AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 2000
REGISTRATION NO. 333-32192
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
PRE-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
LEISURE TRAVEL GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------
<TABLE>
<CAPTION>
DELAWARE 7011 98-0219586
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial Classification (I.R.S. Employer
Incorporation or Organization) Code Number) Identification No.)
</TABLE>
------------------
6 LEYLANDS PARK, NOBS CROOK
COLDEN COMMON
WINCHESTER SO21 1TH ENGLAND
TELEPHONE: 011-44-2380-601155 TELECOPIER: 011-44-2380-696099
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------
PHILIP MASON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LEISURE TRAVEL GROUP, INC.
COLDEN COMMON
WINCHESTER SO21 1TH ENGLAND
TELEPHONE: 011-44-2380-601155 TELECOPIER: 011-44-2380-696099
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent for Service)
------------------
Copies of communications to:
STEPHEN A. WEISS, ESQ. JAMES ZATOLOKIN, ESQ.
ANTHONY J. MARSICO, ESQ. MARY ANN SAPONE, ESQ.
GREENBERG TRAURIG, LLP POLLET & RICHARDSON
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
------------------
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.
===============================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 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.
----------
SEE "RISK FACTORS" BEGINNING ON PAGE __ FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
----------
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.
<TABLE>
<CAPTION>
===============================================================================================================
PER SHARE TOTAL
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Public offering price .......................................................... $ $
Underwriting discounts and commissions ......................................... $ $
Proceeds, before expenses, to Leisure Travel Group, Inc. ....................... $ $
===============================================================================================================
</TABLE>
We plan to utilize $10.0 million of the net proceeds to us, or
approximately 36% of the total net proceeds assuming an initial public offering
price of $11.00 per share, to retire debt which is secured by a bank letter of
credit obtained through the personal guaranty of Kevin R. Leech, our Chairman of
the Board and principal stockholder, at which time Mr. Leech will be relieved of
his personal guaranty. Upon completion of this offering, Mr. Leech will
beneficially own approximately 48%, or approximately 45% if the underwriters'
over-allotment option is exercised in full, of our outstanding common stock.
The underwriters have the right to purchase, within 45 days from the date
of this prospectus, up to an additional 450,000 shares of common stock from us
at the initial public offering price, less underwriting discounts and
commissions, to cover over-allotments, if any.
Delivery of the shares of common stock will be made on or about _________,
2000 in Newport Beach, California, 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.
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.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ................................................... 1
Risk Factors ......................................................... 9
Cautionary Notice Regarding Forward Looking Statements ............... 23
Use of Proceeds ...................................................... 24
Dividend Policy ...................................................... 25
Capitalization ....................................................... 26
Dilution ............................................................. 27
Unaudited Condensed Pro Forma Consolidated
Financial Information .............................................. 28
Selected Financial Data .............................................. 36
Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 37
Business ............................................................. 47
Management ........................................................... 54
Certain Relationships and Related Transactions ....................... 59
Principal Stockholders ............................................... 61
Description of Securities ............................................ 62
Shares Eligible for Future Sale ...................................... 64
Underwriting ......................................................... 66
Legal Matters ........................................................ 68
Experts .............................................................. 68
Additional Information ............................................... 69
Index to Financial Statements ........................................ F-1
<PAGE>
--------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The following summary highlights material information contained elsewhere
in 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. We were incorporated under the laws of
the State of Delaware in February 2000 and have not conducted any commercial
operations to date. Our business will be conducted through various private
limited companies organized under the laws of England and Wales, all of which we
will acquire as of the date of this prospectus.
"trrravel.com" is a trademark of trrravel.com Limited, a private limited
company organized under the laws of England and Wales, in which we will acquire
a 49% equity interest as of the date of this prospectus. This prospectus also
contains trademarks and tradenames of other companies.
OUR COMPANY
OVERVIEW
We plan to become a leading international provider of attractively priced,
specialized holiday and leisure accommodations and world-wide packaged travel
services. On the date of this prospectus, we will acquire six well-known holiday
resort hotels in the United Kingdom, as well as a travel agency and a tour
operator that offer flexible travel programs. We will also acquire on the date
of this prospectus a 49% equity interest in trrravel.com Limited, which operates
a European consumer-direct online travel Website offering complete vacation and
travel packages directly to consumers. trrravel.com Limited also owns and
operates an airline seat provider that purchases blocks of airline seats from
airlines and other travel and tour operators and acts as an agent in brokering
those seats on a commission basis. Through consolidation of these and other
vacation and travel-related businesses, we believe that we will offer
vacationers, travel agents and tour operators a single source of competitively
priced holiday and leisure travel products and services. We intend to utilize
the WWW.TRRRAVEL.COM Website to market our products and services. We plan to
expand our business by acquiring additional vacation and leisure travel
businesses, including resort hotels, travel providers and tour operators.
THE HOTEL BUSINESS
The six holiday resort hotels we will acquire are located near major
seaside resorts in England and Wales and offer attractively priced vacation
accommodations, including food and entertainment. Operated under the brand
"Grand Hotels," the hotels provide a unique vacation experience that sets them
apart from customary business and commercial hotels or expensive holiday resorts
in Europe and the United States which offer "A la carte" accommodations. The
principal difference between the Grand Hotels and other hotels in the United
Kingdom is the inclusion of a food and entertainment package. Our strategy is to
expand the Grand Hotels' customer base by increasing 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 younger, more
affluent guests.
THE TRAVEL BUSINESSES
The retail and group travel agency and the tour operator we will acquire
offer competitively-priced travel-related services and accommodations to a
variety of holiday destinations in Europe, North America and South Africa.
Specializing in packaged tours, the travel businesses offer private
accommodations in a variety of holiday destinations, including private country
homes and villas in Tuscany, Sardinia and other regions of Italy, Andalucian
haciendas in Spain and traditional Ottoman-style houses in Turkey. They also
provide special interest tours to major European sporting events. The travel
businesses offer competitive pricing and access to inventory through working
relationships with major airlines, including Singapore Airlines, British
Airways, Alitalia and Iberia, and auto rental and insurance companies.
THE TRAVEL WEBSITE
trrravel.com Limited operates an Internet travel Website, and owns an
airline seat provider that purchases blocks of airline seats from airlines and
other travel and tour operators for resale and acts as an agent in brokering
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
those seats on a commission basis. Visitors to the WWW.TRRRAVEL.COM Website will
be able to view our travel options, rates and availability, and book and
purchase a wide variety of travel services, including group packages and custom
tailored vacation programs.
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, total travel expenditures in the United
Kingdom totaled approximately $43.0 billion. Of that amount, approximately $20.5
billion was spent by overseas visitors in the United Kingdom, and the remaining
$22.5 billion was spent by residents of the United Kingdom on travel outside the
United Kingdom and travel-related services.
The growth of travel sales through the Internet has created another channel
for travel service providers to sell products and services to travelers.
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%.
In the United Kingdom, vacations are typically purchased in packages
through travel agents which include airfare, lodging and rental cars. The travel
agency and tour operator market in the United Kingdom is dominated by four major
providers--Thomsons plc, Air Tours plc, First Choice plc and JMC (formerly
Thomas Cook) --with an aggregate market share of approximately 65%. The
remaining 35% of the market is shared by over 12,000 independent travel agencies
and tour operators.
OUR OPERATING STRATEGY
We will pursue an operating strategy that includes the following elements:
o increase the revenues, profitability and occupancy rate of the holiday
resort hotels we plan to acquire;
o offer travel planning solutions at competitive prices;
o use the WWW.TRRRAVEL.COM Website as a world-wide marketing tool to
aggressively promote and advertise our services; and
o provide airline seats, holiday villas and other travel-related
services to independent tour operators.
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 011-44-2380-601155.
----------------------
UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS GIVES EFFECT TO
THE FOLLOWING TRANSACTIONS WHICH WILL BE COMPLETED ON THE DATE OF THIS
PROSPECTUS:
o OUR ACQUISITION OF 100% OF THE OUTSTANDING SHARE CAPITAL OF LEISURE
TRAVEL GROUP LIMITED; AND
o LEISURE TRAVEL GROUP LIMITED'S ACQUISITION OF 100% OF THE OUTSTANDING
SHARE CAPITAL OF GRAND HOTEL GROUP LIMITED 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;
o UP TO 325,000 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF
STOCK OPTIONS THAT HAVE BEEN GRANTED UNDER OUR 2000 STOCK OPTION PLAN;
AND
o UP TO 675,000 SHARES OF COMMON STOCK UNDERLYING STOCK OPTIONS
AVAILABLE TO BE GRANTED UNDER OUR 2000 STOCK OPTION PLAN.
Information contained on the WWW.TRRRAVEL.COM Website does not constitute a
part of this prospectus.
--------------------------------------------------------------------------------
2
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
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 as
follows:
o to repay indebtedness of Grand Hotel Group Limited in
connection with the acquisition of five of the Grand
Hotels;
o to renovate and refurbish the six Grand Hotels;
o to acquire additional resort hotels in England, Spain
and other locations;
o to expand our travel-related services business; and
o for general corporate and working capital purposes,
including future 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"
</TABLE>
3
<PAGE>
SUMMARY FINANCIAL DATA
(US DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
The following tables set forth:
o Summary historical combined financial data for Grand Hotel Group
(Predecessor) for the years ended December 31, 1995, 1996, 1997 and
1998, the six months ended April 30, 1999 and the six months ended
June 30, 1999, and as of December 31, 1997 and 1998;
o Summary historical combined financial data for Leisure Travel Group
(Combined), consisting of Grand Hotel Group Limited and Leisure Travel
Group Limited, for the period from July 1, 1999 (commencement of
operations) to October 31, 1999 and the six months ended April 30,
2000, and as of October 31, 1999 and April 30, 2000;
o Our summary pro forma consolidated financial data for the twelve
months ended October 31, 1999, the six months ended April 30, 2000 and
as of April 30, 2000, which gives effect to:
-- our acquisition of all of the outstanding share capital of
Leisure Travel Group Limited,
-- Leisure Travel Group Limited's acquisition of all of the
outstanding share capital of Miss Ellie's World Travel Limited,
Ilios Travel Limited and Grand Hotel Group Limited,
-- Grand Hotel Group Limited's acquisition of the assets of the
Burstin Hotel, and
-- Leisure Travel Group Limited'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 April 30,
2000, in the case of the pro forma balance sheet data, except with
respect to Miss Ellie's World Travel Limited, which was acquired by
Leisure Travel Group Limited on July 5, 1999 and Ilios Travel Limited,
which was acquired by Leisure Travel Group Limited on February 12,
2000; and
o Our summary pro forma as adjusted consolidated balance sheet data as
of April 30, 2000, which is adjusted to give effect to:
-- the sale of 3,000,000 shares of our common stock in this offering
at an assumed initial public offering price of $11.00 per share
(the mid-point of the range),
-- the addition of $6.1 million of mortgage indebtedness,
-- the repayment of $16.1 million of indebtedness outstanding under
a note issued by Grand Hotel Group Limited to a subsidiary of The
Rank Group plc, and
-- the capitalization of $2.1 million of loans made to Leisure
Travel Group Limited by Red Kite Ventures Limited, a corporate
affiliate of our principal stockholder.
Leisure Travel Group, Inc., Leisure Travel Group Limited, Ilios Travel
Limited and Grand Hotel Group Limited each have an accounting year end of
October 31. Grand Hotel Group (Predecessor) had an accounting year end of
December 31. Miss Ellie's World Travel Limited had an accounting year end of
March 31 prior to its acquisition by Leisure Travel Group Limited. Grand Hotel
Group Limited adopted an October 31 accounting year end upon its acquisition of
Grand Hotel Group (Predecessor).
The summary historical financial data as of December 31, 1997, and for the
years ended December 31, 1995 and 1996 of Grand Hotel Group (Predecessor) have
been derived from the unaudited combined financial statements of Grand Hotel
Group (Predecessor), which are not included in this prospectus. These unaudited
4
<PAGE>
financial statements include, in our opinion, all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of that data.
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
have been derived from the audited combined financial statements of Grand Hotel
Group (Predecessor), and the summary historical financial data as of October 31,
1999 and for the period from July 1, 1999 (commencement of operations) to
October 31, 1999 have been derived from the audited combined financial
statements of Leisure Travel Group (Combined), all of which are included
elsewhere in this prospectus. These financial statements have been audited by
Ernst & Young, our independent auditors.
The summary historical financial data for the six months ended April 30,
1999 have been derived from the unaudited combined condensed financial
statements of Grand Hotel Group (Predecessor), and the summary historical
financial data as of April 30, 2000 and for the six months ended April 30, 2000
have been derived from the unaudited combined condensed financial statements of
Leisure Travel Group (Combined) and Leisure Travel Group, Inc., all of 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 that 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 acquisitions on the dates assumed.
5
<PAGE>
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 to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
LEISURE TRAVEL GROUP
GRAND HOTEL GROUP (PREDECESSOR) (COMBINED)
----------------------------------------------------------- ------------------------
HISTORICAL HISTORICAL
----------------------------------------------------------- ------------------------
SIX SIX PERIOD FROM SIX
MONTHS MONTHS JULY 1, 1999 MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED TO ENDED
------------------------------------- APRIL 30, JUNE 30, OCTOBER 31, APRIL 30,
1995 1996 1997 1998 1999 1999 1999 2000
------- ------- ------- ------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ............................ $32,959 $32,427 $33,785 $32,446 $13,423 $11,526 $ 17,261 $19,830
Operating cost and expenses ............... 26,981 27,700 28,982 27,913 13,516 12,638 15,095 19,751
------- ------- ------- ------- ------- -------- -------- -------
Operating profit (loss) ................... 5,978 4,727 4,803 4,533 (93) (1,112) 2,166 79
Other income (expense), net ............... -- -- -- -- -- -- (433) (645)
Equity in net loss of equity investment ... -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- -------- -------- -------
Income (loss) before income taxes ......... 5,978 4,727 4,803 4,533 (93) (1,112) 1,733 (566)
Income taxes .............................. 2,459 2,035 2,027 1,859 -- -- 520 --
------- ------- ------- ------- ------- -------- -------- -------
Net income (loss) ......................... $ 3,519 $ 2,692 $ 2,776 $ 2,674 $ (93) $ (1,112) $ 1,213 $ (566)
======= ======= ======= ======= ======= ======== ======== =======
OTHER DATA:
EBITDA (1) ................................ $ 7,737 $ 6,618 $ 6,907 $ 6,478 $ 943 $ (182) $ 2,371 $ 691
Depreciation and amortization ............. $ 1,760 $ 1,891 $ 2,104 $ 1,945 $ 1,036 $ 929 $ 205 $ 612
<CAPTION>
LEISURE TRAVEL GROUP, INC.
---------------------------
PRO FORMA
PRO FORMA SIX MONTHS
YEAR ENDED ENDED
OCTOBER 31, APRIL 30,
1999 2000
----------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues ......................................... 58,005 $23,963
Operating cost and expenses ............................ 52,607 23,866
------- -------
Operating profit (loss) ................................ 5,398 97
Other income (expense), net ............................ (2,426) (979)
Equity in net loss of equity investment ................ -- (25)
------- -------
Income (loss) before income taxes ...................... 2,972 (907)
Income taxes ........................................... 1,691 111
------- -------
Net income (loss) ...................................... $ 1,281 $(1,018)
======= =======
Net income per share:
Basic and diluted .................................... $ 0.25 $ (0.20)
======= =======
Shares used in computing net income per share:
Basic and diluted .................................... 5,060 5,060
======= =======
OTHER DATA:
EBITDA (1) ............................................. $7,481 $ 1,192
Depreciation and amortization .......................... $2,795 $ 1,120
<CAPTION>
LEISURE TRAVEL GROUP LEISURE TRAVEL GROUP, INC.
GRAND HOTEL GROUP (COMBINED) ------------------------------------
(PREDECESSOR) ----------------------- APRIL 30, 2000
------------------- HISTORICAL ------------------------------------
DECEMBER 31, ----------------------- PRO FORMA,
------------------- OCTOBER 31, APRIL 30, AS
1997 1998 1999 2000 HISTORICAL PRO FORMA ADJUSTED
------- ------- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) ......... $(1,902) $(1,966) $ (761) $(2,547) $ -- $ (3,434) $16,677
Total assets ...................... 28,655 26,950 46,335 43,073 285 70,082 88,091
Long-term debt (excluding
current maturities) ............. -- -- 33,436 32,151 -- 49,234 39,203
Total stockholders' equity ........ 24,833 23,434 1,213 590 -- 9,090 39,232
</TABLE>
---------------
(1) We have presented earnings before interest, taxes, depreciation and
amortization, or EBITDA, because we believe it is a useful and widely
accepted financial indicator of a company's ability to pay its debt.
However, you should not consider EBITDA as an alternative to operating
income or cash flows from operating activities, as determined in accordance
with generally accepted accounting principles. You also should not construe
it as an indication of our operating performance or as a measure of our
liquidity.
6
<PAGE>
================================================================================
OUR CORPORATE STRUCTURE
PRE-OFFERING
On the date of this prospectus, we will acquire 100% of the hotel business
and the travel businesses, and a 49% equity interest in the travel Website and
airline seat provider business. All of these businesses are controlled by
corporate affiliates of Kevin R. Leech, our Chairman of the Board and principal
stockholder. The following diagrams illustrate the corporate structure and
ownership of these businesses immediately prior to the date of this prospectus.
THE HOTEL BUSINESS
<TABLE>
<S> <C> <C>
-------------------------------- -----------------------------------------------------
| Cygnet Ventures Limited | | Beneficially owned collectively by the following |
| (a Guernsey company wholly | | members of our management team: Philip |
| owned by Kevin R. Leech) | | Mason, Rod Rodgers, Stephen Last and David |
| | | Marriott |
-------------------------------- -----------------------------------------------------
| |
| 85% | 15%
| |
---------------------------------------------------------------------------------
| |
| Grand Hotel Group Limited |
| (an England and Wales company) |
| |
---------------------------------------------------------------------------------
| | | | | |
| 100% | | 100% | 100% | | 100%
| | | | | |
----------------------- | ------------------------ ------------------------ | --------------------------
| The Grand | | | The Grand | | The Grand | | | The Grand |
| Ocean Hotel | | | Metropole Hotel | | Hotel | | | Hotel |
| (Brighton, England) | | | (Blackpool, England) | | (Margate, England) | | | (Scarborough, England) |
----------------------- | ------------------------ ------------------------ | --------------------------
| |
| 100% | 100%
| |
----------------------- ------------------------
| The Grand | | The Grand |
| Hotel | | Burstin Hotel* |
| (Llandudno, Wales) | | (Folkstone, England) |
----------------------- ------------------------
</TABLE>
* This hotel is currently owned by Queensborough Holdings Limited, a private
limited company organized under the laws of England and Wales that is 50%
beneficially owned by Kevin R. Leech. Grand Hotel Group Limited has entered
into negotiations to purchase this hotel in September 2000 for $17.1
million. See "Managements' Discussion and Analysis of Financial Condition
and Results of Operations--Overview and Structure" and "Certain
Relationships and Related Transactions."
THE TRAVEL BUSINESSES
-----------------------------------------
| Red Kite Ventures Limited |
| (a Guernsey company wholly owned |
| by Red Kite Trust, the beneficiaries |
| of which are members of the family |
| of Kevin R. Leech) |
-----------------------------------------
|
| 100%
|
------------------------------------------
| |
| Leisure Travel Group Limited |
| (an England and Wales company) |
| |
------------------------------------------
| |
| 100% | 100%
| |
------------------------------------- ----------------------------------
| | | |
| Miss Ellie's World Travel Limited | | Ilios Travel Limited |
| (an England and Wales company) | | (an England and Wales company) |
| | | |
------------------------------------- ----------------------------------
THE TRAVEL WEBSITE & AIRLINE SEAT PROVIDER BUSINESSES
------------------------------------- ----------------------------------
| | | |
| ci4net.com, Inc. | | Technology Finance Limited |
| (a Delaware company that is 54%- | | (a British Virgin Islands |
| owned by Kevin R. Leech) | | company that is 50%-owned by |
| | | Kevin R. Leech) |
------------------------------------- ----------------------------------
| |
| 51% | 49%
| |
------------------------------------------
| |
| trrravel.com Limited |
| (an England and Wales company) |
| |
------------------------------------------
|
| 100%
|
------------------------------------------
| |
| Independent Aviation Limited |
| (an England and Wales company) |
| |
------------------------------------------
================================================================================
7
<PAGE>
================================================================================
POST-OFFERING
The following diagram illustrates our corporate structure and ownership
upon completion of this offering.
<TABLE>
<S> <C> <C>
------------------------------------- ----------------------- --------------------------------------------
| | | | | Members of our Management Team and |
| Corporate Affiliates of | | Public Stockholders | | Other Stockholders, other than Corporate |
| Kevin R. Leech | | | | Affiliates of Kevin R. Leech |
------------------------------------- ----------------------- --------------------------------------------
| | |
48.0% | | 37.2% | 14.8%
| | |
--------------------------------
| |
| Leisure Travel Group, Inc. |
| (Nasdaq: LTGI) |
| |
--------------------------------
|
| 100%
|
---------------------------------- -----------------------
| | | |
-------------------------| Leisure Travel Group Limited |---------------------------- | ci4net.com Inc. |
| | (an England and Wales company) | | | (a Delaware company) |
| | |---------| | | |
| ---------------------------------- | | ------------------------
| | | | |
| 100% | 100% | 100% | 49% | 51%
| | | | |
---------------------- ---------------------- --------------------- ---------------------
| Miss Ellie's World | | Ilios | | Grand Hotel | | trrravel.com |
| Travel Limited | | Travel Limited | | Group Limited | | Limited |
| (an England and | | (an England and | | (an England and | | (an England and |
| Wales company) | | Wales company) | | Wales company) | | Wales company) |
---------------------- ---------------------- --------------------- ---------------------
| |
| 100% | 100%
| |
--------------------- ----------------------------------
| | | |
| The Six | | Independent Aviation Limited |
| "Grand Hotels" | | (an England and Wales company) |
| | | |
--------------------- ----------------------------------
</TABLE>
================================================================================
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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 HAVE HAD NO COMMERCIAL OPERATIONS TO DATE AND THE BUSINESSES WE WILL
ACQUIRE ON THE DATE OF THIS PROSPECTUS LACK A COMBINED OPERATING HISTORY, THERE
IS LIMITED INFORMATION UPON WHICH YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS.
We were incorporated in February 2000 and prior to the date of this
prospectus have not conducted any commercial operations. Consequently, we have
no 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 in the establishment of a new business venture.
On the date of this prospectus, we will acquire a travel agency and a tour
operating business based in the United Kingdom, six hotels located in seaside
resorts throughout England and Wales, and a 49% equity interest in a travel
Website business and a tour operating airline seat provider business.
These businesses have no history of operations under common management.
Moreover, 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. You should consider the likelihood of our future
success to be highly speculative in light of our lack of an operating history,
as well as the risks we will face in connection with our efforts to maintain
positive customer relations, upgrade physical properties, attract skilled
employees and remain competitive in our industries. The failure to address these
risks will have material adverse effects on our business and would result in,
among other things:
o deterioration of our customer base;
o our failure to implement and execute our operating and growth
strategies;
o physical deterioration of the Grand Hotels; and
o our failure to provide superior customer service.
The historical and pro forma consolidated financial data included in this
prospectus cover periods when the 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.
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 no operating history and the businesses we will acquire on
the date of this prospectus, lack a combined operating history, and because of
the dynamic nature 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.
These fixed expenses aggregated approximately $13.6 million on a pro forma basis
for the six months ended April 30, 2000. We are unlikely to be able to adjust
spending quickly enough 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.
We expect to experience significant fluctuations in our future operating
results due to a variety of factors, many of which we do not control, which
include, without limitation:
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; and
9
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o events affecting the travel industry such as natural disasters, wars
or terrorist attacks.
Additional factors that may adversely affect our future operating results
include, but are not limited to:
o our inability to develop strong brand recognition, build customer
loyalty and attract new and repeat customers;
o our inability to retain or expand hotel and airfare supply
arrangements or reductions in discounts received on these travel
services;
o unforeseen capital costs or an increasing annual rate of capital
expenditures required to maintain the facilities at the Grand Hotels,
five of which were originally built between 1776 and 1931 and the
sixth was built in the 1960's;
o our inability to upgrade and develop our systems and infrastructure;
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 technical difficulties, system downtime or slowdowns in Internet
response times; and
o our inability to establish a sufficient level of traffic on the
trrravel.com Website.
For any of the foregoing reasons, or for other reasons we do not presently
anticipate, it is likely that our operating results will not meet our
expectations in a particular fiscal period. If this occurs, it could have a
material adverse effect on our stock price.
THE GRAND 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 Grand Hotels that were owned and operated by The Rank
Group plc under the name Butlin's Provincial Hotels during that period 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. There can be
no assurance that we will realize improved revenues and operating results in the
future or, if we do, that we will be able to sustain or improve them.
THE GRAND HOTELS MUST MAKE AVERAGE ANNUAL DEBT SERVICE PAYMENTS OF $9.6 MILLION
AND TOTAL BUDGETED CAPITAL EXPENDITURES OF $2.4 MILLION.
Upon completion of this offering, Grand Hotel Group Limited will have
outstanding approximately $39.0 million of mortgage indebtedness. $21.7 million
of this indebtedness is being amortized over a five-year period, $12.4 million
will be amortized over an eight year period, and the balance of $4.9 million
will be amortized over a three year period. This indebtedness will require
average annual debt service payments of principal and interest of approximately
$9.6 million, commencing July 2001. For the twelve months ended October 31,
1999, our pro forma earnings before interest, taxes, depreciation and
amortization, or EBITDA, was $7.5 million. Following completion of this
offering, we intend to reduce Grand Hotel Group Limited's annual debt service
obligations by seeking to obtain long-term mortgage financing. We have received
a proposal from the bank, which provided approximately 88% of Grand Hotel Group
Limited's existing mortgage financing, to provide Grand Hotel Group Limited with
a 8.25% $40.2 million ten-year mortgage loan with a 15-year amortization
schedule, subject to completion of this offering. However, there is no assurance
that this proposed refinancing will be consummated or that alternative long-term
financing will be available on financially attractive terms, if at all. There is
also no assurance that the cash flow from operations of the Grand Hotels will be
adequate to meet these annual debt service obligations.
In addition to our annual debt service obligations, we have budgeted $5.0
million of the net proceeds of this offering for capital expenditures to
refurbish and construct improvements to the Grand 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 $10.0 million, or approximately 36% of the
net proceeds of this offering assuming an initial public offering price of
$11.00 per share, together with $6.1 million of additional mortgage
10
<PAGE>
indebtedness, to retire a $16.1 million note issued by Grand Hotel Group Limited
to a subsidiary of The Rank Group plc in connection with the June 1999 purchase
of five of the Grand Hotels. 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 marketable securities
pledged by him to secure his guaranty will be returned to him.
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 their services on WWW.TRRRAVEL.COM and will pay fees and
commissions based on online bookings made and transactions closed through use of
the Website. Prior to the date of this prospectus and our proposed acquisition
of 49% of its equity, trrravel.com Limited, was 51%-owned by ci4net.com, Inc., a
publicly traded Delaware corporation controlled by Kevin R. Leech, our Chairman
of the Board and principal stockholder, and 49%-owned by Technology Finance
Limited, a British Virgin Islands company that is 50%-owned by Mr. Leech.
Technology Finance Limited has agreed to contribute its entire 49% equity
interest in trrravel.com Limited to Leisure Travel Group Limited on the date of
this prospectus in exchange for 220,000 shares of our common stock. ci4net.com,
Inc. will continue to be solely responsible for the development and maintenance
of the Website and will directly benefit as we increase our advertising on
WWW.TRRRAVEL.COM. The common control of our company and ci4net.com, Inc. by
entities controlled by Mr. Leech 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 beneficially owns approximately 50% of the
outstanding share capital of Queensborough Holdings Limited, a private limited
company organized under the laws of England and Wales. Grand Hotel Group Limited
has entered into negotiations to acquire the Burstin Hotel, located in
Folkestone, England, from Queensborough Holdings Limited in September 2000.
Approximately $4.7 million of the $17.1 million purchase price for the Burstin
Hotel will be represented by a 7% three-year note payable to Queensborough
Holdings Limited. Upon completion of the contemplated refinancing of the $40.2
million mortgage indebtedness owed by Grand Hotel Group Limited, this note will
be retired and will provide direct financial assistance to Mr. Leech and his
business associates in connection with the recent privatization of Queensborough
Holdings Limited.
WE WILL BE REQUIRED TO MAKE EARN-OUT PAYMENTS TO THE FORMER SHAREHOLDER OF ONE
OF THE TRAVEL BUSINESSES THAT WE WILL BE ACQUIRING AS OF THE DATE OF THIS
PROSPECTUS, WHICH WILL REDUCE THE AMOUNT OF CASH AVAILABLE FOR WORKING CAPITAL
AND GENERAL CORPORATE PURPOSES AND COULD HAVE AN ADVERSE EFFECT ON THE VALUE OF
YOUR INVESTMENT.
The terms of Leisure Travel Group Limited's acquisition of Miss Ellie's
World Travel Limited include an "earn-out" provision whereby, after our
acquisition of Leisure Travel Group Limited upon completion of this offering, we
will be required to pay additional cash to the former shareholder 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. Based on the pre-tax income of Miss Ellie's World Travel Limited during
that period, the amount of that payment will be approximately (pound)325,000
($504,270). This payment will reduce the amount of cash available for working
capital and general corporate purposes and could have an adverse effect on the
value of your investment.
MANY OF THE ADVANCED BOOKING ARRANGEMENTS OF THE HOTEL AND TRAVEL BUSINESS ARE
SUBJECT TO REDUCTION OR CANCELLATION.
In connection with the operation of both the hotel and travel businesses,
many advance booking arrangements with individual customers or other tour
operators are subject to reduction or cancellation. For example, the agreements
with bus tour operators for the purchase of beds at the Grand 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. There can be no
assurance that factors
11
<PAGE>
beyond our control such as 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 could
materially adversely affect our business.
IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS MODEL IN OUR EXISTING
MARKETS AND THEN REPLICATE IT 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
implementing this model in the United Kingdom and substantially replicating it
in other markets throughout Europe. We cannot be sure that this business model
will be successful in the United Kingdom or in other markets. For example, as we
expand the travel services businesses into new markets, we may generally receive
smaller room blocks and discounts for hotels in those markets than we receive in
hotels where Miss Ellie's World Travel Limited and Ilios Travel Limited
historically have had longstanding relationships. These less favorable terms are
likely to adversely affect our 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 management of the
hotels in the new markets we are entering, or that management will provide us
with room blocks and discounts comparable to what the travel businesses we plan
to acquire have historically received. In either case, our operating results
would be adversely affected.
WE FACE CONSIDERABLE COMPETITION IN THE TRAVEL SERVICES MARKETS AND MAY BE
UNABLE TO GAIN A COMPETITIVE POSITION.
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.
TRAVEL SUPPLIERS MAY DECIDE TO COMPETE DIRECTLY WITH US, RESTRICT THE
AVAILABILITY OF TRAVEL PRODUCTS OR SERVICES, RESTRICT OUR ABILITY TO OFFER THEM
AT PREFERENTIAL PRICES, REFUSE TO OFFER THEIR SERVICES TO US ON NEGOTIATED TERMS
OR AT ALL, OR MODIFY THEIR AGREEMENTS WITH OUR TRAVEL BUSINESSES ON RELATIVELY
SHORT NOTICE.
Competition within the travel services market is increasing as certain of
our competitors are expanding their size and financial resources through
consolidation. In addition, travel suppliers may decide to compete directly with
us, restrict the availability of travel products or services, restrict our
ability to offer those products or services at preferential prices, or refuse to
offer their services to us on negotiated terms or at all. For example, travelers
can now use the Internet to purchase travel products and services directly from
suppliers, thereby bypassing both vacation providers 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 adversely affect our business, results of
operations and financial condition.
12
<PAGE>
The travel businesses we plan to acquire are dependent upon travel
suppliers for access to many of their products and services. Some of these
travel suppliers, such as Airtours and Thomsons, currently offer to the travel
businesses:
o pricing that is preferential to published rates;
o preferential access to inventory of their travel products and
services; and
o in the case of some travel suppliers, both preferential pricing and
preferential access to inventory.
Travel suppliers 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 a decline, could
adversely affect our reputation. Any one of a number of factors, including the
loss of contracts, changes in pricing agreements, commission schedules or
incentive override commission arrangements, more restricted access to travel
suppliers' products and services or low demand for the products and services of
these travel suppliers, could have a material adverse effect on our business,
financial condition and results of operations.
WE FACE SIGNIFICANT COMPETITION IN THE HOTEL MARKET.
We 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. Our failure to effectively compete with these companies would have a
material adverse effect on our business, financial condition and results of
operations.
THE BUSINESSES WE PLAN TO ACQUIRE HAVE HISTORICALLY CONCENTRATED ON SERVICING
CERTAIN MARKETS IN THE UNITED KINGDOM AND MAY BE MATERIALLY ADVERSELY AFFECTED
BY ADVERSE CONDITIONS IN THE UNITED KINGDOM.
On a pro forma basis for the twelve months ended October 31, 1999, all of
the revenues from the hotel business and approximately 80% of the revenues of
the travel businesses were derived from travel within, to and from the United
Kingdom. Adverse events or conditions which affect the United Kingdom, such as
an economic recession, changes in regional travel patterns, extreme weather
conditions or 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
Website, making strategic acquisitions of hotel properties and significantly
expanding the travel services and the number of destination markets serviced by
Leisure Travel Group Limited. 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 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.
If we cannot effectively manage the expected growth of our operations and
personnel, our productivity and operating results will be materially adversely
affected.
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<PAGE>
WE MAY BE UNSUCCESSFUL IN OVERCOMING PROBLEMS ENCOUNTERED IN CONNECTION WITH THE
ACQUISITION OF ADDITIONAL TRAVEL SERVICE PROVIDERS AND RESORT HOTELS.
Our management team may not be successful in overcoming problems
encountered in connection with potential acquisitions. Even if we are
successful, acquisitions may be time consuming and costly, which may negatively
affect our operating results. Acquisitions would also expose us to various
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 the integration of new businesses.
For all of these reasons, our pursuit of an overall acquisition strategy or any
individual acquisition could have a material adverse effect on our business,
financial condition and results of operations.
THE ACQUISITION OF ADDITIONAL TRAVEL SERVICE PROVIDERS AND RESORT HOTELS MAY
RESULT IN REDUCTIONS IN OUR REPORTED EARNINGS.
Potential acquisitions may also result in additional expenses associated
with one-time charges or amortization of acquired intangible assets. These
additional expenses may negatively affect our financial condition, and thus the
value of your investment.
FORMER OWNERS OF TRAVEL SERVICE COMPANIES THAT WE MAY SEEK TO ACQUIRE MAY
MISREPRESENT MATERIAL INFORMATION RELATING TO THEIR BUSINESSES TO US.
We cannot be sure that former owners of travel service companies that we
may seek to acquire will accurately represent to us 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,
potential acquisitions of those companies by us in the future could have a
material adverse effect on our business, financial condition and results of
operations. Other than the acquisitions that will be consummated as of the date
of this prospectus, we do not have current commitments with respect to any
particular acquisition in the travel services industry, but our management team
regularly evaluates acquisition opportunities.
THERE MAY BE LIMITED OPPORTUNITY TO ACQUIRE ADDITIONAL ATTRACTIVE RESORT HOTELS.
Our ability to execute our growth strategy depends to a significant degree
on the existence of attractive resort hotel acquisition opportunities and our
ability both to consummate acquisitions and to obtain financing for these
acquisitions on favorable terms. Our acquisition efforts will be focused
initially in Spain, but we may extend our efforts to certain other key
locations. There can be no assurance that we will consummate the acquisition of
any additional resort hotels. Risks associated with our acquisition activities
may include:
o acquisition opportunities that are abandoned;
o acquisition costs exceeding original estimates, making the acquisition
uneconomical or unprofitable;
o our inability to obtain financing on favorable terms, if at all, for
acquisitions of holiday resort hotels; and
o our inability to complete acquisitions 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. There can be no assurance that we will be
able to compete successfully against competing buyers of resort properties.
14
<PAGE>
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.
If we are unable to successfully undertake these activities, the implementation
of our growth strategy may suffer and our competitors may be able to capture
increasing portions of our market share, either of which could negatively affect
the value of your investment. Even if we are successful in our undertaking of
these activities, if we do not generate significant increased revenue, we may be
unable to maintain profitability. In addition, we may incur unanticipated
expenses when we enter new markets or offer new services. If so, our management,
financial and operational resources may be materially adversely affected.
DECLINES IN CONSUMER VACATION AND TRAVEL SPENDING COULD HARM OUR OPERATING
RESULTS.
All 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 IN OUR OPERATING RESULTS
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. 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 affected 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
acquisitions may materially adversely affect our earnings.
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 businesses and may need
to raise additional funds after the completion of this offering in order to
support more rapid expansion, develop new or enhanced services, respond to
competitive pressures, acquire complementary businesses or take advantage of
future 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 new securities that we may issue 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.
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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, Philip Mason, our
President and Chief Executive Officer, Raymond J. Peel, our Senior Executive
Vice President and the President of Leisure Travel Group Limited, Rod Rodgers,
our Executive Vice President and the President of Grand Hotel Group Limited,
David Marriott, our Operations and Marketing Director and the Vice President of
Grand Hotel Group Limited, and Stephen Last, our Executive Vice President, Chief
Financial Officer and Secretary. Immediately prior to this offering, companies
wholly owned or controlled by Mr. Leech @@@@owned an aggregate of 76.4% of our
outstanding common stock, none of which is subject to vesting.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate other highly skilled managerial, marketing,
administrative, and customer service personnel. Competition for skilled
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 Internet 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.
OPERATION OF THE GRAND HOTELS IS SUBJECT TO VARIOUS LICENSING LAWS AND
REGULATIONS.
The operation of the Grand Hotels is subject to various licensing laws and
regulations in England and Wales relating to the sale of alcohol and the
operation of bars and cocktail lounges in hotels, as well as various fire,
health and safety regulations. A serious violation of any of these laws or
regulations could result in a significant fine or even the forced closing of one
or more of the Grand Hotels. Please see "Business--Government Regulation of our
Business" for a more detailed discussion of certain laws and regulations that
affect our business.
LEISURE TRAVEL GROUP LIMITED IS REQUIRED TO MAINTAIN RENEWABLE LICENSES WITH THE
UNITED KINGDOM CIVIL AVIATION AUTHORITY AND COMPLY WITH NUMEROUS UNITED STATES
CIVIL AVIATION AUTHORITY REGULATIONS.
The travel businesses conducted by Leisure Travel Group Limited, which
makes or arranges advance bookings of accommodations 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 the bond ranges from between 5% to 10% of
the annual revenues of each of the travel businesses. In addition, the CAA
licenses held by subsidiaries of Leisure Travel Group Limited 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. Should any of these events
occur, one or more of the travel businesses would not be able to operate and, as
a result, our revenues and profits would be materially adversely affected.
Please see "Business--Government Regulation of our Business" for a more detailed
discussion of certain laws and regulations 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.
The travel businesses are subject to certain regulation by the government
of the United Kingdom, including the Package Travel, Package Holidays and
Package Tours Regulations of 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 in
general 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.
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.
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We may be indirectly affected by this new legislation to the extent it impacts
our clients and potential clients. In addition, United States 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 and regulations that affect our business.
WE MAY BE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS AND REGULATIONS THAT IMPOSE
REQUIREMENTS RELATING TO THE OWNERSHIP AND OPERATION OF HOTELS, AND WE COULD BE
SUBJECT TO FINES OR OTHER PENALTIES FOR FAILURE TO COMPLY WITH THESE LAWS AND
REGULATIONS.
A variety of laws and regulations concerning the protection of the
environment and health and safety apply to the operations, properties and other
assets relating to the six Grand Hotels and other resort hotels we may acquire
in the future. These laws and regulations 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 if discharges are beyond the scope of the applicable permit. The
laws with respect to contamination of land in the United Kingdom changed in
April 2000. In general, liability and responsibility for contamination remains
with the person responsible for the contamination; however, the new laws
interpret this to mean the person who "causes or knowingly permits"
contamination. 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. Other applicable laws
and regulations restrict the use of property and the construction of buildings
and other structures. Carrying out development without the appropriate permit or
beyond the scope of the permit 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.
THE GRAND HOTELS AND OTHER RESORT HOTELS WE MAY ACQUIRE IN THE FUTURE MAY BE
SUBJECT TO NATURAL AND OTHER DISASTERS FOR WHICH WE MAY NOT BE ADEQUATELY
INSURED.
The Grand Hotels and other resort hotels we may acquire in the future may
be subject to natural and other disasters and may be damaged as a result of such
disasters. There are certain types of losses (such as losses arising from acts
of war) that are not generally covered by insurance customarily carried for
similar properties 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 the capital we have invested in a particular resort, as well as
the anticipated future revenues from the resort and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. This type of loss could have a material adverse effect on our
business. Please see "Business--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 WEBSITE, 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 expected to be derived from the WWW.TRRRAVEL.COM Website will
depend on the number of customers who use the Website to book their travel
reservations. Accordingly, the satisfactory performance, reliability and
availability of the Website, 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
Website or reduced performance of the reservation system would reduce the volume
of reservations and the attractiveness of its
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service offerings, which could have a negative effect on the operating results
of trrravel.com Limited and adversely impact our investment in that company.
The WWW.TRRRAVEL.COM Website 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 Website or the number of reservations made by
customers will require The WWW.TRRRAVEL.COM Website 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
Website traffic that it experiences, or that it will, in general, be able to
accurately project the rate or timing of increases in traffic or upgrade its
systems and infrastructure to accommodate future traffic levels on the Website.
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 existing systems. Upgrading or
expanding these systems would likely be expensive and time-consuming.
The WWW.TRRRAVEL.COM Website is 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. 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 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
substantially all 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 Website. Any reduction in performance, disruption in Internet or
Website 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 INVESTMENT IN TRRRAVEL.COM
LIMITED.
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 that 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 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
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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 Website'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 trrravel.com Limited to a risk of
loss or litigation and possible liability. Failure to prevent security breaches
will have a negative effect on its reputation, business and operating results
and thereby negatively affect the value of our investment.
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 of trrravel.com Limited as
important to the success of the WWW.TRRRAVEL.COM Website, and trrravel.com
Limited relies on foreign and domestic trademark and copyright law, trade secret
protection and confidentiality to protect its proprietary rights. trrravel.com
Limited is pursuing the registration of its key trademarks in the United States
and internationally. Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our products
and services are made available online. Failure to effectively protect
trrravel.com Limited's intellectual property could adversely affect our use of
the WWW.TRRRAVEL.COM Website, 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. We cannot be sure that the steps taken by trrravel.com Limited to
protect its proprietary rights in this trademark will be adequate or that third
parties will not infringe or misappropriate its copyrights, trademarks, trade
dress and similar proprietary rights. In the future, litigation may be necessary
to enforce the intellectual property and contractual rights of trrravel.com
Limited, or determine the validity and scope of the proprietary rights of
others. This type of litigation, regardless of the outcome, could result in
substantial costs and diversion of management and technical resources, either of
which could materially harm our investment in trrravel.com Limited. Furthermore,
we cannot be sure trrravel.com Limited would prevail in any litigation. If
trrravel.com Limited is unsuccessful in defending its trademark for
"trrravel.com," it would be required to invest substantial additional amounts in
advertising and brand development with respect to a new trademark. These
additional expenditures could materially adversely affect our investment in
trrravel.com Limited.
In addition, other parties might assert infringement claims against
trrravel.com Limited. trrravel.com Limited may be subject to legal proceedings
and claims from time to time in the ordinary course of its business, including
claims that it or its licensees have infringed the trademarks or other
intellectual property rights of third parties. If trrravel.com Limited does not
prevail, it could be required to stop using its 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 ITS DOMAIN NAMES IN ALL OF THE
COUNTRIES IN WHICH IT DOES BUSINESS, AND MAY BE REQUIRED TO EXPEND SIGNIFICANT
FUNDS TO PREVENT INFRINGEMENT OF ITS DOMAIN NAMES, WHICH COULD INHIBIT OUR
ABILITY TO EXPAND OUR BUSINESS INTERNATIONALLY.
Affiliates of trrravel.com Limited currently hold the rights to 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 rights to domain names that are
similar to, infringe or otherwise decrease the value of the domain names,
trademarks and other proprietary rights of trrravel.com Limited, which may
negatively affect our investment in trrravel.com Limited. trrravel.com Limited
may be required to expend significant funds in the legal defense of its 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 governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. As a result, trrravel.com Limited may not
acquire
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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.
TRRRAVEL.COM LIMITED COULD FACE LITIGATION BECAUSE OF WEBSITE 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 it publishes or distributes. Such claims have been brought, and
sometimes successfully pressed, against other online services. In addition,
trrravel.com Limited does not and cannot practically screen all of the content
generated by other Websites that may be linked to the trrravel.com Website, and
trrravel.com Limited could be exposed to liability with respect to that content.
trrravel.com Limited's insurance may not cover claims of these types or may not
be adequate to indemnify it 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
trrravel.com Limited's reputation, operating results, financial condition and
prospects which, in turn, would have a material adverse effect on our investment
in trrravel.com Limited.
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.
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, or approximately $32.4 million if the underwriters' over-allotment
option is exercised in full, assuming an 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 approximately $25.0
million of the net proceeds, coupled with an additional $6.1 million in bank
borrowings, to retire debt owed by Grand Hotel Group Limited to a subsidiary of
The Rank Group plc in connection with the purchase of five of the Grand Hotels,
to expand the travel businesses conducted by Leisure Travel Group Limited, to
renovate the six Grand Hotels and to acquire additional holiday resort hotels in
England and in other European countries. Accordingly, our management will retain
broad discretion as to the allocation of the remaining $3.0 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 those proceeds effectively
or that we will use them in ways with which you may not agree. In addition, the
repayment of the indebtedness to a subsidiary of 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 and principal
stockholder, Kevin R. Leech. Please see "Use of Proceeds," for a more detailed
discussion of how we will allocate proceeds, and "Certain Relationships and
Related Transactions" for a discussion of certain direct personal benefits to
Mr. Leech from this offering.
BECAUSE OUR DIRECTORS AND OFFICERS WILL BENEFICIALLY OWN A MAJORITY OF OUR
OUTSTANDING COMMON STOCK AFTER THIS OFFERING, YOU AND OTHER FUTURE INVESTORS
WILL HAVE MINIMAL INFLUENCE ON STOCKHOLDER DECISIONS.
Upon consummation of this offering, a total of 8,060,000 shares of our
common stock will be outstanding, and approximately 8,510,000 shares of our
common stock will be outstanding if the underwriters' over-allotment option is
exercised in full. Our executive officers and directors, together with their
respective affiliates, will beneficially own approximately 58%, or approximately
55% if the underwriters' over-allotment option is exercised in full, of our
outstanding common stock upon completion of this offering. As a result, if they
act
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together, they will have the ability to control the outcome on all matters
requiring stockholder approval, including the election and removal of directors
and any merger, consolidation or sale of all or substantially all of our assets,
and to control our management and affairs. This type of control could discourage
others from initiating a potential merger, takeover or other change of control
transaction. As a result, the market price of our common stock could be
adversely affected.
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. 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.
OUR OFFERING PRICE DOES NOT NECESSARILY RELATE TO ANY ESTABLISHED CRITERIA OF
VALUE, AND SO OUR STOCK MAY TRADE AT MARKET PRICES BELOW THE OFFERING PRICE.
The initial public offering price of the shares of our common stock in this
offering will be arbitrarily determined by negotiations between the underwriter
and us, and may not necessarily bear any relationship to our assets, book value,
results of operations, or any other generally accepted indicia of value.
The equity markets have, on occasion, experienced significant price and
volume fluctuations that may adversely affect the market price of our common
stock. 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 our common stock to
fluctuate substantially. In the past, companies that have experienced volatility
in the market price of their stock have been the objects of securities class
action litigation. If we were the object of securities class action litigation,
it could result in substantial costs and a diversion of our management's
attention and resources and may therefore have a material adverse effect on our
business, financial condition and results of operations.
THE TRADING MARKET FOR OUR COMMON STOCK MAY SUFFER IN THE EVENT OF DELISTING
FROM THE NASDAQ NATIONAL MARKET.
Under the currently effective criteria for the maintenance of the listing
of our common stock on the Nasdaq National Market, we must have at least $75.0
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 $20.0
million. For continued listing, we must maintain $50.0 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 $15.0 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 common stock.
THE TRADING MARKET FOR OUR COMMON STOCK MAY SUFFER IF OUR COMMON STOCK IS
CONSIDERED TO BE "PENNY STOCK."
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, was 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 our common stock. If it participates in the
market, it may influence the market, if one develops, for our common stock. It
may discontinue making a market in our common stock at any time. Moreover, if
Roth Capital Partners Incorporated 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 our common stock may be
significantly affected by the degree, if any, of the direct or indirect
participation of Roth Capital Partners Incorporated 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
pay a price per share which substantially exceeds the value of our assets after
subtracting our intangible assets and liabilities and contribute 94.0% of the
total amount invested to date to fund us, but will only own 37.2% of the shares
of common stock outstanding. Investors in this offering will experience an
immediate dilution of $6.71 per share of common stock, after giving effect to
this offering at an assumed initial public offering price of $11.00 per share
(the mid-point of the range), the addition of mortgage financing, the
capitalization of loans made to Leisure Travel Group Limited by Red Kite
Ventures Limited, a corporate affiliate of Kevin R. Leech, and the repayment of
a note issued by Grand Hotel Group Limited to a subsidiary of The Rank Group
plc. Furthermore, investors will experience additional dilution if additional
funds are raised through the issuance of additional equity securities.
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.
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 our 2000 Stock Option
Plan will be eligible for resale in the public market from time to time subject
to vesting.
Upon the closing of this offering, we intend to grant non-qualified stock
options to purchase an aggregate of 325,000 shares of our common stock to a
number of our executive officers, directors 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: 50% per year for two 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.
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 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 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 the person reasonably believes are not in violation of
our corporate purposes as set forth in our
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charter. As a result of these 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
the 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.
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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 we are offering
under this prospectus, assuming an initial public offering price of $11.00 per
share and after deducting the underwriting discount and commissions and other
estimated fees and expenses payable by us, or approximately $32.4 million if the
underwriters' over-allotment option is exercised in full. We expect to use the
net proceeds approximately as follows:
o $10.0 million, approximately 35.7% of the total net proceeds, together
with $6.1 million of net proceeds from a mortgage refinancing, will be
used to retire $16.1 million of Grand Hotel Group Limited's
indebtedness, evidenced by a non-interest-bearing promissory note due
2002, to Butlin's Limited, a subsidiary of The Rank Group plc,
incurred in connection with the June 1999 acquisition by Grand Hotel
Group Limited of five of the Grand Hotels from another subsidiary of
The Rank Group plc;
o $5.0 million, approximately 17.9% of the total net proceeds, to
complete renovations of the six Grand Hotels;
o $5.0 million, approximately 17.9% 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, one of which we have identified but have not yet entered
into negotiations to acquire;
o $5.0 million, approximately 17.9% of the 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 other European countries; and
o $3.0 million, approximately 10.6% of the total net proceeds, for
working capital and general corporate purposes.
Simultaneously with the completion of this offering, we are refinancing
$15.5 million of our outstanding mortgage indebtedness on five of the Grand
Hotels with one of the banks which had provided original acquisition debt
financing in June 1999. In connection with this refinancing, we anticipate that
we will increase the total secured borrowings of Grand Hotel Group Limited from
approximately $31.8 million to a total of approximately $39.0 million. We intend
to utilize the $6.1 million of increased loan proceeds, together with $10.0
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.
Grand Hotel Group Limited has entered into negotiations to acquire from
Queensborough Holdings Limited, an affiliate of Kevin R. Leech, a sixth hotel
known as the Burstin Hotel in September 2000. The total consideration to be paid
to Queensborough Holdings Limited for this hotel will be $17.1 million, of which
$12.4 million will be paid in cash through an 8.25% eight-year mortgage loan
from the same bank that will assist us in refinancing the Grand Hotel Group
Limited's mortgage debt. The $4.7 million balance will be evidenced by a 7%
three-year note to Queensborough Holdings Limited.
The following table sets forth the sources and uses of funds from the net
proceeds of this offering, the Burstin Hotel acquisition and proposed mortgage
refinancing:
<TABLE>
<CAPTION>
SOURCES USES
------ ----
<S> <C> <C> <C> <C>
Net proceeds of this offering .......... $28.0 million Payment to The Rank Group, plc ........ $16.1 million
Refinancing proceeds ................... 6.1 million Cash to seller of Burstin Hotel ....... 17.1 million
Bank loan for Burstin Hotel acquisition 12.4 million Net available cash .................... 18.0 million
Queensborough Holdings Limited
seller's note ........................ 4.7 million
------------- -------------
Total .............................. $51.2 million Total ............................. $51.2 million
</TABLE>
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
24
<PAGE>
the offering discussed above represents management's current estimates only.
Management's plans for the 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 our current cash and cash equivalents in the
amount of $3.2 million and anticipated cash flow from operations, together with
the net proceeds from this offering, will be sufficient to meet our presently
anticipated working capital and capital expenditure requirements through October
31, 2002. 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 newly issued securities may have rights, preferences or privileges
senior to those 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.
25
<PAGE>
CAPITALIZATION
The following table sets forth:
o the capitalization of Leisure Travel Group (Combined) on an actual
basis as of April 30, 2000;
o our capitalization on a pro forma basis, assuming our acquisition of
all of the outstanding share capital of Leisure Travel Group Limited,
Leisure Travel Group Limited's acquisition of all of the outstanding
share capital of Ilios Travel Limited and Grand Hotel Group Limited,
Grand Hotel Group Limited's acquisition of the Burstin Hotel, and
Leisure Travel Group Limited's acquisition of 49% of the outstanding
share capital of trrravel.com Limited had been completed on April 30,
2000; and
o our capitalization 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 approximately $6.1 million of mortgage financing;
-- the repayment of $16.1 million outstanding under Grand Hotel
Group Limited's note to a subsidiary of The Rank Group plc; and
-- the capitalization of $2.1 million of loans made to Leisure
Travel Group Limited by Red Kite Ventures Limited, a corporate
affiliate of Kevin R. Leech, our Chairman of the Board and
principal stockholder.
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 related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF APRIL 30, 2000
------------------------------------------
LEISURE
TRAVEL GROUP
(COMBINED) LEISURE TRAVEL GROUP, INC.
------------ --------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(US DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash .................................................................. $ 3,216 $ 3,239 $21,248
Short-term debt:
Capital lease obligation--current portion ........................... $ 290 $ 308 $ 308
------- ------- -------
Total short-term debt ............................................... $ 290 $ 308 $ 308
======= ======= =======
Short-term debt to be capitalized:
Short-term borrowings ............................................... $ 2,102 $ 2,102 $ --
------- ------- -------
Long-term debt:
Notes payable ....................................................... $31,808 $48,876 $38,845
Capital lease obligation--noncurrent portion ........................ 343 358 358
------- ------- -------
Total long-term debt ................................................ 32,151 49,234 39,203
------- ------- -------
Stockholders' equity:
Preferred stock, par value $0.001:
5,000,000 shares authorized, no shares issued and
outstanding, actual, pro forma and pro forma as adjusted .......... -- -- --
Common stock, par value $0.001:
25,000,000 shares authorized, actual, pro forma and
pro forma as adjusted, no shares issued and outstanding,
actual, 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 .......................................... -- 8,520 38,659
Accumulated other comprehensive income .............................. -- (57) (57)
Accumulated retained earnings ....................................... -- 622 622
Invested capital .................................................... 590 -- --
------- ------- -------
Total stockholders' equity .......................................... 590 9,090 39,232
------- ------- -------
Total capitalization .............................................. $34,339 $60,426 $78,435
======= ======= =======
</TABLE>
--------------
(1) Does not include exercise of the underwriters' over-allotment option or the
issuance of up to 1,000,000 additional shares of our common stock upon
exercise of options available under our 2000 Stock Option Plan, of which
options to purchase an aggregate of 325,000 shares of our common stock will
be granted as of the date of this prospectus.
26
<PAGE>
DILUTION
Our company was formed in February 2000 and has had no commercial
operations to date. Leisure Travel Group Limited was formed in May 1999, but
effectively did not begin commercial operations until July 1, 1999, when it
acquired Miss Ellie's World Travel Limited. Grand Hotel Group Limited was formed
in October 1998, but did not commence commercial operations until its
acquisition of five of the Grand 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 April 30, 2000, we had a pro forma
net tangible book value of $2.7 million, or approximately $0.53 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 under this prospectus at
an assumed initial public offering price of $11.00 per share;
o the addition of $6.1 million of mortgage financing;
o the repayment of $16.1 million outstanding under Grand Hotel Group
Limited's note owed to a subsidiary of The Rank Group plc.; and
o the capitalization of $2.1 million of loans made to Leisure Travel
Group Limited by Red Kite Ventures Limited, a corporate affiliate of
Kevin R. Leech, our Chairman of the Board and principal stockholder.
Our pro forma net tangible book value at April 30, 2000 would have been
approximately $32.8 million or $4.07 per share of our common stock. This
represents an immediate increase in net tangible book value of $3.54 per share
to existing stockholders and an immediate dilution of $6.93 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.
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share ............................ $11.00
Pro forma net tangible book value per share at April 30, 2000 ...... $0.53
Increase attributable to new investors ............................. 3.54
-----
Pro forma net tangible book value after the offering ............... 4.07
------
Dilution to new investors .......................................... $ 6.93
======
</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 the estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID AVERAGE
--------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 5,060,000 62.8% $ 2,102,000 6.0% $0.42
New Investors 3,000,000 37.2% 33,000,000 94.0% $11.00
--------- ----- ----------- ----
Total 8,060,000 100.0% 35,102,000 100%
========= ===== =========== ====
</TABLE>
27
<PAGE>
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
OF LEISURE TRAVEL GROUP, INC.
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 Leisure
Travel Group Limited;
o Leisure Travel Group Limited's acquisition of all of the outstanding
share capital of Miss Ellie's World Travel Limited, Ilios Travel
Limited and Grand Hotel Group Limited;
o Grand Hotel Group Limited's acquisition of the assets of the Burstin
Hotel; and
o Leisure Travel Group Limited'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 Leisure Travel Group
Limited, had Leisure Travel Group Limited actually consummated the acquisition
of all of the outstanding share capital of Miss Ellie's World Travel Limited,
Ilios Travel Limited and Grand Hotel Group Limited and 49% of the outstanding
share capital of trrravel.com Limited, and had Grand Hotel Group Limited
actually consummated the acquisition of the assets of the Burstin Hotel on the
date assumed. We have provided information relating to transactions which have
occurred prior to our incorporation in February 2000 because these transactions
were consummated by the businesses we will acquire on the date of this
prospectus.
Effective June 30, 1999, Grand Hotel Group Limited purchased from Rank
Holidays Division Limited, a subsidiary of The Rank Group plc, substantially all
of the operating assets relating to five of the Grand 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 Grand Hotel Group (Predecessor). Grand Hotel Group Limited
is a private limited company organized under the laws of England and Wales and
is 85%-owned by Cygnet Ventures Limited, a Guernsey (Channel Islands) company
wholly owned by Kevin R. Leech, our Chairman of the Board and principal
stockholder, and 15%-owned in the aggregate by Philip Mason, Rod Rodgers,
Stephen Last and David Marriott, all of whom are members of our management team.
In consideration for these assets, Grand Hotel Group Limited paid $30.7 million,
of which $13.9 million was paid in cash and the balance of $16.8 million was
paid by Grand Hotel Group Limited's issuance of a non-interest bearing
promissory note due 2002. The Grand Hotel Group Limited 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. Grand Hotel Group
Limited 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 Grand Hotel Group Limited, including mortgages on the purchased
hotels.
In July 1999, Leisure Travel Group Limited 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, Leisure Travel Group Limited paid an aggregate of $1,667,000
to the former shareholder of Miss Ellie's World Travel Limited. Leisure Travel
Group Limited 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.
In February 2000, Leisure Travel Group Limited 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, Leisure Travel Group Limited paid an aggregate of $526,000 to the
former shareholder of Ilios Travel Limited. As a result of this acquisition,
Leisure Travel Group Limited expanded its travel-related services and increased
its market position and cross-selling opportunities in other destinations
throughout Europe. Leisure Travel Group Limited also funded this acquisition
through a loan from Red Kite Ventures Limited.
Grand Hotel Group Limited has entered into negotiations to acquire from
Queensborough Holdings Limited, a private limited company organized under the
laws of England and Wales that is 50% beneficially owned by
28
<PAGE>
Kevin R. Leech, the Burstin Hotel located in Folkestone, England in September
2000. Consideration for the hotel assets will be $17.1 million, of which $12.4
million will be financed with an 8.25% eight-year bank mortgage note, and the
$4.7 million balance will be evidenced by a 7% seller's note payable in two
installments in April 2002 and April 2003.
The acquisitions of the Butlin's Provincial Hotels, the Burstin Hotel, 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 shareholders of Grand Hotel Group Limited agreed to
transfer 100% of the outstanding share capital of Grand Hotel Group Limited to
Leisure Travel Group Limited in exchange for the issuance of approximately 80%
of the ordinary shares of Leisure Travel Group Limited. In addition, the
shareholders of Leisure Travel Group Limited, agreed to transfer to us, as of
the date of this prospectus, 100% of the outstanding share capital of Leisure
Travel Group Limited in exchange for the issuance of an aggregate of 4,640,000
shares of our common stock. The acquisition of Grand Hotel Group Limited by
Leisure Travel Group Limited and our acquisition of Leisure Travel Group Limited
will be accounted for as combinations of entities under common control in a
manner similar to a pooling of interests. Technology Finance Limited, a British
Virgin Islands company that is 50%-owned by Kevin R. Leech and 50%-owned by
Internet plc, a Seychelles company controlled by a private investor and business
associate of Mr. Leech, has also agreed to transfer to Leisure Travel Group
Limited, as of the date of this prospectus, 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. The investment
in trrravel.com Limited will be accounted for under the equity method. 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 $16.1 million of indebtedness of Grand Hotel Group Limited owed to
The Rank Group plc or its subsidiaries; and
o the capitalization of $2.1 million of loans made to Leisure Travel
Group Limited by a corporate affiliate of Kevin R. Leech.
29
<PAGE>
LEISURE TRAVEL GROUP, INC.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT APRIL 30, 2000
(US DOLLARS IN THOUSANDS)
The following unaudited condensed pro forma consolidated balance sheet at
April 30, 2000 gives pro forma effect to our acquisition of all of the
outstanding share capital of Leisure Travel Group Limited, Leisure Travel Group
Limited's acquisition of all of the outstanding share capital of Grand Hotel
Group Limited and Ilios Travel Limited and 49% of the outstanding share capital
of trrravel.com Limited, and Grand Hotel Group Limited's acquisition of the
assets of the Burstin Hotel 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 April 30, 2000. The historical financial
information for Leisure Travel Group, Inc, is based on our unaudited condensed
balance sheet at April 30, 2000. The historical combined financial information
for Leisure Travel Group (Combined) is based on its unaudited condensed combined
balance sheet at April 30, 2000, which represents a combination of the condensed
combined balance sheets of Leisure Travel Group Limited and Grand Hotel Group
Limited, as entities under common control, at April 30, 2000. The historical
financial information for Ilios Travel Limited and the Burstin Hotel is based on
their unaudited condensed balance sheets at April 30, 2000. Accordingly, the pro
forma consolidated balance sheet reflects the net assets of Leisure Travel
Group, Inc., Leisure Travel Group Limited, Grand Hotel Group Limited, Ilios
Travel Limited and the Burstin Hotel and the 49% equity investment in
trrravel.com Limited at April 30, 2000.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------- ----------------------------
LEISURE LEISURE
LEISURE TRAVEL THE TRAVEL
TRAVEL GROUP BURSTIN ADJUSTMENTS GROUP, INC.
GROUP, INC. (COMBINED) HOTEL (NOTE 1) CONSOLIDATED
----------- ---------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ............................ $ -- $ 3,216 $ 23 $ 3,239
Accounts receivable .................................. -- 473 164 637
Receivable from related parties ...................... -- 194 -- 194
Holidays paid in advance ............................. -- 1,798 -- 1,798
Inventories .......................................... -- 461 65 526
Prepaid expenses and other current assets ............ 285 1,643 287 $ (285)(a) 1,930
------ ------- ------- -------- -------
Total current assets ............................... 285 7,785 539 8,324
Equipment and fixtures, net .......................... -- 33,498 16,757 2,327 (b) 52,582
Goodwill and other intangibles, net .................. -- 1,431 -- 4,991 (c) 6,422
Equity investment .................................... -- -- -- 2,395 (d) 2,395
Debt issuance costs .................................. -- 359 -- 359
------ ------- ------- -------- -------
Total assets ..................................... $ 285 $43,073 $17,296 $ 9,428 $70,082
====== ======= ======= ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings ................................ $ -- $ 2,102 $ 282 $ 2,384
Accounts payable ..................................... -- 1,406 481 1,887
Accrued liabilities .................................. 285 905 219 $ (285)(e) 1,124
Guest deposits ....................................... -- 4,203 327 4,530
Income taxes and social security payable ............. -- 1,415 99 1,514
Deferred income tax .................................. -- 11 -- 11
Capital lease obligations--current portion ........... -- 290 18 308
------ ------- ------- -------- -------
Total current liabilities ........................ 285 10,332 1,426 (285) 11,758
Long-term debt ....................................... -- 31,808 -- 17,068 (f) 48,876
Capital lease obligations--noncurrent portion ........ -- 343 15 358
STOCKHOLDERS' EQUITY
Common stock ......................................... -- -- -- 5 (g) 5
Additional paid-in capital ........................... -- -- -- 8,520 (h) 8,520
Accumulated other comprehensive income ............... -- -- -- (57)(i) (57)
Retained earnings .................................... -- -- -- 622 (j) 622
Invested capital/divisional equity ................... -- 590 15,855 (16,445)(k) --
------ ------- ------- -------- -------
Total stockholders' equity ....................... -- 590 15,855 (7,355) 9,090
------ ------- ------- -------- -------
Total liabilities and stockholders' equity ....... $ 285 $43,073 $17,296 $ 9,428 $70,082
====== ======= ======= ======== =======
</TABLE>
30
<PAGE>
LEISURE TRAVEL GROUP, INC.
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 2000
(US DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited condensed pro forma consolidated statement of
operations for the six months ended April 30, 2000 gives pro forma effect to our
acquisition of all of the outstanding share capital of Leisure Travel Group
Limited, Leisure Travel Group Limited's acquisition of all of the outstanding
share capital of Grand Hotel Group Limited, referred to in the table below as
Leisure Travel Group (Combined), and Ilios Travel Limited and 49% of the
outstanding share capital of trrravel.com Limited, and Grand Hotel Group
Limited's acquisition of the assets of the Burstin Hotel, 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 unaudited financial statements for the six months ended
April 30, 2000. The historical financial information for Leisure Travel Group
(Combined) is based on its unaudited combined statement of operations for the
six months ended April 30, 2000 which represents a combination of the combined
statements of operations of Leisure Travel Group Limited and Grand Hotel Group
Limited which are entities under common control. The historical financial
information for Ilios Travel Limited and the Burstin Hotel is based on their
unaudited statements of operations for the six months ended April 30, 2000.
Accordingly, the pro forma consolidated statement of operations includes the
results of Leisure Travel Group, Inc., Leisure Travel Group Limited, Grand Hotel
Group Limited, Ilios Travel Limited and the Burstin Hotel for the six months
ended April 30, 2000 and our 49% share of the net loss in trrravel.com Limited,
all of which are not included in our historical results for the six months ended
April 30, 2000.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------------- ----------------------------
LEISURE LEISURE
LEISURE TRAVEL ILIOS THE TRAVEL
TRAVEL GROUP TRAVEL BURSTIN ADJUSTMENTS GROUP, INC.
GROUP, INC. (COMBINED) LIMITED HOTEL (NOTE 1) CONSOLIDATED
----------- ---------- -------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues ......................... $ -- $19,830 $ 5 $ 4,128 $ 23,963
Operating costs and expenses ........... -- 19,751 128 3,706 $ 281 (a) 23,866
---- ------- ------ ------- ------ --------
Operating profit ..................... -- 79 (123) 422 (281) 97
Other income (expenses), net ........... -- (645) 3 (11) (326)(b) (979)
Equity in net loss of equity
investment ........................... -- -- -- (25)(c) (25)
---- ------- ------ ------- ------ --------
Income before income taxes ........... -- (566) (120) 411 (632) (907)
Income taxes ........................... -- -- -- 111 -- 111
Net income ........................... $ -- $ (566) $ (120) $ 300 $ (632) $ (1,018)
==== ======= ====== ======= ====== ========
Basic and diluted net income
per share: ........................... $ (0.20)
========
Shares used in computing basic
and diluted net income
per share: ........................... 5,060 (d) 5,060
====== ========
</TABLE>
31
<PAGE>
LEISURE TRAVEL GROUP, INC.
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 Leisure
Travel Group Limited, Leisure Travel Group Limited's acquisition of Miss Ellie's
World Travel Limited and Grand Hotel Group Limited, collectively referred to in
the table below as Leisure Travel Group (Combined), and 49% of the outstanding
share capital of trrravel.com Limited, and Grand Hotel Group Limited's
acquisition of the assets of the Burstin Hotel, 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
(Combined) is based on its audited combined statement of operations for the
period from July 1, 1999 (commencement of operations) to October 31, 1999 which
represents a combination of the combined statements of operations of Leisure
Travel Group Limited and Grand Hotel Group Limited, which are entities under
common control. The historical financial information for Ilios Travel Limited is
based on its audited combined statement of operations for the twelve months
ended October 31, 1999. The historical financial information for the Burstin
Hotel is based on its unaudited statement of operations for the twelve months
ended October 31, 1999, which is derived from the audited statement of
operations for the twelve months ended January 31, 2000 and the unaudited
statement of operations for the three months ended January 31, 1999 and 2000.
Accordingly, the pro forma consolidated statement of operations includes the
results of Leisure Travel Group Limited, Grand Hotel Group Limited, Miss Ellie's
World Travel Limited, Ilios Travel Limited and the Burstin Hotel 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
GRAND HOTEL WORLD
GROUP TRAVEL
LEISURE (PREDECESSOR) LIMITED LEISURE
TRAVEL (PERIOD FROM (PERIOD FROM ILIOS THE TRAVEL
GROUP NOVEMBER 1, 1998 NOVEMBER 1, 1998 TRAVEL BURSTIN ADJUSTMENTS GROUP, INC.
(COMBINED) TO JUNE 30, 1999) TO JULY 4, 1999) LIMITED HOTEL (NOTE 1) CONSOLIDATED
---------- ----------------- ---------------- ------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues ................. $17,261 $17,834 $10,446 $1,846 $10,618 $58,005
Operating costs and expenses ... 15,095 17,022 9,919 1,838 8,076 $ 657 (a) 52,607
------- ------- ------- ------ ------- ------- -------
Operating profit ............. 2,166 812 527 8 2,542 (657) 5,398
Other income (expenses) ....... (433) -- (682) 15 (21) (1,305)(b) (2,426)
------- ------- ------- ------ ------- ------- -------
Income before income taxes ... 1,733 812 (155) 23 2,521 (1,962) 2,972
Income taxes ................... 520 361 -- 7 803 1,691
------- ------- ------- ------ ------- ------- -------
Net income ................... $ 1,213 $ 451 $ (155) $ 16 $ 1,718 $(1,962) $ 1,281
======= ====== ====== ====== ======= ======= =======
Basic and diluted net income
per share: ................... $ 0.25
=======
Shares used in computing
basic and diluted net income
per share: ................... 5,060 (d) 5,060
======= =======
</TABLE>
32
<PAGE>
LEISURE TRAVEL GROUP, INC.
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 our acquisition of Leisure Travel Group Limited, Leisure Travel Group
Limited's acquisition of Grand Hotel Group Limited and 49% of the outstanding
share capital of trrravel.com Limited and Grand Hotel Group Limited's
acquisition of the Burstin Hotel as follows:
<TABLE>
<CAPTION>
APRIL 30, 2000
--------------
<S> <C>
Leisure Travel Group (Combined)
Invested capital at April 30, 2000 ................................ $ 590
--------
$ 590
========
The Burstin Hotel
Divisional equity at April 30, 2000 ............................... $ 15,855
--------
$ 15,855
========
trrravel.com Limited
Purchase consideration -- 220,000 shares of Leisure Travel
Group Limited common stock of $0.001 par value at an
estimated offering price of $11.00 per share .................... $ 2,420
Equity in net loss of 49% equity investee ......................... (25)
--------
$ 2,395
========
Leisure Travel Group, Inc.
Common stock ...................................................... $ 5
Additional paid in capital ........................................ (51,045)
Purchase consideration -- 4,640,000 shares of Leisure Travel
Group, Inc. common stock of $0.001 par value at an
estimated offering price of $11.00 per share .................... 51,040
Accumulated other comprehensive income ............................ (57)
Retained earnings ................................................. 647
--------
$ 590
========
The pro forma balance sheet adjustments are summarized as follows:
a. Intercompany receivable from Leisure Travel Group (Combined) to
Leisure Travel Group, Inc. ...................................... $ (285)
========
b. Fair value adjustment resulting from the acquisition
of the minority interest in Grand Hotel Group Limited
by Leisure Travel Group, Inc. ................................... $ 2,327
========
c. Goodwill arising on acquisition of the Burstin Hotel by
Leisure Travel Group Limited .................................... $ 1,213
Goodwill arising on acquisition of minority interest in
Grand Hotel Group Limited by Leisure Travel Group Limited ....... 3,778
--------
$ 4,991
========
d. Investment in 49% of outstanding share capital of trrravel.com
Limited ......................................................... $ 2,420
Equity in net loss of 49% equity investee ......................... (25)
--------
$ 2,395
========
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
APRIL 30, 2000
--------------
<S> <C>
e. Intercompany payable to Leisure Travel Group (Combined)
from Leisure Travel Group, Inc. ................................. $ (285)
========
f. Incurrence of additional debt for acquisition of the Burstin Hotel
by Leisure Travel Group Limited ................................. $ 17,068
========
g. Common stock of $0.001 par value
Issuance of 4,640,000 shares for the acquisition of Leisure
Travel Group Limited .......................................... $ 5
Issuance of 220,000 shares for the acquisition of 49% of the
outstanding share capital of trrravel.com Limited ............. --
--------
$ 5
========
h. Additional paid in capital
Issuance of 4,640,000 shares for the acquisition of Leisure
Travel Group Limited .......................................... $ 51,035
Difference arising on acquisition of Leisure Travel Group
Limited ....................................................... (51,040)
Less: Acquisition of minority interest in Grand Hotel Group
Limited by Leisure Travel Group Limited ....................... 6,105
Issuance of 220,000 shares for the acquisition of 49% of the
outstanding share capital of trrravel.com Limited ............. 2,420
--------
$ 8,520
========
i. Accumulated other comprehensive income Accumulated other
comprehensive income of Leisure Travel Group (Combined) ......... $ (57)
========
j. Retained earnings
Retained earnings of Leisure Travel Group (Combined) $ 647
Equity in net loss of 49% equity investment ..................... (25)
--------
$ 622
========
k. Invested capital/divisional equity
Elimination of Leisure Travel Group (Combined) invested capital . $ (590)
========
Elimination of the Burstin Hotel divisional equity .............. (15,855)
--------
$(16,445)
========
</TABLE>
34
<PAGE>
Statement of Operations
The unaudited condensed pro forma consolidated statements of operations
give effect to the following pro forma adjustments:
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED
APRIL 30, 2000 OCTOBER 31, 1999
---------------- -------------------
<S> <C> <C>
a. Amortization of goodwill arising from acquisition of Miss
Ellie's World Travel Limited of $1,066 over 10 years .................. $ 55 $ 111
Less: amortization expense included in historical combined
statement of operations of Leisure Travel Group (Combined) ............ 55 37
-------- --------
-- 74
Amortization of goodwill arising on the acquisition of
Ilios Travel Limited of $467 over 10 years ............................ 24 49
Less: amortization expense included in historical combined
statement of operations of Leisure Travel Group (Combined) ............ 8 --
-------- --------
16 49
Amortization of goodwill arising on the acquisition of the
Burstin Hotel by Leisure Travel Group Limited of $1,213
over 10 years ......................................................... 63 126
Amortization of goodwill arising on the acquisition of
minority interest in Grand Hotel Group Limited by Leisure
Travel Group Limited of $6,105 over 10 years .......................... 195 393
Depreciation expense arising from fair value adjustments
resulting from the acquisition of the minority interest in
Grand Hotel Group Limited by Leisure Travel Group, Inc. ............... 7 15
-------- --------
Total amortization ...................................................... $ 281 $ 657
======== ========
Goodwill arising was (pound)685,000, (pound)301,000, (pound)782,000 and
(pound)2,434,000 for the acquisition of Miss Ellie's World Travel
Limited, Ilios Travel Limited, the Burstin Hotel and the minority
interest in Grand Hotel Group Limited, respectively. the resulting
amortization was translated at the average rates of exchange of $1.6056
= (pound)1.00 and $1.61396 = (pound)1.00 for the six months ended April
30, 2000 and the twelve months ended October 31, 1999, respectively.
b. Increase in interest expense for $526 of borrowings in connection with
the acquisition of Ilios Travel Limited at 5% per annum ............... $ 6 $ 25
Increase in interest expense for $17,068 of borrowings in connection
with the acquisition of Burstin Hotel at 7.5% per annum ............... 320 1,279
-------- --------
$ 326 $ 1,305
======== ========
c. Equity in net loss of 49% equity investee ............................... $ (25) $ --
======== ========
d. Weighted average common shares
Issuance of 4,640,000 shares for the acquisition of
Leisure Travel Group Limited ........................................ 4,640,000 4,640,000
Issuance of 220,000 shares for the acquisition of 49%
of the share capital of trrravel.com Limited ........................ 220,000 220,000
Issuance of 200,000 shares to Milner Laboratories Limited ............. 200,000 200,000
--------- ---------
5,060,000 5,060,000
========= =========
</TABLE>
35
<PAGE>
LEISURE TRAVEL GROUP, INC.
SELECTED FINANCIAL DATA
(US DOLLARS IN THOUSANDS)
The following tables set forth:
o Selected historical combined financial data for Grand Hotel Group
(Predecessor) for the years ended December 31, 1995, 1996, 1997 and
1998, the six months ended April 30, 1999 and the six months ended
June 30, 1999, and as of December 31, 1995, 1996, 1997 and 1998;
o Selected historical combined financial data for Leisure Travel Group
(Combined) for the period from July 1, 1999 (commencement of
operations) to October 31, 1999 and the six months ended April 30,
2000 and as of October 31, 1999 and April 30, 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 Grand Hotel
Group (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 that 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 Grand Hotel Group
(Predecessor), and the selected historical financial data as of October 31, 1999
and for the period from July 1, 1999 (commencement of operations) to October 31,
1999 from the audited financial statements of Leisure Travel Group (Combined),
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 six months ended
April 30, 1999 from the unaudited combined condensed financial data of Grand
Hotel Group (Predecessor) and the selected historical financial data as of April
30, 2000 and for the six months ended April 30, 2000 from the unaudited combined
condensed financial data of Leisure Travel Group (Combined), 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 that 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>
LEISURE TRAVEL GROUP
GRAND HOTEL GROUP (PREDECESSOR) (COMBINED)
----------------------------------------------------------- ------------------------
SIX SIX PERIOD FROM SIX
MONTHS MONTHS JULY 1, 1999 MONTHS
ENDED ENDED TO ENDED
APRIL 30, JUNE 30, OCTOBER 31, APRIL 30,
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 $13,423 $ 11,526 $ 17,261 $19,830
Operating cost and expenses ............. 26,981 27,700 28,982 27,913 13,516 12,638 15,095 19,751
------- ------- ------- ------- ------- -------- -------- -------
Operating profit (loss) ................. 5,978 4,727 4,803 4,533 (93) (1,112) 2,166 79
Other income (expense), net ............. -- -- -- -- -- -- (433) (645)
------- ------- ------- ------- ------- -------- -------- -------
Income (loss) before income taxes ....... 5,978 4,727 4,803 4,533 (93) (1,112) 1,733 (566)
Income taxes ............................ 2,459 2,035 2,027 1,859 -- -- 520 --
------- ------- ------- ------- ------- -------- -------- -------
Net income (loss) ....................... $ 3,519 $ 2,692 $ 2,776 $ 2,674 $ (93) $ (1,112) $ 1,213 $ (566)
======= ======= ======= ======= ======= ======== ======== =======
OTHER DATA:
EBITDA (1) .............................. $ 7,737 $ 6,618 $ 6,907 $ 6,478 $ 943 $ (182) $ 2,371 $ 691
Depreciation and amortization ........... $ 1,760 $ 1,891 $ 2,104 $ 1,945 $ 1,036 $ 929 $ 205 $ 612
<CAPTION>
LEISURE TRAVEL GROUP
GRAND HOTEL GROUP (PREDECESSOR) (COMBINED)
DECEMBER 31, -------------------------
------------------------------------------ OCTOBER 31, APRIL 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ------- -------- --------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) ................... $(3,046) $ (589) $(1,902) $(1,966) $ (761) $ (2,547)
Total assets ................................ 26,119 28,686 28,655 26,950 46,335 43,073
Long-term debt
(excluding current maturities) ............ -- -- -- -- 33,436 32,151
Total divisional equity/invested capital .... 21,576 26,299 24,833 23,434 1,213 590
</TABLE>
-------------
(1) We have presented earnings before interest, taxes, depreciation and
amortization, or EBITDA, because we believe it is a useful and widely
accepted financial indicator of a company's ability to pay its debt.
However, you should not consider EBITDA as an alternative to operating
income or cash flows from operating activities, as determined in accordance
with generally accepted accounting principles. You also should not construe
it as an indication of our operating performance or as a measure of our
liquidity.
36
<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 these
differences include those set forth in the section entitled "Risk Factors," as
well as those discussed elsewhere in this prospectus.
OVERVIEW AND STRUCTURE
We plan to become a leading international provider of attractively priced,
specialized holiday and leisure accommodations and world-wide packaged travel
services. Our revenues will be derived primarily from the operation of the six
Grand 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. We will also have a 49% equity interest in trrravel.com Limited,
which owns and operates an Internet travel Website and an airline seat provider
that purchases blocks of airline seats from airlines and other travel and tour
operators and acts as an agent in brokering those seats on a commission basis.
Effective June 30, 1999, Grand Hotel Group Limited purchased from Rank
Holidays Division Limited, a subsidiary of The Rank Group plc., the assets of
five of the Grand Hotels, formerly known as the Butlin's Provincial Hotels,
including the physical properties, concessions, customer lists and records.
Substantially all of the assets were acquired in the acquisition which included
the hotels, land, fixtures and equipment, inventory, prepayments and cash.
Following the acquisition, Grand Hotel Group Limited 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.
Grand Hotel Group Limited 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 wholly owned by Kevin R. Leech, our Chairman of
the Board and principal stockholder, and 15%-owned in the aggregate by Philip
Mason, Rod Rodgers, Stephen Last and David Marriott, all of whom are members of
our management team. In consideration for the hotel assets, Grand Hotel Group
Limited paid $30.7 million, of which $13.9 million was paid in cash and the
balance of $16.8 million was paid by Grand Hotel Group Limited's issuance of a
non-interest-bearing promissory note due 2002. The 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. Grand Hotel
Group Limited 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 Grand Hotel Group Limited, including mortgages on the
purchased hotels. No goodwill resulted from this acquisition.
In July 1999, Leisure Travel Group Limited 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
the share capital of Miss Ellie's World Travel Limited, Leisure Travel Group
Limited paid an aggregate of (pound)1,030,000 (approximately $1,667,000) to
Ellie Doherty, the former shareholder of that company. Leisure Travel Group
Limited 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. The terms of the acquisition
include certain "earn-out" provisions whereby, after our acquisition of Leisure
Travel Group Limited on the date of this prospectus, we will be required to pay
additional cash to the former shareholder 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. Based on the pre-tax
income of Miss Ellie's World Travel Limited during that period, the amount of
that payment will be approximately (pound)325,000 ($504,270). We anticipate that
these payments will be funded through our cash flows from operations. We
incurred approximately $1.1 million of goodwill in connection with this
acquisition which is being amortized over an estimated useful life of 10 years.
37
<PAGE>
In February 2000, Leisure Travel Group Limited 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 the share capital
of Ilios Travel Limited, Leisure Travel Group Limited paid an aggregate of
(pound)325,000 (approximately $526,000) to Nita Beecroft, the former shareholder
of that company. As a result of this acquisition, Leisure Travel Group Limited
expanded its travel-related services and increased its market position and
cross-selling opportunities in other destinations throughout Europe. Leisure
Travel Group Limited also funded this acquisition through a $526,000 loan from
Red Kite Ventures Limited. We incurred $453,000 of goodwill in connection with
this acquisition which is being amortized over an estimated useful life of 10
years.
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 Independent Aviation Group Limited, an
unaffiliated third party, certain assets comprising a tour operator airline seat
provider business. The purchase price was (pound)200,000 (approximately
$310,000). Prior to the date of this prospectus and our proposed acquisition of
49% of its equity, trrravel.com Limited was 51%-owned by ci4net.com, Inc., a
Delaware corporation whose common stock is publicly-traded on the OTC Bulletin
Board, and 49%-owned by Technology Finance Limited, a private limited company
that is 50%-owned by Mr. Leech and 50%-owned by Internet plc, a Seychelles
company controlled by a private investor and business associate of Mr. Leech. A
corporation controlled by Kevin R. Leech is the principal stockholder of
ci4net.com, Inc.
Grand Hotel Group Limited has entered into negotiations to acquire in
September 2000 from Queensborough Holdings Limited, a private limited company
organized under the laws of England and Wales that is 50%-owned by Kevin R.
Leech, the sixth Grand Hotel known as the Burstin Hotel, located in Folkestone,
England. Consideration for the hotel assets will total $17.1 million, of which
$12.4 million will be paid in cash and financed through an 8.25% eight-year bank
mortgage loan. The $4.7 million balance will be evidenced by a 7% seller's note
payable in two installments of $2.35 million, plus accrued interest, in April
2002 and April 2003.
In March 2000, the stockholders of Grand Hotel Group Limited agreed that as
of the date of this prospectus they will transfer 100% of the outstanding share
capital of Grand Hotel Group Limited to Leisure Travel Group Limited in exchange
for the issuance of approximately 80% of the outstanding share capital of
Leisure Travel Group Limited. In addition, the stockholders of Leisure Travel
Group Limited agreed that as of the date of this prospectus they will transfer
to us 100% of the outstanding share capital of Leisure Travel Group Limited in
exchange for the issuance of an aggregate of 4,640,000 shares of our common
stock. More than 50% of the outstanding share capital of each of Grand Hotel
Group Limited and Leisure Travel Group Limited was owned prior to both of these
transfers by corporations controlled by Kevin R. Leech. The acquisition of Grand
Hotel Group Limited by Leisure Travel Group Limited and our acquisition of
Leisure Travel Group Limited will be accounted for as combinations of entities
under common control in a manner similar to a pooling of interests. In addition,
Technology Finance Limited, a British Virgin Islands company that is 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 $16.1 million of indebtedness of Grand Hotel Group Limited owed to
The Rank Group plc or its subsidiaries; and
o the capitalization of $2.1 million of loans made to Leisure Travel
Group Limited by a corporate affiliate of Kevin R. Leech.
OPERATING RESULTS AND REVENUE RECOGNITION
For the year ended December 31, 1998, Grand Hotel Group (Predecessor)
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, Grand Hotel
Group Limited derived net income before taxes of $2.4 million from net revenues
of $28.3 million.
The revenues and net income of the Grand Hotel Group (Predecessor) 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
38
<PAGE>
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
the United Kingdom. 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, Grand Hotel Group Limited
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.
The results for the period from July 1, 1999 (commencement of operations)
to October 31, 1999 show a continued decrease in revenue compared to the same
period of the previous year from $12.2 million to $10.5 million, respectively, a
decrease of $1.7 million or 13.9%. The decrease is due to lower advance bookings
inherited from the previous owner. For the period from July 1, 1999 to October
31, 1999 plus the Christmas and New Year period, the Grand Hotel Group had to
operate with the existing brochure, marketing campaign and reservation systems
of the previous owner. The six-month period ending April 30, 2000 compared to
the six-month period ending April 30, 1999 show an increase in operating income
(loss) from $(100,000) to $200,000 due to savings in general and administrative
expenses such as repairs, maintenance, clerical, computer and other related
costs.
Since October 31, 1999, Grand Hotel Group Limited management has:
o implemented agreements with bus or coach tour operators to make
advance purchases of beds;
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 August 14, 2000, advance bookings
represent approximately 77% of Grand Hotel Group Limited's 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 the
Grand Hotels' guests check out after their designated vacation stay and make
payment. Revenues from retail and other services are recognized at the point of
sale once cash is received, net of allowances for returns, where appropriate.
Net revenues from providing travel services include commissions and
mark-ups on travel products and services, specifically tour packages, airline
flights, accommodation bookings and travel insurance premiums. Revenue for these
services is recognized upon commencement of travel, as the travel businesses
have completely provided the service to the customer at this time and cash has
already been collected. Any further performance obligations are the
responsibility of the individual tour operator. Revenue is also recognized from
volume bonuses and cancellation fees. Revenue for volume bonuses is recognized
when all conditions to the bonuses have been met. Revenues for cancellation fees
are recognized at the time of cancellation as the customer has no right to
reserve payment of the cancellation fee for future travel.
Refunds, rebates, discounts and free services are deducted from net
revenues at the time the related revenue is recognized.
The travel businesses make payments on deposit with tour operators and
airline operators for travel packages purchased by their customers. These cash
payments are recorded as travel deposits on the balance sheet and are recognized
as cost of revenues at the time the related revenue is recognized. In most
instances, the travel businesses receive cash from customers for travel services
prior to the commencement of travel. These cash receipts are recorded as guest
deposits on the balance sheet and are recognized as revenue in accordance with
the travel businesses' revenue recognition policies, which are in conformity
with U.S. generally accepted accounting principles.
39
<PAGE>
Operating expenses at the Grand 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. 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. These 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 associated
with being a publicly held company and the incremental increase in costs related
to our new management structure.
We will 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 will require a deposit upon
booking a hotel or travel reservation. Reservations with the travel businesses
are typically made one to three months prior to departure, and reservations at
the Grand Hotels are typically made one week to four months prior to occupancy.
Additionally, for packaged tours, we will 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 will 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 will be
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.
LEISURE TRAVEL GROUP (COMBINED) HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain historical operating data of Leisure
Travel Group (Combined) expressed as a percentage of net revenues for the
periods indicated. Leisure Travel Group (Combined) consists of Grand Hotel Group
Limited and Leisure Travel Group Limited.
PERIOD
FROM JULY 1, SIX MONTHS
1999 TO ENDED
OCTOBER 31, APRIL 30,
1999 2000
------------- ------------
Total revenues ..................... 100.0% 100.0%
Operating costs and expenses ....... 87.5% 99.6%
----- -----
Operating profit ............... 12.5% 0.4%
Other expense ...................... (2.5%) (3.3%)
----- -----
Income before income taxes ..... 10.0% (2.9%)
Income taxes ....................... 3.0% --
----- -----
Net income ..................... 7.0% (2.9)%
===== =====
40
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR) HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain historical operating data of Grand
Hotel Group (Predecessor) expressed as a percentage of net revenues for the
periods indicated.
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, APRIL 30, 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% 100.7% 109.6%
------ ------ ------ ------ ------
Operating profit (loss) ......................... 14.6% 14.2% 14.0% (0.7)% (9.6)%
Other income (expense) .............................. -- -- -- -- --
------ ------ ------ ------ ------
Income (loss) before income taxes ............... 14.6% 14.2% 14.0% (0.7)% (9.6)%
Provision for income taxes .......................... 6.3% 6.0% 5.7% --% --
------ ------ ------ ------ ------
Net income (loss) ............................... 8.3% 8.2% 8.3% (0.7)% (9.6)%
====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED APRIL 30, 2000 COMPARED TO SIX MONTHS ENDED APRIL 30, 1999
Net Revenues
Combined revenues for the six months ended April 30, 2000 were $19.8
million, which was an increase of $6.4 million or 48% from revenues of $13.4
million for the corresponding period in 1999. The increase was due to revenues
of $7.1 million from Leisure Travel Group Limited, which acquired Miss Ellie's
World Travel Limited on July 1, 1999. The balances for the six months ended
April 30, 1999 do not reflect the financial results of Miss Ellie's World Travel
Limited.
Revenues from Grand Hotel Group Limited for the six months ended April 30,
2000 were $12.7 million, which was a decrease of $700,000 or 5% from revenues of
$13.4 million for the six months ended April 30, 1999, due to a reduction of
rooms caused by Grand Hotel Group Limited's refurbishment program, which was
partially offset by higher average room rates of 8%. We anticipate that,
following completion of the room refurbishment program, revenues will increase
substantially in the upcoming year.
Direct cost of revenues
The direct cost of revenues consists of food, entertainment, housekeeping,
restaurant and kitchen expenses, which for the six months ended April 30, 2000
were $13.2 million, an increase of $5.8 million or 178% from costs of revenues
of $7.4 million for the six months ended April 30, 1999. The increase was due to
Leisure Travel Group Limited's acquisition of Miss Ellie's World Travel Limited
on July 1, 1999 for $6.1 million. The savings of $0.3 million is a result of a
reduction in the direct cost of sales by Grand Hotel Group Limited, as a result
of reduced turnover. The results for the six months ended April 30, 1999 do not
reflect the financial results of Miss Ellie's World Travel Limited. These
figures incorporate additional entertainment and staff payroll costs incurred
for the millenium celebrations. The on-going direct cost of revenues was in line
with management expectations.
Staff costs
Staff costs, including accommodation, catering, bars and shops, for the six
months ended April 30, 2000 were $2.1 million, which was an increase of $600,000
or 40% from staff costs of $1.5 million for the six months ended April 30, 1999.
The increase was due to Leisure Travel Group Limited's acquisition of Miss
Ellie's World Travel Limited on July 1, 1999. The results for the six months
ended April 30, 1999 do not reflect the financial results of Miss Ellie's World
Travel Limited. The staff costs relating to the Grand Hotel Group Limited
remained the same for the two fiscal periods, which reflect cut-backs in the
staffing establishment due to the lower-than-anticipated accommodation revenues.
Grand Hotel Group Limited currently operates a staffing establishment matrix
linked to weekly room occupancy levels to ensure correct levels of staffing
throughout the individuals hotels.
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Sales and Marketing
The sales and marketing costs incorporate advertising, marketing
promotions, mailings, brochures and public relations, together with the cost of
the marketing staff. The costs for the six months ended April 30, 2000 were $1.3
million, which was an increase of $0.5 million, or approximately 39% from sales
and marketing costs of $0.8 million for the six months ended April 30, 1999.
$0.1 million of the increase is due to sales and marketing costs incurred in
connection with the acquisition of Miss Ellies World Travel Limited, and the
remaining $0.4 million of the increase is due to costs incurred by Grand Hotel
Group Limited in connection with commencing its new marketing and branding
campaigns following the acquisition of five of the Grand Hotels. These figures
are in line with management expectations for both fiscal periods.
General and administrative
General and administrative expenses consist of all other expenses such as
repairs, maintenance, clerical, computer and other related costs. These expenses
for the six months ended April 30, 2000 were $2.4 million, which was an increase
of $0.3 million or approximately 13% from general and administrative costs of
$2.1 million for the six months ended April 30, 1999. The increase was due
entirely to costs incurred in connection with the acquisition of Miss Ellie's
World Travel Limited on July 1, 1999. The results for the six months ended April
30, 1999 do not reflect the financial results of Miss Ellie's World Travel
Limited. The majority of general and administrative expenditures are fixed, and
we do not expect any major variances.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenues
Revenues consist of hotel room rental and retail sales (which include bar,
catering and shop revenues). Revenues for 1998 were $32.4 million, which was a
decrease of $1.4 million, or 4%, 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. This
reduction was a result of a change in the marketing policy of the former owners
of the hotels to focus on the adult market at the expense of attracting the
family market. However, the average hotel room rental income per booking rose
4%, which meant that the decrease in hotel room rental revenue was $0.5 million.
Consequently, there was additional reduction in the other sources of income of
$0.8 million.
The hotel room rental income proportion of the total revenue rose from 73%
in 1997 to 74% in 1998 with a consequent reduction in the other revenue from 27%
in 1997 to 26% in 1998.
In the following six-month period ending April 30, 1999, the downward trend
in revenues continued due to the parent company's policy to reduce marketing
support for the hotel product.
Direct cost of revenues
Direct cost of revenues consist of food, entertainment, housekeeping,
restaurant and kitchen expenses. Direct cost of revenues for 1998 was $16.1
million, which was a decrease of $0.7 million, or approximately 4%, from direct
cost of revenues of $16.8 million in 1997. This decrease was a result of lower
sales revenues during the period. Net margins declined slightly from 49.6% in
1997 to 49.4% in 1998. We believe that, if revenues continue to decline, it
would not be possible to maintain the margin level at 50% due to the direct
costs of revenues incorporating a high level of fixed expenditure.
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 $3.0
million, which was a decrease of $0.1 million, or 3%, from staff costs of $3.1
million in 1997. Due to declining revenues, we anticipate a small reduction in
staff costs.
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 were $4.8 million. These costs are
predictable due to their fixed nature, and therefore we do not anticipate any
major fluctuations in total annual expenditure.
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Corporate allocation/Sales and marketing
Corporate allocation charges are costs incurred by the previous parent
company of the hotels comprising Grand Hotel Group (Predecessor). These costs
typically consist of advertising, corporate management payroll and general
corporate overhead. Such costs were charged back to Grand Hotel Group
(Predecessor) 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 total
corporate allocation charges for 1998 and 1997 was $0.9 million and $1.7
million, respectively, and the total allocation for sales and marketing expense
for 1998 and 1997 was $2.0 million and $1.3 million, respectively. The reason
for the decrease in corporate allocation charges from 1997 to 1998 is the
decrease in total head office charges incurred by the Butlins Hotels from 1997
to 1998, which was due to an overall reduction in administrative expenses. The
increase in the allocation for sales and marketing expense from 1997 to 1998 is
due to an increase in the resident sleeper nights for the hotels as compared to
the remainder of the business.
The company's previous parent charged sales and marketing costs at the
corporate level. Such costs were recharged to Grand Hotel Group (Predecessor)
based on the number of resident customers of the five hotels compared to the
total number of resident customers of Butlin's Limited, a subsidiary of The Rank
Group plc. The corporate allocation charges relate only to the business during
the time it was owned by Butlin's Limited. Following the acquisition of the
hotels by Grand Hotel Group Limited on June 30, 1999, these corporate costs are
incorporated in general and administrative overheads.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues
Revenues for 1997 were $33.8 million, which was an increase of $1.4 million
or 4% from revenues of $32.4 million in 1996. The room rental income increased
from 72% of the total revenue in 1996 to 73% in 1997, 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 room rental income generated from each booking. The
increase in total revenues was anticipated due to the significant increase in
the published tariff rate despite the reduction in occupancy levels.
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 were $16.8 million, which was an increase
of $0.6 million or 4% from direct cost of revenues of $16.2 million in 1996.
This reflects the savings due to the reduction in revenue volume. Margins on
room rental income remained the same in both years at 50% of total revenue.
Margins from other sources of revenue also remain unchanged in 1997. These
results were anticipated and are in line with the increase in overall revenues
achieved for the 12-month period.
Staff costs
Staff costs for 1997 were $3.1 million, which was an increase of $0.2
million or 7% from staff costs of $2.9 million in 1996. This increase was due to
a minimum increase in the wage rate of 5%, coupled with additional management
staffing costs following a restructuring of the hotel management.
General and administrative
General and administrative expenses for 1997 and 1996 were $4.0 million.
Although certain expenditures increased, there were reductions in insurance
costs and repairs. These figures resulted from renegotiation of Grand Hotel
Group Limited's insurance coverage and premiums.
LIQUIDITY AND CAPITAL RESOURCES
Our hotel and travel businesses have historically financed their activities
through cash provided by operations.
We currently anticipate that our current cash and cash equivalents in the
amount of $3.2 million and anticipated cash flow from operations, together with
the net proceeds from this offering, will be sufficient to meet
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our presently anticipated working capital and capital expenditure requirements
through October 31, 2002. Following completion of this offering, we anticipate
that we will spend approximately $5.0 million in capital expenditures over a
period of approximately 24 months to refurbish and construct improvements to the
Grand Hotels. In addition, our $39.0 million of total mortgage indebtedness, on
a pro forma basis, is currently amortized over a five to eight year period and
requires annual debt service payments of principal and interest of approximately
$8.3 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. We have received a proposal from the bank
which provided 88% of the existing mortgage financing for Grand Hotel Group
Limited to refinance its $40.2 million of mortgage debt, subject to completion
of this offering. It is contemplated that this refinancing will bear 8.25%
annual interest and be amortized over a period of 15 years with a final balloon
payment due at the end of the tenth year. If funded, our annual debt service
obligations under this new facility will be reduced to approximately $5.5
million. However, there is no assurance that this 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 April 30, 2000, we had an unaudited pro forma net working capital
deficit of $3.4 million. We have historically operated with a net working
capital deficit due to the fact that we have invested working capital 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. With the net proceeds of this offering, we
expect to have net working capital of $16.7 million.
Net cash provided by operating activities was $1.3 million for the six
months ended April 30, 2000, compared to net cash provided by operating
activities of $1.4 million for the corresponding period in the previous year.
This decrease primarily reflects a slight reduction in working capital, as a
result of a decrease in guest deposits due to renovations that were being made
to some of the Grand Hotels. Cash provided by operating activities was $3.7
million and $1.7 million for the period from July 1, 1999 to October 31, 1999
and the six months ended June 30, 1999, respectively. These 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. Guest deposits and
accounts payable were lower during the year ended December 31, 1998 due to, we
believe, a delay in the production of the main holiday brochure relating to the
Butlins Provincial Hotels that resulted in reduced hotel bookings and room
occupancy.
Net cash used in investing activity was $1.4 million and $238,000 for the
six months ended April 30, 2000 and 1999, respectively. Cash used in investing
activities was $13.8 million for the period from July 1, 1999 to 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.
Net cash provided by financing activities was $345,000 for the six months
ended April 30, 2000 compared to cash used in financing activities of $1.2
million for the six months ended April 30, 1999. Cash provided by financing
activities was $15.8 million for the period from July 1, 1999 to 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 Grand Hotel Group (Predecessor) during the respective periods.
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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 the hotel and travel businesses which we will acquire on
the date of this prospectus, revenues are typically higher during the spring and
summer months and are slightly lower during the fall and winter months. In
addition, the hotel and travel businesses have been adversely affected in the
past and could be adversely affected in the future by bad 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. For example, popular European
destinations such as the Canary Islands have a constant climate, which could
provide a relatively stable level of occupancy for hotels in that area. In the
future, if we acquire resort hotels in these destinations, these acquisitions
may lessen the effect of seasonality and reduce fluctuations in our revenues and
operating profits. If we are unsuccessful in acquiring hotel resorts in
destinations with constant climates, seasonality will affect our business in
much the same way it has historically affected the hotel and travel businesses
we will acquire on the date of this prospectus. If seasonality in our business
causes quarterly fluctuations in our revenues and operating profits that 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 future acquisition of 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 these
acquisitions may materially adversely impact our earnings.
MARKET RISKS
We do not currently hold any derivative instruments. Leisure Travel Group
Limited has a floating rate indebtedness in a loan of $15.5 million at an
interest rate of 1.75% over LIBOR in connection with the acquisition of Grand
Hotel Group Limited (Predecessor). Leisure Travel Group Limited also entered
into a $155,000 loan with Cygnet Ventures Limited, a Guernsey company wholly
owned by Kevin R. Leech, our Chairman of the Board and principal stockholder,
due in 2002 which bears interest at 2% over the HSBC base rate. 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.
Our exposure to market risk for changes in interest rates relates primarily
to our long-term debt obligations. We use proceeds from debt obligations
primarily to support general corporate purposes, including capital expenditures
and working capital needs. We have no variable interest rate exposure on the
$16.1 million promissory note to The Rank Group plc. The table below presents
principal amounts and related weighted-average interest rates by year of
maturity for our debt obligations as of April 30, 2000.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(US DOLLARS IN THOUSANDS) 2000 2001 2002 2003 2004 TOTAL
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Long-term debt .....................
Fixed rate amounts ............... $ -- $ -- $16,137 $ -- $ -- $16,137
Average rate ..................... -- -- 0.00% -- --
Variable rate amounts ............ $ -- $ 3,879 $ 4,034 $ 3,879 $ 3,879 $15,671
Average rate ..................... -- 7.50% 7.49% 7.50% 7.50%
</TABLE>
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 computer difficulty resulting from the year 2000
problem; 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.
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 the eleven member 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 a material impact on our results of operations, financial position, or cash
flows.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Commission. Adoption of SAB No. 101 has been
delayed until the fourth quarter of 2000 by the Commission. SAB No. 101 outlines
the basic criteria that must be met in order to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Although we
have not fully assessed the impact of adopting SAB No. 101 on our financial
position and results of operations in 2001 and thereafter, we do not expect the
effect, if any, to be material.
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BUSINESS
GENERAL
We plan to become a leading international provider of attractively priced,
specialized holiday and leisure accommodations and world-wide packaged travel
services. On the date of this prospectus, we will acquire six well-known holiday
resort hotels in the United Kingdom, as well as a travel agency and a tour
operator that offer flexible, travel programs. We will also acquire on the date
of this prospectus a 49% equity interest in trrravel.com Limited, which operates
a European consumer-direct online travel Website offering complete vacation and
travel packages directly to consumers. trrravel.com Limited also owns and
operates an airline seat provider that purchases blocks of airline seats from
airlines and other travel and tour operators and acts as an agent in brokering
those seats on a commission basis. Through consolidation of these and other
vacation and travel-related businesses, we believe that we will offer
vacationers, travel agents and tour operators a single source of competitively
priced holiday leisure travel products and services. We intend to utilize the
trrravel.com Website to market our products and services. We also plan to expand
our business by acquiring additional vacation and leisure travel businesses,
including resort hotels, travel providers and tour operators.
The Grand Hotels provide a unique all-inclusive vacation experience that
sets them apart from customary business and commercial hotels or expensive
holiday resorts in Europe and the United States which generally only offer "A la
carte" accommodations. Each of the six Grand Hotels offers a complete fixed
price vacation package experience, including lodging, food and entertainment.
The Grand Hotels cater primarily to adults, ages 50 and up, who seek short and
three and four-day "getaway" vacation packages. We know of no other comparably
priced holiday resort hotels in England or Wales. We believe that the increase
in the population group aged 55 and up, based on recent demographic trends,
coupled with greater disposable personal income for this demographic segment in
the United Kingdom will continue to fuel demand and repeat business for popular
priced accommodations. Our strategy is to expand the customer base of the Grand
Hotels by increasing access to the bus or coach tour operator vacation package
market, and to improve the profit margins of the Grand Hotels by offering higher
priced and more sophisticated entertainment such as theme shows, on selected
weekends to attract younger, more affluent guests. In addition, four of the
hotels catered to family holidays primarily during the summer season with the
Blackpool and Scarborough facilities limited to adults only.
INDUSTRY BACKGROUND
According to the British Tourist Authority, in 1998, the approximate number
of tourists who visited the six Grand Hotels are set forth below:
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
Folkestone(1) .............. 1.1 1.7 2.8
Total .................. 20.6 19.6 40.2
==== ==== ====
--------------
(1) The data displayed here represents the latest available figures for
Folkestone, which were compiled in 1995.
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, total travel expenditures in the United
Kingdom totaled approximately $43.0 billion. Of such amount, approximately $20.5
billion was spent by overseas visitors within the United Kingdom and the
remaining $22.5 billion was spent by United Kingdom residents on travel outside
the United Kingdom and travel-related services. The British Tourist Authority
estimates that, by the year 2003, overseas visitors to the United Kingdom will
spend approximately $29.0 billion a year in the United Kingdom, 44% more than 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.
According to Forrester Research, Internet 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%.
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In the United Kingdom, vacations are typically purchased in packages
through travel agents which include airfare, lodging and rental cars. The travel
agency and tour operator market in the United Kingdom is dominated by four major
providers--Thomsons plc, AirTours plc, First Choice plc and JMC (formerly Thomas
Cook), who control approximately 65% of the market. The remaining 35% is shared
by over 12,000 independent travel agencies and tour operators.
The distribution channels for leisure travel are highly fragmented and
include:
o DIRECT SALES. Travel service suppliers sell their services directly to
consumers through call centers and their own Websites. These suppliers
generally offer only their own services, or offer their services in
conjunction with partners from other areas of the travel industry.
Bookings are made at "published," rates provided to suppliers by
hotels, airlines and other travel service suppliers. These rates
generally vary only based on volume discounts. Airlines, hotels and car
rental companies offer their services online through their own
Websites. These Websites frequently access published rates for direct
suppliers or their partners' travel services, thereby limiting consumer
choice and comparison shopping.
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%. In recent years, travel
service suppliers have increasingly sought to cut costs and drive more
traffic through their own booking channels, at the expense of retail
travel agencies.
o TRAVEL WHOLESALERS. Travel wholesalers purchase in bulk hotel, airline
and car rental capacity directly from travel service suppliers at
discounts ranging from 10% to 30% less than published rates. These
wholesalers generally resell this capacity individually or in packages
through travel agencies. A small number of travel wholesalers offer
consumer-direct wholesale travel services online. These providers
typically focus on either air travel or hotels, but many lack the
strategic relationships to effectively service leisure travelers.
o TELETEXT SALES. Teletext is a data system presented through European
television. 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. Rates are competitive with retail travel rates.
o ONLINE TRAVEL RESERVATION SERVICES. Online travel reservation services
have generally adopted the retail travel agency model and sell
published rates and fares quoted through global distribution systems on
a commission basis. Online travel services rarely display multiple
hotel options or hotel/air packages, making comparison shopping for
these travel services time consuming. A small number of online travel
reservation services also resell travel packages provided by
wholesalers.
OUR OPERATING STRATEGY
Our operating strategy includes the following elements:
o INCREASE REVENUES, PROFITABILITY AND OCCUPANCY RATES AT OUR GRAND
HOTELS.
o Establish a marketing program to expand the existing short-break
holiday entertainment package. This program will be designed for
larger groups during the lower holiday occupancy periods, generally
between the months of January and March. We will also offer more
sophisticated entertainment to attract a younger, more affluent
audience.
o Renovate the Grand Hotels to enhance lobbies, restaurants, public
areas and guest rooms. We expect our renovation program to be
completed within the next 24 months. As renovations are completed,
we expect that occupancy will increase and we will be able to
increase room rates.
o Increase revenues from advance bookings made by bus and coach tour
operators. Grand Hotel Group Limited has recently entered into
agreements with Shearings Holidays Ltd. and Caledonian Travel
Ltd., two of England's leading coach vacation package tour
operators, along with several smaller coach tour operators,who have
reserved an estimated 115,000 sleeper night bookings, which will
extend through our fiscal year ending October 31, 2000. The
bookings that Grand Hotel Group Limited has accepted account for
approximately 75% of the beds it plans to sell to coach tour
operators, which represent advance commitments to occupy 18% of
total available sleeper nights.
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o LEVERAGE STRENGTH IN SELECTED TRAVEL DESTINATIONS. We believe we
currently have a leading position in the market for vacations to
certain European holiday villas located in Spain, Italy and Turkey. We
intend to increase our market position by leveraging our current
expertise through selective acquisitions of other travel specialists
and tour operators. We also intend to cross-sell our services to
non-travel related companies.
o IMPROVE OPERATING EFFICIENCIES. We intend to reduce our operating
expenses by:
o enhancing efficiencies by combining operations such as
telecommunications systems, brochure production and distribution;
o implementing best practices in the management of our business
systems;
o enhancing marketing relationships through joint marketing
promotions; and
o outsourcing providers where appropriate.
o IMPLEMENT INTEGRATED INFORMATION SYSTEMS. We believe integrating
information systems will improve our ability to offer travelers
value-added vacation products and services. In addition, integrated
systems will facilitate the use of common operating platforms, and
reduce the cost and time requirements of developing external
interfaces to global distribution systems and supplier systems.
o ACQUIRE AND IMPROVE ADDITIONAL UNDERPERFORMING RESORT HOTELS. We plan
to capitalize on our management expertise by acquiring underperforming
hotels and implementing operational initiatives to achieve revenue
growth and margin improvements. We have identified a hotel located in
Mallorca, Spain that we are interested in acquiring; however, to date,
we have not entered into negotiations to acquire it. We believe our
total cost to acquire and renovate hotels will be significantly less
than the cost to construct new hotels with similar facilities.
o ACQUIRE OTHER TRAVEL SERVICE PROVIDERS. We believe there are
significant opportunities to make selective acquisitions of travel
service providers in the highly fragmented United Kingdom and European
markets. We seek to acquire companies that:
o have desirable destination concentrations;
o have demonstrated growth and profitability;
o emphasize 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).
o ENHANCE ONLINE DISTRIBUTION CHANNEL. We plan to benefit from the
direct online sale of vacation products and services to consumers. We
will seek to leverage our relationships with other small independent
retail travel agents by encouraging them to become an active
participant on the WWW.TRRRAVEL.COM Website.
OUR PRODUCTS AND SERVICES
THE GRAND HOTELS
The Grand Hotels are located in Blackpool, Scarborough, Brighton, Margate
and Folkestone, all seaside resorts located in England, and Llandudno, a seaside
resort located in Wales. In 1999, the six Grand Hotels sold over 840,000 sleeper
nights in their 1,750 rooms. The average cost per person per night, including
accommodations, breakfast and evening meal is approximately $32.00. Four of the
hotels cater to family holidays with children's entertainment and play areas,
with the Blackpool and Scarborough facilities limited to adults only.
The principal difference between the Grand Hotels and other hotels in the
United Kingdom is the inclusion of food and entertainment. This complete
vacation package produces significant repeat business; approximately 35% of all
guests have visited at least one Grand Hotel in the previous four years. Part of
our growth strategy is to expand our short-break holiday entertainment package
for larger groups during the lower holiday occupancy periods, generally between
January and March. We also intend to to offer special weekend packages to the
younger, more affluent consumer at higher prices. To do this we intend to
utilize commercial radio, the national press and the Internet.
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The coach tour agreements which Grand Hotel Group Limited has entered into
generally contain terms and conditions that are standard in the United Kingdom
travel industry. Generally, the agreements provide that Grand Hotel Group
Limited will provide accommodations, meals and services at a particular Grand
Hotel to a particular group tour or passengers of a coach tour operator, for
consideration to be negotiated separately for each group tour and for a period
of time specific to each group tour. The size of each group tour will generally
be provided to the particular Grand Hotel between seven and 14 days before the
group tour is scheduled to arrive at the hotel. Usually, the agreements with
larger coach tour operators, such as Caledonian Travel Ltd., permit the coach
tour operator to terminate the agreement upon written notice between seven and
14 days prior to the date the group tour is expected to arrive at the hotel.
However, in some agreements with smaller coach tour operators, Grand Hotel Group
Limited reserves the right to charge 50% of the consideration that was to be
received for cancellations occurring between 14 and 28 days prior to arrival,
and 75% for cancellations occurring between one and 14 days prior to arrival.
These contracts generally provide that the individual hotel agrees to indemnify
the coach tour operator against any liability in respect of any claim by any
group tour or passengers relating to any occurrence at the hotel which leads to
loss, damage or expense incurred by any group tour or passengers. Alternatively,
the coach tour operators agree to indemnify Grand Hotel Group Limited against
any loss or damages to valuables left in bedrooms or on the premises of the
hotel.
The following table sets forth certain information regarding each of the
Grand Hotels, including its location, the date acquired by Grand Hotel Group
Limited, the number of existing rooms at the hotel, fiscal 1999 occupancy rates
and the facilities offered.
<TABLE>
<CAPTION>
FISCAL
NUMBER 1999
DATE OF OCCUPANCY FACILITIES
RESORT LOCATION ACQUIRED ROOMS RATES OFFERED
------ -------- -------- ----- ----- -------
<S> <C> <C> <C> <C>
The Grand Ocean Hotel Brighton, England June 30, 1999 352 74.9% food, entertainment and
leisure facilities
The Grand Metropole Hotel Blackpool, England June 30, 1999 208 88.2% food and entertainment
The Grand Hotel Margate, England June 30, 1999 267 74.2% food, entertainment
and leisure facilities
The Grand Hotel Scarborough, England June 30, 1999 281 81.2% food and entertainment
The Grand Hotel Llandudno, Wales June 30, 1999 166 87.3% food and entertainment
The Grand Burstin Hotel Folkestone, England September 2000 484 % food, entertainment
and leisure facilities
</TABLE>
THE TRAVEL-RELATED SERVICES
The travel businesses assemble travel products and services in bulk to
create customized vacations for individual travelers. We create demand for our
travel products through integrated marketing programs and handle all
reservations, payment processing and supplier processing interfaces.
UNITED KINGDOM. a provider of The travel businesses we will acquire on the
date of this prospectus have over 15 years of experience in the United Kingdom
travel market. Leisure Travel Group Limited and its subsidiaries have working
relationships with major airlines, such as Singapore Airlines, British Airways,
Alitalia and Iberia, for air travel to and from the United Kingdom. In addition,
the travel businesses have over 45 employees in the United Kingdom to provide
destination management which consists of specialized knowledge about particular
locations.
OTHER VACATION DESTINATIONS. The travel businesses specialize in packaged
vacations for travelers from the United Kingdom to holiday resorts located
throughout Europe. The most popular European destinations are Tenerife, located
in the Canary Islands off the coast of Northwest Africa, and Malaga, located in
Costa del Sol, Spain. The travel businesses also provide packaged vacations to a
variety of other holiday destinations in southern Europe, such as Italy and
Turkey. The travel businesses have an established presence in the markets for
travel to Canada, South Africa and Orlando, Florida, with over 15 years of
experience in these markets.
THE TRAVEL WEBSITE
We intend to utilize an online travel Website called WWW.TRRRAVEL.COM.
Visitors to the Website 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 Websites, we will not require customers to pre-register or provide
personal information prior to searching our database. Visitors simply type in
their desired destination and itinerary, and the booking engine simultaneously
displays a range of travel options for the visitor to compare. At any time,
visitors can review detailed information, including in-depth hotel, shopping and
dining information, local news and events and other travel planning information.
We intend to provide customer support through a call center seven days a week to
answer customer questions and
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assist in finding the best travel value. Customers can either complete travel
purchases in a few easy steps online, or call our call center to purchase travel
offline.
OUR SALES AND MARKETING PROGRAM
THE GRAND HOTELS. We will market our hotels directly to travelers in
numerous ways, principally through local newspaper, magazine advertisements and
special travel offers. In addition, we will advertise on local radio and through
direct mail using a database obtained from The Rank Group plc. In many cases,
the coach providers contribute to the cost of the advertising. To market
directly to travel agents, we will use dedicated sales personnel, direct
mailings and fax distribution. Our sales teams are recruited locally and receive
incentive-based compensation bonuses.
THE TRAVEL BUSINESS. We will integrate our own marketing efforts with the
support we receive from travel suppliers. We also intend to cultivate new
customers and create cross-selling opportunities within our existing customer
base. Miss Ellie's World Travel Limited and Ilios Travel Limited enjoy strong
relationships with many retail travel agencies who will also sell our services.
We intend to pursue marketing opportunities in other distribution channels as
well. We believe offering expertise and competitive pricing through common
brands across multiple destinations will provide greater confidence to travelers
in making their vacation choices. We also will seek opportunities to market our
products and services through travel suppliers and other companies that have
established private label brand names. Using the WWW.TRRRAVEL.COM Website as a
world-wide marketing tool, our strategy is to increase the visibility of the
Leisure Travel Group brand. Our promotions will include advertising on leading
Websites and other media, public relations, business alliances and partnerships.
OUR COMPETITION
THE HOTEL BUSINESS. Competition in the United Kingdom lodging industry is
based on location, brand, price, services, guest amenities, quality of customer
service and overall product. The Grand Hotels compete in the moderately-priced
sector of the full-service segment of the lodging industry. In this particular
segment of the lodging industry, the Grand Hotels compete with only one other
moderately-priced full service hotel group, Jarvis Hotels plc. Jarvis is one of
the largest hotel companies in the United Kingdom, with 72 hotels in over 65
locations in England, Scotland and Wales. Most of Jarvis' hotels provide
facilities designed to attract both corporate clientele for training and
conference purposes and the short stay leisure market. In each geographic market
in which the hotels are located, there are other full- and limited-service
hotels that compete with the Grand Hotels. 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 a result.
THE TRAVEL BUSINESSES. Principal travel business competitors are other
vacation providers and travel suppliers who sell directly to individuals and
other retail and wholesale distributors of travel products and services. In the
United Kingdom, vacations are typically purchased in packages through travel
agents which include airfare, lodging and rental cars. The travel agency and
tour operator market in the United Kingdom is dominated by four major
providers--Thomsons plc, AirTours plc, First Choice plc and JMC (formerly Thomas
Cook), who control approximately 65% of the market. The remaining 35% is shared
by over 12,000 independent travel agencies and tour operators. Many of these
companies are substantially larger than us, have greater name recognition and
significantly greater financial resources than we do. We believe the travel
businesses compete for customers based upon the quality of the travel products
and services delivered, price, specialized knowledge, reputation and
convenience.
The online travel services market is rapidly evolving, intensely
competitive and has relatively low barriers to entry. As the market for Internet
travel services grows, we believe that companies already involved in the
Internet travel services industry will increase their efforts to develop
services that compete with our services. Major airlines and hotels offer travel
products and services directly to consumers through their own Websites. We also
face potential competition from Internet companies not yet in the leisure travel
market and travel companies not yet operating online.
GOVERNMENT REGULATION OF OUR BUSINESS
The travel services business is subject to 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. Leisure Travel Group Limited is subject to regulation by the
Civil Aviation Authority. The Air Travel Organisers' Licensing (ATOL) system
provides protection for consumers who purchase package holidays, charter flights
and discounted scheduled air tickets against the insolvency of the provider of
such packaged travel services.
Under the Civil Aviation (Air Travel Organisers' Licensing) 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.
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The criteria for the grant of an ATOL License are 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 management of the
business. It asks for the history of the individuals in management 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%.
ATOL licenses are normally valid for one year and expire at the end of
March or the end of September. Each of the travel businesses we will acquire
upon completion of this offering currently possess an ATOL license. The loss or
non-renewal of an ATOL license by any of such travel businesses would prevent
such business from providing travel packages and would materially adversely
affect its operations.
In addition, our travel businesses 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.
Grand Hotel Group Limited is subject to various 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 the Grand Hotels.
trrravel.com Limited is 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
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 will 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 European environmental laws with respect to contamination
of land changed in April 2000. In general, liability and responsibility for
contamination remains with the person responsible for the contamination.
However, the new law defines this to be the person who "causes or knowingly
permits" contamination. 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. Certain other
laws also restrict the use of property and the construction of buildings and
other structures. Carrying out development without the appropriate permit or
operating beyond the scope of a granted permit 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.
EMPLOYEES
As of August 31, 2000 the travel businesses owned by Leisure Travel Group
Limited had a total of 47 employees, consisting of 36 reservation agents and
call center employees, six managers and five executives. As of that date, Grand
Hotel Group Limited 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 will
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 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 the employees of Leisure Travel Group Limited or Grand Hotel
Group Limited is represented by a labor union, there can be no assurance that
our
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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.
INSURANCE
Grand Hotel Group Limited carries comprehensive liability, fire, hurricane,
storm, earthquake and business interruption insurance with respect to the Grand
Hotels, 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.
FACILITIES
Our headquarters are currently 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
leased from Queensborough Holdings Limited. This facility houses our
administrative, sales and marketing, customer service and computer and
communications systems facilities. Kevin R. Leech, our Chairman of the Board and
principal stockholder, is the Executive Chairman and 50% equity owner of
Queensborough Holdings Limited. We do not currently pay any rent or fees to
Queensborough Holdings Limited or any other party for the use of these
facilities. Following completion of this offering, we intend to lease
approximately 2,100 square feet of executive office space in an adjacent
building that is owned by an unaffiliated third party at a cost of $13 per
square foot per year.
The following table describes our principal facilities other than the Grand
Hotels:
<TABLE>
<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 Products and Services--The Grand Hotels" for a discussion
of the resort facilities currently owned and operated by Grand Hotels Group
Limited.
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 the age and position of each of our
executive officers and directors as of the date of this prospectus.
NAME AGE POSITION
---- --- --------
Kevin R. Leech ....... 55 Chairman of the Board
Philip Mason ......... 50 President, Chief Executive Officer and Director
Raymond J. Peel ...... 55 Senior Executive Vice President, Director and
President of Leisure Travel Group Limited
Rod Rodgers .......... 56 Executive Vice President, Director and
President of Grand Hotel Group Limited
David Marriott ....... 55 Operations and Marketing Director and Vice
President of Grand Hotel Group Limited
Stephen Last ......... 50 Executive Vice President, Chief Financial
Officer, Secretary and Director
Dann V. Angeloff ..... 64 Director (1)
--------------
(1) Position will be assumed upon completion of this offering
KEVIN R. LEECH has served as our Chairman of the Board since the inception
of our company. Mr. Leech co-founded ML Laboratories plc, an England and Wales
company listed on the London Stock Exchange that is engaged in the research and
development of ethical pharmaceuticals and related products, has served as its
Chief Executive and Chairman for more than the past ten years and controls 53%
of its equity. Since August 1994, Mr. Leech has served as Executive Chairman of
Queensborough Holdings Limited, an England and Wales company previously listed
on the London Stock Exchange whose principal business is in the leisure sector,
and currently beneficially owns 50% of its equity. Since June 1997, Mr. Leech
has also served as the Chairman of the Board of topjobs.net plc, an England and
Wales 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 currently beneficially owns 52.5% of its
equity. Since December 1998, Mr. Leech has served as a director of
TownPagesNet.com plc, an England and Wales 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,
and currently beneficially owns 46.9% of its equity. In addition, since
September 1999, Mr. Leech has served as a director of ci4net.com, Inc., a
Delaware corporation which invests in Internet businesses and technologies and
is currently traded on the OTC-Electronic Bulletin Boards and currently
beneficially owns 54% of its equity. 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).
PHILIP MASON has served as a director since the inception of our company
and as our President and Chief Executive Officer since September 1, 2000. Since
November 1995, Mr. Mason has been Chief Executive of Queensborough Holdings
Limited, a private limited company organized under the laws of England and Wales
and previously listed on the London Stock Exchanges whose principal business is
in the leisure sector. In 1993, Mr. Mason established General Leisure Limited, a
company devoted to identifying and acquiring leisure companies, which he ran
full-time until his employment by Queensborough Holdings plc 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.
RAYMOND J. PEEL has served as a director of our company since its
inception, as Senior Executive Vice President of our company since September 1,
2000 and as President of Leisure Travel Group Limited since January 1998. Mr.
Peel served as our President and Chief Executive Officer from the inception of
our company to September 1, 2000. 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
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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 Limited since July 1, 1999. Mr.
Rodgers will become our Executive Vice President upon completion of this
offering. From June 1996 to June 1999, Mr. Rodgers served as managing director
with Epworth Hotels, where he was instrumental in forming the three-star Epworth
Hotels group. From September 1987 to January 1996, Mr. Rodgers served as an Area
Manager with Cumberland, a private company focused on the development of a
mid-market three-star hotel group.
DAVID MARRIOTT has served as our Operations and Marketing Director since
the inception of our company and has served as Vice President of Grand Hotel
Group Limited 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, 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 September
1, 2000, he has also served as our Secretary. Since November 1995, Mr. Last has
served as Finance Director of Queensborough Holdings Limited, a private limited
company previously 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 General Leisure Limited, a company founded by Philip Mason to
engage in identifying leisure companies for acquisition. From 1989 to 1993, Mr.
Last managed the integration of a newly-acquired property division for Marina
Developments plc, a company engaged in the ownership and operation of boat
marinas and marina villages throughout the United Kingdom. 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.
DANN V. ANGELOFF will become a director upon the completion of this
offering. Mr. Angeloff has served as President of The Angeloff Company, a
corporate financial advisory firm based in Los Angeles, California, since he
founded the company in 1976. He also serves on the board of directors of a
number of corporations, including AremisSoft Corporation, a Nasdaq listed
company, Nicholas/Applegate Growth Equity Fund and Nicholas Applegate Mutual
Funds and Public Storage, Inc., a New York Stock Exchange listed company. He
also served as a Trustee of the University of Southern California. Mr. Angeloff
is also a director of topjobs.net plc, a Nasdaq listed company which is
controlled by Kevin R. Leech. He also served as a Trustee of the University of
Southern California, where he is currently a University Councilor to the
President.
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 Relationships and Related
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
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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 responsibilities set forth above are currently being performed by the
entire Board of Directors of the Company.
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.
It is contemplated that both our audit and finance committee and our
compensation and governance committee will consist of Dann V. Angeloff, and our
two additional independent directors.
DIRECTOR COMPENSATION
Directors of the Company who are not also employees of the Company or any
of its subsidiaries will receive $10,000 per year, plus $1,000 for each Board of
Directors and committee meeting. No other directors will receive cash
compensation for services as a director. All directors will, however, be
reimbursed for their expenses incurred in attending meetings. Each outside
director also will receive, at the time of the director's appointment or
election to the Board of Directors, a one-time grant of options to purchase
25,000 shares of our common stock and may receive additional options for each
year of service as a director thereafter. We anticipate that our Board of
Directors will hold regularly scheduled meetings quarterly.
EXECUTIVE COMPENSATION
To date, we have not conducted any operations other than activities related
to this offering and the acquisitions we intend to consummate on the date of
this prospectus. We did not pay any compensation to our executive officers prior
to the date of this prospectus. We anticipate that during 2000 our most highly
compensated executive officers and their annualized base salaries will be:
Philip Mason--$______; 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 300,000 shares of common
stock. The initial exercise price of those options is expected to be the initial
public offering price of our common stock. Those options will vest in 50% annual
increments, beginning on the first anniversary of the date of the closing of
this offering.
EMPLOYMENT AGREEMENTS
We will enter into employment agreements with Messrs. Mason, Peel, Rodgers
and Marriott, which will become effective when this offering closes. These
agreements will:
o provide for a minimum base salary of $_______ per annum in the case of
Mr. Mason, $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;
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<PAGE>
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 cases of Messrs.
Mason and 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, our Board of Directors adopted our 2000 Stock Option
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 to purchase an aggregate of 325,000 shares of our common
stock have been granted under the plan at an exercise price equal to the initial
public offering price per share of our common stock. 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 (or are not intended to 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 as "common law employees" 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 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 incentive
stock 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. 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 cause or without the approval of a committee of the Board of
Directors (other than due to his death or disability), or if an optionee is not
our employee but is a member of our Board of Directors and his service as a
director is
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terminated for cause, the option granted will be immediately forfeited. If the
optionee's employment is terminated for any other reason, option(s) granted to
him may be exercised to the extent provided in the agreement pursuant to which
the option(s) were granted; provided, however, that incentive stock options must
be exercised no later than three months after the optionee's termination of
employment (other than due to death) and, if the optionee is permanently and
totally disabled within the meaning of Section 22(c)(3) of the Code, the
incentive stock options granted to him lapse to the extent unexercised on the
earlier of the expiration date of the option or one year following the date of
the disability.
The Board of Directors or a committee may amend, suspend or terminate the
plan at any time, except that no amendment will be made which:
o 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);
o without the consent of the optionee, affects outstanding options or
any exercise right thereunder;
o extends the term of any option beyond ten years; or
o extends the termination date of the plan.
Unless the plan is earlier suspended or terminated by the Board of
Directors, the plan will terminate on approximately 10 years from the date of
the plan's adoption. This termination of the plan will not affect the validity
of any options previously granted under the plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITIONS
Effective June 30, 1999, Grand Hotel Group Limited purchased from Rank
Holidays Division Limited, a subsidiary of The Rank Group plc, substantially all
of the operating assets relating to the five Grand Hotels, formerly known as the
Butlin's Provincial Hotels. Grand Hotel Group Limited 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 wholly owned
by Kevin R. Leech, our Chairman of the Board and principal stockholder, and
15%-owned in the aggregate by Philip Mason, Rod Rodgers, Stephen Last and David
Marriott. In consideration for the sale of the hotel assets, Grand Hotel Group
Limited paid $30.7 million, of which $13.9 million was paid in cash and the
balance of $16.8 million was paid by Grand Hotel Group Limited's issuance of a
non-interest-bearing promissory note due 2002. The 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. Grand Hotel
Group Limited 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 Grand Hotel Group Limited, including mortgages on the
purchased hotels. Upon payment of the $16.1 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.
In July 1999, Leisure Travel Group Limited 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
the share capital of Miss Ellie's World Travel Limited, Leisure Travel Group
Limited paid an aggregate of (pound)1,030,000 (approximately $1,667,000) to
Ellie Doherty, the former shareholder of that company. Leisure Travel Group
Limited 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. The terms of the acquisition
include certain "earn-out" provisions whereby, after our acquisition of Leisure
Travel Group Limited on the date of this prospectus, we will be required to pay
additional cash to the former shareholder 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. Based on the pre-tax
income of Miss Ellie's World Travel Limited during that period, the amount of
that payment will be approximately $504,270.
In February 2000, Leisure Travel Group Limited 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 the share capital
of Ilios Travel Limited, Leisure Travel Group Limited paid an aggregate of
(pound)325,000 (approximately $526,000) to Nita Beecroft, the former shareholder
of that company. As a result of this acquisition, Leisure Travel Group Limited
expanded its travel-related services and increased its market position and
cross-selling opportunities in other destinations throughout Europe. Leisure
Travel Group Limited also funded this acquisition through a $526,000 loan from
Red Kite Ventures Limited.
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 Independent Aviation Group Limited, an
unaffiliated third party, certain assets comprising a tour operator airline seat
provider business. The purchase price was (pound)200,000 (approximately
$310,000). Prior to the date of this prospectus and our proposed acquisition of
49% of its equity, trrravel.com Limited was 51%-owned by ci4net.com, Inc., a
Delaware corporation whose common stock is publicly-traded on the OTC Bulletin
Board, and 49%-owned by Technology Finance Limited, a private limited company
that is 50%-owned by Mr. Leech and 50%-owned by Internet plc, a Seychelles
company controlled by a private investor and business associate of Mr. Leech. A
corporation controlled by Kevin R. Leech is the principal stockholder of
ci4net.com, Inc.
Red Kite Ventures Limited, prior to the proposed share exchange described
below, owns 100% of the share capital of Leisure Travel Group Limited and has
agreed to convert both loans aggregating (pound)1,355,000 ($2,102,000) into
equity upon completion of this offering.
Grand Hotel Group Limited has entered into negotiations to acquire from
Queensborough Holdings Limited, a private limited company organized under the
laws of England and Wales, the Burstin Hotel, located in
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Folkestone, England in September 2000. The purchase price of approximately $17.1
million will be financed by a $12.4 million bank loan and a $4.7 million 7% note
issued to Queensborough Holdings Limited. Kevin R. Leech currently beneficially
owns 50% of the outstanding share capital of Queensborough Holdings Limited and
is its Chairman of the Board. Upon completion of a $40.2 million mortgage
refinancing for Grand Hotel Group Limited, which is proposed to be consummated
after completion of this offering, the $4.7 million note to Queensborough
Holdings Limited will be paid in full. This transaction will provide direct
financial assistance to Mr. Leech in connection with the recent privatization of
Queensborough Holdings Limited.
In March 2000, the shareholders of Grand Hotel Group Limited agreed that as
at the date of this prospectus they will transfer 100% of the outstanding share
capital of Grand Hotel Group Limited to Leisure Travel Group Limited in exchange
for the issuance of approximately 80% of the ordinary shares of Leisure Travel
Group Limited. In addition, the shareholders of Leisure Travel Group Limited
agreed that as at the date of this prospectus they will transfer to us 100% of
the outstanding share capital of Leisure Travel Group Limited in exchange for
the issuance of an aggregate of 4,640,000 shares of our common stock. More than
50% of the outstanding share capital of each of Grand Hotel Group Limited and
Leisure Travel Group Limited was owned prior to both of these transfers by
corporations controlled by Kevin R. Leech. In addition, Technology Finance
Limited, a private limited company that is 50%-owned by Kevin R. Leech, has
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 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 approximately $16.1 million of indebtedness of Grand Hotel Group
Limited owed to The Rank Group plc or its subsidiaries; and
o the capitalization of approximately $2.1 million of loans made to
Leisure Travel Group Limited by a corporate affiliate of Kevin R.
Leech.
OTHER TRANSACTIONS
We anticipate that Leisure Travel Group Limited will engage in significant
advertising of its travel agency, tour operator and other services on
WWW.TRRRAVEL.COM and will pay fees and commissions based on online bookings made
and transactions closed through use of the Website. trrravel.com Limited is
currently 51%-owned by ci4net.com, Inc., a publicly-traded Delaware corporation
controlled by Kevin R. Leech, our Chairman of the Board and principal
stockholder and 49%-owned by Technology Finance Limited, a British Virgin
Islands company that is 50%-owned by Mr. Leech. Technology Finance Limited has
agreed, upon completion of this offering, to contribute its entire 49% equity
ownership in trrravel.com Limited to Leisure Travel Group Limited in exchange
for 220,000 shares of our common stock. It is anticipated that ci4net.com will
continue to be solely responsible for the development and maintenance of the
Website. 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 Website. 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.
FACILITIES
Our headquarters are located in a facility that is currently leased by
Queensborough Holdings Limited, a private limited company organized under the
laws of England and Wales. Kevin R. Leech, our Chairman of the Board and
principal stockholder, beneficially owns 50% of the equity of Queensborough
Holdings Limited. We do not currently pay any rent or fees to Queensborough
Holdings Limited or any other party for the use of these 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 that
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 2000 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 BENEFICIALLY OWNED
OF COMMON STOCK --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------------------------ ------------------ --------------- --------------
<S> <S> <C> <C>
Kevin R. Leech ........................................ 3,868,334(1)(10) 76.4% 48.0%
Cygnet Ventures Limited(2) ............................ 3,145,000 62.2% 39.0%
Red Kite Ventures Limited(3) .......................... 413,334 8.2% 5.2%
Internet plc(3)(4) .................................... 373,333 7.4% 4.6%
Philip Mason .......................................... 370,000(5)(10) 7.3% 4.6%
Aircruise Limited(3)(6) ............................... 263,333 5.2% 3.3%
Raymond J. Peel ....................................... 263,333(7)(10) 5.2% 3.3%
Technology Finance Limited(8) ......................... 220,000 4.3% 2.7%
Milner Laboratories Limited(9) ........................ 200,000 4.0% 2.5%
Stephen Last .......................................... 74,000(10) 1.5% *
Rod Rodgers ........................................... 74,000(10) 1.5% *
David Marriott ........................................ 37,000(10) * *
Dan V. Angeloff ....................................... 0(10) * *
All directors and executive officers
as a group (7 persons) .............................. 4,686,667 92.6% 58.1%
</TABLE>
---------------
* indicates beneficial ownership of less than 1% of the outstanding shares of
our common stock.
(1) Includes all of the shares of our common stock owned of record by Cygnet
Ventures Limited, a Guernsey (Channel Islands) company wholly owned by
Kevin R. Leech, Red Kite Ventures Limited, a Guernsey (Channel Islands)
company wholly owned by Red Kite Trust, the beneficiaries of which are
members of Mr. Leech's family, and Milner Laboratories Limited, a private
limited company controlled by Mr. Leech. Also includes 110,000 shares of
our common stock owned of record by Technology Finance Limited, a private
British Virgin Islands company that is 50%-owned by Mr. Leech. Please see
"Certain Relationships and Related Transactions" for a detailed discussion
of certain business arrangements between Mr. Leech and/or companies
controlled by Mr. Leech and our company.
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(2) Cygnet Ventures Limited is a Guernsey (Channel Islands) company wholly
owned by Kevin R. Leech, our Chairman of the Board and principal
stockholder.
(3) Red Kite Ventures Limited is a Guernsey (Channel Islands) company that is
100% beneficially owned by Red Kite Trust, the beneficiaries of which are
members of the family of Kevin R. Leech. Red Kite Ventures received 940,000
of our shares in the share exchange and transferred 263,333 of these shares
to Aircruise Limited and 263,333 of these shares to Internet plc.
(4) Internet plc is a Seychelles company controlled by Lee Cole, a private
investor and business associate of Kevin R. Leech.
(5) Represents 222,000 shares of our common stock owned of record by Mr. Mason
and 148,000 shares of our common stock owned of record by Patricia Mason,
Mr. Mason's spouse.
(6) Aircruise Limited is a private limited company organized under the laws of
the Isle of Man and controlled by Raymond J. Peel, our Executive Vice
President and Director.
(7) Represents all of the shares of our common stock owned of record by
Aircruise Limited.
(8) Technology Finance Limited is a private British Virgin Islands company that
is 50%-owned by Mr. Leech and 50%-owned by Internet plc.
(9) Milner Laboratories Limited is a private limited company controlled by
Kevin R. Leech.
(10) Does not include shares of our common stock underlying options to be
granted to the individual as of the date of this prospectus pursuant to our
2000 Stock Option Plan. As of the date of this prospectus, we will grant
our executive officers and directors options to purchase an aggregate of
325,000 shares of our common stock. These options will vest in 50% annual
increments, beginning on the first anniversary of the date of the closing
of this offering.
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 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 our company, 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 our company 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 majority vote of the stockholders.
Except as otherwise required by Delaware law, and subject to the rights of the
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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 by 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
stock in the near future.
Preferred stock may be issued in one or more series and will have 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, subject to federal securities laws and
Delaware law, may be able to authorize the issuance of preferred stock which
could have the effect of delaying, deferring, or preventing a change in control
of our company 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
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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,
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 our 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. Roth Capital Partners is likely to grant such consent only in
the event of a significant rise in the market price of our stock.
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 our
company 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 our
company. However, a person who is not deemed to have been an affiliate of our
company 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,
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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 300,000 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."
65
<PAGE>
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. The underwriting discount was determined through
arms'-length negotiations between us and Roth Capital Partners Incorporated and
is intended to be __% of the initial public offering price. 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 $________.
We 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. 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 does not currently intend to conduct an
electronic distribution of the shares acquired in this offering. Furthermore,
neither we nor Roth Capital Partners Incorporated has any arrangements with any
third party to host or make available this prospectus on the Internet.
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
--------- ---------------- ----------------
$ $ $
66
<PAGE>
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.
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.
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 300,000 shares, or 10% of our
common stock offered by this prospectus, for our officers, directors, employees
and certain of our business associates. These reserved shares
67
<PAGE>
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.
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 & Richardson, a
California corporation (Los Angeles, California).
EXPERTS
Ernst & Young, independent auditors, have audited the financial statements
of Leisure Travel Group, Inc. at February 23, 2000, 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 combined financial
statements of Leisure Travel Group (Combined), at October 31, 1999, and for the
period from July 1, 1999 (commencement of operations) to October 31, 1999, as
set forth in their report. We have included these combined 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 Grand Hotel Group (Predecessor) at December 31, 1998 and for the two years in
the period then ended, and the six months ended June 30, 1999, as set forth in
their report. 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.
68
<PAGE>
Ernst & Young, independent auditors, have audited the financial statements
of the Burstin Hotel at January 31, 1999 and 2000 and for each of the two years
in the period ended January 31, 2000, as set forth in their report. 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.
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 our company 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
our company, 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 Website (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.
69
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
LEISURE TRAVEL GROUP, INC.
Report of Independent Auditors .......................................... F-2
Balance Sheets at February 23, 2000 and April 30, 2000
(unaudited) ........................................................... F-3
Notes to the Financial Statements ....................................... F-4
LEISURE TRAVEL GROUP (COMBINED)
Report of Independent Auditors .......................................... F-6
Combined Balance Sheets at October 31, 1999 and
April 30, 2000 (unaudited) ............................................ F-7
Combined Statements of Operations for the period from
July 1, 1999 (commencement of operations) to
October 31, 1999 and the six months ended
April 30, 2000 (unaudited) ............................................ F-8
Combined Statement of Invested Capital for the period
from July 1, 1999 (commencement of operations) to
October 31, 1999 and the six months ended
April 30, 2000 (unaudited) ............................................ F-9
Combined Statements of Cash Flows for the period from
July 1, 1999 (commencement of operations) to
October 31, 1999 and the six months ended
April 30, 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 six months ended
April 30, 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 six months ended
April 30, 1999 (unaudited) and the six months ended
June 30, 1999 ......................................................... F-23
Notes to the Combined Financial Statements .............................. F-24
THE BURSTIN HOTEL
Report of Independent Auditors .......................................... F-30
Balance Sheets at January 31, 1999 and 2000 and
April 30, 2000 (unaudited) ............................................ F-31
Statements of Operations for the years ended
January 31, 1999 and 2000 and the three months ended
April 30, 1999 and 2000 (unaudited) ................................... F-32
Statement of Divisional Equity for the years ended
January 31, 1999 and 2000 and the three months ended
April 30, 2000 (unaudited) ............................................ F-33
Statements of Cash Flows for the years ended
January 31, 1999 and 2000 and the three months ended
April 30, 1999 and 2000 (unaudited) ................................... F-34
Notes to the Financial Statements ....................................... F-35
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 February 23, 2000. 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
February 23, 2000, in conformity with United States generally accepted
accounting principles.
ERNST & YOUNG
Reading, England
March 8, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
LEISURE TRAVEL GROUP, INC.
BALANCE SHEET
(US DOLLARS IN THOUSANDS EXCEPT SHARE AMOUNTS)
FEBRUARY 23, APRIL 30,
2000 2000
------------ ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ................................................ $ -- $ --
Prepaid expenses and other current assets ................................ -- 285
----- -----
Total Current Assets ................................................. -- 285
----- -----
$ -- $ 285
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable ......................................................... $ -- $ --
Accrued expenses and other liabilities ................................... -- 285
----- -----
Total Current Liabilities ............................................ -- 285
----- -----
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
none outstanding at February 23, 2000 and April 30, 2000 ............... -- --
Common stock, $0.001 par value, 25,000,000 shares authorized;
none outstanding at February 23, 2000 and April 30, 2000 ............... -- --
----- -----
Total Stockholders' Equity ........................................... -- --
----- -----
$ -- 285
===== =====
</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. was incorporated in Delaware in February 2000.
Leisure Travel Group, Inc. has not yet begun trading nor has Leisure Travel
Group, Inc. been capitalized. Upon the pricing of an initial public offering,
Leisure Travel Group Limited will acquire 100% of the share capital of Grand
Hotel Group Limited, a private limited company organized under the laws of
England and Wales and 49% of the outstanding share capital of trrravel.com
Limited and Leisure Travel Group, Inc. will acquire 100% of the outstanding
share capital of Leisure Travel Group Limited, 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, Inc.'s common stock.
Kevin R. Leech, the Chairman of the Board of Leisure Travel Group, Inc., is the
majority stockholder of both Leisure Travel Group Limited and Grand Hotel Group
Limited. Leisure Travel Group Limited is 100% beneficially owned by Red Kite
Trust, the beneficiaries of which are family members of Kevin R. Leech. Grand
Hotel Group Limited is 85% owned by Cygnet Ventures Limited, a corporation
wholly owned by Kevin R. Leech.
The Company has incurred $285,000 of expenses related to their proposed
initial public offering. All such expenses have been paid by Leisure Travel
Group Limited on behalf of Leisure Travel Group, Inc. The Company has recorded
these prepaid offering costs as an asset in prepaid and other current assets and
a related liability for amounts due to Leisure Travel Group Limited in accrued
liabilities. The prepaid expenses will be netted against the proceeds from the
offering upon completion.
The balance sheet as of April 30, 2000 has been prepared by the Company
without audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation have been made.
2. STOCKHOLDERS' EQUITY
GENERAL
Leisure Travel Group, Inc. 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, Inc., 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.
F-4
<PAGE>
LEISURE TRAVEL GROUP, INC.
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
2. STOCKHOLDERS' EQUITY--(CONTINUED)
2000 STOCK OPTION PLAN
On February 23, 2000, the Board of Directors and a majority of our
stockholders adopted our 2000 Stock Option 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.
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
LEISURE TRAVEL GROUP LIMITED AND GRAND HOTEL GROUP LIMITED
We have audited the accompanying combined balance sheet of Leisure Travel
Group (Combined) at October 31, 1999 and the related combined statements of
operations, invested capital and cash flows for the period from July 1, 1999
(commencement of operations) to October 31, 1999. 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 Leisure
Travel Group (Combined) at October 31, 1999 and its combined results of
operations and its combined cash flows for the period from July 1, 1999
(commencement of operations) to October 31, 1999, in conformity with United
States generally accepted accounting principles.
ERNST & YOUNG
Reading, England
March 8, 2000
F-6
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
COMBINED BALANCE SHEETS
(US dollars in thousands)
October 31, April 30,
1999 2000
----------- -----------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents .............................. $ 5,599 $ 3,216
Accounts receivable .................................... 1,497 473
Related party notes receivable ......................... 1,289 194
Travel deposits ........................................ 1,078 1,798
Inventories ............................................ 503 461
Prepaid expenses and other current assets .............. 959 1,643
------ -----
Total current assets ............................... 10,925 7,785
Equipment and fixtures:
Freehold land and buildings .......................... 23,001 22,183
Leasehold land and buildings ......................... 8,484 8,318
Fixtures and equipment ............................... 3,430 4,489
------ -----
34,915 34,990
Less accumulated depreciation ........................ 988 1,492
------ -----
33,927 33,498
Goodwill, net of accumulated amoritization
of $37 and $91 at October 31, 1999
and April 30, 2000, respectively ..................... 1,067 1,431
Debt issuance cost ..................................... 416 359
------ -----
$46,335 $43,073
======= =======
LIABILITIES AND INVESTED CAPITAL
Current Liabilities
Short term borrowings .................................. $ 1,660 $ 2,102
Accounts payable ....................................... 1,360 1,406
Accrued expenses and other liabilities ................. 1,230 905
Guest deposits ......................................... 5,314 4,203
Taxes and social security payable ...................... 1,810 1,415
Deferred income taxes .................................. 82 11
Capital lease obligations - current portion ............ 230 290
------ -----
Total current liabilities .......................... 11,686 10,332
Long term debt ......................................... 33,040 31,808
Capital lease obligations - noncurrent portion ......... 396 343
Redeemable convertible preferred stock,
(pound)1 par value, 100 shares
issued and outstanding at October 31, 1999
and April 30, 2000 ................................... -- --
Invested Capital ....................................... 1,213 590
------ -----
$46,335 $43,073
======= =======
See accompanying Notes to the Combined Financial Statements
F-7
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
COMBINED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PERIOD FROM SIX
JULY 1, 1999 MONTHS
TO ENDED
OCTOBER 31, APRIL 30,
1999 2000
-------- -----------
(UNAUDITED)
Revenues:
Rooms .......................................... $ 7,676 $ 9,364
Retail ......................................... 1,930 2,460
Travel ......................................... 6,811 7,081
Other .......................................... 844 925
-------- --------
Total revenues ............................. 17,261 19,830
Operating costs and expenses:
Direct cost of revenues:
Rooms ........................................ 3,531 5,170
Retail ....................................... 1,123 1,468
Travel ....................................... 5,928 6,061
Other ........................................ 480 549
-------- --------
11,062 13,248
Staff costs .................................... 1,562 2,137
Sales and marketing ............................ 712 1,312
General and administrative ..................... 1,554 2,442
Depreciation and amoritization ................. 205 612
-------- --------
Total operating cost and expenses .......... 15,095 19,751
-------- --------
Operating profit ................................. 2,166 79
Interest expense ................................. (494) (745)
Interest income and other ........................ 61 100
-------- --------
Income before income taxes ................... 1,733 (566)
Income taxes ..................................... 520 --
-------- --------
Net income/(loss) ................................ $ 1,213 $ (566)
======== ========
See accompanying Notes to the Combined Financial Statements
F-8
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
COMBINED STATEMENTS OF INVESTED CAPITAL
(US DOLLARS IN THOUSANDS)
INVESTED
CAPITAL
---------
Net income for the period from July 1, 1999
(commencement of operations) to October 31, 1999 ............ $ 1,213
-------
Balance at October 31, 1999 .................................. 1,213
Net loss (unaudited) ......................................... (566)
Currency translation adjustment (unaudited) .................. (57)
-------
Comprehensive loss (unaudited) ............................... (623)
-------
Balance at April 30, 2000 (unaudited) ........................ $ 590
======
See accompanying Notes to the Combined Financial Statements
F-9
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
COMBINED STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
PERIOD FROM SIX
JULY 1, 1999 MONTHS
TO ENDED
OCTOBER 31, APRIL 30,
1999 2000
----------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ...................................... $ 1,213 $ (566)
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ....................................... 168 558
Amortization ....................................... 37 54
Amoritization of debt issuance costs ............... -- 42
Changes in operating assets and liabilities:
Accounts receivable .............................. (1,485) 1,038
Receivable from related parties .................. (1,289) 1,095
Travel deposits .................................. 552 (720)
Inventory ........................................ (503) 42
Prepaid expenses and other current assets ........ (855) (642)
Guest deposits ................................... 1,546 (1,390)
Accounts payable ................................. 1,316 (15)
Accrued expenses and other liabilities ........... 1,200 (339)
Deferred income taxes ............................ 82 (71)
Taxes and social security payable ................ 1,679 (400)
-------- --------
Net cash provided by (used in) operating activities .... 3,661 (1,314)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures .................... (16,156) (1,211)
Purchase of subsidiary ................................. 2,314 (203)
-------- --------
Net cash used in investing activities .................. (13,842) (1,414)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of debt ...................................... (420) --
Proceeds from issuance of debt ......................... 16,698 504
Payment of capital lease obligation .................... (82) (159)
Payment of debt issuance cost .......................... (416) --
-------- --------
Net cash provided by financing activities .............. 15,780 345
-------- --------
Net increase (decrease) in cash and cash equivalents ... 5,599 (2,383)
Cash and cash equivalents at the beginning of
the period ............................................ -- 5,599
-------- --------
Cash and cash equivalents at the end of the period ..... $ 5,599 $ 3,216
======== ========
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 $ --
======== ========
Purchase of subsidiary in exchange for note payable .... $ 16,762 $ --
======== ========
See accompanying Notes to the Combined Financial Statements
F-10
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 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 and Grand Hotel Group Limited which
are entities under common control and which, together, are hereinafter referred
to as "Leisure Travel Group (Combined)" or the "Group." Leisure Travel Group
Limited was formed in May 1999 but did not begin commercial operations until
July 1, 1999 when it acquired Miss Ellie's World Travel Limited. Grand Hotel
Group Limited 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
Leisure Travel Group (Combined) include the results of Miss Ellie's World Travel
Limited from July 5, 1999 and the financial statements of Grand Hotel Group
Limited include the results of the hotels comprising Grand Hotel Group
(predecessor) from July 1, 1999.
The combined financial statements as of April 30, 2000 and for the
six-months ended April 30, 2000 have been prepared by the Company without audit
on a basis consistent with the financial statements for the period from July 1,
1999 to October 31, 1999. All significant intercompany accounts and transactions
have been eliminated. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary for a fair presentation
have been made.
DESCRIPTION OF BUSINESS
In July 1999, Leisure Travel Group Limited acquired all of the issued and
outstanding share capital of Miss Ellie's World Travel Limited. The acquisition
was accounted for using the purchase method of accounting. In exchange for such
capital, Leisure Travel Group Limited paid an aggregate of $1,598,000 to the
former stockholders of Miss Ellie's World Travel Limited. Leisure Travel Group
Limited 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 family members of Kevin R. Leech at a 7% rate of interest per annum.
The acquisition resulted in the recording of $1,109,000 of goodwill, which will
be amortized on a straight line basis over its estimated useful life of 10
years. The terms of the acquisition provided for certain earnout provisions
whereby additional cash was to be paid 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. Leisure Travel Group Limited has not yet determined the payment to be
required for the earn-out; therefore no amount has been accrued.
Effective June 30, 1999, Grand Hotel Group Limited purchased from a
subsidiary of The Rank Group plc the operations of the five hotels, including
the properties, concessions, customer lists and records. Substantially all of
the assets acquired were in the business combination which included the hotels,
land, fixtures and equipment, inventory, prepayments and cash. The Company did
not allocate any of the purchase price to the customer lists and records
obtained from The Rank Group plc. In order for the customer list to provide
value, Grand Hotel Group Limited was required to utilize internal resources in
order to modify and clean up the database to tailor the list towards the Grand
Hotel Group Limited marketing strategy. Grand Hotel Group Limited is 85% owned
by Cygnet Ventures Limited, a Guernsey corporation wholly owned by Kevin R.
Leech and 15% owned by certain other members of the Company's management team.
The acquisition was accounted for using the purchase method of accounting and no
goodwill arose.
F-11
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
In consideration for the purchase of such assets, Grand Hotel Group Limited
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 Grand Hotel Group Limited's
issuance of a non-interest-bearing promissory note due in 2002. The note is
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. Grand
Hotel Group Limited 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 Grand Hotel Group Limited, including mortgages on the
purchased hotels.
In February 2000, Leisure Travel Group Limited 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,
Leisure Travel Group Limited paid an aggregate of $526,000 to the former
stockholders of Ilios Travel Limited. Leisure Travel Group Limited funded this
acquisition through a loan from Red Kite Ventures Limited which bears interest
at a rate of 7% per annum. The acquisition was accounted for using the purchase
method of accounting. and resulted in goodwill of $467,000, which is being
amortized on a straight-line basis over its estimated useful life of ten years.
The results of Ilios Travel Limited are included in the combined statement of
operations from February 11, 2000, the date of acquisition by Leisure Travel
Group Limited.
In connection with the purchase of the five hotels, 100 preferred shares,
(pound)1 par value were issued by Grand Hotel Group Limited to The Rank Group
plc. The preferred shareholders are entitled to a divided of (pound)500 per
share should certain earn-out targets be met. Upon liquidation, the preferred
shareholders will receive (pound)1 per share prior to repayment to the ordinary
shareholders. The preferred shares carry no conversion provisions, voting rights
or any other rights. As the earn-out targets are not expected to be met, the
preferred shares have been valued at their liquidation value of (pound)1 per
preferred share.
Unaudited pro forma results relating to the acquisition of the five hotels
comprising Grand Hotel Group Limited and Miss Ellie's World Travel Limited in
July 1999, Ilios Travel Limited in February 2000 and the Burstin Hotel in August
2000 are shown in the table below. Pro forma net sales, income before
extraordinary items and net income/(loss) are presented as if each of the
acquisitions had occurred prior to July 1, 1999.
Period from Six months
July 1, 1999 ended
to October 31, April 30,
1999 2000
-------------- -----------
(U.S. dollars in thousands)
Net sales ..................................... $ 18,642 $ 19,835
Income before extraordinary items ............. $ 1,333 $ (698)
Net income (loss) ............................. $ 1,333 $ (698)
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-12
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 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 ten years for
goodwill. 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 undiscounted cash flows.
LONG-LIVED ASSETS
In accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed," long-lived assets
to be held and used by the Company are reviewed to determine whether an event or
change in circumstances indicates that the carrying amount of the assets may not
be recoverable. The Company deems the carrying value of an asset to be impaired
when the undiscounted cash flows are less than the carrying value of the assets.
If the Company deems the carrying value of the asset to be impaired, the amounts
are reduced to their fair value by a charge to income. The fair value of an
asset is calculated as a current and anticipated discounted cash flow from
related operations over its remaining useful life.
F-13
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Leisure Travel Group (Combined) financial
instruments, including cash, accounts receivable, accounts payable, accrued
expenses and long-term debt approximate fair values. The fair value of debt was
estimated using discounted cash flow analysis based on estimated interest rates
for similar types of borrowing arrangements. Other debt has a floating interest
rate which approximates the market value.
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
Leisure Travel Group (Combined) 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 April 30, 2000, the cash equivalents of Leisure
Travel Group (Combined) consisted of $1,773,000 and $794,000, respectively, of
overnight treasury deposits, $1,620,000 and none, respectively, of monthly
treasury deposits and $806,000 and none, respectively, of money market funds.
There were no unrealized gains or unrealized losses as of October 31, 1999 and
April 30, 2000.
CONCENTRATION OF CREDIT RISK
Leisure Travel Group Limited generally does not require collateral on
accounts receivable. When required, Leisure Travel Group Limited maintains
allowances for credit losses and such losses have been within management's
expectations. There was no allowance for doubtful accounts for any periods
presented.
There were no significant customers for any of the periods presented.
REVENUE RECOGNITION AND RELATED COSTS
Net revenues from providing hotel accommodations are recognized when guests
check out after their designated vacation stay and make payment. Revenues from
retail and other services are recognized at the point of sale once cash is
received, net of allowances for returns, where appropriate.
Net revenues from providing travel services include commissions and
mark-ups on travel products and services, specifically tour packages, airline
flights, accommodation bookings and travel insurance premiums. Revenue for these
services is recognized upon commencement of travel, as the Company has
completely provided the service to the customer at this time and cash has been
collected. Any further performance obligations are the responsibility of the
individual tour operator. Revenue is also recognized from volume bonuses and
cancellation fees. Revenue for volume bonuses is recognized when all conditions
to the bonuses have been met. Revenues for cancellation fees are recognized at
the time of cancellation as the customer has no rights to re-use the
cancellation fee for future holidays.
Refunds, rebates, discounts and free services are deducted from net
revenues at the time the related revenue is recognized.
F-14
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
The Company makes payments on deposit with tour operators and airline
operators for holidays to be taken by their customers. Such cash payments are
recorded as travel deposits in the balance sheet and are recognized as cost of
revenues at the time the related revenue is recognized. In most instances, the
Company receives cash from customers for travel services prior to the
commencement of travel. Such cash receipts are recorded as guest deposits in the
balance sheet and are recognized as revenue in accordance with the Company's
revenue recognition policies.
ADVERTISING COSTS
Costs related to advertising are expensed as incurred. Advertising expense
was $362,000 and $880,000 for the four month period ended October 31, 1999 and
the six months ended April 30, 2000, respectively.
INVENTORY
Stocks are stated at the lower of cost, which is calculated on a first in
first out basis or net realizable value.
PENSION PLAN
The Group operates a defined contribution pension plan for employees from
The Rank Group plc who were part of The Rank Group plc pension scheme. The
pension costs relating to the Plan represent the contributions payable by
Leisure Travel Group's (Combined) subsidiaries to the employees' private pension
plan. The contributions are expensed when they are contributed to the plan in
accordance with the rules of the plan. The Company contributes up to 8% of the
employee's eligible compensation. Amounts charged to expense relating to the
plan for the period ended October 31, 1999 and the six months endedApril 30,
2000 were $54,000 and $103,000, respectively.
Leisure Travel Group's (Combined) 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 six months ended April 30, 2000.
COMPREHENSIVE INCOME
SFAS 130 "Reporting Comprehensive Income" requires an enterprise to
classify items of other comprehensive income by their nature in the financial
statements and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.
Under SFAS 130, foreign currency translation adjustments are included in
other comprehensive income. As of October 31, 1999 and April 30, 2000, the
balance of accumulated other comprehensive income of none and $57,000,
respectively, was comprised entirely of accumulated foreign currency translation
adjustments. Such balances are included within invested capital. Cumulative
translation adjustments are not tax affected.
Foreign currency translation
The functional currency of Leisure Travel Group (Combined) 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 Leisure Travel Group (Combined) using period-end rates for
the balance sheets and average rates for the period for the statements of
operations and cash flows. Translation gains and losses arising on translation
are recorded in invested capital as other comprehensive income.
F-15
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
There have been no transaction gains or losses in the periods presented.
Leisure Travel Group Combined 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 Leisure Travel Group (Combined). 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. Leisure Travel Group (Combined) does not
expect the effect that adopting this standard will have a material impact on the
U.S. GAAP amounts reported in its financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition,"
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. Adoption of SAB No. 101 has
been delayed until the 4th quarter of 2000 by the SEC. SAB No. 101 outlines the
basic criteria that must be met in order to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Although we
have not fully assessed the impact of adopting SAB No. 101 on our financial
position and results of operations in 2001 and thereafter, we do not expect the
effect, if any, to be material.
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.
Leisure Travel Group Limited'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
===
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 from
July 1, 1999 to
October 31, 1999
----------------
Income taxes computed at the UK statutory rate ................ $426
on-qualifying depreciation expense ............................ 40
Qualifying depreciation expense, net of capital ............... 54
----
Total ............................................... $520
====
F-16
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
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. Leisure Travel Group Limited 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, Grand Hotel Group Limited issued 100 redeemable preferred
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 Grand Hotel
Group Limited's issuance to Butlin's Limited of a non-interest-bearing
promissory note due 2002. The promissory note contains no financial covenants.
The Grand Hotel Group Limited 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, Grand Hotel
Group Limited 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 financial covenants
with regards to profitability that must be maintained on a quarterly and annual
basis. The Company was in compliance with all covenants at October 31, 1999 and
April 30, 2000.
Upon completion of the acquisition, Grand Hotel Group Limited 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).
Grand Hotel Group Limited also entered into a $161,000 loan with Cygnet
Ventures Limited, a company wholly owned 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.
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
=======
F-17
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
4. REDEEMABLE PREFERRED SHARES
In connection with the purchase of the assets of The Rank Group plc, as
discussed in Note 1, Grand Hotel Group Limited issued 100 redeemable preferred
shares to The Rank Group plc. The preferred shares are non-voting and have a
(pound)1 par value. The preferred stockholders are entitled to a preferred
dividend which is payable only if profits for the year ended October 31, 2000 of
Grand Hotel Group Limited exceed (pound)5.5 million. The dividend is payable at
(pound)500 per preferred share.
5. COMMITMENTS
Leisure Travel Group (Combined) 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 ............................................ $ 147 $306
2001 ............................................ 147 306
2002 ............................................ 140 169
2003 ............................................ 111 5
2004 ............................................ 93 2
Thereafter ...................................... 3,833 --
------ -----
Total minimum payments required ................. $4,471 788
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 $134,000 for the period
from July 1, 1999 to October 31, 1999 and the six months ending April 30, 2000,
respectively.
6. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Grand Hotel Group Limited had outstanding loan balances of $1,289,000 and
$194,000 at October 31, 1999 and April 30, 2000, respectively, receivable from
Gala Consultancy Limited, a company controlled by Kevin R. Leech. The loans are
on normal commercial terms with an interest rate of 6%.
In addition, as part of the acquisition arrangements for the purchase of
the Butlin's provincial hotels, Cygnet Ventures Limited, a company controlled by
Kevin R. Leech, loaned Grand Hotel Group Limited $155,000. The loan bears
interest at 7.25% and is repayable in July 2002.
F-18
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
7. SEGMENTAL INFORMATION
Leisure Travel Group's (Combined) 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.
PERIOD FROM SIX MONTHS
JULY 1, 1999 TO ENDED
OCTOBER 31, APRIL 30,
1999 2000
----------- ---------
(US dollars in thousands)
Net sales:
Leisure segment ............................ $ 10,450 $ 12,749
Travel segment ............................. 6,811 7,081
-------- --------
Net sales ................................ $ 17,261 $ 19,830
======== ========
Segmental income:
Leisure segment ............................ $ 2,022 $ 204
Travel segment ............................. 144 (125)
-------- --------
Total operating income ................... 2,166 79
Interest expense ........................... (494) (745)
Interest income and other .................. 61 100
Provision for income taxes ................. 520 --
-------- --------
Net income ............................... $ 1,213 $ (566)
======== ========
Expenditures for long-lived assets:
Leisure segment ............................ $ 32,797 $ 1,368
Travel segment ............................. 121 --
-------- --------
Total expenditures for long-lived assets . $ 32,918 $ 1,368
======== ========
Depreciation and amortization:
Leisure segment ............................ $ 128 $ 496
Travel segment ............................. 77 116
-------- --------
Total depreciation and amortization ...... $ 205 $ 612
======== ========
October 31, April 30,
1999 2000
----------- ---------
Total assets:
Leisure segment ............................ $ 42,043 $ 37,611
Travel segment ............................. 4,292 5,462
-------- --------
Total assets ............................. $ 46,335 $ 43,073
======== ========
F-19
<PAGE>
LEISURE TRAVEL GROUP (COMBINED)
NOTES TO THE COMBINED FINANCIAL STATEMENTS-(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED APRIL 30, 2000 IS UNAUDITED)
8. SUBSEQUENT EVENTS
Upon the effectiveness of an initial public offering of Leisure Travel
Group Inc. and the capitalization of the $2,102,000 loan from Red Kite Ventures
Limited to Leisure Travel Group Limited for the acquisition of Miss Ellie's
World Travel Limited and Ilios Travel Limited, Leisure Travel Group Limited 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 Leisure Travel Group Inc.'s common stock. The transaction will be
accounted for using the equity method of accounting. Additionally, upon the
pricing of an Initial Public Offering of Leisure Travel Group, Inc., the Company
plans to repay the $16.8 million promissory note due to The Rank Group plc from
the proceeds of such offering.
Grand Hotel Group Limited is negotiating to acquire from Queensborough
Holdings Limited, a private limited company organized under the laws of England
and Wales, the Burstin Hotel located in Folkestone England in September 2000.
The acquisition will be accounted for as a purchase transaction.
F-20
<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-21
<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)
--------
25,400
--------
$ 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-22
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX SIX
MONTHS MONTHS
ENDED ENDED
APRIL 30, JUNE 30,
1997 1998 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rooms ..................................... $ 24,499 $ 23,967 $ 9,679 $ 8,208
Retail .................................... 8,390 7,555 3,329 2,910
Other ..................................... 896 924 415 408
-------- -------- -------- --------
Total revenues ........................ 33,785 32,446 13,423 11,526
Operating costs and expenses:
Direct cost of revenues:
Rooms ................................... 12,114 11,778 5,460 4,806
Retail .................................. 3,997 3,313 1,626 1,595
Other ................................... 638 948 298 187
-------- -------- -------- --------
16,749 16,039 7,384 6,588
Staff costs ............................... 3,113 3,005 1,536 1,458
Sales and marketing ....................... 1,325 2,001 755 483
General and administrative ................ 3,989 4,013 2,102 2,388
Corporate allocations ..................... 1,702 910 703 792
Depreciation .............................. 2,104 1,945 1,036 929
-------- -------- -------- --------
Total operating cost and expenses ..... 28,982 27,913 13,516 12,638
-------- -------- -------- --------
Income (loss) before income taxes ....... 4,803 4,533 (93) (1,112)
Income taxes ................................ 2,027 1,859 -- --
-------- -------- -------- --------
Net income (loss) ....................... $ 2,776 $ 2,674 $ (93) $ (1,112)
======== ======== ======== ========
</TABLE>
See accompanying Notes to the Financial Statements
F-23
<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-24
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX SIX
YEAR ENDED MONTHS MONTHS
DECEMBER 31, ENDED ENDED
------------------- APRIL 30, JUNE 30,
1997 1998 1999 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ............................................ $ 2,776 $ 2,674 $ (93) $(1,112)
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
Depreciation ............................................. 2,104 1,945 1,036 929
Changes in operating assets and liabilities:
Accounts receivable .................................... 109 114 129 79
Inventory .............................................. 92 (168) (121) 447
Prepaid expenses and other current assets .............. (324) 424 (728) (467)
Guest deposits ......................................... 301 (620) 286 1,982
Accounts payable ....................................... 529 (179) (791) (260)
Accrued expenses and other liabilities ................. 621 206 707 (605)
Deferred income taxes .................................. -- 158 -- (158)
Taxes and social security payable ...................... (15) 129 962 900
------- ------- ------- -------
Net cash provided by operating activities .................... 6,193 4,683 1,396 1,735
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures .......................... (3,129) (378) (238) (47)
------- ------- ------- -------
Net cash used in investing activities ........................ (3,129) (378) (238) (47)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in divisional equity .................................. (3,064) (4,305) (1,158) (1,688)
------- ------- ------- -------
Net cash used in financing activities ........................ (3,064) (4,305) (1,158) (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-25
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
NOTES TO THE FINANCIAL STATEMENTS
(Information for the six months ended April 30, 1999 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Grand Hotel Group (Predecessor) represents the operations of five hotels
previously owned by Butlin's Limited, a subsidiary of The Rank Group plc. The
hotels, which are situated near major seaside resorts in Wales and the Northern
and Southern regions of England, have 1,274 available rooms and offer popular
priced vacation accommodations, including food and entertainment, for weekend
and lengthier stays. They cater primarily to mature couples and groups seeking
short holiday breaks or between three to four days.
The five hotels were previously included within a division of Butlin's
Limited and had been owned and operated by Butlin's Limited for a minimum of 35
years. On June 30, 1999, Grand Hotel Group Limited acquired substantially all of
the operating assets relating to the hotels as an acquisition accounted for
under the purchase method of accounting. Assets acquired included the hotels,
land, fixtures and equipment, inventory, prepayments and cash. As consideration
for these assets, Grand Hotel Group Limited paid Butlin's Limited 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 Limited non-interest bearing note
due 2002.
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.
The financial statements include allocations of certain of The Rank Group
plc corporate expenses relating to Grand Hotel Group (Predecessor). Management
believes that all such allocations are reasonable. General corporate overhead
expenses related to The Rank Group plc have been allocated to Grand Hotel Group
(Predecessor) 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. Sales and
marketing expenses related to The Rank Group plc have been allocated to Grand
Hotel Group (Predecessor) based on the number of resident customers of the five
hotels compared to the total number of resident customers of Butlin's Limited.
However, the costs of these services charged to Grand Hotel Group (Predecessor)
are not necessarily indicative of the costs that would have been incurred if
Grand Hotel Group (Predecessor) had performed these functions as a stand-alone
entity.
The combined financial statements for the six-months ended April 30, 1999
have been prepared by the Company without audit on a basis consistent with the
financial statements for the years ended December 31, 1997 and 1998. All
significant intercompany accounts and transactions have been eliminated. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary for a fair presentation have been made.
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,
or SFAS, No. 52, "Foreign Currency Translation," using period-end rates for the
balance sheets and average rates for the period for the statements of operations
and cash flows. Translation gains and losses arising on translation are recorded
as other comprehensive income.
There were no transaction gains of losses in the periods presented.
Grand Hotel Group (Predecessor) did not enter into any hedging transactions
or derivatives in the periods presented.
F-26
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended April 30, 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
LONG-LIVED ASSETS
In accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long Lived Assets to be Disposed," long-lived assets
to be held and used by Grand Hotel Group (Predecessor) are reviewed to determine
whether an event or change in circumstances indicates that the carrying amount
of the assets may not be recoverable. Grand Hotel Group (Predecessor) deems the
carrying value of an asset to be impaired when the undiscounted cash flows are
less than the carrying value of the assets. If Grand Hotel Group (Predecessor)
deems the carrying value of the assets to be impaired, the amounts are reduced
to their fair value by a charge to income, the fair value of an assets is
calculated as a current and anticipated discounted cash flows from related
operations over its remaining useful life.
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 accounts receivable, accounts payable and accrued
expenses, approximate fair values.
F-27
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended April 30, 1999 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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.
REVENUE RECOGNITION
Net revenues from providing hotel accommodations are recognized when guests
check out after their designated vacation stay and make payment. Revenues from
retail and other services are recognized at the point of sale once cash is
received, net of allowances for return where appropriate. Refunds, rebates,
discounts and free services are deducted from net revenues at the time the
related revenue is received.
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.
COMPREHENSIVE INCOME
SFAS 130 "Reporting Comprehensive Income" requires an enterprise to
classify items of other comprehensive income by their nature in the financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.
Under SFAS 130, foreign currency translation adjustments are included in
other comprehensive income. As of December 31, 1998 and June 30, 1999, the
balance of accumulated other comprehensive income of $1.3 million and
accumulated other comprehensive loss of $0.7 million, respectively, was
comprised entirely of accumulated foreign currency translation adjustments. Such
balances are included within divisional equity. Cumulative translation
adjustments are not tax affected.
F-28
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended April 30, 1999 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 a material impact on the
amounts reported in its financial statements.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin, or SAB, No. 101, "Revenue Recognition,"
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. Adoption of SAB No 101 has
been delayed until the 4th quarter of 2000 by the SEC. SAB 101 outlines the
basic criteria that must be met in order to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Although we
have not fully assessed the impact of adopting SAB No. 101 on our financial
position and results of operations in 2001 and thereafter, we do not expect the
effect, if any, to be material.
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
====
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>
F-29
<PAGE>
GRAND HOTEL GROUP (PREDECESSOR)
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(Information for the six months ended April 30, 1999 is unaudited)
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-30
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
QUEENSBOROUGH HOLDINGS LIMITED
We have audited the accompanying balance sheets of the Burstin Hotel at
January 31, 1999 and 2000 and the related statements of operations, divisional
equity and cash flows for each of the two years in the period ended January 31,
2000. These financial statements are the responsibility of the Burstin Hotel
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 the Burstin Hotel at January
31, 1999 and 2000 and the results of its operations and its cash flows for each
of the two years in the period ended January 31, 2000 in conformity with United
States generally accepted accounting principles.
ERNST & YOUNG
Reading, England
July 21, 2000
F-31
<PAGE>
<TABLE>
<CAPTION>
BURSTIN HOTEL
BALANCE SHEET
(US DOLLARS IN THOUSANDS)
JANUARY 31,
-------------------- APRIL 30,
1999 2000 2000
------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ........................................... $ 25 $ 24 $ 23
Accounts receivable, net of allowances for doubtful
accounts of $6, $33 and $4, at January 31, 1999
and 2000 and April 30, 2000, respectively ......................... 403 134 164
Inventories ......................................................... 92 79 65
Prepaid expenses and other current assets ........................... 125 86 287
------- ------- -------
Total current assets ............................................ 645 323 539
Equipment and fixtures:
Freehold land and buildings ....................................... 16,866 16,604 15,943
Fixtures and equipment ............................................ 1,945 2,808 2,779
------- ------- -------
18,811 19,412 18,722
Less accumulated depreciation ..................................... (1,385) (1,867) (1,965)
------- ------- -------
17,426 17,545 16,757
$18,071 $17,868 $17,296
======= ======= =======
LIABILITIES AND DIVISIONAL EQUITY
Current Liabilities
Bank overdraft ...................................................... $ -- $ 248 $ 282
Accounts payable .................................................... 553 234 481
Accrued expenses and other liabilities .............................. 168 627 219
Guest deposits ...................................................... 170 248 327
Taxes and social security payable ................................... 1,197 1,130 99
Capital lease obligations--current portion .......................... 25 19 18
------- ------- -------
Total current liabilities ....................................... 2,113 2,506 1,426
Capital lease obligations--non-current portion ...................... 39 20 15
DIVISIONAL EQUITY
Divisional equity ................................................... 15,776 15,464 16,648
Accumulated other comprehensive income (loss) ....................... 143 (122) (793)
------- ------- -------
Total Divisional equity ......................................... 15,919 15,342 15,855
------- ------- -------
$18,071 $17,868 $17,296
======= ======= =======
</TABLE>
See accompanying Notes to the Financial Statements
F-32
<PAGE>
BURSTIN HOTEL
STATEMENTS OF OPERATIONS
(US DOLLARS IN THOUSANDS)
THREE MONTHS
YEAR ENDED ENDED
JANUARY 31, APRIL 30,
----------------- ------------------
1999 2000 1999 2000
------- ------ ------- --------
Revenues:
Rooms ............................... $ 8,877 8,694 $ 1,835 $ 1,364
Retail .............................. 1,484 1,477 361 294
Other ............................... 272 315 61 76
------- ------- ------- -------
Total revenues .................. 10,633 10,486 2,257 1,734
Operating costs and expenses:
Direct cost of revenues:
Rooms ............................. 3,877 3,806 888 929
Retail ............................ 792 745 196 160
Other ............................. 58 61 2 16
------- ------- ------- -------
4,727 4,612 1,086 1,105
Staff costs ......................... 640 679 181 151
Sales and marketing ................. 456 669 118
General and administrative .......... 1,343 1,437 346 278
Corporate allocations ............... 349 385 113 65
Depreciation ........................ 497 507 154 175
------- ------- ------- -------
Total operating cost and
expenses ....................... 8,012 8,289 1,998 1,774
------- ------- ------- -------
Operating profit (loss) ........... 2,621 2,197 259 (40)
Interest expense ...................... 2 23 2 6
------- ------- ------- -------
Income (loss) before income
taxes ............................ 2,619 2,174 257 (46)
Income taxes .......................... 863 681 106 13
------- ------- ------- -------
Net income (loss) ................. $ 1,756 $ 1,493 $ 151 $ (59)
======= ======= ======= =======
See accompanying Notes to the Financial Statements
F-33
<PAGE>
BURSTIN HOTEL
STATEMENT OF DIVISIONAL EQUITY
(US DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
DIVISIONAL COMPREHENSIVE
EQUITY INCOME TOTAL
---------- ------------- --------
<S> <C> <C> <C>
Balance at February 1, 1998 ................... $16,558 $ -- $16,558
Net income .................................... 1,756 1,756
Currency translation adjustment ............... 143 143
-------
Comprehensive income ........................ 1,899
Net decrease in amount due to parent .......... (2,538) (2,538)
------- ------- -------
Balance at January 31, 1999 ................... 15,776 143 15,919
Net income .................................... 1,493 1,493
Currency translation adjustment ............... (265) (265)
-------
Comprehensive income ........................ 1,228
Net decrease in amount due to parent .......... (1,805) (1,805)
------- ------- -------
Balance at January 31, 2000 ................... 15,464 (122) 15,342
Net loss (unaudited) .......................... (59) (59)
Currency translation adjustment ............... (671) (671)
-------
Comprehensive income ........................ (730)
Net decrease in amount due to parent .......... 1,243 1,243
------- ------- -------
Balance at January 31, 1999 ................... $16,648 $ (793) $15,855
======= ======= =======
</TABLE>
See accompanying Notes to the Financial Statements
F-34
<PAGE>
<TABLE>
<CAPTION>
BURSTIN HOTEL
STATEMENTS OF CASH FLOWS
(US DOLLARS IN THOUSANDS)
YEARS ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30,
--------------------- ------------------
1999 2000 1999 2000
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ........................................... $ 1,756 $ 1,493 $ 151 $ (59)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation ............................................ 497 507 154 175
Changes in operating assets and liabilities:
Accounts receivable ................................... (8) 269 102 (30)
Inventory ............................................. 21 13 13 14
Prepaid expenses and other current assets ............. 11 39 (142) (201)
Guest deposits ........................................ (81) 78 236 79
Accounts payable ...................................... (58) (632) (3) 248
Accrued expenses and other liabilities ................ (25) 459 71 (408)
Taxes and social security payable ..................... 392 (67) (765) (1,031)
------- ------- ------- -------
Net cash provided by (used in) operating activities ......... 2,505 2,159 (183) (1,213)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures ......................... (349) (578) (130) (59)
------- ------- ------- -------
Net cash used in investing activities ....................... (349) (578) (130) (59)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank overdraft ................................ -- 248 34
Payments on capital lease obligations ....................... -- (25) (4) (6)
Change in divisional equity ................................. (2,538) (1,805) 733 1,243
------- ------- ------- -------
Net cash used in financing activities ....................... (2,538) (1,582) 729 1,271
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents ........ (382) (1) 416 (1)
Cash and cash equivalents at the
beginning of the period ................................... 407 25 25 24
------- ------- ------- -------
Cash and cash equivalents at the
end of the period ......................................... $ 25 $ 24 $ 441 $ 23
======= ======= ======= =======
Cash paid for interest ...................................... $ -- $ 21 $ 2 $ 4
======= ======= ======= =======
</TABLE>
See accompanying Notes to the Financial Statements
F-35
<PAGE>
BURSTIN HOTEL
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Burstin Hotel represents the operations of the Burstin Hotel as
operated by Queensborough Holdings Limited. The majority stockholder of
Queensborough Holdings Limited is also our majority stockholder. The Burstin
Hotel has historically been included within a division of Queensborough Holdings
Limited. Grand Hotel Group Limited is negotiating to acquire the assets of the
Burstin Hotel in September 2000. Assets acquired include the hotel, land,
fixtures and equipment, inventory, records and cash. As consideration for these
assets, Grand Hotel Group Limited will pay Queensborough Holdings Limited the
sum of $17.1 million, of which $12.4 million will be paid in cash and $4.7
million will be evidenced by a Grand Hotel Group Limited note due to
Queensborough Holdings Limited.
BASIS OF PRESENTATION
These financial statements have been prepared to show the performance of
the Burstin Hotel for the two years in the period ended January 31, 2000.
The financial statements include allocations of certain of Queensborough
Holdings Limited corporate expenses relating to Burstin Hotel. Management
believes that all such allocations are reasonable. General corporate overhead
expenses related to Queensborough Holdings Limited have been allocated to
Burstin Hotel based on a percentage of revenues of the hotel compared to total
revenue of Queensborough Holdings Limited. However, the costs of these services
charged to Burstin Hotel are not necessarily indicative of the costs that would
have been incurred if Burstin Hotel had performed these functions as a
stand-alone entity.
The financial statements as of April 30, 2000 and for the three-months
ended April 30, 1999 and 2000 have been prepared by the Company without audit on
a basis consistent with the financial statements for the years ended January 31,
1999 and 2000. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation have been made.
FOREIGN CURRENCY TRANSLATION
The functional currency of Burstin Hotel is the pound sterling. For
reporting purposes, these financial statements are translated into US dollars in
accordance with Statement of Financial Accounting Standards, or 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 or losses in the periods presented.
The Burstin Hotel has not entered into any hedging transactions or
derivatives in the periods presented.
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:
F-36
<PAGE>
BURSTIN HOTEL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Freehold land and buildings 50 years
Fixtures and equipment 3-10 years
Equipment financed under capital leases was $68,000 at January 31, 1999 and
2000 and April 30, 2000. Accumulated amortization on the assets under capital
leases was $3,000, $26,000 and $30,000 at January 31, 1999 and 2000 and April
30, 2000, respectively. Amortization related to capital leases is included with
depreciation expense.
LONG-LIVED ASSETS
In accordance with SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long Lived Assets to be Disposed," long-lived assets
to be held and used by the Company are reviewed to determine whether an event or
change in circumstances indicates that the carrying amount of the assets may not
be recoverable. The Company deems the carrying value of an asset to be impaired
when the undiscounted cash flows are less than the carrying value of the assets.
If the Company deems the carrying value of the assets to be impaired, the
amounts are reduced to their fair value by a charge to income, the fair value of
an assets is calculated as a current and anticipated discounted cash flows from
related operations over its remaining useful life.
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 Burstin Hotel,
including cash, accounts receivable, accounts payable and accrued expenses and
approximate fair values.
CASH AND CASH EQUIVALENTS
Burstin Hotel 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-37
<PAGE>
BURSTIN HOTEL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CONCENTRATION OF CREDIT RISK
Burstin Hotel performs ongoing credit evaluations of its customers'
financial condition and, generally, does not require collateral on accounts
receivable. When required, the Burstin Hotel maintains allowances for credit
losses and such losses have been within management's expectations. The allowance
for doubtful accounts was $6,000, $39,000 and $4,000 at January 31, 1999 and
2000 and April 30, 2000, respectively. Expense with respect to the provision
were $6,000 and $33,000 for the years ended January 31, 1999 and 2000,
respectively. No amounts were written in either year.
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. Revenues
from retail and other services are recognized at the point of sale once cash is
received, net of allowances for return where appropriate. Refunds, rebates,
discounts and free services are deducted from net revenues at the time the
related revenue is received.
ADVERTISING COSTS
Costs related to advertising are expensed as incurred. Advertising expenses
for the years ended January 31, 1999 and 2000 and the three months ended April
30, 1999 and 2000 were $81,000, $275,000, $49,000 and $38,000, respectively.
INVENTORY
Inventories are stated at the lower of cost, which is calculated on a first
in first out basis, or net realisable value.
COMPREHENSIVE INCOME
SFAS 130 "Reporting Comprehensive Income" requires an enterprise to
classify items of other comprehensive income by their nature in the financial
statement and display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position.
Under SFAS 130, foreign currency translation adjustments are included in
other comprehensive income. As of January 31, 1999 and 2000 and April 30, 2000,
the balance of accumulated other comprehensive income of $143,000, $(122,000)
and $(793,000), respectively, was comprised entirely of accumulated foreign
currency translation adjustments. Such balances are included within divisional
equity. Cumulative translation adjustments are not tax affected.
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 Burstin Hotel. 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. Burstin Hotel
F-38
<PAGE>
BURSTIN HOTEL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 2000 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
does not expect the effect that adopting this standard will have a material
impact on the amounts reported in its financial statements.
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition,"
which provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. Adoption of SAB No 101 has
been delayed until the 4th quarter of 2000 by the SEC. SAB 101 outlines the
basic criteria that must be met in order to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Although
management have not fully assessed the impact of adopting SAB No. 101 on the
hotel's financial position and results of operations in 2001 and thereafter,
they do not expect the effect, if any, to be material.
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 assets of Grand Hotel Group
(Predecessor) are as follows (US dollars in thousands):
JANUARY 31,
--------------------
1999 2000
------ ------
Deferred tax assets:
Book depreciation in excess of tax depreciation ....... $ 135 $ 186
Less: Valuation allowance ............................. (135) (186)
------ ------
Net deferred tax asset: ................................. $ -- $ --
====== ======
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):
YEARS ENDED
JANUARY 31,
--------------------
1999 2000
------ ------
Income taxes computed at the UK statutory rate .......... $ 789 $ 652
Non-qualifying depreciation expense ..................... 62 15
Other ................................................... 12 14
------ ------
Total ............................................. $ 863 $ 681
====== ======
F-39
<PAGE>
BURSTIN HOTEL
NOTES TO THE FINANCIAL STATEMENTS--(Continued)
(INFORMATION FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 2000 IS UNAUDITED)
3. COMMITMENTS
Burstin Hotel 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 January 31, 2000 (US
dollars in thousands):
OPERATING CAPITAL
YEARS ENDING JANUARY 31: LEASES LEASES
------ ------
2001 ............................................... $ 46 $ 22
2002 ............................................... 40 17
2003 ............................................... 24 3
2004 ............................................... 11 --
2005 ............................................... 10 --
Thereafter ......................................... -- --
------ ------
Total minimum payments ............................. $ 131 $ 42
====== ======
Total amounts representing interest ................ (3)
------
Present value of future lease payouts .............. 39
Less current portion ............................... (19)
------
Non-current portion ................................ $ 20
======
Rent expense was approximately $216,000 in 1999, $194,000 in 2000, $39,000
and $32,000 for the three months ended April 30, 1999 and 2000, respectively.
F-40
<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.
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 ............................ $ 375,000.00*
Accounting Fees and Expenses ....................... $ 275,000.00*
Blue Sky Fees and Expenses ......................... $ 15,000.00*
Miscellaneous ...................................... $ 6,555.40*
-----------------
Total ........................................ $ 1,000,000.00*
=================
----------
* 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.
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
II-1
<PAGE>
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.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
+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 Bylaws 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 Amended 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
*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.
+10.14 Employment Agreement, dated as of , between Leisure Travel Group, Inc. and Philip Mason.
**10.15 Tour Coach Operating Agreement with Caledonian Travel Ltd., dated June 5, 2000.
**10.16 Tour Coach Operating Agreement with Shearings Holidays Ltd., dated April 19, 2000.
+10.17 Agreement for the Acquisition of the Issued Share Capital of Grand
Hotel (Burstin) Limited, dated _____. between Leisure Great Britain
plc, Queensborough Holdings Limited and Grand Hotel Group Limited.
+10.18 Business Sale Agreement, dated _____. between Leisure Great Britain
plc, Queensborough Holdings Limited and Grand Hotel Group Limited.
**23.1 Consent of Ernst & Young.
**23.2 Consent of Ernst & Young.
**23.3 Consent of Ernst & Young.
**23.4 Consent of Ernst & Young.
**23.5 Consent of Greenberg Traurig, LLP (included in the opinion filed as Exhibit 5.1).
*24.1 Power of Attorney.
**27.1 Financial Data Schedules of Leisure Travel Group, Inc.
**27.2 Financial Data Schedules of Leisure Travel Group (Combined).
**99.1 Consent of Dann V. Angeloff.
</TABLE>
----------
* Previously filed.
** Filed herewith.
+ 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. 2 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 14th day of September, 2000.
LEISURE TRAVEL GROUP, INC.
By: /s/ PHILIP MASON
-------------------------------------
PHILIP MASON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
---------------------
Pursuant to the requirements of the Securities Act, this Pre-effective
Amendment No. 2 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/ PHILIP MASON President and Chief September 14, 2000
------------------------------------------------ Executive Officer
PHILIP MASON (Principal Executive Officer)
/s/ STEPHEN LAST* Executive Vice President, Chief September 14, 2000
------------------------------------------------ Financial Officer and Secretary
STEPHEN LAST (Principal Financial and
Accounting Officer)
/s/ KEVIN R. LEECH* Chairman of the Board September 14, 2000
------------------------------------------------
KEVIN R. LEECH
/s/ PHILIP MASON Director September 14, 2000
------------------------------------------------
PHILIP MASON
/s/ RAYMOND J. PEEL* Director September 14, 2000
------------------------------------------------
RAYMOND J. PEEL
/s/ ROD RODGERS* Director September 14, 2000
------------------------------------------------
ROD RODGERS
/s/ STEPHEN LAST* Director September 14, 2000
------------------------------------------------
STEPHEN LAST
*By: /S/ PHILIP MASON
------------------------------------------------
PHILIP MASON
ATTORNEY-IN-FACT
</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 Bylaws 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 Amended 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.
+10.14 Employment Agreement, dated as of ______, between Leisure Travel
Group, Inc. and Philip Mason.
**10.15 Tour Coach Operating Agreement with Caledonian Travel Ltd., dated
June 5, 2000.
**10.16 Tour Coach Operating Agreement with Shearings Holidays Ltd., dated
April 19, 2000.
+10.17 Agreement for the Acquisition of the Issued Share Capital of Grand
Hotel (Burstin) Limited, dated _____. between Leisure Great Britain
plc, Queensborough Holdings Limited and Grand Hotel Group Limited.
+10.18 Business Sale Agreement, dated _____. between Leisure Great Britain
plc, Queensborough Holdings Limited and Grand Hotel Group Limited.
**23.1 Consent of Ernst & Young.
**23.2 Consent of Ernst & Young.
**23.3 Consent of Ernst & Young.
**23.4 Consent of Ernst & Young.
**23.5 Consent of Greenberg Traurig, LLP (included in the opinion filed
as Exhibit 5.1).
*24.1 Power of Attorney.
**27.1 Financial Data Schedules of Leisure Travel Group, Inc.
**27.2 Financial Data Schedules of Leisure Travel Group (Combined).
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**99.1 Consent of Dann V. Angeloff.
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* Previously filed.
** Filed herewith.
+ To be filed by amendment.
