AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY __, 2000
REGISTRATION NO. 333-32192
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LEISURE TRAVEL GROUP, INC.
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(Exact Name of Registrant as Specified in its Charter)
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Delaware 7011 98-0219586
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
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6 LEYLANDS PARK, NOBS CROOK
COLDEN COMMON
WINCHESTER SO21 1TH ENGLAND
TELEPHONE: 011-44-1703-601155 TELECOPIER: 011-44-1703-696099
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(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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RAYMOND J. PEEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LEISURE TRAVEL GROUP, INC.
COLDEN COMMON
WINCHESTER SO21 1TH ENGLAND
TELEPHONE: 011-44-1703-601155 TELECOPIER: 011-44-1703-696099
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(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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Copies of communications to:
STEPHEN A. WEISS, ESQ. JAMES ZATOLOKIN, ESQ.
ANTHONY J. MARSICO, ESQ. MARY ANN SAPONE, ESQ.
GREENBERG TRAURIG, LLP POLLET LAW
200 PARK AVENUE, 15TH FLOOR 10900 WILSHIRE BOULEVARD,
NEW YORK, NEW YORK 10166 SUITE 500
TELEPHONE: (212) 801-9200 LOS ANGELES, CA 90024
TELECOPIER: (212) 801-6400 TELEPHONE: (310) 208-1182
TELECOPIER: (310) 208-1154
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED MAY __, 2000
PROSPECTUS
3,000,000 SHARES OF COMMON STOCK
LEISURE TRAVEL GROUP, INC.
This is an initial public offering of 3,000,000 shares of our common
stock.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "LTGI."
We anticipate that the initial public offering price will be between
$10.00 and $12.00 per share.
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SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR A DISCUSSION OF CERTAIN
FACTORS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF ANYONE'S INVESTMENT IN THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PER SHARE TOTAL
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Public Offering Price............................. $________ $__________
Underwriting Discounts and Commissions............ $________ $__________
Proceeds, before expenses, to Leisure Travel Group,
Inc............................................. $________ $__________
===============================================================================
The underwriters may, under some circumstances, for 45 days after the date
of this prospectus, purchase up to an additional 450,000 shares of common stock
from us and a corporate affiliate of our principal shareholder at the initial
public offering price, less underwriting discounts and commissions, to cover
over-allotments, if any. If the over-allotment option is fully exercised, a
total of 413,333 shares will be purchased from such corporate affiliate and the
balance will be purchased from us.
-----------------
The underwriters expect to deliver the shares of common stock at the
offices of Roth Capital Partners Incorporated in Newport Beach, California, on
or about __________, 2000, against payment in immediately available funds.
-----------------
ROTH CAPITAL PARTNERS
I N C O R P O R A T E D
The date of this prospectus is _________, 2000.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized anyone to provide you with
information that is different. This prospectus may be used only where it is
legal to sell these securities. The information in this prospectus is complete
and accurate as of the date on the front cover, but the information may have
changed since that date.
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SECURITIES AND EXCHANGE
COMMISSION RULES PERMIT THE UNDERWRITER TO ENGAGE IN TRANSACTIONS THAT STABILIZE
THE PRICE OF OUR SECURITIES. THESE TRANSACTIONS MAY INCLUDE, AMONG OTHER THINGS,
PURCHASE FOR THE PURPOSE OF FIXING OR MAINTAINING THE PRICE OF OUR SECURITIES AT
A LEVEL THAT IS HIGHER THAN THE MARKET WOULD DICTATE IN THE ABSENCE OF SUCH
TRANSACTIONS. WE DO NOT KNOW WHETHER THE UNDERWRITER WILL ENGAGE IN ANY
TRANSACTIONS OF THAT SORT. IF THE UNDERWRITER ENGAGES IN ANY TRANSACTIONS OF
THAT TYPE IT MAY DISCONTINUE THEM AT ANY TIME.
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary ..................................................... 1
Risk Factors ........................................................... 7
Cautionary Notice Regarding Forward Looking Statements ................. 21
Use of Proceeds ........................................................ 21
Dividend Policy ........................................................ 22
Capitalization ......................................................... 23
Dilution ............................................................... 24
Unaudited Condensed Pro Forma Consolidated Financial Information ....... 25
Selected Financial Data ................................................ 32
Management's Discussion and Analysis of Financial Condition and
Results of Operations ................................................ 33
Business ............................................................... 41
Management ............................................................. 54
Certain Transactions ................................................... 58
Principal Stockholders ................................................. 60
Description of Securities .............................................. 61
Shares Eligible for Future Sale ........................................ 63
Underwriting ........................................................... 64
Legal Matters .......................................................... 66
Experts ................................................................ 66
Additional Information ................................................. 67
Index to Financial Statements .......................................... F-1
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trrravel.com is a trademark of Trravel.com Limited, a 49% owned investment of
Leisure Travel Group, Inc. This prospectus also contains trademarks and
tradenames of other companies.
Information contained on the www.trrravel.com Web site does not constitute a
part of this prospectus.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To understand
our business and this offering fully, you should read this entire prospectus
carefully, including the consolidated financial statements and the related notes
beginning on page F-1. All of our business is conducted through our operating
subsidiaries which are private limited companies organized under the laws of
England and Wales.
OUR COMPANY
OVERVIEW
We have been established to become a leading international single-source
provider of attractively priced, specialized holiday and leisure accommodations
and world-wide packaged travel services. Upon completion of this offering, we
will acquire five unique and well-known holiday resort hotels in the United
Kingdom and two retail and group travel providers and tour operators that offer
flexible, independent travel programs. In addition, we will acquire a 49%
ownership interest in trrravel.com Limited, which operates a European on-line
travel Web site offering complete vacation and travel packages direct to
consumers, and also owns and operates a tour operating airline seat provider.
Through consolidation of these and other vacation and travel-related businesses,
we believe that we are able to offer both vacationers and travel agents and tour
operators a single source of competitively priced products and services within
and across multiple holiday and leisure travel segments. We intend to expand our
business by acquiring additional vacation and leisure travel businesses,
including resort hotels, travel providers and tour operators, and utilizing a
consumer-direct, online travel Web site.
On an unaudited pro forma basis, we derived consolidated income before
income taxes of approximately $2.3 million from consolidated net revenues of
approximately $47.4 million for the twelve months ended October 31, 1999.
OUR HOTEL BUSINESS
We own and operate under the name "Grand Hotels," five holiday resort
hotels situated near major seaside resorts in England and Wales, which offer
attractively priced vacation accommodations, including food and entertainment,
for weekend and lengthier stays. The hotels have a total of 1,274 available
rooms and achieved approximately 80% room occupancy in the two-year period ended
December 31, 1998. Approximately 112.5% and 59.6% of our pro forma consolidated
net income and consolidated net revenues, respectively, for the twelve months
ended October 31, 1999 were derived from our hotel operations. The revenues and
net income of the hotels dropped significantly during the six months ended June
30, 1999 due to the fact that the previous owners, following their decision to
sell the Butlin's Provincial Hotels, delayed the production and distribution of
the main holiday brochure, which inevitably reduced hotel bookings and room
occupancy. However, following our acquisition of the hotels, the re-branding of
its name and image and modernization of certain operating policies by our highly
experienced management team, both hotel revenues and profits improved
substantially during the seven months ended January 31, 2000. In addition, we
recently secured new agreements with United Kingdom tour coach operators for the
advance purchase of beds, which we anticipate will provide approximately $3.2
million of annual revenues, increased our room and accommodation rates by an
average of 8%, and secured advance bookings at February 14, 2000 that represent
approximately 44% of our target of 651,000 sleeper nights for the remainder of
our fiscal year ending October 31, 2000, or a 78% occupancy rate.
OUR TRAVEL BUSINESS
We offer competitively-priced travel-related services and accommodations
in a variety of holiday destinations in Europe, North America and South Africa.
Located in 8 offices in and around Manchester and Horsham, England, our retail
and group travel and tour operating businesses have over 15 years of experience
in providing packaged tours primarily to holiday resorts located throughout
Europe direct to the public and through other tour operators. We also offer
special interest tours to major European sporting events, including horse racing
tours throughout the United Kingdom and Europe, and trips for supporters of the
Manchester United Football Club. We offer a wide range of private accommodations
in a variety of holiday destinations in southern Europe, such as private country
homes and villas with swimming pools in Tuscany, Sardinia and other regions of
Italy, Andalucian haciendas with exquisite views in Spain and traditional
Ottoman-style houses in Turkey. We
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achieve competitive pricing and access to inventory through negotiated
arrangements with major airlines, including Singapore Airlines, British Airways,
Alitalia and Iberia, and auto rental and insurance companies.
Through trrravel.com Limited, our 49%-owned subsidiary, we operate a tour
operating airline seat provider which purchases blocks of airline seats from
airlines and other travel and tour operators for resale and acts as an agent in
brokering such seats on a commission basis.
OUR TRAVEL WEB SITE
The core of the distribution program for our travel services is a
consumer-direct online travel site that provides travelers with immediate access
both to our proprietary booking system and to detailed hotel information and
destination guides. Visitors to the www.trrravel.com Web site are able to
compare travel options, rates and availability, and book and purchase a wide
variety of travel services, including our independently tailored vacation
programs and group packages, seven days a week. Our Internet available vacation
and holiday packages include airfare, hotel and related accommodations, car
rental and other items. We believe that by being able to directly offer travel
services to consumers via the Internet, we will realize savings in operating
expenses that will enable us to maintain better gross margins than many travel
agencies or other travel groups that rely primarily on retail travel agencies
for distribution.
OUR MARKETS
Travel and tourism represents one of the largest consumer markets and one
of the fastest growing industries in the United Kingdom. The British Tourist
Authority estimates that in 1998, travel expenditures by overseas visitors in
the United Kingdom totaled more than approximately $20.5 billion, and that by
the year 2003, overseas visitors will spend approximately $29.0 billion a year
in the United Kingdom, 44% more than 1998. The British Tourist Authority also
estimates that in 1998, travel expenditures by residents of the United Kingdom
in the United Kingdom totaled more than approximately $22.6 billion which, when
combined with expenditures by overseas visitors, totaled approximately $43.0
billion in 1998. Of the $43.2 billion spent in 1998 on travel in the United
Kingdom, approximately $15.0 billion was spent on accommodations, approximately
$5.6 billion was spent on travel within the United Kingdom, and approximately
$1.8 billion was spent on travel-related services. The European Travel
Commission estimates that travel agencies alone generated approximately $126
billion in total sales in 1998.
The growth of travel sales through the Internet has created another
channel for travel service providers to sell products and services to travelers.
Online sales of travel services have expanded dramatically in recent years due
to the substantial benefits of e-commerce to both travel service providers and
consumers. By moving their travel services online, travel service suppliers,
retail travel agencies and travel wholesalers can reach a global customer base
from a central location. According to Forrester Research, online travel bookings
are expected to grow to $29.5 billion in 2003 from $3.1 billion in 1998,
representing a compound annual growth rate of 57%.
OUR OPERATING STRATEGY
Our objective is to become a leading international single-source provider
of attractively priced, specialized holiday and leisure accommodations and
world-wide package travel services. To accomplish this objective, we will pursue
an operating strategy that includes the following elements:
o increasing the revenues, profitability and occupancy rate of our
holiday resort hotels by upgrading accommodations and improving
service, increasing our bus and coach tour package business,
offering higher priced weekend packages tailored to a younger
customer base, and improving our average room tariff rate;
o providing added value to consumers by offering complete world-wide
travel planning solutions at competitive prices;
o using the www.trrravel.com Web site as a world-wide marketing tool,
aggressively promoting, advertising and increasing the value and
visibility of our brand in the vacation travel service and resort
hotel industries through high quality service, active marketing and
promotional programs;
o leveraging our strength in selected travel destinations to achieve
leading positions in these and other high-volume, high-margin
vacation destinations; and
o providing services to other independent tour operators, including
airline seats and holiday villas.
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2
<PAGE>
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OUR GROWTH STRATEGY
To complement our operating strategy, we have developed a multi-faceted
growth strategy comprised of the following elements:
o continuing to acquire underperforming hotels in Spain and other
European coastal resort areas and implementing operational
initiatives to achieve revenue growth and margin improvements;
o identifying and completing strategic acquisitions of other vacation
and leisure travel businesses, including travel service providers in
the United Kingdom and throughout Europe; and
o enhancing distribution channels by the direct selling of travel and
vacation related services to consumers online while continuing to
support and leverage our strong relationships with existing retail
travel agents.
We were incorporated under the laws of the State of Delaware in February
2000. Our principal executive offices are located at 6 Leylands Park, Nobs
Crook, Colden Common, Winchester SO21 1TH England, and our telephone number at
that address is 011-44-1703-601155. Unless the context otherwise indicates, all
references in this prospectus to:
o "Leisure Travel Group," "we," "our" and "us" refer to Leisure Travel
Group, Inc., a Delaware corporation, together with its direct and
indirect subsidiaries and investments, after giving effect to the
acquisitions discussed below;
o "LTGL" refer to Leisure Travel Group Limited, together with its
subsidiaries Miss Ellie's World Travel Limited and Ilios Travel
Limited, prior to our acquisition of all of its outstanding share
capital;
o "GHG" refer to Grand Hotel Group Limited, prior to the acquisition
of all of its outstanding share capital by LTGL,
o "Grand Hotel Group (Predecessor)" and "GHG (Predecessor)" refer to
the five hotels formerly known as the Butlins Provincial Hotels
prior to their acquisition by GHG in June 1999;
o "LTG" refer to the combination of LTGL and GHG, as entities under
common control from June 30, 1999;
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UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS GIVES EFFECT
TO THE FOLLOWING TRANSACTIONS WHICH WILL BE COMPLETED SIMULTANEOUSLY WITH THIS
OFFERING:
o OUR ACQUISITION OF 100% OF THE OUTSTANDING SHARE CAPITAL OF LTGL;
AND
o LTGL'S ACQUISITION OF 100% OF THE OUTSTANDING SHARE CAPITAL OF GHG
AND 49% OF THE OUTSTANDING SHARE CAPITAL OF TRRRAVEL.COM LIMITED.
UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE
EFFECT TO:
o THE REPRESENTATIVE'S WARRANTS;
o THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR ITS EXERCISE; AND
o UP TO ____________ SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
OF STOCK OPTIONS.
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3
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THE OFFERING
Common Stock Offered .................. 3,000,000 shares.
Common Stock Outstanding
Immediately Following this
Offering ............................ 8,060,000 shares.
Use of Proceeds ....................... We intend to use the net proceeds of
this offering:
o together with approximately $6.4
million of proceeds from a mortgage
refinancing, $10.4 million to pay in
full a $16.8 million note to a
subsidiary of The Rank Group plc;
o to expand our travel-related
services business, including
advertising and the development of
the www.trrravel.com Web site; to
acquire additional resort hotels in
England, Spain and other locations;
and
o for general corporate and working
capital purposes, including
acquisitions. See "Use of Proceeds."
Risk Factor ........................... An investment in our common stock is
highly speculative, involves a high
degree of risk, and should be made only
by investors who can afford a complete
loss of their investment. See "Risk
Factors" and "Dilution."
Proposed Nasdaq National
Market Symbol ....................... "LTGI"
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4
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SUMMARY FINANCIAL DATA
(US DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
The following tables set forth:
o Summary historical combined financial data for GHG (Predecessor) for
the years ended December 31, 1995, 1996, 1997 and 1998, the three
months ended January 31, 1999 and the six months ended June 30,
1999, and as of December 31, 1997 and 1998;
o Summary historical financial data for LTG for the period ended
October 31, 1999 and the three months ended January 31, 2000, and as
of October 31, 1999 and January 31, 2000;
o Summary pro forma consolidated financial data for the twelve months
ended October 31, 1999, the three months ended January 31, 2000 and
as of January 31, 2000. This information gives effect to:
-- our acquisition of all of the outstanding share capital of
LTGL,
-- LTGL's acquisition of all of the outstanding share capital of
Miss Ellie's World Travel Limited, Ilios Travel Limited and
GHG and
-- LTGL's acquisition of 49% of the outstanding share capital of
trrravel.com Limited, as if each of those events had occurred
on November 1, 1998 in the case of the pro forma statement of
operations data, and on October 31, 1999 in the case of the
pro forma balance sheet data, except with respect to Miss
Ellie's World Travel Limited, which was acquired by LTGL on
July 5, 1999; and
o Summary pro forma as adjusted consolidated balance sheet data as of
January 31, 2000, which is adjusted to give effect to:
-- the sale of the 3,000,000 shares of common stock offered
hereby at an assumed initial public offering price of $11.00
per share (the mid-point of the range),
-- the refinancing of $6.4 million mortgage financing,
-- the repayment of $16.8 million outstanding under the note of
Grand Hotel Group to a subsidiary of The Rank Group plc and
-- the capitalization of $1,667,000 of loans made to LTGL by a
corporate affiliate of Kevin R. Leech.
Leisure Travel Group, LTGL, Ilios Travel Limited and GHG had October 31st
as their accounting year end. GHG (Predecessor) had a year end of December 31st.
Miss Ellie's World Travel Limited had a year end of March 31st prior to being
acquired by LTGL. GHG adopted an October 31st year end upon acquiring GHG
(Predecessor).
We derived the summary historical financial data as of December 31, 1997,
and for the years ended December 31, 1995 and 1996 of GHG (Predecessor) from its
unaudited combined financial statements, which are not included in this
prospectus. These unaudited financial statements include, in our opinion, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data.
We derived the summary historical financial data as of December 31, 1998,
and for the years ended December 31, 1997 and 1998 and the six months ended June
30, 1999 from the audited combined financial statements of GHG (Predecessor),
and the summary historical financial data as of October 31, 1999 and for the
period ended October 31, 1999 from the audited combined financial statements of
LTG, which are included elsewhere in this prospectus. These financial statements
have been audited by Ernst & Young, our independent auditors.
We derived the summary historical financial data for the three months
ended January 31, 1999 from the unaudited combined condensed financial
statements of GHG (Predecessor) and the summary historical financial data as of
January 31, 2000 and for the three months ended January 31, 2000 from the
unaudited combined condensed financial statements of LTG, which are included
elsewhere in this prospectus. These unaudited financial statements include, in
our opinion, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data.
We have provided the unaudited pro forma and pro forma adjusted
consolidated financial data for informational purposes only. They are not
necessarily indicative of future results of what our operating results would
have been had we actually consummated the acquisition on the dates assumed.
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5
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The summary data should be read in conjunction with the information presented in
"Capitalization," "Selected Financial Data," "Unaudited Condensed Pro Forma
Financial Information," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and the notes
thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
GHG (PREDECESSOR) LTG LEISURE TRAVEL GROUP
---------------------------------------------------- -------------------- --------------------
HISTORICAL HISTORICAL
---------------------------------------------------- -------------------- PRO FORMA
THREE SIX THREE THREE
MONTHS MONTHS PERIOD MONTHS PRO FORMA MONTHS
ENDED ENDED ENDED ENDED YEAR ENDED ENDED
YEARS ENDED DECEMBER 31, JANUARY 31, JUNE 30, OCTOBER 31, JANUARY 31, OCTOBER 31, JANUARY 31,
1995 1996 1997 1998 1999 1999 1999 2000 1999 2000
------- ------- ------- ------- ------ ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ...............$32,959 $32,427 $33,785 $32,446 $7,606 $11,526 $ 17,261 $11,177 $47,387 $11,177
Operating cost and expenses .. 26,981 27,700 28,982 27,913 6,823 12,638 15,095 10,712 43,996 10,818
------- ------- ------- ------- ------ ------- -------- ------- ------- -------
Operating profit (loss) ...... 5,978 4,727 4,803 4,533 783 (1,112) 2,166 465 3,391 359
Other income (expense), net .. -- -- -- -- -- -- (433) (264) (1,126) (265)
------- ------- ------- ------- ------ ------- -------- ------- ------- -------
Income (loss) before income
taxes ...................... 5,978 4,727 4,803 4,533 783 (1,112) 1,733 201 2,265 94
Income taxes ................. 2,459 2,035 2,027 1,859 321 -- 520 71 888 71
------- ------- ------- ------- ------ ------- -------- ------- ------- -------
Net income (loss) ............$ 3,519 $ 2,692 $ 2,776 $ 2,674 $ 462 $(1,112) $ 1,213 $ 130 $ 1,377 $ 23
======= ======= ======= ======= ====== ======= ======= ======= ======= =====
Net income per share:
Basic and diluted ............ $ 0.27 $ 0.00
======= =====
Shares used in computing net
income per share:
Basic and diluted ........ 5,060 5,060
======= =====
OTHER DATA:
Depreciation and amortization $ 1,760 $ 1,891 $ 2,104 $ 1,945 $ 346 $ 929 $ 205 $ 310
Cash flows from operating
activities ................. 6,193 4,683 727 1,735 3,661 (3,321)
Cash flows from investing
activities ................. (3,129) (378) (152) (47) (30,604) (120)
Cash flows from financing
activities ................. (3,064) (4,305) (575) (1,688) 32,542 (19)
</TABLE>
<TABLE>
<CAPTION>
GHG (PREDECESSOR) LTG LEISURE TRAVEL GROUP
--------------------- --------------------- ----------------------------------
HISTORICAL HISTORICAL JANUARY 31, 2000
--------------------- --------------------- ----------------------------------
DECEMBER 31, PRO FORMA,
--------------------- OCTOBER 31, JANUARY 31, AS
1997 1998 1999 2000 ACTUAL PRO FORMA ADJUSTED
------- ------- ------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) .......... $(1,902) $(1,966) $ (761) $ (449) $ -- $ (441) $ 18,827
Total assets ....................... 28,655 26,950 46,335 42,764 -- 46,009 63,610
Long-term debt (excluding
current maturities) .............. -- -- 33,436 33,569 -- 34,100 23,661
Total stockholders' equity ......... 24,833 23,434 1,213 1,347 -- 3,767 33,474
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in our common stock is highly speculative, involves a high
degree of risk, and should be made only by investors who can afford a complete
loss of their investment. You should carefully consider, together with the other
matters referred to in this prospectus, the following risk factors before you
decide to buy our common stock.
BECAUSE WE LACK A COMBINED OPERATING HISTORY, THERE IS LIMITED INFORMATION UPON
WHICH YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS.
A corporate affiliate of Kevin R. Leech, our principal stockholder, acquired
Miss Ellie's World Travel Limited and Ilios Travel Limited in July 1999 and
January 2000, respectively. Another corporate affiliate of Mr. Leech and certain
members of our management team acquired all of the operating assets relating to
five hotels formerly known as the Butlin's Provincial Hotels effective in June
1999. Another corporate affiliate of Mr. Leech owns 51% of the outstanding share
capital of trrravel.com Limited, which in turn owns 100% of the outstanding
share capital of Independent Aviation Limited, a tour operating airline seat
provider. On a pro forma basis for the twelve months ended October 31, 1999, the
operations of our five hotels accounted for approximately 59.6% of our net
revenues. Although our hotels and two retail and group travel and tour operating
businesses have each been in operation for more than 15 years, they have
virtually no history of combined operations under common management. In
addition, the profit margins and business dynamics of travel service providers
and tour operators are materially different from those affecting the ownership
and operation of resort hotels.
The historical and pro forma consolidated financial data included in this
prospectus cover periods when our hotel and travel businesses were not under
common management or control and are not necessarily indicative of the results
that would have been achieved if they had been operated on an integrated basis
or the results that may be realized on a consolidated basis in the future.
Consequently, we have a very limited operating history upon which you may base
an evaluation of us and determine our prospects for achieving our intended
business objectives. We are prone to all of the risks inherent to the
establishment of any new business venture. You should consider the likelihood of
our future success to be highly speculative in light of our limited combined
operating history, as well as the limited resources, problems, expenses, risks,
and complications frequently encountered by similarly situated companies seeking
to upgrade its businesses. To address these risks, we must, among other things:
o maintain and increase our customer base;
o implement and successfully execute our operating and growth strategies;
o continue to make expenditures to upgrade and refurbish our hotels;
o provide superior customer service;
o continue to develop and upgrade our Web site and electronic booking
system;
o respond to competitive developments; and
o attract, retain and motivate qualified personnel.
We may not be successful in addressing these risks, and our failure to do so
could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
OUR FUTURE OPERATING RESULTS AND REVENUES ARE UNPREDICTABLE, AND FUTURE
FLUCTUATIONS IN OPERATING RESULTS OR REVENUE SHORTFALLS COULD ADVERSELY AFFECT
THE VALUE OF YOUR INVESTMENT.
Because we have a limited combined operating history as a combined business
operation, and because of the dynamic nature of certain of the markets in which
we compete, our future revenues and earnings may be highly unpredictable. At the
same time, our current and future expense levels are based on our operating
plans and are to a large extent fixed. We are unlikely to be able to adjust
spending quickly to compensate for any revenue shortfall. As a result, any
significant revenue shortfall would have an immediate negative effect on our
results of operations and stock price.
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We expect to experience significant fluctuations in our future operating
results due to a variety of factors, many of which we do not control. Factors
that may adversely affect our future operating results include, but are not
limited to:
o our inability to successfully replicate our business model in new
destination markets;
o our inability to develop strong brand recognition, build customer loyalty
and attract new and repeat customers;
o our inability to retain or expand our hotel and airfare supply
arrangements or reductions in discounts we receive on these travel
services;
o decreases in commission rates paid by travel suppliers on published rates
and fares;
o the announcement or introduction of lower prices or new travel services
and products by our competitors;
o any deterioration in general economic conditions, such as a global
recession, or economic conditions specific to the leisure or travel
industry;
o seasonal fluctuations in consumer travel spending patterns;
o unforeseen capital costs or an increasing annual rate of capital
expenditures required to maintain the facilities at our existing hotels,
which were originally built between 1776 and 1931;
o our inability to upgrade and develop our systems and infrastructure;
o our inability to retain or to attract qualified personnel in a timely and
effective manner;
o increases in operating expenses or capital expenditures relating to
expansion of our business, operations and infrastructure that are not
accompanied by increased revenue;
o difficulties in assimilating the operations and personnel of any acquired
business;
o technical difficulties, system downtime or slowdowns in Internet response
times;
o our inability to establish a sufficient level of traffic on our affiliated
Web site;
o adverse U.S. and foreign government regulation; and
o events affecting the travel industry such as natural disasters, wars or
terrorist attacks.
For any of the foregoing reasons, or for other reasons we do not presently
anticipate, in a future quarter or other fiscal period it is likely that our
operating results will not meet market expectations, including the expectations
of financial analysts. If this occurs, it would have a material and adverse
effect on our stock price.
OUR RESORT HOTELS HAVE HAD DECLINING REVENUES AND PROFITS IN THE PAST.
During the three year period ended December 31, 1998, the net revenues and
net income of the five hotels owned and operated by The Rank Group plc under the
name Butlin's Provincial Hotels declined slightly. For the six month period
ended June 30, 1999, net revenues were only $11.5 million and the hotels
incurred a net loss of $1.1 million. We believe that the principal reason for
these adverse results was that, following the previous owners' decision to sell
the hotels, they did not expend resources on capital improvements and reduced
the marketing expenditure of the hotels, which resulted in significantly lower
bookings at the beginning of 1999. There can be no assurance that the improved
revenues and operating results realized subsequent to our acquisition of the
five hotels in June 1999 will continue in the future.
Following completion of this offering, we intend to improve revenues and
profitability of the Grand Hotel Group by upgrading our rooms and recreational
facilities, deriving added revenues from volume room sales to coach operators
throughout the United Kingdom and marketing our hotels to a wider audience,
including the younger, more affluent United Kingdom market segment. There can be
no assurance that our marketing efforts will provide an adequate return on
investment or that the hotels will ever achieve or exceed historical
profitability.
OUR GRAND HOTELS MUST SERVICE A SIGNIFICANT AMOUNT OF DEBT AND CAPITAL
EXPENDITURES.
Upon completion of this offering, the Grand Hotel Group will have incurred
approximately $22.6 million of mortgage indebtedness. Such indebtedness is
currently amortized over a five year period and requires annual debt
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service payments of principal and interest of $5.7 million. Following completion
of this offering, we intend to reduce our annual debt service obligations by
seeking to obtain long-term mortgage financing of between 10 and 15 years.
However, there is no assurance that such long-term financing will be available
on financially attractive terms, if at all, or that the cash flow from
operations of the hotels will be adequate to meet our annual debt service
obligations.
In addition, we have budgeted $2.6 million in capital expenditures to
refurbish and construct improvements to our five existing holiday resort hotels.
There is no assurance that cost overruns or other unforeseen factors may not
significantly increase our budgeted capital expenditures.
OUR PRINCIPAL STOCKHOLDER WILL DERIVE SIGNIFICANT BENEFITS FROM THIS OFFERING.
We intend to apply approximately $10.4 million, or approximately 37% of the
net proceeds of this offering, together with additional mortgage indebtedness,
to retire a $16.8 million note owed to a subsidiary of The Rank Group plc. This
note was secured by a bank letter of credit which, in turn, was obtained through
the personal guaranty of our Chairman of the Board and principal stockholder,
Kevin R. Leech. Upon payment of the note, Mr. Leech will be relieved of his
personal guaranty and certain marketable securities pledged by him to secure his
guaranty will be returned to him. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview," "Certain Transactions" and "Principal Stockholders."
THERE IS THE POSSIBILITY OF CONFLICTS OF INTEREST WITH OTHER BUSINESSES
CONTROLLED BY OUR PRINCIPAL STOCKHOLDER.
We anticipate that our travel businesses will be engaging in significant
advertising of its travel agency, tour operator and airline seat provision
services on www.trrravel.com and will pay fees and commissions based on on-line
bookings made and transactions closed through use of the Web site. trrravel.com
Limited is currently 51%-owned by ci4net.com, Inc., a publicly-traded
corporation controlled by Kevin R. Leech, our principal stockholder and Chairman
of the Board, and 49%-owned by a corporation, one half of the equity of which is
also owned by Mr. Leech. Mr. Leech's corporate affiliate has agreed upon
completion of this offering to contribute its entire 49% equity interest in
trrravel.com Limited to us. However, ci4net.com will continue to be solely
responsible for the development and maintenance of the Web site. Although we
believe that the fees and commissions we pay to advertise on www.trrravel.com
will be at rates no less favorable than is being charged to unaffiliated third
parties, Mr. Leech's other corporate affiliates will directly benefit as we
increase our advertising on www.trrravel.com. the common control of our company
and the majority owner of trrravel.com Limited could lead to conflicts of
interest in terms of the most effective means of marketing and advertising our
services. In addition, as more people use the Internet to book their travel
accommodations, the business of our travel agencies and tour operators could be
adversely affected.
In addition, Mr. Leech is the principal stockholder of Queensborough
Holdings plc, a publicly traded corporation trading on the London Stock
Exchange. Among the holdings of Queensborough Holdings plc is the Burstin Hotel,
located in Folkestone, England, which is a holiday resort hotel similar to our
five Grand Hotels and which competes for guests in the same market. Philip
Mason, a director of our company, and Stephen Last, our Executive Vice President
and Chief Financial Officer, are also executive officers of Queensborough
Holdings plc. See "Certain Transactions" and "Principal Stockholders."
MANY OF OUR ADVANCED BOOKING ARRANGEMENTS ARE SUBJECT TO REDUCTION OR
CANCELLATION.
In connection with the operation of both our hotel and travel businesses
certain advance bookings arrangements with individual customers or other tour
operators are subject to reduction or cancellation. For example, our agreements
with bus tour operators for the purchase of beds at our hotels may be modified
or even cancelled by the operators if anticipated customer bookings or travel
demand is reduced. Similarly, arrangements with tour operators for the brokering
or resale of airline seats are subject to modification or cancellation within a
certain number of days prior to the scheduled trip. In both instances, we seek
to hedge against our cancellation risks by over-booking a limited number of beds
or airline seats and imposing penalties on late cancellations. Although, to
date, traditional levels of cancellations of our advanced bookings have not
resulted in any significant losses of anticipated revenues, there can be no
assurance that factors beyond our control such as
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unusually adverse weather conditions during traditional holiday seasons or a
general economic downturn would not result in substantially higher levels of
cancellations. If this were to occur it would materially and adversely affect
our business.
IF WE ARE UNABLE TO SUCCESSFULLY REPLICATE OUR BUSINESS MODEL IN NEW MARKETS,
OUR FUTURE GROWTH AND OPERATING RESULTS WOULD BE ADVERSELY AFFECTED.
We have developed a business model designed to provide attractively priced
holiday resort accommodations and travel services to customers primarily located
throughout the United Kingdom. Our growth strategy depends in part upon
substantially replicating this model in new markets across Europe. We cannot be
sure that this business model will be successful in other markets. For example,
as our travel services business expands its network of hotels into new markets,
we may generally receive smaller room blocks and discounts than we receive in
those hotels where we have longstanding relationships. These less favorable
terms are likely to adversely affect gross margins. We believe that, unless we
prove our ability to successfully distribute hotel rooms in these new markets,
hotel operators will not offer us their most favorable room blocks and
discounts. We cannot assure you that we can reproduce relationships with
strategic hotel partners in the new markets we are entering or that such new
hotel partners will provide us with room blocks and discounts comparable to what
we currently receive. In either case, operating results would be adversely
affected.
WE FACE CONSIDERABLE COMPETITION IN THE TRAVEL SERVICES AND HOTEL MARKETS AND
MAY BE UNABLE TO GAIN A COMPETITIVE POSITION IN THOSE MARKETS.
The travel services market is highly competitive and has relatively low
barriers to entry. We compete primarily with other vacation providers, online
travel reservation services, travel agencies and other distributors of travel
products and services. Many of our current and potential competitors, especially
Air Tours plc, Thomsons plc and First Choice plc, have competitive advantages
due to various factors, which include, among others:
o greater brand recognition;
o longer operating histories;
o larger customer bases;
o significantly greater financial, marketing and other resources; and
o ability to secure products and services from travel suppliers with greater
discounts and on more favorable terms than we can.
Competition within the travel services market is increasing as certain of
our competitors are expanding their size and financial resources through
consolidation. In addition, our travel suppliers may decide to compete more
directly with us and restrict the availability of travel products or services or
our ability to offer such products or services at preferential prices. For
instance, travelers can now use the Internet to purchase travel products and
services directly from suppliers, thereby bypassing both vacation providers such
as us and retail travel agents. Furthermore, some travel providers have a strong
presence in particular geographic areas, which may make it difficult for us to
attract customers in those areas. Increased competition could reduce our
operating margins and profitability, result in a loss of market share and
diminish our brand recognition, which would materially and adversely affect our
business, results of operations and financial condition.
We also expect to face significant competition from other entities engaged
in the business of owning and operating resort hotels and motels. Many of the
world's most recognized lodging, hospitality and entertainment companies possess
significantly greater financial, marketing, personnel and other resources than
we have and may be able to grow at a more rapid rate or more profitably as a
result. Please see "Business--Our Competition" for a discussion of our
competition.
If any of our travel suppliers cease offering their services to us on
negotiated terms or at all, or if they change our pricing and commission
arrangements, our operating results could be materially adversely affected.
Our travel agencies are dependent upon travel suppliers for access to many
of their products and services. Certain travel suppliers, such as Airtours and
Thomsons, offer us:
o pricing that is preferential to published rates, enabling us to offer
complete vacations at prices lower than generally would be available to
individual travelers and retail travel agents;
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o preferential access to inventory of their travel products and services,
enabling us to assemble more desirable vacations for travelers; or
o in the case of certain travel suppliers, both preferential pricing and
preferential access to inventory.
Our travel suppliers generally can modify their agreements with us upon
relatively short notice. In addition, any decline in the quality of travel
products and services provided by these suppliers, or a perception by travelers
of such a decline, could adversely affect our reputation. The loss of contracts,
changes in our pricing agreements, commission schedules or incentive override
commission arrangements, more restricted access to travel suppliers' products
and services or less favorable public opinion of certain travel suppliers and
resulting low demand for the products and services of such travel suppliers
could have a material adverse effect on our business, financial condition and
results of operations.
WE HAVE HISTORICALLY CONCENTRATED ON SERVICING CERTAIN MARKETS IN THE UNITED
KINGDOM AND PROVIDING VACATIONS TO CERTAIN DESTINATIONS THROUGHOUT EUROPE. OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY A DOWNTURN IN THE EUROPEAN
TRAVEL SERVICES MARKET.
On a pro forma basis for the twelve months ended October 31, 1999, we
derived approximately 80% of our net revenues from products and services
associated with leisure travel from the United Kingdom, primarily to certain
destinations in Europe. In addition, most of our current employees are located
in the United Kingdom to serve that market exclusively. We expect that travel to
and from the United Kingdom will continue to account for a substantial portion
of our travel services revenue for the foreseeable future. Adverse events or
conditions which affect travel to the United Kingdom and certain other
destinations throughout Europe, such as changes in regional travel patterns,
extreme weather conditions, natural disasters or wars, could have a material
adverse effect on our business, financial condition and results of operations.
MANAGING POTENTIAL GROWTH MAY BE DIFFICULT, TIME CONSUMING AND EXPENSIVE. THE
FAILURE TO PROPERLY MANAGE GROWTH MAY NEGATIVELY AFFECT THE VALUE OF YOUR
INVESTMENT.
We intend to grow our business by utilization of the www.trrravel.com Web
site, making strategic acquisitions of hotel properties and significantly
expanding our travel services and the number of destination markets we serve.
These developments are expected to place a significant strain on our managerial,
operational and financial resources. Our inability to manage our growth
effectively could disrupt operations and have an adverse effect on our revenue.
In addition, being a public company will place new strains on our senior
management, some of whom do not have experience in operating a public company.
We anticipate that further significant growth and development of our business
will be required to expand our customer base and take advantage of market
opportunities. We expect to hire additional key personnel and support staff in
the future. To manage the expected growth of our operations and personnel, we
will be required to:
o improve existing and implement new transaction-processing, operational,
customer service and financial systems, procedures and controls; and
o expand, train and manage our growing employee base.
We also will be required to expand our finance, administrative and
operations staff, including personnel experienced in site selection and hotel
acquisition. Further, we will be required to maintain and expand our
relationships with various travel service suppliers, other Web sites and other
Web service providers, Internet service providers and other third parties
necessary to our business. We cannot be sure that:
o our current and planned personnel, systems, procedures and controls will
be adequate to support our future operations;
o our management will be able to hire, train, retain, motivate and manage
required personnel; or
o our management will be able to successfully identify, manage and exploit
existing and potential market opportunities.
Our productivity and operating results will be negatively affected if we are
unable to manage growth effectively. Please see "Management's Discussion and
Analysis of Financial Condition and Results of
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Operations," "Business--Our Growth Strategy," "--Our Employees" and "Management"
for a discussion of factors that may affect our ability to manage potential
growth.
WE ARE SUSCEPTIBLE TO A WIDE VARIETY OF RISKS RELATING TO THE ACQUISITION OF
ADDITIONAL TRAVEL SERVICE PROVIDERS AND RESORT HOTELS.
We believe that there are opportunities for consolidation in the travel
services market. One element of our growth strategy is to broaden the scope and
content of our travel services business through the acquisition of existing
complementary businesses. While our management team has experience in completing
or integrating acquisitions, we may not be successful in overcoming problems
encountered in connection with such acquisitions. Even if we are successful,
such acquisitions may be time consuming and costly, which may affect our
operating results. Acquisitions would also expose us to various other risks,
such as those associated with:
o the assimilation of new operations, sites and personnel;
o the diversion of resources from our existing operations, sites and
technologies;
o the inability to generate revenue from acquisitions sufficient to offset
associated acquisition costs;
o the inability to maintain uniform standards, controls, procedures and
policies; and
o the impairment of relationships with employees, suppliers and customers as
a result of integration of new businesses.
Acquisitions may also result in additional expenses associated with one-time
charges or amortization of acquired intangible assets. Furthermore, although we
will conduct due diligence and generally require representations, warranties and
indemnifications from the former owners of acquired travel services companies,
we cannot be sure that such owners will accurately represent the results of
operations, financial condition and business of their companies or will have the
means to satisfy their indemnification obligations. If misrepresentations are
made, the acquisition could have a material adverse effect on our business,
financial condition and results of operations. We do not have current
commitments with respect to any particular acquisition in the travel services
industry, but management regularly evaluates acquisition opportunities.
In addition, our ability to execute our growth strategy depends to a
significant degree on the existence of attractive resort hotel acquisition
opportunities, our ability both to consummate acquisitions on favorable terms
and to obtain financing for such acquisitions on favorable terms. Our
acquisition efforts will be focused initially in the United Kingdom and in
Spain, but we may extend our efforts to certain other key locations throughout
Europe. There can be no assurance that we will consummate the acquisition of any
additional resort hotels. Risks associated with our acquisition activities may
include the fact that:
o acquisition opportunities may be abandoned;
o acquisition costs of a resort may exceed original estimates, possibly
making the resort uneconomical or unprofitable;
o financing may not be available at all or on favorable terms for
acquisitions of holiday resort hotels; and
o acquisitions may not be completed on schedule, resulting in decreased
revenues and increased interest expense.
Moreover, there are numerous potential buyers of resort real estate which are
better capitalized than we are competing to acquire resort properties which we
may consider attractive resort acquisition opportunities. There can be no
assurance that we will be able to compete against such other buyers
successfully. Please see "Business--Our Growth Strategy" for more information
about our acquisition strategy.
WE EXPECT INCREASED OPERATING EXPENSES IN CONNECTION WITH NEW AND EXPANDED
TRAVEL SERVICES. IF THESE SERVICES ARE UNSUCCESSFUL OR REVENUE INCREASES ARE
SIGNIFICANTLY BELOW EXPENSES, THE VALUE OF YOUR INVESTMENT COULD BE NEGATIVELY
AFFECTED.
We currently intend to:
o develop and offer new and expanded travel services;
o further develop our technology and transaction-processing systems; and
o begin offering travel services to additional destinations throughout
Europe and to certain destinations in North America.
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To the extent the expenses we incur to fund these activities are not followed by
increased revenue, we may be unable to maintain profitability. In addition, we
may incur expenses when we enter new markets or offer new services that
significantly exceed the amount we anticipate. If so, our management, financial
and operational resources may be severely strained. Our inability to generate
revenue from such expanded services or products sufficient to offset our
expenses could be damaging to our business. Please see "Business--Our Products
and Services" for details about our planned new and expanded services.
DECLINES IN CONSUMER VACATION AND TRAVEL SPENDING COULD HARM OUR OPERATING
RESULTS.
The majority of our revenue is derived from consumer spending for vacation
and travel. The travel industry, especially leisure travel, depends on personal
discretionary spending levels and suffers during economic downturns and
recessions. The travel industry is also highly susceptible to unforeseen events,
such as political instability, regional hostilities, terrorism, a rise in fuel
prices or other travel costs, excessive inflation, currency fluctuations,
travel-related accidents, natural disasters, unusual weather patterns or travel
industry related labor strikes. In addition, any adverse changes affecting the
resort hotel industry such as a reduction in demand and increases in
construction or maintenance costs or value-added (sales) taxes, could have a
material adverse effect on our operating results.
WE EXPERIENCE SEASONALITY THAT COULD CAUSE FLUCTUATIONS AND ADVERSELY AFFECT OUR
BUSINESS AND STOCK PRICE.
Seasonality in the vacation resort and travel industry is likely to cause
fluctuations in our operating results which may adversely affect our stock
price. In both our hotel and travel businesses, revenues typically increase
during the spring and summer months and are lower during the fall and winter
months. In addition, our seasonal business has been adversely affected in the
past and could be affected in the future by climactic conditions, such as a wet
or rainy summer season which frequently occurs in the United Kingdom. As our
business continues to expand beyond the United Kingdom, seasonal fluctuations
will affect us in different ways. If seasonality in our business causes
quarterly fluctuations in our revenues and operating profits which are unusually
severe or unexpected, there could be a material adverse effect on our business
and stock price.
In addition, our earnings may be impacted by the timing of the completion of
the acquisition of future resort hotels and the potential impact of weather or
other natural disasters at our resort locations. The combination of the possible
delay in generating revenue after the acquisition of additional resort hotels,
and the expenses associated with start-up unit or room-rental operations,
interest expense, amortization and depreciation expenses from such acquisitions
may materially adversely impact our earnings. Please See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Financial Information" for a discussion of
how seasonality is likely to affect our operating results.
WE MAY NEED MORE MONEY, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS OR
AT ALL.
We require substantial working capital to fund our business. We currently
anticipate that the net proceeds of this offering, together with our existing
funds and ability to borrow, will be sufficient to meet our capital requirements
for at least the next 12 months. However, we may need to raise additional funds
in order to support more rapid expansion, develop new or enhanced services,
respond to competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced, our stockholders may experience
additional dilution in net book value per share or such securities may have
rights, preferences or privileges senior to those of the holders of our common
stock. There can be no assurance that additional financing will be available
when needed on terms favorable to us or at all. If adequate funds are not
available on acceptable terms, we may be unable to develop or enhance our
services and products, take advantage of future opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, financial condition and operating results. Please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for more detailed information
regarding our possible future capital requirements.
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THE LOSS OF OUR SENIOR MANAGEMENT OR OTHER KEY PERSONNEL OR OUR FAILURE TO
ATTRACT ADDITIONAL PERSONNEL COULD NEGATIVELY AFFECT OUR BUSINESS AND DECREASE
THE VALUE OF YOUR INVESTMENT.
Our performance is substantially dependent on the continued services and
performance of our senior management and other key personnel. The loss of the
services of any of our executive officers or other key employees would adversely
affect our ability to manage our business and would likely have a detrimental
effect on our operating results. In particular, we are dependent upon the
services of Kevin R. Leech, our Chairman of the Board, Raymond J. Peel, our
President and Chief Executive Officer, Rod Rodgers, our Senior Executive Vice
President and President of our Grand Hotel subsidiary, David Marriott, our
Marketing Director and Vice President of our Grand Hotel subsidiary, and Stephen
Last, our Executive Vice President and Chief Financial Officer. Prior to this
offering, corporations owned or controlled by Mr. Leech own 76.6% of our
outstanding common stock, none of which is subject to vesting. Other than a
$13.7 million key man life insurance policy on the life of Mr. Leech, assigned
to Arab Bank and Irish Nationwide Building Society as collateral for loans
extended to GHG, we do not intend to maintain "key person" life insurance
policies on any of our key personnel.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate other highly skilled technical, managerial,
marketing, administrative, and customer service personnel. Competition for such
personnel is intense, and we are not sure that we will be able to successfully
attract, assimilate or retain sufficiently qualified personnel. In particular,
we may encounter difficulties in attracting and retaining a sufficient number of
qualified software developers for our online services and transaction-processing
systems. Failure to retain and attract necessary technical, managerial,
marketing, administrative, and customer service personnel would have a negative
effect on our operating results and stock price. Please see "Business--Our
Employees" and "Management" for more detailed information about our management
team.
OUR GRAND HOTEL GROUP IS SUBJECT TO CERTAIN LICENSING LAWS.
Our hotel business is subject to certain licensing laws in England and Wales
related to the selling of alcohol and operation of bars and cocktail lounges in
hotels, as well as various fire, health and safety regulations. A serious
violation could result in a significant fine or even the forced closing of one
or more of our hotels. Please see "Busines--Government Regulation of our
Business" for a more detailed discussion of certain laws that affect our
business.
OUR TRAVEL GROUP IS REQUIRED TO MAINTAIN RENEWABLE LICENSES WITH THE
UNITED KINGDOM CIVIL AVIATION AUTHORITY AND COMPLY WITH NUMEROUS UNITED
STATES CIVIL AVIATION AUTHORITY REGULATIONS.
Our travel services business, which makes or arranges advance bookings of
accomodation and airline seats for its customers, must be licensed by the CAA
and is subject to CAA regulations, including the requirement that it maintain an
indemnity bond securing payment for airline seats. The face amount of such bond
ranges from between 5% to 10% of the annual revenues of each of our three travel
businesses. In addition, the CAA licenses held by each of such companies are
subject to annual review and renewal and may be revoked, suspended or not
renewed by the CAA for violation of CAA regulations, including the requirement
that each licensed operator report significant increases in annual revenues so
that bonding requirements may be appropriately adjusted. Although none of the
businesses comprising our Travel Group has had its CAA license revoked,
suspended or not renewed, should any of these events occur, such business would
not be able to operate and our revenues and profits would be materially and
adversely affected. Please see "Business--Government Regulation of our Business"
for a more detailed discussion of certain laws that affect our business.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY EVOLVING GOVERNMENT
REGULATIONS, AND WE COULD BE SUBJECT TO FINES OR OTHER PENALTIES FOR
FAILURE TO COMPLY WITH SUCH REGULATIONS.
Our travel services business is subject to certain regulation by the
government of the United Kingdom, including the Package Travel, Package Holidays
and Package Tours Regulations 1992. In addition, many travel suppliers,
particularly airlines, are subject to extensive regulation by United States
federal, state and foreign governments. In addition, the travel industry is
subject to certain special taxes by United States and foreign governments,
including hotel bed taxes, car rental taxes, airline excise taxes and airport
taxes and fees. New or different regulatory schemes or changes in tax policy
could have an adverse impact on the travel industry in general and could have a
material adverse effect on our business, financial condition and results of
operations.
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Both the United States and the European Union have recently passed
legislation relating to the Internet. Because these laws are still being
implemented, we are not certain how our business will be impacted by them. We
may be indirectly affected by this new legislation to the extent it impacts our
clients and potential clients. In addition, U.S. and foreign governmental bodies
are considering, and may consider in the future, other legislative proposals
that would regulate the Internet. The adoption of any additional laws or
regulations may impose additional burdens on us or decrease the growth of the
Internet, which could, in turn, decrease the demand for our products and
services and increase our cost of doing business, or otherwise have a negative
effect on our business, operating results and financial condition. Please see
"Business--Government Regulation of our Business" for a more detailed discussion
of certain laws that affect our business.
WE MAY BE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS AND REGULATIONS THAT IMPOSE
CERTAIN REQUIREMENTS RELATING TO THE OWNERSHIP AND USE OF OUR RESORT HOTELS, AND
WE COULD BE SUBJECT TO FINES OR OTHER PENALTIES FOR FAILURE TO COMPLY WITH SUCH
REGULATIONS.
A variety of laws concerning the protection of the environment and health
and safety apply to the operations, properties and other assets we currently own
and may own in the future. These laws may originate at the European Union,
United Kingdom or local level. These environmental laws govern, among other
things, the discharge of substances into waterways and the quality of water
discharges of substances into sewers, waste and the contamination of land.
Liability can attach to a person who causes or knowingly permits the discharge
of substances to waterways or sewers without a permit authorizing such
discharges or beyond the scope of the applicable permit. The legal regime with
respect to contamination of land in the United Kingdom is expected to change in
April 2000. In general, liability and responsibility for contamination will
remain with the person responsible for the contamination, however, the new
regime formalizes this to be the person who "causes or knowingly permits"
contamination, and in the absence of such a person, the powner or occupier of
the site may be held responsible for remediation. In addition to civil claims,
criminal sanctions can be imposed for violations of environmental laws and any
persons violating these laws can be held responsible for the cost of remedying
the consequences of pollution, contamination or damage. In addition, certain
laws restrict the use of property and the construction of buildings and other
structures. Carrying out development without the appropriate consent or beyond
the scope of the consent can result in regulatory authorities taking action to
require the unauthorized use to cease or unauthorized building or structure to
be removed or modified. Criminal sanctions are available if the authority's
requirements are not satisfied. Any failure to comply with applicable
environmental laws or regulations could have a material adverse effect on our
business. Please see "Business--Environmental Matters" for a discussion of the
environmental laws and regulations that may be applicable to us.
OUR HOTEL RESORTS MAY BE SUBJECT TO NATURAL AND OTHER DISASTERS FOR WHICH WE MAY
NOT BE ADEQUATELY INSURED.
Our hotel resorts may be subject to natural and other disasters and may be
damaged as a result of such disasters. Although we have insurance customarily
carried for similar properties which we believe is adequate, there are certain
types of losses (such as losses arising from acts of war) that are not generally
insured because they are either uninsurable or not economically insurable and
for which we do not have insurance coverage. Should an uninsured loss or a loss
in excess of insured limits occur, we could lose our capital invested in a
resort, as well as the anticipated future revenues from such resort and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss could have a material adverse effect on
our business. Please see Insurance"- Insurance" for a discussion of our
insurance policies.
trrravel.com LIMITED WILL DEPEND ON INTERNALLY DEVELOPED TECHNOLOGY SYSTEMS AND
INTERNET CAPACITY TO HANDLE ALL TRAFFIC TO ITS WEB SITE, AND COULD BE SUBJECT TO
INTERNET CAPACITY CONSTRAINTS. IF ITS SYSTEMS FAIL OR DO NOT PERFORM OPTIMALLY,
ITS OPERATIONS AND REVENUE AND OUR INVESTMENT IN trrravel.com LIMITED MAY BE
NEGATIVELY AFFECTED.
The revenues which will be derived from the www.trrravel.com Web site
depends on the number of customers who use the Web site to book their travel
reservations. Accordingly, the satisfactory performance, reliability and
availability of the Web site, transaction-processing systems and network
infrastructure are critical to its operating results, as well as its ability to
attract and retain customers and maintain adequate customer service levels. Any
system interruptions that result in the loss of data, the unavailability of the
Web site or
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reduced performance of the reservation system would reduce the volume of
reservations and the attractiveness of its service offerings, which could have a
negative effect on the operating results of www.trrravel.com and adversely
impact our investment in such company.
The www.trrravel.com Web site may experience periodic system interruptions
and delays that continue to occur from time to time. Any substantial increase in
the volume of traffic on the Web site or the number of reservations made by
customers will require trrravel.com Limited to expand and upgrade its
technology, transaction-processing systems and network infrastructure.
trrravel.com Limited may experience temporary capacity constraints due to
sharply increased traffic during "fare wars" or other promotions. Capacity
constraints such as these may cause unanticipated system disruptions, slower
response times, degradation in levels of customer service, impaired quality and
speed of reservations and confirmations and delays in reporting accurate
financial information.
We cannot be sure that the transaction-processing systems and network
infrastructure of trrravel.com Limited will be able to accommodate the level of
Web site traffic that it experiences, or that it will, in general, be able to
accurately project the rate or timing of increases in such traffic or upgrade
its systems and infrastructure to accommodate future traffic levels on the Web
site. In addition, electronic commerce is characterized by rapid technological
change, changes in user and customer requirements and preferences and changes in
industry standards and practices. The existing technology and systems of
trrravel.com Limited could quickly become obsolete because of the rapidly
changing technologies of electronic commerce. There can be no assurance that
trrravel.com Limited we will be able to effectively upgrade and expand its
transaction-processing systems in a timely manner or to successfully integrate
any newly developed or purchased modules with our existing systems. Upgrading or
expanding such systems would likely be expensive and time-consuming.
The www.trrravel.com Web site is technically maintained in Yate Bristol,
England by Planet Edge Limited, a subsidiary of our affiliate ci4net.com, Inc.
The www.trrravel.com call center is located at a single facility in Haywards
Heath, England. These systems and operations are vulnerable to damage or
interruption from human error, fire, flood, power loss, telecommunications
failure, break-ins, sabotage, intentional acts of vandalism, natural disasters
and similar events. trrravel.com Limited currently does not have redundant
systems or a disaster recovery plan and does not carry sufficient business
interruption insurance to compensate it for losses that may occur. Despite
implementation of network security measures, their servers are vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of data or the inability to
accept and confirm customer reservations. Any adverse development in the
trrravel.com Limited technology could materially and adversely affect our 49%
ownership interest in trrravel.com Limited.
IF PROVIDERS OF THE THIRD-PARTY SYSTEMS ON WHICH trrravel.com LIMITED RELIES
DECIDE TO NO LONGER OFFER OR MAINTAIN SERVICES, WE COULD BE DIRECTLY AFFECTED
AND THE VALUE OF OUR INVESTMENT IN trrravel.com LIMITED MIGHT DECREASE.
trrravel.com Limited depends on third-party service providers for a
substantial portion of its communications, technology and operating
infrastructure. Any discontinuation of third-party provider services, or any
reduction in performance that requires it to replace these services, could be
disruptive to its business. These third-party providers may experience
interruptions or failures in their systems or services that could temporarily
prevent our customers from accessing or purchasing certain travel services
through the Web site. Any reduction in performance, disruption in Internet or
Web site access or discontinuation of services provided by these Internet
service providers could have a negative effect on our business, operating
results and financial condition.
THE OPERATIONS OF trrravel.com LIMITED AND CUSTOMER DATABASES ARE
SUSCEPTIBLE TO SECURITY RISKS, WHICH MIGHT ADVERSELY AFFECT OUR OPERATING
RESULTS.
A fundamental requirement for electronic commerce is the secure transmission
of confidential information over public networks. Security measures may not
prevent security breaches. If security measures adopted by trrravel.com Limited
were ever compromised, it could have a detrimental effect on its reputation,
operating results and the value of our investment in such company. trrravel.com
Limited will rely on encryption and authentication technology licensed from
third parties to ensure secure transmission of confidential information, such as
customer credit card numbers. In addition, it plans to maintain an extensive
confidential database of
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customer profiles and transaction information. Advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may result in a compromise or breach of the algorithms it intends
to use to protect customer transaction data and personal information contained
in its customer database. A person who circumvents these security measures could
steal or misuse proprietary information or cause interruptions in the operations
of trrravel.com Limited. Publicized security problems could increase concerns
over the security of online transactions and the privacy of users, which may
also inhibit the Web site's growth, especially as a means of conducting
commercial transactions. To the extent that trrravel.com Limited or its
third-party contractors' activities involve the storage and transmission of
proprietary information, such as credit card numbers or other personal
information, security breaches could expose us to a risk of loss or litigation
and possible liability. Failure to prevent security breaches will have a
negative, effect on our reputation, business and operating results.
trrravel.com LIMITED MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY,
INCLUDING ITS TRADEMARKS, WHICH COULD ADVERSELY AFFECT THE VALUE OF OUR
INVESTMENT.
We regard the trademark, domain names, service marks, trade dress, trade
secrets, copyrights and similar intellectual property as important to the
success of www.trrravel.com, and rely on foreign and domestic trademark and
copyright law, trade secret protection and confidentiality to protect our
proprietary rights. trrravel.com Limited is pursuing the registration of our key
trademarks in the United States and internationally. Effective trademark,
service mark, copyright and trade secret protection may not available in every
country in which our products and services are made available online. Failure to
effectively protect our intellectual property could adversely affect our
Internet business, result in erosion of the trrravel.com brand name and
adversely impact the value of our minority investment in trrravel.com Limited.
Currently, trrravel.com is the only trademark held by trrravel.com Limited.
As a result of our efforts to protect our rights in the "trrravel.com" brand, we
could become involved in litigation, which would likely be expensive and time
consuming, and could distract management from the operations of the business.
Furthermore, we cannot be sure we would prevail in any such litigation. If we
are unsuccessful in obtaining a trademark for trrravel.com, we would be required
to invest substantial additional amounts in advertising and brand development
with respect to a new trademark. These additional expenditures would adversely
affect our operating results. Please see "Risk Factors--If our strategy to
increase market awareness of our brand through extensive online advertising
fails, we may be unable to substantially grow our business" for a discussion of
the risks and uncertainties inherent in establishing brand recognition.
We cannot be sure that the steps we have taken to protect our proprietary
rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade dress and similar proprietary
rights. In the future, litigation may be necessary to enforce our intellectual
property and contractual rights, or determine the validity and scope of the
proprietary rights of others. Such litigation, regardless of the outcome, could
result in substantial costs and diversion of management and technical resources,
either of which could materially harm our business. In addition, other parties
might assert infringement claims against us. We may be subject to legal
proceedings and claims from time to time in the ordinary course of our business,
including claims that we or our licensees have infringed the trademarks and
other intellectual property rights of third parties. If we do not prevail, we
could be required to stop using our trademarks or domain names or to pay
damages. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
trrravel.com LIMITED MAY NOT ACQUIRE OR MAINTAIN OUR DOMAIN NAME IN ALL OF THE
COUNTRIES IN WHICH IT DOES BUSINESS, AND MAY BE REQUIRED TO EXPEND SIGNIFICANT
FUNDS TO PREVENT INFRINGEMENT OF ITS DOMAIN NAME, WHICH COULD INHIBIT OUR
ABILITY TO EXPAND OUR BUSINESS INTERNATIONALLY.
Affiliates of trrravel.com Limited currently hold the Internet domain names
www.trrrravel.com, www.trrravel.com and www.trravel.com. There is currently an
existing domain name www.travel.com owned by an unrelated third party, and other
third parties may acquire domain names that are similar to, infringe or
otherwise decrease the value of our domain names, trademarks and other
proprietary rights, which may hurt our business. trrravel.com Limited may be
required to expend significant funds in the legal defense of our domain names.
Domain names generally are regulated by Internet regulatory bodies. The
regulation of domain names is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. The relationship
between regulations
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governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. As a result, we may not acquire or maintain the
www.trrrravel.com, www.trrravel.com and www.trravel.com domain names in all of
the countries in which we intend to conduct business in the future.
WE COULD FACE LITIGATION BECAUSE OF OUR WEB PAGE CONTENT, WHICH MIGHT
REQUIRE CONSIDERABLE EFFORT AND EXPENSE TO DEFEND AND RESULT IN
SIGNIFICANT LIABILITY.
As a publisher and distributor of online content, trrravel.com Limited faces
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. Such claims have been brought, and sometimes
successfully pressed, against other online services. In addition, we do not and
cannot practically screen all of the content generated by other Web sites that
may be linked to our Web site, and we could be exposed to liability with respect
to such content. Although we carry general liability insurance, our insurance
may not cover claims of these types or may not be adequate to indemnify us for
all liability that may be imposed. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of insurance
coverage, could have a damaging effect on our reputation, operating results,
financial condition and stock price. Please see "Business--Our Products and
Services" for more detailed information concerning our Web page content.
THE CONVERSION TO THE EURO MAY ADVERSELY AFFECT OUR BUSINESS IN EUROPE.
Due to our operations in the United Kingdom, we may be exposed to certain
risks as a result of the conversion by certain European Union member states of
their respective currencies to the euro. The conversion process commenced on
January 1, 1999. The conversion rates between the member states' currencies and
the euro are fixed by the Council of the European Union. While the United
Kingdom is a member of the European Union, it is not participating in the euro
conversion; however, it may elect to convert to the euro at a later date.
Consequently, we are unsure as to whether the conversion to the euro will have
an adverse impact on our business, but potential risks include the costs of
modifying our software and information systems and changes in the conduct of
business and in the principal European markets for our products and services.
Please See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Effects of the Euro" for a more complete description of
the impact of the conversion to the euro on our financial condition.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THIS
OFFERING, AND MAY USE THESE PROCEEDS IN WAYS YOU MIGHT NOT BELIEVE ARE
DESIRABLE.
The net proceeds of this offering are estimated to be approximately $28.0
million (approximately $32.4 million if the underwriters' over-allotment option
is exercised in full) at an assumed initial public offering price of $11.00 per
share and after deducting the estimated underwriting discount and other
estimated offering expenses. We currently plan to use $25.4 million of such net
proceeds, coupled with an additional $6.4 million in bank borrowings, to retire
debt owed to The Rank Group plc (representing a portion of the purchase price of
the five Butlin's Provincial Hotels), to expand our travel business, and to
acquire additional holiday resort hotels in England and in other countries in
Europe. Accordingly, our management will retain broad discretion as to the
allocation of the remaining $2.6 million of the net proceeds of this offering,
which has been allocated for working capital and general corporate purposes. The
broad discretion we have in the use of proceeds of this offering involves risks
that we will not use such proceeds effectively or that we will use them in ways
with which you may not agree. In addition, the repayment of our indebtedness to
The Rank Group plc will terminate a bank letter of credit collateralized by the
personal guaranty of and marketable securities owned by our Chairman of the
Board, Kevin R. Leech. Please see "Use of Proceeds," for a more detailed
discussion of how we will allocate proceeds, and "Certain Transactions" for a
discussion of certain direct personal benefits to Kevin R. Leech from this
offering.
BECAUSE OUR DIRECTORS AND OFFICERS WILL OWN A MAJORITY OF OUR OUTSTANDING
COMMON STOCK AFTER THIS OFFERING, YOU AND OTHER INVESTORS WILL HAVE
MINIMAL INFLUENCE ON STOCKHOLDER DECISIONS.
Upon consummation of this offering, our executive officers and directors,
together with their respective affiliates, will beneficially own approximately
59% (approximately 56% if the underwriters, over-allotment option is exercised
in full), of our outstanding common stock. As a result, if they act together,
they will have the ability to control the outcome on all matters requiring
stockholder approval, including the election and removal
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of directors and any merger, consolidation or sale of all or substantially all
of our assets, and to control our management and affairs. Such control could
discourage others from initiating potential merger, takeover or other change of
control transactions. As a result, the market price of our common stock could be
adversely affected. Please see "Principal Stockholders" for a more detailed
presentation of the influence our principal stockholders have over us.
OUR BUSINESS COULD STILL BE DISRUPTED BY RESIDUAL CONSEQUENCES OF THE YEAR
2000 PROBLEM.
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished during the years leading up to
2000 was effective to prevent any problems. We have not experienced any such
computer difficulty; however, computer experts have warned that there may still
be residual consequences of the change in centuries and any such difficulties
may, depending upon their pervasiveness and severity, have a material adverse
effect on our business, financial condition and results of operations. Please
see "Management's Discussion and Analysis of Financial Condition and Results of
operations--Year 2000 Disclosure" for a more detailed discussion of year 2000
issues.
THERE IS NOT CURRENTLY A PUBLIC MARKET FOR OUR COMMON STOCK, THE OFFERING PRICE
OF OUR COMMON STOCK IS ARBITRARY, AND WE MUST SATISFY THE APPLICABLE
REQUIREMENTS FOR OUR COMMON STOCK TO TRADE ON THE NASDAQ NATIONAL MARKET.
There is not currently a public market for our common stock, and an active
trading market may not develop or be sustained. Unless and until a public market
develops, purchasers of our common stock may have difficulty selling their
shares of common stock.
The initial public offering price of the shares was arbitrarily determined
by negotiations between the underwriter and us, and does not necessarily bear
any relationship to our assets, book value, results of operations, or any other
generally accepted indicia of value. See "Underwriting". From time to time after
this offering, the market price of our common stock may experience significant
volatility. Our quarterly results, announcements by us or our competitors
regarding acquisitions or dispositions, new procedures or technology, changes in
general conditions in the economy, and general market conditions could cause the
market price of the common stock to fluctuate substantially. The equity markets
have, on occasion, experienced significant price and volume fluctuations that
have affected the market prices for many companies' common stock and have often
been unrelated to the operating performance of these companies.
THE MARKET FOR OUR COMMON STOCK MAY SUFFER IN THE EVENT OF DELISTING FROM
THE NASDAQ NATIONAL MARKET AND IF OUR COMMON STOCK IS CONSIDERED TO BE
"PENNY STOCK."
Under the currently effective criteria for the maintenance of our listing of
securities on the Nasdaq National Market, a company must have at least $75
million in market capitalization, a minimum bid price of $5.00 per share, and
securities in the hands of the public with a market value of at least $20
million. For continued listing, a company must maintain $50 million in market
value, a minimum bid price of $5.00, and securities in the hands of the public
with a market value of at least $15 million If we cannot maintain the standards
for continued listing, our common stock could be subject to delisting from the
Nasdaq National Market. Trading, if any, in our common stock would then be
conducted in the over-the-counter market on the OTC Bulletin Board established
for securities that do not meet the Nasdaq National Market listing requirements
or in what are commonly referred to as the "pink sheets." As a result, an
investor may find it more difficult to dispose of, or to obtain accurate
quotations as to the price of, our shares.
If our common stock was delisted from the Nasdaq National Market, and no
other exclusion from the definition of a "penny stock" under the Securities
Exchange Act of 1934, as amended, were available, our common stock would be
subject to the penny stock rules that impose additional sales practice
requirements on broker-dealers who sell these securities to persons other than
established customers and accredited investors. Accredited investors are
generally those investors with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 together with a spouse. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase, and must have received the purchaser's written
consent to the transaction prior to sale. As a result, delisting, if it were to
occur, could materially adversely affect the ability of broker-dealers to sell
our common stock and the ability of purchasers in this offering to sell their
shares in the secondary market.
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INVESTORS MAY HAVE DIFFICULTY SELLING THEIR SHARES OF COMMON STOCK AND THE
MARKET PRICE OF THE COMMON STOCK MAY DECLINE IF THE REPRESENTATIVE OF THE
UNDERWRITERS DISCONTINUES MAKING A MARKET FOR ANY REASON.
A significant number of shares sold in this offering may be sold to
customers of the underwriters. These customers may engage in transactions for
the sale or purchase of the shares through or with the underwriters. Although it
has no obligation to do so, Roth Capital Partners Incorporated, the
representative of the underwriters, intends to make a market in the shares and
may otherwise effect transactions in the common stock. If it participates in the
market, it may influence the market, if one develops, for the common stock. It
may discontinue making a market in the common stock at any time. Moreover, if
Roth Capital Partners sells the shares of common stock issuable upon exercise of
the representative's warrants, it may be required under the Securities Exchange
Act of 1934, as amended, to temporarily suspend its market-making activities.
The price and liquidity of the common stock may be significantly affected by the
degree, if any, of its direct or indirect participation in the market.
INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price per share exceeds the net tangible book
value per share. Accordingly, investors purchasing shares in this offering will
(1) pay a price per share which substantially exceeds the value of our assets
after subtracting our intangible assets and liabilities and (2) contribute 95.2%
of the total amount invested to date to fund us, but will only own 37.2% of the
shares of common stock outstanding. Please see "Dilution" for a discussion of
the dilution that investors in this offering will experience.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY
AFFECT OUR STOCK PRICE.
The market price of our common stock would decline as a result of sales of a
large number of shares of our stock in the market after this offering, or the
perception that these sales could occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. After this offering, we will have outstanding
8,060,000 shares of common stock. Of these shares, the 3,000,000 shares being
offered in this offering will be freely tradable immediately following this
offering. Our directors and officers and a number of our stockholders who
beneficially hold 5,060,000 shares in the aggregate have entered into lock-up
agreements by which they have agreed that they will not sell, directly or
indirectly, any shares of common stock without the prior written consent of Roth
Capital Partners Incorporated, as representative of the underwriters for a
period of between six and 12 months from the date of this prospectus. The number
of shares of common stock and the dates when these shares will become freely
tradable in the market, subject to the lock-up agreements, is as follows:
NUMBER OF SHARES DATE
---------------- ----
3,000,000 On the date of this prospectus
0 Within six months of the date of this prospectus
5,060,000 Between six and 12 months from the date of this
prospectus
Following this offering, we intend to file a registration statement to
register for issuance and resale the 1,000,000 shares of common stock reserved
for issuance under our existing stock option plan described in
"Management--Executive Compensation" and "--2000 Stock Option Plan." We expect
that registration statement to become effective immediately upon filing. Shares
issued upon the exercise of stock options granted under the 2000 Stock Option
Plan will be eligible for resale in the public market from time to time subject
to vesting and, in the case of some options, the expiration of the lock-up
agreements referred to in the preceding paragraph.
Upon the closing of this offering, we intend to grant non-qualified stock
options to purchase approximately ________ shares of common stock to a number of
our officers and employees. The exercise price per share of these options is
expected to be the initial public offering price of the common stock. These
option grants are expected to vest in the following manner: ____% per year for
______ years commencing on the one year anniversary of the grant of the option.
None of the shares issuable upon the exercise of these options will be subject
to a lock-up agreement with the underwriters as described below.
OUR CHARTER AND BYLAW PROVISIONS LIMIT THE LIABILITY OF OUR OFFICERS AND
DIRECTORS.
Our charter includes provisions to eliminate, to the full extent permitted
by the Delaware General Corporation Law as in effect from time to time, the
personal liability of our directors for monetary damages
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arising from a breach of their fiduciary duties as directors. Our charter also
provides that we will indemnify any director or officer to the extent that such
indemnification is permitted under Delaware law. In addition, our bylaws require
us to indemnify, to the full extent permitted by law, any of our directors,
officers, employees or agents for acts which such person reasonably believes are
not in violation of our corporate purposes as set forth in our charter. As a
result of such provisions, stockholders may be unable to recover damages against
our directors and officers for actions taken by them which constitute
negligence, gross negligence or a violation of their fiduciary duties, which may
discourage or deter stockholders from suing our directors, officers, employees
and agents for breaches of their duty of care, even though such action, if
successful, might otherwise benefit us and our stockholders.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, beliefs and
assumptions. Words such as "may," "could," "would," "anticipates," "expects,"
"intends," "plans," "projects," "believes," "seeks," "estimates" and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus.
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $28.0 million
from our sale of the 3,000,000 shares of common stock offered by us under this
prospectus at an assumed initial public offering price of $11.00 per share,
after deducting the underwriting discount and commissions and other estimated
fees and expenses payable by us (approximately $32.4 million if the
over-allotment option is exercised in full). We expect to use the net proceeds
approximately as follows:
o $10.4 million (37.2% of total net proceeds), together with $6.4 million of
net proceeds from a mortgage refinancing, will be used to retire $16.8
million of indebtedness owed to Butlin's Limited, a subsidiary of The Rank
Group plc, in connection with the June 1999 acquisition by GHG of the
Butlin's Provincial Hotels from another subsidiary of The Rank Group plc;
o $9.0 million (32.1% of the total net proceeds) to acquire additional
holiday resort hotels located in seaside resort areas in England, Spain
and other locations deemed attractive by our management; and
o $6.0 million (21.4% of total net proceeds) for expansion of our
travel-related services businesses, including advertising and the
acquisition of other tour operators and travel agencies in England and
Europe; and
o $2.6 million (9.3% of the total net proceeds) for working capital and
general corporate purposes.
Simultaneous with the completion of this offering, we are refinancing our
outstanding mortgage indebtedness of (pound)10.0 million (approximately $16.2
million) on our hotels with the banks which had provided original acquisition
debt financing in June 1999. In connection with such refinancing, we anticipate
that we will increase our secured borrowings to a total of (pound)14.0 million
(approximately $22.6 million) and will utilize the increased proceeds, together
with $10.4 million of the net proceeds of this offering, to retire our
indebtedness to The Rank Group plc. The repayment of our indebtedness to The
Rank Group plc will terminate a bank letter of credit collateralized by the
personal guaranty of and marketable securities owned by our Chairman of the
Board, Kevin R. Leech. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Certain Transactions."
Other than as set forth in this prospectus, we currently have no commitments
or agreements and are not involved in any negotiations with respect to any
acquisitions or investments. The allocation of the net proceeds of the offering
discussed above represents management's current estimates only. Management's
plans for the
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proceeds are subject to change due to unforeseen opportunities and, as such,
actual allocation of the net proceeds may differ substantially from these
estimates. We cannot specify with certainty the particular uses for the net
proceeds to be received upon completion of this offering. Accordingly, our
management team will have broad discretion in using the net proceeds of this
offering. Pending such uses, we intend to invest the net proceeds of the initial
public offering in investment grade interest-bearing securities. Please see
"Risk Factors--Management will have Broad Discretion over the Use of the
Proceeds of this Offering, and May Use These Proceeds in Ways You Might Not
Believe are Desirable" for a discussion of uncertainties regarding our use of
proceeds.
We currently anticipate that the net proceeds of this offering, together
with our existing funds and ability to borrow, will be sufficient to meet our
capital requirements for at least the next 12 months. However, we may need to
raise additional funds in order to support more rapid expansion, develop new or
enhanced services, respond to competitive pressures, acquire complementary
business or technologies or take advantage of unanticipated opportunities. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced, our stockholders may
experience additional dilution in net book value per share or such securities
may have rights, preferences or privileges senior to those of the holders of our
common stock. There can be no assurance that additional financing will be
available when needed on terms favorable to us or at all. If adequate funds are
not available on acceptable terms, we may be unable to develop or enhance our
services and products, take advantage of future opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, financial condition and operating results. Please see "Risk
Factors--We May Need More Money, Which May Not Be Available to us on Favorable
Terms or at All" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for more
detailed information regarding our possible future capital requirements.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain future earnings, if any, to finance the growth and
development of our business and do not anticipate paying any cash dividends in
the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization:
o on an actual basis as of January 31, 2000;
o on a pro forma basis assuming our acquisition of all of the outstanding
share capital of LTGL, and LTGL's acquisition of all of the outstanding
share capital of Ilios Travel Limited and GHG and 49% of the
outstanding share capital of trrravel.com Limited had been completed on
January 31, 2000; and
o pro forma as adjusted to give effect to:
-- the sale of 3,000,000 shares of common stock offered by us
pursuant to this prospectus, after deduction of estimated
offering expenses and underwriting discounts, assuming an
offering price of $11.00;
-- the addition of $6.4 million of a mortgage financing
-- the repayment of $16.8 million outstanding under the note to a
subsidiary of The Rank Group plc; and
-- the capitalization of $1,667,000 of loans made to LTGL by a
corporate affiliate of Kevin R. Leech.
This table should be read in conjunction with "Unaudited Condensed Pro
Forma Consolidated Financial Information," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
LTG LEISURE TRAVEL GROUP
------ -----------------------
JANUARY 31, 2000
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(US DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Capital lease obligation--current portion .............................................. $ 230 $ 236 $ 236
------- ------- -------
Total short-term debt .................................................................. $ 230 $ 236 $ 236
======= ======= =======
Short-term debt to be capitalized:
Short-term borrowings .................................................................. $ 1,667 $ 1,667 $ --
------- ------- -------
Long-term debt:
Notes payable .......................................................................... $33,192 $33,718 $23,279
Capital lease obligation--noncurrent portion ........................................... 377 382 382
------- ------- -------
Total long-term debt ................................................................... 33,569 34,100 23,661
------- ------- -------
Stockholders' equity:
Preferred stock, par value $0.001:
no shares authorized, issued and outstanding, actual;
5,000,000 shares authorized, no shares issued and
outstanding, pro forma and pro forma as adjusted ..................................... -- -- --
Common stock, par value $0.001:
no shares authorized, issued and outstanding, actual; 25,000,000 shares
authorized, actual, pro forma and pro forma as adjusted, 5,060,000 shares
issued and outstanding, pro forma, and 8,060,000 shares issued and
outstanding pro forma as adjusted (1) ................................................ -- 5 8
Additional paid-in capital ............................................................. -- 2,415 32,119
Accumulated other comprehensive income ................................................. -- 4 4
Accumulated retained earnings .......................................................... -- 1,343 1,343
Invested capital ....................................................................... 1,347 -- --
-------
Total stockholders' equity ............................................................. 1,347 3,767 33,474
------- ------- -------
Total capitalization ................................................................. $36,583 $39,534 $57,135
======= ======= =======
</TABLE>
- ----------------------
(1) Does not include exercise of the underwriters' over-allotment option or the
issuance of up to 1,000,000 additional shares of common stock upon exercise
of options under the 2000 Plan, of which options to purchase shares have
been granted as at the date of this prospectus.
23
<PAGE>
DILUTION
Our company was formed in February 2000 and has had no commercial
operations to date. LTGL was formed in May 1999, but effectively did not begin
commercial operations until July 1, 1999 when LTGL acquired Miss Ellie's World
Travel Limited. GHG was formed in October 1998 but did not commence commercial
operations until its acquisition of the Butlin's Provincial Hotels from Rank
Holidays Division Limited, a subsidiary of The Rank Group plc on June 30, 1999.
Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock for
this offering. Pro forma net tangible book value per share represents the amount
of our total tangible assets less our total liabilities, divided by the number
of shares of our common stock outstanding. At January 31, 2000, we had a pro
forma net tangible book value of $5.3 million, or approximately $1.05 per share
of our outstanding common stock. After giving effect to:
o our receipt of the estimated net proceeds from our sale of the
3,000,000 shares of our common stock offered hereby at an assumed
initial public offering price of $11.00 per share;
o the addition of $6.4 million of mortgage financing;
o the capitalization of $1,667,000 of loans made to LTGL by a corporate
affiliate of Kevin R. Leech; and
o the repayment of $16.8 million outstanding under the note owed a
subsidiary of The Rank Group plc.
Our pro forma net tangible book value at January 31, 2000 would have been
approximately $35.0 million or $4.34 per share of our common stock. This
represents an immediate increase in net tangible book value of $3.29 per share
to existing stockholders and an immediate dilution of $6.66 per share to
investors in this offering. "Dilution" is determined by subtracting net tangible
book value per share after the offering from the offering price to investors.
<TABLE>
<CAPTION>
The following table illustrates this per share dilution:
<S> <C> <C>
Initial public offering price per share ............................ $11.00
Pro forma net tangible book value per share at January 31, 2000 .... $ 1.05
Increase attributable to new investors ............................. 3.29
------
Pro forma net tangible book value after the offering .............. 4.34
------
Dilution to new investors .......................................... $ 6.66
======
</TABLE>
The following table summarizes the number of shares of our common stock
purchased from us, the total consideration paid and the average price per share
paid by (i) our existing stockholders on the date of this prospectus and (ii)
new investors purchasing shares of our common stock in this offering, before
deducting the underwriting discounts and commissions and our estimated offering
expenses payable by us.
TOTAL
SHARES PURCHASED CONSIDERATION PAID AVERAGE
---------------- ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
Existing Stockholders ... 5,060,000 62.8% $ 1,667,000 4.8% $0.33
New Investors ........... 3,000,000 37.2% 33,000,000 95.2% $11.00
--------- ----- ---------- ----
Total ................. 8,060,000 100.0% 34,667,000 100%
========= ===== ========== ====
24
<PAGE>
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The following information, which is unaudited, gives pro forma effect as
described below to:
o our acquisition of all of the outstanding share capital of LTGL;
o LTGL's acquisition of all of the outstanding share capital of Miss
Ellie's World Travel Limited, Ilios Travel Limited and GHG; and
o LTGL's acquisition of 49% of the outstanding share capital of
trrravel.com Limited.
We have provided the unaudited pro forma consolidated financial data for
information purposes only. They are not necessarily indicative of future results
or of what our operating results would have been had we actually consummated the
acquisition of all of the outstanding share capital of LTGL, and had LTGL
actually consummated the acquisition of all of the outstanding share capital of
Miss Ellie's World Travel Limited, Ilios Travel Limited and GHG and 49% of the
outstanding share capital of trrravel.com Limited on the date assumed.
Effective June 30, 1999, GHG purchased from Rank Holidays Division Limited,
a subsidiary of The Rank Group plc, substantially all of the operating assets
relating to five hotels formerly known as the Butlin's Provincial Hotels,
including the physical properties, equipment, concessions, inventory, cash
reserves, customer lists, records and goodwill, which we refer to as GHG
(Predecessor). GHG is a private limited company organized under the laws of
England and Wales and is 85% owned by Cygnet Ventures Limited, a Guernsey
corporation controlled by Kevin R. Leech, our Chairman of the Board and
principal stockholder, and 15% owned by certain other members of our management
team. In consideration for these assets, GHG paid a subsidiary of The Rank Group
plc $30.7 million, of which $13.9 million was paid in cash and the balance of
$16.8 million was paid by GHG's issuance of a non-interest bearing promissory
note due 2002. The GHG note was secured by an irrevocable letter of credit
issued by Citibank, N.A. in favor of Butlin's Limited, a subsidiary of The Rank
Group plc. The issue of the letter of credit was obtained through the personal
guaranty of Mr. Leech. GHG financed its cash payment of the purchase price
through loans obtained from Arab Bank plc and Irish Nationwide Building Society
secured by charges granted by GHG, including mortgages on the purchased hotels.
In July 1999, LTGL acquired all of the issued and outstanding share capital
of Miss Ellie's World Travel Limited, a private limited company organized under
the laws of England and Wales. In exchange for this share capital, LTGL paid an
aggregate of $1,667,000 to the former stockholders of Miss Ellie's World Travel
Limited. LTGL funded the acquisition through a loan from Red Kite Ventures
Limited, an investment company beneficially owned by Red Kite Trust, the
beneficiary of which are members of the family of Kevin R. Leech.
In February 2000, LTGL also acquired all of the issued and outstanding
share capital of Ilios Travel Limited, a private limited company organized under
the laws of England and Wales. In exchange for this share capital, LTGL paid an
aggregate of $526,000 to the former stockholders of Ilios Travel Limited. As a
result of this acquisition, LTGL expanded its travel-related services and
increased its market position and cross-selling opportunities in other
destinations throughout Europe. LTGL also funded this acquisition through a loan
from Red Kite Ventures Limited.
The acquisitions of the Butlin's Provincial Hotels, Miss Ellie's World
Travel Limited and Ilios Travel Limited have been accounted for as purchase
transactions. The allocation of the purchase price for each acquisition has not
been finally determined and, accordingly, the pro forma adjustments reflected
below may be adjusted when additional information is obtained during the
one-year period subsequent to the date of the acquisition. However, any
reallocation of the purchase price based on final valuations of the assets and
liabilities acquired should not differ significantly from the original estimates
and should not have a material impact on the condensed pro forma consolidated
financial information.
In March 2000, the stockholders of GHG agreed to transfer 100% of the
outstanding share capital of GHG to LTGL in exchange for the issuance of an
aggregate of 94,468 ordinary shares of LTGL, and the stockholders of LTGL,
including the holders of the additional 94,468 ordinary shares of LTGL, agreed
to transfer to us 100% of the outstanding share capital of LTGL in exchange for
the issuance of an aggregate of 4,640,000 shares of our common stock. The
acquisition of GHG by LTGL and our acquisition of LTGL will be accounted for as
25
<PAGE>
combinations of companies under common control in a manner similar to a pooling
of interests. Our acquisition of LTGL will be effected by means of a share
exchange whereby each share of LTGL's ordinary stock will be converted into
approximately 39 of our common shares. In addition, Technology Finance Limited,
a corporation 50%-owned by Kevin R. Leech, has agreed to transfer to us its
entire 49% equity interest in the outstanding share capital of trrravel.com
Limited in exchange for the issuance of an aggregate of 220,000 shares of our
common stock. All of these transfers are conditioned upon, among other things:
o the completion of this offering and application of a portion of the
net proceeds (together with additional mortgage financing) to retire
all $16.8 million of indebtedness of GHG owed to The Rank Group plc or
its subsidiaries; and
o the capitalization of $1,667,000 of loans made to LTGL by a corporate
affiliate of Kevin R. Leech.
26
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT JANUARY 31, 2000
(US DOLLARS IN THOUSANDS)
The following unaudited condensed pro forma consolidated balance sheet at
January 31, 2000 gives pro forma effect to our acquisition of all of the
outstanding share capital of LTGL, and LTGL's acquisition of all of the
outstanding share capital of GHG and Ilios Travel Limited and 49% of the
outstanding share capital of trrravel.com Limited, after giving effect to the
adjustments described in the note to the unaudited condensed pro forma
consolidated financial information, as if they had occurred on January 31, 2000.
The historical financial information for Leisure Travel Group is based on our
unaudited condensed balance sheet at January 31, 2000. The historical financial
information for LTG is based on its unaudited condensed combined balance sheet
at January 31, 2000, which represents a combination of the condensed combined
balance sheets of LTGL and GHG, as entities under common control, at January 31,
2000. The historical financial information for Ilios Travel Limited is based on
its unaudited condensed balance sheet at January 31, 2000. Accordingly, the pro
forma consolidated balance sheet reflects the net assets of LTGL, GHG and Ilios
Travel Limited and the 49% equity investment in trrravel.com Limited at January
31, 2000.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------ -----------------------------
LEISURE
LEISURE ILIOS TRAVEL
TRAVEL TRAVEL ADJUSTMENTS GROUP
GROUP LTG LIMITED (NOTE 1) CONSOLIDATED
---- -------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ -- $ 2,139 $244 $ 2,383
Accounts receivable -- 971 -- 971
Holidays paid in advance -- 981 -- 981
Receivable from related parties -- 1,821 -- 1,821
Inventories -- 554 -- 554
Prepaid expenses and other current assets -- 933 58 991
---- ------- ---- ------- -------
Total current assets -- 7,399 302 7,701
Equipment and fixtures, net -- 33,922 40 33,962
Goodwill and other intangibles, net -- 1,046 -- $ 483 (a) 1,529
Equity investment -- -- -- 2,420 (b) 2,420
Debt issuance costs -- 397 -- 397
---- ------- ---- ------- -------
Total assets $ -- $42,764 $ 342 $ 2,903 $46,009
==== ======= ==== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ -- $ 1,667 $-- $ 1,667
Accounts payable -- 578 66 644
Accrued liabilities -- 750 19 769
Guest deposits -- 2,754 203 2,957
Income taxes and social security payable -- 1,786 -- 1,786
Deferred income tax -- 83 -- 83
Capital lease obligations--current portion -- 230 6 236
---- ------- ---- ------- -------
Total current liabilities -- 7,848 294 8,142
Long-term debt -- 33,192 -- $ 526 (c) 33,718
Capital lease obligations--noncurrent portion -- 377 5 382
STOCKHOLDERS' EQUITY
Common stock -- -- -- 5 (d) 5
Additional paid-in capital -- -- -- 2,415 (e) 2,415
Accumulated other comprehensive income -- -- -- 4 (f) 4
Retained earnings -- -- -- 1,343 (g) 1,343
Invested capital -- 1,347 -- (1,347)(h) --
Ilios stockholders' equity -- -- 43 (43)(i) --
---- ------- ---- ------- -------
Total stockholders' equity -- 1,347 43 2,377 3,767
---- ------- ---- ------- -------
Total liabilities and stockholders' equity $ -- $42,764 $342 $ 2,903 $46,009
==== ======= ==== ======= =======
</TABLE>
27
<PAGE>
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED OCTOBER 31, 1999
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited condensed pro forma consolidated statement of
operations for the twelve month period ended October 31, 1999 gives pro forma
effect to our acquisition of all of the outstanding share capital of LTGL, and
LTGL's acquisition of Miss Ellie's World Travel Limited and GHG, collectively
referred to in the table below as LTG, and Ilios Travel Limited and 49% of the
outstanding share capital of trrravel.com Limited, after giving effect to the
adjustments described in the note to the unaudited condensed pro forma
consolidated financial information, as if these transactions had occurred on
November 1, 1998. The historical financial information for Leisure Travel Group,
Inc. is based on our audited financial statements for the twelve months ended
October 31, 1999. The historical financial information for LTG is based on its
audited combined statement of operations for the period ended October 31, 1999
which represents a combination of the combined statements of operations of LTGL
and GHG, which are entities under common control. Accordingly, the pro forma
consolidated statement of operations includes the results of LTGL, GHG, Miss
Ellie's World Travel Limited and Ilios Travel Limited for the twelve months
ended October 31, 1999, all of which are not included in our historical results
for the twelve months ended October 31, 1999.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------------------------------- --------------------------
MISS ELLIE'S
WORLD
TRAVEL
GHG (PREDECESSOR) LIMITED LEISURE
LEISURE (PERIOD FROM (PERIOD FROM ILIOS TRAVEL
TRAVEL NOVEMBER 1, 1998 NOVEMBER 1. 1998 TRAVEL ADJUSTMENTS GROUP
GROUP LTG TO JUNE 30, 1999) TO JULY 4, 1999) LIMITED (NOTE 1) CONSOLIDATED
---- ------- ---------------- ---------------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues .................... $ -- $17,261 $17,834 $10,446 $1,846 $47,387
Operating costs and expenses ...... -- 15,095 17,022 9,919 1,838 $ 122 (a) 43,996
---- ------- ------- ------- ------ ------ -------
Operating profit ................ -- 2,166 812 527 8 (122) 3,391
Other income (expenses) .......... -- (433) -- (682) 15 (26)(b) (1,126)
---- ------- ------- ------- ------ ------ -------
Income before income taxes ...... -- 1,733 812 (155) 23 (148) 2,265
Income taxes ...................... -- 520 361 -- 7 888
---- ------- ------- ------- ------ ------ -------
Net income ...................... $ -- $ 1,213 $ 451 $ (155) $ 16 $ (148) $ 1,377
==== ======= ======= ======= ====== ====== =======
Basic and diluted net income
per share: ...................... $ 0.27
=======
Shares used in computing
basic and diluted net income
per share: ...................... 5,060
=======
</TABLE>
28
<PAGE>
UNAUDITED CONDENSED PRO FORM CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2000
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited condensed pro forma consolidated statement of
operations for the three months ended January 31, 2000 gives pro forma effect to
our acquisition of all of the outstanding share capital of LTGL, and LTGL's
acquisition of all of the outstanding share capital of GHG, referred to in the
table below as LTG, and Ilios Travel Limited and 49% of the outstanding share
capital of trrravel.com Limited, after giving effect to the adjustments
described in the note to the unaudited condensed pro forma consolidated
financial information, as if these transactions had occurred on November 1,
1998. The historical financial information for Leisure Travel Group is based on
our unaudited financial statements for the three months ended January 31, 2000.
The historical financial information for LTG is based on its audited combined
statement of operations for the period ended October 31, 1999 which represents a
combination of the combined statements of operations of LTGL and GHG which are
entities under common control. Accordingly, the pro forma consolidated statement
of operations includes the results of LTGL, GHG and Ilios Travel Limited for the
three months ended January 31, 2000 all of which are not included in our
historical results for the three months ended January 31, 2000.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------ -------------------------
LEISURE
LEISURE ILIOS TRAVEL
TRAVEL TRAVEL ADJUSTMENTS GROUP
GROUP LTG LIMITED (NOTE 1) CONSOLIDATED
------- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Total Revenues ................................................ $ -- $11,177 $ -- $11,177
Operating costs and expenses .................................. -- 10,712 94 $ 12 (a) 10,818
---- ------- ------ ----- -------
Operating profit ............................................ -- 465 (94) (12) 359
Other income (expenses) ....................................... -- (264) 6 (7)(b) (265)
---- ------- ------ ----- -------
Income before income taxes .................................. -- 201 (88) (19) 94
Income taxes .................................................. -- 71 -- 71
---- ------- ------ ----- -------
Net income .................................................. $ -- $ 130 $ (88) $ (19) $ 23
==== ======= ====== ===== =======
Basic and diluted net income per share: ....................... $ 0.00
=======
Shares used in computing basic and diluted net
income per share: ........................................... 5,060
=======
</TABLE>
29
<PAGE>
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(US DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
NOTE 1 - PRO FORMA ADJUSTMENTS
Balance Sheet
The unaudited condensed pro forma consolidated balance sheet gives effect
to the acquisition of LTG by Leisure Travel Group, and the acquisitions of Ilios
Travel Limited and 49% of the outstanding share capital of trrravel.com Limited
by LTG as follows:
<TABLE>
<CAPTION>
JANUARY 31, 2000
----------------
<S> <C>
LTG
Invested capital at January 31, 2000 ................................... $ 1,347
Purchase consideration -- 4,640,000 shares of Leisure Travel
Group common stock of $0.001 par value at an
estimated offering price of $11.00 per share ......................... 51,040
--------
$ 49,693
========
Ilios Travel Limited
Net assets of Ilios Travel Limited at January 31, 2000 ................. $ 43
Purchase consideration -- cash ......................................... 526
--------
Goodwill arising ....................................................... $ 483
========
trrravel.com Limited
Purchase consideration -- 220,000 shares of Leisure Travel
Group common stock of $0.001 par value at an estimated
offering price of $11.00 per share ................................... $ 2,420
========
Leisure Travel Group
Common stock ........................................................... $ 5
Additional paid in capital ............................................. (51,045)
Accumulated other comprehensive income ................................. 4
Retained earnings ...................................................... 1,343
--------
$(49,693)
========
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
The pro forma balance sheet adjustments are summarized as follows:
a. Goodwill arising on the acquisitions of Ilios Travel Limited ........... $ 483
========
b. Investment in 49% of outstanding share capital of trrravel.com
Limited .............................................................. $ 2,420
========
c. Incurrence of long-term debt upon acquisition of Ilios Travel Limited .. $ 526
========
d. Common stock of $0.001 par value
Issuance of 4,640,000 shares for the acquisition of LTG .............. $ 5
Issuance of 220,000 shares for the acquisition of 49% of the
outstanding share capital of trrravel.com Limited .................. --
--------
$ 5
========
e. Additional paid in capital
Issuance of 4,640,000 shares for the acquisition of LTG .............. $ 51,035
Difference arising on acquisition of LTG ............................. (51,040)
Issuance of 220,000 shares for the acquisition of 49% of the
outstanding share capital of trrravel.com Limited .................. 2,420
--------
$ 2,415
========
f. Accumulated other comprehensive income
Accumulated other comprehensive income of LTG ........................ $ 4
========
g. Retained earnings
Retained earnings of LTG ............................................. $ 1,343
========
h. Invested capital
Elimination of LTG invested capital .................................. $ (1,347)
========
i. Elimination of Ilios Travel Limited stockholders' equity ............... $ (43)
========
</TABLE>
Statement of Operations
The unaudited condensed pro forma consolidated statements of operations
give effect to the following pro forma adjustments:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 1999 JANUARY 31, 2000
------------------- ------------------
<S> <C> <C>
a. Amortization of goodwill arising from acquisition of Miss
Ellie's World Travel Limited of $1,109 over 10 years $111 $28
Less: amortization expense included in historical combined
statement of operations of LTG 37 28
---- ---
74 --
Amortization of goodwill arising on the acquisition of
Ilios Travel Limited of $483 over 10 years 48 12
---- ---
Total amortization $122 $12
==== ===
b. Increase in interest expense for $526 of borrowings in
connection with the acquisition of Ilios Travel Limited
at 5% per annum $ 26 $ 7
==== ===
</TABLE>
31
<PAGE>
SELECTED FINANCIAL DATA
(US DOLLARS IN THOUSANDS)
The following tables set forth:
o Selected historical combined financial data for GHG (Predecessor) for
the years ended December 31, 1995, 1996, 1997 and 1998, the three
months ended January 31, 1999 and the six months ended June 30, 1999,
and as of December 31, 1995, 1996, 1997 and 1998;
o Selected historical financial data for LTG for the period ended October
31, 1999 and the three months ended January 31, 2000 and as of October
31, 1999 and January 31, 2000;
We derived the selected historical financial data as of December 31, 1995,
1996 and 1997, and for the years ended December 31, 1995 and 1996 of GHG
(Predecessor) from its unaudited combined financial statements, which are not
included in this prospectus. These unaudited financial statements include, in
our opinion, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data.
We derived the selected historical financial data as of December 31, 1998,
and for the years ended December 31, 1997 and 1998 and the six months ended June
30, 1999 from the audited combined financial statements of GHG (Predecessor),
and the selected historical financial data as of October 31, 1999 and for the
period ended October 31, 1999 from the audited financial statements of LTG,
which are included elsewhere in this prospectus. These financial statements have
been audited by Ernst & Young, our independent auditors.
We derived the selected historical financial data for the three months
ended January 31, 1999 from the unaudited combined condensed financial data of
GHG (Predecessor) and the selected historical financial data as of January 31,
2000 and for the three month ended January 31, 2000 from the unaudited combined
condensed financial data of LTG, which are included elsewhere in this propectus.
These unaudited financial statements include, in our opinion, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such data.
The selected data should be read in conjunction with the information
presented in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and the notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
GHG (PREDECESSOR) LTG
---------------------------------------------------------------- -------------------
THREE SIX THREE
MONTHS MONTHS PERIOD MONTHS
ENDED ENDED ENDED ENDED
JANUARY 31, JUNE 30, OCTOBER 31, JANUARY 31,
1995 1996 1997 1998 1999 1999 1999 2000
------- ------- ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Total revenues .................. $32,959 $32,427 $33,785 $32,446 $7,606 $11,526 $17,261 $11,177
Operating cost and expenses ..... 26,981 27,700 28,982 27,913 6,823 12,638 15,095 10,712
------- ------- ------- ------- ------ ------- ------- -------
Operating profit (loss) ......... 5,978 4,727 4,803 4,533 783 (1,112) 2,166 465
Other income (expense), net ..... -- -- -- -- -- -- (433) (264)
------- ------- ------- ------- ------ ------- ------- -------
Income (loss) before
income taxes .................. 5,978 4,727 4,803 4,533 783 (1,112) 1,733 201
Income taxes .................... 2,459 2,035 2,027 1,859 321 -- 520 71
------- ------- ------- ------- ------ ------- ------- -------
Net income (loss) ............... $ 3,519 $ 2,692 $ 2,776 $ 2,674 $ 462 $(1,112) $ 1,213 $ 130
======= ======= ======= ======= ====== ======= ======= =======
OTHER DATA:
Depreciation and amortization ... $ 1,760 $ 1,891 $ 2,104 $ 1,945 $ 346 $ 929 $ 205 $ 310
Cash flows from operating
activities .................... $ 6,193 $ 4,683 $ 727 $ 1,735 $ 3,661 $ 3,321)
</TABLE>
<TABLE>
<CAPTION>
GHG (PREDECESSOR) LTG
-------------------------------------------- -------------------------
DECEMBER 31,
--------------------------------------------
OCTOBER 31, JANUARY 31,
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) .................. $(3,046) $ (589) $(1,902) $(1,966) $ (761) $ (449)
Total assets ............................... 26,119 28,686 28,655 26,950 46,335 42,764
Long-term debt
(excluding current maturities) ........... -- -- -- -- 33,436 33,569
Total divisional equity/invested capital ... 21,576 26,299 24,833 23,434 1,213 1,347
</TABLE>
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and related notes thereto and "Selected Financial Data"
and "Unaudited Condensed Pro Forma Consolidated Financial Information" included
elsewhere in this prospectus. This prospectus contains forward-looking
statements relating to future events and Leisure Travel Group's future financial
performance. Actual results could be significantly different than those
discussed in this prospectus. Factors that could cause or contribute to such
differences include those set forth in the section entitled "Risk Factors," as
well as those discussed elsewhere in this prospectus.
OVERVIEW AND STRUCTURE
We have been established to become a leading international single-source
provider of attractively priced, specialized holiday and leisure accommodations
and world-wide packaged travel services. Our revenues are derived primarily from
our five holiday resort hotels and from the sale of travel-related products and
services, including airline tickets, hotel accommodations, and auto rentals. We
intend to expand our business by acquiring additional resort hotels, travel
agencies and tour operators located in England and other European countries.
Upon completion of this offering we will also have a 49% equity interest in
trrravel.com, Ltd., which owns and operates a consumer-direct, online travel Web
site and a tour operating airline seat provider.
Effective June 30, 1999, GHG purchased from a subsidiary of The Rank Group
plc substantially all of the operating assets of five hotels formerly known as
the Butlin's Provincial Hotels. Four of the hotels are located in seaside resort
areas in Scarborough, Blackpool, Brighton and Margate, England and the fifth
hotel is located in Llandudno, Wales. GHG is a private limited company organized
under the laws of England and Wales, which is 85% owned by Cygnet Ventures
Limited, a Guernsey (Channel Islands) corporation controlled by Kevin R. Leech,
our Chairman of the Board and principal stockholder, and 15% owned by certain
other members of our management team.
In July 1999 and January 2000, LTGL, a private limited company organized
under the laws of England and Wales, acquired Miss Ellie's World Travel Limited
and Ilios Travel Limited, respectively. As a result, LTGL became a provider of
European vacations to and from the United Kingdom as well as a provider of
vacations to Florida (including Disney World) and to Canada, South Africa and
other European destinations. LTGL is wholly owned by Red Kite Ventures Limited,
a Jersey (Channel Islands) corporation controlled by Red Kite Trust, the
beneficiary of which are members of the family of Kevin R. Leech.
In January 2000, Independent Aviation Limited, a wholly-owned subsidiary
of trrravel.com Limited, a private limited company organized under the laws of
England and Wales, acquired from an unaffiliated third party certain assets
comprising a tour operating airline seat provider business.
In March 2000, the stockholders of GHG agreed to transfer 100% of the
outstanding share capital of GHG to LTGL in exchange for the issuance of an
aggregate of 94,468 ordinary shares of LTGL, and the stockholders of LTGL,
including the holders of the additional 94,468 ordinary shares of LTGL, agreed
to transfer to us 100% of the outstanding share capital of LTGL in exchange for
the issuance of an aggregate of 4,640,000 shares of our common stock. The
acquisition of GHG by LTGL and our acquisition of LTGL will be accounted for as
combinations of entities under common control in a manner similar to a pooling
of interests. Our acquisition of LTGL will be effected by means of a share
exchange whereby each of LTGL's ordinary shares will be converted into
approximately 39 shares of our common stock. In addition, Technology Finance,
Inc., a corporation 50%-owned by Kevin R. Leech, has agreed to transfer its
entire 49% equity interest in the outstanding share capital of trrravel.com
Limited to Leisure Travel Group in exchange for the issuance of an aggregate of
220,000 shares of our common stock. All of these transfers are conditioned upon,
among other things:
o the completion of this offering and application of a portion of the
net proceeds (together with additional mortgage financing) to retire
all $16.8 million of indebtedness of GHG owed to The Rank Group plc
or its subsidiaries; and
o the capitalization of $1,667,000 of loans made to LTGL by a
corporate affiliate of Kevin R. Leech.
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OPERATING RESULTS AND REVENUE RECOGNITION
For the year ended December 31, 1998, GHG derived income before income
taxes of $4.5 million from net revenues of $32.4 million. For the pro forma
twelve months ended October 31, 1999, GHG derived net income before taxes of
$2.4 million from net revenues of $28.3 million.
The revenues and net income of the GHG dropped significantly during the
six months ended June 30, 1999 due to the fact that The Rank Group plc announced
its intention in early 1998 to sell the Butlin's Provincial Hotels and close
certain other Butlin's-branded assets comprised of popular priced vacation camps
throughout England. The announced closure of the Butlin's vacation camps
received extensive publicity throughout Great Britain. However, many potential
consumers thought that the hotels were also being closed, which significantly
reduced advanced bookings. Following its June 30, 1999 acquisition of the
hotels, GHG immediately renamed and rebranded the five hotels. With over five
years experience in operating a similar hotel property in England catering to
the mature private market and coach or bus tour market, our highly experienced
management team established a program to increase occupancy, including a
publicity campaign designed to win back the thousands of couples and families
who had been guests at the hotels, the upgrading and refurbishment of the
hotels, and the improvement of service. As a result of these efforts, operating
income (loss) increased from an operating loss of $1.1 million for the six
months ended June 30, 1999 to an operating income of $2.0 million for the four
months ended October 31, 1999. Revenues were $11.5 million and $10.5 million for
the six months ended June 30, 1999 and the four months ended October 31, 1999,
respectively. Since October 31, 1999 GHG management has:
o implemented agreements with bus or coach tour operators to make
advance purchases of beds, which is anticipated to provide
approximately $3.2 million of revenues to our Grand Hotel Group in
the fiscal year ending October 31, 2000;
o raised room and accommodation occupancy charges by an average of 8%
without a perceived fall-off in advance booking rates; and
o commenced a program to offer more upscale entertainment for
higher-priced special weekend holiday packages to attract a younger
more affluent audience.
As a result of these efforts, at February 14, 2000 our advance bookings
represent approximately 44% of our target of approximately 651,000 sleeper
nights for the remainder of fiscal 2000, or a targeted 78% occupancy rate.
Net revenues from providing hotel accommodations are recognized when our
guests check out after their designated vacation stay and make payment. Net
revenues from providing travel services include commissions and markups on
travel products and services, volume bonuses received from travel suppliers,
cancellation fees and other ancillary fees such as travel insurance premiums.
Such revenues are recognized upon the commencement of travel.
Operating expenses at our holiday resort hotels include food,
housekeeping, cost of personnel, hiring of entertainment, maintenance expenses,
and sales and marketing expenses. Travel service 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. Our
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.
We may realize certain savings from our travel service and tour operators
as a result of consolidating certain operating expenses such as
telecommunications, advertising and promotional programs. Such savings cannot be
quantified and accordingly have not been included in our pro forma financial
information. Any such savings will be partially offset by the costs of being a
publicly held company and the incremental increase in costs related to our new
management structure.
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We derive a significant portion of our cash flow and pre-tax income from
funds related to customer deposits and prepayments for vacation products and
interest earned on such deposits. Generally, we require a deposit upon booking
hotel or travel reservation. Reservations with our Travel Group are typically
made one to three months prior to departure, and reservations at the hotels
operated by our Grand Hotel Group are typically made one week to four months
prior to occupancy. Additionally, for packaged tours, we generally require that
the entire cost of the vacation be paid in full 30 days before departure, unless
reservations are made closer to departure, in which case we require that the
entire cost be paid upon booking. While the terms vary, we generally pay 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 our operating model and pricing strategies.
TERMS OF OUR ACQUISITIONS
Effective June 30, 1999, GHG purchased from Rank Holidays Division
Limited, a subsidiary of The Rank Group plc, substantially all of the operating
assets relating to five hotels formerly known as the Butlin's Provincial Hotels,
including the physical properties, equipment, concessions, inventory, cash
reserves, customer lists, records and goodwill. Following the acquisition, GHG
renamed the hotels The Grand Ocean Hotel, Brighton, The Grand Hotel,
Scarborough, The Grand Hotel, Margate, The Grand Metropole Hotel, Blackpool and
The Grand Hotel, Llandudno. GHG is a private limited company organized under the
laws of England and Wales that is 85% owned by Cygnet Ventures Limited, a
Guernsey (Channel Islands) corporation controlled by Kevin R. Leech, our
Chairman of the Board and principal stockholder, and 15% owned by certain other
members of our management team. In consideration for the sale of such assets,
GHG paid a subsidiary of The Rank Group plc $30.7 million, of which $13.9
million was paid in cash and the balance of $16.8 million was paid by GHG's
issuance of a non-interest-bearing promissory note due 2002. The GHG note was
secured by an irrevocable letter of credit issued by Citibank, N.A. in favor of
Butlin's Limited 3 a subsidiary of The Rank Group plc. The issuance of the
letter of credit was obtained through the personal guaranty of Mr. Leech. GHG
financed its cash payment of the purchase price through loans obtained from Arab
Bank plc and Irish Nationwide Building Society secured by charges granted by
GHG, including mortgages on the purchased hotels. See "Certain Transactions."
In July 1999, LTGL acquired all of the issued and outstanding share
capital of Miss Ellie's World Travel Limited, a private limited company
organized under the laws of England and Wales. In exchange for such share
capital, LTGL paid an aggregate of (pound)1,030,000 (approximately $1,667,000)
to the former stockholders of Miss Ellie's World Travel Limited. LTGL funded the
acquisition through a loan from Red Kite Ventures Limited, an investment company
beneficially owned by Red Kite Trust, the beneficiary of which are members of
the family of Kevin R. Leech, our Chairman of the Board and principal
stockholder. The terms of the acquisition provided for certain "earnout"
provisions whereby, after our acquisition of LTGL upon completion of this
offering, we may be required to pay additional cash to the former stockholders
of Miss Ellie's World Travel Limited equal to the pre-tax income of Miss Ellie's
World Travel Limited earned for the twelve month period from April 1999 through
March 2000. We anticipate that these payments will be funded through our cash
flows from operations. See "Certain Transactions."
In January 2000, LTGL also acquired all of the issued and outstanding
share capital of Ilios Travel Limited, a private limited company organized under
the laws of England and Wales. In exchange for such share capital, LTGL paid an
aggregate of (pound)325,000 (approximately $526,000) to the former stockholders
of Ilios Travel Limited. As a result of this acquisition, LTGL expanded its
travel-related services and increased its market position and cross-selling
opportunities in other destinations throughout Europe. LTGL also funded this
acquisition through a loan from Red Kite Ventures Limited. See "Certain
Transactions."
In January 2000, Independent Aviation Limited, a wholly-owned subsidiary
of trrravel.com Limited, a private limited company organized under the laws of
England and Wales, acquired from an unaffiliated third party certain assets
comprising a tour operator airline seat provider business. The purchase price
was (pound)200,000 (approximately $324,000). trrravel.com Limited was a
wholly-owned subsidiary of ci4net.com, Inc., a Delaware corporation whose common
stock is publicly-traded on the OTC Bulletin Board. A corporation controlled by
Kevin R. Leech is the principal stockholder of ci4net.com, Inc.
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PRO FORMA RESULTS OF OPERATIONS
The following table sets forth certain pro forma operating data of Leisure
Travel Group expressed as a percentage of net revenues.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED THREE MONTHS ENDED
OCTOBER 31, 1999 JANUARY 31, 2000
------------------- ------------------
<S> <C> <C>
Total revenues ................................................... 100.0% 100.0%
Operating costs and expenses ..................................... 92.8% 96.8%
----- -----
Gross profit ................................................. 7.2% 3.2%
Other expense .................................................... (2.4)% (2.4)%
----- -----
Income before income taxes ................................... 4.8% 0.8%
Income taxes ..................................................... 1.9% 0.6%
----- -----
Net income ................................................... 2.9% 0.2%
===== =====
</TABLE>
LTG RESULTS OF OPERATIONS
The following table sets forth certain operating data of LTG expressed as
a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
PERIOD THREE MONTHS
ENDED ENDED
OCTOBER 31, JANUARY 31,
1999 2000
----------- -----------
<S> <C> <C>
Total revenues ................................................... 100.0% 100.0%
Operating costs and expenses ..................................... 87.5% 95.8%
----- -----
Operating profit ............................................. 12.5% 4.2%
Other expense .................................................... (2.5%) (2.4%)
----- -----
Income before income taxes ................................... 10.0% 1.8%
Income taxes ..................................................... 3.0% 0.6%
----- -----
Net income ................................................... 7.0% 1.2%
===== =====
</TABLE>
GHG HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain operating data of GHG expressed as
a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE SIX
MONTHS MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, JANUARY 31, JUNE 30,
------------------------------ ----------- --------
1996 1997 1998 1999 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues ................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Operating cost and expenses ................................... 85.4% 85.8% 86.0% 89.7% 109.6%
----- ----- ----- ----- -----
Operating profit (loss) ................................... 14.6% 14.2% 14.0% 10.3% (9.6)%
Other income (expense) ........................................ -- -- -- -- --
----- ----- ----- ----- -----
Income (loss) before income taxes ......................... 14.6% 14.2% 14.0% 10.3% (9.6)%
Provision for income taxes .................................... 6.3% 6.0% 5.7% 4.2% --
----- ----- ----- ----- -----
Net income (loss) ......................................... 8.3% 8.2% 8.3% 6.3% (9.6)%
===== ===== ===== ===== =====
</TABLE>
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<PAGE>
THREE MONTHS ENDED JANUARY 31, 2000 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1999
Net Revenues
Consolidated revenues for the three months ended January 31, 2000 were
$11,177 million, which was an increase of $3,571 million or 47% from revenues of
$7,607 million. The increase is due to revenues from Leisure Travel Group
Limited which acquired Miss Ellie's World Travel Limited on July 1, 1999,
therefore, the balances for the three months ended January 31, 1999 do not
reflect the financial results of Miss Ellie's World Travel Limited.
Revenues from Grand Hotel Group Limited to January 31, 2000 incorporated
in the consolidated revenue figures reflect a decrease in revenues of $0.424
million due to a reduction of supply rooms caused by the refurbishment
programme.
Revenues consist of accommodation lettings and retail sales which, for the
period ended January 31, 2000 showed a decrease of 3% due to reduction in the
supply of rooms caused by the refurbishment programme, which was partially
offset by higher average tariff rates of 7%.
Direct cost of revenues
The direct cost of revenues consists of food, entertainment, housekeeping,
restaurant and kitchen expenses and sales and marketing expenses which showed an
increase of 7.5% on the same period last year. The additional costs incurred
relate primarily to sales and marketing expenditure to support the new branding
of the product for the summer season 2000.
Staff costs
Staff costs include accommodation, catering, bars, shops etc. which were
$2.14 million compared to $2.05 million.
General and administrative
General and administrative expenses consist of all other expenses such as
repairs, maintenance, clerical, computer and other related costs. These expenses
were $0.87 million compared to $0.88 million.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenues
Revenues consist of accommodation lettings and retail sales (which include
bar, catering and shops). Revenues for 1998 were $32.4 million, which was a
decrease of $1.4 million, or 4.1%, from revenues of $33.8 million in 1997. There
was a reduction in volume between the 1998 and 1997 years due to a reduction in
the numbers of families with children staying at three of the hotels. However,
the average letting income per booking rose 4%, which meant that the decrease in
letting accommodation revenue was $0.5 million. Consequently, there was
additional reduction in the other source of income of $0.5 million.
The accommodation letting income proportion of the total revenue rose from
73% to 74% in 1997 and 1998 respectively, with a consequent reduction in the
other revenue from 27% to 26%.
Direct cost of revenues
Direct cost of revenues consist of food, entertainment, housekeeping,
restaurant and kitchen expenses and sales and marketing expenses. Direct cost of
revenues for 1998 was $7.6 million, which was a decrease of $0.5 million, or
6.2%, from direct cost of revenues of $8.1 million in 1997. This decrease was a
result of lower sales revenues during the period. Net margins rose slightly from
76.2% in 1997 to 76.6% in 1998.
Staff costs
Staff costs are all personnel costs incurred to run the operations of the
hotels which include accommodations, catering, bars, shops, etc. Staff costs do
not include corporate management payroll. Staff costs for 1998 were $8.8
million, which was a decrease of $0.4 million, or 4.3%, from staff costs of $9.2
million in 1997.
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General and administrative
General and administrative expenses consist of all other expenses such as
repairs, maintenance, clerical, computer and other related expenses. General and
administrative expenses for 1998 and 1997 was $6.6 million.
Corporate allocation/Sales and marketing
Corporate allocation charges are costs incurred by the previous parent
company of GHG. These costs typically consist of advertising, corporate
management wages and general corporate overhead. Such costs were
charged back to GHG based on a percent of revenues of the five hotels compared
to total revenue of Butlin's Limited, a subsidiary of the Rank Group plc.
The company's previous parent charged sales and marketing costs at the
corporate level. Such costs were recharged to GHG based on the size of the
hotels compared to the total Butlin's Limited, a subsidiary of the Rank Group
plc.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues
Revenues for 1997 increased $1.4 million, or 4.3%, from revenues of $32.4
million in 1996, the accommodation lettings increased from 72% in 1996 to 73% in
1997 of the total revenue despite there being a drop in the volume of guests
visiting the hotels in 1997 (due to the start of a restructuring of the families
with children market) this was offset by an increase in the average letting
income generated from each booking.
Other sales generated during the year remained the same as the previous
year, despite a drop in volume.
Direct cost of revenues
Direct cost of revenues for 1997 decreased $0.2 million, or 2.5%, from
direct cost of revenues of $7.9 million in 1996. This reflects the savings due
to the reduction in volume. Margins on letting income remained the same in both
years at 80% of total revenue. Margins from other sources of revenue also remain
unchanged in 1997.
Staff costs
Staff costs for 1997 increased $0.6 million, or 7.0%, from staff costs of
$8.6 million in 1996.
General and administrative
General and administrative expenses for 1997 and 1996 was $6.6 million.
LIQUIDITY AND CAPITAL RESOURCES
Our hotel and travel businesses have historically financed their
activities through cash provided by operations.
We currently anticipate that the net proceeds from this offering, together
with our current cash and cash equivalents and anticipated cash flow from
operations will be sufficient to meet our presently anticipated working capital
and capital expenditure requirements for at least the next twelve months.
Following completion of this offering, we anticipate that we will spend
approximately $2.6 million per annum in capital expenditures to refurbish and
construct improvements to our five holiday resort hotels. In addition, our $16.2
million of mortgage indebtedness is currently amortized over a five year period
and requires annual debt service payments of principal and interest of
approximately $4.0 million. Following completion of this offering, we intend to
reduce our annual debt service obligations by seeking to obtain long-term
mortgage financing of between 10 and 15 years. However, there is no assurance
that such long-term financing will be available on financially attractive terms,
if at all. We may need to raise additional funds in order to support more rapid
expansion, develop new or enhanced services, respond to competitive pressures,
acquire complementary business or technologies or take advantage of
unanticipated opportunities. Please see "Risk Factors--We May Need More Money,
Which May Not Be Available to us on Favorable Terms or at All" and "Use of
Proceeds" for additional information.
At October 31, 1999, we had an unaudited pro forma net working capital
deficit of $0.5 million. We have historically operated with a net working
capital deficit due to the fact that we have invested working capital
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assets in operating expenses, investments and fixed assets. Our net working
capital deficit has not historically negatively affected our ability to operate
or meet our obligations as they come due. After the net proceeds of this
offering, we expect to have net working capital of $17.2 million.
Cash provided by operating activities was $3.7 million and $1.7 million
for the period ended October 31, 1999 and the six months ended June 30, 1999,
respectively. Such amounts primarily reflect net income/loss, net of
depreciation expense, resulting from revenues from our hotel operations and
increases for the respective periods in the balance of guest deposits. Cash
provided by operating activities was $4.7 million for the year ended December
31, 1998, as compared to $6.2 million for the year ended December 31, 1997. The
decrease in cash provided by operating activities was primarily the result of a
decrease in the net income, net of depreciation expense, and a decrease in cash
provided by changes in guest deposits and accounts payable, partially offset by
the increase in cash provided by the change in prepaid expenses and other
current assets.
Cash used in investing activities was $30.6 million for the four months
ended October 31, 1999, which represented the purchase of our hotels from a
subsidiary of The Rank Group plc. Cash used in investing activities were
$50,000, $400,000 and $3.1 million for the six months ended June 30, 1999, and
the years ended December 31, 1998 and 1997, respectively. These amounts relate
to the acquisition of equipment and fixtures during the respective periods.
Cash provided by financing activities was $32.5 million for the four
months ended October 31, 1999, which primarily related to proceeds from the
issuance of debt utilized to purchase the hotels and financing operations. Cash
used in financing activities was $1.7 million, $4.3 million and $3.1 million for
the six months ended June 30, 1999, and the years ended December 31, 1998 and
1997, respectively. These amounts relate to the net change in intercompany
funding from the parent company to GHG (Predecessor) during the respective
periods. Net cash provided by operating activities ($3.3 million) for the 3
months ended January 31, 2000 reflects negative working capital due to decrease
in guest deposits and certain capital expenditure payments relating to the
initial phase of the hotel refurbishment program.
SEASONALITY AND QUARTERLY FINANCIAL INFORMATION
Seasonality in the vacation resort and travel industry is likely to cause
quarterly fluctuations in our operating results which may adversely affect our
stock price. In both our hotel and travel businesses, our revenues typically
increase during the spring and summer months and are slightly lower during the
fall and winter months. In addition, our seasonal business has been adversely
affected in the past and could be affected in the future by climactic
conditions, such as a wet or rainy summer season which frequently occurs in the
United Kingdom. As our business continues to expand beyond the United Kingdom,
seasonal fluctuations will affect us in different ways. If seasonality in our
business causes quarterly fluctuations in our revenues and operating profits
which are unusually severe or unexpected, there could be a material adverse
effect on our business and stock price.
In addition, our earnings may be impacted by the timing of the completion
of the acquisition of future resort hotels and the potential impact of weather
or other naturals disasters at our resort locations. The combination of the
possible delay in generating revenue after the acquisition of additional resort
hotels, and the expenses associated with start-up unit or room-rental
operations, interest expense, amortization and depreciation expenses from such
acquisitions may materially adversely impact our earnings.
MARKET RISKS
We currently have no significant floating rate indebtedness, hold no
derivative instruments and do not earn income denominated in foreign currencies.
Accordingly, changes in interest rates do not generally have a direct effect on
our financial position. However, to the extent that changes in interest rates
and currency exchange rates affect general economic conditions, we would be
affected by such changes. All of our revenue is recognized in pounds sterling
and almost all of our revenue is from customers in the United Kingdom.
Therefore, we do not believe we have any significant direct foreign currency
exchange risk and do not hedge against foreign currency exchange rate changes.
YEAR 2000 DISCLOSURE
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
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reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished during the years leading up to
2000 was effective to prevent any problems. As of the date of this prospectus,
we have not experienced any such computer difficulty; however, computer experts
have warned that there may still be residual consequences of the change in
centuries and any such difficulties may, depending upon their pervasiveness and
severity, have a material adverse effect on our business, financial condition
and results of operations. Any of the following could have a material adverse
effect on our business, financial condition and results of operations:
o a failure of any third party with whom we do business to adequately
address their year 2000 issues;
o the failure of any contingency plans developed to protect our
business and operations from year 2000-related interruptions; and
EFFECTS OF THE EURO
Under the Treaty on European Economic and Monetary Union, as of January 1,
1999, the euro was introduced as a common currency among the 11 members of the
European Union that are participating in this phase of Economic and Monetary
Union, commonly referred to as EMU. Although the individual currencies of these
countries will continue to be used until 2002, their exchange rates with the
euro are fixed. The euro may now be used for transactions that do not involve
payment using physical notes and coins of the participating countries. These
individual currencies are to be replaced with euro notes and coins (to be
introduced on January 1, 2002) by June 30, 2002 when all countries participating
in EMU are expected to operate with the euro as their exclusive common currency.
The current government of the United Kingdom has stated that the United
Kingdom will not participate in EMU and adopt the euro until after the next
general election at the earliest. We are currently working on the assumption
that the next general election will be in 2001 or 2002 and that the United
Kingdom will enter EMU shortly thereafter following confirmation of the
government's decision through a referendum.
In the event that the United Kingdom adopts the euro, we would face a
number of costs in altering our accounting-related systems for the new currency,
although at present it is too early to estimate these costs. Adoption of the
euro in the United Kingdom would also create greater transparency between prices
offered to our customers in the United Kingdom and prices offered in other
countries that participate in EMU. We do not believe that the adoption of the
euro by eleven countries of the European Union will have an adverse impact on
our liquidity or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have an impact on our results of operations, financial position, or cash flows.
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BUSINESS
GENERAL
We have been established to become a leading international single-source
provider of attractively priced, specialized holiday and leisure accommodations
and world-wide packaged travel services. Upon completion of this offering, we
will acquire five unique and well-known holiday resort hotels in the United
Kingdom and two retail and group travel providers and tour operators that offer
flexible, independent travel programs. In addition, we will acquire a 49%
ownership interest in trrravel.com Limited, which operates a European on-line
travel Web site offering complete vacation and travel packages direct to
consumers, and also owns and operates a tour operating airline seat provider.
Through consolidation of these and other vacation and travel-related businesses,
we believe that we are able to offer both vacationers and travel agents and tour
operators a single source of competitively priced products and services within
and across multiple holiday and leisure travel segments. We intend to expand our
business by acquiring additional vacation and leisure travel businesses,
including resort hotels, travel providers and tour operators, and utilizing a
consumer-direct, online travel Web site.
On an unaudited pro forma basis, we derived consolidated net income before
taxes of $2.3 million from consolidated net revenues of $47.4 million for the
twelve months ended October 31, 1999.
We own and operate under the name "Grand Hotels" five holiday resort
hotels situated near major seaside resorts in England and Wales, which offer
attractively priced vacation accommodations, including food and entertainment,
for weekend and lengthier stays. The hotels have a total of 1,274 available
rooms and achieved approximately 80% room occupancy in the two-year period ended
December 31, 1998. Following our acquisition of the hotels in June 1999, the
re-branding of its name and image and modernization of certain operating
policies by our highly experienced management team, both hotel revenues and
profits improved substantially during the seven months ended January 31, 2000.
In addition, we recently secured new agreements with United Kingdom tour coach
operators for the advance purchase of beds, which we anticipate will provide
approximately $3.2 million of annual revenues, increased our room and
accommodation rates by an average of 8%, and secured advance bookings at
February 14, 2000 that represent approximately 44% of our target of 651,000
sleeper nights for the remainder of our fiscal year ending October 31, 2000, or
a 78% occupancy rate.
We offer competitively-priced travel-related services and accommodations
in a variety of holiday destinations in Europe, North America and South Africa.
Located in 8 offices in and around Manchester and Horsham, England, our retail
and group travel and tour operating businesses have over 15 years of experience
in providing packaged tours primarily to holiday resorts located throughout
Europe direct to the public and through other tour operators. We also offer
special interest tours to major European sporting events, including horse racing
tours throughout the United Kingdom and Europe, and trips for supporters of the
Manchester United Football Club. We offer a wide range of private accommodations
in a variety of holiday destinations in southern Europe, such as private country
homes and villas with swimming pools in Tuscany, Sardinia and other regions of
Italy, Andalucian haciendas with exquisite views in Spain and traditional
Ottoman-style houses in Turkey. We achieve competitive pricing and access to
inventory through negotiated arrangements with major airlines, including
Singapore Airlines, British Airways, Alitalia and Iberia, and auto rental and
insurance companies.
Our tour operating airline seat provider purchases blocks of airline seats
from airlines and other travel and tour operators for resale and also acts as an
agent in brokering such seats on a commission basis.
The core of the distribution program for our travel services is a
consumer-direct online travel site that provides travelers with immediate access
both to our proprietary booking system and to detailed hotel information and
destination guides. Our www.trrravel.com Web site is able to compare travel
options, rates and availability, and book and purchase a wide variety of travel
services, including our independently tailored vacation programs and group
packages, seven days a week. Our Internet available vacation and holiday
packages include airfare, hotel and related accommodations, car rental and other
items. We believe that by being able to directly offer travel services to
consumers via the Internet, we will realize savings in operating expenses that
will enable us to maintain better gross margins than many travel agencies or
other travel groups that rely primarily on retail travel agencies for
distribution.
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INDUSTRY BACKGROUND
RESORT VACATION HOTELS IN THE UNITED KINGDOM
Similar to specialized holiday hotel packages offered in the United States
by well-known resorts, such as The Greenbrier, in West Virginia and The Concord
Hotel in the Catskills Region of New York State, in England and Wales the Grand
Hotels provide a unique vacation experience which set them apart from customary
business and commercial hotels or expensive holiday resorts in Europe and the
United States which offer "a la carte" accommodations.
Our Grand Hotels offer a complete fixed price vacation package experience,
including lodging, food and entertainment at each of its five hotels. We cater
primarily to adults, ages fifty and up, who seek short and three- and four-day
"getaway" vacation packages. Except for the Burstin Hotel, located in
Folkestone, England, we know of no other comparable popular price holiday resort
hotels in England or Wales. We believe that the increase in the age 55 plus
population group coupled with greater disposable personal income for this
demographic segment in the United Kingdom will continue to fuel demand and
repeat business for modestly priced accommodations that also provide
entertainment and plentiful food. Our strategy is to expand our customer base by
greater access to the bus or coach tour operator vacation package market, and by
offering higher priced and more sophisticated entertainment on selected weekends
to attract a younger, more affluent audience willing to pay higher prices for
accommodations and entertainment.
The following table sets forth the approximate number of tourists who,
according to the British Tourist Authority, annually visit the resort areas in
which our Grand Hotels are located:
DAY OVERNIGHT
VISITORS VISITORS TOTAL
-------- ---------- -----
(MILLIONS)
Brighton ............... 3.5 1.8 5.3
Blackpool .............. 6.9 14.2 21.1
Margate ................ 1.5 0.6 2.1
Scarborough ............ 3.5 1.1 4.6
Llandudno .............. 4.1 0.2 4.3
---- ---- ----
Total .............. 19.5 17.9 37.4
==== ==== ====
THE TRAVEL SERVICE INDUSTRY
Travel and tourism represents one of the largest consumer markets and one
of the fastest growing industries in the United Kingdom. The British Tourist
Authority estimates that in 1998, travel expenditures by overseas visitors in
the United Kingdom totaled approximately $20.5 billion, and that by the year
2003, overseas visitors will spend approximately $29.0 billion a year in the
United Kingdom, 44% more than 1998. The British Tourist Authority also estimates
that in 1998, travel expenditures by residents of the United Kingdom in the
United Kingdom totaled approximately $22.6 billion which, when combined with
expenditures by overseas visitors, totaled approximately $43.0 billion in 1998.
Of the $43.2 billion spent in 1998 on travel in the United Kingdom,
approximately $15.0 billion was spent on accommodations, approximately $5.6
billion was spent in travel within the United Kingdom, and approximately $1.8
billion was spent on travel-related services. The European Travel Commission
estimates that travel agencies alone generated approximately $126 billion in
total sales in 1998.
The distribution channels for leisure travel are highly fragmented. Travel
service suppliers, such as hotels, airlines and rental car companies, sell
travel services directly to consumers and indirectly through retail travel
agencies and travel wholesalers. The principal distribution channels for leisure
travel services to consumers include:
o DIRECT SALES. Travel service suppliers typically sell their services
directly to consumers through call centers and, more recently,
through their own Web sites. These suppliers generally offer only
their own services, or offer their services in conjunction with
partners from other areas of the travel industry, such as in
hotel/airfare packages. Bookings are generally made at retail, or
"published," rates that suppliers have difficulty deviating from due
to competitive constraints.
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o RETAIL TRAVEL AGENCIES. Retail travel agencies offer consumers
travel services at published rates and fares through global
distribution services, as well as discount, or "non-published,"
fares through travel wholesalers. Retail travel agencies receive
commissions and incentives on gross bookings that typically average
5-10%. As travel service suppliers have increasingly sought to cut
costs and drive more traffic through their own booking channels in
recent years, retail travel agencies have experienced shrinking or
capped commissions and increased competition from travel service
suppliers selling directly to consumers.
o TRAVEL WHOLESALERS. Travel wholesalers purchase hotel, airline and
car rental capacity directly from travel service suppliers at
discounts substantially in excess of commissions paid on published
rates, and generally resell this capacity individually or in
packages through travel agencies.
o TELETEXT SALES. Teletext is a data system presented through
televisions for home viewing. It provides a full range of
information services covering news, financial and classified sales.
Travel information and last minute vacation specials are offered
with destination dates and pricing information included. Viewers may
book their travel plans directly by phone or fax.
ONLINE TRAVEL MARKETING
The Internet has emerged as a global medium for communication, content
delivery and electronic commerce, and Internet use continues to increase
rapidly. International Data Corporation, estimates that the number of users
worldwide with access to the Internet will increase to 320 million in 2002 from
100 million in 1998, representing a compound annual growth rate of approximately
34%. As consumers have become increasingly adept at using the Internet for
evaluating and purchasing a wide variety of goods, the dollar volume of online
commerce transactions has risen dramatically. International Data Corporation
estimates that the volume of goods and services purchased over the Internet will
increase to $400 billion in 2002 from $32 billion in 1998, representing a
compound annual growth rate in excess of 88%.
The growth of travel sales through the Internet has created another
channel for travel service providers to sell products and services to travelers.
Online sales of travel services have expanded dramatically in recent years due
to the substantial benefits of e-commerce to both travel service providers and
consumers. By moving their travel services online, travel service suppliers,
retail travel agencies and travel wholesalers can reach a global customer base
from a central location. According to Forrester Research, online travel bookings
are expected to grow to $29.5 billion in 2003 from $3.1 billion in 1998,
representing a compound annual growth rate of 57%.
A number of approaches have emerged to address the online travel market,
including:
o ONLINE TRAVEL RESERVATION SERVICES. Online travel reservation
services generally have adopted the retail travel agency model and
sell published rates and fares quoted through global distribution
systems on a commission basis. Because global distribution services
are not configured for simultaneous display of multiple hotel options
or hotel/air packages, comparison shopping for these travel services
can be time consuming. A small number of these online travel
reservation services also resell travel packages provided by
wholesalers.
o DIRECT ONLINE SALES BY SUPPLIERS. Airlines, hotels and car rental
companies have begun offering their services online through their own
Web sites. These Web sites frequently access only published rates for
the hosts, or their partners' travel services, thereby limiting
consumer choice and prohibiting convenient comparison shopping.
o ONLINE TRAVEL WHOLESALERS. A small number of travel wholesalers have
begun offering consumer-direct wholesale travel services online.
These providers typically focus almost exclusively on a single
service, primarily air travel, and lack the strategic relationships
needed to effectively service leisure travel to destination markets.
In addition, many online travel service providers require consumers to
register by providing personal information prior to searching for travel
options. These registration requirements often make these Web sites cumbersome
to use and may give rise to security concerns.
As the online travel services industry continues to evolve and mature, we
believe consumers will increasingly demand an easy-to-use Web site that provides
a broad range of travel services, including
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transportation, accommodations, activities and travel-related content and the
ability to comparison shop for preferred suppliers, price levels, destinations
and packages. To offer consumers maximum value and competitive prices, the Web
site must have access to wholesale travel pricing in addition to published rates
and fares through a global distribution service. In addition, we believe travel
service suppliers will seek online distribution partners that combine extensive
wholesale travel experience and aggressive online marketing to provide an
effective distribution channel. This will, in turn, help minimize excess
capacity and respond quickly to distressed inventory, while also allowing
suppliers to maintain published rates and fares avoid fare wars.
OUR OPERATING STRATEGY
Our objective is to become a leading international single-source provider
of attractively priced, specialized holiday and leisure accommodations and
world-wide package travel services. To accomplish this objective, we will pursue
an operating strategy that includes the following elements:
o INCREASING REVENUES, PROFITABILITY AND OCCUPANCY RATES AT OUR
HOLIDAY RESORT HOTELS. We have adopted a comprehensive strategy
designed to increase occupancy and revenues and improve
profitability at our holiday resort hotels. This includes:
o Establishment of a marketing program designed to expand our core
short-break holiday entertainment package for larger groups during
the lower holiday occupancy periods, generally between January and
March, as well as offering more sophisticated entertainment to
attract a younger, more affluent audience to special weekend
packages which we will offer at higher rates.
o Renovation of our hotels based on strategic plans designed to
address the opportunities presented by each hotel and the hotel's
particular market. Renovations will include enhancing lobbies,
restaurants and public areas, and upgrading guest rooms. We believe
that these renovations will enable us to increase both occupancy and
average room tariff rates and generate attractive returns on our
investment.
o Increasing our percentage revenues derived from advance bookings of
beds made by bus and coach tour operators. We have recently entered
into agreements with National Holidays Limited, Caledonian Travel
Limited, and others among England's leading coach vacation package
tour operators, to furnish us with approximately 115,000 sleeper
nights through our fiscal year ending October 31, 2000. Based on the
historical cancellation rate, we have accepted bookings for
approximately 75% of the beds we seek to sell to coach tour
operators. We anticipate that revenues in fiscal 2000 from coach
operator sales will represent an incremental increase of $3.2
million over our traditional revenues from direct customer bookings.
o A general price increase, as we believed at the time of our
acquisition that the market was prepared to accept an adjustment to
the traditional rates charged by The Butlin's Provincial Hotels. In
January 2000, we implemented an average accommodation rate increase
of 8%. As at February 14, 2000, we had achieved advanced bookings
for approximately 286,444 sleeper nights for the balance of our 2000
fiscal year, or approximately 44% of our target goal in fiscal 2000
of a 78% occupancy rate.
o PROVIDING VALUE-ADDED VACATION PRODUCTS AND SERVICES. We intend to
increase value for consumers by offering a complete world-wide
travel planning solution, including hotel accommodations, air
travel, and rental cars and other travel related products and
services, while attempting to offer the lowest possible prices. We
believe a strategy based on packaging the products and services of a
wide range of well-known travel suppliers at competitive prices will
result in sales growth from both new customers and repeat buyers. We
also believe that, because of our reputation and expertise in
certain selected destination markets, we can o generally provide
better prices and inventory availability than can be obtained by an
individual travel agency or traveler;
o enhance and simplify access to travel information across multiple
destinations; and
o assemble vacation travel components into convenient packages for
ease of planning and booking, all of which result in the creation of
value-added packaged vacation products and services.
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We intend to implement comprehensive quality assurance monitoring
programs to ensure that the products and services packaged together
will meet traveler expectations.
o ESTABLISHING NATIONAL BRAND NAME RECOGNITION. Using the
www.trrravel.com Web site as a marketing tool, our strategy is to
promote, advertise and increase the value and visibility of our
brand in the travel service and holiday resort hotel industries
through high quality service, active marketing and promotional
programs. These programs would include advertising on leading Web
sites and other media and conducting an ongoing public relations
campaign and developing business alliances and partnerships. We also
plan to increase awareness of our brand by entering into additional
online marketing relationships with advertising representatives,
content providers, Internet service providers and portals. We
believe offering expertise and competitive pricing through common
brands across multiple destinations will provide greater confidence
to travelers in making their vacation choices and engender consumer
loyalty and a pattern of repeat business. We also will seek
opportunities to market our products and services through travel
suppliers and other companies that have established private label
brand names.
o LEVERAGING STRENGTH IN SELECTED TRAVEL DESTINATIONS Our plan is to
achieve a leading position in several high-volume, high-margin
vacation destinations. We believe we currently have a leading
position in the market for vacations in the United Kingdom and to
certain European holiday resorts, including Malaga, located in Costa
del Sol, Spain and Tenerife, located in the Canary Islands off the
Northwest coast of Africa, and a significant presence in the markets
for packaged vacations to Canada, South Africa and Orlando, Florida.
By leveraging this current expertise and through selective
acquisitions of other travel specialists and tour operators, we
intend to increase our market position and cross-selling
opportunities to achieve a leading market presence in other
destinations throughout Europe, including Spain, Italy and Turkey.
We believe having scale and expertise in selected destinations gives
us access to pricing and inventory that provides us with a
significant competitive advantage.
o IMPROVING OPERATING EFFICIENCIES. We intend to reduce our operating
expenses by: (1) capitalizing on enhanced purchasing efficiencies
resulting from combining operations such as telecommunications
systems and brochure production and distribution; (2) implementing
best practices in our management and business systems, particularly
through the use of our Web site, which we believe will produce cost
savings as travel agents and individual travelers use our site to
purchase our products and services; (3) enhancing marketing
relationships with travel suppliers and other related parties; and
(4) utilizing outsource providers where appropriate. We believe
successful implementation of these strategies will enable our
operational management to devote more time to sales, service and
customer satisfaction.
o IMPLEMENTING INTEGRATED INFORMATION SYSTEMS. We believe integrating
information systems will improve our ability to offer travelers
value-added vacation products and services and to leverage
maintenance and development costs across a broader customer base. In
addition, integrated systems will facilitate the use of common
operating platforms, and reduce the cost and time requirements of
developing external interfaces such as interfaces to global
distribution systems and supplier systems, and accelerate the
integration of subsequent acquisitions.
o INVESTING IN LEADING TECHNOLOGY. We intend to invest in the
implementation of technology-driven enhancements to the trrravel.com
Web site and transaction-processing systems. In addition, we intend
to develop tighter integration with the booking systems of our
travel suppliers to ensure that our customers are exposed to special
promotional discounts as soon as these discounts are initiated to
help suppliers optimize their yields.
OUR GROWTH STRATEGY
To complement our operating strategy, we have developed a multi-faceted
growth strategy comprised of the following elements:
o ACQUIRE AND IMPROVE ADDITIONAL UNDERPERFORMING RESORT HOTELS. Using
our existing five hotels as a base, we plan to capitalize on our
management expertise by continuing to acquire underperforming hotels
and implementing operational initiatives to achieve revenue growth
and margin improvements.
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We plan to investigate the possibility of acquiring three-star and
better holiday resort hotels having at least 300 rooms in such
coastal vacation spots as Costa del Sol and Costa Brava in Spain as
well as in other southern European resort areas. We will invest
significant capital to renovate newly acquired hotels and, in
certain instances, we plan to re-brand hotels to highlight property
improvements to the marketplace and to improve average room tariff
rates and market share. We believe that our total cost to acquire
and renovate hotels will be significantly less than the cost to
construct new hotels with similar facilities. We expect that our
relationships throughout the industry and our in-house development
capabilities will provide us with a competitive advantage in
identifying, evaluating, acquiring, redeveloping and managing hotels
that meet our criteria.
o CONSUMMATING STRATEGIC ACQUISITIONS OF OTHER TRAVEL SERVICE
PROVIDERS. We believe the travel service industry is fragmented and
there are significant opportunities to make selective acquisitions
of travel service providers in the United Kingdom and throughout
Europe. We generally will seek to acquire companies that:
o have desirable destination concentrations;
o have demonstrated growth and profitability;
o have an emphasis on customer service;
o have an experienced management team; and
o are likely to add some other strategic value (such as a
relationship with a particular travel supplier).
We believe our ability to consummate acquisitions will be enhanced by our
historical performance, the experience and reputation of our management team,
our ability to offer liquidity to the owners of acquired companies through the
receipt of our securities or cash, our leading presence in certain high-volume,
higher-margin travel destinations and the growth opportunities available through
cross-selling within our markets.
o ENHANCING DISTRIBUTION CHANNELS. We plan to capitalize on the
opportunities presented by the direct selling of vacation products
and services to consumers online while still supporting and
leveraging our strong relationships with other independent retail
travel agents who are significantly smaller than the major agencies
and tour operators such as Air Tours and Thomsons. We intend to
encourage these smaller independent agencies, who currently compete
with us in the United Kingdom, to become an active participant on
the www.trrravel.com Web site. Through the use of the Internet and
as a result of relationships with Internet portals and Internet
service providers, we believe we will penetrate a significant
portion of the vacation travel market that currently books directly
with travel suppliers. We believe our value-added vacation products
and services will allow us to compete effectively with travel
suppliers by:
o generally providing better prices and inventory availability
than can be obtained by an individual travel agency or
traveler;
o enhancing and simplifying access to travel information across
multiple destinations; and o assembling vacation travel
components into convenient packages for ease of planning and
booking.
OUR PRODUCTS AND SERVICES
OUR GRAND HOTELS
Our five holiday hotels accommodated over 180,000 guests in its 1,274 room
in 1998. Our package rates are based on both four night and three night stays.
The five hotels are located in Blackpool, Scarborough, Brighton and Margate, all
seaside resorts located in England, and Llandudno, a seaside resort located in
Wales. The average cost per person per night, including accommodations,
breakfast and evening meal is approximately (pound)20.00, or approximately
$32.00. The Brighton, Llandudno and Margate hotels cater to family holidays with
children's entertainment and play areas, whereas the Blackpool and Scarborough
facilities are limited to adults only.
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The principal difference between our resort hotels and other hotels in the
United Kingdom is the inclusion of a food and entertainment package, which is
perceived by their guests as a complete holiday product. This has produced
significant repeat business with approximately 35% of all guests having visited
at least one Grand Hotel in the previous four years. Part of our growth strategy
is to expand our core short-break holiday entertainment package for larger
groups during the lower holiday occupancy periods, generally between January and
March. We also intend to offer special "up-market" weekend packages to the
younger consumer at higher prices. Due to our high profile in England, we
believe that we can effectively draw upon our core "holiday break" entertainment
package catering to groups and to private guests, both with an older and mid to
down-market profile as well as a younger, more affluent profile. To do this we
intend to utilize commercial radio, the national press and the Internet. In
addition we will target group repeat and new business by means of:
o one to one sales contact;
o personalized direct mail submissions to organizations;
o brand presence advertising on radio and the trade press;
o familiarization weekends for tour operators;
o hospitality invitations to trade press editors;
o joint promotions with third parties; and
o exhibitions and conferences.
In addition, we will seek to renovate our hotels based on strategic plans
designed to address the opportunities presented by each hotel and the hotel's
particular market. Renovations will include enhancing lobbies, restaurants and
public areas, and upgrading guest rooms. We believe that these renovations will
enable us to increase both occupancy and average room tariff rates and generate
attractive returns on our investment.
The following table sets forth certain information, as of December 31,
1999, regarding each of our hotels, including its location, the date acquired,
the number of existing rooms at the hotel, 1998 occupancy rates and the
facilities offered.
<TABLE>
<CAPTION>
NUMBER 1998
DATE OF OCCUPANCY FACILITIES
RESORT LOCATION ACQUIRED ROOMS RATES OFFERED
------ -------- -------- ----- --------- -----------
<S> <C> <C> <C> <C> <C>
The Grand Ocean Hotel Brighton June 30, 1999 352 74.9% food, entertainment and
leisure facilities
The Grand Metropole Hotel Blackpool June 30, 1999 208 88.2% food and entertainment
The Grand Hotel Margate June 30, 1999 267 74.2% food and entertainment
and leisure facilities
The Grand Hotel Scarborough June 30, 1999 281 81.2% food and entertainment
The Grand Hotel Llandudno June 30, 1999 166 87.3% food and entertainment
</TABLE>
OUR TRAVEL-RELATED SERVICES
We will continue to focus on specific destinations in order to become a
leading provider of value-added vacation products and services while at the same
time providing travel suppliers with efficient and cost effective distribution
of their services. We have expertise in and access to the products and services
of a broad range of travel suppliers. Based on customer research, we design our
products and services to offer travelers a wider choice than that of an
individual supplier. We assemble travel products and services in bulk and
combine them to create customized vacations for individual travelers. We create
demand for our products through integrated marketing programs and handle all
reservations, payment processing and supplier processing interfaces. We have
developed the in-depth knowledge of these products and services that a retail
travel agent, which acts as a broker or reseller of the entire spectrum of
travel products and services, is unlikely to acquire.
We provide private label vacation products and services for a variety of
companies located in the United Kingdom, including Marks & Spencer's, British
Telecom, Mercury Telecom, Greater Manchester Police and HSBC.
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UNITED KINGDOM. We are a provider of vacations in the United Kingdom and have
over 15 years of experience in the United Kingdom travel market. We have
relationships with major airlines, such as Singapore Airlines, British Airways,
Alitalia and Iberia, for air travel to, from and within the United Kingdom,
which provide us with preferential access to prices that generally are better
than published fares as well as marketing support. In addition, we utilize a
staff of over 45 employees on location in the United Kingdom to provide
destination management for our packaged vacations products and services. We
believe our extensive experience and established reputation in this market as
well as our airline relationships give us a competitive advantage over other
providers of vacations to and from the United Kingdom. We believe the United
Kingdom travel market will continue to present growth opportunities in the
future and to represent a significant portion of our revenues.
OTHER EUROPEAN VACATION DESTINATIONS. We specialize in packaged vacations
for travelers from the United Kingdom to holiday resorts located throughout
Europe. Tenerife, located in the Canary Islands off the coast of Northwest
Africa, and Malaga, located in Costa del Sol, Spain, are our most popular
European destinations to which we provide flight and packaged vacation services.
We also provide packaged vacations to a variety of other holiday destinations in
southern Europe, such as Italy and Turkey. We intend to increase our presence in
these markets by cross-selling within our existing customer base, by leveraging
our relationships with travel distributors in Europe to create demand for our
brand name products and services and by leveraging our existing relationships
with suppliers to obtain preferential pricing and access to capacity for
European destinations.
CANADA, SOUTH AFRICA AND ORLANDO, FLORIDA. We have an established presence
in the markets for travel to Canada, South Africa and Orlando, Florida. We have
over 15 years of experience in these markets and have established key strategic
relationships, including as one of a limited number of designated providers for
Disney World. We believe our extensive experience and established reputation in
this market as well as our supplier relationships give us a competitive
advantage over other providers of vacations to these destinations.
OUR TRAVEL WEB SITE
We intend to utilize a consumer-direct online travel site that will provide
travelers immediate access both to our proprietary booking system and to
detailed hotel information and destination guides. Visitors to the Web site at
www.trrravel.com will be able to compare travel options, rates and availability,
and book and purchase a wide variety of travel services, including our
independently tailored vacation programs and group packages. Unlike many other
travel Web sites, we will not require customers to pre-register or provide
personal information prior to searching our database for travel options.
Visitors simply type in their desired destination and itinerary, and the booking
engine simultaneously displays a range of travel options, rates and availability
for the visitor to compare. At any time, visitors can review detailed
information about each of our destination markets, including in-depth hotel,
shopping and dining information, local news and events and other travel planning
information. We will provide customer support through our call center seven days
a week to answer customer questions and assist in finding the best travel value
for their needs. Customers can either complete travel purchases in a few easy
steps online, or call our call center to purchase travel offline.
Visitors to the www.trrravel.com Web site can choose to search for hotel,
air or hotel/air packages. Once a visitor initiates a search, the trrravel.com
booking engine searches to locate the best prices possible for the desired
travel. To complete a purchase, customers select the hotel and/or airline of
their choice and supply basic identification and credit card information. Once
the order is submitted, the customer receives instant online confirmation that
travel has been booked and a subsequent e-mail to verify the transaction. The
www.trrravel.com Web site also provides its customers with the option to
complete travel purchases quickly and efficiently through the call center
maintained by us. Fulfillment is completed with e-tickets, whenever possible, or
printed tickets sent to the customer by second day air.
www.trrravel.com customers can view detailed information on hotel options
and destination markets at any time while shopping for travel values, all
without leaving the convenience of the Web site.
o HOTEL CONTENT. In addition to rates and availability, we provide
in-depth content on the hotels featured on our Web site, including
pictures of properties and rooms, descriptions of amenities and
locations, our own five star rating system and directions to the hotel.
By selecting and featuring a limited number of hotels in the economy,
mid-price and luxury price ranges in desirable areas of each market we
serve, we
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assist our customers in finding the properties best suited to their
individual preferences and budget constraints.
o "LATE DEALS." The www.trrravel.com home and destination pages feature
multiple "late deals" in cooperation with our strategic partners in
each market we serve by offering cheaper than usual promotional
discounts for a select number of hotels and hotel/air packages.
o LOCAL EVENTS AND ATTRACTIONS. www.trrravel.com will offer extensive
information on local events and attractions by providing access to
local content providers in each of our destination markets.
o GROUND TRANSPORTATION. www.trrravel.com will offer access to rental car
reservations and other local transportation options, such as taxi,
limousine and shuttle services.
o MAPS. www.trrravel.com will provide customers access to detailed and
accurate maps that pinpoint and provide directions to local
attractions, businesses and other addresses requested by the customer.
o WEATHER REPORTS. www.trrravel.com will provides access to current
weather information for planning future travel.
We will maintain a call center seven days a week, to assist customers in
using the www.trrravel.com Web site. The call center will receive and processes
orders for customers more comfortable with that medium, and assist customers in
changing or canceling travel arrangements prior to the dates of travel.
OUR SALES AND MARKETING PROGRAM
We engage in different marketing and advertising programs depending on the
particular travel service and whether the customers are primarily travel agents
or travelers.
OUR GRAND HOTELS. We employ a systematic approach toward identifying and
targeting segments of demand for each hotel in order to maximize market
penetration. We market our hotels directly to travelers in numerous ways,
principally through local newspaper and magazine advertisements highlighting
toll-free numbers and special travel offers. In addition, we advertise on local
radio and through direct mail utilizing a database guest roster obtained from
The Rank Group plc. In many cases, the travel providers contribute to the cost
of the advertising and marketing. To market directly to travel agents, we use
dedicated sales personnel, direct mailings and fax distribution technology. Our
sales teams are recruited locally and receive incentive-based compensation
bonuses. All of our sales managers complete a highly developed sales training
program.
OUR TRAVEL BUSINESS. We pursue a fully integrated sales and marketing
effort in support of our proprietary travel products and services. By employing
a multi-faceted marketing approach targeted both to travel distributors and to
individual travelers, we believe we will increase the demand for our products
and services. In addition, we will integrate our own marketing efforts with the
marketing support we receive from certain travel suppliers with whom we have an
established relationship. We believe we will be able to leverage our national
presence and established marketing and sales experience strength into a
competitive advantage. We intend to identify and cultivate new customers and
create cross-selling opportunities within our existing customer base.
A substantial majority of our products and services historically have been
sold through retail travel agencies, and we enjoy strong relationships with many
of these agencies. We intend to pursue marketing opportunities in other
distribution channels as well.
www.trrravel.com. Using the www.trrravel.com Web site as a world-wide
marketing tool, our strategy is to promote, advertise and increase the value and
visibility of our brand in the travel service and holiday resort hotel
industries through high quality service, active marketing and promotional
programs. These programs would include advertising on leading Web sites and
other media, conducting an ongoing public relations campaign and developing
business alliances and partnerships. We plan to increase awareness of our brand
by entering into additional online marketing relationships with advertising
representatives, content providers, Internet service providers and portals. We
believe offering expertise and competitive pricing through common brands across
multiple destinations will provide greater confidence to travelers in making
their vacation choices and engender consumer loyalty and a pattern of repeat
business. We also will seek opportunities to market our products and services
through travel suppliers and other companies that have established private label
brand names.
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OUR COMPETITION
OUR HOTEL BUSINESS. Competition in the United Kingdom lodging industry is
based generally on convenience of location, brand affiliation, price, range of
services and guest amenities offered and quality of customer service and overall
product. Our Grand Hotels compete primarily in the moderately-priced sector of
the full-service segment of the lodging industry in England and Wales. In each
geographic market in which the hotels are located, there are other full- and
limited-service hotels that compete with our hotels. Our principal competitor in
the Southern region of England is the Burstin Hotel located in Folkestone,
England. The Burstin Hotel is owned and operated by Queensborough Holdings plc
and contains 484 bedrooms. Its customer profile is primarily made up of coach
and group operators. In addition, our food and beverage operations compete with
local free-standing restaurants and bars. Many of these entities possess
significantly greater financial, marketing, personnel and other resources than
we do and may be able to grow at a more rapid rate than we can as result.
OUR TRAVEL BUSINESS. We compete with a variety of other providers of travel
and travel-related products and services. Our principal competitors are other
vacation providers, travel suppliers who sell directly to individual travelers
and travel agencies and other retail and wholesale distributors of travel
products and services. Many of these companies, including Air Tours, Thomsons,
First Choice and JMC (formerly Thomas Cook ) are substantially larger than us,
have greater name recognition and significantly greater financial resources than
we do. We believe we compete for customers based upon the quality of the travel
products and services delivered, price, specialized knowledge, reputation and
convenience.
www.trrravel.com. The online travel services market is new, rapidly
evolving, intensely competitive and has relatively low barriers to entry. We
believe that competition in the online travel services market is based
predominantly on:
o price;
o selection and availability of hotel rooms and airfares;
o selection of destination markets;
o ease of use of online booking service;
o customer service;
o reliability; and
o travel related content.
As the market for online travel services grows, we believe that companies
already involved in the online travel services industry will increase their
efforts to develop services that compete with our services. Currently, most
travel suppliers sell their services through travel agencies, travel wholesalers
and directly to customers, mainly by telephone. Increasingly, major airlines and
hotels are offering travel products and services directly to consumers through
their own Web sites. Some of these Web sites also include travel products and
services of other travel suppliers. We believe that this trend will continue. We
also face potential competition from Internet companies not yet in the leisure
travel market and travel companies not yet operating online. We are unable to
anticipate which other companies are likely to offer competitive services in the
future. We cannot be sure that the trrravel.com Web site and toll-free call
center will compete successfully with any current or future competitors.
OUR PROPRIETARY RIGHTS
We regard our trademarks, domain name, service marks, trade dress, trade
secrets, copyrights and similar intellectual property as important to our
success, and rely on foreign and domestic trademark and copyright law, trade
secret protection and confidentiality to protect our proprietary rights. We may
pursue the registration of additional trademarks in the United States and
internationally in the future. Effective trademark, service mark, copyright and
trade secret protection may not available in every country in which our products
and services are made available online. Failure to effectively protect our
intellectual property could adversely affect our business and stock price or
result in erosion of our brand name.
Currently, the only trademark we have is "trrravel.com". As a result of our
efforts to protect our rights in the "trrravel.com" brand, we could become
involved in litigation, which would likely be expensive and time
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consuming, and could distract management from the operations of the business.
Furthermore, we cannot be sure we would prevail in any such litigation. Please
see "Risk Factors--We may be unable to protect our intellectual property,
including our trademarks, which could adversely affect our operating results"
for a discussion about the risks associated with the protection of our
proprietary rights.
GOVERNMENT REGULATION OF OUR BUSINESS
Our travel services business is subject to certain regulation by the
government of the United Kingdom, including the Package Travel, Package Holidays
and Package Tours Regulations 1992. In addition, many travel suppliers,
particularly airlines, are subject to extensive regulation by United States
federal, state and foreign governments. In addition, the travel industry is
subject to certain special taxes by United States federal, state, local and
foreign governments, including hotel bed taxes, car rental taxes, airline excise
taxes and airport taxes and fees.
Certain companies in our Travel Group are subject to regulation by the
Civil Aviation Authority. The Air Travel Organisers' Licensing (ATOL) system
provides protection, inter alia, against the consequences of travel organiser
failure for consumers who purchase package holidays, charter flights and
discounted scheduled air tickets.
Under the Civil Aviation (Air Travel Organisers' Licencing) Regulations
1995, it is a legal requirement for most organizers of air travel to hold an Air
Travel License to sell flights and package holidays by air. The main exceptions
are airlines and agents of licensed firms. The Civil Aviation Authority holds
bonds of licensees and, in the event of a failure, manages a repatriation
operation to ensure customers are not stranded abroad, and provides refunds to
those who have paid in advance. The cost of this protection is included in the
price of the holiday booked with an ATOL holder.
The criteria for the grant of an ATOL License is as follows:
1. Fitness of Applicant
The Civil Aviation Authority must be satisfied as to the fitness of an
applicant, and the fitness of the people controlling the business. It asks for
the history of those controlling the business and it considers the likelihood of
the applicant operating in a proper manner if the license is granted.
2. Finances
The applicant must meet certain minimum financial criteria in order to be
granted a license. The assessment is usually based on the applicant's latest
audited financial statements. The financial requirements are based on the
surplus of "free assets" in the balance sheet to support the business. A minimum
of $49,000 paid up capital under free assets is required and above that there
must be an adequate ratio between free assets and the total turnover of the
business. The ratio varies according to the Civil Aviation Authority's
assessment of the risks involved, the trading record and the experience of the
management. For new applicants the ratio is at least 5% for established license
holders with a record of profitable trading or trading with a license over at
least two years the ratio may reduce in stages. The minimum ratio is 3%.
The Civil Aviation Authority may also look at the position of other
companies in the group.
Licenses are normally valid for one year and expire at the end of March or
the end of September.
In addition, certain companies in our Travel Group are members of The
Association of British Travel Agents Limited which requires adherence to a Code
of Conduct covering service standards as well as mirroring the requirements of
the ATOL scheme.
Our Grand Hotel Group is subject to certain licensing laws in England and
Wales relating to the selling of alcohol and the operation of bars and cocktail
lounges in hotels as well as various fire, health and safety regulations. A
serious violation could result in a significant fine or even the forced closing
of one or more of our hotels.
We are also subject to regulations applicable to businesses generally and
laws or regulations directly applicable to electronic commerce. Although there
are currently few laws and regulations directly applicable to
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electronic commerce, it is possible that a number of laws and regulations may be
adopted with respect to electronic commerce covering issues such as user
privacy, pricing, content, copyrights, distribution, antitrust and
characteristics and quality of products and services.
ENVIRONMENTAL MATTERS
A variety of laws concerning the protection of the environment and health
and safety apply to the operations, properties and other assets we own. These
laws may originate at the European Union, United Kingdom or local level. These
environmental laws govern, among other things, the discharge of substances into
waterways and the quality of water discharge of substances into sewers, waste
and contamination. Liability can attach to a person who causes or knowingly
permits the discharge of substances to waterways or sewers: (i) without a permit
authorizing such discharges; or (ii) beyond the scope of the applicable permit.
The legal regime with respect to contamination of land in the United Kingdom is
expected to change in April 2000. In general, liability and responsibility for
contamination will remain with the person responsible for the contamination,
however, the new regime defines this to be the person who "causes or knowingly
permits" contamination, and in the absence of such a person, the owner or
occupier of the site may be held responsible for remediation. In addition to
civil claims, criminal sanctions can be imposed for violations of environmental
laws and any persons violating these laws can be held responsible for the cost
of remedying the consequences of pollution, contamination or damage. In
addition, certain laws restrict the use of property and the construction of
buildings and other structures. Carrying out development without the appropriate
consent or beyond the scope of the consent can result in regulatory authorities
taking action to require the unauthorized use to cease or the unauthorized
building or structure to be removed or modified. Criminal sanctions are
available if the authority's requirements are not satisfied. Please see "Risk
Factors--We May Be Subject to Various Environmental Laws and Regulations that
Impose Certain Requirements Relating to the Ownership and Use of our Resort
Hotels and We Could be Subject to Fines or other Penalties for Failure to Comply
with such Regulations" for a discussion of the risks we may face as a result of
environmental laws applicable to our business.
OUR EMPLOYEES
As of January 31, 2000, our Travel business had a total of 47 employees,
consisting of 36 reservation agents and call center employees, six managers and
five executives. As of such date, our Grand Hotels had a total of 731 employees,
consisting of 652 operational personnel, 30 administrative personnel, 22 sales
representatives, and a management team of 27 personnel. Our ability to attract
and retain highly qualified employees will be the principal determinant of our
success. We provide performance-based compensation programs to reward and
motivate significant contributors among our employees. Competition for qualified
personnel in the industry is intense. There can be no assurance that our current
and planned staffing will be adequate to support our future operations or that
management will be able to hire, train, retain, motivate and manage required
personnel. Although none of our employees is represented by a labor union, there
can be no assurance that our employees will not join or form a labor union. We
have not experienced any work stoppages and consider our relations with our
employees to be good.
OUR INSURANCE
We carry comprehensive liability, fire, hurricane, storm, earthquake and
business interruption insurance with respect to our resorts, with policy
specifications, insured limits and deductibles customarily carried for similar
properties which we believe are adequate. There are, however, certain types of
losses (such as losses arising from acts of war) that are not generally insured
because they are either uninsurable or not economically insurable. Should an
uninsured loss or a loss in excess of insured limits occur, we could lose our
capital invested in a resort, as well as the anticipated future revenues from
such resort and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could have a material
adverse effect on our business. Please see "Risk Factors--Our Resorts may be
Subject to Natural and other Disasters for which we may not be Adequately
Insured" for a discussion of certain related risks.
OUR FACILITIES
Our headquarters are located at 6 Leylands Park, Nobs Crook, Colden Common,
Winchester SO21 1TH England, where we utilize a facility comprising an aggregate
of approximately 6,000 square feet of space that is
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leased by Queensborough Holdings plc. Such facility houses our administrative,
sales and marketing, customer service and computer and communications systems
facilities. Kevin R. Leech, our Chairman, is the Executive Chairman and 29.7%
equity owner of Queensborough Holdings. We do not currently pay any rent or fees
to Queensborough Holdings or any other party for the use of these facilities.
See "Certain Transactions--Facilities."
<TABLE>
The following table describes our other principal facilities:
<CAPTION>
LOCATION PRINCIPAL USE APPROX. SQUARE FEET OWNED/LEASED
-------- ------------- ------------------- ------------
<S> <C> <C> <C>
Horsham, West Sussex General administration 930 Leased
and sales
Manchester Tour operating 1,995 Leased
Manchester,
Oldham Road Tour operating 3,040 Leased
Stockport, Cheshire General administration 1,025 Leased
and sales
Urmston, Cheshire General administration 930 Owned
and sales
Hale, Cheshire General administration 730 Leased
and sales
Warrington, Lancshire General administration 970 Leased
and sales
Addington, Cheshire General administration 900 Leased
and sales
</TABLE>
We believe that these facilities are adequate to meet our needs in the
foreseeable future. If necessary, we may, from time to time, acquire or lease
additional facilities in the future.
Please see "--Our Grand Hotel Group" for a discussion of the resort
facilities currently owned and operated by our Grand Hotel Group.
LITIGATION
We are not presently involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of the date of this prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Kevin R. Leech ............ 55 Chairman of the Board
Raymond J. Peel ........... 55 President, Chief Executive Officer and Director and
President of the Travel Group
Rod Rodgers ............... 54 Senior Executive Vice President and Director and
President of the Grand Hotel Group
David Marriott ............ 53 Marketing Director and Vice President of the
Grand Hotel Group
Stephen Last .............. 50 Executive Vice President and Chief Financial Officer
and Director
Philip Mason .............. 50 Director
</TABLE>
KEVIN R. LEECH has served as our Chairman of the Board since inception of
our company. Mr. Leech co-founded ML Laboratories plc, an English company listed
on the London Stock Exchange engaged in the research and development of ethical
pharmaceuticals and related products, and is currently its Executive Chairman
and controls 53% of its equity. He is also Executive Chairman and 29.7% equity
owner of Queensborough Holdings plc, an English company listed on the London
Stock Exchange whose principal business is in the leisure sector. Mr. Leech is
also currently the Chairman of the Board and 52.5% equity owner of topjobs.net
plc, an English company whose American depositary shares are quoted on the
Nasdaq National Market and which provides a variety of Internet-based recruiting
services to corporations and recruiting firms, and is a director and 62.5%
equity owner of TownPagesNet.com plc, an English company whose American
depositary shares are listed on the American Stock Exchange and which produces
and delivers TownPages(R), an interactive Internet information service in the
United Kingdom. In addition, Mr. Leech is a director and a 54% equity owner of
ci4net.com, Inc., a U.S. corporation which invests in Internet businesses and
technologies and is currently traded on the OTC-Electronic Bulletin Board. He is
also a principal stockholder of numerous privately-owned companies resulting
from his role as a provider of private venture capital. In October 1998, Mr.
Leech was awarded an honorary Doctorate of Laws degree from the University of
Manchester (England).
RAYMOND J. PEEL has served as our President and Chief Executive Officer
and as a director since inception of our company, and has served as President of
Leisure Travel Group Limited since January 1998. From 1991 to January 1998, Mr.
Peel served as President of Aircruise Leasing--Charter, a company engaged in the
provision of aircraft and charter seats for independent tour operators to major
European holiday destinations. In 1981, Mr. Peel founded R.P. Marketing, a
company engaged in providing consulting services related to oil pollution
control in connection with moving equipment and personnel, and served as its
President from 1981 to January 1998. In 1985, Mr. Peel also co-founded Paramount
Airways Ltd., a small international airline and holiday company based in the
United Kingdom, and served as its Chief Executive Officer from 1985 to 1990. Mr.
Peel holds a leisure and business degree from Shrewsbury College of Arts and
Technology in England.
ROD RODGERS has served as a director since the inception of our company,
and has served as President of Grand Hotel Group since July 1, 1999. Mr. Rodgers
will become our Senior Executive Vice President upon completion of this
offering. From July 1996 to June 1999, Mr. Rodgers served as managing director
with M.H. Hotels, where he was instrumental in forming the three-star Epworth
Hotels group. From 1987 to January 1996, Mr. Rodgers served as Chief Executive
Officer with Balmoral Group, a private company focused on the development of a
mid-market three-star hotel group.
DAVID MARRIOTT has served as our Marketing Director since inception of our
company, and has served as Vice President of the Grand Hotel Group since July 1,
1999. From February 1998 to June 1999, Mr. Marriott was self-employed as a hotel
consultant to various hotel organizations in the United Kingdom. From June 1993
to November 1995, Mr. Marriott served as Managing Director for Ascot Holdings
plc's Hotel Burstin, Folkestone,
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and continued in that capacity from November 1995 to February 1998 following the
acquisition of that hotel by Leisure Great Britain plc in November 1995. From
September 1994 to March 1995, Mr. Marriott served as Joint Director General of
Ascot Holdings Spanish Hotel Division, a division composed of hotels and leisure
complexes in Spain owned by Ascot Holdings plc. Mr. Marriott has also held
senior sales and marketing positions with the medical division of Smiths
Industries, Colgate-Palmolive Company, and Protea Holdings, South Africa.
STEPHEN LAST has served as our Executive Vice President and Chief
Financial Officer and as a director since the inception of our company. Since
November 1995, Mr. Last has served as Finance Director of Queensborough Holdings
plc, an English company listed on the London Stock Exchange whose principal
business is in the leisure sector. From 1993 to October 1995, Mr. Last served as
an executive for a company founded by Philip Mason to engage in identifying
leisure companies for acquisition. From 1989 to 1993, Mr. Last managed the
integration of Marina Developments plc's newly-acquired property division. From
1974 to 1986, Mr. Last was employed in various capacities by The Rank Group plc,
including Financial Controller for that company's Butlin's Hotels Division.
PHILIP MASON has served as a director since the inception of our company.
Since November 1995, Mr. Mason has been Chief Executive of Queensborough
Holdings plc, an English company listed on the London Stock Exchange whose
principal business is in the leisure sector. In 1993, Mr. Mason established his
own company devoted to identifying and acquiring leisure companies, which he ran
full-time until his employment by Queensborough Holdings in November 1995. From
1987 to 1993, Mr. Mason worked as a Managing Director for Marina Developments
plc, where he supervised marinas and marina villages in the United Kingdom. From
1974 to 1986, Mr. Mason was employed in various capacities by The Rank Group
plc, including Operations Director of a leisure division focused on hotel
businesses and marinas in France, Spain, and the United Kingdom.
Prior to the completion of this offering, we intend to expand our Board of
Directors to add two additional independent directors who are not affiliated
with our company.
There is no family relationship between any of our executive officers and
directors. Other than as disclosed in "Certain Transactions," none of our
directors or executive officers has had any material transaction with us in
addition to their status as a director or officer. Each director is elected at
our annual meeting of stockholders and holds office until the next annual
meeting of stockholders, or until his successor is elected and qualified. The
bylaws permit the Board of Directors to fill any vacancy and a director elected
to fill such vacancy may serve until the next annual meeting of stockholders or
until his successor is elected and qualified. Officers are elected annually by
the Board of Directors and their terms of office are at the discretion of the
Board, subject to the terms of any employment agreements. Our officers devote
full time to our business.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors intends to establish an audit and finance committee
and a compensation and governance committee after this offering. The audit and
finance committee will:
o make recommendations to the Board of Directors concerning the
independent auditors that conduct annual examinations of our
accounts;
o review the scope of our annual audit and meet periodically with the
independent auditors to review their findings and recommendations;
o approve significant accounting policies or changes to existing
policies;
o periodically review our principal internal financial controls; and
o review our annual budget.
The compensation and governance committee will review the compensation of
our executive officers and make recommendations regarding compensation. The
committee will also make recommendations regarding the election of officers and
director nominations to our Board of Directors.
DIRECTOR COMPENSATION
Upon completion of this offering, we expect to grant each director who is
not an officer, employee or consultant an option to purchase _____ shares of our
common stock at ___% of the initial public offering price.
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Directors who are not our employees receive $______ per meeting as compensation
for serving on the Board of Directors, as well as reimbursement of reasonable
out-of-pocket expenses incurred in connection with their attendance at Board of
Directors' meetings. Directors who are also our employees will receive no cash
compensation for serving on the Board of Directors, but will be reimbursed for
reasonable out-of-pocket expenses incurred in connection with their attendance
at Board of Directors' meetings. We anticipate that our Board of Directors will
hold regularly scheduled meetings quarterly.
EXECUTIVE COMPENSATION
To date, we have not conducted any operations other than activities
related to this offering. We did not pay any compensation to our executive
officers prior to the date of this prospectus. We anticipate that during 2000
our most highly compensated executive officers and their annualized base
salaries will be: Raymond J. Peel--$162,000; Rod Rodgers--$97,000 and David
Marriott--$89,000. Effective when this offering closes, we will grant these
executive officers options to purchase an aggregate of shares of common stock.
The initial exercise price of those options will be $_____ per share. Those
options will vest in __% annual increments, beginning on the first anniversary
of the date this offering closes. See "--2000 Stock Option Plan."
EMPLOYMENT AGREEMENTS
We will enter into employment agreements with Messrs. Peel, Rodgers and
Marriott, which will become effective when this offering closes. These
agreements will:
o provide for a minimum base salary of $162,000 per annum in the case
of Mr. Peel, $97,000 per annum in the case of Mr. Rodgers, and
$89,000 per annum in the case of Mr. Marriott;
o entitle the employee to participate in all our compensation plans in
which our executive officers participate; and
o have an initial employment term of three years in the case of Mr.
Peel, and six months in the case of Messrs. Rodgers and Marriott.
Each of these agreements will provide for benefits if the employee dies or
becomes disabled. If the employment of the employee is terminated by us for any
reason other than for cause or by the employee for good reason, that termination
will not affect the term of exercisability of any stock options granted to the
employee under our 2000 Stock Option Plan that such employee holds. Copies of
these agreements are exhibits to the registration statement of which this
prospectus is a part.
2000 STOCK OPTION PLAN
On February 23, 2000, the Board of Directors and a majority of our
stockholders adopted our 2000 Stock Option Plan (the "Plan"). The purpose of the
Plan is to increase the employees', advisors', consultants' and non-employee
directors' proprietary interest in us and to align more closely their interests
with the interests of our stockholders. The purpose of the Plan is also to
enable us to attract and retain the services of experienced and highly qualified
employees and non-employee directors.
We have reserved an aggregate of 1,000,000 shares of common stock for
issuance pursuant to options granted under the Plan. As of the date of this
prospectus, ____ options have been granted under the Plan at an exercise price
of $____ per share. The Board of Directors or a committee of the Board of
Directors will administer the Plan including, without limitation, the selection
of the persons who will be granted options under the Plan, the type of options
to be granted, the number of shares subject to each option and the option price.
As of this date, the Board of Directors has not established a separate committee
for this purpose.
Options granted under the Plan may either be options qualifying as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or options that do not so qualify. Officers, directors and key
employees of and consultants to us and our subsidiaries will be eligible to
receive non-qualified options under the Plan. Only our officers, directors and
employees who are employed by us or by any of our subsidiaries thereof are
eligible to receive incentive options. In addition, the Plan also allows for the
inclusion of a "reload option" provision, which permits an eligible person to
pay the exercise price of the option, and any withholding
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<PAGE>
taxes that may be due on the exercise, with shares of common stock owned by the
eligible person and to receive a new option to purchase shares of common stock
equal in number to the tendered shares. Any incentive option granted under the
Plan must provide for an exercise price of not less than 100% of the fair market
value of the underlying shares on the date of such grant, but the exercise price
of any incentive option granted to an eligible employee owning more than 10% of
the total combined voting power of all classes of our common stock or the common
stock of any of our subsidiary companies must be at least 110% of such fair
market value as determined on the date of the grant.
The term of each option and the manner in which it may be exercised is
determined by the Board of Directors or a committee, provided that no option may
be exercisable more than 10 years after the date of its grant and, in the case
of an incentive option granted to an eligible employee owning more than 10% of
our common stock or the common stock of our subsidiary companies, no more than
five years after the date of the grant. In any case, the exercise price of any
stock option granted under the Plan will not be less than 85% of the fair market
value of the common stock on the date of grant. The exercise price of
non-qualified options shall be determined by the Board of Directors or a
committee.
The per share purchase price of shares subject to options granted under
the Plan may be adjusted in the event of certain changes in our capitalization,
but any such adjustment shall not change the total purchase price payable upon
the exercise in full of options granted under the Plan.
Incentive stock options are non-assignable and non-transferable, except by
will or by the laws of descent and distribution and, during the lifetime of the
optionee, may be exercised only by such optionee. Non-qualified options may be
assignable to the optionee's spouse or children. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not our employee but is a member of our Board of
Directors and his service as a director is terminated for any reason, other than
death or disability, the option granted may be exercised on the earlier of the
expiration date or 30 days following the date of termination. If the optionee
dies during the term of his employment, the option granted to him shall lapse to
the extent unexercised on the earlier of the expiration date of the option or
the one year anniversary of the optionee's death. If the optionee is permanently
and totally disabled within the meaning of Section 22(c)(3) of the Code, the
option granted to him lapses to the extent unexercised on the earlier of the
expiration date of the option or one year following the date of such disability.
The Board of Directors or a committee may amend, suspend or terminate the
Plan at any time, except that no amendment shall be made which: (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefor (except in either case in the event of adjustments due to changes
in our capitalization); (ii) without the consent of the optionee, affects
outstanding options or any exercise right thereunder; (iii) extends the term of
any option beyond ten years; or (iv) extends the termination date of the Plan.
Unless the Plan shall be earlier suspended or terminated by the Board of
Directors, the Plan shall terminate on approximately 10 years from the date of
the Plan's adoption. Any such termination of the Plan shall not affect the
validity of any options previously granted thereunder.
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CERTAIN TRANSACTIONS
ACQUISITIONS
Effective June 30, 1999, GHG purchased from Rank Holidays Division
Limited, a subsidiary of The Rank Group plc, substantially all of the operating
assets relating to five hotels formerly known as the Butlin's Provincial Hotels.
GHG is a private limited company organized under the laws of England and Wales
that is 85% owned by Cygnet Ventures Limited, a Guernsey (Channel Islands)
corporation controlled by Kevin R. Leech, our Chairman of the Board and
principal stockholder, and 15% owned by certain other members of our management
team. Approximately $16.8 million of the $30.7 million purchase price for the
hotel assets was paid by GHG's issuance of a non-interest-bearing promissory
note due 2002. The GHG note was secured by an irrevocable letter of credit
issued by Citibank, N.A. in favor of Butlin's Limited, a subsidiary of The Rank
Group plc. The issuance of the letter of credit was obtained through the
personal guaranty of Mr. Leech. GHG financed its cash payment of the purchase
price through loans obtained from Arab Bank plc and Irish Nationwide Building
Society secured by charges granted by GHG, including mortgages on the purchased
hotels.
Upon payment of the $16.8 million of indebtedness owed to The Rank Group
plc or its subsidiaries, Mr. Leech will be relieved of his personal guaranty and
certain marketable securities pledged by him to secure his guaranty will be
returned to him. See "Risk Factors--Our Principal Stockholder Will Derive
Significant Benefits From this Offering," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Terms of our Acquisitions" and
"Principal Stockholders."
In July 1999, LTGL acquired all of the issued and outstanding share
capital of Miss Ellie's World Travel Limited, a private limited company
organized under the laws of England and Wales. LTGL funded the $1,667,000
acquisition through a loan from Red Kite Ventures Limited, an investment company
beneficially owned by Red Kite Trust, the beneficiary of which is Kevin R.
Leech, our Chairman of the Board and principal stockholder. Red Kite has agreed
to convert this loan into equity upon completion of this offering. In
consideration of such accomodation, we agreed to permit Red Kite to register
under the Securities Act all of its 416,333 shares in our company, and include
such shares in the underwriter's over-allotment option. If Red Kite is unable to
sell all of such 413,333 registered shares upon expiration of the over-allotment
option, it may nevertheless sell such shares during the first 15 days following
the end of the option exercise period.
In January 2000, LTGL also acquired all of the issued and outstanding
share capital of Ilios Travel Limited for $526,000. LTGL also funded this
acquisition through a loan from Red Kite Ventures Limited.
In March 2000, the stockholders of GHG agreed to transfer 100% of the
outstanding share capital of GHG to LTGL in exchange for the issuance of an
aggregate of 94,468 ordinary shares of LTGL, and the stockholders of LTGL,
including the holders of the additional 94,468 ordinary shares of LTGL agreed to
transfer to us 100% of the outstanding share capital of LTGL in exchange for the
issuance of an aggregate of 4,640,000 shares of our common stock. In addition,
ci4net.com, Inc., a public company in which Kevin R. Leech is a principal
stockholder, agreed to transfer to us 49% of the outstanding share capital of
trrravel.com Limited in exchange for the issuance of an aggregate of 220,000
shares of our common stock. All of such transfers are conditioned upon, among
other things:
o the completion of this offering and application of a portion of the
net proceeds (together with additional mortgage financing) to retire
all approximately $16.8 million of indebtedness of GHG owed to The
Rank Group plc or its subsidiaries; and
o the capitalization of approximately $1,667,000 of loans made to LTGL
by a corporate affiliate of Kevin R. Leech.
OTHER TRANSACTIONS
We anticipate that our travel business will be engaging in significant
advertising of its travel agency, tour operator and other services on
www.trrravel.com and will pay fees and commissions based on on-line bookings
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made and transactions closed through use of the Web site. trrravel.com Limited
is currently 51%-owned by ci4net.com, Inc., a publicly-traded Delaware
corporation controlled by Kevin R. Leech, our principal stockholder and Chairman
of the Board, and 49%-owned by Technology Finance Limited, a corporation also
affiliated with Mr. Leech. Technology Finance Limited has agreed, upon
completion of this offering, to contribute its entire 49% equity ownership in
trrravel.com Limited to us. It is anticipated that ci4net.com will continue to
be solely responsible for the development and maintenance of the Web site.
Although we believe that the fees and commissions we pay to advertise on
www.trrravel.com will be at rates no less favorable than are being charged to
unaffiliated third parties, Mr. Leech's other corporate affiliates will directly
benefit as we increase our advertising on the trrravel.com Limited Web site. The
common control of our company and the majority owner of trrravel.com Limited
could lead to conflicts of interest in terms of the most effective means of
marketing and advertising our services. In addition, as more people use the
Internet to book their travel accommodations, the business of our travel
agencies and tour operators could be adversely affected.
Mr. Leech is the principal stockholder of Queensborough Holdings plc, a
publicly traded corporation trading on the London Stock Exchange. Among the
holdings of Queensborough Holdings plc is the Burstin Hotel, located in
Folkestone, England, which is a holiday resort hotel similar to those operated
by our Grand Hotel Group, and which competes with our Grand Hotel Group for
guests in the same market. Philip Mason, a director of our company, and Stephen
Last, our Executive Vice President and Chief Financial Officer, are also
executive officers of Queensborough Holdings plc. See "Risk Factors--There Is
the Possibility of Conflicts of Interest with Other Businesses Controlled By Our
Principal Stockholder" and "Principal Stockholders."
FACILITIES
Our headquarters are located in a facility that is currently leased by
Queensborough Holdings plc, an English company listed on the London Stock
Exchange. Kevin R. Leech, our Chairman, is the Executive Chairman and 29.7%
equity owner of Queensborough Holdings plc. We do not currently pay any rent or
fees to Queensborough Holdings plc or any other party for the use of these
facilities. See "Business--Our Facilities."
COMPANY POLICY
Our Board of Directors has adopted a policy whereby any future
transactions between ourselves and any of our subsidiaries, affiliates,
officers, directors and principal stockholders, or any affiliates of the
foregoing, will be on terms no less favorable to us than could reasonably be
obtained in "arm's-length" transactions with independent third-parties, and any
such transactions will also be approved by a majority of our disinterested
non-management directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus:
o each person who is known by us to be the owner of record or beneficial
owner of more than 5% of our outstanding common stock;
o each of our directors and executive officers;
o all of our directors and executive officers as a group; and
o the number of shares of common stock beneficially owned by each such
person and such group and the percentage of the outstanding shares
owned by each such person and such group.
As used in the table below and elsewhere in this prospectus, the term
"beneficial ownership" with respect to a security consists of sole or shared
voting power, including the power to vote or direct the vote, and/or sole or
shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the next 60 days following the date of this prospectus. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated. Applicable
percentage ownership is based on 5,060,000 shares of common stock outstanding as
of the date of this prospectus and 8,060,000 shares immediately following the
completion of this offering, assuming no exercise of the underwriters'
over-allotment option. To the extent that any shares are issued upon the
exercise of options, warrants or other rights to acquire our securities that are
presently outstanding or granted in the future or reserved for future issuance
under our stock option plan, there will be further dilution to new public
investors.
Except as otherwise noted below, the address of each of the persons in the
table is c/o Leisure Travel Group, Inc., 6 Leylands Park, Nobs Crook, Colden
Common, Winchester SO21 1TH England.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
COMMON STOCK
NUMBER OF SHARES BENEFICIAL OWNED
OF COMMON STOCK --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
Kevin R. Leech 3,878,334(1) 76.6% 48.1%
Cignet Ventures Limited(2) 3,145,000 62.2% 39.0%
Philip Mason 370,000 7.3% 4.6%
Raymond J. Peel 263,333 5.2% 3.3%
Internet plc(3) 263,333 5.2% 3.3%
Red Kite Ventures Limited(4) 413,333 8.2% 5.2%
Technology Finance Limited(5) 220,000 4.3% 2.7%
Milner Laboratories Limited(6) 200,000 4.0% 2.5%
Stephen Last 74,000 1.5% *
Rod Rodgers 74,000 1.5% *
David Marriott 37,000 * *
All directors and executive officers
as a group (6 persons) 4,747,667 93.8% 58.9%
</TABLE>
- ----------------------
* indicates beneficial ownership of less than 1% of our outstanding shares of
common stock.
(1) Represents shares of our common stock owned of record by Cignet Ventures
Limited, a Guernsey (Channel Islands) corporation controlled by Mr. Leech,
Red Kite Ventures Limited, a Guernsey (Channel Islands) corporation 100%
beneficially owned by Red Kite Trust, the beneficiary of which is the
Leech family, Technology Finance Limited, a private British Virgin Islands
corporation controlled by Mr. Leech, and Milner Laboratories Limited, a
private limited company controlled by Mr. Leech. Please see "Certain
Transactions" for a detailed discussion of certain business arrangements
between Mr. Leech and/or companies controlled by Mr. Leech, and Leisure
Travel Group.
(2) Cignet Ventures Limited is a Guernsey (Channel Islands) corporation
controlled by Kevin R. Leech, our Chairman of the Board and principal
stockholder.
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(3) Internet plc is a Seychelles corporation controlled by Lee Cole.
(4) Red Kite Ventures Limited is a Guernsey (Channel Islands) corporation 100%
beneficially owned by Red Kite Trust, the beneficiary of which is the family
of Kevin R. Leech. These shares issued to Red Kite are being registered
under the Securities Act and may be sold upon exercise of the underwriters'
over-allotment option. If not sold as part of the option, such shares may be
sold during the first 15 days following the end of the option exercise
period.
(5) Technology Finance Limited is a private British Virgin Islands corporation
controlled by Mr. Leech.
(6) Milner Laboratories Limited is a private limited company controlled by Kevin
R. Leech.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue up to 25,000,000 shares of common stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share. The following description of our capital stock is not complete and is
qualified in its entirety by our Certificate of Incorporation, as amended, and
bylaws, copies of which have been filed with the Securities and Exchange
Commission.
COMMON STOCK
As of the date of this prospectus, there were 5,060,000 shares of common
stock outstanding held of record by 10 stockholders (not including the shares
issued in this offering). Holders of common stock are entitled to one vote for
each share held of record on each matter submitted to a vote of stockholders.
There is no cumulative voting for the election of directors. Subject to the
prior rights of any class or series of preferred stock which may from time to
time be outstanding, if any, holders of common stock are entitled to receive
ratably, dividends when, as, and if declared by the Board of Directors out of
funds legally available for that purpose and, upon the liquidation, dissolution,
or winding up of Leisure Travel Group, are entitled to share ratably in all
assets remaining after payment of liabilities and payment of accrued dividends
and liquidation preferences on the preferred stock, if any. Holders of common
stock have no preemptive rights and have no rights to convert their common stock
into any other securities. The outstanding common stock is validly authorized
and issued, fully-paid, and nonassessable. In the event we were to elect to sell
additional shares of common stock following this offering, investors in this
offering would have no prior right to purchase additional shares. As a result,
their percentage equity interest in Leisure Travel Group would be diluted.
The shares of common stock offered in this offering will be, when issued
and paid for, fully paid and non-assessable. Holders of the common stock do not
have cumulative voting rights, which means that the holders of more than one
half of the outstanding shares of common stock, subject to the rights of the
holders of the preferred stock, can elect all of our directors, if they choose
to do so. In this event, the holders of the remaining shares of common stock
would not be able to elect any directors. The Board of Directors is empowered to
fill any vacancies on the board, except vacancies caused by an increase in the
number of directors, which are filled by the stockholders. Except as otherwise
required by Delaware law, and subject to the rights of the holders of preferred
stock, all stockholder action is taken by the vote of a majority of the
outstanding shares of common stock voting as a single class present at a meeting
of stockholders at which a quorum consisting of a majority of the outstanding
shares of common stock is present in person or proxy.
PREFERRED STOCK
As of the date of the offering, none of our preferred stock has been issued
and our Board of Directors has no present intention of issuing any preferred
shares in the near future.
Preferred stock may be issued in one or more series and having the rights,
privileges, and limitations, including voting rights, conversion privileges, and
redemption rights, as may, from time to time, be determined by our Board of
Directors. Preferred stock may be issued in the future in connection with
acquisitions, financings, or other matters as the Board of Directors deems
appropriate. In the event that any shares of preferred stock are to be issued, a
certificate of designation containing the rights, privileges, and limitations of
such series of preferred stock shall be filed with the Secretary of State of the
State of Delaware. The effect of such preferred stock is that our Board of
Directors alone, and subject to, federal securities laws and Delaware law, may
be able
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to authorize the issuance of preferred stock which could have the effect of
delaying, deferring, or preventing a change in control of Leisure Travel Group
without further action by the stockholders, and may adversely affect the voting
and other rights of the holders of the common stock. The issuance of preferred
stock with voting and conversion rights may also adversely affect the voting
power of the holders of common stock, including the loss of voting control to
others.
ANTI-TAKEOVER PROVISIONS
Upon consummation of this offering, we will be subject to the provisions of
Section 203 of the Delaware General Corporation Law. Section 203 of the Delaware
General Corporation Law provides, subject to a number of exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or an affiliate, or an associate of an affiliate, who
is an "interested stockholder" for a period of three years from the date that
person became an interested stockholder unless:
o the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the Board of
Directors of the corporation before the person becomes an interested
stockholder,
o the interested stockholder acquired 85% or more of the outstanding
voting stock of the corporation in the same transaction that makes
this person an interested stockholder, excluding shares owned by
persons who are both officers and directors of the corporation, and
the shares held by certain employee stock ownership plans, or
o on or after the date the person becomes an interested stockholder, the
business combination is approved by the corporation's Board of
Directors and by the holders of at least 66X\c% of the corporation's
outstanding voting stock at an annual or special meeting, excluding
the shares owned by the interested stockholder. Under Section 203 of
the Delaware General Corporation Law, an "interested stockholder" is
defined as any person who is either the owner of 15% or more of the
outstanding voting stock of the corporation or an affiliate or
associate of the corporation and who was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within the
three-year period immediately prior to the date on which it is sought
to be determined whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from coverage of Section
203 of the Delaware General Corporation Law by amending its certificate of
incorporation or by-laws, by action of its stockholders, to exempt itself from
coverage, provided that the amendment to the certificate of incorporation or
by-laws does not become effective until 12 months after the date it is adopted.
REGULATION OF THE INTRODUCTION OF BUSINESS AT ANNUAL MEETINGS OF STOCKHOLDERS
Our bylaws include provisions which regulate the submission by persons
other than our Board of Directors of matters to a vote of stockholders.
Generally, at an annual meeting of the stockholders, the only business conducted
must be brought before the annual meeting either by or at the direction of our
Board of Directors or by any person who is a stockholder of record at the time
of giving of notice for such meeting, who shall be entitled to vote at such
annual meeting and who complies with the notice procedures set forth in our
bylaws. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must give timely notice thereof in writing to our
Secretary. To be timely, a stockholder's notice must be delivered or mailed to,
and received at, our principal executive offices not less than 60 days nor more
than 90 days prior to the annual meeting, regardless of any postponement,
deferrals, or adjournments of that meeting to a later date; provided, however,
that in the event that less than 70 days' notice or prior public disclosure of
the date of the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be received no later than the close of business on
the 10th day following the day on which notice of the date of the annual meeting
was mailed or public disclosure was made. A stockholder's notice to our
Secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting the following:
o a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting this business at the
annual meeting,
o the name and address, as they appear on our books and records, of the
stockholder proposing this business,
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o the class and number of our shares which are beneficially owned by the
stockholder, and
o any material interest of the stockholder in the business he wishes to
bring before the annual meeting.
Notwithstanding anything in our bylaws to the contrary, no business shall
be conducted at the stockholder meeting, except in accordance with the
procedures set forth in our bylaws. The chairman of the meeting, as determined
in accordance with our bylaws, shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and, in accordance with the provisions of our bylaws, and if he should so
determine, he shall so declare to the meeting and any business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, with respect to the above.
TRANSFER AGENT
Our transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 8,060,000 shares of common
stock outstanding. Of these shares, the 3,000,000 shares offered in this
offering will be freely tradeable without further registration under the
Securities Act of 1933, as amended. All of our officers and directors, current
stockholders, and option holders under the Plan have agreed not to sell, or
otherwise dispose of any of our securities for a period of between six and 12
months from the date of this offering without Roth Capital Partners' prior
written consent.
All of the presently outstanding 5,060,000 shares of common stock are
"restricted securities" within the meaning of Rule 144 promulgated under the
Securities Act of 1933, as amended, and, if held for at least one year, would be
eligible for sale in the public market in reliance upon, and in accordance with,
the provisions of Rule 144 following the expiration of a one-year period. In
general, under Rule 144 as currently in effect, a person or persons whose shares
are aggregated, including a person who may be deemed to be an "affiliate" of
Leisure Travel Group as that term is defined under the Securities Act, of 1933
as amended would be entitled to sell within any three month period a number of
shares beneficially owned for at least one year that does not exceed the greater
of: (1) 1% of the then outstanding shares of common stock; or (2) the average
weekly trading volume in the common stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to requirements as to
the manner of sale, notice, and the availability of current public information
about Leisure Travel Group. However, a person who is not deemed to have been an
affiliate of Leisure Travel Group during the 90 days preceding a sale by such
person and who has beneficially owned such shares of common stock for at least
two years may sell such shares without regard to the volume, manner of sale, or
notice requirements of Rule 144.
Prior to this offering, there has been no public market for our securities.
Following this offering, we cannot predict the effect, if any, that sales of
shares of common stock pursuant to Rule 144 or otherwise, or the availability of
these shares for sale, will have on the market price prevailing from time to
time. Nevertheless, sales by the current stockholders of a substantial number of
shares of common stock in the public market could materially adversely affect
prevailing market prices for our common stock. In addition, the availability for
sale of a substantial number of shares of common stock acquired through the
exercise of the representative's warrants or the outstanding options under the
Plan could materially adversely affect prevailing market prices for the common
stock. See "Risk Factors--Future Sales of Common Stock By Our Existing
Stockholders Could Adversely Affect Our Stock Price."
Up to 450,000 additional shares of common stock may be purchased by Roth
Capital Partners during the period commencing on the first anniversary of the
date of this prospectus and terminating on the fifth anniversary of the date of
this prospectus through the exercise of the representative's warrants. Any and
all securities purchased upon the exercise of the representative's warrants may
be freely tradeable, provided that we satisfy the securities registration and
qualification requirements in accordance with the terms of the representative's
warrants. See "Underwriting."
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UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, we have agreed to sell to the underwriters named below, and each of
the underwriters, for which Roth Capital Partners Incorporated is acting as
representative, has severally, and not jointly, agreed to purchase, the number
of shares offered in this offering set forth opposite their respective names
below.
NUMBER OF
NAME SHARES
---- ----------
Roth Capital Partners Incorporated ....................... 3,000,000
---------
Total ............................................ 3,000,000
=========
A copy of the underwriting agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. The underwriting
agreement provides that the obligation of the underwriters to purchase the
shares is subject to some conditions. The underwriters shall be obligated to
purchase all of the shares (other than those covered by the underwriters'
over-allotment option described below), if any are purchased.
Roth Capital Partners Incorporated has advised us that the underwriters
propose to offer the shares to the public at the public offering price on the
cover page of this prospectus and that they may allow some dealers who are
members of the NASD, and some foreign dealers, concessions not in excess of
$____ per share, of which amount a sum not in excess of $___ per share may in
turn be reallowed by such dealers to other dealers who are members of the NASD
and to some foreign dealers. After the commencement of this offering, the
offering price, the concession to selected dealers, and the reallowance to other
dealers may be changed by Roth Capital Partners Incorporated.
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or
will contribute to payments the underwriters may be required to make in this
respect thereof.
We have agreed to pay to Roth Capital Partners Incorporated an expense
allowance on a non-accountable basis, equal to ____% of the gross proceeds
derived from the sale of 3,000,000 shares offered in this offering, or
(3,450,000 shares if the underwriter's over-allotment option is exercised in
full). We paid an advance on this allowance in the amount of $___.
The following table provides information regarding the amount of the
discount to be paid by us to the underwriters:
TOTAL WITHOUT TOTAL WITH
DISCOUNT EXERCISE OF OVER- EXERCISE OF OVER-
PER SHARE ALLOTMENT OPTION ALLOTMENT OPTION
--------- ---------------- -----------------
$ $ $
The following table sets forth the amount and nature of other forms of
compensation to be paid by us to Roth Capital Partners Incorporated in
connection with the offering:
<TABLE>
<CAPTION>
TYPE OF
COMPENSATION TERM TOTAL AMOUNT
------------ ---- ------------
<S> <C> <C>
Non-Accountable Expense __% of the gross proceeds $___ ($_____ if the underwriters'
Allowance of the offering over-allotment option is
exercised in full)
Representative's Warrant (1) Warrant to purchase up to Dependent upon the market
300,000 shares at an exercise price of common stock at the
price per share of 120% of time of exercise
the public offering price
Two Year Consulting _____ $______ payable upon
Agreement (2) consummation of this offering
</TABLE>
- ----------
(1) Representative's Warrant is issued to Roth Capital Partners Incorporated.
(2) Two year consulting agreement is between ourselves and Roth Capital
Partners Incorporated.
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We have also agreed to pay some expenses of Roth Capital Partners
Incorporated in connection with this offering, including expenses in connection
with qualifying the shares offered in this offering for sale under the laws of
such states as Roth Capital Partners Incorporated may designate, the placement
of tombstone advertisements and preparing bound volumes of the public offering
documents. We estimate that the total expenses of the offering, excluding the
underwriting discount, will be approximately $__________.
In connection with this offering, we have agreed to sell to Roth Capital
Partners Incorporated for nominal consideration, the representative's warrant to
purchase up to 300,000 shares of common stock. The representative's warrant is
exercisable for a period of four years commencing one year after the date of
this prospectus at an exercise price per share equal to $___ (120% of the public
offering price). The representative's warrant may not be sold, transferred,
assigned, pledged, or hypothecated for a period of 12 months from the date of
this prospectus, except to members of the selling group. The representative's
warrant grants to Roth Capital Partners Incorporated, with respect to the
registration under the Securities Act of 1933, as amended, of the securities
directly and indirectly issuable upon exercise of the representative's warrant,
one demand registration right during the exercise period, as well as piggyback
registration rights at any time. The representative's warrant contains
anti-dilution provisions providing for adjustment of the exercise price and
number of shares issuable on exercise of the representative's warrant, upon the
occurrence of some events, including stock dividends, stock splits, and
recapitalizations. The holder of the representative's warrant has no voting,
dividend, or other rights as a stockholder with respect to shares of common
stock underlying the representative's warrant, unless the representative's
warrant shall have been exercised.
In connection with this offering, we have granted Roth Capital Partners
Incorporated the right, for the three-year period commencing on the closing date
of this offering, to appoint an observer to attend all meetings of our Board of
Directors. This designee has the right to notice of all meetings of the Board of
Directors and to receive reimbursement for all out-of-pocket expenses incurred
to attend these meetings. In addition, the designee will be entitled to
indemnification to the same extent as our directors.
Roth Capital Partners Incorporated has advised us that the underwriters do
not intend to confirm sales of the shares offered in this offering to any
account over which they exercise discretionary authority.
We, and each of our officers, directors, and shareholders, have agreed not
to offer, assign, issue, sell, hypothecate, or otherwise dispose of any shares
of our common stock, securities convertible into, or exercisable or exchangeable
for, shares of our common stock, or shares of our common stock received upon
conversion, exercise, or exchange of these securities, to the public without the
prior written consent of Roth Capital Partners Incorporated for a period of
between six and 12 months after the date of this prospectus.
We and Red Kite Ventures Limited, an investment company owned by a trust,
the beneficiary of which is Kevin R. Leech, our Chairman and principal
shareholder, have also granted to the underwriters an option, exercisable during
the 45-day period commencing on the date of this prospectus, to purchase at the
public offering price per share, less the underwriting discount, up to an
aggregate of 450,000 shares of common stock. To the extent this option is
exercised, the first 413,333 shares will be purchased from Red Kite and the
remaining shares, if any, will be purchased from us, and the underwriters will
become obligated, subject to some conditions, to purchase additional shares of
common stock. The underwriters may exercise this right of purchase only for the
purpose of covering over-allotments, if any, made in connection with the sale of
shares. Purchases of shares of common stock upon exercise of the over-allotment
option will result in the realization of additional compensation by the
underwriters.
Roth Capital Partners Incorporated has informed us that it does not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
The underwriters have reserved for sale up to _______ shares for our
employees, directors and certain other persons associated with us. These
reserved shares will be sold at the public offering price that appears on the
cover of this prospectus. The number of shares available for sale to the general
public in the offering will be reduced to the extent reserved shares are
purchased by such persons. The underwriters will offer to the general public, on
the same terms as other shares offered by this prospectus, any reserved shares
that are not purchased by such persons.
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Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with those rules:
o STABILIZING TRANSACTIONS. The underwriters may make bids or
purchases for the purpose of pegging, fixing or maintaining the
price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
o OVER-ALLOTMENTS AND SYNDICATE COVERAGE TRANSACTIONS. The
underwriters may create a short position in the shares by selling
more shares than are set forth on the cover page of this prospectus.
If a short position is created in connection with the offering, Roth
Capital Partners Incorporated may engage in syndicate covering
transactions by purchasing shares in the open market. Roth Capital
Partners Incorporated may also elect to reduce any short position by
exercising all or part of the over-allotment option.
o PENALTY BIDS. If Roth Capital Partners Incorporated purchases shares
in the open market in a stabilizing transaction or syndicate
coverage transaction, it may reclaim a selling concession from the
underwriters and selling group members who sold those shares as part
of this offering.
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters make any representations or predictions as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
We and the underwriters expect that the shares will be ready for delivery
on the fourth business day following the date of this prospectus. Under
Securities and Exchange Commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred to as "T+3"), unless the parties to the trade agree to a different
settlement cycle. As noted above, the shares will settle in T+3. Therefore,
purchasers who wish to trade on the date of this prospectus or during the next
three succeeding business days must specify an alternate settlement cycle at the
time of the trade to prevent a failed settlement. Purchasers of the shares who
wish to trade shares on the date of this prospectus or during the next 3
succeeding business days should consult their own advisors.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Greenberg Traurig, LLP (New York, New York). Certain
matters will be passed upon for the underwriters by Pollet Law, a California
corporation (Los Angeles, California).
EXPERTS
Ernst & Young, independent auditors, have audited the financial statements
of Leisure Travel Group, Inc. at October 31, 1999, as set forth in their report.
We have included our financial statements in the prospectus and in reliance on
Ernst & Young's report, given on their authority as experts in accounting and
auditing.
Ernst & Young, independent auditors, have audited the financial statements
of LTG, at October 31, 1999, and the period ended October 31, 1999, as set forth
in their reports. We have included these financial statements in the prospectus
in reliance on Ernst & Young's report, given on their authority as experts in
accounting and auditing.
Ernst & Young, independent auditors, have audited the financial statements
of GHG (Predecessor) at December 31, 1998 and for the two years in the period
ending December 31, 1998, and the six months ended June 30, 1999, as set forth
in their reports. We have included these financial statements in the prospectus
in reliance on Ernst & Young's report, given on their authority as experts in
accounting and auditing.
66
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including the exhibits, schedules and amendments to this
registration statement, under the Securities Act of 1933, as amended, with
respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information set forth in the registration
statement. For further information with respect to Leisure Travel Group and the
shares of common stock to be sold in this offering, we make reference to the
registration statement. Although this prospectus contains all material
information regarding Leisure Travel Group, statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance we make reference
to the copy of such contract, agreement or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference.
You may read and copy all or any portion of the registration statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
to the Securities and Exchange Commission. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our Securities and Exchange Commission filings,
including the registration statement, are also available to you on the
Securities and Exchange Commission's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEISURE TRAVEL GROUP, INC.
Report of Independent Auditors ................................................................................. F-2
Balance Sheet at October 31, 1999 and January 31, 2000 (unaudited) ............................................. F-3
Notes to the Financial Statements .............................................................................. F-4
LTG
Report of Independent Auditors ................................................................................. F-6
Combined Balance Sheet at October 31, 1999 and January 31, 2000 (unaudited) .................................... F-7
Combined Statements of Operations for the period ended October 31, 1999
and the three months ended January 31, 2000 (unaudited) ...................................................... F-8
Combined Statement of Invested Capital for the period ended October 31, 1999
and the three months ended January 31, 2000 (unaudited) ...................................................... F-9
Combined Statements of Cash Flows for the period ended October 31, 1999
and the three months ended January 31, 2000 (unaudited) ...................................................... F-10
Notes to the Combined Financial Statements ..................................................................... F-11
GRAND HOTEL GROUP (PREDECESSOR)
Report of Independent Auditors ................................................................................. F-19
Combined Balance Sheet at December 31, 1998 .................................................................... F-20
Combined Statements of Operations for the years ended December 31, 1997 and 1998,
the three months ended January 31, 1999 (unaudited) and the six months ended June 30, 1999 ................... F-21
Combined Statement of Divisional Equity for the years ended December 31, 1997 and 1998
and the six months ended June 30, 1999 ....................................................................... F-22
Combined Statements of Cash Flows for the years ended December 31, 1997 and 1998,
the three months ended January 31, 1999 (unaudited) and the six months ended June 30, 1999 ................... F-23
Notes to the Financial Statements .............................................................................. F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
LEISURE TRAVEL GROUP, INC.
We have audited the accompanying balance sheet of Leisure Travel Group,
Inc. at October 31, 1999. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Leisure Travel Group Inc. at
October 31, 1999, in conformity with United States generally accepted accounting
principles.
Ernst & Young
Reading, England
March 8, 2000
F-2
<PAGE>
LEISURE TRAVEL GROUP, INC.
BALANCE SHEET
(US DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 31 JANUARY 31,
1999 2000
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ....................................... $ -- $ --
----- -----
$ -- $ --
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ................................................ $ -- $ --
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
none outstanding at October 31, 1999 and January 31, 2000 ..... -- --
Common stock, $0.001 par value, 25,000,000 shares authorized;
none outstanding at October 31, 1999 and January 31, 2000 ..... -- --
Total Stockholders' Equity .................................. -- --
----- -----
$ -- $ --
===== =====
</TABLE>
See accompanying Notes to the Financial Statements
F-3
<PAGE>
LEISURE TRAVEL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Leisure Travel Group, Inc. ("Leisure Travel Group") was incorporated in
Delaware in February 2000. Leisure Travel Group has not yet begun trading nor
has Leisure Travel Group been capitalized. Upon the effectiveness of an initial
public offering, Leisure Travel Group Limited ("LTGL") will acquire 100% of the
share capital of Grand Hotel Group Limited ("GHG"), a private limited company
organized under the laws of England and Wales and Leisure Travel Group will
acquire 100% of the outstanding share capital of "LTGL," a private limited
company organized under the laws of England and Wales, in exchange for the
issuance of an aggregate of 4,640,000 shares of Leisure Travel Group's common
stock. The majority shareholder of both LTGL and GHG is Kevin R. Leech, the
Chairman of the Board of Leisure Travel Group.
2. STOCKHOLDERS' EQUITY
GENERAL
Leisure Travel Group is authorized to issue up to 25,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for the election of directors. Subject to the prior rights of
any class or series of preferred stock which may from time to time be
outstanding, if any, holders of common stock are entitled to receive ratably,
dividends, when, as, and if declared by the Board of Directors out of funds
legally available for that purpose and, upon the liquidation, dissolution, or
winding up of Leisure Travel Group, are entitled to share ratably in all assets
remaining after payment of liabilities and payment of accrued dividends and
liquidation preferences on the preferred stock, if any. Holders of common stock
have no preemptive rights and have no rights to convert their common stock into
any other securities. The outstanding common stock is validly authorized and
issued, fully-paid, and nonassessable.
2000 STOCK OPTION PLAN
On February 23, 2000, the Board of Directors and a majority of our
stockholders adopted our 2000 Stock Option Plan (the "Plan"). We have reserved
an aggregate of 1,000,000 shares of common stock for issuance pursuant to
options granted under the Plan.
The term of each option and the manner in which it may be exercised is
determined by the Board of Directors or a committee, provided that no option may
be exercisable more than 10 years after the date of its grant and, in the case
of an incentive option granted to an eligible employee owning more than 10% of
our common stock, no more than five years after the date of the grant. In any
case, the exercise price of any stock option granted under the Plan will not be
less than 85% of the fair market value of the common stock on the date of grant.
The exercise price of non-qualified options shall be determined by the Board of
Directors or a committee.
F-4
<PAGE>
LEISURE TRAVEL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Unless the plan shall be earlier suspended or terminated by the Board of
Directors, the Plan shall terminate on approximately 10 years from the date of
its adoption. Any such termination of the Plan shall not affect the validity of
any options previously granted thereunder.
The exercise price of incentive stock options granted under the Plan must
be at least 100% of the fair market value of the common stock on the grant date
except that the exercise price of incentive stock options granted to a 10%
stockholder must be at least 110% of such fair market value on the date of
grant.
F-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
LTG
We have audited the accompanying combined balance sheet of LTG at October
31, 1999 and the related combined statements of operations, invested capital and
cash flows for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of LTG at
October 31, 1999 and its combined results of operations and its combined cash
flows for the period then ended, in conformity with United States generally
accepted accounting principles.
ERNST & YOUNG
Reading, England
March 8, 2000
F-6
<PAGE>
LTG
COMBINED BALANCE SHEETS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31 JANUARY 31,
1999 2000
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................................................... $ 5,599 $ 2,139
Accounts receivable .......................................................... 1,497 971
Receivable from related party ................................................ 1,289 1,821
Travel deposits .............................................................. 1,078 981
Inventories .................................................................. 503 554
Prepaid expenses and other current assets .................................... 959 933
------- -------
Total current assets ..................................................... 10,925 7,399
======= =======
Equipment and fixtures:
Freehold land and buildings ................................................ 23,001 23,119
Leasehold land and buildings ............................................... 8,484 8,512
Fixtures and equipment ..................................................... 3,430 3,568
------- -------
34,915 35,199
Less accumulated depreciation .............................................. 988 1,277
------- -------
33,927 33,922
Goodwill, net of accumulated amoritization of $37 and $63 at October 31,
1999 and January 31, 2000, respectively .................................... 1,067 1,046
Debt issuance cost ........................................................... 416 397
------- -------
$46,335 $42,764
======= =======
LIABILITIES AND INVESTED CAPITAL
Current Liabilities
Short term borrowings ........................................................ $ 1,660 $ 1,667
Accounts payable ............................................................. 1,360 578
Accrued expenses and other liabilities ....................................... 1,230 750
Guest deposits ............................................................... 5,314 2,754
Taxes and social security payable ............................................ 1,810 1,786
Deferred income taxes ........................................................ 82 83
Capital lease obligations-- current portion .................................. 230 230
------- -------
Total current liabilities ................................................ 11,686 7,848
Long term debt ............................................................... 33,040 33,192
Capital lease obligations-- noncurrent portion ............................... 396 377
[GRAPHIC OMITTED]
Invested Capital ............................................................. 1,213 1,347
------- -------
$46,335 $42,764
======= =======
</TABLE>
See accompanying Notes to the Combined Financial Statements
F-7
<PAGE>
LTG
COMBINED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE
PERIOD MONTHS
ENDED ENDED
OCTOBER 31, JANUARY 31,
1999 2000
----------- ------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Rooms ........................................................ $ 7,676 $ 5,510
Retail ....................................................... 1,930 1,180
Travel ....................................................... 6,811 3,995
Other ........................................................ 844 492
----------- -----------
Total revenues ........................................... 17,261 11,177
Operating costs and expenses:
Direct cost of revenues ...................................... 8,496 7,950
Staff costs .................................................. 3,575 1,107
Sales and marketing .......................................... 721 330
General and administrative ................................... 2,098 1,015
Depreciation and Amoritization .............................. 205 310
----------- -----------
Total operating cost and
expenses ............................................... 15,095 10,712
----------- -----------
Operating profit ............................................... 2,166 465
Interest expense ............................................... (494) (331)
Interest income and other ...................................... 61 67
----------- -----------
Income before income taxes ................................. 1,733 201
Income taxes ................................................... 520 71
----------- -----------
Net income ..................................................... $ 1,213 $ 130
=========== ===========
</TABLE>
See accompanying Notes to the Combined Financial Statements
F-8
<PAGE>
LTG
COMBINED STATEMENTS OF INVESTED CAPITAL
(US DOLLARS IN THOUSANDS)
INVESTED
CAPITAL
---------
Net income for the period ending October 31, 1999 ................ $1,213
------
Balance at October 31, 1999 ...................................... 1,213
Net income (unaudited) ........................................... 130
Currency translation adjustment (unaudited) ...................... 4
------
Comprehensive income (unaudited) ................................. 134
------
Balance at January 31, 2000 (unaudited) .......................... $1,347
======
See accompanying Notes to the Combined Financial Statements
F-9
<PAGE>
LTG
COMBINED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE
PERIOD MONTHS
ENDED ENDED
OCTOBER 31, JANUARY 31,
1999 2000
---------- ------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................ $ 1,213 $ 130
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation .......................................... 168 282
Amortization .......................................... 37 28
Amoritization of debt issuance costs .................. -- 19
Changes in operating assets and liabilities:
Accounts receivable ................................. (1,485) 526
Receivable from related parties ..................... (1,289) (532)
Travel deposits ..................................... 552 97
Inventory ........................................... (503) (51)
Prepaid expenses and other current assets ........... (855) 26
Guest deposits ...................................... 1,546 (2,560)
Accounts payable .................................... 1,316 (782)
Accrued expenses and other liabilities .............. 1,200 (480)
Deferred income taxes ............................... 82 --
Taxes and social security payable ................... 1,679 (24)
-------- --------
Net cash provided by (used in) operating activities ....... 3,661 (3,321)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures ....................... (32,918) (120)
Purchase of subsidiary .................................... 2,314 --
-------- --------
Net cash used in investing activities ..................... (30,604) (120)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt ......................................... (420) --
Proceeds from issuance of debt ............................ 33,460 --
Payment of capital lease obligation ....................... (82) (19)
Payment of debt issuance cost ............................. (416) --
-------- --------
Net cash provided by (used in) financing activities ....... 32,542 (19)
-------- --------
Net increase (decrease) in cash and cash equivalents ...... 5,599 (3,460)
Cash and cash equivalents at the beginning of the period .. -- 5,599
-------- --------
Cash and cash equivalents at the end of the period ........ $ 5,599 $ 2,139
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest .................. $ 60 $ 15
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Equipment acquired under capital leases ................... $ 677 $ --
======== ========
</TABLE>
See accompanying Notes to the Combined Financial Statements
F-10
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements comprise a combination of the financial
statements of Leisure Travel Group Limited ("LTGL") and Grand Hotel Group
("GHG") which are entities under common control and which, together, are
hereinafter referred to as "LTG." LTGL was formed in May 1999 but did not begin
commercial operations until July 1, 1999 when it acquired Miss Ellie's World
Travel Limited and GHG was formed in October 1998 but did not commence
commercial operations until it acquired the five holiday resort hotels ("Grand
Hotel Group (predecessor)") on June 30, 1999 as discussed below. The financial
statements of LTGL include the results of Miss Ellie's World Travel Limited and
the financial statements of GHG include the results of the hotels comprising
Grand Hotel Group (predecessor) from July 1, 1999.
DESCRIPTION OF BUSINESS
In July 1999, LTGL acquired all of the issued and outstanding share
capital of Miss Ellie's World Travel Limited. In exchange for such capital, LTGL
paid an aggregate of $1,667,000 to the former stockholders of Miss Ellie's World
Travel Limited. LTGL funded the acquisition through a loan from Red Kite
Ventures Limited, an investment company beneficially owned by Red Kite Trust,
the beneficiary of which is Kevin R. Leech. The acquisition resulted in the
recording of $1,109,000 of goodwill. The terms of the acquisition provided for
certain earnout provisions whereby we may be required to pay additional cash to
the former stockholders of Miss Ellie's World Travel Limited equal to the
pre-tax income of Miss Ellie's World Travel Limited earned for the 12 month
period from April 1999 through March 2000.
Effective June 30, 1999, GHG purchased from a subsidiary of The Rank Group
plc substantially all of the operating assets relating to five hotels, including
the properties, equipment, concessions, inventory, customer lists and records.
GHG is 85% owned by Cygnet Ventures Limited, a Guernsey corporation controlled
by Kevin R. Leech and 15% owned by certain other members of the Company's
management team. In consideration for the sale of such assets, GHG paid The Rank
Group plc $30.7 million, of which $13.9 million was paid in cash and the balance
of $16.8 million was paid by GHG's issuance of a non-interest-bearing promissory
note due in 2002. The note was secured by an irrevocable letter of credit issued
by Citibank, N.A. in favor of Butlins Limited, a subsidiary of The Rank Group
plc. The issuance of the letter of credit was obtained through the personal
guaranty of Kevin R. Leech. GHG financed its cash payment of the purchase price
through loans obtained from Arab Bank plc and Irish Nationwide Building Society
secured by charges granted by GHG, including mortgages on the purchased hotels.
EQUIPMENT AND FIXTURES
Property and equipment are stated at cost. Costs of improvements are
capitalized. Costs of normal repairs and maintenance are charged to expense as
incurred. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation are removed from the respective accounts, and
the resulting gain or loss, if any, is included in income.
F-11
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Depreciation is provided on a straight-line basis over the estimated
useful life of the assets. Leasehold improvements are amortized over the shorter
of the asset life or lease term. The service lives of assets are as follows:
Freehold land and buildings 50 years
Leasehold land and buildings Over shorter of the useful life or the lease
term
Fixtures and equipment 3-20 years
Equipment financed under a capital lease and accumulated amortization
related to the leased assets were $677,000 and $3,000, respectively. There were
no capital leases at December 31, 1998. Amortization related to capital leases
is included in depreciation expense.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under the
asset and liability method of SFAS No. 109, deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to carry
forward losses and differences between the financial statement carrying amounts
of existing assets and liabilities, and their respective tax bases. Deferred
income tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Deferred income tax assets are recorded at
their likely realizable amount.
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
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.
GOODWILL
Goodwill and other intangible assets are amortized on a systematic basis
over the estimated useful lives of such assets, generally five years. Goodwill
has been calculated as the excess of the purchase consideration paid over the
fair value of the net assets acquired. The carrying amount of goodwill is
reviewed on a regular basis for indicators of impairment. Should indicators of
impairment exist, such impairment will be reviewed through the examination of
discounted cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the LTG's financial instruments, including cash,
accounts receivable, accounts payable, accrued expenses and long-term debt
approximate fair values.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Therefore, the estimates are not necessarily
indicative of the amounts which could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amount.
F-12
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CASH AND CASH EQUIVALENTS
LTG considers investments in highly liquid instruments purchased with an
original maturity of 90 days or less to be cash equivalents. Such amounts are
stated at cost which approximates market value.
As of October 31, 1999 and January 31, 2000, LTG's cash equivalents
consisted of $1,773,000 and $821,000, respectively, of weekly treasury deposits,
$1,620,000 and none, respectively, of monthly treasury deposits and $806,000 and
$324,000, respectively, of money market funds. There were no unrealized gains or
unrealized losses as of October 31, 1999 and January 31, 2000.
CONCENTRATION OF CREDIT RISK
LTG performs ongoing credit evaluations of its customers' financial
condition and, generally, does not require collateral on accounts receivable.
When required, LTG maintains allowances for credit losses and such losses have
been within management's expectations. There was no allowance for doubtful
accounts established for the periods presented and write-offs of accounts
receivable have not been significant.
There were no significant customers for any of the periods presented.
REVENUE RECOGNITION
Net revenues from providing hotel accommodations are recognized when our
guests check out after their designated vacation stay and make payment. Net
revenues from providing travel services include commissions and markups on
travel products and services, volume bonuses received from travel suppliers,
cancellation fees and other ancillary fees such as travel insurance premiums.
Such revenues are recognized upon commencement of travel.
ADVERTISING COSTS
Costs related to advertising are expensed as incurred. Advertising expense
was $322,000 and $375,000 for the period ending October 31, 1999 and the three
months ending January 31, 2000, respectively.
INVENTORY
Stocks are stated at the lower of cost, which is calculated on a first in
first out basis or net realisable value.
PENSION PLAN
LTG operates a defined contribution pension scheme. The pension costs
relating to the scheme represent the contributions payable by LTG's
subsidiaries. The contributions are expensed as they become payable in
accordance with the rules of the plan. Amounts charged to expense relating to
the plan for the period ending October 31, 1999 and the three months ending
January 31, 2000 was $48,000 and $58,000, respectively.
LTG's subsidiary also contributed to four private pensions for directors
and senior employees totaling $6,000 and none for the period ended October 31,
1999 and the three months ending January 31, 2000.
F-13
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of LTG is the pound sterling. On combination,
these financial statements are translated into US dollars, in accordance with
SFAS No. 52 "Foreign Currency Translation," the reporting currency of LTG using
period-end rates for their balance sheets and average rates for the period for
their statements of operations and cash flows. Translation gains and losses
arising on translation are recorded in invested capital as other comprehensive
income.
There have been no transaction gains or losses in the periods presented.
LTG has not entered into any hedging transactions or derivatives in the
periods presented.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS 133, which has
not yet been adopted by LTG. SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities" is effective for fiscal years beginning after June 15,
2000. This standard requires all derivatives to be recognized as either assets
or liabilities on the balance sheet at their fair values. It also prescribes the
accounting to be followed for the changes in the fair values of derivatives
depending upon their intended use and resulting designation. It supersedes or
amends the existing standards which deal with hedge accounting and derivatives.
LTG does not expect the effect that adopting this standard will have on the U.S.
GAAP amounts reported in its financial statements.
2. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
LTG's deferred tax liabilities are as follows (US dollars in thousands):
OCTOBER 31,
1999
-----------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation .............. $82
===
F-14
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
2. INCOME TAXES--(CONTINUED)
A reconciliation of the income tax provision at the statutory rate to the
income tax provision at the effective tax rate is as follows (US dollars in
thousands):
PERIOD ENDED
OCTOBER 31, 1999
----------------
Income taxes computed at the UK statutory rate ........... $426
Non-qualifying depreciation expense ...................... 40
Qualifying depreciation expense, net of capital .......... 54
----
Total .......................................... $520
====
3. LONG-TERM DEBT
In consideration for the purchase of Miss Ellie's World Travel Limited,
the Company paid an aggregate of $1,667,000 to the former stockholders of Miss
Ellie's World Travel Limited. LTGL funded the acquisition through a loan from
Red Kite Ventures Limited, an investment company beneficially owned by Red Kite
Trust, the beneficiaries of which are members of the family of Kevin R. Leech.
Upon the effectiveness of the offering, the loan will be exchanged for a number
of the Company's common shares equal to the outstanding loan balance divided by
the Company's initial public offering price.
In consideration for the purchase of the assets of The Rank Group plc, as
discussed in Note 1, GHG issued 100 redeemable non-voting shares to The Rank
Group plc and discharged a liability of The Rank Group plc to Butlin's Limited,
a subsidiary of The Rank Group plc, in the amount of approximately $30.7
million, of which approximately $13.9 million was paid in cash and the balance
of approximately $16.8 million was settled by GHG's issuance to Butlin's Limited
of a non-interest-bearing promissory note due 2002. The GHG note is secured by
an irrevocable letter of credit issued by Citibank, N.A. in favor of Butlin's
Limited.
In connection with the purchase of the hotels discussed above, LTG entered
into an agreement with Arab Bank plc and Irish Nationwide Building Society
whereby the company was to draw down on a loan of up to (pound)10 million ($16.2
million) or 70% of the purchase cost of the hotels (exclusive of any goodwill
attributed to the purchase). The facility matures five years from the date of
drawdown. The facility is to be repaid in instalments of $4,048,000 each on the
second, third and fourth anniversaries of the drawndown date with the remainder
due upon maturity.
The loan is secured by assets (including property), share capital and
$13.7 million in key man life insurance on Kevin Leech. There are various
financial and non-financial covenants that must be maintained on a quarterly and
annual basis.
Upon completion of the acquisition, LTG executed its right to draw down on
the facility for the entire $16.2 million at an interest rate of 1.75% over
LIBOR (7.50% as at October 31, 1999).
LTG also entered into a $161,000 loan with Cygnet, a company controlled by
Kevin Leech, due in 2002 which bears interest at 2% over the HSBC base rate
(7.25% as at October 31, 1999). The loan is unsecured and is to be used for
working capital purposes.
F-15
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
3. LONG-TERM DEBT--(CONTINUED)
The five year payout of the long-term debt discussed above is as follows
(US dollars in thousands):
YEARS ENDING OCTOBER 31:
------------------------
2000 .................................... $ --
2001 .................................... 4,048
2002 .................................... 4,048
2003 .................................... 21,048
2004 .................................... 4,048
-------
$33,192
=======
4. COMMITMENTS
LTG leases facilities and equipment, under noncancelable operating leases
which expire at various times. Following is a schedule of future minimum lease
payments under both operating and capital leases at October 31, 1999 (US dollars
in thousands):
OPERATING CAPITAL
YEARS ENDING OCTOBER 31: LEASES LEASES
- ------------------------ --------- -------
2000 ........................................... $ 91 $306
2001 ........................................... 91 306
2002 ........................................... 87 169
2003 ........................................... 69 5
2004 ........................................... 58 2
Thereafter ..................................... 2,568 --
------ ----
Total minimum payments required ................ $2,964 788
======
Less amount representing interest .............. (162)
----
Present value of future lease payments ......... 626
Less current portion ........................... (230)
----
Noncurrent portion ............................. $396
====
Rent expense, net of rental income was $99,000 and $59,000 for the period
ended October 31, 1999 and the three months ending January 31, 2000,
respectively.
F-16
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
5. SEGMENTAL INFORMATION
LTG's businesses are organized, managed and internally reported as
separate leisure and travel segments which are reportable under SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." The
leisure group operates five holiday resort hotels situated near major seaside
resorts in England and Wales. The travel group offers travel-related services
and accommodations in a variety of holiday destinations in Europe. North America
and South Africa.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. We evaluate performance and
allocate resources based on segment operating income. There were no intersegment
sales during the periods presented. All sales to external customers were made to
customers within the United Kingdom and all long-lived assets were held within
the United Kingdom. No individual customer accounted for over 10% of net
revenues for the periods presented.
THREE MONTHS
PERIOD ENDED ENDED
OCTOBER 31, JANUARY 31,
1999 2000
------------ ------------
(US DOLLARS IN THOUSANDS)
Net sales:
Leisure segment ............................. $10,450 $ 7,182
Travel segment .............................. 6,811 3,995
------- -------
Net sales ................................. $17,261 $11,177
======= =======
Segmental income:
Leisure segment ............................. $ 2,022 $ 491
Travel segment .............................. 144 (26)
------- -------
Total operating income .................... 2,166 465
Interest expense ............................ (494) (331)
Interest income and other ................... 61 67
Provision for income taxes .................. 520 71
------- -------
Net income ................................ $ 1,213 $ 130
======= =======
Expenditures for long-lived assets:
Leisure segment ............................. $32,797 $ 120
Travel segment .............................. 121 --
------- -------
Total expenditures for long-lived assets .. $32,918 $ 120
======= =======
Depreciation and amortization:
Leisure segment ............................. $ 128 $ 243
Travel segment .............................. 77 67
------- -------
Total depreciation and amortization ....... $ 205 $ 310
======= =======
OCTOBER 31, JANUARY 31,
1999 2000
----------- ------------
Total assets:
Leisure segment ............................. $42,043 $38,696
Travel segment .............................. 4,292 4,068
------- -------
Total assets .............................. $46,335 $42,764
======= =======
F-17
<PAGE>
LTG
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 2000 IS UNAUDITED)
6. SUBSEQUENT EVENTS
In February 2000, LTGL acquired all of the issued and outstanding share
capital of Ilios Travel Limited, a private company organized under the laws of
England and Wales. In exchange for such capital, LTGL paid an aggregate of
$526,000 to the former stockholders of Ilios Travel Limited. LTGL funded this
acquisition through a loan from Red Kite Ventures Limited.
Upon the effectiveness of an initial public offering and the
capitalization of the $1,667,000 loan from Red Kite Ventures Limited to LTGL for
the acquisition of Miss Ellie's World Travel Limited, LTGL will acquire 49% of
the share capital of trrravel.com Limited from ci4net.com, Inc., a company
controlled by Kevin R. Leech, in exchange for the issuance of 220,000 shares of
our common stock.
F-18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
GRAND HOTEL GROUP LIMITED
We have audited the accompanying combined balance sheet of Grand Hotel
Group (Predecessor) at December 31, 1998 and the related combined statements of
operations, divisional equity and cash flows for each of the two years in the
period ending December 31, 1998 and the six months ended June 30, 1999. These
financial statements are the responsibility of the Grand Hotel Group
(Predecessor) management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Grand Hotel Group
(Predecessor) at December 31, 1998 and the combined results of its operations
and its combined cash flows for each of the two years in the period ending
December 31, 1998 and the six months ended June 30, 1999 in conformity with
United States generally accepted accounting principles.
ERNST & YOUNG
Reading, England
March 8, 2000
F-19
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
BALANCE SHEET
(US DOLLARS IN THOUSANDS)
DECEMBER 31,
1998
------------
ASSETS
Current Assets
Cash and cash equivalents ................................. $ --
Accounts receivable ....................................... 232
Inventories ............................................... 990
Prepaid expenses and other current assets ................. 328
-------
Total current assets .................................. 1,550
Equipment and fixtures:
Freehold land and buildings ............................. 18,015
Leasehold land and buildings ............................ 6,285
Fixtures and equipment .................................. 19,714
-------
44,014
Less accumulated depreciation ........................... 18,614
-------
$26,950
=======
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities
Accounts payable .......................................... $ 1,288
Accrued expenses and other liabilities .................... 849
Guest deposits ............................................ 886
Taxes and social security payable ......................... 335
Deferred income taxes ..................................... 158
-------
Total current liabilities ............................. 3,516
DIVISIONAL EQUITY
Divisional equity ......................................... 22,093
Accumulated Other Comprehensive Income .................... 1,341
-------
Total Divisional equity ............................... 23,434
-------
$26,950
=======
See accompanying Notes to the Financial Statements
F-20
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE SIX
YEAR ENDED MONTHS MONTHS
DECEMBER 31, ENDED ENDED
---------------------- JANUARY 31, JUNE 30,
1997 1998 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rooms ................................... $ 24,499 $ 23,967 $ 5,592 $ 8,208
Retail .................................. 8,390 7,555 1,800 2,910
Other ................................... 896 924 214 408
-------- -------- -------- --------
Total revenues ...................... 33,785 32,446 7,606 11,526
Operating costs and expenses:
Direct cost of revenues ................. 8,051 7,583 1,954 2,797
Staff costs ............................. 9,155 8,840 2,149 4,288
Sales and marketing ..................... 1,325 2,001 472 483
General and administrative .............. 6,645 6,634 1,590 3,349
Corporate allocations ................... 1,802 910 312 792
Depreciation ............................ 2,104 1,945 346 929
-------- -------- -------- --------
Total operating cost and expenses ... 28,982 27,913 6,823 12,638
-------- -------- -------- --------
Operating profit (loss) ............... 4,803 4,533 783 (1,112)
Interest expense, net ..................... -- -- -- --
-------- -------- -------- --------
Income (loss) before income taxes ..... 4,803 4,533 783 (1,112)
Income taxes .............................. 2,027 1,859 321 --
-------- -------- -------- --------
Net income (loss) ..................... $ 2,776 $ 2,674 $ 462 $ (1,112)
======== ======== ======== ========
</TABLE>
See accompanying Notes to the Financial Statements
F-21
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
STATEMENT OF DIVISIONAL EQUITY
(US DOLLARS IN THOUSANDS)
ACCUMULATED
OTHER
DIVISIONAL COMPREHENSIVE
EQUITY INCOME TOTAL
-------- -------- --------
Balance at January 1, 1997 ......... $ 24,010 $ 2,289 $ 26,299
Net income ......................... 2,776 -- 2,776
Currency translation adjustment .... -- (1,178) (1,178)
--------
Comprehensive income ............. 1,598
Net decrease in amount due to parent (3,064) (3,064)
-------- -------- --------
Balance at December 31, 1997 ....... 23,722 1,111 24,833
Net income ......................... 2,674 -- 2,674
Currency translation adjustment .... -- 230 230
Comprehensive income ............. 2,904
Net decrease in amount due to parent (4,303) (4,303)
-------- -------- --------
Balance at December 31, 1998 ....... 22,093 1,341 23,434
Net loss ........................... (1,112) -- (1,112)
Currency translation adjustment .... -- (2,069) (2,069)
--------
Comprehensive income ............. (3,181)
Net decrease in amount due to parent (1,688) -- (1,688)
-------- --------
Balance at June 30, 1999 ........... 19,293 (728) 18,565
======== ======== ========
See accompanying Notes to the Financial Statements
F-22
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE SIX
YEAR ENDED MONTHS MONTHS
DECEMBER 31, ENDED ENDED
---------------------- JANUARY 31, JUNE 30,
1997 1998 1999 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income/(loss) .................................... $ 2,776 $ 2,674 $ 462 $(1,112)
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
Depreciation ..................................... 2,104 1,945 346 929
Changes in operating assets and liabilities:
Accounts receivable ............................ 109 114 52 79
Inventory ...................................... 92 (168) 47 447
Prepaid expenses and other current assets ...... (324) 424 68 (467)
Guest deposits ................................. 301 (620) (186) 1,982
Accounts payable ............................... 529 (179) (77) (260)
Accrued expenses and other liabilities ......... 621 206 (10) (605)
Deferred income taxes .......................... -- 158 -- (158)
Taxes and social security payable .............. (15) 129 25 900
------- ------- ------- -------
Net cash provided by operating activities ............ 6,193 4,683 727 1,735
Cash flows from investing activities
Purchases of equipment and fixtures .................. (3,129) (378) (152) (47)
------- ------- ------- -------
Net cash used in investing activities ................ (3,129) (378) (152) (47)
------- ------- ------- -------
Cash flows from financing activities
Change in divisional equity .......................... (3,064) (4,305) (575) (1,688)
------- ------- ------- -------
Net cash used in financing activities ................ (3,064) (4,305) (575) (1,688)
------- ------- ------- -------
Net increase in cash and cash equivalents ............ -- -- -- --
Cash and cash equivalents at the
beginning of the period ............................ -- -- -- --
------- ------- ------- -------
Cash and cash equivalents at the
end of the period .................................. $ -- $ -- $-- $ --
======= ======= ======= =======
</TABLE>
See accompanying Notes to the Financial Statements
F-23
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Grand Hotel Group Limited ("Grand Hotel Group"), is a United Kingdom
corporation which owns five holiday resort Hotel located in Wales and the
Northern and Southern regions of England. The hotels, which are situated near
major seaside resorts, have 1,274 available rooms and offer popular priced
vacation accommodations, including food and entertainment, for week-end and
lengthier stays. They cater primarily to mature couples and groups seeking short
holiday breaks of between three to four days.
Grand Hotel Group is 85% owned by Cygnet Ventures Limited, a Guernsey
corporation controlled by Kevin R. Leech, and 15% owned by other members of
Grand Hotel Group's management team. On June 30, 1999, Grand Hotel Group
purchased from Rank Holidays Division Limited, a subsidiary of The Rank Group
plc, substantially all of the operating assets relating to five hotels formerly
known as the Butlin's Provincial Hotels ("Grand Hotel Group (Predecessor)"). As
consideration for these assets, Grand Hotel Group paid the seller the sum of
$30.7 million, of which $13.9 million was paid in cash and the balance of $16.8
million was evidenced by a Grand Hotel Group non-interest bearing note due 2002.
The purchase note was secured by an irrevocable letter of credit issued by
Citibank N.A. in favor of Butlins Limited, a subsidiary of The Rank Group plc.
Such financial accommodation was obtained through the personal guaranty of Kevin
R. Leech, secured by his pledge of personally owned securities unrelated to the
Company.
GHG has entered into an agreement whereby, upon completion of a proposed
initial public offering by Leisure Travel Group, Inc ("Leisure Travel Group"), a
company principally owned by Kevin Leech, Leisure Travel Group Limited ("LTGL")
will acquire all the outstanding share capital of Grand Hotel Group in exchange
for 94,468 ordinary shares of LTGL and Leisure Travel Group will acquire all the
outstanding share capital of LTGL, including the 94,468 ordinary shares
mentioned above, in exchange for 4,640,000 shares of Leisure Travel Group's
common stock. Additionally, Leisure Travel Group will arrange for the repayment
of the (pound)10.4 million ($16.8 million) purchase note. The combination will
be accounted for using pooling of interest principles as a combination of
entities under common control.
BASIS OF PRESENTATION
These financial statements have been prepared to show the performance of
Grand Hotel Group (Predecessor) for the two years in the period ended December
31, 1998 and the six months ended June 30, 1999, reflecting the respective
periods of ownership by The Rank Group plc.
FOREIGN CURRENCY TRANSLATION
The functional currency of Grand Hotel Group (Predecessor) is the pound
sterling. For reporting purposes, these financial statements are translated into
US dollars in accordance with Statement of Financial Accounting Standards
("SFAS") No. 52, "Foreign Currency Translation," using period-end rates for
their balance sheets and average rates for the period for their statements of
operations and cash flows. Translation gains and losses arising on translation
are recorded in invested capital as other comprehensive income.
There have been no transaction gains of losses in the periods presented.
Grand Hotel Group (Predecessor) has not entered into any hedging
transactions or derivatives in the periods presented.
F-24
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)--(CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
EQUIPMENT AND FIXTURES
Property and equipment are stated at cost. Costs of improvements are
capitalized. Costs of normal repairs and maintenance are charged to expense as
incurred. Upon the sale or retirement of property and equipment, the cost and
related accumulated depreciation are removed from the respective accounts, and
the resulting gain or loss, if any, is included in income.
Depreciation is provided on a straight-line basis over the estimated
useful life of the assets. Leasehold improvements are amortized over the shorter
of the asset life or lease term. The service lives of assets are as follows:
Freehold land and buildings 50 years
Leasehold land and buildings Over shorter of the useful life
or the lease term
Fixtures and equipment 3-20 years
INCOME TAXES
Income taxes are accounted for in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred income tax assets and liabilities are recognized for the future
tax consequences attributable to carry forward losses and differences between
the financial statement carrying amounts of existing assets and liabilities, and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Deferred income tax assets are recorded at their likely realizable
amount.
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the financial instruments of Grand Hotel Group
(Predecessor), including cash, accounts receivable, accounts payable, accrued
expenses and long-term debt approximate fair values.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Therefore, the estimates are not necessarily
indicative of the amounts which could be realized or would be paid in a current
market exchange. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amount.
CASH AND CASH EQUIVALENTS
Grand Hotel Group (Predecessor) considers investments in highly liquid
instruments purchased with an original maturity of 90 days or less to be cash
equivalents. Such amounts are stated at cost which approximates market value.
F-25
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)--(CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CONCENTRATION OF CREDIT RISK
Grand Hotel Group (Predecessor) performs ongoing credit evaluations of its
customers' financial condition and, generally, does not require collateral on
accounts receivable. When required, the Grand Hotel Group (Predecessor)
maintains allowances for credit losses and such losses have been within
management's expectations. There was no allowance for doubtful accounts
established for the periods presented and write-offs of accounts receivable have
not been significant.
There were no significant customers for any of the periods presented.
REVENUES
Net revenues from providing hotel accommodations are recognized when our
guests check out after their designated vacation stay and make payment. Net
revenues from providing travel services include commissions and markups on
travel products and services, volume bonuses received from travel suppliers,
cancellation fees and other ancillary fees such as travel insurance premiums.
Such revenues are recognized upon commencement of travel.
ADVERTISING COSTS
Costs related to advertising are expensed as incurred. There was no direct
advertising expense in the periods presented as these costs were part of the
corporate allocations.
INVENTORY
Inventories are stated at the lower of cost, which is calculated on a
first in first out basis, or net realisable value.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS 133 "Accounting
for Derivative Instruments and Hedging Activities", which has not yet been
adopted by Grand Hotel Group (Predecessor). SFAS 133 is effective for fiscal
years beginning after June 15, 2000. This standard requires all derivatives to
be recognized as either assets or liabilities on the balance sheet at their fair
values. It also prescribes the accounting to be followed for the changes in the
fair values of derivatives depending upon their intended use and resulting
designation. It supersedes or amends the existing standards which deal with
hedge accounting and derivatives. Grand Hotel Group (Predecessor) does not
expect the effect that adopting this standard will have on the amounts reported
in its financial statements.
2. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.
Significant components of the deferred tax liabilities of Grand Hotel
Group (Predecessor) are as follows (US dollars in thousands):
DECEMBER 31,
1998
------------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation ..... $158
----
Net deferred tax liabilities: ......................... $158
====
F-26
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)--(CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE THREE MONTHS ENDED JANUARY 31, 1999 IS UNAUDITED)
2. INCOME TAXES--(CONTINUED)
A reconciliation of the income tax provision at the statutory rate to the
income tax provision at the effective tax rate is as follows (US dollars in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1997 1998 JUNE 30, 1999
------ ------ -------------
<S> <C> <C> <C>
Income taxes computed at the UK statutory rate ... $1,514 $1,405 $ (531)
Non-qualifying depreciation expense .............. 439 401 188
Qualifying depreciation expense, net of capital .. 74 53 5
Non recognizable loss due to sale of hotels ...... -- -- 338
------ ------ ------
Total ...................................... $2,027 $1,859 $ --
====== ====== ======
</TABLE>
3. COMMITMENTS
Grand Hotel Group (Predecessor) leases facilities and equipment, under
noncancelable operating leases which expire at various times. Following is a
schedule of future minimum lease payments under operating leases at December 31,
1998 (US dollars in thousands):
OPERATING
YEARS ENDING OCTOBER 31: LEASES
- ------------------------ ----------
1999 ....................................................... $ 106
2000 ....................................................... 151
2001 ....................................................... 151
2002 ....................................................... 144
2003 ....................................................... 114
Thereafter ................................................. 4,356
------
Total minimum payments required ............................ $5,022
======
Rent expense, net of rental income was approximately $100,000 in 1997,
$103,000 in 1998 and $52,000 for the six months ended June 30, 1999.
F-27
<PAGE>
================================================================================
3,000,000 SHARES
LEISURE TRAVEL GROUP, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
ROTH CAPITAL PARTNERS
I N C O R P O R A T E D
, 2000
UNTIL ___________, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions.
SEC registration fee ................................ $ 10,929.60
NASD filing fee ..................................... $ 4,640.00
Nasdaq National Market listing fee .................. $ 72,875.00
Transfer Agent Fees ................................. $ 15,000.00*
Cost of Printing and Engraving ...................... $225,000.00*
Legal Fees and Expenses ............................. $250,000.00*
Accounting Fees and Expenses ........................ $150,000.00*
Blue Sky Fees and Expenses .......................... $ 15,000.00*
Miscellaneous ....................................... $ 6,555.40*
-----------
Total ......................................... $750,000.00*
===========
- ----------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the Delaware General Corporation Law (the "General
Corporation Law") provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his or her conduct was unlawful.
Section 145(b) of the General Corporation Law provides that a Delaware
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities set forth above, against
expenses actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted under similar
standards as set forth above, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the General Corporation Law further provides that to the
extent a director or officer of a corporation has been successful on the merits
or otherwise in the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue or matter therein,
he or she shall be indemnified against expenses actually and reasonably incurred
by him or her in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of such person against any liability asserted
against him or her or incurred by him or her in any such capacity or arising out
of his or her status as such, whether or not the corporation would have the
power to indemnify him or her against such liabilities under such Section 145.
II-1
<PAGE>
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders may eliminate or limit personal liability of
members of its board of directors or governing body for monetary damages for
breach of a director's fiduciary duty. However, no such provision may eliminate
or limit the liability of a director for breaching his or her duty of loyalty,
failing to act in good faith, engaging in intentional misconduct or knowingly
violating a law, paying a dividend or approving a stock repurchase or redemption
which was illegal, or obtaining an improper personal benefit. A provision of
this type has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty. Our Certificate of
Incorporation contains such a provision.
Article Thirteenth of our Certificate of Incorporation eliminates the
personal liability of directors and/or officers to us or our stockholders for
monetary damages for breach of fiduciary duty as a director; provided that such
elimination of the personal liability of a director and/or officer does not
apply to: (i) any breach of such person's duty of loyalty to us or our
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) actions prohibited
under Section 174 of the General Corporation Law (i.e., liabilities imposed upon
directors who vote for or assent to the unlawful payment of dividends, unlawful
repurchases or redemption of stock, unlawful distribution of our assets to the
stockholders without the prior payment or discharge of our debts or obligations,
or unlawful making or guaranteeing of loans to directors and/or officers); or
(iv) any transaction from which the director derived an improper personal
benefit. In addition, Article Fourteenth of our Certificate of Incorporation and
Article VI of our bylaws provide that we shall indemnify our corporate
personnel, directors and officers to the fullest extent permitted by the General
Corporation Law, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us as disclosed
above, we have been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- -----------
**1.1 Form of Underwriting Agreement between Leisure Travel Group, Inc.
and Roth Capital Partners Incorporated (the "Representative").
*3.1 Certificate of Incorporation of the Company.
*3.2 By-Laws of the Company.
**4.1 Specimen Common Stock Certificate.
**4.2 Form of Representative's Warrant Agreement between Leisure Travel
Group, Inc. and the Representative, including form of
Representative's Warrant therein.
**5.1 Opinion of Greenberg Traurig, LLP.
**10.1 Employment Agreement, dated as of ________, between Leisure Travel
Group, Inc. and Raymond J. Peel.
**10.2 Employment Agreement, dated as of ________, between Leisure Travel
Group, Inc. and Rod Rogers.
**10.3 Employment Agreement, dated as of ________, between Leisure Travel
Group, Inc. and David Marriott.
10.4 Agreement and Plan of Share Exchange, dated as of March 9, 2000, by
and among Leisure Travel Group, Inc., Leisure Travel Group Limited
and the Shareholders listed therein.
*10.5 Leisure Travel Group, Inc. 2000 Stock Option Plan.
*10.6 Form of Incentive Stock Option Agreement.
*10.7 Form of Non-qualified Stock Option Agreement.
**10.8 Asset Sale Agreement, dated June 30, 1999, between Rank Holidays
Division Limited and Grand Hotel Group Limited.
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.9 Loan Agreement, dated June 30, 1999, among Grand Hotel Group
Limited, Arab Bank plc and Irish Nationwide Building Society.
*10.10 Inter-creditor Agreement, dated June 30, 1999, between Grand Hotel
Group Limited, Cygnet Ventures Limited, Arab Bank plc and Irish
Nationwide Building Society.
*10.11 Share Sale Agreement, dated July 5, 1999, among Ellen Doherty, Ellen
Doherty Settlement 1997 and Leisure Travel Group Limited.
*10.12 Sale Agreement, dated July 5, 1999, between Ellen Doherty and
Leisure Travel Group Limited.
*10.13 Agreement for the Acquisition of the Issued Share Capital of Ilios
Travel Limited, dated January 2000, between Nita Eugenie Anne
Beecroft and Leisure Travel Group Limited.
23.1 Consent of Ernst & Young.
23.2 Consent of Ernst & Young.
23.3 Consent of Ernst & Young.
**23.4 Consent of Greenberg Traurig, LLP (included in the opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration
Statement).
*27.1 Financial Data Schedule.
- --------------------
* Filed with Form S-1 originally filed with the Securities and Exchange
Commission on March 10, 2000.
** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules have been omitted because the required
information is not applicable or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit of proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497 (h) under the Securities Act
of 1933, as amended, shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of New York, State of New York on this th__ day of May, 2000.
LEISURE TRAVEL GROUP, INC.
By: /s/ RAYMOND J. PEEL
-------------------------------------
RAYMOND J. PEEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Raymond J. Peel and Philip Mason, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and any other regulatory authority, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Pre-effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RAYMOND J. PEEL President and Chief May __, 2000
- ---------------------------------- Executive Officer
RAYMOND J. PEEL (Principal Executive Officer)
/s/ STEPHEN LAST Executive Vice President May __, 2000
- ---------------------------------- and Chief Financial Officer
STEPHEN LAST (Principal Financial and
Accounting Officer)
/s/ KEVIN R. LEECH Chairman of the Board May __, 2000
- ----------------------------------
KEVIN R. LEECH
/s/ PHILIP MASON Director May __, 2000
- ----------------------------------
PHILIP MASON
/s/ RAYMOND J. PEEL Director May __, 2000
- ----------------------------------
RAYMOND J. PEEL
/s/ ROD RODGERS Director May __, 2000
- ----------------------------------
ROD RODGERS
/s/ Stephen Last Director May __, 2000
- ----------------------------------
STEPHEN LAST
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
**1.1 Form of Underwriting Agreement between Leisure Travel Group, Inc.
and Roth Capital Partners Incorporated (the "Representative").
*3.1 Certificate of Incorporation of the Company.
*3.2 By-Laws of the Company.
**4.1 Specimen Common Stock Certificate.
**4.2 Form of Representative's Warrant Agreement between Leisure Travel
Group, Inc. and the Representative, including form of
Representative's Warrant therein.
**5.1 Opinion of Greenberg Traurig, LLP.
**10.1 Employment Agreement, dated as of _______, between Leisure Travel
Group, Inc. and Raymond J. Peel.
**10.2 Employment Agreement, dated as of _______, between Leisure Travel
Group, Inc. and Rod Rogers.
**10.3 Employment Agreement, dated as of _______, between Leisure Travel
Group, Inc. and David Marriott.
10.4 Agreement and Plan of Share Exchange, dated as of March 9, 2000,
by and among Leisure Travel Group, Inc., Leisure Travel Group
Limited and the Shareholders listed therein.
*10.5 Leisure Travel Group, Inc. 2000 Stock Option Plan.
*10.6 Form of Incentive Stock Option Agreement.
*10.7 Form of Non-qualified Stock Option Agreement.
**10.8 Asset Sale Agreement, dated June 30, 1999, between Rank Holidays
Division Limited and Grand Hotel Group Limited.
*10.9 Loan Agreement, dated June 30, 1999, among Grand Hotel Group
Limited, Arab Bank plc and Irish Nationwide Building Society.
*10.10 Inter-creditor Agreement, dated June 30, 1999, between Grand Hotel
Group Limited, Cygnet Ventures Limited, Arab Bank plc and Irish
Nationwide Building Society.
*10.11 Share Sale Agreement, dated July 5, 1999, among Ellen Doherty,
Ellen Doherty Settlement 1997 and Leisure Travel Group Limited.
*10.12 Sale Agreement, dated July 5, 1999, between Ellen Doherty and
Leisure Travel Group Limited.
*10.13 Agreement for the Acquisition of the Issued Share Capital of Ilios
Travel Limited, dated January 2000, between Nita Eugenie Anne
Beecroft and Leisure Travel Group Limited.
23.1 Consent of Ernst & Young.
23.2 Consent of Ernst & Young.
23.3 Consent of Ernst & Young.
**23.4 Consent of Greenberg Traurig, LLP (included in the opinion filed
as Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration
Statement).
*27.1 Financial Data Schedule.
- ----------
* Filed with Form S-1 originally filed with the Securities and Exchange
Commission on March 10, 2000.
** To be filed by amendment.
AGREEMENT AND PLAN OF SHARE EXCHANGE
THIS AGREEMENT AND PLAN OF SHARE EXCHANGE (the "Agreement") dated as of
this 9th day of March, 2000, by and among LEISURE TRAVEL GROUP, INC., a Delaware
corporation (the "Company"), LEISURE TRAVEL GROUP LIMITED, a private limited
company organized under the laws of England and Wales ("LTGL"), CIGNET VENTURES
LIMITED, a private limited company organized under the laws of Guernsey Channel
Islands ("Cignet"), RED KITE VENTURES LIMITED, a private limited company
organized under the laws of Guernsey Channel Islands ("Red Kite"), INTERNET PLC,
a private limited company organized under the laws of the British Virgin
Islands ("IPC"), TECHNOLOGY FINANCE LIMITED, a private limited company
organized under the laws of the British Virgin Islands ("TFL"), RAYMOND J. PEEL
("Peel"), MILNER LABORATORIES LIMITED, a private limited company ("Milner"),
PHILIP MASON ("Mason"), STEPHEN LAST ("Last"), ROD RODGERS ("Rodgers"), and
DAVID MARRIOTT ("Marriott"). Red Kite, IPC, TFL and Milner are sometimes
hereinafter collectively referred to herein as the "LTGL Shareholders," Cignet,
Mason, Rodgers and Last are sometimes hereinafter collectively referred to
herein as the "GHG Shareholders," and the LTGL Shareholders and the GHG
Shareholders are sometimes hereinafter collectively referred to herein as the
"Shareholders." The Company and the Shareholders are hereinafter sometimes
collectively referred to as the "Parties."
WHEREAS, the Board of Directors of the Company deems it advisable and in
the best interests of the Company that the Company acquire all of the issued and
outstanding share capital of LTGL, which currently owns 100% of the share
capital OF MISS ELLIE'S WORLD TRAVEL LIMITED, a private limited company
organized under the laws of England and Wales ("Miss Ellie's) and ILIOS TRAVEL
LIMITED, a private limited company organized under the laws of England and Wales
("Ilios"); and
WHEREAS, the shareholders and Board of Directors of the Company and LTGL
deems it advisable and in the best interests of the Company and LTGL that LTGL
acquire all of the issued and outstanding share capital of GRAND HOTEL GROUP
LIMITED, a private limited company organized under the laws of England and Wales
("GHG"); and
WHEREAS, the shareholders and Board of Directors of the Company and LTGL
deems it advisable and in the best interests of the Company and LTGL that LTGL
also acquire 49% of the issued and outstanding share capital of TRRRAVEL.COM,
LTD., a private limited company organized under the laws of England and Wales
("Trrravel.com"), and
WHEREAS, the case of each of the above acquisitions, the holders of the
share capital of each of LTGL, GHG and Trrravel.com will receive in exchange for
the share capital of such Acquired Corporations newly issued shares of common
stock, par value $0.001 per share, of the Company (the "Company Common Stock"),
all upon and subject to the terms and conditions contained in this Agreement
(the "Share Exchange"); and
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<PAGE>
WHEREAS, the shareholders of each of the Acquired Corporations and the
Company have approved and adopted this Agreement as a "plan of reorganization"
within the meaning of Section 368(a)(1)(B) of the Internal Revenue Code of 1986,
as amended.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, provisions, and conditions contained herein, and for other good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings, unless the context shall otherwise require:
(a) "Acquired Corporations" shall mean the collective reference to
LTGL (including its Miss Ellie's and Ilios subsidiaries), GHG and
Trrravel.com.
(b) "LTGL Escrowed Shares" shall mean all, and not less than all
of the issued and outstanding ordinary shares of LTGL.
(c) "GHG Escrowed Shares" shall mean all, and not less than all
of the issued and outstanding ordinary shares of GHG.
(d) "Trrravel.com Escrowed Shares" shall mean all, and not less
than all of the issued and outstanding ordinary shares of
Trrravel.com.
(e) "Company Common Stock" shall mean the common stock, par value
$0.001 per share of the Company.
(f) "Company IPO" shall mean the initial public offering of shares
of Company Common Stock pursuant to a registration statement on Form S-1
or other applicable form of registration (the "Registration Statement")
which shall be declared effective by the United States Securities and
Exchange Commission ("SEC"), and the trading of such shares of Company
Common Stock on the Nasdaq Stock Exchange or other national securities
exchange in the United States.
(g) "Effective Date" shall mean the date on which the SEC shall
declare effective the Registration Statement and related prospectus in
connection with the Company IPO.
(h) "Rank Indebtedness" shall mean all indebtedness for money
borrowed, whether or not evidenced by notes, which shall be owed on the
Effective Date by GHG or any subsidiary of GHG to The Rank Group plc or
any of its subsidiaries or affiliates.
2
<PAGE>
ARTICLE II
TERMS AND PROVISIONS OF SHARE EXCHANGE
Section 2.01 Share Exchange.
(a) Transfer of Share Capital of Acquired Corporations. Upon the terms and
subject to the conditions herein contained, including, without limitation, the
conditions contained in Article VI hereof, at the Effective Date:
(i) the GHG Shareholders shall sell, assign, transfer and deliver to
LTGL, and LTGL shall acquire from the GHG Shareholders all right, title
and interest in and to the GHG Escrowed Shares, representing all, and
not less than all, of the outstanding share capital of GHG as at the
Effective Date, free and clear of all liens and encumbrances thereon;
(ii) TFL shall sell, assign, transfer and deliver to LTGL, and
LTGL shall acquire from TFL all right, title and interest in and to
the Trrravel.com Escrowed Shares, representing 49% of the issued and
outstanding share capital of Trrravel.com as at the Effective Date, free
and clear of all liens and encumbrances thereon; and
(iii) immediately following the transfers contemplated by clauses
(i) and (ii) of this Section 2.01(a), the LTGL Shareholders shall sell,
assign, transfer and deliver to the Company, and the Company shall acquire
from the LTGL Shareholders all right, title and interest in and to an
aggregate of the LTGL Escrowed Shares, representing all, and not less
than all, of the outstanding share capital of LTGL as at the Effective
Date, free and clear of all liens and encumbrances thereon;
In furtherance of the foregoing, on the Effective Date:
(x) the GHG Shareholders shall deliver to LTGL share certificates
representing all of the issued and outstanding share capital of GHG as at
the Effective Date, duly endorsed in blank for transfer,
(y) TFL shall deliver to LTGL share certificates representing 49%
of the issued and outstanding share capital of Trrravel.com as at the
Effective Date, duly endorsed in blank for transfer; and
(z) the LTGL Shareholders shall deliver to the Company share
certificates representing all of the issued and outstanding share capital
of LTGL as at the Effective Date, duly endorsed in blank for transfer,
(b) Issuance of Company Common Stock. In consideration for the transfer
and assignment of all the issued and outstanding share capital of GHG and 49% of
the issued and outstanding share capital of Trrravel.com to LTGL, and the
transfer and
3
<PAGE>
assignment of all the issued and outstanding share capital of LTGL to the
Company, and against delivery of the certificates representing such share
capital as provided in Section 1.1(a) hereof, at the Effective Date, the Company
shall issue an aggregate of 5,060,000 shares of Common Stock to the
Shareholders, as follows:
(i) to the GHG Shareholders an aggregate of 3,700,000 shares of
Company Common Stock, in the individual amounts among the GHG Shareholders
as set forth opposite their respective names on Schedule 1 annexed hereto
and made a part hereof;
(ii) to the LTGL Shareholders, an aggregate of 940,000 shares of
Company Common Stock, in the individual amounts among the GHG Shareholders
as set forth opposite their respective names on Schedule 2 annexed hereto
and made a part hereof;
(iii) to TFL, 220,000 shares of Company Common Stock; and
(iv) to Milner Laboratories Limited, 200,000 shares of Company
Common Stock.
Section 2.02 Taking of Necessary Action. the Company, LTGL and the
Shareholders shall take all such actions as may be necessary or appropriate in
order to effectuate the transactions contemplated by this Agreement. If, at any
time after the Effective Date, any further action is necessary or desirable to
carry out the purposes of this Agreement, to vest the Company with title to 100%
of the issued and outstanding LTGL Escrowed Shares, or to vest LTGL with title
to 100% of the issued and outstanding GHG Escrowed Shares and 49% of the issued
and outstanding Trrravel.com Escrowed Shares, the officers and directors of
LTGL, GHG or Trrravel.com, as the case may be, at their expense, shall take such
necessary or desirable action in order to effectuate the transactions
contemplated by this Agreement.
Section 2.03 Stock Legends. Certificates representing shares of the
Company Common Stock shall bear a legend restricting transfer of the shares of
the Company Common Stock represented by such certificate in substantially the
form set forth below:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be transferred, nor will any assignee or endorsee hereof
be recognized as an owner hereof by the issuer for any purpose,
unless a registration statement under the Securities Act with
respect to such shares shall then be in effect or unless the
availability of an exemption from registration with respect to any
proposed transfer or disposition of such shares shall be established
to the satisfaction of counsel for the issuer."
4
<PAGE>
the Company shall, from time to time, make stop transfer notations in its
records to ensure compliance in connection with any proposed transfer of the
shares with the Securities Act, and all applicable state securities laws.
Section 2.04 Fees and Expenses. the Company shall be responsible for all
fees and expenses incurred in connection with the negotiation, execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, including, without limitation, the professional fees of counsel for the
Shareholders incurred in connection with the Share Exchange.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The following representations and warranties are hereby made (i) by the
Company to the Shareholders with respect only to the Company, (ii) by LTGL and
the LTGL Shareholders to the Company with respect only to LTGL and its Miss
Ellie's and Ilios subsidiaries, (iii) by the GHG Shareholders to the Company and
LTGL with respect only to GHG and (iv) by TFL to the Company and LTGL with
respect only to Trrravel.com.
Section 3.01 Organization; Authorization. It is a corporation duly
organized, validly existing, and in good standing under the laws of the state or
country of its incorporation and has full power and authority to carry on its
business as it now is being conducted and to own the properties and assets it
now owns. It is duly qualified to do business as a foreign corporation and is in
good standing in every jurisdiction in which the conduct of its business or
ownership of its property requires such qualification; and, subject to the
requisite approval of and authorization by the holders of its capital stock, it
has full power and authority to enter into this Agreement and to carry out the
transactions contemplated herein.
Section 3.02 No Defaults. It is not a party to or bound by any contract or
agreement, or subject to any charter provision or other legal restriction (other
than restrictions applicable to corporations or businesses generally), which
adversely affects its business, operations, properties, assets, or condition,
financial or otherwise. It is not in default under any material contract, lease,
agreement, or other undertaking to which it is a party or by which it is bound.
Subject to the requisite approval of and authorization by the holders of its
capital stock, neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, nor compliance with the
terms and conditions hereof will conflict with, result in a breach of the
unwaived terms and conditions of, or constitute a default under its articles of
incorporation or bylaws or any contract, agreement, commitment, or other
undertaking to which it is a party or by which it is bound.
Section 3.03 Governmental Consents. Except for the requirements of the
United States Securities Act of 1933, as amended (the "Securities Act") and any
applicable state securities laws, and any applicable laws of the United Kingdom
or the United States no
5
<PAGE>
consent or approval of, or filing or registration with, any governmental or
regulatory authority is required in connection with the performance of the terms
of this Agreement.
Section 3.04 Examination of Documents. All original documents and other
information relating to its affairs will be made available, and copies of any
such documents will be furnished, upon request to the other party and its
counsel. Included among the documents to be made available are all articles of
incorporation and amendments, bylaws and amendments, minutes of all
incorporators, directors and shareholders meetings or consent minutes with
respect to actions taken by incorporators, directors, or shareholders, all
financial statements, tax returns, and all material contracts, leases, and
agreements to which it is a party or an intended beneficiary.
Section 3.05 Title to Assets. It has good and marketable title to all of
its properties and assets, both real and personal, free and clear of all
security interest liens, claims, equities of others, and restrictions on the
right to transfer, except as disclosed in writing to the Company.
Section 3.06 Tax Returns and Payments. All of its tax returns and reports
required by law to be filed have been duly filed, and all taxes, assessments,
fees, and other governmental charges (other than those presently payable without
interest or penalty or those which are being contested in good faith by
appropriate proceedings diligently conducted and which are disclosed in the
Exceptions Schedule) upon it or upon any of its properties, assets, interest, or
income which are due or are to become due have been paid or adequately reserved
against. None of its federal income tax returns is currently under examination
by the Inland Revenue.
Section 3.07 No Litigation. Except as disclosed in writing to the Company:
(a) there is no action, proceeding, claim, or investigation pending
or threatened against it or to which any of its assets or properties are
subject before any court or any governmental department, commission,
board, bureau, agency, or instrumentality which involves the possibility
of any judgment or liability or which might adversely affect its assets,
business, or goodwill and, after investigations it knows of no basis or
grounds for any such action, proceeding, claim, or investigation; and
(b) there is no outstanding order, writ, injunction, or decree of
any court, government department, commission, board, bureau, government
agency, or instrumentality, or any arbitration award, against it.
Section 3.08 No Material Adverse Changes. Between the date of this
Agreement and the Effective Date, as a condition precedent to the obligations
hereunder, it will not, without the Company's prior written consent, it will not
engage in any material transaction not in the ordinary course of its business,
make or declare any dividends or distributions of its capital, surplus, or
profits, or redeem or issue any shares of its common stock or other securities.
There will be no changes in its assets, properties, liabilities, or financial
condition from those shown in its financial statements or in its
6
<PAGE>
condition, other than changes which do not materially affect, singly or in the
aggregate, its business, assets, properties, or financial condition. Other than
as disclosed to the Company, it will not borrow any amounts or incur any
liabilities other than pursuant to contracts entered into in the ordinary course
of business; discharge any lien or encumbrance or satisfy any liabilities other
than current liabilities incurred in the ordinary course of business; mortgage,
pledge, or subject to lien or charge or any other encumbrance any of its assets
or properties; sell, assign, or transfer any of its assets except in the
ordinary course of business; waive any rights of substantial value; or loan
money to any of its directors, officers, or shareholders.
Section 3.09 Books and Records Complete. Its books and records are
accurate and complete and there are no matters for which proper entry has not
been made in such books and records.
Section 3.10 Insurance. It is adequately insured with respect to risks
usually insured against by companies owning properties and conducting business
similar to those owned and conducted by it. All policies are presently in force
and paid in full and will continue to be so without interruption until the
Effective Date.
Section 3.11 No Brokerage Fees. Except as disclosed in the Registration
Statement, no agent, broker, investment banker, person, or firm acting on its
behalf, to the best of its knowledge, is or will be entitled to any broker's or
finder's fee or any other commission or fee, directly or indirectly, in
connection with any of the transactions contemplated hereby, except for the
Brokers.
Section 3.11 Compliance with Certain Laws. It is in full compliance with
all laws material and applicable to its business, including, without limitation,
laws (i) regulating atmospheric, water, and other pollution or damage to the
environment, (ii) regulating the ownership and operation of hotels, travel
agencies, tour operators and requirements of the CAA in respect of airline seat
bookings, and (iii) prohibiting discrimination based on race, creed, color, sex,
age, disability, or national origin.
Section 3.12 Authorization. Its shareholders and Board of Directors have
duly authorized the execution and delivery of this Agreement and all documents
and transactions called for hereunder, and, this Agreement constitutes a valid
and binding obligation of the corporation in accordance with the Agreement's
terms. Each shall deliver to the other a certified copy of resolutions of its
Board of Directors pertaining to the foregoing. It has taken or will exert its
best efforts to take, prior to the Effective Date, all action required by law,
its Articles of Association, Memorandum of Association, Certificate of
Incorporation and Bylaws, as applicable, and otherwise to authorize the
execution, delivery, and performance of this Agreement.
Section 3.13 Contracts. Other than as set forth or described in the
Registration Statement, it is not a party to any material agreement,
understanding or other contractual obligation ("Contract") binding upon it, the
non-performance of which by either a party
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to this Agreement or the other party to such Contract, would have a material
adverse effect on the business, financial condition or prospects of such party
hereto.
Section 3.14 Property and Equipment. The property and equipment as shown
on its most recent balance sheet are in good operating condition and state of
repair, reasonable wear and tear excepted. The use of its real property conforms
in all material respects with applicable ordinances, regulations, zoning, or
building codes, and other applicable laws.
Section 3.15 Share Ownership. The Shareholders who have executed this
Agreement are the record and beneficial owners of 100% of the share capital of
each of the Acquired Corporations and there are no options, warrants, rights or
other agreements or understandings, written or oral, to sell, issue or purchase
any additional share capital of any of the Acquired Corporations. There are not
issued or outstanding any options, warrants, or rights to subscribe for,
purchase, or receive ordinary shares or preference shares or any other
securities convertible into ordinary shares of preference shares of any of the
Acquired Corporations.
Section 3.16 Representations True. No representation or warranty contained
herein, nor any statement or certificate furnished hereunder or in connection
herewith, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE IV
INVESTMENT REPRESENTATIONS AND WARRANTIES
Each Stockholder hereby acknowledges, represents and warrants to, and
agrees with, the Company as follows:
Section 4.01 The Stockholder is acquiring the shares of Company Common
Stock for his or its own account as principal, not as a nominee or agent, for
investment purposes only, and not with a view to, or for, resale, distribution
thereof in whole or in part. Further, the Stockholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the shares of Company Common Stock.
Section 4.02 The Stockholder acknowledges his or its understanding that
the issuance of the shares of Company Common Stock is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "Securities Act")
by virtue of Section 4(2) of the Securities Act and the provisions of Regulation
D promulgated thereunder ("Regulation D"). In furtherance thereof, the
Stockholder represents and warrants to, and agrees with, the Company that he or
it: (i) is an "accredited investor" as that term is defined in Section 2(15) of
the Securities Act, and Rule 501(a) of Regulation D promulgated thereunder; (ii)
has the financial ability to bear the economic risk of an investment in the
Company and has no need for liquidity with respect to his or its
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investment in the Company; and (iii) has such knowledge and experience in
companies similar to the Company in terms of the Company's stage of development
so as to be capable of evaluating the merits and risks of an investment in the
Company.
Section 4.03 The Stockholder has been given the opportunity for a
reasonable time prior to the date hereof to ask questions of, and receive
answers from, the Company or its representatives concerning the business of the
Company the powers and rights of the Company Common Stock, and has been given
the opportunity for a reasonable time prior to the date hereof to obtain such
additional information necessary to verify the accuracy of the information which
was provided to the extent the Company possesses such information or can acquire
it without unreasonable effort or expense.
Section 4.04 The Stockholder represents, warrants and agrees that he or it
will not sell or otherwise transfer the shares of Company Common Stock without
registration under the Securities Act or an exemption therefrom and fully
understands and agrees that he or it must bear the economic risk of an
investment in the shares of Company Common Stock because, among other reasons,
such shares have not been registered under the Securities Act or under the
securities laws of any state and, therefore, cannot be resold, pledged, assigned
or otherwise disposed of unless they are registered under the Securities Act and
under the applicable securities laws of such states prior to such resale,
pledge, assignment or other disposition, or an exemption from such registration
is available. In particular, the Stockholder is aware that such shares, when
issued, will be "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act ("Rule 144"), and they may not be sold
pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Stockholder understands that Rule 144 is not currently available in connection
with a sale of such shares. The Stockholder also understands that the Company is
under no obligation to register such shares on his or its behalf or to assist
him or it in complying with any exemption from registration under the Securities
Act or applicable state securities laws. The Stockholder further understands
that sales or transfers of such shares are further restricted by applicable
state securities laws and the provisions of this Agreement.
Section 4.05 The Stockholder is not acquiring the shares of Company Common
Stock as a result of or subsequent to any advertisement, article, notice or
other communication published in any newspaper, magazine, or similar media or
broadcast over television or radio, any seminar or meeting, or any solicitation
of a subscription by a person or entity not previously known to the Stockholder
in connection with investments in securities generally.
Section 4.06 The foregoing representations, warranties and agreements
shall survive the date hereof.
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ARTICLE V
COVENANTS
Section 5.01 Preservation of Business; Access to Documents. From and after
the date of this Agreement and until the Effective Date, the parties hereto
hereby covenant and agree with each other that the Company and each of the
Acquired Corporations shall:
(a) use its best efforts to preserve its business organization,
goodwill, and business relationships intact and to retain the services of
its officers and key employees;
(b) provided the same does not violate any statute, order, decree,
rule, regulation, or contract, give each other and its authorized agents
full access, during normal business hours, upon reasonable notice, to all
of its assets, properties, books, records, agreements, and commitments and
furnish such representatives during such period with all such information
concerning its affairs as the other may reasonably request; provided.
however that each party and its authorized agents shall hold in confidence
all documents and information thus acquired or learned concerning the
parties and, if the transactions contemplated by this Agreement are not
consummated, all such documents shall immediately thereafter be returned
to the appropriate parties;
(c) take all necessary corporate and any other action, and use its
best efforts to obtain all consents, approvals, and agreements required to
carry out the transactions contemplated in this Agreement and to satisfy,
or cause to be satisfied, the conditions specified herein; and
(d) maintain in full force and effect insurance policies providing
coverages and amount of coverage as now provided.
Section 5.02 Business in Ordinary Course. Except as specifically
authorized by this Agreement, until the Effective Date, none of the Acquired
Corporations shall do any of the following except with the prior written consent
of the Company:
(a) effect any general salary increase except in line with its past
practices;
(b) enter into any written employment agreement;
(c) increase the base compensation or other benefits of any employee
by more than 10%;
(d) make any contribution to any trust or plan for the benefit of
employees not required by the present terns thereof or in accordance with
its past practices;
(e) make any change in any employee benefit plan which would
materially increase the cost thereof or adopt any new employee benefit
plan;
(f) issue or commit to issue any capital stock or other ownership
interests.
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(g) grant or omit to grant any options, warrants, or other rights to
subscribe for or purchase or otherwise acquire any shares of capital stock
or other ownership interests or issue or commit to issue any securities
convertible into or exchangeable for shares of its common stock or other
ownership interests;
(h) declare, set aside, or pay any dividend or distribution with
respect to its common stock or other ownership interests;
(i) directly or indirectly redeem, purchase, or otherwise acquire or
commit to acquire any of its common stock or other ownership interest or
directly or indirectly terminate or reduce or commit to terminate or
reduce any bank line of credit or the availability of any funds under any
loan or financing agreement;
(j) effect a split or reclassification of any capital stock or
recapitalization;
(k) change its articles of incorporation, bylaws, or other governing
instruments, except to effectuate the transactions contemplated by this
Agreement;
(1) borrow or agree to borrow any funds except pursuant to existing
bank lines of credit or other existing loan agreements or financing
arrangements; or
(m) waive or commit to waive any right of substantial value.
ARTICLE VI
CONDITIONS PRECEDENT TO THE SHARE EXCHANGE
The obligations of the parties under this Agreement are subject to the
satisfaction of the following express conditions precedent at or before the
Effective Date:
Section 6.01 Compliance with Laws. All statutory requirements for the
valid consummation by it of the transactions contemplated by this Agreement
shall have been fulfilled.
Section 6.02 Documents. All corporate and other proceedings in connection
with the transactions contemplated herein and all documents incident thereto
shall be reasonably satisfactory in form and substance to it and its counsel.
Section 6.03 Payment of Rank Indebtedness. Subject only to consummation of
the Company IPO within five business days following the Effective Date and
receipt of the net proceeds thereof, the Company will apply sufficient net
proceeds from such Company IPO which, when coupled with other available funds,
will be sufficient to (a) retire and pay in full all Rank Indebtedness, and (b)
cause the release of all personal guarantees of Kevin R. Leech or his affiliates
and all collateral securing a bank letter of credit issued by Citibank, N.A. in
favor of the holder of such Rank Indebtedness.
Section 6.04 Capitalization of Certain Loans. On the Effective Date, Red
Kite or another applicable corporate affiliate of Kevin R. Leech, shall
capitalize as share equity in
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the Company an aggregate of (pound)1,030,000 of loans made to LTGL or its
subsidiaries; provided that except for the shares of Company Common Stock issued
pursuant to this Agreement, no other form of consideration shall be issued or
paid for the capitalization of the aforesaid loans.
Section 6.05 Opinions of Counsel. Unless waived in writing by the parties
prior to the Effective Date, the Company and each Acquired Corporation shall
have caused its counsel to prepare and deliver to the other an opinion, dated as
of the Effective Date, in form and substance satisfactory to the other, to the
effect that:
(a) It has been duly incorporated and is a validly existing
corporation in good standing under the laws of its state or country of
incorporation, with full corporate power and authority to own and operate
its properties and to carry on its business as presently being conducted.
(b) It is duly qualified and licensed to transact business in each
state or other jurisdiction in which it transacts business and by each
governmental authority by which it is required to be licensed, except for
jurisdictions in which failure to qualify would not materially and
adversely affect its business, operations, or financial condition.
(c) It has an authorized capital as set forth in Article IV
hereinabove and the outstanding shares of its common stock stated as
issued and outstanding have been duly and validly issued and are fully
paid and nonassessable and contain no preemptive rights. To the best
knowledge of such counsel, there are no outstanding options, warrants, or
other rights to subscribe for, purchase, or receive shares of its common
stock or securities convertible into its common stock, other than as set
forth in Article IV hereinabove.
(d) Neither the execution and delivery of this Agreement nor
compliance with the terms of this Agreement will conflict with or result
in a material breach of any of the terms, conditions, or provisions of, or
constitute a material default under its Articles of Association,
Memorandum of Association, Certificate of Incorporation or bylaws or any
material note, indenture, mortgage, deed of trust, or other material
agreement or instrument known to such counsel to which it is a party or by
which it or any of its property is bound, or any existing law, order,
rule, regulation, writ, injunction, or decree known to such counsel of any
government, governmental instrumentality, agency, body, arbitration
tribunal, or court, domestic or foreign, having jurisdiction over it or
its properties.
(e) This Agreement has been duly authorized and executed by it, and
all corporate action by it required to authorize the Share Exchange has
been taken.
(f) Such counsel knows of no material litigation, proceeding, or
governmental investigation pending or threatened against or relating to it
or its properties or business.
In rendering such opinion, counsel may rely on certificates of its
officers as to matters of fact and, as to matters of law, may rely on opinions
of local counsel chosen by
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it provided that copies of such opinions of such other counsel accompany the
opinion delivered by counsel.
Section 6.06 Certificate of President and Secretary. The Company and each
Acquired Corporation shall have furnished to the other a certificate of the
President or Vice President and the Secretary of the respective company, dated
as of the Effective Date, to the effect that the representations and warranties
of the respective company in this Agreement are true and correct at and as of
the Effective Date, that no error, misstatement, or omission has been discovered
or is known with respect to such representations and warranties, and that the
respective company has complied with all the agreements and has satisfied all
the covenants on its part to be performed at or prior to the Effective Date.
Section 6.07 No Material Adverse Change. Between the date of execution of
this Agreement and the Effective Date, neither the Company nor any of the
Acquired Corporations: (a) except in the ordinary course of its business, shall
have incurred any liabilities or obligations (direct or contingent) or disposed
of any of its assets, or entered into any material transaction or suffered or
experienced any materially adverse change in its condition, financial or
otherwise, and (b) shall have increased its issued and outstanding ordinary
shares, preference shares, common stock or any other securities, or rights,
options, warrants or other instruments convertible into or exercisable for
ordinary shares, preference shares, common stock.
ARTICLE VII
TERMINATION, FURTHER ASSURANCES, AND MISCELLANEOUS
Section 7.01 Termination and Postponement. This Agreement and the Share
Exchange contemplated hereby may be terminated, and the transactions provided
for herein abandoned, as follows:
(a) at any time prior to but not after the Effective Date by mutual
consent of the Company and Cignet, or
(b) at the sole option of Cignet, at any time following five (5)
business days after the Effective Date if the Company IPO shall not have
been consummated and the Rank Indebtedness paid in full within five (5)
business days following such Effective Date
In the event of the termination and abandonment of this Agreement and the
Share Exchange contemplated hereby, this Agreement shall become void and of no
effect, without any liability on the part of any party or its directors,
officers, or shareholders.
Section 7.02 Survival. All agreements, representations, and warranties
made hereunder or in connection with the transactions contemplated hereby shall
survive the Effective Date and remain effective in accordance with the terms
hereof.
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<PAGE>
Section 7.03 Liability. In the event that this Agreement shall be
terminated pursuant to Section 7.01 hereinabove, all further obligations of the
Company and the Shareholders under this Agreement shall terminate without
further liability to the other.
Section 7.04 Assignment. This Agreement may not be assigned nor any of the
performances hereunder delegated by operation of law or otherwise by any party
hereto, and any purported assignment or delegation shall be void.
Section 7.05 Headings. The article and section headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement.
Section 7.06 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors, legal representatives, assigns, and transferors.
Section 7.07 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof. There
are no representations, warranties, conditions, or other obligations except as
herein specifically provided. Any waiver, amendment, or modification hereof must
be in writing. A waiver in one instance shall not be deemed to be a continuing
waiver or waiver in any other instance.
Section 7.08 Counterparts. This Agreement may be executed in counterparts
and each counterpart hereof shall be deemed to be an original, but all such
counterparts together shall constitute but one agreement an original, but all
such counterparts together shall constitute but one agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LEISURE TRAVEL GROUP, INC.
a Delaware corporation
By: /s/ Raymond J. Peel
---------------------------------------------
LEISURE TRAVEL GROUP LIMITED
a private limited company organized under the laws of England and Wales
By: /s/ Raymond J. Peel
---------------------------------------------
CIGNET VENTURES LIMITED
a private limited company organized under the laws of Guernsey (Channel Islands)
By: /s/ Kevin R. Leech
---------------------------------------------
RED KITE VENTURES LIMITED
a private limited company organized under the laws of Guernsey (Channel Islands)
By: /s/ Kevin R. Leech
---------------------------------------------
INTERNET PLC
a private limited company organized under the laws of the British Virgin Islands
By: /s/ Lee Cole
---------------------------------------------
TECHNOLOGY FINANCE LIMITED
a private limited company organized under the laws of the British Virgin Islands
By: /s/ Kevin R. Leech
---------------------------------------------
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/s/ Raymond J. Peel
---------------------------------------------
RAYMOND J. PEEL
MILNER LABORATORIES LIMITED
By: /s/ Kevin R. Leech
---------------------------------------------
/s/ Philip Mason
---------------------------------------------
PHILIP MASON
/s/ Stephen Last
---------------------------------------------
STEPHEN LAST
/s/ Rod Rodgers
---------------------------------------------
ROD RODGERS
/s/ David Marriott
---------------------------------------------
DAVID MARRIOTT
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SCHEDULE 1
Cignet Ventures Limited 3,145,000 Shares
Philip Mason 370,000 Shares
Stephen Last 74,000 Shares
Rod Rodgers 74,000 Shares
David Marriott 37,000 Shares
17
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SCHEDULE 2
Raymond J. Peel 263,333 Shares
Internet plc 263,333 Shares
Red Kite Ventures Limited 413,334 Shares
18
<PAGE>
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of the date set forth below, by
and among LEISURE TRAVEL GROUP, INC., a Delaware corporation (the "Company"),
LEISURE TRAVEL GROUP LIMITED, a private limited company organized under the laws
of England and Wales ("LTGL"), CIGNET VENTURES LIMITED, a private limited
company organized under the laws of Guernsey (Channel Islands) ("Cignet"), RED
KITE VENTURES LIMITED, a private limited company organized under the laws of
Guernsey (Channel Islands) ("Red Kite"), INTERNET PLC, a private limited company
organized under the laws of the British Virgin Islands ("IPC"), TECHNOLOGY
FINANCE LIMITED, a private company organized under the laws of the British
Virgin Islands ("TFL"), RAYMOND J. PEEL ("Peel"), MILNER LABORATORIES LIMITED, a
private limited company ("Milner"), PHILIP MASON ("Mason"), STEPHEN LAST
("Last"), ROD RODGERS ("Rodgers"), and DAVID MARRIOTT ("Marriott") and GREENBERG
TRAURIG, LLP, a law firm with offices located at 200 Park Avenue, New York, New
York 10166 (the "Escrow Agent"). Red Kite, IPC, TFL and Milner are sometimes
hereinafter collectively referred to herein as the "LTGL Shareholders," Cignet,
Mason, Rodgers and Last are sometimes hereinafter collectively referred to
herein as the "GHG Shareholders," and the LTGL Shareholders and the GHG
Shareholders are sometimes hereinafter collectively referred to herein as the
"Shareholders."
WITNESSETH
WHEREAS, as of March 9, 2000, the Company and the Shareholders entered
into an Agreement and Plan of Share Exchange (the "Agreement") under which (a)
LTGL agreed to purchase (i) from the GHG Shareholders, all of the outstanding
share capital of GHG and (ii) from TFL, 49% of the outstanding share capital of
Trrravel.com and (b) the Company agreed to purchase from the Shareholders all of
the outstanding share capital of LTGL; and
WHEREAS, each of the Shareholders have agreed to deposit said shares in
escrow in order implement the Agreement, and have executed this Agreement to
evidence the terms of said escrow with the Escrow Agent.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. The parties hereby designate, constitute and appoint Escrow Agent
as the "Escrow Agent" under this Agreement.
2. The Escrow Agent hereby acknowledges receipt of certificates
evidencing ordinary shares of each of LTGL, MISS ELLIE'S WORLD TRAVEL
LIMITED, a private limited company organized under the laws of England and
Wales ("Miss Ellie's) and ILIOS TRAVEL LIMITED, a private limited company
organized under the laws of England and
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<PAGE>
Wales ("Ilios"), GHG and Trrravel.com in the amounts set forth on SCHEDULE
A annexed hereto and made a part hereof (collectively, the "Escrowed
Shares"), together with stock powers duly executed in blank by the
Shareholders of record of such Escrowed Shares
3. The Escrowed Shares are to be held by Escrow Agent in escrow and
disposed of pursuant to and strictly in accordance with the terms and
conditions of this Agreement. Escrow Agent shall hold the Escrowed Shares
in a safe place, provided that Escrow Agent shall not be obligated to
obtain insurance covering the loss and/or destruction of the Escrowed
Shares unless the Parties so request and advance the Escrow Agent
sufficient funds to pay for said insurance. The Escrow Agent undertakes to
perform only such duties as are expressly set forth in this Agreement, and
no implied duties or obligations of the Escrow Agent shall be read into
this Agreement.
4. The Escrow Agent shall at all times be authorized to deliver the
Escrowed Shares in accordance with the terms of the Agreement or with
written instructions executed by Kevin R. Leech or Cignet, as
representative of all of the Shareholders (the "Representative"), all the
Parties. In the event the Escrow Agent shall receive a written claim of
default under the Agreement by any of the Parties, then the Escrow Agent
shall not release the Escrowed Shares from escrow unless and until the
Escrow Agent shall have received written instructions from the
Representative as the proper deliver of the Escrowed Shares or Escrow
Agent has received direction from a court of competent jurisdiction (after
expiration of any applicable appeal period) as to the proper party
entitled to receipt of the Escrowed Shares. Escrow Agent shall be
authorized to file an action in interpleader to determine the proper party
entitled to the Escrowed Shares; and the defaulting party, as determined
in such proceeding, shall indemnify and hold harmless the Escrow Agent
from all costs and expenses, including reasonable attorney's fees
associated with the proceeding. Escrow Agent may act in reliance upon any
writing or instrument or signature which it in good faith believes to be
genuine and may assume that any person purporting to give any writing,
notice, advice, or instruction in connection with the provisions hereof
has been duly authorized to do so. Escrow Agent shall not be liable in any
manner for the sufficiency or correctness as to form, manner of execution
or validity of any instrument deposited in this escrow nor as to the
identity, authority or right of any persons executing the same; and its
duties hereunder shall be limited to the safekeeping of the Escrowed
Shares and for the disposition of same in accordance with this Agreement.
Escrow Agent hereby executes this Agreement for the sole and exclusive
purpose of evidencing its Agreement of the provisions hereof.
5. The Parties hereby agree to indemnify and hold the Escrow Agent
harmless from any and all claims, liabilities, losses, actions, suits or
proceedings at law or in equity, or any other expense, fees, or charges of
any character or nature, which it may incur or with which it may be
threatened by reason of its acting as Escrow Agent under this Agreement;
and in connection therewith, to indemnify the Escrow Agent against any and
all expenses, including reasonable attorney's fees and the cost of
defending any action, suit or proceeding or resisting any claim.
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<PAGE>
6. The Escrow Agent may consult with counsel of its own choice and
shall have full and complete authorization and protection for any action
taken or suffered by it and hereunder in good faith and in accordance with
the opinion of such counsel. The Escrow Agent shall otherwise not be
liable for any mistakes of fact or error in judgment, or for any acts or
omissions of any kind unless caused by its willful misconduct or gross
negligence.
7. All reasonable out-of-pocket expenses of Escrow Agent in
connection with the services rendered under this Agreement shall be paid
by the Company.
8. Upon release and/or delivery of all Escrowed Shares in accordance
with the terms of the Agreement and this Agreement, this Agreement shall
terminate and the parties shall be released hereunder except with respect
to the indemnification obligations in favor of the Escrow Agent.
9. The provisions of this Agreement may not be amended,
supplemented, waived or changed orally, but only by a writing signed by
the party as to whom enforcement of any such amendment, modification,
supplement or waiver is sought and making specific reference to this
Agreement.
10. Escrow Agent shall have no duties or responsibilities other than
those expressly set forth herein. Escrow Agent shall not be liable for any
action taken or omitted by it, or any action suffered by it, except for
gross negligence or willful misconduct. The Escrow Agent shall not be
bound by any notice or demand unless evidenced by a writing delivered to
Escrow Agent signed by the proper party or parties.
11. This Agreement contains the entire understanding between and
among the parties hereto with respect to the subject matter hereof, and
shall be binding upon and inure to the benefit of such parties, and their
respective heirs, successors in interest and legal representatives.
12. This Agreement is governed by, and is to be construed in
accordance with, the laws of the State of New York, United States of
America.
This Agreement may be executed in counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
LEISURE TRAVEL GROUP, INC.
a Delaware corporation
By: /s/ Raymond J. Peel
---------------------------------------
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LEISURE TRAVEL GROUP LIMITED
a private limited company organized under the laws of England and Wales
By: /s/ Raymond J. Peel
---------------------------------------
CIGNET VENTURES LIMITED
a private limited company organized under the laws of Guernsey (Channel Islands)
By: /s/ Kevin R. Leech
---------------------------------------
RED KITE VENTURES LIMITED
a private limited company organized under the laws of Guernsey (Channel Islands)
By: /s/ Kevin R. Leech
---------------------------------------
INTERNET PLC
a private limited company organized under the laws of the British Virgin Islands
By: /s/ Lee Cole
---------------------------------------
TECHNOLOGY FINANCE LIMITED
a private limited company organized under the laws of the British Virgin Islands
By: /s/ Kevin R. Leech
---------------------------------------
/s/ Raymond J. Peel
-----------------------------------
RAYMOND J. PEEL
MILNER LABORATORIES LIMITED
By: /s/ Kevin R. Leech
---------------------------------------
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/s/ Philip Mason
-----------------------------------
PHILIP MASON
/s/ Stephen Last
-----------------------------------
STEPHEN LAST
/s/ Rod Rodgers
-----------------------------------
ROD RODGERS
/s/ David Marriott
-----------------------------------
DAVID MARRIOTT
ESCROW AGENT:
GREENBERG TRAURIG, LLP
BY: /s/ Stephen A. Weiss
---------------------------------------
STEPHEN A. WEISS, SHAREHOLDER
23
