Credit Facility.
The Record Date for the Distributions will occur after acceptance of shares
in the Tender Offer. Accordingly, U.S. Office Products stockholders who tender
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 are
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 the number of shares tendered exceeds that amount, only a portion of the
shares tendered by any U.S. Office Products stockholder will be accepted. U.S.
Office Products stockholders who tender their shares and do not otherwise
dispose of shares that are accepted
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before the Distributions will receive the Distributions with respect to a
portion 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 U.S. Office Products Common Stock and warrants to
purchase U.S. Office Products Common Stock to CD&R 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) any 2001 Notes that remained 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 all currently exercisable outstanding options and
(ii) no 2003 Notes were repurchased in the 2003 Note Tender and all such 2003
Notes 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 34.7% 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 any 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 (assuming that all of the
2001 Notes are exchanged in the 2001 Note Offer and all of the 2003 Notes are
tendered in the 2003 Note Tender). Because the Record Date for the Distributions
will be immediately 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
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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.
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
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<PAGE>
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 to be held to consider the issuance of shares in the
Equity Investment. See "Additional Information."
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,
which is expected to close prior to or concurrent with the Travel Distribution.
As a result of certain U.S. federal income tax limitations under Section 355 of
the Code on the number of shares that Navigant can issue in connection with the
Travel Distribution without jeopardizing the tax-free treatment of the Travel
Distribution, the amount of Navigant capital stock that will be issued in such a
public offering has not been determined and may be limited by the factors
discussed in "Risk Factors--Tax Matters," "--Possible Limitations on Issuance of
Common Stock" and "The Travel Distribution--U.S. Federal Income Tax Consequences
of the Travel Distribution."
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TRAVEL DISTRIBUTION
Wilmer, Cutler & Pickering expects to deliver an opinion (the "Tax Opinion")
at the time of the Distributions 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 will be
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
22
<PAGE>
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
will be 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 will apply 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 will 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 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 will 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 will state 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. U.S. Office Products will not complete the Distributions unless it
receives the Tax Opinion. The Tax Opinion will be 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 will represent 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.
23
<PAGE>
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.
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
will represent 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 expects to deliver on opinion at the
time of the Distributions 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
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<PAGE>
Products and Navigant, Wilmer, Cutler & Pickering expects to deliver an opinion
at the time of the Distributions that the Travel Distribution will satisfy 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 expects to deliver an
opinion at the time of the Distributions 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 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
25
<PAGE>
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 expects to deliver an
opinion at the time of the Distributions that the Travel Distribution will not
be taxable under section 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 will also enter 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.
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REPLACEMENT OF OUTSTANDING U.S. OFFICE PRODUCTS OPTIONS HELD BY NAVIGANT
EMPLOYEES
Navigant expects that 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 will be replaced with
options to acquire shares of Navigant Common Stock ("Navigant Options"). As of
the Distribution Date, approximately 1,212,222 U.S. Office Products Options will
be held by employees of Navigant.
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:
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. 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.
27
<PAGE>
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."
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, on or before the Distribution Date, U.S. Office Products,
Navigant 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. 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, $15.0 million of U.S. Office
Products' debt has been allocated to Navigant.
28
<PAGE>
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 (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 will provide 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 will provide for sharing, where appropriate, of state, local and
foreign taxes attributable to periods prior to the Distributions.
The Tax Allocation Agreement will further provide 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
29
<PAGE>
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
will also enter 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 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 expects to enter
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 proposed 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 proposed 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.
30
<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 $15.0 million of debt by U.S. Office Products
and the purchase acquisition for $2.8 million, less net cash acquired, 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
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 $ $ 3,475
---------- ------------ --------------
---------- ------------ --------------
Short-term debt........................................................ $ 625 $ 625
---------- ------------ --------------
---------- ------------ --------------
Short-term payable to U.S. Office Products............................. $ 217 $ $
---------- ------------ --------------
---------- ------------ --------------
Long-term debt......................................................... $ 2,664 $ 16,720
Long-term payable to U.S. Office Products.............................. 10,027
Stockholder's equity:
Preferred Stock, $0.001 par value, 1,000,000 shares authorized; no
shares outstanding
Common Stock, $0.001 par value, 150,000,000 shares authorized;
11,070,000 shares pro forma; 13,070,000 shares pro forma as
adjusted(1) 11 13
Additional paid-in capital........................................... 92,844 113,662
Divisional equity.................................................... 94,140
Cumulative translation adjustment.................................... (130) (130) (130)
Retained earnings.................................................... 6,101
---------- ------------ --------------
Total stockholder's equity....................................... 100,111 92,725 113,545
---------- ------------ --------------
Total capitalization............................................. $ 112,802 $ 109,445 $ 113,545
---------- ------------ --------------
---------- ------------ --------------
</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). 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.
31
<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.
32
<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 $ 0.65 $ 0.62
Diluted............... $ 0.83 $ 0.85 $ 0.67 $ 0.52 $ 0.18 $ 0.36 $ 0.65 $ 0.62
Weighted average common
shares outstanding:
Basic................. 4,426 4,426 4,556 5,906 7,750 9,003 11,070 (3) 12,781(4)
Diluted............... 4,426 4,426 4,570 6,002 7,910 9,176 11,070 (3) 12,781(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 $ 0.36 $ 0.48 $ 0.46
Diluted............... $ 0.28 $ 0.25 $ 0.36 $ 0.48 $ 0.46
Weighted average common
shares outstanding:
Basic................. 8,598 11,476 11,070 (3) 11,070 (3) 12,781 (4)
Diluted............... 8,782 11,719 11,070 (3) 11,070 (3) 12,781 (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 $ 7,127
Total assets.............................................................. 29,339 137,661 134,249 137,724
Long-term debt, less current portion...................................... 2,012 2,664 16,720
Long-term payable to U.S. Office Products................................. 787 10,027
Stockholder's equity...................................................... 13,483 100,111 92,725 113,545
</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) after deducting underwriting discounts
and estimated offering expenses payable by Navigant and the use of the
estimated net proceeds therefrom.
33
<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
34
<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.
35
<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
36
<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
37
<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
38
<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
39
<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 $15.0 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
$15.0 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 that is expected to occur prior to
or concurrent with the Travel Distribution. 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 intends to use a portion of the net proceeds from the Offering to
repay the approximately $15.0 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.
40
<PAGE>
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 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.
41
<PAGE>
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.
42
<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.
43
<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
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<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--Management
Contracts."
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
45
<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.
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<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 214 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.
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<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.
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<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
49
<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 December 31, 1997, 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 December 31, 1997, 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.
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<PAGE>
MANAGEMENT OF NAVIGANT
EXECUTIVE OFFICERS AND DIRECTORS
Following the Travel Distribution, it is anticipated that the executive
officers and directors of Navigant 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
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*
Vassilios Sirpolaidis..................... 50 Director*
Ned A. Minor.............................. 52 Director*
D. Craig Young............................ 44 Director*
</TABLE>
- ------------------------
* Messrs. Ledecky, Sirpolaidis, Minor and Young are expected to join the Board
of Directors prior to the Offering.
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 November 5, 1997. Mr. Ledecky has also served as the
Non-Executive Chairman of the Board of USA
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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................................................... 1997 $ 300,750 -- $ 8,554
Chairman of the Board, Chief Executive Officer, President and 1998 250,000 -- 8,554
Director
Robert C. Griffith................................................ 1997 120,000 $ 3,000 5,256
Chief Financial Officer and 1998 150,000 -- 5,256
Treasurer
Douglas R. Knight................................................. 1997 -- -- --
Chief Operating Officer 1998 382,000 -- 3,563
</TABLE>
(1) The salaries for Mr. Adams and Mr. Griffith include nine months of salary
prior to PTC being acquired by U.S. Office Products. Mr. Adams' salary was
reduced from $312,600 to $250,000 and Mr. Griffith's salary was increased
from $104,000 to $150,000 upon the acquisition of PTC by U.S. Office
Products. Because McGregor was acquired by U.S. Office Products after the
fiscal year ended April 26, 1997, Mr. Knight did not receive any
compensation for services rendered to Navigant or its subsidiaries during
the fiscal year ended April 26, 1997. 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.
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<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.
53
<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.
(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 expects to adopt 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 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.
54
<PAGE>
Mr. Ledecky will receive 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 will cover up to
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 the initial public offering price
of the Navigant Common Stock. Based on an assumed initial public offering 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 $2,163,296, net of taxes at an assumed 40% rate.
It is expected that Mr. Ledecky's option will become 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 the initial public offering price of the Navigant
Common Stock. Based on an assumed initial public offering 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
$1,153,758, net of taxes at an assumed 40% rate. In addition, management
currently expects to recommend option grants to certain executive officers of
the Company for approximately 3.5% of the outstanding Navigant Common Stock
following the Offering and 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 intends to create an Audit Committee prior to the
Distribution Date. The Audit Committee is expected to consist of Messrs.
Sirpolaidis, Minor and Young. The Audit Committee will be 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 intends to create a Compensation Committee prior to
the Distribution Date. The Compensation Committee is expected to consist of
Messrs. Sirpolaidis, Minor and Young. The Compensation Committee will be 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 is expected
to be amended as of June 3, 1998. The Ledecky Services Agreement 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
55
<PAGE>
Products as amended November 4, 1997. The principal terms of the Ledecky
Services Agreement, as it is expected to be 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
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).
It is expected that Navigant will enter 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. (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 acquired by
Consolidation Capital Corporation that are directly competitive with Aztec if
those businesses (A) relate to computer installation and servicing, (B)
information technology, or (C) telecommunications, and if, when acquired, the
businesses met certain revenue limits and had their principal place of business
in the same metropolitan area as that of the acquiring electrical contracting
and services business; (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 leasing businesses (which
include equipment leasing); or (vi) U.S. Marketing Services' shelf-stocking and
merchandising and point-of-purchase display creation businesses. 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 provisions described above
as they apply to the
56
<PAGE>
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.
57
<PAGE>
Effective as of the Distribution Date, PTC will assign Messrs. Adams',
Griffith's and Knight's employment agreements 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 expects to create a Compensation Committee effective
as of the Effective Date. The Compensation Committee is expected to consist of
Messrs. Sirpolaidis, Minor and Young. The Compensation Committee will be charged
with determining the compensation of all executive officers. Until a
Compensation Committee of the Board of Directors is created, decisions regarding
the compensation of executive officers will be made by the Board of Directors.
No member of the Board of Directors has ever been an officer of Navigant or any
of its subsidiaries, except that Mr. Adams is the Chief Executive Officer of
Navigant. In addition, Mr. Ledecky was the Chief Executive Officer of U.S.
Office Products until November 5, 1997 and will be the Chairman of U.S. Office
Products until the Distribution Date and Mr. Sirpolaidis has been President of
Mile High, which was acquired by U.S. Office Products in July 1996, since 1978
and a District President of U.S. Office Products since August 1996.
58
<PAGE>
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."
59
<PAGE>
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 April 1,
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>
PERCENT OF
NUMBER OF PERCENT OF U.S. NUMBER OF SHARES OF
SHARES OF U.S. OFFICE PRODUCTS SHARES OF NAVIGANT
OFFICE COMMON STOCK NAVIGANT COMMON STOCK
PRODUCTS PRIOR TO THE COMMON STOCK, AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OFFERING AS ADJUSTED(1) OFFERING
- ------------------------------------------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Edward S. Adams(2)............................... 699,702 *
Robert C. Griffith(3)............................ 3,750 *
Douglas R. Knight(4)............................. 694,629 *
Jonathan J. Ledecky(5)........................... 2,428,125 1.7%
Vassilios Sirpolaidis(6)......................... 1,206,375 *
All current executive officers and directors as a
group (7 persons).............................. 5,032,581 3.6
5% STOCKHOLDERS
FMR Corp.(7)..................................... 15,754,406 11.2
82 Devonshire Street
Boston, MA 02109
Massachusetts Financial Services
Company(7)..................................... 8,262,886 5.9
500 Boylston Street
Boston, MA 02116
</TABLE>
- ------------------------
* Less than 1%.
(1) Reflects the results of the Tender Offer and the application of the
Distribution Ratio.
(2) Includes 5,625 shares which may be acquired upon exercise of options
exercisable within 60 days following the Travel Distribution.
(3) Includes 3,750 shares which may be acquired upon exercise of options
exercisable within 60 days following the Travel Distribution.
(4) Includes 18,336 shares 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.
(6) Includes 9,375 shares which may be acquired upon exercise of options
exercisable within 60 days following the Travel Distribution and 48,000
shares held by Mr. Sirpolaidis' wife.
(7) Based upon a Schedule 13G filed with the SEC.
60
<PAGE>
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
13,070,000 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
61
<PAGE>
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
62
<PAGE>
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.
63
<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.
64
<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>
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.
F-9
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND
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 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 includes
an allocation of interest expense on all debt allocated to the Company. See Note
8 for further discussion of interest expense.
F-10
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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.
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
F-11
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
OPERATING EXPENSES
Operating expenses include travel agent commissions, salaries,
communications and other costs associated with the selling and processing of
travel reservations.
F-12
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-13
<PAGE>
NAVIGANT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $7.1 million 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 up to 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 $ (6,541)(b) $ $ 20,820(d) $ 3,475
(17,345)(d)
Accounts receivable, net............ 24,171 252 24,423 24,423
Prepaid and other current assets.... 1,638 46 1,684 1,684
------------- ------ ----------- --------- ------------- -----------
Total current assets.............. 31,728 920 (6,541) 26,107 3,475 29,582
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 $ 3,475 $ 137,724
------------- ------ ----------- --------- ------------- -----------
------------- ------ ----------- --------- ------------- -----------
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 2,800(a) 16,720 (16,720)(d)
11,089(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 3,645 41,524 (17,345) 24,179
Stockholder's Equity:
Common stock........................ 11(c) 11 2(d) 13
Additional paid-in capital.......... (1,285)(b) 92,844 20,818(d) 113,662
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 (8,157) 92,725 20,820 113,545
------------- ------ ----------- --------- ------------- -----------
Total liabilities and
stockholder's equity............ $ 137,661 $ 1,100 $ (4,512) $ 134,249 $ 3,475 $ 137,724
------------- ------ ----------- --------- ------------- -----------
------------- ------ ----------- --------- ------------- -----------
</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............................. 11,070(j) 12,781(l)
Diluted........................... 11,070(j) 12,781(l)
Income per share:
Basic............................. $ 0.48 $ 0.46
Diluted........................... $ 0.48 $ 0.46
</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................. 11,070(j) 12,781(l)
Diluted............... 11,070(j) 12,781(l)
Income per share:
Basic................. $ 0.36 $ 0.36
Diluted............... $ 0.36 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................. 11,070(j) 12,781(l)
Diluted............... 11,070(j) 12,781(l)
Income per share:
Basic................. $ 0.65 $ 0.62
Diluted............... $ 0.65 $ 0.62
</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 $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.
(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 11,070
shares of Common Stock.
(d) Adjustment to reflect $20,820 of net proceeds from the sale of 2,000
shares of Common Stock as part of the Offering (net of expenses and underwriting
discounts) and the utilization of shares aggregating $17,345 in proceeds to
repay debt.
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.
(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
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)
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 11,070 is calculated based upon approximately 110,700
shares of U.S. Office Products common stock expected to be outstanding on the
date of the Travel Distribution divided by ten, which is the Distribution Ratio.
The shares of U.S. Office Products common stock expected to be outstanding on
the date of the Navigant Distribution are based upon (a) approximately 133,800
shares currently outstanding, plus (b) approximately 8,900 shares expected to be
issued on conversion of U.S. Office Products convertible debt, plus
(c) approximately 5,000 shares expected to be issued on exercise of outstanding
U.S. Office Products stock options, minus (d) approximately 37,000 shares
expected to be accepted in the U.S. Office Products' equity self-tender which is
part of the Strategic Restructuring Plan.
(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 12,781 is based upon the 11,070 shares of common
stock issued as a result of the Navigant Distribution and 1,711 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 Nine of the 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 Eight of the Certificate of Incorporation states that directors of
Navigant will not be liable to Navigant or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to Navigant or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the state of Delaware, which makes directors liable for
unlawful dividends or unlawful stock repurchases or redemptions or (iv) for any
transaction from which the director derived an improper personal benefit.
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
II-1
<PAGE>
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, 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. 3 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 3, 1998.
NAVIGANT INTERNATIONAL, INC.
BY: /S/ EDWARD S. ADAMS
-----------------------------------------
Name: Edward S. Adams
TITLE: CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
- ------------------------------ --------------------------- -------------------
/s/ EDWARD S. ADAMS Chief Executive Officer June 3, 1998
- ------------------------------ (Principal Executive
Edward S. Adams Officer); Director
Chief Financial Officer and June 3, 1998
/s/ ROBERT C. GRIFFITH Treasurer (Principal
- ------------------------------ Financial and Accounting
Robert C. Griffith Officer)
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)
27+ Financial data schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NAVIGANT INTERNATIONAL, INC.
a Delaware corporation
The undersigned, _________, hereby certifies that:
ONE: He is the duly elected and acting _______ of Navigant International,
Inc. (the "Corporation").
TWO: The Corporation's original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on February 12, 1998,
under the name TDOP, Inc.
THREE: Pursuant to Section 141 of the Delaware General Corporation Law,
the Board of Directors unanimously approved the amendments contained in this
Amended and Restated Certificate of Incorporation on _______, 1998.
FOUR: Pursuant to Section 228 of the Delaware General Corporation Law,
the stockholders of the Corporation unanimously approved the amendments
contained in this Amended and Restated Certificate of Incorporation on
________, 1998.
FIVE: This Amended and Restated Certificate of Incorporation restates
and amends the Corporation's Certificate of Incorporation filed on
February 12, 1998, which Certificate of Amendment was amended on March 30, 1998
to change the Corporation's name from TDOP, Inc. to Navigant International,
Inc. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with Section 242 of the Delaware General Corporation Law.
SIX: The capital of the Corporation shall not be reduced under or by
reason of the amendments in this Amended and Restated Certificate of Amendment.
SEVEN: The text of the Amended and Restated Certificate of Incorporation
of this Corporation is hereby amended and restated to read in its entirety as
follows, as provided in Section 245 of the Delaware General Corporation Law:
ARTICLE ONE
1
<PAGE>
The name of the Corporation is: Navigant International, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is One Hundred Fifty-Five Million (155,000,000)
shares, of which Five Million (5,000,000) shares, designated as Preferred
Stock shall have a par value of One Tenth of One Cent ($.001) per share (the
"Preferred Stock"), and One Hundred Fifty Million (150,000,000) shares,
designated as Common Stock, shall have a par value of One Tenth of One Cent
($.001) per share (the "Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
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 this Certificate of Incorporation and the limitations prescribed
by law, the Board of Directors is expressly authorized by adopting resolutions
to issue the shares, fix the number of shares and 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 (and whether dividends are cumulative), dividend rates, terms
of redemption (including sinking fund provisions), a redemption price or
prices, conversion rights and liquidation preferences of the shares
constituting any class or series of the Preferred Stock, without any further
action or vote by the stockholders.
Common Stock
2
<PAGE>
1. Dividends.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect
to any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors
out of the funds of the Corporation legally available therefor, such dividends
(payable in cash, stock or otherwise) as the Board of Directors may from time
to time determine, payable to stockholders of record on such dates, not
exceeding 60 days preceding the dividend payment dates, as shall be fixed for
such purpose by the Board of Directors in advance of payment of each particular
dividend.
2. Liquidation.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or
payment to the holders of shares of any class or series of Preferred Stock
as provided by the Board of Directors with respect to any such class or series
of Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among and paid to the holders
of Common Stock ratably in proportion to the number of shares of Common Stock
held by them respectively.
3. Voting Rights.
Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock. Each holder of shares of Common Stock shall be entitled to one vote
for each share standing in such holder's name on the books of the Corporation.
ARTICLE FIVE
1. Board of Directors.
The number of directors of the Corporation shall consist of not less than
one, the exact number to be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by the affirmative vote of a majority of the
entire Board of Directors. The Board of Directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. The Board of Directors will be
authorized to designate the initial directors in each class. The initial
Class I director shall serve for a term expiring at the annual meeting of
the stockholders to be held in 1999, the initial Class II director shall
serve for a term expiring at the annual meeting of the stockholders to be
held in 2000 and the initial Class III director shall serve for a term
expiring at the annual meeting of the stockholders to be held in 2001. At
3
<PAGE>
each annual meeting of the stockholders, the successor or successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality of the votes cast at such meeting and entitled to vote in the
election of directors and shall hold office for a term expiring at the annual
meeting of the stockholders of the Corporation held in the third year following
the year of their election. The directors elected to each class shall hold
office until their successors are duly elected and qualified or until their
earlier resignation or removal. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain
the number of directors in each class as nearly equal as possible, but in no
case shall a decrease in the number of directors shorten the term of any
incumbent director. No director need be a stockholder.
2. Vacancies.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well
as any vacancy resulting from an increase in the number of directors which
occurs between annual meetings of the stockholders at which directors are
elected, shall be filled only by a majority vote of the remaining directors
then in office, though less than a quorum, except that those vacancies
resulting from removal from office by a vote of the stockholders may be filled
by a vote of the stockholders at the same meeting at which such removal occurs.
Any director of any class elected to fill a vacancy resulting from an increase
in such class shall hold office for a term that shall coincide with the
remaining term of that class. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
Notwithstanding the foregoing, whenever the holders of one or more
classes or series of Preferred Stock shall have the right, voting separately,
as a class or series, to elect directors, the election, term of office,
filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted
by the Board of Directors pursuant to ARTICLE FOUR applicable thereto, and
each director so elected shall not be subject to the provisions of this
ARTICLE FIVE unless otherwise provided therein.
3. Removal.
Subject to the rights of holders of any series of Preferred Stock then
outstanding, any director or the entire Board of Directors, may be removed
from office at any time, but only for cause by an affirmative vote of the
holders of a majority of the then outstanding shares of stock entitled to
vote.
4. Power to Make, Alter and Repeal By-Laws.
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The Board of Directors shall have the concurrent power with the
stockholders to make, alter, amend, change, add to or repeal (collectively
referred to as a "Change") the By-Laws of the Corporation; provided, however,
that any Change of the By-Laws must be approved by either (a) a majority of
the authorized number of directors or (b) the affirmative vote of the holders
of not less than seventy-five percent (75%) of the then outstanding shares of
stock entitled to vote.
ARTICLE SIX
No action required or permitted to be taken at any annual or special
meeting of stockholders of the Corporation may be taken by written consent
without a meeting of such stockholders.
ARTICLE SEVEN
The personal liability of a director of the Corporation to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director shall be limited to the fullest extent permitted by the Delaware
General Corporation Law, as it now exists or may hereafter be amended. Any
repeal or modification to this paragraph by the stockholders of the Corporation
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as the same may be amended and
supplemented, indemnify each director and officer of the Corporation from and
against any and all of the expenses, liabilities or other matters referred to
in or covered by said section and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified
may be entitled under any By-law, agreement, vote of stockholders, vote of
disinterested directors or otherwise, and shall continue as to a person who
has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such persons and the Corporation may
purchase and maintain insurance on behalf of any director or officer to the
extent permitted by Section 145 of the Delaware General Corporation Law.
ARTICLE NINE
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of
equitable jurisdiction within the State of Delaware may, on the
application in a summary way of the Corporation or of any creditor
or stockholder thereof or on the application of any
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receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as
the case may be, to be summoned in such manner as the said court directors.
If a majority in number representing three-fourths in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of the Corporation as a consequence of such
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE TEN
The Corporation reserves the right to Change (as defined in ARTICLE FIVE
of this Amended and Restated Certificate of Incorporation) any provision
contained in this Amended and Restated Certificate of Incorporation or
in the By-Laws of the Corporation, in the manner now and hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation; provided, however, that subject to
the powers and rights provided herein with respect to Preferred Stock issued
by the Corporation, if any, but notwithstanding anything else contained in
this Amended and Restated Certificate of Incorporation to the contrary,
the affirmative vote of the holders of at least seventy-five (75%) of the
then outstanding shares of stock entitled to vote, voting together as a
single class, shall be required to Change ARTICLES FIVE, SIX or TEN of this
Amended and Restated Certificate of Incorporation.
THIS AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed as of
this ___ day of June, 1998.
_________________________________
[Name]
[Title]
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Exhibit 3.2
BY-LAWS
OF
TDOP, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held on such date, at such time and at
such place within or without the State of Delaware as may be designated by the
Board of Directors, for the purpose of electing Directors and for the
transaction of such other business as may be properly brought before the
meeting.
SECTION 2. Special Meetings. Except as otherwise provided in
the Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board or the President and shall be called by the Chairman of the Board, the
President or the Secretary at the request in writing of stockholders holding
together at least twenty-five percent of the number of shares of stock
outstanding and entitled to vote at such meeting. Any special meeting of the
stockholders shall be held on such date, at such time and at such place within
or without the State of Delaware as the Board of Directors or the officer
calling the meeting may designate. At a special meeting of the stockholders, no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the meeting unless all of the stockholders are
present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in
these ByLaws or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his address as it appears on the records of the Corporation. The
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
SECTION 4. Quorum. At any meeting of the stockholders, the
holders of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for
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purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall
be present in person or represented at any meeting of the stockholders, the
holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
may adjourn from time to time; provided, however, that if the holders of any
class of stock of the Corporation are entitled to vote separately as a class
upon any matter at such meeting, any adjournment of the meeting in respect of
action by such class upon such matter shall be determined by the holders of a
majority of the shares of such class present in person or represented by proxy
and entitled to vote at such meeting. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the stockholders, or the holders of any class of stock
entitled to vote separately as a class, as the case may be, may transact any
business which might have been transacted by them at the original meeting. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
adjourned meeting.
SECTION 6. Organization. The Chairman of the Board or, in his
absence, the President or any Vice President shall call all meetings of the
stockholders to order, and shall act as Chairman of such meetings. In the
absence of the Chairman of the Board, the President and all of the Vice
Presidents, the holders of a majority in number of the shares of stock of the
Corporation present in person or represented by proxy and entitled to vote at
such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the
Certificate of Incorporation or by law, each stockholder shall be entitled to
one vote for each share of the capital stock of the Corporation registered in
the name of such stockholder upon the books of the
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Corporation. Each stockholder entitled to vote at a meeting of stockholders or
to express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. When directed by the presiding officer or
upon the demand of any stockholder, the vote upon any matter before a meeting of
stockholders shall be by ballot. Except as otherwise provided by law or by the
Certificate of Incorporation, Directors shall be elected by a plurality of the
votes cast at a meeting of stockholders by the stockholders entitled to vote in
the election and, whenever any corporate action, other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to
the Corporation or to another corporation, if a majority of the shares entitled
to vote in the election of directors of such other corporation is held, directly
or indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by two or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and noted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business and affairs
of the Corporation shall be managed by or under the direction of a Board of
Directors, none of whom need be stockholders of the Corporation. The number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The Directors
shall, except as hereinafter otherwise provided for filling vacancies, be
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elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their earlier
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that whenever any Director shall have been elected by the
holders of any class of stock of the Corporation voting separately as a class
under the provisions of the Certificate of Incorporation, such Director may be
removed and the vacancy filled only by the holders of that class of stock voting
separately as a class. Vacancies caused by any such removal and not filled by
the stockholders at the meeting at which such removal shall have been made, or
any vacancy caused by the death or resignation of any Director or for any other
reason, and any newly created directorship resulting from any increase in the
authorized number of Directors, may be filled by the affirmative vote of a
majority of the Directors then in office, although less than a quorum, and any
Director so elected to fill any such vacancy or newly created directorship shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal.
When one or more Directors shall resign effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 3. Place of Meeting. The Board of Directors may hold
its meetings in such place or places in the State of Delaware or outside the
State of Delaware as the Board from time to time shall determine.
SECTION 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No notice shall be required for any regular
meeting of the Board of Directors; but a copy of every resolution fixing or
changing the time or place of regular meetings shall be mailed to every Director
at least five days before the first meeting held in pursuance thereof.
SECTION 5. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be transmitted by telegraph, cable or wireless at
least one day before the meeting to each Director. Unless otherwise indicated in
the notice thereof, any and all business other than an amendment of these
By-Laws may be transacted at any special meeting, and an amendment of these
By-Laws may be acted upon if the notice of the meeting shall have stated that
the amendment of these By-
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Laws is one of the purposes of the meeting. At any meeting at which every
Director shall be present, even though without any notice, any business may be
transacted, including the amendment of these By-Laws.
SECTION 6. Quorum. Subject to the provisions of Section 2 of
this Article II, a majority of the members of the Board of Directors in office
(but in no case less than one-third of the total number of Directors nor less
than two Directors) shall constitute a quorum for the transaction of business
and the vote of the majority of the Directors present at any meeting of the
Board of Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
SECTION 7. Organization. The Chairman of the Board shall
preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board, an acting Chairman shall be elected from the Directors
present to preside at such meeting. The Secretary of the Corporation shall act
as Secretary of all meetings of the Directors; but in the absence of the
Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
whole Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending these By-Laws; and unless such
resolution, these By-laws, or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 9. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications
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equipment by means of which all persons participating in the meeting can hear
each other, and such participation shall constitute presence in person at such
meeting.
SECTION 10. Consent of Directors or Committee in Lieu of
Meeting. Unless otherwise restricted by the Certificate of Incorporation or by
these By-Laws, any action required or permitted to be taken at any meeting of
the, Board of Directors, or of any committee thereof, may be taken without a
meeting if all members of the Board or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board or committee, as the case may be.
ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be
a Chairman of the Board, a President, one or more Vice Presidents, a Secretary
and a Treasurer, and such additional officers, if any, as shall be elected by
the Board of Directors pursuant to the provisions of Section 7 of this Article
III. The Chairman of the Board, the President, one or more Vice Presidents, the
Secretary and the Treasurer shall be elected by the Board of Directors at its
first meeting after each annual meeting of the stockholders. The failure to hold
such election shall not of itself terminate the term of office of any officer.
All officers shall hold office at the pleasure of the Board of Directors. Any
officer may resign at any time upon written notice to the Corporation. Officers
may, but need not, be Directors. Any number of offices may be held by the same
person.
All officers, agents and employees shall be subject to
removal, with or without cause, at any time by the Board of Directors. The
removal of an officer without cause shall be without prejudice to his contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights. All agents and employees other than officers elected by
the Board of Directors shall also be subject to removal, with or without cause,
at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his
resignation, his removal, or otherwise, may be filled by the Board of Directors,
and any officer so elected shall hold office at the pleasure of the Board of
Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall be subject to the control of the Board of Directors,
and shall have such powers and shall perform such duties as may be assigned to
him from time to time by these By-Laws or by the Board of Directors. In
addition, he shall preside at all meetings of the stockholders and at
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all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned to him by these
By-Laws or by the Board of Directors. All actions heretofore taken by the
Chairman of the Board in the name or on behalf of the Corporation, including the
execution and delivery in the name and on behalf of the Corporation of
agreements, bonds, contracts, deeds, mortgages, certificates for shares of stock
of the Corporation and other instruments, documents and certificates are in all
respects ratified, approved, confirmed and adopted as of the date of such
action, execution or delivery, with the same effect as if expressly authorized
by the By-laws of the Corporation on the date thereof.
SECTION 3. Powers and Duties of the President. Unless
otherwise specified by the Board of Directors, the President shall be the Chief
Executive Officer of the Corporation and, subject to the control of the Board of
Directors, shall have general charge and control of all the Corporation's
business and affairs, and shall have all powers and perform all duties incident
to the office of President. In the absence of the Chairman of the Board, he
shall preside at all meetings of the stockholders and at all meetings of the
Board of Directors and shall have such other powers and perform such other
duties as may from time to time be assigned to him by these By-Laws or by the
Board of Directors.
SECTION 4. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned to him by these By-Laws or by the
Board of Directors or the President.
SECTION 5. Powers and Duties of the Secretary. The Secretary
shall keep the minutes of all meetings of the Board of Directors and the minutes
of all meetings of the stockholders in books provided for that purpose; he shall
attend to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and shall have all powers and
shall perform all duties incident to the office of Secretary and shall also have
such other powers and shall perform such other duties as may from time to time
be assigned to him by these By-Laws or by the Board of Directors or the
President.
SECTION 6. The Powers and Duties of the Treasurer. The
Treasurer shall have custody of, and when proper shall pay out, disburse or
otherwise dispose of, all funds and securities of the Corporation which may have
come into his hands; he may endorse on behalf of the Corporation for collection
checks, notes and other obligations and shall deposit the same to the credit of
the Corporation in such bank or banks or depositary or depositaries as the Board
of Directors may designate; he shall sign all receipts and vouchers for payments
made to the Corporation; he shall enter or cause to be entered regularly in the
books of the Corporation kept
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for the purpose full and accurate accounts of all moneys received or paid or
otherwise disposed of by him and whenever required by the Board of Directors or
the President shall render statements of such accounts; he shall, at all
reasonable times, exhibit his books and accounts to any Director of the
Corporation upon application at the office of the Corporation during business
hours; and he shall have all powers and he shall perform all duties incident to
the office of Treasurer and shall also have such other powers and shall perform
such other duties as may from time to time be assigned to him by these By-Laws
or by the Board of Directors or the President.
SECTION 7. Additional Officers. The Board of Directors may
from time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned to them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution
delegate to any Assistant Treasurer or Assistant Treasurers any of the powers or
duties herein assigned to the Treasurer; and may similarly delegate to any
Assistant Secretary or Assistant Secretaries any of the powers or duties herein
assigned to the Secretary.
SECTION 8. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 9. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the President or any Vice President shall have full power
and authority on behalf of the Corporation to attend and to act and to vote, or
in the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy, any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
SECTION 10. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
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ARTICLE IV
Indemnification of Directors and Officers
SECTION 1. Nature of Indemnity. The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that he is or was or has agreed to become an employee or agent of
the Corporation, or is; or was serving or has agreed to serve at the request of
the Corporation 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 by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a Judgment in
its favor (l) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
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.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
SECTION 2. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 of this Article IV or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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SECTION 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum its not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
SECTION 4. Advance Payment of Expenses. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article IV. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board of Directors deems
appropriate. The Board of Directors may authorize the Corporation's legal
counsel to represent such Director, officer, employee or agent in any action,
suit or proceeding, whether or not the Corporation is a party to such action,
suit or proceeding.
SECTION 5. Survival: Preservation of Other Rights. The
foregoing indemnification provisions shall be deemed to be a contract between
the Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
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<PAGE>
SECTION 6. Severability. If this Article IV or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each Director or
officer and may indemnify each employee or agent of the Corporation as to costs,
charges and expenses (including attorneys' fees), judgment, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
SECTION 7. Subrogation. In the event of payment of
indemnification to a person described in Section 1 of this Article IV, the
Corporation shall be subrogated to the extent of such payment to any right of
recovery such person may have and such person, as a condition of receiving
indemnification from the Corporation, shall execute all documents and do all
things that the Corporation may deem necessary or desirable to perfect such
right of recovery, including the execution of such documents necessary to enable
the Corporation effectively to enforce any such recovery.
SECTION 8. No Duplication of Payments. The Corporation shall
not be liable under this Article IV to make any payment in connection with any
claim made against a person described in Section 1 of this Article IV to the
extent such person has otherwise received payment (under any insurance policy,
by-law or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates
for shares of stock of the Corporation shall be in such form, not inconsistent
with the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer, and shall not be valid unless so
signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as through
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue thereof
shall be entered on the books of the corporation.
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Except as hereinafter provided, all certificates surrendered
to the Corporation for transfer shall be canceled, and no new certificates shall
be issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen or destroyed, he shall file in the office of the
Corporation an affidavit setting forth, to the best of his knowledge and belief,
the time, place and circumstances of the loss, theft or destruction, and, if
required by the Board of Directors, a bond of indemnity or other indemnification
sufficient in the opinion of the Board of Directors to indemnify the Corporation
and its agents against any claim that may be made against it or them on account
of the alleged loss, theft or destruction of any such certificate or the
issuance of a new certificate in replacement therefor. Thereupon the Corporation
may cause to be issued to such person a new certificate in replacement for the
certificate alleged to have been lost, stolen or destroyed. Upon the stub of
every new certificate so issued shall be noted the fact of such issue and the
number, date and the name of the registered owner of the lost, stolen or
descried certificate in lieu of which the new certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the
Corporation shall be transferred on the books of the Corporation by the holder
thereof, in person or by his attorney duly authorized in writing, upon surrender
and cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article.
SECTION 4. Regulations. The Board of Directors shall have
power and authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
SECTION 5. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting or to receive payment of any dividend or
other distribution or allotment, of any rights, or to exercise any rights in
respect of any change, conversion or exchange of stock; or for the purpose of
any other lawful action, as the case may be, the Board of Directors may fix, in
advance, a record date, which shall not be (i) more than sixty (60) nor less
than ten (10) days before the date of such meeting, or (ii) in the case of
corporate action to be taken by consent in writing without a meeting, prior to,
or more than ten (10) days after, the date upon which the resolution fixing the
record date is adopted by the Board of Directors, or (iii) more than sixty (60)
days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written
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<PAGE>
consent is delivered to the Corporation and the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. Dividends. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors shall have power to declare
and pay dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation,
any dividends declared upon the stock of the Corporation shall be payable on
such date or dates as the Board of Directors shall determine. If the date fixed
for the payment of any dividend shall in any year fall upon a legal holiday,
then the dividend payable on such date shall be paid on the next day not a legal
holiday.
SECTION 7. Corporate Seal. The Board of Directors shall
provide a suitable seal, containing the name of the Corporation, which seal
shall be kept in the custody of the Secretary. A duplicate of the seal may be
kept and be used by any officer of the Corporation designated by the Board of
Directors, the Chairman of the Board or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation
shall be such fiscal year as the Board of Directors from time to time by
resolution shall determine.
ARTICLE VI
Miscellaneous Provisions.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes,
obligations and orders for the payment of money made payable to the Corporation
may be endorsed for deposit to the credit of the Corporation with a duly
authorized depository by the Treasurer and/or such other officers or persons as
the Board of Directors from time to time may designate.
SECTION 2. Loans. No loans and no renewals of any loans shall
be contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other
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<PAGE>
evidences of indebtedness of the Corporation. When authorized so to do, any
officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as other wise provided in these
By-Laws or by law or as otherwise directed by the Board of Directors, the
Chairman of the Board, the President or any Vice President shall be authorized
to execute and deliver, in the name and on behalf of the corporation, all
agreements, bonds, contracts, deeds, mortgages, and other instruments, either
for the Corporation's own account or in a fiduciary or other capacity, and the
seal of the corporation, if appropriate, shall be affixed thereto by any of such
officers or the Secretary or an Assistant Secretary. The Board of Directors, the
Chairman of the Board, the President or any Vice President designated by the
Board of Directors, the Chairman of the Board or the President may authorize any
other officer, employee or agent to execute and deliver, in the name and on
behalf of the Corporation, agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary or
other capacity, and, if appropriate, to affix the seal of the Corporation
thereto. The grant of such authority by the Board or any such officer may be
general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors or the Chairman of the Board.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered,
amended or repealed, or new By-Laws may be adopted, by the Board of Directors at
any regular or special meeting by the affirmative vote of a majority of all of
the members of the Board, provided in the case of any special meeting at which
all of the members of the Board are not present, that the notice of such meeting
shall have stated that the amendment of these By-Laws was one of the purposes of
the meeting; but these By-Laws and any amendment thereof may be altered, amended
or repealed or new By-Laws may be adopted by the holders of a majority of the
total outstanding stock of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided, in the case of any special meeting,
that notice of such proposed alteration, amendment, repeal or adoption is
included in the notice of the meeting.
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<PAGE>
Exhibit 3.3
AMENDMENT TO THE BY-LAWS
OF
NAVIGANT INTERNATIONAL, INC.
a Delaware Corporation
Navigant International, Inc. adopts the following amendments to its By-Laws
effective as of June __, 1998.
I. ARTICLE I, SECTION 2 shall be amended to read in its entirety as follows:
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman
of the Board or the President. Any special meeting of the stockholders shall
be held on such date, at such time and at such place within or without the
State of Delaware as the Board of Directors or the officer calling the
meeting may designate. At a special meeting of the stockholders, no business
shall be transacted and no corporate action shall be taken other than that
stated in the notice of the meeting unless all of the stockholders are
present in person or by proxy, in which case any and all business may be
transacted at the meeting even though the meeting is meeting is held without
notice.
II. ARTICLE I, SECTION 3 shall be amended to read in its entirety as follows:
SECTION 3. Notice of Meetings. At any annual meeting of stockholders,
only such business shall be conducted as shall have been (a) specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, (b) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (c) otherwise properly
brought before the annual meeting by a stockholder who is a stockholder of
record at the time of the giving of the notice provided for in this SECTION 3
of this ARTICLE I and who shall be entitled to vote at such meeting. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
60 days nor more than 90 days prior to the meeting; provided, however, that
in the event that less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure was made,
whichever first occurs. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the reasons for conducting such business at the meeting, (iii)
the name and record address of the
<PAGE>
stockholder proposing such business, (iv) the class or series and number of
shares of the Corporation which are owned beneficially or of record by the
stockholder and (v) a description of all arrangements or understandings
between the stockholder and any other person or persons (including their
names) in connection with the proposal of such business by the stockholder
and any material interest of the stockholder in such business, and (vi) a
representation that the stockholder intends to appear in person or by proxy
at the annual meeting to bring such business before the meeting.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this SECTION 3 of this ARTICLE I; provided, however,
that nothing in this SECTION 3 of this ARTICLE I shall be deemed to preclude
discussion by any stockholder of any business properly brought before the
annual meeting in accordance with said procedure.
The officer of the Corporation presiding at the annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
SECTION 3 of this ARTICLE I, and if he should so determine, he shall so
declare to the meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing provisions of
this SECTION 3 of this ARTICLE I, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set
forth in this SECTION 3 of this ARTICLE I.
III. ARTICLE I, SECTION 9 shall be amended to read in its entirety as follows:
SECTION 9. No Consent of Stockholders in Lieu of Meeting. No action
required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation may be taken by written consent without a
meeting of such stockholders.
IV. ARTICLE II, SECTION 1 shall be amended to read in its entirety as follows:
SECTION 1. Number and Term of Office. The number of directors of the
Corporation shall consist of not less than one, the exact number to be fixed
from time to time by the Board of Directors pursuant to a resolution adopted
by the affirmative vote of a majority of the entire Board of Directors. The
Board of Directors shall be divided into three classes, designated Class I,
Class II and Class III. Each class shall consist, as nearly as may be
possible, of one-third of the total number of directors constituting the
entire Board of Directors. At each annual meeting of the stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality of the votes cast at such meeting and
entitled to vote in the election of directors and shall hold office for a
term expiring at the annual meeting of the stockholders of the Corporation
held in the third year following the year of their election. The directors
elected to each class shall hold office until their successors are duly
elected and qualified or until their earlier resignation or removal. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as
2
<PAGE>
possible, but in no case shall a decrease in the number of directors shorten
the term of any incumbent director. No director need be a stockholder.
V. ARTICLE II, SECTION 5 shall be amended in its entirety as follows:
SECTION 5. Special Meetings. Special meetings of the Board of
Directors or any committee designated by the Board of Directors may be held
at any time and place, within or without the State of Delaware, designated in
a call by the chairman of the Board of Directors, if any, by the president or
by a majority of the members of the Board of Directors or any such committee,
as the case may be.
Except as otherwise provided by these Bylaws or the laws of the State of
Delaware, written notice of each special meeting of the Board of Directors or
any committee thereof setting forth the time and place of the meeting shall
be given to each Director by the secretary or by the officer or Director
calling the meeting not less than one (1) day prior to the time fixed for the
meeting. Notice of special meetings may be either given personally,
personally by telephone, or by sending a copy of the notice through the
United States mail or by telegram, telex or facsimile, charges prepaid, to
the address of each Director appearing on the books of the Corporation. If
mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage prepaid thereon. If notice be
given by telegram, telex or facsimile, such notice shall be deemed to be
delivered when the telegram, telex or facsimile, is delivered to the
telegraph, telex or facsimile operator. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of
such meeting.
A Director may waive, in writing, notice of any special meeting of the
Board of Directors or any committee thereof, either before, at, or after the
meeting; and his waiver shall be deemed the equivalent of giving notice. By
attending or participating in a regular or special meeting, a Director waives
any required notice of such meeting unless the Director, at the beginning of
the meeting, objects to the holding of the meeting or the transacting of
business at the meeting.
VI. ARTICLE IV, SECTIONS 2, 3 and 4 shall be amended in their entirety as
follows:
SECTION 2. Successful Defense. To the extent that a present or former
Director or officer, or a present employee or agent of the Corporation has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1 of this Article IV or in defense of any
claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1
of this Article IV (unless ordered by a court) shall be made by the
Corporation unless a determination is made that indemnification of the
present or former Director or officer is not proper in the circumstances
because he has not met the applicable standard of conduct set forth
3
<PAGE>
in Section 1. Any indemnification of an employee or agent of the Corporation
under Section 1 (unless ordered by a court) may be made by the Corporation
upon a determination that indemnification of the employee or agent is proper
in the circumstances because he has met the applicable standard of conduct
set forth in Section 1. Any such determination shall be made, with respect
to a person who is a Director or officer at the time of such determination,
(1) by the Board of Directors by a majority vote of a quorum consisting of
Directors who were not parties to such action, suit or proceeding, or (2) by
a committee of such Directors designated by majority vote of such Directors,
even though less than a quorum, or (3) if such a quorum is not obtainable,
or, even if obtainable a quorum of disinterested Directors so directs, by
independent legal counsel in a written opinion, or (4) by the stockholders.
SECTION 4. Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Corporation as
authorized in this Article IV. Such expenses incurred by former Directors
and officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate. The Board
of Directors may authorize the Corporation's legal counsel to represent such
Director, officer, employee or agent in any action, suit or proceeding,
whether or not the Corporation is a party to such action, suit or proceeding.
VII. ARTICLE VII shall be amended to read in its entirety as follows:
ARTICLE VII
Amendments
The Board of Directors shall have the concurrent power with the
stockholders to make, alter, amend, change, add to or repeal (collectively
referred to as a "Change") the By-Laws of the Corporation; provided, however,
that any Change of the By-Laws must be approved by either (a) a majority of
the authorized number of directors or (b) the affirmative vote of the
holders of not less than seventy-five percent (75%) of the
then outstanding shares of stock entitled to vote.
4
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Exhibit 10.2
TAX ALLOCATION AGREEMENT
THIS TAX ALLOCATION AGREEMENT, dated as of June __, 1998
("Agreement"), among U.S. Office Products Company, a Delaware corporation
("USOP"), Workflow Management, Inc., a Delaware corporation ("Workflow
Management"), School Specialty, Inc., a Delaware corporation ("School
Specialty"), Aztec Technology Partners, Inc., a Delaware corporation
("Aztec") and Navigant International, Inc., a Delaware corporation
("Navigant"). USOP, Workflow Management, School Specialty, Aztec and
Navigant are hereinafter jointly referred to as the "Companies." Workflow
Management, School Specialty, Aztec and Navigant are hereinafter jointly
referred to as the "Spin-Off Companies."
WITNESSETH
WHEREAS, USOP is the common parent of an affiliated group of
domestic corporations, including the Spin-Off Companies, which has elected to
file consolidated federal income Tax returns;
WHEREAS, USOP and the Spin-Off Companies entered into an agreement,
dated as of June __, 1998 (the "Distribution Agreement"), to, among other
things, provide for the distribution by USOP of all of the issued and
outstanding shares of common stock of the Spin-Off Companies to the holders
of record of shares of common stock of USOP (other than shares held in the
treasury of USOP); divest USOP of all businesses, operations and liabilities
relating to the businesses to be conducted by the Spin-Off Companies after
the Distributions; and allocate and assign responsibility for certain
liabilities among USOP, the Spin-Off Companies and their respective
Subsidiaries;
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain Workflow Subsidiaries to be merged into Workflow Management or into a
Workflow Subsidiary; (ii) USOP will contribute to Workflow Management (x) all
its right, title and interest in and to all the shares of capital stock (or
other ownership interests) that it owns, directly or indirectly, of the
Workflow Subsidiaries other than shares of stock (or other ownership
interests) of the Workflow Subsidiaries that are already owned, directly or
indirectly, by Workflow Management or that are to be merged into Workflow
Management or into a Workflow Subsidiary and (y) certain other assets; and
(iii) Workflow Management will assume certain liabilities so that the
Workflow Group is consolidated under Workflow Management prior to the
Workflow Distribution (such mergers, contributions and assumptions of
liabilities, the "Workflow Contribution");
<PAGE>
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain School Specialty Subsidiaries to be merged into School Specialty or
into a School Specialty Subsidiary; (ii) USOP will contribute to School
Specialty (x) all its right, title and interest in and to all the shares of
capital stock (or other ownership interests) that it owns, directly or
indirectly, of the School Specialty Subsidiaries other than shares of stock
(or other ownership interests) of the School Specialty Subsidiaries that are
already owned, directly or indirectly, by School Specialty or that are to be
merged into School Specialty or into a School Specialty Subsidiary and (y)
certain other assets and (iii) School Specialty will assume certain
liabilities so that the School Specialty Group is consolidated under School
Specialty prior to the School Specialty Distribution defined herein (such
mergers, contributions and assumptions of liabilities, the "School Specialty
Contribution");
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain Aztec Subsidiaries to be merged into Aztec or into an Aztec
Subsidiary; (ii) USOP will contribute to Aztec (x) all its right, title and
interest in and to all the shares of capital stock (or other ownership
interests) that it owns, directly or indirectly, of the Aztec Subsidiaries
other than shares of stock (or other ownership interests) of the Aztec
Subsidiaries that are already owned, directly or indirectly, by Aztec or that
are to be merged into Aztec or into an Aztec Subsidiary and (y) certain other
assets; and (iii) Aztec will assume certain liabilities so that the
Technology Group is consolidated under Aztec prior to the Technology
Distribution defined herein (such mergers, contributions and assumptions of
liabilities, the "Technology Contribution");
WHEREAS, pursuant to the Distribution Agreement (i) USOP will cause
certain Navigant Subsidiaries to be merged into a Navigant Subsidiary; (ii)
USOP will contribute to Navigant (x) all its right, title and interest in and
to all the shares of capital stock (or other ownership interests) that it
owns, directly or indirectly, of the Navigant Subsidiaries other than shares
of stock (or other ownership interests) of the Navigant Subsidiaries that are
already owned, directly or indirectly, by Navigant or that are to be merged
into Navigant or into a Navigant Subsidiary and (y) certain other assets; and
(iii) Navigant will assume certain liabilities so that the Travel Group is
consolidated under Navigant prior to the Travel Distribution defined herein
(such mergers, contributions and assumptions of liabilities, the "Travel
Contribution");
WHEREAS, pursuant to the Distribution Agreement, USOP will
distribute all the shares of stock that it owns in each of Workflow
Management (the "Workflow Distribution"), School Specialty (the "School
Specialty Distribution"), Aztec (the "Technology Distribution") and Navigant
(the "Travel Distribution") to its shareholders (collectively, the
"Distributions") and, as a result of the Distributions, the Spin-Off
Companies and their Subsidiaries will not be included in the consolidated
federal income Tax return of USOP for the portion of the year following the
Distributions or in future years; and
2
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WHEREAS, the Companies desire to allocate the Tax burdens and
benefits of transactions which occurred on or prior to the Distribution Date,
and to provide for certain other Tax matters, including the assignment of
responsibility for the preparation and filing of Tax returns and the
prosecution and defense of any Tax controversies;
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, the Companies (each on its own behalf and on behalf of each of its
Subsidiaries) hereby agree as follows:
SECTION 1
Definitions
As used in this Agreement, the following terms shall have the following
meaning:
"Adverse Tax Act" shall mean, for any Person, (i) any action or
actions of such Person, or any omission or omissions by such Person of an
action or actions reasonably available to it, after the Distribution Date, or
(ii) a knowing or willful inaccuracy or inaccuracies of any representation
made by any Company by or on behalf of any member of such Company's Group to
USOP's outside tax counsel in connection with such firm's rendering an
opinion to the Companies as to certain Tax aspects of the Contributions and
Distributions as of the Distribution Date, if such action(s) or
inaccuracy(ies) materially contribute to a Final Determination that any of
the Contributions or Distributions results in the recognition of gain to USOP
by virtue of any of the Contributions or Distributions failing to qualify
under sections 355 or 368 of the Code, including without limitation, by
reason of any stock or securities of any of the Spin-Off Companies failing to
qualify as "qualified property" within the meaning of section 355(c)(2) of
the Code, or otherwise.
"Agreement" shall mean this Tax Allocation Agreement.
"Allocable Federal Income Tax Liability" shall mean, for any Group,
the Separate Consolidated Federal Income Tax Liability of such Group, as
adjusted to reflect (i) any AMT (but only if there is a consolidated AMT),
(ii) any Taxes for which USOP is obligated to indemnify such Groups pursuant
to Section 10(b) of this Agreement, and (iii) any Taxes for which such
Group's Spin-Off Company is obligated to indemnify USOP pursuant to Section
3(d) of this Agreement.
"AMT" shall mean the alternative minimum tax imposed by Section 55
of the Code.
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"Aztec" shall have the meaning assigned to such term in the preamble
to this Agreement.
"Aztec Subsidiary" shall mean those entities that immediately after
the completion of the Distributions will be Subsidiaries of Aztec.
"Closing Date" shall have the meaning assigned to such term in the
Investment Agreement.
"Companies" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor statute.
"Consolidated Returns" shall mean (i) the consolidated U.S. federal
income Tax return of USOP for the period ending on April 25, 1998 and (ii)
the consolidated U.S. federal income Tax return of USOP for the period
commencing on April 26, 1998 and including the Spin-Off Company Groups
through and including the Distribution Date and including the USOP Group
through and including April 24, 1999.
"Contributions" shall have the meaning assigned to such term in the
recitals to this Agreement.
"Controlled Return" shall mean (a) the Consolidated Returns, (b) any
Prior Period Consolidated Return and (c) any combined, affiliated or unitary
income Tax returns for any taxable period beginning on or prior to the
Distribution Date that includes USOP or any Retained Subsidiary.
"Distributing Tax Payor" shall have the meaning assigned to such
term in Section 10(a)(iii) of this Agreement.
"Distribution Agreement" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Distribution Date" shall mean the date on which the Distributions
are effective for U.S. federal income Tax purposes.
"Distributions" shall have the meaning assigned to such term in the
recitals to this Agreement.
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"Final Determination" shall mean the final resolution of liability
for any Tax for any taxable period, including any related interest or
penalties, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order of a court of competent jurisdiction; (ii) a
closing agreement or accepted offer in compromise under Section 7121 or 7122
of the Code, or comparable agreement under the laws of other jurisdictions,
which resolves the entire Tax liability for such Tax for such taxable period;
(iii) any allowance of a refund or credit in respect of an overpayment of
Tax, but only after the expiration of all periods during which such refund
may be recovered (including by way of offset) by the applicable Taxing
jurisdiction; or (iv) any other final disposition, including by reason of the
expiration of the applicable statute of limitations.
"FTC" shall mean the foreign tax credit pursuant to Section 27 of
the Code.
"Group" shall mean the USOP Group, Workflow Group, School Specialty
Group, Technology Group and/or Travel Group, as the context may require.
"Investment Agreement" shall mean the Investment Agreement dated as
of January 12, 1998 by and between USOP and CDR-PC Acquisition, L.L.C., a
Delaware limited liability company, as amended by Amendment No. 1 thereto,
dated as of February 3, 1998.
"IPO" shall mean, as to any Spin-Off Company, the initial public
offering of securities to be conducted by such company, which offering is
scheduled to occur on or about the Distribution Date.
"IRS" shall mean the Internal Revenue Service of the United States.
"Losses" shall mean any and all claims, demands, liabilities,
obligations, losses, costs, expenses, fines or damages (whether absolute,
accrued, conditional or otherwise, and whether or not resulting from third
party claims), including interest and penalties with respect thereto and
out-of-pocket expenses and reasonable attorneys' and accountants' fees and
expenses incurred in the investigation or defense of any of the same or in
asserting, preserving or enforcing any rights related thereto.
"Market Capitalization" shall mean, for any entity, the market
capitalization of such entity determined on the basis of the average closing
price for the common stock of such entity for the five-day period ending on
the tenth day after the Distribution Date.
"Navigant" shall have the meaning assigned to such term in the
preamble to this Agreement.
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"Navigant Subsidiary" shall mean those entities that immediately
after the completion of the Distributions will be Subsidiaries of Navigant.
"Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization,
government or department or agency of a government.
"Prime Rate" shall mean the 'prime rate' charged by Citibank, N.A.,
New York, New York, as such rate shall be changed from time to time,
compounded daily on the basis of a year of 365/366 days and actual days
elapsed.
"Prior Period Consolidated Return" shall mean any U.S. federal
consolidated income Tax return of USOP filed, or to be filed, for taxable
periods commencing prior to April 27, 1997.
"Retained Subsidiaries" shall mean all of the Subsidiaries of USOP
other than the Spin-Off Companies and the Spin-Off Company Subsidiaries.
"Restricted Transaction" shall mean for any Spin-Off Company (i) any
issuance of capital stock (including, without limitation, in connection with
any public offering or any acquisition by such Spin-Off Company, or in
connection with any merger or consolidation of another Person into such
Spin-Off Company or any Subsidiary of such Spin-Off Company, and including
any delivery of capital stock from the treasury of such Spin-Off Company),
other than an IPO or in connection with the exercise of any employee stock
option granted on or prior to the Distribution Date; (ii) any issuance of
securities convertible into, or exercisable or exchangeable for, capital
stock of such Spin-Off Company; or (iii) any merger or consolidation or other
business combination of such Spin-Off Company into another Person or any sale
or transfer of all or substantially all of such Spin-Off Company's assets to
another Person.
"School Specialty" shall have the meaning assigned to such term in
the preamble to this Agreement.
"School Specialty Contribution" shall have the meaning assigned to
such term in the recitals to this Agreement.
"School Specialty Distribution" shall have the meaning assigned to
such term in the recitals to this Agreement.
"School Specialty Group" shall mean School Specialty and each School
Specialty Subsidiary.
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"School Specialty Subsidiary" shall mean those entities that
immediately after the completion of the Distributions will be Subsidiaries of
School Specialty.
"Separate Consolidated Federal Income Tax Liability" shall mean, for
any Group and any taxable year or portion thereof during which it is included
in the Consolidated Returns or any Prior Period Consolidated Return, the U.S.
federal income Tax liability which such Group would have incurred if such
Group, on a stand-alone basis, had been an affiliated group eligible to file
a consolidated return for such taxable year or any portion thereof and had
filed such a return for such period, computed without regard to AMT.
"Spin-Off Companies" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Spin-Off Company Groups" shall mean the Workflow Group, the School
Specialty Group, the Technology Group and the Travel Group.
"Spin-Off Company Subsidiaries" shall mean the Workflow
Subsidiaries, the School Specialty Subsidiaries, the Aztec Subsidiaries and
the Navigant Subsidiaries.
"Subsidiary" shall mean any corporation, partnership, limited
liability company, joint venture or other entity (i) in which another Person
owns, directly or indirectly, ownership interests sufficient to elect a
majority of the Board of Directors (or Persons performing similar functions)
(irrespective of whether at the time any other class or classes of ownership
interests of such corporation, partnership, joint venture or other entity
shall or might have such voting power upon the occurrence of any contingency)
or (ii) of which another Person is a general partner or an entity performing
similar functions (e.g., a trustee or managing member).
"Tax" or "Taxes" shall mean all forms of taxation, whenever created
or imposed, and whether of the United States or elsewhere, and whether
imposed by a local, municipal, governmental, state, foreign, federal or other
body, and without limiting the generality of the foregoing, shall include
income, sales, use, ad valorem, gross receipts, license, value added,
franchise, transfer, recording, withholding, payroll, wage withholding,
employment, excise, occupation, unemployment insurance, social security,
business license, business organization stamp, environmental, premium and
property taxes, together with any related interest, penalties and additions
to any such tax, or additional amounts imposed by any Taxing Authority.
"Tax Administrator" shall mean Don Platt, the Chief Financial
Officer of USOP, or such other person as USOP shall appoint with the consent
of each of the Spin-Off Companies, which consent shall not be unreasonably
withheld or delayed.
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"Taxing Authority" shall mean any governmental or quasi-governmental
body, domestic or foreign, exercising any Taxing authority or Tax regulatory
authority.
"Tax Credits" shall include all credits against Tax pursuant to
Subtitle A, Chapter 1, Subchapter A, Part IV of the Code.
"Tax Item" shall mean any net operating loss, net capital loss,
deduction or credit (including, but not limited to, any FTC).
"Technology Contribution" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Technology Distribution" shall have the meaning assigned to such
term in the recitals to this Agreement.
"Technology Group" shall mean Aztec and each Aztec Subsidiary.
"Travel Contribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Travel Distribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Travel Group" shall mean Navigant and each Navigant Subsidiary.
"USOP" shall have the meaning assigned to such term in the preamble
to this Agreement.
"USOP Group" shall mean USOP and each Retained Subsidiary.
"USOP Stock Plan" shall mean any of the 1994 Amended and Restated
Long-Term Incentive Plan, the 1996 Non-Employee Directors' Stock Plan, the
1997A Stock Option Plan for Employees of Mail Boxes Etc., the 1997B Stock
Option Plan for Employees of Mail Boxes Etc. and the 1997 Stock Option Plan
for former Non-Employee Directors of Mail Boxes Etc. (and any underlying
original or predecessor plans).
"Workflow Contribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
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"Workflow Distribution" shall have the meaning assigned to such term
in the recitals to this Agreement.
"Workflow Group" shall mean Workflow Management and each Workflow
Subsidiary.
"Workflow Management" shall have the meaning assigned to such term
in the preamble to this Agreement.
"Workflow Subsidiary" shall mean those entities that immediately
after the completion of the Distributions will be Subsidiaries of Workflow
Management.
SECTION 2
Tax Returns to be Filed
(a) Consolidated Returns and Prior Period Consolidated Returns.
(i) Each of the Companies will join, and will cause each of
their respective Subsidiaries to join, in the Consolidated Returns to the
extent each is eligible to join in such return under the provisions of the
Code and the regulations thereunder. The Tax Administrator will cause the
Consolidated Returns to be timely prepared and filed, and will timely prepare
and file any consents and requests for extension of time within which to file
the Consolidated Returns or any related information or similar returns. The
Tax Administrator shall make the Consolidated Returns available to the Chief
Financial Officers of the Spin-Off Companies for their review prior to filing
and shall furnish them a copy of the return promptly after it is filed.
(ii) Each of the Spin-Off Companies agrees that it will cause
its respective Chief Financial Officer to furnish to the Tax Administrator on
a timely basis such information, schedules, analyses and any other items as
may be reasonably required to prepare the Consolidated Returns. Such
information, schedules, analyses and other items will be prepared in a manner
consistent with existing practice and in accordance with the work plan and
schedule to be agreed upon among the Tax Administrator and the Chief
Financial Officer of each of the Spin-Off Companies, acting reasonably, as
soon as practicable after the Distribution Date.
(iii) The Companies hereby agree to execute and deliver all
documentation reasonably required (including powers of attorney, if
requested) to enable the Tax Administrator to timely file, and to take all
actions necessary or incidental to the filing of, the Consolidated Returns
(including, without limitation, the execution of Treasury Form 1122), or
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any amendment of the Consolidated Returns or any Prior Period Consolidated
Return. The Tax Administrator shall decide in his sole discretion whether to
file an amended return, and no consent of any Company shall be required for
the filing of any such amended return.
(iv) Taxes with respect to the Consolidated Returns or any
Prior Period Consolidated Return shall be paid or caused to be paid by USOP,
which shall act as agent of the Spin-Off Companies and their includable
Subsidiaries in all Tax matters having to do with the Consolidated Returns or
any Prior Period Consolidated Return.
(b) Other Controlled Returns. The Tax Administrator shall cause
any other Controlled Returns and any amendment of any such Controlled Returns
to be timely prepared, filed and paid, utilizing procedures substantially
similar to those provided in Section 2(a) of this Agreement with respect to
the Consolidated Returns and Prior Period Consolidated Returns.
(c) Other Tax Returns. The Companies shall, and shall cause their
respective Subsidiaries to, timely prepare and file Tax returns for any
taxable period beginning prior to the Distribution Date (other than
Controlled Returns) in those jurisdictions in which they are required to do
so in a manner consistent with past practice. Taxes shown as payable on any
Tax return filed by one of the Companies pursuant to this Section 2(c) shall
be paid or caused to be paid by the Company responsible under this Section
2(c) for filing such return or causing such return to be filed. The Tax
Administrator shall have the right to approve any Tax returns filed pursuant
to this Section 2(c) prior to such filing if USOP could be liable for Taxes
due with respect to any such Tax returns under principles analogous to
Treasury regulation section 1.1502-6.
SECTION 3
Consolidated Returns Computations of Tax and Payments
(a) Computations of Tax and Payments for the Consolidated Return
year ending on April 25, 1998:
(i) On or before July 14, 1998, an interim Tax settlement
payment shall be made to or by USOP by or to each of the Spin-Off Companies,
as the case may be, equal to the difference between their respective Group's
Separate Consolidated Federal Income Tax Liability (as reasonably determined
by the Tax Administrator) and the net amounts previously paid with respect to
estimated Taxes by such Group for the Consolidated Return year ending on
April 25, 1998.
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(ii) Based on computations to be prepared by the affected
Spin-Off Company and approved by the Tax Administrator, an adjusting payment
equal to the difference between its Group's Allocable Federal Income Tax
Liability and the net amounts previously paid with respect to estimated Taxes
by such Group for the Consolidated Return year ending on April 25, 1998,
including payments pursuant to Sections 3(a)(i) of this Agreement, shall be
made to or by USOP by or to such Spin-Off Company, as the case may be, on or
before February 15, 1999 based on the Consolidated Return for the year ending
April 25, 1998 as filed.
(b) Computations of Tax and Payments for the Consolidated Return
year ending on April 24, 1999:
(i) On or before April 14, 1999, each of the Spin-Off
Companies agrees to make payments to USOP equal to the excess, if any, of its
Group's estimated Separate Consolidated Federal Income Tax Liability for the
Consolidated Return year ending on April 24, 1999 (as reasonably determined
by the Tax Administrator) over such Group's prior payments, including any
payments with respect to estimated Taxes for such Consolidated Return year,
and USOP agrees to make payments to each of the Spin-Off Companies equal to
the excess, if any, of their respective Group's prior payments with respect
to estimated Taxes for the Consolidated Return year ending on April 24, 1999
over such Group's estimated Separate Consolidated Federal Income Tax
Liability (as reasonably determined by the Tax Administrator) for the
Consolidated Return year ending on April 24, 1999.
(ii) On or before July 14, 1999, an interim Tax settlement
payment shall be made to or by USOP by or to each of the Spin-Off Companies,
as the case may be, equal to the difference between their respective Group's
Separate Consolidated Federal Income Tax Liability (as reasonably determined
by the Tax Administrator) and the net amounts previously paid with respect to
estimated Taxes by such Group for the Consolidated Return year ending on
April 24, 1999.
(iii) Based on computations to be prepared by the affected
Spin-Off Company and approved by the Tax Administrator, an adjusting payment
equal to the difference between its Group's Allocable Federal Income Tax
Liability and the net amounts previously paid by such Group with respect to
estimated Taxes for the Consolidated Return year ending on April 24, 1999,
including payments pursuant to Sections 3(b)(i) and 3(b)(ii) of this
Agreement, shall be made to or by USOP by or to such Spin-Off Company, as the
case may be, on or before February 15, 2000 based on the Consolidated Return
for the year ending April 24, 1999 as filed. Each of the Spin-Off Companies
shall increase or decrease, as the case may be, its Group's liability for
such adjusting payment by the amount of any AMT credit carryforward allocated
to its Group under the consolidated return regulations which exceeds or is
less than, as the case may be, the AMT calculated on a separate consolidated
basis.
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(c) Computations of Tax and Payments for Controlled Returns Other
than Consolidated Returns. Tax Payments shall be made to or by USOP by or to
each of the Spin-Off Companies, as the case may be, utilizing procedures
substantially similar to, and determining the amount payable by or to each
Group using, to the extent possible, methods substantially similar to, those
provided in Sections 3(a) and 3(b) of this Agreement with respect to any
Controlled Return other than a Consolidated Return for any period beginning
prior to the Distribution Date and ending on or after April 25, 1998.
(d) Intercompany Transactions. Each of the Spin-Off Companies
shall be liable for and shall indemnify, defend and hold USOP harmless from
and against any Losses with respect to Taxes attributable to any
"intercompany transaction" to the extent such Loss is attributable to any
"intercompany item" that such Spin-Off Company or any of its Subsidiaries is
required to take into account immediately prior to the Distributions pursuant
to Treasury Regulations section 1.1502-13.
SECTION 4
Special Rules
(a) If the Tax liability (including any interest relating thereto)
for either Consolidated Return exceeds or is less than the total of the five
Groups' Allocable Federal Income Tax Liability (including any interest
relating thereto), a payment shall be made to or by USOP by or to each of the
Spin-Off Companies equal to each of the Spin-Off Companies pro rata portion
of such excess or shortfall based on their respective Group's relative
Allocable Federal Income Tax Liability (including any interest relating
thereto) for such Consolidated Return; provided, that AMT in an amount equal
to any AMT credit carryforward from the Consolidated Returns allocated to a
Group shall be charged to and paid by such Group.
(b) A payment shall be made to or by USOP by or to each of the
Spin-Off Companies utilizing procedures substantially similar to those
provided in Sections 4(a) of this Agreement with respect to any Controlled
Return other than a Consolidated Return for any period beginning prior to the
Distribution Date and ending on or after April 25, 1998.
(c) Each of the Companies agrees that, unless it obtains consent
of the Tax Administrator, all members of its Group will waive the carryback
of any net operating loss from a Tax period beginning on or after the
Distribution Date to the Consolidated Returns or Prior Period Consolidated
Return.
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SECTION 5
Deductions Related to Exercise of Options
Notwithstanding anything to the contrary in Section 3 of this
Agreement, any Tax saving or other benefit attributable to any compensation
deduction arising from or in connection with the exercise by any employee of
any Company, or of any such Company's Subsidiaries (determined immediately
after the Distributions), of any option granted under any of the USOP Stock
Plans shall be apportioned to the entity whose shares were issued upon the
exercise of such option, provided that any compensation deduction arising
from or in connection with any such exercise on or prior to the Closing Date
by any employee of any Company or of any such Company's Subsidiaries
(determined immediately after the Closing Date) shall be apportioned to such
Company.
SECTION 6
Dispute Resolution
In the event of a disagreement between the Tax Administrator and any
or all of the Spin-Off Companies, all computations or recomputations of
federal or state and local income and franchise Tax liability, and all
computations or recomputations of any amount or any payment (including, but
not limited to, computations of the amount of the Tax liability, any loss or
credit or deduction, federal statutory Tax rate change for a year,
utilization of carryback items, interest, penalties, and adjustments) and all
determinations of the amount of payments or repayments, or determinations of
any other nature necessary to carry out the terms of this Agreement will be
reviewed by the national office of Ernst & Young, LLP (unless the disputing
parties unanimously agree on another accounting firm of national reputation),
with the costs of such review being shared equally by such disputing parties.
If any disagreement remains after any such review, including any
disagreement as to the construction, applicability or binding nature of this
Agreement, that disagreement shall be resolved by an arbitrator with the cost
of such arbitration being shared equally by such disputing parties; provided
that such arbitrator shall be a retired or former judge of the United States
Tax Court or such other qualified person as the relevant parties may agree to
designate; provided further, that, in the event that the relevant parties
agree to designate a qualified person (other than a retired or former judge
of the United States Tax Court), such other qualified person shall have had
substantial experience with regard to settling complex Tax disputes. The
decision of the arbitrator shall be binding on the parties.
If the procedures for resolving a dispute, controversy or claim
between the Companies or any of their respective Subsidiaries arising out of
or relating to this Agreement are not controlled by this Agreement, such
dispute, controversy or claim shall be resolved (and costs
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shall be apportioned) pursuant to the procedures set forth in Article IX of
the Distribution Agreement.
SECTION 7
Survival of Terms
The provisions of this Agreement shall survive the Distribution Date
and remain in full force until all periods of limitations, including any
extension or waiver periods, as well as the ten-year statute of limitations
with respect to FTC redeterminations, for the Controlled Return taxable
periods, have expired and no further carrybacks to such periods are possible
and for 30 days thereafter; provided that the provisions of this Agreement
shall remain in full force and effect with respect to any pending claim under
this Agreement until the final resolution of such claim.
SECTION 8
Parties to Cooperate
Each of the Companies shall, and shall cause their respective
Subsidiaries to, cooperate fully and to the extent reasonably requested by
any other Company in connection with the preparation and filing of any return
or the conduct of any audit, dispute, proceeding, suit or action concerning
any issues or any other matter contemplated hereunder. Such cooperation shall
include, without limitation, (i) the retention and provision on demand of
books, records, documentation or other information relating to any Tax matter
until the later of (x) the expiration of the applicable statute of limitation
(giving effect to any extension, waiver, or mitigation thereof) and (y) in
the event any claim has been made under this Agreement for which such
information is relevant, until a Final Determination with respect to such
claim, (ii) the provision of additional information with respect to, and
explanations of, Tax practices (including elections, accounting methods,
conventions and principles of taxation) and the provision of material
described in clause (i) of this Section 8; (iii) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax return by any member of one of the Groups, or in connection
with any audit, proceeding, suit or action addressed in the preceding
sentence; and (iv) the use by each of the Companies of its reasonable efforts
to obtain any documentation from a governmental authority or a third party
that may be necessary or helpful in connection with the foregoing. Each of
the Companies shall make its employees and facilities available on a mutually
convenient basis to facilitate such cooperation and shall retain as permanent
records all documentation necessary to enable it to determine any obligation
under this Agreement. The records described above will be made available to
representatives of any of the Companies within a reasonable time upon request
and may be photocopied on an as needed basis. The requesting Company shall
pay the reasonable out of pocket costs incurred by any
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Company, or Subsidiary thereof, in cooperating with the requesting Company
pursuant to this Section 8.
SECTION 9
Notices
Any notice, request, instruction or other communication to be given
hereunder by any party to another shall be in writing and shall be deemed to
have been duly given (i) on the date of delivery if delivered personally, or
by telefacsimile, upon confirmation of receipt, (ii) on the first business
day following the date of dispatch if delivered by Federal Express or other
nationally reputable next-day courier service with proof of delivery, or
(iii) on the fifth business day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid. All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive
such notice.
(a) If to Workflow Management:
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Attention: Thomas B. D'Agostino
Telefacsimile: (561) 659-7793
(b) If to School Specialty:
School Specialty, Inc.
1000 North Bluemound Drive
Appleton, Wisconsin 54914
Attention: Daniel P. Spalding
Telefacsimile: (920) 734-6276
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(c) If to Aztec:
Aztec Technology Partners, Inc.
52 Roland Street
Boston, Massachusetts 02129
Attention: James E. Claypoole
Telefacsimile: (617) 623-58888
(d) If to Navigant:
Navigant International, Inc.
84 Inverness Circle East
Englewood, Colorado 80112-5314
Attention: Edward S. Adams
Telefacsimile: (303) 706-0770
(e) If to USOP:
U.S. Office Products Company
1025 Thomas Jefferson Street, N.W., Suite 600 East
Washington, D.C. 20007-5490
Attention: Mark D. Director, Esq.
Kathleen Delaney, Esq.
Telefacsimile: (202) 339-6733
with copies to:
Clayton, Dubilier & Rice, Inc.
375 Park Avenue
Eighteenth Floor
New York, NY 10152
Attention: Donald J. Gogel
Telefacsimile: (212) 407-5200
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SECTION 10
Indemnification
(a) Pre-Distribution & Distribution Taxes.
(i) USOP Indemnification. USOP shall be liable for and
shall indemnify, defend and hold the Spin-Off Companies harmless from and
against any Losses with respect to Taxes that result from, or arise in
connection with, an Adverse Tax Act of USOP or any of the Retained
Subsidiaries.
(ii) Spin-Off Companies Indemnification. The Spin-Off
Companies shall be jointly and severally liable for and shall jointly and
severally indemnify, defend and hold USOP harmless from and against any
Losses with respect to Taxes that result from, or arise in connection with,
an Adverse Tax Act of any of the Spin-Off Companies or any of their
respective Subsidiaries.
(iii) Multiple Adverse Tax Acts. If any Losses with respect
to Taxes result from, or arise in connection with, (a) an Adverse Tax Act of
USOP or any of the Retained Subsidiaries and (b) an Adverse Tax Act of any or
all of the Spin-Off Companies or any of their respective Subsidiaries (each
Spin-Off Company that is responsible or whose Subsidiary is responsible for
an Adverse Tax Act a "Distributing Tax Payor"), then the Spin-Off Companies
shall be jointly and severally liable for and shall jointly and severally
indemnify, defend and hold USOP harmless from and against a percentage of
such Losses with respect to Taxes equal to the percentage determined by
dividing (x) the aggregate Market Capitalizations of the Distributing Tax
Payors by (y) the aggregate Market Capitalizations of the Distributing Tax
Payors and USOP.
(iv) No Adverse Tax Acts. If USOP incurs any Losses with
respect to Taxes resulting from the Contributions or Distributions, as a
result of the failure of the Contributions or Distributions to qualify under
Section 355 or 368 of the Code or otherwise, including, without limitation,
by reason of any stock or securities of any of the Spin-Off Companies failing
to qualify as "qualified property" within the meaning of Section 355(c)(2) of
the Code, except to the extent such Losses result from an Adverse Tax Act by
any of the Companies or any of their respective Subsidiaries, then each of
the Spin-Off Companies shall be liable for and shall indemnify, defend and
hold USOP harmless from the portion of such Losses that bears the same ratio
to the aggregate amount of such Losses as the Market Capitalization of such
Spin-Off Company bears to the aggregate Market Capitalization of all of the
Companies.
(b) Treasury Regulations Sections 1.1502-6 and 1.1502-77. USOP
shall be liable for and shall indemnify, defend and hold each of the Spin-Off
Companies harmless from
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and against any federal or state income or franchise Taxes for the
Consolidated Return or any Prior Period Consolidated Return for which any of
the Spin-Off Company Groups may be liable solely as a result of the operation
of Treasury Regulation Sections 1.1502-6 and 1.1502-77 or any state
counterpart statute or regulation.
SECTION 11
Tax Deficiencies and Claims
(a) Except as otherwise provided in Section 11(b), the Tax
Administrator shall control all audits, examinations and proceedings with
respect to Taxes with respect to any Controlled Returns. The Tax
Administrator shall have overall responsibility for obtaining and
coordinating all responses in connection with any such proceedings with
respect to any Controlled Returns. To the extent that any such audit affects
one of the Groups, such Group shall prepare and submit such responses in a
manner consistent with prior practice; provided, however that the Tax
Administrator shall have the right to approve all such responses prior to
their submission. Adjustments affecting solely the taxable income, gain,
loss or deductions of, or Tax Credits generated by, any Group may be agreed
upon or settled only upon approval of that Group, which approval shall not be
unreasonably withheld or delayed.
(b) Spin-Off Company Claims. Any proposed or actual income Tax
deficiencies or refund claims with respect to Controlled Returns which arise
from the business activities of one of the Spin-Off Company Groups, and do
not otherwise affect any Controlled Return or the Tax treatment of the
Contributions or Distributions, may be defended or prosecuted by such Group
at its own cost and expense and with counsel and accountants of its own
selection; provided that in an action for an income Tax deficiency such Group
shall have theretofore acknowledged in writing its liability for such Taxes,
if any. The Tax Administrator may participate in any such prosecution or
defense at USOP's cost and expense (in either event such cost or expense is
not to include the amount of any payment of any Tax claim, interest or
penalties, or of any compromise settlement or other disposition thereof).
Notwithstanding the foregoing, none of the Spin-Off Company Groups shall have
a right to an extension of the statute of limitations beyond the time
reasonably necessary to complete review at the Appeals Division of the IRS or
to any waiver of any other procedural safeguard without the prior written
consent of the Tax Administrator, which consent shall not be unreasonably
withheld. The limitation expressed in the preceding sentence applies, but is
not limited to, the filing of a petition with the United States Tax Court. If
one of the Spin-Off Groups defends or prosecutes an action, it shall keep the
Tax Administrator informed of matters relating to such defense or prosecution.
18
<PAGE>
(c) Cost of Advisors. In connection with the defense of any audit
of any Controlled Return, except with regard to claims described in Section
11(b) of this Agreement, the Tax Administrator may retain advisors and charge
the reasonable cost of their services to the appropriate Group or Groups.
SECTION 12
Payment of Deficiencies and Refunds
(a) The Allocable Federal Income Tax Liability and any other Tax
liability of the Spin-Off Company Groups with respect to any Controlled
Returns shall be adjusted in computations to be prepared by the relevant
Spin-Off Company Group and approved by the Tax Administrator with respect to
changes in the taxable income, loss, deduction or Tax credits of the relevant
Spin-Off Company Group:
(i) in each instance when payments are to be made to, or
refunds are received from, the relevant Taxing authority;
(ii) when no payment is to be made or refund is to be
received due to offsetting adjustments, upon filing of an amended return,
completion of an audit and an appellate review by the relevant Taxing
authority; and
(iii) to reflect the results of any Final Determination.
Each of the Spin-Off Companies agree to pay to USOP additional
amounts (plus penalties and additions to Tax, if any) equal to any increases
in the Allocable Federal Income Tax Liability (or any other Tax liability
with respect to a Controlled Return) of such Spin-Off Company's Group
resulting from any such changes, and USOP agrees to pay to each of the
Spin-Off Companies amounts equal to any decreases in the Allocable Federal
Income Tax Liability (or any other Tax liability with respect to a Controlled
Return) of each such Spin-Off Company's Group resulting from any such
changes, in each case together with any interest relating thereto. For
purposes of this Agreement, unless specifically provided otherwise, interest
shall be computed at the federal statutory rate used, pursuant to Section
6621(a) of the Code, by the IRS in computing the interest payable to or by it
on the net balance due to or from the IRS. Any interest under Section 6621(c)
of the Code shall be charged to the Group whose separate deficiency gave rise
to such interest. If the separate deficiencies of more than one Group gave
rise to such interest, then such interest shall be allocated between or among
such Groups. Penalties levied in respect of any Controlled Return shall be
charged to the Group whose separate computations gave rise to such penalty.
19
<PAGE>
(b) Amounts payable to or from USOP from or to any of the Spin-Off
Companies under Section 12(a) of this Agreement shall be paid upon written
request therefor approved by the Tax Administrator, together with interest
thereon from the original due date or such other date as may be appropriate
under the circumstances. Any amounts due to or from USOP from or to any of
the Spin-Off Companies under Section 12(a) of this Agreement as a result of a
payment to a Taxing authority or the receipt of a refund shall be paid within
five working days after such payment or receipt, together with appropriate
interest thereon. If no payment is to be made or refund is to be received
due to offsetting items among the various Groups, then Tax and interest
(computed at the IRS overpayment rates) shall be paid within 30 calendar days
after the completion of each of the audit and appellate review of the Tax
period in question and a Final Determination. After expiration of the five
day period (or, if applicable, 30 day period) any amounts unpaid shall bear
interest computed from the date of payment or receipt (or, if applicable,
completion or Final Determination) at the Prime Rate.
(c) No payment relating to a change in Allocable Federal Income
Tax Liability (or any other Tax liability with respect to a Controlled
Return) shall be made by or to any Group with respect to the IRS audit of any
Controlled Return until the audit has been completed with respect to all
Groups, unless such advance payment has been approved by the Tax
Administrator.
SECTION 13
Certain Post-Distribution Actions
(a) USOP.
(i) USOP shall comply with and otherwise not take any action
inconsistent with any representation or statement made, or to be made, by or
on behalf of any member of the USOP Group in connection with this Agreement
or to USOP's outside Tax counsel in connection with such firm's rendering an
opinion to the Companies as to certain Tax aspects of the Contributions and
Distributions.
(ii) Until two years after the Distribution Date, USOP will
maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Code.
(b) Workflow Management.
(i) Workflow Management shall comply with and otherwise not
take action inconsistent with each representation and statement made, or to
be made, by or on behalf
20
<PAGE>
of any member of the Workflow Group in connection with this Agreement or to
USOP's outside Tax counsel in connection with such firm's rendering an
opinion to the Companies as to certain Tax aspects of the Contributions and
Distributions.
(ii) Until two years after the Distribution Date, Workflow
Management will maintain its status as a company engaged in the active
conduct of a trade or business, as defined in Section 355(b) of the Code.
(c) School Specialty.
(i) School Specialty shall comply with and otherwise not
take action inconsistent with each representation and statement made, or to
be made, by or on behalf of any member of the School Specialty Group in
connection with this Agreement or to USOP's outside Tax counsel in connection
with such firm's rendering an opinion to the Companies as to certain Tax
aspects of the Contributions and Distributions.
(ii) Until two years after the Distribution Date, School
Specialty will maintain its status as a company engaged in the active conduct
of a trade or business, as defined in Section 355(b) of the Code.
(d) Aztec.
(i) Aztec shall comply with and otherwise not take action
inconsistent with each representation and statement made, or to be made, by
or on behalf of any member of the Technology Group in connection with this
Agreement or to USOP's outside Tax counsel in connection with such firm's
rendering an opinion to the Companies as to certain Tax aspects of the
Contributions and Distributions.
(ii) Until two years after the Distribution Date, Aztec will
maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Code.
(e) Navigant.
(i) Navigant shall comply with and otherwise not take action
inconsistent with each representation and statement made, or to be made, by
or on behalf of any member of the Travel Group in connection with this
Agreement or to USOP's outside Tax counsel in connection with such firm's
rendering an opinion to the Companies as to certain Tax aspects of the
Contributions and Distributions.
21
<PAGE>
(ii) Until two years after the Distribution Date, Navigant
will maintain its status as a company engaged in the active conduct of a
trade or business, as defined in Section 355(b) of the Code.
(f) During the two-year period following the Distribution Date,
none of the Spin-Off Companies shall effect, or agree to effect, any
Restricted Transaction unless and until the following conditions have been
satisfied or waived, in writing, by USOP with respect to such Restricted
Transaction:
(i) Such Company shall have given USOP at least 10 business
days' written notice prior to effecting such Restricted Transaction, which
notice shall describe the Restricted Transaction in detail reasonably
sufficient to permit analysis of the potential effect of the Restricted
Transaction on the U.S. federal income tax treatment of the Contributions and
the Distributions; provided, that such Company will not be required to
disclose the name of any other party participating in the Restricted
Transaction unless such disclosure is necessary to permit such analysis; and
provided further, that USOP will keep confidential all information relating
to the Restricted Transaction;
(ii) Such Company shall have afforded USOP and its
representatives 10 business days (which may overlap with the notice period in
Section 13(f)(i) of this Agreement) to discuss with the Spin-Off Company and
its representatives the terms of such Restricted Transaction, subject to the
provisos in Section 13(f)(i); and
(iii) At USOP's request, such Company shall have provided to
USOP, an opinion of outside counsel, reasonably satisfactory to USOP, in form
and substance reasonably satisfactory to USOP, to the effect that such
transaction will not adversely affect the U.S. federal income tax treatment
of the Contributions and/or the Distributions as transactions described in
Sections 355 and 368 of the Code.
SECTION 14
Entire Agreement and Termination of Existing Tax Allocation Agreements
This Agreement contains the entire agreement among the Companies
with respect to the subject matter hereof. Any and all existing tax
allocation agreements, written or unwritten, exclusively between any member
of the USOP Group and any member of any of the Spin-Off Company Groups other
than this Agreement shall be terminated immediately prior to the Distribution
Date. Nothing in this Section 14 shall affect any provision of the
Distribution Agreement or of this Agreement relating to Taxes.
22
<PAGE>
SECTION 15
Choice of Law; Successors and Assigns
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of Delaware applicable to contracts made and
to be performed entirely within such state, without regard to the conflicts
of law principles of such state.
The provisions of this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Companies and their respective
successors and permitted assigns.
SECTION 16
Modifications
This Agreement may not be amended, supplemented or discharged except
by performance or by an instrument in writing signed by all of the Companies.
SECTION 17
Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, the Companies have duly executed this Agreement
as of the date first above written.
U.S. OFFICE PRODUCTS COMPANY
By
Name:
Title:
Seal
Attest:
WORKFLOW MANAGEMENT, INC.
By
Name:
Title:
Seal
Attest:
SCHOOL SPECIALTY, INC.
By
Name:
Title:
Seal
Attest:
24
<PAGE>
AZTEC TECHNOLOGY PARTNERS, INC.
By
Name:
Title:
Seal
Attest:
NAVIGANT INTERNATIONAL, INC.
By
Name:
Title:
Seal
Attest:
<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").
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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.
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:
a person, entity, or group (other than the Company, any
Company subsidiary, any Company benefit plan, or any
underwriter temporarily holding securities for an
offering of such securities) acquires ownership of more
than 50% of the undiluted total voting power of the
Company's then-outstanding securities eligible to vote to
elect members of the Board ("Company Voting Securities");
consummation of a merger or consolidation of the Company
into any other entity -- unless the holders of the
Company Voting Securities outstanding immediately before
such consummation, together with any trustee or other
fiduciary holding securities under a Company benefit
plan, hold securities that represent immediately after
such merger or consolidation at least 50% of the
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Navigant International, Inc.
1998 Stock Incentive Plan
Page 5 of 15
<PAGE>
combined voting power of the then outstanding voting
securities of either the Company or the other surviving
entity or its parent; or
the stockholders of the Company approve (i) a plan of
complete liquidation or dissolution of the Company or
(ii) an agreement for the Company's sale or disposition
of all or substantially all the Company's assets, and
such liquidation, dissolution, sale, or disposition is
consummated.
Even if other tests are met, a Change of Control has not
occurred under any circumstance in which the Company
files for bankruptcy protection or is reorganized
following a bankruptcy filing.
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).
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
Page 6 of 15
<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
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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:
- -------------------------------------------------------------------------------
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,
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
Navigant International, Inc.
1998 Stock Incentive Plan
Page 15 of 15
<PAGE>
Exhibit 10.12
CREDIT AGREEMENT
Dated as of June __, 1998
among
NAVIGANT INTERNATIONAL, INC.
as Borrower,
Certain Subsidiaries and Affiliates,
as Guarantors,
THE LENDERS NAMED HEREIN
AND
NATIONSBANK, N.A.,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions.. . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Computation of Time Periods.. . . . . . . . . . . . . . . . . . 23
1.3 Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2 CREDIT FACILITIES. . . . . . . . . . . . . . . . . . . . . . . 24
2.1 Revolving Loans.. . . . . . . . . . . . . . . . . . . . . . . . 24
2.2 Letter of Credit Subfacility. . . . . . . . . . . . . . . . . . 25
2.3 Swingline Loan Subfacility. . . . . . . . . . . . . . . . . . . 30
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES . . . . . . . . 32
3.1 Default Rate. . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2 Extension and Conversion. . . . . . . . . . . . . . . . . . . . 32
3.3 Prepayments.. . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.4 Termination and Reduction of Commitments. . . . . . . . . . . . 34
3.5 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.6 Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . 35
i
<PAGE>
3.7 Inability To Determine Interest Rate. . . . . . . . . . . . . . 35
3.8 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.9 Requirements of Law.. . . . . . . . . . . . . . . . . . . . . . 36
3.10 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.11 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.12 Pro Rata Treatment.. . . . . . . . . . . . . . . . . . . . . . 40
3.13 Sharing of Payments. . . . . . . . . . . . . . . . . . . . . . 40
3.14 Payments, Computations, Etc. . . . . . . . . . . . . . . . . . 41
3.15 Evidence of Debt.. . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 4 GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.1 The Guarantee.. . . . . . . . . . . . . . . . . . . . . . . . . 43
4.2 Obligations Unconditional.. . . . . . . . . . . . . . . . . . . 44
4.3 Reinstatement.. . . . . . . . . . . . . . . . . . . . . . . . . 45
4.4 Certain Additional Waivers. . . . . . . . . . . . . . . . . . . 45
4.5 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.6 Rights of Contribution. . . . . . . . . . . . . . . . . . . . . 46
4.7 Continuing Guarantee. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ii
<PAGE>
5.1 Conditions to Closing.. . . . . . . . . . . . . . . . . . . . . 47
5.2 Conditions to All Extensions of Credit. . . . . . . . . . . . . 48
SECTION 6 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . 49
6.1 Financial Condition.. . . . . . . . . . . . . . . . . . . . . . 49
6.2 No Changes or Restricted Payments.. . . . . . . . . . . . . . . 50
6.3 Organization; Existence; Compliance with Law. . . . . . . . . . 50
6.4 Power; Authorization; Enforceable Obligations.. . . . . . . . . 50
6.5 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.6 No Material Litigation. . . . . . . . . . . . . . . . . . . . . 51
6.7 No Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.8 Ownership of Property; Liens. . . . . . . . . . . . . . . . . . 51
6.9 Intellectual Property.. . . . . . . . . . . . . . . . . . . . . 52
6.10 No Burdensome Restrictions.. . . . . . . . . . . . . . . . . . 52
6.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.12 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.13 Governmental Regulations, Etc. . . . . . . . . . . . . . . . . 53
iii
<PAGE>
6.14 Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . . . . 54
6.15 Purpose of Extensions of Credit. . . . . . . . . . . . . . . . 54
6.16 Environmental Matters. . . . . . . . . . . . . . . . . . . . . 54
SECTION 7 AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 55
7.1 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 56
7.2 Certificates; Other Information.. . . . . . . . . . . . . . . . 57
7.3 Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
7.4 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . 59
7.5 Conduct of Business and Maintenance of Existence. . . . . . . . 59
7.6 Maintenance of Property; Insurance. . . . . . . . . . . . . . . 59
7.7 Inspection of Property; Books and Records; Discussions. . . . . 60
7.8 Environmental Laws. . . . . . . . . . . . . . . . . . . . . . . 60
7.9 Financial Covenants.. . . . . . . . . . . . . . . . . . . . . . 61
7.10 Administrative Fees. . . . . . . . . . . . . . . . . . . . . . 61
7.11 Additional Guaranties and Stock Pledges. . . . . . . . . . . . 61
7.12 Ownership of Subsidiaries. . . . . . . . . . . . . . . . . . . 62
iv
<PAGE>
7.13 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 8 NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 63
8.1 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 63
8.2 Liens.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
8.3 Nature of Business. . . . . . . . . . . . . . . . . . . . . . . 64
8.4 Consolidation, Merger, Sale or Purchase of Assets,
Capital Expenditures, etc.. . . . . . . . . . . . . . . . . 64
8.5 Advances, Investments and Loans.. . . . . . . . . . . . . . . . 65
8.6 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 66
8.7 Ownership of Equity Interests.. . . . . . . . . . . . . . . . . 66
8.8 Fiscal Year.. . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.9 Prepayments of Indebtedness, etc. . . . . . . . . . . . . . . . 66
8.10 Restricted Payments. . . . . . . . . . . . . . . . . . . . . . 66
8.11 Sale Leasebacks. . . . . . . . . . . . . . . . . . . . . . . . 67
8.12 No Further Negative Pledges. . . . . . . . . . . . . . . . . . 67
SECTION 9 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . 67
9.1 Events of Default.. . . . . . . . . . . . . . . . . . . . . . . 67
v
<PAGE>
9.2 Acceleration; Remedies. . . . . . . . . . . . . . . . . . . . . 69
SECTION 10 AGENCY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 70
10.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . 70
10.2 Delegation of Duties.. . . . . . . . . . . . . . . . . . . . . 71
10.3 Exculpatory Provisions.. . . . . . . . . . . . . . . . . . . . 71
10.4 Reliance on Communications.. . . . . . . . . . . . . . . . . . 71
10.5 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . 72
10.6 Non-Reliance on Administrative Agent and Other Lenders.. . . . 72
10.7 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 73
10.8 Administrative Agent in its Individual Capacity. . . . . . . . 73
10.9 Successor Administrative Agent.. . . . . . . . . . . . . . . . 73
SECTION 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 74
11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
11.2 Right of Set-Off.. . . . . . . . . . . . . . . . . . . . . . . 75
11.3 Benefit of Agreement.. . . . . . . . . . . . . . . . . . . . . 75
11.4 No Waiver; Remedies Cumulative.. . . . . . . . . . . . . . . . 78
11.5 Payment of Expenses, etc.. . . . . . . . . . . . . . . . . . . 78
vi
<PAGE>
11.6 Amendments, Waivers and Consents.. . . . . . . . . . . . . . . 79
11.7 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . 80
11.8 Headings.. . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.9 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . 80
11.10 Governing Law; Submission to Jurisdiction; Venue. . . . . . . 81
11.11 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 81
11.12 Entirety. . . . . . . . . . . . . . . . . . . . . . . . . . . 82
11.13 Binding Effect; Termination.. . . . . . . . . . . . . . . . . 82
11.14 Confidentiality.. . . . . . . . . . . . . . . . . . . . . . . 82
11.15 Source of Funds.. . . . . . . . . . . . . . . . . . . . . . . 83
11.16 Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . 83
vii
<PAGE>
SCHEDULES
Schedule 2.1(a) Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.1(e) Form of Note
Schedule 2.2(b)-1 Existing Letters of Credit
Schedule 2.2(b)-2 Form of Notice of Request for Letter of Credit
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 5.1(i)(v) Form of Officer's Certificate
Schedule 6.6 Description of Legal Proceedings
Schedule 6.8 Existing Liens
Schedule 6.14 Subsidiaries
Schedule 7.2(b) Form of Officer's Compliance Certificate
Schedule 7.11-1 Form of Joinder Agreement
Schedule 8.1 Indebtedness
Schedule 8.5 Existing Investments
Schedule 11.1 Lenders and Addresses
Schedule 11.3(b) Form of Assignment and Acceptance
viii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of June __, 1998 (the "Credit Agreement"),
is by and among NAVIGANT INTERNATIONAL, INC., a Delaware corporation (the
"Borrower"), and the subsidiaries and affiliates identified on the signature
pages hereto and such other subsidiaries and affiliates as may from time to
time become Guarantors hereunder in accordance with the provisions hereof
(the "Guarantors"), the lenders named herein and such other lenders as may
become a party hereto (the "Lenders"), and NATIONSBANK, N.A., as
Administrative Agent (in such capacity, the "Administrative Agent").
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a $75 million
credit facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
1.1 Definitions.
As used in this Credit Agreement, the following terms shall have
the meanings specified below unless the context otherwise requires:
"Additional Credit Party" means each Person that becomes a
Guarantor after the Closing Date by execution of a Joinder Agreement.
"Administrative Agent" shall have the meaning assigned to
such term in the heading hereof, together with any successors or assigns.
"Administrative Agent's Fee Letter" means that certain
letter agreement, dated as of April 28, 1998, between the Administrative
Agent and the Borrower, as amended, modified, supplemented or replaced
from time to time.
1
<PAGE>
"Administrative Agent's Fees" shall have the meaning
assigned to such term in Section 3.5(c).
"Affiliate" means, with respect to any Person, any other
Person (i) directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person or (ii) directly or
indirectly owning or holding five percent (5%) or more of the equity
interest in such Person. For purposes of this definition, "control" when
used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agency Services Address" means NationsBank, N.A.,
NC1-001-15-04, 101 North Tryon Street, Charlotte, North Carolina 28255,
Attn: Agency Services, or such other address as may be identified by
written notice from the Administrative Agent to the Borrower.
"Aggregate Revolving Committed Amount" means the aggregate
amount of Revolving Commitments in effect from time to time, being
initially SEVENTY-FIVE MILLION DOLLARS ($75,000,000).
"Applicable Percentage" means for any day, the rate per
annum set forth below opposite the applicable Consolidated Leverage Ratio
then in effect, it being understood that the Applicable Percentage for (i)
Base Rate Loans shall be the percentage set forth under the column "Base
Rate Margin", (ii) Eurodollar Loans shall be the percentage set forth
under the column "Eurodollar Margin and Letter of Credit Fee", (iii) the
Letter of Credit Fee shall be the percentage set forth under the column
"Eurodollar Margin and Letter of Credit Fee", and (iv) the Commitment Fee
shall be the percentage set forth under the column "Commitment Fee":
<TABLE>
<CAPTION>
Consolidated Eurodollar
Pricing Leverage Base Rate Margin and Commitment
Level Ratio Margin Letter of Credit Fee Fee
----- ----- ------ -------------------- ---
<S> <C> <C> <C> <C>
I Less than 1.5 0% 1.00% .25%
II Greater than 1.5 but Less than 2.0 .10% 1.35% .30%
III Greater than 2.0 but Less than 2.5 .50% 1.75% .375%
IV Greater than 2.5 .75% 2.00% .425%
</TABLE>
The Applicable Percentage shall be determined and adjusted quarterly on
the date (each a "Rate Determination Date") five (5) Business Days after
the date by which the annual and quarterly compliance certificates and
related financial statements and information are
2
<PAGE>
required in accordance with the provisions of Sections 7.1(a) and (b) and
Section 7.2(b), as applicable; provided that:
(i) the initial Applicable Percentages shall be
1.50% in the case of the Eurodollar Margin and Letter of Credit Fee,
0.25% in the case of the Base Rate Margin, and 0.375% in the case of
the Commitment Fee and shall remain in effect until the first Rate
Determination Date to occur after the date six months from the Closing
Date; and
(ii) in the event an annual or quarterly compliance
certificate and related financial statements and information are not
delivered timely to the Agency Services Address by the date required by
Sections 7.1(a) and (b) and Section 7.2(b), as applicable, the
Applicable Percentages shall be based on Pricing Level IV until such
time as an appropriate compliance certificate and related financial
statements and information are delivered, whereupon the applicable
Pricing Level shall be adjusted based on the information contained in
such compliance certificate and related financial statements and
information.
Each Applicable Percentage shall be effective from a Rate Determination
Date until the next such Rate Determination Date. The Administrative
Agent shall determine the appropriate Applicable Percentages in the
pricing matrix promptly upon receipt of the quarterly or annual compliance
certificate and related financial information and shall promptly notify
the Borrower and the Lenders of any change thereof. Such determinations
by the Administrative Agent shall be conclusive absent manifest error.
Adjustments in the Applicable Percentages shall be effective as to
existing Extensions of Credit as well as new Extensions of Credit made
thereafter.
"Approved Bank" shall have the meaning given such term in the
definition of "Cash Equivalents".
"Asset Disposition" means, other than a Securitization
Transaction, (i) the sale, lease or other disposition of any property or
asset by any member of the Consolidated Group, other than any such sale
permitted by Sections 8.4(b) and other than to the extent permitted by
Section 8.5, and (ii) receipt by any member of the Consolidated Group of
any cash insurance proceeds or condemnation award payable by reason of
theft, loss, physical destruction or damage, taking or similar event with
respect to any of their property or assets.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from time
to time.
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"Bankruptcy Event" means, with respect to any Person, the
occurrence of any of the following with respect to such Person: (i) a
court or governmental agency having jurisdiction in the premises shall
enter a decree or order for relief in respect of such Person in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
ordering the winding up or liquidation of its affairs; or (ii) there shall
be commenced against such Person an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
any case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of such Person or for any substantial part of its Property or
for the winding up or liquidation of its affairs, and such involuntary
case or other case, proceeding or other action shall remain undismissed,
undischarged or unbonded for a period of sixty (60) consecutive days; or
(iii) such Person shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under
any such law, or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of such Person or for any substantial part of its
Property or make any general assignment for the benefit of creditors; or
(iv) such Person shall be unable to, or shall admit in writing its
inability to, pay its debts generally as they become due.
"Base Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal
to the greater of (a) the Federal Funds Rate in effect on such day plus
1/2 of 1% or (b) the Prime Rate in effect on such day. If for any reason
the Administrative Agent shall have determined (which determination shall
be conclusive absent manifest error) that it is unable after due inquiry
to ascertain the Federal Funds Rate for any reason, including the
inability or failure of the Administrative Agent to obtain sufficient
quotations in accordance with the terms hereof, the Base Rate shall be
determined without regard to clause (a) of the first sentence of this
definition until the circumstances giving rise to such inability no longer
exist. Any change in the Base Rate due to a change in the Prime Rate or
the Federal Funds Rate shall be effective on the effective date of such
change in the Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
by reference to the Base Rate.
"Borrower" means Navigant International, Inc., a Delaware
corporation, as referenced in the opening paragraph, its successors and
permitted assigns.
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"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in Charlotte, North Carolina or New York,
New York are authorized or required by law to close, except that, when
used in connection with a Eurodollar Loan, such day shall also be a day on
which dealings between banks are carried on in U.S. dollar deposits in
London, England.
"Capital Expenditures" means, for any period, without
duplication, all expenditures (whether paid in cash or other
consideration) during such period that, in accordance with GAAP, are or
should be included in additions to property, plant and equipment or
similar items reflected in the consolidated statement of cash flows for
such period; provided, that Capital Expenditures shall not include, for
purposes hereof, (i) expenditures of proceeds of insurance settlements,
condemnation awards and other settlements in respect of lost, destroyed,
damaged or condemned assets, equipment or other property to the extent
such expenditures are made to replace or repair such lost, destroyed,
damaged or condemned assets, equipment or other property or other
otherwise to acquire assets or properties useful in the business of the
members of the Consolidated Group within 12 months of receipt of such
proceeds.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee which,
in accordance with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.
"Capital Lease Obligation" means the capital lease obligations relating
to a Capital Lease determined in accordance with GAAP.
"Cash Equivalents" means (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition, (b) U.S.
dollar denominated time deposits and certificates of deposit of (i) any
Lender, or (ii) any domestic commercial bank of recognized standing (y)
having capital and surplus in excess of $500,000,000 and (z) whose
short-term commercial paper rating from S&P is at least A-1 or the
equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Bank"), in each case with
maturities of not more than 270 days from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved
Bank (or by the parent company thereof) or any variable rate notes issued
by, or guaranteed by, any domestic corporation rated A-1 (or the
equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or
better by Moody's and maturing within six months of the date of
acquisition, (d) repurchase agreements entered into by a Person with a
bank or trust company (including any of the Lenders) or recognized
securities dealer having capital
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and surplus in excess of $500,000,000 for direct obligations issued by or
fully guaranteed by the United States of America in which such Person
shall have a perfected first priority security interest (subject to no
other Liens) and having, on the date of purchase thereof, a fair market
value of at least 100% of the amount of the repurchase obligations, (e)
obligations of any State of the United States or any political subdivision
thereof, the interest with respect to which is exempt from federal income
taxation under Section 103 of the Code, having a long term rating of at
least AA- or Aa-3 by S&P or Moody's, respectively, and maturing within
three years from the date of acquisition thereof, (f) Investments in
municipal auction preferred stock (i) rated AAA (or the equivalent
thereof) or better by S&P or Aaa (or the equivalent thereof) or better by
Moody's and (ii) with dividends that reset at least once every 365 days
and (g) Investments, classified in accordance with GAAP as current assets,
in money market investment programs registered under the Investment
Company Act of 1940, as amended, which are administered by reputable
financial institutions having capital of at least $100,000,000 and the
portfolios of which are limited to Investments of the character described
in the foregoing subdivisions (a) through (f).
"Change of Control" means the occurrence of any of the following
events: (i) any Person or two or more Persons acting in concert shall
have acquired beneficial ownership, directly or indirectly, of, or shall
have acquired by contract or otherwise, or shall have entered into a
contract or arrangement that, upon consummation, will result in its or
their acquisition of or control over, Voting Stock of the Borrower (or
other securities convertible into such Voting Stock) representing 35% or
more of the combined voting power of all Voting Stock of the Borrower, or
(ii) during any period of up to 24 consecutive months, commencing after
the Closing Date, individuals who at the beginning of such 24 month period
were directors of the Borrower (together with any new director whose
election by the Borrower's Board of Directors or whose nomination for
election by the Borrower's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors
at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the directors of the Borrower then in office. As used herein,
"beneficial ownership" shall have the meaning provided in Rule 13d-3 of
the Securities and Exchange Commission under the Securities Exchange Act
of 1934.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended, and
any successor statute thereto, as interpreted by the rules and regulations
issued thereunder, in each case as in effect from time to time.
References to sections of the Code shall be construed also to refer to any
successor sections.
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"Commitment" means the Revolving Commitment, the LOC Commitment
and the Swingline Commitment.
"Commitment Fee" shall have the meaning given such term in Section
3.5(a).
"Commitment Percentage" means the Revolving Commitment Percentage.
"Commitment Period" means the period from and including the
Closing Date to but not including the earlier of (i) the Termination Date,
or (ii) the date on which the Commitments terminate in accordance with the
provisions of this Credit Agreement.
"Consolidated EBITDA" means for any period for the Consolidated
Group, the sum of Consolidated Net Income plus Consolidated Interest
Expense plus all provisions for any Federal, state or other domestic and
foreign income taxes plus depreciation and amortization plus one-time
non-recurring restructuring charges deducted in calculating Consolidated
Net Income, in each case on a consolidated basis determined in accordance
with GAAP, but including pro forma historical EBITDA from acquisitions
adjusted for salaries, owners' perks and other items reasonably eliminated
pursuant to contractual provisions and excluding for purposes hereof
extraordinary gains and losses and related tax effects thereon. Except as
otherwise expressly provided, the applicable period shall be for the four
consecutive fiscal quarters ending as of the date of determination.
"Consolidated Fixed Charge Coverage Ratio" means for any period,
the ratio of Consolidated Adjusted EBITDA to Consolidated Fixed Charges.
"Consolidated Fixed Charges" means for any period for the
Consolidated Group, the sum of Consolidated Interest Expense, in each case
on a consolidated basis determined in accordance with GAAP. Except as
otherwise expressly provided, the applicable period shall be for the four
consecutive fiscal quarters ending as of the date of determination.
"Consolidated Funded Debt" means Funded Debt of the Consolidated
Group determined on a consolidated basis in accordance with GAAP.
"Consolidated Group" means the Borrower and its consolidated
subsidiaries, as determined in accordance with GAAP.
"Consolidated Interest Expense" means for any period for the
Consolidated Group, all interest expense, including the amortization of debt
discount and premium, the interest component under
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Capital Leases and the implied interest component under Securitization
Transactions, in each case on a consolidated basis determined in
accordance with GAAP. Except as expressly provided otherwise, the
applicable period shall be for the four consecutive quarters ending as of
the date of determination.
"Consolidated Leverage Ratio" means, as of the last day of any
fiscal quarter, the ratio of Consolidated Funded Debt on such day to
Consolidated EBITDA for the period of four consecutive fiscal quarters
ending as of such day.
"Consolidated Net Income" means for any period for the
Consolidated Group, net income on a consolidated basis determined in
accordance with GAAP. Except as expressly provided otherwise, the
applicable period shall be for the four consecutive quarters ending as of
the date of determination.
"Consolidated Net Worth" means, as for any date for the
Consolidated Group, shareholders' equity or net worth as determined in
accordance with GAAP.
"Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or of any material agreement,
instrument or undertaking to which such Person is a party or by which it
or any of its property is bound.
"Credit Documents" means a collective reference to this Credit
Agreement, the Notes, the LOC Documents, the Pledge Agreement, the
Security Agreement, each Joinder Agreement, the Administrative Agent's Fee
Letter, and all other related agreements and documents issued or delivered
hereunder or thereunder or pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such
time, (i) has failed to make an Extension of Credit required pursuant to
the terms of this Credit Agreement, (ii) has failed to pay to the
Administrative Agent or any Lender an amount owed by such Lender pursuant
to the terms of the Credit Agreement or any other of the Credit Documents,
or (iii) has been deemed insolvent or has become subject to a bankruptcy
or insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
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"Domestic Credit Party" means any Credit Party which is incorporated
or organized under the laws of any State of the United States or the District
of Columbia.
"Domestic Subsidiary" means any Subsidiary which is incorporated or
organized under the laws of any State of the United States or the District of
Columbia.
"Environmental Laws" means any and all lawful and applicable
Federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental restrictions
relating to the environment or to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment including,
without limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or
wastes.
"Equity Transaction" means, with respect to any member of the
Consolidated Group, any issuance of shares of its capital stock or other
equity interest, other than an issuance (i) to a member of the
Consolidated Group, (ii) in connection with a conversion of debt
securities to equity or (iii) in connection with exercise by a present or
former employee, officer or director under a stock incentive plan, stock
option plan or other equity-based compensation plan or arrangement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute thereto, as interpreted by the
rules and regulations thereunder, all as the same may be in effect from
time to time. References to sections of ERISA shall be construed also to
refer to any successor sections.
"ERISA Affiliate" means an entity which is under common control
with any Credit Party within the meaning of Section 4001(a)(14) of ERISA,
or is a member of a group which includes the Borrower and which is treated
as a single employer under Sections 414(b) or (c) of the Code.
"ERISA Event" means (i) with respect to any Plan, the occurrence of
a Reportable Event or the substantial cessation of operations (within the
meaning of Section 4062(e) of ERISA); (ii) the withdrawal by the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate from a Multiple
Employer Plan during a plan year in which it was a substantial employer (as
such term is defined in Section 4001(a)(2) of ERISA), or the termination of
a Multiple Employer Plan; (iii) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to Section 4041(a)(2)
or 4041A of ERISA; (iv) the institution
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of proceedings to terminate or the actual termination of a Plan by the PBGC
under Section 4042 of ERISA; (v) any event or condition which would
reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Plan; (vi) the complete or partial withdrawal of the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate from a Multiemployer
Plan; (vii) the conditions for imposition of a lien under Section 302(f) of
ERISA exist with respect to any Plan; or (vii) the adoption of an amendment
to any Plan requiring the provision of security to such Plan pursuant to
Section 307 of ERISA.
"Eurodollar Loan" means any Loan bearing interest at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate determined
pursuant to the following formula:
Eurodollar Rate = Interbank Offered Rate
----------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar Loans is determined), whether or not Lender has any
Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be available from
time to time to a Lender. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Event of Default" means such term as defined in Section 9.1.
"Excess Funding Guarantor" shall have the meaning given such term
in Section 4.6.
"Excess Payment" shall have the meaning given such term in Section
4.6.
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"Existing Letters of Credit" means those Letters of Credit
outstanding on the Closing Date and identified on Schedule 2.2(b)-1.
"Extension of Credit" means, as to any Lender, the making of, or
participation in, a Loan by such Lender or the issuance or extension of, or
participation in, a Letter of Credit.
"Fees" means all fees payable pursuant to Section 3.5.
"Federal Funds Rate" means, for any day, the rate of interest per
annum (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day,
provided that (A) if such day is not a Business Day, the Federal Funds Rate
for such day shall be such rate on such transactions on the next preceding
Business Day and (B) if no such rate is so published on such next preceding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Foreign Credit Party" means a Credit Party which is not a
Domestic Credit Party.
"Foreign Subsidiary" means a Subsidiary which is not a Domestic
Subsidiary.
"Funded Debt" means, with respect to any Person, without
duplication, (i) all Indebtedness of such Person for borrowed money, (ii)
all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily made,
(iii) all purchase money Indebtedness (including for purposes hereof,
indebtedness and obligations described in clauses (iii) and (iv) of the
definition of "Indebtedness") of such Person, including without limitation
the principal portion of all obligations of such Person under Capital
Leases, (iv) all Support Obligations of such Person with respect to Funded
Indebtedness of another Person, (v) the maximum available amount of all
standby letters of credit or acceptances issued or created for the account
of such Person, (vi) all Funded Debt of another Person secured by a Lien on
any Property of such Person, whether or not such Funded Indebtedness has
been assumed, provided that for purposes hereof the amount of such Funded
Debt shall be limited to the greater of (A) the amount of such Funded Debt
as to which there is recourse to such Person and (B) the fair market value
of the property which is subject to the Lien, (vii) the outstanding
attributed principal amount under any Securitization Transaction, and (viii)
the principal balance outstanding under any synthetic lease, tax retention
operating lease, off-balance
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sheet loan or similar off-balance sheet financing product to which such
Person is a party, where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease in
accordance with GAAP. The Funded Debt of any Person shall include the
Funded Debt of any partnership or joint venture in which such Person is a
general partner or joint venturer, but only to the extent to which there is
recourse to such Person for the payment of such Funded Debt.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis and subject to the terms of
Section 1.3 hereof.
"Governmental Authority" means any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantor" means each of those Persons identified as a
"Guarantor" on the signature pages hereto, and each other Person which may
hereafter become a Guarantor by execution of a Joinder Agreement, together
with their successors and permitted assigns.
"Guaranteed Obligations" means, as to each Guarantor, without
duplication, (i) all obligations of the Borrower (including interest
accruing after a Bankruptcy Event, regardless of whether such interest is
allowed as a claim under the Bankruptcy Code) to the Lenders and the
Administrative Agent, whenever arising, under this Credit Agreement, the
Notes or the Credit Documents, and (ii) all liabilities and obligations,
whenever arising, owing from the Borrower to any Lender, or any Affiliate
of a Lender, arising under any Hedging Agreement relating to Obligations
hereunder.
"Hedging Agreements" means any interest rate protection agreement
or foreign currency exchange agreement between the Borrower and any Lender,
or any Affiliate of a Lender.
"Indebtedness" of any Person means (i) all obligations of such
Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, or upon which interest
payments are customarily made, (iii) all obligations of such Person under
conditional sale or other title retention agreements relating to Property
purchased by such Person (other than customary reservations or retentions
of title under agreements with suppliers entered into in the ordinary
course of business), (iv) all obligations of such Person issued or assumed
as the deferred purchase price of Property or services purchased by such
Person (other than trade debt incurred in the ordinary course of business
and due within six months of the incurrence thereof) which would appear as
liabilities on a balance sheet of such Person, (v) all obligations of such
Person under take-or-pay or similar arrangements or under commodities
agreements, (vi) all Indebtedness of others secured by (or
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for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on, or payable out of the proceeds
of production from, Property owned or acquired by such Person, whether or
not the obligations secured thereby have been assumed, provided that for
purposes hereof the amount of such Indebtedness shall be limited to the
greater of (A) the amount of such Indebtedness as to which there is
recourse to such Person and (B) the fair market value of the property which
is subject to the Lien, (vii) all Support Obligations of such Person,
(viii) the principal portion of all obligations of such Person under
Capital Leases, (ix) all obligations of such Person in respect of interest
rate protection agreements, foreign currency exchange agreements, commodity
purchase or option agreements or other interest or exchange rate or
commodity price hedging agreements (including, but not limited to, the
Hedging Agreements), (x) the maximum amount of all standby letters of
credit issued or bankers' acceptances facilities created for the account of
such Person and, without duplication, all drafts drawn thereunder (to the
extent unreimbursed), (xi) all preferred stock issued by such Person and
required by the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date, (xii) the outstanding
attributed principal amount under any Securitization Transaction and (xiii)
the principal balance outstanding under any synthetic lease, tax retention
operating lease, off-balance sheet loan or similar off-balance sheet
financing product to which such Person is a party, where such transaction
is considered borrowed money indebtedness for tax purposes but is
classified as an operating lease in accordance with GAAP. The Indebtedness
of any Person shall include the Indebtedness of any partnership or joint
venture in which such Person is a general partner or a joint venturer, but
only to the extent to which there is recourse to such Person for payment of
such Indebtedness.
"Intellectual Property" shall have the meaning given such term in
Section 6.9.
"Interbank Offered Rate" means, for the Interest Period for each
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal
to the rate of interest, determined by the Administrative Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day of
such Interest Period), appearing on Telerate Page 3750 (or, if, for any
reason, Telerate Page 3750 is not available, the Reuters Screen LIBO Page)
as of approximately 11:00 A.M. (London time) two (2) Business Days before
the first day of such Interest Period. As used herein, "Telerate Page
3750" means the display designated as page 3750 by Dow Jones Markets, Inc.
(or such other page as may
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replace such page on that service for the purpose of displaying the British
Bankers Association London interbank offered rates) and "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks).
"Interest Payment Date" means (i) as to any Base Rate Loan, the
last day of each March, June, September and December, the date of repayment
of principal of such Loan and the Termination Date and (ii) as to any
Eurodollar Loan and Swingline Loan, the last day of each Interest Period
for such Loan, the date of repayment of principal of such Loan and the
Termination Date, and in addition where the applicable Interest Period is
more than three months, then also on the date three months from the
beginning of the Interest Period, and each three months thereafter. If an
Interest Payment Date falls on a date which is not a Business Day, such
Interest Payment Date shall be deemed to be the next succeeding Business
Day.
"Interest Period" means (i) as to any Eurodollar Loan, a period of
one, two, three or six month's duration, as the Borrower may elect,
commencing in each case, on the date of the borrowing (including
conversions, extensions and renewals), and (ii) as to any Swingline Loan, a
period of such duration, not to exceed 30 days, as the Borrower may request
and the Swingline Lender may agree in accordance with the provisions of
Section 2.2(b)(i), commencing in each case, on the date of borrowing,;
provided, however, (A) if any Interest Period would end on a day which is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day (except that in the case of Eurodollar Loans where
the next succeeding Business Day falls in the next succeeding calendar
month, then on the next preceding Business Day), (B) no Interest Period
shall extend beyond the Termination Date, and (C) in the case of Eurodollar
Loans, where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the Interest
Period is to end, such Interest Period shall end on the last day of such
calendar month.
"Investment", in any Person, means any loan or advance to such
Person, any purchase or other acquisition of any capital stock, warrants,
rights, options, obligations or other securities of, or equity interest in,
such Person, any capital contribution to such Person or any other
investment in such Person, including, without limitation, any Support
Obligation incurred for the benefit of such Person.
"IPO" means the completion of the initial public offering of
common stock, par value $.001 per share, of the Borrower.
"Issuing Lender" means, initially, NationsBank and, hereafter, any
Lender which the Borrower may request and such Lender may agree.
"Issuing Lender Fees" shall have the meaning assigned to such term
in Section 3.5(b)(ii).
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"Joinder Agreement" means a Joinder Agreement substantially in the
form of Schedule 7.11-1 hereto, executed and delivered by an Additional
Credit Party in accordance with the provisions of Section 7.11.
"Lenders" means each of the Persons identified as a "Lender" on
the signature pages hereto, and their successors and assigns.
"Letter of Credit" means the Existing Letters of Credit and any
letter of credit issued by the Issuing Lender for the account of the
Borrower in accordance with the terms of Section 2.2.
"Letter of Credit Fee" shall have the meaning given such term in
Section 3.5(b)(i).
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any financing or similar statement or notice filed
under the Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction or other similar recording or notice statute, and any lease in
the nature thereof).
"Loan" or "Loans" means the Revolving Loans and/or Swingline Loans.
"LOC Commitment" means the commitment of the Issuing Lender to
issue, and to honor payment obligations under, Letters of Credit hereunder
and with respect to each Lender, the commitment of each Lender to purchase
participation interests in the Letters of Credit up to such Lender's LOC
Committed Amount as specified in Schedule 2.1(a), as such amount may be
reduced from time to time in accordance with the provisions hereof.
"LOC Committed Amount" means, collectively, the aggregate amount of
all of the LOC Commitments of the Lenders to issue and participate in
Letters of Credit as referenced in Section 2.2(a) and, individually, the
amount of each Lender's LOC Commitment as specified in Schedule 2.1(a).
"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application
or applicable only to such Letter of Credit) governing or providing for (i)
the rights and obligations of the parties concerned or at risk or (ii) any
collateral security for such obligations.
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"LOC Obligations" means, at any time, the sum of (i) the maximum
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit then outstanding, assuming compliance with
all requirements for drawings referred to in such Letters of Credit plus
(ii) the aggregate amount of all drawings under Letters of Credit honored
by the Issuing Lender but not theretofore reimbursed.
"Material Adverse Effect" means a material adverse effect on (i)
the condition (financial or otherwise), operations, business, assets,
liabilities or prospects of the Consolidated Group taken as a whole, (ii)
the ability of the Credit Parties taken as a whole to perform any material
obligation under the Credit Documents to which it is a party or (iii) the
rights and remedies of the Lenders under the Credit Documents.
"Materials of Environmental Concern" means any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes, defined
or regulated as such in or under any Environmental Laws, including, without
limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Moody's" means Moody's Investors Service, Inc., or any successor
or assignee of the business of such company in the business of rating
securities.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Sections 3(37) or 4001(a)(3) of ERISA.
"Multiple Employer Plan" means a Plan which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate and at least one employer
other than the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate are contributing sponsors.
"NationsBank" means NationsBank, N.A. and its successors.
"Net Proceeds" means gross cash proceeds (including any cash
received by way of deferred payment pursuant to a promissory note,
receivable or otherwise, but only as and when received) received in
connection with an Asset Disposition or Equity Transaction, net of (i)
reasonable transaction costs, including in the case of an Equity
Transaction, underwriting discounts and commissions and in the case of an
Asset Disposition occurring in connection with a claim under an insurance
policy, costs incurred in connection with adjustment and settlement of the
claim, (ii) estimated taxes payable in connection therewith, and (iii) in
the case of an Asset Disposition, any amounts payable in respect of Funded
Debt, including without limitation principal, interest, premiums and
penalties, which is secured by, or otherwise related to, any
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property or asset which is the subject thereof to the extent that such
Funded Debt and any payments in respect thereof are paid with a portion of
the proceeds therefrom.
"Non-Excluded Taxes" means such term as is defined in Section
3.10(a).
"Non-Guarantor Subsidiaries" shall have the meaning given such
term in Section 7.11(a).
"Note" or "Notes" means the promissory notes of the Borrower in
favor of each of the Lenders evidencing the Revolving Loans and Swingline
Loans in substantially the form attached as Schedule 2.1(e), individually
or collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Schedule 2.1(b)(i), as required by Section
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of
extension or conversion in substantially the form of Schedule 3.2, as
required by Section 3.2.
"Obligations" means, collectively, the Revolving Loans, Swingline
Loans and the LOC Obligations.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases which may be terminated by the
lessee at any time) of any Property (whether real, personal or mixed) which
is not a Capital Lease other than any such lease in which that Person is
the lessor.
"Participation Interest" means the purchase by a Lender of a
participation in Swingline Loans as provided in Section 2.2(b)(iii) and in
Loans as provided in Section 3.13.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereof.
"Permitted Investments" means Investments which are either (i)
cash and Cash Equivalents; (ii) accounts receivable created, acquired or
made in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms; (iii) Investments consisting of
stock, obligations, securities or other property received in settlement of
accounts receivable (created in the ordinary course of business) from
bankrupt obligors; (iv) Investments existing as of the Closing Date and set
forth in Schedule 8.5, (v) Support
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Obligations permitted by Section 8.1(h); (vi) acquisitions permitted by
Section 8.4(c); (vii) transactions permitted by Section 8.6, (viii)
advances or loans to employees, directors, officers or agents not to exceed
[$_________ ] in the aggregate at any time outstanding; (ix) advances or
loans to customers or suppliers that do not exceed [$_________ ] in the
aggregate at any one time outstanding, (x) Investments by a member of the
Consolidated Group or an Affiliate of a member of the Consolidated Group in
connection with a Permitted Securitization Transaction, (xi) Investments by
members of the Consolidated Group in their Subsidiaries and Affiliates
existing on the Closing Date, (xii) Investments by members of the
Consolidated Group in and to a Credit Party and (xiii) other loans,
advances and investments of a nature not contemplated in the foregoing
subsections in an amount not to exceed [$_________ ]in the aggregate at any
time outstanding.
"Permitted Liens" means:
(i) Liens in favor of the Administrative Agent on behalf
of the Lenders;
(ii) Liens in favor of a Lender or an Affiliate of a
Lender pursuant to a Hedging Agreement permitted hereunder, but only
(A) to the extent such Liens secure obligations under such agreements
or indebtedness permitted under Section 8.1, (B) to the extent such
Liens are on the same collateral as to which the Lenders also have a
Lien and (C) if such provider and the Lender shall share pari passu in
the collateral subject to such Liens;
(iii) Liens (other than Liens created or imposed under
ERISA) for taxes, assessments or governmental charges or levies not yet
due or Liens for taxes being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account
thereof);
(iv) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and suppliers and other
Liens imposed by law or pursuant to customary reservations or
retentions of title arising in the ordinary course of business,
provided that such Liens secure only amounts not yet due and payable
or, if due and payable, are unfiled and no other action has been taken
to enforce the same or are being contested in good faith by appropriate
proceedings for which adequate reserves determined in accordance with
GAAP have been established (and as to which the Property subject to any
such Lien is not yet subject to foreclosure, sale or loss on account
thereof);
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(v) Liens (other than Liens created or imposed under
ERISA) incurred or deposits made by the Borrower and its Subsidiaries
in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(vi) Liens in connection with attachments or
judgments (including judgment or appeal bonds) provided that the
judgments secured shall, within 30 days after the entry thereof, have
been discharged or execution thereof stayed pending appeal, or shall
have been discharged within 30 days after the expiration of any such
stay;
(vii) easements, rights-of-way, restrictions
(including zoning restrictions), minor defects or irregularities in
title and other similar charges or encumbrances not, in any material
respect, impairing the use of the encumbered Property for its intended
purposes;
(viii) Liens securing purchase money and sale/leaseback
Indebtedness (including Capital Leases) to the extent permitted under
Section 8.1(c), provided that any such Lien attaches only to the
Property financed or leased and such Lien attaches thereto concurrently
with or within 90 days after the acquisition thereof in connection with
the purchase money transactions and within 30 days after the closing of
any sale/leaseback transaction;
(ix) leases or subleases granted to others not
interfering in any material respect with the business of any member of
the Consolidated Group;
(x) any interest of title of a lessor under, and
Liens arising from UCC financing statements (or equivalent filings,
registrations or agreements in foreign jurisdictions) relating to,
leases permitted by this Credit Agreement;
(xi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods;
(xii) Liens created or deemed to exist in connection
with a Permitted Securitization Transaction (including any related
filings of any financing statements), but only to the extent that any
such Lien relates to the applicable receivables and
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related property actually sold, contributed or otherwise
conveyed pursuant to such transaction;
(xiii) Liens deemed to exist in connection with
Investments in repurchase agreements permitted under Section 8.5;
(xiv) normal and customary rights of setoff upon
deposits of cash in favor of banks or other depository institutions;
(xv) Liens granted to holders of Seller Subordinated
Debt so long as (a) such Liens relate solely to the assets purchased
from such holder(s), (b) such Liens are subordinate to the Liens
granted to the Lenders, and (c) the holders of such Seller Subordinated
Debt agree to stand still provisions and provisions not to contest the
validity of the Lenders' Liens satisfactory to the Required Lenders;
and
(xvi) Liens existing as of the Closing Date and set
forth on Schedule 6.8; provided that (a) no such Lien shall at any time
be extended to or cover any Property other than the Property subject
thereto on the Closing Date and (b) the principal amount of the
Indebtedness secured by such Liens shall not be extended, renewed,
refunded or refinanced.
"Permitted Securitization Transaction" means any Securitization
Transaction; provided that (i) the Administrative Agent and the Required
Lenders shall be reasonably satisfied with the structure and documentation
for any such transaction and that the terms of such transaction entered
into after the Closing Date, including the discount applicable to the
receivables which are subject of such financing and any termination events,
shall be (in the good faith understanding of the Administrative Agent and
the Required Lenders) consistent with those prevailing in the market at the
time of commitment thereto for similar transactions involving a receivables
originator/servicer of similar credit quality and a receivables pool or
other similar characteristics and (ii) the documentation for such
transaction shall not be amended or modified in a way which is materially
detrimental to the Lenders without the prior written approval of the
Administrative Agent and the Required Lenders.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated) or any Governmental Authority.
"Plan" means any employee benefit plan (as defined in Section 3(3)
of ERISA) which is covered by ERISA and with respect to which the Borrower,
any Subsidiary of the Borrower
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or any ERISA Affiliate is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" within the
meaning of Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement dated as of the
Closing Date given by the Borrower and the other pledgors identified
therein to NationsBank, N.A., as Administrative Agent, to secure the
obligations hereunder, as amended and modified.
"Prime Rate" means the rate of interest per annum publicly
announced from time to time by NationsBank as its prime rate in effect at
its principal office in Charlotte, North Carolina, with each change in the
Prime Rate being effective on the date such change is publicly announced as
effective (it being understood and agreed that the Prime Rate is a
reference rate used by NationsBank in determining interest rates on certain
loans and is not intended to be the lowest rate of interest charged on any
extension of credit by NationsBank to any debtor).
"Pro Forma Basis" means, with respect to any Transaction, that
such Transaction shall be deemed to have occurred as of the first day of
the four fiscal-quarter period ending as of the most recent fiscal quarter
end preceding the date of such Transaction with respect to which the
Administrative Agent and the Lenders have received the officer's
certificate in accordance with the provisions of Section 7.2(b). As used
herein, "Transaction" means (i), any corporate merger or consolidation as
referred to in Section 8.4(a), (ii) any sale or other disposition of assets
as referred to in Section 8.4(b), (iii) any acquisition of capital stock or
securities or any purchase, lease or other acquisition of property as
referred to in Section 8.4(c) or (iv) the making of any Restricted Payment
as referred to in Section 8.10.
"Pro Rata Share" shall have the meaning given such term in Section
4.6.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Rate Determination Date" shall have the meaning given such term
in the definition of "Applicable Percentage".
"Register" shall have the meaning given such term in Section
11.3(c).
"Regulation T, U or X" means Regulation T, U or X, respectively,
of the Board of Governors of the Federal Reserve System as from time to
time in effect and any successor to all or a portion thereof.
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"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
into the environment (including the abandonment or discarding of barrels,
containers and other closed receptacles containing any Materials of
Environmental Concern).
"Reportable Event" means any of the events set forth in Section
4043(c) of ERISA, other than those events as to which the notice requirement
has been waived by regulation.
"Required Lenders" means, at any time, Lenders having more than
fifty percent (50%) of the Commitments, or if the Commitments have been
terminated, Lenders having more than fifty percent (50%) of the aggregate
principal amount of the Obligations outstanding (taking into account in each
case Participation Interests or obligation to participate therein); provided
that the Commitments of, and outstanding principal amount of Obligations
(taking into account Participation Interests therein) owing to, a Defaulting
Lender shall be excluded for purposes hereof in making a determination of
Required Lenders.
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its material property is
subject.
"Responsible Officer" means the Chief Financial Officer, the
Controller, any Vice President and _______________.
"Restricted Payment" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock now or
hereafter outstanding, except (A) a dividend payable solely in shares of
that class to the holders of that class and (B) dividends and other
distributions payable to a Credit Party, (ii) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any shares of any class of stock now or hereafter
outstanding, and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock now or hereafter outstanding.
"Revolving Commitment" means, with respect to each Lender, the
commitment of such Lender to make Revolving Loans in an aggregate principal
amount at any time outstanding of up to such Lender's Commitment Percentage
of the Aggregate Revolving Committed Amount as specified in Schedule 2.1(a),
as such amount may be reduced from time to time in accordance with the
provisions hereof.
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"Revolving Commitment Percentage" means, for each Lender, a
fraction (expressed as a decimal) the numerator of which is the Revolving
Commitment of such Lender at such time and the denominator of which is the
Aggregate Revolving Committed Amount at such time. The initial Revolving
Commitment Percentages are set out on Schedule 2.1(a).
"Revolving Committed Amount" means, collectively, the aggregate
amount of all of the Revolving Commitments and, individually, the amount of
each Lender's Revolving Commitment as specified in Schedule 2.1(a).
"Revolving Loans" shall have the meaning assigned to such term in
Section 2.1(a).
"S&P" means Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., or any successor or assignee of the business of such division in
the business of rating securities.
"Securitization Transaction" means any financing transaction or
series of financing transactions that have been or may be entered into by a
member of the Consolidated Group pursuant to which such member of the
Consolidated Group may sell, convey or otherwise transfer to (i) a
Subsidiary or affiliate (a "Securitization Subsidiary"), or (ii) any other
Person, or may grant a security interest in, any receivables or interests
therein secured by merchandise or services financed thereby (whether such
receivables are then existing or arising in the future) of such member of
the Consolidated Group, and any assets related thereto, including without
limitation, all security interests in merchandise or services financed
thereby, the proceeds of such receivables, and other assets which are
customarily sold or in respect of which security interests are customarily
granted in connection with securitization transactions involving such assets.
"Security Agreement" means the Security Agreement dated as of the
Closing Date given by the Borrower and the other grantors identified therein
to NationsBank, N.A., as Administrative Agent, to secure the obligations
hereunder, as amended and modified.
"Seller Subordinated Debt" means Subordindated Debt issued to a
seller in connection with an acquisition permitted under Section 8.4 of the
Credit Agreement.
"Single Employer Plan" means any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan or a Multiple Employer Plan.
"Spin-Off Transaction" shall mean the spin-off of the Borrower from
U.S. Office Products, Inc.
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"Subordinated Debt" means any Indebtedness of a member of the
Consolidated Group which by its terms is expressly subordinated in right of
payment to the prior payment of the obligations under the Credit Agreement
and the other Credit Documents on terms and conditions satisfactory to the
Required Lenders.
"Subsidiary" means, as to any Person, (a) any corporation more than
50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such Person
directly or indirectly through Subsidiaries, and (b) any partnership,
association, joint venture or other entity in which such Person directly or
indirectly through Subsidiaries has more than 50% of the voting interests at
any time. Unless otherwise identified, "Subsidiary" or "Subsidiaries" shall
mean Subsidiaries of the Borrower.
"Support Obligations" means, with respect to any Person, without
duplication, any obligations of such Person (other than endorsements in the
ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing or intended to guarantee any Indebtedness of any
other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent, (i) to
purchase any such Indebtedness or any Property constituting security
therefor, (ii) to advance or provide funds or other support for the payment
or purchase of any such Indebtedness or to maintain working capital,
solvency or other balance sheet condition of such other Person (including
without limitation keep well agreements, maintenance agreements, comfort
letters or similar agreements or arrangements) for the benefit of any holder
of Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder of
such Indebtedness, or (iv) to otherwise assure or hold harmless the holder
of such Indebtedness against loss in respect thereof. The amount of any
Support Obligation hereunder shall (subject to any limitations set forth
therein) be deemed to be an amount equal to the outstanding principal amount
(or maximum principal amount, if larger) of the Indebtedness in respect of
which such Support Obligation is made.
"Swingline Commitment" means the commitment of the Swingline Lender
to make Swingline Loans in an aggregate principal amount at any time
outstanding up to the Swingline Committed Amount and the commitment of the
Lenders to purchase participation interests in the Swingline Loans up to
their respective Revolving Commitment Percentage as provided in Section
2.3(b)(iii), as such amounts may be reduced from time to time in accordance
with the provisions hereof.
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"Swingline Committed Amount" means the amount of the Swingline
Lender's Commitment as specified in Section 2.3(a).
"Swingline Lender" means NationsBank or its successor.
"Swingline Loan" means a swingline revolving loan made by the
Swingline Lender pursuant to the provisions of Section 2.3.
"Termination Date" means June __, 2003 (five years from the Closing
Date), or if extended with the written consent of each of the Lenders, such
later date as to which the Termination Date may be extended.
"Threshold Requirement" shall have the meaning given such term in
Section 7.11(a).
"Transaction" shall have the meaning given such term in the
definition of "Pro Forma Basis".
"Voting Stock" means, with respect to any Person, capital stock
issued by such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election of directors (or persons
performing similar functions) of such Person, even though the right so to
vote has been suspended by the happening of such a contingency.
"Wholly Owned Subsidiary" of any Person means any Subsidiary 100%
of whose Voting Stock or other equity interests is at the time owned by such
Person directly or indirectly through other Wholly Owned Subsidiaries.
1.2 Computation of Time Periods.
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean
"to but excluding."
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to
the Lenders hereunder shall be prepared, in accordance with GAAP. All
calculations made for the purposes of determining compliance with this Credit
Agreement shall (except as otherwise expressly provided herein) be made by
application of GAAP applied on a basis consistent with the most recent annual
or quarterly financial statements delivered pursuant to Section 7.1 hereof
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(or, prior to the delivery of the first financial statements pursuant to
Section 7.1 hereof, consistent with the annual audited financial statements
referenced in Section 6.1(i) hereof); provided, however, if (a) the Borrower
shall object to determining such compliance on such basis at the time of
delivery of such financial statements due to any change in GAAP or the rules
promulgated with respect thereto or (b) the Administrative Agent or the
Required Lenders shall so object in writing within 30 days after delivery of
such financial statements, then such calculations shall be made on a basis
consistent with the most recent financial statements delivered by the
Borrower to the Lenders as to which no such objection shall have been made.
It is further acknowledged and agreed that, except as expressly provided
otherwise, for purposes of determining the Applicable Percentage and
compliance with the financial covenants in Section 7.9 (and compliance
therewith on a Pro Forma Basis), in the case of acquisitions and dispositions
which have occurred during the applicable period to the extent permitted
hereunder, adjustments shall be made to take into account historical
performance (reflecting adjustments in income for elimination of salaries,
owners' perks and other items reasonably eliminated pursuant to contractual
provisions) relating thereto during such applicable period prior to the date
of such acquisition or disposition, and the effect of any Indebtedness paid
with proceeds from a disposition, provided that coverage items (relating to
interest and rental expense and other such items, under Consolidated EBITDA,
Consolidated Fixed Charges or the like) shall be determined by annualization
from the date of acquisition of disposition rather than by reference to
historical performance relating prior the date of acquisition or disposition.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Commitment. During the Commitment Period, subject to
the terms and conditions hereof, each Lender severally agrees to make
revolving credit loans (the "Revolving Loans") to the Borrower from time to
time in the amount of such Lender's Revolving Commitment Percentage of such
Revolving Loans for the purposes hereinafter set forth; provided that (i)
with regard to the Lenders collectively, the aggregate principal amount of
Obligations outstanding at any time shall not exceed the Aggregate Revolving
Committed Amount, and (ii) with regard to each Lender individually, such
Lender's Revolving Commitment Percentage of Obligations outstanding at any
time shall not exceed such Lender's Revolving Committed Amount. Revolving
Loans may consist of Base Rate Loans or Eurodollar Loans, or a combination
thereof, as the Borrower may request, and may be repaid and reborrowed in
accordance with the provisions hereof.
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(b) Revolving Loan Borrowings.
(i) Notice of Borrowing. The Borrower shall request a
Revolving Loan borrowing by written notice (or telephone notice promptly
confirmed in writing) to the Administrative Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day prior to the date of
the requested borrowing in the case of Base Rate Loans, and on the third
Business Day prior to the date of the requested borrowing in the case of
Eurodollar Loans. Each such request for borrowing shall be irrevocable and
shall specify (A) that a Revolving Loan is requested, (B) the date of the
requested borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination thereof, and
if Eurodollar Loans are requested, the Interest Period(s) therefor. If the
Borrower shall fail to specify in any such Notice of Borrowing (I) an
applicable Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of one month,
or (II) the type of Revolving Loan requested, then such notice shall be
deemed to be a request for a Base Rate Loan hereunder. The Administrative
Agent shall give notice to each Lender promptly upon receipt of each Notice
of Borrowing pursuant to this Section 2.1(b)(i), the contents thereof and
each such Lender's share of any borrowing to be made pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan shall be in a minimum
aggregate principal amount of $5,000,000, in the case of Eurodollar Loans,
or $1,000,000 (or the remaining Revolving Committed Amount, if less), in the
case of Base Rate Loans, and integral multiples of $1,000,000 in excess
thereof.
(iii) Advances. Each Lender will make its Revolving Commitment
Percentage of each Revolving Loan borrowing available to the Administrative
Agent for the account of the Borrower, or in such other manner as the
Administrative Agent may specify in writing, by 1:00 P.M. (Charlotte, North
Carolina time) on the date specified in the applicable Notice of Borrowing
in Dollars and in funds immediately available to the Administrative Agent.
Such borrowing will then be made available to the Borrower by the
Administrative Agent by crediting the account of the Borrower with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
and payable in full on the Termination Date.
(d) Interest. Subject to the provisions of Section 3.1,
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(i) Base Rate Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Base Rate Loans, such Base Rate
Loans shall bear interest at a per annum rate equal to the Base Rate plus
the Applicable Percentage;
(ii) Eurodollar Loans. During such periods as Revolving Loans
shall be comprised in whole or in part of Eurodollar Loans, such Eurodollar
Loans shall bear interest at a per annum rate equal to the Eurodollar Rate
plus the Applicable Percentage.
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans shall be evidenced by a
duly executed Note in favor of each Lender.
(f) Maximum Number of Eurodollar Loans. The Borrower will be
limited to a maximum number of five (5) Eurodollar Loans outstanding at any
time. For purposes hereof, Eurodollar Loans with separate or different
Interest Periods will be considered as separate Eurodollar Loans even if
their Interest Periods expire on the same date.
2.2 Letter of Credit Subfacility.
(a) Issuance. During the Commitment Period, subject to the terms
and conditions hereof and of the LOC Documents, if any, and such other terms
and conditions which the Issuing Lender may reasonably require, the Issuing
Lender shall issue, and the Lenders shall participate in, such Letters of
Credit as the Borrower may request for its own account or for the account of
any Subsidiary as provided herein, in a form acceptable to the Issuing
Lender, for the purposes hereinafter set forth; provided that (i) the
aggregate amount of LOC Obligations shall not exceed TWO MILLION DOLLARS
($2,000,000) at any time (the "LOC Committed Amount"), (ii) with regard to
the Lenders collectively, the aggregate principal amount of Obligations
outstanding at any time shall not exceed the Aggregate Revolving Committed
Amount and (iii) with regard to each Lender individually, such Lender's
Revolving Commitment Percentage of Obligations outstanding at any time shall
not exceed such Lender's Revolving Committed Amount. Letters of Credit
issued hereunder shall not have an original expiry date more than one year
from the date of issuance or extension, nor an expiry date, whether as
originally issued or by extension, extending beyond the Termination Date.
Each Letter of Credit shall comply with the related LOC Documents. The
issuance date of each Letter of Credit shall be a Business Day.
(b) Notice and Reports. Except for those Letters of Credit
described on Schedule 2.2(b)-1 which shall be issued on the Closing Date, the
request for the issuance of a Letter of Credit shall be submitted by the
Borrower to the Issuing Lender at least three (3) Business Days prior to the
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requested date of issuance (or such shorter period as may be agreed by the
Issuing Lender). A form of Notice of Request for Letter of Credit is
attached as Schedule 2.2(b)-2. The Issuing Lender will provide to the
Administrative Agent at least monthly, and more frequently upon request, a
detailed summary report on its Letters of Credit and the activity thereon, in
form and substance acceptable to the Administrative Agent. In addition, the
Issuing Lender will provide to the Administrative Agent for dissemination to
the Lenders at least quarterly, and more frequently upon request, a detailed
summary report on its Letters of Credit and the activity thereon, including,
among other things, the Credit Party for whose account the Letter of Credit
is issued, the beneficiary, the face amount, and the expiry date. The
Issuing Lender will provide copies of the Letters of Credit to the
Administrative Agent and the Lenders promptly upon request.
(c) Participation. Each Lender, with respect to the Existing
Letters of Credit, hereby purchases a participation interest in such Existing
Letters of Credit, and with respect to Letters of Credit issued after the
Closing Date, upon issuance of a Letter of Credit, shall be deemed to have
purchased without recourse a risk participation from the applicable Issuing
Lender in such Letter of Credit and the obligations arising thereunder, in
each case in an amount equal to its pro rata share of the obligations under
such Letter of Credit (based on the respective Revolving Commitment
Percentages of the Lenders) and shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and be obligated to
pay to the Issuing Lender therefor and discharge when due, its pro rata share
of the obligations arising under such Letter of Credit. Without limiting the
scope and nature of each Lender's participation in any Letter of Credit, to
the extent that the Issuing Lender has not been reimbursed as required
hereunder or under any such Letter of Credit, each such Lender shall pay to
the Issuing Lender its pro rata share of such unreimbursed drawing in same
day funds on the day of notification by the Issuing Lender of an unreimbursed
drawing pursuant to the provisions of subsection (d) hereof. The obligation
of each Lender to so reimburse the Issuing Lender shall be absolute and
unconditional and shall not be affected by the occurrence of a Default, an
Event of Default or any other occurrence or event. Any such reimbursement
shall not relieve or otherwise impair the obligation of the Borrower to
reimburse the Issuing Lender under any Letter of Credit, together with
interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any Letter of
Credit, the Issuing Lender will promptly notify the Borrower. Unless the
Borrower shall immediately notify the Issuing Lender that the Borrower
intends to otherwise reimburse the Issuing Lender for such drawing, the
Borrower shall be deemed to have requested that the Lenders make a Revolving
Loan in the amount of the drawing as provided in subsection (e) hereof on the
related Letter of Credit, the proceeds of which will be used to satisfy the
related reimbursement obligations. The Borrower promises to reimburse the
Issuing Lender on the day of drawing under any Letter of Credit (either with
the proceeds of a Revolving Loan obtained hereunder or otherwise) in same day
funds. If the Borrower shall fail to reimburse the Issuing Lender as
provided hereinabove, the unreimbursed amount of such drawing shall bear
interest at a per annum rate equal to the Base Rate plus the sum of (i) the
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Applicable Percentage and (ii) two percent (2%). The Borrower's
reimbursement obligations hereunder shall be absolute and unconditional under
all circumstances irrespective of any rights of setoff, counterclaim or
defense to payment the Borrower may claim or have against the Issuing Lender,
the Administrative Agent, the Lenders, the beneficiary of the Letter of
Credit drawn upon or any other Person, including without limitation any
defense based on any failure of the Borrower or any other Credit Party to
receive consideration or the legality, validity, regularity or
unenforceability of the Letter of Credit. The Issuing Lender will promptly
notify the other Lenders of the amount of any unreimbursed drawing and each
Lender shall promptly pay to the Administrative Agent for the account of the
Issuing Lender in Dollars and in immediately available funds, the amount of
such Lender's pro rata share of such unreimbursed drawing. Such payment
shall be made on the day such notice is received by such Lender from the
Issuing Lender if such notice is received at or before 2:00 P.M. (Charlotte,
North Carolina time) otherwise such payment shall be made at or before 12:00
Noon (Charlotte, North Carolina time) on the Business Day next succeeding the
day such notice is received. If such Lender does not pay such amount to the
Issuing Lender in full upon such request, such Lender shall, on demand, pay
to the Administrative Agent for the account of the Issuing Lender interest on
the unpaid amount during the period from the date of such drawing until such
Lender pays such amount to the Issuing Lender in full at a rate per annum
equal to, if paid within two (2) Business Days of the date that such Lender
is required to make payments of such amount pursuant to the preceding
sentence, the Federal Funds Rate and thereafter at a rate equal to the Base
Rate. Each Lender's obligation to make such payment to the Issuing Lender,
and the right of the Issuing Lender to receive the same, shall be absolute
and unconditional, shall not be affected by any circumstance whatsoever and
without regard to the termination of this Credit Agreement or the Commitments
hereunder, the existence of a Default or Event of Default or the acceleration
of the obligations of the Borrower hereunder and shall be made without any
offset, abatement, withholding or reduction whatsoever. Simultaneously with
the making of each such payment by a Lender to the Issuing Lender, such
Lender shall, automatically and without any further action on the part of the
Issuing Lender or such Lender, acquire a participation in an amount equal to
such payment (excluding the portion of such payment constituting interest
owing to the Issuing Lender) in the related unreimbursed drawing portion of
the LOC Obligation and in the interest thereon and in the related LOC
Documents, and shall have a claim against the Borrower with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Borrower shall have requested, or been deemed to have requested, a Revolving
Loan advance to reimburse a drawing under a Letter of Credit, the
Administrative Agent shall give notice to the Lenders that a Revolving Loan
has been requested or deemed requested by the Borrower to be made in
connection with a drawing under a Letter of Credit, in which case a Revolving
Loan advance comprised of Base Rate Loans (or Eurodollar Loans to the extent
the Borrower has complied with the procedures of Section 2.1(b)(i) with
respect thereto) shall be immediately made to the Borrower by all Lenders
(notwithstanding any termination of the Commitments pursuant to Section 9.2)
pro rata based on the respective Revolving Commitment Percentages of the
Lenders (determined before giving effect to
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any termination of the Commitments pursuant to Section 9.2) and the proceeds
thereof shall be paid directly to the Issuing Lender for application to the
respective LOC Obligations. Each such Lender hereby irrevocably agrees to
make its pro rata share of each such Revolving Loan immediately upon any such
request or deemed request in the amount, in the manner and on the date
specified in the preceding sentence notwithstanding (i) the amount of such
borrowing may not comply with the minimum amount for advances of Revolving
Loans otherwise required hereunder, (ii) whether any conditions specified in
Section 5.2 are then satisfied, (iii) whether a Default or an Event of
Default then exists, (iv) failure for any such request or deemed request for
Revolving Loan to be made by the time otherwise required hereunder, (v)
whether the date of such borrowing is a date on which Revolving Loans are
otherwise permitted to be made hereunder or (vi) any termination of the
Commitments relating thereto immediately prior to or contemporaneously with
such borrowing. In the event that any Revolving Loan cannot for any reason
be made on the date otherwise required above (including, without limitation,
as a result of the commencement of a proceeding under the Bankruptcy Code
with respect to the Borrower or any Credit Party), then each such Lender
hereby agrees that it shall forthwith purchase (as of the date such borrowing
would otherwise have occurred, but adjusted for any payments received from
the Borrower on or after such date and prior to such purchase) from the
Issuing Lender such participation in the outstanding LOC Obligations as shall
be necessary to cause each such Lender to share in such LOC Obligations
ratably (based upon the respective Revolving Commitment Percentages of the
Lenders (determined before giving effect to any termination of the
Commitments pursuant to Section 9.2)), provided that in the event such
payment is not made on the day of drawing, such Lender shall pay in addition
to the Issuing Lender interest on the amount of its unfunded Participation
Interest at a rate equal to, if paid within two (2) Business Days of the date
of drawing, the Federal Funds Rate, and thereafter at the Base Rate.
(f) Designation of Subsidiaries as Account Parties. Notwithstanding
anything to the contrary set forth in this Credit Agreement, including
without limitation Section 2.2(a) hereof, a Letter of Credit issued hereunder
may contain a statement to the effect that such Letter of Credit is issued
for the account of a Subsidiary, provided that notwithstanding such
statement, the Borrower shall be the actual account party for all purposes of
this Credit Agreement for such Letter of Credit and such statement shall not
affect the Borrower's reimbursement obligations hereunder with respect to
such Letter of Credit.
(g) Renewal, Extension. The renewal or extension of any Letter of
Credit shall, for purposes hereof, be treated in all respects the same as the
issuance of a new Letter of Credit hereunder.
(h) Uniform Customs and Practices. The Letters of Credit shall be
subject to The Uniform Customs and Practice for Documentary Credits, as
published as of the date of issue by the International Chamber of Commerce
(the "UCP"), in which case the UCP may be incorporated therein and deemed in
all respects to be a part thereof.
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(i) Indemnification; Nature of Issuing Lender's Duties.
(i) In addition to its other obligations under this Section
2.2, the Borrower hereby agrees to protect, indemnify, pay and save the
Issuing Lender harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) that the Issuing Lender may incur or be subject
to as a consequence, direct or indirect, of (A) the issuance of any Letter
of Credit or (B) the failure of the Issuing Lender to honor a drawing under
a Letter of Credit as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions, herein called
"Government Acts"), except to the extent any such claims, demands,
liabilities, damages, costs, charges and expenses arise out of or relate to
disputes solely between or among the Administrative Lender and/or the
Lenders.
(ii) As between the Borrower and the Issuing Lender, the
Borrower shall assume all risks of the acts, omissions or misuse of any
Letter of Credit by the beneficiary thereof. The Issuing Lender shall not
be responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party (other
than the Issuing Lender) in connection with the application for and issuance
of any Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (B) for
the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, that may prove
to be invalid or ineffective for any reason; (C) for errors, omissions,
interruptions or delays (other than by the Issuing Lender) in transmission
or delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (D) for any loss or delay (other than by
the Issuing Lender) in the transmission or otherwise of any document
required in order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (E) for any consequences arising from causes beyond
the control of the Issuing Lender, including, without limitation, any
Government Acts. None of the above shall affect, impair, or prevent the
vesting of the Issuing Lender's rights or powers hereunder.
(iii) In furtherance and extension and not in limitation of the
specific provisions hereinabove set forth, any action taken or omitted by
the Issuing Lender, under or in connection with any Letter of Credit or the
related certificates, if taken or omitted in good faith and not constituting
gross negligence, shall not put such Issuing Lender under any resulting
liability to the Borrower or any other Credit Party. It is the intention of
the parties that this Credit Agreement shall be construed and applied to
protect and indemnify the Issuing Lender against any and all risks involved
in the issuance of the Letters of Credit, all of which risks (except as set
forth herein) are hereby assumed by the Borrower (on behalf of itself and
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each of the other Credit Parties), including, without limitation, any and
all Government Acts. The Issuing Lender shall not, in any way, be liable
for any failure by the Issuing Lender or anyone else to pay any drawing
under any Letter of Credit as a result of any Government Acts or any other
cause beyond the control of the Issuing Lender.
(iv) Nothing in this subsection (i) is intended to limit the
reimbursement obligations of the Borrower contained in subsection (d) above.
The obligations of the Borrower under this subsection (i) shall survive the
termination of this Credit Agreement. No act or omissions of any current or
prior beneficiary of a Letter of Credit shall in any way affect or impair
the rights of the Issuing Lender to enforce any right, power or benefit
under this Credit Agreement.
(v) Notwithstanding anything to the contrary contained in this
subsection (i), the Borrower shall have no obligation to indemnify the
Issuing Lender in respect of any liability incurred by the Issuing Lender
(A) arising out of the negligence or willful misconduct of the Issuing
Lender, as determined by a court of competent jurisdiction, or (B) caused by
the Issuing Lender's failure to pay under any Letter of Credit after
presentation to it of a request strictly complying with the terms and
conditions of such Letter of Credit, as determined by a court of competent
jurisdiction, unless such payment is prohibited, as determined by a court of
competent jurisdiction.
(j) Responsibility of Issuing Lender. It is expressly understood and
agreed that the obligations of the Issuing Lender hereunder to the Lenders
are only those expressly set forth in this Credit Agreement and that the
Issuing Lender shall be entitled to assume that the conditions precedent set
forth in Section 5.2 have been satisfied unless it shall have acquired actual
knowledge that any such condition precedent has not been satisfied; provided,
however, that nothing set forth in this Section 2.2 shall be deemed to
prejudice the right of any Lender to recover from the Issuing Lender any
amounts made available by such Lender to the Issuing Lender pursuant to this
Section 2.2 in the event that it is determined by a court of competent
jurisdiction that the payment with respect to a Letter of Credit constituted
gross negligence or willful misconduct on the part of the Issuing Lender.
(k) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document (including any letter of
credit application), this Credit Agreement shall control.
2.3 Swingline Loan Subfacility.
(a) Swingline Commitment. Subject to the terms and conditions
hereof and in reliance upon the representations and warranties set forth
herein, the Swingline Lender, in its individual capacity, agrees to make
certain revolving credit loans requested by the Borrower in Dollars to the
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Borrower (each a "Swingline Loan" and, collectively, the "Swingline Loans")
from time to time from the Closing Date until the Termination Date for the
purposes hereinafter set forth; provided, however, (i) the aggregate
principal amount of Swingline Loans outstanding at any time shall not exceed
FIVE MILLION DOLLARS ($5,000,000) (the "Swingline Committed Amount"), and
(ii) with regard to the Lenders collectively, the aggregate principal amount
of Obligations outstanding at any time shall not exceed the Aggregate
Revolving Committed. Swingline Loans hereunder shall be made as Base Rate
Loans, and may be repaid or reborrowed in accordance with the provisions
hereof.
(b) Swingline Loan Advances.
(i) Notices; Disbursement. Whenever the Borrower desires a Swingline
Loan advance hereunder it shall give written notice (or telephonic notice
promptly confirmed in writing) to the Swingline Lender not later than
11:00 A.M. (Charlotte, North Carolina time) on the Business Day of the
requested Swingline Loan advance. Each such notice shall be irrevocable
and shall specify (A) that a Swingline Loan advance is requested, (B) the
date of the requested Swingline Loan advance (which shall be a Business
Day) and (C) the principal amount of and Interest Period for the Swingline
Loan advance requested. Each Swingline Loan shall have such maturity date
as the Swingline Lender and the Borrower shall agree upon receipt by the
Swingline Lender of any such notice from the Borrower. The Swingline
Lender shall initiate the transfer of funds representing the Swingline
Loan advance to the Borrower by 3:00 P.M. (Charlotte, North Carolina time)
on the Business Day of the requested borrowing.
(ii) Minimum Amounts. Each Swingline Loan advance shall be in a minimum
principal amount of $500,000 and in integral multiples of $100,000 in
excess thereof (or the remaining amount of the Swingline Committed Amount,
if less).
(iii) Repayment of Swingline Loans. The principal amount of all
Swingline Loans shall be due and payable on the earlier of (A) the
maturity date agreed to by the Swingline Lender and the Borrower with
respect to such Loan (which maturity date shall not be a date more than
thirty (30) Business Days from the date of advance thereof) or (B) the
Termination Date. The Swingline Lender may, at any time, in its sole
discretion, by written notice to the Borrower and the Lenders, demand
repayment of its Swingline Loans by way of a Revolving Loan advance, in
which case the Borrower shall be deemed to have requested a Revolving Loan
advance comprised solely of Base Rate Loans in the amount of such
Swingline Loans; provided, however, that any such demand shall be deemed
to have been given one Business Day prior to the Termination Date and on
the date of the occurrence of any Event of Default described in Section
9.1 and upon acceleration of the indebtedness hereunder and the exercise
of remedies in accordance with the provisions of Section 9.2. Each Lender
hereby irrevocably agrees to make its pro rata share of each such
Revolving Loan in the amount, in
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the manner and on the date specified in the preceding sentence
notwithstanding (I) the amount of such borrowing may not comply with the
minimum amount for advances of Revolving Loans otherwise required
hereunder, (II) whether any conditions specified in Section 5.2 are then
satisfied, (III) whether a Default or an Event of Default then exists,
(IV) failure of any such request or deemed request for Revolving Loan to
be made by the time otherwise required hereunder, (V) whether the date of
such borrowing is a date on which Revolving Loans are otherwise permitted
to be made hereunder or (VI) any termination of the Commitments relating
thereto immediately prior to or contemporaneously with such borrowing. In
the event that any Revolving Loan cannot for any reason be made on the
date otherwise required above (including, without limitation, as a result
of the commencement of a proceeding under the Bankruptcy Code with respect
to the Borrower or any other Credit Party), then each Lender hereby agrees
that it shall forthwith purchase (as of the date such borrowing would
otherwise have occurred, but adjusted for any payments received from the
Borrower on or after such date and prior to such purchase) from the
Swingline Lender such Participation Interests in the outstanding Swingline
Loans as shall be necessary to cause each such Lender to share in such
Swingline Loans ratably based upon its Commitment Percentage of the
Revolving Committed Amount (determined before giving effect to any
termination of the Commitments pursuant to Section 3.4), provided that (A)
all interest payable on the Swingline Loans shall be for the account of
the Swingline Lender until the date as of which the respective
Participation Interest is purchased and (B) at the time any purchase of
Participation Interests pursuant to this sentence is actually made, the
purchasing Lender shall be required to pay to the Swingline Lender, to the
extent not paid to the Swingline Lender by the Borrower in accordance with
the terms of subsection (c)(ii) below, interest on the principal amount of
Participation Interests purchased for each day from and including the day
upon which such borrowing would otherwise have occurred to but excluding
the date of payment for such Participation Interests, at the rate equal to
the Federal Funds Rate.
(c) Interest on Swingline Loans.
Subject to the provisions of Section 3.1, each Swingline Loan shall bear
interest at a per annum rate (computed on the basis of the actual number of
days elapsed over a year of 365 days) equal to the Base Rate. Interest on
Swingline Loans shall be payable in arrears on each applicable Interest
Payment Date (or at such other times as may be specified herein), unless
accelerated sooner pursuant to Section 9.2.
(d) Swingline Note. The Swingline Loans shall be evidenced by the
Note.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
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3.1 Default Rate.
Upon the occurrence, and during the continuance, of an Event of Default,
the principal of and, to the extent permitted by law, interest on the Loans
and any other amounts owing hereunder or under the other Credit Documents
shall bear interest, payable on demand, at a per annum rate 2% greater than
the rate which would otherwise be applicable (or if no rate is applicable,
whether in respect of interest, fees or other amounts, then 2% greater than
the Base Rate).
3.2 Extension and Conversion.
Subject to the terms of Section 5.2, the Borrower shall have the option,
on any Business Day, to extend existing Loans into a subsequent permissible
Interest Period or to convert Loans into Loans of another interest rate type;
provided, however, that (i) except as provided in Section 3.8, Eurodollar
Loans may be converted into Base Rate Loans only on the last day of the
Interest Period applicable thereto, (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar Loans, only if no
Default or Event of Default is in existence on the date of extension or
conversion, (iii) Loans extended as, or converted into, Eurodollar Loans
shall be subject to the terms of the definition of "Interest Period" set
forth in Section 1.1 and shall be in such minimum amounts as provided in
Section 2.1(b)(ii) , and (iv) any request for extension or conversion of a
Eurodollar Loan which shall fail to specify an Interest Period shall be
deemed to be a request for an Interest Period of one month. Each such
extension or conversion shall be effected by the Borrower by giving a Notice
of Extension/Conversion (or telephone notice promptly confirmed in writing)
to the Administrative Agent prior to 11:00 A.M. (Charlotte, North Carolina
time) on the Business Day of, in the case of the conversion of a Eurodollar
Loan into a Base Rate Loan, and on the third Business Day prior to, in the
case of the extension of a Eurodollar Loan as, or conversion of a Base Rate
Loan into, a Eurodollar Loan, the date of the proposed extension or
conversion, specifying the date of the proposed extension or conversion, the
Loans to be so extended or converted, the types of Loans into which such
Loans are to be converted and, if appropriate, the applicable Interest
Periods with respect thereto. Each request for extension or conversion shall
be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (a) through (e) of Section
5.2. In the event the Borrower fails to request extension or conversion of
any Eurodollar Loan in accordance with this Section, or any such conversion
or extension is not permitted or required by this Section, then such
Eurodollar Loan shall be automatically converted into a Base Rate Loan at the
end of the Interest Period applicable thereto. The Administrative Agent
shall give each Lender notice as promptly as practicable of any such proposed
extension or conversion affecting any Loan.
3.3 Prepayments.
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(a) Voluntary Prepayments. Revolving Loans may be repaid in whole
or in part without premium or penalty; provided that (i) Eurodollar Loans may
be prepaid only upon three (3) Business Days' prior written notice to the
Administrative Agent and must be accompanied by payment of any amounts owing
under Section 3.11, and (ii) partial prepayments shall be minimum principal
amounts of $5,000,000, in the case of Eurodollar Loans, and $1,000,000, in
the case of Base Rate Loans, and in integral multiples of $1,000,000 in
excess thereof.
(b) Mandatory Prepayments. If at any time, (A) the aggregate
principal amount of Obligations shall exceed the Aggregate Revolving
Committed Amount, (B) the aggregate amount of LOC Obligations shall exceed
the LOC Committed Amount, or (C) the aggregate amount of Swingline Loans
shall exceed the Swingline Committed Amount, the Borrower shall immediately
make payment on the Revolving Loans and/or Swingline Loans and/or to a cash
collateral account in respect of the LOC Obligations, in an amount sufficient
to eliminate the deficiency.
(c) Application. Unless otherwise specified by the Borrower,
prepayments made hereunder shall be applied first to Swingline Loans, then to
Revolving Loans which are Base Rate Loans, then to Revolving Loans which are
Eurodollar Loans in direct order of Interest Period maturities. Amounts
prepaid hereunder may be reborrowed in accordance with the provisions hereof.
3.4 Termination and Reduction of Commitments
(a) Voluntary Reductions. The Revolving Commitments may be
terminated or permanently reduced in whole or in part upon three (3) Business
Days' prior written notice to the Administrative Agent, provided that (i)
after giving effect to any voluntary reduction the aggregate amount of
Obligations shall not exceed the Aggregate Revolving Committed Amount, as
reduced, and (ii) partial reductions shall be minimum principal amount of
$5,000,000, and in integral multiples of $1,000,000 in excess thereof.
(b) Mandatory Reduction. The Revolving Commitments shall be
permanently reduced in an amount equal to one hundred percent (100%) of the
Net Proceeds received from Asset Dispositions in any fiscal year; but only to
the extent that (i) such Net Proceeds are not reinvested in other property or
assets within six (6) months of the date of sale, lease, disposition,
casualty, theft or loss giving rise thereto, and (ii) the aggregate amount of
such Net Proceeds not reinvested in accordance with the foregoing subsection
(i) in any fiscal year shall exceed [$__________ ].
(c) Termination. The Commitments hereunder shall terminate on the
Termination Date.
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3.5 Fees.
(a) Commitment Fee. In consideration of the Revolving Commitments
hereunder, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a commitment fee (the "Commitment Fee") equal
to the Applicable Percentage per annum on the average daily unused amount of
the Revolving Committed Amount for the applicable period. The Commitment Fee
shall be payable quarterly in arrears on the 15th day following the last day
of each calendar quarter for the immediately preceding quarter (or portion
thereof) beginning with the first such date to occur after the Closing Date.
For purposes of computation of the Commitment Fee, Swingline Loans shall not
be counted toward or considered usage under the Revolving Loan facility.
(b) Letter of Credit Fees.
(i) Letter of Credit Fee. In consideration of the LOC Commitment
hereunder, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a fee (the "Letter of Credit Fee") equal to
the Applicable Percentage per annum on the average daily maximum amount
available to be drawn under Letters of Credit from the date of issuance to
the date of expiration. The Letter of Credit Fee shall be payable
quarterly in arrears on the 15th day following the last day of each
calendar quarter for the immediately preceding quarter (or portion
thereof) beginning with the first such date to occur after the Closing
Date.
(ii) Issuing Lender Fee. In addition to the Letter of Credit Fee,
the Borrower agrees to pay to the Issuing Lender for its own account
without sharing by the other Lenders (A) a fronting and negotiation fee of
.125% per annum on the average daily maximum amount available to be drawn
under Letters of Credit issued by it from the date of issuance to the date
of expiration, and (B) customary charges of the Issuing Lender with
respect to the issuance, amendment, transfer, administration, cancellation
and conversion of, and drawings under, such Letters of Credit
(collectively, the "Issuing Lender Fees").
(c) Administrative Agent's Fees. The Borrower agrees to pay to the
Administrative Agent, for its own account, an annual administrative fee and
such other fees, if any, referred to in the Administrative Agent's Fee Letter
(collectively, the "Administrative Agent's Fees").
3.6 Capital Adequacy.
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If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or
administration of, any applicable law, rule or regulation regarding capital
adequacy, or compliance by such Lender with any request or directive
regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Lender's capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, effectiveness,
change or compliance (taking into consideration such Lender's policies with
respect to capital adequacy), then, upon notice from such Lender to the
Borrower, the Borrower shall be obligated to pay to such Lender such
additional amount or amounts as will compensate such Lender for such
reduction. Each determination by any such Lender of amounts owing under this
Section shall, absent manifest error, be conclusive and binding on the
parties hereto.
3.7 Inability To Determine Interest Rate.
If prior to the first day of any Interest Period, the Administrative Agent
shall have determined (which determination shall be conclusive and binding
upon the Borrower) that, by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, the Administrative Agent shall give
telecopy or telephonic notice thereof to the Borrower and the Lenders as soon
as practicable thereafter. If such notice is given (a) any Eurodollar Loans
requested to be made on the first day of such Interest Period shall be made
as Base Rate Loans and (b) any Loans that were to have been converted on the
first day of such Interest Period to or continued as Eurodollar Loans shall
be converted to or continued as Base Rate Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar Loans shall be
made or continued as such, nor shall the Borrower have the right to convert
Base Rate Loans to Eurodollar Loans.
3.8 Illegality.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application
thereof occurring after the Closing Date shall make it unlawful for any
Lender to make or maintain Eurodollar Loans as contemplated by this Credit
Agreement, (a) such Lender shall promptly give written notice of such
circumstances to the Borrower and the Administrative Agent (which notice
shall be withdrawn whenever such circumstances no longer exist), (b) the
commitment of such Lender hereunder to make Eurodollar Loans, continue
Eurodollar Loans as such and convert a Base Rate Loan to Eurodollar Loans
shall forthwith be canceled and, until such time as it shall no longer be
unlawful for such Lender to make or maintain Eurodollar Loans, such Lender
shall then have a commitment only to make a Base Rate Loan when a Eurodollar
Loan is requested and (c) such Lender's Loans then outstanding as Eurodollar
Loans, if
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any, shall be converted automatically to Base Rate Loans on the respective
last days of the then current Interest Periods with respect to such Loans or
within such earlier period as required by law. If any such conversion of a
Eurodollar Loan occurs on a day which is not the last day of the then current
Interest Period with respect thereto, the Borrower shall pay to such Lender
such amounts, if any, as may be required pursuant to Section 3.11.
3.9 Requirements of Law.
If, after the date hereof, the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof applicable
to any Lender, or compliance by any Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority, in each case made subsequent to the Closing Date (or,
if later, the date on which such Lender becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever
with respect to any Letter of Credit, any Eurodollar Loans made by it or
its obligation to make Eurodollar Loans, or change the basis of taxation
of payments to such Lender in respect thereof (except for (i) Non-Excluded
Taxes covered by Section 3.10 (including Non-Excluded Taxes imposed solely
by reason of any failure of such Lender to comply with its obligations
under Section 3.10(b)) and (ii) changes in taxes measured by or imposed
upon the overall net income, or franchise tax (imposed in lieu of such net
income tax), of such Lender or its applicable lending office, branch, or
any affiliate thereof));
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding any
tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such
Lender, by a material amount, of making, converting into, continuing or
maintaining Eurodollar Loans or issuing or participating in Letters of Credit
or to reduce any amount receivable hereunder in respect thereof, then, in any
such case, upon notice to the Borrower from such Lender, through the
Administrative Agent, in accordance herewith, the Borrower shall be obligated
to promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender for such increased cost or reduced amount
receivable, provided that, in any such case, the Borrower may elect to
convert the Eurodollar Loans made by such Lender hereunder to Base Rate Loans
by giving the Administrative Agent at least one
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Business Day's notice of such election, in which case the Borrower shall
promptly pay to such Lender, upon demand, without duplication, such amounts,
if any, as may be required pursuant to Section 3.11. If any Lender becomes
entitled to claim any additional amounts pursuant to this subsection, it
shall provide prompt notice thereof to the Borrower, through the
Administrative Agent, certifying (x) that one of the events described in this
paragraph (a) has occurred and describing in reasonable detail the nature of
such event, (y) as to the increased cost or reduced amount resulting from
such event and (z) as to the additional amount demanded by such Lender and a
reasonably detailed explanation of the calculation thereof. Such a
certificate as to any additional amounts payable pursuant to this subsection
submitted by such Lender, through the Administrative Agent, to the Borrower
shall be conclusive and binding on the parties hereto in the absence of
manifest error. This covenant shall survive the termination of this Credit
Agreement and the payment of the Loans and all other amounts payable
hereunder.
3.10 Taxes.
(a) Except as provided below in this subsection, all payments made
by the Borrower under this Credit Agreement and any Notes shall be made free
and clear of, and without deduction or withholding for or on account of, any
present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any court, or governmental body, agency or
other official, excluding taxes measured by or imposed upon the overall net
income of any Lender or its applicable lending office, or any branch or
affiliate thereof, and all franchise taxes, branch taxes, taxes on doing
business or taxes on the overall capital or net worth of any Lender or its
applicable lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under
the laws of which such Lender, applicable lending office, branch or affiliate
is organized or is located, or in which its principal executive office is
located, or any nation within which such jurisdiction is located or any
political subdivision thereof; or (ii) by reason of any connection between
the jurisdiction imposing such tax and such Lender, applicable lending
office, branch or affiliate other than a connection arising solely from such
Lender having executed, delivered or performed its obligations, or received
payment under or enforced, this Credit Agreement or any Notes. If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") are required to be withheld from any
amounts payable to the Administrative Agent or any Lender hereunder or under
any Notes, (A) the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the
Administrative Agent or such Lender (after payment of all Non-Excluded Taxes)
interest or any such other amounts payable hereunder at the rates or in the
amounts specified in this Credit Agreement and any Notes, provided, however,
that the Borrower shall be entitled to deduct and withhold any Non-Excluded
Taxes and shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the United States of America
or a state thereof if such Lender fails to comply with the requirements of
paragraph (b) of this subsection whenever any Non-Excluded Taxes are payable
by
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the Borrower, and (B) as promptly as possible thereafter the Borrower shall
send to the Administrative Agent for its own account or for the account of
such Lender, as the case may be, a certified copy of an original official
receipt received by the Borrower showing payment thereof. If the Borrower
fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts
or other required documentary evidence, the Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender
as a result of any such failure. The agreements in this subsection shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
(X)(i) on or before the date of any payment by the Borrower under this
Credit Agreement or Notes to such Lender, deliver to the Borrower and the
Administrative Agent (A) two (2) duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, or successor applicable form,
as the case may be, certifying that it is entitled to receive payments
under this Credit Agreement and any Notes without deduction or withholding
of any United States federal income taxes and (B) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form, as the case may be,
certifying that it is entitled to an exemption from United States backup
withholding tax;
(ii) deliver to the Borrower and the Administrative Agent two (2)
further copies of any such form or certification on or before the date
that any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower; and
(iii) obtain such extensions of time for filing and complete such forms
or certifications as may reasonably be requested by the Borrower or the
Administrative Agent; or
(Y) in the case of any such Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (i)
represent to the Borrower (for the benefit of the Borrower and the
Administrative Agent) that it is not a bank within the meaning of Section
881(c)(3)(A) of the Internal Revenue Code, (ii) agree to furnish to the
Borrower on or before the date of any payment by the Borrower, with a copy
to the Administrative Agent two (2) accurate and complete original signed
copies of Internal Revenue Service Form W-8, or successor applicable form
certifying to such Lender's legal entitlement at the date of such
certificate to an exemption from U.S. withholding tax under the provisions
of Section 881(c) of the Internal Revenue Code with respect to payments to
be made under this Credit Agreement and any Notes (and to deliver to the
Borrower and the Administrative Agent two
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(2) further copies of such form on or before the date it expires or
becomes obsolete and after the occurrence of any event requiring a change
in the most recently provided form and, if necessary, obtain any
extensions of time reasonably requested by the Borrower or the
Administrative Agent for filing and completing such forms), and (iii)
agree, to the extent legally entitled to do so, upon reasonable request by
the Borrower, to provide to the Borrower (for the benefit of the Borrower
and the Administrative Agent) such other forms as may be reasonably
required in order to establish the legal entitlement of such Lender to an
exemption from withholding with respect to payments under this Credit
Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has occurred
after the date such Person becomes a Lender hereunder which renders all such
forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender so advises
the Borrower and the Administrative Agent. Each Person that shall become a
Lender or a participant of a Lender pursuant to subsection 11.3 shall, upon
the effectiveness of the related transfer, be required to provide all of the
forms, certifications and statements required pursuant to this subsection,
provided that in the case of a participant of a Lender the obligations of
such participant of a Lender pursuant to this subsection (b) shall be
determined as if the participant of a Lender were a Lender except that such
participant of a Lender shall furnish all such required forms, certifications
and statements to the Lender from which the related participation shall have
been purchased.
3.11 Indemnity.
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur
(other than through such Lender's gross negligence or willful misconduct) as
a consequence of (a) default by the Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Credit Agreement, (b) default by the Borrower in making any prepayment of a
Eurodollar Loan after the Borrower has given a notice thereof in accordance
with the provisions of this Credit Agreement or (c) the making of a
prepayment of Eurodollar Loans on a day which is not the last day of an
Interest Period with respect thereto. With respect to Eurodollar Loans, such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the amount so prepaid, or not
so borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day
of the applicable Interest Period (or, in the case of a failure to borrow,
convert or continue, the Interest Period that would have commenced on the
date of such failure) in each case at the applicable rate of interest for
such Loans provided for herein (excluding, however, the Applicable Percentage
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to such Lender on such
amount by placing such amount on deposit for a comparable period with leading
banks in the interbank Eurodollar market. The covenants of the Borrower set
forth in this Section 3.11 shall survive
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the termination of this Credit Agreement and the payment of the Loans and all
other amounts payable hereunder.
3.12 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or prepayment of principal of
any Loan (other than Swingline Loans), each payment of interest on the Loans,
each payment of Commitment Fees, each reduction of the Revolving Committed
Amount and each conversion or extension of any Loan (other than Swingline
Loans), shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans and Participation
Interests.
(b) Advances. No Lender shall be responsible for the failure or
delay by any other Lender in its obligation to make its ratable share of a
borrowing hereunder; provided, however, that the failure of any Lender to
fulfill its obligations hereunder shall not relieve any other Lender of its
obligations hereunder. Unless the Administrative Agent shall have been
notified in writing by any Lender prior to a borrowing that such Lender will
not make the amount that would constitute its ratable share of such borrowing
available to the Administrative Agent, the Administrative Agent may assume
that such Lender is making such amount available to the Administrative Agent,
and the Administrative Agent may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such amount is not made
available to the Administrative Agent by such Lender within the time period
specified therefor hereunder, such Lender shall pay to the Administrative
Agent, on demand, such amount with interest thereon at a rate equal to the
Federal Funds Rate for a period of two (2) Business Days, and thereafter at
the Base Rate, for the period until such Lender makes such amount immediately
available to the Administrative Agent. If such Lender does not pay such
amounts to the Administrative Agent forthwith upon demand, the Administrative
Agent may notify the Borrower and request the Borrower to immediately pay
such amount to the Administrative Agent with interest at the Base Rate. A
certificate of the Administrative Agent submitted to any Lender with respect
to any amounts owing under this subsection shall be conclusive in the absence
of manifest error.
3.13 Sharing of Payments.
The Lenders agree among themselves that, in the event that any Lender
shall obtain payment in respect of any Loan, LOC Obligation or any other
obligation owing to such Lender under this Credit Agreement through the
exercise of a right of setoff, banker's lien or counterclaim, or pursuant to
a secured claim under Section 506 of Title 11 of the United States Code or
other security or interest arising from, or in lieu of, such secured claim,
received by such Lender under any applicable bankruptcy, insolvency or other
similar law or otherwise, or by any other means, in excess of its pro
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rata share of such payment as provided for in this Credit Agreement, such
Lender shall promptly purchase from the other Lenders a participation in such
Loans, LOC Obligations and other obligations in such amounts, and make such
other adjustments from time to time, as shall be equitable to the end that
all Lenders share such payment in accordance with their respective ratable
shares as provided for in this Credit Agreement. The Lenders further agree
among themselves that if payment to a Lender obtained by such Lender through
the exercise of a right of setoff, banker's lien, counterclaim or other event
as aforesaid shall be rescinded or must otherwise be restored, each Lender
which shall have shared the benefit of such payment shall, by repurchase of a
participation theretofore sold, return its share of that benefit (together
with its share of any accrued interest payable with respect thereto) to each
Lender whose payment shall have been rescinded or otherwise restored. The
Borrower agrees that any Lender so purchasing such a participation may, to
the fullest extent permitted by law, exercise all rights of payment,
including setoff, banker's lien or counterclaim, with respect to such
participation as fully as if such Lender were a holder of such Loan, LOC
Obligation or other obligation in the amount of such participation. Except
as otherwise expressly provided in this Credit Agreement, if any Lender or
the Administrative Agent shall fail to remit to the Administrative Agent or
any other Lender an amount payable by such Lender or the Administrative Agent
to the Administrative Agent or such other Lender pursuant to this Credit
Agreement on the date when such amount is due, such payments shall be made
together with interest thereon for each date from the date such amount is due
until the date such amount is paid to the Administrative Agent or such other
Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.13 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of
such secured claim in a manner consistent with the rights of the Lenders
under this Section 3.13 to share in the benefits of any recovery on such
secured claim.
3.14 Payments, Computations, Etc.
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Administrative Agent in dollars in immediately
available funds, without setoff, deduction, counterclaim or withholding of
any kind, at the Administrative Agent's office specified in Section 11.1 not
later than 2:00 P.M. (Charlotte, North Carolina time) on the date when due.
Payments received after such time shall be deemed to have been received on
the next succeeding Business Day. The Administrative Agent may (but shall not
be obligated to) debit the amount of any such payment which is not made by
such time to any ordinary deposit account of the Borrower maintained with the
Administrative Agent (with notice to the Borrower). The Borrower shall, at
the time it makes any payment under this Credit Agreement, specify to the
Administrative Agent the Loans, LOC Obligations, Fees, interest or other
amounts payable by the Borrower hereunder to which such payment is to be
applied (and in the event that it fails so to specify, or if such application
would be inconsistent with the terms hereof, the Administrative Agent shall
distribute such payment to the Lenders in such manner as the Administrative
Agent may determine to be appropriate in respect of
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obligations owing by the Borrower hereunder, subject to the terms of Section
3.12(a)). The Administrative Agent will distribute such payments to such
Lenders, if any such payment is received prior to 12:00 Noon (Charlotte,
North Carolina time) on a Business Day in like funds as received prior to the
end of such Business Day and otherwise the Administrative Agent will
distribute such payment to such Lenders on the next succeeding Business Day.
Whenever any payment hereunder shall be stated to be due on a day which is
not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day (subject to accrual of interest and Fees for the
period of such extension), except that in the case of Eurodollar Loans, if
the extension would cause the payment to be made in the next following
calendar month, then such payment shall instead be made on the next preceding
Business Day. Except as expressly provided otherwise herein, all
computations of interest and fees shall be made on the basis of actual number
of days elapsed over a year of 360 days, except with respect to computation
of interest on Base Rate Loans which (unless the Base Rate is determined by
reference to the Federal Funds Rate) shall be calculated based on a year of
365 or 366 days, as appropriate. Interest shall accrue from and include the
date of borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding
any other provisions of this Credit Agreement to the contrary, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by the Administrative Agent or any Lender on account of
the Guaranteed Obligations or any other amounts outstanding under any of the
Credit Documents shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable and documented out-of-pocket costs
and expenses (including without limitation reasonable attorneys' fees) of
the Administrative Agent in connection with enforcing the rights of the
Lenders under the Credit Documents, except to the extent any such costs
arise out of or relate to disputes solely between or among the
Administrative Lender and/or the Lenders;
SECOND, to payment of any fees owed to the Administrative Agent;
THIRD, to the payment of all reasonable and documented out-of-pocket
costs and expenses (including without limitation, reasonable attorneys'
fees) of each of the Lenders in connection with enforcing its rights under
the Credit Documents or otherwise with respect to the Obligations owing to
such Lender, except to the extent any such costs arise out of or relate to
disputes solely between or among the Administrative Lender and/or the
Lenders;
FOURTH, to the payment of all accrued interest and fees on or in respect
of the Obligations;
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FIFTH, to the payment of the outstanding principal amount of the
Guaranteed Obligations (including the payment or cash collateralization of
outstanding LOC Obligations);
SIXTH, to all other Obligations and other obligations which shall have
become due and payable under the Credit Documents or otherwise and not
repaid pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of the Lenders shall receive an amount
equal to its pro rata share (based on the proportion that the then
outstanding Obligations held by such Lender bears to the aggregate then
outstanding Obligations) of amounts available to be applied pursuant to
clauses "THIRD", "FOURTH", "FIFTH" and "SIXTH" above; and (iii) to the extent
that any amounts available for distribution pursuant to clause "FIFTH" above
are attributable to the issued but undrawn amount of outstanding letters of
credit, such amounts shall be held by the Administrative Agent in a cash
collateral account and applied (A) first, to reimburse the issuing lender for
any drawings under such letters of credit and (B) then, following the
expiration of all letters of credit, to all other obligations of the types
described in clauses "FIFTH" and "SIXTH" above in the manner provided in this
Section 3.14(b).
3.15 Evidence of Debt.
(a) Each Lender shall maintain an account or accounts evidencing
each Loan made by such Lender to the Borrower from time to time, including
the amounts of principal and interest payable and paid to such Lender from
time to time under this Credit Agreement. Each Lender will make reasonable
efforts to maintain the accuracy of its account or accounts and to promptly
update its account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to
Section 11.3(c) hereof, and a subaccount for each Lender, in which Register
and subaccounts (taken together) shall be recorded (i) the amount, type and
Interest Period of each such Loan hereunder, (ii) the amount of any principal
or interest due and payable or to become due and payable to each Lender
hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder from or for the account of the Borrower and each Lender's
share thereof. The Administrative Agent will make reasonable efforts to
maintain the accuracy of the subaccounts referred to in the preceding
sentence and to promptly update such subaccounts from time to time, as
necessary.
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(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.15 (and, if
consistent with the entries of the Administrative Agent, subsection (a))
shall be prima facie evidence of the existence and amounts of the obligations
of the Borrower therein recorded; provided, however, that the failure of any
Lender or the Administrative Agent to maintain any such account, such
Register or such subaccount, as applicable, or any error therein, shall not
in any manner affect the obligation of the Borrower to repay the Loans made
by such Lender in accordance with the terms hereof.
SECTION 4
GUARANTY
4.1 The Guarantee.
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, to each Affiliate of a Lender that enters into a Hedging Agreement
and to the Administrative Agent as hereinafter provided the prompt payment of
the Guaranteed Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, a mandatory cash collateralization or
otherwise) strictly in accordance with the terms thereof. The Guarantors
hereby further agree that if any of the Guaranteed Obligations are not paid
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as mandatory cash collateralization or otherwise), the
Guarantors will, jointly and severally, promptly pay the same, without any
demand or notice whatsoever, and that in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, as a mandatory
prepayment, by acceleration or otherwise) in accordance with the terms of
such extension or renewal.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or
transfers) then the obligations of each Guarantor hereunder shall be limited
to the maximum amount that is permissible under applicable law (whether
federal or state and including, without limitation, the Bankruptcy Code).
4.2 Obligations Unconditional.
The obligations of the Guarantors under Section 4.1 hereof are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or
Hedging Agreements, or any other agreement or instrument referred to therein,
or any substitution, release or exchange of any other guarantee of or
security for any of the
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Guaranteed Obligations, and, to the fullest extent permitted by applicable
law, irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of
the Guarantors hereunder shall be absolute and unconditional under any and
all circumstances. Each Guarantor agrees that such Guarantor shall have no
right of subrogation, indemnity, reimbursement or contribution against the
Borrower or any other Guarantor of the Guaranteed Obligations for amounts
paid under this Guaranty until such time as the Lenders (and any Affiliates
of Lenders entering into Hedging Agreements) have been paid in full, all
Commitments under the Credit Agreement have been terminated and no Person or
Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received
under the Credit Documents or Hedging Agreements. Without limiting the
generality of the foregoing, it is agreed that, to the fullest extent
permitted by law, the occurrence of any one or more of the following shall
not alter or impair the liability of any Guarantor hereunder which shall
remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to any Guarantor,
the time for any performance of or compliance with any of the Guaranteed
Obligations shall be extended, or such performance or compliance shall be
waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part
or otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Administrative Agent or
any Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected; or
(v) any of the Guaranteed Obligations shall be determined to be void or
voidable (including, without limitation, for the benefit of any creditor
of any Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Guarantor).
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With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Administrative Agent or any Lender
exhaust any right, power or remedy or proceed against any Person under any of
the Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements, or
against any other Person under any other guarantee of, or security for, any
of the Guaranteed Obligations.
4.3 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment
by or on behalf of any Person in respect of the Guaranteed Obligations is
rescinded or must be otherwise restored by any holder of any of the
Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise, and each Guarantor agrees that it will
indemnify the Administrative Agent and each Lender on demand for all
reasonable costs and expenses (including, without limitation, fees and
expenses of counsel) incurred by the Administrative Agent or such Lender in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. Sections
26-7 through 26-9, inclusive. Each Guarantor further agrees that such
Guarantor shall have no right of recourse to security for the Guaranteed
Obligations, except through the exercise of the rights of subrogation
pursuant to Section 4.2.
4.5 Remedies.
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Section 9.2 hereof (and shall be
deemed to have become automatically due and payable in the circumstances
provided in said Section 9.2) for purposes of Section 4.1 hereof
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or preventing the Guaranteed Obligations from becoming
automatically due and payable) as against any other Person and that, in the
event of such declaration (or the Guaranteed Obligations being deemed to have
become automatically due and payable), the Guaranteed Obligations (whether or
not due and payable by any other Person) shall forthwith become due and
payable by the Guarantors for purposes of said Section 4.1.
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4.6 Rights of Contribution.
The Guarantors hereby agree, as among themselves, that if any Guarantor
shall become an Excess Funding Guarantor (as defined below), each other
Guarantor shall, on demand of such Excess Funding Guarantor (but subject to
the succeeding provisions of this Section 4.6), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined
below and determined, for this purpose, without reference to the properties,
assets, liabilities and debts of such Excess Funding Guarantor) of such
Excess Payment (as defined below). The payment obligation of any Guarantor
to any Excess Funding Guarantor under this Section 4.6 shall be subordinate
and subject in right of payment to the prior payment in full of the
obligations of such Guarantor under the other provisions of this Section 4,
and such Excess Funding Guarantor shall not exercise any right or remedy with
respect to such excess until payment and satisfaction in full of all of such
obligations. For purposes hereof, (i) "Excess Funding Guarantor" shall mean,
in respect of any obligations arising under the other provisions of this
Section 4 (hereafter, the "Guarantied Obligations"), a Guarantor that has
paid an amount in excess of its Pro Rata Share of the Guarantied Obligations;
(ii) "Excess Payment" shall mean, in respect of any Guarantied Obligations,
the amount paid by an Excess Funding Guarantor in excess of its Pro Rata
Share of such Guarantied Obligations; and (iii) "Pro Rata Share", for the
purposes of this Section 4.6, shall mean, for any Guarantor, the ratio
(expressed as a percentage) of (a) the amount by which the aggregate present
fair saleable value of all of its assets and properties exceeds the amount of
all debts and liabilities of such Guarantor (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of such Guarantor hereunder) to (b) the amount by which the
aggregate present fair saleable value of all assets and other properties of
the Borrower and all of the Guarantors exceeds the amount of all of the debts
and liabilities (including contingent, subordinated, unmatured, and
unliquidated liabilities, but excluding the obligations of the Borrower and
the Guarantors hereunder) of the Borrower and all of the Guarantors, all as
of the Closing Date (if any Guarantor becomes a party hereto subsequent to
the Closing Date, then for the purposes of this Section 4.6 such subsequent
Guarantor shall be deemed to have been a Guarantor as of the Closing Date and
the information pertaining to, and only pertaining to, such Guarantor as of
the date such Guarantor became a Guarantor shall be deemed true as of the
Closing Date).
4.7 Continuing Guarantee.
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Guaranteed Obligations whenever arising.
SECTION 5
CONDITIONS
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5.1 Conditions to Closing.
This Credit Agreement shall become effective, and the initial Extensions
of Credit may be made, upon the satisfaction of the following conditions
precedent:
(a) Execution of Credit Agreement and Credit Documents. Receipt of
(i) multiple counterparts of this Credit Agreement, (ii) a Note for each
Lender, (iii) multiple counterparts of the Pledge Agreement, the Security
Agreement and the UCC financing statements relating thereto, if any, in each
case executed by a duly authorized officer of each party thereto and in each
case conforming to the requirements of this Credit Agreement.
(b) Consummation of Spin-off. Evidence of consummation of the
Spin-Off Transaction, and receipt of all shareholder, governmental and other
necessary consents, approvals and authorizations (including the passage of
all waiting periods).
(c) Pro Forma Balance Sheet. Receipt of a pro forma balance sheet
for the Borrower and its Subsidiaries upon consummation of the Spin-Off
Transaction after giving effect to the initial Extensions of Credit hereunder.
(d) Legal Opinions. Receipt of multiple counterparts of opinions of
counsel for the Credit Parties relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to the
Administrative Agent and the Required Lenders.
(e) Stock Certificates. Receipt of original stock certificates
evidencing the ownership interests of the Credit Parties pledged pursuant to
the Pledge Agreement, together in each case with original undated stock
powers executed in blank.
(f) Financial Information. Receipt of financial information
regarding the Borrower and its subsidiaries, as may be requested by, and in
each case in form and substance satisfactory to the Administrative Agent and
the Lenders.
(g) Evidence of Insurance. Receipt of insurance certificates or
policies evidencing flood hazard insurance (for improvements located in areas
having "special flood hazards"), casualty insurance (including builders' risk
and all-risk permanent policies) and liability insurance conforming to the
requirements of this Credit Agreement and the other Credit Documents, showing
the Administrative Agent as loss payee with respect to the flood hazard and
casualty insurance, together with evidence of payment of premiums thereon.
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(h) Absence of Legal Proceedings. The absence of any action , suit,
investigation or proceeding pending in any court or before any arbitrator or
governmental instrumentality which could reasonably be expected to have a
Material Adverse Effect.
(i) Corporate Documents. Receipt of the following (or their
equivalent) for each of the Credit Parties:
(i) Articles of Incorporation. Copies of the articles
of incorporation or charter documents certified to be true and complete as
of a recent date by the appropriate governmental authority of the state of
its incorporation.
(ii) Resolutions. Copies of resolutions of the Board of
Directors approving and adopting the respective Credit Documents, the
transactions contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary as of the Closing
Date to be true and correct and in force and effect as of such date.
(iii) Bylaws. Copies of the bylaws certified by a
secretary or assistant secretary as of the Closing Date to be true and
correct and in force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of (A)
certificates of good standing, existence or its equivalent certified as of
a recent date by the appropriate governmental authorities of the state of
incorporation and each other state in which the failure to so qualify and
be in good standing would in the aggregate have a Material Adverse Effect
and (B) a certificate indicating payment of all corporate franchise taxes
certified as of a recent date by the appropriate governmental taxing
authorities.
(v) Officer's Certificate. An officer's certificate for
each of the Credit Parties dated as of the Closing Date substantially in
the form of Schedule 5.1(i)(v) with appropriate insertions and attachments.
(j) Fees. Receipt of all fees, if any, owing pursuant to the
Administrative Agent's Fee Letter, Section 3.5 or otherwise.
(k) Subsection 5.2 Conditions. The conditions specified in Section
5.2 shall be satisfied.
(l) Additional Matters. All other documents and legal matters in
connection with the transactions contemplated by this Credit Agreement shall
be reasonably satisfactory in form and substance to the Agents and the
Required Lenders.
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5.2 Conditions to All Extensions of Credit.
The obligation of each Lender to make any Extension of Credit hereunder
(including the initial Extension of Credit to be made hereunder) is subject
to the satisfaction of the following conditions precedent on the date of
making such Extension of Credit:
(a) Representations and Warranties. The representations and
warranties made by the Credit Parties herein or in any other Credit Documents
or which are contained in any certificate furnished at any time under or in
connection herewith shall be true and correct in all material respects on and
as of the date of such Extension of Credit as if made on and as of such date
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on such date or after giving effect to
the Extension of Credit to be made on such date unless such Default or Event
of Default shall have been waived in accordance with this Credit Agreement.
(c) No Bankruptcy Event. No Bankruptcy Event shall have occurred
and be continuing with respect to any of the Credit Parties.
(d) No Material Adverse Effect. No circumstances, events or
conditions shall have occurred since the date of the audited financial
statements referenced in Section 6.1 which would have a Material Adverse
Effect.
(e) Additional Conditions to Revolving Loans. If a Revolving Loan
is made pursuant to Section 2.1, all conditions set forth therein shall have
been satisfied.
(f) Additional Conditions to Swingline Loans. If a Swingline Loan
is made pursuant to Section 2.2, all conditions set forth therein shall have
been satisfied.
Each request for Extension of Credit (including extensions and
conversions) and each acceptance by the Borrower of an Extension of Credit
(including extensions and conversions) shall be deemed to constitute a
representation and warranty by the Borrower as of the date of such Extension
of Credit that the applicable conditions in paragraphs (a), (b), (c) and (d),
and in (e) or (f) of this subsection have been satisfied.
SECTION 6
REPRESENTATIONS AND WARRANTIES
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To induce the Lenders to enter into this Credit Agreement and to make
Extensions of Credit herein provided for, each of the members of the
Consolidated Group parties hereto hereby represents and warrants to the
Administrative Agent and to each Lender that:
6.1 Financial Condition.
Each of the financial statements described below (copies of which have
heretofore been provided to the Administrative Agent for distribution to the
Lenders), have been prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, are complete and correct in all
material respects and present fairly the financial condition and results from
operations of the entities and for the periods specified, subject in the case
of interim company-prepared statements to normal year-end adjustments and the
absence of footnotes:
(i) a consolidated and consolidating balance sheet of the Borrower
and its consolidated subsidiaries dated as of April 26, 1997, together
with related statements income and cash flows certified by Price
Waterhouse LLP, certified public accountants; and
(ii) a consolidated and consolidating balance sheet of the Borrower
and its consolidated subsidiaries dated as of January 24, 1998 certified
by Price Waterhouse LLP, certified public accountants.
6.2 No Changes or Restricted Payments.
Since the date of the financial statements referenced in Section 6.1(i),
(a) there has been no circumstance, development or event relating to or
affecting the members of the Consolidated Group which has had or would be
reasonably expected to have a Material Adverse Effect, and (b) except as
permitted herein, no Restricted Payments have been made or declared or are
contemplated by any members of the Consolidated Group.
6.3 Organization; Existence; Compliance with Law.
Each of the members of the Consolidated Group (a) is duly organized,
validly existing in good standing under the laws of the jurisdiction of its
incorporation or organization, (b) has the corporate or other necessary power
and authority, and the legal right to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign entity and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such
qualification, other than in such jurisdictions where the failure to be so
qualified and in good standing would not, in the aggregate, have a Material
Adverse Effect, and (d) is in compliance with all Requirements of
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Law, except to the extent that the failure to comply therewith would not, in
the aggregate, be reasonably expected to have a Material Adverse Effect.
6.4 Power; Authorization; Enforceable Obligations.
Each of the Credit Parties has the corporate or other necessary power and
authority, and the legal right, to make, deliver and perform the Credit
Documents to which it is a party and has taken all necessary corporate or
other action to authorize the execution, delivery and performance by it of
the Credit Documents to which it is a party. No consent or authorization of,
filing with, notice to or other act by or in respect of, any Governmental
Authority or any other Person is required in connection with acceptance of
extensions of credit or the making of the guaranties hereunder or with the
execution, delivery or performance of any Credit Documents by the Credit
Parties (other than those which have been obtained, such filings as are
required by the Securities and Exchange Commission and to fulfill other
reporting requirements with Governmental Authorities) or with the validity or
enforceability of any Credit Document against the Credit parties (except such
filings as are necessary in connection with the perfection of the Liens
created by such Credit Documents). Each Credit Document to which it is a
party constitutes a legal, valid and binding obligation of such Credit Party
enforceable against such Credit Party in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general equitable
principles (whether enforcement is sought by proceedings in equity or at law.
6.5 No Legal Bar.
The execution, delivery and performance of the Credit Documents, the
borrowings hereunder and the use of the Extensions of Credit will not violate
any Requirement of Law or any Contractual Obligation of any member of the
Consolidated Group (except those as to which waivers or consents have been
obtained), and will not result in, or require, the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or Contractual Obligation other than the Liens arising
under or contemplated in connection with the Credit Documents. No member of
the Consolidated Group is in default under or with respect to any of its
Contractual Obligations in any respect which would reasonably be expected to
have a Material Adverse Effect.
6.6 No Material Litigation.
No claim, litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the best knowledge of
the Credit Parties, threatened by or against, any members of the Consolidated
Group or against any of their respective properties or revenues
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which (a) relate to the Credit Documents or any of the transactions
contemplated hereby or thereby, (b) if adversely determined, would reasonably
be expected to have a Material Adverse Effect. Set forth on Schedule 6.6 is
a summary of all material claims, litigation, investigations and proceedings
pending or, to the best knowledge of the Credit Parties, threatened by or
against the members of the Consolidated Group or against any of their
respective properties or revenues, and none of such actions, individually or
in the aggregate, is reasonably expected to have a Material Adverse Effect.
6.7 No Default.
No Default or Event of Default has occurred and is continuing.
6.8 Ownership of Property; Liens.
Each of members of the Consolidated Group has good record and marketable
title in fee simple to, or a valid leasehold interest in, all its material
real property, and good title to, or a valid leasehold interest in, all its
other material property, and none of such property is subject to any Lien,
except for Permitted Liens.
6.9 Intellectual Property.
Each of the members of the Consolidated Group owns, or has the legal right
to use, all United States trademarks, tradenames, copyrights, technology,
know-how and processes, if any, necessary for each of them to conduct its
business as currently conducted (the "Intellectual Property") except for
those the failure to own or have such legal right to use would be subject to
indemnification in favor of a member of the Consolidated Group or would not
be reasonably expected to have a Material Adverse Effect. No claim has been
asserted and is pending by any Person challenging or questioning the use of
any such Intellectual Property or the validity or effectiveness of any such
Intellectual Property, nor does any Credit Party know of any such claim, and
the use of such Intellectual Property by the members of the Consolidated
Group does not infringe on the rights of any Person, except for such claims
and infringements that in the aggregate, would not be reasonably expected to
have a Material Adverse Effect.
6.10 No Burdensome Restrictions.
No Requirement of Law or Contractual Obligation of the members of the
Consolidated Group would be reasonably expected to have a Material Adverse
Effect.
6.11 Taxes.
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Each of the members of the Consolidated Group has filed or caused to be
filed all United States federal income tax returns and all other material tax
returns which, to the best knowledge of the Credit Parties, are required to
be filed and has paid (a) all taxes shown to be due and payable on said
returns or (b) all taxes shown to be due and payable on any assessments of
which it has received notice made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any (i) taxes, fees or other charges
which would be subject to indemnification in favor of a member of the
Consolidated Group or with respect to which the failure to pay, in the
aggregate, would not have a Material Adverse Effect or (ii) taxes, fees or
other charges the amount or validity of which are currently being contested
and with respect to which reserves in conformity with GAAP have been provided
on the books of such Person), and no tax Lien has been filed, and, to the
best knowledge of the Credit Parties, no claim is being asserted, with
respect to any such tax, fee or other charge.
6.12 ERISA
Except as would be subject to indemnification in favor of a member of the
Consolidated Group or would not reasonably be expected to have a Material
Adverse Effect, to the knowledge of the Credit Parties:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no ERISA Event has occurred, and,
to the best knowledge of the Credit Parties, no event or condition has
occurred or exists as a result of which any ERISA Event could reasonably be
expected to occur, with respect to any Plan; (ii) no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA and Section 412
of the Code, whether or not waived, has occurred with respect to any Plan;
(iii) each Plan has been maintained, operated, and funded in compliance with
its own terms and in material compliance with the provisions of ERISA, the
Code, and any other applicable federal or state laws; and (iv) no lien in
favor of the PBGC or a Plan has arisen or is reasonably likely to arise on
account of any Plan.
(b) The actuarial present value of all "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA), whether or not vested, under each
Single Employer Plan, as of the last annual valuation date prior to the date
on which this representation is made or deemed made (determined, in each
case, in accordance with Financial Accounting Standards Board Statement 87,
utilizing the actuarial assumptions used in such Plan's most recent actuarial
valuation report), did not exceed as of such valuation date the fair market
value of the assets of such Plan.
(c) No member of the Consolidated Group nor any ERISA Affiliate has
incurred, or, to the best knowledge of the Credit Parties, could be
reasonably expected to incur, any withdrawal liability under ERISA to any
Multiemployer Plan or Multiple Employer Plan. No member of the Consolidated
Group nor any ERISA Affiliate would become subject to any withdrawal
liability under
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ERISA if any member of the Consolidated Group or any ERISA Affiliate were to
withdraw completely from all Multiemployer Plans and Multiple Employer Plans
as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No member of the Consolidated Group
nor any ERISA Affiliate has received any notification that any Multiemployer
Plan is in reorganization (within the meaning of Section 4241 of ERISA), is
insolvent (within the meaning of Section 4245 of ERISA), or has been
terminated (within the meaning of Title IV of ERISA), and no Multiemployer
Plan is, to the best knowledge of the Credit Parties, reasonably expected to
be in reorganization, insolvent, or terminated.
(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility has
occurred with respect to a Plan which has subjected or may subject any member
of the Consolidated Group or any ERISA Affiliate to any liability under
Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which any member of the
Consolidated Group or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability.
(e) To the knowledge of the Borrower, no member of the Consolidated
Group nor any ERISA Affiliates has any material liability with respect to
"expected post-retirement benefit obligations" within the meaning of the
Financial Accounting Standards Board Statement 106. Each Plan which is a
welfare plan (as defined in Section 3(1) of ERISA) to which Sections 601-609
of ERISA and Section 4980B of the Code apply has been administered in
compliance in all material respects of such sections.
6.13 Governmental Regulations, Etc.
(a) No part of the proceeds of the Extensions of Credit hereunder
will be used, directly or indirectly, for the purpose of purchasing or
carrying any "margin stock" within the meaning of Regulation U, or for the
purpose of purchasing or carrying or trading in any securities. If requested
by any Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 referred to in said
Regulation U. No indebtedness being reduced or retired out of the proceeds
of the Extensions of Credit hereunder was or will be incurred for the purpose
of purchasing or carrying any margin stock within the meaning of Regulation U
or any "margin security" within the meaning of Regulation T. "Margin stock"
within the meanings of Regulation U does not constitute more than 25% of the
value of the consolidated assets of the Borrower and its Subsidiaries. None
of the transactions contemplated by this Credit Agreement (including, without
limitation, the direct or indirect use of the proceeds of the Loans) will
violate or result in a violation of the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended, or regulations issued
pursuant thereto, or Regulation T, U or X.
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(b) None of the members of the Consolidated Group is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act or the Investment Company Act of 1940, each as amended. In
addition, none of the members of the Consolidated Group is (i) an "investment
company" registered or required to be registered under the Investment Company
Act of 1940, as amended, and is not controlled by such a company, or (ii) a
"holding company", or a "subsidiary company" of a "holding company", or an
"affiliate" of a "holding company" or of a "subsidiary" of a "holding
company", within the meaning of the Public Utility Holding Company Act of
1935, as amended.
(c) No director, executive officer or principal shareholder of any
member of the Consolidated Group is a director, executive officer or
principal shareholder of any Lender. For the purposes hereof the terms
"director", "executive officer" and "principal shareholder" (when used with
reference to any Lender) have the respective meanings assigned thereto in
Regulation O issued by the Board of Governors of the Federal Reserve System.
6.14 Subsidiaries.
Set forth on Schedule 6.14 are all the Subsidiaries of the Borrower at the
Closing Date, the jurisdiction of their incorporation and the direct or
indirect ownership interest of the Borrower therein.
6.15 Purpose of Extensions of Credit.
Extensions of Credit hereunder may be used to refinance existing
indebtedness (including intercompany indebtedness owing to U.S. Office
Products, Inc.), to finance working capital, capital expenditures and other
lawful corporate purposes, including acquisitions permitted hereunder.
6.16 Environmental Matters.
Except as would be subject to indemnification in favor of a member of the
Consolidated Group or would not reasonably be expected to have a Material
Adverse Effect, and to the knowledge of the Credit Parties:
(a) Each of the facilities and properties owned, leased or operated
by the members of the Consolidated Group (the "Properties") and all
operations at the Properties are in compliance with all applicable
Environmental Laws, and there is no violation of any Environmental Law with
respect to the Properties or the businesses operated by the members of the
Consolidated Group (the "Businesses"), and there are no conditions relating
to the Businesses or Properties that could give rise to liability under any
applicable Environmental Laws.
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(b) None of the Properties contains, or has previously contained,
any Materials of Environmental Concern at, on or under the Properties in
amounts or concentrations that constitute or constituted a violation of, or
could give rise to liability under, Environmental Laws.
(c) None of the members of the Consolidated Group has received any
written or verbal notice of, or inquiry from any Governmental Authority
regarding, any violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the Businesses,
nor does any member of the Consolidated Group have knowledge or reason to
believe that any such notice will be received or is being threatened.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties, or generated, treated, stored or disposed of
at, on or under any of the Properties or any other location, in each case by
or on behalf any members of the Consolidated Group in violation of, or in a
manner that would be reasonably likely to give rise to liability under, any
applicable Environmental Law.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the best knowledge of any Credit Party, threatened, under
any Environmental Law to which any member of the Consolidated Group is or
will be named as a party, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental
Law with respect to any member of the Consolidated Group, the Properties or
the Businesses.
(f) There has been no release or, threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations (including, without limitation, disposal) of any member of
the Consolidated Group in connection with the Properties or otherwise in
connection with the Businesses, in violation of or in amounts or in a manner
that could give rise to liability under Environmental Laws.
SECTION 7
AFFIRMATIVE COVENANTS
Each of the Credit Parties covenants and agrees that on the Closing Date,
and so long as this Credit Agreement is in effect and until the Commitments
have been terminated, no Obligations remain outstanding and all amounts owing
hereunder or in connection herewith have been paid in full, each of the
members of the Consolidated Group party hereto shall:
7.1 Financial Statements.
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Furnish, or cause to be furnished, to the Administrative Agent for
distribution to the Lenders:
(a) Audited Financial Statements. As soon as available, but in any
event within 90 days after the end of each fiscal year, an audited
consolidated balance sheet of the Borrower and its subsidiaries as of the
end of the fiscal year and the related consolidated statements of income,
retained earnings, shareholders' equity and cash flows for the year,
audited by Price Waterhouse LLP, or other firm of independent certified
public accountants of nationally recognized standing reasonably acceptable
to the Required Lenders, setting forth in each case in comparative form
the figures for the previous year, reported without a "going concern" or
like qualification or exception, or qualification indicating that the
scope of the audit was inadequate to permit such independent certified
public accountants to certify such financial statements without such
qualification.
(b) Company-Prepared Financial Statements. As soon as available,
but in any event
(i) within 45 days after the end of each of the first three
fiscal quarters, a company-prepared consolidated balance sheet of the
Borrower and its subsidiaries as of the end of the quarter and related
company-prepared consolidated statements of income, retained earnings,
shareholders' equity and cash flows for such quarterly period and for
the fiscal year to date;
(ii) within 60 days after the end of the fourth fiscal
quarter, a company-prepared consolidated balance sheet of the Borrower
and its subsidiaries as of the end of the quarter and related
company-prepared consolidated statements of income, retained earnings,
shareholders' equity and cash flows for such quarterly period and for
the fiscal year to date;
(iii) prior to the end of each fiscal year, an annual
business plan and budget for the members of the Consolidated Group,
containing, among other things, pro forma financial statements for the
next fiscal year,
in each case setting forth in comparative form the consolidated figures
for the corresponding period or periods of the preceding fiscal year or
the portion of the fiscal year ending with such period, as applicable, in
each case subject to normal recurring year-end audit adjustments.
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All such financial statements shall be complete and correct in all material
respects (subject, in the case of interim statements, to normal recurring
year-end audit adjustments) and shall be prepared in reasonable detail and,
in the case of the annual and quarterly financial statements provided in
accordance with subsections (a) and (b) above, in accordance with GAAP
applied consistently throughout the periods reflected therein and further
accompanied by a description of, and an estimation of the effect on the
financial statements on account of, a change in the application of accounting
principles as provided in Section 1.3.
7.2 Certificates; Other Information.
Furnish, or cause to be furnished, to the Administrative Agent for
distribution to the Lenders:
(a) Accountant's Certificate and Reports. Concurrently with the
delivery of the financial statements referred to in subsection 7.1(a)
above, a certificate of the independent certified public accountants
reporting on such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of any Default or
Event of Default, except as specified in such certificate.
(b) Officer's Compliance Certificate. Concurrently with the
delivery of the financial statements referred to in Sections 7.1(a) and
7.1(b) above, a certificate of a Responsible Officer stating that, to the
best of such Responsible Officer's knowledge and belief, (i) the financial
statements fairly present in all material respects the financial condition
of the parties covered by such financial statements, (ii) during such
period the members of the Consolidated Group have observed or performed in
all material respects the covenants and other agreements hereunder and
under the other Credit Documents relating to them, and satisfied in all
material respects the conditions, contained in this Credit Agreement to be
observed, performed or satisfied by them, and (iii) such Responsible
Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate. Such certificate shall include
the calculations required to indicate compliance with Section 7.9. A form
of Officer's Certificate is attached as Schedule 7.2(b).
(c) Accountants' Reports. Promptly upon receipt, a copy of any
final (as distinguished from a preliminary or discussion draft)
"management letter" or other similar report submitted by independent
accountants or financial consultants to the members of the Consolidated
Group in connection with any annual, interim or special audit.
(d) Public Information. Within thirty days after the same are sent,
copies of all reports (other than those otherwise provided pursuant to
subsection 7.1) and other financial information which any member of the
Consolidated Group sends to its public stockholders, and within thirty
days after the same are filed, copies of all financial statements and
non-
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confidential reports which any member of the Consolidated Group may
make to, or file with, the Securities and Exchange Commission or any
successor or analogous Governmental Authority.
(e) Other Information. Promptly, such additional financial and
other information as the Administrative Agent, at the request of any
Lender, may from time to time reasonably request.
7.3 Notices.
Give notice to the Administrative Agent (which shall promptly transmit
such notice to each Lender) of:
(a) Defaults. Immediately (and in any event within two (2) Business
Days) after a responsible officer of a Credit Party has knowledge of the
occurrence of an Event of Default.
(b) Contractual Obligations. Promptly, the occurrence of any
default or event of default under any Contractual Obligation of any member
of the Consolidated Group which would reasonably be expected to have a
Material Adverse Effect.
(c) Legal Proceedings. Promptly, any litigation, or any
investigation or proceeding (including without limitation, any
environmental proceeding) known to any member of the Consolidated Group,
or any material development in respect thereof, affecting any member of
the Consolidated Group which, if adversely determined, would reasonably be
expected to have a Material Adverse Effect.
(d) ERISA. Promptly, after any Responsible Officer of the Borrower
knows or has reason to know of (i) any event or condition, including, but
not limited to, any Reportable Event, that constitutes, or might
reasonably lead to, an ERISA Event; (ii) with respect to any Multiemployer
Plan, the receipt of notice as prescribed in ERISA or otherwise of any
withdrawal liability assessed against any of their ERISA Affiliates, or of
a determination that any Multiemployer Plan is in reorganization or
insolvent (both within the meaning of Title IV of ERISA); (iii) the
failure to make full payment on or before the due date (including
extensions) thereof of all amounts which the members of the Consolidated
Group or any ERISA Affiliate are required to contribute to each Plan
pursuant to its terms and as required to meet the minimum funding standard
set forth in ERISA and the Code with respect; or (iv) any change in the
funding status of any Plan that reasonably could be expected to have a
Material Adverse Effect; together with a description of any such event or
condition or a copy of any such notice and a statement by the chief
financial officer of the Borrower briefly
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setting forth the details regarding such event, condition, or notice, and
the action, if any, which has been or is being taken or is proposed to be
taken by the Credit Parties with respect thereto. Promptly upon request,
the members of the Consolidated Group shall furnish the Administrative
Agent and the Lenders with such additional information concerning any Plan
as may be reasonably requested, including, but not limited to, copies of
each annual report/return (Form 5500 series), as well as all schedules and
attachments thereto required to be filed with the Department of Labor
and/or the Internal Revenue Service pursuant to ERISA and the Code,
respectively, for each "plan year" (within the meaning of Section 3(39) of
ERISA).
(e) Other. Promptly, any other development or event which a
Responsible Officer of the Borrower determines could reasonably be
expected to have a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement
of a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein and stating what action the relevant Credit
Parties propose to take with respect thereto.
7.4 Payment of Obligations.
Pay, discharge or otherwise satisfy at or before maturity or before they
become delinquent, as the case may be, in accordance with prudent business
practice (subject, where applicable, to specified grace periods) all material
obligations of each member of the Consolidated Group of whatever nature and
any additional costs that are imposed as a result of any failure to so pay,
discharge or otherwise satisfy such obligations, except when the amount or
validity of such obligations and costs is currently being contested in good
faith by appropriate proceedings and reserves, if applicable, in conformity
with GAAP with respect thereto have been provided on the books of the
Consolidated Group, as the case may be.
7.5 Conduct of Business and Maintenance of Existence.
Continue to engage in business of the same general type as now conducted
by it on the date hereof and similar or related businesses with, and
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges, licenses and
franchises necessary or desirable in the normal conduct of its business;
comply with all Contractual Obligations and Requirements of Law applicable to
it except to the extent that failure to comply therewith would not, in the
aggregate, have a Material Adverse Effect.
7.6 Maintenance of Property; Insurance.
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Keep all material property useful and necessary in its business in
reasonably good working order and condition (ordinary wear and tear
excepted); maintain with financially sound and reputable insurance companies
casualty, liability and such other insurance (which may include plans of
self-insurance) with such coverage and deductibles, and in such amounts as
may be consistent with prudent business practice and in any event consistent
with normal industry practice (except to any greater extent as may be
required by the terms of any of the other Credit Documents); and furnish to
the Administrative Agent, upon written request, full information as to the
insurance carried.
7.7 Inspection of Property; Books and Records; Discussions.
Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of
all dealings and transactions in relation to its businesses and activities;
and permit, during regular business hours and upon reasonable notice by the
Administrative Agent, the Administrative Agent to visit and inspect any of
its properties and examine and make abstracts (including photocopies) from
any of its books and records (other than materials protected by the
attorney-client privilege and materials which the Credit Parties may not
disclose without violation of a confidentiality obligation binding upon them)
at any reasonable time, and to discuss the business, operations, properties
and financial and other condition of the members of the Consolidated Group
with officers and employees of the members of the Consolidated Group and with
their independent certified public accountants. The cost of the inspection
referred to in the preceding sentence shall be for the account of the Lenders
unless an Event of Default has occurred and is continuing, in which case the
cost of such inspection shall be for the account of the Credit Parties.
7.8 Environmental Laws.
(a) Comply in all material respects with, and take reasonable
actions to ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws and obtain and
comply in all material respects with and maintain, and take reasonable
actions to ensure that all tenants and subtenants obtain and comply in all
material respects with and maintain, any and all licenses, approvals,
notifications, registrations or permits required by applicable Environmental
Laws except to the extent that failure to do so would not reasonably be
expected to have a Material Adverse Effect;
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions actually and lawfully
required under Environmental Laws and promptly comply in all material
respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws except to the extent that the same
are being contested in good faith by appropriate proceedings and the failure
to do or the pendency of such proceedings would not reasonably be expected to
have a Material Adverse Effect; and
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(c) Defend, indemnify and hold harmless the Administrative Agent and
the Lenders, and their respective employees, agents, officers and directors,
from and against any and all claims, demands, penalties, fines, liabilities,
settlements, damages, costs and expenses of whatever kind or nature known or
unknown, contingent or otherwise, arising out of, or in any way relating to
the violation of, noncompliance with or liability under, any Environmental
Law applicable to the operations of the members of the Consolidated Group or
the Properties, or any orders, requirements or demands of Governmental
Authorities related thereto, including, without limitation, reasonable
attorney's and consultant's fees, investigation and laboratory fees, response
costs, court costs and litigation expenses, except to the extent that any of
the foregoing arise out of the gross negligence or willful misconduct of the
party seeking indemnification therefor. The agreements in this paragraph
shall survive repayment of the Loans and all other amounts payable hereunder,
and termination of the Commitments.
7.9 Financial Covenants.
(a) Consolidated Leverage Ratio. As of the end of each fiscal
quarter, the Consolidated Leverage Ratio shall be not greater than 3.0:1.0.
(b) Consolidated Fixed Charge Coverage Ratio. As of the end of each
fiscal quarter, the Consolidated Fixed Charge Coverage Ratio shall be not
less than 3.0:1.0.
(c) Consolidated Net Worth. As of the end of each fiscal quarter,
Consolidated Net Worth shall be not less than the sum of
[85% of Consolidated Net Worth as of the Closing Date] plus the net cash
proceeds from the IPO plus on the last day of each fiscal quarter to occur
after the Closing Date, 75% of Consolidated Net Income for the fiscal quarter
then ended, such increases to be cumulative, plus 100% of the net proceeds
from Equity Transactions occurring after the Closing Date.
(d) Capital Expenditures. Members of the Consolidated Group will
not make Capital Expenditures in any fiscal year which in the aggregate shall
exceed:
(i) for the period from the Closing Date through April 30, 1999, $5
million; and
(ii) for each fiscal year ending after April 30, 1999, an amount
equal to five percent (5%) of Consolidated Net Worth as of the last day of
the immediately preceding fiscal year.
(e) Rent Expense. As of each fiscal quarter, members of the
Consolidated Group will not have rent expense in excess of [$________ ] for
the period of the four consecutive fiscal quarters ending as of such date.
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7.10 Administrative Fees.
Pay to the Administrative Agent the annual agency fee and comply with the
other agreements provided for in the Administrative Agent's Fee Letter.
7.11 Additional Guaranties and Stock Pledges.
(a) Domestic Subsidiaries. Where Domestic Subsidiaries of the
Borrower which are not Credit Parties hereunder (the "Non-Guarantor
Subsidiaries") shall at any time constitute more than (the "Threshold
Requirement"):
(i) in any instance for any such Non-Guarantor Subsidiary, five
percent (5%) of consolidated assets for the Consolidated Group or five
percent (5%) of consolidated revenues for the Consolidated Group, or
(ii) in the aggregate for all such Non-Guarantor Subsidiaries, ten
percent (10%) of consolidated assets for the Consolidated Group or ten
percent (10%) of consolidated revenues for the Consolidated Group,
then the Borrower shall (i) promptly notify the Administrative Agent thereof,
and promptly cause such Domestic Subsidiary or Subsidiaries to become a
Guarantor by execution of a Joinder Agreement, such that immediately after
joinder as a Guarantor, the remaining Non-Guarantor Subsidiaries shall not in
any instance, or collectively, exceed the Threshold Requirement, (ii) deliver
with the Joinder Agreement, supporting resolutions, incumbency certificates,
corporate formation and organizational documentation and opinions of counsel
as the Administrative Agent may reasonably request, and (iii) deliver stock
certificates and related pledge agreements or pledge joinder agreements
evidencing the pledge of 100% of the Voting Stock of all such Domestic
Subsidiaries (whether or not they are Guarantors) and 65% of the Voting Stock
of all Foreign Subsidiaries, together with undated stock transfer powers
executed in blank.
(b) Foreign Subsidiaries. At any time any Person becomes a Foreign
Subsidiary, the Borrower will promptly notify the Administrative Agent
thereof and cause (i) delivery of supporting resolutions, incumbency
certificates, corporation formation and organizational documentation and
opinions of counsel as the Administrative Agent may reasonably request, and
(ii) delivery of stock certificates (where required for perfection under
local law) and a related pledge agreement or pledge joinder agreement
evidencing the pledge of 65% of the Voting Stock of such Foreign Subsidiary
and of 65% of the Voting Stock of each of its Domestic Subsidiaries and 65%
of the Voting Stock of each of its Foreign Subsidiaries, together in each
case with undated stock transfer powers executed in blank.
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7.12 Ownership of Subsidiaries.
Except to the extent otherwise permitted in Section 8.4(b) and Section 8.7
and to the extent as would not cause a Change of Control and except as set
forth on Schedule 6.14, the Borrower shall, directly or indirectly, own at
all times 100% of the Voting Stock of each of its Subsidiaries.
7.13 Use of Proceeds.
Extensions of Credit will be used solely for the purposes provided in
Section 6.15.
7.14 Year 2000 Compatibility.
Take all action reasonably necessary to assure that its computer based
systems are able to operate and effectively process data including dates on
and after January 1, 2000, and, at the reasonable request of the
Administrative Agent or the Required Lenders, provide evidence to the Lenders
of such year 2000 compatibility.
SECTION 8
NEGATIVE COVENANTS
Each of the Credit Parties covenants and agrees that on the Closing Date,
and so long as this Credit Agreement is in effect and until the Commitments
have been terminated, no Obligations remain outstanding and all amounts owing
hereunder or in connection herewith, have been paid in full, no member of the
Consolidated Group shall:
8.1 Indebtedness.
Contract, create, incur, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness arising or existing under this Credit Agreement and
the other Credit Documents;
(b) Indebtedness set forth in Schedule 8.1, and renewals,
refinancings and extensions thereof on terms and conditions not less
favorable in any material respect than for such existing Indebtedness;
(c) Capital Lease Obligations and Indebtedness incurred, in each
case, to provide all or a portion of the purchase price or costs of
construction of an asset or, in the case of a sale/leaseback transaction
as described in Section 8.11, to finance the value of such asset
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owned by a member of the Consolidated Group, provided that (i) such
Indebtedness when incurred shall not exceed the purchase price or cost of
construction of such asset or, in the case of a sale/leaseback
transaction, the fair market value of such asset, (ii) no such
Indebtedness shall be refinanced for a principal amount in excess of the
principal balance outstanding thereon at the time of such refinancing, and
(iii) the total amount of all such Indebtedness shall not exceed
[$________ ] at any time outstanding;
(d) Indebtedness and obligations owing under interest rate
protection agreements relating to the Obligations hereunder and under
interest rate, commodities and foreign currency exchange protection
agreements entered into in the ordinary course of business to manage
existing or anticipated risks and not for speculative purposes;
(e) unsecured intercompany Indebtedness owing by a member of the
Consolidated Group to another member of the Consolidated Group (subject,
however, to the limitations of Section 8.5 in the case of the member of
the Consolidated Group extending the intercompany loan, advance or credit);
(f) Subordinated Debt of the Borrower;
(g) other unsecured Indebtedness of the Borrower of up to
[$_________ ] in the aggregate at any time outstanding; and
(h) Support Obligations of Indebtedness permitted under this Section
8.1.
8.2 Liens.
Contract, create, incur, assume or permit to exist any Lien with respect
to any of their respective property or assets of any kind (whether real or
personal, tangible or intangible), whether now owned or hereafter acquired,
except for Permitted Liens.
8.3 Nature of Business.
Alter the character of their business in any material respect from that
conducted as of the Closing Date and similar or related businesses.
8.4 Consolidation, Merger, Sale or Purchase of Assets, Capital
Expenditures, etc.
(a) Enter into a transaction of merger or consolidation, except
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(i) a member of the Consolidated Group may be a party to
a transaction of merger or consolidation with another member of the
Consolidated Group, provided that (A) if the Borrower is a party thereto,
it shall be the surviving corporation, and (B) if a Guarantor is a party
thereto and the Borrower is not a party thereto, a Guarantor shall be the
surviving corporation or the surviving corporation shall be a Domestic
Subsidiary and shall become a Guarantor hereunder as an Additional Credit
Party pursuant to Section 7.11 concurrently therewith, and (C) no Default
or Event of Default shall exist either immediately prior to or immediately
after giving effect thereto; and
(ii) a member of the Consolidated Group (other than the
Borrower) may be a party to a transaction of merger or consolidation with
any other Person, provided that (A) the provisions of Section 7.11
regarding joinder of certain Subsidiaries as Additional Credit Parties
hereunder shall be complied with, (B) no Default or Event of Default shall
exist either immediately prior to or immediately after giving effect
thereto, and (C) the provisions of subsection (c) of this Section shall be
complied with.
(b) Sell, lease, transfer or otherwise dispose of assets, property
and/or operations (including any sale-leaseback transaction, but excluding
and not subject to clauses (i) and (ii) below, the sale of inventory in the
ordinary course of business, the sale or disposition of plant, property and
equipment which is no longer useful in the business or as to which the
proceeds therefrom are reinvested in plant, property and equipment within six
months thereof), other than to another Credit Party, which
(i) in the aggregate in any fiscal year shall constitute
more than ten percent (10%) of total assets for the Consolidated Group at
the end of the immediately preceding fiscal year or ten percent (10%)
Consolidated Net Income for the immediately preceding fiscal year, and
(ii) no Default of Event of Default would exist after
giving effect thereto on a Pro Forma Basis,
without the prior written consent of the Required Lenders (which consent
shall not be unreasonably withheld or delayed).
(c) Acquire, including in connection with an Equity Transaction, all
or any portion of the capital stock or other ownership interest in any Person
which is not a Subsidiary or all or any substantial portion of the assets,
property and/or operations of a Person which is not a Subsidiary, without the
prior written consent of the Required Lenders (which consent shall not be
unreasonably withheld or delayed), unless
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(i) in the case of an acquisition of capital stock or
other ownership interest after giving effect thereto, such Person will not
be a Subsidiary, then such acquisition will not cause a violation of
Section 8.5;
(ii) in the case of an acquisition of capital stock or
other ownership interest after giving effect thereto, such Person will be a
Subsidiary, or in the case of an acquisition of assets, property and/or
operations then
(A) the cost of any such acquisition (or series
of related transactions) shall not exceed $25 million in any instance;
(B) the acquisition is in the same or a similar
or related line of business as that of the Credit Parties;
(C) the Board of Directors of the Person which
is the subject of the acquisition shall have approved the acquisition; and
(D) no Default or Event of Default would exist
after giving effect thereto on a Pro Forma Basis.
(d) In the case of the Borrower, liquidate, wind-up or dissolve,
whether voluntarily or involuntarily (or suffer to permit any such
liquidation or dissolution).
8.5 Advances, Investments and Loans.
Lend money or extend credit or make advances to any Person, or purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to, or otherwise make an Investment in, any
Person except as permitted by Section 8.4 or as may be Permitted Investments.
8.6 Transactions with Affiliates.
Enter into or permit to exist any transaction or series of transactions,
whether or not in the ordinary course of business, with any officer,
director, shareholder or Affiliate other than (i) transactions permitted by
Section 8.1, Section 8.4(b), Section 8.5 or Section 8.10, (ii) customary fees
and expenses paid to directors and (iii) where such transactions are on terms
and conditions substantially as favorable as would be obtainable in a
comparable arm's-length transaction with a Person other than an officer,
director, shareholder or Affiliate.
8.7 Ownership of Equity Interests.
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Issue, sell, transfer, pledge or otherwise dispose of any partnership
interests, shares of capital stock or other equity or ownership interests
("Equity Interests") in any member of the Consolidated Group, except (i)
issuance, sale or transfer of Equity Interests to a Credit Party by a
Subsidiary of such Credit Party, (ii) in connection with a transaction
permitted by Section 8.4, and (iii) as needed to qualify directors under
applicable law.
8.8 Fiscal Year.
Change its fiscal year from an April 30 fiscal year end to any year-end
other than December 31 (and only then upon prior notice to the Administrative
Agent and adjustment of the financial covenants to reflect any partial year
periods).
8.9 Prepayments of Indebtedness, etc.
(a) After the issuance thereof, amend or modify (or permit the
amendment or modification of), the terms of any other Indebtedness in a
manner adverse to the interests of the Lenders (including specifically
shortening any maturity or average life to maturity or requiring any payment
sooner than previously scheduled or increasing the interest rate or fees
applicable thereto);
(b) Make any prepayment, redemption, defeasance or acquisition for
value of (including without limitation, by way of depositing money or
securities with the trustee with respect thereto before due for the purpose
of paying when due), or refund, refinance or exchange of any Funded Debt
(other than intercompany Indebtedness permitted hereunder) other than
regularly scheduled payments of principal and interest on such Funded Debt.
8.10 Restricted Payments.
Make or permit any Restricted Payments, unless and to the extent that no
Default or Event of Default shall exist immediately prior or after giving
effect thereto on a Pro Forma Basis.
8.11 Sale Leasebacks.
Except as permitted pursuant to Section 8.1(c) hereof, directly or
indirectly, become or remain liable as lessee or as guarantor or other surety
with respect to any lease, whether an Operating Lease or a Capital Lease, of
any Property (whether real or personal or mixed), whether now owned or
hereafter acquired, (i) which such Person has sold or transferred or is to
sell or transfer to any other Person other than a Credit Party or (ii) which
such Person intends to use for substantially the same purpose as any other
Property which has been sold or is to be sold or transferred by such Person
to any other Person in connection with such lease.
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8.12 No Further Negative Pledges.
Except with respect to prohibitions against other encumbrances on specific
Property encumbered to secure payment of particular Indebtedness (which
Indebtedness relates solely to such specific Property, and improvements and
accretions thereto, and is otherwise permitted hereby), no member of the
Consolidated Group will enter into, assume or become subject to any agreement
prohibiting or otherwise restricting the creation or assumption of any Lien
upon its properties or assets, whether now owned or hereafter acquired, or
requiring the grant of any security for such obligation if security is given
for some other obligation.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
(a) Payment. Any Credit Party shall
(i) default in the payment when due of any principal of
any of the Loans, or
(ii) default, and such defaults shall continue for three (3)
or more Business Days, in the payment when due of any interest on the
Loans or of any Fees or other amounts owing hereunder, under any of the
other Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement
made or deemed to be made herein, in any of the other Credit Documents, or in
any statement or certificate delivered or required to be delivered pursuant
hereto or thereto shall prove untrue in any material respect on the date as
of which it was deemed to have been made; or
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(c) Covenants.
(i) Default in the due performance or observance of any term,
covenant or agreement contained in Section 7.3(a), 7.9, 7.13 or 8.1
through 8.12 (except in the case of the negative covenants contained in
Sections 8.1 through 8.12, those Defaults which may occur or arise other
than on account of or by affirmative or intentional act of a Credit Party
or event or condition which a Credit Party shall with knowledge permit to
exist, all of which shall be subject to the provisions of clause (ii)
hereof), inclusive, or
(ii) Default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in subsections
(a), (b) or (c)(i) of this Section 9.1) contained in this Credit Agreement
and such default shall continue unremedied for a period of at least 30
days after the earlier of a responsible officer of a Credit Party becoming
aware of such default or notice thereof by the Administrative Agent; or
(d) Other Credit Documents. (i) Any Credit Party shall default in
the due performance or observance of any material term, covenant or agreement
in any of the other Credit Documents (subject to applicable grace or cure
periods, if any), or (ii) except as to the Credit Party which is dissolved,
released or merged or consolidated out of existence as the result of or in
connection with a dissolution, merger or disposition permitted by Section
8.4(a), Section 8.4(b) or Section 8.4(c), any Credit Document shall fail to
be in full force and effect or to give the Administrative Agent and/or the
Lenders any material part of the Liens, rights, powers and privileges
purported to be created thereby; or
(e) Guaranties. Except as to the Credit Party which is dissolved,
released or merged or consolidated out of existence as the result of or in
connection with a dissolution, merger or disposition permitted by Section
8.4(a), Section 8.4(b) or Section 8.4(c), the guaranty given by any Guarantor
hereunder or any material provision thereof shall cease to be in full force
and effect, or any Guarantor hereunder or any Person acting by or on behalf
of such Guarantor shall deny or disaffirm such Guarantor's obligations under
such guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect
to any Credit Party; or
(g) Defaults under Other Agreements. With respect to any
Indebtedness (other than Indebtedness outstanding under this Credit
Agreement) in excess of $5,000,000 in the aggregate for the Consolidated
Group taken as a whole, (A) (1) any member of the Consolidated Group shall
default in any payment (beyond the applicable grace period with respect
thereto, if any) with respect to any
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such Indebtedness, or (2) the occurrence and continuance of a default in the
observance or performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the effect of which
default or other event or condition is to cause, or permit, the holder or
holders of such Indebtedness (or trustee or agent on behalf of such holders)
to cause (determined without regard to whether any notice or lapse of time is
required), any such Indebtedness to become due prior to its stated maturity;
or (B) any such Indebtedness shall be declared due and payable, or required
to be prepaid other than by a regularly scheduled required prepayment, prior
to the stated maturity thereof; or
(h) Judgments. Any member of the Consolidated Group shall fail
within 30 days of the date due and payable to pay, bond or otherwise
discharge any judgment, settlement or order for the payment of money which
judgment, settlement or order, when aggregated with all other such judgments,
settlements or orders due and unpaid at such time, exceeds $5,000,000, and
which is not stayed on appeal (or for which no motion for stay is pending) or
is not otherwise being executed; or
(i) ERISA. Any of the following events or conditions, if such event
or condition could reasonably be expected to have a Material Adverse Effect
and is not subject to indemnification in favor of the Consolidated Group: (1)
any "accumulated funding deficiency," as such term is defined in Section 302
of ERISA and Section 412 of the Code, whether or not waived, shall exist with
respect to any Plan, or any lien shall arise on the assets of a member of the
Consolidated Group or any ERISA Affiliate in favor of the PBGC or a Plan; (2)
an ERISA Event shall occur with respect to a Single Employer Plan, which is,
in the reasonable opinion of the Administrative Agent, likely to result in
the termination of such Plan for purposes of Title IV of ERISA; (3) an ERISA
Event shall occur with respect to a Multiemployer Plan or Multiple Employer
Plan, which is, in the reasonable opinion of the Administrative Agent, likely
to result in (i) the termination of such Plan for purposes of Title IV of
ERISA, or (ii) a member of the Consolidated Group or any ERISA Affiliate
incurring any liability in connection with a withdrawal from, reorganization
of (within the meaning of Section 4241 of ERISA), or insolvency of (within
the meaning of Section 4245 of ERISA) such Plan; or (4) any prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of
the Code) or breach of fiduciary responsibility shall occur which may subject
a member of the Consolidated Group or any ERISA Affiliate to any liability
under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the
Code, or under any agreement or other instrument pursuant to which a member
of the Consolidated Group or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability; or
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(j) Ownership. There shall occur a Change of Control.
9.2 Acceleration; Remedies.
Upon the occurrence of an Event of Default, and at any time thereafter,
the Administrative Agent shall, upon the request and direction of the
Required Lenders, by written notice to the Credit Parties take any of the
following actions:
(i) Termination of Commitments. Declare the
Commitments terminated whereupon the Commitments shall be immediately
terminated.
(ii) Acceleration. Declare the unpaid principal
of and any accrued interest in respect of all Loans and any and all other
indebtedness or obligations of any and every kind owing by the Credit Parties
to the Administrative Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived
by each of the Credit Parties.
(iii) Enforcement of Rights. Enforce any and all
rights and interests created and existing under the Credit Documents and all
rights of set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and
all Loans, all accrued interest in respect thereof, all accrued and unpaid
Fees and other indebtedness or obligations owing to the Administrative Agent
and/or any of the Lenders hereunder automatically shall immediately become
due and payable without presentment, demand, protest or the giving of any
notice or other action by the Administrative Agent or the Lenders, all of
which are hereby waived by the Credit Parties.
SECTION 10
AGENCY PROVISIONS
10.1 Appointment.
Each Lender hereby designates and appoints NationsBank, N.A. as
administrative agent (in such capacity, the "Administrative Agent") of such
Lender to act as specified herein and the other Credit Documents, and each
such Lender hereby authorizes the Administrative Agent as the Administrative
Agent for such Lender, to take such action on its behalf under the provisions
of this Credit Agreement and the other Credit Documents and to exercise such
powers and perform such duties as are expressly delegated by the terms hereof
and of the other Credit Documents, together with such other powers as
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are reasonably incidental thereto. Each Lenders further directs and
authorizes the Administrative Agent to execute releases (or similar
agreements) to give effect to the provisions of this Credit Agreement and the
other Credit Documents, including specifically without limitation the
provisions of Section 8.4 hereof. Notwithstanding any provision to the
contrary elsewhere herein and in the other Credit Documents, the
Administrative Agent shall not have any duties or responsibilities to any
Lender, except those expressly set forth herein and therein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities to any Lender shall be
read into this Credit Agreement or any of the other Credit Documents, or
shall otherwise exist against the Administrative Agent. The provisions of
this Section are solely for the benefit of the Administrative Agent and the
Lenders and none of the Credit Parties shall (i) have any rights as a third
party beneficiary of the provisions hereof or (ii) have any other rights
otherwise and elsewhere given them limited by the provisions hereof. In
performing its functions and duties under this Credit Agreement and the other
Credit Documents, the Administrative Agent shall act solely as Administrative
Agent of the Lenders and does not assume and shall not be deemed to have
assumed any obligation or relationship of agency or trust with or for any
Credit Party or any of their respective Affiliates.
10.2 Delegation of Duties.
The Administrative Agent may execute any of its duties hereunder or under
the other Credit Documents by or through agents or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to
such duties. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care.
10.3 Exculpatory Provisions.
The Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall not be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection herewith or in connection with any of the other Credit Documents
(except for its or such Person's own gross negligence or willful misconduct),
or (ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by any of the Credit Parties
contained herein or in any of the other Credit Documents or in any
certificate, report, document, financial statement or other written or oral
statement referred to or provided for in, or received by the Administrative
Agent under or in connection herewith or in connection with the other Credit
Documents, or enforceability or sufficiency therefor of any of the other
Credit Documents, or for any failure of any Credit Party to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be
responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Credit Agreement, or
any of the other Credit Documents or for any representations, warranties,
recitals or statements made herein or therein or made by the Borrower or any
Credit Party in any written or oral statement or in any financial or
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other statements, instruments, reports, certificates or any other documents
in connection herewith or therewith furnished or made by the Administrative
Agent to the Lenders or by or on behalf of the Credit Parties to the
Administrative Agent or any Lender or be required to ascertain or inquire as
to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default or to inspect the properties, books or records of
the Credit Parties or any of their respective Affiliates.
10.4 Reliance on Communications.
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed
by it to be genuine and correct and to have been signed, sent or made by the
proper Person or Persons and upon advice and statements of legal counsel
(including, without limitation, counsel to any of the Credit Parties,
independent accountants and other experts selected by the Administrative
Agent with reasonable care). The Administrative Agent may deem and treat the
Lenders as the owners of their respective interests hereunder for all
purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent in accordance
with Section 11.3(b) hereof. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Credit
Agreement or under any of the other Credit Documents unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or under any of the other Credit Documents
in accordance with a request of the Required Lenders (or to the extent
specifically provided in Section 11.6, all the Lenders) and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Lenders (including their successors and assigns).
10.5 Notice of Default.
The Administrative Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall
give prompt notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders.
10.6 Non-Reliance on Administrative Agent and Other Lenders.
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Each Lender expressly acknowledges that each of the Administrative Agent
and its officers, directors, employees, Administrative Agents,
attorneys-in-fact or affiliates has not made any representations or
warranties to it and that no act by the Administrative Agent or any affiliate
thereof hereinafter taken, including any review of the affairs of any Credit
Party or any of their respective Affiliates, shall be deemed to constitute
any representation or warranty by the Administrative Agent to any Lender.
Each Lender represents to the Administrative Agent that it has, independently
and without reliance upon the Administrative Agent or any other Lender, and
based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of
the Borrower, the other Credit Parties or their respective Affiliates and
made its own decision to make its Loans hereunder and enter into this Credit
Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking
or not taking action under this Credit Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower, the other Credit Parties and their
respective Affiliates. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, assets, property, financial or other conditions,
prospects or creditworthiness of the Borrower, the other Credit Parties or
any of their respective Affiliates which may come into the possession of the
Administrative Agent or any of its officers, directors, employees,
Administrative Agents, attorneys-in-fact or affiliates.
10.7 Indemnification.
The Lenders agree to indemnify the Administrative Agent in its capacity as
such (to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably according to their respective
Commitments (or if the Commitments have expired or been terminated, in
accordance with the respective principal amounts of outstanding Loans and
Participation Interests of the Lenders), from and against any and all
liabilities, obligations, losses,
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damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including without
limitation at any time following the final payment of all of the obligations
of the Borrower hereunder and under the other Credit Documents) be imposed
on, incurred by or asserted against the Administrative Agent in its capacity
as such in any way relating to or arising out of this Credit Agreement or the
other Credit Documents or any documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or thereby or any action
taken or omitted by the Administrative Agent under or in connection with any
of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
the gross negligence or willful misconduct of the Administrative Agent. If
any indemnity furnished to the Administrative Agent for any purpose shall, in
the opinion of the Administrative Agent, be insufficient or become impaired,
the Administrative Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity
is furnished. The agreements in this Section shall survive the repayment of
the Loans and other obligations under the Credit Documents and the
termination of the Commitments hereunder.
10.8 Administrative Agent in its Individual Capacity.
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Borrower,
its Subsidiaries or their respective Affiliates as though the Administrative
Agent were not the Administrative Agent hereunder. With respect to the Loans
made by and all obligations of the Borrower hereunder and under the other
Credit Documents, the Administrative Agent shall have the same rights and
powers under this Credit Agreement as any Lender and may exercise the same as
though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent.
The Administrative Agent may, at any time, resign upon 20 days' written
notice to the Lenders, and may be removed, upon show of cause, by the
Required Lenders upon 30 days' written notice to the Administrative Agent.
Upon any such resignation or removal, the Required Lenders shall have the
right to appoint a successor Administrative Agent. If no successor
Administrative Agent shall have been so appointed by the Required Lenders,
and shall have accepted such appointment, within 30 days after the notice of
resignation or notice of removal, as appropriate, then the retiring
Administrative Agent shall select a successor Administrative Agent provided
such successor is a Lender hereunder or a commercial bank organized under the
laws of the United States of America or of any State thereof and has a
combined capital and surplus of at least $500,000,000. Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor, such
successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations as Administrative Agent, as
appropriate, under this Credit Agreement and the other Credit Documents and
the provisions of this Section 10.9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Administrative Agent
under this Credit Agreement.
SECTION 11
MISCELLANEOUS
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11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (i) when
delivered, (ii) when transmitted via telecopy (or other facsimile device) to
the number set out below, (iii) the day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (iv) the third Business Day following the day on which the same
is sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address, in the case of the Borrower, Guarantors
and the Administrative Agent, set forth below, and, in the case of the
Lenders, set forth on Schedule 11.1, or at such other address as such party
may specify by written notice to the other parties hereto:
if to the Borrower or the Guarantors:
Navigant International, Inc.
84 Inverness Circle East
Englewood, Colorado 80112-5314
Attn: General Counsel
Telephone: (303) 706-0800
Telecopy: (303) 706-0678
if to the Administrative Agent:
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 388-9436
Telecopy: (704) 388-1108
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with a copy to:
NationsBank, N.A.
Corporate Finance Group
6610 Rockledge Drive, 6th Floor
MD2-600-06-13
Bethesda, Maryland 20817-1876
Attn: Michael R. Heredia
Telephone: (301) 571-0724
Telecopy: (301) 571-0719
11.2 Right of Set-Off.
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender is authorized at any time and
from time to time, without presentment, demand, protest or other notice of
any kind (all of which rights being hereby expressly waived), to set-off and
to appropriate and apply any and all deposits (general or special) and any
other indebtedness at any time held or owing by such Lender (including,
without limitation branches, agencies or Affiliates of such Lender wherever
located) to or for the credit or the account of any Credit Party against
obligations and liabilities of such Person to such Lender hereunder, under
the Notes, the other Credit Documents or otherwise, irrespective of whether
such Lender shall have made any demand hereunder and although such
obligations, liabilities or claims, or any of them, may be contingent or
unmatured, and any such set-off shall be deemed to have been made immediately
upon the occurrence of an Event of Default even though such charge is made or
entered on the books of such Lender subsequent thereto. Any Person
purchasing a participation in the Loans and Commitments hereunder pursuant to
Section 3.13 or Section 11.3(d) may exercise all rights of set-off with
respect to its participation interest as fully as if such Person were a
Lender hereunder.
11.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties may
assign or transfer any of its interests without prior written consent of the
Lenders; provided further that the rights of each Lender to transfer, assign
or grant participations in its rights and/or obligations hereunder shall be
limited as set forth in this Section 11.3, provided however that nothing
herein shall prevent or prohibit any Lender from (i) pledging its Loans
hereunder to a Federal Reserve Bank in support of borrowings made by such
Lender from such Federal Reserve Bank, or (ii) granting assignments or
selling participations in such Lender's Loans and/or Commitments hereunder to
its parent company and/or to any Affiliate or Subsidiary of such Lender.
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(b) Assignments. Each Lender may assign all or a portion of its
rights and obligations hereunder (including, without limitation, all or a
portion of its Commitments or its Loans), pursuant to an assignment agreement
substantially in the form of Schedule 11.3(b), to (i) a Lender, (ii) an
affiliate of a Lender or (iii) any other Person (other than the Borrower or
an Affiliate of the Borrower) reasonably acceptable to the Administrative
Agent and, so long as no Default or Event of Default has occurred and is
continuing, the Borrower (the consent of the Borrower shall not be
unreasonably withheld or delayed and such consent shall be deemed given if
the Borrower does not notify the assigning Lender and the Administrative
Agent of any objection within two Business Days after the Borrower has been
provided notice of the proposed assignment by the assigning Lender or the
Administrative Agent); provided that (i) any such assignment (other than any
assignment to an existing Lender) shall be in a minimum aggregate amount of
$5,000,000 (or, if less, the remaining amount of the Commitment being
assigned by such Lender) of the Commitments and in integral multiples of
$1,000,000 above such amount and (ii) each such assignment shall be of a
constant, not varying, percentage of all such Lender's rights and obligations
under this Credit Agreement. Any assignment hereunder shall be effective
upon delivery to the Administrative Agent of written notice of the assignment
together with a transfer fee of $3,500 payable to the Administrative Agent
for its own account from and after the later of (i) the effective date
specified in the applicable assignment agreement and (ii) the date of
recording of such assignment in the Register pursuant to the terms of
subsection (c) below. The assigning Lender will give prompt notice to the
Administrative Agent and the Borrower of any such assignment. Upon the
effectiveness of any such assignment (and after notice to, and (to the extent
required pursuant to the terms hereof), with the consent of, the Borrower as
provided herein), the assignee shall become a "Lender" for all purposes of
this Credit Agreement and the other Credit Documents and, to the extent of
such assignment, the assigning Lender shall be relieved of its obligations
hereunder to the extent of the Loans and Commitment components being
assigned. Along such lines the Borrower agrees that upon notice of any such
assignment and surrender of the appropriate Note or Notes, it will promptly
provide to the assigning Lender and to the assignee separate promissory notes
in the amount of their respective interests substantially in the form of the
original Note (but with notation thereon that it is given in substitution for
and replacement of the original Note or any replacement notes thereof). By
executing and delivering an assignment agreement in accordance with this
Section 11.3(b), the assigning Lender thereunder and the assignee thereunder
shall be deemed to confirm to and agree with each other and the other parties
hereto as follows: (i) such assigning Lender warrants that it is the legal
and beneficial owner of the interest being assigned thereby free and clear of
any adverse claim; (ii) except as set forth in clause (i) above, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant hereto or
thereto, or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Credit Agreement, any of the other Credit
Documents or any other instrument or document furnished pursuant hereto or
thereto or the financial condition of any Credit Party or any of their
respective Affiliates or the performance or observance by any Credit Party or
any of its
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obligations under this Credit Agreement, any of the other Credit Documents or
any other instrument or document furnished pursuant hereto or thereto; (iii)
such assignee represents and warrants that it is legally authorized to enter
into such assignment agreement; (iv) such assignee confirms that it has
received a copy of this Credit Agreement, the other Credit Documents and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such assignment agreement; (v)
such assignee will independently and without reliance upon the Administrative
Agent, such assigning Lender or any other Lender, and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under this Credit
Agreement and the other Credit Documents; (vi) such assignee appoints and
authorizes the Administrative Agent to take such action on its behalf and to
exercise such powers under this Credit Agreement or any other Credit Document
as are delegated to the Administrative Agent by the terms hereof or thereof,
together with such powers as are reasonably incidental thereto; and (vii)
such assignee agrees that it will perform in accordance with their terms all
the obligations which by the terms of this Credit Agreement and the other
Credit Documents are required to be performed by it as a Lender.
(c) Maintenance of Register. The Administrative Agent shall
maintain at one of its offices in Charlotte, North Carolina a copy of each
Lender assignment agreement delivered to it in accordance with the terms of
subsection (b) above and a register for the recordation of the identity of
the principal amount, type and Interest Period of each Loan outstanding
hereunder, the names, addresses and the Commitments of the Lenders pursuant
to the terms hereof from time to time (the "Register"). The Administrative
Agent will make reasonable efforts to maintain the accuracy of the Register
and to promptly update the Register from time to time, as necessary. The
entries in the Register shall be conclusive in the absence of manifest error
and the Borrower, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register pursuant to the terms hereof as
a Lender hereunder for all purposes of this Credit Agreement. The Register
shall be available for inspection by the Borrower and each Lender, at any
reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Each Lender may sell, transfer, grant or assign
participations in all or a portion of such Lender's rights, obligations or
rights and obligations hereunder (including all or a portion of its
Commitments or its Loans); provided that (i) such selling Lender shall remain
a "Lender" for all purposes under this Credit Agreement (such selling
Lender's obligations under the Credit Documents remaining unchanged) and the
participant shall not constitute a Lender hereunder, (ii) no such participant
shall have, or be granted, rights to approve any amendment or waiver relating
to this Credit Agreement or the other Credit Documents except to the extent
any such amendment or waiver would (A) reduce the principal of or rate of
interest on or Fees in respect of any Loans in which the participant is
participating, (B) postpone the date fixed for any payment of principal
(including extension of the Termination Date or the date of any mandatory
prepayment), interest or Fees in which the participant is participating, (C)
except as expressly provided in the Credit
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Documents, release any Guarantor from its guaranty obligations hereunder, or
(D) except as the result of or in connection with a disposition permitted
under Section 8.4(b), release all or substantially all of the collateral, and
(iii) sub-participations by the participant (except to an affiliate, parent
company or affiliate of a parent company of the participant) shall be
prohibited. In the case of any such participation, the participant shall not
have any rights under this Credit Agreement or the other Credit Documents
(the participant's rights against the selling Lender in respect of such
participation to be those set forth in the participation agreement with such
Lender creating such participation) and all amounts payable by the Borrower
hereunder shall be determined as if such Lender had not sold such
participation, provided, however, that such participant shall be entitled to
receive additional amounts under Sections 3.6, 3.9, 3.10, 3.11 and 11.2 on
the same basis as if it were a Lender.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Administrative Agent or any Lender
in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between the Administrative Agent or
any Lender and any of the Credit Parties shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Credit Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies provided herein are
cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Lender would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle the Borrower or any
other Credit Party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
11.5 Payment of Expenses, etc.
The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and
expenses (A) of the Administrative Agent in connection with the negotiation,
preparation, execution and delivery and administration of this Credit
Agreement and the other Credit Documents and the documents and instruments
referred to therein (including, without limitation, the reasonable and
documented fees and expenses of Moore & Van Allen, PLLC, special counsel to
the Administrative Agent) and any amendment, waiver or consent relating
hereto and thereto including, but not limited to, any such amendments,
waivers or consents resulting from or related to any work-out, renegotiation
or restructure relating to the performance by the Credit Parties under this
Credit Agreement and (B) of the Administrative Agent and the Lenders in
connection with enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, in connection
with any such enforcement, the reasonable and documented fees and
disbursements of counsel for the Administrative Agent and each of the Lenders
and documented); (ii) pay and hold each of the Lenders harmless from and
against any and all present and future stamp and other similar taxes with
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respect to the foregoing matters and save each of the Lenders harmless from
and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Lender) to
pay such taxes; and (iii) indemnify each Lender, its officers, directors,
employees, representatives and Administrative Agents from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of (A) any investigation, litigation or other
proceeding (whether or not any Lender is a party thereto) related to the
entering into and/or performance of any Credit Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable and documented fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding, except to the extent any such costs arise out
of or relate to disputes solely between or among the Administrative Agent
and/or the Lenders or (B) the presence or Release of any Materials of
Environmental Concern at, under or from any Property owned, operated or
leased by the Borrower or any of its Subsidiaries, or the failure by the
Borrower or any of its Subsidiaries to comply with any Environmental Law (but
excluding, in the case of either of clause (A) or (B) above, any such losses,
liabilities, claims, damages or expenses to the extent incurred by reason of
gross negligence or willful misconduct on the part of the Person to be
indemnified).
11.6 Amendments, Waivers and Consents.
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is
in writing entered into by, or approved in writing by, the Required Lenders
and the Borrower, provided, however, that:
(a) without the consent of each Lender affected thereby, neither this
Credit Agreement nor any of the other Credit Documents may be amended to
(i) extend the final maturity of any Loan or extend
or waive any principal amortization payment of any Loan, or any
portion thereof,
(ii) reduce the rate or extend the time of payment of
interest (other than as a result of waiving the applicability of
any increase in interest rates after the occurrence of an Event of
Default or on account of a failure to deliver financial statements
on a timely basis) thereon or Fees hereunder,
(iii) reduce or waive the principal amount of any Loan,
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(iv) increase the Commitment of a Lender over the
amount thereof in effect (it being understood and agreed that a
waiver of any Default or Event of Default or mandatory reduction
in the Commitments shall not constitute a change in the terms of
any Commitment of any Lender),
(v) except as the result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted
under Section 8.4, release the Borrower or substantially all of
the other Credit Parties from its or their obligations under the
Credit Documents,
(vi) except as the result of or in connection with a
disposition permitted under Section 8.4(b), release all or
substantially all of the collateral,
(vii) except as a result of or in connection with a
dissolution, merger or disposition of a Subsidiary permitted
under Section 8.4, release the Borrower or all or substantially
all of the Guarantors from their obligations under the Credit
Agreement,
(viii) amend, modify or waive any provision of this
Section 11.6 or Section 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12,
3.13, 3.14, 9.1(a), 11.2, 11.3, 11.5 or 11.9,
(ix) reduce any percentage specified in, or otherwise
modify, the definition of Required Lenders, or
(x) consent to the assignment or transfer by the
Borrower (or another Credit Party) of any of its rights and
obligations under (or in respect of) the Credit Documents except
as permitted thereby;
(b) without the consent of the Agent, no provision of Section 10 may be
amended.
Notwithstanding the fact that the consent of all the Lenders is required
in certain circumstances as set forth above, (x) each Lender is entitled to
vote as such Lender sees fit on any bankruptcy reorganization plan that
affects the Loans, and each Lender acknowledges that the provisions of
Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent
provisions set forth herein and (y) the Required Lenders may consent to allow
a Credit Party to use cash collateral in the context of a bankruptcy or
insolvency proceeding.
11.7 Counterparts.
88
<PAGE>
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument. It shall not be
necessary in making proof of this Credit Agreement to produce or account for
more than one such counterpart.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction
of any provision of this Credit Agreement.
11.9 Survival.
All indemnities set forth herein, including, without limitation, in
Section 2.2(i), 3.9, 3.11, 10.7 or 11.5 shall survive the execution and
delivery of this Credit Agreement, the making of the Loans, the repayment of
the Loans and other obligations under the Credit Documents and the
termination of the Commitments hereunder, and all representations and
warranties made by the Credit Parties herein shall survive delivery of the
Notes and the making of the Loans hereunder.
11.10 Governing Law; Submission to Jurisdiction; Venue.
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NORTH CAROLINA. Any legal action or proceeding with respect to this
Credit Agreement or any other Credit Document may be brought in the courts of
the State of North Carolina in Mecklenburg County, or of the United States
for the Western District of North Carolina, and, by execution and delivery of
this Credit Agreement, each of the Credit Parties hereby irrevocably accepts
for itself and in respect of its property, generally and unconditionally, the
nonexclusive jurisdiction of such courts. Each of the Credit Parties further
irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to it at the
address set out for notices pursuant to Section 11.1, such service to become
effective three (3) days after such mailing. Nothing herein shall affect the
right of the Administrative Agent to serve process in any other manner
permitted by law or to commence legal proceedings or to otherwise proceed
against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with
this Credit Agreement or any other Credit Document brought in the courts
referred to in subsection (a) hereof and hereby further irrevocably waives
and agrees not to plead or claim in any
89
<PAGE>
such court that any such action or proceeding brought in any such court has
been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE
AGENT, THE LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11.11 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable
and the remaining provisions shall remain in full force and effect and shall
be construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.12 Entirety.
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all
prior agreements and understandings, oral or written, if any, including any
commitment letters or correspondence relating to the Credit Documents or the
transactions contemplated herein and therein.
11.13 Binding Effect; Termination.
(a) This Credit Agreement shall become effective at such time on or
after the Closing Date when it shall have been executed by the Borrower, the
Guarantors and the Administrative Agent, and the Administrative Agent shall
have received copies hereof (telefaxed or otherwise) which, when taken
together, bear the signatures of each Lender, and thereafter this Credit
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Guarantors, the Administrative Agent and each Lender and their respective
successors and assigns.
(b) The term of this Credit Agreement shall be until no Loans or any
other amounts payable hereunder or under any of the other Credit Documents
shall remain outstanding and until all of the Commitments hereunder shall
have expired or been terminated.
11.14 Confidentiality.
90
<PAGE>
The Administrative Agent and the Lenders agree to keep confidential (and
to cause their respective affiliates, officers, directors, employees, agents
and representatives to keep confidential) all information, materials and
documents furnished to the Administrative Agent or any such Lender by or on
behalf of any Credit Party (whether before or after the Closing Date) which
relates to the Borrower or any of its Subsidiaries (the "Information").
Notwithstanding the foregoing, the Administrative Agent and each Lender shall
be permitted to disclose Information (i) to its affiliates, officers,
directors, employees, Administrative Agents and representatives in connection
with its participation in any of the transactions evidenced by this Credit
Agreement or any other Credit Documents or the administration of this Credit
Agreement or any other Credit Documents; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process,
or requested by any Governmental Authority; (iii) to the extent such
Information (A) becomes publicly available other than as a result of a breach
of this Credit Agreement or any agreement entered into pursuant to clause
(iv) below, (B) becomes available to the Administrative Agent or such Lender
on a non-confidential basis from a source other than a Credit Party or (C)
was available to the Administrative Agent or such Lender on a
non-confidential basis prior to its disclosure to the Administrative Agent or
such Lender by a Credit Party; (iv) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant
(or prospective assignee or participant) first specifically agrees in a
writing furnished to and for the benefit of the Credit Parties to be bound by
the terms of this Section 11.14; or (v) to the extent that the Borrower shall
have consented in writing to such disclosure. Nothing set forth in this
Section 11.14 shall obligate the Administrative Agent or any Lender to return
any materials furnished by the Credit Parties.
11.15 Source of Funds.
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any separate
account maintained by such Lender in which any employee benefit plan (or its
related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender has
disclosed to the Borrower the name of each employee benefit plan whose assets
in such account exceed 10% of the total assets of such account as of the
date of such purchase (and, for purposes of this subsection (b), all employee
benefit plans maintained by the same employer or employee organization are
deemed to be a single plan);
91
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(c) to the extent that any part of such funds constitutes
assets of an insurance company's general account, such insurance company has
complied with all of the requirements of the regulations issued under
Section 401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific
benefit plans which such Lender has identified in writing to the Borrower.
As used in this Section 11.15, the terms "employee benefit plan" and
"separate account" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
11.16 Conflict.
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document,
on the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
92
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: NAVIGANT INTERNATIONAL, INC.
a Delaware corporation
By:
-----------------------------
Name:
Title:
GUARANTORS: ,
---------------------
a corporation
-------------------
By:
Name:
Title:
<PAGE>
LENDERS: NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Administrative Agent
By:
---------------------------
Name:
Title:
<PAGE>
Schedule 2.1(a)
Schedule of Lenders and Commitments
<TABLE>
<CAPTION>
Lender Revolving Revolving LOC
------ Committed Amount Commitment Percentage Committed Amount
---------------- --------------------- ----------------
<S> <C> <C> <C>
NationsBank, N.A. $25,000,000 33.33333%
</TABLE>
<PAGE>
Schedule 2.1(b)(i)
FORM OF NOTICE OF BORROWING
NationsBank, N.A. NationsBank, N.A.,
as Administrative Agent for the Lenders as Swingline Lender
101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor
NC1-001-15-04 NC1-001-15-04
Charlotte, North Carolina 28255 Charlotte, North Carolina 28255
Attention: Agency Services Attention: Agency Services
RE: Credit Agreement dated as of June __, 1998 (as amended
and modified, the "Credit Agreement") among NAVIGANT INTERNATIONAL,
INC., the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the meanings provided in the
Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice of a request for Revolving Loan pursuant
to Section 2.1(b) of the Credit Agreement or of a request for Swingline Loan
pursuant to Section 2.2(b) of the Credit Agreement as follows:
Revolving Loan
Swingline Loan
(A) Date of Borrowing
(which is a Business Day)
(B) Principal Amount of
Borrowing
(C) Interest rate basis
(D) Interest Period and the
last day thereof
In accordance with the requirements of Section 5.2 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
2
<PAGE>
(a) The representations and warranties contained in the Credit Agreement
and the other Credit Documents are true and correct in all material respects
as of the date of this request, and will be true and correct after giving
effect to the requested Extension of Credit (except for those which expressly
related to an earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) As to any Credit Party, no involuntary action has been commenced
under applicable bankruptcy, insolvency or other similar law in effect, or
any case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official)
as to any Credit Party or as to any substantial party of the property of any
Credit Party or for the winding up or liquidation of its affairs, and remains
undismissed, undischarged or unbonded.
(d) No circumstances, events or conditions have occurred since the date
of the audited financial statements referenced in Section 6.1 of the Credit
Agreement which would have a Material Adverse Effect.
(e) All conditions set forth in Section 2.1 as to the making of Revolving
Loans or in Section 2.2 as to the making of Swingline Loans, as appropriate,
have been satisfied.
Very truly yours,
NAVIGANT INTERNATIONAL, INC.
By:
Name:
Title:
3
<PAGE>
Schedule 2.1(e)
FORM OF NOTE
June __, 1998
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to
the order of ______________________, and its successors and assigns, on or
before the Termination Date to the office of the Administrative Agent in
immediately available funds as provided in the Credit Agreement,
(i) in the case of Loans, such Lender's Revolving Committed Amount
or, if less, the aggregate unpaid principal amount of all Revolving Loans
owing to such Lender;
(ii) in the case of Swingline Loans, if such lender is the Swingline
Lender, the aggregate Swingline Committed Amount or, if less, the aggregate
unpaid principal amount of all Swingline Loans owing to such Swingline
Lender; and
together with interest thereon at the rates and as provided in the Credit
Agreement.
This Note is one of the Notes referred to in the Credit Agreement dated as
of June __, 1998 (as amended and modified, the "Credit Agreement") among
NAVIGANT INTERNATIONAL, INC., a Delaware corporation, the Guarantors and
Lenders identified therein and NationsBank, N.A., as Administrative Agent.
Terms used but not otherwise defined herein shall have the meanings provided
in the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided
that any failure to endorse such information shall not affect the obligation
of the undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the
Credit Agreement without presentment, demand, protest or notice of any kind,
all of which are waived by the undersigned Borrower. In the event payment of
amounts evidenced by this Note is not made at any stated or accelerated
maturity, the undersigned Borrower agrees to pay, in addition to principal
and interest, all costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in
accordance with, the law of the State of North Carolina.
4
<PAGE>
In WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
NAVIGANT INTERNATIONAL, INC.,
a Delaware corporation
By:
Name:
Title:
5
<PAGE>
Schedule 2.2(b)-1
Existing Letters of Credit
6
<PAGE>
Schedule 2.2(b)-2
Form of Notice of Request for Letter of Credit
[Date]
NationsBank, N.A. NationsBank, N.A.
as Issuing Lender under the as Administrative Agent under the
Credit Agreement referred to below Credit Agreement referred to below
101 N. Tryon Street 101 N. Tryon Street
Independence Center, 15th Floor Independence Center, 15th Floor
NC1-001-15-04 NC1-001-15-04
Charlotte, North Carolina 28255 Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of June __, 1998 (as amended
and modified, the "Credit Agreement") among Navigant International,
Inc., the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the meanings provided in the
Credit Agreement.
Ladies and Gentlemen:
The undersigned, pursuant to Section 2.2(b) of the Credit Agreement,
hereby requests that the following Letters of Credit be made on [date] as
follows:
(1) Account Party:
(2) For use by:
(3) Beneficiary:
(4) Face Amount of Letter of Credit:
(5) Date of Issuance:
Delivery of Letter of Credit should be made as follows:
7
<PAGE>
In accordance with the requirements of Section 5.2 of the Credit
Agreement, the undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all material
respects as of the date of this request, and will be true and correct after
giving effect to the requested Extension of Credit (except for those which
expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after
giving effect to the requested Extension of Credit.
(c) As to any Credit Party, no involuntary action has been commenced
under applicable bankruptcy, insolvency or other similar law in effect, or
any case, proceeding or other action for the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official)
as to any Credit Party or as to any substantial part of the property of any
Credit Party or for the winding up or liquidation of its affairs, and remains
undismissed, undischarged or unbonded.
(d) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 7.1 of the
Credit Agreement which could reasonably be expected to have a Material
Adverse Effect.
(e) All conditions set forth in Section 2.2 as to the issuance of a
Letter of Credit have been satisfied.
Very truly yours,
NAVIGANT INTERNATIONAL, INC.
By:
------------------------------
Name:
Title:
8
<PAGE>
Schedule 3.2
Form of Notice of Extension/Conversion
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of June __, 1998 (as amended
and modified, the "Credit Agreement") among NAVIGANT INTERNATIONAL,
INC., the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the meanings provided in the
Credit Agreement.
Ladies and Gentlemen:
The undersigned hereby gives notice pursuant to Section 3.2 of the Credit
Agreement that it requests an extension or conversion of a Revolving Loan
outstanding under the Credit Agreement, and in connection therewith sets
forth below the terms on which such extension or conversion is requested to
be made:
(A) Date of Extension or Conversion
(which is the last day of the
applicable Interest Period)
-------------------------------
(B) Principal Amount of
Extension or Conversion
-------------------------------
(C) Interest rate basis
-------------------------------
(D) Interest Period and the
last day thereof
-------------------------------
In accordance with the requirements of Section 5.2 of the Credit
Agreement, the undersigned Borrower hereby certifies that:
9
<PAGE>
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except for
those which expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after
giving effect to the requested Extension of Credit.
(c) As to any Credit Party, no involuntary action has been
commenced under applicable bankruptcy, insolvency or other similar law in
effect, or any case, proceeding or other action for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) as to any Credit Party or as to any substantial part of the
property of any Credit Party or for the winding up or liquidation of its
affairs, and remains undismissed, undischarged or unbonded.
(d) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Credit Agreement which would have a Material Adverse Effect.
Very truly yours,
NAVIGANT INTERNATIONAL, INC.
By:
-------------------------------
Name:
Title:
10
<PAGE>
Schedule 5.1(i)(v)
Assistant Secretary's Certificate
Pursuant to Section 5.1(i)(v) of the Credit Agreement (the "Credit
Agreement"), dated as of June __, 1998, among NAVIGANT INTERNATIONAL, INC., a
Delaware corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent, the undersigned
___________________________, Assistant Secretary of ____________________ (the
"Corporation") hereby certifies as follows:
1. Attached hereto as Annex I is a true and complete copy of
resolutions duly adopted by the Board of Directors of the Corporation on
_______________________, 199_. The attached resolutions have not been
rescinded or modified and remain in full force and effect. The attached
resolutions are the only corporate proceedings of the Corporation now in
force relating to or affecting the matters referenced to therein.
2. Attached hereto as Annex II is a true and complete copy of the
By-laws of the Corporation as in effect on the date hereof.
3. Attached hereto as Annex III is a true and complete copy of the
Certificate of Incorporation of the Corporation and all amendments thereto as
in effect on the date hereof.
4. The following persons are now duly elected and qualified
officers of the Corporation, holding the offices indicated, and the signature
appearing opposite his name below is his true and genuine signature, and such
officer is duly authorized to execute and deliver on behalf of the
Corporation, the Credit Agreement, the Notes to be issued pursuant thereto
and the other Credit Documents and to act as a Responsible Officer on behalf
of the Corporation under the Credit Agreement.
Name Office Signature
- ---- ------ ---------
------------------------
------------------------
IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and
affixed the corporate seal of the Corporation.
-----------------------------
Assistant Secretary
<PAGE>
Date: _______________________, 1998
I, _____________________, ___________________ of
_________________________, hereby certify that _____________________, whose
genuine signature appears above, is, and has been at all times since
______________________, a duly elected, qualified and acting
____________________ of _______________________________________.
_______________________________ of
__________________________________
______________________________, 1998
12
<PAGE>
Schedule 6.6
Description of Legal Proceedings
13
<PAGE>
Schedule 6.8
Existing Liens
14
<PAGE>
Schedule 6.14
Subsidiaries
15
<PAGE>
Schedule 7.2(b)
Form of Officer's Compliance Certificate
This Certificate is delivered in accordance with the provisions of Section
7.2(b) of that Credit Agreement dated as of June __, 1998 (as amended,
modified and supplemented, the "Credit Agreement") among NAVIGANT
INTERNATIONAL, INC., a Delaware corporation, the Guarantors and Lenders
identified therein, and NationsBank, N.A., as Administrative Agent. Terms
used but not otherwise defined herein shall have the same meanings provided
in the Credit Agreement.
The undersigned, being a Responsible Officer of NAVIGANT INTERNATIONAL,
INC., a Delaware corporation, hereby certifies, in my official capacity and
not in my individual capacity, that to the best of my knowledge and belief:
(a) the financial statements accompanying this Certificate fairly
present the financial condition of the parties covered by such financial
statements in all material respects;
(b) during the period the Credit Parties have observed or performed
all of their covenants and other agreements in all material respects, and
satisfied in all material respects every material condition, contained in
this Credit Agreement to be observed, performed or satisfied by them;
(c) the undersigned has no actual knowledge of any Default or Event
of Default; and
(d) detailed calculations demonstrating compliance with the
financial covenants set out in Section 7.9 of the Credit Agreement
accompanying this Certificate.
This the _______________ day of ________________________, 199_.
NAVIGANT INTERNATIONAL, INC.
By:
----------------------------------
Name:
Title:
16
<PAGE>
Attachment to Officer's Certificate
Computation of Financial Covenants
17
<PAGE>
Schedule 7.11-1
Form of Joinder Agreement
THIS JOINDER AGREEMENT (the "Agreement"), dated as of ___________________,
199_, is by and between _______________________, a __________________ (the
"Applicant Guarantor"), and NATIONSBANK, N.A., in its capacity as
Administrative Agent under that certain Credit Agreement dated as of June __,
1998 (as amended and modified, the "Credit Agreement") by and among NAVIGANT
INTERNATIONAL, INC., a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent. All of
the defined terms in the Credit Agreement are incorporated herein by
reference.
The Applicant Guarantor has indicated its desire to become a Guarantor or
is required by the terms of Section 7.11 of the Credit Agreement to become a
Guarantor under the Credit Agreement.
Accordingly, the Applicant Guarantor hereby agrees as follows with the
Administrative Agent for the benefit of the Lenders:
1. The Applicant Guarantor hereby acknowledges, agrees and confirms
that, by its execution of this Agreement, the Applicant Guarantor will be
deemed to be a party to the Credit Agreement and a "Guarantor" for all
purposes of the Credit Agreement and the other Credit Documents, and shall
have all of the obligations of a Guarantor thereunder as if it had executed
the Credit Agreement and the other Credit Documents. The Applicant Guarantor
agrees to be bound by all of the terms, provisions and conditions contained
in the Credit Documents, including without limitation (i) all of the
affirmative and negative covenants set forth in Sections 7 and 8 of the
Credit Agreement and (ii) all of the undertakings and waivers set forth in
Section 4 of the Credit Agreement. Without limiting the generality of the
foregoing terms of this paragraph 1, the Applicant Guarantor hereby (A)
jointly and severally together with the other Guarantors, guarantees to each
Lender and the Administrative Agent as provided in Section 4 of the Credit
Agreement, the prompt payment and performance of the Guaranteed Obligations
in full when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as a mandatory cash collateralization or otherwise) strictly in
accordance with the terms thereof, (B) agrees that if any of the Guaranteed
Obligations are not paid or performed in full when due (whether at stated
maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise), the Applicant Guarantor will, jointly and
severally together with the other Guarantors, promptly pay and perform the
same, without any demand or notice whatsoever, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended
maturity, as a mandatory prepayment, by acceleration, as a mandatory cash
collateralization or otherwise) in accordance with the terms of such
extension or renewal, (C) grants to the Administrative Agent a security
interest in its Collateral as referred in, and pursuant to the terms of, the
Security Agreement, and (D) pledges and grants a security interest to the
Administrative Agent in
18
<PAGE>
the Pledged Stock identified in Schedule A attached and the other Collateral
as referred in, and pursuant to the terms of, the Pledge Agreement.
2. The Applicant Guarantor acknowledges and confirms that it has
received a copy of the Credit Agreement and the Schedules and Exhibits
thereto. The information on the Schedules to the Credit Agreement, the
Security Agreement and the Pledge Agreement are amended to provide the
information shown on the attached Schedule A.
3. The Applicant Guarantor hereby waives acceptance by the
Administrative Agent and the Lenders of the guaranty by the Applicant
Guarantor under Section 4 of the Credit Agreement upon the execution of this
Joinder Agreement by the Applicant Guarantor.
4. This Agreement may be executed in two or more counterparts, each
of which shall constitute an original but all of which when taken together
shall constitute one contract.
5. This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of North Carolina.
IN WITNESS WHEREOF, the Applicant Guarantor has caused this Joinder
Agreement to be duly executed by its authorized officers, and the
Administrative Agent, for the benefit of the Lenders, has caused the same to
be accepted by its authorized officer, as of the day and year first above
written.
APPLICANT GUARANTOR
By:
-----------------------------
Name:
Title:
Address for Notices:
Attn:
Telephone:
Telecopy:
Acknowledged and accepted:
NATIONSBANK, N.A., as Administrative Agent
By:
-----------------------------
Name:
19
<PAGE>
Title:
20
<PAGE>
Schedule A
to
Joinder Agreement
Schedule 1 to Security Agreement
<TABLE>
<CAPTION>
Address for Chief Executive Locations of Record
Applicant Guarantor Notices Office Collateral Owner
------------------- ------- ------ ---------- -----
<S> <C> <C> <C> <C>
</TABLE>
Schedule 1 to Pledge Agreement
<TABLE>
<CAPTION>
Pledgor/Applicant Guarantor Issuer Class Cert.No. No.Shares Percent
--------------------------- ------ ----- -------- --------- -------
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
Exhibit 21
Professional Travel Corporation, a Colorado corporation.
Associated Travel Services, LLC, a Delaware limited liability company
-- AQUA Software Products, Inc., a California corporation
-- 50% interest in ATTI General Partnership, a Georgia general
partnership
-- 1% general partnership interest in Associated Travel Services
of Texas, Ltd., a Texas limited partnership
-- Associated Travel Services of Texas, Inc., a California
corporation
-- 99% limited partnership interest in Associated Travel
Services of Texas, Ltd., a Texas limited partnership
Envision Vacations, Inc., a Michigan corporation
Evans Travel Group, Inc., a Louisiana corporation
-- Secure Travel, Inc., a Louisiana corporation
-- Evans Consulting Services, Inc., a Louisiana corporation
-- 50% interest in Pelican Travel Center, L.L.C., a Louisiana
limited liability company
McGregor Travel Management, Inc., a Connecticut corporation
-- McGregor Travel Management Canada Limited, an Ontario
corporation
MTA, Inc., a Washington corporation
-- Mutual Travel, Inc., a Washington corporation
MTMUK Acquisition Corp., a Delaware corporation
-- McGregor Travel Management (UK) Limited, a company organized
under the laws of England and Wales
Omni Travel Service, Inc., a Massachusetts corporation
Simmons Associates, Inc., a Virginia corporation
-- 50% interest in Simmons-Zirkle Travel, Inc., a Virginia
corporation
St. Pierre Enterprises, Inc., a Texas corporation
-- 50% interest in Super Partners, a Texas general partnership
-- 17.4% interest in Super Corp., a Texas corporation
Travel Arrangements, Inc., a Texas corporation
-- Esther Grossberg Travel, Inc.
-- 50% interest in Super Partners, a Texas general partnership
-- 44.2% interest in Super Corp., a Texas corporation
Travel Consultants, Inc., a Michigan corporation
Wareheim Travel Services, Inc., a Maryland corporation
-- Travel Consultants, Inc., a ______________ corporation
<PAGE>
1186202 Ontario Limited, an Ontario corporation
-- 1255994 Ontario Limited, an Ontario corporation
-- Jekela Investments Ltd., a British Columbia corporation
-- Atlas Travel Service Ltd., a British Columbia corporation
TravelCorp, Inc., a Minnesota corporation.
<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. 3 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
