IMPORTANT NOTICE IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the attached offering circular and you are therefore advised to read this disclaimer page carefully before reading, accessing or making any other use of the attached offering circular. In accessing the attached offering circular, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access.
Confirmation of Your Representation: In order to be eligible to view this offering circular or make an investment decision with respect to the securities, you must: (i) not be a U.S. person (within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’)) and be outside the United States; or (ii) be a ‘‘qualified institutional buyer’’ (within the meaning of Rule 144A under the U.S. Securities Act). You have been sent the attached offering circular on the basis that you have confirmed to each of the initial purchasers set forth in the attached offering circular (collectively, the ‘‘Initial Purchasers’’), being the sender or senders of the attached, that either: (A)(i) you and any customers you represent are not U.S. persons; and (ii) the electronic mail (or e-mail) address to which it has been delivered is not located in the United States of America, its territories and possessions, any state of the United States and the District of Columbia; ‘‘possessions’’ include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands; or (B) you and any customers you represent are ‘‘qualified institutional buyers’’ and, in either case, that you consent to delivery by electronic transmission. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or a solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Initial Purchasers or any affiliate of the Initial Purchasers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Initial Purchasers or such affiliate on behalf of the issuer in such jurisdiction. Under no circumstances shall the offering circular constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. This offering circular has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of transmission and, consequently, neither the Initial Purchasers nor any person who controls any Initial Purchaser nor Geo Travel Finance S.C.A., LuxGEO Parent S.a` r.l., eDreams Inc., Lyparis S.A.S., Opodo Limited, Axeurope S.A., Luxgoal S.a` r.l., AXA Investment Managers Private Equity Europe S.A., Permira Asesores S.L, nor any director, officer, employer, employee or agent of theirs, or affiliate of any such person, accepts any liability or responsibility whatsoever in respect of any difference between the offering circular distributed to you in electronic format and the hard copy version available to you on request from the Initial Purchasers. You are reminded that the attached offering circular has been delivered to you on the basis that you are a person into whose possession this offering circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorized to deliver this offering circular to any other person. You will not transmit the attached offering circular (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the consent of the Initial Purchasers.
Restrictions: Nothing in this electronic transmission constitutes an offer of securities for sale in the United States or any other jurisdiction. Recipients of this offering circular who intend to subscribe for or purchase securities are reminded that any subscription or purchase may only be made on the basis of the information contained in this offering circular. Any securities to be issued will not be registered under the U.S. Securities Act and may not be offered or sold in the United States or to or for the account or benefit of U.S. persons (as such terms are defined in Regulation S under the U.S. Securities Act) unless registered under the U.S. Securities Act or pursuant to an exemption from such registration. Notwithstanding the foregoing, prior to the expiration of a 40-day distribution compliance period (as defined under Regulation S under the U.S. Securities Act) commencing on the closing date, the securities may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons, except pursuant to another exemption from the registration requirements of the U.S. Securities Act. This communication is directed solely at persons who (i) are outside the United Kingdom, (ii) are investment professionals, as such term is defined in Article 19(1) of The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘‘Financial Promotion Order’’) or (iii) are persons falling within Article 49(2)(a) to (d) of the Financial Promotion Order (all such persons together being referred to as ‘‘relevant persons’’). This offering circular must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this offering circular relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this offering circular or any of its contents. OFFERING CIRCULAR NOT FOR GENERAL DISTRIBUTION IN THE UNITED STATES
9APR201114313587 Geo Travel Finance S.C.A. g175,000,000 10.375% Senior Notes due 2019
Geo Travel Finance S.C.A., a partnership limited by shares (societ´ e´ en commandite par actions) organized under the laws of Luxembourg (the ‘‘Issuer’’), is offering e175 million aggregate principal amount of its 10.375% Senior Notes due 2019 (the ‘‘Notes’’) as part of the financing for the proposed acquisition (the ‘‘Acquisition’’) of Opodo Limited by LuxGEO S.a` r.l. (‘‘LuxGEO’’), an acquisition vehicle controlled indirectly and jointly by funds managed or advised by AXA Private Equity and funds advised by Permira Asesores, S.L. or affiliated entities (the ‘‘Sponsors’’). Funds managed by AXA Private Equity acquired the Go Voyages Group in July 2010 and funds advised by Permira Asesores, S.L. acquired the eDreams Group in August 2010. In connection with the Acquisition, the Sponsors will combine the Go Voyages Group, the eDreams Group and the Opodo Group to form a new group referred to as ‘‘Geo’’ or the ‘‘Geo Group.’’ The acquisition, the combination and the related transactions are referred to as the ‘‘Transactions.’’ Interest on the Notes will be payable semi-annually on each May 1 and November 1, beginning on November 1, 2011. The Notes will mature on May 1, 2019. Prior to May 1, 2014, we may redeem the Notes at the applicable make-whole premium described in this offering circular (the ‘‘Offering Circular’’). In addition, we may redeem up to 35% of the aggregate principal amount of the Notes prior to May 1, 2014, with the net proceeds of certain equity offerings. At any time on or after May 1, 2014, we may redeem all or a portion of the Notes by paying a specific premium to you as set forth in this Offering Circular. We may redeem all, but not less than all, of the Notes in the event of certain developments affecting taxation. If we undergo a change of control, each holder may require us to repurchase all or a portion of its Notes. The consummation of the Acquisition is subject only to antitrust approval from the European Commission. Pending the consummation of the Transactions, the initial purchasers will deposit the gross proceeds from the offering of the Notes less a portion of the initial purchasers’ commission into an escrow account (the ‘‘Escrow Account’’). The Escrow Account will be pledged on a first-ranking basis in favor of the Trustee on behalf of the holders of the Notes. The release of escrow proceeds will be subject to the satisfaction of certain conditions, including the closing of the Acquisition. If the Transactions are not consummated before November 1, 2011, the first interest payment on the Notes will be made using funds from the Escrow Account. If the Transactions are not consummated on or prior to December 31, 2011, or upon the occurrence of certain events, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to (i) 100% of the aggregate principal amount of the Notes if the special mandatory redemption occurs on or prior to September 30, 2011, or (ii) 101% of the principal amount of the Notes if the special mandatory redemption occurs on or after October 1, 2011, in each case plus accrued and unpaid interest and additional amounts, if any, from the issue date for the Notes to the date of special mandatory redemption. See ‘‘The Transactions’’ and ‘‘Description of the Notes—Escrow of Proceeds; Special Mandatory Redemption.’’ Upon release of the proceeds of the offering of the Notes from the Escrow Account following consummation of the Acquisition (the date of such release, the ‘‘Completion Date’’), the Notes will be guaranteed on a senior subordinated basis (the ‘‘Guarantees’’) by LuxGEO, Opodo Limited, Travellink AB and eDreams Inc. (together, the ‘‘Guarantors’’). As of the Completion Date, the Notes and the Guarantees will be secured by (i) first-ranking security interests over (a) all of the capital stock of the Issuer held by LuxGEO Parent S.a` r.l (the ‘‘Parent’’), (b) the bank accounts of the Parent located in Luxembourg and (c) intercompany loans and other receivables of the Parent and (ii) second-ranking security interests over (a) all of the capital stock of LuxGEO and Opodo Limited and (b) certain other assets of the Guarantors that secure the obligations of LuxGEO under the senior secured credit facilities (the ‘‘Senior Credit Facilities’’) expected to be funded on the Completion Date. Within 30 days after the Completion Date, the Notes will also be secured by (i) first-ranking security interests over (a) the capital stock in the Issuer held by Axeurope S.A. and Luxgoal S.a` r.l. and (b) all of the capital stock in LuxGEO GP S.a` r.l. and (ii) second-ranking security interests over certain assets of the Issuer and the Guarantors that secure the obligations of LuxGEO under the Senior Credit Facilities. In addition, the Notes will benefit from indirect security related to the Lyparis Structural Back to Back Loan (as defined below). See ‘‘Description of the Notes—Security.’’ This Offering Circular includes information on the terms of the Notes and Guarantees, including redemption and repurchase prices, covenants and transfer restrictions. Application has been made to the Irish Stock Exchange for the approval of this Offering Circular as Listing Particulars. Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Global Exchange Market which is the exchange regulated market of the Irish Stock Exchange. The Global Exchange Market is not a regulated market for the purposes of Directive 2004/39/EC. Investing in the Notes involves a high degree of risk. See ‘‘Risk Factors’’ beginning on page 32.
Offering price for the Notes: 100% plus accrued interest, if any, from the issue date.
Delivery of the Notes in book-entry form through a common depository of Euroclear Bank S.A./N.V. (‘‘Euroclear’’) and Clearstream Banking societ´ e´ anonyme (‘‘Clearstream’’) is expected to be made on or about April 21, 2011 (the ‘‘Issue Date’’). The Notes and the guarantees have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’) or the securities laws of any other jurisdiction. The Notes and the Guarantees may not be offered or sold within the United States or to U.S. persons, except to qualified institutional buyers in reliance on the exemption from registration provided by Rule 144A of the U.S. Securities Act (‘‘Rule 144A’’) or to non-U.S. persons in offshore transactions in reliance on Regulation S of the U.S. Securities Act (‘‘Regulation S’’). You are hereby notified that sellers of the Notes may be relying on the exemption from Section 5 of the U.S. Securities Act provided by Rule 144A. For a description of certain restrictions on transfers of the Notes, see ‘‘Plan of Distribution’’ and ‘‘Notice to Investors.’’
Joint Global Coordinators and Joint Lead Bookrunners Goldman Sachs International Credit Suisse Joint Bookrunners Societ´ e´ Gen´ erale´ Corporate & UBS Investment Bank Investment Banking Offering Circular dated June 28, 2011 You should rely only on the information contained in this Offering Circular. Neither the Issuer, the Guarantors nor any of Goldman Sachs International, Credit Suisse Securities (Europe) Ltd., Societ´ e´ Gen´ erale´ and UBS Limited (the ‘‘Initial Purchasers’’) have authorized anyone to provide prospective investors with different information, and you should not rely on any such information. None of the Issuer, the Guarantors nor the Initial Purchasers is making an offer of the Notes in any jurisdiction where this offer is not permitted. You should not assume that the information contained in this Offering Circular is accurate as of any date other than the date on the front of this Offering Circular.
TABLE OF CONTENTS
Contents Page Offering Summary ...... 1 Risk Factors ...... 32 The Transactions ...... 64 Use of Proceeds ...... 68 Capitalization ...... 69 Unaudited Pro Forma Combined Financial Information ...... 70 Selected Historical Financial Data ...... 90 Management’s Discussion and Analysis of our Financial Condition and Results of Operations 97 Industry Overview and Market Data ...... 141 Business ...... 148 Regulation ...... 162 Management ...... 164 Principal Shareholders ...... 167 Certain Relationships and Related Party Transactions ...... 168 Description of Other Indebtedness ...... 169 Description of the Notes ...... 180 Limitations on Validity and Enforceability of the Guarantees and Security Interests ...... 254 Book-Entry; Delivery and Form ...... 270 Tax Considerations ...... 274 Certain ERISA Considerations ...... 281 Plan of Distribution ...... 283 Notice to Investors ...... 286 Legal Matters ...... 289 Independent Auditors ...... 289 Enforcement of Civil Liabilities ...... 290 Available Information ...... 292 Listing and General Information ...... 293 Index to Financial Statements ...... F-1 IMPORTANT INFORMATION In making an investment decision regarding the Notes offered by this Offering Circular, you must rely on your own examination of the Issuer and the terms of this offering (the ‘‘Offering’’), including the merits and risks involved. The Offering is being made on the basis of this Offering Circular only. Any decision to purchase Notes in the Offering must be based on the information contained in this Offering Circular. We have prepared this Offering Circular solely for use in connection with this Offering and for application to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Global Exchange Market. You may not distribute this Offering Circular or make photocopies of it without our prior written consent other than to people you have retained to advise you in connection with this Offering. You are not to construe the contents of this Offering Circular as investment, legal or tax advice. You should consult your own counsel, accountants and other advisors as to legal, tax, business, financial and related aspects of a purchase of the Notes. You are responsible for making your own examination of the Issuer and your own assessment of the merits and risks of investing in the Notes. None of the Issuer, the Guarantors or the Initial Purchasers is making any representation to you regarding the legality of an investment in the Notes by you under appropriate legal investment or similar laws. The information contained in this Offering Circular has been furnished by the Issuer and other sources we believe to be reliable. In particular, although the Issuer is jointly controlled by the Sponsors and AXA Private Equity controls the Go Voyages Group and the Permira Funds control the eDreams Group, the Issuer does not as of the date of this Offering Circular, and will not until consummation of the Transactions, control the Go Voyages Group, the eDreams Group or the Opodo Group. This Offering Circular contains summaries, believed to be accurate, of some of the terms of specific documents, but reference is made to the actual documents, copies of which will be made available upon request, for the complete information contained in those documents. You should contact the Issuer or the Initial Purchasers with any questions about this Offering or if you require additional information to verify the information contained in this Offering Circular. All summaries are qualified in their entirety by this reference. Copies of such documents and other information relating to the issuance of the Notes will be available at the specified offices of the listing agent in Ireland. See ‘‘Listing and General Information.’’ The Initial Purchasers will provide prospective investors with a copy of this Offering Circular and any related amendments or supplements. By receiving this Offering Circular, you acknowledge that you have not relied on the Initial Purchasers in connection with your investigation of the accuracy of this information or your decision whether or not to invest in the Notes. The information set out in those sections of this Offering Circular describing clearing and settlement is subject to any change or reinterpretation of the rules, regulations and procedures of Euroclear and Clearstream currently in effect. Investors wishing to use these clearing systems are advised to confirm the continued applicability of their rules, regulations and procedures. None of the Issuer or the Guarantors will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, book-entry interests held through the facilities of any clearing system or for maintaining, supervising or reviewing any records relating to such book-entry interests. No person is authorized in connection with any offering made by this Offering Circular to give any information or to make any representation not contained in this Offering Circular and, if given or made, any other information or representation must not be relied upon as having been authorized by the Issuer, the Guarantors or the Initial Purchasers. The information contained in this Offering Circular is accurate as of the date hereof. Neither the delivery of this Offering Circular at any time nor any subsequent commitment to purchase the Notes shall, under any circumstances, create any implication that there has been no change in the information set forth in this Offering Circular or in the business of the Issuer or the Guarantors since the date of this Offering Circular. The Issuer accepts responsibility for the information contained in this Offering Circular. The Issuer has made all reasonable inquiries and confirmed to the best of its knowledge, information and belief that the information contained in this Offering Circular with regard to itself and its affiliates and the Notes is true and accurate in all material respects, that the opinions and intentions
i expressed in this Offering Circular are honestly held, and the Issuer is not aware of any facts the omission of which would make this Offering Circular or any statement contained herein misleading in any material respect. The Initial Purchasers make no representation or warranty, express or implied, as to, and assume no responsibility for, the accuracy or completeness of the information contained in this Offering Circular. Nothing contained in this Offering Circular is, or shall be relied upon as, a promise or representation by the Initial Purchasers as to the past or the future. The Issuer and the Guarantors have furnished the information contained in this Offering Circular. By receiving this Offering Circular, you acknowledge that you have had an opportunity to request from us for review, and that you have reviewed, all additional information you deem necessary to verify the accuracy and completeness of the information contained in this Offering Circular. You also acknowledge that you have not relied on the Initial Purchasers in connection with your investigation of the accuracy of this information or your decision whether to invest in the Notes. The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the U.S. Securities Act and applicable securities laws. You should be aware that you may be required to bear the financial risks of this investment for an indefinite period of time. See ‘‘Plan of Distribution’’ and ‘‘Notice to Investors.’’ The Issuer intends to list the Notes on the Official List of the Irish Stock Exchange for trading on the Global Exchange Market, and has submitted this Offering Circular to the competent authority in connection with the listing application. In the course of any review by the competent authority, the Issuer may be requested to make changes to the financial and other information included in this Offering Circular. Comments by the competent authority may require significant modification or reformulation of information contained in this Offering Circular or may require the inclusion of additional information, including financial information in respect of the Guarantors. The Issuer may also be required to update the information in this Offering Circular to reflect changes in our business, financial condition or results of operations and prospects. We cannot guarantee that our application for admission of the Notes to trading on the Global Exchange Market and to list the Notes on the Official List of the Irish Stock Exchange will be approved as of the settlement date for the Notes or any date thereafter, and settlement of the Notes is not conditioned on obtaining this listing. The Issuer reserves the right to withdraw this Offering at any time. The Issuer and the Initial Purchasers each reserve the right to reject any commitment to subscribe for the Notes in whole or in part and to allot to any prospective investor less than the full amount of the Notes sought by such investor. The Initial Purchasers and certain of their related entities may acquire, for their own accounts, a portion of the Notes. The distribution of this Offering Circular and the offer and sale of the Notes are restricted by law in some jurisdictions. This Offering Circular does not constitute an offer to sell or an invitation to subscribe for or purchase any of the Notes in any jurisdiction in which such offer or invitation is not authorized or to any person to whom it is unlawful to make such an offer or invitation. Each prospective offeree or purchaser of the Notes must comply with all applicable laws and regulations in force in any jurisdiction in which it purchases, offers or sells the Notes or possesses or distributes this Offering Circular, and must obtain any consent, approval or permission required under any regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales, and neither the Issuer nor the Initial Purchasers shall have any responsibility therefor. See ‘‘—Notice to Prospective Investors,’’ ‘‘—Notice to Certain European Investors,’’ ‘‘Plan of Distribution’’ and ‘‘Notice to Investors.’’ Investing in the Notes involves risks. See ‘‘Risk Factors’’ beginning on page 32.
STABILIZATION IN CONNECTION WITH THE ISSUANCE OF THE NOTES, GOLDMAN SACHS INTERNATIONAL (THE ‘‘STABILIZING MANAGER’’) (OR ANY PERSON ACTING ON BEHALF OF THE STABILIZING MANAGER) MAY OVER-ALLOT NOTES OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE
ii STABILIZING MANAGER (OR ANY PERSON ACTING ON BEHALF OF THE STABILIZING MANAGER) WILL UNDERTAKE STABILIZATION ACTION. ANY STABILIZATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES.
NOTICE TO PROSPECTIVE INVESTORS This Offering is being made in the United States in reliance upon an exemption from registration under the Securities Act of 1933 (the ‘‘U.S. Securities Act’’) for an offer and sale of the Notes which does not involve a public offering. In making your purchase, you will be deemed to have made certain acknowledgments, representations and agreements. See ‘‘Notice to Investors.’’ This Offering Circular is being provided (1) to a limited number of United States investors that the Issuer reasonably believes to be ‘‘qualified institutional buyers’’ under Rule 144A for informational use solely in connection with their consideration of the purchase of the Notes and (2) to investors outside the United States who are not U.S. persons in connection with offshore transactions complying with Rule 903 or Rule 904 of Regulation S. The Notes described in this Offering Circular have not been registered with, recommended by or approved by the U.S. Securities and Exchange Commission (the ‘‘SEC’’), any state securities commission in the United States or any other securities commission or regulatory authority, nor has the SEC, any state securities commission in the United States or any such securities commission or authority passed upon the accuracy or adequacy of this Offering Circular. Any representation to the contrary is a criminal offence.
NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES (‘‘RSA 421-B’’) WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO CERTAIN EUROPEAN INVESTORS European Economic Area This Offering Circular has been prepared on the basis that all offers of the Notes will be made pursuant to an exemption under Article 3 of Directive 2003/71/EC (the ‘‘Prospectus Directive’’), as implemented in member states (‘‘Member States’’) of the European Economic Area (the ‘‘EEA’’), as amended by Directive 2010/73/EU of November 24, 2010 and to the extent implemented in the Member States, from the requirement to produce a prospectus for offers of the Notes. Accordingly, any person making or intending to make any offer within the EEA of the Notes should only do so in circumstances in which no obligation arises for the Issuer or any of the Initial Purchasers to produce a prospectus for such offer. Neither the Issuer nor the Initial Purchasers have authorized, nor do they authorize, the making of any offer of Notes through any financial intermediary, other than offers made by the Initial Purchasers, which constitute the final placement of the Notes contemplated in this Offering Circular.
iii In relation to each Member State of the EEA that has implemented the Prospectus Directive (each, a ‘‘Relevant Member State’’), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the ‘‘Relevant Implementation Date’’), the offer of any Notes which is the subject of the Offering contemplated by this Offering Circular is not being made and will not be made to the public in that Relevant Member State, other than: (a) to legal entities which are qualified investors as defined in the Prospectus Directive; (b) to fewer than 100, or if the Relevant Member State has implemented the relevant provision of the 2010 Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as Permitted under the Prospectus Directive; or (c) in any other circumstances falling within Article 3(2) of the Prospectus Directive; provided that no such offer of the Notes shall require the Issuer or the Initial Purchasers to publish a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an ‘‘offer of Notes to the public’’ in relation to the Notes in any Relevant Member State means the communication in any form and by any means of sufficient information about the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase the Notes, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression ‘‘Prospectus Directive’’ means Directive 2003/7 1/EC and includes any relevant implementing measure in each Relevant Member State and the expression ‘‘2010 Amending Directive’’ means Directive 2010/73/EU. United Kingdom This Offering Circular is for distribution only to, and is directed solely at, persons who (i) are outside the United Kingdom, (ii) are investment professionals, as such term is defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the ‘‘Financial Promotion Order’’), (iii) are persons falling within Article 49(2)(a) to (d) of the Financial Promotion Order, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’)) in connection with the issue or sale of any Notes may otherwise be lawfully communicated or caused to be communicated (all such persons together being referred to as ‘‘relevant persons’’). This Offering Circular is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this Offering Circular relates is available only to relevant persons and will be engaged in only with relevant persons. Any person who is not a relevant person should not act or rely on this Offering Circular or any of its contents. Austria This Offering Circular has not been or will not be approved and/or published pursuant to the Austrian Capital Markets Act (Kapitalmarktgesetz) as amended. Neither this Offering Circular nor any other document connected therewith constitutes a prospectus according to the Austrian Capital Markets Act and neither this Offering Circular nor any other document connected therewith may be distributed, passed on or disclosed to any other person in Austria. No steps may be taken that would constitute a public offering of the Notes in Austria and the offering of the Notes may not be advertised in Austria. Any offer of the Notes in Austria will only be made in compliance with the provisions of the Austrian Capital Markets Act and all other laws and regulations in Austria applicable to the offer and sale of the Notes in Austria. France This Offering Circular has not been prepared in the context of a public offering in France within the meaning of Article L. 411-1 of the Code Monetaire´ et Financier and Title I of Book II of the Reglement` Gen´ eral´ of the Autorite´ des marches´ financiers (the ‘‘AMF’’) and therefore has not been submitted for clearance to the AMF. Consequently, the Notes may not be, directly or indirectly, offered or sold to the public in France, and offers and sales of the Notes will only be made in France to providers of investment services relating to portfolio management for the account of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour le compte de tiers) and/or to qualified investors (investisseurs qualifies´ ) and/or to a closed circle of investors (cercle restreint d’investisseurs) acting for their own accounts, as defined in and in accordance with Articles L. 411-2 and D. 411-1 to D. 411-4, D. 744-1, D. 754-1 and D. 764-1 of the Code Monetaire´ et Financier. Neither this Offering Circular nor any other offering material may be distributed to the public in France or used in connection with any offer to the public in France. No direct or indirect distribution of any notes so acquired shall be made to the public in France
iv other than in compliance with applicable laws and regulations relating to a public offering (and in particular Articles L. 411-1, L. 411-2 and L. 621-8 of the Code Monetaire´ et Financier. Germany The Notes may not be offered and sold to the public, except in accordance with the German Securities Prospectus Act (Wertpapierprospektgesetz) or any other laws applicable in Germany governing the issue, offering and sale of securities. This Offering Circular has not been and will not be submitted to, nor has it been nor will it be approved by, the Bundesanstalt fur¨ Finanzdienstleistungsaufsicht, the German Financial Services Supervisory Authority. The Notes must not be distributed within Germany by way of a public offer, public advertisement or in any similar manner, and this Offering Circular and any other document relating to the Notes, as well as information contained therein, may not be supplied to the public in Germany or used in connection with any offer for subscription of Notes to the public in Germany. Consequently, in Germany, the Notes will only be available to, and this Offering Circular and any other offering material in relation to the Notes are directed only at, persons who are qualified investors (qualifizierte Anleger) within the meaning of Section 2 No. 6 of the Securities Prospectus Act. This Offering Circular and other offering materials relating to the offer of Notes are strictly confidential and may not be distributed to any person or entity other than the recipients hereof. Grand Duchy of Luxembourg An offer of Notes may not be made to the public in Luxembourg except: (a) at any time, to national and regional governments, central banks, international and supranational institutions (such as the International Monetary Fund, the European Central Bank, the European Investment Bank) and other similar international organizations; (b) at any time, to legal entities which are authorized or regulated to operate in the financial markets (including credit institutions, investment firms, other authorised or regulated financial institutions, undertakings for collective investment and their management companies, pension and investment funds and their management companies, insurance undertakings and commodity dealers) as well as entities not so authorized or regulated whose corporate purpose is solely to invest in securities; and (c) at any time, to certain natural persons or small and medium-sized enterprises (as defined in the Luxembourg act dated July 10, 2005 on prospectuses for securities implementing the Prospectus Directive into Luxembourg law) recorded in the register of natural persons or small and medium-sized enterprises considered as qualified investors as held by the Commission de surveillance du secteur financier as competent authority in Luxembourg in accordance with the Prospectus Directive. Italy The offering of the Notes has not been registered pursuant to Italian securities legislation and, accordingly, no Notes may be offered, sold or delivered, nor may copies of this Offering Circular or of any other document relating to the Notes be distributed in Italy, except: (i) to qualified investors (investitori qualificati), pursuant to Article 100 of Legislative Decree No. 58 of February 24, 1998, as amended (the ‘‘Financial Services Act’’) and as defined in Article 34-ter, first paragraph, letter b) of Commissione Nazionale per le Societa` e la Borsa (‘‘CONSOB’’) Regulation No. 11971 of May 14, 1999, as amended from time to time (‘‘Regulation No. 11971’’); or (ii) in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 34-ter of Regulation No. 11971. Any offer, sale or delivery of the Notes or distribution of copies of this Offering Circular or any other document relating to the Notes in the Italy under (i) or (ii) above must be: (b) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Legislative Decree No. 385 (the ‘‘Banking Act’’), the Financial Services Act of September 1, 1933, as amended, CONSOB Regulation No. 16190 of October 29, 2007 (as amended from time to time) and any other applicable law and regulations; and (c) in compliance with Article 129 of the Banking Act, as amended, and the implementing guidelines of the Bank of Italy, as amended from time to time, pursuant to which the Bank of Italy may request information on the issue or the offer of securities in Italy; and
v (d) in compliance with any other applicable laws and regulations or requirement imposed by CONSOB, the Bank of Italy or any other Italian authority. Spain This Offering has not been registered with the Comision´ Nacional del Mercado de Valores and therefore the Notes may not be offered in Spain by any means, except in circumstances which do not qualify as a public offer of securities in Spain in accordance with article 30 bis of the Securities Market Act (‘‘Ley 24/1988, de 28 de julio del Mercado de Valores’’) as amended and restated, or pursuant to an exemption from registration in accordance with article 41 of the Royal Decree 1310/2005 (‘‘Real Decreto 1310/2005, de 4 de noviembre por el que se desarrolla parcialmente la Ley 24/1988, de 28 de julio, del Mercado de Valores, en materia de admision´ a negociacion´ de valores en mercados secundarios oficiales, de ofertas publicas´ de venta o suscripcion´ y del folleto exigible a tales efectos’’). Sweden The offering contemplated in this Offering Circular is for the intended recipients only and may not in any way be forwarded to the public in Sweden, except in accordance with the relevant exemptions under the Swedish Financial Instruments Trading Act (1991) (Sw. lagen (1991:980) om handel med finansiella instrument). Accordingly, no securities will be offered or sold in a manner that would require the registration of a prospectus by the Swedish Financial Supervisory Authority under the Swedish Financial Instruments Trading Act (1991). This Offering Circular is not a prospectus in accordance with the prospectus requirements provided for in said act or in any other Swedish laws or regulations. Accordingly, this Offering Circular has not been, nor will it be, examined, approved or registered by the Swedish Financial Supervisory Authority or any other Swedish public body. The Netherlands The Notes (including rights representing an interest in the global note that represents the Notes) may not be offered or sold to individuals or legal entities in The Netherlands unless (i) a prospectus relating to the offer is available to the public which is approved by the Dutch Authority for the Financial Markets (Autoriteit Financiele Markten) or by a supervisory authority of another member state of the European Union (the ‘‘EU’’) or (ii) an exception or exemption applies to the offer pursuant to article 5:3 of the Netherlands Financial Supervision Act (Wet op het financieel toezicht) (the ‘‘FSA’’) or article 53 paragraph 2 or 3 of the Exemption Regulation FSA, for instance due to the offer targeting exclusively ‘‘qualified investors’’ (gekwalificeerde beleggers) within the meaning of article 1:1 FSA.
NOTICE TO INVESTORS IN JAPAN The Notes may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of any Japanese person or to others, for re-offering or re-sale directly or indirectly in Japan or to any Japanese person, except in each case pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act of Japan and any other applicable laws and regulations of Japan. For purposes of this paragraph, ‘‘Japanese person’’ means any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
NOTICE TO INVESTORS IN HONG KONG Each Initial Purchaser has represented and agreed that: (a) it has not offered nor sold and will not offer nor sell in Hong Kong, by means of any document, any Notes other than: (i) to ‘‘professional investors’’ within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the ‘‘SFO’’) and any rules made under the SFO; or (ii) in other circumstances which do not result in the document being a ‘‘prospectus’’ as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and (b) it has not issued nor had in its possession for the purposes of issue, and will not issue nor have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to the Notes which are or are intended to be disposed of only to persons outside
vi Hong Kong or only to ‘‘professional investors’’ as defined in the SFO and any rules made under the SFO.
NOTICE TO INVESTORS IN SINGAPORE This Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’). Accordingly, each Initial Purchaser has represented and agreed that it has not offered nor sold and that it will not offer nor sell any Notes nor cause such Notes to be made the subject of an invitation for subscription or purchase, nor will it circulate or distribute this Offering Circular or any other document or material in connection with the offer or sale or invitation for subscription or purchase of the Notes, whether directly or indirectly, to any person in Singapore other than (a) to an institutional investor pursuant to Section 274 of the SFA; (b) to a relevant person, or any person pursuant to Section 275(1 A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or (c) pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.
MARKET AND INDUSTRY DATA Unless otherwise expressly indicated or noted below, all information regarding markets, market size, market share, market position, growth rates and other industry data pertaining to our business contained in this Offering Circular are based on estimates prepared by us based on certain assumptions and our knowledge of the industry in which we operate as well as data from various market research publications, publicly available information and industry publications, including reports published by various third-party sources. We accept responsibility for the accurate reproduction of this information and as far as we are aware and are able to ascertain from information published by third-party sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. Industry publications generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified such data. In many cases, there is no readily available external information (whether from trade associations, government bodies or other organizations) to validate market-related analyses and estimates, requiring us to rely on our own internally developed estimates regarding the online travel industry, our position in the industry, our market share and the market shares of various industry participants based on experience, our own investigation of market conditions and our review of industry publications, including information made available to the public by our competitors. While the Issuer has examined and relied upon certain market or other industry data from external sources as the basis of its estimates, neither the Issuer nor the Initial Purchasers have verified that data independently. The Issuer and the Initial Purchasers cannot assure you of the accuracy and completeness of, and take no responsibility for, such data. Similarly, while the Issuer believes its internal estimates to be reasonable, these estimates have not been verified by any independent sources and the Issuer and the Initial Purchasers cannot assure you as to their accuracy. The Issuer’s estimates involve risks and uncertainties and are subject to change based on various factors.
vii FORWARD-LOOKING STATEMENTS This Offering Circular includes forward-looking statements within the meaning of the securities laws of certain applicable jurisdictions. These forward-looking statements include, but are not limited to, the discussion of the changing dynamics of the marketplace and the Issuer’s outlook for growth in the travel industry both within and outside of the United Kingdom, France, Spain, Italy, Germany and Scandinavia. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘‘aims,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘continues,’’ ‘‘could,’’ ‘‘estimates,’’ ‘‘expects,’’ ‘‘forecasts,’’ ‘‘guidance,’’ ‘‘intends,’’ ‘‘may,’’ ‘‘plans,’’ ‘‘should’’ or ‘‘will’’ or, in each case, their negative, or other variations or comparable terminology. These forward- looking statements include all matters that are not historical facts. They appear in a number of places throughout this Offering Circular and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition and performance, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual financial condition, results of operations and cash flows, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Offering Circular. In addition, even if our financial condition, results of operations and cash flows, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Offering Circular, those results or developments may not be indicative of our results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to: • our substantial leverage and ability to meet significant debt service obligations, including significant repayment requirements in the coming years, which are prior to the maturity date of the Notes; • restrictions in our debt instruments that could impair our activities; • our exposure to interest rate risk, hedging risk and currency fluctuations; • the impact on our revenue, profits and cash flow resulting from general economic conditions, consumer confidence, spending patterns and disruptions affecting the travel industry specifically; • the impact on our revenue, profits and cash flow resulting from our inability to successfully compete against current and future competitors (including in the event where metasearch and online portal companies were to become direct competitors); • the impact of seasonal fluctuations; • the laws, rules and regulations to which we are subject and the potential for changes to those laws, rules and regulations; • the impact on our revenue, profits and cashflow resulting from adverse changes affecting our relationships with travel product suppliers and suppliers’ intermediaries which could reduce our access to travel products content and/or increase our costs; • our ability to attract and retain highly skilled personnel and other qualified executives and employees; • restrictions in the use of our brands; • changes, restrictions or disruptions affecting our technology platforms or the technology of our third service party providers; • our exposure to risks associated with online commerce security and particularly payment fraud; • risks associated with our structure and ownership; • risks associated with the Transactions; and • other factors discussed or referred to in this Offering Circular.
viii The foregoing factors should not be construed as exhaustive. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We urge you to read this Offering Circular, including the sections entitled ‘‘Risk Factors,’’ ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations’’ and ‘‘Business,’’ for a more complete discussion of the factors that could affect our future performance and the industry in which we operate. Except as required by law or the rules and regulations of any stock exchange on which the Notes are listed, we undertake no obligation to publicly update or publicly revise any forward- looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Offering Circular, including those set forth under ‘‘Risk Factors.’’
PRESENTATION OF FINANCIAL DATA AND NON-GAAP MEASURES On February 9, 2011, Amadeus and LuxGEO entered into a sale and purchase agreement for the acquisition of Opodo Limited (the ‘‘Acquisition’’). Simultaneously with the Acquisition, the Go Voyages Group, the eDreams Group and the Opodo Group will be combined to form the Geo Group (together with the Acquisition and related transactions, the ‘‘Transactions’’). As of the date of this Offering Circular, Lyeurope owns the entire share capital of Lyparis, the holding company of the Go Voyages Group. Lyeurope was created in May 2010 for purposes of the acquisition, on July 2, 2010, of the Go Voyages Group by AXA Private Equity. USgoal was created by funds advised by Permira Asesores, S.L. for purposes of the acquisition, on August 3, 2010, of eDreams Inc., the holding company of the eDreams Group. USgoal Inc. was merged into eDreams Inc. on March 18, 2011. This Offering Circular includes: • audited consolidated historical financial statements for Lyparis and its subsidiaries as of, and for the years ended, March 31, 2010, 2009 and 2008, as well as unaudited interim consolidated historical financial statements as of, and for the nine-month period ended, December 31, 2010, prepared in accordance with accounting principles generally accepted in France (‘‘French GAAP’’); the statutory auditors’ audit report on the French GAAP consolidated financial statements of Lyparis and its subsidiaries for the fiscal year ended March 31, 2009 draws attention to certain corrections to the opening balance sheet of Lyparis, further discussed in Note 3 to those consolidated financial statements; • unaudited interim consolidated historical financial statements for Lyeurope and its subsidiaries as of, and for the six-month period ended, December 31, 2010, prepared in accordance with French GAAP; • audited consolidated historical financial statements for eDreams Inc. and its subsidiaries as of, and for the years ended, December 31, 2010, 2009 and 2008, prepared in accordance with accounting principles generally accepted in Spain (‘‘Spanish GAAP’’); the statutory auditors of eDreams Inc. and its subsidiaries expressed a qualified opinion in their audit reports on the eDreams Group’s Spanish GAAP consolidated financial statements for the fiscal years ended December 31, 2009 and December 31, 2008 stating that the notes to these financial statements do not contain all the disclosures on (i) salaries, attendance fees and remuneration earned by the senior executives and by the directors of the eDreams Group, (ii) advances and loans granted to such executives and directors, or (iii) on treasury shares or share-based payment transactions, in each case under the minimum disclosure requirements set forth in the Spanish National Chart of Accounts approved by Royal Decree 1514/2007; • audited interim consolidated historical financial statements for USgoal Inc. and its subsidiaries for the period from August 3, 2010 to December 31, 2010, prepared in accordance with Spanish GAAP; • audited consolidated historical financial statements for Opodo Limited and its subsidiaries as of, and for the years ended, December 31, 2010, 2009 and 2008, prepared in accordance
ix with International Financial Reporting Standards as adopted by the European Union (‘‘IFRS’’); and • unaudited pro forma combined financial information for the Geo Group as of and for the year ended December 31, 2010, prepared in accordance with the notes thereto and on the basis of the recognition and measurement principles of IFRS. Travellink AB is a wholly-owned subsidiary of Opodo Limited and is included in the audited consolidated historical financial statements for Opodo Limited. The income statement items of the Go Voyages Group, the eDreams Group and the Opodo Group included in the ‘‘Summary Historical and Pro Forma Financial Information and other Data’’ and ‘‘Selected Historical Financial Data’’ sections of the Offering Circular on pages 24, 26, 30, 90, 91 and 94 thereto are presented in a manner consistent with the presentation of the income statement items of the Pro Forma Combined Financial Information introduced under ‘‘Total Revenue, Supplies and Expenses of the Geo Group (Pro Forma Combined Financial Information)’’ and the discussion of the Go Voyages Group’s, the eDreams Group’s and the Opodo Group’s results of operations provided under ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Results of Operations of the Go Voyages Group (French GAAP)’’, ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations— Results of Operations of the eDreams Group (Spanish GAAP)’’ and ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Results of Operations of the Opodo Group (IFRS)’’, respectively. Consolidated financial statements prepared in accordance with French or Spanish GAAP differ in certain significant respects from IFRS. In addition, certain accounting principles applied historically by the Opodo Group under IFRS may be different from accounting principles applied by the Issuer for purposes of the pro forma combined financial information. These differences could be material to the information contained herein. See ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Main Differences between French GAAP and IFRS’’, ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Main Differences between Spanish GAAP and IFRS and ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Main differences between IFRS as applied by Opodo historically and IFRS as applied by Geo.’’ The unaudited Pro Forma Combined Financial Information presented are based upon available information and assumptions that we believe are reasonable but are not necessarily indicative of the results that actually would have been achieved if the Transactions had been completed on the dates indicated or that may be achieved in the future, and are provided for informational purposes only. Please see the notes to our Pro Forma Combined Financial Information for a more detailed discussion about pro forma adjustments. The financial information included in this Offering Circular include some measures which are not accounting measures defined by IFRS, French GAAP or Spanish GAAP. As used in this Offering Circular, the following terms have the following meanings: ‘‘EBITDA’’ means loss or profit after tax before depreciation and amortization, finance income and expense, other income and expense and income tax. ‘‘Gross Bookings’’ means the total amount paid by our customers for travel products and services booked through us under the merchant model (including the part that is passed on to, or transacted by, the travel supplier), including taxes, fees and other charges and excluding VAT. See ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations— Overview of the Geo Group.’’ ‘‘Pro forma Combined Capital Expenditure’’ represents the pro forma cash outflows incurred during the period to acquire non-current assets such as property, plant and equipment, certain intangible assets and capitalization of certain development IT costs. Pro forma Combined Capital Expenditure has been derived from cash flow information contained in the Go Voyages Group historical financial statements under French GAAP, the eDreams Group historical financial statements under Spanish GAAP, and the Opodo Group historical financial statements under IFRS and adjusted to include the software development costs which can be capitalized under IFRS for the Go Voyages Group.
x ‘‘Pro forma total net debt’’ represents Pro forma Non-current Borrowings (other than the portion of the Convertible Subordinated Shareholder Bonds treated as debt, partly offset by capitalised transaction costs, in the Pro Forma Combined Financial Information) for the Geo Group net of pro forma cash and cash equivalents. ‘‘Pro forma total net senior secured debt’’ represents the proceeds from the Senior Credit Facilities net of pro forma cash and cash equivalents. ‘‘Pro forma interest expense’’ represents the pro forma interest on the drawings under the Senior Credit Facilities and the Notes using an assumed blended interest rate of 8%. ‘‘Pro Forma Recurring EBITDA’’ means pro forma profit (loss) after tax before pro forma income tax (benefit) expense, pro forma finance income, pro forma finance expense, pro forma other income, pro forma other expense, pro forma depreciation and amortization, transaction related compensation, transaction related expenses, and other income and expense items which are considered by management to not be reflective of its on-going operations. ‘‘Revenue margin’’ means total revenue (including the commissions, incentives, mark-ups and fees we earn) less the amount we pay to our suppliers (supplies) in connection with revenue recognized on a gross basis. We believe that Pro Forma Recurring EBITDA is a useful indicator of our ability to incur and service our indebtedness and can assist securities analysts, investors and other parties to evaluate our business and is also a relevant measure for assessing our performance, because it is adjusted to reflect the Acquisition, the Transactions, key pro forma adjustments related thereto and certain items and expenditures that we believe are not reflective of ongoing future performance. Pro forma Recurring EBITDA is not a measure of performance or liquidity under IFRS and should not be considered by investors in isolation to, or as a substitute for, a measure of profit, or as an indicator of our operating performance or cash flows from operating activities as determined in accordance with IFRS. We do not consider this non-IFRS financial measure to be a substitute for, or superior to, the information provided by IFRS financial measures. We have presented this supplemental non-IFRS measure because we believe that it is a useful indicator of our ability to incur and service our indebtedness and can assist analysts, investors and other parties to evaluate our business. Pro forma Recurring EBITDA and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing Pro forma Recurring EBITDA as reported by us to similar measures of other companies. We encourage you to evaluate the adjustments made to arrive at Pro forma Recurring EBITDA and the limitations for purposes of analysis in excluding them. Gross Bookings, EBITDA, Pro Forma Recurring EBITDA and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing Gross Bookings, EBITDA, Pro Forma Recurring EBITDA or any similar measure or data as reported by us to Gross Bookings, EBITDA or any similar measure or data as reported by other companies. Pro Forma Recurring EBITDA as presented here differs from the definition of ‘‘Consolidated EBITDA’’ contained in the Indenture governing the Notes. Pro Forma Recurring EBITDA is not a measurement of performance under either French GAAP, Spanish GAAP or IFRS and you should not consider Pro Forma Recurring EBITDA as an alternative to (a) operating profit or profit for the period (as determined in accordance with French GAAP, Spanish GAAP or IFRS) as a measure of our operating performance, (b) cash flows from operating, investing and financing activities as a measure of our ability to meet our cash needs or (c) any other measures of performance under generally accepted accounting principles. Pro Forma Recurring EBITDA has limitations as an analytical tool, and you should not consider them in isolation, or as a substitute for an analysis of our results as reported under either French GAAP, Spanish GAAP or IFRS. Some of these limitations are: • they do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; • they do not reflect changes in, or cash requirements for, our working capital needs; • they do not reflect the significant interest expense, or the cash requirements necessary, to service interest or principal payments, on our debts;
xi • although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often need to be replaced in the future and Pro Forma Recurring EBITDA do not reflect any cash requirements that would be required for such replacements; • some of the exceptional items that we eliminate in calculating Pro Forma Recurring EBITDA reflect cash payments that were made, or will in the future be made; and • the fact that other companies in our industry may calculate Pro Forma Recurring EBITDA differently than we do, which limits its usefulness as a comparative measure. Similarly, pro forma total net debt, pro forma total net senior secured debt and pro forma interest expense are measures presented to enhance the investor’s understanding of indebtedness and our ability to fund our ongoing operations. However, these debt and liquidity Non-IFRS measures are not measures determined based on IFRS, or any other internationally accepted accounting principles, and you should not consider such items as an alternative to the historical financial position of the Go Voyages Group, eDreams Group and Opodo Group included elsewhere in this Offering Circular. The debt and liquidity Non-IFRS measures, as defined by us, may not be comparable to similarly titled measures as presented by other companies due to differences in the way our debt and liquidity Non-IFRS measures are calculated. Certain amounts and percentages included in this Offering Circular have been rounded. Accordingly, in certain instances, the sum of the numbers in a column of a table may not exactly equal the total figure for that column. The financial information included in this Offering Circular is not intended to comply with the applicable accounting requirements of the U.S. Securities Act and the related rules and regulations of the SEC which would apply if the Notes were being registered with the SEC.
CERTAIN DEFINITIONS In this Offering Circular, unless the context otherwise requires: • ‘‘Acquisition’’ refers to the acquisition of Opodo Limited by LuxGEO S.a` r.l. from Amadeus IT Group, S.A.; • ‘‘Acquisition Agreement’’ refers to the sale and purchase agreement dated February 9, 2011 entered into between Amadeus IT Group, S.A. as vendor and LuxGEO S.a` r.l. as acquiror relating to the share capital of Opodo Limited; • ‘‘Affiliate’’ refers to any person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, ‘‘control,’’ as used with respect to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by agreement or otherwise; • ‘‘Amadeus’’ refers to Amadeus IT Group, S.A.; • ‘‘AXA Private Equity’’ refers to funds advised or managed by AXA Investment Managers Private Equity Europe S.A.; • ‘‘Axeurope’’ refers to Axeurope S.A., a societ´ e´ anonyme organized under the laws of Luxembourg, with its registered office at 21, boulevard Grande-Duchesse Charlotte, L-1331 Luxembourg, registered with the Luxembourg Registre de Commerce et des Societ´ es´ under number B 159139; • ‘‘B2B’’ refers to ‘‘business to business;’’ • ‘‘B2B2C’’ refers to ‘‘business to business to consumer;’’ • ‘‘B2C’’ refers to ‘‘business to consumer;’’ • ‘‘BSP’’ refers to the billing and settlement plan system used by IATA accredited agents; • ‘‘CAGR’’ refers to compound annual growth rate; • ‘‘CGU’’ refers to cash generating units;
xii • ‘‘Completion Date’’ refers to the date on which the Acquisition and the Transactions shall be completed and the escrow funds shall be released; • ‘‘Convertible Subordinated Shareholder Bonds’’ refers to the convertible bonds to be issued by the Issuer on the Completion Date to Axeurope and Luxgoal in connection with the Transactions. See ‘‘The Transactions;’’ • ‘‘Dynamic Packages’’ refers to the opportunity offered to travelers to build their own custom based package by combining selected travel products from different travel suppliers which are dynamically priced; • ‘‘eDreams Group’’ and ‘‘eDreams’’ refer to eDreams Inc. and its subsidiaries; • ‘‘eDreams Facilities’’ refers to the financial indebtedness incurred by eDreams Inc. and its subsidiaries under the senior credit facility agreement and the revolving facility agreement entered into in connection with the acquisition of eDreams by the Permira Funds; • ‘‘eDreams Spanish GAAP Financial Statements’’ refers to the audited consolidated financial statements of eDreams Inc. and its subsidiaries for the years ended December 31, 2010, 2009 and 2008 prepared in accordance with Spanish GAAP; • ‘‘Equity Contribution’’ refers to the equity contribution from AXA Private Equity and co-investors and the Permira Funds estimated at e175.4 million, which will indirectly be used by LuxGEO as part of the financing of the Acquisition; • ‘‘Escrow Account’’ refers to the escrow account in which the Initial Purchasers will deposit the gross proceeds from the offering of the Notes less a portion of the Initial Purchasers’ commission and which will be pledged on a first-ranking basis in favor of the Trustee on behalf of the holders of the Notes; • ‘‘Existing Go Voyages and eDreams Indebtedness’’ refers to the financial indebtedness incurred by Lyparis and its subsidiaries under the Go Voyages Facilities and the financial indebtedness incurred by eDreams Inc. and its subsidiaries under the eDreams Facilities; • ‘‘French GAAP’’ refers to the accounting principles generally accepted in France; • ‘‘GDP’’ refers to gross domestic product; • ‘‘GDS’’ refers to a global distribution system, also referred to as a computer reservation service, which provides a centralized, comprehensive repository of travel products, including availability and pricing of seats on airline flights and hotel accommodations; • ‘‘Go Voyages Facilities’’ refers to the financial indebtedness incurred by Lyparis and its subsidiaries under: • the senior credit facility agreement entered into in connection with the acquisition of the Go Voyages Group by AXA Private Equity in July 2010; and • the mezzanine debt issued in connection with the acquisition of the Go Voyages Group by AXA Private Equity in July 2010, in the form of bonds with attached share warrants (obligations a` bons de souscription d’actions) giving the right to the mezzanine bondholders to subscribe for shares in Lyeurope; • ‘‘Go Voyages French GAAP Financial Statements’’ refers to the audited consolidated financial statements of Lyparis and its subsidiaries for the years ended March 31, 2010, 2009 and 2008 and the unaudited interim consolidated financial statements of Lyparis and its subsidiaries for the nine-month period ended December 31, 2010, prepared in accordance with French GAAP; • ‘‘Go Voyages Group,’’ and ‘‘Go Voyages’’ refer to Lyparis and its subsidiaries; • ‘‘Group,’’ ‘‘Geo Group,’’ ‘‘Geo,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to Geo Travel Finance S.C.A. and its subsidiaries after the Completion Date, or as the context may otherwise indicate; • ‘‘Guarantees’’ refers to the senior subordinated guarantees of the Guarantors guaranteeing the Notes as of the Completion Date;
xiii • ‘‘Guarantors’’ refers, after the Completion Date, collectively, to LuxGEO S.a` r.l, Opodo Limited, Travellink AB and eDreams Inc.; • ‘‘IATA’’ refers to the International Air Transport Association; • ‘‘IFRS’’ refers to the International Financial Reporting Standards as adopted by the European Union; • ‘‘Indenture’’ refers to the indenture governing the Notes to be dated on or about the Issue Date by and among, inter alios, the Issuer and Deutsche Trustee Company Limited, as Trustee, and to which the Guarantors will accede on the Completion Date; • ‘‘Initial Collateral’’ refers to the security interests granted on Completion Date to secure the Notes and the Guarantees, which will be as follows: • security interests granted on a first-priority basis over: • the capital stock in the Issuer held by LuxGEO Parent; • the bank accounts of LuxGEO Parent located in Luxembourg; and • intercompany loans and other receivables of LuxGEO Parent; and • security interests granted on a second-priority basis over: • all of the issued capital stock in LuxGEO and Opodo Limited; • the bank accounts of the Issuer and LuxGEO located in Luxembourg; • intercompany loans and other receivables of the Issuer and LuxGEO; • any instruments issued by LuxGEO and held by the Issuer; • the receivables due under the Lyparis Structural Back to Back Loan; and • the financial securities accounts opened in the name of the Issuer and on which are credited all financial securities (titres financiers) issued by Lyeurope and held by the Issuer (nantissement de compte de titres financiers); • ‘‘Initial Purchasers’’ refers to Goldman Sachs International, Credit Suisse Securities (Europe) Ltd., Societ´ e´ Gen´ erale´ and UBS Limited; • ‘‘Intercreditor Agreement’’ refers to the Intercreditor Agreement entered into on February 18, 2011, among, inter alia, the Issuer, certain lenders and Societ´ e´ Gen´ erale´ as security agent, to which the Trustee will accede on the Issue Date; • ‘‘Issuer’’ refers to Geo Travel Finance S.C.A., a partnership limited by shares (societ´ e´ en commandite par actions) organized under the laws of Luxembourg, having its registered office at 282 route de Longwy L-1940, Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-159.022; • ‘‘LCC’’ refers to low-cost carriers; • ‘‘Luxembourg’’ refers to the Grand Duchy of Luxembourg; • ‘‘LuxGEO’’ refers to LuxGEO S.a` r.l., a private limited liability company (societ´ e´ a` responsabilite´ limitee´ ) organized under the laws of Luxembourg, with its registered office at 282 route de Longwy L-1940 Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-152.198; • ‘‘LuxGEO Parent’’ or ‘‘Parent’’ refer to LuxGEO Parent S.a.` r.l., a private limited liability company (societ´ e´ a` responsabilite´ limitee´ ) organized under the laws of Luxembourg, have its registered office at 282 route de Longwy L-1940, Luxembourg, with a share capital of e34,000, and registered with the Luxembourg Register of Commerce and Companies under number B-159036; • ‘‘Luxgoal’’ refers to Luxgoal S.a` r.l., a private limited liability company (societ´ e´ a` responsabilite´ limitee´ ) organized under the laws of Luxembourg, with its registered office at 282 route de Longwy L-1940 Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-152.268, incorporated for the purposes of the acquisition of the eDreams Group;
xiv • ‘‘Lyeurope’’ refers to Lyeurope S.A.S., a societ´ e´ par actions simplifiee´ organized under the laws of France, with its registered office at 14 rue de Clery, 75002 Paris (France), registered with the French Registre du Commerce et des Societ´ es´ under number 522 727 700 RCS Paris, which has been created for purposes of the acquisition of the Go Voyages Group by AXA Private Equity in July 2010 and which is the holding company of Lyparis; • ‘‘Lyparis’’ refers to Lyparis S.A.S., a societ´ e´ par actions simplifiee´ unipersonnelle organized under the laws of France, with its registered office at 14 rue de Clery, 75002 Paris (France) and registered with the French Registre du Commerce et des Societ´ es´ under number 491 249 520 RCS Paris, a direct 100% owned subsidiary of Lyeurope; • ‘‘Lyparis Structural Back to Back Loan’’ refers to a loan between the Issuer as lender and Lyparis as borrower to be entered into on the Completion Date, in a principal amount equal to the principal amount of the Notes and which terms will comply with the provisions of the Intercreditor Agreement regarding structural back to back loans; • ‘‘Notes’’ refers to the e175 million aggregate principal amount of the Issuer’s 10.375% Senior Notes due 2019 offered hereby; • ‘‘Opodo Group’’ and ‘‘Opodo’’ refer to Opodo Limited and its subsidiaries; • ‘‘Opodo IFRS Financial Statements’’ refers to the audited consolidated financial statements of Opodo Limited and its subsidiaries for the years ended December 31, 2010, 2009 and 2008 prepared in accordance with IFRS; • ‘‘OTA’’ refers to online travel agencies; • ‘‘Permira Funds’’ refers to funds advised by Permira Asesores, S.L. or affiliated entities; • ‘‘Post Completion Collateral’’ refers to the security interests to be granted no later than 30 days after the Completion Date to secure the Notes and the Guarantees, which will be as follows: • security interests granted on a first-priority basis over: • all of the issued Capital Stock in LuxGEO GP S.a` r.l.; and • the capital stock in the Issuer held by Axeurope and Luxgoal; • security interests granted on a second-priority basis over: • all of the issued capital stock in eDreams Inc. held by Luxgoal; • the bank accounts of Travellink AB; • substantially all of the assets of Opodo and all the assets (other than any shareholdings) of eDreams Inc.; • intercompany receivables and trade receivables of Travellink AB; • intellectual property rights and trademarks of Travellink AB; • the financial securities accounts opened in the name of Opodo on which are credited all financial securities (titres financiers) issued by Lyeurope and Opodo S.A.S. and held by Opodo (nantissement de compte de titres financiers); and • all of the issued capital stock in Vacaciones eDreams SL; •‘‘Pro Forma Combined Financial Information’’ refers to the unaudited pro forma combined financial information for the Geo Group as of, and for the fiscal year ended, December 31, 2010. See ‘‘Unaudited Pro Forma Combined Financial Information;’’ • ‘‘Senior Credit Facilities’’ refers to the term loans and the revolving facilities made available under the Senior Credit Facilities Agreement; • ‘‘Senior Credit Facilities Agreement’’ refers to the senior credit facilities agreement entered into between LuxGEO Parent S.a` r.l., the Senior Facilities Agent, the Security Agent, the Senior Lenders and others dated February 18, 2011 as amended from time to time;
xv • ‘‘Senior Finance Documents’’ refers to the Senior Credit Facilities Agreement, the Intercreditor Agreement, the senior security documents, the hedging documents and other documents designated as such between LuxGEO as borrower and the Senior Facilities Agent; • ‘‘Spanish GAAP’’ refers to the accounting principles generally accepted in Spain; • ‘‘Transactions’’ refers to Acquisition and the combination of the Go Voyages Group, the eDreams Group and the Opodo Group, including the refinancing of the Existing Go Voyages and eDreams Indebtedness, as described in ‘‘The Transactions;’’ • ‘‘TTA’’ refers to traditional travel agents; • ‘‘USgoal’’ refers to USgoal Inc., a corporation organized under the laws of the State of Delaware for purposes of the acquisition of the eDreams Group by the Permira Funds in August 2010. USgoal was merged into eDreams Inc. on March 18, 2011; • ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to the Issuer, its subsidiaries and other entities after the Completion Date, unless the context otherwise requires or is clear. When discussing future or pro forma results of operations, such terms are generally used to refer to the business of the Issuer and its consolidated subsidiaries.
EXCHANGE RATE AND CURRENCY INFORMATION Unless otherwise indicated, references in this Offering Circular to ‘‘sterling,’’ ‘‘pounds sterling,’’ ‘‘GBP’’ or ‘‘£’’ are to the lawful currency of the United Kingdom; references to ‘‘euro’’ or ‘‘e’’ are to the single currency of the participating Member States in the Third Stage of European Economic and Monetary Union pursuant to the Treaty Establishing the European Community, as amended from time to time; and references to ‘‘U.S. dollars,’’ ‘‘dollars,’’ ‘‘U.S.$’’ or ‘‘$’’ are to the lawful currency of the United States of America. The following table sets forth, for the periods set forth below, the high, low, average and period end Bloomberg Composite Rate expressed as (i) U.S. dollars per e1.00 and (ii) pounds sterling per e1.00. The Bloomberg Composite Rate is a ‘‘best market’’ calculation, in which, at any point in time, the bid rate is equal to the highest bid rate of all contributing bank indications and the ask rate is set to the lowest ask rate offered by these banks. The Bloomberg Composite Rate is a mid value rate between the applied highest bid rate and the lowest ask rate. The rates may differ from the actual rates used in the preparation of the consolidated financial statements and other financial information appearing in this Offering Circular. None of the Issuer, the Guarantors or the Initial Purchasers represent that the U.S. dollar or euro amounts referred to below could be or could have been converted into pounds sterling at any particular rate indicated or any other rate. The average rate for a year means the average of the Bloomberg Composite Rates on the last day of each month during a year. The average rate for a month, or for any shorter period, means the average of the daily Bloomberg Composite Rates during that month, or shorter period, as the case may be. The Bloomberg Composite Rate of euro on April 14, 2011 was $1.4394 per e1.00 and £0.8833 per e1.00. Period Average end rate High Low USD per EUR Year 2006 ...... 1.3171 1.2564 1.3320 1.1852 2007 ...... 1.4717 1.3702 1.4870 1.2904 2008 ...... 1.4061 1.4713 1.6015 1.2443 2009 ...... 1.4404 1.3945 1.5122 1.2504 2010 ...... 1.3384 1.3269 1.4526 1.1923
xvi Period Average end rate High Low USD per EUR Month October 2010 ...... 1.3947 1.3905 1.4064 1.3689 November 2010 ...... 1.3034 1.3670 1.4226 1.3034 December 2010 ...... 1.3384 1.3230 1.3497 1.3094 January 2011 ...... 1.3643 1.3354 1.3740 1.2907 February 2011 ...... 1.3831 1.3659 1.3831 1.3466 March 2011 ...... 1.4206 1.4015 1.4244 1.3834 April 2011 (through April 14) ...... 1.4394 1.4346 1.4507 1.4167
Period Average end rate High Low GBP per EUR Year 2006 ...... 0.6713 0.6818 0.7006 0.6682 2007 ...... 0.7336 0.6845 0.7349 0.6556 2008 ...... 0.9680 0.7974 0.9768 0.7351 2009 ...... 0.8917 0.8916 0.9653 0.8420 2010 ...... 0.8573 0.8584 0.9124 0.8098
Period Average end rate High Low GBP per EUR Month October 2010 ...... 0.8693 0.8764 0.8917 0.8650 November 2010 ...... 0.8386 0.8561 0.8797 0.8386 December 2010 ...... 0.8573 0.8478 0.8590 0.8368 January 2011 ...... 0.8592 0.8470 0.8627 0.8302 February 2011 ...... 0.8524 0.8467 0.8535 0.8414 March 2011 ...... 0.8828 0.8668 0.8828 0.8481 April 2011 (through April 14) ...... 0.8833 0.8820 0.8916 0.8728
xvii OFFERING SUMMARY This summary highlights selected information about us and about the Offering contained elsewhere in this Offering Circular. The following summary is not complete and does not contain all the information you should consider before investing in the Notes. The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information included elsewhere in this Offering Circular. Before making an investment decision, you should read this entire Offering Circular carefully, including the financial statements and the notes thereto and the other financial information contained in this Offering Circular, as well as the risks described under ‘‘Risk Factors.’’ Certain defined terms used herein are defined elsewhere in this Offering Circular. The discussion below gives effect to the Transactions, as though they had already occurred.
Business Overview We are a leading pan-European online travel agency that uses innovative technology and builds on relationships with suppliers, product know-how and marketing expertise to attract and enable customers to research, plan and book a broad range of travel products and services. Our services and products include flight tickets, hotels, car rentals, packages, travel insurance and other ancillary travel related services and products. We make our offer accessible to a broad range of users, including leisure and corporate travelers, online and offline travel agents, as well as white label partners. We own and operate a strong portfolio of consumer brands such as Go Voyages, eDreams, Opodo and Travellink. Through our main brands, we have historically focused on the structurally attractive European flight travel sector due to the potential upside of this sector as penetration of online travel increases rapidly. We believe the strength of our brands, quality of our services, user-friendly website experience, focus on our customers and efficiency of our marketing programs have enabled us to build significant brand awareness in the European flight sector. We have historically leveraged, and expect to continue to leverage, our strength in flight travel to grow into non-flight travel segments, such as hotels and packages. We also operate in the corporate travel business, particularly through our Scandinavian operations under the Travellink brand. We make travel products and services available to travelers, either directly or through a business customer, both on a stand-alone and package basis through two main lines of business: (i) flight and (ii) non-flight. Flight comprises both revenue generated from the sale of air tickets as well as flight insurance. Non-flight comprises all other revenue, including revenue generated from the sale of car rentals, hotel bookings, vacation packages, non-flight services and advertising. In both lines of business, our main sources of revenue are commissions and incentives from travel suppliers, mark-ups on products and services sold to travelers, and service fees we charge to our customers. We make these products and services available primarily through two business models: the merchant model and the agency model. Under the merchant model, we enable travelers to book flight and non-flight products and services we source from travel suppliers. In such bookings we are either (i) the full merchant of record, in which case we charge and receive payment for the full amount of the booking from the customer and pay the net price of the travel product or service to our travel suppliers at a later date, or (ii) the merchant of record only in respect of the service fees we charge to the customer, in which case the remaining part of the booking value is transacted and charged to the customer directly by our travel suppliers. Revenue under the merchant model comprises commissions and incentives from travel suppliers, mark-ups on products and services sold to the customer, and service fees charged to the customer. Under the agency model we pass the reservation made by the customer on to the relevant travel supplier acting on behalf of the customer and receive a commission from the travel supplier. This commission is the only source of revenue we earn under the agency model, since we do not charge service fees to the customer for agency transactions. For the year ended December 31, 2010, our businesses generated e3.3 billion of combined pro forma gross bookings, e302.9 million of combined pro forma revenue margin and e106.3 million of combined Pro Forma Recurring EBITDA.
1 Our Strengths Leadership position and critical scale across key European countries in the flight OTA sector In the online leisure flight segment, including airline.com websites and OTAs, we believe we are the largest OTA in France and Italy, the second largest in Spain and Germany and the third largest in the U.K. based on total flight bookings. We believe our unique client reach capabilities (through our B2C, B2B and B2B2C distribution channels), combined with our industry knowledge and the breadth of our product offerings, are strong competitive advantages versus our competitors. We believe that our scale and distribution capabilities allow us to negotiate more rewarding volume incentive schemes, access to better fares and content with our suppliers than many of our competitors. Scale also enables us to fund larger marketing and technology investments and to concentrate our investments on high value projects that can have a beneficial impact throughout our businesses, such as brand building, enhanced technology platforms and broader supplier relationships. Our size allows us to integrate our businesses to realize topline synergies and drive improvements in profitability and value proposition for our customers. We have identified opportunities to leverage our constituent companies’ capabilities to increase the revenue we generate with insurance sales, to distribute our differential flight products to a larger customer base and to benefit from cost reductions with a number of external providers. We believe our pan-European presence enhances the appeal of our websites to travel and non-travel advertisers. Finally, the higher flow of online flight traffic visiting our websites raises our profile with non-flight travel suppliers and increases the stock of knowledge concerning customer behavior that we accumulate over time, thus ideally positioning us to expand further into the non-flight segment and offer attractive and tailored bundled packages.
Strong travel supplier relationships On February 9, 2011 we signed a non-exclusive ten-year GDS contract with Amadeus for the supply of GDS services which will become effective as of the completion of the Acquisition. Amadeus is a leading GDS for the European travel and tourism industry and has signed full content agreements with the majority of the key airlines in Europe, so that any inventory available on such airline.com websites is also available through Amadeus’ GDS database. Our contract with Amadeus will provide us with a very broad repository of flight and non-flight products. We also have long-standing relationships with other GDSs, namely Travelport and Sabre. We have developed value driven relationships with our travel suppliers through a wide range of innovative marketing and distribution strategies designed to increase their revenues and/or market shares, while reducing their own distribution costs. Over the years, we have managed to build strong relationships and negotiate agreements directly with key full service and low-cost carriers, for which our websites represent an important source of revenue, especially in the higher-yield, long-haul flight segment. We have developed proprietary, supplier-oriented technology that streamlines the interaction between some of our websites and certain travel suppliers’ direct reservation systems, making it easier and more cost-effective for us to access their content and providing differentiated products to our customers. Since the range of offerings is, according to industry surveys, a fundamental factor affecting consumers’ choice of OTAs, we believe that the comprehensive set of supplier content available through our websites due to our GDS contracts and our direct connect technologies will further enhance our position as a leading pan-European OTA.
Resilient and flexible cash generative business model With approximately 80% of our cost base being variable and scalable, our highly flexible business model is resilient to volume fluctuations. Our business is characterized by structurally negative working capital as customers typically pay us before we pay our suppliers. Our state-of-the-art technology platform has been developed mostly in-house and requires limited capital expenditure relative to the EBITDA we generate.
Scalable, modern and complementary technology platforms We believe that we have state-of-the-art scalable technology platforms, with physical infrastructure and processes which enable us to sustain our plans for future growth and are capable of being adapted and extended rapidly to address new business opportunities. Furthermore, we have internally developed cutting-edge supply technology that enables us to offer
2 a wide variety of products, which includes ‘‘direct connect’’ technology to access certain travel suppliers’ own reservation systems without the intermediation of GDS providers, multi-GDS platforms, charter flight booking systems and a unique dynamic pricing technology, which incorporates computerized analytic processes. Our platforms are up-to-date with several product/ function IT upgrades having been performed recently. For example, we developed a new flight platform for eDreams in 2010, implemented a new website layer for Go Voyages in 2010 and expect to launch Opodo’s mobile service in the second half of 2011. By leveraging our robust IT backbone and rolling out our sophisticated technology applications across all of our businesses and geographies and continuing to innovate, we expect to remain well positioned to source the products that best suit customers’ needs through a set of complex, algorithm-driven platforms and further enhance the flexibility of our product offerings.
Broad geographic footprint with very limited dependence on any country or product segment We are present in 27 countries and we believe we have the largest flight distribution platform in Europe. We operate in countries representing over 90% of the total European online travel sector including Spain, Italy, France, Portugal, the U.K., Germany, Benelux, Scandinavia and Switzerland. Outside of Europe, we are present in a number of large and developing countries including India, Brazil, Mexico and other Latin American countries. While each of our three constituent entities is already well diversified in terms of revenue streams, we believe that our combined group will have substantially less dependence on any one geography, product segment or type of revenue. In addition, our broad geographical reach enhances our ability to expand into less mature travel markets characterized by higher growth potential and lesser online travel penetration and to address a wider range of opportunities for expansion in the non-flight segment.
Strong brand awareness leading to lower marketing expenses Brand awareness (in conjunction with price) is a crucial factor for customer acquisition and retention among European OTAs. eDreams, Go Voyages and Opodo have historically committed significant resources to supporting brand awareness and spent, together, approximately e100 million in 2010 in marketing and advertising costs. As a result, we believe our brands are among the most searched and the highest rated in the European OTA industry on search engine recognition metrics. The 90-day Google Insights Index for 2010 as of February 23, 2011, for example, rated eDreams number one and Opodo number three amongst European OTAs. Our powerful brand recognition attracts a high volume of free traffic to our website which in turn translates into greater profitability. In addition, we expect that our strong brand awareness and marketing track record will continue to reduce customer acquisition costs going forward at acceptable levels even in the face of growing airline.com and local OTA competition, as we believe new entrants would require significant time and investment to reach a similar level of brand awareness.
Breadth of flight product offering We believe we offer a broad array of flight travel products. We source and make available to leisure travelers, tickets from full service carriers, LCCs and charter flights. In respect of full service carriers we access published fares, and, in certain cases, private fares. We further benefit from time to time from an allocation of seats allowing us to offer more competitive prices. In addition, we have developed unique proprietary technology which allows us to dynamically price air tickets, combine competitively priced products and combine fares, creating unique fare combinations and lowering ticket prices to customers in order to attract more travelers.
Multi-channel distribution We make our travel products and services available through different channels to appeal to the broadest range of travelers. We capture the majority of our customers through our flagship consumer brands Go Voyages, eDreams and Opodo directly on our websites and call centers. In addition, we make our products available through white-label and co-branded affiliation programs, third party branded websites, traditional travel agents and tour operators. Last, through Travellink, we make travel products and services available to corporate travelers in Scandinavia.
3 Experienced management team Our management team has a long history of operating in the online travel industry, an established track record of long-term profitable business growth through several business cycles and exogenous shocks to the travel industry and a shared vision for our combined group. Our Chief Executive Officer upon completion of the Transactions, Javier Perez-Tenessa,´ who is the current Chief Executive Officer of eDreams, is one of the leading online travel entrepreneurs in the world, having co-founded eDreams and gained relevant experience in companies like EADS, McKinsey & Co and Netscape. Our Chief Financial Officer and Deputy Chief Executive Officer upon completion of the Transaction, Nicolas Brumelot, who is the current co-Chief Executive Officer of Go Voyages, co-founded Go Voyages in 1997 and has accumulated 18 years of executive experience in the travel industry during his tenure at Go Voyages and his previous position at LookVoyages. The rest of the management team also has many years of experience in the online travel sector including Expedia, Thomas Cook, Venere and Vueling.
Our Strategy Our objective is to reinforce our market positions in the flight business through competitive pricing, improved user experience, improvement in our customer acquisition processes and the progressive integration of our three constituent companies, including the realization of identified synergies, as well as to develop our non-flight business through cross-selling efforts and geographical product rollouts. Our management intends to accomplish this by focusing on the following strategies:
Differentiate our brands through continued competitive pricing Pricing is a vital competitive advantage for an OTA given that the all-in price is the single largest key decision factor for travelers when making a travel booking. Accordingly, we intend to further enhance the public perception of our brands by offering the most attractive fares to our customers without affecting our operating results. We believe that higher levels of service fees can be justified by having the best all-in price for a consumer. In Italy, Spain, France, the U.K. and Germany, for example, we are frequently the OTA with the best all-in fares, and have been able to maintain a leading position despite charging a service fee and several of our competitors’ move to a zero-fee policy. We intend to continue leveraging on our proprietary technology to generate the best fares for our customers. In addition, following the Completion Date, we plan to deploy and share the unique pricing capabilities of each of our constituent companies across all of our businesses, focusing on eDreams’ leadership in the short-haul segment, Go Voyages’ leadership in the long haul segment and Opodo’s expertise in optional premium services.
Pioneer technology innovation Our ability to find the best fares and the continued loyalty of our customers depend to a large degree on the sophistication of our algorithms, proprietary tools for inventory access and website interface. We intend to continue our tradition of pioneering online travel technologies to provide a superior customer experience. To this end we intend to keep upgrading and developing our algorithm-driven continuous-testing platforms and data-mining software to source the cheapest flight prices as well as our best-in-class direct connect technology and multi-GDS connectivity to maximize the flexibility of our product offerings.
Improve our customer acquisition processes and our revenue margin per customer Our strong brand recognition allows us to generate a large portion of our traffic directly (i.e., on a free basis), resulting in higher margins. We plan to focus our customer acquisition strategy on increasing the proportion of traffic generated through direct unpaid channels by targeting marketing investments with high ‘‘return-on-investment’’ potential and intensifying the use of our sophisticated analytical tools to better learn from customer purchasing behavior. We also believe that our strategy of leveraging our scale in the flight segment to cross-sell non-flight products will allow us to acquire non-flight travel customers at significantly reduced costs and will lead to an increase in our revenue margin per customer. In addition, given the growing prevalence of search engines in the context of consumers’ e-commerce behavior, we intend to continue directing a significant proportion of our marketing
4 spend toward search engine marketing and search engine optimization initiatives to further boost our brand awareness. We also differentiate our brands based on quality of customer service to drive loyalty and manage customer acquisition costs in an effective manner. We have and will continue to devote resources to customer relations which contribute to enhance customer awareness and experience, which in turn will generate more free traffic on our websites.
Integrate our businesses and realize low-risk synergies We believe that the value of the combination of Go Voyages, eDreams and Opodo relies on the sharing of know-how, technology and products and the ability to better negotiate terms with suppliers to enhance and strengthen the growth profile of Geo. We intend to follow a progressive integration plan, focusing in the short-term on limited execution risk, high value, revenue related synergies identified by our management together with third party consultants. The identified synergies include the rollout across the group of eDreams’ proprietary technology allowing for direct connection to suppliers, the adoption of Go Voyages’ insurance practices and rates and private fares and general know-how transfer from Opodo, Go Voyages and eDreams. We also believe that our increasing scale will allow us to secure better terms with suppliers. We know that our technology allows the interfaces of our three constituent groups to be linked and products to be shared with limited additional investment. Following a cost-benefit review to determine whether the integration of the IT backbones of the three companies would be beneficial to the performance of the Geo Group, we may also choose to integrate them in the future.
Capture growth opportunities in non-flight travel Even though the majority of our customers currently use our websites for flight bookings, we believe that the European non-flight market segment presents a significant cross-selling opportunity for us. Our constituent entities have seen consistently improving attachment rates of non-flight products over the last three years as additional technology developments have been introduced. For the future, our non-flight strategy is centered on the following priorities: (i) leveraging our existing large user base, traffic and brand recognition to increase sales of non-flight products; (ii) leveraging our existing expertise and growth momentum in hotels and other non-flight segments; (iii) continuing to improve differentiated products such as Dynamic Packaging, B2B and mobile solutions; (iv) continuing the roll-out of our corporate travel solutions; and (v) evaluating opportunistic investments in non-flight travel businesses under appropriate circumstances.
The Transactions The Acquisition Our direct subsidiary LuxGEO is in the process of acquiring Opodo Limited (the ‘‘Acquisition’’) in the context of the combination of the Go Voyages Group (including, for the purposes of this section, Lyeurope), the eDreams Group and the Opodo Group, as well as the refinancing of the Existing Go Voyages and eDreams Indebtedness (together with the Acquisition and related transactions, the ‘‘Transactions’’). We are offering these Notes as part of the overall financing arrangements for the Acquisition and the other Transactions. The consummation of the Acquisition is subject only to antitrust approval. Pending the consummation of the Transactions, the Initial Purchasers will deposit the gross proceeds from the offering of the Notes less a portion of the Initial Purchasers’ commission into an escrow account (the ‘‘Escrow Account’’). The Escrow Account will be pledged on a first-ranking basis in favor of the Trustee on behalf of the holders of the Notes. The release of escrow proceeds will be subject to the satisfaction of certain conditions, including the closing of the Acquisition. If the Transactions are not consummated before November 1, 2011, the first interest payment on the Notes will be made using funds from the Escrow Account. If the Transactions are not consummated on or prior to December 31, 2011, or upon the occurrence of certain events, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to (i) 100% of the aggregate principal amount of the Notes if the special mandatory redemption occurs on or prior to September 30, 2011, or (ii) 101% of the aggregate principal amount of the Notes if the special
5 mandatory redemption occurs on or after October 1, 2011, in each case, plus accrued and unpaid interest and additional amounts, if any, from the issue date for the Notes to the date of special mandatory redemption. AXA LBO Fund IV, represented by AXA Private Equity, and Luxgoal, acting severally and not jointly, will provide guarantees for the benefit of the holders of the Notes in order to pay, upon the occurrence of a special mandatory redemption, pro rata to the economic interest of AXA Private Equity and the Permira Funds, respectively, in the Transactions, the difference between the amount required to be paid to the holders of the Notes for the special mandatory redemption and the amount of funds in the Escrow Account on the date of the special mandatory redemption, provided that the obligations of AXA LBO Fund IV and Luxgoal under these guarantees shall not exceed the sum of (i) the difference between the principal amount of the Notes outstanding and the amount initially deposited by the Initial Purchasers into the Escrow Account, (ii) the accrued and unpaid interest on the Notes at the date of special mandatory redemption, (iii) the premium applicable to any special mandatory redemption on or after October 1, 2011, (iv) an amount equal to amounts released from the Escrow Account in accordance with the Escrow Agreement to pay amounts required or permitted to be paid pursuant to the Notes and the Indenture (other than in respect of a special mandatory redemption), (v) any Additional Amounts (as defined under ‘‘Description of the Notes—Additional Amounts’’) due on the Notes at the date of special mandatory redemption and (vi) an amount equal to any fees and expenses paid out of the Escrow Account in accordance with the Escrow Agreement. See ‘‘Description of the Notes—Escrow of Proceeds; Special Mandatory Redemption.’’
The Financing LuxGEO will finance the Transactions (including the refinancing of the Go Voyages and eDreams Indebtedness) with (i) equity contribution from us and (ii) borrowings under the Senior Credit Facilities Agreement. It is intended that LuxGEO Parent will be funded by Luxgoal and Axeurope with equity for an estimated amount of e175.4 million. The Issuer will be funded with equity from LuxGEO Parent and the proceeds from the Offering for a total amount of e350.4 million. LuxGEO will in turn be funded by equity from the Issuer.
Sources and Uses The estimated sources and uses of the funds necessary to consummate the Acquisition and the refinancing of the Existing Go Voyages and eDreams Indebtedness are shown in the table below. Actual amounts will vary from estimated amounts depending on several factors, including amounts of accrued interest on existing debt as of the Completion Date, estimated closing of hedging agreements and fees and expenses.
Sources (in million g) Uses (in million g) Borrowings under the Senior Acquisition consideration ...... 421.5 Credit Facilities(1) Refinancing of Go Voyages Term Loan A ...... 170.0 Facilities(4) ...... 137.6 Term Loan B ...... 170.0 Refinancing of eDreams Notes Offered hereby ...... 175.0 Facilities(5) ...... 91.3 Amadeus GDS Bonus(2) ...... 22.5 Transaction Fees(6) ...... 62.5 Equity Contribution(3) ...... 175.4 Total Sources ...... 712.9 Total Uses ...... 712.9
(1) The Senior Credit Facilities include two revolving credit facilities and an additional uncommitted acquisition facility. Revolving Facility 1 has a total available commitment of e90 million (to be reduced to e80 million on the first anniversary of the date of the Senior Credit Facilities Agreement and to e70 million on the second anniversary), which may be used by way of loans, guarantees and letters of credit and ancillary facilities. Revolving Facility 2 has a total available commitment of e50 million, however, this can only be used for guarantees and letters of credit. The revolving credit facilities are expected to be used on the Completion Date to refinance certain guarantees within the Geo Group. The additional acquisition facility of up to e50 million is currently uncommitted. (2) Represents a e52.0 million signing bonus to be received from Amadeus under a new GDS contract for the Geo Group entered into in connection with the Acquisition and the Transactions and which will take effect on Completion Date, net of the amounts due by the Geo Group companies to Amadeus in connection with the cancellation of the Opodo
6 Group’s, eDreams Group’s and Go Voyages Group’s existing GDS contracts with Amadeus in the amounts of approximately e27.5 million, e0.4 million and e1.5 million, respectively. (3) Does not include the original equity investments by the Permira Funds and AXA Private Equity in eDreams and Go Voyages, respectively, nor the principal amount of Convertible Subordinated Shareholder Bonds. (4) Subject to adjustment; reflects the amount outstanding under the Go Voyages Facilities on March 31, 2011. (5) Subject to adjustment; reflects the amount outstanding under the eDreams Facilities on March 31, 2011. (6) Estimated fees and expenses associated with the Acquisition and other Transactions, including commitment, placement, financial advisory, professional and initial purchasers’ fees and other transaction costs.
Our Principal Shareholders AXA Private Equity and the Permira Funds are the principal indirect shareholders of the Issuer. AXA Private Equity was established in 1996 with headquarters in Paris. It manages over U.S.$25 billion of assets and currently has offices in Frankfurt, London, Milan, New York, Singapore, Vienna and Zurich. Funds managed by AXA Private Equity invest in a complete range of buyout asset classes including buyout venture capital, co-investment, infrastructure, mezzanine, primary, early secondary and secondary funds of funds. AXA Private Equity does not have a specific industry focus, but in the past five years its main investments have been in the Chemical, Industrial, Consumer and Technology, Media and Telecommunications sectors. Recent investments of the funds managed by AXA Private Equity include KOS in the healthcare sector in Italy for e150 million in December 2010 and the Go Voyages Group for e285 million in May 2010. To date, funds managed by AXA Private Equity have closed 45 buyout transactions in France, Germany and Italy. A predecessor to the Permira Funds was established in London in 1985. Its investment activity focuses on six core sectors: Chemicals, Consumer, Financial Services, Healthcare, Industrial Products and Services and Technology, Media and Telecommunications, with the latter accounting for approximately 56% of assets under management. To date, the Permira Funds have made approximately 190 private equity investments, for a current committed capital of approximately e20 billion. Recent investments of the Permira Funds include Creganna–Tactx Medical in the U.K. for approximately e220 million in October 2010, Asia Broadcast Satellite in Hong Kong for approximately e200 million in September 2010 and the eDreams Group for e274 million in August 2010.
The Issuer The Issuer was formed under the laws of Luxembourg on February 15, 2011, as a societ´ e´ en commandite par actions, for the purposes of facilitating the Acquisition and the Offering, and is registered with the Luxembourg Trade and Companies Register under number B-159.022. The main shareholder of the Issuer is LuxGEO Parent S.a` r.l., a societ´ e´ a` responsabilite´ limitee´ incorporated and existing under the laws of Luxembourg. The minority shareholders are LuxGEO GP S.a` r.l. (unlimited shareholder and general partner), Axeurope and Luxgoal (each holding one limited share). Prior to the date hereof, the Issuer has not engaged in any business other than in preparation for the Acquisition and the other Transactions, including the Offering. The Issuer’s registered office is located at 282, route de Longwy, L-1940 Luxembourg.
7 Summary Corporate and Financing Structure The following diagram gives a simplified overview of the corporate structure and principal indebtedness of the Geo Group after the Completion Date and after giving effect to the issuance of the Notes and the application of the net proceeds therefrom. Please see ‘‘Use of Proceeds.’’ For a summary of the debt obligations referred to in this chart, see ‘‘Description of Other Indebtedness’’ and ‘‘Description of the Notes.’’
Axeurope S.A.(1)(2) LuxGEO Parent Luxgoal S.à r.l.(1)(3) S.à r.l.(1)
Convertible Convertible Subordinated Subordinated Shareholder Shareholder (4) Geo Travel Finance (4) Bonds S.C.A. Bonds (the “Issuer”) Notes offered LuxGEO GP (5) S.à r.l.(1) hereby
LuxGEO S.à r.l.(5)
Lyparis Lyeurope Structural Back Convertible to Back Loan(4) Intercompany Subordinated Opodo Limited(5) Bonds
Lyeurope(6) Opodo SLOpodo GmbH Opodo SAS
€241 million Lyparis(6) Senior Credit Facilities(7)
Travellink AB(5) Opodo Srl Go Voyages eDreams Inc.(5)(8)
€ Go Voyages eDreams Ltd Vacaciones eDreams 99 million Trade SL Senior Credit Facilities(7) Luxembourg security providers
Guarantors Other eDreams eDreams International eDreams Srl Editoriale On Indirect security providers Subs Network SL Line24MAY201111301241 Srl
(1) LuxGEO Parent and LuxGEO GP S.a` r.l. (the holder of the Issuer’s unlimited share) are owned by Axeurope and Luxgoal. On the Completion Date, Lyeurope will be partially contributed (in a share-for-share deal) by Axeurope to LuxGEO Parent and partially sold, resulting in LuxGEO Parent being the sole shareholder of Lyeurope. As of the Completion Date, the Notes and the Guarantees will be secured by security interests granted on a first-priority basis over (i) the capital stock in the Issuer held by the Parent, (ii) the bank accounts of the Parent located in Luxembourg and (iii) intercompany loans and other receivables of the Parent. No later than 30 days after the Completion Date, the Notes and the Guarantees will be secured by security interests granted on a first-priority basis over (i) the capital stock in the Issuer held by Axeurope and Luxgoal and (ii) all of the issued capital stock in LuxGEO GP S.a` r.l. (2) Axeurope is an investment vehicle controlled by AXA Private Equity. (3) Luxgoal is an investment vehicle controlled by the Permira Funds. (4) On the Completion Date, the convertible bonds originally issued by Lyeurope to AXA Private Equity and certain financial co-investors in connection with their acquisition of Lyeurope in 2010 (the ‘‘Lyeurope Convertible Intercompany Subordinated Bonds’’) will be partly transferred by Axeurope to Luxgoal and will ultimately be contributed to the Issuer by Axeurope and Luxgoal in exchange for new Convertible Subordinated Shareholder Bonds and preferred shares. The outstanding amount of the Lyeurope Convertible Intercompany Subordinated Bonds, including accrued interest as of March 31, 2011 is estimated at e115.1 million. The Convertible Subordinated Shareholder Bonds will be issued on the Completion Date at a principal amount equal to the principal amount of the Lyeurope Convertible Intercompany Subordinated Bonds and accrued interest thereon as of the Completion Date. (5) On the Completion Date, the proceeds of the Offering will be released from escrow in order to fund a portion of the purchase price of the Acquisition. The Notes will be guaranteed on a senior subordinated basis by LuxGEO, eDreams Inc., Opodo and Travellink AB. As of the Completion Date, the Notes and the Guarantees will be secured by
8 security interests granted (a) on a first-priority basis over (i) the capital stock in the Issuer held by the Parent, (ii) the bank accounts of the Parent located in Luxembourg and (iii) any intercompany loans and other receivables of the Parent, and (b) on a second-priority basis over (i) all of the issued capital stock in LuxGEO and Opodo, (ii) the bank accounts of the Issuer and LuxGEO located in Luxembourg, (iii) intercompany loans and other receivables of the Issuer and LuxGEO, (iv) any instruments issued by LuxGEO and held by the Issuer, (v) the receivables due under the Lyparis Structural Back to Back Loan, and (vi) the financial securities accounts opened in the name of the Issuer and on which are credited all financial securities (titres financiers) issued by Lyeurope and held by the Issuer (nantissement de compte de titres financiers). No later than 30 days after the Completion Date, the Notes and the Guarantees will be secured by security interests granted (a) on a first-priority basis over (i) the capital stock in the Issuer held by Axeurope and Luxgoal and (ii) all of the issued Capital Stock in LuxGEO GP S.a` r.l., and (b) on a second-priority basis over (i) all of the issued capital stock in eDreams Inc. held by Luxgoal, (ii) the bank accounts of Travellink AB, (iii) substantially all of the assets of Opodo and all the assets (other than any shareholdings) of eDreams Inc., (iv) intercompany receivables and trade receivables of Travellink AB, (v) intellectual property rights and trademarks of Travellink AB, (vi) the financial securities accounts opened in the name of Opodo and on which are credited all financial securities (titres financiers) issued by Lyeurope and Opodo S.A.S. and held by Opodo (nantissement de compte de titres financiers), and all of the issued capital stock in Vacaciones eDreams SL. A Guarantee of the Notes by a Guarantor and the security interests over its assets will be released, and such Guarantor will be simultaneously released from all its other obligations and liabilities under the Indenture, the Notes and the relevant Guarantee, in the event that there is any sale or other disposal pursuant to any enforcement action with respect to our Senior Credit Facilities of all of the issued share capital or all of the assets of such Guarantor or any direct or indirect holding company of such Guarantor. See ‘‘Description of the Notes—The Note Guarantees,’’ ‘‘Description of the Notes—Security’’ and ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’ However, several of the Guarantors are intermediate holding companies without material independent operations, and a substantial portion of our consolidated Pro Forma Recurring EBITDA is generated by, and a substantial portion of our total assets is held by, non-Guarantor operating companies owned by the Guarantor intermediate holding companies. (6) The Lyparis Structural Back to Back Loan will be entered into in connection with the Transactions and will be guaranteed by Lyeurope. The Lyparis Back to Back Loan will comply with the provisions of the Intercreditor Agreement regarding structural back to back loans. See ‘‘Description of Other Indebtedness.’’ No later than 30 days after the Completion Date, the obligations of Lyparis under the Lyparis Structural Back to Back Loan and the obligations of Lyeurope under its guarantee of the Lyparis Structural Back to Back Loan (collectively, the ‘‘Lyparis Structural Back to Back Obligations’’) will be secured by security interests granted on a second priority basis over (i) all of the issued capital stock in eDreams Inc. held by it, and all of the issued capital stock of Travellink AB and Opodo Italia S.r.l., (ii) the financial securities accounts opened in the name of Lyparis and on which are credited all financial securities (titres financiers) issued by Go Voyages and held by Lyparis (nantissement de compte de titres financiers), (iii) the bank accounts of Lyparis located in France, (iv) intercompany receivables (providing for automatic release on capitalization of receivables) of Lyparis, (v) the financial securities accounts opened in the name of Lyeurope and on which are credited all financial securities (titres financiers) issued by Lyparis and held by Lyeurope (nantissement de compte de titres financiers), (vi) the bank accounts of Lyeurope located in France, and (vii) intercompany receivables (providing for automatic release on capitalization of receivables) of Lyeurope. (7) The e480 million Senior Credit Facilities include a e170 million term A loan facility, a e170 million term B loan facility and a revolving credit facility. The revolving credit facility is divided into two tranches: a e90 million tranche with a total available commitment of e90 million reducing to e80 million after one year and e70 million after the second year, which is available for loans, letters of credit and guarantees, and a e50 million letter of credit and guarantee facility. Upon consummation of the Transactions, all term loan facilities A1 and B1 under the Senior Credit Facilities Agreement shall be put at the disposal of Lyparis or novated to the latter in the context of a debt pushdown. All of the Collateral securing the Notes and the Lyparis Structural Back to Back Obligations on a second priority basis will secure the Senior Credit Facilities on a first priority basis. The Senior Credit Facilities also contemplate a e50 million additional acquisition facility, which is currently uncommitted. (8) On the Completion Date, eDreams Inc., the holding company of the eDreams Group, will be transferred by Luxgoal to LuxGEO Parent, except for an approximately 3% stake which would be transferred only 12 months after the date on which the acquisition of eDreams Inc. by Luxgoal took place (August 2011). LuxGEO Parent will then transfer its stake in eDreams Inc. to Lyparis in exchange for a receivable. Such receivable will be contributed by LuxGEO Parent to the Issuer in exchange for shares of the latter.
9 The Offering The following is a brief summary of certain terms of this Offering. It is not intended to be complete and it is subject to important limitations and exceptions. For a more complete understanding of the Notes, the Guarantees and the Collateral, including certain definitions of terms used in this summary, please see ‘‘Description of the Notes’’ and ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’
Issuer ...... Geo Travel Finance S.C.A., a partnership limited by shares (societ´ e´ en commandite par actions) organized under the laws of Luxembourg, having its registered office at 282 route de Longwy L-1940, Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-159022. Notes Offered ...... e175 million aggregate principal amount of 10.375% Senior Notes due 2019. Issue Date ...... April 21, 2011. Issue Price ...... 100% (plus accrued and unpaid interest from the Issue Date). Maturity Date ...... May 1, 2019. Interest ...... 10.375% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2011. Form and Denomination ...... The Issuer will issue the Notes in global form in minimum denominations of e100,000 and integral multiples of e1,000 above e100,000. Notes in denominations of less than e100,000 will not be available. Guarantees ...... As of the Completion Date, the Notes will be guaranteed on a senior subordinated basis by: • LuxGEO S.a` r.l.; • eDreams Inc.; • Opodo Limited; and • Travellink AB. The Guarantees will be subject to contractual and legal limitations, and may be released without the consent of the holders of the Notes under certain circumstances. See ‘‘Description of the Notes—The Note Guarantees’’ and ‘‘Description of Other Indebtedness—Guarantees and Security.’’ Security ...... As of the Issue Date, the Notes will be secured by a security interest granted on a first-priority basis over the Escrow Account. As of the Completion Date, and subject to the terms of the Security Documents and the Intercreditor Agreement, the Notes and the Guarantees will be secured by: • security interests granted on a first-priority basis over: • the capital stock in the Issuer held by LuxGEO Parent; • the bank accounts of LuxGEO Parent located in Luxembourg; and • intercompany loans and other receivables of LuxGEO Parent; and
10 • security interests granted on a second-priority basis over: • all of the issued capital stock in LuxGEO and Opodo Limited; • the bank accounts of the Issuer and LuxGEO located in Luxembourg; • intercompany loans and other receivables of the Issuer and LuxGEO; • any instruments issued by LuxGEO and held by the Issuer; • the receivables due under the Lyparis Structural Back to Back Loan; and • the financial securities accounts opened in the name of the Issuer and on which are credited all financial securities (titres financiers) issued by Lyeurope and held by the Issuer (nantissement de compte de titres financiers) (together, the ‘‘Initial Collateral’’). No later than 30 days after the Completion Date, and subject to the terms of the Security Documents and the Intercreditor Agreement, the Notes and the Guarantees will be secured by: • security interests granted on a first-priority basis over: • the capital stock in the Issuer held by Axeurope and Luxgoal; and • all of the issued capital stock in LuxGEO GP S.a` r.l.; and • security interests granted on a second-priority basis over: • all of the issued capital stock in eDreams Inc. held by Luxgoal; • the bank accounts of Travellink AB; • substantially all of the assets of Opodo Limited and all the assets (other than any shareholdings) of eDreams Inc.; • intercompany receivables and trade receivables of Travellink AB; • intellectual property rights and trademarks of Travellink AB; • the financial securities accounts opened in the name of Opodo Limited and on which are credited all financial securities (titres financiers) issued by Lyeurope and Opodo S.A.S. and held by Opodo Limited (nantissement de compte de titres financiers); and • all of the issued capital stock in Vacaciones eDreams, S.L. (together, the ‘‘Post-Completion Collateral’’). No later than 30 days after the Completion Date, and subject to the terms of the Security Documents and the
11 Intercreditor Agreement, the obligations of Lyparis under the Lyparis Structural Back to Back Loan or the obligations of Lyeurope under its guarantee of the Lyparis Structural Back to Back Loan will be secured by security interests granted on a second priority basis over: • all of the issued capital stock in eDreams Inc. held by Lyparis and all of the issued capital stock of Travellink AB and Opodo Italia S.r.l.; • the financial securities accounts opened in the name of Lyparis and on which are credited the financial securities (titres financiers) issued by Go Voyages and held by Lyparis (nantissement de comptes de titres financiers); • the financial securities accounts opened in the name of Lyeurope and on which are credited the financial securities (titres financiers) issued by Lyparis (nantissement de comptes de titres financiers); • the bank accounts of Lyeurope and Lyparis located in France; and • intercompany receivables (providing for automatic release on capitalization of receivables) held by Lyeurope and Lyparis, (together, the ‘‘Lyparis Structural Back to Back Loan Collateral’’). Ranking of the Notes ...... The Notes will be general senior obligations of the Issuer and will: • be pari passu in right of payment with any existing and future indebtedness of the Issuer that is not subordinated to the Notes; • be senior in right of payment to any existing and future obligations of the Issuer that are expressly subordinated in right of payment to the Notes, including the obligations of the Issuer under the Convertible Subordinated Shareholder Bonds issued to Axeurope and Luxgoal; • be effectively subordinated to any existing and future secured indebtedness of the Issuer and its Subsidiaries that is secured by liens senior to the liens securing the Notes or secured by property and assets that do not secure the Notes, to the extent of the value of the property and assets securing such indebtedness (including the Senior Credit Facilities Agreement); • be secured by the Collateral; and • be effectively subordinated to all obligations of the Issuer’s subsidiaries that are not Guarantors. Ranking of the Guarantees ...... Each Guarantee will be a general senior subordinated obligation of such Guarantor and will: • be secured by the Collateral; • be subordinated in right of payment to all existing and future senior indebtedness of that Guarantor (including the Guarantor’s obligations under the Senior Credit Facilities Agreement);
12 • be pari passu in right of payment to any existing and future senior subordinated indebtedness of that Guarantor; and • be effectively subordinated to any existing and future indebtedness of that Guarantor that is secured by liens senior to the liens securing that Guarantor’s Guarantee or secured by property and assets that do not secure the Guarantor’s Guarantee, to the extent of the value of the property and assets securing such indebtedness. The Guarantees are full and unconditional guarantees of the Issuer’s obligations under the Notes, but are subject to the limitations set forth in ‘‘Description of the Notes—The Note Guarantees.’’ Intercreditor Agreement ...... Each holder of a Note by accepting a Note will be deemed to have agreed to and be bound by the terms of the Intercreditor Agreement. The Indenture will be subject to the terms of the Intercreditor Agreement, and the rights and benefits of the holders of the Notes will be limited accordingly and subject to the terms of the Intercreditor Agreement. The Intercreditor Agreement contains provisions regarding subordination, standstills on enforcement, payment blockages, release of security and Guarantees, turnover or receipts, application of proceeds and other customary terms. See ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’ Original Issue Discount ...... The Notes may be issued with original issue discount for U.S. federal income tax purposes. The Notes will be considered to be issued with original issue discount if the stated principal amount of the Notes exceeds the issue price of the Notes by more than a de minimis amount. If the Notes are issued with original issue discount, a U.S. holder (as defined below under ‘‘Tax Considerations— Certain United States Federal Income Tax Considerations’’) will be required to include original issue discount in gross income (as ordinary income) generally on a constant yield to maturity basis in advance of the receipt of cash payment to which such income is attributable regardless of such holder’s regular method of accounting for U.S. federal income tax purposes. Please see ‘‘Tax Considerations—Certain United States Federal Income Tax Considerations’’ for a further discussion of the tax considerations with respect to the Notes. Optional Redemption ...... The Issuer may redeem the Notes: • in whole or in part at any time prior to May 1, 2014, at a redemption price equal to 100% of the principal and the applicable ‘‘make-whole’’ premium, plus accrued and unpaid interest, if any, to the date of redemption; • in whole or in part at any time on or after May 1, 2014, at the redemption prices described in this Offering Circular under the caption ‘‘Description of the Notes— Optional Redemption,’’ plus accrued and unpaid interest to the date of redemption; and • at any time and from time to time prior to May 1, 2014, in an aggregate principal amount not to exceed 35% of the aggregate principal amount of Notes originally
13 issued, with the proceeds of one or more qualifying equity offerings, at a redemption price equal to 110.375% of the principal amount redeemed plus accrued and unpaid interest to the date of redemption. See ‘‘Description of the Notes—Optional Redemption.’’ Escrow of Proceeds; Special Mandatory Redemption ...... Pending the consummation of the Transactions, the Initial Purchasers will deposit the gross proceeds from the offering of the Notes less a portion of the Initial Purchasers’ commission into the Escrow Account for the benefit of the holders of the Notes. The Escrow Account will be controlled by, and pledged on a first-ranking basis in favor of, the Trustee on behalf of the holders of the Notes. Upon delivery to the applicable escrow agent of an officer’s certificate stating that the conditions to the release of the proceeds from escrow are satisfied, the escrowed funds will be released to us and utilized as described in ‘‘The Transactions,’’ ‘‘Use of Proceeds’’ and ‘‘Description of the Notes—Escrow of Proceeds; Special Mandatory Redemption.’’ The release of escrow proceeds will be subject to the satisfaction of certain conditions, including the consummation of the Transactions. The consummation of the Acquisition pursuant to the share purchase agreement is subject only to antitrust approval from the European Commission. If the Transactions are not consummated before November 1, 2011, the first interest payment on the Notes will be made using funds from the Escrow Account. If the Transactions are not consummated on or prior to December 31, 2011, or upon the occurrence of certain specified events, the Notes will be subject to a special mandatory redemption. The special mandatory redemption price will be a price equal to (i) 100% of the aggregate principal amount of the Notes if the special mandatory redemption occurs on or prior to September 30, 2011, or (ii) 101% of the aggregate principal amount of the Notes if the special mandatory redemption occurs on or after October 1, 2011, in each case, plus accrued and unpaid interest and additional amounts, if any, from the Issue Date to the date of special mandatory redemption. The escrow funds would be applied to pay for any such special mandatory redemption. AXA LBO Fund IV, represented by AXA Private Equity, and Luxgoal, acting severally and not jointly, will provide guarantees for the benefit of the holders of the Notes in order to pay, upon the occurrence of a special mandatory redemption, pro rata to the economic interest of AXA Private Equity and the Permira Funds, respectively, in the Transactions, the difference between the amount required to be paid to the holders of the Notes for the special mandatory redemption and the amount of funds in the Escrow Account on the date of the special mandatory redemption, provided that the obligations of AXA LBO Fund IV and Luxgoal under these guarantees shall not exceed the sum of (i) the difference between the principal amount of the Notes outstanding and the amount initially deposited by the Initial Purchasers into the Escrow Account, (ii) the accrued and unpaid interest on the Notes
14 at the date of special mandatory redemption, (iii) the premium applicable to any special mandatory redemption on or after October 1, 2011, (iv) an amount equal to amounts released from the Escrow Account in accordance with the Escrow Agreement to pay amounts required or permitted to be paid pursuant to the Notes and the Indenture (other than in respect of a special mandatory redemption), (v) any Additional Amounts (as defined under ‘‘Description of the Notes—Additional Amounts’’) due on the Notes at the date of special mandatory redemption and (vi) an amount equal to any fees and expenses paid out of the Escrow Account in accordance with the Escrow Agreement. See ‘‘Description of the Notes—Escrow of Proceeds; Special Mandatory Redemption.’’ Additional Amounts; Tax Redemption ...... All payments in respect of the Notes or the Guarantees will be made without withholding or deduction for any taxes or other governmental charges, except to the extent required by law. If withholding tax is required by law in any jurisdiction in which the Issuer or any Guarantor is then incorporated or resident for tax purposes, subject to certain exceptions, the Issuer or Guarantor, as appropriate, will pay additional amounts so that the net amount each holder of the Notes receives is no less than the holder would have received in the absence of such withholding. See ‘‘Description of the Notes—Additional Amounts.’’ If certain changes in the law of any relevant taxing jurisdiction become effective that would impose withholding taxes or other deductions on the payments on the Notes or the Guarantees, the Issuer may redeem the Notes in whole, but not in part, at any time, at a redemption price of 100% of the principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of redemption. See ‘‘Description of the Notes—Redemption for Changes in Taxes.’’ Change of Control ...... Upon the occurrence of certain events constituting a ‘‘change of control,’’ the Issuer is required to offer to repurchase all outstanding Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest to the date of purchase. See ‘‘Description of the Notes— Repurchase at the Option of Holders—Change of Control.’’ Certain Covenants ...... The indenture governing the Notes, among other things, will restrict the ability of the Issuer and its restricted subsidiaries to: • incur or guarantee additional indebtedness and issue certain preferred stock; • make certain restricted payments, including dividends or other distributions with respect to shares of the Issuer or its restricted subsidiaries; • prepay or redeem subordinated debt or equity; • make certain investments; • create or permit to exist certain liens; • sell, lease or transfer certain assets;
15 • enter into arrangements that impose encumbrances or restrictions on the ability of our subsidiaries to pay dividends, make other payments or transfer assets to the Issuer or any of its restricted subsidiaries; • change their centre of main interests and establishments; • engage in certain transactions with affiliates; • consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis; and • impair the security interests for the benefit of the holders of the Notes. Each of these covenants are subject to significant exceptions and qualifications. See ‘‘Description of the Notes—Certain Covenants.’’ Use of Proceeds ...... The gross proceeds from the sale of the Notes, less a portion of the Initial Purchasers’ commission, will be deposited in the Escrow Account in the name of the Issuer but controlled by, and pledged in favor of, the Trustee on behalf of the holders of the Notes under the Indenture, pending satisfaction of the conditions to release of such proceeds. Upon release from escrow, the Issuer intends to use the proceeds from the issue of the Notes, together with the Equity Contribution, to pay costs, administrative expenses and fees (legal, accounting or otherwise) in connection with this Offering and to capitalize LuxGEO, which in turn, together with amounts borrowed under the Senior Credit Facilities, will consummate the Acquisition and the other Transactions. See ‘‘Use of Proceeds.’’ Transfer Restrictions ...... The Notes and the Guarantees have not been, and will not be, registered under the U.S. Securities Act or the securities laws of any other jurisdiction and are subject to restrictions on transferability and resale. See ‘‘Notice to Investors.’’ We have not agreed to, or otherwise undertaken to, register the Notes in the United States (including by way of an exchange offer). No Prior Market ...... The Notes will be new securities for which there is no existing market. Although the Initial Purchasers have advised us that they intend to make a market in the Notes, they are not obligated to do so and they may discontinue market-making at any time without notice. Accordingly, there is no assurance that an active trading market will develop for the Notes. Listing ...... Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Global Exchange Market. Governing Law for the Notes, Guarantees and the Indenture .... New York law. Governing Law for the Intercreditor Agreement ...... English law. Trustee ...... Deutsche Trustee Company Limited. Escrow Agent ...... Deutsche Bank AG, London Branch. Registrar ...... Deutsche Bank Luxembourg S.A.
16 Transfer Agent and Paying Agent . Deutsche International Corporate Services (Ireland) Ltd. Principal Paying Agent ...... Deutsche Bank AG, London Branch. Security Agent ...... Societ´ e´ Gen´ erale.´ Irish Listing Agent ...... Arthur Cox Listing Services Limited. ISINs ...... Regulation S: XS0618568389; Rule 144A: XS0618571680. Common Codes ...... Regulation S: 061856838; Rule 144A: 061857168.
Risk Factors Investing in the Notes involves substantial risks. Please see the section of this Offering Circular captioned ‘‘Risk Factors’’ for a discussion of certain risks you should carefully consider before investing in the Notes.
Additional Information The Issuer’s corporate seat and principal executive offices are located at 282, route de Longwy, L-1940 Luxembourg.
17 Summary Historical and Pro Forma Financial Information and Other Data On February 9, 2011, LuxGEO, our direct 100% owned subsidiary, entered into a share purchase agreement with Amadeus for the purchase of 100% of the share capital and voting rights of Opodo Limited, in connection with the combination of the Go Voyages Group, the eDreams Group and the Opodo Group. The Issuer was formed on February 15, 2011 for the purposes of facilitating the Acquisition and the Offering and has not engaged in any activities other than those related to its formation in preparation for the Acquisition, the Transactions and the Offering. Because neither the Issuer nor the combined Geo Group have historical financial data, the historical financial statements and related financial and other data included in this Offering Circular reflect the businesses of the Go Voyages Group, the eDreams Group and the Opodo Group before the Acquisition. This Offering Circular also includes pro forma combined financial information for the Geo Group for the year ended December 31, 2010. The following tables summarize historical consolidated financial and other data of the Go Voyages Group, the eDreams Group and the Opodo Group, and pro forma financial and other data of the Geo Group at the dates and for the periods indicated. The summary consolidated historical income statement data, summary consolidated balance sheet data and summary consolidated historical cash flow statement data of the Go Voyages Group were derived from the audited consolidated historical financial statements of the Go Voyages Group as of, and for the fiscal years ended, March 31, 2010, 2009 and 2008 and related notes and from the unaudited consolidated financial statements of the Go Voyages Group as of, and for the nine-month period ended, December 31, 2010 and related notes, prepared in accordance with French GAAP and included elsewhere in this Offering Circular. The summary consolidated historical income statement data, summary consolidated balance sheet data and summary consolidated historical cash flow statement data of the eDreams Group were derived from the audited consolidated historical financial statements of the eDreams Group as of, and for the fiscal years ended, December 31, 2010, 2009 and 2008 and related notes, prepared in accordance with Spanish GAAP and included elsewhere in this Offering Circular. The summary consolidated historical income statement data, summary consolidated balance sheet data and summary consolidated historical cash flow statement data of the Opodo Group were derived from the audited consolidated historical financial statements of the Opodo Group as of, and for the fiscal years ended, December 31, 2010, 2009 and 2008 and related notes, prepared in accordance with IFRS and included elsewhere in this Offering Circular. Consolidated financial statements prepared in accordance with French or Spanish GAAP may differ in certain significant respects from IFRS. In addition, the Opodo Group’s IFRS accounting principles may differ from those implemented by the Geo Group. These differences could be material to the information contained herein. See ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Main Differences between French GAAP and IFRS,’’ ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Main Differences between Spanish GAAP and IFRS’’ and see ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Main Differences between IFRS as applied historically by Opodo and IFRS applied by Geo’’. The unaudited pro forma combined financial information and other data presented below are based upon available information and assumptions that we believe are reasonable but are not necessarily indicative of the results that actually would have been achieved if the Acquisition and the other Transactions had been completed on the dates indicated or that may be achieved in the future, and are provided for informational purposes only. Please see the notes to our Pro Forma Combined Financial Information for a more detailed discussion of how pro forma adjustments are presented in our Pro Forma Combined Financial Information. The Pro Forma Combined Financial Information has been prepared on the basis described in the notes thereto and the recognition and measurement principles of IFRS. The summary historical and pro forma financial and other data should be read in conjunction with ‘‘Use of Proceeds,’’ ‘‘Capitalization,’’ ‘‘Unaudited Pro Forma Combined Financial Information,’’ ‘‘Selected Historical Financial Data,’’ ‘‘Management’s Discussion and Analysis of our Financial
18 Condition and Results of Operations,’’ ‘‘Description of the Notes,’’ and the historical consolidated financial statements of the Go Voyages Group, the eDreams Group and the Opodo Group and related notes included elsewhere in this Offering Circular.
Geo Pro forma Combined Income Statement
Geo Group Unaudited Pro Forma(1) For the Year Ended December 31, 2010 Purchase Price Allocation & Other Pro Forma Pro Forma Pro Forma Acquisition Transaction Pro Forma Lyeurope USgoal Opodo Adjustments Adjustments Geo Group (in thousand g) Sales ...... 183,950 95,919 146,274 — — 426,143 Other revenue ...... 245 5,946 — — — 6,191 Total revenue ...... 184,195 101,865 146,274 — — 432,334 Supplies ...... 91,724 1,966 35,726 129,416 Revenue margin ...... 92,471 99,899 110,548 — — 302,918 Personnel expenses ...... 18,835 13,926 20,112 — — 52,873 Operating expenses other than depreciation and amortization ...... 44,290 61,683 63,152 — (8,173) 160,952 Operating profit before depreciation and amortization ...... 29,346 24,290 27,284 — 8,173 89,093 Depreciation and amortization ...... 4,902 11,323 652 4,000 — 20,877 Operating profit ...... 24,444 12,967 26,632 (4,000) 8,173 68,216 Finance income ...... 392 81 419 — — 892 Finance expense ...... (26,546) (9,991) (913) — (18,542) (55,992) Other income ...... 12 — 167 — — 179 Other expense ...... (663) (574) — — — (1,237) (Loss) profit before tax ...... (2,361) 2,483 26,305 (4,000) (10,369) 12,058 Income tax benefit (expense) ...... 870 876 53,688 1,120 3,110 59,664 (Loss) profit after tax ...... (1,491) 3,359 79,993 (2,880) (7,259) 71,722
(1) Prepared on the basis of the notes to the Pro forma Combined Financial Information included elsewhere in this Offering Circular and the recognition and measurement principles of IFRS.
19 Geo Pro forma Combined Balance Sheet
Geo Group Unaudited Pro Forma(1) As of December 31, 2010 Purchase Price Allocation & Other Pro Forma Pro Forma Pro Forma Acquisition Transaction Pro Forma Lyeurope USgoal Opodo Adjustments Adjustments Geo Group (in thousand g) ASSETS Current assets Trade and other receivables ...... 119,808 7,573 108,411 (76,084) — 159,708 Tax receivable ...... — 239 47 — — 286 Investments and financial assets .... — 150 167 — — 317 Cash and cash equivalents ...... 8,573 14,922 16,872 (438,372) 415,601 17,596 Restricted cash ...... — — 2,962 — — 2,962 Other current assets ...... — 242 — — — 242 Total current assets ...... 128,381 23,126 128,459 (514,456) 415,601 181,111 Goodwill ...... 309,697 202,723 — 329,124 — 841,544 Other intangible assets ...... 106,845 127,560 1,272 128,000 — 363,677 Property, plant, and equipment ..... 3,829 1,510 614 — — 5,953 Investments ...... 553 — — — — 553 Deferred tax assets ...... — 222 62,237 — — 62,459 Derivative financial instruments ..... 172 — — — — 172 Other non-current assets ...... — 1,647 1,123 — — 2,770 TOTAL ASSETS ...... 549,477 356,788 193,705 (57,332) 415,601 1,458,239 LIABILITIES & EQUITY Current liabilities Trade and other payables ...... 96,334 33,592 99,018 — — 228,944 Borrowings ...... 9,866 4,607 — — (14,366) 107 Provisions ...... 479 808 — — — 1,287 Accruals ...... — 209 — — — 209 Deferred revenue ...... 109,172 — — — 22,500 131,672 Obligations under finance lease .... 461 — — — — 461 Total current liabilities ...... 216,312 39,216 99,018 — 8,134 362,680 Borrowings ...... 199,823 83,238 — — 294,567 577,628 Trade and other payables ...... — — 1,515 — — 1,515 Provisions ...... 203 — — — — 203 Deferred tax liabilities ...... 45,345 43,126 — 35,840 — 124,311 Deferred revenue ...... — — — — — — Obligations under finance lease .... 325 — — — — 325 Other liabilities ...... — 220 — — — 220 Total liabilities ...... 462,008 165,800 100,533 35,840 302,701 1,066,882 Total equity ...... 87,469 190,988 93,172 (93,172) 112,900 391,357 TOTAL LIABILITIES & EQUITY ... 549,477 356,788 193,705 (57,332) 415,601 1,458,239
(1) Prepared on the basis of the notes to the Pro forma Combined Financial Information included elsewhere in this Offering Circular and the recognition and measurement principles of IFRS.
20 Geo Pro forma Combined Other Financial Data
Geo Group Pro Forma Combined(1) As of and for the year ended December 31, 2010 (in thousand g) Pro Forma Combined Gross Bookings ...... 3,341,494 Pro Forma Combined Revenue Margin ...... 302,918 Pro Forma Recurring EBITDA(1) ...... 106,333 Pro Forma Combined Capital Expenditure(3) ...... 11,293 Pro Forma Recurring EBITDA less Pro Forma Combined Capital Expenditure ...... 95,040 Pro Forma Interest Expense(4) ...... 41,275 Total Net Debt(4) ...... 497,404 Net Senior Secured Debt(4) ...... 322,404 Total Net Debt/Pro Forma Recurring EBITDA ...... 4.7x Net Senior Secured Debt/Pro Forma Recurring EBITDA ...... 3.0x Total Net Debt/Pro Forma Recurring EBITDA less Pro Forma Combined Capital Expenditure ...... 5.2x Net Senior Secured Debt/Pro Forma Recurring EBITDA less Pro Forma Combined Capital Expenditure ...... 3.4x Pro Forma Recurring EBITDA/Pro Forma Interest Expense ...... 2.6x Pro Forma Recurring EBITDA less Pro Forma Combined Capital Expenditure/Pro Forma Interest Expense ...... 2.3x
(1) Prepared on the basis of the notes to the Pro forma Combined Financial Information included elsewhere in this Offering Circular and the recognition and measurement principles of IFRS. (2) We define Pro forma Recurring EBITDA as pro forma profit (loss) after tax before pro forma income tax (benefit) expense, pro forma finance income, pro forma finance expense, pro forma other income, pro forma other expense, pro forma depreciation and amortization, transaction related compensation, transaction related expenses, and other income and expense items which are considered by management to not be reflective of its on-going operations. Pro forma Recurring EBITDA is not a measure of performance or liquidity under IFRS and should not be considered by investors in isolation from, or as a substitute for, a measure of profit, or as an indicator of our operating performance or cash flows from operating activities as determined in accordance with IFRS. We do not consider this non-IFRS financial measure to be a substitute for, or superior to, the information provided by IFRS financial measures. We have presented this supplemental non-IFRS measure because we believe that it is a useful indicator of our ability to incur and service our indebtedness and can assist analysts, investors and other parties to evaluate our business. Pro forma Recurring EBITDA and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. You should exercise caution in comparing Pro forma Recurring EBITDA as reported by us to similar measures of other companies. Pro forma Recurring EBITDA as presented here differs from the definition of ‘‘Consolidated EBITDA’’ contained in the Indenture. We encourage you to evaluate the adjustments made to arrive at Pro forma Recurring EBITDA and the limitations for purposes of analysis in excluding them.
21 A reconciliation of Pro forma Recurring EBITDA to (loss) profit after tax is provided below:
For the year ended December 31, 2010 Geo Group Other Pro Forma Lyeurope USgoal Opodo Adjustments Combined Pro Forma Pro Forma Pro Forma Pro Forma (in thousand g) Profit (loss) after tax ...... 71,722 (1,491) 3,359 79,993 (10,139) Adjustments: Income tax (benefit) expense(I) ...... (59,664) (870) (876) (53,688) (4,230) Finance income(I) ...... (892) (392) (81) (419) — Finance expense(I) ...... 55,992 26,546 9,991 913 18,542 Other income(I) ...... (179) (12) — (167) — Other expense(I) ...... 1,237 663 574 — — Depreciation and amortization(I) ...... 20,877 4,902 11,323 652 4,000 Transaction related compensation(II) ...... 4,987 — 2,405 2,582 — Transaction related expenses(III) ...... 5,842 5,010 649 183 — Other non-recurring results(IV) ...... 6,411 241 60 6,110 — Pro forma Recurring EBITDA ...... 106,333 34,597 27,404 36,159 8,173
(I) These adjustments represent pro forma income tax (benefit) expense, finance income, finance expense, other income, other expense, and depreciation and amortization as obtained directly from the unaudited pro forma combined income statements of each respective entity within the ‘‘Unaudited Pro Forma Combined Financial Information’’ section of this Offering Circular. Income taxes, finance income and expense, and depreciation and amortization have been adjusted as is customary in determining a measure of EBITDA. Other income and expense have been adjusted for as they are non-operating in nature and relate to the following: a. Lyeurope—Other expense represents a combination of a loss of e0.3 million in connection with the sale of shares of Go Partenaires during the year, fees of e0.3 million incurred related to the undrawn portion of Lyparis’ revolving credit facility, and nominal foreign exchange transaction losses incurred during the year. Other income represents nominal foreign exchange transaction gains realized during the year. b. USgoal—eDreams incurred e0.3 million in relation to the cancellation of a hedging agreement entered into in connection with its previous debt arrangement prior to the acquisition of eDreams by the Permira Funds. Upon acquisition, such debt was extinguished and the existing hedging agreement was cancelled. The remaining e0.3 million is related to foreign exchange transaction losses and changes incurred on other hedging arrangements during the year. c. Opodo—In 2010 Opodo entered into a call option agreement to acquire the entire issued share capital of another company. The call option was initially recognized at fair value through profit or loss, with subsequent remeasurements also recorded through profit or loss. The fair value movement for 2010 was a credit to income of approximately e0.2 million. This is considered non-operating in nature and hence has been reversed in the determination of Pro forma Recurring EBITDA. (II) Transaction related compensation adjustments represent compensation related expenses, including those arising under both equity and cash settled share-based payment plans, measurement of which is affected by the sale or proposed sale of the respective entities. Such amounts have been adjusted in determining Pro forma Recurring EBITDA as management does not believe such costs are indicative of the Issuer’s on-going operations due to the circumstances in which they were incurred as follows: a. USgoal—As a result of the change in control of eDreams upon acquisition by the Permira Funds on August 3, 2010, the vesting on all outstanding stock options as of the acquisition date was accelerated as required by the change in control provision of eDreams’ stock option plan. This resulted in share-based compensation expense of e1.5 million. Additionally, in connection with the sale of eDreams to the Permira Funds, the management of eDreams received a bonus payment of e0.9 million. b. Opodo—a cash-settled share-based payment scheme for senior management, including key management personnel has been established for Opodo in which vesting is conditional on completion of the sale of Opodo within a specified timeframe, and satisfaction of continuing employment conditions for a 12-month period subsequent to completion of the sale, if required by either Opodo or the acquirer. The amount of the award is variable depending on the sales price achieved, with further awards linked to business performance in the 12 months preceding any sale transaction completing. A minimum payment will be made even in the event that a sale does not take place, providing the specified conditions of continuing employment are satisfied. In such circumstances, an amount additional to the minimum may become payable, subject to a cap, based on the valuation of the Group at a vesting date of July 1, 2012, as determined by an independent valuer. The total charge recognized for the year ended December 31, 2010 in respect of the above scheme was e2.3 million, together with associated social security costs of e0.3 million. (III) Transaction related expenses represent legal, accounting, and other expenses incurred in connection with acquisitions or change in control transactions undertaken or proposed for each respective entity during the year. Such amounts have been adjusted in determining Pro forma Recurring EBITDA as management does not
22 believe such costs are indicative of the Issuer’s on-going operations due to the circumstances in which they were incurred as follows: a. Lyeurope—In connection with the sale of Go Voyages to AXA Private Equity during the year, Go Voyages incurred expenses for legal, accounting, and other advisors to perform commercial and financial due diligence and support management during the acquisition process. b. USgoal—In connection with the sale of eDreams to the Permira Funds during the year, eDreams incurred expenses for legal, accounting, and other advisors to perform commercial and financial due diligence and support management during the acquisition process. c. Opodo—In connection with two potential acquisitions of target companies by Opodo during 2010, Opodo incurred expenses for legal, accounting, and other advisors to perform commercial and financial due diligence. (IV) These adjustments represent other net expenses incurred during the year by each entity which management has determined appropriate to derive Pro forma Recurring EBITDA as follows: a. Lyeurope—Go Voyages incurred e0.2 million related to the Iceland volcano eruption in 2010, e0.9 million for certain exit and indemnification bonuses paid out to former employees of Go Voyages related to the acquisition of Go Voyages by AXA Private Equity in July 2010, and e0.2 million related to professional services for advisors in connection with aborted transactions of Lyeurope during the year. These items are considered to be non-recurring in nature, consistent with the presentation in its historical financial statements. These costs are offset by a reversal of bad and doubtful expense in 2010 of approximately e1.1 million. Such reversal in 2010 was considered not to be indicative of future performance and therefore excluded from the determination of Pro forma Recurring EBITDA. b. USgoal—This represents nominal adjustments relating to set-up costs related to the incorporation of USgoal and professional fees paid by Vacaciones eDreams SL (a subsidiary of eDreams Inc.) in relation to professional fees paid for legal advisors. c. Opodo—In 2010 Opodo recorded other operating expenses of e6.1 million related to certain contingencies arising from corporate transactions which are non-recurring in nature. (3) Pro forma Combined Capital Expenditure represents the pro forma cash outflows incurred during the period to acquire non-current assets such as property, plant and equipment, certain intangible assets and capitalization of certain development IT costs. Pro forma Combined Capital Expenditure has been derived from cash flow information contained in the Go Voyages Group historical financial statements under French GAAP, the eDreams Group historical financial statements under Spanish GAAP, and the Opodo Group historical financial statements under IFRS. These amounts have been adjusted to include the software development costs which can be capitalized under IFRS for the Go Voyages Group (see note 2.C(11) of the Unaudited Pro forma Combined Financial Information) to arrive at the Pro forma Combined Capital Expenditure. Pro forma Combined Capital Expenditure is not defined under IFRS and should not be considered by investors in isolation from, or as a substitute for, a measure of financial position and performance, or as an indicator of cash flows from investing activities as determined in accordance with IFRS. We do not consider this non-GAAP financial measure to be a substitute for, or superior to, the information provided by historical financial measures of Go Voyages, eDreams and Opodo. We have presented this supplemental non-GAAP measure because we believe that it is a useful indicator of our ability to incur and service our indebtedness and can assist analysts, investors and other parties to evaluate our business. Pro forma Combined Capital Expenditure and similar measures are used by different companies for differing purposes and are often calculated in ways that reflect the circumstances of those companies. A breakdown of the calculation of Pro forma Combined Capital Expenditure is provided as follows:
Pro Forma Combined Capital Expenditure (in thousand g) Go Voyages Group capital expenditure (French GAAP) ...... 2,761 Additional capitalized software development costs ...... 2,546 Go Voyages Group capital expenditure ...... 5,307 eDreams Group capital expenditure (Spanish GAAP)* ...... 4,669 Opodo Group capital expenditure (IFRS) ...... 1,317 Pro forma Combined Capital Expenditure ...... 11,293
* There are no significant differences between capitalized items under Spanish GAAP and IFRS for the eDreams Group. (4) We have presented certain debt and liquidity Non-GAAP measures, namely Pro forma Total Net Debt, Pro forma Net Senior Debt and the related Pro Forma Interest Expense as indications of the financial position and liquidity of the combined group. Each of these measures has been determined as follows:
• Pro forma Total Net Debt represents Pro forma Non-current Borrowings less the portion of the Lyeurope Convertible Intercompany Subordinated Bonds accounted as borrowings based on the measurement principles of IFRS and
23 certain other liabilities of e62.6 million for the combined group net of pro forma cash and cash equivalents of e17.6 million.
• Pro forma Net Senior Secured Debt represents the drawings from the Senior Credit Facilities of e340.0 million net of pro forma cash and cash equivalents of e17.6 million.
• Pro forma interest expense represents the pro forma interest on the drawings under the Senior Credit Facilities and the Notes using an assumed blended interest rate of 8%. The assumed blended interest rate of 8% used to calculate the pro forma interest expense is based on an assumed interest rate for the Notes of 9.5%. Based on the actual 10.375% interest rate for the Notes, the pro forma interest expense would be e42.8 million. The unaudited pro forma combined financial information has not been updated to reflect the actual pricing. A 0.125% change in the assumed blended interest rate of 8% would change the pro forma interest expense by e0.6 million. These measures enhance the investor’s understanding of indebtedness and our ability to fund our ongoing operations. However, these debt and liquidity non-GAAP measures are not measures determined based on IFRS, or any other internationally accepted accounting principles, and you should not consider such items as an alternative to the historical financial position of the Go Voyages Group, eDreams Group and Opodo Group included elsewhere in this Offering. The debt and liquidity non-GAAP measures, as defined by us, may not be comparable to similarly titled measures as presented by other companies due to differences in the way our debt and liquidity non-GAAP measures are calculated.
Go Voyages Income Statement Data (French GAAP)
Go Voyages Group French GAAP Last twelve months For the nine ended months ended For the year ended December 31 December 31 March 31 2010 2010 2009 2010 2009 2008 (in thousand g) Total revenue ...... 1,007,417 823,210 661,933 846,140 696,874 542,922 Supplies ...... (915,262) (752,611) (607,608) (770,261) (637,094) (491,697) Personnel Expenses ..... (18,464) (13,671) (12,778) (17,571) (13,399) (11,208) Other operating expenses . (49,967) (42,442) (27,237) (34,760) (28,087) (22,370) Depreciation and amortization ...... (13,447) (9,823) (10,207) (13,831) (23,407) (3,721) Net Operating Profit/(loss) . 10,274 4,663 4,104 9,717 (5,112) 13,927 Finance Income/(loss) .... (16,983) (12,653) (12,996) (17,326) (17,213) (17,139) Profit/(loss) before tax .... (6,707) (7,990) (8,892) (7,609) (22,325) (3,212) Non-recurring items ...... (1,123) (1,116) 1 (6) (22) (145) Income tax ...... (623) 303 506 (420) 1,318 1,823 Profit/(loss) ...... (8,453) (8,803) (8,385) (8,035) (21,029) (1,534)
24 Go Voyages Balance Sheet Data (French GAAP)
Go Voyages Group French GAAP As of December 31 As of March 31 2010 2009 2010 2009 2008 (in thousand g) ASSETS Goodwill ...... 160,136 170,291 167,763 177,869 192,183 Intangible assets ...... 81,677 83,301 82,727 85,306 88,006 Property, plant and equipment ...... 3,829 3,340 3,766 1,758 1,647 Financial assets ...... 553 120 134 103 103 Non-current assets (i) ...... 246,195 257,051 254,390 265,036 281,939 Trade receivables and related accounts ..... 27,659 27,269 39,921 50,335 45,187 Other receivables, prepayments and accrued income ...... 115,091 87,882 163,631 136,435 104,237 Cash at bank in hand and marketable securities ...... 8,339 48,555 92,643 47,266 22,424 Current assets (ii) ...... 151,089 163,706 296,195 234,036 171,848 TOTAL Assets (i+ii) ...... 397,283 420,757 550,585 499,072 453,787 EQUITY AND LIABILITIES Share capital ...... 72,560 62,000 62,000 62,000 62,000 Addition paid-in capital ...... 875 875 875 875 875 Retained earnings ...... (23,496) (22,248) (22,248) (12,436) (4,292) Consolidated reserves ...... (10,719) (3,932) (3,932) 7,285 (5,205) Consolidated loss for the year ...... (8,803) (8,385) (8,035) (21,029) (1,534) Equity attributable to owners of the Company (iii) ...... 30,417 28,310 28,660 36,695 51,844 Minority interests (iv) ...... 00000 Provisions for contingencies and losses (v) . 894 2,630 1,258 1,938 4,607 Borrowings ...... 138,567 209,086 208,811 200,707 194,853 Trade payables and related accounts ...... 88,790 66,120 103,678 81,634 55,494 Other liabilities, accruals and deferred income 138,615 114,611 208,178 178,098 146,989 Liabilities (vi) ...... 365,972 389,817 520,667 460,439 397,336 TOTAL Equity and liabilities (iii+iv+v+vi) .. 397,283 420,757 550,585 499,072 453,787
Go Voyages Cashflow Statement Data (French GAAP)
Go Voyages Group French GAAP Go Voyages Group Nine months French GAAP ended Year ended December 31 March 31 2010 2009 2010 2009 2008 (in thousand g) Net cash flows from/used in operating activities (I) ...... (10,262) 8,298 58,182 37,280 15,378 Net cash flows from/used in investing activities (II) ...... (1,863) (2,393) (2,211) (1,039) (426) Net cash flows from financing activities (III) . (72,180) (4,616) (10,594) (11,399) (54,398) Net increase/(decrease) in cash and cash equivalents (I+II+III) ...... (84,305) 1,289 45,377 24,842 (39,446) Cash and cash equivalent at beginning of period 92,643 47,266 47,266 22,424 61,870 Cash and cash equivalent at end of period ... 8,339 48,555 92,643 47,266 22,424
25 Go Voyages Other Data
Go Voyages Group French GAAP Last twelve For the months nine months For the ended ended year ended December 31 December 31 March 31 2010 2010 2009 2010 2009 2008 (in thousand g) Gross bookings ...... 1,007,235 823,636 659,714 843,313 694,090 540,009 Revenue margin ...... 92,155 70,599 54,325 75,879 59,780 51,225 Capital Expenditures ...... 2,761 1,863 2,393 2,211 1,039 426 eDreams Income Statement Data (Spanish GAAP)
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Total revenue ...... 101,865 77,000 70,660 Supplies ...... (1,966) (2,354) (5,302) Personnel Expenses ...... (13,925) (10,456) (11,446) Other operating expenses (including credit card cost) ...... (61,616) (47,644) (40,575) Depreciation and amortization ...... (4,880) (4,501) (4,131) Operating income (including credit card cost) ...... 19,478 12,045 9,206 Finance income/(loss) (excluding credit card cost) ...... (4,017) (2,683) (3,386) Profit/(loss) before tax ...... 15,461 9,362 5,820 Income tax ...... (2,906) (4,478) (1,675) Profit/(loss) ...... 12,555 4,884 4,145
26 eDreams Balance Sheet Data (Spanish GAAP)
eDreams Group Spanish GAAP As of December 31 2010 2009 2008 (in thousand g) ASSETS Intangible assets ...... 116,803 116,994 118,302 Property, plant and equipment ...... 1,510 1,614 1,949 Long-term financial investment: ...... 66,122 826 256 Long-term financial investments in related parties ...... 64,475 — 125 Derivatives ...... 260 — — Other long-term financial investments ...... 1,387 826 131 Deferred tax assets ...... 222 387 — Non-current assets (I) ...... 184,657 119,821 120,507 Trade and other receivables: ...... 7,809 6,237 6,623 Trade receivables ...... 7,514 6,193 6,317 Sundry receivables ...... 346 Staff costs ...... 27 15 5 Current tax assets ...... 239 — — Tax receivables ...... 26 25 295 Short-term financial in related parties: Other financial assets ...... 792 — — Short-term financial investments: ...... 5,805 972 Derivatives ...... — 534 — Other financial assets ...... 150 5,271 972 Accruals ...... 242 190 191 Cash and cash equivalents ...... 13,060 17,763 11,291 Current assets (II) ...... 22,053 29,995 19,077 TOTAL Assets (I+II) ...... 206,710 149,816 139,584
EQUITY AND LIABILITIES Capital ...... 1 1 1 Share issue premium ...... 85,449 89,979 91,329 Reserves of the parent company ...... (49,343) (12,522) (9,715) Fully consolidated reserves ...... 20,457 11,686 4,120 Own shares held ...... — (12,576) (13,926) Profit for the year attributed to the parent company ...... 12,555 4,884 4,145 Revaluation adjustments and hedging transactions ...... 237 290 518 Total Equity (III) ...... 69,356 81,742 76,472
Long-term provisions ...... — 480 185 Long-term borrowings: ...... 82,991 24,968 27,000 Bank borrowings(1) ...... 82,991 24,750 26,639 Financial lease ...... ——18 Derivatives ...... — 148 60 Other financial liabilities ...... — 70 283 Borrowings from related parties ...... 11,133 15,000 15,000 Deferred tax liabilities ...... 2,878 3,473 4,058 Accruals ...... 220 429 — Total non-current liabilities (IV) ...... 97,222 44,350 46,243
27 eDreams Group Spanish GAAP As of December 31 2010 2009 2008 (in thousand g) Short-term provisions ...... 808 717 — Short-term debts ...... 5,587 2,400 101 Bank borrowings(1) ...... 5,458 1,750 70 Financial lease ...... —1831 Derivatives ...... 18 534 — Other financial liabilities ...... 111 98 — Borrowings from group companies and associates ...... 26 — — Trade and other accounts payable ...... 33,502 20,108 16,035 Suppliers ...... 25,616 10,295 12,788 Other payables ...... 3,142 1,765 — Staff ...... 1,569 1,342 1,476 Current tax liabilities ...... 1,705 5,801 — Tax payables ...... 1,470 905 1,771 Accruals ...... 209 499 733 Total current liabilities (V) ...... 40,132 23,724 16,869 TOTAL Equity and Liabilities (III+IV+V) ...... 206,710 149,816 139,584
(1) Total borrowings (excluding transaction expenses capitalized at the time of the acquisition of eDreams Group by the Permira Funds in August 2010) by year-end 2010 was e97 million.
28 eDreams Cashflow Statement Data (Spanish GAAP) eDreams Group Spanish GAAP Year ended December 31 2010 2009 2008 (in thousand g) Cash flows from operating activities: Profit before tax ...... 15,461 9,362 5,820 Adjustments to profit ...... 7,114 7,074 8,188 Change in working capital ...... 20,509 (4,800) (4,262) Other non current liabilities ...... (689) — — Other cash flows from operating activities ...... (11,185) (4,283) (6,457) Net cash flows from operating activities (I) ...... 31,210 7,353 3,289 Cash flows from/used in investing activities: Intangible fixed assets ...... (847) (357) (418) Property, plant and equipment ...... (567) (264) (1,204) Other financial assets ...... (561) (570) (125) Net cash flows from/used in investing activities (II) ...... (1,975) (1,191) (1,747) Cash flows from/used in financing activities: Repayment and redemption of bank borrowings ...... (26,503) (300) (2,541) Repayment and cancellation of debt with group borrowings (15,000) — — Debt issues with credit institutions ...... 5,000 — — Debt issues with group companies ...... 1,633 — — Other liabilities ...... (589) 695 300 Proceeds from and payments of equity instruments ...... 1,742 — — Effect of exchange rate changes ...... (221) (85) — Net cash flows from/used in financing activities (III) ...... (33,938) 310 (2,241) Net increase/(decrease) in cash and cash equivalents (I+II+III) ...... (4,703) 6,472 (699) Cash and cash equivalents at beginning of period ...... 17,763 11,291 12,962 Cash and cash equivalents at end of period ...... 13,060 17,763 12,263 eDreams Other Data eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (unaudited) (unaudited) (unaudited) (in thousand g) Gross bookings ...... 893,324 626,837 589,453 Revenue margin ...... 99,899 74,646 65,358 Capital Expenditures ...... 4,669 3,001 3,029
29 Opodo Income Statement Data (IFRS)
Opodo IFRS For the year ended December 31 2010 2009 2008 (in thousand g) Total revenue ...... 146,707 103,112 91,117 Supplies ...... (35,726) (4,444) — Personnel expenses ...... (20,112) (17,900) (19,948) Other operating expenses ...... (63,152) (55,440) (58,976) Depreciation and amortization ...... (652) (830) (2,090) Operating profit ...... 27,065 24,498 10,103 Other income and expense ...... 167 — — Net finance income/(expense) ...... (494) (103) 40 Profit before tax ...... 26,738 24,395 10,143 Income tax ...... 53,688 6,244 20 Profit for the year attributable to equity holders of the parent . . . 80,426 30,639 10,163
Opodo Balance Sheet Data (IFRS)
Opodo Group IFRS As of December 31 2010 2009 2008 (in thousand g) Other intangible assets ...... 1,272 484 690 Property, plant and equipment ...... 614 686 831 Deferred tax asset ...... 62,237 6,400 — Trade and other receivables ...... 1,123 — — Non-current assets ...... 65,246 7,570 1,521 Trade and other receivables ...... 108,411 70,472 39,275 Cash and cash equivalents ...... 16,872 13,862 9,273 Restricted cash deposits ...... 2,962 4,089 2,626 Other financial assets ...... 167 — — Tax receivables ...... 47 203 — Current assets ...... 128,459 88,626 51,174 Total assets ...... 193,705 96,196 52,695 Trade and other payables ...... 1,515 — — Non-current liabilities ...... 1,515 — — Trade and other payables ...... 99,635 84,801 71,897 Tax liabilities ...... — — 148 Current liabilities ...... 99,635 84,801 72,045 Total liabilities ...... 101,150 84,801 72,045 Net current assets/(liabilities) ...... 28,824 3,825 (20,871) Net assets/(liabilities) ...... 92,555 11,395 (19,350) Called up share capital ...... 275,113 275,113 275,113 Share premium account ...... 88,846 88,846 88,846 Translation reserve ...... (373) (1,107) (1,213) Other reserves ...... (30,441) (30,441) (30,441) Retained losses ...... (240,590) (321,016) (351,655) Equity attributable to equity holders of the parent ...... 92,555 11,395 (19,350)
30 Opodo Cashflow Statement Data (IFRS)
Opodo IFRS Year ended December 31 2010 2009 2008 (in thousand g) Cash flows from operating activities: Operating profit ...... 27,065 24,498 10,103 Adjustments to operating profit ...... 2,848 482 2,241 Change in working capital ...... (25,299) (18,532) (4,430) Taxes paid ...... (1,993) (292) (97) Net cash flows from operating activities (I) ...... 2,621 6,156 7,817 Cash flows from investing activities: Expenditure of Intangible assets ...... (1,072) (172) (669) Purchases of property, plant and equipment ...... (245) (307) (250) (Increase)/decrease in restricted cash deposits ...... 1,127 (1,463) 1,031 Interest received ...... 419 377 852 Net cash flows from investing activities (II) ...... 229 (1,565) 964 Cash flows from financing activities: Repayment and redemption of bank borrowings ...... — — — Borrowing from parent company ...... — — (12,110) Interest paid and other financial expenses ...... (523) (91) (599) Net cash flows used in financing activities (III) ...... (523) (91) (12,709) Net increase/(decrease) in cash and cash equivalents (I+II+III) ...... 2,327 4,500 (3,928) Cash and cash equivalents at beginning of year ...... 13,862 9,273 14,267 Effect of exchange rate changes ...... 683 89 (1,066) Cash and cash equivalents at end of year ...... 16,872 13,862 9,273
Opodo Other Data
Opodo Group IFRS For the year ended December 31 2010 2009 2008 (in thousand g) Gross bookings ...... 1,440,622 1,285,298 1,134,777 Revenue margin ...... 110,981 98,668 91,117 Capital Expenditures ...... 1,317 479 919
31 RISK FACTORS An investment in the Notes involves risks. Before investing in the Notes, you should consider carefully the following risk factors and all information contained in this Offering Circular. Additional risks and uncertainties of which we are not aware or that we believe are immaterial may also adversely affect our business, financial condition, liquidity, results of operations or prospects. If any of these events occur, our business, financial condition, liquidity, results of operations or prospects could be materially and adversely affected, the Issuer may not be able to pay interest or principal on the Notes when due and you could lose all or part of your investment. This Offering Circular also contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks described below and elsewhere in this Offering Circular.
Risks related to the travel industry The travel industry may be materially affected by general economic conditions and other factors outside our control. Declines or disruptions in the travel industry could adversely affect our business and financial performance. Discretionary spending generally declines during recessions and other periods in which disposable income is adversely affected. As a substantial portion of travel expenditure, for both corporate and leisure, is discretionary, such expenditure tends to decline or grow more slowly during economic downturns. The economic downturn that began in 2008 increased unemployment and reduced the financial capacity of both corporate and leisure travelers on a global basis, as well as in the markets in which we operate. Following this recent global recession, the rate of economic recovery in our core markets is uncertain, and a return to recessionary conditions in our core markets could adversely affect our financial conditions and results of operations. Additionally, as an intermediary in the travel industry, a significant portion of our revenue is affected by fares and tariffs charged by our suppliers as well as by our sales volumes. Events or weaknesses specific to the flight travel industry that could negatively affect our business also include fare increases, travel-related strikes or labor unrest, imposition of taxes or surcharges by regulatory authorities and fuel price volatility. We could also be adversely affected by changes in the airline industry, such as consolidation or bankruptcies and liquidations, and in many cases, we will have no control over such changes. If one of our major airline suppliers merges or consolidates with, or is acquired by, another company that either does not participate in the GDS systems we use, or that participates in such systems but at substantially lower levels, the surviving company may elect not to make supply available to us or at lower levels than the previous supplier. Similarly, in the event that one of our major airline suppliers voluntarily or involuntarily declares bankruptcy and is subsequently unable to successfully emerge from bankruptcy, and we are unable to replace such supplier, our business would be adversely affected. Additionally, the travel industry is sensitive to safety concerns. Although our business has been resilient in the past, it may decline in the future in connection with the occurrence of travel-related accidents, such as airplane crashes (whether caused by human or technical defaults or otherwise), incidents of actual or threatened terrorism, during periods of political instability or conflict or during other periods in which travelers become concerned about safety issues, including as a result of unusual weather patterns, including natural disasters such as hurricanes, tsunamis, earthquakes or volcanic ash clouds, or when travel might involve health-related risks, such as influenza, H1N1 virus, avian flu, Severe Acute Respiratory Syndrome outbreaks, or other epidemics or pandemics and concerns regarding radiation exposure. For instance, recent events such as the March 11, 2011 Japanese earthquake and tsunami and the resulting potential nuclear disaster, which is likely to have a material and long-term adverse effect on the travel industry throughout Asia, or the political instability which has been affecting North African and Middle Eastern countries such as Tunisia, Lybia or Egypt since late 2010 and early 2011, could have a material adverse effect on our business, financial performance and results of operations. Such concerns are outside our control and could result in a significant decrease in demand for our travel services. Any such decrease in demand, depending on its scope and duration, together with any other issues affecting travel safety, could significantly and adversely affect our business and financial performance over the
32 short and long term. The occurrence of such events could result in disruptions to our customers’ travel plans and we may incur additional costs and constrained liquidity if we provide relief to affected travelers by refunding the price or fees associated with airline tickets, hotel reservations and other travel products and services.
Our business experiences seasonal fluctuations and quarterly comparisons of our results may not be meaningful. Our business experiences seasonal fluctuations, reflecting seasonal trends for travel services. Because we generate the largest portion of our net revenue from flight bookings, and that revenue for flight is generally recognized at the time of booking (except for Go Voyages which has historically booked revenue at departure date), these trends cause our revenue to be highest in the periods during which travelers book their vacations. As a result, quarter-to-quarter comparisons of our revenue and operating results may not be meaningful. Seasonal fluctuations may also affect comparisons on an annual basis between our three main constituent businesses, as Go Voyages’ financial year ends on March 31, whereas eDreams and Opodo’s financial years end on December 31.
Our businesses are highly regulated and changing laws, rules and regulations, as well as legal uncertainties, may adversely affect our business or financial performance. We operate in a highly regulated industry. Our business and financial performance could be adversely affected by unfavorable changes in or interpretations of existing, or the promulgation of new, laws, rules and regulations applicable to us and our businesses, in particular the event of any future changes to IATA regulation or further tightening of the requirements of the European Package Travel Directive 90/314/EEC on packaged travel, packaged holidays and packaged tours. For example, there is, and will likely continue to be, an increasing number of laws and regulations pertaining to the Internet and online commerce, which may relate to liability for information retrieved from or transmitted over the Internet, user privacy, taxation and the quality of products and services. In particular, the growth and development of online commerce may prompt calls for more stringent consumer protection laws, including on price transparency, that may impose additional burdens on online businesses generally, such as increased costs associated with stronger data protection systems and a loss of competitive advantage as a result of any disclosure related to operations. In certain jurisdictions where we operate, local regulations also impose restrictions on or prohibit the credit/debit card operations that we can perform. Such laws and regulations, and the implementation of new laws and regulations, may have an impact on our results and profitability. Furthermore, our failure to comply with these laws and regulations may subject us to fines, penalties and potential criminal violations, as well as publicity which may be harmful to our reputation. On the other hand, the various regulatory regimes to which we are subject because of our international operations may conflict so that compliance with the regulatory requirements in one jurisdiction may create regulatory issues in another. In addition, regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying some or all of our activities or otherwise penalize us if our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could have a material adverse effect on our operations. For instance, in order to carry our flight booking operations, we are required to obtain IATA accreditation to sell flight tickets of airlines which are IATA members. On an annual basis and upon the occurrence of certain events such as the Acquisition, IATA reviews our financial statements and operations to determine whether we are in compliance with IATA rules, in particular with respect to our IATA financial undertakings (including undertakings pertaining to capital resources, working capital and liquidity). If we do not comply with such rules and financial undertakings, IATA may require us to provide guarantees in order to minimize credit risk on behalf of airlines. For example, IATA currently requires the Opodo Group to issue guarantees, largely due to its financial track record prior to the restructuring efforts started in 2007 and 2008. Financial undertakings applied by IATA vary from one jurisdiction to another and in certain jurisdictions, the lack of transparency as to applicable financial undertakings may result in additional financial guarantees being required. In addition to guarantee requirements, IATA may
33 impose penalties for non-compliance or, under certain circumstances, take suspension action, or remove us or any or all of our locations from the IATA agency list. Any such action by IATA could have a material adverse effect on our operations; in particular, if IATA were to remove us from the IATA agency list, such removal would prevent us from conducting a large portion of our current operations.
Risks related to Our Business We operate in an increasingly competitive environment, and we are subject to risks relating to competition that may adversely affect our performance. Our businesses, which consist primarily of our travel websites, operate in the highly competitive travel industry. Factors affecting the competitive success of our businesses include price, the availability of travel supply, brand recognition, customer service, ease of use, fees charged to travelers, accessibility and reliability. We compete with a variety of companies, including both established and emerging online and traditional sellers of travel-related services. Currently, these competitors include, among others: • traditional travel agencies and tour operators; • travel suppliers, such as airlines, hotel companies and rental car companies, many of which have their own branded websites (www.airline.com), in addition to their physical boutiques; and • other online travel agents such as Expedia, Lastminute, Priceline, Ebookers, Rumbo and ETI. Many airline, hotel and rental car suppliers, including suppliers with which we conduct business, have been steadily focusing on increasing online demand on their own websites in lieu of third-party distributors such as our various websites. Suppliers who sell on their own websites may typically offer products and services on more favorable terms, including lower prices, increased or exclusive product availability, no fees or unique access to proprietary loyalty programs, such as points and miles, which could make their offerings more attractive to consumers than ours. Additionally, certain suppliers distribute their products exclusively through their own websites. This is the case, for instance, in certain segments of the airline industry, which has experienced a shift in market share from full-service carriers to low-cost carriers that focus primarily on discount fares to leisure destinations and we expect this trend to continue. We face increasing competition from other online travel agencies, such as Expedia, Lastminute, Priceline, Ebookers, Rumbo and ETI, which in some cases may have more favorable offerings for both travelers and suppliers, including pricing, connectivity and supply breadth. We may also increasingly face competition due to large online portal and search companies such as Google and Yahoo!, as well as online travel metasearch sites such as Kayak, Bing Travel and SkyScanner, which utilize their search technology to aggregate travel search results across supplier, online travel and other websites. Metasearch companies and search engines do not directly compete with us since no bookings are made through their websites and therefore, they are unable to forge relationship with clients. However, metasearch companies and search engines act as competition enhancers, and may redirect possible customers to our direct competitors’ websites. We increasingly receive a large number of requests from such companies, which places a significant strain on our information technology systems. In addition, in certain cases, these search engines charge us each time a user accesses our website through their own, even if such users do not purchase any products or services from us. If a substantial number of users visit our websites without making purchases, our expenses could increase considerably compared to our revenue margin. Additionally, search engine companies have shown increased interest in the online travel channel, as evidenced by recent technological innovations and proposed and actual acquisitions by companies such as Google or Microsoft (including Google’s recent acquisition of ITA Software). As a result, there is a risk that search engine companies, which have acquired significant brand recognition from their other operations, enter the business of selling travel products and become our direct competitors.
34 Many of our current and potential competitors, including large traditional travel service providers, have longer operating histories, larger customer bases, greater brand recognition, greater access to travel inventories and significantly greater financial, marketing, personnel, technical and other resources than we do. For instance, existing or potential competitors may develop websites with sophisticated customer interfaces and such differentiation may attract more travelers to their websites and increase their brand awareness. Our current and potential competitors may also develop technology similar to ours which, in certain cases, may result in our losing our competitive advantage over time and negatively affect our overall competitive position. Increased competition may result in reduced operating margins, as well as loss of industry share and brand recognition. Furthermore, we may not be able to compete successfully against current and future competitors, which would have a material adverse effect on our business, financial condition and results of operations.
Competition for advertising revenue may adversely affect our ability to achieve or maintain market share and operate profitably. Our websites compete for advertising revenue with large Internet portal sites, such as Tripadvisor, that offer listing or other advertising opportunities for travel-related companies. These market participants have significantly greater financial, technical, marketing and other resources and large client bases. In addition, we compete with other OTAs (such as Expedia or Priceline), newspapers, magazines and other traditional media companies that provide offline and online advertising opportunities. We expect to face additional competition as other established and emerging market participants, including print media companies, enter the online advertising market. Competition could result in reduced margins on our advertising revenue. If we are not able to compete effectively with current or future competitors as a result of these and other factors, our business could be materially adversely affected.
A significant portion of our revenue is generated by our flight and hotel activities. Changes in customer patterns with respect to these products may adversely affect us. A significant portion of our revenue depends strongly on our sales of flight tickets and, to a lesser degree, hotel nights and packaged products. Although we also sell products such as train and bus tickets and cruises through certain of our websites, these sales only account for a limited portion of our revenue. Changes in consumer patterns leading to an increased preference for substitute products, such as train and bus tickets or non-regulated lodging alternatives such as vacation-rentals, could adversely affect us. In particular, high-speed train networks are rapidly expanding in Europe and have taken market share from short-haul flights. If these consumer trends were to continue and we fail to scale our sales of such substitute products to reach sales volumes similar to our flight and hotel sales volumes, this could have a material adverse effect on our business, financial condition and results of operations.
Our business depends on our relationships with our suppliers and supplier intermediaries, and adverse changes in these relationships or our inability to enter into new relationships could negatively affect our access to travel offerings and reduce our revenue. An important component of our business success depends on our ability to maintain and expand relationships with travel suppliers and supplier intermediaries. A substantial portion of our revenue is derived from commissions and incentive payments negotiated with travel suppliers for bookings made through our websites. We also rely on fees paid to us by GDS partners and hotel aggregators for travel bookings through GDSs and hotel aggregators for a portion of our gross profit and operating income. To the extent any of our travel suppliers reduces or eliminates the commissions or incentive payments it pays to us, our revenue may be reduced unless we are able to adequately mitigate such reduction by increasing the service fees we charge to our customers in a sustainable manner. However, any increase in service fees may also result in a loss of potential customers. Further, our arrangement with travel suppliers may limit the amount of service fees that we are able to charge our customers. Certain of our direct competitors have eliminated the service fees they charge to clients. We do not have formal agreements with certain of our travel suppliers, including some low-cost airlines and hotels, and there can be no assurance that these third parties will not terminate these arrangements with us at short notice or without notice. In the past, some of these
35 travel suppliers have attempted to prevent us from accessing their inventory through both technological and legal means. See also ‘‘Business—Litigation.’’. So far, we have been able to limit the effect of such legal or technical measures, but we cannot guarantee that we will be able to continue doing so in the future. Any changes in the legal or technical conditions that allow us to access such carriers’ inventory could have a material adverse effect on our business. If litigation or technological advancement impede our ability to offer our customers the broadest selection of travel options possible, we could lose our competitive advantage in providing the best all-in fares and our business would be adversely affected. Further, where we have entered into formal agreements, many of these agreements are short-term contracts, providing our counterparties with a right to terminate at short notice or without notice. While in certain cases we have entered into long-term agreements (in particular, a 10-year non-exclusive agreement with GDS service provider Amadeus, which represents a large portion of our GDS segment), no assurances can be given that certain GDS partners or travel suppliers will not reduce or eliminate compensation or incentives paid to us, attempt to charge travel agencies for content, credit or debit card fees or other services, or otherwise attempt to change the financial terms of our agreements, any of which could reduce our revenue and margins thereby adversely affecting our business and financial performance. Under certain of our agreements with travel suppliers or supplier intermediaries, no sales commission will be due to us unless we meet certain minimum sales thresholds or, if we fail to meet such thresholds, we will be liable for a penalty due to the relevant supplier or supplier intermediary. For instance, we have recently renegotiated the terms of our relationship with Amadeus and entered into a new global agreement for a period of 10 years, as mentioned above. Under the new agreement, a reduced incentive will be due to us by Amadeus if we fail to meet an annual target of bookings through the Amadeus GDS and, in that event, we may also be liable for a penalty corresponding to a percentage or the full amount of the signing bonus that we will receive from Amadeus upon consummation of the Transactions (based on the shortfall of actual bookings when compared to the annual target), plus interest. Any repayment of a part or the full signing bonus may have a material adverse effect on our business, financial condition and results of operations. Although we also source our inventory elsewhere, it is important that we are able to maintain our existing relationships with our GDS partners and hotel aggregators in order to access a larger inventory of travel products. In certain cases, our agreements with the GDS partners and hotel aggregators do not guarantee us access to the full content of their inventory or to that of certain suppliers, such as airlines. We also depend on existing arrangements between suppliers and supplier intermediaries, such as full content agreements entered into between certain airlines and GDS providers. Any amendment or termination of such full content agreements could materially affect our access to flight tickets’ supply. In addition, in certain cases, we rely on a limited number of suppliers for our supply of certain travel products. The significant reduction on the part of any of our major suppliers of their participation in our system for a sustained period of time or their complete withdrawal could have a material adverse effect on our business, financial condition and results of operations. We generally do not assume inventory risk in our different business lines. However, for certain of our products, we purchase inventory in order to benefit from special negotiated rates and we assume inventory risk on such products. This is the case, for example, in the charter flights activity of Go Voyages. If we are unable to sell these products at an appropriate price, or at all, our revenue and business may be adversely affected. Furthermore, in our charter flights business we also bear the risk of default by our charter suppliers, particularly Air Mediterrann´ ee.´ If any of our charter suppliers were to voluntarily or involuntary undergo a bankruptcy proceeding and is subsequently unable to successfully emerge from bankruptcy, or were to otherwise cease operations, temporarily or permanently, or face any other business disruption, and we are unable to replace such supplier, our business would be adversely affected. Additionally, we could incur additional costs and constrained liquidity if we are required to provide relief to tour operators and/or affected travelers by refunding the price or fees associated with charter flight tickets and other related travel products and services.
36 We rely on third parties for certain services and systems, and any disruption or adverse change in their businesses could have a material adverse effect on our business. We rely on third-party service providers for certain customer care, fulfillment, processing, systems development, technology and other services. If these third-parties experience difficulty meeting our requirements or standards, it could damage our reputation or make it difficult for us to operate certain aspects of our business. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption, we could suffer increased costs and delays in our ability to provide similar services until an equivalent service provider is found or we develop replacement technology or operations. If we fail to replace any such defaulting service provider, that could result in our inability to access a particular source of revenue and, as a result, our revenue could also be adversely impacted. If we are unsuccessful in choosing partners who meet our quality standards or we ineffectively manage these partners, it could have an adverse impact on our business and financial performance. In particular, we currently rely on certain third party computer systems, service providers and software companies, including the electronic central reservation systems and GDSs of the airline, hotel and car rental industries, in order to: • conduct searches for airfares and process related transactions; • process hotel room transactions; • process credit or debit card payments; and • provide computer infrastructure critical to our business. Our success is dependent on our ability to maintain relationships with our technology partners. In the event our arrangements with any of such third parties are impaired or terminated, we may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms, which could result in significant additional cost or disruptions to our businesses. In addition, some of our agreements with third party service providers can be terminated by those parties on short notice and, in many cases, provide no recourse for service interruptions. Such an event could have a material adverse effect on our business, financial condition and results of operations. We also outsource certain of our call center operations for customer service to third party providers. If our outsourcing service providers experience difficulty in meeting our requirements for quality and customer services standards, our reputation could suffer and our business and prospects could be adversely affected. Our operations and business could also be adversely affected if our outsourcing service providers experienced any operational or system interruptions. Additionally, termination of any contract with our outsourcing service providers could cause a decline in the quality of our services and disrupt and adversely affect our business, results of operations and financial condition if we are unable to find alternative outsourcing service providers on commercially reasonable terms or if the replacement outsourcing service providers do not meet our quality requirements.
We rely on the value of our brands, and any failure to maintain or enhance customer awareness of our brands could have a material adverse effect on our business, financial conditions and results of operations. Additionally, the costs of maintaining and enhancing our brand awareness are increasing. Our brands, image and reputation constitute a significant part of our value proposition. Our success over the years has largely depended on our ability to develop our brands and image as leading online travel agencies across Europe. Travelers expect that we will provide them with a large selection of quality travel products and services at low prices, and this reputation has strengthened our image and brands, fueling our expansion. Any event, such as the poor quality of products and services provided by our travel suppliers (over which we have no direct control) and offered through our websites, that may not meet our customers’ expectations, or the failure to reimburse for products or services not effectively provided, could lead to customer complaints, damage our image, reputation or brands and have a material adverse effect on our business, results of operations and prospects. Our reputation could also be damaged if customer complaints or negative reviews of us or our activities were to be exchanged on public social networks’
37 websites. In addition, in the event of an accident occurring in connection with charter flights we have sold, our image could be adversely affected, as customers may perceive us to be the service provider rather than the airline operating the flight. In addition, our main brands are key assets of our business. We believe that maintaining and expanding such brands are important aspects of our efforts to attract and expand our user and advertiser base. Our expenditures to maintain our brands’ value have been steadily increasing due to a variety of factors. These include increased spending from our competitors, the increasing costs of supporting multiple brands, expansion into new geographies and products where our brands are less well known, inflation in media pricing including search engine keywords and the relative traffic share growth of search engines and metasearch engines. We have spent considerable financial and human resources to date on the establishment and maintenance of our brands, and we will continue to invest in, and devote resources to, advertising and marketing, as well as other brand building efforts to preserve and enhance consumer awareness of our brands. There is no assurance that we will be able to successfully maintain or enhance consumer awareness of our brands. Even if we are successful in our branding efforts, such efforts may not be cost-effective. If we are unable to maintain or enhance consumer awareness of our brands and generate demand in a cost-effective manner, it would negatively impact our ability to compete in the travel industry and would have a material adverse effect on our business. As new media, such as social media and smart phones, are developed, we will need to expend additional funds to promote our brand awareness on such media. If we are unable to adapt to such new media forms, we may lose market share, which would have a material adverse effect on our business. See also ‘‘—We may not be able to protect our intellectual property effectively from copying and use by others, including current or potential competitors.’’
Our business could be negatively affected by changes in search engine algorithms and search engine relationships. We increasingly utilize Internet search engines, principally through the purchase of travel- related keywords, in particular on Google, and inclusion in metasearch results, to generate traffic to our websites. Search engines, including Google, frequently update and change the logic that determines the placement and display of results of a user’s search, such that the purchased or algorithmic placement of links to our websites can be negatively affected. In addition, a significant amount of traffic is directed to our websites through our participation in pay-per-click and display advertising campaigns on Internet media properties and search engines whose pricing and operating dynamics can experience rapid change, both technically and competitively. If one or more of such arrangements are terminated or if a major search engine changes its algorithms in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites or that of our third-party distribution partners, or if competitive dynamics further impact market pricing in a negative manner, we may experience a decline in traffic on our websites and our margin, business and financial performance would be adversely affected. Some of our search engine relationships, including relationships with metasearch companies, include preferential terms. These relationships may not continue on favorable terms, or at all.
We rely on information technology to operate our business and maintain our competitiveness, and any failure to adapt to technological developments or industry trends could harm our business. We depend on the use of sophisticated information technologies and systems, including customized in-house technology and systems used for reservations, communications, procurement and administration. As our operations grow in both size and scope, we must continuously improve and upgrade our systems and infrastructure to offer an increasing number of travelers enhanced products, services, features and functionality, while maintaining the reliability and integrity of our systems and infrastructure. Our future success also depends on our ability to adapt our services and infrastructure to meet rapidly evolving consumer trends and demands while continuing to improve the performance, features and reliability of our service in response to competitive service and product offerings. Expanding our systems and infrastructure to meet any projected future increases in business volume may require us to commit substantial financial, operational and technical resources before
38 those increases materialize, with no assurance that they actually will. Delays or difficulties in implementing new or enhanced systems may keep us from achieving the desired results in a timely manner, to the extent anticipated, or at all, and we may also be unable to devote adequate financial resources to develop or acquire new technologies and systems in the future. We currently license from third-parties some of the technologies incorporated into our websites. As we continue to introduce new services that incorporate new technologies, we may be required to license additional technology. We cannot be sure that such technology licenses will be available on commercially reasonable terms, if at all. Furthermore, our use of such technology could be challenged by claims that we have infringed upon the patents, copyrights or other intellectual property rights of others.
System interruption and lack of redundancy may cause us to lose customers or business opportunities. We rely on computer systems to facilitate and process transactions. Our inability to maintain and improve our information technology systems and infrastructure may result in system interruptions. Like many online businesses, we have experienced and may in the future experience system interruptions. Any interruptions, outages or delays in our systems, or deterioration in their performance, could impair our ability to process transactions and decrease the quality of service that we can offer to travelers. The costs of enhancing infrastructure to attain improved stability and redundancy may be time consuming and expensive and may require resources and expertise that are difficult to obtain. Fire, flood, power loss, telecommunications failure, physical break-ins, earthquakes, acts of war or terrorism, acts of God, computer viruses, electronic intrusion attempts from both external and internal sources and similar events or disruptions may impact, damage or interrupt computer or communications systems or business processes or data at any time. Although we have taken measures to protect certain portions of our facilities, assets and data, if we were to experience frequent or persistent system failures or security breaches, such events could significantly curtail our ability to conduct our businesses and generate revenue and our reputation and brands could be harmed. While we have backup systems and contingency plans for critical aspects of our operations or business processes, certain other non-critical systems may not be fully redundant and our disaster recovery or business continuity planning may not be sufficient. In addition, we may have inadequate insurance coverage or insurance limits to compensate for losses from a major interruption, and remediation may be costly and have a material adverse effect on our operating results and financial condition.
We rely on the performance of highly skilled personnel and our ability to attract and retain executives and other qualified employees is crucial to our results of operations and future growth. Additionally, any significant disruption in our workforce or the workforce of our suppliers or third-party service providers could adversely affect us. We depend substantially on the continued services and performance of our key executives, senior management and skilled personnel, particularly our information technology and systems professionals. Any of these individuals may choose to terminate their employment with us at any time and we cannot ensure that we will be able to retain the services of any member of our senior management or key employees, the loss of whom could seriously harm our business. Competition for well-qualified employees in certain aspects of our business, including software engineers, developers and other technology professionals, also remains intense. The specialized skills we require are difficult and time-consuming to acquire and, as a result, such skills are in short supply. We expect that this shortage will continue. A lengthy period of time is also required to hire and train replacement personnel. An inability to hire, train and retain a sufficient number of qualified employees could materially hinder our business by, for example, delaying our ability to bring new products and services to market or impairing the success of our operations. Even if we are able to maintain our employee base, the resources needed to attract and retain such employees, as well as to update their skills as the technological demands of our industry change, may adversely affect our profits, growth and operating margins.
39 Our workforce is unionized and we could experience labor disputes and work stoppages in one or more of our sites, due to localized strikes or strikes in the travel agency sector. An inability to reach an agreement on collective bargaining contracts and similar labor agreements during the periodic negotiations and extensions of such agreements could also lead to negative press coverage and disruptive activities from unions. Similar social unrest events could also affect one of our suppliers or third-party providers (particularly, our call center service providers). Any such labor disputes, work stoppages or other social unrest events could cause us to suffer increased costs and delays in our ability to provide our products and services to our customers and adversely affect our business, financial condition and results of operations.
Our business and financial performance could be negatively impacted by adverse tax events. The application of various domestic and international sales, use, occupancy, value-added and other tax laws, rules and regulations to our historical and new products and services is subject to interpretation by the applicable taxing authorities. Many of the fundamental statutes and regulations that impose these taxes were established before the growth of the Internet and e-commerce. If the tax laws, rules and regulations are amended, if new adverse laws, rules or regulations are adopted, or if current laws are interpreted adversely to our interests, particularly with respect to value-added taxes, the results could increase our tax payments (prospectively or retrospectively) and/or subject us to penalties and decrease the demand for our products and services if we pass on such costs to the consumer. As a result, these changes could decrease the capital we have available to operate our businesses and have an overall adverse affect on our businesses and financial performance. We often rely on generally available interpretations of tax laws and regulations in the jurisdictions in which we operate. We cannot be sure that these interpretations are accurate or that the responsible taxing authority is in agreement with our views. The imposition of additional taxes could cause us to have to pay taxes that we currently do not collect or pay or increase the costs of our products or services to track and collect such taxes, which would increase our costs of operations. Due to the global nature of our business, we are subject to income taxes in several jurisdictions, including France, the United Kingdom, Spain, Italy, Germany and Sweden. Significant judgment is required in determining our worldwide provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals. Similarly, efficient management of our operations may also lead us to effect certain changes in the way we organize and conduct our operations, the tax consequences of which may be viewed, analyzed or construed by the tax authorities of the relevant jurisdictions differently from us. Any analysis from tax authorities that would be different from ours could lead to substantial tax reassessments and penalties and result in a material effect on our financial position, results of operations, or cash flows. The results of an audit could have a material effect on our financial position, results of operations, or cash flows in the period or periods for which that determination is made.
We are, and may be in the future, involved in various legal proceedings and may experience unfavorable outcomes, which could adversely affect our business and financial condition. We are involved in various legal proceedings, including, but not limited to, the legal proceedings discussed under ‘‘Business—Litigation,’’ that involve claims for substantial amounts of money or for other relief or that might necessitate changes to our business or operations. The defense of these actions is and may continue to be both time consuming and expensive. If these legal proceedings were to result in an unfavorable outcome, it could create reputational damage and have a material adverse effect on our business and financial performance. In March 2011, the Italian Antitrust Office fined eDreams and Opodo following an investigation the agency conducted related to the transparency of information provided to consumers in the Italian travel market. The investigation focused on several OTAs and covered issues such as transparency in the booking and payment processes, misleading promotions, insurance selection on behalf of consumers prior to check-out and complaint management. While the amounts of the
40 fines imposed on eDreams and Opodo are immaterial, our involvement in such regulatory proceedings may harm our reputation. Since 2010, Opodo S.A.S. has also been under investigation by the French General Directorate for Competition Policy, Consumer Affairs and Fraud Control (Direction Gen´ erale´ de la Concurrence, de la Consommation et de la Repression´ des Fraudes, the ‘‘DGCCRF’’). The alleged breach of consumer protection regulations primarily relates to transparency and insurance check-out procedures. Opodo S.A.S. and the DGCCRF have agreed to settle these proceedings. A formal acceptance of this settlement by the DGCCRF is currently pending. We will continue to take steps to comply with regulatory requirements in each of the markets in which we operate. However, we cannot assure you that we will not come under similar investigation by the Italian Antitrust Office, the DGCCRF or by similar authorities in other jurisdictions, or that our internal monitoring procedures will be able to detect and correct all instances of non-compliance. Such regulatory proceedings, if adversely resolved, could result in fines which could have a material adverse effect on our business, financial condition and results of operations, and harm our reputation.
We may not be able to protect our intellectual property effectively from copying and use by others, including current or potential competitors. Our success and ability to compete depend, in part, upon our technology and other intellectual property, including our brands. Our websites rely on content and technology intellectual property, much of which we regard as proprietary. We protect our logo, brand name, websites’ domain names and our content and proprietary technology by relying on trademarks, copyrights, trade secret laws, patents and confidentiality agreements. However, not all of our intellectual property can be protected by registration. It is possible for someone else to copy or otherwise obtain and use our proprietary technology or content without our authorization or to develop similar technology independently. Effective trademark, copyright, patent and trade secret protection may not be available in every country in which our services are made available through the Internet, and policing unauthorized use of our proprietary information is difficult and expensive. We cannot be sure that the steps we have taken will in all instances preserve our ability to enforce our intellectual property rights or prevent unprotected disclosure or misappropriation of our proprietary information. Unauthorized use and misuse of our intellectual property or disclosure of our proprietary information could have a material adverse effect on our business, financial condition and results of operations. In addition, although we seek to protect our intellectual property through confidentiality or non-disclosure agreements and agreements not to compete with us, these agreements typically have terms that end after several years. Additionally, in the future, we may need to go to court to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, and the legal remedies available to us may not adequately compensate us for the damages caused by unauthorized use. From time to time, in the ordinary course of our business, we face claims that we have infringed the patents, copyrights, trademarks or other intellectual property rights of others. We endeavor to defend our intellectual property rights diligently, but intellectual property litigation is expensive and time consuming, and has and is likely to continue to divert managerial attention and resources from our business objectives. Successful infringement claims against us could result in significant monetary liability, including any indemnification due to travel suppliers for claims made against them. Such claims could also delay or prohibit the use of existing, or the release of new, products, services or processes, and the development of new intellectual property. We could be required to obtain licenses to the intellectual property that is the subject of the infringement claims, and resolution of these matters may not be available on acceptable terms within a reasonable timeframe or at all. Generally, intellectual property claims against us could have a material adverse effect on our business, financial condition and results of operations, and such claims may result in a loss of intellectual property protections that relate to certain parts of our business.
41 Our processing, storage, use and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting law requirements, differing views of personal privacy rights or security breaches. In the processing of our traveler transactions, we receive and store a large volume of personally identifiable information and we rely on information collected online for purposes of advertising to visitors to our websites. This information is increasingly subject to legislation, regulation and industry policies in numerous jurisdictions around the world. These requirements and restrictions are not, and may not in the future be, necessarily consistently applied. Such regulations and policies are typically intended to protect the privacy and security of personal information (including credit or debit card information) that is collected, processed and transmitted in or from the governing jurisdiction. We could be adversely affected if legislation, regulations or other requirements are expanded to require changes in our current business practices or if governing jurisdictions or industry groups interpret or implement their requirements in ways that negatively affect our business, financial condition and results of operations. Moreover, our failure to comply with any of these requirements or interpretations could have a material adverse effect on our reputation and operations. As privacy and data protection have become more sensitive issues for regulators and consumers, we may also become exposed to potential liabilities as a result of differing views on the protections that should apply to travel and/or online data. These and other privacy and security developments that are difficult to anticipate could adversely affect our business and financial performance. We cannot guarantee that our security measures will prevent data breaches, or that third-party service providers will be successful in implementing security systems to prevent data breaches. Failure to improve our standards or a substantial data breach in any of our businesses could significantly harm our business, damage our reputation, expose us to a risk of loss or litigation and possible liability and/or cause customers and potential customers to lose confidence in our security, which would have a negative effect on the value of our brands.
We are exposed to risks associated with online commerce security. As an online travel agency, the secure transmission of confidential information over the Internet is essential in maintaining customer and supplier confidence in our services. Substantial or ongoing security breaches, whether instigated internally or externally on our systems or other Internet-based systems, could significantly harm our business. We rely on licensed encryption and authentication technology to effect secure transmission of confidential customer information, including credit or debit card numbers. However, advances in technology or other developments could result in a compromise or breach of the technology that we use to protect customer and transaction data. A party (whether internal, external, an affiliate or unrelated third party) that is able to circumvent our security systems could steal proprietary information or cause significant interruptions in our operations. We incur substantial expense to protect ourselves against, and remedy, security breaches and their consequences. However, our security measures may not be able to prevent security breaches and we may be unsuccessful in or have to incur additional costs by implementing our remediation plan to address these potential exposures. Security breaches could also damage our reputation and cause customers and potential customers to lose confidence in our security, which would have a negative effect on the demand for our products and services. Moreover, public perception concerning general security and privacy on the Internet could adversely affect customers’ willingness to use our websites. A publicized breach of security, even if it only affects other companies conducting business over the Internet, could inhibit the growth of the Internet and, therefore, our services as a means of conducting commercial transactions.
We are exposed to risks associated with payment fraud. We have historically suffered, and expect to continue to suffer, from Internet-related fraud which has impacted our results. For example, eDreams experienced an abnormally high level of chargebacks related to fraudulent transactions in the year ended in December 2009, which resulted mainly from its international expansion. Although we have made significant investments with respect to fraud prevention and detection (including by paying additional fees to credit and debit card
42 precessing companies for supplementary fraud detection services) and we have generally been able to keep credit or debit card fraud levels at reasonable levels so far, we cannot guarantee that we will be able to do so in the future. We are liable for accepting fraudulent credit or debit cards or checks and are subject to other payment disputes with our customers for such sales. In instances in which we are unable to combat the use of fraudulent credit or debit cards or checks, we are liable vis-a-vis` suppliers for the entire airfare (even when we do not bear inventory risk) and our revenue from such sales could also be subject to automatic chargebacks related to fraudulent transactions from credit or debit card processing companies or demands from the relevant banks, which could have an adverse effect on our results of operations and financial condition.
Our international operations involve additional risks and our exposure to these risks will increase as we further expand our international operations. We operate in a number of jurisdictions, including France, the United Kingdom, Spain, Italy, Germany and the Scandinavian countries and intend to continue to expand our international presence. To achieve widespread acceptance in the countries and markets we enter, we must continue to tailor our services and business model to the unique circumstances of such countries and markets, including travel supplier relationships, traveler preferences and adding new languages to our website interfaces. Learning the customs and cultures of various countries, particularly with respect to travel patterns and practices, can be difficult, costly and divert management and personnel resources. Our failure to adapt our practices and models effectively to traveler and supplier preferences of each country into which we expand could slow our international growth. We expect to continue to face ongoing and additional risks in international operations. These risks include: • Regulatory requirements, including the data privacy requirements, labor laws and anti-competition regulations, and our general ability to comply with local laws and regulations; • Diminished ability to legally enforce our contractual rights; • Increased risk and limits on our ability to enforce intellectual property rights; • Increased risk of Internet and particularly credit or debit card fraud; • Possible preferences by local populations for local providers; • Currency exchange restrictions and exchange rate fluctuations; • Financial risk arising from transactions in multiple currencies, including our failure to adequately manage those risks; • Restrictions on our ability to repatriate cash and earnings as well as restrictions on our ability to invest in our operations in certain countries; • Slower adoption of the Internet as an advertising, broadcast and commerce medium in those markets as compared to the jurisdictions in which we currently operate; and • Difficulties in managing staffing and operations due to distance, time zones, language and cultural differences. If we are not able to effectively mitigate or eliminate these risks, our results of operations could be adversely affected.
We may not be successful in implementing our growth strategies. In particular, we may not realize anticipated benefits from past or future acquisitions and we may be unable to complete future acquisitions. Although we are currently focused on the integration of the Geo Group, in the future part of our growth strategy may result from pursuit of strategic partnerships and acquisitions. There can be no assurance that we will succeed in implementing this strategy as it is subject to many factors which are beyond our control, including our ability to identify, attract and successfully execute suitable acquisition opportunities and partnerships. To the extent that we grow through acquisitions, we will face the operational and financial risks that commonly accompany that strategy, such as failing to assimilate the operations and personnel of the acquired businesses, disrupting their
43 ongoing businesses, increased complexity of our business and impairing management resources and their relationships with employees and travelers as a result of changes in their ownership and management. Further, the evaluation and negotiation of potential acquisitions, as well as the integration of an acquired business, may divert management time and other resources. Certain acquisitions may not be successful and their performance may result in the impairment of their carrying value. Certain financial and operational risks related to acquisitions that may have a material impact on our business are: • Use of cash resources and incurrence of debt and contingent liabilities in funding acquisitions may limit other potential uses of our cash, including debt service; • Costs incurred in identifying and performing due diligence on potential acquisition targets that may or may not be successful; • Difficulties and expenses in assimilating the operations, products, technology, privacy protection systems, information systems or personnel of the acquired company; • Impairment of relationships with employees, suppliers and affiliates of our business and the acquired business; • The assumption of known and unknown debt and liabilities of the acquired company; • Failure to generate adequate returns on our acquisitions and investments; and • Entrance into markets in which we have no direct prior experience.
Although we report our results in euro, we conduct business in countries that use currencies other than the euro, and we are subject to risks associated with currency fluctuations. Our results of operations may be affected by both the transaction effects and the translation effects of foreign currency exchange rate fluctuations. We are exposed to transaction effects when one of our companies incurs costs or earns revenue in a currency different from its functional currency. For instance we conduct certain of our operations in U.S. dollars, British pounds and Norwegian Krone. We are also exposed to currency fluctuation when we convert currencies that we may receive for our operations into currencies required to pay our debt, or into currencies in which we meet our fixed costs or pay for services, which could result in a gain or loss depending on fluctuations in exchange rates.
Risks related to the Group’s Ownership The interests of AXA Private Equity and the Permira Funds, our indirect parent companies, may conflict with our interests. AXA Private Equity and the Permira Funds are our indirect parent companies and indirectly jointly control the Issuer. When business opportunities, or risks and risk allocation arise, the interests of AXA Private Equity and the Permira Funds may be different, or in conflict with our interests on a stand-alone basis. Because we are indirectly controlled by AXA Private Equity and the Permira Funds, such funds may allocate certain or all of their risks to us and we cannot assure that AXA Private Equity and the Permira Funds will permit us to pursue certain business opportunities that may be attractive to us.
The interests of AXA Private Equity and the Permira Funds, our indirect parent companies and the Issuer’s principal shareholders, may conflict with your interests. The interests of the Issuer’s principal indirect shareholders, in certain instances, may conflict with your interests as holders of the Notes. AXA Private Equity and the Permira Funds (respectively) are, through their ownership in LuxGEO Parent the principal indirect shareholders of the Issuer. Upon completion of the Acquisition, the Parent, through its ownership of the Issuer and, indirectly, the Issuer’s direct subsidiary, LuxGEO, will control the Geo Group. As a result, these shareholders will have, directly or indirectly, the power, among other things, to affect the Group’s day-to-day operations and its legal and capital structure, as well as the ability to elect and change the Group’s management and to approve any other changes to operations. For example, the shareholders could vote to increase the Group’s indebtedness, to sell certain material assets or make dividends,
44 in each case, to the extent permitted by the terms of the Senior Credit Facilities Agreement, the Indenture and the Intercreditor Agreement. The incurrence of additional indebtedness would increase the Group’s debt service obligations and the sale of certain assets could reduce the Group’s ability to generate revenue, each of which could adversely affect holders of the Notes. In addition, pursuant to the agreements and constitutional documents that will govern the relationship between our principal shareholders, the agreement of both AXA Private Equity and the Permira Funds may be required to make certain decisions and take certain actions. This could limit our ability to take advantage of opportunities, such as future acquisitions, dispositions or investments that would otherwise be of advantage to us and to you.
Following consummation of the Acquisition, we will need to strengthen certain corporate functions of Opodo Limited that are currently managed at the Amadeus level. Amadeus has managed, and will continue to manage until the consummation of the Acquisition, certain of Opodo Limited’s corporate functions, such as cash pooling, tax and legal support. Following consummation of the Acquisition, these functions at Opodo Limited will be separated from Amadeus, and we will need to incur increased costs to hire the additional personnel required to support these functions at Opodo Limited and commit management time to the oversight of these new resources.
Risks related to the Transactions The Transactions are subject to significant uncertainties and risks. On February 9, 2011, LuxGEO, the holding vehicle indirectly controlled jointly by AXA Private Equity and the Permira Funds, entered into a share purchase agreement with Amadeus for the purchase of 100% of the share capital and voting rights of Opodo Limited, in the context of the Transactions (see ‘‘The Transactions’’), including the combination of the Go Voyages Group, the eDreams Group and the Opodo Group. The consummation of the Transactions is subject only to antitrust approval from the European Commission (the ‘‘EC’’) since they meet the turnover thresholds specified under European competition law as requiring pre-consummation regulatory approval and, accordingly the Transactions have been reported to the EC. We may not consummate the Transactions until the clearance process is complete, which may take up to six months and in exceptional circumstances even longer, and there can be no assurance that such clearance will be obtained. Alternatively, the EC may authorize the Transactions but demand that we implement remedies, such as certain undertakings or divestitures. Any such remedies would likely make the Transactions less attractive, and could cause us to abandon the Transactions. Although we will argue that we should be allowed to consummate the Transactions without the imposition of remedies, we cannot assure you that we will be permitted to undertake the Transactions in a timely fashion, without remedies, or at all. Completion of the Transactions is one of the conditions to the release of the proceeds from the Offering from escrow. If the Transactions are not consummated for any reason prior to December 31, 2011 and, as a result, the proceeds from the sale of the Notes to be held in escrow are not released, the Issuer will be required to redeem the Notes pursuant to the terms of the special mandatory redemption provision of the Indenture, and you may not obtain the investment return you expect on the Notes. See ‘‘—Risks Related to our Indebtedness and the Notes—We will escrow proceeds from this offering and will be required to redeem the Notes if we do not consummate the Transactions on or before December 31, 2011.’’
If we do not satisfy the conditions precedent for the utilization of the Senior Credit Facilities, we may be required to seek alternative sources of financing for the Transactions. While we have entered into the Senior Credit Facilities, we may be unable to satisfy the conditions precedent to the utilization of the Senior Credit Facilities. If we do not meet the conditions precedent to utilization of the Senior Credit Facilities or are unable to extend the Senior Credit Facilities’ Availability Period beyond September 30, if needed, we will need to seek alternative sources of financing to finance the Transactions. We may be unable to find such alternative financing, and even if we could obtain alternative financing, it might not be on terms that are favorable or acceptable to us. Any alternative financing could be at higher interest rates and
45 may require us to comply with more onerous covenants, restricting our business operations. This could make it difficult for us to implement our business strategy and repay the Notes.
The Issuer does not currently control the Go Voyages Group, the eDreams Group or the Opodo Group and will not control these groups until completion of the Transactions. The Go Voyages Group and the eDreams Group are currently controlled respectively by AXA Private Equity and the Permira Funds, which also jointly control the Issuer. As of the date of this Offering Circular, the Opodo Group is still controlled by Amadeus. The Issuer cannot assure you that AXA Private Equity or the Permira Funds will operate the Go Voyages Group and the eDreams Group, respectively, during the interim period in the same way that they did in the past. Similarly, the Issuer will not obtain control of the Opodo Group until completion of the Transactions and the Issuer cannot assure you that Amadeus will operate the Opodo Group during the interim period in the same way that it did in the past, nor that the Issuer will operate the Opodo Group following consummation of the Transactions in the same way that such group was operated by Amadeus in the past. In addition, the information regarding the Go Voyages Group, the eDreams Group and the Opodo Group included in this Offering Circular has been derived from material provided to the Issuer by each of the groups and their controlling companies and the Issuer has relied on such information.
If we complete the Transactions, the integration of the Go Voyages Group, the eDreams Group or the Opodo Group could result in operating difficulties and other adverse consequences. The Go Voyages Group, the eDreams Group or the Opodo Group have never been operated on a combined basis and will not be so operated unless and until the Transactions are consummated. If we complete the Transactions, the process of integrating the Go Voyages Group, the eDreams Group or the Opodo Group may create operating difficulties and expenditures and poses significant management, administrative and financial challenges. Some of these challenges may not be presently foreseen. Among the challenges we anticipate are: • integration in a cost-effective manner, including management information and financial control systems, marketing, information technology systems and structure, customer service and product offerings; • outstanding legal, regulatory, contractual, labor or other issues arising from the Transactions; • additional capital expenditure requirements; • retention of customers; • integration of different company and management cultures; and • retention, hiring and training of key personnel. Failure to effectively integrate the Go Voyages Group, the eDreams Group or the Opodo Group could have a material adverse effect on our financial condition and results of operations.
Anticipated synergies from the Transactions may not materialize. We have identified certain potential synergies which we believe may be achievable as a result of the Transactions, including, among others, sharing of technology and harmonization of best practices. While we believe the underlying assumptions upon which we have based our estimates are reasonable, the degree of our success to realize such synergies remains subject to numerous significant risks and uncertainties, and could vary significantly. There can be no assurance that such potential synergies or other anticipated benefits will be realized in the near future, if at all. In particular, there is a risk that overlapping product offerings may continue to be separately maintained and supported, including in core markets where the constituent companies competed against each other prior to the consummation of the Transactions, which may result in certain operating disruptions, as well as duplicative costs.
46 The Issuer has been formed for the purposes of facilitating the Transactions and the issuance of the Notes, with no combined operating history, therefore neither our historical nor our pro forma financial and operating data may be representative of our future results. After the Completion Date, we will be a newly combined group with no combined operating history. Our lack of combined operating history may make it difficult to forecast our future operating results. The historical financial statements included in this Offering Circular reflect the separate historical results of operations, financial position and cash flows of Go Voyages, eDreams and Opodo prior to the Transactions and were prepared in accordance with French GAAP, Spanish GAAP and IFRS, respectively. In addition, for the periods covered by the historical financial statements included in this Offering Circular, Go Voyages, eDreams and Opodo had fiscal years ending March 31, December 31 and December 31, respectively. The Pro Forma Combined Financial Information included in this Offering Circular are derived from these historical financial statements in different GAAPs and different fiscal year ends. As a result, the historical and pro forma information may not give an accurate indication of what our actual results would have been if the Transactions had been completed at the beginning of the periods presented or of what our future results of operations are likely to be.
Risks Related to our Indebtedness and the Notes Our substantial leverage and debt service obligations could adversely affect our business and prevent us from fulfilling our obligations with respect to the Notes and the Guarantees. We are, and after the issuance of the Notes will continue to be, highly leveraged. As of December 31, 2010, after adjusting for the effects of the Transactions, we would have total financial debt of e515 million, of which e175 million would have been represented by the Notes and e340 million would have been represented by the Senior Credit Facilities. We will also be permitted to incur additional indebtedness under the Indenture and the Senior Credit Facilities in the future. The degree to which we will be leveraged following the issuance of the Notes could have important consequences to holders of the Notes in this Offering, including, but not limited, to: • making it difficult for us to satisfy our obligations with respect to the Notes; • increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions; • requiring the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures, product research and development or other general corporate purposes; • limiting our flexibility in planning for, or reacting to, changes in our business and the competitive environment and the industry in which we operate; • placing us at a competitive disadvantage as compared to our competitors, to the extent that they are not as highly leveraged; and • limiting our ability to borrow additional funds and increasing the cost of any such borrowing. Any of these or other consequences or events could have a material adverse effect on our ability to satisfy our debt obligations, including the Notes. Moreover, we may incur substantial additional indebtedness in the future, including indebtedness in connection with any future acquisition. The terms of the Indenture, as well as the terms of our Senior Credit Facilities, will restrict, but will not prohibit, us from incurring additional debt. Some or all of this debt could rank senior to the Notes. If we incur new debt in addition to our current debt level as adjusted to give effect to the Transactions, the related risks that we now face, as described above and elsewhere in these ‘‘Risk Factors,’’ could intensify.
47 We are subject to restrictive debt covenants that may limit our ability to finance our future operations and capital needs and to pursue business opportunities and activities. The Indenture governing the Notes and the Senior Credit Facilities will contain covenants that impose significant operating and financial restrictions on us. The Indenture will limit our ability to, among other things: • incur or guarantee additional indebtedness and issue certain preferred stock; • make certain restricted payments, including dividends or other distributions with respect to shares of the Issuer or its restricted subsidiaries; • prepay or redeem subordinated debt or equity; • make certain investments; • create or permit to exist certain liens; • sell, lease or transfer certain assets; • enter into arrangements that impose encumbrances or restrictions on the ability of our subsidiaries to pay dividends, make other payments or transfer assets to the Issuer or any of its restricted subsidiaries; • change our centre of main interests and establishments; • engage in certain transactions with affiliates; • consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis; and • impair the security interest for the benefit of the holders of the Notes. All of these limitations will be subject to significant exceptions and qualifications. See ‘‘Description of the Notes—Certain Covenants.’’ The covenants to which we are subject could limit our ability to finance our future operations and capital needs and our ability to pursue business opportunities and activities that may be in our interest. The covenants in our Senior Credit Facilities restrict, in certain circumstances, the ability of our subsidiaries to make, among other things, payments to us in order to enable us to make payments on the Notes. In addition, our Senior Credit Facilities require us to maintain specified financial ratios and satisfy financial condition tests provided for in the Senior Credit Facilities, which become more restrictive over the life of the debt. Our ability to meet those financial ratios and tests can be affected by events beyond our control and we cannot assure you that we will meet them. A breach of any of those covenants, ratios, tests or restrictions could result in an event of default under our Senior Credit Facilities. Upon the occurrence of any event of default under our Senior Credit Facilities, subject to applicable cure periods and other limitations on acceleration or enforcement, the relevant creditors could cancel the availability of the facilities and elect to declare all amounts outstanding under the Senior Credit Facilities, together with accrued interest, immediately due and payable. In addition, any default under the Senior Credit Facilities could lead to an event of default and acceleration under other debt instruments that contain cross default or cross acceleration provisions, including the Notes. If our creditors, including the creditors under our Senior Credit Facilities, accelerate the payment of those amounts, we cannot assure you that our assets and the assets of our subsidiaries would be sufficient to repay in full those amounts, to satisfy all other liabilities of our subsidiaries which would be due and payable and to repay the Notes in full or in part. In addition, if we were unable to repay those amounts, our creditors could proceed against any collateral granted to them to secure repayment of those amounts.
48 We will require a significant amount of cash to meet our obligations under our indebtedness and to sustain our operations, which we may not be able to generate or raise. Our ability to generate cash depends upon many factors, some of which are beyond our control. Our ability to make principal or interest payments when due on our indebtedness, including the Notes and the Senior Credit Facilities and to fund our ongoing operations, will depend on our future performance and our ability to generate cash, which to a certain extent is subject to general economic, financial, competitive, legislative, legal, regulatory and other factors, as well as other factors discussed in these ‘‘Risk Factors,’’ many of which are beyond our control. Historically, we met our debt service and other cash requirements with cash flows from operations and borrowing facilities. Although we believe that our expected cash flows from operating activities, together with cash on hand and available borrowing facilities, will be adequate to meet our anticipated liquidity and debt service needs, we cannot assure you that our business will generate sufficient cash flows from operating activities, or that future debt and equity financing will be available to us in an amount sufficient to enable us to pay our debts when due, including the Notes, or to fund our other liquidity needs. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’ If our future cash flows from operations and other capital resources are insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to: • reduce or delay our business activities and capital expenditures; • sell assets; • obtain additional debt or equity capital; or • restructure or refinance all or a portion of our debt, including the Notes, on or before maturity. We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on satisfactory terms, if at all. In addition, the terms of our existing debt, and the terms of the Indenture, will limit our ability to pursue any of these alternatives. If we obtain additional debt financing, the related risks we now face will increase.
The rights to enforce remedies with respect to certain of the collateral securing the Notes and the Guarantees are limited as long as any senior debt is outstanding. The security interests in the collateral securing the Notes and each Guarantee that also secures the Senior Credit Facilities will rank behind the first-priority security interests in such collateral in favor of the creditors under the Senior Credit Facilities and in favor of institutions with whom we entered and may enter into certain hedging arrangements. The Intercreditor Agreement provides that a common security agent will serve as the Security Agent for the secured parties under our Senior Credit Facilities, certain hedging arrangements and the Notes and will (subject to certain limited exceptions) act with respect to such collateral only at the direction of the relevant instructing group until amounts outstanding under the Senior Credit Facilities and certain hedging arrangements are paid in full and discharged. Until the expiration of a standstill period on enforcement of such collateral on behalf of holders of the Notes, the creditors under the Senior Credit Facilities and institutions who are counterparties to certain of our hedging arrangements will have (subject to certain limited exceptions) the exclusive right to make all decisions with respect to the enforcement of remedies relating to such collateral. See ‘‘Description of Other Indebtedness— Intercreditor Agreement—Ranking and Priority.’’ As a result, the holders of the Notes will not be able to force a sale of such collateral, or otherwise independently pursue the remedies of a secured creditor under the relevant security documents, until the expiration of the applicable standstill period for so long as any amounts under our Senior Credit Facilities and certain of our hedging arrangements remain outstanding. The creditors under our Senior Credit Facilities and the institutions who are counterparties to certain of our hedging arrangements may have interests that are different from the interests of holders of the Notes, and they may elect to pursue their remedies under the relevant Security Documents at a time when it would be disadvantageous for the holders of the Notes to do so. This may affect the ability of holders of the Notes to recover under certain of the collateral if the proceeds from such collateral, after having satisfied obligations under our Senior Credit Facilities and certain of our hedging arrangements, are less than the aggregate amount
49 outstanding under the Notes. In addition, our ability to take enforcement actions with respect to the collateral securing only the Notes is also subject to the applicable standstill period. In addition, if the creditors or the agent under our Senior Credit Facilities or certain hedging arrangements sell the shares of a Group company through an enforcement of their first-priority security interest, in accordance with the terms of the Intercreditor Agreement, the Guarantees and the liens over certain other assets securing the Notes and each Guarantee may be released. See ‘‘Description of Other Indebtedness—Intercreditor Agreement’’ and ‘‘Description of the Notes— Security—Release.’’
The Guarantees of each Guarantor will be subordinated to the Group’s existing and future senior debt. The Guarantee of each Guarantor, will be a senior subordinated obligations of the relevant Guarantor and: • will rank pari passu in right of payment with any existing and future senior subordinated indebtedness of such Guarantor; • will be subordinated in right of payment to all existing and future senior indebtedness of such Guarantor, including such Guarantor’s obligations under the Senior Credit Facilities; and • will be effectively subordinated to any existing and future indebtedness of such Guarantor that is secured by liens senior to the liens securing such Guarantor’s Guarantee or secured by property and assets that do not secure such Guarantor’s Guarantee, to the extent of the value of the property and assets securing such indebtedness or other obligations. In addition, no enforcement action with respect to the Guarantees (or any future guarantee of the Notes, if any) may be taken unless (subject to certain limited exceptions): (i) any enforcement action has been taken with respect to senior debt (provided the Trustee and holders of the Notes will be limited to taking the same action); (ii) with respect to any enforcement action on such Guarantor, an insolvency event has occurred with respect to such Guarantor (to the extent such event has not occurred solely as a result of any action taken by the Trustee or holders of the Notes); (iii) there is a default on the Notes outstanding after a period of 179 days from the date the agent with respect to senior debt received written notice of such default; (iv) a default has occurred resulting from a failure to pay principal on the Notes at maturity or (v) a majority (662⁄3%) of certain first-priority secured creditors (which includes lenders under the Senior Credit Facilities and creditors in respect of certain hedging obligations) have given their consent to the proposed action. See ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’ Upon any distribution to the creditors of a Guarantor in a liquidation, administration, bankruptcy, moratorium of payments, dissolution or other winding-up of such Guarantor, the holders of senior debt of such Guarantor will be entitled to be paid in full before any payment may be made with respect to the Guarantor’s Guarantees. As a result, holders of the Notes may receive less, ratably, than the holders of senior debt of the Guarantors, including the lenders under our Senior Credit Facilities. As of December 31, 2010, on a pro forma basis, the Group would have had an aggregate principal amount of outstanding borrowings that ranked senior to the Guarantees of e340 million and up to e90 million was available for borrowing under the committed and undrawn portion of the Senior Credit Facilities. In addition, the Senior Credit Facilities include a e50 million letter of credit and guarantee facility and contemplate a e50 million additional acquisition facility, which is currently uncommitted. See ‘‘Capitalization.’’ In addition, the obligations of Lyparis under the Lyparis Structural Back to Back Loan and the obligations of Lyeurope under its guarantee of the Lyparis Structural Back to Back Loan will be subordinated in right of payment to all existing and future senior indebtedness of Lyparis and Lyeurope, including their obligations under the Senior Credit Facilities Agreement.
The ability of holders of Notes to recover under the collateral may be limited. Under the Intercreditor Agreement and certain Security Documents, certain of the collateral securing the Notes (whether directly or indirectly on a back-to-back basis) will also secure the Senior Credit Facilities and certain of our hedging arrangements on a first-priority basis. Holders of
50 the Notes may not be able to recover on such collateral because the creditors under the Senior Credit Facilities will have a prior claim on all proceeds realized from any enforcement of such security interests and any enforcement sale with respect to such collateral, and the Notes will need to share any remaining proceeds from such enforcement with any other secured creditor. If the proceeds realized from the enforcement of such collateral exceeds the amount owed under our Senior Credit Facilities and certain of our hedging arrangements, any excess amount of such proceeds will be paid to the Trustee on behalf of itself and the registered holder of the Notes for the benefit of the holders of the Notes. If there are no excess proceeds, or if the amount of such excess proceeds is less than the aggregate amount of the obligations under the Notes, the holders of Notes will not fully recover (if at all) under such collateral. Pursuant to the Intercreditor Agreement, until the expiration of a standstill period on enforcement of security on behalf of the holders of the Notes, the Trustee, the Security Agent and holders of the Notes will (subject to certain limited exceptions) not be able to force a sale of certain of the collateral securing the Notes or otherwise independently pursue the remedies of a secured creditor under the Security Documents relating to such collateral for so long as any amounts under the Senior Credit Facilities and certain of our hedging arrangements remain outstanding and, if the creditors under the Senior Credit Facilities or certain of our hedging arrangements enforce their security interests, they will have priority over the holders of the Notes with respect to the proceeds from this collateral. See ‘‘—The rights to enforce remedies with respect to certain of the collateral securing the Notes and the Guarantees are limited as long as any senior debt is outstanding.’’ As such, holders of the Notes may not be able to recover on such collateral if the claims of the creditors under the Senior Credit Facilities or certain of our hedging arrangements are greater than the proceeds realized from any enforcement of such collateral.
The collateral may not be sufficient to secure the obligations under the Notes. The Notes and the Guarantees will be secured by security interests in the collateral described in this Offering Circular, certain of which also secures the obligations under the Senior Credit Facilities and certain hedging arrangements (on a first-priority basis). The collateral may also secure additional indebtedness to the extent permitted by the terms of the Indenture and the Intercreditor Agreement. Your rights to the collateral may be diluted by any increase in the first-priority indebtedness secured by the collateral or a reduction of the collateral securing the Notes. The value of the collateral and the amount to be received upon an enforcement of the collateral will depend upon many factors, including, among others, the ability to sell the collateral in an orderly sale, the condition of the economies in which operations are located and the availability of buyers. The book value of the collateral should not be relied on as a measure of realizable value for such assets. All or a portion of the collateral may be illiquid and may have no readily ascertainable market value or its value may decline over time. Likewise, we cannot assure you that there will be a market for the sale of the collateral, or, if such a market exists, that there will not be a substantial delay in its liquidation. In addition, the shares that are pledged or assigned for the benefit of the Holders of the Notes may be of no value if the pledgee entity is subject to an insolvency, bankruptcy or similar proceeding. The collateral is also located in a number of countries, and the multi-jurisdictional nature of any foreclosure on the collateral may limit the realizable value of the collateral. For example, the bankruptcy, insolvency, administrative and other laws of the various jurisdictions may be materially different from, or conflict with, each other, including in the areas of rights of creditors, priority of government and other creditors, ability to obtain post-petition interest and duration of the proceedings.
The Notes will be secured only to the extent of the value of the assets that have been granted as security for the Notes. If there is an event of default on the Notes, the holders of the Notes will be secured only to the extent of the value of the assets that have been granted as security for the Notes. A significant portion of our assets will not secure the Notes. In addition, in the future, the obligations to provide additional guarantees and grant additional security over our assets, whether as a result of the acquisition or creation of future assets or subsidiaries or otherwise, are, in certain circumstances, linked to our obligations under the Senior Credit Facilities Agreement, subject to certain security principles set forth in the Senior Credit Facilities Agreement (the ‘‘Security Principles’’). To the extent that lenders under the Senior Credit Facilities are granted security, the negative pledge in the
51 Indenture may require such security to also be granted for the benefit of holders of the Notes. The Security Principles contain a number of limitations on the rights of the lenders under the Senior Credit Facilities to be granted security in certain circumstances. The operation of the Security Principles may result in, among other things, the amount recoverable under any collateral provided being limited or security not being granted or perfected over a particular type or class of assets. Accordingly, the Security Principles may affect the value of the collateral provided by the Issuer and the Guarantors to secure the Notes.
It may be difficult to realize the value of the collateral securing the Notes. The collateral securing the Notes will be subject to any and all exceptions, defects, encumbrances, liens and other imperfections permitted under the Indenture and/or the Intercreditor Agreement and accepted by other creditors that have the benefit of security interests in the collateral securing the Notes from time to time, whether on or after the date the Notes are first issued. The existence of any such exceptions, defects, encumbrances, liens and other imperfections could adversely affect the value of the collateral securing the Notes, as well as the ability of the Security Agent to realize or foreclose on such collateral. Furthermore, the ranking of security interests in the collateral can be affected by a variety of factors, including, among others, the timely satisfaction of perfection requirements, statutory liens or recharacterization under the laws of certain jurisdictions. The security interests of the Security Agent will be subject to practical problems generally associated with the realization of security interests in collateral. Under Luxembourg law, the enforcement of shares, whether by means of a sale or an appropriation, is subject to contain specific requirements. For example, the Security Agent may need to obtain the consent of a third party to enforce a security interest. We cannot assure you that the Security Agent will be able to obtain any such consents. We also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the Security Agent may not have the ability to foreclose upon those assets, and the value of the collateral may significantly decrease.
We will escrow proceeds from this offering and will be required to redeem the Notes if we do not consummate the Transactions on or before December 31, 2011. This Offering will be consummated before the closing of the Transactions, including the Acquisition. The Transactions cannot close until the remaining conditions precedent have been satisfied or waived. We will escrow the gross proceeds of this offering less a portion of the Initial Purchasers’ commission pending consummation of the Acquisition. If the Transactions are not consummated before November 1, 2011, the first interest payment on the Notes will be made using funds from the Escrow Account. If the Transactions do not occur by December 31, 2011, then the Indenture will require that we redeem all of the Notes at a redemption price equal to (i) 100% of the aggregate principal amount of the Notes if the redemption occurs on or prior to September 30, 2011, or (ii) 101% of the aggregate principal amount of the Notes if the redemption occurs on or after October 1, 2011, in each case plus accrued and unpaid interest and additional amounts, if any, from the issue date for the Notes to the date of redemption. Although we currently believe that all conditions to the Acquisition will be satisfied and expect to consummate the Transactions before the deadline for the special mandatory redemption, we cannot assure you that the conditions will be satisfied or waived, that we will in fact close the Acquisition, or that we will not otherwise have to redeem the Notes. If for any reason we believe that the Acquisition will not close before the deadline for special mandatory redemption, we have the option to redeem the Notes earlier on the same terms. AXA LBO Fund IV, represented by AXA Private Equity, and Luxgoal, acting severally and not jointly, will provide guarantees for the benefit of the holders of the Notes in order to pay, upon the occurrence of a special mandatory redemption, pro rata to the economic interest of AXA Private Equity and the Permira Funds, respectively, in the Transactions, the difference between the amount required to be paid to the holders of the Notes for the special mandatory redemption and the amount of funds in the Escrow Account on the date of the special mandatory redemption, provided that the obligations of AXA LBO Fund IV and Luxgoal under these guarantees shall not exceed the sum of (i) the difference between the principal amount of the Notes outstanding and the amount initially deposited by the Initial Purchasers into the Escrow Account, (ii) the accrued and unpaid
52 interest on the Notes at the date of special mandatory redemption, (iii) the premium applicable to any special mandatory redemption on or after October 1, 2011, (iv) an amount equal to amounts released from the Escrow Account in accordance with the Escrow Agreement to pay amounts required or permitted to be paid pursuant to the Notes and the Indenture (other than in respect of a special mandatory redemption), (v) any Additional Amounts (as defined under ‘‘Description of the Notes—Additional Amounts’’) due on the Notes at the date of special mandatory redemption and (vi) an amount equal to any fees and expenses paid out of the Escrow Account in accordance with the Escrow Agreement. There can be no assurances that either or each of the entities providing such guarantees will have sufficient funds to make these payments or that the guarantees will be sufficient to pay the amount required to be paid to the holders of the Notes for the special mandatory redemption. Your decision to invest in the Notes is made at the time of purchase. Changes in our business or financial conditions, or the terms of the Acquisition or the financing thereof, between the closing of this Offering and the closing of the Acquisition, will have no effect on your rights as a purchaser of the Notes.
The security interests in the collateral will be granted to the Security Agent rather than directly to the holders of the Notes. The ability of the Security Agent to enforce certain of the collateral may be restricted by local law. The security interests in the collateral that will secure our obligations under the Notes and the obligations of the Guarantors under the Guarantees will not be granted directly to the holders of the Notes but will be granted only in favor of the Security Agent. The Indenture will provide (along with the Intercreditor Agreement) that only the Security Agent has the right to enforce the Security Documents. As a consequence, holders of the Notes will not have direct security interests and will not be entitled to take enforcement action in respect of the collateral securing the Notes, except through the Trustee, who will (subject to the provisions of the Indenture) provide instructions to the Security Agent in respect of the collateral. The appointment of a foreign security agent will be recognized under Luxembourg law, (i) to the extent that the designation is valid under the law governing such appointment and (ii) subject to possible restrictions depending on the type of the security interests. Generally, according to paragraph 2(4) of the Luxembourg act dated August 5, 2005 concerning financial collateral arrangement (the ‘‘Collateral Act 2005),’’ a security (financial collateral) may be provided in favour of a person acting on behalf of the collateral taker, a fiduciary or a trustee in order to secure the claims of third party beneficiaries, whether present or future, provided that these third party beneficiaries are determined or may be determined. Without prejudice to their obligations vis-a-vis` third party beneficiaries of the security, persons acting on behalf of beneficiaries of the security, the fiduciary or the trustee benefit from the same rights as those of the direct beneficiaries of the security aimed at by such law. Under the laws of certain jurisdictions, certain security interests such as pledges require that the pledgee and the creditor be the same person. Such security interests cannot be held on behalf of third parties who do not hold the secured claim. In particular, although the enforceability in France of certain rights (the filing of claims in safeguard proceedings) of a security trustee benefiting from a parallel debt was recognized the first time by a French court of appeal in September 2010, there is no assurance that such a structure will be effective in all cases before French courts. Indeed such a decision should not be considered as a general recognition of the enforceability in France of the rights of a security agent benefiting from a parallel debt. To the extent that the security interests in the collateral created under the parallel debt structure are successfully challenged by other parties, holders of the Notes will not receive any proceeds from an enforcement of the security interest in the collateral.
Certain collateral will not initially secure the Notes. As of the Completion Date, the Notes will be guaranteed by each of the Initial Guarantors and the Notes and the Guarantees will be secured by the Initial Collateral. We will also agree in the Indenture to take such necessary actions so that the Notes and the Guarantees are secured by the Post-Completion Collateral, and indirectly by the Lyparis Structural Back to Back Loan Collateral, no later than the date that is 30 days after the Completion Date. There can, however, be no assurance
53 that we will be successful in procuring such liens within the time period specified, the failure of which would result in an event of default under the Indenture.
French law may adversely affect the validity and enforceability of second ranking or lower share pledges. Certain of the collateral benefiting (directly or indirectly) the Holders of the Notes are second ranking share pledges governed by French law. Although there is no express prohibition under French law on granting a second or lower ranking pledge over a securities account in which the shares or other securities of a French company are registered, some legal commentators have queried whether a second or lower ranking pledge is legally permissible to the extent that a pledge of a securities account is deemed, under French law, to remove the securities account from the possession of the grantor, thereby preventing such grantor from granting further, second or lower ranking pledges thereon. In order to create second ranking share pledges, the possession of the securities accounts will be transferred to the custody of an agreed third party (entiercement), thereby satisfying the legal requirement of possession of the pledged asset by or on behalf of the secured creditors. Although there is no case law on the matter, the majority of legal academics and practitioners are of the opinion that creation of second or lower ranking pledges over securities through such a form of entiercement is valid, provided that the first or higher ranking pledgees agree to such creation of a subsequent ranking pledge and that the agreed third party (either the account holder or the first ranking beneficiaries) has accepted its appointment as third party holder and holds the pledged securities as custodian for the benefit of all such pledgees. No assurance can be given, however, that a court would concur with such beliefs and positions.
Pledgees may be required to pay a ‘‘soulte’’ in the event they decide to enforce certain share pledges by attribution of the shares rather than by a sale of the shares in a public auction. Under French law, a pledge over shares may be enforced at the option of the secured creditor either by a sale of the pledged shares in a public auction (the proceeds of the sale being paid to the secured creditors) or by ‘‘attribution’’ of the shares to the secured creditor, following which the secured creditor is the legal owner of the pledged shares. In a proceeding for attribution, a court appointed expert will determine the value of the collateral (in this case, the shares) and, if the value of the collateral exceeds the amount of the secured debt, the secured creditors may be required to pay the obligor an amount, the ‘‘soulte,’’ equal to the difference between the value of the shares as asserted by such expert and the amount of the secured debt. This is true regardless of the actual amount of proceeds ultimately received by the secured creditors from a subsequent sale of the collateral.
Investors in the Notes may have limited recourse against the U.K. independent auditors. See ‘‘Independent Auditors’’ for a description of the reports of Deloitte & Associes,´ independent auditors of Lyparis, the reports of Deloitte, S.L., independent auditors of eDreams Inc., and the reports of Deloitte LLP, independent auditors of Opodo Limited. In accordance with guidance issued by The Institute of Chartered Accountants in England and Wales, Deloitte LLP’s reports state that: they were made solely to the members of Opodo Limited, as a body in accordance with Chapter 3 of Part 16 of the U.K. Companies Act 2006; the independent auditors’ work was undertaken so that the independent auditors might state to the members of Opodo Limited those matters that were required to be stated to them in an auditors’ report and for no other purpose; and, to the fullest extent permitted by law, the independent auditors do not accept or assume responsibility to anyone other than Opodo Limited and its members as a body for their audit work or the opinions they have formed. The independent auditors’ reports for Lyparis as of and for the years ended March 31, 2008, 2009 and 2010 and the independent auditors’ reports for eDreams as of and for the years ended December 31, 2008, 2009 and 2010 were unqualified. Deloitte LLP were the independent auditors of Opodo Limited for these accounting periods. Investors in the Notes should understand that in making these statements, Deloitte LLP confirmed that they do not accept or assume any liability to parties (such as the purchasers of the Notes) other than to Opodo Limited and its members as a body with respect to their reports and to
54 their audit work and opinions. The SEC would not permit such limiting language to be included in a registration statement or a prospectus used in connection with an offering of securities registered under the U.S. Securities Act or in a report filed under the U.S. Exchange Act. If a U.S. court (or any other court) were to give effect to such limiting language, the recourse that investors in the Notes may have against Deloitte LLP based on their reports or the consolidated financial statements to which they relate could be limited.
Risks Related to Our Structure The Issuer is a holding company that has no revenue generating operations of its own and will depend on cash flow from the operating subsidiaries of the Group to be able to make payments on the Notes. The Issuer is a holding company with no independent business operations. It has limited assets and a limited ability to generate revenues. Upon completion of the Transactions, the only significant assets of the Issuer will be the Lyparis Structural Back to Back Loan made by it to Lyparis and its shares of LuxGEO. The Issuer’s material liabilities will include the Notes and any additional debt it may incur in the future. As such, the Issuer will be dependent on the cash flow from the operating subsidiaries of the Group in the form of dividends or other distributions or payments (including payments from Lyparis on the Lyparis Structural Back to Back Loan) to meet its obligations, including its obligations under the Notes. The Group intends to provide funds to the Issuer in order for the Issuer to meet its obligations under the Notes through a combination of dividends and interest payments on intercompany loans (including the Lyparis Structural Back to Back Loan). The obligations of the Group under the intercompany loans will be junior obligations and will be subordinated in right of payment to all existing and future senior and senior subordinated indebtedness of the Issuer, including obligations under, or guarantees of obligations under, the Senior Credit Facilities and the Notes. If the Group’s subsidiaries do not fulfill their obligations under the intercompany loans and do not distribute cash to the Issuer to make scheduled payments on the Notes, the Issuer will not have any other source of funds that would allow them to make payments to the holders of the relevant Notes. The amount of dividends and distributions available to the Issuer and the ability to fund payments on the Lyparis Structural Back to Back Loan will depend on the profitability and cash flows of its subsidiaries and the ability of those subsidiaries to issue dividends under applicable law. The subsidiaries of the Issuer, however, may not be able to, or may not be permitted under applicable law to, make distributions or advance upstream loans to the Issuer to make payments in respect of its indebtedness, including the Notes. For example, under Luxembourg law, all dividends may only be distributed out of distributable reserves, and any interim dividend distribution by a public limited liability company shall be subject to strict conditions. Various agreements governing the Group’s debt may restrict, and in some cases, may actually prevent the ability of the subsidiaries to move cash within their restricted group. In addition, the subsidiaries of the Issuer that do not guarantee the Notes have no obligation to make payments with respect to the Notes.
The Notes will be structurally subordinated to the liabilities of non-Guarantor subsidiaries. Some, but not all, of our subsidiaries will guarantee the Notes. See ‘‘—The Issuer is a holding company that has no revenue generating operations of its own and will depend on cash flow from the operating subsidiaries of the Group to be able to make payments on the Notes’’ above. As of December 31, 2010, on a pro forma basis after giving effect to the Transactions as described under ‘‘Use of Proceeds,’’ our non-Guarantor subsidiaries (as of the Completion Date) would have had approximately e340 million of indebtedness under the Senior Credit Facilities outstanding and up to e90 million would have been available to our non-Guarantor subsidiaries for borrowing under the committed and undrawn revolving portion of the Senior Credit Facilities. In addition, our non-Guarantor subsidiaries would have had significant trade payables and other liabilities outstanding. Unless a subsidiary is a Guarantor, our subsidiaries will not have any obligations to pay amounts due under the Notes or to make funds available for that purpose. Generally, holders of indebtedness of, and trade creditors of, non-Guarantor subsidiaries, including lenders under bank financing agreements, are entitled to payments of their claims from the assets of such subsidiaries before these assets are made available for distribution to the Issuer or any Guarantor, as a direct or indirect shareholder.
55 Accordingly, in the event that any non-Guarantor subsidiary becomes insolvent, is liquidated, reorganized or dissolved or is otherwise wound up other than as part of a solvent transaction: • the creditors of the Issuer (including the holders of the Notes) and the Guarantors will have no right to proceed against the assets of such subsidiary; and • creditors of such non-guarantor subsidiary, including trade creditors, will generally be entitled to payment in full from the sale or other disposal of the assets of such subsidiary before the Issuer or any Guarantor, as a direct or indirect shareholder, will be entitled to receive any distributions from such subsidiary. As such, the Notes and each Guarantee will be structurally subordinated to the creditors (including trade creditors) and any preferred stockholders of our non-guarantor subsidiaries.
There are circumstances other than repayment or discharge of the Notes under which the collateral securing the Notes and the Guarantees will be released automatically and under which the Guarantees will be released automatically, without your consent or the consent of the Trustee. Under various circumstances, collateral securing the Notes and the Guarantees will be released automatically, including: • in connection with any sale or other disposition of the property or assets constituting collateral, if the sale or other disposition does not violate the ‘‘Asset Sale’’ provisions of the Indenture; • in the case of a Guarantor that is released from its Guarantee pursuant to the terms of the Indenture, the release of the property and assets, and share capital, of such Guarantor; • if the Issuer designates any restricted subsidiary to be an unrestricted subsidiary in accordance with the applicable provisions of the Indenture, the release of the property and assets of such subsidiary; • in accordance with the ‘‘Amendment, Supplement and Waiver’’ provisions of the Indenture; • upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided under the captions ‘‘Description of the Notes—Legal Defeasance and Covenant Defeasance’’ and ‘‘Description of the Notes—Satisfaction and Discharge’’; • in connection with an enforcement sale pursuant to the Intercreditor Agreement; • in the case of a sale of the capital stock of the Issuer or LuxGEO GP S.a` r.l., in connection with a public equity offering; or • in the case of (i) a sale of the capital stock of the Issuer in LuxGEO GP S.a` r.l. other than in connection with a public equity offering or (ii) a consolidation or merger of the Issuer with or into another Person that complies with the Indenture as provided under the caption ‘‘Description of the Notes—Merger, Consolidation or Sale of Assets,’’ in each case that complies with the ‘‘Change of Control’’ provisions of the Indenture, if applicable, so long as the liens over such capital stock securing the Notes and the Guarantees are immediately retaken to secure the Notes and the Guarantees upon consummation of such sale, consolidation or merger. In addition, under various circumstances, the Guarantees of each Guarantor will be released automatically, including: • in connection with any sale, disposition, exchange or other transfer of all or substantially all of the assets of that Guarantor (including by way of merger, consolidation, amalgamation or combination) or the share capital of that Guarantor to a person that is not (either before or after giving effect to such transaction) the Issuer or a restricted subsidiary of the Issuer, if the sale, disposition, exchange or other transfer is otherwise permitted by the Indenture; • if the Issuer designates any restricted subsidiary that is a Guarantor to be an unrestricted subsidiary in accordance with the applicable provisions of the Indenture;
56 • upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided under the captions ‘‘Description of the Notes—Legal Defeasance and Covenant Defeasance’’ and ‘‘Description of the Notes—Satisfaction and Discharge’’; or • in accordance with the ‘‘Amendment, Supplement and Waiver’’ provisions of the Indenture. The Guarantees will be subject to release upon enforcement sale as contemplated under the Intercreditor Agreement. Unless consented to, the Intercreditor Agreement provides that the Security Agent shall not, in an enforcement scenario, exercise its rights to release the Guarantees or security interests in the collateral shared with the Senior Credit Facilities unless the relevant sale or disposal is made: • for consideration substantially all of which is in the form of cash; • to the extent there is a release of Guarantees or security granted for the benefit of the holders of Notes, concurrently with the discharge or release of the indebtedness of the disposed entities to certain other creditors, including the creditors under the Senior Credit Facilities; and • pursuant to a public auction, or a fairness opinion has been obtained from an internationally recognized investment bank or an internationally recognized accounting firm selected by the Security Agent. See ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’
Your rights in the collateral may be adversely affected by the failure to perfect security interests in the collateral. Under applicable law, a security interest in certain tangible and intangible assets can only be properly perfected, and its priority retained, through certain actions undertaken by the secured party and/or the grantor of the security. The liens on the collateral securing the Notes may not be perfected with respect to the claims of the Notes if we, or the Security Agent, fail or are unable to take the actions required to perfect any of these liens. In addition, applicable law requires that certain property and rights acquired after the grant of a general security interest, such as real property, equipment subject to a certificate and certain proceeds, can only be perfected at or promptly following the time such property and rights are acquired and identified.
In certain circumstances, the collateral securing the Notes and the Guarantees may not represent all of the limited shares of the Issuer. Although the Indenture will require LuxGEO Parent to pledge the shares of the Issuer that it holds as collateral to secure the Notes and the Guarantees and will require certain additional share issuances by the Issuer to be subject to Liens securing the Notes and the Guarantees, additional shares issuances in the case of a public equity offering by the Issuer will not be required to be subject to such liens and if holders of shares of the Issuer that are subject to such liens sell their shares in connection with the public equity offering, such liens will be released. As a result, in the event of a public equity offering by the Issuer, all or a majority of the shares of the Issuer could cease to constitute collateral.
Each Guarantee will be subject to certain limitations on enforcement and may be limited by applicable law or subject to certain defenses that may limit its validity and enforceability. Each Guarantee provides the holders of the Notes with a direct claim against the relevant Guarantor. However, the Indenture will provide that each Guarantee will be limited to the maximum amount that can be guaranteed by the relevant Guarantor without rendering the relevant Guarantee voidable or otherwise ineffective under applicable law, and enforcement of each Guarantee would be subject to certain generally available defenses. See ‘‘Limitations on Validity and Enforceability of the Guarantees and Security Interests.’’ Enforcement of any of the Guarantees against any Guarantor will be subject to certain defenses available to Guarantors in the relevant jurisdiction. Although laws differ among these jurisdictions, these laws and defences generally include those that relate to corporate purpose or benefit, fraudulent conveyance or transfer, voidable preference, insolvency or bankruptcy challenges, financial assistance, preservation of share capital, thin capitalization, capital
57 maintenance or similar laws, regulations or defences affecting the rights of creditors generally. If one or more of these laws and defences are applicable, a Guarantor may have no liability or decreased liability under its Guarantee depending on the amounts of its other obligations and applicable law. Limitations on the enforceability of judgments obtained in New York courts in such jurisdictions could limit the enforceability of any Guarantee against any Guarantor. Although laws differ among various jurisdictions, in general, under bankruptcy or insolvency law and other laws, a court could (i) avoid or invalidate all or a portion of a Guarantor’s obligations under its Guarantee, (ii) direct that the holders of the Notes return any amounts paid under a Guarantee to the relevant Guarantor or to a fund for the benefit of the Guarantor’s creditors or (iii) take other action that is detrimental to you, typically if the court found that: • the relevant Guarantee was incurred with actual intent to give preference to one creditor over another, hinder, delay or defraud creditors or shareholders of the Guarantor or, in certain jurisdictions, when the granting of the Guarantee has the effect of giving a creditor a preference or Guarantee; • the Guarantor did not receive fair consideration or reasonably equivalent value or corporate benefit for the relevant Guarantee and the Guarantor was: (i) insolvent or rendered insolvent because of the relevant Guarantee; (ii) undercapitalized or became undercapitalized because of the relevant Guarantee; or (iii) intended to incur, or believed that it would incur, indebtedness beyond its ability to pay at maturity; • the relevant Guarantee was held to exceed the corporate objects of the Guarantor or not to be in the best interests or for the corporate benefit of the Guarantor; or • the amount paid or payable under the relevant Guarantee was in excess of the maximum amount permitted under applicable law. These or similar laws may also apply to any future guarantee granted by any of our subsidiaries pursuant to the Indenture. We cannot assure you which standard a court would apply in determining whether a Guarantor was ‘‘insolvent’’ at the relevant time or that, regardless of method of valuation, a court would not determine that a Guarantor was insolvent on that date, or a that a court would not determine, regardless of whether or not a Guarantor was insolvent on the date its Guarantee was issued, that payments to holders of the Notes constituted preferences, fraudulent transfers or conveyances on other grounds. The liability of each Guarantor under its Guarantee will be limited to the amount that will result in such Guarantee not constituting a preference, fraudulent conveyance or improper corporate distribution or otherwise being set aside. However, there can be no assurance as to what standard a court will apply in making a determination of the maximum liability of each Guarantor. There is a possibility that the entire Guarantee may be set aside, in which case the entire liability may be extinguished. If a court decided that a Guarantee was a preference, fraudulent transfer or conveyance and voided such Guarantee, or held it unenforceable for any other reason, you may cease to have any claim in respect of the relevant Guarantor and would be a creditor solely of the Issuer and, if applicable, of any other Guarantor under the relevant Guarantee which has not been declared void. In the event that any Guarantee is invalid or unenforceable, in whole or in part, or to the extent the agreed limitation of the Guarantee obligations apply, the Notes would be effectively subordinated to all liabilities of the applicable Guarantor, and if we cannot satisfy our obligations under the Notes or any Guarantee is found to be a preference, fraudulent transfer or conveyance or is otherwise set aside, we cannot assure you that we can ever repay in full any amounts outstanding under the Notes.
English, Swedish and Luxembourg insolvency laws and the insolvency laws of other jurisdictions may not be as favorable to you as the U.S. bankruptcy laws and may preclude holders of the Notes from recovering payments due on the Notes. The Issuer and certain of its subsidiaries, including LuxGEO, are incorporated under the laws of Luxembourg. Accordingly, insolvency proceedings with respect to any of those entities would be likely to proceed under, and be governed by, Luxembourg insolvency law. The other Guarantors, as
58 of the Completion Date, are incorporated in England, Sweden and the United States. The insolvency laws of England, Luxembourg or Sweden may not be as favorable to investors as the laws of the United States or other jurisdictions with which investors are familiar. In the event that any one or more of the Issuer, the Guarantors, any future Guarantors, if any, or any other of our subsidiaries experienced financial difficulty, it is not possible to predict with certainty in which jurisdiction or jurisdictions insolvency or similar proceedings would be commenced, or the outcome of such proceedings. Guarantees and collateral provided by entities organized in jurisdictions not discussed in this Offering Circular are also subject to material limitations pursuant to their terms, by statute or otherwise. Any enforcement of the Guarantees or collateral after bankruptcy or an insolvency event in such other jurisdictions will be subject to the insolvency laws of the relevant entity’s jurisdiction of organization or other jurisdictions. The insolvency and other laws of each of these jurisdictions may be materially different from, or in conflict with, each other, including in the areas of rights of secured and other creditors, the ability to void preferential transfer, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceeding. The application of these laws, or any conflict among them, could call into question whether any particular jurisdiction’s laws should apply, adversely affect your ability to enforce your rights under the Guarantees or the collateral in these jurisdictions and limit any amounts that you may receive. See ‘‘Limitations on Validity and Enforceability of the Guarantees and Security Interests.’’
The granting of guarantees or security interests by a Luxembourg company is subject to specific limitations and requirements relating to corporate object and corporate benefit. The granting of guarantees/security interests by a company incorporated and existing in Luxembourg must not be prohibited by the corporate object (objet social) and/or legal form of that company. In addition, there is also a requirement according to which the granting of security by a company has to be for its corporate benefit. Although no statutory definition of corporate benefit (inter´ etˆ social) exists under Luxembourg law, corporate benefit is widely interpreted and includes any transactions from which the company derives a direct or indirect economic or commercial benefit. The provision of guarantee/security for the obligations of direct or indirect subsidiaries is likely to raise no particular concerns, whereas the provision of cross-stream and upstream guarantees security interests may be more problematic. Failure to comply with the corporate benefit requirement will typically result in liability for the managers of the company concerned, but not in the annulment of the guarantee improperly granted. There is a limited risk that the managers of the Luxembourg company be held liable if, inter alia: • the guarantee/security interest so provided would materially exceed the (direct or indirect) benefit deriving from the secured obligations for the Luxembourg company, or • the Luxembourg company derives no personal benefit or obtains no direct or indirect consideration for the guarantee/security interest granted, or • the commitment of the Luxembourg company exceeds its financial means. In addition to any criminal and civil liability incurred by the managers of the Luxembourg company, the guarantee/security interests could itself be held unenforceable, if it is held that it is contrary to public policy (ordre public) (f.i. in case of facts consisting a misuse of corporate assets). The above analysis is slightly different within a group of companies where a group interest (inter´ etˆ du groupe) exists. The existence of a group interest could prevent the guarantee/security interests from falling foul of the above constraints In order for a group interest to be recognized, the following cumulative criteria must be met and proven: • the ‘‘assisting’’ company must receive some benefit, or there must be a balance between the respective commitments of all the affiliates; • the financial assistance must not exceed the assisting company’s financial means, in which case it is typical for the guarantee to be limited to an aggregate amount not exceeding 80% to 95% of the assisting company’s own funds (capitaux propres); and
59 • the companies involved must form part of a genuine group operating under a common strategy aimed at a common objective. As a result, the guarantees or security interests granted by a Luxembourg company may be subject to certain limitations, which usually take the form of a general limitation language, which is inserted in the relevant finance document(s) and which covers the aggregate obligations and exposure of the relevant Luxembourg assisting company under all finance documents.
We may not have the ability to raise the funds necessary to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a change of control. The Indenture will contain provisions relating to certain events constituting a ‘‘change of control’’ of the Issuer. Upon the occurrence of a ‘‘change of control,’’ the Issuer would be required to offer to repurchase all outstanding Notes at a purchase price equal to 101% of the principal amount thereof on the date of purchase plus accrued and unpaid interest and additional amounts, if any, to the date of purchase. If a change of control were to occur, we cannot assure you that we would have sufficient funds available at such time, or that we would have sufficient funds to provide to the Issuer to pay the purchase price of the outstanding Notes or that the restrictions in our Senior Credit Facilities, the Indenture, the Intercreditor Agreement or our other then existing contractual obligations would allow us to make such required repurchases. A change of control may result in an event of default under, or acceleration of, our Senior Credit Facilities and other indebtedness. The repurchase of the Notes pursuant to such an offer could cause a default under such indebtedness, even if the change of control itself does not. The ability of the Issuer to receive cash from its subsidiaries to allow them to pay cash to the holders of the Notes following the occurrence of a change of control, may be limited by our then existing financial resources. In addition, under the terms of the Senior Credit Facilities, under certain circumstances, we are required to repay an equal amount of debt under our Senior Credit Facilities if we repay all or a portion of the principal under the Notes. Sufficient funds may not be available when necessary to make any required repurchases. If an event constituting a change of control occurs at a time when the Group is prohibited from providing funds to the Issuer for the purpose of repurchasing the Notes, we may seek the consent of the lenders under such indebtedness to the purchase of the Notes or may attempt to refinance the borrowings that contain such prohibition. If such a consent to repay such borrowings is not obtained, the Issuer will remain prohibited from repurchasing any Notes. In addition, we expect that we would require third-party financing to make an offer to repurchase the Notes upon a change of control. We cannot assure you that the Group would be able to obtain such financing. Any failure by the Issuer to offer to purchase the Notes would constitute a default under the Indenture, which would, in turn, constitute a default under the Senior Credit Facilities and certain other indebtedness. See ‘‘Description of the Notes—Repurchase at the Option of Holders—Change of Control.’’ The change of control provision contained in the Indenture may not necessarily afford you protection in the event of certain important corporate events, including a reorganization, restructuring, merger or other similar transaction involving us that may adversely affect you, because such corporate events may not involve a shift in voting power or beneficial ownership or, even if they do, may not constitute a ‘‘Change of Control’’ as defined in the Indenture. Except as described under ‘‘Description of the Notes—Repurchase at the Option of Holders—Change of Control,’’ the Indenture will not contain provisions that would require the Issuer to offer to repurchase or redeem the Notes in the event of a reorganization, restructuring, merger, recapitalization or similar transaction. The definition of ‘‘Change of Control’’ in the Indenture will include a disposition of all or substantially all of the assets of the Issuer and its restricted subsidiaries, taken as a whole, to any person other than certain permitted holders. Although there is a limited body of case law interpreting the phrase ‘‘all or substantially all,’’ there is no precise established definition of the phrase under applicable law. Accordingly, in certain circumstances, there may be a degree of uncertainty as to whether a particular transaction would involve a disposition of ‘‘all or substantially all’’ of the Issuer’s assets and its restricted subsidiaries taken as a whole. As a result, it may be unclear as to whether a change of control has occurred and whether the Issuer is required to make an offer to repurchase the Notes.
60 There may not be an active trading market for the Notes, in which case your ability to sell the Notes may be limited. We cannot assure you as to: • the liquidity of any market in the Notes; • your ability to sell your Notes; or • the prices at which you would be able to sell your Notes. Future trading prices for the Notes will depend on many factors, including, among other things, prevailing interest rates, our operating results and the market for similar securities. Although the Initial Purchasers have informed us that they intend to make a market in the Notes, they are not obligated to do so and they may discontinue market-making at any time without notice. Historically, the market for non-investment grade securities has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the Notes. The liquidity of a trading market for the Notes may be adversely affected by a general decline in the market for similar securities and is subject to disruptions that may cause volatility in prices. The trading market for the Notes may attract different investors and this may affect the extent to which the Notes may trade. It is possible that the market for the Notes will be subject to disruptions. Any such disruption may have a negative effect on you, as a holder of the Notes, regardless of our prospects and financial performance. As a result, there is no assurance that there will be an active trading market for the Notes. If no active trading market develops, you may not be able to resell your holding of the Notes at a fair value, if at all. Although an application has been made for the Notes to be listed on the Official List of the Irish Stock Exchange and to be admitted to trading on the Global Exchange Market, we cannot assure you that the Notes will become or remain listed. Although no assurance is made as to the liquidity of the Notes as a result of the admission to trading on the Global Exchange Market, failure to be approved for listing or the delisting (whether or not for an alternative admission to listing on another stock exchange) of the Notes from the Official List of the Irish Stock Exchange may have a material effect on a holder’s ability to resell the Notes in the secondary market. In addition, the Indenture will allow us to issue additional notes in the future which could adversely impact the liquidity of the Notes.
Investors may face foreign exchange risks by investing in the Notes. The Notes will be denominated and payable in euros. If investors measure their investment returns by reference to a currency other than euros, an investment in the Notes will entail foreign exchange-related risks due to, among other factors, possible significant changes in the value of the euro relative to the currency by reference to which investors measure the return on their investments because of economic, political and other factors over which we have no control. Depreciation of the euro against the currency by reference to which investors measure the return on their investments could cause a decrease in the effective yield of the Notes below its stated coupon rate and could result in a loss to investors when the return on the Notes is translated into the currency by reference to which the investors measure the return on their investments. Investments in the Notes denominated in a currency other than U.S. dollars by U.S. investors may also have important tax consequences as a result of foreign exchange gains or losses, if any. See ‘‘Tax Considerations.’’
You may not be able to recover in civil proceedings for U.S. securities law violations. We and most of the Guarantors and their respective subsidiaries are organized outside the United States. Most of the directors and executive officers of the Issuer and the Guarantors are non-residents of the United States. Although we and the Guarantors will submit to the jurisdiction of certain New York courts in connection with any action under U.S. securities laws, you may be unable to effect service of process within the United States on these directors and executive officers. In addition, as most of our assets and those of our directors and executive officers are located outside of the United States, you may be unable to enforce judgments obtained in the U.S. courts against them. Moreover, in light of recent decisions of the U.S. Supreme Court, actions of the
61 Issuer and the Guarantors may not be subject to the civil liability provisions of the federal securities laws of the United States. The United States is not currently bound by a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitral awards, rendered in civil and commercial matters with Luxembourg, Sweden and the United Kingdom. There is, therefore, doubt as to the enforceability in Luxembourg, Sweden or the United Kingdom of civil liabilities based upon U.S. securities laws in an action to enforce a U.S. judgment in Luxembourg, Sweden or the United Kingdom. In addition, the enforcement in Luxembourg, Sweden or the United Kingdom of any judgment obtained in a U.S. court based on civil liabilities, whether or not predicated solely upon U.S. federal securities laws, will be subject to certain conditions. For further information see ‘‘Enforcement of Civil Liabilities.’’
Credit ratings may not reflect all risks, are not recommendations to buy or hold securities and may be subject to revision, suspension or withdrawal at any time. One or more independent credit rating agencies may assign credit ratings to the Notes. The ratings may not reflect the potential impact of all risks related to the structure, market, additional risk factors discussed herein and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal by the rating agency at any time. No assurance can be given that a credit rating will remain constant for any given period of time or that a credit rating will not be lowered or withdrawn entirely by the credit rating agency if, in its judgment, circumstances in the future so warrant. A suspension, reduction or withdrawal at any time of the credit rating assigned to the Notes by one or more of the credit rating agencies may adversely affect the cost and terms and conditions of our financings and could adversely affect the value and trading of the Notes.
The Notes may be issued with original issue discount for U.S. federal income tax purposes. If the stated principal amount of the Notes exceeds their issue price by more than a statutorily defined de minimis amount, the Notes will be treated as issued with original issue discount for U.S. federal income tax purposes. In such case, a U.S. holder (as defined in ‘‘Tax Considerations— Certain United States Federal Income Tax Considerations’’), whether on the cash or accrual method of tax accounting, would be required to include amounts representing original issue discount in gross income (as ordinary income) on a constant yield to maturity basis for U.S. federal income tax purposes in advance of the receipt of cash payments to which such income is attributable. See ‘‘Tax Considerations—Certain United States Federal Income Tax Considerations.’’
The transfer of the Notes is restricted, which may adversely affect their liquidity and the price at which they may be sold. The Notes and the Guarantees have not been registered under, and we are not obliged to register the Notes or the Guarantees under, the U.S. Securities Act or the securities laws of any other jurisdiction and, unless so registered, may not be offered or sold except pursuant to an exemption from, or a transaction not subject to, the registration requirements of the U.S. Securities Act and any other applicable laws. See ‘‘Notice to Investors.’’ We have not agreed to or otherwise undertaken to register either the Notes or the Guarantees under the securities laws of any jurisdiction, and do not have any intention to do so.
The Notes will initially be held in book-entry form, and therefore you must rely on the procedures of the relevant clearing systems to exercise any rights and remedies. Unless and until Notes in definitive registered form, or definitive registered notes are issued in exchange for book-entry interests (which may occur only in very limited circumstances), owners of book-entry interests will not be considered owners or holders of Notes. The common depository (or its nominee) for Euroclear and Clearstream will be the sole registered holder of the global notes. See ‘‘Book-Entry; Delivery and Form.’’ Payments of principal, interest and other amounts owing on or in respect of the global notes representing the Notes will be made to Deutsche Bank AG, London Branch, as principal paying agent, which will make payments to Euroclear and Clearstream. Thereafter, these payments will be credited to participants’ accounts that hold book-entry interests in the global notes representing the Notes and credited by such participants to indirect participants. After payment to the common depositary for Euroclear and Clearstream, we will have no
62 responsibility or liability for the payment of interest, principal or other amounts to the owners of book-entry interests. Accordingly, if you own a book-entry interest in the Notes, you must rely on the procedures of Euroclear and Clearstream and if you are not a participant in Euroclear and/or Clearstream, on the procedures of the participant through which you own your interest, to exercise any rights and obligations of a holder of the Notes under the Indenture. Unlike the holders of the Notes themselves, owners of book-entry interests will not have any direct rights to act upon any solicitations for consents, requests for waivers or other actions from holders of the Notes. Instead, if you own a book-entry interest, you will be permitted to act only to the extent you have received appropriate proxies to do so from Euroclear and Clearstream or, if applicable, from a participant. There can be no assurance that procedures implemented for the granting of such proxies will be sufficient to enable you to vote on any matters or on a timely basis. Similarly, upon the occurrence of an event of default under the Indenture, unless and until the definitive registered Notes are issued in respect of all book-entry interests, if you own a book-entry interest, you will be restricted to acting through Euroclear and Clearstream. We cannot assure you that the procedures to be implemented through Euroclear and Clearstream will be adequate to ensure the timely exercise of rights under the Notes.
63 THE TRANSACTIONS Our direct subsidiary, LuxGEO, is in the process of acquiring Opodo Limited (the ‘‘Acquisition’’) in the context of the combination of the Go Voyages Group (which includes, for purposes of this section, Lyeurope), the eDreams Group (which includes, for the purposes of this section USgoal) and the Opodo Group, as well as the refinancing of the Existing Go Voyages and eDreams Indebtedness (together with the Acquisition, the ‘‘Transactions’’) and we are offering these Notes as part of the overall financing arrangements for the Acquisition and the refinancing of the Existing Go Voyages and eDreams Indebtedness. We, our Luxembourg holding company, LuxGEO Parent S.a` r.l., and our Luxembourg direct subsidiary LuxGEO, have been organized, and are indirectly and jointly controlled, by AXA Private Equity and the Permira Funds.
Acquisition of the Opodo Group On February 9, 2011, LuxGEO, a direct wholly-owned subsidiary of the Issuer, entered into a sale and purchase agreement with Amadeus to acquire, directly or indirectly, all of the issued and outstanding capital stock of Opodo Limited in the context of the contemplated Transactions. The cash consideration to be paid by LuxGEO to Amadeus for the Acquisition is expected to be approximately of e421.5 million. In connection with the Acquisition, Amadeus has agreed to pay LuxGEO a e52 million signing bonus under a new GDS Agreement, which will replace pre-existing agreements between the three groups and Amadeus and which will become effective as of, and subject to, the completion of the Transactions. The amount of the e52 million signing bonus will be netted against the approximately e29.5 million owed to Amadeus in respect of the outstanding liabilities of the Opodo Group, the eDreams Group and the Go Voyages Group regarding the cancellation of their existing GDS agreements with Amadeus, resulting in a net bonus payment of e22.5 million. In addition, LuxGEO will assume certain intercompany financial debt owed by Amadeus to the Opodo Group. In connection with the Transactions, LuxGEO will also pay transaction costs and related expenses. See ‘‘Use of Proceeds.’’ Because LuxGEO will purchase Opodo Limited on a cash free basis, a daylight facility will be drawn by LuxGEO for an amount equal to the existing cash in Opodo upon the Completion Date and such amount will be paid to Amadeus. At Completion Date, such cash will be extracted from Opodo and used for the repayment of the daylight facility. The consummation of the Acquisition is subject only to antitrust approval from the European Commission. If the Acquisition does not close by September 30, 2011, the Acquisition Agreement will terminate unless it is extended until December 31, 2011. In the event the Acquisition Agreement is terminated, the Notes will be redeemed pursuant to a special mandatory redemption. See ‘‘Risk Factors—Risks Related to the Transactions—The Acquisition is subject to significant uncertainties and risks’’ and ‘‘Description of the Notes—Escrow of Proceeds; Special Mandatory Redemption.’’
Financing LuxGEO will finance the Transactions (including the refinancing of the Go Voyages and eDreams Indebtedness) with (i) equity contribution from us and (ii) borrowings under the Senior Credit Facilities Agreement. It is intended that LuxGEO Parent will be funded by Luxgoal and Axeurope with equity for an amount of e175.4 million. The Issuer will be funded with equity from LuxGEO Parent and the proceeds from the Offering for a total amount of e350.4 million.
Reorganizations The combination of the Go Voyages Group (including, for the purposes of this section, Lyeurope), the eDreams Group and the Opodo Group requires corporate reorganizations within each of the constituent groups which will be completed prior to or on Completion Date. The following summary describes the main steps of the Transactions resulting in the combination of the
64 Go Voyages Group, the eDreams Group and the Opodo Group, as shown in the summary chart hereunder.
Axeurope S.A.(1)(2) LuxGEO Parent Luxgoal S.à r.l.(1)(3) S.à r.l.(1)
Convertible Convertible Subordinated Subordinated Shareholder Shareholder (4) Geo Travel Finance (4) Bonds S.C.A. Bonds (the “Issuer”) Notes offered LuxGEO GP (5) S.à r.l.(1) hereby
LuxGEO S.à r.l.(5)
Lyparis Lyeurope Structural Back Convertible to Back Loan(4) Intercompany Subordinated Opodo Limited(5) Bonds
Lyeurope(6) Opodo SLOpodo GmbH Opodo SAS
€241 million Lyparis(6) Senior Credit Facilities(7)
Travellink AB(5) Opodo Srl Go Voyages eDreams Inc.(5)(8)
€ Go Voyages eDreams Ltd Vacaciones eDreams 99 million Trade SL Senior Credit Facilities(7) Luxembourg security providers
Guarantors Other eDreams eDreams International eDreams Srl Editoriale On Indirect security providers Subs Network SL Line24MAY201111301241 Srl
(1) LuxGEO Parent and LuxGEO GP S.a` r.l. (the holder of the Issuer’s unlimited share) are owned by Axeurope and Luxgoal. On the Completion Date, Lyeurope will be partially contributed (in a share-for-share deal) by Axeurope to LuxGEO Parent and partially sold, resulting in LuxGEO Parent being the sole shareholder of Lyeurope. As of the Completion Date, the Notes and the Guarantees will be secured by security interests granted on a first-priority basis over (i) the capital stock in the Issuer held by the Parent, (ii) the bank accounts of the Parent located in Luxembourg and (iii) intercompany loans and other receivables of the Parent. No later than 30 days after the Completion Date, the Notes and the Guarantees will be secured by security interests granted on a first-priority basis over (i) the capital stock in the Issuer held by Axeurope and Luxgoal and (ii) all of the issued capital stock in LuxGEO GP S.a` r.l. (2) Axeurope is an investment vehicle controlled by AXA Private Equity. (3) Luxgoal is an investment vehicle controlled by the Permira Funds. (4) On the Completion Date, the convertible bonds originally issued by Lyeurope to AXA Private Equity and certain financial co-investors in connection with their acquisition of Lyeurope in 2010 (the ‘‘Lyeurope Convertible Intercompany Subordinated Bonds’’) will be partly transferred by Axeurope to Luxgoal and will ultimately be contributed to the Issuer by Axeurope and Luxgoal in exchange for new Convertible Subordinated Shareholder Bonds and preferred shares. The outstanding amount of the Lyeurope Convertible Intercompany Subordinated Bonds, including accrued interest as of March 31, 2011 is estimated at e115.1 million. The Convertible Subordinated Shareholder Bonds will be issued on the Completion Date at a principal amount equal to the principal amount of the Lyeurope Convertible Intercompany Subordinated Bonds and accrued interest thereon as of the Completion Date. (5) On the Completion Date, the proceeds of the Offering will be released from escrow in order to fund a portion of the purchase price of the Acquisition. The Notes will be guaranteed on a senior subordinated basis by LuxGEO, eDreams Inc., Opodo and Travellink AB. As of the Completion Date, the Notes and the Guarantees will be secured by security interests granted (a) on a first-priority basis over (i) the capital stock in the Issuer held by the Parent, (ii) the bank accounts of the Parent located in Luxembourg and (iii) any intercompany loans and other receivables of the Parent, and (b) on a second-priority basis over (i) all of the issued capital stock in LuxGEO and Opodo, (ii) the bank accounts of the Issuer and LuxGEO located in Luxembourg, (iii) intercompany loans and other receivables of the Issuer and LuxGEO, (iv) any instruments issued by LuxGEO and held by the Issuer, (v) the receivables due under the
65 Lyparis Structural Back to Back Loan, and (vi) the financial securities accounts opened in the name of the Issuer and on which are credited all financial securities (titres financiers) issued by Lyeurope and held by the Issuer (nantissement de compte de titres financiers). No later than 30 days after the Completion Date, the Notes and the Guarantees will be secured by security interests granted (a) on a first-priority basis over (i) the capital stock in the Issuer held by Axeurope and Luxgoal and (ii) all of the issued Capital Stock in LuxGEO GP S.a` r.l., and (b) on a second-priority basis over (i) all of the issued capital stock in eDreams Inc. held by Luxgoal, (ii) the bank accounts of Travellink AB, (iii) substantially all of the assets of Opodo and all the assets (other than any shareholdings) of eDreams Inc., (iv) intercompany receivables and trade receivables of Travellink AB, (v) intellectual property rights and trademarks of Travellink AB, (vi) the financial securities accounts opened in the name of Opodo and on which are credited all financial securities (titres financiers) issued by Lyeurope and Opodo S.A.S. and held by Opodo (nantissement de compte de titres financiers), and all of the issued capital stock in Vacaciones eDreams SL. A Guarantee of the Notes by a Guarantor and the security interests over its assets will be released, and such Guarantor will be simultaneously released from all its other obligations and liabilities under the Indenture, the Notes and the relevant Guarantee, in the event that there is any sale or other disposal pursuant to any enforcement action with respect to our Senior Credit Facilities of all of the issued share capital or all of the assets of such Guarantor or any direct or indirect holding company of such Guarantor. See ‘‘Description of the Notes—The Note Guarantees,’’ ‘‘Description of the Notes—Security’’ and ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’ However, several of the Guarantors are intermediate holding companies without material independent operations, and a substantial portion of our consolidated Pro Forma Recurring EBITDA is generated by, and a substantial portion of our total assets is held by, non-Guarantor operating companies owned by the Guarantor intermediate holding companies. (6) The Lyparis Structural Back to Back Loan will be entered into in connection with the Transactions and will be guaranteed by Lyeurope. The Lyparis Back to Back Loan will comply with the provisions of the Intercreditor Agreement regarding structural back to back loans. See ‘‘Description of Other Indebtedness.’’ No later than 30 days after the Completion Date, the obligations of Lyparis under the Lyparis Structural Back to Back Loan and the obligations of Lyeurope under its guarantee of the Lyparis Structural Back to Back Loan (collectively, the ‘‘Lyparis Structural Back to Back Obligations’’) will be secured by security interests granted on a second priority basis over (i) all of the issued capital stock in eDreams Inc. held by it, and all of the issued capital stock of Travellink AB and Opodo Italia S.r.l., (ii) the financial securities accounts opened in the name of Lyparis and on which are credited all financial securities (titres financiers) issued by Go Voyages and held by Lyparis (nantissement de compte de titres financiers), (iii) the bank accounts of Lyparis located in France, (iv) intercompany receivables (providing for automatic release on capitalization of receivables) of Lyparis, (v) the financial securities accounts opened in the name of Lyeurope and on which are credited all financial securities (titres financiers) issued by Lyparis and held by Lyeurope (nantissement de compte de titres financiers), (vi) the bank accounts of Lyeurope located in France, and (vii) intercompany receivables (providing for automatic release on capitalization of receivables) of Lyeurope. (7) The e480 million Senior Credit Facilities include a e170 million term A loan facility, a e170 million term B loan facility and a revolving credit facility. The revolving credit facility is divided into two tranches: a e90 million tranche with a total available commitment of e90 million reducing to e80 million after one year and e70 million after the second year, which is available for loans, letters of credit and guarantees, and a e50 million letter of credit and guarantee facility. Upon consummation of the Transactions, all term loan facilities A1 and B1 under the Senior Credit Facilities Agreement shall be put at the disposal of Lyparis or novated to the latter in the context of a debt pushdown. All of the Collateral securing the Notes and the Lyparis Structural Back to Back Obligations on a second priority basis will secure the Senior Credit Facilities on a first priority basis. The Senior Credit Facilities also contemplate a e50 million additional acquisition facility, which is currently uncommitted. (8) On the Completion Date, eDreams Inc., the holding company of the eDreams Group, will be transferred by Luxgoal to LuxGEO Parent, except for an approximately 3% stake which would be transferred only 12 months after the date on which the acquisition of eDreams Inc. by Luxgoal took place (August 2011). LuxGEO Parent will then transfer its stake in eDreams Inc. to Lyparis in exchange for a receivable. Such receivable will be contributed by LuxGEO Parent to the Issuer in exchange for shares of the latter. On the Completion Date, LuxGEO Parent S.a` r.l. will contribute Lyeurope, the holding company of the Go Voyages Group, to the Issuer, which will in turn contribute Lyeurope to its direct subsidiary LuxGEO. Subsequently, LuxGEO will transfer Lyeurope to Opodo Limited. On the Completion Date, Opodo Limited will transfer Opodo Italy and TravellinkAB to Lyeurope. In turn, Opodo Italy and TravellinkAB will be transferred to Lyparis. On the Completion Date, eDreams Inc., the holding company of the eDreams Group, will be transferred by Luxgoal to LuxGEO Parent S.a` r.l., except for an approximately 3% stake which would be transferred only 12 months after the date on which the acquisition of eDreams Inc. by Luxgoal took place (August 2011). LuxGEO Parent S.a` r.l. will then transfer its stake in eDreams Inc. to Lyparis in exchange for a receivable. Such receivable will be contributed by LuxGEO Parent S.a` r.l. to the Issuer in exchange for shares of the latter. As a result of the contribution of the abovementioned receivable, Lyparis will become, on the Completion Date, a debtor of the Issuer, for an amount equal to the principal amount of the Notes. Such debt will result in the Lyparis Structural Back to Back Loan between the Issuer as lender and Lyparis as borrower for the purpose of servicing the debt resulting from the Notes. The Lyparis
66 Structural Back to Back Loan will be put in place at the Completion Date and will comply with the provisions of the Intercreditor Agreement regarding the structural back to back loans. See ‘‘Description of Other Indebtedness—Intercreditor Agreement—Subordination of Intra-Group Liabilities and Investor Creditor Liabilities—Terms of Lyparis Structural Back to Back Loan Agreements.’’
67 USE OF PROCEEDS We estimate that the net proceeds from the sale of the Notes offered hereby will be approximately e168.4 million (after deducting the Initial Purchasers’ commissions and certain estimated expenses to be incurred in connection with this Offering including legal, accounting and other professional fees incurred in connection therewith). The Initial Purchasers will deposit the gross proceeds from the sale of the Notes less a portion of the Initial Purchasers’ commission into the Escrow Account for the benefit of the holders of the Notes. Upon satisfaction of the conditions to the release of the proceeds of the Offering from escrow, we intend to use the net proceeds of the Offering, together with amounts borrowed under the Senior Credit Facilities Agreement and the Equity Contribution to (i) consummate the Transactions and (ii) pay costs, administrative expenses and fees (legal, accounting or otherwise) in connection with this Offering and any of the foregoing. See ‘‘Offering Summary—The Transactions.’’ The estimated sources and uses of the funds necessary to consummate the Acquisition and the refinancing of the Existing Go Voyages and eDreams Indebtedness are shown in the table below. Actual amounts will vary from estimated amounts depending on several factors, including amounts of accrued interest on existing debt as of the Completion Date, estimated closing of hedging agreements and fees and expenses.
Sources (in million g) Uses (in million g) Borrowings under the Senior Acquisition Consideration .... 421.5 Credit Facilities(1) Refinancing of Go Voyages Term Loan A ...... 170.0 Facilities(4) ...... 137.6 Term Loan B ...... 170.0 Refinancing of eDreams Senior Notes Offered Hereby . . 175.0 Facilities(5) ...... 91.3 Amadeus GDS Bonus(2) ...... 22.5 Transaction Fees(6) ...... 62.5 Equity Contribution(3) ...... 175.4 Total Sources ...... 712.9 Total Uses ...... 712.9
(1) The Senior Credit Facilities include two revolving credit facilities and an additional uncommitted acquisition facility. Revolving Facility 1 has a total available commitment of e90 million (to be reduced to e80 million on the first anniversary of the date of the Senior Credit Facilities Agreement and to e70 million on the second anniversary), which may be used by way of loans, guarantees and letters of credit and ancillary facilities. Revolving Facility 2 has a total available commitment of e50 million, however, this can only be used for guarantees and letters of credit. The revolving credit facilities are expected to be used on the Completion Date to refinance certain guarantees within the Geo Group. The additional acquisition facility of up to e50 million is currently uncommitted. (2) Represents the e52.0 million signing bonus to be received from Amadeus under a new GDS contract for the Geo Group entered into in connection with the Acquisition and the Transactions and which will take effect on Completion Date, net of the amounts due by the Geo Group companies to Amadeus in connection with the cancellation of the Opodo Group’s, eDreams Group’s and Go Voyages Group’s existing GDS contracts with Amadeus in the amounts of approximately e27.5 million, e0.4 million and e1.5 million, respectively. (3) Does not include the original equity investment from the Sponsors in Go Voyages or eDreams or the principal amount of Convertible Subordinated Shareholder Bonds issued by the Issuer. (4) Subject to adjustment; reflects the amount outstanding under the Go Voyages Facilities on March 31, 2011. (5) Subject to adjustment; reflects the amount outstanding under the eDreams Facilities on March 31, 2011. (6) Estimated fees and expenses associated with the Acquisition and other Transactions, including commitment, placement, financial advisory, profession and initial purchasers’ fees and other transaction costs.
68 CAPITALIZATION The following table sets forth the total consolidated capitalization and cash and cash equivalents for the Geo Group as of December 31, 2010 on a pro forma combined basis, and gives effect to the Transactions as if they had occurred on December 31, 2010. The financial information used hereunder has been derived from the Pro Forma Combined Financial Information included in ‘‘Unaudited Pro Forma Combined Financial Information.’’ This table should be read in conjunction with ‘‘Use of Proceeds,’’ ‘‘Unaudited Pro Forma Combined Financial Information,’’ ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations,’’ ‘‘Description of Other Indebtedness’’ and the financial statements included elsewhere in this Offering Circular.
Geo Group As of December 31, 2010 Pro Forma Combined (adjusted for the Offering) (in thousand g) Cash and Cash Equivalents(1) ...... 17,596
Total obligations under finance leases ...... 786
Senior Credit Facilities ...... 340,000 Senior Notes offered hereby ...... 175,000 Total Financial Debt ...... 515,000 Other(2) ...... 62,628 Non-current Borrowings ...... 577,628 Total Equity(3) ...... 391,357 Total Capitalization ...... 969,771
(1) Cash and cash equivalents at February 28, 2011 for the Go Voyages Group and the eDreams Group were e21.3 million and e21.0 million, respectively, representing a total amount of e42.3 million. (2) Represents the portion of the Convertible Subordinated Shareholder Bonds classified as debt under IFRS amounting to e79.1 million, partly offset by capitalised transaction costs. (3) Represents:
• Lyeurope pro forma equity of e87.5 million;
• USgoal pro forma equity of e191.0 million;
• equity contribution to purchase Opodo of e175.4 million;
• partly offset by transaction costs of (e62.5) million.
69 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The unaudited pro forma combined financial information has been prepared based on the notes hereto and the recognition and measurement principles of IFRS and has been derived from applying pro forma adjustments to the historical financial statements of Lyeurope (the parent company of the Go Voyages Group), USgoal (the parent company of the eDreams Group) and the Opodo Group included elsewhere in this Offering Circular. The unaudited pro forma combined financial information gives effect to the Transactions as if they occurred on December 31, 2010 for the unaudited pro forma combined balance sheet, and as if they occurred on January 1, 2010 for the unaudited pro forma combined income statement. The unaudited pro forma combined financial information has been prepared based upon the following: • the unaudited consolidated financial statements of Lyeurope as of and for the period from July 1, 2010 to December 31, 2010, which have been prepared in accordance with generally accepted accounting principles in France (‘‘French GAAP’’) and included elsewhere in this Offering Circular; • the audited consolidated financial statements of USgoal as of and for the period from August 3, 2010 to December 31, 2010, which have been prepared in accordance with generally accepted accounting principles in Spain (‘‘Spanish GAAP’’) and included elsewhere in this Offering Circular; and • the audited consolidated financial statements of Opodo Ltd. as of and for the year ended December 31, 2010, which have been prepared in accordance with IFRS and included elsewhere in this Offering Circular. The unaudited pro forma combined financial information presents the contribution of Lyeurope and USgoal to GEO Travel Finance S.C.A. at historical cost as it has been determined by management to be outside the scope of IFRS 3 Business Combinations (2008) (‘‘IFRS 3’’). As a result, acquisition accounting has not been applied to reflect this component of the Transactions. The unaudited pro forma combined financial information presents the Acquisition as being accounted for under IFRS using the acquisition method as defined by IFRS 3. Under the acquisition method, assets and liabilities are recorded at their fair values on the date of purchase and the total purchase price is allocated to the tangible and intangible assets acquired and liabilities assumed. As of the date of this Offering Circular, the valuation studies necessary to finalize the fair values of the assets acquired and liabilities and contingent liabilities assumed and the related allocation of the purchase price have not been completed. Accordingly, the unaudited pro forma combined financial information is based on an allocation of the total estimated purchase price, calculated as described under ‘‘—Notes to Unaudited Pro Forma Combined Financial Information,’’ to the assets acquired and liabilities and contingent liabilities assumed, based on preliminary estimates of their fair values. A final determination of these fair values will reflect, among other things, consideration of the final purchase price, as well as the final valuation based on the actual net tangible and intangible assets, such as developed and core technology and trade names of Opodo Ltd. that exist as of the closing of the Acquisition. Any final adjustments will change the allocation of the purchase price, which will affect the fair value assigned to the assets and liabilities and could result in a material change to the unaudited pro forma combined financial information. The unaudited pro forma adjustments give effect to events that are directly attributable to the Transactions and are factually supportable. The unaudited pro forma combined financial information is provided for information purposes only and has not been prepared, and shall not be construed as prepared, in accordance with Regulation S-X under the U.S. Securities Act. In addition, the unaudited pro forma combined financial information does not purport to represent what our financial position or results of operations actually would have been if the Transactions had been completed on the dates indicated nor do they purport to represent our results of operations for any future period or our financial condition at any future date. In addition to the matters noted above, the unaudited pro forma combined financial information does not reflect the effect of anticipated synergies and efficiencies associated with combining the Go Voyages Group, the eDreams Group, and the Opodo Group.
70 The unaudited pro forma combined financial information should be read in conjunction with information contained in ‘‘The Transactions,’’ ‘‘Use of Proceeds,’’ ‘‘Selected Historical Financial Data,’’ ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations’’ and the historical consolidated financial statements of Lyeurope, the Go Voyages Group, USgoal, the eDreams Group and the Opodo Group, included elsewhere in this Offering Circular.
Geo Group Unaudited Pro Forma Combined Income Statement For the Year Ended December 31, 2010 Purchase Price Allocation & Other Pro Forma Pro Forma Pro Forma Acquisition Transaction Pro Forma Lyeurope USgoal Opodo Adjustments Adjustments Geo Group (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) (Note 1) (in thousand g) Sales ...... 183,950 95,919 146,274 — — 426,143 Other revenue ...... 245 5,946 — — — 6,191 Total revenue ...... 184,195 101,865 146,274 — — 432,334 Supplies ...... 91,724 1,966 35,726 129,416 Revenue margin ...... 92,471 99,899 110,548 — — 302,918 Personnel expenses ...... 18,835 13,926 20,112 — — 52,873 Operating expenses other than depreciation and amortization ...... 44,290 61,683 63,152 — (8,173)(4) 160,952 Operating profit before depreciation and amortization ...... 29,346 24,290 27,284 — 8,173 89,093 Depreciation and amortization ...... 4,902 11,323 652 4,000(2) — 20,877 Operating profit ...... 24,444 12,967 26,632 (4,000) 8,173 68,216 Finance income ...... 392 81 419 — — 892 Finance expense ...... (26,546) (9,991) (913) — (18,542)(3) (55,992) Other income ...... 12 — 167 — — 179 Other expense ...... (663) (574) — — — (1,237) (Loss) profit before tax ...... (2,361) 2,483 26,305 (4,000) (10,369) 12,058 Income tax benefit (expense) ...... 870 876 53,688 1,120(2) 3,110(7) 59,664 (Loss) profit after tax ...... (1,491) 3,359 79,993 (2,880) (7,259) 71,722
71 Geo Group Unaudited Pro Forma Combined Balance Sheet As of December 31, 2010 Purchase Price Allocation & Other Pro Forma Pro Forma Pro Forma Acquisition Transaction Pro Forma Lyeurope USgoal Opodo Adjustments Adjustments Geo Group (Note 2) (Note 3) (Note 4) (Note 5) (Note 6) (Note 1) (in thousand g) ASSETS Current assets Trade and other receivables ...... 119,808 7,573 108,411 (76,084) — 159,708 Tax receivable ...... — 239 47 — — 286 Investments and financial assets .... — 150 167 — — 317 Cash and cash equivalents ...... 8,573 14,922 16,872 (438,372)(1) 415,601(1) to (6) 17,596 Restricted cash ...... — — 2,962 — — 2,962 Other current assets ...... — 242 — — — 242 Total current assets ...... 128,381 23,126 128,459 (514,456) 415,601 181,111 Goodwill ...... 309,697 202,723 — 329,124(5) — 841,544 Other intangible assets ...... 106,845 127,560 1,272 128,000(1) — 363,677 Property, plant, and equipment ..... 3,829 1,510 614 — — 5,953 Investments ...... 553 — — — — 553 Deferred tax assets ...... — 222 62,237 — — 62,459 Derivative financial instruments ..... 172 — — — — 172 Other non-current assets ...... — 1,647 1,123 — — 2,770 TOTAL ASSETS ...... 549,477 356,788 193,705 (57,332) 415,601 1,458,239 LIABILITIES & EQUITY Current liabilities Trade and other payables ...... 96,334 33,592 99,018 — — 228,944 Borrowings ...... 9,866 4,607 — — (14,366)(2) 107 Provisions ...... 479 808 — — — 1,287 Accruals ...... — 209 — — — 209 Deferred revenue ...... 109,172 — — — 22,500(4) 131,672 Obligations under finance lease .... 461 — — — — 461 Total current liabilities ...... 216,312 39,216 99,018 — 8,134 362,680 Borrowings ...... 199,823 83,238 — — 294,567(1)(2) 577,628 Trade and other payables ...... — — 1,515 — — 1,515 Provisions ...... 203 — — — — 203 Deferred tax liabilities ...... 45,345 43,126 — 35,840(2) — 124,311 Deferred revenue ...... — — — — — — Obligations under finance lease .... 325 — — — — 325 Other liabilities ...... — 220 — — — 220 Total liabilities ...... 462,008 165,800 100,533 35,840 302,701 1,066,882 Total equity ...... 87,469 190,988 93,172 (93,172)(4) 112,900(5)(6) 391,357 TOTAL LIABILITIES & EQUITY ... 549,477 356,788 193,705 (57,332) 415,601 1,458,239
72 GEO GROUP NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (in thousands)
1. Pro forma combined balance sheet and income statement of Geo Group as of and for the year ended December 31, 2010 The pro forma Geo Group combined financial information consists of the unaudited pro forma combined financial information for Lyeurope, USgoal, and Opodo after giving effect to the purchase price adjustments on acquisition of Opodo and after giving effect to this offering all of which are discussed in the notes contained herein.
2. Pro forma condensed consolidated balance sheet and income statement of Lyeurope as of and for the year ended December 31, 2010 The unaudited pro forma condensed consolidated financial information for Lyeurope has been prepared based on the unaudited historical consolidated financial statements of Lyeurope for the period from July 1, 2010 to December 31, 2010 prepared in accordance with French GAAP after giving effect to the following adjustments: 1. Pro forma adjustments—Lyeurope was created on May 27, 2010 for the purpose of acquiring Lyparis which occurred on July 2, 2010. As a result, the unaudited historical consolidated income statement of Lyeurope for the 6 months ended December 31, 2010 (i.e. since acquisition) has been adjusted to present such results assuming that the acquisition occurred on and Lyeurope had been in operation since January 1, 2010. Refer to description in supplemental note 2.B below for a description of how such amounts were derived. 2. IFRS adjustments—the unaudited historical consolidated financial information for Lyeurope has been adjusted to give effect to significant differences between French GAAP and IFRS identified by management. This may not represent all impacts on the financial position or results of operations of Lyeurope had it been reported on an IFRS basis since inception. IFRS differs in certain material respects from French GAAP as discussed in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations—Main Differences between French GAAP and IFRS’’. Refer to supplemental notes to Lyeurope unaudited pro forma condensed consolidated financial information for a description of such IFRS adjustments. 3. Reclassification adjustments—certain reclassification adjustments have been made to the presentation of the unaudited historical consolidated financial information for Lyeurope as of and for the 6 months ended December 31, 2010 to conform to the presentation of unaudited pro forma combined financial information of the Geo Group.
73 The unaudited pro forma condensed consolidated financial information for Lyeurope is as follows:
Lyeurope Unaudited Pro Forma Condensed Consolidated Income Statement For the Year Ended December 31, 2010 Historical Income Statement for the period from 7/1/2010 to Pro Forma IFRS Reclassification 12/31/2010 Adjustments Adjustments Adjustments Pro Forma (Note 2.A) (Note 2.B) (Note 2.C) (Note 2.D) Lyeurope (in thousand g) Revenue ...... 603,886 403,290 (823,226)(1) (183,950) — Other operating income ...... 107 138 — (245) — Sales ...... 183,950 183,950 Other revenue ...... 245 245 Total revenue ...... 603,993 403,428 (823,226) — 184,195 Supplies ...... 91,687 91,724 Revenue margin ...... 92,471 Operating expenses other than depreciation and amortization .... — — — 44,290 44,290 Personnel expenses ...... 9,455 9,380 — — 18,835 External expenses ...... 582,635 379,437 (834,697)(2) (127,375) — Taxes and duties other than income tax...... 586 781 (637)(3) (730) — Other operating expenses ...... 1,475 1,183 — (2,658) — Charges to provision (net of reversals) ...... 939 (1,151) — 212 — Non-recurring items ...... 1,105 222 5,010(4) (6,337) — Operating profit before depreciation and amortization . 7,798 13,576 7,098 874 29,346 Depreciation and amortization ..... 9,172 6,763 (11,907)(5) 874 4,902 Operating profit ...... (1,374) 6,813 19,005 — 24,444 Finance income ...... 170 222 — — 392 Finance expense ...... (12,192) (11,053) (3,301)(6) — (26,546) Other income ...... 8 4 — — 12 Other expense ...... (601) (62) — — (663) (Loss) profit before tax ...... (13,989) (4,076) 15,704 — (2,361) Income tax benefit (expense) ..... 2,265 (567) (828)(7) — 870 (Loss) profit after tax ...... (11,724) (4,643) 14,876 — (1,491)
74 Lyeurope Unaudited Pro forma Condensed Consolidated Balance Sheet
As of December 31, 2010 Historical Balance Sheet as IFRS of 12/31/2010 Adjustments Pro Forma (Note 2.A) (Note 2.C) Lyeurope (in thousand g) ASSETS Current assets Trade and other receivables ...... 141,650 (21,842)(8) 119,808 Cash and cash equivalents ...... 8,823 (250)(9) 8,573 Total current assets ...... 150,473 (22,092) 128,381 Goodwill ...... 295,836 13,861(10) 309,697 Other intangible assets ...... 81,679 25,166(11) 106,845 Property, plant, and equipment ...... 3,829 — 3,829 Investments ...... 553 — 553 Deferred tax assets ...... 3,185 (3,185)(12) — Derivative financial instruments ...... — 172(13) 172 TOTAL ASSETS ...... 535,555 13,922 549,477 LIABILITIES & EQUITY Current liabilities Trade and other payables ...... 95,930 404(14) 96,334 Borrowings ...... 9,866 — 9,866 Provisions ...... 479 — 479 Tax liabilities ...... — — — Deferred revenue ...... 131,730 (22,558)(15) 109,172 Obligations under finance lease ...... 461 — 461 Total current liabilities ...... 238,466 (22,154) 216,312 Borrowings ...... 240,385 (40,562)(16) 199,823 Provisions ...... 203 — 203 Deferred tax liabilities ...... — 45,345(17) 45,345 Deferred revenue ...... — — — Obligations under finance lease ...... 325 — 325 Other liabilities ...... — — — Total liabilities ...... 479,379 (17,371) 462,008 Total equity ...... 56,176 31,293(18),(19) 87,469 TOTAL LIABILITIES & EQUITY ...... 535,555 13,922 549,477
Supplemental notes to Lyeurope unaudited condensed consolidated pro forma financial information 2.A Amounts have been obtained from the historical unaudited condensed consolidated financial statements of Lyeurope as of and for the 6 months ended December 31, 2010 contained elsewhere in this Offering Circular. 2.B Lyeurope is a holding company and was created in conjunction with the acquisition of Lyparis by AXA Private Equity which occurred on July 2, 2010. As a result, amounts contained in this column represent adjustments to present the operations of Lyeurope as if it has been in existence since January 1, 2010 and consist of the following: (1) Additional six months of results of Lyeurope primarily representing (1) interest expense on borrowings entered into in conjunction with the acquisition of Lyparis, (2) amortization of finite-lived intangible assets resulting from the acquisition of Lyparis, (3) operating expenses, and (4) the related income tax effects. (2) The results of operations of Lyparis for the period from January 1, 2010 to June 30, 2010 as derived from the accounting records of Lyparis during this period.
75 2.C Amounts represent adjustments determined necessary by management to present the historical unaudited condensed consolidated financial information of Lyeurope prepared under French GAAP in accordance with the recognition and measurement principles of IFRS as follows: (1) Revenue adjustments (decrease of e823,226) consist of: • Basis of recognition (increase in revenue of g22,558)—Under French GAAP, revenue and the related cost of sales generated through global distribution systems (‘‘GDS’’) is generally recognized at the time of a customer’s trip departure. Under IFRS, revenue and the related cost of sales is generally recognized at the time the travel is processed through the GDS, which is generally at the time of booking, with the primary exception being charter flight transactions. As a result, additional revenue has been recorded under IFRS by applying the below timing of revenue recognition for the different revenue streams:
Income stream French GAAP Basis of revenue recognition IFRS Basis of revenue recognition Charter flight transactions .... Date of departure Date of departure Scheduled flight transactions . Date of departure Date of booking Airline incentives ...... Accrued based on gross sales or Accrued based on gross sales when paid GDS incentives ...... Date of departure or when paid Date of booking Low cost ...... Date of departure Date of booking Hotel transactions ...... Date of departure (check-in) Date of departure (check-in) Car transactions ...... Date of departure (pick-up) Date of departure (pick-up) Packaged products ...... Date of departure Date of departure Advertising revenue ...... Date of display Date of display Insurance ...... Date of departure Date of booking
• Gross versus net presentation (decrease of revenue of g845,784)—Under French GAAP, revenue is generally recognized on a gross basis, regardless of whether the company acts as a principal or not. Under IFRS, the amount of revenue recognized may differ depending on the nature of the arrangement. When Lyeurope acts as a principal or is the primary obligor in the arrangement, revenue is recognized on a gross basis. The revenue comprises the gross value of the transaction billed to the customer, net of VAT, with any related expenditure charged as a cost of sale. For Lyeurope, such revenue comprises sales in respect of charter flights. In other transactions where Lyeurope bears no inventory risk and is not the primary obligor in the arrangement, revenue is recognized on a net basis, with revenue representing the margin earned on the sale of the product. Such revenue comprises sales in respect of scheduled airlines, hotels, car rentals and packaged travel products. (2) External expenses adjustments (decrease of e834,697) consist of: • Basis of recognition (increase in external costs of g22,246)—Represents the recognition of the related direct costs associated with the increase in revenue being recorded due to differences in timing of revenue recognition between French GAAP and IFRS. Refer to discussion in supplemental note 2.C(1) above. • Gross versus net presentation (decrease of external costs of g845,784)— Represents the reduction of direct costs to present such costs where Lyeurope bears no inventory risk and is not the primary obligor in the arrangement on a net basis under IFRS versus on a gross basis under French GAAP. Refer to discussion in supplemental note 2.C(1) above. • Accounting for transaction costs in connection with financial liabilities (decrease of g8,613)—Under French GAAP, financial liabilities are initially recorded at nominal value with any directly attributable transaction costs, premiums and discounts recognized as external expense when incurred. Under IFRS, financial liabilities are initially measured at fair value less directly attributable transaction costs and are subsequently measured at their amortized cost using the effective interest method.
76 • Capitalization of software development costs (decrease of g2,546)—Under French GAAP, research and development costs incurred related to the development of Lyeurope’s information technology platform were expensed as incurred. Under IFRS, the application of the principles defined in IAS 38, Intangible Assets, requires Lyeurope to capitalize part of the development costs that had been expensed under French GAAP thereby reducing external expenses incurred during the year. (3) Taxes and duties other than income tax adjustment consists of: • Presentation of business tax (decrease of g637)—On December 31, 2009, the French government published changes to its ‘‘Taxe professionnelle,’’ or business tax, regime effective January 1, 2010. The business tax has been replaced with two new taxes, ‘‘Contribution fonciere` des enterprises,’’ or ‘‘CFE,’’ and ‘‘Cotisation sur la valeur ajoutee´ des enterprises,’’ or ‘‘CVAE.’’ The business tax was an annual tax based on the ‘‘rental’’ value of a company’s tangible fixed assets owned or used for business purposes on January 1 of the prior year. Under French GAAP, both the CFE and the CVAE are considered as taxes other than income tax and presented within operating profit in the consolidated income statement. With respect to the CFE, under the new regime, it is calculated in substantially the same manner as the business tax, but it is solely based on the ‘‘rental’’ value of real estate assets of the company owned or used for business purposes on January 1 of the prior year (machinery and equipment are no longer taxed). As with its predecessor, this tax is not a tax on income for purposes of applying IAS 12, Income Taxes (‘‘IAS 12’’). However, the CVAE is calculated in substantially the same manner as the ‘‘floor,’’ or minimum tax, that was required to be paid under the business tax regime, i.e., as a percentage of the ‘‘Value Added’’ in the current year. While the operation of the two new taxes combined has substantially the same effect as the old business tax, the CVAE is treated as an income tax under IAS 12. As a result, the CVAE has been reclassified as income tax, outside of operating profit, in the pro forma condensed consolidated income statement under IFRS. (4) Non-recurring items adjustments consist of: • Acquisition costs related to business combinations (decrease of g5,010)—Under French GAAP, acquisitions costs incurred in relation to a business combination are capitalized as part of the cost of the business combination. Under IFRS, as a result of the application of the revised version of IFRS 3 Business Combinations (2008), acquisition-related costs are expensed as incurred in the period in which the costs are incurred and the services are received. As such, this adjustment is to reverse the transaction costs incurred in connection with the acquisition of Lyparis by Lyeurope during the year. (5) Depreciation and amortization adjustments (decrease of e11,907) consist of: • Reversal of amortization of goodwill (decrease of g12,099)—Under French GAAP, Lyeurope recognizes goodwill and amortizes it over its useful life, not exceeding 20 years. French GAAP requires an impairment review of goodwill whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under IFRS, goodwill is not amortized, but is tested for impairment annually, or more frequently, if an indicator of impairment is identified. • Amortization of capitalized software development costs (increase of g192)— Represents amortization recorded on software development costs capitalized under IFRS as discussed in supplemental note 2.C(2) above. (6) Finance expense adjustments consist of: • Accounting for financial liabilities—amortized cost and interest method (increase of g3,222)—Under French GAAP, financial liabilities are initially recorded at nominal value with any directly attributable transaction costs, premiums and discounts recognized as expense when incurred. Under IFRS, financial liabilities are initially measured at fair value less directly attributable transaction costs and are subsequently measured at their amortized cost using the effective interest method. The amortized cost of a financial liability is the amount at which the financial liability is measured at
77 initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial liability or, when appropriate, a shorter period, to the net carrying amount of the financial liability. When calculating the effective interest rate, cash flows are estimated considering all contractual terms of the financial instrument (such as prepayment, call and similar options) but not considering future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. Refer to supplemental discussion in Note 2.C(16). • Derivative financial instruments (increase of g79)—Lyeurope uses financial instruments to manage exposure to changes in interest rates. Interest rate risk is managed through the use of interest rate swaps and caps. The aim is to reduce exposure to interest rate fluctuations and not for speculative purposes. Under French GAAP, all open positions at year-end with regard to derivatives are not recognized in the consolidated balance sheet and instead are presented as off-balance sheet items. Under IFRS, derivatives are required to be recorded on the balance sheet as an asset or liability. They are initially measured at fair value on the acquisition date. IFRS requires subsequent measurement of all derivatives at their fair values, regardless of any hedging relationship that might exist. Changes in fair value are required to be recognized currently in earnings, unless specific hedge accounting criteria are met. Hedge accounting is permitted under IFRS provided that the entity meets stringent qualifying criteria in relation to documentation and hedge effectiveness, such criteria not being met by Lyeurope. As a result, under IFRS changes in fair value for interest-rate derivatives have been recognized as a component of finance expense included in the pro forma condensed consolidated income statement. (7) Income tax expense adjustment consists of (1) the tax effect of the IFRS adjustments for the year ended December 31, 2010, and (2) the reclassification of CVAE to income taxes as discussed in 2.C(3) above. Lyeurope has analyzed the tax effect of each adjustment individually, the amounts of which were then aggregated to determine the overall pro forma income tax adjustment. (8) Trade and other receivables adjustment consists of the reduction of accounts receivable associated with revenue recognition IFRS difference discussed in supplemental note 2.C(1) above. (9) Cash and cash equivalents adjustment consists of decrease in cash associated with derivative financial instruments IFRS difference discussed in supplemental note 2.C(6) above. (10) Goodwill adjustment (increase of e13,861) consists of: • Recognition of deferred tax liabilities on brands acquired through business combinations (increase of g32,709)—Under French GAAP, deferred tax liabilities are not recognized in the consolidated financial statements on brands acquired through business combinations. Under IFRS, there is no such exemption with regard to the non-recognition of deferred taxes on brands. Deferred tax liabilities are therefore recognized under IFRS based on the difference between the book and tax values of brands, thus resulting in an increase in deferred tax liabilities and corresponding increase in goodwill. • Reversal of amortization of goodwill (increase of g13,349)—Under French GAAP, the company recognizes goodwill and amortizes it over its useful life, not exceeding 20 years. French GAAP requires an impairment review of goodwill whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under IFRS, goodwill is not amortized, but is tested for impairment annually, or more
78 frequently, if an indicator of impairment is identified and therefore current year amortization has been added back. • Accounting for the purchase price allocation of Lyparis (decrease of g32,197)— Lyeurope acquired Lyparis in July 2010. As a result, the adjustment reflects the accounting for the purchase price allocation of Lyparis under IFRS, primarily with respect to the recognition of certain intangible assets separate from goodwill and transaction costs. (11) Other intangible assets adjustment (increase of e25,166) consists of the capitalization of software development costs discussed in supplemental note 2.C(2) net of pro forma amortization of the capitalized software development costs discussed in supplemental note 2.C(4) (e2,354) and the effect of the recognition of intangible assets separate from goodwill resulting from the purchase price allocation of Lyparis (e22,812). (12) Deferred tax assets adjustment consists of offset of deferred tax assets and deferred tax liabilities, in relation to certain of the IFRS adjustments discussed herein. (13) Derivative financial instruments adjustment consist of the recognition of the fair value of derivative assets in connection with IFRS difference discussed in supplemental note 2.C(6) above. (14) Trade and other payables adjustment consists of increase in accounts payable recorded in connection with revenue recognition IFRS difference discussed in supplemental note 2.C(1) above. (15) Deferred revenue adjustment consists of a decrease of deferred revenue recorded in connection with revenue recognition IFRS difference discussed in supplemental note 2.C(1) above. (16) Borrowings adjustment (decrease in borrowings of e40,562) consists of: • A reduction in the carrying amount of non-current borrowings of e7,184 primarily related to financial liabilities IFRS difference discussed in supplemental notes 2.C(2) and 2.C(6) above. • Accounting for convertible debt (decrease of g33,378)—Under French GAAP, Lyeurope’s convertible subordinated bonds issued are recognized and presented entirely as financial debt. Under IFRS, the convertible debt is a compound financial instrument that includes a debt component and an equity component. Under IFRS, in accordance with IAS 32 Financial Instruments: Presentation, if a financial instrument includes different components, certain of which have the characteristics of debt instruments and others which are equity instruments, the issuer must classify these different components separately from each other. Thus, a single instrument must, if applicable, be partly recognized within financial liabilities and partly within equity. This category of instruments includes financial instruments that create a liability for the issuer and that grant an option to the holder of the instrument to convert it into an equity instrument of the issuer. When the nominal amount of a compound financial instrument is allocated to its equity and liability components, the equity component is equal to the difference between the nominal value of the instrument and the fair value of the debt component. The debt component is calculated as the market value of a similar liability that does not have an associated equity component. The portion being adjusted herein is the gross portion of the financial liability that is reclassified to equity under. (17) Deferred tax liabilities adjustment consists of increase in deferred tax liabilities in connection with IFRS differences discussed in supplemental notes 2.C(10), 2.C(16), revenue recognition 2.C(1) and capitalization of software development costs 2.C(2). (18) Total equity adjustments consists of share premium impact of increase in equity, net of the related deferred tax liability, resulting from the convertible debt IFRS difference discussed in supplemental note 2.C.(16) above and the net retained earnings impact of the financial liabilities IFRS difference discussed in supplemental note 2.C(5) above.
79 2.D Amounts represent reclassifications required to present the historical unaudited condensed consolidated financial statement presentation of Lyeurope to conform to the presentation of the unaudited pro forma combined financial information of Geo Group.
3. Pro forma condensed consolidated balance sheet and income statement of USgoal as of and for the year ended December 31, 2010 The unaudited pro forma condensed consolidated financial information for USgoal has been prepared based on the audited historical consolidated financial statements of USgoal as of and for the period from August 3, 2010 to December 31, 2010 prepared in accordance with Spanish GAAP after giving effect to the following adjustments: 1. Pro forma adjustments to the income statement—USgoal was created on July 16, 2010 for the purpose of acquiring eDreams which occurred on August 3, 2010. As a result, the audited historical consolidated income statement of USgoal for the period from August 3, 2010 to December 31, 2010 (i.e. since acquisition) has been adjusted to present the such results assuming that the acquisition had occurred on and USgoal has been in operation since January 1, 2010. Refer to supplemental note 3.B below for a description of how such amounts were derived. 2. Reclassification adjustments—certain reclassification adjustments have been made to the audited historical consolidated financial information for USgoal as of and for the period from December 31, 2010 to conform to the financial statement presentation of unaudited pro forma combined consolidated financial statements of the Geo Group. 3. Pro forma adjustments to the balance sheet—certain adjustments have been made to give effect to the acquisition of eDreams by USgoal as if such acquisition had occurred as of December 31, 2010 on the unaudited pro forma condensed consolidated balance sheet of USgoal as of December 31, 2010. Management has determined that there are no significant differences between the presentation of the financial information of USgoal under Spanish GAAP as compared to the presentation of USgoal under IFRS. Accordingly, no adjustments have been considered in the preparation of the unaudited condensed consolidated financial information of USgoal.
80 The unaudited pro forma condensed consolidated financial information for USgoal is as follows:
USgoal Unaudited Pro forma Condensed Consolidated Income Statement
For the Year Ended December 31, 2010 Historical Income Statement for the period from 8/3/2010 to Pro Forma Reclassification 12/31/2010 Adjustments Adjustments Pro Forma (Note 3.A) (Note 3.B) (Note 3.C) USgoal (in thousand g) Net turnover ...... 41,488 54,431 (95,919) — Work done by Group on its own assets . . 1,198 2,057 (3,255) — Other operating revenues ...... 1,089 1,602 (2,691) — Sales ...... 95,919 95,919 Other revenue ...... 5,946 5,946 Total revenue ...... 43,775 58,090 — 101,865 Supplies ...... 1,030 936 — 1,966 Revenue margin ...... 42,745 57,154 99,899 Personnel expenses ...... 6,827 7,099 — 13,926 Operating expenses other than depreciation and amortization ...... 26,847 34,836 — 61,683 Operating profit before depreciation and amortization ...... 9,071 15,219 — 24,290 Depreciation and amortization ...... 4,724 6,599 — 11,323 Operating profit ...... 4,347 8,620 — 12,967 Finance income ...... 61 20 — 81 Finance expense ...... (3,702) (6,289) — (9,991) Exchange gains (losses) ...... (52) (122) 174 — Other income ...... — — — — Other expense ...... (130) (270) (174) (574) Profit before tax ...... 524 1,959 — 2,483 Income tax benefit (expense) ...... 1,075 (199) — 876 Profit after tax ...... 1,599 1,760 — 3,359
81 USgoal Unaudited Pro forma Condensed Consolidated Balance Sheet
As of December 31, 2010 Historical Balance Sheet as of Pro Forma Reclassification 12/31/2010 Adjustments Adjustments Pro Forma (Note 3.A) (Note 3.D) (Note 3.C) USgoal (in thousand g) ASSETS Current assets Trade and other receivables ...... 7,812 — (239) 7,573 Current tax receivable ...... — — 239 239 Investments and financial assets ...... 150 — — 150 Cash and cash equivalents ...... 14,922 — — 14,922 Other current assets ...... 242 — — 242 Total current assets ...... 23,126 — — 23,126 Goodwill ...... 202,723 — — 202,723 Other intangible assets ...... 124,994 2,566 — 127,560 Property, plant, and equipment ...... 1,510 — — 1,510 Investments ...... — — — — Deferred tax assets ...... 222 — — 222 Long-term financial investments ...... 1,647 — (1,647) — Other non-current assets ...... — — 1,647 1,647 TOTAL ASSETS ...... 354,222 2,566 — 356,788 LIABILITIES & EQUITY Current liabilities Trade and other payables ...... 33,592 — — 33,592 Short-term debt (borrowings) ...... 5,557 (950) — 4,607 Provisions ...... 808 — — 808 Accruals ...... 209 — — 209 Total current liabilities ...... 40,166 (950) — 39,216 Long-term borrowings ...... 82,991 247 — 83,238 Deferred tax liabilities ...... 42,228 898 — 43,126 Other liabilities ...... 220 — — 220 Total liabilities ...... 165,605 195 — 165,800 Total equity ...... 188,617 2,371 — 190,988 TOTAL LIABILITIES & EQUITY ...... 354,222 2,566 — 356,788
Supplemental notes to USgoal unaudited condensed consolidated pro forma financial information 3.A Amounts have been obtained from the historical audited condensed consolidated financial statements of USgoal as of and for period from August 3, 2010 to December 31, 2010 contained elsewhere in this Offering Circular. Amounts included within other expense represent changes in the fair value of financial instruments and impairments gains (losses) on disposal of financial instruments. 3.B USgoal is a holding company and was created in conjunction with the acquisition of eDreams by the Permira Funds which occurred on August 3, 2010. As a result, amounts contained in this column represent adjustments to present the income statement of USgoal as if the acquisition had occurred on and USgoal had been in operation since January 1, 2010 and consist of the following: (1) Additional 7 months of results of USgoal primarily representing (1) interest expense and finance costs on borrowings entered into in conjunction with the acquisition of eDreams, (2) amortization of finite-lived intangible assets resulting from the acquisition of eDreams, and (3) the related income tax effects.
82 (2) The results of operations of eDreams for the period from January 1, 2010 to August 2, 2010 as derived from the accounting records of eDreams during this period. 3.C Amounts represent reclassifications required to present the historical audited condensed consolidated financial statement presentation of USgoal to conform to the financial statement presentation of the unaudited pro forma combined financial information of the Geo Group. 3.D Amounts represent adjustments to give effect to the acquisition of eDreams by USgoal as if the acquisition had occurred on December 31, 2010. Such adjustments primarily consist of the reversal of amortization of intangible assets acquired during the 5 months ended December 31, 2010, the reversal of any movement in the debt balances between the acquisition date and December 31, 2010, and the related income tax effects of such adjustments.
4. Pro forma balance sheet and income statement of Opodo as of and for the year ended December 31, 2010 The unaudited pro forma condensed consolidated financial information for Opodo has been prepared based on the audited historical consolidated financial statements of Opodo as of and for the year ended December 31, 2010 prepared in accordance with IFRS after giving effect to the following adjustments: 1. IFRS harmonization adjustments—certain adjustments have been made by Opodo to align Opodo’s historical accounting policies under IFRS to the accounting policies of the Geo Group upon acquisition. 2. Reclassification adjustments—certain reclassification adjustments have been made to the historical consolidated financial information for Opodo as of and for the year ended December 31, 2010 to conform to the financial statement presentation of unaudited pro forma combined financial information of the Geo Group.
83 The unaudited pro forma condensed consolidated financial information for Opodo is as follows:
Opodo Unaudited Pro forma Condensed Consolidated Income Statement
For the Year Ended December 31, 2010 Historical Income Statement for the IFRS year ended Harmonization Reclassification 12/31/2010 Adjustments Adjustments Pro Forma (Note 4.A) (Note 4.B) (Note 4.C) Opodo (in thousand g) Revenue ...... 146,707 (433) (146,274) — Other operating income ...... — — — — Sales ...... 146,274 146,274 Other revenue ...... — — Total revenue ...... 146,707 (433) — 146,274 Supplies ...... 35,726 35,726 Revenue margin ...... 110,548 Operating expenses other than depreciation and amortization ...... 63,152 63,152 Personnel expenses ...... 20,112 20,112 Cost of sales ...... 57,143 — (57,143) — Selling, general and administrative expenses ...... 55,737 — (55,737) — Other operating expenditure ...... 6,110 — (6,110) — Operating profit before depreciation and amortization ...... 27,717 (433) — 27,284 Depreciation and amortization ...... 652 — — 652 Operating profit ...... 27,065 (433) — 26,632 Finance income ...... 419 — — 419 Finance expense ...... (913) — — (913) Other income ...... 167 — — 167 Other expense ...... — — — — Profit before tax ...... 26,738 (433) — 26,305 Income tax benefit ...... 53,688 — — 53,688 Profit after tax ...... 80,426 (433) — 79,993
84 Opodo Unaudited Pro forma Condensed Consolidated Balance Sheet
As of December 31, 2010 Historical Balance Sheet IFRS as of Harmonization Reclassification 12/31/2010 Adjustments Adjustments Pro Forma (Note 4.A) (Note 4.B) (Note 4.C) Opodo (in thousand g) ASSETS Current assets Trade and other receivables ...... 108,411 — — 108,411 Current tax receivable ...... 47 — — 47 Investments and financial assets ...... 167 — — 167 Cash and cash equivalents ...... 16,872 — — 16,872 Restricted cash ...... 2,962 — — 2,962 Total current assets ...... 128,459 — — 128,459 Goodwill ...... — — — — Other intangible assets ...... 1,272 — — 1,272 Property, plant, and equipment ...... 614 — — 614 Investments ...... — — — — Deferred tax assets ...... 62,237 — — 62,237 Other financial assets ...... — — — — Other non-current assets ...... 1,123 — — 1,123 TOTAL ASSETS ...... 193,705 — — 193,705 LIABILITIES & EQUITY Current liabilities Trade and other payables ...... 99,635 (617) — 99,018 Borrowings ...... — — — — Provisions ...... — — — — Tax liabilities ...... — — — — Total current liabilities ...... 99,635 (617) — 99,018 Trade and other payables ...... 1,515 — — 1,515 Total liabilities ...... 101,150 (617) — 100,533 Total equity ...... 92,555 617 — 93,172 TOTAL LIABILITIES & EQUITY ...... 193,705 — — 193,705
Supplemental notes to Opodo unaudited condensed consolidated pro forma financial information 4.A Amounts have been obtained from the historical audited consolidated financial statements of Opodo as of and for the year ended December 31, 2010 contained elsewhere in this Offering Circular. 4.B Opodo’s historical revenue recognition policy for air commission income under IFRS is to recognize such revenue on the date of flight departure. However, on a group basis, Geo Group recognizes such commissions on the date of booking in accordance with its accounting policies. The adjustment required to recognize air commission income at the time of booking rather than the date of departure resulted in a decrease in revenue and profit for the year ended December 31, 2010 of e0.4 million, a decrease in deferred revenue at December 31, 2010 of e0.6 million and an increase in retained earnings at January 1, 2010 of e1.0 million. At December 31, 2010 the cumulative impact on retained earnings is an increase of e0.6 million. 4.C Amounts represent reclassifications required to present the historical audited consolidated financial statement presentation of Opodo to conform to the financial statement presentation of the unaudited pro forma combined consolidated financial information of Geo Group.
85 5. Purchase Price Allocation & Opodo Acquisition Adjustments On February 9, 2011, LuxGEO S.a` r.l., a direct wholly-owned subsidiary of the Issuer and a holding vehicle indirectly controlled jointly by AXA Private Equity and the Permira Funds, entered into a share purchase agreement with Amadeus IT Group S.A. for the purchase of 100% of the share capital and voting rights of Opodo Limited, in the context of the combination of the Go Voyages Group, the eDreams Group and the Opodo Group. Upon completion of the Acquisition, the Issuer will control indirectly the Go Voyages Group, the eDreams Group and the Opodo Group. The cash consideration for the Acquisition on a cash free and debt free basis is expected to be approximately e421.5 million. Additionally, in connection with the Acquisition, LuxGEO will also assume certain intercompany receivables owed to the Opodo Group by Amadeus in an aggregate principal amount of e76.1 million as of December 31, 2010 which has been considered as part of the purchase consideration for a total of e497.6 million. On a pro forma basis, this intercompany debt has been eliminated with Opodo’s intercompany receivable on consolidation. For purposes of the preparation of this pro forma financial information, it is assumed that the net signing bonus of e22.5 million to be received from Amadeus is not a part of the total purchase consideration and therefore have excluded it in the determination of the preliminary purchase price allocation herein. If ultimately it is determined that the signing bonus should be a component of the total purchase consideration for the Acquisition, such conclusion could result in a material change to the preliminary allocation of the purchase price. The Acquisition is being accounted for using the acquisition method of accounting in accordance with IFRS. Under the acquisition method of accounting, the aggregate consideration paid is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed on the basis of their fair values on the transaction date. Goodwill is measured as the excess of the sum of the consideration paid, if any, over the net amounts of identifiable assets acquired and liabilities assumed at the acquisition date. This unaudited pro forma combined financial information has been prepared based on preliminary estimates of fair values. The actual amounts and the allocation between net tangible and intangible assets ultimately recorded may differ materially from the information presented in this unaudited pro forma combined financial information. The preliminary estimates of the fair values of the assets acquired and liabilities assumed reflected herein are subject to change based upon completion of the valuation of the assets acquired and liabilities assumed as of the closing date. No account has been taken within this unaudited pro forma combined financial information of any future changes in accounting policies or any synergies (including cost savings), all of which may or may not occur as a result of the Acquisition. 5.1 The following table sets forth the preliminary allocation of the purchase price:
g ’000 Existing assets (including previously identified intangible assets) ...... 193,705 Less: Existing cash ...... (16,872) Existing assets excluding cash ...... 176,833 Trademarks ...... 108,000 Developed technology ...... 20,000 Goodwill ...... 329,124 Deferred tax liabilities arising on acquired intangibles ...... (35,840) Existing liabilities ...... (100,533) Total net assets of Opodo excluding cash, including goodwill ...... 497,584
86 5.2 Acquired intangible assets and amortization expense Items representing the portion of the purchase price allocated to Opodo’s finite-lived intangible assets acquired, relating to technology-based intangibles, at their respective estimated fair values:
Estimated Annual Annual Useful Life Amortization Income Tax in thousand g Fair Value (in years) Expense(1) Effect(1) Definite lived intangible assets Technology ...... 20,000 5 4,000 1,120
(1) The total annual amortization expense related to these intangible assets is e4.0 million and the total estimated income tax effect on the pro forma combined income statement related to these intangible assets is e1.1 million income tax benefit based on an assumed tax rate of 28% which was the statutory tax rate in the UK in 2010.
The Opodo and Travellink trademarks have been determined to have indefinite lives based on peer group benchmark analysis and management’s assessment of the period over which the benefits are expected to be realized. Therefore, there is no pro forma expense impact arising from recognition of these assets. 5.3 Since the tax basis of the identifiable intangible assets acquired is less than their accounting basis, the purchase price allocated to these assets results in additional deferred tax liabilities which have been calculated using the statutory tax rate applicable in the UK in 2010 of 28% (i.e. e128 million * 28% = e35.8 million). The determination of the actual deferred tax liabilities could be materially different than amounts included herein upon the completion of the allocation of the purchase consideration and analysis of the relevant tax jurisdictions to which each identified intangible asset resides. To the extent that the recognition of these deferred tax liabilities allows us to recognize deferred tax assets which are currently not recognized, the effect of such recognition has not been contemplated within the unaudited pro forma combined financial information. Additionally, no deferred tax assets related to the carry-forward of unused tax losses of Lyparis, eDreams or Opodo or other tax attributes that have not been recognized in their respective historical financial statements have been included in the pro forma adjustments, as it is not possible to assess whether the utilization of such tax losses and other tax attributes in the future is probable at this time. 5.4 Elimination of Opodo’s shareholders’ equity Adjustments represent the elimination of Opodo’s share capital and share premium of e364.0 million, reserves of e30.8 million, and retained deficit of e240.0 million, acquired by Geo Group, for a total equity elimination of e93.2 million. 5.5 Goodwill Adjustment represents the excess of the purchase price over the fair value of net assets acquired of e329.1 million as presented within the preliminary purchase price allocation 5.1 above. 5.6 Other acquisition related expenses Additional expenses have been incurred in relation to professional fees and financing arrangements in connection with the Acquisition, however, such costs are being presented as part of the column ‘‘Other Transaction Adjustments’’ within the Geo Group unaudited pro forma combined financial information as of and for the year ended December 31, 2010 for purposes of preparing the pro forma financial information contained herein. Please refer to note 6 below for further discussion and detailed analysis of such items.
6. Other Transaction Adjustments We are offering these Notes as part of the overall financing arrangements for the Acquisition and the refinancing of the Existing Go Voyages and eDreams Indebtedness. We and our Luxembourg holding company, LuxGEO Parent S.a` r.l., have been organized, and are indirectly jointly controlled, by AXA Private Equity and the Permira Funds.
87 We intend to finance the Transactions (including the refinancing of the Go Voyages and eDreams Indebtedness) with (i) the proceeds from the Offering and (ii) borrowings under the Senior Credit Facilities Agreement. In addition, it is intended that LuxGEO Parent S.a` r.l. will be funded by Luxgoal S.a` r.l. and AXEUROPE S.A. with equity for an amount of e175.4 million. A summary of the adjustments required to give effect to the Offering are as follows: 6.1 Notes offered hereby The Issuer is offering e175 million aggregate principal amount of its 10.375% Senior Notes due 2019 as part of the financing for the Acquisition. 6.2 Borrowings under the Senior Credit Facilities and refinancing of existing Go Voyages and eDreams Indebtedness LuxGEO S.a` r.l., a direct wholly-owned subsidiary of the Issuer, entered into the Senior Credit Facilities Agreement with certain lenders on February 18, 2011 for the purpose of the financing of the Acquisition and the refinancing of the Existing Go Voyages and eDreams Indebtedness. Funding of the facilities under the Senior Credit Facilities Agreement is subject to a limited number of conditions precedent, including satisfaction of the conditions to the consummation of the Acquisition. The total proceeds from the Senior Credit Facilities is e340 million. See ‘‘Description of the Notes’’ for further details on terms of the the Senior Credit Facilities. The existing facilities which will be refinanced using the proceeds from the Senior Credit Facilities were e137.8 million and e97.0 million as of December 31, 2010 for the Go Voyages Group and eDreams Group, respectively. 6.3 Net interest expense impact of the Transaction As described in note 6.2 above, in connection with the Transactions the existing facilities of the Go Voyages Group and the eDreams Group will be refinanced. As a result, the unaudited pro forma combined financial information of Geo Group includes an adjustment to remove the interest expense incurred on the existing facilities during the year ended December 31, 2010 of e15.5 million and e7.3 million, respectively. These amounts have been replaced by the aggregate pro forma interest expense of e41.3 million incurred on the e175 million Notes described in note 6.1 above and the e340 million Senior Credit Facilities described in note 6.2 above at an assumed blended interest rate of 8.0%. A net adjustment of e18.5 million has been recorded within the unaudited pro forma combined financial information to reflect such amounts. The assumed blended interest rate of 8% used to calculate the pro forma interest expense is based on an assumed interest rate for the Notes of 9.5%. Based on the actual 10.375% interest rate for the Notes, the pro forma interest expense would be e42.8 million. The unaudited pro forma combined financial information has not been updated to reflect the actual pricing. A 0.125% change in the assumed blended interest rate of 8% would change the pro forma interest expense by e0.6 million. 6.4 New GDS agreement In connection with the Acquisition, LuxGEO entered into a new GDS agreement with Amadeus which will take effect on the Completion Date and will replace the existing GDS agreements of the Opodo Group, eDreams Group, and Go Voyages Group with Amadeus. The new GDS agreement results in a signing bonus of e52 million to be paid by Amadeus which will be netted against amounts due by the Geo Group companies to Amadeus in connection with the cancellation of the Opodo Group’s, eDreams Group’s and Go Voyages Group’s existing GDS agreements with Amadeus in the amounts of approximately e27.5 million, e0.4 million and e1.5 million, respectively, for a net cash receipt of e22.5 million. Additionally, the impact of the new GDS agreement on the unaudited pro forma combined consolidated income statement of the Geo Group has been determined by applying the provisions of the new GDS agreement as if it had been in effect beginning January 1, 2010 thereby changing the overall incentive structure of each entity during the year. The pro forma impact on the Opodo Group, eDreams Group, and Go Voyage Group for the year ended December 31, 2010 is to increase operating profit by e2.4 million, e4.1 million, and e1.6 million, respectively, for a total pro forma impact for the Geo Group of e8.1 million.
88 The impact of the new GDS agreement has been calculated using the following assumptions: 1. Each of the respective entities will reach the maximum transaction volumes stipulated in the new GDS agreement thereby receiving the maximum benefit of the GDS pricing provision. 2. The new GDS agreement also includes amendments to various provisions in the contract in addition to those described above which may impact payments made or received under the terms of the revised agreement. There has been no adjustment for these amendments included in the unaudited pro forma financial information as it is not possible to assess the impact at this time. However, these amendments may have an impact on the operating profit of the Geo Group. 6.5 Equity contribution It is intended that LuxGEO Parent S.a` r.l. will be funded by Luxgoal and Axeurope with equity for an amount of e175.4 million as part of the Transactions. 6.6 Transaction fees The estimated fees and expenses associated with the Acquisition and other Transactions, including commitment, placement, financial advisory, professional and initial purchasers’ fees and other transaction costs are approximately e62.5 million and have been recorded as an adjustment to retained earnings as they are deemed to be non-recurring. 6.7 Tax effect of transaction adjustments The tax effect of the transaction adjustments in the unaudited pro forma combined financial information has been calculated on an aggregate basis using an assumed effective tax rate of 30% which is expected to be the combined effective tax rate of the Geo Group.
89 SELECTED HISTORICAL FINANCIAL DATA Go Voyages Income Statement Data (French GAAP)
Go Voyages Group French GAAP For the nine months ended For the year ended December 31 March 31 2010 2009 2010 2009 2008 (in thousand g) Total revenue ...... 823,210 661,933 846,140 696,874 542,922 Supplies ...... (752,611) (607,608) (770,261) (637,094) (491,697) Personnel Expenses ...... (13,671) (12,778) (17,571) (13,399) (11,208) Other operating expenses ...... (42,442) (27,237) (34,760) (28,087) (22,370) Depreciation and amortization ..... (9,823) (10,207) (13,831) (23,407) (3,721) Net Operating Profit/(loss) ...... 4,663 4,104 9,717 (5,112) 13,927 Finance Income/(loss) ...... (12,653) (12,996) (17,326) (17,213) (17,139) Profit/(loss) before tax ...... (7,990) (8,892) (7,609) (22,325) (3,212) Non-recurring items ...... (1,116) 1 (6) (22) (145) Income tax ...... 303 506 (420) 1,318 1,823 Profit/(loss) ...... (8,803) (8,385) (8,035) (21,029) (1,534)
Go Voyages Balance Sheet Data (French GAAP)
Go Voyages Group French GAAP As of December 31 As of March 31 2010 2009 2010 2009 2008 (in thousand g) ASSETS Goodwill ...... 160,136 170,291 167,763 177,869 192,183 Intangible assets ...... 81,677 83,301 82,727 85,306 88,006 Property, plant and equipment ...... 3,829 3,340 3,766 1,758 1,647 Financial assets ...... 553 120 134 103 103 Non-current assets (i) ...... 246,195 257,051 254,390 265,036 281,939 Trade receivables and related accounts ...... 27,659 27,269 39,921 50,335 45,187 Other receivables, prepayments and accrued income ...... 115,091 87,882 163,631 136,435 104,237 Cash at bank in hand and marketable securities . . 8,339 48,555 92,643 47,266 22,424 Current assets (ii) ...... 151,089 163,706 296,195 234,036 171,848 TOTAL Assets (i+ii) ...... 397,283 420,757 550,585 499,072 453,787 EQUITY AND LIABILITIES Share capital ...... 72,560 62,000 62,000 62,000 62,000 Addition paid-in capital ...... 875 875 875 875 875 Retained earnings ...... (23,496) (22,248) (22,248) (12,436) (4,292) Consolidated reserves ...... (10,719) (3,932) (3,932) 7,285 (5,205) Consolidated loss for the year ...... (8,803) (8,385) (8,035) (21,029) (1,534) Equity attributable to owners of the Company (iii) ...... 30,417 28,310 28,660 36,695 51,844 Minority interests (iv) ...... 00000 Provisions for contingencies and losses (v) .... 894 2,630 1,258 1,938 4,607 Borrowings ...... 138,567 209,086 208,811 200,707 194,853 Trade payables and related accounts ...... 88,790 66,120 103,678 81,634 55,494 Other liabilities, accruals and deferred income .... 138,615 114,611 208,178 178,098 146,989 Liabilities (vi) ...... 365,972 389,817 520,667 460,439 397,336 TOTAL Equity and liabilities (iii+iv+v+vi) ..... 397,283 420,757 550,585 499,072 453,787
90 Go Voyages Cashflow Statement Data (French GAAP)
Go Voyages Group French GAAP Go Voyages Group Nine months French GAAP ended Year ended December 31 March 31 2010 2009 2010 2009 2008 (in thousand g) Net cash flows from/used in operating activities (I) ...... (10,262) 8,298 58,182 37,280 15,378 Net cash flows from/used in investing activities (II) ...... (1,863) (2,393) (2,211) (1,039) (426) Net cash flows from financing activities (III) . (72,180) (4,616) (10,594) (11,399) (54,398) Net increase/(decrease) in cash and cash equivalents (I+II+III) ...... (84,305) 1,289 45,377 24,842 (39,446) Cash and cash equivalent at beginning of period 92,643 47,266 47,266 22,424 61,870 Cash and cash equivalent at end of period ... 8,339 48,555 92,643 47,266 22,424
eDreams Income Statement Data (Spanish GAAP)
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Total revenue ...... 101,865 77,000 70,660 Supplies ...... (1,966) (2,354) (5,302) Personnel Expenses ...... (13,925) (10,456) (11,446) Other operating expenses (including credit card cost) ...... (61,616) (47,644) (40,575) Depreciation and amortization ...... (4,880) (4,501) (4,131) Operating income (including credit card cost) ...... 19,478 12,045 9,206 Finance income/(loss) (excluding credit card cost) ...... (4,017) (2,683) (3,386) Profit/(loss) before tax ...... 15,461 9,362 5,820 Income tax ...... (2,906) (4,478) (1,675) Profit/(loss) ...... 12,555 4,884 4,145
91 eDreams Balance Sheet Data (Spanish GAAP)
eDreams Group Spanish GAAP As of December 31 2010 2009 2008 (in thousand g) ASSETS Intangible assets ...... 116,803 116,994 118,302 Property, plant and equipment ...... 1,510 1,614 1,949 Long-term financial investment: ...... 66,122 826 256 Long-term financial investments in related parties ...... 64,475 — 125 Derivatives ...... 260 — — Other long-term financial investments ...... 1,387 826 131 Deferred tax assets ...... 222 387 — Non-current assets (I) ...... 184,657 119,821 120,507 Trade and other receivables: ...... 7,809 6,237 6,623 Trade receivables ...... 7,514 6,193 6,317 Sundry receivables ...... 346 Staff costs ...... 27 15 5 Current tax assets ...... 239 — — Tax receivables ...... 26 25 295 Short-term financial in related parties: Other financial assets ...... 792 — — Short-term financial investments: ...... 5,805 972 Derivatives ...... — 534 — Other financial assets ...... 150 5,271 972 Accruals ...... 242 190 191 Cash and cash equivalents ...... 13,060 17,763 11,291 Current assets (II) ...... 22,053 29,995 19,077 TOTAL Assets (I+II) ...... 206,710 149,816 139,584
EQUITY AND LIABILITIES Capital ...... 1 1 1 Share issue premium ...... 85,449 89,979 91,329 Reserves of the parent company ...... (49,343) (12,522) (9,715) Fully consolidated reserves ...... 20,457 11,686 4,120 Own shares held ...... — (12,576) (13,926) Profit for the year attributed to the parent company ...... 12,555 4,884 4,145 Revaluation adjustments and hedging transactions ...... 237 290 518 Total Equity (III) ...... 69,356 81,742 76,472
Long term provisions ...... — 480 185 Long-term borrowings: ...... 82,991 24,968 27,000 Bank borrowings(1) ...... 82,991 24,750 26,639 Financial lease ...... ——18 Derivatives ...... — 148 60 Other financial liabilities ...... — 70 283 Borrowings from related parties ...... 11,133 15,000 15,000 Deferred tax liabilities ...... 2,878 3,473 4,058 Accruals ...... 220 429 — Total non-current liabilities (IV) ...... 97,222 44,350 46,243 Short-term provisions ...... 808 717 — Short term debts ...... 5,587 2,400 101 Bank borrowings(1) ...... 5,458 1,750 70 Financial lease ...... —1831
92 eDreams Group Spanish GAAP As of December 31 2010 2009 2008 (in thousand g) Derivatives ...... 18 534 — Other financial liabilities ...... 111 98 — Borrowings from group companies and associates ...... 26 — — Trade and other accounts payable ...... 33,502 20,108 16,035 Suppliers ...... 25,616 10,295 12,788 Other payables ...... 3,142 1,765 — Staff ...... 1,569 1,342 1,476 Current tax liabilities ...... 1,705 5,801 — Tax payables ...... 1,470 905 1,771 Accruals ...... 209 499 733 Total current liabilities (V) ...... 40,132 23,724 16,869 TOTAL Equity and Liabilities (III+IV+V) ...... 206,710 149,816 139,584
(1) Total borrowings (excluding deferred expenses capitalized at the time of the acquisition of the eDreams Group in August 2010) was e97 million by December 2010.
eDreams Cashflow Statement Data (Spanish GAAP)
eDreams Group Spanish GAAP Year ended December 31 2010 2009 2008 (in thousand g) Cash flows from operating activities: Profit before tax ...... 15,461 9,362 5,820 Adjustments to profit ...... 7,114 7,074 8,188 Change in working capital ...... 20,509 (4,800) (4,262) Other non current liabilities ...... (689) — — Other cash flows from operating activities ...... (11,185) (4,283) (6,457) Net cash flows from operating activities (I) ...... 31,210 7,353 3,289 Cash flows from/used in investing activities: Intangible fixed assets ...... (847) (357) (418) Property, plant and equipment ...... (567) (264) (1,204) Other financial assets ...... (561) (570) (125) Net cash flows from/used in investing activities (II) ...... (1,975) (1,191) (1,747) Cash flows from/used in financing activities: Repayment and redemption of bank borrowings ...... (26,503) (300) (2,541) Repayment and cancellation of debt with group borrowings ..... (15,000) — — Debt issues with credit institutions ...... 5,000 — — Debt issues with group companies ...... 1,633 — — Other liabilities ...... (589) 695 300 Proceeds from and payments of equity instruments ...... 1,742 — — Effect of exchange rate changes ...... (221) (85) — Net cash flows from/used in financing activities (III) ...... (33,938) 310 (2,241) Net increase/(decrease) in cash and cash equivalents (I+II+III) ... (4,703) 6,472 (699) Cash and cash equivalents at beginning of period ...... 17,763 11,291 12,962 Cash and cash equivalents at end of period ...... 13,060 17,763 12,263
93 Opodo Income Statement and Financial Data (IFRS)
Opodo IFRS For the year ended December 31 2010 2009 2008 (in thousand g) Total revenue ...... 146,707 103,112 91,117 Supplies ...... (35,726) (4,444) — Personnel expenses ...... (20,112) (17,900) (19,948) Other operating expenses ...... (63,152) (55,440) (58,976) Depreciation and amortization ...... (652) (830) (2,090) Operating profit ...... 27,065 24,498 10,103 Other income and expense ...... 167 — — Net finance income/(expense) ...... (494) (103) 40 Profit before tax ...... 26,738 24,395 10,143 Income tax ...... 53,688 6,244 20 Profit for the year attributable to equity holders of the parent ...... 80,426 30,639 10,163
94 Opodo Balance Sheet Data (IFRS)
Opodo Group IFRS As of December 31 2010 2009 2008 (in thousand g) Other intangible assets ...... 1,272 484 690 Property, plant and equipment ...... 614 686 831 Deferred tax asset ...... 62,237 6,400 — Trade and other receivables ...... 1,123 — — Non-current assets ...... 65,246 7,570 1,521 Trade and other receivables ...... 108,411 70,472 39,275 Cash and cash equivalents ...... 16,872 13,862 9,273 Restricted cash deposits ...... 2,962 4,089 2,626 Other financial assets ...... 167 — — Tax receivables ...... 47 203 — Current assets ...... 128,459 88,626 51,174 Total assets ...... 193,705 96,196 52,695 Trade and other payables ...... 1,515 — — Non-current liabilities ...... 1,515 — — Trade and other payables ...... 99,635 84,801 71,897 Tax liabilities ...... — — 148 Current liabilities ...... 99,635 84,801 72,045 Total liabilities ...... 101,150 84,801 72,045 Net current assets/(liabilities) ...... 28,824 3,825 (20,871) Net assets/(liabilities) ...... 92,555 11,395 (19,350) Called up share capital ...... 275,113 275,113 275,113 Share premium account ...... 88,846 88,846 88,846 Translation reserve ...... (373) (1,107) (1,213) Other reserves ...... (30,441) (30,441) (30,441) Retained losses ...... (240,590) (321,016) (351,655) Equity attributable to equity holders of the parent ...... 92,555 11,395 (19,350)
95 Opodo Cashflow Statement Data (IFRS)
Opodo IFRS Year ended December 31 2010 2009 2008 (in thousand g) Cash flows from operating activities: Operating profit ...... 27,065 24,498 10,103 Adjustments to operating profit ...... 2,848 482 2,241 Change in working capital ...... (25,299) (18,532) (4,430) Taxes paid ...... (1,993) (292) (97) Net cash flows from operating activities (I) ...... 2,621 6,156 7,817 Cash flows from investing activities: Expenditure on Intangible assets ...... (1,072) (172) (669) Purchases of property, plant and equipment ...... (245) (307) (250) (Increase)/decrease in restricted cash deposits ...... 1,127 (1,463) 1,031 Interest received ...... 419 377 852 Net cash flows from investing activities (II) ...... 229 (1,565) 964 Cash flows from financing activities: Repayment and redemption of bank borrowings ...... ——— Borrowing from parent company ...... — — (12,110) Interest paid and other financial expenses ...... (523) (91) (599) Net cash flows used in financing activities (III) ...... (523) (91) (12,709) Net increase/(decrease) in cash and cash equivalents (I+II+III) .. 2,327 4,500 (3,928) Cash and cash equivalents at beginning of year ...... 13,862 9,273 14,267 Effect of exchange rate changes ...... 683 89 (1,066) Cash and cash equivalents at end of year ...... 16,872 13,862 9,273
96 MANAGEMENT’S DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of the financial condition and results of operations of the Geo Group, the Go Voyages Group, the eDreams Group and the Opodo Group in conjunction with the sections entitled ‘‘Unaudited Pro Forma Combined Financial Information’’ and ‘‘Selected Historical Financial Data,’’ as well as the financial statements and the related notes included elsewhere in this Offering Circular. This discussion contains forward looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the ‘‘Risk Factors’’ section of this Offering Circular. Actual results could differ materially from those contained in any forward looking statements.
Overview of the Geo Group We are a leading pan-European online travel agency that uses innovative technology and builds on relationships with suppliers, product know-how and marketing expertise to attract and enable customers to research, plan and book a broad range of travel products and services. Our services and products include flight tickets, hotels, car rentals, packages, travel insurance and other ancillary travel related services and products. We make our offers accessible to a broad range of users, including leisure and corporate travelers, online and offline travel agents, as well as white label partners. On February 9, 2011, Amadeus and LuxGEO entered into a sale and purchase agreement for the Acquisition. Simultaneously with the consummation of the Acquisition, the Geo Group will be formed through the combination of the Go Voyages Group (including Lyeurope), the eDreams Group and the Opodo Group, three fast-growing European OTAs with strong market positions in France, Spain, Portugal, Italy, Germany, the UK, Scandinavian countries and a number of other markets. The Acquisition is subject only to antitrust approval (see ‘‘The Transactions’’). For the year ended December 31, 2010, our businesses generated e3.3 billion of combined pro forma gross bookings, e302.9 million of combined pro forma revenue margin and e106.3 million of combined Pro Forma Recurring EBITDA. We make travel products and services available to travelers both on a stand-alone and package basis through two main lines of business: (i) flight and (ii) non-flight. Flight comprises both revenue generated from the sale of air tickets as well as flight insurance. Non-flight comprises all other revenue, including revenue generated from the sale of car rentals, hotel bookings, vacation packages, non-flight services and advertising. In both lines of business, our main sources of revenue are commissions and incentives from travel suppliers, mark-ups on products and services sold to travelers, and service fees we charge to our customers. We make these products and services available primarily through two business models: the merchant model and the agency model. Under the merchant model, we enable customers to book flight and non-flight products and services we source from travel suppliers. In such bookings we are either (i) the full merchant of record, in which case we charge and receive payment for the full amount of the booking from the customer and pay the net price of the travel product or service to our travel suppliers at a later date, or (ii) the merchant of record only in respect of the service fees we charge to the customer, in which case the remaining part of the booking value is transacted and charged to the customer directly by our travel suppliers. Revenue under the merchant model comprises commissions and incentives from travel suppliers, mark-ups on products and services sold to the customer, and service fees charged to the customer. Under the agency model we pass the reservation made by the customer on to the relevant travel supplier acting on behalf of the customer and receive a commission from the travel supplier. This commission is the only source of revenue we earn under the agency model, since we do not charge service fees to the customer for agency transactions.
Presentation of the Geo Group Pro Forma Combined Financial Information and Future Consolidated Financial Information The Go Voyages Group, the eDreams Group and the Opodo Group have historically operated as separate stand-alone groups and have reported financial information in accordance with French
97 GAAP, Spanish GAAP and IFRS, respectively. Following completion of the Transactions, we will report consolidated financial information for the Geo Group in accordance with IFRS, applying harmonized accounting principles and policies across all of our constituent businesses. These principal accounting principles and policies have been applied for purposes of establishing our pro forma combined financial information included elsewhere in this Offering Circular. See ‘‘Unaudited Pro Forma Combined Financial Information.’’ Certain of our revenue recognition policies as applied in our Pro Forma Combined Financial Information and as applicable for the Geo Group going forward are summarized below. We recognize revenue when (i) we have evidence of a contractual agreement in respect of products and services to be provided, (ii) such products are delivered or such services have been rendered and (iii) the revenue is determinable and collectability is reasonably assured. We have evidence of a contractual agreement when we enter into a legally enforceable agreement with the customer with terms and conditions that describe the product to be delivered or the service to be rendered and the related payment terms. We consider revenue to be determinable when the product or service has been rendered in accordance with the said agreement. For flight products (both under the merchant and the agent models), revenue is generally recognized upon booking as we do not assume any further performance obligation to our customers after the product has been ticketed (even though we support fraud risks). In these instances, revenue is recognized on a net basis. Conversely, in cases where (i) we pre-purchase and assume inventory risk or (ii) we bear any financial risk with respect to the booking, for instance in the event of cancellation (for both (i) and (ii), which is exclusively done under the merchant model), revenue is recognized at time of departure as we are considered to be the primary obligor to the traveler. In these cases, revenue is recognized on a gross basis, comprising the gross value of the transaction billed to the customer (net of VAT and cancellations), with any amounts paid to the supplier accounted for as ‘‘supplies.’’ In the event of cancellation of a booking, flight revenue recognized in respect of commissions earned from travel suppliers is reversed and is netted off from our revenue earned during the fiscal period at the time of cancellation. For flight products or services carrying inventory or other financial risk (which are exclusively placed under the merchant model), cancellations do not impact revenue recognition since revenue is recognized upon the departure date, when the product is delivered or the service is rendered. For non-flight products (for both the merchant and the agent models), we consider that revenue is determinable upon departure date for packages, check-out date for hotel rooms, pick-up date for car rentals and date of publication over the delivery period for advertising revenue. In the event of cancellation, our revenue recognition is not impacted since revenue is recognized, in each case, when the product is delivered or the service rendered. In both flight and non-flight, revenue on products or services for which we do not assume inventory or other financial risk is accounted for on a ‘‘net’’ basis, representing the commissions, incentives, mark-ups and fees we earn. When we incur an inventory or other financial risk in either of our two lines of business (currently the case only for charter flights offered by Go Voyages in France, Dynamic Packages offered by Opodo and tour packages offered by eDreams in Italy), revenue is accounted for on a ‘‘gross’’ basis, representing the total amount paid by our customers for these products and services. The cost of procuring the relevant products and services sold to our customers is accounted for as ‘‘supplies.’’ ‘‘Revenue margin’’ is defined as total revenue less supplies. The following table sets forth a reconciliation of our pro forma revenue margin for our flight and non-flight businesses, on a combined basis for the Geo Group for the year ended
98 December 31, 2010. For more information about our pro forma combined financial information, see ‘‘Unaudited Pro Forma Combined Financial Information.’’
Geo Group Pro forma Combined For the year ended December 31 (in thousand g) 2010 Flight ...... 234,777 Non-Flight(1) ...... 68,141 Revenue margin ...... 302,918
(1) Non-flight revenue includes revenue from hotels, car rentals, train and bus tickets, packages (including insurance related to these products) and from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls. Gross bookings, which is also a non-GAAP measure, represents the total amount paid by our customers for travel products and services booked through us under the merchant model (including the part that is passed on to the travel supplier, taxes, fees and other charges but excluding VAT). While the gross value of transactions booked under the agency model is not included in gross bookings, these transactions generated a minor portion of our combined pro forma revenue margin over the last three full fiscal years. Our management uses the gross bookings measure to evaluate and assess our competitive position and the strength of our brands in our various markets, as well as the trends in the recorded volumes of customer transactions and levels of fares charged by travel suppliers. The following table sets forth our combined gross bookings for flight and non-flight on a pro forma combined basis for the year ended December 31, 2010.
Geo Group Pro Forma Combined IFRS For the year ended December 31, 2010 (in thousand g) Flight Non-Flight Total Pro Forma Gross Bookings(1)(2) ...... 3,035,936 305,998 3,341,494
(1) Gross Bookings is a non-GAAP measure. Pro forma Gross Bookings for the combined Geo Group is not derived from the Pro Forma Combined Financial Information.
(2) Opodo does not differentiate between insurance revenue for flight products and insurance revenue for non-flight products. For purposes of this presentation, insurance revenue has been allocated between flight and non-flight products based on the relative number of flight and non-flight bookings.
Factors Affecting Results of Operations of the Geo Group Our results of operations, financial position and liquidity have been in the past, and could be in the future, affected, by the following factors and developments:
Trends and changes in the travel and global economy Our financial results have been, and are expected to continue to be, affected by factors, trends and changes in the global economy in general and the travel industry in particular. These factors, trends and changes include: • Global economic conditions. Changing economic cycles affect demand for travel products, and consequently affect our business. Such cycles are generally influenced by global political events, such as terrorist acts or episodes or labor or social unrest, war or other hostilities, failing governments as well as by market specific events, such as shifts in customer confidence and customer spending. Demand for travel products hinges in particular on general economic conditions, as spending on travel is largely discretionary and
99 tends to decline, or grow more slowly, during economic downturns. The recent economic and financial crisis has had a significant impact on customer demand in general, and on demand for travel products in particular, and we believe that the prospects for economic recovery in most of our European markets remain uncertain in the short-term. However, during the recent economic downturn an increasing number of cost-conscious customers have turned to online agencies in the search for cheaper flights and travel deals, which has further intensified the growth of online travel penetration and partly offset the adverse impact of deteriorating consumer confidence on overall travel expenditures. Demand for our products is also exposed to accidents, natural disasters, climate change, such as the eruption in 2010 of Iceland’s Eyjafjallajokull volcano, outbreaks of diseases and epidemics, leading to the closure of airspace in various European countries and numerous flight cancellations. Given the worldwide reach of our travel offerings, similar events have in the past, and could in the future, directly affect our customers’ propensity to travel and lead to a reduction in travel expenditures; • Internet penetration in our different markets. The level of our activity and the growth of our businesses are also highly dependent on the penetration of the online channel in the distribution of travel products generally. Increased usage and familiarity with the internet have driven rapid growth in online penetration of travel expenditures over the past few years. According to the European Technology & Travel Services Association, in 2010, approximately 33% of European leisure and corporate travel expenditures occurred online, compared with approximately 57% of U.S. travel, which indicates potential for future growth of European online penetration at a more sustained pace than in the United States. Our businesses in markets where Internet has been less widely and rapidly adopted have historically experienced faster growth than our other more mature markets; • Competition from new and existing market participants. The steady increase of penetration rates of online travel over the past few years has attracted an increasing number of competitors to the online travel industry and this competition is expected to remain high or intensify further for the foreseeable future. We face strong competition mainly from both established and emerging online and traditional sellers of travel-related services (including traditional travel agencies, tour operators, travel suppliers and other online travel agents). Many travel suppliers have been focusing on increasing online demand on their own websites in lieu of third-party distributors such as our various websites. Suppliers who sell on their own websites may typically offer products and services on more favorable terms, including lower prices, increased or exclusive product availability, no fees or unique access to proprietary loyalty programs, such as points and miles. In addition, large online portal and search companies, as well as online travel metasearch sites, which utilize their search technology to aggregate travel search results, may redirect possible customers to our direct competitors’ websites. On the other hand, we expect that our strong brand awareness, marketing track record and advanced proprietary technologies give us a competitive advantage, as new entrants would require significant time and investment to reach a comparable level of brand awareness and develop state-of-the-art IT systems; • Fragmentation of the European travel industry. The European market for the supply of travel agency services is highly fragmented due to the presence of multiple countries with different languages, currencies, tax and regulatory environments, leading to localized competition for most types of product or service offerings, structural overcapacity and higher fares. The flight segment is characterized by the existence of one or more principal players in most major European countries, each with its own bases and routes, and by a low level of brand awareness of these carriers outside their respective home markets. In the non-flight segment, large hotel chains, car rental agencies and insurance providers with the resources to invest in their own competitive distribution channels account for a relative small portion of total non-flight bookings. This fragmentation represents an appealing growth opportunity for OTAs with the ability to access and aggregate the existing extensive range of travel content from different sources on a timely basis, compare it and make it easily understandable and usable for online customers. In addition, the fragmentation of the European travel industry along national and language borders uniquely positions OTAs to arbitrage geographical differences and offer the best travel deals, establishing a broad-based brand awareness in Europe, improving transaction volumes and increasing scale;
100 • Access to supply of travel products and services. As we make our travel products and services available from a variety of large and small commercial airlines, lodging properties, car rental companies, other destination service providers and insurance providers, an important component of the success of our business depends on our ability to maintain our existing relationships, as well as build new relationships, with travel suppliers and GDS partners. On February 9, 2011 we signed a non-exclusive ten-year global distribution system contract with Amadeus, a leading transaction processor for the European travel and tourism industry, which will give us access to products available on airline.com websites and to other flight and non-flight repository of travel content, including the highest value segments. In addition, we have established and seek to maintain long-term relationships with key full-service carriers. We believe that our continued ability to offer comprehensive travel content to our customers through our supplier relationships will be a key factor to further enhance our position as a leading pan-European OTA; and • Regulation in our different markets. We must comply with laws and regulations relating to the travel industry and the provision of travel services, including those relating to IATA accreditation, sales of packages, data protection and e-commerce. As we continue to expand the reach of our brands into the European and other international markets, we are increasingly subject to laws and regulations applicable to travel agents in those markets, including, in some countries, laws regulating the provision of travel packages and industry specific value-added tax regimes. For example, the European Economic Community Council Directive on Package Travel Package Holidays and Package Tours imposes various obligations upon marketers of travel packages, such as disclosure obligations to consumers and liability to consumers for improper performance of the package, including supplier failure. We expect that there will continue to be an increasing number of laws and regulations pertaining to the internet and online commerce, which may relate to liability for information retrieved from or transmitted over the internet, user privacy, taxation and the quality of products and services. Furthermore, the growth and development of online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on online businesses generally.
Changes in Revenue Mix Changes in the air travel industry have affected, and will continue to affect, revenue for travel agents, including us. In particular, volatility in global economic conditions and jet fuel prices in recent years have caused our airline partners to pursue cost reductions in their operations, including reducing distribution costs. Measures taken by airlines to reduce such costs have included reductions in or elimination of travel agent commissions. We receive incentives from our GDS service providers based on the volume of sales completed by us through the GDS systems. Airlines could further reduce distribution costs by reducing fees paid to GDSs who in turn could reduce incentives paid to us. Unlike full-service airlines, low-cost airlines generally do not utilize GDSs for access to their products. As a result, travel agents selling air tickets for certain low-cost airlines do not earn incentives from GDSs. These trends have prompted travel agents, including us, to introduce service fees charged to customers and the number of services for which fees are levied. Given the relatively weaker position of airlines outside of their local markets, many of our airline suppliers pay incentive fees to travel agents such as ourselves, in order to improve their sales. Despite service fees being stable over the last years, in the future we may not be able to maintain current levels of service fees because of increasing competition with other OTAs and direct sales by suppliers. We generate a higher revenue margin per booking from non-flight products than in the air ticketing business, reflecting mainly a higher average amount per transaction in respect of the travel services that we provide in the non-flight segment as well as the diverse and more complex nature of non-flight services as compared with air tickets. While the majority of our bookings to date have been in the flight segment, we are focused on expanding our non-flight business, including by capitalizing on the fragmented nature of non-flight suppliers and cross-selling accommodation and car rentals to our flight customers and offering more vacation packages.
101 Despite the recent economic downturn, revenue margin per booking at our three constituent businesses has remained generally stable over the 2008-2010 period.
Seasonality We experience seasonal fluctuations in the demand for travel services and products offered by us. Because we generate the largest portion of our revenue margin from flight bookings, and most of that revenue for flight is recognized at the time of booking, we tend to experience higher revenues in the periods during which travelers book their vacations, i.e., during the first and second calendar quarters of the year, corresponding to bookings for the busy spring and summer travel seasons. Consequently, comparisons between subsequent quarters may not be meaningful.
Brand Awareness and Marketing Expenses We believe that brand awareness is a crucial factor for customer acquisition and retention among European OTAs. The Go Voyages Group, the eDreams Group and the Opodo Group have historically committed significant resources to supporting brand awareness and spent, taken together, approximately e100 million in 2010 in marketing and advertising costs. As a result, our brands are among the most searched and the highest rated in the European OTA industry on search engine recognition metrics (the 90-day Google Insights Index for 2010 as of February 23, 2011, for example, rated eDreams number one and Opodo number three amongst European OTAs). We believe that continued investment in our brands is critical to retaining and expanding our traveler, supplier and advertiser bases due to a variety of factors. These include increased marketing expenditures from our competitors, the increasing costs of supporting multiple brands, expansion into geographies and products where our brands are less well known, inflation in media pricing (including search engine keywords) and the continued emergence and traffic share growth of search engines and metasearch engines as destination sites for travellers.
Effects of the Transactions The Acquisition, which gives rise to a change of control of Opodo Limited for IFRS accounting purposes, will be accounted for using the purchase method of accounting. Under the revised IFRS 3 ‘‘Business Combinations,’’ the cost of an acquisition is measured as the fair value of the assets transferred, liabilities incurred and the equity interests issued by the acquirer, including the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition- related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s share of the identifiable net assets acquired is recorded as goodwill. Since the Acquisition has not been consummated yet, we have not finalized the fair value of assets acquired and liabilities to be assumed at the date of Acquisition. In accordance with IFRS, we have up to 12 months from the date of the Acquisition to finalize the allocation of the purchase price. Accordingly, the unaudited Pro Forma Combined Financial Information are based on management’s current estimates regarding the fair values of assets acquired and liabilities assumed which are deemed identical to their pre-acquisition carrying values measured in accordance with IFRS. The final estimation of the fair values of assets acquired and liabilities assumed could differ significantly from these estimates and related reported values for assets and liabilities. Furthermore, the identifiable net assets acquired on the date of the Acquisition could be significantly different from those as of December 31, 2010. This will directly impact the measurement of any goodwill arising from the Acquisition. To the extent that finite life intangible assets are identified, these will be amortized over their estimated useful life. The unaudited Pro Forma Combined Financial Information set forth in this Offering Circular under ‘‘Unaudited Pro Forma Combined Financial Information’’ assume that the intangible asset acquired is goodwill, which is not amortized under IFRS. To the extent the intangible asset acquired is ultimately allocated to other assets, our amortization expense will increase. Please refer to the notes to the Pro Forma Combined Financial Information set forth in this Offering Circular under ‘‘Unaudited Pro Forma Combined Financial Information.’’ We will incur a substantial amount of new debt to finance the Acquisition and the other Transactions. On a pro forma basis, after giving effect to the Transactions and incurrence of
102 indebtedness in connection therewith, our pro forma interest expenses on the Senior Credit Facilities and the Notes offered hereby is e41.3 million for the year ended December 31, 2010. Accordingly, our financial results following consummation of the Transactions may differ significantly from the financial results previously reported by the Go Voyages Group, the eDreams Group and the Opodo Group.
Total revenue, Supplies and Expenses of the Geo Group (Pro Forma Combined) The following section discusses the main income statement line items of the Geo Group derived from the Pro Forma Combined Financial Information that have been prepared based on recognition and measurement principles consistent with IFRS. These line items will be used in the future to comment on the results of operations of the Group. These main line items will also be used in this Offering Circular to comment on the historical results of operations of the Go Voyages Group, the eDreams Group and the Opodo Group, with a reconciliation with their respective historical financial statements under French GAAP, Spanish GAAP and IFRS, respectively. See ‘‘Management Discussion and Analysis of our Financial Condition and Results of Operations—Reconciliation with the Go Voyages French GAAP Financial Statements,’’ ‘‘Management Discussion and Analysis of our Financial Condition and Results of Operations—Reconciliation with the eDreams Spanish GAAP Financial Statements’’ and ‘‘Management Discussion and Analysis of our Financial Condition and Results of Operations—Reconciliation with the Opodo IFRS Financial Statements.’’
Total revenue Flight In connection with our flight business, we earn commissions from regular and low–cost airlines for tickets booked by customers through our distribution channels, as well as incentive payments linked to the number of sales facilitated by us. We apply markups and charge our customers fees for booking and other travel services on both flight and ancillary products (including insurance). We also receive incentives from our GDS service providers based on the volume of sales completed by us through the GDS systems. When we incur an inventory or other financial risk in connection with our flight products (mainly the charter flights offered by the Go Voyages Group), total revenue represents the total amount paid by our customers for these products and services. Total revenue from air tickets sold as part of packages and any ancillary service is accounted for in our non-flight revenue.
Non-Flight Total revenue from our hotels, car rental and packages businesses is also generally earned through markups and commissions for bookings by customers through our distribution channels as well as incentive payments received from suppliers linked to the number of sales facilitated by us. Total revenue from insurance subscribed by our customers in connection with non-flight bookings is accounted for in our non-flight revenue. When we incur an inventory or other financial risk in connection with our non-flight products (mainly the Dynamic Packages offered by the Opodo Group and tours offered by the eDreams Group in Italy), revenue represents the total amount paid by our customers for these products and services. Non-flight total revenue also comprises revenue from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls.
Supplies For certain of our products, we purchase inventory in order to enjoy special negotiated rates or bear certain financial risks on the bookings (such as cancellation). Revenue from the sale of such products is recognized on a ‘‘gross’’ basis, representing the total amount paid by our customers for these products and services. The cost of procuring the relevant products and
103 services sold to our customers is accounted for as ‘‘supplies.’’ These products have been to date charter flights sold by the Go Voyages Group, Dynamic Packages sold by the Opodo Group, as well as, to a lesser extent, tour operator products sold by the eDreams Group in Italy. Revenue from our other businesses is recognized on a ‘‘net’’ basis. Therefore, there is typically no supplies cost associated with revenue for such other businesses.
Revenue margin Revenue margin is total revenue less supplies.
Personnel Expenses Personnel expenses primarily consist of wages and salaries, employee welfare expenses, contributions to mandatory retirement funds as well as other expenses related to the payment of retirement benefits, and other employee benefits.
Other Operating Expenses Other operating expenses primarily consist of marketing expenses, credit card processing costs (incurred only under the merchant model), chargebacks on fraudulent transactions, IT costs relating to the development and maintenance of our technology, GDS search costs and fees paid to our outsourcing service providers, such as call centers or IT services. Our marketing expenses comprise customers acquisition costs (such as paid search costs, metasearch costs and other promotional campaigns) and commissions due to agents and white label partners. A large portion of our Other Operating Expenses are variable costs, either because they are directly related to the number of transactions processed through us or because they result from discretionary decisions from our management.
Depreciation and Amortization Depreciation consists primarily of depreciation expense recorded on property and equipment, such as computers and office furniture, fixtures and equipment, leasehold improvements and IT hardware and capitalized IT costs. Amortization expense consists primarily of amortization recorded on intangible assets.
Finance Income/(Loss) Financial results is the income from financial activities less interest expense on our debt and bank charges.
Main Differences between French GAAP and IFRS The Go Voyages Financial Statements included elsewhere in the Offering Circular, together with the notes thereto, have been prepared in accordance with French GAAP. Certain differences exist between French GAAP and IFRS that may be material to the financial information presented therein. The discussion set forth below summarizes certain differences identified between IFRS to be applied by the Geo Group in the future and French GAAP as applied historically by Go Voyages, following a limited analysis of both sets of principles. Certain differences have been identified and quantified for the purposes of preparing the unaudited Pro Forma Combined Financial Information presented elsewhere in this Offering Circular.
Amortization of Goodwill and Other Intangible Assets Under French GAAP, Go Voyages capitalizes goodwill and other intangible assets and amortizes them over their useful life, not exceeding 20 years, except for certain brands and trademarks, which have an indefinite useful life and therefore are not amortized. French GAAP requires an impairment review of goodwill and other intangibles whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
104 Under IFRS, goodwill is not amortized, but is tested for impairment annually and whenever there is an indication of impairment. Goodwill resulting from a business combination must be allocated to each of the acquirer’s cash-generating units (‘‘CGU’’), or groups of CGUs, that are expected to benefit from the synergies of the combination. Each CGU or group of CGUs for goodwill impairment testing cannot be larger than an operating segment determined in accordance with IFRS 8 Operating Segments. The annual impairment test may be performed at any time during an annual period, provided the test is performed at the same time every year. The impairment test requires comparing the carrying amount of a CGU, or group of CGUs, including goodwill allocated, with the recoverable amount, defined as the higher of fair value less costs to sell or the value in use. If the carrying amount exceeds the recoverable amount, an impairment charge is recorded to reduce the carrying amount of the CGUs to its recoverable amount. The impairment charge is recognized first to reduce the carrying amount of goodwill allocated to the CGU (or group of CGUs) under review to zero. Allocation is then made to the CGUs (or group of CGUs), other assets pro rata on the basis of the carrying amount of each asset in the CGU (for group of CGUs).
Recognition of Deferred Tax Liabilities on Brands Acquired Through Business Combinations Under French GAAP, deferred tax liabilities are not recognized in the consolidated financial statements on brands acquired through business combinations. Under IFRS, there is no such exemption with regard to the non-recognition of deferred taxes on brands. Deferred tax liabilities are therefore recognized under IFRS based on the difference between the book and tax values of brands, thus resulting in an increase in long term deferred tax liabilities and corresponding increase in goodwill.
Acquisition Costs Related to Business Combinations Under French GAAP, acquisitions costs incurred in relation to a business combination are capitalized as part of the cost of the business combination. Under IFRS, as a result of the application of the revised version of IFRS 3 Business Combinations (2008), acquisition-related costs are expensed as incurred in the period in which the costs are incurred and the services are received.
Accounting for Financial Liabilities—Amortized Cost and Interest Method Under French GAAP, financial liabilities are initially recorded at nominal value. Directly attributable transaction costs, premiums and discounts are recognized as expenses when incurred. Interest expense is recognized based on the contractual interest rate. Under IFRS, financial liabilities are initially measured at fair value less directly attributable transaction costs. Financial liabilities are subsequently measured at their amortized cost using the effective interest method. The amortized cost of a financial liability is the amount at which the financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial liability or, when appropriate, a shorter period to the net carrying amount of the financial liability. When calculating the effective interest rate, cash flows are estimated considering all contractual terms of the financial instrument (such as prepayment, call and similar options) but not considering future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
Accounting for Convertible Debt Under French GAAP, the convertible subordinated bonds issued by Lyeurope was recognized and presented entirely as financial debt. Under IFRS, the convertible debt is a compound financial instrument that includes a debt component and an equity component. Under IFRS, in accordance with IAS 32 Financial Instruments: Presentation, if a financial instrument includes different components, certain of which have the characteristics of debt instruments and others which are equity instruments, the issuer must classify these different components separately from each other.
105 Thus, a single instrument must, if applicable, be partly recognized within financial liabilities and partly within equity. This category of instruments includes financial instruments that create a liability for the issuer and that grant an option to the holder of the instrument to convert it into an equity instrument of the issuer. When the nominal amount of a compound financial instrument is allocated to its equity and liability components, the equity component is equal to the difference between the nominal value of the instrument and the fair value of the debt component. The debt component is calculated as the market value of a similar liability that does not have an associated equity component.
Derivative Financial Instruments Go Voyages uses financial instruments to manage exposures to changes in interest rates. Interest rate risk is managed through the use of swaps and caps. The aim is to reduce exposure to interest rate fluctuations and not for speculative purposes. Under French GAAP, all open positions at year-end with regard to derivatives are not recognized in the consolidated balance sheet and presented as off-balance sheet items. Under IFRS, derivatives are required to be recorded on the balance sheet as an asset or liability. They are initially measured at fair value on the acquisition date. IFRS requires subsequent measurement of all derivatives at their fair values, regardless of any hedging relationship that might exist. Changes in fair value are required to be recognized currently in earnings, unless specific hedge accounting criteria are met. Hedge accounting is permitted under IFRS provided that the entity meets stringent qualifying criteria in relation to documentation and hedge effectiveness. Such criteria have not been met historically for Go Voyages. As a result, changes in fair value for interest-rate derivatives have been recognized through income in connection with the Pro Forma Combined Financial Information.
Capitalization of Development Costs Under French GAAP, research and development costs incurred in relation to the development of the information technology platform were expensed as incurred. Under IFRS, the application of the principles defined in IAS 38 Intangible Assets requires Geo to capitalize part of the development costs that had been expensed under French GAAP. Consequently, development expenditures have been capitalized in the IFRS balance sheet of the Pro Forma Combined Financial Information corresponding to the period ended December 31, 2010. Go Voyages has put in place the information systems required to test the eligibility of development costs for capitalization, as set out in IAS 38. However, full retrospective application of IAS 38 has not been possible due to the lack of complete and reliable information for prior periods. As a result, development costs incurred prior to January 1, 2010 have not been capitalized in the Pro Forma Combined Financial Information.
Revenue Recognition—Basis of Recognition Under French GAAP, revenue (and supplies) is generally recognized on the date of departure for both flight and non-flight products. Under IFRS, revenue (and cost of sales) is recognized when we have fulfilled the reservation and there is no further obligation to the customer, that is, at time of
106 booking (except for charter flight revenue). Below is a summary describing the different type of revenue and the corresponding basis of revenue recognition.
French GAAP Basis of revenue IFRS Basis of revenue Income stream recognition recognition Charter flight transactions Date of departure Date of departure Scheduled flight transactions Date of departure Date of booking Airline incentives Accrued based on gross sales or Accrued based on gross sales when paid GDS incentives Date of departure or when paid Date of booking Low cost Date of departure Date of booking Hotel transactions Date of departure (check-in) Date of departure (check-in) Car transactions Date of departure (pick-up) Date of departure (pick-up) Packaged products (including dynamic) Date of departure Date of departure Advertising revenue Date of display Date of display Insurance Date of departure Date of booking
Revenue Recognition—Gross vs. Net Presentation Under French GAAP, revenue is generally recognized on a gross basis, regardless of whether the OTA bears an inventory risk or any other financial risk on the booking. Under IFRS, the amount of revenue recognized may differ. When the OTA acts as principal, revenue is recognized on a gross basis since the OTA has the ability to determine the price, is responsible for the actual delivery of the flight and bears an inventory or other financial risk. The revenue comprises the gross value of the transaction billed to the customer, net of VAT, with any related expenditure charged as supplies. For the Go Voyages Group, such revenue comprises sales in respect of charter flights. Where the OTA acts does not bear any inventory or other financial risk, revenue is recognized on a net basis, with revenue representing the margin earned. Such revenue comprises sales in respect of regular airlines, hotels, car rentals and packaged travel products. For LLCs, the OTA usually passes reservations booked by customers to the travel supplier and revenue represents the service fee charged to the customer.
Presentation of the Consolidated Statement of Income—Exceptional Items Under French GAAP, certain income or expense items, that are exceptional and non-recurring, are presented separately in the consolidated statement of income as extraordinary result, below operating profit. Under IFRS, the notion of exceptional income and expenses does not exist and the nature or function of a transaction or other event, rather than its frequency, determines its presentation within the consolidated statement of income. Pursuant to IAS 1 Presentation of Financial Information, non-recurring income and expenses have been reclassified in the Pro Forma Combined Financial Information included elsewhere in this Offering Circular within operating profit and/or financial income, according to their nature. In addition, according to IFRS standards, Geo may choose whether to show the income statement by nature (personnel costs, general expenses, etc.) or by function (administrative costs, sales costs, etc.).
Presentation of the Consolidated Statement of Income—Business Tax On December 31, 2009, the French government published changes to its ‘‘Taxe professionnelle,’’ or business tax, regime effective January 1, 2010. The Business Tax has been replaced with two new taxes: • ‘‘Contribution fonciere` des entreprises’’ or ‘‘CFE’’ and • ‘‘Cotisation sur la valeur ajoutee´ des entreprises’’ or ‘‘CVAE’’ The Business Tax was an annual tax based on the ‘‘rental’’ value of a company’s tangible fixed assets owned or used for business purposes on January 1 of the prior year. Under French
107 GAAP, both the CFE and the CVAE are considered as taxes other than income tax and presented within operating profit in the consolidated statement of income. With respect to the CFE, under the new regime, it is calculated in substantially the same manner as the Business Tax, but it is solely based on the ‘‘rental’’ value of real estate assets owned or used for business purposes on 1 January of the prior year (machinery and equipment are no longer taxed). As with its predecessor, this tax is not a tax on income for purposes of applying IAS 12 Income Taxes (‘‘IAS 12’’). However, the CVAE is calculated in substantially the same manner as the ‘‘floor,’’ or minimum tax, that was required to be paid under the Business Tax regime, i.e., as a percentage of the ‘‘Value Added’’ in the current year. While the operation of the two new taxes combined has substantially the same effect as the old Business Tax, the CVAE has been treated as an income tax under IAS 12. As a result, the CVAE is presented within income tax, outside of operating profit, in the consolidated statement of income under IFRS.
Main Differences between Spanish GAAP and IFRS The eDreams Financial Statements included elsewhere in this Offering Circular, together with the notes thereto, have been prepared in accordance with Spanish GAAP. Although differences exist between Spanish GAAP and IFRS, management has determined that there are no significant differences applicable to the eDreams Group in relation to the recognition and measurement principles applied under Spanish GAAP. Accordingly, no adjustments have been considered in the preparation of the unaudited pro forma condensed consolidated financial information of eDreams included within the Unaudited Pro forma Combined Financial Information. Differences may arise in the future to the extent that there are any changes in accounting policies and accounting requirements under IFRS and/or Spanish GAAP, or in the event the eDreams Group undertakes any new transactions not previously entered into or contemplated.
Main Differences between IFRS as applied by Opodo historically and IFRS to be applied by Geo The Opodo Financial Statements included elsewhere in this Offering Circular have been prepared in accordance with its historical IFRS policies and therefore differ in certain aspects from those adopted by the Geo Group. In particular, Opodo’s historical revenue recognition policy for air commission income under IFRS is to recognize such revenue on the date of flight departure. On a group basis, The Geo Group will recognize such commissions on the date of booking in accordance with its accounting policies.
Reconciliation with the Go Voyages French GAAP Financial Statements For clarity purposes, comments on the income statement items of the Go Voyages French GAAP Financial Statements included hereunder are presented in a manner consistent with the presentation of the income statement items of the Pro Forma Combined Financial Information introduced under Section ‘‘Total Revenue, Supplies and Expenses of the Geo Group (Pro Forma Combined Financial Information).’’ The following section presents a reconciliation between this presentation and the income statement of the Go Voyages French GAAP Financial Information. This consistent presentation does not imply in any way that the Pro Forma Combined Financial Information and the Go Voyages French GAAP Financial Statements are comparable. The Pro Forma Combined Financial Information have been prepared in accordance with the notes thereto and on the basis of the recognition and measurement principles of IFRS, whereas the Go Voyages French GAAP Financial Statements have been prepared in accordance with French GAAP. For a summary of the main differences between French GAAP and IFRS, see ‘‘Main Differences between French GAAP and IFRS.’’ Total Revenue. Historically, the entire revenue of the Go Voyages Group has been recognized on a ‘‘gross’’ basis in accordance with French GAAP. Therefore, in accordance with French GAAP, for bookings where the Go Voyages Group acted as agent or merchant without taking any inventory risk or other financial risk, revenue is grossed up to include the fare paid by the customers to the suppliers as well as all commissions and fees charged or received by the Go Voyages Group. For purposes of this presentation, revenue on a gross basis for the Go Voyages Group will comprise only revenue generated by its charter flights activity. For purposes of this section, revenue
108 corresponds to the line ‘‘total operating income’’ in the income statement of the Go Voyages French GAAP Financial Statements. Supplies. Supplies is included in the item ‘‘external expenses’’ of the income statement of the Go Voyages French GAAP Financial Statements and corresponds to the expense identified as ‘‘service purchases’’ in Note 4.4 of the Go Voyages French GAAP Financial Statements for the year ended March 31, 2010. Personnel expenses. Personnel expenses corresponds to the item ‘‘employee costs’’ of the income statement of the Go Voyages French GAAP Financial Statements. Expenses related to wages and salaries incurred in connection with outsourced call centers are booked under other operating expenses and not under personnel expenses. Other operating expenses. Other operating expenses corresponds, in the income statement of the Go Voyages French GAAP Financial Statements, to the sum of (i) the item ‘‘external expenses’’ less the expense identified as ‘‘service purchases’’ in Note 4.4 of the Go Voyages French GAAP Financial Statements for the year ended March 31, 2010, (ii) the item ‘‘taxes and duties other than income tax,’’ (iii) the item ‘‘other expenses’’ and (iv) the item ‘‘charges to provisions (net of reversal)’’ less the charge identified as ‘‘change to provisions for impairment of intangible assets’’ in Note 4.7 of the Go Voyages French GAAP Financial Statements for the year ended March 31, 2010. The following table sets forth a reconciliation of ‘‘other operating expenses’’ with the income statement of the Go Voyages French GAAP Financial Statements:
Go Voyages Group French GAAP For the nine months ended December 31 For the year ended March 31 2010 2009 2010 2009 2008 (in thousand g) External Expenses ...... 792,017 631,545 801,975 662,052 512,315 Less Service Purchases ...... (752,611) (607,608) (770,261) (637,094) (491,697) Taxes and Duties other than Income Tax ...... 984 707 1,079 933 643 Other Expenses ...... 1,991 1,085 1,727 2,139 1,677 Charges to provisions (net of reversals) reclassified within other operating expenses ..... 61 1,508 240 57 (568) Less Charge to Provisions for impairment of Intangible Assets . — — — — — Other Operating Expenses ..... 42,442 27,237 34,760 28,087 22,370
Depreciation and amortization. For purposes of this section, depreciation and amortization corresponds to the item ‘‘charges in depreciation and amortization’’ of the income statement of the Go Voyages French GAAP Financial Statements added to the charge identified as ‘‘charge to provisions for impairment of intangible assets’’ and less the charges to provisions (net of reversals) reclassified within operating expenses.
109 The following table sets forth a reconciliation of ‘‘depreciation and amortization’’ with the income statement of the Go Voyages French GAAP Financial Statements:
Go Voyages Group French GAAP For the nine months ended December 31 For the year ended March 31 2010 2009 2010 2009 2008 (in thousand g) Charges in depreciation and amortization ...... 8,511 8,894 10,956 20,656 972 Charges to provisions (net of reversals) ...... 1,373 2,821 3,115 2,808 2,181 Charges to provisions (net of reverals reclassified within other operating expenses) ...... (61) (1,508) (240) (57) 568 Depreciation and amortization .. 9,823 10,207 13,831 23,407 3,721
Finance income/(Loss). Finance Income corresponds to a specific line item in the Go Voyages GAAP Income Statements. Income tax. Income tax corresponds to the item ‘‘income tax (expense)/income’’ in the Go Voyages French GAAP Income Statements.
Key Operating Metrics of the Go Voyages Group The following table sets forth gross bookings for the flight and non-flight businesses of the Go Voyages Group for each of the years indicated.
Go Voyages Group For the year ended March 31 2010 2009 2008 (in thousand g) Gross Bookings(1) Flight ...... 804,469 656,636 506,410 Non-Flight(2) ...... 38,844 37,454 33,599 Gross Bookings ...... 843,313 694,090 540,009
(1) Gross Bookings is a non-GAAP measure. (2) Non-flight revenue includes revenue from hotels, car rentals, train and bus tickets, packages (including insurance related to these products) and from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls. The following table sets forth a reconciliation of the Go Voyages Group revenue margin for its flight and non-flight businesses for the periods indicated.
Go Voyages Group French GAAP For the nine months ended December 31 For the year ended March 31 2010 2009 2010 2009 2008 (in thousand g) Total revenue ...... 823,210 661,933 846,140 696,874 542,922 Less supplies ...... (752,611) (607,608) (770,261) (637,094) (491,697) Revenue margin ...... 70,599 54,325 75,879 59,780 51,225
110 Results of Operations of the Go Voyages Group (French GAAP) The following table sets forth certain historical revenue and expense items of the Go Voyages Group under French GAAP for each of the periods indicated.
Go Voyages Group French GAAP For the nine months ended December 31 For the year ended March 31 2010 2009 2010 2009 2008 (in thousand g) Total revenue ...... 823,210 661,933 846,140 696,874 542,922 Supplies ...... (752,611) (607,608) (770,261) (637,094) (491,697) Revenue margin ...... 70,599 54,325 75,879 59,780 51,225 Personnel expenses ...... (13,671) (12,778) (17,571) (13,399) (11,208) Other operating expenses ...... (42,442) (27,237) (34,760) (28,087) (22,370) Depreciation and amortization . . . (9,823) (10,207) (13,831) (23,407) (3,721) Net Operating Profit/(loss) ...... 4,663 4,104 9,717 (5,112) 13,927 Finance Income/(loss) ...... (12,653) (12,996) (17,326) (17,213) (17,139) Profit/(loss) before tax ...... (7,990) (8,892) (7,609) (22,325) (3,212) Non-recurring items ...... (1,116) 1 (6) (22) (145) Income tax ...... 303 506 (420) 1,318 1,823 Profit/(loss) ...... (8,803) (8,385) (8,035) (21,029) (1,534)
Comparison of the nine-month periods ended December 31, 2010 and December 31, 2009 for the Go Voyages Group The periods presented below took place prior to the Acquisition and present the results of operations of the Go Voyages Group only. The information used for purposes of these comments is derived from the Go Voyages French GAAP Financial Statements. This information is not comparable with information derived from the Pro Forma Combined Financial Information, the eDreams Spanish GAAP Financial Statements nor the Opodo IFRS Financials Statements. No financial information for the combined business is available for the nine-month periods. For a presentation of combined pro forma financial information for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
Revenue margin The following table sets forth revenue margin of the Go Voyages Group by product line for the nine months ended December 31, 2010 and December 31, 2009.
Go Voyages Group French GAAP For the nine months ended December 31 2010 2009 (in thousand g) Flight ...... 62,139 47,341 Non-Flight(1) ...... 8,461 6,985 Revenue margin ...... 70,599 54,325
(1) Non-flight revenue includes revenue from hotels, car rentals, train and bus tickets, packages (including insurance related to these products) and from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls. Revenue margin increased by e16.3 million, or 30.0%, to e70.6 million in the nine months ended December 31, 2010 from e54.3 million for the nine months ended December 31, 2009, mainly due to a e14.8 million, or 31.3%, increase in revenue margin for flights, to e62.1 million in
111 the nine months ended December 31, 2010 from e47.3 million for the nine months ended December 31, 2009. The increase in revenue margin for flights was due to an increase in revenue margin for regular flights, which was, in turn, mainly due to an increase in number of bookings over the period, the launch of a partnership with lastminute.com , as well as the increasing attachment rates of insurance products to regular flights. To a lesser extent, flight also benefited from an increase in revenue margin for charter flights, mainly due to an improvement in volumes and a higher occupancy rate over the period. Revenue margin from non-flight activities increased by e1.5 million, or 21.4%, to e8.5 million in the nine months ended December 31, 2010 from e7.0 million for the nine months ended December 31, 2009, which was mainly attributable to the launch of our packaged tours under the merchant model, previously carried under the agency model until February 2010. The other non-flight activities, in particular hotels and car rentals, remained stable over the periods.
Personnel expenses Personnel expenses increased by e0.9 million, or 7.0%, to e13.7 million in the nine months ended December 31, 2010 from e12.8 million for the nine months ended December 31, 2009. This increase was mainly attributable to the full-period impact of the expansion of the operational workforce during the year ended March 31, 2010 to support the Go Voyages Group business growth and, to a lesser extent, an increase in wages and salaries, which were partially offset by increased outsourcing of call centers.
Other operating expenses Other operating expenses increased by e15.2 million, or 55.9%, to e42.4 million in the nine months ended December 31, 2010 from e27.2 million for the nine months ended December 31, 2009. This increase was due, in part, to the transaction costs incurred in connection with the acquisition of the Go Voyages Group by AXA Private Equity in 2010 for e9.0 million. The increase was otherwise primarily attributable to an increase in marketing costs (from e15.9 million in the nine months ended December 31, 2009 to e20.5 million in the nine months ended December 31, 2010), as well as an increase in costs related to further outsourcing of call centers. Excluding the e9.0 million transaction costs, other operating expenses would have increased by e7.7 million, or 30.0%, reflecting the volume increase for the period. The increase in marketing costs was mainly due to a volume increase (as a significant portion of acquisition costs are based on traffic), an increase in commissions due to white label partners (mainly attributable to our new partnership with lastminute.com ), as well as higher customers acquisition costs (mainly attributable to the increasing use of more expensive acquisition channels such as metasearchers and the launch of the distribution of packaged holidays which required significant marketing costs). The operating expenses also included various provisions for collection and other customer- related risks recorded for the nine-month period ended December 31, 2009 and released without cash effect over the first quarter of 2010.
Depreciation and amortization Depreciation and amortization decreased by e0.4 million, or 3.9%, to e9.8 million in the nine months ended December 31, 2010 from e10.2 million for the nine months ended December 31, 2009. The decrease in depreciation and amortization was primarily attributable to the termination of the depreciation period for an intangible asset, which occurred over 2010.
Net operating profit/(loss) Net operating profit increased by e0.6 million, or 14.6%, to e4.7 million in the nine months ended December 31, 2010 from e4.1 million for the nine months ended December 31, 2009.
112 Finance income/(loss) Finance loss decreased by e0.3 million, or 2.3%, to e12.7 million in the nine months ended December 31, 2010 from e13.0 million for the nine months ended December 31, 2009. The decrease in net finance loss was mainly attributable to a decline over the period in the applicable interest rate on the debt supported by the Go Voyages Group.
Profit/(loss) before tax Loss before tax decreased by e0.9 million, or 10.1%, to e(8.0) million in the nine months ended December 31, 2010 from e(8.9) million for the nine months ended December 31, 2009.
Non-recurring items Non-recurring items represented a loss of e1.1 million for the nine months ended December 31, 2010. This loss was primarily attributable to the Iceland volcano eruption of 2010 (e0.2 million), and indemnities paid in connection with the departure from the Go Voyages Group of certain employees (e0.9 million).
Income tax Income tax went from a tax credit of e0.5 million in the nine months ended December 31, 2009 to a tax credit of e0.3 million for the nine months ended December 31, 2010.
Profit/(loss) Loss increased by e0.4 million, to e8.8 million loss for the nine months ended December 31, 2010 from a e8.4 million loss for the nine months ended December 31, 2009.
Comparison of years ended March 31, 2010 and March 31, 2009 for the Go Voyages Group The periods presented below took place prior to the Acquisition and present the results of operations of the Go Voyages Group only. The information used for purposes of these comments is derived from the Go Voyages French GAAP Financial Statements. This information is not comparable with information derived from the Pro Forma Combined Financial Information, the eDreams Spanish GAAP Financial Statements nor the Opodo IFRS Financials Statements. For a presentation of combined pro forma financial information for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
Revenue margin The following tables sets forth revenue margin of the Go Voyages Group by product line for the years ended March 31, 2010 and March 31, 2009.
Go Voyages Group French GAAP For the year ended March 31 2010 2009 (in thousand g) Flight ...... 66,258 53,223 Non-Flight(1) ...... 9,622 6,557 Revenue margin ...... 75,879 59,780
(1) Non-flight revenue includes revenue from hotels, car rentals, packages and from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls. Revenue margin increased by e16.1 million, or 26.9%, to e75.9 million in the year ended March 31, 2010 from e59.8 million for the year ended March 31, 2009, mainly due to a e13.0 million, or 24.4%, increase in revenue margin for flights. Revenue margin for flights increased by e13.0 million, to e66.3 million in the year ended March 31, 2010 from e53.2 million for the year ended March 31, 2009.
113 This increase in revenue margin for flights was primarily due to higher volumes in existing markets, in particular France, and the further expansion of the Go Voyages Group activities outside France. Revenue margin for flights also increased due to the increasing attachment rates of insurance products to regular flights. Revenue margin from non-flight activities increased by e3.0 million, or 45.5%, to e9.6 million in the year ended March 31, 2010 from e6.6 million for the year ended March 31, 2009, which was mainly attributable to higher volumes of travel packages sold and increasing traffic through high-cost phone lines.
Personnel expenses Personnel expenses increased by e4.2 million, or 31.3% to e17.6 million in the year ended March 31, 2010 from e13.4 million for the year ended March 31, 2009. The increase in personnel expenses was primarily attributable to the expansion of the operational workforce, as well as an increase in employee profit sharing expenses for the year ended March 31, 2010 as compared to the year ended March 31, 2009 due to the employee incentive schemes put in place by the Go Voyages Group in September 2007. To a lesser extent, the increase was also attributable to an increase in wages and salaries.
Other operating expenses Other operating expenses increased by e6.7 million, or 23.8%, to e34.8 million in the year ended March 31, 2010 from e28.1 million for the year ended March 31, 2009 essentially in line with the Go Voyages Group revenue margin growth over the period. This increase in operating expenses was primarily attributable to higher marketing costs (from e16.4 million for the year ended March 31, 2009 to e20.6 million for the year ended March 31, 2010). The increase in marketing costs was mainly due to a volume increase (as a significant portion of acquisition costs are based on traffic), as well as higher customer acquisition costs, which were, in turn, mainly due to the increasing use of more expensive acquisition channels such as metasearchers and the development of international websites. To a lesser extent, the increase in operating expenses was attributable to an increase in network IT costs (attributable to the regular updating of our systems), the outsourcing of call centers and to an increase in credit card expenses (attributable to higher transaction volumes). These increases were partially offset by a decrease in chargebacks related to fraudulent transactions, due to the implementation of new control procedures.
Depreciation and amortization Depreciation and amortization decreased by e9.6 million, or 41.0%, to e13.8 million in the year ended March 31, 2010 from e23.4 million for the year ended March 31, 2009. The decrease in depreciation and amortization was primarily attributable to higher amortization of goodwill in the year ended March 31, 2009 (e19.8 million) than in the year ended March 31, 2010 (e9.9 million), due to the correction of an accounting error in 2009 (see note 3 to the Go Voyages Group Financial Statements for the year ended March 31, 2009 included elsewhere in this Offering Circular).
Net operating profit/(loss) Net operating profit increased by e14.8 million, to a profit of e9.7 million in the year ended March 31, 2010 from a loss of e5.1 million for the year ended March 31, 2009.
Finance income/(loss) Finance loss remained approximately stable, with a loss of e17.3 million in the year ended March 31, 2010 and a loss of e17.2 million for the year ended March 31, 2009.
Profit/(loss) before tax Loss before tax decreased by e14.7 million, or 65.9%, to a loss of e7.6 million in the year ended March 31, 2010 from a loss of e22.3 million for the year ended March 31, 2009.
114 Non-recurring items Non-recurring items show negligible losses for the year ended Mach 31, 2010 and for the year ended Mach 31, 2009.
Income tax Income tax went from a tax credit of e1.3 million in the year ended March 31, 2009 to a tax loss of e0.4 million for the year ended March 31, 2010 in relation with the deferred taxes in connection with the purchase price allocation prepared following the first LBO transaction in 2007. For the year ended March 31, 2010, the trading losses recognized amounted to e(1.3) million as compared to e0.1 million for the year ended March 31, 2009.
Profit/(loss) Loss decreased by e13.0 million, to an e8.0 million loss in the year ended March 31, 2010 from a e21.0 million loss for the year ended March 31, 2009.
Comparison of years ended March 31, 2009 and March 31, 2008 for the Go Voyages Group The periods presented below took place prior to the Acquisition and present the results of operations of the Go Voyages Group only. The information used for purposes of these comments is derived from the Go Voyages French GAAP Financial Statements. This information is not comparable with information derived from the Pro Forma Combined Financial Information, the eDreams Spanish GAAP Financial Statements nor the Opodo IFRS Financials Statements. For a presentation of combined pro forma financial information for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
Revenue margin The following tables sets forth revenue margin of the Go Voyages Group by product line for the years ended March 31, 2009 and March 31, 2008.
Go Voyages Group French GAAP For the year ended March 31 2009 2008 (in thousand g) Flight ...... 53,223 44,725 Non-Flight(1) ...... 6,557 6,501 Revenue margin ...... 59,780 51,225
(1) Non-flight revenue includes revenue from hotels, car rentals, packages and from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls. Revenue margin increased by e8.6 million, or 16.8%, to e59.8 million in the year ended March 31, 2009 from e51.2 million for the year ended March 31, 2008, mainly due to an e8.5 million, or 19.0%, increase in revenue margin for flights, to e53.2 million in the year ended March 31, 2009 from e44.7 million for the year ended March 31, 2008. The increase in revenue margin for flights was mainly attributable to higher volumes in France especially for regular flights (i.e., non charter flights). To a lesser extent, the increase in revenue margin is also explained by an increase in revenue margin from non-flight activities, of e0.1 million, or 1.5%, from e6.5 million for the year ended March 31, 2008 to e6.6 million for the year ended March 2009. This increase was mainly attributable to higher volumes on Dynamic Packages.
115 Personnel Expenses Personnel expenses increased by e2.2 million, or 19.6% to e13.4 million in the year ended March 31, 2009 from e11.2 million for the year ended March 31, 2008. The increase in personnel expenses was mainly attributable to the expansion of the operational workforce of the Go Voyages Group and, to a lesser extent, to wage and salary standard increases.
Other Operating Expenses Other operating expenses increased by e5.7 million, or 25.4%, to e28.1 million in the year ended March 31, 2009 from e22.4 million for the year ended March 31, 2008. This increase in other operating expenses was primarily attributable to an increase in marketing costs (from e14.4 million for the year ended March 31, 2008 to e16.4 million for the year ended March 31, 2009), in particular customers acquisition costs (due to higher traffic and increasing use of more expensive acquisition channels such as metasearchers) and commissions paid to agencies and partners. The network IT costs also contributed to the increase in other operating expenses due to higher maintenance costs, attributable, in turn, to increased traffic. Increased volume also resulted in higher credit card expenses.
Depreciation and amortization Depreciation and amortization increased by e19.7 million, to e23.4 million in the year ended March 31, 2009 from e3.7 million for the year ended March 31, 2008. The increase in depreciation and amortization was primarily attributable to amortization of goodwill in the year ended March 31, 2009 (e19.8 million), where there was no amortization of goodwill in the year ended March 31, 2008 due to the correction of an accounting error in 2009 (see note 3 to the Go Voyages Group Financial Statements for the year ended March 31, 2009 included elsewhere in this Offering Circular).
Net operating profit/(loss) Net operating profit decreased by e19.0 million, to a e5.1 million loss in the year ended March 31, 2009 from a e13.9 million profit for the year ended March 31, 2008.
Finance income/(loss) Finance loss remained approximately stable, at e17.2 million in the year ended March 31, 2009 and e17.1 million for the year ended March 31, 2008.
Profit/(loss) before tax Loss before tax increased by e19.1 million, to a e22.3 million loss in the year ended March 31, 2009 from a e3.2 million loss for the year ended March 31, 2008.
Non-recurring items Non-recurring items showed negligible losses for the year ended Mach 31, 2009 and for the year ended Mach 31, 2008.
Income tax Income tax went from a tax credit of e1.8 million in the year ended March 31, 2008 to a tax credit of e1.3 million for the year ended March 31, 2009. The level of income tax for the year ended March 31, 2008 mainly refers to the deferred taxes in relation with the purchase price allocation performed during the period following the first LBO transaction.
Profit/(loss) Loss increased by e19.5 million, to a e21.0 million loss in the year ended March 31, 2009 from a e1.5 million loss for the year ended March 31, 2008.
116 Liquidity and Capital Resources of the Go Voyages Group (French GAAP) Historically, the sources of liquidity of the Go Voyages Group have principally been cash flows from its operating activities and structurally negative working capital inflows generated by its business model. The Go Voyages Group has also historically benefitted from a working capital facility from its pool of banks, mainly to cover intra-month requirements, and at December 31, 2010 had e35 million of undrawn committed revolving credit facilities. The existing working capital facility available to the Go Voyages Group is expected to be repaid in full and cancelled on the Completion Date and replaced by the revolving credit facility made available to the Geo Group under the Senior Credit Facilities Agreement. Cash requirements of the Go Voyages Group have mainly been for capital expenditures, such as IT infrastructure, the growth of its business and the service of the debt incurred in relation the leveraged buy-out acquisition of the Go Voyages Group by funds managed by AXA Private Equity in 2010. The business model of the Go Voyages Group is structurally cash generative through working capital because the Go Voyages Group generally receives cash from travelers at the time of booking and Go Voyages pays travel suppliers generally within a few weeks after completing the transaction. Therefore Go Voyages generally receives cash from the travelers prior to paying suppliers and this operating cycle represents a working capital source of cash. Within the Go Voyages Group’s working capital, the trade and other receivables primarily comprise commissions, incentives or other payments due to us by travel suppliers, amounts due to the Go Voyages Group mainly by trade and corporate customers and security deposits. The trade and other payables primarily comprise payables to the Go Voyages Group’s travel suppliers as well as social and tax liabilities. The level of trade payables mainly relates to the payment terms of the Go Voyages Group’s travel suppliers, which are generally due several weeks after completing the transaction with the Go Voyages Group’s customer. Due to the accounting principles historically applied by the Go Voyages Group regarding the recognition of income and expenses items on departure dates under French GAAP, other receivables also comprise prepayments of supplies relating to departure dates occurring after the end of the period. In addition, other payables include deferred income corresponding to revenue relating to departure dates occurring after the end of the period. Cash and cash equivalents of the Go Voyages Group were e92.6 million at March 31, 2010 and e8.3 million at December 31, 2010. The change in cash and cash equivalents between March 31, 2010 and December 31, 2010 not only reflects the seasonality of the working capital but also the repayment of e64.2 million of debt that occurred on September 2010 and on December 2010 during the nine-month period ended December 31, 2010. For the year ended March 31, 2010, the Go Voyages Group generated e58.2 million in net cash flows from operating activities.
117 Cash Flow The following table sets forth consolidated cash flow data for the Go Voyages Group for the years ended March 31, 2010, March 31, 2009, and March 31, 2008 and the nine months ended December 31, 2009 and December 31, 2010.
Go Voyages Group French GAAP Nine months Go Voyages Group ended French GAAP December 31 Year ended March 31 2010 2009 2010 2009 2008 (in thousand g) Cash flows from operating activities: Net cash flows from/used in operating activities (I) ...... (10,262) 8,298 58,182 37,280 15,378 Cash flows from/used in investing activities: Net cash flows from/used in investing activities (II) ...... (1,863) (2,393) (2,211) (1,039) (426) Cash flows from/used in financing activities: Net cash flows from financing activities (III) . (72,180) (4,616) (10,594) (11,399) (54,398) Net increase/(decrease) in cash and cash equivalents (I+II+III) ...... (84,305) 1,289 45,377 24,842 (39,446) Cash and cash equivalent at beginning of period 92,643 47,266 47,266 22,424 61,870 Cash and cash equivalent at end of period ... 8,339 48,555 92,643 47,266 22,424
Operating Activities Structurally, the business model of Go Voyages experiences limited cash generation between May and December due to seasonality of the business. Cash generation is generally higher in January, February, March and April, when travelers plan, book and pay for their spring and summer vacations. For the nine months ended December 31, 2010, net cash used in operating activities was e(10.3) million, primarily resulting from operating profit before depreciation and amortization of e14.5 million, change in working capital of e(23.7) million (mainly due to seasonality) and non recurring items of e1.1 million. The operating profit before depreciation and amortization was negatively impacted by transaction costs of e9.0 million incurred in connection with the acquisition of the Go Voyages Group by AXA Private Equity in July 2010. For the nine months ended December 31, 2009, net cash flow from operating activities was e8.3 million, primarily resulting from operating profit before depreciation and amortization of e15.8 million and change in working capital of e(7.5) million (which was higher than what the operations generated over the period, mainly due to advance payments to travel suppliers in the prior period). For the year ended March 31, 2010, net cash flow from operating activities was e58.2 million, primarily resulting from operating profit before depreciation and amortization of e23.8 million and change in working capital of e34.4 million (mainly due to the growth of our business and advance payments to travel suppliers in the prior period). For the year ended March 31, 2009, net cash flow from operating activities was e37.3 million, primarily resulting from operating profit before depreciation and amortization of e18.4 million and change in working capital of e18.9 million (mainly due to the growth of our business and advance payments to travel suppliers in the period). For the year ended March 31, 2008, net cash flow from operating activities was e15.4 million, primarily resulting from operating profit before depreciation and amortization of e17.1 million and change in working capital of e(1.7) million (mainly due to the growth of our business).
118 Investing Activities For the nine months ended December 31, 2010, net cash flow used in investing activities was e(1.9) million, primarily resulting from investments in IT infrastructure. For the nine months ended December 31, 2009, net cash flow used in investing activities was e(2.4) million, primarily resulting from investments in IT infrastructure. For the year ended March 31, 2010, net cash flow used in investing activities was e(2.2) million, primarily resulting from investments in IT infrastructure. For the year ended March 31, 2009, net cash flow used in investing activities was e(1.0) million, primarily resulting from investments in IT infrastructure. For the year ended March 31, 2008, net cash flow used in investing activities was e(0.4) million.
Financing Activities For the nine months ended December 31, 2010, net cash flow used in financing activities was e(72.2) million, primarily resulting from the reimbursement of e64.2 million of debt in connection with the acquisition of the Go Voyages Group by funds managed by AXA Private Equity, interest payments over the period of e10.9 million, partly offset by the impact of the restructuring related to the acquisition of the Go Voyages Group by funds managed by AXA Private Equity. For the nine months ended December 31, 2009, net cash flow used in financing activities was e(4.6) million, primarily resulting from interest payments of e2.8 million over the period and the repayment of debt for an amount of e3.2 million, partly offset by e1.1 million debt issuance related to new finance leases. For the year ended March 31, 2010, net cash flow used in financing activities was e(10.6) million, primarily resulting from interest payments of e4.2 million over the period and the repayment of debt for an amount of e6.4 million. For the year ended March 31, 2009, net cash flow used in financing activities was e(11.4) million, primarily resulting from the interest payments of e5.2 million over the period and the repayment of debt for an amount e6.2 million. For the year ended March 31, 2008, net cash flow used in financing activities was e(54.4) million, primarily resulting from the interest payments of e6.3 million over the period and the repayment of e48.1 million of debt incurred in connection with the acquisition of the Go Voyages Group by Financiere` Agache in 2007.
Capital Expenditures The Go Voyages Group has historically financed capital expenditure requirements with cash flows from operations. The Go Voyages Group made capital expenditures of e2.2 million, e1.0 million and e0.4 million in the years ended March 31, 2010, 2009 and 2008, respectively. Capital expenditures mainly refer to IT investments as mentioned hereabove, but, under the historical accounts, do not include capitalization of IT expenses.
119 Contractual Obligations of the Go Voyages Group The following table sets forth, as of December 31, 2010, contractual obligations and commercial commitments of the Go Voyages Group, based upon the period in which payments are due.
Contractual Obligations Less than 1 year 1-5 years 5 years and more Total (in g millions) Long-term and short-term debt obligations ...... 9.8 50.0 77.8 137.6 Capital (finance) lease obligations . . . 0.5 0.4 0.0 0.9 Operating lease obligations ...... — — — — Purchase obligations ...... — — — — Other long-term liabilities ...... — — — — Total ...... 10.3 50.4 77.8 138.6
Off-Balance Sheet Arrangements of the Go Voyages Group For the purposes of securing bank and mezzanine financing, Go Voyages granted a pledge over its 14,150,000 Go Voyages Group shares and its bank accounts, to the banks participating in the senior loan and the bridging loan and to holders of senior and junior mezzanine bonds. Credit´ Industriel et Commercial (e0.7 million) and Credit´ du Nord (e0.2 million) have delivered a rental guarantee and various supplier guarantees for a total amount of e0.9 million, on behalf of the Go Voyages Group. Credit´ du Nord provided a guarantee to IATA for a maximum fixed amount of e0.03 million, on behalf of Go Voyages Trade. In connection with the acquisition of the Go Voyages Group by AXA Private Equity and the debt incurred in connection therewith, certain hedging contracts have been signed by Go Voyages. As of the date of this Offering Circular, management is still evaluating whether and how these contracts will be dealt with at Completion Date.
Reconciliation with the eDreams Spanish GAAP Financial Statements For clarity purposes, comments on the income statement items of the eDreams Spanish GAAP Financial Statements included hereunder are presented in a manner consistent with the presentation of the income statement items of the Pro Forma Combined Financial Information introduced under Section ‘‘Total Revenue, Supplies and Expenses of the Geo Group (Pro Forma Combined).’’ The following section presents a reconciliation between this presentation and the consolidated income statement of the eDreams Spanish GAAP Financial Statements. This consistent presentation does not imply in any way that the Pro Forma Combined Financial Information and the eDreams Spanish GAAP Financial Statements are comparable. The Pro Forma Combined Financial Information have been prepared in accordance with the notes thereto and on the basis of recognition and measurement principles of IFRS, whereas the eDreams Spanish GAAP Financial Statements have been prepared in accordance with Spanish GAAP. For a summary of the main differences between Spanish GAAP and IFRS, see ‘‘Main Differences between Spanish GAAP and IFRS.’’ Revenue. For purposes of this section, revenue for the eDreams Group corresponds, in the income statement of the eDreams Spanish GAAP Financial Statements, to the sum of (i) the item ‘‘net turnover’’, which comprises the eDreams Group revenue, (ii) the item ‘‘work done by Group on its own assets’’, which corresponds to the capitalization of costs related to the development of software and websites and (iii) the item ‘‘other operating revenue,’’ which is comprised primarily of toll calls revenue and incentives paid to us by credit card companies.
120 The following table sets forth a reconciliation of ‘‘revenue’’ with the income statement of the eDreams Spanish GAAP Financial Statements:
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Net turnover ...... 95,919 73,067 68,074 Work done by Group on its own assets ...... 3,255 2,380 1,407 Other operating revenue ...... 2,691 1,691 1,287 Other component of third party borrowing ...... — (138) (108) Total revenue ...... 101,865 77,000 70,660
Supplies. Supplies corresponds, in the income statement of the eDreams Spanish GAAP Financial Statements, to the item ‘‘Supplies’’, and consists mainly of the cost associated with the purchase by the eDreams Group from tour operators of certain packages in Italy for resale to customers with an inventory risk. Revenue associated with the sale of these products are booked on a ‘‘gross’’ basis. Personnel expenses. Personnel expenses corresponds, in the income statement of the eDreams Spanish GAAP Financial Statements, to the item ‘‘Staff costs,’’ which includes all personnel costs related to wages and salaries as well as share-based incentive payments, social security costs and other welfare costs. Other operating expenses. Other operating expenses corresponds, in the income statement of the eDreams Spanish GAAP Financial Statements, to the sum of (i) the item ‘‘other operating expenses’’, which comprises all of the eDreams Group’ non-staff operating costs, including marketing spend, chargebacks on fraudulent transactions, GDS search costs, taxes other than income tax and corporate development costs and (ii) for the years ended December 31, 2008 and December 31, 2009 only, the portion of the item ‘‘third-party borrowings’’ corresponding to credit card fees (for the year ended December 31, 2010, credit cards fees are booked under the item ‘‘other operating expenses’’). The following table sets forth a reconciliation of ‘‘other operating expenses’’ with the income statement of the eDreams Spanish GAAP Financial Statements:
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Other operating expenses ...... 61,616 46,674 39,163 Third-party borrowings ...... — 1,108 1,520 Other component of third-party borrowings ...... — (138) (108) Other operating expenses ...... 61,616 47,644 40,575
Depreciation and amortization. Depreciation and amortization corresponds, in the income statement of the eDreams Spanish GAAP Financial Statements, to the item ‘‘depreciation and amortization’’ and consists primarily of depreciation expense recorded on property and equipment, amortization expense recorded on intangible assets and impairment of goodwill. Finance income/(loss). Finance income/(loss) corresponds, in the income statement of the eDreams Spanish GAAP Financial Statements, to the item ‘‘Net financial income (expense),’’ less the portion of the item ‘‘third-party borrowings’’ corresponding to credit card fees for the years ended December 31, 2009 and December 31, 2008 only.
121 The following sets forth a reconciliation of ‘‘finance income/(loss)’’ with the income statement of the eDreams Spanish GAAP Financial Statements:
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Net financial income (expense) ...... (4,017) (3,791) (4,906) Third-party borrowings ...... — 138 108 Credit card fees component of third-party borrowings ...... — 970 1,412 Finance income/(loss) ...... (4,017) (2,683) (3,386)
Income Tax. Income tax reflects corporation tax incurred during the relevant period.
Key Operating Metrics of the eDreams Group The following table sets forth gross bookings for the flight and non-flight businesses the eDreams Group for each of the years indicated.
eDreams Group For the year ended December 31 2010 2009 2008 (in thousand g) Gross Bookings Flight ...... 801,199 551,951 519,267 Non-Flight ...... 92,125 74,886 70,186 Gross Bookings ...... 893,324 626,837 589,453
The following table sets forth a reconciliation of the eDreams Group revenue margin for its flight and non-flight businesses for the periods indicated.
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Total revenue ...... 101,865 77,000 70,660 Less supplies ...... (1,966) (2,354) (5,302) Revenue margin ...... 99,899 74,646 65,358
122 Results of Operations of the eDreams Group (Spanish GAAP) The following table sets forth certain historical revenue and expense items of the eDreams Group under Spanish GAAP for each of the periods indicated.
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 2008 (in thousand g) Total revenue ...... 101,865 77,000 70,660 Supplies ...... (1,966) (2,354) (5,302) Revenue margin ...... 99,899 74,646 65,358 Personnel expenses ...... (13,925) (10,456) (11,446) Other operating expenses (including credit card cost) ...... (61,616) (47,644) (40,575) Depreciation and amortization ...... (4,880) (4,501) (4,131) Operating income (including credit card cost) ...... 19,478 12,045 9,206 Finance income/(loss) (excluding credit card cost) ...... (4,017) (2,683) (3,386) Profit/(loss) before tax ...... 15,461 9,362 5,820 Income tax ...... (2,906) (4,478) (1,675) Profit/(loss) ...... 12,555 4,884 4,145
Comparison of the years ended December 31, 2010 and 2009 for the eDreams Group The periods presented below took place prior to the Acquisition and present the results of operations of the eDreams Group only. The information used for purposes of these comments is derived from the eDreams Spanish GAAP Financial Statements. This information is not comparable with information derived from the Pro Forma Combined Financial Information, the Go Voyages French GAAP Financial Statements nor the Opodo IFRS Financials Statements. For a presentation of combined pro forma financial information for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
Revenue margin The following tables sets forth revenue margin of the eDreams Group by product line for the years ended December 31, 2010 and December 31, 2009.
eDreams Group Spanish GAAP For the year ended December 31 2010 2009 (in thousand g) Flight ...... 78,582 58,380 Non-Flight ...... 21,316 16,266 Revenue margin ...... 99,899 74,646
Revenue margin for the eDreams Group increased by e25.3 million, or 33.8%, to e99.9 million for the year ended December 31, 2010 from e74.6 million for the year ended December 31, 2009. This increase was primarily due to a 34.6% increase in flight revenue margin, from e58.4 million for the year ended December 31, 2009 to e78.6 million for the year ended December 31, 2010. This increase in flight revenue margin is mainly due to an increase in flight bookings (mainly in Spain, Italy and France, driven by increasing online penetration and share gains), partially driven and offset by a voluntary reduction of service fee levels in Italy and France to increase market shares.
123 Revenue margin from non-flight activities increased by e5.1 million, or 31.0%, to e21.3 million in the year ended December 31, 2010 from e16.3 million for the year ended December 31, 2009. This was mainly explained by both an increase in volumes (mainly for Dynamic Packages and to a lesser extent hotels) and an increase in the revenue margin per non-flight booking (mainly due to increasing proportion of Dynamic Packages, which generally entail higher revenue per booking) and higher toll calls revenue.
Personnel expenses Personnel expenses increased by e3.5 million, or 33.2%, to e13.9 million in the year ended December 31, 2010 from e10.5 million for the year ended December 31, 2009. This increase was mainly attributable to the strengthening of call center operations to maintain adequate service levels on the back of increasing volumes, the additional hiring of engineers within the technology team in order to support product innovation across the different markets and one-off staff compensation cost as a result of the sale of the eDreams Group to the Permira Funds in August 2010.
Other operating expenses (including credit card cost) Other operating expenses increased by e14.0 million, or 29.3%, to e61.6 million in the year ended December 31, 2010 from e47.6 million for the year ended December 31, 2009. This increase is mainly explained by the increase in revenue margin over the same period. Marketing costs increased by 37.4% to e45.0 million in the year-ended December 31, 2010, due to higher volumes, partially offset by lower cost per booking on the back of higher direct (free) traffic. GDS search costs increased less than growth in volumes due to improved terms as a result of the renegotiation of the main GDS contract in October 2010. Credit card costs also increased due to higher proportion of merchant flight bookings. This increase was partially offset by a reduction in chargebacks related to fraudulent transactions attributable to the change in the accounting treatment of such expenses (from a cash impact basis to an accrual basis) and the additional tools and resources put in place to reduce the impact of fraudulent transactions.
Depreciation and amortization Depreciation and amortization increased by e0.4 million, or 8.4%, to e4.9 million in the year ended December 31, 2010 from e4.5 million for the year ended December 31, 2009, which was mainly attributable to higher charges in relation to computer hardware and software, offset by lower amortization associated with patents and trademarks.
Operating income (including credit card cost) Operating income (including credit card cost) increased by e7.4 million, or 61.7%, to e19.5 million in the year ended December 31, 2010 from e12.0 million for the year ended December 31, 2009.
Finance income/(loss) (excluding credit card cost) Finance (loss) (excluding credit card cost) increased by e1.3 million, or 49.7%, to (e4.0) million in the year ended December 31, 2010 from (e2.7) million for the year ended December 31, 2009, which was mainly attributable to higher interest expenses due to additional debt incurred by the eDreams Group as a result of the acquisition by the Permira Funds.
Profit/(loss) before tax Profit before tax increased by e6.1 million, or 65.1%, to e15.5 million in the year ended December 31, 2010 from e9.4 million for the year ended December 31, 2009.
124 Income tax Income tax decreased by e1.6 million, or 35.1%, to e2.9 million in the year ended December 31, 2010 from e4.5 million for the year ended December 31, 2009, which was mainly attributable to the release of certain tax provisions which had been booked in excess in the previous year.
Profit/(loss) Profit/(loss) increased by e7.7 million, or 157.1%, to e12.6 million in the year ended December 31, 2010 from e4.9 million for the year ended December 31, 2009.
Comparison of the years ended December 31, 2009 and 2008 for the eDreams Group The periods presented below took place prior to the Acquisition and present the results of operations of the eDreams Group only. The information used for purposes of these comments is derived from the eDreams Spanish GAAP Financial Statements. This information is not comparable with information derived from the Pro Forma Combined Financial Information, the Go Voyages French GAAP Financial Statements nor the Opodo IFRS Financials Statements. For a presentation of combined pro forma financial information for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
Revenue margin The following table sets forth revenue margin of the eDreams Group by product for the years ended December 31, 2009 and December 31, 2008.
eDreams Group Spanish GAAP For the year ended December 31 2009 2008 (in thousand g) Flight ...... 58,380 49,372 Non-Flight ...... 16,266 15,986 Revenue margin ...... 74,646 65,358
Revenue margin increased by e9.3 million, or 14.2%, from e65.4 million in the year ended December 2008 to e74.6 million in the year ended in December 2009. The improvement was primarily attributable to an increase in the number of bookings made through the websites of the eDreams Group across both flight and non-flight products (mainly due to increasing online penetration across markets and share gains) and increasing flight revenue per booking. This increase in revenue margin was partially offset by a decrease in revenue margin from hotel bookings due to a fall in the average booking price charged by hotels.
Personnel cost Personnel cost decreased by e1.0 million, or 8.6%, from e11.5 million in 2008 to e10.5 million in 2009. The change was primarily attributable to a reduction of headcount in call center operations, marketing staff and travel sales representatives.
Other operating expenses (including credit card cost) Other operating expenses (including credit card cost) increased by e7.0 million, or 17.4%, from e40.6 million in 2008 to e47.6 million in 2009. This increase is mainly explained by the increase in revenue margin over the same period. Marketing expenses increased by 12.2% to e32.8 million in the year-ended December 2009 due to higher number of bookings, offset by lower cost per booking on the back of higher direct (free) traffic. GDS search costs increased in line with growth in volumes.
125 Chargebacks related to fraudulent transactions went from e1.9 million in the year ended in December 2008 to e5.1 million in 2009, due to an abnormally high level of chargebacks related to fraudulent transactions (in relation with the acceleration of the international expansion of the business) and to a change in accounting criteria. This increase was partially offset by a reduction in credit card fees as a result of a lower proportion of merchant activities compared to agency activities.
Depreciation and amortization Depreciation and amortization increased by e0.4 million, or 9.0%, from e4.1 million in 2008 to e4.5 million in 2009. The change was primarily attributable to higher charges in relation to computer hardware and software.
Operating income (including credit card cost) Operating income (including credit card cost) increased by e2.8 million, or 30.8%, to e12.0 million in the year ended December 31, 2009 from e9.2 million for the year ended December 31, 2008.
Finance income/(loss) (excluding credit card cost) Finance income/(loss) (excluding credit card cost) decreased by e0.7 million, or 20.7%, to e2.7 million in the year ended December 31, 2009 from e3.4 million for the year ended December 31, 2008, which was mainly attributable to a reduction in the indebtedness of the eDreams Group as a result of strong cash flow generation.
Profit/(loss) before tax Profit/(loss) before tax increased by e3.5 million, or 60.9%, to e9.4 million in the year ended December 31, 2009 from e5.8 million for the year ended December 31, 2008.
Income Tax Income tax increased by e2.8 million, from e1.7 million in 2008 to e4.5 million in 2009. The change was primarily attributable to an excess of income tax charges in the year ended December 2009 which was later released in the year ended December 2010.
Profit/(loss) For the reasons set forth above, profit/(loss) increased by e0.8 million, or 17.8%, from e4.1 million in 2008 to e4.9 million in 2009.
Liquidity and Capital Resources of the eDreams Group Historically, the sources of liquidity of the eDreams Group have principally been cash flow from operations, including the cash generated by the effect of the negative working capital. Since the acquisition of the eDreams Group by the Permira Funds, the eDreams Group’s sources of liquidity have also been provided by working capital facilities, mainly to cover intra-month requirements and any guarantees. As of December 31, 2010, the eDreams Group had e25.0 million of committed revolving credit facilities, of which e5.0 million were drawn. This amount was fully repaid in February 2011. The existing working capital facility available to the eDreams Group is expected to be repaid in full, to the extent that there any drawn amounts outstanding and cancelled on the Completion Date and replaced by the revolving credit facility made available to the Geo Group under the Senior Credit Facilities Agreement. The eDreams Group has historically utilized cash flow from operations to finance its cash needs and the growth of its business. The liquidity requirements of the eDreams Group arise primarily to fund capital expenditures and to repay debt. The eDreams Group business model is structurally cash generative as a result of working capital and the immediate payments received from most of the eDreams Group customers. Consequently, changes in working capital are primarily representative of the seasonality of the business and the business growth.
126 Within the eDreams Group working capital, the trade and other receivables primarily comprise commissions, incentive or other payments owing to us from airlines or GDS suppliers and other suppliers which advertise on the eDreams website. The trade payables and other payables primarily comprise payables to our suppliers (mainly airlines where balances are netted on a monthly basis through the BSP system) as well as social and tax liabilities. Additionally, under Spanish GAAP, working capital is defined as current assets (excluding cash and cash equivalents) minus current liabilities. This definition therefore includes certain captions such as short-term investments which are not directly associated with the operating trading of eDreams. Cash and cash equivalents of the eDreams Group were e13.1 million at December 31, 2010. The primary source of liquidity for the eDreams Group was cash generated from operations. For the year ended December 31, 2010, the eDreams Group generated e31.2 million in net cash flows from operating activities.
Cash Flow The following table summarizes our consolidated cash flow statement for the financial years ended December 31, 2010, 2009 and 2008.
eDreams Group Spanish GAAP Year ended December 31 2010 2009 2008 (in thousand g) Cash flows from operating activities: Profit before tax ...... 15,461 9,362 5,820 Adjustments to profit ...... 7,114 7,074 8,188 Change in working capital ...... 20,509 (4,800) (4,262) Other non current liabilities ...... (689) — — Other cash flows from operating activities ...... (11,185) (4,283) (6,457) Net cash flows from operating activities (I) ...... 31,210 7,353 3,289 Cash flows from/used in investing activities: Intangible assets ...... (847) (357) (418) Property, plant and equipment ...... (567) (264) (1,204) Other financial assets ...... (561) (570) (125) Net cash flows from/used in investing activities (II) ...... (1,975) (1,191) (1,747) Cash flows from/used in financing activities: Repayment and redemption of bank borrowings ...... (26,503) (300) (2,541) Repayment and redemption of group borrowings ...... (15,000) — — Debt issues with credit institutions ...... 5,000 — — Debt issues with group companies ...... 1,633 — — Other liabilities ...... (589) 695 300 Proceeds from and payments of equity instruments ...... 1,742 — — Effect of exchange rate changes ...... (221) (85) — Net cash flows from/used in financing activities (III) ...... (33,938) 310 (2,241) Net increase/(decrease) in cash and cash equivalents (I+II+III) ...... (4,703) 6,472 (699) Cash and cash equivalents at beginning of period ...... 17,763 11,291 12,962 Cash and cash equivalents at end of period ...... 13,060 17,763 12,263
Operating Activities Cash from operating activities consists of the results from the income statement adjusted for non-cash items such as depreciation, amortization, impairment of goodwill and intangible assets, non-cash compensation changes in working capital items, other non-current liabilities and other cash flows from operating activities, which includes corporate income tax payments and interest expense payments associated with debt outstanding.
127 For the year ended December 31, 2010, net cash flow from operating activities was e31.2 million, primarily resulting from operating profit for the year of e19.5 million and the positive impact of e20.5 million from the change in working capital (mainly driven by a cancellation in short term investments of e5.1 million and an increase in trade payables of e17.6 million in connection with the additional proportion of merchant activities undertaken by eDreams in the context of a large increase in flight bookings in the year), offset by e0.7 million of other non-current liabilities and e11.2 million of other cash flows from operating activities, including corporate income tax payments of e7.6 million and interest payments of e3.7 million. For the year ended December 31, 2009, net cash flow from operating activities was e7.4 million, primarily resulting from operating profit for the year of e12.0 million offset by the negative impact of e4.8 million from the change in working capital (mainly driven by an increase in short term investments of e4.8 million and prepayment of trade payables in the last month of the year) and e4.3 million of other cash flows from operating activities, including corporate income tax payments of e0.7 million and interest expenses of e3.7 million. For the year ended December 31, 2008, net cash flow from operating activities was e3.3 million, primarily resulting from operating profit for the year of e9.2 million offset by e4.3 million of negative change in working capital, mainly due to a reduction in the corporate credit card usage and e6.5 million of other cash flow from operating activities, including corporate income tax payments of e1.9 million and net interest payments of e4.5 million.
Investing Activities For the year ended December 31, 2010, net cash flow used in investing activities was (e2.0) million, primarily resulting from an increase in long term investments of e0.6 million as a result of cash collateralization of a guarantee and the acquisition of tangible and intangible assets for e1.4 million. Capitalized IT expenses of e3.3 million were also incurred in the year; however under Spanish GAAP these are accounted for under adjustments to profit in the cash flow statement. For the year ended December 31, 2009, net cash flow used in investing activities was (e1.2) million, mainly due to an increase in long term investments of e0.6 million as a result of cash collateralization of a guarantee and the investment in tangible and intangibles assets for e0.6 million. Capitalized IT expenses of e2.4 million were also incurred in the year; however under Spanish GAAP these are accounted for under adjustments to profit in the cash flow statement. For the year ended December 31, 2008, net cash flow used in investing activities was (e1.7) million, primarily resulting from investment in property, plant and equipment of e1.2 million of which e0.9 million corresponded to the acquisition of a new server. Capitalized IT expenses of e1.4 million were also incurred in the year; however under Spanish GAAP these are accounted for under adjustments to profit in the cash flow statement.
Financing Activities For the year ended December 31, 2010, net cash flow used in financing activities was (e33.9) million, primarily resulting from the repayment of e41.5 million of debt in the context of the sale of eDreams in August 2010 offset by additional debt of e6.6 million (e5 million drawn under the revolving credit facilities and e1.6 million of debt downstreamed from eDreams’ parent) raised post the sale of eDreams. For the year ended December 31, 2009, net cash flow from financing activities was e0.3 million, primarily resulting from the positive change in value of the interest rate swap associated with the debt raised by eDreams in the context of a leveraged buy-out undertaken by TA Associates in 2006. For the year ended December 31, 2008, net cash flow used in financing activities was (e2.2) million, primarily resulting from an early prepayment of debt.
Capital Expenditures of the eDreams Group The eDreams Group has historically financed capital expenditure requirements with cash flows from operations. The eDreams Group made capital expenditures of e4.7 million, e3.0 million and
128 e3.0 million in the years ended December 31, 2010, 2009 and 2008, respectively. These amounts correspond to both acquisition of hardware and software and capitalization of IT costs.
Contractual Obligations of the eDreams Group The following table sets forth, as of December 31, 2010, contractual obligations (other than our outstanding financial debt discussed above) and commercial commitments of the eDreams Group, based upon the period in which payments are due.
Less than 5 years Contractual Obligations 1 year 1-3 years 3-5 years and more Total (in g millions) Long-term and short-term debt obligations — — — — — Capital (finance) lease obligations ...... — — — — — Operating lease obligations(1) ...... 0.5 0.9 0.9 0.1 2.4 Purchase obligations ...... — — — — — Other long-term liabilities ...... — — — — — Total ...... 0.5 0.9 0.9 0.1 2.4
(1) Payment obligations related to the lease of the corporate facilities of eDreams and renting of cars in favor of certain managers.
Off-Balance Sheet Arrangements of the eDreams Group Off-balance sheet arrangements are entirely comprised of guarantees granted by certain financial institutions to cover three main types of contingencies: • Guarantees issued in favor of IATA to allow eDreams to operate and sell flight tickets in certain jurisdictions (Germany, France, Portugal and UK): total amount outstanding as of December 2010 was e0.8 million. In February 2011 eDreams posted a guarantee with IATA Italy for e4.9 million; • Guarantees issued in favor of certain suppliers to allow for eDreams to offer their products: total amount outstanding as of December 2010 was e0.3 million; and • Other guarantees issued to cover other contingencies: e0.4 million.
Reconciliation with the Opodo IFRS Financial Statements For clarity purposes, comments on the results of operations for Opodo included hereunder are presented in a manner consistent with the presentation of the income statement items of the Pro Forma Combined Financial Information of the Geo Group introduced under Section ‘‘Total Revenue, Supplies and Expenses of the Geo Group (Pro Forma Combined).’’ This consistent presentation does not imply in any way that the Pro Forma Combined Financial Information of Opodo and the Opodo IFRS Financial Statements are comparable. The Pro Forma Combined Financial Information have been prepared in accordance with the notes thereto and on the basis of recognition and measurement of IFRS. As permitted under IFRS, certain elections on the line items presented in the Pro Forma Combined Financial Information of Opodo which are not consistent with the presentation adopted by Opodo under IFRS have been made. For a summary of the main differences between IFRS as applied by the Opodo Group and IFRS as applied by the Geo Group, see ‘‘Main differences between IFRS as applied by Opodo historically and IFRS as applied by Geo.’’ Total revenue. As opposed to eDreams and Go Voyages, whilst Opodo does not bear inventory risk, revenues generated from the sale of Dynamic Packages (flight plus hotel) are reported on a ‘‘gross’’ basis, as Opodo acts as principal, and is the primary obligor in the arrangement in these transactions. For the purposes of this section, Opodo revenue is that shown as ‘‘revenue’’ in the income statement of the Opodo IFRS Financial Statements, which is equal to the revenue generated on a ‘‘net’’ basis by Opodo, under the agent or merchant model, from its flights, hotels, car rental and packages businesses and earned through mark-ups, commissions and incentive payments received from suppliers and service fees from customers, plus the revenue generated on a ‘‘gross’’ basis from the sale of Dynamic Packages.
129 Supplies. As Opodo recognizes revenue related to the sale, under the merchant model, of Dynamic Packages on a ‘‘gross’’ basis, the cost of supplies incurred represents the cost to Opodo of providing the different elements of the package for the customer, typically including flight costs and hotel accommodation costs. Personnel expenses. Personnel expenses corresponds, in the income statement of the Opodo IFRS Financial Statements, to a portion of the item ‘‘Cost of sales’’ for those personnel working within the insourced call centres of Opodo, and a portion of the item ‘‘selling, general and administrative expenses’’ for all other personnel. Other operating expenses. Other operating expenses corresponds, in the income statement of the Opodo IFRS Financial Statements, to the sum of (i) a portion of the item ‘‘cost of sales,’’ which comprises external call centre costs, credit card merchant charges, GDS costs, chargebacks on fraudulent transactions and BSP related costs, as well as other direct costs including payment processing costs, other fulfillment costs, and fraud prevention costs but excludes personnel expenses relating to the call centres, (ii) a portion of the item ‘‘selling, general and administrative expenses’’ excluding personnel expenses and (iii) the item ‘‘other operating expenditure.’’ Depreciation and amortization. Depreciation and amortization corresponds, in the income statement of the Opodo IFRS Financial Statements, to a portion of the item ‘‘selling, general and administrative expenses’’. Finance income/(loss). Finance income/(loss) corresponds, in the consolidated income statement of the Opodo IFRS Financial Statements, to the item ‘‘finance income,’’ less the item ‘‘finance costs’’. Income Tax. Income tax corresponds, in the income statement of the Opodo IFRS Financial Statements, to the item ‘‘tax.’’
Key Operating Metrics of Opodo The following table sets forth the historical key operating metrics for the flight and non flight businesses of Opodo for each of the years indicated.
Opodo IFRS For the year ended December 31 2010 2009 2008 (in thousand g) Gross Bookings Flight ...... 1,280,716 1,158,070 1,024,985 Non Flight ...... 159,905 127,228 109,792 Gross Bookings ...... 1,440,622 1,285,298 1,134,777
The following table sets forth a reconciliation of the Opodo Group revenue margin for the periods indicated.
Opodo Group IFRS For the year ended 2010 2009 2008 (in thousand g) Total revenue ...... 146,707 103,112 91,117 Less supplies ...... 35,726 4,444 — Revenue margin ...... 110,981 98,668 91,117
130 Results of Operations of Opodo (IFRS) The following table sets forth certain historical revenue and expense items of Opodo under IFRS for each of the periods indicated.
Opodo IFRS For the year ended 2010 2009 2008 (in thousand g) Total Revenue ...... 146,707 103,112 91,117 Supplies ...... (35,726) (4,444) —
Revenue margin ...... 110,981 98,668 91,117
Personnel expenses ...... (20,112) (17,900) (19,948) Other operating expenses ...... (63,152) (55,440) (58,976) Depreciation and amortization ...... (652) (830) (2,090) Operating profit ...... 27,065 24,498 10,103 Other income and expense ...... 167 — — Net finance income/(expense) ...... (494) (103) 40 Profit before tax ...... 26,738 24,395 10,143 Income tax ...... 53,688 6,244 20 Profit ...... 80,426 30,639 10,163
Comparison of the years ended December 31, 2010 and 2009 for Opodo The periods presented below took place prior to the Acquisition and present the results of operations of the Opodo Group only. The information used for purposes of these comments is derived from the Opodo IFRS Financial Statements. This information is not comparable with information derived from the Pro Forma Combined Financial Information, the Go Voyages French GAAP Financial Statements nor the eDreams Spanish GAAP Financial Information. No financial information for the combined business is available for the periods presented below. For a presentation of combined pro forma financial information for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
Revenue margin The following tables sets forth revenue margin of Opodo by product for the years ended December 31, 2010 and December 31, 2009.
Opodo IFRS For the year ended December 31 2010 2009 (in thousand g) Flight ...... 80,048 77,405 Non Flight ...... 30,933 21,263 Revenue margin ...... 110,981 98,668
Revenue margin for Opodo increased by e12.3 million, or 12.5%, to e111.0 million in the year ended December 31, 2010 from e98.7 million for the year ended December 31, 2009. This increase was primarily due to a 3.4% increase in revenue margin for flight, from e77.4 million for the year ended December 31, 2009 to e80.0 million for the year ended December 2010, which in turn was mainly attributable to higher volumes and increases in the service fees charged to customers in relation to flight bookings. Revenue margin from non-flight activities increased by e9.7 million, or 45.5%, to e30.9 million in the year ended December 31, 2010 from e21.3 million for the year ended December 31, 2009.
131 Personnel expenses Personnel expenses increased by e2.2 million, or 12.3%, to e20.1 million in the year ended December 31, 2010 from e17.9 million for the year ended December 31, 2009. This increase was mainly attributable to a sales incentive bonus charges and associated social security cost of e2.6 million in 2010 compared to enil in 2009.
Other operating expenses Other operating expenses increased by e7.7 million, or 13.9%, to e63.1 million in the year ended December 31, 2010 from e55.4 million for the year ended December 31, 2009, which was mainly attributable to an increase in marketing costs, certain non-recurring costs, and other variable costs resulting from the increase in volumes. The increase in marketing costs was mainly due to supporting a volume increase (as a significant portion of acquisition costs are based on traffic), as well as higher customer acquisition costs (mainly attributable to the increasing use of expensive acquisition channels such as metasearchers).
Depreciation and amortization Depreciation and amortization decreased by e0.2 million, or 25.0%, to e0.6 million in the year ended December 31, 2010 from e0.8 million for the year ended December 31, 2009, which was mainly attributable to assets (in particular data processing hardware and purchased software) reaching the end of their useful economic life.
Operating profit Operating profit increased by e2.6 million, or 10.6%, to e27.1 million in the year ended December 31, 2010 from e24.5 million for the year ended December 31, 2009.
Net finance income/(expense) Net finance expense increased by e0.4 million to e0.5 million in the year ended December 31, 2010 from e0.1 million for the year ended December 31, 2009.
Profit before tax Profit before tax increased by e2.3 million, or 9.4%, to e26.7 million in the year ended December 31, 2010 from e24.4 million for the year ended December 31, 2009.
Income tax Income tax credit increased by e47.4 million, to e53.7 million in the year ended December 31, 2010 from e6.2 million for the year ended December 31, 2009, which was mainly attributable to the recognition on of defined tax assets related to previously unrecognized accumulated tax losses within Opodo Limited for which it is assessed that sufficient taxable profits will arise in the future to permit utilisation of such losses.
Profit/(loss) after tax Profit after tax increased by e49.8 million, or 162.7%, to e80.4 million in the year ended December 31, 2010 from e30.6 million for the year ended December 31, 2009.
Comparison of the years ended December 31, 2009 and 2008 for Opodo The periods presented below took place prior to the Acquisition and present the results of operations of the Opodo Group only and are derived from the Opodo IFRS Financial Statements. No financial information for the combined business is available for these periods. For a presentation of combined pro forma financial data for the combined group for the year ended December 31, 2010, please refer to the ‘‘Unaudited Pro Forma Combined Financial Information.’’
132 Revenue margin The following tables sets forth revenue margin of Opodo by product for the years ended December 31, 2009 and December 31, 2008.
Opodo IFRS For the year ended December 31 2009 2008 (in thousand g) Flight ...... 77,405 67,058 Non Flight ...... 21,263 24,059 Revenue margin ...... 98,668 91,117
Revenue margin increased by e7.6 million, or 8.3%, from e91.1 million in 2008 to e98.7 million in 2009. The change was primarily attributable to an increase in the number of purchases made through our websites, particularly flights, partially offset by a decrease in revenue margin per bookings due to increased competitive pressure in certain geographies. This increase in revenue margin was also partially offset by a decrease in revenue margin from hotel bookings due to a fall in the average booking price charged by hotels.
Personnel cost Personnel cost decreased by e2.0 million, or 10.1%, from e19.9 million in 2008 to e17.9 million in 2009. The change was primarily attributable to continued pressure on headcount costs across the group, and the establishment of a low-cost development centre in Spain, replacing more costly employees in London.
Other operating expenses Other operating expenses decreased by e3.5 million, or 5.9%, from e59.0 million in 2008 to e55.4 million in 2009. The change was primarily attributable to variable costs increasing with volume, offset by ongoing cost rationalisations.
Depreciation and amortization Depreciation and amortization decreased by e1.3 million, or 61.9%, from e2.1 million in 2008 to e0.8 million in 2009. The change was primarily attributable to a reduction in amortization of internally developed software, as well as assets reaching the end of their depreciable lives.
Operating profit Operating profit increased by e14.4 million, or 142.6%, to e24.5 million in the year ended December 31, 2009 from e10.1 million for the year ended December 31, 2008.
Net finance income/(expense) Net finance income/(expense) decreased by e0.1 million, to an expense of e0.1 million in the year ended December 31, 2009 from enil million for the year ended December 31, 2008, which was mainly attributable to a significant decrease in the interest rate received on cash balances.
Profit before tax Profit before tax increased by e14.3 million, or 141.6%, to e24.4 million in the year ended December 31, 2009 from e10.1 million for the year ended December 31, 2008.
Income tax Income tax credit increased by e6.2 million, from enil million in 2008 to e6.2 million in 2009. The change was primarily attributable to the recognition of a deferred tax asset not previously recognised due to a prior history of losses in the Opodo Group.
133 Profit For the reasons set forth above, profit increased by e20.5 million, from e10.1 million in 2008 to e30.6 million in 2009.
Liquidity and Capital Resources of the Opodo Group Historically, the liquidity requirements of Opodo arose primarily to fund capital expenditures and to repay debt. Opodo has historically utilized cash flow from operations to finance its cash needs and the growth of its business. Cash and cash equivalent of Opodo were e16.9 million at December 31, 2010. Opodo had no undrawn committed revolving credit facilities. The primary source of liquidity for Opodo has been cash generated from operations. For the year ended December 31, 2010, Opodo generated e2.6 million in net cash flows from operating activities.
Cash Flow The following table summarizes the cash flow statement for the Opodo Group for the financial years ended December 31, 2010, 2009 and 2008.
Opodo IFRS Year ended December 31 2010 2009 2008 (in thousand g) Cash flows from operating activities: Operating profit ...... 27,065 24,498 10,103 Adjustments to operating profit ...... 2,848 482 2,241 Change in working capital ...... (25,299) (18,532) (4,430) Taxes paid ...... (1,993) (292) (97) Net cash flows from operating activities (I) ...... 2,621 6,156 7,817 Cash flows from investing activities: Expenditures on intangible assets ...... (1,072) (172) (669) Purchase of property, plant and equipment ...... (245) (307) (250) (Increase)/decrease in restricted cash deposits ...... 1,127 (1,463) 1,031 Interest received ...... 419 377 852 Net cash flows from investing activities (II) ...... 229 (1,565) 964 Cash flows from financing activities: Repayment and redemption of bank borrowings ...... — — — Borrowing from parent company ...... — — (12,709) Interest paid and other financial expenses ...... (523) (91) (599) Net cash flows used in financing activities (III) ...... (523) (91) (12,709) Net increase/(decrease) in cash and cash equivalents (I+II+III) .. 2,327 4,500 (3,928) Cash and cash equivalents at beginning of period ...... 13,862 9,273 14,267 Effect of exchange rate changes ...... 638 89 (1,066) Cash and cash equivalents at end of period ...... 16,872 13,862 9,273
Operating Activities Cash from operating activities consists of the results from the income statement adjusted for non-cash items such as depreciation, amortization, impairment of goodwill and intangible assets, non-cash compensation and changes in various working capital items, principally accrued merchant payables, deferred income and accounts payable. For the year ended December 31, 2010, net cash inflow from operating activities was e2.6 million, primarily resulting from improved profitability which was offset by adverse movements
134 in working capital, principally due to amounts being placed on deposit with the Opodo Limited, which do not qualify for recognition as cash and cash equivalents within the cashflow statement. For the year ended December 31, 2009, net cash inflow from operating activities was e6.2 million, primarily resulting from improved profitability which was offset by adverse movements in working capital, principally due to amounts being placed on deposit with the Opodo Limited, which do not qualify for recognition as cash and cash equivalents within the cash flow statement. For the year ended December 31, 2008, net cash inflow from operating activities was e7.8 million, primarily resulting from improved profitability.
Investing Activities For the year ended December 31, 2010, net cash flow from investing activities was e0.2 million, primarily resulting from a release of restricted cash deposits back to the company and interest received, less outflows on the purchase of property, plant and equipment and intangible assets. For the year ended December 31, 2009, net cash flow used in investing activities was e1.6 million, primarily resulting from an increase in cash deposits used as collateral for certain guarantees. For the year ended December 31, 2008, net cash flow from investing activities was e1.0 million, primarily resulting from a release of restricted cash deposits back to the company and interest received, which were partially offset by expenditure on property, plant and equipment and intangible assets.
Financing Activities For the year ended December 31, 2010, net cash flow from financing activities was e0.5 million, primarily resulting from cash bonding and guarantee costs incurred. For the year ended December 31, 2009, net cash flow used in financing activities was e0.1 million, primarily resulting from other financial expenses. For the year ended December 31, 2008, net cash flow used in financing activities was e12.7 million, primarily resulting from the repayment of borrowings from Opodo’s parent.
Capital Expenditures of Opodo Opodo has historically financed capital expenditure requirements with cash flows from operations. Opodo made capital expenditures of e1.3 million, e0.5 million and e0.9 million in the years ended December 31, 2010, 2009 and 2008, respectively. In 2008 and 2009, most of these expenditure related to the purchase of hardware and software related to the ongoing operations of Opodo, and during 2010 we also capitalized employee costs incurred in connection with the development of software for internal use.
Contractual Obligations of Opodo The following table sets forth, as of December 31, 2010, contractual obligations and commercial commitments of Opodo, based upon the period in which payments are due.
Less than 5 years Contractual Obligations 1 year 1–5 years and more Total (in million g) Long-term and short-term debt obligations ...... — — — — Capital (finance) lease obligations ...... 0.8 0.4 — 1.2 Operating lease obligations ...... — — — — Purchase obligations ...... — — — — Other long-term liabilities ...... — — — — Total ...... 0.8 0.4 — 1.2
135 Off-Balance Sheet Arrangements of Opodo Off-balance sheet arrangements are entirely comprised of guarantees granted by Opodo’s parent company and certain financial institutions to cover three main types of contingencies: • Guarantees issued in favor of IATA to allow Opodo to operate and sell flight tickets in certain jurisdictions (Germany, Austria, Italy and UK): total amount outstanding as of December 2010 was e31.4 million; • Guarantees issued in favor of certain suppliers to allow for Opodo to offer their products: total amount outstanding as of December 2010 was e10.9 million; • Other guarantees issued to cover other contingencies: e10.3 million.
Long-Term Financing Arrangements of the Geo Group Giving Effect to the Transactions On a pro forma basis after giving effect to the Transactions, as of December 31, 2010, our pro forma total financial liabilities would have been e515.8 million. As a result of this increased indebtedness, our interest expenses will significantly increase in future periods. For the purposes of the financial information presented below, we have assumed that the Revolving Credit Facilities of e140 million and the uncommitted Acquisition Facility of e50 million will each remain undrawn. We will be highly leveraged upon completion of the Transactions, and among other consequences, our Senior Credit Facilities Agreement will include certain financial covenants. See ‘‘Description of Other Indebtedness—Senior Credit Facilities Agreement.’’ As of December 31, 2010, the principal payments of our long-term financing arrangements, after giving pro forma effect to the Transactions, would have been as follows:
Payment Due by Period 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total (in million g) Senior Credit Facilities Agreement Term Loan Facility A ...... 0 20.4 23.8 34.0 34.0 34.0 23.8 0 0 170.0 Term Loan Facility B ...... 0000000170.0 0 170.0 Senior Notes ...... 00000000175.0 175.0 Obligations under finance leases ...... 0.5 0.3 00000000.8 Total ...... 0.5 20.7 23.8 34.0 34.0 34.0 23.8 170.0 175.0 515.8
For a description of the material terms of our long-term financing arrangements, see ‘‘Description of Other Indebtedness,’’ and ‘‘Description of the Notes.’’
Investment of Surplus Cash On a pro forma basis after giving effect to the Transactions, as of December 31, 2010, we would have had a pro forma net debt position. Going forward, following completion of the Transactions, we intend to use a portion of excess cash flow to repay the facilities made available under the Senior Credit Facilities Agreement.
Disclosures about Market Risks affecting the Geo Group Credit risk Our cash and cash equivalents are held with financial entities with strong credit ratings. Our credit risk is mainly attributable to customer receivables on corporate travel and Business to Business (B2B) customers, and advertising receivables. These amounts are recognized in the consolidated balance sheet net of provisions for doubtful receivables, which is estimated by our management on a case by case basis.
Interest rate risk Our financial debt is exposed to interest rate risk. Existing credit facilities of the Go Voyages Group and the eDreams Group, as well as the credit facilities to be entered into in connection with the Transactions (see ‘‘The Transactions’’ and ‘‘Description of Other Indebtedness’’), bear interest at a variable rate and are therefore indexed to market trends. Historically, the Go Voyages Group and
136 the eDreams Group have entered into various interest rate swap agreements pursuant to which they swapped the variable rate of interest for a fixed rate. The Geo Group intends to continue this policy with respect the credit facilities entered into in connection with the Transactions.
Liquidity risk In order to meet our liquidity requirements, our principal sources of liquidity are: cash and cash equivalents from the balance sheet, cashflow generated from operations and the committed revolving credit facilities for e140 million to be entered into in connection with the Transactions to fund intra-month cash swings and supplier guarantees.
Critical Accounting Policies of the Geo Group The preparation of our consolidated financial statements and related notes in conformity with IFRS will require us to make judgments, estimates and assumptions that may affect the amounts reported. An accounting policy is considered to be critical if it meets the following two criteria: (i) the policy requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made; and (ii) different estimates that reasonably could have been used or changes in the estimates that are reasonably likely to occur from period to period would have a material impact on our consolidated financial statements. We believe that the accounting methods and policies listed below are the most likely to be affected by these estimates and assumptions. Although we believe these policies to be the most critical, other accounting policies also have a significant effect on our consolidated financial statements and certain of these policies may also require the use of estimates and assumptions.
Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the ordinary course of business net of VAT and similar taxes. We provide customers the ability to book air travel, hotels, car rentals and other travel products and services through our various websites. These travel products and services are made available to our customers for booking on a stand-alone basis or as part of a vacation package. When we act as principal and purchase inventory for re-sale or are the primary obligor in the arrangement, revenue is recognized on a gross basis. The revenue comprises the gross value of the transaction billed to the customer, net of VAT, with any related expenditure charged as supplies. Such revenue comprises sales in respect of charter flights for Go Voyages, tours in Italy for eDreams and Dynamic Packages for Opodo. At time of booking revenues are recorded as deferred income. Revenue and supplies are recognized on the date of departure. In other transactions where we bear no inventory risk we are not the primary obligor in the arrangement, revenue is recognized on a net basis, with revenue representing the margin earned. Such revenue comprises sales in respect of scheduled airlines, hotels, car rentals and most of our packaged travel products. For LCCs, we usually pass reservations booked by customers to the travel supplier and revenue represents the service fee charged to the customer. In these transactions, we have limited, if any, ability to determine or change the products or services delivered and the customer is responsible for the selection of the service supplier. Booking is then secured when no further obligation is supported by us. For air transactions, this is at time of ticketing. For hotel transactions, car transactions, packaged products, revenue margin is recognized when the customer uses the reservation (on the date of departure). This timing is different for air travel because the primary service to the customer is fulfilled at the time of booking. Where we are not a principal, additional income, such as overrides, may accrue based on the achievement of certain gross sales values over a specified period. We therefore accrue for such income where it is considered probable that the gross sales values will be met and the amount to be received is estimable. Where it is probable that the gross sales value will be met, revenue is recognized based on the percentage of gross sales value achieved by the reporting date.
137 We generally do not take on credit risk with the customer, however we are subject to charge- backs and fraud risk which we monitor closely. We use GDS services to source and book products. Under GDS service agreements, we earn revenue in the form of an incentive payment for each segment that is processed through a GDS. Revenue is recognized for these incentive payments at the time the travel reservation is processed through the GDS, which is generally at the time of booking. We recognize revenue for insurance sold to customers at the time of booking as the cover starts from that date. We generate other revenues, which is primarily comprised of revenue from advertising. Such revenue is derived primarily from the delivery of advertisements on the various websites we operate and is recognized at the time of display or over the advertising delivery period, depending on the terms of the advertising contract. Reporting revenue on a gross versus net basis is a matter of significant judgment that depends on a relevant set of facts and circumstances. This analysis is performed using various criteria such as, but not limited to, whether we are primary obligor in the arrangement, we have inventory risk, latitude in establishing price, discretion in supplier selection or credit risk. However, if our judgments regarding revenue are inaccurate, actual revenue could differ from the amount we recognize, directly impacting our reported revenue.
Measurement of property, plant and equipment and intangible assets other than goodwill Total property, plant and equipment and total intangible assets (mainly trademarks, technologies and customer-related intangibles) will represent a significant portion of our total consolidated balance sheet. Property, plant and equipment and intangible assets other than goodwill are recorded at their acquisition or production cost. When such assets are acquired in a business combination, purchase accounting requires judgment in determining the estimated fair value of the assets at the date of the acquisition. As direct observable fair values are not always readily available, indirect valuation methods are often used with their inherent limitations. Examples of indirect methods we commonly use for certain acquired intangibles include the relief of royalty method for trademarks or the excess earnings approach for customers relationships. A change in any of the assumptions used in any of the indirect valuation methods could change the amount to be allocated to the acquired intangibles. Similarly, judgment is required in determining the useful lives of the assets both at and subsequent to the acquisition date. Such judgment considers obsolescence, physical damage, significant changes to the manner in which an asset is used, worse than expected economic performance, a drop in revenues and other external indicators. Considering the type of assets and the nature of the activities, most of our assets do not generate independent cash flows from those attached to the Cash-Generating Unit (CGU). Hence, the assessment of the need for an impairment test is mostly determined at the CGU level (see hereunder) in accordance with IAS 36 Impairment of Assets. With respect to internally-generated intangible asset arising from the development of our website operating platforms and related back office systems, it will be recognized if, and only if, all of the following have been demonstrated: • an asset is created that can be identified (such as software and new processes); • it is probable that the asset created will generate future economic benefits; and • the development cost of the asset can be measured reliably. Once capitalized, these development costs will be amortized over the estimated useful lives of the products concerned (generally 3 years). We must therefore evaluate the commercial and technical feasibility of those development projects and estimate the useful lives of the products resulting from the projects. Should a product fail to substantiate those assumptions, we may be required to impair or write off some of the capitalized development costs in the future.
138 Purchase price allocation and allocation of goodwill The amount of goodwill determined in a business combination is dependent on the allocation of the purchase price over the corresponding equity in the fair value of the underlying assets acquired and the liabilities assumed, a process that requires a significant level of estimate and judgment. Under IFRS, goodwill is not amortized but will be reviewed for impairment at least annually at the level of the CGU or group of CGUs. Goodwill is to be allocated to each of the acquirer’s CGUs or groups of CGUs that is expected to benefit from the synergies of the business combination. Such allocation represents the lowest level at which the goodwill is monitored for internal management purposes and is not larger than an operating segment. Therefore, changes in the way management monitors goodwill or in the segment reporting structure may require a reallocation and trigger the need for an impairment test.
Impairment testing of the recoverable amount of a CGU or group of CGUs The determination of impairment under IAS 36 will require the use of estimates which include but are not limited to the cause, the timing and the amount of the impairment. As such, the determination of the recoverable amount represents an area where significant assumptions and judgment are required. The recoverable amount is the higher of the fair value less costs to sell and the value in use: • fair value less costs to sell is the best estimate of the amount obtainable from the sale of a CGU in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. Because the fair value of our CGUs is expected to be rarely directly observable, it will be determined on the basis of available market information, such as revenue and EBITDA multiples for comparable companies or transactions, or discounted cash flows including market participant assumptions on WACC or long-term growth rates; and • value in use is determined by our management based on the discounted cash flows derived from the applicable business plan. When cash flow projections are used, they will be based on economic and regulatory assumptions and forecast trading conditions, including: • the influence of competitors; • the evolution and utilization of new technologies; • the level of appeal of these new technologies and related services to the customers; and • the long-term growth rate and discount rate. The values assigned to each of those parameters reflect past experience and anticipated changes over the period of the business plans. The methodology used and the related estimates have a material impact on the recoverable value and ultimately the amount of any asset impairment. If the assumptions do not materialize as expected, this may result in decreased revenue, EBITDA or cash flows and materially change the potential impairment.
Accounting for income taxes Under IFRS, our provision for income taxes will be determined using the asset and liability method. Under this method, deferred tax assets and liabilities are calculated based upon the temporary differences between the financial statement and income tax bases of assets and liabilities using the effective tax rates that are applicable to us in a given year in a given jurisdiction. The deferred tax assets are recognized when, based on the weight of available evidence, we believe it is probable that some portion or all of the recognized deferred tax assets will be realized in future periods. Significant judgment on the part of management is required in determining current and deferred income taxes, as a result of the inherent necessity of interpreting tax laws or assessing the respective technical merits of the company and tax administration positions following a tax audit as
139 well as assessing the availability of future taxable income that can be offset against tax loss carryforwards within the appropriate timeframe, as estimated by management. The realization of deferred tax assets is also reviewed by management using each entity’s tax forecast based on budgets and strategic businessplans. With respect to the realization of deferred tax assets as a result of the Acquisition, we may be able to utilize the benefit of the unused tax losses of Opodo Ltd. against future taxable profits. In such cases, we will recognize a deferred tax asset, but such tax benefit will not part of the accounting for the business combination, and therefore will not be taken into account in measuring the goodwill or bargain purchase gain in relation to the Acquisition as indicated in IAS 12 Income taxes (‘‘IAS 12’’) paragraph 67. In addition, if the potential benefit of the income tax loss carry- forwards of Opodo Ltd. does not satisfy the criteria in IFRS 3 for separate recognition when the Acquisition is initially accounted for, but is subsequently realized, we will recognize the resulting deferred tax benefits that we will realize after the business combination as follows: • Acquired deferred tax benefits recognized within the measurement period that result from new information about facts and circumstances that existed at the acquisition date shall be applied to reduce the carrying amount of any goodwill related to that acquisition. If the carrying amount of that goodwill is zero, any remaining deferred tax benefits shall be recognized in profit or loss. • All other acquired deferred tax benefits realized shall be recognized in profit or loss (or, if IAS 12 so requires, outside profit or loss).
Accounting for provisions and liabilities In the ordinary course of business, we are involved in a number of litigations and claims. The costs that may result from these litigations and claims are only accrued for when it is probable that a liability will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. The amount of the provisions recorded is based on a case-by-case assessment of the risk level, and events arising during the course of legal proceedings may require a reassessment of this risk. We exercise significant judgment in measuring and recognizing provisions or determining exposure to contingent liabilities that are related to pending litigations or other outstanding claims. These judgments and estimates are subject to change as new information becomes available. Any change could lead to a different conclusion regarding the amount of the provision or liability recognized and could have a significant effect on our consolidated financial statements.
140 INDUSTRY OVERVIEW AND MARKET DATA Certain of the information set forth in this section has been derived from external sources, including PhoCusWright and Roland Berger, among others. Industry surveys and publications generally state that the information contained therein has been obtained from sources believed to be reliable, but some of this information may have been derived from estimates or subjective judgments or have been subject to limited audit and validation. While we believe this market data to be accurate and correct, we have not always independently verified it. Market data presented in this section are based on total bookings, as estimated by us.
Global Travel Industry The worldwide travel industry, including offline and online agencies and other suppliers of travel products and services, is a large and dynamic industry that has historically been characterized by intense competition, as well as rapid and significant change. Travel and tourism was estimated in 2010 by the World Travel and Tourism Council (‘‘WTTC’’) to generate 9.2% of worldwide GDP, or e4 trillion. The global economy experienced a prolonged recession during late 2008 and throughout 2009 that significantly impacted the travel industry. Although the global economy appears to have stabilized or slightly improved in 2010, there is still uncertainty concerning the timing and sustainability of a recovery. The online travel segment (which includes both OTAs and supplier websites) is the fastest growing segment of the travel industry. The emergence of the Internet as the most efficient way to book travel has revolutionized the way millions of people research and purchase travel products and services and has led to the rapid growth of online travel companies. However, online travel itself continues to evolve. As technologies and commercial models continue to change, all players in the travel distribution chain will be challenged to innovate and meet the changing demands of travelers in Europe and around the globe.
European Travel Industry The European travel industry represents a large and dynamic marketplace. In 2010, the European tourism and travel market, including airlines (full service and low-cost), hotels, rail-road companies, car rental companies and tour operators, was estimated to be worth approximately e220 billion according to PhoCusWright, making it the world’s largest travel market. The European travel and tourism landscape has however changed significantly in the past ten years. Short-haul travel within Europe has increased significantly as immigration rules have been relaxed and, at the same time, LCCs such as Easyjet and Ryanair have emerged to challenge full service airlines. Amidst the growing complexity and fragmentation of routes, consumers have also shifted their purchasing behavior away from standard round-trip tickets towards fare deconstruction (i.e., booking each leg of the trip separately) and from purchasing one travel product or pre-packaged products to combining a variety of travel products from different travel suppliers. These changes have bolstered the importance of intermediaries such as online travel agents. According to PhoCusWright, while the total European travel market globally declined between 2008 and 2010 (at a CAGR of 4.4%) as a result of the economic turmoil, the European online travel segment grew by 6.0% in the same period. Online travel agencies’ performance was particularly robust and drove this growth, with 8.2% growth in 2009. In 2010, according to the European Technology & Travel Services Association (‘‘ETTSA’’), approximately 33% of European leisure and corporate travel expenditures occurred online. This penetration rate is still low which suggests significant growth opportunities, namely when compared to online penetration in the U.S. which was was approximately 57% in 2010. However, online penetration in Europe has increased over the past few years, and increased Internet use and availability of high speed Internet access, greater convenience and ease of use of booking travel
141 online and increased breadth of travel products offered online are expected to drive significant, long-term growth for the online travel sector in Europe, as shown below.
European Travel Market (€bn)
CAGR 27 31 33 35 36 08-12E 241 239 228 215 220 (0.2)% 152 148 176 147 149
7.3% 87 80 73 65 66
2008 2009 2010 2011 2012
Online Channels Total Gross Bookings Online Penetration (%) 24MAY201113180297
Source: PhoCusWright Sixth Edition (Note: 2010-2012 projected) There are significant differences in market shares, growth rates, and trends among the more mature economies such as Germany (the largest European travel market), France, the United Kingdom, Italy, Spain and the Scandinavian countries, and developing economies, such as Eastern Europe. Even in the most developed markets, the emergence of the online travel channels did not occur homogenously, as shown in the graphs below:
Online Penetration Online Travel Growth
CAGR 2008-2012E % 51% 47% 44% 44% 12.6% 37% 37% 10.1% 31% 29% 8.6% 26%
24% 7.5% 21%
18% 5.6% 5.7% UK UK Italy Italy Spain Spain France France Germany Germany Scandinavia Scandinavia 2009 2012 24MAY201113083477
Source: PhoCusWright Sixth Edition (Note: 2010-2012 projected)
Key differences between the European and the U.S. travel markets The European travel market and the U.S. travel market (where we have a very limited presence) are fundamentally and structurally different. Europe is currently both the largest travel market and online travel segment in the world, surpassing the U.S. in both the traditional and online channels. A larger addressable market presents advantages for operators with platforms that are scalable across Europe. Additionally, PhoCusWright forecasts that the European online travel segment will grow much faster than in the U.S. with an estimated 11.4% CAGR in Europe versus 5.2% in U.S from 2006 to 2011 due to the lower penetration of online travel. The U.S. travel supplies market, in particular the flight sector and the routes themselves, is much more consolidated and is perceived by consumers as commoditized. As a result, intermediaries in the flight segment are perceived to add less value. Given that the U.S. flight segment is much more disintermediated (i.e. airline.com websites are more prevalent), the U.S.
142 OTAs have dramatically shifted focus to the hotel and holidays segment, both domestically and internationally, whereas flight bookings is still the most important product for European OTAs. The European travel market environment is structurally much more fragmented and complex than the U.S. market. Multiple countries, languages, currencies and tax/regulatory systems all contribute to such complexity. In addition, the number of travel providers is significantly larger in Europe. For instance, according to IATA, most countries have their own local country airlines, including full service and LCCs, leading to approximately 120 airlines in Europe, versus 61 in North America as of 2010. In addition, there is a much higher degree of fragmentation in hotels and other non-flight products in Europe with a similarly vast range of specificities across markets. As a result, significant fragmentation in the European travel market results in greater relevance of OTAs as customers require an intermediary to provide optimal product choice and pricing. Differences in market fragmentation have also had an impact on service fees in Europe and in the U.S., particularly in the flight sector. Because the U.S. flight sector is dominated by a few major airlines (none of which charges booking fees), the U.S. OTAs needed to remove the booking fee charged to consumers in order to compete more effectively with each other and the airline.com websites. Meanwhile, in Europe the majority of key airlines incorporate a service fee (as a cost cover mechanism) which is at a relatively similar level to the ones charged by OTAs. Additionally, European OTAs have in the past invested significant capital in the development of sophisticated flight search engines in order to sustain their relevance and consequently have been able to justify charging service fees. Certain U.S. OTAs tried to implement ‘‘zero booking fees’’ policies in several European countries, without obtaining any long-term gain in flight segment share, and in certain cases, have started re-introducing such fees. Lastly, European consumers have proven to be significantly less sensitive to booking fees and have prioritized the ability to find the best all-in fare and user experience in their channel selection.
Flight Segment There has been a historical correlation between flight travel and GDP growth with multiplier ratios between 1.3x and 1.6x, as shown in the graph below.
24MAY201111301094
Sources: ICAO Passenger Figures, IMF and Amadeus As a result, flight travel volumes have begun to return to growth as the global and European economies recover. Long-haul travel is expected to be a key growth driver for the travel industry as international and intercontinental travel becomes more affordable and appealing to consumers and is increasingly considered less of a discretionary expenditure in Western economies. Such shifting consumer behavior creates a significant opportunity for OTAs, which can add value in structuring complex long-haul journeys. In recent years, there has been increased air carrier consolidation (exemplified by the merger agreement signed by Iberia and British Airways on April 8, 2010), generally resulting in lower overall capacity and, in certain cases, higher fares. In addition, air carriers have made significant efforts to keep seat capacity relatively low in order to optimize flight occupancy rates. Although reduced
143 seating capacities generally have a negative impact on travel agencies, including OTAs, as there is less flight supply available to customers, and in turn less opportunity to sell hotel rooms, car rentals and other travel services, this impact has been partly mitigated by a decrease in airfares of new entrants and consumer preference for short-haul flights. Flight routes are also more fragmented in Europe with Top 10 City Pairs (meaning, the main travel axes in terms of passengers in Europe) accounting for only 5.5% of total passengers (against 24.1% in the US) (source: Transtats, OAG) and international flights accounting for 81% of total flights (against 23% for the US) (source: IATA). Simultaneously, the European flight sector has been significantly penetrated by the emergence of strong Middle Eastern carriers and growing traffic between Europe and regional hubs such as Dubai and Qatar. As a result, these carriers are increasingly searching for means to compete with European carriers for passengers flying out of Europe. OTAs present attractive platforms for these new players to build brand value with European consumers by offering special rates, overcommissions and promotional packages. In Europe, flight distribution has historically been dominated by TTAs, who source the majority of flight bookings to full service airlines in exchange for a fee. Increased broadband penetration and e-commerce gave rise to a new, growing online channel, with flight bookings increasingly being made available to customers through the Internet. While LCCs still have a low penetration level in many European markets, their growing proliferation has further favored the online channels versus the traditional travel agent business model. Additionally, increased LCC penetration is likely to result in an increase in the number of routes and airports in Europe, which would be beneficial for the European travel market, including OTAs. Across all travel products and services offered through online channels, the flight sector appears to be particularly well suited to benefit from the development of e-commerce due to the high absolute volume of transactions, dematerialized products (i.e., e-ticketing) and wide diversity of airline offerings. The European flight segment, in particular, is well placed to benefit from online distribution given very high fragmentation of supplier base and routes, suggesting the need for comprehensive intermediaries with constant access to supply. OTAs are well positioned to take share of the online channel going forward based on several competitive advantages, namely the fact that direct supplier websites generally are less effective outside of their home market. On the airline leisure flight segment (including airline.com websites and OTAs), we estimate we are the largest OTA in France and Italy, the second largest in Spain and Germany and the third largest in the UK based on total flight bookings.
Non-flight Segment The European non-flight segment represents a significant opportunity for travel industry operators and particularly online operators, given material scale and very low online penetration. According to PhoCusWright, the European non-flight segment generated approximately e136 billion of revenue in 2010. In addition, hotels, travel package providers, rail networks and car rentals companies only derive 22%, 20%, 21% and 28% of their bookings from online channels, respectively, against approximately 42% for flight (source: PhoCusWright). Given such low penetration rates, the European non-flight online channel is forecasted to grow at a faster rate than the flight segment. For the period 2010-2012, the European non-flight online segment is estimated to grow at approximately 10% CAGR, compared to approximately 8% for the flight segment during the same period (source: PhoCusWright). The non-flight segment is highly fragmented as large hotel chains, car rental agencies and insurance providers, which have the resources and scale to invest in their own competitive direct channels, account for a relatively small portion of total non-flight bookings. This fragmentation provides greater opportunities for online aggregation and, as a result, OTAs benefit from higher commissions on non-flight products, even in the absence of service fees in several geographies. The hotel segment benefits, particularly online, from the level of supplier fragmentation. Our core geographical travel markets are characterized by low direct sales of hotel chains, suggesting better positioning of OTAs as intermediaries amidst a fragmented market. The competitive landscape in Europe is dominated mainly by Booking.com and Travelocity for whom the hotel business is the principal activity.
144 Competitive Overview In Europe, the leisure travel agency market is highly fragmented due to the presence of multiple countries with different languages, currencies, tax and regulatory environments. The European travel market is also highly competitive and our current main competitors include tour operators, traditional offline travel agencies, other OTAs and travel product suppliers such as airlines and hotels. Competitive positioning can vary drastically within flight and non-flight segments of the market. The European OTA sector is also highly fragmented with competition varying by country and product offering. Our competitors are different in each country, emphasizing the highly localized nature of the travel industry. In addition, research companies, search engines and metasearch companies which are not direct competitors also increase competition on our different businesses. Online travel agencies have rapidly gained visibility among customers due to their extensive range of products from multiple suppliers, round-the-clock access, powerful aggregation capacity, easy search interfaces for best travel deals and up-to-date content. While certain European OTAs currently generate most of their revenue from flight bookings, allowing for greater economies of scale due to the higher absolute volume of transactions in this segment, OTAs are also increasingly focusing their efforts on other areas of the tourism and travel markets such as package deals, all-inclusive holidays, hotels and car rentals, with flights being just one component of the product portfolio. The European tourism and travel market has historically been dominated by TTAs, which provide added value by designing bespoke travel arrangements for travelers. Traditional and online travel agencies generally offer similar products at similar prices. While customers may increasingly use the Internet to collect information on different offers, they are generally very price sensitive when purchasing travel products or services, and both online and offline distribution channels act as price constraints upon each other. However, TTAs do not have seamless access to as broad a supply of travel products as OTAs and also suffer from higher fixed costs and additional constraints in terms of opening hours. To mitigate higher fixed costs, TTAs have often offered clients flight/ package options which result in higher margins for the TTAs but also generally higher prices for the customers. TTAs also have limited ability to undertake dynamic pricing which makes their price offering less attractive compared to online competitors. In addition, travel suppliers’ websites (including airline.com websites) have so far been active rivals of OTAs in securing bookings through online travel channels. Customers generally access direct supplier websites either as a result of advertising or when redirected from metasearchers. While supplier websites have grown in line with the increase in overall online penetration, leisure travelers have also become increasingly price sensitive and have shown a willingness to compare multiple offers, thus driving traffic towards OTAs. As a result, in recent years, OTAs have increased their online flight segment shares, when compared to direct suppliers websites. PhoCusWright estimates that OTA flight bookings will grow at a projected CAGR of +8% between 2008 and 2012, against a CAGR of +4.4% for supplier direct in the same period. Metasearchers have further intensified competition, particularly as some metasearchers have introduced innovative search engine technologies and forced OTAs to adapt their business models and keep up with the pace of technological change. Metasearchers include both search engines and comparison websites such as Kayak, Bing Travel or SkyScanner; they source travel products from external sources (such as supplier websites or OTAs) and re-direct customers to their chosen option. Metasearchers charge the underlying retailer generally on a pay-per-click basis but since no bookings are made on the metasearch website, they are unable to forge relationships with clients. Therefore, metasearchers are not OTAs direct competitors, have limited brand awareness and customer usage in the European travel market and depend on travel suppliers for access to travel products (which may be refused), whereas, at the present moment, suppliers such as airlines cannot refuse access to their supply by OTAs.
Our Geographical Markets In Europe, we are mainly present in France, Italy, Spain, the United Kingdom, Germany and Scandinavian countries.
145 France The French travel market was better positioned to deal with the impact of the economic downturn compared to other European countries due to the relative resilience of the French economy and the success in developing new incoming tourist markets, including the Middle East, Russia and China. According to PhoCusWright, in 2010, the French travel market was worth approximately e40.5 billion, including e17 billion for flights, e12.3 billion for hotels, e8 billion for rail, e1.5 billion for car rental and e5.8 billion for tour operators/packages. The market is expected to grow to e43.8 billion in 2012. In the French leisure travel agency market, our main competitors are TTAs (comprising of travel agency networks such as AS Voyages, integrated networks such as Thomas Cook, and travel agencies created by supermarket distribution groups such as E.Leclerc Voyages), other OTAs such as Expedia, Karavel/Promovacances, Priceline-Booking.com and Voyages-sncf.com, airlines and other travel product suppliers selling through their websites. Furthermore, over a quarter of the sales in France flows to smaller regional and local players. According to PhoCusWright, the French leisure flight sector was worth e17.0 billion in 2010, and is expected to grow to e19.2 billion by 2012. The flight sector in France is dominated by full service airlines as the market is more focused on long-haul flights. Historically there have been fewer LCCs in France because of a lack of viable domestic air routes and an efficient TGV rail network. In the French market, train travel serves as a far more viable alternative to short-haul flights than elsewhere in Europe. However, LCC penetration is expected to increase over the next years. PhoCusWright’s European Online Travel Overview (Sixth Edition) indicates that online penetration in the French travel market has grown substantially from 27% in 2008 to 34% in 2010 and is expected to reach 37% in 2012. The online travel segment grew from e12.1 billion in 2008 to e13.7 billion in 2010 and is expected to continue to grow to e16.1 billion in 2012. According to PhoCusWright, while suppliers’ websites account for 58% of travel sales in the online segment in France, the growth in the online segment was mainly driven by OTAs which grew from e4.6 billion in 2008 to e5.9 billion in 2010. OTAs total bookings are expected to reach e6.7 billion in 2012. According to PhoCusWright and Roland Berger, the French leisure online flight segment was worth approximately e6.8 billion in 2010, and is expected to grow to e7.9 billion by 2014, with growth being driven mainly by increased penetration of LCCs. OTAs in the French market are expected to continue to grow as they attract customers through their broader offerings and price competitiveness. We believe we are the largest OTA in France based on total flight bookings.
Italy According to PhoCusWright, the Italian leisure travel market declined from e19.7 billion in 2008 to e16.6 billion in 2010, mainly due to general economic turmoil. In 2010, the overall e18.3 billion estimated marked value included e3.3 billion for flights, e9.7 billion for hotels, e2.2 billion for rail, e0.8 billion for car rental and e2.3 billion for tour operators/packages. According to PhoCusWright, our main competitors are traditional travel agencies (over 10,000 in the Italian market), OTA players such as Expedia, Booking.com, Travelocity-Lastminute, or Volagratis.it, as well as suppliers-direct, which account for 53% of online sales in Italy. PhoCusWright’s European Online Travel Overview (Sixth Edition) indicates that the Italian leisure flight sector (including full service airlines and LCCs) declined in value from e5.0 billion in 2008 to e3.3 billion in 2010 but is expected to recover to e3.5 billion by 2012. The full service airline share of the sector is expected to decline due to increasing LCC penetration. Online penetration is still relatively low in Italy (21% in 2010) when compared to other European countries in which we operate, but is expected to reach 24% in 2012. According to PhoCusWright, despite the recent economic conditions, the online travel segment grew from e2.9 billion in 2008 to e3.5 billion in 2010 and is expected to continue growing to e4.2 billion in 2012. OTA booking, which grew from e1.2 billion in 2008 to e1.6 billion in 2010 and are expected to reach e2 billion in 2012, have grown faster than the online travel segment and are expected to continue doing so.
146 Based on PhoCusWright data, we estimate the Italian leisure online flight segment to be worth e1.5 billion in 2010. We believe we are the largest OTA in Italy based on total flight bookings.
Spain PhoCusWright indicates that in 2010, Spain ranked fourth in the overall European travel market. Like many European markets, the Spanish travel industry declined in 2009 due to the economic downturn. The Spanish travel market is estimated to be worth e21.6 billion in 2010 and is forecast to continue to rebound driven by growth in the Spanish population, increased customer confidence and overall macroeconomic stabilization. The Spanish leisure flight sector is estimated to be worth approximately e5.9 billion in 2010 and is projected to reach approximately e6.7 billion by 2012 as stated in PhoCusWright’s European Online Travel Overview (Sixth Edition). The flight sector in Spain is largely dominated by full service airlines although their share is expected to decline as LCCs further penetrate the sector. Online penetration stands at 22% in 2010 and is expected to increase to 25% in 2012. According to PhoCusWright, the online leisure flight segment was estimated to be worth e2.5 billion in 2010 and is expected to continue growing in the future. We believe we are the second largest OTA in Spain based on total flight bookings.
United Kingdom According to PhoCusWright, the UK travel market is estimated to be worth £38.4 billion in 2010 and expected to reach £41.8 billion in 2012. The UK flight segment is estimated to be worth approximately £15.2 billion in 2010. The UK has the highest flight online penetration relative to other European countries. However, further online penetration growth is still expected as a result of increasing broadband (including mobile) penetration. We are present in the UK market mainly through our Opodo operations and believe we are the third largest OTA based on total flight bookings.
Germany According to PhoCusWright, Germany is the largest travel market in Europe with approximately e47.9 billion in value in 2010, of which approximately 50% is related to flight representing e24.1 billion. The German travel market is expected to further increase to e52.1 billion by 2012. Our main competitors in the German travel market are offline travel agencies, other OTAs, as well as suppliers-direct. According to PhoCusWright and Roland Berger, online penetration is approximately 32% in the travel market and 37% in the flight segment. In 2010, the online leisure flight segment is worth e8.6 billion and is expected to continue growing. The German OTA segment is highly fragmented, with the main OTAs being Priceline, Expedia, HRS and Unister. We believe we are the second largest OTA in Germany based on total flight bookings.
Scandinavia According to PhoCusWright, in 2010, the Scandinavian (Denmark, Norway, Sweden) travel market is estimated to be worth e11.6 billion, having declined from e13.0 billion from 2008. This travel market is expected to recover and grow to e12.7 billion by 2012, with the online channel growing from e5.3 billion in 2008 to e5.5 billion in 2010 and expected to reach e6.5 billion by 2012. We are present in the Scandinavian market through our Opodo operations. Given that Scandinavian countries have historically had higher online penetration rates than other European countries (except for the UK), online travel growth is expected to be less significant in the next years.
147 BUSINESS On February 9, 2011, Amadeus IT Group, S.A. and LuxGEO (our 100% owned subsidiary) entered into a sale and purchase agreement for the Acquisition. Simultaneously with the consummation of the Acquisition, the Geo Group will be formed through the combination of the Go Voyages Group (including Lyeurope), the eDreams Group and the Opodo Group, three fast-growing European OTAs with strong market positions in France, Spain, Portugal, Italy, Germany, the UK, Scandinavian countries and a number of other markets. The discussion below gives effect to the Transactions, as though they had already occurred. See ‘‘The Transactions.’’
Our Business Overview We are a leading pan-European online travel agency that uses innovative technology and builds on relationships with suppliers, product know-how and marketing expertise to attract and enable customers to research, plan and book a broad range of travel products and services. Our services and products include flight tickets, hotels, car rentals, packages, travel insurance and other ancillary travel related services and products. We make our offer accessible to a broad range of users, including leisure and corporate travelers, online and offline travel agents, as well as white label partners. We own and operate a strong portfolio of consumer brands such as Go Voyages, eDreams, Opodo and Travellink. Through our main brands, we have historically focused on the structurally attractive European flight travel segments due to the potential upside of this sector as penetration of online travel increases rapidly. We believe the strength of our brands, quality of our services, user-friendly website experience, focus on our customers and efficiency of our marketing programs have enabled us to build significant brand awareness in the European flight sector. We have historically leveraged, and expect to continue to leverage, our strength in flight travel to grow into non-flight travel sectors, such as hotels and packages. We also operate in the corporate travel business, particularly through our Scandinavian operations under the Travellink brand. For the year ended December 31, 2010, our businesses generated e3.3 billion of combined pro forma gross bookings, e302.9 million of combined pro forma revenue margin and e106.3 million of combined Pro Forma Recurring EBITDA.
Our History On February 9, 2011, Amadeus and LuxGEO entered into a sale and purchase agreement for the Acquisition. Simultaneously with consummation of the Acquisition, the Geo Group will be formed through the combination of the Go Voyages Group, the eDreams Group and the Opodo Group, three fast-growing European OTAs with strong market positions in France, Spain, Portugal, Italy, Germany, the UK, Scandinavian countries and a number of other markets. Go Voyages was created by the acquisition of travel agency Charter Plus and the Go Voyages brand by the current management in 1997. In 2010, the Go Voyages Group was acquired by funds managed by AXA Private Equity. The Go Voyages Group is a leading French online travel agency, which has recently initiated its international expansion. eDreams was founded in Silicon Valley by Javier Perez-Tenessa´ and James Hare in February 1999. In August 2010, the eDreams Group was acquired by the Permira Funds. eDreams is a fast growing European OTA with leading positions in Spain, Italy and Portugal. Opodo Ltd. was established in 2000 as a joint venture between nine airlines: Aer Lingus, Air France, Alitalia, Austrian Airlines, British Airways, Finnair, Iberia, KLM and Lufthansa. Amadeus IT Group, S.A. became a shareholder of Opodo in 2004 and in 2010 Opodo Ltd. became a wholly-owned subsidiary of Amadeus IT Group. The Opodo Group is present mainly in France, Germany and Scandinavia (through its Travellink operations).
Business Model We make travel products and services available to travelers, either directly or through a business customer, both on a stand-alone and package basis through two main lines of business: (i) flight and (ii) non-flight. Flight comprises both revenue generated from the sale of air tickets as well as flight insurance. Non-flight comprises all other revenue, including revenue generated from the sale of car rentals, hotel bookings, vacation packages, non-flight services and advertising. In
148 both lines of business, our main sources of revenue are commissions and incentives from travel suppliers, mark-ups on products and services sold to travelers, and service fees we charge to our customers. We make these products and services available primarily through two business models: the merchant model and the agency model. Under the merchant model, we enable travelers to book flight and non-flight products and services we source from travel suppliers. In such bookings we are either (i) the full merchant of record, in which case we charge and receive payment for the full amount of the booking from the customer and pay the net price of the travel product or service to our travel suppliers at a later date, or (ii) the merchant of record only in respect of the service fees we charge to the customer, in which case the remaining part of the booking value is transacted and charged to the customer directly by our travel suppliers. Revenue under the merchant model comprises commissions and incentives from travel suppliers, mark-ups on products and services sold to the customer, and service fees charged to the customer. Under the agency model we pass the reservation made by the customer on to the relevant travel supplier acting on behalf of the customer and receive a commission from the travel supplier. This commission is the only source of revenue we earn under the agency model, since we do not charge service fees to the customer for agency transactions. Our revenue streams are highly diversified as illustrated in the diagram below:
24MAY201111301802
149 The graph below sets forth a breakdown of our revenue margin per activity for the year ended December 31, 2010 on a combined pro forma basis.
GEO Pro-Forma Revenue Margin Breakdown
303 % of Total
68 Non-Flight & Other 22%
235 Flight 78%
2010 24MAY201111301493
Our Strengths Leadership position and critical scale across key European countries in the flight OTA sector In the online leisure flight segment, including airline.com websites and OTAs, we believe we are the largest OTA in France and Italy, the second largest in Spain and Germany and the third largest in the U.K. based on total flight bookings. We believe our unique client reach capabilities (through our B2C, B2B and B2B2C distribution channels), combined with our industry knowledge and the breadth of our product offerings, are strong competitive advantages versus our competitors. We believe that our scale and distribution capabilities allow us to negotiate more rewarding volume incentive schemes, access to better fares and content with our suppliers than many of our competitors. Scale also enables us to fund larger marketing and technology investments and to concentrate our investments on high value projects that can have a beneficial impact throughout our businesses, such as brand building, enhanced technology platforms and broader supplier relationships. Our size allows us to integrate our businesses to realize topline synergies and drive improvements in profitability and value propositions for our customers. We have identified opportunities to leverage our constituent companies’ capabilities to increase the revenue we generate with insurance sales, to distribute our differential flight products to a larger customer base and to benefit from cost reductions with a number of external providers. We believe our pan-European presence enhances the appeal of our websites to travel and non-travel advertisers. Finally, the higher flow of online flight traffic visiting our websites raises our profile with non-flight travel suppliers and increases the stock of knowledge concerning customer behavior that we accumulate over time, thus ideally positioning us to expand further into the non-flight segment and offer attractive and tailored bundled packages.
Strong travel supplier relationships On February 9, 2011 we signed a non-exclusive ten-year GDS contract with Amadeus for the supply of GDS services which will become effective as of the completion of the Acquisition. Amadeus is a leading GDS for the European travel and tourism industry and has signed full content agreements with the majority of the key airlines in Europe, so that any inventory available on such airline.com websites is also available through Amadeus’ GDS database. Our contract with Amadeus will provide us with a very broad repository of flight and non-flight products. We also have long-standing relationships with other GDSs, namely Travelport and Sabre. We have developed value driven relationships with our travel suppliers through a wide range of innovative marketing and distribution strategies designed to increase their revenues and/or market shares, while reducing their own distribution costs. Over the years, we have managed to build strong relationships and negotiate agreements directly with key full service and low-cost carriers, for which our websites represent an important source of revenue, especially in the higher-yield, long-haul flight segment. We have developed proprietary, supplier-oriented technology that streamlines the interaction between some of our websites and certain travel suppliers’ direct reservation systems, making it easier and more cost-effective for us to access their content and providing differentiated products to our customers. Since the range of offerings is, according to industry surveys, a fundamental factor affecting consumers’ choice of OTAs, we believe that the comprehensive set of supplier content
150 available through our websites due to our GDS contracts and our direct connect technologies will further enhance our position as a leading pan-European OTA.
Resilient and flexible cash generative business model With approximately 80% of our cost base being variable and scalable, our highly flexible business model is resilient to volume fluctuations. Our business is characterized by structurally negative working capital as customers typically pay us before we pay our suppliers. Our state-of-the-art technology platform has been developed mostly in-house and requires limited capital expenditure relative to the EBITDA we generate.
Scalable, modern and complementary technology platforms We believe that we have state-of-the-art scalable technology platforms with physical infrastructure and processes which enable us to sustain our plans for future growth and are capable of being adapted and extended rapidly to address new business opportunities. Furthermore, we have internally developed cutting-edge supply technology that enables us to offer a wide variety of products, which includes ‘‘direct connect’’ technology to access certain travel suppliers’ own reservation systems without the intermediation of GDS providers, multi-GDS platforms, charter flight booking systems and a unique dynamic pricing technology, which incorporates computerized analytic processes. Our platforms are up-to-date with several product/ function IT upgrades having been performed recently. For example, we developed a new flight platform for eDreams in 2010, implemented a new website layer for Go Voyages in 2010 and expect to launch Opodo’s mobile service in the second half of 2011. By leveraging our robust IT backbone and rolling out our sophisticated technology applications across all of our businesses and geographies and continuing to innovate, we expect to remain well positioned to source the products that best suit customers’ needs through a set of complex, algorithm-driven platforms and further enhance the flexibility of our product offerings.
Broad geographic footprint with very limited dependence on any country or product segment We are present in 27 countries and we believe we have the largest flight distribution platform in Europe. We operate in countries representing over 90% of the total European online travel sector including Spain, Italy, France, Portugal, the U.K., Germany, Benelux, Scandinavia and Switzerland. Outside of Europe, we are present in a number of large and developing countries including India, Brazil, Mexico and other Latin American countries. While each of our three constituent entities is already well diversified in terms of revenue streams, we believe that our combined group will have substantially less dependence on any one geography, product segment or type of revenue. In addition, our broad geographical reach enhances our ability to expand into less mature travel markets characterized by higher growth potential and lesser online travel penetration and to address a wider range of opportunities for expansion in the non-flight segment.
Strong brand awareness leading to lower marketing expenses Brand awareness (in conjunction with price) is a crucial factor for customer acquisition and retention among European OTAs. eDreams, Go Voyages and Opodo have historically committed significant resources to supporting brand awareness and spent, together, approximately e100 million in 2010 in marketing and advertising costs. As a result, we believe our brands are among the most searched and the highest rated in the European OTA industry on search engine recognition metrics. The 90-day Google Insights Index for 2010 as of February 23, 2011, for example, rated eDreams number one and Opodo number three amongst European OTAs. Our powerful brand recognition attracts a high volume of free traffic to our website which in turn translates into greater profitability. In addition, we expect that our strong brand awareness and marketing track record will continue to reduce customer acquisition costs going forward at acceptable levels even in the face of growing airline.com and local OTA competition, as we believe new entrants would require significant time and investment to reach a similar level of brand awareness.
151 Breadth of flight product offering We believe we offer a broad array of flight travel products. We source and make available to leisure travelers, tickets from full service carriers, LCCs and charter flights. In respect of full service carriers we access published fares, and, in certain cases, private fares. We further benefit from time to time from an allocation of seats allowing us to offer more competitive prices. In addition, we have developed unique proprietary technology which allows us to dynamically price air tickets, combine competitively priced products and combine fares, creating unique fare combinations and lowering ticket prices to customers in order to attract more travelers.
Multi-channel distribution We make our travel products and services available through different channels to appeal to the broadest range of travelers. We capture the majority of our customers through our flagship consumer brands Go Voyages, eDreams and Opodo directly on our website and call centers. In addition, we make our products available through white-label and co-branded affiliation programs, third party branded websites, traditional travel agents and tour operators. Last, through Travellink, we make travel products and services available to corporate travelers in Scandinavia.
Experienced management team Our management team has a long history of operating in the online travel industry, an established track record of long-term profitable business growth through several business cycles and exogenous shocks to the travel industry and a shared vision for our combined group. Our Chief Executive Officer upon completion of the Transactions, Javier Perez-Tenessa,´ who is the current Chief Executive Officer of eDreams, is one of the leading online travel entrepreneurs in the world, having co-founded eDreams and gained relevant experience in companies like EADS, McKinsey & Co and Netscape. Our Chief Financial Officer and Deputy Chief Executive Officer upon completion of the Transaction, Nicolas Brumelot, who is the current co-Chief Executive Officer of Go Voyages, co-founded Go Voyages in 1997 and has accumulated 18 years of executive experience in the travel industry during his tenure at Go Voyages and his previous position at LookVoyages. The rest of the management team also has many years of experience in the online travel sector including Expedia, Thomas Cook, Venere and Vueling.
Our Strategy Our objective is to reinforce our market positions in the flight business through competitive pricing, improved user experience, improvement in our customer acquisition processes and the progressive integration of our three constituent companies, including the realization of identified synergies, as well as to develop our non-flight business through cross-selling efforts and geographical product rollouts. Our management intends to accomplish this by focusing on the following strategies:
Differentiate our brands through continued competitive pricing Pricing is a vital competitive advantage for an OTA given that the all-in price is the single largest key decision factor for travelers when making a travel booking. Accordingly, we intend to further enhance the public perception of our brands by offering the most attractive fares to our customers without affecting our operating results. We believe that higher levels of service fees can be justified by having the best all-in price for a consumer. In Italy, Spain, France, the U.K. and Germany, for example, we are frequently the OTA with the best all-in fares, and have been able to maintain a leading position despite charging a service fee and several of our competitors’ move to a zero-fee policy. We intend to continue leveraging on our proprietary technology to generate the best fares for our customers. In addition, following the Completion Date, we plan to deploy and share the unique pricing capabilities of each of our constituent companies across all of our businesses, focusing on eDreams’ leadership in the short-haul segment, Go Voyages’ leadership in the long haul segment and Opodo’s expertise in optional premium services.
Pioneer technology innovation Our ability to find the best fares and the continued loyalty of our customers depend to a large degree on the sophistication of our algorithms, proprietary tools for inventory access and website
152 interface. We intend to continue our tradition of pioneering online travel technologies to provide a superior customer experience. To this end we intend to keep upgrading and developing our algorithm-driven continuous-testing platforms and data-mining software to source the cheapest flight prices as well as our best-in-class direct connect technology and multi-GDS connectivity to maximize the flexibility of our product offerings.
Improve our customer acquisition processes and our revenue margin per customer Our strong brand recognition allows us to generate a large proportion of our traffic directly (i.e., on a free basis), resulting in higher margins. We plan to focus our customer acquisition strategy on increasing the proportion of traffic generated through direct unpaid channels, by targeting marketing investments with high ‘‘return-on-investment’’ potential and intensifying the use of our sophisticated analytical tools to better learn from customer purchasing behavior. We also believe that our strategy of leveraging our scale in the flight segment to cross-sell non-flight products will allow us to acquire non-flight travel customers at significantly reduced costs and will lead to an increase in our revenue margin per customer. In addition, given the growing prevalence of search engines in the context of consumers’ e-commerce behavior, we intend to continue directing a significant proportion of our marketing spend toward search engine marketing and search engine optimization initiatives to further boost our brand awareness. We also differentiate our brands based on quality of customer service to drive loyalty and manage customer acquisition costs in an effective manner. We have and will continue to devote resources to customer relations which contribute to enhance customer awareness and experience, which in turn will generate more free traffic on our websites.
Integrate our businesses and realize low-risk synergies We believe that the value of the combination of Go Voyages, eDreams and Opodo relies on the sharing of know-how, technology and products and the ability to better negotiate terms with suppliers to enhance and strengthen the growth profile of Geo. We intend to follow a progressive integration plan, focusing in the short-term on limited execution risk, high value, revenue related synergies identified by our management together with third party consultants. The identified synergies include the rollout across the group of eDreams’ proprietary technology allowing for direct connection to suppliers, the adoption of Go Voyages’ insurance practices and rates and private fares and general know-how transfer from Opodo, Go Voyages and eDreams. We also believe that our increasing scale will allow us to secure better terms with suppliers. We know that our technology allows the interfaces of our three constituent groups to be linked and products to be shared with limited additional investment. Following a cost-benefit review to determine whether the integration of the IT backbones of the three companies would be beneficial to the performance of the Geo Group, we may also choose to integrate them in the future.
Capture growth opportunities in non-flight travel Even though the majority of our customers currently use our websites for flight bookings, we believe that the European non-flight market segment presents a significant cross-selling opportunity for us. Our constituent entities have seen consistently improving attachment rates of non-flight products over the last three years as additional technology developments have been introduced. For the future, our non-flight strategy is centered on the following priorities: (i) leveraging our existing large user base, traffic and brand recognition to increase sales of non-flight products; (ii) leveraging our existing expertise and growth momentum in hotels and other non-flight segments; (iii) continuing to improve differentiated products such as Dynamic Packaging, B2B and mobile solutions; (iv) continuing the roll-out of our corporate travel solutions; and (v) evaluating opportunistic investments in non-flight travel businesses under appropriate circumstances.
Our Services and Products We offer a wide range of travel and travel-related services and products both in the flight and the non-flight sectors. For the year ended December 31, 2010, on a combined basis, our
153 businesses generated e3.3 billion of combined pro forma gross bookings, e302.9 million of combined pro forma revenue margin and e106.3 million of combined Pro Forma Recurring EBITDA. The following tables set forth, on a combined pro forma basis, gross bookings and revenue margin for our flight and non-flight businesses for the year ended December 31, 2010.
Geo Pro forma Combined For the year ended December 31, 2010 (in thousand g) Gross Bookings Flight ...... 3,035,496 Non-Flight(1) ...... 305,998 Total Gross Bookings ...... 3,341,494
Revenue Margin Flight ...... 234,777 Non-Flight(1) ...... 68,141 Total Revenue Margin ...... 302,918
(1) Non-flight revenue includes revenue from hotels, car rentals, train and bus tickets, packages (including insurance related to these products) and from certain other ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit card companies and charges on toll calls.
Flight We believe we are the largest flight specialist OTA in Europe in terms of number of bookings. For the year ended December 31, 2010, our flight activity generated e324.8 million of revenue margin on a combined pro forma basis, representing 77.5% of our total combined pro forma revenue margin for the period. We are active in regular flights across our brands and geographies, and also sell charter flights in France through the Go Voyages Group.
Regular Flights Regular flights constitute the main activity of our flight business. We provide our customers with a wide selection of airline tickets for all major full-service airlines and LCCs, including Air France, Iberia, British Airways, Lufthansa, Alitalia, EasyJet and Transavia, as well as non-European airlines such as Continental Airlines, Emirates, Royal Air Maroc and Air Cara¨ıbes. We obtain supply from these airlines principally through our GDS service providers. Flight seats are sourced from the airlines at published fares or private fares. As a result of airlines’ commercial policies, the share of published fares we offer has increased over the last years, as compared to private fares. Revenue margin resulting from the sale of regular flight tickets, mainly consists of mark-ups we apply, services fees we charge to customers, commissions and incentives we receive from airlines and GDS suppliers, as well as insurance-related sales.
Charter Flights In addition to our regular flight booking operations, we also sell charter flight tickets through the Go Voyages Group. Our charter flight revenue consists of the sale of the flight seats to tour operators, travel agencies, web partners or end customers. We bear some inventory risk on most of our charter flight activity as we commit to guaranteed minimum purchases. The inventory risk we bear has been mitigated so far by our ability to sell through different distribution channels at the same time. The Go Voyages Group has historically significantly exceeded its commitments of minimum purchases with its charter airline partners.
Non-Flight Our non-flight products consist mainly of hotel rooms, car rentals, packages and Dynamic Packages. For the year ended December 31, 2010, our non-flight products and activities generated
154 e68.1 million of revenue margin on a combined pro forma basis, representing 22.5% of our total combined pro forma revenue margin for the period. Our revenue margin for non-flight includes insurance subscribed by customers on non-flight products, as well as revenue from certain ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit or debit card companies and charges on toll calls.
Hotels Through our websites, customers can search, compare and make reservations at a wide selection of hotels worldwide. Customers may search for hotels based on their destination and/or preferred dates for check-in and check-out, and may easily filter our search results by selecting star ratings, specific hotel chains and location. Customers can also indicate amenity preferences such as business services, Internet access, fitness centers, swimming pools and travel assistance. We obtain hotel rooms supply mainly through hotel aggregators (bed-banks) such as Hotusa and Hotelbeds, through international hotel chains such as Accor, as well as by direct contracting with hotels.
Car Rentals We offer our customers the ability to make car rental reservations through our websites. We obtain our car rental supply under the agreements we have entered into with several international car rental companies, such as National/Alamo, Hertz and Europcar, as well as with aggregators, such as Traveljigsaw.
Packages We offer pre-packaged vacations designed by third party tour operators, under arrangements with various travel suppliers, our GDS providers or white label partners. Our packages also include various travel services such as transfers, travel insurance and visa processing.
Dynamic Packages Additionally, we offer travelers the opportunity to dynamically assemble multiple components of a trip on a single transaction, usually at a lower price, as compared to booking each component separately. Travelers select and book such assembled packages based on a total price without being provided individual component pricing.
Other Non-Flight Products and Ancillary Non-Flight Revenue Sources In certain of our geographical markets, our customers may also book train and bus tickets, such as in Spain and in Italy, through the websites of the eDreams Group. We also generate revenue from certain ancillary sources, such as advertising campaigns on our websites, commissions we receive from partners under white label agreements, incentives we receive from credit or debit card companies and charges on toll calls.
Insurance for flight and non-flight products As an ancillary service both for our flight and non-flight products, we provide our customers with the option to purchase travel insurance from several insurance companies, with which we entered into agreements. We facilitate access to this travel insurance through our websites.
Our Geographical Markets We have a large distribution platform with a presence in 27 countries. In Europe, we operate mainly in Spain, Italy, France, Portugal, the U.K., Germany, Benelux, Switzerland and Scandinavia. Outside of Europe, we are present in a number of large and fast growing countries including India, Australia, Brazil, Mexico and other Latin American countries. For the year ended December 31, 2010, France, Italy, Spain, Germany and Scandinavia represented more than 75% of our total revenue margin on a combined pro forma basis.
155 Upon completion of the Transactions, our operational headquarters will be located in the U.K. and the majority of our workforce will be based in France, Spain, the U.K., Scandinavia, Germany and Italy.
Distribution Channels We distribute our products mainly through our websites but also through various other channels. The vast majority of our transactions are conducted through our websites and our call centers directly with leisure and corporate customers (‘‘business to consumer’’ or ‘‘B2C’’). We also distribute our flight and non-flight products to other travel business intermediaries, such as travel agencies and tour operators (‘‘business to business’’ or ‘‘B2B’’). Finally, we enter into white label agreements to access customers through partners’ websites (‘‘business to business to consumer’’ or ‘‘B2B2C’’).
Internet Websites Our main websites are govoyages.com, edreams.com, and opodo.com. Our websites have been designed to provide a user-friendly experience to our customers and are reviewed and upgraded on a regular basis. Using our websites, customers can easily and quickly review the pricing and availability of nearly all our services and products, evaluate and compare options, and book and purchase such services and products online within minutes and in a variety of languages including English, French, Spanish, Italian, German, Finnish or Swedish. Typically, a transaction on our websites involves the following steps: Search. A customer conducts a search for a particular product, or combination of products, on our websites by defining desired parameters. For example, for flights, apart from the city of departure and destination, number of travelers and dates of travel, our customers can also input additional parameters such as preferred time of travel, cabin class, preferred airlines, refundable fares and direct flights. Our websites’ search capabilities employ scalable search and routing logic that we believe return comprehensive results without sacrificing search response times. Our web-based booking engines, which have been designed to link directly to our suppliers’ systems or through GDSs, allow us to deliver real time information. Select. At this stage, our websites display to the customer various possible selections that are available in a user-friendly format listed in pricing order, and also prompt the customer with available special offers or provide additional information about the product. Our websites allow customers to sort or refine search results by further defining certain parameters such as price range, time range, preferred airlines and availability of refunds for flight tickets, and star rating, preferred hotel chains and hotel amenities. Review. After a customer has selected a particular option, our websites will provide the customer with an opportunity to review the details of the product being purchased and the terms and conditions of such purchase. At this stage, our websites connect to the GDS or the websites of our travel suppliers to confirm the availability and pricing of the product selected. Customers booking flight tickets or hotels will also be shown options to purchase travel insurance and other related ancillary services. Payment. We offer our customers a variety of payment methods, including debit cards, credit cards or Paypal. Our payment gateways for sales on our websites are secured. In order to simplify the booking process for our customers, our websites do not require prior customer registration in order for the purchase to be completed. Customers who do not wish to register will simply be prompted prior to payment to provide basic contact details (including their name, telephone number and e-mail address) for purposes of the travel product they intend to purchase. An electronic confirmation is sent to the customer’s e-mail address and customers can also, among others, print e-tickets and cancel bookings.
156 Call Centers Although a large portion of our bookings are completed automatically without any human intervention, our in-house or out-sourced call centers handle our sales and post-sales customer service support. Our main internal call centers are located in Barcelona, Paris, Leicester, Berlin, Stockholm and Helsinki. We also have outsourced certain of our call centers, located namely in Bordeaux, Ales and Casablanca. Most of our call centers operate seven days a week and customers can call these centers through various numbers to consult with our sales representatives, receive comprehensive, real time hotel and package information, and make travel bookings. Sales representatives in our call centers are able to assist our customers in a variety of languages, including English, French, Spanish, Italian, German or Swedish. All our call centers are equipped with systems allowing our sales representatives and agents to efficiently make bookings and create packages, as well as attend to customer requests. These systems also enable us to monitor the performance of our sales representatives and outsourced agents. We have software that enables us to log on to customer calls enabling us to perform random checks on our call centers on a real time basis. Our system also enables us to monitor the number of waiting calls and limit customer aborted calls on our hotlines due to unacceptably long waiting times.
White Label and Hosting Solutions Under white label agreements, online intermediaries host third party brands on their websites under fixed payments or revenue-sharing arrangements. In addition to directly targeting and servicing end customers through our websites and call centers, we reach customers through hosting solutions we develop with white label partners, such as lastminute.com in France.
Information Technology General Each of Go Voyages, eDreams and Opodo has proprietary and sophisticated technologies which we believe have high levels of reliability, security and scalability, and which have been designed to handle high transaction volumes across all their respective websites. We also believe that these technologies will enable us to sustain high growth and to expand rapidly to address new business opportunities. Each of Go Voyages, eDreams and Opodo operates a centralized IT platform with highly efficient processes, focused around the integration of search engine interaction, dynamic pricing, inventory management, booking, accounting/reporting, collection and payment. These cutting-edge technology platforms enable us to efficiently offer a wide variety of proprietary products, including through supplier connectivity (such as multi-GDS access) and dedicated B2B and B2B2C platforms. In addition, these technology platforms enable us to complete a high percentage of transactions with no human intervention, allowing us to ensure higher profitability. While the IT systems are not necessarily homogenous across the three companies, we believe that over the long-term high value will be added through integration of the platforms into a single one.
Security Each of the Go Voyages Group, the eDreams Group and the Opodo Group is committed to protecting the security of our customers’ information. They maintain information security teams that are responsible for implementing and maintaining controls to prevent unauthorized users to access their systems. These controls include the implementation of information security policies and procedures, security monitoring software, encryption policies, access policies, password policies, physical access limitations, and detection and monitoring of fraud from internal staff. Each of the Go Voyages Group, the eDreams Group and the Opodo Group operates fraud detection systems which use transaction patterns and other data sources seeking to prevent fraudulent transactions in real time.
157 Marketing and Brand Awareness Our marketing programs are intended to build and maintain the value and awareness of our various brands, drive traffic and conversion and optimize ongoing traveler acquisition costs. Upon completion of the Transactions, we intend to maintain our main brands. Our long-term success and profitability depend on our continued ability to maintain and increase the overall number of traveler transactions in a cost-effective manner. Our customer acquisition strategy is mostly centered on online advertising, with an aim to increase the proportion of traffic generated through direct channels, and thereby lower our marketing expenses. We use several forms of online marketing to drive traffic to our websites: search engine marketing (SEM), which is the process of pre-arranging links (AdWords) to our websites to appear on Google or Bing in the ‘‘sponsored results’’ area (this is one of the major cost items for online travel agents as Google and other search engines typically charge on a cost-per-click basis, but is fully variable as we can monitor the return on investment on a daily basis); search engine optimization (SEO), which refers to the process of improving the visibility of a website in search engines via natural modifications of design or content on the actual website pages (privileged means of online advertising, as providing direct, and thus free traffic); we also generate free traffic when customers type the company name or url directly in search engines; finally, we also generate traffic and transactions from certain metasearch travel websites (under a pay-per-click or pay-per-purchase mechanism). Given the growing prevalence of search engines in consumers’ e-commerce behavior, we believe that we are well positioned to profitably continue to build our customer base and brand awareness through the metasearch channel. We have made and will continue to make investments in both search engine marketing as well as search engine optimization initiatives to further improve our brand awareness. In addition, we also use direct and personalized traveler communications on our websites, as well as direct e-mail communication with our travelers. Our marketing programs and initiatives include promotional offers such as coupons, as well as seasonal or periodic offers from our travel suppliers based on our supplier relationships. We are currently focused on improving our ability to target customers with specific offers that correspond to their particular interests. We also make use of affiliate marketing and receive bookings from customers who have clicked through to our respective websites via links posted on affiliate partner websites.
Supplier Relationships We seek to build and maintain diversified, long-term, strategic relationships with travel suppliers, GDS partners and other travel product intermediaries, such as hotel aggregators. We have entered into long-term supply contracts with all major GDSs, namely Amadeus, Travelport and Sabre. Despite the increasing proportion of flight bookings sourced and fulfilled outside of these GDSs (LCCs namely), we access the bulk of our flight offering through these contractual relationships. In addition to these contracts, for our flight business, we enter into short-term (under 1 year) incentive contracts with airlines based on different criteria such as volume targets, growth versus prior year and market share achievements. We also enter into other short term contracts with airlines, where we benefit, from time to time, from special negotiated rates. For our non-flight business, we have contractual relationships with content aggregators and platforms, such as hotel bedbanks and tour products distribution platforms. As we make travel products and services available from a variety of full service, LCCs and charter airlines (for example, Air Mediterrann´ ee),´ lodging properties, car rental companies and other travel services providers, and we have access to most of the GDSs, we are not dependant on a single supplier and benefit from a very diversified supplier base. We have specific flight, hotel and car rental supplier relationship teams which source and negotiate with suppliers the access to travel supply and also compensation when we provide the related services. They are focused on relationship management, supplier-sponsored promotions and contract negotiation covering our retail, corporate and packaging businesses. An important component of the success of our business depends on our ability to maintain, expand and diversify further our relationships with such suppliers and partners. See ‘‘Risk Factors—Risks related to Our Business—Our business depends on our relationships with suppliers and supplier intermediaries, and adverse changes in these relationships or our inability to enter into new relationships could negatively affect our access to travel offerings and reduce our revenue.’’
158 GDS and other Products Aggregators GDS, also referred to as computer reservation services, provide a centralized, comprehensive repository of travel products, which includes availability and pricing of seats on various airlines, as well as information relating to hotel accommodations and car rental companies. GDS providers act as intermediaries between travel suppliers and travel agencies, allowing us to book flights, rooms and other available travel products. OTAs can enter into exclusive or non-exclusive contracts with GDS operators who in turn pay incentives to OTAs on a per booking basis. GDS contracts are typically long-term and are structured using volume bands with incentives/penalties paid if targets are exceeded/not met. We currently use Amadeus as our primary GDS provider, although the Go Voyages Group also sells travel products obtained via other GDS providers such as Travelport or Sabre. We have recently entered into a new 10-year non-exclusive GDS contract with Amadeus, effective upon completion of the Transactions, which will secure a wide range of flight and non-flight products supply in Europe. This contract provides good reliability of travel content provision, given that Amadeus has signed content agreements with the majority of the key airlines in Europe, meaning that most supply available on airline.com websites will be available to us through Amadeus.
Metasearchers Metasearchers, such as Kayak, Bing Travel and SkyScanner, are powerful search engines and comparison websites that display offerings to the customers from external sources (OTAs and supplier websites) and re-direct clients to their chosen option. No bookings are made on the metasearch websites. OTAs and supplier direct websites pay metasearchers commissions on a pay-per-click or pay-per-purchase basis.
Intellectual Property Our intellectual property rights include trademarks and domain names associated with the names Go Voyages, eDreams, Opodo and Travellink, as well as other rights arising from confidentiality agreements relating to our website content and technology. We regard our intellectual property as a factor contributing to our success, although we are not dependent on any patents, intellectual property-related contracts or licenses other than some commercial software licenses available to the general public. We rely on trademark law, trade secret protection, non-competition and confidentiality agreements with our employees and some of our partners to protect our intellectual property rights. We require most of our employees to enter into agreements to keep confidential all information relating to our customers, methods, business and trade secrets during and after their employment with us. Our employees are required to acknowledge and recognize that all inventions, trade secrets, works of authorship, developments and other processes made by them during their employment are our property. We have registered our different material domain names and have full legal rights over these domain names for the period for which such domain names are registered.
Employees As of December 31, 2010, we had, on a combined basis, approximately 1,150. We also outsource some of our customer service and sales functions. In addition, in certain cases, we contract with third parties for the provision of temporary employees from time to time for various functions.
Facilities Our facilities consist mainly of our corporate offices located in Paris, Barcelona and London, which we lease. We also have offices in other countries, including Germany and Sweden.
159 Litigation From time to time, we may be subject to various legal proceedings and claims that are incidental to our ordinary course of business. We are currently party to various legal proceedings, including consumer complaints, contract disputes, disputes regarding alleged infringement of antitrust, consumer protection or other regulations or of third party intellectual property rights, and other claims. This section identifies all litigation matters which we believe are potentially material to our financial position or operations or which, in the event of an adverse outcome, could materially harm our reputation.
Consumer Protection Proceedings In March 2011, the Italian Antitrust Office fined eDreams and Opodo following an investigation related to the transparency of information provided to consumers in the Italian travel market. The investigation focused on several OTAs and covered issues such as transparency in the booking and payment processes, misleading promotions, insurance selection on behalf of consumers prior to check-out and complaint management. Since 2010, Opodo France has been involved in two proceedings initiated by the French General Directorate for Competition Policy, Consumer Affairs and Fraud Control (Direction Gen´ erale´ de la Concurrence, de la Consommation et de la Repression´ des Fraudes, the ‘‘DGCCRF’’) for non-compliance with consumer protection rules, namely with respect to alleged incomplete information on online booking fees paid by customers. As a result of their findings, the DGCCRF formally requested Opodo France to comply with the relevant legal requirements (rappel a` la reglementation´ ) Opodo S.A.S. and the DGCCRF have agreed to settle the proceedings. A formal acceptance of this settlement by the DGCCRF is currently pending. Opodo has also received cease and desist letters in Germany relating to alleged breaches of consumer protection and antitrust regulations. An adverse outcome in these proceedings could harm our reputation and, if fines were imposed, negatively affect our business, financial position and results of operations.
Commercial and Intellectual Property Disputes Ryanair litigation Ryanair has initiated legal proceedings for intellectual property infringement and unfair commercial practices against eDreams and Opodo in Spain and France, respectively, primarily in connection with the screen-scraping method used by eDreams and Opodo to access Ryanair flight inventory and then offer customers Ryanair flight tickets on their respective websites. Screen- scraping consists of using internal OTA technology to scan travel supplier websites in order to collect information about the travel products they offer. Neither of eDreams or Opodo has entered into agreements with Ryanair, whose policy is to only sell tickets through its own website. In Spain, Ryanair filed a civil action before the Barcelona Commercial Court arguing that eDreams (i) was in breach of the terms and conditions of use of Ryanair’s website which state that only the private use of the same is allowed and expressly prohibit the screen scraping method used by eDreams Spain, (ii) violated Ryanair’s rights as author and manufacturer of its website, and (iii) has carried out unfair commercial practices, namely, imitation acts, exploitation of Ryanair’s reputation and infringement of the general good faith obligation prohibited under the Spanish Unfair Competition Act. Ryanair’s action was dismissed both by the Barcelona Commercial Court (on February 11, 2009) and the Provincial Court of Barcelona (on appeal, on December 17, 2009). The matter is currently pending before the Supreme Court. As Ryanair did not claim for damages compensation in the first instance, even if the Supreme Court does not uphold the decision of the Provincial Court of Barcelona, Ryanair will need to start a new procedure before the Commercial Court in order to claim for damages. In parallel, eDreams initiated litigation against Ryanair for unfair competition, including a claim for damages of e1.5 million, and required the Barcelona Commercial Court to adopt certain precautionary measures, namely to prevent Ryanair from cancelling or threatening to cancel Ryanair flight tickets acquired through eDreams’ website, which were granted on October 6, 2008 and confirmed on October 16, 2009. In December 2010, the Commercial Court of Barcelona
160 rendered a decision which confirmed that Ryanair’s actions were constitutive of unfair competition but dismissed our demand for damages. Ryanair has initiated proceedings against Vivacances (now Opodo France) based on trademark infringement, data base infringement, breach of the terms of use of the website ‘‘Ryanair.com’’ and unfair competition relating to the alleged screen scraping activities of Opodo France. On April 9, 2010, the Paris First Instance Court dismissed Ryanair’s complaint and required Ryanair to pay e30,000 in compensation to Opodo France for its disparaging remarks and an extra e7,500 compensation for legal fees. Ryanair has filed an appeal against such ruling which is currently pending.
161 REGULATION Our operations are subject to various laws and regulations, including those regarding IATA accreditation, sales of packages, data protection and e-commerce.
IATA Regulation The International Air Transport Association (‘‘IATA’’) is the global trade organization of the air transport industry and it represents 230 airlines, covering more than 90% of scheduled traffic. IATA regulations are applicable to our flight booking business and apply at two levels: • in order to act as an intermediaries and sell tickets for and on behalf of the IATA airline members, we need to receive IATA accreditation; • our flight booking operations are required to continuously comply with the IATA Passenger Agency Rules and the terms of the Passenger Sales Agency Agreement which each of our IATA-accredited entities has entered into with IATA. IATA accreditation is obtained as a result of an application process and the examination by IATA of the relevant applicant in order to determine whether it has the necessary qualifications (mainly, qualified staff) and financial standing to become and maintain status as ‘‘accredited’’ intermediary, among others. Continued reporting obligations mainly concern the communication of annual audited financial statements and the prior notification of certain changes affecting the IATA-accredited intermediary, some of which may require the entering into of a new Passenger Sales Agency Agreement, such as the acquisition of such IATA-accredited intermediary by a person who is not itself accredited or any change in the legal nature of the IATA-accredited intermediary. IATA-accredited intermediaries may also be subject to reviews initiated by IATA administrators, namely if the IATA administrator considers that it is likely that the IATA-accredited intermediary no longer fulfils the qualifying requirements for accreditation or fails to meet certain financial requirements. In June 2010, IATA issued a new version of the Passenger Sales and Agency Rules, which resulted in certain countries modifying IATA accreditation criteria. We will be required to comply with such changes in the different jurisdictions where we operate, which may include changes to our capital structure or guarantees. Additionally, when operating under the merchant model, IATA may require us to post guarantees in order to minimize credit risk on behalf of airlines. Parameters adopted by IATA to assess intermediaries’ credit-worthiness may vary from one jurisdiction to another and based on its annual review of our financial statements, IATA may modify guarantee requirements applicable to us. The Go Voyages Group and the eDreams Group are materially compliant with IATA requirements in this respect. The Opodo Group, on the other hand, is not compliant in several countries largely due to its financial track record prior to the restructuring efforts started in 2007/2008 and therefore needs to issue guarantees. Upon the occurrence of certain events such as the Acquisition, IATA may monitor compliance by intermediaries with its regulations, particularly the financial undertakings, in which case the guarantees posted may be amended or IATA may require additional guarantees. The table below sets forth the IATA guarantees issued for Geo Group companies currently in effect.
IATA Guarantees Geo Group Country Guaranteed Company in million g Germany Opodo Ltd ...... 14.6 UK Opodo Ltd ...... 13.6 Italy Opodo Italia Srl ...... 2.2 Austria Opodo Ltd ...... 1.2 France Opodo Ltd./Opodo SAS ...... — Finland Travellink ...... 1.4 Italy eDreams ...... 5.0 France Go Voyages Trade ...... 0.03 Total IATA Guarantees ...... 33.03
162 IATA also regulates the frequency on which settlement (remittance) is due by accredited intermediaries. Such frequency vary from one jurisdiction to another and may also be amended in the future. IATA regulations currently provide that frequency of payment may vary from one jurisdiction to another and occurs at least once a month.
Package Travel Directive Our package travel sales operations are specifically governed by the EU Package Travel Directive 90/314/EEC on package travel, package holidays and package tours (the ‘‘Package Travel Directive’’). The scope of the Package Travel Directive is limited to the non-occasional sale of package tours by an ‘‘organizer’’ (person who organizes packages and sells or offers them for sale, whether directly or through a retailer) or a ‘‘retailer’’ (person who sells or offers for sale packages put together by an organizer) to a consumer, to the exclusion of individually organized tours or to the delivery of single travel services, such as a scheduled flight or hotel accommodation. For the purposes of the Package Travel Directive, ‘‘package’’ means a combination previously put together by an organizer or a combination of elements tailored by the travel agent at the request of the consumer including not fewer than two of the following elements: transportation, accommodation or other tourist services not ancillary to transportation or accommodation but which account for a significant part of the package. Additionally, in order to be covered under the ‘‘package’’ definition, such combinations are required to be sold or offered for sale at an inclusive price and the services must cover a period of more than 24 hours or include overnight accommodation. Insofar as we act as organizers or retailers, our activities are impacted by the Travel Package Directive and implementing national legislations, primarily with respect to (i) minimum standards concerning the information to be provided to consumers, (ii) formal requirements for package travel contracts, including mandatory rules concerning cancellation, modification and the civil liability of package tour organizers or retailers, and (iii) providing effective protection to consumers in the event of the package tour organizer’s insolvency, namely repayment of the price and repatriation of consumers. Under the Travel Package Directive, members states were allowed to choose between mandatory joint liability of the organizer and the retailer or to split liabilities in consideration of organizers and retailer’s traditional roles and responsibilities; therefore, we may be subject to different standards of liability depending on the jurisdictions in which we operate. For instance, in our core markets, we are subject to mandatory joint liability in France and Spain, whereas liability is split between organizers and retailers in the United Kingdom and Italy. The Travel Package Directive is currently under review by the European Commission with a view to amending it, namely to take into account travel sector evolutions such as consumer’s increased preference for ‘‘dynamic packages,’’ where they put together their own travel components from different providers, instead of opting for pre-arranged products. This expected revision of the Travel Package Directive may result in additional and more stringent regulatory requirements applicable to our operations.
National-level regulation The laws of certain jurisdictions set forth additional license or other requirements for the operation of our travel agency business. For instance, French law requires our travel agencies to be listed in a specific registry, whereas Italian law provides for local permit requirements. Furthermore, we are subject to French regulations requiring all travel products and services retailers to take out a specific insurance policy covering any damages in connection with the carrying out of our activities.
Data Protection and E-commerce regulations We, like other companies subject to European Union regulations, are subject to increasing regulation relating to customer privacy and data protection. In general terms, applicable data protection regulations limit the uses of data that we collect about customers, including the circumstances in which we may communicate with them. In addition, we are generally obligated to take reasonable steps to protect customer data while it is in our possession. Additionally, the online nature of our business requires us to comply with European Union regulations and implementing national legislation on electronic commerce, primarily relating to (i) pre-contractual information to be provided to consumers on our activities, (ii) the regulation of commercial communications we send to consumers, (iii) formal rules for entering into electronic contracts and (iv) the liability of intermediary service providers.
163 MANAGEMENT Management of the Issuer The Issuer was created on February 15, 2011 and registered with the Luxembourg Register of Commerce and Companies on February 23, 2011 as a societ´ e´ en commandite par actions under the laws of the Grand Duchy of Luxembourg. The Issuer is managed by its sole unlimited shareholder (LuxGEO GP S.a` r.l.), acting as General Partner in consultation with the Supervisory Board.
General Partner of the Issuer The General Partner is empowered to take any action which is necessary or useful in the interest of the Issuer, with the exception of those reserved by law or by the articles of association to a meeting of the Issuer’s shareholders, and the Issuer will be bound towards third parties by the sole signature or act of the General Partner represented by its legal representatives or any delegate duly appointed by it. The General Partner of the Issuer is LuxGEO GP S.a` r.l., a special-purpose vehicle, incorporated for the purpose of acting as the General Partner and unlimited shareholder of the Issuer. There are no conflicts of interest between the professional duties of the General Partner and its other interests or other duties. LuxGEO GP S.a` r.l. is validly bound by the signature of one class A manager jointly with one class B manager. The current class A managers of LuxGEO GP S.a` r.l. are David Sullivan and Severine Michel (representatives of the Permira Funds); current class B managers are Yann Bak and Andreas Demmel (representatives of AXA Private Equity).
Supervisory Board of the Issuer The Supervisory Board is composed of at least three members, elected by the shareholders for a maximum period of 6 years. The Supervisory Board shall neither participate nor interfere with the management of the Issuer. It oversees the business of the Issuer and its financial condition, particularly its books and accounts (for which the Supervisory Board is granted the powers of a statutory auditor), and may advise the Manager as the latter may request. Eddy Perrier, Cedric´ Pedoni and Mirko Dietz have been appointed on a temporary basis as members of the Supervisory Board of the Issuer on February 15, 2011. The shareholders of the Issuer intend to extend their respective terms until April 15, 2012.
Management of the Geo Group The following table sets forth information regarding the key management of the Geo Group from an operational standpoint upon completion of the Transactions:
Name Current Title/Position Geo Group Title/Position Javier Perez-Tenessa´ de Block . . Chief Executive Officer of the Chief Executive Officer of Geo, eDreams Group Chief Executive Officer of eDreams Nicolas Brumelot ...... Co-Chef Executive Officer of Deputy CEO and Chief Financial Go Voyages Officer of Geo, Co-Chief Executive Officer of Go Voyages Carlos Da Silva ...... Chief Executive Officer of Go Deputy CEO—Supplier and Call Voyages Center Operations Mauricio Prieto ...... Chief Marketing Officer of Deputy CEO—Marketing eDreams Philipe Vimard ...... Chief Technology Officer of Technology eDreams Josep Bernat ...... Chief Revenue Officer of Analysis and Pricing eDreams
164 Name Current Title/Position Geo Group Title/Position Javier Bellido ...... Chief Operating Officer of Spain, Italy eDreams Thomas Reiter ...... Opodo Germany Germany Caroline Noble ...... Opodo UK United Kingdom Peter Carlsson ...... Opodo Scandinavia Scandinavian countries Angelo Ghigliano ...... eDreams Italy Italy Andreas Schrader¨ ...... eDreams Director of Rest of the World International Operations The following paragraphs set forth biographical information regarding the individual members of Geo Group’s key management upon completion of the Transactions. Javier Perez-Tenessa´ de Block is the co-founder and Chief Executive Officer of eDreams. Prior to joining eDreams, Mr. Perez-Tenessa´ assumed various positions in companies such as EADS, McKinsey & Co. and Netscape. Mr. Perez-Tenessa´ has served as member of the board of directors of Vueling. Mr. Perez-Tenessa´ received his aerospace engineering degree from Universidad Politecnica´ de Madrid. He also received his MBA from Stanford University. Nicolas Brumelot is the co-founder and co-Chief Executive Officer of Go Voyages. Prior to joining Go Voyages, Mr. Brumelot assumed finance positions in companies such as Avanquest Software and LookVoyages. Mr. Brumelot received his Bacherlor’s degree in Business Administration from the American University of Paris. He also received his MBA from the University of Wisconsin. Carlos Da Silva is the co-founder and co-Chief Executive Officer of Go Voyages. Prior to joigning Go Voyages, Mr. Da Silva was one of the co-founders of LookVoyages in 1989. Mauricio Prieto is the Chief Marketing Officer of eDreams. Prior to joining eDreams in 1999, Mr. Prieto occupied positions of head of business development at Charles Schwab and consultant at Booz Allen Hamilton. Mr. Prieto received his Bachelor’s degree from Princeton University. He also received his MBA from University of California at Berkeley. Philipe Vimard is the Chief Technology Officer of eDreams. Prior to joining eDreams, Mr. Vimard exercised engineering management positions at Expedia Group, including senior director of lodging and senior director of cars, cruises, destination services and trains. Mr. Vimard holds a Bachelor’s degree in engineering. Josep Bernat is the Chief Revenue Officer of eDreams. Prior to joining eDreams, Mr. Bernat occupied several positions at Vueling, ClickAir, Renfe, Santander and Endesa and was a professor at the Universitat de Barcelona for 12 years. Mr. Bernat holds a Bachelor’s in mathematics and also received a Master Degree from ESADE Business School and a PhD from IESE Business School. Javier Bellido is the Chief Operating Officer of eDreams. Prior to joining eDreams, Mr. Bellido was the founder and a board member of Touroperator Travelider, and occupied several positions at IBM, including product manager, sales manager and industry consultant. Mr. Bellido holds a master’s degree in Physical Sciences (Madrid) and received his MBA from the Open University (United Kingdom). Thomas Reiter is the director of Opodo Germany operations. Prior to joining Opodo, Mr. Reiter led the development of the shopping channel at AOL Germany. Mr. Reiter received his Master of Business as a double diploma from ESC Montpellier and University of Munster.¨ Caroline Noble is the director of Opodo United Kingdom operations. Prior to joining Opodo, Mrs. Noble spent twelve years at Resort Condominiums International, the last three as Director of UK Core Business Call Centre. Mrs. Noble has received her Certificate in Professional Management Foundation Programme, from the University of Northampton. Peter Carlsson is the director of Opodo Scandinavian operations. Prior to joining Opodo, Mr. Carlsson worked for twenty years in the travel industry in positions with SAS and Amadeus
165 Scandinavia as vice-president of the product division. Mr. Carlsson received his MSc in Electronics from the Royal Institute of Technology in Stockholm. Andreas Schrader¨ is the Director of eDreams international operations, excluding Italy and Spain. Prior to joining eDreams, he was Managing Director of eCommerce International of Thomas Cook. Dr. Schrader¨ earned a Doctor of Economy at St. Gallen University, graduated in Business Administration from Tubingen¨ University and holds an undergraduate diploma in computer science from Passau University. Angelo Ghigliano is the head of eDreams Italy operations. Prior to joining eDreams, Mr. Ghigliano occupied various positions at Allianz and served as sales director at Francorosso Incentive Milan (Alpi Tour Group). Mr. Ghigliano received his Bachelor’s degree in Business Administration from Universita` commerciale Luigi Bocconi.
166 PRINCIPAL SHAREHOLDERS Our Shareholders AXA Private Equity and the Permira Funds are through their ownership of LuxGEO Parent, the principal indirect shareholders of the Issuer. Upon completion of the Acquisition, LuxGEO Parent, through the Issuer and the Issuer’s subsidiary LuxGEO S.a` r.l., will control the Go Voyages Group, the eDreams Group and the Opodo Group. The shareholders agreement that will govern the relationship between the Sponsors will be entered into on or before the closing of the Acquisition, although the Sponsors have already signed an investment agreement containing the corporate governance principles that will be included in the shareholders agreement. The shareholders agreement will provide that LuxGEO Parent will be governed such that fundamental decisions made by LuxGEO Parent will require the approval of both Sponsors. The Issuer is a Luxembourg societ´ e´ en commandite par actions. LuxGEO Parent S.a` r.l. is the majority shareholder of the Issuer, holding approximately 99.99% of the limited shares of the Issuer (associe´ commanditaire). The minority shareholders are Axeurope(1) and Luxgoal S.a` r.l.(2) (limited shareholders, each holding one limited share), as well as LuxGEO GP S.a` r.l. which is the unlimited shareholder and acts as the General Partner of the Issuer (associe´ commandite´). AXA Private Equity. AXA Private Equity was established in 1996 with headquarters in Paris. It manages over U.S.$25 billion of assets and currently has offices in Frankfurt, London, Milan, New York, Singapore, Vienna and Zurich. Funds managed by AXA Private Equity invest in a complete range of buyout asset classes including buyout venture capital, co-investment, infrastructure, mezzanine, primary, early secondary and secondary funds of funds. AXA Private Equity does not have a specific industry focus, but in the past five years its main investments have concerned the Chemical, Industrial, Consumer and Technology, Media and Telecommunications sectors. Recent investments of the funds managed by AXA Private Equity include KOS in the healthcare sector in Italy for e150 million in December 2010 and the Go Voyages Group for e285 million in May 2010. To date, funds managed by AXA Private Equity have closed 45 buyout transactions in France, Germany and Italy. Permira. A predecessor to the Permira Funds was established in London in 1985. Its investment activity focuses on six core sectors: Chemicals, Consumer, Financial Services, Healthcare, Industrial Products and Services and Technology, Media and Telecommunications, with the latter accounting for approximately 56% of assets under management. To date, the Permira Funds have made approximately 190 private equity investments, for a current committed capital of approximately e20 billion. Recent investments of the Permira Funds include Creganna—Tactx Medical in the UK for approximately e220 million in October 2010, Asia Broadcast Satellite in Hong Kong for approximately e200 million in September 2010 and the eDreams Group for e274 million in August 2010. LuxGEO Parent S.a` r.l. LuxGEO Parent is a societ´ e´ a` responsabilite´ limitee´ governed by the laws of Luxembourg. It has been established to be the Sponsors for the purposes of the acquisition of the Opodo Group and the combination of the Go Voyages Group, the eDreams Group and the Opodo Group. LuxGEO Parent S.a` r.l. direct shareholders are Axeurope and Luxgoal S.a` r.l. LuxGEO GP S.a` r.l. LuxGEO GP S.a` r.l. is a societ´ e´ a` responsabilite´ limitee´ governed by the laws of Luxembourg. LuxGEO GP S.a` r.l. was established on February 14, 2011 for the purpose of acting as the manager and unlimited shareholder of the Issuer (associe´ commandite´). The direct shareholders of LuxGEO GP S.a` r.l. are Axeurope and Luxgoal.
(1) The shareholders of Axeurope S.A. are AXA Private Equity, certain financial co-investors and certain managers of the Go Voyages Group. (2) The shareholders of Luxgoal S.a` r.l. are the Permira Funds and certain managers of the eDreams Group.
167 CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS The Transactions On February 9, 2011, LuxGEO S.a` r.l., a direct wholly-owned subsidiary of the Issuer and a holding vehicle indirectly controlled jointly by AXA Private Equity and the Permira Funds, entered into a share purchase agreement with Amadeus for the purchase of 100% of the share capital and voting rights of Opodo Limited. Upon consummation of the Transactions, the Issuer, through its direct subsidiary LuxGEO, will control the Go Voyages Group, the eDreams Group and the Opodo Group, combined as the Geo Group. See ‘‘The Transactions.’’
Agreements with Amadeus On February 9, 2011, in connection with the Acquisition, we entered into a non-exclusive ten-year agreement with Amadeus, which currently controls the Opodo Group, for the supply of GDS services. The cash consideration to be paid by LuxGEO S.a` r.l. to Amadeus for the Acquisition is expected to be approximately of e421.5 million. In connection with the Acquisition, Amadeus has agreed to pay the Geo Group a e52 million signing bonus (the ‘‘GDS Contract Bonus’’) under the new GDS Agreement, which will replace pre-existing agreements between the three groups and Amadeus and which will become effective as of, and subject to, the completion of the Transactions. Such amount will be netted against the approximately e29.5 million in GDS Outstanding Amounts owed to Amadeus in respect of the outstanding liabilities of the Opodo Group, the eDreams Group and the Go Voyages Group regarding the cancellation of their existing GDS agreements with Amadeus, resulting in a net bonus payment of e22.5 million and net consideration of e399.5 million payable in the Acquisition. Under certain circumstances, the Geo Group may be required to repay the GDS Contract Bonus, in whole or in part, to Amadeus, namely if the it fails to meet certain targets for bookings through the Amadeus GDS set forth in the GDS Agreement. In connection with the Acquisiton, LuxGEO will also assume certain intercompany receivables to the Opodo Group in an aggregate principal amount of e78,000,000.
Transactions with Affiliates An Affiliate of the Permira Funds will purchase Notes pursuant to this offering.
Management incentives At the time of the acquisition of the Go Voyages Group by funds managed by AXA Private Equity and the acquisition of the eDreams Group by the Permira Funds, management incentive plans were implemented, which shall survive the consummation of the Transactions and remain at the level of Axeurope and Luxgoal. In connection with the Transactions, we intend to enter into a management incentive plan with selected members of Opodo senior management and certain other managers, whereby such managers will become indirect shareholders of the Issuer and will be incentivized to grow the business profitability. Such incentive plan will be implemented at the level of LuxGEO Parent.
Convertible Subordinated Shareholder Bonds Following consummation of the Transactions, Axeurope and Luxgoal will hold subordinated convertible bonds issued by the Issuer, with a maturity period of 49 years and subject to the terms of the Intercreditor Agreement as Investor Liabilities. See ‘‘Description of Other Indebtedness— Convertible Subordinated Shareholder Bonds.’’
168 DESCRIPTION OF OTHER INDEBTEDNESS The following summary of certain provisions of the documents below that relate to certain of our indebtedness does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying documents.
The Senior Credit Facilities Agreement LuxGEO, a direct wholly-owned subsidiary of the Issuer, entered into the Senior Credit Facilities Agreement with certain lenders (the ‘‘Senior Lenders’’) on February 18, 2011 for the purpose of the financing of the Acquisition and the refinancing of the Existing Go Voyages and eDreams Indebtedness. Funding of the facilities under the Senior Credit Facilities Agreement is subject to a limited number of customary conditions precedent, including satisfaction of the conditions to the consummation of the Acquisition. The description set forth below is a summary of the principal terms and conditions of the Senior Credit Facilities Agreement, and is qualified in its entirety by reference to the Senior Credit Facilities Agreement and the other documents entered into in connection therewith. We recommend that you refer to the actual Senior Credit Facilities Agreement for further details, copies of which are available from the Issuer upon request. Commerzbank Aktiengesellschaft, Credit Suisse International, Goldman Sachs International, Lloyds TSB Bank Plc, UBS Limited and Societ´ e´ Gen´ erale´ are the mandated lead arrangers under the Senior Credit Facilities Agreement (together, the ‘‘Senior Facilities Arrangers’’) and Societ´ e´ Gen´ erale´ is the facility agent (the ‘‘Senior Facilities Agent’’) and security agent (the ‘‘Security Agent’’) under the Senior Credit Facilities Agreement. Credit Suisse International, Goldman Sachs Lending Partners LLC, UBS Limited and Societ´ e´ Gen´ erale´ or their affiliates are the lenders under the Bridge Facility Agreement (the ‘‘Bridge Lenders’’) and the Initial Purchasers for the Offering of the Notes. The Senior Credit Facilities Agreement provides for loans of up to e480 million through (i) a term loan facility A and a term loan facility B (the ‘‘Term Loan Facilities’’) for a total amount of e340 million, (ii) a revolving credit facility of up to e90 million (to be reduced to e80 million on the first anniversary of the date of the Senior Credit Facilities Agreement and to e70 million on the second anniversary of the date of the Senior Credit Facilities Agreement) (the ‘‘Revolving Credit Facility 1’’) and (iii) a revolving credit facility of up to e50 million (the ‘‘Revolving Credit Facility 2’’ and together with the Revolving Credit Facility 1, the ‘‘Revolving Credit Facilities’’). An additional uncommitted acquisition facility of up to e50 million may be provided following the Completion Date, for the purpose of financing certain additional acquisitions, by or on behalf of LuxGEO or any of its subsidiaries.
The Term Loan A Facilities The term loan facilities A of a maximum amount of e170 million shall be composed of: • a term loan facility A1 to be made available to LuxGEO for the purpose of financing (or refinancing) the consideration payable by LuxGEO for the Acquisition and the costs incurred in connection with the Acquisition and the other Transactions; • a term loan facility A2 to be made available to Lyparis for the purpose of the refinancing of the Go Voyages Facilities; and • a term loan facility A3 to be made available to Vacaciones eDreams S.L. for the purpose of the refinancing of the eDreams Facilities. The term loan facilities A shall be available during the period from and including the date of the Senior Credit Facilities Agreement until the earliest of (i) the Completion Date, (ii) the date on which the Acquisition Agreement lapses, terminates or otherwise ceases to be in full force and effect and (iii) September 30, 2011 (the ‘‘Availability Period’’). Utilizations of the term loan facilities A shall be subject to the satisfaction of certain documentary conditions precedent and to the absence of certain events of default.
169 The term loan facilities A amortize on a half yearly basis with a first amortization installment falling on March 31, 2012 and every six months thereafter on each September 30 and March 31 with a final amortization payment falling on March 31, 2017.
The Term Loan B Facilities The term loan facilities B of a maximum amount of e170 million shall be composed of a term loan facility B1, a term loan facility B2 and a term loan facility B3 to be made available to the same borrowers of the term loan facilities A and for the same purposes. The term loan facilities B will be subject to the same conditionality applicable to the term loan facilities A. The outstanding amounts under the term loan B facilities will be required to be repaid in full on the date falling seven years after the date on which the Senior Credit Facilities Agreement was signed.
The Debt Push Down Pursuant to the Transactions, term loan facility A1 and term loan facility B1 loans made to LuxGEO on the Completion Date are intended to be novated to Lyparis through a debt pushdown to occur on the Completion Date.
The Additional Acquisition Facility The additional acquisition facility may be committed after the Completion Date by Senior Lenders or any other institution for the purpose of financing certain permitted acquisitions, refinancing the indebtedness of entities acquired pursuant to such acquisitions and paying all costs, fees and expenses incurred by or on behalf of LuxGEO or any of its subsidiaries in connection with any such additional acquisition facility acquisitions.
The Revolving Credit Facilities The Revolving Credit Facilities are to be used for:
Revolving Credit Facility 1 • In the case of any amounts borrowed by LuxGEO on the Completion Date under the Revolving Credit Facility 1, financing the consideration payable by it for the Acquisition in an amount up to the cash available to Opodo on the Completion Date. LuxGEO shall repay each Revolving Credit Facility 1 utilization used for this purpose on or before the Business Day immediately following the Completion Date; • any working capital adjustment (other than as described under the proceeding paragraph); and • otherwise, general corporate purposes and working capital of LuxGEO or any of its subsidiaries.
Revolving Credit Facility 2
• The Revolving Credit Facility 2 can be utilized by way of letters of credit and guarantees. Each Revolving Credit Facility utilization shall be repaid on the last day of its interest period and the Revolving Credit Facilities will terminate on February 18, 2017.
Interest Rate and Fees Advances under the Term Loan Facilities and the Revolving Credit Facilities will bear interest at rates per annum equal to the aggregate of: (a) LIBOR or, in relation to any loan in Euro, EURIBOR (or, where applicable, EONIA), and in relation to any loan in Norwegian Kroner, NIBOR; (b) where appropriate, any applicable mandatory costs; and
170 (c) the following applicable margins: (i) the initial applicable margin in relation to the term loan facilities A and the Revolving Credit Facilities is 4.50% per annum; this margin is subject to adjustment (upward or downward, as appropriate) in accordance with a margin adjustment mechanism based on the leverage ratio of Adjusted Consolidated Total Net Debt to Consolidated EBITDA (as such ratio is defined under the Senior Credit Facilities Agreement) for the preceding four accounting quarters; (ii) the initial applicable margin in relation to the term loan facilities B is 5.00% per annum; and (iii) interest rates are also subject to market disruption and alternative market disruption mechanisms in case of unavailability of the relevant screen rate or if, on or about the applicable quotation date, or one Business Day after such date for the alternative reference banks, Senior Lenders whose participations in the considered loan exceeds 50% of that loan notify the Senior Facilities Agent that the costs of funding their participations in that loan would be in excess of the relevant screen rate or the relevant rate determined by the alterative reference banks. In addition to paying interest on loans outstanding under the Term Loan Facilities and the Revolving Credit Facilities, LuxGEO (or the relevant borrower) will also be required to pay a commitment fee in respect of the Term Loan Facilities and the Revolving Credit Facilities as follows: (a) the rate per annum which is 40% of the applicable margin in respect of the term loan facilities A for the period from and including the earlier of (x) the Completion Date and (y) March 10, 2011 to and including the last day of the availability period applicable to the term loan facilities A on that Lender’s available commitment under the term loan facilities A; (b) the rate per annum which is: (i) 40% of the applicable margin in respect of the term loan facilities B for the period from and including the earlier of (x) the Completion Date and (y) March 10, 2011 to and including the earlier of (1) May 15, 2011; and (2) the last day of the availability period applicable to the facilities B; and (ii) if the availability period applicable to the term loan facilities B has not ended on or before May 15, 2011, 100% of the applicable margin in respect of the term loan facilities B for the period from but excluding May 15, 2011 to and including the last day of the availability period applicable to the term loan facilities B, in each case, on that Senior Lender’s available commitment under the facilities B; and (c) the rate per annum which is 40% of the applicable margin in respect of the Revolving Facilities for the period from and including the earlier of (x) the Completion Date and (y) March 10, 2011 to and including the last day of the availability period applicable to the relevant Revolving Facilities on that Senior Lender’s available commitment under each Revolving Facility. This fee is payable on the Completion Date and thereafter, at the end of each quarter.
Guarantees and Security On the Completion Date, LuxGEO will be an original guarantor of the obligations of its subsidiaries under the Senior Credit Facilities Agreement. In addition, the Senior Credit Facilities Agreement requires Opodo Limited, Lyeurope, Lyparis, Go Voyages, Travellink AB, eDreams Inc., Vacaciones eDreams S.L. and eDreams S.r.l. to become additional guarantors under the Senior Credit Facilities Agreement on the Completion Date and within 30 days from the Completion Date, under certain circumstances, additional material subsidiaries of LuxGEO will become additional guarantors under the Senior Credit Facilities Agreement. As of the Completion Date, the obligations under the Senior Credit Facilities Agreement will be secured on a first-ranking basis by pledges over all of the shares of LuxGEO and the convertible
171 bonds issued by Lyeurope held in each case by the Issuer, a fixed charge over all of the shares of Opodo Limited held by LuxGEO, pledges over intercompany loans and other receivables (including under the Lyparis Structural Back to Back Loan) and pledges over bank accounts granted respectively by the Issuer and LuxGEO. Within 30 days from the Completion Date, the obligations under the Senior Credit Facilities Agreement will be secured on a first ranking basis by pledges over all of the shares of Lyeurope, eDreams Srl, Go Voyages, Opodo SAS, eDreams Inc., Opodo Italy, Lyparis, Travellink AB, Go Voyages, Vacaciones eDreams S.L., pledges over intercompany loans and other receivables, and pledges over bank accounts, material intellectual property rights and certain other material assets.
Prepayment In addition to the scheduled repayments described above, the liabilities under the Senior Credit Facilities Agreement must be prepaid upon the occurrence of certain events. For example, in the event of a Change of Control or a Sale (each as defined under the Senior Credit Facilities Agreement), the Senior Credit Facilities Agreement requires prepayment in full of all borrowings and the discharge of all other contingent liabilities thereunder and under any ancillary facilities. In addition, in certain circumstances, the Senior Credit Facilities Agreement requires prepayment of borrowings from the net proceeds of asset sales, proceeds of insurance policies, claims under certain documents in connection with the Acquisition and excess cashflow in respect of the relevant period commencing with the financial year ending March 31, 2012. The percentage of excess cash which must be used to prepay the borrowings is determined by reference to the ratio of Consolidated Total Net Debt to Consolidated EBITDA (as defined under the Senior Credit Facilities Agreement). Indebtedness under the Term Loan Facilities and the loans made under the Revolving Credit Facility 1 may be voluntarily prepaid by the borrowers in whole or in part (if in part, in a minimum amount of e500,000 for the Term Loan Facilities and e100,000 in respect of the loans made under the Revolving Credit Facility 1), upon giving at least three Business Days’ prior notice to the Senior Facilities Agent.
Covenants The Senior Credit Facilities Agreement contains certain negative operating and financial covenants, including covenants restricting the ability of the borrowers and the guarantors to, among other things: • sell, lease transfer or otherwise dispose of assets; • create or permit to subsist any security interest over any part of their assets; • make acquisitions or investments, enter into a demerger or merger or enter into joint ventures; • incur or allow to remain outstanding additional indebtedness, grant guarantees in respect of indebtedness and make loans or grant credit; • issue shares; and • repay or prepay any principal, interest, or other amount in respect of certain financial indebtedness. The Senior Credit Facilities Agreement also requires the borrowers, the guarantors and their respective subsidiaries to observe certain customary affirmative covenants, including, but not limited to, covenants relating to: • compliance with environmental laws; • maintenance of insurance; • maintenance of relevant consents and licenses relating to intellectual property;
172 • payment of taxes, levy, impost duty, or other charge; and • preserving sufficient title to use the assets necessary to carry on the business of LuxGEO and its subsidiaries. In addition, the Senior Credit Facilities Agreement also requires us to comply with specified financial ratios of Consolidated EBITDA to Consolidated Net Finance Charges, Consolidated Total Net Debt to Consolidated EBITDA and Consolidated Cashflow to Net Debt Service (all as defined under the Senior Credit Facilities Agreement). Failure to comply with such financial covenants at any testing date shall constitute an event of default under the Senior Credit Facilities Agreement. The Senior Credit Facilities Agreement also limits the extent of our capital expenditures.
Events of Default The Senior Credit Facilities Agreement also sets out certain customary events of default, including, but not limited to, non-payment of principal, interest or fees; misrepresentations; breach of covenants; insolvency, bankruptcy, insolvency proceedings or similar events; unlawfulness or repudiation of the financing or transaction documents; cross default to other indebtedness of a member of the Geo Group in excess of e3 million; an event of default under the Notes or the Bridge Facility Agreement; breach of the Intercreditor Agreement; certain litigation; and material adverse change. Events of default under the Senior Credit Facilities Agreement relating to the Opodo Group (other than certain major events of default) existing on or arising after Completion Date may be remedied during a 60-day clean-up period starting from the Completion Date, or a 90-day clean-up period after such date if the Completion Date falls during the month of June 2011 or July 2011.
Intercreditor Agreement To establish the relative rights of certain creditors under the financing arrangements related to the Acquisition, the Issuer has entered into an intercreditor agreement (the ‘‘Intercreditor Agreement’’) with, among others, Societ´ e´ Gen´ erale´ (as the ‘‘Senior Agent,’’ ‘‘Bridge Agent’’ and ‘‘Security Agent’’), LuxGEO and LuxGEO Parent, Luxgoal and LuxGEO GP S.a` r.l. (with any assignee and successor thereof, the ‘‘Investor Creditors’’), dated February 18, 2011. As of the issue date of the Notes, the Trustee will also become party to the Intercreditor Agreement. By accepting a Note, holders of the Notes will be deemed to have agreed to, and accepted the terms and conditions of, the Intercreditor Agreement. The Intercreditor Agreement is governed by English law. The Intercreditor Agreement sets out: • the relative ranking of debt; • when payments can be made in respect of debt; • when enforcement action can be taken in respect of debt; • the terms pursuant to which certain layers of debt will be subordinated, including upon the occurrence of certain insolvency events; • any conditions applicable to the refinancing or addition of debt; and • turnover provisions. The following description is a summary of certain provisions of the Intercreditor Agreement. It does not restate the Intercreditor Agreement in its entirety, and we urge you to read the actual Intercreditor Agreement because it, and not the discussion that follows, defines certain rights of the holders of the Notes.
173 Ranking and Priority The Intercreditor Agreement provides that the following order of priority shall apply to the satisfaction of all obligations owed by any debtor (the ‘‘Debtors’’) to the Senior Creditors and the Notes Creditors (as defined below): • First: (i) in relation to any member of the Geo Group other than the Issuer (x) all senior obligations and liabilities owed by any Debtor to the Senior Lenders, agents and arrangers under or in connection with the Senior Finance Documents and to any hedging banks under or in connection with the Hedging Documents (collectively, the ‘‘Senior Liabilities’’), and (y) any amount owed to the Trustee (together with any other representative of the Notes Creditors, the ‘‘Notes Representatives’’) pari passu and without any preference between them; and (ii) in relation to the Issuer, all liabilities owed by the Issuer as issuer of the Notes (the ‘‘Issuer Creditor Liabilities’’) and the Senior Liabilities arising under any transaction security documents, pari passu and without any preference between them; • Second: (iii) in relation to any member of the Group other than the Issuer, all liabilities owed by the Debtors to any Notes finance party or any holder of the Notes (such parties, the ‘‘Notes Creditors,’’ and such liabilities, the ‘‘Notes Liabilities’’), excluding any amount due by any Debtor to the Trustee under or in connection with the Notes, pari passu and without any preference between them; and (iv) in relation to the Issuer, the Senior Liabilities (other than the Senior Liabilities arising under any transaction security documents), pari passu and without any preference between them. Subject to the paragraph hereunder, the Collateral shall rank and secure the following Liabilities in the following order: • first, all amounts due to the Senior Facilities Agent under the Senior Finance Documents and to the Trustee and the Security Agent pari passu and without any preference between them; • second, all senior obligations and liabilities owed by any Debtor to the Senior Lenders and any hedging liabilities pari passu and without any preference between them; and • third, the Notes Liabilities. The Notes First Priority Collateral (as defined under ‘‘Description of the Notes—Security’’) shall rank and secure the following Liabilities in the following order: • first, the Notes Agent Liabilities; and • second, the Issuer Creditor Liabilities (other than the Notes Agent Liabilities).
Payment Blockage Provisions Prior to the Senior Discharge Date, if any event of default under the Senior Credit Facilities Agreement (other than a senior payment default) shall have occurred and is continuing (a ‘‘Senior Facilities Default), the Senior Facilities Agent under the Senior Credit Facilities Agreement may, within 45 days of having written notice of the occurrence of the Senior Facilities Default serve a written notice (the ‘‘Notes Blockage Payment Notice’’) to each representative of the Notes Creditors and the Issuer. A Notes Payment Blockage Notice will remain outstanding until the earliest of the date: (a) on which the Senior Facilities Default has been remedied or waived in accordance with the Senior Credit Facilities Agreement; (b) on which the Senior Facilities Agent notifies the representative and the Issuer that the relevant Notes Payment Blockage Notice served by it is cancelled;
174 (c) the date on which all senior obligations and liabilities owed by any Debtor to the Senior Lenders have been fully and finally discharged (the ‘‘Senior Facilities Discharge Date’’); (d) the first day that is 179 days after the date of service of such Notes Payment Blockage Notice; and (e) the expiry of a Standstill Period (as defined below) in existence at the date of service of the Notes Payment Blockage Notice. Only one Notes Payment Blockage Notice is permitted to be served in any consecutive 360-day period with respect to the same event or set of circumstances.
Standstill on Enforcement Subject to the terms of the paragraph set out below, until after the Senior Facilities Discharge Date, no Notes Creditor shall be entitled to take any action against any Debtor to enforce the obligations owed under the Indenture, the Notes and the Collateral against any Debtor in respect of any of the Notes Liabilities owed to it (together, the ‘‘Notes Documents’’). The Security Agent may take against any Debtor any enforcement action available to it in respect of any of the Notes Liabilities if at the same time as, or prior to, that action: (a) an acceleration event has occurred under the Senior Credit Facilities Agreement, in which case the Notes Creditor may pursue an enforcement action in respect thereof; (b) an event of default under the Notes has occurred and (i) the representative has notified the Issuer, the Senior Facilities Agent and each other Notes Representative that a relevant event of default under the Notes has occurred and is continuing, (ii) a standstill period (a ‘‘Notes Standstill Period’’) of 179 days from the date on which the default notice has expired and (iii) at the end of the standstill period the event of default is continuing; (c) more than 66.66% of the Senior Creditors have consented to such enforcement action; (d) any other Notes Standstill Period outstanding at the date as such first-mentioned Notes Standstill Period commenced has expired; and the Security Agent has given not less than five Business Days’ notice before taking enforcement action; (e) a failure to pay principal under the Indenture upon the relevant scheduled maturity date has occurred; (f) an insolvency event has occurred in relation to any member of the Geo Group or relevant Debtor, provided that such insolvency event was not the result of the actions of any Notes Creditor in which case the representative can enforce against the relevant member of the Geo Group; or (g) the action is against the Issuer and does not relate to an enforcement of a guarantee, the exercise of any right to require a member of the Geo Group to acquire any liability or the enforcement of the Collateral.
Subordination of Intra-Group Liabilities and Investor Creditor Liabilities The Intercreditor Agreement contains customary provisions relating to the subordination of Intra-Group and Investor Creditor Liabilities. Included as part of these provisions are specific provisions required by the Intercreditor Agreement to be applicable to the Lyparis Structural Back to Back Loan, which is the e175.0 million principal amount loan being granted on the Completion Date from Lyparis to the Issuer. The Lyparis Structural Back to Back Loan is being pledged on a first priority basis to secure obligations under the Senior Credit Facilities Agreement and is being pledged on a second-priority basis as security for the Notes. The Lyparis Structural Back to Back Loan will be structured to comply with the applicable provisions of the Intercreditor Agreement, which are summarized below:
175 Terms of Structural Back to Back Loan Agreements Each Structural Back to Back Loan shall provide for the following: (a) the borrower is Lyparis as Structural Back to Back Loan borrower; (b) the lender is the Issuer; (c) it shall be governed by the laws of the jurisdiction of incorporation of Lyparis as Structural Back to Back Loan borrower; (d) payments of principal, premium and interest (including any tax indemnities, gross-up amount or increased costs) required to be paid by the borrower under such loan do not exceed the amount of any payments of principal, premium and interest (including any tax indemnities, gross-up amount or increased costs) required to enable the Issuer to make payments of principal, premium and interest (including any tax indemnities, gross-up amount, increased costs, additional amounts, special interest or default interest) and to pay any costs, fees (other than any prepayment fees) and expenses properly payable under the terms of the Notes Documents on the date for payment thereof; (e) it has a scheduled repayment date for any principal amount which is no earlier than the final maturity date of the Liabilities (it being understood that it may contain repayments corresponding to required payments under the Notes Documents, to the extent such payments are expressly permitted under (until the Senior Facilities Discharge Date) the Senior Finance Documents and may provide for repayment in full at any time after the Final Discharge Date); (f) no party to a Structural Back to Back Loan may assign, transfer or otherwise allow any security to exist in respect of any of its rights or obligations thereunder, save that the creditor of a Structural Back to Back Loan may enter into collateral in respect of its rights under that Structural Back to Back Loan and the corresponding Structural Back to Back Loan; (g) it does not benefit from any security granted by any member of the Group or any holding company of any member of the Geo Group save that the Issuer as creditor of a Structural Back to Back Loan may benefit from certain security with respect to the payment obligations of the Structural Back to Back Loan borrower under the Structural Back to Back Loan and any guarantee thereof; (h) it does not benefit from any guarantee, indemnity, assurance against loss or similar undertaking given by any member of the Group or any holding company of any member of the Geo Group save that the creditor of a Structural Back to Back Loan may benefit from certain guarantees with respect to payment obligations of the Structural Back to Back Loan borrower under the Structural Back to Back Loan; (i) it is in a maximum principal amount equal to the principal amount of the Notes (or, if the same is not known on or before the Completion Date, in an amount determined in accordance with the tax structure memorandum delivered in connection with the Acquisition and subsequently modified so that it is equal to the principal amount of the Notes on the issue date thereof); (j) it is not permitted to be and is not at any time prior to the Final Discharge Date, the subject of any Liabilities Acquisition (as defined under the Intercreditor Agreement by any member of the Group or any other person); (k) no payments may be made in respect of any Structural Back to Back Loan save as permitted under the Intercreditor Agreement; (l) it is expressed to be subject to, and does not contain any provisions which conflict with the terms of, the Intercreditor Agreement; and (m) it will include a prepayment event upon the occurrence of the enforcement by the Notes Creditors of the Structural Back to Back Loan. No changes may be made to any Structural Back to Back Loan by the parties thereto once it has been entered into without the prior written consent of (prior to the Senior Discharge Date) the
176 relevant majority of Senior Creditors and (prior to the Notes Documents discharge date) the relevant majority Notes Creditors unless such amendment (i) is of a minor or technical nature, or (ii) is necessary for the purpose of making the financial terms of the Structural Back to Back Loans mirror the financial terms of the Bridge Facility Agreement and/or the Indenture, or (iii) is otherwise not materially prejudicial to the interests of any of the Senior Creditors and the Notes Creditors and, in each case, does not cause any Structural Back to Back Loan to cease to comply with the above mentioned principles.
Turnover of Receipts The Intercreditor Agreement contains customary turnover provisions.
Security—Notes Creditors At any time prior to the Senior Discharge Date, the Notes Creditors may not take, accept or receive from any member of the Geo Group the benefit of any security, guarantee, indemnity or other assurance against loss in respect of the Issuer Creditor Liabilities other than: (a) the collateral to be granted to all the secured parties (including the Senior Creditors) in respect of their liabilities and the Notes First Priority Collateral; (b) any guarantee, indemnity or other assurance against loss contained in: (i) the Indenture (in its form on the date of the Intercreditor Agreement) under which the Notes are issued; (ii) the Intercreditor Agreement; or (iii) any guarantee, indemnity or other assurance against loss in respect of any of the liabilities, the benefit of which (however conferred) is, to the extent legally possible and subject to any agreed security principles, given to all the secured parties in respect of liabilities owing to them (the ‘‘Common Assurance’’); and (c) as otherwise contemplated by the Intercreditor Agreement, unless the prior consent of (prior to the Senior Discharge Date) more than 66.66% of the Senior Creditors is obtained.
Enforcement Instructions—Manner of Enforcement The Security Agent may refrain from enforcing the transaction security unless otherwise instructed by the relevant majority of Senior Creditors or, to the extent they are permitted to enforce or to require the enforcement of Collateral prior to the Senior Discharge Date as set out in ‘‘Standstill on Enforcement’’ above, each representative (acting on the instructions of the relevant majority of Notes Creditors), each an ‘‘Instructing Group.’’ In addition, prior to the Senior Discharge Date, if the Instructing Group has instructed the Security Agent not to enforce or to cease enforcing the Collateral or in the absence of instructions from the Instructing Group, and, in each case, the Instructing Group has not required any Debtor to make a Distressed Disposal, the Security Agent shall give effect to any instructions to enforce Collateral which any representative acting on the instructions of the relevant majority of Notes Creditors) is then entitled to give to the Security Agent. If Collateral is being enforced according to the terms described in this Section, the Security Agent shall enforce the relevant Collateral in such manner as (i) the Instructing Group shall instruct or, (ii) prior to the Senior Discharge Date, if the Security Agent has received instructions validly given by the relevant majority of Notes Creditors to enforce the collateral and the Instructing Group has not given instructions as to the manner of enforcement of the collateral, as the relevant majority of Notes Creditors shall instruct, or in the absence of any such instructions, as the Security Agent sees fit. After the Security Agent has commenced enforcement of any Collateral following the instructions of an Instructing Group, it shall not accept any subsequent instructions from anyone other than that Instructing Group as to the enforcement of any Collateral except that it shall not restrict the relevant majority of Notes Creditors giving instructions to the Security Agent, or the Security Agent accepting such instructions, as to the manner of enforcement of the Notes First
177 Priority Collateral or of any other Collateral granted by a holding company of the person who granted the Collateral being enforced. The Intercreditor Agreement provides that each creditor (including each Investor Creditor) agrees with the Security Agent that it will cast its vote in any proposal put to the vote by or under the supervision of any judicial or supervisory authority in respect of any insolvency, pre-insolvency or rehabilitation or similar proceedings relating to any member of the Geo Group as instructed by the Security Agent. The Security Agent shall give instructions in relation thereto as directed by any relevant Instructing Group (or a representative, should it be authorized to give enforcement instructions). The Intercreditor Agreement provides that nothing in the Intercreditor Agreement shall prevent any Notes Creditor from taking any enforcement action against the Issuer (or any other enforcement action against (i) LuxGEO Parent as a guarantor of the Notes Liabilities or as a provider of Notes First Priority Collateral or (ii) an Investor Creditor as a provider of Notes First Priority Collateral) in respect of the Notes Liabilities owed by it in accordance with the Notes Documents, subject however, in the case of an enforcement action against the Issuer, to any restrictions on enforcement actions described under ‘‘Standstill on Enforcement.’’
Application of Proceeds Subject to rights of creditors mandatorily preferred by law and except as otherwise permitted under the Intercreditor Agreement, all amounts received or recovered by the Security Agent shall be applied in the following priority: (a) First, in payment of any sums due to the Security Agent, (i) in payment to the Senior Agent on its own behalf for application towards the discharge of the liabilities owed by the Debtors to the Senior Facilities Agent under or in connection with the senior facilities documents (‘‘Senior Agent Liabilities’’) and (ii) in payment to the Trustee on its own behalf for application towards the discharge of amounts owed by and/or payable by the Issuer, the Debtors and the Guarantors to the Trustee and the Security Agent under or in connection with the Notes Documents (the ‘‘Notes Agent Liabilities’’); (b) Second, in payment of all costs and expenses incurred by an agent or any Senior Creditor or Notes Creditor in connection with any realization or enforcement of Collateral taken in accordance with the terms of the Intercreditor Agreement or any action taken at the request of the Security Agent; (c) Third, save in the case of the Notes First Priority Collateral, in payment to: (i) the Senior Facilities Agent on behalf of the senior arrangers and the Senior Lenders, and (ii) the counterparty to the relevant Debtors in respect of hedging agreements entered into (the ‘‘Hedging Bank’’), for application towards the discharge of: (a) all senior obligations and liabilities owed by any Debtor to the Senior Lenders and the liabilities owed by any Debtor to any senior arranger under the senior facilities finance documents; and (b) the Liabilities due to Hedging Bank (on a pro rata basis between the hedging liabilities of each Hedging Bank); (c) Fourth, in payment to the Trustee on behalf of the holders, from time to time, of the Notes or the Bridge Agent for application towards the discharge of the Bridge Liabilities and the Bridge Arranger Liabilities (as defined and in accordance with the terms of the Bridge Finance Documents); (d) Fifth, if none of the Debtors is under any further actual or contingent liability under any Senior Facilities Document, Hedging Agreement or Notes Document, in payment to any person to whom the Security Agent is obliged to pay in priority to any Debtor; and (e) the balance, if any, in payment to the relevant Debtor.
178 Escrow Agreement On the Issue Date, we expect to enter into an Escrow Agreement pursuant to which the initial purchasers will deposit the gross proceeds of the Notes less a portion of the Initial Purchasers’ commission into an escrow account in the name of the Issuer but controlled by, and pledged in favor of, the Trustee for the benefit of the holders of the Notes. The release of the escrow proceeds will be subject to the satisfaction of certain conditions, including the consummation of the Transactions. Consummation of the Acquisition is subject only to antitrust approval. If the Transactions are not consummated before November 1, 2011, the first interest payment on the Notes will be made using funds from the Escrow Account. If the Transactions are not consummated by December 31, 2011, or upon the occurrence of certain other events, the Notes will be subject to a special mandatory redemption. If a special mandatory redemption occurs on or prior to September 30, 2011, the special mandatory redemption price will be a price equal to 100% of the initial issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the Issue Date. If a special mandatory redemption occurs between October 1, 2011 and December 31, 2011, the special mandatory redemption price will be equal to 101% of the initial issue price of the Notes plus accrued and unpaid interest and additional amounts, if any, from the Issue Date. For a further description of the Escrow Agreement, see ‘‘Description of the Notes— Escrow of Proceeds; Special Mandatory Redemption.’’
Convertible Subordinated Shareholder Bonds On the Completion Date, Axeurope and Luxgoal will be the direct holders of the entire share capital of LuxGEO Parent, the parent company of the Issuer. LuxGEO Parent will own the entire limited share capital of the Issuer as associe´ commanditaire of the Issuer and LuxGEO GP S.a` r.l. will be the unlimited shareholder (associe´ commandite´) and the Manager (gerant´ ) of the Issuer. In addition, following the Completion Date, Axeurope and Luxgoal will hold convertible bonds issued by the Issuer (the ‘‘Convertible Subordinated Shareholder Bonds’’). The Convertible Subordinated Shareholder Bonds will have a 49-year maturity period and will be subject to the terms of the Intercreditor Agreement as Investor Liabilities. The total return on each of the Convertible Subordinated Shareholder Bonds for any accrual period shall be an amount equal to the product of (a) the interest rate multiplied by (b) the sum of (i) the par value of such Convertible Subordinated Shareholder Bond and (ii) the accrued but unpaid yield in respect of any previous accrual period. Such yield will only be paid after the date falling one year after the Final Discharge Date. Unpaid yield shall accumulate and be capitalized on an annual basis. No compulsory early redemption will apply in relation to the Convertible Subordinated Shareholder Bonds except for any repayment at final maturity. In addition, no optional redemption may be made before the date falling one year after the Final Discharge Date.
179 DESCRIPTION OF THE NOTES Geo Travel Finance S.C.A., a partnership limited by shares (societ´ e´ en commandite par actions) organized under the laws of Luxembourg, having its registered office at 282 route de Longwy L-1940, Luxembourg and registered with the Luxembourg Register of Commerce and Companies under number B-159022 (the ‘‘Issuer’’) will issue the Notes under an indenture (the ‘‘Indenture’’) between, among others, the Issuer, Deutsche Trustee Company Limited, as the trustee (the ‘‘Trustee’’) and Societ´ e´ Gen´ erale,´ as the security agent (the ‘‘Security Agent’’), in a private transaction that is not subject to the registration requirements of the U.S. Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’). The proceeds of the offering of the Notes sold on the Issue Date will be used, together with the proceeds of the Senior Credit Agreement and the Equity Contribution, to consummate the Transactions, including the Acquisition, as set forth in this Offering Circular under the caption ‘‘Use of Proceeds.’’ Pending consummation of the Transactions and the satisfaction of certain other conditions as described below, the Initial Purchasers will deposit the gross proceeds of the offering of the Notes less a portion of the Initial Purchasers’ commission into an account (‘‘Escrow Account’’), pursuant to the terms of an escrow agreement (the ‘‘Escrow Agreement’’) dated as of the Issue Date among, inter alios, the Issuer, the Trustee and Deutsche Bank AG, London Branch, as Escrow Agent (the ‘‘Escrow Agent’’). The Escrow Agreement, including the conditions to the release of the Escrowed Property (as defined below), are more fully described below under ‘‘—Escrow of Proceeds; Special Mandatory Redemption.’’ In the event the Completion Date (as defined below under ‘‘—Escrow of Proceeds; Special Mandatory Redemption’’) has not occurred before November 1, 2011, the first interest payment on the Notes will be made using funds from the Escrow Account. In the event the Completion Date has not occurred on or before December 31, 2011 (the ‘‘Escrow Longstop Date’’), or upon the occurrence of certain other events, the Notes will be redeemed at a price equal to (i) 100% of the aggregate principal amount of the Notes, if the Escrow Termination Date occurs prior to October 1, 2011, or (ii) 101% of the aggregate principal amount of the Notes, if the Escrow Termination Date occurs on or after October 1, 2011, in each case, plus accrued and unpaid interest and Additional Amounts (as defined below), if any, from the Issue Date to the Special Mandatory Redemption Date (as defined below). AXA LBO Fund IV, represented by AXA Private Equity, and Luxgoal, acting severally and not jointly, will provide guarantees for the benefit of the holders of the Notes in order to pay, upon the occurrence of a Special Mandatory Redemption (as defined below under ‘‘—Escrow of Proceeds; Special Mandatory Redemption’’), pro rata to the economic interest of AXA Private Equity and the Permira Funds, respectively, in the Transactions, the difference between the amount required to be paid to the holders of the Notes for the Special Mandatory Redemption and the amount of funds in the Escrow Account on the date of the Special Mandatory Redemption, provided that the obligations of AXA LBO Fund IV and Luxgoal under these guarantees shall not exceed the sum of (i) the difference between the principal amount of the Notes outstanding and the amount initially deposited by the Initial Purchasers into the Escrow Account, (ii) the accrued and unpaid interest on the Notes at the Special Mandatory Redemption Date, (iii) the premium applicable to any Special Mandatory Redemption on or after October 1, 2011, (iv) an amount equal to amounts released from the Escrow Account in accordance with the Escrow Agreement to pay amounts required or permitted to be paid pursuant to the Notes and the Indenture (other than in respect of a Special Mandatory Redemption), (v) any Additional Amounts (as defined under ‘‘—Additional Amounts’’) due on the Notes at the Special Mandatory Redemption Date and (vi) an amount equal to any fees and expenses paid out of the Escrow Account in accordance with the Escrow Agreement. See ‘‘—Escrow of Proceeds; Special Mandatory Redemption.’’ Unless the context otherwise requires, in this ‘‘Description of the Notes,’’ references to the ‘‘Notes’’ include the Notes and any Additional Notes that are issued. The terms of the Notes include those set forth in the Indenture. The Indenture will not incorporate or include any of the provisions of the U.S. Trust Indenture Act of 1939, as amended. The Security Documents referred to below under the caption ‘‘—Security’’ define the terms of the security that will secure the Notes. The following description is a summary of the material provisions of the Indenture, the Notes, the Security Documents and the Escrow Agreement and refers to the Intercreditor Agreement. This does not restate those agreements in their entirety. We urge you to read the Indenture, the Notes, the Security Documents, the Escrow Agreement and the Intercreditor Agreement because they, and not this description, define your rights as holders of the Notes. Copies of the Indenture, the form of
180 Note, the Security Documents, the Escrow Agreement and the Intercreditor Agreement are available as set forth below under ‘‘—Additional Information.’’ Certain defined terms used in this description but not defined below under ‘‘—Certain Definitions’’ have the meanings assigned to them in the Indenture. You can find the definitions of certain terms used in this description under the subheading ‘‘—Certain Definitions.’’ In this description, references to (i) the ‘‘Issuer’’ refer only to Geo Travel Finance S.C.A. and not to any of its Subsidiaries and (ii) ‘‘we,’’ ‘‘our,’’ and ‘‘us’’ refer to the Issuer and its Subsidiaries including, following the Completion Date, the Opodo Group, the eDreams Group and the Go Voyages Group. The registered holder of a Note will be treated as the owner of it for all purposes. Only registered holders will have rights under the Indenture.
Brief Description of the Notes and the Note Guarantees The Notes The Notes: • will be general senior obligations of the Issuer; • will be pari passu in right of payment with any existing and future Indebtedness of the Issuer that is not subordinated to the Notes; • will be senior in right of payment to any existing and future obligations of the Issuer that are expressly subordinated in right of payment to the Notes, including the obligations of the Issuer under the Subordinated Shareholder Instruments issued to Luxgoal S.a` r.l. and Axeurope S.A.; • will be effectively subordinated to any existing and future secured Indebtedness of the Issuer and its Subsidiaries that is secured by liens senior to the liens securing the Notes or secured by property and assets that do not secure the Notes, to the extent of the value of the property and assets securing such Indebtedness (including the Senior Credit Agreement); • will be secured by the Collateral; and • will be effectively subordinated to all obligations of the Issuer’s Subsidiaries that are not Guarantors.
The Note Guarantees As of the Completion Date, the Notes will initially be guaranteed by each of the Company, eDreams Inc., Opodo and Travellink AB (each, a ‘‘Guarantee’’). The Guarantee of each of the Company, eDreams Inc., Opodo and Travellink AB (together, the ‘‘Guarantors’’): • will be a general senior subordinated obligation of that Guarantor; • will be secured by the Collateral; • will be subordinated in right of payment to all existing and future Senior Debt of that Guarantor (including the Guarantor’s obligations under the Senior Credit Agreement); • will be pari passu in right of payment to any existing and future senior subordinated Indebtedness of that Guarantor; and • will be effectively subordinated to any existing and future Indebtedness of that Guarantor that is secured by liens senior to the liens securing that Guarantor’s Note Guarantee or secured by property and assets that do not secure the Guarantor’s Note Guarantee, to the extent of the value of the property and assets securing such Indebtedness. Not all of the Issuer’s Subsidiaries will guarantee the Notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Issuer. During the 12 months ended December 31, 2010 on a pro forma basis after giving effect to the Transactions, the Issuer and the Guarantors together
181 represented 100% of our consolidated pro forma recurring EBITDA and represented 100% of our consolidated total assets. However, several of the Guarantors are intermediate holding companies without material independent operations, and a substantial portion of our consolidated pro forma recurring EBITDA is generated by, and a substantial portion of our total assets is held by, non-Guarantor operating companies owned by the Guarantor intermediate holding companies. The operations of the Issuer are conducted through its Subsidiaries and, therefore the Issuer depends on the cash flow of its Subsidiaries to meet its obligations, including its obligations under the Notes. The Notes will be effectively subordinated in right of payment to all Indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Issuer’s non-guarantor Subsidiaries. Any right of the Issuer or any Guarantor to receive assets of any of its non-guarantor Subsidiaries upon that non-guarantor Subsidiary’s liquidation or reorganization (and the consequent right of the holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that non-guarantor Subsidiary’s creditors, except to the extent that the Issuer or such Guarantor is itself recognized as a creditor of the non-guarantor Subsidiary, in which case the claims of the Issuer or such Guarantor, as the case may be, would still be subordinated in right of payment to any security in the assets of the non-guarantor Subsidiary and any Indebtedness of the non-guarantor Subsidiary senior to that held by the Issuer or such Guarantor. As of December 31, 2010, on a pro forma basis after giving effect to the Transactions as described under ‘‘Use of Proceeds,’’ the Issuer’s non-Guarantor Subsidiaries (as of the Completion Date) would have had approximately e340 million of Indebtedness outstanding under the Senior Credit Agreement and up to e90 million would have been available to the Issuer’s non-Guarantor Subsidiaries for borrowing under the committed and undrawn revolving facilities under the Senior Credit agreement. In addition, the Issuer’s non-Guarantor Subsidiaries would have had significant trade payables and other liabilities outstanding. See ‘‘Risk Factors—Risks Related to Our Structure— The Notes will be structurally subordinated to the liabilities of non-Guarantor subsidiaries.’’ As of both the Issue Date and the Completion Date, all of the Issuer’s Subsidiaries will be ‘‘Restricted Subsidiaries’’ for purposes of the Indenture. However, under the circumstances described below under the caption ‘‘—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries,’’ the Issuer will be permitted to designate Restricted Subsidiaries as ‘‘Unrestricted Subsidiaries.’’ Most of the restrictive covenants in the Indenture do not apply to Unrestricted Subsidiaries. The Issuer’s Unrestricted Subsidiaries, if any, will not guarantee the Notes. Upon the initial issuance of the Notes, the Notes will be obligations solely of the Issuer, and will not be obligations of any Guarantor. Assuming the Completion Date occurs on or prior to the Escrow Longstop Date and the funds are released from the Escrow Account, the Guarantors will become parties to the Indenture and will guarantee the Notes on a senior subordinated basis as of the Completion Date. Prior to the Completion Date, we will not control Opodo and its Subsidiaries. Although the Go Voyages Group and the eDreams Group are controlled by AXA Private Equity and the Permira Funds, respectively, prior to the Completion Date, we will also not control Go Voyages or eDreams, or any of their respective Subsidiaries.
Principal, Maturity and Interest The Issuer will issue e175 million in aggregate principal amount of Notes in this offering. The Issuer may issue an unlimited principal amount of additional Notes having identical terms and conditions as any series of the Notes (‘‘Additional Notes’’) under the Indenture from time to time after this offering; provided that if any Additional Notes are not fungible with the relevant series of Notes for U.S. federal income tax purposes, such Additional Notes will be issued as a separate series under the Indenture and will have a separate CUSIP number or common code and ISIN, as applicable, from the relevant series of Notes. Any issuance of Additional Notes is subject to all of the covenants in the Indenture, including the covenant described below under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock.’’ The Notes and any Additional Notes subsequently issued under the Indenture (regardless of whether issued as a separate series) will be treated as a single class for all purposes under the Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase, except as otherwise provided in the Indenture. The Issuer will issue Notes in denominations of e100,000 and integral multiples of e1,000 in excess thereof. The Notes will mature on May 1, 2019.
182 Interest on the Notes will accrue at the rate of 10.375% per annum. Interest on the Notes will be payable semi-annually in arrears on May 1 and November 1, commencing on November 1, 2011, subject to such dates being Business Days and, if not, payments will be made on the immediately following Business Day. Interest on overdue principal and interest, including Additional Amounts, if any, will accrue at a rate that is 1% higher than the interest rate on the Notes. The Issuer will make each interest payment to the holders of record on the immediately preceding April 15 and October 15. Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
Escrow of Proceeds; Special Mandatory Redemption Concurrently with the closing of the offering of the Notes on the Issue Date, the Issuer will enter into the Escrow Agreement with, among others, the Trustee and the Escrow Agent, pursuant to which the Initial Purchasers will deposit into the Escrow Account an amount equal to the gross proceeds of the offering of the Notes sold on the Issue Date less a portion of the Initial Purchasers’ commission. AXA LBO Fund IV, represented by AXA Private Equity, and Luxgoal, acting severally and not jointly, will provide guarantees for the benefit of the holders of the Notes in order to pay, upon the occurrence of a Special Mandatory Redemption, pro rata to the economic interest of AXA Private Equity and the Permira Funds, respectively, in the Transactions, the difference between the amount required to be paid to the holders of the Notes for the Special Mandatory Redemption and the amount of funds in the Escrow Account on the date of the Special Mandatory Redemption, provided that the obligations of AXA LBO Fund IV and Luxgoal under these guarantees shall not exceed the sum of (i) the difference between the principal amount of the Notes outstanding and the amount initially deposited by the Initial Purchasers into the Escrow Account, (ii) the accrued and unpaid interest on the Notes at the Special Mandatory Redemption Date, (iii) the premium applicable to any Special Mandatory Redemption on or after October 1, 2011, (iv) an amount equal to amounts released from the Escrow Account in accordance with the Escrow Agreement to pay amounts required or permitted to be paid pursuant to the Notes and the Indenture (other than in respect of a Special Mandatory Redemption), (v) any Additional Amounts (as defined under ‘‘—Additional Amounts’’) due on the Notes at the Special Mandatory Redemption Date and (vi) an amount equal to any fees and expenses paid out of the Escrow Account in accordance with the Escrow Agreement. The Escrow Account will be pledged on a first-ranking basis in favor of the Trustee on behalf of the holders of the Notes pursuant to an escrow charge dated the Issue Date between the Issuer and the Trustee (the ‘‘Escrow Charge’’). The initial funds deposited in the Escrow Account, and all other funds, securities, interest, dividends, distributions and other property and payments credited to the Escrow Account, less any property and/or funds paid in accordance with the Escrow Agreement, are referred to, collectively, as the ‘‘Escrowed Property.’’ In order to cause the Escrow Agent to release the Escrowed Property to the Issuer (the ‘‘Release’’), the Escrow Agent shall have received from the Issuer, at a time that is on or before the Escrow Longstop Date, an Officer’s Certificate to the effect that: (i) prior to or concurrently with the release of the proceeds of the Notes, the Equity Contribution will be made; (ii) immediately after consummation of the Acquisition, those documents, legal opinions and certificates that are required to be delivered on the relevant date of Release have been delivered in accordance with the terms of the Escrow Agreement; (iii) (a) the Transactions, including the Acquisition, will be consummated, substantially concurrently with the release of the Escrowed Property, on substantially the same terms as described in this Offering Circular under the heading ‘‘—The Transactions’’ (except for any such changes which could not reasonably be expected, individually or when taken as a whole, to be materially adverse to the holders of the Notes) and in accordance with the terms of the Acquisition Agreement and (b) no provision of the Acquisition Agreement shall have been amended or waived in any manner which could reasonably be expected, individually or when taken as a whole, to be materially adverse to the holders of the Notes without the consent of the holders of a majority in principal amount of the Notes outstanding;
183 (iv) immediately upon consummation of the Acquisition, each Initial Guarantor will execute and deliver a supplemental indenture or other instrument pursuant to which it will guarantee, jointly and severally with each other Guarantor, the obligations of the Issuer under the Notes and the Indenture; (v) the Issuer, the Initial Guarantors and the Security Providers (as applicable), immediately upon consummation of the Acquisition, will execute and deliver the applicable Security Documents and all other relevant documents in respect of the Initial Collateral (as defined below); and (vi) as of the Completion Date, there is no Default or Event of Default under clause (9) of the first paragraph under the heading titled ‘‘Events of Default and Remedies’’ below in respect of the Issuer or the Company. The Release shall occur promptly upon the satisfaction of the conditions set forth above (the date of such satisfaction, the ‘‘Completion Date’’). Upon the Release, the Escrow Account shall be reduced to zero, and the Escrowed Property shall be paid out in accordance with the Escrow Agreement. In the event that the Completion Date has not occurred before November 1, 2011, a portion of the Escrowed Property in an amount sufficient to pay the first interest payment on the Notes will be released to pay such interest. In the event that (a) the Completion Date does not take place on or prior to the Escrow Longstop Date, (b)(i) the Equity Investors cease to control (or Holdco, the Equity Investors and the GP cease to beneficially own) 100% of the issued and outstanding Capital Stock of the Issuer or (ii) the Equity Investors cease to beneficially own and control 100% of the issued and outstanding Capital Stock of the GP, (c) at any time prior to the Escrow Longstop Date, any conditions to the Release of the proceeds can not reasonably be deemed by the Issuer to be capable of being satisfied on or prior to the Escrow Longstop Date, (d) at any time prior to the Escrow Longstop Date, the Acquisition Agreement terminates, (e) there occurs a repudiation by the Issuer of any of its obligations under the Escrow Agreement or the Escrow Charge or the unenforceability of the Escrow Agreement or the Escrow Charge against the Issuer or any of its other creditors for any reason or (f) a Default or Event of Default arises under clause (9) of the first paragraph under the heading titled ‘‘Events of Default and Remedies’’ below in respect of the Issuer or the Company on or prior to the Escrow Longstop Date (the date of any such event being the ‘‘Escrow Termination Date’’), the Issuer will redeem all of the Notes (the ‘‘Special Mandatory Redemption’’) at a price (the ‘‘Special Mandatory Redemption Price’’) equal to (i) 100% of the aggregate principal amount of the Notes, if the Escrow Termination Date occurs prior to October 1, 2011, or (ii) 101% of the aggregate principal amount of the Notes, if the Escrow Termination Date occurs on or after October 1, 2011, in each case, plus accrued and unpaid interest and Additional Amounts, if any, to the Special Mandatory Redemption Date. Notice of the Special Mandatory Redemption will be delivered by the Issuer, no later than one Business Day following the Escrow Termination Date, to the Trustee and the Escrow Agent, and will provide that the Notes shall be redeemed on a date that is no later than the third Business Day after such notice is given by the Issuer in accordance with the terms of the Escrow Agreement (the ‘‘Special Mandatory Redemption Date’’). On the Special Mandatory Redemption Date, the Escrow Agent shall pay to the Principal Paying Agent for payment to each holder the Special Mandatory Redemption Price for such holder’s Notes and, concurrently with the payment to such holders, deliver any excess Escrowed Property (if any) to the Issuer. To secure the payment of the Special Mandatory Redemption Price, the Issuer will grant to the Trustee for the benefit of the Holders of the Notes a security interest in the Escrow Account. If the Special Mandatory Redemption Date is on or after an interest record date and on or before the related interest payment date, the accrued and unpaid interest, if any, will be paid to the Person in whose name the Note is registered at the close of business on such record date and no additional interest will be payable to holders whose Notes are subject to Special Mandatory Redemption by the Issuer. If at the time of such Special Mandatory Redemption, the Notes are listed on the Irish Stock Exchange and the rules of the Irish Stock Exchange so require, the Issuer will notify the Irish Stock Exchange that the Special Mandatory Redemption has occurred and any relevant details relating to such Special Mandatory Redemption.
184 No provisions of the Escrow Agreement (including, without limitation, those relating to the release of the Escrowed Property) and, to the extent such provisions relate to the Issuer’s obligation to redeem the Notes in a Special Mandatory Redemption, the Indenture, may be waived or modified in any manner materially adverse to the holders of the Notes without the written consent of holders of at least 90% in aggregate principal amount of Notes affected thereby.
Principal Paying Agent, Paying Agent and Registrar for the Notes The Issuer will maintain one or more paying agents (each, a ‘‘Paying Agent’’) for the Notes in each of (i) the City of London (the ‘‘Principal Paying Agent’’) and (ii) Dublin for so long as the Notes are listed on the Irish Stock Exchange and admitted for trading on the Global Exchange Market and the rules of the Irish Stock Exchange so require. The Issuer will ensure that it maintains a Paying Agent in a member state of the European Union that will not be obliged to withhold or deduct tax pursuant to the European Union Directive 2003/48/EC (as amended from time to time) or any other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings income, or any law implementing, or complying with or introduced in order to conform to, such directive. The initial Principal Paying Agent will be Deutsche Bank AG, London Branch with the initial Paying Agent in Ireland being Deutsche International Corporate Services (Ireland) Ltd. The Issuer will also maintain one or more registrars (each, a ‘‘Registrar’’) for so long as the Notes are listed on the Irish Stock Exchange and admitted for trading on the Global Exchange Market and the rules of the Irish Stock Exchange so require. The Issuer will also maintain a transfer agent (the ‘‘Transfer Agent’’). The initial Registrar will be Deutsche Bank Luxembourg S.A. The initial Transfer Agent will be Deutsche International Corporate Services (Ireland) Ltd. The Registrar will maintain a register reflecting ownership of Definitive Registered Notes (as defined herein) outstanding from time to time and will make payments on and facilitate transfer of Definitive Registered Notes on behalf of the Issuer and a copy of the Register will be sent to the Issuer on the Issue Date and after any change to the Register made by the Registrar. The Issuer shall use the information contained in the copy received from the Registrar to set up the register of notes (or update it as the case may be) to be held at its registered office. In the case of discrepancies between the Register and the register held by the Issuer at its registered office, the register held by the Issuer at its registered office will prevail for Luxembourg law purposes. The Issuer may change the Paying Agents, the Registrars or the Transfer Agent without prior notice to the holders of Notes. For so long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Global Exchange Market and the rules of the Irish Stock Exchange so require, the Issuer will file a notice of any change of Paying Agent, Registrar or Transfer Agent in the Companies Announcement Office of the Irish Stock Exchange.
Transfer and Exchange Notes sold within the United States to qualified institutional buyers pursuant to Rule 144A under the U.S. Securities Act (‘‘Rule 144A’’) will initially be represented by one or more global Notes in registered form without interest coupons attached (the ‘‘144A Global Notes’’), and Notes sold outside the United States pursuant to Regulation S under the U.S. Securities Act (‘‘Regulation S’’) will initially be represented by one or more global Notes in registered form without interest coupons attached (the ‘‘Reg S Global Notes’’ and, together with the 144A Global Notes, the ‘‘Global Notes’’). During the 40-day ‘‘distribution compliance period’’ (as such term is defined in Rule 902 of Regulation S), book-entry interests in the Reg S Global Notes may be transferred only to non-U.S. Persons under Regulation S or to persons whom the transferor reasonably believes are ‘‘qualified institutional buyers’’ within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or otherwise in accordance with applicable transfer restrictions and any applicable securities laws of any state of the United States or any other jurisdiction. The Notes will be subject to certain other restrictions on transfer and certification requirements, as described under ‘‘Notice to Investors.’’ Ownership of interests in the Global Notes (the ‘‘Book-Entry Interests’’) will be limited to persons that have accounts with Euroclear or Clearstream, Luxembourg or Persons that may hold interests through such participants. Ownership of interests in the Book-Entry Interests and transfers thereof will be subject to the restrictions on transfer and certification requirements summarized
185 below and described more fully under ‘‘Notice to Investors.’’ In addition, transfers of Book-Entry Interests between participants in Euroclear or Clearstream, Luxembourg will be effected by Euroclear or Clearstream, Luxembourg pursuant to customary procedures and subject to the applicable rules and procedures established by Euroclear or Clearstream, Luxembourg and their respective participants. Book-Entry Interests in the 144A Global Notes, or the ‘‘Rule 144A Book-Entry Interest,’’ may be transferred to a person who takes delivery in the form of Book-Entry Interests in the Reg S Global Note, as applicable, or the ‘‘Reg S Book-Entry Interests,’’ only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S. Any Book-Entry Interest that is transferred as described in the immediately preceding paragraphs will, upon transfer, cease to be a Book-Entry Interest in the Global Note from which it was transferred and will become a Book-Entry Interest in the Global Note to which it was transferred. Accordingly, from and after such transfer, it will become subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in the Global Note to which it was transferred. If Definitive Registered Notes are issued, they will be issued only in minimum denominations of e100,000 principal amount and integral multiples of e1,000 in excess thereof, upon receipt by the applicable Registrar of instructions relating thereto and any certificates and other documentation required by the Indenture. It is expected that such instructions will be based upon directions received by Euroclear or Clearstream, Luxembourg, as applicable, from the participant that owns the relevant Book-Entry Interests. Definitive Registered Notes issued in exchange for a Book-Entry Interest will, except as set forth in the Indenture or as otherwise determined by the Issuer in compliance with applicable law, be subject to, and will have a legend with respect to, the restrictions on transfer summarized below and described more fully under ‘‘Notice to Investors.’’ Subject to the restrictions on transfer referred to above, Notes issued as Definitive Registered Notes may be transferred or exchanged, in whole or in part, in minimum denominations of e100,000 in principal amount and integral multiples of e1,000 in excess thereof, to persons who take delivery thereof in the form of Definitive Registered Notes. In connection with any such transfer or exchange, the Indenture will require the transferring or exchanging holder to, among other things, furnish appropriate endorsements and transfer documents, furnish information regarding the account of the transferee at Euroclear or Clearstream, Luxembourg, where appropriate, furnish certain certificates and opinions and pay any Taxes in connection with such transfer or exchange. Any such transfer or exchange will be made without charge to the holder, other than any Taxes payable in connection with such transfer or exchange; provided that, if the Issuer or any Guarantor is a party to the transfer or exchange, the holder will not be required to pay such Taxes. Notwithstanding the foregoing, the Issuer is not required to register the transfer of any Definitive Registered Notes: (1) for a period of 15 days prior to any date fixed for the redemption of the Notes; (2) for a period of 15 days immediately prior to the date fixed for selection of Notes to be redeemed in part; (3) for a period of 15 days prior to the record date with respect to any interest payment date; or (4) which the holder has tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer. The Issuer, the Trustee and the Paying Agents will be entitled to treat the holder of a Note as the owner of it for all purposes.
Additional Amounts All payments made by or on behalf of the Issuer under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee will be made free and clear of and without withholding or deduction for, or on account of, any present or future Taxes unless the withholding or deduction of such Taxes is then required by law. If any deduction or withholding for, or on account of, any Taxes imposed or levied by or on behalf of (1) any jurisdiction in which the Issuer
186 or any Guarantor is then incorporated or organized, engaged in business for tax purposes or resident for tax purposes or any political subdivision thereof or therein or (2) any jurisdiction from or through which payment is made by or on behalf of the Issuer or any Guarantor (including the jurisdiction of any Paying Agent) or any political subdivision thereof or therein (each, a ‘‘Tax Jurisdiction’’) will at any time be required to be made from any payments made by or on behalf of the Issuer under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee, including payments of principal, redemption price, purchase price, interest or premium, the Issuer or the relevant Guarantor, as applicable, will pay such additional amounts (the ‘‘Additional Amounts’’) as may be necessary in order that the net amounts received in respect of such payments by each holder after such withholding, deduction or imposition (including any such withholding, deduction or imposition from such Additional Amounts) will equal the respective amounts that would have been received in respect of such payments in the absence of such withholding or deduction; provided, however, that no Additional Amounts will be payable with respect to: (1) any Taxes, to the extent such Taxes would not have been imposed but for the existence of any present or former connection between the holder or the beneficial owner of the Notes (or between a fiduciary, settlor, beneficiary, partner of, member or shareholder of, or possessor of a power over, the relevant holder, if the relevant holder is an estate, trust, nominee, partnership, limited liability company or corporation) and the relevant Tax Jurisdiction (including being or having been a citizen, resident, or national thereof or being or having been present or engaged in a trade or business therein or having or having had a permanent establishment therein), but excluding any connection arising merely from the holding of such Note, the enforcement of rights under such Note or under a Note Guarantee or the receipt of any payments in respect of such Note or a Note Guarantee; (2) any Taxes, to the extent such Taxes were imposed as a result of the presentation of a Note for payment (where presentation is required) more than 30 days after the relevant payment is first made available for payment to the holder (except to the extent that the holder would have been entitled to Additional Amounts had the Note been presented on the last day of such 30 day period); (3) any estate, inheritance, gift, sales, excise, transfer, personal property or similar Taxes; (4) any Taxes withheld, deducted or imposed on a payment to an individual that are required to be made pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of November 26 and 27, 2000 on the taxation of savings income, or any law implementing or complying with or introduced in order to conform to, such directive; (5) Taxes imposed on or with respect to a payment made to a holder or beneficial owner of Notes who would have been able to avoid such withholding or deduction by presenting the relevant Note to another Paying Agent in a member state of the European Union; (6) any Taxes payable other than by deduction or withholding from payments under, or with respect to, the Notes or with respect to any Note Guarantee; (7) any Taxes to the extent such Taxes are imposed or withheld by reason of the failure of the holder or beneficial owner of Notes, following the Issuer’s written request addressed to the holder or beneficial owner (and made at a time that would enable the holder or beneficial owner acting reasonably to comply with that request, and in all events, at least 30 days before any such withholding or deduction would be payable to the holder or beneficial owner), to comply with any certification, identification, information or other reporting requirements, whether required by statute, treaty, regulation or administrative practice of a Tax Jurisdiction, as a precondition to exemption from, or reduction in the rate of deduction or withholding of, Taxes imposed by the Tax Jurisdiction (including, without limitation, a certification that the holder or beneficial owner is not resident in the Tax Jurisdiction), but in each case, only to the extent the holder or beneficial owner is legally entitled to provide such certification or documentation); (8) any Taxes imposed on or with respect to any payment by the Issuer or Guarantor to the holder if such holder is a fiduciary or partnership or any person other than the sole
187 beneficial owner of such payment to the extent that Taxes would not have been imposed on such payment had such holder been the sole beneficial owner of such Note; or (9) any combination of items (1) through (8) above. In addition to the foregoing, the Issuer and the Guarantors will also pay and indemnify the holder for any present or future stamp, issue, registration, court or documentary taxes, or any other excise or property taxes, charges or similar levies (including penalties, interest and any other reasonable expenses related thereto) which are levied by any Tax Jurisdiction on the execution, delivery, issuance or registration of any of the Notes, the Indenture, any Note Guarantee or any other document referred to therein (other than a transfer of the Notes after this offering) or the receipt of any payments with respect thereto, or any such taxes, charges or similar levies imposed by any jurisdiction as a result of, or in connection with, the enforcement of any of the Notes or any Note Guarantee. If the Issuer or any Guarantor, as the case may be, becomes aware that it will be obligated to pay Additional Amounts with respect to any payment under or with respect to the Notes or any Note Guarantee, each of the Issuer or the relevant Guarantor, as the case may be, will deliver to the Trustee on a date that is at least 30 days prior to the date of that payment (unless the obligation to pay Additional Amounts arises less than 45 days prior to that payment date, in which case the Issuer or the relevant Guarantor shall notify the Trustee promptly thereafter) an Officer’s Certificate stating the fact that Additional Amounts will be payable and the amount estimated to be so payable. The Officer’s Certificate(s) must also set forth any other information reasonably necessary to enable the Paying Agents to pay Additional Amounts to holders on the relevant payment date. The Issuer and the relevant Guarantor will also provide the Trustee with documentation satisfactory to the Trustee evidencing payment of Additional Amounts. The Trustee shall be entitled to rely solely without further investigation or verification on the part of the Trustee on such Officer’s Certificate as conclusive proof that such payments are necessary. The Issuer or the relevant Guarantor will make all withholdings and deductions required by law and will timely remit the full amount deducted or withheld to the relevant Tax authority in accordance with applicable law. The Issuer or the relevant Guarantor will use its reasonable efforts to obtain Tax receipts from each Tax authority evidencing the payment of any Taxes so deducted or withheld. The Issuer or the relevant Guarantor will furnish to the Trustee (or to a holder upon written request), within a reasonable time after the date the payment of any Taxes so deducted or withheld is made, certified copies of Tax receipts evidencing payment by the Issuer or a Guarantor, as the case may be, or if, notwithstanding such entity’s efforts to obtain receipts, receipts are not obtained, other evidence of payments (reasonably satisfactory to the Trustee) by such entity. If requested by the Trustee, the Issuer or the Guarantors will provide to the Trustee such information as may be in the possession of the Issuer or the Guarantors (and not otherwise in the possession of the Trustee) to enable the Trustee to determine the amount of withholding taxes attributable to any particular holder, provided, however, that in no event shall the Issuer or the Guarantors be required to disclose any information that it reasonably deems to be confidential. Whenever in the Indenture or in this ‘‘Description of the Notes’’ there is mentioned, in any context, the payment of amounts based upon the principal amount of the Notes or of principal, interest or of any other amount payable under, or with respect to, any of the Notes or any Note Guarantee, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. The above obligations will survive any termination, defeasance or discharge of the Indenture, any transfer by a holder or beneficial owner of its Notes, and will apply, mutatis mutandis, to any jurisdiction in which any successor Person to the Issuer or any Guarantor is incorporated, engaged in business for tax purposes or resident for tax purposes or any jurisdiction from or through which such Person makes any payment on the Notes (or any Note Guarantee) and any department or political subdivision thereof or therein.
The Note Guarantees As of the Completion Date, the Notes will be initially guaranteed by the Initial Guarantors. The Note Guarantees will be joint and several obligations of the Guarantors. Each Note Guarantee will
188 be subordinated to the prior payment in full of all existing and future Senior Debt of the Guarantor that granted such Note Guarantee. See ‘‘—Subordination of the Note Guarantees.’’ The obligations of the Guarantors will be contractually limited under the applicable Note Guarantees to reflect limitations under applicable law with respect to maintenance of share capital, corporate benefit, financial assistance, fraudulent conveyance and other legal restrictions applicable to the Guarantors and their respective shareholders, directors and general partners. For a description of such limitations, please see ‘‘Limitations on Validity and Enforceability of the Guarantees and Security Interests’’.
Release of the Note Guarantees The Note Guarantees will be released: (1) in connection with any sale, disposition, exchange or other transfer of all or substantially all of the assets of that Guarantor (including by way of merger, consolidation, amalgamation or combination) to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale, disposition exchange or other transfer does not violate the ‘‘Asset Sale’’ provisions of the Indenture; (2) in connection with any sale, disposition, exchange or other transfer of Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary, if the sale, disposition exchange or other transfer does not violate the ‘‘Asset Sale’’ provisions of the Indenture and the Guarantor ceases to be a Restricted Subsidiary as a result of the sale or other disposition; (3) if the Issuer designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture; (4) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture as provided below under the captions ‘‘—Legal Defeasance and Covenant Defeasance’’ and ‘‘—Satisfaction and Discharge;’’ (5) in connection with certain enforcement actions taken by the creditors under certain of our secured Indebtedness in accordance with the Intercreditor Agreement or any Additional Intercreditor Agreement; (6) upon the full and final payment and performance of all Obligations of the Issuer and the Guarantors under the Indenture and the Notes; (7) in the case of any Restricted Subsidiary that after the Issue Date is required to guarantee the Notes pursuant to the covenant described under ‘‘—Certain Covenants—Limitation on Issuances of Guarantees of Indebtedness,’’ upon the release or discharge of the guarantee of Indebtedness by such Restricted Subsidiary which resulted in the obligation to guarantee such Notes; or (8) as described under ‘‘—Amendment, Supplement and Waiver.’’ No release and discharge of a Note Guarantee will be effective against the Trustee, the Security Agent or the holders of Notes until the Issuer shall have delivered to the Trustee and the Security Agent an Officer’s Certificate stating that all conditions precedent provided for in the Indenture and the Security Documents relating to such release and discharge have been satisfied and that such release and discharge is authorized and permitted under the Indenture and the Security Documents and the Trustee shall be entitled to rely on such Officer’s Certificate absolutely and without further verification or inquiry. At the request and expense of the Issuer, the Trustee, or the Security Agent, as applicable, will execute any documents reasonably required in order to evidence or effect such release, discharge and termination in respect of such Note Guarantee. Neither the Issuer, the Trustee, the Security Agent nor any Guarantor will be required to make a notation on the Notes to reflect any such release, termination or discharge.
Subordination of the Note Guarantees Each Note Guarantee is a senior subordinated Note Guarantee, which means that each such Note Guarantee ranks behind, and is expressly subordinated to, all the existing and future Senior
189 Debt of the relevant Guarantor, including any obligations owed by the relevant Guarantor under the Senior Credit Agreement. The ability to take enforcement action against the relevant Guarantors under their Note Guarantees is subject to significant restrictions imposed by the Intercreditor Agreement and the terms of the Note Guarantees, and potentially any Additional Intercreditor Agreement entered into after the Issue Date. For a description of the restrictions imposed by the Intercreditor Agreement, please see ‘‘Description of other Indebtedness—Intercreditor Agreement.’’
Security General As of the Completion Date, the Notes and the Note Guarantees will be secured by: (1) security interests granted on a first-priority basis over: (a) the Capital Stock in the Issuer held by Holdco; (b) the bank accounts of Holdco located in Luxembourg; and (c) intercompany loans and other receivables of Holdco, if any (together, the ‘‘Completion Date Notes First Priority Collateral’’); and (2) security interests granted on a second-priority basis over: (a) all of the issued Capital Stock in the Company and Opodo; (b) the bank accounts of the Issuer and the Company located in Luxembourg; (c) intercompany loans and other receivables of the Issuer and the Company, if any; (d) instruments issued by the Company and held by the Issuer, if any; (e) the receivables due under the Lyparis Structural Back to Back Loan; and (f) the financial securities accounts opened in the name of the Issuer and on which are credited all financial securities (titres financiers) issued by Lyeurope and held by the Issuer (nantissement de compte de titres financiers) (together, with the Completion Date Notes First Priority Collateral, the ‘‘Initial Collateral’’). Any additional security interests that may in the future be pledged to secure obligations under the Notes, the Note Guarantees and the Indenture would also constitute Collateral. This includes security interests to be granted no later than 30 days after the Completion Date (the ‘‘Post-Completion Date’’) comprising: (1) security interests granted on a first-priority basis over: (a) the shares of Capital Stock in the Issuer held by each of Axeurope S.A. and Luxgoal S.a` r.l.; and (b) all of the issued Capital Stock in the GP (together, the ‘‘Post-Completion Date Notes First Priority Collateral’’ and, together, with the Completion Date Notes First Priority Collateral, the ‘‘Notes First Priority Collateral’’); and (2) security interests granted on a second-priority basis over: (a) all of the issued Capital Stock in eDreams Inc. held by Luxgoal S.a` r.l.; (b) the bank accounts of Travellink AB; (c) substantially all of the assets of Opodo and all the assets (other than any shareholdings) of eDreams Inc.; (d) intercompany receivables and trade receivables of Travellink AB; (e) intellectual property rights and trademarks of Travellink AB; (f) the financial securities accounts opened in the name of Opodo and on which are credited all financial securities (titres financiers) issued by Lyeurope and Opodo S.A.S. and held by Opodo (nantissement de compte de titres financiers); and (g) all of the issued Capital Stock in Vacaciones eDreams SL;
190 (together, with the Post-Completion Date Notes First Priority Collateral, the ‘‘Post-Completion Collateral’’). Each of the Issuer and the Guarantors shall take such necessary actions, and the Issuer shall cause its Restricted Subsidiaries to take such necessary actions, so that the Post-Completion Collateral shall be fully effective no later than the Post-Completion Date. Subject to certain conditions, including compliance with the covenants described under ‘‘—Certain Covenants—Impairment of Security Interest’’ and ‘‘—Certain Covenants—Liens,’’ each of Holdco, the Luxembourg Security Providers and the Issuer is permitted to pledge the Collateral in connection with future issuances of its Indebtedness, including any Additional Notes, or Indebtedness of its Restricted Subsidiaries, in each case permitted under the Indenture and on terms consistent with the relative priority of such Indebtedness. No appraisals of any Collateral have been prepared by or on behalf of the Issuer, the Security Agent or the Trustee in connection with the issuance of the Notes and the Note Guarantees. By its nature, some or all of the Collateral will be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the Collateral will be able to be sold in a short period of time or at all.
Indirect Security Interests Certain assets of Lyparis and Lyeurope will be pledged on a first priority basis to secure the obligations under the Senior Credit Agreement. In addition, those assets will also be pledged on a second priority basis to secure the obligations of Lyparis under the Lyparis Structural Back to Back Loan and the obligations of Lyeurope under its guarantee of the Lyparis Structural Back to Back Loan (collectively, the ‘‘Lyparis Structural Back to Back Loan Obligations’’). Hence those assets will be pledged indirectly as security for the Notes. These security interests are to be granted no later than the Post-Completion Date, and comprise the following: (1) security interests granted by Lyparis as a guarantee of its own obligations towards the Issuer under the Lyparis Structural Back to Back Loan over: (a) all of the issued Capital Stock in eDreams Inc. held by Lyparis and all of the issued Capital Stock in Travellink AB and Opodo Italia S.r.l.; (b) the financial securities accounts opened in the name of Lyparis and on which are credited all financial securities (titres financiers) issued by Go Voyages and held by Lyparis (nantissement de compte de titres financiers); (c) the bank accounts of Lyparis located in France; (d) intercompany receivables (providing for automatic release on capitalization of receivables) of Lyparis; and (2) security interests granted by Lyeurope as a guarantee of the obligations of Lyparis towards the Issuer under the Lyparis Structural Back to Back Loan over: (a) the financial securities accounts opened in the name of Lyeurope and on which are credited all financial securities (titres financiers) issued by Lyparis and held by Lyeurope (nantissement de compte de titres financiers); (b) the bank accounts of Lyeurope located in France; and (c) intercompany receivables (providing for automatic release on capitalization of receivables) of Lyeurope (the security interests described in (1) and (2) above, together, the ‘‘Lyparis Structural Back to Back Loan Collateral’’). Although the Lyparis Structural Back to Back Loan Collateral will not directly secure the obligations under the Notes, the Note Guarantees and the Indenture, the Security Agent and the holders of the Notes will hold indirect security interests in such collateral under French Law. Such security interests may be enforced, pursuant to the terms of the Intercreditor Agreement, if and when the Security Agent or the holders of the Notes appropriate the Lyparis Structural Back to Back Loan in accordance with either Article 2348 or 2365 of the French Civil Code (Code civil), Article 2347 of the French Civil Code (Code civil) or article L. 521-3 of the French Commercial Code (Code de commerce).
191 Each of the Issuer and the Guarantors shall take such necessary actions, and the Issuer shall cause its Restricted Subsidiaries to take such necessary actions, so that the Lyparis Structural Back to Back Loan Collateral shall be fully effective no later than the Post-Completion Date.
Security Documents The Issuer, the Guarantors, certain of their respective Affiliates and the Security Agent will, as applicable, enter into the Security Documents, which define the terms of security interests that secure the Notes and the Note Guarantees, and the documents which define the terms of the security interests that secure the Lyparis Structural Back to Back Loan. Subject to the terms of, and limitations under, the Security Documents, the security interests that secure the Notes and the Notes Guarantees will secure the payment and performance when due of all of the obligations of the Issuer and the Guarantors under the Notes, the Indenture, the Note Guarantees and the Security Documents, and the security interests that secure the Lyparis Structural Back to Back Loan will secure the payment and performance when due of all of the obligations of Lyparis under the Lyparis Structural Back to Back Loan and the Security Documents. The Indenture will provide that the Security Documents may be enforced only upon an acceleration of the amounts due under the Notes following an Event of Default. The Lyparis Structural Back to Back Loan will provide for a corresponding acceleration event. The Security Agent will enter into the Security Documents securing the Notes and the Note Guarantees in its own name for the benefit of the Trustee and the holders of the Notes. In certain jurisdictions, due to the laws and other jurisprudence governing the creation and perfection of security interests, the relevant Security Documents will provide for the creation of ‘‘parallel debt’’ obligations in favor of the Security Agent, and the security interests in such jurisdictions will secure the parallel debt (and not the Indebtedness under the Notes, the Note Guarantees and the other secured obligations). The parallel debt construct has not been tested under law in certain of these jurisdictions. See ‘‘Risk Factors—Risks Related to our Indebtedness and the Notes—The security interests in the Collateral will be granted to the Security Agent rather than directly to the holders of the Notes. The ability of the Security Agent to enforce certain of the collateral may be restricted by local law.’’ Neither the Trustee nor the holders of the Notes may, individually or collectively, take any direct action to enforce any rights in their favor under the Security Documents. The holders of the Notes may only take action through the Security Agent. Subject to the terms of the Indenture, the Senior Credit Agreement, the Security Documents, the Intercreditor Agreement and any Additional Intercreditor Agreement, the Issuer and the Guarantors will have the right to remain in possession and retain exclusive control of the Collateral securing the Notes and the Note Guarantees, to freely operate the property and assets constituting Collateral and to collect, invest and dispose of any income therefrom. In addition, Lyeurope and Lyparis will have similar rights to remain in possession and retain exclusive control of and to operate freely the property and assets constituting the Lyparis Structural Back to Back Loan Collateral.
Release The Issuer, the Guarantors and the Luxembourg Security Providers will be entitled to the release of property and other assets constituting Collateral from the Liens securing the Notes and the Note Guarantees under any one or more of the following circumstances: (1) upon the full and final payment and performance of all obligations of the Issuer under the Indenture and the Notes; (2) upon legal defeasance, covenant defeasance or satisfaction and discharge of the notes as provided below under the captions ‘‘—Legal Defeasance and Covenant Defeasance’’ and ‘‘—Satisfaction and Discharge’’; (3) as described under ‘‘—Amendment, Supplement and Waiver’’ and ‘‘—Liens’’; (4) as provided for under the Intercreditor Agreement, including in connection with an enforcement sale; (5) in connection with any sale or other disposition of the property and assets that does not violate the ‘‘Asset Sale’’ provisions of the Indenture;
192 (6) in the case of a Guarantor that is released from its Note Guarantee pursuant to the terms of the Indenture, the release of the property and assets, and Capital Stock, of such Guarantor; (7) if the Issuer designates any Restricted Subsidiary to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture, the release of the property and assets of such Restricted Subsidiary; or (8) in respect of the shares of Capital Stock of the Issuer, in connection with (i) a consolidation or merger of the Issuer with or into another Person that complies with the covenant described under ‘‘—Merger, Consolidation or Sale of Assets’’ or (ii) a sale of shares of Capital Stock of the Issuer or the GP to a Person in compliance with the covenants described under ‘‘—Limitation on Sale of Equity Interests’’; provided that, in the case of each of clauses (i) and (ii), (x) the covenant described under ‘‘—Change of Control’’ is complied with, if applicable, and (y) other than in the case of a sale of Capital Stock in connection with a Public Equity Offering, Liens securing the Notes and the Notes Guarantees are immediately regranted by such Person on the same priority basis as the released Liens upon consummation of the consolidation, merger or sale. The Indenture will provide that any release of a Lien on Collateral shall be evidenced by the delivery by the Issuer to the Trustee of an Officer’s Certificate of the Issuer, and that the Trustee and the Security Agent shall acknowledge and confirm such release upon delivery of such Officer’s Certificate.
Intercreditor Agreement To establish the relative rights of certain creditors of the Issuer under its financing arrangements, including, without limitation, the Notes, the Senior Credit Agreement and certain Hedging Obligations, the Issuer, the agent under the Senior Credit Agreement (the ‘‘Senior Facilities Agent’’) and the Security Agent, among others, entered into the Intercreditor Agreement. Please see ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’ Concurrently with the closing of the offering of the Notes on the Issue Date, the Trustee will become party to the Intercreditor Agreement. Pursuant to the terms of the Intercreditor Agreement, liabilities in respect of obligations under the Senior Credit Agreement and certain Hedging Obligations will receive priority to obligations under the Notes and Note Guarantees with respect to any proceeds received upon any enforcement over the Collateral (other than the Notes First Priority Collateral, of which the Notes and the Note Guarantees will have first priority). Any proceeds received upon any enforcement over the Collateral (other than the Notes First Priority Collateral), after all obligations under the Senior Credit Agreement and liabilities of the Senior Facilities Agent and certain fees and expenses of the Trustee have been repaid, and such Hedging Obligations have been discharged from such recoveries, will be applied pro rata in repayment of all obligations under the Indenture and the Notes and any other Indebtedness of the Issuer and the Guarantors permitted to be incurred and secured by the Collateral pursuant to the Indenture and the Intercreditor Agreement.
Optional Redemption At any time prior to May 1, 2014, the Issuer may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 110.375% of the principal amount of the Notes redeemed, in each case, plus accrued and unpaid interest and Additional Amounts, if any, to the date of redemption (subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date), with the net cash proceeds of an Equity Offering of (i) the Issuer or (ii) any direct or indirect parent entity of the Issuer to the extent the proceeds from such Equity Offering are contributed to the Issuer’s common equity capital or are paid to the Issuer as consideration for the issuance of ordinary shares of the Issuer; provided that: (1) at least 65% of the aggregate principal amount of the Notes (calculated after giving effect to any issuance of Additional Notes but excluding Notes held by the Issuer and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and
193 (2) the redemption occurs within 90 days of the date of the closing of such Equity Offering. At any time prior to May 1, 2014, the Issuer may on any one or more occasions redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 100% of the principal amount of the Notes redeemed, plus the Applicable Premium as of, and accrued and unpaid interest and Additional Amounts, if any, to the date of redemption, subject to the rights of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date. Except pursuant to the preceding two paragraphs and except pursuant to ‘‘—Redemption for Changes in Taxes’’ or ‘‘—Escrow of Proceeds; Special Mandatory Redemption,’’ the Notes will not be redeemable at the Issuer’s option prior to May 1, 2014. On or after May 1, 2014, the Issuer may on any one or more occasions redeem all or a part of Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes redeemed, to the applicable date of redemption, if redeemed during the twelve-month period beginning on May 1 of the years indicated below, subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date:
Redemption Year Price 2014 ...... 107.781% 2015 ...... 105.188% 2016 ...... 102.594% 2017 and thereafter ...... 100.00% Unless the Issuer defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date. Any redemption or notice may, in the Issuer’s discretion, be subject to the satisfaction of one or more conditions precedent.
Redemption for Changes in Taxes The Issuer may redeem the Notes, in whole but not in part, at its discretion at any time upon giving not less than 30 nor more than 60 days’ prior notice to the holders of the Notes (which notice will be irrevocable and given in accordance with the procedures described in ‘‘—Selection and Notice’’), at a redemption price equal to 100% of the aggregate principal amount thereof, together with accrued and unpaid interest, if any, to the date fixed by the Issuer for redemption (a ‘‘Tax Redemption Date’’) and all Additional Amounts (if any) then due and which will become due on the Tax Redemption Date as a result of the redemption or otherwise (subject to the right of holders of the Notes on the relevant record date to receive interest due on the relevant interest payment date and Additional Amounts (if any) in respect thereof), if on the next date on which any amount would be payable in respect of the Notes or any Note Guarantee, the Issuer under or with respect to the Notes or any of the Guarantors with respect to any Note Guarantee, as the case may be, is or would be required to pay Additional Amounts which are more than a de minimis amount, and the Issuer cannot avoid any such payment obligation by taking reasonable measures available (including, for the avoidance of doubt, the appointment of a new Paying Agent under the heading ‘‘—Paying Agent and Registrar for the Notes’’ or, in respect of a payment under a Note Guarantee, payment through another Guarantor or the Issuer), and the requirement arises as a result of: (1) any amendment to, or change in, the laws or any regulations or rulings promulgated thereunder of a relevant Tax Jurisdiction which change or amendment becomes effective on or after the date of this Offering Circular (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the date of this Offering Circular, such later date) and which was not publicly and formally announced or publicly and formally proposed, in substantially the form as enacted, prior to the date of this Offering Circular; or (2) any amendment to, or change in, an official written interpretation or application of such laws, regulations or rulings (including by virtue of a holding, judgment, order by a court of competent jurisdiction or a change in published administrative practice) which
194 amendment or change becomes effective on or after the date of this Offering Circular (or, if the applicable Tax Jurisdiction became a Tax Jurisdiction on a date after the date of this Offering Circular, such later date) and which was not publicly and formally announced or publicly and formally proposed, in substantially the form as enacted, prior to the date of this Offering Circular (each of the foregoing clauses (1) and (2), a ‘‘Change in Tax Law’’). The Issuer will not give any such notice of redemption earlier than 60 days prior to the earliest date on which the Issuer would be obligated to make such payment or withholding if a payment in respect of the Notes were then due, and the obligation to pay Additional Amounts must be in effect at the time such notice is given. Prior to the publication or, where relevant, mailing of any notice of redemption of the Notes pursuant to the foregoing, the Issuer will deliver to the Trustee an opinion of independent tax counsel (the choice of such counsel to be subject to the prior written approval of the Trustee (such approval not to be unreasonably withheld)) to the effect that there has been such Change in Tax Law which would entitle the Issuer to redeem the Notes hereunder. In addition, before the Issuer publishes or mails notice of redemption of the Notes as described above, it will deliver to the Trustee an Officer’s Certificate to the effect that it cannot avoid its or a Guarantor’s obligation to pay Additional Amounts by the Issuer taking reasonable measures available to it. The Trustee will accept and shall be entitled to rely on such Officer’s Certificate and opinion of counsel as sufficient evidence of the existence and satisfaction of the conditions precedent as described above, in which event it will be conclusive and binding on the holders. The foregoing provisions shall apply (a) to a Guarantor only after such time as such Guarantor is obligated to make at least one payment on the Notes and (b) mutatis mutandis to any successor Person, after such successor Person becomes a party to the Indenture, with respect to a Change in Tax Law occurring after the time such successor Person becomes a party to the Indenture. For the avoidance of doubt, the implementation of European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council meeting of 26 and 27 November 2000 on the taxation of savings income or any law implementing or complying with or introduced in order to conform to, such directive will not be a change or amendment for such purposes.
Mandatory Redemption Except pursuant to ‘‘—Escrow of Proceeds; Special Mandatory Redemption,’’ the Issuer is not required to make mandatory redemption payments or sinking fund payments with respect to the Notes.
Repurchase at the Option of Holders Change of Control If a Change of Control occurs, each holder of Notes will have the right to require the Issuer to repurchase all or any part (equal to e100,000 or in integral multiples of e1,000 in excess thereof) of that holder’s Notes pursuant to a Change of Control Offer on the terms set forth in the Indenture. In the Change of Control Offer, the Issuer will offer a payment in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and Additional Amounts, if any, on the Notes repurchased to the date of purchase (the ‘‘Change of Control Payment’’), subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date. Unless the Issuer has unconditionally exercised its right to redeem all the Notes of a series as described under ‘‘—Optional Redemption’’ or all conditions to such redemption have been satisfied or waived, within 30 days following any Change of Control, the Issuer will mail a notice to each holder of the Notes at such holder’s registered address or otherwise deliver a notice in accordance with the procedures described under ‘‘—Selection and Notice,’’ with a copy to the Trustee, stating that a Change of Control Offer is being made and offering to repurchase Notes on the date (the ‘‘Change of Control Payment Date’’) specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed or delivered, pursuant to the procedures required by the Indenture and described in such notice. The Issuer will comply, to the extent applicable, with the requirements of Rule 14e-1 under the U.S. Securities Exchange Act of 1934, as amended (the ‘‘U.S. Exchange Act’’) and any other applicable securities laws and regulations to the extent those laws and regulations are
195 applicable in connection with the repurchase of the Notes as a result of a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the Indenture, the Issuer will comply with any applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of such compliance. On the Change of Control Payment Date, the Issuer will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officer’s Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuer. The Paying Agent will promptly mail (or cause to be delivered) to each holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee (or its authenticating agent) will promptly authenticate and mail (or cause to be transferred by book-entry) to each holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any. The Issuer will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The provisions described above that require the Issuer to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture will not contain provisions that permit the holders of the Notes to require that the Issuer repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. The existence of a holder of the Notes’ right to require the Issuer to repurchase such holder’s Notes upon the occurrence of a Change of Control may deter a third party from seeking to acquire the Issuer or its Subsidiaries in a transaction that would constitute a Change of Control. The Issuer will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuer and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) a notice of redemption has been given pursuant to the Indenture as described above under the caption ‘‘—Optional Redemption,’’ unless and until there is a default in payment of the applicable redemption price. Notwithstanding anything to the contrary contained herein, a Change of Control Offer may be made in advance of a Change of Control, conditioned upon the consummation of such Change of Control, if a definitive agreement is in place for the Change of Control at the time the Change of Control Offer is made. The ability of the Issuer to repurchase Notes pursuant to a Change of Control Offer may be limited by a number of factors. The occurrence of certain of the events that constitute a Change of Control would constitute a mandatory prepayment event and/or a default due to a breach of undertaking under the Senior Credit Agreement. In addition, certain events that may constitute a change of control under the Senior Credit Agreement may not constitute a Change of Control under the Indenture. The future Indebtedness of the Issuer and its Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of the Notes of their right to require the Issuer to repurchase the Notes could cause a default under or require a repurchase of such Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Issuer. Finally, the ability of the Issuer to pay cash to the holders of the Notes upon a repurchase may be limited by its then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make the required purchase of the Notes. See ‘‘Risk Factors—Risks Related to Our Structure—We may not have the ability to raise the funds necessary to finance an offer to repurchase the Notes upon the occurrence of certain events constituting a change of control.’’ The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of ‘‘all or substantially all’’ of the properties or
196 assets of the Issuer and its Restricted Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase ‘‘substantially all,’’ there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Issuer to repurchase its Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of the Issuer and its Restricted Subsidiaries taken as a whole to another Person or group may be uncertain. In addition, you should note that case law suggests that, in the event that incumbent directors are replaced as a result of a contested election, issuers may nevertheless avoid triggering a change of control under a clause similar to clause (4) of the definition of ‘‘Change of Control’’ if the outgoing directors were to approve the new directors for the purpose of such change of control clause. The provisions under the Indenture relating to the Issuer’s obligation to make an offer to repurchase the Notes as a result of a Change of Control may be waived or modified with the consent of the holders of a majority in principal amount of the Notes prior to the occurrence of the Change of Control. If and for so long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Global Exchange Market and the rules of the Irish Stock Exchange so require, the Issuer will file a public announcement with respect to the results of any Change of Control Offer with the Companies Announcement Office of the Irish Stock Exchange. For Notes that are represented by global certificates held on behalf of Euroclear and Clearstream, Luxembourg notices may be given by delivery of the relevant notices to Euroclear and Clearstream, Luxembourg for communication to entitled account holders in substitution of the aforesaid publication and posting mechanics.
Asset Sales The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, consummate an Asset Sale unless: (1) the Issuer (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and (2) at least 75% of the consideration received in the Asset Sale by the Issuer or such Restricted Subsidiary is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following will be deemed to be cash: (a) any liabilities, as recorded on the balance sheet of the Issuer or any Restricted Subsidiary (other than contingent liabilities and subordinated liabilities), that are assumed by the transferee of any such assets and as a result of which the Issuer and its Restricted Subsidiaries are no longer obligated with respect to such liabilities or are indemnified against further liabilities; (b) any securities, notes or other obligations received by the Issuer or any such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into cash or Cash Equivalents within 90 days following the closing of the Asset Sale, to the extent of the cash or Cash Equivalents received in that conversion; (c) any Capital Stock or assets of the kind referred to in clauses 1(b) or (d) of the next paragraph of this covenant; (d) any Designated Non-Cash Consideration received by the Issuer or any Restricted Subsidiary in such Asset Sales having an aggregate Fair Market Value, taken together with all other Designated Non-Cash Consideration received pursuant to this clause (d) that is at that time outstanding, not to exceed e10 million at the time of the receipt of such Designated Non-Cash Consideration (with the Fair Market Value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value); and (e) Indebtedness (other than Subordinated Indebtedness) of any Restricted Subsidiary that is no longer a Restricted Subsidiary as a result of such Asset Sale, to the
197 extent that the Issuer and each other Restricted Subsidiary are released from any guarantee of such Indebtedness in connection with such Asset Sale. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Issuer (or the applicable Restricted Subsidiary, as the case may be) may: (1) apply such Net Proceeds (at the option of the Issuer or Restricted Subsidiary): (a) to permanently prepay, repay, purchase or redeem (i) Senior Debt or (ii) Senior Secured Indebtedness and in each of (i) and (ii), if the Indebtedness repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto, (b) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary, provided, however, that if the assets sold or transferred in such Asset Sale constituted Collateral or Lyparis Structural Back to Back Collateral or constituted all or substantially all of the assets of a Restricted Subsidiary whose Capital Stock had been pledged as Collateral or Lyparis Structural Back to Back Collateral, the Issuer shall pledge or shall cause the applicable Restricted Subsidiary to pledge any acquired Capital Stock or assets referred to in this clause (b) to secure the Notes and Note Guarantees or the Lyparis Structural Back to Back Obligations, as applicable, on the same priority basis as the sold or transferred assets; (c) to make a capital expenditure; or (d) to acquire other assets (other than Capital Stock) not classified as current assets under IFRS that are used or useful in a Permitted Business; or (2) enter into a binding commitment to apply the Net Proceeds pursuant to clause (b) or (c) of paragraph (1) above; provided that such binding commitment shall be treated as a permitted application of the Net Proceeds from the date of such commitment until the earlier of (x) the date on which such acquisition or expenditure is consummated, and (y) the 90th day following the expiration of the aforementioned 365 day period. Pending the final application of any Net Proceeds, the Issuer (or the applicable Restricted Subsidiary) may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this covenant will constitute ‘‘Excess Proceeds.’’ When the aggregate amount of Excess Proceeds exceeds e15 million, within ten Business Days thereof, the Issuer will make an offer (an ‘‘Asset Sale Offer’’) to all holders of Notes and, to the extent the Issuer elects, to all holders of other Indebtedness that does not constitute Subordinated Indebtedness, to purchase, prepay or redeem the maximum principal amount of Notes and such other Pari Passu Indebtedness (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith) that may be purchased, prepaid or redeemed out of the Excess Proceeds. The offer price for the Notes in any Asset Sale Offer will be equal to 100% of the principal amount, plus accrued and unpaid interest and Additional Amounts, if any, to the date of purchase, prepayment or redemption, subject to the rights of holders of Notes on the relevant record date to receive interest due on the relevant interest payment date, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Issuer may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other Pari Passu Indebtedness tendered into (or to be prepaid or redeemed in connection with) such Asset Sale Offer exceeds the amount of Excess Proceeds or if the aggregate amount of Notes tendered pursuant to an Asset Sale Offer exceeds the amount of the Net Proceeds so applied, the Trustee will select the Notes and such other Pari Passu Indebtedness, if applicable, to be purchased on a pro rata basis (or in the manner described under ‘‘—Selection and Notice’’), based on the amounts tendered or required to be prepaid or redeemed. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.
198 To the extent that any portion of Net Proceeds payable in respect of the Notes is denominated in a currency other than euros, the amount thereof payable in respect of such Notes shall not exceed the net amount of funds in euros that is actually received by the Issuer upon converting such portion of the Net Proceeds into euros. The Issuer will comply, to the extent applicable, with the requirements of Rule 14e-1 under the U.S. Exchange Act and any other applicable securities laws and regulations to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to a Change of Control Offer or an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control or Asset Sale provisions of the Indenture, the Issuer will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue of such compliance. The Senior Credit Agreement provides that certain Asset Sale events would constitute a mandatory prepayment event under this agreement. Any future credit agreements or other agreements relating to Senior Debt to which the Issuer becomes a party may contain similar restrictions and provisions.
Selection and Notice If less than all of the Notes are to be redeemed at any time, the Trustee (or the Registrar, as applicable) will select Notes for redemption on a pro rata basis (or, in the case of Notes issued in global form as discussed under ‘‘—Book-Entry, Delivery and Form,’’ based on a method that most nearly approximates a pro rata selection as the Trustee or the Registrar, as applicable, deems fair and appropriate), unless otherwise required by law or applicable stock exchange or depository requirements. Neither the Trustee nor the Registrar shall be liable for selections made by it in accordance with this paragraph. No Notes of e100,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of the Indenture. If any Note is to be redeemed in part only, the notice of redemption that relates to that Note will state the portion of the principal amount of that Note that is to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the holder of Notes upon cancellation of the original Note. In the case of a Global Note, an appropriate notation will be made on such Note to decrease the principal amount thereof to an amount equal to the unredeemed portion thereof. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of Notes called for redemption. For Notes which are represented by global certificates held on behalf of Euroclear or Clearstream, Luxembourg, notices may be given by delivery of the relevant notices to Euroclear or Clearstream, Luxembourg for communication to entitled account holders in substitution for the aforesaid mailing. So long as any Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Global Exchange Market of the Irish Stock Exchange and the rules of the Irish Stock Exchange so require, any such notice to the holders of the relevant Notes shall also be filed in the Companies Announcement Office of the Irish Stock Exchange and, in connection with any redemption, the Issuer will notify the Irish Stock Exchange of any change in the principal amount of Notes outstanding.
Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, ‘‘incur’’) any Indebtedness (including Acquired Debt), and the Issuer will not, and will not cause or permit any of its Restricted
199 Subsidiaries to, issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however: (a) that the Issuer may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Restricted Subsidiaries may incur Indebtedness (including Acquired Debt), issue Disqualified Stock or issue preferred stock, if the Fixed Charge Coverage Ratio for the Issuer’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or such preferred stock is issued, as the case may be, would have been at least 2.00 to 1.00, in each case determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or the preferred stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period; and (b) if the Indebtedness to be incurred is Senior Secured Indebtedness, the Issuer and the Restricted Subsidiaries may incur such Senior Secured Indebtedness if the Consolidated Senior Secured Leverage Ratio for the Issuer’s most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Senior Secured Indebtedness is incurred is less than 3.50 to 1.00 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if such additional Senior Secured Indebtedness had been incurred at the beginning of such four-quarter period. The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, ‘‘Permitted Debt’’): (1) the incurrence by the Issuer and its Restricted Subsidiaries of Indebtedness under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) not to exceed e530 million, plus, in the case of any refinancing of any Indebtedness permitted under this clause (1) or any portion thereof, the aggregate amount of fees, underwriting discounts, premiums and other costs and expenses incurred in connection with such refinancing, less the aggregate amount of all Net Proceeds of Asset Sales applied by the Issuer or any of its Restricted Subsidiaries since the Issue Date to permanently repay any term Indebtedness under a Credit Facility or to repay an revolving credit Indebtedness under a Credit Facility and effect a corresponding permanent commitment reduction thereunder pursuant to the covenant described above under the caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’; (2) (a) the incurrence by the Issuer and the Guarantors of Indebtedness represented by the Notes (other than Additional Notes), the related Note Guarantees (including any future Note Guarantees) and any ‘‘parallel debt’’ obligations created in favor of the Security Agent under the Intercreditor Agreement or Security Documents, (b) any Indebtedness (other than Indebtedness described in clauses (1), (5) and (6) of this paragraph) outstanding on the Issue Date and which remains outstanding after giving effect to the use of proceeds of the Notes and (c) any loan or other instrument contributing the proceeds of the Notes; (3) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property (real or personal), plant or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) used in the business of the Issuer or any of its Restricted Subsidiaries, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (3), not to exceed the greater of e7 million and 0.5% of Total Assets at any time outstanding; (5) the incurrence by the Issuer or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany
200 Indebtedness) that was permitted by the Indenture to be incurred under (a) the first paragraph of this covenant or (b) clauses (2), (4) or (15) of this paragraph; (5) the incurrence by the Issuer or any Restricted Subsidiary of intercompany Indebtedness between or among the Issuer or any Restricted Subsidiary; provided that: (a) if the Issuer or any Guarantor is the obligor on such Indebtedness and the payee is not the Issuer or a Guarantor, such Indebtedness must be unsecured and expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes, in the case of the Issuer, or the Note Guarantee, in the case of a Guarantor; and (b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Issuer or a Restricted Subsidiary and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Issuer or a Restricted Subsidiary, will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Issuer or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (5); (6) the issuance by any Restricted Subsidiary to the Issuer or to any of its Restricted Subsidiaries of preferred stock; provided that: (a) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than the Issuer or a Restricted Subsidiary; and (b) any sale or other transfer of any such preferred stock to a Person that is not either the Issuer or a Restricted Subsidiary, will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (6); (7) the incurrence by the Issuer or any Restricted Subsidiary of Hedging Obligations for bona fide hedging purposes of the Issuer and its Restricted Subsidiaries and not for speculative purposes; (8) the guarantee by the Issuer or any Restricted Subsidiary (subject to compliance with the covenant described below under the caption ‘‘—Limitation on Issuances of Guarantees of Indebtedness’’) of Indebtedness of the Issuer or any Restricted Subsidiary to the extent that the guaranteed Indebtedness was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes or a Note Guarantee, then the guarantee must be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; (9) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, captive insurance companies, bankers’ acceptances, performance and surety bonds in the ordinary course of business and consistent with industry practice; (10) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five Business Days of such incurrence; (11) the incurrence by the Issuer and its Restricted Subsidiaries of Indebtedness arising from agreements of the Issuer or a Restricted Subsidiary providing for customary indemnification, obligations in respect of earnouts or other adjustments of purchase price or, in each case, similar obligations, in each case, incurred or assumed in connection with the acquisition or disposition of any business or assets or Person or any Equity Interests of a Subsidiary, provided that the maximum liability of the Issuer and its Restricted Subsidiaries in respect of all such Indebtedness shall at no time exceed the gross proceeds, including the Fair Market Value of non-cash proceeds (measured at the time received and without giving effect to any subsequent changes in value), actually received by the Issuer and its Restricted Subsidiaries in connection with such disposition;
201 (12) the incurrence by the Issuer and its Restricted Subsidiaries of Indebtedness in respect of (A) letters of credit, surety, performance or appeal bonds, completion guarantees, judgment, advance payment, customs, VAT or other tax guarantees or similar instruments issued in the ordinary course of business of such Person and not in connection with the borrowing of money, including letters of credit or similar instruments in respect of self-insurance and workers compensation obligations, and (B) any customary cash management, cash pooling or netting or setting off arrangements, entered into in the ordinary course of business; provided, however, that upon the drawing of such letters of credit or other instrument, such obligations are reimbursed within 30 days following such drawing; (13) Indebtedness of the Issuer of any of its Restricted Subsidiaries in respect of Management Advances; (14) customer deposits and advance payments received in the ordinary course of business from customers for goods and services purchased in the ordinary course of business; (15) Indebtedness in an aggregate outstanding principal amount that, when taken together with any Permitted Refinancing Indebtedness in respect thereof and the principal amount of all other Indebtedness incurred pursuant to this clause (15) and then outstanding, will not exceed 100% of the Net Proceeds received by the Company from the issuance or sale (other than to a Restricted Subsidiary) of its Capital Stock (other than, in connection with the Equity Contribution, Disqualified Stock, or an Excluded Contribution) or otherwise contributed to the equity (other than through the issuance of Disqualified Stock, an Excluded Contribution or in connection with the Equity Contribution) of the Company, in each case, subsequent to the Completion Date; provided, however, that (i) any such Net Proceeds that are so received or contributed shall be excluded for purposes of making Restricted Payments under the second paragraph and clauses (2), (4) and (8) of the third paragraph of the covenant described below under ‘‘—Certain Covenants—Restricted Payments’’ to the extent the Company and its Restricted Subsidiaries incur Indebtedness in reliance thereon and (ii) any Net Proceeds that are so received or contributed shall be excluded for purposes of incurring Indebtedness pursuant to this clause (15) to the extent the Company or any of its Restricted Subsidiaries makes a Restricted Payment under the first paragraph and clauses (2), (4) and (8) of the third paragraph of the covenant described below under ‘‘—Certain Covenants—Restricted Payments’’ in reliance thereon; (16) Indebtedness of any Person outstanding on the date on which such Person becomes a Restricted Subsidiary of the Issuer or is merged, consolidated, amalgamated or otherwise combined with (including pursuant to any acquisition of assets and assumption of related liabilities) the Issuer or any of its Restricted Subsidiaries (other than Indebtedness incurred to provide all or any portion of the funds used to consummate the transaction or series of related transactions pursuant to which such Person became a Restricted Subsidiary of the Issuer or was otherwise acquired by the Issuer or any of its Restricted Subsidiaries); provided, however, with respect to this clause (16), that at the time of the acquisition or other transaction pursuant to which such Indebtedness was deemed to be incurred (x) the Issuer would have been able to incur e1.00 of additional Indebtedness pursuant to the first paragraph of this covenant after giving pro forma effect to the incurrence of such Indebtedness pursuant to this clause (16) or (y) the Fixed Charge Coverage Ratio of the Issuer would not be less than it was immediately prior to giving pro forma effect to the incurrence of such Indebtedness pursuant to this clause (16); and (17) the incurrence by the Issuer or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (17) not to exceed the greater of e25 million and 1.7% of Total Assets; provided, however, that the aggregate principal amount of such Indebtedness that may be incurred pursuant to this clause (17) by Restricted Subsidiaries that are not Guarantors shall not exceed e20 million.
202 For purposes of determining compliance with this ‘‘Incurrence of Indebtedness and Issuance of Preferred Stock’’ covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in the first and second paragraphs of this covenant, the Issuer, in its sole discretion, will be permitted to classify such item of Indebtedness on the date of its incurrence and only be required to include the amount and type of such Indebtedness in one the clauses in the second paragraph or the first paragraph of this covenant, and will be permitted on the date of such incurrence to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in the first and second paragraphs of this covenant, and from time to time to reclassify all or a portion of such item of Indebtedness, in any manner that complies with this covenant, provided that Indebtedness incurred pursuant to clause (1) of the definition of Permitted Debt may not be reclassified. Notwithstanding the foregoing, (i) Indebtedness under the Senior Credit Agreement outstanding on the Completion Date will be deemed to have been incurred on such date under clause (1) of the definition of Permitted Debt; and (ii) for the purposes of determining compliance with clause (b) of the first paragraph of this covenant, the Consolidated Senior Secured Leverage Ratio shall be calculated assuming that Indebtedness of (x) e390 million (or such higher amount as may then be outstanding other than under any revolving credit facility) plus (y) any amount drawn or called under any revolving credit facility as may then be outstanding under the Senior Credit Agreement permitted to be secured with a Lien on the Collateral pursuant to clause (3) of the definition of ‘‘Permitted Collateral Liens’’ has been incurred and is outstanding and so secured with a Lien on the Collateral. The accrual of interest or preferred stock dividends, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on preferred stock or Disqualified Stock in the form of additional shares of the same class of preferred stock or Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of preferred stock or Disqualified Stock for purposes of this covenant. For purposes of determining compliance with any euro-denominated restriction on the incurrence of Indebtedness, the euro-equivalent principal amount of Indebtedness denominated in a different currency shall be utilized, calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term Indebtedness, or first committed, in the case of Indebtedness incurred under a revolving credit facility; provided, however, that (i) if such Indebtedness denominated in non-euro currency is subject to a Currency Exchange Protection Agreement with respect to euro, the amount of such Indebtedness expressed in euro will be calculated so as to take account of the effects of such Currency Exchange Protection Agreement; and (ii) the euro-equivalent of the principal amount of any such Indebtedness outstanding on the Issue Date shall be calculated based on the relevant currency exchange rate in effect on the Issue Date. The principal amount of any refinancing Indebtedness incurred in the same currency as the Indebtedness being refinanced will be the euro-equivalent of the Indebtedness refinanced determined on the date such Indebtedness was originally incurred, except that to the extent that: (1) such euro-equivalent was determined based on a Currency Exchange Protection Agreement, in which case the refinancing Indebtedness will be determined in accordance with the preceding sentence; and (2) the principal amount of the refinancing Indebtedness exceeds the principal amount of the Indebtedness being refinanced, in which case the euro-equivalent of such excess will be determined on the date such refinancing Indebtedness is being incurred. Notwithstanding any other provision of this covenant, the maximum amount of Indebtedness that the Issuer or any Restricted Subsidiary may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) in the case of any Indebtedness issued with original issue discount, the amount of the liability in respect thereof determined in accordance with IFRS; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
203 (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (i) the Fair Market Value of such assets at the date of determination; and (ii) the amount of the Indebtedness of the other Person.
Restricted Payments The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Issuer’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Issuer or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Issuer’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as holders, other than (i) dividends or distributions payable in Capital Stock (other than Disqualified Stock) of the Issuer and (ii) dividends or distributions payable to the Issuer or a Restricted Subsidiary; (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Issuer) any Equity Interests of the Issuer or any Parent Entity of the Issuer; (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness (excluding any intercompany Indebtedness between or among the Issuer and any of its Restricted Subsidiaries), except (i) a payment of interest or a payment of principal at the Stated Maturity thereof or (ii) the purchase, repurchase or other acquisition of Indebtedness purchased in anticipation of satisfying a scheduled sinking fund obligation, principal installment or scheduled maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition; (4) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Shareholder Debt; or (5) make any Restricted Investment, (all such payments and other actions set forth in these clauses (1) through (5) above being collectively referred to as ‘‘Restricted Payments’’), unless, at the time of any such Restricted Payment: (a) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; (b) the Issuer would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least e1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries since the Issue Date (excluding Restricted Payments permitted by clauses (2), (3), (5), (6), (7), (10), (11), (12) and (13) of the next succeeding paragraph), is less than the sum, without duplication, of: (i) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) from the beginning of the fiscal quarter commencing immediately prior to the Issue Date to the end of the Issuer’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus
204 (ii) 100% of the aggregate net cash proceeds and the Fair Market Value of marketable securities received by the Issuer since the Completion Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Issuer (other than the Equity Contribution, Disqualified Stock and Excluded Contributions) or from the issue or sale of convertible or exchangeable Disqualified Stock of the Issuer or convertible or exchangeable debt securities of the Issuer, in each case that have been converted into or exchanged for Equity Interests of the Issuer (other than Equity Interests and convertible or exchangeable Disqualified Stock or debt securities sold to a Subsidiary of the Issuer) or from the issuance or sale of Subordinated Shareholder Debt (other than an issuance or sale to a Subsidiary of the Issuer); plus (iii) to the extent that any Restricted Investment that was made after the Issue Date is (a) sold, disposed of or otherwise cancelled, liquidated or repaid, 100% of the aggregate amount received in cash and the Fair Market Value of the property and marketable securities received by the Issuer or any Restricted Subsidiary (other than from a Person that is not the Issuer or a Restricted Subsidiary), or (b) made in an entity that subsequently becomes a Restricted Subsidiary, 100% of the Fair Market Value of the Restricted Investment of the Issuer and its Restricted Subsidiaries as of the date such entity becomes a Restricted Subsidiary; plus (iv) to the extent that any Unrestricted Subsidiary of the Issuer designated as such after the Issue Date is redesignated as a Restricted Subsidiary or is merged or consolidated into the Issuer or a Restricted Subsidiary, or all of the assets of such Unrestricted Subsidiary are transferred to the Issuer or a Restricted Subsidiary, the lesser of (i) the Fair Market Value of the property received by the Issuer or Restricted Subsidiary or the Issuer’s Restricted Investment in such Subsidiary as of the date of such redesignation, merger, consolidation or transfer of assets and (ii) such Fair Market Value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary, in each case, to the extent such Investments reduced the Restricted Payments capacity under this clause (c) and were not previously repaid or otherwise reduced; plus (v) upon the full and unconditional release of a Restricted Investment that is a guarantee made by the Issuer or one of its Restricted Subsidiaries to any Person, an amount equal to the amount of such guarantee; plus (vi) 100% of any cash dividends or distributions received by the Issuer or a Restricted Subsidiary after the Issue Date from an Unrestricted Subsidiary, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Issuer for such period. The preceding provisions will not prohibit: (1) the payment of any dividend or the consummation of any redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of the Indenture; (2) the making of any Restricted Payment in exchange for, or out of or with the net cash proceeds of the substantially concurrent sale or issuance (other than to a Subsidiary of the Issuer) of, Equity Interests of the Issuer (other than Disqualified Stock), Subordinated Shareholder Debt or from the substantially concurrent contribution of common equity capital to the Issuer; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from the calculation of amounts under clause (c)(ii) of the preceding paragraph, shall not constitute Excluded Contributions and will not be considered to be net cash proceeds from an Equity Offering for purposes of the ‘‘Optional Redemption’’ provisions of the Indenture; (3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Subordinated Indebtedness of the Issuer or any Guarantor with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;
205 (4) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or any Restricted Subsidiary held by any current or former officer, director, employee or consultant of the Issuer or any of its Restricted Subsidiaries pursuant to any equity subscription agreement, stock option agreement, restricted stock grant, shareholders’ agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed e1 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years for no more than three calendar years); and provided, further, that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds from the sale of Equity Interests of the Issuer or a Restricted Subsidiary received by the Issuer or a Restricted Subsidiary during such calendar year, in each case to members of management, directors or consultants of the Issuer, any of its Restricted Subsidiaries or any Parent Entity of the Issuer and (B) the cash proceeds of key man life insurance policies, in each case to the extent the cash proceeds have not otherwise been applied to the making of Restricted Payments pursuant to clause (c)(ii) of the preceding paragraph or clause (2) of this paragraph; (5) the repurchase of Equity Interests deemed to occur upon the exercise of stock options or warrants to the extent such Equity Interests represent a portion of the exercise price of those stock options or warrants; (6) payments of cash, dividends, distributions, advances or other Restricted Payments by the Issuer or any of its Restricted Subsidiaries to allow the payment of cash in lieu of the issuance of fractional shares upon (x) the exercise of options or warrants or (y) the conversion or exchange of Capital Stock of any such Person; (7) payments pursuant to any tax sharing agreement or arrangement among the Issuer and its Subsidiaries and other Persons with which the Issuer or any of its Subsidiaries is required or permitted to file a consolidated tax return or with which the Issuer or any of its Restricted Subsidiaries is a part of a group for tax purposes; provided, however, that such payments will not exceed the amount of tax that the Issuer and its Subsidiaries would owe on a stand-alone basis and the related tax liabilities of the Issuer and its Subsidiaries are relieved by the payment of such amounts to a relevant taxing authority; (8) so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, following an Initial Public Offering of the Capital Stock of the Issuer or a Parent Entity, the payment of dividends on the Capital Stock of the Issuer in an amount per annum not to exceed the greater of (a) 6% of the net cash proceeds received by the Issuer from such Initial Public Offering and (b) following the Initial Public Offering, an amount equal to 5% of the IPO Market Capitalization; provided, that in the case of clause (b) after giving pro forma effect to such dividend, the Consolidated Leverage Ratio shall be equal to or less than 3.00 to 1.00; provided further, that in the case of each of clause (a) and (b), if such Initial Public Offering was of Capital Stock of a Parent Entity, the net proceeds of any such dividend are used to fund a corresponding dividend in equal or greater amount on the Capital Stock of such Parent Entity; (9) advances or loans to (a) any future, present or former officer, director, employee or consultant of the Issuer or a Restricted Subsidiary to pay for the purchase or other acquisition for value of Equity Interests of the Issuer (other than Disqualified Stock), or any obligation under a forward sale agreement, deferred purchase agreement or deferred payment arrangement pursuant to any management equity plan or stock option plan or any other management or employee benefit or incentive plan or other agreement or arrangement or (b) any management equity plan or stock option plan or any other management or employee benefit or incentive plan or unit trust or the trustees of any such plan or trust to pay for the purchase or other acquisition for value of Equity Interests of the Issuer (other than Disqualified Stock); provided that the total aggregate amount of Restricted Payments made under this clause (9) does not exceed e1 million in any calendar year (with unused amounts in any calendar year being carried over to succeeding calendar years for no more than three calendar years);
206 (10) the payment of any dividend (or, in the case of any partnership or limited liability Issuer, any similar distribution) by a Restricted Subsidiary to the holders of its Equity Interests (other than the Issuer or any Restricted Subsidiary) on no more than a pro rata basis; (11) so long as no Default or Event of Default has occurred and is continuing, the payment of Management Fees; (12) Permitted Parent Payments; (13) Restricted Payments that are made with Excluded Contributions; (14) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Issuer or a Restricted Subsidiary of the Issuer by, Unrestricted Subsidiaries; or (15) so long as no Default or Event of Default has occurred and is continuing, other Restricted Payments in an aggregate amount not to exceed e20 million since the Issue Date. The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Issuer or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Liens Each of the Issuer, Holdco and, with respect to the Collateral only, the Luxembourg Security Providers will not, and the Issuer will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien (the ‘‘Initial Lien’’) of any kind securing Indebtedness upon any of their property or assets, now owned or hereafter acquired, except: (a) in the case of any property or asset that does not constitute Collateral, (1) Permitted Liens, or (2) Liens on property or assets that are not Permitted Liens if the Notes and the Indenture (or a Guarantee in the case of Liens of a Guarantor) are directly secured on an equal and ratable basis with the Indebtedness so secured (or (i) on a junior priority basis if such Indebtedness is Senior Debt of a Guarantor or (ii) prior or senior thereto, if such Indebtedness is subordinated in right of payment to the Notes or a Note Guarantee); and (b) in the case of any property or asset that constitutes Collateral, Permitted Collateral Liens. Any Lien created for the benefit of the holders pursuant to this covenant will provide by its terms that such Lien will be automatically and unconditionally released and discharged (1) upon the release and discharge of the Initial Lien with respect to clause (a) of the preceding paragraph other than as a consequence of an enforcement action with respect to the assets subject to such Lien or (2) as set forth under the heading ‘‘—Security.’’
No Layering of Debt The Issuer will not permit any Guarantor to, and no Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is contractually subordinated or junior in right of payment to any Senior Debt of such Guarantor and senior in right of payment to such Guarantor’s Note Guarantee. No such Indebtedness will be considered to be contractually subordinated or junior in right of payment to any Senior Debt of any Guarantor by virtue of being unsecured or by virtue of being secured on a junior priority basis or by virtue of the application of waterfall or other payment-ordering provisions affecting different tranches of Indebtedness under Credit Facilities.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Issuer or any Restricted Subsidiary, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Issuer or any Restricted Subsidiary;
207 (2) make loans or advances to the Issuer or any Restricted Subsidiary; or (3) sell, lease or transfer any of its properties or assets to the Issuer or any Restricted Subsidiary, provided that (x) the priority of any preferred stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock and (y) the subordination of (including the application of any standstill period to) loans or advances made to the Issuer or any Restricted Subsidiary to other Indebtedness incurred by the Issuer or any Restricted Subsidiary, in each case, shall not be deemed to constitute such an encumbrance or restriction. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (1) any agreement governing Indebtedness and Credit Facilities as in effect or entered into on the Issue Date and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the Issue Date or the Completion Date, as applicable; (2) the Indenture, the Notes, the Note Guarantees, the Senior Credit Agreement, the Intercreditor Agreement, any Additional Intercreditor Agreement and the Security Documents; (3) agreements or instruments relating to any other Indebtedness permitted to be incurred under the provisions of the covenant described above under the caption ‘‘Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ if the encumbrances and restrictions contained therein, taken as a whole, are not materially less favorable to the holders of the Notes than the encumbrances and restrictions contained in the Senior Credit Agreement and the Intercreditor Agreement, in each case, as in effect on the Issue Date (as determined in good faith by the Issuer); (4) applicable law, rule, regulation or order or the terms of any license, authorization, concession or permit; (5) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Issuer or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the Indenture to be incurred; (6) customary non-assignment and similar provisions in contracts, leases and licenses entered into in the ordinary course of business; (7) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of the preceding paragraph; (8) any agreement for the sale or other disposition of the Capital Stock or all or substantially all of the property and assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (9) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (10) Liens permitted to be incurred under the provisions of the covenant described above under the caption ‘‘—Liens’’ that limit the right of the debtor to dispose of the assets subject to such Liens;
208 (11) customary provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements in the ordinary course of business (including agreements entered into in connection with a Restricted Investment), which limitation is applicable only to the assets that are the subject of such agreements; (12) restrictions on cash or other deposits or net worth imposed by customers or suppliers or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business; and (13) any encumbrance or restriction existing under any agreement that extends, renews, refinances or replaces the agreements containing the encumbrances or restrictions in the foregoing clauses (1) through (12), or in this clause (13); provided that the terms and conditions of any such encumbrances or restrictions are no more restrictive in any material respect than those under or pursuant to the agreement so extended, renewed, refinanced or replaced.
Merger, Consolidation or Sale of Assets Subject to the compliance with the covenant titled ‘‘Center of Main Interests and Establishments,’’ the Issuer will not directly or indirectly: (1) consolidate or merge with or into another Person (whether or not the Issuer is the surviving corporation), or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of the Issuer and its Restricted Subsidiaries taken as a whole, in either case, in one or more related transactions, to another Person, unless: (1) either: (a) the Issuer is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made (for the purposes of this covenant, or as otherwise applicable, the ‘‘Surviving Entity’’) is an entity organized or existing under the laws of Switzerland, Canada, any state of the United States, the District of Columbia or any member state of the Pre-Expansion European Union other than France; (2) the Person formed by or surviving any such consolidation or merger with the Issuer (if other than the Issuer) or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made expressly assumes (a) by supplemental indenture, executed and delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, all the obligations of the Issuer under the Notes and the Indenture and (b) all obligations of the Issuer under the Intercreditor Agreement, the Security Documents and any Additional Intercreditor Agreement, as applicable; (3) immediately after giving effect to such transaction, no Default or Event of Default exists; (4) the Issuer or the Person formed by or surviving any such consolidation or merger (if other than the Issuer), or to which such sale, assignment, transfer, conveyance, lease or other disposition has been made would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period (a) be permitted to incur at least e1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’ or (b) have a Fixed Charge Coverage Ratio no less than it was immediately prior to giving effect to such transaction; and (5) at the time of the transaction, the Issuer or the Surviving Entity, as applicable, will have delivered, or caused to be delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officer’s Certificate and opinion of counsel, in each case, stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other transaction and the supplemental indenture in respect thereof complies with the Indenture and that all conditions precedent therein provided for relating to such transaction have been complied with and that the Indenture and the Notes constitute legal, valid and binding obligations of the continuing Person, enforceable in accordance
209 with their terms; provided that in giving an opinion of counsel, counsel may rely on an Officer’s Certificate as to any matters of fact. A Guarantor (other than a Guarantor whose Note Guarantee is to be released in accordance with the terms of such Note Guarantee and the Indenture as described under ‘‘—The Note Guarantees—Release of the Note Guarantees’’) will not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Guarantor is the surviving corporation), or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of such Guarantor and its Subsidiaries which are Restricted Subsidiaries taken as a whole, in either case, in one or more related transactions, to another Person, unless: (1) either: (a) such Guarantor is the surviving Person; or (b) the Person formed by or surviving any such consolidation or merger with the Guarantor (if other than the Guarantor) or the Person to which such sale, assignment, transfer, conveyance, lease or other disposition has been made (for the purposes of this covenant, or as otherwise applicable, the ‘‘Surviving Entity’’) expressly assumes (x) by supplemental indenture, executed and delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, all the obligations of the Guarantor under its Note Guarantee and the Indenture and (y) all obligations of the Guarantor under the Intercreditor Agreement, the Security Documents and any Additional Intercreditor Agreement, as applicable; and (2) immediately after giving effect to such transaction, no Default or Event of Default exists; and (3) at the time of the transaction, the Guarantor or the Surviving Entity, as applicable, will have delivered, or caused to be delivered to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officer’s Certificate and opinion of counsel, in each case, stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other transaction and the supplemental indenture in respect thereof complies with the Indenture and that all conditions precedent therein provided for relating to such transaction have been complied with and that the Indenture and the Notes constitute legal, valid and binding obligations of the continuing Person, enforceable in accordance with their terms; provided that in giving an opinion of counsel, counsel may rely on an Officer’s Certificate as to any matters of fact. In addition, neither the Issuer nor any Guarantor will, directly or indirectly, lease all or substantially all of the properties and assets of it and its Subsidiaries which are Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person. Clauses (3) and (4) of the first paragraph of this ‘‘Merger, Consolidation or Sale of Assets’’ covenant will not apply to any sale or other disposition of all or substantially all of the assets or merger or consolidation of the Issuer with or into any other Guarantor. Clause (4) of the first paragraph of this ‘‘Merger, Consolidation or Sale of Assets’’ covenant and Clause (2) of the second paragraph of this ‘‘Merger, Consolidation or Sale of Assets’’ covenant will not apply to any sale or other disposition of all or substantially all of the assets or merger or consolidation of the Issuer or any of the Guarantors with or into an Affiliate solely for the purpose of reincorporating the Issuer or such Guarantor in another jurisdiction for tax reasons.
Center of Main Interests and Establishments Except as contemplated in connection with the Transactions, each of the Issuer, the GP, Holdco and the Luxembourg Security Providers will, and the Issuer will cause each of the Guarantors and the other Security Providers organized in a member state of the European Union to, for the purposes of The Council of the European Union Regulation No. 1346/2000 on Insolvency Proceedings (the ‘‘Insolvency Proceedings Regulation’’) or otherwise, ensure that its center of main interest (as that term is used in Article 3(1) of the Insolvency Proceedings Regulation) is situated in its respective jurisdiction of organization and ensure that it has no ‘‘establishment’’ (as that term is used in Article 2(b) of the Insolvency Proceedings Regulation) in any other jurisdiction where to do so could reasonably be expected to materially adversely affect (or, in the case of the Issuer, the
210 Luxembourg Security Providers or the Company, adversely affect) the interests of the holders of the Notes. Without prejudice to the generality of paragraph (a) above, each of the Issuer, the GP, Holdco, the Company and the Luxembourg Security Providers will: (a) hold all meetings of its board of directors in Luxembourg (with a majority of the participating directors to attend such meetings physically in Luxembourg); (b) keep any share register, corporate books and any account records in Luxembourg; (c) remain organized and domiciled in Luxembourg and not to organize itself in any other jurisdiction; and (d) manage its business in Luxembourg.
Transactions with Affiliates The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, make any payment to or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each, an ‘‘Affiliate Transaction’’) involving aggregate payments or consideration in excess of e5 million, unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person; and (2) the Issuer delivers to the Trustee: (a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of e10 million, a resolution of the Board of Directors of the Issuer set forth in an Officer’s Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Issuer; and, in addition, (b) with respect to (i) any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of e20 million or (ii) any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of e10 million in which there are no disinterested members of the Board of Directors of the Issuer, an opinion of an accounting, appraisal or investment banking firm of international standing, or other recognized independent expert of international standing with experience appraising the terms and conditions of the type of transaction or series of related transactions for which an opinion is required, stating that the transaction or series of related transactions is (i) fair from a financial point of view taking into account all relevant circumstances or (ii) on terms not less favorable than might have been obtained in a comparable transaction at such time on an arm’s length basis from a Person who is not an Affiliate. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (1) any employment agreement, collective bargaining agreement, consultant, employee benefit arrangements with any employee, consultant, officer or director of the Issuer or any Restricted Subsidiary, including under any stock option, stock appreciation rights, stock incentive or similar plans, entered into in the ordinary course of business; (2) transactions between or among the Issuer and any Restricted Subsidiary, or between or among Restricted Subsidiaries; (3) transactions in the ordinary course of business with a Person (other than an Unrestricted Subsidiary of the Issuer) that is an Affiliate of the Issuer solely because the Issuer owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
211 (4) payment of reasonable and customary fees and reimbursements of expenses (pursuant to indemnity arrangements or otherwise) of Officers, directors, employees or consultants of the Issuer or any of its Restricted Subsidiaries; (5) any Restricted Payment that is permitted pursuant to the first paragraph of the covenant described above under the caption ‘‘—Restricted Payments’’; (6) Management Advances and the payment of Management Fees; (7) any Permitted Investments (other than Permitted Investments described in clauses (3) and (14) of the definition thereof); (8) the incurrence of any Subordinated Shareholder Debt; (9) transactions pursuant to, or contemplated by any agreement in effect on the Issue Date and transactions pursuant to any amendment, modification or extension to such agreement, so long as such amendment, modification or extension, taken as a whole, is not more disadvantageous to the holders of the Notes in any material respect than the original agreement as in effect on the Issue Date; (10) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services or providers of employees or other labor, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture that are fair to the Issuer or the Restricted Subsidiaries, in the reasonable determination of the members of the Board of Directors of the Issuer or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated Person; (11) any payments or other transactions pursuant to a tax sharing agreement between the Issuer and any other Person or a Restricted Subsidiary of the Issuer and any other Person with which the Issuer or any of its Restricted Subsidiaries files a consolidated tax return or with which the Issuer or any of its Restricted Subsidiaries is part of a group for tax purposes or any tax advantageous group contribution made pursuant to applicable legislation; provided, however, that any such tax sharing or arrangement and payment does not permit or require payments in excess of the amounts of tax that would be payable by the Issuer and its Restricted Subsidiaries on a stand-alone basis; (12) transactions between the Issuer or any of its Restricted Subsidiaries and any Person, a director of which is also a director of the Issuer or any direct or indirect parent of the Issuer; provided, however, that such director abstains from voting as a director of the Issuer or such direct or indirect parent, as the case may be, on any matter involving such other Person; and (13) the Transaction.
Designation of Restricted and Unrestricted Subsidiaries The Board of Directors of the Issuer may designate any Restricted Subsidiary (including any newly acquired or newly formed Restricted Subsidiary) to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Issuer and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the covenant described above under the caption ‘‘—Restricted Payments’’ or under one or more clauses of the definition of Permitted Investments, as determined by the Issuer. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Issuer may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Any designation of a Subsidiary of the Issuer as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a copy of a resolution of the Board of Directors giving effect to such designation and an Officer’s Certificate certifying that such designation complied with the preceding conditions and was permitted by the covenant described above under the caption ‘‘—Restricted Payments.’’ If, at any time, any Unrestricted Subsidiary would fail to meet the
212 requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described above under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock,’’ the Issuer will be in default of such covenant. The Board of Directors of the Issuer may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under the covenant described under the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock,’’ calculated on a pro forma basis as if such designation had occurred at the beginning of the applicable reference period; and (2) no Default or Event of Default would be in existence following such designation.
Maintenance of Listing The Issuer will use its commercially reasonable efforts to list and maintain the listing of the Notes on the Official List of the Irish Stock Exchange for trading on the Global Exchange Market for so long as such Notes are outstanding; provided, however, that if the Issuer is unable to obtain a listing of the Notes on the Irish Stock Exchange or if at any time the Issuer determines that it will not maintain such listing, it will, prior to the delisting of the Notes from the Irish Stock Exchange, use its commercially reasonable efforts to list and maintain a listing of the Notes on another ‘‘recognized stock exchange’’ as defined in Section 1005 of the Income Tax Act 2007 of the United Kingdom.
Limitation on Issuances of Guarantees of Indebtedness The Issuer will not cause or permit any of its Restricted Subsidiaries that is not a Guarantor, directly or indirectly, to guarantee the payment of, assume or in any manner become liable with respect to any other Indebtedness of the Issuer or a Restricted Subsidiary unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture providing for the Note Guarantee of the payment of the Notes by such Restricted Subsidiary, which guarantee will be senior to or pari passu with such Restricted Subsidiary’s guarantee of such other Indebtedness unless such other Indebtedness is Senior Debt (in which case, the guarantee of the Notes may be subordinated to the guarantee of such Senior Debt to the same extent as the Note Guarantees are subordinated to such Senior Debt). The first paragraph of this covenant will not be applicable to any guarantees of any Restricted Subsidiary: (1) that existed at the time such Person became a Restricted Subsidiary if the guarantee was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary; (2) arising solely due to the granting of a Permitted Lien that would not otherwise constitute a guarantee of Indebtedness of the Issuer or any Guarantor; (3) given to a bank or trust company incorporated in any member state of the European Union as of the date of the Indenture or any commercial banking institution that is a member of the U.S. Federal Reserve System (or any branch, Subsidiary or Affiliate thereof), in each case having combined capital and surplus and undivided profits of not less than e500.0 million, whose debt has a rating, at the time such guarantee was given, of at least A or the equivalent thereof by S&P and at least A2 or the equivalent thereof by Moody’s, in connection with the operation of cash management programs established for the Issuer’s benefit or that of any Restricted Subsidiary; or (4) if such Note Guarantee could reasonably be expected to give rise to or result in (A) personal liability for the officers, directors or shareholders of such Restricted Subsidiary, (B) any violation of applicable law that cannot be avoided or otherwise prevented through measures reasonably available to the Issuer or such Restricted Subsidiary, including, for the avoidance of doubt, ‘‘whitewash’’ or similar procedures or (C) any significant cost, expense, liability or obligation (including with respect of any Taxes) other than reasonable out-of-pocket expenses and other than reasonable expenses incurred in connection with any governmental or regulatory filings required as
213 a result of, or any measures pursuant to clause (B) undertaken in connection with, such Note Guarantee, which cannot be avoided through measures reasonably available to the Issuer or the Restricted Subsidiary. The ability to enforce any additional Note Guarantee will be subject to significant restrictions. Please see ‘‘—Subordination of the Note Guarantees.’’ In addition, each additional Note Guarantee will be limited as necessary to recognize certain defenses generally available to guarantors (including those that relate to fraudulent conveyance or transfer, voidable preference, financial assistance, corporate purpose, capital maintenance or similar laws, regulations or defenses affecting the rights of creditors generally) or other considerations under applicable law. Each guarantee of the Notes shall be released in accordance with the provisions of the Indenture and the Intercreditor Agreement described under ‘‘—The Note Guarantees—Release of the Note Guarantees’’ and ‘‘Description of Other Indebtedness—Intercreditor Agreement.’’
Payments for Consent The Issuer will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms of the provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Notwithstanding the foregoing, the Issuer and its Restricted Subsidiaries shall be permitted, in any offer or payment of consideration for, or as an inducement to, any consent, waiver or amendment of any of the terms or provisions of the Indenture, to exclude holders of Notes in any jurisdiction where (i) the solicitation of such consent, waiver or amendment, including in connection with an offer to purchase for cash, or (ii) the payment of the consideration therefor would require the Issuer or any of its Restricted Subsidiaries to file a registration statement, prospectus or similar document under any applicable securities laws (including, but not limited to, the United States federal securities laws and the laws of the European Union or its member states), which the Issuer in its sole discretion determines (acting in good faith) (A) would be materially burdensome (it being understood that it would not be materially burdensome to file the consent document(s) used in other jurisdictions, any substantially similar documents or any summary thereof with the securities or financial services authorities in such jurisdiction); or (B) such solicitation would otherwise not be permitted under applicable law in such jurisdiction.
Lines of Business The Issuer shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than a Permitted Business, except to such extent as would not be material to the Issuer and its Restricted Subsidiaries, taken as a whole.
Limitation on Sale of Equity Interests Notwithstanding anything contained in the Indenture to the contrary, without the consent of the holders of at least a majority in aggregate principal amount of the Notes then outstanding, (a) none of the GP, Holdco nor any of the Luxembourg Security Providers will enter into a single transaction or series of transactions (whether related or not and whether voluntary or involuntary) to, sell, lease, transfer or otherwise dispose of any Equity Interests owned or controlled, directly or indirectly, in the Issuer and (b) none of the Luxembourg Security Providers will enter into a single transaction or series of transactions (whether related or not and whether voluntary or involuntary) to, sell, lease, transfer or otherwise dispose of any Equity Interests, owned or controlled, directly or indirectly, in the GP, in each case other than in connection with (i) a Public Equity Offering or (ii) provided that any such Equity Interest is pledged to secure the Notes and the Note Guarantees on the same priority basis as the pledges in respect of the Capital Stock of the Issuer to secure the Notes on the Completion Date.
Limitation on Issuance of Equity Interests Neither the Issuer nor the GP will issue any Capital Stock to any person (including upon conversion or exchange of any debt security), other than a Permitted Securities Issuance.
214 Impairment of Security Interest Each of the Issuer, Holdco and the Luxembourg Security Providers will not, and the Issuer will not cause or permit any of its Restricted Subsidiaries to, take or knowingly or negligently omit to take any action that would or could reasonably be expected to have the result of materially impairing the security interests with respect to the Collateral (it being understood, subject to the proviso below, that the incurrence of Permitted Collateral Liens shall under no circumstances be deemed to materially impair the security interests with respect to the Collateral) for the benefit of the Trustee and the holders of the Notes, and each of the Issuer, Holdco and the Luxembourg Security Providers will not, and the Issuer will not cause or permit any of its Restricted Subsidiaries to, grant to any Person other than the Security Agent, for the benefit of the Trustee and the holders of the Notes and the other beneficiaries described in the Security Documents and the Intercreditor Agreement or any Additional Intercreditor Agreement, any interest whatsoever in any of the Collateral, except that the Issuer, Holdco and the Luxembourg Security Providers and the Issuer’s Restricted Subsidiaries may incur Permitted Collateral Liens and the Collateral may be discharged and released in accordance with the Indenture, the Security Documents and the Intercreditor Agreement or any Additional Intercreditor Agreement; provided however, that, except with respect to any discharge or release in accordance with the Indenture, the applicable Security Documents and/or the Intercreditor Agreement or any Additional Intercreditor Agreement, the incurrence of Permitted Collateral Liens or any action expressly permitted by the Indenture and/or the Intercreditor Agreement or any Additional Intercreditor Agreement, no Security Document may be amended, extended, renewed, restated, supplemented or otherwise modified, replaced, or released (followed by an immediate retaking of a Lien of at least equivalent ranking over the same assets), unless contemporaneously with any such action, the Issuer delivers to the Trustee, either (1) a solvency opinion from an internationally recognized investment bank or accounting firm, in form and substance reasonably satisfactory to the Trustee confirming the solvency of the Issuer and its Subsidiaries, taken as a whole, after giving effect to any transactions related to such amendment, extension, renewal, supplement, modification, replacement or release and retaking or (2) an opinion of counsel, in form and substance reasonably satisfactory to the Trustee (subject to customary exceptions and qualifications), confirming that, after giving effect to any transactions related to such amendment, extension, renewal, restatement, supplement, modification, replacement or release and retaking, the Lien or Liens created under the Security Documents so amended, extended, renewed, restated, supplemented, modified or replaced are valid and perfected Liens not otherwise subject to any limitation, imperfection or new hardening period, in equity or at law, and that such Lien or Liens were not otherwise subject to immediately prior to such amendment, extension, renewal, restatement, supplement, modification, replacement or release and retaking. At the direction of the Issuer and without the consent of the holders of Notes, the Security Agent may from time to time enter into one or more amendments to the Security Documents to: (i) cure any ambiguity, omission, defect or inconsistency therein, (ii) (but subject to compliance with the immediately preceding paragraph above) provide for Permitted Collateral Liens, (iii) add to the Collateral or (iv) make any other change thereto that does not adversely affect the rights of the holders of the Notes in any material respect. In the event that the Issuer, Holdco or a Luxembourg Security Provider, as applicable, complies with this covenant, the Trustee and the Security Agent shall (subject to customary protections and indemnifications) consent to such amendment, extension, renewal, restatement, supplement, modification, replacement or release without the need for instructions from the holders of the Notes.
Additional Intercreditor Agreement; Agreement to be Bound At the request of the Issuer, without the consent of holders of the Notes, and at the time of, or prior to, the incurrence by the Issuer or a Guarantor of Indebtedness permitted pursuant to (x) the first paragraph of the covenant described under ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’ or clause (1), (2), (3) (other than with respect to Capital Lease Obligations), (7), (15) and (16) of the second paragraph of the covenant described under ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’ and (y) any Permitted Refinancing Indebtedness in respect of Indebtedness referred to in the foregoing clause (x) (provided that, in the case of both (x) and (y), any such Indebtedness shall be Senior Debt), the Issuer, the relevant Guarantor, the Trustee and the Security Agent shall enter into with the holders of such Indebtedness (or their duly
215 authorized representatives) an intercreditor agreement (an ‘‘Additional Intercreditor Agreement’’) or a restatement, amendment or other modification of the existing Intercreditor Agreement on substantially the same terms as the Intercreditor Agreement, including, in respect of Senior Debt, terms with respect to the subordination, payment blockage, limitation on enforcement and release of guarantees and priority as set forth in the Intercreditor Agreement (or on terms more favorable to the holders of the Notes); provided that only one stop notice can be given by Indebtedness under the Senior Credit Agreement in any 360-day period or in respect of the same event or circumstances regardless of the number of facilities or other instruments constituting Indebtedness under the Senior Credit Agreement of a Guarantor or the number of intercreditor agreements; provided, further, that in no event may the total number of days for which a stop notice is in effect exceed 179 days in the aggregate during any consecutive 360-day period; provided, further, that in no event may the total number of days for which any enforcement standstill exceed 179 days; provided, further, that such Additional Intercreditor Agreement will not impose any personal obligations on the Trustee or adversely affect the rights, duties, liabilities or immunities of the Trustee under the Indenture or the Intercreditor Agreement; provided, further, that only any Indebtedness outstanding under the Senior Credit Agreement shall be entitled to instruct the Security Agent to initiate a payment blockage. Any such Additional Intercreditor Agreement shall provide for the release of any subordinated guarantee or junior security on the same terms as the Note Guarantees. At the request of the Issuer, without the consent of holders of the Notes, and at the time of, or prior to, the incurrence by the Issuer or a Guarantor of Indebtedness permitted to be incurred pursuant to the preceding paragraph, the Issuer or the relevant Guarantor, the Security Agent and the Trustee shall enter into one or more amendments to any Intercreditor Agreement or Additional Intercreditor Agreement to: (1) cure defects, resolve ambiguities or reflect changes, in each case, of a minor, technical or administrative nature, (2) increase the amount or types of Indebtedness covered by any Intercreditor Agreement or Additional Intercreditor Agreement that may be incurred by the Issuer or a Guarantor that is subject to any Intercreditor Agreement or Additional Intercreditor Agreement (provided that such amendment is consistent with the preceding paragraph), (3) add new Guarantors to the Intercreditor Agreement or an Additional Intercreditor Agreement, (4) further secure the Notes (including Additional Notes), (5) make provision for equal and ratable pledges of the Collateral to secure the Additional Notes, (6) implement any Permitted Collateral Liens or (7) make any other change to any such Intercreditor Agreement or an Additional Intercreditor Agreement that does not adversely affect the rights of holders of the Notes in any material respect. The Issuer shall not otherwise direct the Trustee or the Security Agent to enter into any amendment to the Intercreditor Agreement or any Additional Intercreditor Agreement without the consent of the holders of the majority in aggregate principal amount of the Notes then outstanding, except as otherwise permitted below under ‘‘—Amendment, Supplement and Waiver’’ or as described in the preceding paragraph and the Issuer may only direct the Trustee and the Security Agent to enter into any amendment to the extent such amendment does not impose any personal obligations on the Trustee or the Security Agent or adversely affect the rights, duties, liabilities or immunities of the Trustee or the Security Agent under the Indenture, the Intercreditor Agreement or any Additional Intercreditor Agreement. In relation to the Intercreditor Agreement or, to the extent applicable, an Additional Intercreditor Agreement, the Trustee (and the Security Agent, if applicable) shall be deemed to have consented on behalf of the holders of the Notes to any payment, repayment, purchase, repurchase, defeasance, acquisition, retirement or redemption of any obligations subordinated to the Notes thereby; provided, however, that such transaction would comply with the covenant described under ‘‘—Restricted Payments.’’ The Indenture will provide that each holder of a Note, by accepting such Note, will be deemed to have agreed to and accepted the terms and conditions of the Intercreditor Agreement and any Additional Intercreditor Agreement and to have consented to and directed the Trustee and the Security Agent to enter into any Additional Intercreditor Agreement or any amendment of the Intercreditor Agreement or any Additional Intercreditor Agreement which complies with the foregoing provisions and the conditions contained therein.
216 Suspension of Certain Covenants when Notes Rated Investment Grade If on any date following the Completion Date: (1) the Notes have achieved Investment Grade Status; and (2) no Default or Event of Default shall have occurred and be continuing on such date, then, beginning on that day and continuing until such time, if any, at which the Notes cease to have Investment Grade Status (such period, the ‘‘Suspension Period’’), the covenants specifically listed under the following captions in this Offering Circular will no longer be applicable to the Notes and any related default provisions of the Indenture will cease to be effective and will not be applicable to the Issuer and its Restricted Subsidiaries: (1) ‘‘—Repurchase at the Option of Holders—Asset Sales’’; (2) ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (3) ‘‘—Restricted Payments’’; (4) ‘‘—Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries’’; (5) clause (4) of the first paragraph of the covenant described under ‘‘—Merger, Consolidation or Sale of Assets’’; (6) ‘‘—Transactions with Affiliates’’; and (7) ‘‘—Designation of Restricted and Unrestricted Subsidiaries.’’ Such covenants will not, however, be of any effect with regard to the actions of Issuer and the Restricted Subsidiaries properly taken during the continuance of the Suspension Period; provided that (1) with respect to the Restricted Payments made after any such reinstatement, the amount of Restricted Payments will be calculated as though the covenant described under the caption ‘‘—Restricted Payments’’ had been in effect prior to, but not during, the Suspension Period and (2) all Indebtedness incurred, or Disqualified Stock or preferred stock issued, during the Suspension Period will be classified to have been incurred or issued pursuant to clause (2) of the second paragraph of the caption ‘‘—Incurrence of Indebtedness and Issuance of Preferred Stock.’’ Upon the occurrence of a Suspension Period, the amount of Excess Proceeds shall be reset at zero. There can be no assurance that the Notes will ever achieve or maintain an Investment Grade Status.
Reports For so long as any Notes are outstanding, the Issuer will furnish to the Trustee the following reports: (1) within 90 days following the end of the fiscal quarter ended March 31, 2011, (X) an annual report for Go Voyages and quarterly reports for each of eDreams and Opodo, in each case containing the following information: (a) an audited (in the case of Go Voyages) and unaudited (in the case of eDreams and Opodo) condensed consolidated balance sheet as of the end of such fiscal year or quarter, as applicable, and audited (in the case of Go Voyages) and unaudited (in the case of eDreams and Opodo) condensed statements of income and cash flow for the fiscal year or quarterly period, as applicable, ended March 31, 2011, prepared under French GAAP with respect to Go Voyages, under Spanish GAAP with respect to eDreams and under IFRS with respect to Opodo, and the comparable 2010 period for each of Go Voyages, eDreams and Opodo, together with condensed footnote disclosure; (b) pro forma income statement and balance sheet information, together with explanatory footnotes, for any material acquisitions or dispositions (which shall not, for the avoidance of doubt, include the provision of a full income statement or balance sheet to the extent not reasonably available) or recapitalizations that have occurred since the beginning of the fiscal year or quarter, as applicable, ended March 31, 2011; (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment, if any), including a discussion of the consolidated financial condition and results of operations of each of Go Voyages, eDreams and Opodo and any material change between the current fiscal year
217 or quarterly period, as applicable, and the corresponding period of 2010; (d) material recent developments in the business of each of Go Voyages, eDreams and Opodo and their respective Subsidiaries; and (e) any material changes to the risk factors disclosed in this Offering Circular, as applicable to each of Go Voyages, eDreams or Opodo, and (Y)(a) aggregated figures for the Geo Group, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings for the quarter ended March 31, 2011 and (b) disaggregated figures for each of Go Voyages, eDreams and Opodo, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for the fiscal year or quarter ended March 31, 2011 and the fiscal year or quarter ended March 31, 2010, prepared under French GAAP, Spanish GAAP and IFRS, respectively; (2) within 60 days following the end of each fiscal quarter ending after March 31, 2011 and on or prior to the Completion Date, if any, (X) reports for the period for each of Go Voyages, eDreams and Opodo containing the following information: (a) an unaudited condensed consolidated balance sheet prepared in accordance with IFRS as of the end of such period and unaudited condensed statements of income and cash flow prepared in accordance with IFRS for the period and year to date period ending on the unaudited condensed balance sheet date (and an unaudited condensed consolidated balance sheet as of the end of the comparable 2010 periods and unaudited condensed statements of income and cash flow for the comparable 2010 periods, prepared under French GAAP with respect to Go Voyages, under Spanish GAAP with respect to eDreams and under IFRS with respect to Opodo), together with condensed footnote disclosure; (b) pro forma income statement and balance sheet information, together with explanatory footnotes, for any material acquisitions or dispositions (which shall not, for the avoidance of doubt, include the provision of a full income statement or balance sheet to the extent not reasonably available) or recapitalizations that have occurred since the beginning of the most recently completed fiscal quarter as to which such quarterly report relates, in each case unless pro forma information has been provided in a previous report pursuant to clause (1) or (2) of this covenant; (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment, if any), including a discussion of the consolidated financial condition and results of operations of each of Go Voyages, eDreams and Opodo and, in respect of Opodo only, any material change between the current period and the corresponding period of the prior year; (d) material recent developments in the business of each of Go Voyages, eDreams and Opodo and their respective Subsidiaries; and (e) any material changes to the risk factors disclosed in this Offering Circular, as applicable to each of Go Voyages, eDreams or Opodo, and (Y) (a) aggregated figures for the Geo Group, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for each of the periods ending after March 31, 2011 and or prior to the Completion Date, and (b) disaggregated figures for each of Go Voyages, eDreams and Opodo, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for the comparable 2010 periods, prepared under French GAAP, Spanish GAAP and IFRS, respectively; (3) within 60 days following the end of each fiscal quarter ending after the Completion Date but prior to March 31, 2012 (or, 90 days in the case of the first fiscal quarter ending after the Completion Date), (X) a report of the Issuer for the period containing the following information: (a) an unaudited condensed consolidated balance sheet prepared in accordance with IFRS as of the end of such period and unaudited condensed statements of income and cash flow prepared in accordance with IFRS for the period and year to
218 date period ending on the unaudited condensed balance sheet date (and an unaudited condensed consolidated balance sheet as of the end of the comparable 2010 periods and unaudited condensed statements of income and cash flow for the comparable 2010 periods, for each of Go Voyages, eDreams and Opodo, prepared under French GAAP, Spanish GAAP and IFRS, respectively), together with condensed footnote disclosure; (b) pro forma income statement and balance sheet information, together with explanatory footnotes, for any material acquisitions or dispositions (which shall not, for the avoidance of doubt, include the provision of a full income statement or balance sheet to the extent not reasonably available) or recapitalizations that have occurred since the beginning of the most recently completed fiscal quarter as to which such quarterly report relates, in each case unless pro forma information has been provided in a previous report pursuant to clause (2) or (3) of this covenant; (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment, if any), including a discussion of the consolidated financial condition and results of operations of the Issuer; (d) material recent developments in the business of the Issuer and its Subsidiaries; and (e) any material changes to the risk factors disclosed in this Offering Circular, as applicable to the Issuer, and (Y)(a) consolidated figures for the Issuer, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for each period ending after the Completion Date but prior to March 31, 2012, and (b) disaggregated figures for each of Go Voyages, eDreams and Opodo, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for the comparable 2010 periods, prepared under French GAAP, Spanish GAAP and IFRS, respectively; provided that for the fiscal quarter during which the Completion Date falls, the information required under this clause (3) shall be satisfied by (i) providing such information prepared in accordance with IFRS for the period from the day immediately following the Completion Date to the end of the fiscal quarter and (ii) providing the information required under clause (2) for the period from the beginning of the fiscal quarter and ending on the Completion Date; (4) within 120 days after the end of the Issuer’s fiscal year ending March 31, 2012, (X) an annual report containing the following information with a level of detail that is substantially comparable and similar in scope to this Offering Circular: (a) audited consolidated balance sheet of the Issuer as of the end of the fiscal year ending March 31, 2012 prepared in accordance with IFRS and audited consolidated income statement and statement of cash flow of the Issuer for the fiscal year ending March 31, 2012 prepared in accordance with IFRS, including footnotes to such financial statements and the report of the independent auditors on the financial statements; (b) pro forma income statement and balance sheet information of the Issuer, together with explanatory footnotes, for any material acquisitions or dispositions (which shall not, for the avoidance of doubt, include the provision of a full income statement or balance sheet to the extent not reasonably available) or recapitalizations that have occurred since the beginning of the fiscal year ending March 31, 2012, in each case unless pro forma information has been provided in a previous report pursuant to clause (2) or (3) of this covenant; (c) an operating and financial review of the audited financial statements (including a discussion by business segment, if any), including a discussion of the financial condition and results of operations, and a discussion liquidity and capital resources, material commitments and contingencies and critical accounting policies; (d) a description of the industry, business, management and shareholders of the Issuer, all material affiliate transactions, Indebtedness and material financing arrangements and a description of all material contractual arrangements, including material debt instruments; and (e) material risk factors and material recent developments, and (Y) consolidated figures for the Issuer, determined by reference to the financial statements referred to in (X) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than
219 depreciation and amortization), depreciation and amortization and other expenses at and for the fiscal year ending March 31, 2012; (5) within 60 days following the end of each of the Issuer’s first three fiscal quarters in each fiscal year of the Issuer beginning with the fiscal quarter ending June 30, 2012, quarterly reports containing the following information: (a) an unaudited condensed consolidated balance sheet of the Issuer as of the end of such quarter prepared in accordance with IFRS and unaudited condensed statements of income and cash flow of the Issuer for the quarterly and year to date periods ending on the unaudited condensed balance sheet date prepared in accordance with IFRS, and the comparable prior year periods for the Issuer, together with condensed footnote disclosure, which prior periods shall only include year to date figures beginning with the fifth full fiscal quarter following the Completion Date; (b) pro forma income statement and balance sheet information, together with explanatory footnotes, for any material acquisitions or dispositions (which shall not, for the avoidance of doubt, include the provision of a full income statement or balance sheet to the extent not reasonably available) or recapitalizations that have occurred since the beginning of the most recently completed fiscal quarter as to which such quarterly report relates, in each case unless pro forma information has been provided in a previous report pursuant to clause (5) or (6) of this covenant; (c) an operating and financial review of the unaudited financial statements (including a discussion by business segment, if any), including a discussion of the consolidated financial condition and results of operations of the Issuer and any material change between the current quarterly period and the corresponding period of the prior year; (d) material recent developments in the business of the Issuer and its Subsidiaries; (e) any material changes to the risk factors disclosed in the most recent annual report with respect to the Issuer; and (f) consolidated figures for the Issuer, determined by reference to the financial statements referred to (a) and (b) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for the relevant fiscal quarter and year to date periods and the comparable prior year periods, which prior periods shall only include year to date figures beginning with the fifth full fiscal quarter following the Completion Date; (6) within 120 days after the end of the Issuer’s fiscal year beginning with the fiscal year ending March 31, 2013, annual reports containing the following information with a level of detail that is substantially comparable and similar in scope to this Offering Circular: (a) audited consolidated balance sheet of the Issuer as of the end of the most recent fiscal year prepared in accordance with IFRS (and comparative information for the end of the Issuer’s prior fiscal year beginning with the prior fiscal year ending March 31, 2013) and audited consolidated income statement and statement of cash flow of the Issuer for the most recent fiscal year prepared in accordance with IFRS (and comparative information for the prior fiscal year beginning with the prior fiscal year ending March 31, 2013), including footnotes to such financial statements and the report of the independent auditors on the financial statements; (b) pro forma income statement and balance sheet information of the Issuer, together with explanatory footnotes, for any material acquisitions or dispositions (which shall not, for the avoidance of doubt, include the provision of a full income statement or balance sheet to the extent not reasonably available) or recapitalizations that have occurred since the beginning of the most recently completed fiscal year as to which such annual report relates, in each case unless pro forma information has been provided in a previous report pursuant to clause (5) of this covenant; (c) an operating and financial review of the audited financial statements (including a discussion by business segment, if any), including a discussion of the financial condition and results of operations and any material change between the current fiscal year and the prior year, and a discussion liquidity and capital resources, material commitments and contingencies and critical accounting policies; (d) a description of the industry, business, management and shareholders of the Issuer, all material affiliate transactions, Indebtedness and material financing arrangements and a description of all material contractual arrangements, including material debt instruments; (e) material risk factors and material recent developments; and (f) consolidated figures
220 for the Issuer, determined by reference to the financial statements referred to (a) and (b) above, in respect of gross bookings, reported revenue, revenue margin, net interest payable, Consolidated EBITDA, net debt, total liabilities, capital expenditures, operating expenses (other than depreciation and amortization), depreciation and amortization and other expenses at and for the relevant fiscal year and, beginning with the prior fiscal year ending March 31, 2013, the comparable prior fiscal year; and (7) promptly after the occurrence of (a) a material acquisition, disposition or restructuring (including any acquisition or disposition that would require the delivery of pro forma financial information pursuant to clause (1) or (2) above); (b) any senior management change at the Issuer; (c) any change in the auditors of the Issuer; (d) any resignation of a member of the Board of Directors of the Issuer as a result of a disagreement with the Issuer; (e) the entering into an agreement that will result in a Change of Control; or (f) any material events that the Issuer announces publicly, in each case, a report containing a description of such events, and the Issuer will provide the same information set forth in (a) through (f) above in relation to the eDreams Group and the Go Voyages Group and will, prior to the Escrow Longstop Date, use reasonable efforts to provide the same information in relation to Opodo and its Subsidiaries; provided, however, that the reports set forth in clauses (1), (2), (3), (4), (5), (6) and (7) above will not be required to (i) contain any reconciliation to U.S. generally accepted accounting principles or (ii) include separate financial statements for any Guarantors or non-guarantor Subsidiaries of the Issuer. In addition, if the Issuer has designated any of its Subsidiaries as Unrestricted Subsidiaries and such Subsidiaries are Significant Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, of the financial condition and results of operations of the Issuer and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Issuer. Except as otherwise set forth the first paragraph of this covenant, all financial statements shall be prepared in accordance with IFRS. Except as provided for above, no report need include separate financial statements for the Issuer or Subsidiaries of the Issuer or any disclosure with respect to the results of operations or any other financial or statistical disclosure not of a type included in this Offering Circular. In addition, for so long as any Notes remain outstanding and during any period during which the Issuer is not subject to Section 13 or 15(d) of the U.S. Exchange Act nor exempt therefrom pursuant to Rule 12g3-2(b), the Issuer and the Guarantors have agreed that they will furnish to the holders of the Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the U.S. Securities Act. The Issuer will also make available copies of all reports required by clauses (1) through (6) of the first paragraph of this covenant (i) on the Issuer’s website and (ii) if and so long as the Notes are listed on the Official List of the Irish Stock Exchange and the rules of the Irish Stock Exchange so require, at the specified office of the Paying Agent in Dublin.
Events of Default and Remedies Each of the following is an ‘‘Event of Default’’ under the Indenture: (1) default for 30 days in the payment when due of interest or Additional Amounts, if any, with respect to the Notes, whether or not prohibited by the subordination provisions of the Indenture; (2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes, whether or not prohibited by the subordination provisions of the Indenture or the Intercreditor Agreement; (3) failure by the Issuer or relevant Guarantor to comply with the provisions described under the caption ‘‘—Certain Covenants—Consolidation, Merger or Sale of Assets’’; (4) failure by the Issuer or relevant Guarantor for 60 days after written notice (i) to the Issuer by the Trustee or (ii) to the Issuer and the Trustee by the holders of at least 25% in
221 aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the agreements in the Indenture (other than a default in performance, or breach, or a covenant or agreement which is specifically dealt with in clauses (1), (2) or (3)); (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries), whether such Indebtedness or guarantee now exists, or is created after the Issue Date, if that default: (a) is caused by a failure to pay principal of such Indebtedness at the Stated Maturity thereof prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a ‘‘Payment Default’’); or (b) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates e10 million or more; (6) failure by the Issuer or any Restricted Subsidiary to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of e10 million (exclusive of any amounts that a solvent insurance Issuer has acknowledged liability for), which judgments shall not have been discharged or waived and there shall have been a period of 60 consecutive days during which a stay of enforcement of such judgment or order, by reason of an appeal, waiver or otherwise, shall not have been in effect; (7) (i) breach by the Issuer or any of its Restricted Subsidiaries of any material representation, warranty or agreement in the Security Documents; (ii) any security interest created by the Security Documents ceases to be in full force and effect (except as permitted by the terms of the Indenture or the Security Documents), or an assertion by the Issuer or any of its Restricted Subsidiaries that any Collateral is not subject to a valid, perfected security interest (except as permitted by the terms of the Indenture or the Security Documents); or (iii) the repudiation by the Issuer of any of its material obligations under the Security Documents; (8) except as permitted by the Indenture, if any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Note Guarantee and such Default continues for 20 days; (9) certain events of bankruptcy or insolvency described in the Indenture with respect to the Issuer or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of its Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; (10) failure by the Issuer to consummate the Special Mandatory Redemption as described under the caption ‘‘—Escrow of Proceeds; Special Mandatory Redemption’’; (11) failure by the Issuer or any Restricted Subsidiary (as applicable) to comply with the provisions described under the caption ‘‘—Certain Covenants—Center of Main Interests and Establishments’’; (12) failure by the Issuer to comply with any material term of the Escrow Agreement; (13) failure by the Issuer or any of its Restricted Subsidiaries to comply with its obligations under the Indenture to grant the Post-Completion Collateral as described above under the caption ‘‘—Security—General’’ and such Default continues for 30 days; and (14) failure by any of the Issuer, the GP, Holdco or the Luxembourg Security Providers to comply with the provisions described under the caption ‘‘—Limitation on Sale of Equity Interests’’.
222 Opodo and its Subsidiaries will not be subject to the covenants described in this ‘‘Description of the Notes’’ prior to the Completion Date. However, the Indenture will provide that, as of the Completion Date, the covenants described under ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ and ‘‘—Certain Covenants—Restricted Payments’’ will be deemed to have been applicable to each of Go Voyages, eDreams and their respective Subsidiaries beginning on the Issue Date and, to the extent that Go Voyages, eDreams or any of their respective Subsidiaries took any action or inaction on or after the Issue Date and on or prior to the Completion Date that would constitute a Default or Event of Default under the Indenture had Go Voyages, eDreams or any of their respective Subsidiaries been subject to such covenants thereunder from and after the Issue Date, then there will exist a Default or Event of Default, as applicable, under the Indenture as of the Completion Date. Notwithstanding the foregoing, the consummation of the Transactions will be deemed not to be prohibited by the Indenture. We cannot assure you that, prior to the Completion Date, Opodo and its Subsidiaries, Go Voyages and its Subsidiaries or eDreams and its Subsidiaries, as applicable, will not engage in other activities that would otherwise have been prohibited by the Indenture had those covenants been applicable to such entities after the Issue Date and prior to the Completion Date. In the case of an Event of Default specified in clauses (9), (10), (11), (12) and (14) of the first paragraph of this covenant, all outstanding Notes will become due and payable immediately without further action or notice or other act on the part of the Trustee or any holders of the Notes. If any other Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes by written notice to the Issuer (and to the Trustee if such notice is given by the holders) may and the Trustee, upon the written request of such holders, shall declare all amounts in respect of the Notes to be due and payable immediately. Subject to certain limitations, holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any holders of Notes unless such holders have offered to the Trustee indemnity and/or security satisfactory to it against any loss, liability or expense. Except (subject to the provisions described under ‘‘—Amendment, Supplement and Waiver’’) to enforce the right to receive payment of principal, premium, if any, or interest or Additional Amounts when due, no holder of a Note may pursue any remedy with respect to the Indenture or the Notes unless: (1) such holder has previously given the Trustee notice that an Event of Default is continuing; (2) holders of at least 25% in aggregate principal amount of the then outstanding Notes have requested the Trustee to pursue the remedy; (3) such holders have offered the Trustee security and/or indemnity satisfactory to it against any loss, liability or expense; (4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security and/or indemnity; and (5) holders of a majority in aggregate principal amount of the then outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. The holders of not less than a majority in aggregate principal amount of the Notes outstanding may, on behalf of the holders of all outstanding Notes, waive any past default under the Indenture and its consequences, except a continuing default in the payment of the principal of premium, if any, any Additional Amounts or interest on any Note held by a non-consenting holder (which may only be waived with the consent of each holder of Notes affected). The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture.
223 No Personal Liability of Directors, Officers, Employees and Stockholders No director, officer, employee, incorporator or stockholder of the Issuer or any Guarantor, as such, will have any liability for any obligations of the Issuer or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under applicable securities laws.
Legal Defeasance and Covenant Defeasance The Issuer may at any time, at the option of its Board of Directors evidenced by a resolution set forth in an Officer’s Certificate, elect to have all of its obligations discharged with respect to the outstanding Notes and all obligations of the Guarantors discharged with respect to their Note Guarantees (‘‘Legal Defeasance’’) except for: (1) the rights of holders of outstanding Notes to receive payments in respect of the principal of, or interest (including Additional Amounts) or premium, if any, on, such Notes when such payments are due from the trust referred to below; (2) the Issuer’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust; (3) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuer’s and the Guarantors’ obligations in connection therewith; and (4) the Legal Defeasance and Covenant Defeasance provisions of the Indenture. In addition, the Issuer may, at its option and at any time, elect to have the obligations of the Issuer and the Guarantors released with respect to certain covenants (including its obligation to make Change of Control Offers and Asset Sale Offers) that are described in the Indenture (‘‘Covenant Defeasance’’) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, all Events of Default described under ‘‘—Events of Default and Remedies’’ (except those relating to payments on the Notes or, solely with respect to the Issuer, bankruptcy or insolvency events) will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance: (1) the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes, cash in euros, non-callable European Government Obligations or a combination of cash in euros and non-callable European Government Obligations, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest (including Additional Amounts and premium, if any) on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Issuer must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date; (2) in the case of Legal Defeasance, the Issuer must deliver to the Trustee an opinion reasonably acceptable to the Trustee of United States counsel confirming that (a) the Issuer has received from, or there has been published by, the U.S. Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such Legal Defeasance and will be subject to tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of Covenant Defeasance, the Issuer must deliver to the Trustee an opinion reasonably acceptable to the Trustee of United States counsel confirming that the holders of the outstanding Notes will not recognize income, gain or loss for U.S. Federal income tax purposes as a result of such Covenant Defeasance and will be subject to
224 U.S. Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) the Issuer must deliver to the Trustee an Officer’s Certificate stating that the deposit was not made by the Issuer with the intent of preferring the holders of Notes over the other creditors of the Issuer or the Guarantors with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuer, the Guarantors or others; and (5) the Issuer must deliver to the Trustee an Officer’s Certificate and an opinion of counsel, subject to customary assumptions and qualifications, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver Except as provided otherwise in the succeeding paragraphs, the Indenture, the Notes, the Note Guarantees, the Security Documents, the Intercreditor Agreement or any Additional Intercreditor Agreement may be amended or supplemented with the consent of the holders of at least a majority in aggregate principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), and any existing Default or Event of Default or compliance with any provision of the Indenture, the Notes, the Note Guarantees, the Security Documents, the Intercreditor Agreement or any Additional Intercreditor Agreement may be waived with the consent of the holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes). Unless consented to by the holders of at least 90% of the aggregate principal amount of the then outstanding Notes (including, without limitation, consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes), without the consent of each holder of Notes affected, an amendment, supplement or waiver may not (with respect to any Notes held by a non-consenting holder): (1) reduce the principal amount of Notes whose holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to the covenants described above under the caption ‘‘—Repurchase at the Option of Holders’’); (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) impair the right of any holder of Notes to receive payment of principal of and interest on such holder’s Notes on or after the due dates therefore or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes or any Note Guarantee in respect thereof; (5) waive a Default or Event of Default in the payment of principal of, or interest, Additional Amounts or premium, if any, on, the Notes (except a rescission of acceleration of the Notes by the holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the Payment Default that resulted from such acceleration); (6) make any Note payable in money other than that stated in the Notes; (7) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of holders of Notes to receive payments of principal of, or interest, Additional Amounts or premium, if any, on, the Notes; (8) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption ‘‘—Repurchase at the Option of Holders’’); (9) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture and the Intercreditor Agreement;
225 (10) release the Lien on Collateral granted for the benefit of the holders of the Notes, except in accordance with the terms of the relevant Security Document, the Indenture and the Intercreditor Agreement; or (11) make any change in the preceding amendment and waiver provisions. Notwithstanding the preceding, without the consent of any holder of Notes, the Issuer, the Guarantors, the Trustee and the Security Agent may amend or supplement the Indenture, the Notes, any Note Guarantee, any of the Security Documents or the Intercreditor Agreement or any Additional Intercreditor Agreement: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Issuer’s or a Guarantor’s obligations to holders of Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuer’s or such Guarantor’s assets, as applicable; (4) to make any change that would provide any additional rights or benefits to the holders of Notes or that does not adversely affect the legal rights under the Indenture of any such holder in any material respect; (5) to conform the text of the Indenture, the Note Guarantees, the Security Documents, or the Notes to any provision of this ‘‘Description of the Notes’’ to the extent that such provision in this ‘‘Description of the Notes’’ was intended to be a verbatim recitation of a provision of the Indenture, the Note Guarantees, the Security Documents, or the Notes; (6) to enter into additional or supplemental Security Documents; (7) to release any Note Guarantee in accordance with the terms of the Indenture; (8) to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the Issue Date; (9) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes; (10) to add additional parties to the Intercreditor Agreement or any Security Document to the extent permitted hereunder or thereunder; or (11) to evidence and provide the acceptance of the appointment of a successor Trustee or Security Agent under the Indenture or to evidence and provide the acceptance of the appointment of a Security Agent under the Intercreditor Agreement, any Additional Intercreditor Agreement or any Security Document. The consent of the holders of Notes is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. In formulating its opinion on such matters, the Trustee shall be entitled to rely absolutely on such evidence as it deems appropriate, including an opinion of counsel and an Officer’s Certificate.
Satisfaction and Discharge The Indenture will be discharged and will cease to be of further effect as to all Notes issued thereunder, when: (1) either: (a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has been deposited in trust and thereafter repaid to the Issuer, have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuer or any Guarantor has
226 irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the holders, cash in euros, non-callable European Government Obligations or a combination of cash in euros and non-callable European Government Obligations, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Additional Amounts, if any, and accrued interest to the date of maturity or redemption; (2) the Issuer or any Guarantor has paid or caused to be paid all sums payable by it under the Indenture; and (3) the Issuer has delivered irrevocable instructions to the Trustee under the Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be. In addition, the Issuer must deliver an Officer’s Certificate and an opinion of counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied; provided that any such counsel may rely on any Officer’s Certificate as to matters of fact (including as to compliance with the foregoing clauses (1), (2) and (3)).
Judgment Currency Any payment on account of an amount that is payable in euros which is made to or for the account of any holder or the Trustee in lawful currency of any other jurisdiction (the ‘‘Judgment Currency’’), whether as a result of any judgment or order or the enforcement thereof or the liquidation of the Issuer or any Guarantor, shall constitute a discharge of the Issuer or the Guarantor’s obligation under the Indenture and the Notes or Note Guarantee, as the case may be, only to the extent of the amount of euros with such holder or the Trustee, as the case may be, could purchase in the London foreign exchange markets with the amount of the Judgment Currency in accordance with normal banking procedures at the rate of exchange prevailing on the first Business Day following receipt of the payment in the Judgment Currency. If the amount of euros that could be so purchased is less than the amount of euros originally due to such holder or the Trustee, as the case may be, the Issuer and the Guarantors shall indemnify and hold harmless the holder or the Trustee, as the case may be, from and against all loss or damage arising out of, or as a result of, such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained in the Indenture or the Notes, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by any holder or the Trustee from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount due hereunder or under any judgment or order.
Concerning the Trustee Deutsche Trustee Company Limited is to be appointed as Trustee under the Indenture. The Issuer shall deliver written notice to the Trustee within thirty (30) days of becoming aware of the occurrence of a Default or an Event of Default. If the Trustee becomes a creditor of the Issuer or any Guarantor, the Indenture limits the right of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days or resign as Trustee. The holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default occurs and is continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes, unless such holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.
227 The Issuer and the Guarantors, jointly and severally, will indemnify the Trustee for certain claims, liabilities and expenses incurred without negligence or willful misconduct on its part, arising out of or in connection with its duties.
Listing Application will be made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Global Exchange Market. There can be no assurance that the application to the Irish Stock Exchange to admit the Notes to the Official List and to trading on the Global Exchange Market will be approved and settlement of the Notes is not conditioned on obtaining this listing.
Additional Information Anyone who receives this Offering Circular may, following the Issue Date, obtain a copy of the Indenture, the form of Note, the Escrow Agreement, the Security Documents, the Intercreditor Agreement and any Additional Intercreditor Agreement without charge by writing to the Issuer at its registered office at 282 route de Longwy L-1940, Luxembourg. So long as the Notes are listed on the Official List of the Irish Stock Exchange and admitted for trading on the Global Exchange Market and the rules of the Irish Stock Exchange shall so require, copies of the financial statements included in this Offering Circular may be obtained, free of charge, during normal business hours at the offices of the Paying Agent in Dublin.
Consent to Jurisdiction and Service of Process The Indenture will provide that the Issuer and each Guarantor will appoint CT Corporation as its agent for service of process in any suit, action or proceeding with respect to the Indenture, the Notes and the Note Guarantees brought in any U.S. federal or New York state court located in the City of New York and will submit to such jurisdiction.
Enforceability of Judgments Substantially all of the assets of the Issuer and the Guarantors are outside the United States. As a result, any judgment obtained in the United States against the Issuer or any Guarantor may not be collectable within the United States. Please see ‘‘Enforcement of Civil Liabilities’’.
Prescription Claims against the Issuer or any Guarantor for the payment of principal or Additional Amounts, if any, on the Notes will be prescribed ten years after the applicable due date for payment thereof. Claims against the Issuer or any Guarantor for the payment of interest on the Notes will be prescribed five years after the applicable due date for payment of interest.
Governing Law The Indenture, the Notes and the Guarantees, and the rights and duties of the parties thereunder shall be governed by and construed in accordance with the laws of the State of New York. The Intercreditor Agreement and the rights and duties of the parties thereunder shall be governed by and construed in accordance with the laws of England and Wales. The provisions of Articles 86 to 94-8 of the Luxembourg law on commercial companies of August 10, 1915, as amended, are excluded.
Certain Definitions Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all defined terms used therein, as well as any other capitalized terms used herein for which no definition is provided. ‘‘Acquired Debt’’ means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such
228 Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. ‘‘Acquisition’’ means the acquisition by the Issuer, directly or indirectly, of all the issued and outstanding capital stock of Opodo, pursuant to the Acquisition Agreement. ‘‘Acquisition Agreement’’ means the agreement for the sale and purchase of the entire issued share capital of Opodo, dated as of February 9, 2011, by and among, Amadeus IT Group S.A. and the Company. ‘‘Affiliate’’ of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, ‘‘control,’’ as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms ‘‘controlling,’’ ‘‘controlled by’’ and ‘‘under common control with’’ have correlative meanings. ‘‘Applicable Premium’’ means, with respect to any Note on any redemption date, the greater of: (1) 1.0% of the principal amount of the Note; or (2) the excess of: (a) the present value at such redemption date of (i) the redemption price of the Note at May 1, 2014, (such redemption price being set forth in the table appearing above under the caption ‘‘—Optional Redemption’’) plus (ii) all required interest payments due on the Note through May 1, 2014 (excluding accrued but unpaid interest to the redemption date), computed using a discount rate equal to the Bund Rate as of such redemption date plus 50 basis points; over (b) the principal amount of the Note. For the avoidance of doubt, calculation of the Applicable Premium shall not be an obligation or duty of the Trustee, the Registrar or any Paying Agent. ‘‘Asset Sale’’ means: (1) the sale, lease, conveyance or other disposition of any assets by the Issuer or any of its Restricted Subsidiaries; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the Indenture described above under the caption ‘‘—Repurchase at the Option of Holders—Change of Control’’ and/or the provisions described above under the caption ‘‘—Certain Covenants—Merger, Consolidation or Sale of Assets’’ and not by the provisions described under the caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’; and (2) the issuance of Equity Interests by any Restricted Subsidiary or the sale by the Issuer or any of its Restricted Subsidiaries of Equity Interests in any of the Issuer’s Subsidiaries (in each case, other than directors’ qualifying shares). Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than e5 million; (2) a transfer of assets or Equity Interests between or among the Issuer and any Restricted Subsidiary; (3) an issuance of Equity Interests by a Restricted Subsidiary to the Issuer or to a Restricted Subsidiary;
229 (4) the sale, lease or other transfer of accounts receivable, inventory, trading stock, communications capacity and other assets (including any real or personal property) in the ordinary course of business (including the abandonment or other disposition of intellectual property that is, in the reasonable judgment of the Issuer, no longer economically practicable to maintain or useful in the conduct of business of the Issuer and its Restricted Subsidiaries taken as a whole); (5) licenses and sublicenses by the Issuer or any of its Restricted Subsidiaries of software or intellectual property in the ordinary course of business; (6) any surrender or waiver of contract rights or the settlement, release, recovery on or surrender of contract, tort or other claims in the ordinary course of business; (7) the granting of Liens not prohibited by the covenant described above under the caption ‘‘—Liens’’; (8) the sale or other disposition of cash or Cash Equivalents; (9) a Restricted Payment that does not violate the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments,’’ a Permitted Investment or any transaction specifically excluded from the definition of Restricted Payment; (10) the disposition of receivables in connection with the compromise, settlement or collection thereof in the ordinary course of business or in bankruptcy or similar proceedings and exclusive of factoring or similar arrangements; (11) the foreclosure, condemnation or any similar action with respect to any property or other assets or a surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind; (12) the disposition of assets to a Person who is providing services (the provision of which have been or are to be outsourced by the Issuer or any Restricted Subsidiary to such Person) related to such assets; and (13) any sale or other disposition of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary. ‘‘Asset Sale Offer’’ has the meaning assigned to that term in the Indenture governing the Notes. ‘‘AXA Private Equity’’ means AXA Investment Managers Private Equity Europe S.A. ‘‘Beneficial Owner’’ has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the U.S. Exchange Act, except that in calculating the beneficial ownership of any particular ‘‘person’’ (as that term is used in Section 13(d)(3) of the U.S. Exchange Act), such ‘‘person’’ will be deemed to have beneficial ownership of all securities that such ‘‘person’’ has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms ‘‘Beneficially Owns’’ and ‘‘Beneficially Owned’’ have a corresponding meaning. ‘‘Board of Directors’’ means: (1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the board of directors of the general partner of the partnership; (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. ‘‘Bund Rate’’ means, as of any redemption date, the rate per annum equal to the equivalent yield to maturity as of such redemption date of the Comparable German Bund Issue, assuming a
230 price for the Comparable German Bund Issue (expressed as a percentage of its principal amount) equal to the Comparable German Bund Price for such relevant date, where: (1) ‘‘Comparable German Bund Issue’’ means the German Bundesanleihe security selected by any Reference German Bund Dealer as having a fixed maturity most nearly equal to the period from such redemption date to May 1, 2014, and that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of euro-denominated corporate debt securities in a principal amount approximately equal to the then outstanding principal amount of the Notes and of a maturity most nearly equal to May 1, 2014; provided, however, that, if the period from such redemption date to May 1, 2014 is less than one year, a fixed maturity of one year shall be used; (2) ‘‘Comparable German Bund Price’’ means, with respect to any relevant date, the average of all Reference German Bund Dealer Quotations for such date (which, in any event, must include at least two such quotations), after excluding the highest and lowest such Reference German Bund Dealer Quotations, or if the Issuer obtains fewer than four such Reference German Bund Dealer Quotations, the average of all such quotations; (3) ‘‘Reference German Bund Dealer’’ means any dealer of German Bundesanleihe securities appointed by the Issuer in good faith; and (4) ‘‘Reference German Bund Dealer Quotations’’ means, with respect to each Reference German Bund Dealer and any relevant date, the average as determined by the Issuer of the bid and offered prices for the Comparable German Bund Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Issuer by such Reference German Bund Dealer at 3:30 p.m. Frankfurt, Germany time on the third Business Day preceding the relevant date. ‘‘Business Day’’ means a day other than a Saturday, Sunday or other day on which banking institutions in London, United Kingdom, Luxembourg or New York, New York, United States or a place of payment under the Indenture are authorized or required by law to close. ‘‘Capital Lease Obligation’’ means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet (excluding the footnotes thereto) prepared in accordance with IFRS as in effect on the Issue Date, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. ‘‘Capital Stock’’ means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. ‘‘Cash Equivalents’’ means: (1) direct obligations (or certificates representing an interest in such obligations) issued by, or unconditionally guaranteed by, the government of a member state of the Pre-Expansion European Union, the United States of America, Sweden, Switzerland or Canada (including, in each case, any agency or instrumentality thereof), as the case may be, the payment of which is backed by the full faith and credit of the relevant member state of the European Union or the United States of America, Switzerland or Canada, as the case may be, and which are not callable or redeemable at the Issuer’s option;
231 (2) overnight bank deposits, time deposit accounts, certificates of deposit, banker’s acceptances and money market deposits with maturities (and similar instruments) of 12 months or less from the date of acquisition issued by a bank or trust company which is organized under, or authorized to operate as a bank or trust company under, the laws of a member state of the Pre-Expansion European Union or of the United States of America or any state thereof, Norway, Sweden, Switzerland or Canada; provided that such bank or trust company has capital, surplus and undivided profits aggregating in excess of e250 million (or the foreign currency equivalent thereof as of the date of such investment) and whose long-term debt is rated ‘‘A-2’’ or higher by Moody’s or A or higher by S&P or the equivalent rating category of another internationally recognized rating agency, as of the date of the investment; (3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (1) and (2) above entered into with any financial institution meeting the qualifications specified in clause (2) above; (4) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P on the date of the investment and, in each case, maturing within one year after the date of investment; and (5) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (4) of this definition. ‘‘Change of Control’’ means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Issuer and its Subsidiaries taken as a whole or the GP, to any Person (including any ‘‘person’’ (as that term is used in Section 13(d)(3) of the U.S. Exchange Act) other than one or more Permitted Holders); (2) the adoption of a plan relating to the liquidation or dissolution of the Issuer or the GP; (3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any Person (including any ‘‘person’’ as defined above) other than one or more Permitted Holders becomes the Beneficial Owner, directly or indirectly, of more than 50% of the issued and outstanding Voting Stock of the Issuer or the GP measured by voting power rather than number of shares; or (4) following an Initial Public Offering, during any period of two consecutive years, individuals who at the beginning of such period constituted the majority of the members on the Board of Directors of the Issuer or the GP (together with any new directors whose election by the majority of the members on the Board of Directors of the Issuer or the GP, as applicable, or whose nomination for election by shareholders of the Issuer or the GP, as applicable, was approved by a vote of the majority of the members on the Board of Directors of the Issuer or the GP, as applicable, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) ceased for any reason to constitute the majority of the members on the Board of Directors of the Issuer or the GP, as applicable, then in office. ‘‘Change of Control Offer’’ has the meaning assigned to that term in the Indenture governing the Notes. ‘‘Collateral’’ means the rights, property and assets securing the Notes and the Note Guarantees as described in the section entitled ‘‘—Security’’ (other than the Lyparis Structural Back to Back Loan Collateral) and any rights, property or assets over which a Lien has been granted to secure the Obligations of the Issuer and the Guarantors under the Notes, the Note Guarantees and the Indenture. ‘‘Company’’ means LuxGEO S.a` r.l.
232 ‘‘Consolidated EBITDA’’ means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus the following to the extent deducted in calculating such Consolidated Net Income, without duplication: (1) provision for taxes based on income or profits of such Person and its Subsidiaries which are Restricted Subsidiaries for such period; plus (2) the Fixed Charges of such Person and its Subsidiaries which are Restricted Subsidiaries for such period; plus (3) depreciation, amortization (including, without limitation, amortization of intangibles and deferred financing fees) and other non-cash charges and expenses (including without limitation write-downs and impairment of property, plant, equipment and intangibles and other long-lived assets and the impact of purchase accounting on the Issuer and its Restricted Subsidiaries for such period) of the Issuer and its Restricted Subsidiaries (excluding any such non-cash charge or expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) for such period; plus (4) the amount of any minority interest expense consisting of subsidiary income attributable to minority equity interests of third parties in any non-wholly owned Restricted Subsidiary in such period or any prior period, except to the extent of dividends declared or paid on, or other cash payments in respect of, Equity Interests held by such parties; plus (5) Management Fees; plus (6) any expense or charge attributable to a post-employment benefit scheme other than the current service costs and any past service costs and curtailments and settlements attributable to the scheme; plus (7) any expenses, charges or fees relating to any Equity Offering, Permitted Investment, acquisition or Indebtedness permitted to be incurred by the Indenture (in each case, whether or not successful); plus (8) all expenses incurred directly in connection with any early extinguishment of Indebtedness; minus (9) non-cash items increasing such Consolidated Net Income for such period (other than any non-cash items increasing such Consolidated Net Income pursuant to clauses (1) through (13) of the definition of Consolidated Net Income), other than the reversal of a reserve for cash charges in a future period in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with IFRS, except as otherwise stated in the Indenture. ‘‘Consolidated Leverage Ratio’’ means, as of any date of determination, the ratio of (a) the total amount of outstanding Indebtedness of the Issuer and its Restricted Subsidiaries on a consolidated basis on such date to (b) the Consolidated EBITDA of the Issuer for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of such determination. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Consolidated Leverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Consolidated Leverage Ratio is made (for the purpose of this definition, the ‘‘Calculation Date’’), then the Consolidated Leverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period.
233 In addition, for purposes of calculating the Consolidated EBITDA for such period: (1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or by any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; and (4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period. ‘‘Consolidated Net Income’’ means, with respect to any specified Person for any period, the aggregate of the net income (loss) of such Person and its Restricted Subsidiaries for such period, on a consolidated basis (excluding the net income (loss) of any Unrestricted Subsidiaries), determined in accordance with IFRS and without any reduction in respect of preferred stock dividends; provided that: (1) any net after-tax extraordinary, non-recurring or exceptional gains or losses or income, expenses or charges (less all fees and expenses related thereto) and any severance expenses, will be excluded; (2) the net income or loss of any Person that is not a Restricted Subsidiary or that is accounted for under the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary which is a Subsidiary of the Person; (3) solely for the purpose of determining the amount available for Restricted Payments under clause (c)(i) of the first paragraph under the caption ‘‘—Certain Covenants—Restricted Payments,’’ any net income (or loss) of any Restricted Subsidiary (other than any Guarantor) will be excluded if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Issuer (or any Guarantor that holds the Equity Interests of such Restricted Subsidiary, as applicable), by operation of the terms of such Restricted Subsidiary’s charter or any agreement, instrument, judgment, decree, order, statute or governmental rule or regulation applicable to such Restricted Subsidiary or its shareholders (other than (a) restrictions that have been waived or otherwise released, (b) restrictions pursuant to the Notes or the Indenture and (c) contractual restrictions in effect on the Issue Date with respect to such Restricted Subsidiary and other restrictions with respect to such Restricted Subsidiary that, taken as a whole, are not materially less favorable to the holders of the Notes than such restrictions in effect on the Issue Date), except that the Issuer’s equity in the net income of any such Restricted Subsidiary for such period will be included in such Consolidated Net Income up to the aggregate amount of cash or Cash Equivalents actually distributed or that could have been distributed by such Restricted Subsidiary during such period to the Issuer or another Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend to another Restricted Subsidiary (other than any Guarantor), to the limitation contained in this clause); (4) any net after-tax income or loss from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations will be excluded;
234 (5) any net gain (or loss) realized upon the sale or other disposition of any asset or disposed operations of the Issuer or any Restricted Subsidiaries (including pursuant to any sale leaseback transaction) which is not sold or otherwise disposed of in the ordinary course of business (as determined in good faith by the Issuer) will be excluded; (6) any one time non-cash charges or any amortization or depreciation resulting from purchase accounting, in each case, in relation to any acquisition of, or merger or consolidation with, another Person or business or resulting from any reorganization or restructuring involving the Issuer or its Subsidiaries will be excluded; (7) the cumulative effect of a change in accounting principles will be excluded; (8) any unrealized gains or losses in respect of Hedging Obligations or any ineffectiveness recognized in earnings related to qualifying hedge transactions or the fair value or changes therein recognized in earnings for derivatives that do not qualify as hedge transactions, in each case, in respect of Hedging Obligations will be excluded; (9) any non-cash compensation charge or expenses arising from any grant of stock, stock options or other equity based awards will be excluded; (10) any goodwill or other intangible asset impairment charges will be excluded; (11) all deferred financing costs written off and premium paid in connection with any early extinguishment of Indebtedness and any net gain or loss from any write-off or forgiveness of Indebtedness will be excluded; (12) any capitalized interest (including accreting or pay-in-kind interest) on any Subordinated Shareholder Debt will be excluded; (13) any foreign currency translation gains or losses (including gains or losses related to currency remeasurements of Indebtedness) of the Issuer and its Restricted Subsidiaries will be excluded; and (14) any expenses, costs or other charges (including any non-cash charges) related to the Transactions will be excluded. ‘‘Consolidated Senior Secured Leverage’’ means, as of any date of determination, the sum of the total amount of Senior Secured Indebtedness of the Issuer and its Restricted Subsidiaries on a consolidated basis. ‘‘Consolidated Senior Secured Leverage Ratio’’ means, as of any date of determination, the ratio of (a) the Consolidated Senior Secured Leverage of the Issuer on such date to (b) the Consolidated EBITDA of the Issuer for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness, is incurred. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Stock or preferred stock subsequent to the commencement of the period for which the Consolidated Senior Secured Leverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Consolidated Senior Secured Leverage Ratio is made (for the purpose of this definition, the ‘‘Calculation Date’’), then the Consolidated Senior Secured Leverage Ratio will be calculated giving pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Stock or preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Consolidated EBITDA for such period: (1) acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or by any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and increases in ownership of Subsidiaries
235 which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by a responsible accounting or financial officer of the Issuer and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; and (4) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period. ‘‘Contingent Obligations’’ means, with respect to any Person, any obligation of such Person guaranteeing in any manner, whether directly or indirectly, any operating lease, dividend or other obligation that, in each case, does not constitute Indebtedness (‘‘primary obligations’’) of any other Person (the ‘‘primary obligor’’), including any obligation of such Person, whether or not contingent: (1) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (2) to advance or supply funds: (a) for the purchase or payment of any such primary obligation; or (b) to maintain the working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or (3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof. ‘‘continuing’’ means, with respect to any Default or Event of Default, that such Default or Event of Default has not been cured or waived. ‘‘Credit Facilities’’ means, with respect to the Issuer or any of its Subsidiaries, one or more debt facilities, instruments or arrangements (including the Senior Credit Agreement or commercial paper facilities and overdraft facilities) or commercial paper facilities or indentures or trust deeds or note purchase agreements, in each case, with banks, other institutions, funds or investors, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such institutions or to special purpose entities formed to borrow from such institutions against such receivables), letters of credit, bonds, notes debentures or other corporate debt instruments or other Indebtedness, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, refinanced, repaid, increased or extended in whole or in part from time to time (and whether in whole or in part and whether or not with the original administrative agent and lenders or another administrative agent or agents or trustees or other banks or institutions and whether provided under the Senior Credit Agreement or one or more other credit or other agreements, indentures, financing agreements or otherwise) and in each case including all agreements, instruments and documents executed and delivered pursuant to or in connection with the foregoing (including any notes and letters of credit issued pursuant thereto and any guarantee and collateral agreement, patent and trademark security agreement, mortgages or letter of credit applications and other guarantees, pledges, agreements, security agreements and collateral documents). Without limiting the generality of the foregoing, the term ‘‘Credit Facilities’’ shall include any agreement or instrument (1) changing the maturity of any Indebtedness incurred thereunder or contemplated thereby, (2) adding Subsidiaries of the Issuer as additional borrowers, issuers or guarantors thereunder, (3) increasing the amount of Indebtedness incurred thereunder or available to be borrowed thereunder or (4) otherwise altering the terms and conditions thereof. ‘‘Currency Exchange Protection Agreement’’ means, in respect of any Person, any foreign exchange contract, currency swap agreement, currency option, cap, floor, ceiling or collar or
236 agreement or other similar agreement or arrangement designed to protect such Person against fluctuations in currency exchange rates as to which such Person is a party. ‘‘Default’’ means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. ‘‘Designated Non-Cash Consideration’’ means the Fair Market Value of non-cash consideration received by the Issuer or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as ‘‘Designated Non-Cash Consideration’’ pursuant to an Officer’s Certificate, setting forth the basis of such valuation, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of such Designated Non-Cash Consideration. ‘‘Disqualified Stock’’ means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the sixth month anniversary of the date that the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the issuer thereof to repurchase such Capital Stock upon the occurrence of a Change of Control or an Asset Sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the issuer thereof may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments.’’ For purposes hereof, the amount of Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture, and if such price is based upon, or measured by, the Fair Market Value of such Disqualified Stock, such Fair Market Value to be determined as set forth herein. ‘‘eDreams Group’’ means eDreams Inc. together with its subsidiaries, as of the Issue Date. ‘‘Equity Contribution’’ means the amount of Equity Interests and Subordinated Shareholder Debt of the Issuer subscribed for the Equity Investors in connection with the Transaction. ‘‘Equity Interests’’ means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). ‘‘Equity Investors’’ means (i) AXA Private Equity and its Affiliates or any trust, fund, company or partnership owned, managed or advised by AXA Private Equity or any limited partner of any such trust, fund, company or partnership (including Axeurope S.A.) and (ii) the Permira Funds or any trust, fund, company or partnership owned, managed or advised by Permira Asesores, S.L. or Affiliates or any limited partner of any such trust, fund, company or partnership (including Luxgoal S.a` r.l.). ‘‘Equity Offering’’ means a sale of Capital Stock (x) that is a sale of Capital Stock of the Issuer (other than Disqualified Stock) other than offerings registered on Form S-8 (or any successor form) under the U.S. Securities Act or any similar offering in other jurisdictions, or (y) the proceeds of which are contributed as Subordinated Shareholder Debt or to the equity (other than through the issuance of Disqualified Stock) of the Issuer or any of its Restricted Subsidiaries. ‘‘Escrowed Proceeds’’ means the proceeds from the offering of any debt securities or other Indebtedness paid into an escrow account with an independent escrow agent on the date of the applicable offering or incurrence pursuant to escrow arrangements that permit the release of amounts on deposit in such escrow account upon satisfaction of certain conditions or the occurrence of certain events. The term ‘‘Escrowed Proceeds’’ shall include any interest earned on the amounts held in escrow. ‘‘European Government Obligations’’ means direct obligations of, or obligations guaranteed by, a member state of the European Union, and for the payment of which such member state of the European Union pledges its full faith and credit.
237 ‘‘Excluded Contributions’’ means the net cash proceeds received by the Issuer after the Completion Date from: (1) contributions to its common equity capital; and (2) the sale (other than to a Subsidiary of the Issuer) of Capital Stock (other than Disqualified Stock) of the Issuer, in each case designated as ‘‘Excluded Contributions’’ pursuant to an Officer’s Certificate of the Issuer (which shall be designated no later than the date on which such Excluded Contribution has been received by the Issuer), the net cash proceeds of which are excluded from the calculation set forth in the clause (c)(ii) of the covenant described under the caption ‘‘Certain Covenants— Restricted Payments’’ hereof. ‘‘Existing eDreams Indebtedness’’ means the facilities made available to, amongst others, USgoal Inc. to partially finance the purchase of eDreams Enterprises, S.L. and shares in eDreams Inc. under the e117,000,000 senior facilities agreement dated July 25, 2010 as amended and restated on September 10, 2010. ‘‘Existing Go Voyages Indebtedness’’ means (a) the facilities made available to, amongst others, Lyparis under the facilities agreement dated July 2, 2010 in connection with the refinancing of amounts in relation to the acquisition of Lyparis and (b) the e40,000,000 warranted mezzanine bonds issued by Lyparis pursuant to a bonds instrument dated July 2, 2010. ‘‘Fair Market Value’’ means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress of either party, determined in good faith by the Issuer’s Chief Executive Officer, Chief Financial Officer or responsible accounting or financial officer of the Issuer. ‘‘Fixed Charges’’ means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense (net of interest income) of such Person and its Subsidiaries which are Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt discount (but not debt issuance costs, commissions, fees and expenses), non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments), the interest component of deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings; plus (2) the consolidated interest expense (but excluding such interest on Subordinated Shareholder Debt) of such Person and its Subsidiaries which are Restricted Subsidiaries that was capitalized during such period; plus (3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Subsidiaries which are Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Subsidiaries which are Restricted Subsidiaries; plus (4) net payments and receipts (if any) pursuant to interest rate Hedging Obligations (excluding amortization of fees) with respect to Indebtedness; plus (5) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of any Restricted Subsidiary, other than dividends on Equity Interests payable to the Issuer or a Restricted Subsidiary, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined national, state and local statutory tax rate of such Person, expressed as a decimal, as estimated in good faith by a responsible accounting or financial officer of the Issuer. ‘‘Fixed Charge Coverage Ratio’’ means, with respect to any specified Person for any period, the ratio of the Consolidated EBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Subsidiaries which are Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or
238 otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (for the purpose of this definition, the ‘‘Calculation Date’’), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect (as determined in good faith by the Issuer’s Chief Financial Officer or a responsible financial or accounting officer of the Issuer) to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions of business entities or property and assets constituting a division or line of business of any Person, acquisitions that have been made by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Subsidiaries which are Restricted Subsidiaries acquired by the specified Person or any of its Subsidiaries which are Restricted Subsidiaries, and including all related financing transactions and including increases in ownership of Subsidiaries which are Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date, or that are to be made on the Calculation Date, will be given pro forma effect (as determined in good faith by the Issuer’s Chief Financial Officer or a responsible financial or accounting officer of the Issuer and may include anticipated expense and cost reduction synergies) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated EBITDA attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with IFRS, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Subsidiaries which are Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest and such Indebtedness is to be given pro forma effect, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months, or, if shorter, at least equal to the remaining term of such Indebtedness). ‘‘Go Voyages Group’’ means Lyeurope together with its subsidiaries, as of the Issue Date. ‘‘GP’’ means LuxGEO GP S.a` r.l. or any successor general partner of the Issuer. ‘‘guarantee’’ means a guarantee other than by endorsement of negotiable instruments for collection or deposit in the ordinary course of business, of all or any part of any Indebtedness (whether arising by agreements to keep-well, to take or pay or to maintain financial statement conditions, pledges of assets or otherwise). ‘‘Guarantors’’ means, (a) as of the Completion Date, the Initial Guarantors and (b) thereafter, any other Person that executes a Note Guarantee in accordance with the provisions of the Indenture and the Intercreditor Agreement, and their respective successors and assigns, in each
239 case, until the Note Guarantee of such Person has been released in accordance with the provisions of the Indenture. ‘‘Hedging Obligations’’ means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rates or interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates, including Currency Exchange Protection Agreements, or commodity prices. ‘‘Holdco’’ means LuxGEO Parent S.a` r.l. ‘‘IFRS’’ means the International Financial Reporting Standards as endorsed by the European Union and in effect on the date of any calculation or determination required hereunder. ‘‘Indebtedness’’ means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables): (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments for which such Person is responsible or liable; (3) representing reimbursement obligations in respect of letters of credit, bankers’ acceptances or similar instruments (except to the extent such reimbursement obligations relate to trade payables and such obligations are satisfied within 30 days of incurrence); (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; and (6) representing any Hedging Obligations; if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of the specified Person prepared in accordance with IFRS. In addition, the term ‘‘Indebtedness’’ includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person to the extent guaranteed by such Person; provided, however, that in the case of Indebtedness secured by a Lien, the amount of such Indebtedness will be the lesser of (a) the fair market value of such asset at such date of determination (as determined in good faith) by the Issuer and (b) the amount of such Indebtedness of such other Person. The term ‘‘Indebtedness’’ shall not include: (1) Subordinated Shareholder Debt; (2) any lease of property which would be considered an operating lease under IFRS; (3) Contingent Obligations in the ordinary course of business; (4) in connection with the purchase by the Issuer or any Restricted Subsidiary of any business, any post-closing payment adjustments to which the seller may become entitled to the extent such payment is determined by a final closing balance sheet or such payment depends on the performance of such business after the closing; provided however, that, at the time of closing, the amount of any such payment is not determinable and, to the extent such payment thereafter becomes fixed and determined, the amount is paid within 30 days thereafter;
240 (5) for the avoidance of doubt, any contingent obligations in respect of workers’ compensation claims, early retirement or termination obligations, pension fund obligations or contributions or similar claims, obligations or contributions or social security or wage Taxes; or (6) deferred or prepaid revenues. ‘‘Initial Guarantors’’ means the Company, eDreams Inc., Opodo and Travellink AB. ‘‘Initial Public Offering’’ means the first Public Equity Offering of common stock or common equity interests of the Issuer or any Parent Entity (the ‘‘IPO Entity’’) following which there is a Public Market. ‘‘Intercreditor Agreement’’ means the intercreditor agreement dated as of February 18, 2011, made between, among others, the Issuer, Societ´ e´ Gen´ erale´ as senior agent under the Senior Credit Agreement, and the Security Agent, as amended, restated or otherwise modified or varied from time to time and as acceded to by the Trustee. ‘‘Investment Grade Status’’ shall occur when the Notes are rated Baa3 or better by Moody’s and BBB or better by S&P (or, if either such entity ceases to rate the Notes, the equivalent investment grade credit rating from any other Rating Agency). ‘‘Investments’’ means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations, but excluding advances or extensions of credit to customers or suppliers made in the ordinary course of business), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as Investments on a balance sheet (excluding the footnotes) prepared in accordance with IFRS. If the Issuer or any Restricted Subsidiary sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary, the Issuer will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Issuer’s Investments in such Restricted Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments.’’ The acquisition by the Issuer or any Restricted Subsidiary of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Issuer or such Restricted Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments.’’ Except as otherwise provided in the Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value and, to the extent applicable, shall be determined based on the equity value of such Investment. ‘‘IPO Market Capitalization’’ means an amount equal to (i) the total number of issued and outstanding shares of common stock or common equity interests of the IPO Entity at the time of closing of the Initial Public Offering multiplied by (ii) the price per share at which such shares of common stock or common equity interests are sold in such Initial Public Offering. ‘‘Issue Date’’ means April 21, 2011. ‘‘Lien’’ means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement or any lease in the nature thereof. ‘‘Lyparis Structural Back to Back Loan’’ means the loan of e175,000,000 between the Issuer as lender and Lyparis as borrower and made on the Completion Date. ‘‘Luxembourg Security Providers’’ means each of Luxgoal S.a` r.l. and Axeurope S.A.
241 ‘‘Management Advances’’ means loans or advances made to, or guarantees with respect to loans or advances made to, directors, officers, employees or consultants of the Issuer or any Restricted Subsidiary: (1) in respect of travel, entertainment or moving related expenses incurred in the ordinary course of business; (2) in respect of moving related expenses incurred in connection with any closing or consolidation of any facility or office; or (3) in the ordinary course of business and (in the case of this clause (3)) not exceeding e5 million in the aggregate outstanding at any time. ‘‘Management Fees’’ means: (1) customary annual fees for the performance of monitoring services by AXA Private Equity or Permira Asesores, S.L. or any of their respective Affiliates for the Issuer or any Restricted Subsidiary; provided that such fees will not, in the aggregate, exceed e1 million per annum (plus reasonable out-of-pocket expenses subject to a cap of e150,000 per annum); and (2) customary fees and related expenses for the performance of transaction, management, consulting, financial or other advisory services or underwriting, placement or other investment banking activities, including in connection with mergers, acquisitions, dispositions or joint ventures, by AXA Private Equity or Permira Asesores, S.L. or any of their respective Affiliates for the Issuer or any of its Restricted Subsidiaries, which payments in respect of this clause (b) have been approved by a majority of the disinterested members of the Board of Directors of the Issuer. ‘‘Moody’s’’ means Moody’s Investors Service, Inc. ‘‘Net Proceeds’’ means the aggregate cash proceeds received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any Designated Non-Cash Consideration or other consideration received in non-cash form or Cash Equivalents substantially concurrently received in any Asset Sale), net of the direct costs relating to such Asset Sale and the sale of such Designated Non-Cash Consideration or other consideration received in non-cash form, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, and all distributions and other payments required to be made to minority interest holders (other than the Issuer or any Subsidiary) in Subsidiaries or joint ventures as a result of such Asset Sale, and any reserve for adjustment or indemnification obligations in respect of the sale price of such asset or assets established in accordance with IFRS. ‘‘Non-Recourse Debt’’ means Indebtedness as to which neither the Issuer nor any of its Restricted Subsidiaries (1) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (2) is directly or indirectly liable as a guarantor or otherwise. ‘‘Note Guarantee’’ means a guarantee by each Guarantor of the Issuer’s obligations under the Indenture and the Notes, executed pursuant to the provisions of the Indenture and subject to the provisions of the Intercreditor Agreement, including each Guarantee as of the Completion Date. ‘‘Obligations’’ means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. ‘‘Officer’’ means, with respect to any Person, the Chief Executive Officer, Chief Financial Officer, President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of such Person or any other person that the board of directors of such Person shall designate for such purpose. ‘‘Officer’s Certificate’’ means a certificate signed by an Officer. ‘‘Opodo’’ means Opodo Limited. ‘‘Opodo Group’’ means Opodo together with its subsidiaries.
242 ‘‘Parent Entity’’ means any direct or indirect parent company or entity of the Issuer. ‘‘Pari Passu Indebtedness’’ means (1) any indebtedness of the Issuer that ranks equally in right of payment with the Notes and (2) with respect to any Note Guarantee, any Indebtedness that ranks equally in right of payment to such Note Guarantee. ‘‘Permira Funds’’ means one or more funds advised by Permira Asesores, S.L. or Affiliates. ‘‘Permitted Business’’ means (i) any business, services or activities engaged in by the Opodo Group, the Go Voyages Group or the eDreams Group on the Issue Date and (ii) any business, services and activities engaged by the Issuer or any of its Restricted Subsidiaries (including the Opodo Group and the Go Voyages Group) that are related, complementary, incidental, ancillary or similar to any of the foregoing, or are extensions or developments of any thereof. ‘‘Permitted Collateral Liens’’ means: (1) Liens on the Collateral to secure the Notes (and the Note Guarantees) issued on the Issue Date; (2) Liens on the Collateral to secure any Additional Notes (or any guarantee of Additional Notes); provided that all property and assets (including, without limitation, the Collateral) securing such Additional Notes (or any guarantee of Additional Notes), also secures the Notes (or the Note Guarantees) on a pari passu basis; (3) Liens on the Collateral (other than the Notes First Ranking Collateral) securing: (a) Senior Secured Indebtedness of the Issuer and the Restricted Subsidiaries permitted in accordance with the first paragraph of the covenant entitled ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (b) Indebtedness under Credit Facilities that is permitted to be incurred pursuant to clause (1) of the second paragraph of the covenant entitled ‘‘—Certain Covenants— Incurrence of Indebtedness and Issuance of Preferred Stock’’; provided, however, that such Lien ranks either (x) equal to all other Liens on such Collateral securing Senior Debt of the Issuer, if such Indebtedness is Senior Debt of the Issuer, or equal to all other Liens on such Collateral securing Senior Debt of a Restricted Subsidiary, if such Indebtedness is Senior Debt of a Restricted Subsidiary (except that (1) a Lien in favor of Senior Debt of a Restricted Subsidiary (‘‘Refinancing Subsidiary Senior Debt’’) need not rank equally with Liens in favor of other Senior Debt of a Restricted Subsidiary if such Refinancing Subsidiary Senior Debt was incurred to refinance Indebtedness described in this clause (x) and such unequal ranking is due solely to operation of law arising as a consequence of such refinancing and (2) lenders under any Credit Facilities that constitute Senior Debt may provide for any ordering of payments under the various tranches of such Credit Facilities) or (y) equal or, if the Lien secures Subordinated Indebtedness of the Issuer or the relevant Restricted Subsidiary, junior to the Liens on such Collateral securing the Notes (or the Note Guarantees); provided, further that each of the parties thereto will have entered into the Intercreditor Agreement or any Additional Intercreditor Agreement; (4) Liens on the Collateral (other than the Notes First Priority Collateral) securing the Issuer’s or any Restricted Subsidiary’s obligations under Hedging Obligations permitted by clause (8) of the second paragraph of the covenant described above under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ that relate solely to Indebtedness referred to in clauses (1) through (3) above; provided that each of the parties thereto will have entered into the Intercreditor Agreement as a ‘‘Hedging Bank’’ (or the corresponding term in any Additional Intercreditor Agreement); (5) Liens on the Collateral to secure any Permitted Refinancing Indebtedness of the Issuer and its Restricted Subsidiaries in respect of the Indebtedness referred to in the clauses (1) and (2) and, with respect to Collateral other than the Notes First Ranking Collateral, (3) and (4) above (and Permitted Refinancing Indebtedness in respect of such Permitted Refinancing Indebtedness); provided that, all property and assets (including, without limitation, the Collateral) securing such Indebtedness also secures the Notes or the Guarantees with priority with respect to the Permitted Refinancing Indebtedness
243 substantially similar to that of the Indebtedness which is being exchanged renewed, refunded, refinanced, replaced or discharged; provided further that each of the parties thereto will have entered into the Intercreditor Agreement or any Additional Intercreditor Agreement; and (6) Liens on the Collateral arising by operation of law that are described in one or more of clauses (7), (8) and (15) of the definition of ‘‘Permitted Liens’’ and that, in each case, would not materially interfere with the ability of the Security Agent to enforce any Lien over the Collateral. ‘‘Permitted Holders’’ means the Equity Investors and Related Parties. Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder. ‘‘Permitted Investments’’ means: (1) any Investment in the Issuer or in a Restricted Subsidiary; (2) any Investment in cash and Cash Equivalents; (3) any Investment by the Issuer or any Restricted Subsidiary in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption ‘‘—Repurchase at the Option of Holders—Asset Sales’’; (5) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Issuer or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (b) litigation, arbitration or other disputes; (6) Investments in receivables owing to the Issuer or any Restricted Subsidiary created or acquired in the ordinary course of business; (7) Investments represented by Hedging Obligations, which obligations are permitted by clause (8) of the second paragraph of the covenant entitled ‘‘—Certain Covenants— Incurrence of Indebtedness and Issuance of Preferred Stock’’; (8) Investments in the Notes (including any Additional Notes) and any other Indebtedness of the Issuer or any Restricted Subsidiary; (9) any guarantee of Indebtedness permitted to be incurred by the covenant described above under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (10) any Investment existing on, or made pursuant to binding commitments existing on, the Issue Date and any Investment consisting of an extension, modification or renewal of any Investment existing on, or made pursuant to a binding commitment existing on, the Issue Date; provided that the amount of any such Investment may be increased (x) as required by the terms of such Investment as in existence on the Issue Date or (y) as otherwise permitted under the Indenture; (11) Investments acquired after the Issue Date as a result of the acquisition by the Issuer or any Restricted Subsidiary of another Person, including by way of a merger, amalgamation or consolidation with or into the Issuer or any of its Restricted Subsidiaries in a transaction that is not prohibited by the covenant described above under the caption ‘‘—Merger, Consolidation or Sale of Assets’’ after the Issue Date to the extent that such Investments were not made in contemplation of such acquisition, merger, amalgamation
244 or consolidation and were in existence on the date of such acquisition, merger, amalgamation or consolidation; (12) pledges or deposits (x) with respect to leases or utilities provided to third parties in the ordinary course of business or (y) otherwise described in the definition of ‘‘Permitted Liens’’ or made in connection with Liens permitted under the covenant described under ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; (13) any Investment to the extent made using as consideration Capital Stock of the Issuer (other than Disqualified Stock), Subordinated Shareholder Debt or Capital Stock of any Parent Entity; (14) Management Advances; (15) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Issuer; (16) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (16) that are at the time outstanding not to exceed the greater of e15 million and 1.0% of Total Assets at any time outstanding; provided that if an Investment is made pursuant to this clause in a Person that is not a Restricted Subsidiary and such Person subsequently becomes a Restricted Subsidiary or is subsequently designated a Restricted Subsidiary pursuant to the covenant described above under the caption ‘‘—Certain Covenants—Restricted Payments,’’ such Investment shall thereafter be deemed to have been made pursuant to clause (1) or (3) of the definition of ‘‘Permitted Investments’’ and not this clause; and (17) Investments in joint ventures of the Issuer or any of its Restricted Subsidiaries not to exceed at any one time in the aggregate outstanding, e10 million; provided, however, that if any Investment pursuant to this clause (17) is made in any Person that is not a Restricted Subsidiary of the Issuer at the date of the making of such Investment and such Person becomes a Restricted Subsidiary of the Issuer after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (17) for so long as such Person continues to be a Restricted Subsidiary. ‘‘Permitted Liens’’ means: (1) (a) Liens securing Indebtedness that was incurred as Senior Secured Indebtedness in accordance with the first paragraph of the covenant described under ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ and (b) Liens securing Credit Facilities permitted to be incurred pursuant to clauses (1) and (16) of the second paragraph of the covenant described under ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; provided, however, that such Liens may only be permitted to the extent that the Obligations under the Notes (and any Additional Notes), the Note Guarantees and the Indenture are unable to be secured by the same Liens (or if such Indebtedness is senior in right of payment, second-ranking Liens over the same assets) under applicable law and, in the case of Liens over the assets of Lyparis or Lyeurope, the Lyparis Structural Back to Back Obligations are secured by the same Liens (or if such Indebtedness is senior in right of payment, second-ranking Liens over the same assets) to the extent permitted under applicable law; (2) Liens in favor of the Issuer or any of the Restricted Subsidiaries; (3) Liens on property (including Capital Stock) of a Person existing at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Issuer or any Restricted Subsidiary; provided that such Liens were in existence prior to the contemplation of such Person becoming a Restricted Subsidiary or such merger or consolidation, were not incurred in contemplation thereof and do not extend to any assets other than those of the Person that becomes a Restricted Subsidiary or is merged with or into or consolidated with the Issuer or any Restricted Subsidiary;
245 (4) Liens to secure the performance of statutory obligations, trade contracts, insurance, surety or appeal bonds, workers’ compensation obligations, leases, performance bonds or other obligations of a like nature incurred in the ordinary course of business (including Liens to secure letters of credit issued to assure payment of such obligations); (5) Liens to secure Indebtedness permitted by clause (4) of the second paragraph of the covenant entitled ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’ covering only the assets acquired with or financed by such Indebtedness; (6) Liens existing on the Issue Date; (7) Liens for taxes, assessments or governmental charges or claims that (x) are not yet due and payable or (y) are being contested in good faith by appropriate proceedings and for which a reserve or other appropriate provision, if any, as will be required in conformity with IFRS will have been made; (8) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s and mechanics’ Liens, in each case, incurred in the ordinary course of business; (9) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (10) Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees); (11) Liens securing Indebtedness under Hedging Obligations, which obligations are permitted by clause (7) of the second paragraph of the covenant described above under the caption ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’; provided, however, that such Liens may only be permitted to the extent that the Obligations under the Notes (and any Additional Notes), the Note Guarantees and the Indenture are unable to be secured by the same Liens (or if such Indebtedness is senior in right of payment, second-ranking Liens over the same assets) under applicable law and, in the case of Liens over the assets of Lyparis or Lyeurope, the Lyparis Structural Back to Back Obligations are secured by the same Liens (or if such Indebtedness is senior in right of payment, second-ranking Liens over the same assets) to the extent permitted under applicable law; (12) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the Indenture (excluding Liens to secure Permitted Refinancing Indebtedness initially secured pursuant to clause (26) of this definition); provided, however, that: (a) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and (b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged with such Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge; (13) Liens on insurance policies and proceeds thereof, or other deposits, to secure insurance premium financings; (14) filing of Uniform Commercial Code financing statements under U.S. state law (or similar filings under other applicable jurisdictions) in connection with operating leases in the ordinary course of business;
246 (15) bankers’ Liens, rights of setoff or similar rights and remedies as to deposit accounts, Liens arising out of judgments or awards not constituting an Event of Default and notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made; (16) Liens on cash, Cash Equivalents or other property arising in connection with the defeasance, discharge or redemption of Indebtedness; (17) Liens on specific items of inventory or other goods (and the proceeds thereof) of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created in the ordinary course of business for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (18) leases, licenses, subleases and sublicenses of assets in the ordinary course of business; (19) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of assets entered into in the ordinary course of business; (20) (a) mortgages, liens, security interests, restrictions, encumbrances or any other matters of record that have been placed by any developer, landlord or other third party on property over which the Issuer or any Restricted Subsidiary has easement rights or on any real property leased by the Issuer or any Restricted Subsidiary and subordination or similar agreements relating thereto and (b) any condemnation or eminent domain proceedings or compulsory purchase order affecting real property; (21) Liens on property or assets under construction (and related rights) in favor of a contractor or developer or arising from progress or partial payments by a third party relating to such property or assets; (22) Liens securing or arising by reason of any netting or set-off arrangement entered into in the ordinary course of banking or other trading activities; (23) Liens (including put and call arrangements) on Capital Stock or other securities of any Unrestricted Subsidiary that secure Indebtedness of such Unrestricted Subsidiary; (24) limited recourse Liens in respect of the ownership interests in, or assets owned by, any joint ventures which are not Restricted Subsidiaries securing obligations of such joint ventures; (25) Liens on any proceeds loan made by the Issuer or any Restricted Subsidiary in connection with any future incurrence of Indebtedness permitted under the Indenture and securing that Indebtedness; (26) Liens incurred in the ordinary course of business of the Issuer and its Restricted Subsidiaries with respect to Obligations that do not exceed e5 million at any one time outstanding; (27) Permitted Collateral Liens; (28) any interest or title of a lessor under any operating lease; (29) Liens on Escrowed Proceeds for the benefit of the related holders of debt securities or other Indebtedness (or the underwriters or arrangers thereof) or on cash set aside at the time of the incurrence of any Indebtedness or government securities purchased with such cash, in either case to the extent such cash or government securities prefund the payment of interest on such Indebtedness and are held in an escrow account or similar arrangement to be applied for such purpose; (30) Liens on assets or property of a Restricted Subsidiary securing (a) any Senior Debt of a Guarantor or (b) Indebtedness of any Restricted Subsidiary that is not a Guarantor; (31) Liens on property at the time the Issuer or a Restricted Subsidiary acquired the property, including any acquisition by means of a merger or consolidation with or into the Issuer or any Restricted Subsidiary; provided that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such acquisition and do not extend to any other property owned by the Issuer or any Restricted Subsidiary; and
247 (32) Liens on the Lyparis Structural Back to Back Loan Collateral securing the obligations under the Lyparis Structural Back to Back Loan and any guarantees in respect thereof. ‘‘Permitted Parent Payments’’ means, without duplication as to amounts, the declaration and payment of dividends or other distributions, or the payment or making of loans, by the Issuer or any of its Restricted Subsidiaries to any Parent Entity in amounts and at times required to pay or reimburse: (1) fees, taxes and expenses required to maintain the corporate existence of any Parent Entity to the extent relating to the Issuer and its Restricted Subsidiaries; (2) general corporate overhead expenses of any Parent Entity to the extent such expenses are attributable to the ownership of the Capital Stock of the Issuer and its Restricted Subsidiaries (including fees and expenses properly incurred in the ordinary course of business to auditors and legal advisors and payments in respect of services provided by directors, officers, consultants, or employees of any such Parent Entity) not to exceed e1 million in any 12-month period; (3) any income taxes, to the extent such income taxes are attributable to the income of the Issuer and any of its Restricted Subsidiaries, taking into account any net operating loss carryovers and other tax attributes, and, to the extent of the amount actually received in cash from its Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent attributable to the income of such Unrestricted Subsidiaries; provided that such Parent Entity shall promptly pay such taxes or refund such amount to the Issuer; (4) costs (including all professional fees and expenses) incurred by any Parent Entity in connection with reporting obligations under or otherwise incurred in connection with compliance with applicable laws, rules or regulations of any governmental, regulatory or self-regulatory body or stock exchange, the Indenture or any other agreement or instrument relating to Indebtedness of the Issuer or any of its Restricted Subsidiaries, including in respect of any reports filed with respect to the U.S. Securities Act, U.S. Exchange Act or the respective rules and regulations promulgated thereunder; (5) fees and expenses of any Parent Entity incurred in relation to any public offering or other sale of Capital Stock or Indebtedness (whether or not completed) (a) where the net proceeds of such offering or sale are intended to be received by or contributed to the Issuer or any of its Restricted Subsidiaries; (b) in a prorated amount of such expenses in proportion to the amount of such net proceeds intended to be so received or contributed; or (c) otherwise on an interim basis prior to completion of such offering so long as any Parent Entity will cause the amount of such expenses to be repaid to the Issuer or the relevant Restricted Subsidiary out of the proceeds of such offering promptly if completed; and (6) fees, expenses and other costs of up to e5 million incurred by any Parent Entity in connection with the Transactions. ‘‘Permitted Refinancing Indebtedness’’ means any Indebtedness of the Issuer or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, exchange, defease or discharge other Indebtedness of the Issuer or any of its Restricted Subsidiaries (other than intercompany Indebtedness (other than any proceeds loan)); provided that: (1) the aggregate principal amount (or accreted value, if applicable), or if issued with original issue discount, aggregate issue price) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable, or if issued with original issue discount, aggregate issue price) of the Indebtedness renewed, refunded, refinanced, replaced, exchanged, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has (a) a final maturity date that is either (i) no earlier than the final maturity date of the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged or (ii) after the final maturity date of the Notes and (b) has a Weighted Average Life to Maturity that is equal to or
248 greater than the Weighted Average Life to Maturity of the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is expressly, contractually, subordinated in right of payment to the Notes or any Note Guarantee, as the case may be, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes or such Note Guarantee, as the case may be, on terms at least as favorable to the holders of Notes or the Note Guarantee, as the case may be, as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, exchanged, defeased or discharged; and (4) if the Issuer or any Guarantor was the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged, such Indebtedness is incurred either by the Issuer or a Guarantor. ‘‘Permitted Securities Issuance’’ means: (1) the issue by the Issuer or GP of Capital Stock if (a) the Capital Stock is subject to the same security under the Security Documents as the Issuer’s or GP’s, as the case may be, Capital Stock already in issue, and (b) the Capital Stock is pledged to secure the Notes and the Note Guarantees on the same priority basis as the Issuer’s or GP’s, as the case may be, Capital Stock already in issue; or (2) the issue by the Issuer or GP of Capital Stock for the purposes of a listing of all or any part of the Capital Stock of the Issuer and GP on any investment exchange or any other sale or issue by way of floatation or public offering or any equivalent circumstances in relation to the Issuer in connection with a Public Equity Offering. ‘‘Person’’ means any individual, corporation, partnership, joint venture, association, joint-stock company trust, unincorporated organization, limited liability Issuer or government or other entity. ‘‘Pre-Expansion European Union’’ means the European Union as of January 1, 2004, including the countries of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden and the United Kingdom, but not including any country which became or becomes a member of the European Union after January 1, 2004. ‘‘Public Equity Offering’’ means, with respect to any Person, a bona fide underwritten primary public offering of the shares of common stock or common equity interests of such Person, either: (1) pursuant to a flotation on the main market of the London Stock Exchange or any other nationally recognized regulated stock exchange or listing authority in a member state of the Pre-Expansion European Union; or (2) pursuant to an effective registration statement under the U.S. Securities Act (other than a registration statement on Form S-8 or otherwise relating to Equity Interests issued or issuable under any employee benefit plan). ‘‘Public Market’’ means any time after: (1) a Public Equity Offering of the IPO Entity has been consummated; and (2) at least 20% of the total issued and shares of common stock or common equity interests of the IPO Entity has been distributed to investors other than the Permitted Holders or their Related Parties or any other direct or indirect shareholders of the Issuer as of the Issue Date. ‘‘Rating Agencies’’ means Moody’s and S&P or, in the event Moody’s or S&P no longer assigns a rating to the Notes, any other ‘‘nationally recognized statistical rating organization’’ within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the U.S. Exchange Act selected by the Issuer as a replacement agency. ‘‘Related Party’’ means: (1) any controlling stockholder, partner or member, or any 50% (or more) owned Subsidiary, or immediate family member (in the case of an individual), of any Equity Investor; or
249 (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding a 50% or more controlling interest of which consist of any one or more Equity Investors and/or such other Persons referred to in the immediately preceding clause. ‘‘Restricted Investment’’ means an Investment other than a Permitted Investment. ‘‘Restricted Subsidiary’’ means any Subsidiary of the Issuer that is not an Unrestricted Subsidiary. ‘‘S&P’’ means Standard & Poor’s Ratings Group. ‘‘Security Agent’’ means Societ´ e´ Gen´ erale,´ as security agent pursuant to the Intercreditor Agreement, or any successor or replacement security agent acting in such capacity. ‘‘Security Documents’’ means the security agreements, pledge agreements, collateral assignments, and any other instrument and document executed and delivered pursuant to the Indenture or otherwise or any of the foregoing, as the same may be amended, supplemented or otherwise modified from time to time and pursuant to which the Collateral is pledged, assigned or granted to or on behalf of the Security Agent for the benefit of the holders of the Notes and the Trustee or notice of such pledge, assignment or grant is given. ‘‘Security Providers’’ means each of the Luxembourg Security Providers and, as of the Completion Date, each of Lyeurope and Lyparis. ‘‘Senior Credit Agreement’’ means the e480 million senior facilities agreement (providing for an additional uncommitted e50 million acquisition facility) between, among others, the Issuer, as the parent and obligor, certain of the Issuer’s Subsidiaries, as borrowers and guarantors, Commerzbank Aktiengesellschaft, Credit Suisse International, Goldman Sachs International, Lloyds TSB Bank plc, Societ´ e´ Gen´ erale´ and UBS Limited as mandated lead arrangers, and Societ´ e´ Gen´ erale´ as agent and security agent, dated February 18, 2011 and as amended and restated (whether or not upon termination, and whether with the original lenders or otherwise), restructured, repaid, refunded, refinanced or otherwise modified from time to time, including any agreement or indenture extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or agreements or any successor or replacement agreement or agreements or increasing the amount loaned thereunder (subject to compliance with the covenant described under ‘‘—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock’’) or altering the maturity thereof. ‘‘Senior Debt’’ means: (1) all Indebtedness of the Issuer or any Guarantor outstanding under the Senior Credit Agreement, all Hedging Obligations and all Obligations with respect to any of the foregoing; and (2) any other Indebtedness of the Issuer or any Guarantor permitted to be incurred under the terms of the Indenture, unless the instrument under which such Indebtedness is incurred expressly provides, in the case of the Issuer, that it is subordinated in right of payment to the Notes, or in the case of any Guarantor that has provided a Note Guarantee, that it is on a parity with or subordinated in right of payment to the Note Guarantee of such Guarantor and all Obligations with respect to any of the foregoing. Notwithstanding anything to the contrary in the preceding, Senior Debt will not include: (1) any liability for national, state, local or other taxes owed or owing by the Issuer or any of its Subsidiaries; (2) any intercompany Indebtedness of the Issuer or any of its Subsidiaries to the Issuer or any of its Affiliates; (3) any trade payables; or (4) the portion of any Indebtedness that is incurred in violation of the Indenture; provided that Indebtedness under a Credit Facility will not cease to be ‘‘Senior Debt’’ by virtue of this clause (4) if it was advanced on the basis of an Officer’s Certificate to the effect that it was permitted to be incurred under the Indenture.
250 ‘‘Senior Secured Indebtedness’’ means, as of any date of determination, any Indebtedness that (a) is secured by a Lien on assets other than Collateral, (b) is secured by a Lien on Collateral that ranks senior or prior to the Liens that secure the Notes and the Note Guarantees, and (c) Indebtedness of a Restricted Subsidiary of the Issuer that is not a Guarantor. ‘‘Significant Subsidiary’’ means, at the date of determination, any Restricted Subsidiary that together with its Subsidiaries which are Restricted Subsidiaries (i) for the most recent fiscal year, accounted for more than 10% of the consolidated revenues of the Issuer or (ii) as of the end of the most recent fiscal year, was the owner of more than 10% of the consolidated assets of the Issuer. ‘‘Stated Maturity’’ means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the Issue Date, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. ‘‘Subordinated Indebtedness’’ means, in the case of the Issuer, any Indebtedness of the Issuer (whether outstanding on the Issue Date or thereafter incurred) which is expressly subordinate or junior in right of payment to the Notes pursuant to a written agreement and, in the case of a Guarantor, any Indebtedness of such Guarantor (whether outstanding on the Issue Date or thereafter incurred) which is expressly subordinate or junior in right of payment to the Note Guarantee of such Guarantor pursuant to a written agreement, including any Subordinated Shareholder Debt. ‘‘Subordinated Shareholder Debt’’ means, collectively, any debt provided to the Issuer by any Parent Entity of the Issuer or any Permitted Holder or Related Party, in exchange for or pursuant to any security, instrument or agreement other than Capital Stock, together with any such security, instrument or agreement and any other security or instrument other than Capital Stock issued in payment of any obligation under any Subordinated Shareholder Debt; provided that such Subordinated Shareholder Debt: (1) does not (including upon the happening of any event) mature or require any amortization, redemption or other payment of principal or any sinking fund payment prior to the first anniversary of the Stated Maturity of the Notes; (2) does not (including upon the happening of any event) require, prior to the first anniversary of the Stated Maturity of the Notes, payment of cash interest, cash withholding amounts or other cash gross-ups, or any similar cash amounts or the making of any such payment; (3) is not subject to any change of control, mandatory redemption or similar provisions and does not (including upon the happening of any event) provide for the acceleration of its maturity nor confers on its shareholders any right (including upon the happening of any event) to declare a default or event of default or take any enforcement action or otherwise require any cash payment, in each case, prior to the first anniversary of the Stated Maturity of the Notes; (4) does not have the benefit of any lien, guarantee, indemnity or other assurance against loss from the Issuer or any Restricted Subsidiary prior to the Statement Maturity of the Notes or contain any covenants other than a covenant to pay such Subordinated Shareholder Debt; (5) is subordinated in right of payment (including, in the event of any default, bankruptcy, plan of reorganisation, liquidation, winding up or other disposition of assets) to the prior payment in full in cash of the Notes pursuant to its terms and the terms of the Intercreditor Agreement, an Additional Intercreditor Agreement or another intercreditor agreement, and the terms of the relevant documents providing for such Subordinated Shareholder Debt state that such document(s) are subject to the terms of the Intercreditor Agreement and any Additional Intercreditor Agreement, and that the rights and benefits of each holder in respect of such Subordinated Shareholder Debt are subject to the terms of the Intercreditor Agreement and any Additional Intercreditor Agreement;
251 (6) does not (including upon the happening of any event) restrict the payment of amounts due in respect of the Notes or compliance by the Issuer and the Restricted Subsidiaries with their obligations under the Notes, the Note Guarantees and the Indenture; (7) is not (including upon the happening of any event) mandatorily convertible or exchangeable, or convertible or exchangeable at the option of the holder or any successor thereto, in whole or in part, prior to the date on which the Notes mature other than into or for Capital Stock (other than Disqualified Stock and general partner interests) of the Issuer; provided that such Capital Stock of the Issuer is subject to the same security under the Security Documents as the Issuer’s Capital Stock already in issue, such Capital Stock is pledged to secure the Notes and the Note Guarantees on the same priority basis as the Issuer’s Capital Stock already in issue, such Capital Stock by its terms comply with the Investor Liabilities Major Terms (as such term is defined in the Intercreditor Agreement) and the holder of such Capital Stock is or becomes (on or prior to the date they are issued) a party to the Intercreditor Agreement as an Investor Creditor (as such term is defined in the Intercreditor Agreement); (8) does not (including upon the happening of an event) constitute Voting Stock; and (9) is not amendable if such amendment would cause such Subordinated Shareholder Debt to cease to comply with clauses (1) through (8) hereof. provided, however, that any event or circumstance that results in such Indebtedness ceasing to qualify as Subordinated Shareholder Debt, such Indebtedness shall constitute an incurrence of such Indebtedness by the Issuer, and any and all Restricted Payments made through the use of the net proceeds from the incurrence of such Indebtedness since the date of the original issuance of such Subordinated Shareholder Debt shall constitute new Restricted Payments that are deemed to have been made after the date of the original issuance of such Subordinated Shareholder Debt; provided, further, that Subordinated Shareholder Debt includes, for the avoidance of doubt, the Subordinated Shareholder Instruments. ‘‘Subordinated Shareholder Instruments’’ means any Subordinated Shareholder Debt that is issued by the Issuer or by any of its affiliates and in respect of which the Issuer has issued a guarantee or is otherwise liable and which is convertible into equity of the Issuer. ‘‘Subsidiary’’ means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership or limited liability company of which (a) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (b) such Person or any Subsidiary of such Person is a controlling general partner or otherwise controls such entity. ‘‘Tax’’ means any tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and any other additions thereto, and, for the avoidance of doubt, including any withholding or deduction for or on account of Tax). ‘‘Taxes’’ and ‘‘Taxation’’ shall be construed to have corresponding meanings. ‘‘Total Assets’’ means the consolidated total assets of the Issuer and its Restricted Subsidiaries, as shown on the most recent balance sheet of the Issuer and prepared on the basis of IFRS. ‘‘Transactions’’ means the Acquisition and the related transactions, including the borrowings under the Senior Credit Facilities, the refinancing of the Existing Go Voyages Indebtedness and the
252 Existing eDreams Indebtedness, the offering of the Notes and the acquisition by the Issuer of the eDreams Group and the Go Voyages Group. ‘‘Unrestricted Subsidiary’’ means any Subsidiary of the Issuer (other than the Issuer or any successor to the Issuer) that is designated by the Board of Directors of the Issuer as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) except as permitted by the covenant described above under the caption ‘‘—Certain Covenants—Transactions with Affiliates,’’ is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted Subsidiary unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Issuer or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Issuer; and (3) is a Person with respect to which neither the Issuer nor any Restricted Subsidiary has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results. ‘‘Voting Stock’’ of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. ‘‘Weighted Average Life to Maturity’’ means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amounts of such Indebtedness.
253 LIMITATIONS ON VALIDITY AND ENFORCEABILITY OF THE GUARANTEES AND SECURITY INTERESTS Set out below is a summary of certain limitations on the enforceability of the Guarantees and the security interests in each of the jurisdictions in which Guarantees or Collateral are being provided. It is a summary only, and proceedings of bankruptcy, insolvency or a similar event could be initiated in any of these jurisdictions and in the jurisdiction of organization of a future guarantor of the Notes. The application of these various laws in multiple jurisdictions could trigger disputes over which jurisdiction’s law should apply and could adversely affect your ability to enforce your rights and to collect payment in full under the Notes, the Guarantees and the security interests on the Collateral. Also set forth below is a brief description of certain aspects of insolvency law in England and Wales, Luxembourg, Sweden and the United States of America.
European Union The Issuer and several of the Guarantors are organized under the laws of Member States of the European Union. Pursuant to Council Regulation (EC) no. 1346/2000 on insolvency proceedings (the ‘‘E.U. Insolvency Regulation’’), which applies within the European Union, other than Denmark, the courts of the Member State in which a company’s ‘‘centre of main interests’’ (as that term is used in Article 3(1) of the E.U. Insolvency Regulation) is situated have jurisdiction to open main insolvency proceedings. The determination of where a company has its ‘‘centre of main interests’’ is a question of fact on which the courts of the different Member States may have differing and even conflicting views. To date, no final decisions have been made in cases that have been brought before the European Court of Justice in relation to questions of interpretation of the effects of the E.U. Insolvency Regulation throughout the European Union. Although there is a presumption under Article 3(1) of the E.U. Insolvency Regulation that a company has its ‘‘centre of main interests’’ in the Member State in which it has its registered office in the absence of proof to the contrary, Preamble 13 of the E.U. Insolvency Regulation states that the ‘‘centre of main interests’’ of a ‘‘debtor should correspond to the place where the debtor conducts the administration of its interests on a regular basis and is therefore ascertainable by third parties.’’ The courts have taken into consideration a number of factors in determining the ‘‘centre of main interests’’ of a company, including in particular where board meetings are held, the location where the company conducts the majority of its business or has its head office and the location where the majority of the company’s creditors are established. A company’s ‘‘centre of main interests’’ may change from time to time but is determined for the purposes of deciding which courts have competent jurisdiction to open insolvency proceedings at the time of the filing of the insolvency petition. The E.U. Insolvency Regulation applies to insolvency proceedings which are collective insolvency proceedings of the types referred to in Annex A to the E.U. Insolvency Regulation and to winding up proceedings referred to in Annex B of the E.U. Insolvency Regulation. If the ‘‘centre of main interests’’ of a company is in one Member State (other than Denmark) under Article 3(2) of the E.U. Insolvency Regulation, the courts of another Member State (other than Denmark) have jurisdiction to open insolvency proceedings against that company only if such company has an ‘‘establishment’’ in the territory of such other Member State. An ‘‘establishment’’ is defined to mean a place of operations where the company carries on non-transitory economic activity with human means and goods. The effects of those insolvency proceedings opened in that other Member State are restricted to the assets of the company situated in such other Member State. Where main proceedings have been opened in the Member State in which the company has its centre of main interests, any proceedings opened subsequently in another Member State in which the company has an establishment (secondary proceedings) are limited to ‘‘winding up proceedings’’ listed in Annex B of the E.U. Insolvency Regulation. Where main proceedings in the Member State in which the company has its centre of main interests have not yet been opened, territorial insolvency proceedings can only be opened in another Member State where the company has an establishment where either (a) insolvency proceedings cannot be opened in the Member State in which the company’s centre of main interests is situated under that Member State’s law; or (b) the territorial insolvency proceedings are opened at the request of a creditor which is domiciled,
254 habitually resident or has its registered office in the other Member State or whose claim arises from the operation of the establishment. The courts of all Member States (other than Denmark) must recognize the judgment of the court opening main proceedings which will be given the same effect in the other Member States so long as no secondary proceedings have been opened there. The liquidator appointed by a court in a Member State which has jurisdiction to open main proceedings (because the company’s centre of main interests is there) may exercise the powers conferred on him by the law of that Member State in another Member State (such as to remove assets of the company from that other Member State) subject to certain limitations so long as no insolvency proceedings have been opened in that other Member State or any preservation measure taken to the contrary further to a request to open insolvency proceedings in that other Member State where the company has assets.
England and Wales Opodo, a company incorporated under the laws of England and Wales, will become a Guarantor of the Notes as of the Completion Date (the ‘‘English Guarantor’’). Therefore, any insolvency proceedings by or against it would likely be based on English insolvency laws. However, pursuant to the E.U. Insolvency Regulation, where a company incorporated under English law has its ‘‘centre of main interests’’ in a Member State other than England and Wales, then the main insolvency proceedings for that company may be opened in the Member State in which its centre of main interest is located and be subject to the laws of that Member State. (Please see ‘‘—European Union.’’) Similarly, The Cross-Border Insolvency Regulations 2006, which implement the UNCITRAL Model Law on Cross-Border Insolvency in the United Kingdom, provide that the English court will recognize the jurisdiction of a foreign court where any English company has its centre of main interests in such foreign jurisdiction, or where it has an ‘‘establishment’’ (being a place of operations in such foreign jurisdiction, where it carries out non-transitory economic activities with human means and assets or services).
Fixed and Floating Charges Fixed charge security has a number of advantages over floating charge security: (a) an administrator appointed to a charging company can dispose of floating charge assets for cash or collect receivables charged by way of floating charge and use the proceeds and/or cash subject to a floating charge, to meet administration expenses (which can include the costs of continuing to operate the charging company’s business while in administration) in priority to the claims of the floating charge holder; (b) a fixed charge over assets, even if created after the date of a floating charge over the assets, may rank prior to the floating charge over the relevant assets; (c) general costs and expenses (including the liquidator’s remuneration) properly incurred in a winding-up are payable out of floating charge assets to the extent the assets of the company available for creditors generally are otherwise insufficient to meet them (subject to certain restrictions for the costs of litigation) in priority to floating charge claims; (d) until the floating charge security crystallizes, a company is entitled to deal with assets that are subject to floating charge security in the ordinary course of its business, meaning that such assets can be effectively disposed of by the charging company so as to give a third party good title to the assets free of the floating charge; (e) floating charge security is subject to certain challenges under English insolvency law (please see ‘‘—Grant of Floating Charge’’); and (f) floating charge security is subject to the claims of preferential creditors (such as occupational pension scheme contributions and salaries owed to employees (subject to a cap per employee) and holiday pay owed to employees) and, where the floating charge is not a security financial collateral arrangement, to the claims of unsecured creditors in respect of a ring fenced amount of the proceeds (please see ‘‘—Administration and Floating Charges’’). Under English law, there is a possibility that a court could recharacterize as floating charges any security interests expressed to be created by a security document as fixed charges where the chargee does not have the requisite degree of control over the relevant chargor’s ability to deal with the relevant assets and the proceeds thereof or does not exercise such control in practice as the description given to the charges in the relevant security document as fixed charges is not determinative. Where the chargor is free to deal with the secured assets without the consent of the chargee, the court is likely to hold that the security interest in question constitutes a floating charge, notwithstanding that it may be described as a fixed charge.
255 Administration and Floating Charges Under English insolvency law, English courts are empowered to order the appointment of an administrator in respect of an English company in certain circumstances. An administrator can also be appointed out of court by the company, its directors or the holder of a qualifying floating charge and different procedures apply according to the identity of the appointor. During the administration, in general, no proceedings or other legal process may be commenced or continued against the company, or security enforced over the company’s property, except with leave of the court or the consent of the administrator. The moratorium does not, however, apply to a ‘‘security financial collateral agreement’’ (such as a charge over cash or financial instruments such as shares, bonds or tradable capital market debt instruments) under the Financial Collateral Arrangements (No. 2) Regulations 2003. During the administration of a company, a creditor would not be able to enforce any security interest (other than security financial collateral arrangements) or guarantee granted by such company without the consent of the administrator or the court. In addition, a secured creditor cannot appoint an administrative receiver. The Security Agent can appoint its choice of administrator by the out of court route or, subject to the restrictions outlined below, an administrative receiver if it holds a qualifying floating charge and such floating charge security, together, with fixed charge security, charges the whole or substantially the whole of the English Guarantor’s property. In order to constitute a qualifying floating charge, the floating charge must be created by an instrument which (a) states that the relevant statutory provision applies to it; (b) purports to empower the chargeholder to appoint an administrator of the company or (c) purports to empower the chargeholder to appoint an administrative receiver. Even if the Security Agent holds a qualifying floating charge, it can only appoint an administrative receiver if one of the exceptions to the general prohibition of appointing an administrative receiver applies. The most relevant exception to the prohibition on appointment is that the Security Agent can appoint an administrative receiver under security forming part of a ‘‘capital market arrangement’’ (as defined in the Insolvency Act 1986, as amended (the ‘‘U.K. Insolvency Act’’)), which is the case if the issue of the Notes creates a debt of at least £50,000,000 for the relevant company during the life of the arrangement and the arrangement involves the issue of a ‘‘capital markets investment’’ (which is defined in the U.K. Insolvency Act, but is generally a rated, listed or traded debt instrument). Once an administrative receiver is appointed by the Security Agent, the company or its directors will not be permitted to appoint an administrator by the out of court route and a court will only appoint an administrator if the charge under which the administrative receiver was appointed is successfully challenged or the Security Agent otherwise agrees. If an administrator is appointed to a company, any administrative receiver then in office must vacate office and any receiver of part of the company’s property must resign if requested to do so by the administrator. An administrator, receiver (including administrative receiver) or liquidator of the company will be required to ‘‘ring fence’’ a certain percentage of the net proceeds of enforcement of floating charge security (other than floating charges which are financial collateral arrangements) for the benefit of unsecured creditors. Under current law, this applies to 50% of the first £10,000 of net floating charge realizations and 20% of the remainder over £10,000, with a maximum aggregate cap of £600,000. Whether the assets that are subject to the floating charges and other security will constitute substantially the whole of the relevant English Guarantor’s assets at the time that the floating charges are enforced will be a question of fact at that time.
Challenges to Guarantees and Security There are circumstances under English insolvency law in which the granting by an English company of security and guarantees can be challenged. In most cases, this will only arise if an administrator or liquidator is appointed to the company within a specified period (as set out in more detail below) of the granting of the guarantee or security and, in addition, the company was ‘‘unable to pay its debts’’ when the security interest or guarantee was granted or becomes ‘‘unable to pay its debts’’ as a result. A company will be ‘‘unable to pay its debts’’ if it is proved, to the court’s satisfaction, that (a) the company is unable to pay its debts as they fall due (a company will be presumed to be unable to pay its debts as they fall due if a statutory demand for over £750 is served on the company and remains unsatisfied for three weeks or an execution on or other process issued on a judgment, decree or order of a court in favor of a creditor is returned unsatisfied, in whole or in
256 part, or (b) the value of the company’s assets is less than the amount of its liabilities (taking into account contingent and prospective liabilities). The following potential grounds for challenge may apply to guarantees and security interests granted by an English company:
Transaction at an Undervalue Under English insolvency law, a liquidator or administrator of a company could apply to the court for an order to set aside a security interest or a guarantee granted by the company (or give other relief) on the grounds that the creation of such security interest or guarantee constituted a ‘‘transaction at an undervalue’’. The grant of a security interest or guarantee will only be a ‘‘transaction at an undervalue’’ if the company receives no consideration or if the company receives consideration of significantly less value, in money or money’s worth, than the consideration given by such company. For a challenge to be made, the guarantee or security must be granted within a period of two years ending with the ‘‘onset of insolvency’’ (as defined in section 240 of the U.K. Insolvency Act). The ‘‘onset of insolvency’’ is the date of the appointment of an administrator or presentation of an administration application, filing of notice of intention to appoint an administrator or presentation of a winding up petition or passing of a resolution for winding up in a creditors’ voluntary liquidation. In addition the company must be ‘‘unable to pay its debts’’ when it grants the guarantee or security or became ‘‘unable to pay its debts’’ as a result. A court will not make an order in respect of a transaction at an undervalue if it is satisfied that the company entered into the transaction in good faith and for the purpose of carrying on its business and that, at the time it did so, there were reasonable grounds for believing the transaction would benefit the company. Subject to the foregoing, if the court determines that the transaction was a transaction at an undervalue, then the court can make such order as it thinks fit to restore the position to what it would have been if the transaction had not been entered into (which could include reducing payments under the guarantees or setting aside any security interests or guarantees), however, there is protection for a third party which benefits from the transaction and has acted in good faith for value. In any challenge proceedings, it is for the administrator or liquidator to demonstrate that the English company was unable to pay its debts unless a beneficiary of the transaction was a ‘‘connected person’’ (as defined in the U.K. Insolvency Act), in which case, there is a presumption the company was unable to pay its debts and the connected person must demonstrate the company was not unable to pay its debts in such proceedings.
Preference Under English insolvency law, a liquidator or administrator of a company could apply to the court for an order to set aside a security interest or a guarantee granted by such company (or give other relief) on the grounds such security interest or such guarantee constituted a ‘‘preference’’. The grant of a security interest or guarantee is a ‘‘preference’’ if it has the effect of placing a creditor (or a surety or guarantor of the company) in a better position in the event of the company’s insolvent liquidation than if the security interest or guarantee had not been granted. For a challenge to be made, the decision to prefer must be made within the period of six months ending with the onset of insolvency (as defined in section 240 of the U.K. Insolvency Act) if the beneficiary of the security interest or the guarantee is not a connected person or two years (if the beneficiary is a connected person). A court will not make an order in respect of a preference of a person unless it is satisfied the company was influenced in deciding to give it by a desire to produce the ‘‘better position’’ for that person. Case law suggests there must be a desire to prefer one creditor over another and not just other commercial motives even if they had the inevitable result of producing the better position. Subject to the foregoing, if a court determines that the transaction was a preference, then the court can make such order as it thinks fit to restore the position to what it would have been if that preference had not been given (which could include reducing payments under the guarantees or setting aside the security interests or guarantees), however, there is protection for a third party which benefits from the transaction and acted in good faith for value). In any challenge proceedings, it is for the administrator or liquidator to demonstrate that the English company was unable to pay its debts. The administration or liquidator must also demonstrate that the company was influenced by a desire to produce the preferential effect, unless the beneficiary of the transaction was a connected person, in which case, there is a presumption that the company was influenced by a desire to produce the preferential effect and the connected person must demonstrate in such proceedings that there was no such influence.
257 Transaction Defrauding Creditors Under English insolvency law, a liquidator or an administrator of a company, or a person who is a victim of the relevant transaction could apply to the court for an order to set aside a security interest or guarantee on the grounds the security interest or guarantee was a ‘‘transaction defrauding creditors’’. A transaction will constitute a ‘‘transaction defrauding creditors’’ if it is a transaction at an undervalue and the court is satisfied the substantial purpose of a party to the transaction was to put assets beyond the reach of actual or potential claimants against it or to prejudice the interest of such persons. If the court determines that the transaction was a transaction defrauding creditors, it may make such order as it may think fit to restore the position to what it was prior to the transaction or protect the victims of the transaction (including reducing payments under the guarantee or setting aside the security interest or guarantees), however, there is protection for a third party which acted in good faith and for value without notice of the relevant circumstances. Any ‘‘victim’’ of the transaction (with the leave of the court if the company is in liquidation or administration) may apply to court on the basis that the transaction was a transaction defrauding creditors and not just liquidators or administrators. There is no time limit in the U.K. Insolvency Act within which the company must enter insolvency proceedings and the relevant company does not need to be unable to pay its debts at the time of the transaction.
Grant of Floating Charge Under English insolvency law, if an English company is unable to pay its debts at the time of (or as a result of) granting a floating charge, then such floating charge can be avoided on the action of a liquidator or administrator if it was granted in the period of one year ending with the onset of insolvency (as defined in section 245 of the U.K. Insolvency Act). The floating charge will, however, be validated to the extent of the value of the consideration provided for the creation of the charge in the form of money paid to, or goods or services supplied to, or any discharge or reduction of any debt of, the relevant English company at the same time as or after the creation of the floating charge plus interest payable on such amounts. Where the floating charge is granted to a ‘‘connected person,’’ the charge can be challenged if given within two years of the onset of insolvency and the prerequisite to challenge that the company is unable to pay its debts does not apply. However, if the floating charge qualifies as a ‘‘security financial collateral agreement’’ under The Financial Collateral Arrangements (No. 2) Regulations 2003, the floating charge will not be subject to challenge as described in this paragraph.
Luxembourg The Issuer and LuxGEO (the ‘‘Luxembourg Guarantor’’) are incorporated under the laws of Luxembourg, and there are assets located in Luxembourg which are subject to security interests.
Certain Insolvency Law Considerations Pursuant to Luxembourg insolvency laws, your ability to receive payment under the Notes may be more limited than would be the case under U.S. bankruptcy laws. Under Luxembourg law, the following types of proceedings (altogether referred to as insolvency proceedings) may be opened against an entity having its center of main interests in Luxembourg or an establishment within the meaning of the E.U. Insolvency Regulation (in relation to secondary proceedings): • bankruptcy proceedings (‘‘faillite’’), the opening of which may be requested by a company or by any of its creditors. Following such a request, the Luxembourg courts having jurisdiction may open bankruptcy proceedings if the company: (i) is in a state of cessation of payments (‘‘cessation des paiements’’) and (ii) has lost its commercial creditworthiness (‘‘ebranlement´ de credit’’´ ). If a Luxembourg court finds that these conditions are satisfied, it may also open bankruptcy proceedings, ex officio (absent a request made by the company or a creditor). The main effect of such proceedings is the suspension of all measures of enforcement against the company, except, subject to certain limited exceptions, for enforcement by secured creditors and the payment of the secured creditors in accordance with their rank upon realization of the assets;
258 • controlled management proceedings (‘‘gestion controlˆ ee’’´ ), the opening of which may only be requested by the company and not by its creditors and under which a Luxembourg court may order provisional suspension of payments, including a stay of enforcement of claims by secured creditors; and • composition proceedings (‘‘concordat preventif´ de faillite’’), which may be requested only by the company (subject to obtaining the consent of the majority of its creditors) and not by its creditors themselves. The Luxembourg court’s decision to admit a company to the composition proceedings triggers a provisional stay on enforcement of claims by creditors. In addition to these proceedings, your ability to receive payment on the Notes may be affected by a decision of a Luxembourg court to grant a stay on payments (‘‘sursis de paiement’’) or to put the Issuer into judicial liquidation (‘‘liquidation judiciaire’’). Judicial liquidation proceedings may be opened at the request of the public prosecutor against companies pursuing an activity violating criminal laws or that are in serious breach or violation of the Luxembourg commercial code or of the Luxembourg laws dated August 15, 1915 on commercial companies as amended. The management of such liquidation proceedings will generally follow the rules of Luxembourg bankruptcy proceedings. Liability of the Issuer or Luxembourg Guarantor in respect of the Notes will, in the event of a liquidation of the entity following bankruptcy or judicial liquidation proceedings, only rank after the cost of liquidation (including any debt incurred for the purpose of such liquidation) and those debts of the relevant entity that are entitled to priority under Luxembourg law. Preferential debts under Luxembourg law include, among others: • certain amounts owed to the Luxembourg Revenue; • value-added tax and other taxes and duties owed to the Luxembourg Customs and Excise; • social security contributions; and • remuneration owed to employees. Pursuant to article 20 of the Luxembourg Act dated August 5, 2005 concerning financial collateral arrangements (the ‘‘Luxembourg Collateral Law’’), all collateral arrangements in respect of assets over which the Luxembourg security interests have been granted, as well as all enforcement events and valuation and enforcement measures agreed upon by the parties in accordance with this law, are valid and enforceable against third parties, commissioners, receivers, liquidators and other similar persons notwithstanding the insolvency proceedings affecting anyone of the parties, including in the case of fraud. During such insolvency proceedings, all enforcement measures by unsecured creditors are suspended. The ability of certain secured creditors to enforce their security interest may also be limited, in particular, in the event of controlled management proceedings providing expressly that the rights of secured creditors are frozen until a final decision has been taken by a Luxembourg court as to the petition for controlled management, and may be affected thereafter by a reorganization order given by the court. A reorganization order requires the prior approval by more than 50% of the creditors representing more than 50% of the relevant Luxembourg company’s liabilities in order to take effect. Furthermore, declarations of default and subsequent acceleration (such as acceleration upon the occurrence of an event of default) may not be enforceable during controlled management proceedings. Luxembourg insolvency laws may also affect transactions entered into or payments made by a Luxembourg company during the pre-bankruptcy period (periode´ suspecte) which is a maximum of six months (and ten days, depending on the transaction in question) preceding the judgment declaring bankruptcy, except that in certain specific situations a Luxembourg court may set the start of the suspect period at an earlier date. In particular: • pursuant to article 445 of the Luxembourg Code of Commerce (code de commerce), specified transactions (such as, in particular, the granting of a security interest for antecedent debts; the payment of debts which have not fallen due, whether payment is made in cash or by way of assignment, sale, set-off or by any other means; the payment of debts which have fallen due by any means other than in cash or by bill of exchange; the sale of assets without consideration or with substantially inadequate consideration) entered
259 into during the suspect period (or the ten days preceding it) must be set aside or declared null and void, if so requested by the insolvency receiver; • pursuant to article 446 of the Luxembourg Code of Commerce, payments made for matured debts as well as other transactions concluded for consideration during the suspect period are subject to cancellation by the court upon proceedings instituted by the insolvency receiver if they were concluded with the knowledge of the bankrupt party’s cessation of payments; • pursuant to article 21 (2) of the Luxembourg Act dated August 5, 2005 concerning financial collateral arrangements (the ‘‘Luxembourg Collateral Law’’), notwithstanding the suspect period as referred to in articles 445 and 446 of the Luxembourg Code of Commerce, where a financial collateral arrangement has been entered into after the opening of liquidation proceedings or the coming into force of reorganization measures or the entry into force of such measures, such arrangement is valid and binding against third parties, administrators, insolvency receivers, liquidators and other similar organs if the collateral taker proves that it was unaware of the fact that such proceedings had been opened or that such measures had been taken or that it could not reasonably be aware of it; and • pursuant to article 448 of the Luxembourg Code of Commerce and article 1167 of the Civil Code (action paulienne) gives the insolvency receiver (acting on behalf of the creditors) the right to challenge any fraudulent payments and transactions, including the granting of security with an intent to defraud, made prior to the bankruptcy, without any time limit. In principle, a bankruptcy order rendered by a Luxembourg court does not result in automatic termination of contracts, except for intuitu personae contracts, that is, contracts for which the identity of the company or its solvency were crucial. The contracts, therefore, subsist after the bankruptcy order. However, the insolvency receiver may choose to terminate certain contracts. As of the date of adjudication of bankruptcy, no interest on any unsecured claim will accruevis-a-vis` the bankruptcy estate. Insolvency proceedings may hence have a material adverse effect on the relevant Luxembourg company’s business and assets and the Luxembourg company’s respective obligations under the Notes (as Issuer or Luxembourg Guarantor, as applicable). Finally, international aspects of Luxembourg bankruptcy, controlled management or composition proceedings may be subject to the EU Insolvency Regulation.
Security Interests Considerations According to Luxembourg conflict of law rules, the courts in Luxembourg will generally apply the lex rei sitae or lex situs (the law of the place where the assets or subject matter of the pledge or security interest is situated) in relation to the creation, perfection and enforcement of security interests over such assets. As a consequence, Luxembourg law will apply in relation to the creation, perfection and enforcement of security interests over assets located or deemed to be located in Luxembourg, such as registered shares in Luxembourg companies, bank accounts held with a Luxembourg bank, receivables/claims governed by Luxembourg law and/or having debtors located in Luxembourg, tangible assets located in Luxembourg, securities which are held through an account located in Luxembourg, bearer securities physically located in Luxembourg, etc. If there are assets located or deemed to be located in Luxembourg, the security interests over such assets will be governed by Luxembourg law and must be created, perfected and enforced in accordance with Luxembourg law. The Luxembourg Collateral Law governs the creation, validity, perfection and enforcement of pledges over shares, bank accounts and receivables located or deemed to be located in Luxembourg. Under the Luxembourg Collateral Law, the perfection of security interests depends on certain registration, notification and acceptance requirements. A share pledge agreement must be (i) acknowledged and accepted by the company which has issued the shares (subject to the security interest) and (ii) registered in the shareholders’ register of such company. If future shares are pledged, the perfection of such pledge will require additional registration in the shareholders’ register of such company. A receivables pledge agreement must be notified to or accepted by the debtor. If (future) receivables against new debtors are pledged, the perfection of such pledge will require additional notifications to or acceptances by such debtors. A bank account pledge
260 agreement must be notified to and accepted by the account bank. In addition, the account bank has to waive any pre-existing security interests and other rights in respect of the relevant account. If (future) bank accounts are pledged, the perfection of such pledge will require additional notification to, acceptance and waiver by the account bank. Until such registrations, notifications and acceptances occur, the pledge agreements are not effective and perfected against the debtors, the account banks and other third parties. Article 11 of the Luxembourg Collateral Law sets out the following enforcement remedies in relation to pledges available upon the occurrence of an enforcement event: • direct appropriation of the pledged assets at (i) a value determined in accordance with a valuation method agreed upon by the parties or (ii) the listing price of the pledged assets; • sale of the pledged assets (i) in a private transaction at commercially reasonable terms (conditions commerciales normales), (ii) by a public sale at the stock exchange, or (iii) by way of a public auction; • court allocation of the pledged assets to the pledgee in discharge of the secured obligations following a valuation made by a court-appointed expert; or • set-off between the secured obligations and the pledged assets. As the Luxembourg Collateral Law does not provide any specific time periods and depending on (i) the method chosen, (ii) the valuation of the pledged assets, (iii) any possible recourses, and (iv) the possible need to involve third parties, such as, e.g., courts, stock exchanges and appraisers, the enforcement of the security interests might be substantially delayed. Foreign law governed security interests and the powers of any receivers/administrators may not be enforceable in respect of assets located or deemed to be located in Luxembourg. Security interests/arrangements, which are not expressly recognized under Luxembourg law and the powers of any receivers/administrators might not be recognized or enforced by the Luxembourg courts, in particular where the Luxembourg security grantor becomes subject to Luxembourg insolvency proceedings or where the Luxembourg courts otherwise have jurisdiction because of the actual or deemed location of the relevant rights or assets, except if ‘‘main insolvency proceedings’’ (as defined in the E.U. Insolvency Regulation) are opened under Luxembourg law and such security interests/arrangements constitute rights in rem over assets located in another Member State in which the EU Regulation applies, and in accordance of article 5 of the E.U. Insolvency Regulation. The perfection of the security interests created pursuant to the pledge agreements does not prevent any third-party editor from seeking attachment or execution against the assets, which are subject to the security interests created under the pledge agreements, to satisfy their unpaid claims against the pledgor. Such creditor may seek the forced sale of the assets of the pledgors through court proceedings, although the beneficiaries of the pledges will in principle remain entitled to priority over the proceeds of such sale (subject to preferred rights by operation of law). Under Luxembourg law, certain creditors of an insolvent party have rights to preferred payments arising by operation of law, some of which may, under certain circumstances, supersede the rights to payment of secured creditors, and most of which are undisclosed preferences (privileges` occultes). This includes in particular the rights relating to fees and costs of the insolvency official as well as any legal costs, the rights of employees to certain amounts of salary, and the rights of the Treasury and certain assimilated parties (namely social security bodies), which preferences may extend to all or part of the assets of the insolvent party. This general privilege takes in principle precedence over the privilege of a pledgee in respect of pledged assets.
Financial Assistance Any security interests/guarantees granted by entities organized in Luxembourg, which constitute breach of the provisions on financial assistance as defined by article 49-6 of the Luxembourg law dated August 10, 1915 on commercial companies, as amended or any other similar provisions (to the extent applicable, as at the date of this Offering Circular, to a entity organized under the laws of Luxembourg and having the form of a private limited liability company) (together the ‘‘Financial Assistance Provisions’’) might not be enforceable.
261 Registration in Luxembourg The registration of the Notes, the Indenture and the Notes Documents (and any other document in connection therewith) with the Administration de l’Enregistrement et des Domaines in Luxembourg may be required in the case of legal proceedings before Luxembourg courts or, in the case that the Notes, the Indenture and the Security Documents (and any document in connection therewith) must be produced before an official Luxembourg authority (autorite´ constituee´ ). In such case, either a nominal registration duty or an ad valorem duty (or, for instance, 0.24 (zero point twenty four) per cent of the amount of the payment obligation mentioned in the document so registered) will be payable depending on the nature of the document to be registered. No ad valorem duty is payable in respect of Secured Note Documents, which are subject to the Luxembourg Collateral law. The Luxembourg courts or the official Luxembourg authority may require that the Notes, the Indenture and the Security Documents (and any document in connection therewith) and any judgment obtained in a foreign court be translated into French or German.
Sweden Travellink AB, a Guarantor of the Notes (the ‘‘Swedish Guarantor’’), is incorporated under the laws of Sweden and, as such, any insolvency proceedings applicable to the Swedish Guarantor may be governed by Swedish insolvency law.
Priority of Certain Creditors The principles of priority order under Swedish insolvency law are mainly set out in the Swedish Rights of Priority Act 1970, as amended (the ‘‘Rights of Priority Act’’) (Sw. Form¨ ansr˚ attslag¨ (1970:979)). As a general principle, competing claims have equal right to payment in relation to the size of the amount claimed from the debtor’s assets. However, some preferential and secured creditors, where such preference or security may arise as a consequence of law, have the benefit of payment before other creditors. There are two types of preferential rights: ‘‘specific preferential rights’’ and ‘‘general preferential rights’’. ‘‘Specific preferential rights’’ apply to certain specific property and give the creditor a right to payment from such property. ‘‘General preferential rights’’ cover all property belonging to the insolvent company’s estate in bankruptcy, which is not covered by specific preferential rights, and give the creditor a right to payment from such property. Claims that do not carry any of the above mentioned preferential rights or exceed the value of the security provided for such claim (to the extent of such excess), are non-preferential and are of equal standing as against each other.
Limitations on the Value of a Guarantee or Security Interest To the extent that a guarantee or a pledge by a Swedish limited liability company as security for the obligations of a parent or sister company exceed the distributable reserves (calculated according to the latest annual report approved by the annual shareholders meeting, such amount reduced by any negative variations or reservations since the end of the financial year to which the annual report relates to the date when the guarantee or pledge is given) of the relevant guarantor or pledgor at the time when the guarantee or pledge is given, the validity of such guarantee or pledge is subject to the condition that the guarantor or pledgor receives consideration on market terms for its undertakings or that otherwise sufficient corporate benefit accrues. It should also be noted that laws relating to financial assistance in Sweden prohibit limited liability companies incorporated in Sweden from providing guarantees or granting security or other credit support for debt financing the direct or indirect acquisition of shares in these companies, or limit the enforceability of such guarantees and securities. Accordingly, the Guarantee and the Collateral to be provided by the Swedish Guarantor will be limited to ensure compliance with the Swedish Companies Act (Sw. Aktiebolagslagen (2005:551)). It should be noted that to the extent the Guarantee provided by Travellink AB contravenes any of the aforesaid principles; the value of the Guarantee to any of the beneficiaries thereof may be severely restricted.
Limitations on the Validity of Certain Transactions In Swedish bankruptcy and company reorganization proceedings, transactions can (in certain circumstances and subject to a time limit) be reversed and the goods or money can then be
262 returned to the bankruptcy estate or the company subject to company reorganization. Broadly, these transactions include, amongst others, situations where the debtor has conveyed property fraudulently or preferentially to one creditor to the detriment of its other creditors before the initiation of the relevant insolvency proceedings, created a new security interest, granted a guarantee or security that was either not stipulated at the time when the secured obligation arose or not perfected without delay after such time and the delay is not considered to be ordinary, or paid a debt that is not due or that is considerable compared to the value of the debtor’s assets or if the payment is made by using unusual means of payment. In the majority of situations, a claim for recovery can be made concerning actions that were made during the three months preceding the commencement of the relevant Swedish insolvency proceedings. In certain situations, longer time limits apply and in others there are no time limits. These include, amongst others, situations where the other party to an agreement or other arrangement is deemed to be a closely related party to the debtor such as a subsidiary or parent company.
Stamp duty No Swedish stamp duty will be payable on granting of the Guarantee and/or first priority share pledges by the Swedish Guarantor but may however be payable should the Swedish Guarantor be obliged to take out new corporate mortgage certificates in the business of the Swedish Guarantor.
Security Granted in Favor of a Security Agent It is generally possible under Swedish law to grant security interests in favor of an agent acting on behalf of the secured parties. However, it is not established by judicial precedent or otherwise by law that a power of attorney or a mandate of agency, including the appointment of an agent, can be made irrevocable. Therefore, any powers of attorney or mandates of agency can be revoked and will terminate by operation of law and without notice at the bankruptcy or temporal demise of the party giving such powers.
Limitations on Enforceability due to the Swedish Reorganization Act of 1996 The Swedish Company Reorganization Act 1996 (the ‘‘Reorganization Act’’) (Sw. Lag (1996:764) om foretagsrekonstruktion¨ ) provides companies facing economic difficulty with an opportunity to resolve these without being declared bankrupt. Corporate reorganization proceedings shall, as a main rule, terminate within three months from commencement but may under certain conditions be extended for up to one year. An administrator is appointed by the court and supervises the day-to-day activities and safeguards the interests of creditors. However, the debtor remains in full possession of the business except that, for important decisions such as paying a debt that has fallen due prior to the order of reorganization, granting security for a debt that arose prior to the order, undertaking new obligations or transferring, pledging or granting rights in respect of assets of a substantial value for the business, the consent of the administrator is required. The making of an order under the Reorganization Act does not have the effect of terminating contracts with the debtor and, during the reorganization procedure, the debtor’s business activities continue in the normal way. However, the procedure includes a suspension of payments to creditors and the debtor cannot pay a debt that fell due prior to the order without the consent of the administrator and such consent may only be granted should there be exceptional reasons for doing so and any petition for bankruptcy in respect of the debtor will be stayed. A moratorium also applies to execution in respect of a claim or enforcement of security during Swedish corporate reorganization proceedings unless the security assets are in the physical possession of the secured creditor or any agent acting on behalf of such creditor, which is the case with a share pledge over the shares in a Swedish limited liability company where the share certificates of such company has been delivered to the agent for the secured creditor. The debtor may apply to the court requesting ‘‘public composition’’ proceedings (Sw. offentligt ackord) which means that the amount of a creditor’s claim may be reduced on a percentage basis. The proposal for a ‘‘public composition’’ must meet certain requirements such as that a sufficient proportion of the creditors which are allowed to vote, in respect of a sufficient proportion of the outstanding claims vote in favor of such public composition. Creditors with set-off rights and secured creditors will not participate in the composition unless they wholly or partly waive their
263 set-off rights or priority rights. Should the security not cover a secured creditor’s full claim, the remaining claim will, however, be part of a public composition. A creditors’ meeting is convened to vote on the proposed public composition. The public composition is binding for all known and unknown creditors that had a right to participate in the public composition proceedings.
Enforcement Process In the event of Swedish bankruptcy, a Swedish court will appoint a receiver who will work in the interest of all creditors with the objective of selling the debtor’s assets and distribute the proceeds among the creditors. The purpose of Swedish bankruptcy proceedings is to wind up a Swedish company in such a way that the company’s creditors receive as high a proportion of their claims as possible. The receiver in bankruptcy is required to safeguard the assets and can decide to continue the business or to close it down, depending on what is considered best for all creditors. In general, the receiver in bankruptcy is required to sell the assets of the debtor as soon as possible and to distribute the proceeds. In the interim, the receiver will take over the management and control of the company and the company’s directors and/or managing director will no longer be entitled to represent the company or dispose of the company’s assets. Secured creditors may, subject to restrictions and notification requirements, enforce certain types of security despite the pledgor’s bankruptcy. When distributing the proceeds, the receiver must follow the mandatory provisions of the Rights of Priority Act, which state the order in which creditors have a right to be paid. As a general principle, in Swedish bankruptcy proceedings, competing claims have equal right to payment in relation to the size of the amount claimed from the debtor’s assets. However, as stated above, preferential or secured creditors have the benefit of payment before unsecured creditors. In case of enforcement outside bankruptcy, an enforcement process is initiated by the creditor obtaining an enforcement order from the Swedish Enforcement Authority (Sw: Kronofogdemyndigheten) or the relevant Swedish court. Upon obtaining an enforcement order against a debtor, a creditor may apply to the Swedish Enforcement Authority for an order to pay or on eviction. Should the creditor’s claim be secured by way of a pledge, he may (based on his rights under the pledge agreement and depending on the kind of collateral) choose to enforce the pledge by liquidating the security assets in addition to or instead of initiating an enforcement procedure with the Swedish Enforcement Authority or the court. Such secured party is always considered a creditor with specific right of priority to payment.
France Security over the financial instruments accounts of Lyeurope in Lyparis and of Lyparis in Go Voyages (nantissement de compte de titres financiers) shall be granted in favor of the Issuer, and Lyeurope and Lyparis shall grant pledges over certain of its assets in favor of the Issuer. In the event of an insolvency event affecting Lyeurope or Lyparis, insolvency proceedings may be initiated in France. Such proceedings would be governed by French law, and any enforcement action with respect to the related share pledge agreements will be subject to French bankruptcy law. In addition, even though the Issuer is incorporated in Luxembourg, French courts may have jurisdiction, in accordance with the EU Insolvency Regulation, to commence insolvency proceedings if the Issuer’s centre of main interests is located in France. However, as noted above, in the absence of proof to the contrary, the place of the Issuer’s registered office shall be presumed to be its centre of main interests. The following is a brief description of certain aspects of insolvency law in France. French entities may request the commencement of pre-insolvency proceedings (such as mandat ad hoc and conciliation, which are voluntary, non-judicial amicable settlement of debts proceedings). However, the commencement of pre-insolvency proceedings should have no impact on the security referred to above. Also, should the Issuer’s centre of main interests be deemed to be situated in France, the Issuer should not be eligible to French pre-insolvency proceedings (mainly mandat ad hoc and conciliation) but only to voluntary safeguard proceedings (sauvegarde), reorganization and liquidation (redressement or liquidation judiciaire) proceedings.
264 Grace periods Pursuant to Article 1244-1 of the French Civil Code, French courts may, in any civil proceeding involving the debtor, whether initiated by the debtor or the creditor, taking into account the debtor’s financial position and the creditor’s financial needs, defer or otherwise reschedule the payment dates or payment obligations over a maximum period of two years. In addition, pursuant to Article 1244-1, if a debtor specifically initiates proceedings thereunder, French courts may decide that any amounts, the payment date of which is thus deferred or rescheduled, will bear interest at a rate which is lower than the contractual rate (but not lower than the legal rate) or that payments made shall first be allocated to repayment of the principal. If a court order under Article 1244-1 of the French Civil Code is made, it will suspend any pending enforcement measures, and any contractual interest or penalty for late payment will not accrue or be due during the period ordered by the court.
Conciliation proceedings A company may, in its sole discretion, initiate conciliation proceedings (procedure´ de conciliation) with respect to itself, provided it (i) is able to pay its due debts out of its available assets, or has been unable to pay its due debts out of its available assets for less than 45 days, and (ii) experiences legal, economic or financial difficulties. The competent court will appoint a conciliator (conciliateur) to help the company reach an agreement with its creditors for reducing or rescheduling its indebtedness. Such agreement may be either acknowledged (constate´) by the president of the court or approved (homologue´) by the court. While the acknowledgment of the agreement by the president of the court does not entail any specific consequences, the approval (homologation) by the court will have the following consequences: • creditors who provide new money or goods or services designed to ensure the continuation of the business of the distressed company (other than shareholders providing new equity) will enjoy a priority of payment over all pre-proceedings and post-proceedings claims (other than certain post-proceeding employment claims and procedural costs), in the event of subsequent safeguard proceedings, judicial reorganization proceedings or judicial liquidation proceedings; • in the event of subsequent judicial reorganization proceedings or judicial liquidation proceedings, the date of the cessation des paiements cannot be fixed by the court as of a date earlier than the date of the approval of the agreement (see below the definition of the date of the cessation des paiements).
Safeguard procedure (procedure de sauvegarde) The safeguard procedure allows for the establishment of a restructuring plan negotiated with the creditors under court supervision before the company becomes insolvent. It is available only at the request of a debtor company. The objectives of safeguard proceedings are, in order of priority, to safeguard the debtor’s activity and prospects of recovery, to saveguard jobs and to pay creditors The debtor must be solvent (i.e., not unable to pay its due debts out of its available assets) but experiencing difficulties that cannot be overcome. Safeguard proceedings are public and include an automatic stay of all actions against the debtor for up to six months, renewable for an additional six months with court approval and which can be extended to a maximum of 18 months upon request of the State prosecutor. During the safeguard procedure, payments by the debtor of any debts incurred prior to the commencement of the procedure are prohibited, subject to limited exceptions. The bankruptcy court can authorize payments for prior debts in order to discharge a lien on property needed for the continued operation of the business or get back goods or rights transferred as collateral in a fiduciary estate (patrimoine fiduciaire). Debts arising after the commencement of the safeguard procedure will be given priority over debts incurred prior to the commencement of the safeguard procedure if they relate to expenses necessary for the business’s ordinary activities or are for the requirements of the procedure. One of the main features of the safeguard procedure consists in the creation of two creditors’committees (mandatory for companies employing more than 150 persons or with a turnover exceeding twenty million euros, optional below such thresholds), one consisting of banks and financial institutions and the other of the main trade creditors (creditors whose claim is equal to more than 3% of the company’s total debt to its trade creditors), and a general meeting of Noteholders (comprising all holders of all notes issued by the
265 company even they relate to different issues) in the event the relevant debtor has issued bonds, to which the debtor submits proposals to reach agreement on a recovery plan. The committees must accept or reject proposals for a plan within a minimum of 15 days of such proposals. The plan is approved where members of each committee voting in favor of the plan account for at least two-thirds of the outstanding claims of the creditors expressing a vote. In cases where bonds have been issued by the relevant French company, the plan, if approved by the committees, is then submitted to the general meeting of Noteholders (majority of twothirds of the outstanding claims of the Noteholders expressing a vote). The committees and the general meeting of Noteholders, if any, shall vote on the plan within 6 months of the date of the judgment commencing the proceedings. The plan submitted to the committees and the Noteholders, if any, may include not only rescheduling of debts but also cancellation of debts and debt-for equity swaps (debt-for equity swaps requiring the relevant shareholder consent). Following approval by the creditors’ committees and the general meeting of Noteholders, if any, and subject to verification by the court that creditors’ interests are adequately preserved, the court can approve the plan, in which case the plan will be binding also on dissenting members of the committees and on Noteholders (if any), though will not be binding on creditors which are not members of one of the committees and which are not Noteholders. Creditors which are not members of committees and which are not Noteholders are consulted on an individual basis. For those individual creditors which have not reached a negotiated agreement, the court can reschedule repayment of their claims over a maximum period of 10 years, except for debts with maturity dates of more than 10 years, in which case the maturity date may remain the same. The court cannot oblige such creditors to waive part of their claim. The first payment must be made within a year of the judgment adopting the plan (in the third and subsequent years, the amount of each annual installment must be of at least 5% of the total admitted pre-filing liabilities). The court can also impose a plan if one or both of the committees, or the general meeting of Noteholders, does not approve the debtor company’s proposed plan, either by failing to vote within the specified 6-month period or by rejecting the plan. In such a case, the rules are the same as the one applicable to creditors which are not members of the committees and which are not Noteholders (in particular, the court can only impose a rescheduling of the repayment of the debts over a maximum period of 10 years, except for debts with maturity dates of more than 10 years, in which case the maturity date may remain the same).
Accelerated Financial Safeguard procedure (procedure de sauvegarde financiere` accel´ er´ ee)´ Instored by law n 210-1249 of October 22, 2010 and entered into force on March 1, 2011, accelerated financial safeguard proceedings (procedure de sauvegarde financiere` accel´ er´ ee´ ) may be opened against a company, at such company’s request if (i) while not being in cessation des paiements (i.e., being unable to pay its debts as they fall due out of its available assets), it is facing difficulties which it cannot overcome, (ii) its turnover or number of employees are in amount (currently 150 employees or e 20 million of turnover) making it eligible to adoption of a safeguard plan through the creditor committee process, (iii) it is subject to a conciliation proceeding and (iv) the company justifies that it has prepared a safeguard plan ensuring the continued operation of the company as a going concern which has enough support from its credit institution creditors and its bondholders that it is reasonably likely to be adopted within one, or a maximum of 2, months. Accelerated safeguard proceedings essentially take place like safeguard proceedings described above with the major exception that (i) trade creditors are not affected by the opening of the proceedings and continue to be paid as is no proceeding had been opened and (ii) if a plan cannot be adopted within a maximum of 2 months, the court ends the accelerated financial safeguard proceedings.
Judicial reorganization (redressement judiciaire) A judicial reorganization may be initiated with respect to a company incorporated in France (or a foreign company whose center of main interest is situated in France) if it cannot pay its due debts out of its available assets (en cessation des paiements) provided that its financial situation is capable of improving. Such proceedings may be initiated by the company, a creditor, the court or the State prosecutor. The debtor is required to petition for insolvency proceedings within 45 days of becoming in cessation des paiements unless it has initiated a conciliation procedure within the same period. If it does not, directors and, as the case may be, de facto managers, may be subject to civil liability. The objectives of judicial reorganization proceedings are, the same as those of
266 safeguard proceedings. Most of the rules applicable to safeguard proceedings apply to judicial reorganization proceedings. In particular, the commencement of judicial reorganization proceedings triggers an automatic stay of proceedings against the debtor for up to a maximum of 18 months (subject to the same limited exceptions). As with safeguard proceedings, the reorganization plan may be adopted by two creditors’committees (mandatory for companies employing more than 150 persons or with a turnover exceeding twenty million euros, optional below such thresholds), one consisting of banks and financial institutions and the other of the main trade creditors (creditors whose claim is equal to more than 3% of the company’s total debt to its trade creditors), and a general meeting of Noteholders (comprising all holders of all notes issued by the company even they relate to different issues) The rehabilitation plan can combine all of the following: a debt restructuring, a recapitalization of the company, a debt-for-equity swap (always with the relevant shareholder approval) and the sale of certain assets or of portions of the business. If it appears that the debtor is not able to insure the recovery of its business, a total or partial sale of the business can be ordered by the court, at the request of the court-appointed administrator. In this case, the sale is conducted by the court appointed representative of the creditors in accordance with rules applicable to the liquidation procedure.
Judicial liquidation (liquidation judiciaire) Such proceedings may be initiated by the company, a creditor, the court or the State prosecutor. The aim of these proceedings is to liquidate a company by selling its business, as a whole or per branch of activity, or its assets one by one. The debtor is required to petition for insolvency proceedings within 45 days of becoming in cessation des paiements. The bankruptcy court commences a judicial liquidation rather than a judicial reorganization when it considers that the debtor is unable to continue its business or that there are no serious chances of improving the company’s prospects through restructuring. Liquidation proceedings trigger an automatic stay of proceedings against the company. However, secured creditors benefiting from a pledge are, where the applicable security arrangements so contemplate, entitled to enforce their security interest through a courtmonitored allocation process (attribution judiciaire) (i.e., request the court to transfer ownership of the pledged asset(s)).
Void and voidable transactions Transactions may be challenged by the administrateur judiciaire, mandataire judiciaire, liquidator or State prosecutor if they are entered into during the so-called ‘‘hardening’’ or ‘‘suspect’’ period before an insolvency judgment (periode´ suspecte). This period runs from the date on which the company is deemed to be insolvent, which can be backdated by the court up to 18 months before the judgment commencing the relevant insolvency proceedings, but not to a date before any court order approving a conciliation agreement (homologation). Transactions that are automatically void if performed during the suspect period include transactions or payments that may constitute voluntary preferences for the benefit of some creditors to the detriment of other creditors. These include transfers of assets for no consideration, contracts under which the reciprocal obligations of the company significantly exceed those of the other party, payments of debts not due at the time of payment, payments made in a manner which is not commonly used in the ordinary course of business or security granted for debts previously incurred and provisional measures (unless in this latter case the writ of attachment or seizure predates the date of cessation des paiements). Voidable transactions include transactions or payments made when due after the date of cessation des paiements, if the party dealing with the company knew or should have known that it was in a state of cessation des paiements. Transactions relating to the transfer of assets for no consideration are also voidable when realized during the six-month period prior to the beginning of the suspect period.
Status of creditors As a general rule, creditors domiciled in France whose debts arose prior to the commencement of the proceedings must file a claim with the creditors’ representative within two months of the publication of the court order in the Bulletin Officiel des Annonces Civiles et Commerciales; this period is extended to four months for creditors domiciled outside France. Creditors which have not submitted their claims during the relevant period are barred from receiving distributions made in connection with the proceedings and their unasserted claims are
267 extinguished. Employees are not subject to such limits and are preferential creditors under French law. From the date of the court order commencing the insolvency proceedings (sauvegarde, redressement or liquidation judiciaire proceedings), the company is prohibited from paying debts outstanding prior to that date, subject to specified exceptions, which essentially concern the set-off of inter-related debts and payments made to recover assets where such recovery is authorized by the court. During this period, creditors may not pursue any legal action against the company with respect to any claim arising prior to the court order commencing the proceedings if the objective of such legal action is: (a) to obtain an order for or payment of a sum of money by the company to the creditor (however, the creditor may require that a court fix the amount due); or (b) to terminate a contract for non-payment of amounts owed by the company; or to enforce the creditor’s rights against any assets of the company. Contractual provisions that would accelerate the payment of the company’s obligations upon the occurrence of (i) the commencing of safeguard, or judicial reorganization proceedings or (ii) a state of cessation des paiements, are not enforceable under French law. The commencement of liquidation proceedings, however, automatically accelerates the maturity of the company’s obligations. If, however, the court authorizes the company to continue its activity because a sale of all or part of the business is feasible, the company’s obligations which have not yet matured shall only mature as at the date of the judgment ordering such sale. The administrator may elect to terminate or continue on-going contracts (contrats en cours) provided that the company fully performs its post-petition contractual obligations. French insolvency law assigns priority to the payment of certain preferential creditors, including employees, the bankruptcy court, officials appointed by the insolvency court as required by the insolvency proceedings, post-petition creditors, certain secured creditors and the French tax authorities. In accelerated financial safeguard proceedings however: (i) debts owed to trade creditors in accelerated financial safeguard the rights of trade creditor are not modified by the opening of such proceedings and they should be paid in the ordinary course, (ii) the debtor draws a list of the claims of its creditors having participated in the conciliation proceedings which is certified by its statutory auditors and filed with the commercial court and which is deemed to be a filing of their proof claim by such creditors if they do not file their claim within the general deadlines applicable in other insolvency proceedings referred to above.
Trust As there is currently no established concept of ‘‘trust’’ or ‘‘trustee’’ under French law, the precise nature, effect and enforceability of the duties, rights and powers of a security agent as agent or trustee for Noteholders in respect of security interests such as pledges are debated under French law. A concept of fiduciary agent (fiduciaire) was recently incorporated in French law, but the effects of this incorporation on the recognition of foreign-law governed ‘‘trusts’’ are not yet determined.
United States of America Under the U.S. Bankruptcy Code or comparable provisions of U.S. state fraudulent transfer or fraudulent conveyance laws, the incurrence of the obligations under the Notes, the issuance of the Guarantees and the grant of Collateral, whether now or in the future, by the Issuer and the Guarantors (together, the ‘‘Obligors’’) could be avoided, if, among other things, at the time the Obligors incurred the obligations, issued the related Guarantee or gave the Collateral, the Obligors intended to hinder, delay or defraud any present or future creditor; or received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness or the grant of such Collateral and either: • were insolvent or rendered insolvent by reason of such incurrence or grant of security; • were engaged in a business or transaction for which the Obligors’ remaining assets constituted unreasonably small capital; or • intended to incur, or believed that they would incur, debts beyond their ability to pay such debts as they mature.
268 The right of a holder of the Notes to enforce its security interests against the Obligors upon the occurrence of an event of default under the Indenture governing the Notes is likely to be significantly impaired by applicable U.S. bankruptcy law if we became subject to a case under the U.S. Bankruptcy Code before such security interest was enforced. Upon the commencement of a case under the U.S. Bankruptcy Code, a secured creditor, such as a holder of Notes, is prohibited by the automatic stay imposed by the U.S. Bankruptcy Code from obtaining possession or exercising control over its collateral or enforcing its security interest against a debtor in a U.S. bankruptcy case, without a U.S. bankruptcy court’s approval, which may not be given. Moreover, the U.S. Bankruptcy Code permits the debtor to continue to retain and use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given ‘‘adequate protection.’’ The term ‘‘adequate protection’’ is not defined in the U.S. Bankruptcy Code, but it includes making periodic cash payments, providing an additional or replacement lien or granting other relief, in each case, to the extent that the collateral decreases in value during the pendency of the U.S. bankruptcy case as a result of, among other things, the use, sale or lease of such collateral or the imposition of the automatic stay. The type of adequate protection provided to a secured creditor may vary according to circumstances. A U.S. bankruptcy court may determine that a secured creditor may not require additional adequate protection for a diminution in the value of its collateral if the value of the collateral exceeds the amount of the debt that it secures. In view of the automatic stay, the lack of a precise definition of the term ‘‘adequate protection’’ and the broad discretionary power of a U.S. bankruptcy court, it is impossible to predict: • whether or when a holder of the Notes could enforce its security interests; • the value of the Collateral at the time of the bankruptcy petition; or • whether or to what extent holders of the Notes would be compensated for any delay in payment or loss of value of the Collateral through the requirement of ‘‘adequate protection.’’ Any future grant of security interest with regard to the Collateral in favor of the Notes, including pursuant to security documents delivered after the date of the Indenture governing the Notes, might be avoidable by the grantor (as debtor in possession) or by its trustee in bankruptcy as a preference if certain events or circumstances exist or occur, including, among others, if the grantor is insolvent at the time of the grant, the security interest permits the holders of the Notes to receive a greater recovery than if the bankruptcy case were a case under chapter 7 of the U.S. Bankruptcy Code and the security had not been given and a bankruptcy case in respect of the grantor is commenced within 90 days following the grant, or in certain circumstances, a longer period.
269 BOOK-ENTRY; DELIVERY AND FORM General Notes sold to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act will be represented by a global note in registered form without interest coupons attached (the ‘‘Rule 144A Global Note’’). Notes sold to non-U.S. persons in reliance on Regulation S under the U.S. Securities Act will be represented by a global note in registered form without interest coupons attached (the ‘‘Regulation S Global Note’’ and, together with the Rule 144A Global Note, the ‘‘Global Notes’’). The Global Notes will be deposited, on the closing date, with a common depositary and registered in the name of the nominee of the common depositary for the accounts of Euroclear and Clearstream. Ownership of interests in the Rule 144A Global Note (‘‘Rule 144A Book-Entry Interests’’) and in the Regulation S Global Note (the ‘‘Regulation S Book-Entry Interests’’ and, together with the Rule 144A Book-Entry Interests, the ‘‘Book-Entry Interests’’) will be limited to persons that have accounts with Euroclear and/or Clearstream or persons that hold interests through such participants. Euroclear and Clearstream will hold interests in the Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositaries. Except under the limited circumstances described below, Book-Entry Interests will not be held in definitive certificated form. Book-Entry Interests will be shown on, and transfers thereof will be done only through, records maintained in book-entry form by Euroclear and Clearstream and their participants. The laws of some jurisdictions, including certain states of the United States, may require that certain purchasers of securities take physical delivery of such securities in definitive certificated form. The foregoing limitations may impair the ability to own, transfer or pledge Book-Entry Interests. In addition, while the Notes are in global form, holders of Book-Entry Interests will not be considered the owners or ‘‘holders’’ of Notes for any purpose. So long as the Notes are held in global form, Euroclear and/or Clearstream, as applicable (or their respective nominees), will be considered the sole holders of the Global Notes for all purposes under the Indenture governing the Notes. In addition, participants must rely on the procedures of Euroclear and/or Clearstream, and indirect participants must rely on the procedures of Euroclear, Clearstream and the participants through which they own Book-Entry Interests, to transfer their interests or to exercise any rights of holders under the Indenture. Neither the Issuer, the Guarantor nor the Trustee will have any responsibility, or be liable, for any aspect of the records relating to the Book-Entry Interests.
Redemption of the Global Notes In the event that any Global Note (or any portion thereof) is redeemed, Euroclear and/or Clearstream, as applicable, will redeem an equal amount of the Book-Entry Interests in such Global Note from the amount received by it in respect of the redemption of such Global Note. The redemption price payable in connection with the redemption of such Book-Entry Interests will be equal to the amount received by Euroclear and/or Clearstream, as applicable, in connection with the redemption of such Global Note (or any portion thereof). The Issuer understands that, under the existing practices of Euroclear and Clearstream, if fewer than all of the Notes are to be redeemed at any time, Euroclear and Clearstream will credit their respective participants’ accounts on a proportionate basis (with adjustments to prevent fractions), by lot or on such other basis as they deem fair and appropriate, provided, however, that no Book-Entry Interest of less than e100,000 principal amount may be redeemed in part.
Payments on Global Notes The Issuer will make payments of any amounts owing in respect of the Global Notes (including principal, premium, if any, interest, and any additional interest and Additional Amounts) to the common depositary or its nominee for Euroclear and Clearstream, which will distribute such payments to participants in accordance with their customary procedures. The Issuer expects that standing customer instructions and customary practices will govern payments by participants to owners of Book-Entry Interests held through such participants.
270 Under the terms of the Indenture, the Issuer and the Trustee will treat the registered holder of the Global Notes (e.g., Euroclear or Clearstream (or their respective nominees)) as the owner thereof for the purpose of receiving payments and for all other purposes. Consequently, none of the Issuer, the Trustee or any of its or their respective agents has or will have any responsibility or liability for: • any aspect of the records of Euroclear, Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest or for maintaining, supervising or reviewing the records of Euroclear, Clearstream or any participant or indirect participant relating to, or payments made on account of, a Book-Entry Interest; or • maintaining, supervising or reviewing the records of Euroclear, Clearstream or any participant or indirect participant.
Currency of Payment for the Global Notes The principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Global Notes will be paid in euro.
Action by Owners of Book-Entry Interests Euroclear and Clearstream have advised the Issuer that they will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described above) only at the direction of one or more participants to whose account the Book-Entry Interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. Euroclear and Clearstream will not exercise any discretion in the granting of consents, waivers or the taking of any other action in respect of the Global Notes. However, if there is an event of default under the Notes, Euroclear and Clearstream each reserve the right to exchange the Global Notes for definitive registered Notes in certificated form (‘‘Definitive Registered Notes’’), and to distribute Definitive Registered Notes to their participants.
Transfers Transfers between participants in Euroclear and Clearstream will be effected in accordance with Euroclear and Clearstream rules and will be settled in immediately available funds. If a holder requires physical delivery of Definitive Registered Notes for any reason, including to sell Notes to persons in states which require physical delivery of securities or to pledge such securities, such holder must transfer its interests in the Global Notes in accordance with the normal procedures of Euroclear and Clearstream and in accordance with the procedures set forth in the Indenture governing the Notes. The Rule 144A Global Note will have a legend to the effect set forth under ‘‘Notice to Investors’’. Book-Entry Interests in the Global Notes will be subject to the restrictions on transfers and certification requirements discussed under ‘‘Notice to Investors’’. Rule 144A Book-Entry Interests may be transferred to a person who takes delivery in the form of a Regulation S Book-Entry Interest only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made in accordance with Regulation S or Rule 144 under the U.S. Securities Act or any other exemption (if available under the U.S. Securities Act). Regulation S Book-Entry Interests may be transferred to a person who takes delivery in the form of a Rule 144A Book-Entry Interest only upon delivery by the transferor of a written certification (in the form provided in the Indenture) to the effect that such transfer is being made to a person who the transferor reasonably believes is a ‘‘qualified institutional buyer’’ within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A or otherwise in accordance with the transfer restrictions described under ‘‘Notice to Investors’’ and in accordance with any applicable securities laws of any other jurisdiction. In connection with transfers involving an exchange of a Regulation S Book-Entry Interest for a Rule 144A Book-Entry Interest, appropriate adjustments will be made to reflect a decrease in the
271 principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note. Any Book-Entry Interest in one of the Global Notes that is transferred to a person who takes delivery in the form of a Book-Entry Interest in any other Global Note will, upon transfer, cease to be a Book-Entry Interest in the first-mentioned Global Note and become a Book-Entry Interest in such other Global Note, and accordingly will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to Book-Entry Interests in such other Global Note for as long as it remains such a Book-Entry Interest.
Definitive Registered Notes Under the terms of the Indenture, owners of the Book-Entry Interests will receive Definitive Registered Notes: • if Euroclear or Clearstream notifies the Issuer that it is unwilling or unable to continue to act as depositary and a successor depositary is not appointed by the Issuer within 120 days; or • if Euroclear or Clearstream so requests following an Event of Default under the Indenture. In the case of the issuance of Definitive Registered Notes, the holder of a Definitive Registered Note may transfer such note by surrendering it to the registrar or a transfer agent. In the event of a partial transfer or a partial redemption of a holding of Definitive Registered Notes represented by one Definitive Registered Note, a Definitive Registered Note will be issued to the transferee in respect of the part transferred and a new Definitive Registered Note in respect of the balance of the holding not transferred or redeemed will be issued to the transferor or the holder, as applicable; provided that no Definitive Registered Note in a denomination less than e100,000 will be issued. The Issuer will bear the cost of preparing, printing, packaging and delivering the Definitive Registered Notes. The Issuer will not be required to register the transfer or exchange of Definitive Registered Notes for a period of 15 calendar days preceding (i) the record date for any payment of interest on the Notes, (ii) any date fixed for redemption of the Notes or (iii) the date fixed for selection of the Notes to be redeemed in part. Also, the Issuer is not required to register the transfer or exchange of any Notes selected for redemption or which the holder has tendered (and not withdrawn) for repurchase in connection with a change of control offer or asset sale offer. In the event of the transfer of any Definitive Registered Note, the Trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents as described in the Indenture. The Issuer may require a holder to pay any transfer taxes and fees required by law and permitted by the Indenture and the Notes. If Definitive Registered Notes are issued and a holder thereof claims that such a Definitive Registered Note has been lost, destroyed or wrongfully taken, or if such Definitive Registered Note is mutilated and is surrendered to the registrar or at the office of a transfer agent, the Issuer will issue and the Trustee will authenticate a replacement Definitive Registered Note if the Trustee’s and the Issuer’s requirements are met. The Issuer or the Trustee may require a holder requesting replacement of a Definitive Registered Note to furnish an indemnity bond sufficient in the judgment of both to protect themselves, the Trustee or the paying agent appointed pursuant to the Indenture from any loss which any of them may suffer if a Definitive Registered Note is replaced. The Issuer may charge for any expenses incurred by the Issuer in replacing a Definitive Registered Note. In case any such mutilated, destroyed, lost or stolen Definitive Registered Note has become or is about to become due and payable, or is about to be redeemed or purchased by the Issuer pursuant to the provisions of the Indenture, the Issuer, in its discretion, may, instead of issuing a new Definitive Registered Note, pay, redeem or purchase such Definitive Registered Note, as the case may be. Definitive Registered Notes may be transferred and exchanged only after the transferor first delivers to the Trustee a written certification (in the form provided in the Indenture) to the effect that such transfer will comply with the transfer restrictions applicable to such Notes. See ‘‘Notice to Investors.’’ So long as the Notes are listed on the Official List of the Irish Stock Exchange, the Issuer will file a notice of any issuance of Definitive Registered Notes with the Companies Announcement
272 office of the Irish Stock Exchange. Payment of principal, any repurchase price, premium and interest on Definitive Registered Notes will be payable at the office of the paying agent in Ireland so long as the Notes are listed on the Official List of the Irish Stock Exchange.
Information Concerning Euroclear and Clearstream All Book-Entry Interests will be subject to the operations and procedures of Euroclear and Clearstream, as applicable. The Issuer provides the following summaries of those operations and procedures solely for the convenience of investors. The operations and procedures of each settlement system are controlled by that settlement system and may be changed at any time. Neither the Issuer nor the initial purchasers are responsible for those operations or procedures. The Issuer understands as follows with respect to Euroclear and Clearstream. Euroclear and Clearstream hold securities for participating organizations. They also facilitate the clearance and settlement of securities transactions between their respective participants through electronic book-entry changes in accounts of such participants. Euroclear and Clearstream provide various services to their participants, including the safekeeping, administration, clearance, settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream interface with domestic securities markets. Euroclear and Clearstream participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear and Clearstream is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodian relationship with a Euroclear or Clearstream participant, either directly or indirectly. Because Euroclear and Clearstream can only act on behalf of participants, who in turn act on behalf of indirect participants and certain banks, the ability of an owner of a beneficial interest to pledge such interest to persons or entities that do not participate in the Euroclear or Clearstream systems, or otherwise take actions in respect of such interest, may be limited by the lack of a definite certificate for that interest. The laws of some jurisdictions require that certain persons take physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests to such persons may be limited. In addition, owners of beneficial interests through the Euroclear or Clearstream systems will receive distributions attributable to the 144A Global Notes only through Euroclear or Clearstream participants.
Global Clearance and Settlement Under the Book-Entry System The Notes represented by the Global Notes are expected to be listed on the Official List of the Irish Stock Exchange and admitted to trading on the Global Exchange Market. Transfers of interests in the Global Notes between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Although Euroclear and Clearstream currently follow the foregoing procedures in order to facilitate transfers of interests in the Global Notes among participants in Euroclear or Clearstream, as the case may be, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued or modified at any time. None of the Issuer, the Trustee or the Paying Agent will have any responsibility for the performance by Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
Initial Settlement Initial settlement for the Notes will be made in euro. Book-Entry Interests owned through Euroclear or Clearstream accounts will follow the settlement procedures applicable to conventional bonds in registered form. Book-Entry Interests will be credited to the securities custody accounts of Euroclear and Clearstream holders on the business day following the settlement date against payment for value on the settlement date.
Secondary Market Trading The Book-Entry Interests will trade through participants of Euroclear or Clearstream and will settle in same-day funds. Since the purchase determines the place of delivery, it is important to establish at the time of trading of any Book-Entry Interests where both the purchaser’s and the seller’s accounts are located to ensure that settlement can be made on the desired value date.
273 TAX CONSIDERATIONS European Tax Considerations European Union Savings Tax Directive Under EC Council Directive 2003/48/EC on the taxation of savings income (the ‘‘Savings Directive’’), Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual or as so-called residual entity resident or established in that other Member State. However, for a transitional period, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have adopted or agreed to adopt similar measures (a withholding system in the case of Switzerland). The European Commission has proposed certain amendments to the Savings Directive, which may, if implemented, amend or broaden the scope of the requirements described above.
Luxembourg Tax Considerations The following summary is of a general nature and is included herein solely for information purposes. It is based on the laws presently in force in Luxembourg, though it is not intended to be, nor should it be construed to be, legal or tax advice. Prospective investors in the Notes should therefore consult their own professional advisers as to the effects of state, local or foreign laws, including Luxembourg tax law, to which they may be subject. Please be aware that the residence concept used under the respective headings below applies for Luxembourg income tax assessment purposes only. In addition, any reference to a tax, duty, levy, impost or other charge or withholding of a similar nature refers to Luxembourg tax law and/or concepts only. Also, please note that a reference to Luxembourg income tax encompasses corporate income tax (impotˆ sur le revenu des collectivites´ ), municipal business tax (impotˆ commercial communal), a solidarity surcharge (impotˆ de solidarite´) as well as personal income tax (impotˆ sur le revenu) generally. Investors may further be subject to net wealth tax (impotˆ sur la fortune) as well as other duties, levies or taxes. Corporate income tax, municipal business tax as well as the solidarity surcharge invariably apply to most corporate taxpayers resident of Luxembourg for tax purposes. Individual taxpayers are generally subject to personal income tax and the solidarity surcharge. Under certain circumstances, where an individual taxpayer acts in the course of the management of a professional or business undertaking, municipal business tax may apply as well.
Taxation of the Holders of the Notes Withholding Tax Non-resident holders of Notes Under Luxembourg general tax laws currently in force and subject to the laws of June 21, 2005 (the ‘‘Laws’’) mentioned below, there is no withholding tax on payments of principal, premium or interest (including accrued but unpaid interest) made to non-resident holders of Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of the Notes held by non-resident holders of Notes. Under the Laws implementing the Savings Directive and ratifying the treaties entered into by Luxembourg and certain dependent and associated territories of EU Member States (the ‘‘Territories’’), payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the immediate benefit of an individual beneficial owner or a residual entity, as defined by the Laws, which is resident of, or established in, an EU Member State (other than Luxembourg) or one of the Territories will be subject to a withholding tax unless the relevant recipient has adequately instructed the relevant paying agent to provide details of the relevant payments of interest or similar income to the fiscal authorities of his/her/its country of residence or establishment, or, in the case of an individual beneficial owner, has provided a tax certificate issued by the fiscal authorities of his/her country of residence in the required format to
274 the relevant paying agent. Where withholding tax is applied, it is currently levied at a rate of 20% and will be levied at a rate of 35% as of July 1, 2011. Responsibility for the withholding of the tax will be assumed by the paying agent. Payments of interest under the Notes coming within the scope of the Laws would at present be subject to withholding tax of 20%.
Resident holders of Notes Under Luxembourg general tax laws currently in force and subject to the law of December 23, 2005, as amended (the ‘‘Law’’) mentioned below, there is no withholding tax on payments of principal, premium or interest (including accrued but unpaid interest) made to Luxembourg resident holders of Notes, nor is any Luxembourg withholding tax payable upon redemption or repurchase of Notes held by Luxembourg resident holders of Notes. Under the Law, payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to or for the benefit of an individual beneficial owner who is resident of Luxembourg, will be subject to a withholding tax of 10%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his/her private wealth. Responsibility for the withholding of the tax will be assumed by the paying agent. Payments of interest under the Notes coming within the scope of the Law would be subject to withholding tax of 10%.
Income Taxation Non-resident holders of Notes A non-resident holder of Notes, not having a permanent establishment or permanent representative in Luxembourg to which such Notes are attributable, is not subject to Luxembourg income tax on interest accrued or received, redemption premiums or issue discounts, under the Notes. A gain realized by such non-resident holder of Notes on the sale or disposal, in any form whatsoever, of the Notes is further not subject to Luxembourg income tax. A non-resident corporate holder of Notes or an individual holder of Notes acting in the course of the management of a professional or business undertaking, who has a permanent establishment or permanent representative in Luxembourg to which such Notes are attributable, is subject to Luxembourg income tax on interest accrued or received, redemption premiums or issue discounts, under the Notes and on any gains realized upon the sale or disposal, in any form whatsoever, of the Notes.
Resident holders of Notes A corporate holder of Notes must include any interest accrued or received, any redemption premium or issue discount, as well as any gain realised on the sale or disposal, in any form whatsoever, of the Notes, in its taxable income for Luxembourg income tax assessment purposes. The same inclusion applies to an individual holder of Notes, acting in the course of the management of a professional or business undertaking. A holder of Notes that is governed by the law of May 11, 2007 on family estate management, by the law of December 17, 2010 on undertakings for collective investment or by the law of February 13, 2007 on specialised investment funds, is neither subject to Luxembourg income tax in respect of interest accrued or received, redemption premiums or issue discounts, nor on gains realised on the sale or disposal, in any form whatsoever, of the Notes. An individual holder of Notes, acting in the course of the management of his/her private wealth, is subject to Luxembourg income tax in respect of interest received, redemption premiums or issue discounts, under the Notes, except if (i) withholding tax has been levied on such payments in accordance with the Law, or (ii) the individual holder of the Notes has opted for the application of a 10% tax in full discharge of income tax in accordance with the Law, which applies if a payment of interest has been made or ascribed by a paying agent established in a EU Member State (other than Luxembourg), or in a Member State of the European Economic Area (other than a EU Member State), or in a state that has entered into a treaty with Luxembourg relating to the Savings Directive. A gain realised by an individual holder of Notes, acting in the course of the management of his/her private wealth, upon the sale or disposal, in any form whatsoever, of Notes is not subject to Luxembourg income tax, provided this sale or disposal took place more than six months after the
275 Notes were acquired. However, any portion of such gain corresponding to accrued but unpaid interest income or assimilated thereto (e.g., issue discount, redemption premium, etc.) is subject to Luxembourg income tax, except if tax has been levied on such interest in accordance with the Law.
Net Wealth Taxation A corporate holder of Notes, whether it is resident of Luxembourg for tax purposes or, if not, it maintains a permanent establishment or a permanent representative in Luxembourg to which such Notes are attributable, is subject to Luxembourg wealth tax on such Notes, except if the holder of Notes is governed by the law of May 11, 2007 on family estate management companies, by the law of December 17, 2010 on undertakings for collective investment, or by the law of February 13, 2007 on specialised investment funds, or is a securitization company governed by the law of March 22, 2004 on securitization, or is a capital company governed by the law of June 15, 2004 on venture capital vehicles, as amended. An individual holder of Notes, whether he/she is resident of Luxembourg or not, is not subject to Luxembourg wealth tax on such Notes.
Other Taxes Neither the issuance nor the transfer of Notes will give rise to any Luxembourg stamp duty, value added tax, issuance tax, registration tax, transfer tax or similar taxes or duties. Where a holder of Notes is a resident of Luxembourg for tax purposes at the time of his/her death, the Notes are included in his/her taxable estate for inheritance tax assessment purposes. Gift tax may be due on a gift or donation of Notes if embodied in a Luxembourg deed or recorded in Luxembourg.
Certain United States Federal Income Tax Considerations TO COMPLY WITH INTERNAL REVENUE SERVICE CIRCULAR 230, PROSPECTIVE INVESTORS ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF U.S. FEDERAL TAX ISSUES CONTAINED OR REFERRED TO IN THIS OFFERING CIRCULAR IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY PROSPECTIVE INVESTORS, FOR THE PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THEM UNDER THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE ‘‘CODE’’); (B) SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE PROMOTION OR MARKETING BY US OF THE TRANSACTIONS OR MATTERS ADDRESSED HEREIN; AND (C) PROSPECTIVE INVESTORS SHOULD SEEK ADVICE BASED ON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR. The following discussion is a summary of certain material U.S. federal income tax consequences of the purchase, ownership and disposition of the Notes by a U.S. holder (defined below), but does not purport to be a complete analysis of all potential tax effects. This summary is based upon Code, Treasury regulations issued thereunder, and judicial and administrative interpretations thereof, each as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. No rulings from the Internal Revenue Service (‘‘IRS’’) have been or are expected to be sought with respect to the matters discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the Notes or that any such position would not be sustained. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a holder in light of such holder’s particular circumstances or to holders subject to special rules, such as financial institutions, U.S. expatriates, insurance companies, dealers in securities or currencies, traders in securities, U.S. holders whose functional currency is not the U.S. dollar, tax-exempt organizations, regulated investment companies, real estate investment trusts, partnerships or other pass through entities (or investors in such entities), persons liable for alternative minimum tax and persons holding the Notes as part of a ‘‘straddle,’’ ‘‘hedge,’’ ‘‘conversion transaction’’ or other integrated transaction. In addition, this discussion is limited to persons who purchase the Notes for cash at original issue and at their ‘‘issue price’’ (i.e., the first price at which a substantial amount of Notes are sold for cash to investors (excluding persons acting in the capacity of underwriters)) and who hold the Notes as capital assets within the meaning of section 1221 of the Code.
276 For purposes of this discussion, a ‘‘U.S. holder’’ is a beneficial owner of a Note that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States; (ii) a corporation or any entity taxable as a corporation created or organized under the laws of the United States, any state thereof or the District of Columbia; (iii) any estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or if a valid election is in place to treat the trust as a U.S. person. If any entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes holds the Notes, the tax treatment of a partner in the partnership or owners of pass-through entities will generally depend upon the status of the partner and the activities of the partnership or other pass-through entity. A holder that is a partnership, and partners in such partnerships or owners of pass-through entities, should consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of the Notes. Prospective purchasers of the Notes should consult their tax advisors concerning the tax consequences of holding Notes in light of their particular circumstances, including the application of the U.S. federal income tax considerations discussed below, as well as the application of U.S. federal estate and gift tax laws and state, local, foreign or other tax laws.
Characterization of the Notes In certain circumstances (see ‘‘Description of the Notes—Optional Redemption,’’ ‘‘Description of the Notes—Repurchase at the Option of Holders,’’ and ‘‘Description of the Notes—Payments of Additional Amounts’’) we may be obligated to make payments on the Notes in excess of stated principal and interest. We intend to take the position that the foregoing contingencies should not cause the Notes to be treated as contingent payment debt instruments under applicable Treasury Regulations. Assuming such position is respected, a U.S. holder would be required to include in income the amount of any such additional payments at the time such payments are received or accrued in accordance with such U.S. holder’s method of accounting for U.S. federal income tax purposes. Our position is binding on a holder, unless the holder discloses in the proper manner to the IRS that it is taking a different position. If the IRS successfully challenged this position, and the Notes were treated as contingent payment debt instruments, U.S. holders could be required to accrue interest income at a rate higher than their yield to maturity, to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange, retirement or redemption of a Note, and to recognize foreign currency exchange gain or loss with respect to such income. This disclosure assumes that the Notes will not be considered contingent payment debt instruments. U.S. holders are urged to consult their own tax advisors regarding the potential application of the contingent payment debt instrument rules to the Notes and the consequences thereof.
Payments of Stated Interest Payments of stated interest on the Notes (including any non-U.S. tax withheld on such payments) generally will be taxable to a U.S. holder as ordinary income at the time that such payments are received or accrued, in accordance with such U.S. holder’s method of accounting for U.S. federal income tax purposes. A U.S. holder that uses the cash method of accounting for U.S. federal income tax purposes and that receives a payment of stated interest will be required to include in ordinary income the U.S. dollar value of the foreign currency interest payment (translated at the ‘‘spot rate’’ on the date such payment is received) regardless of whether the payment is in fact converted to U.S. dollars. A cash method U.S. holder will not recognize exchange gain or loss with respect to the receipt of such payment, but may have exchange gain or loss attributable to the actual disposition of the foreign currency so received. Such gain or loss will generally constitute ordinary income or loss and be treated as U.S. source income or as an offset to U.S. source income, respectively. A U.S. holder that uses the accrual method of accounting for U.S. federal income tax purposes will be required to include in income the U.S. dollar value of the amount of interest income in foreign currency that has accrued during an accrual period. The U.S. dollar value of such accrued income will be determined by translating such income at the average rate of exchange for the accrual period or, with respect to an accrual period that spans two taxable years, at the average
277 rate for the partial period within each taxable year. A U.S. holder may elect, however, to translate such accrued interest income using the spot rate of exchange on the last day of the accrual period or, with respect to an accrual period that spans two taxable years, using the spot rate of exchange on the last day of the portion of the accrual period within each taxable year. If the last day of an accrual period is within five business days of the date of receipt of the accrued interest, a U.S. holder may translate such interest at the ‘‘spot rate’’ on the date of receipt. The above election will apply to all other obligations held by the U.S. holder and may not be changed without the consent of the IRS. A U.S. holder that uses the accrual method of accounting for U.S. federal income tax purposes will recognize exchange gain or loss with respect to accrued interest income on the date such interest is actually received. The amount of exchange gain or loss recognized will equal the difference, if any, between the U.S. dollar value of the foreign currency payment received (translated at the ‘‘spot rate’’ on the date such payment is received) in respect of such accrual period and the U.S. dollar value of interest income that has accrued during such accrual period (as determined above), regardless of whether the payment is in fact converted to U.S. dollars. Such gain or loss will generally constitute ordinary income or loss and be treated as U.S. source income or as an offset to U.S. source income, respectively, and generally will not be treated as adjustment to interest income or expense.
Original Issue Discount If the stated principal amount of the Notes exceeds their issue price by more than a statutorily defined de minimis amount (generally, 1⁄4 of 1% of the Notes stated principal amount multiplied by the number of complete years to maturity from their issue date), the Notes will be treated as issued with original issue discount (‘‘OID’’) for U.S. federal income tax purposes. A U.S. holder of a Note treated as issued with OID must include the OID in income as ordinary income for U.S. federal income tax purposes as it accrues under a constant yield method in advance of receipt of the cash payments attributable to such income, regardless of such U.S. holder’s regular method of tax accounting. In general, the amount of OID included in income by the U.S. holder of a Note is the sum of the daily portions of OID with respect to such Note for each day during the taxable year (or portion of the taxable year) on which the U.S. holder held the Note. The daily portion of OID on any Note is determined by allocating to each day in any accrual period a rateable portion of the OID allocable to that accrual period. An accrual period may be of any length and the accrual periods may vary in length over the term of the Note, provided that each accrual period is no longer than one year and each scheduled payment of principal or interest occurs either on the first day or final day of an accrual period. The amount of OID allocable to each accrual period other than the initial short accrual period and final accrual period is generally equal to the difference between (i) the product of the Note’s adjusted issue price at the beginning of such accrual period and the yield to maturity (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account the length of the particular accrual period) and (ii) the amount of any qualified stated interest payments allocable to such accrual period. The yield to maturity is the discount rate that, when applied to all payments under a Note, results in a present value equal to the Note’s issue price. OID allocable to a final period is the difference between the amount payable at maturity, other than a payment of stated interest, and the adjusted issue price at the beginning of the final accrual period. The amount of OID allocable to any initial short accrual period generally may be computed under any reasonable method. The adjusted issue price of a Note at the beginning of any accrual period is the sum of the issue price of the Note plus the amount of OID allocable to all prior accrual periods (decreased by prior payments on the Notes that are not qualified stated interest, if any). Under these rules, U.S. holders generally will have to include in taxable income increasingly greater amounts of OID in successive accrual periods. A U.S. holder may irrevocably elect, subject to certain limitations, to treat all interest on any Note as OID and calculate the amount includible in gross income under the method described above. The election is to be made for the taxable year in which the U.S. holder acquired the Note and may not be removed without the consent of the IRS. U.S. holders should consult their own tax advisors about this election. A U.S. holder of Notes treated as issued with OID must (i) determine OID allocable to each accrual period in foreign currency using the constant yield method described above, and (ii) translate the amount of OID into U.S. dollars and recognise foreign currency gain or loss in the
278 same manner as described above for stated interest accrued by an accrual basis U.S. holder. For these purposes, all receipts on the Notes will be viewed first as payments of stated interest payable on the Notes, second as receipts of previously accrued OID (to the extent thereof), with payments considered made for the earliest accrual periods first, and third, as the receipt of principal. U.S. holders should note that because the cash payment in respect of accrued OID on a Note will not be made until maturity or other disposal of the Note, a greater possibility exists for fluctuations in foreign currency exchange rates (and the required recognition of exchange gain or loss) than is the case for foreign currency instruments issued without OID. U.S. holders are urged to consult their tax advisers regarding the interplay between the application of the OID and foreign currency exchange gain or loss rules. The rules governing OID instruments are complex and, accordingly, prospective investors should consult their own tax advisers concerning the application of such rules to the Notes.
Foreign Tax Credit Subject to the discussion of exchange gain or loss above, interest income (including any OID) on a Note generally will constitute foreign source income and generally will be considered ‘‘passive category income’’ in computing the foreign tax credit allowable to U.S. holders under U.S. federal income tax laws. Any non-U.S. withholding tax paid by a U.S. holder at a rate applicable to such holder may be eligible for foreign tax credits (or deduction in lieu of such credits) for U.S. federal income tax purposes, subject to applicable limitations. The calculation of foreign tax credits involves the application of complex rules that depend on a U.S. holder’s particular circumstances. U.S. holders should consult their independent tax advisors regarding the availability of foreign tax credits.
Sale, Exchange, Redemption, Retirement or Other Taxable Disposition of Notes Generally, upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder will recognize taxable gain or loss equal to the difference between the amount realized on the disposition determined in U.S. dollars (less any amount attributable to accrued but unpaid interest not previously included in income, which if not previously included in income will be taxable as such) and such U.S. holder’s adjusted tax basis in the Note. In the case of a Note that is traded on an established securities market, a cash basis U.S. holder and, if it so elects, an accrual basis U.S. holder will determine the U.S. dollar value of the amount realized by translating such amount at the ‘‘spot rate’’ on the settlement date of the disposition. A U.S. holder’s adjusted tax basis in a Note will generally equal the cost of such Note to such U.S. holder increased by the amount of any OID previously included in income and decreased by any principal payments previously received by such U.S. holder. If a U.S. holder uses foreign currency to purchase a Note, the cost of the Note will be the U.S. dollar value of the foreign currency purchase price on the date of purchase. In the case of a Note that is traded on an established securities market, a cash basis U.S. holder, and, if it so elects, an accrual basis U.S. holder, will determine the U.S. dollar value of the cost of such Note by translating the amount paid at the ‘‘spot rate’’ of exchange on the settlement date of the purchase. The special election available to accrual basis U.S. holders in regard to the purchase and sale of Notes traded on an established securities market, which is discussed in the preceding paragraphs, must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS. Subject to the discussion of exchange gain or loss below, gain or loss recognized upon the sale, exchange, redemption, retirement or other taxable disposition of a Note (i) generally will be U.S. source gain or loss and (ii) generally will be capital gain or loss and will be long-term capital gain or loss if at the time of the sale, exchange, redemption, retirement or other disposition the Note has been held by such U.S. holder for more than one year. Long-term capital gain realized by a non-corporate U.S. holder will generally be subject to taxation at a reduced rate. The deductibility of capital losses is subject to limitation. Prospective purchasers should consult their tax advisors as to the foreign tax credit implications of the sale, exchange, redemption or other taxable disposition of the Notes.
279 Upon the sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder may recognize gain or loss that is attributable to fluctuations in currency exchange rates with respect to the principal amount of such Note. For these purposes, the principal amount of a Note is the U.S. holder’s purchase price of the Note in foreign currency. Gain or loss attributable to fluctuations in exchange rates with respect to the principal amount of such Note generally will equal the difference between (i) the U.S. dollar value of the principal amount of the Note, determined on the date such payment is received from us for the Note or such Note is disposed of, and (ii) the U.S. dollar value of the principal amount of the Note, determined on the date the U.S. holder acquired such Note (or, in each case, on the settlement date, if the Notes are traded on an established securities market and the holder is either a cash basis U.S. holder or an electing accrual basis U.S. holder). Such gain or loss will be treated as ordinary income or loss and generally will be treated as U.S. source income or as an offset to U.S. source income, respectively, and will not be treated as interest income or expense. In addition, exchange gain or loss may be realized with respect to accrued interest and OID (if any) as discussed under ‘‘—Payments of Stated Interest,’’ as applicable. However, upon a sale, exchange, redemption, retirement or other taxable disposition of a Note, a U.S. holder will realize exchange gain or loss with respect to principal and accrued interest (including accrued OID, if any) only to the extent of the total gain or loss realized on the disposition.
Certain Information Reporting Requirements For taxable years beginning after March 18, 2010, new legislation requires certain U.S. holders who are individuals to report information relating to an interest in our Notes, subject to certain exceptions (including an exception for Notes held in accounts maintained by certain financial institutions). Under certain circumstances, an entity may be treated as an individual for purposes of the foregoing rules. U.S. holders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of the Notes.
Reportable Transactions A U.S. taxpayer that participates in a ‘‘reportable transaction’’ will be required to disclose its participation to the IRS. Under the relevant rules, a U.S. holder may be required to treat a foreign currency exchange loss from the Notes as a reportable transaction if this loss exceeds the relevant threshold in the regulations ($50,000 in a single taxable year, if the U.S. holder is an individual or trust, or higher amounts for other non-individual U.S. holders), and to disclose its investment by filing Form 8886 with the IRS. A penalty in the amount of $10,000 in the case of an individual and $50,000 in all other cases is generally imposed on any taxpayer that fails to timely file an information return with the IRS with respect to a transaction resulting in a loss that is treated as a reportable transaction. Prospective purchasers are urged to consult their tax advisers regarding the application of these rules.
Backup Withholding and Related Information Reporting Requirements In general, payments of interest and the proceeds from sales or other dispositions (including retirements or redemptions) of Notes held by a U.S. holder may be required to be reported to the IRS unless the U.S. holder is an exempt recipient and, when required, demonstrates this fact. In addition, a U.S. holder that is not an exempt recipient may be subject to backup withholding unless it provides a taxpayer identification number and otherwise complies with applicable certification requirements. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability and may entitle the holder to a refund, provided that the appropriate information is timely furnished to the IRS.
280 CERTAIN ERISA CONSIDERATIONS General The U.S. Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’), imposes certain requirements on ‘‘employee benefit plans’’ subject to Title I of ERISA and on entities that are deemed to hold the assets of such plans (collectively, ‘‘ERISA Plans’’), and on those persons who are ‘‘fiduciaries’’ with respect to ERISA Plans. Investments by ERISA Plans are subject to ERISA’s general fiduciary requirements, including, but not limited to, the requirement of investment prudence and diversification and the requirement that an ERISA Plan’s investments be made in accordance with the documents governing such ERISA Plan. Section 406 of ERISA and Section 4975 of the Code, prohibit certain transactions involving the assets of an ERISA Plan (as well as those plans that are not subject to ERISA, but which are subject to Section 4975 of the Code, such as individual retirement accounts (together with ERISA Plans, ‘‘Plans’’)) and certain persons (referred to as ‘‘parties in interest’’ (as defined in Section 3(14) of ERISA) or ‘‘disqualified persons’’ (as defined in Section 4975(e)(2) of the Code)) having certain relationships to such Plans, unless a statutory or administrative exemption is applicable to the transaction. A party in interest or disqualified person who engages in a prohibited transaction may be subject to excise taxes and/or other penalties and liabilities under ERISA and/or the Code. Any Plan fiduciary which proposes to cause such Plan to purchase the Notes should consult with its counsel regarding the applicability of the fiduciary responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to such an investment, and to confirm that such purchase or holding will not constitute or result in a non-exempt prohibited transaction or any other violation of an applicable requirement of ERISA or the Code. Non-U.S. plans, ‘‘governmental plans’’ (as defined in Section 3(32) of ERISA) and certain ‘‘church plans’’ (as defined in Section 3(33) of ERISA, that have not made elections under Section 410(d) of the Code), while generally not subject to the fiduciary responsibility provisions of ERISA or the prohibited transaction provisions of ERISA and Section 4975 of the Code, may nevertheless be subject to non-U.S., state, local or other federal laws or regulations that are substantially similar to the foregoing provisions of ERISA or the Code (‘‘Similar Laws’’). Fiduciaries of any such plans should consult with their counsel before purchasing the Notes to determine the need for, and the availability, if necessary, of any exemptive relief under any Similar Laws.
Prohibited Transaction Class Exemptions The fiduciary of a Plan that proposes to purchase or hold any of the Notes should consider, among other things, whether such purchase or holding may involve (i) the direct or indirect extension of credit to a party in interest or a disqualified person, (ii) the sale or exchange of any property between a Plan and a party in interest or a disqualified person, or (iii) the transfer to, or use by or for the benefit of, a party in interest or disqualified person, of any Plan assets. Depending on the satisfaction of certain conditions, which may include the identity of the Plan fiduciary making the decision to acquire or hold the Notes on behalf of such Plan, Section 408(b)(17) of ERISA, Section 4975(d)(20) of the Code or U.S. Department of Labor Prohibited Transaction Class Exemption (‘‘PTCE’’) 84-14 (relating to transactions effected by a qualified professional asset manager), PTCE 90-1 (relating to investments by insurance company pooled separate accounts), PTCE 91-38 (relating to investments by bank collective investment funds), PTCE 95-60 (relating to investments by insurance company general accounts) or PTCE 96-23 (relating to transactions directed by an in-house asset manager) (collectively, the ‘‘Class Exemptions’’) could provide an exemption from the prohibited transaction provisions of ERISA and Section 4975 of the Code. However, there can be no assurance that any of these Class Exemptions or any other exemption will be available with respect to any particular transaction involving the Notes.
Representations By its purchase or holding of the Notes, each purchaser and transferee thereof will be deemed to have represented and warranted that: (i) it is not a Plan, it is not acting on behalf of a Plan and no assets of a Plan or non-U.S., governmental or church plan have been used to acquire such Notes or an interest therein, or
281 (ii) the purchase and holding of such Notes or an interest therein by such person do not constitute a non-exempt prohibited transaction under ERISA or the Code or a violation of Similar Laws, and (iii) it shall not sell or otherwise transfer such Notes, unless such subsequent transferee has made the representations and warrantees in (i) or (ii) above. The preceding summary regarding certain aspects of ERISA and the Code is based on ERISA and the Code, judicial decisions and U.S. Department of Labor and IRS regulations and rulings that are in existence on the date of this Offering Circular. This summary is general in nature and does not address every issue pertaining to ERISA, the Code or Similar Laws that may be applicable to us, the Notes or a particular investor. Accordingly, each prospective investor in the Notes, including Plan fiduciaries (and fiduciaries for non-U.S., governmental or church plans subject to Similar Laws), should consult with its legal advisor concerning the potentially adverse consequences of such investment under ERISA, the Code or Similar Laws and the possible effects of changes in the applicable laws.
282 PLAN OF DISTRIBUTION The Issuer, LuxGEO GP S.a` r.l. (the Issuer’s general partner, the ‘‘General Partner’’) and the Initial Purchasers named below have entered into a purchase agreement with respect to the Notes. Subject to certain conditions, each Initial Purchaser has severally agreed to purchase the principal amount of Notes indicated in the following table.
Principal Amount Initial Purchasers of Notes Goldman Sachs International ...... e 43,750,000 Credit Suisse Securities (Europe) Limited ...... e 43,750,000 Societ´ e´ Gen´ erale´ ...... e 43,750,000 UBS Limited ...... e 43,750,000 Total ...... g175,000,000
The Initial Purchasers are committed to take and pay for all of the Notes being offered, if any are taken. The initial offering price is set forth on the cover page of this Offering Circular. After the Notes are released for sale, the Initial Purchasers may change the offering price and other selling terms. The offering of the Notes by the Initial Purchasers is subject to receipt and acceptance and subject to the Initial Purchasers’ right to reject any order in whole or in part. The Notes have not been and will not be registered under the U.S. Securities Act. Each Initial Purchaser has agreed that it will only offer or sell the Notes (A) in the United States to qualified institutional buyers in reliance on Rule 144A under the U.S. Securities Act, and (B) outside the United States to non-U.S. persons in offshore transactions in reliance on Regulation S under the U.S. Securities Act. Terms used above have the meanings given to them by Rule 144A and Regulation S under the U.S. Securities Act. In connection with sales outside the United States, the Initial Purchasers have agreed that they will not offer, sell or deliver the Notes to, or for the account or benefit of, U.S. persons (i) as part of the Initial Purchasers’ distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering or the date the Notes are originally issued. The Initial Purchasers will send to each dealer to whom it sells such Notes during such 40-day period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. In addition, with respect to Notes initially sold pursuant to Regulation S, until 40 days after the later of the commencement of this offering or the date the Notes are originally issued, an offer or sale of such Notes within the United States by a dealer that is not participating in the offering may violate the registration requirements of the U.S. Securities Act. The Issuer and the General Partner have agreed and, upon accession to the purchase agreement, the Guarantors will agree that for a period of six months after the date of this Offering Circular, neither they, nor any of their subsidiaries, nor any person acting on behalf of any of them will, without the prior written consent of the Initial Purchasers, offer, sell, contract to sell or otherwise dispose of any securities that are substantially similar to the Notes. The Notes are a new issue of securities with no established trading market. The Issuer has been advised by the Initial Purchasers that the Initial Purchasers intend to make a market in the Notes but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Notes. The Issuer expects that delivery of the Notes will be made against payment therefor on or about the fourth business day in London, United Kingdom, following the date of pricing of the Notes (such settlement cycle being referred to as ‘‘T+4’’). Under Rule 15(c)6-1 under the Exchange Act, trades in the secondary market generally are required to settle in three business days unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade the Notes on the date of pricing will be required to specify an alternative settlement cycle at the time of such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes on the date of pricing should consult their own advisors. In connection with the offering, the Initial Purchasers may purchase and sell Notes in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover
283 positions created by short sales. Short sales involve the sale by the Initial Purchasers of a greater number of Notes than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the Notes while the offering is in progress. The Initial Purchasers also may impose a penalty bid. This occurs when a particular Initial Purchaser repays to the Initial Purchasers a portion of the underwriting discount received by it because Goldman Sachs International or its affiliates have repurchased Notes sold by or for the account of such Initial Purchaser in stabilizing or short covering transactions. These activities by the Initial Purchasers, as well as other purchases by the Initial Purchasers for their own accounts, may stabilize, maintain or otherwise affect the market price of the Notes. As a result, the price of the Notes may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Initial Purchasers at any time. These transactions may be effected in the over-the-counter market or otherwise. Each Initial Purchaser has represented and agreed that: (i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Guarantors; and (ii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom. No action has been taken in any jurisdiction, including the United States and the United Kingdom, by the Issuer, the General Partner, the Guarantors or the Initial Purchasers that would permit a public offering of the Notes or the possession, circulation or distribution of this Offering Circular or any other material relating to us or the Notes in any jurisdiction where action for this purpose is required. Accordingly, the Notes may not be offered or sold, directly or indirectly, and neither this Offering Circular nor any other offering material or advertisements in connection with the Notes may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction. This Offering Circular does not constitute an offer to sell or a solicitation of an offer to purchase in any jurisdiction where such offer or solicitation would be unlawful. Persons into whose possession this Offering Circular comes are advised to inform themselves about and to observe any restrictions relating to the offering of the Notes, the distribution of this Offering Circular and resale of the Notes. See ‘‘Notice to Investors.’’ The Issuer and the General Partner have agreed and, upon accession to the purchase agreement, the Guarantors will agree that they will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances in which such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the U.S. Securities Act or the safe harbors of Rule 144A and Regulation S to cease to be applicable to the offer and sale of the Notes. The Issuer and the General Partner have also agreed and, upon accession to the purchase agreement, the Guarantors will agree to indemnify the several Initial Purchasers against certain liabilities, including liabilities under the U.S. Securities Act. The Initial Purchasers and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the Initial Purchasers and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the Issuer or its affiliates, for which they received or will receive customary fees and expenses. Goldman Sachs International, Credit Suisse International, Societ´ e´ Gen´ erale´ and UBS Limited or their respective affiliates are mandated lead arrangers, bookrunners and original lenders under the Senior Credit Facilities Agreement and the Bridge Facility Agreement that LuxGEO and the Issuer have entered into as respective borrowers to provide financing for the Acquisition, the
284 other Transactions and related costs and expenses, and such entities may act as counterparties in the hedging arrangements that the Issuer and LuxGEO expect to enter into in connection with the Transactions, and will receive customary fees for their services in such capacities. Societ´ e´ Gen´ erale´ will also act as the Security Agent under the Indenture, the Senior Credit Facilities Agreement and the Intercreditor Agreement, is acting as agent under the Senior Credit Facilities Agreement and the Bridge Facility Agreement and will receive customary fees for its services in such capacities. UBS Limited is a lender under the Existing eDreams Indebtedness and a counterparty to certain related interest rate hedging arrangements. Societe´ Gen´ erale´ is a lender under the Existing eDreams Indebtedness and the Existing Go Voyages Indebtedness and a counterparty to certain interest rate hedging arrangements related to both facilities. On the Completion Date, we expect to use a portion of the amounts borrowed under the Senior Credit Facilities Agreement to repay all amounts outstanding under the Existing eDreams Indebtedness and the Existing Go Voyages Indebtedness, including UBS Limited’s and Societe´ Gen´ erale’s´ participations in these facilities. Our management has not yet determined whether our hedging arrangements related to the Existing eDreams Indebtedness and the Existing Go Voyages Indebtedness will be settled on or after the Completion Date (See ‘‘Management’s Discussion and Analysis of our Financial Condition and Results of Operations—Off-Balance Sheet Arrangements of the Go Voyages Group—Off-Balance Sheet Arrangements of the eDreams Group’’). In addition, Goldman Sachs International, Credit Suisse International (an affiliate of Credit Suisse Securities (Europe) Limited), UBS Limited and Societ´ e´ Gen´ erale´ are advising the Sponsors in connection with the Acquisition and the other Transactions. Finally, the Initial Purchasers or their affiliates may receive allocations of the Notes. In the ordinary course of their various business activities, the Initial Purchasers and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Issuer or its affiliates.
285 NOTICE TO INVESTORS You are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of any of the Notes offered hereby. The Notes and the Guarantees have not been and will not be registered under the U.S. Securities Act, or the securities laws or any other jurisdiction, and, unless so registered, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and the securities laws of any other applicable jurisdiction. Accordingly, the Notes offered hereby are being offered and sold only to qualified institutional buyers (as defined in Rule 144A under the U.S. Securities Act) in reliance on Rule 144A under the U.S. Securities Act and in offshore transactions to non-U.S. persons in reliance on Regulation S under the U.S. Securities Act. We use the terms ‘‘offshore transaction,’’ ‘‘U.S. person’’ and ‘‘United States’’ with the meanings given to them in Regulation S. Each purchaser of Notes, by its acceptance thereof, will be deemed to have acknowledged, represented to and agreed with the Issuer, each Guarantor and the Initial Purchasers as follows: (1) The purchaser understands and acknowledges that the Notes and the Guarantees have not been registered under the U.S. Securities Act or the securities laws of any other applicable jurisdiction and that the Notes are being offered for resale in transactions not requiring registration under the U.S. Securities Act or any other securities laws, including sales pursuant to Rule 144A under the U.S. Securities Act, and, unless so registered, may not be offered, sold or otherwise transferred except in compliance with the registration requirements of the U.S. Securities Act and any other applicable securities laws, pursuant to an exemption therefrom or in any transaction not subject thereto and in each case in compliance with the conditions for transfer set forth in paragraphs (4) and (5) below. (2) The purchaser is not an ‘‘affiliate’’ (as defined in Rule 144 under the U.S. Securities Act) of the Issuer or any Guarantor, is not acting on behalf of the Issuer or any Guarantor and is either: (a) a person in the United States or a U.S. person who is a qualified institutional buyer, within the meaning of Rule 144A under the U.S. Securities Act and are aware that any sale of these Notes to you will be made in reliance on Rule 144A under the U.S. Securities Act, and such acquisition will be for your own account or for the account of another qualified institutional buyer; or (b) is not a U.S. person (and is not purchasing the Notes for the account or benefit of a U.S. person) and is purchasing the Notes in an offshore transaction in accordance with Regulation S under the U.S. Securities Act. (3) The purchaser acknowledges that none of the Issuer, the Guarantors, or the Initial Purchasers, nor any person representing any of them, has made any representation to it with respect to us or the offer or sale of any of the Notes, other than the information contained in this Offering Circular, which Offering Circular has been delivered to it and upon which it is relying in making its investment decision with respect to the Notes. It acknowledges that neither the Initial Purchasers nor any person representing the Initial Purchasers make any representation or warranty as to the accuracy or completeness of this Offering Circular. It has had access to such financial and other information concerning us and the Notes as it has deemed necessary in connection with its decision to purchase any of the Notes, including an opportunity to ask questions of, and request information from, the Issuer and the Initial Purchasers. (4) The purchaser is purchasing the Notes for its own account, or for one or more investor accounts for which it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the U.S. Securities Act or any state or other securities laws, subject to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and subject to its or their ability to resell such Notes pursuant to Rule 144A or any other exemption from registration available under the U.S. Securities Act, or in any transaction not subject to the U.S. Securities Act.
286 (5) The purchaser agrees on its own behalf and on behalf of any investor account for which it is purchasing the Notes, and each subsequent holder of the Notes by its acceptance thereof will be deemed to agree, to offer, sell or otherwise transfer such Notes prior to the date (the ‘‘Resale Restriction Termination Date’’) that is one year (in the case of Rule 144A Notes) or 40 days (in the case of Regulation S Notes) after the later of the date of the original issue and the last date on which we or any of our affiliates were the owner of such Notes (or any predecessor thereto) only (i) to us, (ii) pursuant to a registration statement that has been declared effective under the U.S. Securities Act, (iii) for so long as the Notes are eligible for resale pursuant to Rule 144A under the U.S. Securities Act, to a person it reasonably believes is a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the transfer is being made in reliance on Rule 144A under the U.S. Securities Act, (iv) pursuant to offers and sales that occur outside the United States to non-U.S. persons in compliance with Regulation S under the U.S. Securities Act or (v) pursuant to any other available exemption from the registration requirements of the U.S. Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control and to compliance with any applicable state securities laws, and any applicable local laws and regulations, and further subject to our and the Trustee’s rights prior to any such offer, sale or transfer (I) pursuant to clause (v) to require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them and (II) in each of the foregoing cases, to require that a certificate of transfer in the form appearing on the reverse of the security is completed and delivered by the transferor to the Trustee. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. (6) Each purchaser acknowledges that each Note will contain a legend substantially to the following effect: THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘U.S. SECURITIES ACT’’) OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ (AS DEFINED IN RULE 144A UNDER THE U.S. SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON ACQUIRING THIS NOTE IN AN ‘‘OFFSHORE TRANSACTION’’ PURSUANT TO RULE 144A OR RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT, (2) AGREES ON ITS OWN BEHALF AND ON BEHALF OF ANY INVESTOR FOR WHICH IT HAS PURCHASED SECURITIES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE ‘‘RESALE RESTRICTION TERMINATION DATE’’) WHICH IS [IN THE CASE OF RULE 144A NOTES: ONE YEAR] [IN THE CASE OF REGULATION S NOTES: 40 DAYS] AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE U.S. SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A ‘‘QUALIFIED INSTITUTIONAL BUYER’’ AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, SUBJECT IN EACH OF THE FOREGOING CASES TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH INVESTOR ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL
287 AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND ANY APPLICABLE LOCAL LAWS AND REGULATIONS AND FURTHER SUBJECT TO THE ISSUER’S AND THE TRUSTEE’S RIGHTS PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I) PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (II) IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. If the purchaser purchases Notes, it will also be deemed to acknowledge that the foregoing restrictions apply to holders of beneficial interests in these Notes as well as to holders of these Notes. (7) The purchaser agrees that it will give to each person to whom it transfers the Notes notice of any restrictions on the transfer of such Notes. (8) The purchaser acknowledges that the registrar will not be required to accept for registration or transfer any Notes acquired by it except upon presentation of evidence satisfactory to the Issuer and the registrar that the restrictions set forth therein have been complied with. (9) The purchaser acknowledges that the Issuer, the Initial Purchasers and others will rely upon the truth and accuracy of its acknowledgements, representations, warranties and agreements and agrees that if any of the acknowledgements, representations, warranties and agreements deemed to have been made by its purchase of the Notes are no longer accurate, it shall promptly notify the Initial Purchasers. If it is acquiring any Notes as a fiduciary or agent for one or more investor accounts, it represents that it has sole investment discretion with respect to each such investor account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such investor account. (10) The purchaser understands that no action has been taken in any jurisdiction (including the United States) by the Issuer or the Initial Purchasers that would result in a public offering of the Notes or the possession, circulation or distribution of this Offering Circular or any other material relating to us or the Notes in any jurisdiction where action for such purpose is required. Consequently, any transfer of the Notes will be subject to the selling restrictions set forth under ‘‘Plan of Distribution’’ and ‘‘Notice to Certain European Investors.’’
288 LEGAL MATTERS Certain legal matters are being passed upon for the Issuer and the Guarantors by Latham & Watkins LLP, United States, English and French counsel to the Issuer, and Linklaters, Luxembourg and Swedish counsel to the Issuer. Certain legal matters will be passed upon for the Initial Purchasers by Cravath, Swaine & Moore LLP, United States counsel to the Initial Purchasers.
INDEPENDENT AUDITORS The French GAAP consolidated financial statements of Lyparis, as of and for the years ended March 31, 2008, 2009 and 2010, included elsewhere in this Offering Circular, have been audited by Deloitte & Associes,´ independent auditors, as set forth in their reports included herein. The Spanish GAAP consolidated financial statements of eDreams Inc., as of and for the years ended December 31, 2008, 2009 and 2010, included elsewhere in this Offering Circular, have been audited by Deloitte, S.L., independent auditors, as set forth in their reports included herein. The Spanish GAAP consolidated financial statements of USgoal Inc. as of and for the period ended December 31, 2010, included elsewhere in this Offering Circular, have been audited by Deloitte, S.L., independent auditors, as set forth in their reports included herein. The consolidated financial statements of Opodo Limited, as at and for the years ended December 31, 2010, 2009 and 2008, included elsewhere in this Offering Circular, have been audited by Deloitte LLP, independent auditors, as set forth in their reports included herein. The audit reports of Deloitte LLP, with respect to Opodo Limited’s consolidated financial statements, in accordance with guidance issued by The Institute of Chartered Accountants in England and Wales, include the following limitations: ‘‘This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.’’
289 ENFORCEMENT OF CIVIL LIABILITIES The Issuer is a partnership limited by shares (societ´ e´ en commandite par actions) organized under the laws of Luxembourg and the Guarantors of the Notes have been incorporated in Luxembourg, England, Sweden and the United States of America. All of their directors and executive officers are non-residents of the U.S. and a substantial portion of the Issuers assets and those of such persons are located outside the U.S. Although we will appoint an agent for service of process in the U.S. and will submit to the jurisdiction of New York courts, in each case, in connection with any action under U.S. Securities laws, you may not be able to effect service of process on such persons or the Issuer within the U.S. in any action, including actions predicated on civil liability provisions of the U.S. federal and state securities laws or other laws.
Luxembourg However a valid judgment against the Issuer with respect to the Notes obtained from a court of competent jurisdiction in the United States, which judgment remains in full force and effect after all appeals as may be taken in the relevant U.S. state or federal jurisdiction with respect thereto have been taken, may be entered and enforced through a court of competent jurisdiction of Luxembourg subject to compliance with the enforcement procedures (exequatur) set out in Article 678 et seq. of the Luxembourg Nouveau Code de Procedure´ Civile being and under the following conditions: • the U.S. court awarding the judgment has jurisdiction to adjudicate the respective matter under its applicable laws, and such jurisdiction is recognized by Luxembourg private international and local law; • the judgment is final and enforceable (executoire´ ) in the jurisdiction where the decision is rendered; • the U.S. court has applied the substantive law as designated by the Luxembourg conflict of laws rules; • the U.S. court has acted in accordance with its own procedural laws; • the judgment must not have been obtained by fraud (fraude a` la loi) subsequent to an evasion of Luxembourg law and must have been granted in compliance with the rights of the defendant to appear, and if appeared, to present a defense; and • the judgment does not contravene public policy as understood under the laws of Luxembourg or has been given in proceedings of a criminal or tax nature; • If an original action is brought in Luxembourg, Luxembourg courts may refuse to apply the designated law amongst others and notably if its application contravenes Luxembourg public policy. In an action brought in Luxembourg on the basis of U.S. Federal or state securities laws, Luxembourg courts may not have the requisite power to grant the remedies sought.
England and Wales The following discussion with respect to the enforceability of certain U.S. court judgments in England and Wales is based upon advice provided to us by our English counsel, Latham & Watkins (London) LLP. The U.S. and the United Kingdom do not have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters (although the U.S. and the United Kingdom are both parties to the New York Convention on Arbitral Awards). Any judgment rendered by any federal or state court in the U.S. based on civil liability, whether or not predicated solely upon U.S. federal securities law, would not be directly enforceable in England and Wales. In order to enforce any such judgment in England and Wales, proceedings must be initiated by way of civil law action on the judgment debt before a court of competent jurisdiction in England and Wales (‘‘English court’’). In this type of action, an English court generally will not (subject to the matters identified below) reinvestigate the merits of the original matter decided by a U.S. court if: • the relevant U.S. court had jurisdiction (under English rules of private international law) to give the judgment; and
290 • the judgment is final and conclusive on the merits and is for a definite sum of money (not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty or otherwise based on a U.S. law that an English court considers to be a penal, revenue or other public law). An English court may refuse to enforce such a judgment for reasons, including, if it is established that: • the enforcement of such judgment would contravene public policy or statute in England and Wales; • the enforcement of the judgment is prohibited by statute (including, without limitation, if the amount of the judgment has been arrived at by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained); • the English proceedings were not commenced within the relevant limitation period; • before the date on which the U.S. court gave judgment, the issues in question had been the subject of a final judgment of an English court or of a court of another jurisdiction whose judgment is enforceable in England; • the judgment has been obtained by fraud or in proceedings in which the principles of natural justice were breached; • the bringing of proceedings in the relevant U.S. court was contrary to an agreement under which the dispute in question was to be settled otherwise than by proceedings in that court (to whose jurisdiction the judgment debtor did not submit); or • an order has been made and remains effective under section 9 of the UK Foreign Judgments (Reciprocal Enforcement) Act 1933 applying that section to U.S. courts including the relevant U.S. court. If an English court gives judgment for the sum payable under a U.S. judgment, the English judgment will be enforceable by methods generally available for this purpose. These methods generally permit the court discretion to prescribe the manner of enforcement. In addition, it may not be possible to obtain an English judgment or to enforce that judgment if the judgment debtor is or becomes subject to any insolvency or similar proceedings, or if the judgment debtor has any set-off or counterclaim against the judgment creditor.
Sweden Enforceability of a judgment rendered by a foreign court in civil and commercial matters, is generally considered conditional upon that enforceability of such judgement is expressly provided for under Swedish law or upon a treaty providing for the reciprocal recognition and enforcement of judgments. The U.S. and Sweden do not have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters (although the U.S. and Sweden are both parties to the New York Convention on Arbitral Awards). This means that a judgment rendered by any federal or state court in the U.S. based on civil liability would not be directly enforceable in Sweden. In order to enforce any such judgment in Sweden, proceedings must therefore be initiated by way of civil law action on the judgment debt before a court of competent jurisdiction in Sweden administrative tribunal or executive or other public authority of the Kingdom of Sweden (in this section collectively referred to as the ‘‘Swedish court’’). In such an action, a judgment rendered by any federal or state court in the U.S may be regarded as evidence in respect of e.g. factual circumstances or the content of U.S law. However, there is Swedish case law to indicate any such judgements: • as are based on a contract which expressly exclude the jurisdiction of the courts of the Kingdom of Sweden; • as were rendered under observance of due process of law; • against which there lies no further right to appeal; and • the recognition of which would not manifestly contravene fundamental principles of the legal order or the public policy of the Kingdom of Sweden, should be acknowledged without retrial on their merits.
291 AVAILABLE INFORMATION Each purchaser of the Notes from the Initial Purchasers will be furnished a copy of this Offering Circular and any related amendments or supplements to this Offering Circular. Each person receiving this Offering Circular and any related amendments or supplements to this Offering Circular acknowledges that: (1) such person has been afforded an opportunity to request from us, and to review and has received, all additional information considered by it to be necessary to verify the accuracy and completeness of the information herein; (2) such person has not relied on the Initial Purchasers or any person affiliated with the Initial Purchasers in connection with its investigation of the accuracy of such information or its investment decision; and (3) except as provided pursuant to (1) above, no person has been authorized to give any information or to make any representation concerning the Notes offered hereby other than those contained herein and, if given or made, such other information or representation should not be relied upon as having been authorized by us or the Initial Purchasers. For so long as any of the Notes are ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the U.S. Securities Act, we will, during any period in which we are neither subject to the reporting requirements of Section 13 or 15(d) of the U.S. Exchange Act, nor exempt from the reporting requirements under Rule 12g3-2(b) of the U.S. Exchange Act, provide to the holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, in each case upon the written request of such holder, beneficial owner or prospective purchaser, the information required to be provided by Rule 144A(d)(4) under the U.S. Securities Act. We are not currently subject to the periodic reporting and other information requirements of the U.S. Exchange Act. However, pursuant to the Indenture governing the Notes and so long as the Notes are outstanding, we will furnish periodic information to holders of the Notes. See ‘‘Description of the Notes—Reports.’’ Upon request, we will provide you with copies of the Indenture, the form of the Notes and any notation of guarantee and the Intercreditor Agreement. You may request copies of such documents by contacting the Issuer at its registered office at 282, route de Longwy L-1940, Luxembourg.
292 LISTING AND GENERAL INFORMATION Listing Information Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official List and to trading on the Global Exchange Market. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission of the Notes to the Official List of the Irish Stock Exchange or to trading on the Global Exchange Market of the Irish Stock Exchange. We estimate that the expenses in relation to admission to trading will be approximately e5,032. Notice of any optional redemption, change of control or any change in the rate of interest payable on the Notes will be filed in the Companies Announcement Ofice of the Irish Stock Exchange. For so long as the Notes are listed on the Official List of the Irish Stock Exchange and the rules and regulations of the Irish Stock Exchange require, physical copies of the following documents may be inspected and obtained at the registered office of the Issuer during normal business hours on any weekday: • the organizational documents of the Issuer and the Guarantors; • our most recent audited consolidated financial statements, and any interim quarterly financial statements published by us; • the indenture and the supplemental indenture relating to the Notes (which includes the form of the Notes); and • the guarantees. We will maintain a paying and transfer agent in Ireland for as long as any of the Notes are listed on the Irish Stock Exchange. We reserve the right to vary such appointment and we will file notice of such change of appointment with the Companies Announcement Office of the Irish Stock Exchange. The present and future unaudited accounts of the Issuer are or will be available free of charge at the office of our Irish paying agent.
Clearing Information The Notes have been accepted for clearance through the facilities of Clearstream and Euroclear under the common codes 061856838 (Regulation S) and 061857168 (Rule 144A). The international securities identification numbers for the Notes sold are XS0618568389 (Regulation S) and XS0618571680 (Rule 144A).
Legal Information 1. The Issuer Geo Travel Finance S.C.A. is a partnership limited by shares (societ´ e´ en commandite par actions) organized under the laws of Luxembourg, having its registered office at 282, route de Longwy, L-1940 Luxembourg, telephone number +352 26.86.81.1, and registered with the Luxembourg Register of Commerce and Companies under number B-159.022. The General Partner of the Issuer is LuxGEO GP S.a` r.l., having its registered office at 282, route de Longwy, L-1940 Luxembourg. 2. The Guarantors Opodo Limited is a private limited company organized under the laws of England and Wales on August 8, 2000, having its registered office at Waterfront, Hammersmith Embankment, Chancellors Road, London W6 9RU and registered under number 04051797. eDreams Inc. is a corporation organized under the laws of the State of Delaware (United States of America) on January 28, 1999, having its registered office at 30 Old Rudnick Lane, Dover, Kent, and registered under number 94-3319233.
293 Travellink AB is a limited liability company in the form of a Swedish Aktiebolag organized under the laws of Sweden on August 23, 2000, having its registered office at Box 1108, 17222 Sundbyberg, Sweden, and registered under number 556596-2650. LuxGEO S.a` r.l. is a private limited liability company (societ´ e´ a` responsabilite´ limitee´ ) organized under the laws of Luxembourg on January 13, 2011, having its registered office at 282 route de Longwy, L-1940 Luxembourg, with a share capital of e12,500 and registered with the Luxembourg trade and companies register under number B 158.198. 3. The Notes have been issued by virtue of a resolution of the sole manager of the Issuer passed on April 8, 2011. 4. Throughout the term of the Notes and from the date hereof, copies of the Issuer’s memorandum and articles of association (statutes) (and any amendments thereto) will be available free of charge at the offices of the paying agent in Ireland. 5. Copies of the annual and quarterly reports required to be delivered under the covenant described under ‘‘Description of the Notes—Certain Covenants—Reports’’ will be available free of charge at the offices of the paying agent in Ireland. 6. We will deposit copies of this Offering Circular and the Indenture with the paying agent in Luxembourg. Copies of these documents will be available free of charge at the offices of the paying agent in Ireland. 7. Except as disclosed in this Offering Circular, there has been no material adverse change in the financial condition of the Issuer since the date of its last audited financial statements. 8. Save as disclosed in this Offering Circular, we have not been involved in any litigation, arbitration or governmental proceedings (including such proceedings which are pending or threatened or of which we are aware during the past 12 months) which may have, or have had in the recent past, significant effects on our financial position or profitability. 9. The Issuer accepts responsibility for the information contained in this Offering Circular. The Issuer declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Offering Circular is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. 10. Subject to local law and as described under ‘‘Limitations on Validity and Enforceability of the Guarantees and Security Interests,’’ the Guarantees are full, unconditional, joint and several. 11. The Issuer is a holding company with no operations of its own.
294 INDEX TO FINANCIAL STATEMENTS
Contents Page LYEUROPE: Audited interim consolidated financial statements as of and for the six months ended December 31, 2010 (French GAAP) Report of the independent auditors ...... F-4 Consolidated balance sheet ...... F-5 Consolidated income statement ...... F-6 Statement of change in consolidated net debt ...... F-7 Notes to the consolidated financial statements for the six months ended December 31, 2010 ...... F-8 LYPARIS: Audited interim consolidated financial statements as of and for the nine months ended December 31, 2010 (French GAAP) Report of the independent auditors ...... F-23 Consolidated balance sheet ...... F-24 Consolidated income statement ...... F-25 Consolidated statement of cash flows ...... F-26 Notes to the consolidated financial statements for the nine months ended December 31, 2010 ...... F-27 Audited consolidated financial statements as of and for the year ended March 31, 2010 (French GAAP) Report of the independent auditors ...... F-45 Consolidated balance sheet ...... F-46 Consolidated income statement ...... F-47 Consolidated statement of cash flows ...... F-48 Notes to the consolidated financial statements for the year ended March 31, 2010 ...... F-49 Audited consolidated financial statements as of and for the year ended March 31, 2009 (French GAAP) Report of the independent auditors ...... F-65 Consolidated balance sheet ...... F-66 Consolidated income statement ...... F-67 Consolidated statement of cash flows ...... F-68 Notes to the consolidated financial statements for the year ended March 31, 2009 ...... F-69 Audited consolidated financial statements as of and for the year ended March 31, 2008 (French GAAP) Report of the independent auditors ...... F-85 Consolidated balance sheet ...... F-86 Consolidated statement of cash flows ...... F-87 Consolidated income statement ...... F-88 Notes to the consolidated financial statements for the year ended March 31, 2008 ...... F-89 USGOAL INC.: Audited consolidated financial statements as of and for the year ended December 31, 2010 (Spanish GAAP) Report of independent auditors ...... F-103 Consolidated balance sheet ...... F-105 Consolidated income statement ...... F-106 Consolidated statement of changes in equity ...... F-107 Consolidated cash flow statement ...... F-109 Notes to the consolidated financial statements for the year ended December 31, 2010 .... F-110 Consolidated Management Report for the year ended December 31, 2010 ...... F-146
F-1 Contents Page eDREAMS, INC.: Audited consolidated financial statements as of and for the year ended December 31, 2010 (Spanish GAAP) Report of independent auditors ...... F-148 Consolidated balance sheet ...... F-150 Consolidated income statement ...... F-151 Consolidated statement of changes in equity ...... F-152 Consolidated cash flow statement ...... F-154 Notes to the consolidated financial statements for the year ended December 31, 2010 .... F-157 Consolidated Management Report for the year ended December 31, 2010 ...... F-201 Audited consolidated financial statements as of and for the year ended December 31, 2009 (Spanish GAAP) Report of independent auditors ...... F-203 Consolidated balance sheet ...... F-206 Consolidated income statement ...... F-207 Consolidated statement of changes in equity ...... F-208 Consolidated cash flow statement ...... F-210 Notes to the consolidated financial statements for the year ended December 31, 2009 .... F-211 Consolidated Management Report for the year ended December 31, 2009 ...... F-244 Audited consolidated financial statements as of and for the year ended December 31, 2008 (Spanish GAAP) Report of independent auditors ...... F-247 Consolidated balance sheet ...... F-249 Consolidated income statement ...... F-250 Consolidated statement of changes in equity ...... F-251 Consolidated cash flow statement ...... F-253 Notes to the consolidated financial statements for the year ended December 31, 2008 .... F-254 Consolidated Management Report for the year ended December 31, 2008 ...... F-286 OPODO LIMITED: Audited consolidated financial statements as of and for the year ended December 31, 2010 (IFRS) Officers and professional advisers ...... F-290 Directors’ report ...... F-291 Statement of directors’ responsibilities ...... F-296 Report of independent auditors ...... F-297 Consolidated income statement ...... F-299 Consolidated statement of comprehensive income ...... F-300 Consolidated statement of changes in equity ...... F-301 Consolidated balance sheet ...... F-302 Consolidated cash flow statement ...... F-303 Notes to the consolidated financial statements for the year ended December 31, 2010 .... F-304 Opodo Limited income statement ...... F-331 Opodo Limited statement of changes in equity ...... F-332 Opoodo Limited balance sheet ...... F-333 Opodo Limited cash flow statement ...... F-334 Notes to Opodo Limited financial statements ...... F-335
F-2 Contents Page Audited consolidated financial statements as of and for the year ended December 31, 2009 (IFRS) Officers and professional advisers ...... F-351 Directors’ report ...... F-352 Statement of directors’ responsibilities ...... F-357 Report of independent auditors ...... F-358 Consolidated income statement ...... F-360 Consolidated statement of comprehensive income ...... F-361 Consolidated statement of changes in equity ...... F-362 Consolidated balance sheet ...... F-363 Consolidated cash flow statement ...... F-364 Notes to the consolidated financial statements for the year ended December 31, 2009 .... F-365 Opodo Limited income statement ...... F-391 Opodo Limited statement of changes in equity ...... F-392 Opoodo Limited balance sheet ...... F-393 Opodo Limited cash flow statement ...... F-394 Notes to Opodo Limited financial statements ...... F-395 Audited consolidated financial statements as of and for the year ended December 31, 2008 (IFRS) Officers and professional advisers ...... F-411 Directors’ report ...... F-412 Statement of directors’ responsibilities ...... F-417 Report of independent auditors ...... F-418 Consolidated income statement ...... F-420 Consolidated statement of changes in equity ...... F-421 Consolidated balance sheet ...... F-422 Consolidated cash flow statement ...... F-423 Notes to the consolidated financial statements for the year ended December 31, 2008 .... F-424 Opodo Limited income statement ...... F-452 Opodo Limited statement of changes in equity ...... F-453 Opoodo Limited balance sheet ...... F-454 Opodo Limited cash flow statement ...... F-455 Notes to Opodo Limited financial statements ...... F-456
F-3 SPECIAL PURPOSE STATUTORY AUDITOR’S REVIEW REPORT ON THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Period from July 1, 2010 to December 31, 2010) Lyeurope Simplified joint stock company (Societ´ e´ par Actions Simplifiee)´ 14, rue de Clery´ 75002 Paris
Special Purpose Statutory Auditor’s Review Report on the Interim Consolidated Financial Statements Period from July 1, 2010 to December 31, 2010
To the Chairman, In our capacity as statutory auditor of Lyeurope SAS (‘‘the Company’’) and as requested by you in connection with the Offering Memorandum relating to the proposed offering of Senior Notes due 2019 by GEO Travel Finance S.C.A., we have reviewed the accompanying interim consolidated financial statements of the Company for the six-month period ended December 31, 2010. The Company was created on July 1, 2010 and has prepared interim consolidated financial statements for the first time as of the period ended December 31, 2010. As a result, there is no comparative information included in the accompanying interim consolidated financial statements. These interim consolidated financial statements have been prepared under the responsibility of the management of the Company in the above mentioned context. Our responsibility is to express an opinion on these interim consolidated financial statements based on our review. We conducted our review in accordance with professional standards applicable in France. A review of interim financial information primarily consists of making inquiries of persons responsible for financial and accounting matters and applying analytical and other review procedures. Those procedures are substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently the assurance obtained that the interim consolidated financial statements, taken as a whole, are free of material misstatement is moderate and less than that obtained by an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim consolidated financial statements do not give a true and fair view of the assets and liabilities and of the financial position of the consolidated group as at December 31, 2010 and of the results of its operations for the six-month period then ended, in accordance with accounting principles generally accepted in France for interim financial statements. This report was prepared for your attention in the context described above and must not be used, distributed or referred to for any other purpose. We do not accept any responsibility to third parties to which this report is distributed or who obtain a copy by any other means. This report shall be governed by, and construed in accordance with, French law. The courts of France (represented by the Cour d’Appel de Paris) shall have exclusive jurisdiction in relation to any claim, difference or dispute which may arise out of or in connection with our engagement letter or this report. Each party irrevocably waives any right it may have to object an action being brought in those courts, to claim that an action has been brought in an inconvenient forum or to claim that these courts do not have jurisdiction.
Neuilly-sur-Seine, March 28, 2011
DELOITTE & ASSOCIES
Dominique Jumaucourt
F-4 LYEUROPE GROUP CONSOLIDATED BALANCE SHEET At 31 December 2010 (in g thousands)
31/12/10 Assets Goodwill ...... 295,836 Intangible assets ...... 81,678 Property, plant and equipment ...... 3,829 Financial assets ...... 553 Non-current assets ...... 381,896 Trade receivables and related accounts ...... 27,687 Other receivables, prepayments and accrued income ...... 117,149 Cash at bank and in hand and marketable securities ...... 8,823 Current assets ...... 153,659 Total assets ...... 535,555
31/12/2010 Equity and liabilities Share capital ...... 64,250 Addition paid-in capital ...... 3,650 Retained earnings ...... — Consolidated reserves ...... — Consolidated loss for the period ...... (11,724) Equity attributable to owners of the Company ...... 56,176 Minority interests ...... — Provisions for contingencies and losses ...... 682 Borrowings ...... 251,037 Trade payables and related accounts ...... 88,741 Other liabilities, accruals and deferred income ...... 138,919 Liabilities ...... 478,697 Total equity and liabilities ...... 535,555
F-5 LYEUROPE GROUP CONSOLIDATED INCOME STATEMENT For the six-months ended 31 December 2010 (in g thousands)
31/12/10 (6 months) Revenue ...... 603,886 Other operating income ...... 107 Total operating income ...... 603,993 External expenses ...... (582,635) Taxes and duties other than income tax ...... (586) Employee costs ...... (9,455) Gross operating profit ...... 11,317 Other operating expenses ...... (1,475) Depreciation and amortisation ...... (9,172) Charges to provisions (net of reversals) ...... (939) Net operating loss ...... (269) Net finance cost ...... (12,615) Loss from ordinary activities before tax ...... (12,884) Non-recurring items ...... (1,105) Income tax (expense)/income ...... 2,265 Loss for the period of consolidated companies ...... (11,724) Loss of the consolidated entity ...... (11,724) Loss attributable to minority interests ...... — Loss attributable to shareholders of the group ...... (11,724) Earnings per share ...... (0.1917) Diluted earnings per share ...... (0.1917) 3,102,000 preferred shares 61,148,000 ordinary shares
F-6 LYEUROPE GROUP STATEMENT OF CHANGE IN CONSOLIDATED NET DEBT (in g thousands)
31/12/10 Operating activities Loss of the consolidated entity ...... (11,724) Depreciation, amortisation and provisions ...... 10,111 Other movements ...... (1,834) Operating cash flow before change in working capital ...... (3,447) Change in working capital ...... (25,519) Net cash used in operating activities ...... (28,966) Investments ...... (1,198) Cash and cash equivalents of subsidiaries acquired ...... 95,998 Acquisition of securities ...... (143,057) Disposals/decrease in non-current assets Net cash used in investing activities ...... (48,257) Funds used in operations ...... (77,223) Financing transactions ...... 47,350 Loan repayments Repayments of contributions Foreign exchange translation gains Net cash from financing activities ...... 47,350 Impact of changes in sundry flows ...... — Change in net debt ...... (29,873) Opening net debt ...... (212,341) Closing net debt ...... (242,214) (29,873) 40,543 Amortisation of goodwill ...... 8,416 Amortisation and provisions for intangible assets ...... 1,006 Depreciation and provisions for property, plant and equipment ...... 624 Current asset provisions ...... 16 Provisions for customer risks ...... 43 Provisions for retirement termination payments ...... 14 Depreciation, amortisation and provisions ...... 10,119 40,268 Proceeds from asset disposals ...... 37 Net carrying amount of assets sold or scrapped ...... (57) Net loss on asset disposals ...... (20) 40,268 Reversal of provisions for customer risks ...... (8) Reversal of provisions for sundry expenses ...... — Reversal of provisions for foreign exchange losses ...... — Reversal of depreciation, amortisation and provisions ...... (8)
F-7 LYEUROPE Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) With a share capital of g64,250,000 Trade and companies registration number (N Siret): 522.727.700.00026 Registered office: 14, rue de Clery—75002´ Paris
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the six-months ended 31 December 2010
F-8 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the six-months ended 31 December 2010
I. SIGNIFICANT EVENTS 1. Change in majority shareholder a. Description of the transaction On 17 May 2010, AXA Private Equity entered into an agreement with the Lyparis shareholders for the purchase of the share capital of Go Voyages via a secondary LBO. Axa Private Equity became in this way the new majority shareholder alongside management. This change in shareholder follows the receipt of an unsolicited offer submitted by Axa Private Equity to the majority shareholder of the company. For the purposes of this transaction, Axa PE Private Equity acted via the fund, AXA LBO Fund IV, the fourth generation of funds raised by AXA Private Equity. This venture capital fund has a term of 10 years, maturing in 2017, and a total investment capacity of e1.6 billion, of which 37% is already invested in six operations. AXA Group is the main investor and the fund is managed by a wholly-owned subsidiary of AXA Group, AXA Investment Managers Private Equity Europe (‘‘AXA Private Equity’’), accredited since 6 December 1999. b. Creation of a new holding company—Lyeurope This transaction was implemented via the creation of a new holding company for the Go Voyages Group, Lyeurope, holding the entire share capital of Lyparis This holding company, Lyeurope, has a share capital of e64,250,000, made up of 61,148,000 ordinary shares with a par value of e1 and 3,102,000 preferred shares with a par value of e1. The shareholders of this holding company are Axa LBO Fund IV, Willinvest, Five Arrows, CIC and management. Lyeurope is the new parent company with exclusive control over Go Voyages Group subsidiaries. c. Financing of the transaction The financing of the transaction enabled the purchase of the Lyparis shares, the refinancing of the existing debt and the payment of transaction costs and the new debt issue costs. This financing comprises capital contributions by the different shareholders and debt financing. Capital contributions to Lyeurope consisted of a share capital issue of e64.2 million, additional paid-in capital of e3.7 million and a convertible bond issue of e107.1 million. The convertible bonds pay fixed-rate interest of 10%, capitalized until the conversion or redemption of the bonds subscribed. Debt refinancing in Lyparis consisted of senior debt of e100 million comprising two tranches (tranche A of e70 million and tranche B of e30 million) maturing in 6 and 7 years, respectively, mezzanine debt of e40 million maturing in 8 years and a bridge loan of e60 million maturing in 6 months. The Company also has access to a e35 million revolving credit line facility to finance cash requirements associated with the Group’s activities. The senior debt was financed by Societ´ e´ Gen´ erale,´ CIC and HSBC. The mezzanine debt was provided by Five Arrows. The transaction financing also involved a loan between Lyeurope and Lyparis of e10.56 million.
F-9 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
I. SIGNIFICANT EVENTS (Continued) d. Issue of new hedging instruments Pursuant to its obligations under the Loan and Senior Credit Agreement signed on 2 July 2010, interest rate swaps hedging the Mezzanine Senior loans and bonds were entered into on 9 July 2010: • A 3-year swap was subscribed with BNP for a nominal amount of e10 million, swapping fixed-rate interest of 1.465% for 3-month Euribor; • A 3-year swap was subscribed with HSBC for a nominal amount of e20 million, swapping fixed-rate interest of 1.465% for 3-month Euribor; • A 2-year swap was subscribed with SG for a nominal amount of e15 million, swapping fixed-rate interest of 1.240% for 3-month Euribor; • A 4-year cap was subscribed with BRED for a nominal amount of e25 million, capping the interest rate at 2.5%. e. Repayment of the existing debt and unwinding of hedging instruments The transaction enabled the refinancing of the existing debt of e200.95 million (including junior subordinated bonds of e81.07 million), the payment of interest of e10.37 million on the junior subordinated bonds and the unwinding of Go Voyages’ old hedging contracts. The unwinding of these hedging instruments generated a cost of e1.538 million at 30 June 2010 (recognised in the opening net equity of Lyparis) f. Cost and allocation of the acquisition price The total cost of these new acquisitions was approximately e166 million (including acquisition expenses of e5 million directly relating to the transaction). The provisional goodwill balance is e304 million, pending the definitive allocation of the acquisition price (to be finalized by the end of the period following that in which the acquisition was performed, at the latest).
2. Creation of a UES and signature of new incentive and statutory employee profit-sharing agreements and an amendment to the internal rules of the Go Voyages corporate savings plan Following the transfer of part of the headcount from Go Voyages to Go Trade from 1 April 2010, it was necessary to renegotiate the various company-wide agreements in order to ensure similar rights for all group employees. Accordingly, a UES (Unite´ Economique et Sociale, Economic and Social Unit) comprising Go Voyages and Go Trade was formed on 22 February 2010. Subsequently, statutory employee profit- sharing and incentive agreements and internal rules for the corporate savings plan were renegotiated and signed by the UES. All documents were signed on 15 September 2010. The terms and conditions of the various contracts are broadly similar to those of the former contracts.
II. ACCOUNTING POLICIES, RULES AND METHODS 2.1. General principles The consolidated financial statements have been prepared in accordance with regulations applicable in France, and the accounting principles of consistency and going concern, as well as CRC Regulation no. 99-02, issued by the French Accounting Regulation Committee (Comite´ de la Reglementation` Comptable).
F-10 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 2.2. Principles of consolidation 2.2.1 Scope of consolidation The Group comprises Lyeurope and its wholly-owned subsidiary Lyparis. As at December 31, 2010, Lyparis holds the entire share capital of Go Voyage SAS, which in turn holds the entire share capital of Go Voyages Trade.
2.2.2 Consolidation rules and methods The subsidiaries Lyparis, Go Voyages and Go Voyages Trade are fully consolidated as at 31 December 2010. All transactions between consolidated companies and reciprocal assets and liabilities are eliminated on consolidation, as are all gains and losses internal to the Group. As the Group head company holds, directly or indirectly, the entire share capital of its subsidiaries, there are no minority interests.
2.2.3 Excess acquisition price The relevant amount of the acquisition price of the subsidiary in excess of the share in equity acquired is allocated to the relevant balance sheet headings, based on the fair value of identifiable assets and liabilities at the acquisition date. Allocated amounts are amortised or depreciated on a straight-line basis over the period applicable for the relevant asset category. Any residual unallocated amount is recognised as goodwill and may be impaired if events or circumstances indicate a loss in value.
2.2.4 Accounting period The financial statements of the Group and its subsidiaries are drawn up to the same date, i.e. 31 March. Lyeurope will, however, close its first accounting period on 31 March 2012 after an accounting period of 21 months. Interim accounts have been prepared for the six-month period from 2 July 2010 to 31 December 2010, for contractual purposes. As the Group was formed on 2 July 2010, no comparative information is presented.
2.2.5 Intangible assets • Concessions, patents and similar rights Registered trademarks are recorded in balance sheet assets at acquisition cost and are not amortised. Their value is assessed regularly and a provision for impairment recorded if fair value, determined based on criteria applied on acquisition, falls below the net carrying amount. Purchased software is amortised on a straight-line basis over 4 years. • Goodwill Goodwill is amortised on a straight-line basis over a period of 20 years.
2.2.6 Property, plant and equipment Property, plant and equipment are recorded in balance sheet assets at acquisition cost (purchase price plus incidental expenses, excluding fixed asset acquisition costs) and depreciated on a straight-line basis over the useful life of the asset.
F-11 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) Depreciation periods generally applied are as follows:
Method Period General installations and fixtures and fittings ...... Straight-line 5 years Vehicles ...... Straight-line 4 years Office and IT equipment ...... Straight-line 3 to 5 years Furniture ...... Straight-line 5 years These depreciation periods are reviewed annually. No accelerated depreciation is charged. Exceptional depreciation is recorded in the event of loss in value or a change in the utilisation period.
2.2.7 Restatement of finance leases The Group applies the preferred method recommended in CRC Regulation 99-02, that is: • recognition of the asset in property, plant and equipment in balance sheet assets at the fair value of the leased asset on inception of the lease; • recognition of a borrowing in balance sheet liabilities equal to the entry cost; • cancellation of the lease payment in operating expenses and recognition of an interest cost and the progressive repayment of the borrowing; • depreciation of the asset over its useful life.
2.2.8 Financial assets Financial assets consist of guarantee deposits paid to certain of our suppliers and securities pledged with our banks guaranteeing signature commitments in excess of 1 year. Investment securities are recognised: • At net carrying amount, in accordance with CRC Regulation 2004-01, in the case of securities remunerating the transfer of an autonomous activity branch, as the two entities are wholly-owned by the Group head company; or • at acquisition value. Investments securities are impaired if their fair value falls below their entry cost.
2.2.9 Foreign currency-denominated receivables and payables Foreign exchange gains and losses arising on the retranslation of foreign currency- denominated transactions at year-end exchange rates are recognised in profit or loss.
2.2.10 Other receivables, prepayments and accrued income In the specific business sector in which the Group subsidiary operates, the basic accounting principle requires the recognition in the financial year of income and expense items corresponding to departure dates occuring during the financial year in question. Application of this principle leads to the use of the following accounts in the balance sheet: • ‘‘Deferred income’’ in liabilities to record revenue relating to departure dates occuring after the year-end, • ‘‘Prepayments’’ in assets to record, in the same way, costs relating to departure dates occuring after the year-end.
F-12 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) Deferred tax assets are recorded in Other receivables. They result from temporary differences between the tax value of assets and liabilities and their net carrying amount for consolidation purposes and tax losses carried forward. It is estimated that future taxable profits will be sufficient to enable the offset of these losses within a reasonable timeframe.
2.2.11 Marketable securities Marketable securities are valued at acquisition cost. Unrealised capital gains are not recognised and a provision for impairment is recorded if their value, calculated based on the last known market price, falls below historical cost.
2.2.12 Financial instruments Unrealised gains and losses on financial instruments traded over-the-counter are recognised in profit or loss over the residual life of the hedged item, to match income and expenses recognised on the hedged item in profit or loss.
2.2.13 Borrowings Lyeurope financed the acquisition of the Go Voyages Group by a e107.1 million convertible bond issue. Lyparis financed the acquisition of Go Voyages by a e40 million mezzanine bond issue and bank loans totalling e100 million (excluding a e60 million bridging loan repaid in full at the end of October 2010).
2.2.14 Provisions for contingencies and losses Provisions are only recognised in respect of contingencies or losses considered probable as a result of past events or events in progress at the year-end and precise in nature, but for which the outcome, timing or amount is uncertain (CRC no. 2000-06).
2.2.15 Pensions and other post-employment benefits A provision is recognised in the balance sheet in respect of retirement termination payment commitments to permanent employees. The provision was calculated using the projected unit credit method, with forecast salaries and pro-rated services. Account was taken of the following assumptions: • Forecast rights on retirement pro-rata to seniority • Mortality table • Staff attrition (8%) • Inflation (2%) • Discount rate (5.25%)
2.2.16 Ordinary income versus non-recurring items Non-recurring income and expenses concern items outside the day-to-day management of the Group. They are primarily unusual in type and of a one-off nature.
2.2.17 Earnings per share Earnings per share is obtained by dividing the net profit attributable to owners of the Company by the average number of shares outstanding during the financial year.
F-13 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) For simplification purposes, the earnings per share calculation is performed in the same way in the presence of a net loss (without taking account of preferred shares or share subscription warrants).
2.2.18 Non-application of preferred methods The Group elected not to spread loan issue costs over the loan term. Application of this preferred method would have lead to the recognition of additional interest of Ke605 and a corresponding reduction in borrowings of Ke6,807, based on the new debt structure as at 2 July 2010.
III. NOTES TO THE CONSOLIDATED BALANCE SHEET 3.0 Goodwill and intangible assets
Amortisation at Net value at In g thousands Acquisitions 31/12/10 31/12/10 Goodwill ...... 304,252 8,416 295,836 Other intangible assets ...... 82,684 1,006 81,678 Total ...... 386,936 9,422 377,514
The provisional goodwill resulting from the acquisition of the Lyparis Group by Lyeurope is Ke304,252. Pending the definitive allocation of the excess acquisition price, intangible assets recognized in the consolidated financial statements of the new entity break down as follows: • the Go Voyages trademark including the internet domain name for e80 million (indefinite life). • The wholesale Charter customer base for e0.4 million (e7 million gross value, amortized over 4 years). Following the transaction in July 2010, a further review will be performed before July 2011 to allocate the excess acquisition price to intangible assets.
3.2 Property, plant and equipment 3.2.1. Movement in the net carrying amount
Reversal of depreciation on Net at In g thousands Acquisitions Disposals Depreciation disposals 31/12/10 Fixtures and fittings .... 1,543 209 1,334 Vehicles ...... — — Office furniture ...... 29 6 23 IT equipment ...... 2,860 16 409 11 2,446 Total ...... 4,432 16 624 11 3,803
The above table does not include work-in-progress of Ke27 at 31 December 2010
F-14 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.3 Financial assets Acquisitions or Net at In g thousands contributions Disposals 31/12/10 Deposits and guarantees ...... 553 — 553 Total ...... 553 — 553
New guarantee deposits totalling Ke86 were paid in respect of new premises leased at 21 rue de Clery´ and an IT room in Ivry sur Seine. Ke330 was also paid to CARPA, an unrelated third party entity created to develop tour operator’s offers and services, to guarantee a commercial agreement signed between Go Voyages and Messrs Pierre Schreiber and Jean-Philippe Daulaud (DAULBER), in which Go Voyages undertakes to realise revenue of e5 million, excluding VAT in the first year of operation and e10 million in the following year. If these commitments are not met, the Ke330 deposit will be kept by DAULBER.
3.4 Trade receivables
In g thousands 31/12/10 < 1 year > 1 year Doubtful or disputed receivables ...... 1,172 1,172 Trade receivables ...... 27,432 27,432 Advances and down-payments paid on orders ...... 255 255 Trade receivables and related accounts (gross) ...... 28,859 27,687 1,172 Provisions for doubtful receivables ...... (1,172) Trade receivables and related accounts (net) ...... 27,687
3.5 Other receivables, prepayments and accrued income
In g thousands 31/12/10 Tax receivables ...... 1,809 Employee-related receivables ...... — Accrued income ...... 11,324 Deferred tax assets ...... 3,185 Prepayments ...... 100,831 117,149 Prepayments concern purchases relating to flights with departure dates occuring after the year-end. Accrued income breaks down as follows:
In g thousands 31/12/10 Credit notes receivable from airlines ...... 2,786 Airline super-commission ...... 4,089 GDS super-commission receivable ...... 3,046 Hotel, package holiday, etc. super-commission ...... 79 BSP repayments receivable ...... 1,303 BSP and SNCF commission receivable ...... — Sundry receivables ...... 21 11,324
F-15 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.6 Breakdown of deferred tax assets and liabilities
In g thousands 31/12/10 Deferred tax assets ...... 3,185 Provisions temporarily not deductible ...... 391 Group tax losses carried forward ...... 2,936 Retirement termination payments ...... 70 Intangible assets ...... (150) Finance lease restatements ...... (62)
3.7 Cash at bank and in hand and marketable securities Marketable securities consist of monetary investments and do not include any unrealised capital gains.
In g thousands 31/12/10 Marketable securities ...... 5,970 Cash at bank and in hand ...... 2,853 Total cash and cash equivalents ...... 8,823
3.8 Consolidated shareholders’ equity The share capital is made up of 64,250,000 shares with a par value of e1 each, including 3,102,000 preferred shares and 61,148,000 ordinary shares. The preferred shares confer entitlement, from the year ended 31 March 2011, to a preferred dividend equal to 10% of their nominal value. The amount of the dividend to be distributed may be deducted not only from net profits but also from available reserve accounts. The preferred dividend is cumulative and progressive where it has not been distributed and remains attached to the share, with the amount equal to 10% of the nominal value of the share being capitalised each year. 16,204,218 Manager share subscription warrants were issued, of which: • 736,555 were subscribed for cash on 2 July 2010 by the venture capital fund, AXA LBO FUNDS IV, for a total amount of e165,909.01. • 15,440,438 remunerated the share contribution transferred by Lyparis and Go Partenaires on the signature of the contribution agreement on 21 June 2010, for a total amount of e3,477,958.66.
3.9 Provisions for contingencies and losses
In g thousands 31/12/10 Provisions for customer risks ...... 479 Provisions for retirement termination payments ...... 203 Total ...... 682
F-16 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.10 Bond issues, other loans and borrowings
In g thousands 31/12/10 < 1 year 1 to 5 years > 5 years Convertible bonds ...... 112,470 112,470 New mezzanine bond issue ...... 41,953 758 41 195 Total bond issues ...... 154,423 758 153 665 Senior A loan ...... 65,800 9,100 50 050 6 650 Senior B loan ...... 30,000 30 000 HSBC loan ...... 23 7 16 OSEO loan ...... 5 2 3 IBM France Financement loan ...... 786 449 337 Total other loans and borrowings ...... 96,614 9,558 50 406 36 650 Total borrowings ...... 251,037 10,316 50 406 190 315 Fixed-rate debt ...... 155,237 Floating-rate debt ...... 95,800 Total ...... 251,037 The change in majority shareholder was accompanied by the refinancing of the existing debt at 2 July 2010. At the time of the transaction, interest of e10.37 million was paid in cash on the junior subordinated bonds and the outstanding nominal of e81.07 million was refinanced. The Senior A (e24.6 million) and Senior B (e35 million) loans and the senior and junior mezzanine bonds (e23.2 million and e34.3 million, respectively), were similarly refinanced. The new refinanced debt comprises a Senior A loan (e70 million), a Senior B loan (e30 million), a mezzanine loan (e40 million), a bridging loan of e60 million and e107.1 million of convertible bonds. At 31 December 2010, e4.2 million had been repaid on the Senior A loan in accordance with the repayment schedule, together with the e60 million bridging loan.
3.11 Terms and conditions of the main loans
o/w o/w cash Nominal at capitalised interest en Kg 31/12/10 interest payable Interest rate Maturity Convertible bonds ..... 112,470 5,370 10% July 2030 6% cap Mezzanine bond issue . . 41,953 1,195 758 and 7.75% cash July 2018 Total bond issue ...... 154,423 6,565 758 HSBC loan ...... 23 5.08% fixed-rate March 2014 OSEO loan ...... 5 5.15% fixed-rate Feb 2014 Senior A mid-term loan . . 65,800 E3M + 4.50% July 2016 Senior B mid-term loan . . 30,000 E3M + 5% July 2017 Total other loans and borrowings ...... 95,828 — — Loan A is repayable in 12 variable six-monthly payments.
F-17 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) The above loans were subject to the following covenants at 31 December 2010: Debt Service Coverage Ratio i.e. Free Cash Flow / Debt Service Net Interest Coverage Ratio i.e. Ebitda/Net finance cost Leverage ratio i.e. Net debt / Ebitda These covenants are calculated at Lyeurope consolidated financial statement level and were satisfied at 30 September 2010 and 31 December 2010.
3.12 Other liabilities, accruals and deferred income Deferred income corresponds to flights invoiced with a departure date occuring after the year-end.
In g thousands 31/12/2010 Employee-related liabilities ...... 2,595 Tax liabilities ...... 2,586 Deferred income ...... 131,729 Other liabilities ...... 2,009 Total ...... 138,919
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT 4.1 Breakdown of revenue by product
In g thousands 31/12/10 Flights (scheduled and charter, low cost) ...... 570,445 Land production (rentals/ hotels/ packages) ...... 31,591 Incidental income ...... 1,850 NET REVENUE ...... 603,886
4.2 Gross margin
In g thousands 31/12/10 % Revenue Revenue ...... 603,886 100.00% Purchases ...... 552,719 91.53% Commission ...... 9,630 1.59% Gross margin ...... 41,537 6.88% Gross margin is equal to sales less purchases and commission paid.
4.3 Other operating income Other operating income totalled Ke107 for the period to 31 December 2010, and comprised operating subsidies of Ke47 and sundry income of Ke60.
4.4 External operating expenses External operating expenses totalled e583 million for the period to 31 December 2010 and mainly comprised: • Service purchases of e553 million (flights, hotel services, vehicle rentals, insurance). • Sales commission (branches and Web partners) of e9.6 million.
F-18 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) • Expenses relating to customer credit card payments of e1.3 million. • Customer acquisition costs (key-word purchases, web page positioning) of e4.5 million • Communication costs of e0.6 million. • Professional fees of e0.7 million. • IT maintenance and outsourcing of e1.2 million. • IT development costs of e0.4 million • Rent and rental charges of e0.9 million • Airport assistance costs of e0.2 million • Loan acquisition costs of e8.7 million • General sub-contracting costs of e1.3 million • Advertising costs of e0.3 million • Other sundry expenses (insurance, travel, etc.) of e0.3 million
4.5 Employee costs Employee costs totalled Ke9,455 for the period to 31 December 2010 and include a provision in respect of the statutory employee profit-sharing agreement of Ke347. An employee incentive agreement was signed on 27 September 2007 to continue involving employees in the profits and performance of the Company. This agreement covers a period of three years, expiring 31 March 2010. Following the implementation of a UES grouping together Go Voyages and Go Trade, the contract was renegotiated and signed.
4.6 Charges to depreciation and amortisation Charges to depreciation and amortisation totalled Ke9,172 and break down as follows: • Amortisation of intangible assets of Ke132 • Amortisation of goodwill of Ke8,416 • Depreciation of property, plant and equipment of K624
Charges to provisions Charges to provisions net of reversals totalled Ke939 and comprised: • A charge to provisions for customer risks of Ke43 • A net charge to provisions for doubtful receivables of Ke8. • A charge to provisions for impairment of intangible assets of Ke874 • A charge to provisions for retirement termination payments of Ke14
F-19 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) 4.8 Net finance cost
In g thousands 31/12/10 Interest expense ...... (12,456) Investment income ...... 170 Foreign exchange gains ...... 8 Foreign exchange losses ...... (17) Reversal of provisions for foreign exchange losses ...... — Loss on Go Partneraires shares ...... (320) Total ...... (12,615)
4.9 Non-recurring items
In g thousands 31/12/10 Non-recurring income Compensation received on customer disputes ...... 2 Proceeds on the sale of assets ...... 1 Proceeds on the sale of financial assets ...... 37 40 Non-recurring expenses Fines ...... (4) Net carrying amount of assets sold ...... (60) Professional fees (transactions not completed) ...... (205) Exit bonus indemnities ...... (870) Charges to exceptional depreciation and amortisation ...... (6) (1,145) Net non-recurring items ...... (1,105) Exit bonus indemnities are primarily severance payments incurred in relation to the acquisition of the Group by AXA Private Equity (as mentioned in note 1).
4.10 Income tax expense
In g thousands 31/12/10 Deferred tax ...... 2,265 Total ...... 2,265 On 2 April 2009, pursuant to Article 223A of the French Tax Code (Code Gen´ eral´ des Impotsˆ ), Go Voyages Trade agreed to join the tax consolidation group formed on 1 March 2007. The Lyparis Group has total tax losses of e2.9 million at 31 December 2010. Lyeurope will become the head of the tax group on 1 April and currently has tax losses available for carry forward of e6.4 million.
F-20 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
V. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 5.1 Charges to amortisation, depreciation and provisions 31/12/10 Amortisation of goodwill ...... 8,416 Amortisation and provisions on intangible assets ...... 1,006 Depreciation and provisions on property, plant and equipment ...... 624 Provisions for current assets ...... 16 Provisions for customer risks ...... 43 Provisions for retirement termination payments ...... 14 Total charges to depreciation, amortisation and provisions ...... 10,119
31/03/10 Proceeds from the sale of assets ...... 37 Net carrying amount of assets sold or scrapped ...... (57) Net gain on disposal of non-current assets ...... (20)
31/03/10 Reversal of provisions for customer risks ...... (8) Reversal of provisions for sundry expenses ...... — Reversal of provisions for foreign exchange losses ...... — Total reversals of depreciation, amortisation and provisions ...... (8)
VI. COMMITMENTS For the purposes of securing bank and mezzanine financing, Lyparis granted a pledge over its 14,150,000 Go Voyages shares and its bank accounts, to the banks participating in the senior loan and the bridge loan and to holders of mezzanine bonds. Credit´ Industriel et Commercial (Ke721) and Credit´ du Nord (Ke155) have delivered a rental guarantee and various supplier guarantees for a total amount of Ke1,097, on behalf of the Company. Credit´ du Nord provided a guarantee to IATA for a maximum fixed amount of Ke30, on behalf of Go Voyages Trade.
Lease commitments: Future lease In g thousands payments < 1 year 1 to 5 years > 5 years Property rental ...... 10,001 1,257 4,947 3,798 Plant and equipment leases ...... 862 480 382 Total ...... 10,863 1,737 5,329 3,798
F-21 LYEUROPE GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the six-months ended 31 December 2010
VI. COMMITMENTS (Continued) Plant and equipment lease commitments: Future lease payments due in: Less than More than Lessor Lessee 1 year 1 to 5 years 5 years Total Vehicles ...... GE MONEY BANK 23 67 — 90 Vehicles ...... Mercedes Benz 4 4 8 IT equipment ...... LIXXBAIL — — — — IT equipment ...... LIXXBAIL — — — — IBM IT equipment ...... IFF 125 84 — 209 IBM IT equipment ...... IFF 125 84 — 209 IBM IT equipment ...... IFF 125 84 — 209 IBM software and maintenance ...... IFF 75 50 — 125 Vehicles ...... CGI 3 9 — 12
VII. EMPLOYEE NUMBERS AND MANAGEMENT REMUNERATION 7.1 Average group workforce 31/12/10 Executives ...... 110 Administrative staff ...... 300 Total employees ...... 410
7.2 Remuneration of members of administrative and control bodies Total gross remuneration paid to executive management amounted to Ke524. The Group did not pay any attendance fees to members of administrative bodies during the period, but decided nonetheless to record a provision of Ke25 in this respect.
F-22 SPECIAL PURPOSE STATUTORY AUDITOR’S REVIEW REPORT ON THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Period from April 1, 2010 to December 31, 2010) Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee)´ 14, rue de Clery´ 75002 Paris
Special Purpose Statutory Auditor’s Review Report on the Interim Consolidated Financial Statements Period from April 1, 2010 to December 31, 2010
To the Chairman, In our capacity as statutory auditor of Lyparis SAS (‘‘the Company’’) and as requested by you in connection with the Offering Memorandum relating to the proposed offering of Senior Notes due 2019 of GEO Travel Finance S.C.A., we have reviewed the accompanying interim consolidated financial statements of the Company for the nine-month period ended December 31, 2010. The Company has prepared interim consolidated financial statements for the first time as of the period ended December 31, 2010. As a result, the comparative information in respect of the period ended December 31, 2009 has not been audited or reviewed. These interim consolidated financial statements have been prepared under the responsibility of the management of the Company in the above mentioned context. Our responsibility is to express an opinion on these interim consolidated financial statements based on our review. We conducted our review in accordance with professional standards applicable in France. A review of interim financial information primarily consists of making inquiries of persons responsible for financial and accounting matters and applying analytical and other review procedures. Those procedures are substantially less in scope than an audit conducted in accordance with professional standards applicable in France and consequently the assurance obtained that the interim consolidated financial statements, taken as a whole, are free of material misstatement is moderate and less than that obtained by an audit. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim consolidated financial statements do not give a true and fair view of the assets and liabilities and of the financial position of the consolidated group as at December 31, 2010 and of the results of its operations for the nine-month period then ended, in accordance with accounting principles generally accepted in France for interim financial statements. This report was prepared for your attention in the context described above and must not be used, distributed or referred to for any other purpose. We do not accept any responsibility to third parties to which this report is distributed or who obtain a copy by any other means. This report shall be governed by, and construed in accordance with, French law. The courts of France (represented by the Cour d’Appel de Paris) shall have exclusive jurisdiction in relation to any claim, difference or dispute which may arise out of or in connection with our engagement letter or this report. Each party irrevocably waives any right it may have to object an action being brought in those courts, to claim that an action has been brought in an inconvenient forum or to claim that these courts do not have jurisdiction.
Neuilly-sur-Seine, March 28, 2011
DELOITTE & ASSOCIES
Dominique Jumaucourt
F-23 LYPARIS GROUP CONSOLIDATED BALANCE SHEET At 31 December 2010 (in g thousands)
31/12/09 31/03/10 31/12/10 Assets Goodwill ...... 170,291 167,763 160,136 Intangible assets ...... 83,301 82,727 81,677 Property, plant and equipment ...... 3,340 3,766 3,829 Financial assets ...... 120 134 553 Non-current assets ...... 257,051 254,390 246,195 Trade receivables and related accounts ...... 27,269 39,921 27,659 Other receivables, prepayments and accrued income ...... 87,882 163,631 115,091 Cash at bank and in hand and marketable securities ...... 48,555 92,643 8,339 Current assets ...... 163,706 296,195 151,089 Total assets ...... 420,757 550,585 397,283
31/12/09 31/03/10 31/12/2010 Equity and liabilities Share capital ...... 62,000 62,000 72,560 Addition paid-in capital ...... 875 875 875 Retained earnings ...... (22,248) (22,248) (23,496) Consolidated reserves ...... (3,932) (3,932) (10,719) Consolidated loss for the year ...... (8,385) (8,035) (8,803) Equity attributable to owners of the Company ...... 28,310 28,660 30,417 Minority interests ...... — — — Provisions for contingencies and losses ...... 2,630 1,258 894 Borrowings ...... 209,086 208,811 138,567 Trade payables and related accounts ...... 66,120 103,678 88,790 Other liabilities, accruals and deferred income ...... 114,611 208,178 138,615 Liabilities ...... 389,817 520,667 365,972 Total equity and liabilities ...... 420,757 550,585 397,283
F-24 LYPARIS GROUP CONSOLIDATED INCOME STATEMENT For the nine months ended 31 December 2010 (in g thousands)
31/12/09 31/12/10 9 months 9 months Revenue ...... 661,797 823,038 Other operating income ...... 136 172 Total operating income ...... 661,933 823,210 External expenses ...... (631,545) (792,017) Taxes and duties other than income tax ...... (707) (984) Employee costs ...... (12,778) (13,671) Gross operating profit ...... 16,904 16,538 Other operating expenses ...... (1,085) (1,991) Depreciation and amortisation ...... (8,894) (8,511) Charges to provisions (net of reversals) ...... (2,821) (1,373) Net operating profit (loss) ...... 4,104 4,663 Net finance cost ...... (12,996) (12,653) Loss from ordinary activities before tax ...... (8,892) (7,990) Non-recurring items ...... 1 (1,116) Income tax (expense)/income ...... 506 303 Loss for the year of consolidated companies ...... (8,385) (8,803) Loss of the consolidated entity ...... (8,385) (8,803) Loss attributable to minority interests ...... — — Loss attributable to shareholders of the group ...... (8,385) (8,803) Earnings per share ...... (1.3524) (1.3300) Diluted earnings per share ...... (1.3524) (1.3300) 3,330,000 preferred shares 3,926,000 ordinary shares
F-25 LYPARIS GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (in g thousands)
9 months ended 9 months ended 31/12/2010 31/12/2009 CUMUL CUMUL OPERATING ACTIVITIES EBITDA ...... 14,546 15,818
ELIMINATION OF ITEMS NOT IMPACTING CASH OR NOT RELATING TO OPERATING ACTIVITIES Non-recurring items (# 771, # 772 and # 778) (# 671, # 672 and # 678) ...... (1,089) 1 Statutory employee profit-sharing ...... (95) Income tax expense ...... 31 CHANGE IN WORKING CAPITAL ...... (23,654) (7,521) Net operating change ...... (23,654) (7,521) Change in trade receivables and related accounts ...... 10,185 23,959 Change in trade payables and related accounts ...... (15,480) (15,242) Change in tax and employee-related receivables ...... 99 (201) Change in tax and employee-related liabilities ...... (1,112) 702 Change in prepayments ...... 50,575 47,721 Change in deferred income ...... (67,920) (64,459) NET CASH FROM OPERATING ACTIVITIES ...... (10,262) 8,298
INVESTING ACTIVITIES Payments to acquire property, plant and equipment ...... (989) (2,167) Payments to acquire intangible assets ...... (455) (209) Proceeds from disposal of PP&E and intangible assets # 775 ...... Investment subsidies received ...... Payments to acquire financial assets ...... (419) (17) Proceeds from disposal of financial assets ...... Repayment of issue premiums and adjustment to nominal value of Go shares ...... Dividends received from subsidiaries ...... Net cash and cash equivalents /subsidiaries acquired & sold ...... NET CASH USED IN INVESTING ACTIVITIES ...... (1,863) (2,393)
FINANCING ACTIVITIES (excluding debt service) Dividends paid ...... Debt issuance ...... 200,000 1,080 Share capital increase or capital contribution ...... 10,560 Movement in other equity ...... 293 NET CASH FROM FINANCING ACTIVITIES ...... 210,560 1,373 Free cash flow ...... 198,435 7,278
DEBT SERVICE Repayment of borrowings (net) ...... (271,849) (3,223) Net interest expense ...... (10,891) (2,766) Total Debt service ...... (282,740) (5,989) Excess cash flow = Net increase in cash and cash equivalents (84,305) 1,289
NET INCREASE IN CASH AND CASH EQUIVALENTS (calculated) ...... (84,305) 1,289
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR . 92,643 47,266 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ...... 8,339 48,555 NET INCREASE IN CASH AND CASH EQUIVALENTS (calculated) ...... (84,305) 1,289
F-26 LYPARIS Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) With a share capital of g72,560,000 Trade and companies registration number (N Siret): 491.249.520 00025 Registered office: 14, rue de Clery—75002´ Paris
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the nine months ended 31 December 2010
F-27 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the nine months ended 31 December 2010
I. SIGNIFICANT EVENTS 1. Change in majority shareholder
a. Description of the transaction On 17 May 2010, AXA Private Equity entered into an agreement with the Lyparis shareholders for the purchase of the share capital of Go Voyages via a secondary LBO. At the closing date of 2 July 2010, Axa Private Equity became the new majority shareholder alongside management. This change in shareholder follows the receipt of an unsolicited offer submitted by Axa Private Equity to the majority shareholder of the company. For the purposes of this transaction, Axa PE Private Equity acted via the fund, AXA LBO Fund IV, the fourth generation of funds raised by AXA Private Equity. This venture capital fund has a term of 10 years, maturing in 2017, and a total investment capacity of e1.6 billion, of which 37% is already invested in six operations. AXA Group is the main investor and the fund is managed by a wholly-owned subsidiary of AXA Group, AXA Investment Managers Private Equity Europe (‘‘AXA Private Equity’’), accredited since 6 December 1999. b. Creation of a new holding company—Lyeurope This transaction was implemented via the creation of a new holding company for the Go Voyages Group, Lyeurope, holding the entire share capital of Lyparis. The shareholders of this holding company are Axa LBO Fund IV, Willinvest, Five Arrows, CIC and management. The first accounting period of Lyeurope is planned to be closed on 31 March 2012, representing an accounting period of 21 months. c. Financing of the transaction The financing of the transaction enabled the purchase of the Lyparis shares, the refinancing of the existing debt and the payment of transaction costs and the new debt issue costs. This financing comprises capital contributions by the different shareholders and debt financing. Capital contributions to Lyeurope consisted of a share capital issue of e64.2 million, additional paid-in capital of e3.7 million and a convertible bond issue of e107.1 million. The convertible bonds pay fixed-rate interest of 10%, capitalized until the conversion or redemption of the bonds subscribed. Debt refinancing in Lyparis consisted of senior debt of e100 million comprising two tranches (tranche A of e70 million and tranche B of e30 million) maturing in 6 and 7 years, respectively, mezzanine debt of e40 million maturing in 8 years and a bridge loan of e60 million maturing in 6 months. The Company also has access to a e35 million revolving credit line facility to finance cash requirements associated with the Group’s activities. The senior debt was financed by Societ´ e´ Gen´ erale,´ CIC and HSBC. The mezzanine debt was provided by Five Arrows. The transaction financing also involved a loan between Lyeurope and Lyparis of e10.56 million. d. Issue of new hedging instruments Pursuant to its obligations under the Loan and Senior Credit Agreement signed on 2 July 2010, interest rate swaps hedging the Mezzanine Senior loans and bonds were entered into on 9 July 2010: • A 3-year swap was subscribed with BNP for a nominal amount of e10 million, swapping fixed-rate interest of 1.465% for 3-month Euribor;
F-28 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
I. SIGNIFICANT EVENTS (Continued) • A 3-year swap was subscribed with HSBC for a nominal amount of e20 million, swapping fixed-rate interest of 1.465% for 3-month Euribor; • A 2-year swap was subscribed with SG for a nominal amount of e15 million, swapping fixed-rate interest of 1.240% for 3-month Euribor; • A 4-year cap was subscribed with BRED for a nominal amount of e25 million, capping the interest rate at 2.5%. e. Repayment of the existing debt and unwinding of hedging instruments The transaction enabled the refinancing of the existing debt of e200.95 million (including junior subordinated bonds of e81.07 million), the payment of interest of e10.37 million on the junior subordinated bonds and the unwinding of Go Voyages’ old hedging contracts. The unwinding of these hedging instruments generated a cost of e1.538 million at 30 June 2010. f. Post-transaction operations Following the closure of the July 2010 transaction, two share capital operations were performed in connection with this transaction: On 30 September 2010, by decision of the sole shareholder, the Management share subscription warrants (500,000), the Mezzanine A share subscription warrants (106,000) and the Mezzanine B share subscription warrants (18,500) were exercised. The subscription of the new shares issued was paid-up by offset against a portion of the e10.56 million receivable held by Lyeurope against Lyparis (in the amount of e6.245 million). At the same time, the sole shareholder subscribed to a share capital increase for cash by offset against the residual amount of the e10.56 million receivable held by Lyeurope against Lyparis. The share capital of Lyparis was therefore increased from e62.0 million to e72.6 million On 29 October 2010, by decision of the sole shareholder, Go Voyages additional paid-in capital was distributed in part to Lyparis in the amount of e60 million, including e55 million paid in cash to enable the repayment of the e60 million bridging loan subscribed at the time of the July 2010 transaction.
2. Volcanic ash cloud A large area of EU airspace was closed or operated at highly reduced capacity from Friday, 16 April to Wednesday, 21 April 2010, following a volcanic eruption in Iceland. This situation generated the worst paralysis in air transport history. During six days, nearly 80% of departing flights in the European Union were cancelled, whatever the destination, representing more than 70,000 flights. As this was an event of force majeure, Go Voyages applied the commercial terms decided by the airlines. In this instance, and given the extent of the problem, the airlines generally decided to authorise cancellations, free of charge, as they were not due to or decided by the customer, but rather the result of the airline being unable or prohibited from operating the flights. In such cases, customers generally received full repayment, including service costs and insurance. Cancellations concerned some 19,760 passengers and represented a business volume of Ke6,850. The estimated impact on operating margin is Ke500. The charter business also assumed additional operating costs (bus transfers, organisation of ferry flights to repatriate customers, etc.) estimated at Ke200, and flow management outsourcing costs (telephone and email) which will be expensed in non-recurring items. With regards to the cash position, customer repayments were automatically recovered from the airlines via the Billing and Settlement Plan (BSP), by 15 June 2010 at the latest.
F-29 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
I. SIGNIFICANT EVENTS (Continued) 3. Transfer of the registered office of Lyparis By decision of the sole shareholder, Lyparis, on 15 June 2010, the registered office of LYPARIS was transferred to 14, rue de Clery,´ Paris (75002).
4. Dividend payment On 29 June 2010, the sole shareholder decided a dividend distribution of e11,886,000. This dividend was paid on 30 June 2010
5. Creation of a UES and signature of new incentive and statutory employee profit-sharing agreements and an amendment to the internal rules of the Go Voyages corporate savings plan Following the transfer of part of the headcount from Go Voyages to Go Trade from 1 April 2010, it was necessary to renegotiate the various company-wide agreements in order to ensure similar rights for all group employees. Accordingly, a UES (Unite´ Economique et Sociale, Economic and Social Unit) comprising Go Voyages and Go Trade was formed on 22 February 2010. Subsequently, statutory employee profit- sharing and incentive agreements and internal rules for the corporate savings plan were renegotiated and signed by the UES. All documents were signed on 15 September 2010. The terms and conditions of the various contracts are broadly similar to those of the former contracts.
II. ACCOUNTING POLICIES, RULES AND METHODS 2.1. General principles The consolidated financial statements have been prepared in accordance with regulations applicable in France, and the accounting principles of consistency and going concern, as well as CRC Regulation no. 99-02, issued by the French Accounting Regulation Committee (Comite´ de la Reglementation` Comptable). The recognition and measurement principles applied by the Group in these interim consolidated financial statements are identical to those used in the consolidated financial statements for the year ended March 31, 2010.
2.2. Principles of consolidation 2.2.1 Scope of consolidation As at 31 December 2010, the Group comprises Lyparis, its wholly-owned subsidiary, Go Voyages SAS, and this company’s wholly-owned subsidiary, Go Voyages Trade.
2.2.2 Consolidation rules and methods The subsidiaries Go Voyages and Go Voyages Trade are fully consolidated as at 31 December 2010. All transactions between consolidated companies and reciprocal assets and liabilities are eliminated on consolidation, as are all gains and losses internal to the Group. As the Group head company holds, directly or indirectly, the entire share capital of its subsidiaries, there are no minority interests.
F-30 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 2.2.3 Excess acquisition price The relevant amount of the acquisition price of the subsidiary in excess of the share in equity acquired is allocated to the relevant balance sheet headings, based on the fair value of identifiable assets and liabilities at the acquisition date. Allocated amounts are amortised or depreciated on a straight-line basis over the period applicable for the relevant asset category . Any residual unallocated amount is recognised as goodwill and may be impaired if events or circumstances indicate a loss in value.
2.2.4 Accounting period The financial statements of the Group and its subsidiaries are drawn up to the same date, i.e. 31 March. Interim accounts have been prepared for the nine-month periods to 31 December 2009 and 31 December 2010 for contractual purposes.
2.2.5 Intangible assets • Concessions, patents and similar rights Registered trademarks are recorded in balance sheet assets at acquisition cost and are not amortised. Their value is assessed regularly and a provision for impairment recorded if fair value, determined based on criteria applied on acquisition, falls below the net carrying amount. Purchased software is amortised on a straight-line basis over 4 years. • Goodwill Goodwill is amortised on a straight-line basis over a period of 20 years.
2.2.6 Property, plant and equipment Property, plant and equipment are recorded in balance sheet assets at acquisition cost (purchase price plus incidental expenses, excluding fixed asset acquisition costs) and depreciated on a straight-line basis over the useful life of the asset. Depreciation periods generally applied are as follows:
Method Period General installations and fixtures and fittings ...... Straight-line 5 years Vehicles ...... Straight-line 4 years Office and IT equipment ...... Straight-line 3 to 5 years Furniture ...... Straight-line 5 years These depreciation periods are reviewed annually. No accelerated depreciation is charged. Exceptional depreciation is recorded in the event of loss in value or a change in the utilisation period.
2.2.7 Restatement of finance leases The Group applies the preferred method recommended in CRC Regulation 99-02, that is: • recognition of the asset in property, plant and equipment in balance sheet assets at the fair value of the leased asset on inception of the lease; • recognition of a borrowing in balance sheet liabilities equal to the entry cost;
F-31 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) • cancellation of the lease payment in operating expenses and recognition of an interest cost and the progressive repayment of the borrowing; • depreciation of the asset over its useful life.
2.2.8 Financial assets Financial assets consist of guarantee deposits paid to certain of our suppliers and securities pledged with our banks guaranteeing signature commitments in excess of 1 year. Investment securities are recognised: • at net carrying amount, in accordance with CRC Regulation 2004-01, in the case of securities remunerating the asset contribution of an autonomous activity branch, as the two entities are wholly-owned by the Group head company; or • at acquisition value. Investments securities are impaired if their fair value falls below their entry cost.
2.2.9 Foreign currency-denominated receivables and payables Foreign exchange gains and losses arising on the retranslation of foreign currency- denominated transactions at year-end exchange rates are recognised in profit or loss.
2.2.10 Other receivables, prepayments and accrued income In the specific business sector in which the Group subsidiary operates, the basic accounting principle requires the recognition in the financial year of income and expense items corresponding to departure dates occuring during the financial year in question. Application of this principle leads to the use of the following accounts in the balance sheet: • ‘‘Deferred income’’ in liabilities to record revenue relating to departure dates occuring after the year-end, • ‘‘Prepayments’’ in assets to record, in the same way, costs relating to departure dates occuring after the year-end. Deferred tax assets are recorded in Other receivables. They result from temporary differences between the tax value of assets and liabilities and their net carrying amount for consolidation purposes and tax losses carried forward. It is estimated that future taxable profits will be sufficient to enable the offset of these losses within a reasonable timeframe.
2.2.11 Marketable securities Marketable securities are valued at acquisition cost. Unrealised capital gains are not recognised and a provision for impairment is recorded if their value, calculated based on the last known market price, falls below historical cost.
2.2.12 Financial instruments Unrealised gains and losses on financial instruments traded over-the-counter are recognised in profit or loss over the residual life of the hedged item, to match income and expenses recognised on the hedged item in profit or loss.
F-32 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 2.2.13 Borrowings Within Lyparis, the acquisition of Go Voyages by Lyeurope was financed by a e40 million mezzanine bond issue and bank loans totalling e100 million (excluding a e60 million bridging loan repaid in full at the end of October 2010).
2.2.14 Provisions for contingencies and losses Provisions are only recognised in respect of contingencies or losses considered probable as a result of past events or events in progress at the year-end and precise in nature, but for which the outcome, timing or amount is uncertain (CRC no. 2000-06).
2.2.15 Pensions and other post-employment benefits A provision is recognised in the balance sheet in respect of retirement termination payment commitments to permanent employees. The provision was calculated using the projected unit credit method, with forecast salaries and pro-rated services. Account was taken of the following assumptions: • Forecast rights on retirement pro-rata to seniority • Mortality table • Staff attrition (8%) • Inflation (2%) • Discount rate (5.25%)
2.2.16 Ordinary income versus non-recurring items Non-recurring income and expenses concern items outside the day-to-day management of the Group. They are primarily unusual in type and of a one-off nature.
2.2.17 Earnings per share Earnings per share is obtained by dividing the net profit/(loss) attributable to owners of the Company by the average number of shares outstanding during the financial year.
2.2.18 Non-application of preferred methods The Group elected not to spread loan issue costs over the loan term. Application of this preferred method would have lead to the recognition of interest of Ke605 and a reduction in borrowings of Ke6,807 based on the new debt structure as at2 July 2010.
III. NOTES TO THE CONSOLIDATED BALANCE SHEET 3.0 Goodwill and intangible assets Adjustments Amortisation Net at and and Net at In g thousands 31/03/10 Acquisitions Disposals transfers provisions 31/12/10 Goodwill ...... 167,763 (228) (7,399) 160,136 Other intangible assets 82,727 455 (57) 57 (1,505) 81,677 Total ...... 250,490 455 (57) (171) (8,904) 241,813
F-33 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.0.1 Movement in the gross carrying amount
Gross Acquisitions Disposals Gross at and and Reclassifications at In g thousands 31/03/10 investments divestments and other 31/12/10 Software, patents ...... 2,833 455 3,288 Trademarks ...... 80,420 (57) 57 80,420 Other intangible assets . . 10,000 10,000 Goodwill ...... 197,436 (228) 197,208 Total ...... 290,689 455 (57) (171) 290,916
The goodwill of e282 million at 31 March 2007 was allocated to transferrable, intangible assets, resulting from contractual or legal rights and for which a reliable estimate of fair value could be determined at the first closing of the consolidated financial statements, i.e. 31 March 2008. The following intangible assets satisfied these criteria: • the Go Voyages trademark including the internet domain name for e80 million. • the Go Speed, version 3, search engine and the connection with 4 different GDS for e3 million. • the wholesale Charter customer base for e7 million
3.0.2 Movement in amortisation and provisions
Amortisation and Amortisation and provisions at provisions at In g thousands 31/03/10 Charge Reversal 31/12/10 Software, patents ...... 2,275 193 2,468 Trademarks ...... — — Other intangible assets ...... 8,250 1,312 9,562 Goodwill ...... 29,673 7,399 37,072 Total ...... 40,198 8,904 — 49,102
Other intangible assets were amortised (e1.3 million) over their expected useful lives of 4 years for the Charter customer base and 3 years for the search engine. The residual goodwill balance of e198 million and trademarks are subject to fair value estimates.
3.1 Property, plant and equipment 3.1.0. Movement in the net carrying amount
Net at Gross at Depreciation at Net at In g thousands 31/03/10 31/12/10 31/12/10 31/12/10 Fixtures and fittings ...... 1,231 3,219 1,885 1,334 Vehicles ...... — 14 14 — Office furniture ...... 23 261 238 23 IT equipment ...... 2,508 5,147 2,702 2,445 Total ...... 3,762 8,641 4,839 3,802
F-34 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) The above table does not include work-in-progress of Ke28 at 31 December 2010 and Ke27 at 31 March 2010.
3.1.1 Movement in the gross carrying amount Disposals Gross at and Gross at In g thousands 31/03/10 Acquisitions Reclassifications divestments 31/12/10 Fixtures and fittings .... 2,852 406 (39) 3,219 Vehicles ...... 14 14 Office furniture ...... 252 9 261 IT equipment ...... 4,574 550 39 16 5,147 Total ...... 7,692 965 — 16 8,641
3.1.2 Movement in depreciation and provisions
Depreciation and Depreciation and provisions at provisions at In g thousands 31/03/10 Charge Reversal 31/12/10 Fixtures and fittings ...... 1,581 304 1,885 Vehicles ...... 14 14 Office furniture ...... 229 9 238 IT equipment ...... 2,106 611 15 2,702 Total ...... 3,930 924 15 4,839
3.2 Financial assets Net at Acquisitions or Net at In g thousands 31/03/10 contribution 31/12/10 Deposits and guarantees ...... 134 419 553 Total ...... 134 419 553
Deposits and guarantees include an amount of Ke330 paid to Daulber on 13 July 2010. This amount will be retained by Daulber, an unrelated third party entity created to develop tour operators’ offers and services if GO Voyages does not realise revenue of e5 million, excluding VAT, in the first year of operations ending 31 October 2011 and of e10 million in the following year.
3.3 Trade receivables
In g thousands 31/03/10 31/12/10 < 1 year > 1 year Doubtful or disputed receivables ...... 1,165 1,172 1,172 Trade receivables ...... 39,273 27,404 27,404 Advances and down-payments paid on orders ...... 648 255 255 Trade receivables and related accounts (gross) ...... 41,086 28,831 27,659 1,172 Provisions for doubtful receivables ...... (1,165) (1,172) Trade receivables and related accounts (net) ...... 39,921 27,659
F-35 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.4 Other receivables, prepayments and accrued income
In g thousands 31/03/2010 31/12/2010 Tax receivables ...... 1,869 1,754 Employee-related receivables ...... — — Accrued income ...... 9,212 11,319 Deferred tax assets ...... 1,147 1,190 Prepayments ...... 151,403 100,828 163,631 115,091 Prepayments concern purchases relating to flights with departure dates occuring after the year-end. Accrued income breaks down as follows:
In g thousands 31/03/2010 31/12/2010 Credit notes receivable from airlines ...... 444 2,786 Airline super-commission ...... 3,191 4,089 GDS super-commission receivable ...... 3,997 3,046 Hotel, package holiday, etc. super-commission ...... 55 79 BSP repayments receivable ...... 438 985 BSP and SNCF commission receivable ...... 1,083 318 Sundry receivables ...... 4 16 9,212 11,319
3.5 Breakdown of deferred tax assets and liabilities
In g thousands 31/03/2010 31/12/2010 Deferred tax assets ...... 1,147 1,189 Provisions temporarily not deductible ...... 356 391 Group tax losses carried forward ...... 728 728 Retirement termination payments ...... 63 70 Deferred tax liabilities ...... 629 212 Goodwill ...... 603 150 Finance lease restatements ...... 26 62
3.6 Cash at bank and in hand and marketable securities Marketable securities consist of monetary investments and do not include any unrealised capital gains.
In g thousands 31/03/2010 31/12/2010 Marketable securities ...... 80,115 5,970 Cash at bank and in hand ...... 12,528 2,369 Total cash and cash equivalents ...... 92,643 8,339
3.7 Consolidated shareholders’ equity The share capital is made up of 7,256,000 shares with a par value of e1 each, including 3,330,000 preferred shares and 3,926,000 ordinary shares.
F-36 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) The preferred shares confer entitlement, from the year ended 31 March 2008, to a preferred dividend equal to 10% of their nominal value. The preferred dividend is cumulative and progressive where it has not been distributed and remains attached to the share, with the amount equal to 10% of the nominal value of the share being capitalised each year.
In g thousands Additional Consolidated (before appropriation of net Number of Share paid-in reserves and Consolidated loss) shares capital capital net loss group equity At 31 March 2010 ...... 6,200,000 62,000 875 (34,215) 28,660 Exercise of share subscription warrants ...... 1,056,000 10,560 10,560 Consolidated loss for the year (8,803) (8,803) At 31 December 2010 ...... 7,256,000 72,560 875 (43,018) 30,417
3.8 Provisions for contingencies and losses
In g thousands 31/03/10 Charge Utilised Released 31/12/10 Provisions for customer risks ...... 447 479 (447) 479 Provisions for losses ...... — — Provisions for foreign exchange losses .... — — Provisions for retirement termination payments ...... 182 21 203 Provisions for deferred tax liabilities ...... 629 36 (453) 212 Total ...... 1,258 536 (900) — 894
3.9 Bond issues, other loans and borrowings
In g thousands 31/03/10 31/12/10 < 1 year 1 to 5 years > 5 years Junior subordinated bonds ...... 89,538 Senior mezzanine bonds ...... 23,202 Junior mezzanine bonds ...... 35,301 New mezzanine bond issue ...... 41,953 758 41,195 Total bond issues ...... 148,041 41,953 758 41,195 Senior A loan ...... 24,615 65,800 9,100 50,050 6,650 Senior B loan ...... 35,000 30,000 30,000 HSBC loan ...... 28 23 7 16 OSEO loan ...... 6 5 2 3 IBM France Financement loan ..... 1,121 786 449 337 Total other loans and borrowings .. 60,770 96,614 9,558 50,406 36,650 Total borrowings ...... 208,811 138,567 10,316 50,406 77,845 Fixed-rate debt ...... 125,994 42,767 Floating-rate debt ...... 82,817 95,800 Total ...... 208,811 138,567 The change in majority shareholder was accompanied by the refinancing of the existing debt at 2 July 2010. At the time of the transaction, interest of e10.37 million was paid in cash on the junior subordinated bonds and the outstanding nominal of e81.07 million was refinanced. The
F-37 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) Senior A (e24.6 million) and Senior B (e35 million) loans and the senior and junior mezzanine bonds (e23.2 million and e34.3 million, respectively), were similarly refinanced. On 2 July 2010, the new refinanced debt comprised a Senior A loan (e70 million), a Senior B loan (e30 million), a mezzanine loan (e40 million) and a bridging loan of e60 million. At 31 December 2010, e4.2 million had been repaid on the Senior A loan in accordance with the repayment schedule, together with the e60 million bridging loan.
3.10 Terms and conditions of the new loans
o/w o/w cash Nominal at capitalised interest In g thousands 31/12/10 interest payable Interest rate Maturity 6% cap Mezzanine bond issue . . 41,953 1,195 758 and 7.75% cash July 2018 Total bond issues ..... 41,953 1,195 758 HSBC loan ...... 23 5.08% fixed-rate March 2014 OSEO loan ...... 5 5.15% fixed-rate Feb 2014 Senior A mid-term loan . . 65,800 E3M + 4.50% July 2016 Senior B mid-term loan . . 30,000 E3M + 5% July 2017 Total other loans and borrowings ...... 95,828 — — Total borrowings ...... 137,781 1,195 758 Loan A is repayable in 12 variable six-monthly payments. The above loans were subject to the following covenants at 31 December 2010: Debt Service Coverage Ratio i.e. Free Cash Flow / Debt Service Net Interest Coverage Ratio i.e. Ebitda/Net finance cost Leverage ratio i.e. Net debt / Ebitda These covenants are calculated at Lyeurope consolidated financial statement level and were satisfied at 30 September 2010 and 31 December 2010.
3.11 Other liabilities, accruals and deferred income Deferred income corresponds to flights invoiced with a departure date occuring after the year-end.
In g thousands 31/03/2010 31/12/2010 Employee-related liabilities ...... 3,350 2,399 Tax liabilities ...... 2,760 2,503 Deferred income ...... 199,649 131,729 Other liabilities ...... 2,420 1,984 Total ...... 208,178 138,615
F-38 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.12 Information on related companies Other external In g thousands Receivables Liabilities Revenue expenses LYPARIS SAS ...... (33) 12 10 GO VOYAGES ...... 5 384 4 320 GO VOYAGES TRADE ...... 92 77 LYEUROPE ...... 488 (28) 407 4 Total ...... 460 460 411 411 A management fees contract was signed between Lyeurope and Lyparis, Go Voyages and Go Voyages Trade on 1 September 2010. Lyeurope is the operating holding company with the human and technical resources necessary to lead the group. This contract provides for the rebilling of direct and indirect costs plus a margin of 5%.
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT 4.1 Breakdown of revenue by product Change In g thousands 31/12/09 31/12/10 Change in % Flights (scheduled and charter, low cost) ...... 627,924 774,082 146,158 23% Land production (rentals/hotels/packages) ...... 30,962 46,085 15,123 49% Incidental income ...... 2,911 2,871 (40) (1%) NET REVENUE ...... 661,797 823,038 161,241 24%
4.2 Gross margin % % Change In g thousands 31/12/10 revenue 31/12/09 revenue Change in % Revenue ...... 823,038 100.00% 661,797 100.00% 161,241 100.00% Purchases ...... 752,611 91.44% 607,608 91.81% 145,003 89.93% Commission ...... 13,234 1.61% 10,315 1.56% 2,919 1.81% Gross margin ...... 57,193 6.95% 43,874 6.63% 13,319 8.26% Gross margin is equal to sales less purchases and commission paid.
4.3 Other operating income Other operating income totalled Ke172 for the period to 31 December 2010, and comprised operating subsidies of Ke63 and sundry income of Ke109.
4.4 External operating expenses External operating expenses totalled e792 million for the period to 31 December 2010 and mainly comprised: • Service purchases of e753 million (flights, hotel services, vehicle rentals, insurance). • Sales commission (branches and Web partners) of e13 million. • Expenses relating to customer credit card payments of e1.9 million. • Customer acquisition costs (key-word purchases, web page positioning) of e6.4 million • Communication costs of e0.8 million.
F-39 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT • Professional fees of e1.1 million. • IT maintenance and outsourcing of e1.7 million. • IT development costs of e0.7 million • Rent and rental charges of e1.3 million • Airport assistance costs of e0.2 million • Loan acquisition costs of e8.7 million • General sub-contracting costs of e1.8 million • Advertising costs of e0.6 million • Other sundry expenses (insurance, travel, etc.) of e0.8 million
4.5 Employee costs Employee costs totalled Ke13,671 for the period to 31 December 2010 and include a provision in respect of the statutory employee profit-sharing agreement of Ke403. An employee incentive agreement was signed on 27 September 2007 to continue involving employees in the profits and performance of the Company. This agreement covered a period of three years, expiring 31 March 2010. Following the implementation of a UES grouping together Go Voyages and Go Trade, the contract was renegotiated and signed on 15 September 2010. The terms and conditions remain broadly similar.
4.6 Charges to depreciation and amortisation Charges to depreciation and amortisation totalled Ke8,511 and break down as follows: • Amortisation of intangible assets of Ke193 • Amortisation of goodwill of Ke7,399 • Depreciation of property, plant and equipment of Ke919
4.7 Charges to provisions Charges to provisions net of reversals totalled Ke1,373 and comprised: • A charge to provisions for customer risks of Ke479 and a reversal of prior year customer provisions of Ke447 representing a net charge of Ke32 • A charge to provisions for impairment of intangible assets of Ke1,312 • A charge to provisions for doubtful receivables of Ke16 and a reversal of provisions for doubtful receivables of Ke8, representing a net positive impact of Ke8 • A charge to provisions for retirement termination payments of Ke21
F-40 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) 4.8 Net finance cost
In g thousands 31/12/09 31/12/10 Interest expense ...... (13,524) (12,939) Investment income ...... 512 296 Foreign exchange gains ...... 22 10 Foreign exchange losses ...... (10) (20) Reversal of provisions for foreign exchange losses ...... 4 — Total ...... (12,996) (12,653)
4.9 Non-recurring items
In g thousands 31/12/09 31/12/10 Non-recurring income Compensation received on customer disputes ...... 1 2 Proceeds on the sale of assets ...... 1 Proceeds on the sale of financial assets ...... 37 140 Non-recurring expenses Theft of cash (cash box 118) ...... (4) Urssaf social security revised assessment ...... (2) Compensation paid on lost customer litigation ...... (3) Net carrying amount of assets sold ...... (58) Exceptional costs relating to the Icelandic volcano ...... (211) Exit bonus indemnities ...... (871) Charges to exceptional depreciation and amortisation ...... (7) — (1,156) Net non-recurring items ...... 1 (1,116) Exit bonus indemnities are primarily severance payments incurred in relation to the acquisition of the Group by AXA Private Equity (as mentioned in note 1).
4.10 Income tax expense
In g thousands 31/12/09 31/12/10 Current tax ...... — 15 Deferred tax ...... 506 288 Total ...... 506 303 On 2 April 2009, pursuant to Article 223A of the French Tax Code (Code Gen´ eral´ des Impotsˆ ), Go Voyages Trade agreed to join the tax consolidation group formed on 1 March 2007.
F-41 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) The Lyparis group has total tax losses of e2.9 million at 31 December 2010.
In g thousands 31/12/09 31/12/10 Lyparis tax losses ...... (14,304) (21,526) Go Voyages tax profits ...... 15,727 18,228 Go Voyages Trade tax profits ...... 10 3,016 Tax consolidation loss ...... — (594) Group tax profits/(losses) taxable at the standard rate ...... 1,433 (876) Tax losses carried forward from previous year ...... (5,657) (2,114) Theoretical tax rate ...... 34.43% 34.43% Theoretical tax expense at the standard rate ...... —— Impact on the tax expense of: —revised tax assessments ...... (471) (36) —amortisation of goodwill ...... (539) (280) —provision for retirement termination payments ...... (5) (8) —restatement of finance leases ...... 15 36 —offset of group tax losses ...... 494 Group net income tax expense/(income) ...... (506) (288)
V. NOTES TO STATEMENT OF CASH FLOWS 5.1 Charges to amortisation, depreciation and provisions 31/12/09 31/12/10 Amortisation of goodwill ...... 8,159 7,399 Amortisation and provisions on intangible assets ...... 1,462 1,505 Depreciation and provisions on property, plant and equipment ...... 585 924 Provisions for current assets ...... 121 7 Provisions for customer risks ...... 1,601 479 Provisions for retirement termination payments ...... 14 21 Total charges to depreciation, amortisation and provisions ...... 11,942 10,335
31/12/09 31/03/10 Proceeds from the sale of assets ...... — Net carrying amount of assets sold or scrapped ...... — Net gain on disposal of non-current assets ...... ——
31/12/09 31/03/10 Reversal of provisions for customer risks ...... 227 447 Reversal of provisions for sundry expenses ...... — — Reversal of provisions for foreign exchange losses ...... — 4 Total reversals of depreciation, amortisation and provisions ...... 227 451
VI. COMMITMENTS For the purposes of securing bank and mezzanine financing, Lyparis granted a pledge over its 14,150,000 Go Voyages shares and its bank accounts, to the banks participating in the senior loan and the bridge loan and to holders of senior and junior mezzanine bonds.
F-42 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the nine months ended 31 December 2010
VI. COMMITMENTS (Continued) Credit´ Industriel et Commercial (Ke721) and Credit´ du Nord (Ke155 Ke) have delivered a rental guarantee and various supplier guarantees for a total amount of Ke1,097, on behalf of the Company. Credit´ du Nord provided a guarantee to IATA for a maximum fixed amount of Ke30, on behalf of Go Voyages Trade.
Lease commitments: Future lease In g thousands payments < 1 year 1 to 5 years > 5 years Property rental ...... 10,001 1,257 4,947 3,798 Plant and equipment leases ...... 862 480 382 Total ...... 10,863 1,737 5,329 3,798
Plant and equipment lease commitments: Future lease payments due in: Less than More than Lessor Lessee 1 year 1 to 5 years 5 years Total Vehicles ...... GE MONEY BANK 23 67 — 90 Vehicles ...... Mercedes Benz 4 4 8 IT equipment ...... LIXXBAIL — — — — IT equipment ...... LIXXBAIL — — — — IBM IT equipment ...... IFF 125 84 — 209 IBM IT equipment ...... IFF 125 84 — 209 IBM IT equipment ...... IFF 125 84 — 209 IBM software and maintenance ...... IFF 75 50 — 125 Vehicles ...... CGI 3 9 — 12
VII. EMPLOYEE NUMBERS AND MANAGEMENT REMUNERATION 7.1 Average group workforce 31/12/10 Executives ...... 111 Administrative staff ...... 309 Total employees ...... 420
7.2 Remuneration of members of administrative and control bodies Total gross remuneration paid to executive management amounted to Ke383 for the period April to August 2010. The Group did not pay any attendance fees to members of administrative bodies during the period.
F-43 Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) 65, avenue Edouard Vaillant 92100 Boulogne-Billancourt
Statutory Auditors’ report on the consolidated financial statements For the year ended 31 March 2010
F-44 Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) 65, avenue Edouard Vaillant 92100 Boulogne-Billancourt
Statutory Auditors’ report on the consolidated financial statements For the year ended 31 March 2010
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
To the Chairman, As statutory auditors of Lyparis and at your request pursuant to the preparation of consolidated financial statements in response to bank requirements, we audited the enclosed consolidated financial statements of Lyparis for the year ended 31 March 2010. The consolidated financial statements were prepared under the responsibility of management. Our role is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the consolidated Group as at 31 March 2010 and of the results of its operations for the year then ended in accordance with French accounting principles. This report was prepared for your attention in the context described above and must not be used, distributed or referred to for any other purpose. We do not accept any responsibility to third parties to which this report is distributed or who obtain a copy by any other means. This report is governed by French law. The French courts have exclusive jurisdiction to settle any claim, difference or dispute which may arise out of or in connection with our engagement letter or this report. Both parties irrevocably waive the right to contest an action brought before these courts, to claim that an action is brought before a court lacking jurisdiction or that these courts have no jurisdiction.
Neuilly-sur-Seine, 11 June 2010 The Statutory Auditors
Dominique Jumaucourt
F-45 LYPARIS GROUP CONSOLIDATED BALANCE SHEET At 31 March 2010 (in g thousands)
Assets at 31 March 2009 2010 Goodwill ...... 177,869 167,763 Intangible assets ...... 85,306 82,727 Property, plant and equipment ...... 1,758 3,766 Financial assets ...... 103 134 Non-current assets ...... 265,036 254,390 Trade receivables and related accounts ...... 50,335 39,921 Other receivables, prepayments and accrued income ...... 136,435 163,631 Cash at bank and in hand and marketable securities ...... 47,266 92,643 Current assets ...... 234,036 296,195 Total assets ...... 499,072 550,585
Equity and liabilities at 31 March 2009 2010 Share capital ...... 62,000 62,000 Addition paid-in capital ...... 875 875 Retained earnings ...... (12,436) (22,248) Consolidated reserves ...... 7,285 (3,932) Consolidated loss for the year ...... (21,029) (8,035) Equity attributable to owners of the Company ...... 36,695 28,660 Minority interests ...... — — Provisions for contingencies and losses ...... 1,938 1,258 Borrowings ...... 200,707 208,811 Trade payables and related accounts ...... 81,634 103,678 Other liabilities, accruals and deferred income ...... 178,098 208,178 Liabilities ...... 460,439 520,667 Total equity and liabilities ...... 499,072 550,585
F-46 LYPARIS GROUP CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2010 (in g thousands)
Year ended 31 March 2009 2010 Revenue ...... 696,606 845,931 Other operating income ...... 268 209 Total operating income ...... 696,874 846,140 External expenses ...... (662,052) (801,975) Taxes and duties other than income tax ...... (933) (1,079) Employee costs ...... (13,399) (17,571) Gross operating profit ...... 20,490 25,515 Other operating expenses ...... (2,139) (1,727) Depreciation and amortisation ...... (20,656) (10,956) Charges to provisions (net of reversals) ...... (2,808) (3,115) Net operating profit (loss) ...... (5,112) 9,717 Net finance cost ...... (17,213) (17,326) Loss from ordinary activities before tax ...... (22,325) (7,609) Non-recurring items ...... (22) (6) Income tax (expense)/income ...... 1,318 (420) Loss for the year of consolidated companies ...... (21,029) (8,035) Loss of the consolidated entity ...... (21,029) (8,035) Loss attributable to minority interests ...... — — Loss attributable to shareholders of the group ...... (21,029) (8,035) Earnings per share ...... (3.3917) (1.2959) Diluted earnings per share ...... (3.3917) (1.2959) 3,330,000 preferred shares 2,870,000 ordinary shares
F-47 LYPARIS GROUP CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 March 2010 (in g thousands)
3/31/2010 TOTAL OPERATING ACTIVITIES EBITDA ...... 24,230
ELIMINATION OF ITEMS NOT IMPACTING CASH OR NOT RELATING TO OPERATING ACTIVITIES Non-recurring items (# 771, # 772 and # 778) (# 671, # 672 and # 678) ...... (6) Statutory employee profit-sharing ...... (442) Income tax expense ...... CHANGE IN WORKING CAPITAL ...... 34,400 Net operating change ...... 34,400 Change in trade receivables and related accounts ...... 7,226 Change in trade payables and related accounts ...... 22,642 Change in tax and employee-related receivables ...... (628) Change in tax and employee-related liabilities ...... 1,400 Change in prepayments ...... (24,617) Change in deferred income ...... 28,377 NET CASH FROM OPERATING ACTIVITIES ...... 58,182
INVESTING ACTIVITIES Payments to acquire property, plant and equipment ...... (1,794) Payments to acquire intangible assets ...... (387) Proceeds from disposal of PP&E and intangible assets # 775 ...... Investment subsidies received ...... Payments to acquire financial assets ...... Proceeds from disposal of financial assets ...... (30) Repayment of issue premiums and adjustment to nominal value of Go shares ...... Dividends received from subsidiaries ...... Net cash and cash equivalents /subsidiaries acquired & sold ...... NET CASH USED IN INVESTING ACTIVITIES ...... (2,211)
FINANCING ACTIVITIES (excluding debt service) Dividends paid ...... Share capital increase or capital contribution ...... Change in other equity ...... NET CASH FROM FINANCING ACTIVITIES ...... — Free cash flow ...... 55,971
DEBT SERVICE Repayment of borrowings (net) ...... (6,411) Net interest expense ...... (4,183) Total Debt service ...... (10,594) Excess cash flow = Net increase in cash and cash equivalents ...... 45,377
NET INCREASE IN CASH AND CASH EQUIVALENTS (determined) ...... 45,377
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR ...... 47,266 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ...... 92,643 NET INCREASE IN CASH AND CASH EQUIVALENTS (determined) ...... 45,377
F-48 LYPARIS Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) With a share capital of g62,000,000 Trade and companies registration number (N Siret) : 491 249 520 00017 Registered office: 65 avenue Edouard Vaillant—92100 Boulogne Billancourt
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2010
F-49 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2010
I. SIGNIFICANT EVENTS 1. Interest rate hedges Pursuant to its obligations under the Loan and Senior Credit Agreement signed on 22 March 2007, an interest rate swap hedging the loans and the Mezzanine Senior bonds was entered into on 11 April 2007. The original 5-year swap at a fixed-rate of 4.213% and for a nominal amount of e95 million on inception, was restructured into a 3-year swap at a fixed-rate of 4.05%, given interest rate curves at the time. Following the decision to elect, during a 1-year period, for monthly draw-downs on the senior loans, a basis swap between 6-month Euribor and 1-month Euribor was set-up on 20 February 2008. The swap had a nominal value of e72 million, a start- and end-date of 31 March 2008 and 31 March 2009, respectively, and reduced the fixed-rate to 3.90% during the swap term. Two new interest rate swaps were entered into on 17 February 2009. The first swap covers a notional of e54 million and Lyparis pays fixed-rate interest of 3.10% and receives 1-month Euribor. The second swap covers a notional of e22 million and Lyparis pays fixed-rate interest of 3.10% and receives 6-month Euribor. Both contracts expire on 31 March 2011.
2. Transfer of the registered office of Sun Trade Travel By decision of the sole shareholder, Lyparis, the registered office of Sun Trade Travel was transferred to 14, rue de Clery,´ Paris (75002).
3. Contribution of the ‘‘Scheduled Flights’’ activity branch On 31 March 2010, the sole shareholder, Lyparis, took due note of the contribution of Go Voyages’ autonomous ‘‘Scheduled Flights’’ activity branch to Sun Trade Travel at a net value of e19,500,000. This asset contribution was remunerated by a share capital increase by Sun Trade Travel of e17,963,000, bringing its share capital to e18,000,000. The net difference between the value of the asset contribution and the above share capital increase was recognized as additional paid-in capital in equity of the company receiving the asset transfer.
4. Change in the company name of Sun Trade Travel By decision of the sole shareholder, Lyparis, on 31 March 2010, Sun Trade Travel changed its name to Go Voyages Trade.
5. Sale by Lyparis of its shares in Go Voyages Trade to Go Voyages Following the partial asset contribution by Go Voyages, its sole shareholder, Lyparis, owner of 148,000 Go Voyages Trade shares with a value of e37,000, decided to sell all these shares to Go Voyages at par. The share capital of Go Voyages Trade is now wholly owned by Go Voyages.
6. Dividend payment On 22 December, 2009, the sole shareholder decided a dividend distribution of e9,480,500, representing e0.67 per share. This dividend was paid on 31 March 2010.
7. Subsequent events 7.1 Change in majority shareholder On 17 May 2010, AXA Private Equity signed a contract with the Lyparis shareholders for the purchase of the share capital of Go Voyages via a secondary LBO. Axa Private Equity will in this way become the new majority shareholder alongside management.
F-50 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
I. SIGNIFICANT EVENTS (Continued) This change in shareholder structure follows the receipt of an unsolicited offer submitted by Axa Private Equity to the majority shareholder of the company. For the purposes of this transaction, Axa PE Private Equity will act via the fund, AXA LBO Fund IV, the fourth generation of funds raised by AXA Private Equity. This venture capital fund has a term of 10 years, maturing in 2017, and a total investment capacity of e1.6 billion, of which 37% is already invested in six operations. AXA Group is the main investor and the fund is managed by a wholly-owned subsidiary of the AXA group, AXA Investment Managers Private Equity Europe (‘‘AXA Private Equity’’), accredited since 6 December 1999. The senior debt financing is provided by Societ´ e´ Gen´ erale,´ CIC and HSBC. The mezzanine financing is provided by Five Arrows. Completion of this transaction remains subject to the satisfaction of the conditions precedent, and particularly the approval by anti-monopoly authorities in certain countries. The scheduled closing date is 2 July 2010.
7.2 Volcanic ash cloud A large area of EU airspace was closed or operated at highly reduced capacity from Friday, 16 April to Wednesday, 21 April 2010, following a volcanic eruption in Iceland. This situation generated the worst paralysis in air transport history. During six days, nearly 80% of departing flights in the European Union were cancelled, whatever the destination, representing more than 70,000 flights. As this was an event of force majeure, Go Voyages applied the commercial terms decided by the airlines. In this instance, and given the extent of the problem, the airlines generally decided to authorise cancellations, free of charge, as they were not due to or decided by the customer, but rather the result of the airline being unable or prohibited from operating the flights. In such cases, customers generally received full repayment, including service costs and insurance. Cancellations concerned some 19,760 passengers and represented a business volume of Ke6,850. The estimated impact on operating margin is Ke500. The charter business also assumed additional operating costs (bus transfers, organisation of ferry flights to repatriate customers, etc.) estimated at Ke200, and flow management outsourcing costs (telephone and email) which will be expensed in non-recurring items. With regards to the cash position, customer repayments will be automatically recovered from the airlines via BSP, by 15 June 2010 at the latest.
II. ACCOUNTING POLICIES, RULES AND METHODS 2.1. General principles The consolidated financial statements have been prepared in accordance with regulations applicable in France, and the accounting principles of consistency and going concern, as well as CRC Regulation no. 99-02, issued by the French Accounting Regulation Committee (Comite´ de la Reglementation` Comptable).
2.2. Principles of consolidation The Group is exempt from the requirement to prepare consolidated financial statements as it is proportionately consolidated in the accounts of a larger group, CNP, satisfying the exemption criteria. It has however prepared consolidated financial statements to satisfy bank requirements.
F-51 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 2.2.1 Scope of consolidation As of 31 March 2010, the Group comprises Go Voyages SAS and its wholly-owned subsidiary Go Voyages Trade.
2.2.2 Consolidation rules and methods The subsidiaries Go Voyages and Go Voyages Trade are fully consolidated, as at 31 March 2010. All transactions between consolidated companies and reciprocal assets and liabilities are eliminated for the purpose of consolidation, as are all gains and losses internal to the Group. As the Group head company holds, directly or indirectly, the entire share capital of its subsidiaries, there are no minority interests.
2.2.3 Excess acquisition price The amount of the acquisition price of the subsidiary in excess of the share in equity acquired is allocated to the relevant balance sheet headings, based on the fair value of identifiable assets and liabilities at the acquisition date. Allocated amounts are amortised or depreciated on a straight-line basis over the period applicable for the relevant asset category. Any residual unallocated amount is recognised as goodwill and impaired if events or circumstances indicate a loss in value.
2.2.4 Accounting period
The financial statements of the Group and its subsidiaries are drawn up to the same date, i.e. 31 March.
2.2.5 Intangible assets • Concessions, patents and similar rights Registered trademarks are recorded in balance sheet assets at acquisition cost and are not amortised. Their value is assessed regularly and a provision for impairment recorded if fair value, determined based on criteria applied on acquisition, falls below the net carrying amount. Purchased software is amortised on a straight-line basis over 4 years. • Goodwill Goodwill is amortised on a straight-line basis over a period of 20 years.
2.2.6 Property, plant and equipment Property, plant and equipment are recorded in balance sheet assets at acquisition cost (purchase price plus incidental expenses, excluding fixed asset acquisition costs) and depreciated on a straight-line basis over the useful life of the asset. Depreciation periods generally applied are as follows:
Method Period General installations and fixtures and fittings ...... Straight-line 5 years Vehicles ...... Straight-line 4 years Office and IT equipment ...... Straight-line 5 years Furniture ...... Straight-line 5 years
F-52 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) These depreciation periods are reviewed annually. No accelerated depreciation is charged. Exceptional depreciation is recorded in the event of loss in value or a change in the utilisation period.
2.2.7 Restatement of finance leases
The Group applies the preferred method recommended in CRC Regulation 99-02, that is: • recognition of the asset in property, plant and equipment in balance sheet assets at the fair value of the leased asset on inception of the lease; • recognition of a borrowing in balance sheet liabilities equal to the entry cost; • cancellation of the lease payment in operating expenses and recognition of an interest cost and the progressive repayment of the borrowing; • depreciation of the asset over its useful life.
2.2.8 Financial assets Financial assets consist of guarantee deposits paid to certain of our suppliers and securities pledged with our banks guaranteeing signature commitments in excess of 1 year.
2.2.9 Foreign currency-denominated receivable and payables Foreign exchange gains and losses arising on the retranslation of foreign currency- denominated transactions at year-end exchange rates are recognised in profit or loss.
2.2.10 Other receivables, prepayments and accrued income In the specific business sector in which the Group subsidiary operates, the basic accounting principle requires the recognition in the financial year of income and expense items corresponding to departure dates during the financial year in question. Application of this principle leads to the use of the following accounts in the balance sheet: • ‘‘Deferred income’’ in liabilities to record revenue relating to departure dates after the year-end, • ‘‘Prepayments’’ in assets to record, in the same way, costs relating to departure dates after the year-end. Deferred tax assets are recorded in Other receivables. They result from temporary differences between the tax value of assets and liabilities and their net carrying amount for consolidation purposes and tax losses carried forward. It is estimated that future taxable profits will be sufficient to enable the offset of these losses within a reasonable timeframe.
2.2.11 Marketable securities Marketable securities are valued at acquisition cost. Unrealised capital gains are not recognised and a provision for impairment is recorded if their value, calculated based on the last known market price, falls below historical cost.
2.2.12 Financial instruments Unrealised gains and losses on financial instruments traded over-the-counter are recognised in profit or loss over the residual life of the hedged item, to match income and expenses recognised on the hedged item in profit or loss.
F-53 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
II. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 2.2.13 Borrowings The acquisition of Go Voyages by Lyparis was financed by a e67 million subordinated bond issue, a e45 million mezzanine bond issue and bank loans totalling e120 million.
2.2.14 Provisions for contingencies and losses Provisions are only recognised in respect of contingencies or losses considered probable as a result of past events or events in progress at the year-end and precise in nature, but for which the outcome, timing or amount is uncertain (CRC no. 2002-06; CNC Opinion no. 00-01).
2.2.15 Pensions and other post-employment benefits A provision is recognised in the balance sheet in respect of retirement termination payment commitments to permanent employees. The provision, estimated at the beginning of the period, was recognised in net equity using the projected unit credit method, with forecast salaries and pro-rated services. Account was taken of the following assumptions: • Forecast rights on retirement pro-rata to seniority • Mortality table • Staff attrition (8%) • Inflation (2%) • Discount rate (5.25%)
2.2.16 Ordinary income versus non-recurring items Non-recurring income and expenses concern items outside the day-to-day management of the Group. They are primarily unusual in type and of a one-off nature.
1.2.16 Earnings per share Earnings per share is obtained by dividing the net profit/(loss) attributable to owners of the Company by the average number of shares outstanding during the financial year.
2.2.18 Non-application of preferred methods The Group elected not to spread loan issue costs over the loan term. Application of this preferred method would have lead to the recognition of interest of Ke267 and a reduction in borrowings of Ke1,831.
III. NOTES TO THE CONSOLIDATED BALANCE SHEET 3.0 Goodwill and intangible assets
Net at Amortisation and Net at In g thousands 31/03/09 Acquisitions provisions 31/03/10 Goodwill ...... 177,869 29,901 167,763 Other intangible assets ...... 85,306 386 2,964 82,727 Total ...... 263,175 386 32,865 250,490
F-54 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.0.1 Movement in the gross carrying amount
Gross at Acquisitions and Disposals and Gross at In g thousands 31/03/09 investments divestments 31/03/10 Software, patents ...... 2,447 386 2,833 Trademarks ...... 80,420 80,420 Other intangible assets ...... 10,000 10,000 Goodwill ...... 197,664 197,664 Total ...... 290,531 386 — 290,917
The goodwill of e282 million at 31 March 2007 was allocated to transferrable, intangible assets, resulting from contractual or legal rights and for which a reliable estimate of fair value could be determined at the first closing of the consolidated financial statements, i.e. 31 March 2008. The following intangible assets satisfied these criteria: • the Go Voyages trademark including the internet domain name for e80 million. • the Go Speed, version 3, search engine and the connection with 4 different GDS for e3 million. • the wholesale Charter customer base for e7 million.
3.0.2 Movement in amortisation and provisions
Amortisation and Amortisation and provisions at provisions at In g thousands 31/03/09 Charge Reversal 31/03/10 Software, patents ...... 2,061 214 2,275 Trademarks ...... — — Other intangible assets ...... 5,500 2,750 8,250 Goodwill ...... 19,795 10,106 29,901 Total ...... 27,356 13,070 — 40,426
Other intangible assets were amortised (e2.7 million) over their expected useful lives of 4 years for the Charter customer base and 3 years for the search engine. The residual goodwill balance of e198 million and trademarks are subject to fair value estimates. At the year-end, the absence of any significant events between 31 March 2009 and 31 March 2010 explains the lack of any provision for impairment of goodwill or trademarks.
3.1 Property, plant and equipment 3.1.0 Movement in the net carrying amount
Net at Gross at Net at In g thousands 31/03/09 31/03/10 Depreciation 31/03/10 Fixtures and fittings ...... 792 2,813 1,582 1,231 Vehicles ...... — 14 14 — Office furniture ...... 36 252 229 23 IT equipment ...... 930 4,614 2,106 2,508 Total ...... 1,758 7,693 3,931 3,762
The above table does not include work-in-progress of Ke4.
F-55 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.1.1 Movement in the gross carrying amount
Gross Gross at Disposals and at In g thousands 31/03/09 Acquisitions divestments 31/03/10 Fixtures and fittings ...... 2,072 780 2,852 Vehicles ...... 14 14 Office furniture ...... 245 7 252 IT equipment ...... 2,733 2,177 336 4,574 Total ...... 5,064 2,964 336 7,692
3.1.2 Movement in depreciation and provisions
Depreciation Depreciation and provisions and provisions In g thousands at 31/03/09 Charge Reversal at 31/03/10 Fixtures and fittings ...... 1,280 302 1,582 Vehicles ...... 14 14 Office furniture ...... 208 21 229 IT equipment ...... 1,804 541 239 2,106 Total ...... 3,306 864 239 3,931
3.2 Financial assets
Net at Amortisation Net at In g thousands 31/03/09 Acquisitions Disposals and provisions 31/03/09 Deposits and guarantees .... 103 41 10 134 Total ...... 103 41 10 — 134
3.3 Trade receivables
In g thousands 31/03/09 31/03/10 < 1 year > 1 year Doubtful or disputed receivables ...... 1,041 1,165 1,165 Trade receivables ...... 44,217 39,273 39,273 Advances and down-payments paid on orders ..... 6,117 648 648 Trade receivables and related accounts (gross) ..... 51,375 41,086 39,921 1,165 Provisions for doubtful receivables ...... (1,040) (1,165) Trade receivables and related accounts (net) ..... 50,335 39,921
3.4 Other receivables, prepayments and accrued income
In g thousands 31/03/2009 31/03/2010 Tax receivables ...... 1,241 1,869 Employee-related receivables ...... — — Accrued income ...... 6,148 9,212 Deferred tax assets ...... 2,259 1,147 Prepayments ...... 126,787 151,403 134,435 163,631
F-56 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) Deferred tax assets are receivable within one year. Prepayments concern purchases relating to flights with departure dates after the year-end. Accrued income breaks down as follows:
In g thousands 31/03/2009 31/03/2010 Credit notes receivable from airlines ...... 693 444 Airline super-commission ...... 2,912 3,191 GDS super-commission receivable ...... 1,201 3,997 Hotel, package holiday, etc. super-commission ...... 126 55 BSP repayments receivable ...... 482 438 BSP and SNCF commission receivable ...... 591 1,083 Sundry receivables ...... 143 4 6,148 9,212
3.5 Breakdown of deferred tax assets and liabilities
In g thousands 31/03/2009 31/03/2010 Deferred tax assets ...... 2,259 1,147 Provisions temporarily not deductible ...... 128 356 Group tax losses carried forward ...... 2,075 728 Valuation differences ...... — Retirement termination payments ...... 56 63 Deferred tax liabilities ...... 1,549 629 Accelerated depreciation ...... — Goodwill ...... 1,549 603 Provisions temporarily not deductible ...... — Finance lease adjustments ...... 26
3.6 Cash at bank and in hand and marketable securities Marketable securities consist of monetary investments and do not include any unrealised capital gains.
In g thousands 31/03/2009 31/03/2010 Marketable securities ...... 42,366 80,115 Cash at bank and in hand ...... 4,900 12,528 Borrowings ...... Total cash and cash equivalents ...... 47,266 92,643
3.7 Consolidated shareholders’ equity The share capital is made up of 6,200,000 shares with a par value of e10 each, including 3,330,000 preferred shares and 2,870,000 ordinary shares. The preferred shares confer entitlement, from the year ended 31 March 2008, to a preferred dividend equal to 10% of their nominal value. Where net profits are insufficient to pay this dividend, subsequent profits will be used to pay these amounts prior to any other appropriation. The preferred dividend is cumulative and progressive in that it is not distributed and remains attached to the share, with the amount equal to 10% of the nominal value of the share capitalised each year.
F-57 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) On 29 March 2007, the Company issued autonomous share subscription warrants at a unit price of e1.75. These warrants are intended to enable an increase in the Management shareholding based on the IRR realised by investors on exit
Additional Consolidated In g thousands Number of Share paid-in reserves and Consolidated (before appropriation of net loss) shares capital capital net loss group equity At 31 March 2009 ...... 6,200,000 62,000 875 (26,180) 36,695 Goodwill adjustment ...... — Consolidated loss for the year .... (8,035) (8,035) At 31 March 2010 ...... 6,200,000 62,000 875 (34,215) 28,660
3.8 Provisions for contingencies and losses
In g thousands 31/03/09 Charge Utilised Released 31/03/10 Provisions for customer risks ...... 224 447 (224) 447 Provisions for losses ...... — — Provisions for foreign exchange losses .... 4 (4) — Provisions for retirement termination payments ...... 161 21 182 Provisions for deferred tax liabilities ...... 1,549 26 (946) 629 Total ...... 1,938 494 (1,174) — 1,258
3.9 Bond issues, other loans and borrowings 1 to In g thousands 31/03/2009 31/03/2010 < 1 year 5 years > 5 years Junior subordinated bonds ...... 81,341 89,537 89,537 Senior mezzanine bonds ...... 22,085 23,202 23,202 Junior mezzanine bonds ...... 31,472 35,301 35,301 Total bond issues ...... 134,898 148,040 — — 148,040 Senior A loan ...... 30,769 24,615 6,154 18,461 Senior B loan ...... 35,000 35,000 35,000 HSBC loan ...... 33 27 6 21 OSEO loan ...... 7 6 1 5 IBM France Financement loan ..... 1,121 449 672 Total other loans and borrowings . . . 65,809 60,769 6,610 54,159 — Total borrowings ...... 200,707 208,809 6,610 54,159 148,040 Fixed-rate debt ...... 112,813 125,992 Floating-rate debt ...... 87,894 82,817 Total ...... 200,707 208,809 A repayment of Ke6,157 was made on the Senior A loan. Following compliance with last year’s covenant ratios, the margins applied to the Senior A and B loans were reduced from June 2009. The Ke40 HSBC loan was secured by Go Voyages Trade in March 2009 for a term of 59 months and bears fixed-rate interest of 5.15%. The OSEO loan is a Business Creation loan of Ke7. It bears fixed-rate interest of 5.08% and has the same term. Repayments commenced in August 2009.
F-58 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
III. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 3.10 Terms and conditions of the main loans
Nominal at o/w capitalised In g thousands 31/03/09 interest Interest rate Maturity Junior subordinated bonds . 81,341 7,484 10% p.a. capitalised March-17 E6M + 5% and 5% Senior mezzanine bonds . . . 22,085 1,065 fixed p.a. capitalised March-16 Junior mezzanine bonds . . . 31,472 3,414 12% p.a. capitalised Sept.-16 Total bond issues ...... 134,898 11,963 HSBC loan ...... 33 5.08% fixed-rate Feb-14 OSEO loan ...... 7 5.15% fixed-rate March-14 Senior A mid-term loan .... 30,769 E6M + (a) March-14 Senior B mid-term loan .... 35,000 E6M + (b) March-15 Total borrowings ...... 200,707 11,963 Margins (a) and (b) depend on the level of the Net debt/Ebitda leverage ratio. Loan A is repayable in 12 six-monthly instalments of e3 million each. The above loans were subject to the following covenants at 31 March 2010: Debt Service Coverage Ratio i.e. Free Cash Flow / Debt Service Net Interest Coverage Ratio i.e. Ebitda/Net finance cost Leverage ratio i.e. Net debt / Ebitda The Group satisfied these covenants at 31 March 2010.
3.11 Other liabilities, accruals and deferred income Deferred income corresponds to flights invoiced with a departure date after the year-end.
In g thousands 31/03/2009 31/03/2010 Employee-related liabilities ...... 2,553 3,350 Tax liabilities ...... 2,157 2,760 Deferred income ...... 171,272 199,649 Other liabilities ...... 2,116 2,420 Total ...... 178,098 208,178
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT 4.1 Breakdown of Revenue by product Change In g thousands 31/03/2010 31/03/2009 Change in % Flights (scheduled and charter, low cost) ...... 802,722 656,635 146,087 22% Land production (rentals/ hotels/ packages) ..... 38,304 37,454 850 2% Incidental income ...... 4,905 2,517 2,388 95% NET REVENUE ...... 845,931 696,606 149,325 21%
F-59 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) 4.2 Gross margin % % Change In g thousands 31/03/2010 Revenue 31/03/2009 Revenue Change in % Revenue ...... 845,931 100% 696,606 100% 149,325 100% Purchases ...... (770,261) (91.05)% (637,094) (91.46)% (133,167) (89,18)% Commission ...... (13,000) (1.54)% (11,558) (1.66)% (1,442) (0,97)% Gross margin ...... 62,670 7.41% 47,954 6.88% (14,716) 9.86%
Gross margin is equal to sales less purchases and commission paid.
4.3 Other operating income Other operating income totalled Ke209 in 2010 and comprised operating subsidies of Ke112 and sundry income of Ke97.
4.4 External operating expenses External operating expenses totalled e805 million in 2010 and mainly comprised: • Service purchases of e771 million (flights, hotel services, vehicle rentals, insurance and travel agent and Web partner commission). • Sales commission of e13 million. • Expenses relating to customer bank card payments of e2.3 million. • Customer acquisition costs (key-word purchases, web page positioning) of e7.3 million. • Communication costs of e1 million. • Professional fees of e1 million • IT maintenance and outsourcing of e3.2 million. • IT development costs of e1 million • Rent and rental charges of e1.3 million • Airport assistance costs of e0.5 million • Other sundry expenses (insurance, travel, etc.) of e0.4 million
4.5 Employee costs Employee costs totalled Ke17,571 in 2010 and include a provision in respect of the statutory employee profit-sharing agreement of Ke442. An employee incentive agreement was signed on 27 September 2007 to continue involving employees in the profits and performance of the Company. This agreement covers a period of three years, expiring 31 March 2010. An incentive payment of Ke370 including an incentive supplement of Ke150 was recognised in respect of the year ended 31 March 2010.
4.6 Charges to depreciation and amortisation Charges to depreciation and amortisation totalled Ke10,956 and break down as follows: • Amortisation of intangible assets of Ke214 • Amortisation of goodwill of Ke9,878
F-60 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
IV. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) • Depreciation of property, plant and equipment of Ke864
4.7 Charges to provisions Charges to provisions net of reversals totalled Ke3,115 and comprised: • A charge to provisions for customer risks of Ke447 and a reversal of prior year customer provisions of Ke224, representing a net charge of Ke223 • A charge to provisions for impairment of intangible assets of Ke2,750 • A charge to provisions for doubtful receivables of Ke121 • A charge to provisions for retirement termination payments of Ke21
4.8 Net finance cost
In g thousands 31/03/2009 31/03/2010 Interest expense ...... (19,157) (17,950) Investment income ...... 1981 609 Foreign exchange gains ...... 50 25 Foreign exchange losses ...... (86) (13) Reversal of provisions for foreign exchange losses ...... 3 Total ...... (17,213) (17,326)
4.9 Income tax expense
In g thousands 31/03/09 31/03/10 Current tax ...... 16 — Deferred tax ...... 1,302 (420) Total ...... 1,318 (420) On 2 April 2009, pursuant to Article 223A of the French Tax Code (Code Gen´ eral´ des Impotsˆ ), Go Voyages Trade agreed to join the tax consolidation group formed on 1 March 2007. The Lyparis group has total tax losses of e2 million at 31 March 2010.
In g thousands 31/03/2009 31/03/2010 Lyparis tax losses ...... (19,082) (18,961) Go Voyages tax profits ...... 18,019 24,027 Go Voyages Trade tax losses ...... (91) Group losses taxable at the standard rate ...... (1,063) 4,975 Tax losses carried forward from previous year ...... (6,027) (7,090)
F-61 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
V. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 5.1 Charges to amortisation, depreciation and provisions 31/03/09 31/03/10 Amortisation of goodwill ...... 19,795 9,878 Amortisation and provisions on intangible assets ...... 2,988 2,964 Depreciation and provisions on property, plant and equipment ...... 623 864 Provisions for current assets ...... 245 124 Provisions for customer risks ...... 228 447 Provisions for retirement termination payments ...... 22 21 Total charges to depreciation, amortisation and provisions ...... 23,901 14,298
5.2 Reversal of depreciation, amortisation and provisions
31/03/09 31/03/10 Reversal of provisions for customer risks ...... 438 227 Reversal of provisions for sundry expenses ...... — Reversal of provisions for foreign exchange losses ...... 7 4 Total reversals of depreciation, amortisation and provisions ...... 445 231
5.3 Net gain on disposal of non-current assets
31/03/09 31/03/10 Proceeds from the sale of assets ...... 58 37 Net carrying amount of assets sold or scrapped ...... (57) (37) Net gain on disposal of non-current assets ...... 1—
VI. COMMITMENTS For the purposes of securing bank and mezzanine financing, Lyparis granted a pledge over its 14,150,000 Go Voyages shares and its bank accounts, to the banks participating in the senior loan and the bridging loan and to holders of senior and junior mezzanine bonds. Credit´ Industriel et Commercial (Ke721), Credit´ du Nord (Ke171) and Palatine Bank (Ke50) have delivered a rental guarantee and various supplier guarantees for a total amount of Ke942, on behalf of the Company. Credit´ du Nord provided a guarantee to IATA for a maximum fixed amount of Ke30, on behalf of Go Voyages Trade.
Lease commitments: Future lease 1 to In g thousands payments < 1 year 5 years > 5 years Property rental ...... 4,457 776 2,769 913 Plant and equipment leases ...... 365 255 110 — Total ...... 4,822 1,031 2,879 913
F-62 LYPARIS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2010
VI. COMMITMENTS (Continued) Plant and equipment lease commitments: Future lease payments due in: Less More than 1 to than Asset Lessor Lessee 1 year 5 years 5 years Total Vehicles ...... GE MONEY BANK GO 18 14 — 32 Vehicles ...... GE MONEY BANK GO 24 79 — 103 Vehicles ...... SMART LYPARIS 4 6 — 10 IT equipment ...... LIXXBAIL GO 35 — — 35 IT equipment ...... LIXXBAIL GO 171 — — 171 Vehicles ...... CGI GO 3 11 — 14 255 110 — 365
VII. EMPLOYEE NUMBERS AND MANAGEMENT REMUNERATION 7.1 Average Group workforce 31/03/10 Executives ...... 92 Administrative staff ...... 273 Total employees ...... 365
7.2 Remuneration of members of administrative and control bodies Total gross remuneration paid to executive management amounted to Ke790. The Group paid directors’ fees of Ke80 to members of administrative bodies.
VIII. OTHER ADDITIONAL INFORMATION Pursuant to Decree no. 2008-1487 of 30 December 2008 on statutory auditors, total fees paid to the statutory auditors and expensed in the Lyparis Group consolidated income statement amounted to Ke209.
F-63 Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) 65, avenue Edouard Vaillant 92100 Boulogne-Billancourt
Statutory Auditors’ report on the consolidated financial statements For the year ended 31 March 2009
F-64 Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) 65, avenue Edouard Vaillant 92100 Boulogne-Billancourt
Statutory Auditors’ report on the consolidated financial statements For the year ended 31 March 2009
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
To the Chairman, As statutory auditors of Lyparis and at your request pursuant to the preparation of consolidated financial statements in response to bank requirements, we audited the enclosed consolidated financial statements of Lyparis for the year ended 31 March 2009. The consolidated financial statements were prepared under the responsibility of management. Our role is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the consolidated Group as at 31 March 2009 and of the results of its operations for the year then ended in accordance with French accounting principles. We would draw your attention to the corrections to the opening balance sheet disclosed in Note 3 to the consolidated financial statements. This report was prepared for your attention in the context described above and must not be used, distributed or referred to for any other purpose. We do not accept any responsibility to third parties to which this report is distributed or who obtain a copy by any other means. This report is governed by French law. The French courts have exclusive jurisdiction to settle any claim, difference or dispute which may arise out of or in connection with our engagement letter or this report. Both parties irrevocably waive the right to contest an action brought before these courts, to claim that an action is brought before a court lacking jurisdiction or that these courts have no jurisdiction.
Neuilly-sur-Seine, 23 July 2009 The Statutory Auditors
Dominique Jumaucourt
F-65 LYPARIS GROUP CONSOLIDATED BALANCE SHEET At 31 March 2009 (in g thousands)
Assets at 31 March 2008 2009 Goodwill ...... 192,183 177,869 Intangible assets ...... 88,006 85,306 Property, plant and equipment ...... 1,647 1,758 Financial assets ...... 103 103 Non-current assets ...... 281,939 265,036 Trade receivables and related accounts ...... 45,187 50,335 Other receivables, prepayments and accrued income ...... 104,237 136,435 Cash at bank and in hand and marketable securities ...... 22,424 47,266 Current assets ...... 171,848 234,036 Total assets ...... 453,787 499,072
Equity and liabilities at 31 March 2008 2009 Share capital ...... 62,000 62,000 Addition paid-in capital ...... 875 875 Retained earnings ...... (4,292) (12,436) Consolidated reserves ...... (5,205) 7,285 Consolidated loss for the year ...... (1,534) (21,029) Equity attributable to owners of the Company ...... 51,844 36,695 Minority interests ...... — — Provisions for contingencies and losses ...... 4,607 1,938 Borrowings ...... 194,853 200,707 Trade payables and related accounts ...... 55,494 81,634 Other liabilities, accruals and deferred income ...... 146,989 178,098 Liabilities ...... 397,336 460,439 Total equity and liabilities ...... 453,787 499,072
F-66 LYPARIS GROUP CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2009 (in g thousands)
Year ended 31 March 2008 2009 Revenue ...... 542,469 696,606 Other operating income ...... 454 268 Total operating income ...... 542,922 696,874 External expenses ...... (512,315) (662,052) Taxes and duties other than income tax ...... (643) (933) Employee costs ...... (11,208) (13,399) Gross operating profit ...... 18,757 20,490 Other operating expenses ...... (1,677) (2,139) Depreciation and amortisation ...... (972) (20,656) Charges to provisions (net of reversals) ...... (2,181) (2,808) Net operating profit/(loss) ...... 13,927 (5,112) Net finance cost ...... (17,139) (17,213) Loss from ordinary activities before tax ...... (3,212) (22,325) Non-recurring items ...... (145) (22) Income tax (expense)/income ...... 1,823 1,318 Loss for the year of consolidated companies ...... (1,534) (21,029) Loss of the consolidated entity ...... (1,534) (21,029) Loss attributable to minority interests ...... — — Loss attributable to Shareholders of the Group ...... (1,534) (21,029) Earnings per share ...... (0.2474) (3.3917) Diluted earnings per share ...... (0.2474) (3.3917) 3,330,000 preferred shares 2,870,000 ordinary shares
F-67 LYPARIS GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (in g thousands)
Period ended 31 March 2009 OPERATING ACTIVITIES EBITDA ...... (21,029)
ELIMINATION OF ITEMS NOT IMPACTING CASH OR NOT RELATING TO OPERATING ACTIVITIES Charges to depreciation, amortisation and provisions ...... 23,901 Reversal of depreciation, amortisation and provisions ...... (438) Deferred tax ...... (1,302) Net finance cost ...... 17,213 CHANGE IN WORKING CAPITAL ...... 18,935 Net operating change ...... 18,935 Change in trade receivables and related accounts (net of current asset provisions) .... (6,934) Change in trade payables and related accounts ...... 28,131 Change in tax and employee-related receivables ...... 270 Change in tax and employee-related liabilities ...... 740 Change in prepayments ...... (31,649) Change in deferred income ...... 28,377 NET CASH FROM OPERATING ACTIVITIES ...... 37,280
INVESTING ACTIVITIES Purchases of intangible assets ...... (276) Purchases of property, plant and equipment ...... (782) Proceeds from the sale of non-current assets ...... 58 Cash outflow on financial assets ...... (2) Net cash and cash equivaents / subsidiaries acquired ...... (37) NET CASH USED IN INVESTING ACTIVITIES ...... (1,039)
FINANCING ACTIVITIES Interest paid ...... (5,245) Repayment of borrowings ...... (6,154) NET CASH USED IN FINANCING ACTIVITIES ...... (11,399)
NET INCREASE IN CASH AND CASH EQUIVALENTS (determined) ...... 24,842
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR ...... 22,424 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ...... 47,266 NET INCREASE IN CASH AND CASH EQUIVALENTS (determined) ...... 24,842
F-68 LYPARIS Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) With a share capital of g62,000,000 Trade and companies registration number (Siret): 491 249 520 00017 Registered office: 65 avenue Edouard Vaillant—92100 Boulogne Billancourt
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2009
F-69 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2009
1. ACCOUNTING POLICIES, RULES AND METHODS 1.1. General principles The consolidated financial statements have been prepared in accordance with regulations currently in effect in France, and the accounting principles of consistency and going concern, as well as CRC Regulation no. 99-02, issued by the French Accounting Regulation Committee (Comite´ de la Reglementation` Comptable).
1.2. Principles of consolidation The Group is exempt from the requirement to prepare consolidated financial statements as it is proportionately consolidated in the accounts of a larger group, CNP, satisfying the exemption criteria. It has however prepared consolidated financial statements to satisfy bank requirements.
1.2.1 Scope of consolidation The Group previously consisted of the wholly-owned subsidiary Go Voyages. On 25 March 2009, Lyparis purchased the entire share capital of Sun Trade Travel, comprising 148,000 shares at e0.25 each. Sun Trade Travel, a simplified joint stock company (societ´ e´ par actions simplifiee´ ), is a travel agent registered with the Versailles Trade and Companies Register under the number 508 572 344 since 30 October 2008. Its registered office is located at 13, rue Sainte Adela´ ¨ıde in Versailles (78000). It had two employees at the acquisition date. By decision of the sole shareholder, Lyparis, the financial year of Sun Trade Travel was changed to commence 1 April and terminate 31 March each year. Consequently, the accounting period beginning 30 October 2008 was closed early on 31 March 2009. Sun Trade Travel elected for the tax consolidation regime from 1 April 2009.
1.2.2 Consolidation rules and methods The subsidiaries Go Voyages and Sun Trade Travel are fully consolidated as at 31 March 2009. All transactions between consolidated companies and reciprocal assets and liabilities are eliminated for the purpose of consolidation, as are all gains and losses internal to the Group. As the Group head company holds the entire share capital of its subsidiary, there are no minority interests.
1.2.3 Excess acquisition price The amount of the acquisition price of the subsidiary in excess of the share in equity acquired is allocated to the relevant balance sheet headings, based on the fair value of identifiable assets and liabilities on the acquisition date. Allocated amounts are amortised or depreciated on a straight-line basis over the period applicable for the relevant asset category. Any residual unallocated amount is recognised as goodwill and may be impaired if events or circumstances indicate a loss in value.
1.2.4 Accounting period The financial statements of the Group and its subsidiaries are drawn up to the same date, i.e. 31 March.
F-70 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
1. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 1.2.5 Intangible assets • Concessions, patents and similar rights Registered trademarks are recorded in balance sheet assets at acquisition cost and are not amortised. Their value is assessed regularly and a provision for impairment recorded if fair value, determined based on criteria applied on acquisition, falls below the net carrying amount. Purchased software is amortised on a straight-line basis over 4 years. • Research and development expenditure Design and development costs concerning the proprietary operating system and the Company’s internet site are recorded in balance sheet assets. Costs incurred are amortised from the date they are brought into use, that is, day one of the quarter following the date incurred, over a period of 4 years. • Goodwill Goodwill is amortised on a straight-line basis over a period of 20 years. A correction to the opening balance sheet of Ke9,903 was recorded during the financial year in respect of the prior year amortisation charge.
1.2.6 Property, plant and equipment Property, plant and equipment are recorded in balance sheet assets at acquisition cost (purchase price plus incidental expenses, excluding fixed asset acquisition costs) and depreciated on a straight-line basis over their expected useful life. Depreciation periods generally applied are as follows:
Method Period General installations and fixtures and fittings ...... Straight-line 5 years Vehicles ...... Straight-line 4 years Office and IT equipment ...... Straight-line 5 years Furniture ...... Straight-line 5 years No accelerated depreciation is charged. Exceptional depreciation is recorded in the event of loss in value or a change in the utilisation period.
1.2.7 Financial assets Financial assets consist of guarantee deposits paid to certain of our suppliers.
1.2.8 Foreign currency-denominated receivable and payables Foreign exchange gains and losses arising on the retranslation of foreign currency- denominated transactions at year-end exchange rates are recognised in profit or loss.
1.2.9 Other receivables, prepayments and accrued income In the specific business sector in which the Group subsidiary operates, the basic accounting principle requires the recognition in the financial year of income and expense items corresponding to departure dates during the financial year in question.
F-71 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
1. ACCOUNTING POLICIES, RULES AND METHODS (Continued) Application of this principle leads to the use of the following accounts in the balance sheet: • ‘‘Deferred income’’ in liabilities to record revenue relating to departure dates after the year-end, • ‘‘Prepayments’’ in assets to record, in the same way, costs relating to departure dates after the year-end. Deferred tax assets are recorded in Other receivables. They result from temporary differences between the tax value of assets and liabilities and their net carrying amount for consolidation purposes and tax losses carried forward. It is estimated that future taxable profits will be sufficient to enable the offset of these losses within a reasonable timeframe.
1.2.10 Marketable securities Marketable securities are valued at acquisition cost. Unrealised capital gains are not recognised and a provision for impairment is recorded if their value, calculated based on the last known market price, falls below historical cost.
1.2.11 Financial instruments Unrealised gains and losses on financial instruments traded over-the-counter are recognised in profit or loss over the residual life of the hedged item, to match income and expenses recognised on the hedged item in profit or loss.
1.2.12 Borrowings The acquisition of Go Voyages by Lyparis was financed by a e67 million subordinated bond issue, a e45 million mezzanine bond issue and bank loans totalling e120 million.
1.2.13 Provisions for contingencies and losses Provisions are only recognised in respect of contingencies or losses considered probable as a result of past events or events in progress at the year-end and precise in nature, but for which the outcome, timing or amount is uncertain (CRC no. 2002-06; CNC Opinion no. 00-01).
1.2.14 Pensions and other post-employment benefits A provision is recognized in the balance sheet in respect of retirement termination payment commitments to permanent employees. The provision, estimated at the beginning of the period, was recognised in net equity using the projected unit credit method, with forecast salaries and pro-rated services. Account was taken of the following assumptions: • forecast rights on retirement pro-rata to seniority • Mortality table • Staff attrition (8%) • Inflation (2%) • Discount rate (5%)
1.2.15 Ordinary income versus non-recurring items Non-recurring income and expenses concern items outside the day-to-day management of the Group. They are primarily unusual in type and of a one-off nature.
F-72 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
1. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 1.2.16 Earnings per share Earnings per share is obtained by dividing the net profit/(loss) attributable to owners of the Company by the average number of shares outstanding during the financial year.
1.2.17 Non-application of preferred methods The Group elected not to spread loan issue costs over the loan term. Application of this preferred method would have lead to the recognition of interest of Ke84 and a reduction in borrowings of Ke2,491.
2. SIGNIFICANT EVENTS 2.0 Changes in Group structure On 25 March 2009, Lyparis purchased the entire share capital of Sun Trade Travel, that is, 148,000 shares of e0.25 each, from the shareholders of this company. Sun Trade Travel, a simplified joint stock company (societ´ e´ par actions simplifiee´ ), is a travel agent registered with the Versailles Trade and Companies Register under the number 508 572 344 since 30 October 2008. Its registered office is located at 13, rue Sainte Adela´ ¨ıde in Versailles (78000). By decision of the sole shareholder, Lyparis, the financial year of Sun Trade Travel was changed to commence 1 April and terminate 31 March each year. Sun Trade Travel elected for the tax consolidation regime from financial year 2009/2010, that is, from 1 April 2009. It is fully consolidated.
2.1 Interest rate hedges Pursuant to its obligations under the Loan and Senior Credit Agreement signed on 22 March 2007, an interest rate swap hedging the loans and the Mezzanine Senior bonds was entered into on 11 April 2007. The 5-year swap at a fixed-rate of 4.213% and for a nominal amount of e95 million on inception, was restructured by a 3-year swap at a fixed-rate of 4.05%, given interest rate curves at the time. Following the decision to elect, during a 1-year period, for monthly draw-downs on the senior loans, a basis swap between 6-month Euribor and 1-month Euribor was set-up on 20 February 2008. The swap has a nominal value of e72 million, a start- and end-date of 31 March 2008 and 31 March 2009, respectively, and reduced the fixed-rate to 3.90% during the swap term. Two new interest rate swaps were negotiated on 17 February 2009. The first swap covers a notional amount of e54 million and Lyparis pays fixed-rate interest of 3.10% and receives 1-month Euribor. The second swap covers a notional amount of e22 million and Lyparis pays fixed-rate interest of 3.10% and receives 6-month Euribor. Both contracts expire on 31 March 2011.
3. COMPARABILITY The following opening corrections were made to the audited consolidated financial statements of the prior year: • Adjustment to deferred tax assets on temporary tax differences of Ke536 • Recognition of the annual amortisation charge on goodwill of eKe9,903, plus deferred tax on Go Voyages share acquisition costs of Ke228
F-73 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
3. COMPARABILITY (Continued) • Correction of the goodwill calculation generating a positive adjustment to goodwill of Ke5,880 • Recognition of an additional deferred tax asset of Ke88 on Group tax losses • Cancellation of the deferred tax liability of Ke230 on accelerated depreciation The above adjustments increased opening reserves by Ke5,880 and increased the loss for the year by Ke9,278.
4. NOTES TO THE CONSOLIDATED BALANCE SHEET 4.0 Goodwill and intangible assets
Pro forma Net at gross at Amortisation Net at In g thousands 31/03/08 31/03/08 Acquisitions and provisions 31/03/09 Goodwill ...... 192,183 197,607 57 19,795 177,869 Other intangible assets ..... 88,006 92,579 288 7,561 85,306 Total ...... 280,189 290,186 345 27,356 263,175
The Lyparis Group purchased the entire share capital of Sun Trade Travel on 25 March 2008.
4.0.1 Movement in the gross carrying amount
Gross Pro forma Gross at gross at Acquisitions Disposals and at In g thousands 31/03/08 31/03/08 and investments divestments 31/03/09 Software, patents ...... 2,159 2,159 2,447 Trademarks ...... 80,420 80,420 80,420 Other intangible assets . . 10,000 10,000 10,000 Goodwill ...... 192,183 197,607 197,664 Total ...... 284,762 290,186 345 — 290,531
The goodwill of e282 million at 31 March 2007 was allocated to transferrable, intangible assets, resulting from contractual or legal rights and for which a reliable estimate of fair value could be determined at the first closing of the consolidated financial statements, i.e. 31 March 2008. The following intangible assets satisfied these criteria: • the Go Voyages trademark including the internet domain name for e80 million. • the Go Speed, version 3, search engine and the connection with 4 different GDS for e3 million. • the wholesale Charter customer base for e7 million.
F-74 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.0.2 Movement in amortisation and provisions
Pro forma Amortisation amortisation Amortisation and provisions and provisions and provisions In g thousands at 31/03/08 at 31/03/08 Charge Reversal at 31/03/09 Software, patents .... 1,823 1,823 238 2,061 Trademarks ...... Other intangible assets 2,750 2,750 2,750 5,500 Goodwill ...... — 9,903 9,892 19,795 Total ...... 4,573 14,476 12,880 — 27,356
The above intangible assets were amortised (e2.7 million) over their expected useful lives of 4 years for the Charter customer base and 3 years for the search engine. The residual goodwill balance of e198 million and trademarks are subject to fair value estimates. At the year-end, the absence of any significant events between 31 March 2008 and 31 March 2009 explains the lack of any provision for impairment of goodwill or trademarks.
4.1 Property, plant and equipment 4.1.0 Movement in the net carrying amount
Net at In g thousands Net at 31/03/08 Gross Depreciation 31/03/09 Fixtures and fittings ...... 497 2,072 1,280 792 Vehicles ...... 73 14 14 — Office furniture ...... 60 245 209 36 IT equipment ...... 1,017 2,733 1,803 930 Total ...... 1,647 5,064 3,306 1,758
4.1.1 Movement in the gross carrying amount
Acquisitions and Disposals and In g thousands Gross at 31/03/08 investments divestments Gross at 31/03/09 Fixtures and fittings 1,564 508 2,072 Vehicles ...... 104 90 14 Office furniture .... 241 4 245 IT equipment ..... 2,453 280 2,733 Total ...... 4,362 792 90 5,064
F-75 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.1.2 Movement in depreciation and provisions
Depreciation and Depreciation and provisions at provisions at In g thousands 31/03/08 Charge Reversal 31/03/09 Fixtures and fittings ...... 1,067 213 1,280 Vehicles ...... 31 17 34 14 Office furniture ...... 182 26 208 IT equipment ...... 1,435 369 1,804 Total ...... 2,715 625 34 3,306
4.2 Financial assets Net at Amortisation Net at In g thousands 31/03/08 Acquisitions Disposals and provisions 31/03/09 Deposits and guarantees .... 103 2 2 103 Total ...... 103 2 2 — 103
4.3 Trade receivables
In g thousands 31/03/08 31/03/09 < 1 year > 1 year Doubtful or disputed receivables ...... 865 1,041 1,041 Trade receivables ...... 43,176 44,217 44,217 Advances and down-payments paid on orders ..... 1,941 6,117 6,117 Trade receivables and related accounts (gross) ..... 45,982 51,375 50,334 1,041 Provisions for doubtful receivables ...... (795) (1,040) Trade receivables and related accounts (net) ..... 45,187 50,335
4.4 Other receivables, prepayments and accrued income
In g thousands 31/03/08 31/03/09 Tax receivables ...... 1,511 1,241 Employee-related receivables ...... — — Accrued income ...... 4,607 6,148 Deferred tax assets ...... 2,982 2,259 Prepayments ...... 95,137 126,787 104,237 136,435 Deferred tax assets are receivable within one year. Prepayments concern purchases relating to flights with departure dates occurring after the year-end.
F-76 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) Accrued income breaks down as follows:
In g thousands 31/03/08 31/03/09 Credit notes receivable from airlines ...... 603 693 Business tax repayment ...... 131 — Airline super-commission ...... 1,153 2,912 GDS super-commission receivable ...... 1,364 1,201 Hotel, package holiday, etc. super-commission ...... 110 126 BSP repayments receivable ...... 275 482 BSP and SNCF commission receivable ...... 821 591 Sundry receivables ...... 150 143 4,607 6,148
4.5 Breakdown of deferred tax assets and liabilities 31/03/08 In g thousands 31/03/08 Pro forma 31/03/09 Deferred tax assets ...... 2,982 1,711 2,259 Provisions temporarily not deductible ...... 47 583 128 Group tax losses carried forward ...... 1,988 2,075 2,075 Valuation differences ...... 947 (947) — Retirement termination payments ...... 56 Deferred tax liabilities ...... 4,030 2,496 1,549 Accelerated depreciation ...... 230 — — Goodwill ...... 3,443 2,496 1,549 Provisions temporarily not deductible ...... 357 — —
4.6 Cash at bank and in hand and marketable securities Marketable securities consist of monetary investments and do not include any unrealised capital gains.
In g thousands 31/03/08 31/03/09 Marketable securities ...... 24,638 42,366 Cash at bank and in hand ...... 3,800 4,900 Borrowings Total cash and cash equivalents ...... 28,438 47,266
4.7 Consolidated equity The share capital is made up of 6,200,000 shares with a par value of e10 each, including 3,330,000 preferred shares and 2,870,000 ordinary shares. The preferred shares confer entitlement, from the year ended 31 March 2008, to a preferred dividend equal to 10% of their nominal value. Where net profits are insufficient to pay this dividend, subsequent profits will be used to pay these amounts prior to any other appropriation. The preferred dividend is cumulative and progressive in that it is not distributed and remains attached to the share, with the amount equal to 10% of the nominal value of the share capitalised each year.
F-77 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) On 29 March 2007, the Company issued autonomous share subscription warrants at a unit price of e1.75. These warrants are intended to enable an increase in the Management shareholding based on the IRR realised by investors on exit.
Additional Consolidated In g thousands Number of Share paid-in reserves and Consolidated (before appropriation of net loss) shares capital capital net loss group equity At 31 March 2008 ...... 6,200,000 62,000 875 (11,031) 51,844 Goodwill adjustment ...... 5,880 5,880 Consolidated loss for the year .... (21,029) (21,029) At 31 March 2009 ...... 6,200,000 62,000 875 (26,180) 36,695
4.8 Provisions for contingencies and losses
31/03/08 In g thousands 31/03/08 Pro forma Charge Utilised Released 31/03/09 Provisions for customer risks . 438 438 224 (438) 224 Provisions for losses ...... — — Provisions for foreign exchange losses ...... — 4 — 4 Provisions for retirement termination payments ..... 139 139 22 161 Provisions for deferred tax liabilities ...... 4,030 2,496 (947) 1,549 Total ...... 4,607 3,073 250 (1,385) — 1,938
4.9 Bond issues, other loans and borrowings
1 to In g thousands 31/03/08 31/03/09 < 1 year 5 years > 5 years Junior subordinated bonds ...... 73,853 81,341 81,341 Senior mezzanine bonds ...... 21,019 22,085 22,085 Junior mezzanine bonds ...... 28,058 31,472 31,472 Total bond issues ...... 122,930 134,898 — — 134,898 Senior A loan ...... 36,923 30,769 6,154 24,615 — Senior B loan ...... 35,000 35,000 35,000 HSBC loan ...... 33 6 27 OSEO loan ...... 7 1 6 Total other loans and borrowings ...... 71,923 65,809 6,161 24,648 35,000 Total borrowings ...... 194,853 200,707 6,161 24,648 169,898 Fixed-rate debt ...... 101,911 112,813 Floating-rate debt ...... 92,942 87,894 Total ...... 194,853 200,707 A repayment of Ke6,157 was made on the Senior A loan. Following compliance with the covenant ratios last year, the margins applied to the Senior A and B loans were reduced from December 2008.
F-78 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.10 Terms and conditions of the main loans
Nominal at o/w capitalised In g thousands 31.03.08 interest Interest rate Maturity Junior subordinated bonds ...... 73,853 6,853 10% p.a. capitalised March-17 Senior mezzanine bonds ...... 21,019 1,019 E6M + 5% and 5% fixed p.a. capitalised March-16 Junior mezzanine bonds ...... 28,058 3,058 12% p.a. capitalised Sept.-16 Total bond issues ... 122,930 10,930 Senior A mid-term loan ...... 36,923 E6M + (a) March-14 Senior B mid-term loan ...... 35,000 E6M + (b) March-15 Total borrowings ... 194,853 10,930 Margins (a) and (b) depend on the level of the Net debt/Ebitda leverage ratio. Loan A is repayable in 12 bi-annual instalments of e3 million each. The above loans were subject to the following covenants at 31 March 2009: Debt Service Coverage Ratio i.e. Free Cash Flow / Debt Service Net Interest Coverage Ratio i.e. Ebitda/Net finance cost Leverage ratio i.e. Net debt / Ebitda The Group satisfied these covenants at 31 March 2009.
4.11 Other liabilities, accruals and deferred income Deferred income corresponds to flights invoiced with a departure date occurring after the year-end.
In g thousands 31/03/08 31/03/09 Employee-related liabilities ...... 2,396 2,553 Tax liabilities ...... 1,574 2,157 Deferred income ...... 142,895 171,272 Other liabilities ...... 124 2,116 Total ...... 146,989 178,098
5. NOTES TO THE CONSOLIDATED INCOME STATEMENT 5.1 Breakdown of Revenue by product
In g thousands 31/03/09 31/03/08 Change Change % Flights (scheduled and charter) ...... 656,635 506,433 150,202 30% Land production (rentals/hotels/packages) ...... 37,454 33,600 3,854 11% Incidental income ...... 2,517 2,436 81 3% NET REVENUE ...... 696,606 542,469 154,137 28%
F-79 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
5. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) 5.2 Gross margin
In g thousands 31/03/09 % Revenue 31/03/08 % Revenue Change Change % Revenue ...... 696,606 100% 542,469 100% 154,137 100% Purchases ...... (637,094) (91.46%) (491,697) (90.64%) (145,397) (94.33%) Commission ...... (11,558) (1.66%) (11,014) (2.03%) (544) (0.35%) Gross margin .... 47,954 6.88% 39,758 7.33% 6,614 4.29%
Gross margin is equal to sales less purchases and commission paid.
5.3 Other operating income Other operating income totalled Ke268 on 31 March 2009 and comprised operating subsidies of Ke111 and sundry income of Ke157.
5.4 External operating expenses External operating expenses totalled e662 million on 31 March 2009 and mainly comprised: • Service purchases of e637 million (flights, hotel services, vehicle rentals, insurance and travel agent and Web partner commission). • Sales commission of e12 million. • Expenses relating to customer credit card payments of e2 million. • Customer acquisition costs (key-word purchases, web page positioning) of e5 million. • Communication costs of e1 million. • Professional fees of e1 million. • IT maintenance and outsourcing of e1 million. • IT development costs of e1 million. • Rent and rental charges of e1.5 million. • Airport assistance costs of e0.5 million.
5.5 Employee costs Employee costs totalled Ke13,399 on 31 March 2009 and include a provision in respect of the statutory employee profit-sharing agreement of Ke28. An employee incentive agreement was signed on 27 September 2007 to continue involving employees in the profits and performance of the Company. This agreement covers a period of three years, expiring 31 March 2010. An incentive payment of Ke645, including an incentive supplement of Ke550, was recognised in respect of the year ended 31 March 2009.
5.6 Charges to depreciation and amortisation Charges to depreciation and amortisation totalled Ke20,656 and break down as follows: • Amortisation of intangible assets of Ke238 • Amortisation of goodwill of Ke19,795 • Depreciation of property, plant and equipment of Ke623
F-80 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
5. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) 5.7 Charges to provisions Charges to provisions net of reversals totalled Ke2,808 and comprised: • A charge to provisions for customer risks of Ke228 and a reversal of prior year customer provisions of Ke438, representing a net reversal of Ke210 • A charge to provisions for impairment of intangible assets of Ke2,750 • A charge to provisions for doubtful receivables of Ke246 • A charge to provisions for retirement termination payments of Ke22
5.8 Net finance cost
In g thousands 31/03/08 31/03/09 Interest expense ...... (18,957) (19,157) Investment income ...... 1,789 1,981 Foreign exchange gains ...... 41 50 Foreign exchange losses ...... (13) (86) Reversal of provisions for foreign exchange losses ...... 1 Charge to provisions for foreign exchange losses ...... Total ...... (17,139) (17,213)
5.9 Income tax expense
In g thousands 31/03/08 31/03/09 Current tax ...... — 16 Deferred tax ...... 1,823 1,302 Total ...... 1,823 1,318 Pursuant to Article 223A of the French Tax Code (Code Gen´ eral´ des Impotsˆ ), Go Voyages agreed to join the tax consolidation group formed on 1 March 2007. Lyparis is the head of this tax group and the only company liable to pay income tax. A tax credit of Ke16 was recognised by Lyparis, corresponding to the apprenticeship credit receivable by Go Voyages. The Lyparis group has total tax losses of e7 million at 31 March 2009.
In g thousands 31/03/08 31/03/09 Lyparis tax losses ...... (19,206) (19,082) Go Voyages tax profits ...... 17,477 18,019 Group losses taxable at the standard rate ...... (1,729) (1,063) Tax losses carried forward from previous year ...... (4,299) (6,027) Theoretical tax rate ...... 34.43% 34.43%
F-81 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
6. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 6.1 Charges to amortisation, depreciation and provisions 31/03/08 31/03/09 Amortisation of goodwill ...... — 19,795 Amortisation and provisions on intangible assets ...... 3,040 2,988 Depreciation and provisions on property, plant and equipment ...... 682 623 Provisions for current assets ...... 135 245 Provisions for customer risks ...... 438 228 Provisions for retirement termination payments ...... 21 22 Total charges to depreciation, amortisation and provisions ...... 4,316 23,901
6.2 Reversal of depreciation, amortisation and provisions 31/03/08 31/03/09 Reversal of provisions for customer risks ...... 1,101 438 Reversal of provisions for sundry expenses ...... 61 — Reversal of provisions for foreign exchange losses ...... 2 7 Total reversals of depreciation, amortisation and provisions ...... 1,164 445
6.3 Net loss on disposal of non-current assets 31/03/08 31/03/09 Proceeds from the sale of assets ...... 215 58 Net carrying amount of assets sold or scrapped ...... (362) (57) Net loss on disposal of non-current assets ...... (147) 1
7. COMMITMENTS For the purposes of securing bank and mezzanine financing, Lyparis granted a pledge over its 14,150,000 Go Voyages shares and its bank accounts, to the banks participating in the senior loan and the bridge loan and to holders of senior and junior mezzanine bonds. Credit´ Industriel et Commercial (Ke500), Credit´ du Nord (Ke200) and Banque Palatine (Ke105) have delivered a rental guarantee and various supplier guarantees for a total amount of Ke805, on behalf of the Company. Property rental and plant and equipment lease commitments:
Future lease In g thousands payments < 1 year 1 to 5 years > 5 years Property rental ...... 5,056 785 2,922 1,349 Equipment leases ...... 632 315 317 Total ...... 5,688 1,100 3,239 1,349
8. EMPLOYEE NUMBERS AND MANAGEMENT REMUNERATION 8.1 Group employees 31/03/09 Executives ...... 38 Administrative staff ...... 276 Total employees ...... 314
F-82 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2009
8. EMPLOYEE NUMBERS AND MANAGEMENT REMUNERATION (Continued) 8.2 Remuneration of members of administrative and control bodies Total gross remuneration paid to executive management amounted to Ke676. The Group did not pay any fees to its directors.
9. OTHER ADDITIONAL INFORMATION Pursuant to Decree no. 2008-1487 of 30 December 2008 on statutory auditors, total fees paid to the statutory auditors and expensed in the Lyparis Group consolidated income statement amounted to Ke176.
F-83 Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) 65, avenue Edouard Vaillant 92100 Boulogne-Billancourt
Statutory Auditors’ report on the consolidated financial statements For the year ended 31 March 2008
F-84 Lyparis Simplified joint stock company (Societ´ e´ par Actions Simplifiee´ ) 65, avenue Edouard Vaillant 92100 Boulogne-Billancourt
Statutory Auditors’ report on the consolidated financial statements For the year ended 31 March 2008
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France.
To the Chairman, As statutory auditors of Lyparis and at your request pursuant to the preparation of consolidated financial statements in response to bank requirements, we audited the enclosed consolidated financial statements of Lyparis for the year ended 31 March 2008. The consolidated financial statements for the year ended 31 March 2008 are the first prepared by your Company. Consequently, the information presented for comparison purposes for the period 1 November 2006 to 31 March 2007 has not been audited. The consolidated financial statements were prepared under the responsibility of management. Our role is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the consolidated Group as at 31 March 2008 and of the results of its operations for the year then ended in accordance with French accounting principles. This report was prepared for your attention in the context described above and must not be used, distributed or referred to for any other purpose. We do not accept any responsibility to third parties to which this report is distributed or who obtain a copy by any other means. This report is governed by French law. The French courts have exclusive jurisdiction to settle any claim, difference or dispute which may arise out of or in connection with our engagement letter or this report. Both parties irrevocably waive the right to contest an action brought before these courts, to claim that an action is brought before a court lacking jurisdiction or that these courts have no jurisdiction.
Neuilly-sur-Seine, 20 May 2008 The Statutory Auditors
Dominique Jumaucourt
F-85 LYPARIS GROUP CONSOLIDATED BALANCE SHEET At 31 March 2008 (in g thousands)
Assets at 31 March 2007 2008 (Unaudited accounts) Goodwill ...... 282,183 192,183 Intangible assets ...... 1,131 88,006 Property, plant and equipment ...... 1,973 1,647 Financial assets ...... 111 103 Non-current assets ...... 285,398 281,939 Trade receivables and related accounts ...... 46,910 45,187 Other receivables, prepayments and accrued income ...... 78,736 104,237 Cash at bank and in hand and marketable securities ...... 61,870 22,424 Current assets ...... 187,516 171,848 Total assets ...... 472,914 453,787
Equity and liabilities at 31 March 2007 2008 (Unaudited accounts) Share capital ...... 62,000 62,000 Addition paid-in capital ...... 875 875 Retained earnings ...... (6) (4,292) Consolidated reserves ...... (6,490) (5,205) Consolidated loss for the year ...... (3,002) (1,534) Equity attributable to owners of the Company ...... 53,377 51,844 Minority interests ...... —— Provisions for contingencies and losses ...... 4,726 4,607 Borrowings ...... 232,122 194,853 Trade payables and related accounts ...... 56,467 55,494 Other liabilities, accruals and deferred income ...... 126,222 146,989 Liabilities ...... 414,811 397,336 Total equity and liabilities ...... 472,914 453,787
The 2007 balance sheet was drawn up at the end of a 5-month period
F-86 LYPARIS GROUP CONSOLIDATED STATEMENT OF CASH FLOWS (in g thousands)
31.03.08 OPERATING ACTIVITIES LOSS FOR THE YEAR ...... (1,534)
ELIMINATION OF ITEMS NOT IMPACTING CASH OR NOT RELATING TO OPERATING ACTIVITIES Charges to depreciation, amortisation and provisions ...... 4,315 Reversal of depreciation, amortisation and provisions ...... (1,163) Net loss on disposal of non-current assets ...... 147 Deferred tax ...... (1,823) Net finance cost ...... 17,139 CHANGE IN WORKING CAPITAL ...... (1,705) Net operating change ...... (1,705) Change in trade receivables and related accounts (net of current asset provisions) . . . 1,079 Change in trade payables and related accounts ...... (2,513) Change in tax and employee-related receivables ...... 1,728 Change in tax and employee-related liabilities ...... (657) Change in prepayments ...... (24,306) Change in deferred income ...... 22,965 NET CASH FROM OPERATING ACTIVITIES ...... 15,378
INVESTING ACTIVITIES Purchases of intangible assets ...... (30) Purchases of property, plant and equipment ...... (603) Proceeds from the sale of non-current assets ...... 215 Cash outflow on financial assets ...... (8) NET CASH USED IN INVESTING ACTIVITIES ...... (426)
FINANCING ACTIVITIES Interest paid ...... (6,321) Repayment of borrowings ...... (48,077) NET CASH USED IN FINANCING ACTIVITIES ...... (54,398)
NET DECREASE IN CASH AND CASH EQUIVALENTS (calculated) ...... (39,446)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR ...... 61,870 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ...... 22,424 NET DECREASE IN CASH AND CASH EQUIVALENTS (calculated) ...... (39,446)
F-87 LYPARIS GROUP CONSOLIDATED INCOME STATEMENT For the year ended 31 March 2008 (in g thousands)
Period ended 31 March 2007 2008 (Unaudited accounts) Revenue ...... 182,324 542,469 Other operating income ...... 148 454 Total operating income ...... 182,472 542,922 External expenses ...... (173,608) (512,315) Taxes and duties other than income tax ...... (353) (643) Employee costs ...... (6,141) (11,208) Gross operating profit ...... 2,370 18,757 Other operating expenses ...... (196) (1,677) Depreciation and amortisation ...... (423) (972) Charges to provisions (net of reversals) ...... (596) (2,181) Net operating profit ...... 1,155 13,927 Net finance cost ...... (3,487) (17,139) Loss from ordinary activities before tax ...... (2,332) (3,212) Non-recurring items ...... (1) (145) Income tax (expense)/income ...... (669) 1,823 Loss for the year ...... (3,002) (1,534) Loss of the consolidated entity ...... (3,002) (1,534) Loss attributable to minority interests ...... — — Loss attributable to owners of the Company ...... (3,002) (1,534) Earnings per share ...... (0.4840) (0.2474) Diluted earnings per share ...... (0.4840) (0.2474) 3,330,000 preferred shares 2,870,000 ordinary shares The 2007 income statement covers a 5-month period
F-88 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 March 2008
1. ACCOUNTING POLICIES, RULES AND METHODS 1.1. General principles The consolidated financial statements have been prepared in accordance with regulations applicable in France, and the accounting principles of consistency and going concern, as well as CRC Regulation no. 99-02, issued by the French Accounting Regulation Committee (Comite´ de la Reglementation` Comptable).
1.2. Principles of consolidation The Group is exempt from the requirement to prepare consolidated financial statements as it is proportionately consolidated in the accounts of a larger group, CNP, satisfying the exemption application criteria. It has however prepared consolidated financial statements to satisfy bank requirements.
1.2.1 Scope of consolidation The Group previously comprised the wholly-owned subsidiary, Longoza, and its wholly-owed subsidiary, Go Voyages. Following the merger-absorption of Go Voyages and Longoza on 10 July 2007 with retroactive effect from 1 April 2007, Longoza changed its company name and registered office and Lyparis Group became the group head company of the new Go Voyages entity.
1.2.2 Consolidation rules and methods The subsidiary is fully consolidated. All transactions between consolidated companies and reciprocal assets and liabilities are eliminated on consolidation, as are all gains and losses internal to the Group. As the Group head company holds the entire share capital of its subsidiary, there are no minority interests.
1.2.3 Excess acquisition price The excess of the acquisition price of the subsidiary over the share in equity acquired is allocated to the balance sheet headings concerned, based on the fair value of identifiable assets and liabilities at the acquisition date. Allocated amounts are amortised or depreciated on a straight-line basis over the period applicable for the asset category concerned. Any residual unallocated amount is recognised as goodwill and impaired if events or circumstances indicate a loss in value.
1.2.4 Accounting period The financial statements of the Group and its subsidiary are drawn up to the same date, i.e. 31 March 2008.
1.2.5 Property, plant and equipment Property, plant and equipment are recorded in balance sheet assets at acquisition cost (purchase price plus incidental expenses, excluding fixed asset acquisition costs) and depreciated on a straight-line basis over their expected useful life.
F-89 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
1. ACCOUNTING POLICIES, RULES AND METHODS (Continued) Depreciation periods generally applied are as follows:
Method Period General installations and fixtures and fittings ...... Straight-line 5 years Vehicles ...... Straight-line 4 years Office and IT equipment ...... Straight-line 5 years Furniture ...... Straight-line 5 years No accelerated depreciation is charged. Exceptional depreciation is recorded in the event of loss in value or a change in the utilisation period.
1.2.6 Intangible assets • Concessions, patents and similar rights Registered trademarks are recorded in balance sheet assets at acquisition cost and are not amortised. Their value is assessed regularly and a provision for impairment recorded if fair value, determined based on criteria applied on acquisition, falls below the net carrying amount. Purchased software is amortised on a straight-line basis over 4 years. • Research and development expenditure Design and development costs concerning the proprietary operating system and the Company’s internet site are capitalised in balance sheet assets. Costs incurred are amortised from the date they are brought into use, that is, day one of the quarter following the date incurred, over a period of 4 years.
1.2.7 Financial assets Financial assets consist of guarantee deposits paid to certain of our suppliers.
1.2.8 Foreign currency-denominated receivable and payables Foreign exchange gains and losses arising on the retranslation of foreign currency- denominated transactions at year-end exchange rates are recognised in profit or loss.
1.2.9 Other receivables, prepayments and accrued income In the specific business sector in which the Group subsidiary operates, the basic accounting principle requires the recognition in the financial year of income and expense items corresponding to departure dates during the financial year in question. Application of this principle leads to the use of the following accounts in the balance sheet: • ‘‘Deferred income’’ in liabilities to record revenue relating to departure dates after the year-end, • ‘‘Prepayments’’ in assets to record, in the same way, costs relating to departure dates after the year-end. Deferred tax assets are recorded in Other receivables. They result from temporary differences between the tax value of assets and liabilities and their net carrying amount for consolidation purposes and tax losses carried forward. It is estimated that future taxable profits will be sufficient to enable the offset of these losses within a reasonable timeframe.
F-90 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
1. ACCOUNTING POLICIES, RULES AND METHODS (Continued) 1.2.10 Marketable securities Marketable securities are valued at acquisition cost. Unrealised capital gains are not recognised and a provision for impairment is recorded if their value, calculated based on the last known market price, falls below historical cost.
1.2.11 Financial instruments Unrealised gains and losses on financial instruments traded over-the-counter are recognised in profit or loss over the residual life of the hedged item, to match income and expenses recognised on the hedged item in profit or loss.
1.2.12 Borrowings The acquisition of Go Voyages by Lyparis was financed by a e67 million subordinated bond issue, a e45 million mezzanine bond issue and bank loans totalling e120 million.
1.2.13 Provisions for contingencies and losses Provisions are only recognised in respect of contingencies or losses considered probable as a result of past events or events in progress at the year-end and precise in nature, but for which the outcome, timing or amount is uncertain (CRC no. 2002-06; CNC Opinion no. 00-01).
1.2.14 Pensions and other post-employment benefits A provision is recognized in the balance sheet in respect of retirement termination payment commitments to permanent employees. The provision, estimated at the beginning of the period, was recognised in net equity using the projected unit credit method, with forecast salaries and pro-rated services. Account was taken of the following assumptions: • forecast rights on retirement pro-rata to seniority • Mortality table • Staff attrition (8%) • Inflation (2%) • Discount rate (5%)
1.2.15 Ordinary income versus non-recurring items Non-recurring income and expenses concern items outside the day-to-day management of the Group. They are primarily unusual in type and of a one-off nature.
1.2.16 Earnings per share Earnings per share is obtained by dividing the net profit/(loss) attributable to owners of the Company by the average number of shares outstanding during the financial year.
1.2.17 Non-application of preferred methods The Group elected not to spread loan issue costs over the loan term. Application of this preferred method would have lead to the recognition of interest of Ke208 and a reduction in borrowings of Ke2,575.
F-91 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
2. SIGNIFICANT EVENTS On 2 February 2007, as part of the sale of its non-strategic assets, Accor announced the sale of Go Voyages to the holding company Lyparis, jointly owned by Financiere` Agache and CNP and to Go Voyages management. The transaction was finalised on 31 March 2007 via the intermediary of the wholly-owned subsidiary, Longoza. Go Voyages modified its year-end at this time, in line with the year-end of the holding company, Lyparis. The financing of the acquisition and certain incidental costs was the result of a share capital increase of Ke141,463 Ke, with additional paid-in capital of Ke141,500. Financing was secured via share capital increases (ordinary shares and preferred shares) totalling Ke61,963 and a bond issue of Ke67,000. The remaining balance was financed by loans secured from a bank syndicate, with Societ´ e´ Gen´ erale´ acting as agent, and a mezzanine bond issue for a total amount of Ke45,000.
2.0 Changes in Group structure By decision of the sole shareholder dated 10 July 2007, Lyparis, a simplified joint stock company (societ´ e´ par actions simplifiee´ ) with a share capital of Ke62,000 and owner of the entire share capital of Longoza, decided, after reading the Reporting Auditors’ report on asset contributions and the draft merger agreement dated 23 May 2007 and the amendment thereto, to accept and approve the Go Voyages contribution-merger transaction. The merger-absorption of Go Voyages by Longova sought to enable the resizing of the new entity providing it with (i) equity in line with business volumes and its position on the market and (ii) better visibility for the purposes of its development. The merger was completed on 10 July with retroactive effect from 1 April 2007 and led to the dissolution without liquidation of Go Voyages. As this restructuring operation was internal to the Group comprising Longoza and Go Voyages, the assets and liabilities of Go Voyages were transferred at their net carrying amount at 31 March 2007. Following completion of the merger, the company name was changed from Longoza to Go Voyages and the registered office was transferred from 65, avenue Edouard Vaillant, 92100 Boulogne- Billancourt to 14, rue de Clery,´ 75002 Paris.
2.1 Share movements On 8 August 2007, the sole shareholder of Go Voyages decided to repay contributions of e48 million by deducting e24 million from additional-paid in capital and reducing the share capital by e24 million. Consequently, the value of Go Voyages securities held decreased from e286,312,383 to e238,312,383.
2.2 Loan repayments On 10 September 2007, Lyparis repaid in advance the e45 million Societ´ e´ Gen´ erale´ bridging loan, without paying any early repayment penalties.
2.3 Interest rate hedges Pursuant to its obligations under the Loan and Senior Credit Agreement signed on 22 March 2007, an interest rate swap hedging the loans and the Mezzanine Senior bonds was entered into on 11 April 2007.
F-92 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
2. SIGNIFICANT EVENTS (Continued) The 5-year swap at a fixed-rate of 4.213% and for a nominal amount of e95 million on inception, was restructured by a 3-year swap at a fixed-rate of 4.05%, given interest rate curves at the time. Following the decision to elect, during a 1-year period, for monthly draw-downs on the senior loans, a basis swap between 6-month Euribor and 1-month Euribor was set-up on 20 February 2008. The swap has a nominal value of e72 million, a start- and end-date of 31 March 2008 and 31 March 2009, respectively, and reduced the fixed-rate to 3.90% during the swap term.
2.4 Subscription of a Key Person insurance policy A Key Person insurance policy was subscribed on 1 June with Fidelidade Mundial. This insurance policy covers the holding company, with delegation in favour of the Lenders, in the event of the death or permanent disability of Messrs. Carlos Da Silva and Nicolas Brumelot.
3. COMPARABILITY Following the acquisition of Go Voyages by Lyparis on 31 March 2007, the consolidated financial statements of the Group at 31 March 2007 were estimated to enable the comparison of accounts with the same consolidation scope. However, the financial period ended 31 March 2007 only covers a 5-month period. The Pro forma income statement covering a period of 12 months is presented in the notes to the financial statements for comparison purposes. The main restatements in preparing the pro forma accounts were as follows: • inclusion of an opening provision for retirement termination payments of Ke118. • the related deferred tax asset of Ke41. • recognition of goodwill of Ke282,183 equal to the difference between (i) the selling price of Go Voyages plus security acquisition costs and less income tax at the standard rate and (2) the net equity of Go Voyages at 31 March 2007. • the deferred tax impact of Ke3,443 on goodwill excluding trademarks. • the neutralisation of the opening balance on Lyparis tax-driven provisions (accelerated tax depreciation of security acquisition costs) of Ke4 • inclusion of the related deferred tax liability of Ke1.
4. NOTES TO THE CONSOLIDATED BALANCE SHEET 4.0 Goodwill and intangible assets
31.03.07 31.03.08 Amortisation and In g thousands Net Gross provisions Net (Unaudited accounts) Goodwill ...... 282,183 192,183 192,183 Other intangible assets ...... 1,130 92,579 4,573 88,006 Total ...... 283,313 284,762 4,573 280,189
F-93 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.0.1 Movement in the gross carrying amount
Acquisitions Disposals Gross at and Account and Gross at In g thousands 31.03.07 investments transfers divestments 31.03.08 Software, patents ...... 2,445 30 (316) 2,159 Trademarks ...... 420 80,000 80,420 Other intangible assets ...... 10,000 10,000 Goodwill ...... 282,183 (90,000) 192,183 Total ...... 285,048 30 — (316) 284,762
4.0.2 Movement in amortisation and provisions
Amortisation and Amortisation and provisions at provisions at In g thousands 31.03.2007 Charge Reversal 31.03.2008 Software, patents ...... 1,734 290 (201) 1,823 Trademarks ...... — Other intangible assets ...... 2,750 2,750 Total ...... 1,734 3,040 (201) 4,573 The goodwill of e282 million at 31 March 2007 was allocated to transferrable, intangible assets, resulting from contractual or legal rights and for which a reliable estimate of fair value could be determined at the first closing of the consolidated financial statements, i.e. 31 March 2008. The following intangible assets satisfied these criteria: • the Go Voyages trademark including the internet domain name for e80 million. • the Go Speed, version 3, search engine and the connection with 4 different GDS for e3 million. • the wholesale Charter customer base for e7 million. The above intangible assets were amortised (e2.7 million) over their expected useful lives of 4 years for the Charter customer base and 3 years for the search engine. The residual goodwill balance of e192 million and trademarks are subject to fair value estimates. At this first year-end, the absence of any significant events between 31 March 2007 and 31 March 2008 explains the lack of any provision for impairment of goodwill or trademarks.
4.1 Property, plant and equipment
31.03.07 31.03.08 Depreciation In g thousands Net Gross and provisions Net (Unaudited accounts) Fixtures and fittings ...... 422 1,564 1,067 497 Vehicles ...... 20 104 31 73 Office furniture ...... 81 241 181 60 IT equipment ...... 1,450 2,453 1,436 1,017 Total ...... 1,973 4,362 2,715 1,647
F-94 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.1.1 Movement in the gross carrying amount
Gross at Acquisitions and Disposals and Gross at In g thousands 31.03.07 investments divestments 31.03.08 (Unaudited accounts) Fixtures and fittings ...... 1,352 212 — 1,564 Vehicles ...... 65 90 51 104 Office furniture ...... 231 10 — 241 IT equipment ...... 2,632 291 470 2,453 Total ...... 4,280 603 521 4,362 The main investments concern office fixtures and fittings following the signature of a new lease for the premises at 14, rue de Clery´ (+Ke212), and the acquisition of IT equipment in response to the increase in Internet transaction volumes (+Ke291). Disposals mainly concern two obsolete AS 400 mainframes, replaced by machines on long-term leases.
4.1.2 Movement in depreciation and provisions
Depreciation and Depreciation and provisions at provisions at In g thousands 31.03.07 Charge Reversal 31.03.08 (Unaudited accounts) Fixtures and fittings ...... 930 137 1,067 Vehicles ...... 45 21 35 31 Office furniture ...... 150 32 182 IT equipment ...... 1,182 492 239 1,435 Total ...... 2,307 682 274 2,715
4.3 Financial assets
Net at Amortisation Net at In g thousands 31.03.07 Acquisitions Disposals and provisions 31.03.08 (Unaudited accounts) Deposits and guarantees . . 111 2 (10) — 103 Total ...... 111 2 (10) — 103
4.4 Trade receivables
In g thousands 31.03.07 31.03.08 <1 year >1 year (Unaudited accounts) Doubtful or disputed receivables ...... 660 865 865 Trade receivables ...... 46,309 43,176 43,176 Advances and down-payments paid on orders ..... 601 1,941 1,941 Trade receivables and related accounts (gross) .... 47,570 45,982 45,117 — Provisions for doubtful receivables ...... (660) (795) Trade receivables and related accounts (net) .... 46,910 45,187
F-95 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.5 Other receivables, prepayments and accrued income
In g thousands 31.03.07 31.03.08 (Unaudited accounts) Tax receivables ...... 3,293 1,511 Employee-related receivables ...... 5 — Accrued income ...... 4,032 4,607 Deferred tax assets ...... 574 2,982 Prepayments ...... 70,832 95,137 78,736 104,237 Deferred tax assets are receivable within one year. Prepayments concern purchases relating to flights with departure dates after the year-end. Accrued income breaks down as follows:
In g thousands 31.03.07 31.03.08 (Unaudited accounts) Credit notes receivable from airlines ...... — 603 Business tax repayment ...... — 131 Airline super-commission ...... 1,408 1,153 GDS super-commission receivable ...... 2,058 1,364 Hotel, package holiday, etc. super-commission...... 19 110 BSP repayments receivable ...... 187 275 BSP and SNCF commission receivable ...... 360 821 Sundry receivables ...... 150 4,032 4,607
4.6 Breakdown of deferred tax assets and liabilities
In g thousands 31.03.07 31.03.08 (Unaudited accounts) Deferred tax assets ...... 574 2,982 Provisions temporarily not deductible ...... 574 47 Group tax losses carried forward ...... 1,988 Valuation differences ...... 947 Deferred tax liabilities ...... — 4,030 Accelerated depreciation ...... 230 Goodwill ...... 3,443 Provisions temporarily not deductible ...... 357
F-96 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.7 Cash at bank and in hand and marketable securities Marketable securities consist of monetary investments and do not include any unrealised capital gains.
In g thousands 31.03.07 31.03.08 (Unaudited accounts) Marketable securities ...... 7 24,638 Cash at bank and in hand ...... 61,863 (2,214) Total cash and cash equivalents ...... 61,870 22,424
4.8 Consolidated equity
In g thousands Additional Consolidated Before appropriation of net Number of Share paid-in reserves and Consolidated loss shares capital capital net loss group equity At 31 March 2007 (restated) . . 6,200,000 62,000 875 (9,498) 53,377 Consolidated loss for the year (1,534) (1,534) At 31 March 2008 ...... 6,200,000 62,000 875 (11,032) 51,844
The share capital is made up of 6,200,000 shares with a par value of e10 each, including 3,330,000 preferred shares and 2,870,000 ordinary shares. The preferred shares confer entitlement, from the year ended 31 March 2008, to a preferred dividend equal to 10% of their nominal value. Where net profits are insufficient to pay this dividend, subsequent profits will be used to pay these amounts prior to any other appropriation. The preferred dividend is cumulative and progressive in that it is not distributed and remains attached to the share, with the amount equal to 10% of the nominal value of the share capitalised each year. On 29 March 2007, the Company issued autonomous share subscription warrants at a unit price of e1.75. These warrants are intended to enable an increase in the Management shareholding based on the IRR realised by investors on exit.
4.9 Provisions for contingencies and losses
In g thousands 31.03.07 Charge Utilised Released 31.03.08 (Unaudited accounts) Provisions for customer risks ...... 1,101 438 1,101 438 Provisions for losses ...... 61 61 — Provisions for foreign exchange losses . . 2 — 2 — Provisions for retirement termination payments ...... 118 21 139 Provisions for deferred tax liabilities .... 3,445 585 4,030 Total ...... 4,727 1,044 1,164 — 4,607
F-97 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.10 Bond issues, other loans and borrowings
1 to In g thousands 31.03.07 31.03.08 < 1 year 5 years > 5 years Junior subordinated bonds ...... 67,053 73,853 73,853 Senior mezzanine bonds ...... 20,015 21,019 21,019 Junior mezzanine bonds ...... 25,016 28,058 28,058 Total bond issues ...... 112,084 122,930 — — 122,930 Senior A loan ...... 40,013 36,923 6,154 30,769 — Senior B loan ...... 35,013 35,000 35,000 Societ´ e´ Gen´ erale´ bridging loan ...... 45,012 Total other loans and borrowings ...... 120,038 71,923 6,154 30,769 35,000 Total borrowings ...... 232,122 194,853 6,154 30,769 157,930 Fixed-rate debt ...... 92,069 101,911 Floating-rate debt ...... 140,053 92,942 Total ...... 232,122 194,853 The Societ´ e´ Gen´ erale´ bridging loan was repaid in advance on 10 September 2007. A scheduled six-monthly repayment of Ke3,077 was made on the Senior Tranche A loan. Annual interest on the bonds was capitalised in the amount of Ke10,930.
4.11 Terms and conditions of the main loans
o/w Nominal at capitalised In g thousands 31.03.08 interest Interest rate Maturity Junior subordinated bonds ...... 73,853 6,853 10% p.a. capitalised March-17 Senior mezzanine bonds ...... 21,019 1,019 E6M + 5% and 5% fixed p.a. capitalised March-16 Junior mezzanine bonds ...... 28,058 3,058 12% p.a. capitalised Sept.-16 Total bond issues ... 122,930 10,930 Senior A mid-term loan 36,923 E6M + (a) March-14 Senior B mid-term loan 35,000 E6M + (b) March-15 Total borrowings .... 194,853 10,930 Margins (a) and (b) depend on the level of the Net debt/Ebitda leverage ratio. Loan A is repayable in 12 six-monthly instalments of e3 million each. The above loans were subject to the following covenants at 31 March 2008: Debt Service Coverage Ratio i.e. Free Cash Flow / Debt Service Net Interest Coverage Ratio i.e. Ebitda/Net finance cost Leverage ratio i.e. Net debt / Ebitda The Group satisfied these covenants at 31 March 2008.
F-98 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
4. NOTES TO THE CONSOLIDATED BALANCE SHEET (Continued) 4.12 Other liabilities, accruals and deferred income In g thousands 31.03.07 31.03.08 (Unaudited accounts) Employee-related liabilities ...... 2,385 2,396 Tax liabilities ...... 2,242 1,574 Deferred income ...... 119,930 142,895 Other liabilities ...... 1,665 124 Total ...... 126,222 146,989 Deferred income corresponds to flights invoiced with a departure date after the year end.
5. NOTES TO THE CONSOLIDATED INCOME STATEMENT 5.1 Breakdown of Revenue by product 31.03.08 31.03.07 Change In g thousands (12 months) (12 months Change % (unaudited) Flights (scheduled and charter) ...... 506,433 425,429 81,004 19% Land production (rentals/hotels/packages) . . . 33,600 29,513 4,087 14% Incidental income ...... 2,436 2,909 473 16% NET REVENUE ...... 542,469 457,851 84,618 18%
5.2 Gross margin 31.03.08 % 31.03.2007 % Change In g thousands (12 months) Revenue (12 months) Revenue Change % (unaudited) Revenue ...... 542,469 100% 457,851 100% 84,618 18% Purchases ...... (491,697) 90.60% (409,333) 89.40% 82,364 20% Commission ...... (11,014) 2.00% (10,018) 2.20% 996 10% Gross margin ...... 39,758 7.33% 38,500 8.40% 1,258 3.27%
Gross margin is equal to sales less purchases and commission paid.
5.3 Other operating income Other operating income totalled Ke454 in 2008 and comprised operating subsidies of Ke272 and sundry income of Ke181.
5.4 External operating expenses External operating expenses totalled e512 million in 2008 and mainly comprised: • Service purchases of e492 million (flights, hotel services, vehicle rentals, insurance and travel agent and Web partner commission). • Sales commission of e12 million. • Expenses relating to customer bank card payments of e1 million. • Customer acquisition costs (key-word purchases, web page positioning) of e3 million. • Communication costs of e1 million. • Professional fees of e1 million • IT maintenance and outsourcing of e2 million.
F-99 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
5. NOTES TO THE CONSOLIDATED INCOME STATEMENT (Continued) 5.5 Employee costs Employee costs totalled Ke11,208 in 2008. Due to the new share capital structure of Go Voyages, the statutory employee profit-sharing agreement could not be applied this year. An employee incentive agreement was signed on 27 September 2007 to continue involving employees in the profits and performance of the Company. This agreement covers a period of three years, expiring 31 March 2010. An incentive payment of Ke727 was recognised in respect of the year ended 31 March 2008.
5.6 Net finance cost
In g thousands 31.03.07 31.03.08 (Unaudited accounts) Interest expense ...... (4,243) (18,957) Investment income ...... 757 1,789 Foreign exchange gains ...... 4 41 Foreign exchange losses ...... (4) (13) Reversal of provisions for foreign exchange losses ...... 1 Charge to provisions for foreign exchange losses ...... (1) Total ...... (3,487) (17,139)
5.7 Income tax expense
In g thousands 31.03.07 31.03.08 (Unaudited accounts) Current tax ...... (399) Deferred tax ...... (270) 1,823 Total ...... (669) 1,823 Pursuant to Article 223A of the French Tax Code (Code Gen´ eral´ des Impotsˆ ), the subsidiary Go Voyages agreed to join the tax consolidation group formed on 1 March 2007. Lyparis is the head of this tax group and the only company liable to pay income tax. The Lyparis tax group has total tax losses of e6 million at 31 March 2008.
In g thousands 31.03.08 Lyparis tax losses ...... (19,206) Go Voyages tax profits ...... 17,477 Group profits taxable at the standard rate ...... (1,729) Theoretical tax rate ...... 34.43% Theoretical tax expense at the standard rate ...... — Tax losses carried forward at 31 March 2008 ...... (6,028) Deferred tax impact (income) ...... 1,823 —Temporary timing differences ...... (165) —Group tax losses carried forward ...... 1,988
F-100 LYPARIS GROUP NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the year ended 31 March 2008
6. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS 6.1 Charges to depreciation, amortisation and provisions
In g thousands 31.03.08 Amortisation and provisions on intangible assets ...... 3,040 Depreciation and provisions on property, plant and equipment ...... 682 Provisions for current assets ...... 135 Provisions for customer risks ...... 438 Provisions for retirement termination payments ...... 21 Total charges to depreciation, amortisation and provisions ...... 4,316
6.2 Reversal of depreciation, amortisation and provisions
In g thousands 31.03.08 Reversal of provisions for customer risks ...... 1,101 Reversal of provisions for sundry expenses ...... 61 Reversal of provisions for foreign exchange losses ...... 2 Total reversals of depreciation, amortisation and provisions ...... 1,164
6.3 Net loss on disposal of non-current assets
In g thousands 31.03.08 Proceeds from the sale of assets ...... 215 Net carrying amount of assets sold or scrapped ...... (362) Net loss on disposal of non-current assets ...... (147)
7. COMMITMENTS For the purposes of securing bank and mezzanine financing, Lyparis granted a pledge over its 14,150,000 Go Voyages shares and its bank accounts, to the banks participating in the senior loan and the bridging loan and to holders of senior and junior mezzanine bonds. CIC provided a rental guarantee of Ke876 on behalf of Go Voyages. Property rental and plant and equipment lease commitments:
In g thousands 31.03.08 <1 year 1 to 5 years >5 years Property rental ...... 4,088 742 2,213 1,133 Plant and equipment leases ...... 1,072 421 651 Total ...... 5,160 1,163 2,864 1,133
8. EMPLOYEE NUMBERS AND MANAGEMENT REMUNERATION 8.1 Group employees
31.03.08 Executives ...... 54 Administrative staff ...... 248 Total employees ...... 302
8.2 Remuneration of members of administrative and control bodies Total gross remuneration paid to executive management during the financial year amounted to Ke499. The Group did not pay any directors’ fees.
F-101 USgoal Inc. and Subsidiaries
Consolidated financial statements for the financial year ended 31 December 2010 and Management Report, together with the Audit Report
Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of consolidated financial.statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of discrepancy, the Spanish-language version prevails.
F-102 Deloitte, S.L. Avda. Diagonal, 654 5APR201109213575 08034 Barcelona Espana˜ Tel.: +34 932 80 40 40 Fax: +34 932 80 28 10 www.deloitte.es Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 22). In the event of a discrepancy, the Spanish-language version prevails.
AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the Sole Shareholder of USgoal Inc. at the request of the management of USgoal Inc.: 1. We have audited the consolidated financial statements of USgoal Inc. and Subsidiaries, which comprise the consolidated balance sheet at 31 December 2010 and the related consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the period between 16 July 2010 (date of incorporation of the Company) and 31 December 2010. The Parent’s directors are responsible for the preparation of the consolidated financial statements in accordance with the regulatory financial reporting framework identified in Note 2.1 to the accompanying consolidated financial statements and, in particular, with the accounting principles and rules contained therein. Our responsibility is to express an opinion on the consolidated financial statements taken as a whole based on our audit work performed in accordance with the audit regulations in force in Spain, which require examination, by means of selective tests, of the evidence supporting the consolidated financial statements and evaluation of whether their presentation, the accounting principles and policies applied and the estimates made comply with the regulatory financial reporting framework applied according to paragraph 3 below. 2. In our opinion, the accompanying consolidated financial statements for 2010 present fairly, in all material respects, the consolidated equity and consolidated financial position of USgoal Inc. and Subsidiaries at 31 December 2010, and the consolidated results of its operations and its consolidated cash flows for the period between 16 July and 31 December 2010, in conformity with the regulatory financial reporting framework applied and, in particular, with the accounting principles and rules contained therein. 3. Without it qualifying our auditors’ opinion, we draw attention to Note 2.1 to the accompanying consolidated financial statements, which indicates that USgoal Inc. is a company domiciled in the United States, whose only activity is the holding of ownership interests in companies which carry on their activities mainly in Spain, where the corporate services are located, and in Italy. Accordingly, the directors prepared the accompanying consolidated financial statements in accordance with the regulatory financial reporting framework identified in that note. 4. Without it qualifying our auditors’ opinion, we draw attention to Note 20 to the accompanying consolidated financial statements, which indicates that on 18 March 2011, eDreams Enterprises, S.L., wholly owned by Usgoal Inc., sold to the latter its shares in eDreams Inc. Also, and on the same date, the sole shareholder of USgoal Inc. approved the downstream merger between eDreams Inc. (absorbing company) and USgoal Inc. (absorbed company) and, accordingly, all the rights and obligations of the latter were transferred to eDreams Inc. as absorbing company. The accompanying consolidated financial statements at 31 December 2010 are the last presented by Usgoal Inc. before its dissolution.
F-103 5. The accompanying consolidated directors’ report for 2010 contains the explanations which the Parent’s directors consider appropriate about the Group’s situation, the evolution of its business and other matters, but is not an integral part of the consolidated financial statements. We have checked that the accounting information in the consolidated directors’ report is consistent with that contained in the consolidated financial statements for 2010. Our work as auditors was confined to checking the directors’ report with the aforementioned scope, and did not include a review of any information other than that drawn from the accounting records of USgoal Inc. and Subsidiaries.
DELOITTE, S.L. Registered in ROAC under no. S0692
Artur Amich 28 March 2011 Deloitte, S.L. Inscrita en el Registro Mercantil de Madrid, tomo 13.650, seccion´ 8a, folio 188, hoja M-54414, inscripcion´ 96a. C.I.F.: B-79104469. Domicilio social: Plaza Pablo Ruiz Picasso, 1, Torre Picasso, 28020, Madrid. Member of Deloitte Touche Tohmatsu
F-104 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 22). In the event of a discrepancy, the Spanish-language version prevails.
USGOAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2010 (Thousands of euros)
Year Year ASSETS Notes 2010 EQUITY AND LIABILITIES Notes 2010 NON-CURRENT ASSETS: ..... 331,096 EQUITY ...... Note 13 188,617 Intangible fixed assets ...... Note 8 327,717 SHAREHOLDERS’ EQUITY— Goodwill ...... 202,723 Capital ...... — Other intangible assets ...... 124,984 Share issue premium ...... 183,696 Property, plant and equipment .. Note 9 1,510 Reserves ...... 1,573 Long-term financial investments . Notes 11.1 1,647 Profit for the year attributed to the parent company ...... 1,380 Derivatives ...... Notes 11.1 and 12 260 REVALUATION ADJUSTMENTS Other long-term financial Revaluation adjustments and investments ...... 1,367 hedging transactions ...... (326) Deferred tax assets ...... Note 16.3 222 MINORITY INTERESTS— ..... 2,294
NON-CURRENT LIABILITIES ... 125,439 Long-term borrowings ...... Note 15 82,991 Bank borrowings ...... 82,991 Deferred tax liabilities ...... Note 16.4 42,228 Accruals ...... 220
CURRENT LIABILITIES ...... 40,166 Short-term provisions ...... Note 14.1 808 Short-term debts ...... Note 15 5,557 CURRENT ASSETS: ...... 23,126 Bank borrowings ...... 5,458 Trade and other receivables ... 7,812 Derivatives ...... Note 12 18 Trade receivables ...... 7,515 Other financial liabilities ...... 81 Sundry receivables ...... 4 Trade and other accounts payable ...... 33,592 Staff ...... 28 Suppliers ...... 25,664 Current tax assets ...... Note 16.1 239 Other payables ...... 3,184 Tax receivables ...... Note 16.1 26 Staff ...... 1,569 Short-term financial investments . Note 11.2 150 Current tax liabilities ...... Note 16.1 1,705 Accruals ...... 242 Other tax payables ...... Note 16.1 1,470 Cash and cash equivalents .... 14,922 Accruals ...... 209 TOTAL ASSETS ...... 354,222 TOTAL EQUITY AND LIABILITIES . 354,222
Notes 1 to 22 of the accompanying notes to the annual financial statements from an integral part of the consolidated balance sheet at 31 December 2010.
F-105 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 22). In the event of a discrepancy, the Spanish-Language version prevails.
USGOAL INC. AND SUBSIDIARIES 2010 CONSOLIDATED INCOME STATEMENT (Thousands of euros)
Year Notes 2010 CONTINUING OPERATIONS Net turnover ...... Note 18.1 41.488 Work done by Group on its own assets ...... Note 18.2 1.198 Supplies ...... Note 18.3 (1.030) Other operating revenues ...... Note 18.4 1.089 Staff costs ...... Note 18.5 (6.827) Wages, salaries, etc...... (5.920) Employee welfare costs ...... (907) Other operating expenses ...... Note 18.7 (26.847) Depreciation and amortization ...... Notes 8 and 9 (4.724) OPERATING INCOME ...... 4.347 Finance revenue ...... 61 Financial expenses ...... (3.702) Change in fair value of financial instruments ...... Note 12 (133) Exchange differences ...... (52) Impairment and gains (losses) on disposal of financial instruments . 3 NET FINANCIAL INCOME (EXPENSE) ...... (3.823) PROFIT BEFORE TAX ...... 524 Income tax ...... Note 16.2 1.075 PROFIT FOR THE YEAR ...... 1.599 Minority interests ...... Note 13.6 (219) Profit attributed to parent company ...... 1.380
Notes 1 to 22 of the accompanying notes to the annual financial statements form an integral part of the consolidated income statement for 2010
F-106 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 22). In the event of a discrepancy, the Spanish-language version prevails.
USGOAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN 2010 A) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED 31 DECEMBER 2010 (Thousands of euros)
Year Notes 2010 Consolidated net income for the year before minority Interest ...... 1.599 Income and expense recognised directly In equity —From valuation of financial instruments ...... (689) —For cash flow hedges ...... Note 12 277 —Tax effect ...... (97) TOTAL INCOME AND EXPENSE RECOGNISED DIRECTLY IN CONSOLIDATED EQUITY ...... (509)
TOTAL TRANSFERS TO CONSOLIDATED INCOME STATEMENT ...... —
TOTAL RECOGNISED INCOME AND EXPENSE ...... 1.090 Total Income and expense attributed to parent company ...... 1.054 Total Income and expense attributed to minority Interests ...... 36
Notes 1 to 22 in the accompanying notes to the annual financial statements form an integral part of the consolidated statement of recognised income and expense for 2010
F-107 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 22). In the event of a discrepancy, the Spanish-language version prevails.
USGOAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN 2010 B) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010 (Thousands of euros)
Results for the year Share Parent attributed issue company Consolidated to parent Hedging Revaluation Minority Capital premium reserves reserves company transactions reserve interests TOTAL ADJUSTED BALANCE, START OF YEAR 2010 .. ———— — — — — I. Total recognised consolidated income and expense ...... — — — — 1.380 180 (506) 36 1.090 II. Transactions with shareholders or owners — Capital increases (reductions) .... — 183.696 — — — — — — 183.696 — Share-based payments ...... — — — 869 — — — — 869 — Acquisitions (sales) of holdings of minority interests (Note 7) . — — 704 — — — — (704) — III. Other changes In equity ...... — — — — — — — 2.962 2.962 CLOSING BALANCE YEAR 2010 ..... — 183.696 704 869 1.380 180 (506) 2.294 188.617
Notes 1 to 22 of the accompanying notes to the annual financial statements form an integral part of the consolidated statement of changes in equity for 2010
F-108 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 22). In the event of a discrepancy, the Spanish-language version prevails.
USGOAL INC. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR 2010 (Thousands of euros)
Year Notes 2010 CASH FLOWS FROM OPERATING ACTIVITIES ...... (3,505) Profit before tax ...... 524 Adjustments to profit: ...... 8,437 - Depreciation and amortization (+) ...... Note 8 and 9 4,724 - Work performed on fixed assets ( )...... Note 18.2 (1,198) - Variation in provisions (+/ ) ...... 349 - Finance revenue ( )...... (61) - Finance Costs (+) ...... 3,702 - Exchange differences (+/ ) ...... 52 - Other costs (transactions paid with equity instruments) (+) ...... Note 18.6 869 Changes in working capital ...... (8,315) - Trade and other receivables (+/ )...... (155) - Other current assets (+/ ) ...... (46) - Trade and other payables (+/ ) ...... (8,468) - Other current liabilities (+/ )...... 354 Other non-current liabilities (+/ ) ...... (672) Other cash flows from operating activities ...... (3,479) - Interest paid ( )...... (2,787) - Interest received (+) ...... 61 - Income tax recovered/(paid) (+/ )...... (753) CASH FLOWS FROM INVESTING ACTIVITIES ...... (251,510) Payments on investments ( ) ...... (254,922) - Group companies, net of cash in consolidated companies ...... (254,357) - Intangible assets ...... (565) Proceeds from disposals (+) ...... 3,412 - Other assets ...... 3,412 CASH FLOWS FROM FINANCING ACTIVITIES ...... 269,937 Proceeds from and payments of equity Instruments ...... Note 13.2 183,696 - Issue of equity instruments (+) ...... 183,696 Proceeds from and payments of financial liabilities ...... 86,834 - Issuance: Bank borrowings (+) ...... Note 16 87,500 - Repayment and redemption of: Other accounts payable ( ) ...... (666) Effect of changes In foreign exchange rates ...... (593) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS .. 14,922 Cash and cash equivalents at start of year ...... — Cash and cash equivalents end of year ...... 14,922
Notes 1 to 22 of the accompanying notes to the annual financial statements form an integral part of the consolidated cash flow statement for 2010.
F-109 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 31 December 2010
1. Group companies and activities USgoal Inc. is the Parent of a Group of companies (hereinafter, the eDreams Group or the Group) whose primary corporate purpose is to broker sales of holiday and travel packages, flights, hotel rooms and car rentals, to provide a range of tourism-related services, and to sell advertising space using the Internet and call centres as sales channels. USgoal Inc. was incorporated on 16 July 2010 and has its registered office in Delaware (United States), although the main activities of the eDreams Group are carried on almost entirely in Spain and Italy, via the subsidiaries Vacaciones eDreams, S.L.U., eDreams International Networks, S.L.U., eDreams, S.r.L. and Editoriale Italian OnLine, S.r.L., respectively. Therefore, for the purposes of these financial statements, the data for 2010 should be understood to refer to the five and a half months from 16 July 2010 to 31 December 2010. On 3 August 2010, funds advised by Permira, through the Parent Company, acquired 100% of the share capital of eDreams Enterprises, S.L. That Company is the principal shareholder of eDreams Inc., with a holding of 82.5%. Also, the Parent Company acquired part of the shares of eDreams Inc. owned by minority shareholders owned (specifically, the latter transferred ownership of 13.55% of the share capital out of the 17.5% they held in aggregate). In September 2010, USgoal Inc. sold 2,284,478 shares to eDreams Inc. that it held by virtue of the eDreams Group sale-purchase described above which represented 13.55% of the share capital of eDreams Inc. Subsequently, eDreams Inc. carried out a reduction of capital through the retirement of own shares. After the corporate operations described above during 2010, the Parent Company owns 100% of eDreams Enterprises, S.L., with a direct holding in eDreams Inc. of 95.4%.
F-110 ty of Dover) consolidated 160 Greentree ecember 31 December Admin and IT ¨ usseldorf) 73-75 (London) Delaware 0.1% — — — — 100% 100% 99.9% 100% 100% — 100% USGOAL INC. AND SUBSIDIARIES 100% — — — — — — 100% — For the financial year ended 31 December 2010 For 95.4% — — — — — — — — — NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED Admin and IT Admin and IT 100% — — — — — — — — — — eDreams Vacaciones eDreams Editoriale Viagens eDreams ´ azquez, 86 B of Kent, Center 601 N Center 601 N Boscovich, Via Boscovich, Via de Melo, Pereira de 35 Avenue Platz, 15 Mortimer Street (Ci Enterprises, eDreams, International Italiano OnLine, eDreams France, 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 Holding Holding consulting Travel consulting Travel Travel Travel Travel consulting Travel company consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated Country of Dover) County Trade World Trade World Fontes Avda. Graf-Adolf- Drive Suite 101 New Castle, Vel Wilmington) Lane (City of 1209 Orange Street (City of 30 Old Rudnick .... — ...... — — — — — — —..... — — — ...... The Group companies included in the scope of consolidation and relevant information on each are as follows: eDreams, S.R.L. .eDreams Intern. . .Network, S.L. eDreams Inc. eDreams Enterprises, —S.L...... — — — —purposes Method of —consolidation — Parent Fully — Fully 100% Fully Fully — Fully Fully — Fully — Fully — Fully Fully Fully Indirect holding: eDreams, Vacaciones —S.L.U.:...... —Direct holding: Carrying value of —holding of corresponding shareholder companies (thousands of euros) — Date of financial statements used for —consolidation 171,723 31 December 31 December 31 December 69,423 31 December 31 December 31 December 31 December 6,974 31 December 31 December 32,318 31 December 31 D 21,021 12 100 57 25 — — 1. Group companies and activities (Continued) Name USgoal Inc. S.L.U. eDreams Inc. S.L.U. Network, S.L. eDreams, S.r.L. S.r.L. LDA Portugal SARL eDreams GMBH eDreams, Ltd. eDreams LLC Activity company company services agencies services agencies Agencies agencies Admin services agencies services agencies Registered office Delaware Bajos (Madrid) Delaware (Barcelona) (Barcelona) 14 (Milan) 14 (Milan) 7 (Lisbon) (Paris) Friedland (D
F-111 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
2. Basis of presentation of the consolidated financial statements 2.1. Regulatory framework on financial reporting These consolidated financial statements have been prepared voluntarily by the Directors in accordance with the following regulatory framework on financial information: a) Spanish Code of Commerce (Codigo´ de Comercio) and other company laws. b) The Standards for Preparing Consolidated Financial Statements approved by Royal Decree 1159/2010 and the General Accounting Plan approved by Royal Decree 1514/2007 and its sector adaptations. c) The mandatory standards approved by the Institute of Accounting and Auditing (Instituto de Contabilidad y Auditor´ıa de Cuentas—ICAC) implementing the General Accounting Plan and its complementary rules. d) The rest of the Spanish accounting rules that apply thereto. e) Business law applicable in the United States and Italy. Usgoal Inc. (Parent Company) is a company with registered office in the United States of America. Its only activity is holding equity shares in companies that carry on their operations in Spain, where the corporate services are based, and in Italy. For this reason, the Directors have prepared the accompanying consolidated financial statements in accordance with accounting principles and standards generally accepted in Spain.
2.2. True and fair view The accompanying consolidated financial statements have been prepared on the basis of the accounting records of Usgoal Inc. and the subsidiaries included in the scope of consolidation (as detailed in Note 1) in the format established by the financial reporting regulatory framework that applies thereto and, in particular, the accounting principles and criteria contained there, so as to provide a true and fair view of the equity, financial situation and results of the Group and its cash flows for the year. These consolidated financial statements, which have been prepared by the Directors of Usgoal Inc., and the individual financial statements of Usgoal Inc. and each of its consolidated subsidiaries, will be submitted, where applicable, for approval by shareholders at the relevant Annual General Meetings, and the Directors are of the opinion that they will be approved without modification.
2.3. Going concern principle At 31 December 2010 the Group had negative working capital of 17,040 thousand euros. The Group had credit facilities in place with various banks for a total of 25 million euros, of which some 20 million euros were undrawn (see Note 15.2). The Directors believe that the financing available and the recurring profits will generate sufficient cash flows in the short term to be able to meet the company’s obligations. Consequently, the accompanying consolidated financial statements have been prepared in accordance with the going concern principle, i.e. assuming that its assets and liabilities will be respectively realised and settled in the normal course of business.
2.4. Non-obligatory accounting principles applied No non-obligatory accounting principles have been applied. Furthermore, the Directors have prepared these consolidated financial statements taking into consideration all mandatory accounting principles and standards with a significant impact on said financial statements, and no mandatory accounting principles have been omitted in their preparation.
F-112 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
2. Basis of presentation of the consolidated financial statements (Continued) 2.5. Critical issues affecting valuation and estimation of uncertainty In the preparation of the accompanying consolidated financial statements estimates have been used that were prepared by the Directors of the Parent Company to quantify some assets, liabilities, revenues, expenditure and commitments that are recorded there. Those estimates basically refer to: • The valuation of goodwill (see Notes 5.1 and 8). • The useful life of tangible and intangible assets (see Notes 5.1 and 5.2). • Such impairment losses as may arise on certain tangible and intangible assets when it is deemed that the book value of said assets is not recoverable (see Note 5.3). • Assessment of lawsuits, commitments and assets and contingent liabilities and estimate of provisions (see Note 14). • Estimate of provision for bad debt on accounts receivable (see Note 5.10). • The calculation of share-based payments (see Notes 5.13 and 18.6). Although these estimates were made on the basis of the best available information available at the close of 2010, it is possible that events could take place in the future that might require them to be adjusted upwards or downwards in the coming years on a prospective basis.
2.6. Comparative information The Group headed by USgoal Inc was incorporated in 2010. The financial period covered by these consolidated financial statements was the period from 16 July 2010, date of incorporation of the Parent Company, to 31 December 2010. For this reason, the consolidated balance sheet, the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flows statement and the notes thereto do not present comparative figures from the previous year. On 24 September 2010, Spain’s Official State Gazette (BOE) published Decree 1159/2010 of 17 September 2010, which approved the Standards for Preparing Consolidated Financial Statements and introducing certain changes into the General Accounting Plan approved by Royal Decree 1514/2007. In accordance with the transitional rules, those changes have been applied prospectively as from 16 July 2010, and have not had a material impact.
2.7. Grouping of accounts items Certain items on the balance sheet, income statement, the statement of changes in equity and the cash flow statements are grouped together under single headings to facilitate interpretation. If necessary, where the information is significant, a breakdown of the heading is provided in the accompanying notes to the financial statements.
3. Consolidation principles 3.1. Transactions between companies included in the scope of consolidation The accompanying consolidated financial statements take the financial statements of the companies controlled by the Parent Company at 31 December 2010. It is considered that the Parent Company has a controlling interest when it has the power to establish the financial and operating policies of its holdings. The results of investee companies are included in the consolidated income statement as from the effective acquisition date.
F-113 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
3. Consolidation principles (Continued) All companies over which the Parent exercises effective control by holding the majority of votes on its representative and decision-making bodies are fully consolidated in the consolidated financial statements. All significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements. In addition, the most significant accounting principles and criteria used in their preparation have been standardised. The companies included in the consolidation process are those subsidiary companies of the Group detailed in Note 1.
3.2. Standardisation of individual accounts headings The accounting principles and procedures used by Group companies have been unified so that the consolidated financial statements can be presented on a uniform accounting basis. The criteria used for standardisation purposes were the following: 1. Time: the financial statements of Group companies have the same closing date and cover the same period as the consolidated financial statements. 2. Valuations: asset and liability items have been valued using uniform methods and in accordance with generally accepted valuation principles and standards.
3.3. Functional currency The functional currency used by the Group is the euro. Consequently, transactions in non-euro currencies are considered denominated in foreign currency and are recorded at the exchange rates prevailing at the transaction dates (see Note 5.7) At yearend, monetary assets and liabilities denominated in foreign currency are converted applying the exchange rate of the balance sheet date. The gains or losses arising at that time are taken directly to the income statement for year in which they are generated.
4. Application of the Parent Company’s income The Company’s Directors will propose the following distribution of income for the year for the approval of shareholders at the General Meeting (in thousands of euros):
FY 2010 Distribution Base: Parent Company losses for the year ...... (586) Application of net profit (loss): Losses brought forward ...... (586)
5. Recognition and measurement The main recognition and valuation methods applied by the Group in preparing its financial statements for 2010, in accordance with Spanish GAAP (Plan General de Contabilidad—General Accounting Plan), were as follows:
5.1. Intangible fixed assets Intangible assets are initially carried at cost of acquisition or production. They are later carried at cost, less any cumulative amortisation or impairment losses that may apply.
F-114 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 1. Industrial Property Domains and brands are recognised at acquisition price and amortised over the duration of their estimated useful life, subject, where applicable, to a ceiling equivalent to the duration of any licensing agreements signed with third parties. The ‘‘Industrial Property’’ account at 31 December 2010 mainly includes the eDreams corporate brand, composed of all the elements (name, logo, brand architecture, etc.) that illustrate the eDreams Group’s corporate identity. This contributes to customer retention and the development of new customers, making newly acquired commercial services more attractive. In August 2010, in connection with the acquisition of the eDreams Group an independent expert identified and determined the fair value of the said acquired group’s assets for the purchaser (USgoal Inc.), in which the eDreams corporate trademark was considered to have an indefinite useful life (see Note 6). 2. Software The Company records all costs incurred to acquire and develop computer programs, including website development costs, under this heading. Software upkeep and maintenance expenses are charged against income when incurred. The cost of software includes internal development costs. Expenditure incurred internally by the Company on the development of software and its website is only recorded as assets if all of the conditions below are met or can be demonstrated: • an identifiable asset is created, • it is likely that the asset will generate future economic benefits, and • the cost of developing the asset can be reliably ascertained. Development costs previously recorded as expenditure are not recognised as an asset during subsequent years. As explained in Note 5.1.1, as a result of the Group’s acquisition by funds advised by Permira, part of the cost of the combination has been allocated to certain computer applications, which are estimated to have a finite useful life (see Note 6). Capitalised development costs with a finite useful life are amortised on a straight line basis over the period during which the asset is expected to generate income. The Group amortises its intangible assets on a straight-line basis using annual write-off percentages calculated on the basis of the estimated years of useful life of the assets, as detailed below: Percentage amortised in year Industrial property (other than brand) ...... 12-20 Software ...... 16-33 3. Goodwill and Business combinations Acquisition by the parent company of control of a company constitutes a business combination and is accounted for using the acquisition method. In subsequent consolidations, elimination of the investment-equity of the subsidiary companies will generally be done on the basis of the values obtained by applying the acquisition method described below at the control date. Business combinations are accounted for applying the acquisition method, which entails determining the acquisition date and calculating the cost of the combination, with the identifiable
F-115 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) assets that are acquired and liabilities that are assumed being recorded at their fair value as at that date. The goodwill or negative difference of the combination is determined by the difference between the fair values of the assets acquired and the liabilities assumed and the cost of the combination, all in relation to the acquisition date. The cost of the combination is determined by aggregating the following: • The fair values at the acquisition date of the assets transferred, the liabilities incurred or assumed and the equity instruments issued. • The fair value of any contingent consideration that depends on future events or on the fulfilment of predetermined conditions. The cost of the combination does not include expenses related to the issuance of equity instruments or of financial liabilities delivered in exchange for the assets acquired. Also, as from 1 January 2010 the cost of the combination does not include fees paid to legal advisors or other professionals who have been involved in the combination nor, of course, the expenses generated inside the company in respect of these items. Those amounts are taken directly to the income statement. The goodwill arising in the acquisition of companies with a non-euro functional currency is measured in the functional currency of the acquired company, and the conversion into euros is done at the prevailing exchange rate at the balance sheet date. The goodwill is not amortised and is subsequently measured at cost minus impairment losses. Impairment adjustments recognised against goodwill are not reversible in later financial periods. In the exceptional event that a negative difference arises in the combination, it is taken to the income statement as revenue. If at the end date of the period in which the combination takes place, the measurement procedures that are needed to apply the acquisition method described above cannot be concluded, the accounting is considered provisional and those provisional values may be adjusted in the period needed to obtain the requisite information, which period can in no event run longer than one year. The effects of the adjustments made in that period are recorded retroactively, modifying the comparative information if and as necessary. Subsequent changes in the fair value of the contingent consideration are adjusted against income, unless that consideration has been classified as equity, in which case any subsequent changes in its fair value are not recognised.
5.2. Property, plant and equipment Property, plant and equipment are initially recorded at cost of acquisition or production and are later carried at cost, less any cumulative depreciation or impairment losses that may apply, in accordance with the criteria detailed in Note 5.3. Expenses associated with the repair and maintenance of property, plant and equipment are charged to the income statement for the year in which they are incurred. Conversely, sums invested in betterments that contribute to increasing the capacity or efficiency or to lengthening the useful life of those assets are recorded as a higher cost of those assets.
F-116 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) The Group depreciates its property, plant and equipment on a straight-line basis, using percentages of annual depreciation calculated on the basis of the estimated years of useful life of the assets, as detailed below: Percentage amortised in year Technical facilities ...... 12 Furniture and fittings ...... 10 Data processing equipment ...... 20 Motor vehicles ...... 12 Other tangible fixed assets ...... 12
5.3. Impairment in value of property, plant and equipment and intangible assets At the close of each financial year (in the case of goodwill or intangible assets with an indefinite useful life) or when there is evidence of a loss in value other assets), the Group uses an impairment test to estimate the likely existence of loss of value that causes the recoverable value of the asset to be lower than its book value. The recoverable value is determined as the higher amount between the fair value less selling costs and the value in use. Recoverable value is calculated for each cash generating unit. In the case of property, plant and equipment, impairment calculations are carried out individually on an item by item basis. Each year the management prepares a three to six year business plan segmented by market for each cash generating unit. The main components of the plan are: • Income forecasts • Investment and working capital forecasts Other variables affecting the calculation of recoverable value are: • The discount rate applied, taken as the weighted average cost of capital, the cost of liabilities and the specific risks attached to assets. • The cash flow growth rates used to extrapolate cash flow forecasts beyond the period covered by budgets and provisions. No growth rate in perpetuity has been applied to cash flows. The forecasts are prepared on the basis of past experience and using the best estimates available, ensuring these are consistent with external information. Once prepared, the business plans are reviewed and given final approval by the relevant governing body. If it is necessary to recognise an impairment loss on a cash generating unit to which all or part of the goodwill has been allocated, first the book value of the goodwill corresponding to said unit is reduced. If the impairment is greater than the balance on the goodwill account, the remaining assets of the cash generating unit are written down in proportion to their book value, up to the greater of the following: their fair value less selling costs, their value in use, and zero. For goodwill and intangible assets, the recoverable value has been considered comparable to the fair value indicated by the transaction carried out in August 2010, in which funds advised by Permira purchased the eDreams Group for 274 million euros. Consequently, given the recentness of the transaction and that the acquired group has generated profits in this period, the Directors
F-117 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) believe there are no signs of impairment at 31 December 2010 nor at the date these consolidated financial statements are prepared.
5.4. Leases Leases are classified as financial leases when their conditions imply the substantial transfer to the lessee of the risks and benefits inherent in the asset subject to the contract. Other leases are classified as operating leases.
Operating leases Costs arising from operating lease agreements are expensed currently. Any receipt or payment made when an operating lease is contracted is treated as accrual or prepayment to be taken to income over the term of the lease, to the extent the benefits of the leased asset are transferred or received.
5.5. Financial Instruments 5.5.1. Financial assets Classification The financial assets of the Group’s companies are categorised as follows: 1. Loans and receivables: financial assets arising from the sale of goods or rendering of services as part of the company’s trading activities, or arising from non-trading activities but which are not equity instruments or derivatives, which are of a fixed or determinable amount and are not negotiable on an active market. This heading primarily includes trade and non-trade receivables, guarantees and pledged bank deposits. 2. Financial investments held for trading: these are assets acquired with the intention of disposing of them in the short term, or which form part of a portfolio where transactions with such an objective have recently taken place. Holdings in investment funds are included (see Note 11.2).
Initial measurement Financial assets are initially stated at the fair value of the consideration received plus any directly attributable transaction costs.
Subsequent measurement Loans, receivables and investments held to maturity are stated at their amortised cost. Financial investments held for trading are stated at their fair value, with adjustments to this fair value being recognised in the income statement. The Group carries out impairment testing on financial assets that are not stated at fair value at least annually at yearend. Objective evidence of impairment is considered to exist if the recoverable value of the financial asset is lower than its book value. The impairment is then expensed to the accompanying consolidated income statement. The Group derecognises financial assets when they expire or when the rights to the cash flows are assigned and the risks and benefits derived from the ownership of the asset are substantially transferred.
F-118 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.5.2. Financial liabilities Financial liabilities are those debts and payables arising from the purchase of goods or services as part of the Group’s trading activities, or those arising from non-trading activities but which are not considered to be derivative financial instruments. Debts and payables are initially stated at the fair value of the consideration received plus any directly attributable transaction costs. They are subsequently stated at their amortised cost. The Group eliminates financial liabilities from the balance sheet once the associated obligations have been discharged.
5.5.3. Derivative financial instruments The Group contracts derivative financial instruments on OTC markets through Spanish and international financial institutions with a strong credit rating to hedge the risks to which its future cash flows are exposed. Those risks are fundamentally tied to variations in interest rates. Within the framework of those operations, the Group contracts financial instruments for hedging purposes. In order for these financial derivatives to be classified as accounting hedges, they are initially designated as such and the hedge relation must be documented. Furthermore, the Group verifies, initially and periodically over the life of the derivatives and at least at the close of the accounting period, that the hedge relation is effective, that is, it is foreseeable that future changes in fair value or cash flows of the hedged item (attributable to the hedged risk) will be nearly entirely compensated by the hedging instruments and, retrospectively, that the results of the hedge have oscillated in a range of variation of between 80% and 125% with respect to the hedged item. The accounting treatment of cash flow hedges is described below. In this type of hedging, the part of the profit or loss on hedging instrument that has been designated as an effective hedge is recognised temporarily through equity, and is then released to the income statement in the same period as in which the hedged transaction impacts profit or loss, unless the hedge is for a projected transaction that concludes with the recognition of a non-financial asset or liability, in which case the amounts recorded in equity will be included in the cost of the asset or liability when it is acquired or assumed. Hedge accounting is interrupted when the hedging instrument matures, or is sold, terminated or exercised, or when the hedge accounting requirements are no longer satisfied. At that time, any accumulated profit or loss on the hedging instrument that has been recognised in equity is maintained in equity until the projected transaction takes place. When the hedged operation is not expected to take place, the net accumulated profit or loss recognised in equity is taken to the income statement for the period. At 31 December 2010 there were two interest rate hedges (see Note 12).
5.6. Classification of balances as current or non-current Assets are classified as current when they relate to the ordinary operating cycle, which is generally considered to be one year. Also, assets whose maturity, disposal or realisation is expected at yearend to occur within the near term, financial assets held for trading, except for financial derivatives with settlement date longer than one year, and cash and cash equivalents are likewise considered currents. Assets not satisfying these conditions are classified as non-current. Similarly, liabilities related to the normal operating cycles, financial liabilities held for trading, except for financial derivatives with settlement date longer than one year, and, in general, all obligations due to mature or expire in the short term are considered current. Otherwise, they are classified as non-current.
F-119 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.7. Foreign currency transactions The Group’s functional currency is the euro. Operations in other currencies are therefore considered to be transactions in foreign currency and are stated at the exchange rate prevailing at the transaction date. At the close of the financial year, monetary assets and liabilities held in foreign currencies are converted to euros at the rate of exchange in effect at the balance sheet date. Exchange gains and losses are expensed when they arise.
5.8. Income tax The income tax cost or income includes both current and deferred tax income or expense. Current tax is that paid as a result of tax assessments on the profits for the year. Tax relief and other tax benefits, excluding withholdings and interim payments on account, and tax loss carryforwards applied in the year, reduce the current income tax liability. The deferred income tax cost or income reflects the recognition and cancellation of deferred tax assets and liabilities. These include timing differences, which are identified as the expected balances payable or recoverable as a result of differences in the book value and tax value of assets and liabilities, as well as tax losses pending carryforward and credits for tax deductions not applied. These amounts are recorded applying to the timing difference or credit in question the tax rate at which they are expected to be collected or settled. Deferred tax liabilities are recognised for all taxable timing differences, except those in which the timing difference derives from the initial recognition of goodwill or other assets and liabilities in operations that affect neither tax income nor accounting income and which are not a business combination. Deferred tax assets are only recorded when it is considered likely that the Group’s companies will have sufficient future taxable earnings against which they can be applied. Deferred tax assets and liabilities arising on operations debited or credited directly to equity accounts are also recognised in a balancing entry under equity. Deferred tax assets are reviewed at each balance sheet date, and the necessary adjustments are made if there is any doubt concerning their future recoverability. Deferred tax assets not recognised in the balance sheet are also reviewed at each balance sheet date, and are recognised if their recovery against future tax profits becomes likely. The companies of the Vacaciones eDreams, S.L.U. Group and eDreams International Network, S.L.U. are taxed as a consolidated group for the Corporate Income Tax and for Value Added Tax. Vacaciones eDreams, S.L.U. is the parent company and files the consolidated declaration for those taxes, and eDreams International Network, S.L.U. is the subsidiary of the consolidated tax groups number 227/08 and 0277/08, respectively.
5.9. Income and expenses Income and expenses are recognised on an accruals basis, that is, when the actual transfer of goods and services occurs, irrespective of the timing of the related financial or monetary flow. Income is stated at the fair value of the consideration received, less discounts and taxes. Sales revenues are recognised when the significant risks and benefits inherent in the ownership of the sold assets are transferred to the buyer, the asset is no longer part of the operating assets of the Group and effective control is not retained.
F-120 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) At present, the Group has the following distinct sources of income: a) Commissions received as brokers in the sale of flights, hotel rooms and travel packages (the latter being a combination of the first two). These commissions fall into two categories: I. Commissions received from airlines and tour operators. II. Administration fees, which the Group charges directly to end customers. b) Income received as wholesale agents in the sale of flights, hotel rooms and travel packages, where the Group buys seats with airlines or tour operators to order for subsequent resale to end customers. This type of business is currently carried on only by the Italian subsidiary of the Group, eDrearns, S.r.L., and is generally on the decline. c) Advertising revenue, which is the income received for the sale of space on the Group’s websites to be used for third-party advertisements. d) Other less significant income sources of various types, including, for example, commissions received from telephone companies on the volume of calls received at call centres, commissions received by the reservations centre (Amadeus), and income from subscriptions to the eDreams club in Italy. Income from the on-line travel broker business is recognised in the consolidated income statement at the time of sale via a credit for the amount of the commission obtained under ‘‘Net turnover’’. The cost of the sale or associated service provided does not constitute an expense for the Group since it does not assume the risks inherent in the same. Income and expenses deriving from wholesale business are recognised in the consolidated income statement at the time the service is provided to the end customer via a credit for the amount billed in respect of travel packages and a debit for the costs associated with the same to the ‘‘Net turnover’’ and ‘‘Supplies’’ lines, respectively. Interest received on financial assets is recognised using the effective interest method. Dividends are recognised when the shareholder’s right to receive them is declared.
5.10. Provisions and contingencies In the preparation of the financial statements, the Directors of the Group’s companies distinguish between: 1. Provisions: Credit balances covering current obligations arising as a result of past events, the reversal of which will probably result in a future outflow of funds but whose amount and/or reversal dale are uncertain. 2. Contingent liabilities: Possible obligations arising as a result of past events, whose materialisation is dependent on the occurrence, or otherwise, of one or more future events falling outside the Company’s control. The financial statements show all provisions for which it is considered more likely than not that the obligation will have to be met. Contingent liabilities are not recorded in the balance sheet but are disclosed in the notes to the consolidated financial statements to the extent the possibility of the obligation having to be met is not considered remote. The value of these provisions is measured using the best estimate possible of the amount necessary to cancel or transfer the obligation, taking into consideration the information available on the event and its consequences, recording the adjustments made from updating said provisions as financial costs as they accrue.
F-121 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.11. Termination benefits In accordance with current legislation, the Group’s companies are required to pay severance pay to employees whose contracts of employment are terminated in certain circumstances. Severance payments which can be reasonably quantified are recorded as a cost in the financial year in which the decision to terminate the contract is taken and a valid expectation regarding termination is created for third parties. No provision of this nature has been made in the accompanying consolidated financial statements, as this situation is not expected to arise.
5.12. Environmental assets Environmental assets are those used on a long-term basis in the activities of the Group the main purpose of which is to minimise its environmental impact and to protect and improve the environment, including the reduction or elimination of future contamination. Because of the activities in which it is engaged, the Group has no liabilities, costs, assets, provisions or contingencies of an environmental nature that could be material relative to its equity, financial position and results. Accordingly, no breakdowns of specific environmental information have been included in these consolidated financial statements.
5.13. Share-based payments Until 3 August 2010, the company eDreams Inc. made share-based payments to certain employees of the eDreams Group under a Share Options Plan and a Debt-financed Share Option Plan (see Notes 18.6). The Group’s companies (Vacaciones eDreams, S.L.U., eDreams International Network, S.L.U. and eDreams, eDreams S.r.L.) recognised the goods and services received as a staff cost when they are received, and recorded the corresponding increase in equity, given that the operation was settled with equity instruments. In this case, both the services provided and the increase in equity were measured at the fair value of the equity instruments granted as at the date the award was decided. Said fair value was determined using generally accepted valuation methods based on the volatility of the shares and a risk free interest rate. As mentioned in Note 1, due to the change of control of the eDreams Group, all of the stock options established in the Plan were exercised during 2010, given that this was one of the option exercise conditions stipulated in the Plan. The debt-financed share option plan has likewise been cancelled.
5.14. Related party transactions The Group’s operations with related parties are all done at market prices. Furthermore, the transfer prices are fully supported so the Directors of the Parent Company do not consider that there is any significant risk capable of giving rise to material liabilities in the future. As stated in Note 3.1, all significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements.
6. Business combinations Description of the transaction As mentioned in Note 1, on 3 August 2010, funds advised by Permira, through the Parent Company USgoal. Inc., acquired 100% of the share capital of eDreams Enterprises, S.L. That Company was the main shareholder of eDreams Inc., with a holding of 82.5%.
F-122 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
6. Business combinations (Continued) Funds advised by Permira also acquired 13.55% of the shares of eDreams Inc, that were held by Group employees after being acquired under a debt-financed share option plan. According to Note 18.6., the share premium on the shares subject to that plan were funded via a loan agreement concluded between eDreams Inc. and individual employees. The loan had a due date of 27 October 2026 and accrued interest at a fixed interest rate of 4.34%. At the time USgoal Inc. acquired those shares, it deferred payment of the part corresponding to the debt-financed share issue premium. According to the above, at the date of the sale-purchase the employees had a credit right and a payment obligation with USgoal Inc. and eDreams Inc., respectively, for the same amount. On 13 September 2010, according to the certification of decisions of the sole shareholder of eDreams Enterprises, S.L., the latter distributed a dividend out of the share issue premium to its sole shareholder, USgoal Inc., in the amount of 64,002 thousand euros. Part of that distribution, 12 million euros, was not paid in; instead eDreams Enterprises, S.L assumed the obligation that USgoal Inc. had with certain employees. At that time, eDreams Enterprises, S.L. assumed the obligation that had until that time rested with USgoal Inc., and the employees were released from the payment obligation with respect to eDreams Inc. and of the credit right vis-a-vis` eDreams Enterprises, S.L., leaving a receivable by eDreams Inc. from its shareholder, eDreams Enterprises, S.L. The due date, and the finance costs, remain as initially covenanted with the employees. By way of summary of the above: • Funds advised by Permira has acquired 96% of the identifiable net assets of the eDreams Group for the cost detailed in the next section. • The accompanying consolidated balance sheet carries no liability at 31 December 2010 for the deferred payment of the shares with third parties.
Consideration transferred The fair value of the consideration transferred in the business combination was 274,562 thousand euros, with the following breakdown:
Thousands of euros Acquisition 100% eDreams Enterprises, S.L...... 235,726 Acquisition 13.55% eDreams Inc...... 38,836 Total consideration transferred ...... 274,562
As discussed above, the price of 12,359 thousand euros for the acquisition of 13.55% of the shares of eDreams Inc. was not paid in cash, but deferred, because part of those shares had been obtained by the previous holders under a debt-financed share option plan.
F-123 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
6. Business combinations (Continued) Assets acquired and liabilities assumed at the acquisition date The assets and liabilities of the eDreams Enterprises, S.L. Group recognised at the acquisition date, 3 August 2010, were as follows:
Capital gains Cost identified Total Current assets: Trade receivables ...... 7,676 — 7,676 Short-term investments, cash and cash equivalents ...... 18,923 — 18,923 Other current assets ...... 196 — 196 Non-current assets: Intangible assets ...... 6,819 120,753 127,572 Property, plant and equipment ...... 1,967 — 1,967 Other long-term investments ...... 2,805 — 2,805 Other non-current assets ...... 12,359 — 12,359 Deferred tax assets(*) ...... 387 — 387 Current liabilities: Short-term debts ...... (5,349) — (5,349) Trade payables ...... (42,943) — (42,943) Other current liabilities ...... (333) — (333) Non-current liabilities: Long-term debts ...... (4,230) — (4,230) Deferred tax liabilities ...... (1,074) (42,264) (43,338) Other non-current liabilities ...... (892) — (892) Total fair value of identifiable net assets ...... (3,689) 78,489 74,800
(*) According to the applicable accounting standards, deferred tax assets recognised in a business combination are carried at their nominal value, not their fair value. The capital gains identified above are in respect of intangible assets and based on a valuation conducted by an independent expert, as per the following itemisation (in thousands of euros)
Value Useful allocated Life Industrial property rights ...... 80,815 Indefinite Software ...... 32,193 4-6 Other intangible assets ...... 7,745 3 Total ...... 120,753
The method used to measure the intangible assets was the ‘‘Revenue Method’’, one of the methods accepted for valuation of such assets and the one generally most used. It is based on the idea that the value of the asset is equal to the present value of the cash flows expected to be obtained during its useful life. The present value of the future cash flows has been calculated based on a specific discount rate for each assets in accordance with the risk associated with each.
F-124 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
6. Business combinations (Continued) Specifically, within the ‘‘Revenue Method’’, the methodology applied to each set of intangible assets was as described below: Industrial property: the so-called ‘‘royalties method’’ has been used, with the asset being valued according to the flow of savings obtained on owning the asset and hence not having to pay royalties on it. Software: two methods have been applied, the ‘‘royalties method’’ discussed above and the ‘‘Incremental method’’, which measures the value of an asset according to the incremental obtained in the cash flows from that asset. Other: these intangibles have been measured with the ‘‘multi-period surplus profit method’’, based on the idea that the intangible asset does not generate profits on its own but only in combination with other assets, such as working capita, tangible assets and also other intangibles that interrelate with it to contribute to generating the cash flows. In this respect, the total flows generated by the intangible are reduced by the charges associated with the rest of the contributing assets to isolate the flow from the intangible asset being measured, Goodwill arising in the combination The goodwill arising from the business combination is the difference between the cost of the combination and the proportional part of the fair value of the net assets acquired, as detailed below:
Thousands of euros Consideration transferred in the business combination ...... 274,562 Less—Effective share (96%) of fair value of net assets ...... (71,839) Goodwill ...... 202,723
The qualitative factors that have led to the recognition of goodwill in the combination are based on the growth and expectations for further growth of the online travel agencies business, on the expanding market share being attained by the eDreams Group, and by the strong commitment to consolidating its position in the markets where it is already present in combination with expansion into new countries and continents.
7. Changes in percentage holdings in group companies without loss of control On 10 September 2010, the Parent Company sold 2,284,478 shares to eDreams Inc. that it held by virtue of the eDreams Group sale-purchase described in Note 1 and which represented 13.55% of the share capital of eDreams Inc. Subsequently, eDreams Inc. carried out a reduction of capital through the retirement of own shares. After this operation, the effective holding in the eDreams Group was reduced from 96% to 95.4%. According to the applicable accounting standards, the impacts of this sale without change of control are recorded in equity, with no change to the consolidation goodwill. The increase in consolidated reserves produced by these transactions at the date of the deal was 704 thousand euros.
F-125 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
8. Intangible assets 8.1. General Shown below are the movements recorded in this section of the 2010 balance sheet:
Entries due to business Cost 16-07-10 combination Additions Retirements 31-12-10 Thousands of euros Industrial property ...... — 80,837 21 — 80,858 Software ...... — 39,030 1,810 — 40,840 Other intangible assets ...... — 7,745 — — 7,745 Goodwill ...... — 202,723 — — 202,723 Total cost ...... — 330,335 1,831 332,166
Entries due to business Allocations/ Translation Amortisation 16-07-10 combination de-recognition differences 31-12-10 Thousands of euros Industrial property ...... — — (29) — (29) Software ...... — — (3,271) (74) (3,345) Other intangible assets .... — — (1,075) — (1,075) Total cost ...... — — (4,375) (74) (4,449)
Total Intangible Assets 31-12-10 Thousands of euros Cost ...... 332,166 Amortisation ...... (4,449) Net total ...... 327,717
As indicated in Note 5.3, the Directors believe that at yearend 2010 and at the date these financial statements are prepared there is no evidence of impairment as a result of the price paid by funds advised by Permira in August 2010 for the acquisition of the eDreams Group and considering the profits generated by that Group since the date of its acquisition to the date of these consolidated financial statements. In the specific case of the industrial property that has been assigned an indefinite useful life based, on the independent expert’s report prepared for the transaction, the Directors consider that the impairment testing conducted indicates there is no impairment at 31 December 2010 de according to the business plan they approved for the period from 2011 to 2015. That plan estimates and is based on a significant increase in purchases), mainly as a result of the migration of customers from the traditional market to the online agencies market and to the increased market share in those countries where it is already present, along with the entry in new countries and continents. The ‘‘Software’’ account at 31 December 2010 included an intangible asset which is related to technology used by the Group in its operations and which contributes to attracting new customers and retaining existing customers, given the functional benefits that it offers. The additions under this heading, developed internally by the company eDreams International Network, S.L.U., totalled 1,198 thousand euros in 2010. These internal development costs satisfy the criteria for capitalisation as an intangible asset.
F-126 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
8. Intangible assets (Continued) The net book value of the assets assigned amounts to 116.948 thousand euros. The Group policy is to take out insurance policies to cover the possible risks to which its diverse intangible assets are exposed. At the close of 2010 there was no shortage of coverage regarding those risks.
8.2. Goodwill Shown below is the movement recorded in the ‘‘Goodwill’’ account in 2010 (thousands of euros):
16-07-2010 Additions 31-12-10 Goodwill ...... — 202,723 202,723 Total ...... — 202,723 202,723
Shown in the following table is a breakdown of the additions to Goodwill in the year, classified by business combination (in thousands of euros):
Goodwill 31-12-10 Purchase of eDreams Group by funds advised by Permira through USgoal Inc. (see Note 6) ...... 202.723 Total ...... 202.723
Shown below is the breakdown of Goodwill by cash generating unit (in thousands of euros):
Yearend Goodwill Balance Spanish market ...... 88,565 Italian market ...... 47,176 Other markets ...... 66,982 Total ...... 202,723
9. Property, plant and equipment Shown below are the movements recorded in this chapter of the 2010 balance sheet, and the principle events affecting this heading:
Additions from Additions / business Retirements / Cost 16-07-10 combination Transfers 31-12-10 Thousands of euros Technical facilities ...... — 143 101 244 Furniture and fittings ...... — 94 16 110 Data processing equipment ...... — 1,438 47 1,485 Motor vehicles ...... — 8 — 8 Other tangible fixed assets ...... — 12 — 12 Fixed assets under construction ...... — 272 (272) — Total cost ...... — 1,967 (108) 1,859
F-127 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
9. Property, plant and equipment (Continued)
Additions from business Cost 16-07-10 combination Allocations 31-12-10 Thousands of euros Technical facilities ...... — — (111) (111) Furniture and fittings ...... — — (9) (9) Data processing equipment ...... — — (224) (224) Motor vehicles ...... — — (5) (5) Total cost ...... — — (349) (349)
Total tangible fixed assets 31-12-10 Thousands of euros Cost ...... 1,859 Depreciation...... (349) Net total ...... 1,510
The Group policy is to take out insurance policies to cover the possible risks to which its diverse tangible assets are exposed. At the close of 2010 there was no shortage of coverage regarding those risks.
10. Leases Operating leases At 31 December 2010 the Group’s companies had the following minimum instalments contracted with the lessors, in accordance with the contracts currently in force. not including common expenses, future CPI-linked increases or other contractually agreed revaluations:
Nominal Operating leases value Minimum instalments 31-12-10 Thousands of euros Less than one year ...... 453 One to five years ...... 1,783 More than five years ...... 139 Total ...... 2,375
The total operating lease instalments recognised as expenses in 2010 were as follows:
31-12-10 Thousands of euros Minimum rental payments ...... 251 Net total ...... 251 Instalments paid in 2010 were in respect of the rental of the Group’s companies’ offices.
F-128 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
11. Long and short-term financial investments 11.1. Long-term financial assets The balances recorded under the heading ‘‘Long-term financial investments’’ at 31 December 2010 were as follows:
Thousands of euros Category 31-12-10 Derivatives (see Note 12) ...... 260 Pledged bank deposits ...... 1,207 Guarantee deposits ...... 180 Total ...... 1,647
‘‘Pledged bank deposits’’ includes guarantees formalised for the activity of the new group companies. Additionally the Group has other commercial guarantees amounting to 0,3 million euros.
11.2 Short-term financial investments The balances recorded under the heading ‘‘Short-term financial investments’’ at 31 December 2010 were as follows:
Category 31-12-10 Thousands of euros Other financial assets ...... 150 Total ...... 150
11.3 information on the nature and level of risk associated with financial instruments 11.3.1. Qualitative information The Finance Department of the Parent Company is responsible for the Group’s management of financial risks, and has established the necessary mechanisms to monitor exposure to interest rate and exchange rate fluctuations and to credit and liquidity risks. The main financial risks affecting the Group are detailed below: 1. Credit risk The Group’s credit risk is mainly attributable to advertising receivables. These amounts are recognised in the consolidated balance sheet net of provisions for bad debt, which are estimated by the Directors on the basis of experience in past years and their assessment of the current economic scenario. 2. Liquidity risk In order to guarantee liquidity and to meet the payment obligations derived from its operations, the Group maintains the cash and cash equivalents shown in its balance sheet, as well as credit facilities of 25 million euros from banks, of which 20 million euros have not yet been drawn (see Note 15). 3. Market risk (including interest rate risk, currency risk and other price risks) Both the Group’s cash and cash equivalents, and its financial debt are exposed to interest rate risk, which could have an adverse effect on its net finance income and on cash flows.
F-129 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
11. Long and short-term financial investments (Continued) The Group’s financial management manages this type of risk and others that may arise by contracting financial derivatives as hedges in order to minimize or limit the impact of potential variations in interest rates. Those hedges are contracted as a function of the market conditions existing at the time, the management targets and the characteristics of the financing that gives rise to the financial risk. Toward this end, the management identifies the instruments that best advance the goal of minimising the risk exposure and contracts the instruments with the bank counterparties considered most suitable. The documentary management of the operations contracted is monitored and periodic valuations are made of the hedges contracted. The Group’s exposure to currency risk mainly derives from cash and bank accounts in foreign currency and some trade receivables and payables in foreign currency. The Group’s currency risk is not significant.
11.3.2. Quantitative information a) Credit risk
2010 % of operations maintained with a single client ...... 11% b) interest rate risk
2010 Percentage of financial debt referenced to fixed rates ...... 67%
12. Derivative financial instruments The Group contracts derivative financial instruments on OTC markets through Spanish and international financial institutions with a strong credit rating. The operations involve contracting Swaps (pay fixed rate and receive variable rate) to delimit the fluctuations in cash outflows in respect of payments referenced to variable interest rates (Euribor) on the Group’s financing. At 31 December 2010 the Group had a syndicated loan with Societ´ e´ Gen´ erale´ as agent bank, contracted at a variable interest rate that is therefore indexed to market trends (see Note 13). On 4 October 2010 the Group contracted an interest rate swap agreement swapping a variable rate of interest for a fixed rate of 1.415% p.a. terminating on 14 December 2014. Likewise on that date the Group contract a second interest rate swap in which it swapped a variable interest rate for a fixed rate of 1.43% p.a., also scheduled to expire on 14 December 2014. Under current accounting rules, those derivative financial instruments can be considered accounting hedges. To determine the fair value of the interest rate derivatives (interest rate swaps or IRS), the Group uses an IRS measurement model that uses as its inputs the Euribor and long-term swap market curves.
F-130 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
12. Derivative financial instruments (Continued) The interest rate derivatives contracted, by the Group and in force at 31 December 2010, and their fair values at that date (in euros), are as follows:
Impact of measurement in equity (without Nominal Nominal Nominal Initial Fair considering tax Fixed outstanding outstanding outstanding Instrum. Expiry date nominal value effect) rate 2011 2012 2013 Floating rate IRS...... 14/12/2014 24,000 98 105 1.430% 20,000 16,000 9,600 Euribor 1 month IRS...... 14/12/2014 36,000 162 172 1.415% 30,000 24,000 14,400 Euribor 1 month Total ..... 60,000 260 277 50,000 40,000 24,000
The Group has opted for the hedge accounting method permitted under the General Accounting Plan, appropriately designating as hedging relationships those relationships where IRS are used as hedging instruments for the finance contracted by the Group to neutralise fluctuations in the interest payable on this finance by establishing a fixed rate of interest. These hedging relationships are highly effective prospectively and retrospectively on a cumulative basis from the date of designation. Consequently, the Group recognised in equity the change in the fair value of the derivatives in effect. The Group likewise recorded in the consolidated income statement the expense arising in respect of the interest accrued according to the monthly settlements of these instruments, in the amount of 105 thousand euros, with some 18 thousand euros pending settlement at yearend 2010.
Interest rate sensitivity analysis Changes in the fair value of the interest rate derivatives contracted by the Group are dictated by changes in the long-term swap and Euribor interest rate curves. At 31 December 2010 the fair value of those derivatives was 260 thousand euros. The detail of the sensitivity analysis (changes from fair value at 31 December 2010) of the fair values of derivatives recognised in equity (‘‘accounting hedges’’) to changes in the euro interest rate curve is shown in the table below (in thousands of euros):
Sensitivity (in euros) 31.12.2010 +0.5% (increment in rate curve) ...... 773 0.5% (decrease in rate curve) ...... (833) The sensitivity analysis shows that the interest rate derivatives record increases in response to a rise in market interest rates, since future interest rates would be above the fixed rate set with the IRS, and, therefore, the Group’s exposure would be hedged. Were interest rates to fall, the fair value of those derivatives would decrease. Since these derivatives are designated as accounting hedges and are highly effective both prospectively and retrospectively, any change in their fair value would be recognised in equity in full. The Group has also has performed a sensitivity analysis for the balances of floating rate financial debt; the conclusion of this analysis was that a 0.5% rise in interest rates would cause finance expense to fluctuate by 485 thousand euros. Having the interest rates contracted partially diminishes that sensitivity by a nominal of 60,000,000 euros of that financial debt (this amount is the outstanding notional of the derivatives in effect at 31 December 2010).
F-131 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
13. Equity and capital and reserves 13.1. Share capital At 31 December 2010 the Parent Company’s share capital totalled 0.76 euros, represented by 100 shares of 0.01 US dollars face value each, all of the same class, fully subscribed and paid up. Shown below is a breakdown of shareholders at 31 December 2010:
Percentage in Lumber of shares 2010 Luxgoal, Sarl` (*) ...... 100% Total ...... 100%
(*) Company wholly owned by funds advised by Permira
13.2. Share issue premium The share issue premium originated as a result of the shareholder contribution made on 3 August 2010. The share issue premium is considered to be unrestricted.
13.3. Legal reserve For Group companies incorporated under the Spanish Companies Act, 10% of profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of share capital. The legal reserve may be used to increase capital in the proportion of its balance exceeding 10% of the already increased capital. Except for the aforesaid purpose, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
13.4. Consolidated profit (loss) by company
31-12-10 Thousands of euros Vacaciones eDreams, S.L.U...... 3,467 eDreams International Network, S.L.U...... (2,225) Editoriales Italiano Online, S.r.L ...... (314) eDreams, S.r.L ...... 4,328 Viagens eDreams Portugal, LDA ...... 10 eDreams France, SARL ...... (112) eDreams, GMBH ...... (113) eDreams, Ltd ...... (513) eDreams LLC ...... (15) eDreams Inc...... (471) eDreams Enterprises, S.L...... (26) Usgoal Inc...... (2,417) Total consolidated profit for the year ...... 1,599 Minority interests ...... (219) Profit attributable to the Parent Company ...... 1,380
F-132 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
13. Equity and capital and reserves (Continued) The aggregage consolidation adjustments attributed to the Parent Company, USgoal Inc, amount to an expense of 1,831 thousand euros.
13.5. Revaluation adjustments and hedging transactions The heading revaluation adjustments records the exchange differences arising as a result of the translation of the financial statements of eDreams Inc., eDreams LLC and eDreams Ltd, which are not prepared in euros. Hedging transactions reflect the net amount of the yearend 2010 measurement of the derivatives considered accounting hedges (see Note 12).
13.6. Minority interests The movement recorded in 2010 in the Group minority interests accounts is as shown in the following table:
Entry of minority interests at date of Changes in business holding without Share of combination loss of control income for Valuation 16-07-10 (Note 6) (Nota 7) the year adjustments 31-12-10 Thousands of euros eDreams Inc. minority interests ...... — 2,961 (704) 219 182 2,294 Total ...... — 2,961 (704) 219 182 2,294
14. Provisions and contingencies The heading ‘‘Short-term provisions’’ at 31 December 2010 mainly includes a provision of 741 thousand euros for estimated refunds of credit card transactions at that date in relation to sales in the financial year. At 31 December 2010 there were no contingent assets or liabilities.
15. Debts (long and short-term) The balances recorded under the headings ‘‘Long-term borrowings’’ and ‘‘Short-term debts’’ at 31 December 2010 were as follows:
Short term Long term Total Thousands of euros Debts and payables: Syndicated loan ...... 458 82,991 83,449 Credit Facility ...... 5,000 — 5,000 Financial derivative (Note 12) ...... 18 — 18 Repayable credit ...... 70 — 70 Other financial liabilities ...... 11 — 11 Total ...... 5,557 82,991 88,548
F-133 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
15. Debts (long and short-term) (Continued) 15.1. Long-term financial liabilities Shown below is the breakdown of this heading:
2012 2013 2014 2015 and on Total Thousands of euros Syndicated loan ...... 4,931 6,294 6,641 65,125 82,991 Total ...... 4,931 6,294 6,641 65,125 82,991
The initial maturity schedules set for each of the tranches in the loan agreement are as follows:
Short term 2012 2013 2014 2015 2016 2017 Total Thousands of euros Facility A(*) ...... 2,520 6,670 7,710 7,820 8,510 12,770 — 46,000 Facility B(*) ...... — ———— —46,000 46,000 Total ...... 2,520 6,670 7,710 7,820 8,510 12,770 46,000 92,000
(*) Without including transaction costs attributable to the financial liability This is a senior financing agreement signed by the Group with Societ´ e´ Gen´ erale´ as agent bank on 25 July 2010 for 117 million euros, of which 92 million euros (arranged in two trenches, each for 46 million euros), are recorded under long-term, and the remaining 25 million euros are in respect of the credit facility, of which some 5 million euros had been drawn and was outstanding at the end of 2010 (see Note 15.2). Facility A accrues interest at the EURIBOR plus a margin of 4.5%, with a margin of 5% applied for Facility B. Nevertheless, for Facility A there are additional indicators tied to the Group’s EBITDA which can cause the aforesaid margins to oscillate in a range of 3.75% - 4.5%. The expenses associated with contracting the loan amounted to 9.5 million euros. During 2010, the heading ‘‘Finance costs—third parties’’ of the accompanying income statement recorded the transaction costs attributable to the financial liability that accrued during the year, which totalled 949 thousand euros. As for their classification, some 6,489 thousand euros and 2,062 thousand euros have been recognised as a reduction to the figures for long and short-term debt, respectively. The agreement also establishes certain conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the term of the agreements, with failure to satisfy these conditions constituting express grounds for acceleration of the outstanding debt. At 31 December 2010 the Group was in compliance with the financial conditions in effect at that date. In relation to this contract, during 2010 the Group contracted two interest rate derivatives, considered accounting hedges, with a combined notional that at 31 December 2010 amounted to 60,000 thousand euros and expiry date 14 December 2014 (see Notes 11.3 and 12).
15.2 Short-term financial liabilities Credit facility As part of the senior financing, agreement signed with Societ´ e´ Gen´ erale´ as agent bank on 25 July 2010 for 92 million euros that was described earlier, a credit facility of 25,000 thousand euros was extended, on which some 5,000 thousand euros had been drawn and were outstanding at the end of the year. The amount borrowed accrues interest at EURIBOR plus a margin of 4.5%.
F-134 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
15. Debts (long and short-term) (Continued) Nevertheless, for Facility A and the credit facility there are additional indicators tied to the Group’s EBITDA which can cause the aforesaid margins to oscillate in a range of 3.75% - 4.5%.
Syndicated loan The part classified as short term includes the instalments payable during 2011 of Facility A and are presented net of the transaction costs attributable to the financial liability due to accrue short term.
16. Tax receivables and payables and general tax situation 16.1. Current tax and social security receivables and payables The composition of the current tax receivables and payables at 31 December 2010 is as follows:
Payables 31-12-10 Thousands of euros US Tax...... 606 Corporate income tax payable ...... 1,156 VAT payable to Public Treasury ...... 200 Social Security ...... 387 Payable to Public Treasury for employee withholdings ...... 251 Other Public sector payables ...... 575 Total ...... 3,175
Receivables 31-12-10 Thousands of euros Corporate income tax receivables ...... 223 US Tax...... 16 Other Public sector receivables ...... 26 Total ...... 265
16.2. Reconciliation of accounting profit and tax base Company income tax is calculated separately for each Company based on financial or accounting profit, obtained by applying generally accepted accounting principles, which is not necessarily the same as taxable profit, the latter being the tax base for the aforesaid tax calculated in the different jurisdictions.
F-135 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
16. Tax receivables and payables and general tax situation (Continued) The reconciliation between the 2010 accounting profit of each company of the Group and the tax base for corporate income tax, in thousands of euros, is as follows:
Total Thousands of euros Contribution to consolidated profit ...... 1,599 Consolidation adjustments ...... 867 Accounting profit for the year (after tax) ...... 2,466 Company income tax ...... (1,075) Permanent differences: Amortisation of allocations intangibles ...... 3,805 Other items ...... 10 Timing differences: Amortisation of goodwill ...... (416) Other provisions ...... 741 Tax base (taxable profit) ...... 5,531
The permanent differences recognised correspond mainly to the intangible assets with a finite useful life identified using the valuation of an independent expert (see Note 6). The positive timing differences are mainly in respect of the provisions which at the closing date were not deductible and which will be reversed in future years when the provisions are cancelled. The negative timing differences include the tax incentive established by article 12 of the Company Income Tax Law allowing the deduction of one-twentieth of the goodwill generated in the subsidiary eDreams, S.r.L. The breakdown of the Company Income Tax expense for 2010 is as follows:
2010 Thousands of euros Company income tax accrued ...... 1,819 US Tax...... (2,192) Reversal deferred tax (allocation of intangibles) ...... (1,332) Total tax paid / (recovered) recognised in the income statement ...... (1,075)
In 2010 there were a series of unexpected refunds from the United States administration which gave a positive result of 2.192 thousand euros in the period. The taxes recorded in 2010 with a balancing entry in ‘‘Equity’’ were not significant. The Company Income Tax is detailed below:
2010 Thousands of euros Current tax on continuing operations ...... 373 Deferred tax from continuing operations ...... (1,332) Total tax expense / (revenue) ...... (1,075)
F-136 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
16. Tax receivables and payables and general tax situation (Continued) 16.3. Deferred tax assets The breakdown of the balance on this account at 31 December 2010 is as follows:
Vacaciones eDreams, S.L.U. Total Thousands of euros Provisions ...... 222 222 Total deferred tax assets ...... 222 222
16.4. Deferred tax liabilities The breakdown of the balance on this account at 31 December 2010 is as follows:
31-12-10 Thousands of euros Tax effect of allocation of intangible assets ...... 40,932 Amortisation of financial goodwill eDreams, S.r.L...... 1.199 Tax effect of financial derivative (accounting hedge) ...... 97 Total ...... 42,228
The tax effect of identified intangibles arises as a result of the difference between the tax and accounting values of the net assets acquired according to the study performed by an independent expert for a total of 42,264 thousand euros. That tax impact has been recorded applying a tax rate of 35%, as this is the rate in the United States, where the Parent Company is domiciled. During 2010 that tax effect was diminished by 1,332 thousand euros, applying the same rate as the one by which those assets were amortised. At 31 December 2010 the tax losses from previous years available to be carried forward against future profits and the deadlines for their application were as follows:
eDreams USgoal eDreams, eDreams eDreams eDreams Last year for Year generated Enterprises, S.L. Inc. LLC GMBH France LTD Total application Thousands of euros 2007 ...... — — — — — (1,450) (1,450) 2022 2008 ...... — — — — — (13) (13) 2023 2009 ...... — — — (6) — — (6) 2024 2010 ...... (1,019) (586) (15) (43) (3) — (1,666) 2025 Total ...... (1,019) (586) (15) (49) (3) (1,463) (3,135)
The Group has decided not to capitalise the tax credits generated by these negative tax bases. The final amount to be offset with these tax losses may be modified after the tax returns have been examined.
16.5. Financial years pending tax inspections The companies of the USgoal Inc. and Subsidiaries Group currently have open for inspection by the tax authorities of each jurisdiction all financial years that are not yet statute-barred for all taxes for which they are liable, expect those that have already been reviewed by the competent tax
F-137 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
16. Tax receivables and payables and general tax situation (Continued) authorities. Under present legislation, tax returns may not be considered definitive until they have been inspected by the tax authorities or the prescribed four-year limitation period has expired. The Group’s management considers the possibility of tax liabilities arising in future inspections to be remote, and any such liabilities would in any case be without material impact on the accompanying consolidated financial statements taken as a whole. No additional liabilities are expected to arise for the Company as a result of any future inspections.
17. Foreign currency The most significant balances and transactions in foreign currencies (principally US dollars and pound sterling), valued respectively at the exchange rate at yearend and at the average exchange rate for 2010, are as follows:
31-12-10 Accounts payable ...... 1,527 Services provided ...... 2,977 Services received ...... (55)
18. Income and expenses 18.1. Net turnover The distribution of net turnover according to activity and geographical markets is as follows:
Activities 2010 Thousands of Commissions received from airlines and tour operators ...... 14,493 Administration fees ...... 24,869 Advertising revenues ...... 2,126 Total ...... 41,488
Geographical market 2010 Thousands of euros Spain ...... 16,382 Italy ...... 14,408 Other countries ...... 10,698 Total ...... 41,488
18.2. Work done by Group on its own assets The balance of the account ‘‘Work done by Group on its own assets’’ records the capitalisation of intangible asset developed internally by the company eDreams International Network, S.L.U. in the amount of 1,198 thousand euros in 2010. These internal development costs satisfy the criteria for capitalisation as an intangible asset.
18.3. Supplies This line reflects the costs directly associated with the travel agency business—essentially, the cost of the travel packages.
F-138 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
18. Income and expenses (Continued) 18.4. Other operating income The balance of the account ‘‘Other revenues’’ for 2010 is broken down as follows:
2010 Thousands of euros Incentives credit cards and telephony ...... 1,089 Total ...... 1,089
18.5. Staff costs The balance of the account ‘‘Staff costs’’ for 2010 is broken down as follows:
2010 Thousands of euros Wages and salaries ...... 5,051 Share-based payments (Note 18.6) ...... 869 Social security charges paid by company ...... 907 Total ...... 6,827
18.6 Transactions involving share-based payments Share Options Plan A compensation plan for the employees of Vacaciones eDreams, S.L.U., eDreams International Network, S.L.U., and eDreams, S.r.L. was approved by shareholders at the General Meeting held in May 2007. The Plan is based on the concession of a certain number of options on the shares of eDreams Inc. with concession date 1 January 2008. According to the terms of the plan, the right to these options was to vest over the four years following the contract date on a straight line basis from the concession date, and may be exercised up to ten years after the date each employee signed the contract, unless the employee leaves the employment of the companies of the eDreams Inc. and Subsidiaries Group, in which case the options must be exercised within three months of the resignation. The fair value of the option right was calculated at the concession date, applying the Black & Scholes valuation model, assuming volatility of 25% based on the movements in the listed share prices of comparable companies in the previous year and on a risk free asset bearing interest of 3.68%. The value of the option right in the case of the Vacaciones eDreams S.L.U. and subsidiaries Group totalled 456 thousand euros. This valuation is not subject to any revision to present value given the nature of the Plan. The plan is settled through the physical delivery to employees of the Group’s companies of shares in the company eDreams Inc., once they decide to exercise the aforementioned options on the basis of the conditions stipulated. No share options were exercised in 2008 and 2009. In August 2010, as a result of the change of shareholders of eDreams Group (see Note 1), all of the share options were exercised, given that a change of owners of the eDreams Group was one of the conditions stipulated in the plan for exercise if the price paid by the purchaser in the operation allowed a return on in the investment of at least 35% over the value of the shares initially obtained applying the Black & Scholes model.
F-139 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
18. Income and expenses (Continued) Taking into account the special rules contained in recognition and valuation standard no 17 of Spanish GAAP in relation to transactions with employees settled using equity instruments, the Vacaciones eDreams, S.L.U. and Subsidiaries Group has recognised an expense under ‘‘Staff costs’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ of each of the subsidiaries in the amount of 228 thousand euros in 2010. As mentioned above, the option right was to vest in the four years following the contract date on a straight-line basis as from the concession date. Nevertheless, the amount recorded in 2010 is in respect of the part accrued in 2010 until the change of shareholders of the eDreams Group, for 67 thousand euros, and of acceleration of the recognition of unaccrued staff costs that should have been recorded on a straight-line basis for the right to these options over the four year period from the concession date until the end of the plan as a result of its early cancellation, in the amount of 161 thousand euros. Therefore, this last amount is the one recorded in the accompanying consolidated income statement.
Debt-financed share option plan The agreement for the acquisition of eDreams Inc. by the new shareholders, concluded on 26 October 2006, included a share option plan giving certain employees of Vacaciones eDreams, S.L.U., eDreams International Network and eDreams, S.r.L the right to acquire a fixed number of shares in eDreams Inc. The share premium on these shares was funded via loan agreements concluded between eDreams Inc. and the individual employees. The fair value of the option was calculated at the concession date, 26 October 2006, applying the Black & Scholes valuation model, assuming volatility of 20% based on the movements in the listed share prices of comparable companies in the last year and on a risk free asset earning interest of 3.68%. The cost of the option right in the case of the Vacaciones eDreams S.L.U. and subsidiaries Group was valued at 2,000 thousand euros. This valuation is not subject to any revision given the nature of the Plan. The Vacaciones eDreams, S.L.U. and Subsidiaries Group has recognised an expense under ‘‘Staff costs’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ in the amount of 1,000 thousand euros in 2010 (500 thousand in 2009). The cost of the option right was to vest in the four years following the issuance date of the shares involved in the debt-financed share option plan. Nevertheless, the amount recorded in 2010 is in respect of the part accrued in 2010 until the change of shareholders of the eDreams Group, for 292 thousand euros, and of acceleration of the recognition of unaccrued staff costs that should have been recorded on a straight-line basis for the right to these options over the four year period share issue date as a result of its early cancellation, in the amount of 708 thousand euros. Therefore, this last amount is the one recorded in the accompanying consolidated income statement. The settlement of both plans has generated a payment to employees by USgoal Inc. for a total of 23,828 thousand euros. Shown below are the movements in 2010 recorded for the equity instruments in both of the Group employee incentive plans:
In effect at Granted in Cancelled In effect at 16/07/10 2010 in 2010 31/12/10 Number of share options ...... 234,369 48,890 (283,259) — Number of debt-financed share options .... 2,044,971 8,922 (2,053,893) — The weighted average exercise price of both eDreams Group plans has oscillated in a range of between 6 and 7 euros during 2010, until the cancellation date of both. At the date these financial statements are prepared, there are commitments that have not yet come into effect to apply a new plan with certain employees of the subsidiary companies for them to acquire a certain number of shares of eDreams Inc.
F-140 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
18. Income and expenses (Continued) 18.7. Other operating expenses The breakdown of the ‘‘Other operating expenses’’ line of the accompanying consolidated income statement is as follows:
31.12.2010 Thousands of euros Leases and royalties ...... 251 Repairs and maintenance ...... 191 Independent professional services ...... 3,267 Insurance premiums ...... 32 Banking and similar services ...... 1,146 Advertising, publicity and public relations ...... 19,178 Utilities ...... 124 Other services ...... 1,102 Taxes, other than company income tax ...... 156 Credit card refunds ...... 1,050 Corporate development costs ...... 235 Other management expenses ...... 115 Total ...... 26,847
19. Other information 19.1. Staff The average number of employees in 2010, by job category, was as follows:
Category 2010 Board members ...... 3 Management ...... 6 Administrative staff ...... 31 Operational staff ...... 266 Total ...... 306
The average number of employees in 2010, by category and gender, was as follows:
2010 Men Women Board members ...... 2 — Management ...... 7 — Administrative staff ...... 12 25 Operational staff ...... 112 188 Total ...... 133 213
The Management category includes five senior managers at yearend 2010. At yearend 2010, there was one employee who was a disabled person.
F-141 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
19. Other information (Continued) 19.2. Auditors’ fees Fees paid during 2010 to Deloitte, S.L. for services related to auditing the financial statements and other services amounted to 160 thousand euros. No other expenses have been incurred in respect of fees for other services provided by the auditor or any entity related to it.
19.3. Information on deferral of payments made to suppliers according to the Third Additional Provision ‘‘Disclosure duty’’ of Law 15/2010 of 5 July 2010. For the Group companies subject to that law, in relation to the disclosure required by the Third Additional Provision of Law 15/2010 of 5 July 2010 for these first financial statements prepared after its entry into force, at 31 December 2010 some 91 thousand euros of the balance pending payment to suppliers were overdue in relation to the legally prescribed payment period. As that balance refers to suppliers of the Spanish companies in the consolidated group who are by their trade creditors for supplies of goods and services, so it includes data relating to the current liability account of payables to suppliers on the balance sheet. The legal time limit applicable to the Company according to Law 3/2004 of 29 December 2004, which established measures to combat late payments in trade operations, and in accordance with the transitional provisions of Law 15/2010 of 5 July 2010, is 85 days from the effective date of the Law until 31 December 2011.)
19.4. Compensation payable to the Board of Directors and to the senior managers of the Group The remuneration received during 2010 by the members of the Board of Directors and the senior management of the Group is itemised below (in thousands of euros):
Insurance Share-based Salaries premiums payments Board of Directors ...... — — — Senior Management ...... 733 5 447 There were no advances or loans granted to members of the Board of Directors and to the senior management at yearend 2010.
19.5. Information regarding situations of conflict of interests of the Board of Directors At yearend 2010 the Board of Directors of the Group companies subject to the Spanish Capital Companies Act (Ley de Sociedades de Capital) and certain persons related thereto, within the meaning of that law, maintained equity holdings in the following companies that pursue
F-142 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
19. Other information (Continued) activities identical, analogous or complementary to those that constitute the corporate purpose of the Group companies. The following table also includes offices or functions they perform there:
Director or related person of Vacaciones Indirect eDreams, S.L.U. Company holding Corporate object Office or function eDreams Inc. eDreams, SRL 100% Travel agency Sole director (represented by Javier Perez-´ Tenessa) Javier Perez-Tenessa´ eDreams GmbH — Travel agency Managing Director Javier Perez-Tenessa´ Viagens eDreams — Travel agency Manager Portugal—Agenciaˆ de Viagens, LDA Javier Perez-Tenessa´ eDreams France, — Travel agency Manager SARL Javier Perez-Tenessa´ eDreams, LLC — Travel agency Chairman
Director or related person of International Percentage Network, S.L.U. Company holding Corporate object Office or function eDreams Inc. Editoriale Italiano 100% Admin and IT Sole director OnLine, SRL (indirect) consulting services eDreams Inc. eDreams Ltd. 100% Admin services — (direct) Javier Perez-Tenessa´ eDreams, Ltd. — Admin services Director (director of eDreams Inc.) Javier Perez-Tenessa´ Editoriale Italiano — Admin and IT Legal representative (director of eDreams Inc.) OnLine, SRL consulting of the sole services director Neither the members of the Board of Directors of eDreams Enterprises, S.L.U. or any certain persons related thereto, within the meaning of the Spanish Capital Companies Act (Ley de Sociedades de Capital), maintained equity holdings in the companies that pursue activities identical, analogous or complementary to those that constitute the corporate purpose of the company.
20. Post-balance sheet events On 25 January 2011, funds advised by Permira and AXA Private Equity signed an investment agreement whereunder the former undertakes to contribute the Group to the company LuxGEO Parent, S.a.r.l.,` recently formed for that purpose, and the latter to do the same with the Go Voyages Group, headed by the French company Lyeurope. Subsequently, on 9 February 2011, LuxGEO, S.a.r.l.` (indirect subsidiary of LuxGEO Parent) signed a share sale-purchase agreement with Amadeus for the purchase of its subsidiary Opodo. The close of this operation is subject to approval by regulators and to the fulfilment of the customary obligations for transactions of this kind. As a result, the GEO Group resulting from both transactions will become one of the largest online agencies in Europe.
F-143 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
20. Post-balance sheet events (Continued) During March, the eDreams Group has carried out a corporate restructuring, involving the following sequence of key steps: • On 18 March 2011, eDreams Enterprises, S.L., the current majority shareholder of eDreams Inc., has sold its shares in the latter to USgoal Inc., head of the eDreams Group under a share sale-purchase agreement. • On 18 March 2011, USgoal Inc., with the consent of eDreams Inc., has assumed the account payable of 64 million euros that eDreams Enterprises, S.L. maintained with eDreams Inc. at yearend. • At the same date, the Sole-Shareholder of USgoal, Inc. approved an inverse merger between eDreams Inc. (surviving company) and USgoal Inc. (absorbed company). This mean that all right and obligation of USgoal Inc. have been transferred to eDreams Inc. as surviving company. • Lastly, eDreams Enterprises, S.L. has been liquidated. As mentioned in Note 15.1, the financing agreement signed with Societ´ e´ Gen´ erale´ establishes certain financial conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the term of the agreements, with failure to satisfy these conditions constituting express grounds for accelerating the outstanding debt. At 31 December 2010 the Group was in fulfilment of the conditions required at that date. Nevertheless, clause 11.4 of the agreement stipulates that if there is a change of control of the Group, the latter must notify the agent bank as soon as it learns of such change and immediately cancel the facilities and pay the interest accrued as at that date. On 18 February 2011, as part of the corporate restructuring process described above, a new company with ties to eDreams Inc. signed a syndicated financing agreement with Societ´ e´ Gen´ erale´ as agent bank and giving the eDreams Group exactly the same financing (and on the same conditions) as it had previous to the date of the new contract. The Directors therefore believe it appropriate to continue regarding the transaction costs indicated in Note 15.1 as a reduction in the value of the liability.
21. Segment reporting The Group identifies its operating segments on the basis of internal reports on the Group components that are used as basis for regular review, discussion and evaluation by the Board, as the maximum decision making authority with power to allocate resources to the segments and to assess their performance. The segments are defined based on the following geographical information: • Spanish market • Italian market • Rest of countries
Information on main customers There is only one customer who has accounted for 10% or more of the net turnover for the year (see Note 11.3.2).
F-144 USGOAL INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
21. Segment reporting (Continued) Segment Financial Statements
Segment Account Italy Spain Rest Corporate Total Thousands of euros Net turnover ...... 14,408 16,382 10,695 3 41,488 Work done by Group on its own assets ...... — — — 1,198 1,198 Supplies ...... (1,030) — — — (1,030) Other operating revenue ...... 865 138 86 — 1,089 Staff costs ...... (1,549) (741) (1,225) (3,312) (6,827) Other operating expenses ...... (9,305) (11,021) (5,828) (693) (26,847) Depreciation and amortisation ...... (29) — — (4,695) (4,724) OPERATING INCOME ...... 3,360 4,758 3,728 (7,499) 4,347 Finance revenue ...... 2 — — 59 61 Finance costs ...... — — — (3,702) (3,702) Variation of fair value in financial instruments . . — — — (133) (133) Exchange differences ...... 45 (29) — (68) (52) Impairment and results on disposals of financial instruments ...... — — — 3 3 NET FINANCIAL INCOME ...... 47 (29) — (3,841) (3,823)
22. Explanation added for translation to English These financial statements are presented on the basis of the regulatory financial reporting framework applicable to the Company (see Note 2). Certain accounting practices applied by the Company that conform with that regulatory framework may not conform with other generally accepted accounting principles and rules.
Barcelona, 28 March 2011
Carlos Mallo Alvarez Pedro Lopez´ de Guzman Javier Perez-Tenessa´
F-145 Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.
USgoal INC. AND SUBSIDIARIES CONSOLIDATED MANAGEMENT REPORT For the year ended 31 December 2010
Turnover The table below shows that the Group’s Total Transaction Value (TTV) from August to December was 383 million euros. The Group’s sales in that same period totalled 41.5 million euros.
USgoal INC. AND SUBSIDIARIES CONSOLIDATED INCOME STATEMENT FOR 2010 (Thousands of euros)
FY Notes 2010 Total transaction value ...... 382.656 Net turnover— ...... Note 18.1 41.488 Work performed on intangible assets ...... Note 18.2 1.198 Other operating income ...... Note 18.4 1.089 Total Revenue ...... 43.775 Supplies ...... Note 18.3 (1.030) Gross Margin ...... 42.745 Current staff costs ...... Note 18.5 (5.898) Other current operating expenses ...... (25.306) Non-current staff costs ...... Note 18.5 (929) Other non-recurring operating expenses ...... Note 18.7 (1.541) Amortisation and depreciation of non-current assets ...... Notes 8 and 9 (4.724) Operating income ...... 4.347
Net financial income (loss) ...... (3.823) Profit (loss) before taxes ...... 524 Income tax ...... Note 16.2 1.075 Minority interests ...... Note 13.6 (219) Profit attributable to the parent company ...... 1.380
Notes 1 to 22 of the accompanying notes to the annual financial statements form an integral part of the consolidated income statement for 2010
F-146 USgoal INC. AND SUBSIDIARIES CONSOLIDATED MANAGEMENT REPORT (Continued) For the year ended 31 December 2010
The main drivers of this solid performance were: – Growth of the online travel market at the expense of traditional travel agencies – eDreams has gained market share from its competitors – Growth of new international pages (Australia, Brazil, Canada, Chile, India, Peru, Switzerland and the United States) – Consolidation of markets such as Italy, France and Portugal
Highlights of the year The year 2010 was characterized by a modest recovery of the tourism sector. The company achieved strong growth thanks to its international expansion, especially in markets such as France (200% growth year on year), Italy (54% year on year) and Portugal (79% growth year on year).
Own shares The company does not hold any of its own shares.
Research and development The eDreams Group constantly invests in R&D to ensure that its search tools continue to offer travel alternatives at competitive prices while introducing new product lines that meet customers’ needs.
Outlook The online travel market is expected to continue to grow in Spain and Italy, where the Group’s companies are currently leaders. Online airline ticket sales will continue to grow, as will the sale of other products such as hotels, train tickets and packages via internet.
Use of financial derivatives The company applies a risk management policy and at yearend 2010 there were two financial instruments used for hedging purposes, as explained in Note 12 to the financial statements.
Principal business risks The company is exposed to the typical risks of its sector.
Post-balance sheet events See Note 20 to the financial statements.
Barcelona, 28 March 2011
Javier Perez´ Tenessa Carlos Mallo Alvarez´ Pedro Lopez´ de Guzman´
F-147 Deloitte, S.L. Avda. Diagonal, 654 5APR201109213575 08034 Barcelona Espana Tel.: +34 932 80 40 40 Fax: +34 932 80 28 10 www.deloitte.es Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Group (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the Shareholders of eDreams Inc. at the request of Management of eDreams Inc.: 1. We have audited the consolidated financial statements of eDreams Inc. and Subsidiaries, which comprise the consolidated balance sheet at 31 December 2010 and the related consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the year then ended. The Parent’s directors are responsible for the preparation of the consolidated financial statements in accordance with the regulatory financial reporting framework identified in Note 2.1 to the accompanying consolidated financial statements and, in particular, with the accounting principles and rules contained therein. Our responsibility is to express an opinion on the consolidated financial statements taken as a whole based on our audit work performed in accordance with the audit regulations in force in Spain, which require examination, by means of selective tests, of the evidence supporting the consolidated financial statements and evaluation of whether their presentation, the accounting principles and policies applied and the estimates made comply with the regulatory financial reporting framework applied as described in paragraph 3 below. 2. In our opinion, the accompanying consolidated financial statements for 2010 present fairly, in all material respects, the consolidated equity and consolidated financial position of eDreams Inc. and Subsidiaries at 31 December 2010, and the consolidated results of their operations and their consolidated cash flows for the year then ended, in conformity with the regulatory financial reporting framework applied, and, in particular, with the accounting principles and rules contained therein. 3. Without qualifying our audit opinion, we draw attention to Note 2.1, which indicates that eDreams Inc. is a company domiciled in the United States of America, whose sole activity is the holding of shares in companies that carry on their business activities principally in Spain, where their corporate services are located, and in Italy. Accordingly, the directors prepared the accompanying consolidated financial statements in accordance with the regulatory financial reporting framework identified in the aforementioned note. 4. The accompanying consolidated directors’ report for 2010 contains the explanations which the Parent’s directors consider appropriate about the Group’s situation, the evolution of its business and other matters, but is not an integral part of the consolidated financial statements. We have checked that the accounting information in the consolidated directors’ report is consistent with that contained in the consolidated financial statements for 2010. Our work as auditors was confined to checking the consolidated directors’ report with the aforementioned
F-148 scope, and did not include a review of any information other than that drawn from the accounting records of eDreams Inc. and Subsidiaries.
DELOITTE, S.L. Registered in ROAC under no. S0692
Artur Amich 28 March 2011 Deloitte, S.L. Inscrita en el Registro Mercantil de Madrid, tomo 13.650, seccion´ 8a, folio 188, hoja M-54414, inscripcion´ 96a. C.I.F.: B-79104469. Domicilio social: Plaza Pablo Ruiz Picasso, 1, Torre Picasso, 28020, Madrid. Member of Deloitte Touche Tohmatsu
F-149 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET At 31 December 2010 (thousands of euros)
ASSETS Notes 31.12.10 31.12.09 EQUITY AND LIABILITIES Notes 31.12.10 31.12.09 NON-CURRENT ASSETS: EQUITY: Intangible fixed assets .... Note 6 116,803 116,994 SHAREHOLDER’S EQUITY— Note 11 Property, plant and Capital ...... 11 equipment ...... Note 7 1,510 1,614 Long-term financial Share issue premium ..... 85,449 89,979 investments— ...... Note 9.1 66,122 828 Long-term investments in Reserves of the parent related company ...... (49,343) (12,522) parties ...... Notes 9.1 & 17 64,475 — Fully consolidated reserves . 20,457 11,686 Derivatives ...... Notes 9.1 & 10 260 — Own shares held ...... — (12,576) Other long-term financial Profit for the year attributed to investments ...... 1,387 826 the parent company .... 12,555 4,884 Deferred tax assets ...... Note 14.3 222 387 Revaluation adjustments and hedging transactions .... 237 290 Total non-current assets .. 184,657 119,821 Total equity ...... 69,356 81,742
NON-CURRENT LIABILITIES: Long-term provisions ..... Note 12 — 480 Long-term borrowings .... Note 13 82,991 24,968 Bank borrowings ...... 82,991 24,750 Derivatives ...... — 148 Other financial liabilities .... — 70 Borrowings from related parties ...... Note 17 11,133 15,000 Deferred tax liabilities ..... Note 14.4 2,878 3,473 Accruals ...... 220 429 Total non-current liabilities 97,222 44,350
CURRENT LIABILITIES: CURRENT ASSETS: Short-term provisions ..... Note 12 808 717 Trade and other Short-term debts— ...... Note 13 5,587 2,400 receivables— ...... 7,809 6,237 Trade receivables ...... 7,514 6,193 Bank borrowings ...... 5,458 1,750 Sundry receivables ...... 3 4 Financial lease ...... — 18 Staff ...... 27 15 Derivatives ...... Note 10 18 534 Current tax assets ...... Note 14.1 239 — Other financial liabilities .... 111 98 Tax receivables ...... Note 14.1 26 25 Borrowings from related parties ...... Note 17 26 — Short-term investments in Trade and other accounts related parties ...... Note 17 792 — payable— ...... 33,502 20,108 Other financial assets ...... 792 — Suppliers ...... 25,616 10,295 Short-term financial Other payables ...... 3,142 1,765 investments ...... Note 9.2 150 5,805 Derivatives ...... Note 10 — 534 Staff ...... 1,569 1,342 Other financial assets ...... 150 5,271 Current tax liabilities ...... Note 14.1 1,705 5,801 Accruals ...... 242 190 Tax payables ...... Note 14.1 1,470 905 Cash and cash equivalents . 13,060 17,763 Accruals ...... 209 499 Total current assets ..... 22,053 29,995 Total current liabilities ... 40,132 23,724 TOTAL ASSETS ...... 206,710 149,816 TOTAL EQUITY AND LIABILITIES ...... 206,710 149,816
The accompanying Notes 1 to 21 are an integral part of the consolidated balance sheet at 31 December 2010.
Javier Perez-Tenessa´ Pedro Lopez´ de Guzman´ Carlos Mallo Alvarez´
F-150 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES 2010 CONSOLIDATED INCOME STATEMENT (thousands of euros)
Year Year Notes 2010 2009 Net turnover ...... Note 16.1 95,919 73,067 Work done by Group on its own assets ...... Note 16.2 3,255 2,380 Supplies ...... Note 16.3 (1,966) (2,354) Other operating revenues ...... Note 16.4 2,691 1,691 Staff costs- ...... Note 16.5 (13,925) (10,456) Wages, salaries, etc ...... (11,922) (8,906) Employee welfare costs ...... (2,003) (1,550) Other operating expenses- ...... (61,616) (46,674) Losses, impairment and change in trade provisions ...... (19) (138) Other operating expenses ...... Note 16.7 (61,597) (46,536) Depreciation and amortization ...... Notes 6 & 7 (4,880) (4,501) Operating income ...... 19,478 13,153 Finance revenue- ...... 1,066 107 On third party debts ...... 77 107 On debts of related parties ...... Note 17.2 989 — Financial expenses- ...... (4,509) (3,686) On debts to third parties ...... (4,483) (3,686) On debts to related parties ...... Nota 17.2 (26) — Change in fair value of financial instruments ...... Note 10 (400) (231) Exchange differences ...... (174) 19 Net financial income (expense) ...... (4,017) (3,791) Profit (loss) before taxes ...... 15,461 9,362 Income tax ...... Note 14.2 (2,906) (4,478) Profit attributable to the parent company ...... 12,555 4,884
Notes 1 to 21 of the accompanying notes to the annual financial statements form an integral part of the consolidated income statement for 2010
Javier Perez-Tenessa´ Pedro Lopez´ de Guzman´
Carlos Mallo Alvarez´
F-151 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN 2010 A) CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2010 (thousands of euros)
Year Year 2010 2009 CONSOLIDATED NET INCOME FOR THE PERIOD (I) ...... 12,555 4,884 Income and expense recognised directly in equity —From valuation of financial instruments ...... (233) (228) —From cash flow hedges ...... 277 — —Tax effect ...... (97) — TOTAL INCOME AND EXPENSE RECOGNIZED DIRECTLY IN EQUITY (II) ...... (53) (228)
TOTAL AMOUNTS TRANSFERRED TO INCOME STATEMENT (III) ...... ——
TOTAL RECOGNISED CONSOLIDATED INCOME AND EXPENSE (I+II+III) .... 12,502 4,656
Notes 1 to 21 of the accompanying notes to the annual financial statements form an integral part of the consolidated statement of recognised income and expense for 2010
Javier Perez-Tenessa´ Pedro Lopez´ de Guzman´
Carlos Mallo Alvarez´
F-152 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN EQUITY IN 2010 B) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2010 (thousands of euros)
Share Parent Issue company Consolidated Own Results for Hedging Revaluation Capital Premium reserves reserves shares the year transactions reserve Total Adjusted balance at 1 January 2009 .. 1 91,329 (9,715) 4,120 (13,926) 4,145 — 518 76,472 Total recognised income and expense ...... — — — — — 4,884 (228) 4,656 Transactions with shareholders: Capital increase . . — (1,350) — — 1,350 — — — — Share-based payments .... — — 614 — — — — — 614 Application of income for 2008 — — (3,421) 7,566 — (4,145) — — — Closing balance at December 31, 2009 ...... 1 89,979 (12,522) 11,686 (12,576) 4,884 — 290 81,742 Total recognised income and expense ...... — — — — — 12,555 180 (233) 12,502 Transactions with shareholders: Capital increase . . — 1,797 — — — — — — 1,797 Treasury stock . . . — (6,327) (34,086) — 12,576 — — — (27,837) Share-based payments .... — — 1,228 — — — — — 1,228 Application of income for 2009 — — (3,887) 8,771 — (4,884) — — — Hedging transactions .... — — — — — — — — — Others ...... — — (76) — — — — — (76) Closing balance at 31 December 2010 ...... 1 85,449 (49,343) 20,457 — 12,555 180 57 69,356
The accompanying Notes 1 to 21 to the annual financial statements form an integral part of the consolidated statement of changes in equity for 2010.
Javier Perez-Tenessa´ Pedro Lopez´ de Guzman´ Carlos Mallo Alvarez´
F-153 Translation of consolidated financial statements originally issued in Spanish and prepared in # accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENT FOR 2010 (thousands of euros)
Year Year Notes 2010 2009 Cash flows from operating activities (I): ...... 31,210 7,353 Profit before tax ...... 15,461 9,362 Adjustments to profit- ...... 7,114 7,074 Depreciation and amortization ...... Note 6 and 7 4,880 4,501 Work performed on fixed assets ...... Note 16.2 (3,255) (2,380) Changes in provisions ...... 349 548 Finance revenue ...... (1,066) (107) Finance costs ...... 4,509 3,686 Exchange differences ...... 174 (19) Change in fair value of financial instruments ...... 295 231 Other costs (transactions paid with equity instruments) ...... Note 16.6 1,228 614 Change in working capital- ...... 20,509 (4,800) Trade and other receivables ...... (1,592) 248 Other current assets ...... 5,069 (4,832) Trade and other payables ...... 17,620 (534) Other current liabilities ...... (588) 318 Other non-current liabilities ...... (689) — Other cash flows from operating activities- ...... (11,185) (4,283) Interest paid...... (3,700) (3,668) Interest received ...... 77 107 Corporate income tax paid ...... (7,562) (722) Cash flows from/(used in) investing activities (II) ...... (1,975) (1,191) Payments for investments- ...... (1,975) (1,191) Intangible fixed assets ...... (847) (357) Property, plant and equipment ...... (567) (264) Other financial assets ...... Note 10.1 (561) (570) Cash flows from financing activities (III) ...... (33,938) 310 Proceeds from and payments of financial liability instruments- ... (35,459) 395 Repayment and redemption bank borrowings ...... Note 13 (26,503) (300) Debt issues with credit institutions ...... Note 13 5,000 — Other liabilities ...... (589) 695 Repayment and cancellation of debts with group companies ...... Note 17 (15,000) — Debt issues with group companies ...... Note 17 1,633 — Proceeds from and payments of equity instruments ...... 1,742 — Effect of exchange rate changes ...... (221) (85) NET DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV) (4,703) 6,472 Cash and cash equivalents at 1 January ...... 17,763 11,291 Cash and cash equivalents at 31 December ...... 13,060 17,763 Notes 1 to 21 of the accompanying notes to the annual financial statements form an integral part of the consolidated cash flow statement for 2010. Javier Perez-Tenessa´ Pedro Lopez´ de Guzman´ Carlos Mallo Alvarez´
F-154 eDreams Inc. and Subsidiaries
Consolidated financial statements for the financial year ended 31 December 2010 and Management Report, together with Audit Report
Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
F-155 Translation of a report originally issued in Spanish based on our work performed in accordance with the audit regulations in force in Spain and of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS
To the Shareholders of eDreams Inc. and Subsidiaries:
(Opinion)
DELOITTE, S.L. Registered in the R.O.A.C. Nº S0692
F-156 Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with the regulatory financial reporting framework applicable to the Company (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended 31 December 2010
1. Group companies and activities eDreams Inc. is the Parent of a Group of companies (hereinafter, the eDreams Group or the Group) whose primary corporate purpose is to broker sales of holiday and travel packages, flights, hotel rooms and car rentals, to provide a range of tourism-related services, and to sell advertising space using the Internet and call centres as sales channels. The Parent Company of the eDreams Group was incorporated on 28 January 1999. eDreams Inc. has its registered office in Delaware (United States), although the main activities of the eDreams Group are carried on almost entirely in Spain and Italy, via the subsidiaries Vacaciones eDreams, S.L.U., eDreams International Networks, S.L.U., eDreams, S.r.L. and Editoriale Italiano OnLine, S.r.L., respectively. On 26 October 2006, the US investment fund TA Associates, through the company eDreams Acquisition Corp., wholly owned by eDreams Holding, LLC., acquired 93.3% of the share capital of eDreams Inc., resulting in a change of control within the Group. Subsequently, on 27 October 2007, an inverse merger was concluded that left eDreams Inc. as the surviving company. The merger was effective for accounting purposes as of 1 November 2006, from which date eDreams Inc. assumed all activities previously performed by the absorbed company.
F-157 ember 160 Greentree 100% ¨ usseldorf) 73-75 (London) Delaware 0.1% 100% EDREAMS INC. AND SUBSIDIARIES 100% 100% 99.9% 100% 100% 100% Admin and IT Admin and IT For the financial year ended 31 December 2010 For 6,974 32,318 21,021 12 100 57 25 — — 100% eDreams, International Italiano OnLine, eDreams France, Vacaciones eDreams Editoriale Viagens eDreams consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED 2010 2010 2010 2010 2010 2010 2010 2010 2010 2010 Holding Travel consulting Travel consulting Travel Travel Travel Travel of Kent, Center 601 N Center 601 N Boscovich, Via Boscovich, Via de Melo, Pereira de 35 Avenue Platz, 15 Mortimer Street (City of Dover) Lane (City of Dover) County Trade World Trade World Fontes Avda. Graf-Adolf- Drive Suite 101 30 Old Rudnick .... — ...... — ...... — ...... The Group companies included in the scope of consolidation and relevant information on each are as follows: S.L...... S.L.U...... — corresponding shareholder companies (thousands of euros) used for consolidationpurposes 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 Dec eDreams Intern. Network, Vacaciones eDreams, Vacaciones eDreams, S.R.L. Registered office Delaware (Barcelona) (Barcelona) 14 (Milan) 14 (Milan) 7 (Lisbon) (Paris) Friedland (D Name eDreams Inc. S.L.U. Network, S.L. eDreams, S.r.L. S.r.L. LDA Portugal SARL eDreams GmbH eDreams, Ltd. eDreams LLC Carrying value of holding Date of financial statements Method of consolidation . . . company Parent Fully Fully Fully Fully Fully Fully Fully Fully Fully Direct holding: 1. Group companies and activities (Continued) Indirect holding: Activity company agency services agencies services agencies Agencies agencies Admin services agencies
F-158 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
1. Group companies and activities (Continued) In November 2009, eDreams Holding, LLC, the principal shareholder of eDreams Inc., set up the company eDreams Enterprises, S.L., and subscribed for 39,998 shares of the 40,000 shares that represented the said company’s share capital. In February 2010 a capital increase was carried out in eDreams Enterprises, S.L., to which eDreams Holding, LLC contributed 12,813,141 shares, representing all shares held in eDreams Inc. and representing 77.3% of the share capital, and the rest of the shareholders contributed 1,096,829 shares, or 6.6% of the share capital. As a result, a total of 13,909,970 shares were contributed, making eDreams Enterprises, S.L. the principal shareholder of the Parent Company with an equity stake of 84%. On 3 August 2010, funds advised by Permira, through its investee company USgoal Inc., acquired the eDreams Group, which entailed a change of control and gave rise to a new eDreams Group. As a result of that change of control, there was executed the Share Options Plan that is explained below, as this was one of the exercise conditions stipulated in the Plan. Consequently, there was a capital increase in eDreams Inc. with 283,259 new shares being issued and subscribed by employees (see Note 16.6). The capital increase diluted eDreams Enterprises, S.L.’s holding in eDreams Inc. to 82.5%. The Group holds own shares and carries them under Own shares held in the accompanying balance sheet that are part of the Debt-finances Share Option Plan implemented by the Parent Company (see Note 16.6). These shares were considered to be own shares until the collateral lien on the shares expired. During 2010, as a result of the change in shareholders, those guarantees matured early and were thus also part of the sale-purchase explained below. Funds advised by Permira, through the company USgoal Inc., with registered office in Delaware (United States), acquired in August 2010 100% of the share capital of eDreams Enterprises, S.L. and part of the shares of eDreams Inc. owned by the minority shareholders (specifically, the latter transferred ownership of 13.55% of the share capital (2,284,478 shares) out of the 17.5% they held in aggregate). In September 2010, USgoal Inc. sold 2,284,478 shares to eDreams Inc. that it held by virtue of the eDreams Group sale-purchase above which represented 13.55% of the eDreams Inc. share capital. Afterwards, eDreams Inc. carried out a reduction of capital through the purchase of its own shares. After the corporate operations described above during 2010, the principal shareholder of the Parent Company is eDreams Enterprises, S.L., wholly owned by USgoal Inc., with an indirect holding in eDreams Inc. of 95.4%.
2. Basis of presentation of the consolidated financial statements 2.1. Regulatory framework on financial reporting These consolidated financial statements have been prepared voluntarily by the Directors in accordance with the following regulatory framework on financial information: a) Spanish Code of Commerce (Codigo´ de Comercio) and other company laws. b) The Standards for Preparing Consolidated Financial Statements approved by Royal Decree 1159/2010 and the General Accounting Plan approved by Royal Decree 1514/2007 and its sector adaptations. c) The mandatory standards approved by the Institute of Accounting and Auditing (Instituto de Contabilidad y Auditor´ıa de Cuentas—ICAC) implementing the General Accounting Plan and its complementary rules. d) The rest of the Spanish accounting rules that apply thereto.
F-159 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
2. Basis of presentation of the consolidated financial statements (Continued) e) The commercial law applicable in the United States and Italy. eDreams Inc. (Parent Company) is a company with registered office in the United States of America, with no operations, and whose principal subsidiary companies mainly carry on their operations in Spain, where the corporate services are based, and in Italy. For this reason, the Directors have prepared and presented voluntarily the accompanying consolidated financial statements in accordance with accounting principles and standards generally accepted in Spain.
2.2. True and fair view The accompanying consolidated financial statements have been prepared on the basis of the accounting records of eDreams Inc. and the subsidiaries included in the scope of consolidation (as detailed in Note 1) in the format established by the financial reporting regulatory framework that applies thereto and, in particular, the accounting principles and criteria contained there, so as to provide a true and fair view of the equity, financial situation and results of the Group and its cash flows for the year. These consolidated financial statements, which have been prepared by the Directors of eDreams Inc., and the individual financial statements of eDreams Inc. and each of its consolidated subsidiaries, will be submitted, where applicable, for approval by shareholders at the relevant Annual General Meetings, and the Directors are of the opinion that they will be approved without modification. The consolidated financial statements for 2009 were approved by the General Meeting of Shareholders held on 30 June 2010.
2.3. Going concern principle At 31 December 2010, the Group had negative working capital of 18,079 thousand euros. In addition, at 31 December 2010, the Group had credit facilities in place with various banks for a total of 25 million euros, of which some 20 million euros were undrawn (see Note 13.2). The Directors believe that the financing available and the recurring profits will generate sufficient cash flows in the short term to be able to meet all of the company’s obligations. Consequently, the accompanying consolidated financial statements have been prepared in accordance with the going concern principle, i.e. assuming that its assets and liabilities will be respectively realised and settled in the normal course of business.
2.4. Non-obligatory accounting principles applied No non-obligatory accounting principles have been applied. Furthermore, the Directors have prepared these consolidated financial statements taking into consideration all mandatory accounting principles and standards with a significant impact on said financial statements, and no mandatory accounting principles have been omitted in their preparation.
2.5. Critical issues affecting valuation and estimation of uncertainty In the preparation of the accompanying consolidated financial statements estimates have been used that were prepared by the Directors of the Parent Company to quantify some assets, liabilities, revenues, expenditure and commitments that are recorded there. Those estimates basically refer to: • The valuation of goodwill (see Notes 5.1 and 6). • The useful life of tangible and intangible assets (see Notes 5.1 and 5.2). • Such impairment losses as may arise on certain tangible and intangible assets when it is deemed that the book value of said assets is not recoverable (see Note 5.3). • Estimate of provisions (Note 12). • Estimate of provision for bad debt on accounts receivable (Note 5.10).
F-160 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
2. Basis of presentation of the consolidated financial statements (Continued) • The calculation of share-based payments (see Notes 5.14 and 16.6). • Assessment of lawsuits, commitments and assets and liabilities that were contingent at closing. Although these estimates were made on the basis of the best available information available at the close of 2010, it is possible that events could take place in the future that might require them to be adjusted upwards or downwards in the coming years on a prospective basis.
2.6. Comparative information The information relating to 2010 contained in these notes to the financial statements is presented for comparatives purposes with the information for 2009. On 24 September 2010, Spain’s Official State Gazette (BOE) published Decree 1159/2010 of 17 September 2010, which approved the Standards for Preparing Consolidated Financial Statements and introducing certain changes into the General Accounting Plan approved by Royal Decree 1514/2007. In accordance with the transitional rules, those changes have been applied prospectively as from 1 January 2010, and have not had a material impact. Likewise according to those rules, the Group has opted for presenting comparative information without adapting it to the new criteria, so these financial statements are considered as initial statements for the purposes of the principles of uniformity and comparability.
2.7. Grouping of accounts items Certain items on the balance sheet, income statement, the statement of changes in equity and the cash flow statements are grouped together under single headings to facilitate interpretation. If necessary, where the information is significant, a breakdown of the heading is provided in the accompanying notes to the financial statements.
3. Consolidation principles 3.1. Transactions between companies included in the scope of consolidation The accompanying consolidated financial statements take the financial statements of the companies controlled by the Parent Company at 31 December 2010. It is considered that the Parent Company has a controlling interest when it has the power to establish the financial and operating policies of its holdings. The results of investee companies are included in the consolidated income statement as from the effective acquisition date. All companies over which the Parent exercises effective control by holding the majority of votes on its representative and decision-making bodies are fully consolidated in the consolidated financial statements. All significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements. In addition, the most significant accounting principles and criteria used in their preparation have been standardised. The companies included in the consolidation process are those subsidiary companies of the Group detailed in Note 1.
3.2. Standardisation of individual accounts headings The accounting principles and procedures used by Group companies have been unified so that the consolidated financial statements can be presented on a uniform accounting basis.
F-161 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
3. Consolidation principles (Continued) The criteria used for standardisation purposes were the following: 1. Time: the financial statements of Group companies have the same closing date and cover the same period as the consolidated financial statements. 2. Valuations: asset and liability items have been valued using uniform methods and in accordance with generally accepted valuation principles and standards.
3.3. Functional currency Although the Parent Company prepares its financial statements in US dollars, these consolidated financial statements are expressed in euros, since that is the functional currency. Transactions in currencies other than the functional currency are recorded according to the accounting policies established in Note 5.7.
3.4. Changes in the scope of consolidation During 2009 a company was incorporated that did not consolidate as it was not considered to have a significant effect on the consolidated figures for 2009: eDreams LLC (see Note 1). In 2010 that company was included in the scope of consolidation, although the Directors of the Parent Company believe it has no material effect when interpreting and comparing the 2010 figures with 2009.
4. Application of the Parent Company’s income The Company’s Directors will propose the following distribution of income for the year for the approval of shareholders at the General Meeting: FY 2010 (g 000s) Application of net profit (loss): Parent Company losses for the year ...... (1,622) Application of net profit (loss): Losses brought forward ...... (1,622)
5. Recognition and measurement The main recognition and valuation methods applied by the Company in preparing its financial statements for 2010 and 2009, in accordance with Spanish GAAP (Plan General de Contabilidad— General Accounting Plan), were as follows:
5.1. Intangible fixed assets Intangible assets are initially carried at cost of acquisition or production. They are later carried at cost, less any cumulative amortisation or impairment losses that may apply. 1. Industrial Property Domains and brands are recognised at acquisition price and amortised over the duration of their estimated useful life, subject, where applicable, to a ceiling equivalent to the duration of any licensing agreements signed with third parties. The ‘‘Industrial Property’’ account at 31 December 2010 and 2009 mainly includes the eDreams corporate brand, composed of all the elements (name, logo, brand architecture, etc.) that illustrate the eDreams Group’s corporate identity. This contributes to customer retention and the development of new customers, making newly acquired commercial services more attractive.
F-162 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) The Group estimated that said industrial property had a finite useful life and amortised such assets on a straight-line basis over 10 years. As from the transaction mentioned in Note 1, since an independent expert identified and determined the fair value of the Group’s assets for the purchaser (USgoal Inc.), and in order to standardise the amortisation policy with the rest of the group and associated companies, as from that date a change was made in the estimate of useful life in line with a report issued by the said independent expert. These assets are now considered to have an indefinite useful life. According to the applicable rules and standards, the changed estimate has been applied prospectively as from August 2010. Maintaining the estimated useful life of the brands would have implied an increase in amortisation expenses of 390 thousand euros. 2. Software The Company records all costs incurred to acquire and develop computer programs, including website development costs, under this heading. Software upkeep and maintenance expenses are charged against income when incurred. The cost of software includes internal development costs. Expenditure incurred internally by the Company on the development of software and its website is only recorded as assets if all of the conditions below are met or can be demonstrated: • an identifiable asset is created, • it is likely that the asset will generate future economic benefits, and • the cost of developing the asset can be reliably ascertained. Capitalised development costs with a finite useful life are amortised on a straight line basis over the period during which the asset is expected to generate income. As with brands, in order to standardise the policy with the rest of the group and associated companies, a change was made in the estimated useful life of certain technology-related intangible assets in line with a report issued by an independent expert, so that the estimated useful life of some assets has been modified from 5 to 4 years. The changed estimate was applied prospectively as from August 2010. Maintaining the previous estimated useful life of the technology would have implied a decrease in amortisation charges for the year of 92 thousand euros. Development costs previously recorded as expenditure are not recognised as an asset during subsequent years. The Group amortises its intangible assets on a straight-line basis using annual write-off percentages calculated on the basis of the estimated years of useful life of the assets, as detailed below:
FY 2010 Percentage amortised in year Industrial property (other than brand) ...... 12-20 Software ...... 16-33
FY 2009 Percentage amortised in year Industrial Property ...... 10-20 Software ...... 16-33
F-163 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 3. Goodwill and Business combinations Acquisition by the parent company of control of a company constitutes a business combination and is accounted for using the acquisition method. In subsequent consolidations, elimination of the investment-equity of the subsidiary companies will generally be done on the basis of the values obtained by applying the acquisition method described below at the control date. Business combinations are accounted for applying the acquisition method, which entails determining the acquisition date and calculating the cost of the combination, with the identifiable assets that are acquired and liabilities that are assumed being recorded at their fair value as at that date. The goodwill or negative difference of the combination is determined by the difference between the fair values of the assets acquired and the liabilities assumed and the cost of the combination, all in relation to the acquisition date. The cost of the combination is determined by aggregating the following: • The fair values at the acquisition date of the assets transferred, the liabilities incurred or assumed and the equity instruments issued. • The fair value of any contingent consideration that depends on future events or on the fulfilment of predetermined conditions. The cost of the combination does not include expenses related to the issuance of equity instruments or of financial liabilities delivered in exchange for the assets acquired. Also, as from 1 January 2010 the cost of the combination does not include fees paid to legal advisors or other professionals who have been involved in the combination nor, of course, the expenses generated inside the company in respect of these items. Those amounts are taken directly to the income statement. The goodwill arising in the acquisition of companies with a non-euro functional currency is measured in the functional currency of the acquired company, and the conversion into euros is done at the prevailing exchange rate at the balance sheet date. The goodwill is not amortised and is subsequently measured at cost minus impairment losses. Impairment adjustments recognised against goodwill are not reversible in later financial periods. In the exceptional event that a negative difference arises in the combination, it is taken to the income statement as revenue. If at the end date of the period in which the combination takes place, the measurement procedures that are needed to apply the acquisition method described above cannot be concluded, the accounting is considered provisional and those provisional values may be adjusted in the period needed to obtain the requisite information, which period can in no event run longer than one year. The effects of the adjustments made in that period are recorded retroactively, modifying the comparative information if and as necessary. Subsequent changes in the fair value of the contingent consideration are adjusted against income, unless that consideration has been classified as equity, in which case any subsequent changes in its fair value are not recognised. The goodwill initially recognised in the amount of 122,897 thousand euros reflects the positive difference between the cost of investing in the Group and the value of the Group’s shareholders’ equity on the acquisition date, less the ‘‘Minority interests’’ that disappeared as a consequence of the merger process, henceforth becoming shareholders of the merged company (see Note 1).
F-164 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) The difference between the acquisition cost and the book value of the net assets acquired was partially allocated to intangible assets in the amount of 17,881 thousand euros, less 5,364 thousand euros for the tax effect. Goodwill at 31 December 2010 was carried at 103,941 thousand euros (see Note 6).
5.2. Property, plant and equipment Property, plant and equipment are initially recorded at cost of acquisition or production and are later carried at cost, less any cumulative depreciation or impairment losses that may apply, in accordance with the criteria detailed in Note 5.3. Expenses associated with the repair and maintenance of property, plant and equipment are charged to the income statement for the year in which they are incurred. Conversely, sums invested in betterments that contribute to increasing the capacity or efficiency or to lengthening the useful life of those assets are recorded as a higher cost of those assets. The Group depreciates its property, plant and equipment on a straight-line basis, using percentages of annual depreciation calculated on the basis of the estimated years of useful life of the assets, as detailed below: Percentage amortised in year Technical facilities ...... 12 Furniture and fittings ...... 10 Data processing equipment ...... 20 Motor vehicles ...... 12 Other tangible fixed assets ...... 12
5.3. Impairment in value of property, plant and equipment and intangible assets At the close of each financial year (in the case of goodwill or intangible assets with an indefinite useful life) or when there is evidence of a loss in value (other assets), the Group uses an impairment test to estimate the likely existence of loss of value that causes the recoverable value of the asset to be lower than its book value. The recoverable value is determined as the higher amount between the fair value less selling costs and the value in use. The procedure established by the Group’s management for this test in 2009 was as follows: Recoverable value is calculated for each cash generating unit. In the case of property, plant and equipment, impairment calculations are carried out individually on an item by item basis. Each year the management prepares a three to six year business plan segmented by market for each cash generating unit. The main components of the plan are: • Income forecasts • Investment and working capital forecasts Other variables affecting the calculation of recoverable value are: • The discount rate applied, taken as the weighted average cost of capital, the cost of liabilities and the specific risks attached to assets. In this case, the rate used is around 9%. • The cash flow growth rates used to extrapolate cash flow forecasts beyond the period covered by budgets and provisions. No growth rate in perpetuity has been applied to cash flows.
F-165 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) The forecasts are prepared on the basis of past experience and using the best estimates available, ensuring these are consistent with external information. Once prepared, the business plans are reviewed and given final approval by the relevant governing body. If it is necessary to recognise an impairment loss on a cash generating unit to which all or part of the goodwill has been allocated, first the book value of the goodwill corresponding to said unit is reduced. If the impairment is greater than the balance on the goodwill account, the remaining assets of the cash generating unit are written down in proportion to their book value, up to the greater of the following; their fair value less selling costs, their value in use, and zero. For goodwill and intangible assets, the recoverable value has been considered comparable to the fair value indicated by the transaction carried out in August 2010, in which funds advised by Permira purchased the eDreams Group for 274 million euros. Consequently, considering the recently made transaction and that the acquired group has generated profits during this period the Directors believe there are no signs of impairment at 31 December 2010 nor at the date these consolidated financial statements are prepared.
5.4. Leases Leases are classified as financial leases when their conditions imply the substantial transfer to the lessee of the risks and benefits inherent in the asset subject to the contract. Other leases are classified as operating leases.
Financial leases For financial leasing operations where the Group is the lessee, the cost of the leased assets is recorded in the balance sheet under the appropriate heading for the type of asset, and a liability for the same amount is simultaneously recognised. The amount recognised will be the lower of the fair value of the leased asset and the present value as at the start of the lease of the minimum rentals agreed, including the purchase option if there are no reasonable doubts as to its exercise. Contingent amounts, servicing costs and taxes payable by the lessor are not included. The total financial cost of the contract is taken to the consolidated income statement in the financial year in which it accrues, using the effective interest method. Contingent rentals are recognised as expenses in the financial year in which they are incurred. The asset recorded for this type of operation is depreciated using similar criteria to those applied to property, plant and equipment, according to the type of asset. At 31 December 2009 the Group company Vacaciones eDreams, S.L.U. had a fixed asset recorded in its books in respect of a motor vehicle.
Operating leases Costs arising from operating lease agreements are expensed currently. Any receipt or payment made when an operating lease is contracted is treated as accrual or prepayment to be taken to income over the term of the lease, to the extent the benefits of the leased asset are transferred or received.
F-166 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.5. Financial instruments 5.5.1. Financial assets Classification The financial assets of the Group’s companies are categorised as follows: 1. Loans and receivables: financial assets arising from the sale of goods or rendering of services as part of the company’s trading activities, or arising from non-trading activities but which are not equity instruments or derivatives, which are of a fixed or determinable amount and are not negotiable on an active market. This heading primarily includes trade and non-trade receivables, guarantees and pledged bank deposits. 2. Financial investments held for trading: these are assets acquired with the intention of disposing of them in the short term, or which form part of a portfolio where transactions with such an objective have recently taken place. Holdings in investment funds are included (see Note 9.2). This category also includes derivative financial instruments which are not financial guarantees (such as sureties) and have not been designated as hedging instruments. At 31 December 2009 this heading included an interest rate swap agreement over a notional amount of 19,167 thousand euros scheduled to expire on 26 October 2010 (see Note 10). 3. Equity investments in Group companies: Group companies are those with which the Company has a controlling relationship, while associated companies are those in which the Parent Company exercises significant influence. In 2010, there were no unconsolidated companies so there were no financial assets of this kind.
Initial measurement Financial assets are initially stated at the fair value of the consideration received plus any directly attributable transaction costs.
Subsequent measurement Loans, receivables and investments held to maturity are stated at their amortised cost. Financial investments held for trading are stated at their fair value, with adjustments to this fair value being recognised in the income statement. The Group carries out impairment testing on financial assets that are not stated at fair value at least annually at yearend. Objective evidence of impairment is considered to exist if the recoverable value of the financial asset is lower than its book value. The impairment is then expensed to the accompanying consolidated income statement. The Group derecognises financial assets when they expire or when the rights to the cash flows are assigned and the risks and benefits derived from the ownership of the asset are substantially transferred.
5.5.2. Financial liabilities Financial liabilities are those debts and payables arising from the purchase of goods or services as part of the Group’s trading activities, or those arising from non-trading activities but which are not considered to be derivative financial instruments. Debts and payables are initially stated at the fair value of the consideration received plus any directly attributable transaction costs. They are subsequently stated at their amortised cost.
F-167 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) Derivative financial instruments are recognised at their fair value, using the same criteria as for financial investments held for trading detailed in the section above. At 31 December 2009, this heading included two interest rate swap agreements over notional amounts of 19,167 thousand euros and 17,491 thousand euros, terminating on 26 October 2010 and 26 October 2012, respectively. Both derivatives were cancelled during 2010 (see Note 10). The Group eliminates financial liabilities from the balance sheet once the associated obligations have been discharged.
5.5.3. Derivative financial instruments The Group contracts derivative financial instruments on OTC markets through Spanish and international financial institutions with a strong credit rating to hedge the risks to which its future cash flows are exposed. Those risks are fundamentally tied to variations in interest rates. Within the framework of those operations, the Group contracts financial instruments for hedging purposes. In order for these financial derivatives to be classified as accounting hedges, they are initially designated as such and the hedge relation must be documented. Furthermore, the Group verifies, initially and periodically over the life of the derivatives and at least at the close of the accounting period, that the hedge relation is effective, that is, it is foreseeable that future changes in fair value or cash flows of the hedged item (attributable to the hedged risk) will be nearly entirely compensated by the hedging instruments and, retrospectively, that the results of the hedge have oscillated in a range of variation of between 80% and 125% with respect to the hedged item. The accounting treatment of cash flow hedges is described below. In this type of hedging, the part of the profit or loss on hedging instrument that has been designated as an effective hedge is recognised temporarily through equity, and is then released to the income statement in the same period as in which the hedged transaction impacts profit or loss, unless the hedge is for a projected transaction that concludes with the recognition of a non-financial asset or liability, in which case the amounts recorded in equity will be included in the cost of the asset or liability when it is acquired or assumed. Hedge accounting is interrupted when the hedging instrument matures, or is sold, terminated or exercised, or when the hedge accounting requirements are no longer satisfied. At that time, any accumulated profit or loss on the hedging instrument that has been recognised in equity is maintained in equity until the projected transaction takes place. When the hedged operation is not expected to take place, the net accumulated profit or loss recognised in equity is taken to the income statement for the period. At 31 December 2010 there were two interest rate hedges (see Note 10).
5.6. Classification of balances as current or non-current Assets are classified as current when they relate to the ordinary operating cycle, which is generally considered to be one year. Also, assets whose maturity, disposal or realisation is expected at yearend to occur within the near term, financial assets held for trading, except for financial derivatives with settlement date longer than one year, and cash and cash equivalents are likewise considered currents. Assets not satisfying these conditions are classified as non-current. Similarly, liabilities related to the normal operating cycles, financial liabilities held for trading, except for financial derivatives with settlement date longer than one year, and, in general, all obligations due to mature or expire in the short term are considered current. Otherwise, they are classified as non-current.
F-168 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.7. Foreign currency transactions The Group’s functional currency is the euro. Operations in other currencies are therefore considered to be transactions in foreign currency and are stated at the exchange rate prevailing at the transaction date. At the close of the financial year, monetary assets and liabilities held in foreign currencies are converted to euros at the rate of exchange in effect at the balance sheet date. Exchange gains and losses are expensed when they arise.
5.8. Income tax The income tax cost or income includes both current and deferred tax income or expense. Current tax is that paid as a result of tax assessments on the profits for the year. Tax relief and other tax benefits, excluding withholdings and interim payments on account, and tax loss carryforwards applied in the year, reduce the current income tax liability. The deferred income tax cost or income reflects the recognition and cancellation of deferred tax assets and liabilities. These include timing differences, which are identified as the expected balances payable or recoverable as a result of differences in the book value and tax value of assets and liabilities, as well as tax losses pending carryforward and credits for tax deductions not applied. These amounts are recorded applying to the timing difference or credit in question the tax rate at which they are expected to be collected or settled. Deferred tax liabilities are recognised for all taxable timing differences, except those in which the timing difference derives from the initial recognition of goodwill or other assets and liabilities in operations that affect neither tax income nor accounting income and which are not a business combination. Deferred tax assets are only recorded when it is considered likely that the Group’s companies will have sufficient future taxable earnings against which they can be applied. Deferred tax assets and liabilities arising on operations debited or credited directly to equity accounts are also recognised in a balancing entry under equity. Deferred tax assets are reviewed at each balance sheet date, and the necessary adjustments are made if there is any doubt concerning their future recoverability. Deferred tax assets not recognised in the balance sheet are also reviewed at each balance sheet date, and are recognised if their recovery against future tax profits becomes likely. The companies of the Vacaciones eDreams, S.L.U. Group and eDreams International Network, S.L.U. are taxed as a consolidated group for the Corporate Income Tax and for Value Added Tax. Vacaciones eDreams, S.L.U. is the parent company and files the consolidated declaration for those taxes, and eDreams International Network, S.L.U. is the subsidiary of the consolidated tax groups number 227/08 and 0277/08, respectively.
5.9. Income and expenses Income and expenses are recognised on an accruals basis, that is, when the actual transfer of goods and services occurs, irrespective of the timing of the related financial or monetary flow. Income is stated at the fair value of the consideration received, less discounts and taxes. Sales revenues are recognised when the significant risks and benefits inherent in the ownership of the sold assets are transferred to the buyer, the asset is no longer part of the operating assets of the Group and effective control is not retained.
F-169 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) At present, the Group has the following distinct sources of income: a) Commissions received as brokers in the sale of flights, hotel rooms and travel packages (the latter being a combination of the first two). These commissions fall into two categories: I. Commissions received from airlines and tour operators. II. Administration fees, which the Group charges directly to end customers. b) Income received as wholesale agents in the sale of flights, hotel rooms and travel packages, where the Group buys seats with airlines or tour operators to order for subsequent resale to end customers. This type of business is currently carried on only by the Italian subsidiary of the Group, eDreams, S.r.L., and is generally on the decline. c) Advertising revenue, which is the income received for the sale of space on the Group’s websites to be used for third-party advertisements. d) Other less significant income sources of various types, including, for example, commissions received from telephone companies on the volume of calls received at call centres, commissions received by the reservations centre (Amadeus), and income from subscriptions to the eDreams club in Italy. Income from the on-line travel broker business is recognised in the consolidated income statement at the time of sale via a credit for the amount of the commission obtained under ‘‘Net turnover’’. The cost of the sale or associated service provided does not constitute an expense for the Group since it does not assume the risks inherent in the same. Income and expenses deriving from wholesale business are recognised in the consolidated income statement at the time the service is provided to the end customer via a credit for the amount billed in respect of travel packages and a debit for the costs associated with the same to the ‘‘Net turnover’’ and ‘‘Supplies’’ lines, respectively. Interest received on financial assets is recognised using the effective interest method. Dividends are recognised when the shareholder’s right to receive them is declared.
5.10. Provisions and contingencies In the preparation of the financial statements, the Directors of the Group’s companies distinguish between: 1. Provisions: Credit balances covering current obligations arising as a result of past events, the reversal of which will probably result in a future outflow of funds but whose amount and/or reversal date are uncertain. 2. Contingent liabilities: Possible obligations arising as a result of past events, whose materialisation is dependent on the occurrence, or otherwise, of one or more future events falling outside the Company’s control. The financial statements show all provisions for which it is considered more likely than not that the obligation will have to be met. Contingent liabilities are not recorded in the balance sheet but are disclosed in the notes to the consolidated financial statements to the extent the possibility of the obligation having to be met is not considered remote. The value of these provisions is measured using the best estimate possible of the amount necessary to cancel or transfer the obligation, taking into consideration the information available on the event and its consequences, recording the adjustments made from updating said provisions as financial costs as they accrue.
F-170 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.11. Termination benefits In accordance with current legislation, the Group’s companies are required to pay severance pay to employees whose contracts of employment are terminated in certain circumstances. Severance payments which can be reasonably quantified are recorded as a cost in the financial year in which the decision to terminate the contract is taken and a valid expectation regarding termination is created for third parties. No provision of this nature has been made in the accompanying consolidated financial statements, as this situation is not expected to arise.
5.12. Environmental assets Environmental assets are those used on a long-term basis in the activities of the Group the main purpose of which is to minimise its environmental impact and to protect and improve the environment, including the reduction or elimination of future contamination. Because of the activities in which it is engaged, the Group has no liabilities, costs, assets, provisions or contingencies of an environmental nature that could be material relative to its equity, financial position and results. Accordingly, no breakdowns of specific environmental information have been included in these consolidated financial statements.
5.13. Own shares The capital instruments issued by the Parent Company are recorded under equity at the amount received net of the costs of the issue. These shares are considered to be own shares until the pledge established over those shares in the Group’s favour expires. During 2010, as a result of the change of shareholders described in Note 1, these guarantees matured early so the shares were also included in the sale-purchase executed on 3 August 2010 and have been cancelled. Consequently, they are no longer classified as treasury stock (see Notes 5.14, 11.5 and 17). Own shares held by the Group as treasury stock at 31 December 2009 were a result of its debt-financed share option scheme (see Note 5.14). The gains or losses arising on the purchase, sale, issue or amortisation of own equity instruments are booked directly to equity and are never expensed.
5.14. Share-based payments Until 3 August 2010, the company eDreams Inc. made share-based payments to certain employees of the eDreams Group under a Share Options Plan and a Debt-financed Share Option Plan (see Notes 16.6 and 11.5). The Group’s companies (Vacaciones eDreams, S.L.U., eDreams International Network, S.L.U. and eDreams, eDreams S.r.L.) recognised the goods and services received as a staff cost when they are received, and recorded the corresponding increase in equity, given that the operation was settled with equity instruments. In this case, both the services provided and the increase in equity were measured at the fair value of the equity instruments granted as at the date the award was decided. Said fair value was determined using generally accepted valuation methods based on the volatility of the shares and a risk free interest rate. As mentioned in Note 1, due to the change of control of the eDreams Group, all of the stock options established in the Plan were exercised during 2010, given that this was one of the option exercise conditions stipulated in the Plan. The debt-financed share option plan has likewise been cancelled.
F-171 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
5. Recognition and measurement (Continued) 5.15. Related party transactions The Group’s operations with related parties are all done at market prices. Furthermore, the transfer prices are fully supported so the Directors of the Parent Company do not consider that there is any significant risk capable of giving rise to material liabilities in the future. As stated in Note 3.1, all significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements.
6. Intangible assets Shown below are the movements recorded in this section of the 2010 and 2009 balance sheets:
FY 2010
Cost 31-12-09 Additions Retirements 31-12-10 (thousands of euros) Industrial Property ...... 6,437 — (129) 6,308 Goodwill ...... 103,941 — — 103,941 Software ...... 19,097 4,209 — 23,306 Total cost ...... 129,475 4,209 (129) 133,555
Allocations / Translation Amortisation 31-12-09 Reductions differences 31-12-10 (thousands of euros) Industrial Property ...... (2,944) (544) (5) (3,493) Software ...... (9,537) (3,640) (82) (13,259) Total amortisation ...... (12,481) (4,184) (87) (16,752)
Total intangible fixed assets 31-12-09 31-12-10 (thousands of euros) Cost ...... 129,475 133,555 Amortisation ...... (12,481) (16,752) Net total ...... 116,994 116,803
FY 2009
Cost 31-12-09 Additions Retirements 31-12-09 (thousands of euros) Industrial Property ...... 6,401 36 — 6,437 Goodwill ...... 103,941 — — 103,941 Software ...... 16,396 2,714 (13) 19,097 Total cost ...... 126,738 2,750 (13,000) 129,475
F-172 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
6. Intangible assets (Continued)
Allocations / Translation Amortisation 31-12-08 Reductions differences 31-12-09 (thousands of euros) Industrial Property ...... (1,992) (905) (47) (2,944) Software ...... (6,444) (2,997) (96) (9,537) Total amortisation ...... (8,436) (3,902) (143) (12,481)
Total intangible fixed assets 31-12-08 31-12-09 (thousands of euros) Cost ...... 126,738 129,475 Amortisation ...... (8,436) (12,481) Net total ...... 118,302 116,994
The amount recorded under ‘‘Goodwill’’ recognises the effect of the business combination that took place in October 2006 with the entry of TA Associates. In order to calculate impairment losses, goodwill is assigned to the following cash generating units: • Spanish market • Italian market The amount of goodwill assigned to the Spanish and Italian market was 85 million euros and 19 million euros, respectively. In 2009 the value in use was estimated by the Group’s management on the basis of discounted cash flow projections for the three cash generating units, applying a discount rate of approximately 9%. Said forecasts were calculated on the basis of the budgets approved by the Directors of the Group’s companies that covered a period of three to six years, assuming fixed, non-growing income from the sixth year on. On the basis of the analysis carried out by the Group’s management in 2009, it was not considered necessary to recognise any impairment. As indicated in Note 5.3, the Directors believe that at yearend 2010 and at the date these financial statements are prepared there is no evidence of impairment as a result of the price paid by funds advised by Permira in August 2010 for the acquisition of the eDreams Group. The ‘‘Software’’ account at 31 December 2010 and 2009 included an intangible asset carried at cost of 11,527 thousand euros which is related to technology used by the Group in its operations and which contributes to attracting new customers and retaining existing customers, given the functional benefits that it offers. The additions under this heading, developed internally by the company eDreams International Network, S.L.U., totalled 3,255 thousand euros and 2,380 thousand euros in 2010 and 2009, respectively. These internal development costs satisfy the criteria for capitalisation as an intangible asset. The Group policy is to take out insurance policies to cover the possible risks to which its diverse intangible assets are exposed. At the close of 2010 and 2009 where was no shortage of coverage regarding those risks.
F-173 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
6. Intangible assets (Continued) At 31 December 2010 and 2009 the Group’s companies had the following fully amortised intangible fixed assets still in use:
Net book value Description 31-12-10 31-12-09 (thousands of euros) Industrial property ...... 84 6 Software ...... 1,847 1,860 Total ...... 1,931 1,866
7. Property, plant and equipment Shown below are the movements recorded in this chapter of the 2010 and 2009 balance sheets, and the principle events affecting this heading:
FY 2010
Additions / Cost 31-12-09 (Retirements) 31-12-10 (thousands of euros) Technical facilities ...... 554 120 674 Furniture and fittings ...... 237 32 269 Data processing equipment ...... 2,966 497 3,463 Motor vehicles ...... 87 — 87 Other tangible fixed assets ...... 42 — 42 Fixed assets under construction ...... 57 (57) — Total cost ...... 3,943 592 4,535
Depreciation 31-12-09 Allocations 31-12-10 (thousands of euros) Technical facilities ...... (411) (130) (541) Furniture and fittings ...... (149) (19) (168) Data processing equipment ...... (1,677) (525) (2,202) Motor vehicles ...... (63) (21) (84) Other tangible fixed assets ...... (29) (1) (30) Total amortisation ...... (2,329) (696) (3,025)
Total tangible fixed assets 31-12-09 31-12-10 Thousands of euros Cost ...... 3,943 4,535 Depreciation ...... (2,329) (3,025) Net total ...... 1,614 1,510
F-174 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
7. Property, plant and equipment (Continued) FY 2009
Cost 31-12-08 Additions 31-12-09 Thousands of euros Technical facilities ...... 514 40 554 Furniture and fittings ...... 237 — 237 Data processing equipment ...... 2,799 167 2,966 Motor vehicles ...... 87 — 87 Other tangible fixed assets ...... 42 — 42 Fixed assets under construction ...... — 57 57 Total cost ...... 3,679 264 3,943
Depreciation 31-12-08 Allocations 31-12-09 (thousands of euros) Technical facilities ...... (369) (42) (411) Furniture and fittings ...... (125) (24) (149) Data processing equipment ...... (1,172) (505) (1,677) Motor vehicles ...... (37) (26) (63) Other tangible fixed assets ...... (27) (2) (29) Fixed assets under construction ...... — — — Total amortisation ...... (1,730) (599) (2,329)
Total tangible fixed assets 31-12-08 31-12-09 (thousands of euros) Cost ...... 3,679 3,943 Depreciation ...... (1,730) (2,329) Net total ...... 1,949 1,614
At 31 December 2010 ‘‘Data processing equipment’’ included several servers valued at 266 thousand euros (95 thousand euros at 31 December 2009). Also, ‘‘Fixed assets under construction’’ at that date included the costs then accrued in the development of a software programme for the company. At 31 December 2010 this fixed asset under construction was transferred to the software heading. As indicated in Note 9, at 31 December 2009 the Group had a financial lease contracted for a motor vehicle that was sold during 2010. The Group policy is to take out insurance policies to cover the possible risks to which its diverse tangible assets are exposed. At the close of 2010 and 2009 where was no shortage of
F-175 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
7. Property, plant and equipment (Continued) coverage regarding those risks. At 31 December 2010 and 2009 the Group had the following fully depreciated tangible fixed assets still in use (in thousands of euros):
Net book value Description 31-12-10 31-12-09 (thousands of euros) Technical facilities ...... 100 80 Furniture and fittings ...... 57 14 Data processing equipment ...... 768 387 Other tangible fixed assets ...... 13 5 938 486
8. Leases Financial leases At 31 December 2009, the Company Vacaciones eDreams, S.L.U. carried a financial lease of a motor vehicle. Said financial lease began in September 2007, with a term of three years. The nominal value of the purchase option was set at 3,000 euros, which the Group exercised during the year. At yearend 2009, the Company had the following minimum lease instalments contracted with the lessors, including the purchase option, in accordance with the current contracts, without considering the recovery of common expenses, future CPI-linked increases or other contractually agreed revaluations:(in thousands of euros):
Nominal Minimum instalments value Less than one year ...... 18 One to five years ...... — Total ...... 18
At the close of 2009, the Group had no contingent instalments recognised as expenses in the year.
Operating leases At 31 December 2010 and 2009 the Group’s companies had the following minimum instalments contracted with the lessors, in accordance with the contracts currently in force, not including common expenses, future CPI-linked increases or other contractually agreed revaluations:
Operating leases Nominal value Minimum instalments 31-12-10 31-12-09 (thousands of euros) Less than one year ...... 476 430 One to five years ...... 1,111 144 Total ...... 1,587 574
F-176 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
8. Leases (Continued) The total operating lease instalments recognised as expenses in 2010 and 2009 were as follows:
31-12-10 31-12-09 (thousands of euros) Minimum rental payments ...... 465 570 Net total ...... 465 570
Instalments paid in 2010 and 2009 were in respect of the rental of the Group’s companies’ offices.
9. Long and short-term financial investments 9.1. Long-term financial assets The balances recorded under the heading ‘‘Long-term financial investments’’ at 31 December 2010 and 2009 were as follows:
Category 31-12-10 31-12-09 (thousands of euros) Investments in related parties (see Note 17) ...... 64,475 — Derivatives (see Note 10) ...... 260 — Pledged bank deposits ...... 1,207 674 Guarantee deposits ...... 180 152 Total ...... 66,122 826
‘‘Pledged bank deposits’’ includes guarantees formalised for the activity of the new group companies.
9.2. Short-term financial investments The balances recorded under the heading ‘‘Short-term financial investments’’ at 31 December 2010 and 2009 were as follows:
Category 31-12-10 31-12-09 (thousands of euros) Financial derivative ...... — 534 Other financial assets ...... 150 5,271 Total ...... 150 5,805
‘‘Other financial assets’’ included, at 31 December 2009, 479 thousand euros in respect of an equities investment and 4,508 thousand euros in two funds that invest in financial institutions. These investment funds did not have a fixed maturity date and are drawable at any time without penalty. They are invested mainly in European government bonds. The Group disposed of both funds during the year.
F-177 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
9. Long and short-term financial investments (Continued) 9.3. Information on the nature and level of risk associated with financial instruments 9.3.1. Qualitative information The Finance Department of the Parent Company is responsible for the Group’s management of financial risks, and has established the necessary mechanisms to monitor exposure to interest rate and exchange rate fluctuations and to credit and liquidity risks. The main financial risks affecting the Group are detailed below: 1. Credit risk The Group’s credit risk is mainly attributable to advertising receivables. These amounts are recognised in the consolidated balance sheet net of provisions for bad debt, which are estimated by the Directors on the basis of experience in past years and their assessment of the current economic scenario. As disclosed in Note 17, the Group has an investment with its majority shareholder, eDreams Enterprises, S.L., of 64,475 thousand euros that will be recovered as a result of the corporate operation scheduled for March 2011 (see Note 19). 2. Liquidity risk In order to guarantee liquidity and to meet the payment obligations derived from its operations, the Group maintains the cash and cash equivalents shown in its balance sheet, as well as credit facilities of 25 million euros from banks, of which 20 million euros have not yet been drawn (see Note 13). 3. Market risk (including interest rate risk, currency risk and other price risks) Both the Group’s cash and cash equivalents, and its financial debt are exposed to interest rate risk, which could have an adverse effect on its net finance income and on cash flows. The Group’s financial management manages this type of risk and others that may arise by contracting financial derivatives as hedges in order to minimize or limit the impact of potential variations in interest rates. Those hedges are contracted as a function of the market conditions existing at the time, the management targets and the characteristics of the financing that gives rise to the financial risk. Toward this end, the management identifies the instruments that best advance the goal of minimising the risk exposure and contracts the instruments with the bank counterparties considered most suitable. The documentary management of the operations contracted is monitored and periodic valuations are made of the hedges contracted. The Group’s exposure to currency risk mainly derives from cash and bank accounts in foreign currency and some trade receivables and payables in foreign currency. The Group’s currency risk is not significant.
9.3.2. Quantitative information 1. Credit risk 2010 2009 % of operations maintained with a single client ...... 12% 13% b) Interest rate risk 2010 2009 Percentage of financial debt referenced to fixed rates ...... 67% 66%
F-178 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
10. Derivative financial instruments The Group contracts derivative financial instruments on OTC markets through Spanish and international financial institutions with a strong credit rating. The operations involve contracting swaps of fixed payments and variable receivables to delimit the fluctuations in cash outflows in respect of payments referenced to variable interest rates (Euribor) on the Group’s financing. At 31 December 2009, the Group had a loan from BNP Paribas Fortis (see Note 13), contracted with a floating rate and therefore indexed to market trends. On 27 November 2006 the Group contracted an interest rate swap agreement in which a variable rate of interest was swapped for a fixed rate of 4.015% p.a., scheduled to expire on 26 October 2010 (see Note 10). On 22 October 2009, the Group executed the option it held to contract a swap in the opposite direction to that contracted in 2006, with the same termination date, offsetting the effects of the original swap in the accompanying consolidated income statement. On 22 October 2009 the Group contracted an interest rate swap agreement swapping a variable rate of interest for a fixed rate of 2.270% p.a. terminating on 26 October 2012. Both derivatives were cancelled during 2010 as a consequence of the early cancellation of the said outside financing. Under current accounting rules, those derivative financial instruments cannot be considered accounting hedges. At 31 December 2010, by means of an operating transferring debt to subsidiary companies (see Notes 11.2 and 17), the Group had a syndicated loan with Societe´ Gen´ erale´ as agent bank, contracted at a variable interest rate that is therefore indexed to market trends (see Note 13). On 4 October 2010 the Group contracted an interest rate swap agreement swapping a variable rate of interest for a fixed rate of 1.415% p.a. terminating on 14 December 2014. Likewise on that date the Group contract a second interest rate swap in which it swapped a variable interest rate for a fixed rate of 1.43% p.a., also scheduled to expire on 14 December 2014. Under current accounting rules, those derivative financial instruments can be considered accounting hedges.
FY 2010 To determine the fair value of the interest rate derivatives (interest rate swaps or IRS), the Group uses an IRS measurement model that uses as its inputs the Euribor and long-term swap market curves. The interest rate derivatives contracted by the Group and in force at 31 December 2010, and their fair values at that date (in euros), are as follows:
Impact of measurement in equity (without Nominal Nominal Nominal Fair considering Fixed outstanding outstanding outstanding Floating Instrum. Expiry date Nominal value tax effect) rate 2011 2012 2013 rate IRS . . . 14/12/2014 24,000 98 105 1.430% 20,000 16,000 9,600 Euribor 1 month IRS . . . 14/12/2014 36,000 162 172 1.415% 30,000 24,000 14,400 Euribor 1 month Total . 60,000 260 277 50,000 40,000 24,000
The Group has opted for the hedge accounting method permitted under the General Accounting Plan, appropriately designating as hedging relationships those relationships where IRS are used as hedging instruments for the finance contracted by the Group to neutralise fluctuations in the interest payable on this finance by establishing a fixed rate of interest. These hedging relationships are highly effective prospectively and retrospectively on a cumulative basis from the date of designation. Consequently, the Group recognised in equity the change in the fair value of the derivatives in effect. The expense arising from settlements and cancellation of those instruments during 2010 has been taken to the 2010 income statement in the amount of 295 thousand euros.
F-179 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
10. Derivative financial instruments (Continued) The Group likewise recorded in the income statement the expense arising in respect of the interest accrued according to the monthly settlements of these instruments, in the amount of 105 thousand euros, with some 18 thousand euros pending settlement at year end 2010.
Interest rate sensitivity analysis Changes in the fair value of the interest rate derivatives contracted by the Group are dictated by changes in the long-term swap and Euribor interest rate curves. At 31 December 2010 the fair value of those derivatives was 260 thousand euros. The detail of the sensitivity analysis (changes from fair value at 31 December 2010) of the fair values of derivatives recognised in equity (‘‘accounting hedges’’) to changes in the euro interest rate curve is shown in the table below (in thousands of euros):
Sensitivity (in euros) 31.12.2010 +0.5% (increment in rate curve) ...... 773 0.5% (decrease in rate curve) ...... (833) The sensitivity analysis shows that the interest rate derivatives record increases in response to a rise in market interest rates, since future interest rates would be above the fixed rate set with the IRS, and, therefore, the Group’s exposure would be hedged. Were interest rates to fall, the fair value of those derivatives would decrease. Since these derivatives are designated as accounting hedges and are highly effective both prospectively and retrospectively, any change in their fair value would be recognised in equity in full. The Group has also has performed a sensitivity analysis for the balances of floating rate financial debt; the conclusion of this analysis was that a 0.5% rise in interest rates would cause finance expense to fluctuate by 485 thousand euros. Having the interest rates contracted partially diminishes that sensitivity by a nominal of 60,000,000 euros of that financial debt (this amount is the outstanding notional of the derivatives in effect at 31 December 2010).
FY 2009 At year end 2009, the Group had contracted interest rate insurance which current accounting rules do not allow to be considered accounting hedges. Given below are the basic characteristics of that insurance (in thousands of euros): Impact recorded in Amount Fair value at Income Statement contracted: Expiry date 31 December 2009 from the valuation 17,491 ...... 26/10/2012 (148) (148) 19,167 ...... 26/10/2010 534 534 19,167 ...... 26/10/2010 (534) (617)
11. Equity and capital and reserves 11.1. Share capital At 31 December 2010 and 2009 the Parent Company’s share capital totalled one thousand euros, represented by 14,577,124 and 16,659,421 shares, respectively, of 0.0001 US dollars face value each, all of the same class, fully subscribed and paid up.
F-180 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
11. Equity and capital and reserves (Continued) During 2010 the Parent Company carried out a reduction of capital of 170 euros, and of the related paid-in surplus, in the amount of 6,327 thousand euros, in respect of the 2,284,478 own shares acquired from USgoal Inc. Shown below is a breakdown of shareholders at 31 December 2010 and 2009: Percentage of shares 2010 2009 eDreams Holdings LLC...... — 77% eDreams Enterprises, S.L...... 95.4% — Treasury stock ...... — 12% Other minority shareholders ...... 4.6% 11% Total ...... 100% 100%
11.2. Share issue premium The share issue premium is the result of various capital increases carried out in recent years. As explained in Note 1, in September 2010 the Parent Company reduced its capital and associated paid-in surplus, in the amount of 6,327 thousand euros, in respect of the 2,284,478 own shares acquired from USgoal Inc. As part of the transfer of debt to subsidiary companies, eDreams Inc. assumed part of USgoal Inc.’s obligation to a financial institution, in lieu of settling the sale price of the own shares acquired, which was established at 40,413 thousand euros (see Note 13.1). The share issue premium is considered to be unrestricted.
11.3. Legal reserve For Group companies incorporated under the Spanish Companies Act, 10% of profit for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of share capital. The legal reserve may be used to increase capital in the proportion of its balance exceeding 10% of the already increased capital. Except for the aforesaid purpose, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
11.4. Reserves of fully consolidated subsidiaries The breakdown of this account is as follows: 31-12-10 31-12-09 (thousands of euros) Vacaciones eDreams, S.L.U...... 13,482 9,870 eDreams International Network .S.L.U...... 16 (1,958) Editoriales Italiano OnLine, S.r.L...... (323) 76 eDreams, S.r.L ...... 8,146 3,690 eDreams, Ltd ...... (612) 8 Viagens eDreams Portugal LDA ...... (13) — eDreams France, SARL ...... (59) — eDreams GmbH ...... (180) — Total ...... 20,457 11,686
F-181 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
11. Equity and capital and reserves (Continued) 11.5. Own shares Own shares held as treasury stock at 31 December 2009 were the result of the Debt-financed Share Option Plan implemented by the Parent Company (see Note 16.6). These shares are considered to be own shares until the pledge established over those shares in the Group’s favour expires. During 2010, as a result of the change of shareholders, those guarantees matured early, so these shares were also included in the sale-purchase of 3 August 2010. At year end 2009 the Parent Company held 2,044,971 of its own shares.
11.6. Results by company 31-12-10 31-12-09 (thousands of euros) Vacaciones eDreams, S.L.U...... 7,268 3,612 eDreams International Network .S.L.U...... (384) 1,974 Editoriales Italiano OnLine, S.r.L...... (617) (399) eDreams, S.r.L ...... 9,234 4,456 Viagens eDreams Portugal LDA ...... (3) (13) eDreams France, SARL ...... (130) (59) eDreams GmbH ...... (96) (180) eDreams, Ltd ...... (1,080) (620) eDreams LLC ...... (15) — eDreams Inc...... (1,622) (3,887) Total ...... 12,555 4,884
11.7. Revaluation adjustments and hedging transactions The heading revaluation adjustments records the exchange differences arising as a result of the translation of the financial statements of eDreams Inc., eDreams LLC, and eDreams Ltd, which are not prepared in euros. Hedging transactions reflect the net amount of the yearend 2010 measurement of the derivatives considered accounting hedges (see Note 10).
12. Provisions and contingencies The heading ‘‘Short-term provisions’’ at 31 December 2010 includes a provision of 741 thousand euros (411 thousand euros at 31 December 2009) for estimated refunds of credit card transactions at that date in relation to sales in the financial year. Also, that heading included at 31 December 2009 an amount corresponding to tax assessments issued by the Spanish tax authorities in respect of Value Added Tax and Company Income Tax for 1999 to 2001. Those tax assessments, for a total of 185 thousand euros, were contested by the Group. On 18 June 2010, a notice was received from the tax authorities accepting the Group’s allegations, so this amount was regularised in 2010. At 31 December 2010 there were no contingent assets or liabilities. At 31 December 2009 ‘‘Long-term provisions’’ included an amount corresponding to the obligations of some Group companies in relation to certain employee benefits arising from transactions involving share-based payments. In August 2010, as a result of the change of shareholders of the eDreams Group, the Share Options Plan and the Debt-financed share option plan were cancelled early, leading to application of the provision.
F-182 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
13. Debts (long and short-term) The balances recorded under the headings ‘‘Long-term borrowings’’ and ‘‘Short-term debts’’ at 31 December 2010 and 2009 were as follows:
FY 2010 Short term Long term Total (thousands of euros) Debts and payables: Syndicated loan ...... 458 82,991 83,449 Credit Facility ...... 5,000 — 5,000 Financial derivative (Note 10) ...... 18 — 18 Repayable credit ...... 70 — 70 Other financial liabilities ...... 41 — 41 Total ...... 5,587 82,991 88,578
FY 2009 Short term Long term Total (thousands of euros) Debts and payables: Loan BNP Paribas Fortis ...... 1,750 24,750 26,500 Repayable credit ...... 70 70 140 Financial lease (Note 9) ...... 18 — 18 Financial derivative (Note 11) ...... 534 148 682 Other financial liabilities ...... 28 — 29 Total ...... 2,400 24,968 27,368
13.1. Long-term financial liabilities Shown below is the breakdown of this heading:
FY 2010 2012 2013 2014 2015 and on Total (thousands of euros) Syndicated loan ...... 4,931 6,294 6,641 65,125 82,991 Total ...... 4,931 6,294 6,641 65,125 82,991
The initial maturity schedules set for each of the tranches in the loan agreement are as follows:
Short term 2012 2013 2014 2015 2016 2017 Total (thousands of euros) Facility A(*) ...... 2,520 6,670 7,710 7,820 8,510 12,770 — 46,000 Facility B)(*) ...... — ———— —46,000 46,000 Total ...... 2,520 6,670 7,710 7,820 8,510 12,770 46,000 92,000
(*) Without including transaction costs attributable to the financial liability The Group maintains a syndicated loan through an operation transferring debt to the subsidiary companies (see Notes 11.2 and 17). It is a senior financing agreement signed with
F-183 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
13. Debts (long and short-term) (Continued) Societ´ e´ Gen´ erale´ as agent bank on 25 July 2010 for 92 million euros, arranged in two tranches, each for 46 million euros. Facility A accrues interest at the EURIBOR plus a margin of 4.5%, with a margin of 5% applied for Facility B. Nevertheless, for Facility A there are additional indicators tied to the Group’s EBITDA which can cause the aforesaid margins to oscillate in a range of 3.75% - 4.5%. The expenses associated with contracting the loan amounted to 9.5 million euros. During 2010, the heading ‘‘Finance costs—third parties’’ of the accompanying income statement recorded the transaction costs attributable to the financial liability that accrued during the year, which totalled 949 thousand euros. As for their classification, some 6,489 thousand euros and 2,062 thousand euros have been recognised as a reduction to the figures for long and short-term debt, respectively. The agreement also establishes certain conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the term of the agreements, with failure to satisfy these conditions constituting express grounds for acceleration of the outstanding debt. At 31 December 2010 the Group was in compliance with the financial conditions in effect at that date. In relation to this contract, during 2010 the Group contracted two interest rate derivatives, considered accounting hedges, with a combined notional that at 31 December 2010 amounted to 65,000 thousand euros and expiry date 14 December 2014 (see Notes 9.3 and 10).
FY 2009 2011 2012 2013 2014 and on Total (thousands of euros) Loan BNP Paribas Fortis ...... 4,000 5,125 5,625 10,000 24,750 Repayable credit ...... 70 — — — 70 Financial lease (Note 8) ...... ——— — — Financial derivative (Note 10) ...... — 148 — — 148 Total ...... 4,070 5,273 5,625 10,000 24,968
Loan BNP Paribas Fortis Senior loan agreement concluded by Vacaciones eDreams, S.L.U. with Fortis Bank NV on 1 December 2006 for 35 million euros, in three tranches, one for 25 million euros (tranche A) and two for 5 million euros each (tranches B and C), each accruing interest at Euribor plus a market spread. The initial maturity schedules set for each of the tranches in the loan agreement are as follows:
2008 2009 2010 2011 2012 2013 2014 2015 2016 Total (thousands of euros) Tranche A ..... 2,500 3,750 4,000 4,000 5,125 5,625 — — — 25,000 Tranche B .....———————5,000 — 5,000 Tranche C .....————————5,000 5,000 2,500 3,750 4,000 4,000 5,125 5,625 — 5,000 5,000 35,000
Irrespective of the maturity schedules set out above, the loan agreement established that, in certain conditions, the debt must be repaid early if the consolidated cash flows of the eDreams Inc. and Subsidiaries Group exceed predetermined levels. These obligatory prepayments are calculated on an annual basis, the date of the first calculation being the first quarter of 2008, based on results
F-184 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
13. Debts (long and short-term) (Continued) for 2007. The company Vacaciones eDreams S.L.U. did not make any prepayment in 2010 and 2009. During 2008 the company made a prepayment of 2,500 thousand euros, of which 250 thousand euros were for 2009 and 2,250 thousand euros for 2010. Similarly, in 2007 Vacaciones eDreams, S.L.U. made a prepayment of 2,500 thousand euros for 2008 and of 3,500 thousand for 2009 according to the initial loan schedule. The agreement also established certain conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the term of the agreement, with failure to satisfy these conditions constituting express grounds for acceleration of the outstanding debt. At 31 December 2009 the Group was in compliance with the required financial conditions. The interest rate set in the agreement is the Euribor plus a variable margin. The loan agreement also prohibited the distribution of dividends and of the paid-in share surplus of Vacaciones eDreams, S.L. outside the eDreams Inc. and Subsidiaries Group. In connection with this agreement, as from 27 November 2006 Vacaciones eDreams S.L.U. had an interest rate derivative contracted which does not qualify as an accounting hedge for a notional amount of 19,167 thousand euros at 31 December 2009, scheduled to expire on 26 October 2010. On 22 October 2009 that Company executed the option it held to contract a swap in the opposite direction to that contracted in 2006, with the same termination date and notional amount (26 October 2010 and 19,167 thousand euros), offsetting the effects of the original swap. On the same date, 22 October 2009, the company Vacaciones eDreams S.L.U. concluded a new interest rate swap agreement for a notional amount of 17,491 thousand terminating on 26 October 2010 (see Note 10). That loan was cancelled during 2010 without any cost for the Group.
13.2. Short-term financial liabilities Credit facility As part of the senior financing agreement signed with Societ´ e´ Gen´ erale´ as agent bank on 25 July 2010 for 92 million euros that was described earlier, a credit facility of 25,000 thousand euros was extended, on which some 5,000 thousand euros had been drawn and were outstanding at the end of the year. The amount borrowed accrues interest at EURIBOR plus a margin of 4.5%. Nevertheless, for Facility A and the credit facility there are additional indicators tied to the Group’s EBITDA which can cause the aforesaid margins to oscillate in a range of 3.75% - 4.5%.
Syndicated loan The part classified as short term includes the instalments payable during 2011 of Facility A and are presented net of the transaction costs attributable to the financial liability due to accrue short term.
F-185 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
14. Tax receivables and payables and general tax situation 14.1. Current tax and social security receivables and payables The composition of the current tax receivables and payables at 31 December 2010 and 2009 is as follows:
Payables 31-12-10 31-12-09 (thousands of euros) US Tax...... 606 3,18 Corporate income tax payable ...... 1,156 2,621 VAT payable to Public Treasury ...... 200 317 Social Security ...... 387 186 Payable to Public Treasury for employee with holdings ...... 251 122 Other Public sector payables ...... 575 280 Total ...... 3,175 6,706
Receivables 31-12-10 31-12-09 (thousands of euros) Corporate income tax receivables ...... 223 — US Tax...... 16 — Other Public sector receivables ...... 26 25 Total ...... 265 25
14.2. Reconciliation of accounting profit and tax base Company income tax is calculated separately for each Company based on financial or accounting profit, obtained by applying generally accepted accounting principles, which is not necessarily the same as taxable profit, the latter being the tax base for the aforesaid tax calculated in the different jurisdictions.
F-186 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
14. Tax receivables and payables and general tax situation (Continued) The reconciliation between the 2010 and 2009 accounting profit of each company of the Group and the tax base for corporate income tax, in thousands of euros, is as follows:
FY 2010 Total (thousands of euros) Contribution to consolidated profit ...... 12,555 Consolidation adjustments ...... (1,115) Accounting profit for the year (after tax) ...... 11,440 Company income tax ...... 2,906 Permanent differences: Amortisation of brands ...... 175 Amortisation of allocations to intangibles ...... 2,672 Share option and debt-financed share option plan expenses ...... (1,228) Other items ...... 10 Timing differences: Interest rate swap ...... 90 Amortisation of goodwill ...... (999) Bonus Manpack ...... (1,292) Other provisions ...... 329 Offset of tax loss carryforwards ...... (98) Tax base (taxable profit) ...... 14,005
FY 2009 Total (thousands of euros) Contribution to consolidated profit ...... 4,884 Consolidation adjustments ...... 2,843 Accounting profit for the year (after tax) ...... 7,727 Company income tax ...... 4,478 Permanent differences: Amortisation of brands ...... 300 Amortisation of allocations to intangibles ...... 2,819 Share option and debt-financed share option plan expenses ...... 614 Other items ...... 30 Exemption for double taxation ...... (4,000) Timing differences: Interest rate swap ...... 90 Amortisation of goodwill ...... (999) Bonus Manpack ...... 583 Offset of tax loss carryforwards ...... (2,526) Tax base (taxable profit) ...... 9,116
The permanent differences recognised by Vacaciones eDreams, S.L.U. correspond mainly to the amortisation of the registered trademark as a result of the capital increase carried out on 17 November 2006 and to costs related to options on equity instruments that are not considered to
F-187 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
14. Tax receivables and payables and general tax situation (Continued) be tax deductible. As mentioned in Note 16.6, during 2010 the existing plans involving share-based payments materialised, so those expenses that had been adjusted in previous years and those recorded in the current year became fully deductible in 2010. The positive timing differences recognised correspond to the cancellation of the tax effect derived from the recognition at 1 January 2008 of the financial derivative. The 28th transitional provision of Royal Decree 4/2004 of 5 March 2004, approving the consolidated text of the Law on Company Income Tax, introduced by Law 4/2008, eliminating the tax on net assets and introducing a monthly refund system for Value Added Tax and other modifications to tax regulations, established that the taxpayer may opt to distribute on a straight line basis over the three tax years from 1 January 2008 the positive or negative balance arising from the adjustments charged or credited to reserves as a result of the first application of the new Spanish GAAP approved by Royal Decree 1514/2007. Also, the expense resulting from the Group’s obligations in relation to certain employee benefits arising from transactions involving share-based payments is also recognised as a positive timing difference. In accordance with article 13.1.b. of the Company Income Tax Law, this expense is not deductible from the taxable profits for the tax year in which the expense is accrued but from that against which the benefits are credited. Article 13.3 of the aforementioned Law establishes that those expenses which are not tax deductible in accordance with the two previous sections, are deducted against the taxable profits for the tax year in which the provision is applied. During 2010, as mentioned in Note 12, the said provision was applied so the Group, in determining its tax base for 2010, has included a negative timing difference to reverse the adjustments applied in previous years. Lastly, a positive timing difference is included for those provisions which at the end of the year were not deductible and which will reverse in ensuing years when the provisions are cancelled. The negative timing differences recognised by Vacaciones eDreams S.L.U. include the tax incentive established by article 12 of the Company Income Tax Law allowing the deduction of one-twentieth of the goodwill generated in the subsidiary eDreams. S.r.L. The exemption for double taxation corresponds to revenues received by Vacaciones eDreams, S.L. in 2009 in the form of dividends from eDreams, S.r.L., as provided for in article 21 of the Law on Company Income Tax. The breakdown of the Company Income Tax expense for 2010 and 2009 is as follows:
2010 2009 (thousands of euros) Company income tax accrued ...... 5,506 3,335 US Tax...... (1,661) 2,055 Reversal deferred tax (allocation of intangibles) ...... (939) (912) Total tax expense recognised in the income statement ...... 2,906 4,478
The taxes recorded in 2010 with a balancing entry in ‘‘Equity’’ were not significant.
F-188 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
14. Tax receivables and payables and general tax situation (Continued) 14.3. Deferred tax assets The breakdown of the balance on this account at 31 December 2010 and 2009 is as follows:
FY 2010 Vacaciones eDreams eDreams, International S.L.U. Network, S.L.U. Total (thousands of euros) Provisions ...... 222 — 222 Total deferred tax assets ...... 222 — 222
FY 2009 Vacaciones eDreams eDreams, International S.L.U. Network, S.L.U. Total (thousands of euros) Long-term employee benefits 2009 ...... 92 82 174 Long-term employee benefits 2008 (Company Income Tax adjustment 2008) ...... 97 116 213 Total deferred tax assets ...... 189 198 387
14.4. Deferred tax liabilities The breakdown of the balance on this account at 31 December 2010 and 2009 is as follows:
FY 2010 Additions/ 31-12-09 Cancellations 31-12-10 (thousands of euros) Tax effect of allocation of intangible assets ...... 2,521 (939) 1,582 Amortisation of financial goodwill eDreams, S.r.L ...... 925 274 1,199 Tax effect of financial derivative (accounting hedge) ...... — 97 97 Tax effect of financial derivative (speculative) ...... 27 (27) — Total ...... 3,473 (595) 2,878
FY 2009 Additions/ 31-12-08 Cancellations 31-12-09 (thousands of euros) Tax effect of allocation of intangible assets ...... 3,433 (912) 2,521 Amortisation of financial goodwill eDreams, S.r.L ...... 625 300 925 Tax effect of financial derivative ...... 81 (54) 27 Total ...... 4,139 (666) 3,473
F-189 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
14. Tax receivables and payables and general tax situation (Continued) In the final income tax declaration filed for 2008, it was decided to distribute the tax effect of the financial derivative over three years, recognising in 2009 the amounts corresponding to both 2008 and 2009. At 31 December 2010 and 2009 the tax losses from previous years available to be carried forward against future profits and the deadlines for their application were as follows:
FY 2010 eDreams Year eDreams, eDreams France, eDreams, Last year for generated LLC GmbH S.R.L. Ltd Total application (thousands of euros) 2007 ...... — — — (1,450) (1,450) 2022 2008 ...... — — — (13) (13) 2023 2009 ...... — (6) — — (6) 2024 2010 ...... (15) (43) (3) — (61) 2025 Total ...... (15) (49) (3) (1,463) (1,530)
FY 2009 Editoriale Year Italiano Last year for generated OnLine, S.r.L. eDreams, Ltd Total application (thousands of euros) 2006 ...... 36 — 36 2021 2007 ...... — 1,512 1,512 2022 2008 ...... — 13 13 2023 Total ...... 36 1,525 1,561
The Group has decided not to capitalise the tax credits generated by these negative tax bases. The final amount to be offset with these tax losses may be modified after the tax returns have been examined.
14.5. Financial years pending tax inspections The companies of the eDreams Inc. and Subsidiaries Group currently have open for inspection by the tax authorities of each jurisdiction all financial years that are not yet statute-barred for all taxes for which they are liable, expect those that have already been reviewed by the competent tax authorities. Under present legislation, tax returns may not be considered definitive until they have been inspected by the tax authorities or the prescribed four-year limitation period has expired. The Group’s management considers the possibility of tax liabilities arising in future inspections to be remote, and any such liabilities would in any case be without material impact on the accompanying consolidated financial statements taken as a whole. No additional liabilities are expected to arise for the Company as a result of any future inspections.
F-190 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
15. Foreign currency The most significant balances and transactions in foreign currencies (principally US dollars and pound sterling), valued respectively at the exchange rate at yearend and at the average exchange rate for 2010 and 2009, are as follows:
31-12-10 31-12-09 (thousands of euros) Accounts payable ...... 1,527 92 Services provided ...... 6,916 — Services received ...... (6,765) (101)
16. Income and expenses 16.1. Net turnover The distribution of net turnover according to activity and geographical markets is as follows:
Activities 2010 2009 (thousands of euros) Commissions received from airlines and tour operators ...... 30,415 23,905 Administration fees ...... 58,120 42,582 Wholesale revenues ...... 2,210 2,384 Advertising revenues ...... 4,583 4,196 Others revenues ...... 591 — Total ...... 95,919 73,067
Geographical market 2010 2009 (thousands of euros) Spain ...... 38,500 36,362 Italy ...... 32,679 23,217 Other countries ...... 24,740 13,488 Total ...... 95,919 73,067
16.2. Work done by Group on its own assets The balance of the account ‘‘Work done by Group on its own assets’’ records the capitalisation of intangible asset developed internally by the company eDreams International Network, S.L.U. in the amount of 3,255 thousand euros in 2010 and 2,380 thousand euros in 2009. These internal development costs satisfy the criteria for capitalisation as an intangible asset.
16.3. Supplies This line reflects the costs directly associated with the travel agency business—essentially, the cost of the travel packages.
F-191 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
16. Income and expenses (Continued) 16.4. Other operating income The balance of the account ‘‘Other revenues’’ for 2010 and 2009 is broken down as follows:
2010 2009 (thousands of euros) Incentives credit cards and telephony ...... 2,691 1,691 Total ...... 2,691 1,691
16.5. Staff costs The balance of the account ‘‘Staff costs’’ for 2010 and 2009 is broken down as follows:
2010 2009 (thousands of euros) Wages and salaries ...... 10,694 8,292 Share-based payments (Note 16.6) ...... 1,228 614 Social security charges paid by company ...... 2,003 1,550 Total ...... 13,925 10,456
16.6. Transactions involving share-based payments Share Options Plan A compensation plan for the employees of Vacaciones eDreams, S.L.U., eDreams International Network, S.L.U., and eDreams, S.r.L. was approved by shareholders at the General Meeting held in May 2007. The Plan is based on the concession of a certain number of options on the shares of eDreams Inc. with concession date 1 January 2008. According to the terms of the plan, the right to these options was to vest over the four years following the contract date on a straight line basis from the concession date, and may be exercised up to ten years after the date each employee signed the contract, unless the employee leaves the employment of the companies of the eDreams Inc. and Subsidiaries Group, in which case the options must be exercised within three months of the resignation. The fair value of the option right was calculated at the concession date, applying the Black & Scholes valuation model, assuming volatility of 25% based on the movements in the listed share prices of comparable companies in the previous year and on a risk free asset bearing interest of 3.68%. The value of the option right in the case of the Vacaciones eDreams S.L.U. and subsidiaries Group totalled 456 thousand euros. This valuation is not subject to any revision to present value given the nature of the Plan. The plan is settled through the physical delivery to employees of the Group’s companies of shares in the company eDreams Inc., once they decide to exercise the aforementioned options on the basis of the conditions stipulated. No share options were exercised in 2008 and 2009. In August 2010, as a result of the change of shareholders of eDreams Group (see Note 1), all of the share options were exercised, given that a change of owners of the eDreams Group was one of the conditions stipulated in the plan for exercise if the price paid by the purchaser in the operation allowed a return on in the investment of at least 35% over the value of the shares initially obtained applying the Black & Scholes model. Taking into account the special rules contained in recognition and valuation standard nº 17 of Spanish GAAP in relation to transactions with employees settled using equity instruments, the Vacaciones eDreams, S.L.U. and Subsidiaries Group has recognised an expense under ‘‘Staff
F-192 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
16. Income and expenses (Continued) costs’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ of each of the subsidiaries in the amount of 228 thousand euros in 2010 (113 thousand in 2009). As mentioned above, the option right was to vest in the four years following the contract date on a straight-line basis as from the concession date. Nevertheless, the amount recorded in 2010 is in respect of the part accrued in 2010 until the change of shareholders of the eDreams Group, for 67 thousand euros, and of acceleration of the recognition of unaccrued staff costs that should have been recorded on a straight-line basis for the right to these options over the four year period from the concession date until the end of the plan as a result of its early cancellation, in the amount of 161 thousand euros.
Debt-financed share option plan The agreement for the acquisition of eDreams Inc. by the new shareholders, concluded on 26 October 2006, included a share option plan giving certain employees of Vacaciones eDreams, S.L.U., eDreams International Network and eDreams, S.r.L the right to acquire a fixed number of shares in eDreams Inc. The share premium on these shares was funded via loan agreements concluded between eDreams Inc. and the individual employees. The fair value of the option was calculated at the concession date, 26 October 2006, applying the Black & Scholes valuation model, assuming volatility of 20% based on the movements in the listed share prices of comparable companies in the last year and on a risk free asset earning interest of 3.68%. The cost of the option right in the case of the Vacaciones eDreams S.L.U. and subsidiaries Group was valued at 2,000 thousand euros. This valuation is not subject to any revision given the nature of the Plan. The Vacaciones eDreams, S.L.U. and Subsidiaries Group has recognised an expense under ‘‘Staff costs’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ in the amount of 1,000 thousand euros in 2010 (500 thousand in 2009). The cost of the option right was to vest in the four years following the issuance date of the shares involved in the debt-financed share option plan. Nevertheless, the amount recorded in 2010 is in respect of the part accrued in 2010 until the change of shareholders of the eDreams Group, for 292 thousand euros, and of acceleration of the recognition of unaccrued staff costs that should have been recorded on a straight-line basis for the right to these options over the four year period share issue date as a result of its early cancellation, in the amount of 708 thousand euros. The settlement of both plans has generated a payment to employees by USgoal Inc. for a total of 23,828 thousand euros. Shown below are the movements in 2010 and 2009 recorded for the equity instruments in both of the Group employee incentive plans:
FY 2010 In effect at Granted in Cancelled In effect at 31/12/09 2010 in 2010 31/12/10 Number of share options ...... 234,369 48,890 (283,259) — Number of debt-financed share options .... 2,044,971 8,922 (2,053,893) —
FY 2009 In effect at Granted in Cancelled In effect at 31/12/08 2009 in 2009 31/12/09 Number of share options ...... 258,447 — (24,078) 234,369 Number of debt-financed share options .... 2,212,794 — (167,823) 2,044,971
F-193 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
16. Income and expenses (Continued) The weighted average exercise price of both eDreams Group plans oscillated in a range of between 6 and 7 euros at 31 December 2009 and during 2010, until the cancellation date of both. At the date these financial statements are prepared, there are commitments that have not yet come into effect to apply a new plan with certain employees of the subsidiary companies for them to acquire a certain number of shares of eDreams Inc.
16.7. Other operating expenses The breakdown of the ‘‘Other operating expenses’’ line of the accompanying income statement is as follows: 31-12-10 31-12-09 (thousands of euros) Leases and royalties ...... 580 587 Repairs and maintenance ...... 334 282 Independent professional services ...... 7,818 4,938 Insurance premiums ...... 78 43 Banking and similar services ...... 2,450 144 Advertising, publicity and public relations ...... 45,045 33,346 Utilities ...... 904 736 Other services ...... 426 428 Taxes, other than company income tax ...... 446 355 Credit card refunds ...... 3,016 5,104 Corporate development costs ...... 292 334 Other management expenses ...... 208 239 Total outside services + (non-income) Taxes ...... 61,597 46,536
‘‘Credit card refunds’’ includes 590 thousand euros for refunds of amounts paid by credit card effected in sales transactions recorded in 2010 (1,381 thousand euros in 2009).
17. Dealings and balances with related parties 17.1. Balances with related parties The balances on accounts with related parties are as follows:
FY 2010 Receivables Payables (thousands of euros) Long term: Investments in group companies (Note 19) ...... 64,475 — Debts with group companies ...... — 11,133 Short term: Investments in group companies ...... 792 — Debts with group companies ...... — 26 Total ...... 65,267 11,159
F-194 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
17. Dealings and balances with related parties (Continued) Investments in group companies The amount recorded in ‘‘Long-term investments in group companies’’ is in respect of the account receivable from eDreams Enterprises, S.L., the principal shareholder of the Parent Company. On 13 September 2010, according to the certification of decisions of the sole shareholder of eDreams Enterprises, S.L., the latter distributed a dividend out of the share issue premium to its sole shareholder, USgoal Inc., in the amount of 64,002 thousand euros. The distribution was arranged in two tranches, one of 12,415 thousand euros and the other for 51,587 thousand euros. First, the 12,415 thousand euros are not disbursed; instead eDreams Enterprises, S.L. assumed obligations that USgoal Inc. had with certain employees. As mentioned in Note 1, in August 2010 USgoal Inc. acquired 2,284,478 shares, representing 13.55% of the share capital of eDreams Inc., which had in part been obtained by the previous shareholders under a debt-financed share option plan. According to Note 16.6., the share premium on the shares subject to that plan were funded via a loan agreement concluded between eDreams Inc. and individual employees. The loan had a due date of 27 October 2026 and accrued interest at a fixed interest rate of 4.34%. At the time USgoal Inc. acquired those shares, it deferred payment of the part corresponding to the debt-financed share issue premium. According to the above, at the date of the sale-purchase the employee had a right and an obligation with USgoal Inc. and eDreams Inc., respectively, for the same amount. After its dividend distribution, eDreams Enterprises, S.L. assumed the obligation that had until that time rested with USgoal Inc., leaving a receivable by eDreams Inc. from its shareholder, eDreams Enterprises, S.L. The due date, and the finance costs, remain as initially covenanted with the employees. Second, eDreams Enterprises, S.L. asked its investee eDreams Inc. to distribute 51,587 thousand euros in dividends against its share issue premium. In response to that request, eDreams Inc. assumed part of the obligation that USgoal Inc. had with a bank (an operating transferring debt to subsidiary companies), so that eDreams Inc. recognised a receivable with eDreams Enterprises, S.L. in consideration for assumption of the USgoal Inc.’s net financial debt with the third party. For its part, USgoal Inc., instead of recognising a receivable with eDreams Enterprises, S.L. for the part of the dividends not disbursed, reduced the obligation with the said bank by the same amount as for which eDreams Inc. had assumed the debt. Therefore, after these operations, eDreams Inc. has a right with eDreams Enterprises, S.L. and an obligation to a bank for the same amount. The finance costs accrued from the loan since 13 September 2010, for a total of 792 thousand euros, had not been paid at the close of the year and are recorded as a current liability in this same heading of the balance sheet.
Debts with group companies The amount recorded in ‘‘Long-term debts with group companies’’ is for an account payable that the Parent Company maintains with USgoal Inc., the ultimate Parent Company of the eDreams Group, for 9,500 thousand euros in respect of an opening fee and other costs classifiable as borrowing costs that were in the past borne by USgoal Inc. The recovery of those costs was formally executed on 31 December 2010 by means of a loan with due date 31 December 2014 and accruing interest of Euribor plus a margin of 2%. This heading also includes the amount drawn by the Group under a credit facility extended by USgoal Inc. in an agreement executed on 1 August 2010, with a ceiling of 5,000,000 of euros, of which some 1,633 thousand euros have been drawn down. The due date of that facility is 1 August 2014 and its interest rate is referenced to the 1-yr Euribor plus a margin of 2%. The 26 thousand euros in interest costs accrued on that facility had not been paid at the close of the year and are recorded under short-term in this same heading of the balance sheet.
F-195 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
17. Dealings and balances with related parties (Continued) FY 2009 Receivables Payables (thousands of euros) Long term: Subordinated loan agreement ...... — 15,000 Total long-term accounts ...... — 15,000
Long-term borrowings At 31 December 2009, this heading recorded a subordinated loan agreement of 15 million euros concluded on 26 October 2006 with companies with ties to the majority shareholder of the Parent Company and executive shareholders of the latter. This loan is repayable in a single payment due in 2013 and accrues interest at a rate of 12% per annum. The loan was considered to be subordinated since it is not repayable until all other Group debts have been discharged. On 31 October 2010, the loan was cancelled early. The cancellation entailed expenses of 450 thousand euros that are recorded under ‘‘Finance costs’’ in the accompanying income statement.
17.2. Dealings with related parties The amounts of transactions with related parties are given below: 2010 2009 (thousands of euros) Interest revenue ...... 989 — Interest expense ...... (26) — Acquisition of own shares ...... (34,086) — The interest revenue and expense reflect the interest accrued on long-term accounts receivable and payable, respectively, detailed in Note 17.1. In addition, the line ‘‘Acquisition de own shares’’ includes the impact recorded in ‘‘Reserves of the Parent Company’’ as a result of the acquisition of own shares from USgoal Inc. for 40,413 thousand euros (see Note 11.2).
18. Other information 18.1. Staff The average number of employees in 2010 and 2009, by job category, was as follows:
Category 2010 2009 Board members ...... 3 7 Management ...... 11 7 Administrative staff ...... 48 18 Operational staff ...... 381 200 Total ...... 443 232
F-196 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
18. Other information (Continued) The average number of employees in 2010 and 2009, by category and gender, was as follows:
2010 2009 Men Women Men Women Board members ...... 3 — 7 — Management ...... 7 — 7 — Administrative staff ...... 12 25 16 12 Operational staff ...... 112 188 77 123 Total ...... 134 213 107 135
The Management category includes 5 and 6 senior managers at yearend 2010 and 2009, respectively. By the end of the year 2010 and 2009 there is one disabled person hired within the company’s staff.
18.2. Auditors’ fees Fees paid during 2010 and 2009 to Deloitte, S.L. for services related to auditing the financial statements and other services amounted to 110 thousand euros and 70 thousand euros, respectively. No other expenses have been incurred in respect of fees for other services provided by the auditor or any entity related to it.
18.3. Information on deferral of payments made to suppliers according to the Third Additional Provision ‘‘Disclosure duty’’ of Law 15/2010 of 5 July 2010 For the Group companies subject to that law, in relation to the disclosure required by the Third Additional Provision of Law 15/2010 of 5 July 2010 for these first financial statements prepared after its entry into force, at 31 December 2010 some 91 thousand euros of the balance pending payment to suppliers were overdue in relation to the legally prescribed payment period. As that balance refers to suppliers of the Spanish companies in the consolidated group who are by their trade creditors for supplies of goods and services, so it includes data relating to the current liability account of payables to suppliers on the balance sheet. The legal time limit applicable to the Company according to Law 3/2004 of 29 December 2004, which established measures to combat late payments in trade operations, and in accordance with the transitional provisions of Law 15/2010 of 5 July 2010, is 85 days from the effective date of the Law until 31 December 2011.)
18.4. Compensation payable to the Board of Directors and to the senior managers of the Group In August 2010, the General Meeting of Shareholders accepted the resignation of the members of the Board of Directors of the Parent Company and named a new Board of Directors. During 2010 there were also changes in the senior management, which was reduced to five members from six (see Note 18.1). The compensation itemised in this Note records remuneration earned by the members of the Board of Directors and Senior Management in 2010.
F-197 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
18. Other information (Continued) The remuneration received during 2010 and 2009 by the members of the Board of Directors and the senior management of the Group is itemised below (in thousands of euros):
FY 2010 Insurance Share-based Salaries premiums payments Board of Directors ...... — — — Senior Management ...... 1,496 13 890
FY 2009 Insurance Share-based Salaries premiums payments Board of Directors ...... — — — Senior Management ...... 1,479 18 958 The loans granted to members of the Board of Directors and to the senior management of the Group at yearend 2010 and 2009 were as follows (in thousands of euros):
2010 2009 Board of Directors ...... — — Senior Management ...... — 9,997 At 31 December 2009 the loans extended were in respect of the paid-in surplus relating to the share option plan financed by a loan from the Parent Company to employees. That loan was cancelled with the employees during the year (see Note 16.6).
18.5. Information regarding situations of conflict of interests of the Board of Directors At year end 2010 the Board of Directors of the Group companies subject to the Spanish Capital Companies Act (Ley de Sociedades de Capital) and certain persons related thereto, within the meaning of that law, maintained equity holdings in the following companies that pursue activities identical, analogous or complementary to those that constitute the corporate purpose of the Group companies. The following table also includes offices or functions they perform there:
Director or related person of Vacaciones Indirect eDreams, S.L.U. Company holding Corporate object Office or function eDreams Inc. eDreams, SRL 100% Travel agency Sole director (represented by Javier Perez-Tenessa)´ Javier Perez-Tenessa´ eDreams GmbH — Travel agency Managing Director Javier Perez-Tenessa´ Viagens eDreams — Travel agency Manager Portugal—Agenciaˆ de Viagens, LDA Javier Perez-Tenessa´ eDreams France, — Travel agency Manager SARL Javier Perez-Tenessa´ eDreams, LLC — Travel agency Chairman
F-198 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
18. Other information (Continued)
Director or related person of International Percentage Network, S.L.U. Company holding Corporate object Office or function eDreams Inc. Editoriale Italiano 100% Admin and IT Sole director OnLine, SRL (indirect) consulting services eDreams Inc. eDreams Ltd. 100% Admin services — (direct) Javier Perez-Tenessa´ eDreams, Ltd. — Admin services Director (director of eDreams Inc.) Javier Perez-Tenessa´ Editoriale Italiano — Admin and IT Legal representative (director of OnLine, SRL consulting services of the sole director eDreams Inc.)
19. Post-balance sheet events On 25 January 2011, funds advised by Permira and AXA Private Equity signed an investment agreement whereunder the former undertakes to contribute the Group headed by eDreams Inc. to the company LuxGEO Parent, S.a.r.l.,` recently formed for that purpose, and the latter to do the same with the Go Voyages Group, headed by the French company Lyeurope. Subsequently, on 9 February 2011, LuxGEO, S.a.r.l.` (indirect subsidiary of LuxGEO Parent) signed a share sale-purchase agreement with Amadeus for the purchase of its subsidiary Opodo. The close of this operation is subject to approval by regulators and to the fulfilment of the customary obligations for transactions of this kind. As a result, the GEO Group resulting from both transactions will become one of the largest online agencies in Europe. During March 2011, the eDreams Group carried out a corporate restructuring, involving the following sequence of key steps: • eDreams Enterprises, S.L., the current majority shareholder of eDreams Inc., will sell its shares in the latter to USgoal Inc., head of the eDreams Group under a share sale-purchase agreement. • USgoal Inc., with the consent of eDreams Inc., will assume the account payable of 64 million euros that eDreams Enterprises, S.L. maintained with eDreams Inc. at yearend (see Note 17.1). • An inverse merger will then be carried out between eDreams Inc. (surviving company) and USgoal Inc. (absorbed company). • Lastly, eDreams Enterprises, S.L. will be liquidated. The merger will operate to cancel the 64 million euros owed by USgoal to eDreams Inc. as it is an outstanding balanced between merged companies. As mentioned in Note 13.1, the financing agreement signed with Societ´ e´ Gen´ erale´ establishes certain financial conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the term of the agreements, with failure to satisfy these conditions constituting express grounds for accelerating the outstanding debt. At 31 December 2010 the Group was in fulfilment of the conditions required at that date. Nevertheless, clause 11.4 of the agreement stipulates that if there is a change of control of the Group, the latter must notify the agent bank as soon as it learns of such change and immediately cancel the facilities and pay the interest accrued as at that date.
F-199 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
19. Post-balance sheet events (Continued) On 18 February 2011, as part of the corporate restructuring process described above, a new company with ties to eDreams Inc. signed a syndicated financing agreement with Societ´ e´ Gen´ erale´ as agent bank and giving the eDreams Group exactly the same financing (and on the same conditions) as it had previous to the date of the new contract. The Directors therefore believe it appropriate to continue regarding the transaction costs indicated in Note 13.1 as a reduction in the value of the liability.
20. Segment reporting The Group identifies its operating segments on the basis of internal reports on the Group components that are used as basis for regular review, discussion and evaluation by the Chief Executive Officer, as the maximum decision making authority with power to allocate resources to the segments and to assess their performance. The segments thus defined are as follows: • Spanish market • Italian market • Other markets
Information on main customers There is one customer who is billed during the year amounts equal to or greater than 10% of net sales (see Note 9.3.2)
Segment Financial Statements Segments Conceptos Italy Spain Other Global Total (thousands of euros) Net turnover ...... 32.679 38.500 24.740 — 95.919 Work done by Group on its own assets ...... ———3.255 3.255 Supplies ...... (1.966) — — — (1.966) Other operating revenues ...... 2.216 378 97 — 2.691 Staff costs ...... (3.176) (1.636) (2.256) (6.857) (13.925) Other operating expenses ...... (18.484) (26.229) (14.510) (2.393) (61.616) Depreciation and amortization ...... (67) 231 — (5.044) (4.880) Operating income ...... 11.202 11.244 8.071 (11.039) 19.478 Finance revenue ...... 5 1 — 1.060 1.066 Financial expenses ...... ———(4.509) (4.509) Change in fair value of financial instruments . . .———(400) (400) Exchange differences ...... (76) (24) — (74) (174) Net financial income (expense) ...... (71) (23) — (3.923) (4.017)
21. Explanation added for translation to English These financial statements are presented on the basis of the regulatory financial reporting framework applicable to the Company (see Note 2). Certain accounting practices applied by the Company that conform with that regulatory framework may not conform with other generally accepted accounting principles and rules.
Barcelona, 28 March 2011 Javier Perez-Tenessa´ Carlos Mallo Alvarez´ Pedro Lopez´ de Guzman´
F-200 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
21. Explanation added for translation to English (Continued) Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish- language version prevails.
EDREAMS INC. AND SUBSIDIARIES CONSOLIDATED MANAGEMENT REPORT For the year ended 31 December 2010 Turnover The table below shows that the Group’s Total Transaction Value (TTV) increased from 647 million euros in 2009 to 928 million euros in 2010. The Group’s sales in 2010 totalled 95.8 million euros, 31% higher than the 73.1 million euros reported in 2009.
EDREAMS INC. AND SUBSIDIARIES INCOME STATEMENT FOR 2010 (Thousands of Euros)
FY FY Notes 2010 2009 Total Transaction Value ...... 928,298 646,920 Net turnover— ...... Note 16.1 95,919 73,067 Work performed on intangible assets ...... Note 16.2 3,255 2,380 Other operating income ...... Note 16.4 2,691 1,691 Total Revenue ...... 101,865 77,138 Supplies ...... Note 16.3 (1,966) (2,354) Gross Margin ...... 99,899 74,784 Current staff costs ...... Note 16.5 (12,698) (9,842) Other current operating expenses ...... (58,103) (40,997) Non-current staff costs ...... Note 16.5 (1,227) (614) Other non-current operating expenses ...... Note 16.7 (3,513) (5,677) Amortisation and depreciation of non-current assets .... Note 6 y 7 (4,880) (4,501) Operating income ...... 19,478 13,153 Net financial income (loss) ...... Note 10 and 17.2 (4,017) (3,791) Profit (loss) before taxes ...... 15,461 9,362 Income tax ...... Note 14.2 (2,906) (4,478) Profit for year attributable to the parent company .... 12,555 4,884
Notes 1 to 21 of the accompanying notes to the annual financial statements form an integral part of the income statement for the year ended 31 December 2010.
The main reasons for this growth are: —Growth of the online travel market at the expense of traditional travel agencies —Vacaciones eDreams S.L. has gained market share from its competitors —Growth of new international pages (Australia, Brazil, Canada, Chile, India, Peru, Switzerland and the United States) —Consolidation of markets such as Italy, France and Portugal
F-201 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended 31 December 2010
21. Explanation added for translation to English (Continued) Highlights of the year The year 2010 was characterized by a modest recovery of the tourism sector. The company achieved strong growth thanks to its international expansion, especially in markets such as France (200% growth year on year), Italy (54% year on year) and Portugal (79% growth year on year).
Own shares The company does not hold any own share.
Research and development The eDreams Group constantly invests in R&D to ensure that its search tools continue to offer travel alternatives at competitive prices while introducing new product lines that meet customers’ needs.
Outlook The online travel market is expected to continue to grow in Spain and Italy, where the Group’s companies are currently leaders. Online airline ticket sales will continue to grow, as will the sale of other products such as hotels, train tickets and packages via internet.
Use of derivative financial instruments The company follows several risk management procedures, existing at the end of the financial year 2010 two hedging instruments as detailed in note 10.
Main business risks The risks that the company faces are the usual for the sector in which it operates.
Post-balance sheet events There have been no significant post-balance sheet events.
J. Perez´ Tenessa Carlos Mallo Alvarez´ Pedro Lopez´ de Guzman/´
F-202 Deloitte S.L. Avda. Diagonal, 654 5APR201109213575 08034 Barcelona Espana˜ Tel.: +34 932 80 40 40 Fax: +34 932 80 28 10 www.deloitte.es Translation of a report originally issued in Spanish based on our work performed in accordance with generally accepted auditing standards in Spain and of consolidated financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the Shareholders of eDreams Inc. at the request of management of eDreams Inc.: 1. We have audited the consolidated financial statements of eDreams Inc. and Subsidiaries comprising the consolidated balance sheet at 31 December 2009 and the related consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the year then ended. The preparation of these consolidated financial statements is the responsibility of the Parent’s directors. Our responsibility is to express an opinion on the consolidated financial statements taken as a whole based on our audit work performed in accordance with generally accepted auditing standards in Spain, which require examination, by means of selective tests, of the evidence supporting the consolidated financial statements and evaluation of their presentation, of the accounting policies applied and of the estimates made. 2. As required by Spanish corporate and commercial law, for comparison purposes the Parent’s directors present, in addition to the figures for 2009 for each item in the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements, the figures for 2008. Our opinion refers only to the 2009 consolidated financial statements. On 2 April 2009, we issued our auditors’ report on the 2008 consolidated financial statements, in which we expressed an opinion qualified for the same matter as that described in paragraph 3 below. 3. The notes to the accompanying consolidated financial statements for 2009 do not contain all the disclosures on salaries, attendance fees and remuneration earned by the senior executives and by the directors of eDreams Inc. and Subsidiaries, on advances and loans granted to them or on treasury shares or share-based payment transactions under the minimum disclosure requirements provided for in the Spanish National Chart of Accounts approved by Royal Decree 1514/2007. 4. eDreams Inc. is a company domiciled in the United States of America. It does not carry on any business activities and its main subsidiaries carry on their business activities fundamentally in Spain, where their corporate services are located, and in Italy. Accordingly, the Parent’s directors prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles and standards in Spain. 5. In our opinion, except for the omission of information detailed in paragraph 3 above, the accompanying consolidated financial statements for 2009 present fairly, in all material respects, the equity and financial position of eDreams Inc. and Subsidiaries at 31 December 2009 and the results of their operations, the changes in equity and their cash flows for the year then ended, and contain the required information, sufficient for their proper interpretation and comprehension, in conformity with the generally accepted accounting principles and standards provided for in Spanish regulations applied on a basis consistent with that of the preceding year.
F-203 6. The consolidated directors’ report for 2009 contains the explanations which the directors consider appropriate about the situation of eDreams Inc. and Subsidiaries, the evolution of their business and other matters, but is not an integral part of the consolidated financial statements. We have checked that the accounting information in the consolidated directors’ report is consistent with that contained in the consolidated financial statements for 2009. Our work as auditors was confined to checking the consolidated directors’ report with the aforementioned scope, and did not include a review of any information other than that drawn from the Companies’ accounting records.
DELOITTE, S.L. Registered in ROAC under no. S0692
Artur Amich 30 April 2010
F-204 eDreams Inc. and Subsidiaries
Consolidated Financial Statements for the financial year ended December 31, 2009 and Management Report, together with Audit Report
Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
F-205 EDREAMS INC. AND SUBSIDIARIES BALANCE SHEETS At December 31, 2009 and 2008 (thousands of euros)
ASSETS Notes 31.12.09 31.12.08 LIABILITIES Notes 31.12.09 31.12.08 NON-CURRENT ASSETS: EQUITY: Intangible Assets ...... Note 6 116,994 118,302 SHAREHOLDER’S EQUITY— .. Note 11 Property, plant and equipment . Note 7 1,614 1,949 Share Capital ...... 11 Long-term financial investments— ...... Note 9.1 826 256 Share issue premium ...... 89,979 91,329 Reserves of the parent Long-term financial investments in company ...... (12,522) (9,715) group companies and associates— ...... Notes 9.1 and 17 — 125 Fully consolidated reserves ... 11,686 4,120 Other long-term financial investments ...... 826 131 Own shares held ...... (12,576) (13,926) Deferred tax assets ...... Note 14.3 387 — Profit for the year ...... 4,884 4,145 Total non-current assets .... 119,821 120,507 Revaluation adjustments ..... 290 518 Total Equity ...... 81,742 76,472 NON-CURRENT LIABILITIES: Long-term provisions ...... Note 12 480 185 Long-term borrowings ...... 24,968 27,000 Bank borrowings ...... Note 13 24,750 26,639 Financial lease ...... Note 8 —18 Derivatives ...... Note 10 148 60 Other financial liabilities ...... 70 283 Borrowings from group companies and associates .. Note 17 15,000 15,000 Deferred tax liabilities ...... Note 14.4 3,473 4,058 Accruals ...... 429 — Total non-current liabilities . . . 44,350 46,243
CURRENT LIABILITIES: Provisions ...... 717 — Short-term borrowings— ..... 2,400 101 CURRENT ASSETS: Bank borrowings ...... Note 13 1,750 70 Trade and other receivables— . 6,237 6,623 Financial lease ...... Note 8 18 31 Trade receivables ...... 6,193 6,317 Derivatives ...... Note 10 534 — Sundry receivables ...... 4 6 Other financial liabilities ...... 98 — Trade and other accounts Staff costs ...... 15 5 payable— ...... 20,108 16,035 Tax receivable ...... Note 14.1 25 295 Suppliers ...... 10,295 12,788 Short-term financial Investments . Note 9.2 5,805 972 Other payables ...... 1,765 — Derivatives ...... Note 10 534 — Staff costs ...... 1,342 1,476 Other financial assets ...... 5,271 972 Current tax Liabilities ...... Note 14 5,801 — Accruals ...... 190 191 Tax payable ...... Note 14.1 905 1,771 Cash and cash equivalents ... 17,763 11,291 Accruals ...... 499 733 Total current assets ...... 29,995 19,077 Total current liabilities ..... 23,724 16,869 TOTAL EQUITY AND TOTAL ASSETS ...... 149,816 139,584 LIABILITIES ...... 149,816 139,584
Notes 1 to 19 of the accompanying notes to the annual financial statements form an integral part of the balance sheet at December 31, 2009. Barcelona, 31 March 2010
Thomas P. Alber Whitney B. Cahn Hythen T. El Nazer President Member of the Board Member of the Board
Javier Perez` Tenessa James Otis Hare Birker Bahosen Ajit Nedungad Member of the Board Member of the Board Member of the Board Member of the Board
F-206 EDREAMS INC. AND SUBSIDIARIES INCOME STATEMENTS For the years ended December 31, 2009 AND 2008 (thousands of euros)
Notes Year Year — 2009 2008 Net turnover— ...... Note 16.1 73,067 68,074 Work performed on intangible assets ...... Note 16.2 2,380 1,407 Other operating income ...... Note 16.3 1,691 1,287 Supplies ...... Note 16.4 (2,354) (5,302) Staff costs— ...... Note 16.5 (10,456) (11,446) Wages, salaries, et al ...... (8,906) (9,597) Social security costs, at al ...... (1,550) (1,849) Other operating expenses— ...... (46,674) (39,163) Outside services ...... (40,505) (35,818) Taxes ...... (355) (264) Losses on, impairment of and change in trade provisions . . . (138) (108) Other current operating expenses ...... Note 16.7 (5,677) (2,973) Depreciation and amortization ...... Note 6 and 7 (4,501) (4,131) Operating income ...... 13,153 10,726 Finance revenue— ...... 107 251 Financial expenses— ...... (3,917) (5,123) Third-party borrowings ...... (3,686) (4,959) Derivative financial instrument ...... Note 10 (231) (164) Exchange gains (losses) ...... 19 (34) Net financial income (loss) ...... (3,791) (4,906) Profit (loss) before taxes ...... 9,362 5,820 Income tax ...... Note 14 (4,478) (1,675) Profit attributable to the parent company ...... 4,884 4,145
Notes 1 to 19 of the accompanying notes to the annual financial statements form an integral part of the income statement for the year ended December 31, 2009.
Barcelona, 31 March 2010
Thomas P. Alber Whitney B. Cahn Hythen T. El - Nazer President Member of the Board Member of the Board
Javier Perez´ Tenessa James Otis Hare Birker Bahnsen Ajit Nedungadi Member of the Board Member of the Board Member of the Board Member of the Board
F-207 EDREAMS INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY IN 2009 AND 2008 A) STATEMENT OF RECOGNISED INCOME AND EXPENSE (thousands of euros)
Year Year 2009 2008 INCOME FOR THE PERIOD (I) ...... 4,884 4,145 Revaluation adjustments ...... (228) (35) Total income and expense recognized directly in equity (II) ...... (228) (35) Total amounts transferred to income statement (III) ...... —— Total recognized income and expense (I+II+III) ...... 4,656 4,110
Notes 1 to 19 of the accompanying notes to the annual financial statements form an integral part of the for the year ended December 31, 2009. Barcelona, 31 March 2010
Thomas P. Alber Whitney B. Cahn Hythen T. El - Nazer President Member of the Board Member of the Board
Javier Perez´ Tenessa James Otis Hare Birker Bahnsen Ajit Nedungadi Member of the Board Member of the Board Member of the Board Member of the Board
F-208 EDREAMS INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY IN 2009 AND 2008 B) STATEMENT OF CHANGES IN EQUITY (thousands of euros)
Parent Share Share issue company Consolidated Own Results for Revaluation capital Premium reserves reserves shares the year reserve Total Adjusted balance at January 1, 2008 ...... 1 90,112 (3,968) (3,859) (12,705) 1,618 553 71,752 Total recognized income and expense ...... 4,145 (35) 4,110 Transactions with shareholders: Capital increase ...... — 1,217 — — (1,217) — — — Share-based payments . . . — — 614 — (4) — — 610 Application of income for 2007 ...... — — (6,361) 7,979 — (1,618) — — Closing balance at December 31, 2008 ..... 1 91,329 (9,715) 4,120 (13,926) 4,145 518 76,472 Total recognized income and expense ...... 4,884 (228) 4,656 Transactions with shareholders: ...... — — — — — — — — Capital increase ...... — (1,350) — — 1,350 — — — Share-based payments . . . — — 614 — — — — 614 Application of income for 2008 ...... — — (3,421) 7,566 — (4,145) — — Closing balance at December 31, 2009 ..... 1 89,979 (12,522) 11,686 (12,576) 4,884 290 81,742
The accompanying Notes 1 to 19 to the annual financial statements form an integral part of the statement of changes in equity for 2009. Barcelona, 31 March 2010
Thomas P. Alber Whitney B. Cahn Hythen T. El - Nazer President Member of the Board Member of the Board
Javier Perez´ Tenessa James Otis Hare Birker Bahnsen Ajit Nedungadi Member of the Board Member of the Board Member of the Board Member of the Board
F-209 EDREAMS INC. AND SUBSIDIARIES CASH FLOW STATEMENTS For the years ended December 31, 2009 and 2008 (thousands of euros)
Year Year Notes 2009 2008 Cash flows from operating activities (I): ...... 7,353 3,289 Profit before tax ...... 9,362 5,820 Adjustments to profit— ...... 7,074 8,188 Depreciation and amortization ...... Note 6 and 7 4,501 4,131 Work performed on fixed assets ...... Note 6 (2,380) (1,407) Changes in provisions ...... 548 108 Finance revenue ...... (107) (251) Finance costs ...... 3,686 4,959 Exchange gains (losses) ...... (19) 34 Change in fair value of financial instruments ...... 231 — Other costs (transactions paid with other equity instruments) ...... Note 16.6 614 614 Change in working capital— ...... (4,800) (4,262) Trade and other receivables ...... 248 (2,597) Other current assets ...... (4,832) (191) Trade and other payables ...... (534) (2,207) Other current liabilities ...... 318 733 Other cash flows from operating activities— ...... (4,283) (6,457) Interest paid ...... (3,668) (4,799) Interest received ...... 107 251 Corporate income tax paid ...... (722) (1,909) Cash flows from/(used in) investing activities (II) ...... (1,191) (1,747) Payments on investments— ...... (1,191) (1,747) Intangible assets ...... Note 6 (357) (418) Property, plant and equipment ...... Note 7 (264) (1,204) Other financial assets ...... Note 9.1 (570) (125) Cash flows from financing activities (III) ...... 310 (2,241) Proceeds from and payments of financial liabilities— ...... 395 (2,241) Repayment and redemption bank borrowings ...... Note 13 (300) (2,541) Other liabilities ...... 695 300 Effect of exchange rate changes ...... (85) — NET DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV) ...... 6,472 (699) Cash and cash equivalents at January 1 ...... 11,291 12,962 Cash and cash equivalents at December 31 ...... 17,763 12,263
Notes 1 to 19 of the accompanying notes to the annual financial statements form an integral part of the cashflow statement for the year ended December 31, 2009. Barcelona, 31 March 2010
Thomas P. Alber Whitney B. Cahn Hythen T. El - Nazer President Member of the Board Member of the Board
Javier Perez´ Tenessa James Otis Hare Birker Bahnsen Ajit Nedungadi Member of the Board Member of the Board Member of the Board Member of the Board
F-210 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended December 31, 2009
1. Group companies and activities The Group companies included in the scope of consolidation and the relevant information on each are as follows:
eDreams Editoriale Viagens Vacaciones International Italiano OnLine, eDreams eDreams France, Name eDreams Inc. eDreams, S.L.U. Network, S.L. eDreams, S.r.L. S.r.L. Portugal LDA SARL eDreams GmbH eDreams, Ltd. 30 Old Rudnick Lane (City of Dover) County World Trade World Trade Via Avda. Fontes Graf-Adolf- of Kent, Center 601 N Center 601 N Via Boscovich, 14 Boscovich, 14 Pereira de Melo, 35 Avenue de Platz, 15 Mortimer Street Registered office Delaware (Barcelona) (Barcelona) (Milan) (Milan) 7 (Lisbon) Friedland (Paris) (Dusseldorf)¨ 73-75 (London) Admin and IT Admin and IT Holding consulting consulting Activity company Travel agencies services Travel agencies services Travel agencies Travel agencies Travel agencies Admin services
Indirect holding: Vacaciones eDreams, S.L.U. — 100% 100% 99.9% 100% 100% eDreams, S.R.L. . . — 100% eDreams Intern. Network, S.L. . . 0.1%
Direct holding: . . . . — 100% 100%
Carrying value of holding of corresponding shareholder companies (thousands of euros) ...... — 6,974 32,318 21,021 12 100 7 25 —
Date of financial statements used for consolidation purposes . . . . . December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, December 31, 2009 2009 2009 2009 2009 2009 2009 2009 2009
Method of consolidation . . . Parent Fully Fully Fully Fully Fully Fully Fully Fully Company consolidated consolidated consolidated consolidated consolidated consolidated consolidated consolidated eDreams Inc. is the Parent of a Group of companies (hereinafter, the eDreams Group or the Group) whose primary corporate purpose is to broker sales of holiday and travel packages, flights, hotel rooms and car rentals, to provide a range of tourism-related services, and to sell advertising space using the internet and call centres as sales channels. The Parent Company of the eDreams Group was incorporated on January 28, 1999. eDreams Inc. has its registered office in Delaware (United States), although the main activities of the eDreams Group are carried on almost entirely in Spain and Italy, via the subsidiaries Vacaciones eDreams, S.L.U., eDreams International Networks, S.L.U., eDreams, S.r.L. and Editoriale Italiano OnLine, S.r.L., respectively. On October 26, 2006, the US investment fund TA Associates, through the intermediary of eDreams Acquisition Corp., a company 100% owned by eDreams Holding, LLC., acquired 93.3% of the share capital of eDreams Inc., resulting in a change of control within the Group and creating a new eDreams Group. Subsequently, on 27 October, 2006, an upstream merger was concluded that left eDreams Inc. as the surviving company. For expediency the merger was effective for accounting purposes as of November 1, 2006, from which date eDreams Inc. assumed all activities previously performed by the absorbed company. As part of the process of international expansion planned by the eDreams Group and in accordance with the guidelines set out in its strategic plan, on February 19, 2008 the Group company Vacaciones eDreams S.L.U. acquired the company eDreams GmbH for 25 thousands of euros.
F-211 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
1. Group companies and activities (Continued) On May 29, 2008, Vacaciones eDreams, S.L.U. set up, together with the company eDreams International Network, S.L.U., the company Viagens eDreams Lda. with share capital of 100 thousands of euros. Vacaciones eDreams, S.L.U subscribed 999 shares and eDreams International Networks, S.L.U. subscribed one share. On December 12, 2008, Vacaciones eDreams, S.L.U. set up the company eDreams France, SARL, with share capital of 7,000 euros, subscribing 100% of the shares.
2. Basis of presentation of the consolidated financial statements 2.1. True and fair view The accompanying consolidated financial statements have been prepared on the basis of the accounting records of eDreams Inc. and the subsidiaries included in the scope of consolidation (as detailed in Note 1) in the format established by Royal Decree 1514/2007 approving Spain’s new general accounting plan (Plan General de Contabilidad—hereinafter ‘‘Spanish GAAP’’) so as to provide a true and fair view of the equity, financial situation and results of the Group and its cash flows in the year. These consolidated financial statements, which have been prepared by the Directors of eDreams Inc., and the individual financial statements of eDreams Inc. and each of its consolidated subsidiaries, will be submitted, where applicable, for approval by shareholders at the corresponding Annual General Meetings and the Directors are of the opinion that they will be approved without modification. The consolidated financial statements for 2008 were approved by the Board of Directors on June 30, 2009.
2.2. Going concern principle The accompanying consolidated financial statements have been prepared in accordance with the going concern principle, i.e. that its assets and liabilities will be respectively realised and settled in the normal course of business.
2.3. Non-obligatory accounting principles applied No non-obligatory accounting principles have been applied. Furthermore, the Directors have prepared these consolidated financial statements taking into consideration all mandatory accounting principles and standards with a significant impact on said financial statements, and no mandatory accounting principles have been omitted in their preparation.
2.4. Critical issues affecting valuation and estimate of uncertainty In the preparation of the accompanying consolidated financial statements estimates have been used that were prepared by the Directors of the company to quantify some assets, liabilities, revenues, expenditure and commitments that are recorded there. Those estimates basically refer to: • The valuation of goodwill (see Notes 5.2 and 6). • The useful life of tangible and intangible assets (see Notes 6 and 7) • Such impairment losses as arise on certain tangible and intangible assets when it is deemed that the book value of said assets is not recoverable (see Notes 5.4). • Estimate of provisions (Note 12). • Estimate of provision for bad debt on accounts receivable (Note 12). • The calculation of share-based payments (see Notes 5.15 and 16.6). • Assessment of lawsuits, commitments and assets and liabilities that were contingent at closing.
F-212 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
2. Basis of presentation of the consolidated financial statements (Continued) Although these estimates were made on the basis of the best available information available at the close of 2009, it is possible that events could take place in the future that might require them to be adjusted upwards or downwards in future years on a prospective basis.
2.5. Comparative information The information related to 2009 contained in these notes to the financial statements is presented for the purposes of comparison with the information for 2008.
2.6. Grouping of accounts items Certain items on the balance sheet, income statement, the statement of changes in equity and the cash flow statements are grouped together under single headings to facilitate interpretation. If necessary, where the information is significant, a breakdown of the heading is provided in the accompanying notes to the financial statements.
3. Consolidation principles 3.1. Consolidation principles The accompanying consolidated financial statements incorporate the financial statements of the companies controlled by the Parent Company at December 31, 2009. It is considered that the Parent Company has a controlling interest when it has the power to establish the financial and operative policies of its holdings. The results of investee companies are included in the consolidated income statement from the effective acquisition date. All companies over which the Parent exercises effective control by holding the majority of votes on its representative and decision-making bodies are fully consolidated in the consolidated financial statements. All significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements. In addition, the most significant accounting principles and criteria used in the preparation of the accompanying consolidated financial statements have been standardised. The companies included in the consolidation process are those subsidiary companies of the Group detailed in Note 1.
3.2. Standardisation of individual accounts headings The criteria used for standardisation purposes were the following: 1. Time: the financial statements of Group companies have the same closing date and cover the same period as the consolidated financial statements. 2. Valuations: asset and liability items have been valued using uniform methods and in accordance with generally accepted valuation criteria and principles.
3.3. Functional currency Although the Parent Company prepares its financial statements in US dollars, these consolidated financial statements are expressed in euros, since this is the currency in which almost all the Group’s operating and financial transactions are concluded. Transactions concluded overseas are recognised pursuant to the accounting policies established in Note 5.8.
F-213 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
3. Consolidation principles (Continued) 3.4. Changes in the scope of consolidation During 2008 three companies were acquired or set up which were not included in the consolidated group as it was not considered that they had a material effect on the consolidated figures for that year. They have been included in the consolidated group in 2009, and this must be taken into account when comparing and interpreting the 2009 figures against those for 2008 (see Note 1).
4. Application of the Parent Company’s income The Company’s Directors will propose the following distribution of income for the year for the approval of shareholders at the Annual General Meeting:
FY 2009 (thousands of euros) Application of net profit (loss): Parent Company losses for 2008 ...... (5,240) Application of net profit (loss): Losses brought forward ...... (5,240)
5. Recognition and measurement The main recognition and valuation methods applied by the Company in preparing its financial statements for 2009 and 2008, in accordance with Spanish GAAP, were as follows:
5.1. Balances in foreign currencies The exchange rates in force at the close of the financial year (December 31, 2009) were used to translate the financial statements of consolidated companies that are not expressed in euros, except in the case of: 1. Capital, reserves and participation costs, which were translated at historical exchange rates. 2. Income statement items, which were converted at the average exchange rate for the year. Differences arising on translation were recognised in the ‘‘Revaluation adjustments’’ line of the accompanying consolidated balance sheet.
5.2. Intangible assets Property, plant and equipment are generally recorded at cost of acquisition or production. They are later carried at cost, less any cumulative amortisation or impairment losses that may apply. 1. Industrial property Domains and brands are recognised at acquisition price and amortised over the duration of their estimated useful life, subject, where applicable, to a ceiling equivalent to the duration of any licensing agreements signed with third parties. Costs incurred in developing industrial property that is not financially viable are expensed in full in the period in which this circumstance becomes known. Intangible assets acquired during a business combination are identified and separately recognised from goodwill when they satisfy the definition of an intangible asset and their value can be reliably measured. The cost of such intangible assets is their fair value at the date of acquisition.
F-214 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) After their initial recognition, these assets are recognised at cost, less cumulative amortisation and impairment losses, on the same basis as for separately acquired assets. 2. Software The Company records all costs incurred to acquire and develop computer programs, including website development costs, under this heading. Software upkeep and maintenance expenses are charged against income when incurred. The cost of software includes internal development costs. Expenditure incurred internally by the Company on the development of software and its website is only recorded as assets if all of the conditions below are met or can be demonstrated: • an identifiable asset is created. • it is likely that the asset will generate future economic benefits, and • the cost of developing the asset can be reliably ascertained. Capitalised development costs with a finite useful life are amortised on a straight line basis over the period during which the asset is expected to generate benefits. Development costs previously recorded as expenditure are not recognised as an asset during subsequent years. The Group depreciates its tangible assets on a straight-line basis using percentages of annual depreciation calculated on the basis of the estimated years of useful life of the assets, as detailed below:
Percentage Amortised in year Industrial property ...... 10-20 Software ...... 16-33 3. Goodwill Goodwill is recognised as an asset when its value is evident from a substantial acquisition in the context of a business combination. Goodwill is assigned to cash generating units from which benefits are expected to flow as the result of a business combination. It is not amortised. Said cash generating units are subjected, at least once a year, to an impairment test using the methodology hereafter described, recognising, if necessary, the corresponding impairment. The goodwill initially recognised in the amount of 122,897 thousands of euros reflects the positive difference between the cost of investing in the Group and the value of the Group’s shareholders’ equity on the date of acquisition, less the minority interests that disappeared as a consequence of the merger process, henceforth becoming shareholders of the merged company (see Note 1). The difference between the acquisition cost and the book value of the net assets acquired was partially allocated to intangible assets in the amount of 17,881 thousands of euros, less 5,364 thousands of euros for the tax effect. The main intangible asset identified relates principally to the eDreams corporate brand. Given the functional benefits of the technology used by the Group in its operations, which contributes to attracting new customers and retaining existing customers, this is also identified as an intangible fixed asset. Impairment adjustments recognised against goodwill are not reversible in later financial periods.
F-215 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) 5.3. Property, plant and equipment Property, plant and equipment are initially recorded at cost of acquisition or production and are later carried at cost, less any cumulative amortisation or impairment losses that may apply, in accordance with the criteria detailed in Note 5.4. Expenses associated with the repair and maintenance of property, plant and equipment are charged to the income statement for the year in which they are incurred. Amounts invested in improvements that help to increase the capacity or efficiency or lengthen the useful life of such assets are recorded as an increase in the cost of the associated assets.
Percentage amortised in year Technical facilities ...... 12 Furniture and fittings ...... 10 Data processing equipment ...... 20 Motor vehicles ...... 12 Other tangible fixed assets ...... 12 The Group depreciates its property, plant and equipment on a straight-line basis, using percentages of annual depreciation calculated on the basis of the estimated years of useful life of the assets, as detailed below:
5.4. Impairment in value of property, plant and equipment and intangible assets At the close of each financial year (in the case of goodwill) or when there is evidence of a loss in value (other assets), the Group uses an impairment test to estimate the likely existence of loss of value that causes the recoverable value of the asset to be lower than its book value. The recoverable value is determined as the higher amount between the fair value less sale costs and the value in use. The procedure established by the Group’s senior management for this test is as follows: Recoverable value is calculated for each cash generating unit. In the case of property, plant and equipment, impairment calculations are carried out individually on an item by item basis. Each year senior management prepares a three- to six- year business plan segmented by market for each cash generating unit. The main components of the plan are: • Income forecasts • Investment and working capital forecasts Other variables affecting the calculation of recoverable value are: • The discount rate applied, taken as the weighted average cost of capital, the cost of liabilities and the specific risks attached to assets. The rate used is around 9%. • The cash flow growth rates used to extrapolate cash flow forecasts beyond the period covered by budgets and provisions. No growth rate has been applied to fixed cash flows. The forecasts are prepared on the basis of past experience and using the best estimates available, ensuring these are consistent with external information. Once prepared, the business plans are reviewed and given final approval by the relevant governing body.
F-216 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) If it is necessary to recognise an impairment loss on a cash generating unit to which all or part of the goodwill has been allocated, first the book value of the goodwill corresponding to said unit is reduced. If the impairment is greater than the balance on the goodwill account, the remaining assets of the cash generating unit are revalued down in proportion to their book value, up to the greater of the following; their fair value less selling costs, their value in use, and zero. When a recognised impairment loss is later reversed (not permitted in the case of goodwill), the book value of the asset or the cash generating unit is increased to the revised estimated recoverable value, although the increased book value must not exceed the book value which would have been determined if no impairment loss had been recognised in previous financial periods. The reversal of the impairment loss is recognised as revenue.
5.5. Leases Leases are classified as financial leases when their conditions imply the substantial transfer to the lessee of the risks and benefits inherent in the asset subject to the contract: Other leases are classified as operating leases.
Financial leases For financial leasing operations where the Group is the lessee, the cost of the leased assets is reflected in the balance sheet under the appropriate heading for the type of asset, and a liability for the same amount is simultaneously recognised. The amount recognised will be the lower of the fair value of the leased asset and the real value of the minimum amounts agreed at the start of the lease, including any purchase option, when there are no reasonable doubts concerning the exercising of said option. Contingent amounts, servicing costs and taxes payable by the lessor are not included. The total financial cost of the contract is taken to the consolidated income statement in the financial year in which it accrues, using the effective interest method. Contingent amounts are recognised as expenses in the financial year in which they are incurred. The asset recorded for this type of operation is depreciated using similar criteria to those applied to property, plant & equipment, according to the type of asset. At December 31, 2009 the Group company Vacaciones eDreams, S.L.U. had a fixed asset recorded in its books under Motor Vehicles.
Operating leases Costs arising from operating lease agreements are expensed currently. All receipts and payments arising from operating leases are treated as accruals or prepayments to be expensed over the rental period, while the use of the leased asset is ceded or received.
5.6. Financial instruments 5.6.1. Financial assets Classification The financial assets of the Group’s companies are categorised as follows: 1. Loans and receivables: financial assets arising from the sale of goods or rendering of services as part of the company’s trading activities, or arising from non-trading activities but which are not equity instruments or derivatives, which are of a fixed or determinable amount and are not negotiable on an active market. This heading includes principally receivables on trading and non-trading transactions, guarantees and pledged bank deposits.
F-217 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) 2. Financial investments held for trading: these are assets acquired with the intention of disposing of them in the short term, or which form part of a portfolio where transactions with such an objective have recently taken place. Investments held in investment funds are included (see Note 9.2). This category also includes derivative financial instruments which are not financial guarantees (such as sureties) and have not been designated at hedging instruments. This heading includes an interest rate swap agreement for a notional amount of 19,167 thousands of euros terminating on October 26, 2010 (see Note 10). 3. Equity investments in Group companies: Group companies are those with which the Company has a controlling relationship, while associated companies are those in which the Parent Company exercises significant influence.
Initial measurement Financial assets are initially stated at the fair value of the consideration received plus any directly attributable transaction costs.
Subsequent measurement Loans, receivables and investments held to maturity are stated at their amortised cost. Financial investments held for trading are stated at their fair value, with adjustments to this fair value being recognised in the income statement. Investments in Group and associated companies and joint ventures are valued at cost less, if applicable, accumulated impairment losses. Such losses are calculated as the difference between book value and the recoverable amount, this latter being the greater of fair value less selling costs and the net present value of the future cash flows from the investment. Unless there is better evidence of the recoverable value, this is based on the equity of the investee company adjusted for unrealised gains at the valuation date (including goodwill, if applicable). The Group carries out impairment testing on financial assets that are not stated at fair value at least annually. Impairment is considered to have occurred if the recoverable value of the financial asset is lower than its book value. The impairment is then expensed. The Group retires financial assets when they expire or when the rights to the cash flows are ceded and the risks and benefits derived from the ownership of the asset are substantially transferred.
5.6.2. Financial liabilities Financial liabilities are those debts and payables arising from the purchase of goods or services as part of the Group’s trading activities, or those arising from non-trading activities but which are not considered to be derivative financial instruments. Debts and payables are initially stated at the fair value of the consideration received plus any directly attributable transaction costs. They are subsequently stated at their amortised cost. Derivative financial instruments are recognised at their fair value, using the same criteria as for financial investments held for trading detailed in the section above. This heading includes two interest rate swap agreements for notional amounts of 19,167 thousands of euros and 17,491 thousands of euros, terminating on October 26, 2010 and October 26, 2012, respectively (see Note 10). The Group eliminates financial liabilities from the Balance Sheet once the associated obligations are extinguished.
F-218 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) 5.7. Classification of balances as current or non-current In the accompanying balance sheet, the balances are classified as current and non-current. Current balances include those assets and liabilities which the Group expects to sell, consume, pay or realise in the course of the normal operating cycle; other assets and liabilities are treated as non-current.
5.8. Foreign currency transactions The Group’s functional currency is the euro. Operations in other currencies are therefore considered to be transactions in foreign currency and are stated at the rate of exchange prevailing at the transaction date. At the close of the financial year, monetary assets and liabilities held in foreign currencies are converted to euros at the rate of exchange in effect at the balance sheet date. Exchange gains and losses are expensed when they arise.
5.9. Income tax The income tax cost or income corresponds to both current income tax and deferred tax. Current income tax is that paid as a result of tax assessments on the profits for the year. Tax relief and other tax benefits, excluding withholdings and payments on account, and tax loss carry forwards applied in the year, reduce the current income tax liability. The deferred income tax cost or income reflects the recognition and cancellation of deferred tax assets and liabilities. These include timing differences, which are identified as the expected balances payable or recoverable as a result of differences in the book value and tax value of assets and liabilities, as well as tax losses pending carryforward and credits for tax deductions not applied. These amounts are recorded applying to the timing difference or credit in question the tax rate at which they are expected to be collected or settled. Deferred tax liabilities are recognised for all taxable timing differences, except those in which the timing difference derives from the initial recognition of goodwill or other assets and liabilities in operations that affect neither tax income nor accounting income and which are not a business combination, as well as those associated with investments in subsidiaries, associates and joint ventures where the Group’s companies can control the timing of the reversal and where reversal will not take place in the foreseeable future. Deferred tax assets are only recorded when it is considered likely that the Group’s companies will have sufficient future taxable earnings against which they can be applied. Deferred tax assets and liabilities arising on operations debited or credited directly to equity accounts are also recognised in a balancing entry under equity. Deferred tax assets are reviewed at each balance sheet date, and the necessary adjustments are made if there is any doubt concerning their future recoverability. Deferred tax assets not recognised in the balance sheet are also reviewed at each balance sheet date, and are recognised if their recovery against future tax profits becomes likely. The companies of the Vacaciones eDreams, S.L.U Group and eDreams International Network, S.L.U. are taxed as a consolidated group. Vacaciones eDreams, S.L.U., as the parent of the consolidated tax group, files the consolidated income tax declaration for the tax group number 52208900G, to which the subsidiary eDreams International Network, S.L.U. belongs. Vacaciones eDreams, S.L.U. recognises the total amount payable (or receivable) for consolidated income tax under tax and social security payables and receivables. The amount payable (receivable) corresponding to the company eDreams International Network, S.L.U. is recognised under borrowings from (loans to) Group companies and associates.
F-219 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) 5.10. Income and expenses Income and expenses are recognised on an accruals basis, that is, when the actual transfer of goods and services occurs, irrespective of the timing of the related financial or monetary flow. Income is stated at the fair value of the consideration received, less discounts and taxes. Sales revenues are recognised when the significant risks and benefits inherent in the ownership of the sold assets are transferred to the buyer, the asset is no longer part of the operating assets of the Group and effective control is not retained. At present, the Group has the following distinct sources of income: a) Commissions received as brokers in the sale of flights, hotel rooms and travel packages (the latter being a combination of the first two). These commissions fall into two categories: I. Commissions received from airlines and tour operators. II. Administration fees, which the Group charges directly to end customers. b) Income received as wholesale agents in the sale of flights, hotel rooms and travel packages, where the Group buys seats with airlines or tour operators to order for subsequent resale to end customers. This type of business is currently carried on only by the Italian subsidiary of the Group, eDreams, S.r.L., and is generally on the decline. c) Income from advertising, which corresponds to the income received from the sale of space on the Group’s websites to be used for third-party advertisements. d) Other less significant income sources of various types, including, for example, commissions received from telephone companies on the volume of calls received at call centres, commissions received by the reservations centre (Amadeus), and income from subscriptions to the eDreams club in Italy. Income from the on-line travel broker business is recognised in the consolidated income statement at the time of sale via a credit for the amount of the commission obtained under ‘‘Net sales’’. The cost of the sale or associated service provided does not constitute an expense for the Group since it does not assume the risks inherent in the same. Income and expenses deriving from wholesale business are recognised in the consolidated income statement at the time the service is provided to the end customer via a credit for the amount billed in respect of travel packages and a debit for the costs associated with the same to the ‘‘Net sales’’ and ‘‘Supplies’’ lines, respectively. Interest received on financial investments is recognised using the effective interest method. Dividends are recognised when the shareholder’s right to receive them is declared.
5.11. Provisions and contingencies In the preparation of the financial statements, the Directors of the Group’s companies distinguish between: 1. Provisions: Credit balances covering current obligations arising as a result of past events, the reversal of which will probably result in a future outflow of funds but whose amount and/or reversal date are uncertain. 2. Contingent liabilities: Possible obligations arising as a result of past events, whose materialisation is dependent on the occurrence, or otherwise, of one or more future events falling outside the Company’s control. The financial statements show all provisions for which it is considered more likely than not that the obligation will have to be met. Contingent liabilities are not recorded in the balance sheet but
F-220 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) are included in the notes to the consolidated financial statements when it is considered possible that the obligation may have to be met. The value of these provisions corresponds to the best estimate possible of the amount necessary to cancel or transfer the obligation, taking into consideration the information available on the event and its consequences, recording the adjustments made from updating said provisions as financial costs as they accrue.
5.12. Termination benefits In accordance with current legislation, the Group’s companies are required to pay severance pay to employees whose contracts of employment are terminated in certain circumstances. Severance payments which can be reasonably quantified are recorded as a cost in the financial year in which the decision to terminate the contract is taken and a reasonable expectation regarding termination is transmitted to third parties. No provision of this nature has been made in the accompanying consolidated financial statements, as this situation is not forecast to arise.
5.13. Environmental assets Environmental assets are those used on a long-term basis in the activities of the Group the main purpose of which is to minimise its environmental impact and to protect and improve the environment, including the reduction or elimination of future contamination. Because of the activities in which it is engaged, the Group has no liabilities, costs, assets, provisions or contingencies of an environmental nature that could be material relative to its equity, financial position and results. Accordingly, no breakdowns of specific environmental information have been included in these consolidated financial statements.
5.14. Equity The capital instruments issued by the Parent Company are recorded under equity at the amount received net of the costs of the issue. Own shares are held by the Group as treasury stock as a result of its debt-financed share option scheme (see note 5.15). These shares are recorded directly as a reduction in equity, stated at the price of the shares awarded at any moment, as implemented and set out in the scheme. The gains or losses arising on the purchase, sale, issue or amortisation of own equity instruments are booked directly to equity and are never expensed.
5.15. Share-based payments The company eDreams Inc. makes share-based payments to certain employees of the eDreams Group on the basis of a Share Options Plan and a Debt-financed Share Option Plan (see Notes 16.6 and 11.4). The Group’s companies (Vacaciones eDreams, S.L.U., eDreams International Network, S.L.U. and eDreams, eDreams S.r.L.) recognise the goods and services received as a staff cost when they are received on one hand, and on the other the corresponding increase in equity as a result of settling the operation with equity instruments. Both the services provided and the increase in equity are measured at the fair value of the equity instruments granted at the date the award is agreed. Said fair value was determined using generally accepted valuation methods based on the volatility of the shares and a risk free interest rate.
F-221 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
5. Recognition and measurement (Continued) 5.16. Transactions with related parties and associated companies The Group’s operations with associated companies are all recorded at market prices. Furthermore, these transfer prices are fully supported and the Company’s Directors do not therefore consider that there is any significant risk arising that could produce a liability in the future. As stated in Note 3.1, all significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements.
6. Intangible assets Shown below are the movements recorded in this section of the 2009 and 2008 balance sheets:
FY 2009 Cost 31/12/08 Additions Retirements 31/12/09 (thousands of euros) Industrial property ...... 6,401 36 — 6,437 Goodwill ...... 103,941 — — 103,941 Software ...... 16,396 2,714 (13) 19,097 Total cost ...... 126,738 2,737 (13) 129,475
Translation Amortisation 31/12/08 Allocations differences 31/12/09 (thousands of euros) Industrial property ...... (1,992) (905) (47) (2,944) Software ...... (6,444) (2,997) (96) (9,537) Total amortisation ...... (8,436) (3,902) (143) (12,481)
Total intangible fixed assets 31/12/08 31/12/09 (thousands of euros) Cost ...... 126,738 129,475 Amortisation ...... (8,436) (12,481) Net total ...... 118,302 116,994
FY 2008 Additions/ Cost 01/01/08 Retirements 31/12/08 (thousands of euros) Industrial property ...... 6,364 37 6,401 Goodwill ...... 103,941 — 103,941 Software ...... 14,649 1,747 16,396 Total cost ...... 124,954 1,784 126,738
F-222 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
6. Intangible assets (Continued)
Amortisation 01/01/08 Allocations 31/12/08 (thousands of euros) Industrial property ...... (1,069) (923) (1,992) Software ...... (3,752) (2,692) (6,444) Total amortisation ...... (4,821) (3,615) (8,436)
Total intangible fixed assets 01/01/2008 31/12/08 (thousands of euros) Cost ...... 124,954 126,738 Amortisation ...... (4,821) (8,436) Net total ...... 120,133 118,302
The amount recorded under ‘‘Goodwill’’ recognises the effect of the operations described in Note 1. In order to calculate impairment losses, goodwill has been assigned to the following cash generating units: • Spanish market • Italian market • Other markets Value in use has been estimated by the Group’s Management on the basis of the forecast discounted cash flows of the three cash generating units applying a discount rate of approximately 9%. Said forecasts have been calculated on the basis of the budgets approved by the Directors of the Group’s companies covering a period of three to six years, assuming a fixed, non-growing income from the sixth year on. The Directors estimate that no likely or reasonable change in said hypothesis would result in the value of Goodwill at December 31, 2009 and December 31, 2008 exceeding the value in use at that date. On the basis of the analysis carried out by the Group’s management, it has not been considered necessary to recognise any impairment. The ‘‘Industrial Property’’ account at December 31, 2009 and 2008 mainly corresponds to the eDreams corporate brand, including all the elements (name, logo, brand architecture, etc.) that illustrate the eDreams Group’s corporate identity. This contributes to customer retention and the capture of new customers, making newly acquired commercial services more attractive. The ‘‘Software’’ account at December 31, 2009 and 2008 included an intangible asset valued at cost of 11,527 thousands of euros which is related to technology used by the Group in its operations and which contributes to attracting new customers and retaining existing customers, given the functional benefits that it offers. Additions under this heading, developed internally by the company eDreams International Network, S.L.U, totalled 2,380 thousands of euros and 1,407 thousands of euros in 2009 and 2008, respectively. These internal development costs satisfy the criteria for capitalisation as an intangible asset.
F-223 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
6. Intangible assets (Continued) At December 31, 2009 and 2008 the Group’s companies had the following fully amortised intangible fixed assets still in use:
Book value Description 31/12/09 31/12/08 (thousands of euros) Industrial property ...... 6 6 Software ...... 1,860 1,569 Total ...... 1,866 1,575
7. Tangible assets Shown below are the movements recorded in this chapter of the 2009 and 2008 balance sheets, and the principle events affecting this heading:
FY 2009
Cost 31/12/08 Additions 31/12/09 (thousands of euros) Technical facilities ...... 514 40 554 Furniture and fittings ...... 237 — 237 Data processing equipment ...... 2,799 167 2,966 Motor vehicles ...... 87 — 87 Other tangible fixed assets ...... 42 — 42 Fixed assets under construction ...... — 57 57 Total cost ...... 3,679 264 3,943
Depreciation 31/12/08 Allocations 31/12/09 (thousands of euros) Technical facilities ...... (369) (42) (411) Furniture and fittings ...... (125) (24) (149) Data processing equipment ...... (1,172) (505) (1,677) Motor vehicles ...... (37) (26) (63) Other tangible fixed assets ...... (27) (2) (29) Fixed assets under construction ...... — — — Total depreciation ...... (1,730) (599) (2,329)
Total tangible fixed assets 31/12/08 31/12/09 (thousands of euros) Cost ...... 3,679 3,943 Depreciation ...... (1,730) (2,329) Net total ...... 1,949 1,614
F-224 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
7. Tangible assets (Continued) FY 2008
Cost 01/01/08 Additions 31/12/08 (thousands of euros) Technical facilities ...... 478 36 514 Furniture and fittings ...... 201 36 237 Data processing equipment ...... 1,668 1,131 2,799 Motor vehicles ...... 87 — 87 Other tangible fixed assets ...... 41 1 42 Total cost ...... 2,475 1,204 3,679
Depreciation 01/01/08 Allocations 31/12/08 (thousands of euros) Technical facilities ...... (346) (23) (369) Furniture and fittings ...... (102) (23) (125) Data processing equipment ...... (731) (441) (1,172) Motor vehicles ...... (11) (26) (37) Other tangible fixed assets ...... (24) (3) (27) Total depreciation ...... (1,214) (516) (1,730)
Total tangible fixed assets 01/01/08 31/12/08 (thousands of euros) Cost ...... 2,475 3,679 Depreciation ...... (1,214) (1,730) Net total ...... 1,261 1,949
‘‘Data processing equipment’’ at December 31, 2009 included additions relating to the acquisition of several servers for 95 thousands of euros. ‘‘Fixed assets under construction’’ at that date included the costs accrued to date related to the development of a software programme for the company. As indicated in Note 8, at December 31, 2009 and 2008 the Group had a financial lease contracted corresponding to a motor vehicle. ‘‘Data processing equipment’’ at December 31, 2008 included additions relating to the acquisition of a new server (and accessories) for 938 thousands of euros. At December 31, 2009 and 2008 the Group had the following fully amortised tangible fixed assets still in use:
Book value Description 31/12/09 31/12/08 (thousands of euros) Technical facilities ...... 80 40 Furniture and fittings ...... 14 — Data processing equipment ...... 387 277 Other tangible fixed assets ...... 5 3 486 320
F-225 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
8. Leases Financial leases At December 31, 2009 and 2008, the company Vacaciones eDreams, S.L.U. had a financial lease contracted corresponding to a motor vehicle. Said financial lease began in September 2007 and will run for 3 years. The nominal value of the purchase option is 3 thousands of euros. At December 31, 2009 and 2008 the Group had the following minimum instalments contracted with the lessor, including the purchase option, in accordance with the current contracts, not including common expenses, future CPI-linked increases or other contractually agreed revaluations:
Nominal value Minimum instalments 31/12/09 31/12/08 (thousands of euros) Less than one year ...... 18 31 One to five years ...... — 18 Total ...... 18 49
At December 31, 2009 and 2008, the Group had no contingent instalments recognised as expenses in the year.
Operating leases
At December 31, 2009 and 2008 the Group’s companies had the following minimum instalments contracted with the lessors, in accordance with the contracts currently in force, not including common expenses, future CPI-linked increases or other contractually agreed revaluations:
Operating leases Nominal value Minimum instalments 31/12/09 31/12/08 (thousands of euros) Less than one year ...... 430 549 One to five years ...... 144 1,150 Total ...... 574 1,699
The total operating lease instalments recognised respectively as expenses in 2009 and 2008 were as follows:
31/12/09 31/12/08 (thousands of euros) Minimum rental payments ...... 570 504 Contingent instalments ...... — 15 Net total ...... 570 519
Instalments paid in 2009 and 2008 correspond to the rental of the Group’s companies’ offices.
F-226 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
9. Long- and short-term financial investments 9.1. Long-term financial investments The balances recorded under the heading ‘‘Long-term financial investments’’ at December 31, 2009 and 2008 were as follows:
FY 2009
Thousands Category of euros Pledged bank deposits ...... 674 Guarantee deposits ...... 152 Total ...... 826
At December 31, 2009, ‘‘Long-term financial investments’’ included an amount of 674 thousands of euros corresponding to bank deposits pledged as guarantees for the operations of new Group companies and 152 thousands of euros corresponding to sureties deposited.
FY 2008
Long-term financial investments Equity Loans and Category instruments others Total (thousands of euros) Financial investments in Group companies and associates (Note 18.2) ...... 125 — 125 Sureties deposited ...... — 131 131 Total ...... 125 131 256
‘‘Financial investments in Group companies and associates’’ at December 31, 2008 corresponded to investments in the companies of the eDreams GmbH Group and Viagens eDreams Lda. These companies were not included in the consolidated group at December 31, 2008, having been recently acquired or set up, and as the amounts involved were not material. An amount of 131 thousands of euros corresponding to sureties deposited, principally against office rental contracts, is included under the heading ‘‘Long-term financial investments’’.
9.2. Short-term financial investments The balances recorded under the heading ‘‘Short-term financial investments’’ at December 31, 2009 and 2008 were as follows:
FY 2009
Thousands Category of euros Derivative financial instruments ...... 534 Other financial assets ...... 5,271 Total ...... 5,805
The balance recorded under ‘‘Short-term financial investments’’ included a derivative financial instrument in the amount of 534 thousands of euros.
F-227 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
9. Long- and short-term financial investments (Continued) ‘‘Other financial assets’’ included 479 thousands of euros corresponding to an equity investment funds, and two investment funds held with financial entities in the amount of 4,508 thousands of euros. These investment funds do not have a fixed maturity date and are drawable at any time without penalty. They are invested mainly in European government bonds.
FY 2008
Thousands Category of euros Other financial assets ...... 972 Total ...... 972
‘‘Other financial assets’’ includes an equity investment fund held with a financial entity in the amount of 497 thousands of euros, with no fixed maturity debt, invested in European government bonds.
9.3. Information on the nature and level of risk associated with financial instruments 9.3.1. Qualitative information The Group’s Financial Management function is responsible for the management of financial risks, having established the necessary mechanisms to monitor exposure to interest rate and exchange rate fluctuations and to credit and liquidity risks. The main financial risks affecting the Group are detailed below: 1. Credit risk The Group’s cash and cash equivalents are held with financial entities with strong credit ratings. The Group’s credit risk is mainly attributable to advertising receivables. These amounts are recognised in the consolidated balance sheet net of provisions for bad debt, which is estimated by the Directors on the basis of experience in past years and their assessment of the current economic scenario. 2. Liquidity risk In order to guarantee liquidity and to meet the payment obligations derived from its operations, the Group maintains the cash and cash equivalents shown in its balance sheet. 3. Market risk (including interest rate risk, currency risk and other price risks) Both the Group’s cash and cash equivalents, and its financial debt are exposed to interest rate risk, which could have an adverse effect on its net finance income and on cash flows. The loan contracted by the Parent Company with BNP Paribas Fortis (see Note 13) bears interest at a variable rate and is therefore indexed to market trends. On November 27, 2006 the Group contracted an interest rate swap agreement swapping a variable rate of interest for a fixed rate of 4.015% p.a. terminating on October 26, 2010 (see Note 10). On October 22, 2009, the Company executed the option it held to contract a swap in the opposite direction to that contracted in 2006 (SwapOption), with the same termination date, offsetting the effects of the original swap in the accompanying consolidated income statement. On October 22, 2009 the Company contracted an interest rate swap agreement swapping a variable rate of interest for a fixed rate of 2.270% p.a. terminating on October 26, 2012 (see Note 10).
F-228 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
9. Long- and short-term financial investments (Continued) The Group’s exposure to currency risk mainly derives from cash and bank accounts in foreign currency and some trade receivables and payables in foreign currency. The Group’s currency risk is not significant.
9.3.2. Quantitative information Interest rate risk FY 2009 Counterparty Date Notional (thousands of euros) Interest rate swap ...... BNP PARIBAS FORTIS December 31, 2009 19,167 Interest rate swap ...... BNP PARIBAS FORTIS December 31, 2009 19,167 Interest rate swap ...... BNP PARIBAS FORTIS December 31, 2009 17,491
FY 2008 Counterparty Date Notional (thousands of euros) Interest rate swap ...... Fortis Bank NV 31 December 2008 21,667
10. Derivative financial instruments The Group uses derivative financial instruments to cover the risks to which its future cash flows are exposed. At December 31, 2009 and 2008, the company Vacaciones eDreams S.L.U. had contracted interest rate insurance policies which, according to current accounting regulations, may not be treated as a hedging instrument, having the following features:
FY 2009 • Amount contracted: 17,491 thousands of euros • Expiry: October 26, 2012 • Market value at December 31, 2009: (148) thousands of euros (see Note 14) • Impact recognised in income statement of valuation: (148) thousands of euros
• Amount contracted: 19,167 thousands of euros • Expiry: October 26, 2010 • Market value at December 31, 2009: 534 thousands of euros (see Note 14) • Impact recognised in income statement of valuation: 534 thousands of euros
• Amount contracted: 19,167 thousands of euros • Expiry: October 26, 2010 • Market value at December 31, 2009: (534) thousands of euros (see Note 14) • Impact recognised in income statement of valuation: (617) thousands of euros
F-229 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
10. Derivative financial instruments (Continued) FY 2008 • Amount contracted: 21,667 thousands of euros • Expiry: October 26, 2010 • Market value at December 31, 2008: (60) thousands of euros (see Note 14) • Impact recognised in income statement of valuation: (164) thousands of euros
11. Equity and Capital and Reserves 11.1. Share capital As of December 31, 2009 and 2008, the Parent Company’s share capital totalled 1 thousand of euros, consisting of 16,737,244 shares of 0.0001 US dollars face value each, all of the same class, fully subscribed and paid up. The detail of shareholders with ownership interests exceeding 12% at December 31, 2009 and 2008 was as follows:
Percentage of shares 2009 2008 eDreams Holdings LLC...... 75% 75% Treasury stock ...... 12% 13% Other minority shareholders ...... 13% 12% Total ...... 100% 100%
All shares carry the same rights, except for those acquired under the loan, which restricts the receipt of dividends until the collateral lien on the shares expires.
11.2. Own shares Treasury stocks at December 31, 2009 and 2008 correspond to the Debt-financed Share Option Plan implemented by the Parent Company (see Note 16.6). These shares are considered to be own shares until the collateral lien on the shares expires. At December 31, 2009 and 2008, the Parent Company held 2,044,980 and 2,212,794 own shares, respectively.
11.3. Legal reserves Under the revised text of the Spanish Companies Act, 10% of income for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Except as mentioned above, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
11.4. Share issue premium The share issue premium is the result of various capital increases carried out in recent years. Changes in the year correspond to the 167,814 share capital reduction carried out for the Debt-financed Share Option Plan (see Note 16.6).
F-230 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
11. Equity and Capital and Reserves (Continued) Changes in 2008 corresponded to the 146,237 share capital increase carried out for the Debt-financed Share Option Plan (see Note 16.6). The share issue premium is considered to be unrestricted.
11.5. Revaluation adjustments This heading of the accompanying consolidated balance sheet reflects the net differences arising as a result of the translation of the financial statements of eDreams Inc. and eDreams Ltd, which are prepared in a currency other than the euro.
11.6. Reserves of fully consolidated subsidiaries The breakdown of this account is as follows: 31/12/09 31/12/08 (thousands of euros) Vacaciones eDreams, S.L.U...... 9,870 6,374 eDreams International Network .S.L.U...... (1,958) (1,400) Editoriales Italiano OnLine, S.r.L...... 76 86 eDreams, S.r.L ...... 3,690 (961) eDreams, Ltd ...... 8 21 11,686 4,120
11.7. Results by company 31/12/09 31/12/08 (thousands of euros) Vacaciones eDreams, S.L.U...... 3,612 3,496 eDreams International Network, S.L.U...... 1,974 (558) Editoriales Italiano OnLine, S.r.L...... (399) (10) eDreams, S.r.L ...... 4,456 4,651 Viagens eDreams Portugal, LDA ...... (13) — eDreams France, SARL ...... (59) — eDreams, GmbH ...... (180) — eDreams, Ltd ...... (620) (13) eDreams Inc...... (3,887) (3,421) 4,884 4,145
12. Provisions and contingencies ‘‘Long-term provisions’’ in 2009 included an amount corresponding to the obligations of some Group companies in relation to certain employee benefits arising from transactions involving share- based payments. The ‘‘Short-term provisions’’ heading includes an amount corresponding to tax assessments issued by the Spanish tax authorities in respect of Value Added Tax and Company Income Tax for financial years 1999 to 2001. These tax assessments, for a total amount of 185 thousands of euros, were signed with notice of disagreement and the amount was recognised under ‘‘Long-term provisions’’ in 2008.
F-231 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
12. Provisions and contingencies (Continued) At December 31, 2009, ‘‘Short-term provisions’’ also included a provision of 411 thousands of euros for estimated refunds of credit card transactions to date in relation to sales in the financial year. At December 31, 2009 and 2008 there were no contingent assets or liabilities.
13. Borrowings (Long- and short-term) The balances recorded under the headings ‘‘Long-term borrowings’’ and ‘‘Short-term borrowings’’ at December 31, 2009 and 2008 were as follows:
FY 2009 Short-term Long-term Total (thousands of euros) Debts and payables: Loan BNP Paribas Fortis ...... 1,750 24,750 26,500 Repayable credit ...... 70 70 140 Financial lease (Note 8) ...... 18 — 18 Derivative financial instrument (Note 10) ...... 534 148 681 Other financial liabilities ...... 28 — 29 Total ...... 2,400 24,968 27,339
FY 2008 Short-term Long-term Total (thousands of euros) Debts and payables: Fortis Bank NV loan ...... — 26,500 26,500 Repayable credit ...... 70 139 209 Financial lease (Note 8) ...... 31 18 49 Derivative financial instrument (Note 10) ...... — 60 60 Other financial liabilities ...... 283 283 Total ...... 101 27,000 27,101
The breakdown by maturity date of the accounts under ‘‘Long-term borrowings’’ is as follows:
FY 2009 2011 2012 2013 From 2014 Total (thousands of euros) Loan BNP Paribas Fortis ...... 4,000 5,125 5,625 10,000 24,750 Repayable credit ...... 70 — — — 70 Financial lease (Note 8) ...... ——— — — Derivative financial instrument (Note 10) ...... — 148 — — 148 Total ...... 4,069 5,273 5,625 10,000 24,968
F-232 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
13. Borrowings (Long- and short-term) (Continued) FY 2008 2010 2011 2012 From 2013 Total (thousands of euros) Fortis Bank NV loan ...... 1,750 4,000 5,125 15,625 26,500 Repayable credit ...... 139 — — — 139 Financial lease (Note 8) ...... 18 — — — 18 Derivative financial instrument (Note 10) ...... 60 — — — 60 Other financial liabilities ...... ——— 283283 Total ...... 1,967 4,000 5,125 15,908 27,000
Loan BNP Paribas Fortis Senior loan agreement concluded by Vacaciones eDreams, S.L.U. with Fortis Bank NV on December 1, 2006 for 35 million euros, in three tranches, one for 25 million euros (tranche A) and two for 5 million euros each (tranches B and C), each accruing interest at euribor plus a market spread. The initial maturity schedules set for each of the tranches in the loan agreement are as follows: 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total (thousands of euros) Tranche A ..... 2,500 3,750 4,000 4,000 5,125 5,625 — — — 25,000 Tranche B .....———————5,000 5,000 Tranche C .....————————5,000 5,000 2,500 3,750 4,000 4,000 5,125 5,625 — 5,000 5,000 35,000
Irrespective of the maturity schedules set out above, the loan agreement establishes that, in certain conditions, the debt must be repaid early if the consolidated cash flows of the eDreams Inc. and Subsidiaries Group exceed predetermined levels. These obligatory early repayments are calculated on an annual basis, the date of the first calculation being the first quarter of 2008, based on results for 2007. The company Vacaciones eDreams S.L.U did not make any early repayment in 2009. During 2008 the company it made a prepayment of 2,500,000 euros, of which 250,000 euros corresponded to 2009 and 2,250,000 euros to 2010. Similarly, in 2007 Vacaciones eDreams, S.L.U. made an early repayment of 2,500 thousands of euros corresponding to 2008 and 3,500 thousands of euros corresponding to 2009 according to the initial loan schedule. The agreement also establishes certain conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the terms of the agreement, with failure to satisfy these conditions constituting express grounds for the early repayment of the outstanding debt. At December 31, 2009 and 2008, the Group satisfied the aforesaid financial conditions. The interest rate set in the agreement is the Euribor plus a variable spread. The loan agreement also prohibits the distribution of dividends and the share issue premium of Vacaciones eDreams, S.L. outside the eDreams Inc. and Subsidiaries Group. In connection with this agreement, on November 27, 2006, Vacaciones eDreams S.L.U. concluded an interest rate swap agreement, which may not be considered as a hedging instrument, for a notional amount of 19,167 thousands of euros, terminating on October 26, 2010. On October 22, 2009, the Company executed the option it held to contract a swap in the opposite direction to that contracted in 2006 (SwapOption), with the same termination date and notional amount (October 26, 2010 and 19,167 thousands of euros, respectively), offsetting the effects of the original swap. On the same
F-233 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
13. Borrowings (Long- and short-term) (Continued) date, October 22, 2009, the company Vacaciones eDreams S.L.U. concluded a new interest rate swap agreement for a notional amount of 17,491 thousands of euros terminating on October 26, 2012 (see Note 10).
Repayable credit The balance of this line corresponds to a loan for an initial amount of 348,000 euros granted in 2004 by the Ministry for Industry, Tourism and Trade that accrues interest at an annual rate of 0% and matures in seven years, with a two-year grace period.
Financial leases Debt arising on the financial lease of 31 thousands of euros was settled during both 2009 and 2008.
14. Tax receivables and payables and general tax situation 14.1. Current tax and social security receivables and payables The composition of the current tax receivables and payables at December 31, 2009 and 2008 is as follows:
Payables 31/12/09 31/12/08 (thousands of euros) Corporate Income Tax receivables ...... — 146 Public Treasury receivable for withholdings ...... — 120 Other Public sector receivables ...... 25 29 Total ...... 25 295
Receivables 31/12/09 31/12/08 (thousands of euros) US Tax...... 3,180 1,190 Corporate Income Tax payable ...... 2,621 — Public Treasury VAT payable ...... 317 194 Social security ...... 186 140 Public Treasury liability for employee withholdings ...... 122 97 Other Public sector payables ...... 280 150 Total ...... 6,706 1,771
14.2. Reconciliation of accounting profit and tax base Company income tax is calculated separately for each Company based on financial or accounting profit, obtained by applying generally accepted accounting principles, which is not necessarily the same as taxable profit, the latter being the tax base for the aforesaid tax calculated in the different jurisdictions.
F-234 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
14. Tax receivables and payables and general tax situation (Continued) The reconciliation between the 2009 and 2008 accounting profit of each company of the Group and the tax base for corporate income tax, in thousands of euros, is as follows:
FY 2009 Editoriale Viagens Vacaciones eDreams Italiano eDreams eDreams eDreams, International eDreams eDreams, Portugal, France, eDreams eDreams eDreams S.L.U. Network, S.L. S.r.L. S.r.L. L.D.A. S.r.L. GmbH Inc. Ltd. Total (thousands of euros) Contribution to consolidated profit .. 3,612 1,974 4,456 (399) (13) (59) (180) (3,887) (620) 4,884 Consolidation adjustments ...... 4,853 (732) (1,248) 409 13 59 174 (1,351) 666 2,843 Accounting profit for the year (after tax) ..... 8,465 1,242 3,208 10 — — (6) (5,238) 46 7,727 Company income tax . . . 2,155 (125) 1,305 — — — — 1,143 — 4,478 Permanent differences: Amortisation of brands . 300 — — — — — — — — 300 Amortisation of allocations to intangibles ...... — — — — — — — 2,819 — 2,819 Share option and debt-financed share option plan expenses 232 326 56 — — — — — — 614 Other items ...... 30 — — — — — — — — 30 Exemption for double taxation ...... (4,000) — — — — — — — — (4,000) Timing differences: Interest rate swap . . . 90 — — — — — — — — 90 Amortisation of goodwill ...... (999) — — — — — — — — (999) Bonus Manpack .... 307 276 — — — — — — — 583 Offset of tax loss carryforwards ...... — (1,615) (855) (10) — — — — (46) (2,526) Tax base (taxable profit) 6,580 104 3,714 — — — (6) (1,276) — 9,116
FY 2008 eDreams Vacaciones International Editoriale eDreams, Network, eDreams Italiano eDreams eDreams S.L.U. S.L. S.r.L. OnLine, S.r.L. Inc. Ltd. Total (thousands of euros) Contribution to consolidated profit .. 3,496 (558) 4,651 (10) (3,421) (13) 4,145 Consolidation adjustments ...... 2,606 1,741 (6) 21 (456) — 3,906 Accounting profit for the year (after tax) ...... 6,102 1,183 4,645 11 (3,877) (13) 8,051 Company income tax ...... 1,129 — — — 1,458 — 2,587 Permanent differences: Amortisation of brands ...... 300 — — — — — 300 Amortisation of allocations to intangibles ...... — — — — 2,064 — 2,064 Share option and debt-financed share option plan expenses ...... 232 326 56 — — — 614 Tax effect of allocation of intangible assets ...... — — — — — — — Exemption for double taxation ..... (4,000) — — — — — (4,000) Timing differences: Interest rate swap ...... 271 — — — — — 271 Amortisation of goodwill ...... (999) — — — — — (999) Offset of tax loss carryforwards ...... — (1,509) (4,701) (11) — — (6,221) Tax base (taxable profit) ...... 3,035 — — — (355) (13) 2,667
F-235 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
14. Tax receivables and payables and general tax situation (Continued) The permanent differences recognised by Vacaciones eDreams, S.L.U. correspond mainly to the amortisation of the registered brand as a result of the capital increase carried out on November 17, 2006 and to costs related to options on equity instruments that are not considered to be deductible for tax purposes. The positive timing differences recognised correspond to the cancellation of the fiscal effect derived from the recognition at January 1, 2008 of the derivative financial instrument. The 28th transitional provision of Royal Decree 4/2004, approving the revised text of the Law on Company Income Tax, introduced by Law 4/2008, eliminating the tax on wealth and introducing a monthly payment system for VAT and other modifications to tax regulations, established that the tax paying entity may opt to distribute on a straight line basis over the three tax years from January 1, 2008 the positive or negative balance arising from the adjustments charged or credited to reserves as a result of the first application of the new Spanish GAAP approved by Royal Decree 1514/2007. The expense resulting from the Group’s obligations in relation to certain employee benefits arising from transactions involving share-based payments is also recognised as a positive timing difference. In accordance with article 13.1.b. of the Company Income Tax Law, this expense is not deductible from the taxable profits for the tax year in which the expense is accrued but from that against which the benefits are credited. Article 13.3 of the aforementioned Law establishes that those expenses which are not tax deductible in accordance with the two previous sections, are deducted against the taxable profits for the tax year in which the provision is applied. The negative timing differences recognised by Vacaciones eDreams S.L.U. include the tax incentive established by article 12 of the Company Income Tax Law allowing the deduction of one-twentieth of the goodwill generated in the subsidiary eDreams. S.r.L. The exemption for double taxation corresponds to revenues received by Vacaciones eDreams, S.L. in 2009 and 2008 in the form of dividends from eDreams, S.r.L., as provided for in article 21 of the Law on Company Income Tax. The breakdown of the Company Income Tax expense for 2009 and 2008 is as follows:
2009 2008 (thousands of euros) Company Income Tax accrued ...... 3,335 1,129 US Tax...... 2,055 1,458 Reversal deferred tax (allocation of intangibles) ...... (912) (912) Total tax expense recognised in the income statement ...... 4,478 1,675
14.3. Deferred tax assets The breakdown of the balance on this account at December 31, 2009 is as follows:
FY 2009 eDreams Vacaciones International eDreams, Network, S.L.U. S.L.U. Total (thousands of euros) Long-term employee benefits 2009 ...... 92 82 174 Long-term employee benefits 2008 (Income Tax 2008 adjustment) ...... 97 116 213 Total deferred tax assets ...... 189 198 387
F-236 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
14. Tax receivables and payables and general tax situation (Continued) The Group had no deferred tax assets at December 31, 2008. In 2009 an adjustment was recognised in relation to the previous year’s Income Tax due to a difference between the estimated amount on December 31, 2008 and the Income Tax declared, which included a timing difference for long-term employee benefits.
14.4. Deferred tax liabilities The breakdown of the balance on this account at December 31, 2009 and 2008 is as follows:
FY 2009 Additions/ 31/12/08 Cancellations 31/12/09 (thousands of euros) Tax effect of allocation of intangible assets ...... 3,433 (912) 2,521 Amortisation of Goodwill eDreams, S.r.L ...... 625 300 925 Tax effect of derivative financial instruments ...... 81 (54) 27 Total ...... 4,139 (666) 3,473
FY 2008 Additions/ 01/01/08 Cancellations 31/12/08 (thousands of euros) Tax effect of allocation of intangible assets ...... 4,345 (912) 3,433 Amortisation of Goodwill eDreams, S.r.L ...... 300 325 625 Tax effect of derivative financial instruments ...... 81 (81) — Total ...... 4,726 (668) 4,058
In the final income tax declaration filed for 2008, it was decided to distribute the tax effect of the derivative instrument over three years, recognising in 2009 the amounts corresponding to both 2008 and 2009. At December 31, 2009 and 2008, the detail of the tax losses carried forward from previous years that could be offset against future profits and the deadlines for their application was as follows:
FY 2009 Editoriale Italiano Last year of possible Year of generation Online, S.r.L. eDreams, Ltd Total application (thousands of euros) 2006 ...... 36 — 36 2021 2007 ...... — 1,512 1,512 2022 2008 ...... — 13 13 2023 Total ...... 36 1,525 1,561
F-237 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
14. Tax receivables and payables and general tax situation (Continued) FY 2008 eDreams Editoriale Last year International Italiano of possible Year of generation Network, S.L.U. eDreams S.r.L Online, S.r.L. Total application (thousands of euros) 2000 ...... — 855 — 855 No limit 2003 ...... — — 2 2 2018 2004 ...... — — 51 51 2019 2005 ...... — — 54 54 2020 2006 ...... 1,941 — — 1,941 2021 Total ...... 1,941 855 107 2,903
The Group has decided not to capitalise the tax credits generated by these negative tax bases. The adjusted income tax filed for 2008 in relation to the estimate made at the end of that year of eDreams International Networks, S.L.U. has resulted in adjustments to the tax loss carryforwards from years prior to December 31, 2008. Additionally, on the basis of new available information, the tax loss carryforwards for eDreams Ltd. and Editoriale Italiano OnLine, S.r.L. were also adjusted. The final amount to be offset against these tax losses may be modified after the tax returns have been verified.
14.4. Financial years pending tax inspections The companies of the eDreams Inc. and Subsidiaries Group currently have open for review by the tax inspection authorities of each jurisdiction all financial years that are not yet statute-barred for all taxes to which they are subject, expect those that have already been reviewed by the corresponding tax authorities. Pursuant to prevailing legislation, tax returns may not be considered definitive until they have been inspected by the tax authorities or the corresponding four-year prescription period has expired. In the opinion of the Group’s senior management, the possibility of tax liabilities arising in future inspections is remote, and any such liabilities would in any case be without material impact on the accompanying consolidated financial statements taken as a whole. No additional liabilities are expected to arise for the Company as a result of any future inspections.
15. Foreign currency The most significant balances and transactions in foreign currencies (principally US dollars and sterling), valued respectively at the exchange rate at year end and at the average exchange rate, are as follows:
31/12/09 31/12/08 (thousands of euros) Accounts payable ...... 92 341 Other liabilities ...... — 9 Services received ...... 101 245
F-238 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
16. Income and expenses 16.1. Net turnover The distribution of net sales according to activity and geographical markets is as follows:
Activities 2009 2008 (thousands of euros) Commissions received from airlines and tour operators ...... 23,905 21,908 Administration fees ...... 42,582 36,269 Wholesale revenues ...... 2,384 5,568 Advertising revenues ...... 4,196 4,329 Total ...... 73,067 68,074
Geographical market 2009 2008 (thousands of euros) Spain ...... 36,362 35,443 Italy ...... 23,217 18,447 Other countries ...... 13,488 14,184 Total ...... 73,067 68,074
16.2. Work performed on intangible assets The balance on the account ‘‘Work performed on intangible assets’’ corresponds to the capitalisation of the intangible asset developed internally by the company International Network, S.L.U. in the amount of 2,380 thousands of euros in 2009 and 1,407 thousands of euros in 2008. These internal development costs satisfy the criteria for capitalisation as an intangible asset.
16.3. Other operating income The balance on the account ‘‘Other revenues’’ at December 31, 2009 and 2008 is broken down as follows:
2009 2008 (thousands of euros) Credit cards and other incentives ...... 1,691 1,259 Lease income ...... — 27 Others ...... — 1 Total ...... 1,691 1,287
16.4. Supplies This line reflects the costs directly associated with the travel agency business—essentially, the cost of the travel packages.
F-239 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
16. Income and expenses (Continued) 16.5. Personnel expenses The balance on the account ‘‘Personnel expenses’’ at December 31, 2009 and 2008 is broken down as follows:
2009 2008 (thousands of euros) Wages and salaries ...... 8,292 8,983 Share-based payments (Note 16.6) ...... 614 614 Social security charges borne by the Company ...... 1,550 1,794 Other welfare costs ...... — 55 Total ...... 10,456 11,446
16.6. Transactions involving share-based payments Share Options Plan A compensation plan for the employees of Vacaciones eDreams, S.L.U., eDreams International Network, S.L.U., and eDreams, S.r.L was approved by shareholders at the Annual General Meeting held in May 2007. The Plan is based on the concession of a certain number of options on the shares of eDreams Inc. with concession date January 1, 2008. The right to these options is acquired over the four years following the contract date on a straight line basis from the concession date, and may be exercised up to ten years after the date each employee signed the contract, except when the employee leaves the employment of the companies of the eDreams Inc. and Subsidiaries Group, in which case the options must be exercised within three months of the termination of employment. Compensation is paid under the Plan through the physical delivery to employees of the Group’s companies of shares in the company eDreams Inc., once they decide to exercise the aforementioned options on the basis of the conditions stipulated. No options were exercised in 2009 or 2008. The fair value of exercising the option was calculated at the concession date, applying the Black & Scholes valuation model, assuming volatility of 25% based on the movements in the listed share prices of comparable companies in the previous year and on a risk free asset bearing interest of 3.68%. The value of exercising the option in the case of the Vacaciones eDreams S.L.U. and subsidiaries Group totalled 456 thousands of euros. This valuation is not subject to any adjustment given the nature of the Plan. On the basis of the special rules contained in recognition and valuation standard nº 17 of Spanish GAAP in relation to transactions with employees settled using equity instruments, the companies Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams International Network, S.L have recognised an expenses account under ‘‘Personnel Expenses’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ (see Note 12.3) in the amount of 113 thousands of euros in 2009 and 114 thousands of euros in 2008, corresponding to the part of the Share Options Plan accruing in those years.
Debt-financed share option plan The agreement for the acquisition of eDreams Inc. by the new shareholders, concluded on October 26, 2006, included a share option plan giving certain employees of Vacaciones eDreams, S.L.U., eDreams International Network and eDreams, S.r.L the right to acquire a fixed number of
F-240 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
16. Income and expenses (Continued) shares in eDreams Inc. The share premium on these shares was funded via loan agreements concluded between eDreams Inc. and the individual employees. The fair value of exercising the option was calculated at the concession date, October 26, 2006, applying the Black & Scholes valuation model, assuming volatility of 20% based on the movements in the listed share prices of comparable companies in the last year and on a risk free asset bearing interest of 3.68%. The value of exercising the option in the case of the Vacaciones eDreams S.L.U. and subsidiaries Group totalled 2,000 thousands of euros, being the part accrued and recognised as an expense under ‘‘Personnel Expenses’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ in the amount of 500 thousands of euros in both 2009 and 2008. This valuation is not subject to any adjustment given the nature of the Plan. Shown below are the movements in 2009 and 2008 recorded for the equity instruments in both employee incentive plans:
FY 2009
Exercisable Conceded Cancelled Exercisable at 31/12/08 in 2009 in 2009 at 31/12/09 Number of share options ...... 258,447 — (24,078) 234,369 Number of debt-financed share options . . . 2,212,794 — (167,814) 2,044,980
FY 2008
Exercisable Conceded Cancelled Exercisable at 31/12/08 in 2008 in 2008 at 31/12/08 Number of share options ...... — 262,592 (4,145) 258,447 Number of debt-financed share options . . . 2,066,557 146,237 — 2,212,794 The weighted average price of the equity instruments in both plans was between 6 and 7 euros at 31 December, 2009 and 2008.
16.7. Other operating expenses The breakdown of the ‘‘Other operating expenses’’ line of the accompanying income statement is as follows:
2009 2008 (thousands of euros) Credit card refunds ...... 5,104 1,874 Corporate development costs ...... 334 786 Other management expenses ...... 239 313 5,677 2,973
‘‘Credit card refunds’’ includes an amount of 1,381 thousands of euros corresponding to refunds of amounts paid by credit card effected in sales transactions recorded in 2008.
F-241 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
17. Dealings and balances with related parties The balances on accounts with related parties are as follows:
FY 2009
Receivables Payables (thousands of euros) Long-term: Subordinated loan agreement ...... — 15,000 Total long-term accounts ...... — 15,000
FY 2008
Receivables Payables (thousands of euros) Long-term: Investments in Group companies (Note 9.1) ...... 125 — Subordinated loan agreement ...... — 15,000 Total long-term accounts ...... 125 15,000
Long-term borrowings These correspond to a subordinated loan agreement in the amount of 15 million euros concluded on October 26, 2006 with associates of the majority shareholder of the Parent Company and director-shareholders of the aforesaid Company. This loan is repayable in a single instalment due in 2013 and accrues interest at an annual rate of 12%. The loan is considered to be subordinated since it is not repayable until all other Group debts have been settled. The agreement also establishes certain conditions in relation to the consolidated financial statements of eDreams Inc. that must be satisfied at the close of each financial year during the term of the agreement, with failure to satisfy these conditions constituting express grounds for the early repayment of the outstanding debt. At December 31, 2009 and 2008, the Group satisfied the aforesaid financial conditions.
18. Financial structure The Parent Company of the Group is owned by the shareholders listed in Note 11. The eDreams Group obtains a significant part of its financing from its shareholders. However, there are no limits on it obtaining external financing. At December 31, 2009 and 2008 the Group was in receipt of a subordinated loan of 15,000 thousands of euros from associates of the majority shareholder of the Group’s Parent Company, and long-term loans from third parties totalling 24,750 thousands of euros and 26,500 thousands of euros, respectively.
F-242 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2009
19. Other information 19.1. Staff The average number of employees in 2009 and 2008, by category, was as follows:
Category 2009 2008 Board members ...... 7 7 Management ...... 7 7 Administrative staff ...... 18 16 Operational staff ...... 200 194 Total ...... 232 224
The average number of employees in 2009 and 2008, by category and gender, was as follows:
2009 2008 Men Women Men Women Board members ...... 7 — 7 — Management ...... 7 — 7 — Administrative staff ...... 16 12 8 11 Operational staff ...... 77 123 72 127 Total ...... 107 135 94 138
19.2. Auditors’ fees Fees paid during 2009 and 2008 to Deloitte, S.L. for services related to auditing the financial statements and other services amounted to 70 thousands of euros and 80 thousands of euros, respectively. No other expenses have been incurred in relation to fees corresponding to other services provided by the auditor or any entity related to it.
20. Explanation added for translation to English These financial statements are presented on the basis of accounting principles generally accepted in Spain. Certain accounting practices applied by the Company that conform with generally accepted accounting principles in Spain may not conform with generally accepted accounting principles in other countries.
Barcelona, 31 March 2010
Thomas P. Alber Whitney B. Cahn Hythen T. El - Nazer President Member of the Board Member of the Board
Javier Perez´ Tenessa James Otis Hare Birker Bahnsen Ajit Nedungadi Member of the Board Member of the Board Member of the Board Member of the Board
F-243 Translation of a report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES CONSOLIDATED MANAGEMENT REPORT For the year ended December 31, 2009 Turnover The table below shows that the Group’s Total Transaction Value (TTV) increased from 607 million euros in 2008 to 647 million euros in 2009. The Group’s sales in 2009 totalled 73.1 million euros, a 7% increase on the 68.1 million reported in 2008
EDREAMS INC. AND SUBSIDIARIES INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2009 AND 2008 (Thousands of euros)
Notes Year Year - 2009 2008 Total Transaction Value ...... 646,920 606,597 Net turnover- ...... Note 16.1 73,067 68,074 Work performed on intangible assets ...... Note 16.2 2,380 1,407 Other operating income ...... Note 16.3 1,691 1,287 Total Income ...... 77,138 70,768 Supplies ...... Note 16.4 (2,354) (5,302) Gross margin ...... 74,784 65,466 Current staff costs ...... Note 16.5 (9,842) (10,832) Other current operating expenses ...... (40,997) (36,190) Non-current staff costs ...... Note 16.5 (614) (614) Other non-current operating expenses ...... Note 16.7 (5,677) (2,973) Depreciation and amortization ...... Note 6 and 7 (4,501) (4,131) Operating income ...... 13,153 10,726 Net financial income (loss) ...... Note 10 (3,791) (4,906) Profit (loss) before taxes ...... 9,362 5,820 Income tax ...... Note 14 (4,478) (1,675) Profit attributable to the parent company ...... 4,884 4,145
F-244 The main reasons for this growth are: – Growth of the on-line travel market at the expense of traditional travel agencies. – Vacaciones eDreams S.L. has gained market share from its competitors. – The launch of new international pages (Australia, Brazil, Canada, Chile, India, Peru, Switzerland, and the United States) – Launch of new products (cars, rural tourism, cruises, etc.)
Highlights of the year Although the tourism sector in general declined in 2009, with downward pressure on margins, the company has successfully consolidated its position through expansion abroad, with a 35% increase in turnover from international markets. Diversification, adapting and continually improving the product with new applications, and the introduction of new products (cars, rural tourism, cruises, etc.).
Research and development The Vacaciones eDreams Group constantly invests in R&D to ensure that its search tools continue to offer travel alternatives at competitive prices while introducing new product lines that meet customers’ needs.
Outlook The on-line travel market is expected to continue to grow in Spain and Italy. The Group’s companies are currently leaders in this market. On-line airline ticket sales will continue to grow, as will the sale of other products such as hotels, train tickets and packages via internet.
Post-balance sheet events There have been no significant post-balance sheet events.
Thomas P. Alber Whitney B. Cahn Hythen T. El - Nazer President Member of the Board Member of the Board
Javier Perez´ Tenessa James Otis Hare Birker Bahnsen Ajit Nedungadi Member of the Board Member of the Board Member of the Board Member of the Board
F-245 eDreams Inc. and Subsidiaries
Consolidated Financial Statements for the period ended 31 December 2008 and Director’s Report, together with Auditor’s Report Consolidated
Translation of a report originally issued in Spanish based on our work performed in accordance with generally accepted auditing standards in Spain and of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 21). In the event of a discrepancy, the Spanish-language version prevails.
F-246 Avda. Diagonal, 654 08034 Barcelona 5APR201109213575 Espana˜ Tel.: +34 932 80 40 40 Fax: +34 932 80 28 10 www.deloitte.es Translation of a report originally issued in Spanish based on our work performed in accordance with generally accepted auditing standards in Spain and of consolidated financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
AUDITORS’ REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To the shareholders of eDreams Inc., commissioned by the management of eDreams Inc.: 1. We have audited the consolidated financial statements of eDreams Inc. and Subsidiaries comprising the consolidated balance sheet at 31 December 2008 and the related consolidated income statement, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated financial statements for the year then ended. The preparation of these consolidated financial statements is the responsibility of the Parent’s directors. Our responsibility is to express an opinion on the consolidated financial statements taken as a whole based on our audit work performed in accordance with generally accepted auditing standards in Spain, which require examination, by means of selective tests, of the evidence supporting the consolidated financial statements and evaluation of their presentation, of the accounting policies applied and of the estimates made. 2. eDreams Inc. is a company domiciled in the United States of America, where it has no operations, and its main subsidiaries carry on their business activities fundamentally in Spain, where its corporate services are located, and in Italy. Accordingly, the directors prepared the accompanying consolidated financial statements in accordance with generally accepted accounting principles and standards in Spain. 3. The accompanying consolidated financial statements for 2008 are the first that the Parent’s directors have prepared in accordance with the Spanish National Chart of Accounts approved by Royal Decree 1514/2007. In this regard, in accordance with Transitional Provision Four.1 of the aforementioned Royal Decree, these consolidated financial statements have been considered to be initial consolidated financial statements and, therefore, they do not include comparative figures. Note 2.5 to the consolidated financial statements ‘‘Issues arising from the changeover to new accounting standards’’ includes the consolidated balance sheet and consolidated income statement contained in the approved consolidated financial statements for 2007 which were prepared in accordance with the accounting and corporate regulations in force in that year in Spain, together with an explanation of the main differences between the accounting policies applied in 2007 and those applied in 2008, as well as a quantification of the impact of this change in accounting policies on consolidated equity at 1 January 2008, the date of transition. Our opinion refers only to the 2008 consolidated financial statements. On 31 March 2008, we issued our auditors’ report on the 2007 consolidated financial statements, prepared in accordance with generally accepted accounting principles and standards under the Spanish regulations in force in that year, in which we expressed an opinion qualified for one matter, which has been resolved by the Parent as a result of the application of the new Spanish National Chart of Accounts. 4. The notes to the consolidated financial statements do not contain all the required information on salaries, attendance fees and remuneration earned by the senior executives and the directors of eDreams Inc. and Subsidiaries, on advances and loans granted to them or on share-based payments, in accordance with the minimum disclosure requirements for notes to consolidated financial statements established in the Spanish National Chart of Accounts. 5. In our opinion, except for the omission of information detailed in the qualification in paragraph 4 above, the accompanying consolidated financial statements for 2008 present fairly, in all material respects, the consolidated equity and consolidated financial position of
F-247 eDreams Inc. and Subsidiaries at 31 December 2008 and the consolidated results of their operations, the changes in the consolidated equity and their consolidated cash flows for the year then ended, and contain the required information, sufficient for their proper interpretation and comprehension, in conformity with the generally accepted accounting principles and standards under the Spanish regulations. 6. The consolidated directors’ report for 2008 contains the explanations which the directors consider appropriate about the Companies’ situation, the evolution of their business and other matters, but is not an integral part of the consolidated financial statements. We have checked that the accounting information in the consolidated directors’ report is consistent with that contained in the consolidated financial statements for 2008. Our work as auditors was confined to checking the consolidated directors’ report with the aforementioned scope, and did not include a review of any information other than that drawn from the Companies’ accounting records. DELOITTE, S. L. Registered in ROAC under no. S0692
Arthur Amich 2 April 2009
F-248 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES BALANCE SHEET At December 31, 2008 (thousands of euros)
ASSETS Note 31.12.08 LIABILITIES Note 31.12.08 NON-CURRENT ASSETS EQUITY: Intangible assets ...... Note 6 118,302 SHAREHOLDER’S EQUITY ...... Note 11 Property, plant and equipment .... Note 7 1,949 Share capital ...... 1 Long-term financial investments— .. Note 9.1 256 Share issue premium ...... 91,329 Financial investments in group Reserves of the parent company ... (9,715) companies and associates ...... 125 Other long-term financial investments . 131 Fully consolidated reserves ...... 4,120 Total non-current assets ...... 120,507 Own shares held ...... (13,926) Profit for the year ...... 4,145 REVALUATION ADJUSTMENTS .... 518 Total equity ...... 76,472
NON-CURRENT LIABILITIES: Provisions ...... Note 12 185 Long-term bank borrowings— ..... Note 13 26,717 Bank borrowings ...... 26,639 Finance leases ...... 18 Derivatives ...... Note 10 60 Borrowings from group companies and associates ...... Note 17 15,000 Other long-term borrowings ...... 283 Deferred tax liabilities ...... Note 14.3 4,058 Total non-current liabilities ..... 46,243
CURRENT ASSETS: CURRENT LIABILITIES: Trade and other receivables— .... 6,623 Short-term borrowings— ...... Note 13 101 Trade receivables ...... 6,317 Bank borrowings ...... 70 Sundry receivables ...... 6 Finance leases ...... Note 8 31 Staff costs ...... 5 Trade and other accounts payable— 16,035 Tax receivable ...... Note 14.1 295 Suppliers ...... 12,788 Short-term financial investments ... Note 9.2 500 Staff ...... 1,476 Prepayments ...... 191 Tax payable ...... Note 14.1 1,771 Cash and cash equivalents ...... 11,291 Accruals ...... 733 Total current assets ...... 19,077 Total current liabilities ...... 16,869 TOTAL ASSETS ...... 139,584 TOTAL EQUITY AND LIABILITIES 139,584
Notes 1 to 20 of the accompanying notes to the annual financial statements form an integral part of the balance sheet at December 31, 2008.
March 31, 2009
Thomas P. Alber Roberto Ram´ırez Hythen T. El - Nazar Chairman
Javier Perez´ Tenessa James Otis Hare Christian Gruenwald Ajit Nedungadi
F-249 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES INCOME STATEMENT For the year ended December 31, 2008 (thousands of euros)
Year Notes 2008 Net turnover ...... Note 16.1 68,074 Work performed on intangible assets ...... Note 16.2 1,407 Other operating income ...... Note 16.3 1,287 Supplies ...... Note 16.4 (5,302) Staff costs— ...... Note 16.5 (11,446) Wages, salaries, et al ...... (9,597) Social security costs, et al ...... (1,849) Other operating expenses— ...... (39,163) Outside services ...... (35,818) Taxes ...... (264) Losses on, impairment of and change in trade provisions ...... (108) Other operating expenses ...... Note 16.7 (2,973) Depreciation and amortization ...... Notes 6 and 7 (4,131) Operating income ...... 10,726 Finance revenue ...... 251 Financial expenses— Third-party borrowings ...... (4,959) Derivatives ...... Note 10 (164) Exchange gains (losses) ...... (34) Net financial income (loss) ...... (4,906) Profit (loss) before taxes ...... 5,820 Income tax ...... Note 14 (1,675) Profit attributable to the parent company ...... 4,145
Notes 1 to 20 of the accompanying notes to the annual financial statements form an integral part of the income statement for the year ended December 31, 2008.
March 31, 2009
Thomas P. Alber Roberto Ram´ırez Hythen T. El - Nazar Chairman
Javier Perez´ Tenessa James Otis Hare Christian Gruenwald
Ajit Nedungadi
F-250 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY IN 2008 A) STATEMENT OF RECOGNISED INCOME AND EXPENSE (Euros)
Year 2008 INCOME FOR THE PERIOD (I) ...... 4,145
Revaluation adjustments ...... (35) Total income and expense recognized directly in equity (II) ...... (35) Total amounts transferred to income statement (III) ...... —
Total recognized income and expense (I+II+III) ...... 4,110
Notes 1 to 20 of the accompanying notes to the annual financial statements form an integral part of the statement of recognized income and expense for the year ended December 31, 2008.
March 31, 2009
Thomas P. Alber Roberto Ram´ırez Hythen T. El - Nazar Chairman
Javier Perez´ Tenessa James Otis Hare Christian Gruenwald
Ajit Nedungadi
F-251 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY IN 2008 B) STATEMENT OF CHANGES IN EQUITY (thousands of euros)
Share Parent Share issue company Consolidated Own Results for Revaluation capital Premium reserves reserves shares the year reserve Total Closing balance at December 31, 2007 ...... 1 90,112 (1,490) (3,869) — 1,618 553 86,925 Adjustments for changes to new GAAP Derivative financial instruments — — — 271 — — — 271 Tax effect of derivative financial instruments ...... — — — (81) — — — (81) Intangible assets ...... — — — (180) — — — (180) Debt-financed share options . . — — — — (12,705) — — (12,705) Allocation of intangible assets . — — (2,985) — — — — (2,985) Tax effect of allocation of intangibe assets ...... — — 1,092 — — — — 1,092 Tax effect 2007 ...... — — (585) — — — — (585) Adjusted balance at January 1, 2008 ...... 1 90,112 (3,968) (3,859) (12,705) 1,618 553 71,752 Total recognized income and expense ...... 4,145 (35) 4,110 Transactions with shareholders: Capital increase ...... — 1,217 — — (1,217) — — — Share-based payments ..... — — 614 — (4) — — 610 Application of income for 2007 — — (6,361) 7,979 — (1,618) — — Closing balance at December 31, 2008 ...... 1 91,329 (9,715) 4,120 (13,926) 4,145 518 76,472
The accompanying Notes 1 to 20 to the annual financial statements form an integral part of the statement of changes in equity for 2008.
March 31, 2009
Thomas P. Alber Roberto Ram´ırez Hythen T. El - Nazar Chairman
Javier Perez´ Tenessa James Otis Hare Christian Gruenwald Ajit Nedungadi
F-252 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES CASH FLOW STATEMENTS For the year ended December 31, 2008 (thousands of euros)
Year Notes 2008 CASH FLOWS FROM OPERATING ACTIVITIES (I): ...... 3,289 Profit before tax ...... 5,820 Adjustments to profit— ...... 8,188 Depreciation and amortization ...... Notes 6 and 7 4,131 Work performed on fixed assets ...... Note 6 (1,407) Changes in provisions ...... 108 Finance revenue ...... (251) Finance costs ...... 4,959 Exchange gains (losses) ...... 34 Other costs (transactions paid with other equity instruments) ...... Note 16.6 614 Change in working capital— ...... (4,262) Trade and other receivables ...... (2,597) Other current assets ...... (191) Trade and other payables ...... (2,207) Other current liabilities ...... 733 Other cash flows from operating activities— ...... (6,457) Interest paid ...... (4,799) Interest received ...... 251 Corporate income tax paid ...... (1,909) Cash flows from/(used in) investing activities (II) ...... (1,747) Payments on investments— ...... (1,747) Intangible assets ...... Note 6 (418) Property, plant and equipment ...... Note 7 (1,204) Other financial assets ...... (125) Cash flows from financing activities (III) ...... (2,241) Proceeds from and payments of financial liabilities— ...... (2,241) Repayment and redemption bank borrowings ...... Note 14 (2,541) Other borrowings ...... 300 NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (I+II+III+IV) ...... (699) Cash and cash equivalents at January 1, 2008 ...... 12,962 Cash and cash equivalents at December 31, 2008 ...... 12,263
Notes 1 to 20 of the accompanying notes to the annual financial statements form an integral part of the cashflow statement for the year ended December 31, 2008.
March 31, 2009 Thomas P. Alber Roberto Ram´ırez Hythen T. El - Nazar Chairman Javier Perez´ Tenessa James Otis Hare Christian Gruenwald Ajit Nedungadi
F-253 eDreams Inc. and Subsidiaries
Notes to the consolidated financial statements for the year ended December 31, 2008 and Management Report, together with Independent Auditors’ Report
Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
F-254 Translation of financial statements originally issued in Spanish and prepared in accordance with generally accepted accounting principles in Spain (see Notes 2 and 20). In the event of a discrepancy, the Spanish-language version prevails.
EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the financial year ended December 31, 2008
1. Group companies and activities The Group companies included in the scope of consolidation and the relevant information on each are as follows:
Vacaciones eDreams Editoriale eDreams, International eDreams, Italiano Name eDreams Inc. S.L.U. Network, S.L.U. S.r.L. eDreams, Ltd. OnLine, S.r.L. 30 Old Rudnick Lane (City of Dover) County World Trade World Trade Via Via of Kent, Center 601 N Center 601 N Boscovich, Mortimer Street Boscovich, Registered office Delaware (Barcelona) (Barcelona) 14 (Milan) 73-75 (London) 14 (Milan) Admin and IT Admin and IT Holding Travel consulting Travel Admin consulting Activity company agencies services agencies services services Indirect holding Vacaciones eDreams, S.L.U. — — 100% 100% — — eDreams S.r.L. — — — — — 100%
Direct holding — 100% — — 100% —
Carrying value of holding of corresponding shareholder companies (thousands of euros) — 6,974 32,318 21,021 — 12
Date of financial statements used for December 31, December 31, December 31, December 31, December 31, December 31, consolidation purposes 2008 2008 2008 2008 2008 2008
Method of consolidation Parent Fully Fully Fully Fully Fully Company consolidated consolidated consolidated consolidated consolidated eDreams Inc. is the Parent of a Group of companies (hereinafter, the eDreams Group or the Group) whose primary corporate purpose is to broker sales of holiday and travel packages, flights, hotel rooms and car rentals, to provide a range of tourism-related services, and to sell advertising space using the internet and call centres as sales channels. The Parent Company of the eDreams Group was incorporated on January 28, 1999. eDreams Inc. has its registered office in Delaware (United States), although the main activities of the eDreams Group are carried on almost entirely in Spain and Italy, via the subsidiaries Vacaciones eDreams, S.L.U., eDreams International Networks, S.L.U., eDreams, S.r.L. and Editoriale Italiano online, S.r.L., respectively. On October 26, 2006, the US investment fund TA Associates, through the intermediary of eDreams Acquisition Corp, a company 100% owned by eDreams Holding, LLC., acquired 93.3% of the share capital of eDreams Inc., resulting in a change of control within the Group and creating a new eDreams Group. Subsequently, on 27 October, 2006, an upstream merger was concluded that left eDreams Inc. as the surviving company. For expediency the merger was effective for accounting purposes as of November 1, 2006, from which date eDreams Inc. assumed all activities previously performed by the absorbed company. As part of the process of international expansion planned by the e-Dreams Group and in accordance with the guidelines set out in its strategic plan, on February 19, 2008 the group company Vacaciones e-Dreams S.L.U. acquired the company eDreams GmbH for 25,000 euros. Similarly, on May 29, 2008, Vacaciones eDreams, S.L.U. set up, together with the company eDreams International Network, S.L.U., the company Viagens eDreams Lda with share capital of
F-255 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
1. Group companies and activities (Continued) 100,0000 euros. Vacaciones eDreams, S.L.U has subscribed 999 shares and eDreams International Networks, S.L.U. has subscribed one share. Neither the recently acquired company nor the recently constituted company has been consolidated into these consolidated financial statements, as the amounts represented are not material.
2. Basis of presentation of the consolidated financial statements
2.1. True and fair view The accompanying consolidated financial statements have been prepared on the basis of the accounting records of eDreams Inc. and the subsidiaries included in the scope of consolidation (as detailed in Note 1) in the format established by Royal Decree 1514/2007 approving Spain’s new general accounting plan (Plan General de Contabilidad—hereinafter ‘‘Spanish GAAP’’) so as to provide a true and fair view of the equity, financial situation and results of the Group and its cash flows in the year. These consolidated financial statements, which have been prepared by the Directors of eDreams Inc., and the individual financial statements of eDreams Inc. and each of its consolidated subsidiaries, will be submitted, where applicable, for approval by shareholders at the corresponding Annual General Meetings and the Directors are of the opinion that they will be approved without modification. The consolidated financial statements for 2007 were approved by the Board of Directors on June 30, 2008.
2.2. Going concern principle The accompanying consolidated financial statements have been prepared in accordance with the going concern principle, i.e. that its assets and liabilities will be respectively realised and settled in the normal course of business.
2.3. Non-obligatory accounting principles applied No non-obligatory accounting principles have been applied. Furthermore, the Directors have prepared these abridged financial statements taking into consideration all mandatory accounting principles and standards with a significant impact on said financial statements, and no mandatory accounting principles have been omitted in their preparation.
2.4. Critical issues affecting valuation and estimate of uncertainty In the preparation of the accompanying consolidated financial statements estimates have been used that were prepared by the Directors of the company to quantify some assets, liabilities, revenues, expenditure and commitments that are recorded there. Those estimates basically refer to: • The valuation of goodwill (see Note 6) • The useful life of tangible and intangible assets (see Notes 6 and 7) • Such impairment losses as arise on certain tangible and intangible assets when it is deemed that the book value of said assets is not recoverable (see Notes 6 and 7). • Estimate of provision for bad debt on accounts receivable. • The calculation of share-based payments (see Note 16.6). • Assessment of lawsuits, commitments and assets and liabilities that were contingent at closing.
F-256 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
2. Basis of presentation of the consolidated financial statements (Continued) Although these estimates were made on the basis of the best available information available at the close of 2008, it is possible that events could take place in the future that might require them to be adjusted upwards or downwards in future years on a prospective basis.
2.5. Issues arising from the changeover to new accounting standards On the basis of the requirements set out in art. 35.6 of the Code of Commerce, and on the basis of the consistency principle and requirements of comparability, the consolidated financial statements for the year ended December 31, 2008 will be treated as initial financial statements. Therefore, the provision of comparative figures is not mandatory. Notwithstanding the above, as established by Royal Decree 1514/2007, the balance sheet and income statement for 2007, as approved by the Sole Shareholder, are detailed below. These financial statements were prepared according to 1990 Spanish GAAP as established by Royal Decree 1643/1990 of 20 December—PGC(90).
EDREAMS INC. AND SUBSIDIARIES BALANCE SHEET At December 31, 2007 (thousands of euros)
ASSETS 31-12-2007 LIABILITIES 31-12-2007 FIXED ASSETS: SHAREHOLDER’S EQUITY: Intangible fixed assets ...... 117,959 Share capital ...... 1 Property, plant and equipment— ...... 1,135 Reserves— ...... 85,306 Long-term investments— ...... 13,254 Share premium account ...... 90,112 Total fixed assets ...... 132,348 Reserves of the parent company ...... (1,490) Fully consolidated reserves ...... (3,869) Translation differences ...... 553 Gains and Losses attributable to the Parent Company ...... 1,618 Total shareholders’ equity ...... 86,925
PROVISIONS F0R LIABILITIES AND CHARGES ...... 185 DEFERRED EXPENSES ...... 6
LONG-TERM LIABILITIES: Bank borrowings ...... 29,258 Shareholder debt ...... 15,000 Tax and social security payables ...... 325 Total long-term liabilities ...... 44,583
SHORT-TERM LIABILITIES: Bank borrowings ...... 101 CURRENT ASSETS: Trade payables ...... 14,468 Receivables ...... 4,027 Other non-trade payables— ...... 2,584 Short-term investments— ...... 997 Tax and social security payables ...... 1,271 Cash and equivalents ...... 11,965 Other liabilities ...... 1,313 Total current assets ...... 16,492 Total short-term liabilities ...... 17,153 TOTAL ASSETS ...... 148,846 TOTAL EQUITY AND LIABILITIES .... 148,846
F-257 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
2. Basis of presentation of the consolidated financial statements (Continued) EDREAMS INC. AND SUBSIDIARIES INCOME STATEMENT For the year ended December 31, 2007 (thousands of euros)
Year Year DEBIT 2007 CREDIT 2007 EXPENSES: INCOME: Supplies ...... 6,211 Net turnover ...... 56,944 Personnel expenses ...... 7,986 Provision for depreciation and amortisation ..... 744 Other operating expenses ...... 26,510 Total operating expenses ...... 41,451 56,944 Operating profit ...... 15,493 Finance costs on debts with third parties ...... 4,683 Negative translation differences ...... — Positive translation differences ...... 161 Total financial expenses ...... 4,683 Total financial income ...... 161 Goodwill amortization ...... 5,899 Financial expense ...... 10,421 Profit on ordinary activities ...... 5,072 Extraordinary expenses ...... 2,105 Extraordinary income ...... 158 Total extraordinary expenses ...... 2,105 Total extraordinary income ...... 158 Extraordinary expense ...... 1,947 Consolidated income for the year, before taxes . 3,125 Company income tax ...... 1,507 Profit for the period attributable to the Parent Company ...... 1,618
The Group has elected to change over to the new Spanish generally accepted accounting principles from January 1, 2008.
F-258 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
2. Basis of presentation of the consolidated financial statements (Continued) In accordance with current legislation, a reconciliation is presented of the company’s equity at January 1, 2008 prepared according to Spanish generally accepted accounting principles (1990) and its equity at the same date prepared according to the new accounting standards established in Royal Decree 1514/2007:
Thousands of euros Equity at January 1, 2008 according to Spanish GAAP (90)(*) ...... 86,925 Effects of transition to new GAAP: Own shares (debt-financed share options)(a) ...... (12,705) Allocation of Goodwill(b) ...... (2,985) Tax effect of allocation of Goodwill(b) ...... 1,092 Derivative financial instruments(c) ...... 271 Tax effect of derivative financial instruments(c) ...... (81) Intangible asset (Italian company)(d) ...... (180) Tax effect 2007(e) ...... (585) Equity at January 1, 2008 according to new GAAP ...... 71,752
(*) Obtained from the financial statements at December 31, 2007 prepared in accordance with the accounting principles and standards applicable at that date. The new accounting regulations contain major differences to those that were in force at December 31, 2007 with regard to accounting principles, valuation criteria, presentation standards and the information to be included in the financial statements. The main differences in the accounting principles in force in the previous financial year and the current year are as follows: • Own shares (a): In accordance with current accounting regulations, the own shares acquired in the year are recorded directly as a reduction in equity, at the value of the consideration received. The amount recorded under this heading corresponds to a loan granted to employees of the company’s subsidiaries with regard to the debt-financed shares option Plan. • Allocation of Goodwill (b) Corresponds to the allocation to other intangible assets of the difference between the acquisition cost and the net assets acquired in the acquisition of the company referred to in Note 1. • Derivative financial instruments (c): In accordance with valuation standard n 9 of the new Spanish generally accepted accounting principles, at the changeover date, the Group had recorded, at its fair value at January 1, 2008, a derivative financial instrument which was credited to equity. Changes in the fair value of this financial asset will be taken to results in the year in which they arise (see Note 10). • Impairment in value of intangible asset (d): The e-Dreams Inc and Subsidiaries Group has made an adjustment charged to equity for impairment in value of the intangible asset of Editoriale Italiano Online, S.r.L. • Correction of tax effect 2007 (e): The e-Dreams Inc and Subsidiaries Group has made an adjustment charged to equity for the 2007 tax effect.
2.6. Grouping of accounts items Certain items on the balance sheet, income statement, the statement of changes in equity and the cash flow statements are grouped together under single headings to facilitate interpretation. If
F-259 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
2. Basis of presentation of the consolidated financial statements (Continued) necessary, where the information is significant, a breakdown of the heading is provided in the accompanying notes to the financial statements.
3. Consolidation principles 3.1. Consolidation principles The accompanying consolidated financial statements incorporate the financial statements of the companies controlled by the Parent Company at December 31, 2008. It is considered that the Parent Company has a controlling interest when it has the power to establish the financial and operative policies of its holdings. The results of investee companies are included in the consolidated income statement from the effective acquisition date. All companies over which the Parent exercises effective control by holding the majority of votes on its representative and decision-making bodies are fully consolidated in the consolidated financial statements. All significant balances, transactions and gains or losses incurred between Group companies have been eliminated from the accompanying consolidated financial statements. In addition, the most significant accounting principles and criteria used in the preparation of the accompanying consolidated financial statements have been standardized. The companies included in the consolidation process are those subsidiary companies of the Group detailed in Note 1.
3.2. Standardization of individual accounts headings The criteria used for standardization purposes were the following: 1. Time: The financial statements of Group companies have the same closing date and cover the same period as the consolidated financial statements. 2. Valuations: Asset and liability items have been valued using uniform methods and in accordance with generally accepted valuation criteria and principles.
3.3. Functional currency Although the Parent Company prepares its financial statements in US dollars, these consolidated financial statements are expressed in euros, since this is the currency in which almost all the Group’s operating and financial transactions are concluded. Transactions concluded overseas are recognized pursuant to the accounting policies established in Note 5.8.
3.4. Changes in the scope of consolidation There have been no changes in the scope of consolidation.
F-260 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
4. Application of the Parent Company’s income The Company’s Directors will propose the following distribution of income for the year for the approval of shareholders at the Annual General Meeting:
FY 2008 Application of net profit (loss): Parent Company losses for 2008 ...... (3,877) Application of net profit (loss): Losses brought forward ...... (3,877)
5. Recognition and measurement The main recognition and valuation methods applied by the Company in preparing its financial statements for 2008, in accordance with Spanish generally accepted accounting principles, were as follows:
5.1. Balances in foreign currencies The exchange rates in force at the close of the financial year (December 31, 2008) were used to translate the financial statements of consolidated companies that are not expressed in euros, except in the case of: 1. Capital, reserves and participation costs, which were translated at historical exchange rates. 2. Income statement items, which were converted at the average exchange rate for the year. Differences arising on translation were recognised in the ‘‘Revaluation adjustments’’ line of the accompanying consolidated balance sheet.
5.2. Intangible assets Property, plant and equipment are generally recorded at cost of acquisition or production. They are later carried at cost, less any cumulative amortisation or impairment losses that may apply. 1. Industrial property Domains and brands are recognized at acquisition price and amortized over the duration of their estimated useful life, subject, where applicable, to a ceiling equivalent to the duration of any licensing agreements signed with third parties. Costs incurred in developing industrial property that is not financially viable are expensed in full in the period in which this circumstance becomes known. Intangible assets acquired during a business combination are identified and separately recognised from goodwill when they satisfy the definition of an intangible asset and their value can be reliably measured. The cost of such intangible assets is their fair value at the date of acquisition. After their initial recognition, these assets are recognised at cost, less cumulative amortisation and impairment losses, on the same basis as for separately acquired assets. 2. Software The Company records all costs incurred to acquire and develop computer programs, including website development costs, under this heading. Software upkeep and maintenance expenses are charged against income when incurred.
F-261 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) The cost of software includes internal development costs. Expenditure incurred internally by the Company on the development of software and its website is only recorded as assets if all of the conditions below are met or can be demonstrated: • an identifiable asset is created. • it is likely that the asset will generate future economic benefits, and • the cost of developing the asset can be reliably ascertained. Capitalised development costs with a finite useful life are amortised on a straight line basis over the period during which the asset is expected to generate benefits. Development costs previously recorded as expenditure are not recognised as an asset during subsequent years. The Group depreciates its tangible assets on a straight-line basis using percentages of annual depreciation calculated on the basis of the estimated years of useful life of the assets, as detailed below:
Percentage Amortised in year Industrial property ...... 10-20 Software ...... 16-33 3. Goodwill Goodwill is recognised as an asset when its value is evident from a substantial acquisition in the context of a business combination. Goodwill is assigned to cash generating units from which benefits are expected to flow as the result of a business combination. It is not amortised. Said cash generating units are subjected, at least once a year, to an impairment test using the methodology hereafter described, recognising, if necessary, the corresponding impairment. The goodwill initially recognised in the amount of 122,897,000 euros reflects the positive difference between the cost of investing in the Group and the value of the Group’s shareholders’ equity on the date of acquisition, less the minority interests that disappeared as a consequence of the merger process, henceforth becoming shareholders of the merged company (see Note 1). The difference between the acquisition cost and the book value of the net assets acquired was partially allocated to intangible assets in the amount of 17,881 million euros, less 5,364 million euros for the tax effect. The main intangible asset identified relates principally to the eDreams corporate brand. Given the functional benefits of the technology used by the Group in its operations, which contributes to attracting new customers and retaining existing customers, this is also identified as an intangible fixed asset. Impairment adjustments recognised against goodwill are not reversible in later financial periods.
5.3. Property, plant and equipment Property, plant and equipment are initially recorded at cost of acquisition or production and are later carried at cost, less any cumulative amortisation or impairment losses that may apply, in accordance with the criteria detailed in Note 5.4. Expenses associated with the repair and maintenance of property, plant and equipment are charged to the income statement for the year in which they are incurred. Amounts invested in
F-262 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) improvements that help to increase the capacity or efficiency or lengthen the useful life of such assets are recorded as an increase in the cost of the associated assets. The Group depreciates its property, plant and equipment on a straight-line basis, using percentages of annual depreciation calculated on the basis of the estimated years of useful life of the assets, as detailed below:
Percentage Amortised in year Technical facilities ...... 12 Furniture and fittings ...... 10 Data processing equipment ...... 20 Motor vehicles ...... 12 Other tangible fixed assets ...... 12
5.4. Impairment in value of property, plant and equipment and intangible assets At the close of each financial year (in the case of goodwill) or when there is evidence of a loss in value (other assets), the Group uses an impairment test to estimate the likely existence of loss of value that causes the recoverable value of the asset to be lower than its book value. The recoverable value is determined as the higher amount between the fair value less sale costs and the value in use. The procedure established by the Group’s senior management for this test is as follows: Recoverable value is calculated for each cash generating unit. In the case of property, plant and equipment, impairment calculations are carried out individually on an item by item basis. Each year senior management prepares a six-year business plan segmented by market for each cash generating unit. The main components of the plan are: • Income forecasts • Investment and working capital forecasts Other variables affecting the calculation of recoverable value are: • The discount rate applied, taken as the weighted average cost of capital, the cost of liabilities and the specific risks attached to assets. • The cash flow growth rates used to extrapolate cash flow forecasts beyond the period covered by budgets and provisions. The forecasts are prepared on the basis of past experience and using the best estimates available, ensuring these are consistent with external information. Once prepared, the business plans are reviewed and given final approval by the relevant governing body. If it is necessary to recognise an impairment loss on a cash generating unit to which all or part of the goodwill has been allocated, first the book value of the goodwill corresponding to said unit is reduced. If the impairment is greater than the balance on the goodwill account, the remaining assets of the cash generating unit are revalued down in proportion to their book value, up to the greater of the following; their fair value less selling costs, their value in use, and zero. When a recognised impairment loss is later reversed (not permitted in the case of goodwill), the book value of the asset or the cash generating unit is increased to the revised estimated
F-263 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) recoverable value, although the increased book value must not exceed the book value which would have been determined if no impairment loss had been recognised in previous financial periods. The reversal of the impairment loss is recognised as revenue.
5.5. Leases Leases are classified as financial leases when their conditions imply the substantial transfer to the lessee of the risks and benefits inherent in the asset subject to the contract: Other leases are classified as operating leases.
Financial leases For financial leasing operations where the Group is the lessee, the cost of the leased assets is reflected in the balance sheet under the appropriate heading for the type of asset, and a liability for the same amount is simultaneously recognised. The amount recognised will be the lower of the fair value of the leased asset and the real value of the minimum amounts agreed at the start of the lease, including any purchase option, when there are no reasonable doubts concerning the exercising of said option. Contingent amounts, servicing costs and taxes payable by the lessor are not included. The total financial cost of the contract is taken to the consolidated income statement in the financial year in which it accrues, using the effective interest method. Contingent amounts are recognised as expenses in the financial year in which they are incurred. The asset recorded for this type of operation is depreciated using similar criteria to those applied to property, plant & equipment, according to the type of asset. At December 31, 2008 the Group company Vacaciones eDreams, S.L.U. had a fixed asset recorded in its books under Motor Vehicles.
Operating leases Costs arising from operating lease agreements are expensed currently. All receipts and payments arising from operating leases are treated as accruals or prepayments to be expensed over the rental period, while the use of the leased asset is ceded or received.
5.6. Financial instruments 5.6.1. Financial assets Classification The financial assets of the Group’s companies are categorised as follows: Loans and receivables: financial assets arising from the sale of goods or rendering of services as part of the company’s trading activities, or arising from non-trading activities but which are not equity instruments or derivatives, which are of a fixed or determinable amount and are not negotiable on an active market. (this heading includes principally receivables on trading and non-trading transactions, guarantees and deposits). Financial investments held for trading: these are assets acquired with the intention of disposing of them in the short term, or which form part of a portfolio where transactions with such an objective have recently taken place. This category also includes derivative financial instruments which are not financial guarantees (such as sureties) and have not been designated at hedging instruments.
F-264 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) Equity investments in group companies: Group companies are those with which the Company has a controlling relationship, while associated companies are those in which the Parent Company exercises significant influence.
Initial measurement Financial assets are initially stated at the fair value of the consideration received plus any directly attributable transaction costs.
Subsequent measurement Loans, receivables and investments held to maturity are stated at their amortised cost. Financial investments held for trading are stated at their fair value, with adjustments to this fair value being recognised in the income statement. Investments in group and associated companies and joint ventures are valued at cost less, if applicable, accumulated impairment losses. Such losses are calculated as the difference between book value and the recoverable amount, this latter being the greater of fair value less selling costs and the net present value of the future cash flows from the investment. Unless there is better evidence of the recoverable value, this is based on the equity of the investee company adjusted for unrealised gains at the valuation date (including goodwill, if applicable). The Group carries out impairment testing on financial assets that are not stated at fair value at least annually. Impairment is considered to have occurred if the recoverable value of the financial asset is lower than its book value. The impairment is then expensed. The Group retires financial assets when they expire or when the rights to the cash flows are ceded and the risks and benefits derived from the ownership of the asset are substantially transferred.
5.6.2. Financial liabilities Financial liabilities are those debts and payables arising from the purchase of goods or services as part of the Group’s trading activities, or those arising from non-trading activities but which are not considered to be derivative financial instruments. Debts and payables are initially stated at the fair value of the consideration received plus any directly attributable transaction costs. They are subsequently stated at their amortised cost. Derivative financial instruments are recognised at their fair value, using the same criteria as for financial investments held for trading detailed in the section above. This heading includes an interest rate swap agreement for a notional amount of 21,667,000 euros terminating on October 26, 2010 (see Note 10). The Group eliminates financial liabilities from the Balance Sheet once the associated obligations are extinguished.
5.7. Classification of balances as current or non-current In the accompanying balance sheet, the balances are classified as current and non-current. Current balances include those assets and liabilities which the Group expects to sell, consume, pay or realise in the course of the normal operating cycle; other assets and liabilities are treated as non-current.
F-265 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) 5.8. Foreign currency transactions The Group’s functional currency is the euro. Operations in other currencies are therefore considered to be transactions in foreign currency and are stated at the rate of exchange prevailing at the transaction date. At the close of the financial year, monetary assets and liabilities held in foreign currencies are converted to euros at the rate of exchange in effect at the balance sheet date. Exchange gains and losses are expensed when they arise.
5.9. Income tax The income tax cost or income corresponds to both current income tax and deferred tax. Current income tax is that paid as a result of tax assessments on the profits for the year. Tax relief and other tax benefits, excluding withholdings and payments on account, and tax loss carry forwards applied in the year, reduce the current income tax liability. The deferred income tax cost or income reflects the recognition and cancellation of deferred tax assets and liabilities. These include timing differences, which are identified as the expected balances payable or recoverable as a result of differences in the book value and tax value of assets and liabilities, as well as tax losses pending carryforward and credits for tax deductions not applied. These amounts are recorded applying to the timing difference or credit in question the tax rate at which they are expected to be collected or settled. Deferred tax liabilities are recognised for all taxable timing differences, except those in which the timing difference derives from the initial recognition of goodwill or other assets and liabilities in operations that affect neither tax income nor accounting income and which are not a business combination, as well as those associated with investments in subsidiaries, associates and joint ventures where the Group’s companies can control the timing of the reversal and where reversal will not take place in the foreseeable future. Deferred tax assets are only recorded when it is considered likely that the Group’s companies will have sufficient future taxable earnings against which they can be applied. Deferred tax assets and liabilities arising on operations debited or credited directly to equity accounts are also recognised in a balancing entry under equity. Deferred tax assets are reviewed at each balance sheet date, and the necessary adjustments are made if there is any doubt concerning their future recoverability. Deferred tax assets not recognised in the balance sheet are also reviewed at each balance sheet date, and are recognised if their recovery against future tax profits becomes likely.
5.10. Income and expenses Income and expenses are recognised on an accruals basis, that is, when the actual transfer of goods and services occurs, irrespective of the timing of the related financial or monetary flow. Income is stated at the fair value of the consideration received, less discounts and taxes. Sales revenues are recognised when the significant risks and benefits inherent in the ownership of the sold assets are transferred to the buyer, the asset is no longer part of the operating assets of the Group and effective control is not retained.
F-266 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) At present, the Group has the following distinct sources of income: a) Commissions received as brokers in the sale of flights, hotel rooms and travel packages (the latter being a combination of the first two). These commissions fall into two categories: I. Commissions received from airlines and tour operators. II. Administration fees (shipping and handling fees), which the Group charges directly to end customers. b) Income received as wholesale agents in the sale of flights, hotel rooms and travel packages, where the Group buys seats with airlines or tour operators to order for subsequent resale to end customers. This type of business is currently carried on only by the Italian subsidiary of the Group, eDreams, S.r.L., and is generally on the decline. c) Income from advertising, which corresponds to the income received from the sale of space on the Group’s websites to be used for third-party advertisements. d) Other less significant income sources of various types, including, for example, commissions received from telephone companies on the volume of calls received at call centres, commissions received by the reservations centre (Amadeus), and income from subscriptions to the eDreams club in Italy. Income from the online travel broker business is recognized in the consolidated income statement at the time of sale via a credit for the amount of the commission obtained under ‘‘Net sales’’. The cost of the sale or associated service provided does not constitute an expense for the Group since it does not assume the risks inherent in the same. Income and expenses deriving from wholesale business are recognized in the consolidated income statement at the time the service is provided to the end customer via a credit for the amount billed in respect of travel packages and a debit for the costs associated with the same to the ‘‘Net sales’’ and ‘‘Supplies’’ lines, respectively. Interest received on financial investments is recognised using the effective interest method. Dividends are recognised when the shareholder’s right to receive them is declared.
5.11. Provisions and contingencies In the preparation of the financial statements, the Directors of the Group’s companies distinguish between: 1. Provisions: Credit balances covering current obligations arising as a result of past events, the reversal of which will probably result in a future outflow of funds but whose amount and/or reversal date are uncertain. 2. Contingent liabilities: Possible obligations arising as a result of past events, whose materialisation is dependent on the occurrence, or otherwise, of one or more future events falling outside the Company’s control. The financial statements show all provisions for which it is considered more likely than not that the obligation will have to be met. Contingent liabilities are not recorded in the balance sheet but are included in the notes to the abridged financial statements when it is considered possible that the obligation may have to be met. The value of these provisions corresponds to the best estimate possible of the amount necessary to cancel or transfer the obligation, taking into consideration the information available on the event and its consequences, recording the adjustments made from updating said provisions as financial costs as they accrue.
F-267 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
5. Recognition and measurement (Continued) 5.12. Termination benefits In accordance with current legislation, the Group’s companies are required to pay severance pay to employees whose contracts of employment are terminated in certain circumstances. Severance payments which can be reasonably quantified are recorded as a cost in the financial year in which the decision to terminate the contract is taken and a reasonable expectation regarding termination is transmitted to third parties. No provision of this nature has been made in the accompanying consolidated financial statements, as this situation is not forecast to arise.
5.13. Environmental assets Environmental assets are those used on a long-term basis in the activities of the Group the main purpose of which is to minimise its environmental impact and to protect and improve the environment, including the reduction or elimination of future contamination. Because of the activities in which it is engaged, the Group has no liabilities, costs, assets, provisions or contingencies of an environmental nature that could be material relative to its equity, financial position and results. Accordingly, no breakdowns of specific environmental information have been included in these consolidated financial statements.
5.14. Equity The capital instruments issued by the Parent Company are recorded under equity at the amount received net of the costs of the issue. Own shares are held by the Group as treasury stock as a result of its debt-financed share option scheme (see note 5.15). These shares are recorded directly as a reduction in equity, stated at the price of the shares awarded at any moment, as implemented and set out in the scheme. The gains or losses arising on the purchase, sale, issue or amortisation of own equity instruments are booked directly to equity and are never expensed.
5.15. Share-based payments The Group makes share-based payments to certain employees on the basis of a Share Options Plan and a Debt-financed Share Option Plan (see Notes 16.6 and 11.4). The Group recognises the goods and services received as a staff cost when they are received on one hand, and on the other the corresponding increase in equity as a result of settling the operation with equity instruments. Both the services provided and the increase in equity are measured at the fair value of the equity instruments granted at the date the award is agreed. Said fair value is determined using generally accepted valuation methods based on the volatility of the shares and a risk free interest rate.
5.16. Transactions with related parties and associated companies The Group’s operations with associated companies are all recorded at market prices. Furthermore, these transfer prices are fully supported and the Company’s Directors do not therefore consider that there is any significant risk arising that could produce a liability in the future.
F-268 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
6. Intangible assets Shown below are the movements recorded in this section of the 2008 balance sheet:
Additions/ Cost 01-01-08 Retirements 31-12-08 (thousands of euros) Industrial property ...... 6,364 37 6,401 Goodwill ...... 103,941 — 103,941 Software ...... 14,649 1,747 16,396 Total cost ...... 124,954 1,784 126,738
Amortisation 01-01-08 Allocations 31-12-08 (thousands of euros) Industrial property ...... (1,069) (923) (1,992) Software ...... (3,752) (2,692) (6,444) Total amortisation ...... (4,821) (3,615) (8,436)
Total intangible fixed assets 01-01-08 31-12-08 (thousands of euros) Cost ...... 124,954 126,738 Amortisation ...... (4,821) (8,436) Net total ...... 120,133 118,302
The amount recorded under ‘‘Goodwill’’ recognises the effect of the operations described in Note 1. In order to calculate impairment losses, goodwill has been assigned to the following cash generating units: • Spanish market • Italian market • Other markets Value in use has been estimated by the Group’s Management on the basis of the forecast discounted cash flows of the three cash generating units applying a discount rate of 9.98%. Said forecasts have been calculated on the basis of the budgets approved by the Directors of the Group’s companies covering a period of six years, assuming a fixed income from the sixth year on. The Directors estimate that no likely or reasonable change in said hypothesis would result in the value of Goodwill at December 31, 2008 exceeding the value in use at that date. On the basis of the analysis carried out by the Group’s management, it has not been considered necessary to recognise any impairment. The ‘‘Industrial Property’’ account at December 31, 2008 mainly corresponds to the eDreams corporate brand, including all the elements (name, logo, brand architecture, etc.) that illustrate the eDreams Group’s corporate identity. This contributes to customer retention and the capture of new customers, making newly acquired commercial services more attractive. The ‘‘Software’’ account at December 31, 2008 included an intangible asset valued at cost of 11,527,000 euros which is related to technology used by the Group in its operations and which contributes to attracting new customers and retaining existing customers, given the functional
F-269 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
6. Intangible assets (Continued) benefits that it offers. Additions under this heading, developed internally by the company International Network, S.L.U, totalled 1,407,000 euros. These internal development costs satisfy the criteria for capitalisation as an intangible asset. At December 31, 2008 the Group’s companies had the following fully amortised intangible fixed assets still in use:
Book value Description (Gross) (thousands of euros) Industrial property ...... 6 Software ...... 738 Total ...... 744
7. Property, plant and equipment Shown below are the movements recorded in this chapter of the 2008 and balance sheets, and the principle events affecting this heading:
Cost 01-01-08 Additions 31-12-08 (thousands of euros) Technical facilities ...... 478 36 514 Furniture and fittings ...... 201 36 237 Data processing equipment ...... 1,668 1,131 2,799 Motor vehicles ...... 87 — 87 Other tangible fixed assets ...... 41 1 42 Total cost ...... 2,475 1,204 3,679
Depreciation 01-01-08 Allocations 31-12-08 (thousands of euros) Technical facilities ...... (346) (23) (369) Furniture and fittings ...... (102) (23) (125) Data processing equipment ...... (731) (441) (1,172) Motor vehicles ...... (11) (26) (37) Other tangible fixed assets ...... (24) (3) (27) Total depreciation ...... (1,214) (516) (1,730)
Total tangible fixed assets 01-01-08 31-12-08 (thousands of euros) Cost ...... 2,475 3,679 Depreciation ...... (1,214) (1,730) Total net ...... 1,261 1,949
As indicated in Note 8, at December 31, 2008 the Group had a financial lease contracted corresponding to a motor vehicle.
F-270 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
7. Property, plant and equipment (Continued) At December 31, 2008 the Group had the following fully amortised tangible fixed assets still in use:
Book value Description (Gross) (thousands of euros) Technical facilities ...... 40 Data processing equipment ...... 277 Other fixed assets ...... 3 Total ...... 320
8. Leases Financial leases At December 31, 2008, the company Vacaciones eDreams, S.L. had a financial lease contracted corresponding to a motor vehicle. Said financial lease began in September 2007 and will run for 3 years. The nominal value of the purchase option is 3,000 euros. At December 31, 2008 the Group had the following minimum instalments contracted with the lessor, including the purchase option, in accordance with the current contracts, not including common expenses, future CPI-linked increases or other contractually agreed revaluations:
Nominal Minimum instalments Value (thousands of euros) Less than one year ...... 31 One to five years ...... 18 Total ...... 49
At December 31, 2008, the Group had no contingent instalments recognised as expenses in the year.
Operating leases At December 31, 2008 the Group’s companies had the following minimum instalments contracted with the lessors, in accordance with the contracts currently in force, not including common expenses, future CPI-linked increases or other contractually agreed revaluations:
Nominal Operating leases minimum instalments value (thousands of euros) Less than one year ...... 549 One to five years ...... 1,150 Total ...... 1,699
F-271 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
8. Leases (Continued) The total operating lease instalments recognised respectively as expenses and income in 2008 were as follows:
Thousands of euros Minimum rental payments ...... 504 Contingent instalments ...... 15 Total net ...... 519
Instalments paid in 2008 correspond to the rental of the Group’s companies’ offices.
9. Long- and short-term financial investments 9.1. Long-term financial investments The balances recorded under the heading ‘‘Long-term financial investments’’ at December 31, 2008 were as follows:
Long-term financial investments Equity Loans and Category instruments others Total (thousands of euros) Financial investments in group companies and associates .... 125 — 125 Guarantee deposits ...... — 131 131 Total ...... 125 131 256
The account ‘‘Investments in Group companies and associates’’ includes investments in the companies eDreams and Viagens eDreams Lda. (see Note 1). An amount of 131,000 euros corresponding to sureties deposited, principally against office rental contracts, is also included under the heading ‘‘Long-term financial investments’’.
9.2. Short-term financial investments The balance under this heading at December 31, 2008 corresponds to sureties and short-term deposits.
9.3. Information on the nature and level of risk associated with financial instruments 9.3.1. Qualitative information The Group’s Financial Management function is responsible for the management of financial risks, having established the necessary mechanisms to monitor exposure to interest rate and exchange rate fluctuations and to credit and liquidity risks. The main financial risks affecting the Group are detailed below: 1. Credit risk The Group’s cash and cash equivalents are held with financial entities with strong credit ratings. The Group’s credit risk is mainly attributable to advertising receivables. These amounts are recognised in the consolidated balance sheet net of provisions for bad debt, which is estimated by the Directors on the basis of experience in past years and their assessment of the current economic scenario.
F-272 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
9. Long- and short-term financial investments (Continued) 2. Liquidity risk In order to guarantee liquidity and to meet the payment obligations derived from its operations, the Group maintains the cash and cash equivalents shown in its balance sheet. 3. Market risk (including interest rate risk, currency risk and other price risks) Both the Group’s cash and cash equivalents, and its financial debt are exposed to interest rate risk, which could have an adverse effect on its net finance income and on cash flows. The loan contracted by the company Vacaciones eDreams, S.L.U. with Fortis Bank NV (see Note 13) bears interest at a variable rate and is therefore indexed to market trends. On November 27, 2006 the Group contracted an interest rate swap agreement swapping a variable rate of interest for a fixed rate of 4.015% p.a. terminating on October 26, 2010 (see Note 10). The Group’s exposure to currency risk mainly derives from cash and bank accounts in foreign currency and some trade receivables and payables in foreign currency. The group’s currency risk is not significant.
9.3.2. Quantitative information Interest rate risk
Instrument Counterparty Date Notional (thousands of euros) Interest rate swap ...... Fortis Bank NV December 31, 2008 21,667
10. Derivative financial instruments The Group uses derivative financial instruments to cover the risks to which its future cash flows are exposed. At December 31, 2008, the company Vacaciones eDreams S.L.U. had contracted an interest rate insurance policy which, according to current accounting regulations, may not be treated as a hedging instrument, having the following features: • Amount contracted: 21,667 thousand euros • Expiry: October 26, 2010 • Market value at December 31, 2008: (60,000) euros • Repayments made in year: 167,000 euros • Impact recognised in income statement of valuation: (164,000) euros
11. Equity and Capital and Reserves 11.1. Share capital As of December 31, 2008, the Parent Company’s share capital totalled 1,000 euros, consisting of 16,737,244 shares of 0.0001 US dollars face value each, all of the same class, fully subscribed and paid up.
F-273 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
11. Equity and Capital and Reserves (Continued) The detail of shareholders with ownership interests exceeding 12% at December 31, 2008 was as follows:
Percentage of shares eDreams Holdings LLC...... 75% Treasury stock ...... 13% Other minority shareholders ...... 12% Total ...... 100%
All shares carry the same rights, except for those acquired under the loan, which restricts the receipt of dividends until the collateral lien on the shares expires.
11.2. Own shares Treasury stocks at December 31, 2008 correspond to the Debt-financed Share Option Plan implemented by the Parent Company (see Note 16.6). These shares are considered to be own shares until the collateral lien on the shares expires. At December 31, 2008, the parent company held 2,212,794 own shares.
11.3. Legal reserves Under the revised text of the Spanish Companies Act, 10% of income for each year must be transferred to the legal reserve until the balance of this reserve reaches at least 20% of share capital. The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall below 10% of the increased share capital amount. Except as mentioned above, until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.
11.4. Share issue premium The share issue premium is the result of various capital increases carried out in the year. Changes in the year correspond to the 146,237 share capital increase carried out for the Debt-financed Share Option Plan (see Note 16.6). The share issue premium is considered to be unrestricted.
11.5. Revaluation adjustments This heading of the accompanying consolidated balance sheet reflects the net differences arising as a result of the translation of the financial statements of eDreams Inc. and eDreams Ltd, which are prepared in a currency other than the euro.
F-274 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
11. Equity and Capital and Reserves (Continued) 11.6. Reserves of fully consolidated subsidiaries The breakdown of this account is as follows:
Thousands of euros Vacaciones eDreams, S.L.U...... 6,374 eDreams International Network, S.L.U...... (1,400) Editoriales Italiano Online, S.r.L...... 86 eDreams, S.r.L...... (961) eDreams, Ltd ...... 21 4,120
11.7. Results by company
Thousands of euros Vacaciones eDreams, S.L.U...... 3,496 eDreams International Network, S.L.U...... (558) Editoriales Italiano Online, S.r.L...... (10) eDreams, S.r.L...... 4,651 eDreams, Ltd ...... (13) eDreams Inc...... (3,421) 4,145
12. Long-term provisions The ‘‘Long-term provisions’’ heading includes an amount corresponding to tax assessments issued by the Spanish tax authorities in respect of Value Added Tax and Company Income Tax for financial years 1999 to 2001. These tax assessments, for a total amount of 185,000 euros, were signed with notice of disagreement. At December 31, 2008 there were no contingent assets or liabilities.
13. Bank borrowings (long- and short-term) At December 31, 2008 the Group had received loans from banking entities in the amounts detailed below:
Short-term Long-term Total (thousands of euros) Fortis Bank NV loan ...... — 26,500 26,500 Repayable credit ...... 70 139 209 Financial lease (Note 8) ...... 31 18 49 Derivative financial instrument (Note 10) ...... — 60 60 Total ...... 101 26,717 26,818
F-275 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
13. Bank borrowings (long- and short-term) (Continued) The breakdown by maturity date of the accounts under ‘‘Long-term borrowings’’ is as follows:
2010 2011 2012 From 2013 Total (thousands of euros) Fortis Bank NV loan ...... 1,750 4,000 5,125 15,625 26,500 Repayable credit ...... 139 — — — 139 Financial lease ...... 18 — — — 18 Derivative financial instrument ...... 60 — — — 60 Total ...... 1,967 4,000 5,125 15,625 26,717
Fortis Bank NV loan Senior loan agreement concluded by Vacaciones eDreams, S.L.U. with Fortis Bank NV on December 1, 2006 for 35 million euros, in three tranches, one for 25 million euros (tranche A) and two for 5 million euros each (tranches B and C), each accruing interest at euribor plus a market spread. The initial maturity schedules set for each of the tranches in the loan agreement are as follows:
2008 2009 2010 2011 2012 2013 2014 2015 2016 Total (thousands of euros) Tranche A ..... 2,500 3,750 4,000 4,000 5,125 5,625 — — — 25,000 Tranche B .....———————5,000 5,000 Tranche C .....————————5,000 5,000 2,500 3,750 4,000 4,000 5,125 5,625 — 5,000 5,000 35,000
Irrespective of the maturity schedules set out above, the loan agreement establishes that, in certain conditions, the debt must be repaid early if the consolidated cash flows of the eDreams Inc. and Subsidiaries Group exceed predetermined levels. These obligatory early repayments are calculated on an annual basis, the date of the first calculation being the first quarter of 2008, based on results for 2007. During 2008 the company Vacaciones eDreams, S.L.U. made a prepayment of 2,500,000 euros, of which 250,000 euros correspond to 2009 and 2,250,000 euros to 2010. Similarly, in 2007 Vacaciones eDreams, S.L.U. made an early repayment of 2,500,000 euros corresponding to 2008 and 3,500,000 euros corresponding to 2009 according to the initial loan schedule. The agreement also establishes certain conditions in relation to the consolidated financial statements of eDreams Inc. and Subsidiaries that must be satisfied at the close of each financial year during the terms of the agreement, with failure to satisfy these conditions constituting express grounds for the early repayment of the outstanding debt. At December 31, 2008, the Group satisfied the aforesaid financial conditions. The interest rate set in the agreement is the Euribor plus a variable spread. The loan agreement also prohibits the distribution of dividends and the share issue premium outside the Group. In connection with this agreement, on November 27, 2006, the Group concluded an interest rate swap agreement, which may not be considered as a hedging instrument, for a notional amount of 21,667,000 euros, terminating on October 26, 2010. At December 31, 2008, this derivative financial instrument had produced a credit balance of 60,000 euros (see Note 10). All financial effects accrued at the year-end as a result of this agreement are duly recognised.
F-276 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
13. Bank borrowings (long- and short-term) (Continued) The swap notional reduces in future years as follows:
Thousands of euros FY 2009 ...... 19,167 FY 2010 ...... —
Repayable credit The balance of this line corresponds to a loan for an initial amount of 348,000 euros granted in 2004 by the Ministry for Industry, Tourism and Trade that accrues interest at an annual rate of 0% and matures in seven years, with a two-year grace period.
Financial leases Debt arising on the financial lease of 41,000 euros was settled during the year.
14. Tax receivables and payables and general tax situation 14.1. Current tax and social security receivables and payables The composition of the current tax receivables and payables at December 31, 2008 is as follows:
Receivables
Thousands of euros Corporate income tax receivables ...... 146 Public Treasury receivable for withholdings ...... 120 Other Public sector receivables ...... 29 Total ...... 295
Payables
Thousands of euros US Tax 2008 ...... 1,190 Public Treasury VAT payable ...... 194 Social security ...... 140 Public Treasury liability for employee withholdings ...... 97 Other Public sector payables ...... 150 Total ...... 1,771
14.2. Reconciliation of accounting profit and tax base Company income tax is calculated separately for each Company based on financial or accounting profit, obtained by applying generally accepted accounting principles, which is not necessarily the same as taxable profit, the latter being the tax base for the aforesaid tax calculated in the different jurisdictions.
F-277 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
14. Tax receivables and payables and general tax situation (Continued)
The reconciliation between the 2008 accounting profit of each company of the Group and the tax base for corporate income tax, in euros, is as follows:
Vacaciones eDreams Editoriale eDreams, International eDreams Italiano eDreams eDreams S.L.U. Network, S.L. S.r.L. Online, S.r.L. Inc. Ltd. Total (thousands of euros) Contribution to consolidated profit 3,496 (558) 4,651 (10) (3,421) (13) 4,145 Consolidation adjustments ..... 2,606 1,741 (6) 21 (456) — 3,906 Accounting profit for the year (after tax) ...... 6,102 1,183 4,645 11 (3,877) (13) 8,051 Company income tax 1,129 — — — 1,458 — 2,587 Permanent differences: Amortisation of brands ...... 300 — — — — — 300 Amortisation of allocations to intangibles .... — — — — 2,064 — 2,064 Share option and debt-financed share option plan expenses . . 232 326 56 — — — 614 Tax effect of allocation of intangible assets — — — — — — — Exemption for double taxation . . (4,000) — — — — — (4,000) Timing differences: Interest rate swap . 271 — — — — — 271 Amortisation of Goodwill ...... (999) — — — — — (999) Offset of tax loss carryforwards .... — (1,509) (4,701) (11) — — (6,221) Tax base (taxable profit) ...... 3,035 — — — (355) (13) 2,667
The permanent differences recognised by Vacaciones eDreams, S.L.U. correspond to the amortisation of the registered brand as a result of the capital increase carried out on November 17, 2006 and to costs related to options on equity instruments that are not considered to be deductible for tax purposes. The positive timing differences recognised by Vacaciones eDreams, S.L.U. correspond to the cancellation of the fiscal effect derived from the recognition at January 1, 2008 of the derivative financial instrument, while the negative timing differences relate to the incentive provided for in article 12 of the Law on Company Income Tax corresponding to the deduction of one twentieth of the Goodwill generated by the subsidiary eDreams, S.r.L. The exemption for double taxation corresponds to revenues received by Vacaciones eDreams, S.L. in the form of dividends from eDreams, S.r.L., as provided for in article 21 of the Law on Company Income Tax.
F-278 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
14. Tax receivables and payables and general tax situation (Continued) The permanent differences recognised in eDreams, Inc. correspond to the amortisation of intangible assets in the amount of 2,976,000 euros as a result of the allocation of part of the Goodwill as described in Note 6, which is not considered deductible for tax purposes, and an amount of 912,000 corresponding to the cancellation of a part of the fiscal affect arising as a result of the aforementioned operation. The breakdown of the Company Income Tax expense for the year is as follows:
Thousands of euros Company income tax accrued ...... 1,129 US Tax 2008 ...... 1,458 Reversal deferred tax (allocation of intangibles) ...... (912) Total tax expense recognised in the income statement ...... 1,675
14.3. Deferred tax liabilities The breakdown of the balance on this account at December 31, 2008 is as follows:
Additions/ 01-01-08 Cancellations 31-12-08 (thousands of euros) Tax effect of allocation of intangible assets ...... 4,345 (912) 3,433 Amortisation of Goodwill eDreams, S.r.L ...... 300 325 625 Tax effect of derivative financial instruments ...... 81 (81) — Total ...... 4,726 (668) 4,058
At December 31, 2008, the detail of the tax losses carried forward from previous years that could be offset against future profits and the deadlines for their application was as follows:
eDreams Editoralie Last year International eDreams Italiano of possible Year of generation Network, S.L.U. S.r.L Online, S.r.L. Total application (thousands of euros) 2000 ...... — 855 — 855 No limit 2003 ...... — — 2 2 2018 2004 ...... — — 51 51 2019 2005 ...... — — 54 54 2020 2006 ...... 1,941 — — 1,941 2021 Total ...... 1,941 855 107 2,903
The group has decided not to capitalise the tax credits generated by these negative tax bases. The final amount to be offset against these tax losses may be modified after the tax returns have been verified.
14.4. Financial years pending tax inspections The companies of the eDreams Inc. and Subsidiaries Group currently have open for review by the tax inspection authorities of each jurisdiction all financial years that are not yet statute-barred for all taxes to which they are subject, expect those that have already been reviewed by the
F-279 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
14. Tax receivables and payables and general tax situation (Continued) corresponding tax authorities. Pursuant to prevailing legislation, tax returns may not be considered definitive until they have been inspected by the tax authorities or the corresponding four-year prescription period has expired. In the opinion of the Group’s senior management, the possibility of tax liabilities arising in future inspections is remote, and any such liabilities would in any case be without material impact on the accompanying consolidated financial statements taken as a whole. No additional liabilities are expected to arise for the Company as a result of any future inspections.
15. Foreign currency The most significant balances and transactions in foreign currencies, valued respectively at the exchange rate at year end and at the average exchange rate, are as follows:
Thousands of euros Accounts payable ...... 341 Other liabilities ...... 9 Services received ...... 245
16. Income and expenses 16.1. Net turnover The distribution of net sales according to activity and geographical markets in 2008 is as follows:
Thousands Activities of euros Commissions received from airlines and tour operators ...... 21,326 Administration fees ...... 36,269 Wholesale revenues ...... 6,150 Advertising revenues ...... 4,329 Total ...... 68,074
Thousands Geographical market of euros Spain ...... 35,443 Italy ...... 18,447 Other countries ...... 14,184 Total ...... 68,074
16.2. Work performed on intangible assets The balance of 1,407,000 euros on the account ‘‘Work performed on intangible assets’’ corresponds to the capitalisation of the intangible asset developed internally by the company International Network, S.L.U. These internal development costs satisfy the criteria for capitalisation as an intangible asset.
F-280 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
16. Income and expenses (Continued) 16.3. Other operating income The balance on the account ‘‘Other revenues’’ at December 31, 2008 is broken down as follows:
Euros Credit cards and other incentives ...... 1,259 Lease income ...... 27 Others ...... 1 Total ...... 1,287
16.4. Supplies This line reflects the costs directly associated with the travel agency business—essentially, the cost of the travel packages.
16.5. Personnel expenses The balance on the account ‘‘Personnel expenses’’ at December 31, 2008 is broken down as follows:
Thousands of euros Wages and salaries ...... 8,983 Share-based payments (Note 16.6) ...... 614 Social security charges borne by the Company ...... 1,794 Other welfare costs ...... 55 Total ...... 11,446
16.6. Transactions involving share-based payments Share Options Plan A compensation plan for the employees of eDreams International Network, S.L.U., Vacaciones eDreams, S.L.U. and eDreams, S.R.L was approved by shareholders at the Annual General Meeting held in May 2007. The Plan is based on the concession of 284,259 options on the shares of eDreams Inc. with concession date January 1, 2008. The right to these options is acquired over the four years following the contract date on a straight line basis from the concession date, and may be exercised up to ten years after the date each employee signed the contract, except when the employee leaves the employment of the companies of the eDreams Inc and Subsidiaries Group, in which case the options must be exercised within three months of the termination of employment. Compensation is paid under the Plan through the physical delivery to employees of the Group’s companies of shares in the company eDreams Inc, once they decide to exercise the aforementioned options on the basis of the conditions stipulated. No options were exercised in 2008. The fair value of exercising the option was calculated at the concession date, January 1, 2008, applying the Black & Scholes valuation model, assuming volatility of 25% based on the movements in the listed share prices of comparable companies in the last year and on a risk free asset bearing interest of 4.1%. The cost of offering the options conceded under the plan for eDreams Inc. and
F-281 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
16. Income and expenses (Continued) Subsidiaries is valued at 456,000 euros. This valuation is not subject to any adjustment given the nature of the Plan. On the basis of the special rules contained in recognition and valuation standard n 17 of the Spanish generally accepted accounting principles in relation to transactions with employees settled using equity instruments, the companies Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams International Network, S.L have recognised an expenses account under the ‘‘Personnel Expenses’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ under Equity in their respective balance sheets. However, the Parent Company has recognised an increase in the book value of its investments in Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams International Network, S.L, credited to the account ‘‘Parent Company Reserves’’. The increased investment in Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams International Network, S.L. credited to the ‘‘Shareholders’ Contribution’’ account recorded in the subsidiary companies has been eliminated on consolidation. The accompanying consolidated financial statements therefore show an impact in the ‘‘Personnel Expenses’’ account with a balancing entry in ‘‘Parent Company Reserves’’ under equity of 114,000 euros, corresponding to the part of the Share Option Plan accrued in the year.
Debt-financed share option plan The agreement for the acquisition of eDreams Inc. by the new shareholders, concluded on October 26, 2006, included a share option plan giving certain employees of the Group companies eDreams, S.L.U, eDreams International Network, S.L.U., and eDreams, S.r.L the right to acquire 2,212,794 shares in eDreams Inc. The share premium on these shares is funded via loan agreements concluded between eDreams Inc. and the individual employees. The loans bear interest at a fixed annual rate of 4.34% and will mature on October 27, 2026, unless certain specific circumstances that would cause their repayment to be brought forward should materialize. The plan formalised by eDreams Inc. gives employees a sell (put) option and the Parent Company a buy (call) option should certain circumstances arise or at the discretion of the employee. The shares will also be retained by eDreams Inc, as collateral guaranteeing full repayment of the loan and will be restricted from receiving dividends until this collateral guarantee expires. The establishment of a put-call option, together with the pledging of the shares as collateral represents a partial (not total) transfer of the risks and benefits inherent in the shares and is therefore treated, in accordance with regulatory requirements, as a share-based remuneration plan, the exercise value of which, having been determined by an independent expert, is recognised on a straight line basis over the following four years (including 2008). The loan must be considered as treasury stock in the company conceding the shares (eDreams, Inc.). The fair value of exercising the option was calculated at the concession date, October 26, 2006, applying the Black & Scholes valuation model, assuming volatility of 20% based on the movements in the listed share prices of comparable companies in the last year and on a risk free asset bearing interest of 3.68%. The value of exercising the options conceded under the plan for eDreams Inc and Subsidiaries is 2,000,000 euros. This valuation is not subject to any adjustment given the nature of the Plan. On the basis of the special rules contained in recognition and valuation standard n 17 of the Spanish generally accepted accounting principles in relation to transactions with employees settled using equity instruments, the companies Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams
F-282 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
16. Income and expenses (Continued) International Network, S.L have recognised an expenses account under ‘‘Personnel Expenses’’ with a balancing entry in ‘‘Shareholders’ Contributions’’ under Equity in their respective balance sheets. However, the Parent Company has recognised an increase in the value of its investments in Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams International Network, S.L, credited to the account ‘‘Parent Company Reserves’’. The increased investment in the subsidiaries Vacaciones eDreams, S.L.U., eDreams, S.r.L. and eDreams International Network, S.L., credited to the ‘‘Shareholders’ Contribution’’ account recorded in the subsidiary companies, has been eliminated on consolidation. The accompanying consolidated financial statements therefore show an impact in the ‘‘Personnel Expenses’’ account with a balancing entry in ‘‘Parent Company Reserves’’ under equity of 500,000 euros, corresponding to the part of the Plan accrued in the year. The changes in the year of the equity instruments of both plans is as follows:
Exercisable Conceded Cancelled Exercisable at 01.01.08 in 2008 in 2008 at 31.12.08 Number of share options ...... — 262,592 (4,145) 258,447 Number of debt-financed share options . . . 2,066,557 146,237 (72,020) 2,140,774 The weighted average price of the equity instruments exercisable at December 31, 2008 corresponding to both plans fluctuated between 6 and 7 euros.
16.7. Other operating expenses The breakdown of the ‘‘Other operating expenses’’ line of the accompanying income statement is as follows:
Thousands of euros Fraud ...... 1,874 Corporate development costs ...... 786 Other management expenses ...... 313 2,973
17. Dealings and balances with related parties The balances on accounts with related parties at December 31, 2008 are as follows:
Receivables Payables (thousands of euros) Long-term: Investments in Group companies (Note 9.1) ...... 125 — Subordinated loan agreement ...... — 15,000 Total long-term accounts ...... 125 15,000
Long-term borrowings These correspond to a subordinated loan agreement in the amount of 15 million euros concluded on October 26, 2006 with associates of the majority shareholder of the Parent Company and director-shareholders of the aforesaid Company. This loan is repayable in a single instalment
F-283 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
17. Dealings and balances with related parties (Continued) due in 2013 and accrues interest at an annual rate of 12%. The loan is considered to be subordinated since it is not repayable until all other Group debts have been settled. The agreement also establishes certain conditions in relation to the consolidated financial statements of eDreams Inc. that must be satisfied at the close of each financial year during the term of the agreement, with failure to satisfy these conditions constituting express grounds for the early repayment of the outstanding debt. At December 31, 2008, the Group satisfied the aforesaid financial conditions.
18. Financial structure The Parent Company of the Group is owned by the shareholders listed in Note 11. The eDreams Group obtains a significant part of its financing from its shareholders. However, there are no limits on it obtaining external financing. At December 31, 2008 the Group was in receipt of a subordinated loan of 15,000,000 euros from associates of the majority shareholder of the Group’s Parent Company, and loans from third parties totalling 26,500,000 euros.
19. Other information 19.1. Staff The average number of employees in 2008, by category, was as follows:
Category 2008 Board members ...... 7 Management ...... 7 Administrative staff ...... 16 Operational staff ...... 194 Total ...... 224
The average number of employees in 2008, by category and gender, was as follows:
2008 Category Men Women Board members ...... 7 — Management ...... 7 — Administrative staff ...... 8 11 Operational staff ...... 72 127 Total ...... 94 138
19.2. Auditors’ fees Fees paid during 2008 to Deloitte, S.L. for services related to auditing the financial statements and other services amounted to 80 thousand euros No other expenses have been incurred in relation to fees corresponding to other services provided by the auditor or any entity related to it.
F-284 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
20. Explanation added for translation to English These financial statements are presented on the basis of accounting principles generally accepted in Spain. Certain accounting practices applied by the Company that conform with generally accepted accounting principles in Spain may not conform with generally accepted accounting principles in other countries. March 31, 2009
Thomas P. Alber Roberto Ram´ırez Hythen T. El- Nazer Chairman
Javier Perez´ Tenessa James Otis Hare Christian Gruenwald Ajit Nedungadi
F-285 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
20. Explanation added for translation to English (Continued) EDREAMS INC. AND SUBSIDIARIES MANAGEMENT REPORT For the financial year ended December 31, 2008 Total Transaction Value As detailed below, the total value of the transactions processed by the Group companies (Total Transaction Value - TTV) grew from 446 million in 2007 up to 607 million in 2008. Net revenues from sales of the Group’s companies were in 2008 of 68,1 million, growing by 20% versus 2007.
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2008 (thousands of euros)
Year Notes 2008 Total Transaction Value ...... 606,697 Net turnover ...... Note 16.1 68,074 Work performed on intangible assets ...... Note 16.2 1,407 Other operating expenses ...... Note 16.3 1,287 Total income ...... 70,768 Supplies ...... Note 16.4 (5,302) Gross Margin ...... 65,466 Current Staff costs Note 16.5 (10,832) Other current operating expenses ...... (36,190) EBITDA ...... 18,444 Non-current Staff costs ...... Note 16.5 (614) Other non-current operating expenses ...... Note 16.7 (2,973) Depreciation and amortization ...... Note 6 y 7 (4,131) Operating income ...... 10,726 Net financial income (loss) Note 10 (4,906) Profit (loss) before taxes ...... 5,820 Income tax ...... Note 14 (1,675) Profit attributable to the parent company ...... 4,145
Growth in 2008 has been based, among other, on the following driving factors: • Favorable evolution of the online travel market • Market share of eDreams increases versus competitors in all markets • Consolidation of the international sites (German, French, Portuguese and English) launched over the past two years • New product launches (Dynamic packages, train,…)
Significant events 2008 During the second half of the year the Travel industry has experienced a slow down in the sales trend due to the general economic downturn. eDreams, however, has been able to
F-286 EDREAMS INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) For the financial year ended December 31, 2008
20. Explanation added for translation to English (Continued) consolidate its competitive position thanks to its search technology that facilitates to customers an efficient comparison of the various alternatives in the travel market. Also the product offering has been enhanced not only through the continuous improvement of currently offered products, but also with the launch of new alternatives (Train, Dynamic Packages,…)
Research and Development eDreams constantly invests in R&D not only to ensure that its search engine is able to offer optimal travel alternatives at competitive prices, but also to design and launch to market new products that meet consumers’ expectations.
Forecasted evolution General growth is expected in the online travel market both in Spain and Italy, the two countries where the Group companies already hold leadership positions. Air ticket sales through Internet are expected to keep growth rates, while other travel products, such as hotels, train tickets and packages will gain share in the online distribution.
Post Closing events There have been no significant events alter the closing of the financial year.
Thomas P. Alber Roberto Ram´ırez Hythen T. El- Nazer Chairman
Javier Perez´ Tenessa James Otis Hare Christian Gruenwald Ajit Nedungadi
F-287 Company Registration No. 4051797
OPODO LIMITED
REPORT AND FINANCIAL STATEMENTS
31 December 2010
F-288 OPODO LIMITED REPORT AND FINANCIAL STATEMENTS 2010 Contents
Page Officers and professional advisers ...... F-290 Directors’ report ...... F-291 Statement of directors’ responsibilities ...... F-296 Independent auditor’s report ...... F-297 Consolidated income statement ...... F-299 Consolidated statement of comprehensive income ...... F-300 Consolidated statement of changes in equity ...... F-301 Consolidated balance sheet ...... F-302 Consolidated cash flow statement ...... F-303 Notes to the accounts ...... F-304 Company income statement ...... F-331 Company statement of changes in equity ...... F-332 Company balance sheet ...... F-333 Company cash flow statement ...... F-334 Notes to the company financial statements ...... F-335
F-289 OPODO LIMITED REPORT AND FINANCIAL STATEMENTS 2010 Officers and professional advisers
Directors P Cher´ eque´ J Laforgue L Maroto F Perez-Lozao (appointed 9 June 2010)
Secretary G Faundez
Registered Office Waterfront Hammersmith Embankment Chancellors Road London W6 9RU
Bankers Barclays Bank PLC Deutsche Bank AG
Solicitors Rawlison Butler LLP London
Auditor Deloitte LLP Chartered Accountants London
F-290 OPODO LIMITED DIRECTORS’ REPORT The directors present their annual report and the audited financial statements for the year ended 31 December 2010.
Principal activity The principal activity of Opodo Limited (‘‘the Company’’) and its subsidiaries (‘‘the Group’’) continues to be the operation of online travel websites, providing travel agency services including the marketing and distribution of airline seats, hotel bookings, car hire and travel insurance. The Group operates websites in the United Kingdom, France, Belgium, Switzerland, Germany, Austria, Italy, Spain, Sweden, Norway, Denmark, Finland and Poland.
Review of developments During 2010, the Company continued developing new booking engines with particular emphasis on the hotel and dynamic packaging (‘‘DP’’) platforms. A second phase of developments was started based on further enhancements of the user interface and the creation of the Opodo unique ID for hotels; this development is the foundation stone to create the Company’s own hotel repository that will allow it to manipulate third party content and, ultimately, to include own contracted inventory when available. This is also expected to have a healthy impact on the DP booking engine. During the year the Company launched two main projects related to back office functions. The first supports call centre activities and bookings management, allowing further automation and including new tools that will drive efficiency and create new areas for business and improve client relationship management. The second project relates to the implementation of a new finance system, Antares/Axapta, that will facilitate further integration of current platforms and improve the efficiency of our finance functions. The Company has started to implement the virtualisation of all local servers, including call centre management software. This project is designed to improve the speed of response, and provide a fully backed-up disaster recovery system with two resilient centres mirroring each other, in Berlin and London. The Company achieved another year of double digit growth in sales and very good performance in terms of EBITDA and cash flow, maintaining a very strong position in both areas. The Group uses Booked Gross Sales Value as its Key Performance indicator. This represents the total transaction value of all products sold. Under IFRS, net revenue recognisable represents only the revenue directly attributable to the Group. Booked Gross Sales Value was e1,544 million, an increase of 12% on the prior year (2009—e1,376 million).
Results The Group prepares its results in euros. Group revenue was e146.7 million (2009—e103.1 million), an increase of 42.3%, largely attributable to an increase in DP sales where the Group acts as principal in the transaction with the customer. The Group’s DP revenues increased from e4.4 million in 2009 to e35.7 million in 2010. Other revenues, where the Group acts as agent, increased by 12.5% from e98.7 million in 2009 to e111.0 million in 2010. The Group generated a profit before tax of e26.7 million, an increase of 9.6% over the prior year. This was due to increased gross margins, reflecting the increase in revenue, offset by higher selling, general and administrative expenses, due to increased marketing expenditure and employee costs. The Group generated a profit from continuing operations of e80.4 million (2009—profit of e30.6 million), as a result of the aforementioned higher profit before tax and the recognition of deferred tax assets on trading losses of e55.8 million not previously recognised. The directors do not recommend a dividend for the year ended 31 December 2010 (2009—enil).
F-291 Financial position The balance sheet on page 14 of the financial statements shows the Group’s financial position at the end of the year. The net asset position of the Group has improved from e11.4 million at 31 December 2009 to e92.6 million at 31 December 2010, principally due to the increase in deferred tax assets discussed above. Current assets have risen from e88.6 million to e128.5 million, principally due to an increase in trade and other receivables from e70.5 million to e108.4 million. This is largely attributable to an intercompany receivable balance of e76.1 million that has resulted from monies advanced to Amadeus as a short-term loan. Non-current assets have increased from e7.6 million at 31 December 2009 to e65.2 million at 31 December 2010 due to the recognition of further deferred tax assets as discussed above. Current liabilities have risen from e84.8 million to e99.6 million. Trade payables have increased by e23.7 million due to an increase in flight and tour operator payables, whilst accruals and deferred income fell by e6.9 million. The Group had net cash of e16.9 million at 31 December 2010 (2009: net cash of e13.9 million). The Group continues to manage its working capital by way of its existing cash resources.
Cash flow Net cash inflow for 2010 from continuing operating activities was e2.6 million, e3.5 million lower than 2009. Investing activities resulted in a net inflow of e0.2 million mainly due to a reduction in restricted cash deposits, offset by increased expenditure on intangible assets. Financing cash outflows were e0.5 million relating to financial expenses paid.
Capital structure Details of the authorised and issued share capital are shown in note 16. The company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the company’s share capital and all issued shares are fully paid. With regard to the appointment and replacement of directors, the company is governed by its Articles of Association, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders.
Principal risks and uncertainties The following factors may affect the Group’s operating results, financial condition and the value of the Company’s shares. The risk factors described below are those which the directors believe are potentially significant, but this should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties.
Trading risks The trading performance of the Group may be affected by a number of factors outside its control, including: • wars or international unrest; • acts of terrorism in key tourist destinations or epidemics such as swine flu or the threat of either which may materially restrict international travel; • earthquakes or other natural disasters in key tourist destinations;
F-292 • disruption to air travel caused by natural disasters or industrial action by employees in the aviation sector; • weather conditions, both in places where the Group’s customers live and in key tourist destinations; • rising fuel aviation costs and increasing government taxes on air travel may increase the costs of air travel, affecting consumer demand; • general economic conditions in the Group’s key markets of the United Kingdom, France, Germany, the Nordic countries and Italy; and • additional security requirements affecting travel. These factors may affect the Group by reducing demand, as its potential customers choose not to, or become unable to, travel. Reductions in demand in an industry with capacity that in the short-term is fixed leads to overcapacity with associated pressure on margins, particularly where the Group acts as principal rather than agent. These factors may also affect booking patterns, as increased political and economic uncertainty may lead to an increased propensity for customers to book closer to departure, which as a result of relative inflexibility of capacity increases the risk that unsold holidays will have to be sold at significantly reduced margins or at a loss.
Competition In its principal markets, the Group faces competition from many sources including, but not limited to, other online travel agents, traditional offline travel agents, tour operators and direct suppliers (scheduled, charter and low cost airlines, hotels, car hire and insurance companies). Competitive pressures could affect the ability of the Group to achieve bookings at satisfactory margins.
Regulatory risks Throughout its operations, the Group requires regulatory licences and approvals. These regulatory requirements vary depending on the area of operation and the specific activity. Failure to continue to satisfy the necessary regulatory criteria (whether financial or operational) could result in the suspension, revocation or non-renewal of one or more necessary licence(s) which, in certain cases, depending on the particular licence or approval concerned, could result in the cessation of that operation.
Operational risks Operational risks, which are inherent in all business activities, include those which mainly result from a potential breakdown in individual business units of the Group’s control of its human, physical and operating resources. The potential financial or reputational loss arising from failures in internal controls, flaws or malfunctions in computer systems and poor product design or delivery all fall within this category. In particular, the Group’s ability to generate revenue is dependent upon the continued availability of its websites to customers and any interruption to service may lead to lost revenues.
Working capital management The Group’s working capital requires careful management. This involves the management of the timing and amount of significant payments and receipts. The Group has limited ability to influence the timing of these cash flows. Payments generally arise from commitments which are contracted in advance or which are necessary to enable the business to continue operating. Receipts are dependent on the quantum and timing of sales to customers. The Group manages this risk by managing existing cash resources. There can be no assurance, however, that these resources will be sufficient and, if not, it would be necessary to arrange revolving credit facilities, if possible.
F-293 Financial risk management policies and objectives Use of financial instruments The Group’s policy is to have no speculative trading in financial instruments. During the year, the Group has not entered into any material derivative financial instruments for hedging purposes. See note 11 to the financial statements. The other main risks faced by the Group are interest rate risk, liquidity risk, and foreign exchange risk.
(a) Interest rate risk The Group’s deposits attract interest at floating rates. The Group does not hedge against the risk of movements in interest rates as the principal cash deposits are with its immediate parent company, Amadeus IT Group S.A.
(b) Liquidity risk The Group’s policy is to maintain flexibility with respect to its liquidity position through the use of short-term or overnight deposits of its surplus cash balances with its immediate parent company, Amadeus IT Group S.A. The directors’ assessment of going concern, which has been applied in the preparation of the accompanying financial statements, is provided in note I to the financial statements.
(c) Foreign exchange risk The Group has subsidiaries that operate in countries which do not have a Euro functional currency. These subsidiaries operate in Sweden, Norway and Denmark. As a result, the Group is subject to translation risk on consolidation of these subsidiaries. In addition, the Group’s UK operations receive income and pay certain expenses in sterling. As a result, the Group is subject to translation risk on these transactions and translation of resulting monetary assets and liabilities. The Group does not enter into any hedging transactions in respect of such foreign exchange risks.
Future developments The Directors anticipate that the shift from traditional booking methods to the internet will continue in the forthcoming year with further convergence of the activities of traditional offline travel agents, tour operators and direct suppliers. The Group expects to continue to benefit from its broad geographic presence and its balanced weight across major European markets. The Group expects further cost savings to result from the synergies brought about through rationalisation of platforms and partners, as well as improvement in conversion ratios as a result of more efficient booking engines, and a subsequent reduction in the marketing cost per booking. The Group is planning to move to a unified back office function, including finance systems. As a result, it is expected that Opodo will see increases in productivity and decreases in costs.
Research and development activities The Group’s research and development activities principally relate to the development of its website operating platform and related back office systems. Research and developments costs for the Group of e2.2 million (2009—e2.6 million) have been expensed in the year. At 31 December 2010, the Group had e0.9 million of capitalised software development costs, largely associated with the back office projects discussed elsewhere in this directors’ report.
Donations The Group made no charitable or political donations during the year ended 31 December 2010 (2009—enil).
F-294 Directors and their interests The directors during the year were as follows: P Cher´ eque` J Laforgue L Maroto F Perez-Lozao (appointed 9 June 2010) None of the directors has any interest in the shares of any group company that are required to be disclosed in accordance with the Companies Act 2006.
Directors’ indemnities The Company has made qualifying third-party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.
Employees The Group values highly the contribution made to its business by its employees across all areas of its operations. The average number of persons employed by the Group during the year was 375 (2009: 370). In considering applications for employment from disabled people, the Group seeks to ensure that full and fair consideration is given to the abilities and aptitudes of the applicant against the requirements of the job for which he or she has applied. Employees who become temporarily or permanently disabled are given individual consideration, and where possible equal opportunities for training, career development and promotions are given to disabled persons. Within the bounds of commercial confidentiality, information is disseminated to all levels of staff about matters that affect the progress of the Group and are of interest and concern to them as employees. The Group also encourages employees, where relevant, to meet on a regular basis to discuss matters affecting them.
Auditor Deloitte LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.
Disclosure of information to auditor Each of the persons who is a director at the date of approval of this annual report confirms that: • so far as the director is aware, there is no relevant audit information of which the company’s auditor is unaware; and • the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Approved by the Board of Directors and signed on behalf of the Board
Javier Laforgue Director 1 April 2011
F-295 OPODO LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the company’s ability to continue as a going concern. The directors are responsible for keeping adequate accounting records that that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
F-296 Opodo Limited Independent auditor’s report to the members of Opodo Limited
We have audited the consolidated and company financial statements (the ‘‘financial statements’’) of Opodo Limited for the year ended 31 December 2010 which comprise the consolidated and company income statements, the consolidated and company statements of comprehensive income, the consolidated and company statements of changes in equity, the consolidated and company balance sheets, the consolidated and company cash flow statements, and the related notes 1 to 38. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2010 and of the group’s and the parent company’s profit for the year then ended; • the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
F-297 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit.
Hadleigh Shekle (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 1 April 2011
F-298 OPODO LIMITED CONSOLIDATED INCOME STATEMENT Year ended 31 December 2010
Notes 2010 2009 g’000 g’000 Continuing operations Revenue ...... 3 146,707 103,112 Cost of sales ...... (57,143) (25,785) Gross profit ...... 89,564 77,327 Selling, general and administrative expenses ...... (56,389) (52,829) Other operating expenditure ...... (6,110) — Operating profit ...... 4 27,065 24,498 Other income and expense ...... 11 167 — Finance income ...... 5 419 377 Finance costs ...... 5 (913) (480) Profit before tax ...... 26,738 24,395 Tax ...... 6 53,688 6,244 Profit for the year attributable to equity holders of the parent .... 80,426 30,639
F-299 OPODO LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2010
2010 2009 g’000 g’000 Profit for the year attributable to equity shareholders ...... 80,426 30,639 Translation of foreign operations ...... 734 106 Total comprehensive income for the year attributable to equity holders of the parent ...... 81,160 30,745
F-300 OPODO LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2010
Called-up Cumulative share Share Retained translation Other capital premium earnings adjustments reserves Total g’000 g’000 g’000 g’000 g’000 g’000 Balance as of 1 January 2009 ...... 275,113 88,846 (351,655) (1,213) (30,441) (19,350) Total comprehensive income for the year . . . — — 30,639 106 — 30,745 Balance as of 31 December 2009 . . . 275,113 88,846 (321,016) (1,107) (30,441) 11,395 Total comprehensive income for the year . . . — — 80,426 734 — 81,160 Balance as of 31 December 2010 . . . 275,113 88,846 (240,590) (373) (30,441) 92,555
F-301 OPODO LIMITED CONSOLIDATED BALANCE SHEET 31 December 2010
Notes 2010 2009 g’000 g’000 Non-current assets Goodwill ...... — — Other intangible assets ...... 7 1,272 484 Property, plant and equipment ...... 8 614 686 Deferred tax asset ...... 6 62,237 6,400 Trade and other receivables ...... 14 1,123 — 65,246 7,570 Current assets Trade and other receivables ...... 10 108,411 70,472 Cash and cash equivalents ...... 11 16,872 13,862 Restricted cash deposits ...... 11 2,962 4,089 Other financial assets ...... 11 167 — Tax receivables ...... 47 203 128,459 88,626 Total assets ...... 193,705 96,196 Non-current liabilities Trade and other payables ...... 14 1,515 — 1,515 — Current liabilities Trade and other payables ...... 12 99,635 84,801 Total liabilities ...... 101,150 84,801 Net current assets ...... 28,824 3,825 Net assets ...... 92,555 11,395 Equity Called up share capital ...... 16 275,113 275,113 Share premium account ...... 16 88,846 88,846 Translation reserve ...... 18 (373) (1,107) Other reserves ...... 17 (30,441) (30,441) Retained losses ...... 19 (240,590) (321,016) Equity attributable to equity holders of the parent ...... 92,555 11,395
The financial statements of Opodo Limited, registered number 4051797, were approved by the Board of Directors and authorised for issue on 1 April 2011. Signed on behalf of the Board of Directors
Javier Laforgue Director
F-302 OPODO LIMITED CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2010
2010 2009 g’000 g’000 Cash from operating activities Operating profit ...... 27,065 24,498 Adjustments for: Share-based payments ...... 2,288 — Depreciation of property, plant and equipment ...... 326 444 Amortisation of intangible assets ...... 326 386 Amortisation of deferred rent ...... (92) (366) Loss on disposal of intangible assets ...... — 6 (Gain)/loss on disposal of property, plant and equipment ...... — 12 Operating cash flows before movements in working capital ...... 29,913 24,980 Trade and other receivables ...... (39,835) (31,197) Trade and other payables ...... 14,536 12,665 Cash from operating activities before tax ...... 4,614 6,448 Taxes paid ...... (1,993) (292) Cash from operating activities after tax ...... 2,621 6,156 Cash flows from investing activities (Increase)/decrease in restricted cash deposits ...... 1,127 (1,463) Purchases of property, plant and equipment ...... (245) (307) Interest received ...... 419 377 Expenditure on intangible assets ...... (1,072) (172) Net cash from/ (used in) investing activities ...... 229 (1,565) Cash flows used in financing activities Interest paid and other financial expenses ...... (523) (91) Net cash used in financing activities ...... (523) (91) Net increase in cash and cash equivalents ...... 2,327 4,500 Cash and cash equivalents at beginning of year ...... 13,862 9,273 Effect of foreign exchange rate changes ...... 683 89 Cash and cash equivalents at end of year ...... 16,872 13,862
F-303 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended 31 December 2010
1. Statement of compliance and going concern The financial statements of Opodo Limited for the year ended 31 December 2010 were authorised for issue by the Board of the Directors on 1 April 2011 and the balance sheets were signed on the Board’s behalf by J Laforgue. Opodo Limited is a private limited company incorporated in Great Britain under the Companies Act and registered in England and Wales. The registered office is given on page 1, and its principal activities are listed on page 2.
Statement of compliance The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore the Group’s financial statements comply with Article 4 of the EU IAS Regulations.
Going concern The Group’s business activities, together with factors likely to affect its future development, performance and financial position, and commentary on the Group’s financial results, its cash flows and liquidity requirements are set out on pages 2 to 7 and elsewhere within the financial statements, along with a summary of the Group’s principal risks and uncertainties. In addition, note 11 to the financial statements includes the Group’s policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk. The financial statements at 31 December 2010 show that the Group generated a profit of e80.4 million (2009: profit of e30.6 million) with cash generated from operating activities of e2.6 million (2009: e6.2 million). At 31 December 2010 the Group was in a net asset position of e92.6 million (2009: e11.4 million) with net current assets of e28.8 million (2009: e3.8 million). The company’s forecasts and projections, taking account of reasonably possible changes in trading performance, indicate that the Group has sufficient funding to operate within the level of its available resources for the foreseeable future. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. Based on the information set out above the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing their report and financial statements.
2. Significant accounting policies The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2010. In the current year, the following new and revised accounting standards and interpretations have been adopted in the current year: Their adoption has not had any significant impact on the amounts reported in these financial statements but may impact the accounting for future transactions and arrangements. • IFRIC 17 Distributions of Non-cash Assets to Owners. The Interpretation provides guidance on when an entity should recognise a non-cash dividend payable, how to measure the dividend payable and how to account for any difference between the carrying amount of the assets distributed and the carrying amount of the dividend payable when the payable is settled. • IFRS 2 (amended) Group Cash-settled Share-based Payment Transactions. The amendment clarifies the accounting for share-based payment transactions between group entities.
F-304 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) • IFRS 3(2008) Business Combinations; IAS 27(2008) Consolidated and Separate Financial Statements and IAS 28(2008) Investments in Associates. These standards have introduced a number of changes in the accounting for business combinations when acquiring a subsidiary or an associate. IFRS 3(2008) has also introduced additional disclosure requirements for acquisitions. The following amendments were made as part of Improvements to IFRSs (2009), but have not affected the financial statements: • Amendment to IFRS 2 Share-based Payment, IFRS 2 has been amended, following the issue of IFRS 3(2008), to confirm that the contribution of a business on the formation of a joint venture and common control transactions are not within the scope of IFRS 2. • Amendment to IAS 17 Leases. IAS 17 has been amended such that it may be possible to classify a lease of land as a finance lease if it meets the criteria for that classification under IAS 17. • Amendment to IAS 39 Financial Instruments: Recognition and Measurement. IAS 39 has been amended to state that options contracts between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination at a future acquisition date are not excluded from the scope of the standard.
Basis of accounting The financial statements have been prepared on the historical cost basis, except for the revaluation of certain assets and liabilities which are measured at fair value in accordance with applicable IFRSs. The principal accounting policies adopted are set out below.
(a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) (collectively ‘‘the Group’’) made up to 31 December each year. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
(b) Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
F-305 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) The following are the critical judgements, apart from those involving estimates (which are dealt with separately below) that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Revenue recognition When deciding the most appropriate basis for presenting revenue and cost of sales, both the legal form and the substance of the agreement between the Group and its business partners and customers are reviewed to determine each party’s respective role in the transaction. Factors taken into consideration include whether the Group is the primary obligor with the customer and whether the Group has latitude in determining pricing. Where the Group’s role in a transaction is that of principal, revenue is recognised on a gross basis. The revenue comprises the gross value of the transaction billed to the customer, net of VAT, cancellations and other associated taxes, with any related expenditure charged as a cost of sale. Where the Group’s role in a transaction is that of a disclosed agent, revenue is recognised on a net basis, with revenue representing the margin earned.
Estimation of useful economic lives of fixed assets The economic life used to amortise intangible fixed assets and depreciate property, plant and equipment relates to the future performance of the assets in question and management’s judgement of the period over which the economic benefit will be derived from the asset. As at 31 December 2010, the amount of property, plant and equipment included in the Group and Company balance sheets was e0.6 million and e0.4 million respectively (2009: e0.7 million and e0.4 million). These assets are depreciated over periods ranging between four and five years. As at 31 December 2010, the amount of intangible fixed assets included in the Group and Company balance sheets was e1.3 million and e0.7 million respectively (2009: e0.5 million and e0.2 million).
Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Recoverability of investments in subsidiaries (Company only) Determining the recoverability of investments in subsidiaries requires estimation as to whether the investment could be realised for consideration at or in excess of the carrying value. In making such estimations, management has regard to the value in use calculations of those investments. As at 31 December 2010, the investments in the Company balance sheet totalled e59.4 million (2009: e58.8 million). In the year ended an impairment charge of enil (2009: enil) has been recorded against the carrying value of investments.
Estimating the cost of packaged holidays Where Group companies act as principal in a transaction and sell complete packaged holidays to customers, the cost of individual components of the package are estimated and accrued for in the Group accounts based on the estimated cost of individual components (predominantly flights and accommodation). Where the Group companies resell packages provided by a third party supplier the estimated commissions receivable from that supplier are accrued for.
F-306 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) Deferred tax The recognition of deferred tax assets requires judgement as to the probability of taxable profits being available in the future and the quantum and location of taxable profits that are forecast to arise. This requires the directors to exercise judgement in forecasting future results, including assumptions and estimates of growth in revenue and changes in operating margins. Changing the assumptions selected by the directors could significantly affect the Group’s forecast results and the amount of deferred taxation included in the Group’s results.
(c) Business combinations Business combinations are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Costs directly attributable to the business combination are expensed as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date. Any excess of the cost of acquisition over the net fair values of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. Where businesses are transferred from entities under common control, the Group does not consider it appropriate to record the transferred assets and liabilities at fair value at the date of transfer or to recognise goodwill on such transactions as no ‘acquisition’ has occurred. Consequently the Group accounts for these transactions by recording the net assets acquired at their carrying values immediately prior to the transfer from the entity under common control. The difference between consideration provided and the net assets acquired is presented as an adjustment against reserves.
(d) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset at cost and is not amortised, but is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is recognised immediately in the income statement and is not subsequently reversed. For the purposes of impairment testing, any goodwill acquired is allocated to each of the Group’s cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is first allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
F-307 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of VAT, cancellations and other associated taxes.
Product sales Where the Group acts as principal in the transaction with the customer, revenue is recognised when the significant risks and benefits of ownership of the product have been transferred to the customer, which is taken to be the date of departure. In determining whether the Group acts as principal, judgement is required. Where the Group has latitude in determining the price of the dynamic package and has responsibility for ensuring the dynamic package holiday is supplied as described, revenue represents the consideration earned for the holiday purchased.
Commission Where the Group acts as an agent and does not take ownership of the products being sold, revenue represents commissions earned. Such revenue comprises passenger ticket sales in respect of flights, hotels, car hire, package holidays and insurance. Revenue is recognised on the date of departure except for insurance which is recognised on booking as the cover commences from that date.
Booking fees Where the Group acts as an agent and issues or amends tickets to customers, revenues represent fees earned. Such revenue comprises fees on ticket sales of flights. Revenue is recognised at the date of ticketing.
Incentive income Where the Group acts as an agent and receives commissions, additional income may accrue to the Group based on the achievement of certain gross sales values over a specified period. The Group accrues for such income where it is considered probable that the gross sales values will be met and the amount to be received is estimable. Where it is probable that the gross sales value will be met, revenue is recognised based on the percentage of gross sales value achieved by the reporting date.
Advertising Revenue from advertising is recognised over the period to which it relates.
Finance income Finance income is recognised on a time proportion basis by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
(f) Leasing Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
F-308 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) (g) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in euros, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the functional currency of the entity involved in the transaction are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are not re-translated. Gains and losses arising on retranslation are included in net profit or loss for the period. On consolidation, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recorded in other comprehensive income and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the foreign operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
(h) Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
(i) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
F-309 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(j) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight-line method, on the following bases:
Fixtures and fittings ...... 20% Computer equipment ...... 25% The carrying value of property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
(k) Internally generated intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally generated intangible asset arising from the Group’s development of its website operating platform and related back office systems is recognised only if all of the following conditions are met: • an asset is created that can be identified (such as software and new processes); • it is probable that the asset created will generate future economic benefits; and • the development cost of the asset can be measured reliably. Internally generated intangible assets, categorised as software development in notes 7 and 26, are amortised on a straight-line basis over their estimated useful lives. The useful economic life of the intangible assets range between two and five years. Where the internally generated intangible asset is not yet ready for use, it is tested for impairment at least annually by comparing its carrying value with its recoverable amount. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
(l) Other intangible assets Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses.
F-310 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets with a finite life are amortised on a straight-line basis over their expected useful lives, as follows:
Software licenses ...... 33% Software development ...... 33% The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
(m) Impairment of long-lived assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
(n) Government grants Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met.
(o) Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets Financial assets are initially recorded at fair value, net of transaction costs, unless designated or classified as fair value through profit or loss in which case transaction costs are expensed. All but one of the Group’s financial assets are classified as ‘loans and receivables’, reflecting the nature and purpose of the financial assets, determined at the time of initial recognition. The remaining financial asset held is a derivative financial instrument, which is classified as ‘at fair value through profit or loss’ on initial recognition and subsequent remeasurement.
F-311 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Derivative financial instruments Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss.
Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of the Group, as well as observable changes in national or local economic conditions that correlate to default on receivables. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term deposits and other short-term highly liquid investments that are readily convertible to cash and are subject to an insignificant risk of changes in value.
Derecognition of financial assets The Group derecognises a financial asset only where the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all
F-312 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial guarantee contract liabilities Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognised, less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out above.
Other financial liabilities Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
(p) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
(q) Related parties The Group considers as its related parties its significant shareholders and subsidiaries, plus key management personnel and members of the Board of Directors as well as their close family members.
(r) Share-based payments For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.
F-313 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
2. Significant accounting policies (Continued) (s) New standards and interpretations not applied At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU): • Amendment to IFRS 1—Severe Hyper-inflation and Removal of Fixed Dates for First-Time Adopters • Amendment to IFRS I—Limited Exemption from Comparative IFRS 7 Disclosures for First-Time Adopters • Amendment to IFRS 7—Financial Instruments: Disclosures • IFRS 9—Financial Instruments • Amendment to IAS 12—Deferred Tax: Recovery of Underlying Assets • Amendment to IAS 24—Related Party Disclosures • Amendment to IAS 32—Classification of Rights Issues • Amendment to IFRIC 14—Prepayments of a Minimum Funding Requirement • IFRIC 19—Extinguishing Financial Liabilities with Equity Instruments • Improvements to IFRSs (May 2010). The adoption of IFRS 9 which the Group plans to adopt for the year beginning on 1 January 2013 will impact both the measurement and disclosures of financial instruments. The directors do not expect that the adoption of the other standards listed above will have a material impact on the financial statements of the Group in future periods.
3. Revenue An analysis of the Group’s revenue is as follows:
2010 2009 g’000 g’000 Continuing operations Product sales ...... 35,726 4,444 Commission ...... 66,322 64,905 Incentive income ...... 30,391 21,494 Other revenues ...... 14,268 12,269 Revenue ...... 146,707 103,112 Finance income ...... 419 377 147,126 103,489
All sales are within Europe and the directors do not consider the markets in Europe in which the Group operates to be significantly different. Consequently no geographical segmentation has been provided.
4. Profit for the year Selling, general and administrative expenses (‘‘SG & A’’) comprise infrastructure costs, marketing and business development and general and administrative costs.
F-314 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
4. Profit for the year (Continued) Infrastructure costs include IT expenses incurred by the Group to manage and operate the online travel websites. Costs incurred in developing the websites and internal use software, which meet the criteria for recognition under IFRS are capitalised as intangible assets as detailed in note 7. Costs incurred that do not meet the recognition criteria are expensed as incurred. Marketing and promotional costs include all brand, sales and site activity and are expensed at the time the cost is incurred. Profit for the year is stated after charging/(crediting):
2010 2009 g’000 g’000 Net foreign exchange losses ...... 925 192 Depreciation (Note 8) ...... 326 444 Amortisation of intangible assets (Note 7): Internally generated asset amortisation—included in SG & A ...... 84 37 Purchased software amortisation—included in SG & A ...... 242 349 Amortisation of rent free period in respect of UK property ...... (92) (366) R&D costs expensed ...... 2,229 2,643 Restructuring and redundancy costs ...... 7 2 Charge for cash-settled share-based payments ...... 2,288 — Staff costs (excluding share-based payments above) ...... 17,530 17,900
2010 2009 g’000 g’000 Staff costs Wages and salaries ...... 13,842 14,148 Social security costs ...... 2,854 3,044 Pension costs ...... 834 708 17,530 17,900
In addition to the above, the Group has established a cash-settled share-based payment scheme for senior management, including key management personnel. Under the terms of the scheme, vesting is conditional on completion of the sale of the Company within a specified timeframe, and satisfaction of continuing employment conditions for a 12 month period subsequent to completion of the sale, if required by either the Company or the acquirer. The amount of the award is variable depending on the sales price achieved, with further awards linked to business performance in the 12 months preceding any sale transaction completing. A minimum payment will be made even in the event that a sale does not take place, providing the specified conditions of continuing employment are satisfied. In such circumstances, an amount additional to the minimum may become payable, subject to a cap, based on the valuation of the Group at a vesting date of 1 July 2012, as determined by an independent valuer. The total charge recognised in the year ended 31 December 2010 in respect of the above scheme was e2,288,000 (2009: enil), together with associated social security costs of e294,000. Of the charge of e2,288,000, e2,210,844 relates to key management personnel of the Group. Determination of the charge to be recorded requires management to make estimates and assumptions, including: • the likelihood of a sale transaction completing within the specified timeframe;
F-315 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
4. Profit for the year (Continued) • the likelihood of participants satisfying vesting conditions associated with continuing employment; • the expected total consideration to be received on completion of a sale; and • the expected completion date of any sale transaction. As at 31 December 2010, the directors determined the likelihood of a sale transaction completing within the specified timeframe was probable, with an estimated completion date of November 2011. Vesting is therefore forecast for November 2012. It is further assumed that all participants will satisfy the vesting condition for continuing employment. At 31 December 2010, the total value of the cash awards is estimated to be e15.5 million. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability will be remeasured, with any changes in fair value, including those arising from changes in the assumptions and estimates above, recognised in profit or loss for the year. A conditional advance payment of e3.0 million was made to key management personnel during 2010, which is repayable in the event that such key management personnel terminate employment within a specified timeframe. The advance payment and associated social security costs amounting to e3,416,000 in total are being amortised over the vesting period. At 31 December 2010, the remaining amount to be amortised is e2,348,000, of which e1,123,000 is presented in non-current assets. A long-term liability of e1,515,000 has been recognised in respect of the remaining element of the charge. At 31 December 2010, none of the awards had vested. The average monthly number of employees (including executive directors) of the continuing operations of the Group during the year was 375:
2010 2009 No. No. Managers ...... 5 6 Staff ...... 370 364 375 370
Directors’ remuneration In the current year, the directors of the Company were remunerated for their services by other companies in the Amadeus IT Holding S.A. group. It is not practicable to allocate the remuneration of the directors between the Group companies to which they provide services. The directors are not members of the Company’s defined contribution pension scheme and are not in receipt of any non-cash benefits or other retirement schemes. No company contributions were made to money purchase schemes for directors. The directors receive reimbursement for reasonable expenses. Refer to note 14(d) for disclosure information on key management compensation.
F-316 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
4. Profit for the year (Continued) Auditor’s remuneration The analysis of auditor’s remuneration is as follows:
2010 2009 g’000 g’000 Fees payable to the company’s auditor for the 2010 audit of the Company’s annual accounts ...... 169 166 The audit of the company’s subsidiaries pursuant to legislation ...... 68 74 Total fees ...... 237 240
5. Finance income and finance costs
2010 2009 g’000 g’000 Finance income: loans and receivables at amortised cost Bank interest receivable and similar income ...... 120 92 Interest income on loans to parent company ...... 299 285 419 377 Finance costs: financial liabilities at amortised cost Bonding and guarantee costs ...... (523) (480) Other ...... (390) — (913) (480)
6. Taxation Tax on loss on ordinary activities Tax (credited)/charged in the income statement
2010 2009 g’000 g’000 Current tax: ...... 2,112 156 Deferred tax: Current year ...... (55,800) (6,400) (53,688) (6,244)
F-317 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
6. Taxation (Continued) Reconciliation of the total tax credit The standard UK corporation tax rate for the year is 28% (2009: 28%). The tax on the profit on ordinary activities for the year is lower than the standard rate of corporation tax in the UK. A reconciliation showing the factors affecting the tax credit is shown below:
2010 2009 g’000 g’000 Profit before tax ...... 26,738 24,395 Profit before tax multiplied by standard rate of corporation tax in the UK of 28% (2009: 28%) ...... 7,487 6,831 Tax effect of expenses that are not deductible in determining taxable profit .... 867 4 Utilisation of tax losses not previously recognised ...... (8,756) (4,939) Changes in unrecognised deferred tax assets ...... (53,079) (8,457) Effect of different tax rates of subsidiaries operating in other jurisdictions ...... (207) 317 Tax credit ...... (53,688) (6,244)
The directors have assessed that it is sufficiently probable that future taxable profits will arise in order to give recognition to a deferred tax asset of e62.2 million at 31 December 2010 (2009: e6.4 million). In addition, at the balance sheet date the Group has unrecognised deferred tax assets of e34 million (2009: e98 million) in respect of tax losses, accelerated capital allowances and other timing differences arising in the United Kingdom and in overseas companies that are available indefinitely in the United Kingdom and over various periods for the overseas companies for offset against future taxable profits.
Deferred tax The following are the major deferred tax assets recognised by the Group and movements thereon during the current and prior year:
Tax losses Total g’000 g’000 At 1 January 2009 ...... — — Credit to income ...... 6,400 6,400 At 31 December 2009 ...... 6,400 6,400 Credit to income ...... 55,806 55,806 Foreign exchange movement ...... 31 31 As 31 December 2010 ...... 62,237 62,237
The following is the analysis of the deferred tax balances for financial reporting purposes:
2010 2009 g’000 g’000 Deferred tax assets ...... 62,237 6,400
F-318 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
7. Goodwill and intangible assets
Finite lived intangible assets Total other Software Purchased intangible Brands development software assets Goodwill g’000 g’000 g’000 g’000 g’000 Cost At 1 January 2009 ...... 443 13,183 10,487 24,113 3,073 Additions: internal development . . — 21 8 29 — Additions: purchased separately . . — — 143 143 — Eliminated on disposal of a subsidiary ...... (443) (9,771) (9,079) (19,293) — Foreign exchange movements . . . — 102 24 126 — At 31 December 2009 ...... — 3,535 1,583 5,118 3,073 Additions: internal development . . — 795 — 795 — Additions: purchased separately . . — — 277 277 — Foreign exchange movements . . . — 276 62 338 — At 31 December 2010 ...... — 4,606 1,922 6,528 3,073 Accumulated amortisation and impairment At 1 January 2009 ...... 443 13,024 9,956 23,423 3,073 Charge for the year ...... — 37 349 386 — Disposal ...... (443) (9,771) (9,073) (19,287) — Foreign exchange movements . . . — 93 19 112 — At 31 December 2009 ...... — 3,383 1,251 4,634 3,073 Charge for the year ...... — 84 242 326 — Foreign exchange movements . . . — 244 52 296 — At 31 December 2010 ...... — 3,711 1,545 5,256 3,073 Net book value At 31 December 2010 ...... — 895 377 1,272 — At 31 December 2009 ...... — 152 332 484 —
F-319 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
8. Property, plant and equipment
Fixtures Computer and equipment fittings Total g’000 g’000 g’000 Cost At 1 January 2009 ...... 4,586 1,900 6,486 Additions ...... 179 128 307 Disposals ...... (4,071) (871) (4,942) Foreign exchange movements ...... 11 8 19 At 31 December 2009 ...... 705 1,165 1,870 Additions ...... 227 18 245 Disposals ...... (53) — (53) Foreign exchange movements ...... 19 18 37 At 31 December 2010 ...... 898 1,201 2,099 Accumulated depreciation and impairment At 1 January 2009 ...... 4,302 1,353 5,655 Charge for the year ...... 210 234 444 Disposals ...... (4,025) (906) (4,931) Foreign exchange movements ...... 10 6 16 At 31 December 2009 ...... 497 687 1,184 Charge for the year ...... 123 203 326 Disposals ...... (53) — (53) Foreign exchange movements ...... 13 15 28 At 31 December 2010 ...... 580 905 1,485 Net book value At 31 December 2010 ...... 318 296 614 At 31 December 2009 ...... 208 478 686
At 31 December 2010 and 31 December 2009, the Group had no contractual commitments for the acquisition of property, plant and equipment.
9. Investments Details of the Company’s significant subsidiaries at 31 December 2010 are as follows:
Percentage holding of ordinary Country of Name of subsidiary share capital Principal activity Incorporation Opodo GmbH ...... 100% Marketing services Germany Travellink AB ...... 100% On-line travel agency Sweden Opodo Italia SRL ...... 100% On-line travel agency Italy Opodo S.A...... 100% On-line travel agency France Opodo S.L...... 100% Development services Spain Opodo Tours GmbH ...... 100% On-line tour Operator Germany
F-320 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
10. Trade and other receivables
2010 2009 g’000 g’000 Trade receivables ...... 17,297 11,826 Allowance for doubtful debts ...... (804) (811) 16,493 11,015 Loans to Amadeus group companies ...... 76,084 45,082 Amounts owed by Amadeus group companies ...... 4,628 4,520 VAT and other taxes receivable ...... 1,586 2,265 Prepayments and accrued income ...... 8,348 7,575 Other receivables ...... 1,272 15 108,411 70,472
The average credit period on trade receivables that are neither past due nor impaired is 30 days; no interest is charged on the receivables outstanding. The Group has provided for trade receivables based on estimated irrecoverable amounts, determined by reference to past default experience. Included in the Group’s trade receivables are debtors with a carrying amount of e0.3 million (2009: e0.2 million) which are past due at the reporting date for which the Group has not provided for as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 87 days (2009: 83 days).
2010 2009 g’000 g’000 Ageing of past due but not impaired receivables 60-90 days ...... 32 52 90-180 days ...... 263 167 Total ...... 295 219
Loans and receivables: Movement in the allowance for doubtful debts
2010 2009 g’000 g’000 Balance at beginning of the year ...... 811 679 Increase in impairment losses ...... 2 570 Amounts written off as uncollectible ...... (9) (418) Amounts recovered during the year ...... — (20) Balance at the end of the year ...... 804 811
In determining the recoverability of trade and other receivables the Group considers any change in the credit quality of the trade or other receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe there is no further credit provision required in excess of the allowance for doubtful debts. There are no allowances for credit losses against other financial assets.
F-321 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
10. Trade and other receivables (Continued) The directors consider that the carrying amount of trade and other receivables approximates their fair value.
11. Financial instruments Capital risk management The Group manages its capital to ensure that the entities in the Group will be able to continue as going concerns while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent company, comprising issued capital, reserves and retained losses as disclosed in notes 16 to 19.
Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Categories of financial instruments
2010 2009 g’000 g’000 Financial assets at fair value through profit or loss: Call option ...... 167 — 167 — Loans and receivables: Cash and cash equivalents ...... 16,872 13,862 Restricted cash deposits ...... 2,962 4,089 Trade and other receivables ...... 97,513 61,254 117,347 79,205 Assets not meeting the definition of a financial asset: Trade and other receivables ...... 10,898 9,218 Tax receivables ...... 47 203 Total current assets ...... 128,459 88,626 Financial liabilities at amortised cost: Non-current liabilities Trade and other payables ...... 1,515 — Current liabilities Trade and other payables ...... 93,530 77,229 93,530 77,229 Current liabilities not meeting the definition of financial liabilities: Trade and other payables ...... 6,105 7,572 Total current liabilities ...... 101,150 84,801
Financial risk management objectives The Group is exposed to financial risks, including interest rate risk, credit risk and foreign exchange rate risk.
F-322 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
11. Financial instruments (Continued) Risk and treasury management is governed by the Amadeus IT Group S.A’s policies approved by its board of directors. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign exchange exposure arises where the Group’s companies transact in a currency different from their functional currency. The carrying amount of the Group’s monetary assets and liabilities at the reporting date, denominated in a currency different to the functional currency of the entity in which such monetary assets and liabilities are held is as follows:
Assets Liabilities 2010 2009 2010 2009 g’000 g’000 g’000 g’000 Sterling ...... 16,866 12,172 27,892 12,993 US Dollar ...... 277 53 104 62 Swedish Kroner ...... — — 2,454 2,146 Danish Kroner ...... 1,855 2,313 11,479 10,581 Norwegian Kroner ...... 4,802 3,562 11,607 10,663 The following table details the Group’s sensitivity to a 10 per cent change in euro against the respective foreign currencies. Ten per cent represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analyses of the Group’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and where euro strengthens against the respective currency.
2010 2009 g’000 g’000 Impact on profit or loss ...... 2,703 1,668
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk management Cash at bank earns interest at floating rates based on daily bank deposit rates. As a result, material fluctuations in the market interest rate could have an impact on the Group’s financial results. The interest rate exposure is not hedged. The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period.
F-323 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
11. Financial instruments (Continued) At the reporting date, if interest rates had been 1% higher/lower and all other variables were held constant, the Group’s profit would increase/decrease by e198,000 (2009: increase/decrease by e180,000). This is mainly attributable to the Group’s exposure to interest rates on its cash balances. There is no material impact upon equity arising from interest rate changes. The Group’s sensitivity to interest rates increased during the current year due to the higher net cash position of the Company.
Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial assets that potentially subject the Company and its subsidiaries to concentration of credit risk consist principally of trade receivables. The Group’s trade receivables are derived from commissions due to it from business partners including airlines, car hire companies, travel insurance companies, hoteliers and hotel consolidators. The Group performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful from collection. As detailed in the following table, the following represents the Group’s maximum exposure to credit risk:
Maximum credit risk:
Group 2010 2009 g’000 g’000 Cash and cash equivalents ...... 16,872 13,862 Restricted cash deposits ...... 2,962 4,089 Trade and other receivables ...... 97,513 60,704
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to: • making sales and extending credit terms to business partners and placing cash deposits with the Group’s parent undertaking. In these cases, the maximum exposure to credit risk is the carrying amount of the related financial assets.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
F-324 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
11. Financial instruments (Continued) The following table details the Group’s remaining contractual maturity for its financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
2010 Less than 1 year 1-2 years g’000 g’000 Non-interest bearing liabilities ...... 93,530 1,515
2009 Less than 1 year g’000 Non-interest bearing liabilities ...... 77,229
Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments. • The fair value of the Group’s call option over EnGrande SL, the only derivative financial instrument held by the Group, has been determined using an option pricing model, which include inputs that are not based on observable market data (unobservable inputs).
Cash and short-term deposits
2010 2009 g’000 g’000 Cash at bank and in hand ...... 16,872 13,862
Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and short-term highly liquid deposits held with Amadeus. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are available upon request and earn interest based on EURIBOR minus 0.1%. The fair value of cash and cash equivalents is the same as its carrying value due to its short-term nature. For the purpose of the cash flow statements, cash and cash equivalents comprise the following at 31 December:
2010 2009 g’000 g’000 Cash at bank and in hand ...... 16,872 13,862
F-325 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
11. Financial instruments (Continued) Restricted cash deposits Restricted cash deposits are in respect of cash guarantees given by the Company and its principal subsidiaries to IATA and a number of local governmental agencies to ensure compliance with the accreditation terms for each organisation. The total of these guarantees is e2.6 million (2009: e3.9 million). The required amount to be deposited is reviewed every year and is based on the Group’s financial results. e0.4 million (2009: e0.2 million) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
Other financial assets: derivative financial instruments On 12 November 2010 the Group entered into a call option agreement to acquire the entire issued share capital of EnGrande SL, a company that specialises in the online distribution of room nights at hotels, hostels, apartments, and B&Bs. The option is exercisable from 1 January 2011 until 12 May 2011. In the event that the option is not exercised by the Group, certain cancellation costs will be payable to the counterparties. The call option was initially recognised at fair value through profit or loss, with subsequent remeasurements also recorded through profit or loss. The fair value of the call option has been determined to be e167,000 at 31 December 2010 and the movement therein is shown as other income and expense in the consolidated income statement.
Borrowing facilities On 30 November 2007 Amadeus IT Group S.A. entered into an agreement with Opodo to provide a revolving credit facility up to a maximum of e61,744,340. The revolving credit facility bears interest at EURIBOR +2% and matures on the second anniversary of the First Repayment Date, which is defined as the earlier of 1 July 2010 or six months after the date on which the Company’s operating cash flow is determined by the Company’s auditors as having been positive for two out of the last three consecutive calendar quarters. This condition was satisfied at 30 June 2008, and consequently the facility was reduced to e49,395,472 at 30 December 2008, e24,697,736 at 30 December 2009, and to zero at 30 December 2010 when the facility expired.
Committed facilities As at 31 December 2010 the Group had no committed facilities available to it (2009: e24,697,736).
12. Trade and other payables
2010 2009 g’000 g’000 Trade payables ...... 75,968 52,295 Employee related accruals ...... 2,371 3,286 Other taxes and social security costs payable ...... 1,259 1,420 Amounts owed to Amadeus group companies ...... 540 546 Accruals and deferred income ...... 19,242 26,180 Other payables ...... 255 1,074 99,635 84,801
F-326 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
12. Trade and other payables (Continued) Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days (2009— 30 days). For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has Financial risk management policies in place to ensure that all payables are paid within the credit period. The directors consider that the carrying amount of trade payables approximates to their fair value.
13. Operating lease arrangements The Group had total commitments under non-cancellable operating leases as set out below:
Land and buildings Other 2010 2009 2010 2009 g’000 g’000 g’000 g’000 Operating leases which expire: Within one year ...... 827 760 — — In the second to fifth years ...... 436 377 — — 1,263 1,137 — —
2010 2009 g’000 g’000 Minimum lease payments under operating leases charged to the income statement for the year ...... 996 777
Operating lease payments represent rentals payable by the Group for certain of its office properties. Other than as set out below, leases are negotiated for an average term of five years and rentals are fixed for an average of three years.
14. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in note 38. The immediate controlling entity and parent company is Amadeus IT Group S.A. Amadeus IT Holding S.A. is the ultimate controlling entity and parent company of Amadeus IT Group S.A. The smallest and largest group which prepares consolidated financial statements and of which the Company forms a part, is Amadeus IT Holding S.A., which is incorporated in Spain. Below is a summary of balances and transactions with related parties. All transactions with related parties are carried out on an arm’s length basis.
(a) Trading transactions—Amadeus The Group was charged e2,878,451 and e2,877,621 for the years ended 31 December 2010 and 31 December 2009, respectively by Amadeus for charges in relation to intercompany trading and received e19,129,844 and e18,123,548 from the same.
F-327 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
14. Related party transactions (Continued) As at 31 December 2010 the total amount outstanding due to Amadeus was e539,523 (2009: e545,699) and the amount receivable from Amadeus in respect of these transactions was e4,628,201 (2009: e4,520,265).
(b) Loans receivable and advances—Amadeus group companies Total interest earned by the Group from Amadeus IT Group S.A., which is a related party by virtue of its controlling shareholding, was e298,906 and e285,101 for the years ended 31 December 2010 and 31 December 2009 respectively. As at 31 December 2010 the total amount outstanding from Amadeus IT Group S.A. in respect of interest receivable was enil (2009: enil). Interest rates for these short-term deposits denominated in Euros ranged from 0.298% to 0.708% for the year ended 31 December 2010 and from 0.326% to 2.884% for the year ended 31 December 2009. In addition, the Group was charged e455,060 (2009: e384,492) for costs on bonding and guarantees provided by Amadeus. The total accrual for interest outstanding as at 31 December 2010 was enil (2009: e388,856).
Other related party transactions (c) Directors and key management compensation Directors’ remuneration is set out in note 4. The remuneration earned by top executive managers during the years ended 31 December 2010 and 31 December 2009 was as follows:
2010 2009 g’000 g’000 Cash compensation ...... 1,132 1,225 Compensation in kind ...... 238 162 Contributions to Pension Plan and Collective Life Insurance Policies ...... 18 173 Total ...... 1,388 1,560
In addition to the above, the Group has established a cash-settled share-based payment scheme for senior management involved in the potential acquisition of Opodo Limited. See note 4 for more details.
15. Retirement benefit schemes The Group participates in a defined contribution group scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. The total cost charged to the income statement was e834,272 (2009: e708,052) and represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2010 all contributions (2009: enil) due in respect of the current reporting period had been paid over to the schemes.
F-328 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
16. Share capital
2010 2009 gg Authorised: 3,030,000,000 ordinary shares of e0.1 each ...... 303,000,000 — 925,012,500 Class A ordinary shares of e0.1 each ...... — 92,501,250 210,498,750 Class B ordinary shares of e0.1 each ...... — 21,049,875 210,498,750 Class B deferred shares of e0.9 each ...... — 189,448,875 30,000,000 redeemable convertible shares of e1 each ...... 30,000,000 30,000,000 333,000,000 333,000,000 Issued and fully paid: 2,751,131,544 ordinary shares of e0.1 each ...... 275,113,154 — 646,144,044 Class A ordinary shares of e0.1 each ...... — 64,614,404 210,498,750 Class B ordinary shares of e0.1 each ...... — 21,049,875 210,498,750 Class B deferred shares of e0.1 each ...... — 189,448,875 275,113,154 275,113,154
On 23 November 2010, each Class B deferred share of e0.9 each was sub-divided in nine Class B shares of e0.1 each. Until 23 November 2010, the Class A ordinary shares had full rights to dividends and to amounts receivable on winding-up. The shares had full voting rights. Until 22 November 2010, the Class B ordinary shares had full rights to dividends and to amounts receivable on winding up. However, the shares had limited voting rights. On 22 November 2010, the rights attaching to the Class B ordinary shares were varied to be identical to the Class A Ordinary Shares. Until 23 November 2010, the Class B deferred shares had no rights to dividends or amounts receivable on winding up. They had no voting rights. On 23 November 2010, the Class A Ordinary Shares and Class B deferred shares were all re-designated as Ordinary Shares.
Share premium account
2010 2009 g’000 g’000 Balance at 1 January and 31 December ...... 88,846 88,846
The share premium account is used to record the excess of the consideration received by the Company on issue of shares in excess of their par value. The share premium account may only be used in certain specific circumstances.
17. Other reserves
2010 2009 g’000 g’000 Balance at 1 January and 31 December ...... 30,441 30,441
The Group accounted for the transfer of assets and liabilities in 2005 by recording the net assets acquired at their carrying values immediately prior to the transfer from Amadeus IT Group
F-329 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
17. Other reserves (Continued) S.A as it was considered that no acquisition had occurred. The difference between the consideration provided and the net assets acquired is presented as an other reserve.
18. Translation reserve
2010 2009 g’000 g’000 Balance at 1 January ...... (1,107) (1,213) Exchange differences on retranslation of overseas operations ...... 734 106 Balance at 31 December ...... (373) (1,107)
19. Retained losses
g’000 Balance at 1 January 2009 ...... (351,655) Profit for the year ...... 30,639 Balance at 31 December 2009 ...... (321,016) Profit for the year ...... 80,426 Balance at 31 December 2010 ...... (240,590)
20. Commitments and contingencies As required by industry regulators including IATA, the Group has trade bonds in place which are designed to protect consumers and airlines (IATA) in the event that an agent ceases trading. In the event that the Group ceased trading, the restricted cash deposits would not be returned to the Group, but would be utilised to cover any outstanding liabilities. The level of bonding required is determined on an annual basis by the regulators with reference to historical and expected future trading. During the year, bonding requirements were met by Amadeus IT Group S.A. At 31 December 2010, in order to maintain the Group’s various travel agency licences the Group had bank guarantees in place to travel agency regulators in the total amount of e55,144,835 (2009—e36,523,959). The amount of e2,587,957 (2009—e3,859,357) is covered by restricted cash deposits that are recorded in the balance sheet and the remaining e52,556,878 (2009— e32,664,602) is covered by a bank guarantee secured by Amadeus IT Group SA. The required amount to be deposited is reviewed every year and is based on the Group’s financial results. e374,107 (2009—e229,606) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
21. Subsequent events On 9 February 2011 the Amadeus Group entered into an agreement in principle with a consortium created by AXA Private Equity and Permira Funds, to purchase 100% of the shares of Opodo Limited. The sale was formally approved by the board of directors on the same day. On 10 February 2011, the Group terminated its option to acquire the entire issued share capital of EnGrande S.L. and made a subsequent penalty payment of e1,535,714, as required under the terms of the call option agreement.
F-330 OPODO LIMITED COMPANY INCOME STATEMENT Year ended 31 December 2010
Notes 2010 2009 g’000 g’000 Revenue ...... 23 110,542 54,389 Cost of sales ...... (46,273) (11,807) Gross profit ...... 64,269 42,582 Selling, general and administrative expenses ...... (33,563) (24,427) Other operating expenses ...... (3,076) — Operating profit ...... 24 27,630 18,155 Other income and expense ...... 11 167 — Finance income ...... 25 331 293 Finance cost ...... 25 (524) (822) Profit before tax ...... 27,604 17,626 Tax...... 26 55,871 5,684 Profit attributable to equity holders of the parent ...... 83,475 23,310
All profits arise from continuing operations of the Company. There were no other gains and losses affecting comprehensive income other than as set out in the income statement presented above, and therefore a separate statement of comprehensive income has not been presented.
F-331 OPODO LIMITED COMPANY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2010
Share Share Retained capital premium losses Total g’000 g’000 g’000 g’000 Balance as of 1 January 2009 ...... 275,113 88,846 (348,948) 15,011 Total comprehensive income for the year ...... — 23,310 23,310 Balance at 31 December 2009 ...... 275,113 88,846 (325,638) 38,321 Total comprehensive income for the year ...... — — 83,475 83,475 Balance at 31 December 2010 ...... 275,113 88,846 (242,163) 121,796
F-332 OPODO LIMITED COMPANY BALANCE SHEET 31 December 2010
Notes 2010 2009 g’000 g’000 Non-current assets Investments ...... 29 59,356 58,772 Intangible assets ...... 27 675 214 Property, plant and equipment ...... 28 399 434 Deferred tax asset ...... 26 61,600 5,795 Trade and other receivables ...... 14 1,123 — 123,153 65,215 Current assets Trade and other receivables ...... 31 101,257 56,487 Cash and cash equivalents ...... 30 1,068 2,005 Restricted cash deposits ...... 30 1,134 2,469 Other financial assets ...... 11 167 — 103,626 60,961 Total assets ...... 226,779 126,176 Non-current liabilities Trade and other payables ...... 14 1,515 — 1,515 — Current liabilities Trade and other payables ...... 32 103,468 87,855 Total liabilities ...... 104,983 87,855 Net current assets/(liabilities) ...... 158 (26,894) Net assets ...... 121,796 38,321 Equity Share capital ...... 16 275,113 275,113 Share premium account ...... 16 88,846 88,846 Retained losses ...... 35 (242,163) (325,638) 121,796 38,321
The financial statements of Opodo Limited, registered number 4051797, were approved by the Board of Directors and authorised for issue on 1 April 2011. Signed on behalf of the Board of Directors
Javier Laforgue Director
F-333 OPODO LIMITED COMPANY CASH FLOW STATEMENT Year ended 31 December 2010
2010 2009 g’000 g’000 Cash generated from operating activities Operating profit ...... 27,630 18,155 Adjustments for: Share-based payments ...... 2,288 — Depreciation of property, plant and equipment ...... 193 293 Amortisation of intangible assets ...... 180 288 Amortisation of deferred rent incentive ...... (92) (366) Loss on disposal of property, plant and equipment ...... — 11 Operating cash flows before movements in working capital ...... 30,199 18,381 Trade and other receivables ...... (46,666) (27,742) Trade and other payables ...... 15,705 10,369 Cash (used in)/ generated from operating activities before tax ...... (762) 1,008 Taxes received/ (paid) ...... 66 (111) Net cash (used in)/ generated from operating activities after tax ...... (696) 897 Cash flows from investing activities Movement in restricted cash deposits ...... 1,335 (1,036) Investments in subsidiaries ...... (584) (551) Return of capital from subsidiaries ...... 15 Purchases of property, plant and equipment ...... (158) (120) Interest received ...... 331 293 Expenditure on intangible assets ...... (641) (143) Net cash used in investing activities ...... 283 (1,542) Cash flows used in financing activities Interest paid and other financial expenses ...... (524) (537) Net cash used in financing activities ...... (524) (537) Net decrease in cash and cash equivalents ...... (937) (1,182) Cash and cash equivalents at beginning of year ...... 2,005 3,187 Cash and cash equivalents at end of year ...... 1,068 2,005
F-334 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
22. Significant accounting policies The separate financial statements of the company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain assets and liabilities which are measured at fair value in accordance with applicable International Financial Reporting Standards. The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements except as noted below. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
23. Revenue An analysis of the Company’s revenue is as follows:
2010 2009 g’000 g’000 Product sales ...... 32,194 2,544 Agency revenues ...... 43,817 32,531 Incentive income ...... 19,127 12,402 Licence revenues ...... 8,858 6,370 Other revenues ...... 6,546 542 Revenue ...... 110,542 54,389 Finance income ...... 331 293 110,873 54.682
All sales are within Europe and the Directors do not consider the markets in Europe in which the Company operates to be significantly different. Consequently no geographical segmentation has been provided.
24. Profit for the year Profit is stated after charging/(crediting):
2010 2009 g’000 g’000 Net foreign exchange losses ...... 483 278 Depreciation (Note 28) ...... 193 293 Amortisation of intangible assets (Note 27): Internally generated assets—included in S,G&A ...... — — Purchased software—included in S,G&A ...... 180 288 Amortisation of rent free period in relation to UK property ...... (92) (366) Redundancy and reorganisation costs ...... 7 2 R&D costs expensed ...... 2,229 2,643 Charge for cash-settled share-based payments ...... 2,288 — Staff costs (excluding charge for cash-settled share-based payments above) ...... 7,984 8,149
F-335 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
24. Profit for the year (Continued)
2010 2009 g’000 g’000 Staff costs Wages and salaries ...... 7,172 7,347 Social security costs ...... 688 718 Pension costs ...... 124 84 7,984 8,149
Included in the above, the Company recorded a charge for cash-settled share-based payments of e2,288,000 (2009: enil). See note 4 for more details. The average monthly number of employees (including executive directors) during the year was:
2010 2009 No. No. Staff numbers Managers ...... 5 6 Staff ...... 189 208 194 214
25. Finance income and finance costs
2010 2009 g’000 g’000 Bank interest receivable and similar income ...... 20 6 Interest receivable on loans to parent company ...... 311 287 Total finance income: loans and receivables at amortised cost ...... 331 293 Bonding and guarantee costs ...... (357) (350) Interest on loans from other group companies ...... (167) (472) Total finance costs: financial liabilities at amortised cost ...... (524) (822)
26. Tax Tax on profit on ordinary activities Tax (credited)/charged in the income statement
2010 2009 g’000 g’000 Current tax: ...... (65) 110 Deferred tax: Current year ...... (55,806) (5,794) (55,871) (5,684)
F-336 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
26. Tax (Continued) Reconciliation of the total tax credit UK corporation tax rate is 28% (2009: 28%). Factors affecting the tax credit for the year are as follows:
2010 2009 g’000 g’000 Profit before tax ...... 27,604 17,626 Profit before tax multiplied by standard rate of corporation tax in the UK of 28% (2009—28.5%) ...... 7,729 4,935 Tax effect of expenses that are not deductible in determining taxable profit ..... 867 4 Utilisation of tax losses not previously recognised ...... (8,673) (4,939) Recognition of previously unrecognised deferred tax assets ...... (55,806) (5,794) Change in unrecognised deferred tax assets ...... 77 — Adjustments in respect of prior periods ...... (65) 110 Tax credit ...... (55,871) (5,684)
Deferred tax The following are the major deferred tax assets recognised by the Company and movements thereon during the current and prior year:
Tax losses Total g’000 g’000 At 1 January 2009 ...... — — Credit to income ...... 5,794 5,794 At 31 December 2009 ...... 5,794 5,794 Credit to income ...... 55,806 55,806 As 31 December 2010 ...... 61,600 61,600
The following is the analysis of the deferred tax balances for financial reporting purposes:
2010 2009 g’000 g’000 Deferred tax assets ...... 61,600 5,794
The directors have assessed that it is sufficiently probable that future taxable profits will arise in order to give recognition to a deferred tax asset of e61.6 million at 31 December 2010 (2009: e5.8 million). In addition, at the balance sheet date the Company has unrecognised deferred tax assets of e22 million (2009: e85 million) in respect of tax losses, accelerated capital allowances and other timing differences arising in the United Kingdom that are available indefinitely for offset against future taxable profits.
F-337 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
27. Intangible assets
Finite lived intangible assets Software Purchased development software Total g’000 g’000 g’000 Cost At 1 January 2009 ...... 11,824 9,635 21,459 Additions: purchased separately ...... — 143 143 Disposals ...... (9,771) (9,073) (18,844) At 31 December 2009 ...... 2,053 705 2,758 Additions: purchased separately ...... — 62 62 Additions: internal development ...... 579 — 579 Disposals ...... — — — At 31 December 2010 ...... 2,632 767 3,399 Accumulated amortisation and impairment At 1 January 2009 ...... 11,824 9,276 21,100 Charge for the year ...... — 288 288 Disposals ...... (9,771) (9,073) (18,844) At 31 December 2009 ...... 2,053 491 2,544 Charge for the year ...... — 180 180 At 31 December 2010 ...... 2,053 671 2,724 Net book value At 31 December 2010 ...... 579 96 675 At 31 December 2009 ...... — 214 214
F-338 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
28. Property, plant and equipment
Fixtures Computer and equipment fittings Total g’000 g’000 g’000 Cost At 1 January 2009 ...... 3,843 1,562 5,405 Additions ...... 76 44 120 Disposals ...... (3,566) (917) (4,483) At 31 December 2009 ...... 353 689 1,042 Additions ...... 158 — 158 At 31 December 2010 ...... 511 689 1,200 Accumulated depreciation and impairment At 1 January 2009 ...... 3,625 1,161 4,786 Charge for the year ...... 156 137 293 Disposals ...... (3,566) (905) (4,471) At 31 December 2009 ...... 215 393 608 Charge for the year ...... 74 119 193 At 31 December 2010 ...... 289 512 801 Net book value At 31 December 2010 ...... 222 177 399 At 31 December 2009 ...... 138 296 434
29. investments
Shares in subsidiary undertakings g’000 Cost At 1 January 2009 ...... 58,238 Additions ...... 551 Dissolution of subsidiary undertakings ...... (17) At 31 December 2009 ...... 58,772 Additions ...... 584 At 31 December 2010 ...... 59,356
Additions in the prior year represent amounts previously included within inter-company receivables that have been capitalised in the period as part of the recapitalisation of Opodo Italia. Additions in 2010 represent a capital increase in Opodo Italia and the formation of a new subsidiary, Opodo Tours GmbH. All investments listed in note 9 are held by the company at 31 December 2010.
F-339 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
30. Financial instruments Capital risk management The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders. The capital structure of the Company consists of cash and cash equivalents and equity attributable to equity holders of the parent company, comprising issued capital, reserves and retained earnings. Categories of financial instruments
2010 2009 g’000 g’000 Financial assets at fair value through profit or loss: Call option ...... 167 — 167 — Loans and receivables: Cash and cash equivalents ...... 1,068 2,005 Restricted cash deposits ...... 1,134 2,469 Trade and other receivables ...... 93,240 52,334 95,442 56,808 Assets not meeting the definition of a financial asset: Trade and other receivables ...... 8,017 4,153 Total current assets ...... 103,626 60,961 Financial liabilities at amortised cost: Non-current liabilities Trade and other payables ...... 1,515 — Current liabilities Trade and other payables ...... 100,782 83,483 100,782 83,483 Current liabilities not meeting the definition of financial liabilities: Trade and other payables ...... 2,686 4,372 Total current liabilities ...... 103,468 87,855
Financial risk management objectives The Company’s finance department monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposure by degree and magnitude of risks. These include market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Foreign currency risk management The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
F-340 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
30. Financial instruments (Continued) Foreign exchange exposure arises where the Company transacts in a currency different from its functional currency. The carrying amount of the Company’s monetary assets and liabilities at the reporting date, denominated in currency different to the functional currency of the entity in which such monetary assets and liabilities are held is as follows:
Assets Liabilities 2010 2009 2010 2009 g’000 g’000 g’000 g’000 Sterling ...... 16,866 12,172 27,892 12,993 US Dollar ...... 277 53 104 62 Swedish Kroner ...... — — 2,454 2,146 The following table details the Company’s sensitivity to a 10 per cent change in euro against the respective foreign currencies. Ten per cent represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analyses of the Company’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and where euro strengthens against the respective currency.
2010 2009 g’000 g’000 Impact on profit or loss ...... 1,210 271
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk management Cash at bank earns interest at floating rates based on daily bank deposit rates. As a result, material fluctuations in the market interest rate can have an impact on the Company’s financial results. The interest rate exposure is not hedged. The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A one per cent change is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. At the reporting date, if interest rates had been 1% higher/lower and all other variables were held constant, the Company’s profit would increase/decrease by e22,000 (2009: increase/decrease by e45,000). This is mainly attributable to the Company’s exposure to interest rates on its cash balances. There is no material impact upon equity arising from interest rate changes. The Company’s sensitivity to interest rates has increased during the current period due to the increase in cash balances.
Credit risk management Credit risk refers to the risk that a counterparty, will default on its contractual obligations resulting in a financial loss to the Company. Financial assets that potentially subject the Company to concentration of credit risk consist principally of trade receivables. The Company’s trade receivables are derived from commissions
F-341 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
30. Financial instruments (Continued) due to it from business partners including airlines, car hire companies, travel insurance companies, hoteliers and hotel consolidators. The Company performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful from collection. Credit risk associated with the Company’s cash and cash equivalents and restricted cash deposits is managed by only placing funds on deposit with internationally recognised banks with suitable credit ratings or with the Company’s parent company. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk:
Maximum credit risk:
2010 2009 g’000 g’000 Cash and cash equivalents ...... 1,068 2,005 Restricted cash deposits ...... 1,134 2,469 Trade and other receivables ...... 93,240 51,784
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to: • making sales and extending credit terms to business partners and placing cash deposits with banks and the Company’s parent undertaking. In these cases, the maximum exposure to credit risk is the carrying amount of the related financial assets. For cash resources, the Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent to investment grade or above. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Company defines counterparties as having similar characteristics if they are connected entities. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings or other Group companies.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
F-342 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
30. Financial instruments (Continued) The following table details the Company’s remaining contractual maturity for its financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
2010 Less than 1 - 2 1 year years g’000 g’000 Non-interest bearing liabilities ...... 100,782 1,515
2009 Less than 1 year g’000 Non-interest bearing liabilities ...... 83,483
Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments. • The fair value of the Company’s call option over EnGrande SL, the only derivative financial instrument held by the Company, has been determined using an option pricing model, which include inputs that are not based on observable market data (unobservable inputs).
Cash and short-term deposits
2010 2009 g’000 g’000 Cash at bank and in hand ...... 1,068 2,005
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and short-term highly liquid deposits held with Amadeus. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are available upon request and earn interest at EURIBOR minus 0.1%. The fair value of cash and cash equivalents is the same as its carrying value. For the purpose of the cash flow statement, cash and cash equivalents comprise the following at 31 December:
2010 2009 g’000 g’000 Cash at bank and in hand ...... 1.068 2,005
F-343 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
30. Financial instruments (Continued) Restricted cash deposits Restricted cash deposits are in respect of rental deposits and cash guarantees given by the Company and its principal subsidiaries to IATA and a number of local governmental agencies to ensure compliance with the accreditation terms for each organisation. The total of these guarantees is e993,128 (2009: e2,331,269). In the event that the Company ceased trading, the restricted cash deposits would not be returned to the Company, but would be utilised to cover any outstanding liabilities. The amount deposited is reviewed every year and is based on the Company’s financial results. e140,806 (2009: e137,426) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates fair value.
Borrowing facilities On 30 November 2007, Amadeus IT Group S.A. entered into an agreement with the Company to provide a revolving credit facility up to a maximum value of e61,744,340. As at 30 June 2008, the Company was determined to have been operational cash flow breakeven for the past two quarters, therefore in accordance with the terms of the facility, the facility limit was reduced to £49,395,472 at 30 December 2008, e24,697,736 at 30 December 2009, and to zero at 30 December 2010 when the facility expired.
Committed facilities As at 31 December 2010 the Company had no committed facilities available to it (2009: e24,697,736).
31. Trade and other receivables
2010 2009 g’000 g’000 Trade receivables ...... 11,849 3,508 Allowance for doubtful debts ...... (42) (51) 11,807 3,457 Loans to Amadeus group companies ...... 76,084 45,082 Amounts owed by Amadeus group companies ...... 4,568 3,805 Amounts owed by Opodo group companies ...... 611 — VAT and other taxes receivable ...... 255 297 Prepayments and accrued income ...... 6,704 3,845 Other receivables ...... 1,228 1 101,257 56,487
The average credit period granted on receivables for revenues is 60 days (2009: 60 days), no interest is charged on the receivables outstanding. The Company has provided for trade receivables based on estimated irrecoverable amounts, determined by reference to past default experience. Included in the Company’s trade receivables are debtors with a carrying value of e274,446 (2009: e102,962) which are past due at the reporting date for which the Company has not provided as there has not been a significant change in credit quality and the amounts are still considered
F-344 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
31. Trade and other receivables (Continued) recoverable. The Company does not hold any collateral over these balances. The average age of these receivables is 89 days (2009: 83 days)
2010 2009 g’000 g’000 Ageing of past due but not impaired receivables
60-90 days ...... 11 39 90-180 days ...... 263 64 Total ...... 274 103
2010 2009 g’000 g’000 Movement in the allowance for doubtful debts
Balance at beginning of the period ...... 51 59 Increases in impairment ...... — 430 Amounts written off as uncollectable ...... (9) (418) Amounts recovered during the year ...... — (20) Balance at the end of the period ...... 42 51
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe there is no further credit provision required in excess of the allowance for doubtful debts. Other receivables have also been assessed in terms of creditworthiness and are considered to be recoverable. No allowance for doubtful debts has been made on these balances. The directors consider that the carrying amount of trade and other receivables approximates their fair value.
32. Trade and other payables
2010 2009 g’000 g’000 Trade payables ...... 64,202 19,791 Employee related accruals ...... 784 1,556 Other taxes and social security costs payable ...... 135 162 Amounts owed to Amadeus group companies ...... 479 — Amounts owed to Opodo group companies ...... 31,182 61,334 Accruals and deferred income ...... 6,655 4,261 Other payables ...... 31 751 103.468 87.855
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days. For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The
F-345 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
32. Trade and other payables (Continued) Company has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
33. Operating lease arrangements The Company had total commitments under non-cancellable operating leases as set out below:
Land and buildings Other Company 2010 2009 2010 2009 g’000 g’000 g’000 g’000 Operating leases which expire: Within one year ...... 197 309 — — I two to five years ...... 109 225 — — 306 534 — —
2010 2009 g’000 g’000 Minimum lease payments under operating leases charged to the income statement for the year ...... 326 196
Operating lease payments represent rentals payable by the Company for certain of its office properties. Other than as set out below, leases are negotiated for an average term of five years and rentals are fixed for an average of three years.
34. Retirement benefit schemes The Company participates in a defined contribution group scheme. The assets of the scheme are held separately from those of the Company in independently administered funds. The total cost charged to income of e123,771 (2009: (83,872) represents contributions payable to these schemes by the Company at rates specified in the rules of the plans. As at 31 December 2010, no contributions were due (2009—enil) in respect of the current reporting periods which had not been paid over to the schemes.
35. Retained losses
g’000 Balance at 1 January 2009 ...... (348,948) Net profit for the year ...... 23,310 Balance at 31 December 2009 ...... (325,638) Net profit for the year ...... 83,475 Balance at 31 December 2010 ...... (242.163)
36. Commitments and contingencies As required by industry regulators including IATA, the Company has trade bonds in place which are designed to protect consumers and airlines (IATA) in the event that an agent ceases trading. In the event that the Company ceased trading, the restricted cash deposits would not be returned to the Company. but would he utilised to cover any outstanding liabilities.
F-346 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
36. Commitments and contingencies (Continued) The level of bonding required is determined on an annual basis by the regulators with reference to historical and expected future trading. During the year, bonding requirements were met by Amadeus IT Group S.A. At 3I December 2010, in order to maintain the Company’s various travel agency licences the Company had bank guarantees in place to travel agency regulators in the total amount of £36,338,625 (2009—e23,856,489). The amount of e993,128 (2009—e2,331,269) is covered by restricted cash deposits that are recorded in the balance sheet and the remaining e35,345,497 (2009—e21,525,220) is covered by a bank guarantee secured by Amadeus IT Group SA. The required amount to be deposited is reviewed every year and is based on the Group’s financial results. e140,806 (2009—e137,426) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
37. Subsequent events Refer to Note 21.
38. Related party transactions Below is a summary of balances and transactions with related parties. All transactions with related parties are carried out on an arm’s length basis.
(a) Trading transactions—Amadeus The Company was charged e2,230,309 and e1,947,763 for the years ended 31 December 2010 and 31 December 2009 respectively by Amadeus for charges in relation to intercompany trading and received e12,499,195 and e14,339,294 from the same. As at 31 December 2010 the total amount outstanding due to Amadeus was e478,760 (2009: e336,584) and the amount receivable from Amadeus in respect of these transactions was e4,568,059 (2009: e4,491,765).
(b) Loans receivable and advances—Amadeus Total interest earned by the Company from Amadeus was e310,513 and e286,899 for the years ended 31 December 2010 and 31 December 2009, respectively. As at 31 December 2010 the total amount outstanding from Amadeus in respect of interest receivable was enil (2009: enil). Interest rates for these short-term deposits denominated in Euros ranged from 0.298% to 0.708% for the year ended 31 December 2010 and from 0.326% to 2.884% for the year ended 31 December 2009. In addition, the Company was charged e166,878 (2009: e471,729) for interest on intercompany cash pooling transfers, and e356,183 (2009: e281,072) for finance costs on bonding and guarantees provided by Amadeus). The total accrued at 31 December 2010 for such costs was enil (2009: e285,436).
(c) Loans receivable and advances—subsidiaries As at 31 December 2010 the Company had an outstanding amount due to its subsidiary Travellink AB of e2,453,880 (2009: e2,145,880). There are no other loans receivable or advances with subsidiaries as at the balance sheet date.
F-347 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2010
38. Related party transactions (Continued) (d) Trading transactions—subsidiaries During the year the Company had a royalty fee arrangement in place with its subsidiary Opodo SAS, to develop, host, maintain and operate an Internet platform that will provide clients with booking functionality in relation to flights, hotels, cars, DP and other products under the URL www.opodo.fr which has the Opodo ‘‘look and feel’’. The value of the royalty fees recorded in 2010 was e8,858,236 (2009: e6,370,020). The Company was charged e3,546,602 and e2,979,876 for the years ended 31 December 2010 and 31 December 2009 respectively by its subsidiaries for charges in relation to intercompany trading. As at 31 December 2010 the total amount outstanding due to subsidiaries in respect of trading transactions was e28,728,607 (2009: e61,334,090) and the amount receivable from subsidiaries in respect of trading transactions was e610,700 (2009: e3,805,482).
(e) Directors and key management compensation Directors’ remuneration is set out in note 4. The remuneration earned by key management of the Company during the years ended 31 December 2010 and 31 December 2009 was as follows:
2010 2009 g’000 g’000 Cash compensation ...... 794 685 Compensation in kind ...... 237 156 Contributions to Pension Plan and Collective Life Insurance Policies ...... 7 48 Total ...... 1,038 889
In 2010 conditional advance payments of e3.0 million were made to key management personnel of the Company in respect of incentive schemes, further details of which are set out in note 4. Of the total cash-settled share-based payment charge for the Company of e2,288,000 (2009— Enil), e2,145,184 (2009—enil) relates to key management personnel of the Company. See note 4 for further information.
F-348 Company Registration No. 4051797
OPODO LIMITED
REPORT AND FINANCIAL STATEMENTS
31 December 2009
F-349 OPODO LIMITED REPORT AND FINANCIAL STATEMENTS 2009 Contents
Page Officers and professional advisers ...... F-351 Directors’ report ...... F-352 Statement of directors’ responsibilities ...... F-357 Independent auditors’ report ...... F-358 Consolidated income statement ...... F-360 Consolidated statement of comprehensive income ...... F-361 Consolidated statement of changes in equity ...... F-362 Consolidated balance sheet ...... F-363 Consolidated cash flow statement ...... F-364 Notes to the consolidated financial statements ...... F-365 Company income statement ...... F-391 Company statement of changes in equity ...... F-392 Company balance sheet ...... F-393 Company cash flow statement ...... F-394 Notes to the company financial statements ...... F-395
F-350 OPODO LIMITED REPORT AND FINANCIAL STATEMENTS 2009 OFFICERS AND PROFESSIONAL ADVISERS Directors P Cher´ eque` J Laforgue L Maroto
Secretary G Faundez
Registered Office Waterfront Hammersmith Embankment Chancellors Road London W6 9RU
Bankers Barclays Bank PLC Deutsche Bank AG
Solicitors Rawlison Butler LLP London
Auditors Deloitte LLP Chartered Accountants London
F-351 OPODO LIMITED DIRECTORS’ REPORT The directors present their annual report and the audited financial statements for the year ended 31 December 2009.
Principal activity The principal activity of Opodo Limited (‘‘the Company’’) and its subsidiaries (‘‘the Group’’) continues to be the operation of online travel websites, providing travel agency services including the marketing and distribution of airline seats, hotel bookings, car hire and travel insurance. The Group operates websites in the United Kingdom, France, Belgium, Switzerland, Germany, Austria, Italy, Spain, Sweden, Norway, Denmark and Finland.
Review of developments During 2009, the Company refined and improved the new booking engine for Hotels and Dynamic Packaging, which was successfully implemented during the current year in the main European markets and in Scandinavia, cementing the technological unification across the Group. Furthermore, the Company decommissioned its existing platform for France, which had been hosted in Erding, Germany. Significant savings and quality improvements have been gained out of this move, and the Company has experienced a dramatic increase in stability and speed of response, crucial to the business. As a result of the improvement in the booking engine and platform stability, the Group continues to experience steady growth in market share across Europe, and a very important saving in marketing costs as better conversion rates drive a reduction in cost per booking, and therefore higher profitability. The Company moved during the year to new premises in France at a lower rental cost and which provide a more efficient layout. The Group has renegotiated all main contracts, where possible, obtaining an important reduction in costs. The year ended with a healthy growth in sales and the Group has increased its market share in Europe and the Group closed the year in a healthy cash position. The Group uses Booked Gross Sales Value as its Key Performance Indicator. This represents the total transaction value of all products sold. Under IFRS, net revenue recognisable represents only the revenue directly attributable to the Group Booked Gross Sales Value was e1,376 million, an increase of 12% on the prior year (2008—e1,231 million).
Results The Group prepares its results in euros. Group revenue was e103.1 million (2008—e91.1 million), an increase of 13.2%. The Group generated a profit from continuing operations of e30.6 million (2008—profit of e10.2 million), as a result of increased revenues and the full year effect of cost reduction exercises executed in 2008 and further measures undertaken in 2009. The directors do not recommend a dividend for the year ended 31 December 2009 (2008—enil).
Financial position The balance sheet on page 14 of the financial statements shows the Group’s financial position at the end of the year. The net asset position of the Group has improved from a net liability position of e19.4 million at 31 December 2008 to a net asset position of e11.4 million at 31 December 2009. Current assets have risen from e51.2 million to e88.6 million, principally due to an increase in trade and other receivables from e39.3 million to e70.5 million. This is largely attributable to an intercompany receivable balance of e45.1 million that has resulted from monies advanced to Amadeus as a short-term loan.
F-352 Non-current assets have increased from e1.5 million at 31 December 2008 to £7.5 million at 31 December 2009 due to the recognition of deferred tax assets in the year as a result of the improvement in trading performance which is expected to continue in the next year. Current liabilities have risen from £72.0 million to e84.8 million. There are no longer any short-term loans from Amadeus, however trade and other payables have increased by e12.9 million, principally due to an increase in accruals and deferred income of e15.0 million. The Group had net cash of e13.9 million at 31 December 2009 (2008 net cash of e9.3 million). As noted above, short-term loans with Amadeus were fully repaid, significantly reducing the Group’s interest costs. The Group continues to manage its working capital by way of existing cash resources and short-term borrowings made available to it under a e24.7 million revolving credit facility from Amadeus, the terms of which are disclosed in note 11 to the financial statements.
Cash flow Net cash inflow for 2009 from continuing operating activities was e6.2 million, e1.6 million lower than 2008. Investing activities resulted in a net outflow of e1.6 million mainly due to the increase in restricted cash deposits. Financing cash outflows were e0.1 million relating to interest and other financial expenses paid.
Capital structure Details of the authorised and issued share capital are shown in note 16. The company has one class of ordinary shares which carry no right to fixed income Each share carries the right to one vote at general meetings of the company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the company’s share capital and all issued shares are fully paid. With regard to the appointment and replacement of directors, the company is governed by its Articles of Association, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders.
Principal risks and uncertainties The following factors may affect the Group’s operating results, financial condition and the value of the Company’s shares. The risk factors described below are those which the directors believe are potentially significant, but this should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties.
Trading risks The trading performance of the Group may be affected by a number of factors outside its control, including: • wars or international unrest, • acts of terrorism in key tourist destinations or epidemics such as swine flu or the threat of either which may materially restrict international travel, • earthquakes or other natural disasters in key tourist destinations, • weather conditions, both in places where the Group’s customers live and in key tourist destinations, • general economic conditions in the Group’s key markets of the United Kingdom, France, Germany, the Nordic countries and Italy, and • additional security requirements affecting travel.
F-353 These factors may affect the Group by reducing demand, as its potential customers choose not to, or become unable to, travel Reductions in demand in an industry with capacity that in the short-term is fixed leads to overcapacity with associated pressure on margins, particularly where the Group acts as principal rather than agent. These factors may also affect booking patterns, as increased political and economic uncertainty may lead to an increased propensity for customers to book closer to departure, which as a result of relative inflexibility of capacity increases the risk that unsold holidays will have to be sold at significantly reduced margins or at a loss.
Competition In its principal markets, the Group faces competition from many sources including, but not limited to, other online travel agents, traditional offline travel agents, tour operators and direct suppliers (scheduled, charter and low cost airlines, hotels, car hire and insurance companies). Competitive pressures could affect the ability of the Group to achieve bookings at satisfactory margins.
Regulatory risks Throughout its operations, the Group requires regulatory licences and approvals. These regulatory requirements vary depending on the area of operation and the specific activity. Failure to continue to satisfy the necessary regulatory criteria (whether financial or operational) could result in the suspension, revocation or non-renewal of one or more necessary licence(s) which, in certain cases, depending on the particular licence or approval concerned, could result in the cessation of that operation.
Operational risks Operational risks, which are inherent in all business activities, include those which mainly result from a potential breakdown in individual business units of the Group’s control of its human, physical and operating resources. The potential financial or reputational loss arising from failures in internal controls, flaws or malfunctions in computer systems and poor product design or delivery all fall within this category. In particular, the Group’s ability to generate revenue is dependent upon the continued availability of its websites to customers and any interruption to service may lead to lost revenues.
Working capital management The Group’s working capital requires careful management. This involves the management of the timing and amount of significant payments and receipts. The Group has limited ability to influence the timing of these cash flows. Payments generally arise from commitments which are contracted in advance or which are necessary to enable the business to continue operating. Receipts are dependent on the quantum and timing of sales to customers. The Group manages this risk by maintaining significant undrawn working capital facilities which are shown in note 11 to the accounts. There can be no assurance, however, that these facilities will be sufficient and, if not, it would be necessary to arrange additional facilities, if possible.
Financial risk management policies and objectives Use of financial instruments The Group’s policy is to have no speculative trading in financial instruments. During the year, the Group has not entered into any material derivative financial instruments for hedging purposes See note 11 to the financial statements. The other main risks faced by the Group are interest rate risk, liquidity risk, and foreign exchange risk.
(a) Interest rate risk The Group’s borrowings bear interest at EURIBOR plus a margin. The Group does not hedge against the risk of movements in interest rates as the principal borrowing is with its parent company, Amadeus IT Group S.A. Similarly cash deposits bear interest at floating rates.
F-354 (b) Liquidity risk The Group’s policy is to maintain flexibility with respect to its liquidity position through the use of short-term or overnight deposits of its surplus cash balances with its parent company, Amadeus IT Group S.A. The directors’ assessment of going concern, which has been applied in the preparation of the accompanying financial statements, is provided in note 1 to the financial statements.
(c) Foreign exchange risk The Group has subsidiaries that operate in countries which do not have a Euro functional currency These subsidiaries operate in Sweden, Norway and Denmark. As a result, the Group is subject to translation risk on consolidation of these subsidiaries. In addition, the Group’s UK operations receive income and pay certain expenses in sterling. As a result, the Group is subject to translation risk on these transactions and translation of resulting monetary assets and liabilities. The Group does not enter into any hedging transactions in respect of such foreign exchange risks.
Future developments The Directors anticipate that the shift from traditional booking methods to the internet will continue in the forthcoming year with further convergence of the activities of traditional offline travel agents, tour operators and direct suppliers. The Group expects to continue to benefit from its broad geographic presence and its balanced weight across major European markets. The Group expects further cost savings to result from the synergies brought about through rationalisation of platforms and partners, as well as improvement in conversion ratios as a result of more efficient booking engines, and a subsequent reduction in the marketing cost per booking. The Group is planning to move to a unified back office function, including finance systems. As a result, it is expected that Opodo will see increases in productivity and decreases in costs.
Research and development activities The Group’s research and development activities principally relate to the development of its website operating platform and related back office systems. Research and developments costs for the Group of e2.6 million (2008—e3.3 million) have been expensed in the year. At 31 December 2009, capitalised development costs are now fully amortised.
Donations The Group made no charitable or political donations during the year ended 31 December 2009 (2008—enil).
Directors and their interests The directors during the year were as follows: P Cher´ eque` J Laforgue L Maroto None of the directors has any interest in the shares of any group company that are required to be disclosed in accordance with the Companies Act 2006.
Directors’ indemnities The Company has made qualifying third-party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.
F-355 Employees The Group values highly the contribution made to its business by its employees across all areas of its operations. The average number of persons employed by the Group during the year was 370 (2008: 348). In considering applications for employment from disabled people, the Group seeks to ensure that full and fair consideration is given to the abilities and aptitudes of the applicant against the requirements of the job for which he or she has applied. Employees who become temporarily or permanently disabled are given individual consideration, and where possible equal opportunities for training, career development and promotions are given to disabled persons. Within the bounds of commercial confidentiality, information is disseminated to all levels of staff about matters that affect the progress of the Group and are of interest and concern to them as employees. The Group also encourages employees, where relevant, to meet on a regular basis to discuss matters affecting them.
Auditors Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.
Disclosure of information to auditors Each of the persons who is a director at the date of approval of this annual report confirms that: • so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware, and • the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006. Approved by the Board of Directors and signed on behalf of the Board.
J Laforgue Director 25 JUNE 2010
F-356 OPODO LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and have also elected to prepare financial statements for the company in accordance with IFRSs. The financial statements are required by law to be properly prepared in accordance with IFRSs as adopted by the European Union and the Companies Act 2006. International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. Directors are also required to: • properly select and apply accounting policies, • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information, • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance, and • make an assessment of the company’s ability to continue as a going concern. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company, for safeguarding the assets of the company, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a directors’ report which complies with the requirements of the Companies Act 2006.
F-357 OPODO LIMITED INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF OPODO LIMITED
We have audited the group and parent company financial statements (the ‘‘financial statements’’) of Opodo Limited for the year ended 31 December 2009 which comprise the group and parent company income statements, the group and parent company statements of changes in equity, the group and parent company balance sheets, the group and parent company cash flow statements, and the related notes 1 to 37. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of whether the accounting policies are appropriate to the group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed, the reasonableness of significant accounting estimates made by the directors, and the overall presentation of the financial statements.
Opinion on financial statements In our opinion: • the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2009 and of the group’s and the parent company’s profit for the year then ended, • the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union, and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us, or
F-358 OPODO LIMITED INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF OPODO LIMITED
• the parent company financial statements are not in agreement with the accounting records and returns, or • certain disclosures of directors remuneration specified by law are not made, or • we have not received all the information and explanations we require for our audit.
H Shekle (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, United Kingdom 25 June 2010
F-359 OPODO LIMITED CONSOLIDATED INCOME STATEMENT Year ended 31 December 2009
Notes 2009 2008 g’000 g’000 Continuing operations Revenue ...... 3 103,112 91,117 Cost of sales ...... (25,785) (21,191) Gross profit ...... 77,327 69,926 Selling, general and administrative expenses ...... (52,829) (59,823) Operating profit ...... 4 24,498 10,103 Finance income ...... 5 377 852 Finance costs ...... 5 (480) (812) Profit before tax ...... 24,395 10,143 Tax...... 6 6,244 20 Profit for the year attributable to equity holders of the parent .... 30,639 10,163
F-360 OPODO LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended 31 December 2009
2009 2008 g’000 g’000 Profit for the year attributable to equity shareholders ...... 30,639 10,163 Translation of foreign operations ...... 106 (1,114) Total comprehensive income for the year ...... 30,745 9,049
F-361 OPODO LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2009
Cumulative Share Share Retained translation Other capital premium earnings adjustments reserves Total g’000 g’000 g’000 g’000 g’000 g’000 Balance as of 1 January 2008 ...... 275,113 88,846 (361,818) (99) (30,441) (28,399) Total comprehensive income for the year ..... — — 10,163 (1,114) — 9,049 Balance as of 31 December 2008 .... 275,113 88,846 (351,655) (1,213) (30,441) (19,350) Total comprehensive income for the year ..... — — 30,639 106 — 30,745 Balance as of 31 December 2009 .... 275,113 88,846 (321,016) (1,107) (30,441) 11,395
F-362 OPODO LIMITED CONSOLIDATED BALANCE SHEET 31 December 2009
Notes 2009 2008 g’000 g’000 Non-current assets Goodwill ...... — — Other intangible assets ...... 7 484 690 Property, plant and equipment ...... 8 686 831 Deferred tax asset ...... 6 6,400 — 7,570 1,521 Current assets Trade and other receivables ...... 10 70,472 39,275 Cash and cash equivalents ...... 11 13,862 9,273 Restricted cash deposits ...... 11 4,089 2,626 Tax receivables ...... 203 — 88,626 51,174 Total assets ...... 96,196 52,695 Current liabilities Trade and other payables ...... 12 84,801 71,897 Tax liabilities ...... — 148 Short-term loans from parent company ...... 11 — — Total liabilities ...... 84,801 72,045 Net current assets/(liabilities) ...... 3,825 (20,871) Net assets/(liabilities) ...... 11,395 (19,350) Equity Called up share capital ...... 16 275,113 275,113 Share premium account ...... 16 88,846 88,846 Translation reserve ...... 18 (1,107) (1,213) Other reserves ...... 17 (30,441) (30,441) Retained losses ...... 19 (321,016) (351,655) Equity attributable to equity holders of the parent ...... 11,395 (19,350)
The financial statements of Opodo Limited, registered number 4051797, were approved by the Board of Directors and authorised for issue on 25 June 2010. Signed on behalf of the Board of Directors.
J Laforgue Director
F-363 OPODO LIMITED CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2009
2009 2008 g’000 g’000 Cash from operating activities Operating profit ...... 24,498 10,103 Adjustments for Depreciation of property, plant and equipment ...... 444 806 Amortisation of intangible assets ...... 386 1,284 Amortisation of deferred rent ...... (366) (174) Loss on disposal of intangible assets ...... 6 295 Loss on disposal of property, plant and equipment ...... 12 30 Operating cash flows before movements in working capital ...... 24,980 12,344 Trade and other receivables ...... (31,197) (18,400) Trade and other payables ...... 12,665 13,970 Cash from operating activities before tax ...... 6,448 7,914 Taxes paid ...... (292) (97) Cash from operating activities after tax ...... 6,156 7,817 Cash flows from investing activities (Increase)/ decrease in restricted cash deposits ...... (1,463) 1,031 Purchases of property, plant and equipment ...... (307) (250) Interest received ...... 377 852 Expenditure on intangible assets ...... (172) (669) Net cash (used in)/from investing activities ...... (1,565) 964 Cash flows used in financing activities Borrowing from parent company ...... — (12,110) Interest paid and other financial expenses ...... (91) (599) Net cash used in financing activities—continuing operations ...... (91) (12,709) Net increase/(decrease) in cash and cash equivalents ...... 4,500 (3,928) Cash and cash equivalents at beginning of year ...... 9,273 14,267 Effect of foreign exchange rate changes ...... 89 (1,066) Cash and cash equivalents at end of year ...... 13,862 9,273
F-364 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended 31 December 2009
1. Statement of compliance and going concern The financial statements of Opodo Limited for the year ended 31 December 2009 were authorised for issue by the Board of the Directors on 25 June 2010 and the balance sheets were signed on the Board’s behalf by J. Laforgue. Opodo Limited is a private limited company incorporated in Great Britain under the Companies Act and registered in England and Wales The registered office is given on page 1, and its principal activities are listed on page 2.
Statement of compliance The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulations.
Going concern The Group’s business activities, together with factors likely to affect its future development, performance and financial position, and commentary on the Group’s financial results, its cash flows, liquidity requirements and borrowing facilities are set out on pages 2 to 6 and elsewhere within the financial statements, along with a summary of the Group’s principal risks and uncertainties. In addition, note 11 to the financial statements includes the Group’s policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk. The financial statements at 31 December 2009 show that the Group generated a profit of e30.6 million (2008 profit of e10.2 million) with cash generated from operating activities of e6.2 million (2008 e7.8 million). At 31 December 2009 the Group was in a net asset position of e11.4 million (2008 net liabilities e19.4 million) with net current assets of e3.9 million (2008 net liabilities e20.9 million). At 31 December 2009, the Group has available undrawn borrowing facilities of e24.7 million, in the form of a revolving credit facility from its parent company Amadeus IT Group S.A. to enable it to meet future operating requirements, if necessary (see note 11 for further details). Together with the available facility, the company’s forecasts and projections, taking account of reasonably possible changes in trading performance, indicate that the Group has sufficient funding to operate within the level of its available facilities for the foreseeable future. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. Based on the information set out above the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing their report and financial statements.
2. Significant accounting policies The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2009. In the current year, the following new and revised accounting standards and interpretations have been adopted.
(1) IAS l (revised 2007) Presentation of Financial Statements In September 2007, the IASB issued a revised version of IAS 1 ‘‘Presentation of Financial Statements’’ which requires separate presentation of owner and non-owner changes in equity by introducing the statement of comprehensive income. Additionally, whenever there is a restatement or reclassification, an additional balance sheet, as at the beginning of the earliest period presented,
F-365 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) will be required to be published. There was no effect on the Group or Company’s reported income or net assets as a result of adoption of this revised standard. Also in the current year, the following new and revised accounting standards and interpretations have been adopted but have not had any significant impact on the amounts reported in these financial statements:
IFRS 2 (amended) ...... Share-based Payment—Vesting Conditions and Cancellations IAS 23 (revised 2007) ...... Borrowing Costs IAS 32 (amended)/IAS 1 (amended) ...... Puttable Financial Instruments and Obligations Arising on Liquidation Amendment to IAS 38 ...... Intangible Assets IAS 39 (amended) ...... Eligible Hedged Items—Embedded Derivatives IAS 39/IFRS 7 Amendment ...... Reclassifications of Financial Assets IAS 39/IFRS 7 Amendment ...... Disclosures on Liquidity Risk and Fair Value Measurement Amendment to IFRIC 9 ...... Reassessment of Embedded Derivatives IFRIC 12 ...... Service Concession Arrangements IFRIC 15 ...... Agreements for the Construction of Real Estate IFRIC 16 ...... Hedges of a Net Investment in a Foreign Operation Improvements to IFRSs (May 2008) IFRIC 18 ...... Transfer of Assets from Customers
Basis of accounting The financial statements have been prepared on the historical cost basis, except for the revaluation of certain assets and liabilities which are measured at fair value in accordance with applicable IFRSs. The principal accounting policies adopted are set out below.
(a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to being the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
(b) Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision
F-366 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the Critical judgements, apart from those involving estimates (which are dealt with separately below) that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Revenue recognition When deciding the most appropriate basis for presenting revenue and cost of sales, both the legal form and the substance of the agreement between the Group and its business partners are reviewed to determine each party’s respective role in the transaction. Where the Group’s role in a transaction is that of principal, revenue is recognised on a gross basis. The revenue comprises the gross value of the transaction billed to the customer, net of VAT, cancellations and other associated taxes, with any related expenditure charged as a cost of sale. Where the Group’s role in a transaction is that of a disclosed agent, revenue is recognised on a net basis, with revenue representing the margin earned.
Estimation of useful economic lives of fixed assets The economic life used to amortise intangible fixed assets and depreciate property, plant and equipment relates to the future performance of the assets in question and management’s judgement of the period over which the economic benefit will be derived from the asset. As at 31 December 2009, the amount of property, plant and equipment included in the Group and Company balance sheets was e0.7 million and e0.4 million respectively (2008: e0.8 million and e0.6 million). These assets are depreciated over periods ranging between four and five years. As at 31 December 2009, the amount of intangible fixed assets included in the Group and Company balance sheets was e0.5 million and e0.2 million respectively (2008: e0.7 million and e0.4 million)
Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Recoverability of investments in subsidiaries (Company only) Determining the recoverability of investments in subsidiaries requires estimation as to whether the investment could be realised for consideration at or in excess of the carrying value. In making such estimations, management has regard to the value in use calculations of those investments. As at 31 December 2009, the investments in the company balance sheet totalled e58.8 million (2008: e58.2 million) In the year ended 31 December 2009 an impairment charge of enil (2008: enil) has been recorded against the carrying value of investments.
Estimating the cost of packaged holidays Where Group companies act as principal in a transaction and sell complete packaged holidays to customers, the cost of individual components of the package are estimated and accrued for in the Group accounts based on the estimated cost of individual components (predominantly flights and accommodation). Where the Group companies resell packages provided by a third party supplier the estimated commissions receivable from that supplier are accrued for.
F-367 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) Deferred tax The recognition of deferred tax assets requires judgement as to future revenue and profits and the jurisdictions in which they arise.
(c) Business combinations Business combinations are accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Group includes its best estimate of the consideration payable where payment is probable and it can be measured reliably. Any subsequent adjustments to the initial estimate are accounted for as an adjustment to the cost of the business combination Deferred consideration is discounted to its present value where the impact of discounting is material. Any excess of the cost of acquisition over the net fair values of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill. Where businesses are transferred from entities under common control, the Group does not consider it appropriate to record the transferred assets and liabilities at fair value at the date of transfer or to recognise goodwill on such transactions as no ‘acquisition’ has occurred. Consequently the Group accounts for these transactions by recording the net assets acquired at their carrying values immediately prior to the transfer from the entity under common control. The difference between consideration provided and the net assets acquired is presented as an adjustment against reserves.
(d) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset at cost and is not amortised, but is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is recognised immediately in the income statement and is not subsequently reversed. For the purposes of impairment testing, any goodwill acquired is allocated to each of the Group’s cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is first allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
F-368 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of VAT, cancellations and other associated taxes.
Commission Where the Group acts as an agent and does not take ownership of the products being sold, revenue represents commissions earned. Such revenue comprises passenger ticket sales in respect of flights, hotels, car hire, package holidays and insurance. Revenue is recognised on the date of departure except for insurance which is recognised on booking as the cover commences from that date.
Booking fees Where the Group acts as an agent and issues or amends tickets to customers, revenues represent fees earned. Such revenue comprises fees on ticket sales of flights Revenue is recognised at the date of ticketing.
Incentive income Where the Group acts as an agent and receives commissions, additional income may accrue to the Group based on the achievement of certain gross sales values over a specified period. The Group accrues for such income where it is considered probable that the gross sales values will be met and the amount to be received is estimatable. Where it is probable that the gross sales value will be met, revenue is recognised based on the percentage of gross sales value achieved by the reporting date.
Advertising Revenue from advertising is recognised over the period to which it relates.
Finance income Finance income is recognised on a time proportion basis by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
(f) Leasing Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
(g) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in euros, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
F-369 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) In preparing the financial statements of the individual companies, transactions in currencies other than the functional currency of the entity involved in the transaction are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are not re-translated Gains and losses arising on retranslation are included in net profit or loss for the period. On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
(h) Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
(i) Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
F-370 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(j) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight-line method, on the following bases:
Fixtures and fittings ...... 20% Computer equipment ...... 25% The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
(k) Internally-generated intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group’s development of its website operating platform and related back office systems is recognised only if all of the following conditions are met: • an asset is created that can be identified (such as software and new processes), • it is probable that the asset created will generate future economic benefits, and • the development cost of the asset can be measured reliably. Internally-generated intangible assets, categorised as software development in notes 7 and 26, are amortised on a straight-line basis over their estimated useful lives. The useful economic life of the intangible assets range between two and five years. Where the internally generated intangible asset is not yet ready for use, it is tested for impairment at least annually by comparing its carrying value with its recoverable amount. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
(l) Other intangible assets Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets with a finite life are amortised on a straight-line basis over their expected useful lives, as follows:
Software licences ...... 33% The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
F-371 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) (m) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
(n) Government grants Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met.
(o) Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets Financial assets are initially recorded at fair value, net of transaction costs Investments in subsidiaries are recorded at cost. All the Group’s financial assets are classified as ‘loans and receivables’, reflecting the nature and purpose of the financial assets, determined at the time of initial recognition.
Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
F-372 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate to default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term deposits and other short-term highly liquid investments that are readily convertible to cash and are subject to an insignificant risk of changes in value.
Derecognition of financial assets The Group derecognises a financial asset only where the contractual rights to the cash flows from the asset expire, or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial guarantee contract liabilities Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognised, less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out above.
F-373 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
2. Significant accounting policies (Continued) Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
(p) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
(q) Related parties The Group considers as its related parties its significant shareholders and subsidiaries, plus key management personnel and members of the Board of Directors as well as their close family members.
(r) New standards and interpretations not applied At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU).
IFRS for Small and Medium Sized Entities IFRS 1 ...... Additional Exemptions for First-Time Adopters IFRS 2 ...... Group Cash-settled Share-based Payment Transactions IFRS 3 (revised 2008) ...... Business Combinations IAS 27 (revised 2008) ...... Consolidated and Separate Financial Statements Amendment to IAS 24 ...... Related Party Disclosures—State-controlled Entities and the Definition of a Related Party Amendment to IAS 32 ...... Classification of Rights Issues Amendment to IAS 39 ...... Financial Instruments Recognition and Measurement—Exposures Qualifying for Hedge Accounting Amendment to IFRIC9 and IAS 39 ...... Embedded Derivatives IFRS 9 ...... Financial Instruments Amendment to IFRIC14 ...... Prepayments on a Minimum Funding Requirement IFRIC 17 ...... Distribution of Non-cash Assets to Owners IFRIC 19 ...... Extinguishing Financial Liabilities with Equity Instruments Improvements to IFRSs (April 2009) The directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application, other than in respect of the additional disclosures requirements of IFRS 9, or should the Group undertake a transaction that falls within the scope of the business combinations standard.
F-374 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
3. Revenue An analysis of the Group’s revenue is as follows:
2009 2008 g’000 g’000 Continuing operations Commission ...... 69,349 65,570 Incentive income ...... 21,494 18,412 Other revenues ...... 12,269 7,135 Revenue ...... 103,112 91,117 Finance income ...... 377 852 103,489 91,969
All sales are within Europe and the directors do not consider the markets in Europe in which the Group operates to be significantly different. Consequently no geographical segmentation has been provided.
4. Profit for the year Selling, general and administrative expenses (‘‘SG & A’’) comprise infrastructure costs, marketing and business development and general and administrative costs. Infrastructure costs include IT expenses incurred by the Group to manage and operate the online travel websites. Costs incurred in developing the websites, which meet the criteria for recognition under IFRS were capitalised as intangible assets as detailed in note 7. Costs incurred that do not meet the recognition criteria are expensed as incurred. Marketing and promotional costs include all brand, sales and site activity and are expensed at the time the cost is incurred. Profit for the year is stated after charging/(crediting):
2009 2008 g’000 g’000 Net foreign exchange losses/(gains) ...... 192 (2,933) Depreciation (Note 8) ...... 444 806 Amortisation of intangible assets (Note 7) Internally generated asset amortisation—included in SG & A ...... 37 851 Purchased software amortisation—included in SG & A ...... 349 433 Amortisation of rent free period in respect of UK property ...... (366) (174) R&D costs expensed ...... 2,643 3,266 Restructuring and redundancy costs ...... 2 243 Staff costs ...... 17,900 19,948
2009 2008 g’000 g’000 Staff costs Wages and salaries ...... 14,148 15,975 Social security costs ...... 3,044 3,182 Pension costs ...... 708 791 17,900 19,948
F-375 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
4. Profit for the year (Continued) The average monthly number of employees (including executive directors) of the continuing operations of the Group during the year was 370:
2009 2008 No. No. Managers ...... 6 6 Staff ...... 364 342 370 348
Directors’ remuneration In the current year, the directors of the Company were remunerated for their services by other companies in the Amadeus IT Group S.A. group. It is not practicable to allocate the remuneration of the directors between the Group companies to which they provide services. The directors are not members of the Company’s defined contribution pension scheme and are not in receipt of any non-cash benefits or other retirement schemes. No company contributions were made to money purchase schemes for directors. The directors receive reimbursement for reasonable expenses. Refer to note 14(d) for disclosure information on key management compensation.
Auditors’ remuneration The analysis of auditors’ remuneration is as follows:
2009 2008 g’000 g’000 Fees payable to the company’s auditors for the 2009 audit of the Company’s annual accounts ...... 166 188 The audit of the company’s subsidiaries pursuant to legislation ...... 74 72 Total fees ...... 240 260
5. Finance income and finance costs
2009 2008 g’000 g’000 Finance income: loans and receivables Bank interest receivable and similar income ...... 92 362 Interest income on loans to parent company ...... 285 490 377 852 Finance costs: financial liabilities at amortised cost Bank overdrafts and similar expenses ...... (480) (651) Interest on loans from parent company ...... — (161) (480) (812)
F-376 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
6. Taxation Tax on loss on ordinary activities Tax (credited)/charged in the income statement 2009 2008 g’000 g’000 Current tax: ...... 156 (20) Deferred tax: Current year ...... (6,400) — (6,244) (20)
Reconciliation of the total tax charge The standard UK corporation tax rate for the year is 28% (2008: 28.5%). The tax on the profit on ordinary activities for the year is lower than the standard rate of corporation tax in the UK. A reconciliation showing the factors affecting the tax credit is shown below:
2009 2008 g’000 g’000 Profit before tax ...... 24,395 10,143 Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 28% (2008: 28.5%) ...... 6,831 2,891 Tax effect of expenses that are not deductible in determining taxable profit .... 4 11 Tax effect of revenues that are not assessable in determining taxable profit .... — — Transfer from unrecognised tax assets ...... (13,396) (3,336) Effect of different tax rates of subsidiaries operating in other jurisdictions ...... 317 414 Adjustments in respect of prior periods ...... — — Tax credit ...... (6,244) (20)
The directors have assessed that it is sufficiently probable that future taxable profits will arise in order to give recognition to a deferred tax asset of e6.4 million at 31 December 2009 (2008: enil). In addition, at the balance sheet date the Group has unrecognised deferred tax assets of e98 million (2008: e114 million) in respect of tax losses, accelerated capital allowances and other timing differences arising in the United Kingdom and in overseas companies that are available indefinitely in the United Kingdom and over various periods for the overseas companies for offset against future taxable profits.
Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior year:
Tax losses Total g’000 g’000 At 1 January 2009 ...... — — Credit to income ...... 6,400 6,400 Disposal of subsidiary ...... — — As 31 December 2009 ...... 6,400 6,400
F-377 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
6. Taxation (Continued) The following is the analysis of the deferred tax balances for financial reporting purposes
2009 2008 g’000 g’000 Deferred tax liabilities ...... — — Deferred tax assets ...... 6,400 — 6,400 —
7. Goodwill and intangible assets
Finite lived intangible assets Total other Software Purchased intangible Brands development software assets Goodwill g’000 g’000 g’000 g’000 g’000 Cost At 1 January 2008 ...... 443 13,575 10,033 24,051 3,073 Additions internal development . . — 157 — 157 — Additions purchased separately . . — — 512 512 — Eliminated on disposal of a subsidiary ...... — (295) — (295) — Foreign exchange movements . . . — (254) (58) (312) — At 31 December 2008 ...... 443 13,183 10,487 24,113 3,073 Additions internal development . . — 21 8 29 — Additions purchased separately . . — — 143 143 — Disposals ...... (443) (9,771) (9,079) (19,293) — Foreign exchange movements . . . — 102 24 126 — At 31 December 2009 ...... — 3,535 1,583 5,118 3,073 Accumulated amortisation and impairment At 1 January 2008 ...... 443 12,405 9,568 22,416 3,073 Charge for the year ...... — 851 433 1,284 — Foreign exchange movements . . . — (232) (45) (277) — At 31 December 2008 ...... 443 13,024 9,956 23,423 3,073 Charge for the year ...... — 37 349 386 — Disposals ...... (443) (9,771) (9,073) (19,287) — Foreign exchange movements . . . — 93 19 112 — At 31 December 2009 ...... — 3,383 1,251 4,634 3,073 Net book value At 31 December 2009 ...... — 152 332 484 — At 31 December 2008 ...... — 159 531 690 —
F-378 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
8. Property, plant and equipment
Fixtures Computer and equipment fittings Total g’000 g’000 g’000 Cost At 1 January 2008 ...... 4,271 1,908 6,179 Additions ...... 63 187 250 Disposals ...... (17) (176) (193) Foreign exchange movements ...... 269 (19) 250 At 31 December 2008 ...... 4,586 1,900 6,486 Additions ...... 179 128 307 Disposals ...... (4,071) (871) (4,942) Foreign exchange movements ...... 11 8 19 At 31 December 2009 ...... 705 1,165 1,870 Accumulated depreciation and impairment At 1 January 2008 ...... 3,443 1,307 4,750 Charge for the year ...... 602 204 806 Disposals ...... (18) (145) (163) Foreign exchange movements ...... 275 (13) 262 At 31 December 2008 ...... 4,302 1,353 5,655 Charge for the year ...... 210 234 444 Disposals ...... (4,025) (906) (4,931) Foreign exchange movements ...... 10 6 16 At 31 December 2009 ...... 497 687 1,184 Net book value At 31 December 2009 ...... 208 478 686 At 31 December 2008 ...... 284 547 831
At 31 December 2009 and 31 December 2008, the Group had no contractual commitments for the acquisition of property, plant and equipment.
9. Investments Details of the Company’s significant subsidiaries at 31 December 2009 are as follows:
Percentage holding of ordinary Country of Name of subsidiary share capital Principal activity Incorporation Opodo GmbH ...... 100% Marketing services Germany Travellink AB ...... 100% On-line travel agency Sweden Opodo Italia SRL ...... 100% On-line travel agency Italy Opodo S.A...... 100% On-line travel agency France Opodo S.L...... 100% Development services Spain
F-379 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
10. Trade and other receivables
2009 2008 g’000 g’000 Trade receivables ...... 11,826 9,484 Allowance for doubtful debts ...... (811) (679) 11,015 8,805 Loans to Group companies ...... 45,082 17,750 Amounts owed by Group companies ...... 4,520 3,504 VAT and other taxes receivable ...... 2,265 1,622 Prepayments and accrued income ...... 7,575 6,893 Other receivables ...... 15 701 70,472 39,275
The average credit period on trade receivables that are neither past due nor impaired is 30 days, no interest is charged on the receivables outstanding. The Group has provided for trade receivables based on estimated irrecoverable amounts, determined by reference to past default experience. Included in the Group’s trade receivables are debtors with a carrying amount of e0.2 million (2008 e0.3 million) which are past due at the reporting date for which the Group has not provided for as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 83 days (2008 90 days).
2009 2008 g’000 g’000 Ageing of past due but not impaired receivables 60-90 days ...... 52 1 90-180 days ...... 167 315 180+ days ...... — — Total ...... 219 316
Loans and receivables: Movement in the allowance for doubtful debts
2009 2008 g’000 g’000 Balance at beginning of the year ...... 679 2,107 Increase in impairment losses ...... 570 — Reversal of impairment losses ...... — — Amounts written off as uncollectible ...... (418) (1,428) Amounts recovered during the year ...... (20) — Balance at the end of the year ...... 811 679
In determining the recoverability of trade and other receivables the Group considers any change in the credit quality of the trade or other receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe there is no further credit provision required in excess of the allowance for doubtful debts.
F-380 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
10. Trade and other receivables (Continued) There are no allowances for credit losses against other financial assets. The directors consider that the carrying amount of trade and other receivables approximates their fair value.
11. Financial instruments Capital risk management The Group manages its capital to ensure that the entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent company, comprising issued capital, reserves and retained losses as disclosed in notes 16 to 20.
Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Categories of financial instruments
2009 2008 g’000 g’000 Loans and receivables Cash and cash equivalents ...... 13,862 9,273 Restricted cash deposits ...... 4,089 2,626 Trade and other receivables ...... 61,254 31,445 79,205 43,344 Assets not meeting the definition of a financial asset Trade and other receivables ...... 9,218 7,830 Tax receivables ...... 203 — Total current assets ...... 88,626 51,174 Financial liabilities at amortised cost Trade and other payables ...... 77,229 66,585 77,229 66,585 Current liabilities not meeting the definition of financial liabilities Tax liabilities ...... — 148 Trade and other payables ...... 7,572 5,312 Total current liabilities ...... 84,801 72,045
Financial risk management objectives The Group is exposed to financial risks, including interest rate risk, credit risk and foreign exchange rate risk. Risk and treasury management is governed by the Amadeus IT Group S.A.’s policies approved by its board of directors. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
F-381 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
11. Financial instruments (Continued) Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies Hence, exposures to exchange rate fluctuations arise. Foreign exchange exposure arises where the Group’s companies transact in a currency different from their functional currency. The carrying amount of the Group’s monetary assets and liabilities at the reporting date, denominated in a currency different to the functional currency of the entity in which such monetary assets and liabilities are held is as follows:
Assets Liabilities 2009 2008 2009 2008 g’000 g’000 g’000 g’000 Sterling ...... 12,172 6,598 12,993 8,952 US Dollar ...... 53 47 62 — Swedish Kroner ...... — — 2,146 2,024 Danish Kroner ...... 2,313 2,111 10,581 10,466 Norwegian Kroner ...... 3,562 1,791 10,663 9,129 The following table details the Group’s sensitivity to a 10 per cent change in euro against the respective foreign currencies. Ten per cent represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analyses of the Group’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and where euro strengthens against the respective currency.
2009 2008 g’000 g’000 Impact on profit or loss ...... 1,668 1,820
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk management Cash at bank earns interest at floating rates based on daily bank deposit rates As a result, material fluctuations in the market interest rate could have an impact on the Group’s financial results The interest rate exposure is not hedged. The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. At the reporting date, if interest rates had been 1% higher/lower and all other variables were held constant, the Group’s profit would decrease/increase by e180,000 (2008: decrease/increase by e119,000). This is mainly attributable to the Group’s exposure to interest rates on its cash balances. There is no material impact upon equity arising from interest rate changes.
F-382 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
11. Financial instruments (Continued) The Group’s sensitivity to interest rates increased during the current period due to the higher net cash position of the Company.
Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial assets that potentially subject the Company and its subsidiaries to concentration of credit risk consist principally of trade receivables. The Group’s trade receivables are derived from commissions due to it from business partners including airlines, car hire companies, travel insurance companies, hoteliers and hotel consolidators. The Group performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful from collection. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk:
Maximum credit risk:
Group 2009 2008 g’000 g’000 Cash and cash equivalents ...... 13,862 9,273 Restricted cash deposits ...... 4,089 2,626 Trade and other receivables ...... 60,704 31,445
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to; • making sales and extending credit terms to business partners and placing cash deposits with the Group’s parent undertaking. In these cases, the maximum exposure to credit risk is the carrying amount of the related financial assets.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining borrowing facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included later in this note is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. The following table details the Group’s remaining contractual maturity for its financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
2009 Less than 1 year g’000 Non-interest bearing liabilities ...... 77,229
F-383 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
11. Financial instruments (Continued)
2008 Less than 1 year g’000 Non-interest bearing liabilities ...... 66,585
Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.
Cash and short-term deposits
2009 2008 g’000 g’000 Cash at bank and in hand ...... 13,862 9,273
Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and short-term highly liquid deposits held with Amadeus. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are available upon request and earn interest based on EURIBOR minus 0.1%. The fair value of cash and cash equivalents is the same as its carrying value. For the purpose of the cash flow statements, cash and cash equivalents comprise the following at 31 December:
2009 2008 g’000 g’000 Cash at bank and in hand ...... 13,862 9,273
Restricted cash deposits Restricted cash deposits are in respect of cash guarantees given by the Company and its principal subsidiaries to IATA and a number of local governmental agencies to ensure compliance with the accreditation terms for each organisation. The total of these guarantees is e3.9 million (2008 e2.4 million). The required amount to be deposited is reviewed every year and is based on the Group’s financial results e0.2 million (2008 e0.2 million) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
Loan notes—Amadeus On 1 April 2003, 42,100,760 e1 unsecured convertible loan notes were issued in favour of Amadeus IT Group S.A. of Madrid, Spain, for a total consideration of e49,461,866. On 1 July 2004, 3,333,400 e1 additional convertible loan notes were issued for consideration of e3,333,400.
F-384 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
11. Financial instruments (Continued) The conversion rights attaching to the convertible loan notes were terminated with immediate effect from 1 July 2004 when 261,048,629 ordinary shares were issued to Amadeus IT Group S.A. On 30 November 2007, following the sale of Karavel, the unsecured convertible loan note instrument was terminated, and the full amount of e52,795,266 was repaid in full plus interest costs of e8,949,074. In return, and on the same date, Amadeus IT Group S.A. entered into an agreement with Opodo to provide a revolving credit facility to a maximum of the value of the loan notes plus interest (e61,744,340). The revolving credit facility bears interest at EURIBOR+2% and matures on the second anniversary of the First Repayment Date, which is defined as the earlier of 1 July 2010 or six months after the date on which the Company’s operating cash flow is determined by the Company’s auditors as having been positive for two out of the last three consecutive calendar quarters. This condition was satisfied at 30 June 2008, and consequently the facility was reduced to e49,395,472 at 30 December 2008 and to e24,697,736 at 30 December 2009. The remaining revolving credit facility, which is undrawn, expires on 30 December 2010.
Committed facilities As at 31 December 2009 the amount of undrawn borrowing facilities available for future operating activities and to settle capital commitments was e24,697,736 for the Group (2008: e49,395,472).
12. Trade and other payables
2009 2008 g’000 g’000 Trade payables ...... 52,295 54,085 Employee related accruals ...... 3,286 2,007 Other taxes and social security costs payable ...... 1,420 843 Amounts owed to Group companies ...... 546 2,732 Accruals and deferred income ...... 26,180 11,165 Other payables ...... 1,074 1,065 84,801 71,897
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days (2008— 30 days). For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the credit period. The directors consider that the carrying amount of trade payables approximates to their fair value.
F-385 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
13. Operating lease arrangements The Group had total commitments under non-cancellable operating leases as set out below:
Land and buildings Other 2009 2008 2009 2008 g’000 g’000 g’000 g’000 Operating leases which expire Within one year ...... 760 276 — — In the second to fifth years ...... 377 1,192 — — 1,137 1,468 — —
2009 2008 g’000 g’000 Minimum lease payments under operating leases charged to the income statement for the year ...... 777 1,293
Operating lease payments represent rentals payable by the Group for certain of its office properties. Other than as set out below, leases are negotiated for an average term of five years and rentals are fixed for an average of three years. During the prior year, the lease relating to the London head office was terminated in accordance with a break clause included in the original contract. A new lease was entered into which expires in April 2012, with a break clause which can be invoked in October 2010.
14. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in note 36.
Trading transactions The Company was established by a Joint Venture Agreement on 18 August 2000 between nine shareholders. These shareholders were Air France, Aer Lingus, Alitalia, Austrian Airways, British Airways, Lufthansa, Finnair, Iberia and KLM. On 8 January 2009, Amadeus IT Group S.A. purchased the shares owned by Air France, Alitalia, Austrian Airways, British Airways, Lufthansa, Finnair, Iberia and KLM. The remaining shareholders’ total holdings as at 31 December 2009 are set out below.
Number Number Number of ‘‘A’’ of ‘‘B’’ of ‘‘B’’ ordinary ordinary deferred g of % of shares of shares of shares of ordinary share- g0.1 each g0.1 each g0.9 each shares holding Amadeus IT Group S.A. .... 646,144,044 208,093,050 210,498,750 85,423,709 99 720% Aer Lingus ...... — 2,405,700 — 240,570 0 280% 646,144,044 210,498,750 210,498,750 85,664,279 100 00%
The nature of the related party relationship of the airline shareholders is that of a minority shareholder of Opodo Limited. The immediate controlling entity and parent company is Amadeus Global IT S A. WAM Acquisition S.A. is the ultimate controlling entity and parent company of Amadeus Global IT S.A. WAM Acquisition S.A. is owned by BC Partners, Cinven, Societ´ e´ Air France, Iberia L´ıneas Aereas´ de Espana˜ S.A. and Deutsche Lufthansa AG.
F-386 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
14. Related party transactions (Continued) The smallest group which prepares consolidated financial statements and of which the Company forms a part, is Amadeus IT Group S.A., which is incorporated in Spain. The largest group which prepares consolidated financial statements and of which the Company forms a part, is WAM Acquisition S.A., which is incorporated in Spain. Below is a summary of balances and transactions with related parties All transactions with related parties are carried out on an arm’s length basis.
(a) Revenue and amounts payable: shareholder airlines These primarily relate to commissions earned from selling tickets for flights on shareholder airlines. Total commissions earned by the Group from related parties for the years ended 31 December 2009 and 31 December 2008 are e42,366 and e1,176,106 respectively. In addition to this, at the year end, e697 (2008 e87,948) was outstanding. In addition, airline incentive revenue earned by the Group from related parties for the years ended 31 December 2009 and 31 December 2008 are enil and e1,025,382 respectively. The amounts outstanding are unsecured and will be settled in cash No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. In the Official Journal of the European Communities dated 20 November 2001 (see Notice pursuant to Article 19(3) of council regulation No 17—case Comp/38 006—Online Travel Portal 323/6) it was noted that the Company has declared that it is being managed separately and independently of its shareholder airlines and as such is free to enter into whatever contracts it wishes with airlines. In order to make this declaration, each shareholder airline of the Company has undertaken that it shall not enter into exclusive arrangements with Opodo relating to fares and product-related services. Therefore the Company receives no better terms (access to published and unpublished fares) than are available to other online travel agents from its shareholder airlines. In addition, the Company has undertaken that it will maintain in place various safeguards against the exchange of commercially sensitive information between shareholders. This includes: • no information relating to the contents of individual airline marketing agreements will be disclosed to Opodo’s directors or shareholders, • the shareholders will not have access to the information technology systems of Opodo nor to commercially sensitive information belonging to Opodo or other shareholders, and • Opodo will ensure the confidentiality of sensitive commercial information relating to its shareholders. These undertakings are required in order for the Company to operate in compliance with EC Competition Law.
(b) Trading transactions—Amadeus The Group was charged e2,877,621 and e2,108,900 for the years ended 31 December 2009 and 31 December 2008, respectively by Amadeus for charges in relation to intercompany trading and received e18,123,548 and e13,978,536 from the same. As at 31 December 2009 the total amount outstanding due to Amadeus was e545,699 (2008 e1,166,188) and the amount receivable from Amadeus in respect of these transactions was e4,520,265 (2008: e3,504,062).
F-387 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
14. Related party transactions (Continued) (c) Loans receivable and advances—Amadeus group companies Total interest earned by the Group from Amadeus IT Group S.A., which is a related party by virtue of its controlling shareholding, was e285,101 and e489,802 for the years ended 31 December 2009 and 31 December 2008, respectively. As at 31 December 2009 the total amount outstanding from Amadeus IT Group S.A. in respect of interest receivable was enil (2008: enil). Interest rates for these short-term deposits denominated in Euros ranged from 0.326% to 2.884% for the year ended 31 December 2009 and from 3 51% to 6.39% for the year ended 31 December 2008. In addition, the Group was charged enil (2008: e160,644) for interest on loan notes and other borrowings with Amadeus, and e384,492 (2008: 212,832) for finance costs on bonding and guarantees provided by Amadeus. The total accrual for interest outstanding as at 31 December 2009 was e388,856 (2008: e212,832).
Other related party transactions (d) Directors and key management compensation Directors’ remuneration is set out in note 4. The compensation received by top executive managers during the years ended 31 December 2009 and 31 December 2008 was as follows:
2009 2008 g’000 g’000 Cash compensation ...... 1,225 1,402 Compensation in kind ...... 162 202 Contributions to Pension Plan and Collective Life Insurance Policies ...... 173 135 Total ...... 1,560 1,739
There are no other transactions with directors and key management.
15. Retirement benefit schemes The Group participates in a defined contribution group scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. The total cost charged to the income statement was e708,052 (2008 e791,278) and represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2009 all contributions (2008: enil) due in respect of the current reporting period had been paid over to the schemes.
F-388 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
16. Share capital
2009 2008 g’000 g’000 Authorised: 925,012,500 Class A ordinary shares of e0.1 each ...... 92,501,250 92,501,250 210,498,750 Class B ordinary shares of e0.1 each ...... 21,049,875 21,049,875 210,498,750 Class B deferred shares of e0.9 each ...... 189,448,875 189,448,875 30,000,000 redeemable convertible shares of e1 each ...... 30,000,000 30,000,000 333,000,000 333,000,000 Issued and fully paid: 646,144,044 Class A ordinary shares of e0 1 each ...... 64,614,404 64,614,404 210,498,750 Class B ordinary shares of e0 1 each ...... 21,049,875 21,049,875 210,498,750 Class B deferred shares of e0 9 each ...... 189,448,875 189,448,875 275,113,154 275,113,154
Class A ordinary shares have full rights to dividends and to amounts receivable on winding-up The shares have full voting rights. Class B ordinary shares have full rights to dividends and to amounts receivable on winding up However, the shares have limited voting rights. Class B deferred shares have no rights to dividends or amounts receivable on winding up They have no voting rights.
Share premium account
2009 2008 g’000 g’000 Balance at 1 January and 31 December ...... 88,846 88,846
The share premium account is used to record the excess of the consideration received by the Company on issue of shares in excess of their par value. The share premium account may only be used in certain specific circumstances.
17. Other reserves
2009 2008 g’000 g’000 Balance at 1 January and 31 December ...... 30,441 30,441
The Group accounted for the transfer of assets and liabilities in 2005 by recording the net assets acquired at their carrying values immediately prior to the transfer from Amadeus IT Group S.A. as it was considered that no acquisition had occurred. The difference between the consideration provided and the net assets acquired is presented as an other reserve.
F-389 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
18. Translation reserve
2009 2008 g’000 g’000 Balance at 1 January ...... (1,213) (99) Exchange differences on retranslation of overseas operations ...... 106 (1,114) Balance at 31 December ...... (1,107) (1,213)
19. Retained losses
g’000 Balance at 1 January 2008 ...... (361,818) Profit for the year ...... 10,163 Balance at 31 December 2008 ...... (351,655) Profit for the year ...... 30,639 Balance at 31 December 2009 ...... (321,016)
20. Commitments and contingencies As required by industry regulators including IATA, the Group has trade bonds in place which are designed to protect consumers and airlines (IATA) in the event that an agent ceases trading In the event that the Group ceased trading, the restricted cash deposits would not be returned to the Group, but would be utilised to cover any outstanding liabilities. The level of bonding required is determined on an annual basis by the regulators with reference to historical and expected future trading During the year, bonding requirements were met by Amadeus IT Group S.A. At 31 December 2009, in order to maintain the Group’s various travel agency licences the Group had bank guarantees in place to travel agency regulators in the total amount of e36,523,959 (2008—e32,260,211). The amount of e3,859,357 (2008—e2,347,885) is covered by restricted cash deposits that are recorded in the balance sheet and the remaining e32,664,602 (2008— e29,912,326) is covered by a bank guarantee secured by Amadeus IT Group SA. The required amount to be deposited is reviewed every year and is based on the Group’s financial results e229,606 (2008—e219,758) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
F-390 OPODO LIMITED COMPANY INCOME STATEMENT Year ended 31 December 2009
Notes 2009 2008 g’000 g’000 Revenue ...... 22 54,389 47,429 Cost of sales ...... (11,807) (10,316) Gross profit ...... 42,582 37,113 Selling, general and administrative expenses ...... (24,427) (34,981) Operating profit ...... 23 18,155 2,132 Finance income ...... 24 293 538 Finance cost ...... 24 (822) (2,108) Profit before tax ...... 17,626 562 Tax...... 25 5,684 188 Profit attributable to equity holders of the parent ...... 23,310 750
All profits arise from continuing operations of the Company. There were no other gains and losses affecting comprehensive income other than as set out in the income statement presented above, and therefore a separate statement of comprehensive income has not been presented.
F-391 OPODO LIMITED COMPANY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2009
Share Share Retained capital premium losses Total g’000 g’000 g’000 g’000 Balance as of 1 January 2008 ...... 275,113 88,846 (349,698) 14,261 Total comprehensive income for the year ...... — — 750 750 Balance at 31 December 2008 ...... 275,113 88,846 (348,948) 15,011 Total comprehensive income for the year ...... — — 23,310 23,310 Balance at 31 December 2009 ...... 275,113 88,846 (325,638) 38,321
F-392 OPODO LIMITED COMPANY BALANCE SHEET 31 December 2009
Notes 2009 2008 g’000 g’000 Non-current assets Investments ...... 28 58,772 58,238 Intangible assets ...... 26 214 359 Property, plant and equipment ...... 27 434 619 Deferred tax asset ...... 5,795 — 65,215 59,216 Current assets Trade and other receivables ...... 30 56,487 28,741 Cash and cash equivalents ...... 29 2,005 3,187 Restricted cash deposits ...... 29 2,469 1,433 60,961 33,361 Total assets ...... 126,176 92,577 Current liabilities Trade and other payables ...... 31 87,855 77,566 Total liabilities ...... 87,855 77,566 Net current liabilities ...... (26,894) (44,205) Net assets ...... 38,321 15,011 Equity Share capital ...... 16 275,113 275,113 Share premium account ...... 16 88,846 88,846 Retained losses ...... 34 (325,638) (348,948) 38,321 15,011
The financial statements of Opodo Limited, registered number 4051797, were approved by the Board of Directors and authorised for issue on 25 June 2010. Signed on behalf of the Board of Directors.
J Laforgue Director
F-393 OPODO LIMITED COMPANY CASH FLOW STATEMENT Year ended 31 December 2009
2009 2008 g’000 g’000 Cash generated from operating activities Operating profit ...... 18,155 2,132 Adjustments for Depreciation of property, plant and equipment ...... 293 666 Amortisation of intangible assets ...... 288 1,221 Amortisation of deferred rent incentive ...... (366) (174) Loss on disposal of property, plant and equipment ...... 11 295 Operating cash flows before movements in working capital ...... 18,381 4,140 Trade and other receivables ...... (27,742) (11,175) Trade and other payables ...... 10,369 29,624 Cash generated from operating activities before tax ...... 1,008 22,589 Taxes (paid)/received ...... (111) 119 Net cash generated from operating activities after tax ...... 897 22,708 Cash flows from investing activities Movement in restricted cash deposits ...... (1,036) 483 Investments in subsidiaries ...... (551) (10,000) Return of capital from subsidiaries ...... 15 20 Purchases of property, plant and equipment ...... (120) (150) Interest received ...... 293 538 Expenditure on intangible assets ...... (143) (295) Net cash used in investing activities ...... (1,542) (9,404) Cash flows used in financing activities Borrowings from parent company ...... — (12,110) Interest paid and other financial expenses ...... (537) (1,945) Net cash used in financing activities ...... (537) (14,055) Net decrease in cash and cash equivalents ...... (1,182) (751) Cash and cash equivalents at beginning of year ...... 3,187 3,938 Cash and cash equivalents at end of year ...... 2,005 3,187
F-394 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
21. Significant accounting policies The separate financial statements of the company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements except as noted below. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
22. Revenue An analysis of the Company’s revenue is as follows:
2009 2008 g’000 g’000 Agency revenues ...... 35,075 37,038 Incentive income ...... 12,402 7,956 Licence revenues ...... 6,370 — Other revenues ...... 542 2,435 Revenue ...... 54,389 47,429 Interest revenue ...... 293 538 54,682 47,967
All sales are within Europe and the Directors do not consider the markets in Europe in which the Company operates to be significantly different Consequently no geographical segmentation has been provided.
23. Profit for the year Profit is stated after charging/(crediting):
2009 2008 g’000 g’000 Net foreign exchange losses/(gains) ...... 278 (1,357) Depreciation of tangible assets ...... 293 666 Amortisation of intangible assets Internally generated assets—included in S,G&A ...... — 850 Purchased software—included in S,G&A ...... 288 371 Amortisation of rent free period in relation to UK property ...... (366) (174) Redundancy and reorganisation costs ...... 2 243 R&D costs expensed ...... 2,643 3,266 Staff costs ...... 8,149 7,655
2009 2008 g’000 g’000 Staff costs Wages and salaries ...... 7,347 6,461 Social security costs ...... 718 997 Pension costs ...... 84 197 8,149 7,655
F-395 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
23. Profit for the year (Continued) The average monthly number of employees (including executive directors) during the year was:
2009 2008 No. No. Staff numbers Managers ...... 6 6 Staff ...... 208 211 214 217
24. Finance income and finance costs
2009 2008 g’000 g’000 Bank interest receivable and similar income ...... 6 48 Interest receivable on loans to parent company ...... 287 490 Total interest revenue: loans and receivables ...... 293 538 Bank overdrafts and similar expenses ...... (350) (616) Interest on loans from other group companies ...... (472) (1,492) Total finance costs: financial liabilities at amortised cost ...... (822) (2,108)
25. Tax Tax on profit on ordinary activities Tax (credited)/charged in the income statement
2009 2008 g’000 g’000 Current tax: ...... 110 (188) Deferred tax: Current year ...... (5,794) — (5,684) (188)
F-396 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
25. Tax (Continued) Reconciliation of the total tax credit UK corporation tax rate is 28% (2008: 28.5%) Factors affecting the tax credit for the year are as follows:
2009 2008 g’000 g’000 Profit on ordinary activities before tax ...... 17,626 562 Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 28% (2008—28 5%) ...... 4,935 160 Tax effect of expenses that are not deductible in determining taxable profit ...... 4 11 Transfer from unrecognised tax assets ...... (10,733) (156) Adjustments in respect of prior periods ...... 110 — Group relieved losses ...... — (203) Tax credit ...... (5,684) (188)
Deferred tax The following are the major deferred tax liabilities and assets recognised by the Company and movements thereon during the current and prior year:
Tax losses Total g’000 g’000 At 1 January 2009 ...... — — Credit to income ...... 5,794 5,794 Disposal of subsidiary ...... — — As 31 December 2009 ...... 5,794 5,794
The following is the analysis of the deferred tax balances for financial reporting purposes:
2009 2008 g’000 g’000 Deferred tax liabilities ...... — — Deferred tax assets ...... 5,794 — 5,794 —
The directors have assessed that it is sufficiently probable that future taxable profits will arise in order to give recognition to a deferred tax asset of e5.7 million at 31 December 2009 (2008: enil). In addition, at the balance sheet date the Company has unrecognised deferred tax assets of e85 million (2008: e99 million) in respect of tax losses, accelerated capital allowances and other timing differences arising in the United Kingdom that are available indefinitely for offset against future taxable profits.
F-397 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
26. Intangible assets
Finite lived intangible assets Software Purchased development software Total g’000 g’000 g’000 Cost At 1 January 2008 ...... 12,119 9,339 21,458 Additions internal development ...... — 296 296 Disposals ...... (295) — (295) At 31 December 2008 ...... 11,824 9,635 21,459 Additions purchased separately ...... — 143 143 Disposals ...... (9,771) (9,073) (18,844) At 31 December 2009 ...... 2,053 705 2,758 Accumulated amortisation and impairment At 1 January 2008 ...... 10,974 8,905 19,879 Charge for the year ...... 850 371 1,221 At 31 December 2008 ...... 11,824 9,276 21,100 Charge for the year ...... — 288 288 Disposals ...... (9,771) (9,073) (18,844) At 31 December 2009 ...... 2,053 491 2,544 Net book value At 31 December 2009 ...... — 214 214 At 31 December 2008 ...... — 359 359
F-398 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
27. Property, plant and equipment
Fixtures Computer and equipment fittings Total g’000 g’000 g’000 Cost At 1 January 2008 ...... 3,838 1,417 5,255 Additions ...... 5 145 150 At 31 December 2008 ...... 3,843 1,562 5,405 Additions ...... 76 44 120 Disposals ...... (3,566) (917) (4,483) At 31 December 2009 ...... 353 689 1,042 Accumulated depreciation and impairment At 1 January 2008 ...... 3,096 1,024 4,120 Charge for the year ...... 529 137 666 At 31 December 2008 ...... 3,625 1,161 4,786 Charge for the year ...... 156 137 293 Disposals ...... (3,566) (905) (4,471) At 31 December 2009 ...... 215 393 608 Net book value At 31 December 2009 ...... 138 296 434 At 31 December 2008 ...... 218 401 619
28. Investments
Shares in subsidiary undertakings g’000 Cost At 1 January 2008 ...... 39,758 Additions ...... 18,500 Dissolution of subsidiary undertakings ...... (20) At 31 December 2008 ...... 58,238 Additions ...... 551 Dissolution of subsidiary undertakings ...... (17) At 31 December 2009 ...... 58,772
The additions in 2008 of e18,500,000 relate to an additional equity subscription in Opodo S.A.S in France following the merger between Opodo S.A.R.L and Vivacances S.A., subsequently renamed Opodo S.A.S Additions in 2009 represent amounts previously included within inter- company receivables that have been capitalised in the period as part of the recapitalisation of Opodo Italia. All investments listed in note 9 are held by the company at 31 December 2009.
F-399 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
29. Financial instruments Capital risk management The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of cash and cash equivalents and equity attributable to equity holders of the parent company, comprising issued capital, reserves and retained earnings.
Categories of financial instruments
2009 2008 g’000 g’000 Loans and receivables: Cash and cash equivalents ...... 2,005 3,187 Restricted cash deposits ...... 2,469 1,433 Trade and other receivables ...... 52,334 25,214 56,808 29,834 Assets not meeting the definition of a financial asset: Trade and other receivables ...... 4,153 3,527 Total current assets ...... 60,961 33,361 Financial liabilities at amortised cost Trade and other payables ...... 83,483 74,554 83,483 74,554 Current liabilities not meeting the definition of financial liabilities: Trade and other payables ...... 4,372 3,012 Total current liabilities ...... 87,855 77,566
Financial risk management objectives The Company’s finance department monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposure by degree and magnitude of risks. These include market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Foreign currency risk management The Company undertakes certain transactions denominated in foreign currencies Hence, exposures to exchange rate fluctuations arise. Foreign exchange exposure arises where the Company transacts in a currency different from its functional currency.
F-400 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
29. Financial instruments (Continued) The carrying amount of the Company’s monetary assets and liabilities at the reporting date, denominated in currency different to the functional currency of the entity m which such monetary assets and liabilities are held is as follows.
Assets Liabilities 2009 2008 2009 2008 g’000 g’000 g’000 g’000 Sterling ...... 12,172 6,598 12,993 8,952 US Dollar ...... 53 47 62 — Swedish Kroner ...... — — 2,146 2,024 The following table details the Company’s sensitivity to a 10 per cent change in euro against the respective foreign currencies. Ten per cent represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analyses of the Company’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and where euro strengthens against the respective currency.
2009 2008 g’000 g’000 Impact on profit or loss ...... 271 394
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk management Cash at bank earns interest at floating rates based on daily bank deposit rates. As a result, material fluctuations in the market interest rate can have an impact on the Company’s financial results. The interest rate exposure is not hedged. The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 1 per cent change is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. At the reporting date, if interest rates had been 1% higher/lower and all other variables were held constant, the Company’s loss would increase/ decrease by e45,000 (2008: increase/decrease by e46,000). This is mainly attributable to the Company’s exposure to interest rates on its cash balances and variable rate borrowings. There is no material impact upon equity arising from interest rate changes. The Company’s sensitivity to interest rates has increased during the current period due to the increase in cash balances.
Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. Financial assets that potentially subject the Company to concentration of credit risk consist principally of trade receivables. The Company’s trade receivables are derived from commissions due to it from business partners including airlines, car hire companies, travel insurance companies, hoteliers and hotel consolidators. The Company performs ongoing credit evaluations of its
F-401 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
29. Financial instruments (Continued) customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful from collection. Credit risk associated with the Company’s cash and cash equivalents and restricted cash deposits is managed by only placing funds on deposit with internationally recognised banks with suitable credit ratings or with the Company’s parent company. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk.
Maximum credit risk:
2009 2008 g’000 g’000 Cash and cash equivalents ...... 2,005 3,187 Restricted cash deposits ...... 2,469 1,433 Trade and other receivables ...... 51,784 25,214
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to: • making sales and extending credit terms to business partners and placing cash deposits with banks and the Company’s parent undertaking. In these cases, the maximum exposure to credit risk is the carrying amount of the related financial assets. For cash resources, the Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent to investment grade or above. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Company defines counterparties as having similar characteristics if they are connected entities. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings or other Group companies.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities Included in this note is a description of additional undrawn facilities that the Company has at its disposal to further reduce liquidity risk.
F-402 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
29. Financial instruments (Continued) The following table details the Company’s remaining contractual maturity for its financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
2009 Less than 1 year g’000 Non-interest bearing liabilities ...... 83,483
2008 Less than 1 year g’000 Non-interest bearing liabilities ...... 74,554
Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.
Cash and short-term deposits 2009 2008 g’000 g’000 Cash at bank and in hand ...... 2,005 3,187
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and short-term highly liquid deposits held with Amadeus. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are available upon request and earn interest at EURIBOR minus 0.1%. The fair value of cash and cash equivalents is the same as its carrying value. For the purpose of the cash flow statement, cash and cash equivalents comprise the following at 31 December:
2009 2008 g’000 g’000 Cash at bank and in hand ...... 2,005 3,187
Restricted cash deposits Restricted cash deposits are in respect of rental deposits and cash guarantees given by the Company and its principal subsidiaries to IATA and a number of local governmental agencies to ensure compliance with the accreditation terms for each organisation. The total of these guarantees is e2,331,269 (2008: e1,301,717). In the event that the Company ceased trading, the restricted cash deposits would not be returned to the Company, but would be utilised to cover any outstanding liabilities.
F-403 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
29. Financial instruments (Continued) The amount deposited is reviewed every year and is based on the Company’s financial results e137,426 (2008: e131,437) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates fair value.
Loan notes—Amadeus On 1 April 2003, 42,100,760 e1 unsecured convertible loan notes were issued in favour of Amadeus IT Group S.A. of Madrid, Spain, for a total consideration of e49,461,866. On 1 July 2004, 3,333,400 e1 additional convertible loan notes were issued for consideration of e3,333,400. The conversion rights attaching to the convertible loan notes were terminated with immediate effect from 1 July 2004 when 261,048,629 ordinary shares were issued to Amadeus IT Group S.A. On 30 November 2007, following the sale of Karavel, the unsecured convertible loan note instrument was terminated, and the full amount of e52,795,266 was repaid in full plus interest costs of e8,949,074. In return, and on the same date, Amadeus IT Group S.A. entered into an agreement with Opodo to provide a revolving credit facility to a maximum of the value of the loan notes plus interest (e61,744,340). As at 30 June 2008, the Company was determined to have been operational cash flow breakeven for the past two quarters, therefore in accordance with the repayment timetable detailed below, the credit available to the company at 31 December 2009 is e24,697,736 (2008: e49,395,472).
Committed facilities As at 31 December 2009 the amount of undrawn borrowing facilities available for future operating activities and to settle capital commitments was e24,697,736 (2008: e49,395,472). Further details in respect of the borrowing facility are set out in Note 11.
30. Trade and other receivables
2009 2008 g’000 g’000 Trade receivables ...... 3,508 3,511 Allowance for doubtful debts ...... (51) (59) 3,457 3,452 Loans to group companies ...... 45,082 17,750 Amounts owed by group companies ...... 3,805 3,428 VAT and other taxes receivable ...... 297 421 Prepayments and accrued income ...... 3,845 3,687 Other receivables ...... 1 3 56,487 28,741
The average credit period granted on receivables for revenues is 60 days (2008: 60 days), no interest is charged on the receivables outstanding. The Company has provided for trade receivables based on estimated irrecoverable amounts, determined by reference to past default experience. Included in the Company’s trade receivables are debtors with a carrying value of e102,962 (2008: e316,000) which are past due at the reporting date for which the Company has not provided as there has not been a significant change in credit quality and the amounts are still considered
F-404 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
30. Trade and other receivables (Continued) recoverable. The Company does not hold any collateral over these balances. The average age of these receivables is 83 days (2008: 90 days).
2009 2008 g’000 g’000 Ageing of past due but not impaired receivables 60-90 days ...... 39 1 90-180 days ...... 64 315 Total ...... 103 316
2009 2008 g’000 g’000 Movement in the allowance for doubtful debts Balance at beginning of the period ...... 59 1,440 Increases in impairment ...... 430 — Amounts written off as uncollectable ...... (418) (1,381) Amounts recovered during the year ...... (20) — Balance at the end of the period ...... 51 59
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe there is no further credit provision required in excess of the allowance for doubtful debts. Other receivables have also been assessed in terms of creditworthiness and are considered to be recoverable No allowance for doubtful debts has been made on these balances. The directors consider that the carrying amount of trade and other receivables approximates their fair value.
31. Trade and other payables
2009 2008 g’000 g’000 Trade payables ...... 19,791 16,291 Employee related accruals ...... 1,556 705 Other taxes and social security costs payable ...... 162 184 Amounts owed to group companies ...... 61,334 51,641 Accruals and deferred income ...... 4,261 8,008 Other payables ...... 751 737 87,855 77,566
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days. For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
F-405 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
32. Operating lease arrangements The Company had total commitments under non-cancellable operating leases as set out below:
Land and buildings Other Company 2009 2008 2009 2008 g’000 g’000 g’000 g’000 Operating leases which expire Within one year ...... 309 267 — — In two to five years ...... 225 528 — — 534 795 — —
2009 2008 g’000 g’000 Minimum lease payments under operating leases charged to the income statement for the year ...... 196 805
Operating lease payments represent rentals payable by the Company for certain of its office properties. Other than as set out below, leases are negotiated for an average term of five years and rentals are fixed for an average of three years. During the prior year, the lease relating to the London head office was terminated in accordance with a break clause included in the original contract. A new lease was entered into which expires in April 2012, with a break clause which can be invoked in October 2010.
33. Retirement benefit schemes The Company participates in a defined contribution group scheme. The assets of the scheme are held separately from those of the Company in independently administered funds. The total cost charged to income of e83,872 (2008 e197,000) represents contributions payable to these schemes by the Company at rates specified in the rules of the plans. As at 31 December 2009, no contributions were due (2008—enil) in respect of the current reporting periods which had not been paid over to the schemes.
34. Retained losses
g’000 Balance at 1 January 2008 ...... (349,698) Net profit for the year ...... 750 Balance at 31 December 2008 ...... (348,948) Net profit for the year ...... 23,310 Balance at 31 December 2009 ...... (325,638)
35. Commitments and contingencies Refer to Note 22.
F-406 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
36. Related party transactions Below is a summary of balances and transactions with related parties All transactions with related parties are carried out on an arm’s length basis.
(a) Accounts receivables’ shareholder airlines The receivables are primarily for commission revenues earned from selling tickets for flights on shareholder airlines. As at 31 December 2009 the total amount outstanding from shareholder airlines was e697 (2008: e87,948). Total commissions earned by the Company from related parties for the years ended 31 December 2009 and 31 December 2008 are e42,366 and e1,176,106 respectively. This includes commission revenue from the tickets purchased from the shareholder airlines through third parties. In addition, airline incentive revenue earned by the Company from related parties for the years ended 31 December 2009 and 31 December 2008 are enil and e298,066 respectively. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
(b) Accounts payable: shareholder airlines The payables are primarily related to amounts collected by the Company as merchant of record on behalf of shareholder airlines. As at 31 December 2009 the total amount outstanding due to shareholder airlines was e60,906 (2008: e12,568,838). The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.
(c) Trading transactions—Amadeus The Company was charged e1,947,763 and e1,843,291 for the years ended 31 December 2009 and 31 December 2008 respectively by Amadeus for charges in relation to intercompany trading and received e14,339,294 and e6,217,359 from the same. As at 31 December 2009 the total amount outstanding due to Amadeus was e336,584 (2008: e773,535) and the amount receivable from Amadeus in respect of these transactions was e4,491,765 (2008 e2,931,018).
(d) Loans receivable and advances—Amadeus Total interest earned by the Company from Amadeus was e286,899 and e489,802 for the years ended 31 December 2009 and 31 December 2008, respectively. As at 31 December 2009 the total amount outstanding from Amadeus in respect of interest receivable was enil (2008 enil) Interest rates for these short-term deposits denominated in Euros ranged from 0.326% to 2.884% for the year ended 31 December 2009 and from 3.51% to 6.39% for the year ended 31 December 2008. In addition, the Company was charged e471,729 (2008: e1,492,045) for interest on intercompany cashpooling transfers, and e281,072 (2008: e163,221 for finance costs on bonding and guarantees provided by Amadeus). The total accrued at 31 December 2009 for such costs was e285,436 (2008 e163,221).
(e) Loans receivable and advances—subsidiaries There are no other loans receivable or advances with subsidiaries as at the balance sheet date.
F-407 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2009
36. Related party transactions (Continued) (f) Directors and key management compensation Directors’ remuneration is set out in note 4. The compensation received by key management of the Company during the years ended 31 December 2009 and 31 December 2008 was as follows:
2009 2008 g’000 g’000 Cash compensation ...... 685 790 Compensation in kind ...... 156 203 Contributions to Pension Plan and Collective Life Insurance Policies ...... 48 62 Total ...... 889 1,055
There are no other transactions with directors and key management.
F-408 Company Registration No. 4051797
OPODO LIMITED
REPORT AND FINANCIAL STATEMENTS
31 December 2008
F-409 OPODO LIMITED REPORT AND FINANCIAL STATEMENTS 2008
Officers and professional advisers ...... F-411 Directors’ report ...... F-412 Statement of directors’ responsibilities ...... F-417 Independent auditors’ report ...... F-418 Consolidated income statement ...... F-420 Consolidated statement of changes in equity ...... F-421 Consolidated balance sheet ...... F-422 Consolidated cash flow statement ...... F-423 Notes to the consolidated financial statements ...... F-424 Company income statement ...... F-452 Company statement of changes in equity ...... F-453 Company balance sheet ...... F-454 Company cash flow statement ...... F-455 Notes to the company financial statements ...... F-456
F-410 OPODO LIMITED REPORT AND FINANCIAL STATEMENTS 2008 OFFICERS AND PROFESSIONAL ADVISERS
Directors J A Tazon´ (resigned 1 January 2009) P Cher´ eque` J Laforgue L Maroto (appointed 1 January 2009)
Secretary G Faundez
Registered Office Waterfront Hammersmith Embankment Chancellors Road London W6 9RU
Bankers Barclays Bank PLC Deutsche Bank AG
Solicitors Rawlison Butler LLP London
Auditors Deloitte LLP Chartered Accountants London
F-411 OPODO LIMITED DIRECTORS’ REPORT The directors present their annual report and the audited financial statements for the year ended 31 December 2008.
Principal activity The principal activity of Opodo Limited (‘‘the Company’’) and its subsidiaries (‘‘the Group’’) continues to be the operation of online travel websites, providing travel agency services including the marketing and distribution of airline seats, hotel bookings, car hire and travel insurance. The Group operates websites in the United Kingdom, France, Belgium, Switzerland, Germany, Austria, Italy, Spain, Sweden, Norway, Denmark and Finland.
Review of developments During the year, the Group has undergone the second phase of the restructuring plan which commenced in the fourth quarter of 2006. During 2007, the Company refined and improved the new booking engine for air in the UK, which was successfully implemented during the current year in the main European markets and in Scandinavia, setting the fundamental cornerstone for technological unification across the Group. In parallel with this the Company decommissioned its existing hosting platform and moved hosting services to Amadeus IT in Erding, Germany. Together with the hosting used for France and Scandinavia, this will allow the Group to migrate all sites to a unified hosting platform in the coming months. Significant savings and quality improvements have been gained out of this move, and the Company has experienced a dramatic increase in stability and speed of response, crucial to the business. As a result of the improvement in the booking engine and the platform stability, the Group has experienced steady growth in market share across Europe, and a very important saving in marketing costs as better conversion rates drive a reduction in cost per booking, and therefore higher profitability. Also the platform hosting brought savings as the Group moved to more modern servers with higher capacity and lower cost. Part of the savings were reflected in 2008; however the main impact will be experienced during 2009 which will benefit from a full year of such savings. The Company moved during the year to smaller premises in the UK at a lower rental cost and which provide greater flexibility as a result of the shorter lease period. In France, notice was served to the former landlord to exit the existing lease, with a view to moving to lower cost premises. The Group has initiated actions to renegotiate all main contracts, where possible, in order to further reduce costs. During the year, the Group achieved two consecutive quarters of positive cash flow, which triggered a put option for shareholder airlines to sell their remaining stake in the Company to Amadeus IT Group S.A. (‘‘Amadeus’’), the Company’s parent undertaking. All of the airlines except Aer Lingus exercised their option, and an agreement was reached at the end of 2008 for Amadeus to acquire these shares. Subsequently, on 8 January 2009, the Company shareholding changed to reflect a 99.7% ownership by Amadeus and 0.3% by Aer Lingus. The year ended with a healthy growth in sales and the Group has increased its market share in Europe and the Group closed the year in a healthy cash position. The Group uses Booked Gross Sales Value as its Key Performance Indicator. This represents the total transaction value of all products sold. Under IFRS, net revenue recognisable represents only the revenue directly attributable to the Group. Booked Gross Sales Value in 2008 was £1,231 million, an increase of 26% on the prior year (2007—£976 million).
Results The Group prepares its results in euros. Group revenue was e91.1 million (2007—£89.1 million), an increase of 2.2%. The Group generated a profit from continuing operations of £10.2 million (2007—loss of e10.8 million), as a result of the full year effect of cost reduction exercises executed in 2007 and further measures
F-412 undertaken in 2008. The directors do not recommend a dividend for the year ended 31 December 2007 (2006—enil).
Financial position The balance sheet on page 13 of the financial statements shows the Group’s financial position at the end of the year. The net liabilities position of the Group has reduced from E28.4 million at 31 December 2007 to £19.4 million at 31 December 2008. Non-current assets have fallen from e3.1 million to e1.5 million, principally due to the amortisation of intangible assets of £1.3 million, depreciation of property, plant and equipment of e0.8 million, asset impairments of e0.3 million, offset by capital expenditure of £0.9 million. Current assets have risen from £38.9 million to £51.2 million, principally due to an increase in trade and other receivables from £20.9 million to £39.3 million. This is largly attributable to an intercompany receivable balance of e17.8 million that has resulted from monies advanced to Amadeus as a short-term loan. Current liabilities have risen from £70.1 million to £72 million. There are no longer any short- term loans from Amadeus; in the prior year, these amounted to e12.1 million. However trade and other payables have increased by £14.4 million, principally due to an increase in trade payables of £28.3 million, offset by a reduction in accruals and deferred income of £12.4 million. The Group had net cash of £9.3 million at 31 December 2008 (2007: net cash of e14.3 million). As noted above, short-term loans with Amadeus were fully repaid, significantly reducing the Group’s interest costs. The Group continues to manage its working capital by way of existing cash resources and short-term borrowings made available to it under a e49.4 million revolving credit facility from Amadeus, the terms of which are disclosed in note 11 to the financial statements.
Cash flow Net cash inflow for 2008 from continuing operating activities was e7.8 million, e9.3 million greater than 2007, largely as a result of improved profitability. Investing activities resulted in a net inflow of £1.0 million. This was significantly lower than the prior year inflow of e56.9 million which included an inflow of £62.2 million from the disposal of the Group’s subsidiary Karavel S.A. Financing cash outflows were £12.7 million arising from repayment of intercompany borrowings. This was lower than the outflow of e96.1 million in the prior year, which included full repayment of loan notes and interest thereon.
Capital structure Details of the authorised and issued share capital are shown in note 17. The company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the company’s shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the company’s share capital and all issued shares are fully paid. With regard to the appointment and replacement of directors, the company is governed by its Articles of Association, the Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders.
Principal risks and uncertainties The following factors may affect the Group’s operating results, financial condition and the value of the Company’s shares. The risk factors described below are those which the Directors believe are potentially significant, but this should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties.
F-413 Trading risks The trading performance of the Group may be affected by a number of factors outside its control, including: • wars or international unrest; • acts of terrorism in key tourist destinations or epidemics such as swine flu or the threat of either which may materially restrict international travel; • earthquakes or other natural disasters in key tourist destinations; • weather conditions, both in places where the Group’s customers live and in key tourist destinations; • general economic conditions in the Group’s key markets of the United Kingdom, France, Germany, the Nordic countries and Italy; and • additional security requirements affecting travel. These factors may affect the Group by reducing demand, as its potential customers choose not to, or become unable to, travel. Reductions in demand in an industry with capacity that in the short-term is fixed leads to overcapacity with associated pressure on margins, particularly where the Group acts as principal rather than agent. These factors may also affect booking patterns, as increased political and economic uncertainty may lead to an increased propensity for customers to book closer to departure, which as a result of relative inflexibility of capacity increases the risk that unsold holidays will have to be sold at significantly reduced margins or at a loss.
Competition In its principal markets, the Group faces competition from many sources including, but not limited to, other online travel agents, traditional offline travel agents, tour operators and direct suppliers (scheduled, charter and low cost airlines, hotels, car hire and insurance companies). Competitive pressures could affect the ability of the Group to achieve bookings at satisfactory margins.
Regulatory risks Throughout its operations, the Group requires regulatory licences and approvals. These regulatory requirements vary depending on the area of operation and the specific activity. Failure to continue to satisfy the necessary regulatory criteria (whether financial or operational) could result in the suspension, revocation or non-renewal of one or more necessary licence(s) which, in certain cases, depending on the particular licence or approval concerned, could result in the cessation of that operation.
Operational risks Operational risks, which are inherent in all business activities, include those which mainly result from a potential breakdown in individual business units of the Group’s control of its human, physical and operating resources. The potential financial or reputational loss arising from failures in internal controls, flaws or malfunctions in computer systems, and poor product design or delivery all fall within this category. In particular, the Group’s ability to generate revenue is dependent upon the continued availability of its websites to customers and any interruption to service may lead to lost revenues.
Working capital management The Group’s working capital requires careful management. This involves the management of the timing and amount of significant payments and receipts. The Group has limited ability to influence the timing of these cash flows. Payments generally arise from commitments which are contracted in advance or which are necessary to enable the business to continue operating. Receipts are dependent on the quantum and timing of sales to customers. The Group manages this risk by maintaining significant undrawn working capital facilities which are shown in note 11 to the accounts. There can be no assurance, however, that these facilities will be sufficient and, if not, it would be necessary to arrange additional facilities, if possible.
F-414 Financial risk management policies and objectives Use of financial instruments The Group’s policy is to have no speculative trading in financial instruments. During the year, the Group has not entered into any material derivative financial instruments for hedging purposes. See note 11 to the financial statements. The other main risks faced by the Group are interest rate risk, liquidity risk, and foreign exchange risk.
(a) Interest rate risk The Group’s borrowings bear interest at EURIBOR plus a margin. The Group does not hedge against the risk of movements in interest rates as the principal borrowing is with its parent company, Amadeus IT Group S.A. Similarly cash deposits bear interest at floating rates.
(b) Liquidity risk The Group’s policy is to maintain flexibility with respect to its liquidity position through the use of short-term or overnight deposits of its surplus cash balances with its parent company, Amadeus IT Group S.A. The directors assessment of going concern, which has been applied in the preparation of the accompanying financial statements, is provided in note 1 to the financial statements.
(c) Foreign exchange risk The Group has subsidiaries that operate in countries which do not have a Euro functional currency. These subsidiaries operate in Sweden, Norway, and Denmark. As a result, the Group is subject to translation risk on consolidation of these subsidiaries. In addition, the Group’s UK operations receive income and pay certain expenses in sterling. As a result, the Group is subject to translation risk on these transactions and translation of resulting monetary assets and liabilities. The Group does not enter into any hedging transactions in respect of such foreign exchange risks.
Future developments The Directors anticipate that the shift from traditional booking methods to the internet will continue in the forthcoming year with further convergence of the activities of traditional offline travel agents, tour operators and direct suppliers. The Group expects to continue to benefit from its broad geographic presence and its balanced weight across major European markets. The Group expects further cost savings to result from the synergies brought about through rationalisation of platforms and partners, as well as improvement in conversion ratios as a result of more efficient booking engines, and a subsequent reduction in the marketing cost per booking. The Group is planning to move to a unified hosting platform in the coming months and is seeking to further integrate back office functions, including finance systems. As a result, it is expected that Opodo will see increases in productivity and decreases in costs.
Research and development activities The Group’s research and development activities principally relate to the development of its website operating platform and related back office systems. Research and developments costs for the Group of e3.3 million (2007—e2.2 million) have been expensed in the year. At 31 December 2008, capitalised development costs are now fully amortised.
Donations The Group made no charitable or political donations during the year ended 31 December 2008 (2007—enil).
F-415 Directors and their interests The Directors during the year were as follows: J A Tazon´ (resigned 1 January 2009) P Cher´ eque` J Laforgue L Maroto (appointed 1 January 2009) None of the directors has any interest in the shares of any group company that are required to be disclosed in accordance with the Companies Act 1985.
Directors’ indemnities The Company has made qualifying third-party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the date of this report.
Employees The Group values highly the contribution made to its business by its employees across all areas of its operations. The average number of persons employed by the Group during the year was 348 (2007: 347). In considering applications for employment from disabled people, the Group seeks to ensure that full and fair consideration is given to the abilities and aptitudes of the applicant against the requirements of the job for which he or she has applied. Employees who become temporarily or permanently disabled are given individual consideration, and where possible equal opportunities for training, career development and promotions are given to disabled persons. Within the bounds of commercial confidentiality, information is disseminated to all levels of staff about matters that affect the progress of the Group and are of interest and concern to them as employees. The Group also encourages employees, where relevant, to meet on a regular basis to discuss matters affecting them.
Auditors Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.
Disclosure of information to auditors Each of the persons who is a director at the date of approval of this annual report confirms that: • so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware; and • the director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of s234ZA of the Companies Act 1985. Approved by the Board of Directors and signed on behalf of the Board
Luis Maroto Director 28 July 2009
F-416 OPODO LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements are required by law to be properly prepared in accordance with IFRS as adopted by the European Union and the Companies Act 1985. International Accounting Standard 1 requires that financial statements present fairly for each financial year the company’s financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, directors are also required to: • properly select and apply accounting policies; • present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; • provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and • make an assessment of the company’s ability to continue as a going concern. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
F-417 OPODO LIMITED INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF OPODO LIMITED
We have audited the group and parent company financial statements (the ‘‘financial statements’’) of Opodo Limited for the year ended 31 December 2008 which comprise the group and company income statements, the group and company statements of changes in equity, the group and company balance sheets, the group and company cash flow statements, and the related notes 1 to 39. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union, are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read the Directors’ Report, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements within it.
Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion In our opinion: • the group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2008 and of its profit for the year then ended;
F-418 OPODO LIMITED INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF OPODO LIMITED
• the parent company’s financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 December 2008 and of its profit for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • the information given in the Directors’ Report is consistent with the financial statements.
Deloitte LLP Chartered Accountants and Registered Auditors London, UK 29 July 2009
F-419 OPODO LIMITED CONSOLIDATED INCOME STATEMENT Year ended 31 December 2008
Notes 2008 2007 g’000 g’000 Continuing operations Revenue ...... 3 91,117 89,114 Cost of sales ...... (21,191) (25,192) Gross profit ...... 69,926 63,922 Selling, general and administrative expenses ...... (59,823) (71,256) Operating profit/(loss) ...... 4 10,103 (7,334) Finance income ...... 5 852 715 Finance costs ...... 5 (812) (4,362) Profit/(loss) before tax ...... 10,143 (10,981) Tax...... 6 20 223 Profit/(loss) for the year from continuing operations ...... 10,163 (10,758) Discontinued operations Profit for the year from discontinued operations ...... — 15,841 Profit for the year attributable to equity holders of the parent ..... 10,163 5,083
F-420 OPODO LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2008
Cumulative Share Share Retained translation Other capital premium earnings adjustments reserves Total g’000 g’000 g’000 g’000 g’000 g’000 Balance as of 1 January 2007 ...... 275,113 88,846 (366,901) (37) (30,441) (33,420) Net profit for the year ..... — — 5,083 — — 5,083 Translation of foreign operations ...... — — — (62) — (62) Balance as of 31 December 2007 .... 275,113 88,846 (361,818) (99) (30,441) (28,399) Net profit for the year ..... — — 10,163 — — 10,163 Translation of foreign operations ...... — — — (1,114) — (1,114) Balance as of 31 December 2008 .... 275,113 88,846 (351,655) (1,213) (30,441) (19,350)
F-421 OPODO LIMITED CONSOLIDATED BALANCE SHEET 31 December 2008
Notes 2008 2007 g’000 g’000 Non-current assets Goodwill ...... — — Other intangible assets ...... 7 690 1,636 Property, plant and equipment ...... 8 831 1,429 Deferred tax asset ...... 6 — — 1,521 3,065 Current assets Trade and other receivables ...... 10 39,275 20,874 Cash and cash equivalents ...... 11 9,273 14,267 Restricted cash deposits ...... 11 2,626 3,657 Tax receivables ...... — 89 51,174 38,887 Total assets ...... 52,695 41,952 Current liabilities Trade and other payables ...... 12 71,897 57,477 Tax liabilities ...... 148 354 Short-term loans from parent company ...... 11 — 12,110 Provisions for liabilities ...... 13 — 152 72,045 70,093 Net current liabilities ...... (20,871) (31,206) Non-current liabilities Other financial liabilities ...... 11 — — Deferred tax liabilities ...... 6 — — Provisions for liabilities ...... 13 — 258 — 258 Total liabilities ...... 72,045 70,351 Net liabilities ...... (19,350) (28,399) Equity Called up share capital ...... 17 275,113 275,113 Share premium account ...... 18 88,846 88,846 Translation reserve ...... 20 (1,213) (99) Other reserves ...... 19 (30,441) (30,441) Retained losses ...... 21 (351,655) (361,818) Equity attributable to equity holders of the parent ...... (19,350) (28,399)
These financial statements were approved by the Board of Directors and authorised for issue on 28 July 2009. Signed on behalf of the Board of Directors
Luis Maroto Director
F-422 OPODO LIMITED CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2008
2008 2007 g’000 g’000 Cash from/(used in) operating activities Operating profit/(loss) ...... 10,103 (7,334) Adjustments for: Depreciation of property, plant and equipment ...... 806 1,174 Amortisation of intangible assets ...... 1,284 4,211 Amortisation of deferred rent ...... (174) (140) Impairment of intangible assets ...... 295 — Loss/(gain) on disposal of property, plant and equipment ...... 30 (73) Operating cash flows before movements in working capital ...... 12,344 (2,162) Trade and other receivables ...... (18,400) 9,347 Trade and other payables ...... 13,970 (8,665) Cash from/(used in) operating activities before tax ...... 7,914 (1,480) Taxes (paid)/received ...... (97) 32 Cash from/(used in) operating activities after tax—continuing operations . . 7,817 (1,448) Cash from operating activities after tax—discontinued operations ...... — 17,039 Cash flows from investing activities Decrease in restricted cash deposits ...... 1,031 2,888 Contingent consideration paid in respect of acquired subsidiaries ...... — (7,114) Disposal of subsidiary ...... — 62,186 Purchases of property, plant and equipment ...... (250) (432) Interest received ...... 852 772 Proceeds on disposal of property, plant and equipment ...... — 90 Expenditure on intangible assets ...... (669) (1,497) Net cash from investing activities—continuing operations ...... 964 56,893 Net cash used in investing activities—discontinued operations ...... — (1,754) Cash flows used in financing activities Redemption of convertible loan notes ...... — (52,795) Borrowing from parent company ...... (12,110) (31,258) Interest paid and other financial expenses ...... (599) (12,056) Net cash used in financing activities—continuing operations ...... (12,709) (96,109) Net cash used in financing activities—discontinued operations ...... — (22) Net decrease in cash and cash equivalents ...... (3,928) (25,401) Cash and cash equivalents at beginning of year ...... 14,267 39,725 Effect of foreign exchange rate changes ...... (1,066) (57) Cash and cash equivalents at end of year ...... 9,273 14,267
F-423 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Year ended 31 December 2008
1. Accounting policies The financial statements of Opodo Limited for the year ended 31 December 2008 were authorised for issue by the Board of the Directors on 27/Jul/2009 and the balance sheets were signed on the Board’s behalf by L Maroto. Opodo Limited is a private limited company incorporated in Great Britain under the Companies Act 1985 and registered in England and Wales. The registered office is given on page 1, and its principal activities are listed on page 2.
Statement of compliance The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulations. In addition, they have been prepared in accordance with the provisions of the Companies Act 1985 applicable to companies reporting under IFRS.
Going concern The Group’s business activities, together with factors likely to affect its future development, performance and financial position, and commentary on the Group’s financial results, its cash flows, liquidity requirements and borrowing facilities are set out on pages 2 to 6 and elsewhere within the financial statements, along with a summary of the Group’s principal risks and uncertainties. In addition, note 11 to the financial statements includes the Group’s policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments, and its exposures to liquidity risk and credit risk. The financial statements at 31 December 2008 show that the Group generated a profit from continuing operations of e10.2 million (2007: loss of e10.8 million) with cash generated from continuing operating activities of e7.8 million (2007: cash used in operating activities e1.4 million). At 31 December 2008 the Group was in a net liability position of e19.4 million (2007: e28.4 million) with net current liabilities of e20.9 million (2007: e31.2 million). At 31 December 2008, the Group has available undrawn borrowing facilities of e49.4 million, in the form of a revolving credit facility from its parent company Amadeus IT Group S.A. to enable it to meet future operating requirements, if necessary (see note 11 for further details). Together with the available facility, the company’s forecasts and projections, taking account of reasonably possible changes in trading performance, indicate that the Group has sufficient funding to operate within the level of its available facilities for the foreseeable future. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. Based on the information set out above the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing their report and financial statements.
2. Significant accounting policies The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December 2008. In the current year, two interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current period. These are: IFRIC 11 IFRS 2—Group and Treasury Share Transactions and IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The adoption of these Interpretations has not led to any changes in the Group’s accounting policies.
F-424 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) Basis of Accounting The financial statements have been prepared on the historical cost basis, except for the revaluation of certain assets and liabilities which are measured at fair value in accordance with the Companies Act 1985 and applicable IFRSs. The principal accounting policies adopted are set out below.
(a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Group has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
(b) Critical accounting judgements and key sources of estimation uncertainty In the application of the Group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The following are the critical judgements, apart from those involving estimates (which are dealt with separately below) that the directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Revenue recognition When deciding the most appropriate basis for presenting revenue and cost of sales, both the legal form and the substance of the agreement between the Group and its business partners are reviewed to determine each party’s respective role in the transaction. Where the Group’s role in a transaction is that of principal, revenue is recognised on a gross basis. The revenue comprises the gross value of the transaction billed to the customer, net of VAT, cancellations and other associated taxes, with any related expenditure charged as a cost of sale. Where the Group’s role in a transaction is that of a disclosed agent, revenue is recognised on a net basis, with revenue representing the margin earned.
F-425 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) Estimation of useful economic lives of fixed assets The economic life used to amortise intangible fixed assets and depreciate property, plant and equipment relates to the future performance of the assets in question and management’s judgement of the period over which the economic benefit will be derived from the asset. As at 31 December 2008, the amount of property, plant and equipment included in the Group and Company balance sheets was e0.8 million and e0.6 million respectively (2007: e1.4 million and e1.1 million). These assets are depreciated over periods ranging between four and five years. As at 31 December 2008, the amount of intangible fixed assets included in the Group and Company balance sheets was e0.7 million and e0.4 million respectively (2007: e1.6 million and e1.6 million).
Key sources of estimation uncertainty The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
Recoverability of investments in subsidiaries (Company only) Determining the recoverability of investments in subsidiaries requires estimation as to whether the investment could be realised for consideration in excess of the carrying value. In making such estimations, management has regard to the value in use calculations of those investments. As at 31 December 2008, the investments in the company balance sheet totalled e58.2 million (2007: e39.8 million). In the year ended 31 December 2008 an impairment charge of enil (2007: enil) has been recorded against the carrying value of investments.
Estimating the cost of packaged holidays Where Group companies act as principal in a transaction and sell complete packaged holidays to customers, the cost of individual components of the package are estimated and accrued for in the Group accounts based on the estimated cost of individual components (predominantly flights and accommodation). Where the Group companies resell packages provided by a third party supplier the estimated commissions receivable from that supplier are accrued for.
(c) Business combinations Business combinations are accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date. When a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the Group includes its best estimate of the consideration payable where payment is probable and it can be measured reliably. Any subsequent adjustments to the initial estimate are accounted for as an adjustment to the cost of the business combination. Deferred consideration is discounted to its present value where the impact of discounting is material. Any excess of the cost of acquisition over the net fair values of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill.
F-426 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) Where businesses are transferred from entities under common control, the Group does not consider it appropriate to record the transferred assets and liabilities at fair value at the date of transfer or to recognise goodwill on such transactions as no ‘acquisition’ has occurred. Consequently the Group accounts for these transactions by recording the net assets acquired at their carrying values immediately prior to the transfer from the entity under common control. The difference between consideration provided and the net assets acquired is presented as an adjustment against reserves.
(d) Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset at cost and is not amortised, but is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Any impairment is recognised immediately in the income statement and is not subsequently reversed. For the purposes of impairment testing, any goodwill acquired is allocated to each of the Group’s cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is first allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of VAT, cancellations and other associated taxes.
Commission Where the Group acts as an agent and does not take ownership of the products being sold, revenue represents commissions earned. Such revenue comprises passenger ticket sales in respect of flights, hotels, car hire, package holidays and insurance. Revenue is recognised on the date of departure except for insurance which is recognised on booking as the cover commences from that date.
Booking fees Where the Group acts as an agent and issues or amends tickets to customers, revenues represent fees earned. Such revenue comprises fees on ticket sales of flights. Revenue is recognised at the date of ticketing.
Incentive income Where the Group acts as an agent and receives commissions, additional income may accrue to the Group based on the achievement of certain gross sales values over a specified period. The Group accrues for such income where it is considered probable that the gross sales values will be met and the amount to be received is estimatable. Where it is probable that the gross sales value
F-427 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) will be met, revenue is recognised based on the percentage of gross sales value achieved by the reporting date.
Advertising Revenue from advertising is recognised over the period to which it relates.
Finance income Finance income is recognised on a time proportion basis by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.
(f) Leasing Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
(g) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each Group company are expressed in euros, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual companies, transactions in currencies other than the functional currency of the entity involved in the transaction are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are not re-translated. Gains and losses arising on retranslation are included in net profit or loss for the period. On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
(h) Retirement benefit costs Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
(i) Taxation The tax expense represents the sum of the tax currently payable and deferred tax.
F-428 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(j) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight-line method, on the following bases:
Fixtures and fittings ...... 20% Computer equipment ...... 25% The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.
(k) Internally-generated intangible assets Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from the Group’s development of its website operating platform and related back office systems is recognised only if all of the following conditions are met: • an asset is created that can be identified (such as software and new processes);
F-429 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) • it is probable that the asset created will generate future economic benefits; and • the development cost of the asset can be measured reliably. Internally-generated intangible assets, categorised as software development in notes 7 and 28, are amortised on a straight-line basis over their estimated useful lives. The useful economic life of the intangible assets range between two and five years. Where the internally generated intangible asset is not yet ready for use, it is tested for impairment at least annually by comparing its carrying value with its recoverable amount. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
(l) Other intangible assets Intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses. Intangible assets acquired separately from a business are carried initially at cost. An intangible asset acquired as part of a business combination is recognised outside goodwill if the asset is separable or arises from contractual or other legal rights and its fair value can be measured reliably. Intangible assets with a finite life are amortised on a straight-line basis over their expected useful lives, as follows:
Software licences ...... 33% The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
(m) Impairment of tangible and intangible assets excluding goodwill At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.
(n) Government grants Government grants are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met.
F-430 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) (o) Financial instruments Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets Financial assets are initially recorded at fair value, net of transaction costs. Investments in subsidiaries are recorded at cost. All the Group’s financial assets are classified as ‘loans and receivables’, reflecting the nature and purpose of the financial assets, determined at the time of initial recognition.
Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been impacted. For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate to default on receivables. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
Cash and cash equivalents Cash and cash equivalents comprise cash in hand and short-term deposits, and other short-term highly liquid investments that are readily convertible to cash and are subject to an insignificant risk of changes in value.
F-431 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) Derecognition of financial assets The Group derecognises a financial asset only where the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.
Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Financial guarantee contract liabilities Financial guarantee contract liabilities are measured initially at their fair values and are subsequently measured at the higher of the amount of the obligation under the contract, as determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognised, less, where appropriate, cumulative amortisation recognised in accordance with the revenue recognition policies set out above.
Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.
(p) Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.
(q) Related parties The Group considers as its related parties its significant shareholders and subsidiaries, plus key management personnel and members of the Board of Directors as well as their close family members.
F-432 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
2. Significant accounting policies (Continued) (r) New standards and interpretations not applied At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the EU):
IFRS 1 (amended)/IAS 27 (amended) ...... Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate IFRS 2 (amended) ...... Share-based Payment—Vesting Conditions and Cancellations IFRS 3 (revised 2008) ...... Business Combinations IFRS 8 ...... Operating Segments IAS 1 (revised 2007) ...... Presentation of Financial Statements IAS 23 (revised 2007) ...... Borrowing Costs IAS 27 (revised 2008) ...... Consolidated and Separate Financial Statements IAS 32 (amended)/IAS 1 (amended) ...... Puttable Financial Instruments and Obligations Arising on Liquidation IFRIC 12 ...... Service Concession Arrangements IFRIC 15 ...... Agreements for the Construction of Real Estate IFRIC 16 ...... Hedges of a Net Investment in a Foreign Operation Improvements to IFRSs (May 2008) The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s financial statements in the period of initial application.
3. Revenue An analysis of the Group’s revenue is as follows:
2008 2007 g’000 g’000 Continuing operations Commission ...... 65,570 53,157 Incentive income ...... 18,412 17,349 Other revenues ...... 7,135 18,608 Revenue from continuing operations ...... 91,117 89,114 Revenue from discontinued operations ...... — 111,420 91,117 200,534 Finance income from continuing operations ...... 852 715 Finance income from discontinued operations ...... — 1,333 91,969 202,582
All sales are within Europe and the directors do not consider the markets in Europe in which the Group operates to be significantly different. Consequently no geographical segmentation has been provided.
4. Profit for the year Selling, general and administrative expenses (‘‘SG & A’’) comprise infrastructure costs, marketing and business development and general and administrative costs. Infrastructure costs include IT expenses incurred by the Group to manage and operate the online travel websites. Costs incurred in developing the websites, which meet the criteria for
F-433 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
4. Profit for the year (Continued) recognition under IFRS were capitalised as intangible assets as detailed in note 7. Costs incurred that do not meet the recognition criteria are expensed as incurred. Marketing and promotional costs include all brand, sales and site activity and are expensed at the time the cost is incurred. Profit for the year is stated after charging/(crediting):
Continuing Discontinued operations operations Total 2008 2007 2008 2007 2008 2007 g’000 g’000 g’000 g’000 g’000 g’000 Net foreign exchange (gains)/losses ...... (2,933) (1,186) — 68 (2,933) (1,118) Depreciation (Note 8) ...... 806 1,174 — 444 806 1,617 Amortisation of intangible assets (Note 7): Internally generated asset amortisation— included in SG & A (see below) ...... 851 3,344 — 130 851 3,474 Brand amortisation—included in SG & A . — — — 728 — 728 Purchased software amortisation— included in SG & A ...... 433 867 44 433 911 Amortisation of rent free period in respect of UK property ...... (174) (140) — — (174) (140) R&D costs expensed ...... 3,266 2,213 — — 3,266 2,213 Restructuring and redundancy costs ...... 243 502 — — 243 502 Staff costs ...... 19,948 25,397 — 15,276 19,948 40,673 Impairment loss recognised on trade and other receivables ...... — 1,147 — 547 — 1,694
2008 2007 g’000 g’000 Staff costs Wages and salaries ...... 15,975 21,318 Social security costs ...... 3,182 3,704 Pension costs ...... 791 375 19,948 25,397
The average monthly number of employees (including executive directors) of the continuing operations of the Group during the period was 348.
2008 2007 No. No. Managers ...... 6 6 Staff ...... 342 341 348 347 Discontinued operations ...... — 458 348 805
F-434 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
4. Profit for the year (Continued) Directors’ remuneration In the current year, the Directors of the Company were remunerated for their services by other companies in the Amadeus IT Group S.A. group. It is not practicable to allocate the remuneration of the Directors between the Group companies to which they provide services. The directors are not members of the Company’s defined contribution pension scheme, and are not in receipt of any non-cash benefits or other retirement schemes. No company contributions were made to money purchase schemes for directors. The Directors receive reimbursement for reasonable expenses. Refer to note 15 for disclosure information on key management compensation.
Auditors’ remuneration The analysis of auditors’ remuneration is as follows:
2008 2007 g’000 g’000 Fees payable to the company’s auditors for the 2008 audit of the Company’s annual accounts ...... 188 182 The audit of the company’s subsidiaries pursuant to legislation ...... 72 81 Other attest services provided pursuant to legislation ...... — 13 Total fees ...... 260 276
5. Finance income and finance costs
Continuing Discontinued operations operations 2008 2007 2008 2007 g’000 g’000 g’000 g’000 Finance income; loans and receivables Bank interest receivable and similar income ...... 362 473 — 469 Interest income on loans to parent company ...... 490 242 — 864 852 715 — 1,333 Finance costs: financial liabilities at amortised cost Bank overdrafts and similar expenses ...... (651) (1,922) — (22) Interest on loans from parent company ...... (161) (2,440) — — (812) (4,362) — (22)
F-435 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
6. Taxation Tax on loss on ordinary activities Tax (credited)/charged in the income statement
Continuing Discontinued operations operations Total 2008 2007 2008 2007 2008 2007 g’000 g’000 g’000 g’000 g’000 g’000 Current tax: ...... (20) (223) — 3,542 (20) 3,319 Deferred tax: Current year ...... — — — (217) — (217) (20) (223) — 3,325 (20) 3,102
Of the prior year charge to current tax, approximately e3.5 million related to Karavel SA, which was disposed of in that year. No tax charge or credit arose on the disposal of Karavel SA.
Reconciliation of the total tax charge The standard UK corporation tax rate for the year is 28.5% (2007: 30%). The tax on the profit on ordinary activities for the year is lower than the standard rate of corporation tax in the UK. A reconciliation showing the factors affecting the tax credit is shown below:
2008 2007 g’000 g’000 Profit/(loss) on continuing operations before tax ...... 10,143 (10,981) Profit/(loss) on ordinary activities multiplied by standard rate of corporation tax in the UK of 28.5% (2007: 30%) ...... 2,891 (3,294) Tax effect of expenses that are not deductible in determining taxable profit .... 11 2,278 Tax effect of revenues that are not assessable in determining taxable profit .... — (1,872) Unrecognised tax assets ...... (3,148) 2,700 Effect of different tax rates of subsidiaries operating in other jurisdictions ...... 414 (35) Adjustment to a prior period ...... (188) — Tax credit from continuing operations ...... (20) (223)
The Group has unrecognised deferred tax assets of e114 million (2007: e117 million) in respect of tax losses, accelerated capital allowances and other timing differences arising in the United Kingdom and in overseas companies that are available indefinitely in the United Kingdom and over various periods for the overseas companies for offset against future taxable profits. Deferred tax assets in respect of the above have not been recognised as the Group does not have sufficient evidence that taxable profits will arise in the relevant jurisdiction to enable such assets to be recovered in full or in part.
F-436 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
6. Taxation (Continued) Deferred tax The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior year:
Other timing differences Total g’000 g’000 At 1 January 2008 ...... — — Credit to income ...... — — Disposal of subsidiary ...... — — As 31 December 2008 ...... — —
The following is the analysis of the deferred tax balances for financial reporting purposes:
2008 2007 g’000 g’000 Deferred tax liabilities ...... — — Deferred tax assets ...... — — ——
F-437 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
7. Goodwill and intangible assets
Finite lived intangible assets Total other Software Purchased intangible Brands development software assets Goodwill g’000 g’000 g’000 g’000 g’000 Cost At 1 January 2007 ...... 10,635 16,158 10,300 37,093 73,633 Additions: internal development . . — 3,138 379 3,517 — Additions: purchased separately . — 25 257 282 — Disposals ...... — — (17) (17) — Reclassification between intangible and tangible assets . — — 468 468 — Purchase price adjustment ..... — — — — 164 Eliminated on disposal of a Subsidiary ...... (10,192) (5,667) (1,341) (17,200) (70,724) Foreign exchange movements . . . (79) (11) (90) — At 31 December 2007 ...... 443 13,575 10,033 24,053 3,073 Additions: internal development . . — 157 — 157 — Additions: purchased separately . — — 512 512 — Disposals ...... — — — — — Impairment ...... — (295) — (295) — Foreign exchange movements . . . — (254) (57) (311) — At 31 December 2008 ...... 443 13,183 10,487 24,113 3,073 Accumulated amortisation and impairment At 1 January 2007 ...... 3,112 9,179 8,950 21,241 3,073 Charge for the year ...... 728 3,474 911 5,113 — Disposals ...... — — — — — Eliminated on disposal of a subsidiary ...... (3,397) (172) (280) (3,849) — Foreign exchange movements . . . (76) (13) (89) — At 31 December 2007 ...... 443 12,405 9,568 22,416 3,073 Charge for the year ...... — 851 433 1,284 — Disposals ...... — — — — — Foreign exchange movements . . . — (232) (45) (277) — At 31 December 2008 ...... 443 13,024 9,956 23,423 3,073 Net book value At 31 December 2008 ...... — 159 531 690 — At 31 December 2007 ...... — 1,170 466 1,636 —
F-438 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
8. Property, plant and equipment Fixtures Computer and equipment fittings Total g’000 g’000 g’000 Cost At 1 January 2007 ...... 6,476 3,224 9,700 Additions ...... 293 750 1,043 Disposals ...... (756) — (756) Reclassification between intangible and tangible assets ...... (468) — (468) Derecognised on disposal of a subsidiary ...... (1,271) (2,062) (3,333) Foreign exchange movements ...... (3) (4) (7) At 31 December 2007 ...... 4,271 1,908 6,179 Additions ...... 63 187 250 Disposals ...... (17) (176) (193) Foreign exchange movements ...... 269 (19) 250 At 31 December 2008 ...... 4,586 1,900 6,486 Accumulated depreciation and impairment At 1 January 2007 ...... 3,883 1,251 5,134 Charge for the year ...... 1,088 529 1,617 Disposals ...... (756) — (756) Derecognised on disposal of a subsidiary ...... (771) (471) (1,242) Foreign exchange movements ...... (1) (2) (3) At 31 December 2007 ...... 3,443 1,307 4,750 Charge for the year ...... 602 204 806 Disposals ...... (18) (145) (163) Foreign exchange movements ...... 275 (13) 262 At 31 December 2008 ...... 4,302 1,353 5,655 Net book value At 31 December 2008 ...... 284 547 831 At 31 December 2007 ...... 828 601 1,429
At 31 December 2008 and 31 December 2007, the Group had no contractual commitments for the acquisition of property, plant and equipment.
9. Investments Details of the Company’s significant subsidiaries at 31 December 2008 are as follows:
Percentage holding of ordinary Country of Name of subsidiary share capital Principal activity Incorporation Opodo GmbH ...... 100% Marketing services Germany Travellink AB ...... 100% On-line travel agency Sweden Opodo Italia SRL ...... 100% On-line travel agency Italy Opodo S.A...... 100% On-line travel agency France Opodo S.L...... 100% Development services Spain
F-439 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
10. Trade and other receivables 2008 2007 g’000 g’000 Trade receivables ...... 9,484 9,840 Allowance for doubtful debts ...... (679) (2,107) 8,805 7,733 Loans to Group companies ...... 17,750 — Amounts owed by Group companies ...... 3,504 3,138 VAT and other taxes receivable ...... 1,622 1,992 Prepayments and accrued income ...... 6,893 5,140 Other receivables ...... 701 2,871 39,725 20,874
The average credit period on trade receivables that are neither past due nor impaired is 30 days; no interest is charged on the receivables outstanding. The Group has provided for trade receivables based on estimated irrecoverable amounts, determined by reference to past default experience. Included in the Group’s trade receivables are debtors with a carrying amount of e0.3 million (2007: e0.7 million) which are past due at the reporting date for which the Group has not provided for as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 90 days (2007: 140 days).
2008 2007 g’000 g’000 Ageing of past due but not impaired receivables 60-90 days ...... 1 119 90-180 days ...... 315 147 180 + days ...... — 392 Total ...... 316 658
Loans and receivables: Movement in the allowance for doubtful debts
2008 2007 g’000 g’000 Balance at beginning of the period ...... 2,107 2,892 Increases in impairment ...... — 1,272 Reversals of impairment ...... — (98) Amounts written off as uncollectible ...... (1,428) — Eliminated on disposal of a subsidiary ...... — (1,959) Balance at the end of the period ...... 679 2,107
In determining the recoverability of trade and other receivables the Group considers any change in the credit quality of the trade or other receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe there is no further credit provision required in excess of the allowance for doubtful debts. There are no allowances for credit losses against other financial assets.
F-440 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
10. Trade and other receivables (Continued) The directors consider that the carrying amount of trade and other receivables approximates their fair value.
11. Financial instruments Capital risk management The Group manages its capital to ensure that the entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent company, comprising issued capital, reserves and retained losses as disclosed in notes 17 to 21.
Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Categories of financial instruments 2008 2007 g’000 g’000 Loans and receivables: Cash and cash equivalents ...... 9,273 14,267 Restricted cash deposits ...... 2,626 3,657 Trade and other receivables ...... 31,445 13,993 43,344 31,917 Assets not meeting the definition of a financial asset: Trade and other receivables ...... 7,830 6,881 Tax receivables ...... — 89 Total current assets ...... 51,174 38,887 Financial liabilities at amortised cost: Short-term loans from parent company ...... — 12,110 Trade and other payables ...... 66,585 50,666 66,585 62,776 Current liabilities not meeting the definition of financial liabilities: Tax liabilities ...... 148 354 Trade and other payables ...... 5,312 6,811 Provisions for liabilities ...... — 152 Total current liabilities ...... 72,045 70,093 Non-current liabilities not meeting the definition of financial liabilities: Provisions for liabilities ...... — 258 Total non-current liabilities ...... — 258
Financial risk management objectives The Group is exposed to financial risks, including interest rate risk, credit risk and foreign exchange rate risk.
F-441 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
11. Financial instruments (Continued) Risk and treasury management is governed by the Amadeus IT Group S.A’s policies approved by its board of directors. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
Foreign currency risk management The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign exchange exposure arises where the Group’s companies transact in a currency different from their functional currency. The carrying amount of the Group’s monetary assets and liabilities at the reporting date, denominated in a currency different to the functional currency of the entity in which such monetary assets and liabilities are held is as follows:
Assets Liabilities 2008 2007 2008 2007 g’000 g’000 g’000 g’000 Sterling ...... 6,598 6,252 8,952 9,888 US Dollar ...... 47 50 — 61 Swedish Kroner ...... — — 2,024 2,330 Danish Kroner ...... 2,111 1,813 10,466 11,838 Norwegian Kroner ...... 1,791 855 9,129 9,608 The following table details the Group’s sensitivity to a 10 percent change in euro against the respective foreign currencies. Ten per cent represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analyses of the Group’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and where euro strengthens against the respective currency.
2008 2007 g’000 g’000 Impact on profit or loss ...... 1,820 2,251
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk management In the prior year, the Group was exposed to interest rate risk as entities in the Group borrowed funds from Amadeus at floating interest rates. Cash at bank earns interest at floating rates based on daily bank deposit rates. As a result, material fluctuations in the market interest rate could have an impact on the Group’s financial results. The interest rate exposure is not hedged. The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. At the reporting date, if interest rates had been 1% higher/lower and all other variables were held constant, the Group’s profit would decrease/increase by e119,000 (2007: increase/decrease by
F-442 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
11. Financial instruments (Continued) e58,000). This is mainly attributable to the Group’s exposure to interest rates on its cash balances and variable rate borrowings. There is no material impact upon equity arising from interest rate changes. The Group’s sensitivity to interest rates increased during the current period due to the higher net cash position of the Company.
Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial assets that potentially subject the Company and its subsidiaries to concentration of credit risk consist principally of trade receivables. The Group’s trade receivables are derived from commissions due to it from business partners including airlines, car hire companies, travel insurance companies, hoteliers and hotel consolidators. The Group performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful from collection. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk:
Maximum credit risk: Group 2008 2007 g’000 g’000 Cash and cash equivalents ...... 9,273 14,267 Restricted cash deposits ...... 2,626 3,657 Trade and other receivables ...... 31,445 13,993
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to: • making sales and extending credit terms to business partners and placing cash deposits with the Group’s parent undertaking. In these cases, the maximum exposure to credit risk is the carrying amount of the related financial assets.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining borrowing facilities and by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included later in this note is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
F-443 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
11. Financial instruments (Continued) The following table details the Group’s remaining contractual maturity for its financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
2008 Weighted average Less than effective interest rate 1 year g’000 Variable rate debt ...... — — Non-interest bearing liabilities ...... 66,585 Total financial liabilities ...... 66,585
2007 Weighted average Less than effective interest rate 1 year g’000 Variable rate debt ...... 4.709% 12,110 Non-interest bearing liabilities ...... 50,666 Total financial liabilities ...... 62,776
Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.
Cash and short-term deposits 2008 2007 g’000 g’000 Cash at bank and in hand ...... 9,273 14,267 9,273 14,267
Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and short-term highly liquid deposits held with Amadeus. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are available upon request and earn interest based on EUR1BOR minus 0.1%. The fair value of cash and cash equivalents is the same as its carrying value. For the purpose of the cash flow statements, cash and cash equivalents comprise the following at 31 December:
2008 2007 g’000 g’000 Cash at bank and in hand ...... 9,273 14,267 9,273 14,267
F-444 Opodo Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
11. Financial instruments (Continued) Restricted cash deposits Restricted cash deposits are in respect of cash guarantees given by the Company and its principal subsidiaries to IATA and a number of local governmental agencies to ensure compliance with the accreditation terms for each organisation. The total of these guarantees is e2.4 million (2007: e3.1 million). The required amount to be deposited is reviewed every year and is based on the Group’s financial results. e0.2 million (2007: e0.6 million) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
Loan notes—Amadeus On 1 April 2003, 42,100,760 e1 unsecured convertible loan notes were issued in favour of Amadeus IT Group S.A. of Madrid, Spain, for a total consideration of e49,461,866. On 1 July 2004, 3,333,400 e1 additional convertible loan notes were issued for consideration of e3,333,400. The conversion rights attaching to the convertible loan notes were terminated with immediate effect from 1 July 2004 when 261,048,629 ordinary shares were issued to Amadeus IT Group S.A. On 30 November 2007, following the sale of Karavel, the unsecured convertible loan note instrument was terminated, and the full amount of e52,795,266 was repaid in full plus interest costs of e8,949,074. In return, and on the same date, Amadeus IT Group S.A. entered into an agreement with Opodo to provide a revolving credit facility to a maximum of the value of the loan notes plus interest (e61,744,340). The revolving credit facility bears interest at EURIBOR +2% and matures on the second anniversary of the First Repayment Date, which is defined as the earlier of 1 July 2010 or six months after the date on which the Company’s operating cash flow is determined by the Company’s auditors as having been positive for two out of the last three consecutive calendar quarters. This condition was satisfied at 30 June 2008, and consequently the facility was reduced to e49,395,472 at 30 December 2008. The remaining revolving credit facility is repayable in three instalments as follows:
(b) On 30 December 2009 ...... e 24,697,736 (c) On 30 December 2010 ...... e 24,697,736
Committed facilities As at 31 December 2008 the amount of undrawn borrowing facilities available for future operating activities and to settle capital commitments was e49,395,472 for the Group (2007: e49,634,804).
12. Trade and other payables 2008 2007 Trade payables ...... 54,085 27,315 Employee related accruals ...... 2,007 2,748 Other taxes and social security costs payable ...... 843 1,414 Amounts owed to Group companies ...... 2,732 1,162 Accruals and deferred income ...... 11,165 23,585 Other payables ...... 1,065 1,253 71,897 57,477
F-445 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
12. Trade and other payables (Continued) Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days (2007 - 30 days). For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the credit period. The directors consider that the carrying amount of trade payables approximates to their fair value.
13. Provisions
Onerous lease Redundancy Contingent Refund provision provision consideration provision Total g’000 g’000 g’000 g’000 g’000 At 1 January 2008 ...... 410 — — — 410 Additions ...... — — — — — Utilised during the year ...... (410) — — — (410) Foreign exchange movements . . . — — — — — Eliminated on disposal of subsidiary ...... — — — — — At 31 December 2008 ...... — — — — —
The onerous lease provision relates to contractual obligations of the Group under property leases. In light of the Group’s decision to close Quest Travel Limited, these obligations were considered onerous. During 2008, the Company assigned liability for the lease of the Quest Travel Limited premises, and therefore no onerous lease provision remains.
14. Operating lease arrangements The Group had total commitments under non-cancellable operating leases as set out below:
Land and buildings Other 2008 2007 2008 2007 g’000 g’000 g’000 g’000 Operating leases which expire: Within one year ...... 276 1,197 — 30 In one to five years ...... 1,192 506 — — In over five years ...... — 77 — — 1,468 1,780 — 30
2008 2007 g’000 g’000 Minimum lease payments under operating leases charged to the income statement for the year ...... 1,293 1,570
Operating lease payments represent rentals payable by the Group for certain of its office properties. Other than as set out below, leases are negotiated for an average term of five years and rentals are fixed for an average of three years.
F-446 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
14. Operating lease arrangements (Continued) During the year, the lease relating to the London head office was terminated in accordance with a break clause included in the original contract. A new lease was entered into which expires in April 2012, with a break clause which can be invoked in October 2010.
15. Related party transactions Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed in note 39.
Trading transactions The Company was established by a Joint Venture Agreement on 18 August 2000 between nine shareholders. These shareholders were Air France, Aer Lingus, Alitalia, Austrian Airways, British Airways, Lufthansa, Finnair, Iberia and KLM. The shareholders’ total holdings as at 31 December 2008 are set out below:
Number Number Number of ‘‘A’’ of ‘‘B’’ of ‘‘B’’ ordinary ordinary deferred gof shares of shares of shares of ordinary % of share- g0.1 each g0.1 each g0.9 each shares holding Amadeus IT Group S.A. . 646,144,044 210,498,750 64,614,404 75.427% Air France ...... — 48,114,000 — 4,811,400 5.617% British Airways ...... — 48,114,000 — 4,811,400 5.617% Lufthansa ...... — 48,114,000 — 4,811,400 5.617% Alitalia ...... — 19,245,600 — 1,924,560 2.247% Iberia ...... — 19,245,600 — 1,924,560 2.247% KLM...... — 19,245,600 — 1,924,560 2.247% Finnair ...... — 3,608,550 — 360,855 0.421% Aer Lingus ...... — 2,405,700 — 240,570 0.280% Austrian Airlines ...... — 2,405,700 — 240,570 0.280% 646,144,044 210,498,750 210,498,750 85,664,279 100.00%
The nature of the related party relationship of the airline shareholders is that of a minority shareholder of Opodo Limited. The immediate controlling entity and parent company is Amadeus Global IT S.A. WAM Acquisition S.A. is the ultimate controlling entity and parent company of Amadeus Global IT S.A. WAM Acquisition S.A. is owned by BC Partners, Cinven, Societ´ e´ Air France, Iberia L´ıneas Aereas´ de Espana˜ S.A. and Deutsche Lufthansa AG. The smallest group which prepares consolidated financial statements and of which the Company forms a part, is Amadeus IT Group S.A., which is incorporated in Spain. The largest group which prepares consolidated financial statements and of which the Company forms a part, is WAM Acquisition S.A., which is incorporated in Spain. Below is a summary of balances and transactions with related parties. All transactions with related parties are carried out on an arm’s length basis.
(a) Revenue and amounts payable: shareholder airlines These primarily relate to commissions earned from selling tickets for flights on shareholder airlines. Total commissions earned by the Group from related parties for the years ended 31 December 2008 and 31 December 2007 are e1,176,106 and e164,422 respectively. In addition to this, at the year end, e87,948 (2007: e8,637) was outstanding.
F-447 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
15. Related party transactions (Continued) In addition, airline incentive revenue earned by the Group from related parties for the years ended 31 December 2008 and 31 December 2007 are e2,076,373 and e1,025,382 respectively. The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made for doubtful debts in respect of the amounts owed by related parties. In the Official Journal of the European Communities dated 20 November 2001 (see Notice pursuant to Article 19(3) of council regulation No 17—case Comp/38.006—Online Travel Portal 323/6) it was noted that the Company has declared that it is being managed separately and independently of its shareholder airlines and as such is free to enter into whatever contracts it wishes with airlines. In order to make this declaration, each shareholder airline of the Company has undertaken that it shall not enter into exclusive arrangements with Opodo relating to fares and product-related services. Therefore the Company receives no better terms (access to published and unpublished fares) than are available to other online travel agents from its shareholder airlines. In addition, the Company has undertaken that it will maintain in place various safeguards against the exchange of commercially sensitive information between shareholders. This includes: • no information relating to the contents of individual airline marketing agreements will be disclosed to Opodo’s directors or shareholders; • the shareholders will not have access to the information technology systems of Opodo nor to commercially sensitive information belonging to Opodo or other shareholders; and • Opodo will ensure the confidentiality of sensitive commercial information relating to its shareholders. These undertakings are required in order for the Company to operate in compliance with EC Competition Law.
(b) Trading transactions—Amadeus The Group was charged e2,108,900 and e4,682,964 for the years ended 31 December 2008 and 31 December 2007, respectively by Amadeus for charges in relation to intercompany trading and received e13,978,536 and e11,773,179 from the same. As at 31 December 2008 the total amount outstanding due to Amadeus was e1,166,188 (2007: e785,537) and the amount receivable from Amadeus in respect of these transactions was e3,504,062 (2007: e3,138,887).
(c) Loans receivable and advances—Amadeus group companies Total interest earned by the Group from Amadeus IT Group S.A., which is a related party by virtue of its controlling shareholding, was e489,802 and e1,106,157 for the years ended 31 December 2008 and 31 December 2007, respectively. As at 31 December 2008 the total amount outstanding from Amadeus IT Group S.A. in respect of interest receivable was enil (2007: enil). Interest rates for these short-term deposits denominated in Euros ranged from 3.51% to 6.39% for the year ended 31 December 2008 and from 2.27% to 3.57% for the year ended 31 December 2007. In addition the Group was charged e160,644 and e2,439,772 for the years ended 31 December 2008 and 31 December 2007, respectively for interest on loan notes and other borrowings with Amadeus. The total accrual for interest outstanding as at 31 December 2008 was enil (2007: e376,973).
F-448 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
15. Related party transactions (Continued) Other related party transactions (d) Directors and key management compensation Directors’ remuneration is set out in note 4. The compensation received by top executive managers during the years ended 31 December 2008 and 31 December 2007 was as follows:
2008 2007 g’000 g’000 Cash compensation ...... 1,402 1,437 Termination benefits ...... — 12 Compensation in kind ...... 202 28 Contributions to Pension Plan and Collective Life Insurance Policies ...... 135 118 Total ...... 1,739 1,595
There are no other transactions with directors and key management.
16. Retirement benefit schemes The Group participates in a defined contribution group scheme. The assets of the scheme are held separately from those of the Group in independently administered funds. The total cost charged to the income statement was e791,278 (2007: e375,000) and represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2008 all contributions (2007: enil) due in respect of the current reporting period had been paid over to the schemes.
17. Share capital
2008 2007 g’000 g’000 Authorised: 925,012,500 Class A ordinary shares of e0.1 each ...... 92,501,250 92,501,250 210,498,750 Class B ordinary shares of e0.1 each ...... 21,049,875 21,049,875 210,498,750 Class B deferred shares of e0.9 each ...... 189,448,875 189,448,875 30,000,000 redeemable convertible shares of e1 each ...... 30,000,000 30,000,000 333,000,000 333,000,000 Issued and fully paid: 646,144,044 Class A ordinary shares of e0.1 each ...... 64,614,404 64,614,404 210,498,750 Class B ordinary shares of e0.1 each ...... 21,049,875 21,049,875 210,498,750 Class B deferred shares of e0.9 each ...... 189,448,875 189,448,875 275,113,154 275,113,154
Class A ordinary shares have full rights to dividends and to amounts receivable on winding-up. The shares have full voting rights. Class B ordinary shares have full rights to dividends and to amounts receivable on winding up. However, the shares have limited voting rights. Class B deferred shares have no rights to dividends or amounts receivable on winding up. They have no voting rights.
F-449 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
17. Share capital (Continued) The movement in share capital is provided below for each class of share:
Class A Class B Class B ordinary ordinary deferred shares shares shares Number Number Number At 1 January 2007 and 31 December 2007 ...... 646,144,044 210,498,750 210,498,750 At 1 January 2008 and 31 December 2008 ...... 646,144,044 210,498,750 210,498,750
18. Share premium account
2008 2007 g’000 g’000 Balance at 1 January and 31 December ...... 88,846 88,846
In accordance with Section 130 of the Companies Act 1985, the share premium account is used to record the excess of the consideration received by the Company on issue of shares in excess of their par value. The share premium account may only be used in certain specific circumstances.
19. Other reserves
2008 2007 g’000 g’000 Balance at 1 January and 31 December ...... 30,441 30,441
The Group accounted for the transfer of assets and liabilities in 2005 by recording the net assets acquired at their carrying values immediately prior to the transfer from Amadeus IT Group S.A as it was considered that no acquisition had occurred. The difference between the consideration provided and the net assets acquired is presented as an other reserve.
20. Translation reserve
2008 2007 g’000 g’000 Balance at 1 January ...... (99) (37) Exchange differences on retranslation of overseas operations ...... (1,114) (62) Balance at 31 December ...... (1,213) (99)
21. Retained losses
g’000 Balance at 1 January 2007 ...... (366,901) Profit for the year ...... 5,083 Balance at 31 December 2007 ...... (361,818) Profit for the year ...... 10,163 Balance at 31 December 2008 ...... (351,655)
F-450 OPODO LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
22. Commitments and contingencies As required by industry regulators including IATA, the Group has trade bonds in place which are designed to protect consumers and airlines (IATA) in the event that an agent ceases trading. In the event that the Group ceased trading, the restricted cash deposits would not be returned to the Group, but would be utilised to cover any outstanding liabilities. The level of bonding required is determined on an annual basis by the regulators with reference to historical and expected future trading. During the year, bonding requirements were met by Amadeus IT Group S.A. At 31 December 2008, in order to maintain the Group’s various travel agency licences the Group had bank guarantees in place to travel agency regulators in the total amount of e32,260,211 (2007—e50,699,083). The amount of e2,347,885 (2007—e3,078,516) is covered by restricted cash deposits that are recorded in the balance sheet and the remaining e29,912,326 (2007— e47,620,667) is covered by a bank guarantee secured by Amadeus IT Group SA. The required amount to be deposited is reviewed every year and is based on the Group’s financial results. e219,758 (2007—e578,182) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates to their fair value.
F-451 OPODO LIMITED COMPANY INCOME STATEMENT Year ended 31 December 2008
Notes 2008 2007 g’000 g’000 Revenue ...... 24 47,429 57,639 Cost of sales ...... (10,316) (14,205) Gross profit ...... 37,113 43,434 Selling, general and administrative expenses ...... (34,981) (52,304) Operating profit/(loss) ...... 25 2,132 (8,870) Finance income ...... 26 538 526 Finance cost ...... 26 (2,108) (4,403) Gain on disposal of investment ...... — 20,993 Profit before tax ...... 562 8,246 Tax...... 27 188 493 Profit attributable to equity holders of the parent ...... 750 8,739
All profits arise from continuing operations of the Company.
F-452 OPODO LIMITED COMPANY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2008
Share Share Retained capital premium losses Total g’000 g’000 g’000 g’000 Balance as of 1 January 2007 ...... 275,113 88,846 (358,437) 5,522 Profit for the financial year ...... — — 8,739 8,739 Balance at 31 December 2007 ...... 275,113 88,846 (349,698) 14,261 Profit for the financial year ...... — — 750 750 Balance at 31 December 2008 ...... 275,113 88,846 (348,948) 15,011
F-453 OPODO LIMITED COMPANY BALANCE SHEET 31 December 2008
Notes 2008 2007 g’000 g’000 Non-current assets Investments ...... 30 58,238 39,758 Intangible assets ...... 28 359 1,579 Property, plant and equipment ...... 29 619 1,135 59,216 42,472 Current assets Trade and other receivables ...... 32 28,741 17,567 Cash and cash equivalents ...... 31 3,187 3,938 Restricted cash deposits ...... 31 1,433 1,916 33,361 23,421 Total assets ...... 92,577 65,893 Current liabilities Trade and other payables ...... 33 77,566 39,205 Short-term loans from parent company ...... 31 — 12,110 Provisions ...... 34 — 108 Tax liabilities ...... — 69 77,566 51,492 Net current liabilities ...... (44,205) (28,071) Non-current liabilities Loan notes ...... 31 — — Provisions ...... 34 — 140 — 140 Total liabilities ...... 77,566 51,632 Net assets ...... 15,011 14,261 Equity Share capital ...... 17 275,113 275,113 Share premium account ...... 18 88,846 88,846 Retained losses ...... 37 (348,948) (349,698) 15,011 14,261
The financial statements were approved by and authorised for issue by the board of directors on 28 July 2009. They were signed on its behalf by L Maroto, Director on 28 July 2009.
Luis Maroto
F-454 OPODO LIMITED COMPANY CASH FLOW STATEMENT Year ended 31 December 2008
2008 2007 g’000 g’000 Cash generated from operating activities Operating profit/(loss) ...... 2,132 (8,870) Adjustments for: Depreciation of property, plant and equipment ...... 666 1,060 Amortisation of intangible assets ...... 1,221 3,995 Provision against inter-company loans ...... — 3,086 Loss on disposal of property, plant and equipment ...... — 17 Amortisation of deferred rent incentive ...... (174) (140) Decrease in redundancy provision ...... — (2,127) Impairment of intangible assets ...... 295 — Operating cash flows before movements in working capital ...... 4,140 (2,979) Trade and other receivables ...... (11,175) 6,801 Trade and other payables ...... 29,624 (3,915) Cash generated from/(used in) operating activities before tax ...... 22,589 (93) Taxes received ...... 119 562 Net cash generated from operating activities after tax ...... 22,708 469 Cash flows (used in)/generated from investing activities Movement in restricted cash deposits ...... 483 98 Investments in subsidiaries ...... (10,000) — Return of capital from subsidiaries ...... 20 — Deferred consideration paid on acquisition of, and investments in, subsidiaries . — (7,114) Purchases of property, plant and equipment ...... (150) (264) Proceeds on disposal of property, plant and equipment ...... — 8 Proceeds on disposal of investments ...... — 105,571 Interest received ...... 538 526 Expenditure on intangible assets ...... (295) (1,430) Net cash (used in)/from investing activities ...... (9,404) 97,395 Cash flows used in financing activities Redemption of convertible loan notes ...... — (52,795) Borrowings from parent company ...... (12,110) (31,258) Interest paid and other financial expenses ...... (1,945) (12,139) Net cash used in financing activities ...... (14,055) (96,192) Net (decreas)/increase in cash and cash equivalents ...... (751) 1,672 Cash and cash equivalents at beginning of year ...... 3,938 2,266 Cash and cash equivalents at end of year ...... 3,187 3,938
F-455 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
23. Significant accounting policies The separate financial statements of the company are presented as required by the Companies Act 1985. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in note 2 to the consolidated financial statements except as noted below. Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
24. Revenue An analysis of the Company’s revenue is as follows:
2008 2007 g’000 g’000 Agency revenues ...... 37,038 43,292 Incentive income ...... 7,956 11,097 Other revenues ...... 2,435 3,250 Revenue ...... 47,429 57,639 Interest revenue ...... 538 526 47,967 58,165
All sales are within Europe and the Directors do not consider the markets in Europe in which the Company operates to be significantly different. Consequently no geographical segmentation has been provided.
25. Profit/(loss) for the year Profit/(loss) is stated after charging/(crediting):
2008 2007 g’000 g’000 Net foreign exchange gains ...... (1,357) (1,240) Depreciation of tangible assets ...... 666 1,060 Amortisation of intangible assets: Internally generated assets—included in S,G&A ...... 850 3,274 Purchased software—included in S,G&A ...... 371 721 Amortisation of rent free period in relation to UK property ...... (174) (140) Redundancy and reorganisation costs ...... 243 502 R&D costs expensed ...... 3,266 2,213 Staff costs ...... 7,655 14,533 Impairment loss recognised on trade and other receivables ...... — 4,084
F-456 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
25. Profit/(loss) for the year (Continued) During the year, the Company changed the accounting policy in relation to internally developed intangible assets, and expensed all previously capitalised amounts. The total amount written off to the income statement was e295,000.
2008 2007 g’000 g’000 Staff costs ...... 6,461 12,734 Wages and salaries ...... 997 1,482 Social security costs ...... 197 317 Pension costs ...... 7,655 14,533
The average monthly number of employees (including executive directors) during the year was 217.
2008 2007 No. No. Staff numbers Managers ...... 6 6 Staff ...... 211 276 217 282
26. Finance income and finance costs
2008 2007 g’000 g’000 Bank interest receivable and similar income ...... 48 347 Interest receivable on loans to parent company ...... 490 179 Total interest revenue: loans and receivables ...... 538 526 Bank overdrafts and similar expenses ...... (616) (1,963) Interest on loans from other group companies ...... (1,492) (2,440) Total finance costs: financial liabilities at amortised cost ...... (2,108) (4,403)
F-457 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
27. Tax Reconciliation of the total tax credit UK Corporation tax rate is 28.5% (2007: 30%). Factors affecting the tax credit for the year are as follows:
2008 2007 g’000 g’000 Profit on ordinary activities before tax ...... 562 8,246 Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 28.5% (2007—30%) ...... 160 2,474 Tax effect of expenses that are not deductible in determining taxable profit ...... 11 936 Transfer to unrecognised tax assets ...... (171) 2,957 Gain on sale of investment not taxable ...... — (6,298) Group relieved losses ...... — (562) Adjustment to a prior period ...... (188) — Tax credit ...... (188) (493)
Unrecognised temporary differences The Company has deferred tax assets of e99 million (2007—e100 million) in respect of tax losses, accelerated capital allowances and other timing differences arising in the United Kingdom that are available indefinitely for offset against future taxable profits. Deferred tax assets have not been recognised as the Company has insufficient evidence that suitable taxable profits will arise in the future.
F-458 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
28. Intangible assets
Finite lived intangible assets Software Purchased development software Total g’000 g’000 g’000 Cost At 1 January 2007 ...... 10,904 8,672 19,576 Additions: internal development ...... 1,215 — 1,215 Additions: purchased separately ...... — 684 684 Disposals ...... — (17) (17) At 31 December 2007 ...... 12,119 9,339 21,458 Additions: purchased separately ...... — 296 296 Disposals ...... — — — Impairment ...... (295) — (295) At 31 December 2008 ...... 11,824 9,635 21,459 Accumulated amortisation and impairment At 1 January 2007 ...... 7,700 8,184 15,884 Charge for the year ...... 3,274 721 3,995 Disposals ...... — — — At 31 December 2007 ...... 10,974 8,905 19,879 Charge for the year ...... 850 371 1,221 Disposals ...... — — — At 31 December 2008 ...... 11,824 9,276 21,100 Net book value At 31 December 2008 ...... — 359 359 At 31 December 2007 ...... 1,145 434 1,579
F-459 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
29. Property, plant and equipment
Fixtures Computer and equipment fittings Total g’000 g’000 g’000 Cost At 1 January 2007 ...... 4,937 1,278 6,215 Additions ...... 125 139 264 Disposals ...... (1,224) — (1,224) At 31 December 2007 ...... 3,838 1,417 5,255 Additions ...... 5 145 150 Disposals ...... — — — At 31 December 2008 ...... 3,843 1,562 5,405 Accumulated depreciation and impairment At 1 January 2007 ...... 3,082 734 3,816 Charge for the year ...... 770 290 1,060 Disposals ...... (756) — (756) At 31 December 2007 ...... 3,096 1,024 4,120 Charge for the year ...... 529 137 666 Disposals ...... — — — At 31 December 2008 ...... 3,625 1,161 4,786 Net book value At 31 December 2008 ...... 218 401 619 At 31 December 2007 ...... 742 393 1,135
30. Investments
Shares in subsidiary undertakings g’000 Cost At 1 January 2007 ...... 124,180 Additions ...... 164 Disposal of subsidiary undertaking ...... (84,586) At 31 December 2007 ...... 39,758 Additions ...... 18,500 Dissolution of subsidiary undertakings ...... (20) At 31 December 2008 ...... 58,238
The additions in 2008 of e18,500,000 relate to an additional equity subscription in Opodo S.A.S. in France following the merger between Opodo S.A.R.L. and Vivacances S.A., subsequently renamed Opodo S.A.S.
F-460 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
31. Financial instruments Capital risk management The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of cash and cash equivalents and equity attributable to equity holders of the parent company, comprising issued capital, reserves and retained earnings.
Categories off inancial instruments
2008 2007 g’000 g’000 Loans and receivables: Cash and cash equivalents ...... 3,187 3,938 Restricted cash deposits ...... 1,433 1,916 Trade and other receivables ...... 25,214 13,495 29,834 19,349 Assets not meeting the definition of a financial asset: Trade and other receivables ...... 3,527 4,072 Total current assets ...... 33,361 23,421 Financial liabilities at amortised cost: Short-term loans from parent company ...... — 12,110 Trade and other payables ...... 74,554 35,667 74,554 47,777 Current liabilities not meeting the definition of financial liabilities: Trade and other payables ...... 3,012 3,538 Tax liabilities ...... — 69 Provisions for liabilities ...... — 108 Total current liabilities ...... 77,566 51,492 Non current liabilities not meeting the definition of financial liabilities: Provisions for liabilities ...... — 140 Total non-current liabilities ...... — 140
Financial risk management objectives The Company’s finance department monitors and manages the financial risks relating to the operations of the Company through internal risk reports which analyse exposure by degree and magnitude of risks. These include market risk (including currency risk), credit risk, liquidity risk and cash flow interest rate risk. The Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.
F-461 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
31. Financial instruments (Continued) Foreign currency risk management The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. Foreign exchange exposure arises where the Company transacts in a currency different from its functional currency. The carrying amount of the Company’s monetary assets and liabilities at the reporting date, denominated in currency different to the functional currency of the entity in which such monetary assets and liabilities are held is as follows:
Assets Liabilities 2008 2007 2008 2007 g’000 g’000 g’000 g’000 Sterling ...... 6,598 6,252 8,952 9,888 US Dollar ...... 47 50 — 61 Swedish Kroner ...... — — 2,024 2,330 The following table details the Company’s sensitivity to a 10 per cent change in euro against the respective foreign currencies. Ten per cent represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analyses of the Company’s exposure to foreign currency risk at the reporting date has been determined based on the change taking place at the beginning of the financial year and held constant throughout the reporting period. A positive number indicates an increase in profit or loss and where euro strengthens against the respective currency.
2008 2007 g’000 g’000 Impact on profit or loss ...... 394 543
There would be no impact on equity arising from foreign exchange transaction exposures.
Interest rate risk management The Company was exposed to interest rate risk in the prior year as the Company borrowed funds from Amadeus at floating interest rates. Cash at bank earns interest at floating rates based on daily bank deposit rates. As a result, material fluctuations in the market interest rate can have an impact on the Company’s financial results. The interest rate exposure is not hedged. The sensitivity analyses below have been determined based on the exposure to interest rates at the reporting date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period. A 1 per cent change is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates. At the reporting date, if interest rates had been 1% higher/lower and all other variables were held constant, the Company’s loss would increase/decrease by E46,000 (2007: increase/decrease by E63,000). This is mainly attributable to the Company’s exposure to interest rates on its cash balances and variable rate borrowings. There is no material impact upon equity arising from interest rate changes. The Company’s sensitivity to interest rates has increased during the current period due to the increase in cash balances.
F-462 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
31. Financial instruments (Continued) Credit risk management Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Company. Financial assets that potentially subject the Company to concentration of credit risk consist principally of trade receivables. The Company’s trade receivables are derived from commissions due to it from business partners including airlines, car hire companies, travel insurance companies, hoteliers and hotel consolidators. The Company performs ongoing credit evaluations of its customers. An allowance for doubtful accounts is determined with respect to those amounts that the Company has determined to be doubtful from collection. Credit risk associated with the Company’s cash and cash equivalents and restricted cash deposits is managed by only placing funds on deposit with internationally recognised banks with suitable credit ratings or with the Company’s parent company. Except as detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk:
Maximum credit risk:
2008 2007 g’000 g’000 Cash and cash equivalents ...... 3,187 3,938 Restricted cash deposits ...... 1,433 1,916 Trade and other receivables ...... 25,214 13,495
Activities that give rise to credit risk and the associated maximum exposure include, but are not limited to: • making sales and extending credit terms to business partners and placing cash deposits with banks and the Company’s parent undertaking. In these cases, the maximum exposure to credit risk is the carrying amount of the related financial assets. For cash resources, the Company has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Company only transacts with entities that are rated the equivalent to investment grade or above. The Company’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivable. The Company does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Company defines counterparties as having similar characteristics if they are connected entities. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings or other Group companies.
Liquidity risk management Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve
F-463 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
31. Financial instruments (Continued) borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in this note is a description of additional undrawn facilities that the Company has at its disposal to further reduce liquidity risk. The following table details the Company’s remaining contractual maturity for its financial liabilities. The tables below have been drawn up based on the undiscounted contractual maturities of the financial liabilities including interest that will accrue to those liabilities.
2008 Weighted average Less than effective interest rate 1 year g’000 Variable rate debt ...... 3.51% — Non-interest bearing liabilities ...... — 74,554 Total financial liabilities ...... 74,554
2007 Weighted average Less than effective interest rate 1 year g’000 Variable rate debt ...... 4.709% 12,110 Non-interest bearing liabilities ...... 35,667 Total financial liabilities ...... 47,777 Total financial liabilities ...... 47,777
Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows: • The fair value of non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.
Cash and short-term deposits
2008 2007 g’000 g’000 Cash at bank and in hand ...... 3,187 3,938 3,187 3,938
Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bank and short-term highly liquid deposits held with Amadeus. Cash at bank earns interest at floating rates based on daily bank deposit rates. Short-term deposits are available upon request and earn interest at EURIBOR minus 0.1%. The fair value of cash and cash equivalents is the same as its carrying value.
F-464 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
31. Financial instruments (Continued) For the purpose of the cash flow statement, cash and cash equivalents comprise the following at 31 December:
2008 2007 g’000 g’000 Cash at bank and in hand ...... 3,187 3,938 3,187 3,938
Restricted cash deposits Restricted cash deposits are in respect of rental deposits and cash guarantees given by the Company and its principal subsidiaries to IATA and a number of local governmental agencies to ensure compliance with the accreditation terms for each organisation. The total of these guarantees is e1,301,717 (2007: e1,426,044). In the event that the Company ceased trading, the restricted cash deposits would not be returned to the Company, but would be utilised to cover any outstanding liabilities. The amount deposited is reviewed every year and is based on the Company’s financial results. e131,437 (2007: e490,388) has been placed on deposit in respect of operating rental lease agreements. The restricted cash deposits are stated at cost which approximates fair value.
Loan notes—Amadeus On 1 April 2003, 42,100,760 e1 unsecured convertible loan notes were issued in favour of Amadeus IT Group S.A. of Madrid, Spain, for a total consideration of e49,461,866. On 1 July 2004, 3,333,400 e1 additional convertible loan notes were issued for consideration of e3,333,400. The conversion rights attaching to the convertible loan notes were terminated with immediate effect from 1 July 2004 when 261,048,629 ordinary shares were issued to Amadeus IT Group S.A. On 30 November 2007, following the sale of Karavel, the unsecured convertible loan note instrument was terminated, and the full amount of e52,795,266 was repaid in full plus interest costs of e8,949,074. In return, and on the same date, Amadeus IT Group S.A. entered into an agreement with Opodo to provide a revolving credit facility to a maximum of the value of the loan notes plus interest (e61,744,340). As at 30 June 2008, the Company was determined to have been operational cash flow breakeven for the past two quarters, therefore in accordance with the repayment timetable detailed below, the credit available to the company at 31 December 2008 is e49,395,472.
Committed facilities As at 31 December 2008 the amount of undrawn borrowing facilities available for future operating activities and to settle capital commitments was e49,395,472 (2007: e49,634,804). Further details in respect of the borrowing facility are set out in Note 11.
F-465 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
32. Trade and other receivables
2008 2007 g’000 g’000 Trade receivables ...... 3,511 6,066 Allowance for doubtful debts ...... (59) (1,440) 3,452 4,626 Loans to group companies ...... 17,750 — Amounts owed by group companies ...... 3,428 8,859 VAT and other taxes receivable ...... 421 671 Prepayments and accrued income ...... 3,687 3,401 Other receivables ...... 3 10 28,741 17,567
The average credit period granted on receivables for revenues is 60 days (2007: 60 days), no interest is charged on the receivables outstanding. The Company has provided for trade receivables based on estimated irrecoverable amounts, determined by reference to past default experience. Included in the Company’s trade receivables are debtors with a carrying value of £316,000 (2007: e515,000) which are past due at the reporting date for which the Company has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Company does not hold any collateral over these balances. The average age of these receivables is 90 days (2007: 137 days)
2008 2007 g’000 g’000 Ageing of past due but not impaired receivables 60-90 days ...... 1 119 90-180 days ...... 315 127 180 + days ...... — 269 Total ...... 316 515
2008 2007 g’000 g’000 Movement in the allowance for doubtful debts Balance at beginning of the period ...... 1,440 525 Amounts provided for ...... — 998 Utilised during the year ...... (83) Amounts written off as uncollectable ...... (1,381) Balance at the end of the period ...... 59 1,440
In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the directors believe there is no further credit provision required in excess of the allowance for doubtful debts. Other receivables have also been assessed in terms of creditworthiness and are considered to be recoverable. No allowance for doubtful debts has been made on these balances. The directors consider that the carrying amount of trade and other receivables approximates their fair value.
F-466 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
33. Trade and other payables
2008 2007 g’000 g’000 Trade payables ...... 16,291 17,655 Employee related accruals ...... 705 1,124 Other taxes and social security costs payable ...... 184 767 Amounts owed to group companies ...... 51,641 14,891 Accruals and deferred income ...... 8,008 4,062 Other payables ...... 737 706 77,566 39,205
Trade creditors and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days. For most suppliers no interest is charged on the trade payables for the first 30 days from the date of the invoice. Thereafter, interest is charged on the outstanding balances at various interest rates. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.
34. Provisions
Guarantee Redundancy Contingent provision provision consideration Total g’000 g’000 g’000 g’000 At 1 January 2008 ...... 248 — — 248 Additions ...... — — — — Utilised during the year ...... — — — — Released to income statement ...... (248) — — (248) At 31 December 2008 ...... — — — —
35. Operating lease arrangements The Company had total commitments under non-cancellable operating leases as set out below:
Land and buildings Other 2008 2007 2008 2007 g’000 g’000 g’000 g’000 Company Operating leases which expire: Within one year ...... 267 664 — 30 In two to five years ...... 528 — — — 795 664 — 30
2008 2007 g’000 g’000 Minimum lease payments under operating leases charged to the income statement for the year ...... 805 734
F-467 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
35. Operating lease arrangements (Continued) Operating lease payments represent rentals payable by the Company for certain of its office properties. Other than as set out below, leases are negotiated for an average term of five years and rentals are fixed for an average of three years. During the year, the lease relating to the London head office was terminated in accordance with a break clause included in the original contract. A new lease was entered into which expires in April 2012, with a break clause which can be invoked in October 2010.
36. Retirement benefit schemes The Company participates in a defined contribution group scheme. The assets of the scheme are held separately from those of the Company in independently administered funds. The total cost charged to income of e197,000 (2007: e317,000) represents contributions payable to these schemes by the Company at rates specified in the rules of the plans. As at 31 December 2008, no contributions were due (2007—enil) in respect of the current reporting periods which had not been paid over to the schemes.
37. Retained losses
g’000 Balance at 1 January 2007 ...... (358,437) Net profit for the year ...... 8,739 Balance at 31 December 2007 ...... (349,698) Net profit for the year ...... 750 Balance at 31 December 2008 ...... (348,948)
38. Commitments and contingencies Refer to Note 22.
39. Related party transactions Below is a summary of balances and transactions with related parties. All transactions with related parties are carried out on an arm’s length basis.
(a) Accounts receivables: shareholder airlines The receivables are primarily for commission revenues earned from selling tickets for flights on shareholder airlines. As at 31 December 2008 the total amount outstanding from shareholder airlines was e87,948 (2007: e8,637). Total commissions earned by the Company from related parties for the years ended 31 December 2008 and 31 December 2007 are e1,176,106 and e105,188 respectively. This includes commission revenue from the tickets purchased from the shareholder airlines through third parties. In addition, airline incentive revenue earned by the Company from related parties for the years ended 31 December 2008 and 31 December 2007 are e2,076,373 and e1,025,382 respectively. No provisions have been made for doubtful debts in respect of the amounts owed by related parties.
F-468 OPODO LIMITED NOTES TO THE COMPANY FINANCIAL STATEMENTS (Continued) Year ended 31 December 2008
39. Related party transactions (Continued) (b) Accounts payable: shareholder airlines The payables are primarily related to amounts collected by the Company as merchant of record on behalf of shareholder airlines. As at 31 December 2008 the total amount outstanding due to shareholder airlines was e12,568,838 (2007: e6,892,117). The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.
(c) Trading transactions—Amadeus The Company was charged e1,843,291 and e2,520,164 for the years ended 31 December 2008 and 31 December 2007 respectively by Amadeus for charges in relation to intercompany trading and received e6,217,359 and e7,034,556 from the same. As at 31 December 2008 the total amount outstanding due to Amadeus was e773,535 (2007: e365,813) and the amount receivable from Amadeus in respect of these transactions was e2,931,018 (2007: e1,863,859).
(d) Loans receivable and advances—Amadeus Total interest earned by the Company from Amadeus was e489,802 and e179,456 for the years ended 31 December 2008 and 31 December 2007, respectively. As at 31 December 2008 the total amount outstanding from Amadeus in respect of interest receivable was nil (2007: enil). Interest rates for these short-term deposits denominated in Euros ranged from 3.51% to 6.39% for the year ended 31 December 2008 and from 4.71% to 6.81% for the year ended 31 December 2007. In addition, the Company was charged e1,492,045 and e2,439,772 for the years ended 31 December 2008 and 31 December 2007, respectively for interest on loans from Amadeus, and e163,221 and e376,973 for finance costs on bonding and guarantees provided by Amadeus. The total accrued interest on such loans from Amadeus was enil at 31 December 2008 (2007: enil).
(e) Loans receivable and advances—subsidiaries There are no other loans receivable or advances with subsidiaries as at the balance sheet date.
(f) Directors and key management compensation Directors’ remuneration is set out in note 4. The compensation received by key management of the Company during the years ended 31 December 2008 and 31 December 2007 was as follows: 2008 2007 g’000 g’000 Cash compensation ...... 790 919 Termination benefits ...... — 12 Compensation in kind ...... 203 29 Contributions to Pension Plan and Collective Life Insurance Policies ...... 62 75 Total ...... 1,055 1,035
There are no other transactions with directors and key management.
F-469 The Issuer Geo Travel Finance S.C.A. Registered Office of the Issuer 282, route de Longwy L-1940 Luxembourg
Legal Advisors to the Issuer as to U.S., French and English law As to Luxembourg and Swedish law Latham & Watkins LLP Linklaters LLP 53, quai d’Orsay 35, Avenue John F. Kennedy 75007 Paris L-1855 Luxembourg France
Legal Advisors to the Initial Purchasers as to U.S. law as to English, Luxembourg and as to Swedish law French law Cravath, Swaine & Moore LLP Allen & Overy LLP Advokatfirmen Vinge KB CityPoint One Ropemaker Street One Bishops Square Smalandsgaten˚ 20 London EC2Y 9HR London E1 6AD SE-111 87 Stockholm United Kingdom United Kingdom Sweden
Independent Auditors Deloitte, S.L. (Spain) Deloitte & Associes´ (France) Deloitte LLP (United Kingdom) Plaza de Pablo Ruiz Picasso s/n 185, avenue 2 New Street Square Torre Picasso Charles de Gaulle London, EC4A 3BZ Madrid 28020 Neuilly United Kingdom Spain 92200 France
Trustee Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB United Kingdom
Legal Advisors to the Trustee Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA United Kingdom
Principal Paying Agent Security Agent Deutsche Bank AG, London Branch Societ´ e´ Gen´ erale´ Winchester House Tour Societ´ e´ Gen´ erale´ 1 Great Winchester Street 75886 Paris Cedex 18 London EC2N 2DB France United Kingdom
Registrar Transfer Agent and Irish Listing Agent Paying Agent Deutsche Bank Deutsche International Arthur Cox Listing Services Luxembourg S.A. Corporate Services Limited 2 Boulevard Konrad Adenauer (Ireland) Ltd. Earlsfort Centre L-115 Luxembourg 5 Harbourmaster Place Earlsfort Terrace IFSC Dublin 2 Dublin 1 Ireland Ireland 9APR201114313587
Geo Travel Finance S.C.A.
g175,000,000 10.375% Senior Notes due 2019
OFFERING CIRCULAR June 28, 2011
Joint Global Coordinators and Joint Lead Bookrunners
Goldman Sachs International Credit Suisse
Joint Bookrunners
Societ´ e´ Gen´ erale´ Corporate & UBS Investment Bank Investment Banking