<PAGE> 1
As filed with the Securities and Exchange Commission on June 25, 1998
Registration No. 333-52673
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GLOBAL VACATION GROUP, INC.
(Exact name of registrant as specified in its charter)
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NEW YORK 4725 13-1894567
(State of Incorporation) (Primary S.I.C. Code Number) (IRS Employer Identification No.)
</TABLE>
1420 NEW YORK AVENUE, N.W., SUITE 550
WASHINGTON, DC 20005
(202) 347-1800
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROGER H. BALLOU
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
GLOBAL VACATION GROUP, INC.
1420 NEW YORK AVENUE, N.W., SUITE 550
WASHINGTON, DC 20005
(202) 347-1800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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DAVID B.H. MARTIN, ESQ. BRENT B. SILER, ESQ.
HOGAN & HARTSON L.L.P. HALE AND DORR LLP
555 13TH STREET, N.W. 1455 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004 WASHINGTON, DC 20004
(202) 637-5600 (202) 942-8400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable 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, 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(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. [ ]
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 SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
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 SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS 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.
SUBJECT TO COMPLETION, DATED JUNE 25, 1998
PROSPECTUS
3,000,000 SHARES
GLOBAL VACATION GROUP, INC. [LOGO]
COMMON STOCK
------------------
All of the 3,000,000 shares of common stock, $0.01 par value per share (the
"Common Stock"), offered hereby are being offered by Global Vacation Group, Inc.
(the "Company").
Prior to this offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $13.00 and $15.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. The Company will apply to list the Common Stock on the
New York Stock Exchange under the symbol "GVG."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
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<CAPTION>
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ----------------------------------------------------------------------------------------------------------
Total(3) $ $ $
==========================================================================================================
</TABLE>
(1) For information regarding indemnification of the several Underwriters,
see "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $2,500,000.
(3) Certain of the Company's shareholders (the "Selling Shareholders") have
granted the Underwriters a 30-day option to purchase up to 450,000
additional shares of Common Stock solely to cover over-allotments, if
any. See "Underwriting." If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Selling Shareholders will be $ , $ and $ ,
respectively.
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
------------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
ING BARINGS FURMAN SELZ
, 1998
<PAGE> 3
[GRAPHICS -- GATEFOLD SHOWING PRODUCT OFFERINGS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Except as
otherwise indicated herein, all information in this Prospectus (i) gives effect
to the conversion of all outstanding shares of Class A Convertible Preferred
Stock (the "Convertible Preferred Stock") into shares of Common Stock (the
"Conversion"), which will occur concurrently with the closing of this offering,
and (ii) assumes no exercise of the Underwriters' over-allotment option. Because
the number of shares to be issued in the Conversion will depend upon the closing
date and the pricing of this offering, all calculations included in this
Prospectus based upon the Conversion, including those indicating the number of
shares of Common Stock to be outstanding after this offering, have been made
assuming the closing date of this offering is July 31, 1998 and assuming an
initial public offering price of $14.00 per share. See "Description of Capital
Stock" and "Underwriting."
As used in this Prospectus, unless the context otherwise requires,
references to "Global Vacation Group" or the "Company" are to the Company and
its subsidiaries. Prospective purchasers should read the Prospectus in its
entirety.
THE COMPANY
The Company is one of the largest U.S. providers of value-added vacation
products and services targeted to higher-income travelers. The Company assembles
air, hotel, rental car and other travel components in bulk and provides complete
vacations to travelers through retail travel distributors, such as travel
agents, and other distribution channels, including the Internet and affinity
groups. The Company provides flexible independent travel programs for
individuals as well as escorted tours and group packages. On a pro forma basis
for 1997 and for the three months ended March 31, 1998, the Company had net
revenues of $115.2 million and $22.4 million, respectively, derived from a total
dollar value of travel products and services sold of $507.0 million and $101.1
million, respectively. For the same periods, the Company had pro forma net
income (loss) of $4.4 million and ($1.6 million), respectively. More than 90% of
the Company's 1997 pro forma net revenues were derived from sales through retail
travel agents and other travel intermediaries.
The Company intends to achieve the leading market position in selected
high-volume, high-margin travel destinations and will focus initially on the
following markets: (i) Hawaii; (ii) in-bound vacations to the United States for
international travelers; (iii) Florida, the Caribbean and Mexico; (iv) other
U.S. destinations such as California and New York; and (v) out-bound travel by
U.S. travelers to Europe. The Company focuses its marketing efforts on travelers
who typically spend more than $750 per person for a vacation. The Company also
provides certain services to travel suppliers, including outsourced vacation
packaging and affinity group marketing and awards program fulfillment.
The Company intends to market its products and services under two specific
proprietary brands: one for up-scale, customized vacations and another for
popular-priced vacation packages. The Company believes providing expertise and
competitive pricing in multiple destinations through two separate brands will
distinguish its products and services and will provide the Company with a
significant competitive advantage. In addition to serving multiple destinations,
the Company also has achieved a diverse domestic and international customer
base. The Company believes it will be able to use its international scope to
create cross-selling opportunities and expand its relationships with suppliers
of quality travel products and services (primarily airlines, hotel companies and
rental car companies).
In addition, the Company believes the shift to on-line systems such as the
Internet will enable it to realize savings in operating expenses. The Company
further believes its value-added approach and expertise will allow it to compete
effectively with other travel providers on the Internet by (i) generally
providing better prices and inventory availability than can be obtained by an
individual travel agency or traveler, (ii) enhancing and simplifying access to
travel information across multiple destinations and (iii) assembling vacation
travel components into convenient packages for ease of planning and booking.
1
<PAGE> 5
The Company's executive management team, Roger H. Ballou, J. Raymond Lewis
Jr. and Walter S. Berman, has over 60 years of management experience in the
travel industry with leading companies such as American Express Travel Related
Services Company, Inc. ("American Express Travel"), Alamo Rent-A-Car, Inc.
("Alamo"), Certified Vacations, Inc. ("Certified Vacations") and Holiday Inn
Worldwide ("Holiday Inn"). Their experience includes management responsibility
for the acquisition and integration of businesses with a combined purchase price
of over $500 million.
The Company was recapitalized in March 1998 (the "Recapitalization") and
subsequently acquired the stock or assets of four other vacation providers (the
"Acquisitions"). See "The Recapitalization" and "The Acquired Businesses." The
Company intends to continue to grow through acquisitions by capitalizing upon
the significant consolidation opportunities available in the fragmented packaged
vacation industry. The Company will seek to make acquisitions that complement
its established strengths and are likely to enhance its presence in specific
travel destinations or allow the Company to establish a leading presence in a
new market. The Company believes it will be regarded as an attractive acquiror
by the owners of existing travel businesses.
OPERATING STRATEGY
In providing value-added vacation products and services targeted to
higher-income travelers, the Company pursues an operating strategy that includes
the following elements:
Creating Value-added Vacation Products and Services. The Company focuses
on creating vacation packages that provide added value to higher-income
travelers. The Company believes that, because of its size and expertise in
certain destination markets, it can (i) generally provide better prices and
inventory availability than can be obtained by an individual travel agency or
traveler, (ii) enhance and simplify access to travel information across multiple
destinations and (iii) assemble vacation travel components into convenient
packages for ease of planning and booking.
Establishing National Brand Name Recognition. The Company believes it can
leverage its presence in leading origination and destination markets to develop
nationally recognized proprietary brand names in the packaged vacation industry.
The Company believes offering expertise and competitive pricing through common
brands across multiple destinations will provide greater confidence to travelers
in making their vacation choices and engender consumer loyalty and a pattern of
repeat purchases.
Leveraging Strength in Selected Travel Destinations. The Company believes
it has a leading position in the packaged vacation markets for westbound travel
to Hawaii and for in-bound travel to the United States and intends to achieve
the leading position in these and other high-volume, high-margin vacation
destinations. The Company believes having scale and expertise in selected
destinations gives it access to pricing and inventory that provides the Company
with a significant competitive advantage.
Pursuing Revenue Enhancing Opportunities. Following the Acquisitions, the
Company's revenue enhancing strategies include (i) improving yield management by
obtaining greater access to high-margin products and services, (ii) expanding
ancillary products and services, such as city tours and travel insurance, (iii)
securing favorable pricing and inventory availability through strategic
purchasing relationships and (iv) improving cash management, particularly
management of traveler deposits and advance payments.
Improving Operating Efficiencies. The Company seeks to reduce its
operating expenses by (i) capitalizing on enhanced purchasing efficiencies, (ii)
implementing a more effective utilization program of its physical and other
assets, (iii) implementing best practices in its management and business
systems, (iv) enhancing marketing relationships with travel suppliers and other
related parties and (v) outsourcing certain functions where appropriate.
Implementing Integrated Information Systems. The Company will seek to
integrate its information systems in order to improve its ability to offer
travelers value-added vacation products and services and to leverage maintenance
and development costs across a broader customer base. In addition, integrated
systems
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<PAGE> 6
will facilitate the use of common operating platforms, reduce the cost and time
requirements of developing external interfaces and accelerate the integration of
subsequent acquisitions.
GROWTH STRATEGY
To complement its operating strategy, the Company has developed a
multi-faceted growth strategy that includes the following elements:
Generating Internal Growth. The Company intends to grow internally by (i)
implementing an integrated national marketing program, (ii) increasing its
presence in underpenetrated origination markets and (iii) implementing loyalty
programs that stimulate repeat purchases.
Identifying and Consummating Strategic Acquisitions. The Company believes
the packaged vacation industry is fragmented and there are significant
opportunities to make selective acquisitions of packaged vacation providers. The
Company generally will seek to acquire companies that (i) have desirable
destination concentrations, (ii) have demonstrated growth and profitability,
(iii) have an emphasis on customer service, (iv) have an experienced management
team and (v) are likely to add some other strategic value to the Company.
Enhancing Strategic Relationships with Travel Suppliers and Travel
Agents. By enhancing strategic supplier relationships, the Company will
strengthen its ability to provide vacation products and services and to offer
prices and inventory that generally would not be available to travelers on their
own or through travel agents. In addition, by broadening its products and
services to include additional destinations, the Company believes it will
achieve enhanced loyalty among the travel agent community.
Enhancing Distribution Channels. The Company seeks to capitalize on the
opportunities presented by the direct selling of vacation products and services
to travelers (disintermediation) and the emergence of alternative distribution
channels (e.g., the Internet and affinity groups) while still supporting and
leveraging its strong relationships with existing retail travel agents.
Private Label Branding. In recent years, certain travel and other
companies have sought to leverage their brand names by outsourcing the
development and operation of packaged vacation programs under such brand names.
The Company believes there are significant opportunities to expand its private
label business.
Affinity Group Marketing. The Company will seek access to affinity groups
such as frequent flier programs and bank card reward or loyalty programs for the
direct marketing of its products and services as well as the opportunity to
provide its vacation products and services as rewards in these programs. The
Company has certain proprietary software and extensive operating experience
which it believes provide a significant opportunity to capitalize on this
growing market.
3
<PAGE> 7
THE OFFERING
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Common Stock offered by the Company.......... 3,000,000 shares
Common Stock to be outstanding after the
offering(1) ............................... 15,449,738 shares
Use of proceeds.............................. Repayment of debt. See "Use of Proceeds."
Proposed NYSE Symbol......................... GVG
</TABLE>
- ---------------
(1) Excludes (i) 92,355 shares of Common Stock issuable upon exercise of options
outstanding under the Company's 1998 Stock Option Plan (the "Stock Option
Plan") as of June 15, 1998, (ii) shares of Common Stock equal to 7.5% of
the number of shares of Common Stock to be outstanding upon completion of
this offering plus a number of shares of Common Stock equal to $2,475,000
divided by the price per share in this offering, all of which shares will
be issuable upon exercise of options to be granted under the Stock Option
Plan upon completion of this offering (an aggregate of 1,335,513 shares,
assuming the offering is closed on July 31, 1998 at a price of $14.00 per
share), and (iii) additional shares of Common Stock reserved for issuance
under the Stock Option Plan, up to a total number of shares eligible for
issuance under the Stock Option Plan at any time equal to 12% of the then
outstanding shares of Common Stock. See "Management -- Stock Option Plan."
RISK FACTORS
See "Risk Factors" for a description of certain risks to be considered
before making an investment in the Common Stock. These risks include, but are
not limited to, risks regarding competition, direct purchases by travelers of
travel services from suppliers through on-line systems such as the Internet, the
absence of combined operating history, dependence on travel suppliers, a
concentration of the Company's net revenues in the Hawaiian market, management
of growth, integration of operations and information systems, dependence on
technology and Year 2000 issues.
4
<PAGE> 8
SUMMARY FINANCIAL DATA
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<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ----------------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1995 1996 1997 1997(1) 1997(2) 1998(2) 1998(1)
------- ------- ------- -------------- ------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net revenues..................... $18,464 $22,259 $24,255 $115,222 $2,425 $2,477 $22,421
Operating expenses............... 13,316 16,025 17,852 96,939 2,820 3,032 22,158
------- ------- ------- -------- ------- ------- -------
Gross profit (loss).......... 5,148 6,234 6,403 18,283 (395) (555) 263
------- ------- ------- -------- ------- ------- -------
General and administrative
expenses(3).................... 5,702 6,905 7,797 10,256 1,129 1,571 2,710
Depreciation and amortization.... 131 154 182 1,594 41 34 405
Goodwill amortization............ -- -- -- 1,891 -- -- 470
Settlement agreement legal
expense........................ -- -- -- 1,184 -- -- 20
------- ------- ------- -------- ------- ------- -------
Income (loss) from operations.... (685) (825) (1,576) 3,358 (1,565) (2,160) (3,342)
------- ------- ------- -------- ------- ------- -------
Other income (expense):
Interest income.............. 521 581 556 4,324 65 74 1,051
Interest expense............. -- -- -- (889) -- (14) (208)
Other, net................... 67 (4) 41 338 -- -- (4)
------- ------- ------- -------- ------- ------- -------
Total other income
(expense).............. 588 577 597 3,773 65 60 839
------- ------- ------- -------- ------- ------- -------
Income (loss) before (provision
for) benefit from income
taxes.......................... (97) (248) (979) 7,131 (1,500) (2,100) (2,503)
(Provision for) benefit from
income taxes................... (106) (122) (124) (2,710) 10 61 951
------- ------- ------- -------- ------- ------- -------
Net income (loss)............ (203) (370) (1,103) 4,421 (1,490) (2,039) (1,552)
Preferred dividend............... -- -- -- -- -- (150) --
------- ------- ------- -------- ------- ------- -------
Net income (loss) available to
common shareholders............ $ (203) $ (370) $(1,103) $ 4,421 $(1,490) $(2,189) $(1,552)
======= ======= ======= ======== ======= ======= =======
Pro forma net income (loss) per
common share:
Basic and diluted............ $ 0.29 $ (0.10)
Pro forma weighted average common
shares outstanding:
Basic and diluted............ 15,450 15,450
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MARCH 31, 1998
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PRO FORMA
ACTUAL(2) AS ADJUSTED(1)
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(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities, including
non-current portion....................................... $ 7,069 $ 46,610
Working capital deficit..................................... (13,660) (27,160)
Total assets................................................ 27,401 157,963
Total debt.................................................. 19,400 8,940
Shareholders' equity (deficit).............................. (44,045) 45,680
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(1) The summary pro forma as adjusted statement of operations data for each
period presented give effect to (i) the Recapitalization, (ii) the
Acquisitions and the issuance of capital stock in connection therewith,
(iii) reductions in salary and bonuses to the prior owners and key
executives of the Company and the Acquired Businesses (as defined below),
offset in part by expected incremental costs reflecting the Company's new
management structure (the "Compensation Savings"), (iv) the termination of
the Company's status as an S Corporation, (v) the Conversion and (vi) the
sale by the Company of the 3,000,000 shares offered hereby and the use of
the net proceeds therefrom to repay certain indebtedness as described under
"Use of Proceeds" as if all such events had occurred as of January 1, 1997.
The summary pro forma as adjusted statement of operations data does not give
effect to the estimated annual savings from closing redundant acquired
facilities (the "Facilities Savings") estimated to be approximately $3.2
million before provision for income taxes, of which approximately 80% are
expected to be realized in 1999 and 100% are expected to be realized in
subsequent years. Furthermore, the pro forma results do not eliminate
non-recurring settlement agreement legal expense of one of the Acquired
Businesses of approximately $1.2 million and $20,000 before provision for
income taxes for the year ended December 31, 1997 and the three months ended
March 31, 1998, respectively, as such expense is not directly related to the
Acquisition. The summary pro forma as adjusted balance sheet data give
effect to each of the items referred to in clauses (i) through (vi) above,
as well as the accrual for lease and employee severance payments for the
planned closing of redundant acquired facilities (the "Facilities Accruals"
and, collectively with clauses (i) through (vi) above, the "Pro Forma
Adjustments"), as if each had occurred on March 31, 1998. See "Unaudited Pro
Forma Condensed Combined Financial Statements."
(2) The financial data as of March 31, 1998 and for the three months ended March
31, 1997 and 1998 have been derived from the Company's unaudited financial
statements. In the opinion of the Company's management, these unaudited
financial statements include all adjustments (including only normal,
recurring adjustments) necessary for a fair presentation of such
information. Operating results for interim periods are not necessarily
indicative of the results that might be expected for the entire fiscal year.
(3) General and administrative expenses for the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998 include
salary and bonuses to the prior owners and certain key employees of the
Company of $3.8 million, $4.8 million, $5.8 million, $790,000 and $170,000,
respectively. General and administrative expenses for the three months ended
March 31, 1998 include approximately $1.0 million of expenses incurred in
connection with the Recapitalization.
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RISK FACTORS
The following factors should be considered in addition to other information
included in this Prospectus.
SUBSTANTIAL COMPETITION
The packaged vacation industry is highly competitive and has relatively low
barriers to entry. The Company competes primarily with other vacation providers,
travel agencies and other distributors of travel products and services, some of
which are larger and have greater brand name recognition and financial resources
than the Company. Competition within the packaged vacation industry is
increasing as certain of the Company's competitors are expanding their size and
financial resources through consolidation. In addition, the Company's travel
suppliers may decide to compete more directly with the Company and restrict the
availability of travel products or services or the ability of the Company to
offer such products or services at preferential prices. Consolidation among
travel suppliers has left the remaining suppliers in a stronger position
relative to providers of travel products and services, such as the Company.
Certain packaged vacation providers who compete with the Company may have
relationships with travel suppliers that give them preferred access to capacity
or more competitive pricing than is available to the Company. Furthermore, some
travel providers have a strong presence in particular geographic areas, which
may make it difficult for the Company to attract customers in those areas. As a
result of competitive pressures, the Company's revenues and margins may decline.
There can be no assurance that the Company will be able to compete successfully,
and the failure to compete successfully may have a material adverse effect on
the business, financial condition and results of operations of the Company.
CHANGING INDUSTRY DYNAMICS; NEW METHODS OF DISTRIBUTION
Innovations in on-line technology such as the Internet have increased the
ability of travel suppliers to distribute their travel products and services
directly to travelers. Travelers can now use the Internet to access information
about travel products and services and to purchase such products and services
directly from suppliers, thereby bypassing both vacation providers such as the
Company and retail travel agents through whom the Company receives a substantial
majority of its revenues. In addition, recent erosion of commissions paid by
travel suppliers, particularly airlines, to travel distributors has weakened the
financial condition of many travel agents. Because the Company currently relies
to a large extent on retail travel agencies for access to travelers and
revenues, a shift in consumer purchasing away from travel agencies and toward
direct purchasing from travel suppliers could have an adverse impact on the
Company. Also, although the Company has a strategy to capitalize on the
emergence of the Internet as an alternative distribution channel, there can be
no assurance that such strategy will be successful or will not negatively impact
the Company's relationship with retail travel agents.
ABSENCE OF COMBINED OPERATING HISTORY
Following the Recapitalization in March 1998, the Company completed the
four Acquisitions, which account for a substantial majority of the Company's pro
forma revenues for 1997. Although the Company and each of the Acquired
Businesses have been in operation for more than 15 years, they have virtually no
history of combined operations. The pro forma consolidated financial data
included in this Prospectus cover periods when the Company and the Acquired
Businesses were not under common management or control and are not necessarily
indicative of the results that would have been achieved if the Company and the
Acquired Businesses had been operated on an integrated basis or the results that
may be realized on a consolidated basis in the future. See "The Acquired
Businesses."
DEPENDENCE ON TRAVEL SUPPLIERS
The Company is dependent upon travel suppliers for access to their products
and services. Certain travel suppliers, such as American Airlines, Inc.
("American Airlines"), Delta Air Lines, Inc. ("Delta"), United Air Lines, Inc.
("United"), Aloha Airlines, Inc. ("Aloha"), Hawaiian Airlines, Inc. ("Hawaiian
Airlines"), Hyatt Hotels Corporation ("Hyatt"), ITT Sheraton Corporation,
Marriott International, Inc. and Amtrak,
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<PAGE> 10
offer the Company (i) non-exclusive pricing that is preferential to published
rates, enabling the Company to offer complete vacations at prices lower than
generally would be available to individual travelers and retail travel agents,
(ii) non-exclusive preferential access to inventory of their travel products and
services, enabling the Company to assemble more desirable vacations for
travelers, or (iii) in the case of certain travel suppliers, both non-exclusive
preferential pricing and access to inventory. The Company's travel suppliers
generally can cancel or modify their agreements with the Company upon relatively
short notice. In addition, any decline in the quality of travel products and
services provided by these suppliers, or a perception by travelers of such a
decline, could adversely affect the Company's reputation. The loss of contracts,
changes in the Company's pricing agreements, commission schedules or incentive
override commission arrangements, more restricted access to travel suppliers'
products and services or less favorable public opinion of certain travel
suppliers and resulting low demand for the products and services of such travel
suppliers could have a material adverse effect on the business, financial
condition and results of operations of the Company.
CONCENTRATION IN HAWAIIAN MARKET
On a pro forma basis for 1997, the Company derived approximately 60% of its
net revenues from products and services associated with vacations to Hawaii. In
addition, approximately 15% of the Company's employees are located in Hawaii to
serve that market exclusively. The market for westbound packaged vacations to
Hawaii has been relatively flat for the last three years, with the Hawaii
Visitors & Convention Bureau estimating that, in each of 1995, 1996 and 1997,
approximately 1.5 million westbound travelers visited Hawaii as part of a
packaged vacation. A downturn in the market for vacations to Hawaii could have a
material adverse effect on the business, financial condition and results of
operations of the Company.
MANAGEMENT OF GROWTH; INTEGRATION OF OPERATIONS
The Company has grown rapidly since March 1998 through the Acquisitions,
and the Company expects to continue to grow in part through additional
acquisitions. The Company's executive management group has been assembled only
recently, and there can be no assurance that the executive management group will
be able to manage effectively the combined entity or implement the Company's
operating and growth strategies. In addition, the rapid pace of acquisitions
has, and will continue to, put pressure on the Company's personnel, computer
systems and other corporate support systems. Any inadequacy of such systems to
manage the increased size and scope of operations resulting from growth or the
inability of the Company to integrate successfully the Acquired Businesses or
future acquisitions could have a material adverse effect on the business,
financial condition and results of operations of the Company. See "-- Dependence
upon Technology; Year 2000 Problem," "Business -- Operating Strategy" and
"Business -- Growth Strategy."
The Company intends to improve its profitability by various means,
including a reduction of redundant operating and overhead costs, increased asset
utilization and enhanced purchasing power. The Company's ability to improve
profitability will be affected by various factors, such as the costs associated
with centralizing its administrative functions and its ability to benefit from
enhanced purchasing power, many of which are beyond the control of the Company.
In addition, the Company's ability to achieve its operating and growth goals
will depend in large part on its ability to consolidate and integrate certain
administrative functions common to the Company and the Acquired Businesses. Such
integration will require substantial attention from senior management and may
disrupt the operations of the Company, as management attention is diverted from
other tasks, and as technological, practical or personnel issues arise. In
addition, although no material capital expenditures currently are anticipated,
there can be no assurance that such integration will not result in the
requirement to make material unanticipated capital expenditures. There can be no
assurance that such consolidation and integration will be completed or that, if
completed, the Company will recognize any economic benefit. See "-- Integration
of Information and Business Systems."
DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH
One of the Company's strategies is to increase its revenues and the markets
it serves through acquisitions. There can be no assurance that suitable
candidates for acquisitions can be found or, if suitable candidates are
identified, that acquisitions can be completed on acceptable terms. In this
regard, the Company faces
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competition from other packaged vacation providers as well as from travel
suppliers and vertically integrated travel companies in its efforts to identify
acquisition targets and complete acquisitions. In addition, as consolidation in
the industry continues, the prices for attractive acquisition candidates may be
bid up to higher levels, and there can be no assurance that businesses acquired
in the future will achieve sales and profitability that justify the investment
therein. The failure of the Company to acquire additional travel businesses may
limit the Company's ability to grow in the future. See "Business -- Growth
Strategy."
Future acquisitions may involve a number of risks that could adversely
affect the business, results of operations and financial condition of the
Company. These could include adverse short-term effects on the Company's
reported operating results such as those caused by severance payments to
employees of acquired companies, difficulties in eliminating duplicative costs,
restructuring charges associated with the acquisitions and other expenses
associated with a change of control, as well as non-recurring acquisition costs.
Acquisitions also may divert management's attention, create difficulties with
retention, hiring and training of key personnel, raise risks associated with
unanticipated problems or legal liabilities and require non-cash accounting
charges associated with the amortization of acquired intangible assets.
Furthermore, although the Company 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
or will have the means to satisfy their indemnification obligations. If an
acquired company's financial or operating results were misrepresented, the
acquisition could have a material adverse effect on the business, financial
condition and results of operations of the Company.
INTEGRATION OF INFORMATION AND BUSINESS SYSTEMS
The Company and each of the Acquired Businesses currently operate separate
internal information and business systems. Prior to the acquisition by the
Company of MTI Vacations, Inc. ("MTI"), MTI received information and business
system support from Trase-Miller Solutions, Inc. ("Trase-Miller Solutions"), and
Trase-Miller Solutions continues to provide such services to MTI. In order to
integrate the support systems which the Company and the other Acquired
Businesses currently operate (other than the business systems associated with
the Company's in-bound business), the Company is negotiating to expand the
out-sourcing agreement between Trase-Miller Solutions and MTI to grant the
Company the right to use Trase-Miller Solutions's proprietary software, hardware
and service bureau processing throughout the Company's business. The Company
estimates this integration will be accomplished prior to the end of 1999 at a
cost of approximately $1.2 million. Once this integration is complete, the
Company's ability to deliver its products and services and manage its internal
systems will depend substantially on the Trase-Miller Solutions system. While
the Company believes that the Trase-Miller Solutions system will provide
adequately for the Company's information and business system requirements, there
can be no assurance that the Company will negotiate the expansion of the
Trase-Miller Solutions agreement successfully or that the Trase-Miller Solutions
system will in fact meet the Company's needs. The failure of the Company to
expand the Trase-Miller Solutions agreement or otherwise to integrate its
separate systems, the failure of the Trase-Miller Solutions system to meet the
Company's information and business system requirements or the incurrence of
unanticipated costs of the integration could have a material adverse effect on
the business, financial condition and results of operations of the Company.
DEPENDENCE ON TECHNOLOGY; YEAR 2000 PROBLEM
The Company's business is dependent upon a number of different information
and telecommunications technologies to access information and manage reservation
systems, including handling a high volume of telephone calls on a daily basis.
Rapid changes in these technologies may require greater than anticipated capital
expenditures to improve or upgrade the level of customer service. In addition,
the Company is dependent upon certain third party vendors, including central
reservation system operators such as SABRE Group Holdings, Inc. ("SABRE"),
Galileo International, Inc. ("Galileo") and WORLDSPAN, L.P. ("WORLDSPAN") for
access to certain information and will depend on such vendors in the future for
electronic distribution of vacation products to retail travel agents and other
travel intermediaries. Any failure
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of these systems could have a material adverse effect on the business, financial
condition and results of operations of the Company.
The Company's dependence upon information and telecommunications technology
makes the Company particularly sensitive to Year 2000 issues. Because the
Company receives reservations up to a year in advance, the Company must identify
and correct potential Year 2000 problems on a more accelerated basis than
companies in many other industries. While the Company believes that the
Trase-Miller Solutions system, as well as any of the Company's systems not
integrated within the Trase-Miller Solutions system prior to 1999, will be Year
2000 compliant, there can be no assurance that these systems will prevent
disruptions of the Company's operations due to Year 2000 issues. In addition,
travelers who use the Company's products and services may be exposed to
disruptions in their travel as a result of failures by travel suppliers or other
travel businesses such as SABRE, Galileo or WORLDSPAN, to correct Year 2000
problems in their information and computer systems, and Year 2000 problems or
disruptions in these or other third-party systems could directly affect the
Company's own systems. Such disruptions could adversely affect demand for
vacation travel generally and may have a material adverse effect on the
business, financial condition and results of operations of the Company.
DEPENDENCE ON CUSTOMER DEPOSITS AND ADVANCE PAYMENTS
The Company derives substantial income from interest on customer deposits
and advance payments. For 1997 on a pro forma as adjusted basis, the Company had
interest income of $4.3 million (or 60.6% of income before provision for income
taxes), substantially all of which was derived from interest on customer
deposits and advance payments. In addition, the Company's pricing of its
products and services is determined, in part, based upon the interest income
expected to be received from investing these deposits and advance payments. The
Company's investment policy and the terms of the Company's credit facility
restrict the Company to investing these deposits and advance payments only in
investment-grade securities. A failure of these investment securities to perform
at their historical levels could reduce the interest income realized by the
Company, which could have a material adverse effect on the business, financial
condition and results of operations of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
QUARTERLY FLUCTUATIONS; SEASONALITY
The Company's operating results have fluctuated from period to period and
likely will continue to fluctuate in the future. The travel industry in general
and the Company's operations in particular are highly seasonal. The Company's
net revenues generally are highest in the second and third quarters of the year,
while its expenses generally are highest in the first and fourth quarters. The
Company's quarterly results of operations also may 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 the Company, extreme weather conditions, general economic
conditions or other factors affecting travel generally. As a result of these and
other factors, the Company's quarterly operating results are subject to
fluctuation, and the Company believes quarter-to-quarter comparisons of its
operating results are not necessarily meaningful and should not be relied upon
as an indication of future performance. In addition, due to all of the foregoing
factors, the Company's operating results in future periods may be below the
expectations of securities analysts and investors. In such event, the market
price of the Common Stock could be materially adversely affected.
RELIANCE ON KEY PERSONNEL
The Company's success will depend, in part, on the continued efforts of
Roger H. Ballou, its Chairman and Chief Executive Officer, J. Raymond Lewis,
Jr., its President and Chief Operating Officer, Walter S. Berman, its Executive
Vice President and Chief Financial Officer, and the senior management of the
Acquired Businesses. Furthermore, the Company's operations likely will depend on
the senior management of companies that may be acquired in the future. If any of
these individuals becomes unwilling or unable to continue in his or her present
role, or if the Company is unable to attract and retain other skilled employees,
its
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business could be adversely affected. The Company does not maintain key person
life insurance on any of its key personnel. Although the Company has entered
into employment agreements with Messrs. Ballou, Lewis and Berman, they, like all
other key employees, may voluntarily terminate their respective employment
relationships with the Company at any time. See "Management."
GOVERNMENT REGULATION AND TAXATION
Many travel suppliers, particularly airlines, are subject to extensive
regulation by federal, state and foreign governments. In addition, the travel
industry is subject to certain special taxes by federal, state, local and
foreign governments, including hotel bed taxes, car rental taxes, airline excise
taxes and airport taxes and fees. New or different regulatory schemes or changes
in tax policy could have an adverse impact on the travel industry in general and
could have a material adverse effect on the business, financial condition and
results of operations of the Company.
ACQUISITION FINANCING; ADDITIONAL DILUTION
The Company currently intends to finance future acquisitions by using
shares of Common Stock, cash, borrowed funds or a combination thereof. Existing
shareholders will suffer ownership dilution if the Company uses Common Stock as
consideration for future acquisitions. Moreover, the issuance of additional
shares of Common Stock may negatively affect earnings per share and the market
price of the Common Stock. If the Common Stock does not maintain a sufficient
market value, if the price of Common Stock is highly volatile or if potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to use more of its cash resources or more borrowed funds in order to execute its
acquisition program. If the Company does not have sufficient cash resources, its
growth could be limited unless it is able to obtain additional capital through
debt or equity offerings. The Company has entered into a credit facility that
will provide a limited source of funds which may be used in connection with
future acquisitions. There can be no assurance that this credit facility will be
sufficient to meet all of the Company's capital requirements to fund
acquisitions or that the Company will be able to obtain additional financing if
and when it is needed or that any such additional financing will be available on
terms it deems acceptable.
ACCOUNTING CHARGES; SIGNIFICANT INTANGIBLE ASSETS
Many business acquisitions must be accounted for under the purchase method
of accounting, and the Company expects that, under current accounting rules, it
will be required for the foreseeable future to account for all acquisitions
under the purchase method. Acquisitions accounted for under the purchase method
are likely to generate goodwill (which, generally, represents the difference
between the purchase price and the fair value of the tangible and separately
measurable intangible net assets) or other intangible assets. Consequently,
acquisitions of new businesses typically would result in substantial
amortization charges to the Company, which, although non-cash in nature, could
have a significant impact on the Company's reported operating results.
Acquisitions also may involve significant one-time acquisition-related charges.
As a result of the Acquisitions, the Company will record annual amortization
expenses for acquisition-related intangible assets of $1.9 million. Taking into
account the Acquisitions and certain transactions and other factors arising
prior to the time of the Recapitalization, the Company's pro forma as adjusted
balance sheet as of March 31, 1998 includes an amount designated as goodwill
that represents 41.6% of pro forma as adjusted total assets and 143.8% of pro
forma as adjusted total shareholders' equity.
Generally accepted accounting principles require that goodwill and all
other intangible assets be amortized over the period benefited, and the
Company's management has determined that period to be at least 35 years for the
goodwill recorded in connection with the Acquisitions. There can be no assurance
that the Company's management accurately determined the amortization period for
the goodwill recorded in connection with the Acquisitions. If the Company failed
to recognize a separate, material intangible asset having an actual benefit
period of less than 35 years, or if the Company did not give effect to any
accrued shorter benefit periods for certain material portions of the goodwill
recorded in connection with the Acquisitions, then earnings reported in periods
immediately following the Acquisitions will be overstated, and,
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in later years, the Company will be burdened by a continuing charge against
earnings without an associated benefit to income which generally would have been
factored into the price paid for the business acquired. Earnings in later years
also will be significantly affected if management determined that the remaining
balance of goodwill at any time was impaired. Management has reviewed with its
independent accountants all of the factors and related cash flows which it
considered in arriving at the amount of goodwill in each of the Acquisitions.
Management concluded that the anticipated future cash flows associated with
intangible assets recognized in the Acquisitions will continue indefinitely, and
that there is no persuasive evidence that any material portion will dissipate
over a period shorter than 35 years. See "The Acquired Businesses,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Business -- Growth Strategy."
VACATION TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS
The Company's results of operations will depend upon factors affecting the
vacation travel industry generally. The Company'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 political instability, armed hostilities, international terrorism,
labor disturbances, a rise in fuel prices or other travel costs, excessive
inflation, currency fluctuations, extreme weather conditions and concerns about
passenger safety could result in a temporary or longer-term overall decline in
demand for packaged vacations. The Company believes price-based competition will
continue 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 the business, financial condition and results of operations of
the Company. In addition, demand for the Company's products and services may be
significantly affected by the general level of economic activity and employment
in the United States and key international markets. Therefore, any significant
economic downturn or recession in the United States or these other markets could
have a material adverse effect on the business, financial condition and results
of operations of the Company.
VOTING CONTROL BY EXISTING MANAGEMENT AND SHAREHOLDERS
Thayer Equity Investors III, L.P. ("Thayer") and its affiliates own and
control a substantial majority of the Common Stock of the Company. Upon
completion of this offering, Thayer and its affiliates will own beneficially
65.4% of the outstanding shares of Common Stock. As a result, Thayer and its
affiliates will be able to exercise control over the Company's affairs and will
be able to elect the entire Board of Directors and control the disposition of
any matter submitted to a vote of shareholders. In addition, the Company's
executive officers and directors, and entities affiliated with them, including
Thayer and its affiliates, will own beneficially shares of Common Stock
representing 70.5% of the total voting power of the Common Stock after this
offering. See "Management," "Certain Transactions" and "Principal Shareholders."
NO PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF TRADING PRICE
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price per share of the Common
Stock will be determined by negotiations among the Company and the
representatives of the Underwriters and may not be indicative of the market
price that will prevail after the closing of the offering. See "Underwriting"
for factors to be considered in determining the initial public offering price
per share. The Company will apply to list the Common Stock on the New York Stock
Exchange ("NYSE"); however, there can be no assurance that an active trading
market will develop and be sustained after this offering.
The market price of the Common Stock may fluctuate substantially due to a
variety of factors, including quarterly fluctuations in results of operations,
adverse circumstances affecting the travel industry generally, announcements of
new products or services by competitors, changes in earnings estimates by
securities analysts, changes in accounting principles, sales of Common Stock by
existing holders, loss of key personnel and other factors. In addition, stock
markets generally are subject to extreme price and volume fluctuations. This
volatility has often had a significant effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
these companies. In the past, following periods of
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volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Any such
litigation instigated against the Company could result in substantial costs and
a diversion of management's attention and resources, which could have a material
adverse effect on the business, results of operations and financial condition of
the Company.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS AGREEMENT
Sales of substantial amounts of Common Stock in the public market following
this offering could adversely affect the prevailing market price of the Common
Stock and the Company's ability to raise capital in the future. Upon completion
of this offering, the Company will have a total of 15,449,738 shares of Common
Stock outstanding, of which the 3,000,000 shares offered hereby will be freely
tradable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company, as defined
under the Securities Act. The remaining 12,449,738 shares of Common Stock
outstanding will be "restricted securities" as that term is defined by Rule 144
promulgated under the Securities Act. Of these shares, approximately 784,105
shares may be eligible for sale in the public market immediately after this
offering pursuant to Rule 144(k) under the Securities Act, subject to 180-day
Lock-up Agreements as described below (the "Lock-up Agreements"). The remaining
11,665,633 shares will become eligible for sale in the public market from time
to time, subject to Lock-up Agreements. See "Shares Eligible for Future Sale."
The Company, its executive officers and directors and each of its existing
shareholders, who will hold an aggregate of 12,449,738 shares of Common Stock
after this offering, have agreed that, until 180 days following the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., sell, offer to sell, solicit any offer to buy, contract to sell, grant any
option to purchase (other than under the Stock Option Plan), or otherwise
transfer or dispose of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, Common Stock. Smith Barney Inc. may
release shares subject to these Lock-up Agreements in whole or in part in its
sole discretion without notice.
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 under the Securities Act the
shares of Common Stock issuable under the Stock Option Plan. Of the 1,853,968
shares to be issuable under the Stock Option Plan upon completion of this
offering, 92,355 shares were subject to outstanding options as of June 15, 1998
and 1,335,513 additional shares will be subject to options to be granted
concurrently with the closing of this offering, assuming the closing date of
this offering is July 31, 1998 and assuming the price per share in this offering
is $14.00. At any time a number of shares equal to 12% of the then outstanding
shares of Common Stock will be reserved for issuance under the Stock Option
Plan.
Upon completion of this offering, the holders of approximately 12,449,738
shares of Common Stock will be entitled to certain registration rights with
respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the trading price of the
Common Stock. In addition, if the Company is required, pursuant to such
registration rights, to include shares held by such persons in a registration
statement that the Company files to raise additional capital, the inclusion of
such shares could have an adverse effect on the Company's ability to raise
needed capital. See "Management -- Stock Option Plan," "Certain Transactions"
and "Shares Eligible for Future Sale."
BENEFITS OF OFFERING TO CERTAIN SHAREHOLDERS
The existing shareholders of the Company will benefit from the creation of
a public market for the Common Stock held by them after the closing of the
offering. Upon the closing of this offering, the existing shareholders will hold
shares of Common Stock having an aggregate value of $174.3 million, based on an
assumed initial public offering price of $14.00 per share. These shareholders
include Thayer and TC Co-Investors, LLC ("TC Co-Investors"), an affiliate of
Thayer, which together will own beneficially approximately 65.4% of the
Company's outstanding Common Stock upon completion of this offering. Thayer is a
Delaware limited partnership whose sole general partner is TC Equity Partners,
LLC, a Delaware limited
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liability company ("TC Equity Partners"). TC Equity Partners beneficially owns,
and has sole voting and investment power with respect to, the shares of Common
Stock held of record by Thayer. TC Co-Investors is a Delaware limited liability
company whose managing member is TC Management LLC ("TC Management"). TC
Management beneficially owns, and has sole voting and investment power with
respect to, the shares of Common Stock held of record by TC Co-Investors.
Frederic V. Malek, Dr. Paul G. Stern and Carl J. Rickertsen are the members of
TC Management and the principal members of TC Equity Partners. See "Certain
Transactions" and "Principal Shareholders."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the pro forma net tangible book value per share of the
Common Stock. Purchasers of shares of Common Stock in the offering will
experience immediate and substantial dilution of $15.08 in the pro forma net
tangible book value per share of Common Stock. To the extent outstanding options
to purchase Common Stock are exercised, there may be further dilution. See
"Dilution."
NO DIVIDENDS
The Company does not expect to pay cash dividends on Common Stock in the
foreseeable future. In addition, under its credit agreement, the Company is
prohibited from paying dividends on its shares of capital stock other than
dividends payable solely in shares of Common Stock. See "Dividend Policy."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's charter and bylaws, as well as New York corporate law,
contain certain provisions that could have the effect of delaying, deferring or
preventing a change in control of the Company. These provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. Certain of these provisions provide for a staggered board and
allow the Company to issue, without shareholder approval, preferred stock having
rights senior to those of the Common Stock. Other provisions impose various
procedural and other requirements that could make it difficult for shareholders
to effect certain corporate actions. See "Management" and "Description of
Capital Stock."
FORWARD-LOOKING INFORMATION
The matters discussed in this Prospectus include forward-looking statements
that involve risks or uncertainties. While forward-looking statements are
sometimes presented with numerical specificity, they are based on various
assumptions made by management regarding future circumstances over many of which
the Company has little or no control. A number of important factors, including
those identified above under this caption "Risk Factors" as well as factors
discussed elsewhere in this Prospectus, could cause the Company's actual results
to differ materially from those in forward-looking statements or financial
information. Actual results may differ from forward-looking results for a number
of reasons, including the following: (i) changes in general economic conditions
and other factors that affect demand for travel products or services; (ii)
changes in the vacation travel industry; (iii) changes in the Company's
relationships with travel suppliers; (iv) competitive factors (including changes
in travel distribution methods); and (v) the success of the Company's operating
and growth strategies (including the ability to integrate acquisitions into
Company operations, the ability of acquired companies to achieve satisfactory
operating results and the ability of the Company to manage the transition to an
integrated information platform). Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.
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THE COMPANY
The Company is one of the largest U.S. providers of value-added vacation
products and services targeted to higher-income travelers. The Company assembles
air, hotel, rental car and other travel components in bulk and provides complete
vacations to travelers through retail travel distributors, such as travel
agents, and other distribution channels, including the Internet and affinity
groups.
The Company was formed in 1959 under the name Allied Bus Corp. and, prior
to the Recapitalization and the Acquisitions, had grown to become one of the
largest providers of vacations for in-bound travelers to the United States. In
March 1998, the Company effected the Recapitalization and changed its name to
Global Vacation Group, Inc. Following the Recapitalization, the Company
completed the Acquisitions, through which it became a leading provider of
vacations to Hawaii as well as a provider of vacations to Florida (including
Disney World) and to the Caribbean, Mexico, Europe and other U.S. destinations.
The Company maintains its executive offices at 1420 New York Avenue, N.W.,
Suite 550, Washington, DC 20005, (202) 347-1800.
THE RECAPITALIZATION
In March 1998, the Company effected the Recapitalization pursuant to an
agreement among the Company, Thayer, Allied Tours Holding Corp. ("Allied
Holding") and the shareholders of Allied Holding. Prior to the Recapitalization,
the Company had 100 shares of issued and outstanding capital stock, all of which
were owned by Allied Holding. In the Recapitalization, the Company redeemed an
aggregate of 34 shares of capital stock from Allied Holding for an aggregate
consideration of $14.7 million, and Thayer purchased 57 shares of the Company's
capital stock (or approximately 86.4% of the then remaining outstanding shares)
from Allied Holding for $24.7 million. The redemption price was paid in cash of
$10.7 million and a $4.0 million 120-day promissory note bearing interest at 8%.
The cash portion of the redemption was financed with borrowings under a new
$65.0 million bank credit facility (the "Credit Facility"). In connection with
the Recapitalization, the Company recognized expenses of $1.0 million for
nonrecurring transaction costs.
In the Recapitalization, each of the 66 shares of the Company's capital
stock then outstanding (57 held by Thayer and nine held by Allied Holding) was
converted into 57,683.43 shares of Common Stock and 390.34 shares of Convertible
Preferred Stock. The conversion into the Convertible Preferred Stock was
accounted for as a noncash dividend and the conversion into Common Stock was
accounted for as a stock split. Holders of Convertible Preferred Stock are
entitled to dividends to be paid in additional shares of Convertible Preferred
Stock at a rate of 15% per annum. Effective as of the closing date of this
offering, all shares of Convertible Preferred Stock then outstanding will be
converted into shares of Common Stock. See "Capitalization" and "Description of
Capital Stock."
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THE ACQUIRED BUSINESSES
Since March 1998, the Company has acquired Haddon Holidays, Inc.
("Haddon"), Classic Custom Vacations, Inc. ("Classic") and Globetrotters, Inc.
("Globetrotters") and substantially all of the assets of MTI (collectively, the
"Acquired Businesses"). The combined purchase price for the Acquired Businesses
was $63.1 million, including the issuance of shares of Convertible Preferred
Stock and Common Stock valued at $2.9 million and direct acquisition costs but
excluding $1.5 million of Facilities Accruals. The Company financed these
acquisitions with proceeds from the issuance of additional shares of capital
stock and from borrowings under the Credit Facility.
The acquisition of each of the Acquired Businesses was accounted for as a
purchase for financial reporting purposes. The Company allocated the excess of
the purchase price over the fair value of net tangible assets acquired primarily
to goodwill and covenants not to compete. The total amount allocated to
intangible assets related to the Acquired Businesses was approximately $65.7
million. The Company will amortize amounts allocated to goodwill over 35 years
for financial reporting purposes and amounts allocated to covenants not to
compete over the term of the covenants. As a result of the Acquisitions, the
Company will record annual amortization expenses for acquisition-related
intangible assets of $1.9 million.
Haddon. In March 1998, the Company purchased all of the outstanding
capital stock of Haddon, a vacation provider based in Mount Laurel, New Jersey
that provides air, hotel and ground transportation packages for travelers to
Hawaii. The Company paid a purchase price of $7.7 million, including the
issuance of Convertible Preferred Stock and Common Stock valued at $500,000 and
direct acquisition costs.
Classic. In April 1998, the Company purchased all of the outstanding
capital stock of Classic, a vacation provider based in San Jose, California that
provides brand name, customized vacations primarily for the Hawaii market. The
Company paid a purchase price of $18.5 million, including direct acquisition
costs.
MTI. In May 1998, the Company acquired substantially all of the assets of
MTI, a packaged vacation provider based in Oak Brook, Illinois that (i) provides
vacations for travelers to Hawaii, (ii) provides Amtrak-sponsored vacations,
(iii) operates the reservation system associated with packaged vacations
sponsored by Hyatt and (iv) provides Internet and credit card reward fulfillment
programs. The Company paid a purchase price of $30.8 million, including the
issuance of Convertible Preferred Stock and Common Stock valued at $2.4 million
and direct acquisition costs.
Globetrotters. Also in May 1998, the Company purchased all of the
outstanding capital stock of Globetrotters, a vacation provider based in
Cambridge, Massachusetts that provides brand name, popular-priced vacations
primarily for the Florida, Mexico and Caribbean markets. The Company paid a
purchase price of $6.1 million, including direct acquisition costs.
15
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby, after deducting estimated underwriting discounts
and commissions and expenses, are estimated to be approximately $36.6 million,
assuming an initial public offering price of $14.00 per share. The Company will
not receive any proceeds from the sale of shares of Common Stock by the Selling
Shareholders upon the exercise of the Underwriters' over-allotment option. The
Company will use the net proceeds from this offering to repay the $4.0 million
promissory note issued to Allied Holding in connection with the Recapitalization
and other indebtedness incurred by the Company under the Credit Facility in
connection with the Recapitalization and the Acquisitions. At June 15, 1998, the
outstanding balance under the Credit Facility was $41.5 million, bearing
interest at a weighted average rate of 7.4% per annum. The promissory note
issued to Allied Holding in the Recapitalization is due on July 25, 1998 and
bears interest at a rate of 8% per annum. Any remaining net proceeds will be
used for working capital and other general corporate purposes.
DIVIDEND POLICY
Prior to the Recapitalization in March 1998, the Company operated as a
corporation exempt from entity-level taxation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, all of the Company's
earnings were distributed to its shareholders (who also were employees of the
Company) as bonus compensation or as distributions on capital stock. The
shareholders of the Company received an aggregate of $5.2 million as bonus
compensation or S Corporation distributions in 1996 and $5.3 million as bonus
compensation or S Corporation distributions in 1997. In 1998, prior to the
Recapitalization (at which time the Company terminated its status as an S
Corporation under the Code), the shareholders of the Company received an
aggregate of $5.0 million as bonus compensation or distributions. See
"Management -- Executive Compensation."
The Company does not anticipate declaring and paying cash dividends on the
Common Stock in the foreseeable future. In addition, under the Credit Facility,
the Company is prohibited from paying dividends on its shares of capital stock
other than dividends payable solely in shares of Common Stock.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1998 (i) on an actual basis and (ii) on a pro forma
as adjusted basis to give effect to the Pro Forma Adjustments and the sale of
the 3,000,000 shares of Common Stock being offered hereby, at an assumed initial
public offering price of $14.00 per share, and the application of the net
proceeds therefrom to repay certain indebtedness as described under "Use of
Proceeds." The information in this table should be read in conjunction with
"Selected Financial Data," "Unaudited Pro Forma Condensed Combined Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and note payable.......... $ 6,000 $ --
======= =======
Long-term debt, net of current portion...................... $13,400 $ 8,940
------- -------
Class A Convertible Preferred Stock, $1,000 par value:
100,000 shares authorized; 27,864.64 shares issued
and outstanding (actual); no shares issued and
outstanding (pro forma as adjusted)(1)........... 28,015 --
------- -------
Shareholders' equity (deficit):
Preferred Stock, $.01 par value:
6,000,000 shares authorized; no shares issued and
outstanding (actual and pro forma as
adjusted)(2)..................................... -- --
Common Stock, $.01 par value:
60,000,000 shares authorized; 8,181,819 shares
issued and outstanding (actual); 15,449,738
shares issued and outstanding (pro forma as
adjusted)(2)(3).................................. 82 154
Additional paid-in capital............................. 3,245 92,898
Retained deficit....................................... (47,372) (47,372)
------- -------
Total shareholders' equity (deficit).............. (44,045) 45,680
------- -------
Total capitalization......................... $ 3,370 $54,620
======= =======
</TABLE>
- ---------------
(1) In connection with the Recapitalization, the Company amended and restated
its certificate of incorporation to authorize two classes of capital stock:
Common Stock with a par value of $.01 per share and Convertible Preferred
Stock with a par value of $1,000 per share, at which time the 66 shares of
capital stock then outstanding were converted into 3,807,112 shares of
Common Stock and 25,762 shares of Convertible Preferred Stock. The
conversion into Common Stock has been reflected as a stock split and all
share and per share amounts have been restated to reflect this stock split.
The conversion into Convertible Preferred Stock has been reflected as a
non-cash dividend and was recorded at the liquidation value of $1,000 per
share. The Convertible Preferred Stock carries a liquidation preference
equal to $1,000 per share plus any accrued but unpaid dividends (15% per
annum). The Company is required to redeem all outstanding shares of
Convertible Preferred Stock on December 31, 2003. All outstanding shares of
Convertible Preferred Stock will be converted as of the closing date of this
offering into Common Stock at a rate equal to the liquidation preference,
plus any accrued but unpaid dividends, divided by the price per share in
this offering.
(2) Reflects amendments to the Company's certificate of incorporation (the
"Amended Certificate") which occurred after March 31, 1998.
(3) Excludes shares of Common Stock issuable upon exercise of options granted or
to be granted as outlined below:
<TABLE>
<CAPTION>
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at December 31, 1997.................... -- --
Options granted prior to March 31, 1998..................... 92,355 $ 0.75
Options to be granted concurrently with this offering....... 1,335,513 $14.00
---------
Options to be outstanding upon completion of this
offering.................................................. 1,427,868
=========
</TABLE>
"Options granted concurrently with this offering" above reflect the
Company's commitment to issue concurrently with the closing of this offering
(i) options to purchase a number of shares of Common Stock equal to 7.5% of
the number of shares of Common Stock to be outstanding upon completion of
this offering (an aggregate of 1,158,729 shares, assuming the closing date
of this offering is July 31, 1998 and assuming the price per share in this
offering is $14.00) plus (ii) options to purchase a number of shares of
Common Stock with an aggregate value of $2,475,000 (an aggregate of 176,784
shares, assuming the price per share in this offering is $14.00), all of
which options will have an exercise price equal to the price per share in
this offering. Also excludes additional shares of Common Stock reserved for
future issuance under the Stock Option Plan up to a total number of shares
eligible for issuance under the Stock Option Plan at any time equal to 12%
of the then outstanding shares of Common Stock. See "Management -- Stock
Option Plan" and "Description of Capital Stock."
17
<PAGE> 21
DILUTION
The pro forma net tangible book deficit of the Company at March 31, 1998
was ($57.5 million), or ($3.51) per share of Common Stock. Pro forma net
tangible book deficit per share is determined by dividing the pro forma net
tangible book deficit (total pro forma tangible assets less total pro forma
liabilities) of the Company by the number of shares of Common Stock outstanding
on a pro forma basis after giving effect to the Acquisitions completed after
March 31, 1998 and the other Pro Forma Adjustments (other than for this
offering). Without taking into account any changes in the pro forma net tangible
book deficit of the Company, other than to give effect to the sale of the shares
of Common Stock offered hereby (assuming an initial public offering price of
$14.00 per share) and the application of the net proceeds therefrom to repay
certain indebtedness as described under "Use of Proceeds," the pro forma as
adjusted net tangible book deficit of the Company at March 31, 1998 would have
been ($21.0 million), or ($1.08) per share of Common Stock. This represents an
immediate increase in pro forma net tangible book value of $2.43 per share to
existing shareholders and an immediate dilution in pro forma net tangible book
value of $15.08 per share to new investors purchasing shares in this offering.
The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ............ $14.00
Pro forma net tangible book deficit per share at March
31, 1998.............................................. $(3.51)
Increase per share attributable to new investors....... 2.43
------
Pro forma as adjusted net tangible book deficit per share
after the offering ....................................... (1.08)
------
Dilution per share to new investors......................... $15.08
======
</TABLE>
The following table summarizes, as of June 15, 1998, after giving effect to
the Conversion and this offering, the number of shares of Common Stock purchased
from the Company, the total consideration paid to the Company (including the
value of shares of Common Stock issued as partial consideration for the
Acquisitions but excluding any accrued and unpaid dividends) and the average
price per share paid by the existing shareholders and by the new investors in
this offering (based upon an assumed initial public offering price of $14.00 per
share, before deducting underwriting discounts and commissions and offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders .... 12,449,738 80.6% $ 59,167,750 58.5% $ 4.75
New investors ............ 3,000,000 19.4 42,000,000 41.5 14.00
---------- ------ ------------ ------
Total........... 15,449,738 100.0% $101,167,750 100.0%
========== ====== ============ ======
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options. At June 15, 1998, there were options
outstanding under the Stock Option Plan to purchase 92,355 shares of Common
Stock at an exercise price of $0.75 per share. The Company also has reserved (i)
shares of Common Stock equal to 7.5% of the number of shares of Common Stock
outstanding upon completion of this offering plus shares of Common Stock with an
aggregate value of $2,475,000, all of which shares will be issuable upon
exercise of options to be granted under the Stock Option Plan upon completion of
this offering (an aggregate of 1,335,513 shares, assuming the closing date of
this offering is July 31, 1998 and assuming the price per share in this offering
is $14.00) and each of which options will have an exercise price per share equal
to the initial public offering price per share, and (ii) additional shares of
Common Stock reserved for future issuance under the Stock Option Plan, up to a
total number of shares eligible for issuance under the Stock Option Plan at any
time equal to 12% of the then outstanding shares of Common Stock. To the extent
any of these options are exercised, there will be future dilution to new
investors. See "Management -- Stock Option Plan" and "Shares Eligible for Future
Sale."
18
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Balance Sheet gives
effect to: (i) the Acquisitions completed after March 31, 1998 (Classic, MTI and
Globetrotters), (ii) the accrual for lease and employee severance payments for
the planned closing of redundant acquired facilities (the "Facilities
Accruals"), (iii) the termination of the Company's S Corporation status, (iv)
the Conversion and (v) the sale by the Company of the shares offered hereby and
the application of the net proceeds therefrom to repay indebtedness as described
under "Use of Proceeds," as if all such events had occurred as of March 31,
1998. The Unaudited Pro Forma Condensed Combined Statements of Operations for
the year ended December 31, 1997 and the three month period ended March 31, 1998
give effect to each of the items referred to in clauses (i) through (v) above,
as well as the Haddon Acquisition and reductions in salary and bonuses to the
prior owners and key executives of the Company and the Acquired Businesses,
offset in part by expected incremental costs reflecting the Company's new
management structure (the "Compensation Savings"), as if it had occurred on
January 1, 1997. See "The Recapitalization," "The Acquired Businesses" and "Use
of Proceeds."
Each of the Acquisitions has been accounted for by the purchase method. In
each case, the purchase price has been allocated on a preliminary basis to the
assets acquired or to be acquired based on the estimated fair values of such
assets.
The Company has preliminarily analyzed the savings it expects to realize by
combining certain operational and general and administrative functions. To the
extent the owners and certain key employees of the Company and the Acquired
Businesses have agreed prospectively to reductions in salary and bonuses, these
reductions have been reflected in the Unaudited Pro Forma Condensed Combined
Statements of Operations. The Company has also analyzed and quantified the
estimated savings from closing redundant acquired facilities (the "Facilities
Savings") and estimates these savings to be approximately $3.2 million annually
before provision for income taxes, of which approximately 80% are expected to be
realized in 1999 and 100% are expected to be realized in subsequent years;
however, these savings have not been reflected in the Unaudited Pro Forma
Condensed Combined Statements of Operations as they will be realized subsequent
to the closing of the Acquisitions. Furthermore, the Unaudited Pro Forma
Condensed Combined Statements of Operations for 1997 do not eliminate
approximately $1.2 million and $20,000 before provision for income taxes in 1997
and the three months ended March 31, 1998, respectively, of settlement agreement
legal expenses incurred by Classic prior to its acquisition which are not
expected to recur in future periods.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. In the opinion of management, all adjustments have been made
that are necessary to present fairly the pro forma data. The unaudited pro forma
financial information does not purport to represent what the Company's financial
position or results of operations would actually have been if such transactions
in fact had occurred on those dates and are not necessarily representative of
the Company's financial position or results of operations for any future period.
Because all entities were not under common control or management, historical
consolidated results may not be comparable to, or indicative of, future
performance. The Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this Prospectus.
19
<PAGE> 23
GLOBAL VACATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------- PRO FORMA OFFERING
COMPANY CLASSIC MTI GLOBETROTTERS ADJUSTMENTS PRO FORMA ADJUSTMENTS(A)
-------- ------- ------- ------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash, cash equivalents and
marketable securities............. $ 7,069 $19,240 $ 8,940 $2,804 $ 8,557(B) $ 46,610 $ --
Trade and other receivables, net of
allowance......................... 8,431 2,126 1,143 2,763 4,440(C) 18,903 --
Prepaid expenses and other current
assets............................ 871 3,997 3,110 2,692 -- 10,670 --
-------- ------- ------- ------ ------- -------- --------
Total current assets.............. 16,371 25,363 13,193 8,259 12,997 76,183 --
Investments, net of current portion... -- 24,423 9,295 -- (24,423)(B) 9,295 --
Property and equipment, net........... 556 3,101 1,561 176 (710)(D) 4,684 --
Intangibles........................... 10,455 -- -- -- 56,204(E) 66,659 --
Other assets.......................... 19 894 178 956 (905)(C) 1,142 --
-------- ------- ------- ------ ------- -------- --------
Total assets.................... $ 27,401 $53,781 $24,227 $9,391 $43,163 $157,963 $ --
======== ======= ======= ====== ======= ======== ========
Current liabilities:
Accounts payable and accrued
expenses.......................... $ 18,942 $16,336 $ 8,880 $3,035 $ 832(F) $ 48,025 $ --
Customer deposits................... 5,089 25,123 18,222 6,884 -- 55,318 --
Note payable and current portion of
long-term debt.................... 6,000 -- -- -- -- 6,000 (6,000)
-------- ------- ------- ------ ------- -------- --------
Total current liabilities......... 30,031 41,459 27,102 9,919 832 109,343 (6,000)
Long-term debt, net of current
portion............................. 13,400 11,596 -- -- 14,504(G) 39,500 (30,560)
-------- ------- ------- ------ ------- -------- --------
Total liabilities............... 43,431 53,055 27,102 9,919 15,336 148,843 (36,560)
Class A Convertible Preferred Stock... 28,015 -- -- -- 24,910(H) 52,925 (52,925)
Shareholders' equity (deficit):
Common stock........................ 82 1,705 -- 1 (1,706)(H) 82 72
Additional paid-in capital.......... 3,245 -- -- -- 240(H) 3,485 89,413
Retained deficit.................... (47,372) (979) (2,875) (529) 4,383(H) (47,372) --
-------- ------- ------- ------ ------- -------- --------
Total shareholders' equity
(deficit)....................... (44,045) 726 (2,875) (528) 2,917 (43,805) 89,485
-------- ------- ------- ------ ------- -------- --------
Total liabilities and
shareholders' equity.......... $ 27,401 $53,781 $24,227 $9,391 $43,163 $157,963 $ --
======== ======= ======= ====== ======= ======== ========
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Current assets:
Cash, cash equivalents and
marketable securities............. $ 46,610
Trade and other receivables, net of
allowance......................... 18,903
Prepaid expenses and other current
assets............................ 10,670
--------
Total current assets.............. 76,183
Investments, net of current portion... 9,295
Property and equipment, net........... 4,684
Intangibles........................... 66,659
Other assets.......................... 1,142
--------
Total assets.................... $157,963
========
Current liabilities:
Accounts payable and accrued
expenses.......................... $ 48,025
Customer deposits................... 55,318
Note payable and current portion of
long-term debt.................... --
--------
Total current liabilities......... 103,343
Long-term debt, net of current
portion............................. 8,940
--------
Total liabilities............... 112,283
Class A Convertible Preferred Stock... --
Shareholders' equity (deficit):
Common stock........................ 154
Additional paid-in capital.......... 92,898
Retained deficit.................... (47,372)
--------
Total shareholders' equity
(deficit)....................... 45,680
--------
Total liabilities and
shareholders' equity.......... $157,963
========
</TABLE>
The accompanying notes are an integral part of these
Unaudited Pro Forma Condensed Combined Financial Statements.
20
<PAGE> 24
GLOBAL VACATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------- PRO FORMA OFFERING
COMPANY HADDON CLASSIC MTI GLOBETROTTERS ADJUSTMENTS PRO FORMA ADJUSTMENTS
------- ------ ------- ------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $24,255 $7,138 $42,870 $29,194 $13,982 $(2,217)(I) $115,222 $ --
Operating expenses........ 17,852 5,306 38,154 25,782 13,200 (3,355)(J) 96,939 --
------- ------ ------- ------- ------- ------- -------- ------
Gross profit.......... 6,403 1,832 4,716 3,412 782 1,138 18,283 --
------- ------ ------- ------- ------- ------- -------- ------
General and administrative
expenses................ 7,797 1,953 4,449 1,643 860 (6,446)(K) 10,256 --
Depreciation and
amortization............ 182 95 1,020 528 250 (481)(L) 1,594 --
Goodwill amortization..... -- -- -- -- -- 1,891 (M) 1,891 --
Settlement agreement legal
expense................. -- -- 1,184 -- -- -- 1,184 --
------- ------ ------- ------- ------- ------- -------- ------
Income (loss) from
operations.......... (1,576) (216) (1,937) 1,241 (328) 6,174 3,358 --
------- ------ ------- ------- ------- ------- -------- ------
Other income (expense):
Interest income......... 556 351 3,225 1,086 211 (1,105)(N) 4,324 --
Interest expense........ -- -- (440) -- (60) (2,841)(O) (3,341) 2,452(P)
Other, net.............. 41 (47) 137 -- 207 -- 338 --
------- ------ ------- ------- ------- ------- -------- ------
Total other income
(expense)........... 597 304 2,922 1,086 358 (3,946) 1,321 2,452
------- ------ ------- ------- ------- ------- -------- ------
Income (loss) before
provision for income
taxes................. (979) 88 985 2,327 30 2,228 4,679 2,452
Provision for income
taxes................... (124) -- (50) -- (14) (1,591)(Q) (1,779) (931)(Q)
------- ------ ------- ------- ------- ------- -------- ------
Net income (loss)..... $(1,103) $ 88 $ 935 $ 2,327 $ 16 $ 637 $ 2,900 $1,521
======= ====== ======= ======= ======= ======= ======== ======
Pro forma net income per
common share:
Basic and diluted....... $ 0.23
Pro forma weighted average
common shares
outstanding:
Basic and diluted....... 12,450(R)
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Net revenues.............. $115,222
Operating expenses........ 96,939
--------
Gross profit.......... 18,283
--------
General and administrative
expenses................ 10,256
Depreciation and
amortization............ 1,594
Goodwill amortization..... 1,891
Settlement agreement legal
expense................. 1,184
--------
Income (loss) from
operations.......... 3,358
--------
Other income (expense):
Interest income......... 4,324
Interest expense........ (889)
Other, net.............. 338
--------
Total other income
(expense)........... 3,773
--------
Income (loss) before
provision for income
taxes................. 7,131
Provision for income
taxes................... (2,710)
--------
Net income (loss)..... $ 4,421
========
Pro forma net income per
common share:
Basic and diluted....... $ 0.29
Pro forma weighted average
common shares
outstanding:
Basic and diluted....... 15,450(R)
</TABLE>
The accompanying notes are an integral part of these
Unaudited Pro Forma Condensed Combined Financial Statements.
21
<PAGE> 25
GLOBAL VACATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------- PRO FORMA OFFERING
COMPANY HADDON CLASSIC MTI GLOBETROTTERS ADJUSTMENTS PRO FORMA ADJUSTMENTS
-------- ------ ------- ------ ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $ 2,477 $1,427 $10,681 $5,899 $1,937 $ -- $22,421 $ --
Operating expenses........ 3,032 1,265 10,030 5,717 2,100 14(J) 22,158 --
-------- ------ ------- ------ ------ ------- ------- -----
Gross profit (loss)... (555) 162 651 182 (163) (14) 263 --
-------- ------ ------- ------ ------ ------- ------- -----
General and administrative
expenses................ 1,571 850 929 893 100 (1,633)(K) 2,710 --
Depreciation and
amortization............ 34 31 271 129 24 (84)(L) 405 --
Goodwill amortization..... -- -- -- -- -- 470(M) 470 --
Settlement agreement legal
expense................. -- -- 20 -- -- -- 20 --
-------- ------ ------- ------ ------ ------- ------- -----
Income (loss) from
operations.......... (2,160) (719) (569) (840) (287) 1,233 (3,342) --
-------- ------ ------- ------ ------ ------- ------- -----
Other income (expense):
Interest income......... 74 70 898 304 44 (339)(N) 1,051 --
Interest expense........ (14) -- (99) -- (4) (728)(O) (845) 637(P)
Other, net.............. -- -- (4) -- -- -- (4) --
-------- ------ ------- ------ ------ ------- ------- -----
Total other income
(expense)........... 60 70 795 304 40 (1,067) 202 637
-------- ------ ------- ------ ------ ------- ------- -----
Income (loss) before
(provision for)
benefit from
income taxes...... (2,100) (649) 226 (536) (247) 166 (3,140) 637
(Provision for) benefit
from income taxes....... 61 -- (5) -- (1) 1,138(Q) 1,193 (242)(Q)
-------- ------ ------- ------ ------ ------- ------- -----
Net income
(loss).......... $ (2,039) $(649) $ 221 $ (536) $ (248) $ 1,304 $(1,947) $ 395
======== ====== ======= ====== ====== ======= ======= =====
Pro forma net loss per
common share:
Basic and diluted....... $ (0.16)
Pro forma weighted average
common shares
outstanding:
Basic and diluted....... 12,450(R)
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
<S> <C>
Net revenues.............. $22,421
Operating expenses........ 22,158
-------
Gross profit (loss)... 263
-------
General and administrative
expenses................ 2,710
Depreciation and
amortization............ 405
Goodwill amortization..... 470
Settlement agreement legal
expense................. 20
-------
Income (loss) from
operations.......... (3,342)
-------
Other income (expense):
Interest income......... 1,051
Interest expense........ (208)
Other, net.............. (4)
-------
Total other income
(expense)........... 839
-------
Income (loss) before
(provision for)
benefit from
income taxes...... (2,503)
(Provision for) benefit
from income taxes....... 951
-------
Net income
(loss).......... $(1,552)
=======
Pro forma net loss per
common share:
Basic and diluted....... $ (0.10)
Pro forma weighted average
common shares
outstanding:
Basic and diluted....... 15,450(R)
</TABLE>
The accompanying notes are an integral part of these
Unaudited Pro Forma Condensed Combined Financial Statements.
22
<PAGE> 26
GLOBAL VACATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(A) Gives effect to (i) the estimated net proceeds of $36.6 million from the
sale by the Company of the shares offered hereby, (ii) the use of $36.6
million of net proceeds to repay certain indebtedness and (iii) the
Conversion.
(B) Reflects the sale of certain marketable securities with a carrying value of
$24.4 million at March 31, 1998 and the transfer of related debt
obligations of $11.6 million at March 31, 1998 acquired in the Classic
acquisition to certain shareholders of Classic immediately subsequent to
the acquisition. The net proceeds to the Company from this sale consisted
of cash of $6.8 million, which was reinvested in short-term securities, and
$5.5 million due under a note receivable. The note receivable bears
interest at a rate of 9% and is due in April 2000. The pro forma adjustment
to cash, cash equivalents and marketable securities reflects the net
proceeds of $6.8 million described above plus additional borrowings of $3.1
million under the Credit Facility for working capital purposes, less the
use of $1.3 million of cash on hand in connection with the Globetrotters
acquisition.
(C) Reflects the $5.5 million due pursuant to a note receivable discussed in
(B) above, net of $2.0 million in receivables due from parties related to
the prior owners of Globetrotters which were forgiven immediately prior to
the acquisition of Globetrotters, of which $905,000 is included in other
assets on the Globetrotters balance sheet.
(D) Reflects acquired property and equipment at its estimated fair value after
giving consideration to plans to dispose property and equipment in the next
year.
(E) Reflects the estimated intangibles, substantially all of which will be
allocated to goodwill, resulting from the Acquisitions, as follows (in
thousands):
<TABLE>
<S> <C>
Classic................................................... $19,278
MTI....................................................... 30,095
Globetrotters............................................. 6,831
-------
Total........................................... $56,204
=======
</TABLE>
(F) Reflects $832,000 of Facilities Accruals consisting of accrued costs for
closing redundant acquired facilities ($268,000), planned severance
payments to employees upon closing such facilities ($314,000) and other
reorganization costs ($250,000).
(G) Reflects additional borrowings under the Credit Facility to finance the
Acquisitions and working capital, net of the transfer of the Classic debt
obligations discussed in (B), as follows (in thousands):
<TABLE>
<S> <C>
Classic................................................... $ 13,100
MTI....................................................... 11,100
Globetrotters............................................. 1,900
--------
26,100
Classic transfer (see (B) above).......................... (11,596)
--------
$ 14,504
========
</TABLE>
(H) Reflects the issuance of Convertible Preferred Stock valued at $22.7
million pursuant to the Company's equity purchase agreement and the
issuance of Convertible Preferred Stock valued at $2.2 million together
with Common Stock valued at $240,000 to the former shareholders of MTI to
finance the Acquisitions and the elimination of historical equity amounts
for the Acquired Businesses.
(I) The historical results of operations for MTI for the year ended December
31, 1997 include the results of operations for certain travel products and
services which were discontinued in 1997. The results of
23
<PAGE> 27
GLOBAL VACATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
operations for these product lines and services were as follows and have
been eliminated in the accompanying unaudited pro forma condensed combined
statement of operations for the year ended December 31, 1997 (in
thousands):
<TABLE>
<S> <C>
Net revenues................................................ $ 2,217
Operating expenses.......................................... 3,147
General and administrative expenses......................... 293
Depreciation and amortization............................... 144
Interest income............................................. 82
Interest expense............................................ --
Other income................................................ --
-------
Net loss............................................... $(1,285)
=======
</TABLE>
(J) Reflects a reduction in operating expenses of $3.1 million associated with
discontinued product lines as discussed in (I) for the year ended December
31, 1997, as well as a reduction of $192,000 and $48,000 of excess rental
payments made to prior owners for the year ended December 31, 1997 and for
the three months ended March 31, 1998, respectively. Also reflects
specifically identified and quantified cost savings of $416,000 and
$38,000, offset by $400,000 and $100,000 in incremental computer costs
required to operate certain reservation systems at the contracted rate, for
the year ended December 31, 1997 and for the three months ended March 31,
1998, respectively.
(K) Reflects a reduction in general and administrative expenses of $293,000 for
the year ended December 31, 1997 associated with discontinued product lines
as noted in (I). In addition, reflects the Compensation Savings of $6.2
million and $568,000 for the year ended December 31, 1997 and for the three
months ended March 31, 1998, respectively. Also reflects transaction costs
of approximately $1.0 million for the three months ended March 31, 1998
related to the Recapitalization.
(L) Reflects a reduction in depreciation and amortization of $144,000 for the
year ended December 31, 1997 associated with discontinued product lines as
discussed in (I). In addition, reflects the reduction of historical
depreciation and amortization of $337,000 and $84,000 for the year ended
December 31,1997 and for the three months ended March 31, 1998,
respectively, on equipment discussed in (D).
(M) Reflects the amortization of goodwill assuming a 35-year estimated life.
See "Risk Factors -- Accounting Charges; Significant Intangible Assets."
(N) Reflects a reduction in interest income of $82,000 for the year ended
December 31, 1997 associated with discontinued product lines as noted in
(I). In addition, reflects the incremental reduction of interest income of
$1.0 million and $339,000 for the year ended December 31, 1997 and for the
three months ended March 31, 1998, respectively, related to the sale of
marketable securities as discussed in (B).
(O) Reflects the incremental interest expense of $3.1 million and $785,000 for
the year ended December 31, 1997 and for the three months ended March 31,
1998, respectively, assuming the amounts outstanding under the Credit
Facility and the note payable were drawn on January 1, 1997, at an interest
rate of 7.4%, offset by the reduction in interest expense of $440,000 and
$99,000 for the year ended December 31, 1997 and for the three months ended
March 31, 1998, respectively, for the transfer of Classic debt obligations
as discussed in (B). Adjustment also includes approximately $167,000 and
$42,000 for the year ended December 31, 1997 and for the three months ended
March 31, 1998, respectively, in amortization of deferred financing costs
under the Credit Facility.
(P) Reflects the incremental reduction in interest expense related to the
repayment of outstanding debt with a portion of the proceeds from this
offering.
24
<PAGE> 28
GLOBAL VACATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS -- (CONTINUED)
(Q) Reflects the incremental provision for federal and state income taxes
relating to the historical income tax provisions for the Acquired
Businesses and the termination of the Company's status as an S Corporation.
(R) Pro forma and pro forma as adjusted weighted average common shares
outstanding consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
SHARES
----------
<S> <C> <C>
Common shares outstanding as of March 31, 1998...... 8,181,819
Common shares issued in connection with the
Acquisitions completed after March 31, 1998....... 319,200
Convertible Preferred Stock:
Outstanding as of March 31, 1998.................. $ 28,015
Issued in connection with the Acquisitions
completed after March 31, 1998................. 24,910
Dividend accretion from March 31, 1998 through
July 31, 1998.................................. 2,357
----------
Total as of July 31, 1998................. $ 55,282
Conversion of Convertible Preferred Stock at assumed
offering price of $14.00 per share................ 3,948,719
----------
Pro forma weighted average common shares............ 12,449,738
Common shares issued in offering.................... 3,000,000
----------
Pro forma as adjusted weighted average common
shares............................................ 15,449,738
==========
</TABLE>
If the closing date of this offering occurs after July 31, 1998, the number
of shares of Common Stock to be issued in the Conversion, assuming an
initial public offering price of $14.00, would increase by approximately
46,475 shares per month thereafter.
Following this offering, the Company's authorized capital stock will
consist of 60,000,000 shares of Common Stock, of which there will be
15,449,738 shares issued and outstanding, and 6,000,000 shares of
undesignated preferred stock, par value $0.01 per share, of which there
will be no shares issued and outstanding.
25
<PAGE> 29
SELECTED FINANCIAL DATA
The selected financial data as of December 31, 1996 and 1997 and for the
years ended December 31, 1995, 1996 and 1997 were derived from the financial
statements of the Company audited by Arthur Andersen LLP included elsewhere in
this Prospectus. The selected financial data as of December 31, 1993, 1994 and
1995 and for the years ended December 31, 1993 and 1994 were derived from
unaudited financial statements of the Company not included in this Prospectus
which, in the opinion of management, have been prepared in a manner consistent
with the audited financial statements. The selected financial data as of March
31, 1998 and for the three months ended March 31, 1997 and 1998 have been
derived from the Company's unaudited interim financial statements included
elsewhere in this Prospectus which, in the opinion of the Company's management,
include all adjustments (consisting only of normal, recurring adjustments)
necessary for a fair presentation of such information. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year or for any future period. The selected
pro forma as adjusted statement of operations data give effect to the Pro Forma
Adjustments and the sale by the Company of the 3,000,000 shares offered hereby
and the use of the net proceeds therefrom to repay certain indebtedness and to
effect the Redemption, as described under "Use of Proceeds," as if all such
events had occurred as of January 1, 1997. The selected pro forma as adjusted
balance sheet data give effect to each of the above as if it had occurred on
March 31, 1998. The selected pro forma as adjusted financial data are not
necessarily indicative of the results of operations and financial position of
the Company had such transactions occurred on the dates specified and are not
necessarily indicative of the results of operations for any future period. The
information in this table should be read in conjunction with "Unaudited Pro
Forma Condensed Combined Financial Statements," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
financial statements and accompanying notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
PRO FORMA
AS ADJUSTED
1993 1994 1995 1996 1997 1997(1)
----------- ----------- ------- ------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $16,683 $13,098 $18,464 $22,259 $24,255 $115,222
Operating expenses................ 10,622 8,414 13,316 16,025 17,852 96,939
------- ------- ------- ------- ------- --------
Gross profit (loss)........... 6,061 4,684 5,148 6,234 6,403 18,283
------- ------- ------- ------- ------- --------
General and administrative
expenses(2)..................... 3,289 4,758 5,702 6,905 7,797 10,256
Depreciation and amortization..... 160 166 131 154 182 1,594
Goodwill amortization............. -- -- -- -- -- 1,891
Settlement agreement legal
expense......................... -- -- -- -- -- 1,184
------- ------- ------- ------- ------- --------
Income (loss) from
operations.................. 2,612 (240) (685) (825) (1,576) 3,358
------- ------- ------- ------- ------- --------
Other income (expense):
Interest income............... 305 445 521 581 556 4,324
Interest expense.............. -- -- -- -- -- (889)
Other income (expense)........ (129) -- 67 (4) 41 338
------- ------- ------- ------- ------- --------
Total other income
(expense)............... 176 445 588 577 597 3,773
------- ------- ------- ------- ------- --------
Income (loss) before (provision
for) benefit from income
taxes........................... 2,788 205 (97) (248) (979) 7,131
(Provision for) benefit from
income taxes.................... (137) (87) (106) (122) (124) (2,710)
------- ------- ------- ------- ------- --------
Net income (loss)............. 2,651 118 (203) (370) (1,103) 4,421
Preferred dividends............... -- -- -- -- -- --
------- ------- ------- ------- ------- --------
Net income (loss) available to
common shareholders............. $ 2,651 $ 118 $ (203) $ (370) $(1,103) $ 4,421
======= ======= ======= ======= ======= ========
Pro forma net income (loss) per
common share:
Basic and diluted............. $ 0.29
Pro forma weighted average common
shares outstanding:
Basic and diluted............. 15,450
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------
PRO FORMA
AS ADJUSTED
1997 1998 1998(1)
------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues...................... $ 2,425 $ 2,477 $22,421
Operating expenses................ 2,820 3,032 22,158
------- ------- -------
Gross profit (loss)........... (395) (555) 263
------- ------- -------
General and administrative
expenses(2)..................... 1,129 1,571 2,710
Depreciation and amortization..... 41 34 405
Goodwill amortization............. -- -- 470
Settlement agreement legal
expense......................... -- -- 20
------- ------- -------
Income (loss) from
operations.................. (1,565) (2,160) (3,342)
------- ------- -------
Other income (expense):
Interest income............... 65 74 1,051
Interest expense.............. -- (14) (208)
Other income (expense)........ -- -- (4)
------- ------- -------
Total other income
(expense)............... 65 60 839
------- ------- -------
Income (loss) before (provision
for) benefit from income
taxes........................... (1,500) (2,100) (2,503)
(Provision for) benefit from
income taxes.................... 10 61 951
------- ------- -------
Net income (loss)............. (1,490) (2,039) (1,552)
Preferred dividends............... -- (150) --
------- ------- -------
Net income (loss) available to
common shareholders............. $(1,490) $(2,189) $(1,552)
======= ======= =======
Pro forma net income (loss) per
common share:
Basic and diluted............. $ (0.10)
Pro forma weighted average common
shares outstanding:
Basic and diluted............. 15,450
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
MARCH 31,
----------------------
DECEMBER 31, PRO FORMA
----------------------------------------------------------- AS ADJUSTED
1993 1994 1995 1996 1997 1998 1998
----------- ----------- ----------- ------- ------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities, including non-current
portion.................................. $ 6,782 $ 6,571 $ 7,896 $ 8,256 $ 7,909 $ 7,069 $ 46,610
Working capital (deficit).................. 5,190 3,563 2,710 1,256 (78) (13,660) (27,160)
Total assets............................... 13,310 13,819 17,713 19,677 19,375 27,401 157,963
Total debt................................. -- -- -- -- -- 19,400 8,940
Shareholders' equity (deficit)............. 5,788 4,118 3,151 1,673 358 (44,045) 45,680
</TABLE>
- ---------------
(1) The pro forma as adjusted statement of operations data does not give effect
to the estimated annual savings from closing redundant acquired facilities
estimated to be approximately $3.2 million before provision for income
taxes, of which approximately 80% are expected to be realized in 1999 and
100% are expected to be realized in subsequent years. Additionally, the pro
forma results do not eliminate nonrecurring settlement agreement legal
expense of one of the Acquired Businesses of $1.2 million and $20,000 before
taxes for the year ended December 31, 1997 and the three months ended March
31, 1998, respectively, as such expenses are not directly related to the
Acquisition.
(2) General and administrative expenses for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998
include salary and bonuses to the prior owners and certain key employees of
the Company of $2.4 million, $3.1 million, $3.8 million, $4.8 million, $5.8
million, $790,000 and $170,000, respectively. General and administrative
expenses for the three months ended March 31, 1998 include approximately
$1.0 million of expenses incurred in connection with the Recapitalization.
27
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes thereto and "Selected Financial Data" and
"Unaudited Pro Forma Condensed Combined Financial Statements" included elsewhere
in this Prospectus.
OVERVIEW
The Company is one of the largest U.S. providers of value-added vacation
products and services targeted to higher-income travelers. The Company's revenue
is derived primarily from the sale of travel-related products and services,
including airline tickets, hotel accommodations, auto rentals and other related
products and services. The Company assembles air, hotel, rental car and other
travel components in bulk and provides complete vacations to travelers through
retail travel distributors, such as travel agents, and other distribution
channels, including the Internet and affinity groups.
The Company was formed in 1959 under the name Allied Bus Corp. and, prior
to the Recapitalization and the Acquisitions, had grown to become one of the
largest providers of vacations for in-bound travelers to the United States. In
March 1998, the Company effected the Recapitalization and changed its name to
Global Vacation Group, Inc. Following the Recapitalization, the Company
completed the Acquisitions, through which it became a leading provider of
vacations to Hawaii as well as a provider of vacations to Florida (including
Disney World) and to the Caribbean, Mexico, Europe and other U.S. destinations.
Net revenues include commissions and markups on travel products and
services, volume bonuses received from travel suppliers, cancellation fees and
other ancillary fees such as travel insurance premiums and are recognized upon
the commencement of travel. For 1997 and the three months ended March 31, 1998,
the Company recognized $24.3 million and $2.5 million, respectively, in net
revenues and $1.1 million and $2.0 million, respectively, in net losses derived
from a total dollar value of travel products and services of $125.9 million and
$17.2 million, respectively. On a pro forma basis for 1997 and the three months
ended March 31, 1998, the Company had net revenues of $115.2 million and $22.4
million, respectively, and net income (loss) of $4.4 million and ($1.6 million),
respectively, derived from a total dollar value of travel products and services
of $507.0 million and $101.1 million, respectively.
Operating expenses include travel agent commissions, salaries,
telecommunications, advertising and other costs associated with the selling and
processing of travel reservations, products and services. Commission payments to
travel agents are typically based on a percentage of the price paid for the
travel product or service, but in certain circumstances are fixed dollar
amounts. Reservations agents are compensated either on an hourly basis, a
commission basis or a combination of the two. The Company's telephone costs
primarily relate to the cost of incoming calls on toll-free numbers. General and
administrative expenses consist primarily of compensation and benefits to
administrative and other non-sales personnel, fees for professional services,
depreciation of equipment and other general office expenses.
The Company and each of the Acquired Businesses historically were operated
as independent, privately owned entities and had elected to be taxed under the
provisions of Subchapter S of the Code, which influenced the historical level of
owners' compensation. The owners and key employees of the Company and the
Acquired Businesses have agreed to certain reductions in their salary, bonuses
and benefits in connection with the Acquisitions which result in annual savings
of 7.8 million. On a pro forma basis for 1997 and the three months ended March
31, 1998, the compensation differential, net of compensation expense associated
with the new management team, was $6.2 million and $568,000, respectively, and
has been reflected as a pro forma adjustment in the Unaudited Pro Forma
Condensed Combined Statements of Operations. The Unaudited Pro Forma Condensed
Combined Statements of Operations includes a provision for income taxes as if
the Company were taxed as a C Corporation.
In connection with the Recapitalization and the Acquisitions, the Company
is restructuring certain operations of the Acquired Businesses. The Company's
objective is to realize certain savings from the combination of the Acquired
Businesses as a result of consolidating certain operating expenses such as
28
<PAGE> 32
telecommunications, advertising and promotional programs and from consolidating
or outsourcing certain administrative functions, including technology and
software development, insurance, employee benefits and other administrative
expenses. The Company has accrued certain costs of restructuring the Acquired
Businesses totaling approximately $1.5 million related to closing redundant
acquired facilities and making severance payments to terminated employees
following the Acquisitions. The Company anticipates that the annual savings
associated with the closing of these redundant acquired facilities will be
approximately $3.2 million before provision for income taxes, of which
approximately 80% are expected to be realized in 1999 and 100% are expected to
be realized in subsequent years; however, these anticipated savings have not
been reflected in the Unaudited Pro Forma Condensed Combined Statements of
Operations.
The Company derives a significant portion of its pre-tax income from
interest earned on funds related to customer deposits and prepayments for
vacation products. Generally, the Company requires a deposit within one week of
making a travel reservation. Reservations are typically made two to three months
prior to departure. Additionally, for packaged tours, the Company generally
requires that the entire cost of the vacation be paid in full 45 to 60 days
before departure, unless reservations are made closer to departure. While terms
vary, the Company generally pays for the vacation components after the
customer's departure. In the period between receipt of a deposit or prepayment
and the payment of related expenses, these funds are invested in cash and
investment-grade securities. This cycle is typical in the packaged tour industry
and earnings generated on deposits and prepayments are integral to the Company's
operating model and pricing strategies. For 1997 on a pro forma as adjusted
basis, the Company had interest income of $4.3 million (or 60.6% of income
before provision for income taxes), substantially all of which was derived from
interest on customer deposits and advance payments.
PRO FORMA RESULTS OF OPERATIONS
Management believes that period-to-period comparisons of the Company's
historical financial results are not necessarily meaningful and should not be
relied upon as an indication of future performance given the pro forma impact of
the Acquired Businesses on the Company's financial results.
The following table summarizes the Company's historical and pro forma as
adjusted results of operations as a percentage of net revenues for 1997 and the
three months ended March 31, 1998. The pro forma as adjusted results of
operations give effect to the Pro Forma Adjustments and the sale of shares by
the Company in this offering and the application of the net proceeds therefrom
to repay indebtedness, as if such events had occurred as of January 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
-------------------- --------------------
PRO FORMA PRO FORMA
ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Net revenues................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses............................. 73.6 84.1 122.4 98.8
----- ----- ------ ------
Gross profit (loss)....................... 26.4 15.9 (22.4) 1.2
----- ----- ------ ------
General and administrative expenses............ 32.1 8.9 63.4 12.1
Depreciation and amortization.................. 0.8 1.4 1.4 1.8
Amortization of goodwill....................... -- 1.6 -- 2.1
Settlement agreement legal expense............. -- 1.0 -- 0.1
----- ----- ------ ------
Income (loss) from operations............. (6.5) 3.0 (87.2) (14.9)
----- ----- ------ ------
Interest income................................ 2.3 3.8 3.0 4.7
Interest expense............................... -- (0.8) (0.6) (0.9)
Other income (expense)......................... 0.2 0.3 -- --
----- ----- ------ ------
Income (loss) before (provision for) benefit
from income taxes............................ (4.0) 6.3 (84.8) (11.1)
(Provision for) benefit from income taxes...... (0.5) (2.4) 2.5 4.2
----- ----- ------ ------
Net income (loss)......................... (4.5)% 3.9% (82.3)% (6.9)%
===== ===== ====== ======
</TABLE>
29
<PAGE> 33
Pro forma net revenues for 1997 and the quarter ended March 31, 1998 were
$115.2 million and $22.4 million, respectively, which reflects the combined net
revenues of the Company and the Acquired Businesses for each period, less $2.2
million in 1997 of historical net revenues for product lines discontinued by MTI
prior to its acquisition.
Pro forma operating expenses for 1997 and the quarter ended March 31, 1998
were $96.9 million and $22.2 million, respectively, or 84.1% and 98.8%,
respectively, of pro forma net revenues. Pro forma operating expenses for the
Acquired Businesses represent a relatively higher percentage of net revenues for
1997 as compared to historical results for the Company. This is due principally
to the different distribution channels and associated costs utilized by the
Company and the Acquired Businesses. The Acquired Businesses rely primarily on
travel agent distribution networks that result in a commission cost reflected in
increased operating expenses. Unlike the Acquired Businesses, the Company
distributes its products primarily to other wholesalers on a net basis. The
Company's net revenues generally are highest in the second and third quarters of
the year, while its expenses generally are highest in the first and fourth
quarters. The impact of seasonality is more pronounced with respect to the
Company's in-bound U.S. business than with respect to the Company's other
business because international travel to the United States is heavily
concentrated in the summer months.
Pro forma general and administrative expenses for 1997 and the quarter
ended March 31, 1998 were $10.3 million and $2.7 million, respectively, or 8.9%
and 12.1%, respectively, of pro forma net revenues. As a percentage of net
revenues, pro forma general and administrative expenses were substantially lower
than the Company's historical general and administrative expenses due to the pro
forma elimination of $6.4 million and $1.6 million in 1997 and the three months
ended March 31, 1998, respectively, representing the difference between
contracted reductions in compensation to previous owners and management and
contracted compensation for the Company's new management team, as well as the
$1.0 million in expenses incurred in the first three months of 1998 in
connection with the Recapitalization.
Pro forma depreciation and amortization (other than amortization of
goodwill) for 1997 and the quarter ended March 31, 1998 was $1.6 million and
$405,000, respectively, or 1.4% and 1.8%, respectively, of pro forma net
revenues. In addition, pro forma amortization of goodwill for 1997 and the
quarter ended March 31, 1998 was $1.9 million and $470,000, respectively, or
1.6% and 2.1%, respectively, of pro forma net revenues.
Pro forma as adjusted interest income for 1997 and the quarter ended March
31, 1998 was $4.3 million and $1.1 million, respectively, or 3.8% and 4.7%,
respectively, of pro forma net revenues. The increases as a percentage of net
revenue from historical to pro forma is a result of the Acquired Businesses
obtaining larger amounts of customer deposits and advance payments than did the
Company.
Pro forma as adjusted interest expense for 1997 and the quarter ended March
31, 1998 was $889,000 and $208,000, respectively, as a result of borrowings
under the Credit Facility to fund the Acquisitions.
The pro forma as adjusted (provision for) benefit from income taxes for
1997 and the quarter ended March 31, 1998 would have been ($2.7 million) and
$1.0 million, respectively, at an assumed tax rate of 38.0%, reflecting a
termination of the Company's S Corporation status.
Pro forma as adjusted net income (loss) for 1997 and the quarter ended
March 31, 1998 was $4.4 million and $(1.6 million), respectively, or 3.9%, and
(6.9%), respectively, of pro forma net revenue. The pro forma results for 1997
and the three months ended March 31, 1998 do not reflect the Facilities Savings,
which are anticipated to be $3.2 million before provision for income taxes
annually, of which approximately 80% are expected to be realized in 1999 and
100% are expected to be realized in subsequent years.
30
<PAGE> 34
HISTORICAL RESULTS OF OPERATIONS
THE COMPANY
The following table sets forth certain operating data for the Company as a
percentage of net revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------
1995 1996 1997 1997 1998
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses............................... 72.1 72.0 73.6 116.3 122.4
----- ----- ----- ------ ------
Gross profit (loss)......................... 27.9 28.0 26.4 (16.3) (22.4)
General and administrative expenses.............. 30.9 31.0 32.1 46.6 63.4
Depreciation and amortization.................... 0.7 0.7 0.8 1.7 1.4
----- ----- ----- ------ ------
Loss from operations........................ (3.7) (3.7) (6.5) (64.6) (87.2)
----- ----- ----- ------ ------
Interest income.................................. 2.8 2.6 2.3 2.7 3.0
Other............................................ 0.4 (0.0) 0.2 -- (0.6)
----- ----- ----- ------ ------
Loss before (provision for) benefit from taxes... (0.5) (1.1) (4.0) (61.9) (84.8)
(Provision for) benefit from income taxes........ (0.6) (0.5) (0.5) 0.4 2.5
----- ----- ----- ------ ------
Net loss....................................... (1.1)% (1.6)% (4.5)% (61.5)% (82.3)%
===== ===== ===== ====== ======
</TABLE>
Net Revenues. Net revenues increased from $18.5 million in 1995 to $22.3
million in 1996 and to $24.3 million in 1997, representing increases of 20.6%
and 9.0%, respectively. The growth in net revenues was primarily generated by
increased travel volume. Net revenues increased slightly from $2.4 million for
the three months ended March 31, 1997 to $2.5 million for the three months ended
March 31, 1998, representing an increase of 2.1%.
Operating expenses. Operating expenses increased from $13.3 million in
1995 to $16.0 million in 1996 and to $17.9 million in 1997, representing
increases of 20.3% and 11.4%, respectively. As a percentage of net revenues,
operating expenses decreased from 72.1% in 1995 to 72.0% in 1996, and increased
to 73.6% in 1997. The increase in operating expenses as a percentage of net
revenues in 1997 over 1996 and 1995 was due primarily to increases in salaries.
Operating expenses increased from $2.8 million for the three months ended March
31, 1997 to $3.0 million for the three months ended March 31, 1998, representing
an increase of 7.5%. As a percentage of net revenues, operating expenses
increased from 116.3% for the three months ended March 31, 1997 to 122.4% for
the three months ended March 31, 1998. The increase in operating expenses was
primarily due to higher commission rates to intermediaries.
General and administrative expenses. General and administrative expenses
increased from $5.7 million in 1995 to $6.9 million in 1996 and to $7.8 million
in 1997, representing increases of 21.1% and 12.9%, respectively. General and
administrative expenses included salary and bonuses paid to shareholders which
totaled $3.8 million in 1995, $4.8 million in 1996 and $5.8 million in 1997.
Excluding compensation and bonuses paid to shareholders, general and
administrative expenses would have been $1.9 million in 1995, $2.1 million in
1996 and $2.0 million in 1997. General and administrative expenses increased
from $1.1 million for the three months ended March 31, 1997 to $1.6 million for
the three months ended March 31, 1998, representing an increase of 39.1%.
General and administrative expenses included salary and bonuses paid to
shareholders which totaled $800,000 for the three months ended March 31, 1997
and $200,000 for the three months ended March 31, 1998. General and
administrative expenses for the three months ended March 31, 1998 also included
approximately $1.0 million of transaction expenses related to the
Recapitalization. Excluding compensation and bonuses paid to shareholders and
Recapitalization transaction expenses, general and administrative expenses would
have been $329,000 for the three months ended March 31, 1997 and $345,000 for
the three months ended March 31, 1998.
Net loss. Changes in the net loss between years was largely affected by
the factors discussed above, because depreciation and amortization expense and
interest income were relatively unchanged. The increase in
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<PAGE> 35
the net loss in 1997 as compared to 1996 was attributable largely to the $1.0
million increase in compensation and bonuses to shareholders in 1997 without a
corresponding increase in gross profits over 1996. The increase in net loss for
the three months ended March 31, 1998 as compared to the three months ended
March 31, 1997 was attributable largely to the $1.0 million in transaction
expenses related to the Recapitalization.
THE ACQUIRED BUSINESSES
The combined results of operations of the Acquired Businesses for the
periods presented do not represent combined results of operations presented in
accordance with generally accepted accounting principles, but are only a
summation of the revenues, operating expenses and general and administrative
expenses of the individual businesses on a historical basis. The combined
results also exclude the effect of pro forma adjustments and may not be
comparable to, and may not be indicative of, the Company's post-combination
results.
The following table sets forth the combined results of operations of the
Acquired Businesses on a historical basis and as a percentage of net revenues
for the period indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------- THREE MONTHS ENDED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1997 MARCH 31, 1998
--------------- --------------- ----------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $89,719 100.0% $93,184 100.0% $19,944 100.0%
Operating expenses......... 80,786 90.0 82,442 88.5 19,056 95.5
------- ----- ------- ----- ------- -----
Gross profit............... $ 8,933 10.0% $10,742 11.5% $ 888 4.5%
======= ===== ======= ===== ======= =====
</TABLE>
Combined net revenues for the Acquired Businesses increased approximately
$3.5 million, or 3.9%, from $89.7 million in 1996 to $93.2 million in 1997. This
increase is due primarily to an increase of $4.5 million from Classic offset by
a decrease in net revenues of approximately $914,000 at MTI. The decrease in net
revenue at MTI in 1997 is due in part to discontinued product lines.
Combined operating expenses for the Acquired Businesses increased $2.0
million, or 2.6%, from $80.4 million in 1996 to $82.4 million in 1997, but
decreased as a percentage of net revenues from 89.6% of net revenues in 1996 to
88.5% in 1997.
Combined operating results for the first quarter of 1998 reflect a lower
gross profit percentage than for the years ended 1997 or 1996 due to the
seasonality of the travel business. Net revenues are traditionally lower in the
first quarter of the year while operating expenses are higher in the first and
fourth quarters of the year. See "Risk Factors -- Quarterly Fluctuations;
Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
The Company receives advance payments and deposits prior to commencement of
travel. The Company's pricing of its products and services is determined, in
part, based upon the amount and timing of advance payments received. A number of
states have regulations with respect to the management of customer deposits made
in advance of travel. The Company believes it is in compliance with all
applicable regulations relating to customer deposits. Although each of the
Acquired Businesses has operated with different investment strategies, the
Company will manage cash and investments on a centralized basis. The Company's
investment policy and the Credit Facility restrict investments to
investment-grade securities.
In March 1998, the Company entered into the Credit Facility with a
commercial bank. Under the Credit Facility, the Company may borrow up to $65
million. Of this amount, up to $10 million may be in the form of revolving
loans, including letters of credit of up to $5 million, and the remaining $55
million may be in the form of term loans which may not be reborrowed once
repaid. The Company's obligations under the Credit Facility are secured by
substantially all of the Company's assets and the Company is subject to certain
restrictive covenants.
The Company has borrowed funds under the Credit Facility to complete the
Recapitalization and the Acquisitions and has drawn letters of credit under the
Credit Facility to post with certain of its suppliers. See
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<PAGE> 36
"The Recapitalization" and "The Acquired Businesses." As of June 25, 1998, the
Company had outstanding under the Credit Facility (i) term loans in the
aggregate amount of $41.5 million at a weighted average interest rate of 7.4%,
(ii) no revolving loans and (iii) letters of credit in the aggregate amount of
$1.4 million with commitment fees of 1.75%. The Company expects to repay $36.6
million of the then outstanding term loans using a portion of the proceeds of
this offering and the Company will have $23.0 million in credit available under
the Credit Facility following this offering. See "Use of Proceeds."
Net cash used in operating activities was $2.2 million in 1997 as compared
to $1.7 million in cash provided by operating activities in 1996. This change
reflects an increase in bonuses paid to shareholders of $1.0 million during 1997
and a decrease in accounts payable in 1997 as compared to the increase in 1996
over 1995 payables. The net cash used in 1997 operating activities was provided
by net borrowings from shareholders of $2.2 million in 1997 as reflected in cash
provided by financing activities.
Net cash provided by operating activities for the three months ended March
31, 1998 was $1.2 million as compared to $1.8 million net cash used in operating
activities in the first quarter of 1997. The improvement of approximately $3.0
million in cash flows reflects a $2.8 million decrease in accounts receivable
during the first quarter of 1998 as compared to a decrease of $1.0 million in
the first quarter of 1997 and the increase in accounts payable and accrued
expenses of $277,000 in the first quarter of 1998 as compared to a decrease in
accounts payable and accrued expenses of $1.5 million in 1997, offset by the
increase in the net loss in the first quarter of 1998.
The Company made capital expenditures of $170,000 in 1997 and $111,000 in
the three months ended March 31, 1998 and the Acquired Businesses made combined
capital expenditures of $1.7 million in 1997 and $410,000 in the three months
ended March 31, 1998. Although the Company has not yet established its capital
needs for upgrades to its reservation and information systems and software, it
may make significant capital expenditures over the next several years to upgrade
and integrate its systems and software.
The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition effort and the associated potential
capital commitments cannot be predicted. The Company expects to fund future
acquisitions primarily through a combination of issuance of equity or debt, cash
flow from operations and borrowings under the Credit Facility.
The Company anticipates its cash flow from operations combined with
available borrowings under the Credit Facility will provide cash sufficient to
meet the Company's capital needs for at least the next 12 months.
BUSINESS SYSTEMS; YEAR 2000
The Company and each of the Acquired Businesses currently operate separate
internal information and business systems. Prior to the acquisition of MTI by
the Company, MTI received information and business system support from
Trase-Miller Solutions, and Trase-Miller Solutions continues to provide such
services to MTI. In order to integrate the separate systems which the Company
and the other Acquired Businesses currently operate (other than the business
systems associated with the Company's in-bound business), the Company is
negotiating to expand its out-sourcing agreement between Trase-Miller Solutions
and MTI to grant the Company the right to use Trase-Miller Solutions'
proprietary software, hardware and service bureau processing throughout the
Company's business. The Company estimates this integration will be accomplished
prior to the end of 1999 at a cost of approximately $1.2 million. Once this
integration is complete, the Company's ability to deliver its products and
services and manage its internal systems will depend substantially on the
Trase-Miller Solutions system. While the Company believes the Trase-Miller
Solutions system will provide adequately for the Company's information and
business system requirements, there can be no assurance that the Company will
negotiate the expansion of the Trase-Miller Solutions agreement successfully or
that this system will in fact meet the Company's needs. The failure of the
Company to expand the Trase-Miller Solutions agreement, the failure of the
Trase-Miller Solutions system to integrate and meet the Company's information
and business system requirements or unanticipated costs in pursuing the
integration could have a material adverse effect on the business, financial
condition and results of operations of the Company.
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The Company's business is dependent upon a number of different information
and telecommunications technologies to access information and manage reservation
systems, including handling a high volume of telephone calls on a daily basis.
Rapid changes in these technologies may require greater than anticipated capital
expenditures to improve or upgrade the level of customer service. In addition,
the Company is dependent upon certain third party vendors, including central
reservation system operators such as SABRE, Galileo and WORLDSPAN, for access to
certain information and will depend on such vendors in the future for electronic
distribution of vacation products to retail travel agents and other travel
intermediaries. The Company's dependence upon information and telecommunications
technology makes the Company particularly sensitive to Year 2000 issues. Because
the Company receives reservations up to a year in advance, the Company must
identify and correct potential Year 2000 problems on a more accelerated basis
than companies in many other industries. While the Company believes that the
Trase-Miller Solutions system as well as any of the Company's systems not
integrated within the Trase-Miller Solutions system prior to 1999 will be Year
2000 compliant, there can be no assurance that these systems will prevent
disruptions of the Company's operations due to Year 2000 issues. In addition,
travelers who use the Company's products and services may be exposed to
disruptions in their travel as a result of failures by travel suppliers or other
travel businesses such as SABRE, Galileo or WORLDSPAN to correct Year 2000
problems in their information and computer systems, and Year 2000 problems in
these or other third-party systems could adversely affect demand for travel
generally and may have a material adverse affect on the business, financial
condition and results of operations of the Company. See "Risk
Factors -- Integration of Information and Business Systems" and "Risk
Factors -- Dependence Upon Technology; Year 2000 Problem."
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<PAGE> 38
BUSINESS
GENERAL
The Company is one of the largest U.S. providers of value-added vacation
products and services targeted to higher-income travelers. The Company assembles
air, hotel, rental car and other travel components in bulk and provides complete
vacations to travelers through retail travel distributors, such as travel
agents, and other distribution channels, including the Internet and affinity
groups. The Company provides flexible independent travel programs for
individuals as well as escorted tours and group packages. On a pro forma basis
for 1997, and the three months ended March 31, 1998, the Company had net
revenues of $115.2 million and $22.4 million, respectively, derived from a total
dollar value of travel products and services sold of $507.0 million and $101.1
million, respectively. For the same periods, the Company had pro forma net
income (loss) of $4.4 million and ($1.6 million), respectively. More than 90% of
the Company's 1997 pro forma net revenues were derived from sales through retail
travel agents and other travel intermediaries.
The Company intends to achieve the leading market position in selected
high-volume, high-margin travel destinations and will focus initially on the
following markets: (i) Hawaii; (ii) in-bound vacations to the United States for
international travelers; (iii) Florida, the Caribbean and Mexico; (iv) other
U.S. destinations such as California and New York; and (v) out-bound travel by
U.S. travelers to Europe. The Company focuses its marketing efforts on travelers
who typically spend more than $750 per person for a vacation. The Company also
provides certain services to travel suppliers, including outsourced vacation
packaging and affinity group marketing and awards program fulfillment.
The Company intends to market its products and services under two specific
proprietary brands: one for up-scale, customized vacations and another for
popular-priced vacation packages. The Company believes providing expertise and
competitive pricing in multiple destinations through two separate brands will
distinguish its products and services and will provide the Company with a
significant competitive advantage. In addition to serving multiple destinations,
the Company also has achieved a diverse domestic and international customer
base. The Company believes it will be able to use its international scope to
create cross-selling opportunities and expand its relationships with suppliers
of quality travel products and services (primarily airlines, hotel companies and
rental car companies).
In addition, the Company believes the shift to on-line systems such as the
Internet will enable it to realize savings in operating expenses. The Company
further believes its value-added approach and expertise will allow it to compete
effectively with travel suppliers on the Internet by (i) generally providing
better prices and inventory availability from travel suppliers than can be
obtained by an individual travel agency or traveler, (ii) enhancing and
simplifying access to travel information across multiple destinations and (iii)
assembling vacation travel components into convenient packages for ease of
planning and booking.
The Company's executive management team, Messrs. Ballou, Lewis and Berman,
has over 60 years of management experience in the travel industry with leading
companies such as American Express Travel, Alamo, Certified Vacations and
Holiday Inn. Their experience includes management responsibility for the
acquisition and integration of businesses with a combined purchase price of over
$500 million.
Since March 1998, the Company has completed four acquisitions. The Company
intends to continue to grow through acquisitions by capitalizing upon the
significant consolidation opportunities available in the fragmented packaged
vacation industry. The Company will seek to make acquisitions that complement
its established strengths and are likely to enhance its presence in specific
travel destinations or allow the Company to establish a leading presence in a
new market. The Company believes it will be regarded as an attractive acquiror
by the owners of existing travel businesses.
INDUSTRY OVERVIEW
Tourism is one of the world's largest industries. The Company participates
in two segments of the tourism industry: (i) in-bound vacation travel to North
American destinations by foreign travelers and (ii) vacation travel by U.S.
travelers. According to the Travel Industry Association of America ("TIA"),
Americans spent
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a total of $380 billion on all types of domestic travel and a total of $25.9
billion on all types of travel to Europe in 1996. Also according to TIA, 70% of
the domestic trips taken by U.S. travelers in 1996 were for personal or vacation
travel, and management believes that approximately 70% of the trips taken by
U.S. travelers to Europe were for personal or vacation travel. According to a
survey by the U.S. Department of Commerce, there were 9.9 million U.S. tourists
visiting Europe in 1997, an 11.7% increase from 1996. In addition, TIA, in
conjunction with the International Trade Administration, estimates that there
were 46.5 million international visitors to the United States in 1996 who spent
an aggregate of $90.5 billion on such trips. According to TIA, 5.4 million of
those international travelers were on packaged trips. Also according to TIA, the
total amount spent by international travelers to the United States grew by 246%
between 1986 and 1996.
Travel suppliers use packaged vacation providers such as the Company to
sell their capacity more efficiently and support their yield management. At the
same time, management believes that purchasing travel products and services from
packaged vacation providers can lower costs, simplify booking and result in
higher commissions for retail travel agents. As a result of the approximately
one-third erosion in stated commissions from airlines for U.S. domestic travel
over the past three years, the Company believes travel agents are seeking to
establish relationships with packaged vacation providers that will offer better
customer service, competitive prices and attractive commission structures.
According to the American Society of Travel Agents, 90% of packaged tours in
1996 were sold through retail travel agents.
The growth of travel sales through the Internet has created another channel
for packaged vacation providers to sell products and services to travelers.
According to Jupiter Communications, an independent research firm, on-line
travel bookings were $276 million in 1996 and $827 million in 1997. Airline
tickets accounted for 85% of all on-line travel sales in 1997, but such sales
are expected to account for only 73% of such sales by the year 2002 as other
travel products and services, including packaged vacations, become more readily
available on the Internet.
The Company believes the U.S. packaged vacation industry is fragmented,
with approximately 2,000 packaged vacation providers. The Company believes many
of these businesses generally have made only small investments in technology to
improve operating efficiency and face significant investment requirements to
meet current information technology demands, including Year 2000 compliance
issues. Furthermore, most of these companies lack the scale necessary to obtain
preferential pricing and capacity from travel suppliers and to establish a
nationally recognized brand name.
OPERATING STRATEGY
In providing value-added vacation products and services targeted to
higher-income travelers. To accomplish this objective, the Company pursues an
operating strategy that includes the following elements:
Creating Value-added Vacation Products and Services. The Company focuses
on creating vacations that provide added value to higher-income travelers. The
Company believes a strategy based on packaging the products and services of a
wide range of well-known travel suppliers at competitive prices will result in
sales growth from both new customers and repeat buyers. The Company also
believes that, because of its size and expertise in certain selected destination
markets, it can (i) generally provide better prices and inventory availability
than can be obtained by an individual travel agency or traveler, (ii) enhance
and simplify access to travel information across multiple destinations and (iii)
assemble vacation travel components into convenient packages for ease of
planning and booking, all of which result in the creation of value-added
packaged vacation products and services. The Company intends to implement
comprehensive quality assurance monitoring programs to ensure that the products
and services packaged together will meet traveler expectations.
Establishing National Brand Name Recognition. The Company believes it can
leverage its presence in leading origination and destination markets to develop
nationally recognized proprietary brand names in the packaged vacation industry.
As a result of fragmentation in the packaged vacation industry, the Company
believes there are few, if any, companies with national brand name recognition.
Over time, the Company intends to market its products and services under two
specific proprietary brands: one for up-scale, customized vacations and another
for popular-priced vacation packages. The Company believes offering expertise
and competitive pricing through common brands across multiple destinations will
provide greater confidence to
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travelers in making their vacation choices and engender consumer loyalty and a
pattern of repeat purchases. The Company also will seek opportunities to market
its products and services through travel suppliers and other companies that have
established private label brand names.
Leveraging Strength in Selected Travel Destinations. The Company intends
to achieve the leading position in several selected high-volume, high-margin
vacation destinations. The Company believes it currently has a leading position
in the packaged vacation markets to Hawaii and for in-bound travel to the United
States and also has a significant presence in the markets for packaged vacations
to Florida, the Caribbean and Mexico. By leveraging this current expertise and
through future acquisitions, the Company intends to increase its market position
and cross-selling opportunities to achieve the leading market presence in other
destinations such as Europe. The Company believes having scale and expertise in
selected destinations gives it access to pricing and inventory that provides the
Company with a significant competitive advantage.
Pursuing Revenue Enhancing Opportunities. Following the Acquisitions and
the resulting increase in the Company's size, the Company believes it enjoys
certain revenue enhancing opportunities that were not previously available to it
or the Acquired Businesses. Specifically, the Company's revenue enhancing
strategies include (i) improving yield management by obtaining greater access to
high-margin products and services, (ii) expanding ancillary products and
services, such as city tours and travel insurance, (iii) securing favorable
pricing and inventory availability through strategic purchasing relationships
and (iv) improving cash management, particularly management of traveler deposits
and advance payments.
Improving Operating Efficiencies. The Company seeks to reduce its
operating expenses by (i) capitalizing on enhanced purchasing efficiencies
resulting from combining operations such as telecommunications systems, credit
card agreements and brochure production and distribution, (ii) implementing a
more effective utilization program of its physical and other assets,
particularly by eliminating redundant facilities, reducing overhead expenses,
combining certain other functions such as 24-hour toll-free number services,
product development and data processing and centralizing accounting, insurance,
financial management, human resources and legal support, (iii) implementing best
practices in its management and business systems, particularly through the use
of on-line systems that will produce cost savings as travel agents and
individual travelers use such systems to purchase the Company's products and
services, (iv) enhancing marketing relationships with travel suppliers and other
related parties and (v) utilizing outsource providers where appropriate. The
Company believes successful implementation of these strategies will enable
operational management to devote more time to sales, service and customer
satisfaction.
Implementing Integrated Information Systems. The Company will seek to
integrate its information systems to improve its ability to offer travelers
value-added vacation products and services and to leverage maintenance and
development costs across a broader customer base. In addition, integrated
systems will facilitate the use of common operating platforms, and reduce the
cost and time requirements of developing external interfaces such as interfaces
to global distribution systems (including SABRE, Galileo and WORLDSPAN) and
supplier systems (including reservations and inventory control), and accelerate
the integration of subsequent acquisitions. The Company currently is negotiating
to expand MTI's relationship with Trase-Miller Solutions, a leading supplier of
information and technology systems for the packaged vacation industry,
encompassing software, hardware and service bureau processing across the
Company. Expansion of the MTI Agreement with Trase-Miller Solutions system will
enable the Company to migrate to an integrated enterprise system that is
flexible and scaleable.
GROWTH STRATEGY
To complement its operating strategy, the Company has developed a
multi-faceted growth strategy that includes the following elements:
Generating Internal Growth. The Company intends to expand its presence in
existing markets by capitalizing on the breadth of its products and services,
its size, its geographic scope and its existing customer base. The Company
intends to grow internally by (i) implementing an integrated national marketing
program,
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(ii) increasing its presence in under-penetrated origination markets and (iii)
implementing loyalty programs that stimulate repeat purchases.
Identifying and Consummating Strategic Acquisitions. The Company believes
the packaged vacation industry is fragmented and there are significant
opportunities to make selective acquisitions of packaged vacation providers. The
Company generally will seek to acquire companies that (i) have desirable
destination concentrations, (ii) have demonstrated growth and profitability,
(iii) have an emphasis on customer service, (iv) have an experienced management
team and (v) are likely to add some other strategic value to the Company (such
as a relationship with a particular travel supplier). The Company believes it
will be regarded as an attractive acquiror because of (a) the historical
performance of the Company and the Acquired Businesses, as well as the
experience and reputation of its management team, (b) its ability to offer
liquidity to the owners of acquired companies through the receipt of Common
Stock or cash, (c) the Company's leading presence in several high-volume,
higher-margin travel destinations, (d) the growth opportunities available
through cross-selling within the Company's markets and (e) the ability of
management and employees of an acquired company to participate in the Company's
growth through potential stock ownership and career advancement opportunities.
Enhancing Strategic Relationships with Travel Suppliers and Travel
Agents. By enhancing strategic supplier relationships, the Company will
strengthen its ability to provide vacation products and services and to offer
prices and inventory that generally would not be available to travelers on their
own or through travel agents. The Company selectively implements integrated,
cooperative marketing programs with certain targeted travel suppliers. In
addition, by broadening its range of products and services to include additional
destinations, the Company believes it will achieve enhanced loyalty among the
travel agent community. The Company intends to expand upon its existing
relationships with leading travel agencies through cooperative marketing efforts
as well as sales agent training programs, trade shows and performance
incentives. The Company will employ a dedicated sales force to maintain and
expand these relationships.
Enhancing Distribution Channels. The Company seeks to capitalize on the
opportunities presented by the direct selling of vacation products and services
to travelers (disintermediation) and the emergence of alternative distribution
channels (e.g., the Internet and affinity groups) while still supporting and
leveraging its strong relationships with existing retail travel agents. Through
the use of the Internet and as a result of expanded relationships with affinity
groups, the Company believes it will penetrate a significant portion of the
vacation travel market that currently books directly with travel suppliers. The
Company believes its value-added vacation products and services will allow it to
compete effectively with travel suppliers by (i) generally providing better
prices and inventory availability than can be obtained by an individual travel
agency or traveler, (ii) enhancing and simplifying access to travel information
across multiple destinations and (iii) assembling vacation travel components
into convenient packages for ease of planning and booking.
Private Label Branding. In recent years, certain travel and non-travel
related companies have sought to leverage their brand names by outsourcing the
development and operation of vacation programs under such brand names. The
Company believes there are significant opportunities to expand its existing
private label business and that the Company is particularly well-positioned to
obtain additional business as a result of the extensive industry contacts of its
management team, the breadth of its destination offerings, its reputation for
quality and its financial stability. Additional benefits of the private label
business include (i) access to additional customers, (ii) enhanced visibility in
the market through association with other well-recognized brands and (iii)
reduced advertising and marketing costs through sharing arrangements with other
brand name companies.
Affinity Group Marketing. The Company will seek access to affinity groups
such as frequent flier programs and bank card reward or loyalty programs for the
direct marketing of its products and services as well as the opportunity to
provide its vacation products and services as rewards in these programs. The
Company has certain proprietary software and extensive operating experience,
which it believes provide a significant opportunity to capitalize on this
growing market.
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KEY DESTINATION MARKETS
Hawaii. The market for westbound packaged vacations to Hawaii has been
relatively flat for the last three years, with the Hawaii Visitors & Convention
Bureau estimating that, in each of 1995, 1996 and 1997, approximately 1.5
million westbound travelers visited Hawaii as part of a packaged vacation.
The Company is one of the leading providers of vacations in Hawaii for
travelers from the continental United States and has over 15 years of experience
in the Hawaii travel market. Based on a total of 1.5 million westbound travelers
to Hawaii traveling on packaged vacations, as reported by the Hawaii Visitors &
Convention Bureau, the Company had approximately a 13% market share for
westbound packaged vacation travel to Hawaii in 1997. The Company has
relationships with major airlines, such as United, Delta and Hawaiian for travel
to Hawaii, and Hawaiian and Aloha for air travel within Hawaii, all of which
provide the Company with preferential access to prices that generally are better
than published fares and to capacity for air travel to Hawaii, as well as
marketing support. In addition, the Company utilizes a staff of over 100
employees on location in Hawaii to provide destination management for its Hawaii
packaged vacations products and services. The Company believes its extensive
experience and established reputation in this market as well as its airline
relationships give it a significant competitive advantage over other providers
of vacations to Hawaii. The Company believes the Hawaii travel market will
continue to present growth opportunities in the future and to represent a
significant portion of its revenues.
In-bound to the United States. According to TIA, in conjunction with the
International Trade Administration, 46.5 million in-bound travelers to the
United States spent $90.5 billion on travel to and within the United States in
1996, making the United States the most popular tourist destination worldwide.
According to TIA, 5.4 million of those international travelers were on packaged
trips. Also according to TIA, the total amount spent by international travelers
to the United States grew by 246% between 1986 and 1996.
The Company is among the largest packaged vacation providers for in-bound
travelers to the United States. Based on a total of 5.4 million trips to the
United States by international visitors booked in package form, as reported by
TIA, the Company had approximately an 8% market share for packaged trips to the
United States by international travelers in 1996. The Company's customers for
these products and services primarily are international travel distributors who
send travelers to the United States. The Company believes its broad customer
base among European and other international travel distributors and its status
as one of a limited number of designated providers of vacations for in-bound
travelers to the various Disney properties in Florida and California represents
a significant competitive advantage.
Florida, the Caribbean and Mexico. In 1996, according to the Florida
Tourism Industry Marketing Corporation, approximately 43 million U.S. residents
traveled to Florida and approximately 10% of these travelers booked their travel
in package form. TIA has reported that approximately 6.4 million U.S. travelers
visited Caribbean destinations during 1996 and approximately 19.6 million U.S.
travelers visited Mexico during 1996. Approximately 29% of these Caribbean trips
were arranged in package form.
The Company has an established presence in the markets for travel to
Florida, the Caribbean and Mexico. The Company has over 15 years of experience
in these markets and has established key strategic relationships, including as
one of a limited number of designated providers for American Airlines in the
Caribbean. The Company also acts as one of a limited number of designated
providers for Disney World. The Company believes its extensive experience and
established reputation in this market as well as its supplier relationships give
it a significant competitive advantage over other providers of vacations to
these destinations.
Other U.S. Destinations. The Company offers products and services to a
number of other destinations in the United States in addition to Hawaii and
Florida. The Company is the exclusive provider of vacation products and services
for Amtrak. The Company believes it has significant purchasing power for
destinations throughout the United States due to the volume of U.S. travel
products and services it purchases for both in-bound and domestic travelers. As
a result, the Company is able to create and effectively market products and
services in demand by travelers, including weekend trips and excursions such as
"theater packages" in New York.
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Europe. According to TIA, Americans spent a total of $25.9 billion on all
types of travel to Europe in 1996. According to a survey by the U.S. Department
of Commerce, there were 9.9 million U.S. tourists visiting Europe in 1997, an
11.7% increase from 1996. The Company has an established presence in the market
for travel by U.S. residents to Europe. The Company intends to increase its
presence in this market by cross-selling within its existing customer base, by
leveraging its relationships with travel distributors in Europe to create demand
for the Company's brand name products and services and by leveraging its
existing relationships with suppliers to obtain preferential pricing and access
to capacity for European destinations.
PRODUCTS AND SERVICES
The Company focuses on specific destinations in order to become a leading
provider of value-added vacation products and services while at the same time
providing travel suppliers with efficient and cost effective distribution of
their capacity. The Company has expertise in and access to the products and
services of a broad range of travel suppliers. Based on customer research, the
Company designs its products and services to offer travelers a wider choice than
that of an individual supplier. The Company assembles travel products and
services in bulk and combines them to create customized vacations for individual
travelers. The Company creates demand for its products through integrated
marketing programs and handles all reservations, payment processing and supplier
processing interfaces. The Company has developed the in-depth knowledge of these
products and services that a retail travel agent, which acts as a broker or
reseller of the entire spectrum of travel products and services, is unlikely to
acquire.
The Company focuses on ensuring customer satisfaction and cultivating
consumer loyalty to its products and services. The Company has quality control
mechanisms, such as destination management programs, in place to provide
customer support and monitor the quality of the individual travel components and
overall customer satisfaction.
The Company is the exclusive provider of certain private label vacation
products and services for Amtrak and Hyatt. The Company believes there are
significant opportunities to expand its business by assembling packaged
vacations on behalf of other companies which seek to leverage their brand names.
The benefits of capitalizing on such opportunities include (i) access to the
customers, (ii) enhanced visibility in the market through association with other
well-recognized brands and (iii) reduced advertising and marketing costs through
sharing arrangements.
The Company also manages bank card reward and other affinity group
marketing programs for several companies, including The Chase Manhattan Bank
N.A. and U.S. Bancorp. The Company has certain proprietary software and
extensive operating experience it believes provide a significant opportunity to
capitalize on this growing market. The Company intends to increase its presence
in this market by proactively marketing its services to affinity group sponsors.
The Company believes access to affinity groups provides unique opportunities for
the direct marketing of its products and services to targeted travelers.
SALES AND MARKETING
The Company pursues a fully integrated sales and marketing effort in
support of its proprietary travel products and services as well as the private
label products and services the Company manages and markets for other companies.
The Company directs its marketing toward retail distributors and other
intermediaries as well as to travelers directly. By employing a multi-faceted
marketing approach targeted both to travel distributors and to individual
travelers, the Company believes it will increase the demand for its products and
services. In addition, the Company will integrate its own marketing efforts with
the marketing support it receives from certain travel suppliers with whom the
Company has an established relationship. The Company believes it will be able to
leverage its national presence and established marketing and sales experience
and strength into a competitive advantage. The Company will identify and
cultivate new customers and will create cross-selling opportunities within its
existing customer base.
A substantial majority of the Company's products and services are sold
through a broad network of retail travel agencies, including independent firms
and agencies affiliated with travel consortia or national accounts. The Company
typically offers retail travel agencies a base commission on the sale of Company
products with
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the opportunity to earn additional override commissions on sales above
negotiated threshold amounts. In addition to supplying travel agents with
brochures and merchandising materials, the Company intends to leverage its
relationships through targeted marketing efforts including travel agent
training, trade shows, cooperative advertising and performance incentives. These
efforts also will include strategic distribution and favorable vendor
arrangements (both exclusive and non-exclusive) with other travel
intermediaries, national accounts and travel agency consortia. The Company will
employ a dedicated sales force to maintain and expand these relationships.
In the market for in-bound travel to the United States by international
travelers, the Company's marketing focuses on foreign travel distributors who
market vacation products and services directly to travelers. The Company has
developed numerous important relationships with major travel distributors in
Europe and in certain other key international origination markets. The Company's
marketing efforts with these distributors include direct sales efforts,
brochures, trade advertising and trade shows in addition to effective account
management of existing, long-standing relationships.
The Company will pursue marketing opportunities in other distribution
channels as well. The Company intends to develop marketing programs aimed at
travelers who purchase travel products and services through affinity groups, and
the Company will pursue strategic relationships with the owners of
non-travel-related consumer brands that represent a consumer base the Company
wishes to target. Finally, to reach travelers who prefer to purchase leisure and
travel products and services on the Internet, the Company currently is
developing an Internet strategy, which will include developing relationships
with Internet companies to market the Company's products and services on their
web sites or provide links to the Company's web sites, as well as offering an
Internet booking capability.
BUSINESS AND INFORMATION SYSTEMS
The Company believes the successful application of common business and
information systems will be important to its ability to create operating
efficiencies and establish a competitive advantage. By migrating the systems of
Acquired Businesses to a shared system, the Company will be able to spread
maintenance and development costs across a broader customer base, facilitate the
use of common operating platforms and reduce the costs and time requirements of
developing external interfaces. In addition, it is likely that application of
system solutions will become increasingly important to enable the Company to
integrate customer identification and profiling capabilities with reservation
and operational business systems. This combination will enable the Company to
leverage each customer encounter into a basis for generating repeat business and
establishing a long-term relationship.
Recognizing the importance of the rapid integration of information systems
to its strategy, the Company has selected Trase-Miller Solutions, a leading
supplier of information and technology systems for the packaged vacation
industry, to serve as an outsource provider for the Company's technology
requirements. The Company currently is negotiating to expand MTI's outsourcing
relationship with Trase-Miller Solutions to encompass software, hardware and
service bureau processing across the Company. The Company will use the
Trase-Miller Solutions system as the primary information platform to service its
business requirements, including for financial analysis, management reporting
and communication. The Company expects to negotiate certain safeguards into its
relationship with Trase-Miller Solutions, including performance measurements and
monitoring (i.e., Year 2000 compliance), emergency back-up procedures and
systems and appropriate remedies for system failures.
The Company believes that this arrangement will offer a number of
advantages, which include (i) allowing the Company to focus on its core
competencies of creating and marketing value-added vacation packages, (ii)
leveraging third party investments in rapidly evolving technology, (iii)
shortening the required time to develop and implement a shared technology
platform, (iv) containing the costs of such development and implementation and
(v) rapidly developing the ability to arrange vacations electronically and
marketing them through electronic distribution systems (including SABRE,
Galileo, and WORLDSPAN), as well as through the Internet.
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The Company will employ a chief information officer to manage its
outsourced operations as well as to administer, install and maintain the
Company's own network and custom development requirements. Prior to the
achievement of full systems integration, which is expected in 1999, the Company
will operate on several separate systems.
COMPETITION
The Company competes with a variety of other providers of travel and
travel-related products and services. Its principal competitors are (i) other
vacation providers, (ii) travel suppliers who sell directly to individual
travelers and (iii) travel agencies and other retail and wholesale distributors
of travel products and services, some of which are larger and have greater name
recognition and financial resources than the Company. The Company believes it
competes for customers based upon the quality of the travel products and
services delivered, price, specialized knowledge, reputation and convenience.
The Company believes it is well-positioned to compete on these bases. See "Risk
Factors -- Substantial Competition and Industry Consolidation" and "Risk
Factors -- Changing Industry Dynamics; New Methods of Distribution."
FACILITIES
The Company's headquarters are located in Washington, D.C. As of June 15,
1998, the Company's other principal facilities consist of leased offices, of
which the largest are located in Cambridge, MA, Mount Laurel, NJ, New York, NY,
Oak Brook, IL and San Jose, CA. The Company believes these facilities are
adequate to meet its anticipated needs.
EMPLOYEES
The Company employs approximately 770 people, a majority of whom are
located at the Company's principal offices and on location in Hawaii.
Approximately 380 of the Company's employees serve as reservation staff and the
remainder serve in customer service and operations, sales and marketing,
information systems and management and administration. The Company believes it
enjoys good relations with its employees, none of whom are covered by any
collective bargaining agreements.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings other than various
legal actions arising in the ordinary course of business. The Company believes
none of these actions will have a material adverse effect on its business,
financial condition and results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the executive officers
and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
---- --- -------------------------
<S> <C> <C>
Roger H. Ballou................ 47 Chairman and Chief Executive Officer
J. Raymond Lewis, Jr........... 53 President and Chief Operating Officer
Walter S. Berman............... 55 Executive Vice President and Chief Financial Officer
Frederic V. Malek.............. 61 Director
Carl J. Rickertsen............. 38 Director
</TABLE>
Roger H. Ballou has served as Chairman and Chief Executive Officer of the
Company since March 1998. Immediately prior to joining the Company, Mr. Ballou
served as a Senior Advisor to Thayer. Between May 1995 and September 1997, Mr.
Ballou served as Vice Chairman and Chief Marketing Officer and then as President
and Chief Operating Officer of Alamo. For more than 16 years prior to joining
Alamo, Mr. Ballou held several executive positions with American Express Travel,
serving most recently as President -- Travel Services Group. Mr. Ballou
currently serves as Chairman of the National Tourism Organization, a travel
industry organization chartered by the U.S. Congress, as a member (and past
Chairman) of the Board of Directors of TIA and as a member of the Board of
Directors of the National Academy Foundation. From 1995 through 1997, he served
as Chairman of the Government Affairs Council, the leading travel industry
federal government lobbying arm. Mr. Ballou has been nominated to the Board of
Directors of American Medical Security, Inc.
J. Raymond Lewis, Jr. has served as President and Chief Operating Officer
of the Company since March 1998. From September 1996 until January 1998, Mr.
Lewis served as President of Certified Vacations, Inc., a large packaged
vacation provider headquartered in Florida. From January 1992 through August
1996, Mr. Lewis was Executive Vice President, Worldwide Sales and Marketing and
a director and member of the Executive Committee of Holiday Inn. Mr. Lewis held
several executive-level marketing positions with Holiday Inn between 1985 and
1992.
Walter S. Berman has served as Executive Vice President and Chief Financial
Officer of the Company since April 1998. From September 1996 until March 1998,
Mr. Berman served as an outside consultant to International Business Machines,
Inc. ("IBM") to provide advice and assistance to IBM's chief financial officer
in several reengineering initiatives in the areas of tax strategy, utilization
of capital and risk management. Between 1965 and 1996, Mr. Berman held several
positions with American Express Travel, most recently as Executive Vice
President and Chief Financial Officer. Mr. Berman also served as Treasurer of
American Express Corporation, the parent company of American Express Travel, in
1995 through 1996.
Frederic V. Malek has served as chairman of Thayer Capital Partners, an
affiliate of Thayer ("Thayer Capital") since 1993. Mr. Malek is also a member of
TC Equity Partners and TC Management, which are, respectively, the sole general
partner and managing agent of Thayer. Prior to 1993, Mr. Malek was president of
Marriott Hotels and Resorts from 1980 to 1988, and president and vice chairman
of Northwest Airlines from 1989 to 1991. During 1992, Mr. Malek was the Campaign
Manager of the Bush-Quayle campaign. Mr. Malek currently serves on the boards of
directors of Automatic Data Processing Corporation, American Management Systems,
Inc., FPL Group, Inc., Choice Hotels, Inc., Manor Care, Inc., CB Commercial Real
Estate Group, Inc., Northwest Airlines, Colorado Prime, Inc. and PaineWebber
Mutual Funds.
Carl J. Rickertsen is a member of TC Equity Partners and TC Management.
Since September 1994, Mr. Rickertsen also has served as a partner in Thayer
Capital. Mr. Rickertsen acted as a private financial consultant from 1993
through August 1994, and was a partner at Hancock Park Associates, a private
equity investment firm based in Los Angeles, from 1989 to 1993. Before joining
Hancock Park Associates, Mr. Rickertsen was an associate at Brentwood Associates
from 1987 to 1989, and worked in the high technology group at Morgan Stanley &
Co., Inc. from 1983 to 1985. Mr. Rickertsen currently serves as a
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<PAGE> 47
director of MLC Holdings, Inc. and Colorado Prime, Inc. and as Chairman of the
Board of Software AG Systems, Inc.
Prior to the commencement of this offering, the Company expects to appoint
two additional independent directors to the Board of Directors. In addition,
following the offering the Board of Directors will be divided into three classes
serving staggered three-year terms. At each annual meeting of the shareholders
of the Company, the successors to the class of directors whose terms expire at
such meeting will be elected to hold office for a term expiring at the third
succeeding annual meeting of shareholders after their election.
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. There are no family relationships between any of the
directors or executive officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Following the offering, the Board of Directors will establish an audit
committee and a compensation committee. The audit committee will consist solely
of independent directors and will be responsible for making recommendations
concerning the engagement of independent public accountants, reviewing the plans
and results of such engagement with the independent public accountants,
reviewing the independence of the independent public accountants, considering
the range of audit and non-audit fees and reviewing the adequacy of the
Company's internal accounting controls. The compensation committee will be
responsible for determining compensation for the Company's executive officers
and administering the Company's stock plans. See "-- Compensation Committee
Interlocks and Insider Participation."
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
The Company has no present plans to pay cash compensation to directors. The
Company intends to reimburse directors for certain out-of-pocket expenses
incurred in connection with attendance and meetings of the Board of Directors or
committees thereof. In addition, the Company may issue options to the directors
under the Stock Option Plan, which options would vest and become exercisable
over time, subject to acceleration in the event of a change of control of the
Company.
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<PAGE> 48
EXECUTIVE COMPENSATION
The Company's current executive management team was put in place in March
1998 following the Recapitalization. For information regarding the compensation
of the new executive management team, see "-- Employment Contracts and Related
Matters."
The following table sets forth information with respect to the compensation
received during 1997 by the former chief executive officer of the Company and
each other former executive officer of the Company whose annual salary and bonus
compensation for 1997 exceeded $100,000 (the "Former Executive Officers"). No
options to acquire securities of the Company were granted to, held by or
exercised by the Former Executive Officers during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1997 ANNUAL
COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION SALARY BONUS(1)
--------------------------- -------- ----------
<S> <C> <C>
Stanley Fisher(2)
President.............................................. $328,436 $3,000,000
Michael Fisher(2)
Executive Vice President............................... 198,524 1,000,000
Gregory Fisher(2)
Executive Vice President............................... 153,720 1,000,000
</TABLE>
- ---------------
(1) Prior to the Recapitalization in March 1998, the Company operated as a
corporation exempt from entity-level taxation under Subchapter S of the
Code. As a result, all of the Company's earnings were distributed to its
shareholders (who also were employees of the Company) as bonus compensation
or as distributions on capital stock. See "Dividend Policy."
(2) Mr. Stanley Fisher is no longer an employee of the Company and has entered
into a consulting agreement with the Company. Each of Messrs. Michael Fisher
and Gregory Fisher has entered into an employment agreement with the
Company. See "Certain Transactions."
EMPLOYMENT CONTRACTS AND RELATED MATTERS
The Company has entered into Senior Management Agreements (each a "Senior
Management Agreement") with each of Messrs. Ballou, Lewis and Berman (each a
"Senior Executive"). Each Senior Management Agreement provides for a term of
three years with automatic one-year extensions at the end of any term provided
that neither the Company nor the applicable Senior Executive provides notice of
termination within 60 days of the end of the term. Each Senior Executive
initially will receive an annual base salary of $200,000, subject to increase
following annual review by the Board of Directors. Each of the Senior Executives
also will be eligible to receive an annual bonus in an amount not to exceed 100%
of his annual base salary for such year, as determined by the Board of Directors
based upon the Company's achievement of budgetary and other objectives set by
the Board of Directors. In addition, upon completion of this offering, each of
the Senior Executives will receive options to purchase 2.5% of the number of
shares of Common Stock outstanding immediately following the closing of this
offering (386,243 shares each, assuming the closing date of this offering is
July 31, 1998 and assuming the price per share in this offering is $14.00) at an
exercise price equal to the initial public offering price pursuant to the Option
Grant. These options will be granted under the Stock Option Plan and will vest
over four years.
In the event a Senior Executive's employment is terminated during the term
of his Senior Management Agreement by the Company without cause or by such
Senior Executive for good reason (each as defined in the applicable Senior
Management Agreement), then such Senior Executive will be entitled for 12 months
to monthly severance payments equal to one-twelfth of his base salary and bonus
for the previous year. If a Senior Executive is terminated by the Company based
upon a failure by the Company to achieve certain performance goals, then he will
be entitled to such monthly severance payments for three months. Under the terms
of the Senior Management Agreements, each of the Senior Executives has agreed to
preserve the
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<PAGE> 49
confidentiality and the proprietary nature of all information relating to the
Company and its business. Each Senior Executive also has agreed to certain
non-competition and non-solicitation provisions which will be in effect during
the term of his Senior Management Agreement and for one year thereafter.
In connection with the Senior Management Agreements, each of the Senior
Executives purchased restricted shares of Common Stock and Convertible Preferred
Stock. See "Certain Transactions."
STOCK OPTION PLAN
The Company has adopted the Stock Option Plan to assist the Company and its
affiliates in attracting and retaining qualified employees, directors,
consultants and advisors (collectively, the "Eligible Individuals") and to
promote the identification of their interests with those of the shareholders of
the Company. The Stock Option Plan provides that at any time a number of shares
equal to 12% of the number of then outstanding shares of Common Stock will be
reserved for issuance to Eligible Individuals pursuant to grants of stock
options. Unless sooner terminated by the Company's Board of Directors, the Stock
Option Plan will terminate on March 29, 2008. Options granted under the Stock
Option Plan may be either incentive or non-incentive options under Section 422
of the Internal Revenue Code of 1986, as amended. Options granted under the
Stock Option Plan typically vest over time, subject to acceleration in the event
of a change of control of the Company. No option granted under the Stock Option
Plan is exercisable after the tenth anniversary of the option's date of grant.
As of June 15, 1998, the Company had granted options to purchase 92,355
shares of Common Stock at an exercise price of $0.75 per share. Concurrently
with the closing of this offering, the Company will issue (i) options to
purchase a number of shares equal to 7.5% of the number of shares of Common
Stock to be outstanding upon completion of this offering (an aggregate 1,158,729
shares, assuming the closing date of this offering is July 31, 1998 and assuming
the price per share in this offering is $14.00) plus (ii) options to purchase a
number of shares of Common Stock with an aggregate value of $2,475,000 (an
aggregate of 176,784 shares, assuming the price per share in this offering is
$14.00), all of which options will have an exercise price equal to the price per
share in this offering. In addition, the Company currently intends to grant
additional options concurrently with the closing of this offering to purchase
approximately 195,000 shares of Common Stock. Any options so granted will have
an exercise price equal to the price per share in the offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the offering, the Company had no separate compensation committee
or other board committee performing equivalent functions with respect to
determining compensation for the Company's executives, and those functions were
performed by the Company's Board of Directors which included Mr. Ballou, the
Company's Chief Executive Officer. See "Certain Transactions" for a description
of certain relationships and transactions between the Company and its directors
and executive officers.
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<PAGE> 50
CERTAIN TRANSACTIONS
TRANSACTIONS WITH THAYER, SENIOR EXECUTIVES AND DIRECTORS
Thayer is a Delaware limited partnership whose sole general partner is TC
Equity Partners. TC Equity Partners beneficially owns, and has sole voting and
investment power with respect to, the shares of Common Stock held of record by
Thayer. TC Co-Investors is a Delaware limited liability company whose managing
member is TC Management. TC Management beneficially owns, and has sole voting
and investment power with respect to, the shares of Common Stock held of record
by TC Co-Investors. Frederic V. Malek, Dr. Paul G. Stern and Carl J. Rickertsen
are the members of TC Management and the principal members of TC Equity
Partners. Messrs. Malek and Rickertsen (i) may receive certain benefits from
cash payments made to Thayer or its affiliates and (ii) may be deemed to be the
beneficial owners of the shares of Common Stock held by each of Thayer and TC
Co-Investors.
The Recapitalization. In connection with the Recapitalization, Thayer
purchased a majority of Allied Holding's interest in the Company and
subsequently received 3,287,960 shares of Common Stock valued at $0.75 per share
and 22,249 shares of Convertible Preferred Stock valued at $1,000 per share, for
a total equity interest in the Company valued at $24.7 million, which was the
amount paid by Thayer to Allied Holding for such interest. In addition, the
Company paid Thayer $425,000 for certain financial and management services
provided by Thayer to the Company, in connection with the Recapitalization.
Thayer, as a holder of Convertible Preferred Stock, is entitled to dividends on
the shares of Convertible Preferred Stock issued to it in the Recapitalization.
These dividends accrue daily and will be paid in additional shares of
Convertible Preferred Stock at a rate of 15% per annum.
Thayer Purchase Agreement. On March 30, 1998, the Company entered into an
Equity Purchase Agreement (the "Thayer Purchase Agreement") with Thayer, TC
Co-Investors and 16 other individuals or entities whereby the Company agreed to
sell to Thayer a total of 3,362,040 shares of Common Stock at a purchase price
of $0.75 per share and 22,751 shares of Convertible Preferred Stock at a
purchase price of $1,000 per share. Between March 30, 1998 and May 5, 1998,
Thayer purchased 3,362,040 shares of Common Stock and 22,751 shares of
Convertible Preferred Stock at those respective prices per share and paid the
Company cash in an aggregate amount of $25.3 million. On March 30, 1998 in
connection with the Thayer Purchase Agreement, TC Co-Investors purchased 53,737
shares of Common Stock at a purchase price of $0.75 per share and 363.64 shares
of Convertible Preferred Stock at a purchase price of $1,000 per share for an
aggregate consideration of $404,044. Thayer, TC Co-Investors and these other
purchasers, as holders of Convertible Preferred Stock, are entitled to dividends
on the shares of Convertible Preferred Stock purchased by them pursuant to the
Thayer Purchase Agreement similar to the dividend rights discussed above.
Senior Management Agreements and Related Transactions. On March 30, 1998,
in connection with the Senior Management Agreements, the Company sold to the
Senior Executives a total of (i) 764,750 shares of Common Stock at a purchase
price of $0.75 per share (452,200 to Mr. Ballou, 126,350 to Mr. Lewis and
186,200 to Mr. Berman) and (ii) 425 shares of Convertible Preferred Stock at a
purchase price of $1,000 per share (60 to Mr. Ballou, 105 to Mr. Lewis and 260
to Mr. Berman), for an aggregate consideration of $1.0 million paid in cash.
Under the Senior Management Agreements, upon the termination of a Senior
Executive's employment with the Company for any reason, the Company has the
right to repurchase any or all of the shares originally issued to such Senior
Executive under his Senior Management Agreement (including shares issued to him
in connection with the Conversion which have not yet vested). The repurchase
price for any unvested shares of Common Stock so repurchased will be the Senior
Executive's original cost for such shares, or $0.75 per share. In the event the
Company does not purchase all of a Senior Executive's unvested shares of Common
Stock subject to repurchase upon termination of his employment, Thayer may
purchase any such shares of Common Stock not purchased by the Company at the
same purchase price.
For each Senior Executive, all of the shares of Convertible Preferred Stock
and 13.3% of the shares of Common Stock were vested immediately, and 53.4% of
the shares of Common Stock will vest over four years from the date of the
Recapitalization, subject to accelerated vesting under certain circumstances.
The remaining 33.3% of the shares of Common Stock will vest on April 1, 2005,
subject to accelerated vesting
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<PAGE> 51
upon Thayer's achievement of certain rates of return on its investment in the
Company. All of the unvested shares are subject to accelerated vesting upon a
change of control of the Company. The Senior Executives, as holders of
Convertible Preferred Stock, are entitled to dividends on the shares of
Convertible Preferred Stock purchased by them pursuant to the Senior Management
Agreements similar to dividend rights discussed above.
In addition, upon completion of this offering, each of the Senior
Executives will receive options to purchase 2.5% of the number of shares of
Common Stock outstanding immediately following the closing of this offering
(386,243 shares each, assuming the closing date of the offering is July 31, 1998
and assuming the price per share in this offering is $14.00) at an exercise
price equal to the initial public offering price pursuant to the Option Grant.
These options will be granted under the Stock Option Plan, will vest over four
years and will have an exercise price equal to the initial public offering
price. See "Management -- Employment Contracts and Related Matters" and
"Management -- Stock Option Plan."
Arrangements in Connection with the Acquisitions. Thayer funded a
substantial portion of the up-front costs associated with the Acquisitions.
Between March 30, 1998 and May 5, 1998, the Company made payments to Thayer
approximating $675,000 as reimbursement for these costs. A substantial portion
of these costs related to consulting and expense payments made by Thayer to the
Senior Executives, each of whom was a consultant to Thayer prior to joining the
Company. Of this amount, Mr. Ballou received approximately $363,000 from the
Company during this period in consideration of certain financial and management
consulting services provided to the Company by Mr. Ballou in connection with the
Acquisitions.
In addition, on March 30, 1998, the Company entered into a Professional
Services Agreement (the "Professional Services Agreement") with TC Management
whereby the Company agreed to pay TC Management a fee equal to 1% of the amount
of any debt or equity financing of the Company following the Recapitalization.
In exchange for such payments, TC Management agreed to provide financial and
management consulting services to the Company. Between March 30, 1998 and May 5,
1998, the Company paid a total of $615,000 pursuant to the Professional Services
Agreement. By its terms, the Professional Services Agreement will terminate upon
the effective date of this offering.
The Conversion. Concurrently with this offering, the Company will issue
3,393,299 shares of Common Stock to Thayer and TC Co-Investors and 31,903 shares
of Common Stock to the Senior Executives in the Conversion.
TRANSACTIONS WITH THE FORMER EXECUTIVE OFFICERS
Messrs. Stanley Fisher, Michael Fisher and Gregory Fisher are the executive
officers and principal shareholders of Allied Holding and therefore these
individuals (i) may receive certain benefits from cash payments made to Allied
Holding and (ii) may be deemed to be the beneficial owners of the shares of
Common Stock and Convertible Preferred Stock held by Allied Holding.
The Recapitalization. Prior to the Recapitalization, Allied Holding was
the sole shareholder of the Company. In connection with the Recapitalization,
the Company redeemed a portion of Allied Holding's interest for an aggregate
consideration of $14.7 million (consisting of $10.7 million in cash and a $4.0
million 120-day promissory note due on July 25, 1998 and bearing interest at 8%)
and issued 519,152 shares of Common Stock valued at $0.75 per share and 3,513
shares of Convertible Preferred Stock valued at $1,000 per share to Allied
Holding in respect of Allied Holding's remaining interest in the Company. The
Company will use a portion of the net proceeds of this offering to repay the
$4.0 million note issued to Allied Holding in the Recapitalization. In addition,
Allied Holding, as a holder of Convertible Preferred Stock, is entitled to
dividends on the shares of Convertible Preferred Stock issued to it in the
Recapitalization. These dividends accrue daily from the date of issuance of each
share of Convertible Stock and will be paid in additional shares of Convertible
Preferred Stock at a rate of 15% per annum.
The Conversion. Concurrently with the closing of this offering, the
Company will issue 264,953 shares of Common Stock to Allied Holding in the
Conversion.
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<PAGE> 52
Consulting and Employment Agreements. The Company has entered into a
Consulting Agreement with Mr. Stanley Fisher (the "Consulting Agreement") and
Employment Agreements with each of Messrs. Michael Fisher and Gregory Fisher
(the "Fisher Employment Agreements"). The Consulting Agreement has a term
expiring December 31, 1999, subject to automatic extensions on a month-to-month
basis until the Company or Mr. Stanley Fisher provides one-month's written
notice of termination to the other. The Company will pay Mr. Stanley Fisher
$100,000 per year for consulting services and will reimburse him for all
reasonable expenses incurred by him in rendering such consulting services to the
Company. Pursuant to the Consulting Agreement, Mr. Stanley Fisher has agreed to
certain non-competition and non-solicitation provisions which will be in effect
until the sooner of one-year beyond the term of the Consulting Agreement or
March 27, 2002.
Each of the Fisher Employment Agreements provides for a term of four years
with automatic one-year extensions at the end of any term, provided that neither
the Company nor the applicable employee, provides notice of termination within
60 days of the end of the term. Each of these employees will receive an annual
base salary of $250,000 subject to increase in the future as agreed by the
Company and the applicable employee. Each of these employees also will be
eligible to receive an annual bonus of up to $150,000 based upon certain
performance criteria. Each of the employees will have the right, in certain
circumstances, to receive severance payments upon termination for a period of up
to two years from the date of termination based upon such employee's current
base salary and his bonus for the previous year. In addition, upon completion of
this offering, each of Messrs. Michael Fisher and Gregory Fisher will receive
71,428 options to purchase a number of shares of Common Stock with an exercise
price equal to the initial public offering price pursuant to the Option Grant.
These options will be granted under the Stock Option Plan, will have an exercise
price equal to the initial public offering price and will vest over four years.
Each of Messrs. Michael Fisher and Gregory Fisher also has agreed to (i) certain
non-competition provisions which will be in effect until the later of March 18,
2002 or one year following the termination of his Fisher Employment Agreement
and (ii) certain non-solicitation provisions which will be in effect during the
term of his Fisher Employment Agreement and for two years thereafter.
REGISTRATION RIGHTS AGREEMENT
The Company has entered into a Registration Rights Agreement (the
"Registration Rights Agreement") with each shareholder who owned shares in the
Company prior to this offering (the "Original Shareholders"), including Thayer,
TC Co-Investors, the Senior Executives and Allied Holding. Pursuant to the
Registration Rights Agreement, the Original Shareholders will have the right to
require the Company to register their shares under the Securities Act following
this offering. If the Company proposes to register its securities under the
Securities Act, either for its own account or the account of others, the
Original Shareholders will be entitled to notice of such registration and to
include their shares in such registration; provided, among other conditions,
that the underwriters for any offering will have the right to limit the number
of such shares included in such registration, subject to certain conditions. In
addition, the holders of a majority of the shares held by the Original
Shareholders at any time will have the right to require the Company to file
under the Securities Act up to six registrations at the Company's expense and an
unlimited number of registrations at their own expense.
49
<PAGE> 53
PRINCIPAL SHAREHOLDERS
The following table sets forth the number and percentage of outstanding
shares of Common Stock that will be beneficially owned by (i) all persons known
by the Company to own beneficially more than 5% of the Common Stock, (ii) each
of the Former Executive Officers, (iii) each current director and executive
officer and (iv) all directors and executive officers as a group, in each case
both prior to and after this offering. This table assumes no exercise of the
Underwriters' over-allotment option. Two of the Company's shareholders, Thayer
and TC Co-Investors, have granted to the Underwriters options to purchase
446,388 and 3,612 shares, respectively, to cover over-allotments. See
"Underwriting." Footnotes 5 and 6 to the table provide information regarding the
share ownership of the Selling Shareholders after this offering in the event the
Underwriters exercise the over-allotment option in full.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OWNERSHIP
SHARES -------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS(1) OWNED(2) OFFERING OFFERING
- ------------------- ------------ -------- --------
<S> <C> <C> <C>
Roger H. Ballou............................................. 456,704 3.7% 3.0%
J. Raymond Lewis, Jr........................................ 134,232 1.1 *
Walter S. Berman............................................ 205,717 1.7 1.3
Frederic V. Malek(3)........................................ 10,097,036 81.1 65.4
Carl J. Rickertsen(3)....................................... 10,097,036 81.1 65.4
Stanley Fisher(4)........................................... 784,105 6.3 5.1
Michael Fisher(4)........................................... 784,105 6.3 5.1
Gregory Fisher(4)........................................... 784,105 6.3 5.1
Thayer Equity Investors III, L.P.(3)........................ 10,016,002 80.5 64.8(5)
TC Co-Investors, LLC(3)..................................... 81,034 * *(6)
Allied Tours Holding Corp................................... 784,105 6.3 5.1
All directors and executive officers as a group (5
persons).................................................. 10,893,689 87.5% 70.5%(7)
</TABLE>
- ---------------
* Less than 1%.
(1) The business address for Messrs. Ballou, Lewis and Berman is 1420 New York
Avenue, N.W., Suite 550, Washington, D.C. 20005. The business address for
Messrs. Malek and Rickertsen, Thayer Equity Investors III, L.P. and TC
Co-Investors, LLC is 1455 Pennsylvania Avenue, N.W., Suite 350, Washington,
DC 20004. The business address for Messrs. Stanley Fisher, Michael Fisher
and Gregory Fisher and Allied Tours Holding Corp. is 165 West 46th Street,
10th Floor, New York, New York 10036.
(2) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), a person has beneficial ownership of any securities as
to which such person, directly or indirectly, through any contract,
arrangement, undertaking, relationship or otherwise has or shares voting
power and/or investment power and as to which such person has the right to
acquire such voting and/or investment power within 60 days. Percentage of
beneficial ownership as to any person as of a particular date is calculated
by dividing the number of shares beneficially owned by such person by the
sum of the number of shares outstanding as of such date and the number of
shares as to which such person has the right to acquire voting and/or
investment power within 60 days.
(3) Includes 10,016,002 shares of Common Stock held of record by Thayer and
81,034 shares of Common Stock held of record by TC Co-Investors. Thayer is a
Delaware limited partnership whose sole general partner is TC Equity
Partners. TC Equity Partners beneficially owns, and has sole voting and
investment power with respect to, the shares of Common Stock held of record
by Thayer. TC Co-Investors is a Delaware limited liability company whose
managing member is TC Management. TC Management beneficially owns, and has
sole voting and investment power with respect to, the shares of Common Stock
held of record by TC Co-Investors. Frederic V. Malek, Dr. Paul G. Stern and
Carl J. Rickertsen are the members in TC Management and the principal
members of TC Equity Partners. Messrs. Malek and Rickertsen may be deemed to
be the beneficial owners of the shares of Common Stock held by each of
Thayer and TC Co-Investors. If the Underwriters' over-allotment option is
exercised in full, Thayer and
50
<PAGE> 54
TC Co-Investors together will sell a total of 450,000 shares and thereafter
Messrs. Malek and Rickertsen each beneficially will own 9,647,036 shares,
representing 62.4% of the outstanding Common Stock.
(4) Messrs. Stanley Fisher, Michael Fisher and Gregory Fisher are the executive
officers and principal shareholders of Allied Holding and may be deemed to
be the beneficial owners of the shares of Common Stock held by Allied
Holding.
(5) If the Underwriters' over-allotment option is exercised in full, Thayer will
sell 446,388 shares and thereafter beneficially own 9,569,614 shares,
representing 61.9% of the outstanding Common Stock.
(6) If the Underwriters' over-allotment option is exercised in full, TC
Co-Investors will sell 3,612 shares and thereafter beneficially own 77,422
shares, representing 0.5% of the outstanding Common Stock.
(7) If the Underwriters' over-allotment option is exercised in full, Thayer and
TC Co-Investors together will sell a total of 450,000 shares and thereafter
all directors and executive officers as a group beneficially will own
10,443,689 shares, representing 67.6% of the outstanding Common Stock.
51
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
As of June 15, 1998, the Company had outstanding (i) 8,501,019 shares of
Common Stock with 29 holders of record of such Common Stock and (ii) 52,775.64
shares of Convertible Preferred Stock with 25 holders of record of such
Convertible Preferred Stock. The Conversion will occur concurrently with the
closing of this offering so that no shares of Convertible Preferred Stock will
be outstanding upon completion of this offering. Each holder of Convertible
Preferred Stock is entitled to dividends on the shares of Convertible Preferred
Stock issued to such shareholder. These dividends accrue daily from the date of
issuance of each share of Convertible Preferred Stock and will be paid in
additional shares of Convertible Preferred Stock at a rate of 15% per annum.
Effective as of the closing of this offering, pursuant to the Conversion, all
shares of Convertible Preferred Stock then outstanding will be converted into
shares of Common Stock at a conversion rate equal to $1,000 (the liquidation
value of each share of Convertible Preferred Stock), plus any accrued and unpaid
dividends on such shares as of the closing date of this offering, divided by the
initial public offering price.
The following table sets forth the number of shares of Common Stock into
which the Convertible Preferred Stock will be converted in the Conversion if the
closing date of this offering is July 31, 1998 at the offering price per share
indicated:
<TABLE>
<CAPTION>
OFFERING SHARES OF
PRICE COMMON STOCK
- -------- ------------
<S> <C>
$13.00 4,252,458
$14.00 3,948,719
$15.00 3,685,463
</TABLE>
If the closing date of this offering occurs after July 31, 1998, the number
of shares of Common Stock to be issued in the Conversion, assuming an initial
public offering price of $14.00, would increase by approximately 46,475 shares
per month thereafter.
Following this offering, the Company's authorized capital stock will
consist of 60,000,000 shares of Common Stock, par value $0.01 per share, of
which there will be 15,449,738 shares issued and outstanding, and 6,000,000
shares of undesignated preferred stock, par value $0.01 per share ("Preferred
Stock"), of which there will be no shares issued and outstanding. The following
is a description of the capital stock of the Company immediately following
completion of this offering.
COMMON STOCK
Each shareholder of record will be entitled to one vote for each
outstanding share of Common Stock owned by such shareholder on every matter
properly submitted to the shareholders for their vote. The holders of Common
Stock do not have cumulative voting rights and, accordingly, the holders of a
majority of the Common Stock entitled to vote in any election of directors may
elect all of the directors standing for election. Holders of Common Stock are
entitled to any dividend declared by the Board of Directors out of funds legally
available for such purpose, subject to any preferential dividend rights of any
outstanding Preferred Stock. In the event of liquidation, dissolution or winding
up of the Company, holders of Common Stock are entitled to receive on a pro rata
basis all remaining assets of the Company available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
Preferred Stock. Holders of Common Stock do not have any preemptive,
subscription, redemption or conversion rights. The outstanding shares of Common
Stock are, and the shares of Common Stock offered by the Company in this
offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock that the Company may designate and issue in the
future.
52
<PAGE> 56
PREFERRED STOCK
The Board of Directors is authorized, without further shareholder approval,
to issue shares of Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences, and to fix the number of shares constituting any series and the
designations of such series.
The issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company. The issuance of Preferred Stock
could decrease the amount of earnings and assets available for distribution to
the holders of Common Stock or could adversely affect the rights and powers,
including voting rights, of the holders of the Common Stock. In certain
circumstances, such issuance could have the effect of decreasing the market
price of the Common Stock. The Company currently has no plans to issue any
shares of Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the New York Business Corporation Law (the "NYBCL"), the
Amended Certificate provides that a director of the Company shall not be
personally liable to the Company or its shareholders for damages for any breach
of duty in his or her capacity as a director unless a judgment or other final
adjudication adverse to such director establishes that (i) his or her acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law, (ii) such director personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled or (iii)
his or her acts violated Section 719 of the NYBCL.
This provision is intended to afford directors protection, and limit their
potential liability, from suits alleging a breach of the duty of care by a
director. The Company believes this provision will assist it in maintaining and
securing the services of directors who are not employees of the Company. As a
result of the inclusion of such a provision, shareholders may be unable to
recover monetary damages against directors for actions taken by them that
constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to shareholders for any particular case, shareholders may
not have any effective remedy against the challenged conduct.
The Amended Certificate also provides that directors and officers shall be
indemnified against liabilities arising from their service as directors or
officers to the fullest extent permitted by law, which generally requires that
the individual have acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the Company's best interests, provided that
no indemnification may be made to or on behalf of any directors or officers if a
judgment or other final adjudication adverse to him or her established that his
or her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
The Company will maintain director and officer liability insurance on
behalf of its directors and officers.
CERTAIN ANTI-TAKEOVER EFFECTS
The Company, as a New York corporation, is subject to the provisions of
Section 912 of the NYBCL and will continue to be so subject if and for so long
as it has a class of securities registered under Section 12 of the Exchange Act.
Section 912 provides, with certain exceptions (which include, among others,
transactions with shareholders who became interested prior to the effective date
of an amendment to the corporation's Certificate of Incorporation providing that
the corporation would be subject to Section 912 if such corporation did not then
have a class of stock registered pursuant to Section 12 of the Exchange Act),
that a New York corporation may not engage in a "business combination" (e.g.,
merger, consolidation, recapitalization or disposition of stock) with any
"interested shareholder" for a period of five years from the date that such
person first became an interested shareholder unless: (i) the transaction
resulting in a person becoming an interested shareholder, or the business
combination, was approved by the board of directors of the corporation prior to
53
<PAGE> 57
that person becoming an interested shareholder; (ii) the business combination is
approved by the holders of a majority of the outstanding voting stock not
beneficially owned by such interested shareholder; or (iii) the business
combination meets certain valuation requirements for the stock of the New York
corporation. An "interested shareholder" is defined as any person that (a) is
the beneficial owner of 20% or more of the outstanding voting stock of a New
York corporation or (b) is an affiliate or associate of the corporation that at
any time during the prior five years was the beneficial owner, directly or
indirectly, of 20% or more of the then outstanding voting stock. These
provisions are likely to impose greater restrictions on an unaffiliated
shareholder than on the existing shareholders who will continue to own a
majority of the Company's outstanding Common Stock after this offering.
The Amended Certificate and the By-laws of the Company will contain certain
provisions intended to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and of the policies formulated
by the Board which may discourage a future unsolicited takeover of the Company.
These provisions could have the effect of discouraging certain attempts to
acquire the Company or remove incumbent management, including incumbent members
of the Company's Board of Directors, even if some or a majority of the Company's
shareholders deemed such an attempt to be in their best interests. The Amended
Certificate or the By-laws of the Company, as applicable, will, among other
things: (i) provide that the number of directors will be not fewer than three
nor more than 15, with the exact number of directors to be determined from time
to time by the affirmative vote of more than two-thirds of the number of
directors which the Company would have, prior to an increase or decrease, if
there were no vacancies; (ii) provide for a classified Board of Directors
consisting of three classes of directors having staggered terms of three years
each; (iii) subject to any rights of holders of the Preferred Stock which may be
granted by the Board of Directors in the future and except as otherwise provided
by Section 706(d) of the NYBCL, provide that directors may be removed only for
cause and only by a majority of the directors in office or by vote of the
holders of at least two-thirds of the Company's capital stock entitled to vote;
(iv) subject to any rights of holders of the Preferred Stock which may be
granted by the Board of Directors in the future, permit vacancies on the Board
of Directors that may occur between annual meetings and any newly created seats
to be filled only by the Board of Directors and not by the shareholders; (v)
preclude shareholders from calling special meetings of shareholders; (vi)
prohibit shareholders from taking any action without a meeting; (vii) require
any shareholder who wishes to bring any proposal before a meeting of
shareholders or to nominate a person to serve as a director to give written
notice thereof and certain related information prior to the date of such
meeting; (viii) require the affirmative vote of the holders of at least
two-thirds of the Company's capital stock entitled to vote to amend certain
provisions of the Amended Certificate or to amend the By-laws of the Company;
and (ix) provide that the Board of Directors, without action by the
shareholders, may issue and fix the rights and preferences of shares of
Preferred Stock. These provisions may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
shareholders, may discourage bids for the Common Stock at a premium over the
market price of the Common Stock and may adversely affect the market price of,
and the voting and other rights of the holders of, Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
54
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 15,449,738 shares of
Common Stock outstanding (assuming no exercise of outstanding options or
warrants). Of these shares, the 3,000,000 shares to be sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, except that any shares purchased by affiliates of the Company,
as that term is defined in Rule 144 ("Affiliates"), may generally only be sold
in compliance with the limitations of Rule 144 described below.
The remaining 12,449,738 shares of Common Stock outstanding will be
restricted shares within the meaning of Rule 144 under the Securities Act. Of
these shares, approximately 784,105 shares may be eligible for sale in the
public market immediately after this offering pursuant to Rule 144(k) under the
Securities Act, subject to 180-day Lock-up Agreements as described below. The
remaining 11,665,633 shares will become eligible for sale in the public market
from time to time, subject to Lock-up Agreements.
The Company, its executive officers and directors and each of its existing
shareholders, who will hold an aggregate of 12,449,738 shares of Common Stock
after this offering, have agreed that, until 180 days following the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., sell, offer to sell, solicit any offer to buy, contract to sell, grant any
option to purchase (other than under the Stock Option Plan), or otherwise
transfer or dispose of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, Common Stock. Smith Barney Inc. may
release shares subject to the Lock-up Agreements in whole or in part in its sole
discretion without notice.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an Affiliate, who has beneficially owned restricted
shares for at least one year is entitled to sell, within any three-month period,
a number of such shares that does not exceed the greater of (i) one percent of
the then outstanding shares of Common Stock (154,497 shares immediately after
this offering) or (ii) the average weekly trading volume in the Common Stock on
the NYSE during the four calendar weeks preceding the date on which notice of
such sale is filed, provided certain requirements concerning availability of
public information, manner of sale and notice of sale are satisfied. In
addition, Affiliates must comply with the restrictions and requirements of Rule
144, other than the one-year holding period requirement, in order to sell shares
of Common Stock that are not restricted securities. Under Rule 144(k), a person
who is not an Affiliate and has not been an Affiliate for at least three months
prior to the sale and who has beneficially owned restricted shares for at least
two years may resell such shares without compliance with the foregoing
requirements. In meeting the one-year and two-year holding periods described
above, a holder of Restricted Shares can include the holding periods of a prior
owner who was not an Affiliate. The one-year and two-year holding periods
described above do not begin to run until the full purchase price or other
consideration is paid by the person acquiring the restricted shares from the
issuer or an Affiliate.
At June 15, 1998, 92,355 shares of Common Stock were issuable pursuant to
options under the Company's Stock Option Plan. None of these options are
currently exercisable and none will be exercisable prior to January 1999. In
addition, upon completion of this offering the Company will issue (i) options to
purchase a total of 7.5% of the outstanding shares of Common Stock at that time
to the Senior Executives (an aggregate of 1,158,729 shares, assuming the closing
date of this offering is July 31, 1998 and assuming the price per share in this
offering is $14.00) and (ii) options to purchase shares of Common Stock with an
aggregate value of $2,475,000 (an aggregate of 176,784 shares, assuming the
price per share in this offering is $14.00).
Following the date of this Prospectus, the Company intends to register on
one or more registration statements on Form S-8 under the Securities Act the
shares of Common Stock issuable under the Stock Option Plan. These registration
statements are expected to become effective upon filing and shares covered by
these registration statements will be eligible for sale in the public market
immediately after the effective dates of such registration statements. At any
time a number of shares equal to 12% of the then outstanding shares of Common
Stock will be reserved for issuance under the Stock Option Plan.
55
<PAGE> 59
Prior to this offering, there has been no public market for the Common
Stock of the Company, and no precise prediction can be made as to the effect, if
any, that market sales of shares of Common Stock or the availability of shares
of Common Stock for sale will have on the market price of the Common Stock
prevailing from time to time. Nevertheless, sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices and could impair the Company's future ability to raise capital through
the sale of its equity securities.
Following completion of the offering, holders of 12,449,738 shares of
Common Stock will have the right to require the Company to register such shares
under the Securities Act pursuant to terms and conditions of a Registration
Rights Agreement with the Company. See "Certain Transactions -- Registration
Rights Agreement."
56
<PAGE> 60
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each underwriter named below (collectively, the
"Underwriters") has severally agreed to purchase, and the Company has agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF UNDERWRITER SHARES
------------------- ---------
<S> <C>
Smith Barney Inc. ..........................................
NationsBanc Montgomery Securities LLC.......................
BancAmerica Robertson Stephens..............................
ING Barings Furman Selz.....................................
---------
Total.................................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., NationsBanc Montgomery
Securities LLC, BancAmerica Robertson Stephens and ING Barings Furman Selz are
acting as the Representatives, propose to offer part of the shares directly to
the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price that represents
a concession not in excess of $ per share under the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain other dealers. After the initial offering
of the shares to the public, the public offering price and such concessions may
be changed by the Representatives. The Representatives have advised the Company
that the Underwriters do not intend to confirm sales of any shares to any
accounts over which they exercise discretionary authority.
The Selling Shareholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
450,000 additional shares of Common Stock at the price to public set forth on
the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company, its executive officers and directors and each of its existing
shareholders, who will hold an aggregate of 12,449,738 shares of Common Stock
after this offering, have agreed that, until 180 days following the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., sell, offer to sell, solicit any offer to buy, contract to sell, grant any
option to purchase (other than under the Stock Option Plan), or otherwise
transfer or dispose of any shares of Common Stock, or any securities convertible
into, or exercisable or exchangeable for, Common Stock, except that the Company
may grant options under the Stock Option Plan and may issue shares of Common
Stock pursuant to the exercise of options granted under the Stock Option Plan.
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the offering will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in determining such price are the history of and prospects for the
Company's business and the
57
<PAGE> 61
industry in which it competes, an assessment of the Company's management and the
present state of the Company's development, the past and present revenues and
earnings of the Company, the prospects for growth of the Company's revenues and
earnings, the current state of the economy in the United States and the current
level of economic activity in the industry in which the Company competes and in
related or comparable industries, and currently prevailing conditions in the
securities markets, including current market valuations of publicly traded
companies that are comparable to the Company.
The Representatives have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the Common Stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the Common Stock on behalf of the Underwriters for the purpose
of fixing or maintaining the price of the Common Stock. A "syndicate covering
transaction" is the bid for or the purchase of the Common Stock on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the offering if the Common
Stock originally sold by such Underwriter or syndicate member is purchased by
the Representatives in a syndicate covering transaction and has therefore not
been effectively placed by such Underwriter or syndicate member. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time. The Representatives
have advised the Company that such transactions may be effected on the New York
Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
The Company, the Underwriters and certain shareholders of the Company have
agreed to indemnify each other against certain liabilities, including
liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of shares of Common Stock will be passed upon on behalf of the
Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters will
be passed upon for the Underwriters by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The financial statements and schedules of Global Vacation Group, Inc.
(formerly Allied Bus Corp.) as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 1997, included in this Prospectus and
elsewhere in this registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
The financial statements of Classic Custom Vacations as of December 31,
1997 and for the year then ended, included in this Prospectus, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Classic Custom Vacations for the year ended
December 31, 1996, appearing in this Prospectus and the Registration Statement,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein and in the Registration Statement and is included
in reliance upon the report given of such firm as experts in accounting and
auditing.
The financial statements of MTI Vacations as of December 31, 1996 and 1997
and for each of the three years in the period ended December 31, 1997, included
in this Prospectus, have been included herein in reliance on the report of
Coopers & Lybrand LLP, independent accountants given on the authority of that
firm as experts in accounting and auditing.
58
<PAGE> 62
The financial statements of Haddon Holidays, Inc. as of December 31, 1997
and for the year ended December 31, 1997, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
(including exhibits, schedules and amendments thereto, the "Form S-1") pursuant
to the Securities Act, with respect to the offering hereby of the Common Stock.
This Prospectus, while forming a part of the Form S-1, does not contain all of
the information set forth in the Form S-1. Reference is hereby made to the Form
S-1 for further information with respect to the Company and the Common Stock
offered hereby. Statements contained herein concerning the provisions of
documents filed as exhibits to the 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 Securities and Exchange
Commission (the "SEC"). The 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 Seven 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.
The Company intends to furnish its shareholders annual reports containing
financial statements audited by its independent accountants and quarterly
reports containing unaudited financial statements for the first three quarters
of each fiscal year.
59
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOBAL VACATION GROUP, INC. (FORMERLY ALLIED BUS CORP.):
Report of Independent Public Accountants -- Arthur
Andersen LLP.......................................... F- 2
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998 (unaudited)................... F- 3
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1996 and 1997 and the Three
Months Ended March 31, 1997 and 1998 (unaudited)...... F- 4
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1998 (unaudited).................................. F- 5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997 and the Three
Months Ended March 31, 1997 and 1998 (unaudited)...... F- 6
Notes to Consolidated Financial Statements............. F- 7
CLASSIC CUSTOM VACATIONS:
Report of Independent Public Accountants -- Arthur
Andersen LLP.......................................... F-19
Independent Auditors' Report -- Deloitte & Touche
LLP................................................... F-20
Consolidated Balance Sheets as of December 31, 1996 and
1997 and March 31, 1998 (unaudited)................... F-21
Consolidated Statements of Operations for the Years
Ended December 31, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998 (unaudited)............. F-22
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the Years Ended December 31, 1996
and 1997 and the Three Months Ended March 31, 1998
(unaudited)........................................... F-23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998 (unaudited)............. F-24
Notes to Consolidated Financial Statements............. F-25
MTI VACATIONS:
Report of Independent Accountants -- Coopers & Lybrand
LLP................................................... F-36
Balance Sheets as of December 31, 1996 and 1997 and
March 31, 1998 (unaudited)............................ F-37
Statements of Income (Loss) for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1997 and 1998 (unaudited)............. F-38
Statements of Changes in Owners' Deficit for the Years
Ended December 31, 1995, 1996 and 1997 and the Three
Months Ended March 31, 1998 (unaudited)............... F-39
Statements of Cash Flows for the Years Ended December
31, 1995, 1996 and 1997 and the Three Months Ended
March 31, 1997 and 1998 (unaudited)................... F-40
Notes to Financial Statements.......................... F-41
HADDON HOLIDAYS, INC.:
Report of Independent Public Accountants -- Arthur
Andersen LLP.......................................... F-46
Balance Sheets as of December 31, 1997 and March 31,
1998 (unaudited)...................................... F-47
Statements of Operations for the Year Ended December
31, 1997 and the Three Months Ended March 31, 1997 and
1998 (unaudited)...................................... F-48
Statements of Changes in Shareholders' Equity (Deficit)
for the Year Ended December 31, 1997 and the Three
Months Ended March 31, 1998 (unaudited)............... F-49
Statements of Cash Flows for the Year Ended December
31, 1997 and the Three Months Ended March 31, 1997 and
1998 (unaudited)...................................... F-50
Notes to Financial Statements.......................... F-51
</TABLE>
F-1
<PAGE> 64
The financial statements included herein have been adjusted to give effect
to the anticipated increase in authorized shares and a 13.3-for-one stock split
as described in Note 2 to the financial statements. We expect to be in a
position to render the following audit report upon the effectiveness of such
events assuming that from June 24, 1998, to the effective date of such events,
no other events will have occurred that would affect the accompanying financial
statements or notes thereto.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 24, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Vacation Group, Inc.
(Formerly Allied Bus Corp.)
We have audited the accompanying consolidated balance sheets of Global
Vacation Group, Inc. (a New York corporation, formerly Allied Bus Corp.) and
subsidiaries, as of December 31, 1996 and 1997, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. 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 an 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 Global Vacation Group, Inc.
and subsidiaries, as of December 31, 1996 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
F-2
<PAGE> 65
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 5,677 $ 7,074 $ 4,685
Short-term investments................................. 2,579 835 2,384
Accounts receivable, net of allowance of $448, $861 and
$747, respectively................................... 10,167 10,637 8,313
Loans receivable from shareholders..................... 590 103 118
Other current assets................................... 247 290 871
------- ------- --------
Total current assets.............................. 19,260 18,939 16,371
------- ------- --------
Property and equipment, net................................. 398 386 556
Intangible assets, net...................................... -- -- 10,455
Other assets................................................ 19 50 19
------- ------- --------
Total assets...................................... $19,677 $19,375 $ 27,401
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.................. $16,365 $15,759 $ 18,942
Customer deposits...................................... 1,639 1,541 5,089
Loans payable to shareholders.......................... -- 1,717 --
Note payable........................................... -- -- 4,000
Current portion of long-term debt...................... -- -- 2,000
------- ------- --------
Total current liabilities......................... 18,004 19,017 30,031
------- ------- --------
Long-term debt, net of current portion...................... -- -- 13,400
------- ------- --------
Total liabilities................................. 18,004 19,017 43,431
------- ------- --------
Class A Convertible Preferred Stock, $1,000 par value; no
shares authorized, issued or outstanding at December 31,
1996 and 1997; 100,000 shares authorized, 27,865 shares
issued and outstanding as of March 31, 1998 (aggregate
liquidation preference, plus accrued and unpaid dividends,
of $28,015)............................................... -- -- 28,015
Commitments and contingencies (Notes 4, 6 and 8)
Shareholders' equity (deficit) (Note 4):
Preferred stock, $0.01 par value, 6,000,000 shares
authorized, no shares issued and outstanding......... -- -- --
Common stock, $0.01 par value, 60,000,000 shares
authorized, 5,768,343, 5,768,343 and 8,181,819 shares
issued and outstanding, respectively................. 58 58 82
Additional paid-in capital............................. -- -- 3,245
Retained earnings (deficit)............................ 1,615 300 (47,372)
------- ------- --------
Total shareholders' equity (deficit).............. 1,673 358 (44,045)
------- ------- --------
Total liabilities and shareholders' equity
(deficit).................................. $19,677 $19,375 $ 27,401
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 66
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- --------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $18,464 $22,259 $ 24,255 $ 2,425 $ 2,477
Operating expenses.......................... 13,316 16,025 17,852 2,820 3,032
------- ------- --------- ------- ---------
Gross profit (loss).................... 5,148 6,234 6,403 (395) (555)
------- ------- --------- ------- ---------
General and administrative expenses......... 5,702 6,905 7,797 1,129 1,571
Depreciation and amortization............... 131 154 182 41 34
------- ------- --------- ------- ---------
Loss from operations................... (685) (825) (1,576) (1,565) (2,160)
------- ------- --------- ------- ---------
Other income (expense):
Interest income........................ 521 581 556 65 74
Interest expense....................... -- -- -- -- (14)
Other.................................. 67 (4) 41 -- --
------- ------- --------- ------- ---------
Total............................. 588 577 597 65 60
------- ------- --------- ------- ---------
Loss before (provision for) benefit from
income taxes.............................. (97) (248) (979) (1,500) (2,100)
(Provision for) benefit from income taxes... (106) (122) (124) 10 61
------- ------- --------- ------- ---------
Net loss............................... $ (203) $ (370) $ (1,103) $(1,490) $ (2,039)
Dividends on Class A Convertible
Preferred Stock........................... -- -- -- -- 150
------- ------- --------- ------- ---------
Net loss available to common shareholders... $ (203) $ (370) $ (1,103) $(1,490) $ (2,189)
======= ======= ========= ======= =========
Pro forma income data (unaudited):
Historical loss before income taxes as
reported............................. $ (979) $ (2,100)
Pro forma (provision for) benefit from
income taxes......................... (124) 882
--------- ---------
Pro forma net loss..................... $ (1,103) (1,218)
========= =========
Pro forma basic and diluted net loss
per share............................ $ (0.19) $ (0.21)
========= =========
Pro forma basic and diluted weighted
average shares outstanding........... 5,768,343 5,850,808
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 67
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
REDEEMABLE SHAREHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE ------------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994... -- $ -- 5,768,343 $ 58 $-- $ 4,060 $ 4,118
Net loss................ -- -- -- -- -- (203) (203)
Distributions........... -- -- -- -- -- (764) (764)
------ ------- ---------- ---- ------ -------- --------
Balance, December 31, 1995... -- -- 5,768,343 58 -- 3,093 3,151
Net loss................ -- -- -- -- -- (370) (370)
Distributions........... -- -- -- -- -- (1,108) (1,108)
------ ------- ---------- ---- ------ -------- --------
Balance, December 31, 1996... -- -- 5,768,343 58 -- 1,615 1,673
Net loss................ -- -- -- -- -- (1,103) (1,103)
Distributions........... -- -- -- -- -- (212) (212)
------ ------- ---------- ---- ------ -------- --------
Balance, December 31, 1997... -- -- 5,768,343 58 -- 300 358
Redemption of common
stock (unaudited)..... -- -- (1,961,231) (20) -- (14,726) (14,746)
Class A Convertible
Preferred stock
dividend
(unaudited)........... 25,762 25,762 -- -- -- (25,762) (25,762)
Issuance of common and
preferred stock
(unaudited)........... 1,653 1,653 4,308,207 43 3,196 -- 3,239
Issuance of common and
Class A Convertible
Preferred stock as
consideration in the
Haddon Holidays, Inc.
acquisition
(unaudited)........... 450 450 66,500 1 49 -- 50
Accrued dividend on
Class A Convertible
Preferred stock
(unaudited)........... -- 150 -- -- -- (150) (150)
Net loss (unaudited).... -- -- -- -- -- (2,039) (2,039)
Distributions(unaudited)... -- -- -- -- -- (4,995) (4,995)
------ ------- ---------- ---- ------ -------- --------
Balance, March 31, 1998
(unaudited)................ 27,865 $28,015 8,181,819 $ 82 $3,245 $(47,372) $(44,045)
====== ======= ========== ==== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 68
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (203) $ (370) $(1,103) $(1,490) $(2,039)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization..................... 131 154 182 41 34
Amortization of deferred financing costs.......... -- -- -- -- 2
Changes in assets and liabilities excluding effect
of acquisition:
Accounts receivable.......................... (2,755) (1,593) (470) 1,044 2,752
Other assets................................. 92 29 (74) (8) 63
Accounts payable and accrued expenses........ 4,758 2,881 (606) (1,507) 277
Customer deposits............................ 104 561 (98) 90 94
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities............................ 2,127 1,662 (2,169) (1,830) 1,183
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment.................... (21) (126) (170) (37) (111)
Acquisition of Haddon Holidays, Inc., net of cash
acquired............................................. -- -- -- -- (5,253)
Net sales (purchases) of investments................... 5,065 (1,483) 1,744 (40) (30)
------- ------- ------- ------- -------
Net cash provided by (used in) investing
activities............................ 5,044 (1,609) 1,574 (77) (5,394)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net borrowings (repayments) on loans to/from
shareholders......................................... (17) (67) 2,204 (9) (1,732)
Distributions to shareholders.......................... (764) (1,108) (212) (17) (4,995)
Proceeds from borrowings under credit agreement........ -- -- -- -- 15,400
Deferred financing costs............................... -- -- -- -- (997)
Redemption of common stock............................. -- -- -- -- (10,746)
Proceeds from issuance of common stock................. -- -- -- -- 3,239
Proceeds from issuance of Class A Convertible Preferred
stock................................................ -- -- -- -- 1,653
------- ------- ------- ------- -------
Net cash provided by (used in) financing
activities............................ (781) (1,175) 1,992 (26) 1,822
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 6,390 (1,122) 1,397 (1,933) (2,389)
Cash and cash equivalents, beginning of period.............. 409 6,799 5,677 5,677 7,074
------- ------- ------- ------- -------
Cash and cash equivalents, end of period.................... $ 6,799 $ 5,677 $ 7,074 $ 3,744 $ 4,685
======= ======= ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid for income taxes............................. $ 20 $ 123 $ 48 $ 43 $ 224
======= ======= ======= ======= =======
Supplemental disclosure of noncash investing and financing
activities:
Issuance of common and preferred stock as consideration
in the Haddon Holidays, Inc. acquisition (Note 10)... -- -- -- -- $ 500
Issuance of promissory note in connection with
redemption of common stock (Note 4).................. -- -- -- -- $ 4,000
Class A Convertible Preferred stock dividend (Note
4)................................................... -- -- -- -- $25,762
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 69
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. BUSINESS DESCRIPTION AND ORGANIZATION
Global Vacation Group, Inc. ("GVG" or the "Company," a New York
corporation) is a vacation travel company that provides a variety of services to
support inbound travel to the United States from foreign countries. The Company
generally sells vacation products and services to consumers through wholesalers
and agents outside of the United States.
The Company's services include provision of accommodations, road maps and
sightseeing guides, and, to a lesser extent, theater tickets and restaurant
vouchers to individuals traveling in the United States. The Company also
develops customized group and escorted tour products which include
accommodations, airport transfers, tour bus transportation and guide services.
In March 1998, the Company changed its name from Allied Bus Corp. to Global
Vacation Group, Inc. The Company had previously operated under the trade name
"Allied Tours." The name change was concurrent with a recapitalization of the
Company (the "Recapitalization") (Note 4). On March 30, 1998, the Company
completed the acquisition of Haddon Holidays, Inc. and subsequent to March 31,
1998, the Company has completed three other acquisitions, which have expanded
the Company's travel services and products (Note 10).
The Company's operations are subject to certain risks and uncertainties,
including, among others, current and potential competitors with greater
resources, changing industry dynamics related to new methods of distribution
within the travel industry, seasonal fluctuations in operating results,
dependence on rapidly changing technologies, reliance on key personnel,
international political and economic conditions impacting travel patterns and
dependence on travel suppliers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Increase in Authorized Shares, Stock Split, and Conversion
In connection with the Company's proposed initial public offering, the
Company will amend and restate its certificate of incorporation to increase the
number of authorized shares of common stock to 60,000,000, par value $0.01 per
share, and to authorize 6,000,000 shares of undesignated preferred stock, par
value $0.01 per share. The Company will effect a 13.3-for-one stock split of the
common stock in the form of a stock dividend. All share and per share amounts
have been retroactively adjusted to give effect to these events. These actions
are subject to the closing of the offering contemplated in this prospectus. In
addition, effective as of the closing date of the offering contemplated in this
prospectus, all shares of Class A Convertible Preferred Stock (the "Convertible
Preferred") then outstanding, plus any accrued and unpaid dividends on such
shares as of the closing date of this offering, will be converted into shares of
common stock at the initial public offering price.
Unaudited Interim Financial Statements
The accompanying consolidated balance sheet as of March 31, 1998, and the
accompanying consolidated statements of operations and cash flows for the three
months ended March 31, 1997 and 1998, are unaudited. The unaudited financial
statements include all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
such financial statements. The data disclosed in the notes to the financial
statements for these periods is unaudited. The results of operations for the
three months ended March 31, 1998, are not necessarily indicative of the results
to be expected for the entire fiscal year.
F-7
<PAGE> 70
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Included in cash and
cash equivalents are money market investments and U.S. treasury bills. As of
December 31, 1996 and 1997 and March 31, 1998, the Company had invested $2.6
million, $653,000 and $2.3 million, respectively, in money market investments.
As of December 31, 1996 and 1997, the Company had invested approximately $3.0
million and $6.0 million, respectively, in U.S. treasury bills that are
considered cash equivalents. No U.S. treasury bills were included in cash and
cash equivalents as of March 31, 1998.
Short-Term Investments
Short-term investments consist of bank certificates of deposit and U.S.
treasury bills with original maturities in excess of three months, mutual fund
shares and U.S. treasury bills. The bank certificates of deposit are pledged as
collateral for letters of credit (Note 8).
The Company classifies its certificates of deposit and U.S. treasury bills
as held-to-maturity as the Company has the intent and ability to hold these
securities to maturity. These securities are carried at cost which approximates
market value at December 31, 1996 and 1997 and at March 31, 1998. The Company
classifies its mutual fund shares as available-for-sale. These are securities
with readily determinable fair values that the Company intends to hold for an
indefinite period of time. These securities are carried at cost which
approximates their market value at December 31, 1996 and 1997 and at March 31,
1998.
Revenue Recognition
Net revenues consist primarily of markups on travel packages. The Company
recognizes net revenue when earned on the date of travel. The Company estimates
and records accruals for cancellations and changes to reservations booked. For
the years ended December 31, 1995, 1996 and 1997, net revenues are derived from
sale of travel products and services with a value of $95.1 million, $116.7
million and $125.9 million, respectively, net of $76.6 million, $94.4 million
and $101.6 million, respectively, in direct costs to suppliers. For the three
months ended March 31, 1997 and 1998, net revenues are derived from sale of
travel products and services with a value of $17.2 million and $17.2 million,
respectively, net of $14.8 million and $14.7 million in direct costs to
suppliers.
Operating Expenses
Operating expenses include commissions, salaries, benefits and payroll tax
expenses, communications, facilities and other costs associated with the selling
and processing of tour packages.
F-8
<PAGE> 71
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Depreciation and Amortization
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line method for leasehold improvements. The Company uses accelerated
and straight-line methods for recording depreciation on furniture and fixtures
and equipment with lives that range from 5 to 10 years. Leasehold improvements
are depreciated over the shorter of the lease term or the estimated useful life
of the asset.
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures................................... $ 270 $ 284 $ 344
Equipment................................................ 811 961 1,072
Leasehold improvements................................... 119 125 155
------ ------ -------
1,200 1,370 1,571
Accumulated depreciation and amortization................ (802) (984) (1,015)
------ ------ -------
Property and equipment, net.................... $ 398 $ 386 $ 556
====== ====== =======
</TABLE>
Intangible Assets
Intangible assets consist of goodwill from acquisitions (Note 10) and
deferred financing costs incurred in connection with the Company's credit
agreement (Note 6). Goodwill is amortized over 35 years. Deferred financing
costs are charged to interest expense over the life of the debt using the
effective interest method. Intangible assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998
-----------
(UNAUDITED)
<S> <C>
Goodwill.................................................... $ 9,463
Deferred financing costs.................................... 997
Accumulated amortization.................................... (5)
-------
$10,455
=======
</TABLE>
Long-Lived Assets
The Company reviews its long-lived assets, including property and
equipment, identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of the assets.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," and
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value
of Financial Instruments," require the disclosure of the fair value of financial
instruments, whether or not recognized in the balance sheet, for which
F-9
<PAGE> 72
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
it is practicable to estimate that value. The carrying value of the Company's
financial instruments approximates fair value due to the relatively short
maturities of these instruments.
In the normal course of business, the Company is a party to letters of
credit which are not reflected in the accompanying balance sheets (Notes 6 and
8). Such financial instruments are valued based on the amount of exposure under
the instrument and the likelihood of performance being required. Based on the
Company's past experience, management does not expect any material losses to
result from these off-balance-sheet instruments and, therefore, is of the
opinion that the fair value of these instruments is zero.
Concentrations
The Company maintains bank accounts with federally insured financial
institutions. Periodically, balances may exceed insured limits.
As of December 31, 1997, no individual customer represented more than 10
percent of net revenues or accounts receivable. The Company's revenues and
accounts receivable are principally with customers outside the United States. As
of December 31, 1997, accounts receivable from customers located in Europe and
South America represented approximately 73 percent and 13 percent of the total
accounts receivable, respectively.
Income Taxes
Until March 1998, the Company elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
did not pay corporate income taxes on its taxable income. Instead, the
shareholders were liable for individual income taxes on their respective shares
of the Company's taxable income. Accordingly, there is no provision for Federal
income taxes in the accompanying financial statements. The Company was taxable
in certain states and other jurisdictions that did not recognize S Corporation
status. In March 1998, the Company terminated its S Corporation election and,
accordingly, will be subject to Federal and state income taxes.
The Company accounts for state and local income taxes in accordance with
SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax
assets and liabilities are computed based on the difference between the
financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. SFAS No. 109 requires that a net deferred tax asset
be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized.
Unaudited Pro Forma Information
The accompanying unaudited pro forma income data for the year ended
December 31, 1997 and the three months ended March 31, 1998, includes a
provision for Federal and state income taxes as if the Company had been a C
Corporation for the periods presented. The effective income tax rate reflects
the combined Federal and state income taxes at an assumed rate of 43 percent.
The difference between the pro forma income tax rate and the Federal statutory
rate of 35 percent relates primarily to the impact of state and local income
taxes.
Pro Forma Basic and Diluted Net Loss per Common Share
The pro forma net loss per common share is computed using the pro forma
weighted average number of common shares outstanding during each period. In
March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share." The Company has implemented SFAS No. 128 for 1997.
SFAS No. 128 requires dual presentation of basic and diluted earnings per share.
Basic income or loss
F-10
<PAGE> 73
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
per share includes no dilution and is computed by dividing net income or loss
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted income or loss per share includes the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. There were no such
securities or other contracts to issue common stock issued or outstanding in the
years ended December 31, 1995, 1996 and 1997.
The pro forma basic and diluted weighted average common shares outstanding
for the three months ended March 31, 1998, gives effect to the assumed
conversion of the outstanding Convertible Preferred stock into common stock,
upon the closing of the initial public offering contemplated in this prospectus,
at an assumed offering price of $14.00 per share. Options to purchase 92,355
shares of common stock that were outstanding at March 31, 1998 were not included
in the computation of diluted loss per share for the three months ended March
31, 1998 as their effect would be anti-dilutive. As a result, the pro forma
basic and diluted loss per share amounts are identical for the three months
ended March 31, 1998.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in the
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 adoption of SFAS No. 130 will
have no impact on the Company's results of operations, financial position, or
cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements beginning after December 15,
1997. Financial statement disclosures for prior periods are required to be
restated. The adoption of SFAS No. 131 will have no impact on the Company's
results of operations, financial position, or cash flow.
3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable....................................... $ 8,260 $ 9,879 $ 8,904
Bank overdraft......................................... 7,375 4,745 8,426
Accrued expenses....................................... 730 1,135 1,612
------- ------- -------
$16,365 $15,759 $18,942
======= ======= =======
</TABLE>
F-11
<PAGE> 74
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SHAREHOLDERS' EQUITY (DEFICIT)
Recapitalization
In March 1998, the Company was recapitalized pursuant to an agreement
between the Company, its existing shareholders, Allied Tours Holding Corp.
("Allied Holding"), the shareholders of Allied Holding and a new investor (the
"Investor"). Prior to the Recapitalization, the Company had 100 shares of issued
and outstanding common stock all of which were owned by Allied Holding. Pursuant
to the Recapitalization, the Company redeemed an aggregate of 34 shares of
common stock for $14.7 million from Allied Holding and the Investor purchased 57
shares from Allied Holding for $24.7 million. The redemption price was paid in
cash of $10.7 million and $4.0 million in a 120-day promissory note bearing
interest at 8 percent. The redemption was financed, in part, with $13.0 million
in borrowings under the Company's credit agreement (Note 6).
Following the redemption, the Company amended and restated its certificate
of incorporation to authorize two classes of capital stock: common stock with a
par value of $.01 per share and preferred stock with a par value of $1,000 per
share. At that time, the 66 shares outstanding were converted into 3,807,112
shares of common stock and 25,762 shares of Convertible Preferred. The
conversion into the Convertible Preferred was accounted for as a noncash
dividend in March 1998 and the conversion into common stock was accounted for as
a stock split. All share and per share amounts have been restated to reflect
this common stock split.
Preferred Stock
Holders of Convertible Preferred are entitled to dividends to be paid in
additional shares of Convertible Preferred at a rate of 15 percent per annum.
The Convertible Preferred carries a liquidation preference equal to the
Liquidation Value ($1,000 per share) plus any accrued but unpaid dividends. In
the event that the Company effects a qualified initial public offering ("IPO"),
the holders of the Convertible Preferred shall have the right to convert into
common stock at a rate equal to the Liquidation Value plus any accrued but
unpaid dividends divided by the per share IPO price.
The Company has the option at any time to redeem any or all of the
Convertible Preferred. The Company is required to redeem all of the Convertible
Preferred on December 31, 2003. Holders of the Convertible Preferred may also
require the Company to redeem all or a portion of the Convertible Preferred
prior to the scheduled redemption date in the event of a qualified IPO, a change
in ownership (as defined) or a fundamental change (as defined) in the business
of the Company. Upon any redemption, the redemption price shall be the
Liquidation Value plus any accrued but unpaid dividends.
Equity Purchase Agreement
In March 1998, the Company entered into a purchase agreement with the
Investor and certain other parties in which the Company sold 22,751 shares of
Convertible Preferred and 3,362,040 shares of common stock to the Investor and
an aggregate of 1,228 shares of Convertible Preferred and an aggregate of
181,412 shares of common stock to such other parties at a price of $1,000 per
Convertible Preferred share and $0.75 per common share. The agreement places
restrictions on, among other things, dividends, the redemption and issuance of
debt and equity securities, acquisitions, sales of assets, and related party
transactions. Such restrictions will terminate upon the occurrence of certain
events including the closing of a qualified IPO (as defined).
5. STOCK OPTION PLAN
The Company adopted the 1998 Stock Option Plan (the "Stock Option Plan") to
assist the Company in attracting and retaining qualified employees, directors,
consultants and advisors. The Stock Option Plan
F-12
<PAGE> 75
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTION PLAN -- (CONTINUED)
provides that at any time a number of shares equal to 12 percent of the number
of then outstanding shares of common stock will be reserved for issuance
pursuant to grants of stock options. Unless sooner terminated by the Company's
Board of Directors, the Stock Option Plan will terminate on March 29, 2008.
Options granted under the Stock Option Plan may be either incentive stock
options ("ISOs"), or nonstatutory stock options ("NSOs"). No option granted
under the Stock Option Plan is exercisable after the tenth anniversary of the
option's date of grant.
In March 1998, the Company granted ISOs to acquire an aggregate of 92,355
shares of common stock at an exercise price of $0.75 per share. The Company has
not granted any NSOs. Upon the closing of an IPO, the Company has agreed to
grant options to purchase a number of shares equal in the aggregate to 7.5
percent of the number of shares of Common Stock then outstanding to certain
members of management (Note 8), as well as options to purchase a number of
shares of Common Stock with an aggregate value equal to $2.5 million based upon
the per share price of the IPO to certain other employees of the Company.
6. CREDIT AGREEMENT
In March 1998, the Company entered into a credit agreement with a bank that
provides for a $10.0 million revolving credit facility and provides for term
loans of up to $55.0 million to be used for acquisitions. The revolving credit
facility matures on September 30, 2004. The credit agreement also provides for
the issuance of letters of credit having an outstanding face amount up to $5.0
million. The amount available under the revolving credit facility is reduced by
the amount of any outstanding letters of credit.
The amounts available for borrowing under the term loans may be limited in
certain circumstances based upon the level of equity financing and by the
aggregate acquisition consideration to be paid in connection with the permitted
acquisitions (as defined in the agreement). The aggregate outstanding principal
balance of the term loans is payable in 26 consecutive quarterly installments
commencing on June 30, 1998, as follows (in thousands).
<TABLE>
<S> <C>
June 30, 1998 through March 31, 1999........................ $ 500
June 30, 1999 through March 31, 2000........................ 750
June 30, 2000 through March 31, 2001........................ 1,250
June 30, 2001 through March 31, 2002........................ 1,750
June 30, 2002 through March 31, 2003........................ 2,000
June 30, 2003 through March 31, 2004........................ 2,300
June 30, 2004............................................... 5,000
September 30, 2004......................Any remaining unpaid principal
</TABLE>
If the aggregate amount of the term loans exceeds $44.2 million, each of
the scheduled payments set forth above will be increased in proportion to the
additional borrowing over $44.2 million and the remaining scheduled payments.
The Company has the right to prepay any of the term loans without penalty. Term
loans once repaid may not be re-borrowed.
The Company may be required to prepay unpaid principal amounts on the term
loans and the revolving credit facility upon the occurrence of certain events
including, among others, the disposition of a business or portion thereof, the
sale of equity securities, or a refinancing of the Company's debt. In addition,
the level of the Company's leverage ratio (as defined) for a given year may
result in the required prepayment of certain amounts as specified in the
agreement.
Borrowings under the revolving credit facility and term loans may be
designated by the Company as alternate base rate advances ("ABR Advances") or
eurodollar advances ("Eurodollar Advances"). ABR
F-13
<PAGE> 76
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. CREDIT AGREEMENT -- (CONTINUED)
Advances generally bear interest at a base rate plus an applicable margin. The
base rate is equal to the higher of the prime rate or the federal funds rate
plus 0.5 percent. The applicable margin generally ranges from 0.25 percent to 1
percent based upon the Company's leverage ratio (as defined). Interest on ABR
Advances is generally payable quarterly.
Eurodollar Advances generally bear interest at the eurodollar rate plus an
applicable margin. The eurodollar rate is the rate of interest obtained by
dividing (i) the rate quoted by the bank to leading banks in the London
interbank eurodollar market as the rate at which the bank is offering dollar
deposits in an amount approximately equal to the advance and having a period to
maturity approximately equal to the interest period applicable to the eurodollar
advance by (ii) a number equal to one minus the aggregate of the then stated
maximum rates during such interest period of all reserve requirements
established in respect of eurocurrency funding. The interest period is the
period commencing on the borrowing date and ending one, two, three or six months
thereafter as selected by the Company. The applicable margin generally ranges
from 1.25 percent to 2 percent based upon the Company's leverage ratio (as
defined). Interest on Eurodollar Advances is due at the end of the interest
period or at the end of each three month interval during the interest period.
The number of Eurodollar Advances that the Company is permitted to have
outstanding may be limited in certain circumstances.
The Company's obligations under the credit agreement are secured by
substantially all of the Company's assets and the credit agreement includes
certain restrictive covenants including, among others, limitations on
acquisitions, indebtedness, sales or other asset dispositions, investments,
dividends or distributions, and related party transactions. The credit agreement
also requires that the Company maintain certain operating and financial ratios
as defined, including a maximum leverage ratio, a minimum interest coverage
ratio, a minimum fixed charge coverage ratio, minimum net worth and annual
limitations on capital expenditures.
7. INCOME TAXES
The provision for income taxes represents amounts owed in states and other
jurisdictions that did not recognize S Corporation status. For the years ended
December 31, 1995, 1996 and 1997 and the three months ended March 31, 1998, the
provision for income taxes reflects effective rates that differ from the
statutory Federal rate as a result of the effect of income taxed directly to
shareholders and the effect of state and local income taxes. The components of
the (provision for) benefit from income taxes consist of the following (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- ---------------------
1995 1996 1997 1997 1998
----- ----- ----- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current............................ $(111) $(124) $(136) $ 8 $64
Deferred........................... 5 2 12 2 (3)
----- ----- ----- --- ---
$(106) $(122) $(124) 10 61
===== ===== ===== === ===
</TABLE>
F-14
<PAGE> 77
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
The components of the Company's net deferred tax asset (liability) are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------ MARCH 31,
1996 1997 1998
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Allowance for doubtful accounts............................ $12 $24 $20
Accrued expenses........................................... 4 6 5
Other...................................................... (7) (9) (7)
--- --- ---
$ 9 $21 $18
=== === ===
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Senior Management Agreements
In March 1998, the Company entered into employment agreements with three
new executives. The agreements prescribe salary and bonus compensation and
provide for severance payments in certain circumstances. The agreements extend
to April 2001 with one year renewals thereafter. The agreements also contain
various non-compete and non-solicitation provisions.
Under the terms of the agreements, the Company sold an aggregate of 764,750
shares of common stock at a price of $0.75 per share and an aggregate of 425
shares of Convertible Preferred at a price of $1,000 per share to the three
executives in March 1998. All of the shares of Convertible Preferred are
"Non-Vesting Preferred Stock." Of the shares of common stock sold, 701,934
shares are "Vesting Stock" and 62,816 shares are "Non-Vesting Common Stock."
The Vesting Stock vests based upon both the passage of time and the
performance of the Company. Of the total Vesting Stock, 67 percent, or 467,956
shares, vest 20 percent immediately and the remaining 80 percent generally vests
ratably at 20 percent per year. The remaining 33 percent or 233,978 shares of
the Vesting Stock will become fully vested on April 1, 2005. Such vesting may be
accelerated based upon the performance of the Company (as defined). The
Non-Vesting Common Stock and the Non-Vesting Preferred Stock vested immediately
upon purchase.
In the event that an executive ceases to be employed by the Company, the
executive stock will be subject to repurchase by the Company. In the event of
termination, (i) the purchase price for each unvested share of common stock will
be the executive's original cost for such share, (ii) the purchase price for
each vested share of common stock will be the fair market value for such share,
provided, however that if the executive's employment is terminated for cause (as
defined), the purchase price will be the executive's original cost for such
share and (iii) the purchase price for each share of Convertible Preferred will
be the Liquidation Value of such share (Note 4) plus all accrued and unpaid
dividends thereon. If the Company does not elect to purchase all of the
executive stock pursuant to the repurchase option, the Investor shall be
entitled to exercise the repurchase option for the shares of any class of
executive stock the Company has not elected to purchase.
The agreements also provide that effective upon the closing of an IPO, the
Company shall grant the executives options to purchase an aggregate of 7.5
percent of the Company's common stock outstanding at the time of the IPO at an
exercise price equal to the IPO price. The options will vest in four equal
installments on each of the first four anniversary dates of the grants.
F-15
<PAGE> 78
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Consulting and Employment Agreements
In March 1998, the Company entered into a consulting agreement with the
former majority stockholder of the Company. The terms of the agreement provide
for a fixed level of compensation and the term of the agreement extends through
December 1999 and can be automatically extended for one month periods
thereafter. The agreement also includes a covenant not to compete for the longer
of four years or one year beyond the engagement of this individual as a
consultant.
In March 1998, the Company entered into employment agreements with two
individuals who are stockholders of the Company. The Company has also entered
into an employment agreement with the spouse of another stockholder. These
agreements generally extend for a term of four years with one year renewals. The
agreements prescribe salary and bonus compensation based upon the performance of
the Company and, in certain circumstances, provide for severance payments. The
agreements also contain various non-compete and non-solicitation provisions. The
Company has also agreed that, effective upon the closing of a qualified IPO (as
defined), the Company will grant options to two of the executives to purchase up
to an aggregate of $2.0 million worth of common stock at an exercise price per
share equal to the IPO price. Such options will generally vest in four equal
annual installments on the first four anniversaries of the date of grant.
Professional Services Agreement
In March 1998, the Company entered into a consulting agreement with an
affiliate of the Investor who will advise the Company on, among other things,
corporate strategy, acquisitions, and debt and equity financing. Upon
consummation of any debt or equity financing, the Company is required to pay a
fee equal to 1 percent of the amount raised by the Company in connection with
such financing. The term of the agreement extends to the earlier of the date
that the Investor owns less than 10 percent of the Company or the effective date
of a qualified IPO (as defined).
Leases
The Company leases its facilities, automobiles and certain equipment under
noncancellable operating leases. The following is a schedule by years of future
minimum rental payments, required under these leases expiring through 2002, as
of December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998........................... $ 777
1999........................... 661
2000........................... 491
2001........................... 402
2002........................... 20
------
Total..................... $2,351
======
</TABLE>
Total facilities rent expense for the years ended December 31, 1995, 1996
and 1997 and for the three months ended March 31, 1998 was approximately
$417,000, $423,000, $454,000 and $125,000, respectively.
Letters of Credit
As of December 31, 1997 and March 31, 1998, the Company had issued letters
of credit totaling $835,000 and $2.0 million, respectively, in favor of certain
vendors. Certificates of deposit of similar amount and maturity have been
pledged as collateral and are included in the accompanying balance sheet as
short-term investments.
F-16
<PAGE> 79
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Litigation
The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon the financial position or future
operating results of the Company, and adequate provision for any potential
losses has been made in the accompanying financial statements.
9. RELATED PARTY TRANSACTIONS
Loans receivable from/loans payable to shareholders are related to
borrowings from and advances to shareholders throughout the year. The loans
payable to shareholders bear no interest and were repaid in March 1998.
Shareholder/officer salary and bonus compensation totaled $3.8 million,
$4.8 million, $5.8 million, $790,000 and $170,000 for the years ended December
31, 1995, 1996 and 1997 and the three months ended March 31, 1997 and 1998,
respectively.
10. SUBSEQUENT ACQUISITIONS
Since March 1998, the Company has acquired Haddon Holidays, Inc.
("Haddon"), Classic Custom Vacations ("Classic") and Globetrotters, Inc.
("Globetrotters") and substantially all of the assets of MTI Vacations, Inc.
("MTI"). Each of these acquisitions was acquired principally for cash. The
Company financed these acquisitions with proceeds from the issuance of
additional shares of Convertible Preferred and common stock and from borrowings
under the credit agreement. The acquisition of each of these business has been
accounted for as a purchase for financial reporting purposes. The Company
allocated the excess of the purchase price over the fair value of net tangible
assets acquired primarily to goodwill. The Company will amortize amounts
allocated to goodwill over 35 years for financial reporting purposes.
Haddon
On March 30, 1998, the Company purchased all of the outstanding capital
stock of Haddon, a packaged vacation provider that historically has provided
air, hotel and ground transportation packages for travelers to Hawaii. The
Company paid a purchase price of $7.7 million, of which $7.0 million was paid in
cash, and the remainder took the form of 66,500 shares of common stock, valued
at $10 per share, and 450 shares of Convertible Preferred, valued at $1,000 per
share. In addition, the Company incurred direct acquisition costs of
approximately $260,000. The Company financed the cash purchase price and the
direct acquisition costs with $4.9 million in proceeds from the issuance of
common stock and Convertible Preferred, and $2.4 million in borrowings under the
credit agreement.
This transaction has been accounted for as a purchase. The purchase price
has been allocated on a preliminary basis as follows (in thousands):
<TABLE>
<S> <C>
Cash and investments........................................ $ 3,475
Accounts receivable......................................... 428
Fixed assets and other assets............................... 703
Goodwill.................................................... 9,463
Liabilities assumed and direct acquisition costs............ (6,359)
-------
Total............................................. $ 7,710
=======
</TABLE>
F-17
<PAGE> 80
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SUBSEQUENT ACQUISITIONS -- (CONTINUED)
Classic
In April 1998, the Company purchased all of the outstanding capital stock
of Classic Vacations, a packaged vacation provider. The Company paid a purchase
price of $17.1 million, all of which was paid in cash. In addition, the Company
incurred direct acquisition costs of approximately $1.4 million. The Company
financed the cash purchase price and the direct acquisition costs with proceeds
from the issuance of $6.7 million of Convertible Preferred and $13.1 million in
borrowings under the credit agreement. The proceeds from this sale and borrowing
also provided approximately $1.3 million in working capital.
MTI
In May 1998, the Company acquired substantially all of the assets of MTI, a
packaged vacation provider that (i) provides vacation packages for travelers to
Hawaii (ii) provides packages for Amtrak-sponsored vacations (iii) operates the
reservation system associated with packaged vacations sponsored by Hyatt and
(iv) provides Internet and credit card reward fulfillment programs. The Company
paid a purchase price of $26.4 million, of which $24.0 million was paid in cash,
and the remainder took the form of 319,200 shares of common stock, valued at $10
per share, and 2,160 shares of Convertible Preferred, valued at $1,000 per
share. In addition, the Company incurred direct acquisition costs of
approximately $820,000. The Company financed the cash purchase price and direct
acquisition costs with proceeds from the issuance of $15.5 million of
Convertible Preferred and $11.1 million in borrowings under the credit
agreement. The proceeds from this sale and borrowing also provided approximately
$1.8 million in working capital.
The Company entered into an agreement with a former affiliate of MTI,
whereby the affiliate will provide the Company with management information
system ("MIS") support relating to MTI's computer reservation system and related
functions.
Globetrotters
In May 1998, the Company purchased all of the outstanding capital stock of
Globetrotters, a packaged vacation provider that historically has provided
vacation packages, primarily for the Florida, Mexico and Caribbean markets. The
Company paid a purchase price of $5.4 million, of which $3.4 million was paid in
cash, with the remaining $2.0 million paid through the forgiveness of
related-party debt. In addition, the Company incurred direct acquisition costs
of approximately $415,000. The Company financed the cash purchase price and the
direct acquisition costs with proceeds from the issuance of $551,000 of
Convertible Preferred, $1.9 million in borrowings under the credit agreement and
$1.3 million from working capital.
F-18
<PAGE> 81
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Classic Custom Vacations:
We have audited the accompanying consolidated balance sheet of Classic
Custom Vacations (a California corporation) as of December 31, 1997 and the
related consolidated statements of operations, changes in shareholders' equity
(deficit) and cash flows for the year 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Classic Custom Vacations as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Jose, California
May 14, 1998
F-19
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Classic Custom Vacations:
We have audited the accompanying balance sheet of Classic Custom Vacations
as of December 31, 1996 and the related statements of operations, changes in
shareholders' equity (deficit) and cash flows for the year 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 audits.
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 accompanying financial statements present fairly, in
all material respects, the financial position of Classic Custom Vacations at
December 31, 1996 and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
May 21, 1997
F-20
<PAGE> 83
CLASSIC CUSTOM VACATIONS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 3,687 $ 9,245 $16,203
Accounts receivable.................................... 2,262 1,747 2,126
Short-term and current maturities of investments....... 2,325 3,392 3,037
Prepaid expenses and other current assets.............. 2,135 3,780 3,997
------- ------- -------
Total current assets ............................. 10,409 18,164 25,363
Investments, net of current maturities...................... 19,711 25,600 24,423
Notes receivable from shareholders.......................... 735 765 781
Property and equipment, net................................. 3,156 3,173 3,101
Other assets, net........................................... 138 118 113
------- ------- -------
Total assets...................................... $34,149 $47,820 $53,781
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft ........................................ $ 1,762 $ 2,125 $ 2,743
Accounts payable....................................... 10,578 11,209 11,619
Accrued liabilities.................................... 2,087 2,779 1,949
Deferred revenues...................................... 14,121 19,501 25,123
Current portion of long-term debt...................... 100 -- --
Deferred income taxes.................................. 25 25 25
------- ------- -------
Total current liabilities......................... 28,673 35,639 41,459
------- ------- -------
Long-term debt, net of current portion...................... 5,906 11,676 11,596
------- ------- -------
Commitments and contingencies (Note 10)
Shareholders' equity (deficit):
Common stock, no par value; authorized shares: 100,000,
100,004 and 100,004, respectively; shares issued and
outstanding: 86,028, 86,032 and 86,032,
respectively......................................... 1,955 1,955 1,955
Notes receivable from shareholders..................... (250) (250) (250)
Accumulated deficit.................................... (2,135) (1,200) (979)
------- ------- -------
Total shareholders' (deficit) equity.............. (430) 505 726
------- ------- -------
Total liabilities and shareholders' (deficit)
equity.......................................... $34,149 $47,820 $53,781
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE> 84
CLASSIC CUSTOM VACATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------ --------------------
1996 1997 1997 1998
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues..................................... $38,394 $42,870 $ 9,305 $10,681
Operating expenses............................... 34,677 38,154 8,470 10,030
------- ------- ------- -------
Gross profit................................ 3,717 4,716 835 651
------- ------- ------- -------
General and administrative expenses.............. 3,392 4,449 848 929
Depreciation and amortization.................... 760 1,020 225 271
Settlement agreement legal expense............... -- 1,184 231 20
------- ------- ------- -------
Income (loss) from operations............... (435) (1,937) (469) (569)
------- ------- ------- -------
Other income (expense):
Interest income............................. 2,557 3,225 618 898
Interest expense............................ (333) (440) (66) (99)
Other....................................... 148 137 165 (4)
------- ------- ------- -------
Total.................................. 2,372 2,922 717 795
------- ------- ------- -------
Income before provision for income taxes......... 1,937 985 248 226
Provision for income taxes....................... (18) (50) (5) (5)
------- ------- ------- -------
Net income.................................. $ 1,919 $ 935 $ 243 $ 221
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE> 85
CLASSIC CUSTOM VACATIONS
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK NOTES SHAREHOLDERS'
--------------- RECEIVABLE FROM ACCUMULATED EQUITY
SHARES AMOUNT SHAREHOLDERS DEFICIT (DEFICIT)
------ ------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............. 57,352 $1,705 $ -- $(4,054) $(2,349)
Issuance of shares................ 28,676 250 (250) -- --
Net income........................ -- -- -- 1,919 1,919
------ ------ ----- ------- -------
Balance, December 31, 1996............. 86,028 1,955 (250) (2,135) (430)
Issuance of shares................ 4 -- -- -- --
Net income........................ -- -- -- 935 935
------ ------ ----- ------- -------
Balance, December 31, 1997............. 86,032 $1,955 (250) (1,200) 505
Net income (unaudited)............ -- -- -- 221 221
------ ------ ----- ------- -------
Balance, March 31, 1998 (unaudited).... 86,032 $1,955 $(250) $ (979) $ 726
====== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 86
CLASSIC CUSTOM VACATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- -------------------
1996 1997 1997 1998
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 1,919 $ 935 $ 243 $ 221
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............... 760 1,020 225 271
Unrealized loss on investments.............. 150 -- -- --
Changes in assets and liabilities:
Accounts receivable....................... (1,095) 485 (489) (395)
Prepaid expenses and other assets......... 1,552 (1,647) (4,126) (215)
Accounts payable.......................... 2,203 631 33 410
Accrued liabilities....................... (667) 693 (229) (831)
Deferred revenues......................... 1,128 5,380 8,370 5,622
------- ------- ------- -------
Net cash provided by operating
activities........................... 5,950 7,497 4,027 5,083
------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment.............. (2,052) (1,020) (229) (199)
Purchases of investments......................... (11,051) (15,907) (2,990) (320)
Proceeds from maturities and scheduled payments
of investments ................................ 2,024 7,335 1,325 1,694
Issuance of notes receivable from shareholders... (588) -- -- --
Redemption of notes receivable from
shareholders................................... 15 -- --
Other assets..................................... (28) 4 8 4
------- ------- ------- -------
Net cash provided by (used in)
investing activities................. (11,680) (9,588) (1,886) 1,179
------- ------- ------- -------
Cash flows from financing activities:
Bank overdraft................................... 30 363 291 618
Repayment of long term debt...................... -- -- (25) --
Borrowings on long-term debt, net................ 1,986 6,208 -- 31
------- ------- ------- -------
Net cash provided by financing
activities........................... 2,016 6,571 266 649
------- ------- ------- -------
Effects of exchange rate change on cash............... (196) 1,078 386 47
------- ------- ------- -------
Net (decrease) increase in cash and equivalents....... (3,910) 5,558 2,793 6,958
Cash and cash equivalents, beginning of period........ 7,597 3,687 3,687 9,245
------- ------- ------- -------
Cash and cash equivalents, end of period.............. $ 3,687 $ 9,245 $ 6,480 $16,203
======= ======= ======= =======
Supplemental disclosure of cash flow information:
Interest.................................... $ 221 $ 469 $ 2 $ 99
------- ------- ------- -------
Income taxes................................ $ 247 $ 50 $ 6 $ --
======= ======= ======= =======
Supplemental schedule of noncash financing activity:
Issuance of common stock for notes
receivable from shareholders.............. $ 250 $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 87
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND MARCH 31, 1998 IS UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Classic Custom Vacations (the "Company") was incorporated in California in
February 1984. The Company is in the travel business offering customized
vacations to Hawaii, North America and certain European destinations. The
Company sells exclusively through travel agents.
Unaudited Interim Financial Data
The unaudited interim financial statements as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998 have been prepared on the same basis
as the audited financial statements and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles. The data disclosed in the notes to the
consolidated financial statements for these periods is unaudited. The Company's
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for any future period.
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, liabilities, revenues
and expenses as of the dates and for the periods presented. Actual results could
differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and equivalents,
accounts receivable and investments. Risks associated with cash are mitigated by
banking with creditworthy institutions. Risks associated with accounts
receivable are mitigated by the Company's ability to offset the majority of its
receivables which are due from the Company's vendors against amounts due to
those vendors. See Note 2 for risks associated with investments.
Investments
The Company classifies its investments as "held-to-maturity," and they are
measured at amortized cost based on the Company's intent and ability to hold the
investments to maturity. Any gains and losses on sales of investments are
computed on a specific identification basis. Investments are classified as
current and long-term based on contractual maturities.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist primarily of payments to
airlines for future air travel, which are recognized as expenses on the
departure.
F-25
<PAGE> 88
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years or the lease term, if shorter.
Long-Lived Assets
The Company evaluates the recoverability of long-term assets on an ongoing
basis based on undiscounted future cash flows.
Revenue Recognition
The Company recognizes revenue from the sale of travel components (hotel,
air, car) upon departure. Prepayments from customers are classified as deferred
revenues and are recognized as revenue upon the customer's departure. For the
years ended December 31, 1996 and 1997, and for the three months ended March 31,
1997 and 1998, net revenues are derived from the sale of travel products and
services with a value of approximately $153.8 million, $169.3 million, $35.9
million and $42.8 million, net of approximately $115.4 million, $126.4 million,
$26.7 million and $32.1 million in direct costs from suppliers, respectively.
Operating Expenses
Operating expenses include travel agent commissions and credit card fees,
together with salaries and expenses for reservations, sales, marketing, and
operational support personnel.
Settlement Agreement Legal Expense
Settlement agreement legal expense comprises the costs incurred by the
Company as a result of the matters discussed in Note 14 relating to the
settlement agreement.
Income Taxes
Deferred income tax liabilities are recognized for future taxable amounts
and deferred income tax assets are recognized for future deductions, net of a
valuation allowance, to reduce deferred tax assets to amounts that are more
likely than not to be realized. Effective January 1, 1996, the Company elected
to be taxed as a Subchapter S Corporation for both Federal and California income
tax purposes and, accordingly, the income of the Company is included in the
individual tax returns of the shareholders. Subchapter S Corporation status is
subject to certain perpetual qualifications. In the event that the Company no
longer complies with such qualifications, the Company would be subject to
corporate level taxation. See Note 15.
Foreign Currency
Gains and losses resulting from foreign currency transactions are included
in the accompanying consolidated statements of operations.
Derivative Financial Instruments
In the ordinary course of business, the Company uses derivative financial
instruments to offset exposures to foreign exchange and interest rate
fluctuation risks. It is the Company's policy not to engage in the use of
derivative financial instruments for speculative purposes. All foreign
currency-hedging transactions mature within one year and are used to hedge Swiss
Franc (CHF) and Danish Kroner (DKK) exposures.
F-26
<PAGE> 89
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Gains and losses on future and forward contracts, and sold options are
generally offset with gains and losses on the assets, liabilities and
transactions being hedged and, therefore, do not subject the Company to
additional risks from exchange and interest rate movements. The gain and losses
are included in other income on the accompanying consolidated statements of
operations. The discount or premium on forward contracts are included in other
income on the accompanying consolidated statements of operations and recognized
over the life of the forward contract.
Sold foreign exchange option contracts are carried at fair value and, as
such, are adjusted each balance sheet date for changes in exchange rates. Gains
and losses associated with these financial instruments are recorded in income.
Interest Rate Derivatives
The Company enters into interest rate futures in order to hedge the
adjustable interest rate on the Company's foreign bank borrowings.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 119, "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments,"
requires the Company to disclose the fair value of financial instruments for
which it is practicable to estimate fair value. Financial instruments included
in the Company's balance sheet for the periods presented consist of cash and
cash equivalents, investments, notes receivable from shareholders and long-term
debt. For cash and equivalents, the carrying amount is a reasonable estimate of
the fair value as the borrowings are at adjusted interest rates based on
fluctuations in market conditions. It is not practicable to estimate the fair
value of the notes receivable from shareholders due to the related party
relationship.
Consolidation
In December 1997, the Company formed two wholly-owned subsidiaries (the
"Subsidiaries"). All significant intercompany accounts and transactions between
the Company and the Subsidiaries have been eliminated in the accompanying
consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which is required to be adopted by the Company in its first quarter of
fiscal 1998. At that time, the Company will be required to disclose, in
financial statement format, all non-owner changes in equity. Such changes
include, for example, cumulative foreign currency translation adjustments,
certain minimum pension liabilities and unrealized gains and losses on
available-for-sale securities. The Company has studied the implications of SFAS
130 and, based on its initial evaluation, does not expect it to have a material
impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which establishes standards
for reporting information about operating segments in annual financial
statements and interim financial reports. It also establishes standards for
related disclosures about products and services,
F-27
<PAGE> 90
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
geographic areas and major customers. As defined in SFAS 131, operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision-maker in
deciding how to allocate resources and in assessing performance. Generally,
financial information is required to be reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company will adopt SFAS 131 in fiscal 1998.
2. INVESTMENTS
The Company's investments are for purposes other than trading and consist
of:
- Certificates of Deposit. Certificates of deposit are made with
various financial institutions in the U.S. with original maturities
generally from 30 to 360 days. All of the Company's certificates of
deposit are held to secure terms with various vendors and to
collateralize U.S. bank borrowings (see Note 7).
- Domestic Mortgages. Domestic mortgages consist of first, second
and third mortgages on various properties primarily in Southern
California and Nevada, including land, single and multi-family
dwellings, and commercial property. Interest payments are due
monthly at rates ranging from 8.0% to 14.0%. Principal payments are
due upon maturity, which range from one to five years and include
an option to extend the loan with the consent of both parties.
- Foreign Mortgages. Foreign mortgages consist of second mortgages
on single family dwellings in Denmark. Principal and interest
payments are due quarterly, and the loan terms range from
maturities of generally 6 to 25 years. The mortgages bear interest
at rates ranging from 7.3% to 14.1%. All foreign mortgages serve as
collateral for foreign bank borrowings (see Note 7).
Investments, at amortized cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Certificates of deposit............................... $ 1,500 $ 1,000 $ 1,000
Domestic mortgages.................................... 10,110 11,156 10,195
Foreign mortgages..................................... 10,426 16,836 16,265
------- ------- -------
Total investments..................................... 22,036 28,992 27,460
Current maturities.................................... (2,325) (3,392) (3,037)
------- ------- -------
$19,711 $25,600 $24,423
======= ======= =======
</TABLE>
The estimated fair value of the domestic mortgages approximates their cost. The
estimated fair value of foreign mortgages was $11.7 million and $17.9 million
and $16.6 million at December 31, 1996 and 1997 and March 31, 1998,
respectively.
At December 31, 1996 and 1997 and March 31, 1998, 23%, 22% and 18%,
respectively, of the Company's mortgage portfolio consisted of domestic
mortgages with two borrowers.
F-28
<PAGE> 91
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENTS -- (CONTINUED)
The amortized cost of investments by contractual maturities is as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
DUE AFTER DUE AFTER
ONE YEAR FIVE YEARS DUE AFTER
DUE IN ONE THROUGH THROUGH TEN
YEAR OR LESS FIVE YEARS TEN YEARS YEARS
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Certificates of Deposit..................... $1,000 $ -- $ -- $ --
Domestic mortgages.......................... 2,392 8,764 -- --
Foreign mortgages........................... -- -- 156 16,680
------ ------ ---- -------
Total investments........................... $3,392 $8,764 $156 $16,680
====== ====== ==== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
--------------------------------------------------
DUE AFTER DUE AFTER
ONE YEAR FIVE YEARS DUE AFTER
DUE IN ONE THROUGH THROUGH TEN
YEAR OR LESS FIVE YEARS TEN YEARS YEARS
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
Certificates of Deposit..................... $1,000 $ -- $ -- $ --
Domestic mortgages.......................... 2,037 8,158 -- --
Foreign mortgages........................... -- -- 289 15,976
------ ------ ---- -------
Total investments........................... $3,037 $8,158 $289 $15,976
====== ====== ==== =======
</TABLE>
The Company did not sell any investments during the years ended December
31, 1996 and 1997 or during the three months ended March 31, 1998.
In December 1997, certain domestic mortgages, valued at approximately $4.3
million, and foreign mortgages, valued at approximately $1.4 million, net of
borrowings, (see Notes 2 and 7) were transferred by the Company to the
Subsidiaries.
Interest Rate Futures and Foreign Currency Instruments
The table below shows the contract amount and credit risk amounts of the
Company's interest rate futures and foreign currency instruments in U.S. dollar
equivalents. The unrealized gain (loss) represents the Company's gross exposure
to potential gains or losses on these transactions, based on then-current
interest rates and currency exchange rates at each respective date. The
Company's exposure to credit loss and market risk will vary over time as a
function of interest rates and currency exchange rates.
The table below does not reflect the gains or losses associated with the
exposures and transactions that the foreign exchange and interest rate
instruments are intended to hedge (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
---------------------- ---------------------- ----------------------
CONTRACT UNREALIZED CONTRACT UNREALIZED CONTRACT UNREALIZED
AMOUNT GAIN (LOSS) AMOUNT GAIN AMOUNT GAIN (LOSS)
-------- ----------- -------- ----------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts:
Futures.............. $5,972 $ (1) $ -- $ -- $9,550 $ (5)
Foreign currency
contracts:
Forward contracts.... 4,600 120 6,300 182 6,300 153
Sold options......... 1,508 (253) -- -- -- --
</TABLE>
F-29
<PAGE> 92
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment.............................................. $ 4,739 $ 5,212 $ 5,459
Furniture and fixtures................................. 1,385 866 878
Leasehold improvements................................. 603 699 696
Projects in progress................................... 645 784 722
------- ------- -------
7,372 7,561 7,755
Accumulated depreciation and amortization.............. (4,216) (4,388) (4,654)
------- ------- -------
$ 3,156 $ 3,173 $ 3,101
======= ======= =======
</TABLE>
4. NOTES RECEIVABLE FROM SHAREHOLDERS
Notes receivable from shareholders consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MATURITY INTEREST -------------- MARCH 31,
SHAREHOLDER DATE RATE 1996 1997 1998
----------- ------------- -------- ----- ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A November 1999 Variable $ 176 $ 191 $ 195
B July 2002 8% 381 381 389
C July 2002 8% 237 256 260
D July 2002 Variable 191 187 187
----- ------ ------
985 1,015 1,031
Amount classified within shareholders' equity
(deficit) (250) (250) (250)
----- ------ ------
$ 735 $ 765 $ 781
===== ====== ======
</TABLE>
The variable interest rate is defined as Bank of America's prime rate
(8.25% at December 31, 1996 and 1997 and 8.5% at March 31, 1998).
The note receivable from shareholder C is collateralized by 10% of the
shareholder's common stock in the Company. The remaining notes are unsecured.
5. OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equity investments............................. $ 57 $ 56 $ 56
Long-term deposits and other................... 85 82 82
---- ---- ----
142 138 138
Accumulated amortization....................... (4) (20) (25)
---- ---- ----
Other assets, net.............................. $138 $118 $113
==== ==== ====
</TABLE>
F-30
<PAGE> 93
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
------ ------ -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C>
Accrued compensation and related benefits... $1,372 $1,850 $ 903
Other....................................... 715 929 1,046
------ ------ ------
$2,087 $2,779 $1,949
====== ====== ======
</TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
------ ------- -----------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
<S> <C> <C> <C>
Foreign bank borrowings............................ $5,606 $11,676 $11,596
Note payable....................................... 400 -- --
------ ------- -------
Total.............................................. 6,006 11,676 11,596
Current portion of long-term debt.................. (100) -- --
------ ------- -------
Long-term debt, net of current portion............. $5,906 $11,676 $11,596
====== ======= =======
</TABLE>
The Company's foreign bank borrowings represent a multi-currency loan
facility with a borrowing limit of DKK 75.0 million (approximately US $11.0
million) with a bank in Denmark, due February 2, 2002. As a result of currency
fluctuations, at December 31, 1997, borrowings of Swiss francs under the DKK
loan facility exceeded the borrowing base (see Note 15). Interest is due
periodically (based upon the loan draw down date) at which time the interest
rate is adjusted to LIBOR (1.94% at December 31, 1997) plus 1.25%. Borrowings
under the facility are collateralized by substantially all of the foreign
mortgages (see Note 2). Current borrowings are denominated in Swiss francs (CHF
17.0 million), bear interest at rates ranging from 2.8% to 3.6%.
The note payable at December 31, 1996, represents an installment note due
to a domestic bank, payable in 48 monthly installments of $8,000 plus interest
at 6.15% and is secured by a $500,000 certificate of deposit (see Note 2).
At December 31, 1996, the Company had a $100,000 line of credit, due on
demand and bearing interest at the bank's prime rate (8.25% at December 31,
1996) secured by a $100,000 certificate of deposit with the same bank. The line
expired in 1997. Separately, during 1997, the Company entered into a $1.0
million line of credit with the same bank due on demand and bearing interest at
the bank's prime rate (8.25% at December 31, 1997). The line was collateralized
by certain of the Company's assets and no amount was outstanding at December 31,
1997. The line was cancelled in April 1998.
8. INCOME TAXES
The income tax provision for the years ended December 31, 1996 and 1997 and
for the three months ended March 31, 1997 and 1998 consists of currently payable
state franchise taxes of $18,000, $50,000, $5,000 and $5,000, respectively.
F-31
<PAGE> 94
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. INCOME TAXES -- (CONTINUED)
Deferred income taxes reflect the impact of the temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Deferred income taxes
result principally from depreciation and amortization and other expenses
recognized for financial reporting purposes that are not deductible for income
tax purposes until future years. At December 31, 1996 and 1997 and at March 31,
1998, the Company had a net deferred tax liability of $25,000.
Effective January 1, 1996, the Company elected to be taxed as a Subchapter
S Corporation for both federal and California income tax purposes and,
accordingly, the income of the Company is included in the individual tax returns
of the shareholders. The Company is subject to a California income tax of 1.5%
in addition to the taxes required from its shareholders. To the extent that the
Company makes any disposition of assets subject to the S Corporation "built-in
gains" tax within 10 years from January 1, 1996, any disposition gain would be
taxed at the corporate tax rate in effect at the date of such disposition.
"Built-in gains" are the net appreciation of assets arising prior to the
Company's election to be taxed as an S Corporation. See Note 15.
9. STOCK PURCHASE AGREEMENT
During 1996, two individuals purchased 25,808 shares of common stock
pursuant to an agreement dated August 28, 1992. In connection with the stock
issuance, the Company issued notes receivable totaling $250,000.
10. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under various
operating leases expiring through January 2002. Under the terms of the
facilities lease, the Company is required to pay property taxes, insurance and
maintenance costs.
Future minimum annual payments under operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
1998............................................ $ 628
1999............................................ 576
2000............................................ 110
2001............................................ 16
2002............................................ 12
------
Total minimum lease payments.................... $1,342
======
</TABLE>
Rent expense under operating leases was $518,000, $570,000, $142,000 and
$157,000 for 1996 and 1997, and the three months ended March 31, 1997 and 1998,
respectively.
During 1997, the Company had volume purchase commitments with a
long-distance telephone carrier that were not achieved. The Company is currently
negotiating with the carrier to restructure the agreement. In the event that
such negotiations are unsuccessful, the Company may be subject to certain claims
by the carrier.
11. RELATED PARTY TRANSACTIONS
The Company holds a domestic mortgage of $1.2 million from a shareholder of
the Company. The mortgage is secured by real property and bears interest at 8%
due monthly. The note is due on November 15, 1999 (see Note 15).
F-32
<PAGE> 95
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Company holds a mortgage of $175,000 from a consultant to the Company.
The mortgage is secured by real property in Denmark and bears interest at 10%
due monthly. The note is due in December 1999 and is classified as a domestic
mortgage.
In July 1996, the Company entered into separate five-year employment
agreements (the "Employment Agreements") with two of its officers who are also
shareholders. The respective Employment Agreements each provide for (i) annual
base compensation of $250,000, (ii) incentive compensation of 10% percent of net
profit, as defined, and (iii) compensation of $1.0 million in the event of a
change in control, as defined (see Note 15).
During 1995, the Company made an equity investment of approximately
$147,000 in a public company of which a shareholder of the Company was an
officer. During 1996, the investment was written down by $146,000, included in
other income, net, in the accompanying consolidated financial statements, due to
a decline in market value, and was fully written off in 1997.
12. PROFIT-SHARING PLAN
The Company adopted a 401(k) Savings and Investment Plan (the "Plan")
effective January 1, 1995. All employees completing six months of service are
eligible to participate in the Plan subject to certain restrictions.
Profit-sharing contributions by the Company are determined at the discretion of
the Board of Directors. The Company contributed $34,000, $41,000, $9,600 and
$12,000 to the Plan during the years ended December 31, 1996 and 1997 and during
the three-month periods ended March 31, 1997 and 1998, respectively.
13. MARKET CONCENTRATIONS, MAJOR CUSTOMERS AND VENDORS
The Company operates in one market segment: sales of flexible itinerary
travel. In 1996, 1997 and the three-month periods ended March 31, 1997 and 1998,
net revenues for travel to and from Hawaii totaled $36.2 million, $40.6 million,
$8.9 million and $10.2 million, respectively, or 94%, 95%, 97% and 96%,
respectively, of total net revenues.
The following customers accounted for 10% or more of net revenues in the
period indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- ---------------------
1996 1997 1997 1998
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Customer A................................. 16.6% 17.2% 18.7% 15.8%
Customer B................................. * 12.1% 10.3% 11.8%
</TABLE>
--------------------
* Less than 10%
During 1996 and 1997 and the three months ended March 31, 1997 and 1998,
one vendor accounted for 19.5%, 21.2%, 16.8% and 19.1%, respectively, of total
cost of goods sold.
14. SETTLEMENT AGREEMENT
Effective June 18, 1997, the Company's shareholders entered into an
agreement (the "Settlement Agreement") providing for the settlement of
litigation among the shareholders without consideration being paid to or by any
shareholder. Legal and other fees relating to the matters addressed by the
Settlement Agreement amounted to approximately $1.7 million in 1997 including
$1.2 million of legal fees reflected on
F-33
<PAGE> 96
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SETTLEMENT AGREEMENT -- (CONTINUED)
the accompanying consolidated statement of operations. Additionally, the
Settlement Agreement provided for, among other things, the following:
Articles of Incorporation
The Settlement Agreement provided for amendment of the Company's articles
of incorporation to (i) increase the number of authorized directors of the
Company to 5 and (ii) create a two-class capital structure consisting of 100,000
Class A Common Shares (the "Class A Shares") and 4 Class B Common Shares (the
"Class B Shares"). The Class A Shares replaced the then outstanding shares of
the Company's common stock. The Class B Shares were issued at $1 per share. In
addition to having the same rights as the Class A Shares, approval of 75 percent
of the Class B Shares is required to (i) effect further amendments to the
articles of incorporation, (ii) approve the issuance of additional Class A
Shares and (iii) remove any director appointed as the fifth director, as
defined.
Consulting Agreements
The Settlement Agreement also provided that the Company would enter into
separate consulting agreements (the "Consulting Agreements") with three of the
shareholders for the period from January 1, 1997 through the earlier of the sale
of the Company or December 31, 1999. In the event that services are rendered
under all of the Consulting Agreements, then aggregate fees relating thereto
would amount to approximately $42,000 per month. Fees paid under the Consulting
Agreements amounted to approximately $504,000 during 1997 and $208,000 during
the three months ended March 31, 1998, reflected in general and administrative
on the accompanying statements of operations.
Employment Agreements
The Settlement Agreement modified the Employment Agreements referred to in
Note 11 to provide for special bonuses in the annual amounts of $250,000 and
$83,333, respectively, to the two shareholders during both 1998 and 1999, except
that the Company's obligation to pay such amounts terminates upon the sale of
the Company, with pro rata payment made through the date of any such sale.
Additionally, the Settlement Agreement further amended the calculation of
incentive compensation under the Employment Agreements to exclude legal and
certain other expenses relating to the matters addressed by the Settlement
Agreement from the expenses of the Company included in such compensation
calculations. Also, the Settlement Agreement provided that the compensation to
be paid to these individuals in the event of a change in control, as defined,
was amended to be $1.0 million to each.
Commitment to Sale
The Settlement Agreement also provided that the parties use their best
efforts to sell the Company by December 31, 1997 (see Note 15).
15. SUBSEQUENT EVENTS
On April 20, 1998, all of the outstanding shares of the Company were
acquired (the "Acquisition") by Global Vacation Group, Inc., a New York
corporation ("GVG") for $15.1 million, including $625,000 deposited in escrow
pursuant to certain indemnity provisions. Certain of the shareholders sold their
shares for $9.3 million in cash, while others exchanged their shares in the
Company for all of the outstanding shares of the Subsidiaries (see Note 2)
valued at $5.8 million. The Acquisition is subject to certain regulatory
consents and approvals.
F-34
<PAGE> 97
CLASSIC CUSTOM VACATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENTS -- (CONTINUED)
Concurrent with the closing of the Acquisition, (i) all of the shareholder
notes receivable and accrued interest (see Note 4) were paid in full and (ii)
the Company sold the remaining portion of its mortgage investments not held by
the Subsidiaries, together with the associated debt and all foreign currency
contracts (see Notes 2 and 7), to Master Capital Company, a California general
partnership ("Master"). One of the Company's former shareholders is a partner in
Master. These mortgage investments were sold at net book value at April 20,
1998, less a discount of $500,000. The Company received cash proceeds and a note
receivable (the "Master Note"). The Master Note has outstanding principal at
April 20, 1998 of $5.5 million bearing interest at 9% per annum and providing
for $3.0 million of principal payments during 1998, with the balance, $2.5
million, due April 15, 2000. Interest on the Master Note is payable in four
installments from May 15, 1998 to August 15, 1998 and, thereafter, is payable
quarterly until maturity.
The remaining $2.0 million change in control payments referred to in Note
14 were paid upon closure of the Acquisition.
As a result of the Acquisition of its shares by GVG, the Company will
convert to C Corporation status for income tax reporting purposes in 1998.
F-35
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
MTI Vacations, Inc.
We have audited the accompanying balance sheets of MTI Vacations (as
described in Note 1) as of December 31, 1996 and 1997 and the related statements
of income (loss), changes in owners' deficit and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of MTI Vacations 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 audits 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 MTI Vacations as of December
31, 1996 and 1997, and the results of operations and cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND LLP
Chicago, Illinois
March 27, 1998, except for Notes 1 and 10, as to which the date is May 1, 1998.
F-36
<PAGE> 99
MTI VACATIONS
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997 AND UNAUDITED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents:
Unrestricted...................................... $ 13 $ 13 $ 13
Restricted........................................ -- 1,344 8,427
Short-term investments -- restricted................... -- 500 500
Prepaid tour costs..................................... 2,371 2,083 2,853
Receivables............................................ 1,077 1,618 1,138
Due from employees..................................... 25 7 5
Other.................................................. 933 352 257
------- ------- -------
Total current assets......................... 4,419 5,917 13,193
------- ------- -------
FURNISHINGS AND EQUIPMENT, NET.............................. 2,073 1,600 1,561
OTHER ASSETS:
Long-term investments -- restricted.................... 11,527 9,608 9,295
Deposits............................................... 101 102 178
------- ------- -------
Total other assets........................... 11,628 9,710 9,473
------- ------- -------
Total assets............................ $18,120 $17,227 $24,227
======= ======= =======
LIABILITIES AND OWNERS' DEFICIT
CURRENT LIABILITIES:
Customer deposits...................................... $11,527 $11,452 $18,222
Accounts payable....................................... 5,305 6,618 6,562
Accrued expenses....................................... 2,483 2,532 1,918
Deferred marketing revenue............................. -- 123 400
------- ------- -------
Total current liabilities.................... 19,315 20,725 27,102
------- ------- -------
COMMITMENTS (See Note 6)
OWNERS' DEFICIT:
Unrealized holding gains............................... 68 198 182
Owners' investment..................................... (1,263) (3,696) (3,057)
------- ------- -------
Total owners' deficit........................ (1,195) (3,498) (2,875)
------- ------- -------
Total liabilities and owners' deficit... $18,120 $17,227 $24,227
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE> 100
MTI VACATIONS
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND FOR THE UNAUDITED THREE
MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues...................................... $25,655 $30,108 $29,194 $ 5,453 $5,899
Operating expenses................................ 22,405 26,458 25,782 6,298 5,717
------- ------- ------- ------- ------
Gross profit (loss)..................... 3,250 3,650 3,412 (845) 182
General and administrative expenses............... 2,292 2,715 1,643 382 893
Depreciation and amortization..................... 681 566 528 120 129
------- ------- ------- ------- ------
Income (loss) from operations........... 277 369 1,241 (1,347) (840)
Investment income................................. 1,072 985 1,086 249 304
------- ------- ------- ------- ------
Net income (loss)....................... $ 1,349 $ 1,354 $ 2,327 $(1,098) $ (536)
======= ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 101
MTI VACATIONS
STATEMENTS OF CHANGES IN OWNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND FOR THE UNAUDITED
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED HOLDING OWNERS'
GAINS/LOSSES INVESTMENT TOTAL
------------------ ------------- -------
<S> <C> <C> <C>
Balance at December 31, 1994............................ $(143) $(1,616) $(1,759)
Net income......................................... -- 1,349 1,349
Net change in owners' investment................... -- (2,633) (2,633)
Net change in unrealized holding gains/losses...... 134 -- 134
----- ------- -------
Balance at December 31, 1995............................ (9) (2,900) (2,909)
Net income......................................... -- 1,354 1,354
Net change in owners' investment................... -- 283 283
Net change in unrealized holding gains/losses...... 77 -- 77
----- ------- -------
Balance at December 31, 1996............................ 68 (1,263) (1,195)
Net income......................................... -- 2,327 2,327
Net change in owners' investment................... -- (4,760) (4,760)
Net change in unrealized holding gains/losses...... 130 -- 130
----- ------- -------
Balance at December 31, 1997............................ 198 (3,696) (3,498)
Net loss (unaudited)............................... -- (536) (536)
Net change in owners' investment (unaudited)....... -- 1,175 1,175
Net change in unrealized holding gains/losses
(unaudited)...................................... (16) -- (16)
----- ------- -------
Balance at March 31, 1998 (unaudited)................... $ 182 $(3,057) $(2,875)
===== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 102
MTI VACATIONS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE UNAUDITED THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ 1,349 $ 1,354 $ 2,327 $(1,098) $ (536)
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation and amortization... 681 566 528 120 129
Changes in assets and
liabilities:
Prepaid tour costs......... (2,014) 1,059 288 (916) (770)
Receivables................ 102 101 (541) 251 480
Other current assets....... (218) (179) 581 168 95
Deposits................... (77) (1) (1) -- (76)
Customer deposits.......... 4,169 249 (75) 7,121 6,770
Accounts payable........... 2,355 (1,627) 1,313 4,380 (56)
Accrued expenses........... 427 27 49 955 (614)
Deferred revenue........... -- -- 123 -- 277
------- ------- ------- ------- ------
Net cash provided from
operating
activities.......... 6,774 1,549 4,592 10,981 5,699
------- ------- ------- ------- ------
Cash flows from investing activities:
Capital expenditures, net of loss on
disposals.......................... (90) (1,690) (55) (15) (90)
(Increase) decrease in cash and cash
equivalents -- restricted.......... (503) 914 (1,344) (6,824) (7,083)
Collections on loans to employees.... -- 30 18 8 2
Loans to employees................... (14) -- -- -- --
Proceeds from maturities and sales of
investments........................ -- -- 1,549 -- 297
Purchases of investments............. (3,532) (1,086) -- (271) --
------- ------- ------- ------- ------
Net cash provided by
(used in) investing
activities.......... (4,139) (1,832) 168 (7,102) (6,874)
------- ------- ------- ------- ------
Cash flows from financing activities:
Net change in owners' investment..... (2,633) 283 (4,760) (3,879) 1,175
------- ------- ------- ------- ------
Net cash provided by
(used in) financing
activities.......... (2,633) 283 (4,760) (3,879) 1,175
------- ------- ------- ------- ------
Net increase in cash and cash
equivalents -- unrestricted............. 2 -- -- -- --
Cash and cash
equivalents -- unrestricted -- beginning
of period............................... 11 13 13 13 13
------- ------- ------- ------- ------
Cash and cash
equivalents -- unrestricted -- end of
period.................................. $ 13 $ 13 $ 13 $ 13 $ 13
======= ======= ======= ======= ======
Supplemental disclosure of cash flow
information:
Cash paid for interest............... $ 92 $ 142 $ 9 $ 9 $ --
======= ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 103
MTI VACATIONS
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998 AND FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION AND ORGANIZATION
Basis of Presentation
On May 1, 1998 Global Vacation Group, Inc. ("GVG") acquired certain assets
and liabilities of MTI Vacation, Inc. The accompanying financial statements
reflect the assets and liabilities acquired by GVG on a historical cost basis
for all periods presented, and are referred to as "MTI" or "MTI Vacations". The
assets and liabilities of MTI Vacations, Inc. excluded from the acquisition were
principally non operating assets and liabilities.
Organization
MTI provides a variety of services primarily to the travel industry. MTI
packages vacation tours which include air transportation, hotel accommodations
and ground transportation to selected destinations under its own MTI Vacations
brand. These vacation packages are sold predominantly through individual travel
agencies. Through 1996, MTI offered vacation packages to Florida, Las Vegas and
Hawaii. During 1997 MTI discontinued offering packages to Florida and Las Vegas
and continues to serve Hawaii exclusively. MTI also provides turnkey
reservations and travel package processing services to the travel industry
including a national hotel chain and a national rail company under their
respective brand names. In addition, MTI is a seller of optional sight-seeing
tours in the state of Hawaii.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
MTI considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents. For cash and cash equivalents, the
carrying amount on the balance sheets approximate the fair value of those
instruments.
Investments
Available for sale securities are reported at fair value with unrealized
gains and losses included in a separate component of owners' deficit. All
investments of MTI are considered available for sale.
Realized gains and losses on the sale of investments are computed on a
specific basis using the first-in, first-out method. Investments classified as
noncurrent assets reflect the ability and intent of MTI to postpone the
conversion of such assets into cash for at least one year.
Furnishings and Equipment
Furnishings and equipment are stated at cost. MTI provides for depreciation
and amortization using the straight-line method over the estimated useful lives
of the furnishings and equipment.
Recognition of Gross Profit from Tour Operations
Tour revenue and all associated direct tour expenses are recognized in the
month of a customer's departure. For the years ended December 31, 1995, 1996,
and 1997, net revenues consist of gross revenues of $117.2 million, $126.9
million, and $127.1 million, offset by direct tour expenses of $91.5 million,
$96.8 million, and $97.9 million. For the unaudited three month periods ended
March 31, 1997 and 1998, the net revenues consisted of gross revenues of $28.4
million and $25.5 million, offset by direct tour expenses of $22.9 million and
$19.6 million, respectively.
F-41
<PAGE> 104
MTI VACATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Income Taxes
MTI is not a tax paying entity and therefore the accompanying financial
statements do not reflect the impact of income taxes.
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 periods. Actual results could differ from those estimates.
Unaudited Interim Financial Data
The interim financial data relating to the three months ended March 31,
1997 and 1998 are unaudited; however, in the opinion of company's management,
the interim data includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the results for the interim
periods. The results for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the full year or any
other interim period.
3. RESTRICTED FUNDS
Under the Department of Transportation regulations governing public charter
operators, customer payments for future charter tours are deposited to an escrow
account. Under the tour contract between MTI and its customers for bulk fare
tours, the same practice must be followed. Prior to the departure of charter
tours, funds may be expended only for certain direct charter tour costs. The
balance of the escrow fund becomes available to MTI two days subsequent to the
completion of the tour. Customer deposits at December 31, 1997 represent future
bookings through December 1998.
F-42
<PAGE> 105
MTI VACATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS
The amortized cost and fair market value of available for sale securities
at December 31, 1996 and 1997 and March 31, 1998 (unaudited) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Mortgage backed securities....... $11,459 $114 $46 $11,527
------- ---- --- -------
Total securities............ $11,459 $114 $46 $11,527
======= ==== === =======
DECEMBER 31, 1997
----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
Available for sale:
Mortgage backed securities....... $ 7,376 $182 $ 3 $ 7,555
Municipal bonds and notes........ 2,534 19 -- 2,553
------- ---- --- -------
Total securities............ $ 9,910 $201 $ 3 $10,108
======= ==== === =======
MARCH 31, 1998
----------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
(UNAUDITED)
Available for sale:
Mortgage backed securities....... $ 6,882 $213 $ 3 $ 7,092
Municipal bonds and notes........ 2,731 14 42 2,703
------- ---- --- -------
Total securities............ $ 9,613 227 45 $ 9,795
======= ==== === =======
</TABLE>
MTI maintains investments to cover certain escrow requirements for customer
deposits and transfers investments to and from a related party as escrow
requirements change. These transfers are accounted for as contributions or
distributions in the owners' investment account. Gains and losses are treated as
unrealized in the financial statements until the investments are disposed of by
the related party or MTI. Upon disposal, realized gains or losses are included
in investment income. Realized gains and losses were immaterial in 1995, 1996,
1997 and the three months ended March 31, 1998.
The amortized cost and estimated fair value of available for sale
securities at December 31, 1996 and 1997 and at March 31, 1998, by contractual
maturity, are shown below. Expected maturities can differ from
F-43
<PAGE> 106
MTI VACATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENTS -- (CONTINUED)
contractual maturities since borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
-------------------- -------------------- --------------------
AVAILABLE FOR SALE AVAILABLE FOR SALE AVAILABLE FOR SALE
-------------------- -------------------- --------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- -------- --------- -------- --------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Maturities:
Within 1 year.................... $ -- $ -- $ 500 $ 500 $ 500 $ 500
1 to 5 years..................... -- -- 1,308 1,321 2,024 1,996
5 to 10 years.................... -- -- 726 732 207 207
Mortgage backed securities....... 11,459 11,527 7,376 7,555 6,882 7,092
------- ------- ------ ------- ------ ------
Total securities............ $11,459 $11,527 $9,910 $10,108 $9,613 $9,795
======= ======= ====== ======= ====== ======
</TABLE>
5. FURNISHINGS AND EQUIPMENT
Furnishings and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- --------------
1996 1997 1998
------- ------- --------------
(IN THOUSANDS) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment............................ $ 4,206 $ 3,958 $ 4,020
Phone equipment............................... 1,231 1,381 1,368
Furniture, fixtures and office................ 854 1,285 1,236
Computer software............................. 386 397 397
Building improvements and other............... 194 128 128
------- ------- -------
6,871 7,149 7,149
Less accumulated depreciation................. (4,798) (5,549) (5,588)
------- ------- -------
Net furnishings and equipment............ $ 2,073 $ 1,600 $ 1,561
======= ======= =======
</TABLE>
6. COMMITMENTS
Operating Leases
MTI leases various equipment and office space. In addition, MTI leases a
building from a related party under a 5 year arrangement with annual rentals of
$876,000. Minimum future rentals as of December 31, 1997 are approximately:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 961
1999........................................................ 917
2000........................................................ 876
2001........................................................ 876
2002 and thereafter......................................... --
------
$3,630
======
</TABLE>
Rental expense for 1995, 1996 and 1997 was $428,000, $729,000 and $1.2
million, respectively.
F-44
<PAGE> 107
MTI VACATIONS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS -- (CONTINUED)
Letters-of-Credit
MTI had outstanding standby letters-of-credit of approximately $829,000 at
both December 31, 1997 and March 31, 1998. These letters-of-credit have been
issued primarily to guarantee payment to vendors. These letters have fixed
expiration dates and are expected to expire without being drawn upon.
7. INCENTIVE SAVINGS PLANS
The incentive savings plan offered by MTI covers substantially all
employees with more than six months of service. Under the incentive savings
program, MTI will match 50% of the first 6% of compensation deferred by each
eligible employee. Total contributions to the incentive savings plans made by
MTI were $78,000, $201,000, and $158,000, for the years ended December 31, 1995,
1996 and 1997, respectively. Contributions to the profit-sharing program are
made at the discretion of the Board of Directors and were $100,000 for the year
ended December 31, 1995. Contributions of $51,000 and $36,000 were made for the
unaudited three-month periods ending March 31, 1997 and 1998.
8. TRANSACTIONS WITH RELATED PARTIES
MTI, through MTI Vacations, Inc., has an agreement with certain entities
related through common ownership, wherein cash can be invested or borrowed on a
daily basis. Pursuant to this agreement, total interest income from related
entities for 1995, 1996 and 1997 was $92,000, $124,000 and $271,000,
respectively. For the unaudited three-month periods ended March 31, 1997 and
1998, total interest income from related parties was $32,000 and $126,000,
respectively. Total interest expense to related parties was $185,000, $142,000
and $9,000 in 1995, 1996 and 1997, respectively. For the unaudited three-month
periods ended March 31, 1997 and 1998, total interest expense to related parties
was $9,000 and $0, respectively.
9. DISCONTINUED PRODUCT LINES (UNAUDITED)
During 1997, MTI discontinued selling vacation packages for the Florida and
Las Vegas markets. The following table represents the unaudited activity in 1997
pertaining to these markets as included in the accompanying MTI 1997 statement
of income.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Net revenues................................................ $ 2,217
Operating expenses.......................................... 3,147
-------
Gross profit...................................... (930)
General and administrative expenses......................... 293
Depreciation and amortization............................... 144
-------
Loss from operations.............................. (1,367)
Investment income........................................... 82
-------
Net loss.......................................... $(1,285)
=======
</TABLE>
10. SUBSEQUENT EVENT
On May 1, 1998, Global Vacation Group, Inc. purchased the operating assets
and liabilities of MTI pursuant to an Asset Purchase Agreement.
F-45
<PAGE> 108
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Haddon Holidays, Inc.:
We have audited the accompanying balance sheet of Haddon Holidays, Inc. (an
S Corporation, the "Company") as of December 31, 1997, and the related
statements of operations, changes in shareholders' equity(deficit), and cash
flows for the year 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Haddon Holidays, Inc. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
March 13, 1998
F-46
<PAGE> 109
HADDON HOLIDAYS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $1,715 $1,957
Marketable securities.................................. 1,500 1,518
Accounts receivable.................................... 335 428
Prepaid expenses....................................... 646 575
------ ------
Total current assets.............................. 4,196 4,478
------ ------
Property and equipment:
Furniture and equipment................................ 675 675
Leasehold improvements................................. 62 69
Less--accumulated depreciation......................... (433) (464)
------ ------
Net property and equipment........................ 304 280
------ ------
Cash surrender value of life insurance...................... 38 38
------ ------
Total assets...................................... $4,538 $4,796
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses.................. $2,196 $1,894
Customer deposits...................................... 2,230 3,454
------ ------
Total current liabilities......................... 4,426 5,348
------ ------
Commitments and contingencies (Note 3)
Shareholders' equity(deficit):
Common stock, no par value; 100 shares issued and
outstanding........................................... -- --
Retained earnings(deficit)............................. 80 (569)
Unrealized holding gain on marketable securities,
net................................................... 32 17
------ ------
Total shareholders' equity(deficit)............... 112 (552)
------ ------
Total liabilities and shareholders'
equity(deficit)................................. $4,538 $4,796
====== ======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-47
<PAGE> 110
HADDON HOLIDAYS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1997 1997 1998
------------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues.............................................. $7,138 $1,365 $1,427
Operating expenses........................................ 5,306 1,179 1,265
------ ------ ------
Gross profit......................................... 1,832 186 162
General and administrative expenses....................... 1,953 232 850
Depreciation and amortization............................. 95 23 31
------ ------ ------
Loss from operations................................. (216) (69) (719)
------ ------ ------
Other income (expense):
Interest income...................................... 351 80 70
Other expense........................................ (47) (12) --
------ ------ ------
Total other income (expense)......................... 304 68 70
------ ------ ------
Income (loss) before provision for income taxes........... 88 (1) (649)
Provision for income taxes................................ -- -- --
------ ------ ------
Net income (loss).................................... $ 88 $ (1) $ (649)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-48
<PAGE> 111
HADDON HOLIDAYS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON RETAINED HOLDING
STOCK EARNINGS GAIN, NET TOTAL
------ -------- ---------- -----
<S> <C> <C> <C> <C>
Balance, January 1, 1997.................................. $ -- $ 192 $ 63 $ 255
Net income........................................... -- 88 -- 88
Distributions to shareholders........................ -- (200) -- (200)
Unrealized holding loss.............................. -- -- (31) (31)
----- ----- ---- -----
Balance, December 31, 1997................................ -- 80 32 112
Net loss (unaudited)................................. -- (649) -- (649)
Unrealized holding loss (unaudited).................. -- -- (15) (15)
----- ----- ---- -----
Balance, March 31, 1998 (unaudited)....................... $ -- $(569) $ 17 $(552)
===== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE> 112
HADDON HOLIDAYS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, --------------------
1997 1997 1998
------------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 88 $ (1) $ (649)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization..................... 95 23 31
Realized loss on investment....................... 86 -- --
Net realized gains on marketable securities....... (116) -- (11)
Decrease (increase) in accounts receivable........ 112 190 (93)
(Increase) decrease in prepaid expenses........... (318) (75) 71
(Increase) decrease in cash surrender value of
life insurance.................................. (5) 1 --
Increase (decrease) in accounts payable and
accrued expenses................................ 628 311 (302)
Increase in customer deposits..................... 126 348 1,224
------ ------ ------
Net cash provided by operating activities.... 696 797 271
------ ------ ------
Cash flows from investing activities:
Purchase of property and equipment..................... (254) (83) (7)
Proceeds from sales of marketable securities........... 1,569 -- 11
Purchases of marketable securities..................... (710) (8) (33)
------ ------ ------
Net cash provided by (used in) investing
activities................................. 605 (91) (29)
------ ------ ------
Cash flows from financing activities:
Distributions to shareholders.......................... (200) -- --
------ ------ ------
Net cash used in financing activities........ (200) -- --
------ ------ ------
Net increase in cash and cash equivalents................... 1,101 706 242
Cash and cash equivalents, beginning of period.............. 614 614 1,715
------ ------ ------
Cash and cash equivalents, end of period.................... $1,715 $1,320 $1,957
====== ====== ======
Supplemental disclosures:
Realized loss on investment in Community Camera,
Inc.................................................. $ (86) $ -- $ --
====== ====== ======
Unrealized holding (loss) gain on marketable securities
available for sale................................... $ (31) $ 12 $ (15)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE> 113
HADDON HOLIDAYS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998
AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION
Haddon Holidays, Inc. (the "Company"), incorporated in New Jersey, was
formed on April 5, 1975. The Company was organized for the purpose of providing
the distribution of travel services to Hawaii. The Company's offices are
currently located in Mount Laurel, New Jersey.
As of December 31, 1997, the Company's ownership structure consisted of 100
shares of common stock, no par value, held by two individuals. These individuals
held 55 percent and 45 percent of the common stock of the Company, respectively.
2. SIGNIFICANT ACCOUNTING PRINCIPLES
Unaudited Interim Financial Statements
The accompanying balance sheet as of March 31, 1998 and the accompanying
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the three months ended March 31, 1997 and 1998 are unaudited. The
unaudited financial statements include all adjustments (consisting of normal
recurring adjustments), which are, in the opinion of management necessary for a
fair presentation of such financial statements. The data disclosed in the notes
to the financial statements for these periods is unaudited. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the entire fiscal year.
Revenue Recognition
The Company records net revenues when earned, which for all services
provided is the departure date of the customer. Net revenues consist primarily
of commissions and markups on travel services, volume bonuses from travel
service providers and cancellation fees. Cancellation fee revenue is recorded
when received. The Company has not recorded a reserve for cancellations, as any
previously recorded net revenue would be offset by the cancellation fees
received. For the year ended December 31, 1997, and the three months ended March
31, 1997 and 1998, net revenue is derived from the sale of travel products and
services with a value of approximately $28.3 million, $5.2 million and $5.8
million, respectively, net of approximately $21.2 million, $3.9 million and $4.4
million, respectively, in direct costs from suppliers.
Operating Expenses
Operating expenses include travel agent commissions, salaries,
communications, advertising, and other costs associated with the selling and
processing of travel reservations and services.
Customer Deposits
Customer deposits represent amounts received from customers for which net
revenues have not been earned and operating costs have not yet been remitted to
the related travel service vendor. Customer deposits are generally collected one
to two months prior to departure date.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
F-51
<PAGE> 114
HADDON HOLIDAYS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Furniture and equipment are
depreciated on a straight-line basis over their estimated useful lives, which
range from five to seven years. Leasehold improvements are depreciated on a
straight-line basis over the lesser of the estimated useful life or the term of
the lease.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the costs and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
Income Taxes
The Company has elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. Under those provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead, the shareholders
are liable for individual federal income taxes on their respective shares in
their individual income tax returns. The Company has also elected to be taxed as
a Subchapter S Corporation for New Jersey state purposes.
Marketable Securities
Marketable securities at December 31, 1997 and March 31, 1998 are
principally instruments of the U.S. government and its agencies, of state
governments, and of municipalities. The Company accounts for its marketable
securities under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Under SFAS 115, the Company classifies its debt and marketable
equity securities in one of three categories: trading, available-for-sale or
held-to-maturity. Trading securities are bought and held principally for the
purpose of selling them in the near term. Held-to-maturity securities are those
securities which the Company has the ability and intent to hold to maturity. All
other securities not included in trading or held-to-maturity are classified as
available-for-sale. In 1997 and 1998, the Company did not have any securities
classified as trading or held-to-maturity.
Under SFAS 115, available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities are
excluded form earnings and are reported as a separate component of stockholders'
equity until realized. Dividend and interest income are recognized when earned.
Realized gains and losses for securities classified as available-for-sale are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Accounts Receivable
As of December 31, 1997 and March 31, 1998, accounts receivable consist
primarily of credit card and co-op marketing receivables. Co-op marketing
receivables relate to the agreements that the Company has with various travel
service suppliers to be included in the Company's marketing plan. Income from
co-op marketing is recognized over the life of the marketing brochure (generally
one year) and is recorded as reduction of marketing expense in general and
administrative expense on the accompanying statements of operations. No reserve
for uncollectible accounts has been recorded because in the opinion of
management, all amounts reflected as accounts receivable on the accompanying
balance sheets are considered collectible.
F-52
<PAGE> 115
HADDON HOLIDAYS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING PRINCIPLES -- (CONTINUED)
Cash Surrender Value of Life Insurance
The Company currently holds a life insurance policy on one of its officers
with a face amount of $200,000. The cash surrender value of this policy at
December 31, 1997 and March 31, 1998 was $38,000 and is recorded as an asset on
the accompanying balance sheets.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are reflected in the financial statements
at cost, which approximates fair value. Marketable securities are reflected at
fair value.
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.
Concentrations of Risk
Travel Service Providers -- The Company markets and sells travel services
of global, national and local land and air service providers. One airline
accounted for approximately 30% of the Company's cost of sales in 1997.
Geographical -- All travel services sold in 1997 had Hawaii destinations.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS 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 adoption of SFAS 130 will
have no impact on the Company's results of operations, financial position or
cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about product and services, geographic areas, and major customers. SFAS 131 is
effective for financial statements beginning after December 15, 1997. Financial
statement disclosures for prior periods are required to be restated. The
adoption of SFAS 131 will have no impact on the Company's results of operations,
financial position or cash flow.
Reclassifications
Certain reclassifications have been made to the 1997 financial statements
to conform with the presentation for the three months ended March 31, 1997 and
1998.
F-53
<PAGE> 116
HADDON HOLIDAYS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS AND CONTINGENCIES
Pension Plan
The Company has a defined contribution voluntary savings plan for eligible
employees. This 401(k) plan is designed to enhance the existing retirement
programs of participating employees. The Company matches 25 percent of the
participants' contributions to the plan. Vesting of both employer and employee
contributions is immediate.
Letters of Credit
At December 31, 1997 and March 31, 1998, the Company had standby letters of
credit issued and outstanding totaling $1.2 million which primarily guarantee
various trade activities. The letters of credit are secured by marketable
securities having a fair value at December 31, 1997 and March 31, 1998 of $1.5
million. The Company recognizes losses on these commitments as incurred. No
material losses of these commitments have been incurred as of December 31, 1997
or March 31, 1998, nor are any anticipated.
Operating Leases
The Company leases its office facilities located in Mount Laurel, N.J. from
Brandywine Realty Trust, effective as of January 24, 1997. On April 14, 1997,
the Company agreed to an amendment of its current lease. Future minimum rental
payments on the office space and other operating leases as of December 31, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1998........................................................ $160
1999........................................................ 145
2000........................................................ 145
2001........................................................ 145
2002........................................................ 36
----
Total.................................................. $631
====
</TABLE>
Insurance
The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the year ended December 31, 1997
or the three months ended March 31, 1998.
4. MARKETABLE SECURITIES
At December 31, 1997 and March 31, 1998, the Company classified all
investments as available-for-sale. The amortized cost, gross unrealized holding
gains, gross unrealized holding losses and fair value of the
F-54
<PAGE> 117
HADDON HOLIDAYS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. MARKETABLE SECURITIES -- (CONTINUED)
available-for-sale securities by security type at December 31, 1997 and March
31, 1998, were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. government agencies.................. $1,051 $ 20 $ -- $1,071
Municipal obligations..................... 349 12 -- 361
Short term investments.................... 68 -- -- 68
------ ---- ---- ------
Total................................ $1,468 $ 32 $ -- $1,500
====== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. government agencies.................. $ 700 $ 13 $ -- $ 713
Municipal obligations..................... 355 4 -- 359
Short term investments.................... 446 -- -- 446
------ ---- ---- ------
Total................................ $1,501 $ 17 $ -- $1,518
====== ==== ==== ======
</TABLE>
In 1997 and the three months ended March 31, 1998, proceeds from sales of
marketable securities were $1.6 million and $11,000, respectively, and related
net realized gains, included in interest income, were $116,000 and $11,000,
respectively. There were not any sales of marketable securities in the three
months ended March 31, 1997.
5. INVESTMENT IN COMMUNITY CAMERA, INC.
At December 31, 1997 and March 31, 1998, the Company owned 132,394 shares
of common stock of Community Camera, Inc. ("CCI", trading as CCI Communications,
representing approximately 26 percent of the total common shares outstanding).
CCI is located in West Chester, PA and was incorporated in 1983 to provide video
production, non-linear editing, mobile production and multimedia services. Prior
to 1996, the Company accounted for its investment in CCI under the equity method
of accounting. During 1996, the Company wrote-off approximately $49,000 of its
investment in CCI, and wrote-off the remaining amount of $86,000 in 1997, as
management deemed the investment's value was unrealizable. This write-off is
included in general and administrative expense on the accompanying statements of
operations.
6. STOCKHOLDER COMPENSATION
As of December 31, 1997, the Company held employment agreements with the
two shareholders, which provided for annual salaries of approximately $540,000,
in the aggregate, with annual bonuses to be paid based on the operating
performance of the Company. These agreements were terminated effective March 30,
1998 as part of the acquisition of the Company (see Note 8). For the year ended
December 31, 1997 and the three months ended March 31, 1997 and 1998,
shareholder compensation in the amount of approximately $1.4 million, $135,000
and $135,000, respectively, was incurred (of which approximately $850,000 in
1997 represented bonuses in excess of salaries), and is recorded in general and
administrative expense on the accompanying statements of operations.
F-55
<PAGE> 118
HADDON HOLIDAYS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED-PARTY TRANSACTIONS
In 1997 and the three months ended March 31, 1998, the Company employed and
obtained consulting services from a small number of individuals related to the
shareholders at wages and consulting fees commensurate with their experience and
level of responsibility.
In 1997 and the three months ended March 31, 1998, the Company paid
approximately $50,000 and $10,000, respectively, on behalf of the shareholders
as related to car leases and life insurance.
8. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED)
On March 30, 1998, Global Vacation Group, Inc. ("GVG") purchased all of the
outstanding common stock of the Company for an aggregate purchase price of
approximately $7.5 million. GVG paid this purchase price with cash of
approximately $7.0 million, and shares of GVG common and preferred stock valued
at approximately $500,000. In connection with the transaction, the Company paid
bonuses of approximately $600,000 in March 1998 to certain key employees which
are included in general and administrative expense in the accompanying 1998
statement of operations.
F-56
<PAGE> 119
IN LIEU OF PRESENTING ARTWORK ON THIS PAGE, GLOBAL VACATION GROUP, INC., IS
MAKING A DONATION OF $25,000 TO THE NATIONAL ACADEMY FOUNDATION FOR USE IN ITS
TRAVEL AND TOURISM PROGRAM. THE UNDERWRITERS ALSO ARE MAKING A $25,000 DONATION.
THE NATIONAL ACADEMY FOUNDATION IS A NONPROFIT EDUCATIONAL ORGANIZATION THAT
CREATES PARTNERSHIPS BETWEEN BUSINESS AND PUBLIC SCHOOLS TO PREPARE HIGH SCHOOL
STUDENTS FOR THEIR FUTURE EDUCATION AND CAREERS. THESE PARTNERSHIPS FORM
EDUCATIONAL PROGRAMS IN FINANCE, TRAVEL AND TOURISM AND PUBLIC SERVICE THROUGH A
COMBINATION OF CLASSROOM INSTRUCTION AND PAID INTERNSHIPS. THE NATIONAL ACADEMY
FOUNDATION IS AT THE FOREFRONT OF THE SCHOOL-TO-WORK MOVEMENT AND EDUCATION
REFORM NATIONWIDE. ACADEMY PROGRAMS, LOCATED IN MORE THAN 230 SCHOOLS IN 31
STATES, SERVE THE NEEDS OF STUDENTS WHO MAY OTHERWISE LACK THE NECESSARY SKILLS
AND EXPERIENCE TO PURSUE THEIR EDUCATIONAL GOALS OR ENTER THE JOB MARKET. OF THE
ALMOST 15,000 STUDENTS WHO HAVE GRADUATED FROM ACADEMY PROGRAMS, APPROXIMATELY
90% HAVE GONE ON TO ATTEND COLLEGE. ROGER H. BALLOU, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER OF GLOBAL VACATION GROUP, INC., SERVES ON THE BOARD OF
DIRECTORS OF THE NATIONAL ACADEMY FOUNDATION.
<PAGE> 120
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
The Company........................... 14
The Recapitalization.................. 14
The Acquired Businesses............... 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Unaudited Pro Forma Condensed Combined
Financial Statements................ 19
Selected Financial Data............... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 35
Management............................ 43
Certain Transactions.................. 47
Principal Shareholders................ 50
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 55
Underwriting.......................... 57
Legal Matters......................... 58
Experts............................... 58
Additional Information................ 59
Index to Financial Statements......... F-1
</TABLE>
Until , 1998 (25 days after the commencement of the offering), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
======================================================
======================================================
3,000,000 SHARES
GLOBAL VACATION GROUP, INC.
COMMON STOCK
[LOGO]
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
NATIONSBANC MONTGOMERY
SECURITIES LLC
BANCAMERICA
ROBERTSON STEPHENS
ING BARINGS FURMAN SELZ
======================================================
<PAGE> 121
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock being registered. All amounts shown are
estimates except for the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Securities and Exchange Commission registration fee......... $18,659
NASD filing fee............................................. 6,825
NYSE listing fee............................................ *
Blue sky qualification fees and expenses.................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Transfer agent and registrar fees........................... *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
--------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Sections 721 through 725 of the Business Corporation Law of the State
of New York (the "NYBCL"), the Registrant has broad powers to indemnify its
directors, officers and other employees. These sections (i) provide that the
statutory indemnification and advancement of expenses provisions of the NYBCL
are not exclusive, provided that no indemnification may be made to or on behalf
of any director or officer if a judgment or other final adjudication adverse to
the director or officer establishes that his or her acts were committed in bad
faith or were the result of active and deliberate dishonesty and were material
to the cause of action so adjudicated, or that he or she personally gained in
fact a financial profit or other advantage to which he or she was not legally
entitled, (ii) establish procedures for indemnification and advancement of
expenses that may be contained in the certificate of incorporation or bylaws,
or, when authorized by either of the foregoing, set forth in a resolution of the
shareholders or directors or an agreement providing for indemnification and
advancement of expenses, (iii) apply a single standard for statutory
indemnification for third-party and derivative suits by providing that
indemnification is available if the director or officer acted in good faith, for
a purpose which he or she reasonably believed to be in the best interests of the
corporation, and in criminal actions, had no reasonable cause to believe that
his or her conduct was unlawful and (iv) permit the advancement of litigation
expenses upon receipt of an undertaking to repay such advance if the director or
officer is ultimately determined not to be entitled to indemnification or to the
extent the expenses advanced exceed the indemnification to which the director or
officer is entitled. Section 726 of the NYBCL permits the purchase of insurance
to indemnify a corporation or its officers and directors to the extent
permitted.
As permitted by Section 721 of the NYBCL, the Registrant's Amended and
Restated By-laws (the "By-laws") provide that the Registrant shall indemnify its
officers and directors, as such, to the fullest extent permitted by applicable
law, and that expenses reasonably incurred by any such officer or director in
connection with a threatened or actual action or proceeding shall be advanced or
promptly reimbursed by the Registrant in advance of the final disposition of
such action or proceeding under the circumstances permitted by the NYBCL.
The Registrant's Restated Certificate of Incorporation further provides
that no director of the Registrant shall be held personally liable to the
Registrant or its shareholders for damages for any breach of duty in his or her
capacity as a director unless a judgment or other final adjudication adverse to
such director establishes that
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<PAGE> 122
(i) such director's acts or omissions were in bad faith or involved intentional
misconduct or a knowing violation of law, or (ii) such director personally
gained in fact a financial profit or other advantage to which such director was
not legally entitled, or (iii) such director's acts violated Section 719 of the
NYBCL.
The Registrant intends to purchase directors' and officers' liability
insurance on behalf of its directors and others.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) On March 18, 1998, pursuant to a Recapitalization Agreement dated as of
such date among Thayer Equity Investors III, L.P. ("Thayer"), the Registrant,
Allied Tours Holding Corp. ("Allied Holding") and the shareholders of Allied
Holding (the "Recapitalization Agreement"), the Registrant was recapitalized
(the "Recapitalization") and issued (i) 247,215 shares of common stock, par
value $.01 per share ("Common Stock"), and 22,249 shares of Class A Convertible
Preferred Stock, par value $1,000 per share ("Convertible Preferred Stock"), to
Thayer in respect of its interest in the Registrant as of the time of the
Recapitalization and (ii) 39,034 shares of Common Stock and 3,513 shares of
Convertible Preferred Stock to Allied Holding in respect of its interest in the
Registrant as of the time of the Recapitalization. These shares were issued
without registration under the Securities Act of 1993, as amended (the
"Securities Act"), in reliance upon an exemption from registration contained in
Section 3(a)(9) thereof ("Section 3(a)(9)").
(b) On March 30, 1998, in connection with an Equity Purchase Agreement (the
"Thayer Purchase Agreement") dated as of March 30, 1998 among the Registrant,
Thayer TC Co-Investors, LLC, an affiliate of Thayer, and 16 other individuals or
entities (collectively, the "Investors"), the Registrant issued (i) a total of
266,425.4 shares of Common Stock to the Investors at a purchase price of $10 per
share for an aggregate consideration of $2,664,254 and (ii) a total of 1,227.64
shares of Convertible Preferred Stock to the Investors at a purchase price of
$1,000 per share for an aggregate consideration of $1,227,640. These shares were
issued without registration under the Securities Act in reliance upon an
exemption from registration contained in Section 4(2) thereof ("Section 4(2)").
(c) On March 30, 1998, in connection with Senior Management Agreements
entered into with each of Roger H. Ballou, the Registrant's Chief Executive
Officer and Chairman, J. Raymond Lewis, Jr., the Registrant's President and
Chief Operating Officer, and Walter S. Berman, the Registrant's Executive Vice
President and Chief Financial Officer, the Registrant issued to Messrs. Ballou,
Lewis and Berman (i) a total of 57,500 shares of Common Stock at a purchase
price of $10 per share for an aggregate consideration of $575,000 and (ii) a
total of 425 shares of Convertible Preferred Stock at a purchase price of $1,000
per share for an aggregate consideration of $425,000. These shares were issued
without registration under the Securities Act in reliance upon an exemption from
registration contained in Section 4(2).
(d) Between April 3, 1998 and May 5, 1998, pursuant to the Thayer Purchase
Agreement, the Registrant issued 22,751 shares of Convertible Preferred Stock to
Thayer at a purchase price of $1,000 per share for an aggregate consideration of
$22,751,000. These shares were issued without registration under the Securities
Act in reliance upon an exemption from registration contained in Section 4(2).
(e) On March 30, 1998, in connection with an Equity Subscription Agreement
dated as of such date by and among the Registrant and two former shareholders of
Haddon Holidays, Inc. ("Haddon"), the Registrant issued to such persons (i) a
total of 5,000 shares of Common Stock at a purchase price of $10 per share for
an aggregate consideration of $50,000 and (ii) a total of 450 shares of
Convertible Preferred Stock at a purchase price of $1,000 per share for an
aggregate consideration of $450,000. These shares were issued without
registration under the Securities Act in reliance upon an exemption from
registration contained in Section 4(2).
(f) On April 30, 1998, in connection with an Equity Subscription Agreement
dated as of such date by and among the Registrant and a former shareholder of
MTI Vacations, Inc. ("MTI"), the Registrant issued to such person an 24,000
shares of Common Stock at a purchase price of $10 per share for an aggregate
consideration of $240,000 and 2,160 shares of Convertible Preferred Stock at a
purchase price of $1,000 per
II-2
<PAGE> 123
share for an aggregate consideration of $2,160,000. These shares were issued
without registration under the Securities Act in reliance upon an exemption from
registration contained in Section 4(2).
Each of the foregoing transactions was effected without an underwriter.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated By-laws of the Registrant
5.1* Opinion of Hogan & Hartson L.L.P.
10.1+ Recapitalization Agreement dated as of March 18, 1998 among
the Registrant, Thayer, Allied Holding and the shareholders
of Allied Holding
10.2+ Equity Purchase Agreement dated as of March 30, 1998 between
the Registrant and Thayer and certain other purchasers
10.3+ Equity Subscription Agreement dated as of March 30, 1998 by
and among the Registrant, Ralph M. Caliri and William W.
Webber
10.4+ Equity Subscription Agreement dated as of April 30, 1998
between the Registrant and James F. Miller
10.5 Registration Rights Agreement dated as of June 12, 1998 by
and among the Registrant, Thayer and certain shareholders of
the Registrant
10.6+ Stock Purchase Agreement dated as of March 30, 1998 by and
among the Registrant, Haddon and the shareholders of Haddon
10.7 Stock Purchase Agreement dated as of April 20, 1998 by and
among the Registrant, Classic Custom Vacations, Inc.
("Classic") and the stockholders of Classic
10.8+ Asset Purchase Agreement dated as of April 30, 1998 by and
among the Registrant, MTI and James F. Miller
10.9+ Stock Purchase Agreement dated as of May 4, 1998 by and
among the Registrant, Globetrotters, Inc. and Robert A.
Grinberg.
10.10 Professional Services Agreement dated as of March 30, 1998
between the Registrant and TC Management Partners, LLC
10.11+ Credit Agreement dated as of March 27, 1998 by and among the
Registrant, the lenders party thereto and The Bank of New
York, as administrative agent
10.12+ Amendment No. 1 and Consent dated as of April 8, 1998 to
Credit Agreement dated as of March 27, 1998 by and among the
Registrant, the lenders party thereto and The Bank of New
York as administrative agent
10.13+ Amendment No. 2 dated as of May 5, 1998 to Credit Agreement
dated as of March 27, 1998 by and among the Registrant, the
lenders party thereto and The Bank of New York as
administrative agent
10.14 Registrant's 1998 Stock Option Plan
10.15+ Senior Management Agreement dated as of March 30, 1998
between the Registrant and Roger H. Ballou
10.16+ Senior Management Agreement dated as of March 30, 1998
between the Registrant and J. Raymond Lewis, Jr.
10.17+ Senior Management Agreement dated as of March 30, 1998
between the Registrant and Walter S. Berman
10.18+ Consulting Agreement dated as of March 27, 1998 by and
between the Registrant and Stanley Fisher
10.19+ Employment Agreement dated as of March 18, 1998 by and
between the Registrant and Michael Fisher
10.20+ Employment Agreement dated as of March 18, 1998 by and
between the Registrant and Gregory Fisher
</TABLE>
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<PAGE> 124
<TABLE>
<C> <S> <C>
10.21 Amendment No. 1 dated as of June 24, 1998 to Senior
Management Agreement dated as of March 30, 1998 between the
Registrant and Mr. Ballou
10.22 Amendment No. 1 dated as of June 24, 1998 to Senior
Management Agreement dated as of March 30, 1998 between the
Registrant and Mr. Lewis
10.23 Amendment No. 1 dated as of June 24, 1998 to Senior
Management Agreement dated as of March 30, 1998 between the
Registrant and Mr. Berman
11.1 Earnings Per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP (Financial Statements of the
Registrant)
23.2 Consent of Arthur Andersen LLP (Financial Statements of
Classic)
23.3 Consent of Arthur Andersen LLP (Financial Statements of
Haddon)
23.4 Consent of Deloitte & Touche LLP (Financial Statements of
Classic)
23.5 Consent of Coopers & Lybrand LLP (Financial Statements of
MTI)
23.6* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1+ Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedule
The following schedule to the Financial Statements of the Registrant was
previously filed as a part of this Registration Statement:
Schedule II -- Allowance for Doubtful Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as may be required by the
underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 of this
Registration Statement, 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
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<PAGE> 125
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, DISTRICT OF
COLUMBIA, ON THE 24TH DAY OF JUNE, 1998.
GLOBAL VACATION GROUP, INC.
By: /s/ ROGER H. BALLOU
------------------------------------
ROGER H. BALLOU
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ ROGER H. BALLOU Chief Executive Officer June 24, 1998
- ----------------------------------------------------- and Chairman
ROGER H. BALLOU (Principal Executive Officer)
/s/ WALTER S. BERMAN Executive Vice President June 24, 1998
- ----------------------------------------------------- and Chief Financial Officer
WALTER S. BERMAN (Principal Financial and
Accounting Officer)
* Director
- -----------------------------------------------------
FREDERIC V. MALEK
* Director
- -----------------------------------------------------
CARL J. RICKERTSEN
*By: /s/ ROGER H. BALLOU Attorney-in-fact June 24, 1998
-------------------------------------------------
ROGER H. BALLOU
</TABLE>
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<PAGE> 126
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Global Vacation Group, Inc (formerly Allied Bus Corp.)
We have audited in accordance with generally accepted auditing standards,
the financial statements of Global Vacation Group, Inc (formerly Allied Bus
Corp.) (as defined in Note 1 of the financial statements) included in this
registration statement, and have issued our report thereon dated June 24, 1998.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. Schedule II -- Allowance for Doubtful Accounts is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Washington, DC
June 24, 1998
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<PAGE> 127
GLOBAL VACATION GROUP, INC.
(FORMERLY ALLIED BUS CORP.)
SCHEDULE II
ALLOWANCE FOR DOUBTFUL ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
DEDUCTIONS
ADDITIONS FROM RESERVE
BALANCE AT CHARGED TO FOR PURPOSES FOR
BEGINNING COST AND WHICH RESERVE BALANCE AT
OF YEAR EXPENSE WAS CREATED END OF YEAR
---------- ---------- ---------------- -----------
<S> <C> <C> <C> <C>
1995....................................... $283 $ 310 $ 283 $310
1996....................................... 310 1,208 1,070 448
1997....................................... 448 771 358 861
</TABLE>
S-2
<PAGE> 128
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of the Registrant
3.2 Amended and Restated By-laws of the Registrant
5.1* Opinion of Hogan & Hartson L.L.P.
10.1+ Recapitalization Agreement dated as of March 18, 1998 among
the Registrant, Thayer, Allied Holding and the shareholders
of Allied Holding
10.2+ Equity Purchase Agreement dated as of March 30, 1998 between
the Registrant and Thayer and certain other purchasers
10.3+ Equity Subscription Agreement dated as of March 30, 1998 by
and among the Registrant, Ralph M. Caliri and William W.
Webber
10.4+ Equity Subscription Agreement dated as of April 30, 1998
between the Registrant and James F. Miller
10.5 Registration Rights Agreement dated as of June 12, 1998 by
and among the Registrant, Thayer and certain shareholders of
the Registrant
10.6+ Stock Purchase Agreement dated as of March 30, 1998 by and
among the Registrant, Haddon and the shareholders of Haddon
10.7 Stock Purchase Agreement dated as of April 20, 1998 by and
among the Registrant, Classic Custom Vacations, Inc.
("Classic") and the shareholders of Classic
10.8+ Asset Purchase Agreement dated as of April 30, 1998 by and
among the Registrant, MTI and James F. Miller
10.9+ Stock Purchase Agreement dated as of May 4, 1998 by and
among the Registrant, Globetrotters, Inc. and Robert A.
Grinberg.
10.10 Professional Services Agreement dated as of March 30, 1998
between the Registrant and TC Management Partners, LLC
10.11+ Credit Agreement dated as of March 27, 1998 by and among the
Registrant, the lenders party thereto and The Bank of New
York, as administrative agent
10.12+ Amendment No. 1 and Consent dated as of April 8, 1998 to
Credit Agreement dated as of March 27, 1998 by and among the
Registrant, the lenders party thereto and The Bank of New
York as administrative agent
10.13+ Amendment No. 2 dated as of May 5, 1998 to Credit Agreement
dated as of March 27, 1998 by and among the Registrant, the
lenders party thereto and The Bank of New York as
administrative agent
10.14 Registrant's 1998 Stock Option Plan
10.15+ Senior Management Agreement dated as of March 30, 1998
between the Registrant and Roger H. Ballou
10.16+ Senior Management Agreement dated as of March 30, 1998
between the Registrant and J. Raymond Lewis, Jr.
10.17+ Senior Management Agreement dated as of March 30, 1998
between the Registrant and Walter S. Berman
10.18+ Consulting Agreement dated as of March 27, 1998 by and
between the Registrant and Stanley Fisher
10.19+ Employment Agreement dated as of March 18, 1998 by and
between the Registrant and Michael Fisher
10.20+ Employment Agreement dated as of March 18, 1998 by and
between the Registrant and Gregory Fisher
10.21 Amendment No. 1 dated as of June 24, 1998 to Senior
Management Agreement dated as of March 30, 1998 between the
Registrant and Mr. Ballou
10.22 Amendment No. 1 dated as of June 24, 1998 to Senior
Management Agreement dated as of March 30, 1998 between the
Registrant and Mr. Lewis
</TABLE>
<PAGE> 129
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.23 Amendment No. 1 dated as of June 24, 1998 to Senior
Management Agreement dated as of March 30, 1998 between the
Registrant and Mr. Berman
11.1 Earnings Per Share
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP (Financial Statements of the
Registrant)
23.2 Consent of Arthur Andersen LLP (Financial Statements of
Classic)
23.3 Consent of Arthur Andersen LLP (Financial Statements of
Haddon)
23.4 Consent of Deloitte & Touche LLP (Financial Statements of
Classic)
23.5 Consent of Coopers & Lybrand LLP (Financial Statements of
MTI)
23.6* Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1)
24.1+ Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Previously filed.
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
GLOBAL VACATION GROUP, INC.
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
The undersigned, being, respectively the President and the
Secretary of Global Vacation Group, Inc. (the "CORPORATION"), do hereby certify
as follows:
1. The name of the Corporation is Global Vacation Group,
Inc. The name under which the corporation originally was formed is Allied Bus
Corp.
2. The Certificate of Incorporation originally was filed
with the Department of State of New York on July 17, 1959.
3. The Restated Certificate of Incorporation of the
Corporation as now in full force and effect hereby is amended to effect the
following changes as authorized by Section 801 of the New York Business
Corporation Law (the "NYBCL"):
(a) To increase the aggregate number of shares of
Common Stock which the corporation shall have authority to issue;
(b) To redesignate the Corporation's current preferred
stock as Class A Convertible Preferred Stock;
(c) To provide for the removal from the authorized
capital stock of the Corporation the Class A Convertible Preferred Stock once
all of the current issued and outstanding shares of Class A Convertible
Preferred Stock have been redeemed or converted into Common Stock;
(d) To authorize the issuance of 6,000,000 shares of a
newly created class of preferred stock, $.01 par value per share, having the
designations, relative rights, preferences and limitations as set forth in
Article V of this Restated Certificate of Incorporation of the Corporation;
(e) To change the designation of registered agent of
the Corporation in the State of New York upon whom process against the
corporation may be served to CT Corporation, 1633 Broadway, New York, NY 10019;
and
(f) To change the post office address to which the
Secretary of State shall mail a copy of any process against the Corporation
served upon him or her to 1420 New York Avenue, N.W., Suite 550, Washington, DC
20005.
<PAGE> 2
4. To effect the foregoing amendments the Certificate of
Incorporation of the Corporation hereby is amended and restated in its entirety
to read as follows (as so amended and restated, the "CERTIFICATE OF
INCORPORATION"):
ARTICLE I
The name of the Corporation is Global Vacation Group, Inc.
ARTICLE II
The office of the Corporation in the State of New York is
located in the County of New York.
ARTICLE III
The Secretary of State is designated as agent of the Corporation
upon whom process against it may be served. The address to which the
Secretary of State shall mail a copy of any process against the Corporation
served upon him or her is 1420 New York Avenue, N.W., Suite 550, Washington,
D.C. 20005.
The name and address of the registered agent of the corporation
upon whom process against the corporation may be served is CT Corporation, 1633
Broadway, New York, NY 10019.
ARTICLE IV
The nature of the business of the Corporation and the purposes
for which it is organized are to engage in any business and in any lawful act or
activity for which corporations may be organized under the NYBCL. For the
accomplishment of the aforesaid purposes and in furtherance thereof, the
Corporation shall have, and may exercise, all powers and privileges now or
hereafter granted or available under the laws of the State of New York to such
corporations.
ARTICLE V
5.1. CAPITAL STOCK.
(a) CLASSES.
(i) Through the closing date of the Corporation's
Initial Public Offering (as hereinafter defined) (the "CLOSING DATE"), the
total number of shares of all
- 2 -
<PAGE> 3
classes of stock which the Corporation shall have authority to issue is
66,100,000, of which (a) 60,000,000 shares shall be common stock, $.01 par value
per share ("COMMON STOCK"), (b) 6,000,000 shares shall be preferred stock, $.01
par value per share ("PREFERRED STOCK"), and (c) 100,000 shares shall be Class A
Convertible Preferred Stock, $1,000 par value per share ("CLASS A PREFERRED");
provided, that all of the outstanding shares of Class A Preferred shall be
redeemed for cash or converted into shares of Common Stock in accordance with
the provisions of Article VI hereof on or prior to the Closing Date.
(ii) Following the Closing Date, the total number of
shares of all classes of stock which the Corporation shall have authority to
issue is 66,000,000, of which (a) 60,000,000 shares shall be Common Stock and
(b) 6,000,000 shares shall be Preferred Stock.
(b) NO PREEMPTIVE RIGHTS. No shareholder of the Corporation
shall have any preemptive rights to purchase, subscribe for or otherwise
acquire any capital stock or other securities of the Corporation, whether now
or hereafter authorized, and any and all preemptive rights hereby are denied.
(c) REDESIGNATION OF OLD PREFERRED STOCK. The class of the
Corporation's capital stock previously designated as "Preferred Stock" (the
"OLD PREFERRED STOCK") hereby is redesignated as Class A Preferred, and each
share of Old Preferred Stock shall automatically be deemed to be a share of
Class A Preferred as of the date this Certificate of Incorporation is filed
with the Department of State and shall have the powers, designations, rights
and preferences set forth in Article VI hereof.
5.2. COMMON STOCK. The powers, designations, preferences and
relative participating, optional or other special rights and the
qualifications, limitations and restrictions of the Common Stock are as
follows:
(a) DIVIDENDS. Subject to the rights of the holders of
Preferred Stock and Class A Preferred, the holders of the Common Stock shall be
entitled to receive when, as, and if declared by the Board of Directors of the
Corporation (the "BOARD"), out of funds legally available therefor, dividends
payable in cash, stock or otherwise.
(b) DISTRIBUTIONS UPON LIQUIDATION. In the event of a
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and after the holders of Preferred Stock and Class A Preferred
shall have received the full preferential amounts (if any) to which such
holders are entitled, the holders of Common Stock shall be entitled to share in
the distribution of any remaining assets available for distribution to the
holders of Common Stock.
(c) VOTING RIGHTS. Subject to the voting rights granted to
the holders of Preferred Stock and Class A Preferred, the holders of Common
Stock shall be entitled to one (1) vote per share in voting or consenting on
the election of directors and for all other corporate purposes.
- 3 -
<PAGE> 4
5.3. PREFERRED STOCK. The Corporation shall have the authority to
issue shares of Preferred Stock. The Board hereby is authorized, without
further shareholder approval, to issue shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, voting rights, terms of redemption and liquidation
preferences, and to fix the number of shares constituting any series and the
designations of such series.
ARTICLE VI
6.1. CLASS A PREFERRED STOCK; NUMBER AUTHORIZED. The Corporation
shall have authority to issue 100,000 shares of Class A Preferred, which shares
shall have the powers, designations, rights and preferences set forth in this
Article VI. Upon the redemption or conversion of all outstanding shares of
Class A Preferred as provided herein, the Class A Preferred shall cease to be a
class of the capital stock of the Corporation, and the stated capital of the
Corporation shall be reduced accordingly.
6.2. DIVIDENDS.
(a) GENERAL OBLIGATION. When and as declared by the Board
and to the extent permitted under the NYBCL, the Corporation shall pay
cumulative dividends to the holders of the Class A Preferred as provided in
this Section 6.2. Dividends on each share of the Class A Preferred (a "SHARE")
shall be paid in additional Shares (valued at the Liquidation Value (as
hereinafter defined) thereof) and shall accrue on a daily basis at the rate of
15% per annum of the sum of the Liquidation Value thereof plus all accumulated
and unpaid dividends thereon from and including the date of issuance of such
Share to and including the first to occur of (i) the date on which the
Liquidation Value of such Share (plus all accrued and unpaid dividends thereon)
is paid to the holder thereof in connection with the liquidation of the
Corporation or the redemption of such Share by the Corporation or (ii) the date
on which such Share otherwise is acquired by the Corporation. Such dividends
shall accrue whether or not they have been declared and whether or not there
are profits, surplus or other funds of the Corporation legally available for
the payment of dividends, and such dividends shall be cumulative such that all
accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Junior Securities
(as hereinafter defined). The date on which the Corporation initially issues
any Share shall be deemed to be its "date of issuance" regardless of the number
of times transfer of such Share is made on the stock records maintained by or
for the Corporation and regardless of the number of certificates which may be
issued to evidence such Share.
(b) DIVIDEND REFERENCE DATES. Dividends shall be paid on
March 31, June 30, September 30 and December 31 of each year, beginning
December 31, 1998 (the "DIVIDEND REFERENCE DATES"), and additional Shares
issuable in respect of all dividends which have accrued on each Share
outstanding during the three (3)-month period (or other period in the case of
the initial Dividend Reference Date) ending upon each such Dividend Reference
Date shall be deemed issued with respect to each such Share to the holder
thereof, regardless
- 4 -
<PAGE> 5
of whether the Corporation has issued a certificate or certificates in respect
of such additional Shares and without any further action on the part of the
Corporation or the holders of the Shares.
6.3. LIQUIDATION. Upon any liquidation, dissolution or winding up of
the Corporation (whether voluntary or involuntary), each holder of Shares shall
be entitled to be paid, before any distribution or payment is made upon any
Junior Securities, an amount in cash equal to the aggregate Liquidation Value
of all Shares held by such holder (plus all accrued and unpaid dividends
thereon), and the holders of Shares shall not be entitled to any further
payment. If, upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of
Shares are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid under this Section 6.3, then the
entire assets available to be distributed to the Corporation's shareholders
shall be distributed pro rata among such holders based upon the aggregate
Liquidation Value (plus all accrued and unpaid dividends) of Shares held by
each such holder. Not less than thirty (30) days prior to the payment date
stated therein, the Corporation shall mail written notice of any such
liquidation, dissolution or winding up to each record holder of Shares, setting
forth in reasonable detail the amount of proceeds to be paid with respect to
each Share and each share of Common Stock in connection with such liquidation,
dissolution or winding up.
6.4. PRIORITY OF CLASS A PREFERRED ON DIVIDENDS AND REDEMPTIONS. As
long as any Shares remain outstanding, without the prior written consent of the
holders of a majority of the outstanding Shares, the Corporation shall not, nor
shall it permit any Subsidiary (as hereinafter defined) to, redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities, nor shall the
Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Securities; provided that the Corporation may
repurchase shares of Common Stock or Shares, or both, from present or former
employees of the Corporation and its Subsidiaries in accordance with the
provisions of the Senior Management Agreements (as hereinafter defined).
6.5. REDEMPTIONS. Subject to any limitations or prohibitions set
forth in the Financing Documents (as hereinafter defined) then outstanding:
(a) SCHEDULED REDEMPTIONS. The Corporation shall redeem all
of the outstanding Shares on December 31, 2003 (the "SCHEDULED REDEMPTION
DATE"), at a price per Share equal to the Liquidation Value thereof, plus all
accrued and unpaid dividends thereon.
(b) OPTIONAL REDEMPTIONS. To the extent permitted under the
NYBCL, the Corporation may at any time and from time to time redeem all or any
portion of the Shares then outstanding. Upon any such redemption, the
Corporation shall pay a price per Share equal to the Liquidation Value thereof,
plus all accrued and unpaid dividends thereon.
(c) REDEMPTION IN CONNECTION WITH PUBLIC OFFERING. The
Corporation shall, at the request of the holders of a majority of the Shares by
written notice (the
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"REDEMPTION NOTICE") given to the Corporation no more than ninety (90) nor less
than fifteen (15) days prior to the Closing Date apply up to fifty percent (50%)
of the net cash proceeds from an Initial Public Offering remaining after
deduction of all discounts, underwriters' commissions and other reasonable
expenses to redeem Shares at a price per Share equal to the Liquidation Value
thereof, plus all accrued and unpaid dividends thereon. In the event that Thayer
Equity Investors III, L.P. ("THAYER"), as the holder of a majority of the
Shares, executes a Redemption Notice, the Corporation promptly shall provide
notice of its receipt of the Redemption Notice to each other holder of Shares,
and each such other holder of Shares shall have five (5) days after receipt
thereof to give notice to the Corporation of such shareholder's intent to have a
portion of such shareholder's Shares redeemed by the Corporation, which portion
shall be determined by multiplying the total number of Shares then held by such
shareholder times a fraction, the numerator of which shall be the number of
Shares held by Thayer to be redeemed pursuant to the Redemption Notice and the
denominator of which shall be the total number of Shares then held by Thayer.
Effective as of the Closing Date at a time immediately prior to the closing of
the Initial Public Offering, the Corporation shall redeem (i) the number of
Shares held by Thayer as set forth in such Redemption Notice and (ii) a
proportionate number (as determined in accordance with the immediately preceding
sentence of this Section 6.5(c)) of Shares held by each other holder of Shares
who provides notice to the Corporation of such shareholder's intent to have a
portion of such shareholder's Shares so redeemed; provided, however, that the
total number of Shares to be redeemed in connection with an Initial Public
Offering pursuant to this Section 6.5(c) shall not exceed the number of Shares
having an aggregate Liquidation Value, after giving effect to all accrued and
unpaid dividends then owed on such Shares, equal to fifty percent (50%) of the
net cash proceeds from such Initial Public Offering remaining after deduction of
all discounts, underwriters' commissions and other reasonable expenses. Also
effective as of the Closing Date, (i) if so elected by the holders of a majority
of all outstanding Shares (other than Shares to be redeemed pursuant to this
Section 6.5(c)) pursuant to Section 6.7 below, each outstanding Share (other
than Shares to be redeemed pursuant to this Section 6.5(c)) shall be converted
into shares of Common Stock at a time immediately prior to the closing of the
Initial Public Offering as provided in Section 6.7 and (ii) no Share shall
accrue any dividends after the Closing Date. Redemptions of Shares pursuant to
this Section 6.5(c) shall not relieve the Corporation of its obligation to
redeem Shares on the Scheduled Redemption Date.
(d) REDEMPTION PAYMENTS. For each Share which is to be
redeemed hereunder, the Corporation shall be obligated on the Redemption Date
(as hereinafter defined) to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such Share) an amount in immediately available funds equal to the Liquidation
Value of such Share, plus all accrued and unpaid dividends thereon. If the
funds of the Corporation legally available for redemption of Shares on any
Redemption Date are insufficient to redeem the total number of Shares to be
redeemed on such date, those funds which are legally available shall be used to
redeem the maximum possible number of Shares pro rata among the holders of the
Shares to be redeemed based upon the aggregate Liquidation Value of such Shares
held by each such holder, plus all accrued and unpaid dividends thereon. At
any time thereafter when additional funds of the Corporation are legally
available for the redemption of Shares, such funds immediately shall be used to
redeem the
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balance of the Shares which the Corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed.
(e) NOTICE OF REDEMPTION. Except as otherwise provided
herein, the Corporation shall mail written notice of each redemption of any
Shares to each record holder thereof not more than sixty (60) nor less than
five (5) days prior to the date on which such redemption is to be made. In
case fewer than the total number of Shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed Shares shall
be issued to the holder thereof without cost to such holder within five (5)
business days after surrender of the certificate representing the redeemed
Shares.
(f) DETERMINATION OF THE NUMBER OF EACH HOLDER'S SHARES TO BE
REDEEMED. Except for redemptions effected in connection with an Initial Public
Offering as provided in Section 6.5(c) hereof, the number of Shares to be
redeemed from each holder thereof in redemptions hereunder shall be the number
of Shares determined by multiplying the total number of Shares to be redeemed
times a fraction, the numerator of which shall be the total number of Shares
then held by such holder and the denominator of which shall be the total number
of Shares then outstanding.
(g) DIVIDENDS AFTER REDEMPTION. With respect to any Share to
be redeemed in connection with an Initial Public Offering as provided in
Section 6.5(c) hereof, (i) no such Share shall be entitled to any dividends
accruing after the Closing Date and (ii) all rights of the holder of such Share
shall cease, and such Share no longer shall be deemed to be issued and
outstanding, as of the Closing Date. With respect to any other Share redeemed
hereunder, (i) no such Share shall accrue any dividends after the date on which
the Liquidation Value of such Share (plus all accrued and unpaid dividends
thereon) is paid to the holder of such Share and (ii) all rights of the holder
of such Share shall cease, and such Share no longer shall be deemed to be
issued and outstanding, as of such date.
(h) REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which
are redeemed or otherwise acquired by the Corporation shall be canceled and
retired to authorized but unissued shares and shall not be reissued, sold or
transferred; provided, that no Shares shall be authorized following the Closing
Date as provided herein.
(i) REDEMPTIONS OR ACQUISITIONS. The Corporation shall not,
nor shall it permit any Subsidiary to, redeem or otherwise acquire any Shares,
except as expressly authorized herein.
(j) PAYMENT OF ACCRUED DIVIDENDS. The Corporation may not
redeem any Shares, unless all dividends accrued on the outstanding Shares
through the immediately preceding Dividend Reference Date have been declared
and paid in full.
(k) SPECIAL REDEMPTIONS.
(i) If a Change in Ownership (as hereinafter
defined) has occurred or the Corporation obtains knowledge that a Change in
Ownership is proposed to occur, the
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Corporation shall give prompt written notice of such Change in Ownership
describing in reasonable detail the material terms and date of consummation
thereof to each holder of Shares; provided, that (a) in any event such notice
shall not be given later than five (5) days after the occurrence of such Change
in Ownership and (b) the Corporation shall give each holder of Shares prompt
written notice of any material change in the terms or timing of such
transaction. The holder or holders of a majority of the Shares then outstanding
may require the Corporation to redeem all or any portion of the Shares owned by
such holders at a price per Share equal to the Liquidation Value thereof, plus
all accrued and unpaid dividends thereon, by giving written notice to the
Corporation of such election prior to the later of (i) fifteen (15) days after
receipt of the Corporation's notice and (ii) five (5) days prior to the
consummation of the Change in Ownership (the "EXPIRATION DATE"). The Corporation
shall give prompt written notice of any such election to all other holders of
Shares within five (5) days after the receipt thereof, and each such holder
shall have until the later of (a) the Expiration Date or (b) ten (10) days after
receipt of such second notice to request redemption hereunder (by giving written
notice to the Corporation) of the same portion of the Shares owned by such
holder as that proposed to be redeemed by the holders of a majority of the
Shares requesting such redemption.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Shares specified therein on the
later of (a) the occurrence of the Change in Ownership or (b) five (5) days
after the Corporation's receipt of all of such election(s). If any proposed
Change in Ownership does not occur, all requests for redemption in connection
therewith automatically shall be rescinded, or if there has been a material
change in the terms or the timing of the transaction, any holder of Shares may
rescind such holder's request for redemption by delivering written notice
thereof to the Corporation prior to the consummation of the transaction.
The term "CHANGE IN OWNERSHIP" means any sale, transfer or
issuance or series of sales, transfers or issuances of shares of Common Stock,
or any combination of any of the foregoing, by the Corporation or any holders
thereof which results in any Person (as hereinafter defined) or group of
Persons (as the term "group" is used under the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT")), other than Thayer and its Affiliates (as the
term "AFFILIATE" is defined in the Exchange Act), owning more than fifty
percent (50%) of the Common Stock outstanding immediately following the time of
such sale, transfer or issuance or series of sales, transfers or issuances, or
any combination of any of the foregoing; provided, however, that in no event
shall the consummation of an Initial Public Offering constitute a Change in
Ownership.
(ii) If a Fundamental Change (as hereinafter
defined) is proposed to occur, the Corporation shall give written notice of
such Fundamental Change describing in reasonable detail the material terms and
date of consummation thereof to each holder of Shares not more than forty-five
(45) days nor less than fifteen (15) days prior to the consummation of such
Fundamental Change, and the Corporation shall give each holder of Shares prompt
written notice of any material change in the terms or timing of such
transaction. The holder or holders of a majority of the Shares then
outstanding may require the Corporation to redeem all or any portion of the
Shares owned by such holders at a price per Share equal to the
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<PAGE> 9
Liquidation Value thereof, plus all accrued and unpaid dividends thereon, by
giving written notice to the Corporation of such election prior to the later of
(a) ten (10) days prior to the consummation of the Fundamental Change or (b)
ten (10) days after receipt of notice from the Corporation. The Corporation
shall give prompt written notice of such election to all other holders of
Shares (but in any event on or before the fifth (5th) day prior to the
consummation of the Fundamental Change), and each such holder shall have until
two (2) days after the receipt of such notice to request redemption (by written
notice given to the Corporation) of the same portion of the Shares owned by
such holder as that proposed to be redeemed by the holders of a majority of the
Shares requesting such redemption.
Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Shares specified therein upon the
consummation of such Fundamental Change. If any proposed Fundamental Change
does not occur, all requests for redemption in connection therewith shall be
automatically rescinded, or if there has been a material change in the terms or
the timing of the transaction, any holder of Shares may rescind such holder's
request for redemption by delivering written notice thereof to the Corporation
prior to the consummation of the transaction.
The term "FUNDAMENTAL CHANGE" means (a) any sale or transfer of
more than fifty percent (50%) of the assets of the Corporation and its
Subsidiaries on a consolidated basis (measured either by book value in
accordance with generally accepted accounting principles consistently applied
or by fair market value determined in the reasonable good faith judgment of the
Board) in any transaction or series of transactions (other than sales in the
ordinary course of business) and (b) any merger or consolidation to which the
Corporation is a party, except for a merger in which the Corporation is the
surviving corporation or the surviving corporation was previously a wholly
owned subsidiary of the Corporation and (i) the terms of the Class A Preferred
are not changed or all outstanding Shares are exchanged for either cash or
substantially identical securities or other property, and (ii) after giving
effect to such merger or consolidation, the holders of the Corporation's
outstanding capital stock possessing a majority of the voting power (under
ordinary circumstances) to elect a majority of the Board immediately prior to
the merger or consolidation shall continue after the merger or consolidation to
own the surviving corporation's outstanding capital stock possessing the voting
power (under ordinary circumstances) to elect a majority of such surviving
corporation's board of directors.
(iii) Redemptions made pursuant to this
Section 6.5(k) shall not relieve the Corporation of its obligation to redeem
Shares on the Scheduled Redemption Date pursuant to Section 6.5(a) above.
6.6. VOTING RIGHTS.
(a) Except as otherwise provided herein and as otherwise
required by applicable law, the Class A Preferred shall have no voting rights;
provided, that each holder of Shares shall be entitled to notice of all
shareholders meetings at the same time and in the same manner as notice is
given to all shareholders entitled to vote at such meetings.
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(b) The Corporation shall not, without the consent of the
holders of seventy-five (75%) percent of the outstanding Shares voting as a
single class: (i) issue any class or series of equity security ranking senior
to or in parity with the Class A Preferred as to payment of dividends or any
payment on any liquidation of the Corporation or (ii) amend the Certificate of
Incorporation or By-laws of the Corporation (the "BY-LAWS") in any manner which
would impair or reduce the rights of the Class A Preferred or enter into any
agreement that would restrict the Corporation's right to perform under the
Shareholders' Agreement (as hereinafter defined) or the Senior Management
Agreements.
6.7. CONVERSION.
(a) In the event the Corporation effects an Initial Public
Offering, the holders of a majority of all outstanding Shares shall have the
right, on or prior to the Closing Date, to elect to cause the conversion of
each outstanding Share not theretofore redeemed or subject to an election for
redemption pursuant to Section 6.5 into the number of shares of fully paid and
nonassessable Common Stock obtained by dividing (x) the then applicable
Liquidation Value (plus all accrued but unpaid dividends thereon) by (y) the
price per share to the public of the Common Stock sold by the Corporation in
the Initial Public Offering as set forth in the final prospectus relating
thereto.
(b) The Corporation shall provide the holders of Shares with
written notice of the Initial Public Offering at least fifteen (15) days prior
to the Closing Date. Such notice shall specify the estimated initial public
offering price of the Common Stock.
(c) The conversion of all Shares into shares of Common Stock
shall be effected by the surrender of the certificate or certificates
evidencing the Share or Shares to be converted (the "CONVERTING SHARES"), duly
assigned to the Corporation or endorsed in blank, at the principal office of
the corporation (or such other office or agency of the Corporation as the
Corporation may designate by written notice to the holders of Shares) at any
time during its usual business hours. Promptly after such surrender and the
receipt of such written notice, the Corporation shall issue and deliver a
certificate or certificates evidencing the shares of Common Stock issuable upon
such conversion (the "CONVERTED SHARES"). Such conversion, to the extent
permitted by law, shall be deemed to have been effected as of the Closing Date
at a time immediately prior to the closing of the Initial Public Offering, and
at such time the rights of the holders of all Converting Shares as such holders
shall cease, and the person or persons in whose name or names the certificate
or certificates evidencing the Converted Shares are to be issued upon such
conversion shall be deemed to have become the holder or holders of record of
the Converted Shares. Upon issuance of Converted Shares in accordance with
this Section 6.7(c), such Converted Shares shall be deemed to be duly
authorized, validly issued, fully paid and nonassessable.
(d) The Corporation shall take all such corporate and other
actions as from time to time may be necessary to insure that there is an
adequate number of shares of Common Stock authorized but unissued or held as
treasury shares to allow the conversion of all outstanding Shares.
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No fractional Converted Shares shall be issued by the
Corporation. In lieu thereof, the Corporation shall pay each holder of a
fractional Converted Share an amount in cash equal to the product of (x) the
applicable fraction of the fractional Converted Share and (y) the price per
share to the public of the Common Stock sold by the Corporation in the Initial
Public Offering as set forth in the final prospectus relating thereto.
6.8. REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office a register for the registration of Shares. Upon the surrender
of any certificate representing Shares at such place, the Corporation shall, at
the request of the record holder of such certificate, execute and deliver (at
the Corporation's expense) a new certificate or certificates in exchange
therefor representing, in the aggregate, the number of Shares represented by
the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Shares
represented by such new certificate from the date to which dividends have been
fully paid on such Shares represented by the surrendered certificate.
6.9. REPLACEMENT. Upon receipt of evidence reasonably satisfactory
to the Corporation (an affidavit of the registered holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation
of any certificate evidencing Shares, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
Shares represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate, and
dividends shall accrue on the Shares represented by such new certificate from
the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.
6.10. DEFINITIONS,
(a) "CHANGE IN OWNERSHIP" has the meaning set forth in
Section 6.5(k) hereof.
(b) "FINANCIAL INSTITUTIONS" means, at any date, the
financial institutions party to the Financing Documents on such date.
(c) "FINANCING" means the Financing as defined in the
Recapitalization Agreement.
(d) "FINANCING DOCUMENTS" means all agreements, instruments
and other documents executed or delivered in connection with the Financing, in
each case as amended, supplemented or otherwise modified from time to time,
including all substitutions therefor and replacements thereof.
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<PAGE> 12
(e) "FUNDAMENTAL CHANGE" has the meaning set forth in Section
6.5(k) hereof.
(f) "INITIAL PUBLIC OFFERING" means the first offering by the
Corporation of its capital stock or equity securities to the public pursuant to
an effective registration statement under the Securities Act of 1933, as then
in effect, or any comparable statement under any similar federal statute then
in force, with net proceeds to the Corporation of at least $15,000,000.
(g) "JUNIOR SECURITIES" means any capital stock or other
equity securities of the Corporation, except for the Class A Preferred.
(h) "LIQUIDATION VALUE" of any Share as of any particular
date shall be equal to $1,000.00.
(i) "PAYOFF DATE" any date upon which (i) all of the
liabilities and obligations of the Financial Institutions under the Financing
Documents shall have expired, been satisfied or otherwise terminated, and (ii)
the Financial Institutions shall have received the indefeasible payment in
full, in cash, of the then outstanding obligations and liabilities of the
Corporation and its Subsidiaries under the Financing Documents, in each case
whether fixed, contingent, now existing or hereafter arising, created, assumed,
incurred or acquired.
(j) "PERSON" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization or a
governmental entity or any department, agency or political subdivision thereof.
(k) "RECAPITALIZATION AGREEMENT" means the Recapitalization
Agreement, dated as of March 18, 1998, by and among the Corporation and certain
investors, as such agreement may from time to time be amended in accordance
with its terms.
(l) "REDEMPTION DATE" as to any Share means the date
specified in the notice of any redemption at the Corporation's option or at the
holder's option or the applicable date specified herein in the case of any
other redemption; provided that no such date shall be a Redemption Date unless
the Liquidation Value of such Share (plus all accrued and unpaid dividends
thereon) is actually paid in full on such date, and if not so paid in full, the
Redemption Date shall be the date on which such amount is fully paid; provided,
however, that with respect to redemptions effected in connection with an
Initial Public Offering as provided in Section 6.5(c) hereof, the Redemption
Date shall be the date fixed by the Corporation, which date shall be not more
than five (5) days after the Corporation's receipt of the proceeds of the
Initial Public Offering.
(m) "SENIOR MANAGEMENT AGREEMENTS" means the Senior
Management Agreements entered into with certain senior executives of the
Corporation pursuant to which such executives will purchase shares of the
Corporation's Common Stock on a restricted basis.
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(n) "SHAREHOLDERS' AGREEMENT" means the Shareholders'
Agreement as defined in the Recapitalization Agreement.
(o) "SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of such Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more Subsidiaries of such Person or a combination
thereof. For purposes hereof, a Person or Persons shall be deemed to have a
majority ownership interest in a limited liability company, partnership,
association or other business entity if such Person or Persons shall be
allocated a majority of limited liability company, partnership, association or
other business entity gains or losses or shall be or shall control the managing
general partner of such limited liability company, partnership, association or
other business entity.
6.11. AMENDMENT AND WAIVER. No amendment, modification or
waiver shall be binding or effective with respect to any provision of this
Article VI without the prior written consent of the holders of a sixty-six
percent (66%) of the Shares outstanding at the time such action is taken;
provided, that no such action shall change (i) the rate at which or the manner
in which dividends on the Shares accrue or the times at which such dividends
become payable or the amount payable on redemption of the Shares or the times
at which redemption of Shares is to occur or (ii) the percentage required to
approve any change described in clause (i) above, without the prior written
consent of the holders of at least eighty (80%) percent of the Shares then
outstanding; and provided, further, that no change in the terms of this Article
VI may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Shares then
outstanding which would be required to approve such change without such merger
or consolidation. Notwithstanding anything to the contrary contained herein,
no amendment, supplement, modification or waiver shall be binding with respect
to any provision of Section 6.13 hereof or any provision of this sentence, in
each case without the prior written consent of the agent for the Financial
Institutions under the Financial Documents.
6.12. NOTICES. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing, and shall be
deemed to have been given when delivered personally or sent by facsimile or
seventy-two (72) hours after deposited in the United States mail, first class,
postage prepaid, or twenty-four (24) hours after being sent by reputable
overnight courier service, charges prepaid, and shall be deemed to have been
given when so mailed or sent (i) to the Corporation, at its principal executive
offices and (ii) to any shareholder, at such holder's address as it appears in
the stock records of the Corporation (unless otherwise indicated by any such
holder).
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6.13. FINANCING. Notwithstanding anything to the contrary contained
in this Certificate of Incorporation, at any time prior to the Payoff Date, no
holder of Shares shall have any right to receive, demand or cause to become due
or payable any payment, other than in Shares as provided in Section 6.2(a), in
respect of such Shares to the extent that such payment, other than in Shares as
provided in Section 6.2(a), would not be permitted under the Financing Documents
at such time.
ARTICLE VII
7.1. POWER OF BOARD AND QUALIFICATION OF DIRECTORS. The business of
the Corporation shall be managed by the Board. Each director shall be at least
18 years of age.
7.2. NUMBER OF DIRECTORS. The number of directors of the Corporation
shall be not less than three (3) nor more than fifteen (15), and shall be fixed
from time to time by the affirmative vote of more than two-thirds (2/3) of the
total number of directors which the Corporation would have, prior to any
increase or decrease, if there were no vacancies.
7.3. CLASSES, ELECTION AND TERM. The Board shall be divided into
three (3) classes, with each class to be as nearly equal in number as
reasonably possible, and with the initial term of office of the first class of
directors to expire at the first annual meeting of shareholders held after an
Initial Public Offering, the initial term of office of the second class of
directors to expire at the second annual meeting of shareholders held after an
Initial Public Offering, and the initial term of office of the third class of
directors to expire at the third annual meeting of shareholders held after an
Initial Public Offering. Commencing with the first annual meeting of
shareholders held after an Initial Public Offering, directors elected to
succeed those directors whose terms have expired at an annual meeting shall be
elected for a term of office to expire at the third succeeding annual meeting
of shareholders after their election, and upon the election and qualification
of their successors. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain or attain the
number of directors in each class as nearly equal as reasonably possible, but
in no case shall a decrease in the number of directors shorten the term of any
incumbent director. This Section 7.3 shall become effective upon the
consummation of an Initial Public Offering. Prior to an Initial Public
Offering, however, the Board by resolution shall establish and determine the
classes into which the directors in office immediately following an Initial
Public Offering shall be divided.
7.4. RESIGNATIONS. Any director of the Corporation may resign at any
time by giving written notice to the Board or to the Chairman of the Board or
to the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein the
acceptance of such resignation shall not be necessary to make it effective.
7.5. REMOVAL OF DIRECTORS. Except as may be provided in a resolution
which provides for any class of Preferred Stock pursuant to Article V hereof
and which relates to
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such class of Preferred Stock, (i) any one or more directors may be removed only
for cause by the affirmative vote of a majority of the directors then in office
and (ii) any or all of the directors may be removed only for cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the combined voting power of all of the shares of all classes of
capital stock of the Corporation then entitled to vote generally in the election
of directors.
7.6. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as may be
provided in a resolution which provides for any class of Preferred Stock
pursuant to Article V hereof and which relates to such class of Preferred
Stock, newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the Board for any reason may be filled
only by vote of a majority of the directors then in office, even if less than a
quorum exists. A director elected by the Board to fill a vacancy shall be
elected to hold office until the next annual meeting of shareholders and until
such director's successor has been elected and qualified.
ARTICLE VIII
The Board shall have the power to adopt, amend, alter, change or
repeal the By-laws. In addition to any requirements of the NYBCL (and
notwithstanding the fact that a lesser percentage may be specified by the
NYBCL), any adoption, amendment, alteration, change or repeal of any By-laws by
the shareholders of the Corporation after an Initial Public Offering shall
require the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the combined voting power of all of the shares
of all classes of capital stock of the Corporation then entitled to vote
generally in the election of directors.
ARTICLE IX
9.1. SPECIAL MEETING OF SHAREHOLDERS. Special meetings of
shareholders may only be called by the Board, the Chairman of the Board or the
Chief Executive Officer. At such meetings, the only business which may be
transacted is that relating to the purpose or purposes set forth in the notice
thereof.
9.2. ACTION BY WRITTEN CONSENT OF SHAREHOLDERS PRIOR TO THE CLOSING
DATE. Prior to the Closing Date, any action required or permitted to be taken
by the shareholders of the Corporation may be effected by a written consent
signed by the holders of not less than the number of shares which would be
required to approve such action at a meeting of shareholders at which all
shares of capital stock of the Corporation were present in person or by proxy
and voted on such proposed action.
9.3. NO ACTION BY WRITTEN CONSENT OF SHAREHOLDERS AFTER THE CLOSING
DATE. From and after the Closing Date, except as may be provided in a
resolution of the Board which provides for any class or series of Preferred
Stock pursuant to Article V hereof and
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<PAGE> 16
which relates to such class of Preferred Stock, any action required or permitted
to be taken by the shareholders of the Corporation must be effected at a duly
called annual or special meeting of such shareholders as provided in the By-laws
and may not be effected by any consent in writing by any such shareholders.
ARTICLE X
A director of the Corporation shall, to the maximum extent
permitted by the NYBCL, have no personal liability to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director.
If the NYBCL hereafter is amended to eliminate or further limit the liability
of a director, then a director of the Corporation, in addition to the
circumstances in which a director is not personally liable as set forth in the
preceding sentence, shall have no such liability to the fullest extent
permitted by the amended NYBCL. Any repeal or modification of this Article X
by the shareholders 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 XI
The Corporation shall have authority, to the fullest extent now
or hereafter permitted by the NYBCL, or by any other applicable law, and to the
extent and in the manner provided in the By-laws, to enter into any contract or
transaction with one or more of its directors or officers, or with any
corporation, partnership, joint venture, trust, association, or other entity in
which one or more of its directors or officers are directors or officers, or
have a financial interest, notwithstanding such relationships and
notwithstanding the fact that the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction.
ARTICLE XII
12.1. GENERAL RIGHT TO AMEND CERTIFICATE OF INCORPORATION. The
Corporation hereby reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, and all rights
conferred upon shareholders are granted subject to this reservation. Except as
may be provided in a resolution which provides for any class of Preferred Stock
pursuant to Article V hereof and which relates to such class of Preferred Stock
and except as provided in Article VI hereof, any such amendment, alteration,
change or repeal shall require the affirmative vote of both (a) a majority of
the members of the Board then in office and (b) a majority of the combined
voting power of all of the shares of all classes of capital stock of the
Corporation then entitled to vote generally in the election of directors.
12.2. ABANDONMENT OF PROPOSED AMENDMENT. By a vote of the
majority of the members of the Board then in office, the Board may adopt a
resolution providing that at any
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<PAGE> 17
time prior to the filing of any such amendment with the Secretary of State,
notwithstanding authorization of the proposed amendment by the shareholders, the
Board may abandon such proposed amendment without further action by the
shareholders.
12.3. AMENDMENT OF CERTAIN PROVISIONS. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of
the combined voting power of all of the shares of all classes of capital stock
of the Corporation then entitled to vote generally in the election of directors
shall be required to amend, repeal or adopt any provision inconsistent with
Section 7.3, Section 7.5, Section 7.6, Article VIII or Article IX hereof or this
Section 12.3. This Section 12.3 shall become effective only upon consummation of
an Initial Public Offering.
ARTICLE XIII
The duration of the Corporation is to be perpetual.
* * * *
5. This Certificate of Incorporation has been approved by
the Board and by the holders of the requisite number of the outstanding shares
of the Corporation's capital stock at a meeting of shareholders called for such
purpose.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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<PAGE> 18
IN WITNESS WHEREOF, the undersigned have executed this Restated
Certificate of Incorporation as of this 19th day of June, 1998 and we affirm
the statements contained herein are true under the penalties of perjury.
/s/ J. Raymond Lewis,Jr.
--------------------------------
J. Raymond Lewis, Jr., President
/s/ Daniel A. Raskas
--------------------------------
Daniel A. Raskas, Secretary
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
GLOBAL VACATION GROUP, INC.
(FORMED UNDER THE LAWS OF THE STATE OF NEW YORK)
--------------------
Global Vacation Group, Inc. (the "CORPORATION") hereby adopts
the following Amended and Restated By-laws:
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. A meeting of the shareholders
shall be held annually for the election of directors and the transaction of
other business on such date in each year as may be determined by the Board of
Directors of the Corporation (the "BOARD").
SECTION 2. SPECIAL MEETINGS. Special meetings of
shareholders may be called only by the Board or by the person or persons
authorized to call special meetings of shareholders in the Restated Certificate
of Incorporation of the Corporation (as amended or restated, or amended and
restated, from time to time, the "CERTIFICATE OF INCORPORATION"). At such
meetings, the only business which may be transacted is that relating to the
purpose or purposes set forth in the notice thereof.
SECTION 3. PLACE OF MEETINGS. Meetings of shareholders shall
be held at such place, within or without the State of New York, as may be fixed
by the Board. If no place is so fixed, such meetings shall be held at the
office of the Corporation in the State of New York.
SECTION 4. NOTICE OF MEETINGS.
(a) Notice of each meeting of shareholders shall be
given in writing and shall state the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called. Notice of a special
meeting shall indicate that it is being issued by or at the direction of the
person or persons calling or requesting the meeting.
(b) If, at any meeting, action is proposed to be taken
which would, if taken, entitle objecting shareholders to receive payment for
their shares, the notice shall include a statement of that purpose and to that
effect.
<PAGE> 2
(c) A copy of the notice of each meeting shall be
given, personally or by first class mail, not less than ten (10) nor more than
60 (sixty) days before the date of the meeting, to each shareholder entitled to
vote at such meeting. If mailed, such notice is given when deposited in the
United States mail, with postage thereon prepaid, directed to the shareholder
at his or her address as it appears on the record of shareholders, or, if he or
she shall have filed with the Secretary of the Corporation a written request
that notices to him or her be mailed to some other address, then directed to
him or her at such other address.
(d) When a meeting is adjourned to another time or
place, it shall not be necessary to give any notice of the adjourned meeting if
the time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken, and at the adjourned meeting any
business may be transacted that might have been transacted on the original date
of the meeting. However, if after the adjournment the Board fixes a new record
date for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record on the new record date entitled to notice
under the preceding paragraphs of this Section 4.
SECTION 5. WAIVER OF NOTICE. Notice of meeting need not be
given to any shareholder who submits a signed waiver of notice, in person or by
proxy, whether before or after the meeting. The attendance of any shareholder
at a meeting, in person or by proxy, without protesting prior to the conclusion
of the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by such shareholder.
SECTION 6. INSPECTORS OF ELECTION.
(a) The Board shall appoint one or more inspectors to
act at the meeting of shareholders or any adjournment thereof and make a
written report thereof. The Board may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed, or if such persons are unable to act
at a meeting of shareholders, the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector at such meeting with strict impartiality and
according to the best of his or her ability.
(b) The inspectors shall determine the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all shareholders. On
request of the person presiding at the meeting or any shareholder entitled to
vote thereat, the inspectors shall make a report in writing of any challenge,
question or matter determined by them and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated and of the vote as certified by them.
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<PAGE> 3
(c) In determining the validity and counting of
proxies, ballots and consents, the inspectors shall be limited to an
examination of the proxies, any envelopes submitted with those proxies and
consents, ballots and the regular books and records of the Corporation, except
that the inspectors may consider other reliable information for the limited
purpose of reconciling proxies, ballots and consents submitted by or on behalf
of banks, brokers, their nominees or similar persons which represent more votes
than the holder of a proxy is authorized by the record owner to cast or more
votes that the shareholder holds of record. If the inspectors consider other
reliable information for the limited purpose permitted herein, the inspectors
at the time they make their certification as required above, shall specify the
precise information considered by them including the person or persons from
whom they obtained the information, when the information was obtained, the
means by which the information was obtained and the basis for the inspectors'
belief that such information is reliable.
SECTION 7. LIST OF SHAREHOLDERS AT MEETINGS. A list of
shareholders as of the record date, certified by the Secretary or any Assistant
Secretary or by a transfer agent, shall be produced at any meeting of
shareholders upon the request thereat or prior thereto of any shareholder. If
the right to vote at any meeting is challenged, the inspectors of election, or
person presiding thereat, shall require such list of shareholders to be
produced as evidence of the right of the persons challenged to vote at such
meeting, and all persons who appear from such list to be shareholders entitled
to vote thereat may vote at such meeting.
SECTION 8. QUALIFICATION OF VOTERS.
(a) Unless otherwise provided in the Certificate of
Incorporation, every shareholder of record shall be entitled at every meeting
of shareholders to one (1) vote for every share standing in such shareholder's
name on the record of shareholders.
(b) Treasury shares as of the record date and shares
held as of the record date by another domestic or foreign corporation of any
type or kind, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held as of the record date directly or
indirectly by the Corporation, shall not be shares entitled to vote or to be
counted in determining the total number of outstanding shares.
(c) Shares held by an administrator, executor,
guardian, conservator, committee or other fiduciary, except a trustee, may be
voted by him or her, either in person or by proxy, without transfer of such
shares into his or her name. Shares held by a trustee may be voted by him or
her, either in person or by proxy, only after the shares have been transferred
into his or her name as trustee or into the name of his or her nominee.
(d) Shares standing in the name of another domestic or
foreign corporation of any type or kind may be voted by such officer, agent or
proxy as the by-laws of such corporation may provide, or, in the absence of
such provision, as the board of directors of such corporation may determine.
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<PAGE> 4
(e) A shareholder shall not sell his or her vote or
issue a proxy to vote to any person for any sum of money or anything of value
except as permitted by law.
SECTION 9. QUORUM OF SHAREHOLDERS.
(a) The holders of a majority of the votes of shares
entitled to vote thereat shall constitute a quorum at a meeting of shareholders
for the transaction of any business, provided that when a specified item of
business is required to be voted on by a class or series, voting as a class,
the holders of a majority of the votes of shares of such class or series shall
constitute a quorum for the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not broken by the
subsequent withdrawal of any shareholders.
(b) The shareholders who are present in person or by
proxy and who are entitled to vote may, by a majority of votes cast, adjourn
the meeting despite the absence of a quorum.
SECTION 10. PROXIES.
(a) Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him or her by proxy.
(b) No proxy shall be valid after the expiration of 11
months from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the shareholder executing it,
except as otherwise provided by law.
(c) The authority of the holder of a proxy to act
shall not be revoked by the incompetence or death of the shareholder who
executed the proxy unless before the authority is exercised, written notice of
an adjudication of such incompetence or of such death is received by the
Secretary or any Assistant Secretary.
SECTION 11. VOTE OR CONSENT OF SHAREHOLDERS.
(a) Directors shall, except as otherwise required by
law, be elected by a plurality of the votes cast at a meeting of shareholders
by the holders of shares entitled to vote in the election.
(b) Whenever any corporate action, other than the
election of directors, is to be taken by vote of the shareholders, it shall,
except as set forth in the Certificate of Incorporation or these By-laws or as
otherwise required by law, be authorized by a majority of the votes cast in
favor of or against such action at a meeting of shareholders by the holders of
shares entitled to vote thereon. Except as set forth in the Certificate of
Incorporation or these By-laws or as otherwise required by law, an abstention
shall not count as a vote cast.
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<PAGE> 5
SECTION 12. FIXING RECORD DATE.
(a) For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board may fix, in advance, a date as the
record date for any such determination of shareholders. Such date shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
(b) When a determination of shareholders of record
entitled to notice of or to vote at any meeting of shareholders has been made
as provided in this section, such determination shall apply to any adjournment
thereof, unless the Board fixes a new record date for the adjourned meeting.
SECTION 13. SHAREHOLDER NOMINATIONS AND PROPOSALS.
(a) No proposal for a shareholder vote shall be
submitted by a shareholder (a "SHAREHOLDER PROPOSAL") to the Corporation's
shareholders unless the shareholder submitting such proposal (the "PROPONENT")
shall have filed a written notice setting forth with particularity: (i) the
names and business addresses of the Proponent and all Persons (as such term is
defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")) acting in concert with the Proponent; (ii) the names and
addresses of the Proponent and the Persons identified in clause (i), as they
appear on the Corporation's books (if they so appear); (iii) the class and
number of shares of the Corporation beneficially owned by the Proponent and the
Persons identified in clause (i); (iv) a description of the Shareholder
Proposal containing all material information relating thereto; and (v) such
other information as the Board reasonably determines is necessary or
appropriate to enable the Board and shareholders of the Corporation to consider
the Shareholder Proposal. Upon receipt of the Shareholder Proposal and prior
to the shareholder meeting at which such Shareholder Proposal will be
considered, if the Board or a designated committee or the officers who will
preside at the shareholders meeting determines that the information provided in
a Shareholder Proposal does not satisfy the informational requirements of these
By-laws or is otherwise not in accordance with law, the Secretary of the
Corporation promptly shall notify such Proponent of the deficiency in the
notice. Such Proponent shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within the period of time,
not to exceed five (5) days from the date such deficiency notice is given to
the Proponent, determined by the Board, such committee or such officer. If the
deficiency is not cured within such period, or if the Board, such committee or
such officer determines that the additional information provided by the
Proponent, together with the information previously provided, does not satisfy
the requirements of this Section 13, then such proposal shall not be presented
for action at the meeting in question.
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<PAGE> 6
(b) Only persons who are selected and recommended by
the Board or a committee thereof, or who are nominated by shareholders in
accordance with the procedures set forth in this Section 13, shall be eligible
for election, or qualified to serve, as directors. Nominations of individuals
for election to the Board at any annual meeting or any special meeting of
shareholders at which directors are to be elected may be made by any
shareholder of the Corporation entitled to vote for the election of directors
at that meeting by compliance with the procedures set forth in this Section 13.
Nominations by shareholders shall be made by written notice (a "NOMINATION
NOTICE"), which shall set forth: (i) as to each individual nominated: (A) the
name, date of birth, business address and residence address of such individual;
(B) the business experience during the past five (5) years of such nominee,
including his or her principal occupations and employment during such period,
the name and principal business of any corporation or other organization in
which such occupations and employment were carried on and such other
information as to the nature of his or her responsibilities and level of
professional competence as may be sufficient to permit assessment of his or her
prior business experience; (C) whether the nominee is or has ever been at any
time a director, officer or owner of five percent (5%) or more of any class of
capital stock, partnership interests or other equity interest of any
corporation, partnership or other entity; (D) any directorships held by such
nominee in any company with a class of securities registered pursuant to
Section 12 of the Exchange Act or subject to the requirements of Section 15(d)
of the Exchange Act or any company registered as an investment company under
the Investment Company Act of 1940, as amended; and (E) whether, in the last
five (5) years, such nominee has been convicted in a criminal proceeding or has
been subject to a judgment, order, finding or decree of any federal, state or
other governmental entity, concerning any violation of federal, state or other
law, or any proceeding in bankruptcy, which conviction, judgment, order,
finding, decree or proceeding may be material to an evaluation of the ability
or integrity of the nominee; and (ii) as to the Person submitting the
Nomination Notice and any Person acting in concert with such Person: (A) the
name and business address of such Persons; (B) the name and address of such
Persons as they appear on the Corporation's books (if they so appear); and (C)
the class and number of shares of the Corporation which are beneficially owned
by such Persons. A written consent to being named in a proxy statement as a
nominee, and to serve as a director if elected, signed by the nominee, shall be
filed with any Nomination Notice. If the presiding officer at any
shareholders' meeting determines that a nomination was not made in accordance
with the procedures prescribed by these By-laws, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
(c) Subject to applicable law, Nomination Notices and
Shareholder Proposals shall be delivered to the Secretary at the principal
executive office of the Corporation not less than sixty (60) and not more than
ninety (90) days prior to the first anniversary of the date of the
Corporation's proxy statement released to shareholders in connection with the
previous year's annual meeting of shareholders if such Nomination Notice or
Shareholder Proposal is to be submitted at an annual shareholders meeting.
Nomination Notices and Shareholder Proposals shall be delivered to the
Secretary at the principal executive office of the Corporation no later than
the close of business on the fifth (5th) day following the day on which notice
of the date of a special meeting of shareholders was given if the
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<PAGE> 7
Nomination Notice or Shareholder Proposal is to be submitted at a special
shareholders meeting.
(d) The provisions of this Section 13 shall become
effective only upon the consummation of the first offering by the Corporation
of its capital stock or equity securities to the public pursuant to an
effective registration statement under the Securities Act of 1933, as then in
effect, or any comparable statement under any similar federal statute then in
force, with net proceeds of at least $15,000,000 (an "IPO").
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER OF DIRECTORS. The number of directors
constituting the entire Board shall be the number, within the range set forth
in the Certificate of Incorporation, fixed from time to time by the Board in
the manner set forth in the Certificate of Incorporation; provided, however,
that no decrease in the number of directors constituting the entire Board shall
shorten the term of an incumbent director; provided, further, that in the
absence of a determination of the number of directors to constitute the entire
Board by the Board as provided in this Section 1, the number of directors
constituting the entire Board shall be three (3).
SECTION 2. QUORUM OF DIRECTORS AND ACTION BY THE BOARD.
(a) A majority of the entire Board shall constitute a
quorum for the transaction of business, and, except as otherwise provided in
the Certificate of Incorporation or these By-laws, the vote of a majority of
the directors present at a meeting at the time of such vote, if a quorum is
then present, shall be the act of the Board.
(b) Any action required or permitted to be taken by
the Board or any committee thereof may be taken without a meeting if all
members of the Board or such committee consent in writing to the adoption of a
resolution authorizing the action. The resolution and the written consent
thereto by the members of the Board or such committee shall be filed with the
minutes of the proceedings of the Board or such committee.
SECTION 3. MEETINGS OF THE BOARD.
(a) An annual meeting of the Board shall be held in
each year as soon as practicable after the annual meeting of shareholders.
Regular meetings of the Board shall be held at such times as may be fixed by
the Board. Special meetings of the Board may be held at any time upon the call
of the Chairman of the Board or a majority of the directors then in office.
(b) Meetings of the Board shall be held at such places
as may be fixed by the Board for annual and regular meetings and in the notice
of meeting for special
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<PAGE> 8
meetings. If no place is so fixed, meetings of the Board shall be held at the
principal office of the Corporation. Any one or more members of the Board may
participate in meetings by means of a telephone conference or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
(c) No notice need be given of annual or regular
meetings of the Board. Notice of each special meeting of the Board shall be
(i) mailed, postage prepaid, to each director at his or her designated address
at least seven (7) days before the day on which such meeting is to be held,
(ii) sent by overnight courier to each director at his or her designated
address at least two (2) days before the day on which such meeting is to be
held (with delivery scheduled to occur no later than the day before the
meeting) or (iii) given orally by telephone or other means, or by facsimile,
telegraph, cable, telex, telecopier or other similar means, to each director at
his or her designated address at least twenty-four (24) hours before the time
at which such meeting is to be held. Notice of a meeting of the Board need not
be given to any director who submits a signed waiver of notice whether before
or after the meeting, or who attends the meeting without protesting, prior
thereto or at its commencement, the lack of notice to him or her. A notice, or
waiver of notice, need not specify the purpose of any meeting of the Board.
(d) A majority of the directors present, whether or
not a quorum is present, may adjourn any meeting to another time and place.
Notice of any adjournment of a meeting to another time or place shall be given,
in the manner described above, to the directors who were not present at the
time of the adjournment and, unless such time and place are announced at the
meeting, to the other directors.
SECTION 4. EXECUTIVE AND OTHER COMMITTEES OF DIRECTORS.
(a) The Board, by resolution adopted by a majority of
the entire Board, may designate from among its members an executive committee
and other committees, each consisting of one or more directors and each of
which, to the extent provided in the resolution for such committee, shall have
all the authority of the Board, except that no such committee shall have
authority as to the following matters:
(i) The submission to shareholders of any
action that needs shareholders' approval;
(ii) The filling of vacancies in the Board or in
any committee;
(iii) The fixing of compensation of the directors
for serving on the Board or on any committee;
(iv) The amendment or repeal of the By-laws, or
the adoption of new By-laws; or
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<PAGE> 9
(v) The amendment or repeal of any resolution
of the Board which, by its term, shall not be so amendable or
repealable.
(b) The Board may designate one or more directors as
alternate members of any such committee, who may replace any absent or
disqualified member or members at any meeting of such committee.
(c) Unless a greater proportion is required by the
resolution designating a committee, a majority of the entire authorized number
of members of such committee shall constitute a quorum for the transaction of
business, and the vote of a majority of the members present at a meeting at the
time of such vote, if a quorum is then present, shall be the act of such
committee. Each such committee shall serve at the pleasure of the Board.
SECTION 5. COMPENSATION OF DIRECTORS. The Board shall have
authority to fix the compensation of directors for services in any capacity.
SECTION 6. INTEREST OF DIRECTORS IN A TRANSACTION.
(a) Unless shown to be unfair and unreasonable as to
the Corporation, no contract or other transaction between the Corporation and
one or more of its directors, or between the Corporation and any other
corporation, firm, association or other entity in which one or more of the
directors are directors or officers, or are financially interested shall be
either void or voidable, irrespective of whether such interested director or
directors are present at a meeting of the Board, or of a committee thereof,
which authorizes such contract or transaction and irrespective of whether the
vote or votes of such interested director or directors are counted for such
purpose. In the absence of fraud any such contract or transaction may be
conclusively authorized or approved as fair and reasonable by:
(i) The Board or a duly empowered committee
thereof, by a vote sufficient for such purpose without counting
the vote or votes of such interested director or directors
(although such vote or votes may be counted in determining the
presence of a quorum at the meeting which authorizes such
contract or transaction), if the fact of such common
directorship, officership or financial interest is disclosed or
known to the Board or committee (as the case may be); or
(ii) The shareholders entitled to vote for the
election of directors, if such common directorship, officership
or financial interest is disclosed or known to such
shareholders.
(b) Notwithstanding the foregoing, except advances in
connection with indemnification, the Corporation may not lend money to or
guarantee the obligations of a director unless the particular loan or guarantee
is approved by the shareholders, with the holders of a majority of the shares
entitled to vote thereon constituting a quorum, but shares held of record or
beneficially by the director who is benefited by such loan or guarantee shall
not be entitled to vote or to be included in the determination of a quorum.
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ARTICLE III
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall
be elected by the Board and shall consist of a Chairman of the Board, a Chief
Executive Officer, a President, one or more Vice-Presidents, a Secretary and a
Treasurer, and such other officers or assistant officers as the Board may from
time to time appoint, or authorize the Chief Executive Officer to appoint. Any
two or more offices may be held by the same person.
SECTION 2. COMPENSATION. The salaries of all officers and
agents of the Corporation shall be fixed by the Board or a committee thereof.
SECTION 3. TERM OF OFFICE AND REMOVAL. Each officer shall
hold office for the term for which he or she is elected or appointed, and until
his or her successor has been elected or appointed and qualified. Unless
otherwise provided in the resolution of the Board of Directors electing or
appointing an officer, his or her term of office shall extend to and expire at
the meeting of the Board following the next annual meeting of shareholders.
Any officer may be removed by the Board, with or without cause, at any time.
Removal of an officer without cause shall be without prejudice to his or her
contract rights, if any, and the election or appointment of an officer shall
not of itself create contract rights.
SECTION 4. POWERS AND DUTIES. The power and duties of the
several officers shall be as provided from time to time by resolution or other
directive of the Board. In the absence of such provisions, the respective
officers shall have the powers and shall discharge the duties customarily and
usually held and performed by like officers of the corporations similar in
organization and business purposes to the Corporation.
SECTION 5. BOOKS TO BE KEPT.
(a) The Corporation shall keep (i) correct and
complete books and records of account, (ii) minutes of the proceedings of the
shareholders, Board and any committees of directors and (iii) a current list of
the directors and officers and their residence addresses. The Corporation also
shall keep at its office in the State of New York or at the office of its
transfer agent or registrar in the State of New York, if any, a record
containing the names and addresses of all shareholders, the number and class of
shares held by each and the dates when they respectively became the owners of
the record thereof.
(b) The Board may determine whether and to what extent
and at what times and places and under what conditions and regulations any
accounts, books, record or other documents of the Corporation shall be open to
inspection, and no creditor, security holder or other person shall have any
right to inspect any accounts, books, records or other documents of the
Corporation except as conferred by statute or as so authorized by the Board.
SECTION 6. CHECKS, NOTES, ETC. All checks and drafts on, and
withdrawals from the Corporation's accounts with banks or other financial
institutions, and all bills of
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exchange, notes and other instruments for the payment of money, drawn, made,
endorsed, or accepted by the Corporation, shall be signed on its behalf by the
person or persons thereunto authorized by, or pursuant to resolution of, the
Board.
ARTICLE IV
FORMS OF CERTIFICATES AND LOSS AND
TRANSFER OF SHARES
SECTION 1. FORMS OF SHARE CERTIFICATES.
(a) The shares of the Corporation shall be represented
by certificates, in such forms as the Board may prescribe, signed by the
Chairman of the Board, the Chief Executive Officer, the President or a
Vice-President and the Secretary or an Assistant Secretary or the Treasurer or
an Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation or its employee. In case
any officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or
she were such officer at the date of issue.
(b) Each certificate representing shares issued by the
Corporation shall set forth upon the face or back of the certificate, or shall
state that the Corporation will furnish to any shareholder upon request and
without charge, a full statement of the designation, relative rights,
preferences and limitations of the shares of each class of shares, if more than
one, authorized to be issued and the designation, relative rights, preferences
and limitations of each series of any class of preferred shares authorized to
be issued so far as the same have been fixed, and the authority of the Board to
designate and fix the relative rights, preferences and limitations of other
series.
(c) Each certificate representing shares shall state
upon the face thereof:
(i) That the Corporation is formed under the
laws of the State of New York;
(ii) The name of the person or persons to whom
issued; and
(iii) The number and class of shares, and the
designation of the series, if any, which such certificate
represents.
SECTION 2. TRANSFERS OF SHARES. Shares of the Corporation
shall be transferable on the record of shareholders upon presentment to the
Corporation or a transfer
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agent of a certificate or certificates representing the shares requested to be
transferred, with proper endorsement on the certificate or on a separate
accompanying document, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
SECTION 3. LOST, STOLEN OR DESTROYED SHARE CERTIFICATES. No
certificate for shares of the Corporation shall be issued in place of any
certificate alleged to have been lost, destroyed or wrongfully taken, except,
if and to the extent required by the Board, upon:
(a) Production of evidence of loss, destruction or
wrongful taking;
(b) Delivery of a bond indemnifying the Corporation
and its agents against any claim that may be made against it or them on account
of the alleged loss, destruction or wrongful taking of the replaced certificate
or the issuance of the new certificate;
(c) Payment of the expense of the Corporation and its
agents incurred in connection with the issuance of the new certificate; and
(d) Compliance with such other reasonable requirements
as may be imposed.
ARTICLE V
INDEMNIFICATION
SECTION 1. AUTHORIZATION OF INDEMNIFICATION. Each person who
was or is a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether by or in the right of the
Corporation or otherwise (a "proceeding"), by reason of the fact that he or
she, or his or her testator or intestate, is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation in any
capacity with another corporation or any partnership, joint venture, limited
liability company, trust, employee benefit plan or other enterprise shall be
(and shall be deemed to have a contractual right to be) indemnified and held
harmless by the Corporation (and any successor to the Corporation by merger or
otherwise) to the fullest extent authorized by, and subject to the conditions
and (except as provided herein) procedures set forth in the NYBCL, as the same
exists or may hereafter be amended (but any such amendment shall not be deemed
to limit or prohibit the rights of indemnification hereunder for past acts or
omissions of any such person insofar as such amendment limits or prohibits the
indemnification rights that said law permitted the Corporation to provide prior
to such amendment), against all judgments, fines, ERISA taxes or penalties and
amounts paid or to be paid in settlement and reasonable expenses, including
attorneys' fees actually and necessarily incurred as a result of such
proceeding, or any appeal therein, if such person acted, in good faith, for a
purpose which he or she reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, limited
liability company, trust, employee benefit plan or other enterprise, not
opposed to, the
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<PAGE> 13
best interests of the Corporation and, in criminal proceedings, in addition, had
no reasonable cause to believe that his or her conduct was illegal; provided,
however, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person (except for a suit or action pursuant to Section 2 of this Article
V) only if such proceeding (or part thereof) was authorized by the Board.
Persons who are not directors or officers of the Corporation and are not so
serving at the request of the Corporation may be similarly indemnified in
respect of such service to the extent authorized at any time by the Board. The
indemnification conferred in this Section 1 also shall include the right to be
paid by the Corporation (and such successor) the expenses (including attorneys'
fees) incurred in the defense of or other involvement in any such proceeding in
advance of its final disposition; provided, however, that, if and to the extent
the NYBCL requires, the payment of such expenses (including attorneys' fees)
incurred by a director or officer in advance of the final disposition of a
proceeding shall be made only upon delivery to the Corporation of an undertaking
by or on behalf of such director or officer to repay all amounts so paid in
advance if and to the extent it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section 1 or
otherwise; and provided further, that, such expenses incurred by other employees
and agents may be so paid in advance upon such terms and conditions, if any, as
the Board deems appropriate. Any repeal or modification of this Section 1 by the
shareholders of the Corporation shall not adversely affect any right or
protection of any person under this Section 1 existing immediately prior to the
time at which such repeal or modification becomes effective.
SECTION 2. RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE
CORPORATION. If a claim under Section 1 of this Article V is not paid in full
by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring an
action against the Corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be entitled to be paid
also the expense of prosecuting such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred
in connection with any proceeding in advance of its final disposition where the
required undertaking, if any is required, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it
permissible under the NYBCL for the Corporation to indemnify the claimant for
the amount claimed or is otherwise not entitled to indemnification under
Section 1 of this Article V but the burden of proving such defense shall be on
the Corporation. The failure of the Corporation (in the manner provided under
the NYBCL) to have made a determination prior to or after the commencement of
such action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
NYBCL shall not be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. Unless otherwise
specified in an agreement with the claimant, an actual determination by the
Corporation (in the manner provided under the NYBCL) after the commencement of
such action that the claimant has not met such applicable standard of conduct
shall not be a defense to the action, but shall create a presumption that the
claimant has not met the applicable standard of conduct. Any repeal or
modification of this Section 2 by the shareholders of the Corporation shall not
adversely affect
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<PAGE> 14
any right or protection of any person under this Section 2 existing immediately
prior to the time at which such repeal or modification becomes effective.
SECTION 3. NON-EXCLUSIVITY. The rights to indemnification
and advance payment of expenses provided by Section 1 of this Article V shall
not be deemed exclusive of any other rights to which those seeking
indemnification and advance payment of expenses may be entitled under any
By-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding such office.
SECTION 4. SURVIVAL OF INDEMNIFICATION. The indemnification
and advance payment of expenses and rights thereto provided by, or granted
pursuant to, Section 1 of this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee, partner or agent and shall inure to the benefit of
the personal representatives, heirs, executors and administrators of such
person.
SECTION 5. INSURANCE. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, partner
(limited or general) or agent of another corporation or of a partnership, joint
venture, limited liability company, trust, employee benefit plan or other
enterprise, against any liability asserted against such person or incurred by
such person in any such capacity, or arising out of such person's status as
such, and related expenses, whether or not the Corporation would have the power
to indemnify such person against such liability under the provisions of the
NYBCL.
ARTICLE VI
OTHER MATTERS
SECTION 1. CORPORATE SEAL. The Board may adopt a corporate
seal, alter such seal at pleasure, and authorize it to be used by causing it or
a facsimile to be affixed or impressed or reproduced in any other manner.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation
shall be the calendar year.
SECTION 3. AMENDMENTS. Except as otherwise provided in the
Certificate of Incorporation or these By-laws, these By-laws of the Corporation
may be amended, altered, changed, adopted and repealed or new By-laws may be
adopted by the affirmative vote of at least a majority of the members of the
Board then in office. The shareholders also shall have the power to amend,
alter, change, adopt and repeal the By-laws of the Corporation at any annual or
special meeting pursuant to the requirements of the Certificate of
Incorporation.
* * * * *
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<PAGE> 15
These Amended and Restated By-laws of Global Vacation Group,
Inc. were approved by the Board of Directors and by the holders of the
requisite number of the outstanding shares of the Corporation's capital stock
at a meeting of shareholders called for such purpose.
/s/ Daniel A. Raskas
---------------------------
Daniel A. Raskas
Secretary
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<PAGE> 1
EXHIBIT 10.5
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT (this "AGREEMENT") is made as of June 12, 1998,
by and among GLOBAL VACATION GROUP, INC., a New York corporation (formerly,
Allied Bus Corp.) (the "COMPANY"), THAYER EQUITY INVESTORS III, L.P., a Delaware
limited partnership (the "INVESTOR"), and each other Person listed on the
Schedule of Holders attached hereto as Exhibit A (together with the Investor,
the "SHAREHOLDERS").
RECITALS:
A. The Company, the Investor and certain other Shareholders
are parties to an Equity Purchase Agreement dated March 30, 1998 (the "PURCHASE
AGREEMENT"). In order to induce such Shareholders to enter into the Purchase
Agreement, the Company agreed to provide the registration rights set forth in
this Agreement. Any other Persons who purchase capital stock of the Company may,
with the consent of the Company's Board of Directors and the Investor, become
parties to this Agreement by executing a Joinder Agreement.
B. Unless otherwise provided in this Agreement, capitalized
terms used herein shall have the meanings set forth in Section 8 hereof.
AGREEMENT
The parties hereto agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. At any time after the
earlier of (i) 180 days after the closing of the Initial Public Offering or (ii)
the first anniversary of the date hereof, the holders of a majority of the
Registrable Securities may request registration under the Securities Act of all
or any portion of their Registrable Securities on Form S-1 or any similar
long-form registration ("LONG-FORM REGISTRATIONS").
(b) LONG-FORM REGISTRATIONS. The holders of a majority of
the Registrable Securities shall be entitled to request (i) two Long-Form
Registrations in which the Company shall pay all Registration Expenses
("COMPANY-PAID LONG-FORM REGISTRATIONS") and (ii) an unlimited number of
Long-Form Registrations in which the holders of Registrable Securities included
in such registration shall pay their share of the Registration Expenses as set
forth in Section 5 hereof. A registration shall not count as one of the
permitted Company-paid Long-Form Registrations until it has become effective and
no Long-Form Registration shall count as one of the permitted Company-paid
Long-Form Registrations unless the holders of Registrable Securities are able to
register and sell at least 90% of the Registrable Securities requested to be
included in such registration; provided that in any event the Company shall pay
all Registration Expenses in connection with any registration initiated as a
Company-paid
<PAGE> 2
Long-Form Registration whether or not it has become effective and
whether or not such registration has counted as one of the permitted
Company-paid Long-Form Registrations.
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to Section l(b), the holders of a majority of
the Registrable Securities shall be entitled to request four registrations under
the Securities Act of all or part of their Registrable Securities on Forms S-2
or S-3 or any similar short-form registration ("SHORT-FORM REGISTRATIONS") in
which the Company shall pay all Registration Expenses. After the Company has
become subject to the reporting requirements of the Securities Exchange Act, the
Company shall use its best efforts to make Short-Form Registrations on Form S-3
available for the sale of Registrable Securities, including, without limitation,
as a "shelf registration" if so requested by the holders of a majority of the
Registrable Securities.
(d) DEMAND REGISTRATIONS. All registrations requested
pursuant to Sections l(a), (b) and (c) are referred to herein as "DEMAND
REGISTRATIONS." Demand Registrations shall be Short-Form Registrations whenever
the Company is permitted to use any applicable short form. Each request for a
Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered. Within ten days after receipt of any such
request, the Company shall give written notice of such requested registration to
all other holders of Registrable Securities and, except as provided in Section
1(e) below, shall include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within 15 days after the receipt of the Company's notice.
(e) PRIORITY ON DEMAND REGISTRATIONS. The Company shall not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such
registration exceeds the number which can be sold in an orderly manner in such
offering within a price range acceptable to the holders of Registrable
Securities making such Demand Registration, the Company shall include in such
registration: (i) first, the Investor Registrable Securities requested to be
included in such registration, pro rata among the holders of such Investor
Registrable Securities on the basis of the number of shares owned by such
holders; (ii) second, the Seller Registrable Securities requested to be included
in such registration, pro rata among the holders of such Seller Registrable
Securities on the basis of the number of shares owned by such holders; (iii)
third, the Management Registrable Securities requested to be included in such
registration, pro rata among the holders of such Management Registrable
Securities on the basis of the number of shares owned by such holders; and (iv)
fourth, other securities which are not Registrable Securities requested to be
included in such registration pursuant to contractual registration rights
("OTHER REGISTRABLE SECURITIES"), pro rata among the holders thereof on the
basis of the number of their securities requested to be included therein.
Without the consent of the Company and the holders of a majority of the
Registrable
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Securities included in such registration, any Persons other than holders of
Registrable Securities who participate in Demand Registrations must pay their
share of the Registration Expenses as provided in Section 5 hereof.
(f) RESTRICTIONS ON LONG-FORM REGISTRATIONS. The Company
shall not be obligated to effect any Long-Form Registration within 180 days
after the effective date of a previous Long-Form Registration or a previous
registration in which the holders of Registrable Securities were given piggyback
rights pursuant to Section 2 and in which there was no reduction in the number
of Registrable Securities requested to be included. The Company may postpone for
up to 180 days the filing or the effectiveness of a registration statement for a
Demand Registration if the Company and the holders of a majority of the
Registrable Securities agree that such Demand Registration would reasonably be
expected to have a material adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer, reorganization or similar transaction; provided that in such event, the
holders of Registrable Securities initially requesting such Demand Registration
shall be entitled to withdraw such request and, if such request is withdrawn,
such Demand Registration shall not count as one of the permitted Company-paid
Long Form Registrations hereunder and the Company shall pay all Registration
Expenses in connection with such registration. The Company may delay a Demand
Registration hereunder only once in any twelve-month period.
(g) SELECTION OF UNDERWRITERS. The holders of a majority of
the Registrable Securities included in any Long-Form Registration, which is a
Demand Registration, shall have the right to select the investment banker(s) and
manager(s) to administer the offering.
(h) OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Company shall not grant to any Persons the right to request the
Company to register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, without the
prior written consent of the holders of a majority of the Registrable
Securities.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to
register any of its securities under the Securities Act (other than the Initial
Public Offering or pursuant to a Demand Registration or a registration on Form
S-4, Form S-8 or any successor form) and the registration form to be used may be
used for the registration of Registrable Securities (a "PIGGYBACK
REGISTRATION"), the Company shall give prompt written notice (in any event
within three business days after its receipt of notice of any exercise of demand
registration rights other than under this Agreement) to all holders of
Registrable Securities of its intention to effect such a registration and shall
include in such registration all Registrable
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Securities with respect to which the Company has received written requests for
inclusion therein within 25 days after the receipt of the Company's notice.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the
holders of Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
(c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company shall include in
such registration (i) first, the securities the Company proposes to sell; (ii)
second, the Investor Registrable Securities requested to be included in such
registration, pro rata among the holders of such Investor Registrable Securities
on the basis of the number of shares owned by such holders; (iii) third, the
Seller Registrable Securities requested to be included in such registration, pro
rata among the holders of such Seller Registrable Securities on the basis of the
number of shares owned by such holders; (iv) fourth, the Management Registrable
Securities requested to be included in such registration, pro rata among the
holders of such Management Registrable Securities on the basis of the number of
shares owned by such holders; and (v) fifth, Other Registrable Securities
requested to be included in such registration, pro rata among the holders
thereof on the basis of the number of Other Registrable Securities requested to
be included therein; provided, however that in any Piggyback Registration other
than the Initial Public Offering of the Company's Common Stock, the holders of
Registrable Securities shall be permitted to include in any such registration
not less than 25% of the number of shares of Common Stock proposed to be sold in
such offering, unless the holders of a majority of the Registrable Securities
requesting such Piggyback Registration agree in writing to reduce such position
or to waive their rights under this proviso.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
Other Registrable Securities, and the managing underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in an orderly
manner in such offering within a price range acceptable to the holders of a
majority of the Registrable Securities to be included in such registration, the
Company shall include in such registration (i) first, the securities requested
to be included therein by the holders of Other Registrable Securities requesting
such registration, (ii) second, the Investor Registrable Securities requested to
be included in such registration, pro rata among the holders of such Investor
Registrable Securities on the basis of the number of shares owned by such
holders; (iii) third, the Seller Registrable Securities requested to be included
in such registration, pro rata among the holders of such Seller Registrable
Securities on the basis of the number of shares owned by such holders; (iv)
fourth, the Management Registrable Securities requested to be included in such
registration, pro rata among the holders of such Management Registrable
Securities on the basis of the number of shares owned by
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<PAGE> 5
such holders; and (v) fifth, any non-requesting Other Registrable Securities
requested to be included in such registration, pro rata among the holders
thereof on the basis of the number of their securities requested to be included
therein.
(e) SELECTION OF UNDERWRITERS. If any Piggyback
Registration is an underwritten offering, the selection of investment banker(s)
and manager(s) for the offering must be approved by the Investor. Such approval
shall not be unreasonably withheld.
3. HOLDBACK AGREEMENTS.
(a) HOLDERS OF REGISTRABLE SECURITIES. Each holder of
Registrable Securities shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for such
securities, during the seven days prior to and the 90-day period beginning on
the effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which Registrable Securities are included (except as
part of such underwritten registration), unless the underwriters managing the
Demand Registration or Piggyback Registration otherwise agree.
(b) THE COMPANY. The Company shall not effect any public
sale or distribution of any of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and during the 180-day period beginning on the first
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration (except as part of such Demand Registration or Piggyback
Registration or pursuant to registrations on Form S-4, Form S-8 or any successor
form), unless the underwriters managing the registered public offering otherwise
agree.
4. REGISTRATION PROCEDURES. Whenever the holders of
Registrable Securities have requested that any Registrable Securities be
registered pursuant to this Agreement, the Company shall use its best efforts to
effect the registration and the sale of such Registrable Securities in
accordance with the intended method of disposition thereof, and pursuant thereto
the Company shall as expeditiously as possible:
(a) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective; provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to the counsel
selected by the holders of a majority of the Registrable Securities included in
such registration statement copies of all such documents proposed to be filed,
which documents shall be subject to the review and comment of such counsel;
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments and supplements
to such registration statement and
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<PAGE> 6
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than 120 days, if
applicable, and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement; provided, however,
that if the Company is eligible to use Form S-3, the holders of Registrable
Securities may require the Company to keep such registration effective as a
"shelf registration" for a period of up to two years;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided that the Company shall not be required
to (i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) subject itself
to taxation in any such jurisdiction, or (iii) consent to general service of
process in any such jurisdiction;
(e) notify each seller of such Registrable Securities, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use its best
efforts to secure designation of all such Registrable Securities covered by such
registration statement as a NASDAQ "national market system security" within the
meaning of Rule llAa2-1 of the Securities and Exchange Commission or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
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(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including effecting a stock split or
a combination of shares);
(i) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities, which
holder, in the Company's sole and exclusive judgment, might be deemed to be an
underwriter or a controlling Person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement for
sale in any jurisdiction, the Company shall use its best efforts promptly to
obtain the withdrawal of such order;
(m) subject to Section 4(d) above, use its best efforts to
cause any Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the sellers thereof to consummate the disposition
of such Registrable Securities;
(n) obtain a cold comfort letter from the Company's
independent public accountants in customary form and covering such matters of
the type customarily
-7-
<PAGE> 8
covered by cold comfort letters as the holders of a majority of the Registrable
Securities being sold reasonably request; and
(o) if the offering is underwritten and at the request of
any seller of Registrable Securities, use its best efforts to furnish on the
date that Registrable Securities are delivered to the underwriters for sale
pursuant to such registration an opinion dated such date of counsel representing
the Company for the purposes of such registration, addressed to the underwriters
and to such seller, stating that such registration statement has become
effective under the Securities Act and that (i) to the best knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (ii) the registration statement, the
related prospectus and each amendment or supplement thereof comply as to form in
all material respects with the requirements of the Securities Act (except that
such counsel need not express any opinion as to financial statements contained
therein) and (iii) to such other matters as reasonably may be requested by
counsel for the underwriters or by such seller or its counsel.
5. REGISTRATION EXPENSES.
(a) PAYMENT OF REGISTRATION EXPENSES. All expenses incident
to the Company's performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, fees and disbursements of custodians, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"REGISTRATION EXPENSES"), shall be borne as provided in this Agreement, except
that the Company shall, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by the Company are then listed or on, the NASD
automated quotation system.
(b) REIMBURSEMENT OF REGISTRATION EXPENSES. In connection
with each Demand Registration and each Piggyback Registration, the Company shall
reimburse the holders of Registrable Securities included in such registration
for the reasonable fees and disbursements of one counsel chosen by the holders
of a majority of the Registrable Securities included in such registration and
for the reasonable fees and disbursements of each additional counsel retained by
any holder of Registrable Securities for the purpose of rendering a legal
opinion on behalf of such holder in connection with any underwritten Demand
Registration or Piggyback Registration.
(c) PAYMENT OF REGISTRATION EXPENSES BY HOLDERS OF
REGISTRABLE SECURITIES. To the extent Registration Expenses are not required to
be paid by the Company,
-8-
<PAGE> 9
each holder of securities included in any registration hereunder shall pay its
proportionate share of all Registration Expenses based upon the ratio of the
aggregate selling price of each holder's securities included therein to the
aggregate selling price of all securities to be so registered.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the extent permitted by law, each holder of Registrable
Securities, its officers and directors and each Person who controls such holder
(within the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses caused by any untrue or alleged untrue statement of
material fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the Company by
such holder expressly for use therein or by such holder's failure to deliver a
copy of the registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company shall indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) INDEMNIFICATION BY THE HOLDERS OF REGISTRABLE
SECURITIES. In connection with any registration statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls the Company (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of material
fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder; provided that the obligation to indemnify
shall be individual, not joint and several, for each holder and shall be limited
to the net amount of proceeds received by such holder from the sale of
Registrable Securities pursuant to such registration statement.
(c) PROCEDURE FOR INDEMNIFICATION. Any Person entitled to
indemnification hereunder shall (i) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
(provided that the failure to give prompt notice shall not impair any Person's
right to indemnification hereunder to the extent such failure has not prejudiced
the indemnifying party) and (ii) unless in such indemnified party's
-9-
<PAGE> 10
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party shall not be subject to any liability for any settlement made
by the indemnified party without its consent (but such consent shall not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) SURVIVAL. The indemnification provided for under this
Agreement shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling Person of such indemnified party and shall survive the transfer of
securities. The Company also agrees to make such provisions, as are reasonably
requested by any indemnified party, for contribution to such party in the event
the Company's indemnification is unavailable for any reason.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder unless such Person:
(a) in the case of a registration which is underwritten,
agrees to sell such Person's securities on the basis provided in the applicable
underwriting arrangement; provided, however, that no holder of less than 10% of
all Registrable Securities included in any underwritten registration (other than
an executive officer or director of the Company) shall be required to make any
representations or warranties to the Company or the underwriters (other than
representations and warranties regarding such holder, such holder's ownership of
stock and such holder's intended method of distribution) or to undertake any
indemnification obligations to the Company or the underwriters with respect
thereto, except as otherwise provided in Section 6 hereof;
(b) as expeditiously as possible, notifies the Company, at
any time when a prospectus relating to such Person's Registrable Securities is
required to be delivered under the Securities Act, of the happening of any event
as a result of which such prospectus contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not misleading;
(c) complies with all reasonable requests made by the
Company or its counsel with respect to the registration of such Person's
Registrable Securities, including, without limitation, providing access to all
relevant books and records; and
(d) completes, executes and delivers all questionnaires,
powers of attorney, indemnities, underwriting agreements and other usual and
customary documents necessary or appropriate with respect to the offering of
such Person's Registrable Securities,
-10-
<PAGE> 11
and in the case of a registration which is underwritten, necessary or
appropriate under the terms of such underwriting arrangements (subject to the
provision in Section 7(a) above).
8. DEFINITIONS.
(a) The term "INITIAL PUBLIC OFFERING" means the first
registered public offering of the Company's Common Stock by the Company under
the Securities Act with net proceeds to the Company of not less than $15
million.
(b) The term "INVESTOR REGISTRABLE SECURITIES" means all
Registrable Securities (i) initially issued by the Company to the Investor and
the other purchasers under the Purchase Agreement or the Recapitalization
Agreement and (ii) all other Registrable Securities subsequently acquired by
holders of Investor Registrable Securities. Investor Registrable Securities will
continue to be Investor Registrable Securities if held or acquired by any holder
of Registrable Securities other than a holder of Management Registrable
Securities.
(c) The term "MANAGEMENT AGREEMENT" means collectively
those certain Management Agreements dated March 30, 1998 between the Company and
Roger Ballou, Walter Berman and Raymond Lewis and those certain option
agreements dated March 30, 1998 with Daniel Raskas.
(d) The term "MANAGEMENT REGISTRABLE SECURITIES" means all
Registrable Securities initially held by officers, directors or employees of the
Company, including those issued under any Management Agreement to Roger Ballou,
Walter Berman, Raymond Lewis and Daniel Raskas. Management Registrable
Securities will continue to be Management Registrable Securities if held or
acquired by any holder of Registrable Securities other than a holder of Investor
Registrable Securities.
(e) The term "PERSON" means any individual, corporation,
partnership, joint venture, association, joint-stock company, limited liability
company, trust or unincorporated organization.
(f) The term "RECAPITALIZATION AGREEMENT" means that
certain Recapitalization Agreement dated March 18, 1998 among the Company, the
Investor, Allied Tours Holding Corp. and its shareholders.
(g) The term "REGISTRATION EXPENSES" has the meaning set
forth in Section 5 above.
(h) The term "REGISTRABLE SECURITIES" means (i) any Common
Stock issued pursuant to the Recapitalization Agreement, the Purchase Agreement,
any Management Agreement or any Seller Subscription Agreement (whether issued
before or after the date hereof), (ii) any other Common Stock issued or issuable
with respect to the securities referred to in clause (i) by way of a stock
dividend or stock split or in connection with an exchange or
-11-
<PAGE> 12
combination of shares, recapitalization, merger, consolidation or other
reorganization, and (iii) any other shares of Common Stock held by Persons
holding securities described in clauses (i) and (ii), inclusive above,
including, without limitation, any shares of Common Stock issued upon conversion
of the Company's preferred stock. As to any particular Registrable Securities,
such securities shall cease to be Registrable Securities when they have been
distributed to the public pursuant to a offering registered under the Securities
Act or sold to the public through a broker, dealer or market maker in compliance
with Rule 144 under the Securities Act (or any similar rule then in force). For
purposes of this Agreement, a Person shall be deemed to be a holder of
Registrable Securities whenever such Person has the right to acquire such
Registrable Securities (upon conversion of any capital stock or upon exercise of
any options or warrants or in connection with a transfer of securities or
otherwise, but disregarding any restrictions or limitations upon the exercise of
such right), whether or not such acquisition has actually been effected.
(i) The term "SECURITIES ACT" means the Securities Act of
1933, as amended, or any similar federal law then in force.
(j) The term "SECURITIES EXCHANGE ACT" means the Securities
Exchange Act of 1934, as amended, or any similar federal law then in force.
(k) The term "SELLER REGISTRABLE SECURITIES" means all
Registrable Securities issued pursuant to a Seller Subscription Agreement or
held by any former stockholder of any business acquired by the Company
(initially this shall mean Allied Tours Holding Corp., Ralph M. Caliri, William
W. Webber and James F. Miller). Seller Registrable Securities will continue to
be Seller Registrable Securities if held or acquired by any holder of
Registrable Securities other than a holder of Investor Registrable Securities or
Management Registrable Securities.
(l) The term "SELLER SUBSCRIPTION AGREEMENT" means any one
of the following: (i) that certain stock subscription agreement dated March 30,
1998 with Ralph M. Caliri and William W. Webber; (ii) that certain stock
subscription agreement dated May 4, 1998 with James F. Miller; or (iii) any
other stock subscription agreement for the purchase of restricted capital stock
of the Company by Persons who are seller(s) of businesses acquired by the
Company where such Persons have executed a Joinder Agreement.
9. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company shall not
hereafter enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the holders of Registrable
Securities in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The
Company shall not take any action, or permit any change to occur, with respect
to its securities which would adversely affect the ability of the holders of
Registrable Securities to include such
-12-
<PAGE> 13
Registrable Securities in a registration undertaken pursuant to this Agreement
or which would adversely affect the marketability of such Registrable Securities
in any such registration.
(c) REMEDIES. Any Person having rights under any provision
of this Agreement shall be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties hereto
agree and acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and for
other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and the Investor. Notwithstanding the
foregoing, in the event that the Investor holds less than 30% of the Registrable
Securities held by the Investor on the date immediately following the closing of
the Initial Public Offering then any amendment or waiver shall be approved by
the Company and the holders of a majority of all Registrable Securities.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
purchasers or holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(f) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement
may be executed simultaneously in two or more counterparts, any one of which
need not contain the signatures of more than one party, but all such
counterparts taken together shall constitute one and the same Agreement. Each
party to this Agreement agrees that it will be bound by its own telecopied
signature and that it accepts the telecopied signature of each other party to
this Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
-13-
<PAGE> 14
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
(j) NOTICES. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or 48 hours after deposited in the United
States mail, certified or registered to the recipient by postage prepaid or by
facsimile. Such notices, demands and other communications shall be sent to the
Investor and to each Shareholder at the addresses indicated on the Schedule of
Holders attached hereto and to the Company at the address of its corporate
headquarters or to such other address or to the attention of such other Person
as the recipient party has specified by prior written notice to the sending
party.
(k) NEW PARTIES. During the term of this Agreement, the
Company may, with the consent of the Company's Board of Directors and the
Investor, allow other Persons to become parties to this Agreement by executing a
Joinder Agreement, and the Schedule of Holders attached hereto as Exhibit A
shall be revised and updated accordingly.
(l) TERMINATION OF AGREEMENT. All registration rights
granted hereunder will expire and this Agreement will be terminated at such time
as (i) 90% of the Registrable Securities originally issued by the Company to the
Investor pursuant to the Purchase Agreement and the Recapitalization Agreement
have been sold to the public (either in an offering registered under the
Securities Act or pursuant to Rule 144 promulgated under the Securities Act),
and (ii) the average daily trading volume of the Common Stock over the six-month
period immediately preceding the termination is at least one-quarter of one
percent (1/4%) of the Company's outstanding Common Stock.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
GLOBAL VACATION GROUP, INC.
By: /s/ Roger H. Ballou
-----------------------------------------
Name: Roger H. Ballou
Title: Chairman of the Board and Chief
Executive Officer
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, LLC
Its: General Partner
By: /s/ Carl J. Rickertsen
-----------------------------------------
Name: Carl J. Rickertsen
Title: Member
/s/ William W. Webber
-------------------------------------------
William W. Webber
/s/ Ralph M. Caliri
-------------------------------------------
Ralph M. Caliri
/s/ James F. Miller
-------------------------------------------
James F. Miller
/s/ Roger H. Ballou
-------------------------------------------
Roger H. Ballou
/s/ Walter S. Berman
-------------------------------------------
Walter S. Berman
-15-
<PAGE> 16
/s/ J. Raymond Lewis, Jr.
-------------------------------------------
J. Raymond Lewis, Jr.
ALLIED TOURS HOLDING CORP.
/s/ Michael Fisher
-------------------------------------------
By: Michael Fisher
Its:
-------------------------------------------
TC CO-INVESTORS, LLC
By: TC Management LLC
By: /s/ Carl J. Rickertsen
----------------------------------------
Name: Carl J. Rickertsen
Title: Member
Altobello Family Limited Partnership
By: /s/ Daniel Altobello
----------------------------------------
Name: Daniel Altobello
Title: General Partner
/s/ Vernon E. Jordan, Jr.
-------------------------------------------
Vernon E. Jordan, Jr.
/s/ Jack F. Kemp
-------------------------------------------
Jack F. Kemp
/s/ Drew Lewis
-------------------------------------------
Drew Lewis
/s/ James D. Robinson, III
-------------------------------------------
James D. Robinson, III
-16-
<PAGE> 17
Ueberroth Family Trust, dated June 27, 1986
By: /s/ Peter V. Ueberroth
-----------------------------------------
Name: Peter V. Ueberroth
Trustee
Joseph J. Ueberroth Revocable Trust
By: /s/ Joseph J. Ueberroth
-------------------------------------------
Joseph J. Ueberroth
Trustee
/s/ Frank Zarb /s/ Patricia Zarb
-------------------------------------------
Frank Zarb and Patricia Zarb
/s/ Eric A. Croson /s/ Mari Jan Pitcher
-------------------------------------------
Eric A. Croson and Mari Jan Pitcher
/s/ Steve McNeely
-------------------------------------------
Steve McNeely
/s/ Harry J. McCreery
-------------------------------------------
Harry J. McCreery
PSERD Trust
By: /s/ Philip S. Dauber
-------------------------------------------
Name: Philip S. Dauber
Trustee
/s/ Edward Mathias
-------------------------------------------
Edward Mathias
-17-
<PAGE> 18
/s/ Harry N. Walters
-------------------------------------------
Harry N. Walters
/s/ Herman Porten
-------------------------------------------
Herman Porten
/s/ Daniel F. Gillis
-------------------------------------------
Daniel F. Gillis
-18-
<PAGE> 19
EXHIBIT A TO
REGISTRATION AGREEMENT
SCHEDULE OF HOLDERS
INVESTOR:
Thayer Equity Investors III, L.P.
c/o Thayer Equity Partners
1455 Pennsylvania Avenue, N.W., Suite 350
Washington, D.C. 20004
Attention: Chris Temple
OTHER SHAREHOLDERS:
Roger H. Ballou Edward Mathias
c/o Global Vacation Group, Inc. c/o The Carlyle Group
1420 New York Avenue, NW, Suite 550 1001 Pennsylvania Ave., NW
Washington, DC 20005 Washington, DC 20004
Walter Berman TC Co-Investors, LLC
c/o Global Vacation Group, Inc. c/o Thayer Capital Partners
1420 New York Avenue, NW, Suite 550 1455 Pennsylvania Avenue, NW
Washington, DC 20005 Suite 350
Washington, DC 20004
Vernon E. Jordan, Jr.
Partner Allied Tours Holding Corp.
Akin Gump c/o Global Vacation Group, Inc. -
1333 New Hampshire Ave., NW Allied Division
Suite 400 165 W. 46th Street
Washington, DC 20036 10th Floor
New York, NY 10036
Jack F. Kemp
Empower America Altobello Family Limited Partnership
1776 I St., NW, Suite 890 c/o Dan Altobello
Washington, DC 20006 Chairman
Onex Food Services, Inc.
J. Raymond Lewis, Jr. 6550 Rock Spring Drive
c/o Global Vacation Group, Inc. Bethesda, MD 20817
1420 New York Avenue, NW, Suite 550
Washington, DC 20005
A-1
<PAGE> 20
Ralph M. Calir James D. Robinson, III
8 Thackery Lane Chairman & CEO
Cherry Hill, NJ 08003 RRE Investors, LLC
126 East 56th Street, 22nd Fl.
Eric A. Croson and Mari Jan Pitcher New York, NY 10022
3006 Wild Meadow Drive
Durham, NC 27705 Ueberroth Family Trust
dated June 27, 1986
Daniel F. Gillis Peter V. Ueberroth
President & CEO Trustee
Software AG-Americas P.O. Box 100
11190 Sunrise Valley Drive Laguno Beach, CA 72652-0100
Reston, VA 20191-5424
Joseph J. Ueberroth Revocable Trust
Drew Lewis Joseph Ueberroth
P.O. Box 70 Trustee
Lederach, PA 19450 48 Lessay
Newport Coast, CA 92657
Harry McCreery
CFO William W. Webber
Software AG-Americas 210 W. Ritterhouse Square
11190 Sunrise Valley Drive Apt. 2701
Reston, VA 20191-5424 Philadelphia, PA 19103
Steve McNeely Harry N. Walters
1645 N. Vine Street 125 Thomas Dale
Suite 700 Williamsburg, VA 23185
Los Angeles, CA 90028
Frank G. and Patricia Zarb
James F. Miller 1165 Orio Drive
JFM Enterprises McLean, VA 22102
1301 West 22nd Street
Suite 1001
Oak Brook, IL 60521
Herman Porten
7 Harborage Island
Fort Lauderdale, FL 33316
PSERD Trust, dated March 11, 1986
Philip S. Dauber and Elayne R. Dauber,
Trustees
27930 Roble Alto
Los Altos Hills, CA 94022
A-2
<PAGE> 21
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as
of the date written below by the undersigned (the "JOINING PARTY") and the
parties to the Registration Rights Agreement, dated as of June 12, 1998 (the
"REGISTRATION AGREEMENT") among Global Vacation Group, Inc., Thayer Equity
Investors III, L.P. and the Shareholders. Capitalized terms used but not defined
herein shall have the meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder Agreement, the Joining Party
will be deemed to be a party to the Registration Agreement and shall have all of
the obligations of a "SHAREHOLDER" thereunder as if such Joining Party had
executed the Registration Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: June 15, 1998
JOINING PARTY: 1995 WEBBER GRANDCHILDREN'S
- -------------- IRREVOCABLE DEED OF TRUST
Address:
c/o William W. Webber By: /s/ William W. Webber
The Rittenhouse, Apt #2701 --------------------------------
210 W. Rittenhouse Square Name: William W. Webber
Philadelphia, PA 191103 ------------------------------
Tel: (215) 732-2578 Title: Fiduciary of Trust
------------------------------
APPROVED BY:
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, L.L.C.
Its: General Partner
By: [SIGNATURE APPEARS HERE]
--------------------------------
Name:
--------------------------------
Its:
--------------------------------
<PAGE> 22
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as
of the date written below by the undersigned (the "JOINING PARTY") and the
parties to the Registration Rights Agreement, dated as of June 12, 1998 (the
"REGISTRATION AGREEMENT") among Global Vacation Group, Inc., Thayer Equity
Investors III, L.P. and the Shareholders. Capitalized terms used but not defined
herein shall have the meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder Agreement, the Joining Party
will be deemed to be a party to the Registration Agreement and shall have all of
the obligations of a "SHAREHOLDER" thereunder as if such Joining Party had
executed the Registration Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: June 15, 1998
--------------------
JOINING PARTY: RALPH CALIRI TRUST
FBO ANDREA CALIRI
Address:
c/o Ralph M. Caliri By: /s/ David J. Moloznik
8 Thackery Lane ------------------------------
Cherry Hill, NJ 08003 Name: David J. Moloznik
Tel: (609) 424-1518 ---------------------------
Tax I.D. No.: Title: Trustee
---------------------------
APPROVED BY:
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, L.L.C.
Its: General Partner
By: [SIGNATURE APPEARS HERE]
------------------------------
Name:
----------------------------
Its:
----------------------------
<PAGE> 23
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as
of the date written below by the undersigned (the "JOINING PARTY") and the
parties to the Registration Rights Agreement, dated as of June 12, 1998 (the
"REGISTRATION AGREEMENT") among Global Vacation Group, Inc., Thayer Equity
Investors III, L.P. and the Shareholders. Capitalized terms used but not defined
herein shall have the meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder Agreement, the Joining Party
will be deemed to be a party to the Registration Agreement and shall have all of
the obligations of a "SHAREHOLDER" thereunder as if such Joining Party had
executed the Registration Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: June 15, 1998
---------------
JOINING PARTY: RALPH CALIRI TRUST
FBO ERICA CALIRI
Address:
c/o Ralph M. Caliri By: /s/ David J. Moloznik
8 Thackery Lane ------------------------------
Cherry Hill, NJ 08003 Name: David J. Moloznik
Tel: (609) 424-1518 ---------------------------
Tax I.D. No.: Title: Trustee
---------------------------
APPROVED BY:
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, L.L.C.
Its: General Partner
By: [SIGNATURE APPEARS HERE]
------------------------------
Name:
----------------------------
Its:
----------------------------
<PAGE> 24
JOINDER AGREEMENT
TO REGISTRATION RIGHTS AGREEMENT
This Joinder Agreement (this "JOINDER AGREEMENT") is made as
of the date written below by the undersigned (the "JOINING PARTY") and the
parties to the Registration Rights Agreement, dated as of June 12, 1998 (the
"REGISTRATION AGREEMENT") among Global Vacation Group, Inc., Thayer Equity
Investors III, L.P. and the Shareholders. Capitalized terms used but not defined
herein shall have the meanings given such terms in the Registration Agreement.
Accordingly, the Joining Party hereby acknowledges, agrees and
confirms that, by its execution of this Joinder Agreement, the Joining Party
will be deemed to be a party to the Registration Agreement and shall have all of
the obligations of a "SHAREHOLDER" thereunder as if such Joining Party had
executed the Registration Agreement. The Joining Party hereby ratifies, as of
the date hereof, and agrees to be bound by, all of the terms, provisions and
conditions contained in the Registration Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Joinder
Agreement as of the date written below.
Date: June 15, 1998
--------------
JOINING PARTY: RALPH CALIRI TRUST
FBO CALIRI GRANDCHILDREN
Address:
c/o Ralph M. Caliri By: /s/ David J. Moloznik
8 Thackery Lane ------------------------------
Cherry Hill, NJ 08003 Name: David J. Moloznik
Tel: (609) 424-1518 ---------------------------
Tax I.D. No.: Title: Trustee
---------------------------
APPROVED BY:
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, L.L.C.
Its: General Partner
By: [SIGNATURE APPEARS HERE]
------------------------------
Name:
----------------------------
Its:
----------------------------
<PAGE> 1
EXHIBIT 10.7
STOCK PURCHASE AGREEMENT
AMONG
CLASSIC CUSTOM VACATIONS
AND
THE OTHER PARTIES HERETO
dated as of April 20, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 PURCHASE AND SALE..............................................................................................1
1.1 Purchase and Sale...........................................................................................1
1.2 The Closing.................................................................................................3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES.................................................................................3
2.1 Corporate Organization......................................................................................3
2.2 Capital Stock...............................................................................................3
2.3 Authorization, Etc..........................................................................................4
2.4 Financial Statements........................................................................................4
2.5 No Approvals or Conflicts...................................................................................5
2.6 No Violation; Governmental Authorizations...................................................................5
2.7 Litigation .................................................................................................5
2.8 Assets .................................................................................................6
2.9 Real Property; Leases.......................................................................................6
2.10 Absence of Undisclosed Liabilities.........................................................................7
2.11 Changes .................................................................................................7
2.12 Taxes. .................................................................................................9
2.13 Contracts..................................................................................................10
2.14 Environmental, Health, and Safety Matters..................................................................12
2.15 Affiliated Transactions....................................................................................13
2.16 ERISA. .................................................................................................13
(a) Employee Benefit Plan........................................................................13
(b) Title IV Liabilities.........................................................................13
(c) Qualification................................................................................13
(d) Compliance...................................................................................13
2.17 Insurance .................................................................................................14
2.18 Labor Relations............................................................................................14
2.19 Year 2000 .................................................................................................14
2.20 Intellectual Property Rights...............................................................................14
2.21 No Brokers' or Other Fees..................................................................................15
2.22 Accounts Receivable; Bookings..............................................................................15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS ............................................................15
3.1 Authorization of Transaction................................................................................15
3.2 No Approvals or Conflicts...................................................................................16
3.3 Ownership of Existing Common Stock..........................................................................16
3.4 No Brokers' or Other Fees...................................................................................16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER....................................................................16
4.1 Organization................................................................................................16
</TABLE>
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<TABLE>
<S> <C>
4.2 Authorization, Etc..........................................................................................16
4.3 No Approvals or Conflicts...................................................................................17
4.4 No Brokers' or Other Fees...................................................................................17
4.5 Purchaser's Investment Representations......................................................................17
ARTICLE 5 CONDITIONS TO STOCKHOLDERS' OBLIGATIONS........................................................................17
5.1 Representations and Warranties; Covenants...................................................................17
5.2 Certificate.................................................................................................18
5.3 No Action .................................................................................................18
5.4 HSR Act .................................................................................................18
5.5 Payment for Shares..........................................................................................18
5.6 Opinion of Counsel..........................................................................................18
5.7 Escrow Agreement............................................................................................18
5.8 Employment Agreement........................................................................................18
ARTICLE 6 CONDITIONS TO PURCHASER'S OBLIGATIONS..........................................................................19
6.1 Representations and Warranties; Covenants...................................................................19
6.2 No Action .................................................................................................19
6.3 Consents .................................................................................................19
6.4 HSR Act .................................................................................................19
6.5 No Changes .................................................................................................19
6.6 Delivery of Shares..........................................................................................19
6.7 Resignation of Director.....................................................................................19
6.8 Opinion of Counsel..........................................................................................20
6.9 [RESERVED] .................................................................................................20
6.10 Employment Agreement.......................................................................................20
6.11 Certificate................................................................................................20
6.12 Escrow Agreement...........................................................................................20
6.13 Release and Non-Competition Agreement......................................................................20
6.14 [RESERVED].................................................................................................20
6.15 Management Loan Amount.....................................................................................20
ARTICLE 7 [RESERVED].....................................................................................................21
ARTICLE 8 COVENANTS AND AGREEMENTS.......................................................................................21
8.1 [RESERVED] .................................................................................................21
8.2 Consents and Approvals......................................................................................21
8.3 [RESERVED] .................................................................................................21
8.4 Tax Matters.................................................................................................21
(a) Cooperation..................................................................................21
(b) Tax Return Preparation: Income Tax Periods Ending on or Before the Closing Date. ...........22
8.5 [RESERVED] .................................................................................................22
8.6 Litigation Support..........................................................................................22
8.7 Settlement Agreement Payments...............................................................................22
8.8 Termination of Existing Stockholder Agreements..............................................................22
8.9 [RESERVED] .................................................................................................22
8.10 Confidentiality............................................................................................22
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
8.11 Expenses .................................................................................................23
8.12 [RESERVED].................................................................................................24
8.13 Further Assurances.........................................................................................24
8.14 Cooperation with Accountants...............................................................................24
8.15 Purchaser's Compliance with California Business and Professions CodeSection17550 et. seq. .................24
ARTICLE 9 [RESERVED].....................................................................................................24
ARTICLE 10 INDEMNIFICATION...............................................................................................24
10.1 Indemnification............................................................................................24
(a) Indemnification by the Stockholders..........................................................24
(b) Indemnification by Purchaser.................................................................25
(c) Survival of Representations and Warranties...................................................25
(d) Limitations on Indemnity Claims..............................................................26
(e) Notice and Opportunity to Defend.............................................................27
(f) Adjustment to Purchase Price.................................................................28
(g) Claims Against Tax Accountants...............................................................28
ARTICLE 11 MISCELLANEOUS.................................................................................................29
11.1 Defined Terms..............................................................................................29
11.2 Governing Law..............................................................................................36
11.3 Arbitration................................................................................................36
11.4 Amendment .................................................................................................36
11.5 No Assignment..............................................................................................36
11.6 Waiver; Liability..........................................................................................36
11.7 Notices .................................................................................................36
11.8 Complete Agreement.........................................................................................38
11.9 Counterparts...............................................................................................38
11.10 Headings .................................................................................................38
11.11 Severability..............................................................................................38
11.12 Third Parties.............................................................................................39
11.13 No Strict Construction....................................................................................39
</TABLE>
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of April 20,
1998, is entered into by and among Global Vacation Group, Inc., a New York
corporation (the "Purchaser"), Classic Custom Vacations, a California
corporation (the "Company"), Stanley S. Heller and Sandra Heller (collectively,
the "Hellers"), Ronald M. Letterman and Lynn Letterman (collectively, the
"Lettermans"), James E. Levitt and Patti Levitt (collectively, the "JE
Levitts"), John F. Levitt and Shari Levitt (collectively, the " JF Levitts"),
and Alan M. Robin and Dee Robin (collectively, the "Robins", and together with
the Hellers, the Lettermans, the JE Levitts and the JF Levitts, the
"Stockholders"). Capitalized terms used in this Agreement are defined in Section
11.01.
WHEREAS, the Stockholders desire to sell, and Purchaser desires to
purchase, all of the outstanding shares of capital stock of the Company
beneficially owned by the Stockholders, upon the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. On the Closing Date and subject to the terms and
conditions set forth in this Agreement:
(a) the Stockholders shall sell and transfer to Purchaser at the
Closing all of the outstanding shares of capital stock of the Company
beneficially owned by the Stockholders (the "Shares"), free and clear of all
options, pledges, security interests, voting trusts and similar arrangements,
liens, charges, and other encumbrances or restrictions ("Encumbrances"), other
than the restrictions imposed by federal and state securities laws, as follows:
(i) the Hellers shall sell and transfer to Purchaser 25,809
shares of the Company's Class A Common Stock, par value $1.00 per share (the
"Class A Common Stock"), and one share of the Company's Class B Common Stock,
par value $1.00 per share (the "Class B Common Stock");
(ii) the Lettermans shall sell and transfer to Purchaser 8,603
shares of Class A Common Stock and one share of Class B Common Stock;
(iii) the JE Levitts shall sell and transfer to Purchaser 17,205
shares of Class A Common Stock and one share of Class B Common Stock;
<PAGE> 6
(iv) the JF Levitts shall sell and transfer to Purchaser 8,603
shares of Class A Common Stock; and
(v) the Robins shall sell and transfer to Purchaser 25,808 shares
of Class A Common Stock and one share of Class B Common Stock;
(b) Except as set forth in Section 6.15 hereof, Purchaser shall pay for
the Shares at the Closing by wire transfer of immediately available funds to the
accounts specified by the JE Levitts, the JF Levitts and the Robins,
respectively, at least one business day prior to the Closing Date as follows:
(i) Purchaser shall transfer to the Hellers at or immediately
after Closing, all shares of Homer Travel, Inc. which are valued on the books
and records of the Company at $4,320,127.00. In addition, Purchaser shall
deposit the sum of $209,943.21 in the Escrow Account;
(ii) Purchaser shall transfer to the Lettermans at or immediately
after Closing all shares of Virgil Travel, Inc. which are valued on the books
and records of the Company at $1,447,587.00. In addition, Purchaser shall
deposit the sum of $62,553.41 in the Escrow Account;
(iii) Purchaser shall pay to the JE Levitts $2,879,933.04 (which
is equal to the difference obtained by subtracting (x) $139,996.75 being
deposited in the Escrow Account from (y) the product of (A)(1) $15,100,000,
divided by (2) 86,032, multiplied by (B) 17,206);
(iv) Purchaser shall pay to the JF Levitts $1,439,966.53 (which
is equal to the difference obtained by subtracting (x) $69,998.37 being
deposited in the Escrow Account from (y) the product of (A)(1) $15,100,000,
divided by (2) 86,032, multiplied by (B) 8,603); and
(v) Purchaser shall pay to the Robins $4,394,899.57 (which is
equal to the difference obtained by subtracting (x) $134,995.12 being deposited
in the Escrow Account from (y) the product of (A)(1) $15,100,000, divided by (2)
86,032, multiplied by (B) 25,809);
(c) Purchaser shall deposit the sum of $617,486.86 (which includes the
amounts set forth in Section 1.01(b)), the Hellers shall deposit the sum of
$60.04 and the Lettermans shall deposit the sum of $7,453.10 with the Escrow
Agent as specified in the Escrow Agreement, and thereupon the Escrow Amount
shall be subject to the terms and conditions of the Escrow Agreement;
(d) the Hellers hereby assume and agree to hold Purchaser and the
Company harmless from and against, and Purchaser and the Company are hereby
unconditionally released from, all of the hedge contracts, puts, forward rate
agreements, currency contracts, loan agreements and all other obligations of
Purchaser or the Company, if any, arising in connection
2
<PAGE> 7
with or otherwise related, directly or indirectly, to any of the assets of Homer
(the "Homer Indebtedness"); and
(e) the Lettermans hereby assume and agree to hold Purchaser and the
Company harmless from and against, and Purchaser and the Company are hereby
unconditionally released from, all of the hedge contracts, puts, forward rate
agreements, currency contracts, loan agreements and all other obligations of
Purchaser or the Company, if any, arising in connection with or otherwise
related, directly or indirectly, to any of the assets of Virgil (the "Virgil
Indebtedness").
1.2 The Closing. The closing (the "Closing") of the transactions
contemplated in this Agreement shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, Ca, commencing at 5:00
p.m., local time on April 20, 1998, or at such other place or on such other date
as may be mutually agreeable to the Company, the Stockholders and Purchaser, but
in any event, no later than April 24, 1998. The date on which the Closing occurs
is referred to herein as the "Closing Date." At the Closing, the parties hereto
shall exchange the documents referred to in Articles 5 and 6 hereof, and such
other documents relating to the transactions contemplated hereby as any party
hereto or its counsel may reasonably request within a reasonable time prior to
Closing.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser as follows:
2.1 Corporate Organization. The Company and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. The Company and each of its Subsidiaries has
full corporate power and authority necessary to own and lease its properties and
assets and to carry on its business as now being conducted. The Company and each
of its Subsidiaries is duly qualified or licensed to do business as a foreign
corporation and is in good standing in the jurisdictions in which the ownership,
use or occupancy of their respective properties or assets or the conduct of
their respective businesses requires such qualification except when the failure
to be so qualified or licensed would not be reasonably likely to have a material
adverse effect on the condition (financial or otherwise), assets, operations or
business of the Company or any of its Subsidiaries. Except as set forth in
Section 2.01 of the disclosure schedule attached hereto (the "Disclosure
Schedule"), neither the Company nor its Subsidiaries owns, directly or
indirectly, any capital stock or equity securities of, or other interest
(whether equity or debt) in, any Person. The Company and each of its
Subsidiaries has delivered or made available to the Purchaser a complete and
correct copy of their respective articles of incorporation and bylaws as
currently in effect, copies of which are attached as Exhibits 2.01-a, 2.01-b,
2.01-c, 2.01-d, 2.01-e and 2.01-f.
2.2 Capital Stock. (a) Immediately prior to the Closing, the authorized
capital stock of the Company consists of 100,004 shares of common stock, of
which 100,000 shares are
3
<PAGE> 8
designated Class A Common Stock, of which 86,028 shares are issued and
outstanding, and four shares are designated Class B Common Stock, of which four
shares are issued and outstanding. Except as set forth in Section 2.02(a) of the
Disclosure Schedule, there are no subscriptions, options, warrants, calls,
rights, contracts, commitments, understandings, restrictions or arrangements
relating to the issuance, sale, transfer or voting of any shares of Existing
Common Stock, including any rights of conversion or exchange under any
outstanding securities or other instruments. Section 2.02(a) of the Disclosure
Schedule sets forth the ownership of all of the issued and outstanding shares of
Existing Common Stock. Except as set forth in Section 2.02(a) of the Disclosure
Schedule, the outstanding shares of Existing Common Stock have been validly
issued, are fully paid, nonassessable and free of preemptive rights and are
owned by the Stockholders free and clear of all Encumbrances, other than the
restrictions imposed by federal and state securities laws.
(b) Section 2.02(b) of the Disclosure Schedule sets forth for each
Subsidiary of the Company (i) its name and jurisdiction of incorporation, (ii)
the number of shares of authorized capital stock of each class of its capital
stock and (iii) the number of issued and outstanding shares of each class of its
capital stock, the names and holders thereof and the number of shares held by
each such holder. All of the issued and outstanding shares of capital stock of
each Subsidiary of the Company have been duly authorized and are validly issued,
fully paid and nonassessable. The Company holds of record and owns beneficially
all of the outstanding shares of each Subsidiary of the Company free and clear
of all encumbrances, other than restrictions imposed by federal or state
securities laws. Except as contemplated by this Agreement or as set forth in
Section 2.02(b) of the Disclosure Schedule, there are no subscriptions, options,
warrants, calls, rights, contracts, commitments, understandings, restrictions or
arrangements relating to the issuance, sale, transfer or voting of any of the
shares of capital stock of each Subsidiary of the Company, including any rights
of conversion or exchange under any outstanding securities or other instruments.
2.3 Authorization, Etc. The Company has full corporate power and authority
to execute and deliver this Agreement and the documents and instruments
contemplated hereby and to carry out the transactions contemplated hereby and
thereby. The execution and delivery by the Company of this Agreement and the
documents and instruments contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby, have been approved by all
necessary corporate proceedings on the part of the Stockholders and the Company,
respectively. This Agreement constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws of general application relating to or affecting the
enforcement of creditors' rights or by general principles of equity.
2.4 Financial Statements. Section 2.04 of the Disclosure Schedule contains
the following financial statements (the "Financial Statements"): (a) the audited
consolidated balance sheet of the Company as of December 31, 1995, (b) the
unaudited consolidated balance sheet of the Company as of December 31, 1996, and
the unaudited statement of operations and cash flows of the Company for the
fiscal year then ended (the "1996 Unaudited Financials") and (c) the unaudited
consolidated balance sheet of the Company as of December 31, 1997, and the
4
<PAGE> 9
unaudited statement of operations and cash flows of the Company for the fiscal
year then ended (the "Most Recent Financial Statements"). Except as set forth in
Section 2.04 of the Disclosure Schedule, the Financial Statements (including the
notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, fairly present in all
material respects the financial position of the Company as of such dates and the
results of operation of the Company for such periods, and are consistent with
the books and records of the Company (which books and records are correct and
complete in all material respects). The audited financial statements as of and
for the year ended December 31, 1996 will not differ materially and adversely
from the 1996 Unaudited Financials. The Company and its Subsidiaries have no
Indebtedness except Indebtedness related to or in connection with the Danish
Mortgages and such Indebtedness is set forth in Section 2.04 of the Disclosure
Schedule.
2.5 No Approvals or Conflicts. Except as set forth in Section 2.05(a) of
the Disclosure Schedule, neither the execution and delivery by the Company of
this Agreement nor the performance by the Company of its obligations hereunder
will (a) violate, conflict with or result in a breach of any provision of the
articles of incorporation or bylaws of the Company or any of its Subsidiaries,
(b) violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the creation of any Lien upon
any of the properties of the Company or any of its Subsidiaries under, cause the
termination or modification of, or give any other Person the right to terminate
or modify, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, lease, contract, agreement or other instrument to which the
Company or any of its Subsidiaries is a party or by which any of its properties
are bound, (c) violate any Order or Law applicable to the Company or any of its
Subsidiaries or any of their respective properties or (d) except for filings or
approvals under the HSR Act and such other consents, approvals, filings, or
registrations and the like as may be required under applicable state securities
laws, require any consent, approval or authorization of, or notice to, or
declaration, filing or registration with, any Governmental Body or other third
party. Except as set forth in Section 2.05(b) of the Disclosure Schedule, all of
the consents set forth in Section 2.05(a) of the Disclosure Schedule have been
obtained.
2.6 No Violation; Governmental Authorizations. Except as set forth in
Section 2.06 of the Disclosure Schedule, the Company and each of its
Subsidiaries has complied in all material respects (except for prior incidents
of non-compliance which have been cured and for which no liability exists or
will exist) and is in compliance in all material respects with all Laws and
Orders applicable to the Company and each of its Subsidiaries or any of their
assets or properties. Except as set forth in Section 2.06 of the Disclosure
Schedule, the Company and each of its Subsidiaries has all material permits,
licenses, approvals and other governmental authorizations required in order to
own, lease, occupy and use its properties and assets and to carry on its
business as presently conducted, and all such permits, licenses, approvals and
other governmental authorizations are valid and in full force and effect.
2.7 Litigation. Except as set forth in Section 2.07 of the Disclosure
Schedule, there are no Actions (i) pending other than those filed but not yet
served on the Company or any of its Subsidiaries or (ii) to the Company's
knowledge, threatened against the Company or any of its
5
<PAGE> 10
Subsidiaries or any of its assets or properties before any Governmental Body
which, if adversely determined, would be reasonably likely to result in payments
by the Company or any of its Subsidiaries in excess of $50,000 or would be
reasonably likely to have a material adverse effect on the condition (financial
or otherwise), assets, operations or business of the Company or any of its
Subsidiaries.
2.8 Assets. Except as set forth in Section 2.08 of the Disclosure Schedule,
the Company and each of its Subsidiaries has good and marketable title to all
tangible personal properties and assets owned by them, free and clear of all
Liens except for Permitted Liens. The Company and each of its Subsidiaries owns,
or has a valid leasehold interest in or right to use, all assets necessary for
the conduct of their respective businesses as presently conducted.
2.9 REAL PROPERTY; LEASES.
(a) Neither the Company nor any of its Subsidiaries owns any real
property.
(b) Section 2.09(b) of the Disclosure Schedule sets forth a list of all
leases, subleases and other occupancy agreements, including all amendments,
extensions and other modifications (each a "Lease" and collectively the
"Leases") for real property (the "Leased Real Property") to which the Company or
any of its Subsidiaries is a party, together with a list of the location of all
Leased Real Property. The Company has delivered to Purchaser correct and
complete copies of the Leases. Except as set forth in Section 2.09(b) of the
Disclosure Schedule: (i) the Company and each of its Subsidiaries has a good and
valid leasehold interest in and to the Leased Real Property, subject to no Liens
except as described in Section 2.09(b) of the Disclosure Schedule; (ii) each
Lease constitutes a valid and binding obligation of the Company and each of its
Subsidiaries and, to the knowledge of the Company, the other parties thereto,
and is enforceable against the Company and each of its Subsidiaries and, to the
knowledge of the Company, the other parties thereto, in accordance with its
terms (except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws of general application relating to or
affecting the enforcement of creditors' rights or by general principles of
equity); (iii) the Company and each of its Subsidiaries are not, and, to the
Company's knowledge, no other party thereto is, in breach of or default under
any Lease in any material respect and no event has occurred which, with the
giving of notice, the passage of time or both, would constitute such a breach or
default by the Company or its Subsidiaries or, to the Company's knowledge, by
any other party, or permit termination, modification or acceleration thereunder
by the Company or, to the Company's knowledge, by any other party thereto; and
(d) except as described on Section 2.09(b) of the Disclosure Schedule, no
consent, waiver, approval or authorization is required from the landlord under
any Lease as a result of the execution of this Agreement or the consummation of
the transactions contemplated hereby.
(c) The Leased Real Property (i) constitutes all real property leased
or otherwise occupied or utilized by the Company or any of its Subsidiaries,
(ii) is in good operating condition and repair and (iii) is sufficient and
appropriate for the conduct of the business of the Company or any of its
Subsidiaries as presently conducted. To the Company's
6
<PAGE> 11
knowledge, other than the Company and its Subsidiaries, there are no parties in
possession or parties having any current or future right to occupy any of the
Leased Real Property. To the Company's knowledge, the Leased Real Property and
all buildings and improvements located thereon conform in all material respects
to all applicable building, zoning and other laws, ordinances, rules and
regulations. All material permits, licenses and other approvals necessary to the
current occupancy and use of the Leased Real Property by the Company or its
Subsidiaries have been obtained, are in full force and effect and have not been
violated in any material respect. There exists no material violation by the
Company or any of its Subsidiaries of any covenant, condition, restriction,
easement agreement or order affecting any portion of the Leased Real Property.
There is no pending or any threatened condemnation proceeding affecting any
portion of the Leased Real Property which would be reasonably likely to have a
material adverse affect on the business of the Company or any of its
Subsidiaries.
(d) To the knowledge of the Company, there are no outstanding options
or rights of first refusal with respect to the purchase or use of any of the
Leased Real Property, any portion thereof or interest therein, except as set
forth on Section 2.09(d) of the Disclosure Schedule. Neither the Company nor any
of its Subsidiaries is obligated to purchase or lease any real property, except
as set forth on Section 2.09(d) of the Disclosure Schedule.
2.10 Absence of Undisclosed Liabilities. Except as set forth in Section
2.10 of the Disclosure Schedule, the Company and its Subsidiaries do not have
any liabilities required to be disclosed on a balance sheet in accordance with
GAAP (whether accrued, absolute, contingent or otherwise, and whether known or
unknown) other than (i) liabilities set forth on the Most Recent Financial
Statements (including any notes thereto), (ii) liabilities which have arisen
after the date of the Most Recent Financial Statements in the ordinary course of
business (none of which is a liability resulting from, arising out of, or
relating to any breach of contract, breach of warranty, tort, infringement,
violation of Law or environmental matter (including those arising under
Environmental, Health, and Safety Requirements) by the Company or any of its
Subsidiaries), (iii) obligations under executory contracts or commitments set
forth in Section 2.13 of the Disclosure Schedules or under executory contracts
or commitments not required to be disclosed therein (except liabilities
resulting from, arising out of, or related to any breach thereof) and (iv) other
liabilities expressly disclosed in Section 2.10 of the Disclosure Schedule.
2.11 Changes. Except as set forth in Section 2.11 of the Disclosure
Schedule, since December 31, 1997, there has not been any material adverse
change in the condition (financial or otherwise), business, operations, assets,
operating results, or customer or supplier relations of the Company or its
Subsidiaries. Without limiting the generality of the foregoing, since December
31, 1997, except as set forth in Section 2.11 of the Disclosure Schedule, or as
otherwise consented to in writing by Purchaser after the date hereof, the
Company and its Subsidiaries have not:
(a) sold, leased, transferred, assigned or otherwise disposed of any of
its assets, tangible or intangible, other than sales in the ordinary course of
business;
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(b) entered into any contract, lease, sublease, license, or sublicense
outside the ordinary course of business;
(c) committed to the acquisition or construction of any property, plant
or equipment in excess of $100,000 individually or $300,000 in the aggregate;
(d) created, incurred, assumed, or guaranteed any Indebtedness (whether
due or to become due) outside the ordinary course of business;
(e) delayed or postponed (outside the ordinary course of business) the
payment of accounts payable and other liabilities or obligations or accelerated
the collection of accounts receivable or other amounts owed to it;
(f) canceled, compromised, waived, or released any right or claim (or
series of related rights and claims) either involving more than $10,000 in the
aggregate or outside the ordinary course of business;
(g) declared, set aside, or paid any dividend or distribution with
respect to its capital stock or redeemed, purchased, or otherwise acquired any
of its capital stock, or granted or issued any options relating to the issuance
of capital stock;
(h) experienced any material damage, destruction, or loss to any of its
material properties or assets through the date hereof;
(i) granted any increase outside the ordinary course of business in the
compensation of any of its officers, directors or employees, or adopted any
benefit plan or any retirement, deferred compensation, bonus, fringe benefit,
insurance or pension plan, program or arrangement or made any loan or other
credit accommodation to or for any officer, employee, director, or Stockholder;
(j) mortgaged, pledged or otherwise encumbered any of its respective
assets;
(k) entered into any contract the terms of which provide for
commissions or overrides in excess of those payable under the Company's Major
Accounts; or
(l) made or entered into any agreement or understanding to do any of
the foregoing.
Except as set forth in Section 2.11 of the Disclosure Schedule, since
December 31, 1997, the Company and its Subsidiaries have made all reasonable
efforts consistent with past practices to keep its business and properties
substantially intact and to preserve existing relationships with customers,
suppliers, lessors, licensors, employees and others with whom it deals.
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2.12 TAXES.
(a) Except as set forth in Section 2.12(a) of the Disclosure Schedule,
the Company and its Subsidiaries have timely filed all Tax Returns which they
are required to file under applicable laws and regulations; all such Tax Returns
are complete and correct in all material respects and have been prepared in
compliance with all applicable Laws in all material respects; the Company and
its Subsidiaries and each Affiliated Group have paid all Taxes due and owing by
it (whether or not such Taxes are required to be shown on a Tax Return), unless
and to the extent that the same are being contested in good faith and by
appropriate proceedings, adequate reserves (as determined in accordance with
GAAP, consistently applied) have been established, on its Financial Statements
and have been disclosed in Section 2.12(a) of the Disclosure Schedule; the
Company and its Subsidiaries and each Affiliated Group have withheld and paid
over to the appropriate taxing authority all Taxes which they are required to
withhold from amounts paid or owing to any employee, independent contractor,
stockholder, creditor or other third party.
(b) Except as set forth in Section 2.12(b) of the Disclosure Schedule:
(i) The Company and its Subsidiaries are not liable for the Taxes
of another Person (a) under Treas. Reg.Section 1.1502-6 (or comparable
provisions of state, local or foreign Law), (b) as a transferee or successor,
(c) by contract or indemnity or (d) otherwise. Neither the Company nor any of
its Subsidiaries are a party to any tax sharing agreement. Neither the Company
nor any of its Subsidiaries has made any payments, is obligated to make payments
or is a party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Code.
(ii) Neither the Company nor any of its Subsidiaries has waived
any statute of limitations with respect to any material Taxes or agreed to any
extension of time with respect to any material Tax assessment or deficiency.
(iii) No foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Company, no information related to Tax matters has been requested
by any foreign, federal, state or local taxing authority and no written notice
indicating an intent to open an audit or other review has been received by the
Company from any foreign, federal, state or local taxing authority.
(iv) The Company has delivered to Purchaser correct and complete
copies of all federal income Tax Returns, examination reports, and statements of
deficiencies against or agreed to by any of the Company since January 1, 1993.
(v) The latest balance sheet of the Company contains adequate
reserves for Taxes as of December 31, 1997, and the Company has not incurred any
liability for Taxes since the date of the latest balance sheet other than in the
ordinary course of business.
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(vi) The Company is not, and has never been, a member of an
Affiliated Group.
(vii) The Company has made a valid election under Section 1362 of
the Code and any corresponding state or local provisions (collectively, the "S
Elections") to be an S corporation within the meaning of Section 1361 of the
Code for all taxable years (or portions thereof) beginning on or after January
1, 1996; no such S Election has been terminated (whether voluntarily,
involuntarily or inadvertently, including, without limitation, by taking any
action defined in Section 1362(d) of the Code) since such time.
(viii) Neither the Company nor any of its Subsidiaries will be
required to include any amount in taxable income or exclude any item of
deduction or loss from taxable income for any taxable period (or portion
thereof) ending after the Closing Date (A) as a result of a change in method of
accounting for a taxable period ending on or prior to the Closing Date, (B) as a
result of any "closing agreement," as described in Code Section 7121 (or any
corresponding provision of state, local or foreign income Tax law) entered into
on or prior to the Closing Date, (C) as a result of any sale reported on the
installment method where such sale occurred on or prior to the Closing Date, and
(D) as a result of any prepaid amount received on or prior to the Closing Date.
(ix) The Company has not made any election under Section 341(f)
of the Code (or any corresponding provision of state, local or foreign income
Tax law).
2.13 CONTRACTS.
(a) Except for (i) actions taken to implement this Agreement and the
transactions contemplated hereby or (ii) as set forth in Section 2.13 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to nor bound by any written or oral:
(i) stock option or severance agreements, programs, policies or
arrangements;
(ii) contract for the employment of any officer, individual
employee or other Person on a full-time, part-time, consulting or other basis
providing annual compensation in excess of $75,000 or contract relating to loans
to officers, directors or Affiliates of the Company;
(iii) contract or instrument relating to the Danish Mortgages or
the California Mortgages;
(iv) contract or instrument under which the Company or any of its
Subsidiaries has advanced or loaned to any other Person amounts which exceed
$100,000 in the aggregate to all such Persons;
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(v) agreement or indenture relating to Indebtedness or to
mortgaging, pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company or any of its Subsidiaries;
(vi) lease or agreement under which the Company or its
Subsidiaries is lessee of or holds or operates any personal property owned by
any other Person, except for any lease of personal property under which the
aggregate annual rental payments do not exceed $25,000 (and Section 2.13 of the
Disclosure Schedule identifies whether such leases are capital leases or
operating leases);
(vii) lease or agreement under which the Company or its
Subsidiaries is lessor of or permits any third party to hold or operate any
personal property owned or controlled by the Company;
(viii) agreement providing indemnification of any other Person;
(ix) agreement under which it has granted any Person any
registration rights regarding the Company's or any of its Subsidiaries' capital
stock (including demand and piggyback registration rights);
(x) supply, sales, distribution, franchise or travel agency
agreement which requires payment by the Company or its Subsidiaries of
consideration in excess of $3,000,000;
(xi) contract, agreement or other arrangement with any officer,
director, stockholder, employee or Affiliate, or any Affiliate of any officer,
director, stockholder or employee;
(xii) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(xiii) other contract or agreement which requires payment by the
Company or any of its Subsidiaries of consideration in excess of $300,000
annually (other than contracts and agreements not disclosed under clauses (i)
through (xii) above because of the dollar thresholds contained therein) or which
is material to the operations or financial condition of the Company or any of
its Subsidiaries taken as a whole.
(b) Except as set forth on Section 2.13 of the Disclosure Schedule, all
of the contracts, agreements and instruments set forth in Section 2.13 of the
Disclosure Schedule are valid and binding obligations of the Company and its
Subsidiaries, and, to the knowledge of the Company, the other parties thereto,
and enforceable against the Company, and its Subsidiaries, and, to the knowledge
of the Company, the other parties thereto, in accordance with their respective
terms, except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws of general application relating to or
affecting the enforcement of creditors' rights or by general principles of
equity. The Company and its
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Subsidiaries have performed all material obligations required to be performed by
them, and the Company and its Subsidiaries are not in material default under or
in material breach of nor in receipt of any claim of default or breach under any
contract, agreement or instrument to which the Company or its Subsidiaries are
subject (including without limitation the contracts, agreements and instruments
set forth in Section 2.13 of the Disclosure Schedule); no event has occurred
which with the passage of time or the giving of notice or both would result in a
material default, breach or event of noncompliance by the Company or its
Subsidiaries under any material contract, agreement or instrument to which the
Company or its Subsidiaries is subject (including without limitation the
contracts, agreements and instruments set forth in Section 2.13 of the
Disclosure Schedule); neither the Company nor its Subsidiary has any present
expectation or intention of not fully performing all such obligations under any
material contract, agreement or instrument to which it is a party (including
without limitation the contracts, agreements and instruments set forth in
Section 2.13 of the Disclosure Schedule); the Company has no knowledge of any
breach or anticipated breach by the other parties to any material contract,
agreement, instrument or commitment (including without limitation the contracts,
agreements, instruments and commitments set forth in Section 2.13 of the
Disclosure Schedule) to which it is a party.
(c) A true and correct copy of each of the written agreements and an
accurate description of each of the oral agreements which are required to be
referred to in Section 2.13 of the Disclosure Schedule, together with all
written amendments, waivers or other changes thereto have been delivered to
Purchaser.
2.14 Environmental, Health, and Safety Matters. Except as set forth in
Section 2.14 of the Disclosure Schedule:
(a) Each of the Company and its Affiliates and, to the knowledge of the
Company, each of the Company's predecessors has complied and is in compliance in
all material respects with all Environmental, Health, and Safety Requirements.
(b) Without limiting the generality of the foregoing, each of the
Company and its Affiliates has obtained and complied with, and is in compliance
with, in all material respects, all permits, licenses and other authorizations
that are required pursuant to Environmental, Health, and Safety Requirements for
the occupation of its facilities and the operation of its business; a list which
is complete and accurate in all material respects of all such permits, licenses
and other authorizations is set forth in Section 2.14 of the Disclosure
Schedule.
(c) To the Company's knowledge, none of the following exists at any
property or facility operated by the Company: (1) underground storage tanks, (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(d) Neither the Company nor its Affiliates and, to the knowledge of the
Company, none of the Company's predecessors has treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released any
substance, including without
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limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action costs, personal
injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), the Solid Waste Disposal Act, as amended ("SWDA")
or any other Environmental, Health, and Safety Requirements.
(e) Neither the Company nor any of its Affiliates and, to the knowledge
of the Company, none of the Company's predecessors has, either expressly or by
operation of Law, assumed or undertaken any liability, including without
limitation any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
2.15 Affiliated Transactions. Except for this Agreement, the Existing
Stockholder Agreements, and as set forth in Section 2.15 of the Disclosure
Schedule, no officer, director, stockholder (including the Stockholders) or
Affiliate of the Company or any individual related by blood or marriage to any
such Person, or any entity in which any such Person owns any beneficial
interest, is a party to any agreement, contract, arrangement or commitment with
the Company or engaged in any transaction with the Company or has any interest
in any property used by the Company.
2.16 ERISA.
(a) Employee Benefit Plan. Except as set forth in Section 2.16 of the
Disclosure Schedule, the Company does not maintain, contribute to or have any
liability under (or with respect to) any "employee benefit plan" (as such term
is defined in Section 3(3) of ERISA) or any other employee benefit plan, program
or arrangement. Each item listed on Section 2.16 of the Disclosure Schedule is
referred to herein as an "Employee Benefit Plan." For purposes of this Section
2.16, the term "Company" includes all organizations that are considered a single
employer with the Company for purposes of Section 414 of the Code.
(b) Title IV Liabilities. The Company does not maintain, contribute to,
have any obligation to contribute to, or any liability or potential liability
with respect to, any employee benefit plan (as such term is defined in Section
3(3) of ERISA) subject to Title IV of ERISA.
(c) Qualification. Except as set forth in Section 2.16 of the
Disclosure Schedule, a favorable determination opinion, advisory or notification
letter from the Internal Revenue Service has been received by the Company with
respect to each Employee Benefit Plan which is intended to be qualified under
Section 401(a) of the Code stating that each such plan is so qualified; and to
the Company's knowledge there are no circumstances which would cause such
Employee Benefit Plan to lose such qualified status.
(d) Compliance. Each Employee Benefit Plan and all related trusts,
insurance contracts and funds have been maintained, funded and administered in
compliance in all material
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respects with the terms of such Employee Benefit Plan and the applicable
provisions of ERISA, the Code and other applicable Laws. All required payments,
premiums, contributions, reimbursements or accruals, which are due and owing for
all periods ending prior to the Closing shall have been made or properly accrued
on the Most Recent Financial Statements.
2.17 Insurance. Section 2.17 of the Disclosure Schedule contains a
description of each insurance policy maintained by the Company and its
Subsidiaries with respect to its properties, assets and businesses, and each
such policy is in full force and effect. Neither the Company nor its
Subsidiaries is in default with respect to their respective material obligations
under any insurance policy maintained by them. Section 2.17 of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company and its
Subsidiaries.
2.18 Labor Relations. The Company is not party to or bound by any
collective bargaining agreement or relationship with any labor organization. No
executive, key employee or group of employees has informed or otherwise
communicated to an executive officer of the Company that such executive, key
employee or group of employees has any plans to terminate his, her or their
employment with the Company. With respect to the Company: no labor organization
or group of employees has filed any representation petition or made any written
or oral, to the knowledge of the Company, any demand for recognition; to the
knowledge of the Company, no union organizing or decertification campaigns are
underway; and no labor strike, work stoppage or slowdown, or other material
labor dispute is underway or, to the knowledge of the Company, threatened.
2.19 Year 2000. Except as set forth in Section 2.19 of the Disclosure
Schedule, to the Company's knowledge, all of the material computer software,
computer firmware, computer hardware (whether general or special purpose), and
other similar or related items of automated, computerized, and/or software
system(s) that are used by the Company or its Subsidiaries in the conduct of
their respective businesses will not malfunction, will not cease to function,
will not generate incorrect data, and will not produce incorrect results when
processing, providing, and/or receiving (i) date-related data into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
2.20 INTELLECTUAL PROPERTY RIGHTS.
(a) Section 2.20(a) of the Disclosure Schedule contains a complete and
accurate list of all (i) patented or registered Intellectual Property owned by
the Company and its Subsidiaries, (ii) pending patent applications and
applications for registrations of other Intellectual Property filed by the
Company and its Subsidiaries, (iii) material unregistered trade names and
corporate names owned or used by the Company and its Subsidiaries and (iv)
material unregistered trademarks, service marks, copyrights, and computer
software owned or used by the Company and its Subsidiaries. Section 2.20(a) of
the Disclosure Schedule also contains a complete and accurate list of all
licenses and other rights granted by the Company and its Subsidiaries to any
third party with respect to any Intellectual Property and all material licenses
and other rights granted by any third party to the Company and its Subsidiaries
with respect to
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any Intellectual Property, in each case identifying the subject Intellectual
Property. All of the material licenses set forth in Section 2.20(a) of the
Disclosure Schedule are valid and binding obligations of the Company and its
Subsidiaries, and, to the knowledge of the Company, the other parties thereto,
and enforceable against the Company and its Subsidiaries, and, to the knowledge
of the Company, the other parties thereto, in accordance with their respective
terms, except to the extent that the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws of general application relating to or
affecting the enforcement of creditors' rights or by general principles of
equity.
(b) Except as set forth in Section 2.20(b) of the Disclosure Schedule,
the Company and its Subsidiaries own and possess all right, title and interest
in and to, or have the right to use pursuant to a valid license, all
Intellectual Property necessary for the operation of the business of the Company
as presently conducted.
2.21 No Brokers' or Other Fees. Except as set forth in Section 2.21 of the
Disclosure Schedule, there are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon the Company or
its Subsidiaries.
2.22 Accounts Receivable; Bookings. Section 2.22 of the Disclosure Schedule
sets forth, as of the date specified therein, a list that is true and correct in
all material respects of all accounts receivable of the Company existing at such
date (the "Accounts Receivable"), and the aging of each such receivable, as well
as a list of all customer bookings as of such date ("Bookings"), all deposits
received from customers in connection with such Bookings as of such date, all
prepayments to vendors and suppliers and refunds to customers made by the
Company in connection with such Bookings as of such date, and all claims by
customers for refunds received by the Company for which refunds have not been
made as of such date. To the knowledge of the Company, all Accounts Receivable
are collectible in full, net of reserves for doubtful accounts set forth on the
Most Recent Financial Statements.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each of the Stockholders hereby severally (and not jointly) represents
and warrants, as to himself or herself only, as follows:
3.1 Authorization of Transaction. Such Stockholder has full power,
authority and capacity to execute and deliver this Agreement and to perform such
Stockholder's obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of such Stockholder, enforceable against such
Stockholder in accordance with its terms and conditions except to the extent
that the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws of general application relating to or affecting the enforcement of
creditors' rights or by general principles of equity.
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3.2 No Approvals or Conflicts. Neither the execution and the delivery of
this Agreement by such Stockholder, nor the performance by such Stockholder of
his or her obligations hereunder, will (a) violate any Order, or Law applicable
to such Stockholder, (b) violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the creation of
any Lien upon any of the properties of the Company under, or cause the
termination or modification of, or give any other Person the right to terminate
or modify, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, lease, contract, agreement or other instrument to which such
Stockholder or any of its properties are bound, of (c) except for filings or
approvals under the HSR Act, require any consent, approval or authorization of,
or notice to, or declaration, filing or registration with, any Governmental Body
or other third party.
3.3 Ownership of Existing Common Stock. Except as otherwise set forth in
Section 2.02 of the Disclosure Schedule, such Stockholder beneficially owns the
number of shares of Existing Common Stock set forth next to such Stockholder's
name on Annex 2.02(a) of the Disclosure Schedule, free and clear of all
Encumbrances, other than Encumbrances in favor of the Company that will be
terminated prior to the Closing, and the restrictions imposed by federal and
state securities laws.
3.4 No Brokers' or Other Fees. Except as set forth in Section 2.21 of the
Disclosure Schedule, there are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement, based on any arrangement or agreement binding upon such
Stockholder for which the Company or Purchaser could become liable.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Stockholders and the Company as
follows:
4.1 Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York. Purchaser
has the power to own its properties and carry on its business as now being
conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership, use or occupancy of its properties or
assets or the conduct of its business requires such qualification except when
the failure to be so qualified would not have a material adverse effect on the
condition (financial or otherwise), assets, operations or business of Purchaser.
4.2 Authorization, Etc. Purchaser has full power and authority to execute
and deliver this Agreement and the documents and instruments contemplated
hereby, and to carry out the transactions contemplated hereby and thereby.
Purchaser has duly approved and authorized the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and,
prior to the Closing, Purchaser will have duly approved and authorized the
documents and instruments contemplated hereby and the consummation of the
transactions
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contemplated thereby by all necessary corporate action. This Agreement
constitutes a valid and binding agreement of Purchaser, enforceable against
Purchaser in accordance with its terms, except to the extent that the
enforceability thereof may be limited by bankruptcy, insolvency or similar laws
of general application relating to or affecting the enforcement of creditors'
rights or by general principles of equity.
4.3 No Approvals or Conflicts. Neither the execution and delivery by
Purchaser of this Agreement nor the performance by Purchaser of its obligations
hereunder will (i) violate, conflict with or result in a breach of any provision
of Purchaser's constituting documents, (ii) violate, conflict with or result in
a breach of any provision of, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the creation of
any Lien upon any of Purchaser's properties under or cause the termination or
modification of, or give any other Person the right to terminate or modify, any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement or other instrument to which Purchaser or any of its
respective properties may be bound, (iii) violate any Order or Law applicable to
Purchaser or any of its respective properties, or (iv) except for filings or
approvals under the HSR Act, require any consent, approval or authorization of,
or notice to, or declaration, filing or registration with, any Governmental Body
or other third party.
4.4 No Brokers' or Other Fees. There are no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement, based on any arrangement or
agreement binding upon Purchaser for which the Company or the Stockholders could
become liable.
4.5 Purchaser's Investment Representations. Purchaser hereby represents
that it is acquiring the Shares purchased hereunder or acquired pursuant hereto
for its own account with the present intention of holding such securities for
purposes of investment, and that it has no intention of selling such securities
in a public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein shall
prevent Purchaser and subsequent holders of Shares from transferring such
securities in compliance with the applicable federal and state securities laws.
ARTICLE 5
CONDITIONS TO STOCKHOLDERS' OBLIGATIONS
The obligations of each Stockholder to effect the Closing under this
Agreement are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions, unless waived in writing by each of the
Stockholders (other than the condition set forth in Section 5.08 hereof which
may be waived in writing by Ronald M. Letterman).
5.1 Representations and Warranties; Covenants. The representations and
warranties of Purchaser contained in this Agreement (a) that are qualified as to
materiality, shall be true and correct and (b) that are not qualified as to
materiality, shall be true and correct in all material
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respects, in each case at and as of the Closing as though then made, and
Purchaser shall have performed in all material respects all of the covenants
required to be performed by it hereunder prior to the Closing.
5.2 Certificate. An executive officer of Purchaser shall have delivered to
the Stockholders a certificate, dated the date of the Closing, representing and
warranting, on behalf of Purchaser that the conditions specified in Section 5.01
have been fully satisfied (except to the extent expressly waived by the
Stockholders in writing at or prior to the Closing); provided, however, that in
the event that (a) the condition in this Section 5.02 shall not be satisfied
because one or more specific representations or warranties of Purchaser are not
true as of the Closing and (b) the Stockholders agree to waive satisfaction of
such condition so that the transactions contemplated herein will be consummated,
then Purchaser shall nevertheless provide the certificate referred to in this
Section 5.02 but such certificate shall exclude those specific representations
and warranties which were not true as of the Closing.
5.3 No Action. No action shall have been instituted (and be pending) by any
Governmental Body seeking to restrain and prohibit this Agreement or the
consummation of the transactions contemplated hereby. No Order preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect.
5.4 HSR Act. The waiting period (including any extensions thereof by reason
of a request for additional information) relating to the notification and report
forms under the HSR Act filed by Purchaser (or its ultimate parent entity), the
Company and the Stockholders with respect to the transactions contemplated by
this Agreement shall have expired or been terminated.
5.5 Payment for Shares. At the Closing, Purchaser shall pay to the Hellers,
the Lettermans, the JE Levitts, the JF Levitts and the Robins, respectively, the
respective amounts specified in Section 1.01(b).
5.6 Opinion of Counsel. The Stockholders shall have received an opinion of
Kirkland & Ellis addressed to the Stockholders and dated the Closing Date as to
the matters set forth in Exhibit 5.06 hereto and in a form reasonably acceptable
to the Stockholders.
5.7 Escrow Agreement. Purchaser and the Escrow Agent shall have entered
into an Escrow Agreement substantially in the form of Exhibit 5.07 attached
hereto (the "Escrow Agreement"), and the Escrow Agreement shall be in full force
and effect as of the Closing.
5.8 Employment Agreement. The Company and Ronald M. Letterman shall have
entered into an Employment Agreement in the form of Exhibit 6.10 attached hereto
(the "Employment Agreement"), and the Employment Agreement shall be in full
force and effect as of the Closing.
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ARTICLE 6
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to effect the Closing under this Agreement are
subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, unless waived in writing by Purchaser.
6.1 Representations and Warranties; Covenants. The representations and
warranties of the Company and each of the Stockholders contained in this
Agreement (a) that are qualified as to materiality, shall be true and correct
and (b) that are not qualified as to materiality, shall be true and correct in
all material respects, in each case at and as of the Closing as though then
made, and the Company and each of the Stockholders shall have performed in all
material respects all of the covenants required to be performed by it or him
hereunder prior to the Closing.
6.2 No Action. No Action shall have been instituted (and be pending) by any
Governmental Body seeking to restrain and prohibit this Agreement or the
consummation of the transactions contemplated hereby. No Order preventing the
consummation of the transactions contemplated by this Agreement shall be in
effect.
6.3 Consents. All consents and approvals required for the consummation of
the transactions contemplated by this Agreement or where the effect of the
failure to obtain any such consent or approval would result in the breach of a
material agreement that the Company is a party to (including but not limited to
a Lease) shall have been given and delivered.
6.4 HSR Act. The waiting period (including any extensions thereof by reason
of a request for additional information) relating to the notification and report
forms under the HSR Act filed by Purchaser (or its ultimate parent entity), the
Company and the Stockholders with respect to the transactions contemplated by
this Agreement shall have expired or been terminated.
6.5 No Changes. Since December 31, 1997, there has been no material adverse
change in the condition (financial or otherwise), business, operations, assets,
operating results, or employee, customer or supplier relations of the Company,
as a whole.
6.6 Delivery of Shares. At the Closing, the Stockholders shall deliver to
Purchaser certificates representing the Shares and the certificates representing
the shares of capital stock of each of the Subsidiaries of the Company, free and
clear of all Encumbrances other than the restrictions imposed by federal and
state securities laws, duly endorsed for transfer or accompanied by duly
executed stock powers, executed in blank or in favor of Purchaser and otherwise
in a form acceptable for transfer on the books of the Company and its
Subsidiaries.
6.7 Resignation of Director. The Stockholders shall have delivered to
Purchaser the written resignations of all of the directors of the Company,
effective as of the Closing Date.
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6.8 Opinion of Counsel. Purchaser shall have received an opinion of Wilson
Sonsini Goodrich & Rosati, P.C. addressed to Purchaser and dated the Closing
Date as to the matters set forth in Exhibit 6.08 hereto and in a form reasonably
acceptable to Purchaser.
6.9 [RESERVED]
6.10 Employment Agreement. The Company and Ronald M. Letterman shall have
entered into an Employment Agreement in the form of Exhibit 6.10 attached hereto
(the "Employment Agreement"), and the Employment Agreement shall be in full
force and effect as of the Closing.
6.11 Certificate. An executive officer of the Company and each of the
Stockholders shall have delivered to Purchaser a certificate, dated the date of
the Closing, representing and warranting, on behalf of the Company or such
Stockholder, as applicable, that the conditions specified in Sections 6.01 have
been fully satisfied (except to the extent expressly waived by the Purchaser in
writing at or prior to the Closing); provided, however, that in the event that
(a) the condition in this Section 6.11 shall not be satisfied because one or
more specific representations or warranties of the Company or a Stockholder are
not true as of the Closing and (b) Purchaser agrees to waive satisfaction of
such condition so that the transactions contemplated herein will be consummated,
then the Company or such Stockholder, as applicable, shall nevertheless provide
the certificate referred to in this Section 6.11 but such certificate shall
exclude those specific representations and warranties which were not true as of
the Closing.
6.12 Escrow Agreement. The Escrow Agent and the Stockholders shall have
entered into the Escrow Agreement, and the Escrow Agreement shall be in full
force and effect as of the Closing.
6.13 Release and Non-Competition Agreement. The Company and the
Stockholders shall have entered into a Release and Non-Competition Agreement in
the form of Exhibit 6.13 attached hereto (the "Release and Non-Competition
Agreement"), and the Release and Non-Competition Agreement shall be in full
force and effect as of the Closing.
6.14 [RESERVED]
6.15 Management Loan Amount. At or before the Closing, each Stockholder
shall repay to the Company such Stockholder's Management Loan Amount. The
Purchaser may offset and reduce any amount it owes a Stockholder pursuant to
Section 1.01(b) hereby by the amount of any Management Loan Amount owed by such
Stockholder to the Company at Closing (and the Purchaser shall pay such amount
to the Company at Closing to reduce such Stockholder's Management Loan Amount).
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ARTICLE 7
[RESERVED]
ARTICLE 8
COVENANTS AND AGREEMENTS
8.1 [RESERVED]
8.2 CONSENTS AND APPROVALS.
(a) The Company and its Subsidiaries shall give any notices to third
parties and use its reasonable best efforts to obtain the third party consents
specified on Annex 2.05 to the Disclosure Schedule attached hereto and any other
third party consents that Purchaser may reasonably request in connection with
the satisfaction of the condition set forth in Section 6.03.
8.3 [RESERVED]
8.4 TAX MATTERS.
(a) COOPERATION.
(i) The Company, Purchaser and the Stockholders shall cooperate
fully as and to the extent reasonably requested by the other party or parties in
connection with the filing of Tax Returns and any audit, litigation or other
proceedings with respect to Taxes. Such cooperation shall include the retention
and (upon the other party's request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making themselves or their employees, as applicable, available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and the Stockholders agree (A) to
retain all books and records with respect to Tax matters pertinent to the
Company relating to any taxable period beginning before the Closing Date until
the expiration of the statute of limitations (and, to the extent notified by
Purchaser or the Stockholders, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party or parties reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or the Stockholders, as
the case may be, shall allow the other party to take possession of such books
and records.
(ii) The Company, Purchaser and the Stockholders further agree,
upon request, to use commercially reasonable efforts to obtain any certificate
or other document from any Governmental Body or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed
(including, but not limited to, with respect to the transactions contemplated
hereby).
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(b) Tax Return Preparation: Income Tax Periods Ending on or Before the
Closing Date. The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all periods ending on or
prior to the Closing Date which are filed after the Closing Date. The Company
shall prepare any Federal or state income Tax Returns ("Income Tax Returns") not
less than 30 days prior to the due date thereof and shall permit the
Stockholders to review and comment on each such Income Tax Return prior to
filing. In the event that the Majority Stockholders disagree with the Tax Return
as prepared, the Majority Stockholders shall have the right to have the
disagreement resolved by an independent accounting firm, mutually acceptable to
both parties, with the cost of retaining such accounting firm to be shared
equally by the parties. The Company shall not amend any Income Tax Return of the
Company filed on or before the Closing except as required by law.
8.5 [RESERVED]
8.6 Litigation Support. In the event and for so long as any party is
actively contesting or defending against any Action or charge, complaint, or
demand in connection with (i) any transaction contemplated under this Agreement
or (ii) any fact, circumstance, status, condition, activity, practice,
occurrence, event, action, failure to act, or transaction on or prior to the
Closing Date involving the Company, each of the other parties will cooperate and
make reasonably available themselves or their personnel, as applicable, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense. Notwithstanding anything
herein to the contrary, this Section 8.06 shall not apply to any action between
the Stockholders.
8.7 Settlement Agreement Payments. Promptly after the Closing, the Company
shall pay an aggregate of $1,000,000 to the Hellers and an aggregate of
$1,000,000 to the Lettermans pursuant to the terms and conditions of Section
2.2(b) of the Settlement Agreement.
8.8 Termination of Existing Stockholder Agreements. Without any further
action by any of the parties hereto, each Stockholder hereby unconditionally
releases and agrees to hold harmless the Company with respect to the Existing
Stockholder Agreements; provided, however, that notwithstanding anything hereto
the contrary, the Company shall remain obligated to pay an aggregate of
$1,000,000 to the Hellers and an aggregate of $1,000,000 to the Lettermans
pursuant to the terms and conditions of the Settlement Agreement. If the Closing
contemplated by this Agreement does not occur, this Section 8.08 shall have no
further force and effect.
8.9 [RESERVED]
8.10 CONFIDENTIALITY.
(a) Each of the Stockholders will treat and hold as confidential all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and, following the
Closing, deliver promptly to Purchaser or
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destroy, at the request and option of Purchaser, all tangible embodiments (and
all copies) of the Confidential Information which are in such Stockholders'
possession. In the event that a Stockholder is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, such Stockholder will notify Purchaser
promptly of the request or requirement so that Purchaser may seek an appropriate
protective order or waive compliance with the provisions of this Section 8.09.
If, in the absence of a protective order or the receipt of a waiver hereunder,
such Stockholder is, on the advice of counsel, compelled to disclose any
Confidential Information to any tribunal or else stand liable for contempt, that
Person may disclose the Confidential Information to the tribunal; provided,
however, that the disclosing Person shall use reasonable efforts to obtain, at
the request and expense of Purchaser, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as Purchaser shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
(b) Purchaser will treat and hold as confidential all of the
Stockholder Confidential Information, refrain from using any of the Stockholder
Confidential Information except in connection with this Agreement, and following
the Closing, deliver promptly to the applicable Stockholder or destroy, at the
request and option of such Stockholder, all tangible embodiments (and all
copies) of the Stockholder Confidential Information which are in Purchaser's
possession. In the event that Purchaser is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Stockholder Confidential Information, Purchaser will notify the
applicable Stockholder promptly of the request or requirement so that such
Stockholder may seek an appropriate protective order or waive compliance with
the provisions of this Section 8.10(b). If, in the absence of a protective order
or the receipt of a waiver hereunder, Purchaser is, on the advice of counsel,
compelled to disclose any Stockholder Confidential Information to any tribunal
or else stand liable for contempt, that Person may disclose the Stockholder
Confidential Information to the tribunal; provided, however, that the disclosing
Person shall use reasonable efforts to obtain, at the request and expense of
such Stockholder, an order or other assurance that confidential treatment will
be accorded to such portion of the Stockholder Confidential Information required
to be disclosed as such Stockholder shall designate. The foregoing provisions
shall not apply to any Stockholder Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
8.11 Expenses. Except as otherwise provided herein, if the Closing occurs,
(i) each Stockholder shall pay (A) such Stockholder's Seller Expenses, and (B)
such Stockholder's portion (as set forth as a percentage next to such
Stockholder's name on Exhibit 10.01(d)(iv)) of all Company Expenses in excess of
$430,000 and, (ii) the Company shall pay Company Expenses up to $430,000 and all
Purchaser Expenses. If the Closing does not occur, (x) the Purchaser shall not
be responsible for any Seller Expenses or Company Expenses, and (y) neither the
Company nor any Stockholder shall be responsible for any Purchaser Expenses.
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8.12 [RESERVED].
8.13 Further Assurances. From time to time after the Closing Date, without
further consideration, the parties will execute and deliver such documents and
take such actions as any other party may reasonably request in order to more
effectively consummate the transactions contemplated hereby.
8.14 Cooperation with Accountants. The Hellers and the Lettermans shall
respond to reasonable requests for cooperation and assistance from Arthur
Anderson LLP, Deloitte & Touche or any other accounting firm chosen by Purchaser
or the Company in preparing audited Financial Statements and/or using such
Financial Statements in any filing with the U.S. Securities and Exchange
Commission or other Governmental Body by the Purchaser or any Affiliate thereof,
including signing and delivering management representation letters or any other
documents or instruments reasonably necessary or desirable in connection with
such preparation or use.
8.15 Purchaser's Compliance with California Business and Professions
CodeSection17550 et. seq. As soon as possible after the Closing, Purchaser shall
cause the Company to comply with Section 17550 et. seq. of the California
Business and Professions Code concerning Sellers of Travel.
ARTICLE 9
[RESERVED]
ARTICLE 10
INDEMNIFICATION
10.1 INDEMNIFICATION.
(a) Indemnification by the Stockholders. After the Closing and subject
to the limits set forth in this Section 10.01, each of the Stockholders agrees
to indemnify, defend and hold Purchaser, the Company, and their respective
officers, directors, agents and Affiliates (collectively, "Purchaser
Indemnitees"), harmless from and in respect of any and all losses, damages,
costs, fines, penalties, fees, lost profits, Taxes, amounts paid in settlement
and reasonable expenses (including, without limitation, reasonable expenses of
investigation, attorney's fees, enforcement of this Agreement, defense fees,
witness fees, court costs and disbursements of counsel and other professionals)
(collectively, "Damages"), that any of them may incur arising out of or due to
(i) the inaccuracy of any representation or the breach of any warranty made by
the Stockholders or the Company in this Agreement or any certificate required to
be delivered to Purchaser pursuant to Section 6.11 or (ii) any Federal or state
income or franchise taxes calculated on the basis of net income (other than the
1.5% California minimum
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tax imposed on S Corporations) for any period (or portion thereof) of the
Company ending on or before the Closing Date.
Notwithstanding anything herein to the contrary, after the
Closing, each of the Hellers and the Lettermans hereby jointly and severally,
agrees to indemnify, defend and hold the Purchaser Indemnitees harmless from all
Damages that any of them may incur arising out of or due to (x) the Homer
Indebtedness or (y) the Virgil Indebtedness.
(b) Indemnification by Purchaser. Subject to the limits set forth in
this Section 10.01, Purchaser agrees to indemnify, defend and hold each of the
Stockholders, harmless from and in respect of any and all Damages that they may
incur arising out of or due to (iii the inaccuracy of any representation or the
breach of any warranty made by Purchaser in this Agreement or in any certificate
delivered to the Stockholders pursuant to Section 5.02, or (iv) the breach of
any covenant, undertaking or other agreement of Purchaser contained in this
Agreement.
Further, Purchaser agrees to indemnify, defend and hold each of
the Robins, the JE Levitts and the JF Levitts (collectively, the "Cash
Sellers"), harmless from and in respect of any and all Damages that they may
incur which arises from or relates to any of the transactions contemplated by
Section 1.01(b)(i) (the "Homer Distribution") or Section 1.01(b)(ii) (the
"Virgil Distribution"), including, without limitation, (i) any increase in the
taxable income (or decrease in the taxable loss) of the Company directly
resulting from the Homer Distribution and/or the Virgil Distribution that is
passed through to the Cash Sellers under the applicable federal, state or local
"S corporation" taxation rules, and any increase in federal, state or local
Taxes (or decrease in credits against Taxes) imposed upon the Company for which
the Cash Sellers would otherwise be liable under this Agreement, (ii) any
increase in the taxable income (or decrease in the taxable loss) of the Cash
Sellers incurred as a result of the payment to the Cash Sellers of the amount of
any Damage payable to the Cash Sellers under the preceding clause (i) or this
clause (ii), and (iii) any Damages incurred by a Cash Seller under Section 500
of the California Corporations Code or in connection with any claim or assertion
of liability of the Cash Sellers under Section 500 of the California
Corporations Code.
Notwithstanding anything herein to the contrary, each of the
Hellers and the Lettermans hereby acknowledge and agree that the Homer
Distribution and the Virgil Distribution shall be made without any
representation by, or recourse to, Purchaser or the Company.
(c) Survival of Representations and Warranties. The several
representations and warranties of the parties contained in this Agreement or in
any certificate delivered pursuant hereto will survive the Closing Date and will
remain in full force and effect thereafter until the first to occur of : (1) the
date on which the Company has received final audited financial statements for
the year ending December 31, 1998 and (2) June 30, 1999; provided, however, that
(i) the representations and warranties contained in Sections 2.02, 2.03, 3.01
and 3.03 shall survive indefinitely and shall not expire, (ii) the
representations and warranties contained in Section 2.12 shall survive until the
applicable statute of limitations shall have expired (including
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any extensions or waivers thereof); and, provided further, that such
representations or warranties shall survive beyond such period with respect to
any inaccuracy therein or breach thereof, notice of which shall have been duly
given within such applicable period in accordance with Section 10.01(e) hereof.
(d) LIMITATIONS ON INDEMNITY CLAIMS.
(i) Anything to the contrary contained herein notwithstanding, no
Purchaser Indemnitee shall be entitled to recover any amount from the
Stockholders pursuant to Section 10.01(a)(i) of this Agreement (1) unless each
claim for Damages pursuant to Section 10.01(a)(i) resulting from a single
inaccuracy or breach is for Damages (which Damages Purchaser Indemnitee would be
entitled to be indemnified for hereunder but for the limitations contained in
this sentence) that are in excess of $25,000 (the "Minimum Claim Amount"),
provided that for purposes of this clause (1) all claims for Damages arising out
of the same facts or events resulting in such inaccuracy or breach shall be
treated as a single claim, and (2) unless and until the total of all claims for
Damages pursuant to Section 10.01(a)(i) that satisfy the Minimum Claim Amount
exceeds $300,000 (the "Basket") and then only for the amount by which all such
claims exceed the Basket.
(ii) None of the limitations set forth in clause (i) of this
Section 10.01(d) apply to claims for Damages with respect to any inaccuracy or
breach of any representations and warranties set forth in Sections 2.02, 2.03,
2.12, 3.01 or 3.03 or claims for Damages under clause (ii) of Section 10.01(a),
regardless of whether such indemnity obligations relate to matters covered by
representations and warranties that are subject to such limitations. With
respect to claims for Damages under clause (ii) of Section 10.01(a), the
Purchaser Indemnitees shall first seek recovery for such Damages by making
claims against the Escrow Account in accordance with the Escrow Agreement, and
shall only be entitled to make claims directly against the Stockholders after
all funds in the Escrow Account shall have been (1) paid to Purchaser
Indemnitees in accordance with the Escrow Agreement, (2) distributed to the
Stockholders in accordance with the Escrow Agreement or (3) the subject of
Claims made against the Escrow Account in accordance with the Escrow Agreement.
(iii) For purposes of Sections 10.01(a)(i) or 10.01(b)(i), any
requirement in any representation or warranty that an event or fact be material
or have a material adverse effect, as appropriate, in order for such event or
fact to constitute a misrepresentation or breach of such representation or
warranty shall be ignored.
(iv) The liability of each Stockholder hereunder shall be several
(and not joint) and, for indemnification or otherwise, shall be limited to the
percentage set forth next to such Stockholder's name on Exhibit 10.01(d)(iv)
hereto of the liability related to such claim and shall be limited to 60% of the
sum of (x) the amount such Stockholder received pursuant to Section 1.01(b), and
(y) such Stockholder's pro rata share of the Escrow Amount. Notwithstanding the
foregoing or any provision contained in this Agreement to the contrary, each
Stockholder shall have sole liability in respect of breaches of his or her
respective representations, warranties or covenants, which liability shall in
all respects be several and not
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joint, and no other Stockholder shall have any liability of any nature
whatsoever (whether under this Agreement, by law or otherwise) for the breaches
of any representation, warranty or covenant of another Stockholder.
(v) In calculating the amount of any Damages, there shall be
taken into account the present value (assuming a discount rate of 8%) of any net
Tax benefit or liability realized by a Purchaser Indemnitee or Stockholder, as
applicable, arising from the incurrence or payment of any such Damages. Any
indemnification payment hereunder shall initially be made without regard to this
Section 10.01(d)(v) and shall be reduced or increased to reflect any such net
Tax benefit or liability only after such Purchaser Indemnitee or Stockholder has
actually realized such benefit or incurred such liability.
(vi) In calculating the amount of any Damages, there shall be
taken into account any Net Insurance Recovery received or receivable by a
Purchaser Indemnitee or Stockholder, as applicable, with respect to such
Damages. If a Purchaser Indemnitee or Stockholder receives any such Net
Insurance Recovery or other such payment after receiving any payment with
respect to such Damages, the Purchaser Indemnitee or Stockholder, as applicable,
shall promptly return such payment to the extent of such Net Insurance Recovery.
Nothing contained in this Section 10.01(d)(vi) shall obligate any party to
obtain or maintain insurance or to assert any claim or otherwise seek to recover
in respect of any Damages from any insurer.
(e) NOTICE AND OPPORTUNITY TO DEFEND.
(i) If there occurs an event which a Purchaser Indemnitee or a
Stockholder asserts is an indemnifiable event pursuant to Section 10.01(a) or
10.01(b) hereof, the Purchaser, on behalf of such Purchaser Indemnitee, or such
Stockholder, shall notify all Stockholders, including the other party or parties
obligated to provide indemnification (the "Indemnifying Party") promptly upon
its determination to seek indemnification; provided, however, that no delay on
the part of the person seeking indemnification in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any liability or obligation
hereunder unless (and then solely to the extent that) the Indemnifying Party was
damaged by such delay.
(ii) If there occurs an event which a Purchaser Indemnitee or a
Stockholder asserts is an indemnifiable event pursuant to Section 10.01(a) or
10.01(b), as applicable, which involves any claim or the commencement of any
claim, action or proceeding by a third person, the Purchaser, on behalf of such
Purchaser Indemnitee, or such Stockholder, will give the Indemnifying Party
prompt written notice of such claim or the commencement of such action or
proceeding; provided, however, that the failure to provide prompt notice as
provided herein will relieve the Indemnifying Party of its obligations hereunder
only to the extent that the Indemnifying Party was damaged by such delay. If any
such action shall be brought against any person seeking indemnification and the
Purchaser or such person, as applicable, shall notify the Indemnifying Party of
the commencement thereof, the Indemnifying Party shall be entitled to
participate therein and may elect, within fifteen (15) days of receiving such
notice, to assume the defense thereof, with counsel reasonably satisfactory to
such person
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seeking indemnification (provided that the Indemnifying Party shall only be
entitled to assume the defense of such action to the extent that the action
seeks only money damages from, and not injunctive or other equitable relief
against, such person seeking indemnification) and, after notice from the
Indemnifying Party of such election to assume the defense thereof, the
Indemnifying Party shall not be liable to the person seeking indemnification
hereunder for any legal expenses of other counsel or any other expenses
subsequently incurred by such person in connection with the defense thereof. The
person seeking indemnification agrees to cooperate fully with the Indemnifying
Party and its counsel in the defense against any such asserted liability. The
person seeking indemnification shall have the right to participate at its own
expense in the defense of such asserted liability. No settlement shall be
effected by the Indemnifying Party without the consent of the person seeking
indemnification (which consent shall not be unreasonably withheld) unless such
settlement provides that, with respect to the person seeking indemnification,
such person seeking indemnification is fully and unconditionally released from
all asserted liability (without any liability for payment). No settlement shall
be effected by a person seeking indemnification without the consent of the
Indemnifying Party, such consent not to be unreasonably withheld, unless the
person seeking indemnification would be liable for at least fifty percent of any
payments due pursuant to the terms of such settlement.
(f) Adjustment to Purchase Price. Any amounts paid pursuant to this
Article 10 or Article 8 shall be treated for all purposes as an adjustment to
the purchase price.
(g) CLAIMS AGAINST TAX ACCOUNTANTS.
(i) In the event that a Purchaser Indemnitee makes a claim for
indemnification pursuant to Section 10.01(a)(ii), then, any one of the
Stockholders may request that the Company assign to such Stockholder (the
"Requesting Stockholder") any cause of action or other claim that the Company
has or may have against Shilling & Kenyon Inc., the Company's former tax
accountants ("Shilling & Kenyon"). The Requesting Stockholder shall send notice
to the other Stockholders (the "Non-Requesting Stockholders") regarding such
request (the "Request"). The Non-Requesting Stockholders shall have thirty (30)
days from the date of receipt of such notification to notify the Requesting
Stockholder whether or not the Non-Requesting Stockholder wishes to join the
Request. If a Non-Requesting Stockholder joins the Request, he shall become a
Requesting Stockholder. If there is more than one Requesting Stockholder, then
decisions regarding the Request and any subsequent assignment, legal action
and/or settlement that arises from such Request shall be made by a majority of
the Requesting Stockholders (the "Majority Requesting Stockholders"); provided
that such majority shall be determined based upon each Requesting Stockholders
pro rata number of shares (the "Requesting Stockholder's Pro Rata Share"). Each
Requesting Stockholder's Pro Rata Share shall be equal to the number of shares
held by such Requesting Stockholder as set forth in '1.01(a) of this Agreement
as a percentage of the total number of all the shares of all Requesting
Stockholders. If there is only one Requesting Stockholder, then the references
to "Majority Requesting Stockholders" in Sections 10.01(g)(ii)-(g)(iv) below
shall mean "Requesting Stockholder."
(ii) In the event that, in the reasonable judgment of the
Majority Requesting Stockholders and the Company, the assignment referred to in
Section 10.01(g)(i) is
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illegal, against public policy or otherwise impracticable, the Company will, if
so requested by the Majority Requesting Stockholders, pursue all remedies,
including legal and equitable remedies that may reasonably be available to the
Company against Shilling & Kenyon so long as the Company, in its good faith
judgment, determines that the Requesting Stockholders are capable of bearing and
willing to bear the costs and expenses, including legal fees and expenses, of
pursuing such remedies. The Requesting Stockholders shall be solely responsible
for the payment of all costs and expenses, including legal fees and expenses,
incurred by the Company in the pursuit of such remedies.
(iii) The Company agrees that it will not effect a settlement
with Shilling & Kenyon without the prior consent of the Majority Requesting
Stockholders, which consent will not be unreasonably withheld. In the event that
the Company is awarded any judgment against Shilling & Kenyon, or in the event
that the Company is paid any amounts pursuant to any settlement with Shilling &
Kenyon (the "Award"), the Company shall first be entitled to offset the
Reimbursement against any amounts owed by the Requesting Stockholders to the
Company pursuant to Section 10.01(g)(ii) (the "Company Reimbursement"). The
Company will then promptly reimburse each Requesting Stockholder for any amounts
paid by such Requesting Stockholder to a Purchaser Indemnitee pursuant to
Section 10.01(a)(ii) (the "Stockholder Reimbursement"). After the Company
Reimbursement and Stockholder Reimbursement, the Company shall then disburse the
remaining proceeds of the Award, if any, to the Requesting Stockholders based on
their respective Requesting Stockholder Pro Rata Share.
(iv) The Requesting Stockholders shall defend and indemnify and
hold harmless the Non-Requesting Stockholders from any and all costs, losses,
claims, liabilities, damages and expenses (including court costs and fees and
disbursements of counsel) incurred by any of the Non-Requesting Stockholders,
directly or indirectly, in connection with any claim, demand or cause of action
made by the Requesting Stockholders against Shilling & Kenyon pursuant to the
Request, including, but not limited to, any cross-claim or counterclaim that
arises in connection with such Request.
ARTICLE 11
MISCELLANEOUS
11.1 Defined Terms. As used in this Agreement, the following terms shall
have the following meanings:
"1996 Unaudited Financials" has the meaning set forth in Section
2.04(b).
"Action" means any action, suit, or legal, administrative or arbitral
proceeding or investigation before or by any Governmental Body.
"Affiliate," as applied to any Person, means any other Person directly
or indirectly controlling, controlled by or under common control with that
Person.
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<PAGE> 34
"Affiliated Group" means an affiliated group as defined in Section 1504
of the Code (or any analogous combined, consolidated or unitary group defined
under state, local or foreign income Tax law) of which the Company or any of its
Subsidiaries is or has been a member.
"Agreement" has the meaning set forth in the preface.
"Another Transaction" has the meaning set forth in Section 8.08.
"Basket" has the meaning set forth in Section 10.01(d)(i).
"California Mortgages" means the deeds of trusts identified on Section
2.13(a)(iii) Part I of the Disclosure Schedule attached hereto.
"CERCLA" has the meaning set forth in Section 2.14(d).
"Class A Common Stock" has the meaning set forth in Section 1.01(a)(i).
"Class B Common Stock" has the meaning set forth in Section 1.01(a)(i).
"Closing" has the meaning set forth in Section 1.02.
"Closing Date" has the meaning set forth in Section 1.02.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface hereof (except with
respect to Section 2.16, in which case the "Company" has the meaning set forth
in Section 2.16(a) hereof).
"Company Expenses" means the fees and expenses payable by, or incurred
by or on behalf of, the Company in connection with the negotiation, execution
and delivery of this Agreement, the Escrow Agreement, the Employment Agreement
and the Release and Non-Competition Agreement, the preparation of the 1996
Audited Financials, other fees specified in Section 2.21 of the Disclosure
Schedule, and the consummation of the transactions contemplated hereby and
thereby.
"Confidential Information" means any confidential or proprietary
information regarding the Company, its Intellectual Property, its other assets
or its operations.
"Confidentiality Agreement" means that certain Nondisclosure Agreement
dated July 16, 1997 between Roger Ballou and the Company.
"Consulting Agreements" means (i) the Consulting Agreement effective as
of January 1, 1997 between the Company and Alan M. Robin; (ii) the Consulting
Agreement
30
<PAGE> 35
effective as of January 1, 1997 between the Company and James E. Levitt; and
(iii) the Consulting Agreement effective as of January 1, 1997 between the
Company and John F. Levitt.
"Damages" has the meaning set forth in Section 10.01(a).
"Danish Mortgages" means the mortgages identified on Section
2.13(a)(iii)Part 2 of the Disclosure Schedules attached hereto.
"Disclosure Schedule" has the meaning set forth in Section 2.01.
"Employee Benefit Plan" has the meaning set forth in Section 2.16(a).
"Employment Agreement" has the meaning set forth in Section 6.10.
"Encumbrances" has the meaning set forth in Section 1.01(a).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and other
provisions having the force or effect of law, all judicial and administrative
orders and determinations, all contractual obligations and all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those relating
to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing, processing,
discharge, release, threatened release, control, or cleanup of any hazardous
materials, substances or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts,
asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as
now or hereafter in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Account" shall have the meaning set forth in the Escrow
Agreement.
"Escrow Agent" has the meaning set forth in the Escrow Agreement.
"Escrow Agreement" has the meaning set forth in Section 5.07.
"Escrow Amount" means $625,000.
"Existing Common Stock" means the Class A Common Stock and the Class B
Common Stock.
"Existing Stockholder Agreements" means the Old Employment Agreements,
the Consulting Agreements, the Settlement Agreement, the Shareholders Agreement,
the Irrevocable Proxy and Agreement dated as of February 18, 1997 between Alan
and Dee Robin, James and John Levitt, the Loan Agreement between Alan Robin and
the Company dated July 24, 1996,
31
<PAGE> 36
and any other agreement, instrument, arrangement or obligation between any of
the Stockholders and between the Stockholders and the Company.
"Financial Statements" has the meaning set forth in Section 2.04.
"GAAP" means United States generally accepted accounting principles.
"Governmental Body" means any government or political subdivision
thereof, whether federal, state, local or foreign, or any agency or
instrumentality of any such government or regulatory or political subdivision
thereof, or any federal, state or foreign court or arbitrator.
"Hellers" has the meaning set forth in the preface.
"Homer Indebtedness" has the meaning set forth in Section 1.01(d).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Indebtedness" of any Person at any date means without duplication (a)
all indebtedness of such Person for borrowed money (including without limitation
accrued interest, fees, penalties and premiums or other payments in addition to
principal with respect thereto), (b) indebtedness representing the deferred
purchase price of property or services which, in accordance with GAAP, would be
required to be shown as a liability on the face of a balance sheet of such
Person on such date (other than trade payables and accrued expenses, incurred in
the ordinary course of business and payable in accordance with customary
practices), (c) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (d) all capitalized lease
obligations of such Person, (e) all obligations of such Person in respect of
banker's acceptances issued or created for the account of such Person, (f) all
obligations of such Person in respect of letters of credit issued for the
account of such Person, (g) all guarantees of such Person of any indebtedness or
obligations of any other Person of the types referred to in the preceding
clauses (a) through (f), and (h) all indebtedness or obligations of the types
referred to in the preceding clauses (a) through (g) of any other Person secured
by any Lien on any assets of such Person to the extent attributable to such
Person's interest in such assets, even though such Person has not assumed or
otherwise become liable for the payment thereof but excluding customer deposits
and interest payable thereon in the ordinary course of business.
"Indemnifying Party" has the meaning set forth in Section 10.01(e)(i).
"Intellectual Property" shall mean all of the following: (i) patents,
patent applications, patent disclosures and inventions (whether or not
patentable and whether or not reduced to practice); (ii) trademarks, service
marks, trade dress, trade names, corporate names, logos, slogans and Internet
domain names, together with all goodwill associated with each of the foregoing;
(iii) copyrights and copyrightable works; (iv) registrations, applications and
renewals for any of the foregoing; (v) trade secrets, confidential information
and know-how (including but not limited to ideas, formulae, compositions,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, business
32
<PAGE> 37
and marketing plans, and customer and supplier lists and related information);
and (vi) computer software (including but not limited to data, data bases and
documentation).
"JE Levitts" has the meaning set forth in the preface.
"JF Levitts" has the meaning set forth in the preface.
"Law" means any law, statute, code, ordinance, rule, regulation or
other requirement of any Governmental Body.
"Leased Real Property" has the meaning set forth in Section 2.09(b).
"Leases" has the meaning set forth in Section 2.09(b).
"Lettermans" has the meaning set forth in the preface.
"Lien" means any mortgage, pledge, lien, charge, security interest,
adverse claim, option, right, restriction on transfer or other encumbrance of
any nature.
"Major Accounts" means the Company's accounts set forth in Section
2.13(a)(x) of the Disclosure Schedule attached hereto.
"Majority Stockholders" means Stockholders owning (as of the date
hereof) more than 50% of the Shares.
"Management Loan Amount" means, with respect to a Stockholder, all
outstanding Indebtedness of such Stockholder owed to the Company as of the
Closing Date, which such amounts are set forth in Section 2.13(a)(iv) of the
Disclosure Schedules attached hereto.
"Minimum Claim Amount" has the meaning set forth in Section
10.01(d)(i).
"Most Recent Financial Statements" has the meaning set forth in Section
2.04.
"Net Insurance Recovery" means, with respect to any Person, any
insurance proceeds recovered by such Person or any Affiliate in respect of
Damages less 150% of the annual premium paid (taking into account only premiums
paid after the Closing Date) by such Person or any Affiliate thereof in the most
recent fiscal year in respect of such insurance (provided such Person shall
provide proper documentation to the indemnifying party evidencing the payment of
such premiums ) but shall not include any proceeds under any insurance policy
pursuant to which premiums are normally adjusted to reimburse the insurer for
the material part of proceeds paid out in previous years.
"Old Employment Agreements" means (i) the Employment Agreement dated
December 31, 1995 between the Company and Stanley S. Heller, as amended, and
(ii) the
33
<PAGE> 38
Employment Agreement dated December 31, 1995 between the Company and Ronald M.
Letterman, as amended.
"Order" means any order, judgment, injunction, award, decree or writ of
any Governmental Body.
"Permitted Liens" means (i) Liens for Taxes or other governmental
charges or levies which are not delinquent or are being contested in good faith
and by appropriate proceedings, and with respect to which adequate reserves have
been established, and are being maintained, in accordance with GAAP, (ii)
mechanic's, worker's, materialmen's and other like Liens arising in the ordinary
course of business in respect of obligations which are not delinquent or which
are being contested in good faith and by appropriate proceedings, and with
respect to which adequate reserves have been established, and are being
maintained, in accordance with GAAP, (iii) Liens arising in the ordinary course
of business for sums being contested in good faith and by appropriate
proceedings, and with respect to which adequate reserves have been established,
and are being maintained, in accordance with GAAP, or for sums not due, and (iv)
other Liens which do not materially impair the occupancy or use of the property
or asset burdened by such matter for the purposes for which it is currently used
in connection with the business of the Company.
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a joint stock company, a limited liability company,
a trust, an unincorporated organization or a government or any department or
agency or political subdivision thereof.
"Purchaser" has the meaning set forth in the preface.
"Purchaser Expenses" means the fees and expenses payable by, or
incurred by or on behalf of, Purchaser in connection with the negotiation,
execution and delivery of this Agreement, the Escrow Agreement, the Employment
Agreement and the Release and Non-Competition Agreement and the consummation of
the transactions contemplated hereby and thereby.
"Purchaser Indemnitees" has the meaning set forth in Section 10.01(a).
"Robins" has the meaning set forth in the preface.
"S Elections" has the meaning set forth in Section 2.12(b)(vii).
"Seller Expenses" means the fees and expenses payable by, or incurred
by or on behalf of, a Stockholder (as opposed to by or on behalf of the Company)
in connection with the negotiation, execution and delivery of this Agreement,
the Escrow Agreement, the Employment Agreement and the Release and
Non-Competition Agreement and the consummation of the transactions contemplated
hereby and thereby.
34
<PAGE> 39
"Settlement Agreement" means the Settlement Agreement effective as of
June 18, 1997 among the Company and the Stockholders.
"Shareholders Agreement" means the Shareholder Agreement effective as
of July 2, 1996 among the Company and the Stockholders.
"Shares" has the meaning set forth in Section 1.01(a).
"Shilling & Kenyon" has the meaning set forth in Section 10.01(g).
"Stockholder Confidential Information" means, with respect to a
Stockholder, any confidential or proprietary information regarding such
Stockholder.
"Stockholders" has the meaning set forth in the preface.
"Subsidiary" means any Person of which at least 50% of the outstanding
shares, partnership interests, or other equity interests having ordinary voting
power for the election of directors or comparable managers of such Person are
owned, directly or indirectly, by the Company, any one or more Subsidiaries of
the Company, or by the Company and one or more Subsidiaries of the Company.
"SWDA" has the meaning set forth in Section 2.14(d).
"Tax" means any (A) federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, including any interest, penalties or additions to tax or
additional amounts in respect of the foregoing; (B) liability of the Company for
the payment of any amounts of the type described in clause (A) arising as a
result of being (or ceasing to be) a member of any Affiliated Group (or being
included (or required to be included) in any Tax Return relating thereto); and
(C) liability of the Company for the payment of any amounts of the type
described in clause (A) as a result of any express or implied obligation to
indemnify or otherwise assume or succeed to the liability of any other Person.
"Tax Returns" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"Virgil Indebtedness" has the meaning set forth in Section 1.01(d).
35
<PAGE> 40
11.2 Governing Law. This Agreement shall be construed under and governed by
the laws of the State of California without regard to the conflicts of laws
provisions thereof.
11.3 Arbitration. In the event of any dispute between the parties regarding
this Agreement, the parties shall submit to binding arbitration, conducted in
San Jose, California. The arbitration shall be conducted pursuant to the rules
of the American Arbitration Association and judgment upon the award rendered by
the arbitrators may be enforced in any court having jurisdiction thereof. The
parties shall pay the expenses of their own representative, if any, and shall
share equally all other costs of the Arbitration, including the arbitrator's
fees and expenses. The arbitrators shall award all legal fees, costs, and
expenses related to the Arbitration to the party the arbitrators determine to be
the prevailing party.
11.4 Amendment. This Agreement may not be amended, modified or supplemented
except upon the execution and delivery of a written agreement executed by the
Purchaser, on the one hand, and the Majority Stockholders, on the other hand.
11.5 No Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto without the prior
written consent of the other parties hereto; provided that Purchaser may assign
all of its rights and obligations hereunder to any Affiliate of Purchaser
without the consent of the Stockholders or the Company; and, provided further,
that Purchaser may assign any or all of its rights hereunder, without the
consent of the Stockholders or the Company (i) to any lender providing financing
to Purchaser or its Affiliates, and (ii) following the Closing, in connection
with any sale of all or substantially all of the assets, capital stock or
business of Purchaser or the Company (whether effected by sale, exchange,
merger, consolidation or other transaction).
11.6 Waiver; Liability. Any of the terms or conditions of this Agreement
which may be lawfully waived may be waived in writing at any time by each party
which is entitled to the benefits thereof. Any waiver of any of the provisions
of this Agreement by any party hereto shall be binding only if set forth in an
instrument in writing signed on behalf of such party. No failure to enforce any
provision of this Agreement shall be deemed to or shall constitute a waiver of
such provision and no waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
11.7 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by personal
delivery, by facsimile, by reputable overnight courier (postage prepaid) or by
mail (registered or certified mail, postage prepaid, return receipt requested)
to the respective parties as follows:
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<PAGE> 41
If to Purchaser:
Global Vacation Group, Inc.
c/o Thayer Capital Partners
1455 Pennsylvania Avenue, Suite 350
Washington, DC 20004
Facsimile: 202-371-0391
Telephone: 202-371-0150
Attention: Roger Ballou
with a copy to:
Kirkland & Ellis
655 Fifteenth Street, N.W., Suite 1200
Washington, DC 20005
Facsimile: 202-879-5200
Telephone: 202-879-5040
Attention: Jack M. Feder, Esq.
If to a Stockholder, at the address set forth below such Stockholder's name
on the signature pages hereto.
If to the Company:
Classic Custom Vacations
One North First Street
San Jose, California 95113
Facsimile: 408-287-5953 or 287-9272
Telephone: 408-287-4550
Attention: Ronald M. Letterman
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Facsimile: 650-493-6811
Telephone: 650-493-9300
Attention: Patrick J. Schultheis, Esq.
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<PAGE> 42
and to:
Latham & Watkins
75 Willow Road
Menlo Park, California 94025
Facsimile: 650-463-2600
Telephone: 650-328-4600
Attention: Christopher Kaufman, Esq.
and to:
Troop Meisinger Steuber & Pasich LLP
10940 Wilshire Boulevard
Los Angeles, California 90024-3902
Facsimile: 310-443-8601
Telephone: 310-824-7000
Attention: Murray Markiles, Esq.
or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner. Notices will be deemed to have been
given hereunder when delivered personally, upon receipt of electronic
confirmation of transmission when sent via facsimile, five business days after
deposit in the U.S. mail and one business day after deposit with a reputable
overnight courier service.
11.8 Complete Agreement. This Agreement, the Exhibits and Schedules hereto
(including the Disclosure Schedule), the other certificates, documents and
writings referred to herein, delivered pursuant hereto or executed and delivered
concurrent with the execution and delivery hereof, and the Confidentiality
Agreement (which shall be terminated as of the Closing Date without any further
action of the parties thereto) contain the entire understanding of the parties
with respect to the subject matter hereof and thereof and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and thereof. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
11.9 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
11.10 Headings. The headings contained in this Agreement are for reference
only and shall not affect in any way the meaning or interpretation of this
Agreement.
11.11 Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions
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<PAGE> 43
hereof in such jurisdiction or rendering that or any other provision of this
Agreement invalid, illegal or unenforceable in any other jurisdiction.
11.12 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person, other than the parties hereto and their
permitted successors or assigns, any rights or remedies under or by reason of
this Agreement.
11.13 No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, each of the Stockholders, the Company and Purchaser
have caused this Stock Purchase Agreement to be executed as of the date below.
CLASSIC CUSTOM VACATIONS
Date: April 20, 1998 By:/s/ Stanley Heller
--------------------------------
Name: Stanley Heller
Title: CEO
GLOBAL VACATION GROUP, INC.
Date: April 20, 1998 By:/s/ Chris Temple
--------------------------------
Name: Chris Temple
Title: Assistant Treasurer
Date: April 20, 1998 /s/ Stanley Heller
-----------------------------------
Stanley S. Heller
Address: 707 N. Faring Road
Los Angeles, CA 90077
Date: April 20, 1998 /s/ Ronald M. Letterman
-----------------------------------
Ronald M. Letterman
Address: 114 Nina Court
Los Gatos, CA 95030
Date: April 20, 1998 /s/ James E. Levitt
-----------------------------------
James E. Levitt
Address: 14 Glen Ridge Avenue
Los Gatos, CA 95030
S-1
<PAGE> 45
Date: April 20, 1998 /s/ John F. Levitt
-----------------------------------
John F. Levitt
Address: 15930 Highland Drive
San Jose, CA 95127
Date: April 20, 1998 /s/ Alan M. Robin
-----------------------------------
Alan M. Robin
Address: 16531 Bosque Drive
Encino, CA 91316
Date: April 20, 1998 /s/ Sandra Heller
-----------------------------------
Sandra Heller
Address: 707 N. Faring Road
Los Angeles, CA 90077
Date: April 20, 1998 /s/ Lynn Letterman
-----------------------------------
Lynn Letterman
Address: 114 Nina Court
Los Gatos, CA 95030
Date: April 20, 1998 /s/ Patti Levitt
-----------------------------------
Patti Levitt
Address: 14 Glen Ridge Avenue
Los Gatos, CA 95030
Date: April 20, 1998 /s/ John F. Levitz, Attorney-in-Fact
for Shari Levitt
------------------------------------
Shari Levitt
Address: 15930 Highland Drive
San Jose, CA 95127
Date: April 20, 1998 Dee Robin by: /s/ Alan M. Robin,
Attorney-in Fact
------------------------------------
Dee Robin
Address: 16531 Bosque Drive
Encino, CA 91316
S-2
<PAGE> 46
The Exhibits and Schedules to this Stock Purchase Agreement are not included
with this Registration Statement on Form S-1. The Registrant will provide these
Exhibits and Schedules upon the request of the Securities and Exchange
Commission.
<PAGE> 1
EXHIBIT 10.10
PROFESSIONAL SERVICES AGREEMENT
THIS AGREEMENT ("AGREEMENT") is dated as of March 30, 1998, by
and between TC Management Partners, L.L.C., a Delaware limited liability company
("TCMP"), and Global Vacation Group, Inc., a New York corporation (formerly,
Allied Bus Corp.) (the "COMPANY").
RECITALS
A. Thayer Equity Investors III, L.P., a Delaware limited
partnership ("PURCHASER"), of which TCMP is the managing agent, has acquired
(the "INVESTMENT") a portion of the Company's Common Stock, par value $.01 per
share (the "COMMON STOCK"), and Class A Preferred Stock, par value $1,000 per
share (the "CLASS A PREFERRED" and together with the Common Stock, the "STOCK")
pursuant to that certain Recapitalization Agreement (the "PURCHASE AGREEMENT")
dated March 18, 1998 among the Company, Purchaser, Allied Tours Holding Corp.
and certain other persons named therein.
B. The Company desires to receive financial and management
consulting services from TCMP, and obtain the benefit of TCMP's experience in
business and financial management generally and the benefit of TCMP's knowledge
of the Company and the Company's financial affairs in particular.
C. In connection with the Investment, TCMP is willing to
provide financial and management consulting services to the Company and the
compensation arrangements set forth in this Agreement are designed to compensate
TCMP for such services.
AGREEMENT
In consideration of the foregoing premises and the respective
agreements hereinafter set forth and the mutual benefits to be derived herefrom,
TCMP and the Company hereby agree as follows:
1. ENGAGEMENT. The Company hereby engages TCMP as a financial
and management consultant, and TCMP hereby agrees to provide financial and
management consulting services to the Company, all on the terms and subject to
the conditions set forth below.
2. SERVICES OF TCMP. TCMP hereby agrees during the term of
this engagement to consult with the Company's board of directors (the "BOARD")
and the
<PAGE> 2
management of the Company and its subsidiaries in such manner and on
such business and financial matters as may be reasonably requested from time to
time by the Board, including but not limited to:
(i) corporate strategy;
(ii) budgeting of future corporate investments;
(iii) acquisition and divestiture strategies; and
(iv) debt and equity financings.
3. PERSONNEL. TCMP shall provide and devote to the performance
of this Agreement such members, officers, employees and agents of TCMP as TCMP
shall deem appropriate for the furnishing of the services required hereby.
4. INVESTMENT FEE. At the time of (a) the purchase of Stock by
Purchaser pursuant to the Purchase Agreement or any purchase of additional
shares of Common Stock or Class A Preferred by Purchaser pursuant to Article I
of that certain Equity Purchase Agreement of even date herewith among the
Company, Purchaser and certain other purchasers named therein, or (b) the
consummation of any other debt or equity financing of the Company, the Company
shall pay to TCMP an investment fee in immediately available funds equal to one
percent (1%) of the amount paid to the Company in connection with such purchase
or financing ("INVESTMENT FEES").
5. EXPENSES. The Company shall promptly reimburse TCMP for
such reasonable travel expenses and other out-of-pocket fees and expenses as
have been or may be incurred by TCMP, its members, officers, employees and
agents in connection with the Closing (as defined in the Purchase Agreement) and
in connection with the rendering of any services hereunder (including, without
limitation, fees and expenses incurred in attending Company-related meetings).
6. TERM. This Agreement will continue from the date hereof
until the earlier of (i) the date that Purchaser ceases to own at least 10% of
the Stock and (ii) the effective date of an initial public offering of the
Company's common stock with net proceeds to the Company of not less than $10
million. No termination of this Agreement, whether pursuant to this Section 6 or
otherwise, shall affect the Company's obligations with respect to the fees,
costs and expenses incurred by TCMP in rendering services hereunder and not
reimbursed by the Company as of the effective date of such termination.
7. LIABILITY. Neither TCMP nor any of its affiliates, members,
officers, employees or agents shall be liable to the Company or any of its
subsidiaries or affiliates for any loss, liability, damage or expense arising
out of or in connection with the performance of services contemplated by this
Agreement, unless such loss, liability, damage or expense shall be proven to
result directly from the gross negligence or willful misconduct of TCMP.
-2-
<PAGE> 3
8. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless TCMP, its affiliates, members, officers, employees or agents from and
against any and all loss, liability, suits, claims, costs, damages and expenses
(including, without limitation, reasonable attorneys' fees) arising from their
performance hereunder, except as a result of their gross negligence or willful
misconduct.
9. TCMP AN INDEPENDENT CONTRACTOR. TCMP and the Company agree
that TCMP shall perform services hereunder as an independent contractor,
retaining control over and responsibility for its own operations and personnel.
Neither TCMP nor its members, officers, employees or agents shall be considered
employees or agents of the Company as a result of this Agreement nor shall any
of them have authority to contract in the name of the Company or bind the
Company, except as expressly agreed to in writing by the Company.
10. NOTICES. Any notice, report or payment required or
permitted to be given or made under this Agreement by one party to the other
shall be deemed to have been duly given or made if personally delivered or, if
mailed, when mailed by registered or certified mail, postage prepaid, to the
other party at the following addresses (or at such other address as shall be
given in writing by one party to the other):
IF TO TCMP:
TC Management Partners, L.L.C.
1455 Pennsylvania Avenue, NW
Suite 350
Washington, DC 20004
Attention: Chris Temple
Daniel Raskas
Tel: (202) 371-0150
Fax: (202) 371-0391
WITH A COPY TO:
Hogan & Hartson, LLP
13th Street, N.W.
Washington, DC 20004
Attention: Christopher J. Hagan
Tel: (202) 637-5771
Fax: (202) 637-5910
-3-
<PAGE> 4
IF TO THE COMPANY:
Global Vacation Group, Inc.
Pennsylvania Avenue, NW
Suite 350
Washington, DC 20004
Attention: Roger Ballou
Tel: (202) 371-0150
Fax: (202) 371-0391
11. ENTIRE AGREEMENT: MODIFICATION. This Agreement (a)
contains the complete and entire understanding and agreement of TCMP and the
Company with respect to the subject matter hereof; and (b) supersedes all prior
and contemporaneous understandings, conditions and agreements, oral or written,
express or implied, respecting the engagement of TCMP in connection with the
subject matter hereof
12. WAIVER OF BREACH. The waiver by either party of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach of that provision or any other
provision hereof.
13. ASSIGNMENT. Neither TCMP nor the Company may assign its
rights or obligations under this Agreement without the express written consent
of the other.
14. SUCCESSORS. This Agreement and all the obligations and
benefits hereunder shall inure to the successors and permitted assigns of the
parties.
15. COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement may
be executed and delivered by each party hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and both of
which taken together shall constitute one and the same agreement. Each party to
this Agreement agrees that it will be bound by its own telecopied signature and
that it accepts the telecopied signature of the other party to this Agreement.
16. CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 5
IN WITNESS WHEREOF, TCMP and the Company have caused this
Professional Services Agreement to be duly executed and delivered on the date
and year first above written.
GLOBAL VACATION GROUP, INC.
By: /s/ Roger H. Ballou
-----------------------------------
Roger H. Ballou
Chairman and Chief Executive Officer
TC MANAGEMENT PARTNERS, L.L.C.
By: /s/ Christopher Temple
-----------------------------------
Christopher Temple
Member
-5-
<PAGE> 1
EXHIBIT 10.14
GLOBAL VACATION GROUP, INC.
1998 STOCK OPTION PLAN
1. DEFINITIONS
In this Plan, except where the context otherwise indicates, the
following definitions apply:
1.1. "Affiliate" means any company or other trade or business
that is controlled by or under common control with the Company (determined in
accordance with the principles of Section 414(b) and 414(c) of the Code and the
regulations thereunder) or is an affiliate of the Company within the meaning of
Rule 405 of Regulation C under the Securities Act of 1933, as amended.
1.2. "Agreement" means a written agreement granting an Option
that is executed by the Company and the Optionee.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means a committee of the Board appointed by the
Board to administer the Plan or, in the absence of such a committee, the Board.
1.6. "Common Stock" means the common stock, par value $.01 per
share, of the Company.
1.7. "Company" means Global Vacation Group, Inc., a New York
corporation.
1.8. "Date of Exercise" means the date on which the Company
receives notice of the exercise of an Option in accordance with the terms of the
Plan.
1.9. "Date of Grant" means the date on which an Option is
granted under the Plan.
1.10. "Director" means a member of the Board of Directors of the
Company or any Affiliate.
1.11. "Eligible Individual" means (i) any Employee or Director or
(ii) any consultant or advisor to the Company or an Affiliate who renders bona
fide services to the Company or an Affiliate other than services in connection
with the offer or sale of securities in a capital raising transaction.
1.12. "Employee" means any person determined by the Committee to
be a full- or part-time employee of the Company or an Affiliate.
<PAGE> 2
1.13. "Fair Market Value" means the fair market value of a Share
as determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.14. "Incentive Stock Option" means an Option granted under the
Plan that qualifies as an incentive stock option under Section 422 of the Code
and that the Company designates as such in the Agreement granting the Option.
1.15. "Nonstatutory Stock Option" means an Option granted under
the Plan that is not an Incentive Stock Option.
1.16. "Option" means an option to purchase Shares granted under
the Plan.
1.17. "Option Period" means the period during which an Option may
be exercised.
1.18. "Option Price" means the price per Share at which an Option
may be exercised. The Option Price shall be determined by the Committee,
provided, however, that, in the case of Incentive Stock Options, the Option
Price shall not be less than the Fair Market Value as of the Date of Grant.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted
to an Optionee who (applying the rules of Section 424(d) of the Code) owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or an Affiliate (a "Ten-Percent Stockholder"),
the Option Price shall not be less than one hundred and ten percent (110%) of
the Fair Market Value on the Date of Grant. The Option Price of any Option shall
be subject to adjustment to the extent provided in Article 9 hereof.
1.19. "Optionee" means an Eligible Individual to whom an Option
has been granted.
1.20. "Plan" means the Global Vacation Group, Inc. 1998 Stock
Option Plan.
1.21. "Share" means a share of Common Stock.
2. PURPOSE
The Plan is intended to assist the Company and its Affiliates in
attracting and retaining Eligible Individuals of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company.
-2-
<PAGE> 3
3. ADMINISTRATION
The Committee shall administer the Plan and shall have plenary
authority, in its discretion, to award Options to Eligible Individuals, subject
to the provisions of the Plan. The Committee shall have plenary authority and
discretion, subject to the provisions of the Plan and applicable laws, to
determine the terms (which terms need not be identical) of all Options
including, but not limited to, which Eligible Individuals shall be granted
Options, the time or times at which Options are granted, the Option Price, the
number of Shares subject to an Option, whether an Option shall be an Incentive
Stock Option or a Nonstatutory Stock Option, any provisions relating to vesting,
any circumstances in which Options terminate or Shares may be repurchased by the
Company, the period during which Options may be exercised and any other
restrictions on Options. In making these determinations, the Committee may take
into account the nature of the services rendered by the Optionees, their present
and potential contributions to the success of the Company and its Affiliates,
and such other factors as the Committee in its discretion shall deem relevant.
Subject to the provisions of the Plan, the Committee shall have plenary
authority to construe and interpret the Plan and the Agreements, to prescribe,
amend and rescind rules and regulations relating to the Plan and to make all
other determinations deemed necessary or advisable for the administration of the
Plan, including, but not limited to, any determination to accelerate the vesting
of outstanding Options. Any determinations or actions made or taken by the
Committee with regard to matters referred to in this Article 3 shall be binding
and final.
4. ELIGIBILITY
Options may be granted only to Eligible Individuals.
5. STOCK SUBJECT TO THE PLAN
5.1. Subject to adjustment as provided in Article 9, (i) the
maximum number of Shares that may be issued under the Plan is twelve percent
(12%) of the outstanding Shares, as such number may be increased from time to
time and (ii) no more than 72,000 Shares issued under the Plan shall be issued
pursuant to Incentive Stock Options.
5.2. If an Option expires or terminates for any reason without
having been fully exercised, the unissued Shares which had been subject to such
Option shall become available for the grant of additional Options.
-3-
<PAGE> 4
6. OPTIONS
6.1. Options granted under the Plan shall be either Incentive
Stock Options or Nonstatutory Stock Options, as designated by the Committee.
Each Option granted under the Plan shall be clearly identified either as an
Incentive Stock Option or a Nonstatutory Stock Option and shall be evidenced by
an Agreement that specifies the terms and conditions of the grant. Options
granted to Eligible Individuals shall be subject to the terms and conditions set
forth in this Plan and such other terms and conditions not inconsistent with
this Plan as the Committee may specify.
6.2. The Option Period for Options granted to Eligible
Individuals shall be determined by the Committee and specifically set forth in
the Agreement, provided, however, that an Option shall not be exercisable after
ten years (five years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder) from its Date of Grant.
7. EXERCISE OF OPTIONS
7.1. An Option may, subject to the terms of the applicable
Agreement under which it is granted, be exercised in whole or in part by the
delivery to the Company of written notice of the exercise, in such form as the
Committee may prescribe, accompanied by full payment of the Option Price for the
Shares with respect to which the Option is being exercised as provided in
Section 7.2 hereof.
7.2. Payment of the aggregate Option Price for the Shares with
respect to which an Option is being exercised shall be made in cash; provided,
however, that the Committee, in its sole discretion, may provide in an Agreement
that part or all of such payment may be made by the Optionee in one or more of
the following manners: (a) by delivery (including constructive delivery) to the
Company of Shares valued at Fair Market Value on Date of Exercise; (b) by
delivery on a form prescribed by the Committee of a properly executed exercise
notice and irrevocable instructions to a registered securities broker approved
by the Committee to sell Shares and promptly deliver cash to the Company; (c) by
delivery of a promissory note as provided in Section 7.3 hereof; or (d) by
surrender to the Company of an Option (or a portion thereof) that has become
exercisable and the receipt from the Company upon such surrender, without any
payment to the Company (other than required tax withholding amounts), of (x)
that number of Shares (equal to the highest whole number of Shares) having an
aggregate Fair Market Value as of the date of surrender equal to that number of
Shares subject to the Option (or portion thereof) being surrendered multiplied
by an amount equal to the excess of (i) the Fair Market Value on the date of
surrender over (ii) the Option Price, plus (y) an amount of cash equal to the
Fair Market Value of any fractional Share to which the
-4-
<PAGE> 5
Optionee would be entitled but for the parenthetical in clause (x) above
relating to whole number of Shares.
7.3. To the extent provided in an Option Agreement and permitted
by applicable law, the Committee may accept as payment of the Option Price a
promissory note executed by the Optionee evidencing his or her obligation to
make future cash payment thereof; provided, however, that in no event may the
Committee accept a promissory note for an amount in excess of the difference
between the aggregate Option Price and the aggregate par value of the Shares.
Promissory notes made pursuant to this Section 7.3 shall be payable upon such
terms as may be determined by the Committee, shall be secured by the Optionee's
pledge of the Shares received upon exercise of the Option and shall bear
interest at a rate fixed by the Committee.
8. RESTRICTIONS ON TRANSFER
Except as otherwise set forth in an Agreement, Options shall not
be transferable other than by will or the laws of descent and distribution, and
an Option may be exercised during the Optionee's lifetime only by the Optionee
or, in the event of his or her legal disability, by his or her legal
representative. The Shares acquired pursuant to the Plan shall be subject to
such restrictions and agreements regarding sale, assignment, encumbrances, or
other transfers or dispositions thereof (i) as the Committee shall deem
appropriate and (ii) as are required by applicable law.
9. CAPITAL ADJUSTMENTS
In the event of any change in the outstanding Common Stock by
reason of any stock dividend, split-up (or reverse stock split),
recapitalization, reclassification, reorganization, reincorporation, combination
or exchange of shares, merger, consolidation, liquidation or similar change in
corporate structure, the Committee shall provide for an appropriate substitution
for or adjustment in (i) the number and class of Shares subject to outstanding
Options, (ii) the Option Price of outstanding Options,(iii) the aggregate number
and class of Shares that may be issued under the Plan and (iv) the aggregate
number of shares that may be subject to Incentive Stock Options. Notwithstanding
anything to the contrary in this Article 9, all outstanding Options shall
terminate upon consummation of a transaction that is approved by the Board and
that results in any person or entity (other than (a) persons who are holders of
Common Stock of the Company at the time the Plan is approved by the Company's
stockholders and affiliates of such holders, (b) employee benefit plans of the
Company and (c) any underwriters in connection with a public offering of the
Company's securities) owning eighty percent (80%) or more of the combined voting
power of all classes of stock of the Company, except to the extent that
provision is made in writing in connection with any such
-5-
<PAGE> 6
transaction for the assumption of outstanding Options or for the substitution
(with appropriate adjustments) for such outstanding Options of new options
covering the stock of a successor entity (or an affiliate thereof), in which
event the outstanding Options shall continue in the manner and under the terms
so provided.
10. TERMINATION OR AMENDMENT
The Board may amend, alter, suspend or terminate the Plan in any
respect at any time; provided, however, that after the Plan has been approved by
the stockholders of the Company, no amendment, alteration, suspension or
termination of the Plan shall be made by the Board without approval of (i) the
Company's stockholders to the extent stockholder approval is required by
applicable law or regulations and (ii) each affected Optionee if such amendment,
alteration, suspension or termination would adversely affect his or her rights
or obligations under any Option granted prior to the date of such amendment,
alteration, suspension or termination.
11. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS; SUBSTITUTED OPTIONS
11.1. Subject to the terms and conditions of the Plan, the
Committee may modify, extend or renew the terms of any outstanding Options, or
accept the surrender of outstanding Options granted under the Plan or options or
stock appreciation rights granted under any other plan of the Company or an
Affiliate (to the extent not theretofore exercised) and authorize the granting
of new Options in substitution therefor (to the extent not theretofore
exercised). Any such substituted Options may specify a lower exercise price than
the surrendered options or stock appreciation rights, a longer term than the
surrendered options or stock appreciation rights, or have any other provisions
that are authorized by the Plan. Notwithstanding the foregoing, however, no
modification of an Option shall, without the consent of the Optionee, adversely
affect any of the Optionee's rights or obligations under such Option, subject to
the last sentence in Article 9 hereof.
11.2. Anything contained herein to the contrary notwithstanding,
Options may, at the discretion of the Committee, be granted under the Plan in
substitution for stock appreciation rights or options to purchase shares of
capital stock of another corporation which is merged into, consolidated with, or
all or a substantial portion of the property or stock of which is acquired by,
the Company or one of its Affiliates. The terms and conditions of the substitute
Options so granted may vary from the terms and conditions set forth in this Plan
to such extent as the Committee may deem appropriate in order to conform, in
whole or part, to the provisions of the options or stock appreciation rights in
substitution for which they are granted.
-6-
<PAGE> 7
12. EFFECTIVENESS OF THE PLAN
The Plan and any amendment thereto shall be effective on the date
on which it is adopted by the Board, provided that any such adoption requiring
stockholder approval is subject to approval by vote of the stockholders of the
Company within twelve months after such adoption by the Board. Options may be
granted prior to stockholder approval of the Plan, and the date on which any
such Option is granted shall be the Date of Grant for all purposes provided that
(a) each such Option shall be subject to stockholder approval of the Plan, (b)
no Option may be exercised prior to such stockholder approval, and (c) any such
Option shall be void ab initio if such stockholder approval is not obtained.
13. WITHHOLDING
The Company's obligation to deliver Shares or pay any amount
pursuant to the terms of any Option shall be subject to the satisfaction of
applicable federal, state and local tax withholding requirements. To the extent
provided in the applicable Agreement and in accordance with rules prescribed by
the Committee, an Optionee may satisfy any such withholding tax obligation by
any of the following means or by a combination of such means: (i) tendering a
cash payment, (ii) authorizing the Company to withhold Shares otherwise issuable
to the Optionee, or (iii) delivering to the Company already owned and
unencumbered Shares.
14. TERM OF THE PLAN
Unless sooner terminated by the Board pursuant to Article 10, the
Plan shall terminate on March 29, 2008 and no Options may be granted after such
date. The termination of the Plan shall not affect the validity of any Option
outstanding on the date of termination.
15. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may
have as Directors or as members of the Committee, the members of the Committee
shall be indemnified by the Company, to the fullest extent permitted by
applicable law in effect on the date on which the Plan is made effective and to
such greater extent as applicable law may thereafter from time to time permit,
against the reasonable expenses, including attorneys' fees, actually and
reasonably incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Option granted hereunder, and against all
amounts reasonably paid by them in settlement thereof or paid by them in
satisfaction of a judgment in any such action, suit or proceeding,
-7-
<PAGE> 8
if such members acted in good faith and in a manner which they believed to be
in, and not opposed to, the best interests of the Company.
16. GENERAL PROVISIONS
16.1. The establishment of the Plan shall not confer upon any
Eligible Individual any legal or equitable right against the Company, any
Affiliate or the Committee, except as expressly provided in the Plan.
16.2. The Plan does not constitute inducement or consideration
for the employment or service of any Eligible Individual, nor is it a contract
between the Company or any Affiliate and any Eligible Individual. Participation
in the Plan shall not give an Eligible Individual any right to be retained in
the service of the Company or any Affiliate.
16.3. The adoption of this Plan shall not be taken to impose any
limitations on the powers of the Company or its Affiliates to issue, grant, or
assume options otherwise than under this Plan or to adopt other stock option or
incentive plans, or to impose any requirement of stockholder approval upon the
same.
16.4. The interests of any Eligible Individual under the Plan are
not subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in an Agreement.
16.5. The Plan shall be governed, construed and administered in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof, and it is the intention of the Company
that Incentive Stock Options granted under the Plan qualify as such under
Section 422 of the Code.
16.6. The Committee may require each person acquiring Shares
pursuant to Options hereunder to represent to and agree with the Company in
writing that such person is acquiring the Shares without a view to distribution
thereof. The certificates for such Shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer or any other
restrictions required by applicable law or this Plan. All certificates for
Shares issued pursuant to the Plan shall be subject to such stop transfer orders
and other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange or interdealer quotation system upon which the Common Stock
is then listed or quoted, and any applicable federal or state securities laws.
16.7. Notwithstanding anything to the contrary herein, the
Company shall not be required to issue any certificate or certificates for
Shares upon the exercise of Options, or record any person as a holder of record
of such Shares,
-8-
<PAGE> 9
without obtaining, to the complete satisfaction of the Committee, the approval
of all regulatory bodies deemed necessary by the Committee, and without
complying to the Committee's complete satisfaction with all rules and
regulations under federal, state or local law deemed applicable by the
Committee.
16.8. All references to sections of, or regulations promulgated
under, the Code or other statutes shall be deemed also to refer to such sections
or regulations as amended from time to time and to any successor provisions to
such sections or regulations.
-9-
<PAGE> 1
EXHIBIT 10.21
AMENDMENT NO. 1
TO
SENIOR MANAGEMENT AGREEMENT
MADE AS OF MARCH 30, 1998
BETWEEN
GLOBAL VACATION GROUP, INC.
AND
ROGER H. BALLOU
WHEREAS, Global Vacation Group, Inc., a New York corporation (the
"Company"), and Roger H. Ballou ("Executive") entered into that certain Senior
Management Agreement dated as of March 30, 1998 (the "Agreement"); and
WHEREAS, the Company and Executive wish to amend the Agreement as
set forth herein;
NOW, THEREFORE, the Company and Executive hereby agree as follows:
1. Recital A. The second sentence of Recital A to the Agreement hereby is
amended by deleting therefrom:
"and all shares of Preferred Stock and Common Stock hereafter
acquired by Executive".
2. Section 3 (Repurchase Option).
(a) Section 3(a) of the Agreement hereby is amended by inserting the
following language between ", then" and "all of the executive Stock" in
the second line thereof:
", subject to 3(g),".
(b) Section 3(c) of the Agreement hereby is amended by deleting the
word "The" from the beginning of the paragraph and replacing it with
the following language:
"Subject to 3(g), the".
(c) Section 3 hereby is amended further by the addition of a new
Section 3(g) as follows:
"(g) Notwithstanding any other provision of this Agreement, upon the
closing date of the Initial Public Offering, any shares of Executive
Stock which are Vested Shares shall not be subject to the Repurchase
Option."
<PAGE> 2
3. Section 4 (Restrictions on Transfer of Executive Stock). Section 4 of the
Agreement hereby is amended by adding the following sentence after the
completion of the existing text:
"In addition, transfers of Unvested Shares shall not be permitted,
except for transfers to one or more Family Members of the Executive
or to a trust solely for the benefit of one or more Family Members
of the Executive."
4. Section 10 (Definitions). Section 10 of the Agreement hereby is amended by
the addition of the following definition:
"FAMILY MEMBERS" with respect to an individual shall mean such
individual's spouse, parents, siblings, and children."
5. Remaining Provisions. In all other respects, the Agreement remains unchanged.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of this 24th day of June, 1998.
GLOBAL VACATION GROUP, INC.
By: /s/ J. Raymond Lewis, Jr.
-------------------------------------
J. Raymond Lewis, Jr.
President and Chief Operating Officer
/s/ Roger H. Ballou
------------------------------------
ROGER H. BALLOU
2
<PAGE> 1
EXHIBIT 10.22
AMENDMENT NO. 1
TO
SENIOR MANAGEMENT AGREEMENT
MADE AS OF MARCH 30, 1998
BETWEEN
GLOBAL VACATION GROUP, INC.
AND
J. RAYMOND LEWIS, JR.
WHEREAS, Global Vacation Group, Inc., a New York corporation (the
"Company"), and J. Raymond Lewis, Jr. ("Executive") entered into that certain
Senior Management Agreement dated as of March 30, 1998 (the "Agreement"); and
WHEREAS, the Company and Executive wish to amend the Agreement as
set forth herein;
NOW, THEREFORE, the Company and Executive hereby agree as follows:
1. Recital A. The second sentence of Recital A to the Agreement hereby is
amended by deleting therefrom:
"and all shares of Preferred Stock and Common Stock hereafter
acquired by Executive".
2. Section 3 (Repurchase Option).
(a) Section 3(a) of the Agreement hereby is amended by inserting the
following language between ", then" and "all of the executive Stock" in
the second line thereof:
", subject to 3(g),".
(b) Section 3(c) of the Agreement hereby is amended by deleting the
word "The" from the beginning of the paragraph and replacing it with
the following language:
"Subject to 3(g), the".
(c) Section 3 hereby is amended further by the addition of a new
Section 3(g) as follows:
"(g) Notwithstanding any other provision of this Agreement, upon the
closing date of the Initial Public Offering, any shares of Executive
Stock which are Vested Shares shall not be subject to the Repurchase
Option."
<PAGE> 2
3. Section 4 (Restrictions on Transfer of Executive Stock). Section 4 of the
Agreement hereby is amended by adding the following sentence after the
completion of the existing text:
"In addition, transfers of Unvested Shares shall not be permitted,
except for transfers to one or more Family Members of the Executive
or to a trust solely for the benefit of one or more Family Members
of the Executive."
4. Section 10 (Definitions). Section 10 of the Agreement hereby is amended by
the addition of the following definition:
"FAMILY MEMBERS" with respect to an individual shall mean such
individual's spouse, parents, siblings, and children."
5. Remaining Provisions. In all other respects, the Agreement remains unchanged.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of this 24th day of June, 1998.
GLOBAL VACATION GROUP, INC.
By: /s/ Roger H. Ballou
------------------------------------
Roger H. Ballou
Chairman and Chief Executive Officer
/s/ J. Raymond Lewis, Jr.
--------------------------------------
J. RAYMOND LEWIS, JR.
2
<PAGE> 1
EXHIBIT 10.23
AMENDMENT NO. 1
TO
SENIOR MANAGEMENT AGREEMENT
MADE AS OF MARCH 30, 1998
BETWEEN
GLOBAL VACATION GROUP, INC.
AND
WALTER S. BERMAN
WHEREAS, Global Vacation Group, Inc., a New York corporation (the
"Company"), and Walter S. Berman ("Executive") entered into that certain Senior
Management Agreement dated as of March 30, 1998 (the "Agreement"); and
WHEREAS, the Company and Executive wish to amend the Agreement as
set forth herein;
NOW, THEREFORE, the Company and Executive hereby agree as follows:
1. Recital A. The second sentence of Recital A to the Agreement hereby is
amended by deleting therefrom:
"and all shares of Preferred Stock and Common Stock hereafter
acquired by Executive".
2. Section 3 (Repurchase Option).
(a) Section 3(a) of the Agreement hereby is amended by inserting the
following language between ", then" and "all of the executive Stock" in
the second line thereof:
", subject to 3(g),".
(b) Section 3(c) of the Agreement hereby is amended by deleting the
word "The" from the beginning of the paragraph and replacing it with
the following language:
"Subject to 3(g), the".
(c) Section 3 hereby is amended further by the addition of a new
Section 3(g) as follows:
"(g) Notwithstanding any other provision of this Agreement, upon the
closing date of the Initial Public Offering, any shares of Executive
Stock which are Vested Shares shall not be subject to the Repurchase
Option."
<PAGE> 2
3. Section 4 (Restrictions on Transfer of Executive Stock). Section 4 of the
Agreement hereby is amended by adding the following sentence after the
completion of the existing text:
"In addition, transfers of Unvested Shares shall not be permitted,
except for transfers to one or more Family Members of the Executive
or to a trust solely for the benefit of one or more Family Members
of the Executive."
4. Section 10 (Definitions). Section 10 of the Agreement hereby is amended by
the addition of the following definition:
"FAMILY MEMBERS" with respect to an individual shall mean such
individual's spouse, parents, siblings, and children."
5. Remaining Provisions. In all other respects, the Agreement remains unchanged.
* * * * *
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
No. 1 as of this 24th day of June, 1998.
GLOBAL VACATION GROUP, INC.
By: /s/ J. Raymond Lewis, Jr.
-------------------------------------
J. Raymond Lewis, Jr.
President and Chief Operating Officer
/s/ Walter S. Berman
----------------------------------------
WALTER S. BERMAN
2
<PAGE> 1
Exhibit 11.1
Global Vocation Group, Inc.
Earnings Per Share
Calculation of Pro forma Weighted-Average Shares Outstanding
<TABLE>
<CAPTION>
Year Ended Three Months
December 31, Ended March 31,
1997 1998
--------- ---------
<S> <C> <C>
Common Stock 5,768,343 5,560,478
Convertible Preferred Stock -- 290,330
--------- ---------
Pro forma basic and
diluted weighted average
shares outstanding 5,768,343 5,850,808
========= =========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of the Registrant
Name Jurisdiction of Organization
- ---- ----------------------------
Classic Custom Vacations, Inc. California
Haddon Holidays, Inc. New Jersey
d/b/a Haddon Tours Inc.
Celebrity Tours Corp.
Celebrity Travel Clubs, Inc.
MTI Vacations, Inc. Delaware
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) relating to Global Vacation Group, Inc.
(formerly Allied Bus Corp.) included in or made a part of this registration
statement.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
June 24, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) relating to Classic Custom Vacations
included in or made a part of this registration statement.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Jose, California
June 24, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) relating to Haddon Holidays, Inc. included
in or made a part of this registration statement.
/s/ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Washington, D.C.
June 24, 1998
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-52673 of Global Vacation Group, Inc. of our report dated May 21, 1997 on
the financial statements of Classic Custom Vacations for the year ended
December 31, 1996, appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Jose, California
June 25, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-52673) of our report dated March 27, 1998, except for Notes 1 and
10, as to which the date is May 1, 1998, on our audits of the financial
statements of MTI Vacations. We also consent to the reference to our firm under
the caption "Experts."
/s/COOPERS & LYBRAND LLP
COOPERS & LYBRAND LLP
Chicago, Illinois
June 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE GLOBAL
VACATION GROUP, INC. BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM S-1 REGISTRATION STATEMENT, #333-52673
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,685
<SECURITIES> 2,384
<RECEIVABLES> 9,060
<ALLOWANCES> 747
<INVENTORY> 0
<CURRENT-ASSETS> 16,371
<PP&E> 556
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,401
<CURRENT-LIABILITIES> 30,031
<BONDS> 13,400
0
28,015
<COMMON> 82
<OTHER-SE> (44,127)
<TOTAL-LIABILITY-AND-EQUITY> 27,401
<SALES> 2,477
<TOTAL-REVENUES> 0
<CGS> 3,032
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,100)
<INCOME-TAX> (61)
<INCOME-CONTINUING> (2,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,039)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
