UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 2000

OR

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|[ ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

Commission File Number 001-14353

GLOBAL VACATION GROUP, INC.
(Exact name of registrant as specified in its charter)

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|New York                 |  | 13-1894567                       
|(State of Incorporation) |  | (IRS Employer Identification No.)

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|One North First Street, Suite 300                                  |  | 95113     
|San Jose, CA
(Address of registrants principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code: (408) 882-8455

Securities registered pursuant to Section 12(b) of the Act:

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|--------------------------------------- |  | -----------------------------------------
|Title of Each Class                     |  | Name of Each Exchange on which Registered
|                                        |  |                                          
|Common Stock (par value $.01 per share) |  | The American Stock Exchange, L.L.C.      

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X    No ___

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of voting stock held by non-affiliates of the
Company as of the 21st day of March 2001 was approximately $8,036,000 based on
the $2.25 closing sale price for the Common Stock on the Stock Market on such
date. For purposes of this computation, all executive officers, directors and
persons beneficially owning more than five percent of the Company have been
deemed to be affiliates. Such determination should not be deemed to be an
admission that such directors and officers are, in fact, affiliates of the
Registrant.

The number of shares of Common Stock of the Registrant outstanding as of
the 21st day of March 2001 was 14,392,825.

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DOCUMENTS INCORPORATED BY REFERENCE

Part of the Registrants Proxy Statement for the Annual Meeting of Shareholders
to be held on May 17, 2001 are incorporated by reference into Part III of this
Form 10-K Report. (The Audit Committee Report, the Compensation Committee
Report and the stock performance graph of the Registrants Proxy Statement are
expressly not incorporated by reference herein.)

PART I

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|ITEM 1. |  | BUSINESS

THE COMPANY

Global Vacation Group, Inc., and subsidiaries (GVG or the Company)
assembles air, hotel, rental car and other travel components in bulk and
provides complete vacations to travelers primarily through other resellers of
travel including retail travel agents and international tour wholesalers. The
Company primarily provides flexible independent travel programs for
individuals, as well as escorted tours and group packages.

The Companys strategy is to achieve the leading market position in
selected high-volume, high-margin travel destinations, focusing on the
following areas: (i) Hawaii; (ii) in-bound vacations to the United States for
international travelers; (iii) the Caribbean; (iv) Mexico; (v) select North
American vacation destinations such as California, New York, Florida, and
Canada; and (vi) out-bound travel by U.S. travelers to Europe.

The Company leverages its expertise in its targeted destination markets as
well as its relationships with travel suppliers to provide a value proposition
to travel agents and the end consumer. The Company buys in bulk at a discount
and marks up its products to provide both competitive pricing to the end
consumer as well competitive commissions to sellers of travel. Its customers
rely on the Company to provide high quality and often customized services
including marketing support. The Company has built a diverse domestic and
international customer base including many of the largest domestic, European
and Asian travel resellers. The Company, through its various acquisitions, has
many years of experience operating in each of its key destination markets.

The Company markets its products and services under multiple brands. The
Company primarily targets U.S. travelers using products offered by its Classic
Custom Vacations (Classic) brand. Classic markets customized vacation
packages through retail travel agency groups having preferred agreements with
the largest leisure travel agency groups in the U.S. The Companys Allied
Tours brand (Allied) creates and coordinates packages and tours for
international travel wholesalers selling vacations to North America. The
Companys Private Label brands provide outsourced vacation packaging for both
Amtrak Vacations and Hyatt Vacations. The Companys Island Resort Tours brand
markets vacation packages principally to the Caribbean and is operated together
with International Travel & Resorts, a hotel representation company for
properties primarily located in the Caribbean. The Company also provides
affinity group marketing and awards program fulfillment services.

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Industry Overview

Tourism is one of the worlds largest industries. According to the Travel
Industry Association of America (TIA) baseline travel forecast, Americans
spent a total of $445.6 billion on all types of domestic travel in 1999, with a
projected increase in 2000 of 6.7% to $475.5 billion. Also according to TIA,
approximately 66% of the domestic trips taken by U.S. travelers were for
personal or vacation travel, and management believes that approximately 70% of
the trips taken by U.S. travelers to Europe were for personal or vacation
travel. In addition, TIA, in conjunction with the Tourism Industries, estimates
that there were 48.5 million international visitors to the United States in
1999 who spent an aggregate of $95.5 billion on such trips.

Travel suppliers use package vacation providers such as the Company to
sell their capacity more efficiently and support their yield management. At the
same time, management believes that purchasing travel products and services
from package vacation providers can lower costs, simplify booking and result in
higher commissions for retail travel agents and international tour operators.
As a result of the significant erosion in stated commissions from airlines for
U.S. domestic travel over the past three years, the Company believes travel
agents are seeking to establish relationships with package vacation providers
that will offer better customer service, competitive prices and attractive
commission structures.

Through its Classic brand, Management believes the Company is well
positioned to take advantage of the growing trend towards customized vacations.
Todays sophisticated travelers expect to be treated as individuals, not as
numbers. Most larger wholesalers with the Companys purchasing power are
transactional in nature and only market that they are cheaper. Most smaller
wholesalers lack the Companys purchasing power and automation capabilities.

Operating Strategy

In providing value-added vacation products and services targeted to the
sophisticated traveler, the Company pursues an operating strategy that includes
the following elements:

Creating Value-added Vacation Products and Services.The Company focuses
on creating vacation packages that provide added value to higher-income
travelers. The Company believes that, because of its size and expertise in
certain destinations, it can (i) generally provide better value and inventory
availability than can be obtained by an individual travel agency, traveler or
even most foreign tour operators, (ii) enhance and simplify access to travel
information across multiple destinations and (iii) assemble vacation travel
components into convenient packages for ease of planning and booking.

Establishing National Brand Name Recognition.The Company believes it can
leverage its presence in leading origination and destination cities to develop
a nationally recognized proprietary brand name in the vacation industry with
its Classic Custom Vacations brand. As a result of the recent consolidation of
two of its lesser-recognized brands into Classic Custom Vacations, the Company
eliminated confusion and overlap, enabling more sustainable growth. The
Company believes offering expertise and competitive pricing across multiple
destination and origin markets will insure greater confidence among travelers
making their vacation choices and engender customer loyalty and a pattern of
repeat purchases.

Leveraging Strength in Selected Travel Destinations.The Company believes
it has a leading position in the package vacation sales areas for westbound
travel to Hawaii and for in-bound travel to the United States and

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intends to achieve a leading position in other high-volume, high-margin
vacation destinations. The Company believes having scale and expertise in
selected destinations gives it access to pricing, inventory and marketing
support that provides the Company with a significant competitive advantage.

Integrating Product Knowledge and Leveraging Distribution Channels.Over
many years of providing customized vacation packages to Hawaii, the Companys
very successful Classic Custom Vacations brand has developed a loyal customer
base and a strong reputation for quality. The Company has leveraged the
expertise and supplier relationships of some of its other acquired companies
enabling Classic to rapidly expand into new destination markets. This was
evidenced by the creation of Classic Caribbean and Classic Mexico in 1999 and
2000, respectively with resources from Island Resort Tours and the former
Globetrotters and Friendly brands. The integration of Haddon Holidays popular
United Airlines service to Hawaii similarly strengthened Classics Hawaii
product. Classic is now positioned to capture a greater percentage of the
vacations sold by its travel agent customers through an expanded consolidated
product offering under the respected Classic name.

Building Strong Reputations.The Company prides itself in providing
reliable quality services to its customers engendering repeat business through
the reputation of its brands in the vacation industry. Allied Tours, with
fifty years of operating history, remains the oldest and one of the most
respected names in the Visit USA market servicing international tour operators.
Classic Custom Vacations, over the past twenty years, has built a strong
reputation among travel agents for its quality Hawaii product. The strong
reputations of both Allied Tours and Classic Custom Vacations have allowed the
company to continue to build its product offerings and attract new customers.
The Company views the strong reputations of it two largest brands as a
significant competitive advantage.

Improving Operating Efficiencies.The Company continues to seek ways to
reduce its operating expenses by (i) consolidating administrative and support
functions, (ii) implementing a more effective utilization of its physical and
other assets, (iii) implementing best practices in its management and business
systems, (iv) enhancing marketing relationships with travel suppliers and other
related parties and (v) outsourcing certain functions where appropriate.

Growth Strategy

To complement its operating strategy, the Company has developed a growth
strategy for each of its brands that includes the following:

Classic Custom Vacations.Acquired in 1998, Classic is the Companys
largest and most recognized brand. With the introduction of Classic Caribbean
in 1999 and Classic Mexico in 2000, as well as the expansion of Classic Europe
over the past two years, and the recent consolidation of the former
Globetrotters brand and some of its mid-priced resort relationships, Classic
Custom Vacations has significantly increased its product offerings. Classic
Custom Vacations has preferred supplier relationships with some of the largest
domestic travel agency groups including AAA, American Express Travel, Carlson
Wagonlit Travel, Giants, Leisure Travel Group, Vacation.com and Virtuoso, among
others. These agency groups have supported Classics flagship Hawaii product
and are now able to offer their customers Classics quality products to other
resort destinations as well. Classic expects its growth over the next few
years to principally come from continued acceptance of its new product
offerings. To accommodate its growth Classic, headquartered in San Jose, CA,
opened a satellite reservations center in a suburb outside Chicago in the fall
of 2000 taking over space previously used by Globetrotters.

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Allied Tours.With over 50 years of operating history, Allied Tours is
headquartered in New York, NY. Allied Tours is the oldest and most respected
name in inbound travel to North America. Allieds customer base includes a
broad base of international travel distributors including some of the largest
packaged vacation providers in Europe, Asia, and Central America. Allied
features a wide range of hotels and services for the independent traveler from
deluxe to budget class as well as a wide range of escorted tours across North
America. Recently, growth has been slowed in part due to economic weakness in
Europe, Asia and Central America and a strong U.S. currency. Over the past two
years Allied has implemented an industry leading online reservation system.
Allieds Direct Access(2) system allows its customers on-line access to
Allieds product offerings and includes full reservations capability. For
larger customers, Allied offers its Host(2)Host system interface enabling
clients to establish a virtual link between their in-house reservations system
and Direct Access(2). The Company believes that these recent technology
enhancements provide it with a significant competitive advantage and will
facilitate revenue growth as it will be easier and more convenient for
customers to book travel with Allied than in the past. Direct Access(2) is
expected to allow the Company to handle growth efficiently with lower
associated costs.

Private Label Operations.The Companys Private Label brands acquired in
1998 and headquartered in Downers Grove, IL, a suburb outside Chicago, operates
Amtrak Vacations for the National Railroad Passenger Corporation (Amtrak),
providing reservations services and the coordination and fulfillment of
vacations incorporating rail transportation that may also include air
transportation and hotel lodging. Rail vacations are popular among aging baby
boomers and seniors who have more available time as is necessary with rail
transportation. Aging baby boomers make up a fast growing segment of the U.S.
population.

The Private Label division also provides similar services for vacations
featuring Hyatt resorts for the Hyatt Corporation (Hyatt) under the brand
name Hyatt Vacations. The relationship with Hyatt was significantly expanded
in 2000 to include full marketing support as well as product fulfillment
responsibilities. The Company anticipates that the expansion of this
relationship will provide growth opportunity over the near term. Because the
contracts with both Amtrak and Hyatt are for limited terms, and as either party
may choose not extend these contracts, certain intangible assets related to
these operations have a limited life.

Island Resort Tours and International Travel & Resorts. Headquartered in
New York, NY, Island Resort Tours was acquired in 1999 and markets vacation
packages featuring travel primarily using American Airlines to a customer base
centered around the New York Metropolitan area to resort destinations with a
strong concentration in the Caribbean. Island Resort Tours has forged new
relationships in the past two years with its customers to make vacation
packages available on the Internet and through other distribution channels
including affinity groups. The Company anticipates continued revenue growth
due to these new and enhanced relationships. Its sister company, International
Travel & Resorts (ITR), provides reservation and marketing support services
for approximately 200 independent hotels, most of which are located in the
Caribbean. As with the Companys other brands discussed above ITR markets
leisure travel products for its hotels primarily through relationships with
retail travel agencies and other travel distributors. The Company expects to
grow this part of the business concentrated in the Caribbean to include other
destinations by leveraging its relationships with other independent properties
marketed by the Companys Classic Brand.

Summary. Growth over the next few years is primarily expected to come
from the continued enhancement of the Companys product offerings to key
destinations and the continued leveraging of its relationships with its diverse
international base of both supplier and customer relationships. In particular,
the product expansion at its

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Classic brand and the technology investments at Allied should enable the
Company to continue to grow by providing more complete and efficient products
and services to its customers. The Company expects to continue to leverage the
particular strengths of its other smaller brands as well.

Perhaps more importantly than near-term revenue growth prospects, the
recent consolidation of the Companys Vacations by Globetrotters (acquired in
1998) and Friendly Holidays (acquired in 1999) brands into Classic Custom
Vacations, the move away from its Trase Miller Solutions technology platform
(acquired in 1999), and the closing of its Washington, D.C. headquarters office
as part of its restructuring announced in 2000, position the Company to return
to profitability. As part of the restructuring, the Company eliminated certain
unprofitable lower margin products and reduced overhead costs through the
elimination of over 100 redundant support and administrative positions.

Key Destinations

Hawaii.Westbound travel from the United States was up 6.9% in 2000
following a 7.6% increase in 1999, according to the State of Hawaii Department
of Business, Economic Development & Tourism (the Hawaii DBEDT). Of the
estimated 4.2 million westbound visitors to Hawaii in 2000 per the Hawaii
DBEDT, only 34% traveled with some form of packaged trip. This provides
opportunity for the vacation package industry to capture a larger portion of
the market. Finally, the Hawaii DBEDT reports that 66% of the visitors to
Hawaii in 2000 from the United States were repeat visitors. The Company
believes that a provider of vacation packages with a strong reputation for
quality service such as Classic Custom Vacations is poised to participate in
the growth of travel to Hawaii through a high percentage of repeat business in
the marketplace.

The Company with more than 20 years of experience in the Hawaii
marketplace, is one of the leading providers of vacations to Hawaii for
travelers from the continental United States. The Company has relationships
with major airlines, such as United, Delta, American, Continental, Northwest,
Aloha and Hawaiian for travel to and within Hawaii. These airline
relationships provide the Company with access to prices that generally are
better than published fares and priority access to the limited capacity for air
travel to Hawaii, as well as marketing support. The Company believes its
extensive experience and established reputation in Hawaii as well as its
airline relationships are significant competitive advantages. The Company
believes the Hawaii travel marketplace will continue to present growth
opportunities in the future and to represent a significant portion of its
revenues.

In-bound to the United States.According to TIA, in conjunction with the
Tourism Industries, 48.5 million in-bound travelers to the United States spent
$95.5 billion on travel to and within the United States in 1999 (the latest
data available), making the United States one of the most popular tourist
destinations worldwide and the recipient of the largest dollar volume of annual
tourism receipts. Also according to TIA, the total amount spent by
international travelers to the United States grew by 100% between 1989 and
1999.

The Company is among the largest package vacation providers for in-bound
travelers to the United States with over 50 years of experience in this area.
The Companys customers for these products and services are primarily
international tour operators who send travelers to the United States. The
Company believes its broad customer base of leading wholesalers worldwide and
longstanding relationships with U.S. based travel suppliers represents a
significant competitive advantage.

The Caribbean Islands.The Company features vacations to resort
destinations on most of the regions more popular islands including the
outlying Islands of the Bahamas and Bermuda. TIA has reported that
approximately 4.3 million U.S. travelers visited Caribbean destinations during
1999 up from 3.6 million in 1998. The Caribbean

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has historically been a small market for the Company. Through the
introduction of Classic Caribbean in 1999 and the expansion of Classic
Caribbean in both 2000 and 2001, GVG expects to continue to grow its presence
in this destination market. Classic was able to launch and rapidly expand its
Caribbean product due to its strong reputation amongst travel agents and by
leveraging the supplier relationships developed by the Companys other acquired
brands including Island Resort Tours as well as the former Globetrotters and
Friendly Holidays brands.

Mexico.TIA has reported that approximately 17.7 million U.S. travelers
visited Mexico during 1999 down from 18.3 million in 1998. Although U.S.
travel to Mexico has fluctuated in recent years, the number of U.S. travelers
to Mexico has grown from 14.2 million in 1989. The Companys marketing efforts
to Mexico are limited to select resort destinations and colonial cities.
Through its Classic Mexico product, introduced in 2000 and expanded for 2001,
the Company markets vacations primarily featuring three, four and five star
properties to maintain the standards of quality to which its customers have
come to expect from Classic.

Select North American Vacation Destinations.The Company offers products
and services to a number of destinations in the continental United States and
Canada including California, New York, Florida and ski destinations in Colorado
and British Columbia. Properties represented by the Company in these markets
include luxury properties such as the Fairmont, San Francisco; the St. Regis,
Aspen; the Ritz Carlton, Key Biscayne; the Four Seasons Hotel, Washington D.C.;
select Walt Disney Resort properties; Chateau Whistler; and The Phoenician in
Scottsdale among others. Additionally, the Company is the exclusive provider of
vacation products and services for Amtrak. The Company believes it has
significant buying efficiencies for destinations throughout the United States
due to the volume of U.S. travel products and services it purchases for both
in-bound and domestic travelers. As a result, the Company is able to create and
effectively market products and services that are in demand by travelers,
including weekend trips and excursions such as theater packages in New York
and Napa Valley wine country tours.

Europe.While travel from Europe in recent years may have been depressed
due to weak economic conditions in Europe and the strength of the U.S. dollar,
U.S. resident travel to Europe has grown dramatically from 8.7 million to 11.6
million visitors in 1999, according to a survey by the U.S. Department of
Commerce. The Company has an established presence in the marketplace for travel
by U.S. residents to Europe. The Company expects growth in this market through
the anticipated continued customer acceptance of its Classic Europe product,
which introduced vacations to England, Portugal, Spain, France and Monaco in
1999. These destinations join Italy, Greece and Turkey, which were introduced
a just a few years earlier. Like the Caribbean and Mexico, the Company expects
to continue to expand its presence in U.S. travel to Europe as a result of
these recent product extensions.

Products and Services

The Company focuses on specific destinations in order to become a leading
provider of value-added vacation products and services while at the same time
providing travel suppliers with efficient and cost effective distribution of
their capacity. The Company has expertise in and access to the products and
services of a broad range of travel suppliers. Based on customer research, the
Company designs its products and services to offer travelers a wider choice
than that of an individual supplier. The Company assembles travel products and
services in bulk and combines them to create customized vacations for
individual travelers. The Company creates demand for its products through
integrated marketing programs and handles all reservations, payment processing
and supplier processing interfaces. The Company has developed the in-depth
knowledge of these products and services that a retail travel agent, who acts
as a broker or reseller of the entire spectrum of travel products and

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services, is unlikely to acquire. Likewise, the Company provides valued
added services to its foreign customers with its efficient management and
fulfillment of a diverse product offering simplifying the customers needs for
an American presence.

The Company focuses on ensuring customer satisfaction and cultivating
consumer loyalty to its products and services. The Company has quality control
mechanisms, such as destination management programs, in place to provide
customer support and monitor the quality of the individual travel components
and overall customer satisfaction.

The Company also manages bankcard reward and other affinity group
marketing programs for several companies including The Chase Manhattan Bank,
U.S. Bank, and Bank of America. The Company has certain proprietary software
and extensive operating experience that it believes provides a significant
opportunity to capitalize on this capability.

The Company intends to increase sales by proactively marketing its
services to affinity group sponsors. The Company believes access to affinity
groups provides unique opportunities for the direct marketing of its products
and services to targeted travelers while enhancing their relationship with
their affinity organizations.

Sales and Marketing

The Company pursues a fully integrated sales and marketing effort in
support of its proprietary travel products and services, as well as the private
label products and services the Company manages and markets for other
companies. The Company directs its marketing primarily toward retail
distributors and other intermediaries. In addition, the Company integrates its
own marketing efforts with the marketing support it receives from certain
travel suppliers with whom the Company has an established relationship. The
Company believes it leverages its national presence and established marketing
and sales experience and strength into a competitive advantage. The Company
seeks to identify and cultivate new customers and create cross-selling
opportunities within its existing customer base.

A substantial majority of the Companys products and services are sold
through a broad network of retail travel agencies, including independent firms
and agencies affiliated with travel consortia or national accounts. The Company
typically offers retail travel agencies a base commission on the sale of
Company products with the opportunity to earn additional override commissions
on sales above negotiated threshold amounts. In addition to supplying travel
agents with brochures and merchandising materials, the Company leverages its
relationships through targeted marketing efforts, including travel agent
training, trade shows, cooperative advertising and performance incentives.
These efforts also include strategic distribution and favorable vendor
arrangements (both exclusive and non-exclusive) with other travel
intermediaries, national accounts and travel agency consortia. The Company
employs a dedicated sales force to maintain and expand these relationships.

The Companys marketing strategy focuses on domestic and foreign travel
distributors who market vacation products and services directly to travelers as
well as tour wholesalers. The Company has developed numerous important
relationships with major travel distributors in Europe and in certain other key
international origination areas. The Companys marketing efforts with these
distributors include direct sales efforts, brochures, trade advertising and
trade shows in addition to effective account management of existing,
long-standing relationships.

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The Company pursues marketing opportunities in other distribution channels
as well. The Company intends to develop marketing programs aimed at travelers
who purchase travel products and services through affinity groups.

Business and Information Systems

The Company believes the successful application of common business and
information systems will be important to its ability to create operating
efficiencies and establish a competitive advantage. The ongoing migration of
systems for all of the Companys domestic wholesale products to a shared system
will enable the Company to spread maintenance and development costs across a
broader customer base, facilitate the use of common operating platforms, reduce
the costs and time requirements of developing external interfaces and provide
us with better inventory control, yield management and customer service
capability. In addition, it is likely that application of system solutions will
become increasingly important to enable the Company to integrate customer
identification and profiling capabilities with reservation and operational
business systems. This combination will enable the Company to leverage each
customer encounter into a basis for generating repeat business and establishing
a long-term relationship.

The high cost of some of the Companys investments in technology
contributed to reported losses in 1999 and 2000. As part of the Companys
restructuring plans undertaken during the second half of 2000, the Company
decided to move away from the Trase Miller technology platform that the Company
acquired in 1999. A significant portion of the Companys restructuring and
impairment charge was related to writing down the intangibles, system platform,
and related assets associated with the Trase Miller acquisition. Instead of
using the Trase Miller system for domestic reservations and operations support,
the Company migrated to a less costly system used by its Classic Custom
Vacations brand. Management believes that Classics PC Res system meets the
Companys present and future operating needs.

Technology is an equally important part of Allied Tours. Allied Tours
successfully implemented its proprietary Time(2) system supporting its
operations during 1999. The system was fully functional to support operations
beginning in 2000. Time(2) is complemented by Allieds proprietary Direct
Access(2) which provides online reservations and inquiry capability for
customers. For higher volume customers Allied makes available its proprietary
Host(2)Host system which allows customers to interface their in-house
reservations systems directly with Time(2).

Competition

The Company competes with a variety of other providers of travel and
travel-related products and services. Its principal competitors are other
vacation providers, travel agencies and other retail and wholesale distributors
of travel products and services. The Company also competes with travel
suppliers, including some of the Companys travel suppliers that sell directly
to individual travelers. The Company believes it competes for customers based
upon the quality of the travel products and services delivered, price,
specialized knowledge, reputation and convenience. The Company believes it is
well positioned to compete on these bases.

Employees

The Company employs approximately 800 people, a majority of whom are
located at the Companys principal offices in San Jose, CA; New York, NY;
Downers Grove, IL; and Honolulu, HA. Approximately 330 of the

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Companys employees serve as reservations staff and the remainder serve in
customer service and operations, sales and marketing, information systems and
management, and administration. The Company believes it enjoys good relations
with its employees, none of whom are covered by any collective bargaining
agreements.

QUALIFICATION OF FORWARD-LOOKING STATEMENTS

The statements contained in this Report that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements regarding the Companys expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward-looking statements. The forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause actual results,
experience and the performance or achievements of the Company to be materially
different from those anticipated, expressed or implied by the forward-looking
statements. In evaluating the Companys business, the following factors, in
addition to the Risk Factors set forth below and other information set forth
herein, should be carefully considered: successful integration of systems;
factors affecting internal growth and management of growth; dependence on
travel providers; dependence on technology; labor and technology costs;
advertising and promotional efforts; risks associated with the travel industry
generally; seasonality and quarterly fluctuations; competition; and general
economic conditions. In addition, the Companys business strategy and growth
strategy involve a number of risks and challenges, and there can be no
assurance that these risks and other factors will not have a material adverse
effect on the Company.

RISK FACTORS

The following factors should be considered in addition to other
information included in this Form 10-K.

Substantial Competition

The package vacation industry is highly competitive and has relatively low
barriers to entry. The Company competes primarily with other vacation
providers, travel agencies and other retail and wholesale distributors of
travel products and services, some of which are larger and have greater brand
name recognition and financial resources than the Company. Competition within
the package vacation industry is increasing as certain of the Companys
competitors are expanding their size and financial resources through
consolidation. Certain package vacation providers that compete with the Company
may have relationships with travel suppliers that give them preferred access to
capacity or more competitive pricing than is available to the Company.
Furthermore, some travel providers have a strong presence in particular
geographic areas, which may make it difficult for the Company to attract
customers in those areas. The Company also competes with travel suppliers,
including some of the Companys travel suppliers that sell directly to
individual travelers. These suppliers may restrict the availability of travel
products or services or the ability of the Company to offer such products or
services at preferential prices. Consolidation among travel suppliers has left
the remaining suppliers in a stronger position relative to providers of travel
products and services, such as the Company. As a result of competitive
pressures, the Companys revenues and margins may decline. There can be no
assurance that the Company will be able to compete successfully, and the
failure to compete successfully may have a material adverse effect on the
business, financial condition and results of operations of the Company.

Changing Industry Dynamics; New Methods of Distribution

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Innovations in on-line technology such as the Internet have increased the
ability of travel suppliers to distribute their travel products and services
directly to travelers. Travelers can now use the Internet to access information
about travel products and services and to purchase such products and services
directly from suppliers, thereby bypassing both vacation providers such as the
Company and retail travel agents through whom the Company receives a
substantial majority of its revenues. In addition, recent erosion of
commissions paid by travel suppliers, particularly airlines, to travel
distributors has weakened the financial condition of many travel agents.
Because the Company currently relies to a large extent on retail travel
agencies for access to travelers and revenues, a shift in consumer purchasing
away from travel agencies and toward direct purchasing from travel suppliers
could have an adverse impact on the Company.

Dependence on Travel Suppliers

The Company is dependent upon travel suppliers for access to their
products and services. Certain travel suppliers, such as American Airlines,
Inc., Delta Air Lines, Inc., Hawaiian Airlines, Inc., United Air Lines, Inc.,
Four Seasons Hotels Inc., Hilton Hotels Corporation, Hyatt, Starwood Hotels &
Resorts Worldwide, Inc., Amtrak, Alamo Rent A Car, LLC, and Avis Rent A Car,
Inc., offer the Company (i) non-exclusive pricing that is preferential to
published rates, enabling the Company to offer complete vacations at prices
lower than generally would be available to individual travelers and retail
travel agents, (ii) non-exclusive preferential access to inventory of their
travel products and services, enabling the Company to assemble more desirable
vacations for travelers, or (iii) in the case of certain travel suppliers, both
non-exclusive preferential pricing and access to inventory. The Companys
travel suppliers generally can cancel or modify their agreements with the
Company upon relatively short notice. In addition, any decline in the quality
of travel products and services provided by these suppliers, or a perception by
travelers of such a decline, could adversely affect the Companys reputation.
The loss of contracts, changes in the Companys pricing agreements, commission
schedules or incentive override commission arrangements, more restricted access
to travel suppliers products and services or less favorable public opinion of
certain travel suppliers and resulting low demand for the products and services
of such travel suppliers could have a material adverse effect on the business,
financial condition and results of operations of the Company.

Concentration in Hawaiian Marketplace

In 2000, the Company derived approximately 49% of its gross revenues from
products and services associated with vacations to Hawaii. Westbound travel to
Hawaii has been up approximately 7% in each of the past two years according to
the Hawaii DBEDT. A downturn in the market for vacations to Hawaii could have a
material adverse effect on the business, financial condition and results of
operations of the Company.

Dependence on Technology

The Companys business is dependent upon a number of different information
and telecommunications technologies to access information and manage
reservation systems, including handling a high volume of telephone calls on a
daily basis. Rapid changes in these technologies may require greater than
anticipated capital expenditures to improve or upgrade the level of customer
service. In addition, the Company is dependent upon certain third-party
vendors, including central reservation system operators such as SABRE Group
Holdings, Inc. (SABRE), Galileo International, Inc. (Galileo) and
WORLDSPAN, L.P. (WORLDSPAN) for access to certain information and may depend
on such vendors in the future for electronic distribution of vacation products

11



---



to retail travel agents and other travel intermediaries. Any failure of these
systems could have a material adverse effect on the business, financial
condition and results of operations of the Company.

Dependence on Customer Deposits and Advance Payments

The Company derives substantial income from interest on customer deposits
and advance payments. For 2000, the Company had interest income of $2.9
million, substantially all of which was derived from interest on customer
deposits and advance payments. In addition, the Companys pricing of its
products and services is based, in part, upon the interest income expected to
be received from investing these deposits and advance payments. The Companys
investment policy and the terms of the Companys credit facility restrict the
Company to investing these deposits and advance payments only in
investment-grade securities. A failure of these investment securities to
perform at their historical levels could reduce the interest income realized by
the Company, which could have a material adverse effect on the business,
financial condition and results of operations of the Company. See Managements
Discussion and Analysis of Financial Condition and Results of Operations.

Significant Negative Working Capital

As the Company relies upon customer deposits and advance payments, the
Company operates with negative working capital. As of December 31, 2000 the
Companys current liabilities exceeded current assets by $50.9 million, up
slightly from $49.5 million as of December 31, 1999. If the float generated by
these advance payments were to shrink, and the Company was required to find an
alternative source of capital, one may not be available at terms acceptable to
the Company. Such event could have a material adverse effect on the business,
financial condition and results of operations of the Company.

Quarterly Fluctuations; Seasonality

The Companys operating results have fluctuated from period to period and
likely will continue to fluctuate in the future. The travel industry in general
and the Companys operations in particular are highly seasonal. The Companys
net revenues generally are highest in the second and third quarters of the
year, while its expenses, as a percentage of gross revenues, generally are
highest in the first and fourth quarters. The Companys quarterly results of
operations also may be subject to fluctuations as a result of fare wars by
travel suppliers, changes in relationships with certain travel suppliers,
changes in the mix of services offered by the Company, extreme weather
conditions, international terrorism and conflicts, general economic conditions
or other factors affecting travel generally. As a result of these and other
factors, the Companys quarterly operating results are subject to fluctuation,
and the Company believes quarter-to-quarter comparisons of its operating
results are not necessarily meaningful and should not be relied upon as an
indication of future performance. In addition, due to all of the foregoing
factors, the Companys operating results in future periods may be below the
expectations of securities analysts and investors. In such event, the market
price of the Common Stock could be materially adversely affected.

Losses in Recent Years

The Company has reported operating losses for its two most recent fiscal
years. The Company expects to depend in part on its recent restructuring and
consolidation efforts to return to profitability. There can be no assurance
that the consolidation and restructuring plans even if fully implemented will
lead to the projected improvements in the operating results. Even though the
Company reported operating losses, the Company

12



---



generated positive cash flow from operating activities in part due to
significant non cash charges for amortization, depreciation and non-cash
restructuring charges. However, if the Company were to continue to generate
losses, the Companys operating results in future periods may be below the
expectations of securities analysts and investors. Continued losses could also
lead to the Company not meeting the financial covenants required by its lenders
and cause a default. Even the recent levels of positive cash flow from
operations may not be sufficient to meet the Companys needs. Each of these
events could materially adversely affect the market price of the Common Stock.

Reliance on Key Personnel

The Companys success will depend, in part, on the continued efforts of
Ronald M. Letterman, its Vice Chairman, President and Chief Executive Officer,
and Debbie A. Lundquist, its Executive Vice President and Chief Financial
Officer, and the senior management of its brands. If any of these individuals
becomes unwilling or unable to continue in his or her present role, or if the
Company is unable to attract and retain other skilled employees, its business
could be adversely affected. The Company does not maintain key person life
insurance on any of its key personnel. Although the Company has entered into
employment agreements with Mr. Letterman and Ms. Lundquist, they, like all
other key employees, may voluntarily terminate their respective employment
relationships with the Company at any time.

Government Regulation and Taxation

Many travel suppliers, particularly airlines, are subject to extensive
regulation by federal, state and foreign governments. In addition, the travel
industry is subject to certain special taxes by federal, state, local and
foreign governments, including hotel bed taxes, car rental taxes, airline
excise taxes and airport taxes and fees. New or different regulatory schemes or
changes in tax policy could have an adverse impact on the travel industry in
general and could have a material adverse effect on the business, financial
condition and results of operations of the Company.

Accounting Charges; Significant Intangible Assets

The Company has significant intangible assets on its balance sheet, which
is principally comprised of goodwill related to the Companys various
acquisitions. Accounting principles generally accepted in the United States
require that goodwill and all other intangible assets be amortized over the
period benefited, and the Companys management has determined that period to be
at least 35 years for the goodwill recorded in connection with the
Acquisitions. There can be no assurance that the Companys management
accurately determined the amortization period for the goodwill recorded in
connection with the Acquisitions. If the Company failed to recognize a
separate, material intangible asset having an actual benefit period of less
than 35 years, or if the Company did not give effect to any shorter benefit
periods for certain material portions of the goodwill recorded in connection
with the Acquisitions, then earnings reported in periods immediately following
the Acquisitions will be overstated, and, in later years, the Company will be
burdened by a continuing charge against earnings without an associated benefit
to income which generally would have been factored into the price paid for the
business acquired. Although the Company determined that certain assets were
impaired during the year ended December 31, 2000 and recorded an impairment
charge of $35.0 million, this analysis was based upon estimates; actual results
may differ and additional impairments may be identified in the future. Earnings
in later years also will be significantly affected if management determined
that the remaining balance of goodwill at any time was impaired. See
Managements Discussion and Analysis of Financial Condition and Results of
Operations and Business  Growth Strategy.

13



---



Vacation Travel Industry; General Economic Conditions

The Companys results of operations will depend upon factors affecting the
vacation travel industry generally. The Companys revenues and earnings are
especially sensitive to events that affect domestic and international air
travel and the level of car rentals and hotel reservations. A number of
factors, including political instability, armed hostilities, international
terrorism, labor disturbances, a rise in fuel prices or other travel costs,
excessive inflation, currency fluctuations, extreme weather conditions and
concerns about passenger safety could result in a temporary or longer-term
overall decline in demand for package vacations. The Company believes
price-based competition will continue for the foreseeable future. The
continuation of such competition and the occurrence of any of the events
described above could have a material adverse effect on the business, financial
condition and results of operations of the Company. In addition, demand for the
Companys products and services may be significantly affected by the general
level of economic activity and employment in the United States and key
international markets. Therefore, any significant economic downturn or
recession in the United States or these other markets could have a material
adverse effect on the business, financial condition and results of operations
of the Company.

Voting Control by Existing Management and Shareholders

Thayer Equity Investors III, L.P. (Thayer) and its affiliates own and
control a substantial majority of the Common Stock of the Company. As of
December 31, 2000, Thayer and its affiliates own beneficially 67.3% of the
outstanding shares of Common Stock. As a result, Thayer and its affiliates are
able to exercise control over the Companys affairs and are able to elect the
entire Board of Directors and control the disposition of any matter submitted
to a vote of shareholders. In addition, Thayer has entered into an agreement
with GV Investment LLC, an affiliate of Three Cities Research Inc, (TCR)
whereby Thayer and TCR have agreed to vote their shares together in certain
matters including election of directors and matters effecting management.
Including shares issuable upon conversion of certain notes payable to TCR,
Thayer and TCR together own beneficially 78.3% of the Companys Common Stock.
In addition, the Companys executive officers and directors, and entities
affiliated with them, including Thayer, TCR and their affiliates, as of
December 31, 2000, own beneficially shares of Common Stock representing 78.6%
of the total voting power of the Common Stock.

Potential Volatility of Stock Price

The trading price of the Common Stock may be subject to significant
fluctuations in response to numerous factors, including variations of the
annual or quarterly results of the Company or its competitors, changes by
financial research analysts in their estimates of the earnings of the Company
or the failure of the Company to meet such estimates, conditions of the economy
in general or in the travel industry in particular, unfavorable publicity or
changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the travel service industry.
From time to time, the stock market experiences significant price and volume
volatility, which may affect the market price of the Common Stock for reasons
unrelated to the Companys performance. In the past, following periods of
volatility in the market price of a companys securities, securities class
action litigation has often been instituted against such a company. Any such
litigation instigated against the Company could result in substantial costs and
a diversion of managements attention and resources, which could have a
material adverse effect on the business, results of operations and financial
condition of the Company.

14



---



No Dividends

The Company does not expect to pay cash dividends on Common Stock in the
foreseeable future. In addition, under its credit agreement, the Company is
prohibited from paying dividends on its shares of capital stock other than
dividends payable solely in shares of Common Stock.

|        |  |           
|------- |  | ----------
|ITEM 2. |  | PROPERTIES

The Companys headquarters are located in San Jose, CA in leased offices,
which also serves as the headquarters for its largest brand, Classic Custom
Vacations. As of December 31, 2000, the Companys other principal facilities
consist of leased offices, of which the largest are located in Downers Grove,
IL, and New York, NY. The Company believes these facilities are adequate to
meet its anticipated needs.

|        |  |                  
|------- |  | -----------------
|ITEM 3. |  | LEGAL PROCEEDINGS

The Company is not involved in any legal proceedings other than various
legal actions arising in the ordinary course of business. The Company believes
none of these actions will have a material adverse effect on its business,
financial condition and results of operations.

|        |  |                                                    
|------- |  | ---------------------------------------------------
|ITEM 4. |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|       
|       
|       
|       
|        |  | NONE                                               

15



---



PART II

|        |  |                                                                         
|------- |  | ------------------------------------------------------------------------
|ITEM 5. |  | MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

The Companys Common Stock has been traded on The New York Stock Exchange under
the symbol GVG since its initial public offering in July 1998 until January
8, 2001. On January 9, 2001 the Company transferred the listing of its Common
Stock to The American Stock Exchange. The following table sets forth the high
and low closing prices for each period shown, as quoted on The New York Stock
Exchange:

|               |  |   |         |  |     |   |         |  | 
|-------------- |  | - | ------- |  | --- | - | ------- |  | 
|               |  |   | HIGH    |  | LOW
|               |  |   |        
|1999          
|              
|              
|              
|              
|              
|First Quarter  |  | $ | 14 1/4  |  |     | $ | 8 3/8   | 
|              
|              
|              
|              
|Second Quarter |  | $ | 13 5/16 |  |     | $ | 4 3/16  | 
|              
|              
|              
|              
|Third Quarter  |  | $ | 6 1/8   |  |     | $ | 4 3/8   | 
|              
|              
|              
|              
|Fourth Quarter |  | $ | 4 1/2   |  |     | $ | 2 3/4   | 
|              
|              
|              
|              
|2000          
|              
|              
|              
|              
|              
|First Quarter  |  | $ | 5 5/8   |  |     | $ | 2 3/4   | 
|              
|              
|              
|              
|Second Quarter |  | $ | 3 5/8   |  |     | $ | 2 7/16  | 
|              
|              
|              
|              
|Third Quarter  |  | $ | 3 3/8   |  |     | $ | 2 11/16 | 
|              
|              
|              
|              
|Fourth Quarter |  | $ | 3 3/8   |  |     | $ | 1 13/16 | 

The closing price of the Companys Common Stock, as reported by The
American Stock Exchange, on March 21st, 2001 was
$2.25. The approximate number of record holders of the Common Stock as of
March 21, 2000 was 1,100.

The Company has not paid any cash dividends during the last two years. The
Company intends to retain all of its earnings, if any, to finance the expansion
of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, the Companys line of credit
includes restrictions on the ability of the Company to pay cash dividends
without the consent of the lender.

16



---



|        |  |                        
|------- |  | -----------------------
|ITEM 6. |  | SELECTED FINANCIAL DATA

The selected financial data was derived from the consolidated financial
statements of the Company audited by Arthur Andersen LLP. The results of
operations for the year ended December 31, 2000, are not necessarily indicative
of the results to be expected for any future period. The information in this
table should be read in conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and the consolidated
financial statements and accompanying notes thereto included elsewhere in this
Form 10-K.

|                                              |                                    |                                           |                  |              |        |                                       |         |        |        |        |        | 
|--------------------------------------------- | ---------------------------------- | ----------------------------------------- | ---------------- | ------------ | ------ | ------------------------------------- | ------- | ------ | ------ | ------ | ------ | 
|                                              |                                    |                                           |                  |              |        | For The Years Ended December 31,     
|                                              |                                    |                                           |                  |              |        | (in thousands, except per share data)
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|                                              |                                    |                                           |                  |              |        | 2000                                  |         | 1999  
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Net revenues                                  |                                    | $                                         | 132,867          |              |        | $                                     | 126,000 |       
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                                    |                                           | 120,648          |              |        |                                       | 111,688 |       
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|                                              |                                    |                                           |                  | Gross profit |        |                                       | 12,219  |        |        |        | 14,312 | 
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|General and administrative expenses (1)       |                                    |                                           | 10,560           |              |        |                                       | 13,269  |       
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |                                    |                                           | 6,474            |              |        |                                       | 5,929   |       
|                                             
|                                             
|                                             
|                                             
|Restructuring and impairment charge           |                                    |                                           | 38,586           |              |        |                                       |        |       
|                                             
|                                             
|                                             
|                                             
|                                              | Income (loss) from operations      |                                           |                  | (43,401      | )      |                                       |         | (4,886 | )     
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Other income (expense)
Interest
income        |                                    |                                           | 2,915            |              |        |                                       | 2,529   |       
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                           | Interest
expense |              |        | (4,176                                | )       |        |        | (2,331 | )     
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                           | Other, net       |              |        | 20                                    |         |        |        | 47     |       
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Total other income (expense)                  |                                    |                                           | (1,241           | )            |        |                                       | 245     |       
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Income (loss) before income taxes and        
|                                             
|                                             
|                                             
|                                             
|                                              | extraordinary item                 |                                           |                  | (44,642      | )      |                                       |         | (4,641 | )     
|                                             
|                                             
|                                             
|                                             
|Income tax benefit (expense)                  |                                    |                                           | (60              | )            |        |                                       | 1,416   |       
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Income (loss) before extraordinary item       |                                    | $                                         | (44,702          | )            |        | $                                     | (3,225  | )     
|                                             
|                                             
|                                             
|                                             
|Extraordinary item, net of income tax benefit
|                                             
|                                             
|                                             
|                                             
|                                              | of $144 for 1999 and $244 for 1998 |                                           |                  |             |        |                                       |         | (257   | )     
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Net income (loss)                             |                                    | $                                         | (44,702          | )            |        | $                                     | (3,482  | )     
|                                             
|                                             
|                                             
|                                             
|Dividends on Class A Convertible             
|                                             
|                                             
|                                             
|                                             
|                                              | Preferred Stock                    |                                           |                  |             |        |                                       |         |       |       
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|Net income (loss) available to common        
|                                             
|                                             
|                                             
|                                             
|                                              | shareholders                       |                                           | $                | (44,702      | )      |                                       | $       | (3,482 | )     
|                                              |                                    |                                           |                  |              |        |                                       |         |       
|                                              |                                    | Basic and Diluted income (loss) per share |                  | $            | (3.11  | )                                     |         | $      | (0.24  | )     
|                                             
|                                             
|                                             
|                                             
|Weighted average shares outstanding:         
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Basic                                     |                  |              | 14,393 |                                       |         |        | 14,555 |       
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Diluted                                   |                  |              | 14,393 |                                       |         |        | 14,555 |       

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |      |       |    |       | 
|--------------------------------------------- | ---------------------------------- | ----------------------------------------- | ---------------- | ------------ | ----- | ------------------------------------- | ------ | ------ | ----- | ---- | ------ | ---- | ----- | -- | ----- | 
|                                              |                                    |                                           |                  |              |       | For The Years Ended December 31,     
|                                              |                                    |                                           |                  |              |       | (in thousands, except per share data)
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |     
|                                              |                                    |                                           |                  |              |       | 1998                                  |        | 1997   |       | 1996
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |     
|Net revenues                                  |                                    | $                                         | 90,421           |              |       | $                                     | 24,255 |        |       | $    | 22,259 |     
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                                    |                                           | 69,386           |              |       |                                       | 17,852 |        |       |      | 16,025 |     
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|                                              |                                    |                                           |                  | Gross profit |       |                                       | 21,035 |        |       |      | 6,403  |      |       |    | 6,234 | 
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|General and administrative expenses (1)       |                                    |                                           | 10,248           |              |       |                                       | 7,797  |        |       |      | 6,905  |     
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |                                    |                                           | 2,779            |              |       |                                       | 182    |        |       |      | 154    |     
|                                             
|                                             
|                                             
|                                             
|Restructuring and impairment charge           |                                    |                                           |                 |              |       |                                       |       |        |       |      |       |     
|                                             
|                                             
|                                             
|                                             
|                                              | Income (loss) from operations      |                                           |                  | 8,008        |       |                                       |        | (1,576 | )     |      |        | (825 | )    
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|Other income (expense)
Interest
income        |                                    |                                           | 2,480            |              |       |                                       | 556    |        |       |      | 581    |     
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                           | Interest
expense |              |       | (1,504                                | )      |        |       |     |        |      |       |   |      
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                           | Other, net       |              |       | 26                                    |        |        |       | 41   |        |      |       | (4 | )    
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|Total other income (expense)                  |                                    |                                           | 1,002            |              |       |                                       | 597    |        |       |      | 577    |     
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|Income (loss) before income taxes and        
|                                             
|                                             
|                                             
|                                             
|                                              | extraordinary item                 |                                           |                  | 9,010        |       |                                       |        | (979   | )     |      |        | (248 | )    
|                                             
|                                             
|                                             
|                                             
|Income tax benefit (expense)                  |                                    |                                           | (3,908           | )            |       |                                       | (124   | )      |       |      | (122   | )   
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|Income (loss) before extraordinary item       |                                    | $                                         | 5,102            |              |       | $                                     | (1,103 | )      |       | $    | (370   | )   
|                                             
|                                             
|                                             
|                                             
|Extraordinary item, net of income tax benefit
|                                             
|                                             
|                                             
|                                             
|                                              | of $144 for 1999 and $244 for 1998 |                                           |                  | (379         | )     |                                       |        |       |       |      |        |     |      
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|Net income (loss)                             |                                    | $                                         | 4,723            |              |       | $                                     | (1,103 | )      |       |      | (370   | )   
|                                             
|                                             
|                                             
|                                             
|Dividends on Class A Convertible             
|                                             
|                                             
|                                             
|                                             
|                                              | Preferred Stock                    |                                           |                  | (2,519       | )     |                                       |        |       |       |      |        |     |      
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|Net income (loss) available to common        
|                                             
|                                             
|                                             
|                                             
|                                              | shareholders                       |                                           | $                | 2,204        |       |                                       | $      | (1,103 | )     |      | $      | (370 | )    
|                                              |                                    |                                           |                  |              |       |                                       |        |        |       |      |        |     
|                                              |                                    | Basic and Diluted income (loss) per share |                  | $            | 0.22  |                                       |        | $      | (0.21 | )    |        | $    | (0.07 | ) 
|                                             
|                                             
|                                             
|                                             
|Weighted average shares outstanding:         
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Basic                                     |                  |              | 9,931 |                                       |        |        | 5,291 |      |        |      | 5,291 |   
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Diluted                                   |                  |              | 9,990 |                                       |        |        | 5,291 |      |        |      | 5,291 |   

|                                                  |                     |   |                |   |      |   |         |   |      |   |         |   |  |   |        |   |  |   |        |  | 
|------------------------------------------------- | ------------------- | - | -------------- | - | ---- | - | ------- | - | ---- | - | ------- | - |  | - | ------ | - |  | - | ------ |  | 
|                                                  |                     |   | December 31,  
|                                                  |                     |   | (in thousands)
|                                                  |                     |   | 2000           |   | 1999 |   | 1998    |   | 1997 |   | 1996   
|                                                  |                     |   |                |   |      |   |         |   |      |   |        
|                                                  | Balance Sheet Data:
|                                                 
|                                                 
|                                                 
|                                                 
|Cash, cash equivalents and short-term investments |                     | $ | 24,432         |   |      | $ | 24,255  |   |      | $ | 32,663  |   |  | $ | 7,909  |   |  | $ | 8,256  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Working capital (deficit)                         |                     |   | (50,889        | ) |      |   | (49,513 | ) |      |   | (24,867 | ) |  |   | (78    | ) |  |   | 1,256  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total assets                                      |                     |   | 133,147        |   |      |   | 178,675 |   |      |   | 134,060 |   |  |   | 19,375 |   |  |   | 19,677 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total debt                                        |                     |   | 28,190         |   |      |   | 29,513  |   |      |   | 6,663   |   |  |   |       |   |  |   |       | 
|                                                 
|                                                 
|                                                 
|                                                 
|Shareholders equity                              |                     |   | 4,319          |   |      |   | 48,964  |   |      |   | 53,585  |   |  |   | 358    |   |  |   | 1,673  | 

17



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---

|(1) |  | General and administrative expenses for the years ended December 31, 1997
and 1996 include salary and bonuses to the prior owners and certain key
employees of the Company of $5.8 million and $4.8 million, respectively.
General and administrative expenses for the year ended December 31, 1998
include approximately $1.1 million of expenses incurred in connection with
the Recapitalization.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 7. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

Global Vacation Group, Inc. and subsidiaries (GVG or the Company) is
one of the largest U.S. providers of customized vacation products. The Company
assembles air, hotel, rental car and other travel components in bulk and
provides complete vacations to travelers primarily through other resellers of
travel including retail travel agents and international tour wholesalers. The
Company primarily provides flexible independent travel programs for
individuals, as well as escorted tours and group packages.

The Companys strategy is to achieve the leading market position in select
high-volume, high-margin travel destinations, focusing on the following areas:
(i) Hawaii; (ii) in-bound vacations to the United States for international
travelers; (iii) the Caribbean; (iv) Mexico; (v) select North American vacation
destinations such as California, New York, Florida, and Canada; and (vi)
out-bound travel by U.S. travelers to Europe.

The Company leverages its expertise in its targeted destination markets as
well as its relationships with travel suppliers to provide a value proposition
to travel agents, the end consumer and foreign tour wholesalers. The Company
buys in bulk at a discount and marks up its products to provide both
competitive pricing to the end consumer as well competitive commissions to
travel agents and tour operators. Travel agents rely on the Company to provide
high quality and often customized services including marketing support. The
Company has built a diverse domestic and international customer base including
many of the largest domestic, European and Asian travel resellers. The Company
through its various acquisitions has many years of experience operating in each
of its key destination markets.

In March 1998, the Company was recapitalized and between March 1998 and
June 1999 acquired the stock or assets of seven other vacation providers and
one information system provider (the Acquisitions or the Acquired
Businesses). The consideration for the Acquisitions consisted primarily of
cash. Each acquisition has been accounted for under the purchase method of
accounting. The accompanying financial statements for the years ended December
31, 2000, 1999 and 1998 include the results of operations for each of the
Acquisitions from their respective acquisition dates.

The Company has integrated and consolidated the operations of many of its
acquired companies during the past three years. The Company presently markets
is products under the brand Classic Custom Vacations (Classic) which markets
customized vacation packages targeted to U.S. travelers; as Allied Tours
(Allied) which creates and coordinates packages and tours targeted to
international travelers; under private label agreements to operate Amtrak
Vacations and Hyatt Vacations; and as Island Resort Tours (Island) and
International Travel & Resorts (ITR), which operated together as a packaged
vacation wholesaler and hotel representation company serving destinations
primarily in the Caribbean.

Restructuring and Consolidation

The Company experienced difficulty in the integration and operations of
certain of its acquired businesses. Specifically, the Companys former
Vacations by Globetrotters (Globetrotters) brand repeatedly failed to meet
expectations. In July 2000, the Company announced the restructuring of its
Chicago operations where Globetrotters was headquartered including the
consolidation of the Globetrotters branded business into its more successful
Classic brand in order to improve operating results. Additionally, the Company
closed its then Washington, D.C. headquarters office in late 2000, reducing

18



---



administrative overhead costs. As part of the restructuring, the Company
terminated 116 employees, most of whom held administrative and support
positions that became redundant with the consolidation of Globetrotters into
Classic.

As part of the restructuring, the Company reviewed the carrying values of
its long-lived assets, including systems, property and equipment, identifiable
intangibles, and goodwill related to its Chicago operations. The fair value of
the long-lived assets was determined based upon the estimated discounted cash
flows to be derived from the related business operations. As a result, the
Company recorded an impairment charge of $35.0 million in 2000 writing down
substantially all of the Trase Miller technology platform that the Company
acquired in 1999 as well as assets related to the Companys private label
operations. This charge included approximately $18.5 million for goodwill and
$16.5 million for the technology platform and other property.

The $38.6 million restructuring and impairment charge has been separately
presented as a component of the Companys loss from operations for the year
ended December 31, 2000 and includes the $35.0 million impairment for
long-lived assets and expected cash expenditures of $3.6 million. The cash
expenses include $2.5 million for employee severance and related benefits, and
$1.1 million for costs related to lease obligations and other restructuring
costs. In addition to the $38.6 million restructuring and impairment charge,
the Company incurred approximately $1.6 million of non-recurring charges
related to the restructuring that are classified as operating expenses for the
year ended December 31, 2000. These charges related to uncollectable
receivables and other unrealizable current assets, resulting from the
discontinuance of certain products and brands pursuant to the restructuring.

Sources of Revenues

Net revenues include commissions and markups on travel products and
services, volume bonuses received from travel suppliers, cancellation fees and
other ancillary fees such as travel waiver premiums and are generally
recognized upon the commencement of travel. For the years ended December 31,
2000 and 1999, the Company had net revenues of $132.9 million and $126.0
million, respectively, derived from sale of travel products and services with a
value of $589.9 million and $543.6 million. Revenues are reported net of
direct costs to suppliers.

Expenses

Operating expenses include travel agent commissions, salaries, credit card
merchant fees, telecommunications, advertising and other costs associated with
the selling and processing of travel reservations, products and services.
Commission payments to travel agents are typically based on a percentage of the
price paid for the travel product or service, but in certain circumstances are
fixed dollar amounts. Reservations agents are compensated either on an hourly
basis, a commission basis or a combination of the two. The Companys telephone
costs primarily relate to the cost of incoming calls on toll-free numbers.
General and administrative expenses consist primarily of compensation and
benefits to administrative and other non-sales personnel, fees for professional
services, and other general office expenses.

Interest Income

The Company derives a significant portion of its pre-tax income from
interest earned on funds related to customer deposits and prepayments for
vacation products. Generally, the Company requires a deposit within one week of
making a travel reservation. Reservations are typically made two to four months
prior to departure. Additionally, for packaged tours, the Company generally
requires that the entire cost of the vacation be paid in full 45 to 60 days
before departure, unless reservations are made closer to departure. While terms
vary, the Company generally pays for all non-air components of the vacation
after the customers departure. In the period between receipt of a deposit or
prepayment and the payment of related expenses, these funds are generally
invested in cash and investment-grade securities. This cycle is typical in the
packaged tour industry, and earnings generated on deposits and prepayments are
integral to the Companys operating model and pricing strategies. For the years
ended December 31, 2000 and 1999, the Company had interest income of $2.9
million and $2.5 million, respectively.

19



---



Results of Operations

The Company

The following table sets forth certain historical operating data for the
Company as a percentage of net revenues (in thousands).

|                                              |                                    |                  |              |         |                          |        |       |       |        |     |         |        |        |        | 
|--------------------------------------------- | ---------------------------------- | ---------------- | ------------ | ------- | ------------------------ | ------ | ----- | ----- | ------ | --- | ------- | ------ | ------ | ------ | 
|                                              |                                    |                  |              |         | Years Ended December 31,
|                                              |                                    |                  |              |         |                         
|                                              |                                    |                  |              |         | 2000                     |        | 1999 
|                                              |                                    |                  |              |         |                          |        |      
|                                              |                                    |                  |              |         | Amount                   |        | %     |       | Amount
|Net revenues                                  |                                    | $                | 132,867      |         |                          |        | 100.0 |       |        | $   | 126,000 |       
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                                    |                  | 120,648      |         |                          |        | 90.8  |       |        |     | 111,688 |       
|                                              |                                    |                  |              |         |                         
|                                              |                                    |                  | Gross profit |         |                          | 12,219 |       |       |        | 9.2 |         |        |        | 14,312 | 
|                                             
|                                             
|                                             
|                                             
|General and administrative expenses           |                                    |                  | 10,560       |         |                          |        | 7.9   |       |        |     | 13,269  |       
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |                                    |                  | 6,474        |         |                          |        | 4.9   |       |        |     | 5,929   |       
|                                             
|                                             
|                                             
|                                             
|Restructuring and impairment charge           |                                    |                  | 38,586       |         |                          |        | 29.0  |       |        |     |        |       
|                                              |                                    |                 
|                                              | Income (loss) from operations      |                  |              | (43,401 | )                        |        |       | (32.7 | )      |     |         | (4,886 | )     
|                                              |                                    |                 
|Other income
(expense)                       
|                                              |                                    | Interest income  |              |         | 2,915                    |        |       |       | 2.2    |     |         |        | 2,529  |       
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Interest expense |              |         | (4,176                   | )      |       |       | (3.1   | )   |         |        | (2,331 | )     
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Other, net       |              |         | 20                       |        |       |       | 0.0    |     |         |        | 47     |       
|                                              |                                    |                 
|Total other income (expense)                  |                                    |                  | (1,241       | )       |                          |        | (0.9  | )     |        |     | 245     |       
|                                             
|                                             
|                                             
|                                             
|Income (loss) before income taxes and        
|                                             
|                                             
|                                             
|                                             
|                                              | extraordinary item                 |                  |              | (44,642 | )                        |        |       | (33.6 | )      |     |         | (4,641 | )     
|                                             
|                                             
|                                             
|                                             
|Income tax benefit (expense)                  |                                    |                  | (60          | )       |                          |        | 0.0   |       |        |     | 1,416   |       
|                                              |                                    |                 
|Income (loss) before extraordinary item       |                                    | $                | (44,702      | )       |                          |        | (33.6 | )     |        | $   | (3,225  | )     
|                                             
|                                             
|                                             
|                                             
|Extraordinary item, net of income tax benefit
|                                             
|                                             
|                                             
|                                             
|                                              | of $144 for 1999 and $244 for 1998 |                  |              |        |                          |        |       | 0.0   |        |     |         | (257   | )     
|                                             
|                                             
|                                             
|                                             
|Net income (loss)                             |                                    |                  | (44,702      | )       |                          |        | (33.6 | )     |        |     | (3,482  | )     
|                                              |                                    |                 
|Dividends on Class A Convertible             
|                                             
|                                             
|                                             
|                                             
|                                              | Preferred Stock                    |                  |              |        |                          |        |       | 0.0   |        |     |         |       |       
|                                             
|                                             
|                                             
|                                             
|Net income (loss) available to common        
|                                             
|                                             
|                                             
|                                             
|                                              | shareholders                       |                  | $            | (44,702 | )                        |        |       | (33.6 | )      |     | $       | (3,482 | )     
|                                              |                                    |                 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                              |                                    |                  |              |      |                          |      |        |       |        |        |       |      |      |      | 
|--------------------------------------------- | ---------------------------------- | ---------------- | ------------ | ---- | ------------------------ | ---- | ------ | ----- | ------ | ------ | ----- | ---- | ---- | ---- | 
|                                              |                                    |                  |              |      | Years Ended December 31,
|                                              |                                    |                  |              |      |                         
|                                              |                                    |                  |              |      | 1999                     |      | 1998  
|                                              |                                    |                  |              |      |                          |      |       
|                                              |                                    |                  |              |      | %                        |      | Amount |       | %     
|                                              |                                    |                  |              |      |                         
|Net revenues                                  |                                    |                  | 100.0        |      |                          | $    | 90,421 |       |        |        | 100.0 |     
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                                    |                  | 88.6         |      |                          |      | 69,386 |       |        |        | 76.7  |     
|                                              |                                    |                  |             
|                                              |                                    |                  | Gross profit |      |                          | 11.4 |        |       |        | 21,035 |       |      |      | 23.3 | 
|                                             
|                                             
|                                             
|                                             
|General and administrative expenses           |                                    |                  | 10.5         |      |                          |      | 10,248 |       |        |        | 11.3  |     
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |                                    |                  | 4.7          |      |                          |      | 2,779  |       |        |        | 3.1   |     
|                                             
|                                             
|                                             
|                                             
|Restructuring and impairment charge           |                                    |                  | 0.0          |      |                          |      |       |       |        |        | 0.0   |     
|                                              |                                    |                  |             
|                                              | Income (loss) from operations      |                  |              | (3.8 | )                        |      |        | 8,008 |        |        |       | 8.9  |     
|                                              |                                    |                  |             
|Other income
(expense)                       
|                                              |                                    | Interest income  |              |      | 2.0                      |      |        |       | 2,480  |        |       |      | 2.7  |     
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Interest expense |              |      | (1.9                     | )    |        |       | (1,504 | )      |       |      | (1.7 | )   
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Other, net       |              |      | 0.0                      |      |        |       | 26     |        |       |      | 0.0  |     
|                                              |                                    |                  |             
|Total other income (expense)                  |                                    |                  | 0.1          |      |                          |      | 1,002  |       |        |        | 1.0   |     
|                                             
|                                             
|                                             
|                                             
|Income (loss) before income taxes and        
|                                             
|                                             
|                                             
|                                             
|                                              | extraordinary item                 |                  |              | (3.7 | )                        |      |        | 9,010 |        |        |       | 9.9  |     
|                                             
|                                             
|                                             
|                                             
|Income tax benefit (expense)                  |                                    |                  | 1.1          |      |                          |      | (3,908 | )     |        |        | (4.3  | )   
|                                              |                                    |                  |             
|Income (loss) before extraordinary item       |                                    |                  | (2.6         | )    |                          | $    | 5,102  |       |        |        | 5.6   |     
|                                             
|                                             
|                                             
|                                             
|Extraordinary item, net of income tax benefit
|                                             
|                                             
|                                             
|                                             
|                                              | of $144 for 1999 and $244 for 1998 |                  |              | (0.2 | )                        |      |        | (379  | )      |        |       | (0.4 | )   
|                                             
|                                             
|                                             
|                                             
|Net income (loss)                             |                                    |                  | (2.8         | )    |                          |      | 4,723  |       |        |        | 5.2   |     
|                                              |                                    |                  |             
|Dividends on Class A Convertible             
|                                             
|                                             
|                                             
|                                             
|                                              | Preferred Stock                    |                  |              | 0.0  |                          |      |        | 2,519 |        |        |       | 2.8  |     
|                                             
|                                             
|                                             
|                                             
|Net income (loss) available to common        
|                                             
|                                             
|                                             
|                                             
|                                              | shareholders                       |                  |              | (2.8 | )                        |      | $      | 2,204 |        |        |       | 2.4  | %   
|                                              |                                    |                  |             

2000 COMPARED TO 1999

Net revenues for the years ended December 31, 2000 and 1999, were $132.9
million and $126.0 million, respectively, which reflects the combined net
revenues of the Company and the Acquired Businesses for such periods. The
increase in net revenues of 5.5% for the year ended December 31, 2000 was
primarily due to growth at the Classic Custom Vacations brand and the effect of
the Acquired Businesses, partially offset by significant revenue decreases at
the Companys now discontinued Vacations by Globetrotters brand.

Operating expenses for the year ended December 31, 2000 and 1999, were
$120.6 million and $111.7 million, respectively, or 90.8% and 88.6%,
respectively, of net revenues. Operating expenses increased as a percentage of
net revenues principally because the operating expenses related to the
Companys Vacations by Globetrotters brand did not decrease in proportion to
the decreases in revenues during the first six months of 2000 due to the fixed
nature of certain of these expenses. The increase in operating expense is also
due to $1.6 million of non-recurring charges related to the

20



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Companys restructuring plans incurred during the third quarter. After the
Companys restructuring measures were implemented in the third quarter, the
Companys gross profit margin began to improve as compared to the prior year.
For the fourth quarter operating expenses were 90.2% of net revenues compared
to 93.7% for the same period in 1999, an improvement of 350 basis points.

General and administrative expenses for the year ended December 31, 2000
and 1999 were $10.6 million and $13.3 million, respectively, or 7.9% and 10.5%,
respectively, of net revenues. The decrease in general and administrative
expenses by 20.3% is primarily due to decreases in headcount and consulting and
professional fees including savings from the Companys restructuring plans.

Depreciation and amortization for the years ended December 31, 2000 and
1999 was $6.5 million and $5.9 million or 4.9% and 4.7%, respectively, of net
revenues. The increase is due to the amortization of goodwill and certain
intangible assets and depreciation of the technology platform acquired during
1999 offset, in part, by a reduction in depreciation and amortization in the
later half of the year as a result of the impairment of intangible assets,
systems and related property recorded during the third quarter of 2000.

The restructuring and impairment charge for the year ended December 31,
2000 of $38.6 million, includes write-downs related to the impairment of
intangible assets, systems and related property, as well as severance costs,
lease obligations and other restructuring costs related to the Companys
restructuring and the consolidation of its Vacations by Globetrotters brand
into its Classic Custom Vacations brand. Of this total, $35.0 million were
non-cash charges.

Interest income for the years ended December 31, 2000 and 1999 was $2.9
million and $2.5 million, respectively, or 2.2% and 2.0%, respectively, of net
revenues. The increase in interest income is principally due to higher rates of
returns from more favorable interest rates during 2000 as compared to the prior
year. The amount of interest income the Company earns is affected by changes
in interest rates that in part result from actions taken by the Board of
Governors of the Federal Reserve. Since December 31, 2000 the Federal Reserve
has reduced interest rates by 100 basis points, negatively impacting interest
rates earned by the Company.

Interest expense for the years ended December 31, 2000 and 1999 was $4.2
million and $2.3 million, respectively, reflecting increased average levels of
cash borrowings as a result of acquisitions during 1999, higher interest rates
and fees related to credit facility amendments and market conditions, and the
accelerated write-off of certain deferred financing costs due to the early pay
down of bank debt. The Company repaid all outstanding cash borrowings under
its bank credit facility in June 2000 when it received funding under a
convertible subordinated note for $27.5 million bearing interest at a 9.0%
fixed rate of interest, and has not used its bank credit facility for cash
borrowings since June 2000.

The provision for income taxes for the year ended December 31, 2000 was
$60,000 for estimated state income taxes payable for 2000. For the year ended
December 31, 1999 the Company recorded a benefit for income taxes of $1.4
million at an effective tax rate of 30.5%. Due to the extent of continuing
operating losses, a valuation reserve has been provided against the Companys
net deferred tax asset as of December 31, 2000.

Net loss for the year ended December 31, 2000 was $44.7 million or 33.6%
of net revenues compared to a net loss for the year ended December 31, 1999 of
$3.5 million, or 2.8% of net revenues. Net loss for the year ended December
31, 2000 includes a restructuring and impairment charge of $38.6 million and a
related non-recurring operating expense charge of $1.6 million. Net loss for
the year ended December 31, 1999 includes an extraordinary charge of $257,000,
net of a tax benefit of $144,000, related to the write-off of deferred
financing costs associated with the restructuring of the Companys credit
facility. Excluding the effect of the 2000 restructuring and related
non-recurring charges, the 1999 extraordinary charge, and the effect of income
taxes, the net loss decreased from $4.6 million to $4.5 million. This
improvement is principally due to reductions in operating expenses related to
the Companys announced restructuring and revenue growth at the Companys
Classic Custom Vacations brand, offset, in part, by higher interest expense
incurred during 2000. For the six months since the Companys restructuring
plans were implemented excluding restructuring and related non-recurring

21



---



charges the Company had net profit before income taxes of $653,000 compared to
a net loss before income taxes and extraordinary item of $2.6 million for the
same period for the year ended December 31, 1999.

1999 COMPARED TO 1998

Net revenues for the years ended December 31, 1999 and 1998, were $126.0
million and $90.4 million, respectively, which reflects the combined net
revenues of the Company and the Acquired Businesses for such periods. The
increase in net revenues of 39.3% for the year ended December 31, 1999 was due
to the effect of the Acquired Businesses, partially offset by revenue
shortfalls at the Globetrotters brands and lower than expected
Millennium-related travel.

Operating expenses for the year ended December 31, 1999 and 1998, were
$111.7 million and $69.4 million, respectively, or 88.6% and 76.7%,
respectively, of net revenues. The increase in operating expense as a
percentage of net revenues is primarily due to the higher operating expense
ratios of the Acquired Businesses. The higher operating expenses, combined with
the net revenue shortfall at Globetrotters, resulted in a decrease of gross
profit percentage of 11.9% for the year ended December 31, 1999 from the prior
year.

General and administrative expenses for the year ended December 31, 1999
and 1998 were $13.3 million and $10.2 million, respectively, or 10.5% and
11.3%, respectively, of net revenues. After excluding the effect of $1.1
million in recapitalization expenses for the year ended December 31, 1998,
general and administrative expense, as a percentage of net revenues, increased
slightly to 10.5% from 10.1% for the year ended December 31, 1999 compared to
the same period in 1998. This increase was due to the effect of the Acquired
Business.

Depreciation and amortization for the years ended December 31, 1999 and
1998 was $5.9 million and $2.8 million or 4.7% and 3.1%, respectively, of net
revenues. The increase is due to the additional amortization of intangible
assets resulting from the Acquisitions made in 1999, the full year effect of
the 1998 acquisitions and $6.0 million of capital expenditures in 1999
primarily for computer hardware and software including internally developed
software.

Interest income for the years ended December 31, 1999 and 1998 was $2.5
million and $2.5 million, respectively, or 2.0% and 2.7%, respectively, of net
revenues. The decrease in interest income as a percent of net revenues is due
to the use of cash to support acquisitions and to support higher operating
costs in 1999 as well as lower interest rates earned as the Company
transitioned maturing short-term investments from the Acquired Businesses to
investment grade securities to comply with the Companys investment policies.

Interest expense for the years ended December 31, 1999 and 1998 was $2.3
million and $1.5 million, respectively. The increase is due to higher borrowing
levels and increased bank interest rates in 1999.

The benefit for income taxes for the year ended December 31, 1999 was $1.4
million at an effective tax rate of 30.5%. The provision for income taxes for
the year ended December 31, 1998 was $3.9 million at an effective tax rate of
43.4%. The decrease in the effective tax rate is due to the effect of certain
non-deductible expenses and the termination of the Companys S corporation
status in 1998.

Net loss for the year ended December 31, 1999 includes an extraordinary
charge of $257,000, net of a tax benefit of $144,000, related to the write-off
of deferred financing costs associated with the restructuring of the Companys
credit facility.

Net loss available to common shareholders for the year ended December 31,
1999 was $3.5 million or 2.8% of net revenues compared net income available to
common shareholders for the year ended December 31, 1998 of $2.2 million, or
2.4% of net revenues, after dividends on convertible preferred stock of $2.5
million.

22



---



Liquidity and Capital Resources

The Company receives advance payments and deposits prior to commencement
of travel. The Companys pricing of its products and services is determined, in
part, based upon the amount and timing of advance payments received. A number
of states have regulations with respect to the financial security and handling
of customer deposits made in advance of travel. The Company believes it is in
compliance with all applicable regulations relating to customer deposits. The
Companys investment policy and its credit facility restrict investments to
investment-grade securities.

At December 31, 2000, the Company had cash and cash equivalents of $12.8
million, excluding $11.6 million of cash restricted pursuant to contracts with
private label partners, and pursuant to the terms of the Companys credit
facility. Contracts with certain of the Companys private label partners
require that certain funds including customer deposits be segregated from
general cash reserves and restrict the disbursement of these funds.
Additionally, the Companys credit facility requires that the Company maintain
cash collateral to the extent of 103% of the balance of outstanding stand-by
letters of credit. At December 31, 2000 the Company had $6.4 million of
stand-by letters of credit outstanding. The credit facility allows for letters
of credit of up to $10.0 million.

At December 31, 2000, the Company had no cash borrowings outstanding on
its revolving line of credit. At December 31, 2000 the Companys credit
facility had a total capacity of $17.5 million including the previously
referred to $10 million commitment for letters of credit. Under the terms of
the credit facility amounts not used for letters of credit are available for
cash borrowings for working capital purposes. However, cash borrowings are
further limited to certain eligible receivables. At December 31, 2000 the
Company had $5.0 million available to borrow under its credit facility based
upon eligible receivables. The credit facility expires on January 31, 2002.

In June 2000 the Company raised $27.5 million from the issuance of a
subordinated convertible note from a private investment group (the
Subordinated Note). The Subordinated Note, which bears interest at 9% has a
seven-year term and is convertible into common stock at a price of $5.25 per
share. The Subordinated Note may be converted, at any time, in total or
partial to common stock at the option of the note holder. The Company used the
proceeds of the Subordinated Note to repay its then outstanding balance on its
credit facility. Interest on the Subordinated Note is due quarterly. At its
option, the Company may choose to pay interest in cash, additional notes with
terms similar to the original Subordinated Note, or common stock using the
quoted market price of common stock at the time the interest is payable.
Additionally, through the quarter ending March 31, 2001 the Company may elect
to pay interest by issuing short-term notes due July 1, 2001. The Company made
this election for interest due October 1, 2000 and January 2, 2001.

Net cash provided by operating activities for the years ended December 31,
2000 and December 31, 1999 was $6.5 million and $8.0 million, respectively. The
decrease in cash provided by operating activities is principally due to the
cash portion of the Companys restructuring charge of $3.6 million, net of the
$2.3 million of these charges that remained unpaid at December 31, 2000. The
net use of funds related to the Companys restructuring was $1.3 million.
Substantially all of the $2.3 million that remained accrued at December 31,
2000 is expected to be paid during 2001.

The Company made capital expenditures of $2.6 million for the year ended
December 31, 2000 and $6.0 million for the year ended December 31, 1999. The
higher level of capital expenditures in 1999 was due in part to the
installation of new computer systems and development of software during 1999.
The Company used $31.0 million of cash, net of cash acquired, for acquisitions
for the year ended December 31, 1999. Due to achieving certain financial
targets at Island and ITR the Company is obligated to make an additional
payment related to these acquisitions of $1.75 million in April 2001. The
Company borrowed approximately $33.6 million from its credit facility to
finance the acquisitions of Friendly, Trase Miller, ITR and Island during the
year ended December 31, 1999 and repaid approximately $10.8 million in credit
facility borrowings including a beginning balance from December 31, 1998.
During the year ended December 31, 2000 the Company repaid all remaining credit
facility borrowings of $29.4 million using cash generated from operations
during the first half of 2000 and a portion of the proceeds of the Subordinated
Note.

23



---



Consistent with industry practice as well as the Companys operations, the
Company receives advance payments and deposits prior to commencement of travel
resulting in an expected working capital deficit. The Companys current
liabilities exceeded its current assets at December 31, 2000 by $50.9 million.
If the float generated by these advance payments were to shrink, and the
Company was required to find an alternative source of capital, one may not be
available at terms acceptable to the Company. Such event could have a material
adverse effect on the business, financial condition and results of operations
of the Company.

The Company anticipates that its existing cash, available working capital
line of credit, and cash flow from operations will provide sufficient cash to
enable the Company to meet its working capital needs, debt service, planned
capital expenditures and other obligations through at least January 2002.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (the FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Management has considered the impact of this
statement, and believes it does not have a material impact upon the Companys
results of operations or financial position.

|        |  |                                                           
|------- |  | ----------------------------------------------------------
|ITEM 7A |  | Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from changes in interest rates. The
Company prices its products and services, in part, based upon the interest
income expected to be received from investing customer deposits and advance
payments. The Companys investment policy and the terms of the Companys credit
facility restrict the Company to investing these deposits and advance payments
only in investment-grade securities. A failure of these investment securities
to perform at their historical levels could reduce the interest income realized
by the Company, which could have a material adverse effect on the business,
financial condition and results of operations of the Company.

The fair value of any fixed rate debt including the Companys Subordinated
Note is subject to change as a result of movements in interest rates. Such
change could have material adverse effect on the Companys financial position
and results of operations. The following table summarizes the financial
instruments held by the Company at December 31, 2000, which are sensitive to
changes in interest rates. This table presents the maturities, related
interest rates and fair value of debt instruments (amounts in thousands):

|                        |  |          |              |      |  |            |   |            |  |                      |        |  |  |   |        | 
|----------------------- |  | -------- | ------------ | ---- |  | ---------- | - | ---------- |  | -------------------- | ------ |  |  | - | ------ | 
|                        |  |          |              |      |  |            |   |            |  | At December 31, 2000
|                        |  |          |              |      |  | Interest   |   |           
|                        |  | Maturity |              | Rate |  | Total Debt |   | Fair Value
|                        |  |          |              |      |  |            |   |           
|Short term note payable |  |          | July 1, 2001 |      |  |            | 9 | %          |  | $                    | 690    |  |  | $ | 690    | 
|                       
|                       
|                       
|                       
|Convertible note        |  |          | July 1, 2007 |      |  |            | 9 | %          |  | $                    | 27,500 |  |  | $ | 27,500 | 

24



---



|        |  |                                            
|------- |  | -------------------------------------------
|ITEM 8. |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                |  |          |    | 
|--------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                                |  | PAGE No.
|                                                                                                                |  |         
|Report of Independent Public Accountants                                                                        |  |          | 26 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Balance Sheets as of December 31, 2000 and 1999                                                    |  |          | 27 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998                      |  |          | 28 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2000, 1999 and 1998 |  |          | 29 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998                      |  |          | 30 | 
|                                                                                                               
|                                                                                                               
|                                                                                                               
|                                                                                                               
|Notes to Consolidated Financial Statements                                                                      |  |          | 31 | 

25



---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Global Vacation Group, Inc.:

We have audited the accompanying consolidated balance sheets of Global Vacation
Group, Inc., (a New York corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, changes in
shareholders equity and cash flows for each of the three years in the period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Vacation
Group, Inc., and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.

ARTHUR ANDERSEN LLP

Vienna, Virginia
February 9, 2001

26



---



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |     |   |         | 
|------------------------------------------------------------------------ | -------------------------------------- | ---------------------------------------------------------------------- | ------- | -------------------------- | --- | ------------ | ------- | ------------ | --- | - | ------- | 
|                                                                         |                                        |                                                                        |         |                            |     | December 31, |         | December 31,
|                                                                         |                                        |                                                                        |         |                            |     | 2000         |         | 1999        
|ASSETS                                                                   |                                        |                                                                        |         |                           
|Current assets:                                                         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Cash and cash equivalents (includes $11,633 and $1,219                  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | of restricted cash, respectively)      |                                                                        | $       | 24,432                     |     |              | $       | 24,152       |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Short-term investments                                                   |                                        |                                                                        |        |                            |     |              | 103     |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Accounts receivable, net of allowance of $2,096 and $1,222, respectively |                                        |                                                                        | 21,224  |                            |     |              | 20,068  |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other current assets                                                     |                                        |                                                                        | 4,303   |                            |     |              | 10,823  |             
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|                                                                         |                                        |                                                                        |         | Total current assets       |     |              | 49,959  |              |     |   | 55,146  | 
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|Property and equipment, net                                              |                                        |                                                                        | 4,588   |                            |     |              | 22,615  |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Related party and other long-term receivables                            |                                        |                                                                        |        |                            |     |              | 963     |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Intangible assets, net                                                   |                                        |                                                                        | 78,476  |                            |     |              | 97,754  |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other assets                                                             |                                        |                                                                        | 124     |                            |     |              | 2,197   |             
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                        |                                                                        |         | Total assets               |     | $            | 133,147 |              |     | $ | 178,675 | 
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|LIABILITIES AND SHAREHOLDERS EQUITY                                     |                                        |                                                                        |         |                           
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Current liabilities:                                                    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Accounts payable and accrued expenses                                    |                                        | $                                                                      | 62,239  |                            |     | $            | 62,873  |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Customer deposits                                                        |                                        |                                                                        | 37,919  |                            |     |              | 36,704  |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Note payable                                                             |                                        |                                                                        | 690     |                            |     |              |        |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Current portion of long-term debt                                        |                                        |                                                                        |        |                            |     |              | 5,082   |             
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                        |                                                                        |         | Total current liabilities  |     |              | 100,848 |              |     |   | 104,659 | 
|Long-term debt, net of current portion                                   |                                        |                                                                        |        |                            |     |              | 24,431  |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Other long-term liabilities                                              |                                        |                                                                        | 480     |                            |     |              | 621     |             
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Convertible note                                                         |                                        |                                                                        | 27,500  |                            |     |              |        |             
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|                                                                         |                                        |                                                                        |         | Total liabilities          |     |              | 128,828 |              |     |   | 129,711 | 
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Commitments and Contingencies                                           
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Shareholders equity:                                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                        | Preferred Stock, $.01 par value, 6,000,000 shares authorized,         
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                        | no shares issued and outstanding                                       |         |                            |    |              |         |              |    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                        | Common Stock, $.01 par value, 60,000,000 shares authorized, 14,775,816
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                        | shares issued and 14,392,825 shares outstanding                        |         |                            | 148 |              |         |              | 148 |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Additional paid-in capital             |                                                                        |         | 95,817                     |     |              |         | 95,771       |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Deferred compensation                  |                                                                        |         | (17                        | )   |              |         | (28          | )  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Retained deficit                       |                                                                        |         | (89,313                    | )   |              |         | (44,611      | )  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Treasury stock, 382,991 shares at cost |                                                                        |         | (2,316                     | )   |              |         | (2,316       | )  
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|                                                                         |                                        |                                                                        |         | Total shareholders equity |     |              | 4,319   |              |     |   | 48,964  | 
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    
|Total liabilities and shareholders equity                               |                                        | $                                                                      | 133,147 |                            |     | $            | 178,675 |             
|                                                                         |                                        |                                                                        |         |                            |     |              |         |              |    



---

|The accompanying notes are an integral part of these consolidated balance sheets.
|---------------------------------------------------------------------------------

27



---



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |        |       |      |        |  
|--------------------------------------------- | ---------------------------------- | ------------------------------ | ------------------ | ---------------- | ----- | ------------------- | ------- | ------ | ----- | ----- | ------ | ------ | ----- | ---- | ------ | -
|                                              |                                    |                                |                    |                  |       | For The Years Ended
|                                              |                                    |                                |                    |                  |       | December 31,       
|                                              |                                    |                                |                    |                  |       |                    
|                                              |                                    |                                |                    |                  |       | 2000                |         | 1999   |       | 1998 
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |      
|Net revenues                                  |                                    | $                              | 132,867            |                  |       | $                   | 126,000 |        |       | $     | 90,421 |       
|                                             
|                                             
|                                             
|                                             
|Operating expenses                            |                                    |                                | 120,648            |                  |       |                     | 111,688 |        |       |       | 69,386 |       
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|                                              |                                    |                                |                    | Gross profit     |       |                     | 12,219  |        |       |       | 14,312 |        |       |      | 21,035 |  
|                                             
|                                             
|                                             
|                                             
|General and administrative expenses           |                                    |                                | 10,560             |                  |       |                     | 13,269  |        |       |       | 10,248 |       
|                                             
|                                             
|                                             
|                                             
|Depreciation and amortization                 |                                    |                                | 6,474              |                  |       |                     | 5,929   |        |       |       | 2,779  |       
|                                             
|                                             
|                                             
|                                             
|Restructuring and impairment charge           |                                    |                                | 38,586             |                  |       |                     |        |        |       |       |       |       
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|                                              | Income (loss) from operations      |                                |                    | (43,401          | )     |                     |         | (4,886 | )     |       |        | 8,008  |      
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Other income
(expense)                       
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                |                    | Interest income  |       |                     | 2,915   |        |       |       | 2,529  |        |       |      | 2,480  |  
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                |                    | Interest expense |       |                     | (4,176  | )      |       |       | (2,331 | )      |       |      | (1,504 | )
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                |                    | Other, net       |       |                     | 20      |        |       |       | 47     |        |       |      | 26     |  
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Total other income (expense)                  |                                    |                                | (1,241             | )                |       |                     | 245     |        |       |       | 1,002  |       
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Income (loss) before income taxes and        
|                                             
|                                             
|                                             
|                                             
|                                              | extraordinary item                 |                                |                    | (44,642          | )     |                     |         | (4,641 | )     |       |        | 9,010  |      
|                                             
|                                             
|                                             
|                                             
|Income tax benefit (expense)                  |                                    |                                | (60                | )                |       |                     | 1,416   |        |       |       | (3,908 | )     
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Income (loss) before extraordinary item       |                                    |                                | (44,702            | )                |       |                     | (3,225  | )      |       |       | 5,102  |       
|                                             
|                                             
|                                             
|                                             
|Extraordinary item, net of income tax benefit
|                                             
|                                             
|                                             
|                                             
|                                              | of $144 for 1999 and $244 for 1998 |                                |                    |                 |       |                     |         | (257   | )     |       |        | (379   | )    
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Net income (loss)                             |                                    |                                | (44,702            | )                |       |                     | (3,482  | )      |       |       | 4,723  |       
|                                             
|                                             
|                                             
|                                             
|Dividends on Class A Convertible             
|                                             
|                                             
|                                             
|                                             
|                                              | Preferred Stock                    |                                |                    |                 |       |                     |         |       |       |       |        | (2,519 | )    
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Net income (loss) available to common        
|                                             
|                                             
|                                             
|                                             
|                                              | shareholders                       |                                | $                  | (44,702          | )     |                     | $       | (3,482 | )     |       | $      | 2,204  |      
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Basic and diluted income (loss) per share:   
|                                             
|                                             
|                                             
|                                             
|                                              |                                    | Income (loss) per share before
|                                             
|                                             
|                                             
|                                             
|                                              |                                    |                                | extraordinary item |                  | $     | (3.11               | )       |        | $     | (0.22 | )      |        | $     | 0.26 |       
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|                                              |                                    | Extraordinary item per share   |                    | $                |      |                     |         | $      | (0.02 | )     |        | $      | (0.04 | )   
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|                                              |                                    | Basic income (loss) per share  |                    | $                | (3.11 | )                   |         | $      | (0.24 | )     |        | $      | 0.22  |     
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|Weighted average shares outstanding:         
|                                             
|                                             
|                                             
|                                             
|                                              | Basic                              |                                |                    | 14,393           |       |                     |         | 14,555 |       |       |        | 9,931  |      
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       
|                                              | Diluted                            |                                |                    | 14,393           |       |                     |         | 14,555 |       |       |        | 9,990  |      
|                                              |                                    |                                |                    |                  |       |                     |         |        |       |       |        |       



---

|The accompanying notes are an integral part of these consolidated financial statements.
|---------------------------------------------------------------------------------------

28



---



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands, except share data)

|                           |                                  |                                    |   |                       |         |        |   |   |         |  
|-------------------------- | -------------------------------- | ---------------------------------- | - | --------------------- | ------- | ------ | - | - | ------- | -
|                           |                                  |                                    |   | REDEEMABLECONVERTIBLE
|                           |                                  |                                    |   | PREFERRED STOCK      
|                           |                                  |                                    |   |                      
|                           |                                  |                                    |   | SHARES                |         | AMOUNT
|                           |                                  |                                    |   |                       |         |       
|Balance, December 31, 1997 |                                  |                                    |  |                       |         | $      |  |  
|                          
|                          
|                          
|                          
|                           | Redemption of common stock       |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Class A Convertible             
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock dividend           |   |                       | 25,762  |        |   |   | 25,762  |  
|                          
|                          
|                          
|                          
|                           | Issuance of common and          
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |   |                       | 27,014  |        |   |   | 27,014  |  
|                          
|                          
|                          
|                          
|                           | Accrued dividend on             
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |   |                       |        |        |   |   | 2,519   |  
|                          
|                          
|                          
|                          
|                           | Fair value adjustment for       
|                          
|                          
|                          
|                          
|                           |                                  | securities available for
sale, net |   |                       |        |        |   |   |        |  
|                          
|                          
|                          
|                          
|                           | Issuance of common stock        
|                          
|                          
|                          
|                          
|                           |                                  | from Initial Public Offering       |   |                       |        |        |   |   |        |  
|                          
|                          
|                          
|                          
|                           | Conversion of Class A           
|                          
|                          
|                          
|                          
|                           |                                  | Convertible Preferred Stock        |   |                       | (52,776 | )      |   |   | (55,295 | )
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |   |                       |        |        |   |   |        |  
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Net income                       |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Distributions                    |                                    |   |                      |         |        |   |  |        
|                           |                                  |                                    |   |                       |         |        |   |  
|Balance, December 31, 1998 |                                  |                                    |  |                       |         |        |  |  
|                          
|                          
|                          
|                          
|                           | Exercise of options              |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |   |                       |        |        |   |   |        |  
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Escrow settlement proceeds       |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |   |                      |         |        |   |  |        
|                           |                                  |                                    |   |                       |         |        |   |  
|Balance, December 31, 1999 |                                  |                                    |  |                       |         |        |  |  
|                          
|                          
|                          
|                          
|                           | Issuance of non-employee options |                                    |   |                      |         |        |   |  |        
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |   |                       |        |        |   |   |        |  
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |   |                      |         |        |   |  |        
|                           |                                  |                                    |   |                       |         |        |   |  
|Balance, December 31, 2000 |                                  |                                    |  |                       |         | $      |  |  
|                           |                                  |                                    |   |                       |         |        |   |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                           |                                  |                                    |            |                      |           |        |     |     |    | 
|-------------------------- | -------------------------------- | ---------------------------------- | ---------- | -------------------- | --------- | ------ | --- | --- | -- | 
|                           |                                  |                                    |            | SHAREHOLDERS' EQUITY
|                           |                                  |                                    |            |                     
|                           |                                  |                                    |            | COMMON STOCK        
|                           |                                  |                                    |            |                     
|                           |                                  |                                    |            | SHARES               |           | AMOUNT
|                           |                                  |                                    |            |                      |           |       
|Balance, December 31, 1997 |                                  |                                    | 5,291,262  |                      |           | $      | 53  |    
|                          
|                          
|                          
|                          
|                           | Redemption of common stock       |                                    |            | (1,799,025           | )         |        |     | (18 | ) 
|                          
|                          
|                          
|                          
|                           | Class A Convertible             
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock dividend           |            |                      |          |        |     |     |   | 
|                          
|                          
|                          
|                          
|                           | Issuance of common and          
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |            |                      | 4,305,689 |        |     |     | 43 | 
|                          
|                          
|                          
|                          
|                           | Accrued dividend on             
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |            |                      |          |        |     |     |   | 
|                          
|                          
|                          
|                          
|                           | Fair value adjustment for       
|                          
|                          
|                          
|                          
|                           |                                  | securities available for
sale, net |            |                      |          |        |     |     |   | 
|                          
|                          
|                          
|                          
|                           | Issuance of common stock        
|                          
|                          
|                          
|                          
|                           |                                  | from Initial Public Offering       |            |                      | 3,000,000 |        |     |     | 30 | 
|                          
|                          
|                          
|                          
|                           | Conversion of Class A           
|                          
|                          
|                          
|                          
|                           |                                  | Convertible Preferred Stock        |            |                      | 3,949,650 |        |     |     | 39 | 
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |            |                      |          |        |     |     |   | 
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Net income                       |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Distributions                    |                                    |            |                     |           |        |     |    |   
|                           |                                  |                                    |            |                      |           |        |     |    
|Balance, December 31, 1998 |                                  |                                    | 14,747,576 |                      |           |        | 147 |    
|                          
|                          
|                          
|                          
|                           | Exercise of options              |                                    |            | 28,240               |           |        |     | 1   |   
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |            |                      |          |        |     |     |   | 
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Escrow settlement proceeds       |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |            |                     |           |        |     |    |   
|                           |                                  |                                    |            |                      |           |        |     |    
|Balance, December 31, 1999 |                                  |                                    | 14,775,816 |                      |           |        | 148 |    
|                          
|                          
|                          
|                          
|                           | Issuance of non-employee options |                                    |            |                     |           |        |     |    |   
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |            |                      |          |        |     |     |   | 
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |            |                     |           |        |     |    |   
|                           |                                  |                                    |            |                      |           |        |     |    
|Balance, December 31, 2000 |                                  |                                    | 14,775,816 |                      |           | $      | 148 |    
|                           |                                  |                                    |            |                      |           |        |     |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                           |                                  |                                    |        |                      |        |              |      |      |    | 
|-------------------------- | -------------------------------- | ---------------------------------- | ------ | -------------------- | ------ | ------------ | ---- | ---- | -- | 
|                           |                                  |                                    |        | SHAREHOLDERS' EQUITY
|                           |                                  |                                    |        |                     
|                           |                                  |                                    |        | ADDITIONAL          
|                           |                                  |                                    |        | PAID-IN              |        | DEFERRED    
|                           |                                  |                                    |        | CAPITAL              |        | COMPENSATION
|                           |                                  |                                    |        |                      |        |             
|Balance, December 31, 1997 |                                  | $                                  |       |                      |        | $            |     |     
|                          
|                          
|                          
|                          
|                           | Redemption of common stock       |                                    |        |                     |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Class A Convertible             
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock dividend           |        |                      |       |              |      |      |   | 
|                          
|                          
|                          
|                          
|                           | Issuance of common and          
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |        |                      | 3,486  |              |      |      |   | 
|                          
|                          
|                          
|                          
|                           | Accrued dividend on             
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |        |                      |       |              |      |      |   | 
|                          
|                          
|                          
|                          
|                           | Fair value adjustment for       
|                          
|                          
|                          
|                          
|                           |                                  | securities available for
sale, net |        |                      |       |              |      |      |   | 
|                          
|                          
|                          
|                          
|                           | Issuance of common stock        
|                          
|                          
|                          
|                          
|                           |                                  | from Initial Public Offering       |        |                      | 35,900 |              |      |      |   | 
|                          
|                          
|                          
|                          
|                           | Conversion of Class A           
|                          
|                          
|                          
|                          
|                           |                                  | Convertible Preferred Stock        |        |                      | 55,256 |              |      |      |   | 
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |        | 480                  |        |              |      | (480 | ) 
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |        |                      |       |              |      |      | 50 | 
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |        |                     |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Net income                       |                                    |        |                     |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Distributions                    |                                    |        |                     |        |              |      |     |   
|                           |                                  |                                    |        |                      |        |              |      |     
|Balance, December 31, 1998 |                                  |                                    | 95,122 |                      |        |              | (430 | )   
|                          
|                          
|                          
|                          
|                           | Exercise of options              |                                    |        | 22                   |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |        |                      |       |              |      |      | 52 | 
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |        | (350                 | )      |              |      | 350  |   
|                          
|                          
|                          
|                          
|                           | Escrow settlement proceeds       |                                    |        | 977                  |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |        |                     |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |        |                     |        |              |      |     |   
|                           |                                  |                                    |        |                      |        |              |      |     
|Balance, December 31, 1999 |                                  |                                    | 95,771 |                      |        |              | (28  | )   
|                          
|                          
|                          
|                          
|                           | Issuance of non-employee options |                                    |        | 46                   |        |              |      |     |   
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |        |                      |       |              |      |      | 11 | 
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |        |                     |        |              |      |     |   
|                           |                                  |                                    |        |                      |        |              |      |     
|Balance, December 31, 2000 |                                  | $                                  | 95,817 |                      |        | $            | (17  | )   
|                           |                                  |                                    |        |                      |        |              |      |     

[Additional columns below]

[Continued from above table, first column(s) repeated]



|                           |                                  |                                    |         |                      |         |          |        |        |   |   |        |         |         |  
|-------------------------- | -------------------------------- | ---------------------------------- | ------- | -------------------- | ------- | -------- | ------ | ------ | - | - | ------ | ------- | ------- | -
|                           |                                  |                                    |         | SHAREHOLDERS' EQUITY
|                           |                                  |                                    |         |                     
|                           |                                  |                                    |         | RETAINED             |         | TREASURY
|                           |                                  |                                    |         | DEFICIT              |         | STOCK    |        | TOTAL 
|                           |                                  |                                    |         |                      |         |          |        |       
|Balance, December 31, 1997 |                                  | $                                  | 305     |                      |         | $        |       |        |   | $ | 358    |        
|                          
|                          
|                          
|                          
|                           | Redemption of common stock       |                                    |         | (12,873              | )       |          |        |       |   |   |        | (12,891 | )      
|                          
|                          
|                          
|                          
|                           | Class A Convertible             
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock dividend           |         |                      | (25,762 | )        |        |        |  |   |        |         | (25,762 | )
|                          
|                          
|                          
|                          
|                           | Issuance of common and          
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |         |                      |        |          |        |        |  |   |        |         | 3,529   |  
|                          
|                          
|                          
|                          
|                           | Accrued dividend on             
|                          
|                          
|                          
|                          
|                           |                                  | Class A Convertible               
|                          
|                          
|                          
|                          
|                           |                                  | Preferred stock                    |         |                      | (2,519  | )        |        |        |  |   |        |         | (2,519  | )
|                          
|                          
|                          
|                          
|                           | Fair value adjustment for       
|                          
|                          
|                          
|                          
|                           |                                  | securities available for
sale, net |         |                      | (8      | )        |        |        |  |   |        |         | (8      | )
|                          
|                          
|                          
|                          
|                           | Issuance of common stock        
|                          
|                          
|                          
|                          
|                           |                                  | from Initial Public Offering       |         |                      |        |          |        |        |  |   |        |         | 35,930  |  
|                          
|                          
|                          
|                          
|                           | Conversion of Class A           
|                          
|                          
|                          
|                          
|                           |                                  | Convertible Preferred Stock        |         |                      |        |          |        |        |  |   |        |         | 55,295  |  
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |         |                     |         |          |        |       |   |   |        |        |        
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |         |                      |        |          |        |        |  |   |        |         | 50      |  
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |         |                     |         |          |        | (125   | ) |   |        | (125    | )      
|                          
|                          
|                          
|                          
|                           | Net income                       |                                    |         | 4,723                |         |          |        |       |   |   |        | 4,723   |        
|                          
|                          
|                          
|                          
|                           | Distributions                    |                                    |         | (4,995               | )       |          |        |       |   |   |        | (4,995  | )      
|                           |                                  |                                    |         |                      |         |          |        |        |   |   |        |        
|Balance, December 31, 1998 |                                  |                                    | (41,129 | )                    |         |          | (125   | )      |   |   | 53,585 |        
|                          
|                          
|                          
|                          
|                           | Exercise of options              |                                    |         |                     |         |          |        |       |   |   |        | 23      |        
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |         |                      |        |          |        |        |  |   |        |         | 52      |  
|                          
|                          
|                          
|                          
|                           | Deferred compensation            |                                    |         |                     |         |          |        |       |   |   |        |        |        
|                          
|                          
|                          
|                          
|                           | Escrow settlement proceeds       |                                    |         |                     |         |          |        |       |   |   |        | 977     |        
|                          
|                          
|                          
|                          
|                           | Purchase of treasury stock       |                                    |         |                     |         |          |        | (2,191 | ) |   |        | (2,191  | )      
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |         | (3,482               | )       |          |        |       |   |   |        | (3,482  | )      
|                           |                                  |                                    |         |                      |         |          |        |        |   |   |        |        
|Balance, December 31, 1999 |                                  |                                    | (44,611 | )                    |         |          | (2,316 | )      |   |   | 48,964 |        
|                          
|                          
|                          
|                          
|                           | Issuance of non-employee options |                                    |         |                     |         |          |        |       |   |   |        | 46      |        
|                          
|                          
|                          
|                          
|                           | Amortization of deferred        
|                          
|                          
|                          
|                          
|                           |                                  | compensation                       |         |                      |        |          |        |        |  |   |        |         | 11      |  
|                          
|                          
|                          
|                          
|                           | Net loss                         |                                    |         | (44,702              | )       |          |        |       |   |   |        | (44,702 | )      
|                           |                                  |                                    |         |                      |         |          |        |        |   |   |        |        
|Balance, December 31, 2000 |                                  | $                                  | (89,313 | )                    |         | $        | (2,316 | )      |   | $ | 4,319  |        
|                           |                                  |                                    |         |                      |         |          |        |        |   |   |        |        

The accompanying notes are an integral part of these consolidated financial statements

29



---



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |         |        |  
|------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | ------------------------------------- | ------- | -------------------------------- | ------ | ------ | ------- | ------- | ------ | -
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         | For the Years Ended December 31,
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         | 2000                             |        | 1999  
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |       
|Cash flows from operating activities:                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               | Net (loss) income                                                  |                                                                      | $                                     | (44,702 | )                                |        | $      | (3,482  | )      
|                                                                         |                                                                               | Adjustments to reconcile net (loss) income to net cash provided by
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | (used in) operating activities:      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Depreciation and amortization                                        |                                       |         | 6,474                            |        |        |         | 5,929   |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Non-cash interest expense                                            |                                       |         | 690                              |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Write-off of deferred financing costs                                |                                       |         | 259                              |        |        |         | 401     |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Amortization of deferred financing costs                             |                                       |         | 457                              |        |        |         | 248     |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Non-cash portion of restructuring and impairment charge              |                                       |         | 35,034                           |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Stock-based compensation expense                                     |                                       |         | 57                               |        |        |         | 52      |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Changes in assets and liabilities, excluding effect of acquisitions:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Accounts receivable                   |         |                                  | (1,156 | )      |         |         | (3,954 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Other assets                          |         |                                  | 8,098  |        |         |         | (653   | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Accounts payable and accrued expenses |         |                                  | (34    | )      |         |         | 10,264 |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Customer deposits                     |         |                                  | 1,216  |        |         |         | (3,248 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Other liabilities                     |         |                                  | 148    |        |         |         | 2,465  |  
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|                                                                         |                                                                               | Net cash provided by (used in) operating activities                |                                                                      |                                       | 6,541   |                                  |        |        | 8,022   |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|Cash flows from investing activities:                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Purchases of property and equipment                                  |                                       |         | (2,562                           | )      |        |         | (5,986  | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net proceeds from short-term investments                             |                                       |         | 103                              |        |        |         | 2,243   |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Acquisitions, net of cash acquired                                   |                                       |         |                                 |        |        |         | (30,975 | )     
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|                                                                         |                                                                               | Net cash used in investing activities                              |                                                                      |                                       | (2,459  | )                                |        |        | (34,718 | )      
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|Cash flows from financing activities:                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net payments on loans to/from related parties                        |                                       |         |                                 |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Proceeds from convertible note                                       |                                       |         | 27,500                           |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Proceeds from borrowings under credit agreement                      |                                       |         |                                 |        |        |         | 33,625  |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Repayment of borrowings under credit agreement                       |                                       |         | (29,431                          | )      |        |         | (10,776 | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Payment of capital lease obligations                                 |                                       |         | (464                             | )      |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Deferred financing costs                                             |                                       |         | (1,407                           | )      |        |         | (1,127  | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Proceeds from settlement of escrow                                   |                                       |         |                                 |        |        |         | 977     |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net proceeds from issuance of common and preferred stock             |                                       |         |                                 |        |        |         | 23      |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net proceeds from initial public offering                            |                                       |         |                                 |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Purchases of treasury stock                                          |                                       |         |                                 |        |        |         | (2,191  | )     
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Redemption of common stock                                           |                                       |         |                                 |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Distributions to shareholders                                        |                                       |         |                                 |        |        |         |        |       
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Repayment of promissory note                                         |                                       |         |                                 |        |        |         |        |       
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|                                                                         | Net cash (used in) provided by financing activities                           |                                                                    |                                                                      | (3,802                                | )       |                                  |        | 20,531 |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|                                                                         | Net increase (decrease) in cash and cash equivalents                          |                                                                    |                                                                      | 280                                   |         |                                  |        | (6,165 | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Cash and cash equivalents, beginning of period                                |                                                                    |                                                                      | 24,152                                |         |                                  |        | 30,317 |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|                                                                         | Cash and cash equivalents, end of period                                      |                                                                    | $                                                                    | 24,432                                |         |                                  | $      | 24,152 |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |        |        |         |        
|Supplemental disclosures of cash flow information:                      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Interest paid                         |         | $                                | 2,479  |        |         | $       | 1,501  |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Income taxes (refunded) paid, net     |         |                                  | (2,389 | )      |         | $       | 177    |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Supplemental disclosures of non cash investing and financing activities:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Issuance of short term note as payment of interest expense                    |                                                                    | $                                                                    | 690                                   |         |                                  | $      |       |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Issuance of promissory note in connection with the redemption of common stock |                                                                    |                                                                      |                                      |         |                                  |        |       |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Class A Convertible Preferred stock dividend                                  |                                                                    |                                                                      |                                      |         |                                  |        |       |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Dividend accretion on Class A Convertible Preferred stock                     |                                                                    |                                                                      |                                      |         |                                  |        |       |        

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                  |         |  
|------------------------------------------------------------------------ | ----------------------------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | ------------------------------------- | ------- | -------------------------------- | ------- | -
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         | For the Years Ended December 31,
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         | 1998                            
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|Cash flows from operating activities:                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               | Net (loss) income                                                  |                                                                      | $                                     | 4,723   |                                 
|                                                                         |                                                                               | Adjustments to reconcile net (loss) income to net cash provided by
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | (used in) operating activities:      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Depreciation and amortization                                        |                                       |         | 2,779                            |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Non-cash interest expense                                            |                                       |         |                                 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Write-off of deferred financing costs                                |                                       |         | 623                              |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Amortization of deferred financing costs                             |                                       |         | 95                               |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Non-cash portion of restructuring and impairment charge              |                                       |         |                                 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Stock-based compensation expense                                     |                                       |         | 50                               |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Changes in assets and liabilities, excluding effect of acquisitions:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Accounts receivable                   |         |                                  | 5,870   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Other assets                          |         |                                  | (7,024  | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Accounts payable and accrued expenses |         |                                  | (4,467  | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Customer deposits                     |         |                                  | (17,808 | )
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Other liabilities                     |         |                                  | (308    | )
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         |                                                                               | Net cash provided by (used in) operating activities                |                                                                      |                                       | (15,467 | )                               
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|Cash flows from investing activities:                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Purchases of property and equipment                                  |                                       |         | (2,272                           | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net proceeds from short-term investments                             |                                       |         | 20,170                           |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Acquisitions, net of cash acquired                                   |                                       |         | (29,629                          | )      
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         |                                                                               | Net cash used in investing activities                              |                                                                      |                                       | (11,731 | )                               
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|Cash flows from financing activities:                                   
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net payments on loans to/from related parties                        |                                       |         | (3,558                           | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Proceeds from convertible note                                       |                                       |         |                                 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Proceeds from borrowings under credit agreement                      |                                       |         | 46,688                           |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Repayment of borrowings under credit agreement                       |                                       |         | (40,025                          | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Payment of capital lease obligations                                 |                                       |         |                                 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Deferred financing costs                                             |                                       |         | (1,126                           | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Proceeds from settlement of escrow                                   |                                       |         |                                 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net proceeds from issuance of common and preferred stock             |                                       |         | 30,543                           |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Net proceeds from initial public offering                            |                                       |         | 35,930                           |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Purchases of treasury stock                                          |                                       |         | (125                             | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Redemption of common stock                                           |                                       |         | (8,891                           | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Distributions to shareholders                                        |                                       |         | (4,995                           | )      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    | Repayment of promissory note                                         |                                       |         | (4,000                           | )      
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         | Net cash (used in) provided by financing activities                           |                                                                    |                                                                      | 50,441                                |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         | Net increase (decrease) in cash and cash equivalents                          |                                                                    |                                                                      | 23,243                                |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Cash and cash equivalents, beginning of period                                |                                                                    |                                                                      | 7,074                                 |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|                                                                         | Cash and cash equivalents, end of period                                      |                                                                    | $                                                                    | 30,317                                |        
|                                                                         |                                                                               |                                                                    |                                                                      |                                       |         |                                 
|Supplemental disclosures of cash flow information:                      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Interest paid                         |         | $                                | 1,937   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         |                                                                               |                                                                    |                                                                      | Income taxes (refunded) paid, net     |         |                                  | 3,289   |  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|Supplemental disclosures of non cash investing and financing activities:
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Issuance of short term note as payment of interest expense                    |                                                                    | $                                                                    |                                      |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Issuance of promissory note in connection with the redemption of common stock |                                                                    |                                                                      | 4,000                                 |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Class A Convertible Preferred stock dividend                                  |                                                                    |                                                                      | 25,762                                |        
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Dividend accretion on Class A Convertible Preferred stock                     |                                                                    |                                                                      | 2,519                                 |        

The accompanying notes are an integral part of these consolidated financial statements

30



---



GLOBAL VACATION GROUP, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business Description and Organization

Global Vacation Group, Inc., and subsidiaries (the Company or GVG) is
one of the largest U.S. providers of customized vacation products. The Company
assembles air, hotel, rental car and other travel components in bulk and
provides complete vacations to travelers through retail travel agents and
international tour wholesalers. The Company provides flexible independent
travel programs for individuals as well as escorted tours and group packages.
From its initial public offering in 1998 until January 8, 2001 Global Vacation
Group, Inc.s common stock was traded on the New York Stock Exchange. On
January 9, 2001 the Company transferred the listing of its common stock to the
American Stock Exchange. Trading continues under the symbol GVG.

Headquartered in San Jose, California, the Company markets its major
products under the brand names Classic Custom Vacations, Allied Tours, and
previously Vacations by Globetrotters. Classic Custom Vacations creates
customized vacation packages for U.S. travelers seeking an individualized
vacation. The Allied Tours brand creates packages for international travelers
visiting North America. The Company also operates Island Resort Tours, a
smaller domestic vacation provider; International Travel & Resorts, a hotel
representation company; and the private label vacation fulfillment operations
for Amtrak Vacations and Hyatt Vacations.

In March 1998, the Company was recapitalized (the Recapitalization) and
between March 1998 and June 1999 acquired the stock or assets of seven other
vacation providers and one information system provider. Through these
acquisitions, GVG acquired the outstanding capital stock of Haddon Holidays,
Inc. (Haddon), Classic Custom Vacations (Classic), Globetrotters, Inc.
(Globetrotters), Friendly Holidays, Inc. (Friendly), Island Resort Tours,
Inc. (Island), International Travel & Resorts, Inc. (ITR), and
substantially all the assets of MTI Vacations, Inc. (MTI), and Trase Miller
Solutions, Inc. (Trase Miller) (collectively, the Acquisitions or the
Acquired Businesses).

The Company has devoted significant attention and effort consolidating and
integrating the operations of its Acquired Businesses from their respective
dates of acquisition into the above-described organization. Difficulties in
integrating certain of the Acquired Businesses resulted in lost customers and
revenues, which led management to restructure the Company in July 2000 (see
Note 12).

Risks and Other Important Factors

For the years ended December 31, 2000 and 1999, the Company reported
losses from operations before restructuring and impairment charges of $4.8
million and $4.9 million, respectively. Management believes that the
reductions in personnel and overhead made during 2000 pursuant to its
restructuring plan will have a positive impact on the Companys financial
performance in 2001. Although management believes that its restructuring and
consolidation is now substantially complete after recording a $38.6 million
restructuring and impairment charge during the year ended December 31, 2000,
there can be no assurances that the steps taken will result in the fully
anticipated improvement in the performance of the Company as a whole or its
operating results.

31



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

If the Company is not profitable commencing in the second quarter of 2001
and for the year ending December 31, 2001, the Company would most likely be
required to obtain additional equity or financing to meet its obligations, or
sell certain of its operations. Although the Company believes it has the
ability to generate additional financing if necessary, these actions may be
dilutive and there can be no assurances that adequate funds will be available,
or available on terms that are reasonable or acceptable to the Company.
Although there can be no assurance that the Company will meet its financial
objectives, management believes that the Company will be able to fund its
operations with operating cash flow through at least January 2002.

The Company receives advance payments and deposits prior to commencement
of travel. Accordingly, the Companys current liabilities exceed its current
assets. As of December 31, 2000, current liabilities exceed current assets by
approximately $50.9 million. If the float generated by these advance payments
were to shrink, and the Company was required to find an alternative source of
capital, one may not be available at terms acceptable to the Company. Such
event could have a material adverse effect on the business, financial condition
and results of operations of the Company.

The Companys operations are subject to certain risks and uncertainties,
including, among others, current and potential competitors with greater
resources, dependence on effective information systems, changing industry
dynamics related to new methods of distribution within the travel industry,
industry consolidations, seasonal fluctuations in operating results, dependence
on rapidly changing technologies, reliance on key personnel, international
political and economic conditions impacting travel patterns, and dependence on
travel suppliers.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting
principals generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of money market investments and short-term
commercial paper. At December 31, 2000, approximately $11.6 million of cash is
restricted pursuant to contracts between the Company and two of its private
label partners and certain terms of the Companys credit facility. The private
label contracts restrict the use of certain funds held by the Company including
customer payments for future travel. Pursuant to the terms of the Companys
credit facility in place at December 31, 2000, the Company is required to
maintain cash collateral to secure outstanding standby letters of credit as
collateral.

32



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

Short-Term Investments

Short-term investments consist of bank certificates of deposit with original
maturities in excess of three months. The Company classifies its certificates
of deposit as held-to-maturity. These are securities with determinable fair
values that the Company intends to hold for an indefinite period. These
securities are carried at cost, which approximates market value.

Revenue Recognition

Net revenues consist primarily of markups on travel packages. The Company
generally recognizes net revenue when earned on the date of travel, net of all
cancellations and changes to reservations booked. For the years ended December
31, 2000, 1999 and 1998, net revenues are derived from sale of travel products
and services with a value of $589.9 million, $543.6 million and $410.2 million,
respectively, net of $457.0 million, $417.6 million and $319.8 million,
respectively, in direct costs to suppliers.

In January 2000, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
Revenue Recognition in Financial Statements. The bulletin provides guidance
for applying accounting principles generally accepted in the United States to
revenue recognition, presentation and disclosure in financial statements.
Management adopted SAB 101 during the quarter ended December 31, 2000, and
noted no material impact on the Companys financial position, or the financial
results previously reported.

Operating Expenses

Operating expenses include commissions, salaries, benefits and payroll tax
expenses, communications, facilities and other costs associated with the
selling and processing of tour packages.

Long-lived Assets

The Company reviews its long-lived assets, including property and
equipment, identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future estimated undiscounted net cash flows
will be less than the carrying amount of the assets. If future estimated
undiscounted net cash flows are more likely than not to be less than the
carrying amount of the long-lived assets, then such assets are written down to
their fair value. As part of the $38.6 million restructuring and impairment
charge incurred during the year ended December 31, 2000, the Company recognized
an impairment of $35.0 million against long-lived assets (See Note 12). After
taking into account the restructuring and impairment charge, management
believes that its long-lived assets are recoverable.

33



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

The Companys estimates of anticipated net revenues, gross profits, the
remaining estimated lives of tangible and intangible assets, or both, could be
reduced significantly in the future due to changes in technology, regulation,
or competitive pressures in any of the Companys individual operating brands.
As a result, the carrying amount of long-lived assets and intangibles,
including goodwill, could be reduced materially in the future.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line method for leasehold improvements. The Company uses accelerated
and straight-line methods for recording depreciation on furniture and fixtures,
and equipment and software with lives that range from 3 to 10 years. Leasehold
improvements are depreciated over the shorter of the lease term or the
estimated useful life of the asset. Included as part of the $35.0 million
impairment charge against long-lived assets for the year ended December 31,
2000, the Company recorded an impairment against property and equipment of
$16.5 million, principally related to the technology platform acquired as part
of Trase Miller, internally developed software and related system assets (See
Note 12).

Property and equipment consist of the following (in thousands):

|                                                     |                             |   |              |       |      |   |        |        | 
|---------------------------------------------------- | --------------------------- | - | ------------ | ----- | ---- | - | ------ | ------ | 
|                                                     |                             |   | December 31,
|                                                     |                             |   |             
|                                                     |                             |   | 2000         |       | 1999
|                                                     |                             |   |              |       |     
|Equipment, software and acquired technology
platform |                             | $ | 8,971        |       |      | $ | 25,838 |       
|                                                    
|                                                    
|                                                    
|                                                    
|Furniture and fixtures                               |                             |   | 1,462        |       |      |   | 2,033  |       
|                                                    
|                                                    
|                                                    
|                                                    
|Leasehold improvements                               |                             |   | 976          |       |      |   | 1,181  |       
|                                                     |                             |   |              |       |      |   |        |       
|                                                     |                             |   | 11,408       |       |      |   | 29,052 |       
|                                                    
|                                                    
|                                                    
|                                                    
|Accumulated depreciation and amortization            |                             |   | (6,820       | )     |      |   | (6,437 | )     
|                                                     |                             |   |              |       |      |   |        |       
|                                                     | Property and equipment, net |   | $            | 4,588 |      |   | $      | 22,615 | 
|                                                     |                             |   |              |       |      |   |       

Intangible Assets

Intangible assets consist of goodwill from acquisitions and deferred
financing costs incurred in connection with the Companys credit agreement and
convertible note. Goodwill is amortized over 35 years. Deferred financing costs
are charged to interest expense over the life of the debt using the effective
interest method. As part of the $35.0 million impairment against long-lived
assets recorded during the year ended December 31, 2000, the Company recorded
an impairment against goodwill of $18.5 million (See Note 12). Intangible
assets as of December 31, 2000 and 1999 consist of the following (in
thousands):

|                         |  |              |        |      |  |   |         |  
|------------------------ |  | ------------ | ------ | ---- |  | - | ------- | -
|                         |  | December 31,
|                         |  |             
|                         |  | 2000         |        | 1999
|                         |  |              |        |     
|Goodwill                 |  | $            | 82,715 |      |  | $ | 100,712 |  
|                        
|                        
|                        
|                        
|Deferred financing costs |  |              | 1,557  |      |  |   | 866     |  
|                        
|                        
|                        
|                        
|Accumulated amortization |  |              | (5,796 | )    |  |   | (3,824  | )
|                         |  |              |        |      |  |   |         |  
|                         |  | $            | 78,476 |      |  | $ | 97,754  |  
|                         |  |              |        |      |  |   |         |  

Fair Value of Financial Instruments

Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures
about Fair Value of Financial Instruments, and SFAS No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments,
require the disclosure of the fair value of financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value. The carrying value of

34



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

the Companys financial instruments approximates fair value due to the
relatively short maturities of these instruments. The fair value of the
Companys long-term debt is estimated using a discounted cash flow analysis
based on the Companys borrowing cost for similar credit facilities. The
Company estimated that as of December 31, 2000, the fair value of its long-term
debt does not differ materially from its carrying value.

In the normal course of business, the Company is a party to letters of
credit, which are not reflected in the accompanying consolidated balance
sheets. Such financial instruments are valued based on the amount of exposure
under the instrument and the likelihood of performance being required. Based on
the Companys past experience, management does not expect any material losses
to result from these off-balance-sheet instruments and, therefore, is of the
opinion that the fair value of these instruments is zero.

Concentrations

For the year ended December 31, 2000 one individual travel agency group
accounted for approximately 10.2% of net revenues. Otherwise, no individual
customer represented more than 10 percent of net revenues or accounts
receivable for 2000, 1999 or 1998. Prior to the Acquisitions, the Companys
revenues and accounts receivable were principally with customers outside the
United States. For the year ended December 31, 2000, gross revenues from
customers located in Europe and South America/South Pacific represented
approximately 16 percent and 5 percent of the total gross revenues,
respectively. For the year ended December 31, 1999, gross revenues from
customers located in Europe and South America/South Pacific represented
approximately 17 percent and 2 percent of the total gross revenues,
respectively. For the year ended December 31, 1998, gross revenues from
customers located in Europe and South America/South Pacific represented
approximately 22 percent and 7 percent of the total gross revenues,
respectively. In addition, vacation products and services related to Hawaiian
destinations accounted for approximately 49 percent, 47 percent and 50 percent
of gross revenues for the years ended December 31, 2000, 1999 and 1998,
respectively.

Income Taxes

Until March 1998, the Company elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the Company
did not pay corporate income taxes on its taxable income. Instead, the
shareholders were liable for individual income taxes on their respective shares
of the Companys taxable income. Accordingly, there is no provision for Federal
income taxes in the accompanying consolidated financial statements for periods
prior to March 1998. The Company was taxable in certain states and other
jurisdictions that did not recognize S Corporation status. In March 1998, the
Company terminated its S Corporation election and, accordingly, has since been
subject to Federal and state income taxes.

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and
liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted
marginal tax rate. SFAS No. 109 requires that a net deferred tax asset be
reduced by a valuation allowance if, based on the weight of available evidence,
it is more likely than not that some portion or all of the net deferred tax
asset will not be realized.

Basic and Diluted Net Income (Loss) per Common Share

SFAS No. 128, Earnings Per Share, requires dual presentation of basic
and diluted earnings per share. Basic income or loss per share is computed by
dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted income or
loss per share includes the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock.

35



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

The treasury stock effect of options to purchase 1,213,727 and 1,372,186
shares of common stock outstanding at December 31, 2000 and 1999, respectively
have not been included in the computation of diluted income per share for the
respective years as such effect would be anti-dilutive. The effect of the
convertible preferred stock outstanding during the year ended December 31,
1998, as well as the convertible notes outstanding during the year ended
December 31, 2000 have not been included in the computation of diluted income
per share as such effect would be anti-dilutive. The following table sets forth
the calculation of basic and diluted weighted average shares outstanding (in
thousands).

|                                          |                                                    |  |              |        |      |  |        |        |  |  |       |       | 
|----------------------------------------- | -------------------------------------------------- |  | ------------ | ------ | ---- |  | ------ | ------ |  |  | ----- | ----- | 
|                                          |                                                    |  | Years Ended 
|                                          |                                                    |  | December 31,
|                                          |                                                    |  |             
|                                          |                                                    |  | 2000         |        | 1999 |  | 1998  
|                                          |                                                    |  |              |        |      |  |       
|Basic weighted average shares outstanding |                                                    |  | 14,393       |        |      |  | 14,555 |        |  |  | 9,931 |      
|                                         
|                                         
|                                         
|                                         
|Effect of dilutive securities:           
|                                         
|                                         
|                                         
|                                         
|                                          | Treasury stock effect of outstanding
stock options |  |              |       |      |  |        |       |  |  |       | 59    | 
|                                          |                                                    |  |              |        |      |  |        |        |  |  |       |      
|                                          | Diluted weighted average shares
outstanding        |  |              | 14,393 |      |  |        | 14,555 |  |  |       | 9,990 | 
|                                          |                                                    |  |              |        |      |  |        |        |  |  |       |      

Segment Reporting

The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
After evaluation, senior management concluded that operations occur primarily
in one segment only.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board (the FASB) issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133 establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the
derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. Management has considered the impact of this
statement, and believes it does not have a material impact upon the Companys
results of operations or financial position.

Reclassifications

Certain reclassifications have been made in the 1999 financial statements
to conform to the 2000 presentation.

36



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

3. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following (in
thousands):

|                            |  |              |        |      |  |   |        | 
|--------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                            |  | December 31,
|                            |  |             
|                            |  | 2000         |        | 1999
|                            |  |              |        |     
|Accounts payable            |  | $            | 9,844  |      |  | $ | 11,338 | 
|                           
|                           
|                           
|                           
|Accrued direct travel costs |  |              | 32,272 |      |  |   | 34,618 | 
|                           
|                           
|                           
|                           
|Other accrued expenses      |  |              | 13,280 |      |  |   | 11,974 | 
|                           
|                           
|                           
|                           
|Bank overdraft              |  |              | 6,843  |      |  |   | 4,943  | 
|                            |  |              |        |      |  |   |        | 
|                            |  | $            | 62,239 |      |  | $ | 62,873 | 
|                            |  |              |        |      |  |   |        | 

4. Shareholders Equity

Recapitalization

In March 1998, the Company was recapitalized pursuant to an agreement
between the Company, its existing shareholders, Allied Tours Holding Corp.
(Allied Holding), the shareholders of Allied Holding and a new investor (the
Investor). Prior to the Recapitalization, the Company had 100 shares of
issued and outstanding common stock, all of which were owned by Allied Holding.
Pursuant to the Recapitalization, the Company redeemed shares of common stock
for $12.9 million from Allied Holding and the Investor purchased shares of
common stock from Allied Holding for $24.7 million. The redemption price was
paid in cash of $10.7 million and $4.0 million in a 120-day promissory note
bearing interest at 8 percent.

Following the redemption, the Company amended and restated its certificate
of incorporation to authorize two classes of capital stock: common stock with a
par value of $.01 per share and preferred stock with a par value of $1,000 per
share. At that time outstanding shares of common stock were converted into
3,492,237 shares of common stock and 25,762 shares of convertible preferred
stock. The conversion into the convertible preferred stock was accounted for as
a non-cash dividend and the conversion into common stock was accounted for as a
stock split. All share and per share amounts have been restated to reflect this
common stock split.

Initial Public Offering

In August 1998, the Company completed an initial public offering (the
Offering) of its common stock. The Company sold 3,000,000 shares of common
stock at a price of $14.00 per share, yielding net proceeds (after underwriting
discounts, commissions and other professional fees) of approximately $35.9
million. The Company used the net proceeds to repay borrowings under its credit
facility. In connection with the Offering, the Companys outstanding Class A
Convertible Preferred Stock (the Convertible Preferred) automatically
converted into shares of the Companys common stock at $14.00 per share.

Increase in Authorized Shares, Stock Split, and Conversion

In connection with the Offering, the Company amended and restated its
certificate of incorporation to increase the number of authorized shares of
common stock to 60,000,000, par value $0.01 per share, and authorized 6,000,000
shares of undesignated preferred stock, par value $0.01 per share. The Company
effected a 12.2-for-one stock split of the common stock. All share and per
share amounts have been retroactively adjusted to give effect to these events.

37



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

Equity Purchase Agreement

In March 1998, the Company entered into a purchase agreement with the
Investor and certain other parties in which the Company agreed to sell 22,751
shares of Convertible Preferred and 3,083,977 shares of common stock to the
Investor and an aggregate of 1,228 shares of Convertible Preferred and an
aggregate of 166,412 shares of common stock to such other parties at a price of
$1,000 per Convertible Preferred share and $0.82 per common share. These shares
were issued between March and May 1998 to fund, in part, the cash component of
the Companys purchase price for certain of the Acquisitions.

Preferred Stock

Holders of Convertible Preferred were entitled to dividends to be paid in
additional shares of Convertible Preferred at a rate of 15 percent per annum.
Upon completion of the Offering, the Convertible Preferred converted into
common stock at a rate equal to the liquidation value plus any accrued but
unpaid dividends divided by the per share offering price of $14.00 per share.

Treasury Stock

On June 23, 1999 the Companys Board of Directors authorized an increase
in the Companys Stock Repurchase Plan from 250,000 shares to 500,000. As of
December 31, 1999, the Company repurchased 270,800 shares of its common stock
on the open market for an aggregate purchase price of $2.0 million. Terms in
its amended credit agreement dated October 1999 prohibit the purchase of
additional treasury shares.

5. Convertible Debt

In June 2000, the Company raised $27.5 million from the issuance of a
subordinated convertible note (the Subordinated Note). Under terms of the
transaction, the Company issued a 9%; seven-year note, convertible into common
stock at a price of $5.25 per share. The Subordinated Note may be converted,
at any time, in total or partial into common stock. The Company has the right
to prepay the Subordinated Note, or require conversion on or after the second
anniversary of the Subordinated Note, or upon the achievement of certain
financial targets.

Interest is payable quarterly and may be paid in cash, additional notes
with terms identical to the original Subordinated Note, or common stock based
upon the quoted market price of the Companys common stock at the time interest
is payable. Additionally, through the quarter ending March 31, 2001 the Company
has the option to elect to pay interest by issuing additional notes with terms
similar to the Subordinated Note (the Short-term Notes), except that such
notes mature July 1, 2001. The Short-term Notes are also convertible into
common stock at a price of $5.25 per share, at any time. At maturity the
principal of the Short-term Notes may be paid in either cash, notes identical
to the Subordinated Note, or common stock. To date, the Company has elected to
pay interest by issuing the Short-term Notes. The Company issued the investor
a Short-term Note dated October 1, 2000 for $690,000 in lieu of cash payment of
interest, and subsequent to year-end, on January 2, 2001 the Company issued an
additional Short-term Note for $644,000 under similar circumstances.

38



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

Under the terms of the Subordinated Note and the Short-term Notes, the
Company is required to meet certain financial ratios and covenants including a
debt-to-equity ratio and a fixed charge coverage ratio, among others. In
connection with the issuance of the Subordinated Note, the Company incurred
approximately $1.4 million in financing costs, which are being amortized over
the term of the Subordinated Note.

6. Stock Option Plan

The Company adopted a stock option plan (the Stock Option Plan) to
assist the Company in attracting and retaining qualified employees, directors,
consultants and advisors. The Stock Option Plan provides that at any time a
number of shares equal to 12 percent of the number of then outstanding shares
of common stock will be reserved for issuance pursuant to grants of stock
options. Unless sooner terminated by the Companys Board of Directors, the
Stock Option Plan will terminate on March 29, 2008. Options granted under the
Stock Option Plan may be either incentive stock options (ISOs), or
nonstatutory stock options (NSOs). The outstanding options generally vest
ratably over a four-year period from the date of grant. No option granted under
the Stock Option Plan is exercisable after the tenth anniversary of the
options date of grant.

The following table sets forth stock option activity for the three years
ended December 31, 2000:

|                                         |  |         |           |           |  |                |            |                  |  |   |       | 
|---------------------------------------- |  | ------- | --------- | --------- |  | -------------- | ---------- | ---------------- |  | - | ----- | 
|                                         |  |         |           |           |  | Exercise Price |            | Weighted Average
|                                         |  | Options |           | Per Share |  | Exercise Price
|                                         |  |         |           |           |  |               
|Options outstanding at December 31, 1997 |  | -       |           | -         |  | -             
|                                         |  |         |           |           |  |               
|Granted                                  |  |         | 1,637,819 |           |  | $              | 0.82-14.00 |                  |  | $ | 13.21 | 
|                                        
|                                        
|                                        
|                                        
|Canceled                                 |  |         | (20,000   | )         |  | $              | 14.00      |                  |  | $ | 14.00 | 
|                                         |  |         |           |           |  |                |            |                  |  |   |       | 
|Options outstanding at December 31, 1998 |  |         | 1,617,819 |           |  | $              | 0.82-14.00 |                  |  | $ | 13.22 | 
|                                         |  |         |           |           |  |                |            |                  |  |   |       | 
|Granted                                  |  |         | 626,500   |           |  | $              | 2.94-14.00 |                  |  | $ | 6.33  | 
|                                        
|                                        
|                                        
|                                        
|Exercised                                |  |         | (28,240   | )         |  | $              | 0.82-0.82  |                  |  | $ | 0.82  | 
|                                        
|                                        
|                                        
|                                        
|Canceled                                 |  |         | (843,893  | )         |  | $              | 0.82-14.00 |                  |  | $ | 12.98 | 
|                                         |  |         |           |           |  |                |            |                  |  |   |       | 
|Options outstanding at December 31, 1999 |  |         | 1,372,186 |           |  | $              | 2.94-14.00 |                  |  | $ | 10.40 | 
|                                         |  |         |           |           |  |                |            |                  |  |   |       | 
|Granted                                  |  |         | 645,420   |           |  | $              | 2.12-3.38  |                  |  | $ | 2.31  | 
|                                        
|                                        
|                                        
|                                        
|Canceled                                 |  |         | (803,879  | )         |  | $              | 2.94-14.00 |                  |  | $ | 10.59 | 
|                                         |  |         |           |           |  |                |            |                  |  |   |       | 
|Options outstanding at December 31, 2000 |  |         | 1,213,727 |           |  | $              | 2.12-14.00 |                  |  | $ | 5.96  | 
|                                         |  |         |           |           |  |                |            |                  |  |   |       | 

The following table summarizes information about stock options outstanding
at December 31, 2000.

|              |        |                   |                     |                  |  |  |                  |      | 
|------------- | ------ | ----------------- | ------------------- | ---------------- |  |  | ---------------- | ---- | 
|              |        |                   | Options Outstanding
|              |        |                   |                    
|              |        |                   |                     |                  |  |  | Weighted Average
|Range of      |        | Number            |                     | Remaining       
|Exercise      |        | Outstanding at    |                     | Contractual Life
|Price         |        | December 31, 2000 |                     | (Years)         
|              |        |                   |                     |                 
|$2.12 - 2.12  |        |                   | 490,000             |                  |  |  | 9.82             |     
|             
|             
|             
|             
|$2.87 - 3.38  |        |                   | 296,920             |                  |  |  | 9.29             |     
|             
|             
|             
|             
|$6.00 - 8.00  |        |                   | 67,500              |                  |  |  | 8.29             |     
|             
|             
|             
|             
|$9.25 - 13.63 |        |                   | 57,500              |                  |  |  | 8.25             |     
|             
|             
|             
|             
|              | $14.00 |                   |                     | 301,807          |  |  |                  | 7.59 | 
|              |        |                   |                     |                  |  |  |                  |     
|              |        |                   | 1,213,727           |                  |  |  | 8.98             |     
|              |        |                   |                     |                  |  |  |                  |     

[Additional columns below]

[Continued from above table, first column(s) repeated]

|              |        |          |          |                   |  |          |                     |         |          |   |       |       | 
|------------- | ------ | -------- | -------- | ----------------- |  | -------- | ------------------- | ------- | -------- | - | ----- | ----- | 
|              |        |          |          |                   |  |          | Options Exercisable
|              |        |          |          |                   |  |          |                    
|              |        |          | Weighted |                   |  |          |                     |         | Weighted
|Range of      |        | Average  |          | Number            |  | Average 
|Exercise      |        | Exercise |          | Exercisable at    |  | Exercise
|Price         |        | Price    |          | December 31, 2000 |  | Price   
|              |        |          |          |                   |  |         
|$2.12 - 2.12  |        | $        | 2.12     |                   |  |          | 30,000              |         |          | $ | 2.12  |      
|             
|             
|             
|             
|$2.87 - 3.38  |        | $        | 2.91     |                   |  |          | 35,375              |         |          | $ | 2.94  |      
|             
|             
|             
|             
|$6.00 - 8.00  |        | $        | 6.58     |                   |  |          | 51,250              |         |          | $ | 6.37  |      
|             
|             
|             
|             
|$9.25 - 13.63 |        | $        | 11.44    |                   |  |          | 19,375              |         |          | $ | 11.16 |      
|             
|             
|             
|             
|              | $14.00 |          | $        | 14.00             |  |          |                     | 158,152 |          |   | $     | 14.00 | 
|              |        |          |          |                   |  |          |                     |         |          |   |       |      
|              |        | $        | 5.96     |                   |  |          | 294,152             |         |          | $ | 9.94  |      
|              |        |          |          |                   |  |          |                     |         |          |   |       |      

39



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 defines a fair value based method of accounting
for stock-based compensation. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. Prior to the issuance of SFAS No. 123,
stock-based compensation was accounted for under the intrinsic value method
as defined by Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees. Under the intrinsic value method, compensation
is the excess, if any, of the market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.

SFAS No. 123 allows an entity to continue to use the intrinsic value
method for stock-based compensation to employees. However, entities electing
the accounting in APB Opinion No. 25 must make pro forma disclosures as if the
fair value based method of accounting had been applied. The Company applies APB
Opinion No. 25 and the related interpretations in accounting for its
stock-based compensation to employees. Under APB Opinion No. 25, no
compensation expense has been recognized in the accompanying financial
statements related to stock option grants to employees in 2000, 1999 or 1998 as
the exercise price for such options was equal to the fair value of the
Companys common stock on the date of the grant. In 1998, the Company granted
options to certain consultants of the Company. As a result, the Company
recorded deferred compensation related to these non-employee options, pursuant
to the fair-value based method. In 1999, certain of these consulting
relationships ended and the unvested compensation was reversed. Additional
compensation expense was recorded in 2000 related to fully vested option grants
made to a consultant.

Had compensation expense for stock-based compensation to employees been
determined based on the fair value of the options at the grant dates consistent
with the method of accounting under SFAS No. 123, the Companys net income
(loss) and net income (loss) per share would have been decreased to the pro
forma amounts indicated below for the years ended December 31, 2000, 1999 and
1998 (in thousands, except per share amounts):

Net income (loss) available to common shareholders:

|            |  |      |         |      |  |      |        |   |  |   |       | 
|----------- |  | ---- | ------- | ---- |  | ---- | ------ | - |  | - | ----- | 
|            |  | 2000 |         | 1999 |  | 1998
|            |  |      |         |      |  |     
|As reported |  | $    | (44,702 | )    |  | $    | (3,482 | ) |  | $ | 2,204 | 
|           
|           
|           
|           
|Pro forma   |  | $    | (45,604 | )    |  | $    | (6,053 | ) |  | $ | 763   | 

Basic and diluted net income (loss) per share:

|            |  |   |       |   |  |   |       |   |  |   |      | 
|----------- |  | - | ----- | - |  | - | ----- | - |  | - | ---- | 
|As reported |  | $ | (3.11 | ) |  | $ | (0.24 | ) |  | $ | 0.22 | 
|           
|           
|           
|           
|Pro forma   |  | $ | (3.17 | ) |  | $ | (0.42 | ) |  | $ | 0.08 | 

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants during the years ended December 31:

|                         |  |      |         |      |  |      |             |  |  |  |             | 
|------------------------ |  | ---- | ------- | ---- |  | ---- | ----------- |  |  |  | ----------- | 
|                         |  | 2000 |         | 1999 |  | 1998
|                         |  |      |         |      |  |     
|Dividend yield           |  |      | 0.0%    |      |  |      | 0.0%        |  |  |  | 0.0%        | 
|                        
|                        
|                        
|                        
|Expected volatility      |  |      | 88%     |      |  |      | 77%         |  |  |  | 80%         | 
|                        
|                        
|                        
|                        
|Risk-free interest rates |  |      | 6.4%    |      |  |      | 4.7% - 5.1% |  |  |  | 4.2% - 5.7% | 
|                        
|                        
|                        
|                        
|Expected option lives    |  |      | 5 years |      |  |      | 5 years     |  |  |  | 5 years     | 

40



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

7. Credit Agreement

Bank Credit Facility

The Company maintains a revolving line of credit with a group of bank
lenders with a total contracted borrowing capacity at December 31, 2000 of
$17.5 million (the Credit Facility). The Credit Facility, as amended in
November 2000, allows for cash borrowings for working capital purposes and is
also used to secure standby letters of credit of up to $10 million. Cash
borrowings for working capital purposes are limited to eligible receivables,
which totaled $5.0 million at December 31, 2000. As there were no cash
borrowings outstanding at December 31, 2000, the full $5.0 million was
available. The Company had $6.4 million of standby letters of credit
outstanding at December 31, 2000, leaving $3.6 million available for additional
letters of credit. The Company is required to maintain cash collateral equal to
103% of the outstanding balance of letters of credit. The Company is required
to meet certain financial ratios and covenants, including minimum net worth,
leverage ratios, interest coverage ratios, and fixed charge coverage ratios
among others. The facility places limitations on capital expenditures as well
as certain other financing and investing activities. Interest is calculated on
cash borrowings at ABR Advance rates plus an applicable margin ranging from
2.25% to 3.00%. The facility matures on January 31, 2002.

The Company has amended the Credit Facility on various occasions since it
was originally negotiated in February 1999 with a total capacity of $45.0
million. The Credit Facility replaced earlier term loans that were used solely
to fund the Companys 1998 acquisitions. The Credit Facility was used to fund
the Companys 1999 acquisitions and has been used to secure the Companys
routine standby letters of credit. The Company completed repayment of all
outstanding cash borrowing under the facility in June 2000 with proceeds from
the Note (See Note 5). Since June 2000 the Company has not used the facility
for working capital borrowings.

In November 2000, the Company most recently amended the Credit Facility.
In exchange for relief on certain prescribed financial covenants and ratios for
periods through March 31, 2001, the Company agreed to permanently reduce the
total facility to $17.5 million. This amendment also resulted in the limit on
cash borrowings to eligible receivables, and the requirement that the Company
maintain 103% cash collateral specifically securing outstanding standby letters
of credit.

Extraordinary Item

During the year ended December 31, 1999, the Company recognized an
extraordinary charge of $257,000, net of income tax effect of $144,000, related
to the February 1999 amendment of the Companys Credit Facility. During the
year ended December 31, 1998, the Company recognized an extraordinary charge of
$379,000, net of income tax effect of $244,000, related to the early
extinguishment of certain term loans outstanding under its Credit Facility.

41



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

8. Income Taxes

For the years ended December 31, 2000, 1999 and 1998, the components of
the (provision for) benefit from income taxes consist of the following (in
thousands):

|                    |  |                          |         |      |  |      |        |   |  |   |        |  
|------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                    |  | Years Ended December 31,
|                    |  |                         
|                    |  | 2000                     |         | 1999 |  | 1998
|                    |  |                          |         |      |  |     
|Current             |  | $                        | (7,442  | )    |  | $    | 3,788  |   |  | $ | (3,970 | )
|                   
|                   
|                   
|                   
|Deferred            |  |                          | (10,229 | )    |  |      | (2,372 | ) |  |   | 62     |  
|                   
|                   
|                   
|                   
|Valuation allowance |  |                          | 17,611  |      |  |      |       |   |  |   |       |  
|                    |  |                          |         |      |  |      |        |   |  |   |        |  
|                    |  | $                        | (60     | )    |  | $    | 1,416  |   |  | $ | (3,908 | )
|                    |  |                          |         |      |  |      |        |   |  |   |        |  

A reconciliation of the tax benefit (provision) from the U.S. Federal statutory
tax rate to the Companys effective tax rate is as follows for the years ended
December 31, 2000, 1999 and 1998:

|                                                         |  |      |       |      |  |      |      |   |  |  |       |   
|-------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | - |  |  | ----- | --
|                                                         |  | 2000 |       | 1999 |  | 1998
|                                                         |  |      |       |      |  |     
|Taxes at the statutory Federal rate                      |  |      | 35.0  | %    |  |      | 35.0 | % |  |  | (35.0 | )%
|                                                        
|                                                        
|                                                        
|                                                        
|Effect of graduated rates                                |  |      | (1.0  | )    |  |      | (1.0 | ) |  |  | 1.0   |   
|                                                        
|                                                        
|                                                        
|                                                        
|S corporation loss attributable directly
to shareholders |  |      |      |      |  |      |     |   |  |  | (3.4  | ) 
|                                                        
|                                                        
|                                                        
|                                                        
|State and other income taxes, net of Federal tax benefit |  |      | 5.4   |      |  |      | 5.0  |   |  |  | (4.0  | ) 
|                                                        
|                                                        
|                                                        
|                                                        
|Nondeductible expenses                                   |  |      | (2.5  | )    |  |      | (8.5 | ) |  |  | (2.0  | ) 
|                                                        
|                                                        
|                                                        
|                                                        
|Valuation allowance                                      |  |      | (37.0 | )    |  |      |     |   |  |  |      |   
|                                                         |  |      |       |      |  |      |      |   |  |  |       |   
|Tax benefit (provision) at effective rates               |  |      | (0.1  | %)   |  |      | 30.5 | % |  |  | (43.4 | )%
|                                                         |  |      |       |      |  |      |      |   |  |  |       |   

The components of the Companys net deferred tax asset (liability) are as
follows (in thousands):

|                                  |  |      |         |      |  |              |        |   |  |   |      |  
|--------------------------------- |  | ---- | ------- | ---- |  | ------------ | ------ | - |  | - | ---- | -
|                                  |  |      |         |      |  | December 31,
|                                  |  |      |         |      |  |             
|                                  |  | 2000 |         | 1999 |  | 1998        
|                                  |  |      |         |      |  |             
|Allowance for doubtful accounts   |  | $    | 818     |      |  | $            | 523    |   |  | $ | 405  |  
|                                 
|                                 
|                                 
|                                 
|Accrued expenses and other        |  |      | 1,825   |      |  |              | 463    |   |  |   | 426  |  
|                                 
|                                 
|                                 
|                                 
|Depreciation and
amortization     |  |      | 7,757   |      |  |              | (3,097 | ) |  |   | (571 | )
|                                 
|                                 
|                                 
|                                 
|Net operating loss carry forwards |  |      | 7,211   |      |  |              | 3,202  |   |  |   |     |  
|                                 
|                                 
|                                 
|                                 
|Valuation allowance               |  |      | (17,611 | )    |  |              |       |   |  |   |     |  
|                                  |  |      |         |      |  |              |        |   |  |   |      |  
|                                  |  | $    |        |      |  | $            | 1,091  |   |  | $ | 260  |  
|                                  |  |      |         |      |  |              |        |   |  |   |      |  

SFAS No. 109 requires that a net deferred tax asset be reduced by a
valuation allowance if, based on the weight of the evidence, it is more likely
than not that some portion or all of the net deferred tax asset will not be
realized. Due to net losses incurred by the Company, the Company has provided
for a valuation allowance to fully reserve its deferred tax assets.

The Company has net operating loss carry forwards to offset future taxable
income of approximately $32.5 million as of December 31, 2000. These net
operating loss carry forwards expire through 2019. Only a portion of the net
operating loss carry forwards are attributable to operating activities. The
remainder of the net operating loss carry forwards are attributable to tax
deductions related to the exercise of stock options. In computing its income
tax expense, the Company recognizes the tax benefits of stock option deductions
after the utilization of net operating losses from operations to reduce income
tax expense. A portion of the net operating loss carry forwards, are
attributed to tax deductions related to the exercise of stock options and other
stock-based compensation. Upon realization of such operating loss
carryforwards against taxable income in future periods, the related benefit
will credited to stockholders equity.

42



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

9. Commitments and Contingencies

Senior Management Agreements

During 2000 the Company agreed to the resignation of certain executives.
Under the terms of the resignation agreements, the Company agreed to provide
severance payments in the form of salary continuation extending until November
2001. All severance obligations were expensed in 2000 as part of the
restructuring charge, with the unpaid portion accrued at December 31, 2000.

Consulting and Employment Agreements

The Company has entered into employment agreements with various
individuals. The agreements prescribe salary and bonus compensation based upon
the performance of the Company and, in certain circumstances, provide for
severance payments. The agreements also contain various non-compete and
non-solicitation provisions. As part of the Companys restructuring, certain
employees covered by employment agreements were terminated and certain
individuals are being provided severance payments in the form of salary
continuation that extends as far as March 2002. All severance obligations
associated with the restructuring were expensed in 2000, and the unpaid portion
is accrued as of December 31, 2000.

Leases

The Company leases its facilities, automobiles and certain equipment under
noncancellable operating leases. The following is a schedule by years of future
minimum rental payments, required under these leases expiring through 2005, as
of December 31, 2000 (in thousands):

|           |       |   |       |       | 
|---------- | ----- | - | ----- | ----- | 
|2001       |       | $ | 3,035 |      
|          
|          
|          
|          
|2002       |       |   | 2,803 |      
|          
|          
|          
|          
|2003       |       |   | 1,459 |      
|          
|          
|          
|          
|2004       |       |   | 999   |      
|          
|          
|          
|          
|2005       |       |   | 187   |      
|          
|          
|          
|          
|Thereafter |       |   | 140   |      
|           |       |   |       |      
|           | Total |   | $     | 8,623 | 
|           |       |   |       |      

Total facilities rent expense for the years ended December 31, 2000, 1999
and 1998 was approximately $2.9 million, $3.0 million and $2.1 million,
respectively.

Letters of Credit

As of December 31, 2000 and 1999, the Company had issued letters of credit
totaling $6.4 million and $5.7 million, respectively, in favor of certain
vendors. Certain short-term investments have been pledged as collateral and are
included in the accompanying consolidated balance sheets as cash and cash
equivalents or short-term investments, depending on their maturity.

Litigation

The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon

43



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

the financial position or future operating results of the Company, and adequate
provision for any potential losses has been made in the accompanying
consolidated financial statements.

10. Related Party Transactions

Loans receivable from/loans payable to shareholders are related to
borrowings from and advances to shareholders prior to the Recapitalization. In
addition, as of December 31, 1999, the Company had a $1.3 million note
receivable balance from a former principal shareholder of one of the acquired
companies. The note, which was secured by certain investments and accrued
interest at the rate of 9% per annum, was paid in full in 2000.

During 1998, the Company had an agreement with an affiliate of the
Investor to provide investment banking and support services. Total fees and
expense reimbursements paid under this agreement in 1998 totaled $2.1 million.
The agreement terminated at the completion of the Companys Offering on August
5, 1998.

11. Acquisitions

Between March 1998 and June 1999, the Company acquired Haddon, Classic,
Globetrotters, Friendly Holidays, ITR, Island and substantially all of the
assets of MTI and Trase Miller. The acquisitions were acquired principally with
cash. The Company financed the Acquisitions with proceeds from the issuance of
additional shares of Convertible Preferred and common stock and from borrowings
under its Credit Facility. The acquisition of each of these businesses has been
accounted for as a purchase for financial reporting purposes. The Company
allocated the excess of the purchase price over the fair value of net assets
acquired to goodwill.

1998 Acquisitions

The Companys 1998 acquisitions of Haddon, $7.7 million; Classic, $19.0
million; MTI, $27.3 million; and Globetrotters, $5.6 million; totaled $59.6
million including direct acquisition costs. The total purchase price of the
acquisitions has been allocated to: cash and investments, $51.7 million;
accounts receivable and prepaid assets, $15.9 million; equipment and other
assets, $5.3 million; and goodwill, $65.9 million; net of liabilities assumed
and direct acquisition costs, $79.2 million.

Friendly Holidays

On March 17, 1999, the Company acquired all the outstanding stock of
Friendly, a wholesale package tour operator that principally serves travelers
to Mexico, Central America, and Caribbean destinations. Friendly was integrated
into the Companys Vacations by Globetrotters brand in 2000, which was
subsequently consolidated with Classic. The terms of the purchase included

44



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

cash consideration of $10.6 million. The Company incurred direct
acquisition costs of $331,000. The purchase price has been allocated as
follows (in thousands):

|                                                 |       |   |         |        | 
|------------------------------------------------ | ----- | - | ------- | ------ | 
|Cash and investments                             |       | $ | 8,105   |       
|                                                
|                                                
|                                                
|                                                
|A/R and prepaid assets                           |       |   | 2,112   |       
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 1,794   |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 11,040  |       
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (12,209 | )     
|                                                 |       |   |         |       
|                                                 | Total |   | $       | 10,842 | 
|                                                 |       |   |         |       

ITR and Island

On April 1, 1999, the Company acquired all the outstanding stock of ITR, a
hotel representative company, and Island, a wholesale package tour operator
that principally sells popular-priced vacation packages to Caribbean
destinations. The terms of the purchase included cash consideration of $5.0
million and additional payments of up to $1.75 million contingent on future
operating results. According to the terms of the contract the full contingent
payment was earned and is payable April 2001. The Company incurred direct
acquisition costs of $158,000. The purchase price has been allocated as follows
(in thousands):

|                                                 |       |   |        |       | 
|------------------------------------------------ | ----- | - | ------ | ----- | 
|Cash and investments                             |       | $ | 444    |      
|                                                
|                                                
|                                                
|                                                
|Accounts receivable                              |       |   | 391    |      
|                                                
|                                                
|                                                
|                                                
|Fixed assets and other assets                    |       |   | 135    |      
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 7,123  |      
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (1,185 | )    
|                                                 |       |   |        |      
|                                                 | Total |   | $      | 6,908 | 
|                                                 |       |   |        |      

Trase Miller

On June 1, 1999, the Company acquired substantially all of the assets of
Trase Miller, the designer and maintenance provider for certain of Global
Vacation Groups information systems including reservation systems for cash
consideration of $29.9 million. The purchase price included $6.8 million
previously paid to acquire an option to purchase Trase Miller, $2.3 million
paid to extend the purchase option, and an additional $21.0 million. The
Company was refunded $200,000 of the purchase price in 2000. The Company also
incurred direct acquisition costs of $297,000. The purchase price has been
allocated as follows (in thousands):

|                                                 |       |   |        |        | 
|------------------------------------------------ | ----- | - | ------ | ------ | 
|Accounts receivable                              |       | $ | 172    |       
|                                                
|                                                
|                                                
|                                                
|Fixed and other assets                           |       |   | 1,912  |       
|                                                
|                                                
|                                                
|                                                
|Covenant not-to-compete                          |       |   | 100    |       
|                                                
|                                                
|                                                
|                                                
|Technology platform                              |       |   | 12,380 |       
|                                                
|                                                
|                                                
|                                                
|Goodwill                                         |       |   | 17,500 |       
|                                                
|                                                
|                                                
|                                                
|Liabilities assumed and direct acquisition costs |       |   | (1,877 | )     
|                                                 |       |   |        |       
|                                                 | Total |   | $      | 30,187 | 
|                                                 |       |   |        |       

As a result of the Companys restructuring, management determined that
substantially all of the long-lived assets acquired with Trase Miller were
impaired and recorded a charge in the third quarter 2000 (see Note 12).

45



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

The unaudited pro forma information presented below (in thousands, except
per share amounts) reflects the Acquisitions as if they had occurred on January
1, 1998. These results are not necessarily indicative of future operating
results or what would have occurred had the Acquisitions been consummated at
that date.

|                                 |  |              |         |      |  |   |         | 
|-------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                                 |  | Year Ended  
|                                 |  | December 31,
|                                 |  | (unaudited) 
|                                 |  |             
|                                 |  | 1999         |         | 1998
|                                 |  |              |         |     
|Net revenues                     |  | $            | 125,203 |      |  | $ | 125,165 | 
|                                
|                                
|                                
|                                
|Net loss                         |  |              | (7,033  | )    |  |   | 1,923   | 
|                                
|                                
|                                
|                                
|Basic and diluted loss per share |  | $            | (0.48   | )    |  | $ | 0.13    | 

In connection with the 1998 acquisitions, the Company recognized
approximately $2.0 million in liabilities as the cost of closing redundant
facilities and terminating certain employees. The accrual included lease and
facility costs of $795,000, severance and other employee termination costs of
$907,000, and costs of $300,000 related to other contractual obligations
associated with the Companys consolidation plan. During 1998, the Company
closed redundant reservation centers and consolidated Haddon and Globetrotters
into Classic and MTI, respectively. These activities resulted in a reduction of
approximately 90 employees in connection with the facility closures, the
elimination of duplicate positions and the restructuring of certain operations.

In connection with the 1999 acquisitions, the Company recognized
approximately $3.3 million in liabilities related to the cost of the Companys
consolidation plans. The accrual included lease and facility costs of
$1,414,000, severance and other employee termination costs of $978,000, and
other contractual obligations of $943,000 associated with the Companys
consolidation plan. During 1999 and the first six months of 2000, the Company
streamlined the operations of Friendly and Trase Miller. These activities
resulted in a reduction of approximately 76 employees in connection with the
elimination of duplicate positions and the restructuring of certain operations.

For the years ended December 31, 2000, 1999 and 1998, the Company charged
$1.5 million, $1.1 million and $859,000, respectively, against the accruals for
amounts paid during these periods. Additionally, during 2000 the Company
reduced the accrual and related goodwill by $1.9 million due to lower than
estimated costs associated with exiting certain contractual obligations, fewer
than planned terminations and higher than planned attrition. $81,000 remain
accrued at December 31, 2000 related to continuing lease obligations payable in
2001.

12. Restructuring and Impairment

On July 31, 2000 the Company announced a planned restructuring and
consolidation of its Vacations by Globetrotters branded operations into its
Classic Custom Vacations brand. As part of this consolidation, the Company
migrated its Globetrotters domestic products to the Classic technology
platform. Additionally the Company closed its Washington, DC headquarters
office changing its principal executive office to Classics office in San Jose,
CA. As part of the restructuring, the Company terminated 116 employees. The
Company also expects to reduce its office facility requirements in its Chicago
operations. The restructuring and impairment charge of $38.6 million recorded
during the year ended December 31, 2000 includes $18.5 million related to the
impairment of intangible assets, $16.5 million related to the impairment of
systems and related property, $2.5 million related to employee severance costs
including benefits, and

46



---



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(CONTINUED)

$1.1 million related to continuing lease obligations and other restructuring
costs. Of the total $3.6 million of cash payments expected to be made as part
of the restructuring, approximately $1.3 million was paid during 2000,
including $952,000 for employee severence, and $346,000 for lease obligations
and other restructuring costs. As of December 31, 2000, approximately $2.3
million of the accrual remains unpaid, substantially all of which is expected
to be paid over the next twelve months.

As part of the restructuring, the Company reviewed the carrying values of
its long-lived assets, including systems, property and equipment, identifiable
intangibles, and goodwill related to its Downers Grove operations. As the
technology platform and operating systems at Downers Grove are now used only to
support the private label operations, the undiscounted cash flows of those
operations are substantially less than the carrying values of the related
long-lived assets including goodwill. The fair value of the related long-lived
assets including goodwill was determined based upon the estimated discounted
cash flows to be derived from the private label operations. Accordingly, the
Company recorded an impairment charge of $35.0 million, including $18.5 million
of goodwill and $16.5 million representing substantially all of the related
technology platform and other property.

13. Quarterly Financial Data (Unaudited)

The following presents certain unaudited quarterly financial data for the
years ended December 31, 2000 and 1999 (in thousands, except per share
amounts):

|                                     |                                |   |        |       |        |   |                              |       |        |   |         |       |   |   |        |       |   |   |         |       |  
|------------------------------------ | ------------------------------ | - | ------ | ----- | ------ | - | ---------------------------- | ----- | ------ | - | ------- | ----- | - | - | ------ | ----- | - | - | ------- | ----- | -
|                                     |                                |   |        |       |        |   | Year ended December 31, 2000
|                                     |                                |   |       
|                                     |                                |   | First  |       | Second |   | Third                        |       | Fourth |   | Total  
|                                     |                                |   |        |       |        |   |                              |       |        |   |        
|Net revenues                         |                                | $ | 27,352 |       |        | $ | 36,394                       |       |        | $ | 40,620  |       |   | $ | 28,501 |       |   | $ | 132,867 |      
|                                    
|                                    
|                                    
|                                    
|Gross profit                         |                                |   | (15    | )     |        |   | 4,486                        |       |        |   | 4,956   |       |   |   | 2,792  |       |   |   | 12,219  |      
|                                    
|                                    
|                                    
|                                    
|Loss before extraordinary item       |                                |   | (2,897 | )     |        |   | (2,163                       | )     |        |   | (38,053 | )     |   |   | (1,589 | )     |   |   | (44,702 | )    
|                                    
|                                    
|                                    
|                                    
|Net loss                             |                                |   | (2,897 | )     |        |   | (2,163                       | )     |        |   | (38,053 | )     |   |   | (1,589 | )     |   |   | (44,702 | )    
|                                    
|                                    
|                                    
|                                    
|Basic and diluted per share amounts:
|                                    
|                                    
|                                    
|                                    
|                                     | Loss before extraordinary item |   | $      | (0.20 | )      |   | $                            | (0.15 | )      |   | $       | (2.64 | ) |   | $      | (0.11 | ) |   | $       | (3.11 | )
|                                    
|                                    
|                                    
|                                    
|                                     | Net loss                       |   | $      | (0.20 | )      |   | $                            | (0.15 | )      |   | $       | (2.64 | ) |   | $      | (0.11 | ) |   | $       | (3.11 | )

|                                        |                                         |   |        |       |        |   |                              |      |        |   |        |      |  |   |        |       |   |   |         |       |  
|--------------------------------------- | --------------------------------------- | - | ------ | ----- | ------ | - | ---------------------------- | ---- | ------ | - | ------ | ---- |  | - | ------ | ----- | - | - | ------- | ----- | -
|                                        |                                         |   |        |       |        |   | Year ended December 31, 1999
|                                        |                                         |   |       
|                                        |                                         |   | First  |       | Second |   | Third                        |      | Fourth |   | Total 
|                                        |                                         |   |        |       |        |   |                              |      |        |   |       
|Net revenues                            |                                         | $ | 22,759 |       |        | $ | 34,411                       |      |        | $ | 41,557 |      |  | $ | 27,273 |       |   | $ | 126,000 |      
|                                       
|                                       
|                                       
|                                       
|Gross profit                            |                                         |   | 1,338  |       |        |   | 5,082                        |      |        |   | 6,182  |      |  |   | 1,710  |       |   |   | 14,312  |      
|                                       
|                                       
|                                       
|                                       
|Income (loss) before extraordinary item |                                         |   | (1,538 | )     |        |   | 269                          |      |        |   | 370    |      |  |   | (2,326 | )     |   |   | (3,225  | )    
|                                       
|                                       
|                                       
|                                       
|Net income (loss)                       |                                         |   | (1,795 | )     |        |   | 269                          |      |        |   | 370    |      |  |   | (2,326 | )     |   |   | (3,482  | )    
|                                       
|                                       
|                                       
|                                       
|Basic and diluted per share amounts:   
|                                       
|                                       
|                                       
|                                       
|                                        | Income (loss) before extraordinary
item |   | $      | (0.10 | )      |   | $                            | 0.02 |        |   | $      | 0.03 |  |   | $      | (0.16 | ) |   | $       | (0.22 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Net income (loss)                       |   | $      | (0.12 | )      |   | $                            | 0.02 |        |   | $      | 0.03 |  |   | $      | (0.16 | ) |   | $       | (0.24 | )

The net loss in the third and fourth quarters of the year ended December
31, 2000 reflect restructuring and impairment charges of $38.4 million and
$204,000, respectively.

47



---



|        |  |                                                                                      
|------- |  | -------------------------------------------------------------------------------------
|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|       
|       
|       
|       
|        |  |                                                                                      
|        |  | None.                                                                                

PART III



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Certain information required by Part III is omitted from this Report in that
the Registrant will file a definitive proxy statement with the Securities and
Exchange Commission (the Commission) within 120 days after the end of its
fiscal year pursuant to Regulation 14A, as promulgated by the Commission, for
its Annual Meeting of Stockholders to be held May 17, 2001 (the Proxy
Statement), and certain information included therein is incorporated herein
by reference. (The Audit Committee Report, the Compensation Committee Report
and the stock performance graph of the Registrants Proxy Statement are
expressly not incorporated by reference herein.)

|         |  |                                               
|-------- |  | ----------------------------------------------
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT



| |                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The information required by this Item is incorporated by reference to the
Companys Proxy Statement under the heading Election of Directors, which
information is incorporated herein by this reference.

Executive Officers

Set forth below is certain information concerning the executive officers
of the Company.

Ronald M. Letterman, 58, has served as Vice Chairman of the Company since
July 2000, and its President and Chief Executive Officer since October 2000.
He has also held the post of CEO of Classic Custom Vacations, the Companys
flagship brand for over nine years. Mr. Letterman is a 30 plus year veteran of
the travel industry and is a nationally recognized industry expert. Prior to
Joining Classic he was President of Carlson Travel Network where he was
responsible for more than 1,000 travel agency locations and Carlsons wholesale
tour operation. Earlier in his career, Mr. Letterman served as vice president
and general manager of Destination Services USA for American Express Travel
Related Services Company, Inc.

Debbie A. Lundquist,45, has served as Executive Vice President and Chief
Financial Officer of the Company since October 2000. From April 1998 until her
recent promotion, she served as Vice President and Controller of the Company.
Ms. Lundquist also serves as CFO of Classic Custom Vacations. She has been
employed by Classic since 1996. Previously she served as Vice President and
Assistant Controller for The GAP, the clothing retailer, where she was
responsible for a staff of over 250. A Certified Public Accountant, Ms.
Lundquist started her career with Arthur Young & Co.

The Companys executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. Each executive officer is a
full-time employee of the Company. There are no family relationships between
any of the executive officers of the Company.

|         |  |                       
|-------- |  | ----------------------
|ITEM 11. |  | EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
Companys Proxy Statement under the heading Executive Compensation and Other
Information.

48



---



|         |  |                                                               
|-------- |  | --------------------------------------------------------------
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Companys Proxy Statement under the headings Election of Directors and
Security Ownership of Certain Beneficial Owners and Management.

|         |  |                                               
|-------- |  | ----------------------------------------------
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
Companys Proxy Statement under the heading Transactions with Related
Parties.

49



---



PART IV

|         |  |                                                                 
|-------- |  | ----------------------------------------------------------------
|ITEM 14. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

|    |  |  |    |  |  |                              
|--- |  |  | -- |  |  | -----------------------------
|(a) |  |  | 1. |  |  | INDEX TO FINANCIAL STATEMENTS

|                                                                  
|------------------------------------------------------------------
|Reference is made to the index set forth on page 25 of this Report

| |  |  |    |  |  |                               
| |  |  | -- |  |  | ------------------------------
| |  |  | 2. |  |  | FINANCIAL STATEMENT SCHEDULES:

|                                              |  |          |    | 
|--------------------------------------------- |  | -------- | -- | 
|                                              |  | Page No.
|                                              |  |         
|Schedule II Valuation and Qualifying Accounts |  |          | 53 | 

| |  |  |    |  |  |         
| |  |  | -- |  |  | --------
| |  |  | 3. |  |  | EXHIBITS

|   |  |                                                                                     |  |  |    | 
|-- |  | ----------------------------------------------------------------------------------- |  |  | -- | 
|a) |  | Exhibit Index                                                                       |  |  | 54 | 
|  
|  
|  
|  
|b) |  | Reports on Form 8-K (none)                                                          |  |  | 55 | 
|  
|  
|  
|  
|c) |  | Amendment No. 4 and Waiver
No. 1 to the Second Amended and
Restated Credit Facility |  |  | 56 | 
|  
|  
|  
|  
|d) |  | Exhibit 21.1 Subsidiaries of Global
Vacation Group, Inc.                            |  |  | 72 | 
|  
|  
|  
|  
|e) |  | Exhibit 23.1 Consent of
Arthur Andersen LLP                                         |  |  | 73 | 

50



---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                     |  |                              
|-------------------- |  | -----------------------------
|                     |  | GLOBAL VACATION GROUP, INC.  
|                    
|                    
|                    
|                    
|Date: March 26, 2001
|                    
|                    
|                    
|                    
|                     |  | By: /s/ RONALD M. LETTERMAN  
|                     |  |                              
|                    
|                    
|                    
|                    
|                     |  | Ronald M. Letterman          
|                    
|                    
|                    
|                    
|                     |  | Vice-Chairman, President and 
|                    
|                    
|                    
|                    
|                     |  | Chief Executive Officer      
|                    
|                    
|                    
|                    
|                     |  | (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

|                                           |  |                                                                                                   |  |               
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------- |  | --------------
|Name                                       |  | Title                                                                                             |  | Date          
|                                           |  |                                                                                                   |  |               
|/s/ RONALD M. LETTERMANRonald M. Letterman |  | Chief Executive Officer
and Vice Chairman
(Principal Executive Officer)                           |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ DEBBIE A. LUNDQUISTDebbie A. Lundquist |  | Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer) |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ FREDERIC V. MALEK                      |  | Chairman                                                                                          |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|Frederic V. Malek                         
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ MICHAEL H. BULKIN                      |  | Director                                                                                          |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|Michael H. Bulkin                         
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ WILLEM F.P. DE VOGEL                   |  | Director                                                                                          |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|Willem F. P. de Vogel                     
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ KENNETH M. DUBERSTEIN                  |  | Director                                                                                          |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|Kenneth M. Duberstein                     
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ DANIEL A. RASKAS                       |  | Director                                                                                          |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|Daniel A. Raskas                          
|                                          
|                                          
|                                          
|                                          
|                                           |  |                                                                                                   |  |               
|/s/ JAMES M. SULLIVAN                      |  | Director                                                                                          |  | March 26, 2001
|                                          
|                                          
|                                          
|                                          
|James M. Sullivan                         

51



---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Global Vacation Group, Inc.:

We have audited in accordance with auditing standards generally accepted in the
United States the financial statements of Global Vacation Group, Inc., (a New
York corporation) and subsidiaries and have issued our report thereon dated
February 9, 2001. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item
14, Valuation and Qualifying Accounts, is the responsibility of the Companys
management and is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not a part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Vienna, Virginia
February 9, 2001

52



---



Schedule II
Valuation and Qualifying Accounts
Years Ended December 31, 2000, 1999 and 1998
(in thousands)

|     |  |             |                                 |                   |  |                     |       |                     |  |                    |       |                   |  |                 |       |  |  |   |       | 
|---- |  | ----------- | ------------------------------- | ----------------- |  | ------------------- | ----- | ------------------- |  | ------------------ | ----- | ----------------- |  | --------------- | ----- |  |  | - | ----- | 
|     |  |             |                                 |                   |  |                     |       |                     |  |                    |       |                   |  | Deductions from
|     |  |             |                                 |                   |  |                     |       |                     |  |                    |       |                   |  | Reserve for    
|     |  |             |                                 |                   |  | Balance at          |       | Additions Charged   |  | Purposes for Which |       | Balance at End of
|     |  | Description |                                 | Beginning of Year |  | to Cost or Expenses |       | Reserve was Created |  | Year              
|2000 |  |             | Allowance for doubtful accounts |                   |  | $                   | 1,222 |                     |  | $                  | 2,629 |                   |  | $               | 1,755 |  |  | $ | 2,096 | 
|    
|    
|    
|    
|     |  |             | Restructuring reserve           |                   |  |                     | 3,155 |                     |  |                    | 3,579 |                   |  |                 | 4,373 |  |  | $ | 2,361 | 
|    
|    
|    
|    
|1999 |  |             | Allowance for doubtful accounts |                   |  |                     | 982   |                     |  |                    | 1,106 |                   |  |                 | 866   |  |  |   | 1,222 | 
|    
|    
|    
|    
|     |  |             | Restructuring reserve           |                   |  |                     | 1,143 |                     |  |                    | 3,335 |                   |  |                 | 1,323 |  |  |   | 3,155 | 
|    
|    
|    
|    
|1998 |  |             | Allowance for doubtful accounts |                   |  |                     | 861   |                     |  |                    | 121   |                   |  |                 |      |  |  |   | 982   | 
|    
|    
|    
|    
|     |  |             | Restructuring reserve           |                   |  |                     |      |                     |  |                    | 2,002 |                   |  |                 | 859   |  |  |   | 1,143 | 
|     |  |             |                                 |                   |  |                     |       |                     |  |                    |       |                   |  |                 |       |  |  |   |       | 

53



---



|         |  |                                                                                                                                                                                                             
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a)       |  | EXHIBIT INDEX                                                                                                                                                                                               
|3.1     |  | Restated Certificate of Incorporation of the Registrant                                                                                                                                                     
|        
|        
|        
|        
|3.2     |  | Amended and Restated By-laws of the Registrant                                                                                                                                                              
|        
|        
|        
|        
|4.1     |  | Form of Specimen Stock Certificate                                                                                                                                                                          
|        
|        
|        
|        
|10.1    |  | Recapitalization Agreement dated as of March 18, 1998 among the Registrant,
Thayer, Allied Holding and the shareholders of Allied Holding                                                                   
|        
|        
|        
|        
|10.2    |  | Equity Purchase Agreement dated as of March 30, 1998 between the Registrant and Thayer and certain
other purchasers.                                                                                        
|        
|        
|        
|        
|10.3    |  | Equity Subscription Agreement dated as of March 30, 1998 by and among the Registrant, Ralph M.
Caliri and William W. Webber.                                                                                
|        
|        
|        
|        
|10.4    |  | Equity Subscription Agreement dated as of April 30, 1998 between the Registrant and James F. Miller.                                                                                                        
|        
|        
|        
|        
|10.5    |  | Registration Rights Agreement dated as of June 12, 1998 by and among the Registrant, Thayer and
certain shareholders of the Registrant                                                                      
|        
|        
|        
|        
|10.6    |  | Stock Purchase Agreement dated as of March 30, 1998 by and among the Registrant, Haddon and the
shareholders of Haddon.                                                                                     
|        
|        
|        
|        
|10.7¥   |  | Stock Purchase Agreement dated as of April 20, 1998 by and among the Registrant, Classic Custom
Vacations, Inc. (Classic) and the shareholders of Classic.                                                
|        
|        
|        
|        
|10.8    |  | Asset Purchase Agreement dated as of April 30, 1998 by and among the Registrant, MTI and James F.
Miller.                                                                                                   
|        
|        
|        
|        
|10.9    |  | Stock Purchase Agreement dated as of May 4, 1998 by and among the Registrant, Globetrotters, Inc.
and Robert A. Grinberg.                                                                                   
|        
|        
|        
|        
|10.10¥  |  | Professional Services Agreement dated as of March 30, 1998 between the Registrant and TC Management
Partners, LLC.                                                                                          
|        
|        
|        
|        
|10.11¥  |  | Credit Agreement dated as of March 27, 1998 by and among the Registrant, the lenders party thereto
and The Bank of New York, as administrative agent                                                        
|        
|        
|        
|        
|10.12¥  |  | Amendment No. 1 and Consent dated as of April 8, 1998 to Credit Agreement dated as of March 27,
1998 by and among the Registrant, the lenders party thereto and The Bank of New York as
administrative agent
|        
|        
|        
|        
|10.13¥  |  | Amendment No. 2 dated as of May 5, 1998 to Credit Agreement dated as of March 27, 1998 by and among
the Registrant, the lenders party thereto and The Bank of New York as administrative agent              
|        
|        
|        
|        
|10.14¥  |  | Registrants 1998 Stock Option Plan                                                                                                                                                                         
|        
|        
|        
|        
|10.15¥  |  | Senior Management Agreement dated as of March 30, 1998 between the Registrant and Roger H. Ballou.                                                                                                          
|        
|        
|        
|        
|10.16¥  |  | Senior Management Agreement dated as of March 30, 1998 between the Registrant and J. Raymond Lewis,
Jr.                                                                                                     
|        
|        
|        
|        
|10.17¥  |  | Senior Management Agreement dated as of March 30, 1998 between the Registrant and Walter S. Berman.                                                                                                         
|        
|        
|        
|        
|10.18¥  |  | Consulting Agreement dated as of March 27, 1998 by and between the Registrant and Stanley Fisher.                                                                                                           
|        
|        
|        
|        
|10.19¥  |  | Employment Agreement dated as of March 18, 1998 by and between the Registrant and Michael Fisher.                                                                                                           
|        
|        
|        
|        
|10.20¥  |  | Employment Agreement dated as of March 18, 1998 by and between the Registrant and Gregory Fisher.                                                                                                           
|        
|        
|        
|        
|10.21¥  |  | Amendment No. 1 dated as of June 24, 1998 to Senior Management Agreement dated as of March 30, 1998
between the Registrant and Mr. Ballou.                                                                  
|        
|        
|        
|        
|10.22¥  |  | Amendment No. 1 dated as of June 24, 1998 to Senior Management Agreement dated as of March 30, 1998
between the Registrant and Mr. Lewis.                                                                   
|        
|        
|        
|        
|10.23¥  |  | Amendment No. 1 dated as of June 24, 1998 to Senior Management Agreement dated as of March 30, 1998
between the Registrant and Mr. Berman.                                                                  
|        
|        
|        
|        
|10.24*   |  | Agreement dated as of August 14, 1998 between the Company and Trase Miller Solutions                                                                                                                        
|        
|        
|        
|        
|10.25    |  | Restated and Amended Credit Agreement dated as of February 19, 1999 by and among the Registrant,
the lenders party thereto and The Bank of New York, as administrative agent.                               
|        
|        
|        
|        
|10.26    |  | Amendment No. 1 to the Amended and Restated Credit Agreement                                                                                                                                                
|        
|        
|        
|        
|10.27    |  | Amendment No. 2 to the Amended and Restated Credit Agreement                                                                                                                                                
|        
|        
|        
|        
|10.28    |  | Amendment No. 2 dated as of March 16, 1999 to Senior Management Agreement dated as of
March 30, 1998 between the Registrant and Mr. Ballou                                                                  
|        
|        
|        
|        
|10.29    |  | Amendment No. 2 dated as of March 16, 1999 to Senior Management Agreement dated as of
March 30, 1998 between the Registrant and Mr. Lewis                                                                   
|        
|        
|        
|        
|10.30    |  | Amendment No. 2 dated as of March 16, 1999 to Senior Management Agreement dated as of
March 30, 1998 between the Registrant and Mr. Berman                                                                  
|        
|        
|        
|        
|10.31    |  | Resignation Agreement between the Registrant and Mr. Walter S. Berman                                                                                                                                       
|        
|        
|        
|        
|10.32**  |  | Amendment No. 3 to the Amended and Restated Credit Agreement                                                                                                                                                
|        
|        
|        
|        
|10.33**  |  | Amendment No. 4 to the Amended and Restated Credit Agreement                                                                                                                                                
|        
|        
|        
|        
|10.34**¥ |  | Employment Agreement between the Registrant and Jay G. Stuart                                                                                                                                               
|        
|        
|        
|        
|10.35¥¥  |  | Resignation Agreement between the Registrant and Mr. Raymond Lewis, Jr.                                                                                                                                     

54



---



|        |  |                                                                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|       
|       
|       
|10.36¥¥ |  | Second Restated and Amended Credit Agreement dated as of October 28, 1999 by and among the Registrant,
the lenders party thereto and The Bank of New York, as administrative agent.                         
|       
|       
|       
|       
|10.37¥¥ |  | Amendment No. 1 to the Second Restated and Amended Credit Agreement                                                                                                                                         
|       
|       
|       
|       
|10.38ß  |  | Stock Purchase Agreement detail as of March 17, 1999 between the Registrant, Friendly Holidays, Inc. and
the Shareholders of Friendly Holidays, Inc.                                                        
|       
|       
|       
|       
|10.39ß  |  | Stock Purchase Agreement detail as of April 1, 1999 between the Registrant, Island Resort Tours, Inc.,
International Travel and Resorts, Stephen A. Hicks, Robert A. Barrett and Fairweather Holding Company
|       
|       
|       
|       
|10.40ß  |  | Asset Purchase Agreement detail as of June 1, 1999 between the Registrant and Trase Miller Solutions, Inc.                                                                                                  
|       
|       
|       
|       
|10.41ß  |  | Amendment No. 3 to the Second Amended and Restated Credit Agreement                                                                                                                                         
|       
|       
|       
|       
|10.42ß  |  | Note Purchase detail as of June 20, 2000 Agreement between the Registrant and GV Investment LLC.                                                                                                            
|       
|       
|       
|       
|10.43 |  | Resignation Agreement between the Registrant and Roger H. Ballou                                                                                                                                            
|       
|       
|       
|       
|10.44 |  | Resignation Agreement between the Registrant and Jay G. Stuart                                                                                                                                              
|       
|       
|       
|       
|10.45   |  | Amendment No. 4 and Waiver No. 1 to the Second Amended and Restated Credit Facility                                                                                                                         
|       
|       
|       
|       
|21.1    |  | Subsidiaries of the Registrant                                                                                                                                                                              
|       
|       
|       
|       
|23.1    |  | Consent of Arthur Andersen LLP                                                                                                                                                                              

Incorporated herein by reference:

|   |  |                                                                                                           
|-- |  | ----------------------------------------------------------------------------------------------------------
|  |  | Previously filed as the same exhibit number under a Registration Statement on Form S-1 (file no 333-52673)
|  
|  
|  
|  
|  |  | Previously filed as the same exhibit number on September 14, 1998 under a Form 10-Q (file no 001-14353)   
|  
|  
|  
|  
|*  |  | Previously filed as the exhibit number 10.1 on September 14, 1998 under a
Form 10-Q (file no 001-14353)   
|  
|  
|  
|  
|¥  |  | Management Compensation related agreements.                                                               
|  
|  
|  
|  
|   |  | Previously filed as the same exhibit number on May 14, 1999 under a Form 10-Q (file no 001-14353)         
|  
|  
|  
|  
|** |  | Previously filed as the same exhibit number on November 14, 1999 under a Form 10-Q (file no 001-14353)    
|  
|  
|  
|  
|¥¥ |  | Previously filed as the same exhibit number on March 15, 2000 under a Form 10-K (file no 001-14353)       
|  
|  
|  
|  
|ß  |  | Previously filed as the same exhibit number on August 14, 2000 under a Form 10-Q (file no 001-14353)      
|  
|  
|  
|  
| |  | Previously filed as the same exhibit number on November 14, 2000 under a Form 10-Q (file no 001-14353)    



---

|b) |  | Reports on Form 8-K
|-- |  | -------------------

None.

55