-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PisTez1V1HvROmvAwC4bzjbNEWXMP7jmhTocAV5avGj0ZXccRNs4wL7G5gT/zaMJ yHaKVfc2XKK2n6icSC9/Hg== 0000950133-99-000962.txt : 19990426 0000950133-99-000962.hdr.sgml : 19990426 ACCESSION NUMBER: 0000950133-99-000962 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL VACATION GROUP INC CENTRAL INDEX KEY: 0001061202 STANDARD INDUSTRIAL CLASSIFICATION: 4700 IRS NUMBER: 13194567 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-14353 FILM NUMBER: 99575782 BUSINESS ADDRESS: STREET 1: 1420 NEW YORK AVENUE N W STREET 2: SUITE 660 CITY: WASHINGTON STATE: DC ZIP: 20004 BUSINESS PHONE: 2023471800 MAIL ADDRESS: STREET 1: 1420 NEW YORK AVENUE N W STREET 2: SUITE 660 CITY: WASINGTON STATE: DC ZIP: 20006 10-K405 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 333-52673 GLOBAL VACATION GROUP, INC. (Exact name of registrant as specified in its charter)
NEW YORK 13-1894567 (State of Incorporation) (IRS Employer Identification No.) 1420 NEW YORK AVENUE, N.W., SUITE 550 20005 WASHINGTON, DC (Zip Code) (Address of registrant's principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 347-1800 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock (par value $.01 per share) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [X] The aggregate market value of voting stock held by non-affiliates of the Company as of the 11th day of March 1999, was approximately $45,825,095 based on the $10.25 closing sale price for the Common Stock on the Stock Market on such date. For purposes of this computation, all executive officers, directors and persons beneficially owning more than five percent of the Company have been deemed to be affiliates. Such determination should not be deemed to be an admission that such directors and officers are, in fact, affiliates of the Registrant. The number of shares of Common Stock of the Registrant outstanding as of the 11th day of March, 1999, was 14,747,576. 1 2 DOCUMENTS INCORPORATED BY REFERENCE Part of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 12, 1999 are incorporated by reference into Part III of this Form 10-K Report. (The Compensation Committee Report and the stock performance graph of the Registrant's Proxy Statement are expressly not incorporated by reference herein.) PART I ITEM 1. BUSINESS THE COMPANY The Company is one of the largest U.S. providers of value-added vacation products and services targeted to higher-income travelers. The Company assembles air, hotel, rental car and other travel components in bulk and provides complete vacations to travelers through retail travel distributors, such as travel agents, and other distribution channels, including the Internet and affinity groups. The Company provides flexible independent travel programs for individuals as well as escorted tours and group packages. The Company intends to achieve the leading market position in selected high-volume, high-margin travel destinations and will focus initially on the following sales areas: (i) Hawaii; (ii) in-bound vacations to the United States for international travelers; (iii) Florida, the Caribbean and Mexico; (iv) other U.S. destinations such as California and New York; and (v) out-bound travel by U.S. travelers to Europe. The Company focuses its marketing efforts on travelers who typically spend more than $750 per person for a vacation. The Company also provides certain services to travel suppliers, including outsourced vacation packaging and affinity group marketing and awards program fulfillment. The Company markets its products and services to U.S. customers under two specific proprietary brands: one for up-scale, customized vacations (Classic Custom Vacations) and another for popular-priced vacation packages (Globetrotters). The Company believes providing expertise and competitive pricing in multiple destinations through two separate brands targeted to different consumer groups distinguishes its products and services and provides the Company with a significant competitive advantage. In addition to serving multiple destinations, the Company also has achieved a diverse domestic and international customer base. The Company uses its international scope to create cross-selling opportunities and expand its relationships with suppliers of quality travel products and services (primarily airlines, hotel companies and rental car companies). INDUSTRY OVERVIEW Tourism is one of the world's largest industries. The Company participates in two segments of the tourism industry: (i) in-bound vacation travel to North American destinations by foreign travelers and (ii) vacation travel by U.S. travelers. According to the Travel Industry Association of America ("TIA"), Americans spent a total of $408 billion on all types of domestic travel in 1997. Also according to TIA, 71% of the domestic trips taken by U.S. travelers in 1997 were for personal or vacation travel, and management believes that approximately 70% of the trips taken by U.S. travelers to Europe were for personal or vacation travel. According to a survey by the U.S. Department of Commerce, there were 9.9 million U.S. tourists visiting Europe in 1997, an 11.7% increase from 1996. In addition, TIA, in conjunction with the Tourism Industries, estimates that there were 47.7 million international visitors to the United States in 1997 who spent an aggregate of $94.2 billion on such trips. Also according to TIA, the total amount spent by international travelers to the United States grew by 203% between 1987 and 1998. Travel suppliers use package vacation providers such as the Company to sell their capacity more efficiently and support their yield management. At the same time, management believes that purchasing travel products and services from package vacation providers can lower costs, simplify booking and result in higher commissions for retail travel agents. As a result of the approximately one-third erosion in stated commissions from airlines for U.S. domestic travel over the past three years, the Company believes travel agents are seeking to establish relationships with package vacation providers that will offer better customer service, competitive prices and attractive commission structures. Management believes approximately 90% of package tours in 1998 were sold through retail travel agents. The U.S. package vacation industry is fragmented, with more than an estimated 1,600 package vacation providers. The Company believes many of these businesses generally have made only small investments in technology to improve operating efficiency and may face significant investment requirements to meet current information technology demands, including Year 2000 compliance issues. 2 3 Furthermore, most of these companies lack the scale necessary to obtain preferential pricing and capacity from travel suppliers and to establish a nationally recognized brand name. OPERATING STRATEGY In providing value-added vacation products and services targeted to higher-income travelers, the Company pursues an operating strategy that includes the following elements: Creating Value-added Vacation Products and Services. The Company focuses on creating vacation packages that provide added value to higher-income travelers. The Company believes that, because of its size and expertise in certain destinations, it can (i) generally provide better prices and inventory availability than can be obtained by an individual travel agency or traveler, (ii) enhance and simplify access to travel information across multiple destinations and (iii) assemble vacation travel components into convenient packages for ease of planning and booking. Establishing National Brand Name Recognition. The Company believes it can leverage its presence in leading origination and destination cities to develop nationally recognized proprietary brand names in the package vacation industry. The Company believes offering expertise and competitive pricing through common brands across multiple destinations will provide greater confidence to travelers in making their vacation choices and engender consumer loyalty and a pattern of repeat purchases. Leveraging Strength in Selected Travel Destinations. The Company believes it has a leading position in the package vacation sales areas for westbound travel to Hawaii and for in-bound travel to the United States and intends to achieve the leading position in these and other high-volume, high-margin vacation destinations. The Company believes having scale and expertise in selected destinations gives it access to pricing and inventory that provides the Company with a significant competitive advantage. Pursuing Revenue Enhancing Opportunities. The Company's revenue enhancing strategies include (i) improving yield management by obtaining greater access to high-margin products and services, (ii) expanding ancillary products and services, such as city tours and travel protection, (iii) securing favorable pricing and inventory availability through strategic purchasing relationships and (iv) improving cash management, particularly management of traveler deposits and advance payments. Improving Operating Efficiencies. The Company has begun to reduce its operating expenses by (i) capitalizing on enhanced purchasing efficiencies, (ii) implementing a more effective utilization program of its physical and other assets, (iii) implementing best practices in its management and business systems, (iv) enhancing marketing relationships with travel suppliers and other related parties and (v) outsourcing certain functions where appropriate. Implementing Integrated Information Systems. The Company will continue to integrate its information systems in order to improve its ability to offer travelers value-added vacation products and services and to leverage maintenance and development costs across a broader customer base. In addition, integrated systems will facilitate the use of common operating platforms, reduce the cost and time requirements of developing external interfaces and accelerate the integration of subsequent acquisitions. GROWTH STRATEGY To complement its operating strategy, the Company has developed a multi-faceted growth strategy that includes the following elements: Build Strong Brands. Traditionally, vacation package products have not achieved brand awareness, which in most cases has reduced consumers perception of value and credibility. Building strong vacation package brands not only enhances consumer confidence and perception of value, it creates an opportunity to more easily introduce new products. The Company intends to generate internal growth and strengthen brand awareness by (i) implementing an integrated national marketing program, (ii) increasing its presence in underpenetrated origination markets and (iii) implementing loyalty programs that stimulate repeat purchases. Leverage Traditional Distribution Channels. The Company's products currently are sold through 16,000 travel agents, but 10,000 market only one of its brands. This creates exceptional opportunities to cross-sell both brands in an integrated sales and marketing program. The Company already has begun establishing national contracts with agency chains and consortia. Recently, the Company announced that Carlson Leisure Group's 1,200 offices nationwide will sell the products of both of its brands, as will the Travel Associates Network, the nation's largest travel agent consortium. 3 4 Expand Marketplace Coverage and Introduce Product Extensions. The Company has a number of initiatives under way to increase leisure travel sales. The Classic Custom Vacations brand, already a major vacation package provider to Hawaii, will launch in February 1999 its first Caribbean product offerings and is expanding its upscale product offerings into new European and U.S. destinations. Haddon Holiday's program to Hawaii, which is exclusively on United Airlines, has been expanded from the East Coast to a highly successful national program. The Globetrotters brand is expanding its affinity product marketing relationships with Hyatt and Amtrak. In 1999, the Company also will reposition and expand its Super Cities products, urban-oriented vacation packages to 13 popular U.S. destinations and London. Make Accretive Acquisitions. The vacation industry is highly fragmented with approximately 1,600 companies. No company has more than a 5 percent share of sales. A number of converging elements point toward accelerating consolidation. Many of today's owners are approaching retirement and find selling an attractive exit strategy. Rapid changes in the industry, including the impact of technology and the Internet, also are major factors. The Company will generally seek to acquire companies that (i) have desirable destination concentrations, (ii) have demonstrated growth and profitability, (iii) have an emphasis on customer service, (iv) have an experienced management team and (v) are likely to add some other strategic value to the Company. Enhance Supplier Relationships. The Company is establishing deeper preferred supplier relationships to improve the value equation for both parties by generating greater operating efficiencies, developing more unique products and optimizing marketing efforts. These efforts add value to its brands and attract more customers. Penetrate Direct Marketing Channels. The Company seeks to capitalize on the opportunities presented by the direct selling of vacation products and services to travelers and the emergence of alternative distribution channels while still supporting and leveraging its strong relationships with existing retail travel agents. Only half of all vacations in our target markets are sold by travel agents. While travel agents are its most important customer and primary distribution channel, the Company sees a tremendous opportunity to reach out to those consumers who do not use travel agents. The Company intends to provide these potential new customers, a $50 billion marketplace, with the products and distribution channels that best meet their needs. KEY DESTINATIONS Hawaii. Westbound travel was up in 1998 after having been relatively flat the preceding three years according to the Hawaiian Visitor and Convention Bureau. The Company is one of the leading providers of vacations to Hawaii for travelers from the continental United States and has over 15 years of experience in the Hawaii travel marketplace. The Company has relationships with major airlines, such as United, Delta, American, Continental and Hawaiian for travel to Hawaii, and Hawaiian and Aloha for air travel within Hawaii, all of which provide the Company with access to prices that generally are better than published fares and to capacity for air travel to Hawaii, as well as marketing support. In addition, the Company utilizes a staff of over 100 on location in Hawaii to provide destination management for its Hawaii package vacations products and services. The Company believes its extensive experience and established reputation in Hawaii as well as its airline relationships are significant competitive advantages for it. The Company believes the Hawaii travel marketplace will continue to present growth opportunities in the future and to represent a significant portion of its revenues. In-bound to the United States. According to TIA, in conjunction with the Tourism Industries, 47.7 million in-bound travelers to the United States spent $94.2 billion on travel to and within the United States in 1997, making the United States the most popular tourist destination worldwide. Also according to TIA, the total amount spent by international travelers to the United States grew by 203% between 1987 and 1998. The Company is among the largest package vacation providers for in-bound travelers to the United States. The Company's customers for these products and services primarily are international travel distributors who send travelers to the United States. The Company believes its broad customer base among European and other international travel distributors and its status as one of a limited number of designated providers of vacations for in-bound travelers to the various Disney properties in Florida and California represents a significant competitive advantage. Florida, the Caribbean and Mexico. In 1998, according to the Florida Tourism Industry Marketing Corporation, approximately 48.7 million visitors traveled to Florida and approximately 8% of these travelers booked their travel in package form. TIA has reported 4 5 that approximately 3.9 million U.S. travelers visited Caribbean destinations during 1997 and approximately 17.7 million U.S. travelers visited Mexico during 1997. The Company has an established presence in the markets for travel to Florida, the Caribbean and Mexico. The Company has over 15 years of experience in these destinations and has established key strategic relationships, including as one of a limited number of designated providers for American Airlines in the Caribbean. The Company also acts as one of a limited number of designated providers for Disney World. The Company believes its extensive experience and established reputation in these markets as well as its supplier relationships give it a significant competitive advantage over other providers of vacations to these destinations. Other U.S. Destinations. The Company offers products and services to a number of other destinations in the United States in addition to Hawaii and Florida. The Company is the exclusive provider of vacation products and services for Amtrak. The Company believes it has significant purchasing power for destinations throughout the United States due to the volume of U.S. travel products and services it purchases for both in-bound and domestic travelers. As a result, the Company is able to create and effectively market products and services in demand by travelers, including weekend trips and excursions such as "theater packages" in New York. Europe. According to a survey by the U.S. Department of Commerce, there were 9.9 million U.S. tourists visiting Europe in 1997, an 11.7% increase from 1996. The Company has an established presence in the marketplace for travel by U.S. residents to Europe. The Company intends to increase its presence in this sales marketplace by cross-selling within its existing customer base, by leveraging its relationships with travel distributors to create demand for the Company's brand name products and services and by leveraging its existing relationships with suppliers to obtain preferential pricing and access to capacity for European destinations. PRODUCTS AND SERVICES The Company focuses on specific destinations in order to become a leading provider of value-added vacation products and services while at the same time providing travel suppliers with efficient and cost effective distribution of their capacity. The Company has expertise in and access to the products and services of a broad range of travel suppliers. Based on customer research, the Company designs its products and services to offer travelers a wider choice than that of an individual supplier. The Company assembles travel products and services in bulk and combines them to create customized vacations for individual travelers. The Company creates demand for its products through integrated marketing programs and handles all reservations, payment processing and supplier processing interfaces. The Company has developed the in-depth knowledge of these products and services that a retail travel agent, which acts as a broker or reseller of the entire spectrum of travel products and services, is unlikely to acquire. The Company focuses on ensuring customer satisfaction and cultivating consumer loyalty to its products and services. The Company has quality control mechanisms, such as destination management programs, in place to provide customer support and monitor the quality of the individual travel components and overall customer satisfaction. The Company is the exclusive provider of certain private label vacation products and services for Amtrak and Hyatt. The Company believes there are significant opportunities to expand its business by assembling package vacations on behalf of other companies, which seek to leverage their brand names. The benefits of capitalizing on such opportunities include (i) access to the customers, (ii) enhanced visibility in the marketplace through association with other well-recognized brands and (iii) reduced advertising and marketing costs through sharing arrangements. The Company also manages bank card reward and other affinity group marketing programs for several companies, including The Chase Manhattan Bank N.A. and U.S. Bancorp. The Company has certain proprietary software and extensive operating experience it believes provide a significant opportunity to capitalize on this capability. The Company intends to increase sales by proactively marketing its services to affinity group sponsors. The Company believes access to affinity groups provides unique opportunities for the direct marketing of its products and services to targeted travelers. SALES AND MARKETING The Company pursues a fully integrated sales and marketing effort in support of its proprietary travel products and services as well as the private label products and services the Company manages and markets for other companies. The Company directs its marketing toward retail distributors and other intermediaries as well as to travelers directly. By employing a multi-faceted marketing approach targeted both to travel distributors and to individual travelers, the Company believes it will increase the demand for its products and services. In addition, the Company will integrate its own marketing efforts with the marketing support it receives from certain travel suppliers with whom the Company has an established relationship. The Company believes it will be able to leverage its national 5 6 presence and established marketing and sales experience and strength into a competitive advantage. The Company seeks to identify and cultivate new customers and create cross-selling opportunities within its existing customer base. A substantial majority of the Company's products and services are sold through a broad network of retail travel agencies, including independent firms and agencies affiliated with travel consortia or national accounts. The Company typically offers retail travel agencies a base commission on the sale of Company products with the opportunity to earn additional override commissions on sales above negotiated threshold amounts. In addition to supplying travel agents with brochures and merchandising materials, the Company leverages its relationships through targeted marketing efforts including travel agent training, trade shows, cooperative advertising and performance incentives. These efforts also will include strategic distribution and favorable vendor arrangements (both exclusive and non-exclusive) with other travel intermediaries, national accounts and travel agency consortia. The Company employs a dedicated sales force to maintain and expand these relationships. The Company's marketing focuses on domestic and foreign travel distributors who market vacation products and services directly to travelers. The Company has developed numerous important relationships with major travel distributors in Europe and in certain other key international origination areas. The Company's marketing efforts with these distributors include direct sales efforts, brochures, trade advertising and trade shows in addition to effective account management of existing, long-standing relationships. The Company will pursue marketing opportunities in other distribution channels as well. The Company intends to develop marketing programs aimed at travelers who purchase travel products and services through affinity groups, and the Company will pursue strategic relationships with the owners of non-travel-related consumer brands that represent a consumer base the Company wishes to target. Finally, to reach travelers who prefer to purchase leisure and travel products and services on the Internet, the Company currently is finalizing its Internet strategy. This includes developing relationships with Internet companies to market the Company's products and services on their web sites or provide links to the Company's existing web sites (gvg.com, classiccustomvacations.com and globetrottervacations.com), as well as offering an Internet booking capability. BUSINESS AND INFORMATION SYSTEMS The Company believes the successful application of common business and information systems will be important to its ability to create operating efficiencies and establish a competitive advantage. The on-going migration of systems of the Acquired Businesses to a shared system will enable the Company to spread maintenance and development costs across a broader customer base, facilitate the use of common operating platforms and reduce the costs and time requirements of developing external interfaces. In addition, it is likely that application of system solutions will become increasingly important to enable the Company to integrate customer identification and profiling capabilities with reservation and operational business systems. This combination will enable the Company to leverage each customer encounter into a basis for generating repeat business and establishing a long-term relationship. Recognizing the importance of the rapid integration of information systems to its strategy, on August 14, 1998, the Company, Trase Miller Solutions and the majority shareholder of Trase Miller Solutions entered into an agreement with a term ending on April 30, 2006 (the "Outsourcing Agreement") to expand this outsourcing agreement to provide a common platform system for all the Company's businesses (other than the business systems associated with the Company's in-bound business). During the term of the Outsourcing Agreement, Trase Miller Solutions will provide to the Company information systems and related services, including operating services, system maintenance, general management and support and implementation and migration services. From April 1, 1999 through April 30, 2006, The Company will pay Trase Miller Solutions for the services provided under the Outsourcing Agreement on a cost-plus 20% basis and will pay royalty fees of $17.5 million in the aggregate. In connection with the Outsourcing Agreement, the Company also paid $6.8 million to acquire an option, exercisable through January 10, 1999, to purchase all of the outstanding stock of Trase Miller Solutions. In January 1999, the Company paid approximately $2.3 million to extend the option through March 31, 1999. In the event the Company exercises this option, the purchase price will be $18.8 million, subject to certain adjustments and to a credit for the amount paid by the Company to acquire the option and extension. If the Company does not exercise the option, the amounts paid to acquire the option and extension will be credited over three years beginning April 1, 1999 against payments owing to Trase Miller Solutions under the Outsourcing Agreement. The Company believes that this arrangement will offer a number of advantages, which include (i) allowing the Company to focus on its core competencies of creating and marketing value-added vacation packages, (ii) leveraging third party investments in rapidly evolving technology, (iii) shortening the required time to develop and implement a shared technology platform, (iv) containing the costs of such development and implementation and (v) developing the ability to market and arrange vacations through electronic distribution systems (including SABRE, Galileo and WORLDSPAN) as well as through the Internet. 6 7 The Company plans to employ a chief information officer to manage its outsourced operations as well as to administer, install and maintain the Company's own network and custom development requirements. Prior to the achievement of full systems integration, which is expected to be completed in 1999, the Company will operate on several separate systems. COMPETITION The Company competes with a variety of other providers of travel and travel-related products and services. Its principal competitors are other vacation providers, travel agencies and other retail and wholesale distributors of travel products and services, some of which are larger and have greater name recognition and financial resources than the Company. Certain package vacation providers that compete with the Company may have relationships with travel suppliers that give them preferred access to capacity or more competitive pricing than is available to the Company. Other travel providers have a presence in particular travel destinations that is stronger than that of the Company. The Company also competes with travel suppliers, including some of the Company's travel suppliers, that sell directly to individual travelers. The Company believes it competes for customers based upon the quality of the travel products and services delivered, price, specialized knowledge, reputation and convenience. The Company believes it is well-positioned to compete on these bases. EMPLOYEES The Company employs approximately 730 people, a majority of whom are located at the Company's principal offices in San Jose, CA, New York, NY, Downers Grove, IL and on location in Hawaii. Approximately 320 of the Company's employees serve as reservation staff and the remainder serve in customer service and operations, sales and marketing, information systems and management and administration. The Company believes it enjoys good relations with its employees, none of whom are covered by any collective bargaining agreements. QUALIFICATION OF FORWARD-LOOKING STATEMENTS The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements. The forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, experience and the performance or achievements of the Company to be materially different from those anticipated, expressed or implied by the forward-looking statements. In evaluating the Company's business, the following factors, in addition to the Risk Factors set forth below and other information set forth herein, should be carefully considered: successful integration of systems; factors affecting internal growth and management of growth; dependence on travel providers; success of the acquisition strategy and availability of acquisition financing; success in entering new segments of the travel market and new geographic areas; dependence on technology; labor and technology costs; advertising and promotional efforts; risks associated with the travel industry generally; seasonality and quarterly fluctuations; competition; and general economic conditions. In addition, the Company's business strategy and growth strategy involve a number of risks and challenges, and there can be no assurance that these risks and other factors will not have a material adverse effect on the Company. RISK FACTORS The following factors should be considered in addition to other information included in this Form 10-K. SUBSTANTIAL COMPETITION The package vacation industry is highly competitive and has relatively low barriers to entry. The Company competes primarily with other vacation providers, travel agencies and other retail and wholesale distributors of travel products and services, some of which are larger and have greater brand name recognition and financial resources than the Company. Competition within the package vacation industry is increasing as certain of the Company's competitors are expanding their size and financial resources through consolidation. Certain package vacation providers that compete with the Company may have relationships with travel suppliers that give them preferred access to capacity or more competitive pricing than is available to the Company. Furthermore, some travel providers have a strong presence in particular geographic areas, which may make it difficult for the Company to attract customers in those areas. The Company also competes with travel suppliers, including some of the Company's travel suppliers, that sell directly to 7 8 individual travelers. These suppliers may restrict the availability of travel products or services or the ability of the Company to offer such products or services at preferential prices. Consolidation among travel suppliers has left the remaining suppliers in a stronger position relative to providers of travel products and services, such as the Company. As a result of competitive pressures, the Company's revenues and margins may decline. There can be no assurance that the Company will be able to compete successfully, and the failure to compete successfully may have a material adverse effect on the business, financial condition and results of operations of the Company. CHANGING INDUSTRY DYNAMICS; NEW METHODS OF DISTRIBUTION Innovations in on-line technology such as the Internet have increased the ability of travel suppliers to distribute their travel products and services directly to travelers. Travelers can now use the Internet to access information about travel products and services and to purchase such products and services directly from suppliers, thereby bypassing both vacation providers such as the Company and retail travel agents through whom the Company receives a substantial majority of its revenues. In addition, recent erosion of commissions paid by travel suppliers, particularly airlines, to travel distributors has weakened the financial condition of many travel agents. Because the Company currently relies to a large extent on retail travel agencies for access to travelers and revenues, a shift in consumer purchasing away from travel agencies and toward direct purchasing from travel suppliers could have an adverse impact on the Company. Also, although the Company has a strategy to capitalize on the emergence of the Internet as an alternative distribution channel, there can be no assurance that such strategy will be successful or will not negatively impact the Company's relationship with retail travel agents. ABSENCE OF COMBINED OPERATING HISTORY Following the recapitalization of the Company in March 1998 (the "Recapitalization"), the Company completed the acquisitions (together "the Acquisitions") of Haddon Holidays, Inc. ("Haddon"), Classic Custom Vacations ("Classic"), MTI Vacations, Inc. ("MTI"), and Globetrotters, Inc. ("Globetrotters") (the "Acquired Businesses"). The Acquisitions account for a substantial majority of the Company's pro forma revenues for 1997. Although the Company and each of the Acquired Businesses have been in operation for more than 15 years, they have virtually no history of combined operations. The pro forma consolidated financial data included in this Form 10-K cover periods when the Company and the Acquired Businesses were not under common management or control and are not necessarily indicative of the results that would have been achieved if the Company and the Acquired Businesses had been operated on an integrated basis or the results that may be realized on a consolidated basis in the future. DEPENDENCE ON TRAVEL SUPPLIERS The Company is dependent upon travel suppliers for access to their products and services. Certain travel suppliers, such as American Airlines, Inc. ("American Airlines"), Delta Air Lines, Inc. ("Delta"), United Air Lines, Inc. ("United"), Aloha Airlines, Inc. ("Aloha"), Hawaiian Airlines, Inc. ("Hawaiian Airlines"), Hyatt Hotels Corporation ("Hyatt"), ITT Starwood Hotels & Resorts Worldwide, Inc., Marriott International, Inc. and Amtrak, offer the Company (i) non-exclusive pricing that is preferential to published rates, enabling the Company to offer complete vacations at prices lower than generally would be available to individual travelers and retail travel agents, (ii) non-exclusive preferential access to inventory of their travel products and services, enabling the Company to assemble more desirable vacations for travelers, or (iii) in the case of certain travel suppliers, both non-exclusive preferential pricing and access to inventory. The Company's travel suppliers generally can cancel or modify their agreements with the Company upon relatively short notice. In addition, any decline in the quality of travel products and services provided by these suppliers, or a perception by travelers of such a decline, could adversely affect the Company's reputation. The loss of contracts, changes in the Company's pricing agreements, commission schedules or incentive override commission arrangements, more restricted access to travel suppliers' products and services or less favorable public opinion of certain travel suppliers and resulting low demand for the products and services of such travel suppliers could have a material adverse effect on the business, financial condition and results of operations of the Company. CONCENTRATION IN HAWAIIAN MARKETPLACE In 1998, the Company derived approximately 50% of its gross revenues from products and services associated with vacations to Hawaii. Westbound travel was up in 1998 after having been relatively flat the preceding three years according to the Hawaiian Visitor and Convention Bureau. A downturn in the market for vacations to Hawaii could have a material adverse effect on the business, financial condition and results of operations of the Company. 8 9 MANAGEMENT OF GROWTH; INTEGRATION OF OPERATIONS The Company has grown rapidly since March 1998 through the Acquisitions, and the Company expects to continue to grow in part through additional acquisitions. The Company's executive management group has been assembled in the past year, and there can be no assurance that the executive management group will be able to manage effectively the combined entity or implement the Company's operating and growth strategies. In addition, the rapid pace of acquisitions has, and will continue to, put pressure on the Company's personnel, computer systems and other corporate support systems. Any inadequacy of such systems to manage the increased size and scope of operations resulting from growth or the inability of the Company to integrate successfully the Acquired Businesses or future acquisitions could have a material adverse effect on the business, financial condition and results of operations of the Company. The Company will continue to improve its profitability by various means, including a continued reduction of redundant operating and overhead costs, increased asset utilization and enhanced purchasing power. The Company's ability to sustain profitability improvements will be affected by various factors, such as the costs associated with centralizing its administrative functions and its ability to benefit from enhanced purchasing power, many of which are beyond the control of the Company. In addition, the Company's ability to achieve its operating and growth goals will depend in large part on its ability to continue to consolidate and integrate certain administrative functions common to the Company and the Acquired Businesses. Such consolidation and integration has required substantial attention from senior management and may disrupt the operations of the Company, as management attention is diverted from other tasks, and as technological, practical or personnel issues arise. In addition, although no material capital expenditures currently are anticipated in connection with such consolidation and integration, there can be no assurance that such consolidation and integration will not result in the requirement to make material unanticipated capital expenditures. There can be no assurance that such consolidation and integration will be completed or that, if completed, the Company will recognize any economic benefit. DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH One of the Company's strategies is to increase its revenues and the markets it serves through acquisitions. There can be no assurance that suitable candidates for acquisitions can be found or, if suitable candidates are identified, that acquisitions can be completed on acceptable terms. In this regard, the Company faces competition from other package vacation providers as well as from travel suppliers and vertically integrated travel companies in its efforts to identify acquisition targets and complete acquisitions. In addition, as consolidation in the industry continues, the prices for attractive acquisition candidates may be bid up to higher levels, and there can be no assurance that businesses acquired in the future will achieve sales and profitability that justify the investment therein. The failure of the Company to acquire additional travel businesses may limit the Company's ability to grow in the future. Future acquisitions may involve a number of risks that could adversely affect the business, results of operations and financial condition of the Company. These could include adverse short-term effects on the Company's reported operating results such as those caused by severance payments to employees of acquired companies, difficulties in eliminating duplicative costs, restructuring charges associated with the acquisitions and other expenses associated with a change of control, as well as non-recurring acquisition costs. Acquisitions also may divert management's attention, create difficulties with retention, hiring and training of key personnel, raise risks associated with unanticipated problems or legal liabilities and require non-cash accounting charges associated with the amortization of acquired intangible assets. Furthermore, although the Company conducts due diligence and generally requires representations, warranties and indemnifications from the former owners of acquired companies, there can be no assurance that such owners will have accurately represented the financial and operating conditions of their companies or will have the means to satisfy their indemnification obligations. If an acquired company's financial or operating results were misrepresented, the acquisition could have a material adverse effect on the business, financial condition and results of operations of the Company. INTEGRATION OF INFORMATION AND BUSINESS SYSTEMS The Company and each of the Acquired Businesses have operated separate internal information and business systems. Prior to the acquisition by the Company of MTI Vacations, Inc. ("MTI"), MTI received information and business system support on an outsourced basis from Trase Miller Solutions, Inc. ("Trase Miller Solutions"), and Trase Miller Solutions continues to provide such services to MTI. In order to migrate the separate support systems which the Company and the other Acquired Businesses currently operate (other than the business systems associated with the Company's in-bound business) to a common platform system, the Company has negotiated to expand the outsourcing agreement with Trase Miller Solutions throughout the Company's business. The Company currently estimates the migration to the Trase Miller Solutions system will be accomplished prior to the end of 1999, subject to the integration of any further acquisitions. Once this migration is complete, the Company's ability to deliver its products and services and manage its internal systems will depend substantially on the Trase Miller Solutions system. There can be no assurance that the implementation will be completed on a timely cost-effective basis and without unforeseen difficulties. In addition, while the Company 9 10 believes that the Trase Miller Solutions system will provide adequately for the Company's information and business system requirements, there can be no assurance that the Trase Miller Solutions system will in fact meet the Company's needs. Prior to the company-wide implementation of the Trase Miller Solutions system, the operation of multiple separate systems, including the systems of any businesses hereafter acquired by the Company, could adversely affect the Company's ability to monitor and manage its operations. The failure of the Company to effectively manage the Trase Miller Solutions agreement or otherwise to integrate its separate systems, any delays or difficulties encountered in implementing the Trase Miller Solutions system or the failure of the Trase Miller Solutions system to meet the Company's information and business system requirements could have a material adverse effect on the business, financial condition and results of operations of the Company (See Note 8 - Trase Miller Agreement of Notes to Consolidated Financial Statements). DEPENDENCE ON TECHNOLOGY; YEAR 2000 ISSUE The Company's business is dependent upon a number of different information and telecommunications technologies to access information and manage reservation systems, including handling a high volume of telephone calls on a daily basis. Rapid changes in these technologies may require greater than anticipated capital expenditures to improve or upgrade the level of customer service. In addition, the Company is dependent upon certain third party vendors, including central reservation system operators such as SABRE Group Holdings, Inc. ("SABRE"), Galileo International, Inc. ("Galileo") and WORLDSPAN, L.P. ("WORLDSPAN") for access to certain information and will depend on such vendors in the future for electronic distribution of vacation products to retail travel agents and other travel intermediaries. Any failure of these systems could have a material adverse effect on the business, financial condition and results of operations of the Company. The Company's dependence upon information and telecommunications technology makes the Company particularly sensitive to Year 2000 issues. Because the Company receives reservations up to a year in advance, the Company must identify and correct potential Year 2000 problems on a more accelerated basis than companies in many other industries. While the Company believes that the Trase Miller Solutions system, as well as any of the Company's systems not integrated within the Trase Miller Solutions system is Year 2000 compliant, there can be no assurance that these systems will prevent disruptions of the Company's operations due to Year 2000 issues. In addition, the Company's information and telecommunications systems must operate in conjunction with the systems of other parties, including SABRE, Galileo and WORLDSPAN, and any Year 2000 problems in these third-party systems could directly affect the Company's own systems. Finally, travelers who use the Company's products and services may be exposed to disruptions in their travel as a result of failures by travel suppliers or other travel businesses to correct Year 2000 problems in their information and computer systems, and such disruptions could adversely affect demand for vacation travel generally and may have a material adverse effect on the business, financial condition and results of operations of the Company. DEPENDENCE ON CUSTOMER DEPOSITS AND ADVANCE PAYMENTS The Company derives substantial income from interest on customer deposits and advance payments. For 1998 on a pro forma basis, the Company had interest income of $3.7 million (or 35.8% of income before income taxes), substantially all of which was derived from interest on customer deposits and advance payments. In addition, the Company's pricing of its products and services is determined, in part, based upon the interest income expected to be received from investing these deposits and advance payments. The Company's investment policy and the terms of the Company's credit facility restrict the Company to investing these deposits and advance payments only in investment-grade securities. A failure of these investment securities to perform at their historical levels could reduce the interest income realized by the Company, which could have a material adverse effect on the business, financial condition and results of operations of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." QUARTERLY FLUCTUATIONS; SEASONALITY The Company's operating results have fluctuated from period to period and likely will continue to fluctuate in the future. The travel industry in general and the Company's operations in particular are highly seasonal. The Company's net revenues generally are highest in the second and third quarters of the year, while its expenses generally are highest in the first and fourth quarters. The Company's quarterly results of operations also may be subject to fluctuations as a result of the timing and cost of acquisitions, fare wars by travel suppliers, changes in relationships with certain travel suppliers, changes in the mix of services offered by the Company, extreme weather conditions, general economic conditions or other factors affecting travel generally. As a result of these and other factors, the Company's quarterly operating results are subject to fluctuation, and the Company believes quarter-to-quarter comparisons of its operating results are not necessarily meaningful and should not be relied upon as an indication of future performance. In 10 11 addition, due to all of the foregoing factors, the Company's operating results in future periods may be below the expectations of securities analysts and investors. In such event, the market price of the Common Stock could be materially adversely affected. RELIANCE ON KEY PERSONNEL The Company's success will depend, in part, on the continued efforts of Roger H. Ballou, its Chairman and Chief Executive Officer, J. Raymond Lewis, Jr., its President and Chief Operating Officer, Walter S. Berman, its Executive Vice President and Chief Financial Officer, and the senior management of the Acquired Businesses. Furthermore, the Company's operations likely will depend on the senior management of companies that may be acquired in the future. If any of these individuals becomes unwilling or unable to continue in his or her present role, or if the Company is unable to attract and retain other skilled employees, its business could be adversely affected. The Company does not maintain key person life insurance on any of its key personnel. Although the Company has entered into employment agreements with Messrs. Ballou, Lewis and Berman, they, like all other key employees, may voluntarily terminate their respective employment relationships with the Company at any time. GOVERNMENT REGULATION AND TAXATION Many travel suppliers, particularly airlines, are subject to extensive regulation by federal, state and foreign governments. In addition, the travel industry is subject to certain special taxes by federal, state, local and foreign governments, including hotel bed taxes, car rental taxes, airline excise taxes and airport taxes and fees. New or different regulatory schemes or changes in tax policy could have an adverse impact on the travel industry in general and could have a material adverse effect on the business, financial condition and results of operations of the Company. ACQUISITION FINANCING; ADDITIONAL DILUTION The Company currently intends to finance future acquisitions by using shares of Common Stock, cash, borrowed funds or a combination thereof. Existing shareholders will suffer ownership dilution if the Company uses Common Stock as consideration for future acquisitions. Moreover, the issuance of additional shares of Common Stock may negatively affect earnings per share and the market price of the Common Stock. If the Common Stock does not maintain a sufficient market value, if the price of Common Stock is highly volatile or if potential acquisition candidates are otherwise unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company may be required to use more of its cash resources or more borrowed funds in order to execute its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through debt or equity offerings. The Company has entered into a credit facility that will provide a limited source of funds which may be used in connection with future acquisitions. There can be no assurance that this credit facility will be sufficient to meet all of the Company's capital requirements to fund acquisitions or that the Company will be able to obtain additional financing if and when it is needed or that any such additional financing will be available on terms it deems acceptable. ACCOUNTING CHARGES; SIGNIFICANT INTANGIBLE ASSETS Many business acquisitions must be accounted for under the purchase method of accounting, and the Company expects that, under current accounting rules, it will be required for the foreseeable future to account for all acquisitions under the purchase method. Acquisitions accounted for under the purchase method are likely to generate goodwill (which, generally, represents the difference between the purchase price and the fair value of the tangible and separately measurable intangible net assets) or other intangible assets. Consequently, acquisitions of new businesses typically would result in substantial amortization charges to the Company, which, although non-cash in nature, could have a significant impact on the Company's reported operating results. Acquisitions also may involve significant one-time acquisition-related charges. Generally accepted accounting principles require that goodwill and all other intangible assets be amortized over the period benefited, and the Company's management has determined that period to be at least 35 years for the goodwill recorded in connection with the Acquisitions. There can be no assurance that the Company's management accurately determined the amortization period for the goodwill recorded in connection with the Acquisitions. If the Company failed to recognize a separate, material intangible asset having an actual benefit period of less than 35 years, or if the Company did not give effect to any accrued shorter benefit periods for certain material portions of the goodwill recorded in connection with the Acquisitions, then earnings reported in periods immediately following the Acquisitions will be overstated, and, in later years, the Company will be burdened by a continuing charge against earnings without an associated benefit to income which generally would have been factored into the price paid for the business acquired. Earnings in later years also will be significantly affected if management determined that the remaining balance of goodwill at any time was impaired. Management has reviewed with its independent accountants all of the factors and related cash flows which 11 12 it considered in arriving at the amount of goodwill in each of the Acquisitions. Management concluded that the anticipated future cash flows associated with intangible assets recognized in the Acquisitions will continue indefinitely, and that there is no persuasive evidence that any material portion will dissipate over a period shorter than 35 years. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Growth Strategy." VACATION TRAVEL INDUSTRY; GENERAL ECONOMIC CONDITIONS The Company's results of operations will depend upon factors affecting the vacation travel industry generally. The Company's revenues and earnings are especially sensitive to events that affect domestic and international air travel and the level of car rentals and hotel reservations. A number of factors, including political instability, armed hostilities, international terrorism, labor disturbances, a rise in fuel prices or other travel costs, excessive inflation, currency fluctuations, extreme weather conditions and concerns about passenger safety could result in a temporary or longer-term overall decline in demand for package vacations. The Company believes price-based competition will continue for the foreseeable future. The continuation of such competition and the occurrence of any of the events described above could have a material adverse effect on the business, financial condition and results of operations of the Company. In addition, demand for the Company's products and services may be significantly affected by the general level of economic activity and employment in the United States and key international markets. Therefore, any significant economic downturn or recession in the United States or these other markets could have a material adverse effect on the business, financial condition and results of operations of the Company. VOTING CONTROL BY EXISTING MANAGEMENT AND SHAREHOLDERS Thayer Equity Investors III, L.P. ("Thayer") and its affiliates own and control a substantial majority of the Common Stock of the Company. As of December 31, 1998, Thayer and its affiliates own beneficially 64.7% of the outstanding shares of Common Stock. As a result, Thayer and its affiliates are able to exercise control over the Company's affairs and are able to elect the entire Board of Directors and control the disposition of any matter submitted to a vote of shareholders. In addition, the Company's executive officers and directors, and entities affiliated with them, including Thayer and its affiliates, as of December 31, 1998, own beneficially shares of Common Stock representing 69.7% of the total voting power of the Common Stock. NO PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF TRADING PRICE Prior to the initial public offering, there was no public market for the Common Stock and, although a public market has now been developed, there can be no assurance that the public market for the Common Stock will be active or continue. The market price of the Common Stock may be subject to significant fluctuations in response to numerous factors, including variations of the annual or quarterly results of the Company or its competitors, changes by financial research analysts in their estimates of the earnings of the Company or the failure of the Company to meet such estimates, conditions of the economy in general or in the travel industry in particular, unfavorable publicity or changes in applicable laws and regulations (or judicial or administrative interpretations thereof) affecting the Company or the travel service industry. From time to time, the stock market experiences significant price and volume volatility, which may affect the market price of the Common Stock for reasons unrelated to the Company's performance. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Any such litigation instigated against the Company could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on the business, results of operations and financial condition of the Company. SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS AGREEMENT Sales of substantial amounts of Common Stock in the public market following the initial public offering could adversely affect the prevailing market price of the Common Stock and the Company's ability to raise capital in the future. Upon completion of the initial public offering ("IPO"), the Company had a total of 14,747,576 shares of Common Stock outstanding, of which the 3,000,000 shares offered were freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), by persons other than "affiliates" of the Company, as defined under the Securities Act. The remaining 11,747,576 shares of Common Stock outstanding were "restricted securities" as that term is defined by Rule 144 promulgated under the Securities Act. Of these shares, approximately 740,238 shares are eligible for sale in the public market pursuant to Rule 144(k) under the Securities Act and the remaining 11,007,338 shares are eligible for sale in the public market from time to time. 12 13 On January 14, 1999, the Company registered on Form S-8 under the Securities Act the shares of Common Stock issuable under the Stock Option Plan. Of the 2,000,000 shares to be issuable under this Stock Option Plan, approximately 1,617,819 shares were subject to outstanding options as of December 31,1998. At any time a number of shares equal to 12% of the then outstanding shares of Common Stock will be reserved for issuance under the Stock Option Plan. Holders of approximately 11,747,576 shares of Common Stock are entitled to certain registration rights with respect to such shares. If such holders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have an adverse effect on the trading price of the Common Stock. In addition, if the Company is required, pursuant to such registration rights, to include shares held by such persons in a registration statement that the Company files to raise additional capital, the inclusion of such shares could have an adverse effect on the Company's ability to raise needed capital. NO DIVIDENDS The Company does not expect to pay cash dividends on Common Stock in the foreseeable future. In addition, under its credit agreement, the Company is prohibited from paying dividends on its shares of capital stock other than dividends payable solely in shares of Common Stock. FORWARD-LOOKING INFORMATION The matters discussed in this Form 10-K include forward-looking statements that involve risks or uncertainties. While forward-looking statements are sometimes presented with numerical specificity, they are based on various assumptions made by management regarding future circumstances over many of which the Company has little or no control. A number of important factors, including those identified above under this caption "Risk Factors" as well as factors discussed elsewhere in this Form 10-K, could cause the Company's actual results to differ materially from those in forward-looking statements or financial information. Actual results may differ from forward-looking results for a number of reasons, including the following: (i) changes in general economic conditions and other factors that affect demand for travel products or services; (ii) changes in the vacation travel industry; (iii) changes in the Company's relationships with travel suppliers; (iv) competitive factors (including changes in travel distribution methods); and (v) the success of the Company's operating and growth strategies (including the ability to integrate acquisitions into Company operations, the ability of acquired companies to achieve satisfactory operating results and the ability of the Company to manage the transition to an integrated information platform). Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. EXECUTIVE OFFICERS Set forth below is certain information concerning the executive officers of the Company. Roger H. Ballou, 47, has served as Chairman and Chief Executive Officer of the Company since March 1998. Immediately prior to joining the Company, Mr. Ballou served as a Senior Advisor to Thayer. Between May 1995 and September 1997, Mr. Ballou served as Vice Chairman and Chief Marketing Officer, and then as President and Chief Operating Officer of Alamo. For more than 16 years prior to joining Alamo, Mr. Ballou held several executive positions with American Express Travel, serving most recently as President -- Travel Services Group. Mr. Ballou currently serves as Chairman of the National Tourism Organization, a travel industry organization chartered by the U.S. Congress, as a member (and past Chairman) of the Board of Directors of TIA and as a member of the Board of Directors of the National Academy Foundation. From 1995 through 1997, he served as Chairman of the Government Affairs Council, the leading travel industry federal government lobbying arm. Mr. Ballou also is a member of the Board of Directors of American Medical Security, Inc. J. Raymond Lewis, Jr, 53, has served as President and Chief Operating Officer of the Company since March 1998. From September 1996 until January 1998, Mr. Lewis served as President of Certified Vacations, Inc., a large package vacation provider headquartered in Florida. From January 1992 through August 1996, Mr. Lewis was Executive Vice President, Worldwide Sales and Marketing and a director and member of the Executive Committee of Holiday Inn. Mr. Lewis held several executive-level marketing positions with Holiday Inn between 1985 and 1992. Walter S. Berman, 56, has served as Executive Vice President and Chief Financial Officer of the Company since April 1998. From September 1996 until March 1998, Mr. Berman served as an outside consultant to International Business Machines, Inc. ("IBM") to provide advice and assistance to IBM's chief financial officer in several reengineering initiatives in the areas of tax strategy, utilization of capital and risk management. Between 1965 and 1996, Mr. Berman held several positions with American Express Travel, most 13 14 recently as Executive Vice President and Chief Financial Officer. Mr. Berman also served as Treasurer of American Express Corporation, the parent company of American Express Travel, from 1995 through 1996. The Company's executive officers are appointed annually by, and serve at the discretion of, the Board of Directors. Each executive officer is a full-time employee of the Company. There are no family relationships between any of the executive officers of the Company. ITEM 2. PROPERTIES The Company's headquarters are located in Washington, D.C. As of December 31, 1998, the Company's other principal facilities consist of leased offices, of which the largest are located in New York, NY, Downers Grove, IL and San Jose, CA. The Company has other offices in Cambridge, MA and Mount Laurel, NJ that will be closed by March 31, 1999. The Company believes these facilities are adequate to meet its anticipated needs. As the Company continues to implement its growth strategy, certain changes are expected, such as combinations of facilities, expansion of other facilities, and the implementation of new call centers or shared services centers. ITEM 3. LEGAL PROCEEDINGS The Company is not involved in any legal proceedings other than various legal actions arising in the ordinary course of business. The Company believes none of these actions will have a material adverse effect on its business, financial condition and results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE 14 15 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on The New York Stock Exchange under the symbol "GVG." The following table sets forth the high and low closing prices for each quarter (or partial quarter) in 1998, as quoted on The New York Stock Exchange:
HIGH LOW ---- --- Third Quarter (from July 31, 1998) $15 $7 1/4 Fourth Quarter 11 1/4 5 7/16
The closing price of the Company's Common Stock, as reported by The New York Stock Exchange, on March 11, 1999 was $10.25. The approximate number of record holders of the Common Stock as of March 11, 1999 was 55. The Company intends to retain all of its earnings, if any, to finance the expansion of its business and for general corporate purposes, including future acquisitions, and does not anticipate paying any cash dividends on its Common Stock for the foreseeable future. In addition, the Company's line of credit includes restrictions on the ability of the Company to pay cash dividends without the consent of the lender. ITEM 6. SELECTED FINANCIAL DATA The selected financial data as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and 1996, was derived from the financial statements of the Company audited by Arthur Andersen LLP included elsewhere in this Form 10-K. The selected financial data as of December 31, 1996 and 1995, and for the year ended December 31, 1995, were derived from the financial statements of the Company audited by Arthur Andersen LLP not included in this Form 10-K. The selected financial data as of December 31, 1994, and for the year ended December 31, 1994, were derived from unaudited financial statements of the Company not included in this Form 10-K which, in the opinion of management, have been prepared in a manner consistent with the audited financial statements. The results of operations for the year ended December 31, 1998, are not necessarily indicative of the results to be expected for any future period. The selected pro forma statement of operations data gives effect to the acquisitions of Haddon Holidays, Inc., Classic Custom Vacations, MTI Vacations and Globetrotters, Inc., as well as the Company's initial public offering and the use of the net proceeds therefrom to repay certain indebtedness, as if all such events had occurred as of January 1, 1997. The selected pro forma financial data is not necessarily indicative of the results of operations and financial position of the Company had such transactions occurred on the dates specified and is not necessarily indicative of the results of operations for any future period. The information in this table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical financial statements and accompanying notes thereto included elsewhere in this Form 10-K. 15 16
YEARS ENDED DECEMBER 31, ------------------------ (in thousands, except per share data) PRO FORMA PRO FORMA 1998 1997 1996 1995 1994 1998(1) 1997(1) --------- --------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Net revenues.............................. $ 90,421 $ 24,255 $ 22,259 $ 18,464 $ 13,098 $ 123,501 $ 115,222 Operating expenses ....................... 69,386 17,852 16,025 13,316 8,414 100,465 96,939 --------- --------- --------- --------- --------- --------- --------- Gross profit ........................ 21,035 6,403 6,234 5,148 4,684 23,036 18,283 --------- --------- --------- --------- --------- --------- --------- General and administrative expenses(2) ......................... 10,248 7,797 6,905 5,702 4,758 12,083 10,256 Depreciation and amortization ............ 2,779 182 154 131 166 3,820 3,485 Settlement agreement legal expense ............................. -- -- -- -- -- -- 1,184 --------- --------- --------- --------- --------- --------- --------- Income (loss) from operations ............ 8,008 (1,576) (825) (685) (240) 7,133 3,358 --------- --------- --------- --------- --------- --------- --------- Other income (expense): Interest income ...................... 2,480 556 581 521 445 3,658 4,324 Interest expense ..................... (1,504) -- -- -- -- (586) (889) Other, net ........................... 26 41 (4) 67 -- 22 338 --------- --------- --------- --------- --------- --------- --------- Total other income ............... 1,002 597 577 588 445 3,094 3,773 --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item ................... 9,010 (979) (248) (97) 205 10,227 7,131 Provision for income taxes .............. (3,908) (124) (122) (106) (87) (4,025) (2,852) --------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item ................................. 5,102 (1,103) (370) (203) 118 6,202 4,279 Extraordinary item, net of income tax benefit of $244 .................. (379) -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss) ........................ 4,723 (1,103) (370) (203) 118 6,202 4,279 Preferred dividend ....................... (2,519) -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss) available to common shareholders..................... $ 2,204 $ (1,103) $ (370) $ (203) $ 118 $ 6,202 $ 4,279 ========= ========= ========= ========= ========= ========= ========= Net income (loss) per share: Basic and Diluted.............. $ 0.22 $ (0.21) $ 0.42 $ 0.29 Weighted average shares outstanding: Basic ................................ 9,931 5,291 14,746 14,748 Diluted .............................. 9,990 5,291 14,805 14,748
DECEMBER 31, (in thousands) 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments .............................. $ 32,663 $ 7,909 $ 8,256 $ 7,896 $ 6,571 Working capital (deficit)................... (24,867) (78) 1,256 2,710 3,563 Total assets................................ 134,060 19,375 19,677 17,713 13,819 Total debt.................................. 6,663 -- -- -- -- Shareholders' equity........................ 53,585 358 1,673 3,151 4,118
- - ---------- (1) The pro forma statement of operations data for each period presented gives effect to (i) the Recapitalization, (ii) the Acquisitions and the issuance of capital stock in connection therewith, (iii) reductions in salary and bonuses to the prior owners and key executives of the Company and the Acquired Businesses, offset in part by expected incremental costs reflecting the Company's new management structure (the "Compensation Savings"), (iv) the termination of the Company's status as an S Corporation, (v) the Conversion of Class A Convertible Preferred Stock into common stock (the "Conversion"), (vi) the Company's initial public offering and the use of the net proceeds therefrom to repay certain indebtedness as if all such events had occurred as of January 1, 1997. The pro forma results do not eliminate the non-recurring settlement agreement legal expense of one of the Acquired Businesses of approximately $1.2 million for the year ended December 31, 1997 as such expense is not directly related to the Acquisitions. (2) General and administrative expenses for the years ended December 31, 1997, 1996, 1995 and 1994 include salary and bonuses to the prior owners and certain key employees of the Company of $5.8 million, $4.8 million, $3.8 million, and $3.1 million, respectively. 16 17 General and administrative expenses for the year ended December 31, 1998 include approximately $1.1 million of expenses incurred in connection with the Recapitalization. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Global Vacation Group, Inc. ("GVG" or the "Company") assembles air, hotel, rental car and other travel components in bulk and provides complete vacations to travelers through retail travel distributors, such as travel agents, and other distribution channels including the Internet and affinity groups. In March 1998 the Company was recapitalized and between March 1998 and May 1998 acquired the stock or assets of four other vacation providers. GVG acquired the outstanding capital stock of Haddon Holidays Inc., ("Haddon"), Classic Custom Vacations, ("Classic") and Globetrotters Inc. ("Globetrotters") and substantially all the assets of MTI Vacations, Inc. ("MTI") (collectively, the "Acquisitions"). The consideration for the Acquisitions consisted of cash. Each acquisition has been accounted for under the purchase method of accounting. The accompanying consolidated financial statements as of December 31, 1998 and for the year ended December 31, 1998 include the results of operations for each of the Acquisitions from their respective acquisition dates in 1998. Net revenues include commissions and markups on travel products and services, volume bonuses received from travel suppliers, cancellation fees and other ancillary fees such as travel protection premiums and are recognized upon the commencement of travel. For the year ended December 31, 1998, the Company had net revenues of $90.4 million and net income of $4.7 million derived from a total dollar value of travel products and services of $410.2 million. For the year ended December 31, 1997, the Company had net revenues of $24.3 million and a net loss of $1.1 million derived from a total dollar value of travel products and services of $125.9 million. Operating expenses include travel agent commissions, salaries, telecommunications, advertising and other costs associated with the selling and processing of travel reservations, products and services. Commission payments to travel agents are typically based on a percentage of the price paid for the travel product or service, but in certain circumstances are fixed dollar amounts. Reservations agents are compensated either on an hourly basis, a commission basis or a combination of the two. The Company's telephone costs primarily relate to the cost of incoming calls on toll-free numbers. General and administrative expenses consist primarily of compensation and benefits to administrative and other non-sales personnel, fees for professional services, and other general office expenses. In connection with the Recapitalization and the Acquisitions, the Company is restructuring certain operations of the companies acquired in the Acquisitions (the "Acquired Businesses"). The Company's objective is to realize certain savings from the combination of the Acquired Businesses as a result of consolidating certain operating expenses such as telecommunications, advertising and promotional programs and from consolidating or outsourcing certain administrative functions, including technology and software development, insurance, employee benefits and other administrative expenses. The Company accrued certain costs of restructuring the Acquired Businesses totaling approximately $2.0 million related to closing redundant acquired facilities and making severance payments to terminated employees following the Acquisitions. During 1998, the Company closed four reservation offices, combined four domestic companies into two U.S. brands and migrated two of the Acquired Businesses' information systems onto a common technology platform. The restructuring of the redundant facilities is on-going, and the Company has a remaining accrual of $1.1 million as of December 31, 1998. The remaining accrual relates primarily to lease obligations on closed facilities and severance costs expected to be paid in 1999. The Company derives a significant portion of its pre-tax income from interest earned on funds related to customer deposits and prepayments for vacation products. Generally, the Company requires a deposit within one week of making a travel reservation. Reservations are typically made two to three months prior to departure. Additionally, for package tours, the Company generally requires that the entire cost of the vacation be paid in full 45 to 60 days before departure, unless reservations are made closer to departure. While terms vary, the Company generally pays for the vacation components after the customer's departure. In the period between receipt of a deposit or prepayment and the payment of related expenses, these funds are invested in cash and investment-grade securities. This cycle is typical in the package tour industry and earnings generated on deposits and prepayments are integral to the Company's operating model and pricing strategies. For the year ended December 31, 1998, the Company had interest income of $2.5 million (27.5% of income before income taxes and extraordinary item), all of which was derived from interest on customer deposits and advance payments. For the year ended December 31, 1997, the Company had interest income of $556,000 (or 17 18 56.8% of loss before income taxes). For the year ended December 31, 1998, on a pro forma basis, the Company had interest income of $3.7 million (35.8% of income before income taxes and extraordinary item). For the year ended December 31, 1997, on a pro forma basis, the Company had interest income of $4.3 million (or 60.6% of income before income taxes). PRO FORMA RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 Management believes that period-to-period comparisons of the Company's historical financial results are not necessarily meaningful and should not be relied upon as an indication of future performance given the impact of the Acquired Businesses and the Company's 1998 initial public offering on the Company's financial results. The pro forma statement of operations data for each period presented give effect to (i) the Recapitalization, (ii) the Acquisitions and the issuance of capital stock in connection therewith, (iii) reductions in salary and bonuses to the prior owners and key executives of the Company and the Acquired Businesses, offset in part by expected incremental costs reflecting the Company's new management structure (the "Compensation Savings"), (iv) the termination of the Company's status as an S Corporation, (v) the Conversion and (vi) the Company's initial public offering and the use of the net proceeds therefrom to repay certain indebtedness as if all such events had occurred as of January 1, 1997. The pro forma results do not eliminate the non-recurring settlement agreement legal expense of one of the Acquired Businesses of approximately $1.2 million for the year ended December 31, 1997, as such expense is not directly related to the Acquisitions. The pro forma consolidated financial data included in this Form 10-K cover periods when the Company and the Acquired Businesses were not under common management or control and are not necessarily indicative of the results that would have been achieved if the Company and the Acquired Businesses had been operated on an integrated basis or the results that may be realized on a consolidated basis in the future. The following table summarizes the Company's pro forma results of operations as a percentage of pro forma net revenues (in thousands).
YEARS ENDED DECEMBER 31, ----------------------------------------------------------- 1998 1997 ---- ---- PRO FORMA PRO FORMA Amount % Amount % ----------------------------------------------------------- Net revenues ....................... $ 123,501 100.0% $ 115,222 100.0% Operating expenses ................. 100,465 81.3 96,939 84.1 --------- ------- --------- ----- Gross profit .................. 23,036 18.7 18,283 15.9 --------- ------- --------- ----- General and administrative expenses 12,083 9.8 10,256 8.9 Depreciation and amortization .... 3,820 3.1 3,485 3.0 Settlement agreement legal expense . -- -- 1,184 1.0 --------- ------- --------- ----- Income from operations ........ 7,133 5.8 3,358 3.0 --------- ------- --------- ----- Interest income .................... 3,658 3.0 4,324 3.8 Interest expense ................... (586) (0.5) (889) (0.8) Other income ....................... 22 - 338 0.3 --------- ------- --------- ----- Income before income taxes ......... 10,227 8.3 7,131 6.3 Provision for income taxes ......... (4,025) (3.3) (2,852) (2.5) --------- ------- --------- ----- Net income .................... $ 6,202 5.0% $ 4,279 3.8% ========= ======= ========= =====
Pro forma net revenues for the years ended December 31, 1998 and 1997, were $123.5 million and $115.2 million, respectively, which reflects the combined net revenues of the Company and the Acquired Businesses for each period, less $2.2 million in 1997 of historical net revenues for product lines discontinued by MTI prior to its acquisition. The increase in net revenues in 1998 was approximately $8.3 million or 7.2% and is primarily due to the increase in revenue per passenger traveled. Pro forma operating expenses for the years ended December 31, 1998 and 1997, were $100.5 million and $96.9 million, respectively, or 81.3% and 84.1%, respectively, of pro forma net revenues. The resulting improvement in pro forma gross profit as a percentage of net revenues is due primarily to the increase in net revenue per passenger traveled and the implementation of certain cost reduction initiatives. Pro forma general and administrative expenses for the years ended December 31, 1998 and 1997, were $12.1 million and $10.3 million, respectively, or 9.8% and 8.9%, respectively, of pro forma net revenues. The increase is due to additional costs associated with being a public company and additional overhead at the Company's headquarters that did not exist prior to the Recapitalization. 18 19 The Company expects that general and administrative expenses will increase in absolute dollars in future periods and may decrease as a percentage of net revenues. Pro forma depreciation and amortization for the years ended December 31, 1998 and 1997, was $3.8 million and $3.5 million, respectively, or 3.1% and 3.0%, respectively, of pro forma net revenues. Pro forma results for the year ended December 31, 1997, included a non-recurring expense of $1.2 million or 1.0% of net revenues related to a law suit at one of the acquired companies. Excluding the effect of the non-recurring expense, net of the related income tax effects, pro forma net income for the year ended December 31, 1997 would have been approximately $5.0 million. Pro forma interest income for the years ended December 31, 1998 and 1997, was $3.7 million and $4.3 million respectively, or 3.0% and 3.8%, respectively, of pro forma net revenues. The Company experienced a change in rates of return in the third and fourth quarter of 1998 on certain investments that negatively impacted interest income for the year. In addition, working capital was used to repay existing long-term debt earlier than anticipated. Correspondingly, the reduction in debt resulted in the decrease of pro forma interest expense in 1998. Pro forma interest expense for the years ended December 31, 1998 and 1997 was $586,000 and $889,000, respectively. The pro forma provision for income taxes for the years ended December 31, 1998 and 1997, was $4.0 million and $ 2.9 million or 3.3% and 2.5%, respectively, of pro forma net revenues, at an assumed tax rate of 39.4% and 40.0%, respectively, reflecting a termination of the Company's S Corporation status and implementation of certain tax-planning initiatives. Pro forma net income for the years ended December 31, 1998 and 1997, was $6.2 million and $4.3 million, respectively, or 5.0%, and 3.8%, respectively, of pro forma net revenues. The increase is primarily due to the improved gross profit percentage, lower interest expense in 1998 and the settlement agreement legal expenses related to 1997. HISTORICAL RESULTS OF OPERATIONS THE COMPANY The following table sets forth certain historical operating data for the Company as a percentage of net revenues (in thousands).
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------- 1998 1997 1996 ----- ---- ---- Amount % Amount % Amount % --------------------------------------------------------------------------- Net revenues....................................... $90,421 100.0% $24,255 100.0% $22,259 100.0% Operating expenses................................. 69,386 76.7 17,852 73.6 16,025 72.0 --------------------------------------------------------------------------- Gross profit ................................. 21,035 23.3 6,403 26.4 6,234 28.0 General and administrative expenses................ 10,248 11.3 7,797 32.1 6,905 31.0 Depreciation and amortization...................... 2,779 3.1 182 0.8 154 0.7 --------------------------------------------------------------------------- Income (loss) from operations................. 8,008 8.9 (1,576) (6.5) (825) (3.7) --------------------------------------------------------------------------- Interest income.................................... 2,480 2.7 556 2.3 581 2.6 Interest expense................................... (1,504) (1.7) -- -- -- -- Other, net......................................... 26 -- 41 0.2 (4) -- --------------------------------------------------------------------------- Income (loss) before income taxes, and extraordinary item............................... 9,010 9.9 (979) (4.0) (248) (1.1) Provision for income taxes......................... (3,908) (4.3) (124) (0.5) (122) (0.5) --------------------------------------------------------------------------- Income (loss) before extraordinary item...... 5,102 5.6 (1,103) (4.5) (370) (1.6) Extraordinary item, net of income tax benefit of $244......................................... (379) (0.4) -- -- -- -- --------------------------------------------------------------------------- Net Income (loss)................................ 4,723 5.2 (1,103) (4.5) (370) (1.6) Dividends on Class A Convertible Preferred Stock........................................ (2,519) (2.8) -- -- -- -- --------------------------------------------------------------------------- Net income (loss) available to common shareholders................................. $2,204 2.4% $(1,103) (4.5)% $ (370) (1.6)% ===========================================================================
19 20 1998 COMPARED TO 1997 Net Revenues. Net revenues for the years ended December 31, 1998 and 1997, increased to $90.4 million from $24.3 million, respectively, representing an increase of 272.0%. The increase is due to net revenues generated by the Acquired Businesses. Operating expenses. Operating expenses increased to $69.4 million for the year ended December 31, 1998, from $17.9 million for the year ended December 31, 1997, representing an increase of 287.7%. The increase is a result of additional operating expenses from the Acquired Businesses. As a percentage of net revenues, operating expenses increased to 76.7% for the year ended December 31, 1998, from 73.6% for the year ended December 31, 1997. The increase in operating expenses as a percent of net revenues was primarily due to the combination of the various gross margins of the Acquired Businesses. General and administrative expenses. General and administrative expenses increased to $10.2 million for the year ended December 31, 1998, from $7.8 million for the year ended December 31, 1997, representing an increase of 30.8%. As a percent of net revenues, general and administrative expenses decreased to 11.3% for the year ended December 31, 1998, from 32.1% in 1997. For the year ended December 31, 1997, general and administrative expenses included salary and bonuses paid to shareholders totaling $5.8 million. General and administrative expenses for the year ended December 31, 1998, also included approximately $1.1 million of transaction expenses related to the Recapitalization. Excluding compensation and bonuses paid to shareholders and Recapitalization transaction expenses, general and administrative expenses would have been $9.1 million for the year ended December 31, 1998, and $2.0 million for the year ended December 31, 1997. In connection with the early extinguishment of certain term loans under the credit facility, the Company recognized an extraordinary charge of $379,000, net of tax benefit of $244,000, to write-off deferred financing costs related to the term loans repaid. Net Income. Net income increased to $4.7 million for the year ended December 31, 1998, as compared to a net loss of $1.1 million for the year ended December 31, 1997, or 5.2% and (4.5%) of net revenues, respectively, was attributable largely to the net income of the Acquired Businesses and $1.1 million in transaction expenses related to the Recapitalization in 1998 and the reduction of compensation paid to shareholders in 1997. 1997 COMPARED TO 1996 Net Revenues. Net revenues increased to $24.3 million in 1997 from $22.3 million in 1996, representing an increase of 9.0%. The growth in net revenues was primarily generated by increased travel volume. Operating expenses. Operating expenses increased to $17.9 million in 1997 from $16.0 million in 1996, representing an increase of 11.9%. As a percentage of net revenues, operating expenses increased to 73.6% in 1997 from 72.0% in 1996. The increase in operating expenses as a percentage of net revenues in 1997 over 1996 was due primarily to increases in salaries. General and administrative expenses. General and administrative expenses increased to $7.8 million in 1997 from $6.9 million in 1996, representing an increase of 12.9%. General and administrative expenses included salary and bonuses paid to shareholders which totaled $5.8 million in 1997, and $4.8 million in 1996. Excluding compensation and bonuses paid to shareholders, general and administrative expenses would have been $2.0 million in 1997, and $2.1 million in 1996. Net loss. Changes in the net loss between years was largely affected by the factors discussed above. Depreciation and amortization expense and interest income were consistent between years. The increase in the net loss in 1997 as compared to 1996 was attributable largely to the $1.0 million increase in compensation and bonuses to shareholders in 1997 without a corresponding increase in gross profit over 1996. LIQUIDITY AND CAPITAL RESOURCES The Company receives advance payments and deposits prior to commencement of travel. The Company's pricing of its products and services is determined, in part, based upon the amount and timing of advance payments received. A number of states have regulations with respect to the management of customer deposits made in advance of travel. The Company believes it is in compliance with all applicable regulations relating to customer deposits. The Company manages cash and investments on a centralized basis. The Company's investment policy and the Credit Facility restrict investments to investment-grade securities. 20 21 In March 1998, the Company entered into the credit facility with a commercial bank. Under the credit facility, the Company may borrow up to $65.0 million. Of this amount, up to $10.0 million may be in the form of revolving loans, including letters of credit of up to $5.0 million, and the remaining $55.0 million may be in the form of term loans which may not be reborrowed once repaid. The Company's obligations under the Credit Facility are secured by substantially all of the Company's assets and the Company is subject to certain restrictive covenants. The Company completed its initial public offering August 5, 1998. After deducting expenses, the Company received approximately $35.9 million in proceeds from the initial public offering. The Company used the net proceeds to repay borrowings under the Company's credit facility. As of December 31, 1998, the Company had outstanding term loans of $6.7 million under its credit facility and had a total of $16.0 million available under its credit facility with $7.7 million available as revolving loans and $8.3 available as term loans. In February 1999, the Company amended and restated its credit agreement (the "Amended Agreement"). The Amended Agreement was entered into with three participating banks and provides for a $45 million revolving credit facility with a five-year maturity. The Amended Agreement consists of a $10 million working capital revolving credit facility ("Working Capital Facility") with a maximum of $5 million available for issuing standby letters of credit and a $35 million revolving credit facility for use in financing acquisitions ("Acquisition Facility"). The Acquisition Facility has a commitment reduction of $5 million per year for four years commencing December 31, 1999 with the final $15 million reduction at maturity. Under the Amended Agreement, the Company will continue to select interest at ABR Advance or Eurodollar Advance rates plus the applicable margin as previously defined. An annual commitment fee is due on the unused portion of the aggregate facility. The commitment fee is based on the leverage ratio of the Company and will be between .375 percent and .500 percent. Net cash used by operating activities for the year ended December 31, 1998 was $15.5 million as compared to $2.2 million in net cash used by operating activities in the year ended December 31, 1997. The decrease of approximately $13.3 million in operating cash flows reflects primarily the decrease in customer deposits from the respective dates of the Acquisitions to December 31, 1998. The Acquisitions generally occurred during the period preceding peak travel months when customer deposits are high. A significant portion of the Company's business occurs in the second and third quarters, and customer deposits generally decrease following these periods as customer travel is completed. The Company also made capital expenditures of $2.3 million in the year ended December 31, 1998 and $170,000 in the year ended December 31, 1997. The Company used $29.6 million of cash, net of cash acquired, for acquisitions in the year ended December 31, 1998. In January 1999, the Company paid approximately $2.3 million to extend the option of the Trase Miller agreement to March 31, 1999. Should the option be exercised, this payment will be credited towards the option price. Otherwise, it will be credited against future payments owed to Trase Miller under the Outsourcing Agreement. The Company intends to pursue attractive acquisition opportunities. The timing, size or success of any acquisition effort and the associated potential capital commitments cannot be predicted. The Company expects to fund future acquisitions primarily through a combination of issuance of equity or debt, cash flow from operations and borrowings under its credit facility. The Company anticipates its cash flows from operations combined with available borrowings under the credit facility are adequate to meet the Company's capital needs for at least the next 12 months. YEAR 2000 The Company's business is dependent upon a number of different information and telecommunications systems to access information, manage reservation data, and process a high volume of telephone calls on a daily basis. In addressing the Year 2000 (Y2K) issues relating to the systems that support these processes, senior management initiated a due diligence review of all internal and external systems and vendors to ascertain their Y2K compliance readiness. As part of this process, certain third party vendors on which the Company is heavily dependent for access to certain reservation information and for the electronic distribution of vacation products to travel agents and other intermediaries, including Sabre Group Holdings, Inc. ("SABRE"), Galileo International Inc. ("Galileo"), and WORLDSPAN, L.P. ("WORLDSPAN") have advised the Company that their Y2K compliance testing is substantially complete and that as of the first quarter of 1999 were successfully processing reservation bookings for travel that will occur in the year 2000. However, the Company does not control these vendors, and no assurance can be given that all of the Company's significant vendors will be Y2K compliant. In addition, there are very few comparable vendors available who could provide similar services to the Company on a contingency basis in the event of a failure by these vendors to achieve Y2K compliance. 21 22 As a result, any failure on the part of these significant vendors to be Y2K compliant may have a material adverse effect on the business, financial condition, and results of operations for the Company. In December 1998 the Company initiated a coordinated company wide review of each business unit to identify dependent systems and to evaluate the potential exposure of the Y2K issue. To assist senior management in its review, an outside systems consultant was retained to provide the Company with an independent analysis. Once the evaluation is completed, management will verify and certify that these systems are Y2K compliant and if it is determined that there is a risk for any system, contingency plans will be developed. Trase Miller Solutions, Inc., another third party vendor, upon which the Company is dependent to provide a reservation system to one of its subsidiary companies, has advised the Company that it has completed all of its regression testing and that its system, "TripsPro," is Y2K compliant. The Company plans to upgrade this subsidiary to the Y2K compliant version of TripsPro by June 1999. Another subsidiary is continuing efforts, that began in 1998, to ensure that its internally developed reservation system, "PCRes", is Y2K compliant. These efforts are expected to be fully completed and operational by October 1999. The Company is also engaged in an effort to replace the reservations system used by its in-bound business with a Y2K compliant system. The new system, "TIMES2," is being custom developed for the Company by B. Rekencentra, a third party vendor. The development effort is in its final stages, with a phased implementation planned for completion by October 1999. The Company does not anticipate material Y2K problems arising for any of its subsidiaries as a result of the plans to upgrade and replace its reservation systems. As part of the due diligence review, the Company ascertained that one of its accounting systems is not Y2K compliant, and the Company is taking steps to convert the non-compliant system used by one of its operating units to the "FLEXI," a vendor software package, system used by one of the other operating companies. The Company has completed its testing of FLEXI and ascertained that it is Y2K compliant. The conversion is planned to be completed by October , 1999. Another operating unit is continuing efforts, began in 1998, to convert to the "CODA" accounting system, a vendor software package. The Company expects this conversion to be completed by October, 1999. While the Company's due diligence has helped to identify and correct many potential Y2K problems, the review is by no means complete, and additional steps must be taken on an accelerated basis to resolve all the issues given the Company's dependence upon information and telecommunications technology. The Company believes it will be able to determine whether all of its own systems, including "imbedded technology" within individual systems and components, are Y2K compliant and to correct any Y2K problems, that exist prior to any material difficulties arising within these systems. However, no assurance can be given that the Company will be successful in this regard, and unforeseen difficulties or delays in implementing solutions may have a material adverse effect on the business, financial condition, and results of operations of the Company. Finally, travelers who use the Company's products and services may be exposed to disruptions in their travel as a result of failures of travel suppliers or other travel businesses to correct Y2K problems in their information and computer systems, and such disruptions could adversely affect demand for vacation travel generally and may have a material adverse effect on the business, financial condition, and results of operations of the Company. The Company estimates that the total cost of its Y2K program, including auditing and monitoring its vendors, inspecting its own systems and, where necessary, migrating or converting its existing systems to new systems, will be approximately $2.6 million. NEW ACCOUNTING STANDARDS The Company has adopted the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in the financial statements. The adoption of SFAS No. 130 has not had a material impact on the Company's results of operations, financial position, or cash flows. The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. After evaluation, Senior Management concluded that operations occur primarily in one segment only. The adoption of SFAS No. 131 has had no impact on the Company's results of operations, financial position, or cash flows. 22 23 In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133 is effective for fiscal years beginning after June 15, 1999. Management has not yet determined the impact of adopting this statement, but believes it will not have a material impact upon the Company's results of operations or financial position. In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1 requires the Company to capitalize internal computer software costs once the capitalization criteria are met. SOP 98-1 is effective January 1, 1999, and is applied to all projects in progress upon initial application. The Company has not yet determined the impact of the adoption of SOP 98-1, however, a percentage of the Company's historical operating expenses may now be required to be capitalized under SOP 98-1. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates. The Company prices its products and services, in part, based upon the interest income expected to be received from investing customer deposits and advance payments. The Company's investment policy and the terms of the Company's credit facility restrict the Company to investing these deposits and advance payments only in investment-grade securities. A failure of these investment securities to perform at their historical levels could reduce the interest income realized by the Company, which could have a material adverse effect on the business, financial condition and results of operations of the Company. Borrowings under the Company's credit facility are also sensitive to changes in interest rates. The fair value of any fixed rate debt is subject to change as a result of movements in interest rates. Such changes could have material adverse effect on the Company's financial position, and results of operations and could also impact the Company's ability to successfully complete acquisitions. 23 24 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA; INDEX TO CONSOLIDATED FINANCIAL STATEMENTS GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE No. -------- Report of Independent Public Accountants...................................................................................25 Consolidated Balance Sheets as of December 31, 1998 and 1997.......................................................................................................................26 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996.......................................................................................................................27 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1998, 1997 and 1996.......................................................................................................................28 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.......................................................................................................................29 Notes to Consolidated Financial Statements.................................................................................................................30
24 25 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Global Vacation Group, Inc.: We have audited the accompanying consolidated balance sheets of Global Vacation Group, Inc., (a New York corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Vacation Group, Inc., and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Washington D.C. February 5, 1999 (except with respect to the matters discussed in Note 11 to the Consolidated Financial Statements as to which the date is March 17, 1999). 25 26 GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
December 31, December 31, ASSETS 1998 1997 ----------- ----------- Current assets: Cash and cash equivalents (includes $3,248 restricted at December 31, 1998) $ 30,317 $ 7,074 Short-term investments 2,346 835 Accounts receivable, net of allowance of $982, and $861, respectively 14,884 10,637 Loans receivable from shareholders 151 103 Other current assets 6,547 290 ----------- ----------- Total current assets 54,245 18,939 ----------- ----------- Property and equipment, net 5,158 386 Related party and other long-term receivables 2,490 - Intangible assets, net 65,131 - Other assets 7,036 50 ----------- ----------- Total assets $ 134,060 $ 19,375 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 39,869 $ 15,759 Customer deposits 33,943 1,541 Loans payable to shareholders - 1,717 Current portion of long-term debt 5,300 - ----------- ----------- Total current liabilities 79,112 19,017 Long-term debt, net of current portion 1,363 - ----------- ----------- Total liabilities 80,475 19,017 Commitments and Contingencies Shareholders' equity: Preferred Stock, $.01 par value, 6,000,000 shares authorized, no shares issued and outstanding. - - Common Stock, $.01 par value, 60,000,000 shares authorized, 14,747,576, and 5,291,262 shares issued and outstanding, respectively. 147 53 Deferred compensation (430) - Additional paid-in capital 95,122 - Retained earnings (deficit) (41,129) 305 Treasury stock, 12,000 shares, at cost (125) - ----------- ----------- Total shareholders' equity 53,585 358 ----------- ----------- Total liabilities and shareholders' equity $ 134,060 $ 19,375 =========== ===========
- - ---------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 26 27 GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
For the Years Ended December 31, ---------------------------------------------------------------------------- 1998 1997 1996 ------------------- ------------------- ------------------- Net revenues $ 90,421 $ 24,255 $ 22,259 Operating expenses 69,386 17,852 16,025 ------------------- ------------------- ------------------- Gross profit 21,035 6,403 6,234 General and administrative expenses 10,248 7,797 6,905 Depreciation and amortization 2,779 182 154 ------------------- ------------------- ------------------- Income (loss) from operations 8,008 (1,576) (825) ------------------- ------------------- ------------------- Other income (expense) Interest income 2,480 556 581 Interest expense (1,504) - - Other, net 26 41 (4) ------------------- ------------------- ------------------- Total 1,002 597 577 ------------------- ------------------- ------------------- Income (loss) before income taxes and extraordinary item 9,010 (979) (248) Provision for income taxes (3,908) (124) (122) ------------------- ------------------- ------------------- Income (loss) before extraordinary item 5,102 (1,103) (370) Extraordinary item, net of income tax benefit of $244 (379) - - ------------------- ------------------- ------------------- Net income (loss) 4,723 (1,103) (370) Dividends on Class A Convertible Preferred Stock (2,519) - - ------------------- ------------------- ------------------- Net income (loss) available to common shareholders $ 2,204 $ (1,103) $ (370) =================== =================== =================== Basic income (loss)per share: Income (loss) per share before extraordinary item $ 0.26 $ (0.21) $ (0.07) Extraordinary item per share $ (0.04) $ - $ - ------------------- ------------------- ------------------- Basic income (loss) per share $ 0.22 $ (0.21) $ (0.07) =================== =================== =================== Diluted income (loss)per share: Income (loss) per share before extraordinary item $ 0.26 $ (0.21) $ (0.07) Extraordinary item per share $ (0.04) $ - $ - ------------------- ------------------- ------------------- Diluted income (loss) per share $ 0.22 $ (0.21) $ (0.07) =================== =================== =================== Weighted average shares outstanding: Basic 9,931 5,291 5,291 =================== =================== =================== Diluted 9,990 5,291 5,291 - - ------------------------------------------- =================== =================== ===================
The accompanying notes are an integral part of these financial statements. 27 28 GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (in thousands, except share data)
SHAREHOLDERS' EQUITY (DEFICIT) REDEEMABLE ------------------------------------------------- CONVERTIBLE ADDITIONAL PREFERRED STOCK COMMON STOCK PAID-IN DEFERRED ------------------------- ----------------------- SHARES AMOUNT SHARES AMOUNT CAPITAL COMP. ------------------------- ----------------------- ---------- -------- Balance, December 31, 1995 - $ - 5,291,262 $ 53 $ - $ - Net loss - - - - - - Distributions - - - - - - ----------- ----------- ------------ -------- ---------- -------- Balance, December 31, 1996 - - 5,291,262 53 - - Net loss - - - - - - Distributions - - - - - - ----------- ----------- ------------ -------- ---------- -------- Balance, December 31, 1997 - - 5,291,262 53 - - Redemption of common stock - - (1,799,025) (18) - - Class A Convertible Preferred stock dividend 25,762 25,762 - - - - Issuance of common and Class A Convertible Preferred stock 27,014 27,014 4,305,689 43 3,486 - Accrued dividend on Class A Convertible Preferred stock - 2,519 - - - - Fair value adjustment for securities available for sale, net - - - - - - Issuance of common stock from Initial Public Offering - - 3,000,000 30 35,900 - Conversion of Class A Convertible Preferred Stock (52,776) (55,295) 3,949,650 39 55,256 - Deferred compensation - - - - 480 (480) Amortization of deferred compensation - - - - - 50 Purchase of treasury stock - - - - - - Net income - - - - - - Distributions - - - - - - ----------- ----------- ------------ -------- ---------- -------- Balance, December 31, 1998 - $ - 14,747,576 $ 147 $ 95,122 $ (430) =========== =========== ============ ======== ========== ========
SHAREHOLDERS' EQUITY (DEFICIT) ------------------------------------------- RETAINED TREASURY EARNINGS STOCK TOTAL --------- ------------- ------------ Balance, December 31, 1995 $ 3,098 $ - $ 3,151 Net loss (370) - (370) Distributions (1,108) - (1,108) --------- ------------- ------------ Balance, December 31, 1996 1,620 - 1,673 Net loss (1,103) - (1,103) Distributions (212) - (212) --------- ------------- ------------ Balance, December 31, 1997 305 - 358 Redemption of common stock (12,873) - (12,891) Class A Convertible Preferred stock dividend (25,762) - (25,762) Issuance of common and Class A Convertible Preferred stock - - 3,529 Accrued dividend on Class A Convertible Preferred stock (2,519) - (2,519) Fair value adjustment for securities available for sale, net (8) - (8) Issuance of common stock from Initial Public Offeri - - 35,930 Conversion of Class A Convertible Preferred Stoc - - 55,295 Deferred compensation - - - Amortization of deferred compensation - - 50 Purchase of treasury stock - (125) (125) Net income 4,723 - 4,723 Distributions (4,995) - (4,995) --------- ------------- ------------ Balance, December 31, 1998 $(41,129) $ (125) $ 53,585 ========= ============= ============
The accompanying notes are an integral part of these financial statements. 28 29 GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, ---------------------------------------------------------- 1998 1997 1996 ---------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ 4,723 $ (1,103) $ (370) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Write-off of deferred financing costs 623 - - Depreciation and amortization 2,779 182 154 Amortization of deferred financing costs 95 - - Amortization of deferred compensation 50 - - Changes in assets and liabilities, excluding effect of acquisitions Accounts receivable 5,870 (470) (1,593) Other assets (7,024) (74) 29 Accounts payable and accrued expenses (4,467) (606) 2,881 Customer deposits (17,808) (98) 561 Other liabilities (308) - - ................... ................... ................ Net cash (used in) provided by operating activities (15,467) (2,169) 1,662 ................... ................... ................ Cash flows from investing activities: Purchases of property and equipment (2,272) (170) (126) Net sales (purchases) of investments 20,170 1,744 (1,483) Acquisitions, net of cash acquired (29,629) - - ................... ................... ................ Net cash (used in) provided by investing activities (11,731) 1,574 (1,609) ................... ................... ................ Cash flows from financing activities: Net (repayments) borrowings on loans to/from shareholders (3,558) 2,204 (67) Distributions to shareholders (4,995) (212) (1,108) Proceeds from borrowings under credit agreement 46,688 - - Repayment of borrowings from credit agreement (40,025) - - Repayment of promissory note (4,000) - - Deferred financing costs (1,126) - - Redemption of common stock (8,891) - - Net proceeds from Initial Public Offering 35,930 - - Proceeds from issuance of common and Class A Convertible Preferred Stock 30,543 - - Purchase of treasury stock (125) - - ................... ................... ................ Net cash provided by (used in) financing activities 50,441 1,992 (1,175) ................... ................... ................ Net increase (decrease) in cash and cash equivalents 23,243 1,397 (1,122) Cash and cash equivalents beginning of period 7,074 5,677 6,799 ................... ................... ................ Cash and cash equivalents end of period $ 30,317 $ 7,074 $ 5,677 =================== =================== ================ Supplemental disclosures of cash flow information: 1998 1997 1996 ---------------------------------------------------------- Cash paid for: Income taxes $ 3,289 48 123 Interest $ 1,937 - - Supplemental disclosures of non cash investing and financing activities: Issuance of promissory note in connection with the redemption of common stock $ 4,000 - - Class A Convertible Preferred stock dividend $ 25,762 - - Dividend accretion on Class A Convertible Preferred stock $ 2,519 - - - - ----------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
29 30 GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS DESCRIPTION AND ORGANIZATION The Company is one of the largest U.S. providers of value-added vacation products and services targeted to higher-income travelers. The Company assembles air, hotel, rental car and other travel components in bulk and provides complete vacations to travelers through retail travel distributors, such as travel agents, and other distribution channels, including the Internet and affinity groups. The Company provides flexible independent travel programs for individuals as well as escorted tours and group packages. Headquartered in Washington D.C., the Company markets its products under the brand names Classic Custom Vacations, Globetrotters, and Allied Tours. Classic Custom vacations are customized vacation packages for U.S. travelers seeking an individualized vacation. The Globetrotters brand is targeted to the popular priced-vacation buyer. The Allied Tours brand creates packages for international travelers visiting the U.S. Global Vacation Group, Inc.'s common stock is traded on the New York Stock Exchange under the symbol GVG. In March 1998, the Company changed its name from Allied Bus Corp. to Global Vacation Group, Inc. The Company had previously operated under the trade name "Allied Tours." The name change was concurrent with a recapitalization of the Company (the "Recapitalization"). Between March 1998 and May 1998, the Company completed the acquisitions (together "the Acquisitions") of Haddon Holidays, Inc. ("Haddon"), Classic Custom Vacations ("Classic"), MTI Vacations, Inc. ("MTI"), and Globetrotters, Inc. ("Globetrotters"). In August 1998, the Company completed an initial public offering (the "Offering") of its common stock. The Company sold 3,000,000 shares of common stock at a price of $14.00 per share, yielding net proceeds (after underwriting discounts, commissions and other professional fees) of approximately $35.9 million. The Company used the net proceeds to repay borrowings under its credit facility. In connection with the Offering, the Company's outstanding Class A Convertible Preferred Stock (the "Convertible Preferred") automatically converted into shares of the Company's common stock at $14.00 per share. The Company's operations are subject to certain risks and uncertainties, including, among others, current and potential competitors with greater resources, dependence on effective information systems, changing industry dynamics related to new methods of distribution within the travel industry, seasonal fluctuations in operating results, dependence on rapidly changing technologies, reliance on key personnel, international political and economic conditions impacting travel patterns, dependence on travel suppliers, and any effect on the Company or its customers or suppliers related to the Year 2000 issue. The Year 2000 issue arises because many computerized systems use two digits rather than four to identify a year. The effects of the Year 2000 issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failures, which could effect the Company's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties will be fully resolved. 30 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consist primarily of money market investments. Approximately $3.2 million of cash is restricted due to tour contracts between the Company and its customers for bulk fare tours that require customer payments for future charter tours be deposited to an escrow account, in accordance with Department of Transportation regulations governing public charters. Prior to the departure of charter tours, funds may be expended only for certain direct charter tour costs. Short-Term Investments Short-term investments consist of bank certificates of deposit with original maturities in excess of three months. The bank certificates of deposit are primarily used as pledged collateral for letters of credit. The Company classifies its certificates of deposit as held-to-maturity. These are securities with determinable fair values that the Company intends to hold for an indefinite period. These securities are carried at cost which approximates market value. Revenue Recognition Net revenues consist primarily of markups on travel packages. The Company recognizes net revenue when earned on the date of travel. The Company estimates and records accruals for cancellations and changes to reservations booked. For the years ended December 31, 1998, 1997 and 1996, net revenues are derived from sale of travel products and services with a value of $410.2 million, $125.8 million and $116.7 million, respectively, net of $319.8 million, $101.6 million and $94.4 million, respectively, in direct costs to suppliers. Operating Expenses Operating expenses include commissions, salaries, benefits and payroll tax expenses, communications, facilities and other costs associated with the selling and processing of tour packages. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are recorded using the straight-line method for leasehold improvements. The Company uses accelerated and straight-line methods for recording depreciation on furniture and fixtures and equipment with lives that range from 5 to 10 years. Leasehold improvements are depreciated over the shorter of the lease term or the estimated useful life of the asset. 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Property and equipment consist of the following (in thousands): DECEMBER 31, ----------------- 1998 1997 -------- ------- Equipment...................... $12,365 $ 961 Furniture and fixtures......... 2,228 284 Leasehold improvements......... 895 125 ------ ------ 15,488 1,370 Accumulated depreciation and amortization.............. (10,330) (984) ------ ------ Property and equipment, net....................... $5,158 $ 386 ====== ====== Intangible Assets Intangible assets consist of goodwill from acquisitions and deferred financing costs incurred in connection with the Company's credit agreement. Goodwill is amortized over 35 years. Deferred financing costs are charged to interest expense over the life of the debt using the effective interest method. Intangible assets as of December 31, 1998 consist of the following (in thousands): Goodwill.........................$66,008 Deferred financing costs.......... 408 Accumulated amortization .........(1,285) ------- $65,131 ======= Long - lived Assets The Company reviews its long-lived assets, including property and equipment, identifiable intangibles, and goodwill whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of its long-lived assets, the Company evaluates the probability that future undiscounted net cash flows will be less than the carrying amount of the assets. Fair Value of Financial Instruments Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments," and SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," require the disclosure of the fair value of financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. The carrying value of the Company's financial instruments approximates fair value due to the relatively short maturities of these instruments. In the normal course of business, the Company is a party to letters of credit which are not reflected in the accompanying balance sheets. Such financial instruments are valued based on the amount of exposure under the instrument and the likelihood of performance being required. Based on the Company's past experience, management does not expect any material losses to result from these off-balance-sheet instruments and, therefore, is of the opinion that the fair value of these instruments is zero. Concentrations The Company maintains bank accounts with federally insured financial institutions. Periodically, balances may exceed insured limits. As of December 31, 1998, and 1997, no individual customer represented more than 10 percent of net revenues or accounts receivable. Prior to the 1998 acquisitions, the Company's revenues and accounts receivable were principally with customers outside the United States. For the year ended December 31, 1998, gross revenues from customers located in Europe and South America/South Pacific represented approximately 22 percent and 7 percent of the total gross revenues, respectively. In addition, vacation 32 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) products and services related to Hawaiian destinations accounted for approximately 50 percent of gross revenues for the year ended December 31, 1998. Income Taxes Until March 1998, the Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company did not pay corporate income taxes on its taxable income. Instead, the shareholders were liable for individual income taxes on their respective shares of the Company's taxable income. Accordingly, there is no provision for Federal income taxes in the accompanying financial statements for periods prior to March 1998. The Company was taxable in certain states and other jurisdictions that did not recognize S Corporation status. In March 1998, the Company terminated its S Corporation election and, accordingly, has since been subject to Federal and state income taxes. The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. SFAS No. 109 requires that a net deferred tax asset be reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized. Basic and Diluted Net Income (Loss) per Common Share The Company has implemented SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of basic and diluted earnings per share. Basic income or loss per share is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted income or loss per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The treasury stock effect of options to purchase 1,617,819 shares of common stock outstanding at December 31, 1998 have been included in the computation of diluted income per share for the year ended December 31, 1998. The effect of the Convertible Preferred Stock outstanding during the year ended December 31, 1998 has not been included in the computation of diluted income per share as such effect would be anti-dilutive. The following table sets forth the calculation of basic and diluted weighted average shares outstanding (in thousands).
Years Ended December 31, ----------------------------------------- 1998 1997 1996 ----------- ------------ ----------- Basic weighted average shares outstanding 9,931 5,291 5,291 Effect of dilutive securities: Treasury stock effect of outstanding stock options 59 - - ----------- ------------ ----------- Diluted weighted average shares outstanding 9,990 5,291 5,291 =========== ============ ===========
New Accounting Standards The Company has adopted the Financial Accounting Standards Board ("FASB") SFAS statement No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and display of 33 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) comprehensive income and its components in the financial statements. The adoption of SFAS No. 130 has not had a material impact on the Company's results of operations, financial position, or cash flows. The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. After evaluation, senior management concluded that operations occur primarily in one segment only. The adoption of SFAS No. 131 has had no impact on the Company's results of operations, financial position, or cash flows. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS 133 is effective for fiscal years beginning after June 15, 1999. Management has not yet determined the impact of adopting this statement, but believes it will not have a material impact upon the Company's results of operations or financial position. In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1"). SOP 98-1 requires the Company to capitalize internal computer software costs once the capitalization criteria are met. SOP 98-1 is effective January 1, 1999, and is applied to all projects in progress upon initial application. The Company has not yet determined the impact of the adoption of SOP 98-1; however, a percentage of the Company's historical operating expenses may now be required to be capitalized under SOP 98-1. 3. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following (in thousands): DECEMBER 31, ------------------------- 1998 1997 ---------- --------- Accounts payable $ 23,756 $ 9,879 Accrued expenses 14,036 1,135 Bank overdraft 2,077 4,745 -------- --------- $ 39,869 $ 15,759 ======== ========= 4. SHAREHOLDERS' EQUITY Recapitalization In March 1998, the Company was recapitalized pursuant to an agreement between the Company, its existing shareholders, Allied Tours Holding Corp. ("Allied Holding"), the shareholders of Allied Holding and a new investor (the "Investor"). Prior to the Recapitalization, the Company had 100 shares of issued and outstanding common stock, all of which were owned by Allied Holding. Pursuant to the Recapitalization, the Company redeemed an aggregate of 34 shares of common stock for $14.7 million from Allied Holding and the Investor purchased 57 shares from Allied Holding for $24.7 million. The redemption price was paid in cash of $10.7 million and $4.0 million in a 120-day promissory note bearing interest at 8 percent. The redemption was financed, in part, with $13.0 million in borrowings under the Company's credit agreement. Following the redemption, the Company amended and restated its certificate of incorporation to authorize two classes of capital stock: common stock with a par value of $.01 per share and preferred stock with a par value of $1,000 per share. At that time, the 66 shares outstanding were converted into 3,492,237 34 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) shares of common stock and 25,762 shares of Convertible Preferred. The conversion into the Convertible Preferred was accounted for as a noncash dividend and the conversion into common stock was accounted for as a stock split. All share and per share amounts have been restated to reflect this common stock split. Increase in Authorized Shares, Stock Split, and Conversion In connection with the Offering, the Company amended and restated its certificate of incorporation to increase the number of authorized shares of common stock to 60,000,000, par value $0.01 per share, and authorized 6,000,000 shares of undesignated preferred stock, par value $0.01 per share. The Company effected a 12.2-for-one stock split of the common stock. All share and per share amounts have been retroactively adjusted to give effect to these events. Equity Purchase Agreement In March 1998, the Company entered into a purchase agreement with the Investor and certain other parties in which the Company agreed to sell 22,751 shares of Convertible Preferred and 3,083,977 shares of common stock to the Investor and an aggregate of 1,228 shares of Convertible Preferred and an aggregate of 166,412 shares of common stock to such other parties at a price of $1,000 per Convertible Preferred share and $0.82 per common share. These shares were issued between March and May 1998 to fund, in part, the cash component of the Company's purchase price for certain of the Acquisitions. Preferred Stock Holders of Convertible Preferred were entitled to dividends to be paid in additional shares of Convertible Preferred at a rate of 15 percent per annum. Upon completion of the Offering, the Convertible Preferred converted into common stock at a rate equal to the Liquidation Value plus any accrued but unpaid dividends divided by the per share offering price of $14.00 per share. Treasury Stock In November 1998, the Company's Board of Directors authorized the repurchase, at management's discretion, of up to 250,000 shares of the Company's Common Stock in the public market. The Board of Directors also authorized the purchase of up to 100,000 shares of the Company's common stock over a one-year period for use in matching employee contributions in the Company's new 401(k) plan. As of December 31, 1998, the Company had purchased 12,000 shares of common stock for $125,000. 5. STOCK OPTION PLAN The Company adopted the 1998 Stock Option Plan (the "Stock Option Plan") to assist the Company in attracting and retaining qualified employees, directors, consultants and advisors. The Stock Option Plan provides that at any time a number of shares equal to 12 percent of the number of then outstanding shares of common stock will be reserved for issuance pursuant to grants of stock options. Unless sooner terminated by the Company's Board of Directors, the Stock Option Plan will terminate on March 29, 2008. Options granted under the Stock Option Plan may be either incentive stock options ("ISOs"), or nonstatutory stock options ("NSOs"). No option granted under the Stock Option Plan is exercisable after the tenth anniversary of the option's date of grant. 35 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table sets forth stock option activity for the year ended December 31, 1998.
WEIGHTED AVERAGE OPTION PRICE EXERCISE OPTIONS PER SHARE PRICE ----------- --------- ------ Options outstanding at December 31, 1997........... -- -- -- Granted............................................ 1,637,819 $ 0.82-14.00 $ 13.21 Canceled........................................... (20,000) $ 14.00 $ 14.00 ----------- ------------ ------- Options outstanding as of December 31, 1998 1,617,819 $ 0.82-14.00 $ 13.22 ========= ============ =======
The outstanding options generally vest ratably over a four-year period from the date of grant at the rate of 25 percent per year. There were no options exercisable as of December 31, 1998. The weighted average remaining contractual life of options outstanding at December 31, 1998 was 9.25 years. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation. SFAS No. 123 defines a "fair value based method" of accounting for stock-based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. Prior to the issuance of SFAS No. 123, stock-based compensation was accounted for under the "intrinsic value method" as defined by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Under the intrinsic value method, compensation is the excess, if any, of the market price of the stock at grant date or other measurement date over the amount an employee must pay to acquire the stock. SFAS No. 123 allows an entity to continue to use the intrinsic value method for stock-based compensation to employees. However, entities electing the accounting in APB Opinion No. 25 must make pro forma disclosures as if the fair value based method of accounting had been applied. The Company applies APB Opinion No. 25 and the related interpretations in accounting for its stock-based compensation to employees. Under APB Opinion No. 25, no compensation expense has been recognized in the accompanying financial statements related to stock option grants to employees in 1998 as the exercise price for such options was equal to the fair value of the Company's common stock on the date of the grant. In August 1998, the Company granted 58,357 options to several consultants to the Company. As a result, the Company recorded deferred compensation related to these non-employee options, pursuant to the fair-value based method, of approximately $480,000, of which $50,000 was amortized in the year ended December 31, 1998. Had compensation expense for stock-based compensation to employees been determined based on the fair value of the options at the grant dates consistent with the method of accounting under SFAS No. 123, the Company's net income and net income per share would have been decreased to the pro forma amounts indicated below for the year ended December 31, 1998 (in thousands, except per share amounts): Net income available to common shareholders: As reported.................$ 2,204 Pro forma...................$ 763 Basic and Diluted Income Per Share: As reported.................$ 0.22 Pro forma...................$ 0.08 The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants during the years ended December 31, 1998: no dividend yield, expected volatility from zero to 80%, risk-free interest rates from 4.2% to 5.7% and an expected term of 5 years. 36 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. CREDIT AGREEMENT In March 1998, the Company entered into a credit agreement (the "Credit Facility") with a bank. Under the Credit Facility, the Company may borrow up to $65.0 million. Of this amount, up to $10.0 million may be in the form of revolving line of credit, including letters of credit of up to $5.0 million, and the remaining $55.0 million may be in the form of term loans which may not be reborrowed once repaid. The amounts available for borrowing under the term loans may be limited in certain circumstances based upon the level of equity financing and by the aggregate acquisition consideration to be paid in connection with permitted acquisitions (as defined in the agreement).The Company used the net proceeds from the Offering to repay borrowings under the Credit Facility. In connection with the early extinguishment of this debt, the Company recognized an extraordinary charge to write-off deferred financing costs related to the term loans repaid. As of December 31, 1998, the Company had outstanding term loans of $6.7 million under the Credit Facility. Of the $6.7 million, $5.2 million is classified as short-term debt and was repaid in January 1999. The remaining balance of $1.5 million is scheduled for repayment in quarterly installments as follows (in thousands): 1999............................................ $100 2000............................................ 165 2001............................................ 238 2002............................................ 283 2003............................................ 326 2004............................................ 351 ----- $1,463 ======= As of December 31, 1998, the Company had a total of $16.0 million available under the Credit Facility with $7.7 million available under the revolving line of credit and $8.3 million available for term loans. The Company may be required to prepay unpaid principal amounts on the term loans and the revolving credit facility upon the occurrence of certain events including, among others, the disposition of a business or portion thereof, the sale of equity securities, or a refinancing of the Company's debt. In addition, the level of the Company's leverage ratio (as defined) for a given year may result in the required prepayment of certain amounts as specified in the agreement. Borrowings under the revolving credit facility and term loans may be designated by the Company as alternate base rate advances ("ABR Advances") or eurodollar advances ("Eurodollar Advances"). ABR Advances generally bear interest at a base rate plus an applicable margin. The base rate is equal to the higher of the prime rate or the federal funds rate plus 0.5 percent. The applicable margin generally ranges from 0.25 percent to 1 percent based upon the Company's leverage ratio (as defined). Eurodollar Advances generally bear interest at the eurodollar rate plus an applicable margin. The eurodollar rate is the rate of interest obtained by dividing (i) the rate quoted by the bank to leading banks in the London interbank eurodollar market as the rate at which the bank is offering dollar deposits in an amount approximately equal to the advance and having a period to maturity approximately equal to the interest period applicable to the eurodollar advance by (ii) a number equal to one minus the aggregate of the then stated maximum rates during such interest period of all reserve requirements established in respect of eurocurrency funding. The interest period is the period commencing on the borrowing date and ending one, two, three or six months thereafter as selected by the Company. The applicable margin generally ranges from 1.25 percent to 2 percent based upon the Company's leverage ratio (as defined). Interest on Eurodollar Advances is due at the end of the interest period or at the end of each three-month interval during the interest period. The number of Eurodollar Advances that the Company is permitted to have outstanding may be limited in certain circumstances. The Company's obligations under the credit agreement are secured by substantially all of the Company's assets and the credit agreement includes certain restrictive covenants including, among others, limitations on acquisitions, indebtedness, sales or other asset dispositions, investments, dividends or distributions, and related party transactions. The credit agreement also requires that the Company maintain certain operating 37 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) and financial ratios as defined, including a maximum leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio, minimum net worth and annual limitations on capital expenditures. 7. INCOME TAXES Prior to March 1998, the provision for income taxes represents amounts owed in states and other jurisdictions that did not recognize S Corporation status. For the years ended December 31, 1998, 1997 and 1996, the components of the (provision for) benefit from income taxes consist of the following: YEARS ENDED DECEMBER 31, 1998 1997 1996 ---------- ---------- ------- Current $ (3,970) $ (136) $ (124) Deferred 62 12 2 ------ ------- ------- $ (3,908) $ (124) $ (122) ======== ======= ======== The components of the Company's net deferred tax asset (liability) are as follows (in thousands): DECEMBER 31, 1998 1997 1996 --------- --------- ------- Allowance for doubtful accounts..................... $405 $ 24 $ 12 Accrued expenses............. 286 6 4 Deferred revenue....................... 140 - - Depreciation and amortization....... (571) - - Other........................ - (9) (7) --------- ---- ------ $260 $ 21 $ 9 ========= ==== ====== For the years ended December 31, 1997 and 1996, the provision for income taxes reflects effective rates that differ from the statutory Federal rate as a result of the effect of income taxed directly to shareholders and the effect of state and local income taxes. A reconciliation of the tax provision from the U.S. Federal statutory tax rate to the Company's effective tax rate is as follows for the year ended December 31, 1998: Taxes at the statutory Federal rate...... (35.0)% Effect of graduated rates.......................... 1.0 S corporation loss attributable directly to shareholders....... (3.4) State and other income taxes, net of Federal tax benefit..... (4.0) Nondeductible expenses............ (2.0) ------- Tax provision at effective rates....... (43.4)% ======= 8. COMMITMENTS AND CONTINGENCIES Senior Management Agreements In March 1998, the Company entered into employment agreements with certain executives. The agreements prescribe salary and bonus compensation and provide for severance payments in certain circumstances. The agreements extend to April 2001 with one year renewals thereafter. The agreements also contain various non-compete and non-solicitation provisions. Under the terms of the agreements, the Company sold an aggregate of 701,500 shares of common stock at a price of $0.82 per share and an aggregate of 425 shares of Convertible Preferred at a price of $1,000 per share to the three executives in March 1998. All of the shares of Convertible Preferred are "Non-Vesting Preferred Stock." Of the shares of common stock sold, 643,879 shares are "Vesting Stock" and 57,621 shares are "Non-Vesting Common Stock." 38 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Vesting Stock vests based upon both the passage of time and the performance of the Company. Of the total Vesting Stock, 67 percent, or 429,245 shares, vest 20 percent immediately and the remaining 80 percent generally vests ratably at 20 percent per year. The remaining 33 percent or 214,634 shares of the Vesting Stock will become fully vested on April 1, 2005. Such vesting may be accelerated based upon the performance of the Company (as defined). Subsequent to December 31, 1998, the Company fully vested senior management in the Vesting Stock. The Non-Vesting Common Stock and the Non-Vesting Preferred Stock vested immediately upon purchase. In the event that an executive ceases to be employed by the Company, the executive stock will be subject to repurchase by the Company. In the event of termination, (i) the purchase price for each unvested share of common stock will be the executive's original cost for such share, and (ii) the purchase price for each vested share of common stock will be the fair market value for such share, provided, however that if the executive's employment is terminated for cause (as defined), the purchase price will be the executive's original cost for such share. If the Company does not elect to purchase all of the executive's stock pursuant to the repurchase option, the Investor shall be entitled to exercise the repurchase option for the shares of any class of executive's stock the Company has not elected to purchase. Consulting and Employment Agreements In March 1998, the Company entered into a consulting agreement with the former majority stockholder of the Company. The terms of the agreement provide for a fixed level of compensation and the term of the agreement extends through December 1999 and can be automatically extended for one month periods thereafter. The agreement also includes a covenant not to compete for the longer of four years or one year beyond the engagement of this individual as a consultant. In March 1998, the Company entered into employment agreements with two individuals who are stockholders of the Company. The Company has also entered into an employment agreement with the spouse of another stockholder. These agreements generally extend for a term of four years with one year renewals. The agreements prescribe salary and bonus compensation based upon the performance of the Company and, in certain circumstances, provide for severance payments. The agreements also contain various non-compete and non-solicitation provisions. Trase Miller Agreement In connection with the acquisition of MTI, the Company entered into an information and business systems outsourcing arrangement with Trase Miller Solutions, Inc. ("Trase Miller Solutions"), a former affiliate of MTI. On August 14, 1998, the Company, Trase Miller Solutions and the majority shareholder of Trase Miller Solutions entered into an agreement with a term ending on April 30, 2006 (the "Outsourcing Agreement") to expand this outsourcing agreement to provide a common platform system for all the Company's businesses (other than the business systems associated with the Company's in-bound business). During the term of the Outsourcing Agreement, Trase Miller Solutions will provide to the Company information systems and related services, including operating services, system maintenance, general management and support and implementation and migration services. From April 1, 1999 through April 30, 2006, The Company will pay Trase Miller Solutions for the services provided under the Outsourcing Agreement on a cost-plus 20% basis and will pay royalty fees of $17.5 million in the aggregate. In connection with the Outsourcing Agreement, the Company also paid $6.8 million to acquire an option, exercisable through January 10, 1999, to purchase all of the outstanding stock of Trase Miller Solutions. In January 1999, the Company paid approximately $2.3 million to extend the option through March 31, 1999. In the event the Company exercises this option, the purchase price will be $18.8 million, subject to certain adjustments and to a credit for the amounts paid by the Company to acquire the option and extension. If the Company does not exercise the option, the amounts paid to acquire the option and extension will be credited over three years beginning April 1, 1999 against payments owing to Trase Miller Solutions under the Outsourcing Agreement. The $6.8 million consideration paid for the option has been included in other assets in the accompanying balance sheet as of December 31, 1998. 39 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Leases The Company leases its facilities, automobiles and certain equipment under noncancellable operating leases. The following is a schedule by years of future minimum rental payments, required under these leases expiring through 2003, as of December 31, 1998 (in thousands): 1999.................. $ 2,214 2000.................. 1,424 2001.................. 1,236 2002.................. 850 2003.................. 835 Thereafter............ 450 ------- Total............ $ 7,009 ======= Total facilities rent expense for the years ended December 31, 1998, 1997 and 1996 was approximately $2,059,000, $454,000 and $423,000, respectively. Letters of Credit As of December 31, 1998 and 1997, the Company had issued letters of credit totaling $2.3 million and $835,000, respectively, in favor of certain vendors. Certain certificates of deposit of similar amount and maturity have been pledged as collateral and are included in the accompanying balance sheet as cash and cash equivalents or short-term investments, depending on their maturity. Litigation The Company is periodically a party to disputes arising from normal business activities. In the opinion of management, resolution of these matters will not have a material adverse effect upon the financial position or future operating results of the Company, and adequate provision for any potential losses has been made in the accompanying financial statements. 9. RELATED PARTY TRANSACTIONS Loans receivable from/loans payable to shareholders are related to borrowings from and advances to shareholders prior to the Recapitalization. In addition, as of December 31, 1998, the Company has a $2.5 million note receivable from a former principal shareholder of one of the acquired companies. The note is secured by certain investments and is due on April 15, 2000. Interest accrues daily on the unpaid principal at the rate of 9% per annum and is to be paid on the last day of each calendar quarter during the term of the note. During 1998, the Company had an agreement with an affiliate of the Investor to provide investment banking and support services. Total fees and expense reimbursements paid under this agreement in 1998 totaled $2.1 million. The agreement terminated at the completion of the Company's Offering on August 5, 1998. 10. ACQUISITIONS Since March 1998, the Company has acquired Haddon, Classic and Globetrotters and substantially all of the assets of MTI. Each of these acquisitions was acquired with cash and certain assets. The Company financed the Acquisitions with proceeds from the issuance of additional shares of Convertible Preferred and common stock and from borrowings under the Credit Facility. The acquisition of each of these businesses has been accounted for as a purchase for financial reporting purposes. The Company allocated the excess of the purchase price over the fair value of net assets acquired to goodwill. The Company amortizes goodwill over 35 years. 40 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Haddon On March 30, 1998, the Company purchased all of the outstanding capital stock of Haddon, a package vacation provider that historically has provided air, hotel and ground transportation packages for travelers to Hawaii. The Company paid a purchase price of approximately $7.5 million. In addition, the Company incurred direct acquisition costs of approximately $268,000. The Company financed the cash purchase price and the direct acquisition costs with $4.9 million in proceeds from the issuance of common stock and Convertible Preferred, and $2.4 million in borrowings under the Credit Facility. In connection with the acquisition of Haddon, the Company sold 61,000 shares of common stock, valued at $0.82 per share and 450 shares of Convertible Preferred, valued at $1,000 per share, to the former shareholders of Haddon. Classic In April 1998, the Company purchased all of the outstanding capital stock of Classic, a package vacation provider. The Company paid a purchase price of $17.1 million, all of which was paid in cash. In addition, the Company incurred direct acquisition costs of approximately $2.0 million. The Company financed the cash purchase price and the direct acquisition costs with proceeds from the issuance of $6.7 million of Convertible Preferred and $13.1 million in borrowings under the Credit Facility. The proceeds from this sale and borrowing also provided approximately $700,000 in working capital. MTI In May 1998, the Company acquired substantially all of the assets of MTI, a package vacation provider that (i) provides vacation packages for travelers to Hawaii (ii) provides packages for Amtrak-sponsored vacations (iii) operates the reservation system associated with package vacations sponsored by Hyatt and (iv) provides credit card reward fulfillment programs. The Company paid a purchase price of $26.4 million. In addition, the Company incurred direct acquisition costs of approximately $881,000. The Company financed the cash purchase price and direct acquisition costs with proceeds from the issuance of $15.5 million of Convertible Preferred and $11.1 million in borrowings under the Credit Facility. The proceeds from this sale and borrowing also provided approximately $1.7 million in working capital. In connection with the acquisition of substantially all of the assets of MTI, the Company sold 292,800 shares of common stock, valued at $0.82 per share, and 2,160 shares of Convertible Preferred, valued at $1,000 per share, to an affiliate of the seller. The Company also entered into the Outsourcing Agreement with a former affiliate of MTI, whereby the affiliate will provide the Company with management information system support relating to MTI's computer reservation system and related functions (See Note 8). Globetrotters In May 1998, the Company purchased all of the outstanding capital stock of Globetrotters, a package vacation provider that historically has provided vacation packages, primarily for the Florida, Mexico and Caribbean markets. The Company paid a purchase price of $5.4 million, of which $3.4 million was paid in cash, with the remaining $2.0 million paid through the forgiveness of related-party debt. In addition, the Company incurred direct acquisition costs of approximately $232,000. The Company financed the cash purchase price and the direct acquisition costs with proceeds from the issuance of $551,000 of Convertible Preferred, $1.9 million in borrowings under the Credit Facility and $1.3 million from working capital. The purchase price has been allocated on a preliminary basis as follows for each of the Acquisitions (in thousands):
Haddon Classic MTI Globetrotters Total ------ ------- ----- ------------- ------ Cash and investments..................... $ 3,475 $ 25,642 $ 19,913 $ 2,663 $ 51,693 Accounts receivable...................... 1,041 8,108 3,920 2,907 15,976 Fixed assets and other assets............ 90 2,426 1,696 1,065 5,277 Goodwill................................. 9,476 18,892 30,732 6,908 66,008 Liabilities assumed and direct acquisition costs........................ (6,364) (36,008) (28,980) (7,961) (79,313) -------- -------- -------- -------- -------- Total.......................... $ 7,718 $ 19,060 $ 27,281 $ 5,582 $ 59,641 ======== ======== ======== ======== ========
41 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The pro forma information presented below (in thousands) reflects the Acquisitions as if they had occurred on January 1, 1997. These results are not necessarily indicative of future operating results or what would have occurred had the Acquisitions been consummated at that date.
Year Ended December 31 --------------------------- 1998 1997 ---- ---- Net revenues........................................... $ 123,501 $ 115,222 Net income............................................. 6,202 4,279 Basic and Diluted income per share .................... $ 0.42 $ 0.29
In connection with the Acquisitions, the Company recognized approximately $2.0 million in liabilities assumed in the Acquisitions as the cost of closing redundant facilities and terminating approximately 110 employees. The accrual included lease and facility costs of $795,000, severance and other employee termination costs of $907,000, and costs of $300,000 related to other contractual obligations associated with the Company's consolidation plan. During 1998, the Company closed redundant reservation centers and consolidated Haddon and Globetrotters into Classic and MTI, respectively. These activities resulted in a reduction of approximately 90 employees in connection with the facility closures, the elimination of duplicate positions and the restructuring of certain operations. In the year ended December 31, 1998, the Company charged approximately $859,000 against the accrual for amounts paid during 1998. The remaining accrual relates primarily to lease and severance costs, substantially all of which are expected to be paid in 1999. 11. SUBSEQUENT EVENTS Amended Credit Facility On February 19, 1999, the Company amended and restated its credit agreement (the "Amended Agreement"). The Amended Agreement was entered into with three participating banks and provides for a $45 million revolving credit facility with a five-year maturity. The Amended Agreement consists of a $10 million working capital revolving credit facility ("Working Capital Facility") with a maximum of $5 million available for issuing standby letters of credit and a $35 million revolving credit facility for use in financing acquisitions ("Acquisition Facility"). The Acquisition Facility has a commitment reduction of $5 million per year for four years commencing December 31, 1999 with the final $15 million reduction at maturity. Under the Amended Agreement, the Company will continue to select interest at ABR Advance or Eurodollar Advance rates plus the applicable margin as previously defined. An annual commitment fee is due on the unused portion of the aggregate facility. The commitment fee is based on the leverage ratio of the Company and will be between .375 percent and .500 percent. All borrowings under the Amended Agreement will be collateralized by all of the stock, tangible and intangible assets of subsidiaries or businesses of the Company with borrowings under the Amended Agreement. The Amended Agreement also requires the Company to meet certain financial ratios and covenants, including minimum net worth, fixed charge coverage, interest coverage, leverage ratios and limitations on capital expenditures. Acquisition of Friendly Holidays, Inc. On March 17, 1999, the Company acquired all the outstanding stock of Friendly Holidays, Inc., a wholesale package tour operator that principally serves travelers to Mexico, Central America and the Caribbean destinations. The terms of the purchase include cash consideration of $10.2 million and additional payments of up to $2.8 million contingent on future operating results. 42 43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III Certain information required by Part III is omitted from this Report in that the Registrant will file a definitive proxy statement with the Securities and Exchange Commission (the "Commission") within 120 days after the end of its fiscal year pursuant to Regulation 14A, as promulgated by the Commission, for its Annual Meeting of Stockholders to be held May 12, 1999 (the "Proxy Statement"), and certain information included therein is incorporated herein by reference. (The Compensation Committee Report and the stock performance graph of the Registrant's Proxy Statement are expressly not incorporated by reference herein.) ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information required by this Item is incorporated by reference to the Company's Proxy Statement under under the caption "Executive Officers of the Company," which information is incorporated herein by this reference ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated by reference to the Company's Proxy Statement under the heading "Executive Compensation and Other Information." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated by reference to the Company's Proxy Statement under the heading "Election of Directors" and "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference to the Company's Proxy Statement under the heading "Certain Relationships and Related Transactions." 43 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. INDEX TO FINANCIAL STATEMENTS Reference is made to the index set forth on page 24 of this Report. 2. FINANCIAL STATEMENT SCHEDULES:
Page No. -------- Schedule II Valuation and Qualifying Accounts.................................................................... 47 3. EXHIBITS a) Consent of Arthur Andersen LLP........................................................48 b) Amended and Restated Credit Facility Dated February 19, 1999..........................49 c) Exhibit Index.........................................................................50 d) Exhibit 27.1 Financial Data Schedule..................................................51
44 45 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, DISTRICT OF COLUMBIA, ON THE 25TH DAY OF MARCH, 1999. GLOBAL VACATION GROUP, INC. By: /s/ ROGER H. BALLOU ------------------------ ROGER H. BALLOU CHIEF EXECUTIVE OFFICER AND CHAIRMAN Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
NAME TITLE DATE - - ----------------------------------------------- --------------------------------- ---------------- /s/ ROGER H. BALLOU Chief Executive Officer March 25, 1999 - - ----------------------------------------------- ROGER H. BALLOU and Chairman (Principal Executive Officer) /s/ J. RAYMOND LEWIS, JR. President and Chief March 25, 1999 - - ------------------------------------------------- J. RAYMOND LEWIS, JR. Operating Officer (Principal Operating Officer) /s/ WALTER S. BERMAN Executive Vice President March 25, 1999 - - ------------------------------------------------- WALTER S. BERMAN and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ KENNETH M. DUBERSTEIN Director March 25, 1999 - - ------------------------------------------------- KENNETH M. DUBERSTEIN /s/ FREDERIC V. MALEK Director March 25, 1999 - - ------------------------------------------------- FREDERIC V. MALEK /s/ CARL J. RICKERTSON Director March 25, 1999 - - ------------------------------------------------- CARL J. RICKERTSEN /s/ JAMES M. SULLIVAN Director March 25, 1999 - - ------------------------------------------------- JAMES M. SULLIVAN
45 46 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Global Vacation Group, Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of Global Vacation Group, Inc., (a New York corporation) and Subsidiaries and have issued our report thereon dated February 5, 1999 (except with respect to the matters discussed in Note 11 to the Consolidated Financial Statements as to which the date is March 17, 1999). Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14, Valuation and Qualifying Accounts, is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Washington D.C. February 5, 1999 46 47 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (IN THOUSANDS)
DEDUCTIONS FROM ADDITIONS RESERVE FOR BALANCE AT CHARGED PURPOSES FOR BEGINNING TO COST OR WHICH RESERVE BALANCE AT DESCRIPTION OF YEAR EXPENSES WAS CREATED END OF YEAR --------------------------------- ---------- ---------- --------------- ----------- 1998 Allowance for doubtful accounts 861 121 -- 982 Restructuring reserve -- 2,002 859 1,143 1997 Allowance for doubtful accounts 448 771 358 861 1996 Allowance for doubtful 310 1,208 1,070 448 accounts
47 48 3. EXHIBITS:
c) EXHIBIT INDEX 3.1++ Restated Certificate of Incorporation of the Registrant 3.2+ Amended and Restated By-laws of the Registrant 4.1+ Form of Specimen Stock Certificate 10.1+ Recapitalization Agreement dated as of March 18, 1998 among the Registrant, Thayer, Allied Holding and the shareholders of Allied Holding 10.2+ Equity Purchase Agreement dated as of March 30, 1998 between the Registrant and Thayer and certain other purchasers. 10.3+ Equity Subscription Agreement dated as of March 30, 1998 by and among the Registrant, Ralph M. Caliri and William W. Webber. 10.4+ Equity Subscription Agreement dated as of April 30, 1998 between the Registrant and James F. Miller. 10.5+ Registration Rights Agreement dated as of June 12, 1998 by and among the Registrant, Thayer and certain shareholders of the Registrant 10.6+ Stock Purchase Agreement dated as of March 30, 1998 by and among the Registrant, Haddon and the shareholders of Haddon. 10.7+ Stock Purchase Agreement dated as of April 20, 1998 by and among the Registrant, Classic Custom Vacations, Inc. ("Classic") and the shareholders of Classic. 10.8+ Asset Purchase Agreement dated as of April 30, 1998 by and among the Registrant, MTI and James F. Miller. 10.9+ Stock Purchase Agreement dated as of May 4, 1998 by and among the Registrant, Globetrotters, Inc. and Robert A. Grinberg. 10.10+t Professional Services Agreement dated as of March 30, 1998 between the Registrant and TC Management Partners, LLC. 10.11+t Credit Agreement dated as of March 27, 1998 by and among the Registrant, the lenders party thereto and The Bank of New York, as administrative agent 10.12+t Amendment No. 1 and Consent dated as of April 8, 1998 to Credit Agreement dated as of March 27, 1998 by and among the Registrant, the lenders party thereto and The Bank of New York as administrative agent 10.13+t Amendment No. 2 dated as of May 5, 1998 to Credit Agreement dated as of March 27, 1998 by and among the Registrant, the lenders party thereto and The Bank of New York as administrative agent 10.14+t Registrant's 1998 Stock Option Plan 10.15+t Senior Management Agreement dated as of March 30, 1998 between the Registrant and Roger H. Ballou. 10.16+t Senior Management Agreement dated as of March 30, 1998 between the Registrant and J. Raymond Lewis, Jr. 10.17+t Senior Management Agreement dated as of March 30, 1998 between the Registrant and Walter S. Berman. 10.18+t Consulting Agreement dated as of March 27, 1998 by and between the Registrant and Stanley Fisher. 10.19+t Employment Agreement dated as of March 18, 1998 by and between the Registrant and Michael Fisher. 10.20+t Employment Agreement dated as of March 18, 1998 by and between the Registrant and Gregory Fisher. 10.21+t Amendment No. 1 dated as of June 24, 1998 to Senior Management Agreement dated as of March 30, 1998 between the Registrant and Mr. Ballou. 10.22+t Amendment No. 1 dated as of June 24, 1998 to Senior Management Agreement dated as of March 30, 1998 between the Registrant and Mr. Lewis. 10.23+t Amendment No. 1 dated as of June 24, 1998 to Senior Management Agreement dated as of March 30, 1998 between the Registrant and Mr. Berman. 10.24* Agreement dated as of August 14, 1998 between the Company and Trase Miller Solutions 10.25 Restated and Amended Credit Agreement dated as of February 19, 1999 by and among the Registrant, the lenders party thereto and The Bank of New York, as administrative agent. 21.1+ Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen & Co. Independent Auditors 24.1+ Power of Attorney 27.1 Financial Data Schedule + Previously filed as the same exhibit number under a Registration Statement on Form S-1 (file no 333-52673) ++ Previously filed as the same exhibit number on September 14, 1998 under a Form 10-Q (file no 333-52673) * Previously filed as the exhibit number 10.1 on September 14, 1998 under a Form 10-Q (file no 333-52673) t Management Compensation related agreements. - - --------
b) The Registrant filed no reports on Form 8-K for the year ended December 31, 1998. 50 EX-10.25 2 RESTATED AND AMENDED CREDIT AGREEMENT 1 EXHIBIT 10.25 Restated and Amended Credit Agreement Dated February 19, 1999 FIRST AMENDED AND RESTATED CREDIT AGREEMENT, DATED AS OF FEBRUARY 19, 1999 BY AND AMONG GLOBAL VACATION GROUP, INC., THE LENDERS PARTY HERETO, AND THE BANK OF NEW YORK, AS ADMINISTRATIVE AGENT BNY CAPITAL MARKETS, INC., AS LEAD ARRANGER AND BOOK MANAGER 49 2 FIRST AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 19, 1999, by and among Global Vacation Group, Inc., a New York corporation (the "BORROWER"), the several banks and other parties from time to time parties hereto (the "LENDERS") and THE BANK OF NEW YORK ("BNY"), as administrative agent for each of the other Credit Parties hereto (in such capacity, the "ADMINISTRATIVE AGENT"). RECITALS A. On March 27, 1998, the Borrower (then known as Allied Bus Corp.), the lenders party thereto and the Administrative Agent entered into a Credit Agreement (as amended up to, but excluding, the First Restatement Date, the "EXISTING CREDIT AGREEMENT") pursuant to which the Lenders agreed to make Revolving Loans and Term Loans to the Borrower and the Issuer agreed to issue Letters of Credit for the account of the Borrower. B. Immediately prior to the effectiveness of this Agreement, (i) the Aggregate Revolving Commitment under the Existing Credit Agreement is $10,000,000, (ii) the unused portion of the Term Commitment under and as defined in the Existing Credit Agreement is $13,536,585.36 and (iii) the aggregate outstanding principal balance of the Term Loans made under the Existing Credit Agreement (the "EXISTING TERM LOANS") is $1,463,414.64. C. BNY, BANK OF AMERICA FSB ("BofA") AND FIRST UNION NATIONAL BANK ("First Union") HAVE ENTERED OR ARE CONTEMPORANEOUSLY HEREWITH ENTERING INTO THE MASTER ASSIGNMENT PURSUANT TO WHICH IMMEDIATELY BEFORE THE EFFECTIVENESS OF THIS AGREEMENT, FIRST UNION SHALL BECOME A LENDER UNDER THE EXISTING CREDIT AGREEMENT AND BNY, BOFA AND FIRST UNION SHALL SELL AND DELEGATE AND/OR REALLOCATE, SOME OR ALL OF THEIR RIGHTS AND OBLIGATIONS UNDER THE EXISTING CREDIT AGREEMENT. D. The Borrower, the Lenders and the Administrative Agent desire to amend and restate the Existing Credit Agreement upon the terms, and subject to the conditions, contained herein. E. On the First Restatement Date, (i) the Term Commitment of each Lender is to be renamed the "Acquisition Loan Commitment" and (ii) the outstanding Existing Term Loans are to be converted to Acquisition Loans. F. For convenience, this Agreement is dated as of February 19, 1999, and references to certain matters related to the period prior hereto have been deleted. In consideration of the Recitals, the terms and conditions herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE 1. DEFINITIONS AND RULES OF INTERPRETATION SECTION 1.1.DEFINITIONS As used in this Agreement, terms defined in the preamble have the meanings therein indicated, and the following terms have the following meanings: 3 "ABR ADVANCES" means the Loans (or any portions thereof), at such time as they (or such portions) are made and/or being maintained at a rate of interest based upon the Alternate Base Rate. "ACCOUNTANTS" means Arthur Andersen, LLP (or any successor thereto), or such other firm of certified public accountants of recognized national standing selected by the Borrower and reasonably satisfactory to the Administrative Agent. "ACQUISITION" has the meaning set forth in Section 8.5. "ACQUISITION CONSIDERATION" has the meaning set forth in Section 8.5(d). "ACQUISITION LOAN" and "ACQUISITION LOANS" have the meaning set forth in Section 2.1(b). "ACQUISITION LOAN COMMITMENT" means, in respect of any Lender, the amount set forth on the signature page of such Lender under the heading "ACQUISITION LOAN COMMITMENT" or in an Assignment and Acceptance Agreement or other document pursuant to which it became a Lender, as such amount may be adjusted from time to time in accordance herewith. "ACQUISITION LOAN EXPOSURE" means, with respect to any Lender as of any date, the sum as of such date of the outstanding principal balance of such Lender's Acquisition Loans. "ACQUISITION LOAN PERCENTAGE" means, as of any date and with respect to each Lender, the percentage equal to a fraction (i) the numerator of which is the Acquisition Loan Commitment of such Lender on such date (or, if there are no Acquisition Loan Commitments on such date, such Lender's Acquisition Loan Exposure on such date), and (ii) the denominator of which is the Aggregate Acquisition Loan Commitment on such date (or, if there are no Acquisition Loan Commitments on such date, the Aggregate Acquisition Loan Exposure on such date). "ADDITIONAL PLEDGE AGREEMENT" has the meaning set forth in Section 7.9(b). "ADJUSTED NET CASH PROCEEDS" means, with respect to any Disposition as of any date of determination, the amount equal to the difference between (i) the Net Cash Proceeds from such Disposition, and (ii) the Reinvested Proceeds in connection with such Disposition. "ADVANCE" means an ABR Advance or a Eurodollar Advance. "AFFILIATE" means as to any Person (i) any other Person at the time directly or indirectly controlling, controlled by or under direct or indirect common control with such Person, (ii) any other Person of which such Person at the time owns, or has the right to acquire, directly or indirectly, ten percent (10%) or more on a consolidated basis of the equity or beneficial interest of such Person, (iii) any other Person which at the time owns, or has the right to acquire, directly or indirectly, ten percent (10%) or more of any class of the capital stock or beneficial interest of such Person, (iv) any executive officer, director or trustee of such Person, and (v) when used with respect to an individual, a spouse, any ancestor or descendant, or any other relative (by blood, adoption or marriage), within the third degree of such individual, provided, however, that for purposes of this Agreement, Persons in which Thayer holds an interest which are not engaged in the Line of Business shall not be considered Affiliates. -2- 4 "AGGREGATE ACQUISITION LOAN COMMITMENT" means, at any time, the sum at such time of the Acquisition Loan Commitments of all Lenders. As of the First Restatement Date, the Aggregate Acquisition Loan Commitment is $35,000,000. "AGGREGATE ACQUISITION LOAN EXPOSURE" means, at any time, the aggregate sum at such time of the Acquisition Loan Exposures of all Lenders. "AGGREGATE REVOLVING COMMITMENT" means, at any time, the sum at such time of the Revolving Commitments of all Lenders. As of the First Restatement Date, the Aggregate Revolving Commitment is $10,000,000. "AGGREGATE REVOLVING EXPOSURE" means, at any time, the aggregate sum at such time of the Revolving Exposures of all Lenders. "AGREEMENT" means this First Amended and Restated Credit Agreement. "ALTERNATE BASE RATE" means on any date, a rate of interest per annum equal to the higher of (i) the Federal Funds Effective Rate in effect on such date plus 1/2 of 1% or (ii) the Prime Rate in effect on such date. "APPLICABLE MARGIN" means, at all times during the applicable periods set forth below: (a) with respect to ABR Advances, the percentage setforth below under the heading "ABR Margin" and adjacent to such period and (b) with respect to Eurodollar Advances, the percentage set forth below under the heading "Eurodollar Margin" and adjacent to such period and (c) with respect to the Commitment Fee, the percentage set forth below under the heading "Fee Margin" and adjacent to such period:
When the Leverage Ratio is greater than or equal to Eurodollar and less than ABR Margin Margin Fee Margin - - ---------------------------- ---------------------- ------------------------- ------------------------ ---------------------- 2.75:1.00 0.750% 1.750% 0.375% - - ---------------------------- ---------------------- ------------------------- ------------------------ ---------------------- 2.25:1.00 2.75:1.00 0.500% 1.500% 0.375% - - ---------------------------- ---------------------- ------------------------- ------------------------ ---------------------- 2.25:1.00 0.250% 1.250% 0.375% - - ---------------------------- ---------------------- ------------------------- ------------------------ ----------------------
Changes in the Applicable Margin resulting from a change in the Leverage Ratio shall be based upon the Compliance Certificate most recently delivered under Section 7.1(c) and shall become effective on the day such Compliance Certificate is delivered to the Administrative Agent. Notwithstanding anything to the contrary in this definition, if the Borrower shall fail to deliver to the Administrative Agent such a Compliance Certificate on or prior to any date required hereby, the Leverage Ratio shall be deemed to be 2.75:1.00 from and including such date to the date of delivery to the Administrative Agent of such Compliance Certificate. "APPLICABLE PROCEEDS" means any and all proceeds of casualty insurance or condemnation held by the Administrative Agent pursuant to the Loan Documents in connection with a casualty or condemnation event for which the conditions for use thereof by the Borrower or any Subsidiary, as set forth in the Loan Documents, shall not have been satisfied. "ASSIGNMENT AND ACCEPTANCE AGREEMENT" means an assignment and acceptance agreement substantially in the form of Exhibit E. -3- 5 "AVAILABLE DEBT AMOUNT" means, at any time, an amount equal to (a) $2,500,000, minus (b) the sum, without duplication, of the following: (1) the unpaid principal balance of all Indebtedness incurred pursuant to Section 8.1(e) and 8.1(f), and (2) the fair market value of all property securing any Lien under Section 8.2(c). "AVAILABLE INTERCOMPANY INVESTMENT AMOUNT" means, at any time, an amount equal to (a) $2,500,000, minus, (b) the sum of, without duplication, the following: (1) the outstanding principal balance of all Indebtedness of each Subsidiary which is not a Subsidiary Guarantor to the Borrower or any Subsidiary Guarantor, (2) the outstanding principal balance of all Indebtedness of Subsidiaries that are not Subsidiary Guarantors, to the extent that such Indebtedness is Guaranteed by the Borrower or any Subsidiary Guarantor, (3) the fair market value of all consideration paid by the Borrower or any Subsidiary Guarantor on or after the Original Effective Date to any Subsidiary other than a Subsidiary Guarantor in connection with any one or more of the following: (i) any merger between a Subsidiary that is not a Subsidiary Guarantor and a Subsidiary Guarantor, (ii) each investment by the Borrower or any Subsidiary Guarantor in the Capital Stock of or debt issued by any Subsidiary that is not a Subsidiary Guarantor, (iii) any purchase or acquisition between a Loan Party, as purchaser, and a Subsidiary that is not a Subsidiary Guarantor, as seller, to the extent that such purchase or acquisition is for more than fair market value, (iv) sales, assignments, leases, transfers or other dispositions of any property or assets by any Loan Party to any Subsidiary that is not a Subsidiary Guarantor, to the extent that such sale, assignment, lease, transfer or other disposition is for less than fair market value, and (v) any Restricted Payment made by a Loan Party to a Subsidiary which is not a Subsidiary Guarantor. "AVAILABLE OTHER INVESTMENT AMOUNT" means, at any time an amount equal to (a) $75,000,000 minus, (b) the sum of, without duplication, the following: (1) the fair market value of all consideration paid by the Borrower or any Subsidiary on or after the Original Effective Date in connection with any one or more of the following: (i) any merger referred to in Section 8.3(d)(iii)(A), and (ii) any Acquisition referred to in Section 8.5 "BOARD" means the Board of Governors of the Federal Reserve System of the United States. "BofA" has the meaning set forth in the Recitals. "BORROWER OBLIGATIONS" means, collectively, (i) all of the obligations and liabilities of the Borrower under the Loan Documents, and (ii) all of the obligations and liabilities of the Borrower under each Secured Hedging Agreement, in each case whether fixed, contingent, now existing or hereafter arising, created, assumed, incurred or acquired, and whether before or after the occurrence of any Event of Default under Section 9.1(h) or (i) and including any obligation or liability in respect of any breach of any representation or warranty and all post-petition interest and funding losses, whether or not allowed as a claim in any proceeding arising in connection with such an event. "BORROWER PREFERRED STOCK" means Class A Preferred Stock of the Borrower, $1.00 par value. "BORROWING DATE" means any Business Day on which (i) the Lenders make Revolving Loans or Acquisition Loans or (ii) the Issuer issues a Letter of Credit. -4- 6 "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which commercial banks located in New York City are authorized or required by law or other governmental action to be closed, provided that when used in connection with a Eurodollar Advance, the term shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "CAPITAL EXPENDITURES" means, for any period, the sum of the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability) by the Borrower and the Subsidiaries on a consolidated basis in accordance with GAAP during such period for fixed or capital assets (excluding any capitalized interest and any such asset acquired in connection with normal replacement and maintenance programs properly charged to current operations and excluding any replacement assets acquired with the proceeds of insurance). "CAPITAL LEASE OBLIGATIONS" means, with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, (a) which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP, or (b) which lease does not qualify as a Tax Operating Lease. For purposes of this definition, "TAX OPERATING LEASE" means any "synthetic lease", and any other lease (i) that is treated as a lease for purposes of the Code, and (ii) the lessor under which is treated as the owner of the assets subject to the lease for purposes of the Code. "CAPITAL STOCK" means, as to any Person, all shares, interests, partnership interests, limited liability company interests, participations, rights in or other equivalents (however designated) of such Person's equity (however designated) and any rights, warrants or options exchangeable for or convertible into such shares, interests, participations, rights or other equity. "CASH COLLATERAL ACCOUNT" has the meaning set forth in Section 2.7. "CASH EQUIVALENTS" means Dollar denominated investments in (i) securities issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in full support thereof) having maturities of not more than one year from the date of acquisition, (ii) time deposits, certificates of deposit and bankers acceptances of maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank having a combined capital surplus and undivided profits of not less than $100,000,000 and whose (or whose parent company's) unsecured non-credit supported short-term debt rating at the time of such acquisition is the highest credit rating obtainable from S&P and Moody's or, if rated by only one such rating agency, the highest credit rating obtainable from such rating agency, (iii) -5- 7 commercial paper maturing within 90 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or from Moody's, (iv) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's, (v) normal business banking accounts, and (vi) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (i) through (iv) above. "Change in Control" MEANS THE OCCURRENCE OF ONE OR MORE OF THE FOLLOWING EVENTS: (a) THE ACQUISITION DIRECTLY OR INDIRECTLY BY ANY PERSON, OR TWO OR MORE PERSONS ACTING IN CONCERT, OTHER THAN THAYER, OF BENEFICIAL OWNERSHIP OF A PERCENTAGE OF THE OUTSTANDING VOTING STOCK OF THE BORROWER THAT EXCEEDS IN THE AGGREGATE THE PERCENTAGE OF SUCH VOTING STOCK THEN BENEFICIALLY OWNED OR CONTROLLED, DIRECTLY OR INDIRECTLY, BY THAYER; AND (b) THE FAILURE OF (i) THAYER TO OWN OR CONTROL (EITHER DIRECTLY OR INDIRECTLY) AT LEAST 40% OF THE VOTING STOCK OF THE BORROWER IN THE AGGREGATE (ON A FULLY DILUTED BASIS AND FREE AND CLEAR OF ALL LIENS), AND (ii) THE BORROWER TO OWN AND CONTROL 100% OF THE OUTSTANDING SHARES OF VOTING AND NON-VOTING STOCK OF EACH SUBSIDIARY ON A FULLY DILUTED BASIS AND FREE AND CLEAR OF ALL LIENS (EXCEPT, IN ALL CASES, LIENS IN FAVOR OF THE ADMINISTRATIVE AGENT). For purposes of this definition, (i) the terms "person" and "group" shall have the respective meanings ascribed thereto in Sections 13(d) and 14(d)(2) of the Exchange Act, (ii) the term "beneficial owner" shall have the meaning ascribed thereto in Rule 13d-3 under the Exchange Act, and (iii) the term "voting stock" shall mean all outstanding shares of any class or classes (however designated) of Capital Stock of the Borrower entitled to vote generally in the election of members of the Managing Person thereof. "CHANGE IN LAW" means (i) the adoption of any law, rule or regulation after the Original Effective Date, (ii) the issuance or promulgation after the Original Effective Date of any directive, guideline or request from any Governmental Authority (whether or not having the force of law), or (iii) any change after the Original Effective Date in the interpretation of any existing law, rule, regulation, directive, guideline or request by any Governmental Authority charged with the administration thereof. "CODE" means the Internal Revenue Code of 1986, as the same may be amended from time to time, or any successor thereto, and the rules and regulations issued thereunder, as from time to time in effect. "COLLATERAL" means any and all "Collateral", as defined in any Security Document. "COMMITMENT FEE" has the meaning set forth in Section 3.2(a). "COMMITMENT TERMINATION DATE" means January 31, 2004, or such earlier date upon which the Revolving Commitments and the Acquisition Loan Commitments shall terminate or the Aggregate Revolving Commitment and the Aggregate Acquisition Loan Commitment shall each otherwise equal zero. -6- 8 "COMMITMENTS" means, collectively, the Revolving Commitments, the Acquisition Loan Commitments and the Letter of Credit Commitment, each a "COMMITMENT". "COMPLIANCE CERTIFICATE" has the meaning set forth in Section 7.1(c). "CONVERSION DATE" means the date on which: (i) a Eurodollar Advance is converted to an ABR Advance, (ii) an ABR Advance is converted to a Eurodollar Advance or (iii) a Eurodollar Advance is converted to, or continued as, a new Eurodollar Advance. "CREDIT PARTY" means the Administrative Agent, the Issuer or a Lender, as the case may be. "CREDIT REQUEST" means a request for Loans or a Letter of Credit substantially in the form of Exhibit B. "CUSTOMARY LIEN" means any of the following: (i) any Lien imposed by law for Taxes that are not yet due or are being contested in compliance with Section 7.4, provided that enforcement of such Lien is stayed pending such contest; (ii) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 7.4, provided that enforcement of each such Lien is stayed pending such contest; (iii) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (iv) deposits and pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business; (v) judgment liens in respect of judgments that would not cause an Event of Default under Section 9.1(j); (vi) zoning ordinances, easements, rights of way, minor defects, irregularities, and other similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary; and (vii) Liens created under the Loan Documents. "DEFAULT" means any event or condition which constitutes an Event of Default or which, with the giving of notice, the lapse of time, or any other condition, would, unless cured or waived, become an Event of Default. "DISPOSITION" has the meaning set forth in Section 8.6. "DISQUALIFIED STOCK" means any Capital Stock of any Person that, by its terms (or by the terms of any security into which it is -7- 9 convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part prior to four years after the Maturity Date, provided, however, that any Capital Stock that would constitute Disqualified Stock solely because the holders thereof have the right to require such Person to repurchase such Capital Stock upon the occurrence of certain events shall not constitute Disqualified Stock if the terms of such Capital Stock provide that the Borrower may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 8.7 of this Agreement. "DOLLARS" and "$" mean lawful currency of the United States of America. "DOMESTIC SUBSIDIARY" means any Subsidiary that is not a Foreign Subsidiary. "EBITDA" means, for any period, an amount equal to (i) net income of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP for such period, plus (ii) the sum of, without duplication, each of the following with respect to the Borrower and its Subsidiaries to the extent utilized in determining such net income for such period, (a) cash interest expense, (b) cash income taxes paid, (c) depreciation, amortization and other non-cash charges, and (d) extraordinary losses from sales, exchanges and other dispositions of Property not in the ordinary course of business, minus (iii) the sum of, without duplication, each of the following with respect to the Borrower and its Subsidiaries, to the extent utilized in determining such net income for such period: extraordinary gains from sales, exchanges and other dispositions of property not in the ordinary course of business; provided, however, that, notwithstanding anything to the contrary contained herein, such amount shall be subject to such adjustments (including adjustments with respect to specific items referred to in clauses (i), (ii) and (iii) of this definition) as the Borrower may request and the Required Lenders shall approve in its discretion exercised reasonably. "ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.7. "EQUITY ISSUANCE" means the issuance of any equity securities or the receipt of any capital contribution, in each case by the Borrower, other than (i) any issuance of equity securities to, or receipt of any such capital contribution from, the Borrower, (ii) the issuance of stock as consideration to the seller in connection with a Permitted Acquisition, (iii) the issuance of any equity securities to, or the receipt of a capital contribution from, Thayer or any of its Affiliates, the proceeds of which are expended by the Borrower in connection with such Permitted Acquisition, or (iv) the issuance of common stock pursuant to a stock option plan, or for executive compensation, in either case in the ordinary course of business. -8- 10 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations issued thereunder, as from time to time in effect. "ERISA AFFILIATE" means any Person which is a member of any group of organizations within the meaning of Sections 414(b) or (c) of the Code (or, solely for purposes of potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and Section 412(n) of the Code, Sections 414(m) or (o) of the Code) of which the Borrower or any Subsidiary is a member. "ERISA EVENT" means (i) a "reportable event", as defined in Section 4043 of ERISA with respect to a Pension Plan (other than an event for which the 30-day notice period is waived), (ii) the existence with respect to any Pension Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (ii) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Pension Plan; (iv) the incurrence by the Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Pension Plan; (vi) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Pension Plan or Pension Plans or to appoint a trustee to administer any Pension Plan; (vii) the incurrence by the Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Pension Plan or Multiemployer Plan; or (viii) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "EURODOLLAR ADVANCES" means, collectively, the Loans (or any portions thereof), at such time as they (or such portions) are made and/or being maintained at a rate of interest based upon the Eurodollar Rate. "Eurodollar Rate" MEANS, WITH RESPECT EACH EURODOLLAR ADVANCE, A RATE OF INTEREST PER ANNUM, AS DETERMINED BY THE ADMINISTRATIVE AGENT, OBTAINED BY DIVIDING (AND THEN ROUNDING TO THE NEAREST 1/16 OF 1% OR, IF THERE IS NO NEAREST 1/16 OF 1%, THEN TO THE NEXT HIGHER 1/16 OF 1%). (a) THE RATE OF INTEREST PER ANNUM AS DETERMINED BY THE ADMINISTRATIVE AGENT, EQUAL TO THE RATE, AS REPORTED BY BNY TO THE ADMINISTRATIVE AGENT, QUOTED BY BNY TO LEADING BANKS IN THE LONDON INTERBANK EURODOLLAR MARKET AS THE RATE AT WHICH BNY IS OFFERING DOLLAR DEPOSITS IN AN AMOUNT APPROXIMATELY EQUAL TO ITS SPECIFIED PERCENTAGE OF SUCH EURODOLLAR ADVANCE AND HAVING A PERIOD TO MATURITY APPROXIMATELY EQUAL TO THE INTEREST PERIOD APPLICABLE TO SUCH EURODOLLAR ADVANCE AT APPROXIMATELY 11:00 A.M., LONDON TIME, TWO BUSINESS DAYS PRIOR TO THE COMMENCEMENT OF SUCH INTEREST PERIOD, BY (b) A NUMBER EQUAL TO 1.00 MINUS THE AGGREGATE OF THE THEN STATED MAXIMUM RATES DURING SUCH INTEREST PERIOD OF ALL RESERVE REQUIREMENTS (INCLUDING MARGINAL, EMERGENCY, SUPPLEMENTAL AND SPECIAL -9- 11 RESERVES), EXPRESSED AS A DECIMAL, ESTABLISHED BY THE BOARD AND ANY OTHER BANKING AUTHORITY TO WHICH BNY AND OTHER MAJOR MONEY CENTER BANKS CHARTERED UNDER THE LAWS OF THE UNITED STATES OR ANY STATE THEREOF ARE SUBJECT, IN RESPECT OF EUROCURRENCY FUNDING (CURRENTLY REFERRED TO AS "EUROCURRENCY LIABILITIES" IN REGULATION D) WITHOUT BENEFIT OF CREDIT FOR PRORATION, EXCEPTIONS OR OFFSETS WHICH MAY BE AVAILABLE FROM TIME TO TIME TO BNY. "EVENT OF DEFAULT" has the meaning set forth in Section 9.1. "EXCESS CASH FLOW" means, in respect of any period, (i) an amount equal to the sum of EBITDA for such period plus Working Capital Decreases if any, during such period less (ii) the sum of each of the following with respect to the Borrower and the Subsidiaries on a consolidated basis in accordance with GAAP for such period: (a) Fixed Charges, (b) Capital Expenditures made during such period, (c) Working Capital Increases, if any, during such period and (d) all prepayments of the Acquisition Loans pursuant to Section 2.4(b)(ii) resulting from each voluntary and scheduled permanent reduction of the Aggregate Acquisition Loan Commitment during such period pursuant to Sections 2.3(a) and (c). "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time. "EXCLUDED TAX" means as to any Person, a Tax imposed by one of the following jurisdictions or by any political subdivision or taxing authority thereof: (i) the United States, (ii) the jurisdiction in which such Person is organized, (iii) the jurisdiction in which such Person's principal office is located, (iv) in the case of each Credit Party, any jurisdiction in which such Credit Party is deemed to be doing business, (v) in the case of any Foreign Credit Party, any withholding tax that is imposed on amounts payable to such Foreign Credit Party at the time such Foreign Credit Party becomes a party to this Agreement (or designates a new lending office) or is attributable to such Foreign Credit Party's failure to comply with Section 3.7(c), except to the extent that such Foreign Credit Party (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.7; which Tax (a) is any income tax or franchise tax imposed on all or part of the net income or net profits of such Person or (b) represents interest, fees or penalties for payment of any such income tax or franchise tax. "EXISTING CREDIT AGREEMENT" has the meaning set forth in the Recitals. "EXISTING LETTERS OF CREDIT" shall mean the letters of credit set forth on Schedule 8.1 that have not, as of the First Restatement Date, been substituted by Letters of Credit. "EXISTING LETTER OF CREDIT EXPOSURE" means at any time, an amount equal to the sum (without duplication) at such time of (i) the aggregate undrawn face amount of the outstanding Existing Letters of Credit, (ii) the aggregate amount of unpaid drafts -10- 12 drawn on all Existing Letters of Credit, and (iii) the aggregate unpaid reimbursement obligations in respect thereof. "EXISTING TERM LOANS" has the meaning set forth in the Recitals. "EXTENSIONS OF CREDIT" means, collectively, the Loans, the Letters of Credit and any participations therein pursuant to Section 2.5(c). "FEDERAL FUNDS EFFECTIVE RATE" means, for any day, a rate per annum (expressed as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Effective Rate for such day shall be the average of the quotations for such day on such transactions received by BNY as determined by BNY and reported to the Administrative Agent. "FEES" has the meaning set forth in Section 2.6(a). "FINANCIAL OFFICER" means, as to any Person, the chief financial officer or the treasurer of such Person or such other officer as shall be satisfactory to the Administrative Agent. "FIRST RESTATEMENT DATE" has the meaning set forth in Article 5. "FIRST UNION" has the meaning set forth in the Recitals. "FIXED CHARGES" means, for the most recently completed twelve month period, the sum, without duplication, of each of the following with respect to the Borrower and the Subsidiaries for such period on a consolidated basis in accordance with GAAP: (i) all cash interest expense, (ii) principal amounts that became payable (whether or not paid and whether at the stated maturity, by acceleration or by reason of or redemption or otherwise but not by reason of an optional prepayment) by the Borrower or any Subsidiary in respect of Indebtedness of the Borrower or the Subsidiaries during such period, and (iii) cash income taxes paid. "FIXED CHARGE COVERAGE RATIO" means, at any date of determination, the ratio of (a) EBITDA for Four Quarter Trailing Period, to (b) Fixed Charges for such period. -11- 13 "FOREIGN CREDIT PARTY" means any Credit Party that is organized under the laws of a country (or political subdivision thereof) other than the United States. "FOREIGN SUBSIDIARY" means any Subsidiary that is a "controlled foreign corporation" within the meaning of Section 957 of the Code. "FOUR QUARTER TRAILING PERIOD" means, at any date of determination, the four fiscal quarters ending on such date, or, if such date is not the last day of a fiscal quarter, the period of the most immediately completed four fiscal quarters. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States. "GOVERNMENTAL AUTHORITY" means any foreign, federal, state, municipal or other government, or any department, commission, board, bureau, agency, public authority or instrumentality thereof, or any court or arbitrator. "GUARANTEE" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or in effect guaranteeing any return on any investment made by another Person, or any Indebtedness, lease, dividend or other obligation (a "primary obligation") of any other Person (a "primary obligor") in any manner, whether directly or indirectly, including any obligation of the guarantor, direct or indirect (i) to purchase any primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of a primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the beneficiary of any primary obligation of the ability of a primary obligor to make payment of a primary obligation, (iv) otherwise to assure or hold harmless the beneficiary of a primary obligation against loss in respect thereof, and (v) in respect of the liabilities of any partnership in which a secondary obligor is a general partner, except to the extent that such liabilities of such partnership are nonrecourse to such secondary obligor and its separate property, provided, however, that the term "Guarantee" shall not include the endorsement of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee shall be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guarantor in good faith. "GRANT OF SECURITY INTEREST" means a grant of a security interest in copyrights and trademarks in the forms of Annex B-1 and B-2, respectively, to the Security Agreement or any other form approved by the Administrative Agent. "HADDON" means Haddon Holidays, Inc., a wholly owned Subsidiary of the Borrower. -12- 14 "HEDGING AGREEMENT" means any interest rate swap, cap or collar arrangement or any other derivative product customarily offered by banks or other financial institutions to their customers in order to manage the exposure of such customers to interest rate fluctuations. "INDEBTEDNESS" means, as to any Person, at a particular time, all items which constitute, without duplication, (i) indebtedness for borrowed money, (ii) indebtedness in respect of the deferred purchase price of property (other than trade payables incurred in the ordinary course of business), (iii) indebtedness evidenced by notes, bonds, debentures or similar instruments, (iv) obligations with respect to any conditional sale or title retention agreement, (v) indebtedness arising under acceptance facilities and the amount available to be drawn under all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder to the extent such Person shall not have reimbursed the issuer in respect of the issuer's payment thereof, (vi) liabilities secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned by such Person (other than carriers', warehousemen's, mechanics', repairmen's or other like non-consensual statutory Liens arising in the ordinary course of business), even though such Person has not assumed or otherwise become liable for the payment thereof, (vii) Capital Lease Obligations, (viii) all obligations of such Person in respect of Disqualified Stock, and (ix) all Guarantees by such Person of Indebtedness of others. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. Notwithstanding the foregoing, Indebtedness shall not include any liability of any Person with respect to customer deposits. "INDEMNIFIED TAX" means as to any Person, any Tax, except (i) an Excluded Tax imposed on such Person and (ii) any interest, fees or penalties for late payment thereof imposed on such Person. "INSOLVENT" means, with respect to any Person, (a) the sum of the assets measured on a "going concern" basis (including goodwill as accounted for in accordance with GAAP) at a fair valuation, of such Person does not exceed its debts, (b) such Person has incurred debts beyond its ability to pay such debts as such debts mature, (c) such Person believes that, in the ordinary course of its business during the reasonably foreseeable future, it will incur debts beyond its ability to pay such debts as such debts mature, and (d) such Person has insufficient capital with which to conduct its business. For purposes of this definition only, "DEBT" means any liability on a claim, and "CLAIM" means any (i) right to payment, whether such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (ii) right to an equitable -13- 15 remedy for breach of performance if such breach gives rise to a payment, whether such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured, liquidated or unliquidated. INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames, copyrights, trade secrets, confidential or proprietary technical and business information and other similar property and all licenses related thereto. "INTERCOMPANY SUBORDINATION AGREEMENT" means a subordination agreement substantially in the form of Exhibit F. "INTEREST COVERAGE RATIO" means, as of the last day of any fiscal quarter, the ratio of EBITDA to cash interest expense, in each case for the Four Quarter Trailing Period. "INTEREST PERIOD" means, as to each Eurodollar Advance, the period commencing on, as the case may be, the Borrowing Date or Conversion Date with respect thereto and ending one, two, three or six months thereafter, in each case, as selected by the Borrower in its Credit Request or Notice of Conversion. "INVESTMENT GRADE SECURITY" means (i) in respect of a short term security, any such security rated at least A1/P1 or A2/P2 by S&P or Moody's (or an equivalent rating issued by a nationally recognized rating service) and (ii) in respect of a long term security, any such security rated at least BBB- or Baa3 by S&P or Moody's (or an equivalent rating issued by a nationally recognized rating service), provided, however, that any derivative, option, hedging or other speculative instrument shall not be considered to be an Investment Grade Security. "ISSUER" means BNY. "LETTERS OF CREDIT" has the meaning set forth in Section 2.5. "LETTERS OF CREDIT FEES" has the meaning set forth in Section 3.2(b). "LETTER OF CREDIT COMMITMENT" means the commitment of the Issuer to issue Letters of Credit (including the Existing Letters of Credit in which the Lenders assume a participation pursuant to Section 2.5(c)) having an aggregate outstanding face amount up to $5,000,000. "LETTER OF CREDIT EXPOSURE" means in respect of any Lender at any time, an amount equal to (i) the sum (without duplication) at such time of (x) the aggregate undrawn face amount of the outstanding Letters of Credit, (y) the aggregate amount of unpaid drafts drawn on all Letters of Credit, and (z) the aggregate unpaid Reimbursement Obligations, multiplied by (ii) such Lender's Revolving Percentage at such time. -14- 16 "LEVERAGE RATIO" means, as of any date, the ratio of (i) Total Debt as of such date less to (ii) EBITDA for the Four Quarter Trailing Period, provided, however, that, notwithstanding anything to the contrary contained herein, for purposes of this definition, Total Debt shall not include any Indebtedness in respect of standby letters of credit. "LIEN" means any mortgage, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), or other security agreement or security interest of any kind or nature whatsoever, including any conditional sale or other title retention agreement and any capital or financing lease having substantially the same economic effect as any of the foregoing. "LINE OF BUSINESS" means, the wholesale tour operators business serving the leisure travel industry and any business reasonably similar, complimentary, ancillary or related thereto. "LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the Security Documents, each Secured Hedging Agreement, each subordination agreement entered into pursuant to Section 8.1(c) and (f) and all other agreements, instruments and documents executed or delivered in connection herewith. "LOAN PARTIES" means, collectively, the Borrower and each Subsidiary Guarantor. "LOANS" means Revolving Loans and Acquisition Loans. "MANAGING PERSON" means, with respect to any Person that is (i) a corporation, its board of directors, (ii) a limited liability company, its board of control, managing member or members, (iii) a limited partnership, its general partner, (iv) a general partnership or a limited liability partnership, its managing partner or executive committee or (v) any other Person, the managing body thereof or other Person analogous to the foregoing. "MARGIN STOCK" has the meaning set forth in Regulation U. "MASTER ASSIGNMENT" means the Master Assignment and Assumption Agreement, substantially in the form of Exhibit G. "MATERIAL ADVERSE" means, with respect to any change or effect, a material adverse change in, or effect on, as the case may be, (i) the business, assets, operations, prospects or condition, financial or otherwise, of the Borrower and the Subsidiaries taken as a whole, (ii) the ability of any Loan Party to perform its obligations under the Loan Documents to which it is a party, (iii) the rights of, or benefits available to, the Credit Parties under the Loan Documents, or (iv) the legality or enforceability of any Loan Document. -15- 17 "MATERIAL LIABILITIES" means, on any date, with respect to the Borrower, any Subsidiary or any combination thereof: (i) all Indebtedness (other than Indebtedness under the Loan Documents), (ii) the net termination obligations in respect of one or more Hedging Agreements (calculated as if such Hedging Agreements were terminated as of such date), and (iii) other liabilities, in each case whether as principal, guarantor, surety or other obligor, in an aggregate principal amount exceeding $250,000. "MATURITY DATE" means January 31, 2004, or such earlier date on which the Notes shall become due and payable, whether by acceleration or otherwise. "MINIMUM AMOUNT" means in respect of (i) ABR Advances, $500,000 or such amount plus a whole multiple of $100,000 in excess thereof, and (ii) Eurodollar Advances, $1,000,000 or such amount plus a whole multiple of $500,000 in excess thereof. "MOODY'S" means Moody's Investors Service, Inc. or any successor thereto. "MULTIEMPLOYER PLAN" means a Pension Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NET CASH PROCEEDS" means, cash proceeds received from a Disposition, an Equity Issuance, the incurrence of Refinancing Debt, a casualty loss or a condemnation after deduction of taxes payable in cash in connection therewith and net of reasonable transaction expenses. "NET WORTH" means, at any date of determination, (i) the sum of, without duplication, all amounts which would be included under "shareholders' equity" or any analogous entry on a consolidated balance sheet of the Borrower determined in accordance with GAAP as of such date minus (ii) any preferred stock or other class of equity securities (other than the Borrower Preferred Stock) that, by its stated terms (or by the terms of any class of equity securities issuable upon conversion thereof or in exchange therefor), or upon the occurrence of any event, matures or is mandatorily redeemable, or is redeemable at the option of the holders thereof, in whole or in part prior to the date which is nine months after the Maturity Date. "NOTES" means with respect to each Lender in respect of such Lender's Loans, a promissory note, substantially in the form of Exhibit A, payable to the order of such Lender, each such promissory note having been made by the Borrower and dated the First Restatement Date, including all replacements thereof and substitutions therefor. "NOTICE OF CONVERSION" has the meaning set forth in Section 3.3(a). "OTHER TAXES" means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any -16- 18 payment made hereunder or from the execution, delivery, registration or enforcement of, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Loan Documents or otherwise with respect to, the Loan Documents. "ORGANIZATIONAL DOCUMENTS" means as to any Person which is (i) a corporation, the certificate or articles of incorporation and by-laws of such Person, (ii) a limited liability company, the limited liability company agreement or similar agreement of such Person, (iii) a partnership, the partnership agreement or similar agreement of such Person, or (iv) any other form of entity or organization, the organizational documents analogous to the foregoing. "ORIGINAL EFFECTIVE DATE" means March 27, 1998. "ORIGINAL TRANSACTIONS" means, collectively, (i) the Allied Recapitalization, the Classic Acquisitions, the MTI Acquisition and the Haddon Acquisition (each as defined in the Existing Credit Agreement), (ii) the execution and delivery of the Loan Documents on the Original Effective Date and (iii) the Extensions of Credit on the Original Effective Date. "PAYMENT OFFICE" the office of the Administrative Agent set forth in Section 11.2(b). "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to the functions thereof. "PENSION PLAN" means, at any date of determination, any employee pension benefit plan (other than a Multiemployer Plan), the funding requirements of which (under Section 302 of ERISA or Section 412 of the Code) are, or at any time within the six years immediately preceding such date, were in whole or in part, the responsibility of the Borrower or any ERISA Affiliate. "PERFECTION CERTIFICATE" means a certificate in the form of Annex A to the Security Agreement or any other form approved by the Administrative Agent. "PERMITTED ACQUISITION" means an Acquisition permitted by Section 8.5. "PERMITTED LIENS" has the meaning set forth in Section 8.2. "PERSON" means a natural person, firm, partnership, limited liability company, joint venture, corporation, association, business enterprise, joint stock company, unincorporated association, trust, Governmental Authority or any other entity, whether acting in an individual, fiduciary, or other capacity, and for the purpose of the definition of "ERISA Affiliate", a trade or business. "PRIME RATE" means the rate of interest per annum publicly announced in New York City by BNY from time to time as its prime commercial lending rate, such rate -17- 19 to be adjusted automatically (without notice) on the effective date of any change in such publicly announced rate. "REGULATION D, T, U AND X" mean Regulations D, T, U and X, respectively, of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. "REFINANCING DEBT" has the meaning set forth in Section 8.1(g). "REFINANCING DEBT DOCUMENTS" has the meaning set forth in Section 8.1(g). "REIMBURSEMENT OBLIGATION" means, collectively, the obligation of the Borrower to the Issuer with respect to each Letter of Credit and all documents, instruments and other agreements related thereto, including the obligation of the Borrower to reimburse the Issuer for amounts drawn under such Letter of Credit. "REINVESTED PROCEEDS" means, with respect to any Disposition as of any date of determination, the amount of Net Cash Proceeds from such Disposition that is used by the Borrower or any Subsidiary to acquire, during the Reinvestment Period with respect to such Disposition, property that is to be used in the Line of Business. "REINVESTMENT PERIOD" means the period beginning on the date that proceeds from a Disposition are received by the Borrower or any Subsidiary, as the case may be, and ending 365 days after the receipt of such proceeds. "RELATED PARTIES" means, with respect to any Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "REQUIRED LENDERS" means, at any time, one or more Lenders having the sum of unused Revolving Commitments, unused Acquisition Loan Commitments, Revolving Exposures and Acquisition Loan Exposures greater than or equal to 51% of the sum of the unused Aggregate Revolving Commitment, unused Aggregate Acquisition Loan Commitment, Aggregate Revolving Exposure and Aggregate Acquisition Loan Exposure, provided, however, that if at any time there shall be only two Lenders, the term "Required Lenders" shall mean both Lenders. "RESTRICTED PAYMENT" has the meaning set forth in Section 8.7. "REVOLVING COMMITMENT" means, in respect of any Lender, the maximum amount of such Lender's Revolving Exposure as set forth on the signature page of such Lender under the heading "REVOLVING COMMITMENT" or in an Assignment and Acceptance Agreement or other document pursuant to which it became a Lender, as such amount may be adjusted from time to time in accordance herewith. -18- 20 "REVOLVING EXPOSURE" means, with respect to any Lender as of any date, the sum as of such date of (i) the outstanding principal balance of such Lender's Revolving Loans, plus (ii) such Lender's Letter of Credit Exposure. "REVOLVING LOAN" and "REVOLVING LOANS" have the meaning set forth in Section 2.1(a). "REVOLVING PERCENTAGE" means, as of any date and with respect to each Lender, the percentage equal to a fraction (i) the numerator of which is the Revolving Commitment of such Lender on such date (or, if there are no Revolving Commitments on such date, on the last date upon which one or more Revolving Commitments were in effect), and (ii) the denominator of which is sum of the Revolving Commitments of all Lenders on such date (or, if there are no Revolving Commitments on such date, on the last date upon which one or more Revolving Commitments were in effect). "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "SEC" means the Securities and Exchange Commission or any Governmental Authority succeeding to the functions thereof. "SECURED HEDGING AGREEMENT" means any Hedging Agreement entered into by the Borrower with a counterparty that was a Lender (or an Affiliate thereof) at the time such Hedging Agreement was entered into. "SECURED PARTIES" has the meaning set forth in the Security Agreement. "SECURITY AGREEMENT" means the Security Agreement, dated as of March 27, 1998, by and among the Loan Parties party thereto and the Administrative Agent. "SECURITY DOCUMENTS" means, collectively, (i) the Security Agreement and the Subsidiary Guarantee, (ii) upon the execution and delivery thereof, the Intercompany Subordination Agreement and the Grants of Security Interest, and (iii) all other instruments and documents delivered pursuant to Section 7.9 or 7.10 to secure any of the Borrower Obligations or Guarantor Obligations (as defined in the Subsidiary Guarantee). "SPECIFIED PERCENTAGE" means, with respect to any Lender (i) in connection with Revolving Loans and Eurodollar Advances to the extent consisting of Revolving Loans, the percentage equal to such Lender's Revolving Commitment at such time divided by the Aggregate Revolving Commitment at such time, and (ii) in connection with Acquisition Loans and Eurodollar Advances to the extent consisting of Acquisition Loans, the percentage equal to the unpaid principal amount of such Lender's -19- 21 Acquisition Loan Exposure at such time divided by the Aggregate Acquisition Loan Exposure at such time. "SUBSIDIARY" means, with respect to any Person (the "parent") at any date, any other Person (i) the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, (ii) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests or more than 50% of the profits or losses of which are, as of such date, owned, controlled or held by the parent or one or more subsidiaries of the parent. Unless otherwise qualified, all references to "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "SUBSIDIARY GUARANTOR" means each Subsidiary party to the Subsidiary Guarantee. "SUBSIDIARY GUARANTEE" means the Subsidiary Guarantee, dated as of March 27, 1998, by and among the Subsidiary Guarantors, the Borrower and the Administrative Agent. "TAX" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by a Governmental Authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "THAYER" means Thayer Equity Investors III, L.P., a Delaware limited partnership. "TOTAL DEBT" means, as of any date, the Indebtedness of the Borrower and the Subsidiaries, to the extent that as at such date such Indebtedness would appear on a consolidated balance sheet of the Borrower prepared in accordance with GAAP. "TOTAL PERCENTAGE" means, as of any date and with respect to each Lender, the percentage equal to a fraction (i) the numerator of which is the sum of the Revolving Commitment, Acquisition Loan Commitment, Revolving Exposure and Acquisition Loan Exposure of such Lender on such date and (ii) the denominator of which is sum of the Aggregate Revolving Commitment, Aggregate Acquisition Loan Commitment, Aggregate Revolving Exposure and Aggregate Acquisition Loan Exposure on such date. "TRANSACTION DOCUMENTS" means, collectively, the Loan Documents and all documents, instruments and other agreements executed or delivered in connection with all Permitted Acquisitions by the Borrower or any Subsidiary. -20- 22 "TRANSACTIONS" means, collectively, the transactions contemplated by the Transaction Documents. "UNCONSOLIDATED INVESTMENT" means, as of any date, any investment made by the Borrower or any Subsidiary in any other Person that, pursuant to GAAP as in effect on such date, would not be consolidated with the Borrower for financial reporting purposes immediately after giving effect to such investment. "UNITED STATES" means the United States of America. "WHOLLY OWNED" means, with respect to any Subsidiary of any Person, 100% of the outstanding Capital Stock of such Subsidiary is owned, directly or indirectly, by such Person. "WITHDRAWAL LIABILITY" means, with respect to any Person, liability of such Person to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. "WORKING CAPITAL" means, at any date of determination, the difference between (i) current assets of the Borrower and the Subsidiaries determined on a consolidated basis in accordance with GAAP minus (ii) current liabilities of the Borrower and the Subsidiaries determined on a consolidated in accordance with GAAP less the current portion of long term debt. "WORKING CAPITAL DECREASE" means, for any period, the result, if positive, obtained by subtracting Working Capital at the close of business on the last day of such period from Working Capital at the opening of business on the first day of such period. "WORKING CAPITAL INCREASE" means, for any period, the result, if positive, obtained by subtracting Working Capital at the opening of business on the first day of such period from Working Capital at the close of business on the last day of such period. SECTION 1.2.ACCOUNTING TERMS As used in the Loan Documents and in any certificate, opinion oer document made or delivered pursuant thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. If any change in GAAP would affect the computation of any financial ratio or requirement set forth in this Agreement, the Credit Parties and the Borrower shall negotiate in good faith to amend such ratio or requirement to reflect such change in GAAP (subject to the approval of the Required Lenders), provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change and (ii) the Borrower shall provide to the Credit Parties financial statements and other documents required under this Agreement (or such other items as the Administrative Agent may reasonably request) setting forth a reconciliation between calculations of such ratio or requirement before and after giving effect to such change. SECTION 1.3.RULES OF INTERPRETATION (a) UNLESS EXPRESSLY PROVIDED IN A LOAN DOCUMENT TO THE CONTRARY, (i) THE WORDS "HEREOF", "HEREIN", "HERETO" AND "HEREUNDER" AND SIMILAR WORDS WHEN USED IN EACH LOAN DOCUMENT SHALL REFER TO SUCH LOAN DOCUMENT AS A WHOLE AND NOT TO ANY PARTICULAR PROVISION THEREOF, (ii) ARTICLE, SECTION, SUBSECTION, SCHEDULE AND EXHIBIT REFERENCES CONTAINED THEREIN SHALL REFER TO ARTICLE, SECTION, -21- 23 SUBSECTION, SCHEDULE AND EXHIBIT THEREOF OR THERETO, (iii) THE WORDS "INCLUDE" AND "INCLUDING", SHALL MEAN THAT THE SAME SHALL BE "INCLUDED, WITHOUT LIMITATION", (iv) ANY DEFINITION OF, OR REFERENCE TO, ANY AGREEMENT, INSTRUMENT, CERTIFICATE OR OTHER DOCUMENT HEREIN SHALL BE CONSTRUED AS REFERRING TO SUCH AGREEMENT, INSTRUMENT OR OTHER DOCUMENT AS FROM TIME TO TIME AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED, (v) ANY REFERENCE HEREIN TO ANY PERSON SHALL BE CONSTRUED TO INCLUDE SUCH PERSON'S SUCCESSORS AND ASSIGNS, (vi) THE WORDS "ASSET" AND "PROPERTY" SHALL BE CONSTRUED TO HAVE THE SAME MEANING AND TO REFER TO ANY AND ALL TANGIBLE AND INTANGIBLE ASSETS AND PROPERTIES, INCLUDING CASH, SECURITIES, ACCOUNTS AND CONTRACT RIGHTS, (vii) WORDS IN THE SINGULAR NUMBER INCLUDE THE PLURAL, AND WORDS USED THEREIN IN THE PLURAL INCLUDE THE SINGULAR, (viii) ANY REFERENCE TO A TIME SHALL REFER TO SUCH TIME IN NEW YORK, (ix) IN THE COMPUTATION OF PERIODS OF TIME FROM A SPECIFIED DATE TO A LATER SPECIFIED DATE, THE WORD "FROM" MEANS "FROM AND INCLUDING" AND THE WORDS "TO" AND "UNTIL" EACH MEANS "TO BUT EXCLUDING", AND (x) REFERENCES THEREIN TO A FISCAL PERIOD SHALL REFER TO THAT FISCAL PERIOD OF THE BORROWER. (b) ARTICLE AND SECTION HEADINGS HAVE BEEN INSERTED IN THE LOAN DOCUMENTS FOR CONVENIENCE ONLY AND SHALL NOT BE CONSTRUED TO BE A PART THEREOF. ARTICLE 2. AMOUNT AND TERMS OF EXTENSIONS OF CREDIT SECTION 2.1.LOANS (a) Revolving Loans. SUBJECT TO THE TERMS AND CONDITIONS HEREOF, EACH LENDER SEVERALLY AGREES TO MAKE REVOLVING CREDIT LOANS IN DOLLARS (EACH A "Revolving Loan" AND, AS THE CONTEXT MAY REQUIRE, COLLECTIVELY WITH ALL OTHER REVOLVING LOANS OF SUCH LENDER AND WITH THE REVOLVING LOANS OF ALL OTHER LENDERS, THE "Revolving Loans") TO THE BORROWER FROM TIME TO TIME ON ANY BUSINESS DAY DURING THE PERIOD FROM THE FIRST RESTATEMENT DATE TO THE COMMITMENT TERMINATION DATE, PROVIDED THAT AFTER GIVING EFFECT THERETO (i) SUCH LENDER'S REVOLVING EXPOSURE WOULD NOT EXCEED SUCH LENDER'S REVOLVING COMMITMENT, AND (ii) THE SUM OF (A) THE AGGREGATE REVOLVING EXPOSURE PLUS (B) THE EXISTING LETTER OF CREDIT EXPOSURE WOULD NOT EXCEED THE AGGREGATE REVOLVING COMMITMENT. DURING SUCH PERIOD, THE BORROWER MAY BORROW, PREPAY IN WHOLE OR IN PART AND REBORROW UNDER THE REVOLVING COMMITMENTS, ALL IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT. THE OUTSTANDING PRINCIPAL BALANCE OF EACH REVOLVING LOAN SHALL BE DUE AND PAYABLE ON THE MATURITY DATE. (b) Acquisition Loans. PRIOR TO THE FIRST RESTATEMENT DATE, THE LENDERS MADE THE EXISTING TERM LOANS TO THE BORROWER. IMMEDIATELY PRIOR TO THE EFFECTIVENESS OF THIS AGREEMENT, THE AGGREGATE OUTSTANDING PRINCIPAL BALANCE OF THE EXISTING TERM LOANS WAS $1,463,414.64. SUBJECT TO THE TERMS AND CONDITIONS HEREOF, THE EXISTING TERM LOANS ARE HEREBY CONVERTED TO REVOLVING CREDIT LOANS, WHICH REVOLVING CREDIT LOANS SHALL BE COMBINED WITH OTHER REVOLVING CREDIT LOANS MADE UNDER THIS SECTION 2.1(b). SUBJECT TO THE TERMS AND CONDITIONS HEREOF, EACH LENDER SEVERALLY AGREES TO MAKE REVOLVING CREDIT LOANS IN DOLLARS (EACH, TOGETHER WITH A CONVERTED EXISTING TERM LOAN REFERRED TO IN THE PREVIOUS SENTENCE, AN "Acquisition Loan" AND, AS THE CONTEXT MAY REQUIRE, COLLECTIVELY WITH ALL OTHER ACQUISITION LOANS OF SUCH LENDER AND WITH THE ACQUISITION LOANS OF ALL OTHER LENDERS, THE "Acquisition Loans") TO THE BORROWER FROM TIME TO TIME ON ANY BUSINESS DAY DURING THE PERIOD FROM THE FIRST RESTATEMENT DATE TO THE COMMITMENT TERMINATION DATE, PROVIDED THAT AFTER GIVING EFFECT THERETO (i) SUCH LENDER'S ACQUISITION LOAN EXPOSURE WOULD NOT EXCEED SUCH LENDER'S ACQUISITION LOAN COMMITMENT, AND (ii) THE AGGREGATE ACQUISITION LOAN EXPOSURE WOULD NOT EXCEED THE AGGREGATE ACQUISITION LOAN COMMITMENT. DURING SUCH PERIOD, THE BORROWER MAY BORROW, PREPAY IN WHOLE OR IN PART AND REBORROW UNDER THE ACQUISITION LOAN COMMITMENTS, ALL IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT. THE OUTSTANDING PRINCIPAL BALANCE OF EACH ACQUISITION LOAN SHALL BE DUE AND PAYABLE ON THE MATURITY DATE. SECTION 2.2.PROCEDURE FOR BORROWING (a) Credit Request. TO REQUEST A LOAN, THE BORROWER SHALL NOTIFY THE ADMINISTRATIVE AGENT BY THE DELIVERY OF A CREDIT REQUEST, WHICH SHALL BE SENT BY FACSIMILE AND SHALL BE IRREVOCABLE (CONFIRMED PROMPTLY, AND IN ANY EVENT WITHIN FIVE BUSINESS DAYS, BY THE DELIVERY TO THE ADMINISTRATIVE AGENT OF A CREDIT REQUEST MANUALLY SIGNED BY THE BORROWER), NO LATER THAN 11:00 A.M., THREE BUSINESS DAYS PRIOR TO THE REQUESTED BORROWING DATE IN THE CASE OF EURODOLLAR ADVANCES AND 10:00 A.M., ON THE REQUESTED BORROWING DATE IN THE CASE OF ABR ADVANCES, SPECIFYING (A) WHETHER SUCH BORROWING IS A REVOLVING LOAN, AN ACQUISITION LOAN OR A COMBINATION THEREOF, (B) THE AGGREGATE PRINCIPAL AMOUNT -22- 24 TO BE BORROWED, (C) THE REQUESTED BORROWING DATE, (D) WHETHER SUCH BORROWING IS TO CONSIST OF ONE OR MORE EURODOLLAR ADVANCES, ABR ADVANCES, OR A COMBINATION THEREOF AND (E) IF THE LOAN IS TO CONSIST OF ONE OR MORE EURODOLLAR ADVANCES, THE AMOUNT AND LENGTH OF THE INTEREST PERIOD FOR EACH EURODOLLAR ADVANCE. THE AMOUNT OF EACH (i) EURODOLLAR ADVANCE TO BE MADE ON A BORROWING DATE, WHEN AGGREGATED WITH ALL AMOUNTS TO BE CONVERTED TO, OR CONTINUED AS, A EURODOLLAR ADVANCE ON SUCH DATE AND HAVING THE SAME INTEREST PERIOD AS SUCH FIRST EURODOLLAR ADVANCE, SHALL EQUAL THE MINIMUM AMOUNT AND (ii) EACH ABR ADVANCE MADE ON EACH BORROWING DATE SHALL EQUAL THE MINIMUM AMOUNT OR, IF LESS, THE UNUSED PORTION OF THE AGGREGATE REVOLVING COMMITMENT OR THE AGGREGATE ACQUISITION LOAN COMMITMENT, AS APPLICABLE. (b) Funding by Lenders. UPON RECEIPT OF EACH CREDIT REQUEST, THE ADMINISTRATIVE AGENT SHALL PROMPTLY NOTIFY EACH LENDER THEREOF. SUBJECT TO ITS RECEIPT OF THE NOTICE REFERRED TO IN THE PRECEDING SENTENCE, EACH LENDER WILL MAKE THE AMOUNT OF ITS SPECIFIED PERCENTAGE OF THE REQUESTED LOANS AVAILABLE TO THE ADMINISTRATIVE AGENT FOR THE ACCOUNT OF THE BORROWER AT THE PAYMENT OFFICE NOT LATER THAN 1:00 P.M. ON THE RELEVANT BORROWING DATE REQUESTED BY THE BORROWER, IN FUNDS IMMEDIATELY AVAILABLE TO THE ADMINISTRATIVE AGENT AT SUCH OFFICE. THE AMOUNTS SO MADE AVAILABLE TO THE ADMINISTRATIVE AGENT ON SUCH BORROWING DATE WILL THEN, SUBJECT TO THE SATISFACTION OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, BE MADE AVAILABLE ON SUCH DATE TO THE BORROWER BY THE ADMINISTRATIVE AGENT AT THE PAYMENT OFFICE BY CREDITING THE ACCOUNT OF THE BORROWER ON THE BOOKS OF THE ADMINISTRATIVE AGENT AT SUCH OFFICE WITH THE AGGREGATE OF SAID AMOUNTS (IN LIKE FUNDS) RECEIVED BY THE ADMINISTRATIVE AGENT. THE FAILURE OF ANY LENDER TO PROVIDE SUCH LENDER'S SHARE OF THE REQUESTED LOANS SHALL NOT RELIEVE ANY OTHER LENDER OF ITS OBLIGATIONS HEREUNDER TO PROVIDE ITS SHARE OF THE REQUESTED LOANS. (c) Failure to Fund. UNLESS THE ADMINISTRATIVE AGENT SHALL HAVE RECEIVED NOTICE PRIOR TO A PROPOSED BORROWING DATE (OR, IN THE CASE OF A BORROWING OF ABR ADVANCES, PRIOR TO 12:00 NOON ON SUCH BORROWING DATE) FROM A LENDER (BY TELEPHONE OR OTHERWISE, SUCH NOTICE TO BE PROMPTLY CONFIRMED BY FACSIMILE OR OTHER WRITING) THAT SUCH LENDER WILL NOT MAKE AVAILABLE TO THE ADMINISTRATIVE AGENT SUCH LENDER'S SHARE OF THE REQUESTED LOANS, THE ADMINISTRATIVE AGENT MAY ASSUME THAT SUCH LENDER HAS MADE SUCH SHARE AVAILABLE TO THE ADMINISTRATIVE AGENT ON THE BORROWING DATE IN ACCORDANCE WITH THIS SECTION AND, IN RELIANCE UPON SUCH ASSUMPTION, MAKE AVAILABLE TO THE BORROWER ON SUCH BORROWING DATE A CORRESPONDING AMOUNT. IF AND TO THE EXTENT SUCH LENDER SHALL NOT HAVE SO MADE SUCH SHARE AVAILABLE TO THE ADMINISTRATIVE AGENT, SUCH LENDER AND THE BORROWER SEVERALLY AGREE TO PAY TO THE ADMINISTRATIVE AGENT FORTHWITH ON DEMAND SUCH CORRESPONDING AMOUNT (TO THE EXTENT NOT PREVIOUSLY PAID BY THE OTHER), TOGETHER WITH INTEREST THEREON FOR EACH DAY FROM THE DATE SUCH AMOUNT IS MADE AVAILABLE TO THE BORROWER TO THE DATE SUCH AMOUNT IS PAID TO THE ADMINISTRATIVE AGENT, AT A RATE PER ANNUM EQUAL TO, IN THE CASE OF THE BORROWER, THE INTEREST RATE OTHERWISE APPLICABLE TO SUCH LOAN, AND, IN THE CASE OF SUCH LENDER, AT A RATE OF INTEREST PER ANNUM EQUAL TO THE GREATER OF THE FEDERAL FUNDS EFFECTIVE RATE AND A RATE DETERMINED BY THE ADMINISTRATIVE AGENT IN ACCORDANCE WITH BANKING INDUSTRY RATES ON INTERBANK COMPENSATION. IF SUCH LENDER SHALL PAY TO THE ADMINISTRATIVE AGENT SUCH CORRESPONDING AMOUNT, SUCH AMOUNT SO PAID SHALL CONSTITUTE SUCH LENDER'S LOAN AS PART OF THE RELEVANT BORROWING FOR PURPOSES OF THIS AGREEMENT. SECTION 2.3.TERMINATION OR REDUCTION OF COMMITMENTS (a) Voluntary Termination or Reductions. THE BORROWER MAY, UPON AT LEAST THREE BUSINESS DAYS' PRIOR WRITTEN NOTICE TO THE ADMINISTRATIVE AGENT, (i) AT ANY TIME WHEN THE AGGREGATE REVOLVING EXPOSURE AND THE AGGREGATE ACQUISITION LOAN EXPOSURE SHALL BE ZERO, TERMINATE ALL OF THE REVOLVING COMMITMENTS AND ACQUISITION LOAN COMMITMENTS, (ii) AT ANY TIME WHEN THE AGGREGATE ACQUISITION LOAN EXPOSURE SHALL BE ZERO, TERMINATE ALL OF THE ACQUISITION LOAN COMMITMENTS, AND (iii) AT ANY TIME AND FROM TIME TO TIME WHEN (A) THE AGGREGATE REVOLVING COMMITMENT SHALL EXCEED THE AGGREGATE REVOLVING EXPOSURE (AFTER GIVING EFFECT TO ANY CONTEMPORANEOUS PAYMENT OR PREPAYMENT OF REVOLVING LOANS OR REIMBURSEMENT OBLIGATIONS) OR (B) THE AGGREGATE ACQUISITION LOAN COMMITMENT SHALL EXCEED THE AGGREGATE ACQUISITION LOAN EXPOSURE (AFTER GIVING EFFECT TO ANY CONTEMPORANEOUS PAYMENT OR PREPAYMENT OF THE ACQUISITION LOANS), PERMANENTLY REDUCE THE AGGREGATE REVOLVING COMMITMENT OR THE AGGREGATE ACQUISITION LOAN COMMITMENT, AS THE CASE MAY BE, BY A SUM NOT GREATER THAN THE AMOUNT OF SUCH EXCESS, PROVIDED, HOWEVER, THAT EACH SUCH PARTIAL -23- 25 REDUCTION SHALL BE IN THE AMOUNT OF $1,000,000 OR SUCH AMOUNT PLUS A WHOLE MULTIPLE OF $500,000 IN EXCESS THEREOF. (b) Termination on Commitment Termination Date. UNLESS PREVIOUSLY TERMINATED, THE REVOLVING COMMITMENTS AND THE ACQUISITION LOAN COMMITMENTS SHALL TERMINATE ON THE COMMITMENT TERMINATION DATE. (c) Scheduled Reductions of the Aggregate Acquisition Loan Commitment. ON EACH DATE SET FORTH BELOW, THE AGGREGATE ACQUISITION LOAN COMMITMENT SHALL BE AUTOMATICALLY REDUCED TO THE FOLLOWING AMOUNTS: -------------------------- ---------------------------------- DATE AMOUNT -------------------------- ---------------------------------- December 31, 1999 $30,000,000 -------------------------- ---------------------------------- December 31, 2000 $25,000,000 -------------------------- ---------------------------------- December 31, 2001 $20,000,000 -------------------------- ---------------------------------- December 31, 2002 $15,000,000 -------------------------- ---------------------------------- Commitment Termination Date $0 -------------------------- ---------------------------------- (d) Other Commitment Reductions. ON OR BEFORE EACH DATE SET FORTH BELOW, THE AGGREGATE ACQUISITION LOAN COMMITMENT SHALL BE PERMANENTLY REDUCED BY THE AMOUNT SET FORTH BELOW AND APPLICABLE TO SUCH DATE PROVIDED, HOWEVER, THAT IF AFTER APPLYING ALL OR ANY PORTION OF SUCH AMOUNT TO THE REDUCTION OF THE AGGREGATE ACQUISITION LOAN COMMITMENT, THE AGGREGATE ACQUISITION LOAN COMMITMENT SHALL EQUAL ZERO, SUCH PORTION OF SUCH AMOUNT (OR ALL THEREOF) NOT APPLIED TO THE REDUCTION OF THE AGGREGATE ACQUISITION LOAN COMMITMENT, SHALL BE APPLIED TO THE PERMANENT REDUCTION OF THE AGGREGATE REVOLVING COMMITMENT: (i) on the last day of the Reinvestment Period for each Disposition described in Section 8.6(d), by an amount equal to 100% of the Adjusted Net Cash Proceeds with respect to such Disposition; (ii) on the earlier of the date the annual financial statements in respect of each fiscal year are delivered to the Administrative Agent pursuant to Section 7.1(a), or the 90th day following the end of each such fiscal year, by an amount equal to the following: (A) if the Leverage Ratio at the end of such fiscal year is greater than 2.50:1.00, 75% of Excess Cash Flow, and (B) if the Leverage Ratio at the end of such fiscal year is less than or equal to 2.50:1.00, 50% of Excess Cash Flow; (iii) upon receipt by the Borrower or any Subsidiary Guarantor of Net Cash Proceeds attributable to any Equity Issuance, by an amount equal to the amount of such Net Cash Proceeds; (iv) upon receipt by the Borrower or any Subsidiary of Net Cash Proceeds of Refinancing Debt, by an amount equal to 100% of such Net Cash Proceeds; (v) in an amount equal to all Applicable Proceeds (i) in excess of amounts used to replace or repair any properties or (ii) which are not used or designated to replace or repair properties within one year after receipt thereof, provided that the Borrower or the applicable Subsidiary Guarantor shall have commenced the restoration or replacement process (including the making of appropriate filings and requests for approval) within 45 days after such casualty or after the receipt of any such condemnation proceeds, as the case may be, and diligently pursues the same through completion; and (vi) with respect to any Acquisition, upon receipt by the Borrower or any Subsidiary of proceeds from any reduction, or refund of any portion of, the Acquisition Consideration paid in respect thereof resulting from any post-closing adjustment made in connection therewith, by an amount equal to 100% of such proceeds; provided, however, that if on the date of any reduction of the Aggregate Revolving Commitment, the Aggregate Revolving Exposure exceeds the Aggregate Revolving Commitment after giving effect to such reduction and, if the Revolving Loans have been paid in full and the Letter of Credit Exposure of all Lenders is greater than zero, the Borrower shall deposit into the Cash Collateral Account an amount in cash -24- 26 that would cause the balance on deposit in the Cash Collateral Account to equal or exceed the Letter of Credit Exposure of all Lenders. -25- 27 (e) Reductions of Letter of Credit Commitment. THE LETTER OF CREDIT COMMITMENT SHALL NOT BE REDUCED UNTIL SUCH TIME AS THE AGGREGATE REVOLVING COMMITMENT SHALL EQUAL SUCH LETTER OF CREDIT COMMITMENT, AND THEREAFTER SHALL IN EACH CASE BE REDUCED, AUTOMATICALLY, BY A SUM EQUAL TO THE AMOUNT OF EACH SUCH REDUCTION IN THE AGGREGATE REVOLVING COMMITMENT. (f) Reductions in General. EACH REDUCTION OF THE AGGREGATE ACQUISITION LOAN COMMITMENT MADE PURSUANT TO SECTION 2.3(d) SHALL BE APPLIED TO THE REMAINING SCHEDULED REDUCTIONS OF THE AGGREGATE ACQUISITION LOAN COMMITMENT SET FORTH IN SECTION 2.3(c) ON A PRO RATA BASIS. EACH REDUCTION OF THE AGGREGATE REVOLVING COMMITMENT OR THE AGGREGATE ACQUISITION LOAN COMMITMENT, AS THE CASE MAY BE, SHALL BE MADE BY REDUCING EACH LENDER'S REVOLVING COMMITMENT OR ACQUISITION LOAN COMMITMENT, AS THE CASE MAY BE, BY AN AMOUNT EQUAL TO SUCH LENDER'S SPECIFIED PERCENTAGE OF SUCH REDUCTION. SIMULTANEOUSLY WITH EACH REDUCTION OF THE AGGREGATE REVOLVING COMMITMENT OR THE AGGREGATE ACQUISITION LOAN COMMITMENT, AS THE CASE MAY BE, THE BORROWER SHALL PAY THE COMMITMENT FEE ACCRUED ON THE AMOUNT BY WHICH THE AGGREGATE REVOLVING COMMITMENT OR THE AGGREGATE ACQUISITION LOAN COMMITMENT HAS BEEN REDUCED. SECTION 2.4. PREPAYMENTS OF LOANS (a) Voluntary Prepayments. THE BORROWER SHALL HAVE THE RIGHT AT ANY TIME AND FROM TIME TO TIME TO PREPAY ALL OR ANY PORTION OF THE LOANS WITHOUT PREMIUM OR PENALTY (BUT SUBJECT TO SECTION 3.5), BY DELIVERING TO THE ADMINISTRATIVE AGENT AN IRREVOCABLE WRITTEN NOTICE THEREOF AT LEAST ONE BUSINESS DAY PRIOR TO THE PROPOSED PREPAYMENT DATE, IN THE CASE OF LOANS CONSISTING OF ABR ADVANCES, AND AT LEAST THREE BUSINESS DAYS PRIOR TO THE PROPOSED PREPAYMENT DATE, IN THE CASE OF LOANS CONSISTING OF EURODOLLAR ADVANCES, SPECIFYING WHETHER THE LOANS TO BE PREPAID ARE REVOLVING LOANS OR ACQUISITION LOANS, WHETHER THE LOANS TO BE PREPAID CONSIST OF ABR ADVANCES, EURODOLLAR ADVANCES, OR A COMBINATION THEREOF, THE AMOUNT TO BE PREPAID AND THE DATE OF PREPAYMENT, WHEREUPON THE AMOUNT SPECIFIED IN SUCH NOTICE SHALL BE DUE AND PAYABLE ON THE DATE SPECIFIED. UPON RECEIPT OF EACH SUCH NOTICE, THE ADMINISTRATIVE AGENT SHALL PROMPTLY NOTIFY EACH LENDER THEREOF. EACH PARTIAL PREPAYMENT OF THE LOANS PURSUANT TO THIS SUBSECTION SHALL BE IN AN AMOUNT EQUAL TO THE MINIMUM AMOUNT, OR, IF LESS, THE OUTSTANDING PRINCIPAL BALANCE OF THE LOANS. AFTER GIVING EFFECT TO ANY PARTIAL PREPAYMENT WITH RESPECT TO EURODOLLAR ADVANCES WHICH WERE MADE (WHETHER AS THE RESULT OF A BORROWING, A CONVERSION OR A CONTINUATION) ON THE SAME DATE AND WHICH HAD THE SAME INTEREST PERIOD, THE OUTSTANDING PRINCIPAL BALANCE OF SUCH EURODOLLAR ADVANCES SHALL EXCEED (SUBJECT TO SECTION 3.3) THE MINIMUM AMOUNT. (b) Other Mandatory Prepayments; Cash Collateral. SIMULTANEOUSLY WITH EACH REDUCTION OR TERMINATION OF: (i) the Aggregate Revolving Commitment, (1) in the event that the Letter of Credit Commitment shall exceed the Aggregate Revolving Commitment as so reduced or terminated, the Letter of Credit Commitment shall be automatically reduced by an amount equal to such excess, and (2) the Borrower shall prepay the Revolving Loans by an amount equal to the lesser of (A) the aggregate outstanding principal balance of the Revolving Loans, or (B) the excess of the aggregate outstanding principal balance of the Revolving Loans over the Aggregate Revolving Commitment as so reduced or terminated; (ii) the Aggregate Acquisition Loan Commitment, the Borrower shall prepay the Acquisition Loans by an amount equal to the lesser of (A) the aggregate outstanding principal balance of the Acquisition Loans, or (B) the excess of the aggregate outstanding principal balance of the Acquisition Loans over the Aggregate Acquisition Loan Commitment as so reduced or terminated; and (iii) the Letter of Credit Commitment (including pursuant to clause (i) above), in the event the aggregate Letter of Credit Exposure of all Lenders exceeds the Letter of Credit Commitment as so reduced or terminated, the Borrower shall immediately deposit into the Cash Collateral Account such amount, in cash, as would cause the balance on deposit in the Cash Collateral Account to equal or exceed the aggregate Letter of Credit Exposure of all Lenders. (c) In General. SIMULTANEOUSLY WITH EACH PREPAYMENT OF A LOAN, THE BORROWER SHALL PREPAY ALL ACCRUED INTEREST ON THE AMOUNT PREPAID THROUGH THE DATE OF PREPAYMENT. SECTION 2.5.LETTERS OF CREDIT (a) Availability; Procedure. THE BORROWER MAY REQUEST THE ISSUER TO ISSUE STANDBY LETTERS OF CREDIT (THE "Letters of Credit"; EACH, INDIVIDUALLY, A "Letter of Credit") DURING THE PERIOD FROM THE -26- 28 FIRST RESTATEMENT DATE TO THE TENTH BUSINESS DAY PRIOR TO THE MATURITY DATE, PROVIDED THAT (i) IMMEDIATELY AFTER THE ISSUANCE OF EACH LETTER OF CREDIT, THE LETTER OF CREDIT EXPOSURE OF ALL LENDERS WOULD NOT EXCEED THE LETTER OF CREDIT COMMITMENT, AND (ii) THE SUM OF THE AGGREGATE REVOLVING EXPOSURE PLUS THE EXISTING LETTER OF CREDIT EXPOSURE WOULD NOT EXCEED THE AGGREGATE REVOLVING COMMITMENT. TO REQUEST THE ISSUANCE OF A LETTER OF CREDIT, THE BORROWER SHALL NOTIFY THE ADMINISTRATIVE AGENT AND THE ISSUER BY THE DELIVERY OF A CREDIT REQUEST, WHICH SHALL BE SENT BY FACSIMILE AND SHALL BE IRREVOCABLE (CONFIRMED PROMPTLY, AND IN ANY EVENT WITHIN FIVE BUSINESS DAYS, BY THE DELIVERY TO THE ADMINISTRATIVE AGENT OF A CREDIT REQUEST MANUALLY SIGNED BY THE BORROWER), AT LEAST THREE BUSINESS DAYS PRIOR TO THE REQUESTED DATE OF ISSUANCE, SPECIFYING (A) THE BENEFICIARY OF SUCH LETTER OF CREDIT, (B) THE BORROWER'S PROPOSAL AS TO THE CONDITIONS UNDER WHICH A DRAWING MAY BE MADE UNDER SUCH LETTER OF CREDIT AND THE DOCUMENTATION TO BE REQUIRED IN RESPECT THEREOF, (C) THE MAXIMUM AMOUNT TO BE AVAILABLE UNDER SUCH LETTER OF CREDIT, AND (D) THE REQUESTED DATES OF ISSUANCE AND EXPIRATION. SUCH CREDIT REQUEST SHALL BE ACCOMPANIED BY A DULY COMPLETED APPLICATION FOR SUCH LETTER OF CREDIT ON SUCH FORMS AS MAY BE MADE AVAILABLE FROM TIME TO TIME BY THE ISSUER AND SUCH OTHER CERTIFICATES, DOCUMENTS (INCLUDING A REIMBURSEMENT AGREEMENT) AND OTHER INFORMATION AS MAY BE REQUIRED BY THE ISSUER IN ACCORDANCE WITH ITS CUSTOMARY PROCEDURES (COLLECTIVELY, THE "Letter of Credit Documentation"). UPON RECEIPT OF SUCH CREDIT REQUEST FROM THE BORROWER, THE ADMINISTRATIVE AGENT SHALL PROMPTLY NOTIFY THE EACH LENDER THEREOF. SUBJECT TO THE SATISFACTION OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, THE ISSUER SHALL ISSUE EACH REQUESTED LETTER OF CREDIT. IN THE EVENT OF ANY CONFLICT BETWEEN THE PROVISIONS OF THIS AGREEMENT AND ANY LETTER OF CREDIT DOCUMENTATION, THE PROVISIONS OF THIS AGREEMENT SHALL CONTROL. (b) Terms of Letters of Credit. EACH LETTER OF CREDIT SHALL (i) BE DENOMINATED IN DOLLARS, (ii) BE ISSUED FOR THE ACCOUNT OF THE BORROWER AND IN SUPPORT OF OBLIGATIONS, CONTINGENT OR OTHERWISE, OF THE BORROWER OR ANY SUBSIDIARY ARISING IN THE ORDINARY COURSE OF BUSINESS, AND (iii) HAVE AN EXPIRATION DATE WHICH SHALL BE NOT LATER THAN THE EARLIER OF (A) TWELVE MONTHS AFTER THE DATE OF ISSUANCE THEREOF OR (B) FIVE BUSINESS DAYS BEFORE THE MATURITY DATE, PROVIDED THAT THE EXPIRATION DATE OF SUCH LETTER OF CREDIT MAY BE EXTENDED OR SUCH LETTER OF CREDIT MAY BE RENEWED, PROVIDED, FURTHER, THAT ANY RENEWAL, OR ANY EXTENSION OF ANY EXPIRY DATE, OF A LETTER OF CREDIT SHALL CONSTITUTE THE ISSUANCE OF SUCH LETTER OF CREDIT FOR ALL PURPOSES OF THIS AGREEMENT. (c) Letter of Credit Participations. IMMEDIATELY UPON THE ISSUANCE OF A LETTER OF CREDIT, THE ISSUER SHALL BE DEEMED TO HAVE SOLD AND TRANSFERRED TO EACH LENDER, AND EACH LENDER SHALL BE DEEMED TO HAVE IRREVOCABLY AND UNCONDITIONALLY PURCHASED AND RECEIVED FROM THE ISSUER, WITHOUT RECOURSE OR WARRANTY, AN UNDIVIDED INTEREST AND PARTICIPATION, TO THE EXTENT OF SUCH LENDER'S REVOLVING PERCENTAGE THEREOF, IN SUCH LETTER OF CREDIT AND THE OBLIGATIONS OF BORROWER WITH RESPECT THERETO AND ANY SECURITY THEREFOR AND ANY GUARANTY PERTAINING THERETO AT ANY TIME EXISTING. (d) Drawings on Letters of Credit. THE ISSUER SHALL PROMPTLY NOTIFY (i) EACH LENDER OF THE ISSUER'S RECEIPT OF A DRAWING REQUEST UNDER ANY LETTER OF CREDIT, STATING THE AMOUNT OF SUCH LENDER'S REVOLVING PERCENTAGE OF SUCH DRAWING REQUEST AND THE DATE ON WHICH SUCH REQUEST WILL BE HONORED AND (ii) BORROWER OF THE AMOUNT OF SUCH DRAWING REQUEST AND THE DATE ON WHICH SUCH REQUEST WILL BE HONORED. ANY FAILURE OF THE ISSUER TO GIVE OR ANY DELAY IN THE ISSUER'S GIVING ANY SUCH NOTICE SHALL NOT RELEASE OR DIMINISH THE OBLIGATIONS OF BORROWER OR ANY LENDER HEREUNDER. IN DETERMINING WHETHER TO PAY UNDER ANY LETTER OF CREDIT, THE ISSUER SHALL HAVE NO OBLIGATION TO ANY LENDER OR THE BORROWER OTHER THAN TO CONFIRM THAT ANY DOCUMENTS REQUIRED TO BE DELIVERED UNDER SUCH LETTER OF CREDIT HAVE BEEN DELIVERED AND THAT THEY APPEAR TO COMPLY ON THEIR FACE WITH THE REQUIREMENTS OF SUCH LETTER OF CREDIT. IN THE ABSENCE OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE ISSUER, THE ISSUER SHALL HAVE NO LIABILITY TO ANY LENDER OR THE BORROWER FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT UNDER OR IN CONNECTION WITH ANY LETTER OF CREDIT, INCLUDING ANY SUCH ACTION NEGLIGENTLY TAKEN OR NEGLIGENTLY OMITTED TO BE TAKEN BY IT. (e) Reimbursement. THE BORROWER SHALL PAY TO THE ADMINISTRATIVE AGENT FOR THE ACCOUNT OF THE ISSUER ON DEMAND THEREFOR, IN DOLLARS IN IMMEDIATELY AVAILABLE FUNDS, THE AMOUNT OF ALL REIMBURSEMENT OBLIGATIONS OWING TO THE ISSUER UNDER ANY LETTER OF CREDIT, TOGETHER WITH INTEREST THEREON AS PROVIDED IN SECTION 3.1, IRRESPECTIVE OF ANY CLAIM, SETOFF, DEFENSE OR OTHER RIGHT WHICH THE BORROWER MAY HAVE AT ANY TIME AGAINST THE ISSUER OR ANY OTHER PERSON. IN THE EVENT THAT THE ISSUER -27- 29 MAKES ANY PAYMENT UNDER ANY LETTER OF CREDIT AND BORROWER SHALL NOT HAVE REPAID SUCH AMOUNT TO THE ISSUER WHEN DUE, THE ISSUER SHALL PROMPTLY NOTIFY EACH LENDER OF SUCH FAILURE, AND EACH LENDER SHALL PROMPTLY AND UNCONDITIONALLY PAY TO THE ADMINISTRATIVE AGENT, FOR THE ACCOUNT OF THE ISSUER, THE AMOUNT OF SUCH LENDER'S REVOLVING PERCENTAGE OF SUCH PAYMENT IN DOLLARS IN IMMEDIATELY AVAILABLE FUNDS ON THE BUSINESS DAY THE ISSUER SO NOTIFIES SUCH LENDER IF SUCH NOTICE IS GIVEN PRIOR TO 12:00 NOON OR, IF SUCH NOTICE IS GIVEN AFTER 12:00 NOON, SUCH LENDER SHALL MAKE ITS REVOLVING PERCENTAGE OF SUCH PAYMENT AVAILABLE TO THE ISSUER PRIOR TO 12:00 NOON ON THE NEXT SUCCEEDING BUSINESS DAY. (f) Lenders' Obligations. IF AND TO THE EXTENT ANY LENDER SHALL NOT MAKE SUCH LENDER'S REVOLVING PERCENTAGE OF ANY REIMBURSEMENT OBLIGATIONS AVAILABLE TO THE ISSUER WHEN DUE IN ACCORDANCE WITH SECTION 2.5(e), SUCH LENDER AGREES TO PAY INTEREST TO THE ISSUER ON SUCH UNPAID AMOUNT FOR EACH DAY FROM THE DATE SUCH PAYMENT IS DUE UNTIL THE DATE SUCH AMOUNT IS PAID IN FULL TO THE ISSUER AT THE FEDERAL FUNDS EFFECTIVE RATE UNTIL (AND INCLUDING) THE THIRD BUSINESS DAY AFTER THE DATE DUE AND THEREAFTER AT THE ALTERNATE BASE RATE. THE OBLIGATIONS OF THE LENDERS UNDER THIS SECTION 2.5(f) ARE SEVERAL AND NOT JOINT OR JOINT AND SEVERAL, AND THE FAILURE OF ANY LENDER TO MAKE AVAILABLE TO THE ISSUER ITS REVOLVING PERCENTAGE OF ANY REIMBURSEMENT OBLIGATIONS WHEN DUE IN ACCORDANCE WITH SECTION 2.5(e) SHALL NOT RELIEVE ANY OTHER LENDER OF ITS OBLIGATION HEREUNDER TO MAKE ITS REVOLVING PERCENTAGE OF SUCH REIMBURSEMENT OBLIGATIONS SO AVAILABLE WHEN SO DUE, BUT NO LENDER SHALL BE RESPONSIBLE FOR THE FAILURE OF ANY OTHER LENDER TO MAKE SUCH OTHER LENDER'S REVOLVING PERCENTAGE OF SUCH REIMBURSEMENT OBLIGATIONS SO AVAILABLE WHEN SO DUE. (g) Rescission. WHENEVER THE ISSUER RECEIVES A PAYMENT OF A REIMBURSEMENT OBLIGATION FROM OR ON BEHALF OF BORROWER AS TO WHICH THE ISSUER HAS RECEIVED ANY PAYMENT FROM A LENDER PURSUANT TO SECTION 2.5(e), THE ISSUER SHALL PROMPTLY PAY TO SUCH LENDER AN AMOUNT EQUAL TO SUCH LENDER'S REVOLVING PERCENTAGE OF SUCH PAYMENT FROM OR ON BEHALF OF BORROWER. IF ANY PAYMENT BY OR ON BEHALF OF BORROWER AND RECEIVED BY THE ISSUER WITH RESPECT TO ANY LETTER OF CREDIT IS RESCINDED OR MUST OTHERWISE BE RETURNED BY THE ISSUER FOR ANY REASON AND THE ISSUER HAS PAID TO ANY LENDER ANY PORTION THEREOF, EACH SUCH LENDER SHALL FORTHWITH PAY OVER TO THE ISSUER AN AMOUNT EQUAL TO SUCH LENDER'S REVOLVING PERCENTAGE OF THE AMOUNT WHICH MUST BE SO RETURNED BY THE ISSUER. (h) Expenses. EACH LENDER, UPON THE DEMAND OF THE ISSUER, SHALL REIMBURSE THE ISSUER, TO THE EXTENT THE ISSUER HAS NOT BEEN REIMBURSED BY BORROWER AFTER DEMAND THEREFOR, FOR THE REASONABLE COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) INCURRED BY THE ISSUER IN CONNECTION WITH THE COLLECTION OF AMOUNTS DUE UNDER, AND THE PRESERVATION AND ENFORCEMENT OF ANY RIGHTS CONFERRED BY, ANY LETTER OF CREDIT OR THE PERFORMANCE OF THE ISSUER'S OBLIGATIONS AS ISSUER OF THE LETTERS OF CREDIT UNDER THIS AGREEMENT IN RESPECT THEREOF, TO THE EXTENT OF SUCH LENDER'S REVOLVING PERCENTAGE OF THE AMOUNT OF SUCH COSTS AND EXPENSES PROVIDED, HOWEVER, THAT NO LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS TO THE EXTENT THE SAME RESULT SOLELY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE ISSUER. THE ISSUER SHALL REFUND ANY COSTS AND EXPENSES REIMBURSED BY SUCH LENDER THAT ARE SUBSEQUENTLY RECOVERED FROM BORROWER IN AN AMOUNT EQUAL TO SUCH LENDER'S REVOLVING PERCENTAGE THEREOF. (i) Obligations Absolute. THE OBLIGATION OF THE BORROWER TO REIMBURSE THE ISSUER PURSUANT TO THIS SECTION 2.5, AND THE OBLIGATION OF EACH LENDER TO MAKE AVAILABLE TO THE ISSUER THE AMOUNTS SET FORTH IN THIS SECTION 2.5 SHALL BE ABSOLUTE, UNCONDITIONAL AND IRREVOCABLE UNDER ANY AND ALL CIRCUMSTANCES, SHALL BE MADE WITHOUT REDUCTION FOR ANY SET-OFF, COUNTERCLAIM OR OTHER DEDUCTION OF ANY NATURE WHATSOEVER, MAY NOT BE TERMINATED, SUSPENDED OR DELAYED FOR ANY REASON WHATSOEVER, SHALL NOT BE SUBJECT TO ANY QUALIFICATION OR EXCEPTION AND SHALL BE MADE IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT UNDER ALL CIRCUMSTANCES, INCLUDING WITHOUT LIMITATION, ANY OF THE FOLLOWING CIRCUMSTANCES: (1) ANY LACK OF VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, (2) THE EXISTENCE OF ANY CLAIM, SETOFF, DEFENSE OR OTHER RIGHT WHICH BORROWER MAY HAVE AT ANY TIME AGAINST A BENEFICIARY NAMED IN A LETTER OF CREDIT, ANY TRANSFEREE OF ANY LETTER OF CREDIT (OR ANY PERSON FOR WHOM ANY SUCH TRANSFEREE MAY BE ACTING), THE ISSUER, ANY LENDER OR ANY OTHER PERSON, WHETHER IN CONNECTION WITH THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, ANY LETTER OF CREDIT, THE TRANSACTIONS CONTEMPLATED IN THE LOAN DOCUMENTS OR ANY UNRELATED TRANSACTIONS -28- 30 (INCLUDING ANY UNDERLYING TRANSACTION BETWEEN BORROWER AND THE BENEFICIARY NAMED IN ANY SUCH LETTER OF CREDIT), (3) ANY DRAFT, CERTIFICATE OR ANY OTHER DOCUMENT PRESENTED UNDER ANY LETTER OF CREDIT PROVING TO BE FORGED, FRAUDULENT, INVALID OR INSUFFICIENT IN ANY RESPECT OR ANY STATEMENT THEREIN BEING UNTRUE OR INACCURATE IN ANY RESPECT, (4) THE SURRENDER OR IMPAIRMENT OF ANY COLLATERAL FOR THE PERFORMANCE OR OBSERVANCE OF ANY OF THE TERMS OF ANY OF THE LOAN DOCUMENTS, OR (5) THE OCCURRENCE OF ANY DEFAULT OR EVENT OF DEFAULT. NOTHING CONTAINED IN THIS SECTION 2.5(i), HOWEVER, SHALL REQUIRE THE BORROWER OR ANY LENDER TO REIMBURSE THE ISSUER FOR ANY AMOUNTS THAT BECOME DUE BY REASON OF THE ISSUER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. SECTION 2.6. PAYMENTS; PRO RATA TREATMENT AND SHARING OF SET-OFFS (a) Payments Generally. (i) EXCEPT AS PROVIDED BELOW, ALL PAYMENTS, INCLUDING PREPAYMENTS, OF PRINCIPAL AND INTEREST ON THE LOANS, OF THE COMMITMENT FEE, THE LETTER OF CREDIT FEES AND OF ALL OTHER AMOUNTS TO BE PAID BY THE BORROWER UNDER THE LOAN DOCUMENTS (THE COMMITMENT FEE AND THE LETTER OF CREDIT FEES, TOGETHER WITH ALL OF SUCH OTHER FEES, BEING SOMETIMES HEREINAFTER COLLECTIVELY REFERRED TO AS THE "Fees") SHALL BE MADE TO THE ADMINISTRATIVE AGENT, PRIOR TO 1:00 P.M. ON THE DATE SUCH PAYMENT IS DUE, FOR THE ACCOUNT OF THE APPLICABLE CREDIT PARTIES AT THE PAYMENT OFFICE, IN DOLLARS AND IN IMMEDIATELY AVAILABLE FUNDS, WITHOUT SET-OFF, OFFSET, RECOUPMENT OR COUNTERCLAIM. THE FAILURE OF THE BORROWER TO MAKE ANY SUCH PAYMENT BY SUCH TIME SHALL NOT CONSTITUTE A DEFAULT, PROVIDED THAT SUCH PAYMENT IS MADE ON SUCH DUE DATE, BUT ANY SUCH PAYMENT MADE AFTER 1:00 P.M. ON SUCH DUE DATE SHALL BE DEEMED TO HAVE BEEN MADE ON THE NEXT BUSINESS DAY FOR THE PURPOSE OF CALCULATING INTEREST ON AMOUNTS OUTSTANDING ON THE LOANS. AS BETWEEN THE BORROWER AND EACH CREDIT PARTY, ANY PAYMENT BY THE BORROWER TO THE ADMINISTRATIVE AGENT FOR THE ACCOUNT OF SUCH CREDIT PARTY SHALL BE DEEMED TO BE PAYMENT BY THE BORROWER TO SUCH CREDIT PARTY. NOTWITHSTANDING THE FOREGOING, ALL PAYMENTS PURSUANT TO SECTIONS 3.5, 3.6, 3.7, AND 11.4 SHALL BE PAID DIRECTLY TO THE CREDIT PARTY ENTITLED THERETO. IF ANY PAYMENT UNDER THE LOAN DOCUMENTS SHALL BE DUE AND PAYABLE ON A DAY WHICH IS NOT A BUSINESS DAY, THE DUE DATE THEREOF (EXCEPT AS OTHERWISE PROVIDED WITH RESPECT TO INTEREST PERIODS) SHALL BE EXTENDED TO THE NEXT BUSINESS DAY AND (EXCEPT WITH RESPECT TO PAYMENTS IN RESPECT OF THE FEES) INTEREST SHALL BE PAYABLE AT THE APPLICABLE RATE SPECIFIED HEREIN DURING SUCH EXTENSION, PROVIDED, HOWEVER, THAT IF SUCH NEXT BUSINESS DAY WOULD BE AFTER THE MATURITY DATE, SUCH PAYMENT SHALL INSTEAD BE DUE ON THE IMMEDIATELY PRECEDING BUSINESS DAY. (ii) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (A) first, towards payment of interest and fees then due under the Loan Documents, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (B) second, towards payment of principal then due under the Loan Documents, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (b) Set-off. IN ADDITION TO ANY RIGHTS AND REMEDIES OF THE CREDIT PARTIES PROVIDED BY LAW, UPON AND AFTER THE ACCELERATION OF ALL THE OBLIGATIONS OF THE BORROWER UNDER THE LOAN DOCUMENTS TO WHICH IT IS A PARTY, OR AT ANY TIME UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT UNDER SECTIONS 9.1(a) OR (b), EACH CREDIT PARTY SHALL HAVE THE RIGHT, WITHOUT PRIOR NOTICE TO ANY LOAN PARTY, ANY SUCH NOTICE BEING EXPRESSLY WAIVED BY EACH LOAN PARTY TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, TO SET-OFF AND APPLY AGAINST ANY INDEBTEDNESS, WHETHER MATURED OR UNMATURED, OF SUCH LOAN PARTY TO SUCH CREDIT PARTY ANY AMOUNT OWING FROM SUCH CREDIT PARTY TO SUCH LOAN PARTY, AT, OR AT ANY TIME AFTER, THE HAPPENING OF ANY OF THE ABOVE-MENTIONED EVENTS. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, THE AFORESAID RIGHT OF SET-OFF MAY BE EXERCISED BY ANY CREDIT PARTY AGAINST SUCH LOAN PARTY OR AGAINST ANY TRUSTEE IN BANKRUPTCY, CUSTODIAN, DEBTOR IN POSSESSION, ASSIGNEE FOR THE BENEFIT OF CREDITORS, RECEIVER, OR EXECUTION, JUDGMENT OR ATTACHMENT CREDITOR OF SUCH LOAN PARTY, OR AGAINST ANYONE ELSE CLAIMING THROUGH OR AGAINST SUCH LOAN PARTY, OR SUCH TRUSTEE IN BANKRUPTCY, CUSTODIAN, DEBTOR IN POSSESSION, ASSIGNEE FOR THE BENEFIT OF CREDITORS, RECEIVER, OR EXECUTION, JUDGMENT OR ATTACHMENT CREDITOR, NOTWITHSTANDING THE FACT THAT SUCH RIGHT OF SET-OFF SHALL NOT HAVE BEEN EXERCISED BY SUCH CREDIT PARTY PRIOR TO THE MAKING, FILING OR ISSUANCE, OR SERVICE UPON SUCH CREDIT PARTY OF, OR OF NOTICE OF, ANY SUCH PETITION, ASSIGNMENT FOR THE BENEFIT OF CREDITORS, APPOINTMENT OR APPLICATION FOR THE APPOINTMENT OF A RECEIVER, OR ISSUANCE OF EXECUTION, SUBPOENA, -29- 31 ORDER OR WARRANT. EACH CREDIT PARTY AGREES PROMPTLY TO NOTIFY THE BORROWER AND THE ADMINISTRATIVE AGENT AFTER ANY SUCH SET-OFF AND APPLICATION MADE BY SUCH CREDIT PARTY, PROVIDED THAT THE FAILURE TO GIVE SUCH NOTICE SHALL NOT AFFECT THE VALIDITY OF SUCH SET-OFF AND APPLICATION. (c) Adjustments. IF ANY LENDER SHALL OBTAIN ANY PAYMENT (WHETHER VOLUNTARY, INVOLUNTARY, THROUGH THE EXERCISE OF ANY RIGHT OF SET-OFF, OR OTHERWISE) IN RESPECT OF THE PRINCIPAL OF OR INTEREST ON ITS REVOLVING LOANS OR ITS ACQUISITION LOANS, RESULTING IN SUCH LENDER RECEIVING PAYMENT OF A GREATER PROPORTION OF THE AGGREGATE PRINCIPAL AMOUNT OF, OR ACCRUED INTEREST ON, SUCH TYPE OF LOAN THAN THE PROPORTION RECEIVED BY ANY OTHER LENDER, THEN THE LENDER RECEIVING SUCH GREATER PROPORTION SHALL PROMPTLY PURCHASE, AT FACE VALUE FOR CASH, PARTICIPATIONS IN THE LOANS OF THAT TYPE TO THE EXTENT NECESSARY SO THAT THE BENEFIT OF SUCH PAYMENT SHALL BE SHARED BY THE LENDERS RATABLY IN ACCORDANCE WITH THE AGGREGATE AMOUNT OF PRINCIPAL OF AND ACCRUED INTEREST ON THEIR RESPECTIVE LOANS OF SUCH TYPE, PROVIDED, HOWEVER, THAT (d) IF ALL OR ANY PORTION OF SUCH PAYMENT IS THEREAFTER RECOVERED, SUCH PARTICIPATIONS SHALL BE RESCINDED AND THE PURCHASE PRICE RETURNED, IN EACH CASE TO THE EXTENT OF SUCH RECOVERY, AND (e) THE PROVISIONS OF THIS SECTION 2.6(c) SHALL NOT BE CONSTRUED TO APPLY TO ANY PAYMENT MADE BY THE BORROWER PURSUANT TO AND IN ACCORDANCE WITH THE EXPRESS TERMS OF THIS AGREEMENT OR ANY PAYMENT OBTAINED BY A LENDER AS CONSIDERATION FOR THE ASSIGNMENT OF OR SALE OF A PARTICIPATION IN ANY OF ITS LOANS TO ANY ASSIGNEE OR PARTICIPANT, OTHER THAN TO THE BORROWER OR ANY SUBSIDIARY OR AFFILIATE THEREOF (AS TO WHICH THE PROVISIONS OF THIS SECTION 2.6(c) SHALL APPLY). THE BORROWER AGREES THAT ANY LENDER THAT PURCHASED A PARTICIPATION PURSUANT TO THIS SUBSECTION MAY EXERCISE SUCH RIGHTS TO PAYMENT (INCLUDING THE RIGHT OF SET-OFF) WITH RESPECT TO SUCH PARTICIPATION AS FULLY AS SUCH LENDER WERE THE DIRECT CREDITOR OF THE BORROWER IN THE AMOUNT OF SUCH PARTICIPATION. SECTION 2.7.CASH COLLATERAL ACCOUNT At, or at any time before, the time the Borrower shall be required to make a deposit into the Cash Collateral Account, the Administrative Agent shall establish and maintain at its offices at One Wall Street, New York, New York in the name of the Borrower but under the sole dominion and control of the Administrative Agent, a cash collateral account designated as "Global Vacation Group, Inc./Cash Collateral Account" (the "CASH COLLATERAL ACCOUNT"). The Borrower may from time to time make one or more deposits into the Cash Collateral Account. The Borrower hereby pledges to the Administrative Agent for the benefit of the Credit Parties, a Lien on and security interest in the Cash Collateral Account and all sums at any time and from time to time on deposit therein (the Cash Collateral Account, together with all sums on deposit therein, being sometimes hereinafter collectively referred to as the "CASH COLLATERAL"), as collateral security for the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise, of the Borrower Obligations. The Borrower agrees that at any time and from time to time at its expense, it will promptly execute and deliver to the Administrative Agent any further instruments and documents, and take any further actions, that may be necessary or that the Administrative Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Cash Collateral. The Borrower agrees that it will not (i) sell or otherwise dispose of any of the Cash Collateral, or (ii) create or permit to exist any Lien upon any of the Cash Collateral, except for Permitted Liens. The Borrower hereby authorizes the Administrative Agent, promptly after each drawing under any Letter of Credit shall become due and payable, to apply any and all cash on deposit in the Cash Collateral Account towards the reimbursement of the Issuer for all sums paid in respect of such drawing, and all other Borrower Obligations which shall then be due and owing. ARTICLE 3. INTEREST, FEES, YIELD PROTECTIONS, ETC. SECTION 3.1.INTEREST RATE AND PAYMENT DATES (a) Advances. EACH (i) ABR ADVANCE SHALL BEAR INTEREST AT A RATE PER ANNUM EQUAL TO THE ALTERNATE BASE RATE PLUS THE APPLICABLE MARGIN AND (ii) EURODOLLAR ADVANCE SHALL BEAR INTEREST AT A RATE PER ANNUM EQUAL TO THE EURODOLLAR RATE FOR THE APPLICABLE INTEREST PERIOD PLUS THE APPLICABLE MARGIN. (b) Event of Default; Late Charges. NOTWITHSTANDING THE FOREGOING, AFTER THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE OUTSTANDING PRINCIPAL BALANCE OF THE LOANS SHALL BEAR INTEREST AT A RATE PER ANNUM EQUAL TO 2% PLUS THE RATE OTHERWISE APPLICABLE TO SUCH LOANS AS -30- 32 PROVIDED IN SUBSECTION (a) ABOVE. IF ANY INTEREST, REIMBURSEMENT OBLIGATION, FEE OR OTHER AMOUNT PAYABLE UNDER THE LOAN DOCUMENTS IS NOT PAID WHEN DUE (WHETHER AT THE STATED MATURITY THEREOF, BY ACCELERATION OR OTHERWISE), SUCH OVERDUE AMOUNT SHALL BEAR INTEREST AT A RATE PER ANNUM EQUAL TO THE ALTERNATE BASE RATE PLUS 2%, FROM THE DATE OF SUCH NONPAYMENT UNTIL PAID IN FULL (WHETHER BEFORE OR AFTER THE ENTRY OF A JUDGMENT THEREON). ALL SUCH INTEREST SHALL BE PAYABLE ON DEMAND. (c) Payment of Interest. EXCEPT AS OTHERWISE PROVIDED IN SUBSECTION (b) ABOVE, INTEREST SHALL BE PAYABLE IN ARREARS ON THE FOLLOWING DATES AND UPON EACH PAYMENT (INCLUDING PREPAYMENT) OF THE LOANS: (i) in the case of an ABR Advance, on the last Business Day of each March, June, September and December commencing on the first of such days to occur after such ABR Advance is made or any Eurodollar Advance is converted to an ABR Advance; (ii) in the case of a Eurodollar Advance, on the last day of the Interest Period applicable thereto and, if such Interest Period is longer than three months, the last Business Day of each three month interval occurring during such Interest Period; and (iii) in the case of all Loans, the Maturity Date. (d) Computations. INTEREST ON (i) ABR ADVANCES TO THE EXTENT BASED ON THE PRIME RATE SHALL BE CALCULATED ON THE BASIS OF A 365 OR 366-DAY YEAR (AS THE CASE MAY BE), AND (ii) ABR ADVANCES TO THE EXTENT BASED ON THE FEDERAL FUNDS EFFECTIVE RATE AND ON EURODOLLAR ADVANCES SHALL BE CALCULATED ON THE BASIS OF A 360-DAY YEAR, IN EACH CASE, FOR THE ACTUAL NUMBER OF DAYS ELAPSED. THE ADMINISTRATIVE AGENT SHALL, AS SOON AS PRACTICABLE, NOTIFY THE BORROWER AND THE LENDERS OF THE EFFECTIVE DATE AND THE AMOUNT OF EACH SUCH CHANGE IN THE PRIME RATE, BUT ANY FAILURE TO SO NOTIFY SHALL NOT IN ANY MANNER AFFECT THE OBLIGATION OF THE BORROWER TO PAY INTEREST ON THE LOANS IN THE AMOUNTS AND ON THE DATES REQUIRED. EACH DETERMINATION OF A RATE OF INTEREST BY THE ADMINISTRATIVE AGENT PURSUANT TO THE LOAN DOCUMENTS SHALL BE CONCLUSIVE AND BINDING ON ALL PARTIES HERETO ABSENT MANIFEST ERROR. THE BORROWER ACKNOWLEDGES THAT TO THE EXTENT INTEREST PAYABLE ON ABR ADVANCES IS BASED ON THE PRIME RATE, SUCH RATE IS ONLY ONE OF THE BASES FOR COMPUTING INTEREST ON LOANS MADE BY THE LENDERS, AND BY BASING INTEREST PAYABLE ON ABR ADVANCES ON THE PRIME RATE, THE LENDERS HAVE NOT COMMITTED TO CHARGE, AND THE BORROWER HAS NOT IN ANY WAY BARGAINED FOR, INTEREST BASED ON A LOWER OR THE LOWEST RATE AT WHICH THE LENDERS MAY NOW OR IN THE FUTURE MAKE LOANS TO OTHER BORROWERS. SECTION 3.2. FEES (a) Commitment Fee. THE BORROWER AGREES TO PAY TO THE ADMINISTRATIVE AGENT, FOR THE ACCOUNT OF THE LENDERS IN ACCORDANCE WITH SUCH LENDER'S TOTAL PERCENTAGE, FEES (COLLECTIVELY, THE "Commitment Fee"), DURING THE PERIOD FROM THE FIRST RESTATEMENT DATE THROUGH THE COMMITMENT TERMINATION DATE, AT A RATE PER ANNUM EQUAL TO THE APPLICABLE MARGIN ON THE SUM OF THE AVERAGE DAILY UNUSED AGGREGATE REVOLVING COMMITMENT AND AGGREGATE ACQUISITION LOAN COMMITMENT. THE COMMITMENT FEE SHALL BE PAYABLE (A) QUARTERLY IN ARREARS ON THE LAST BUSINESS DAY OF EACH MARCH, JUNE, SEPTEMBER AND DECEMBER DURING SUCH PERIOD, (B) ON THE DATE OF ANY REDUCTION IN THE AGGREGATE REVOLVING COMMITMENT OR THE AGGREGATE ACQUISITION LOAN COMMITMENT (TO THE EXTENT OF SUCH REDUCTION) AND (C) ON THE MATURITY DATE. THE COMMITMENT FEE SHALL BE CALCULATED ON THE BASIS OF A 360-DAY YEAR FOR THE ACTUAL NUMBER OF DAYS ELAPSED. (b) Letter of Credit Fees. THE BORROWER AGREES TO PAY TO THE ADMINISTRATIVE AGENT, FOR THE ACCOUNT OF THE LENDERS IN ACCORDANCE WITH EACH LENDER'S REVOLVING PERCENTAGE, COMMISSIONS (THE "Letter of Credit Fees") WITH RESPECT TO THE LETTERS OF CREDIT FOR THE PERIOD FROM AND INCLUDING THE DATE OF ISSUANCE OF EACH THEREOF THROUGH THE EXPIRATION DATE THEREOF, AT A RATE PER ANNUM EQUAL TO THE APPLICABLE MARGIN ON THE AVERAGE DAILY MAXIMUM AMOUNT AVAILABLE UNDER ANY CONTINGENCY TO BE DRAWN UNDER SUCH LETTER OF CREDIT. THE LETTER OF CREDIT FEES SHALL BE (i) CALCULATED ON THE BASIS OF A 360-DAY YEAR FOR THE ACTUAL NUMBER OF DAYS ELAPSED AND (ii) PAYABLE QUARTERLY IN ARREARS ON THE LAST BUSINESS DAY OF EACH MARCH, JUNE, SEPTEMBER AND DECEMBER OF EACH YEAR, AND ON THE DATE THAT THE REVOLVING COMMITMENTS SHALL EXPIRE. IN ADDITION TO THE LETTER OF CREDIT FEES, THE BORROWER AGREES TO PAY TO THE ISSUER, FOR ITS OWN ACCOUNT, ITS STANDARD FEES AND CHARGES CUSTOMARILY CHARGED TO CUSTOMERS SIMILAR TO THE BORROWER WITH RESPECT TO ANY LETTER OF CREDIT. -31- 33 (c) Administrative Agent's and Issuer's Fees. THE BORROWER AGREES TO PAY TO THE ADMINISTRATIVE AGENT AND THE ISSUER, FOR THEIR OWN RESPECTIVE ACCOUNTS, SUCH OTHER FEES AS HAVE BEEN AGREED TO IN WRITING BY THE BORROWER, THE ADMINISTRATIVE AGENT AND THE ISSUER. SECTION 3.3. CONVERSIONS (a) THE BORROWER MAY ELECT FROM TIME TO TIME TO CONVERT ONE OR MORE EURODOLLAR ADVANCES TO ABR ADVANCES BY GIVING THE ADMINISTRATIVE AGENT AT LEAST ONE BUSINESS DAY'S PRIOR IRREVOCABLE NOTICE OF SUCH ELECTION, SPECIFYING THE AMOUNT TO BE CONVERTED, PROVIDED, THAT ANY SUCH CONVERSION OF EURODOLLAR ADVANCES SHALL ONLY BE MADE ON THE LAST DAY OF THE INTEREST PERIOD APPLICABLE THERETO. IN ADDITION, THE BORROWER MAY ELECT FROM TIME TO TIME TO (i) CONVERT ABR ADVANCES COMPRISING ALL OR A PORTION OF LOANS TO EURODOLLAR ADVANCES AND (ii) CONTINUE EURODOLLAR ADVANCES AS NEW EURODOLLAR ADVANCES BY SELECTING A NEW INTEREST PERIOD THEREFOR, IN EACH CASE BY GIVING THE ADMINISTRATIVE AGENT AT LEAST THREE BUSINESS DAYS' PRIOR IRREVOCABLE NOTICE OF SUCH ELECTION, IN THE CASE OF A CONVERSION TO, OR CONTINUATION OF, EURODOLLAR ADVANCES, SPECIFYING THE AMOUNT TO BE SO CONVERTED OR CONTINUED AND THE INITIAL INTEREST PERIOD RELATING THERETO, PROVIDED THAT ANY SUCH CONVERSION OF ABR ADVANCES TO EURODOLLAR ADVANCES SHALL ONLY BE MADE ON A BUSINESS DAY AND ANY SUCH CONTINUATION OF EURODOLLAR ADVANCES AS NEW EURODOLLAR ADVANCES SHALL ONLY BE MADE ON THE LAST DAY OF THE INTEREST PERIOD APPLICABLE TO THE EURODOLLAR ADVANCES WHICH ARE TO BE CONTINUED AS SUCH NEW EURODOLLAR ADVANCES. EACH SUCH NOTICE (A "Notice of Conversion") SHALL BE SUBSTANTIALLY IN THE FORM OF EXHIBIT C, SHALL BE IRREVOCABLE AND SHALL BE GIVEN BY FACSIMILE (CONFIRMED PROMPTLY, AND IN ANY EVENT WITHIN FIVE BUSINESS DAYS, BY THE DELIVERY TO THE ADMINISTRATIVE AGENT OF A NOTICE OF CONVERSION MANUALLY SIGNED BY THE BORROWER). THE ADMINISTRATIVE AGENT SHALL PROMPTLY PROVIDE THE LENDERS WITH NOTICE OF EACH SUCH ELECTION. ADVANCES MAY BE CONVERTED OR CONTINUED PURSUANT TO THIS SECTION IN WHOLE OR IN PART, PROVIDED THAT THE AMOUNT TO BE CONVERTED TO, OR CONTINUED AS, EACH EURODOLLAR ADVANCE, WHEN AGGREGATED WITH ANY EURODOLLAR ADVANCE TO BE MADE ON SUCH DATE IN ACCORDANCE WITH SECTION 2.2 AND HAVING THE SAME INTEREST PERIOD AS SUCH FIRST EURODOLLAR ADVANCE, SHALL EQUAL THE MINIMUM AMOUNT. (b) NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, THE BORROWER SHALL HAVE NO RIGHT TO ELECT TO CONVERT ANY EXISTING ABR ADVANCE TO A NEW EURODOLLAR ADVANCE OR TO CONTINUE ANY EXISTING EURODOLLAR ADVANCE AS A NEW EURODOLLAR ADVANCE. IN SUCH EVENT, ALL ABR ADVANCES SHALL BE AUTOMATICALLY CONTINUED AS ABR ADVANCES AND ALL EURODOLLAR ADVANCES SHALL BE AUTOMATICALLY CONVERTED TO ABR ADVANCES ON THE LAST DAY OF THE INTEREST PERIOD APPLICABLE TO SUCH EURODOLLAR ADVANCE. (c) EACH CONVERSION OR CONTINUATION SHALL BE EFFECTED BY EACH LENDER BY APPLYING THE PROCEEDS OF ITS NEW ABR ADVANCE OR EURODOLLAR ADVANCE, AS THE CASE MAY BE, TO ITS ADVANCES (OR PORTION THEREOF) BEING CONVERTED (IT BEING UNDERSTOOD THAT ANY SUCH CONVERSION OR CONTINUATION SHALL NOT CONSTITUTE A BORROWING FOR PURPOSES OF ARTICLES 4, 5 OR 6). SECTION 3.4. CONCERNING INTEREST PERIODS (a) NO INTEREST PERIOD IN RESPECT OF A EURODOLLAR ADVANCE SHALL END AFTER THE COMMITMENT TERMINATION DATE. (b) WITH RESPECT TO EURODOLLAR ADVANCES, ANY INTEREST PERIOD WHICH BEGINS ON THE LAST BUSINESS DAY OF A CALENDAR MONTH (OR ON A DAY FOR WHICH THERE IS NO NUMERICALLY CORRESPONDING DAY IN THE CALENDAR MONTH AT THE END OF SUCH INTEREST PERIOD) SHALL END ON THE LAST BUSINESS DAY OF A CALENDAR MONTH. (c) IF AN INTEREST PERIOD WOULD OTHERWISE END ON A DAY WHICH IS NOT A BUSINESS DAY, SUCH INTEREST PERIOD SHALL BE EXTENDED TO THE NEXT SUCCEEDING BUSINESS DAY, UNLESS, IN THE CASE OF A INTEREST PERIOD, THE RESULT OF SUCH EXTENSION WOULD BE TO CARRY SUCH INTEREST PERIOD INTO ANOTHER CALENDAR MONTH, IN WHICH EVENT SUCH INTEREST PERIOD SHALL END ON THE IMMEDIATELY PRECEDING BUSINESS DAY. (d) IF THE BORROWER SHALL HAVE FAILED TO TIMELY ELECT A EURODOLLAR ADVANCE UNDER SECTION 2.2 OR 3.3, AS THE CASE MAY BE, IN CONNECTION WITH ANY BORROWING OF, CONVERSION TO, OR CONTINUATION OF, A EURODOLLAR ADVANCE, SUCH BORROWING OR SUCH ADVANCE REQUESTED TO BE CONVERTED TO, OR CONTINUED AS, A EURODOLLAR ADVANCE SHALL THEREAFTER BE AN ABR ADVANCE UNTIL SUCH TIME, IF ANY, AS THE BORROWER SHALL ELECT A NEW EURODOLLAR ADVANCE PURSUANT TO SECTION 3.3. -32- 34 (e) THE BORROWER SHALL NOT BE PERMITTED TO HAVE MORE THAN EIGHT EURODOLLAR ADVANCES OUTSTANDING AT ANY ONE TIME, IT BEING AGREED THAT EACH BORROWING OF A EURODOLLAR ADVANCE PURSUANT TO A SINGLE CREDIT REQUEST SHALL CONSTITUTE THE MAKING OF ONE EURODOLLAR ADVANCE FOR THE PURPOSE OF CALCULATING SUCH LIMITATION. SECTION 3.5.FUNDING LOSS Notwithstanding anything contained herein to the contrary, if the Borrower shall fail to borrow, convert or continue a Eurodollar Advance on a Borrowing Date or Conversion Date after it shall have given notice to do so in which it shall have requested a Eurodollar Advance, or if a Eurodollar Advance shall be terminated for any reason prior to the last day of the Interest Period applicable thereto, or if, while a Eurodollar Advance is outstanding, any repayment or prepayment of such Eurodollar Advance is made for any reason (including as a result of acceleration or illegality) on a date which is prior to the last day of the Interest Period applicable thereto, the Borrower agrees to indemnify each Lender against, and to pay on demand directly to such Lender the amount (calculated by such Lender using any reasonable method chosen by such Lender which is customarily used by such Lender for such purpose) equal to any loss or out-of-pocket expense suffered by such Lender as a result of such failure to borrow convert, or continue, or such termination, repayment or prepayment, including any loss, cost or expense suffered by such Lender in liquidating or employing deposits acquired to fund or maintain the funding of such Eurodollar Advance or redeploying funds prepaid or repaid, in amounts which correspond to such Eurodollar Advance and any reasonable internal processing charge customarily charged by such Lender in connection therewith. SECTION 3.6.INCREASED COSTS; ILLEGALITY, ETC. (a) Increased Costs. IF ANY CHANGE IN LAW SHALL IMPOSE, MODIFY OR MAKE APPLICABLE ANY RESERVE, SPECIAL DEPOSIT, COMPULSORY LOAN, ASSESSMENT, INCREASED COST OR SIMILAR REQUIREMENT AGAINST ASSETS HELD BY, OR DEPOSITS OF, OR ADVANCES OR LOANS BY, OR OTHER CREDIT EXTENDED BY, OR ANY OTHER ACQUISITION OF FUNDS BY, ANY OFFICE OF ANY CREDIT PARTY IN RESPECT OF ITS EURODOLLAR ADVANCES WHICH IS NOT OTHERWISE INCLUDED IN THE DETERMINATION OF A EURODOLLAR RATE OR AGAINST ANY LETTERS OF CREDIT ISSUED HEREUNDER AND THE RESULT THEREOF IS TO INCREASE THE COST TO ANY CREDIT PARTY OF MAKING, RENEWING, CONVERTING OR MAINTAINING ITS EURODOLLAR ADVANCES OR ITS COMMITMENT TO MAKE SUCH EURODOLLAR ADVANCES, OR TO REDUCE ANY AMOUNT RECEIVABLE UNDER THE LOAN DOCUMENTS IN RESPECT OF ITS EURODOLLAR ADVANCES, OR TO INCREASE THE COST TO ANY CREDIT PARTY OF ISSUING OR MAINTAINING THE LETTERS OF CREDIT OR PARTICIPATING THEREIN, AS THE CASE MAY BE, OR THE COST TO ANY CREDIT PARTY OF PERFORMING ITS RESPECTIVE FUNCTIONS HEREUNDER WITH RESPECT TO THE LETTERS OF CREDIT, THEN, IN ANY SUCH CASE, THE BORROWER SHALL PAY SUCH CREDIT PARTY SUCH ADDITIONAL AMOUNTS AS IS SUFFICIENT TO COMPENSATE SUCH CREDIT PARTY FOR SUCH ADDITIONAL COST OR REDUCTION IN SUCH AMOUNT RECEIVABLE WHICH SUCH CREDIT PARTY DEEMS TO BE MATERIAL AS DETERMINED BY SUCH CREDIT PARTY; PROVIDED, HOWEVER, THAT THE BORROWER SHALL NOT BE RESPONSIBLE FOR COSTS UNDER THIS SECTION 3.6(a) ARISING MORE THAN 90 DAYS PRIOR TO RECEIPT BY THE BORROWER OF THE CERTIFICATE FROM THE AFFECTED CREDIT PARTY PURSUANT TO SECTION 3.6(e) WITH RESPECT TO SUCH COSTS. (b) Capital Adequacy. IF ANY CREDIT PARTY DETERMINES THAT ANY CHANGE IN LAW RELATING TO CAPITAL REQUIREMENTS HAS OR WOULD HAVE THE EFFECT OF REDUCING THE RATE OF RETURN ON SUCH CREDIT PARTY'S CAPITAL OR ON THE CAPITAL OF SUCH CREDIT PARTY'S HOLDING COMPANY, IF ANY, ON THE EXTENSIONS OF CREDIT TO A LEVEL BELOW THAT WHICH SUCH CREDIT PARTY (OR ITS HOLDING COMPANY) WOULD HAVE ACHIEVED OR WOULD THEREAFTER BE ABLE TO ACHIEVE BUT FOR SUCH CHANGE IN LAW (AFTER TAKING INTO ACCOUNT SUCH CREDIT PARTY'S (OR SUCH HOLDING COMPANY'S) POLICIES REGARDING CAPITAL ADEQUACY), THE BORROWER SHALL PAY TO SUCH CREDIT PARTY (OR SUCH HOLDING COMPANY) SUCH ADDITIONAL AMOUNT OR AMOUNTS AS WILL COMPENSATE SUCH CREDIT PARTY (OR SUCH HOLDING COMPANY) FOR SUCH REDUCTION. (c) Illegality. NOTWITHSTANDING ANY OTHER PROVISION HEREOF, IF ANY LENDER SHALL REASONABLY DETERMINE THAT ANY LAW, REGULATION, TREATY OR DIRECTIVE, OR ANY CHANGE THEREIN OR IN THE INTERPRETATION OR APPLICATION THEREOF, SHALL MAKE IT UNLAWFUL FOR SUCH LENDER TO MAKE OR MAINTAIN ANY EURODOLLAR ADVANCE AS CONTEMPLATED BY THIS AGREEMENT, SUCH LENDER SHALL PROMPTLY NOTIFY THE BORROWER AND THE ADMINISTRATIVE AGENT THEREOF, AND (i) THE COMMITMENT OF SUCH LENDER TO MAKE SUCH EURODOLLAR ADVANCES OR CONVERT ABR ADVANCES TO EURODOLLAR ADVANCES SHALL FORTHWITH BE SUSPENDED, (ii) SUCH - 33 - 35 LENDER SHALL FUND ITS PORTION OF EACH REQUESTED EURODOLLAR ADVANCE AS AN ABR ADVANCE AND (iii) SUCH LENDER'S REVOLVING LOANS AND ACQUISITION LOANS THEN OUTSTANDING AS SUCH EURODOLLAR ADVANCES, IF ANY, SHALL BE CONVERTED AUTOMATICALLY TO ABR ADVANCES ON THE LAST DAY OF THE THEN CURRENT INTEREST PERIOD APPLICABLE THERETO OR AT SUCH EARLIER TIME AS MAY BE REQUIRED BY LAW. THE COMMITMENT OF ANY SUCH LENDER WITH RESPECT TO EURODOLLAR ADVANCES SHALL BE SUSPENDED UNTIL SUCH LENDER SHALL NOTIFY THE ADMINISTRATIVE AGENT AND THE BORROWER THAT THE CIRCUMSTANCES CAUSING SUCH SUSPENSION NO LONGER EXIST. UPON RECEIPT OF SUCH NOTICE BY EACH OF THE ADMINISTRATIVE AGENT AND THE BORROWER, SUCH LENDER'S COMMITMENT TO MAKE OR MAINTAIN EURODOLLAR ADVANCES SHALL BE REINSTATED. (d) Substituted Interest Rate. IN THE EVENT THAT (i) THE ADMINISTRATIVE AGENT SHALL HAVE DETERMINED (WHICH DETERMINATION SHALL BE CONCLUSIVE AND BINDING UPON THE BORROWER) THAT BY REASON OF CIRCUMSTANCES AFFECTING THE INTERBANK EURODOLLAR MARKET EITHER ADEQUATE AND REASONABLE MEANS DO NOT EXIST FOR ASCERTAINING THE EURODOLLAR RATE APPLICABLE PURSUANT TO SECTION 3.1 OR (ii) THE REQUIRED LENDERS SHALL HAVE NOTIFIED THE ADMINISTRATIVE AGENT THAT THEY HAVE DETERMINED (WHICH DETERMINATION SHALL BE CONCLUSIVE AND BINDING ON THE BORROWER) THAT THE APPLICABLE EURODOLLAR RATE WILL NOT ADEQUATELY AND FAIRLY REFLECT THE COST TO SUCH LENDERS OF MAINTAINING OR FUNDING LOANS BEARING INTEREST BASED ON SUCH EURODOLLAR RATE, WITH RESPECT TO ANY PORTION OF THE REVOLVING LOANS OR ACQUISITION LOANS, AS THE CASE MAY BE, THAT THE BORROWER HAS REQUESTED BE MADE AS EURODOLLAR ADVANCES OR EURODOLLAR ADVANCES THAT WILL RESULT FROM THE REQUESTED CONVERSION OR CONTINUATION OF ANY PORTION OF THE ADVANCES INTO OR OF EURODOLLAR ADVANCES (EACH, AN "Affected Advance"), THE ADMINISTRATIVE AGENT SHALL PROMPTLY NOTIFY THE BORROWER AND THE LENDERS (BY TELEPHONE OR OTHERWISE, TO BE PROMPTLY CONFIRMED IN WRITING) OF SUCH DETERMINATION, ON OR, TO THE EXTENT PRACTICABLE, PRIOR TO THE REQUESTED BORROWING DATE OR CONVERSION DATE FOR SUCH AFFECTED ADVANCES. IF THE ADMINISTRATIVE AGENT SHALL GIVE SUCH NOTICE, (a) ANY AFFECTED ADVANCES SHALL BE MADE AS ABR ADVANCES, (b) THE ADVANCES (OR ANY PORTION THEREOF) THAT WERE TO HAVE BEEN CONVERTED TO AFFECTED ADVANCES SHALL BE CONVERTED TO ABR ADVANCES AND (c) ANY OUTSTANDING AFFECTED ADVANCES SHALL BE CONVERTED, ON THE LAST DAY OF THE THEN CURRENT INTEREST PERIOD WITH RESPECT THERETO, TO ABR ADVANCES. UNTIL ANY NOTICE UNDER CLAUSES (i) OR (ii), AS THE CASE MAY BE, OF THIS SECTION HAS BEEN WITHDRAWN BY THE ADMINISTRATIVE AGENT (BY NOTICE TO THE BORROWER PROMPTLY UPON EITHER (x) THE ADMINISTRATIVE AGENT HAVING DETERMINED THAT SUCH CIRCUMSTANCES AFFECTING THE INTERBANK EURODOLLAR MARKET NO LONGER EXIST AND THAT ADEQUATE AND REASONABLE MEANS DO EXIST FOR DETERMINING THE EURODOLLAR RATE PURSUANT TO SECTION 3.1 OR (y) THE ADMINISTRATIVE AGENT HAVING BEEN NOTIFIED BY SUCH REQUIRED LENDERS THAT CIRCUMSTANCES NO LONGER RENDER THE ADVANCES (OR ANY PORTION THEREOF) AFFECTED ADVANCES), NO FURTHER EURODOLLAR ADVANCES SHALL BE REQUIRED TO BE MADE BY THE LENDERS, NOR SHALL THE BORROWER HAVE THE RIGHT TO CONVERT ALL OR ANY PORTION OF THE REVOLVING LOANS OR THE ACQUISITION LOANS TO OR AS EURODOLLAR ADVANCES. (e) Payment; Certificates. EACH PAYMENT PURSUANT TO SUBSECTIONS (a) OR (b) ABOVE SHALL BE MADE WITHIN 10 DAYS AFTER DEMAND THEREFOR, WHICH DEMAND SHALL BE ACCOMPANIED BY A CERTIFICATE OF THE CREDIT PARTY DEMANDING SUCH PAYMENT SETTING FORTH THE CALCULATIONS OF THE ADDITIONAL AMOUNTS PAYABLE PURSUANT THERETO. EACH SUCH CERTIFICATE SHALL BE CONCLUSIVE ABSENT MANIFEST ERROR. SUBJECT TO THE PROVISIONS OF SECTION 3.6(a), NO FAILURE BY ANY CREDIT PARTY TO DEMAND, AND NO DELAY IN DEMANDING, COMPENSATION FOR ANY INCREASED COST SHALL CONSTITUTE A WAIVER OF ITS RIGHT TO DEMAND SUCH COMPENSATION AT ANY TIME. SECTION 3.7.TAXES (a) Payments Free of Taxes. ALL PAYMENTS BY OR ON ACCOUNT OF THE BORROWER UNDER ANY LOAN DOCUMENT TO OR FOR THE ACCOUNT OF A CREDIT PARTY SHALL BE MADE FREE AND CLEAR OF, AND WITHOUT ANY DEDUCTION OR WITHHOLDING FOR OR ON ACCOUNT OF, ANY AND ALL PRESENT OR FUTURE INDEMNIFIED TAXES OR OTHER TAXES, PROVIDED THAT IF THE BORROWER OR ANY OTHER PERSON IS REQUIRED BY ANY LAW, RULE, REGULATION, ORDER, DIRECTIVE, TREATY OR GUIDELINE TO MAKE ANY DEDUCTION OR WITHHOLDING IN RESPECT OF SUCH INDEMNIFIED TAX OR OTHER TAX FROM ANY AMOUNT REQUIRED TO BE PAID BY THE BORROWER TO OR ON BEHALF OF ANY CREDIT PARTY UNDER ANY LOAN DOCUMENT (EACH A "Required Payment"), THEN (i) THE BORROWER SHALL NOTIFY THE ADMINISTRATIVE AGENT AND SUCH CREDIT PARTY OF ANY SUCH REQUIREMENT OR ANY CHANGE IN ANY SUCH REQUIREMENT AS SOON AS THE BORROWER BECOMES AWARE THEREOF, (ii) THE BORROWER SHALL PAY SUCH INDEMNIFIED TAX OR OTHER TAX PRIOR TO THE DATE ON WHICH PENALTIES ATTACH - 34 - 36 THERETO, SUCH PAYMENT TO BE MADE (TO THE EXTENT THAT THE LIABILITY TO PAY IS IMPOSED ON THE BORROWER) FOR ITS OWN ACCOUNT OR (TO THE EXTENT THAT THE LIABILITY TO PAY IS IMPOSED ON SUCH CREDIT PARTY) ON BEHALF AND IN THE NAME OF SUCH CREDIT PARTY, (iii) THE BORROWER SHALL PAY TO SUCH CREDIT PARTY AN ADDITIONAL AMOUNT SUCH THAT SUCH CREDIT PARTY SHALL RECEIVE ON THE DUE DATE THEREFOR AN AMOUNT EQUAL TO THE REQUIRED PAYMENT HAD NO SUCH DEDUCTION OR WITHHOLDING BEEN MADE OR REQUIRED, AND (iv) THE BORROWER SHALL, WITHIN 30 DAYS AFTER PAYING SUCH INDEMNIFIED TAX OR OTHER TAX, DELIVER TO THE ADMINISTRATIVE AGENT AND SUCH CREDIT PARTY SATISFACTORY EVIDENCE OF SUCH PAYMENT TO THE RELEVANT GOVERNMENTAL AUTHORITY. (b) Reimbursement for Taxes and Other Taxes Paid by Credit Party. THE BORROWER SHALL REIMBURSE EACH CREDIT PARTY, WITHIN TEN DAYS AFTER WRITTEN DEMAND THEREFOR, FOR THE FULL AMOUNT OF ALL INDEMNIFIED TAXES OR OTHER TAXES PAID BY SUCH CREDIT PARTY ON OR WITH RESPECT TO ANY PAYMENT BY OR ON ACCOUNT OF ANY OBLIGATION OF THE BORROWER UNDER THE LOAN DOCUMENTS (INCLUDING INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR ASSERTED ON OR ATTRIBUTABLE TO AMOUNTS PAYABLE UNDER THIS SECTION) AND ANY PENALTIES, INTEREST AND REASONABLE EXPENSES ARISING THEREFROM OR WITH RESPECT THERETO (OTHER THAN ANY SUCH PENALTIES, INTEREST OR EXPENSES THAT ARE INCURRED BY SUCH CREDIT PARTY'S UNREASONABLY TAKING OR OMITTING TO TAKE ACTION WITH RESPECT TO SUCH INDEMNIFIED TAXES OR OTHER TAXES), WHETHER OR NOT SUCH INDEMNIFIED TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY IMPOSED OR ASSERTED BY THE RELEVANT GOVERNMENTAL AUTHORITY. A CERTIFICATE AS TO THE AMOUNT OF SUCH PAYMENT OR LIABILITY DELIVERED TO THE BORROWER BY A CREDIT PARTY SHALL BE CONCLUSIVE ABSENT MANIFEST ERROR. IN THE EVENT THAT ANY CREDIT PARTY DETERMINES IN GOOD FAITH THAT IT HAS RECEIVED A REFUND OR CREDIT FOR INDEMNIFIED TAXES OR OTHER TAXES PAID BY THE BORROWER UNDER THIS SECTION 3.7, SUCH CREDIT PARTY SHALL PROMPTLY NOTIFY THE BORROWER OF SUCH FACT AND SHALL REMIT TO THE BORROWER THE AMOUNT OF SUCH REFUND OR CREDIT. (c) Foreign Credit Parties. ANY FOREIGN CREDIT PARTY THAT IS ENTITLED TO AN EXEMPTION FROM OR REDUCTION OF WITHHOLDING TAX UNDER THE LAW OF THE JURISDICTION IN WHICH THE BORROWER IS LOCATED, OR ANY TREATY TO WHICH SUCH JURISDICTION IS A PARTY, WITH RESPECT T PAYMENTS UNDER THE LOAN DOCUMENTS O SHALL DELIVER TO THE BORROWER (WITH A COPY TO THE ADMINISTRATIVE AGENT), AT THE TIME OR TIMES PRESCRIBED BY APPLICABLE LAW, SUCH PROPERLY COMPLETED AND EXECUTED DOCUMENTATION PRESCRIBED BY APPLICABLE LAW (INCLUDING INTERNAL REVENUE FORM 4224 OR FORM 1001) OR REASONABLY REQUESTED BY THE BORROWER AS WILL PERMIT SUCH PAYMENTS TO BE MADE WITHOUT WITHHOLDING OR AT A REDUCED RATE. SECTION 3.8.REGISTER The Administrative Agent will maintain a register for the recordation of the names and addresses of the Lenders and the Revolving Commitments and the Acquisition Loan Commitments of, and principal amount of the Loans owing to, each Lender, and the Letters of Credit outstanding, from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and each Loan Party and each Credit Party may treat each party whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. ARTICLE 4. REPRESENTATIONS AND WARRANTIES In order to induce the Credit Parties to enter into this Agreement and extend or participate in the Extensions of Credit provided herein, the Borrower makes the following representations and warranties to the Credit Parties: SECTION 4.1.ORGANIZATION AND POWER Each of the Borrower and its Subsidiaries (i) is duly organized or formed, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to own its property and to carry on its business as now conducted, and (iii) is duly qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted therein or the property owned by it therein makes such qualification necessary, except where such failure to qualify or be in good standing, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse effect. - 35 - 37 SECTION 4.2.AUTHORIZATION; ENFORCEABILITY Each transaction contemplated by the Loan Documents is within the corporate power of the Borrower and has been duly authorized by its Managing Person and, if required, by any other Person, including holders of its Capital Stock. Each Loan Document has been validly executed and delivered by each Loan Party thereto and constitutes a legal, valid and binding obligation of each such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 4.3.APPROVALS; NO CONFLICTS Except as provided on Schedule 4.3, no transaction contemplated by the Loan Documents (i) requires any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other Person, except such as have been obtained or made and are in full force and effect, (ii) will violate any applicable law, rule or regulation or the Organizational Documents of the Borrower or any Subsidiary or any order of any Governmental Authority, (iii) will violate or result in a default under any indenture, agreement or other instrument binding upon the Borrower or any Subsidiary or their assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any Subsidiary, and (iv) will result in the creation or imposition of any Lien on any asset of the Borrower or any Subsidiary other than the Permitted Liens. SECTION 4.4.FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE (a) THE BORROWER HAS HERETOFORE FURNISHED TO THE CREDIT PARTIES (i) ITS FORM 10-Q FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 1998, CONTAINING THE CONSOLIDATED BALANCE SHEET AND STATEMENTS OF INCOME AND CASH FLOWS OF THE BORROWER AND THE SUBSIDIARIES AS OF AND FOR SUCH FISCAL QUARTER AND THE PORTION OF THE FISCAL YEAR THEN ENDED, CERTIFIED BY ITS CHIEF FINANCIAL OFFICER. SUCH FINANCIAL STATEMENTS PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION AND RESULTS OF OPERATIONS AND CASH FLOWS OF THE BORROWER AND CONSOLIDATED SUBSIDIARIES AS OF SUCH DATE AND FOR SUCH PERIOD IN ACCORDANCE WITH GAAP, SUBJECT TO YEAR-END AUDIT ADJUSTMENTS AND THE ABSENCE OF FOOTNOTES. (b) SINCE DECEMBER 31, 1997, EXCEPT FOR THE ORIGINAL TRANSACTIONS AND THE TRANSACTIONS, EACH OF THE BORROWER AND EACH SUBSIDIARY WHICH WAS A SUBSIDIARY AS OF SUCH DATE HAS CONDUCTED ITS BUSINESS ONLY IN THE ORDINARY COURSE AND THERE HAS BEEN NO MATERIAL ADVERSE CHANGE. (c) SINCE THE DATE OF ITS ACQUISITION (OR IF NOT ACQUIRED, ITS CREATION), EACH SUBSIDIARY HAS CONDUCTED ITS BUSINESS ONLY IN THE ORDINARY COURSE AND THERE HAS BEEN NO MATERIAL ADVERSE CHANGE. SECTION 4.5.PROPERTIES, ETC. (a) EACH OF THE BORROWER AND EACH SUBSIDIARY HAS GOOD AND MARKETABLE TITLE TO, OR VALID LEASEHOLD INTERESTS IN, ALL OF ITS PROPERTY, REAL AND PERSONAL, MATERIAL TO ITS BUSINESS, SUBJECT TO NO LIENS, EXCEPT PERMITTED LIENS AND EXCEPT FOR MINOR DEFECTS IN TITLE THAT DO NOT INTERFERE WITH ITS ABILITY TO CONDUCT ITS BUSINESS AS CURRENTLY CONDUCTED OR TO UTILIZE SUCH PROPERTIES FOR THEIR INTENDED PURPOSES. (b) EACH OF THE BORROWER AND EACH SUBSIDIARY OWNS OR IS LICENSED TO USE ALL INTELLECTUAL PROPERTY MATERIAL TO ITS BUSINESS, AND THE USE THEREOF BY THE BORROWER OR ANY SUBSIDIARY DOES NOT CONFLICT WITH OR INFRINGE UPON THE VALID RIGHTS OF OTHERS, EXCEPT FOR ANY SUCH CONFLICTS OR INFRINGEMENTS THAT INDIVIDUALLY OR IN THE AGGREGATE, COULD NOT REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT. (c) No contract, lease or other agreement to which the Borrower or any Subsidiary is a party will lapse, be cancelled or otherwise terminate, which lapse, cancellation or termination, could reasonably be expected to result in a Material Adverse effect. - 36 - 38 SECTION 4.6.LITIGATION Except as set forth on Schedule 4.6, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority (whether purportedly on behalf of the Borrower or any Subsidiary) pending or, to the knowledge of the Borrower, threatened against the Borrower or any Subsidiary, or maintained by the Borrower or any Subsidiary or which may affect the property of any the Borrower or any Subsidiary, (i) that, in the good faith opinion of the Borrower, would reasonably be expected to have an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse effect or (ii) that involve any of the Transactions. Since the First Restatement Date, there has been no change in the status of any matter disclosed on Schedule 4.6 that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse effect. SECTION 4.7.ENVIRONMENTAL MATTERS Except as set forth on Schedule 4.7 and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse effect, neither the Borrower nor any Subsidiary has (i) received written notice or otherwise learned of any claim, demand, action, event, condition, report or investigation indicating or concerning any potential or actual liability which individually or in the aggregate could reasonably be expected to result in a Material Adverse effect, arising in connection with any non-compliance with or violation of the requirements of any applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Substance (as defined below) or to health and safety matters (collectively, "ENVIRONMENTAL LAWS"), (ii) to the best knowledge of the Borrower, any threatened or actual liability in connection with the release or threatened release of any Hazardous Substance into the environment which individually or in the aggregate could reasonably be expected to result in a Material Adverse effect, (iii) received notice of any federal or state investigation evaluating whether any remedial action is needed to respond to a release or threatened release of any Hazardous Substance into the environment for which the Borrower or any Subsidiary is or would be liable, which liability could reasonably be expected to result in a Material Adverse effect, or (iv) has received notice that any the Borrower or any Subsidiary is or may be liable to any Person under any Environmental Law, which liability could reasonably be expected to result in a Material Adverse effect. Each of the Borrower and each any Subsidiary is in compliance with the financial responsibility requirements of Environmental Laws to the extent applicable, except in those cases in which the failure so to comply would not reasonably be expected to result in a Material Adverse effect. For purposes hereof, "HAZARDOUS SUBSTANCE" shall mean any hazardous or toxic substance, material, waste or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes, radioactive materials or any other substance or waste regulated pursuant to any Environmental Law. Since the First Restatement Date, there has been no change in the status of any matter disclosed on Schedule 4.7 that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse effect. SECTION 4.8.COMPLIANCE WITH LAWS AND AGREEMENTS; NO DEFAULT Each of the Borrower and each Subsidiary is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse effect. No Default has occurred and is continuing. SECTION 4.9.INVESTMENT COMPANIES AND OTHER REGULATED ENTITIES None of the Borrower, any Subsidiary nor any Person controlled by, controlling, or under common control with, the Borrower or any Subsidiary, is (i) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended, (ii) a "holding company" - 37 - 39 as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935 or the Federal Power Act, as amended, or (iii) subject to any statute or regulation which prohibits or restricts the incurrence of Indebtedness for borrowed money, including statutes or regulations relative to common or contract carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other public utility services. SECTION 4.10. FEDERAL RESERVE REGULATIONS (a) NEITHER THE BORROWER NOR ANY SUBSIDIARY IS ENGAGED PRINCIPALLY, OR AS ONE OF ITS IMPORTANT ACTIVITIES, IN THE BUSINESS OF EXTENDING CREDIT FOR THE PURPOSE OF PURCHASING OR CARRYING ANY MARGIN STOCK. AFTER GIVING EFFECT TO EACH TRANSACTION AND THE MAKING OF EACH EXTENSION OF CREDIT, MARGIN STOCK WILL CONSTITUTE LESS THAN 25% OF THE ASSETS (AS DETERMINED BY ANY REASONABLE METHOD) OF THE BORROWER AND ITS SUBSIDIARIES. (b) NO PART OF THE PROCEEDS OF ANY EXTENSION OF CREDIT WILL BE USED, WHETHER DIRECTLY OR INDIRECTLY, AND WHETHER IMMEDIATELY, INCIDENTALLY OR ULTIMATELY, FOR ANY PURPOSE THAT ENTAILS A VIOLATION OF, OR THAT IS INCONSISTENT WITH, THE PROVISIONS OF REGULATION U OR X. SECTION 4.11. ERISA Each Pension Plan is in compliance with ERISA and the Code, where applicable, in all material respects and no ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse effect. The present value of all accumulated benefit obligations under each Pension Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $100,000 the fair market value of the assets of such Pension Plan, and the present value of all accumulated benefit obligations of all underfunded Pension Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $100,000 the fair market value of the assets of all such underfunded Pension Plans. SECTION 4.12.TAXES Each of the Borrower and each Subsidiary has timely filed or caused to be filed all tax returns and reports required to have been filed and has paid, or caused to be paid, all Taxes required to have been paid by it except (i) Taxes being contested in good faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves, or (ii) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse effect. SECTION 4.13.SUBSIDIARIES (a) AS OF THE FIRST RESTATEMENT DATE, (i) THE BORROWER HAS ONLY THE SUBSIDIARIES SET FORTH ON, AND THE AUTHORIZED, ISSUED AND OUTSTANDING CAPITAL STOCK OF THE BORROWER AND ITS SUBSIDIARIES IS AS SET FORTH ON, SCHEDULE 4.13 AND (ii) THE OWNERSHIP INTERESTS IN EACH SUBSIDIARY ARE DULY AUTHORIZED, VALIDLY ISSUED, FULLY PAID AND NONASSESSABLE AND ARE OWNED BENEFICIALLY AND OF RECORD BY THE PERSONS SET FORTH ON SUCH SCHEDULE 4.13, FREE AND CLEAR OF ALL LIENS (OTHER THAN PERMITTED LIENS). (b) EXCEPT AS SET FORTH ON SCHEDULE 4.13, NEITHER THE BORROWER NOR ANY SUBSIDIARY HAS ISSUED ANY SECURITIES CONVERTIBLE INTO, OR OPTIONS OR WARRANTS FOR, ANY COMMON OR PREFERRED EQUITY SECURITIES THEREOF AND THERE ARE NO AGREEMENTS, VOTING TRUSTS OR UNDERSTANDINGS BINDING UPON THE BORROWER OR ANY SUBSIDIARY WITH RESPECT TO THE VOTING SECURITIES OF ANY SUBSIDIARY OR AFFECTING IN ANY MANNER THE SALE, PLEDGE, ASSIGNMENT OR OTHER DISPOSITION THEREOF, INCLUDING ANY RIGHT OF FIRST REFUSAL, OPTION, REDEMPTION, CALL OR OTHER RIGHT WITH RESPECT THERETO, WHETHER SIMILAR OR DISSIMILAR TO ANY OF THE FOREGOING. SECTION 4.14. ABSENCE OF CERTAIN RESTRICTIONS No indenture, certificate of designation for preferred stock, agreement or instrument to which the Borrower or any Subsidiary is a party (other than this Agreement), prohibits or limits in any way, - 38 - 40 directly or indirectly the ability of any Subsidiary to make Restricted Payments or loans to, to make any advance on behalf of, or to repay any Indebtedness to, the Borrower or to another Subsidiary. SECTION 4.15. LABOR RELATIONS As of the First Restatement Date, there are no material controversies pending that involve the Borrower or any Subsidiary which might result in a Material Adverse effect. SECTION 4.16. INSURANCE Schedule 4.16 sets forth a description of all insurance maintained by or on behalf of the Borrower and the Subsidiaries as of the First Restatement Date. As of the First Restatement Date, all premiums in respect of such insurance that are due and payable have been paid. SECTION 4.17. NO MISREPRESENTATION The Borrower has disclosed to each Credit Party all agreements, instruments and corporate or other restrictions to which it or any Subsidiary is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse effect. No certificate or report from time to time furnished by any of the Loan Parties in connection with the Transactions contains or will contain a misstatement of material fact, or omits or will omit to state a material fact required to be stated in order to make the statements therein contained not misleading in the light of the circumstances under which made, provided that any projections or pro-forma financial information contained therein are based upon good faith estimates and assumptions believed by the Borrower to be reasonable at the time made, it being recognized by the Credit Parties that such projections as to future events are not to be viewed as facts, and that actual results during the period or periods covered thereby may differ from the projected results. SECTION 4.18. TRANSACTION DOCUMENTS On and after the consummation of each Acquisition by the Borrower or any Subsidiary, the Transaction Documents applicable thereto are in full force and effect, and neither the Borrower nor such Subsidiary has entered into, or agreed to, any amendment, supplement, modification or waiver of any term or condition of any Transaction Document in any way which would adversely effect any Credit Party. SECTION 4.19. FINANCIAL CONDITION On and after each Borrowing Date and each date upon which an Acquisition by the Borrower or any Subsidiary shall be consummated, neither the Borrower nor any Subsidiary Guarantor is Insolvent. SECTION 4.20. YEAR 2000 All of the material computer software, computer firmware, computer hardware (whether general or special purpose) and other similar or related items of automated, computerized and/or software system(s) that are used or relied on by the Borrower or any Subsidiary in the conduct of its business will not malfunction, will not cease to function, will not generate incorrect data, and will not produce incorrect results when processing, providing and/or receiving, (i) data-related data into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty-first centuries. SECTION 4.21. MATERIAL AGREEMENTS The Borrower has not received notice from any party to any agreements, the cancellation or termination of which individually or in the aggregate could reasonably be expected to result in a Material Adverse effect, that such agreement or agreements would be cancelled, not renewed or otherwise terminated as a result of the consummation of any of the Transactions. - 39 - 41 ARTICLE 5. CONDITIONS TO EFFECTIVENESS This Agreement shall not become effective until such date (the "FIRST RESTATEMENT DATE") as each of the following conditions precedent have been satisfied (or waived in accordance with Section 11.1): SECTION 5.1.EVIDENCE OF ACTION The Administrative Agent shall have received a certificate, dated the First Restatement Date, of the Secretary or Assistant Secretary or other analogous counterpart of each Loan Party: (a) ATTACHING A TRUE AND COMPLETE COPY OF THE RESOLUTIONS OF ITS MANAGING PERSON AND OF ALL OTHER DOCUMENTS EVIDENCING ALL NECESSARY CORPORATE, PARTNERSHIP OR OTHER ACTION (IN FORM AND SUBSTANCE SATISFACTORY TO THE ADMINISTRATIVE AGENT) TAKEN TO AUTHORIZE THE LOAN DOCUMENTS TO WHICH IT IS A PARTY AND THE TRANSACTIONS CONTEMPLATED THEREBY; (b) ATTACHING A TRUE AND COMPLETE COPY OF ITS ORGANIZATIONAL DOCUMENTS; (c) SETTING FORTH THE INCUMBENCY OF ITS OFFICER OR OFFICERS (OR OTHER ANALOGOUS COUNTERPART) WHO MAY SIGN THE LOAN DOCUMENTS, INCLUDING THEREIN A SIGNATURE SPECIMEN OF SUCH OFFICER OR OFFICERS (OR OTHER ANALOGOUS COUNTERPART); AND (d) ATTACHING A CERTIFICATE OF GOOD STANDING OF THE SECRETARY OF STATE OF THE JURISDICTION OF ITS FORMATION AND OF EACH OTHER JURISDICTION IN WHICH IT IS QUALIFIED TO DO BUSINESS, EXCEPT, IN THE CASE OF SUCH OTHER JURISDICTION, WHEN THE FAILURE TO BE IN GOOD STANDING IN SUCH JURISDICTION WOULD NOT RESULT IN A MATERIAL ADVERSE EFFECT. SECTION 5.2.THIS AGREEMENT The Administrative Agent (or its counsel) shall have received, in respect of each Person listed on the signature pages of this Agreement, either (i) a counterpart signature page hereof signed on behalf of such Person, or (ii) written evidence satisfactory to the Administrative Agent (which may include a facsimile transmission of a signed signature page of this Agreement) that a counterpart signature page hereof has been signed on behalf of such Person. SECTION 5.3.NOTES The Administrative Agent shall have received an amended and restated Note for each Lender, dated the First Restatement Date, duly executed by a duly authorized officer of the Borrower. SECTION 5.4.OPINION OF COUNSEL TO THE LOAN PARTIES The Administrative Agent shall have received a favorable opinion of Hogan & Hartson, L.L.P, counsel to the Loan Parties, addressed to the Credit Parties (and permitting counsel to the Administrative Agent to rely thereon), dated the First Restatement Date, in form and substance satisfactory to the Administrative Agent, together with such opinions of local counsel as the Administrative Agent may reasonably require. SECTION 5.5.PERFECTION CERTIFICATE The Administrative Agent (or its counsel) shall have received a completed Perfection Certificate, dated the First Restatement Date and signed by an executive officer of the Borrower, together with all attachments contemplated thereby. SECTION 5.6.GVG FINANCE COMPANY The Administrative Agent (or its counsel) shall have received all certificates, instruments, opinions and other documents required to be delivered with respect to GVG Finance Company under Sections 7.9 and 7.10 of the Existing Credit Agreement. - 40 - 42 SECTION 5.7.ABSENCE OF MATERIAL ADVERSE CHANGE Since December 31, 1997, there shall have occurred no Material Adverse change and the Administrative Agent shall have received a certificate of a Financial Officer of the Borrower to the foregoing effect. SECTION 5.8.OFFICER'S CERTIFICATE The Administrative Agent shall have received a certificate of a Financial Officer of the Borrower, dated the First Restatement Date, in all respects satisfactory to the Administrative Agent certifying that as of the First Restatement Date (i) no Default exists and (ii) the representations and warranties contained in the Loan Documents are true and correct. SECTION 5.9.MASTER ASSIGNMENT The Administrative Agent shall have received counterparts of the Master Assignment signed on behalf of each party thereto. SECTION 5.10. FEES (a) THE ADMINISTRATIVE AGENT SHALL HAVE RECEIVED A FEE FOR THE ACCOUNT OF EACH LENDER IN AN AMOUNT EQUAL TO 0.50% OF THE SUM OF SUCH LENDER'S REVOLVING COMMITMENT AND ACQUISITION LOAN COMMITMENT. (b) THE ADMINISTRATIVE AGENT SHALL HAVE RECEIVED ALL FEES AND OTHER AMOUNTS DUE AND PAYABLE TO THE ADMINISTRATIVE AGENT UNDER THE LOAN DOCUMENTS ON OR PRIOR TO THE FIRST RESTATEMENT DATE, INCLUDING, TO THE EXTENT INVOICED, REIMBURSEMENT OR PAYMENT OF THE FEES AND DISBURSEMENTS OF THE ADMINISTRATIVE AGENT'S COUNSEL AND ALL OTHER OUT-OF-POCKET EXPENSES REQUIRED TO BE REIMBURSED OR PAID BY THE BORROWER HEREUNDER. SECTION 5.11. OTHER DOCUMENTS The Administrative Agent shall have received such other documents, each in form and substance reasonably satisfactory to it, as it shall reasonably request. ARTICLE 6. CONDITIONS TO EACH EXTENSION OF CREDIT The obligation of each Credit Party to make any Extension of Credit (other than a participation in a Letter of Credit) under this Agreement shall be subject to the satisfaction of the following conditions precedent as of the date thereof: SECTION 6.1.COMPLIANCE On each Borrowing Date and after giving effect to the Extensions of Credit thereon (i) no Default shall have occurred or be continuing; and (ii) the representations and warranties contained in the Loan Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on such Borrowing Date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date. Each Extension of Credit and each Credit Request therefor shall constitute a certification by the Borrower as of such Borrowing Date that each of the foregoing matters is true and correct in all respects. SECTION 6.2.CREDIT REQUEST With respect to each Extension of Credit, the Administrative Agent shall have received a Credit Request, executed by a duly authorized officer of the Borrower. - 41 - 43 SECTION 6.3.LAW Such Extension of Credit shall not be prohibited by any applicable law, rule or regulation. ARTICLE 7. AFFIRMATIVE COVENANTS The Borrower agrees that, so long as any Commitment is in effect and until the principal of, and interest on, each Loan, all Reimbursement Obligations, all Fees and all other amounts payable under the Loan Documents shall have been paid in full: SECTION 7.1.FINANCIAL STATEMENTS AND INFORMATION The Borrower shall furnish or cause to be furnished to the Administrative Agent and each Lender: (a) WITHIN 90 DAYS AFTER THE END OF EACH FISCAL YEAR: (i) a copy of its Form 10-K for such fiscal year containing the audited consolidated balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by the Accountants (without (x) a "going concern" or like qualification or exception, (y) any qualification or exception as to the scope of such audit or (z) any qualification or exception which relates to the treatment or classification of any item and which, as a condition to the removal of such qualification, would require an adjustment to such item, the effect of which would be to cause the Borrower to be in default of any of its obligations under Section 8.14 (each, an "IMPERMISSIBLE QUALIFICATION")) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; and (ii) a copy of its unaudited consolidating balance sheet and related statements of income, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, certified by a Financial Officer of the Borrower, as being complete and correct in all material respects and as presenting fairly the consolidating financial condition and the consolidating results of operations of the Borrower and the Subsidiaries. (b) WITHIN 45 DAYS AFTER THE END OF EACH OF THE FIRST THREE FISCAL QUARTERS OF EACH FISCAL YEAR: (i) a copy of its Form 10-Q for such fiscal quarter consolidated balance sheet and the related consolidated statements of income and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; and (ii) a copy of its consolidating balance sheet and related statements of income, and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of such fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidating basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes, together with a schedule of other unaudited financial information consisting of consolidating or combining details in columnar form with such consolidating Subsidiaries separately identified, in accordance with GAAP consistently applied; (c) CONCURRENTLY WITH ANY DELIVERY OF FINANCIAL STATEMENTS UNDER SUBSECTIONS (a) OR (b) ABOVE, A CERTIFICATE (A "Compliance Certificate") OF A FINANCIAL OFFICER OF THE BORROWER, SUBSTANTIALLY IN THE FORM OF EXHIBIT D, (i) CERTIFYING AS TO WHETHER A DEFAULT HAS OCCURRED AND, IF SO, SPECIFYING THE DETAILS THEREOF AND ANY ACTION TAKEN OR PROPOSED TO BE TAKEN WITH RESPECT THERETO, (ii) SETTING FORTH REASONABLY DETAILED CALCULATIONS DEMONSTRATING COMPLIANCE WITH SECTION 8.14 AND (iii) STATING WHETHER ANY CHANGE IN GAAP OR IN THE APPLICATION THEREOF HAS OCCURRED SINCE THE DATE OF THE AUDITED FINANCIAL - 42 - 44 STATEMENTS REFERRED TO IN SECTION 4.4 AND, IF ANY SUCH CHANGE HAS OCCURRED, SPECIFYING THE EFFECT OF SUCH CHANGE ON THE FINANCIAL STATEMENTS ACCOMPANYING SUCH COMPLIANCE CERTIFICATE; (d) CONCURRENTLY WITH ANY DELIVERY OF FINANCIAL STATEMENTS UNDER SUBSECTION (a) ABOVE, A CERTIFICATE EXECUTED BY AN EXECUTIVE OFFICER OR A FINANCIAL OFFICER OF THE BORROWER (i) SETTING FORTH THE INFORMATION REQUIRED PURSUANT TO SECTIONS 2 AND 5 OF THE PERFECTION CERTIFICATE OR CONFIRMING THAT THERE HAS BEEN NO CHANGE IN SUCH INFORMATION SINCE THE DATE OF SUCH CERTIFICATE OR THE DATE OF THE MOST RECENT CERTIFICATE DELIVERED PURSUANT TO THIS SUBSECTION (e), (ii) CERTIFYING THAT ALL UNIFORM COMMERCIAL CODE FINANCING STATEMENTS OR OTHER APPROPRIATE FILINGS, RECORDINGS OR REGISTRATIONS, INCLUDING ALL REFILINGS, RERECORDINGS AND RE-REGISTRATIONS, CONTAINING A DESCRIPTION OF THE COLLATERAL, HAVE BEEN FILED OF RECORD IN EACH GOVERNMENTAL, MUNICIPAL OR OTHER APPROPRIATE OFFICE IN EACH JURISDICTION IDENTIFIED PURSUANT TO CLAUSE (i) ABOVE TO THE EXTENT NECESSARY TO PROTECT AND PERFECT THE SECURITY INTEREST OF THE ADMINISTRATIVE AGENT FOR A PERIOD OF NOT LESS THAN 18 MONTHS AFTER THE DATE OF SUCH CERTIFICATE (EXCEPT AS NOTED THEREIN WITH RESPECT TO ANY CONTINUATION STATEMENTS TO BE FILED WITHIN SUCH PERIOD) AND (iii) IDENTIFYING IN THE FORMAT OF SCHEDULES 7, 8 AND 10, AS APPLICABLE, EQUITY INTERESTS (AS DEFINED IN THE SECURITY AGREEMENT), INSTRUMENTS (AS DEFINED IN THE SECURITY AGREEMENT) AND INTELLECTUAL PROPERTY OF THE BORROWER AND EACH SUBSIDIARY GUARANTOR IN EXISTENCE ON THE DATE THEREOF AND NOT THEN LISTED ON SUCH SCHEDULES OR PREVIOUSLY SO IDENTIFIED TO THE ADMINISTRATIVE AGENT; (e) CONCURRENTLY WITH ANY DELIVERY OF FINANCIAL STATEMENTS UNDER SUBSECTIONS (a) AND (b) ABOVE, A CERTIFICATE EXECUTED BY A FINANCIAL OFFICER CERTIFYING AS TO (i) THE THEN OUTSTANDING EXISTING LETTERS OF CREDIT AND THE COLLATERAL PLEDGED TO THE ISSUERS OF SUCH EXISTING LETTERS OF CREDIT, AND (ii) ALL INVESTMENTS (INCLUDING SUCH INFORMATION AS SHALL BE SUFFICIENT TO ENABLE THE ADMINISTRATIVE AGENT TO MAKE A DETERMINATION AS TO WHETHER, IN ITS GOOD FAITH DETERMINATION, SUCH INVESTMENTS AND THE EARNINGS THEREFROM SUFFICIENTLY REDUCE THE EXPOSURE OF THE BORROWER AND THE SUBSIDIARIES TO INTEREST RATE FLUCTUATIONS); (f) PROMPTLY AFTER THE SAME BECOME PUBLICLY AVAILABLE, COPIES OF ALL MATERIAL PERIODIC AND OTHER REPORTS, PROXY STATEMENTS AND OTHER MATERIALS FILED BY THE BORROWER OR ANY SUBSIDIARY WITH THE SEC OR WITH ANY NATIONAL SECURITIES EXCHANGE, OR DISTRIBUTED BY THE BORROWER TO ITS SHAREHOLDERS GENERALLY, AS THE CASE MAY BE; AND (g) PROMPTLY FOLLOWING ANY REQUEST THEREFOR, SUCH OTHER INFORMATION REGARDING THE BORROWER OR ANY SUBSIDIARY, OR COMPLIANCE WITH THE TERMS OF THIS AGREEMENT, AS ANY CREDIT PARTY MAY REASONABLY REQUEST. SECTION 7.2.NOTICE OF MATERIAL EVENTS The Borrower shall furnish to the Administrative Agent and each Lender, prompt written notice of the following together with a statement of a Financial Officer or other executive officer of the Borrower setting forth the details of the event or development requiring such notice and, if applicable, any action taken or proposed to be taken with respect thereto: - 43 - 45 (a) THE OCCURRENCE OF ANY DEFAULT; (b) THE FILING OR COMMENCEMENT OF ANY ACTION, SUIT OR PROCEEDING BY OR BEFORE ANY GOVERNMENTAL AUTHORITY AGAINST OR AFFECTING THE BORROWER OR ANY AFFILIATE THEREOF THAT, IF ADVERSELY DETERMINED, COULD IN THE GOOD FAITH OPINION OF THE BORROWER REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT; (c) ANY LAPSE, REFUSAL TO RENEW OR EXTEND OR OTHER TERMINATION OF ANY MATERIAL LICENSE, PERMIT, FRANCHISE OR OTHER AUTHORIZATION ISSUED TO THE BORROWER OR ANY SUBSIDIARY BY ANY PERSON OR GOVERNMENTAL AUTHORITY, WHICH LAPSE, REFUSAL OR TERMINATION, COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT; (d) THE OCCURRENCE OF ANY ERISA EVENT THAT, ALONE OR TOGETHER WITH ANY OTHER ERISA EVENTS THAT HAVE OCCURRED, COULD REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT; (e) THE OCCURRENCE OF ANY EQUITY ISSUANCE RESULTING IN NET CASH PROCEEDS; (f) THE OCCURRENCE OF ANY INSURED DAMAGE TO ANY PORTION OF ANY COLLATERAL OR THE COMMENCEMENT OF ANY ACTION OR PROCEEDING FOR THE TAKING OF ANY COLLATERAL OR ANY PART THEREOF OR INTEREST THEREIN UNDER POWER OF EMINENT DOMAIN OR BY CONDEMNATION OR SIMILAR PROCEEDING THE VALUE OF WHICH WOULD REASONABLY BE EXPECTED TO EXCEED $250,000; OR (g) THE OCCURRENCE OF ANY OTHER DEVELOPMENT THAT HAS OR COULD REASONABLY BE EXPECTED TO RESULT IN, A MATERIAL ADVERSE EFFECT. SECTION 7.3.EXISTENCE; CONDUCT OF BUSINESS The Borrower shall, and shall cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect (i) its legal existence (provided that the foregoing shall not prohibit any merger or consolidation not prohibited by Section 8.3), and (ii) all rights, licenses, permits, privileges and franchises the absence of which would reasonably be expected to have a Material Adverse effect. SECTION 7.4.PAYMENT OF OBLIGATIONS The Borrower shall, and shall cause each Subsidiary to, pay and discharge when due, its obligations, including obligations with respect to Taxes, which, if unpaid, could reasonably be expected to result in a Material Adverse effect, except where (i) the validity or amount thereof is being contested in good faith by appropriate proceedings diligently conducted, (ii) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse effect. SECTION 7.5.MAINTENANCE OF PROPERTIES The Borrower shall, and shall cause each Subsidiary to, maintain, protect and keep in good repair, working order and condition (ordinary wear and tear excepted) at all times, all of its property other than property, the loss of which would not reasonably be expected to have a Material Adverse effect. SECTION 7.6.INSURANCE The Borrower shall, and shall cause each Subsidiary to, maintain with financially sound and reputable insurance companies (i) insurance in at least such amounts and against at least such risks (but including in any event public liability and business interruption coverage) as are usually insured against in the same general area by companies engaged in the same or a similar business and (ii) such other insurance as is required pursuant to the terms of any Security Document, and furnish to the Administrative Agent, upon written request, full information as to the insurance carried. SECTION 7.7.BOOKS AND RECORDS; INSPECTION RIGHTS The Borrower shall, and shall cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and, at all reasonable times upon reasonable prior notice, permit representatives of the Credit Parties to (i) visit the offices of the Borrower and each Subsidiary, (ii) examine such books and records and Accountants' reports relating thereto, (iii) make copies or extracts therefrom, (iv) discuss the - 44 - 46 affairs of the Borrower and each such Subsidiary with the respective officers thereof, (v) to examine and inspect the propert of the Borrower andy each such Subsidiary and (vi) meet and discuss the affairs of the Borrower and each such Subsidiary with the Accountants. SECTION 7.8.COMPLIANCE WITH LAWS The Borrower shall, and shall cause each Subsidiary to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse effect. SECTION 7.9.ADDITIONAL SUBSIDIARIES (a) Domestic Subsidiaries. SUBJECT TO ARTICLE 5, IN THE EVENT THAT ON OR AFTER THE ORIGINAL EFFECTIVE DATE, ANY PERSON SHALL BECOME A DOMESTIC SUBSIDIARY, OR ANY SUBSIDIARY (OTHER THAN A SUBSIDIARY GUARANTOR) SHALL AT ANY TIME BE A DOMESTIC SUBSIDIARY, THE BORROWER SHALL (i) NOTIFY THE ADMINISTRATIVE AGENT IN WRITING THEREOF WITHIN THREE BUSINESS DAYS THEREOF, (ii) CAUSE SUCH PERSON TO EXECUTE AND DELIVER TO THE ADMINISTRATIVE AGENT THE SUBSIDIARY GUARANTEE OR, IF THE SUBSIDIARY GUARANTEE IS THEN IN EFFECT, A GUARANTEE SUPPLEMENT (AS DEFINED THEREIN), A SECURITY AGREEMENT SUPPLEMENT (AS DEFINED IN THE SECURITY AGREEMENT) AND TO BECOME A PARTY TO EACH OTHER APPLICABLE SECURITY DOCUMENT IN THE MANNER PROVIDED THEREIN WITHIN FIVE BUSINESS DAYS THEREAFTER AND TO PROMPTLY TAKE SUCH ACTIONS TO CREATE AND PERFECT LIENS ON SUCH PERSON'S ASSETS TO SECURE SUCH PERSON'S OBLIGATIONS UNDER THE LOAN DOCUMENTS AS THE ADMINISTRATIVE AGENT OR THE REQUIRED LENDERS SHALL REASONABLY REQUEST, (iii) CAUSE ANY SHARES OF CAPITAL STOCK OF, OR PROMISSORY NOTES EVIDENCING INDEBTEDNESS OF, SUCH NEW DOMESTIC SUBSIDIARY OWNED BY OR ON BEHALF OF ANY LOAN PARTY TO BE PLEDGED PURSUANT TO THE SECURITY AGREEMENT WITHIN FIVE BUSINESS DAYS THEREAFTER, (iv) CAUSE EACH SUCH NEW DOMESTIC SUBSIDIARY TO DELIVER TO THE ADMINISTRATIVE AGENT ANY SHARES OF CAPITAL STOCK OR PROMISSORY NOTES EVIDENCING INDEBTEDNESS OF ANY SUBSIDIARY THAT ARE OWNED BY OR ON BEHALF OF SUCH NEW DOMESTIC SUBSIDIARY WITHIN FIVE BUSINESS DAYS AFTER SUCH SUBSIDIARY IS FORMED OR ACQUIRED (EXCEPT THAT, IF ANY SUCH SUBSIDIARY IS A FOREIGN SUBSIDIARY, SHARES OF CAPITAL STOCK OF SUCH PERSON TO BE SO PLEDGED MAY BE LIMITED AS PROVIDED IN SUBSECTION (b) BELOW AND, IF REQUESTED BY THE ADMINISTRATIVE AGENT WITH RESPECT TO THE PLEDGE OF CAPITAL STOCK OF A FOREIGN SUBSIDIARY, THE ADMINISTRATIVE AGENT SHALL RECEIVE THE DOCUMENTS REFERRED TO IN SUBSECTION (b)(iii) BELOW), AND (v) DELIVER TO THE ADMINISTRATIVE AGENT A PERFECTION CERTIFICATE WITH RESPECT TO SUCH SUBSIDIARY AND SUCH ADDITIONAL FINANCING STATEMENTS, GRANTS OF SECURITY INTEREST AND POWERS OF ATTORNEY (AS EACH SUCH TERM IS DEFINED IN THE SECURITY AGREEMENT) CERTIFICATES, INSTRUMENTS, OPINIONS AND OTHER DOCUMENTS AS THE ADMINISTRATIVE AGENT MAY REQUEST. (b) Foreign Subsidiaries. IN THE EVENT THAT ON OR AFTER THE ORIGINAL EFFECTIVE DATE, ANY PERSON SHALL BECOME A FOREIGN SUBSIDIARY, THE BORROWER SHALL (i) NOTIFY THE ADMINISTRATIVE AGENT IN WRITING THEREOF WITHIN THREE BUSINESS DAYS THEREOF, (ii) CAUSE SUCH PERSON TO EXECUTE AND DELIVER TO THE ADMINISTRATIVE AGENT AN INTERCOMPANY SUBORDINATION AGREEMENT (iii) CAUSE THE LESSER OF (x) 65% OF THE OUTSTANDING SHARES OF CAPITAL STOCK OF SUCH FOREIGN SUBSIDIARY OR (y) ALL OF SUCH SHARES OWNED BY THE LOAN PARTIES, TOGETHER WITH ALL PROMISSORY NOTES EVIDENCING INDEBTEDNESS OF, SUCH FOREIGN SUBSIDIARY ARE TO ANY LOAN PARTY TO BE PLEDGED PURSUANT TO THE SECURITY AGREEMENT WITHIN FIVE BUSINESS DAYS THEREAFTER, PROVIDED, THAT IF REQUESTED BY THE ADMINISTRATIVE AGENT WITH RESPECT TO THE PLEDGE OF CAPITAL STOCK OF A FOREIGN SUBSIDIARY, DELIVER TO THE ADMINISTRATIVE AGENT AN ADDITIONAL PLEDGE AGREEMENT, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ADMINISTRATIVE AGENT (EACH AN "Additional Pledge Agreement") AND AN OPINION OF COUNSEL (INCLUDING COUNSEL PRACTICING UNDER THE LAWS OF THE JURISDICTION UNDER WHICH SUCH FOREIGN SUBSIDIARY WAS FORMED) WITH RESPECT TO THE ENFORCEABILITY OF SUCH PLEDGE AGREEMENT OR ADDITIONAL PLEDGE AGREEMENT AND THE VALIDITY AND PERFECTION OF THE LIEN GRANTED THEREIN AND (iv) DELIVER TO THE ADMINISTRATIVE AGENT SUCH CERTIFICATES, INSTRUMENTS AND OPINIONS AS THE ADMINISTRATIVE AGENT MAY REQUEST. SECTION 7.10. ADDITIONAL COLLATERAL Subject to Article 5, if after the Original Effective Date, the Borrower or any other Loan Party acquires any property which would constitute Collateral, the Borrower shall, and shall cause each - 45 - 47 such Loan Party to, execute any and all documents, financing statements, agreements and instruments, Grants of Security Interests and take all such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust, control agreements and other documents), that may be required under any applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the Transactions or to grant, preserve, protect or perfect the Liens created or intended to be created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. SECTION 7.11. HEDGING AGREEMENTS Within 30 days after the Administrative Agent notifies the Borrower that in the good faith determination of the Administrative Agent (which determination shall be binding on the Borrower), the investments of the Borrower and the Subsidiaries and the earnings therefrom do not sufficiently reduce the exposure of the Borrower and the Subsidiaries to interest rate fluctuations, the Borrower shall enter into and maintain Hedging Agreements, in form and substance reasonably satisfactory to the Administrative Agent, with respect to an amount equal to not less than 50% of the sum of the Aggregate Revolving Exposure and Aggregate Acquisition Loan Exposure at any time. SECTION 7.12. INTENTIONALLY OMITTED SECTION 7.13. EXISTING LETTERS OF CREDIT The Borrower shall use its best efforts to cause Letters of Credit issued pursuant to this Agreement to be substituted for all Existing Letters of Credit as soon as practicable, provided that Letters of Credit issued pursuant to this Agreement shall be substituted for all Existing Letters of Credit no later than May 6, 1999. ARTICLE 8. NEGATIVE COVENANTS The Borrower agrees that, so long as any Commitment is in effect and until the principal of, and interest on, each Loan, all Reimbursement Obligations, all Fees and all other amounts payable under the Loan Documents shall have been paid in full: SECTION 8.1.INDEBTEDNESS The Borrower shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any liability for Indebtedness, except: (a) INDEBTEDNESS DUE UNDER THE LOAN DOCUMENTS; (b) INDEBTEDNESS OF THE BORROWER OR ANY SUBSIDIARY IN RESPECT OF ANY EXISTING LETTER OF CREDIT, BUT NOT ANY EXTENSIONS, RENEWALS AND REPLACEMENTS OF SUCH INDEBTEDNESS, AND OTHER INDEBTEDNESS OF THE BORROWER OR ANY SUBSIDIARY AS SET FORTH ON SCHEDULE 8.1 AND EXISTING ON THE DATE HEREOF, AND ANY EXTENSIONS, RENEWALS AND REPLACEMENTS OF SUCH OTHER INDEBTEDNESS; (c) INDEBTEDNESS OF THE BORROWER TO ANY SUBSIDIARY OR OF SUBSIDIARIES TO THE BORROWER OR OTHER SUBSIDIARIES, PROVIDED THAT (A) INDEBTEDNESS OF THE BORROWER OR ANY SUBSIDIARY GUARANTOR TO A SUBSIDIARY THAT IS NOT A SUBSIDIARY GUARANTOR SHALL BE SUBORDINATED PURSUANT TO THE INTERCOMPANY SUBORDINATION AGREEMENT, AND (B) IMMEDIATELY AFTER GIVING EFFECT TO ANY INDEBTEDNESS OF ANY SUBSIDIARY THAT IS NOT A SUBSIDIARY GUARANTOR TO THE BORROWER OR ANY SUBSIDIARY GUARANTOR, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; (d) GUARANTEES BY THE BORROWER OF INDEBTEDNESS OF ANY SUBSIDIARY OR GUARANTEES BY ANY SUBSIDIARY OF INDEBTEDNESS OF THE BORROWER OR OF ANY OTHER SUBSIDIARY, PROVIDED THAT WITH RESPECT TO GUARANTEES BY THE BORROWER OR ANY SUBSIDIARY GUARANTOR OF INDEBTEDNESS OF A SUBSIDIARY THAT IS NOT A SUBSIDIARY GUARANTOR, IMMEDIATELY AFTER GIVING EFFECT THERETO, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; (e) (i) INDEBTEDNESS OF THE BORROWER OR ANY SUBSIDIARY (A) INCURRED TO FINANCE THE ACQUISITION, CONSTRUCTION OR IMPROVEMENT OF ANY FIXED OR CAPITAL ASSETS, INCLUDING CAPITAL LEASE OBLIGATIONS, (B) ASSUMED IN CONNECTION WITH THE ACQUISITION OF ANY SUCH ASSETS OR (C) SECURED BY A LIEN ON ANY SUCH ASSETS, (ii) INDEBTEDNESS OF ANY PERSON THAT BECOMES A SUBSIDIARY OF THE BORROWER AFTER THE ORIGINAL - 46 - 48 EFFECTIVE DATE, OR (iii) EXTENSIONS, RENEWALS AND REPLACEMENTS OF ANY INDEBTEDNESS UNDER THIS SUBSECTION 8.1(e) THAT DO NOT INCREASE THE OUTSTANDING PRINCIPAL AMOUNT THEREOF, PROVIDED THAT (x) EXCEPT WITH RESPECT TO INDEBTEDNESS UNDER CLAUSE (i)(A) OF THIS SECTION 8.1(e), INDEBTEDNESS UNDER THIS SUBSECTION 8.1(e), SHALL NOT BE CREATED, ASSUMED OR INCURRED IN CONTEMPLATION OF OR IN CONNECTION WITH ANY SUCH ACQUISITION OR SUCH PERSON BECOMING A SUBSIDIARY, AND (y) IMMEDIATELY AFTER GIVING EFFECT THERETO, THE AVAILABLE DEBT AMOUNT SHALL NOT BE LESS THAN $1.00; (f) OTHER UNSECURED INDEBTEDNESS OF THE BORROWER OR ANY SUBSIDIARY, EXCLUDING INDEBTEDNESS (A) OF SUBSIDIARIES TO THE BORROWER OR OTHER SUBSIDIARIES OR THE BORROWER TO SUBSIDIARIES, (B) UNDER THE LOAN DOCUMENTS, AND (C) INDEBTEDNESS SUBORDINATED TO THE INDEBTEDNESS UNDER THE LOAN DOCUMENTS PURSUANT TO A SUBORDINATION AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY TO THE REQUIRED LENDERS, PROVIDED THAT IMMEDIATELY AFTER GIVING EFFECT TO SUCH OTHER NON-EXCLUDED INDEBTEDNESS, THE AVAILABLE DEBT AMOUNT SHALL NOT BE LESS THAN $1.00; AND (g) OTHER UNSECURED INDEBTEDNESS OF THE BORROWER (THE "Refinancing Debt"), PROVIDED THAT: (i) NO DEFAULT SHALL EXIST IMMEDIATELY BEFORE AND AFTER GIVING EFFECT THERETO AND ALL OF THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 4 SHALL BE TRUE AND CORRECT AS IF THEN MADE, (ii) THE TERMS AND CONDITIONS OF THE NOTE OR OTHER AGREEMENTS PURSUANT TO WHICH THE REFINANCING DEBT IS ISSUED (COLLECTIVELY, THE "Refinancing Debt Documents") ARE NO LESS FAVORABLE TAKEN AS A WHOLE TO THE BORROWER THAN THE TERMS AND CONDITIONS OF THIS AGREEMENT, (iii) THE REFINANCING DEBT SHALL BE EITHER PARI PASSU WITH, OR SUBORDINATED TO, THE INDEBTEDNESS UNDER THE LOAN DOCUMENTS, (iv) THE MATURITY OF SUCH INDEBTEDNESS IS NOT EARLIER THAN ONE YEAR AFTER THE MATURITY DATE, (v) INTEREST THEREON IS PAYABLE IN CASH AND THE RATE THEREON IS NOT IN EXCESS OF THE RATE AVAILABLE FOR SIMILAR BORROWINGS BY SIMILAR BORROWERS AT THE TIME OF THE INCURRENCE OF THE REFINANCING DEBT, (vi) THE NET CASH PROCEEDS THEREOF ARE APPLIED TO THE PERMANENT REDUCTION OF THE AGGREGATE ACQUISITION LOAN COMMITMENT AND AGGREGATE REVOLVING COMMITMENT AND THE PREPAYMENT OF THE LOANS PURSUANT TO SECTIONS 2.3 AND 2.4, AND (vii) THE ADMINISTRATIVE AGENT RECEIVES A COPY OF THE AGREEMENT, INDENTURE OR OTHER DOCUMENTS GOVERNING SUCH REFINANCING DEBT, WHICH SHALL BE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE REQUIRED LENDERS. SECTION 8.2.NEGATIVE PLEDGE The Borrower shall not, and shall not permit any Subsidiary to, create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except for the following (collectively, "PERMITTED LIENS"): (a) ANY CUSTOMARY LIEN; (b) ANY LIEN ON ANY PROPERTY OR ASSET OF THE BORROWER OR ANY SUBSIDIARY SECURING OBLIGATIONS IN RESPECT OF THE EXISTING LETTERS OF CREDIT AS SET FORTH ON SCHEDULE 8.2, AND ANY OTHER LIEN ON ANY PROPERTY OR ASSET OF THE BORROWER OR ANY SUBSIDIARY AS SET FORTH ON SUCH SCHEDULE AND EXISTING ON THE DATE HEREOF, PROVIDED THAT, IN EACH CASE, (i) SUCH LIEN SHALL NOT APPLY TO ANY OTHER PROPERTY OR ASSET OF THE BORROWER OR ANY SUBSIDIARY, AND (ii) SUCH LIEN SHALL SECURE ONLY THOSE OBLIGATIONS WHICH IT SECURES AS SET FORTH ON SUCH SCHEDULE, AND ANY EXTENSIONS, RENEWALS AND REPLACEMENTS THEREOF THAT DO NOT INCREASE THE OUTSTANDING PRINCIPAL AMOUNT THEREOF. (c) ANY LIEN ON ANY FIXED OR CAPITAL ASSET OF THE BORROWER OR ANY SUBSIDIARY, PROVIDED THAT SUCH LIEN SHALL EXIST AT THE TIME OF THE ACQUISITION OF SUCH ASSET, SHALL HAVE BEEN CREATED CONTEMPORANEOUSLY WITH SUCH ACQUISITION TO SECURE THE PAYMENT OF THE PURCHASE PRICE THEREOF OR SHALL HAVE BEEN INCURRED PRIOR TO THE ACQUISITION OF SUCH ASSET BY THE BORROWER OR SUCH SUBSIDIARY, OR PRIOR TO THE TIME SUCH PERSON BECAME A SUBSIDIARY OF THE BORROWER, BUT IN ANY EVENT SUCH LIEN SHALL NOT HAVE BEEN CREATED IN CONTEMPLATION OF OR IN CONNECTION WITH THE ACQUISITION OF SUCH ASSET, OR THE CREATION OR ACQUISITION OF ANY PERSON THAT, AFTER GIVING EFFECT THERETO, IS A SUBSIDIARY OF THE BORROWER, PROVIDED THAT (i) SUCH LIEN SHALL NOT APPLY TO ANY OTHER PROPERTY OR ASSETS OF THE BORROWER OR ANY SUBSIDIARY (OTHER THAN FIXED ASSETS WHICH CONSTITUTE FIXTURES THEREON OR ACCESSIONS THERETO), (ii) AT THE TIME OF ACQUISITION OF ANY SUCH FIXED ASSET, THE AGGREGATE AMOUNT REMAINING UNPAID ON ALL LIABILITIES SECURED BY LIENS ON SUCH FIXED ASSET, WHETHER OR NOT ASSUMED BY THE BORROWER OR A SUBSIDIARY, SHALL NOT EXCEED THE FAIR MARKET VALUE AT THE TIME OF ACQUISITION OF SUCH FIXED ASSET (AS DETERMINED IN GOOD - 47 - 49 FAITH BY THE BOARD OF DIRECTORS OF THE BORROWER), (iii) AT THE TIME OF THE INCURRENCE OF SUCH LIABILITIES AND AFTER GIVING EFFECT THERETO AND TO THE APPLICATION OF THE PROCEEDS THEREOF, NO DEFAULT WOULD EXIST; AND (vi) IMMEDIATELY AFTER GIVING EFFECT THERETO, THE AVAILABLE DEBT AMOUNT SHALL NOT BE LESS THAN $1.00. (d) LIENS ON MARGIN STOCK, IF AND TO THE EXTENT THAT THE VALUE OF THE MARGIN STOCK OF THE BORROWER AND ITS SUBSIDIARIES EXCEEDS 25% OF THE ASSETS (AS DETERMINED BY ANY REASONABLE METHOD) OF THE BORROWER AND ITS SUBSIDIARIES. SECTION 8.3.FUNDAMENTAL CHANGES The Borrower shall not, and shall not permit Subsidiaries to, consolidate or merge into or with any other Person, or permit any other Person to merge into or consolidate with it or any Subsidiary, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of any class of the Capital Stock of any Subsidiary (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, or permit any Subsidiaries to do any of the foregoing, except that so long as immediately before and after giving effect thereto, no Default shall exist: (a) THE BORROWER MAY MERGE WITH ANY SUBSIDIARY GUARANTOR AND ANY SUBSIDIARY GUARANTOR MAY MERGE WITH THE BORROWER OR ANY OTHER SUBSIDIARY GUARANTOR, PROVIDED THAT IN CONNECTION WITH ANY MERGER INVOLVING THE BORROWER, THE BORROWER SHALL BE THE SURVIVOR THEREOF; (b) ANY SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR MAY MERGE WITH ANY OTHER SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR; (c) ANY SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR MAY MERGE WITH ANY SUBSIDIARY GUARANTOR, AND ANY SUBSIDIARY GUARANTOR MAY MERGE WITH ANY SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR, PROVIDED THAT (i) IMMEDIATELY AFTER GIVING EFFECT TO ANY SUCH MERGER IN WHICH SUCH SUBSIDIARY GUARANTOR IS THE SURVIVOR, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00, (ii) WITH RESPECT TO ANY MERGER IN WHICH SUCH SUBSIDIARY GUARANTOR IS NOT THE SURVIVOR, SUCH MERGER SHALL BE TREATED AS A DISPOSITION FOR ALL PURPOSES OF SECTIONS 2.4(c)(i) AND 8.6(d); (d) THE BORROWER OR ANY SUBSIDIARY MAY MERGE WITH ANY PERSON THAT IS NOT A SUBSIDIARY, PROVIDED THAT (i) IN CONNECTION WITH ANY SUCH MERGER INVOLVING THE BORROWER, THE BORROWER SHALL BE THE SURVIVOR THEREOF, (ii) WITH RESPECT TO ANY SUCH MERGER INVOLVING A SUBSIDIARY IN WHICH, IMMEDIATELY AFTER GIVING EFFECT THERETO, THE SURVIVING PERSON IS NOT A SUBSIDIARY, SUCH MERGER SHALL BE TREATED AS A DISPOSITION FOR ALL PURPOSES OF SECTIONS 2.4(c)(i) AND 8.6(d), (iii) WITH RESPECT TO ANY SUCH MERGER INVOLVING A LOAN PARTY IN WHICH, IMMEDIATELY AFTER GIVING EFFECT THERETO, THE SURVIVING PERSON IS A SUBSIDIARY, PROVIDED THAT (A) IF SUCH SUBSIDIARY IS A DOMESTIC SUBSIDIARY, (1) IMMEDIATELY AFTER GIVING EFFECT TO ANY SUCH MERGER, THE AVAILABLE OTHER INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00, AND (2) SUCH MERGER SHALL BE TREATED AS AN ACQUISITION FOR ALL PURPOSES OF SECTION 8.5 AND (B) IF SUCH SUBSIDIARY IS A FOREIGN SUBSIDIARY, IMMEDIATELY AFTER GIVING EFFECT TO ANY SUCH MERGER, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; (e) ANY SUBSIDIARY MAY MAKE ANY DISPOSITION PERMITTED BY SECTIONS 8.6(c) OR (d); (f) Intentionally Omitted; - 48 - 50 (f) THE BORROWER MAY MERGE INTO A NEWLY FORMED CORPORATION INCORPORATED UNDER DELAWARE LAW, WITH SUCH DELAWARE CORPORATION AS THE SURVIVOR, PROVIDED, HOWEVER, (i) NO DEFAULT WOULD EXIST IMMEDIATELY BEFORE OR AFTER GIVING EFFECT THERETO, (ii) SUCH SURVIVING CORPORATION SHALL HAVE EXECUTED AND DELIVERED TO THE ADMINISTRATIVE AGENT AN ASSUMPTION AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY TO IT PURSUANT TO WHICH SUCH SURVIVING CORPORATION ASSUMES THE OBLIGATIONS OF THE BORROWER UNDER THE LOAN DOCUMENTS, (iii) THE SURVIVING CORPORATION EXECUTES AND DELIVERS TO THE ADMINISTRATIVE AGENT SUCH UCC-1 FINANCING STATEMENTS AND OTHER DOCUMENTS AS THE ADMINISTRATIVE AGENT SHALL REASONABLY REQUEST IN CONNECTION WITH THE PERFECTION OF THE SECURITY INTERESTS GRANTED UNDER THE COLLATERAL DOCUMENTS. SECTION 8.4.INVESTMENTS, LOANS, ADVANCES AND GUARANTEES The Borrower shall not, and shall not permit any Subsidiary to, purchase or otherwise acquire, hold or invest in any derivative product, or any Capital Stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of any Person, or make or permit to exist any investment or any other interest in, any other Person, except: (a) INVESTMENTS IN CASH EQUIVALENTS AND INVESTMENT GRADE SECURITIES; (b) INVESTMENTS EXISTING ON THE DATE HEREOF AS SET FORTH ON SCHEDULE 8.4; (c) INVESTMENTS BY THE BORROWER OR ANY SUBSIDIARY IN THE CAPITAL STOCK OF OR DEBT ISSUED BY THE BORROWER AND INVESTMENTS BY ANY SUBSIDIARY IN THE CAPITAL STOCK OF OR DEBT ISSUED BY ANY OTHER SUBSIDIARY, PROVIDED THAT (i) THE PROCEEDS OF SUCH INVESTMENT IN A BORROWER OR A SUBSIDIARY GUARANTOR SHALL BE RECEIVED BY THE BORROWER OR SUCH SUBSIDIARY GUARANTOR, AND (ii) IMMEDIATELY AFTER GIVING EFFECT TO EACH INVESTMENT BY THE BORROWER OR ANY SUBSIDIARY GUARANTOR IN THE CAPITAL STOCK OF OR DEBT ISSUED BY ANY SUBSIDIARY THAT IS NOT A SUBSIDIARY GUARANTOR, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; (d) ACQUISITIONS PERMITTED BY SECTION 8.5; (e) PURCHASES OR OTHER ACQUISITIONS (INCLUDING THROUGH A DIVIDEND OR OTHERWISE AND WHETHER IN A SINGLE TRANSACTION OR IN A SERIES OF RELATED TRANSACTIONS) (i) BY THE BORROWER OR ANY SUBSIDIARY OF ANY PROPERTY OR ASSETS FROM ANY OTHER SUBSIDIARY OR (ii) BY ANY SUBSIDIARY OF ANY PROPERTY OR ASSETS FROM THE BORROWER OR ANY OTHER SUBSIDIARY, PROVIDED THAT IMMEDIATELY AFTER GIVING EFFECT TO ANY SUCH PURCHASE OR ACQUISITION BETWEEN A LOAN PARTY, AS PURCHASER, AND A SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR, AS SELLER, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; AND (f) GUARANTEES PERMITTED BY SECTION 8.1(d) AND HEDGING AGREEMENTS PERMITTED BY SECTION 8.8. Notwithstanding anything in this Agreement to the contrary, all customer deposits shall be invested in cash, Cash Equivalents and Investment Grade Securities. SECTION 8.5.ACQUISITIONS The Borrower shall not, and shall not permit any Subsidiary to, at any time, make any purchase or other acquisition (including by way of a dividend received or otherwise and whether in a single transaction or in a series of related transactions) of (i) any assets of any other Person that, taken together, constitute a business unit, (ii) any Capital Stock of any other Person if, immediately thereafter, such other Person would be a Subsidiary of the Borrower (iii) any assets of any other Person otherwise not in the ordinary course of business, or (iv) enter into any binding agreement to perform any transaction described in clauses (i), (ii) or (iii) above which is not contingent on obtaining the consent of the Required Lenders (each transaction described in clauses (i), (ii), (iii) and (iv) above being referred to as an "ACQUISITION"), except that the Borrower or any Subsidiary may make Acquisitions, provided that: (a) INTENTIONALLY OMITTED, (b) NO DEFAULT SHALL OR WOULD EXIST IMMEDIATELY BEFORE OR AFTER GIVING EFFECT TO EACH SUCH ACQUISITION, ALL OF THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE 4 SHALL BE TRUE AND CORRECT AS IF THEN MADE AND, IF SUCH ACQUISITION IS MADE ON OR BEFORE DECEMBER 31, 1999, THE PRO-FORMA LEVERAGE RATIO SHALL NOT EXCEED 3.10:1.00 (ON A PRO FORMA BASIS GIVING EFFECT TO SUCH ACQUISITION, ANY INDEBTEDNESS INCURRED IN CONNECTION THEREWITH, AND TAKING INTO ACCOUNT THE EARNINGS BEFORE INTEREST, - 49 - 51 TAXES, DEPRECIATION AND AMORTIZATION (CALCULATED IN THE MANNER OF THE CALCULATION OF EBITDA) OF THE PERSON OR BUSINESS ACQUIRED AND EACH OTHER PERSON OR BUSINESS ACQUIRED DURING THE IMMEDIATELY PRECEDING FOUR FISCAL QUARTERS), AND THE BORROWER SHALL HAVE DELIVERED TO THE ADMINISTRATIVE AGENT AND EACH LENDER A CERTIFICATE OF A FINANCIAL OFFICER AS TO THE FOREGOING MATTERS (CONTAINING CALCULATIONS ON A PRO-FORMA BASIS OF THE FINANCIAL COVENANTS CONTAINED IN SECTION 8.14 IN REASONABLE DETAIL), (c) IMMEDIATELY AFTER GIVING EFFECT THERETO, THE AVAILABLE OTHER INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00, (d) WITH RESPECT TO EACH ACQUISITION MADE IN ANY PERIOD OF FOUR CONSECUTIVE FISCAL QUARTERS, THE SUM (THE "Acquisition Consideration") OF (i) THE CASH CONSIDERATION PAID OR AGREED TO BE PAID IN CONNECTION WITH SUCH ACQUISITION PLUS (ii) THE FAIR MARKET VALUE OF ALL NON-CASH CONSIDERATION PAID OR AGREED TO BE PAID IN CONNECTION WITH SUCH ACQUISITION PLUS (iii) AN AMOUNT EQUAL TO THE PRINCIPAL OR STATED AMOUNT OF ALL LIABILITIES ASSUMED OR INCURRED BY SUCH PERSON OR ANY LOAN PARTY IN CONNECTION THEREWITH PLUS (iv) THE ACQUISITION CONSIDERATION PAID IN RESPECT OF EACH OTHER SUCH ACQUISITION MADE DURING SUCH PERIOD SHALL NOT EXCEED $25,000,000, (e) WITH RESPECT TO EACH ACQUISITION IN RESPECT OF WHICH THE ACQUISITION CONSIDERATION EXCEEDS $5,000,000, THE BORROWER SHALL HAVE DELIVERED TO THE ADMINISTRATIVE AGENT AND EACH LENDER WRITTEN NOTICE THEREOF NOT LESS THAN TEN BUSINESS DAYS PRIOR TO THE CONSUMMATION OF SUCH ACQUISITION, (f) INTENTIONALLY OMITTED, (g) THE BORROWER SHALL HAVE DELIVERED TO THE ADMINISTRATIVE AGENT AND EACH LENDER, A COMPLIANCE CERTIFICATE SIGNED BY A FINANCIAL OFFICER OF THE BORROWER, IN ALL RESPECTS REASONABLY SATISFACTORY TO THE ADMINISTRATIVE AGENT, DATED THE DATE OF THE CONSUMMATION OF SUCH ACQUISITION AND (i) STATING THAT THE BORROWER IS IN COMPLIANCE WITH ALL COVENANTS ON A PRO-FORMA BASIS AFTER GIVING EFFECT TO SUCH ACQUISITION, AND (ii) ATTACHING A COPY OF THE PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS OF THE BORROWER UTILIZED FOR PURPOSES OF PREPARING SUCH COMPLIANCE CERTIFICATE, WHICH PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS PRESENT THE BORROWER'S GOOD FAITH ESTIMATE OF ITS PRO-FORMA CONSOLIDATED FINANCIAL CONDITION AT THE DATE THEREOF, AFTER GIVING EFFECT TO SUCH ACQUISITION, (h) THE BORROWER SHALL HAVE COMPLIED WITH THE PROVISIONS OF SECTIONS 7.9 AND 7.10 (INCLUDING THE DELIVERY OF ADDITIONAL SECURITY DOCUMENTS, LEGAL OPINIONS, CERTIFICATES, ETC.), AND (i) THE BORROWER SHALL HAVE DELIVERED TO THE ADMINISTRATIVE AGENT SUCH OTHER INFORMATION, DOCUMENTS AND OTHER ITEMS AS THE ADMINISTRATIVE AGENT SHALL HAVE REASONABLY REQUESTED. SECTION 8.6. DISPOSITIONS The Borrower shall not, and shall not permit any Subsidiary to, sell, assign, lease, transfer or otherwise dispose of any property or assets, except: (a) (i) SALES OF INVENTORY AND UNCONSOLIDATED INVESTMENTS IN THE ORDINARY COURSE OF BUSINESS, (ii) SALES, ASSIGNMENTS, TRANSFERS OR OTHER DISPOSITIONS OF ANY PROPERTY OR ASSETS THAT, IN THE REASONABLE OPINION OF THE BORROWER OR SUCH SUBSIDIARY, AS THE CASE MAY BE, ARE OBSOLETE OR NO LONGER USEFUL IN THE CONDUCT OF ITS BUSINESS AND (iii) INVESTMENTS IN CASH EQUIVALENTS, AND INVESTMENT GRADE SECURITIES; (b) SALES OF MARGIN STOCK, IF AND TO THE EXTENT THAT THE VALUE OF THE MARGIN STOCK OF THE BORROWER AND THE SUBSIDIARIES EXCEEDS 25% OF THE VALUE OF THE ASSETS (AS DETERMINED BY ANY REASONABLE METHOD) OF THE BORROWER AND THE SUBSIDIARIES; (c) SALES, ASSIGNMENTS, LEASES, TRANSFERS OR OTHER DISPOSITIONS OF ANY PROPERTY OR ASSETS BY THE BORROWER TO ANY SUBSIDIARY AND BY ANY SUBSIDIARY TO THE BORROWER OR ANY OTHER SUCH SUBSIDIARY, PROVIDED THAT IMMEDIATELY AFTER GIVING EFFECT TO ANY SUCH TRANSACTION BETWEEN A LOAN PARTY AND A SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; AND (d) SALES, ASSIGNMENTS, LEASES, TRANSFERS OR OTHER DISPOSITIONS NOT OTHERWISE DESCRIBED IN THIS SECTION 8.6 (EACH A "Disposition"), PROVIDED THAT (i) IMMEDIATELY BEFORE AND AFTER GIVING EFFECT TO EACH SUCH DISPOSITION, NO DEFAULT SHALL OR WOULD EXIST, (ii) 75% OF THE TOTAL CONSIDERATION RECEIVED OR TO BE RECEIVED THEREFOR BY THE BORROWER OR THE SUBSIDIARIES SHALL BE PAYABLE IN CASH OR CASH EQUIVALENTS ON OR BEFORE THE CLOSING THEREOF AND SHALL NOT BE LESS THAN THE FAIR MARKET VALUE THEREOF AS REASONABLY - 50 - 52 DETERMINED BY THE MANAGING PERSON OF THE BORROWER OR SUCH SUBSIDIARY, (iii) THE ADMINISTRATIVE AGENT AND THE LENDERS SHALL HAVE RECEIVED (A) WRITTEN NOTICE THEREOF NOT LESS THAN TEN BUSINESS DAYS PRIOR TO EACH SUCH DISPOSITION, AND (B) A CERTIFICATE IN RESPECT THEREOF SIGNED BY A DULY AUTHORIZED OFFICER OF THE BORROWER IDENTIFYING THE PROPERTY OR OTHER ASSET SUBJECT TO SUCH DISPOSITION, AND CERTIFYING THAT THE CONSIDERATION RECEIVED OR TO BE RECEIVED BY THE BORROWER OR SUCH SUBSIDIARY FOR SUCH PROPERTY HAS BEEN DETERMINED BY THE MANAGING PERSON THEREOF TO BE NOT LESS THAN THE FAIR MARKET VALUE OF SUCH PROPERTY AND (z) THE TOTAL CONSIDERATION TO BE PAID IN RESPECT OF SUCH DISPOSITION, TOGETHER WITH ESTIMATES OF ITEMS TO BE DEDUCTED THEREFROM IN ARRIVING AT THE NET CASH PROCEEDS THEREOF. SECTION 8.7.RESTRICTED PAYMENTS The Borrower shall not, and shall not permit any Subsidiaries to declare, pay or make any dividend or other distribution, direct or indirect, on account of any Capital Stock issued by such Person now or hereafter outstanding (other than a dividend payable solely in shares or other units of such Capital Stock to the holders of such shares or other units) or any redemption, retirement, sinking fund or similar payment, purchase or other acquisition, direct or indirect, of any shares of any class of its Capital Stock now or hereafter outstanding (collectively, "RESTRICTED PAYMENTS"), except: (a) RESTRICTED PAYMENTS MADE BY THE BORROWER TO ANY SUBSIDIARY OR MADE BY ANY SUBSIDIARY TO THE BORROWER OR TO ANY OTHER SUBSIDIARY, PROVIDED THAT (i) IMMEDIATELY BEFORE AND AFTER GIVING EFFECT THERETO, NO DEFAULT SHALL OR WOULD EXIST, AND (ii) IN THE CASE OF A RESTRICTED PAYMENT MADE BY A LOAN PARTY TO A SUBSIDIARY WHICH IS NOT A SUBSIDIARY GUARANTOR, IMMEDIATELY AFTER GIVING EFFECT THERETO, THE AVAILABLE INTERCOMPANY INVESTMENT AMOUNT SHALL NOT BE LESS THAN $1.00; AND (b) RESTRICTED PAYMENTS MADE BY THE BORROWER PRIOR TO MAY 23, 2000 IN CONNECTION WITH THE REDEMPTION, RETIREMENT, SINKING FUND OR SIMILAR PAYMENT, PURCHASE OR OTHER ACQUISITION OF SHARES OF COMMON STOCK, PROVIDED THAT (i) NO DEFAULT WOULD EXIST IMMEDIATELY BEFORE AND AFTER GIVING EFFECT THERETO AND (ii) THE AGGREGATE AMOUNT OF ALL SUCH RESTRICTED PAYMENTS SHALL NOT EXCEED $3,000,000. SECTION 8.8.HEDGING AGREEMENTS The Borrower shall not, and shall not permit any Subsidiary to, enter into any Hedging Agreements, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrower or any Subsidiary is exposed in the conduct of its business or the management of its liabilities. SECTION 8.9.SALE AND LEASE-BACK TRANSACTIONS The Borrower shall not, and shall not permit any Subsidiary to, enter into an arrangement with any Person or group of Persons providing for the renting or leasing by the Borrower or any Subsidiary of any property or asset which has been or is to be sold or transferred by the Borrower or any Subsidiary to any such Person. SECTION 8.10. LINES OF BUSINESS The Borrower shall not, and shall not permit any Subsidiary to, engage in any business other than the Line of Business. SECTION 8.11. TRANSACTIONS WITH AFFILIATES The Borrower shall not, and shall not permit any Subsidiary to, become a party to any transaction with an Affiliate, or permit any Subsidiary so to do, unless the Borrower's or such Subsidiary's Managing Person shall have determined that the terms and conditions relating thereto are as favorable to the Borrower or such Subsidiary as those which would be obtainable at the time in a comparable arms-length transaction with a Person other than an Affiliate. SECTION 8.12. USE OF PROCEEDS The Borrower shall not use the proceeds of the Loans for any purpose other than as follows: (i) the Revolving Loans may be used for general corporate purposes (other than to finance - 51 - 53 Permitted Acquisitions) that are consistent with the provisions hereof, including the payment of Fees hereunder, and (ii) the Acquisition Loans may be used solely to finance Permitted Acquisitions. SECTION 8.13. RESTRICTIVE AGREEMENTS The Borrower shall not, and shall not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any such Subsidiary to pay dividends or other distributions with respect to any shares of its Capital Stock or to make or repay loans or advances to the Borrower or any other Subsidiary of the Borrower or to Guarantee Indebtedness of the Borrower or any other Subsidiary of the Borrower, provided that the foregoing shall not apply to restrictions and conditions imposed by applicable law or by this Agreement. SECTION 8.14. FINANCIAL COVENANTS (a) Leverage Ratio. THE BORROWER SHALL NOT PERMIT THE LEVERAGE RATIO TO AT ANY TIME EXCEED THE RATIO SET FORTH BELOW WITH RESPECT TO THE APPLICABLE PERIOD SET FORTH BELOW:
- - ----------------------------------------------------------------------------------------------------------------- Period Ratio - - ----------------------------------------------------------------------------------------------------------------- First Restatement Date through December 31, 1999 3.25:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2000 through December 31, 2000 3.00:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2001 through December 31, 2001 2.75:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2002 and thereafter 2.50:1.00 - - -----------------------------------------------------------------------------------------------------------------
(b) Interest Coverage Ratio. THE BORROWER SHALL NOT PERMIT THE INTEREST COVERAGE RATIO AS OF THE LAST DAY OF ANY FISCAL QUARTER TO BE LESS THAN THE RATIO SET FORTH BELOW WITH RESPECT TO THE APPLICABLE PERIOD SET FORTH BELOW:
- - ----------------------------------------------------------------------------------------------------------------- Period Ratio - - ----------------------------------------------------------------------------------------------------------------- First Restatement Date through December 31, 1999 3.50:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2000 through December 31, 2000 4.00:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2001 and thereafter 5.00:1.00 - - -----------------------------------------------------------------------------------------------------------------
(c) Fixed Charge Coverage Ratio. THE BORROWER SHALL NOT PERMIT THE FIXED CHARGE COVERAGE RATIO AS OF THE LAST DAY OF ANY FISCAL QUARTER TO BE LESS THAN THE RATIO SET FORTH BELOW WITH RESPECT TO THE APPLICABLE PERIOD SET FORTH BELOW:
- - ----------------------------------------------------------------------------------------------------------------- Period Ratio - - ----------------------------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------------------------- First Restatement Date through December 31, 1999 1.30:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2000 through December 31, 2000 1.40:1.00 - - ----------------------------------------------------------------------------------------------------------------- January 1, 2001 and thereafter 1.50:1.00 - - -----------------------------------------------------------------------------------------------------------------
- 52 - 54 (d) Minimum Net Worth. THE BORROWER SHALL NOT PERMIT NET WORTH TO BE LESS THAN: (i) as of each of December 31, 1998, March 31, 1999, June 30, 1999 and September 30, 1999, an amount equal to $44,000,000, (ii) as of each of December 31, 1999, March 31, 2000, June 30, 2000 and September 30, 2000, an amount equal to $44,000,000 plus the sum for the fiscal year ended December 31, 1999, of 75% of the net profit (but not net loss) of the Borrower and the Subsidiaries on a consolidated basis for such fiscal year, (iii) as of each of December 31, 2000, March 31, 2001, June 30, 2001 and September 30, 2001, an amount equal to the amount calculated under clause (ii) above plus the sum for the fiscal year ended December 31, 2000, of 75% of the net profit (but not net loss) of the Borrower and the Subsidiaries on a consolidated basis for such fiscal year, (iv) as of each of December 31, 2001, March 31, 2002, June 30, 2002 and September 30, 2002, an amount equal to the amount calculated under clause (iii) above plus the sum for the fiscal year ended December 31, 2001, of 75% of the net profit (but not net loss) of the Borrower and the Subsidiaries on a consolidated basis for such fiscal year, (v) as of each of December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003, an amount equal to the amount calculated under clause (iv) above plus the sum for the fiscal year ended December 31, 2003, of 75% of the net profit (but not net loss) of the Borrower and the Subsidiaries on a consolidated basis for such fiscal year, (vi) as of each of December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004, an amount equal to the amount calculated under clause (v) above. (e) Capital Expenditures. THE BORROWER SHALL NOT MAKE ANY CAPITAL EXPENDITURES (OR INCUR ANY OBLIGATION TO MAKE ANY CAPITAL EXPENDITURE) OR PERMIT ANY SUBSIDIARY TO DO SO, IN ANY FISCAL YEAR IN AN AGGREGATE AMOUNT IN EXCESS OF THE AMOUNTS SET FORTH BELOW FOR SUCH FISCAL YEAR (TO BE CALCULATED ON A NONCUMULATIVE BASIS SO THAT AMOUNTS NOT EXPENDED IN A FISCAL YEAR MAY NOT BE CARRIED OVER AND EXPENDED IN ANY SUBSEQUENT FISCAL YEAR):
- - -------------------------------------------------------------------------------- Fiscal Year Ending Amount - - -------------------------------------------------------------------------------- 1998 $4,300,000 - - -------------------------------------------------------------------------------- 1999 $4,500,000 - - -------------------------------------------------------------------------------- 2000 $4,700,000 - - -------------------------------------------------------------------------------- 2001 $4,900,000 - - -------------------------------------------------------------------------------- 2002 $5,100,000 - - -------------------------------------------------------------------------------- 2003 and thereafter $5,300,000 - - --------------------------------------------------------------------------------
ARTICLE 9. DEFAULTS SECTION 9.1.EVENTS OF DEFAULT The following shall each constitute an "EVENT OF DEFAULT" hereunder: (a) THE FAILURE OF THE BORROWER TO MAKE (i) ANY PAYMENT OF PRINCIPAL ON ANY LOAN, OR IN RESPECT OF ANY REIMBURSEMENT OBLIGATION, WHEN DUE AND PAYABLE, OR (ii) ANY DEPOSIT INTO THE CASH COLLATERAL ACCOUNT WHEN REQUIRED HEREBY; OR (b) THE FAILURE OF THE BORROWER TO MAKE ANY PAYMENT OF INTEREST, FEES, EXPENSES OR OTHER AMOUNTS PAYABLE UNDER ANY LOAN DOCUMENT OR OTHERWISE TO THE ADMINISTRATIVE AGENT WITH RESPECT TO THE LOAN FACILITIES ESTABLISHED HEREUNDER WITHIN THREE BUSINESS DAYS OF THE DATE WHEN DUE AND PAYABLE; OR (c) THE FAILURE OF THE BORROWER TO OBSERVE OR PERFORM ANY COVENANT OR AGREEMENT CONTAINED IN SECTION 7.9, 7.10, 7.11 OR ARTICLE 8; OR (d) THE FAILURE OF ANY LOAN PARTY TO OBSERVE OR PERFORM ANY OTHER TERM, COVENANT, OR AGREEMENT CONTAINED IN ANY LOAN DOCUMENT TO WHICH IT IS A PARTY AND SUCH FAILURE SHALL HAVE CONTINUED UNREMEDIED FOR A PERIOD OF 30 DAYS AFTER SUCH LOAN PARTY SHALL HAVE OBTAINED KNOWLEDGE THEREOF; OR (e) ANY REPRESENTATION OR WARRANTY MADE BY ANY LOAN PARTY (OR BY AN OFFICER THEREOF ON ITS BEHALF) IN ANY LOAN DOCUMENT OR IN ANY CERTIFICATE, REPORT, OPINION (OTHER THAN AN OPINION OF COUNSEL) OR OTHER DOCUMENT DELIVERED OR TO BE DELIVERED PURSUANT THERETO, SHALL PROVE TO HAVE BEEN - 53 - 55 INCORRECT OR MISLEADING (WHETHER BECAUSE OF MISSTATEMENT OR OMISSION) IN ANY MATERIAL RESPECT WHEN MADE; OR (f) THE FAILURE OF ANY LOAN PARTY TO MAKE ANY PAYMENT (WHETHER OF PRINCIPAL OR INTEREST AND REGARDLESS OF AMOUNT) IN RESPECT OF MATERIAL LIABILITIES WHEN DUE OR WITHIN ANY GRACE PERIOD FOR THE PAYMENT THEREOF; OR (g) ANY EVENT OR CONDITION OCCURS THAT RESULTS IN ANY MATERIAL LIABILITY BECOMING OR BEING DECLARED TO BE DUE AND PAYABLE PRIOR TO THE SCHEDULED MATURITY THEREOF, OR THAT ENABLES OR PERMITS (WITH OR WITHOUT THE GIVING OF NOTICE, THE LAPSE OF TIME OR BOTH) THE HOLDER OR HOLDERS OF ANY MATERIAL LIABILITY OR ANY TRUSTEE OR AGENT ON ITS OR THEIR BEHALF TO CAUSE ANY MATERIAL LIABILITY TO BE DUE AND PAYABLE, OR TO REQUIRE THE PREPAYMENT, REPURCHASE, REDEMPTION OR DEFEASANCE THEREOF, IN EACH CASE PRIOR TO THE SCHEDULED MATURITY THEREOF (IN EACH CASE AFTER GIVING EFFECT TO ANY APPLICABLE GRACE PERIOD); OR (h) ANY LOAN PARTY SHALL (i) SUSPEND OR DISCONTINUE ITS BUSINESS (EXCEPT TO THE EXTENT PERMITTED BY SECTION 7.3), (ii) MAKE AN ASSIGNMENT FOR THE BENEFIT OF CREDITORS, (iii) GENERALLY NOT BE PAYING ITS DEBTS AS SUCH DEBTS BECOME DUE, (IV) ADMIT IN WRITING ITS INABILITY TO PAY ITS DEBTS AS THEY BECOME DUE, (v) FILE A VOLUNTARY PETITION IN BANKRUPTCY, (vi) BECOME INSOLVENT, (vii) FILE ANY PETITION OR ANSWER SEEKING FOR ITSELF ANY REORGANIZATION, ARRANGEMENT, COMPOSITION, READJUSTMENT OF DEBT, LIQUIDATION OR DISSOLUTION OR SIMILAR RELIEF UNDER ANY PRESENT OR FUTURE STATUTE, LAW OR REGULATION OF ANY JURISDICTION, (viii) PETITION OR APPLY TO ANY TRIBUNAL FOR ANY RECEIVER, CUSTODIAN OR ANY TRUSTEE FOR ANY SUBSTANTIAL PART OF ITS PROPERTY, (ix) BE THE SUBJECT OF ANY SUCH PROCEEDING FILED AGAINST IT WHICH REMAINS UNDISMISSED FOR A PERIOD OF 60 DAYS, (x) FILE ANY ANSWER ADMITTING OR NOT CONTESTING THE MATERIAL ALLEGATIONS OF ANY SUCH PETITION FILED AGAINST IT OR ANY ORDER, JUDGMENT OR DECREE APPROVING SUCH PETITION IN ANY SUCH PROCEEDING, (xi) SEEK, APPROVE, CONSENT TO, OR ACQUIESCE IN ANY SUCH PROCEEDING, OR IN THE APPOINTMENT OF ANY TRUSTEE, RECEIVER, SEQUESTRATOR, CUSTODIAN, LIQUIDATOR, OR FISCAL AGENT FOR IT, OR ANY SUBSTANTIAL PART OF ITS PROPERTY, OR AN ORDER IS ENTERED APPOINTING ANY SUCH TRUSTEE, RECEIVER, CUSTODIAN, LIQUIDATOR OR FISCAL AGENT AND SUCH ORDER REMAINS IN EFFECT FOR 60 DAYS, OR (xii) TAKE ANY FORMAL ACTION FOR THE PURPOSE OF EFFECTING ANY OF THE FOREGOING OR LOOKING TO THE LIQUIDATION OR DISSOLUTION OF THE BORROWER, SUCH SUBSIDIARY OR SUCH OTHER LOAN PARTY; OR (i) AN (i) ORDER OR DECREE IS ENTERED BY A COURT HAVING JURISDICTION (A) ADJUDGING ANY LOAN PARTY BANKRUPT OR INSOLVENT, (B) APPROVING AS PROPERLY FILED A PETITION SEEKING REORGANIZATION, LIQUIDATION, ARRANGEMENT, ADJUSTMENT OR COMPOSITION OF OR IN RESPECT OF ANY LOAN PARTY UNDER THE BANKRUPTCY OR INSOLVENCY LAWS OF ANY JURISDICTION, (C) APPOINTING A RECEIVER, LIQUIDATOR, ASSIGNEE, TRUSTEE, CUSTODIAN, SEQUESTRATOR (OR OTHER SIMILAR OFFICIAL) OF ANY LOAN PARTY OR OF ANY SUBSTANTIAL PART OF THE PROPERTY OF ANY THEREOF, OR (D) ORDERING THE WINDING UP OR LIQUIDATION OF THE AFFAIRS OF ANY LOAN PARTY, AND ANY SUCH DECREE OR ORDER CONTINUES UNSTAYED AND IN EFFECT FOR A PERIOD OF 60 DAYS OR (ii) ORDER FOR RELIEF IS ENTERED UNDER THE BANKRUPTCY OR INSOLVENCY LAWS OF ANY JURISDICTION OR ANY OTHER; OR (j) JUDGMENTS OR DECREES AGAINST ANY LOAN PARTY AGGREGATING IN EXCESS OF $250,000 (UNLESS ADEQUATELY INSURED BY A SOLVENT UNAFFILIATED INSURANCE COMPANY WHICH HAS ACKNOWLEDGED COVERAGE), SHALL REMAIN UNPAID, UNSTAYED ON APPEAL, UNDISCHARGED, UNBONDED OR UNDISMISSED FOR A PERIOD OF 60 CONSECUTIVE DAYS; OR (k) ANY OF THIS AGREEMENT, ANY NOTE, OR ANY SECURITY DOCUMENT SHALL CEASE, FOR ANY REASON, TO BE IN FULL FORCE AND EFFECT, OR ANY LOAN PARTY SHALL SO ASSERT IN WRITING OR SHALL DISAVOW ANY OF ITS OBLIGATIONS UNDER ANY OF THIS AGREEMENT, ANY NOTE, OR ANY SECURITY DOCUMENT; OR (l) ANY LIEN PURPORTED TO BE CREATED UNDER ANY SECURITY DOCUMENT SHALL CEASE TO BE, OR SHALL BE ASSERTED BY ANY LOAN PARTY NOT TO BE, A VALID AND PERFECTED LIEN ON, AND SECURITY INTEREST IN, ANY COLLATERAL, WITH THE PRIORITY REQUIRED BY THE APPLICABLE SECURITY DOCUMENT, EXCEPT AS A RESULT OF A DISPOSITION THEREOF TO THE EXTENT PERMITTED UNDER THE LOAN DOCUMENTS; OR (m) AN ERISA EVENT SHALL HAVE OCCURRED THAT, IN THE OPINION OF THE REQUIRED LENDERS, WHEN TAKEN TOGETHER WITH ALL OTHER ERISA EVENTS THAT HAVE OCCURRED, COULD REASONABLY BE EXPECTED TO RESULT IN LIABILITY OF THE BORROWER AND ITS SUBSIDIARIES IN AN AGGREGATE AMOUNT EXCEEDING (i) IN ANY YEAR, $250,000, OR (ii) FOR ALL PERIODS, $250,000; OR (n) THE OCCURRENCE OF A CHANGE OF CONTROL. - 54 - 56 SECTION 9.2.CONTRACT REMEDIES (a) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT OR AT ANY TIME THEREAFTER DURING THE CONTINUANCE THEREOF, (i) in the case of an Event of Default specified in Section 9.1(h) or 9.1 (i), without declaration or notice to the Borrower, all of the Commitments shall immediately and automatically terminate, and the Loans, all accrued and unpaid interest thereon and all other amounts owing under the Loan Documents shall immediately become due and payable, and (ii) in all other cases, upon the direction of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare all of the Commitments to be terminated forthwith, whereupon such Commitments shall immediately terminate, and/or declare the Loans, all accrued and unpaid interest thereon and all other amounts owing under the Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. In the event that the Loans, all accrued and unpaid interest thereon and all other amounts owing under the Loan Documents shall have been declared due and payable pursuant to the provisions of this Section, the Administrative Agent (i) upon the direction of the Required Lenders, shall proceed to enforce the rights of the holders of the Notes and the Reimbursement Obligations by suit in equity, action at law and/or other appropriate proceedings, whether for payment or the specific performance of any covenant or agreement contained in the Loan Documents and (ii) may exercise any and all rights and remedies provided to the Administrative Agent by the Loan Documents. To the extent permitted by law, except as otherwise expressly provided in the Loan Documents, the Borrower expressly waives presentment, demand, protest and all other notices of any kind in connection with the Loan Documents are hereby expressly waived. To the extent permitted by law, the Borrower hereby further expressly waives and covenants not to assert any appraisement, valuation, stay, extension, redemption or similar laws, now or at any time hereafter in force which might delay, prevent or otherwise impede the performance or enforcement of any Loan Document. (b) IN THE EVENT THAT THE COMMITMENTS SHALL HAVE TERMINATED OR THE LOANS, ALL ACCRUED AND UNPAID INTEREST THEREON AND ALL OTHER AMOUNTS OWING UNDER THE LOAN DOCUMENTS SHALL HAVE BECOME DUE AND PAYABLE PURSUANT TO THE PROVISIONS OF THIS ARTICLE 9, ANY FUNDS RECEIVED BY ANY CREDIT PARTY FROM OR ON BEHALF OF THE BORROWER (EXCEPT FUNDS RECEIVED BY ANY LENDER AS A RESULT OF A PURCHASE FROM ANY OTHER LENDER PURSUANT TO SECTION 2.6(c)) SHALL BE REMITTED TO, AND APPLIED BY, THE ADMINISTRATIVE AGENT IN THE FOLLOWING MANNER AND ORDER: (i) first, to the payment of interest on, and then the principal portion of, any Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or any Loan Party, (ii) second, to reimburse the Administrative Agent, the Issuer and the Lenders, in that order, for any expenses due from the Borrower pursuant to the provisions of Section 11.4, (iii) third, to the payment of interest on, and then the principal portion of, the Reimbursement Obligations, (iv) fourth, to the payment of the Fees, pro rata according to the Fees due and owing to the Credit Parties, (v) fifth, to the payment of any other fees, expenses or other amounts (other than the principal of and interest on the Loans) payable by the Loan Parties to the Credit Parties under the Loan Documents, (vi) sixth, to the payment, pro rata according to the Total Percentage of each Lender, of interest due on the Loans, (vii) seventh, to the payment to the Lenders of, and on a pro rata basis in accordance with, the unpaid principal amount of the Loans and each amount then due and payable under each Secured Hedging Agreement, and (viii)eighth, any remaining funds shall be paid to the Borrower or as a court of competent jurisdiction shall direct. ARTICLE 10. THE ADMINISTRATIVE AGENT SECTION 10.1. APPOINTMENT Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as - 55 - 57 are delegated to the Administrative Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. SECTION 10.2. INDIVIDUAL CAPACITY The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such Person and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower, any Subsidiary, or any Affiliate of the Borrower as if it were not the Administrative Agent hereunder. SECTION 10.3. EXCULPATORY PROVISIONS The Administrative Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, (1) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (2) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.1), and (3) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any Subsidiary that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 11.1) or in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or another Credit Party and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement, (ii) the contents of any certificate, report or other document delivered hereunder or in connection herewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreements, instrument or document, or (v) the satisfaction of any condition set forth in Articles 5 or 6 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. SECTION 10.4. RELIANCE BY ADMINISTRATIVE AGENT The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel to the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. SECTION 10.5. RELIANCE BY ADMINISTRATIVE AGENT The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent, provided that no such delegation shall serve as a release of the Administrative Agent or waiver by the Borrower of any rights hereunder. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of this Article 10 shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any - 56 - 58 such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. SECTION 10.6. RESIGNATION; SUCCESSOR ADMINISTRATIVE AGENT Subject to the appointment and acceptance of a successor Administrative Agent as provided in this Section 10.6, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, and having combined capital and surplus of at least $250,000,000 or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 11.4 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or permitted to be taken by any of them while it was acting as Administrative Agent. SECTION 10.7. NON-RELIANCE ON OTHER CREDIT PARTIES Each Credit Party acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Credit Party and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Credit Party also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Credit Party and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any related agreement or any document furnished hereunder or thereunder. ARTICLE 11. OTHER PROVISIONS SECTION 11.1. AMENDMENTS AND WAIVERS (a) NO FAILURE TO EXERCISE AND NO DELAY IN EXERCISING, ON THE PART OF ANY CREDIT PARTY, ANY RIGHT, REMEDY, POWER OR PRIVILEGE UNDER ANY LOAN DOCUMENT SHALL OPERATE AS A WAIVER THEREOF; NOR SHALL ANY SINGLE OR PARTIAL EXERCISE OF ANY RIGHT, REMEDY, POWER OR PRIVILEGE UNDER ANY LOAN DOCUMENT PRECLUDE ANY OTHER OR FURTHER EXERCISE THEREOF OR THE EXERCISE OF ANY OTHER RIGHT, REMEDY, POWER OR PRIVILEGE. THE RIGHTS, REMEDIES, POWERS AND PRIVILEGES UNDER THE LOAN DOCUMENTS ARE CUMULATIVE AND NOT EXCLUSIVE OF ANY RIGHTS, REMEDIES, POWERS AND PRIVILEGES PROVIDED BY LAW. NO WAIVER OF ANY PROVISION OF ANY LOAN DOCUMENT OR CONSENT TO ANY DEPARTURE BY ANY LOAN PARTY THEREFROM SHALL IN ANY EVENT BE EFFECTIVE UNLESS THE SAME SHALL BE PERMITTED BY THIS SECTION, AND THEN SUCH WAIVER OR CONSENT SHALL BE EFFECTIVE ONLY IN THE SPECIFIC INSTANCE AND FOR THE PURPOSE FOR WHICH GIVEN. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE MAKING OF A LOAN SHALL NOT BE CONSTRUED AS A WAIVER OF ANY DEFAULT, REGARDLESS OF WHETHER ANY CREDIT PARTY MAY HAVE HAD NOTICE OR KNOWLEDGE OF SUCH DEFAULT AT THE TIME. (b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY LOAN DOCUMENT, WITH THE WRITTEN CONSENT OF THE REQUIRED LENDERS, THE ADMINISTRATIVE AGENT AND THE APPROPRIATE PARTIES TO THE LOAN DOCUMENTS (OTHER THAN THE OTHER CREDIT PARTIES) MAY, FROM TIME TO TIME, ENTER INTO WRITTEN AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS THEREOF AND, WITH THE CONSENT OF THE REQUIRED LENDERS, THE ADMINISTRATIVE AGENT ON BEHALF OF THE OTHER CREDIT PARTIES, MAY EXECUTE AND DELIVER TO ANY SUCH PARTIES A WRITTEN INSTRUMENT WAIVING OR CONSENTING TO THE DEPARTURE FROM, ON SUCH TERMS AND CONDITIONS AS THE ADMINISTRATIVE AGENT MAY SPECIFY IN SUCH INSTRUMENT, ANY OF THE REQUIREMENTS OF - 57 - 59 THE LOAN DOCUMENTS OR ANY DEFAULT AND ITS CONSEQUENCES; PROVIDED, HOWEVER, THAT NO SUCH AMENDMENT, SUPPLEMENT, MODIFICATION, WAIVER OR CONSENT SHALL: (i) increase the Revolving Commitment or Acquisition Loan Commitment of any Lender, without such Lender's consent; (ii) unless agreed to by each Credit Party affected thereby, (A) reduce the principal amount of any Extension of Credit, or reduce the rate of interest thereon, or reduce any fees or other obligations payable under the Loan Documents, (B) extend any date (including the Maturity Date) fixed for the payment of any principal of or interest on any Extension of Credit, any fees, or any other obligation payable under the Loan Documents or (C) extend the expiration date of any Letter of Credit beyond the Maturity Date; (iii) unless agreed to by all of the Lenders, (A) increase the Aggregate Revolving Commitment or Aggregate Acquisition Loan Commitment, (B) change the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, (C) change Section 2.6 in a manner that would alter the pro rata sharing of payments required thereby, (D) consent to any assignment or delegation by any Loan Party of any of its rights or obligations under any Loan Document, (E) release any Subsidiary Guarantor from its obligations under the Subsidiary Guarantee (except as expressly provided therein or as a result of the termination of the existence of such Subsidiary Guarantor in a transaction permitted by Sections 8.3, 8.4 or 8.6), or (F) release any of the Collateral from the Liens of the Security Documents, except as may be expressly permitted thereunder or in connection with a transaction permitted by Sections 8.3, 8.4 or 8.6), and (iv) unless agreed to by the Administrative Agent or the Issuer, amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Issuer, respectively, under the Loan Documents. Any such amendment, supplement, modification, waiver or consent shall apply equally to each Credit Party and shall be binding upon each Credit Party and each Loan Party to the applicable Loan Document, and upon all future holders of the Notes and the Reimbursement Obligations. In the case of any waiver, the Credit Parties and each Loan Party to the applicable Loan Document shall be restored to their former position and rights hereunder and under the outstanding Notes and other Loan Documents to the extent provided for in such waiver, and any Default waived shall not extend to any subsequent or other Default, or impair any right consequent thereon. SECTION 11.2. NOTICES All notices, requests and demands to or upon the respective parties to the Loan Documents to be effective shall be in writing and, unless otherwise expressly provided therein, shall be deemed to have been duly given or made when delivered by hand, one Business Day after having been sent by overnight courier service, or when deposited in the mail, first-class postage prepaid, or, in the case of notice by facsimile, when sent to the last address (including telephone and facsimile numbers) for such party specified by such party in a written notice delivered to the Administrative Agent and the Borrower or, if no such written notice was so delivered, as follows: - 58 - 60 (a) IN THE CASE OF ANY LOAN PARTY, TO SUCH LOAN PARTY C/O GLOBAL VACATION GROUP, INC., 1420 NEW YORK AVENUE NW, SUITE 550, WASHINGTON, DC 20005, ATTENTION: WALTER BERMAN, CHIEF FINANCIAL OFFICER, TELEPHONE (202) 347-1800, FACSIMILE (202) 347-0710, WITH A COPIES TO: (i) THAYER EQUITY INVESTORS III, L.P., 1455 PENNSYLVANIA AVENUE, WASHINGTON, D.C. 20004, ATTENTION ROGER BALLOU, DANIEL RASKAS, CHRISTOPHER TEMPLE, TELEPHONE: (202) 371-0391, FACSIMILE: (202) 371-0150, AND (ii) HOGAN & HARTSON, L.L.P., COLUMBIA SQUARE, 555 THIRTEENTH STREET, N.W., WASHINGTON, D.C. 20004; ATTENTION: CHRISTOPHER J. HAGAN OR J. HOVEY KEMP, ESQ.; TELEPHONE: (202) 637-5600, FACSIMILE: (202) 637-5910; (b) IN THE CASE OF THE ADMINISTRATIVE AGENT, TO THE BANK OF NEW YORK, ONE WALL STREET, AGENCY FUNCTION ADMINISTRATION, 18TH FLOOR, NEW YORK, NEW YORK 10286; ATTENTION: SUSAN BARATTA, TELEPHONE: (212) 635-4632, FACSIMILE (212) 635-6365 OR 6366 OR 6367; WITH A COPY TO: THE BANK OF NEW YORK, ONE WALL STREET, NEW YORK, NEW YORK 10286, ATTENTION: RONALD R. REEDY, VICE PRESIDENT, TELEPHONE: (212) 635-6724, FACSIMILE: (212) 635-6434; AND (c) IN THE CASE OF A LENDER, AT ITS ADDRESS FOR NOTICES SET FORTH ON SCHEDULE 11.2; provided, however, that any notice, request or demand by the Borrower pursuant to Sections 2.2, 2.3, 2.6 or 3.3 shall not be effective until received. Any party to a Loan Document may rely on signatures of the parties thereto which are transmitted by facsimile or other electronic means as fully as if originally signed. SECTION 11.3. SURVIVAL All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Extensions of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder. SECTION 11.4. EXPENSES; INDEMNITY (a) THE BORROWER AGREES, ON DEMAND THEREFOR AND WHETHER ANY EXTENSION OF CREDIT IS MADE (i) TO PAY OR REIMBURSE THE ADMINISTRATIVE AGENT AND ITS RELATED PARTIES FOR ALL REASONABLE OUT-OF-POCKET EXPENSES INCURRED THEREBY, INCLUDING THE REASONABLE FEES, CHARGES AND DISBURSEMENTS OF COUNSEL, IN CONNECTION WITH THE DEVELOPMENT, PREPARATION, EXECUTION, SYNDICATION AND ADMINISTRATION OF, THE LOAN DOCUMENTS (INCLUDING ANY AMENDMENT, SUPPLEMENT OR OTHER MODIFICATION THERETO (WHETHER OR NOT EXECUTED OR EFFECTIVE)), ANY DOCUMENTS PREPARED IN CONNECTION THEREWITH AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY AND (ii) TO PAY OR REIMBURSE EACH CREDIT PARTY FOR ALL OF ITS COSTS AND EXPENSES, INCLUDING REASONABLE FEES AND DISBURSEMENTS OF COUNSEL, INCURRED IN CONNECTION WITH (A) THE PROTECTION OR ENFORCEMENT OF ITS RIGHTS UNDER THE LOAN DOCUMENTS, INCLUDING ANY RELATED COLLECTION PROCEEDINGS AND ANY NEGOTIATION, RESTRUCTURING OR "WORK-OUT", AND (B) THE ENFORCEMENT OF THIS SECTION. (b) THE BORROWER SHALL, ON DEMAND THEREFOR, INDEMNIFY EACH CREDIT PARTY AND EACH OF THEIR RESPECTIVE RELATED PARTIES (EACH, AN "Indemnified Person") AGAINST, AND HOLD EACH INDEMNIFIED PERSON HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, PENALTIES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL, INCURRED BY OR ASSERTED AGAINST ANY INDEMNIFIED PERSON IN CONNECTION WITH OR IN ANY WAY ARISING OUT OF ANY LOAN DOCUMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION, INCLUDING AS A RESULT OF (i) ANY BREACH BY THE BORROWER OF THE TERMS OF ANY LOAN DOCUMENT, THE USE OF PROCEEDS OF ANY EXTENSION OF CREDIT OR ANY ACTION OR FAILURE TO ACT ON THE PART OF THE BORROWER, (ii) THE CONSUMMATION OR PROPOSED CONSUMMATION OF THE TRANSACTIONS OR ANY OTHER TRANSACTIONS CONTEMPLATED HEREBY, (iii) ANY EXTENSION OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, (iv) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS SUBSTANCE ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY, OR ANY LIABILITY IN RESPECT OF ANY ENVIRONMENTAL LAW RELATED IN ANY WAY TO THE BORROWER OR ANY SUBSIDIARY, (v) ANY ACTION OR FAILURE TO ACT ON THE PART OF THE BORROWER OR (vi) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY - 59 - 61 OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNIFIED PERSON IS A PARTY THERETO (COLLECTIVELY, THE "Indemnified Liabilities"), PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNIFIED PERSON, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PERSON. (c) TO THE EXTENT THAT THE BORROWER FAILS TO PAY ANY AMOUNT REQUIRED TO BE PAID BY IT TO THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES UNDER SUBSECTIONS (a) OR (b) OF THIS SECTION, EACH LENDER SEVERALLY AGREES, ON DEMAND THEREFOR, TO PAY TO THE ADMINISTRATIVE AGENT SUCH LENDER'S TOTAL PERCENTAGE OF SUCH AMOUNT (DETERMINED AS OF THE TIME THAT THE APPLICABLE UNREIMBURSED EXPENSE OR INDEMNIFIED LIABILITY IS SOUGHT). (d) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER SHALL NOT ASSERT, AND HEREBY WAIVES, ANY CLAIM AGAINST ANY INDEMNIFIED PERSON FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (WHETHER ACCRUED AND WHETHER KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY EXTENSION OF CREDIT OR THE USE OF THE PROCEEDS THEREOF. SECTION 11.5. SUCCESSORS AND ASSIGNS (a) THE LOAN DOCUMENTS SHALL BE BINDING UPON AND INURE TO THE BENEFIT OF EACH OF THE PARTIES THERETO, AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, EXCEPT THAT NO LOAN PARTY MAY ASSIGN OR OTHERWISE TRANSFER ANY OF ITS RIGHTS OR OBLIGATIONS HEREUNDER WITHOUT THE PRIOR WRITTEN CONSENT OF EACH CREDIT PARTY (AND ANY SUCH ATTEMPTED ASSIGNMENT OR TRANSFER WITHOUT SUCH CONSENT SHALL BE NULL AND VOID). (b) EACH LENDER MAY ASSIGN ALL OR A PORTION OF ITS RIGHTS AND OBLIGATIONS UNDER THE LOAN DOCUMENTS TO (i) ANY SUBSIDIARY OR AFFILIATE OF SUCH LENDER, (ii) ANY OTHER LENDER, OR (iii) WITH THE CONSENT OF THE BORROWER, THE ADMINISTRATIVE AGENT, THE ISSUER (WHICH CONSENTS SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED AND, IN THE CASE OF THE BORROWER'S CONSENT, SHALL NOT BE REQUIRED DURING THE CONTINUANCE OF AN EVENT OF DEFAULT), ANY OTHER INSTITUTION, PROVIDED THAT: (A)............................................EACH SUCH ASSIGNMENT SHALL BE OF A CONSTANT, AND NOT A VARYING, PERCENTAGE OF THE ASSIGNOR LENDER'S RIGHTS AND OBLIGATIONS UNDER THE LOAN DOCUMENTS; (B)............................................EXCEPT IN THE CASE OF AN ASSIGNMENT TO A LENDER OR AN AFFILIATE OF A LENDER OR AN ASSIGNMENT OF THE ENTIRE REMAINING AMOUNT OF THE ASSIGNING LENDER'S REVOLVING COMMITMENT AND ACQUISITION LOAN COMMITMENT, THE AGGREGATE AMOUNT OF THE REVOLVING COMMITMENT AND ACQUISITION LOAN COMMITMENT OF THE ASSIGNING LENDER SUBJECT TO EACH SUCH ASSIGNMENT (DETERMINED AS OF THE DATE THE ASSIGNMENT AND ACCEPTANCE AGREEMENT WITH RESPECT TO SUCH ASSIGNMENT IS DELIVERED TO THE ADMINISTRATIVE AGENT) SHALL NOT BE LESS THAN $5,000,000; AND (C)............................................THE ASSIGNOR AND SUCH ASSIGNEE SHALL DELIVER TO THE ADMINISTRATIVE AGENT THREE COPIES OF AN ASSIGNMENT AND ACCEPTANCE AGREEMENT EXECUTED BY EACH OF THEM, ALONG WITH AN ASSIGNMENT FEE IN THE SUM OF $3,500 FOR THE ACCOUNT OF THE ADMINISTRATIVE AGENT AND, IF THE ASSIGNEE IS NOT THEN A LENDER, SUCH ASSIGNEE SHALL DESIGNATE ITS ADDRESS FOR NOTICES AND SHALL DELIVER TO THE ADMINISTRATIVE AGENT AND, IF SUCH ASSIGNEE IS A FOREIGN CREDIT PARTY, THE DOCUMENTS REQUIRED BY SECTION 3.7(c). Upon receipt of such number of executed copies of each such Assignment and Acceptance Agreement together with the assignment fee therefor and the consents required to such assignment, if required, the Administrative Agent shall record the same and execute not less than two copies of such Assignment and Acceptance Agreement in the appropriate place, deliver one such copy to the assignor and one such copy to the assignee, and deliver one photocopy thereof, as executed, to the Borrower. From and after the Assignment Effective Date specified in, and as defined in, such Assignment and Acceptance Agreement, the assignee thereunder shall, unless already a Lender, become a party hereto and shall, for all purposes of the Loan Documents, be deemed a "Lender" and, to the extent provided in such Assignment and Acceptance Agreement, the assignor Lender thereunder shall be released from its obligations under this Agreement and the other Loan Documents. The Borrower agrees that, if requested, in connection with each such assignment, it shall at its own cost and expense execute and deliver to the Administrative Agent or such assignee a Note, each payable to the order of such assignee and dated the First Restatement Date. The Administrative Agent shall be entitled to rely upon the representations and warranties made by the assignee under each Assignment and Acceptance Agreement. (c) EACH LENDER MAY GRANT PARTICIPATIONS IN ALL OR ANY PART OF ITS RIGHTS AND OBLIGATIONS UNDER THE LOAN DOCUMENTS TO (i) ANY SUBSIDIARY OR AFFILIATE OF SUCH LENDER, (ii) ANY OTHER LENDER, OR (iii) ANY OTHER INSTITUTION REASONABLY ACCEPTABLE TO THE ADMINISTRATION AGENT, PROVIDED THAT (A) SUCH LENDER'S OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL REMAIN UNCHANGED, - 60 - 62 (B) SUCH LENDER SHALL REMAIN SOLELY RESPONSIBLE TO THE OTHER PARTIES TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS FOR THE PERFORMANCE OF SUCH OBLIGATIONS, (C) THE BORROWER AND THE CREDIT PARTIES SHALL CONTINUE TO DEAL SOLELY AND DIRECTLY WITH SUCH LENDER IN CONNECTION WITH SUCH LENDER'S RIGHTS AND OBLIGATIONS UNDER THE LOAN DOCUMENTS, (D) THE GRANTING OF SUCH PARTICIPATION DOES NOT REQUIRE THAT ANY ADDITIONAL LOSS, COST OR EXPENSE BE BORNE BY THE BORROWER AT ANY TIME, AND (E) THE VOTING RIGHTS OF ANY HOLDER OF ANY PARTICIPATION SHALL BE LIMITED TO DECISIONS THAT IN ACCORDANCE WITH SECTION 11.1 REQUIRE THE CONSENT OF ALL OF THE LENDERS. (d) SUBJECT TO SUBSECTION (e) BELOW, ANY LENDER MAY AT ANY TIME ASSIGN ALL OR ANY PORTION OF ITS RIGHTS UNDER ANY LOAN DOCUMENT TO ANY FEDERAL RESERVE BANK. (e) EXCEPT TO THE EXTENT OF ANY ASSIGNMENT PURSUANT TO SUBSECTION (b) ABOVE, NO LENDER SHALL BE RELIEVED OF ANY OF ITS OBLIGATIONS UNDER THE LOAN DOCUMENTS AS A RESULT OF ANY ASSIGNMENT OF OR GRANTING OF PARTICIPATIONS IN, ALL OR ANY PART OF ITS RIGHTS AND OBLIGATIONS UNDER THE LOAN DOCUMENTS. SECTION 11.6. COUNTERPARTS; INTEGRATION Each Loan Document (other than the Notes) may be executed by one or more of the parties thereto on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same document. It shall not be necessary in making proof of any Loan Document to produce or account for more than one counterpart signed by the party to be charged. Delivery of an executed counterpart of a signature page of any Loan Document by facsimile shall be effective as delivery of a manually executed counterpart of such Loan Document. The Loan Documents and any separate letter agreements between the Borrower and a Credit Party with respect to fees embody the entire agreement and understanding among the Loan Parties and the Credit Parties with respect to the subject matter thereof and supersede all prior agreements and understandings among the Loan Parties and the Credit Parties with respect to the subject matter thereof. SECTION 11.7. SEVERABILITY Every provision of the Loan Documents is intended to be severable, and if any term or provision thereof shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions thereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction. SECTION 11.8. GOVERNING LAW THE LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. SECTION 11.9. JURISDICTION; SERVICE OF PROCESS Each party to a Loan Document hereby irrevocably submits to the nonexclusive jurisdiction of any New York State or Federal court sitting in the City of New York over any suit, action or proceeding arising out of or relating to the Loan Documents. Each party to a Loan Document hereby irrevocably waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. Each Loan Party hereby agrees that a final judgment in any such suit, action or proceeding brought in such a court, after all appropriate appeals, shall be conclusive and binding upon it and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that a Credit Party may otherwise have to bring any action or proceeding relating to Loan Documents against the Borrower or its properties in the courts of any jurisdiction. Each party to a Loan Document hereby irrevocably consents to service of process in the manner provided for notices in Section 11.2. Nothing in this Agreement will affect the right of any party to a Loan Document to serve process in any other manner permitted by law. - 61 - 63 SECTION 11.10. WAIVER OF TRIAL BY JURY EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. SECTION 11.11. SAVINGS CLAUSE This Agreement is intended solely as an amendment of, and contemporaneous restatement of, the terms and conditions of the Existing Credit Agreement, and the Notes delivered pursuant hereto are intended to amend, restate and renew the notes issued under the Existing Credit Agreement. Notwithstanding anything contained herein to the contrary, it is the intention of the parties hereto that this Agreement and the Commitments and Extensions of Credit provided hereunder represent a supplement to, but not a novation or discharge of, the credit facilities provided by the Existing Credit Agreement; and the Borrower hereby represents and warrants to each Credit Party that, after giving effect to the transactions contemplated by this Agreement, the security interests created by the Security Documents continue to constitute valid, perfected and first priority security interests (subject only to Permitted Liens) securing all obligations purported to be secured thereby, and each of the Security Documents and the security interests provided therein continue in full force and effect. Nothing in this Agreement is intended to affect the right of the Lenders to payment of amounts due under the Existing Credit Agreement for the period prior to the First Restatement Date and such right shall be determined under the provisions of the Existing Credit Agreement. 62 64 IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. GLOBAL VACATION GROUP, INC. By: ------------------------- Name: ------------------------ Title: ------------------------ 65 GLOBAL VACATION CREDIT AGREEMENT Revolving Commitment THE BANK OF NEW YORK, Individually, as Issuer $3,889,888.89 and as Administrative Agent Acquisition Loan Amount By: -------------------------- Name: ------------------------- $13,611,111.11 Title: ------------------------- Address for Notices The Bank of New York Agency Function Administration One Wall Street 18th Floor New York, NY 10286 Attention: Susan Baratta Telephone: (212) 635-4632 Facsimile: (212) 635-6365 or 6366 or 6367 with a copy to: The Bank of New York One Wall Street New York, New York 10286 Attention: Ronald R. Reedy Telephone: (212) 635-6724 Facsimile: (212) 635-6434 64 66 GLOBAL VACATION CREDIT AGREEMENT Revolving Commitment BANK OF AMERICA, FSB $3,333,33.33 Acquisition Loan Amount By: ---------------------------- Name: ---------------------------- $11,666,666,67 Title: ---------------------------- Address for Notices Bank of America, FSB 6610 Rockledge Drive - 3rd Floor Bethesda, MD 20817 Attention: Barbara Levy Telephone: (301) 493-7256 Facsimile: (301) 571-9098 65 67 GLOBAL VACATION CREDIT AGREEMENT Revolving Commitment FIRST UNION NATIONAL BANK $2,777,777.78 Acquisition Loan Amount By: -------------------------- Name: -------------------------- $9,722,222.22 Title: -------------------------- Address for Notices First Union Capital Markets 301 South College Street NC0737, 5th Floor Charlotte, North Carolina 28288-0737 Attention: Ben Howatt Telephone: (704) 383-1357 Facsimile: (704) 374-4793 66 68 GLOBAL VACATION CREDIT AGREEMENT CONSENTED TO: SUNSHINE VACATIONS, INC. GLOBAL VACATION MANAGEMENT COMPANY HADDON HOLIDAYS, INC. GLOBETROTTERS, INC. CLASSIC CUSTOM VACATIONS MTI VACATIONS, INC. GVG FINANCE COMPANY AS TO EACH OF THE FOREGOING: By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- 67 69
TABLE OF CONTENTS ARTICLE 1. DEFINITIONS AND RULES OF INTERPRETATION..............................1 SECTION 1.1. DEFINITIONS.......................................................1 SECTION 1.2. ACCOUNTING TERMS.................................................21 SECTION 1.3. RULES OF INTERPRETATION..........................................21 ARTICLE 2. AMOUNT AND TERMS OF EXTENSIONS OF CREDIT............................22 SECTION 2.1. LOANS............................................................22 SECTION 2.2. PROCEDURE FOR BORROWING..........................................22 SECTION 2.3. TERMINATION OR REDUCTION OF COMMITMENTS..........................23 SECTION 2.4. PREPAYMENTS OF LOANS.............................................26 SECTION 2.5. LETTERS OF CREDIT................................................26 SECTION 2.6. PAYMENTS; PRO RATA TREATMENT AND SHARING OF SET-OFFS.............29 SECTION 2.7. CASH COLLATERAL ACCOUNT..........................................30 ARTICLE 3. INTEREST, FEES, YIELD PROTECTIONS, ETC..............................30 SECTION 3.1. INTEREST RATE AND PAYMENT DATES..................................30 SECTION 3.2. FEES.............................................................31 SECTION 3.3. CONVERSIONS......................................................32 SECTION 3.4. CONCERNING INTEREST PERIODS......................................32 SECTION 3.5. FUNDING LOSS.....................................................33 SECTION 3.6. INCREASED COSTS; ILLEGALITY, ETC.................................33 SECTION 3.7. TAXES............................................................34 SECTION 3.8. REGISTER.........................................................35 ARTICLE 4. REPRESENTATIONS AND WARRANTIES......................................35 SECTION 4.1. ORGANIZATION AND POWER...........................................35 SECTION 4.2. AUTHORIZATION; ENFORCEABILITY....................................36 SECTION 4.3. APPROVALS; NO CONFLICTS..........................................36 SECTION 4.4. FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE..................36 SECTION 4.5. PROPERTIES, ETC..................................................36 SECTION 4.6. LITIGATION.......................................................37 SECTION 4.7. ENVIRONMENTAL MATTERS............................................37 SECTION 4.8. COMPLIANCE WITH LAWS AND AGREEMENTS; NO DEFAULT..................37 SECTION 4.9. INVESTMENT COMPANIES AND OTHER REGULATED ENTITIES................37 SECTION 4.10. FEDERAL RESERVE REGULATIONS......................................38 SECTION 4.11. ERISA............................................................38 SECTION 4.12. TAXES............................................................38 SECTION 4.13. SUBSIDIARIES.....................................................38 SECTION 4.14. ABSENCE OF CERTAIN RESTRICTIONS..................................38 SECTION 4.15. LABOR RELATIONS..................................................39 SECTION 4.16. INSURANCE........................................................39 SECTION 4.17. NO MISREPRESENTATION.............................................39 SECTION 4.18. TRANSACTION DOCUMENTS............................................39 SECTION 4.19. FINANCIAL CONDITION..............................................39 SECTION 4.20. YEAR 2000........................................................39 SECTION 4.21. MATERIAL AGREEMENTS..............................................39 ARTICLE 5. CONDITIONS TO EFFECTIVENESS.........................................40 SECTION 5.1. EVIDENCE OF ACTION...............................................40 SECTION 5.2. THIS AGREEMENT...................................................40 SECTION 5.3. NOTES............................................................40 SECTION 5.4. OPINION OF COUNSEL TO THE LOAN PARTIES...........................40 SECTION 5.5. PERFECTION CERTIFICATE...........................................40
68 70 SECTION 5.6. GVG FINANCE COMPANY..............................................40 SECTION 5.7. ABSENCE OF MATERIAL ADVERSE CHANGE...............................41 SECTION 5.8. OFFICER'S CERTIFICATE............................................41 SECTION 5.9. MASTER ASSIGNMENT................................................41 SECTION 5.10. FEES.............................................................41 SECTION 5.11. OTHER DOCUMENTS..................................................41 ARTICLE 6. CONDITIONS TO EACH EXTENSION OF CREDIT..............................41 SECTION 6.1. COMPLIANCE.......................................................41 SECTION 6.2. CREDIT REQUEST...................................................41 SECTION 6.3. LAW..............................................................42 ARTICLE 7. AFFIRMATIVE COVENANTS...............................................42 SECTION 7.1. FINANCIAL STATEMENTS AND INFORMATION.............................42 SECTION 7.2. NOTICE OF MATERIAL EVENTS........................................43 SECTION 7.3. EXISTENCE; CONDUCT OF BUSINESS...................................44 SECTION 7.4. PAYMENT OF OBLIGATIONS...........................................44 SECTION 7.5. MAINTENANCE OF PROPERTIES........................................44 SECTION 7.6. INSURANCE........................................................44 SECTION 7.7. BOOKS AND RECORDS; INSPECTION RIGHTS.............................44 SECTION 7.8. COMPLIANCE WITH LAWS.............................................45 SECTION 7.9. ADDITIONAL SUBSIDIARIES..........................................45 SECTION 7.10. ADDITIONAL COLLATERAL............................................45 SECTION 7.11. HEDGING AGREEMENTS...............................................46 SECTION 7.12. INTENTIONALLY OMITTED............................................46 SECTION 7.13. EXISTING LETTERS OF CREDIT.......................................46 ARTICLE 8. NEGATIVE COVENANTS..................................................46 SECTION 8.1. INDEBTEDNESS.....................................................46 SECTION 8.2. NEGATIVE PLEDGE..................................................47 SECTION 8.3. FUNDAMENTAL CHANGES..............................................48 SECTION 8.4. INVESTMENTS, LOANS, ADVANCES AND GUARANTEES......................49 SECTION 8.5. ACQUISITIONS.....................................................49 SECTION 8.6. DISPOSITIONS.....................................................50 SECTION 8.7. RESTRICTED PAYMENTS..............................................51 SECTION 8.8. HEDGING AGREEMENTS...............................................51 SECTION 8.9. SALE AND LEASE-BACK TRANSACTIONS.................................51 SECTION 8.10. LINES OF BUSINESS................................................51 SECTION 8.11. TRANSACTIONS WITH AFFILIATES.....................................51 SECTION 8.12. USE OF PROCEEDS..................................................51 SECTION 8.13. RESTRICTIVE AGREEMENTS...........................................52 SECTION 8.14. FINANCIAL COVENANTS..............................................52 ARTICLE 9. DEFAULTS............................................................53 SECTION 9.1. EVENTS OF DEFAULT................................................53 SECTION 9.2. CONTRACT REMEDIES................................................55 ARTICLE 10. THE ADMINISTRATIVE AGENT............................................55 SECTION 10.1. APPOINTMENT......................................................55 SECTION 10.2. INDIVIDUAL CAPACITY..............................................56 SECTION 10.3. EXCULPATORY PROVISIONS...........................................56 SECTION 10.4. RELIANCE BY ADMINISTRATIVE AGENT.................................56 SECTION 10.5. RELIANCE BY ADMINISTRATIVE AGENT.................................56 SECTION 10.6. RESIGNATION; SUCCESSOR ADMINISTRATIVE AGENT......................57 SECTION 10.7. NON-RELIANCE ON OTHER CREDIT PARTIES.............................57
69 71 ARTICLE 11. OTHER PROVISIONS....................................................57 SECTION 11.1. AMENDMENTS AND WAIVERS...........................................57 SECTION 11.2. NOTICES..........................................................58 SECTION 11.3. SURVIVAL.........................................................59 SECTION 11.4. EXPENSES; INDEMNITY..............................................59 SECTION 11.5. SUCCESSORS AND ASSIGNS...........................................60 SECTION 11.6. COUNTERPARTS; INTEGRATION........................................61 SECTION 11.7. SEVERABILITY.....................................................61 SECTION 11.8. GOVERNING LAW....................................................61 SECTION 11.9. JURISDICTION; SERVICE OF PROCESS.................................61 SECTION 11.10. WAIVER OF TRIAL BY JURY..........................................62 SECTION 11.11. SAVINGS CLAUSE...................................................62 EXHIBITS: Exhibit A Form of Note Exhibit B Form of Credit Request Exhibit C Form of Notice of Conversion Exhibit D Form of Compliance Certificate Exhibit E Form of Assignment and Acceptance Agreement Exhibit F Form of Intercompany Subordination Agreement Exhibit G Form of Master Assignment and Assumption Agreement SCHEDULES: Schedule 4.3 Exceptions to Section 4.3 (Consents and Approvals) Schedule 4.6 Litigation Schedule 4.7 Environmental Matters Schedule 4.13 Subsidiaries; Capitalization Schedule 4.16 Insurance Schedule 8.1 Existing Indebtedness Schedule 8.2 Existing Liens Schedule 8. 4 Existing Investments
70 EX-23.1 3 CONSENT OF ARTHUR ANDERSEN & CO. 1 EXHIBIT 23.1 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the incorporation of our report dated February 5, 1999 (except with respect to the matters discussed in Note 11 to the Consolidated Financial Statements as to which the date is March 17, 1999) with respect to the consolidated financial statements of Global Vacation Group, Inc., included with this Form 10-K into the previously filed Registration Statement on Form S-8 No. 333-70597, filed January 14, 1999 with the Securities and Exchange Commission. Washington D.C. March 22, 1999 48 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF OPERATIONS. THE CONSOLIDATED BALANCE SHEET AND THE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 30,317 2,346 15,866 (982) 0 54,245 5,158 0 134,060 79,112 0 0 0 147 53,438 134,060 90,421 90,421 69,386 69,386 13,027 0 976 9,010 (3,908) 5,102 0 (379) 0 4,723 0.22 0.22
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