As filed with the Securities and Exchange Commission on March 10, 2000
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LEISURE TRAVEL GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 7011 98-0219586
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
6 LEYLANDS PARK, NOBS CROOK
COLDEN COMMON
WINCHESTER SO21 1TH ENGLAND
TELEPHONE: 01144-1703-601155 TELECOPIER: 01144-1703-696099
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
RAYMOND J. PEEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LEISURE TRAVEL GROUP, INC.
COLDEN COMMON
WINCHESTER SO21 1TH ENGLAND
TELEPHONE: 01144-1703-601155 TELECOPIER: 01144-1703-696099
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies of communications to:
STEPHEN A. WEISS, ESQ. JAMES ZATOLOKIN, ESQ.
ANTHONY J. MARSICO, ESQ. MARY ANN SAPONE, ESQ.
GREENBERG TRAURIG, LLP POLLET LAW
200 PARK AVENUE, 15TH FLOOR 10900 WILSHIRE BOULEVARD,
NEW YORK, NEW YORK 10166 SUITE 500
TELEPHONE: (212) 801-9200 LOS ANGELES, CA 90024
TELECOPIER: (212) 801-6400 TELEPHONE: (310) 208-1182
TELECOPIER: (310) 208-1154
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
===========================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING REGISTRATION FEE
PRICE (1)
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Common Stock, par value $0.001 per share........ $41,400,000 $10,929.60
===========================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the
"Securities Act").
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
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PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 10, 2000
3,000,000 SHARES OF COMMON STOCK
LEISURE TRAVEL GROUP, INC.
This is an initial public offering of 3,000,000 shares of our common
stock.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "LTGI."
We anticipate that the initial public offering price will be between
$10.00 and $12.00 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR A DISCUSSION OF CERTAIN
FACTORS THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF ANYONE'S INVESTMENT IN THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
PER SHARE TOTAL
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Public Offering Price............................. $________ $__________
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Underwriting Discounts and Commissions............ $________ $__________
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Proceeds, before expenses, to Leisure Travel Group, $________ $__________
Inc...............................................
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The underwriters may, under some circumstances, for 45 days after the date
of this prospectus, purchase up to an additional 450,000 shares of common stock
from us at the initial public offering price, less underwriting discounts and
commissions.
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The underwriters expect to deliver the shares of common stock at the
offices of Roth Capital Partners Incorporated in Newport Beach, California, on
or about __________, 2000, against payment in immediately available funds.
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ROTH CAPITAL PARTNERS
I N C O R P O R A T E D
The date of this prospectus is _________, 2000.
You should rely only on the information contained in this prospectus. We
have not, and the underwriter has not, authorized anyone to provide you with
information that is different. This prospectus may be used only where it is
legal to sell these securities. The information in this prospectus is complete
and accurate as of the date on the front cover, but the information may have
changed since that date.
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SECURITIES AND EXCHANGE
COMMISSION RULES PERMIT THE UNDERWRITER TO ENGAGE IN TRANSACTIONS THAT STABILIZE
THE PRICE OF OUR SECURITIES. THESE TRANSACTIONS MAY INCLUDE, AMONG OTHER THINGS,
PURCHASE FOR THE PURPOSE OF FIXING OR MAINTAINING THE PRICE OF OUR SECURITIES AT
A LEVEL THAT IS HIGHER THAN THE MARKET WOULD DICTATE IN THE ABSENCE OF SUCH
TRANSACTIONS. WE DO NOT KNOW WHETHER THE UNDERWRITER WILL ENGAGE IN ANY
TRANSACTIONS OF THAT SORT. IF THE UNDERWRITER ENGAGES IN ANY TRANSACTIONS OF
THAT TYPE IT MAY DISCONTINUE THEM AT ANY TIME.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY................... __
RISK FACTORS......................... __
CAUTIONARY NOTICE REGARDING .........
FORWARD LOOKING STATEMENTS ....... __
EXCHANGE RATE INFORMATION............ __
USE OF PROCEEDS...................... __
DIVIDEND POLICY...................... __
CAPITALIZATION....................... __
DILUTION............................. __
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL
INFORMATION....................... __
SELECTED FINANCIAL DATA.............. __
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......... __
BUSINESS............................. __
MANAGEMENT........................... __
CERTAIN TRANSACTIONS................. __
PRINCIPAL STOCKHOLDERS............... __
DESCRIPTION OF SECURITIES............ __
SHARES ELIGIBLE FOR FUTURE SALE...... __
UNDERWRITING......................... __
LEGAL MATTERS........................ __
EXPERTS.............................. __
ADDITIONAL INFORMATION............... __
INDEX TO FINANCIAL STATEMENTS....... F-1
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trrravel.com is a trademark of Trravel.com Limited, a 49% owned investment of
Leisure Travel Group, Inc. This prospectus also contains trademarks and
tradenames of other companies.
Information contained on the www.trrravel.com Web site does not constitute a
part of this prospectus.
We publish our financial statements in pounds sterling. For your convenience,
this prospectus contains translations of certain pound sterling amounts into
United States dollar amounts. Unless otherwise indicated, all amounts expressed
in United States dollars are based upon translations of amounts of pounds
sterling into United States dollars at the rate of $1.6117 per pound sterling,
the noon buying rate in New York City for cable transfers in pounds sterling
certified for customs purposes by the Federal Reserve Bank of New York on
October 31, 1999. See "Exchange Rate Information" for historical information
regarding the noon buying rate. We have not actually converted our assets in
pounds sterling into United States dollars. If we were to convert our assets in
pounds sterling into United States dollars the conversion would be at a
different rate.
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PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To understand
our business and this offering fully, you should read this entire prospectus
carefully, including the consolidated financial statements and the related notes
beginning on page F-1. All of our operating companies are private limited
companies organized under the laws of England and Wales. Unless the context
otherwise indicates, all references in this prospectus to: (i) "LTGL" refer to
Leisure Travel Group Limited, together with its subsidiaries Miss Ellie's World
Travel Limited and Ilios Travel Limited, prior to our acquisition of all of its
outstanding share capital; (ii) "Travel Group" refer to the business operations
of Miss Ellie's World Travel Limited, Ilios Travel Limited, and Independent
Aviation Limited, a wholly-owned subsidiary of trrravel.com; (iii) "GHG" refer
to Grand Hotel Group Limited, prior to the acquisition of all of its outstanding
share capital by LTGL, (iv) "Grand Hotel Group" refer to the business operations
of Grand Hotel Group Limited; (v) "Leisure Travel Group," "we," "our" and "us"
refer to Leisure Travel Group, Inc., a Delaware corporation, together with its
direct and indirect subsidiaries and investments, after giving effect to the
above acquisitions; and (vi) "year" and "fiscal year" refer to the fiscal year
of Leisure Travel Group ending October 31st.
OUR COMPANY
OVERVIEW
We have been established to become a leading international single-source
provider of attractively priced, specialized holiday and leisure accommodations
and world-wide packaged travel services. Upon completion of this offering, we
will acquire five unique and well-known holiday resort hotels in the United
Kingdom and two retail and group travel providers and tour operators that offer
flexible, independent travel programs. In addition, we will acquire a 49%
ownership interest in trrravel.com Limited, which operates a European on-line
travel Web site offering complete vacation and travel packages direct to
consumers, and also owns and operates a tour operating airline seat provider.
Through consolidation of these and other vacation and travel-related businesses,
we believe that we are able to offer both vacationers and travel agents and tour
operators a single source of competitively priced products and services within
and across multiple holiday and leisure travel segments. We intend to expand our
business by acquiring additional vacation and leisure travel businesses,
including resort hotels, travel providers and tour operators, and utilizing a
consumer-direct, online travel Web site.
On an unaudited pro forma basis, we derived consolidated net income before
taxes of approximately (pound)1.4 million (approximately $2.3 million) from
consolidated net revenues of approximately (pound)29.1 million (approximately
$47.0 million) for the twelve months ended October 31, 1999.
THE GRAND HOTEL GROUP
We operate five holiday resort hotels situated near major seaside resorts
in England and Wales, which offer attractively priced vacation accommodations,
including food and entertainment, for weekend and lengthier stays. The hotels
were formerly owned by a subsidiary of The Rank Group plc and operated as the
Butlin's Provincial Hotels. They were purchased in June 1999 from The Rank Group
by GHG which, until completion of this offering, was controlled by Kevin R.
Leech, our Chairman of the Board and principal stockholder, and certain other
members of our management team.
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The hotels have a total of 1,274 available rooms and achieved
approximately 80% room occupancy in the two-year period ended December 31, 1998.
Approximately 112.5% and 59.6% of our pro forma consolidated net income and
consolidated net revenues, respectively, for the twelve months ended October 31,
1999 were derived from the Grand Hotel Group. The revenues and net income of the
hotels dropped significantly during the six months ended June 30, 1999 due to
the fact that the previous owners, following their decision to sell the Butlin's
Provincial Hotels, delayed the production and distribution of the main holiday
brochure, which inevitably reduced hotel bookings and room occupancy. However,
following GHG's acquisition of the hotels in June 1999, the re-branding of its
name and image and modernization of certain operating policies by our highly
experienced management team, both hotel revenues and profits improved
substantially during the four months ended October 31, 1999. In addition, we
recently secured new agreements with United Kingdom tour coach operators for the
advance purchase of beds, which we anticipate will provide approximately
(pound)2.0 million ($3.2 million) of annual revenues, increased our room and
accommodation rates by an average of 8%, and secured advance bookings at
February 14, 2000 that represent approximately 44% of our target of 651,000
sleeper nights for the remainder of our fiscal year ending October 31, 2000, or
a 78% occupancy rate.
THE TRAVEL GROUP
Our Travel Group offers competitively-priced travel-related services and
accommodations in a variety of holiday destinations in Europe, North America and
South Africa. Located in 8 offices in and around Manchester and Horsham,
England, our retail and group travel and tour operating businesses have over 15
years of experience in providing packaged tours primarily to holiday resorts
located throughout Europe direct to the public and through other tour operators,
as well as special interest tours to major European sporting events, including
horse racing tours throughout the United Kingdom and Europe, and trips for
supporters of the Manchester United Football Club. Our Travel Group also offers
a wide range of private accommodations in a variety of holiday destinations in
southern Europe, such as private country homes and villas with swimming pools in
Tuscany, Sardinia and other regions of Italy, Andalucian haciendas with
exquisite views in Spain and traditional Ottoman-style houses in Turkey. Our
Travel Group has achieved competitive pricing and access to inventory through
negotiated arrangements with major airlines, including Singapore Airlines,
British Airways, Alitalia and Iberia, and auto rental and insurance companies.
The tour operating airline seat provider owned and operated by
trrravel.com Limited, in which we intend to acquire a 49% interest, purchases
blocks of airline seats from airlines and other travel and tour operators for
resale and also acts as an agent in brokering such seats on a commission basis.
THE TRAVEL WEB SITE
The core of the distribution program for our Travel Group services is a
consumer-direct online travel site that provides travelers with immediate access
both to our proprietary booking system and to detailed hotel information and
destination guides. Visitors to our affiliated Web site at www.trrravel.com are
able to compare travel options, rates and availability, and book and purchase a
wide variety of travel services, including our independently tailored vacation
programs and group packages, seven days a week. Our Internet available vacation
and holiday packages include airfare, hotel and related accommodations, car
rental and other items. trrravel.com Limited, which owns and operates the Web
site, intends to derive its revenues from advertising, from monthly booking fees
received from tour operators and travel agents featured on the site and through
commissions received from third party reservation services and travel agents for
direct on-line bookings. We believe that by being able to directly offer travel
services to consumers via the Internet, we will realize savings in operating
expenses
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2
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that will enable us to maintain better gross margins than many travel
agencies or other travel groups that rely primarily on retail travel agencies
for distribution. trrravel.com Limited was, until completion of this offering,
wholly-owned by Ci4net.com, Inc., a Delaware publicly-traded corporation
controlled by Kevin R. Leech, our Chairman of the Board and principal
stockholder.
OUR MARKETS
Travel and tourism represents one of the largest consumer markets and one
of the fastest growing industries in the United Kingdom. The British Tourist
Authority estimates that in 1998, travel expenditures by overseas visitors in
the United Kingdom totaled more than (pound)12.7 billion (approximately $20.5
billion), and that by the year 2003, overseas visitors will spend around
(pound)18.0 billion (approximately $29.0 billion) a year in the United Kingdom,
44% more than 1998. The British Tourist Authority also estimates that in 1998,
travel expenditures by residents of the United Kingdom in the United Kingdom
totaled more than (pound)14.0 billion (approximately $22.6 billion) which, when
combined with expenditures by overseas visitors, totaled more than (pound)26.7
billion (approximately $43.0 billion) in 1998. Of the (pound)26.7 billion spent
in 1998 on travel in the United Kingdom, approximately (pound)9.3 billion
(approximately $15.0 billion) was spent on accommodations, approximately
(pound)3.5 billion (approximately $5.6 billion) was spent on travel within the
United Kingdom, and approximately (pound)1.1 billion (approximately $1.8
billion) was spent on travel-related services. The European Travel Commission
estimates that travel agencies alone generated approximately $126 billion in
total sales in 1998.
The growth of travel sales through the Internet has created another
channel for travel service providers to sell products and services to travelers.
Online sales of travel services have expanded dramatically in recent years due
to the substantial benefits of e-commerce to both travel service providers and
consumers. By moving their travel services online, travel service suppliers,
retail travel agencies and travel wholesalers can reach a global customer base
from a central location. According to Forrester Research, online travel bookings
are expected to grow to $29.5 billion in 2003 from $3.1 billion in 1998,
representing a compound annual growth rate of 57%.
OUR OPERATING STRATEGY
Our objective is to become a leading international single-source provider
of attractively priced, specialized holiday and leisure accommodations and
world-wide package travel services. To accomplish this objective, we will pursue
an operating strategy that includes the following elements:
o increasing the revenues, profitability and occupancy rate of our
holiday resort hotels by upgrading accommodations and improving
service, increasing our bus and coach tour package business,
offering higher priced weekend packages tailored to a younger
customer base, and improving our average room tariff rate;
o providing added value to consumers by offering complete world-wide
travel planning solutions at competitive prices;
o using the www.trrravel.com Web site as a world-wide marketing tool,
aggressively promoting, advertising and increasing the value and
visibility of our brand in the vacation travel service and resort
hotel industries through high quality service, active marketing and
promotional programs;
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3
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o leveraging our strength in selected travel destinations to achieve
leading positions in these and other high-volume, high-margin
vacation destinations; and
o providing services to other independent tour operators, including
airline seats and holiday villas.
OUR GROWTH STRATEGY
To complement our operating strategy, we have developed a multi-faceted
growth strategy comprised of the following elements:
o continuing to acquire underperforming hotels in Spain and other
European coastal resort areas and implementing operational
initiatives to achieve revenue growth and margin improvements;
o identifying and completing strategic acquisitions of other vacation
and leisure travel businesses, including travel service providers in
the United Kingdom and throughout Europe; and
o enhancing distribution channels by the direct selling of travel and
vacation related services to consumers online while continuing to
support and leverage our strong relationships with existing retail
travel agents.
We were incorporated under the laws of the State of Delaware in February
2000. Our principal executive offices are located at 6 Leylands Park, Nobs
Crook, Colden Common, Winchester SO21 1TH England, and our telephone number at
that address is 011-44-1703-601155.
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UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS GIVES EFFECT
TO:
o OUR ACQUISITION OF 100% OF THE OUTSTANDING SHARE CAPITAL OF LTGL;
o LTGL'S ACQUISITION OF 100% OF THE OUTSTANDING SHARE CAPITAL OF GHG,
AND 49% OF THE OUTSTANDING SHARE CAPITAL OF trrravel.com Limited.
UNLESS OTHERWISE STATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE
EFFECT TO:
o THE REPRESENTATIVE'S WARRANTS;
o THE UNDERWRITERS' OVER-ALLOTMENT OPTION OR ITS EXERCISE; AND
o UP TO _________ SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF
STOCK OPTIONS.
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The Offering
Common Stock Offered.............. 3,000,000 shares
Common Stock Outstanding
Immediately Following this 8,060,000 shares
Offering..........................
Use of Proceeds................... We intend to use the net proceeds of
this offering:
o together with approximately
(pound)4.0 million (approximately
$6.4 million) of proceeds from a
mortgage refinancing, approximately
(pound)6.4 million ($10.3 million)
to pay in full a (pound)10.4 million
($16.7 million) note of Grand Hotel
Group to a subsidiary of The Rank
Group;
o to expand our travel-related
services business, including
advertising and the development of
the www.trrravel.com Web site;
o to acquire additional resort
hotels; and
o for general corporate and
working capital purposes, including
acquisitions. See "Use of
Proceeds."
Risk Factor....................... An investment in our common stock is
highly speculative, involves a high
degree of risk, and should be made
only by investors who can afford a
complete loss of their investment.
See "Risk Factors" and "Dilution."
Proposed Nasdaq National Market Symbol "LTGI"
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5
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Summary Financial Data
(In thousands, except earnings per share)
The following tables set forth:
o Summary historical combined financial data for GHG (Predecessor) for
the years ended December 31, 1995, 1996, 1997 and 1998 and the six
months ended June 30, 1999, and as of December 31, 1997 and 1998;
o Summary historical financial data for GHG for the four months ended
October 31, 1999 and as of October 31, 1999;
o Summary pro forma consolidated financial data for the twelve months
ended October 31, 1999. This information gives effect to (i) our
acquisition of all of the outstanding share capital of LTGL, (ii)
LTGL's acquisition of all of the outstanding share capital of Miss
Ellie's World Travel Limited, Ilios Travel Limited and GHG, and
(iii) LTGL's acquisition of 49% of the outstanding share capital of
trrravel.com Limited, as if each of those events had occurred on
November 1, 1998 in the case of the pro forma statement of
operations data, and on October 31, 1999 in the case of the pro
forma balance sheet data, except with respect to Miss Ellie's World
Travel Limited, which was acquired by LTGL on July 5, 1999; and
o Summary pro forma as adjusted consolidated balance sheet data as of
October 31, 1999, which are adjusted to give effect to (i) the sale of
the 3,000,000 shares of common stock offered hereby at an assumed
initial public offering price of $11.00 per share (the mid-point of
the range), (ii) the repayment of $6.4 million of a mortgage
financing and (iii) the repayment of $16.7 million outstanding under
the note of Grand Hotel Group to a subsidiary of The Rank Group.
Leisure Travel Group, LTGL, Ilios Travel Limited and GHG have October 31st
as their accounting year end. GHG (Predecessor) had a year end of December 31st.
Miss Ellie's World Travel Limited had a year end of March 31st prior to being
acquired by LTGL.
We derived the summary historical financial data as of December 31, 1997,
and for the years ended December 31, 1995 and 1996 of GHG (Predecessor) from its
unaudited combined financial statements, which are not included in this
prospectus. These unaudited financial statements include, in our opinion, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of such data.
We derived the summary historical financial data as of December 31, 1998,
and for the years ended December 31, 1997 and 1998 and the six months ended June
30, 1999 from the audited combined financial statements of GHG (Predecessor),
and the summary financial data as of October 31, 1999, for the four months ended
October 31, 1999 from the audited financial statements of GHG, which are
included elsewhere in this prospectus. These financial statements have been
audited by Ernst & Young, our independent auditors.
We have provided the unaudited pro forma consolidated financial data for
informational purposes only. They are not necessarily indicative of future
results of what our operating results would have been had we actually
consummated the acquisition of all the outstanding share capital of LTGL, and
had LTGL actually consummated the acquisition of all the outstanding share
capital of Miss Ellie's World Travel Limited, Ilios Travel Limited and GHG and
49% of the outstanding share capital of trrravel.com on the dates assumed.
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The summary data should be read in conjunction with the information
presented in "Capitalization," "Selected Financial Data," "Unaudited Condensed
Pro Forma Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
the notes thereto included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998
-------------- ------------- ------------ ------------
(AMOUNTS IN POUNDS STERLING)
STATEMENT OF OPERATIONS:
Total revenues..................... (pound)20,884 (pound)20,766 (pound)20,622 (pound)19,584
Operating cost and expenses........ 17,096 17,739 17,690 16,848
-------------- ------------- ------------ ------------
Operating profit................... 3,788 3,027 2,932 2,736
Other income (expense), net........ - - - -
-------------- ------------- ------------ ------------
Income (loss) before income
taxes........................... 3,788 3,027 2,932 2,736
Income taxes....................... 1,558 1,303 1,237 1,122
-------------- ------------- ------------ ------------
Net income (loss)................. (pound) 2,230 (pound) 1,724 (pound) 1,695 (pound) 1,614
============== ============= ============ =============
Net income (loss) per share:
Basic and diluted.................
Shares used in computing net
income (loss) per share:
Basic and diluted.................
OTHER DATA:
Depreciation and amortization... (pound)1,115 (pound)1,211 (pound)1,284 (pound)1,174
Cash flows from operating
activities................... 3,785 2,820
Cash flows from investing
activities..................... (1,914) (223)
Cash flows from financing
activities.................... (1,871) (2,597)
SIX MONTHS FOUR MONTHS
ENDED ENDED PRO FORMA TWELVE MONTHS
JUNE 30, OCTOBER 31, ENDED
1999 1999 OCTOBER 31, 1999
------------ ------------ -----------------------------------
(Amounts in (Amounts in U.S.
Pounds Sterling) Dollars)
STATEMENT OF OPERATIONS:
Total revenues..................... (pound)7,118 (pound)6,475 (pound)29,139 $ 46,963
Operating cost and expenses........ 7,804 5,222 27,059 43,611
------------- ------------ ------------- -----------
Operating Profit................... (686) 1,253 2,080 3,352
Other income (expense), net........ - (276) (678) (1,093)
------------- ------------ ------------- -----------
Income (loss) before income
taxes........................... (686) 977 1,402 2,259
Income taxes....................... - 322 647 1,043
------------- ------------ ------------- -----------
Net income (loss)................. (pound) (686) (pound) 655 (pound)755 $ 1,216
============= ============== ============= ===========
Net income (loss) per share:
Basic and diluted................. (pound)0.15 $ 0.24
============= ===========
Shares used in computing net income
(loss) per share:
Basic and diluted................. 5,060 5,060
============= ===========
OTHER DATA:
Depreciation and amortization. (pound)574 (pound)79
Cash flows from operating
activities................... 1,170 2,740
Cash flows from investing
activities..................... (127) (20,368)
Cash flows from financing
activities.................... (1,043) 20,211
DECEMBER 31, OCTOBER 31, 1999
---------------------------------- -------------------------------------------------
PRO
FORMA,
1997 1998 ACTUAL PRO FORMA AS ADJUSTED
-------------- ------------- --------- --------- ------------
(Amounts in Pounds Sterling) (Amounts in Pounds Sterling)
BALANCE SHEET DATA:
Working capital (deficit).......... (pound)(1,153) (pound)(1,185) (pound)434 (pound)(338) (pound)10,693
Total assets....................... 17,619 16,439 26,086 30,617 41,648
Long-term debt (excluding
current maturities)............. -- -- 20,746 21,075 14,708
Total Stockholders' equity......... 15,302 14,319 655 2,216 19,614
7
RISK FACTORS
An investment in our common stock is highly speculative, involves a high
degree of risk, and should be made only by investors who can afford a complete
loss of their investment. You should carefully consider, together with the other
matters referred to in this prospectus, the following risk factors before you
decide to buy our common stock.
BECAUSE WE LACK A COMBINED OPERATING HISTORY, THERE IS LIMITED INFORMATION UPON
WHICH YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS.
A corporate affiliate of Kevin R. Leech, our principal stockholder,
acquired, through LTGL, Miss Ellie's World Travel Limited and Ilios Travel
Limited in July 1999 and January 2000, respectively. Another corporate affiliate
of Mr. Leech and certain members of our management team acquired through GHG all
of the operating assets relating to five hotels formerly known as the Butlin's
Provincial Hotels effective in June 1999. Another corporate affiliate of Mr.
Leech owns 51% of the outstanding share capital of trrravel.com Limited, which
in turn owns 100% of the outstanding share capital of Independent Aviation
Limited, a tour operating airline seat provider. On a pro forma basis for the
twelve months ended October 31, 1999, the hotels operated by the Grand Hotel
Group accounted for approximately 59.6% of our net revenues. Although the Grand
Hotel Group and the two retail and group travel and tour operating businesses
operated by LTGL have each been in operation for more than 15 years, they have
virtually no history of combined operations under common management. In
addition, the profit margins and business dynamics of travel service providers
and tour operators are materially different from those affecting the ownership
and operation of resort hotels.
The historical and pro forma consolidated financial data included in this
prospectus cover periods when the Travel Group and the Grand Hotel Group were
not under common management or control and are not necessarily indicative of the
results that would have been achieved if they had been operated on an integrated
basis or the results that may be realized on a consolidated basis in the future.
Consequently, we have a very limited operating history upon which you may base
an evaluation of us and determine our prospects for achieving our intended
business objectives. We are prone to all of the risks inherent to the
establishment of any new business venture. You should consider the likelihood of
our future success to be highly speculative in light of our limited combined
operating history, as well as the limited resources, problems, expenses, risks,
and complications frequently encountered by similarly situated companies seeking
to upgrade its businesses. To address these risks, we must, among other things:
o maintain and increase our customer base;
o implement and successfully execute our operating and growth
strategies;
o continue to make expenditures to upgrade and refurbish our hotels;
o provide superior customer service;
o continue to develop and upgrade our Web site and electronic booking
system;
o respond to competitive developments; and
o attract, retain and motivate qualified personnel.
8
We may not be successful in addressing these risks, and our failure to do
so could have a material adverse effect on our business, prospects, financial
condition, and results of operations.
OUR FUTURE OPERATING RESULTS AND REVENUES ARE UNPREDICTABLE, AND FUTURE
FLUCTUATIONS IN OPERATING RESULTS OR REVENUE SHORTFALLS COULD ADVERSELY AFFECT
THE VALUE OF YOUR INVESTMENT.
Because we have a limited combined operating history as a combined
business operation, and because of the dynamic nature of certain of the markets
in which we compete, our future revenues and earnings may be highly
unpredictable. At the same time, our current and future expense levels are based
on our operating plans and are to a large extent fixed. We are unlikely to be
able to adjust spending quickly to compensate for any revenue shortfall. As a
result, any significant revenue shortfall would have an immediate negative
effect on our results of operations and stock price.
We expect to experience significant fluctuations in our future operating
results due to a variety of factors, many of which we do not control. Factors
that may adversely affect our future operating results include, but are not
limited to:
o our inability to successfully replicate our business model in new
destination markets;
o our inability to develop strong brand recognition, build customer
loyalty and attract new and repeat customers;
o our inability to retain or expand our hotel and airfare supply
arrangements or reductions in discounts we receive on these travel
services;
o decreases in commission rates paid by travel suppliers on published
rates and fares;
o the announcement or introduction of lower prices or new travel
services and products by our competitors;
o any deterioration in general economic conditions, such as a global
recession, or economic conditions specific to the leisure or travel
industry;
o seasonal fluctuations in consumer travel spending patterns;
o unforeseen capital costs or an increasing annual rate of capital
expenditures required to maintain the facilities at our existing
hotels, which were originally built between 1776 and 1931;
o our inability to upgrade and develop our systems and infrastructure;
o our inability to retain or to attract qualified personnel in a
timely and effective manner;
o increases in operating expenses or capital expenditures relating to
expansion of our business, operations and infrastructure that are
not accompanied by increased revenue;
o difficulties in assimilating the operations and personnel of any
acquired business;
o technical difficulties, system downtime or slowdowns in Internet
response times;
o our inability to establish a sufficient level of traffic on our
affiliated Web site;
o adverse U.S. and foreign government regulation; and
9
o events affecting the travel industry such as natural disasters, wars
or terrorist attacks.
For any of the foregoing reasons, or for other reasons we do not presently
anticipate, in a future quarter or other fiscal period it is likely that our
operating results will not meet market expectations, including the expectations
of financial analysts. If this occurs, it would have a material and adverse
effect on our stock price.
OUR RESORT HOTELS HAVE HAD DECLINING REVENUES AND PROFITS IN THE PAST.
During the three year period ended December 31, 1998, the net revenues and
net income of the five Butlin's Provincial Hotels owned and operated by The Rank
Group declined slightly. For the six month period ended June 30, 1999, net
revenues were only (pound)7.1 million and the hotels incurred a net loss of
(pound)0.7 million. We believe that the principal reason for these adverse
results was that, following the previous owners' decision to sell the hotels,
they did not expend resources on capital improvements and reduced the marketing
expenditure of the hotels, which resulted in significantly lower bookings at the
beginning of 1999. There can be no assurance that the improved revenues and
operating results realized subsequent to GHG's acquisition of the five hotels in
June 1999 will continue in the future.
Following completion of this offering, we intend to improve revenues and
profitability of the Grand Hotel Group by upgrading our rooms and recreational
facilities, deriving added revenues from volume room sales to coach operators
throughout the United Kingdom and marketing our hotels to a wider audience,
including the younger, more affluent United Kingdom market segment. There can be
no assurance that our marketing efforts will provide an adequate return on
investment or that the hotels will ever achieve or exceed historical
profitability.
OUR GRAND HOTELS MUST SERVICE A SIGNIFICANT AMOUNT OF DEBT AND CAPITAL
EXPENDITURES.
Upon completion of this offering, the Grand Hotel Group will have incurred
approximately (pound)14.0 million (approximately $22.6 million) of mortgage
indebtedness. Such indebtedness is currently amortized over a five year period
and requires annual debt service payments of principal and interest of
approximately (pound)3.5 million ($5.6 million). Following completion of this
offering, we intend to reduce our annual debt service obligations by seeking to
obtain long-term mortgage financing of between 10 and 15 years. However, there
is no assurance that such long-term financing will be available on financially
attractive terms, if at all, or that the cash flow from operations of the hotels
will be adequate to meet our annual debt service obligations.
In addition, we have budgeted approximately (pound)1.6 million ($2.6
million) in capital expenditures to refurbish and construct improvements to our
five existing holiday resort hotels. There is no assurance that cost overruns or
other unforeseen factors may not significantly increase our budgeted capital
expenditures.
OUR PRINCIPAL STOCKHOLDER WILL DERIVE SIGNIFICANT BENEFITS FROM THIS OFFERING.
We intend to apply approximately (pound)6.4 million (approximately $10.3
million), or approximately 37% of the net proceeds of this offering, together
with additional mortgage indebtedness, to retire a (pound)10.4 million note owed
by GHG to a subsidiary of The Rank Group. This note was secured by a bank letter
of credit which, in turn, was obtained through the personal guaranty of our
Chairman of the Board and principal stockholder, Kevin R. Leech. Upon payment of
the note, Mr. Leech will be relieved of his personal guaranty and certain
marketable securities pledged by him to secure his guaranty will be returned to
him. See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview," "Certain Transactions" and
"Principal Stockholders."
10
THERE IS THE POSSIBILITY OF CONFLICTS OF INTEREST WITH OTHER BUSINESSES
CONTROLLED BY OUR PRINCIPAL SHAREHOLDER.
We anticipate that our Travel Group will be engaging in significant
advertising of its travel agency, tour operator and airline seat provision
services on www.trrravel.com and will pay fees and commissions based on on-line
bookings made and transactions closed through use of the Web site. trrravel.com
Limited is currently wholly-owned by Ci4net.com, Inc., a publicly-traded
corporation controlled by Kevin R. Leech, our principal stockholder and Chairman
of the Board. Ci4net.com has agreed upon completion of this offering to
contribute 49% of its equity ownership of trrravel.com Limited to us and will
continue to be solely responsible for the development and maintenance of the
Web site. Although we believe that the fees and commissions we pay to advertise
on www.trrravel.com will be at rates no less favorable than is being charged to
unaffiliated third parties, Mr. Leech's other corporate affiliates will directly
benefit as we increase our advertising on www.trrravel.com. The common control
of our company and the majority owner of trrravel.com Limited could lead to
conflicts of interest in terms of the most effective means of marketing and
advertising our services. In addition, as more people use the Internet to book
their travel accommodations, the business of our travel agencies and tour
operators could be adversely affected.
In addition, Mr. Leech is the principal stockholder of Queensborough
Holdings plc, a publicly traded corporation trading on the London Stock
Exchange. Among Queensborough's holdings is the Burstin Hotel, located in
Folkestone, England, which is a holiday resort hotel similar to those operated
by our Grand Hotel Group, and which competes with our Grand Hotel Group for
guests in the same market. Philip Mason, a director of our company, and Stephen
Last, our Executive Vice President and Chief Financial Officer, are also
executive officers of Queensborough Holdings plc. See "Certain Transactions" and
"Principal Stockholders."
MANY OF OUR ADVANCED BOOKING ARRANGEMENTS ARE SUBJECT TO REDUCTION OR
CANCELLATION.
In connection with the operation of both GHG and our Travel Group certain
advance bookings arrangements with individual customers or other tour operators
are subject to reduction or cancellation. For example, our agreements with bus
tour operators for the purchase of beds at our hotels may be modified or even
cancelled by the operators if anticipated customer bookings or travel demand is
reduced. Similarly, arrangements with tour operators for the brokering or resale
of airline seats are subject to modification or cancellation within a certain
number of days prior to the scheduled trip. In both instances, we seek to hedge
against our cancellation risks by over-booking a limited number of beds or
airline seats and imposing penalties on late cancellations. Although, to date,
traditional levels of cancellations of our advanced bookings have not resulted
in any significant losses of anticipated revenues, there can be no assurance
that factors beyond our control such as unusually adverse weather conditions
during traditional holiday seasons or a general economic downturn would not
result in substantially higher levels of cancellations. If this were to occur it
would materially and adversely affect our business.
IF WE ARE UNABLE TO SUCCESSFULLY REPLICATE OUR BUSINESS MODEL IN NEW MARKETS,
OUR FUTURE GROWTH AND OPERATING RESULTS WOULD BE ADVERSELY AFFECTED.
We have developed a business model designed to provide attractively priced
holiday resort accommodations and travel services to customers primarily located
throughout the United Kingdom. Our growth strategy depends in part upon
substantially replicating this model in new markets across Europe. We cannot be
sure that this business model will be successful in other markets. For example,
as our travel services business expands its network of hotels into new markets,
we may generally receive smaller room blocks and discounts than we receive in
those hotels where we have longstanding relationships. These less favorable
terms are likely to adversely affect gross margins. We believe that,
11
unless we prove our ability to successfully distribute hotel rooms in these new
markets, hotel operators will not offer us their most favorable room blocks and
discounts. We cannot assure you that we can reproduce relationships with
strategic hotel partners in the new markets we are entering or that such new
hotel partners will provide us with room blocks and discounts comparable to what
we currently receive. In either case, operating results would be adversely
affected.
WE FACE CONSIDERABLE COMPETITION IN THE TRAVEL SERVICES AND HOTEL MARKETS AND
MAY BE UNABLE TO GAIN A COMPETITIVE POSITION IN THOSE MARKETS.
The travel services market is highly competitive and has relatively low
barriers to entry. We compete primarily with other vacation providers, online
travel reservation services, travel agencies and other distributors of travel
products and services. Many of our current and potential competitors, especially
Air Tours plc, Thomsons plc and First Choice plc, have competitive advantages
due to various factors, which include, among others:
o greater brand recognition;
o longer operating histories;
o larger customer bases;
o significantly greater financial, marketing and other resources; and
o ability to secure products and services from travel suppliers with
greater discounts and on more favorable terms than we can.
Competition within the travel services market is increasing as certain of
our competitors are expanding their size and financial resources through
consolidation. In addition, our travel suppliers may decide to compete more
directly with us and restrict the availability of travel products or services or
our ability to offer such products or services at preferential prices. For
instance, travelers can now use the Internet to purchase travel products and
services directly from suppliers, thereby bypassing both vacation providers such
as us and retail travel agents. Furthermore, some travel providers have a strong
presence in particular geographic areas, which may make it difficult for us to
attract customers in those areas. Increased competition could reduce our
operating margins and profitability, result in a loss of market share and
diminish our brand recognition, which would materially and adversely affect our
business, results of operations and financial condition.
We also expect to face significant competition from other entities engaged
in the business of owning and operating resort hotels and motels. Many of the
world's most recognized lodging, hospitality and entertainment companies possess
significantly greater financial, marketing, personnel and other resources than
we have and may be able to grow at a more rapid rate or more profitably as a
result. Please see "Business--Our Competition" for a discussion of our
competition.
If any of our travel suppliers cease offering their services to us on
negotiated terms or at all, or if they change our pricing and commission
arrangements, our operating results could be materially adversely affected.
Our travel agencies are dependent upon travel suppliers for access to many
of their products and services. Certain travel suppliers, such as Airtours and
Thomsons, offer us:
o pricing that is preferential to published rates, enabling us to
offer complete vacations at prices lower than generally would be
available to individual travelers and retail travel agents;
12
o preferential access to inventory of their travel products and
services, enabling us to assemble more desirable vacations for
travelers; or
o in the case of certain travel suppliers, both preferential pricing
and preferential access to inventory.
Our travel suppliers generally can modify their agreements with us upon
relatively short notice. In addition, any decline in the quality of travel
products and services provided by these suppliers, or a perception by travelers
of such a decline, could adversely affect our reputation. The loss of contracts,
changes in our pricing agreements, commission schedules or incentive override
commission arrangements, more restricted access to travel suppliers' products
and services or less favorable public opinion of certain travel suppliers and
resulting low demand for the products and services of such travel suppliers
could have a material adverse effect on our business, financial condition and
results of operations.
WE HAVE HISTORICALLY CONCENTRATED ON SERVICING CERTAIN MARKETS IN THE UNITED
KINGDOM AND PROVIDING VACATIONS TO CERTAIN DESTINATIONS THROUGHOUT EUROPE. OUR
BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY A DOWNTURN IN THE EUROPEAN
TRAVEL SERVICES MARKET.
On a pro forma basis for the twelve months ended October 31, 1999, we
derived approximately 80% of our net revenues from products and services
associated with leisure travel from the United Kingdom, primarily to certain
destinations in Europe. In addition, most of our current employees are located
in the United Kingdom to serve that market exclusively. We expect that travel to
and from the United Kingdom will continue to account for a substantial portion
of our travel services revenue for the foreseeable future. Adverse events or
conditions which affect travel to the United Kingdom and certain other
destinations throughout Europe, such as changes in regional travel patterns,
extreme weather conditions, natural disasters or wars, could have a material
adverse effect on our business, financial condition and results of operations.
MANAGING POTENTIAL GROWTH MAY BE DIFFICULT, TIME CONSUMING AND EXPENSIVE. THE
FAILURE TO PROPERLY MANAGE GROWTH MAY NEGATIVELY AFFECT THE VALUE OF YOUR
INVESTMENT.
We intend to grow our business by utilization of the www.trrravel.com
Web site, making strategic acquisitions of hotel properties and significantly
expanding our travel services and the number of destination markets we serve.
These developments are expected to place a significant strain on our managerial,
operational and financial resources. Our inability to manage our growth
effectively could disrupt operations and have an adverse effect on our revenue.
In addition, being a public company will place new strains on our senior
management, some of whom do not have experience in operating a public company.
We anticipate that further significant growth and development of our business
will be required to expand our customer base and take advantage of market
opportunities. We expect to hire additional key personnel and support staff in
the future. To manage the expected growth of our operations and personnel, we
will be required to:
o improve existing and implement new transaction-processing,
operational, customer service and financial systems, procedures and
controls; and
o expand, train and manage our growing employee base.
We also will be required to expand our finance, administrative and
operations staff, including personnel experienced in site selection and hotel
acquisition. Further, we will be required to maintain and expand our
relationships with various travel service suppliers, other Web sites and other
Web service
13
providers, Internet service providers and other third parties necessary to our
business. We cannot be sure that:
o our current and planned personnel, systems, procedures and controls
will be adequate to support our future operations;
o our management will be able to hire, train, retain, motivate and
manage required personnel; or
o our management will be able to successfully identify, manage and
exploit existing and potential market opportunities.
Our productivity and operating results will be negatively affected if we
are unable to manage growth effectively. Please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business--Our
Growth Strategy," "--Our Employees" and "Management" for a discussion of factors
that may affect our ability to manage potential growth.
WE ARE SUSCEPTIBLE TO A WIDE VARIETY OF RISKS RELATING TO THE ACQUISITION OF
ADDITIONAL TRAVEL SERVICE PROVIDERS AND RESORT HOTELS.
We believe that there are opportunities for consolidation in the travel
services market. One element of our growth strategy is to broaden the scope and
content of our travel services business through the acquisition of existing
complementary businesses. While our management team has experience in completing
or integrating acquisitions, we may not be successful in overcoming problems
encountered in connection with such acquisitions. Even if we are successful,
such acquisitions may be time consuming and costly, which may affect our
operating results. Acquisitions would also expose us to various other risks,
such as those associated with:
o the assimilation of new operations, sites and personnel;
o the diversion of resources from our existing operations, sites and
technologies;
o the inability to generate revenue from acquisitions sufficient to
offset associated acquisition costs;
o the inability to maintain uniform standards, controls, procedures
and policies; and
o the impairment of relationships with employees, suppliers and
customers as a result of integration of new businesses.
Acquisitions may also result in additional expenses associated with
one-time charges or amortization of acquired intangible assets. Furthermore,
although we will conduct due diligence and generally require representations,
warranties and indemnifications from the former owners of acquired travel
services companies, we cannot be sure that such owners will accurately represent
the results of operations, financial condition and business of their companies
or will have the means to satisfy their indemnification obligations. If
misrepresentations are made, the acquisition could have a material adverse
effect on our business, financial condition and results of operations. We do not
have current commitments with respect to any particular acquisition in the
travel services industry, but management regularly evaluates acquisition
opportunities.
In addition, our ability to execute our growth strategy depends to a
significant degree on the existence of attractive resort hotel acquisition
opportunities, our ability both to consummate acquisitions on favorable terms
and to obtain financing for such acquisitions on favorable terms. Our
acquisition
14
efforts will be focused initially in the United Kingdom and in Spain, but we may
extend our efforts to certain other key locations throughout Europe. There can
be no assurance that we will consummate the acquisition of any additional resort
hotels. Risks associated with our acquisition activities may include the fact
that:
o acquisition opportunities may be abandoned;
o acquisition costs of a resort may exceed original estimates,
possibly making the resort uneconomical or unprofitable;
o financing may not be available at all or on favorable terms for
acquisitions of holiday resort hotels; and
o acquisitions may not be completed on schedule, resulting in
decreased revenues and increased interest expense.
Moreover, there are numerous potential buyers of resort real estate which are
better capitalized than we are competing to acquire resort properties which we
may consider attractive resort acquisition opportunities. There can be no
assurance that we will be able to compete against such other buyers
successfully. Please see "Business--Our Growth Strategy" for more information
about our acquisition strategy.
WE EXPECT INCREASED OPERATING EXPENSES IN CONNECTION WITH NEW AND EXPANDED
TRAVEL SERVICES. IF THESE SERVICES ARE UNSUCCESSFUL OR REVENUE INCREASES ARE
SIGNIFICANTLY BELOW EXPENSES, THE VALUE OF YOUR INVESTMENT COULD BE NEGATIVELY
AFFECTED.
We currently intend to:
o develop and offer new and expanded travel services;
o further develop our technology and transaction-processing systems;
and
o begin offering travel services to additional destinations throughout
Europe and to certain destinations in North America.
To the extent the expenses we incur to fund these activities are not followed by
increased revenue, we may be unable to maintain profitability. In addition, we
may incur expenses when we enter new markets or offer new services that
significantly exceed the amount we anticipate. If so, our management, financial
and operational resources may be severely strained. Our inability to generate
revenue from such expanded services or products sufficient to offset our
expenses could be damaging to our business. Please see "Business--Our Products
and Services" for details about our planned new and expanded services.
15
DECLINES IN CONSUMER VACATION AND TRAVEL SPENDING COULD HARM OUR OPERATING
RESULTS.
The majority of our revenue is derived from consumer spending for vacation
and travel. The travel industry, especially leisure travel, depends on personal
discretionary spending levels and suffers during economic downturns and
recessions. The travel industry is also highly susceptible to unforeseen events,
such as political instability, regional hostilities, terrorism, a rise in fuel
prices or other travel costs, excessive inflation, currency fluctuations,
travel-related accidents, natural disasters, unusual weather patterns or travel
industry related labor strikes. In addition, any adverse changes affecting the
resort hotel industry such as a reduction in demand and increases in
construction or maintenance costs or value-added (sales) taxes, could have a
material adverse effect on our operating results.
WE EXPERIENCE SEASONALITY THAT COULD CAUSE FLUCTUATIONS AND ADVERSELY AFFECT OUR
BUSINESS AND STOCK PRICE.
Seasonality in the vacation resort and travel industry is likely to cause
fluctuations in our operating results which may adversely affect our stock
price. In both our Grand Hotel Group and Travel Group, revenues typically
increase during the spring and summer months and are lower during the fall and
winter months. In addition, our seasonal business has been adversely affected in
the past and could be affected in the future by climactic conditions, such as a
wet or rainy summer season which frequently occurs in the United Kingdom. As our
business continues to expand beyond the United Kingdom, seasonal fluctuations
will affect us in different ways. If seasonality in our business causes
quarterly fluctuations in our revenues and operating profits which are unusually
severe or unexpected, there could be a material adverse effect on our business
and stock price.
In addition, our earnings may be impacted by the timing of the completion
of the acquisition of future resort hotels and the potential impact of weather
or other natural disasters at our resort locations. The combination of the
possible delay in generating revenue after the acquisition of additional resort
hotels, and the expenses associated with start-up unit or room-rental
operations, interest expense, amortization and depreciation expenses from such
acquisitions may materially adversely impact our earnings. Please See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Quarterly Financial Information" for a discussion of
how seasonality is likely to affect our operating results.
WE MAY NEED MORE MONEY, WHICH MAY NOT BE AVAILABLE TO US ON FAVORABLE TERMS OR
AT ALL.
We require substantial working capital to fund our business. We currently
anticipate that the net proceeds of this offering, together with our existing
funds and ability to borrow, will be sufficient to meet our capital requirements
for at least the next 12 months. However, we may need to raise additional funds
in order to support more rapid expansion, develop new or enhanced services,
respond to competitive pressures, acquire complementary businesses or
technologies or take advantage of unanticipated opportunities. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced, our stockholders may experience
additional dilution in net book value per share or such securities may have
rights, preferences or privileges senior to those of the holders of our common
stock. There can be no assurance that additional financing will be available
when needed on terms favorable to us or at all. If adequate funds are not
available on acceptable terms, we may be unable to develop or enhance our
services and products, take advantage of future opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, financial condition and operating results. Please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for more detailed information
regarding our possible future capital requirements.
16
THE LOSS OF OUR SENIOR MANAGEMENT OR OTHER KEY PERSONNEL OR OUR FAILURE TO
ATTRACT ADDITIONAL PERSONNEL COULD NEGATIVELY AFFECT OUR BUSINESS AND DECREASE
THE VALUE OF YOUR INVESTMENT.
Our performance is substantially dependent on the continued services and
performance of our senior management and other key personnel. The loss of the
services of any of our executive officers or other key employees would adversely
affect our ability to manage our business and would likely have a detrimental
effect on our operating results. In particular, we are dependent upon the
services of Kevin R. Leech, our Chairman of the Board, Raymond J. Peel, our
President and Chief Executive Officer, Rod Rodgers, our Senior Executive Vice
President and President of our Grand Hotel Group, David Marriott, our Marketing
Director and Vice President of our Grand Hotel Group, and Stephen Last, our
Executive Vice President and Chief Financial Officer. Prior to this offering,
corporations owned or controlled by Mr. Leech own 76.6% of our outstanding
common stock, none of which is subject to vesting. Other than a (pound)8.5
million key man life insurance policy on the life of Mr. Leech, assigned to Arab
Bank and Irish Nationwide Building Society as collateral for loans extended to
GHG, we do not intend to maintain "key person" life insurance policies on any of
our key personnel.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate other highly skilled technical, managerial,
marketing, administrative, and customer service personnel. Competition for such
personnel is intense, and we are not sure that we will be able to successfully
attract, assimilate or retain sufficiently qualified personnel. In particular,
we may encounter difficulties in attracting and retaining a sufficient number of
qualified software developers for our online services and transaction-processing
systems. Failure to retain and attract necessary technical, managerial,
marketing, administrative, and customer service personnel would have a negative
effect on our operating results and stock price. Please see "Business--Our
Employees" and "Management" for more detailed information about our management
team.
OUR GRAND HOTEL GROUP IS SUBJECT TO CERTAIN LICENSING LAWS.
Our Grand Hotel Group is subject to certain licensing laws in England and
Wales related to the selling of alcohol and operation of bars and cocktail
lounges in hotels, as well as various fire, health and safety regulations. A
serious violation could result in a significant fine or even the forced closing
of one or more of our hotels. Please see "Busines--Government Regulation of
our Business" for a more detailed discussion of certain laws that affect our
business.
OUR TRAVEL GROUP IS REQUIRED TO MAINTAIN RENEWABLE LICENSES WITH THE UNITED
KINGDOM CIVIL AVIATION AUTHORITY AND COMPLY WITH NUMEROUS CAA REGULATIONS.
Our travel services business, which makes or arranges advance bookings of
accomodation and airline seats for its customers, must be licensed by the CAA
and is subject to CAA regulations, including the requirement that it maintain an
indemnity bond securing payment for airline seats. The face amount of such bond
ranges from between 5% to 10% of the annual revenues of each of Miss Ellie's,
Ilios and International Aviation Group, the three companies comprising our
Travel Group. In addition, the CAA licenses held by each of such companies are
subject to annual review and renewal and may be revoked, suspended or not
renewed by the CAA for violation of CAA regulations, including the requirement
that each licensed operator report significant increases in annual revenues so
that bonding requirements may be appropriately adjusted. Although none of the
businesses comprising our Travel Group has had its CAA license revoked,
suspended or not renewed, should any of these events occur, such business would
not be able to operate and our revenues and profits would be materially and
adversely affected. Please see "Busines--Government Regulation of our Business"
for a more detailed discussion of certain laws that affect our business.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY EVOLVING GOVERNMENT REGULATIONS, AND
WE COULD BE SUBJECT TO FINES OR OTHER PENALTIES FOR FAILURE TO COMPLY WITH SUCH
REGULATIONS.
Our travel services business is subject to certain regulation by the
government of the United Kingdom, including the Package Travel, Package Holidays
and Package Tours Regulations 1992. In addition, many travel suppliers,
particularly airlines, are subject to extensive regulation by United States
17
federal, state and foreign governments. In addition, the travel industry is
subject to certain special taxes by United States and foreign governments,
including hotel bed taxes, car rental taxes, airline excise taxes and airport
taxes and fees. New or different regulatory schemes or changes in tax policy
could have an adverse impact on the travel industry in general and could have a
material adverse effect on our business, financial condition and results of
operations.
Both the United States and the European Union have recently passed
legislation relating to the Internet. Because these laws are still being
implemented, we are not certain how our business will be impacted by them. We
may be indirectly affected by this new legislation to the extent it impacts our
clients and potential clients. In addition, U.S. and foreign governmental bodies
are considering, and may consider in the future, other legislative proposals
that would regulate the Internet. The adoption of any additional laws or
regulations may impose additional burdens on us or decrease the growth of the
Internet, which could, in turn, decrease the demand for our products and
services and increase our cost of doing business, or otherwise have a negative
effect on our business, operating results and financial condition. Please see
"Busines--Government Regulation of our Business" for a more detailed discussion
of certain laws that affect our business.
WE MAY BE SUBJECT TO VARIOUS ENVIRONMENTAL LAWS AND REGULATIONS THAT IMPOSE
CERTAIN REQUIREMENTS RELATING TO THE OWNERSHIP AND USE OF OUR RESORT HOTELS, AND
WE COULD BE SUBJECT TO FINES OR OTHER PENALTIES FOR FAILURE TO COMPLY WITH SUCH
REGULATIONS.
A variety of laws concerning the protection of the environment and health
and safety apply to the operations, properties and other assets we currently own
and may own in the future. These laws may originate at the European Union,
United Kingdom or local level. These environmental laws govern, among other
things, the discharge of substances into waterways and the quality of water
discharges of substances into sewers, waste and the contamination of land.
Liability can attach to a person who causes or knowingly permits the discharge
of substances to waterways or sewers without a permit authorizing such
discharges or beyond the scope of the applicable permit. The legal regime with
respect to contamination of land in the United Kingdom is expected to change in
April 2000. In general, liability and responsibility for contamination will
remain with the person responsible for the contamination, however, the new
regime formalizes this to be the person who "causes or knowingly permits"
contamination, and in the absence of such a person, the powner or occupier of
the site may be held responsible for remediation. In addition to civil claims,
criminal sanctions can be imposed for violations of environmental laws and any
persons violating these laws can be held responsible for the cost of remedying
the consequences of pollution, contamination or damage. In addition, certain
laws restrict the use of property and the construction of buildings and other
structures. Carrying out development without the appropriate consent or beyond
the scope of the consent can result in regulatory authorities taking action to
require the unauthorized use to cease or unauthorized building or structure to
be removed or modified. Criminal sanctions are available if the authority's
requirements are not satisfied. Any failure to comply with applicable
environmental laws or regulations could have a material adverse effect on our
business. Please see "Business--Environmental Matters" for a discussion of the
environmental laws and regulations that may be applicable to us.
OUR RESORTS MAY BE SUBJECT TO NATURAL AND OTHER DISASTERS FOR WHICH WE MAY NOT
BE ADEQUATELY INSURED.
Our resorts may be subject to natural and other disasters and may be
damaged as a result of such disasters. Although we have insurance customarily
carried for similar properties which we believe is adequate, there are certain
types of losses (such as losses arising from acts of war) that are not generally
insured because they are either uninsurable or not economically insurable and
for which we do not have insurance coverage. Should an uninsured loss or a loss
in excess of insured limits occur, we could lose our capital invested in a
resort, as well as the anticipated future revenues from such resort and would
continue to be obligated on any mortgage indebtedness or other obligations
related to the property. Any such loss could have a material adverse effect on
our business. Please see "Business-- Insurance" for a discussion of our
insurance policies.
18
TRRRAVEL.COM WILL DEPEND ON INTERNALLY DEVELOPED TECHNOLOGY SYSTEMS AND INTERNET
CAPACITY TO HANDLE ALL TRAFFIC TO ITS WEB SITE, AND COULD BE SUBJECT TO INTERNET
CAPACITY CONSTRAINTS. IF ITS SYSTEMS FAIL OR DO NOT PERFORM OPTIMALLY, ITS
OPERATIONS AND REVENUE AND OUR INVESTMENT IN TRRRAVEL.COM MAY BE NEGATIVELY
AFFECTED.
The revenues which will be derived from the www.trrravel.com Web site
depends on the number of customers who use the Web site to book their travel
reservations. Accordingly, the satisfactory performance, reliability and
availability of the Web site, transaction-processing systems and network
infrastructure are critical to its operating results, as well as its ability to
attract and retain customers and maintain adequate customer service levels. Any
system interruptions that result in the loss of data, the unavailability of the
Web site or reduced performance of the reservation system would reduce the
volume of reservations and the attractiveness of its service offerings, which
could have a negative effect on the operating results of www.trrravel.com and
adversely impact our investment in such company.
trrravel.com Limited intends to use an internally developed system that
will support the Web site and substantially all aspects of transaction
processing, including making reservations and confirmations. www.trrravel.com
may experience periodic system interruptions and delays that continue to occur
from time to time. Any substantial increase in the volume of traffic on the Web
site or the number of reservations made by customers will require trrravel.com
Limited to expand and upgrade its technology, transaction-processing systems and
network infrastructure. trrravel.com Limited may experience temporary capacity
constraints due to sharply increased traffic during "fare wars" or other
promotions. Capacity constraints such as these may cause unanticipated system
disruptions, slower response times, degradation in levels of customer service,
impaired quality and speed of reservations and confirmations and delays in
reporting accurate financial information.
We cannot be sure that the transaction-processing systems and network
infrastructure of trrravel.com Limited will be able to accommodate the level of
Web site traffic that it experiences, or that it will, in general, be able to
accurately project the rate or timing of increases in such traffic or upgrade
its systems and infrastructure to accommodate future traffic levels on the Web
site. In addition, electronic commerce is characterized by rapid technological
change, changes in user and customer requirements and preferences and changes in
industry standards and practices. The existing technology and systems of
trrravel.com Limited could quickly become obsolete because of the rapidly
changing technologies of electronic commerce. There can be no assurance that
trrravel.com Limited we will be able to effectively upgrade and expand its
transaction-processing systems in a timely manner or to successfully integrate
any newly developed or purchased modules with our existing systems. Upgrading or
expanding such systems would likely be expensive and time-consuming.
The www.trrravel.com Web site is technically maintained in Yate Bristol,
England by Planet Edge Limited, a subsidiary of our affiliate Ci4net.com, Inc.
The www.trrravel.com call center is located at a single facility in Haywards
Heath, England. These systems and operations are vulnerable to damage or
interruption from human error, fire, flood, power loss, telecommunications
failure, break-ins, sabotage, intentional acts of vandalism, natural disasters
and similar events. trrravel.com Limited currently does not have redundant
systems or a disaster recovery plan and does not carry sufficient business
interruption insurance to compensate it for losses that may occur. Despite
implementation of network security measures, their servers are vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of data or the inability to
accept and confirm customer reservations. Any adverse development in the
trrravel.com Limited technology could materially and adversely affect our 49%
ownership interest in trrravel.com Limited.
19
IF PROVIDERS OF THE THIRD-PARTY SYSTEMS ON WHICH TRRRAVEL.COM LIMITED RELIES
DECIDE TO NO LONGER OFFER OR MAINTAIN SERVICES, WE COULD BE DIRECTLY AFFECTED
AND THE VALUE OF OUR INVESTMENT IN trrravel.com LIMITED MIGHT DECREASE.
trrravel.com Limited depends on third-party service providers for a
substantial portion of its communications, technology and operating
infrastructure. Any discontinuation of third-party provider services, or any
reduction in performance that requires it to replace these services, could be
disruptive to its business. These third-party providers may experience
interruptions or failures in their systems or services that could temporarily
prevent our customers from accessing or purchasing certain travel services
through the Web site. Any reduction in performance, disruption in Internet or
Web site access or discontinuation of services provided by these Internet
service providers could have a negative effect on our business, operating
results and financial condition.
THE OPERATIONS OF TRRRAVEL.COM LIMITED AND CUSTOMER DATABASES ARE SUSCEPTIBLE TO
SECURITY RISKS, WHICH MIGHT ADVERSELY AFFECT OUR OPERATING RESULTS.
A fundamental requirement for electronic commerce is the secure
transmission of confidential information over public networks. Security measures
may not prevent security breaches. If security measures adopted by trrravel.com
Limited were ever compromised, it could have a detrimental effect on its
reputation, operating results and the value of our investment in such company.
trrravel.com Limited will rely on encryption and authentication technology
licensed from third parties to ensure secure transmission of confidential
information, such as customer credit card numbers. In addition, it plans to
maintain an extensive confidential database of customer profiles and transaction
information. Advances in computer capabilities, new discoveries in the field of
cryptography, or other events or developments may result in a compromise or
breach of the algorithms it intends to use to protect customer transaction data
and personal information contained in its customer database. A person who
circumvents these security measures could steal or misuse proprietary
information or cause interruptions in trrravel.com's operations. Publicized
security problems could increase concerns over the security of online
transactions and the privacy of users, which may also inhibit the Web site's
growth, especially as a means of conducting commercial transactions. To the
extent that trrravel.com or its third-party contractors' activities involve the
storage and transmission of proprietary information, such as credit card numbers
or other personal information, security breaches could expose us to a risk of
loss or litigation and possible liability. Failure to prevent security breaches
will have a negative, effect on our reputation, business and operating results.
TRRRAVEL.COM MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY, INCLUDING ITS
TRADEMARKS, WHICH COULD ADVERSELY AFFECT THE VALUE OF OUR INVESTMENT.
We regard the trademark, domain names, service marks, trade dress, trade
secrets, copyrights and similar intellectual property as important to the
success of www.trrravel.com, and rely on foreign and domestic trademark and
copyright law, trade secret protection and confidentiality to protect our
proprietary rights. trrravel.com Limited is pursuing the registration of our key
trademarks in the United States and internationally. Effective trademark,
service mark, copyright and trade secret protection may not available in every
country in which our products and services are made available online. Failure to
effectively protect our intellectual property could adversely affect our
Internet business, result in erosion of the trrravel.com brand name and
adversely impact the value of our minority investment in trrravel.com.
Currently, trrravel.com is the only trademark held by trrravel.com
Limited. As a result of our efforts to protect our rights in the trrravel.com
brand, we could become involved in litigation, which would likely be expensive
and
20
time consuming, and could distract management from the operations of the
business. Furthermore, we cannot be sure we would prevail in any such
litigation. If we are unsuccessful in obtaining a trademark for trrravel.com, we
would be required to invest substantial additional amounts in advertising and
brand development with respect to a new trademark. These additional expenditures
would adversely affect our operating results. Please see "Risk Factors--If our
strategy to increase market awareness of our brand through extensive online
advertising fails, we may be unable to substantially grow our business" for a
discussion of the risks and uncertainties inherent in establishing brand
recognition.
We cannot be sure that the steps we have taken to protect our proprietary
rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade dress and similar proprietary
rights. In the future, litigation may be necessary to enforce our intellectual
property and contractual rights, or determine the validity and scope of the
proprietary rights of others. Such litigation, regardless of the outcome, could
result in substantial costs and diversion of management and technical resources,
either of which could materially harm our business. In addition, other parties
might assert infringement claims against us. We may be subject to legal
proceedings and claims from time to time in the ordinary course of our business,
including claims that we or our licensees have infringed the trademarks and
other intellectual property rights of third parties. If we do not prevail, we
could be required to stop using our trademarks or domain names or to pay
damages. Such claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
WE MAY NOT ACQUIRE OR MAINTAIN OUR DOMAIN NAME IN ALL OF THE COUNTRIES IN WHICH
WE DO BUSINESS, AND WE MAY BE REQUIRED TO EXPEND SIGNIFICANT FUNDS TO PREVENT
INFRINGEMENT OF OUR DOMAIN NAME, WHICH COULD INHIBIT OUR ABILITY TO EXPAND OUR
BUSINESS INTERNATIONALLY.
Affiliates of trrravel.com Limited currently hold the Internet domain
names www.trrrravel.com, www.trrravel.com and www.trravel.com. There is
currently an existing domain name www.travel.com owned by an unrelated third
party, and other third parties may acquire domain names that are similar to,
infringe or otherwise decrease the value of our domain names, trademarks and
other proprietary rights, which may hurt our business. trrravel.com Limited may
be required to expend significant funds in the legal defense of our domain
names. Domain names generally are regulated by Internet regulatory bodies. The
regulation of domain names is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. The relationship
between regulations governing domain names and laws protecting trademarks and
similar proprietary rights is unclear. As a result, we may not acquire or
maintain the www.trrrravel.com, www.trrravel.com and www.trravel.com domain
names in all of the countries in which we intend to conduct business in the
future.
WE COULD FACE LITIGATION BECAUSE OF OUR WEB PAGE CONTENT, WHICH MIGHT REQUIRE
CONSIDERABLE EFFORT AND EXPENSE TO DEFEND AND RESULT IN SIGNIFICANT LIABILITY.
As a publisher and distributor of online content, trrravel.com Limited
faces potential liability for defamation, negligence, copyright, patent or
trademark infringement and other claims based on the nature and content of the
materials that we publish or distribute. Such claims have been brought, and
sometimes successfully pressed, against other online services. In addition, we
do not and cannot practically screen all of the content generated by other Web
sites that may be linked to our Web site, and we could be exposed to liability
with respect to such content. Although we carry general liability insurance, our
insurance may not cover claims of these types or may not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability,
particularly liability that is not covered by insurance or is in excess of
insurance coverage, could have a damaging effect on our reputation, operating
results, financial condition and stock price. Please see "Business--Our Products
and Services" for more detailed information concerning our Web page content.
21
THE CONVERSION TO THE EURO MAY ADVERSELY AFFECT OUR BUSINESS IN EUROPE.
Due to our operations in the United Kingdom, we may be exposed to certain
risks as a result of the conversion by certain European Union member states of
their respective currencies to the euro. The conversion process commenced on
January 1, 1999. The conversion rates between the member states' currencies and
the euro are fixed by the Council of the European Union. While the United
Kingdom is a member of the European Union, it is not participating in the euro
conversion; however, it may elect to convert to the euro at a later date.
Consequently, we are unsure as to whether the conversion to the euro will have
an adverse impact on our business, but potential risks include the costs of
modifying our software and information systems and changes in the conduct of
business and in the principal European markets for our products and services.
Please See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Effects of the Euro" for a more complete description of
the impact of the conversion to the euro on our financial condition.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THIS
OFFERING, AND MAY USE THESE PROCEEDS IN WAYS YOU MIGHT NOT BELIEVE ARE
DESIRABLE.
The net proceeds of this offering are estimated to be approximately $28.0
million (approximately $32.4 million if the underwriters' over-allotment option
is exercised in full) at an assumed initial public offering price of $11.00 per
share and after deducting the estimated underwriting discount and other
estimated offering expenses. We currently plan to use approximately $25.3
million of such net proceeds, coupled with an additional $6.4 million in bank
borrowings, to retire debt owed to The Rank Group (representing a portion of the
purchase price of the five Butlin's Provincial Hotels), to expand our Travel
Group business, and to acquire additional holiday resort hotels in England and
in other countries in Europe. Accordingly, our management will retain broad
discretion as to the allocation of the remaining approximately $2.7 million of
the net proceeds of this offering, which has been allocated for working capital
and general corporate purposes. The broad discretion we have in the use of
proceeds of this offering involves risks that we will not use such proceeds
effectively or that we will use them in ways with which you may not agree. In
addition, the repayment of our indebtedness to The Rank Group will terminate a
bank letter of credit collateralized by the personal guaranty of and marketable
securities owned by our Chairman of the Board, Kevin R. Leech. Please see "Use
of Proceeds," for a more detailed discussion of how we will allocate proceeds,
and "Certain Transactions" for a discussion of certain direct personal benefits
to Kevin R. Leech from this offering.
BECAUSE OUR DIRECTORS AND OFFICERS WILL OWN A MAJORITY OF OUR OUTSTANDING COMMON
STOCK AFTER THIS OFFERING, YOU AND OTHER INVESTORS WILL HAVE MINIMAL INFLUENCE
ON STOCKHOLDER DECISIONS.
Upon consummation of this offering, our executive officers and directors,
together with their respective affiliates, will beneficially own approximately
59% (approximately 56% if the underwriters, over-allotment option is exercised
in full), of our outstanding common stock. As a result, if they act together,
they will have the ability to control the outcome on all matters requiring
stockholder approval, including the election and removal of directors and any
merger, consolidation or sale of all or substantially all of our assets, and to
control our management and affairs. Such control could discourage others from
initiating potential merger, takeover or other change of control transactions.
As a result, the market price of our common stock could be adversely affected.
Please see "Principal Stockholders" for a more detailed presentation of the
influence our principal stockholders have over us.
OUR BUSINESS COULD STILL BE DISRUPTED BY RESIDUAL CONSEQUENCES OF THE YEAR 2000
PROBLEM.
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
22
the compliance and remediation work accomplished during the years leading up to
2000 was effective to prevent any problems. We have not experienced any such
computer difficulty; however, computer experts have warned that there may still
be residual consequences of the change in centuries and any such difficulties
may, depending upon their pervasiveness and severity, have a material adverse
effect on our business, financial condition and results of operations. Please
see "Management's Discussion and Analysis of Financial Condition and Results of
operations--Year 2000 Disclosure" for a more detailed discussion of year 2000
issues.
THERE IS NOT CURRENTLY A PUBLIC MARKET FOR OUR COMMON STOCK, THE OFFERING PRICE
OF OUR COMMON STOCK IS ARBITRARY, AND WE MUST SATISFY THE APPLICABLE
REQUIREMENTS FOR OUR COMMON STOCK TO TRADE ON THE NASDAQ NATIONAL MARKET.
There is not currently a public market for our common stock, and an active
trading market may not develop or be sustained. Unless and until a public market
develops, purchasers of our common stock may have difficulty selling their
shares of common stock.
The initial public offering price of the shares was arbitrarily determined
by negotiations between the underwriter and us, and does not necessarily bear
any relationship to our assets, book value, results of operations, or any other
generally accepted indicia of value. See "Underwriting". From time to time after
this offering, the market price of our common stock may experience significant
volatility. Our quarterly results, announcements by us or our competitors
regarding acquisitions or dispositions, new procedures or technology, changes in
general conditions in the economy, and general market conditions could cause the
market price of the common stock to fluctuate substantially. The equity markets
have, on occasion, experienced significant price and volume fluctuations that
have affected the market prices for many companies' common stock and have often
been unrelated to the operating performance of these companies.
THE MARKET FOR OUR COMMON STOCK MAY SUFFER IN THE EVENT OF DELISTING FROM THE
NASDAQ NATIONAL MARKET AND IF OUR COMMON STOCK IS CONSIDERED TO BE "PENNY
STOCK."
Under the currently effective criteria for the maintenance of our listing
of securities on the Nasdaq National Market, a company must have at least $75
million in market capitalization, a minimum bid price of $5.00 per share, and
securities in the hands of the public with a market value of at least $20
million. For continued listing, a company must maintain $50 million in market
value, a minimum bid price of $5.00, and a public float of at least $15 million
If we cannot maintain the standards for continued listing, our common stock
could be subject to delisting from the Nasdaq National Market. Trading, if any,
in our common stock would then be conducted in the over-the-counter market on
the OTC Bulletin Board established for securities that do not meet the Nasdaq
National Market listing requirements or in what are commonly referred to as the
"pink sheets." As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, our shares.
If our common stock were delisted from the Nasdaq National Market, and no
other exclusion from the definition of a "penny stock" under the Securities
Exchange Act of 1934, as amended, were available, our common stock would be
subject to the penny stock rules that impose additional sales practice
requirements on broker-dealers who sell these securities to persons other than
established customers and accredited investors. Accredited investors are
generally those investors with net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 together with a spouse. For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase, and must have received the purchaser's written
consent to the transaction prior to sale. As a result, delisting, if it were to
occur, could materially adversely affect the ability of broker-dealers to sell
our common stock and the ability of purchasers in this offering to sell their
shares in the secondary market.
23
INVESTORS MAY HAVE DIFFICULTY SELLING THEIR SHARES OF COMMON STOCK AND THE
MARKET PRICE OF THE COMMON STOCK MAY DECLINE IF THE REPRESENTATIVE OF THE
UNDERWRITERS DISCONTINUES MAKING A MARKET FOR ANY REASON.
A significant number of shares sold in this offering may be sold to
customers of the underwriters. These customers may engage in transactions for
the sale or purchase of the shares through or with the underwriters. Although it
has no obligation to do so, Roth Capital Partners Incorporated, the
representative of the underwriters, intends to make a market in the shares and
may otherwise effect transactions in the common stock. If it participates in the
market, it may influence the market, if one develops, for the common stock. It
may discontinue making a market in the common stock at any time. Moreover, if
Roth Capital Partners sells the shares of common stock issuable upon exercise of
the representative's warrants, it may be required under the Securities Exchange
Act of 1934, as amended, to temporarily suspend its market-making activities.
The price and liquidity of the common stock may be significantly affected by the
degree, if any, of its direct or indirect participation in the market.
INVESTORS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price per share exceeds the net tangible book
value per share. Accordingly, investors purchasing shares in this offering will
(1) pay a price per share which substantially exceeds the value of our assets
after subtracting our intangible assets and liabilities and (2) contribute 95.2%
of the total amount invested to date to fund us, but will only own 37.2% of the
shares of common stock outstanding. Please see "Dilution" for a discussion of
the dilution that investors in this offering will experience.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT
OUR STOCK PRICE.
The market price of our common stock would decline as a result of sales of
a large number of shares of our stock in the market after this offering, or the
perception that these sales could occur. These sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. After this offering, we will have outstanding
8,060,000 shares of common stock. Of these shares, the 3,000,000 shares being
offered in this offering will be freely tradable immediately following this
offering. Our directors and officers and a number of our stockholders who
beneficially hold 5,060,000 shares in the aggregate have entered into lock-up
agreements by which they have agreed that they will not sell, directly or
indirectly, any shares of common stock without the prior written consent of Roth
Capital Partners Incorporated, as representative of the underwriters for a
period of between six and 12 months from the date of this prospectus. The number
of shares of common stock and the dates when these shares will become freely
tradable in the market, subject to the lock-up agreements, is as follows:
Number of Shares Date
---------------- ----
3,000,000 On the date of this prospectus
Within six months of the date of
0 this prospectus
5,060,000 Between six and 12 months from
the date of this prospectus
Following this offering, we intend to file a registration statement to
register for issuance and resale the 1,000,000 shares of common stock reserved
for issuance under our existing stock option plan described in
"Management--Executive Compensation" and "--2000 Stock Option Plan." We expect
that registration statement to become effective immediately upon filing. Shares
issued upon the exercise of
24
stock options granted under the 2000 Plan will be eligible for resale in the
public market from time to time subject to vesting and, in the case of some
options, the expiration of the lock-up agreements referred to in the preceding
paragraph.
Upon the closing of this offering, we intend to grant non-qualified stock
options to purchase approximately _________ shares of common stock to a number
of our officers and employees. The exercise price per share of these options is
expected to be the initial public offering price of the common stock. These
option grants are expected to vest in the following manner: ___% per year for
____ years commencing on the one year anniversary of the grant of the option.
None of the shares issuable upon the exercise of these options will be subject
to a lock-up agreement with the underwriters as described below.
OUR CHARTER AND BYLAW PROVISIONS LIMIT THE LIABILITY OF OUR OFFICERS AND
DIRECTORS.
Our charter includes provisions to eliminate, to the full extent permitted
by the Delaware General Corporation Law as in effect from time to time, the
personal liability of our directors for monetary damages arising from a breach
of their fiduciary duties as directors. Our charter also provides that we will
indemnify any director or officer to the extent that such indemnification is
permitted under Delaware law. In addition, our bylaws require us to indemnify,
to the full extent permitted by law, any of our directors, officers, employees
or agents for acts which such person reasonably believes are not in violation of
our corporate purposes as set forth in our charter. As a result of such
provisions, stockholders may be unable to recover damages against our directors
and officers for actions taken by them which constitute negligence, gross
negligence or a violation of their fiduciary duties, which may discourage or
deter stockholders from suing our directors, officers, employees and agents for
breaches of their duty of care, even though such action, if successful, might
otherwise benefit us and our stockholders.
25
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking
statements are not historical facts, but rather are based on our current
expectations, estimates and projections about our industry, beliefs and
assumptions. Words such as "may," "could," "would," "anticipates," "expects,"
"intends," "plans," "projects," "believes," "seeks," "estimates" and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to certain
risks, uncertainties and other factors, some of which are beyond our control,
are difficult to predict and could cause actual results to differ materially
from those expressed or forecasted in the forward-looking statements. These
risks and uncertainties are described in "Risk Factors" and elsewhere in this
prospectus. We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
prospectus.
EXCHANGE RATE INFORMATION
The following table sets forth, for the periods indicated, period end,
average, high, and low exchange rate between British pounds sterling and United
States dollars based on the noon buying rate (expressed in United States dollars
per pound sterling). These rates are provided solely for your convenience and
are not necessarily the exchange rates (if any) used by us in the preparation of
the financial statements included elsewhere in this prospectus.
UNITED STATES DOLLARS PER BRITISH POUNDS STERLING
-------------------------------------------------
AVERAGE OF THE
NOON BUYING
RATE ON THE LAST
RATE AT BUSINESS DAY OF
END OF EACH FULL
CALENDAR YEAR PERIOD MONTH HIGH LOW
- ------------- ------ -------- ---- ---
1994........................... 1.5665 1.5393 1.6368 1.4615
1995........................... 1.5535 1.5803 1.6440 1.5302
1996........................... 1.7123 1.5733 1.7123 1.4948
1997........................... 1.6427 1.6397 1.7035 1.5825
1998........................... 1.6628 1.6602 1.7222 1.6144
1999........................... 1,6165 1,6120 1.6793 1.5470
On October 31, 1999, the noon buying rate was $1.6117 = (pound)1.00
(consequently, $1.00 = (pound)0.6205 at this rate), and on March 9, 2000, it
was $1.5816 = (pound)1.00.
26
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $28.0
million from our sale of the 3,000,000 shares of common stock offered by us
under this prospectus at an assumed initial public offering price of $11.00 per
share, after deducting the underwriting discount and commissions and other
estimated fees and expenses payable by us (approximately $32.4 million if the
over-allotment option is exercised in full). We expect to use the net proceeds
approximately as follows:
o $10.3 million (36.8% of total net proceeds), together with
approximately $6.4 million of net proceeds from a mortgage
refinancing, will be used to retire approximately $16.7 million
((pound)10.4 million) of indebtedness owed by GHG to Butlin's
Limited, a subsidiary of The Rank Group plc, in connection with the
acquisition by GHG of the Butlin's Provincial Hotels from another
Rank Group subsidiary;
o $9.0 million (32.1% of the total net proceeds) to acquire additional
holiday resort hotels located in seaside resort areas in England,
Spain and other locations deemed attractive by our management; and
o $6.0 million (21.4% of total net proceeds) for expansion of our
travel-related services businesses, including advertising and the
acquisition of other tour operators and travel agencies in England
and Europe; and
o $2.7 million (9.7% of the total net proceeds) for working capital
and general corporate purposes.
Simultaneous with the completion of this offering, we are refinancing our
outstanding mortgage indebtedness of approximately $16.1 million ((pound)10.0
million) on our hotels with the banks which had provided original acquisition
debt financing in June 1999. In connection with such refinancing, we anticipate
that we will increase our secured borrowings to a total of approximately $22.6
million ((pound)14.0 million) and will utilize the increased proceeds, together
with $10.3 million of the net proceeds of this offering, to retire our
indebtedness to The Rank Group. The repayment of our indebtedness to The Rank
Group will terminate a bank letter of credit collateralized by the personal
guaranty of and marketable securities owned by our Chairman of the Board, Kevin
R. Leech. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Certain
Transactions."
Other than as set forth in this prospectus, we currently have no
commitments or agreements and are not involved in any negotiations with respect
to any acquisitions or investments. The allocation of the net proceeds of the
offering discussed above represents management's current estimates only.
Management's plans for the proceeds are subject to change due to unforeseen
opportunities and, as such, actual allocation of the net proceeds may differ
substantially from these estimates. We cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of this
offering. Accordingly, our management team will have broad discretion in using
the net proceeds of this offering. Pending such uses, we intend to invest the
net proceeds of the initial public offering in investment grade interest-bearing
securities. Please see "Risk Factors--Management will have broad discretion over
the use of proceeds of this offering, and may use these proceeds in ways you
might not believe are desirable" for a discussion of uncertainties regarding our
use of proceeds.
We currently anticipate that the net proceeds of this offering, together
with our existing funds and ability to borrow, will be sufficient to meet our
capital requirements for at least the next 12 months. However, we may need to
raise additional funds in order to support more rapid expansion, develop new or
enhanced services, respond to competitive pressures, acquire complementary
business or technologies or take advantage of unanticipated opportunities. If
additional funds are raised through the issuance of
27
equity securities, the percentage ownership of our stockholders will be reduced,
our stockholders may experience additional dilution in net book value per share
or such securities may have rights, preferences or privileges senior to those of
the holders of our common stock. There can be no assurance that additional
financing will be available when needed on terms favorable to us or at all. If
adequate funds are not available on acceptable terms, we may be unable to
develop or enhance our services and products, take advantage of future
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business, financial condition and operating
results. Please see "Risk Factors--We may need more money, which may not be
available to us on favorable terms or at all" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" for more detailed information regarding our possible future capital
requirements.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently expect to retain future earnings, if any, to finance the growth and
development of our business and do not anticipate paying any cash dividends in
the foreseeable future.
28
CAPITALIZATION
The following table sets forth our capitalization:
o on an actual basis as of October 31, 1999;
o on a pro forma basis assuming our acquisition of all of the
outstanding share capital of LTGL, and LTGL's acquisition of all of
the outstanding share capital of Miss Ellie's World Travel Limited,
Ilios Travel Limited and GHG and 49% of the outstanding share
capital of trrravel.com Limited had been completed on October 31,
1999; and
o pro forma as adjusted to give effect to (i) the sale of 3,000,000
shares of common stock offered by us pursuant to this prospectus,
after deduction of estimated offering expenses and underwriting
discounts, assuming an offering price of $11.00; (ii) the repayment
of $6.4 million of a mortgage financing and (iii) the repayment of
$16.7 million outstanding under the note of Grand Hotel Group to
a subsidiary of The Rank Group.
This table should be read in conjunction with "Unaudited Condensed Pro
Forma Consolidated Financial Information," Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and the notes thereto included elsewhere in this prospectus.
OCTOBER 31, 1999
----------------------------------------------------------------
ACTUAL PRO FORMA
(IN THOUSANDS)
------------------------------ -----------------------------
Short-term debt:
Short-term borrowings............................ (pound) -- $ -- (pound)1,030 $1,660
Capital lease obligation--current portion........ 143 230 147 237
------------- ------------- ------------- ------------
Total short-term debt............................ (pound)143 $230 (pound)1,177 $1,897
============= ============= ============= =============
Long-term debt:
Notes payable.................................... (pound)20,500 $33,040 (pound)20,825 $33,564
Capital lease obligation--non-current portion.... 246 396 250 403
------------- ------------- ------------- -------------
Total long-term debt............................. 20,746 33,436 21,075 33,967
------------- ------------- ------------- -------------
Stockholders' equity:
Preferred stock, par value $0.001:
no shares authorized, issued and outstanding,
actual; 5,000,000 shares authorized, no shares
issued and outstanding, pro forma and pro forma
as adjusted...................................... -- -- -- --
Common stock, par value $0.001: no
shares authorized, issued and
outstanding, actual; 25,000,000
shares authorized, 5,060,000 shares issued and
outstanding, pro forma, and 8,060,000 shares
issued and outstanding pro forma as adjusted (1)......
-- -- 5 8
Additional paid-in capital............................... -- -- -- --
Accumulated retained earnings............................ 655 1,056 2,211 3,564
------------- ------------- ------------- ------------
Total stockholders' equity...................... 655 1,056 2,216 3,572
------------- ------------- ------------- ------------
Total capitalization...................... (pound)21,401 $34,492 (pound)23,291 $37,539
============= ============= ============= =============
-----------------------------
PRO FORMA AS
ADJUSTED
-----------------------------
Short-term debt:
Short-term borrowings............................ (pound)1,030 $1,660
Capital lease obligation--current portion........ 147 237
------------- -------------
Total short-term debt............................ (pound)1,177 $1,897
============= =============
Long-term debt:
Notes payable.................................... (pound)14,458 $23,302
Capital lease obligation--non-current portion.... 250 403
------------- -------------
Total long-term debt............................. 14,708 23,705
------------- -------------
Stockholders' equity:
Preferred stock, par value $0.001:
no shares authorized, issued and outstanding,
actual; 5,000,000 shares authorized, no shares
issued and outstanding, pro forma and pro forma
as adjusted...................................... -- --
Common stock, par value $0.001: no
shares authorized, issued and
outstanding, actual; 25,000,000
shares authorized, 5,060,000 shares issued and
outstanding, pro forma, and 8,060,000 shares
issued and outstanding pro forma as adjusted (1)...
8 13
Additional paid-in capital............................... 17,395 28,035
Accumulated retained earnings............................ 2,211 3,564
------------- -------------
Total stockholders' equity...................... 19,614 31,612
------------- -------------
Total capitalization...................... (pound)34,322 $55,317
============= =============
(1) Does not include exercise of the underwriters' over-allotment option or the
issuance of up to 1,000,000 additional shares of common stock upon exercise of
options under the 2000 Plan, of which options to purchase ______ shares have
been granted as at the date of this prospectus.
29
DILUTION
Purchasers of our common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock for
this offering. Pro forma net tangible book value per share represents the amount
of our total tangible assets less our total liabilities, divided by the number
of shares of our common stock outstanding. At October 31, 1999, we had a pro
forma net tangible book value of $2.3 million, or approximately $0.45 per share
of our outstanding common stock. After giving effect to (i) our receipt of the
estimated net proceeds from our sale of the 3,000,000 shares of our common stock
offered hereby at an assumed initial public offering price of $11.00 per share
(after deducting underwriting discounts and commissions and estimated offering
expenses payable by us); (ii) the repayment of $6.4 million of a mortgage
financing and (iii) the repayment of $16.7 million outstanding under the note of
Grand Hotel Group to a subsidiary of The Rank Group. Our pro forma net tangible
book value at October 31, 1999 would have been approximately $20.1 milliion or
$2.49 per share of our common stock, representing an immediate increase in net
tangible book value of $2.04 per share to existing stockholders and an immediate
dilution of $8.51 per share to investors in this offering. "Dilution" is
determined by subtracting net tangible book value per share after the offering
from the offering price to investors.
The following table illustrates this per share dilution:
Initial public offering price per share....................... $11.00
Pro forma net tangible book value per share
at October 31, 1999..................................... $ 0.45
Increase attributable to new investors..................... 2.04
------
Pro forma net tangible book value after the offering.......... 2.49
------
Dilution to new investors..................................... $ 8.51
======
The following table summarizes the number of shares of our common stock
purchased from us, the total consideration paid and the average price per share
paid by (i) our existing stockholders on the date of this prospectus and
(ii) new investors purchasing shares of our common stock in this offering,
before deducting the underwriting discounts and commissions and our estimated
offering expenses payable by us.
- -------------------------------------------------------------------------------
TOTAL
SHARES PURCHASED CONSIDERATION PAID AVERAGE
----------------- ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
Existing Shareholders....... 5,060,000 62.8% $ 1,660,000 4.8% $ 0.33
New Investors............... 3,000,000 37.2% 33,000,000 95.2% $11.00
--------- ---- ---------- ---
Total................. 8,060,000 100.0% 34,660,000 100%
========= ===== ========== ===
- --------------------
30
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The following information, which is unaudited, gives pro forma effect to:
o our acquisition of all of the outstanding share capital of LTGL;
o LTGL's acquisition of all of the outstanding share capital of Miss
Ellie's World Travel Limited, Ilios Travel Limited and GHG; and
o LTGL's acquisition of 49% of the outstanding share capital of
trrravel.com Limited
We have provided the unaudited pro forma consolidated financial data for
informational purposes only. They are not necessarily indicative of future
results of what our operating results would have been had we actually
consummated the acquisition of all of the outstanding share capital of LTGL, and
had LTGL actually consummated the acquisition of all of the outstanding share
capital of Miss Ellie's World Travel Limited, Ilios Travel Limited and GHG and
49% of the outstanding share capital of trrravel.com Limited on the date
assumed.
Effective June 30, 1999, GHG purchased from Rank Holidays Division
Limited, a subsidiary of The Rank Group plc, substantially all of the operating
assets relating to five hotels formerly known as the Butlin's Provincial Hotels,
including the physical properties, equipment, concessions, inventory, cash
reserves, customer lists, records and goodwill. GHG is a private limited company
organized under the laws of England and Wales and is 85% owned by Cygnet
Ventures Limited, a Guernsey corporation controlled by Kevin R. Leech, our
Chairman of the Board and principal stockholder, and 15% owned by certain other
members of our management team. In consideration for the sale of such assets,
GHG paid a subsidiary of The Rank Group (pound)19.0 million (approximately $30.6
million), of which (pound)8.6 million was paid in cash and the balance of
(pound)10.4 million was paid by GHG's issuance of a non-interest-bearing
promissory note due 2002. The GHG note was secured by an irrevocable letter of
credit issued by Citibank, N.A. in favor of Butlin's Limited. The issue of the
letter of credit was obtained through the personal guaranty of Mr. Leech. GHG
financed its cash payment of the purchase price through loans obtained from Arab
Bank plc and Irish Nationwide Building Society secured by charges granted by
Grand Hotel Group, including mortgages on the purchased hotels.
In July 1999, LTGL acquired all of the issued and outstanding share
capital of Miss Ellie's World Travel Limited, a private limited company
organized under the laws of England and Wales. In exchange for such share
capital, LTGL paid an aggregate of (pound)1,030,000 (approximately $1,660,000)
to the former shareholders of Miss Ellie's. LTGL funded the acquisition through
a loan from Red Kite Ventures Limited, an investment company beneficially owned
by Red Kite Trust, the beneficiary of which are members of the family of Kevin
R. Leech, our Chairman of the Board and principal stockholder.
In January 2000, LTGL also acquired all of the issued and outstanding
share capital of Ilios Travel Limited, a private limited company organized under
the laws of England and Wales. In exchange for such share capital, LTGL paid an
aggregate of (pound)325,000 (approximately $524,000) to the former shareholders
of Ilios. As a result of this acquisition, LTGL expanded its travel-related
services and increased its market position and cross-selling opportunities in
other destinations throughout Europe. LTGL also funded this acquisition through
a loan from Red Kite Ventures Limited.
In March 2000, the shareholders of GHG agreed to transfer 100% of the
outstanding share capital of GHG to LTGL in exchange for the issuance of an
aggregate of 3,700,000 shares of our common stock, and the shareholders of LTGL
agreed to transfer to us 100% of the outstanding share capital of LTGL in
exchange for the issuance of an aggregate of 940,000 shares of our common stock.
In
31
addition, Ci4net.com, Inc. agreed to transfer to us 49% of the outstanding
share capital of trrravel.com Limited in exchange for the issuance of an
aggregate of 220,000 shares of our common stock. All of such transfers are
conditioned upon:
o the completion of this offering and application of a portion of the
net proceeds (together with additional mortgage financing) to retire
all (pound)10.4 million (approximately $16.7 million) of
indebtedness of GHG owed to The Rank Group or its subsidiaries; and
o the capitalization of(pound)1,030,000 (approximately $1,660,000) of
loans made to LTGL by a corporate affiliate of Kevin R. Leech.
We have accounted for such acquisitions using the purchase method of accounting.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Terms of our Acquisitions," "Certain Transactions" and "Principal
Stockholders."
The unaudited condensed pro forma consolidated financial information
represents our management's best estimate of the effects of the transactions
described above. We have presented it to illustrate what our joint operations
might have produced. The following information is not necessarily indicative of
the results of operations and financial position of Leisure Travel Group as they
may be in the future or as they might have been had these acquisitions been
consummated on the date assumed.
The unaudited condensed pro forma consolidated financial information
should be read in conjunction with the historical financial statements included
elsewhere in this prospectus.
32
Unaudited Condensed Pro Forma Consolidated Statement of Operations
Twelve months ended October 31, 1999
(In thousands, except per share amounts)
The following unaudited condensed pro forma consolidated statement of
operations for the twelve months ended October 31, 1999 gives pro forma effect
to our acquisition of all of the outstanding share capital of LTGL, and LTGL's
acquisition of all of the outstanding share capital of Miss Ellie's World Travel
Limited, Ilios Travel Limited, GHG and 49% of the outstanding share capital of
trrravel.com Limited, after giving effect to the adjustments described in the
notes to unaudited condensed pro forma consolidated financial information, as if
they had occurred on November 1, 1998. The historical financial information for
Leisure Travel Group is based on our unaudited financial statements for the year
ended October 31, 1999. Accordingly, the pro forma consolidated statement of
operations includes the results of Miss Ellie's World Travel Limited for the
period from November 1, 1998 to July 4, 1999, and the results of LTGL, Ilios
Travel Limited and GHG for the twelve months ended October 31, 1999, all of
which results we did not include in our historical results for the year ended
October 31, 1999.
Amounts presented in U.S. dollars have been translated from pounds
sterling at the noon buying rate on October 31, 1999 of (pound)1.00 = $1.6117
solely for your convenience.
MISS
ELLIE'S
LEISURE WORLD ILIOS
TRAVEL TRAVEL TRAVEL
GROUP LTGL LIMITED LIMITED
----- ---- ------- -------
(AMOUNTS IN POUNDS STERLING)
Revenues (pound) - (pound)4,225 (pound)6,399 (pound)1,136
Operating costs - 4,174 6,035 1,131
--------- ------------ ------------ ------------
Operating profit... - 51 364 5
Other inc/exp - 8 (419) 9
--------- ------------ ------------ ------------
PBT.............. - 59 (55) 14
Income taxes....... - -- -- 4
--------- ------------ ------------ ------------
Net income......... (pound) - (pound)(59) (pound)(55) (pound)10
========= ============ ============ ============
PRO FORMA
-----------------------------------------------
GHG trrravel.com ADJUSTMENTS TOTAL TOTAL
------------ ------------ ----------- ----- -----
(AMOUNTS IN
(AMOUNTS IN POUNDS STERLING) US DOLLARS)
Revenues (pound)17,379 (pound)-- (pound)-- (pound)29,139 $46,963
Operating costs .......... 15,657 -- 62 a 27,059 43,611
------------- --------- ---------- ------------- ---------
Operating profit.......... 1,722 -- (62) 2,080 3,352
Other inc/exp (276) -- (678) (1,093)
------------- --------- ---------- ------------- ---------
PBT..................... 1,446 -- (62) 1,402 2,259
Income taxes.............. 643 647 1,043
------------- --------- ---------- ------------- ---------
Net income................ (pound)803 -- (62) (pound)755 1,216
============= ========= ========== ============= =========
Net income per share:
basic and diluted....... (pound)0.09 $0.15
============= =========
Shares used in computing
net income per share:
basic and diluted....... 8,060 8,060
============= =========
33
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT OCTOBER 31, 1999
(IN THOUSANDS)
The following unaudited condensed pro forma consolidated balance sheet at
October 31, 1999 gives pro forma effect to our acquisition of all of the
outstanding share capital of LTGL, and LTGL's acquisition of all of the
outstanding share capital of Miss Ellie's World Travel Limited, Ilios Travel
Limited and GHG and 49% of the outstanding share capital of trrravel.com
Limited, after giving effect to the adjustments described in the notes to
unaudited condensed pro forma consolidated financial information, as if they had
occurred on October 31, 1999, except with respect to Miss Ellie's World Travel
Limited, which was acquired by LTGL on July 5, 1999. The historical financial
information for Leisure Travel Group is based on our unaudited financial
statements for the year ended October 31, 1999. The historical financial
information for GHG is based on its audited financial statements at October 31,
1999. The historical financial information for LTGL and Ilios Travel Limited is
based on their unaudited financial statements at October 31, 1999. Accordingly,
the pro forma consolidated balance sheet reflects the net assets of LTGL and
Ilios Travel Limited and the 49% equity investment in trrravel.com Limited at
October 31, 1999, all of which we did not include in our historical consolidated
balance sheet at October 31, 1999 and the historical balance sheet of GHG, as of
October 31, 1999.
Amounts presented in U.S. dollars have been translated from pounds
sterling at the noon buying rate on October 31, 1999 of (pound)1.00 = $1.6117
solely for your convenience.
LEISURE ILIOS
TRAVEL TRAVEL
GROUP LTGL LIMITED GHG
--------- ------------- ------------- -------------
(AMOUNTS IN POUNDS STERLING)
ASSETS
Cash and cash equivalents .......... (pound)-- (pound)891 (pound)198 (pound)2,583
Accounts receivable ................ -- -- 4 1,754
Holidays paid in advance ........... -- 669 --
Inventories ........................ -- -- -- 312
Prepaid expenses and
other current assets ............. -- 100 7 470
--------- ------------- ------------- -------------
Total current assets ......... -- 1,660 209 5,119
Equipment and fixtures, net ........ -- 341 15 20,709
Goodwill and other
intangibles, net ................. -- 577 -- --
Equity investment .................. -- -- -- --
Debt issuance costs ................ -- -- -- 258
--------- ------------- ------------- -------------
Total assets ................. (pound)-- (pound)2,578 (pound)224 (pound)26,086
========= ============= ============= =============
LIABILITIES
Accounts payable and accrued
liabilities ...................... (pound)-- (pound)458 (pound)118 (pound)2,271
Guest deposits ..................... -- 1,031 -- 2,220
Deferred income tax ............... -- -- -- 51
Short-term borrowings .............. -- 1,030 0 --
Capital lease obligations -
current portion .................. -- -- 4 143
--------- ------------- ------------- -------------
Total current liabilities .... -- 2,519 122 4,685
Long-term debt ..................... -- -- -- 20,500
Capital lease obligations -
noncurrent portion ........ -- -- 4 246
STOCKHOLDERS' EQUITY
Ordinary shares .................... -- -- 30 --
Common stock ....................... -- -- -- --
Additional paid-in capital ......... -- -- -- --
Retained earnings .................. -- 59 68 655
--------- ------------- ------------- -------------
Total stockholders' equity ... -- 59 98 655
--------- ------------- ------------- -------------
Total liabilities and
stockholders' equity. ...... (pound)-- (pound)2,578 (pound)224 (pound)26,086
========= ============ =========== =============
PRO FORMA
---------------------------------------------
trrravel.com ADJUSTMENTS TOTAL TOTAL
------------ ------------ ------------- -------
(AMOUNTS
IN U.S. DOLLARS)
ASSETS
Cash and cash equivalents .......... (pound)-- (pound)3,672 $5,918
Accounts receivable ................ -- 1,758 2,833
Holidays paid in advance ........... -- 669 1,078
Inventories ........................ -- 312 503
Prepaid expenses and
other current assets ............. -- 577 930
--------- ------------ ------------- -------
Total current assets ......... -- 6,988 11,262
Equipment and fixtures, net ........ -- 21,065 33,950
Goodwill and other
intangibles, net ................. -- 227 b 804 1,296
Equity investment .................. -- 1,502 e 1,502 2,421
Debt issuance costs ................ -- 258 416
--------- ------------ ------------- -------
Total assets ................. (pound)-- (pound)1,729 (pound)30,617 $49,345
========= ============ ============= =======
LIABILITIES
Accounts payable and accrued
liabilities ...................... (pound)-- (pound) 2,847 $4,588
Guest deposits ..................... -- 3,251 5,239
Deferred income tax ............... -- 51 82
Short-term borrowings .............. -- 1,030 1,660
Capital lease obligations -
current portion .................. -- 147 237
--------- ------------- -------
Total current liabilities .... -- 7,326 11,806
Long-term debt ..................... -- 325 a 20,825 33,564
Capital lease obligations -
noncurrent portion ............... -- 250 403
STOCKHOLDERS' EQUITY
Ordinary shares .................... -- (30)d -- --
Common stock ....................... -- 5 f 5 8
Additional paid-in capital ......... -- 1,502 e 1,502 2,421
Retained earnings .................. -- (73)c,f 709 1,143
--------- ------------ ------------- -------
Total stockholders' equity ... -- 1,404 2,216 3,572
--------- ------------ ------------- -------
Total liabilities and
stockholders' equity. ...... (pound)-- (pound)1,729 (pound)30,617 $49,345
========= ============ ============= =======
34
NOTES TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
NOTE 1 - PRO FORMA ADJUSTMENTS
Statement of Operations
The unaudited condensed pro forma consolidated statements of operations
give effect to the following pro forma adjustments:
TWELVE MONTHS ENDED
OCTOBER 31, 1999
----------------
a. Amortization of goodwill arising from acquisition
of Miss Ellie's World Travel Limited ((pound)597)
over 10 years, excluding amortization expense of
pound)20 from July 5, 1999 to October 31, 1999
which has been included in the LTGL amounts, and
goodwill arising on the acquisition of Ilios Travel
((pound)227) over 10 years (pound)62
============
Balance Sheet
The unaudited condensed pro forma consolidated
balance sheet gives effect to the acquisition of LTGL by
Leisure Travel Group and the acquisitions of Ilios Travel
Limited and GHG by LTGL as follows:
The acquisitions, assuming they occurred on October
31, 1999, are summarized as follows:
OCTOBER 31, 1999
----------------
Net liabilities of Ilios Travel
Limited at October 31, 1999 (pound)(98)
Purchase consideration:
Cash 325
-----------
Total cost of investment 325
-----------
Goodwill arising 227
===========
The pro forma balance sheet adjustments are summarized
as follows:
OCTOBER 31, 1999
----------------
a. Incurrence of long-term debt upon acquisition of Ilios (pound) 325
Travel Limited ============
b. Goodwill arising on the acquisition of Ilios Travel (pound) 227
Limited ============
c. Elimination of Ilios Travel Limited retained earnings (pound)(68)
============
d. Elimination of Ilios Travel Limited equity (pound)(30)
============
e. Issuance of 220,000 shares of common stock at the
estimated initial offering price of (pound)6.83
($11.00) per share for the acquisition of 49% of the
outstanding share capital of trrravel.com Limited (pound)1,502
============
f. Issuance of 4,840,000 shares of common stock in
connection with the acquisitions of LTGL and GHG (pound)5
============
35
SELECTED FINANCIAL DATA
(In thousands)
The following tables set forth:
o Selected historical combined financial data for GHG (Predecessor) for
the years ended December 31, 1995, 1996, 1997 and 1998 and the six
months ended June 30, 1999, and as of December 31, 1995, 1996, 1997 and
1998; and
o Selected historical financial data for GHG for the four months ended
October 31, 1999 and as of October 31, 1999.
We derived the selected historical financial data as of December 31, 1995,
1996 and 1997, and the years ended December 31, 1995 and 1996 of GHG
(Predecessor) from its unaudited combined financial statements, which are not
included in this prospectus. These unaudited financial statements include, in
our opinion, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data.
We derived the selected historical financial data as of December 31, 1998,
and for the years ended December 31, 1997 and 1998 and the six months ended June
30, 1999 from the audited combined financial statements of GHG (Predecessor),
and as of October 31, 1999 and the four months ended October 31, 1999 from the
audited financial statements of GHG, which are included elsewhere in this
prospectus. These statements have been audited by Ernst & Young, our independent
auditors.
The selected data should be read in conjunction with the information
presented in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and the notes thereto
included elsewhere in this prospectus.
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998
------------- ------------- ------------- -------------
(AMOUNTS IN POUNDS STERLING)
STATEMENT OF OPERATIONS:
Total revenues......................... (pound)20,884 (pound)20,766 (pound)20,622 (pound)19,584
Operating cost and expenses............ 17,096 17,739 17,690 16,848
------------- ------------- ------------- -------------
Operating profit (loss)................ 3,788 3,027 2,932 2,736
Other income (expense), net............ - - - -
------------- ------------- ------------- -------------
Income (loss) before income taxes...... 3,788 3,027 2,932 2,736
Income taxes........................... 1,558 1,303 1,237 1,122
------------- ------------- ------------- -------------
Net income (loss)...................... (pound)2,230 (pound)1,724 (pound)1,695 (pound)1,614
============= ============= ============= =============
OTHER DATA:
Depreciation and amortization.......... (pound)1,115 (pound)1,211 (pound)1,284 (pound)1,174
Cash flows from operations............. (pound)3,785 (pound)2,820
SIX MONTHS FOUR MONTHS
ENDED ENDED
JUNE 30, OCTOBER 31,
1999 1999
-------------- -------------
STATEMENT OF OPERATIONS:
Total revenues......................... (pound)7,118 (pound)6,475
Operating cost and expenses............ 7,804 5,222
------------ ------------
Operating profit (loss)................ (686) 1,253
Other income (expense), net............ - (276)
------------ ------------
Income (loss) before income taxes... (686) 977
Income taxes........................... - 322
------------ ------------
Net income (loss)...................... (pound)(686) (pound)655
============ ============
OTHER DATA:
Depreciation and amortization.......... (pound) 574 (pound)79
Cash flows from operations............. (pound)1,170 (pound)2,740
DECEMBER 31,
----------------------------------------------------------------------
1995 1996 1997 1998
------------ ---------- ------------ -------------
(AMOUNTS IN POUNDS STERLING)
BALANCE SHEET DATA:
Working capital (deficit).............. (pound)(1,965) (pound)(347) (pound)(1,153) (pound)(1,185)
Total assets........................... 16,850 16,883 17,619 16,439
Long-term debt (excluding current
maturities)........................... - - - -
Total stockholders' equity............. 13,919 15,478 15,302 14,319
OCTOBER 31,
1999
-----------
BALANCE SHEET DATA:
Working capital (deficit).............. (pound)434
Total assets........................... 26,086
Long-term debt (excluding current
maturities) .......................... 20,746
Total stockholders' equity............. 655
36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and related notes thereto and "Selected Financial Data" and
"Unaudited Condensed Pro Forma Consolidated Financial Information" included
elsewhere in this prospectus. This prospectus contains forward-looking
statements relating to future events and Leisure Travel Group's future financial
performance. Actual results could be significantly different than those
discussed in this prospectus. Factors that could cause or contribute to such
differences include those set forth in the section entitled "Risk Factors," as
well as those discussed elsewhere in this prospectus.
OVERVIEW AND STRUCTURE
We have been established to become a leading international single-source
provider of attractively priced, specialized holiday and leisure accommodations
and world-wide packaged travel services. Our revenues are derived primarily from
the five holiday resort hotels operated by the Grand Hotel Group and from the
sale of travel-related products and services, including airline tickets, hotel
accommodations, and auto rentals by the Travel Group. We intend to expand our
business by acquiring additional resort hotels, travel agencies and tour
operators located in England and other European countries. Upon completion of
this offering we will also have a 49% equity interest in Trravel.com, Ltd.,
which owns and operates a consumer-direct, online travel Web site and a tour
operating airline seat provider.
Effective June 30, 1999, GHG purchased from a subsidiary of The Rank Group
substantially all of the operating assets of five hotels formerly known as
the Butlin's Provincial Hotels. Four of the hotels are located in seaside resort
areas in Scarborough, Blackpool, Brighton and Margate, England and the fifth
hotel is located in Llandudno, Wales. GHG is a private limited company organized
under the laws of England and Wales, which is 85% owned by Cygnet Ventures
Limited, a Guernsey (Channel Islands) corporation controlled by Kevin R. Leech,
our Chairman of the Board and principal stockholder, and 15% owned by certain
other members of our management team.
In July 1999 and January 2000, LTGL, a private limited company organized
under the laws of England and Wales, acquired Miss Ellie's World Travel Limited
and Ilios Travel Limited, respectively. As a result, LTGL became a provider of
European vacations to and from the United Kingdom as well as a provider of
vacations to Florida (including Disney World) and to Canada, South Africa and
other European destinations. LTGL is wholly owned by Red Kite Ventures Limited,
a Jersey (Channel Islands) corporation controlled by Red Kite Trust, the
beneficiary of which are members of the family of Kevin R. Leech.
In January 2000, Independent Aviation Limited, a wholly-owned subsidiary
of trrravel.com Limited, a private limited company organized under the laws of
England and Wales, acquired from an unaffiliated third party for (pound)200,000
(approximately $322,000) certain assets comprising a tour operating airline seat
provider business. trrravel.com Limited was a wholly-owned subsidiary of
Ci4net.com, Inc., a Delaware corporation whose common stock is publicly-traded
on the OTC Bulletin Board. A corporation controlled by Kevin R. Leech is the
principal stockholder of Ci4net.com, Inc.
In March 2000, the shareholders of GHG agreed to transfer 100% of the
outstanding share capital of GHG to LTGL in exchange for the issuance of an
aggregate of 3,700,000 shares of our common stock, and the shareholders of LTGL
agreed to transfer 100% of the outstanding share capital of LTGL to Leisure
Travel Group in exchange for the issuance of an aggregate of 940,000 shares of
our common stock. In addition, Ci4net.com, Inc. agreed to transfer 49% of the
outstanding share capital of
37
trrravel.com Limited to Leisure Travel Group in exchange for the issuance of an
aggregate of 220,000 shares of our common stock. All of such transfers are
conditioned upon:
o the completion of this offering and application of a portion of the
net proceeds (together with additional mortgage financing) to retire
all (pound)10.4 million (approximately $16.7 million) of
indebtedness of GHG owed to The Rank Group or its subsidiaries; and
o the capitalization of(pound)1,030,000 (approximately $1,660,000) of
loans made to LTGL by a corporate affiliate of Kevin R. Leech.
OPERATING RESULTS AND REVENUE RECOGNITION
For the year ended December 31, 1998, GHG derived net income before taxes
of approximately (pound)2.7 million (approximately $4.4 million) from net
revenues of approximately (pound)19.6 million (approximately $31.6 million). For
the pro forma twelve months ended October 31, 1999, our Grand Hotel Group
derived net income before taxes of approximately (pound)1.4 million
(approximately $2.3 million) from net revenues of approximately (pound)17.4
million (approximately $28.0 million).
The revenues and net income of the Grand Hotel Group dropped significantly
during the six months ended June 30, 1999 due to the fact that The Rank Group
announced its intention in early 1998 to sell the Butlin's Provincial Hotels and
close certain other Butlin's-branded assets comprised of popular priced vacation
camps throughout England. The announced closure of the Butlin's vacation camps
received extensive publicity throughout Great Britain. However, many potential
consumers thought that the hotels were also being closed, which significantly
reduced advanced bookings. Following its June 30, 1999 acquisition of the
hotels, GHG immediately renamed and rebranded the five hotels. With over five
years experience in operating a similar hotel property in England catering to
the mature private market and coach or bus tour market, our highly experienced
management team established a program to increase occupancy, including a
publicity campaign designed to win back the thousands of couples and families
who had been guests at the hotels, the upgrading and refurbishment of the
hotels, and the improvement of service. As a result of these efforts, operating
income (loss) increased from an operating loss of (pound)0.7 million for the six
months ended June 30, 1999 to an operating income of (pound)1.3 million for the
four months ended October 31, 1999. Revenues were (pound)7.1 million and
(pound)6.5 million for the six months ended June 30, 1999 and the four months
ended October 31, 1999, respectively. Since October 31, 1999 GHG management has:
o implemented agreements with bus or coach tour operators to make
advance purchases of beds, which is anticipated to provide
approximately $3.2 million of revenues to our Grand Hotel Group in
fiscal year ending October 31, 2000;
o raised room and accommodation occupancy charges by an average of 8%
without a perceived fall-off in advance booking rates; and
o commenced a program to offer more upscale entertainment for
higher-priced special weekend holiday packages to attract a younger
more affluent audience.
As a result of these efforts, at February 14, 2000 our advance bookings
represent approximately 44% of our target of approximately 651,000 sleeper
nights for the remainder of fiscal 2000, or a targeted 78% occupancy rate.
Net revenues from providing hotel accommodations are recognized when our
guests check out after their designated vacation stay and make payment. Net
revenues from providing travel services include commissions and markups on
travel products and services, volume bonuses received from travel
38
suppliers, cancellation fees and other ancillary fees such as travel insurance
premiums. Such revenues are recognized upon the commencement of travel.
Operating expenses at our holiday resort hotels include food,
housekeeping, cost of personnel, hiring of entertainment, maintenance expenses,
and sales and marketing expenses. Travel service expenses include travel agent
commissions, salaries, telecommunications, advertising and other costs
associated with the selling and processing of travel reservations, products and
services. Commission payments to travel agents are typically based on a
percentage of the price paid for the travel product or service, but in certain
circumstances are fixed dollar amounts. Reservations agents are compensated
either on an hourly basis, a commission basis or a combination of the two. Our
telephone costs primarily relate to the cost of incoming calls on toll-free
numbers. General and administrative expenses consist primarily of compensation
and benefits to administrative and other non-sales personnel, fees for
professional services, depreciation of equipment and other general office
expenses.
We may realize certain savings from our travel service and tour operators
as a result of consolidating certain operating expenses such as
telecommunications, advertising and promotional programs. Such savings cannot be
quantified and accordingly have not been included in our pro forma financial
information. Any such savings will be partially offset by the costs of being a
publicly held company and the incremental increase in costs related to our new
management structure.
We derive a significant portion of our cash flow and pre-tax income from
funds related to customer deposits and prepayments for vacation products and
interest earned on such deposits. Generally, we require a deposit upon booking
hotel or travel reservation. Reservations with our Travel Group are typically
made one to three months prior to departure, and reservations at the hotels
operated by our Grand Hotel Group are typically made one week to four months
prior to occupancy. Additionally, for packaged tours, we generally require that
the entire cost of the vacation be paid in full 30 days before departure, unless
reservations are made closer to departure, in which case we require that the
entire cost be paid upon booking. While the terms vary, we generally pay for the
vacation components after the customer's departure. In the period between
receipt of a deposit or prepayment and the payment of related expenses, these
funds are invested in cash and investment-grade securities. This cycle is
typical in the packaged tour industry and earnings generated on deposits and
prepayments are integral to our operating model and pricing strategies.
TERMS OF OUR ACQUISITIONS
Effective June 30, 1999, GHG purchased from Rank Holidays Division Limited,
a subsidiary of The Rank Group plc, substantially all of the operating assets
relating to five hotels formerly known as the Butlin's Provincial Hotels,
including the physical properties, equipment, concessions, inventory, cash
reserves, customer lists, records and goodwill. Following the acquisition, GHG
renamed the hotels The Grand Ocean Hotel, Brighton, The Grand Hotel,
Scarborough, The Grand Hotel, Margate, The Grand Metropole Hotel, Blackpool and
The Grand Hotel, Llandudno. GHG is a private limited company organized under the
laws of England and Wales that is 85% owned by Cygnet Ventures Limited, a
Guernsey (Channel Islands) corporation controlled by Kevin R. Leech, our
Chairman of the Board and principal stockholder, and 15% owned by certain other
members of our management team. In consideration for the sale of such assets,
GHG paid a subsidiary of The Rank Group (pound)19.0 million (approximately $30.6
million), of which (pound)8.6 million was paid in cash and the balance of
(pound)10.4 million was paid by GHG's issuance of a non-interest-bearing
promissory note due 2002. The GHG note was secured by an irrevocable letter of
credit issued by Citibank, N.A. in favor of Butlin's Limited. The issuance of
the letter of credit was obtained through the personal guaranty of Mr. Leech.
GHG financed its cash payment of the purchase price through loans obtained from
Arab Bank plc and Irish Nationwide Building Society secured by charges granted
by Grand Hotel Group, including mortgages on the purchased hotels. See "Certain
Transactions."
39
In July 1999, LTGL acquired all of the issued and outstanding share
capital of Miss Ellie's World Travel Limited, a private limited company
organized under the laws of England and Wales. In exchange for such share
capital, LTGL paid an aggregate of (pound)1,030,000 (approximately $1,660,000)
to the former shareholders of Miss Ellie's. LTGL funded the acquisition through
a loan from Red Kite Ventures Limited, an investment company beneficially owned
by Red Kite Trust, the beneficiary of which are members of the family of Kevin
R. Leech, our Chairman of the Board and principal stockholder. The terms of the
acquisition provided for certain "earnout" provisions whereby, after our
acquisition of LTGL upon completion of this offering, we may be required to pay
additional cash to the former stockholders of Miss Ellie's equal to the pre-tax
income of Miss Ellie's earned for the twelve month period from April 1999
through March 2000. We anticipate that these payments will be funded through our
cash flows from operations. See "Certain Transactions."
In January 2000, LTGL also acquired all of the issued and outstanding
share capital of Ilios Travel Limited, a private limited company organized under
the laws of England and Wales. In exchange for such share capital, LTGL paid an
aggregate of (pound)325,000 (approximately $524,000) to the former shareholders
of Ilios. As a result of this acquisition, LTGL expanded its travel-related
services and increased its market position and cross-selling opportunities in
other destinations throughout Europe. LTGL also funded this acquisition through
a loan from Red Kite Ventures Limited. See "Certain Transactions."
In January 2000, trrravel.com Limited, a private limited company organized
under the laws of England and Wales, acquired for (pound)200,000 (approximately
$322,000) all of the outstanding share capital of Independent Aviation Limited,
a tour operating airline seat provider. trrravel.com Limited was a wholly-owned
subsidiary of Ci4net.com, Inc., a Delaware corporation whose common stock is
publicly-traded on the OTC Bulletin Board. A corporation controlled by Kevin R.
Leech is the principal stockholder of Ci4net.com, Inc.
PRO FORMA RESULTS OF OPERATIONS
The following table sets forth certain pro forma operating data of Leisure
Travel Group expressed as a percentage of net revenues.
TWELVE MONTHS ENDED
OCTOBER 31, 1999
-------------------
Total revenues........................ 100.0%
Operating costs and expenses.......... 92.9%
Gross profit................. 7.1%
Other income (expense)................ (2.3)%
Income before provision for taxes..... 4.8%
Provision for income taxes............ 2.2%
Net income....................... 2.6%
40
GHG HISTORICAL RESULTS OF OPERATIONS
The following table sets forth certain operating data of GHG expressed as a
percentage of net revenues for the periods indicated.
SIX MONTHS FOUR MONTHS
ENDED ENDED
JUNE 30, OCTOBER
YEAR ENDED DECEMBER 31, 1999 31, 1999
-------------------------- -----------------------
1996 1997 1998
---- ---- ----
Total revenues......... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating cost and
expenses............... 85.4% 85.8% 86.0% 109.6% 80.6%
Operating profit.. 14.6% 14.2% 14.0% (9.6)% 19.4%
Other income (expense). -- -- -- -- (4.3)%
Loss before provision
for taxes.............. 14.6% 14.2% 14.0% (9.6)% 15.1%
Provision for income
taxes.................. 6.3% 6.0% 5.7% - 5.0%
Net loss.......... 8.3% 8.2% 8.3% (9.6)% 10.1%
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Revenues
Revenues consist of accommodation lettings and retail sales (which include
bar, catering and shops). Revenues for 1998 were (pound)19.6 million, which was
a decrease of (pound)1.0 million, or 5.0%, from revenues of (pound)20.6 million
in 1997. There was a reduction in volume between the 1998 and 1997 years due to
a reduction in the numbers of families with children staying at three of the
hotels. However, the average letting income per booking rose 4%, which meant
that the decrease in letting accommodation revenue was (pound)0.5 million.
Consequently, there was additional reduction in the other source of income of
(pound)0.5 million.
The accommodation letting income proportion of the total revenue rose from
72% to 74% with a consequent reduction in the other revenue from 28% to 26%.
Direct cost of revenues
Direct cost of revenues consist of food, entertainment, housekeeping,
restaurant and kitchen expenses and sales and marketing expenses. Direct cost of
revenues for 1998 was (pound)4.6 million, which was a decrease of (pound)0.3
million, or 6.9%, from direct cost of revenues of (pound)4.9 million in 1997.
This decrease was a result of lower sales revenues during the period. Net
margins rose slightly from 76.2% to 76.6% in 1998.
Staff costs
Staff costs are all personnel costs incurred to run the operations of the
hotels which include accommodations, catering, bars, shops, etc. Staff costs do
not include corporate management payroll. Staff costs for 1998 were (pound)5.3
million, which was a decrease of (pound)0.3 million, or 4.5%, from staff costs
of (pound)5.6 million in 1997.
General and administrative
General and administrative expenses consist of all other expenses such as
repairs, maintenance, clerical, computer and other related expenses. General and
administrative expenses for 1998 were (pound)4.0 million, which was a decrease
of (pound)0.1 million, or 1.3%, from general and administrative expenses of
(pound)4.1 million in 1997.
41
Corporate allocation/Sales and marketing
Corporate allocation charges are costs incurred by the previous parent
company of GHG. These costs typically consist of advertising, corporate
management wages and general corporate overhead. Such costs were charged back to
GHG based on a percent of revenues of the five hotels compared to total revenue
of Butlin's Limited.
The company's previous parent charged sales and marketing costs at the
corporate level. Such costs were recharged to GHG based on the size of the
hotels compared to the total Butlin's Limited.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Revenues
Revenues for 1997 decreased (pound)0.1 million, or 0.1%, from revenues of
(pound)20.8 million in 1996. In both 1996 and 1997 the revenue for accommodation
lettings represented 72% of the total revenue and although there was a drop in
the volume of guests visiting the hotels in 1997 (due to the start of a
restructuring of the families with children market) this was offset by an
increase in the average letting income generated from each booking.
Other sales generated during the year remained the same as the previous
year, despite a drop in volume.
Direct cost of revenues
Direct cost of revenues for 1997 decreased (pound)0.2 million, or 3.0%,
from direct cost of revenues of (pound)5.1 million in 1996. This reflects the
savings due to the reduction in volume. Margins on letting income remained the
same in both years at 80% of total revenue. Margins from other sources of
revenue also remain unchanged in 1997.
Staff costs
Staff costs for 1997 increased (pound)0.1 million, or 1.0%, from staff
costs of (pound)5.5 million in 1996.
General and administrative
General and administrative expenses for 1997 decreased (pound)0.2 million,
or 4.1%, from general and administrative expenses of (pound)4.2 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our Grand Hotel Group and Travel Group have historically financed their
activities through cash provided by operations.
We currently anticipate that the net proceeds from this offering, together
with our current cash and cash equivalents and anticipated cash flow from
operations will be sufficient to meet our presently anticipated working capital
and capital expenditure requirements for at least the next twelve months.
Following completion of this offering, we anticipate that we will spend
approximately (pound)1.6 million ($2.6 million) per annum in capital
expenditures to refurbish and construct improvements to our five holiday resort
hotels. In addition, our (pound) 10.0 million of mortgage indebtedness is
currently amortized over a five year period and requires annual debt service
payments of principal and interest of approximately (pound)2.5 million ($4.0
million). Following completion of this offering, we intend to reduce our annual
debt service obligations by seeking to obtain long-term mortgage financing of
between 10 and 15 years. However, there is no assurance that such long-term
financing will be available on financially attractive terms, if at all. We may
need to raise additional funds in order to support more rapid expansion, develop
new or enhanced services, respond to competitive pressures, acquire
complementary business or technologies or take advantage of unanticipated
opportunities. Please see
42
"Risk Factors--We may need more money, which may not be available to us on
favorable terms or at all" and "Use of Proceeds" for additional information.
At October 31, 1999, we had an unaudited pro forma net working capital
deficit of approximately (pound)0.3 million (approximately 0.5 million). We have
historically operated with a net working capital deficit due to the fact that we
have invested working capital assets in operating expenses, investments and
fixed assets. Our net working capital deficit has not historically negatively
affected our ability to operate or meet our obligations as they come due. After
the net proceeds of this offering, we expect to have net working capital of
approximately (pound)10.7 million (approximately $17.2 million).
Cash provided by operating activities was (pound)2.7 million ($4.4
million) and (pound)1.2 million ($1.9 million) for the four months ended October
31, 1999 and the six months ended June 30, 1999, respectively. Such amounts
primarily reflect net income/loss, net of depreciation expense, resulting from
revenues from our hotel operations and increases for the respective periods in
the balance of guest deposits. Cash provided by operating activities was
(pound)2.8 million for the year ended December 31, 1998, as compared to
(pound)3.8 million for the year ended December 31, 1997. The decrease in cash
provided by operating activities was primarily the result of a decrease in the
net income, net of depreciation expense, and a decrease in cash provided by
changes in guest deposits and accounts payable, partially offset by the increase
in cash provided by the change in prepaid expenses and other current assets.
Cash used in investing activities was (pound)20.4 million ($32.8 million)
for the four months ended October 31, 1999, which represented the purchase of
the hotels by GHG from a subsidiary of The Rank Group plc. Cash used in
investing activities were (pound)0.1 million ($0.2 million), (pound)0.2 million
and (pound)1.9 million for the six months ended June 30, 1999, and the years
ended December 31, 1998 and 1997, respectively. Such amounts relate to the
acquisition of equipment and fixtures during the respective periods.
Cash provided by financing activities was (pound)20.2 million ($32.6
million) for the four months ended October 31, 1999, which primarily related to
proceeds from the issuance of debt utilized to purchase the hotels and financing
operations. Cash used in financing activities was (pound)1.0 million ($1.7
million), (pound)2.6 million and (pound)1.9 million for the six months ended
June 30, 1999, and the years ended December 31, 1998 and 1997, respectively.
Such amounts relate to the net change in intercompany funding from the parent
company to GHG (Predecessor) during the respective periods.
SEASONALITY AND QUARTERLY FINANCIAL INFORMATION
Seasonality in the vacation resort and travel industry is likely to cause
quarterly fluctuations in our operating results which may adversely affect our
stock price. In both our Grand Hotel Group and Travel Group, our revenues
typically increase during the spring and summer months and are slightly lower
during the fall and winter months. In addition, our seasonal business has been
adversely affected in the past and could be affected in the future by climactic
conditions, such as a wet or rainy summer season which frequently occurs in the
United Kingdom. As our business continues to expand beyond the United Kingdom,
seasonal fluctuations will affect us in different ways. If seasonality in our
business causes quarterly fluctuations in our revenues and operating profits
which are unusually severe or unexpected, there could be a material adverse
effect on our business and stock price.
In addition, our earnings may be impacted by the timing of the completion
of the acquisition of future resort hotels and the potential impact of weather
or other naturals disasters at our resort locations. The combination of the
possible delay in generating revenue after the acquisition of additional resort
hotels, and the expenses associated with start-up unit or room-rental
operations, interest expense, amortization and depreciation expenses from such
acquisitions may materially adversely impact our earnings.
43
MARKET RISKS
We currently have no significant floating rate indebtedness, hold no
derivative instruments and do not earn income denominated in foreign currencies.
Accordingly, changes in interest rates do not generally have a direct effect on
our financial position. However, to the extent that changes in interest rates
and currency exchange rates affect general economic conditions, we would be
affected by such changes. All of our revenue is recognized in pounds sterling
and almost all of our revenue is from customers in the United Kingdom.
Therefore, we do not believe we have any significant direct foreign currency
exchange risk and do not hedge against foreign currency exchange rate changes.
YEAR 2000 DISCLOSURE
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates due to the two-digit date fields used by many systems. Most
reports to date, however, are that computer systems are functioning normally and
the compliance and remediation work accomplished during the years leading up to
2000 was effective to prevent any problems. As of the date of this prospectus,
we have not experienced any such computer difficulty; however, computer experts
have warned that there may still be residual consequences of the change in
centuries and any such difficulties may, depending upon their pervasiveness and
severity, have a material adverse effect on our business, financial condition
and results of operations. Any of the following could have a material adverse
effect on our business, financial condition and results of operations:
o a failure to fully identify all year 2000 dependencies in our
systems;
o a failure to fully identify all year 2000 dependencies in the
systems of third parties with whom we do business;
o a failure of any third party with whom we do business to adequately
address their year 2000 issues;
o the failure of any contingency plans develop to protect our business
and operations from year 2000-related interruptions; and
o delays in the implementation of new systems resulting from year 2000
problems.
EFFECTS OF THE EURO
Under the Treaty on European Economic and Monetary Union, as of January 1,
1999, the euro was introduced as a common currency among the 11 members of the
European Union that are participating in this phase of Economic and Monetary
Union, commonly referred to as EMU. Although the individual currencies of these
countries will continue to be used until 2002, their exchange rates with the
euro are fixed. The euro may now be used for transactions that do not involve
payment using physical notes and coins of the participating countries. These
individual currencies are to be replaced with euro notes and coins (to be
introduced on January 1, 2002) by June 30, 2002 when all countries participating
in EMU are expected to operate with the euro as their exclusive common currency.
The current government of the United Kingdom has stated that the United
Kingdom will not participate in EMU and adopt the euro until after the next
general election at the earliest. We are currently working on the assumption
that the next general election will be in 2001 or 2002 and that the United
Kingdom will enter EMU shortly thereafter following confirmation of the
government's decision through a referendum.
44
In the event that the United Kingdom adopts the euro, we would face a
number of costs in altering our accounting-related systems for the new currency,
although at present it is too early to estimate these costs. Adoption of the
euro in the United Kingdom would also create greater transparency between prices
offered to our customers in the United Kingdom and prices offered in other
countries that participate in EMU. We do not believe that the adoption of the
euro by eleven countries of the European Union will have an adverse impact on
our liquidity or financial condition.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have an impact on our results of operations, financial position, or cash flows.
45
BUSINESS
GENERAL
We have been established to become a leading international single-source
provider of attractively priced, specialized holiday and leisure accommodations
and world-wide packaged travel services. Upon completion of this offering, we
will acquire five unique and well-known holiday resort hotels in the United
Kingdom and two retail and group travel providers and tour operators that offer
flexible, independent travel programs. In addition, we will acquire a 49%
ownership interest in trrravel.com Limited, which operates a European on-line
travel Web site offering complete vacation and travel packages direct to
consumers, and also owns and operates a tour operating airline seat provider.
Through consolidation of these and other vacation and travel-related businesses,
we believe that we are able to offer both vacationers and travel agents and tour
operators a single source of competitively priced products and services within
and across multiple holiday and leisure travel segments. We intend to expand our
business by acquiring additional vacation and leisure travel businesses,
including resort hotels, travel providers and tour operators, and utilizing a
consumer-direct, online travel Web site.
On an unaudited pro forma basis, we derived consolidated net income before
taxes of approximately (pound)1.4 million (approximately $2.3 million) from
consolidated net revenues of approximately (pound)29.1 million (approximately
$47.0 million) for the twelve months ended October 31, 1999.
We operate five holiday resort hotels situated near major seaside resorts
in England and Wales, which offer attractively priced vacation accommodations,
including food and entertainment, for weekend and lengthier stays. The hotels
were formerly owned by a subsidiary of The Rank Group plc and operated as the
Butlin's Provincial Hotels. They were purchased in June 1999 from The Rank Group
by GHG which, until completion of this offering, was controlled by Kevin R.
Leech, our Chairman of the Board and principal stockholder, and certain other
members of our management team.
The hotels have a total of 1,274 available rooms and achieved
approximately 80% room occupancy in the two-year period ended December 31, 1998.
Approximately 112.5% and 59.6% of our pro forma consolidated net income and
consolidated net revenues for the twelve months ended October 31, 1999 were
derived from the Grand Hotel Group. The revenues and net income of the hotels
dropped significantly during the six months ended June 30, 1999 due to the fact
that the previous owners, following their decision to sell the Butlin's
Provincial Hotels, delayed the production and distribution of the main holiday
brochure, which inevitably reduced hotel bookings and room occupancy. However,
following GHG's acquisition of the hotels in June 1999, the re-branding of its
name and image and modernization of certain operating policies by our highly
experienced management team, both hotel revenues and profits improved
substantially during the four months ended October 31, 1999. In addition, we
recently secured new agreements with United Kingdom tour coach operators for the
advance purchase of beds, which we anticipate will provide approximately
(pound)2.0 million ($3.2 million) of annual revenues, increased our room and
accommodation rates by an average of 8%, and secured advance bookings at
February 14, 2000 that represent approximately 44% of our target of 651,000
sleeper nights for the remainder of our fiscal year ending October 31, 2000, or
a 78% occupancy rate.
Our Travel Group offers competitively-priced travel-related services and
accommodations in a variety of holiday destinations in Europe, North America and
South Africa. Located in 8 offices in and around Manchester and Horsham,
England, our retail and group travel and tour operating businesses have over 15
years of experience in providing packaged tours primarily to holiday resorts
located throughout Europe direct to the public and through other tour operators,
as well as special interest tours to major European sporting events, including
horse racing tours throughout the United Kingdom and Europe, and trips for
supporters of the Manchester United Football Club. Our Travel Group also offers
46
a wide range of private accommodations in a variety of holiday destinations in
southern Europe, such as private country homes and villas with swimming pools in
Tuscany, Sardinia and other regions of Italy, Andalucian haciendas with
exquisite views in Spain and traditional Ottoman-style houses in Turkey. Our
Travel Group has achieved competitive pricing and access to inventory through
negotiated arrangements with major airlines, including Singapore Airlines,
British Airways, Alitalia and Iberia, and auto rental and insurance companies.
The tour operating airline seat provider owned and operated by
trrravel.com Limited, in which we intend to acquire a 49% interest, purchases
blocks of airline seats from airlines and other travel and tour operators for
resale and also acts as an agent in brokering such seats on a commission basis.
The core of the distribution program for our Travel Group services is a
consumer-direct online travel site that provides travelers with immediate access
both to our proprietary booking system and to detailed hotel information and
destination guides. Visitors to our affiliated Web site at www.trrravel.com are
able to compare travel options, rates and availability, and book and purchase a
wide variety of travel services, including our independently tailored vacation
programs and group packages, seven days a week. Our Internet available vacation
and holiday packages include airfare, hotel and related accommodations, car
rental and other items. trrravel.com Limited, which owns and operates the Web
site, intends to derive its revenues from advertising, from monthly booking fees
received tour operators and travel agents featured on the site and through
commissions received from third party reservation services and travel agents for
direct on-line bookings. We believe that by being able to directly offer travel
services to consumers via the Internet, we will realize savings in operating
expenses that will enable us to maintain better gross margins than many travel
agencies or other travel groups that rely primarily on retail travel agencies
for distribution. trrravel.com Limited was, until completion of this offering,
wholly-owned by Ci4net.com, Inc., a Delaware publicly-traded corporation
controlled by Kevin R. Leech, our Chairman of the Board and principal
stockholder.
INDUSTRY BACKGROUND
RESORT VACATION HOTELS IN THE UNITED KINGDOM
Similar to specialized holiday hotel packages offered in the United States
by well-known resorts, such as The Greenbrier, in West Virginia and The Concord
Hotel in the Catskills Region of New York State, in England and Wales the Grand
Hotels provide a unique vacation experience which set them apart from customary
business and commercial hotels or expensive holiday resorts in Europe and the
United States which offer "a la carte" accommodations.
Our Grand Hotel Group offers at each of its five hotels a complete fixed
price vacation package experience, including lodging, food and entertainment. We
cater primarily to adults, ages fifty and up, who seek short three- and four-day
"getaway" vacation packages. Except for the Burstin Hotel, located in
Folkestone, England, we know of no other comparable popular price holiday resort
hotels in England or Wales. We believe that the increase in the age 55 plus
population group coupled with greater disposable personal income for this
demographic segment in the United Kingdom will continue to fuel demand and
repeat business for modestly priced accommodations that also provide
entertainment and plentiful food. Our strategy is to expand our customer base by
greater access to the bus or coach tour operator vacation package market, and by
offering higher priced and more sophisticated entertainment on selected weekends
to attract a younger, more affluent audience willing to pay higher prices for
accommodations and entertainment.
47
The following table sets forth the approximate number of tourists who,
according to the British Tourist Authority, annually visit the resort areas in
which our Grand Hotel Group are located:
DAY OVERNIGHT
VISITORS VISITORS TOTAL
-------- ---------- -------
(MILLIONS)
Brighton............... 3.5 1.8 5.3
Blackpool 6.9 14.2 21.1
Margate................ 1.5 0.6 2.1
Scarborough............ 3.5 1.1 4.6
Llandudno.............. 4.1 0.2 4.3
---- ---- ----
Total............. 19.5 17.9 37.4
====== ==== ====
THE TRAVEL SERVICE INDUSTRY
Travel and tourism represents one of the largest consumer markets and one of the
fastest growing industries in the United Kingdom. The British Tourist Authority
estimates that in 1998, travel expenditures by overseas visitors in the United
Kingdom totaled more than (pound)12.7 billion (approximately $20.5 billion), and
that by the year 2003, overseas visitors will spend around (pound)18.0 billion
(approximately $29.0 billion) a year in the United Kingdom, 44% more than 1998.
The British Tourist Authority also estimates that in 1998, travel expenditures
by residents of the United Kingdom in the United Kingdom totaled more than
(pound)14.0 billion (approximately $22.6 billion) which, when combined with
expenditures by overseas visitors, totaled more than (pound)26.7 billion
(approximately $43.0 billion) in 1998. Of the (pound)26.7 billion spent in 1998
on travel in the United Kingdom, approximately (pound)9.3 billion (approximately
$15.0 billion) was spent on accommodations, approximately (pound)3.5 billion
(approximately $5.6 billion) was spent in travel within the United Kingdom, and
approximately (pound)1.1 billion (approximately $1.8 billion) was spent on
travel-related services. The European Travel Commission estimates that travel
agencies alone generated approximately $126 billion in total sales in 1998.
The distribution channels for leisure travel are highly fragmented. Travel
service suppliers, such as hotels, airlines and rental car companies, sell
travel services directly to consumers and indirectly through retail travel
agencies and travel wholesalers. The principal distribution channels for leisure
travel services to consumers include:
o DIRECT SALES. Travel service suppliers typically sell their services
directly to consumers through call centers and, more recently,
through their own Web sites. These suppliers generally offer only
their own services, or offer their services in conjunction with
partners from other areas of the travel industry, such as in
hotel/airfare packages. Bookings are generally made at retail, or
"published," rates that suppliers have difficulty deviating from due
to competitive constraints.
o RETAIL TRAVEL AGENCIES. Retail travel agencies offer consumers
travel services at published rates and fares through global
distribution services, as well as discount, or "non-published,"
fares through travel wholesalers. Retail travel agencies receive
commissions and incentives on gross bookings that typically average
5-10%. As travel service suppliers have increasingly sought to cut
costs and drive more traffic through their own booking channels in
recent years, retail travel agencies have experienced shrinking or
capped commissions and increased competition from travel service
suppliers selling directly to consumers.
o TRAVEL WHOLESALERS. Travel wholesalers purchase hotel, airline and
car rental capacity directly from travel service suppliers at
discounts substantially in excess of commissions
48
paid on published rates, and generally resell this capacity
individually or in packages through travel agencies.
o TELETEXT SALES. Teletext is a data system presented through
televisons for home viewing. It provides a full range of information
services covering news, financial and classified sales. Travel
information and last minute vacation specials are offered with
destination dates and pricing information included. Viewers may book
their travel plans directly by phone or fax.
ONLINE TRAVEL MARKETING
The Internet has emerged as a global medium for communication, content
delivery and electronic commerce, and Internet use continues to increase
rapidly. International Data Corporation, estimates that the number of users
worldwide with access to the Internet will increase to 320 million in 2002 from
100 million in 1998, representing a compound annual growth rate of approximately
34%. As consumers have become increasingly adept at using the Internet for
evaluating and purchasing a wide variety of goods, the dollar volume of online
commerce transactions has risen dramatically. International Data Corporation
estimates that the volume of goods and services purchased over the Internet will
increase to $400 billion in 2002 from $32 billion in 1998, representing a
compound annual growth rate in excess of 88%.
The growth of travel sales through the Internet has created another
channel for travel service providers to sell products and services to travelers.
Online sales of travel services have expanded dramatically in recent years due
to the substantial benefits of e-commerce to both travel service providers and
consumers. By moving their travel services online, travel service suppliers,
retail travel agencies and travel wholesalers can reach a global customer base
from a central location. According to Forrester Research, online travel bookings
are expected to grow to $29.5 billion in 2003 from $3.1 billion in 1998,
representing a compound annual growth rate of 57%.
A number of approaches have emerged to address the online travel market,
including:
o ONLINE TRAVEL RESERVATION SERVICES. Online travel reservation
services generally have adopted the retail travel agency model and
sell published rates and fares quoted through global distribution
systems on a commission basis. Because global distribution services
are not configured for simultaneous display of multiple hotel
options or hotel/air packages, comparison shopping for these travel
services can be time consuming. A small number of these online
travel reservation services also resell travel packages provided by
wholesalers.
o DIRECT ONLINE SALES BY SUPPLIERS. Airlines, hotels and car rental
companies have begun offering their services online through their
own Web sites. These Web sites frequently access only published
rates for the hosts, or their partners' travel services, thereby
limiting consumer choice and prohibiting convenient comparison
shopping.
o ONLINE TRAVEL WHOLESALERS. A small number of travel wholesalers have
begun offering consumer-direct wholesale travel services online.
These providers typically focus almost exclusively on a single
service, primarily air travel, and lack the strategic relationships
needed to effectively service leisure travel to destination markets.
In addition, many online travel service providers require consumers to
register by providing personal information prior to searching for travel
options. These registration requirements often make these Web sites cumbersome
to use and may give rise to security concerns.
As the online travel services industry continues to evolve and mature, we
believe consumers will increasingly demand an easy to use Web site that provides
a broad range of travel services, including transportation, accommodations,
activities and travel-related content and the ability to
49
comparison shop for preferred suppliers, price levels, destinations and
packages. To offer consumers maximum value and competitive prices, the Web site
must have access to wholesale travel pricing in addition to published rates and
fares through a global distribution service. In addition, we believe travel
service suppliers will seek online distribution partners that combine extensive
wholesale travel experience and aggressive online marketing to provide an
effective distribution channel. This will, in turn, help minimize excess
capacity and respond quickly to distressed inventory, while also allowing
suppliers to maintain published rates and fares avoid fare wars.
OUR OPERATING STRATEGY
Our objective is to become a leading international single-source provider
of attractively priced, specialized holiday and leisure accommodations and
world-wide package travel services. To accomplish this objective, we will pursue
an operating strategy that includes the following elements:
o INCREASING REVENUES, PROFITABILITY AND OCCUPANCY RATES AT OUR
HOLIDAY RESORT HOTELS. We have adopted a comprehensive strategy
designed to increase occupancy and revenues and improve
profitability at our holiday resort hotels. Our operating strategy
includes:
o Establishment of a marketing program designed to expand
our core short-break holiday entertainment package for
larger groups during the lower holiday occupancy
periods, generally between January and March, as well as
offering more sophisticated entertainment to attract a
younger, more affluent audience to special weekend
packages which we will offer at higher rates.
o Renovation of our hotels based on strategic plans
designed to address the opportunities presented by each
hotel and the hotel's particular market. Renovations
will include enhancing lobbies, restaurants and public
areas, and upgrading guest rooms. We believe that these
renovations will enable us to increase both occupancy
and average room tariff rates and generate attractive
returns on our investment.
o Increasing our percentage revenues derived from advance
bookings of beds made by bus and coach tour operators.
We have recently entered into agreements with National
Holidays Limited, Caledonian Travel Limited, and others
among England's leading coach vacation package tour
operators, to furnish us with approximately 115,000
sleeper nights through our fiscal year ending October
31, 2000. Based on the historical cancellation rate, we
have accepted bookings for approximately 75% of the beds
we seek to sell to coach tour operators. We anticipate
that revenues in fiscal 2000 from coach operator sales
will represent an incremental increase of(pound)2.0
million ($3.2 million) over our traditional revenues
from direct customer bookings.
o A general price increase, as we believed at the time of
our acquisition that the market was prepared to accept
an adjustment to the traditional rates charged by The
Butlin's Provincial Hotels. In January 2000, we
implemented an average accommodation rate increase of
8%. As at February 14, 2000, we had achieved advanced
bookings for approximately 286,444 bed nights for the
balance of our 2000 fiscal year, or approximately 44% of
our target goal in fiscal 2000 of a 78% occupancy rate.
o PROVIDING VALUE-ADDED VACATION PRODUCTS AND SERVICES. We intend to
increase value for consumers by offering a complete world-wide
travel planning solution, including hotel accommodations, air
travel, and rental cars and other travel related products and
services, while attempting to offer the lowest possible prices. We
believe a strategy based on packaging the products and services of a
wide range of well-known travel suppliers at
50
competitive prices will result in sales growth from both new
customers and repeat buyers. We also believe that, because of our
reputation and expertise in certain selected destination markets, we
can
o generally provide better prices and inventory availability
than can be obtained by an individual travel agency or
traveler;
o enhance and simplify access to travel information across
multiple destinations; and
o assemble vacation travel components into convenient packages
for ease of planning and booking, all of which result in the
creation of value-added packaged vacation products and
services.
We intend to implement comprehensive quality assurance monitoring
programs to ensure that the products and services packaged together
will meet traveler expectations.
o ESTABLISHING NATIONAL BRAND NAME RECOGNITION. Using the
www.trrravel.com Web site as a world-wide marketing tool, our
strategy is to promote, advertise and increase the value and
visibility of our brand in the travel service and holiday resort
hotel industries through high quality service, active marketing and
promotional programs. These programs would include advertising on
leading Web sites and other media, conducting an ongoing public
relations campaign and developing business alliances and
partnerships. We plan to increase awareness of our brand by entering
into additional online marketing relationships with advertising
representatives, content providers, Internet service providers and
portals. We believe offering expertise and competitive pricing
through common brands across multiple destinations will provide
greater confidence to travelers in making their vacation choices and
engender consumer loyalty and a pattern of repeat business. We also
will seek opportunities to market our products and services through
travel suppliers and other companies that have established private
label brand names.
o LEVERAGING STRENGTH IN SELECTED TRAVEL DESTINATIONS. Our plan is to
achieve a leading position in several selected high-volume,
high-margin vacation destinations. We believe we currently have a
leading position in the market for vacations in the United Kingdom
and to certain European holiday resorts, including Malaga, located
in Costa del Sol, Spain and Tenerife, located in the Canary Islands
off the Northwest coast of Africa, and a significant presence in the
markets for packaged vacations to Canada, South Africa and Orlando,
Florida. By leveraging this current expertise and through selective
acquisitions of other travel specialists and tour operators, we
intend to increase our market position and cross-selling
opportunities to achieve a leading market presence in other
destinations throughout Europe, including Spain, Italy and Turkey.
We believe having scale and expertise in selected destinations gives
us access to pricing and inventory that provides us with a
significant competitive advantage.
51
o IMPROVING OPERATING EFFICIENCIES. We intend to reduce our operating
expenses by (1) capitalizing on enhanced purchasing efficiencies
resulting from combining operations such as telecommunications
systems and brochure production and distribution, (2) implementing
best practices in our management and business systems, particularly
through the use of our Web site, which we believe will produce cost
savings as travel agents and individual travelers use our site to
purchase our products and services, (3) enhancing marketing
relationships with travel suppliers and other related parties and
(4) utilizing outsource providers where appropriate. We believe
successful implementation of these strategies will enable our
operational management to devote more time to sales, service and
customer satisfaction.
o IMPLEMENTING INTEGRATED INFORMATION SYSTEMS. We believe integrating
information systems will improve our ability to offer travelers
value-added vacation products and services and to leverage
maintenance and development costs across a broader customer base. In
addition, integrated systems will facilitate the use of common
operating platforms, and reduce the cost and time requirements of
developing external interfaces such as interfaces to global
distribution systems and supplier systems, and accelerate the
integration of subsequent acquisitions.
o INVESTING IN LEADING TECHNOLOGY. We intend to invest in the
implementation of technology-driven enhancements to the trrravel.com
Web site and transaction-processing systems. In addition, we intend
to develop tighter integration with the booking systems of our
travel suppliers to ensure that our customers are exposed to special
promotional discounts as soon as these discounts are initiated to
help suppliers optimize their yields.
OUR GROWTH STRATEGY
To complement our operating strategy, we have developed a multi-faceted
growth strategy comprised of the following elements:
o ACQUIRE AND IMPROVE ADDITIONAL UNDERPERFORMING RESORT HOTELS. Using
the hotels operated by our Grand Hotel Group as a base, we plan to
capitalize on our management expertise by continuing to acquire
underperforming hotels and implementing operational initiatives to
achieve revenue growth and margin improvements. We plan to
investigate the possibility of acquiring three-star and better
holiday resort hotels having at least 300 rooms in such coastal
vacation spots as Costa del Sol and Costa Brava in Spain as well as
in other southern European resort areas. We will invest significant
capital to renovate newly acquired hotels and, in certain instances,
we plan to re-brand hotels to highlight property improvements to the
marketplace and to improve average room tariff rates and market
share. We believe that our total cost to acquire and renovate hotels
will be significantly less than the cost to construct new hotels
with similar facilities. We expect that our relationships throughout
the industry and our in-house development capabilities will provide
us with a competitive advantage in identifying, evaluating,
acquiring, redeveloping and managing hotels that meet our criteria.
o CONSUMMATING STRATEGIC ACQUISITIONS OF OTHER TRAVEL SERVICE
PROVIDERS. We believe the travel service industry is fragmented and
there are significant opportunities to make selective acquisitions
of travel service providers in the United Kingdom and throughout
Europe. We generally will seek to acquire companies that:
o have desirable destination concentrations;
52
o have demonstrated growth and profitability;
o have an emphasis on customer service;
o have an experienced management team; and
o are likely to add some other strategic value (such as a
relationship with a particular travel supplier). We believe
our ability to consummate acquisitions will be enhanced by our
historical performance, the experience and reputation of our
management team, our ability to offer liquidity to the owners
of acquired companies through the receipt of our securities or
cash, our leading presence in certain high-volume,
higher-margin travel destinations and the growth opportunities
available through cross-selling within our markets.
o ENHANCING DISTRIBUTION CHANNELS. We plan to capitalize on the
opportunities presented by the direct selling of vacation products
and services to consumers online while still supporting and
leveraging our strong relationships with other independent retail
travel agents who are significantly smaller than the major agencies
and tour operators such as Air Tours and Thomsons. We intend to
encourage these smaller independent agencies, who currently compete
with us in the United Kingdom, to become an active participant on
the www.trrravel.com Web site. Through the use of the Internet and
as a result of relationships with Internet portals and Internet
service providers, we believe we will penetrate a significant
portion of the vacation travel market that currently books directly
with travel suppliers. We believe our value-added vacation products
and services will allow us to compete effectively with travel
suppliers by:
o generally providing better prices and inventory availability
than can be obtained by an individual travel agency or
traveler;
o enhancing and simplifying access to travel information across
multiple destinations; and
o assembling vacation travel components into convenient packages
for ease of planning and booking.
OUR PRODUCTS AND SERVICES
OUR GRAND HOTEL GROUP
The five holiday hotels operated by GHG accommodated over 180,000 guests
in its 1,274 room in 1998. Our package rates are based on both four night and
three night stays. The five hotels are located in Blackpool, Scarborough,
Brighton and Margate, all seaside resorts located in England, and Llandudno, a
seaside resort located in Wales. The average cost per person per night,
including accommodations, breakfast and evening meal is approximately
(pound)20.00, or approximately $32.00. The Brighton, Llandudno and Margate
hotels cater to family holidays with children's entertainment and play areas,
whereas the Blackpool and Scarborough facilities are limited to adults only.
The principal difference between the hotels operated by our Grand Hotel
Group and other hotels in the United Kingdom is the inclusion of a food and
entertainment package, which is perceived by their guests as a complete holiday
product. This has produced significant repeat business with approximately 35% of
all guests having visited at least one Grand Hotel in the previous four years.
Part of our growth strategy is to expand our core short-break holiday
entertainment package for larger groups during the
53
lower holiday occupancy periods, generally between January and March. We also
intend to to offer special "up-market" weekend packages to the younger consumer
at higher prices. Due to our high profile in England, we believe that we can
effectively draw upon our core "holiday break" entertainment package catering to
groups and to private guests, both with an older and mid to down-market profile
as well as a younger, more affluent profile. To do this we intend to utilize
commercial radio, the national press and the Internet. In addition we will
target group repeat and new business by means of:
o one to one sales contact;
o personalized direct mail submissions to organizations;
o brand presence advertising on radio and the trade press;
o familiarization weekends for tour operators;
o hospitality invitations to trade press editors;
o joint promotions with third parties; and
o exhibitions and conferences.
In addition, we will seek to renovate our hotels based on strategic plans
designed to address the opportunities presented by each hotel and the hotel's
particular market. Renovations will include enhancing lobbies, restaurants and
public areas, and upgrading guest rooms. We believe that these renovations will
enable us to increase both occupancy and average room tariff rates and generate
attractive returns on our investment.
The following table sets forth certain information, as of December 31,
1999, regarding each of the hotels operated by GHG, including its location, the
date acquired, the number of existing rooms at the hotel, 1998 occupancy rates
and the facilities offered.
NUMBER 1998
DATE OF OCCUPANCY FACILITIES
RESORT LOCATION ACQUIRED ROOMS RATES OFFERED
- ------------------------ ---------- ------------- ----- --------- ----------------------
The Grand Ocean Hotel Brighton June 30, 1999 352 74.9% food, entertainment
and leisure facilities
The Grand Metropole Hotel Blackpool June 30, 1999 208 88.2% food and entertainment
The Grand Hotel Margate June 30, 1999 267 74.2% food and entertainment
and leisure facilities
The Grand Hotel Scarborough June 30, 1999 281 81.2% food and entertainment
The Grand Hotel Llandudno June 30, 1999 166 87.3% food and entertainment
OUR TRAVEL-RELATED SERVICES
We will continue to focus on specific destinations in order to become a
leading provider of value-added vacation products and services while at the same
time providing travel suppliers with efficient and cost effective distribution
of their capacity. We have expertise in and access to the products and services
of a broad range of travel suppliers. Based on customer research, we design our
products and services to offer travelers a wider choice than that of an
individual supplier. We assemble travel products and services in bulk and
combine them to create customized vacations for individual travelers. We create
demand for our products through integrated marketing programs and handle all
reservations, payment processing and supplier processing interfaces. We have
developed the in-depth knowledge of these products and services that a retail
travel agent, which acts as a broker or reseller of the entire spectrum of
travel products and services, is unlikely to acquire.
We provide private label vacation products and services for a variety of
companies located in the United Kingdom, including Marks & Spencer's, British
Telecom, Mercury Telecom, Greater Manchester Police and HSBC.
54
UNITED KINGDOM. We are a provider of vacations in the United Kingdom and
have over 15 years of experience in the United Kingdom travel market. We have
relationships with major airlines, such as Singapore Airlines, British Airways,
Alitalia and Iberia, for air travel to, from and within the United Kingdom,
which provide us with preferential access to prices that generally are better
than published fares as well as marketing support. In addition, we utilize a
staff of over 45 employees on location in the United Kingdom to provide
destination management for our packaged vacations products and services. We
believe our extensive experience and established reputation in this market as
well as our airline relationships give us a competitive advantage over other
providers of vacations to and from the United Kingdom. We believe the United
Kingdom travel market will continue to present growth opportunities in the
future and to represent a significant portion of our revenues.
OTHER EUROPEAN VACATION DESTINATIONS. We specialize in packaged vacations
for travelers from the United Kingdom to holiday resorts located throughout
Europe. Tenerife, located in the Canary Islands off the coast of Northwest
Africa, and Malaga, located in Costa del Sol, Spain, are our most popular
European destinations to which we provide flight and packaged vacation services.
We also provide packaged vacations to a variety of other holiday destinations in
southern Europe, such as Italy and Turkey. We intend to increase our presence in
these markets by cross-selling within our existing customer base, by leveraging
our relationships with travel distributors in Europe to create demand for our
brand name products and services and by leveraging our existing relationships
with suppliers to obtain preferential pricing and access to capacity for
European destinations.
CANADA, SOUTH AFRICA AND ORLANDO, FLORIDA. We have an established presence
in the markets for travel to Canada, South Africa and Orlando, Florida. We have
over 15 years of experience in these markets and have established key strategic
relationships, including as one of a limited number of designated providers for
Disney World. We believe our extensive experience and established reputation in
this market as well as our supplier relationships give us a competitive
advantage over other providers of vacations to these destinations.
THE TRAVEL WEB SITE
We intend to utilize as the core distribution program for the travel
products and services offered by our Travel Group a consumer-direct online
travel site that will provide travelers immediate access both to our proprietary
booking system and to detailed hotel information and destination guides.
Visitors to the Web site at www.trrravel.com will be able to compare travel
options, rates and availability, and book and purchase a wide variety of travel
services, including our independently tailored vacation programs and group
packages. Unlike many other travel Web sites, we will not require customers to
pre-register or provide personal information prior to searching our database for
travel options. Visitors simply type in their desired destination and itinerary,
and the booking engine simultaneously displays a range of travel options, rates
and availability for the visitor to compare. At any time, visitors can review
detailed information about each of our destination markets, including in-depth
hotel, shopping and dining information, local news and events and other travel
planning information. We will provide customer support through our call center
seven days a week to answer customer questions and assist in finding the best
travel value for their needs. Customers can either complete travel purchases in
a few easy steps online, or call our call center to purchase travel offline.
55
Visitors to the trrravel.com Web site can choose to search for hotel, air
or hotel/air packages. Once a visitor initiates a search, the trrravel.com
booking engine searches to locate the best prices possible for the desired
travel. To complete a purchase, customers select the hotel and/or airline of
their choice and supply basic identification and credit card information. Once
the order is submitted, the customer receives instant online confirmation that
travel has been booked and a subsequent e-mail to verify the transaction.
trrravel.com also provides its customers with the option to complete travel
purchases quickly and efficiently through the call center maintained by us.
Fulfillment is completed with e-tickets, whenever possible, or printed tickets
sent to the customer by second day air.
trrravel.com customers can view detailed information on hotel options and
destination markets at any time while shopping for travel values, all without
leaving the convenience of the Web site.
o HOTEL CONTENT. In addition to rates and availability, we provide
in-depth content on the hotels featured on our Web site, including
pictures of properties and rooms, descriptions of amenities and
locations, our own five star rating system and directions to the
hotel. By selecting and featuring a limited number of hotels in the
economy, mid-price and luxury price ranges in desirable areas of
each market we serve, we assist our customers in finding the
properties best suited to their individual preferences and budget
constraints.
o "LATE DEALS." The trrravel.com home and destination pages feature
multiple "late deals" in cooperation with our strategic partners in
each market we serve by offering cheaper than usual promotional
discounts for a select number of hotels and hotel/air packages.
o LOCAL EVENTS AND ATTRACTIONS. trrravel.com will offer extensive
information on local events and attractions by providing access to
local content providers in each of our destination markets.
o GROUND TRANSPORTATION. trrravel.com will offer access to rental car
reservations and other local transportation options, such as taxi,
limousine and shuttle services.
o MAPS. trrravel.com will provide customers access to detailed and
accurate maps that pinpoint and provide directions to local
attractions, businesses and other addresses requested by the
customer.
o WEATHER REPORTS. trrravel.com will provides access to current
weather information for planning future travel.
We will maintain a call center seven days a week, to assist customers in
using the Web site. The call center will receive and processes orders for
customers more comfortable with that medium, and assist customers in changing or
canceling travel arrangements prior to the dates of travel.
56
OUR SALES AND MARKETING PROGRAM
We engage in different marketing and advertising programs depending on the
particular travel service and whether the customers are primarily travel agents
or travelers.
THE GRAND HOTEL GROUP. We employ a systematic approach toward identifying
and targeting segments of demand for each hotel in order to maximize market
penetration. We market our hotels directly to travelers in numerous ways,
principally through local newspaper and magazine advertisements highlighting
toll-free numbers and special travel offers. In addition, we advertise on local
radio and through direct mail utilizing a database guest roster GHG obtained
from The Rank Group when the hotels were purchased. In many cases, the travel
providers contribute to the cost of the advertising and marketing. To market
directly to travel agents, we use dedicated sales personnel, direct mailings and
fax distribution technology. Our sales teams are recruited locally and receive
incentive-based compensation bonuses. All of our sales managers complete a
highly developed sales training program.
THE TRAVEL GROUP. We pursue a fully integrated sales and marketing effort
in support of our proprietary travel products and services. By employing a
multi-faceted marketing approach targeted both to travel distributors and to
individual travelers, we believe we will increase the demand for our products
and services. In addition, we will integrate our own marketing efforts with the
marketing support we receive from certain travel suppliers with whom we have an
established relationship. We believe we will be able to leverage our national
presence and established marketing and sales experience strength into a
competitive advantage. We intend to identify and cultivate new customers and
create cross-selling opportunities within our existing customer base.
A substantial majority of our products and services historically have been
sold through retail travel agencies, and we enjoy strong relationships with many
of these agencies. We intend to pursue marketing opportunities in other
distribution channels as well.
WWW.TRRRAVEL.COM. Using the www.trrravel.com Web site as a world-wide
marketing tool, our strategy is to promote, advertise and increase the value and
visibility of our brand in the travel service and holiday resort hotel
industries through high quality service, active marketing and promotional
programs. These programs would include advertising on leading Web sites and
other media, conducting an ongoing public relations campaign and developing
business alliances and partnerships. We plan to increase awareness of our brand
by entering into additional online marketing relationships with advertising
representatives, content providers, Internet service providers and portals. We
believe offering expertise and competitive pricing through common brands across
multiple destinations will provide greater confidence to travelers in making
their vacation choices and engender consumer loyalty and a pattern of repeat
business. We also will seek opportunities to market our products and services
through travel suppliers and other companies that have established private label
brand names.
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OUR COMPETITION
THE GRAND HOTEL GROUP. Competition in the United Kingdom lodging industry
is based generally on convenience of location, brand affiliation, price, range
of services and guest amenities offered and quality of customer service and
overall product. The Grand Hotel Group competes primarily in the
moderately-priced sector of the full-service segment of the lodging industry in
England and Wales. In each geographic market in which the hotels are located,
there are other full- and limited-service hotels that compete with our hotels.
Our principal competitor in the Southern region of England is the Burstin Hotel
located in Folkestone, England. The Burstin Hotel is owned and operated by
Queensborough Holdings plc and contains 484 bedrooms. Its customer profile is
primarily made up of coach and group operators. In addition, our food and
beverage operations compete with local free-standing restaurants and bars. Many
of these entities possess significantly greater financial, marketing, personnel
and other resources than we do and may be able to grow at a more rapid rate than
we can as result.
THE TRAVEL GROUP. We compete with a variety of other providers of travel
and travel-related products and services. Our principal competitors are other
vacation providers, travel suppliers who sell directly to individual travelers
and travel agencies and other retail and wholesale distributors of travel
products and services. Many of these companies, including Air Tours, Thomsons,
First Choice and JMC (formerly Thomas Cook ) are substantially larger than us,
have greater name recognition and significantly greater financial resources than
we do. We believe we compete for customers based upon the quality of the travel
products and services delivered, price, specialized knowledge, reputation and
convenience.
WWW.TRRRAVEL.COM. The online travel services market is new, rapidly
evolving, intensely competitive and has relatively low barriers to entry. We
believe that competition in the online travel services market is based
predominantly on:
o price;
o selection and availability of hotel rooms and airfares;
o selection of destination markets;
o ease of use of online booking service;
o customer service;
o reliability; and
o travel related content.
As the market for online travel services grows, we believe that companies
already involved in the online travel services industry will increase their
efforts to develop services that compete with our services. Currently, most
travel suppliers sell their services through travel agencies, travel wholesalers
and directly to customers, mainly by telephone. Increasingly, major airlines and
hotels are offering travel products and services directly to consumers through
their own Web sites. Some of these Web sites also include travel products and
services of other travel suppliers. We believe that this trend will continue. We
also face potential competition from Internet companies not yet in the leisure
travel market and travel companies not yet operating online. We are unable to
anticipate which other companies are likely to offer competitive services in the
future. We cannot be sure that the trrravel.com Web site and toll-free call
center will compete successfully with any current or future competitors.
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OUR PROPRIETARY RIGHTS
We regard our trademarks, domain name, service marks, trade dress, trade
secrets, copyrights and similar intellectual property as important to our
success, and rely on foreign and domestic trademark and copyright law, trade
secret protection and confidentiality to protect our proprietary rights. We may
pursue the registration of additional trademarks in the United States and
internationally in the future. Effective trademark, service mark, copyright and
trade secret protection may not available in every country in which our products
and services are made available online. Failure to effectively protect our
intellectual property could adversely affect our business and stock price or
result in erosion of our brand name.
Currently, the only trademark we have is "trrravel.com". As a result of our
efforts to protect our rights in the trrravel.com brand, we could become
involved in litigation, which would likely be expensive and time consuming, and
could distract management from the operations of the business. Furthermore, we
cannot be sure we would prevail in any such litigation. Please see "Risk
Factors--We may be unable to protect our intellectual property, including our
trademarks, which could adversely affect our operating results" for a discussion
about the risks associated with the protection of our proprietary rights.
GOVERNMENT REGULATION OF OUR BUSINESS
Our travel services business is subject to certain regulation by the
government of the United Kingdom, including the Package Travel, Package Holidays
and Package Tours Regulations 1992. In addition, many travel suppliers,
particularly airlines, are subject to extensive regulation by United States
federal, state and foreign governments. In addition, the travel industry is
subject to certain special taxes by United States federal, state, local and
foreign governments, including hotel bed taxes, car rental taxes, airline excise
taxes and airport taxes and fees.
Certain companies in our Travel Group are subject to regulation by the
Civil Aviation Authority. The Air Travel Organisers' Licensing (ATOL) system
provides protection, inter alia, against the consequences of travel organiser
failure for consumers who purchase package holidays, charter flights and
discounted scheduled air tickets.
Under the Civil Aviation (Air Travel Organisers' Licensing) Regulations
1995, it is a legal requirement for most organizers of air travel to hold an Air
Travel License to sell flights and package holidays by air. The main exceptions
are airlines and agents of licensed firms. The Civil Aviation Authority holds
bonds of licensees and, in the event of a failure, manages a repatriation
operation to ensure customers are not stranded abroad, and provides refunds to
those who have paid in advance. The cost of this protection is included in the
price of the holiday booked with an ATOL holder.
The criteria for the grant of an ATOL License is as follows:
1. FITNESS OF APPLICANT
The Civil Aviation Authority must be satisfied as to the fitness of an
applicant, and the fitness of the people controlling the business. It asks for
the history of those controlling the business and it considers the likelihood of
the applicant operating in a proper manner if the license is granted.
2. FINANCES
The applicant must meet certain minimum financial criteria in order to be
granted a license. The assessment is usually based on the applicant's latest
audited accounts. The financial requirements are based on the surplus of "free
assets" in the balance sheet to support the business. A minimum of (pound)30,000
paid up capital under free assets is required and above that there must be an
adequate ratio between free assets and the total turnover of the business. The
ratio varies according to the Civil Aviation Authority's assessment of the risks
involved, the trading record and the experience of the management. For new
applicants the ratio is at least 5% for established license holders with a
record of profitable trading or trading with a license over at least two years
the ratio may reduce in stages. The minimum ratio is 3%.
The Civil Aviation Authority may also look at the position of other
companies in the group.
Licenses are normally valid for one year and expire at the end of March or
the end of September.
In addition, certain companies in our Travel Group are members of The
Association of British Travel Agents Limited who require adherence to a Code of
Conduct covering service standards as well as mirroring the requirements of the
ATOL scheme.
Our Grand Hotel Group is subject to certain licensing laws in England and
Wales relating to the selling of alcohol and the operation of bars and cocktail
lounges in hotels as well as various fire, health and safety regulations. A
serious violation could result in a significant fine or even the forced closing
of one or more of our hotels.
We are also subject to regulations applicable to businesses generally and
laws or regulations directly applicable to electronic commerce. Although there
are currently few laws and regulations directly applicable to electronic
commerce, it is possible that a number of laws and regulations may be adopted
with respect to electronic commerce covering issues such as user privacy,
pricing, content, copyrights, distribution, antitrust and characteristics and
quality of products and services.
ENVIRONMENTAL MATTERS
A variety of laws concerning the protection of the environment and health
and safety apply to the operations, properties and other assets we own. These
laws may originate at the European Union, United Kingdom or local level. These
environmental laws govern, among other things, the discharge of substances into
waterways and the quality of water discharge of substances into sewers, waste
and contamination. Liability can attach to a person who causes or knowingly
permits the discharge of substances to waterways or sewers without a permit
authorizing such discharges or beyond the scope of the applicable permit. The
legal regime with respect to contamination of land in the United Kingdom is
expected to change in April 2000. In general, liability and responsibility for
contamination will remain with the person responsible for the contamination,
however, the new regime formalizes this to be the person who "causes or
knowingly permits" contamination, and in the absence of such a person, the owner
or occupier of the site may be held responsible for remediation. In addition to
civil claims, criminal sanctions can be imposed for violations of environmental
laws and any persons violating these laws can be held responsible for the cost
of remedying the consequences of pollution, contamination or damage. In
addition, certain laws restrict the use of property and the construction of
buildings and other structures. Carrying out development without the appropriate
consent or beyond the scope of the consent can result in regulatory authorities
taking action to require the unauthorized use
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to cease or unauthorized building or structure to be removed or modified.
Criminal sanctions are available if the authority's requirements are not
satisfied. Please see "Risk Factors--We may be subject to various environmental
laws and regulations that impose certain requirements relating to the ownership
and use of our vacation ownership resorts, and we could be subject to fines or
other penalties for failure to comply with such regulations" for a discussion of
the risks we may face as a result of environmental laws applicable to our
business.
OUR EMPLOYEES
As of January 31, 2000, the Travel Group had a total of 47 employees,
consisting of 36 reservation agents and call center employees, six managers and
five executives. As of such date, the Grand Hotel Group had a total of 731
employees, consisting of 652 operational personnel, 30 administrative personnel,
22 sales representatives, and a management team of 27 personnel. Our ability to
attract and retain highly qualified employees will be the principal determinant
of our success. We provide performance-based compensation programs to reward and
motivate significant contributors among our employees. Competition for qualified
personnel in the industry is intense. There can be no assurance that our current
and planned staffing will be adequate to support our future operations or that
management will be able to hire, train, retain, motivate and manage required
personnel. Although none of our employees is represented by a labor union, there
can be no assurance that our employees will not join or form a labor union. We
have not experienced any work stoppages and consider our relations with our
employees to be good.
OUR INSURANCE
We carry comprehensive liability, fire, hurricane, storm, earthquake and
business interruption insurance with respect to our resorts, with policy
specifications, insured limits and deductibles customarily carried for similar
properties which we believe are adequate. There are, however, certain types of
losses (such as losses arising from acts of war) that are not generally insured
because they are either uninsurable or not economically insurable. Should an
uninsured loss or a loss in excess of insured limits occur, we could lose our
capital invested in a resort, as well as the anticipated future revenues from
such resort and would continue to be obligated on any mortgage indebtedness or
other obligations related to the property. Any such loss could have a material
adverse effect on our business. Please see "Risk Factors--Our resorts may be
subject to natural and other disasters for which we may not be adequately
insured" for a discussion of certain related risks.
OUR FACILITIES
Our headquarters are located at 6 Leylands Park, Nobs Crook, Colden
Common, Winchester SO21 1TH England, where we utilize a facility comprising an
aggregate of approximately 6,000 square feet of space that is leased by
Queensborough Holdings plc. Kevin R. Leech, our Chairman, is the Executive
Chairman and 29.7% equity owner of Queensborough Holdings. Such facility houses
our administrative, sales and marketing, customer service and computer and
communications systems facilities. We do not currently pay any rent or fees to
Queensborough Holdings or any other party for the use of these facilities. See
"Certain Transactions--Facilities."
The following table describes our other principal facilities:
LOCATION PRINCIPAL USE APPROX. SQUARE FEET OWNED/LEASED
-------- ------------- ------------------- ------------
Horsham, West Sussex General 930 Leased
administration
and sales
Manchester Tour operating 1,995 Leased
Manchester,
Oldham Road Tour operating 3,040 Leased
Stockport, Cheshire General
administration 1,025 Leased
and sales
Urmston, Cheshire General
administration 930 Owned
and sales
Hale, Cheshire General
administration 730 Leased
and sales
Warrington, Lancshire General
administration 970 Leased
and sales
Addington, Cheshire General
administration 900 Leased
and sales
We believe that these facilities are adequate to meet our needs in the
foreseeable future. If necessary, we may, from time to time, acquire or lease
additional facilities in the future.
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Please see "--Our Grand Hotel Group" for a discussion of the resort
facilities currently owned and operated by our Grand Hotel Group.
LITIGATION
We are not presently involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to our
executive officers and directors as of the date of this prospectus.
Name Age Position
- ---- --- --------
Kevin R. Leech 55 Chairman of the Board
Raymond J. Peel 55 President, Chief Executive Officer and Director and
President of the Travel Group
Rod Rodgers 54 Senior Executive Vice President and Director and
President of the Grand Hotel Group
David Marriott 53 Marketing Director and Vice President of the
Grand Hotel Group
Stephen Last 50 Executive Vice President and
Chief Financial Officer and Director
Philip Mason 49 Director
KEVIN R. LEECH has served as our Chairman of the Board since inception of
our company. Mr. Leech co-founded ML Laboratories plc, an English company listed
on the London Stock Exchange engaged in the research and development of ethical
pharmaceuticals and related products, and is currently its Executive Chairman
and controls 53% of its equity. He is also Executive Chairman and 29.7% equity
owner of Queensborough Holdings plc, an English company listed on the London
Stock Exchange whose principal business is in the leisure sector. Mr. Leech is
also currently the Chairman of the Board and 52.5% equity owner of topjobs.net
plc, an English company whose American depositary shares are quoted on the
Nasdaq National Market and which provides a variety of Internet-based recruiting
services to corporations and recruiting firms, and is a director and 62.5%
equity owner of TownPagesNet.com plc, an English company whose American
depositary shares are listed on the American Stock Exchange and which produces
and delivers TownPages(R), an interactive Internet information service in the
United Kingdom. In addition, Mr. Leech is a director and a 54% equity owner of
Ci4net.com, Inc., a U.S. corporation which invests in Internet businesses and
technologies and is currently traded on the OTC-Electronic Bulletin Board. He is
also a principal shareholder of numerous privately-owned companies resulting
from his role as a provider of private venture capital. In October 1998, Mr.
Leech was awarded an honorary Doctorate of Laws degree from the University of
Manchester (England).
RAYMOND J. PEEL has served as our President and Chief Executive Officer
and as a director since inception of our company, and has served as President of
Leisure Travel Group Limited since January 1998. From 1991 to January 1998, Mr.
Peel served as President of Aircruise Leasing--Charter, a company engaged in the
provision of aircraft and charter seats for independent tour operators to major
European holiday destinations. In 1981, Mr. Peel founded R.P. Marketing, a
company engaged in providing consulting services related to oil pollution
control in connection with moving equipment and personnel, and served as its
President from 1981 to January 1998. In 1985, Mr. Peel also co-founded Paramount
Airways Ltd., a small international airline and holiday company based in the
United Kingdom, and served as its Chief Executive Officer from 1985 to 1990. Mr.
Peel holds a leisure and business degree from Shrewsbury College of Arts and
Technology in England.
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ROD RODGERS has served as a director since inception of our company, and
has served as President of the Grand Hotel Group since July 1, 1999. Mr. Rodgers
will become our Senior Executive Vice President upon completion of this
offering. From July 1996 to June 1999, Mr. Rodgers served as managing director
with M.H. Hotels, where he was instrumental in forming the three-star Epworth
Hotels group. From 1987 to January 1996, Mr. Rodgers served as Chief Executive
Officer with Balmoral Group, a private company focused on the development of a
mid-market three-star hotel group.
DAVID MARRIOTT has served as our Marketing Director since inception of our
company, and has served as Vice President of the Grand Hotel Group since July 1,
1999. From February 1998 to June 1999, Mr. Marriott was self-employed as a hotel
consultant to various hotel organizations in the United Kingdom. From June 1993
to November 1995, Mr. Marriott served as Managing Director for Ascot Holdings
plc's Hotel Burstin, Folkestone, and continued in that capacity from November
1995 to February 1998 following the acquisition of that hotel by Leisure Great
Britain plc in November 1995. From September 1994 to March 1995, Mr. Marriott
served as Joint Director General of Ascot Holdings Spanish Hotel Division, a
division composed of Ascot Holdings plc's hotels and leisure complexes in Spain.
Mr. Marriott has also held senior sales and marketing positions with the medical
division of Smiths Industries, Colgate Palmolive, and Protea Holdings, South
Africa.
STEPHEN LAST has served as our Executive Vice President and Chief
Financial Officer and as a director since the inception of our company. Since
November 1995, Mr. Last has served as Finance Director of Queensborough Holdings
plc, an English company listed on the London Stock Exchange whose principal
business is in the leisure sector. From 1993 to October 1995, Mr. Last served as
an executive for a company founded by Philip Mason to engage in identifying
leisure companies for acquisition. From 1989 to 1993, Mr. Last managed the
integration of Marina Developments plc's newly-acquired property division. From
1974 to 1986, Mr. Last was employed in various capacities by The Rank Group plc,
including Financial Controller for the company's Butlin's Hotels Division.
PHILIP MASON has served as a director since the inception of our company.
Since November 1995, Mr. Mason has been Chief Executive of Queensborough
Holdings plc, an English company listed on the London Stock Exchange whose
principal business is in the leisure sector. In 1993, Mr. Mason established his
own company devoted to identifying and acquiring leisure companies, which he ran
full-time until his employment by Queensborough Holdings in November 1995. From
1987 to 1993, Mr. Mason worked as a Managing Director for Marina Developments
Plc, where he supervised marinas and marina villages in the UK. From 1974 to
1986, Mr. Mason was employed in various capacities by The Rank Group plc,
including Operations Director of a leisure division focused on hotel businesses
and marinas in France, Spain, and the United Kingdom.
Prior to the completion of this offering, we intend to expand our Board of
Directors to add two additional independent directors who are not affiliated
with our company.
There is no family relationship between any of our executive officers and
directors. Other than as disclosed in "Certain Transactions," none of our
directors or executive officers has any material transaction with us in addition
to their status as a director or officer. Each director is elected at our annual
meeting of shareholders and holds office until the next annual meeting of
shareholders, or until his successor is elected and qualified. The bylaws permit
the Board of Directors to fill any vacancy and such director may serve until the
next annual meeting of shareholders or until his successor is elected and
qualified. Officers are elected annually by the Board of Directors and their
terms of office are at the discretion of the Board, subject to the terms of any
employment agreements. Our officers devote full time to our business.
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COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors intends to establish an audit and finance committee
and a compensation and governance committee after this offering. The audit and
finance committee will:
o make recommendations to the board concerning the independent
auditors that conduct annual examinations of our accounts;
o review the scope of our annual audit and meet periodically with the
independent auditors to review their findings and recommendations;
o approve significant accounting policies or changes to existing
policies;
o periodically review our principal internal financial controls; and
o review our annual budget.
The compensation and governance committee will review the compensation of
our executive officers and make recommendations regarding compensation. The
committee will also make recommendations regarding the election of officers and
director nominations to our Board of Directors.
DIRECTOR COMPENSATION
Upon completion of this offering, we expect to grant each director who is
not an officer, employee or consultant an option to purchase ________ shares of
our common stock at ___% of the initial public offering price. Directors who are
not our employees receive $_____ per meeting as compensation for serving on the
Board of Directors, as well as reimbursement of reasonable out-of-pocket
expenses incurred in connection with their attendance at Board of Directors'
meetings. Directors who are also our employees will receive no cash compensation
for serving on the Board of Directors, but will be reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at Board of
Directors' meetings. We anticipate that our Board of Directors will hold
regularly schedules meetings quarterly.
EXECUTIVE COMPENSATION
To date, we have not conducted any operations other than activities
related to this offering. We did not pay any compensation to our executive
officers prior to the date of this prospectus. We anticipate that during 2000
our most highly compensated executive officers and their annualized base
salaries will be: Raymond J. Peel--(pound)100,000; Rod Rodgers--(pound)60,000
and David Marriott--(pound)55,000. Effective when this offering closes, we will
grant these executive officers options to purchase an aggregate of _______
shares of common stock. The initial exercise price of those options will be
$_____ per share. Those options will vest in ___% annual increments, beginning
on the first anniversary of the date this offering closes. See "--2000 Stock
Option Plan."
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EMPLOYMENT AGREEMENT
We will enter into employment agreements with Messrs. Peel, Rodgers and
Marriott, which will become effective when this offering closes. These
agreements will:
o provide for a minimum base salary of (pound)100,000 per annum in the
case of Mr. Peel, (pound)60,000 per annum in the case of Mr.
Rodgers, and (pound)55,000 per annum in the case of Mr. Marriott;
o entitle the employee to participate in all our compensation plans in
which our executive officers participate; and
o have an initial term of three years in the case of Mr. Peel, and six
months in the case of Messrs. Rodgers and Marriott.
Each of these agreements will provide for benefits if the employee dies or
becomes disabled. If the employment of the employee terminates for any reason
other than for cause by us or for good reason by the employee, that termination
will not affect the term of exercisability of any plan stock options that
employee holds. Copies of these agreements are exhibits to the registration
statement of which this prospectus is a part.
2000 STOCK OPTION PLAN
On February 23, 2000, the Board of Directors and a majority of our
shareholders adopted our 2000 Stock Option Plan. The purpose of the plan is to
increase the employees', advisors', consultants' and non-employee directors'
proprietary interest in us and to align more closely their interests with the
interests of our shareholders. The purpose of the plan is also to enable us to
attract and retain the services of experienced and highly qualified employees
and non-employee directors.
We have reserved an aggregate of 1,000,000 shares of common stock for
issuance pursuant to options granted under the plan. As of the date of this
prospectus, ___________ options have been granted under the plan at an exercise
price of $______ per share. The Board of Directors or a committee
of the Board of Directors will administer the plan including, without
limitation, the selection of the persons who will be granted options under the
plan, the type of options to be granted, the number of shares subject to each
option and the option price. As of this date, the Board of Directors has not
established a separate committee.
Options granted under the plan may either be options qualifying as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended, or options that do not so qualify. Officers, directors and key
employees of and consultants to us and our subsidiaries will be eligible to
receive non-qualified options under the plan. Only our officers, directors and
employees who are employed by us or by any of our subsidiaries thereof are
eligible to receive incentive options. In addition, the plan also allows for the
inclusion of a reload option provision, which permits an eligible person to pay
the exercise price of the option, and any withholding taxes that may be due on
the exercise, with shares of common stock owned by the eligible person and to
receive a new option to purchase shares of common stock equal in number to the
tendered shares. Any incentive option granted under the plan must provide for an
exercise price of not less than 100% of the fair market value of the underlying
shares on the date of such grant, but the exercise price of any incentive option
granted to an eligible employee owning more than 10% of the total combined
voting power of all classes of our common stock or the common stock of any of
our subsidiary companies must be at least 110% of such fair market value as
determined on the date of the grant.
The term of each option and the manner in which it may be exercised is
determined by the Board of Directors or a committee, provided that no option may
be exercisable more than 10 years after the date of its grant and, in the case
of an incentive option granted to an eligible employee owning more than 10% of
our common stock or the common stock of our subsidiary companies, no more than
five years after the date of the grant. In any case, the exercise price of any
stock option granted under the plan will not be less than 85% of the fair market
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value of the common stock on the date of grant. The exercise price of
non-qualified options shall be determined by the Board of Directors or a
committee.
The per share purchase price of shares subject to options granted under
the plan may be adjusted in the event of certain changes in our capitalization,
but any such adjustment shall not change the total purchase price payable upon
the exercise in full of options granted under the plan.
Incentive stock options are nonassignable and nontransferable, except by
will or by the laws of descent and distribution and, during the lifetime of the
optionee, may be exercised only by such optionee. Non-qualified options may be
assignable to the optionee's spouse or children. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not our employee but is a member of our Board of
Directors and his service as a director is terminated for any reason, other than
death or disability, the option granted may be exercised on the earlier of the
expiration date or 30 days following the date of termination. If the optionee
dies during the term of his employment, the option granted to him shall lapse to
the extent unexercised on the earlier of the expiration date of the option or
the date one year following the date of the optionee's death. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Code, the option granted to him lapses to the extent unexercised on the earlier
of the expiration date of the option or one year following the date of such
disability.
The Board of Directors or a committee may amend, suspend or terminate the
plan at any time, except that no amendment shall be made which (i) increases the
total number of shares subject to the plan or changes the minimum purchase price
therefor (except in either case in the event of adjustments due to changes in
our capitalization), (ii) without the consent of the optionee, affects
outstanding options or any exercise right thereunder, (iii) extends the term of
any option beyond ten years, or (iv) extends the termination date of the plan.
Unless the plan shall be earlier suspended or terminated by the Board of
Directors, the plan shall terminate on approximately 10 years from the date of
the plan's adoption. Any such termination of the plan shall not affect the
validity of any options previously granted thereunder.
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CERTAIN TRANSACTIONS
ACQUISITIONS
Effective June 30, 1999, GHG purchased from Rank Holidays Division Limited,
a subsidiary of The Rank Group plc, substantially all of the operating assets
relating to five hotels formerly known as the Butlin's Provincial Hotels,
including the physical properties, equipment, concessions, inventory, cash
reserves, customer lists, records and goodwill. Following the acquisition, GHG
renamed the hotels The Grand Ocean Hotel, Brighton, The Grand Hotel,
Scarborough, The Grand Hotel, Margate, The Grand Metropole Hotel, Blackpool and
The Grand Hotel, Llandudno. GHG is a private limited company organized under the
laws of England and Wales that is 85% owned by Cygnet Ventures Limited, a
Guernsey (Channel Islands) corporation controlled by Kevin R. Leech, our
Chairman of the Board and principal stockholder, and 15% owned by certain other
members of our management team. In consideration for the sale of such assets,
GHG paid a subsidiary of The Rank Group (pound)19.0 million (approximately $30.6
million), of which (pound)8.6 million was paid in cash and the balance of
(pound)10.4 million was paid by GHG's issuance of a non-interest-bearing
promissory note due 2002. The GHG note was secured by an irrevocable letter of
credit issued by Citibank, N.A. in favor of Butlin's Limited. The issuance of
the letter of credit was obtained through the personal guaranty of Mr. Leech.
GHG financed its cash payment of the purchase price through loans obtained from
Arab Bank plc and Irish Nationwide Building Society secured by charges granted
by Grand Hotel Group, including mortgages on the purchased hotels.
In July 1999, LTGL acquired all of the issued and outstanding share
capital of Miss Ellie's World Travel Limited, a private limited company
organized under the laws of England and Wales. In exchange for such share
capital, LTGL paid an aggregate of (pound)1,030,000 (approximately $1,660,000)
to the former shareholders of Miss Ellie's. LTGL funded the acquisition through
a loan from Red Kite Ventures Limited, an investment company beneficially owned
by Red Kite Trust, the beneficiary of which is Kevin R. Leech, our Chairman of
the Board and principal stockholder. The terms of the acquisition provided for
certain "earnout" provisions whereby, after our acquisition of LTGL upon
completion of this offering, we may be required to pay additional cash to the
former stockholders of Miss Ellie's equal to the pre-tax income of Miss Ellie's
earned for the 12 month period from April 1999 through March 2000. These
payments are to be funded through our cash flows from operations.
In January 2000, LTGL also acquired all of the issued and outstanding
share capital of Ilios Travel Limited, a private limited company organized under
the laws of England and Wales. In exchange for such share capital, LTGL paid an
aggregate of (pound)325,000 (approximately $524,000) to the former shareholders
of Ilios. As a result of this acquisition, LTGL expanded its travel-related
services and increased its market position and cross-selling opportunities in
other destinations throughout Europe. LTGL also funded this acquisition through
a loan from Red Kite Ventures Limited.
In January 2000, trrravel.com Limited, a private limited company organized
under the laws of England and Wales, acquired from an unaffiliated third party
for (pound)200,000 (approximately $322,340) all of the outstanding share capital
of Independent Aviation Limited, a tour operating airline seat provider.
trrravel.com Limited was a wholly-owned subsidiary of Ci4net.com, Inc., a
Delaware corporation whose common stock is publicly-traded on the OTC Bulletin
Board. A corporation controlled by Kevin R. Leech is the principal stockholder
of Ci4net.com, Inc.
In March 2000, the shareholders of GHG agreed to transfer 100% of the
outstanding share capital of GHG to LTGL in exchange for the issuance of an
aggregate of 3,700,000 shares of our common stock, and the shareholders of LTGL
agreed to transfer to us 100% of the outstanding share capital of LTGL in
exchange for the issuance of an aggregate of 940,000 shares of our common stock.
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In addition, Ci4net.com, Inc. agreed to transfer to us 49% of the outstanding
share capital of trrravel.com Limited in exchange for the issuance of an
aggregate of 220,000 shares of our common stock. All of such transfers are
conditioned upon:
o the completion of this offering and application of a portion of the
net proceeds (together with additional mortgage financing) to retire
all (pound)10.4 million (approximately $16.8 million) of
indebtedness of GHG owed to The Rank Group or its subsidiaries; and
o the capitalization of (pound)1,030,000 (approximately $1,660,000) of
loans made to LTGL by a corporate affiliate of Kevin R. Leech.
Upon payment of the (pound)10.4 million of indebtedness of GHG to The Rank
Group or its subsidiaries, Mr. Leech will be relieved of his personal guaranty
and certain marketable securities pledged by him to secure his guaranty will be
returned to him. See "Risk Factors--Our principal stockholder will derive
significant benefits from this offering," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Terms of our Acquisitions" and
"Principal Stockholders."
OTHER TRANSACTIONS
We anticipate that our Travel Group will be engaging in significant
advertising of its travel agency, tour operator and other services on
www.trrravel.com and will pay fees and commissions based on on-line bookings
made and transactions closed through use of the Web site. trrravel.com Limited
is currently wholly-owned by Ci4net.com, Inc., a publicly-traded Delaware
corporation controlled by Kevin R. Leech, our principal stockholder and Chairman
of the Board. Ci4net.com has agreed upon completion of this offering to
contribute 49% of its equity ownership of trrravel.com Limited to us and will
continue to be solely responsible for the development and maintenance of the
Web site. Although we believe that the fees and commissions we pay to advertise
on www.trrravel.com will be at rates no less favorable than is being charged to
unaffiliated third parties, Mr. Leech's other corporate affiliates will directly
benefit as we increase our advertising on the trrravel.com Web site. The common
control of our company and the majority owner of trrravel.com Limited could lead
to conflicts of interest in terms of the most effective means of marketing and
advertising our services. In addition, as more people use the Internet to book
their travel accommodations, the business of our travel agencies and tour
operators could be adversely affected.
Mr. Leech is the principal stockholder of Queensborough Holdings plc, a
publicly traded corporation trading on the London Stock Exchange. Among
Queensborough's holdings is the Burstin Hotel, located in Folkestone, England,
which is a holiday resort hotel similar to those operated by our Grand Hotel
Group, and which competes with our Grand Hotel Group for guests in the same
market. Philip Mason, a director of our company, and Stephen Last, our Executive
Vice President and Chief Financial Officer, are also executive officers of
Queensborough Holdings plc. See "Risk Factors--There is the possibility of
conflicts of interest with other businesses controlled by our principal
shareholder" and "Principal Stockholders."
FACILITIES
Our headquarters are located in a facility that is currently leased by
Queensborough Holdings plc, an English company listed on the London Stock
Exchange. Kevin R. Leech, our Chairman, is the Executive Chairman and 29.7%
equity owner of Queensborough Holdings. We do not currently pay any rent or fees
to Queensborough Holdings or any other party for the use of these facilities.
See "Business--Our Facilities."
COMPANY POLICY
Our Board of Directors has adopted a policy whereby any future
transactions between Leisure Travel Group and any of our subsidiaries,
affiliates, officers, directors and principal stockholders, or any affiliates of
the foregoing, will be on terms no less favorable to us than could reasonably be
obtained in "arm's-length" transactions with independent third-parties, and any
such transactions will also be approved by a majority of our disinterested
non-management directors.
68
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this prospectus:
o each person who is known by us to be the owner of record or
beneficial owner of more than 5% of the outstanding common stock;
o each of our directors and executive officers;
o all of our directors and executive officers as a group; and
o the number of shares of common stock beneficially owned by each such
person and such group and the percentage of the outstanding shares
owned by each such person and such group.
As used in the table below and elsewhere in this prospectus, the term
"beneficial ownership" with respect to a security consists of sole or shared
voting power, including the power to vote or direct the vote, and/or sole or
shared investment power, including the power to dispose or direct the
disposition, with respect to the security through any contract, arrangement,
understanding, relationship, or otherwise, including a right to acquire such
power(s) during the next 60 days following the date of this prospectus. Except
as otherwise indicated, the stockholders listed in the table have sole voting
and investment powers with respect to the shares indicated. Applicable
percentage ownership is based on 5,060,000 shares of common stock outstanding as
of the date of this prospectus and 8,060,000 shares immediately following the
completion of this offering, assuming no exercise of the underwriters'
over-allotment option. To the extent that any shares are issued upon exercise of
options, warrants or other rights to acquire our securities that are presently
outstanding or granted in the future or reserved for future issuance under our
stock option plan, there will be further dilution to new public investors.
Except as otherwise noted below, the address of each of the persons in the
table is c/o Leisure Travel Group, Inc., 6 Leylands Park, Nobs Crook, Colden
Common, Winchester SO21 1TH England.
PERCENTAGE OF OUTSTANDING
NUMBER OF SHARES COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OF COMMON STOCK BENEFICIALLY OWNED
- ------------------------------------ BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
------------------- -------------- --------------
Kevin R. Leech.................. 3,878,334(1) 76.6% 48.1%
Cignet Ventures Limited(2)...... 3,145,000 62.2% 39.0%
Philip Mason.................... 370,000 7.3% 4.6%
Raymond J. Peel................. 313,333 6.2% 3.9%
Internet plc(3)................. 313,333 6.2% 3.9%
Red Kite Ventures Limited(4).... 313,334 6.2% 3.9%
Ci4net.com, Inc.(5)............. 220,000 4.3% 2.7%
Milner Laboratories Limited(6).. 200,000 4.0% 2.5%
Stephen Last.................... 74,000 1.5% *
Rod Rodgers..................... 74,000 1.5% *
David Marriott.................. 37,000 * *
All directors and executive
officers as a group (6 persons)... 4,747,666 93.8% 58.9%
69
- -------------------
* indicates beneficial ownership of less than 1% of our outstanding shares
of common stock.
(1) Represents shares of our common stock owned of record by Cignet Ventures
Limited, a Guernsey (Channel Islands) corporation controlled by Mr. Leech,
Red Kite Ventures Limited, a Guernsey (Channel Islands) corporation 100%
beneficially owned by Red Kite Trust, the beneficiary of which is the
Leech family, Ci4net.com, Inc., a publicly-traded Delaware corporation
controlled by Mr. Leech, and Milner Laboratories Limited, a private
limited company controlled by Mr. Leech. Please see "Certain Transactions"
for a detailed discussion of certain business arrangements between Mr.
Leech and/or companies controlled by Mr. Leech, and Leisure Travel Group.
(2) Cignet Ventures Limited is a Guernsey (Channel Islands) corporation
controlled by Kevin R. Leech, our Chairman of the Board and principal
stockholder.
(3) Internet plc is a Seychelles corporation controlled by Lee Cole.
(4) Red Kite Ventures Limited is a Guernsey (Channel Islands) corporation 100%
beneficially owned by Red Kite Trust, the beneficiary of which is the
family of Kevin R. Leech.
(5) Ci4net.com, Inc. is a publicly-traded Delaware corporation controlled by
Mr. Leech.
(6) Milner Laboratories Limited is a private limited company controlled by
Kevin R. Leech.
70
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue up to 25,000,000 shares of common stock, par
value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001
per share. The following description of our capital stock is not complete and is
qualified in its entirety by our Certificate of Incorporation, as amended, and
bylaws, copies of which have been filed with the Securities and Exchange
Commission.
COMMON STOCK
As of the date of this prospectus, there were 5,060,000 shares of common
stock outstanding held of record by 10 stockholders (not including the shares
issued in this offering). Holders of common stock are entitled to one vote for
each share held of record on each matter submitted to a vote of stockholders.
There is no cumulative voting for the election of directors. Subject to the
prior rights of any class or series of preferred stock which may from time to
time be outstanding, if any, holders of common stock are entitled to receive
ratably, dividends when, as, and if declared by the board of directors out of
funds legally available for that purpose and, upon the liquidation, dissolution,
or winding up of Leisure Travel Group, are entitled to share ratably in all
assets remaining after payment of liabilities and payment of accrued dividends
and liquidation preferences on the preferred stock, if any. Holders of common
stock have no preemptive rights and have no rights to convert their common stock
into any other securities. The outstanding common stock is validly authorized
and issued, fully-paid, and nonassessable. In the event we were to elect to sell
additional shares of common stock following this offering, investors in this
offering would have no prior right to purchase additional shares. As a result,
their percentage equity interest in Leisure Travel Group would be diluted.
The shares of common stock offered in this offering will be, when issued
and paid for, fully paid and not liable for further call or assessment. Holders
of the common stock do not have cumulative voting rights, which means that the
holders of more than one half of the outstanding shares of common stock, subject
to the rights of the holders of the preferred stock, can elect all of our
directors, if they choose to do so. In this event, the holders of the remaining
shares of common stock would not be able to elect any directors. The board of
directors is empowered to fill any vacancies on the board, except vacancies
caused by an increase in the number of directors, which are filled by the
stockholders. Except as otherwise required by Delaware law, and subject to the
rights of the holders of preferred stock, all stockholder action is taken by the
vote of a majority of the outstanding shares of common stock voting as a single
class present at a meeting of stockholders at which a quorum consisting of a
majority of the outstanding shares of common stock is present in person or
proxy.
PREFERRED STOCK
As of the date of the offering, none of our preferred stock has been
issued and our board of directors has no present intention of issuing any
preferred shares in the near future.
Preferred stock may be issued in one or more series and having the rights,
privileges, and limitations, including voting rights, conversion privileges, and
redemption rights, as may, from time to time, be determined by our Board of
Directors. Preferred stock may be issued in the future in connection with
acquisitions, financings, or other matters as the board of directors deems
appropriate. In the event that any shares of preferred stock are to be issued, a
certificate of designation containing the rights, privileges, and limitations of
such series of preferred stock shall be filed with the Secretary of State of the
State of Delaware. The effect of such preferred stock is that our Board of
Directors alone, and subject to, federal securities laws and Delaware law, may
be able to authorize the issuance of preferred stock which could have the effect
of delaying, deferring, or preventing a change in control of
71
Leisure Travel Group without further action by the stockholders, and may
adversely affect the voting and other rights of the holders of the common stock.
The issuance of preferred stock with voting and conversion rights may also
adversely affect the voting power of the holders of common stock, including the
loss of voting control to others.
ANTI-TAKEOVER PROVISIONS
Upon consummation of this offering, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. Section 203 of the
Delaware Law provides, subject to a number of exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or an associate of an affiliate, who is an "interested
stockholder" for a period of three years from the date that person became an
interested stockholder unless:
o the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the board
of directors of the corporation before the person becomes an
interested stockholder,
o the interested stockholder acquired 85% or more of the outstanding
voting stock of the corporation in the same transaction that makes
this person an interested stockholder, excluding shares owned by
persons who are both officers and directors of the corporation, and
the shares held by certain employee stock ownership plans, or
o on or after the date the person becomes an interested stockholder,
the business combination is approved by the corporation's board of
directors and by the holders of at least 66-2/3% of the
corporation's outstanding voting stock at an annual or special
meeting, excluding the shares owned by the interested stockholder.
Under Section 203 of the Delaware Law, an "interested stockholder"
is defined as any person who is either the owner of 15% or more of
the outstanding voting stock of the corporation or an affiliate or
associate of the corporation and who was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within
the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested
stockholder.
A corporation may, at its option, exclude itself from coverage of Section
203 of the Delaware law by amending its certificate of incorporation or by-laws,
by action of its stockholders, to exempt itself from coverage, provided that the
amendment to the certificate of incorporation or by-laws does not become
effective until 12 months after the date it is adopted.
REGULATION OF THE INTRODUCTION OF BUSINESS AT ANNUAL MEETINGS OF STOCKHOLDERS
Our by-laws include provisions which regulate the submission by persons
other than our Board of Directors of matters to a vote of stockholders.
Generally, at an annual meeting of the stockholders, the only business conducted
must be brought before the annual meeting either by or at the direction of our
Board of Directors or by any person who is a stockholder of record of Leisure
Travel Group at the time of giving of notice for such meeting, who shall be
entitled to vote at such annual meeting and who complies with the notice
procedures set forth in our bylaws. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must be given timely notice
thereof in writing to the Secretary of Leisure Travel Group. To be timely, a
stockholder's notice must be delivered or mailed to, and received at, our
principal executive offices not less than 60 days nor more than 90 days prior to
the annual meeting, regardless of any postponement, deferrals, or adjournments
of that meeting to a later date; provided, however, that in the event that less
than 70 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder to be timely
must be received no later than the close of business on the 10th day following
the day on which notice
72
of the date of the annual meeting was mailed or public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting the following:
o a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting this business at the
annual meeting,
o the name and address, as they appear on our books and records, of
the stockholder proposing this business,
o the class and number of shares of Leisure Travel Group which are
beneficially owned by the stockholder, and
o any material interest of the stockholder in the business he wishes
to bring before the annual meeting.
Notwithstanding anything in our bylaws to the contrary, no business shall
be conducted at the stockholder meeting, except in accordance with the
procedures set forth in our by-laws. The chairman of the meeting, as determined
in accordance with our bylaws, shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
and, in accordance with the provisions of our bylaws, and if he should so
determine, he shall so declare to the meeting and any business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing, a stockholder shall also comply with all applicable requirements of
the Securities Exchange Act of 1934, as amended, with respect to the above.
TRANSFER AGENT
Our transfer agent and registrar for the common stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
73
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 8,060,000 shares of common
stock outstanding. Of these shares, the 3,000,000 shares offered in this
offering will be freely tradeable without further registration under the
Securities Act of 1933, as amended. All of our officers and directors, current
stockholders, and option holders under the 2000 Plan have agreed not to sell, or
otherwise dispose of any of our securities for a period of between six and 12
months from the date of this offering without Roth Capital Partners' prior
written consent.
All of the presently outstanding 5,060,000 shares of common stock are
"restricted securities" within the meaning of Rule 144 under the Securities Act
and, if held for at least one year, would be eligible for sale in the public
market in reliance upon, and in accordance with, the provisions of Rule 144
following the expiration of a one-year period. In general, under Rule 144 as
currently in effect, a person or persons whose shares are aggregated, including
a person who may be deemed to be an "affiliate" of Leisure Travel Group as that
term is defined under the Securities Act, would be entitled to sell within any
three month period a number of shares beneficially owned for at least one year
that does not exceed the greater of (1) 1% of the then outstanding shares of
common stock, or (2) the average weekly trading volume in the common stock
during the four calendar weeks preceding such sale. Sales under Rule 144 are
also subject to requirements as to the manner of sale, notice, and the
availability of current public information about Leisure Travel Group. However,
a person who is not deemed to have been an affiliate of Leisure Travel Group
during the 90 days preceding a sale by such person and who has beneficially
owned such shares of common stock for at least two years may sell such shares
without regard to the volume, manner of sale, or notice requirements of Rule
144.
Prior to this offering, there has been no public market for our
securities. Following this offering, we cannot predict the effect, if any, that
sales of shares of common stock pursuant to Rule 144 or otherwise, or the
availability of these shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the current stockholders of a
substantial number of shares of common stock in the public market could
materially adversely affect prevailing market prices for our common stock. In
addition, the availability for sale of a substantial number of shares of common
stock acquired through the exercise of the representative's warrants or the
outstanding options under the 2000 Plan could materially adversely affect
prevailing market prices for the common stock. See "Risk Factors--Future sales
of common stock by our existing stockholders could adversely affect our stock
price."
Up to 450,000 additional shares of common stock may be purchased by Roth
Capital Partners during the period commencing on the first anniversary of the
date of this prospectus and terminating on the fifth anniversary of the date of
this prospectus through the exercise of the representative's warrants. Any and
all securities purchased upon the exercise of the representative's warrants may
be freely tradeable, provided that we satisfy the securities registration and
qualification requirements in accordance with the terms of the representative's
warrants. See "Underwriting."
74
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, we have agreed to sell to of the underwriters named below, and each
of the underwriters, for which Roth Capital Partners Incorporated is acting as
representative, has severally, and not jointly, agreed to purchase the number of
shares offered in this offering set forth opposite their respective names below.
Number of
Name Shares
----------
Roth Capital Partners Incorporated...............................
_______________________..........................................
-----------
Total ..................................................... 3,000,000
===========
A copy of the underwriting agreement has been filed as an exhibit to the
registration statement of which this prospectus is a part. The underwriting
agreement provides that the obligation of the underwriters to purchase the
shares is subject to some conditions. The underwriters shall be obligated to
purchase all of the shares (other than those covered by the underwriters'
over-allotment option described below), if any are purchased.
Roth Capital Partners has advised us that the underwriters propose to
offer the shares to the public at the public offering price on the cover page of
this prospectus and that they may allow some dealers who are members of the
NASD, and some foreign dealers, concessions not in excess of $__ per share, of
which amount a sum not in excess of $__ per share may in turn be reallowed by
such dealers to other dealers who are members of the NASD and to some foreign
dealers. After the commencement of this offering, the offering price, the
concession to selected dealers, and the reallowance to other dealers may be
changed by Roth Capital Partners.
We have agreed to indemnify the underwriters against some liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or
will contribute to payments the underwriters may be required to make in this
respect thereof.
We have agreed to pay to Roth Capital Partners an expense allowance on a
non-accountable basis, equal to ____% of the gross proceeds derived from the
sale of 3,000,000 shares offered in this offering, or (3,450,000 shares if the
underwriter's over-allotment option is exercised in full). We paid an advance on
this allowance in the amount of $_____.
The following table provides information regarding the amount of the
discount to be paid by us to the underwriters:
TOTAL WITHOUT TOTAL WITH
DISCOUNT EXERCISE OF OVER- EXERCISE OF OVER-
PER SHARE ALLOTMENT OPTION ALLOTMENT OPTION
----------------- ------------------ -----------------
$ $ $
75
The following table sets forth the amount and nature of other forms of
compensation to be paid by us to Roth Capital Partners in connection with the
offering:
TYPE OF COMPENSATION TERMS TOTAL AMOUNT
- ------------------------- ------------------------ ------------------------
Non-Accountable Expense __% of the gross $ ($
Allowance proceeds of the if the underwriters'
offering over-allotment option
is exercised in full)
Representative's Warrant to purchase up Dependent upon the
Warrant (1) to 300,000 shares at market price of common
an exercise price per stock at the time of
share of 120% of the exercise
public offering price
Two Year Consulting ____ $______ payable upon
Agreement (2) consummation of this
offering
- -----------------------
(1) Representative's Warrant is issued to Roth Capital Partners Incorporated.
(2) Two year consulting agreement is between Leisure Travel Group and Roth
Capital Partners Incorporated.
We have also agreed to pay some of Roth Capital Partners' expenses in
connection with this offering, including expenses in connection with qualifying
the shares offered in this offering for sale under the laws of such states as
Roth Capital Partners may designate, the placement of tombstone advertisements
and preparing bound volumes of the public offering documents. We estimate that
the total expenses of the offering, excluding the underwriting discount, will be
approximately $__________.
In connection with this offering, we have agreed to sell to Roth Capital
Partners for nominal consideration, the representative's warrant to purchase up
to 300,000 shares of common stock. The representative's warrant is exercisable
for a period of four years commencing one year after the date of this prospectus
at an exercise price per share equal to $__ (120% of the public offering price).
The representative's warrant may not be sold, transferred, assigned, pledged, or
hypothecated for a period of 12 months from the date of this prospectus, except
to members of the selling group. The representative's warrant grants to Roth
Capital Partners, with respect to the registration under the Securities Act of
the securities directly and indirectly issuable upon exercise of the
representative's warrant, one demand registration right during the exercise
period, as well as piggyback registration rights at any time. The
representative's warrant contains anti-dilution provisions providing for
adjustment of the exercise price and number of shares issuable on exercise of
the representative's warrant, upon the occurrence of some events, including
stock dividends, stock splits, and recapitalizations. The holder of the
representative's warrant has no voting, dividend, or other rights as a
Stockholder with respect to shares of common stock underlying the
representative's warrant, unless the representative's warrant shall have been
exercised.
In connection with this offering, we have granted Roth Capital Partners
the right, for the three-year period commencing on the closing date of this
offering, to appoint an observer to attend all meetings of our board of
directors. This designee has the right to notice of all meetings of the board of
directors and to receive reimbursement for all out-of-pocket expenses incurred
to attend these meetings. In addition, the designee will be entitled to
indemnification to the same extent as our directors.
76
Roth Capital Partners has advised us that the underwriters do not intend
to confirm sales of the shares offered in this offering to any account over
which they exercise discretionary authority.
We, and each of our officers, directors, and shareholders, have agreed not
to offer, assign, issue, sell, hypothecate, or otherwise dispose of any shares
of our common stock, securities convertible into, or exercisable or exchangeable
for, shares of our common stock, or shares of our common stock received upon
conversion, exercise, or exchange of these securities, to the public without the
prior written consent of Roth Capital Partners for a period of betweem six and
12 months after the date of this prospectus.
We have also granted to the underwriters an option, exercisable during the
45-day period commencing on the date of this prospectus, to purchase at the
public offering price per share, less the underwriting discount, up to an
aggregate of 450,000 shares of common stock. To the extent this option is
exercised, the underwriters will become obligated, subject to some conditions,
to purchase additional shares of common stock. The underwriters may exercise
this right of purchase only for the purpose of covering over-allotments, if any,
made in connection with the sale of shares. Purchases of shares of common stock
upon exercise of the over-allotment option will result in the realization of
additional compensation by the underwriters.
Roth Capital Partners has informed us that it does not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
The underwriters have reserved for sale up to ______ shares for our
employees, directors and certain other persons associated with us. These
reserved shares will be sold at the public offering price that appears on the
cover of this prospectus. The number of shares available for sale to the general
public in the offering will be reduced to the extent reserved shares are
purchased by such persons. The underwriters will offer to the general public, on
the same terms as other shares offered by this prospectus, any reserved shares
that are not purchased by such persons.
Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
o STABILIZING TRANSACTIONS. The underwriters may make bids or
purchases for the purpose of pegging, fixing or maintaining the
price of the shares, so long as stabilizing bids do not exceed a
specified maximum.
o OVER-ALLOTMENTS AND SYNDICATE COVERAGE TRANSACTIONS. The
underwriters may create a short position in the shares by selling
more shares than are set forth on the cover page of this prospectus.
If a short position is created in connection with the offering, Roth
Capital Partners may engage in syndicate covering transactions by
purchasing shares in the open market. Roth Capital Partners may also
elect to reduce any short position by exercising all or part of the
over-allotment option.
o PENALTY BIDS. If Roth Capital Partners purchases shares in the open
market in a stabilizing transaction or syndicate coverage
transaction, it may reclaim a selling concession from the
underwriters and selling group members who sold those shares as part
of this offering.
77
Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
We and the underwriters expect that the shares will be ready for delivery
on the fourth business day following the date of this prospectus. Under
Securities and Exchange Commission regulations, secondary market trades are
required to settle in three business days following the trade date (commonly
referred to as "T+3"), unless the parties to the trade agree to a different
settlement cycle. As noted above, the shares will settle in T+3. Therefore,
purchasers who wish to trade on the date of this prospectus or during the next
three succeeding business days must specify an alternate settlement cycle at the
time of the trade to prevent a failed settlement. Purchasers of the shares who
wish to trade shares on the date of this prospectus or during the next 3
succeeding business days should consult their own advisors.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Greenberg Traurig, LLP (New York, New York). Certain
matters will be passed upon for the underwriters by Pollet Law, a California
corporation (Los Angeles, California).
EXPERTS
Ernst & Young, independent auditors, have audited the financial statements
of GHG (Predecessor) at December 31, 1998 and for the two years in the period
ending December 31, 1998, and the six months ended June 30, 1999, and Grand
Hotel Group at October 31, 1999 and for the four months then ended, as set forth
in their reports. We have included our financial statements in the prospectus
and elsewhere in the registration statements in reliance on Ernst & Young's
reports, given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including the exhibits, schedules and amendments to this
registration statement, under the Securities Act of 1933, as amended, with
respect to the shares of common stock to be sold in this offering. This
prospectus does not contain all the information set forth in the registration
statement. For further information with respect to Leisure Travel Group and the
shares of common stock to be sold in this offering, we make reference to the
registration statement. Although this prospectus contains all material
information regarding Leisure Travel Group, statements contained in this
prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance we make reference
to the copy of such contract, agreement or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference.
You may read and copy all or any portion of the registration statement or
any other information we file at the Securities and Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating
78
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our Securities and Exchange
Commission filings, including the registration statement, are also available to
you on the Securities and Exchange Commission's Web site (http://www.sec.gov).
As a result of this offering, we will become subject to the information
and reporting requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy and information statements and other information may also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
79
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors ..............................................F-2
Audited Financial Statements
Combined Balance Sheet of Grand Hotel Group (Predecessor) at
December 31, 1998 and Balance Sheet of Grand Hotel Group
at October 31, 1999 ......................................................F-3
Combined Statements of Operations of Grand Hotel Group
(Predecessor) for the years ended December 31, 1997 and
1998 and the six months ended June 30, 1999 and Statement
of Operations of Grand Hotel Group for the four months
ended October 31, 1999 ...................................................F-4
Combined Statement of Divisional Equity of Grand Hotel Group
(Predecessor) for the years ended December 31, 1997 and
1998 and the six months ended June 30, 1999 and Statement
of Stockholders' Equity of Grand Hotel Group for the four
months ended October 31, 1999 ............................................F-5
Combined Statements of Cash Flows of Grand Hotel Group
(Predecessor) for the years ended December 31, 1997 and
1998 and the six months ended June 30, 1999 and Statement
of Cash Flows of Grand Hotel Group for the four months
ended October 31, 1999 ...................................................F-6
Notes to the Financial Statements ...........................................F-7
F-1
Report of Independent Auditors
To the Board of Directors and Shareholders
Grand Hotel Group Limited
We have audited the accompanying combined balance sheet of Grand Hotel
Group (Predecessor) at December 31, 1998 and the related statements of
operations, divisional equity and cash flows for each of the two years in the
period ending December 31, 1998 and the six months ended June 30, 1999 and the
balance sheet of Grand Hotel Group Limited at October 31, 1999 and the related
statement of operations, stockholders' equity and cash flows for the four months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Grand Hotel Group
(Predecessor) at December 31, 1998 and the combined results of its operations
and its combined cash flows for each of the two years in the period ending
December 31, 1998 and the six months ended June 30, 1999 and financial position
of Grand Hotel Group Limited at October 31, 1999 and its results of operations
and its cash flows for the four months then ended, in conformity with United
States generally accepted accounting principles.
Ernst & Young
Reading, England
March 8, 2000
GRAND HOTEL GROUP LIMITED
BALANCE SHEET
(in thousands except share amounts)
Predecessor Company Company
----------- ------- -------
December 31 October 31 October 31
1998 1999 1999
------------- -------------- ----------
Amounts in Pounds Sterling Amounts in
U.S Dollars
(Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (pound) -- (pound) 2,583 $ 4,163
Accounts receivable 140 888 1,431
Receivable from related party -- 866 1,396
Inventories 597 312 503
Prepaid expenses and other current assets 198 470 757
------------- -------------- -------
Total current assets 935 5,119 8,250
Equipment and fixtures:
Freehold land and buildings 10,861 14,211 22,904
Leasehold land and buildings 3,789 5,254 8,468
Fixtures and equipment 11,885 1,323 2,132
------------- -------------- -------
26,535 20,788 33,504
Less accumulated depreciation 11,031 79 127
------------- -------------- -------
15,504 20,709 33,377
Debt issuance cost -- 258 416
------------- -------------- -------
(pound)16,439 (pound) 26,086 $42,043
============= ============== =======
LIABILITIES AND DIVISIONAL EQUITY/STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (pound) 777 (pound) 772 $ 1,245
Accrued expenses and other liabilities 512 656 1,057
Guest deposits 534 2,220 3,578
Taxes and social security payable 202 843 1,359
Deferred income taxes 95 51 82
Capital lease obligations - current portion -- 143 230
------------- -------------- -------
Total current liabilities 2,120 4,685 7,551
Long term debt -- 20,500 33,040
Capital lease obligations - non current portion 246 396
DIVISIONAL EQUITY/STOCKHOLDERS' EQUITY
Divisional equity 14,319 -- --
Stockholders' equity
Ordinary shares: (pound)1 par value, 1,000 shares
authorized; 200 shares issued and outstanding
at October 31, 1999 -- -- --
Retained earnings -- 655 1,056
------------- -------------- -------
Total Divisional equity/stockholders' equity 14,319 655 1,056
------------- -------------- -------
(pound)16,439 (pound) 26,086 $42,043
============= ============== =======
See accompanying Notes to the Financial Statements
F-3
GRAND HOTEL GROUP LIMITED
STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
Predecessor Company Predecessor Company
----------- ------- ----------- -------
Six months Four months Six months Four months
Year ended ended ended ended ended
December 31, June 30, October 31, June 30, October 31,
1997 1998 1999 1999 1999 1999
----------------------------------------------- -------------- -------- --------
Amounts in Pounds Sterling Amounts in U.S. Dollars
-------------------------- (Note 1)
--------
Revenues:
Rooms (pound) 14,954 (pound) 14,466 (pound) 5,069 (pound) 4,756 $ 8,170 $ 7,665
Retail 5,121 4,560 1,797 1,196 2,896 1,928
Other 547 558 252 523 406 843
----------------------------------------------- -------------- -------- --------
Total revenues 20,622 19,584 7,118 6,475 11,472 10,436
Operating costs and expenses:
Direct cost of revenues 4,914 4,577 1,727 1,591 2,783 2,564
Staff costs 5,588 5,336 2,648 1,981 4,268 3,193
Sales and marketing 809 1,208 298 411 480 662
General and administrative 4,056 4,004 2,068 1,160 3,333 1,870
Corporate allocations 1,039 549 489 -- 788 --
Depreciation 1,284 1,174 574 79 925 127
-------------- -------------- -------------- -------------- -------- --------
Total operating cost and
expenses 17,690 16,848 7,804 5,222 12,577 8,416
-------------- -------------- -------------- -------------- -------- --------
Operating profit 2,932 2,736 (686) 1,253 (1,105) 2,020
Interest expense -- -- -- (306) -- (493)
Interest income and other -- -- -- 30 -- 48
-------------- -------------- -------------- -------------- -------- --------
Income before income taxes 2,932 2,736 (686) 977 (1,105) 1,575
Income taxes 1,237 1,122 -- 322 -- 519
-------------- -------------- -------------- -------------- -------- --------
Net income (pound) 1,695 (pound) 1,614 (pound) (686) (pound) 655 $ (1,105) $ 1,056
============== ============== ============== ============== ======== ========
Basic and diluted net income (loss)
per share (pound) 3,275 $ 5,280
============== ========
Shares used in computing basic and
diluted net income (loss) per share 200 200
============== ========
See accompanying Notes to the Financial Statements
F-4
GRAND HOTEL GROUP LIMITED
STATEMENTS OF DIVISIONAL EQUITY/STOCKHOLDERS' EQUITY
(IN THOUSANDS)
Divisional Ordinary Retained
Equity Shares Earnings Total Total
-------------------------------------------------------------- ----------
Amounts in Pounds Sterling Amounts in
-------------------------- US Dollars
(note 1)
----------
Balance at January 1, 1997 (pound) 15,478 (pound) -- (pound) -- (pound) 15,478 $ 24,946
Net decrease in amounts due to parent (1,871) -- -- (1,871) (3,015)
Net income 1,695 -- -- 1,695 2,732
-------------- ---------- -------------- -------------- --------
Balance at December 31, 1997 15,302 -- -- 15,302 24,663
Net decrease in amounts due to parent (2,597) -- -- (2,597) (4,186)
Net income 1,614 -- -- 1,614 2,601
-------------- ---------- -------------- -------------- --------
Balance at December 31, 1998 14,319 -- -- 14,319 23,078
Net decrease in amounts due to parent (1,043) -- -- (1,043) (1,681)
Net loss (686) -- -- (686) (1,105)
-------------- ---------- -------------- -------------- --------
Balance at June 30, 1999 12,590 -- -- 12,590 20,292
============== ========== ============== ============== ========
Balance at July 1, 1999 -- -- -- -- --
Issuance of ordinary shares -- -- -- -- --
Net income -- -- 655 655 1,056
-------------- ---------- -------------- -------------- --------
Balance at October 31, 1999 (pound) -- (pound) -- (pound) 655 (pound) 655 $ 1,056
============== ========== ============== ============== ========
See accompanying Notes to the Financial Statements
F-5
GRAND HOTEL GROUP LIMITED
STATEMENTS OF CASH FLOWS
Predecessor Company
----------- -------
Four
Six months months
Year ended ended ended
December 31, June 30, October 31,
1997 1998 1999 1999
-------------- -------------- -------------- --------------
Amounts in Pounds sterling
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) (pound) 1,695 (pound) 1,614 (pound) (686) (pound) 655
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 1,284 1,174 574 79
Changes in operating assets and liabilities:
Accounts receivable 58 70 43 (888)
Receivable from related parties -- -- -- (866)
Inventory 40 (99) 252 (312)
Prepaid expenses and other current assets (204) 258 (307) (470)
Guest deposits 193 (381) 1,287 2,220
Accounts payable 724 12 (730) 772
Accrued expenses and other liabilities -- -- 155 656
Deferred income taxes -- 95 -- 51
Taxes and social security payable (5) 77 582 843
-------------- -------------- -------------- --------------
Net cash provided by operating activities 3,785 2,820 1,170 2,740
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures (1,914) (223) (127) (20,368)
-------------- -------------- -------------- --------------
Net cash used in investing activities (1,914) (223) (127) (20,368)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of ordinary shares -- -- -- --
Repayment of debt -- -- -- (260)
Proceeds from issuance of debt -- -- -- 20,760
Payment of capital lease obligation -- -- -- (31)
Payment of debt issuance cost -- -- -- (258)
Change in divisional equity (1,871) (2,597) (1,043) --
-------------- -------------- -------------- --------------
Net cash (used in) provided by financing
activities (1,871) (2,597) (1,043) 20,211
-------------- -------------- -------------- --------------
Net increase in cash and cash equivalents -- -- -- 2,583
Cash and cash equivalents at the beginning
of the year -- -- -- --
-------------- -------------- -------------- --------------
Cash and cash equivalents at the end of
the year (pound) -- (pound) -- (pound) -- (pound) 2,583
============== ============== ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest -- -- -- 37
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES
Equipment acquired under capital leases -- -- -- 420
Predecessor Company
----------- -------
Six Four
months months
ended ended
June 30, October 31,
1999 1999
-------- --------------
Amounts in U.S. Dollars
(Note 1)
--------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) (1,105) 1,056
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 925 127
Changes in operating assets and liabilities:
Accounts receivable 69 (1,431)
Receivable from related parties -- (1,396)
Inventory 406 (503)
Prepaid expenses and other current assets (495) (757)
Guest deposits 2,074 3,578
Accounts payable (1,177) 1,245
Accrued expenses and other liabilities 250 1,057
Deferred income taxes -- 82
Taxes and social security payable 938 1,359
-------- --------------
Net cash provided by operating activities 1,885 4,417
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment and fixtures (204) (32,827)
-------- --------------
Net cash used in investing activities (204) (32,827)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of ordinary shares -- --
Repayment of debt -- (419)
Proceeds from issuance of debt -- 33,459
Payment of capital lease obligation -- (51)
Payment of debt issuance cost -- (416)
Change in divisional equity (1,681) --
-------- --------------
Net cash (used in) provided by financing activities (1,681) 32,573
-------- --------------
Net increase in cash and cash equivalents -- 4,163
Cash and cash equivalents at the beginning
of the year -- --
-------- --------------
Cash and cash equivalents at the end of
the year (pound)-- (pound) 4,163
======== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest -- 60
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
ACTIVITIES
Equipment acquired under capital leases -- 677
See accompanying Notes to the Financial Statements
F-6
GRAND HOTEL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Grand Hotel Group Limited ("Grand Hotel Group" or the "Company"), a United
Kingdom corporation, owns five holiday resort Hotel located in Wales and
the Northern and Southern regions of England. The hotels, which are
situated near major seaside resorts, have 1,274 available rooms and offer
popular priced vacation accommodations, including food and entertainment,
for week-end and lengthier stays. They cater primarily to mature couples
and groups seeking short holiday breaks of between three to four days.
Grand Hotel Group is 85% owned by Cygnet Ventures Limited, a Guernsey
corporation controlled by Kevin R. Leech, and 15% owned by other members
of the Company's directors and management team. On June 30, 1999, the
Company purchased from Rank Holidays Division Limited, a subsidiary of
Rank Organization plc ("Rank") substantially all of the operating assets
relating to five hotels formerly known as the Butlin's Provincial Hotels
(Grand Hotel Group (predecesor)). In consideration for the sale of such
assets, Grand Hotel Group paid the seller the sum of (pound) 19.0 million
(approximately $30.6 million), of which (pound) 8.6 million was paid in
cash and the balance of (pound) 10.4 million was evidenced by a Grand
Hotel Group non-interest bearing note due 2002. The purchase note was
secured by an irrevocable letter of credit issued by Citibank NA in favor
of the seller. Such financial accommodation was obtained through the
personal guaranty of Kevin R. Leech, secured by his pledge of personally
owned securities unrelated to the Company.
The Company has entered into an agreement whereby, upon completion of a
proposed initial public offering by Leisure Travel Group, Inc ("LTG"), a
company principally owned by Kevin Leech, LTG will acquire all outstanding
share capital of Grand Hotel Group in exchange for 3,700,000 shares of
common stock of LTG and arrange repayment of the (pound) 10.4 million
purchase note. The combination will be accounted for using pooling of
interest principles as a combination of entities under common control.
BASIS OF PRESENTATION
The financial statements expressed in Pounds Sterling as of and for the
four months ended October 31, 1999 were translated into United States
Dollars, solely for the convenience of the reader, an exchange rate of
(pound) 1.00 = $1.6117 (which was the noon buying rate at October 31,
1999.)
These financial statements have been prepared to show the performance of
Grand Hotel Group (predecessor) for the two years in the period ended
December 31, 1998 and the six months ended June 30, 1999 and of Grand
Hotel Group for the four months ended October 31, 1999, reflecting the
respective periods of ownership by Rank and Grand Hotel Group.
EQUIPMENT AND FIXTURES
Property and equipment are stated at cost. Costs of improvements are
capitalized. Costs of normal repairs and maintenance are charged to
expense as incurred. Upon the sale or retirement of property and
equipment, the cost and related accumulated depreciation are removed from
the respective accounts, and the resulting gain or loss, if any, is
included in income.
F-7
GRAND HOTEL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
Depreciation is provided on a straight-line basis over the estimated
useful life of the assets. Leasehold improvements are amortized over the
shorter of the asset life or lease term. The service lives of assets are
as follows:
Freehold land and buildings 50 years
Leasehold land and buildings Over shorter of the useful life or the
lease term
Fixtures and equipment 3-20 years
Equipment financed under a capital lease and accumulated amortization
related to the leased assets were (pounds)420,000 and (pounds)2,000,
respectively. There were no capital leases at December 31, 1998.
Amortization related to capital leases is included in depreciation
expense.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under the
asset and liability method of Statement No. 109, deferred income tax
assets and liabilities are recognized for the future tax consequences
attributable to carry forward losses and differences between the financial
statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Deferred income tax assets are recorded at their
likely realizable amount.
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's financial instruments, including
cash, accounts receivable, accounts payable, accrued expenses and
long-term debt approximate fair values.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Therefore, the estimates are not
necessarily indicative of the amounts which could be realized or would be
paid in a current market exchange. The effect of using different market
assumptions and/or estimation methodologies may be material to the
estimated fair value amount.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly liquid instruments purchased
with an original maturity of 90 days or less to be cash equivalents. Such
amounts are stated at cost which approximates market value.
As of October 31, 1999, the Company's cash equivalents consisted of
(pound) 1.1 million of weekly treasury deposits and (pound) 1.0 million of
monthly treasury deposits. There were no unrealized gains or unrealized
losses as of October 31, 1999.
F-8
GRAND HOTEL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, does not require collateral on
accounts receivable. When required, the Company maintains allowances for
credit losses and such losses have been within management's expectations.
There was no allowance for doubtful accounts established for the periods
presented and write-offs of accounts receivable have not been
significant.
There were no significant customers for any of the periods presented.
REVENUES
Net revenues from providing hotel accomodations are recognized when our
guests check out after their designated vacation stay and make payment.
Net revenues from providing travel services include commissions and
markups on travel products and services, volume bonuses received from
travel suppliers, cancellation fees and other ancillary fees such as
travel insurance premiums. Such revenues are recognized upon commencement
of travel.
ADVERTISING COSTS
Costs related to advertising are expensed as incurred. Advertising expense
was (pound) 178,000 for the four months ending October 31, 1999. There was
no direct advertising expense in previous periods as these costs were part
of the corporate allocations.
INVENTORY
Stocks are stated at the lower of cost, which is calculated on a first in
first out basis, on net realisable value.
PENSION PLAN
The Company operates a defined contribution pension scheme. The pension
costs relating to the scheme represent the contributions payable by the
Company. The contributions are expensed as they become payable in
accordance with the rules of the plan. Amounts charged to expense relating
to the plan for the four months ending October 31, 1999 were
(pound)30,000.
The Company also contributed to three private pensions for directors and
senior employees totaling (pound) 4,000 for the four months ended October
31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards 133, which has not yet been adopted by the
Company. SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for fiscal years beginning after June 15, 2000.
This standard requires all derivatives to be recognized as either assets
or liabilities on the balance sheet at their fair values. It also
prescribes the accounting to be followed for the changes in the fair
values of derivatives depending upon their intended use and resulting
designation. It supersedes or amends the existing standards which deal
with hedge accounting and derivatives. The Company does not expect the
effect that adopting this standard will have on the U.S. GAAP amounts
reported in its financial statements.
F-9
GRAND HOTEL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
2. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes.
Significant components of the Company's deferred tax assets are as follows
(in thousands):
December 31, October 31,
1998 1999
------------ -----------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation (pound)95 (pound)51
Total deferred tax liabilities (pound)95 (pound)51
--------- ---------
Net deferred tax liabilities: (pound)95 (pound)51
========= =========
A reconciliation of the income tax provision at the statutory rate to the
income tax provision at the effective tax rate is as follows:
Years ended December 31,
---------------------------- Six months ended Four months ended
1997 1998 June 30, 1999 October 31, 1999
------------ ------------ ------------- ----------------
Income taxes computed at the UK statutory rate (pound) 924 (pound) 848 (pound) (328) (pound) 264
Non-qualifying depreciation expense 268 242 116 25
Qualifying depreciation expense, net of capital 45 32 3 33
Non recognizable loss due to sale of hotels -- -- 209 --
------------ ------------ ------------ ------------
Total (pound)1,237 (pound)1,122 (pound) -- (pound) 322
============ ============ ============ ============
3. LONG-TERM DEBT
In consideration for the purchase of assets hotels of Rank, the Company
issued 100 redeemable non-voting shares to Rank and discharged a liability
of Rank to Butlin's Limited, another subsidiary of Rank, in the amount of
(pound) 19.0 million (approximately $30.6 million), of which (pound) 8.6
million was paid in cash and the balance of (pound) 10.4 million was
settled by Grand Hotel Group's issuance to Butlin's Limited of a
non-interest-bearing promissory note due 2002. The Grand Hotel Group note
is secured by an irrevocable letter of credit issued by Citibank, N.A. in
favor of Butlin's Limited. Grand Hotel Group financed its cash payment of
the purchase price through loans obtained from Arab Bank plc and Irish
Nationwide Building Society secured by charges granted by Grand Hotel
Group, including mortgages on the purchased hotels.
In connection with the purchase of the hotels discussed above, the Company
entered into an agreement with Arab Bank plc and Irish Nationwide Building
Society whereby the companty was to draw down on a loan of up to
(pound) 10 million or 70% of the purchase cost of the hotels (exclusive of
any goodwill attributed to the purchase). The facility matures five years
from the date of drawdown. The facility is to be repaid in instalments of
(pound) 2.5 million each on the second, third and fourth anniversaries of
the drawndown date with the remainder due upon maturity.
The loan is secured by assets (including property), share capital and
(pound) 8.5 million in key man life insurance on Kevin Leech. There are
various financial and non-financial covenants that must be maintained on a
quarterly and annual basis.
F-10
GRAND HOTEL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
3. LONG-TERM DEBT (CONTINUED)
Upon completion of the acquisition, the Company executed its right to draw
down on the facility for the entire (pound) 10 million at an interest rate
of 1.75% over LIBOR (7.50% as at October 31, 1999).
The Company also entered into a (pound) 100,000 loan with Cygnet, a
company controlled by Kevin Leech, due in 2002 which bears interest at 2%
over the HSBC base rate (7.25% as at October 31, 1999). The loan is
unsecured and is to be used for working capital purposes.
The five year payout of the long-term debt discussed above is as follows:
Years ending October 31 (in thousands):
2000 ......................................... (pound) --
2001 ......................................... 2,500
2002 ......................................... 2,500
2003 ......................................... 13,000
2004 ......................................... 2,500
----------------
(pound) 20,500
================
4. COMMITMENTS
The Company leases facilities and equipment, under noncancelable operating
leases which expire at various times. Following is a schedule of future
minimum lease payments under both operating and capital leases at October
31, 1999:
Operating Capital
Leases Leases
------ ------
Years ending October 31 (in thousands):
2000 ............................... (pound) 91 (pound) 190
2001 ............................... 91 190
2002 ............................... 87 105
2003 ............................... 69 3
2004 ............................... 58 1
Thereafter.......................... 2,568 --
------------ ------------
Total minimum payments required ............ (pound)2,964 489
============
Less amount representing interest .......... (100)
------------
Present value of future lease payments ..... 389
Less current portion ....................... (143)
------------
Noncurrent portion ......................... $ 246
============
Rent expense, net of rental income was approximately (pound)61,000 in
1997, (pound)62,000 in 1998, (pound)32,000 for the six months ended June
30, 1999 and (pound)23,000 for the four months ended October 31, 1999.
F-11
GRAND HOTEL GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
5. RELATED PARTIES
The Company has entered into an agreement with LTG whereby upon completion
of an initial public offering by LTG, it will acquire all of the
outstanding share capital of Grand Hotels Group in exchange for 3,700,000
shares of its common stock. The (pound) 10.4 million loan will also be
paid down at this time. Kevin Leech is the chairman of the board and
principal stockholder of LTG.
F-12
================================================================================
3,000,000 SHARES
LEISURE TRAVEL GROUP, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ROTH CAPITAL PARTNERS
I N C O R P O R A T E D
________, 2000
UNTIL ________, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN
THE DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with
the sale and distribution of the securities being registered, other than
underwriting discounts and commissions.
SEC registration fee ......................................$ 10,929.60
NASD filing fee ...........................................$ 4,640.00
Nasdaq National Market listing fee ........................$ 72,875.00
Transfer Agent Fees .......................................$ 15,000.00*
Cost of Printing and Engraving ............................$225,000.00*
Legal Fees and Expenses ...................................$250,000.00*
Accounting Fees and Expenses ..............................$150,000.00*
Blue Sky Fees and Expenses ................................$ 15,000.00*
Miscellaneous .............................................$ 6,555.40*
-----------
Total ...........................................$750,000.00*
===========
- ----------
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145(a) of the General Corporation Law of the State of Delaware
(the "General Corporation Law") provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) of the General Corporation Law provides that a Delaware
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the corporation to procure a judgment in its favor by reason of the
fact that such person acted in any of the capacities set forth above, against
expenses actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted under similar
standards as set forth above, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that despite the
adjudication of liability, but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the General Corporation Law further provides that to the
extent a director or officer of a corporation has been successful on the merits
or otherwise in the defense of any action, suit
II-1
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he or she shall be indemnified against expenses
actually and reasonably incurred by him or her in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that THE
corporation may purchase and maintain insurance on behalf of such person against
any liability asserted against him or her or incurred by him or her in any such
capacity or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such
liabilities under such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by stockholders may eliminate or limit personal liability of
members of its board of directors or governing body for monetary damages for
breach of a director's fiduciary duty. However, no such provision may eliminate
or limit the liability of a director for breaching his or her duty of loyalty,
failing to act in good faith, engaging in intentional misconduct or knowingly
violating a law, paying a dividend or approving a stock repurchase or redemption
which was illegal, or obtaining an improper personal benefit. A provision of
this type has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty. Our Certificate of
Incorporation contains such a provision.
Article Thirteenth of our Certificate of Incorporation eliminates the
personal liability of directors and/or officers to us or our stockholders for
monetary damages for breach of fiduciary duty as a director; provided that such
elimination of the personal liability of a director and/or officer does not
apply to (i) any breach of such person's duty of loyalty to us or our
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) actions prohibited
under Section 174 of the General Corporation Law (i.e., liabilities imposed upon
directors who vote for or assent to the unlawful payment of dividends, unlawful
repurchases or redemption of stock, unlawful distribution of our assets to the
stockholders without the prior payment or discharge of our debts or obligations,
or unlawful making or guaranteeing of loans to directors and/or officers), or
(iv) any transaction from which the director derived an improper personal
benefit. In addition, Article Fourteenth of our Certificate of Incorporation and
Article VI of our bylaws provide that we shall indemnify our corporate
personnel, directors and officers to the fullest extent permitted by the General
Corporation Law, as amended from time to time.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling us as
disclosed above, we have been informed that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-2
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
---------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*1.1 Form of Underwriting Agreement between Leisure Travel Group, Inc.
and Roth Capital Partners Incorporated (the "Representative").
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
*4.1 Specimen Common Stock Certificate.
*4.2 Form of Representative's Warrant Agreement between Leisure Travel
Group, Inc. and the Representative, including form of
Representative's Warrant therein.
*5.1 Opinion of Greenberg Traurig, LLP.
*10.1 Employment Agreement, dated as of _________, between Leisure Travel
Group, Inc. and Raymond J. Peel.
*10.2 Employment Agreement, dated as of _________, between Leisure Travel
Group, Inc. and Rod Rogers.
*10.3 Employment Agreement, dated as of _________, between Leisure Travel
Group, Inc. and David Marriott.
10.4 Form of Agreement and Plan of Share Exchange, by and among Leisure
Travel Group, Inc., Leisure Travel Group Limited, and the
Shareholders listed therein.
10.5 Leisure Travel Group, Inc. 2000 Stock Option Plan.
10.6 Form of Incentive Stock Option Agreement.
10.7 Form of Non-qualified Stock Option Agreement.
*10.8 Asset Sale Agreement, dated June 30, 1999, between Rank Holidays
Division Limited and Grand Hotel Group Limited.
10.9 Loan Agreement, dated June 30, 1999, among Grand Hotel Group
Limited, Arab Bank plc and Irish Nationwide Building Society.
10.10 Inter-creditor Agreement, dated June 30, 1999, between Grand Hotel
Group Limited, Cygnet Ventures Limited, Arab Bank plc and Irish
Nationwide Building Society.
10.11 Share Sale Agreement, dated July 5, 1999, among Ellen Doherty, Ellen
Doherty Settlement 1997 and Leisure Travel Group Limited.
II-3
10.12 Sale Agreement, dated July 5, 1999, between Ellen Doherty and
Leisure Travel Group Limited.
10.13 Agreement for the Acquisition of the Issued Share Capital of Ilios
Travel Limited, dated January 2000, between Nita Eugenie Anne
Beecroft and Leisure Travel Group Limited.
23.1 Consent of Ernst & Young.
*23.2 Consent of Greenberg Traurig, LLP (included in the opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration
Statement).
27.1 Financial Data Schedule.
- ----------
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules have been omitted because the required
information is not applicable or not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the financial statements or the notes thereto.
II-4
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit of
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497 (h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of New York, State of New
York on this 9th day of March, 2000.
LEISURE TRAVEL GROUP, INC.
By: /s/ RAYMOND J. PEEL
------------------------------------
Raymond J. Peel
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ RAYMOND J. PEEL President and Chief March 9, 2000
- ------------------------------- Executive Officer
Raymond J. Peel (Principal Executive Officer)
/s/ STEPHEN LAST Executive Vice President March 9, 2000
- ------------------------------- and Chief Financial Officer
Stephen Last (Principal Financial and
Accounting Officer)
/s/ KEVIN R. LEECH Chairman of the Board March 9, 2000
- -------------------------------
Kevin R. Leech
/s/ PHILIP MASON Director March 9, 2000
- -------------------------------
Philip Mason
/s/ RAYMOND J. PEEL Director March 9, 2000
- -------------------------------
Raymond J. Peel
/s/ ROD RODGERS Director March 9, 2000
- -------------------------------
Rod Rodgers
/s/ STEPHEN LAST Director March 9, 2000
- -------------------------------
Stephen Last
II-6
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
*1.1 Form of Underwriting Agreement between Leisure Travel Group, Inc.
and Roth Capital Partners Incorporated (the "Representative").
3.1 Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
*4.1 Specimen Common Stock Certificate.
*4.2 Form of Representative's Warrant Agreement between Leisure Travel
Group, Inc. and the Representative, including form of
Representative's Warrant therein.
*5.1 Opinion of Greenberg Traurig, LLP.
*10.1 Employment Agreement, dated as of _________, between Leisure Travel
Group, Inc. and Raymond J. Peel.
*10.2 Employment Agreement, dated as of _________, between Leisure Travel
Group, Inc. and Rod Rogers.
*10.3 Employment Agreement, dated as of _________, between Leisure Travel
Group, Inc. and David Marriott.
10.4 Form of Agreement and Plan of Share Exchange, by and among Leisure
Travel Group, Inc., Leisure Travel Group Limited, and the
Shareholders listed therein.
10.5 Leisure Travel Group, Inc. 2000 Stock Option Plan.
10.6 Form of Incentive Stock Option Agreement.
10.7 Form of Non-qualified Stock Option Agreement.
*10.8 Asset Sale Agreement, dated June 30, 1999, between Rank Holidays
Division Limited and Grand Hotel Group Limited.
10.9 Loan Agreement, dated June 30, 1999, among Grand Hotel Group
Limited, Arab Bank plc and Irish Nationwide Building Society.
10.10 Inter-creditor Agreement, dated June 30, 1999, between Grand Hotel
Group Limited, Cygnet Ventures Limited, Arab Bank plc and Irish
Nationwide Building Society.
10.11 Share Sale Agreement, dated July 5, 1999, among Ellen Doherty, Ellen
Doherty Settlement 1997 and Leisure Travel Group Limited.
10.12 Sale Agreement, dated July 5, 1999, between Ellen Doherty and
Leisure Travel Group Limited.
10.13 Agreement for the Acquisition of the Issued Share Capital of Ilios
Travel Limited, dated January 2000, between Nita Eugenie Anne
Beecroft and Leisure Travel Group Limited.
23.1 Consent of Ernst & Young.
*23.2 Consent of Greenberg Traurig, LLP (included in the opinion filed as
Exhibit 5.1).
24.1 Power of Attorney (set forth on signature page of the Registration
Statement).
27.1 Financial Data Schedule.
- ----------
* To be filed by amendment.