<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1998
Commission File No. 333-52673
GLOBAL VACATION GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
NEW YORK 13-1894567
- - ---------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
1420 NEW YORK AVENUE, N.W., SUITE 550 WASHINGTON D.C. 20005
- - ------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 347-1800
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES NO X
--- ---
As of September 9, 1998 there were 14,747,576 shares of Registrant's Common
Stock outstanding.
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INDEX
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<CAPTION>
Page
No.
---
<S> <C>
PART I. FINANCIAL INFORMATION.............................................. 3
Item 1. Financial Statements(unaudited).................................... 3
General Information........................................ 3
Condensed Consolidated Balance Sheets as of
June 30, 1998, and December 31, 1997....................... 4
Condensed Consolidated Statements of Operations
for the Three and Six months Ended June 30, 1998
and 1997................................................... 5
Pro Forma Condensed Consolidated Statements of
Operations for The Three and Six Months Ended
June 30, 1998 and 1997..................................... 6
Condensed Consolidated Statement of Changes in
Shareholders' Equity (Deficit) for the Six Months Ended
June 30, 1998.............................................. 7
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 1998
and 1997................................................... 8
Notes to Condensed Consolidated Financial
Statements................................................. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 16
Results of Operations...................................... 18
Liquidity and Capital Resources............................ 21
PART II. OTHER INFORMATION.................................................. 24
Item 2. Changes in Securities and Use of Proceeds.......................... 24
Item 4. Submission of Matters to a Vote of Security Holders................ 25
Item 6. Exhibits and Reports on Form 8-K................................... 25
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
GENERAL INFORMATION
The condensed consolidated financial statements included herein should be read
in conjunction with the Financial Statements of the Company and related notes
thereto, the Pro Forma Combined Financial Statements of the Company and the
related notes thereto, the Financial Statements of Haddon Holidays, Inc.,
Classic Custom Vacations, Globetrotters, Inc., and MTI Vacations, Inc.,
(together, the "Acquired Businesses") and related notes thereto, all of which
are included in the Company's Registration Statement on Form S-1, File No.
333-52673 (the "Registration Statement"), which was declared effective on July
30, 1998 by the Securities and Exchange Commission (the "SEC"). The Registration
Statement was filed in connection with the initial public offering of the
Company's common stock, which was completed on August 5, 1998 (the "Offering").
3
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GLOBAL VACATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
ASSETS (unaudited) 1997
----------------------- ----------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 48,408 $ 7,074
Short-term investments 22,666 835
Accounts receivable, net of allowance of $857 and $861, respectively 17,566 10,637
Loans receivable from shareholders 119 103
Other current assets 3,216 290
----------------------- ----------------------
Total current assets 91,975 18,939
----------------------- ----------------------
Property and equipment, net 4,636 386
Related party and other long-term receivables 2,516 -
Intangible assets, net 66,627 -
Other assets 2,076 50
----------------------- ----------------------
Total assets $ 167,830 $ 19,375
======================= ======================
LIABILITIES AND SHAREHOLDERS" EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 60,805 $ 15,759
Customer deposits 50,708 1,541
Note payable 4,000 -
Loans payable to shareholders 329 1,717
Current portion of long-term debt 2,250 -
----------------------- ----------------------
Total current liabilities 118,092 19,017
Long-term debt, net of current portion 39,272 -
----------------------- ----------------------
Total liabilities 157,364 19,017
Commitments and Contingencies
Class A Convertible Preferred stock, $1000 par value; no shares
authorized, issued, or outstanding at December 31, 1997;
100,000 shares authorized, 52,776 issued and outstanding
as of June 30, 1998 (aggregate liquidation preference
of $54,599). 54,599 -
Shareholders' equity:
Preferred Stock, $.01 par value, 6,000,000 shares authorized,
no shares issued and outstanding. - -
Common Stock, $.01 par value, 60,000,000 shares authorized,
7,797,926 and 5,291,262 shares issued and outstanding, respectively. 78 53
Additional paid-in capital 3,486 -
Retained (deficit) earnings (47,697) 305
----------------------- ----------------------
Total shareholders' equity (deficit) (44,133) 358
----------------------- ----------------------
Total liabilities and shareholders' equity (deficit) $ 167,830 $ 19,375
======================= ======================
</TABLE>
- - -----------------------------------------------------
See Notes to condensed consolidated financial statements.
4
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GLOBAL VACATION GROUP, INC.
Condensed Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30,
-------- --------
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues $ 19,509 $ 5,911 $ 21,986 $ 8,336
Operating expenses 14,964 4,589 17,996 7,409
--------- -------- --------- --------
Gross profit 4,545 1,322 3,990 927
General and administration expenses 2,182 2,045 3,753 3,174
Depreciation and amortization 707 41 741 82
--------- -------- --------- --------
Income (loss) from operations 1,656 (764) (504) (2,329)
--------- -------- --------- --------
Other income (expense)
Interest income 797 68 871 133
Interest expense (900) - (914) -
Other 22 22 22 22
--------- -------- --------- --------
Total (81) 90 (21) 155
--------- -------- --------- --------
Income (loss) before income taxes 1,575 (674) (525) (2,174)
(Provision for) benefit from income
taxes (220) (5) (159) 5
--------- -------- --------- --------
Net income (loss) $ 1,355 $ (679) $ (684) $(2,169)
Dividends on Class A Convertible
Preferred Stock 1,673 - 1,823 -
--------- -------- --------- --------
Net loss available to common
shareholders $ (318) $ (679) $ (2,507) $(2,169)
========= ======== ========= ========
Net loss per share:
Basic and diluted $ (0.04) $ (0.13) $ (0.39) $ (0.41)
========= ======== ========= ========
Weighted average shares outstanding:
Basic and diluted 7,701 5,291 6,408 5,291
========= ======== ========= ========
PRO FORMA INCOME DATA:
Historical income (loss) before income $ 1,575 $ (674) $ (525) $(2,174)
taxes, as reported
Pro forma (provision for) benefit from
income taxes (630) 270 210 870
--------- -------- --------- --------
Pro forma net income (loss) $ 945 $ (404) $ (315) $(1,304)
========= ======== ========= ========
Pro forma net income (loss) per share
Basic $ 0.09 $ (0.08) $ (0.04) $ (0.25)
========= ======== ========= ========
Diluted $ 0.09 $ (0.08) $ (0.04) $ (0.25)
========= ======== ========= ========
Pro forma weighted average shares outstanding:
Basic 11,007 5,291 8,214 5,291
========= ======== ========= ========
Diluted 11,087 5,291 8,214 5,291
========= ======== ========= ========
</TABLE>
See Notes to condensed consolidated financial statements.
5
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GLOBAL VACATION GROUP, INC.
Pro Forma Condensed Consolidated Statements of Operations
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------------------- ----------------------
<S> <C> <C> <C> <C>
Net revenues $ 32,525 $ 29,971 $ 55,066 $ 52,185
Operating expenses 26,831 25,134 49,109 47,638
--------------------- ----------------------
Gross profit 5,694 4,837 5,957 4,547
General & administrative expenses 2,858 2,564 5,588 4,704
Depreciation and amortization expense 907 874 1,782 1,703
Settlement agreement legal expense - 625 - 856
--------------------- ----------------------
Income (loss) from operations 1,929 774 (1,413) (2,716)
Other income (expense):
Interest income 998 977 2,049 1,800
Interest expense (224) (227) (432) (454)
Other income (expense), net 19 (32) 15 118
--------------------- ----------------------
Income (loss) before income taxes 2,722 1,492 219 (1,252)
(Provision for) benefit from income taxes (1,144) (598) (143) 500
--------------------- ----------------------
Net income (loss) $ 1,578 $ 894 $ 76 $ (752)
===================== ======================
Pro forma net income (loss) per basic
and diluted share $ 0.11 $ 0.06 $ 0.01 $ (0.05)
===================== ======================
Pro forma weighted average shares
outstanding - basic 14,748 14,748 14,748 14,748
===================== ======================
Pro forma weighted average shares
outstanding - diluted 14,828 14,748 14,828 14,748
===================== ======================
</TABLE>
See Notes to condensed consolidated financial statements
6
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GLOBAL VACATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT 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, 1997 - $ - 5,291,262 $ 53 $ - $ 305 $ 358
Redemption of common
stock (unaudited) .......... - - (1,799,025) (18) - (14,728) (14,746)
Class A Convertible
Preferred stock
dividend (unaudited) ....... 25,762 25,762 - - - (25,762) (25,762)
Issuance of common and
Class A Convertible
Preferred stock
(unaudited) ................ 24,404 24,404 3,951,889 39 3,200 - 3,239
Issuance of common and
Class A Convertible
Preferred stock in
connection with the
Acquisitions
(unaudited) ................ 2,610 2,610 353,800 4 286 - 290
Accrued dividend on
Class A Convertible
Preferred stock
(unaudited) ................ - 1,823 - - - (1,823) (1,823)
Net loss (unaudited) .......... - - - - - (684) (684)
Distributions (unaudited) ..... - - - - - (4,995) (4,995)
Fair value adjustment for
securities available for
sale, net .................. - - - - - (10) (10)
--------- --------- ---------- --------- ---------- ---------- ----------
Balance, June 30, 1998
(unaudited) ................... 52,776 $ 54,599 7,797,926 $ 78 $ 3,486 $ (47,697) $ (44,133)
========= ========= ========== ========= ========== ========== ==========
</TABLE>
See Notes to condensed consolidated financial statements.
7
<PAGE> 8
GLOBAL VACATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------------------
June 30, 1998 June 30, 1997
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (684) $ (2,169)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 741 82
Amortization of deferred financing costs 43 -
Changes in assets and liabilities, excluding effect of acquisitions
Accounts receivable 3,188 (1,266)
Other assets 1,268 (68)
Accounts payable and accrued liabilities 14,347 5,815
Customer deposits (1,403) 42
Other liabilities 1,917 -
------------------ -----------------
Net cash provided by operating activities 19,777 2,436
------------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (656) (116)
Net sales (purchases) of investments (150) (5,272)
Acquisitions, net of cash acquired (29,629) -
------------------- -----------------
Net cash used in investing activities (30,435) (5,388)
------------------- -----------------
Cash flows from financing activities:
Net (repayments) borrowings on loans to/from shareholders (3,223) 1,082
Distributions to shareholders (4,995) (17)
Proceeds from (repayments of) borrowings under credit agreement, net 41,488 -
Deferred financing costs (1,075) -
Redemption of common stock (10,746) -
Proceeds from issuance of common and Class A Convertible Preferred
stock, in connection with the acquisitions 2,900 -
Proceeds from issuance of common and Class A Convertible
Preferred stock 27,643 -
------------------- -----------------
Net cash provided by financing activities 51,992 1,065
------------------- -----------------
Net increase (decrease) in cash and cash equivalents 41,334 (1,887)
Cash and cash equivalents beginning of period 7,074 5,677
------------------- -----------------
Cash and cash equivalents end of period $ 48,408 $ 3,790
=================== =================
Supplemental disclosure of cash flow information: 1998 1997
-----------------------------------------
Cash paid for:
Taxes $ 306 -
Supplemental disclosure of non cash investing and financing activities
Issuance of promissory note in connection with the redemption
of common stock $ 4,000 -
Class A Convertible Preferred stock dividend $ 25,762 -
Dividend accretion on Class A Convertible Preferred stock $ 1,823 -
- - -------------------------------------------------------------
See Notes to condensed consolidated financial statements.
</TABLE>
8
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GLOBAL VACATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. General
Global Vacation Group, Inc. ("GVG" or 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. In
March 1998 the Company was recapitalized and between March 1998 and May 1998
acquired the stock or assets of four other vacation providers. Through the
acquisitions, GVG acquired the outstanding capital stock of Haddon Holidays,
Inc.,("Haddon"), Classic Custom Vacations ("Classic") and Globetrotters, Inc.
("Globetrotters") and substantially all the assets of MTI Vacations, Inc.
("MTI") (collectively, the "Acquisitions"). The consideration for the
Acquisitions consisted of cash. Each acquisition has been accounted for under
the purchase method of accounting. The accompanying financial statements as of
June 30, 1998 and for the three-month and six-month periods ended June 30, 1997
and 1998 include the results of operations for each of the Acquisitions from
their respective acquisition dates in 1998.
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").
Because of the significance of the Acquisitions in 1998, pro forma combined
statements of operations have been prepared for the three and six month periods
ended each of June 30, 1998 and 1997. The pro forma financial statements give
effect to the results of the Company combined with the Acquisitions as if the
Acquisitions and the Company's initial public offering had occurred as of
January 1, 1997, with certain adjustments associated with the Acquisitions and
the initial public offering. These adjustments (the "Pro Forma Adjustments")
include amortization of goodwill resulting from the Acquisitions, adjustments to
salaries and bonuses to prior owners and key executives, the application of net
proceeds from the initial public offering to repay certain indebtedness, the
conversion of redeemable preferred stock into shares of common stock, and the
provision for income taxes as a C corporation. The pro forma combined statements
of operations have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which actually would have
been if such transactions had occurred on these dates and are not necessarily
representative of the Company's results of operations for any future period.
Because the Acquisitions
9
<PAGE> 10
were not under common control arrangement, the pro forma combined results may
not be comparable to, or indicative of, future performance.
2. Summary of Significant Accounting Policies
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.
The quarterly condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the SEC and include, in the opinion of the Company, all
adjustments, consisting of normal and recurring adjustments, necessary for a
fair presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Certain amounts in the March 31, 1998
pro forma statements of operations have been reclassified to conform to the
June 30, 1998 presentation. The Company believes that its disclosures are
adequate to make the information presented not misleading. These condensed
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Registration Statement. The
results of operations for the three- and six-month periods ended each of June
30, 1998 and 1997 are not necessarily indicative of the results to be expected
for the full year.
There have been no significant changes in the accounting policies of the
Company during the periods presented. For a description of these policies, refer
to Note 2 to the Consolidated Financial Statements and related Notes thereto
included in the Company's Registration Statement.
Initial Public Offering
In August 1998, the Company completed an initial public offering of its common
stock. The offering placed 3,000,000 shares of the Company's common stock at a
price of $14.00 per share, yielding net proceeds (after underwriting discounts,
commissions and other professional fees) to the Company of approximately $36.2
million. The Company used all of the net proceeds to repay borrowings under its
credit facility. In connection with the offering, the Company's outstanding
Class A Convertible Preferred Stock (the "Convertible Preferred") automatically
converted into shares of the Company's common stock at $14.00 per share.
Increase in Authorized Shares, Stock Split, and Conversion
In connection with the Company's initial public offering, the Company amended
and restated its certificate of incorporation to
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increase the number of authorized shares of common stock to 60,000,000, par
value $0.01 per share, and authorized 6,000,000 shares of undesignated preferred
stock, par value $0.01 per share. The Company effected a 12.2-for-one stock
split of the common stock. All share and per share amounts have been
retroactively adjusted to give effect to these events. In addition, effective as
of the closing date of the offering, all shares of the Convertible Preferred
outstanding, plus any accrued and unpaid dividends on such shares as of the
closing date of the offering, were converted into shares of common stock at the
initial public offering price.
Net Revenues
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 three months ended each of June 30, 1998 and 1997, net revenues are derived
from sale of travel products and services with a value of $105.5 million, and
$31.4 million, respectively, net of $86.0 million, and $25.5 million,
respectively, in direct costs to suppliers. For the six months ended each of
June 30, 1998 and 1997, net revenues are derived from sale of travel products
and services with a value of $122.7 million and $48.5 million, respectively, net
of $100.7 million and $40.2 million, respectively, in direct costs to suppliers.
Net Income (Loss) per Common Share
The Company has implemented Statement of Financial Accounting Standard
("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation
of basic and diluted earnings per share. Basic income or loss per share is
computed by dividing net income or loss available to common shareholders 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. Options to purchase shares of common stock that were
outstanding at the three- and six-month periods ended June 30, 1998 and 1997
were not included in the computation of diluted loss per share as their effect
would be anti-dilutive.
The pro forma basic and diluted weighted average common shares outstanding for
the three- and six-month periods ended June 30, 1998, give effect to the assumed
conversion of the outstanding Convertible Preferred stock into common stock, and
assume that the Company was a C Corporation for the entire period. For the
three-month period ended June 30 ,1998 diluted income per share includes the
dilutive effect of stock options outstanding as follows (in thousands)
<TABLE>
<CAPTION>
Three Months
June 30, 1998
-----------------------------
<S> <C>
Pro forma common shares outstanding - Basic 11,007
Dilutive effect of stock options 80
-----------------------------
Pro forma common shares outstanding - dilutive 11,087
=============================
</TABLE>
11
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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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. SFAS 133 is
effective for fiscal years beginning after June 15, 1999. Management believes
the impact of adopting this statement will not have a material impact upon the
Company's results of operations or financial position.
3. Acquisitions
Since March 1998, the Company has acquired Haddon, Classic and
Globetrotters and substantially all of the assets of MTI. Each of the Acquired
Businesses was acquired 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 its credit facility. 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 amortizes` amounts allocated to goodwill over 35 years for financial
reporting purposes.
12
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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 approximately $7.5 million. In addition, the
Company incurred direct acquisition costs of approximately $268,000. 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 its credit facility. In connection with the
acquisition of Haddon, the Company sold 61,000 shares of common stock, valued at
$0.82 per share, and 450 shares of Convertible Preferred, valued at $1,000 per
share, to the former shareholders of Haddon.
Classic
In April 1998, the Company purchased all of the outstanding capital stock
of Classic, 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 $2.0 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 its credit facility. The proceeds from this sale and borrowing
also provided approximately $700,000 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 credit card reward fulfillment programs. The Company paid a
purchase price of $26.4 million. In addition, the Company incurred direct
acquisition costs of approximately $881,000. 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 its
credit facility. The proceeds from this sale and borrowing also provided
approximately $1.7 million in working capital. In connection with the
acquisition of substantially all of the assets of MTI, the Company sold 292,800
shares of common stock, valued at $0.82 per share, and 2,160 shares of
Convertible Preferred, valued at $1,000 per share, to an affiliate of the
seller.
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. See Note 5.
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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 $232,000. 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 its credit facility and
$1.3 million from working capital.
The purchase price has been allocated on a preliminary basis as follows for
each of the Acquisitions (in thousands):
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<TABLE>
<CAPTION>
Haddon Classic MTI Globetrotters Total
------ ------- --- ------------- -----
<S> <C> <C> <C> <C> <C>
Cash and investments.............................. $ 3,475 $ 25,642 $ 19,913 $ 2,663 $ 51,693
Accounts receivable and other current assets...... 1,041 8,108 3,920 2,907 15,976
Fixed assets and other assets..................... 90 2,426 1,696 1,065 5,277
Goodwill.......................................... 9,471 18,872 30,705 6,888 65,936
Liabilities assumed and direct acquisition costs.. (6,359) (35,988) (28,953) (7,941) (79,241)
---------- ---------- ---------- ---------- ----------
Total................................... $ 7,718 $ 19,060 $ 27,281 $ 5,582 $ 59,641
========== ========== ========== ========== ==========
</TABLE>
4. Commitments and Contingencies
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 on the accompanying financial statements.
5. Subsequent Event
In connection with the acquisition of MTI, the Company entered into an
information and business systems outsourcing arrangement with Trase-Miller
Solutions, Inc. ("Trase-Miller Solutions"), a former affiliate of MTI. On August
14, 1998, the Company, Trase-Miller Solutions and the majority shareholder of
Trase-Miller Solutions entered into an agreement with a term ending on April 30,
2006 (the "Outsourcing Agreement") to expand this outsourcing agreement to
provide a common platform system for all the Company's businesses (other than
the business systems associated with the Company's in-bound business). During
the term of the Outsourcing Agreement, Trase-Miller Solutions will provide to
the Company information systems and related services, including operating
services, system maintenance, general management and support and implementation
and migration services. From April 1, 1999 through April 30, 2006, The Company
will pay Trase-Miller Solutions for the services provided under the Outsourcing
Agreement on a cost-plus 20% basis and will pay royalty fees of $17.5 million in
the aggregate. In connection with the Outsourcing Agreement, the Company also
paid $6.75 million to acquire an option, exercisable through January 10, 1999,
to purchase all of the outstanding stock of Trase-Miller Solutions. In the event
the Company exercises this option, the purchase price will be $18.8 million,
subject to certain adjustments and to a credit for the amount paid by the
Company to acquire the option. If the Company does not exercise the option, the
amounts paid to acquire the option will be credited over three years beginning
April 1, 1999 against payments owing to Trase-Miller Solutions under the
Outsourcing Agreement.
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<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
The matters discussed in this Form 10-Q 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 the caption "Risk Factors" in the Company's
Registration Statement on Form S-1 (File No. 333-52673) (the "Registration
Statement") which hereby is incorporated by reference, as well as factors
discussed elsewhere in this Form 10-Q, 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.
Overview
Global Vacation Group, Inc. ("GVG" or 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. In March
1998 the Company was recapitalized and between March 1998 and May 1998 acquired
the stock or assets of four other vacation providers. Through the acquisitions,
GVG acquired the outstanding capital stock of Haddon Holidays, Inc.,("Haddon"),
Classic Custom Vacations, Inc. ("Classic") and Globetrotters, Inc.
("Globetrotters") and substantially all the assets of MTI Vacations, Inc.
("MTI") (collectively, the "Acquisitions"). The consideration for the
Acquisitions consisted of cash. Each acquisition has been accounted for under
the purchase method of accounting. The accompanying financial statements as of
June 30, 1998 and for the three-month and six-month periods ended June 30, 1997
and 1998 include the results of operations for each of the Acquisitions from
their respective acquisition dates in 1998.
Net revenues include commissions and markups on travel products and
services, volume bonuses received from travel suppliers, cancellation
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<PAGE> 17
fees and other ancillary fees such as travel insurance premiums and are
recognized upon the commencement of travel. For the three and six months ended
June 30, 1998, the Company had net revenues of $19.5 million and $22.0 million,
respectively, and net income (loss) (before dividends on Class A preferred
stock) of $1.4 million and ($684,000), respectively, derived from a total
dollar value of travel products and services of $105.5 million and $122.7
million, respectively. For the three- and six-month periods ended June 30, 1997,
the Company had net revenues of $5.9 million and $8.3 million, respectively, and
net (loss) of ($679,000) and ($2.2 million), respectively, derived from a total
dollar value of travel products and services of $31.4 million and $48.6 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.
In connection with the Recapitalization and the Acquisitions, the Company
is restructuring certain operations of the companies acquired in the
Acquisitions (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 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 $3.4 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 (the "Facility Savings"), 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,
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<PAGE> 18
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 income taxes), substantially all of which was derived from interest on
customer deposits and advance payments. For the three- and six-month periods
ending June 30, 1998, the Company had interest income of $797,000 (50.6% of
income before tax provision) and $871,000 (165.9% of loss before tax benefit),
respectively.
Pro Forma Results of Operations for the Three Months June 30, 1998
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 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 the three
months ended each of June 30, 1998 and June 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
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.................................. 76.7 82.5 77.6 83.9
------ ------- ------- -------
Gross profit .................................. 23.3 17.5 22.4 16.1
------ ------- ------- -------
General and administrative
expenses 11.2 8.8 24.0 8.6
Depreciation and amortization....................... 3.6 2.8 0.7 2.9
Settlement agreement legal expense.................. -- -- 10.6 2.0
------ ------- ------- ------
Income (loss) from operations.................. 8.5 5.9 (12.9) 2.6
------ ------- ------- ------
Interest income..................................... 4.1 3.1 1.2 3.3
Interest expense.................................... (4.6) (0.7) 0.0 (0.8)
Other income (expense).............................. 0.1 0.1 0.3 (0.1)
------ ------- ------- -------
Income (loss) before (provision for) benefit
from income taxes................................. 8.1 8.4 (11.4) 5.0
(Provision for) benefit from income taxes........... (1.1) (3.5) 0.0 (2.0)
------- -------- ------- -------
Net income (loss).............................. 7.0% 4.9% (11.4)% 3.0%
====== ======= ======= ======
</TABLE>
Pro forma net revenues for the three months ended June 30, 1998 and 1997
were $32.5 million and $30.0 million, respectively, which, for each period,
reflects the combined net revenues of the Company and the Acquired Businesses
for such period, less $582,000 in 1997 of historical net revenues for product
lines discontinued by MTI prior to its acquisition. This increase of
approximately 8.3% is due primarily to increases in revenue generated per
passenger traveled.
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<PAGE> 19
\
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 operating expenses for the three months ended June 30, 1998 and
1997, were $26.8 million and $25.1 million, respectively, or 82.5% and 83.9%,
respectively, of pro forma net revenues. The resulting improvement in pro forma
gross profit is due primarily to the increase in revenue generated per
passenger traveled.
Pro forma general and administrative expenses for the three months ended
June 30, 1998 and 1997 were $2.9 million and $2.6 million, respectively, or 8.8%
and 8.6%, respectively, of pro forma net revenues. As a percentage of net
revenues, pro forma general and administrative expenses were lower than the
Company's historical general and administrative expenses due to the pro forma
elimination of $51,000 and $1.4 million for the three months ended June 30, 1998
and 1997, respectively, representing the difference between contracted
reductions in compensation to previous owners and management and contracted
compensation for the Company's new management team.
Pro forma depreciation and amortization (other than amortization of
goodwill) for the three months ended June 30, 1998 and 1997 was $907,000 and
$874,000, respectively, or 2.8% and 2.9%, respectively, of pro forma net
revenues.
Pro forma results for the three months ended June 30, 1997 were impacted by
a non-recurring expense of $625,000 related to a law suit at one of the acquired
companies. Excluding the effect of the non-recurring expense, pro forma net
income for the three months ended June 30, 1997 would have been $1.3 million.
Pro forma as adjusted interest income for the three months ended June 30,
1998 and 1997 was $998,000 and $977,000 respectively, or 3.1% and 3.3%,
respectively, of pro forma net revenues.
Pro forma as adjusted interest expense for the three months ended June 30,
1998 and 1997 was $224,000 and $227,000, respectively.
The pro forma as adjusted (provision for) income taxes for the three
months ended June 30, 1998 and 1997 would have been ($1.1 million) and
($598,000), respectively, at an assumed tax rate of approximately 40.0%,
reflecting a termination of the Company's S Corporation status.
Pro forma as adjusted net income for the three months ended June 30, 1998
and 1997 was $1.6 million and $894,000, respectively, or 4.9%, and 3.0%,
respectively, of pro forma net revenue. The increase in pro forma as adjusted
net income is primarily due to the improved gross profit percentage in 1998 and
the settlement agreement legal expenses related to 1997.
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<PAGE> 20
Pro Forma Results of Operations for the Six Months June 30, 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
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.................................. 81.9 89.2 88.9 91.3
------ ------ ------ ------
Gross profit................................... 18.1 10.8 11.1 8.7
------ ------ ------ ------
General and administrative expenses................. 17.1 10.1 27.8 9.0
Depreciation and amortization....................... 3.3 3.2 0.9 3.3
Settlement agreement legal expense.................. -- -- 10.3 1.6
------ ------ ------ ------
Income (loss) from operations.................. (2.3) (2.5) (27.9) (5.2)
------ ------ ------ ------
Interest income..................................... 4.0 3.7 1.6 3.4
Interest expense.................................... (4.2) (0.8) 0.0 (0.8)
Other income (expense).............................. 0.1 -- 0.3 0.2
------ ------ ------ ------
Income (loss) before (provision for) benefit
From income taxes................................. (2.4) 0.4 (26.0) (2.4)
(Provision for) benefit from income taxes........... (0.7) (0.2) (0.0) 1.0
------ ------ ------ ------
Net income (loss).............................. (3.1)% 0.2% (26.0)% (1.4)%
===== ===== ===== =====
</TABLE>
Pro forma net revenues for the six months ended June 30, 1998 and 1997,
respectively, were $55.1 million and $52.2 million, respectively, which reflects
the combined net revenues of the Company and the Acquired Businesses for each
period, less $1.0 million in 1997 of historical net revenues for product lines
discontinued by MTI prior to its acquisition. This increase of approximately
5.5% is due primarily to increases in revenue generated per passenger traveled.
Pro forma operating expenses for the six months ended June 30, 1998 and
1997, were $49.1 million and $47.6 million, respectively, or 89.2% and 91.3%,
respectively, of pro forma net revenues. The resulting improvement in pro
forma gross profit is due primarily to the increase in revenue generated per
passenger traveled.
Pro forma general and administrative expenses for the six months ended June
30, 1998 and 1997 were $5.6 million and $4.7 million, respectively, or 10.1.%
and 9.0%, respectively, of pro forma net revenues. As a percentage of net
revenues, pro forma general and administrative expenses were lower than the
Company's historical general and administrative expenses due to the pro forma
elimination of $1.7 million and $2.0 million for the six months ended June 30,
1998 and 1997, 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 for the six months ended June 30,
1998 and 1997 was $1.8 million and $1.7 million,
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<PAGE> 21
respectively, or 3.2% and 3.3%, respectively, of pro forma net revenues.
Pro forma results for the six months ended June 30, 1997 were impacted by a
non-recurring expense of $856,000 related to a lawsuit at one of the acquired
companies. Excluding the effect of the non-recurring expense, pro forma net loss
for the six months ended June 30, 1997 would have been $238,000.
Pro forma as adjusted interest income for the six months ended June 30,
1998 and 1997 was $2.0 million and $1.8 million, respectively, or 3.7% and 3.4%,
respectively, of pro forma net revenues.
Pro forma as adjusted interest expense for the six months ended June 30,
1998 and 1997 was $432,000 and $454,000, respectively.
The pro forma as adjusted (provision for) benefit from income taxes for the
six months ended June 30, 1998 and 1997 were ($143,000) and $500,000,
respectively, at an assumed tax rate of approximately 40.0%, reflecting a
termination of the Company's S Corporation status.
Pro forma as adjusted net income (loss) for the six months ended June 30,
1998 and 1997 was $76,000 and ($752,000), respectively, or 0.2%, and (1.4%),
respectively, of pro forma net revenue. The increase in pro forma as adjusted
net income is primarily due to the improved gross profit percentage in 1998 and
the settlement agreement legal expenses in 1997.
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 $65.0
million. Of this amount, up to $10.0 million may be in the form of revolving
loans, including letters of credit of up to $5.0 million, and the remaining
$55.0 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. As of June 30, 1998, the Company had drawn $41.5 million
under its credit facility, the average interest rate of which was approximately
7.4%.
The Company completed its initial public offering August 5, 1998. After
deducting expenses, the Company received approximately $36.2 million in proceeds
from the initial public offering. The Company paid all of the net proceeds to
repay borrowings under the Company's credit facility.
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<PAGE> 22
all of the net proceeds to repay borrowings under the Company's credit
facility.
Net cash provided by operating activities for the six months ended June 30,
1998 was $19.8 million as compared to $2.4 million net cash provided by
operating activities in the first six months of 1997. The increase of
approximately $17.4 million in operating cash flows reflects a $3.2 million
decrease in accounts receivable during the first six months of 1998 as compared
to a increase of $1.3 million in the first six months of 1997, a $1 million
decrease in other assets in the six months ended June 30, 1998 versus a $68,000
increase for the similar period in 1997, a decrease in customer deposits of
$1.0 million during the first six months of 1998 as opposed to an increase of
$42,000 for the same six-month period in 1997, an increase in accounts
payable and accrued expenses of $14.3 million in the first six months of 1998 as
compared to an increase in accounts payable and accrued expenses of $5.8 million
in 1997, as well as an increase in other liabilities of $1.9 million during the
first six months of 1998 as opposed to none in 1997, further aided by the
decrease in the net loss in the first six months of 1998 in relation to the
same time period in 1997.
The Company made capital expenditures of $656,000 in the first six months
of 1998 and $116,000 in the six months ended June 30, 1997. The Company used
$29.6 million from investing activities to fund the Acquisitions.
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 are adequate to meet the
Company's capital needs for at least the next 12 months.
YEAR 2000
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
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<PAGE> 23
failure 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,
the Company's information and telecommunications systems must operate in
conjunction with the systems of other parties, including SABRE, Galileo and
WORLDSPAN, and any Year 2000 problems in these third-party systems could
directly affect the Company's own systems. Finally, 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 to correct
Year 2000 problems in their information and computer systems, and 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.
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<PAGE> 24
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
(c) During the period covered by this report, the Company effected the
following sale of securities, which sales were not registered under
the Securities Act of 1933, as amended (the "Securities Act"). Each
of these transactions described below do not reflect a 12.2-for-1
split of the Company's Common stock effected in July 1998 in
connection with the Company's initial public offering,
(i) Between April 3, 1998 and May 5, 1998, pursuant to
an Equity Purchase Agreement dated as of March 30, 1998 among
the Company, Thayer Equity Investors III, L.P. ("Thayer")
and certain other investors (the "Thayer Purchase
Agreement"), the Company sold a total of 22,751 shares of
Convertible Preferred 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) thereof ("Section
4(2)") and Rules 506 of Regulation D promulgated thereunder
("Rule 506").
(ii) On May 4, 1998, in connection with an
Equity Subscription Agreement dated as of April 30, 1998
between the Company and a former affiliate of MTI, the
Company sold to such person 24,000 shares of Common Stock at
a purchase price of $10 per share for an aggregate price of
$240,000 and 2,160 shares of Convertible Preferred at a
purchase price of $1,000 per 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) and Rule 506.
(d) Use of Proceeds of Initial Public Offering
On July 30, 1998, the Company's Registration Statement on Form S-1
(File No, 333-52673), registering the initial public offering by the
Company of 3,000,000 shares of the Company's Common Stock, became
effective. All 3,000,000 shares registered on behalf of the Company were
sold upon completion of the initial public offering on August 5, 1998 at an
aggregate offering price of $42,000,000. Smith Barney Inc., and NationsBanc
Montgomery Securities LLC, BancAmerica Robertson Stephens and ING Baring
Furman Selz LLC acted as managing underwriters for the Company's initial
public offering.
Underwriting discounts and commissions for the shares sold by the
Company in the initial public offering totaled $2,940,000. In addition, in
connection with initial public offering, the Company paid an estimated
$169,000 in underwriters' expenses and an estimated $2,718,000 in other
expenses, resulting in total estimated expenses of approximately
$5,440,000. None of the Company's expenses in connection with the offering
were paid
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<PAGE> 25
directly or indirectly to directors of officers of the Company or their
associates, or to persons owning 10% or more of the Company's Common Stock
or other affiliates of the Company.
After deducting expenses, the Company received approximately
$36.6 million in proceeds from the initial public offering. The Company
paid all of the net proceeds to the Bank of New York to repay borrowings
under the Company's credit facility.
ITEM 4. Submission of Matters to a Vote of Security Holders
On June 19, 1998, the Company convened Special Meeting of
Shareholders. Shareholders representing 504,040.4 shares of Common Stock (out of
639,174,4 shares of Common Stock then outstanding) were present at the meeting.
Also present at the meeting were shareholders representing 45,363.64 shares of
Convertible Preferred (out of 52,775.64 shares of Convertible preferred then
outstanding). The following matters were discussed, voted upon and adopted.
(a) the form, terms and provisions of a Restated Certificate
of Incorporation was approved (i) by the shareholders of the Company
holding Common Stock by a vote of 504,040.4 in favor, none opposed,
and (ii) by the shareholders of the Company holding Convertible
Preferred by a vote of 45,363,64 in favor, none opposed;
(b) the Amended and Restated By-Laws of the Company were
approved and adopted by the shareholders of the Company holding
Common Stock by a vote of 504,040.4 in favor, none opposed;
(c) the Company's 1998 Stock Option Plan was approved and
adopted by the shareholders of the Company holding Common Stock by a
vote of 504,040.4 in favor, none opposed; and
(d) the Thayer Purchase Agreement was approved and ratified (I)
by the shareholders of the Company holding Common Stock by a vote of
504,040.4 in favor, none opposed, and (ii) by the shareholders of
the Company holding Convertible Preferred by a vote of 45,363.64 in
favor, none opposed.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Restated Certificate of Incorporation
10.1 Letter Agreement dated as of August 14, 1998 between the Company
and Trase-Miller Solutions
27.1 Financial Data Schedule
(b) The Registrant filed no reports on Form 8-K during the quarter ended
June 30, 1998.
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<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 14, 1998
GLOBAL VACATION GROUP, INC
By:/s/ WALTER S. BERMAN
-------------------------
Walter S. Berman,
Executive Vice President,
& Chief Financial Officer
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Exhibit Index
Exhibits:
3.1 Restated Certificate of Incorporation
10.1 Letter Agreement dated as of August 14, 1998 between the Company and
Trase-Miller Solutions
27.1 Financial Data Schedule
27
<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 remove from the authorized capital stock of the Corporation the
class of stock designated as Class A Convertible Preferred Stock, $1,000 par
value per share (the "CLASS A PREFERRED");
(b) To delete Section 5.1(c) from the Corporation's Restated
Certificate of Incorporation, which Section 5.1(c) related to the combination of
shares of the Corporation's common stock, $.01 par value per share, which was
consummated prior to the date of this Restated Certificate of Incorporation;
(c) To delete Article VI from the Corporation's Restated Certificate of
Incorporation, which Article VI related to the rights and privileges of the
Class A Preferred, and to delete all other references to the Class A Preferred
from the Corporation's Restated Certificate of Incorporation;
(d) To delete references to the Corporation's initial public offering and
other events related to such offering, all of which were consummated prior to
the date of this Restated Certificate of Incorporation;
(e) To amend Section 7.3 of the Corporation's Restated Certificate
of Incorporation to identify the directors of the Corporation and the classes
into which such directors shall be divided;
(f) To delete Section 9.2 from the Corporation's Restated
Certificate of Incorporation, which Section 9.2 related to the right
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<PAGE> 2
of the Corporation's shareholders to take action by written consent prior to the
completion of the Corporation's initial public offering; and
(g) To make certain clarifying amendments to Section 12.1 and
Section 12.3.
4. To effect the foregoing amendments, the Restated Certificate of
Incorporation of the Corporation hereby is amended and restated in its entirety
to read as follows:
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 System,
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 lawful act or activity for which
corporations may be organized under the NYBCL; provided, that the Corporation is
not formed to engage in any act or activity requiring the consent or approval of
any state official, department, board, agency or other body without such consent
or approval first being obtained.
ARTICLE V
5.1. CAPITAL STOCK.
(a) CLASSES. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is
29
<PAGE> 3
66,000,000, of which (a) 60,000,000 shares shall be common stock, $.01 par value
per share ("COMMON STOCK"), and (b) 6,000,000 shares shall be preferred stock,
$.01 par value per share ("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.
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, 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 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, the holders of Common Stock shall be entitled to one (1)
vote per share in voting on the election of directors and for all other
corporate purposes.
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
[RESERVED]
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.
30
<PAGE> 4
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.
The term of office of each class of directors shall be three years and shall
expire in successive years at the time of the annual meeting of shareholders.
Effective as of the date this Restated Certificate of Incorporation is filed
with the Department of State of the State of New York, the identity of the
directors of the Corporation and the classes into which such directors shall be
divided shall be as follows:
Class I (term of office expiring at the 1999 annual meeting of
shareholders) -- Kenneth M. Duberstein;
Class II (term of office expiring at the 2000 annual meeting of
shareholders) -- Carl J. Rickertsen and James M. Sullivan; and
Class III (term of office expiring at the 2001 annual meeting of
shareholders) -- Roger H. Ballou and Frederic V. Malek.
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.
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 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.
31
<PAGE> 5
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 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. [RESERVED]
9.3. NO ACTION BY WRITTEN CONSENT OF SHAREHOLDERS. 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 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
32
<PAGE> 6
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 RESTATED CERTIFICATE OF INCORPORATION. The
Corporation hereby reserves the right to amend, alter, change or repeal any
provision contained in this Restated 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, 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) except as provided in Section 12.3 below, 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 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 Restated Certificate of Incorporation to the contrary, the affirmative
vote of both (a) a majority of the members of the Board then in office and (b)
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, the holders of at least sixty-six and two-thirds
33
<PAGE> 7
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.
ARTICLE XIII
The duration of the Corporation is to be perpetual.
* * * *
5. This Restated Certificate of Incorporation has been approved by the
unanimous written consent of the Board and by the written consent of the holders
of the requisite number of the outstanding shares of the Corporation's capital
stock.
IN WITNESS WHEREOF, the undersigned have executed this Restated
Certificate of Incorporation as of this 6th day of August, 1998 and we affirm
the statements contained herein are true under the penalties of perjury.
/s/ Daniel A. Raskas
----------------------------------------
Daniel A. Raskas, Vice President and
Secretary
/s/ Christopher Temple
----------------------------------------
Christopher Temple, Assistant Secretary
34
<PAGE> 1
EXHIBIT 10.1
TRASE MILLER SOLUTIONS, INC.
C/O JFM ENTERPRISES, INC.
1301 WEST 22ND STREET
SUITE 1001
OAK BROOK, ILLINOIS 60621
August 14, 1998
Global Vacation Group, Inc.
1420 New York Avenue, NW
Suite 550
Washington, D.C. 20005
Attn: Mr. Walter Berman
RE: OPTION TO PURCHASE/OUTSOURCING ARRANGEMENT BETWEEN
TRASE MILLER SOLUTIONS, INC. AND GLOBAL VACATION GROUP, INC.
Gentlemen:
Reference is made to that certain MIS Services Agreement dated as of
April 30, 1998 (the "MIS AGREEMENT") by and between Trase Miller Solutions, Inc.
("TMS") and GVGAC No. 1, Inc. (n/k/a MTI Vacations, Inc.) ("NEW MTI"). New MTI
is a wholly-owned subsidiary of Global Vacation Group, Inc. ("GVG"), which in
addition to New MTI (which it acquired on April 30, 1998 from a group affiliated
with TMS) owns and operates a number of other businesses in the wholesale travel
sales industry. Pursuant to the MIS Agreement, (i) TMS agreed to provide and New
MTI agreed to purchase, on an outsourcing basis and for an initial term of three
(3) years, certain management information services ("MIS") utilizing TMS' MIS
systems software, equipment and personnel (the "TMS SYSTEMS AND SERVICES"), and
(ii) TMS granted to New MTI a 90-day option to acquire all of the capital stock
of TMS.
<PAGE> 2
This letter sets forth the basis on which it is agreed that (i) the
outsourcing of the TMS Systems and Services under the MIS Agreement will be
expanded to cover the ultimate migration of all of GVG's wholesale travel sales
businesses (collectively, "GVG AND ITS AFFILIATES") as may be reasonably
requested by GVG, for a term extending until April 30, 2006, and (ii) New MTI's
option to acquire TMS as provided in Section 11 of the MIS Agreement will be
modified to provide GVG with an extended period in which the option to acquire
TMS may be exercised on the terms set forth herein. Accordingly, the MIS
Agreement is hereby amended and modified to the extent set forth in the numbered
paragraphs which follow. These amendments will be considered binding on the
parties upon execution of this letter, although it is intended that at the
request of either party the parties shall prepare and enter into more definitive
and detailed documentation.
1. OPTION TERM AND EXERCISE; UPFRONT AND EXTENSION OPTION PAYMENTS
(a) TMS and its majority shareholder, James F. Miller ("MILLER"),
hereby grant to GVG an option to acquire all of the
outstanding capital stock of TMS (the "OPTION"). GVG or any
wholly-owned subsidiary of GVG may exercise the Option to
acquire TMS by giving written notice to TMS at any time from
the date of this letter agreement through close of business on
March 31, 1999 (the "OPTION PERIOD"), and if GVG exercises the
option, the parties shall negotiate in good faith and execute
a stock purchase agreement on terms substantially similar to
those reflected in the Asset Purchase Agreement dated April
30, 1998 among New MTI, MTI Vacations, Inc. (n/k/a JFM, Inc.)
("OLD MTI") and GVG, except as specifically provided herein.
If the Option is exercised, the parties shall close the
purchase of shares of TMS not later than April 30, 1999
(subject to extension in the event of delays due to
Hart-Scott-Rodino or other regulatory compliance issues).
(b) In consideration of TMS' grant of the Option to GVG and of the
extension of the period in which the option may be exercised,
GVG will agree to pay TMS:
(i) the sum of $6,750,000 payable within five (5) days from
the parties' execution of this letter agreement, which
payment shall serve to extend the Option through
- 2 -
<PAGE> 3
January 10, 1999 (the "UPFRONT OPTION PAYMENT");
provided, however, that such payment shall be made net
of any amounts previously advanced to TMS pursuant to
any note or similar arrangement between the parties;
and,
(ii) if the Option has not previously been exercised, the sum
of $2,300,000 payable within five (5) days from January
10, 1999, which payment shall serve to further extend
the Option through March 31,1999 (the "OPTION EXTENSION
PAYMENT"); provided, however, that if the Option has
been exercised but the purchase transaction has not
closed by January 10, 1999, then the payment shall be
the pro-rated portion of such amount to cover the period
from January 10, 1999 to the scheduled closing date of
the purchase transaction.
If the Option is exercised by GVG in accordance with the terms
hereof, the UpFront Option Payment and the Option Extension
Agreement shall be credited against the Option Price set forth in
Section 2 below. If the Option is not exercised by GVG in accordance
with the terms hereof, or, if the Option is exercised but the
purchase transaction is not consummated, then the UpFront Option
Payment and the Option Extension Payment will be credited against
payments owing to TMS under Section 3(c)(iv) below.
2. OPTION EXERCISE AND PRICE. If the Option is exercised, the purchase
price (the "OPTION PRICE") for all of the TMS shares shall be paid at the
closing and shall equal the sum of:
(a) $18,825,000;
plus (or minus)
that amount which equals the aggregate negative (or positive)
change in TMS' net worth (determined as per GAAP, consistently
applied by TMS in the preparation of its financial statements)
since April 1, 1998 through the closing date of the purchase
transaction, based on the assumption that TMS' net worth was a
positive $1,000,000 at March 31,1998 as indicated on the
balance sheet of TMS as of such date attached hereto as
- 3 -
<PAGE> 4
Exhibit A (i.e., the book value of the System Assets, as such
term is defined in the MIS Agreement, as at such date), based
on the further assumption that there have been no additional
infusions of equity capital into TMS and based on the closing
condition that TMS has operated in the normal course of
business during such time period pursuant to the budget and
projections dated June 16, 1998, as reflected in the model
attached hereto as Exhibit B, and as same may be modified from
time to time hereafter in respect of material items upon the
mutual agreement of the parties (as so modified, the "6/16/98
MODEL"); provided, however, that TMS may during such period
deviate from the 6/16/98 Model to take on additional non-GVG
business without the consent of GVG so long as (1) such
deviation cannot reasonably be expected to adversely impact
the services provided to GVG and its Affiliates or the
schedule of releases or any agreed upon deliverables required
for GVG's functionality and (2) fourteen days' advance notice
of any such deviation is provided in writing by TMS to GVG;
and
minus
to the extent previously paid to TMS, the Up-Front Option
Payment and the Option Extension Payment.
(b) Prior to the closing of the purchase transaction following
exercise of the Option, all of TMS' intercompany accounts and
or accounts with shareholders and affiliates will be settled
and paid.
3. AMENDMENT OF MIS AGREEMENT. The MIS Agreement is hereby amended so
that, as amended:
(a) The Initial Term of the MIS Agreement (as defined therein)
will be extended for a duration commencing on the date of this
letter agreement and expiring on April 30, 2006 (the
"OUTSOURCING TERM"). Rights and benefits available to New MTI
under the MIS Agreement will also be available to GVG and its
Affiliates.
- 4 -
<PAGE> 5
(b) During the Option Period (or, if the Option is exercised and
the purchase transaction is consummated prior to the
expiration of the Option Period, then until the date of such
consummation):
(i) TMS will provide the services described in the MIS
Agreement and in the 6/16/98 Model on an outsourced
basis for GVG and its Affiliates with the intention that
TMS will perform such services at the direction of GVG
using personnel and resources reasonably allocated to
GVG by TMS in good faith. GVG will be solely responsible
for the selection and prioritization of the services to
be provided to GVG using such allocated personnel and
resources, and TMS will have no liability with respect
to the services so provided to GVG in respect of the
period after August 14, 1998, except for:
(A) claims or losses resulting from TMS' gross
negligence or willful misconduct; or
(B) TMS' failure to operate in the normal course of
business without material (in the aggregate)
deviation from the 6/16/98 Model.
Except as set forth in Section 3(d)C herein, TMS'
aggregate liability with respect to such obligations is
limited to $2.5 million.
(ii) The amount payable by GVG for such services will be the
$2,300,000 annual fee payable on a monthly basis in
advance during the Option Period under Section 6.1 of
the MIS Agreement.
(iii) The amount payable by GVG for custom development
(including custom development of new functionality) will
be established by mutual agreement on a
project-by-project basis and may be fixed price,
cost-plus, or time and materials.
(c) Assuming that the Option is not exercised, during the portion
of the Outsourcing Term that starts on April 1, 1999:
- 5 -
<PAGE> 6
(i) TMS will provide the services described in the MIS
Agreement and in the Annual Plan (as defined below) on
an outsourced basis for GVG and its Affiliates with the
intention that TMS will perform such services at the
direction of GVG using personnel and resources
reasonably allocated to GVG by TMS in good faith, GVG
will be solely responsible for the selection and
prioritization of the services to be provided to GVG
using such allocated personnel and resources, and TMS
will have no liability with respect to the services so
provided to GVG, except for:
(A) claims or losses resulting from TMS' gross
negligence or willful misconduct; or
(B) TMS' failure to operate in the normal course of
business without material (in the aggregate)
deviation from the Annual Plan.
Except as set forth in Section 3(d)C herein, TMS'
aggregate liability with respect to such obligations is
limited to $3.5 million (which amount is not meant to be
cumulative of the liability cap in Section 3(b)(i) above
in respect of claims arising during the Option Period).
(ii) Commencing April 1, 1999 the amounts payable to TMS
under Section 3(b)(ii) hereunder and under Section 6 of
the MIS Agreement shall cease and the amount payable on
a monthly basis by GVG for TMS' provision of the TMS
Systems and Services will be TMS' actual cost (as
invoiced) of providing such services, plus 20% of such
costs. Estimated annual costs are set forth in
Exhibit C.
- 6 -
<PAGE> 7
(iii) The amount payable by GVG for custom development
(including development of new functionality) will be
established by mutual agreement on a project-by-project
basis and may be fixed price, cost-plus, or time and
materials.
(iv) The amount payable by GVG for use of the TMS system and
the functionality as of April 1, 1999 will be a royalty
as set forth in Exhibit D.
(v) Payments made by GVG pursuant to this Section 3(c) shall
be subject to a credit in the amount equal to 100% of
the UpFront Option Payment and the Option Extension
Payment (to the extent previously paid), which shall be
pro-rated on a monthly basis over a three (3) year
period commencing April 1, 1999 and ending March 31,
2002.
(vi) If GVG exercises the Option but the purchase transaction
is not consummated as a result of a breach by TMS or its
owners of their obligations hereunder, under the MIS
Agreement or under the purchase agreement entered into
- 7 -
<PAGE> 8
between the parties following GVG's exercise of the
Option, TMS shall charge the costs described in
clause (ii) above at cost only (i.e., without the 20%
markup).
(vii) GVG will be provided adequate reports and rights of
inspection and audit of TMS' books and records
(including, but not limited to the audit rights provided
under Section 13 of the MIS Agreement), to enable GVG to
appropriately monitor TMS' costs and billing procedures.
(d) The following additional provisions of the MIS Services
Agreement will be modified as follows:
A. Section 5, regarding "Support and System Performance"
will be deleted and replaced by an arrangement whereby
(1) prior to January 1, 1999 TMS will perform in
accordance with the 6/16/98 Model (as same may be
updated hereunder), and (2) on an annual basis
commencing January 1, 1999 (assuming the purchase
transaction has not been consummated following exercise
of the Option), GVG and TMS will mutually agree not
later than December 1 of the prior year to an annual
Systems and Services Operating Plan (the "ANNUAL PLAN")
which will update the 6/16/98 Model and detail the
development schedule for new products or Releases and
the various support services to be delivered and the
performance metrics to be achieved during the next
annual period in respect of the existing suite of TMS
Systems and Services, TMS' Year 2000 compliance program,
as well as any other scheduling, performance or
budgeting items that may be included in the Annual Plan
by mutual agreement of TMS and GVG. The 6/16/98 Model,
as updated hereunder, shall be the "Annual Plan" with
respect to the remainder of 1998 and 1999. The Annual
Plan may be revalidated and/or updated every quarter by
mutual agreement of the parties.
B. Section 7.2, regarding TMS' representations regarding
the TMS Systems and Services, will be modified to
reflect the arrangement whereby the existing
representation shall
- 8 -
<PAGE> 9
survive only in respect of acts or omissions arising
prior to August 14, 1998; as of such date, the
representation shall provide that the representation is
true and correct and that James Miller, Frank Silzer,
Mark Rittmanic and the officers of TMS are not aware of
any set of facts that would make such representation
untrue and incorrect in respect of the period from
August 15, 1998 through the end of the Outsourcing Term.
C. Section 7.4, regarding TMS' representations in respect
of Year 2000 compliance, will be modified to reflect the
arrangement whereby the existing representation shall
survive only in respect of acts or omissions arising
prior to August 14, 1998; as of such date, the
representation shall provide that the TMS Systems are,
based on TMS' existing program, on schedule to be
brought into compliance by December 31, 1998 and all of
New MTI's data files, based on TMS' existing program,
are on schedule to be converted to year 2000 Compliant
code no later than February 28, 1999 (which program and
schedule shall be incorporated into any Annual Plan
approved by the parties in connection with Section
3(d)(A) above). TMS' maximum liability (absent gross
negligence or willful misconduct, in which case no such
liability cap shall apply) for such obligations is $2.5
million.
D. Section 6.8. of the MIS Agreement will be suspended
during the Option Period and the parties agree that they
will renegotiate in good faith any appropriate changes
to its terms prior to the commencement of the
Outsourcing Term.
4. In the event of any conflict or inconsistency between the provisions
of this letter agreement and the MIS Agreement, the provisions of this letter
agreement shall control. Except as provided herein, the provisions of the MIS
Agreement shall remain in full force and effect in accordance with their terms.
Without the written consent of GVG, neither TMS nor its employees, shareholders
or advisors shall disclose the provisions of this letter agreement or the MIS
Agreement.
- 9 -
<PAGE> 10
Please acknowledge your agreement to the above by signing a copy of this
letter where indicated and returning it to TMS.
Sincerely yours,
TRASE MILLER SOLUTIONS, INC.
By: /s/ Frank S. Silzer
-----------------------------------
Name: Frank S. Silzer
---------------------------------
Title: Senior VP
--------------------------------
JAMES F. MILLER
/s/ James F. Miller
--------------------------------------
Agreed to this
14th day of August, 1998
GLOBAL VACATION GROUP, INC.
By: /s/ Walter S. Berman
--------------------------------------
Name: Walter S. Berman
------------------------------------
Title: Executive Vice President and CFO
-----------------------------------
MTI VACATIONS, INC.
By: /s/ Walter S. Berman
-------------------------------
Name: Walter S. Berman
-----------------------------
Title: Executive Vice President
----------------------------
The Exhibits to this Agreement are not included with this filing. Global
Vacation Group, Inc. will provide these Exhibits upon the request of the
Securities and Exchange Commission.
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS, THE CONSOLIDATED BALANCE SHEET AND THE
ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 48,408
<SECURITIES> 22,666
<RECEIVABLES> 18,423
<ALLOWANCES> (857)
<INVENTORY> 0
<CURRENT-ASSETS> 91,975
<PP&E> 4,636
<DEPRECIATION> 0
<TOTAL-ASSETS> 167,830
<CURRENT-LIABILITIES> 118,091
<BONDS> 0
0
54,599
<COMMON> 78
<OTHER-SE> (44,211)
<TOTAL-LIABILITY-AND-EQUITY> 167,830
<SALES> 122,735
<TOTAL-REVENUES> 122,735
<CGS> 100,749
<TOTAL-COSTS> 123,227
<OTHER-EXPENSES> 0
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