-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L0Ex8T0XlcC73B9LdF+BMdnfLRULqtJA40Q/zNsVTSIk67z5H7MCCLwVHr9C9+dZ Otccs4GjnFXyWDvUZGM1JQ== 0000927016-97-001543.txt : 19970526 0000927016-97-001543.hdr.sgml : 19970526 ACCESSION NUMBER: 0000927016-97-001543 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970523 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREY INTERNATIONAL INC CENTRAL INDEX KEY: 0000747201 STANDARD INDUSTRIAL CLASSIFICATION: LOCAL & SUBURBAN TRANSIT & INTERURBAN HWY PASSENGER TRAINS [4100] IRS NUMBER: 521171965 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-22651 FILM NUMBER: 97613880 BUSINESS ADDRESS: STREET 1: 4530 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20016 BUSINESS PHONE: 2028951200 MAIL ADDRESS: STREET 1: 4530 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20016 S-1/A 1 AMENDMENT NO. 3 TO S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997 REGISTRATION NO. 333-22651 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- CAREY INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------- DELAWARE 4119 52-1171965 (STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.) INCORPORATION OR CLASSIFICATION ORGANIZATION) CODE NUMBER) 4530 WISCONSIN AVENUE, N.W. WASHINGTON, D.C. 20016 (202) 895-1200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) -------------- VINCENT A. WOLFINGTON CAREY INTERNATIONAL, INC. 4530 WISCONSIN AVENUE, N.W. WASHINGTON, D.C. 20016 (202) 895-1200 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) -------------- COPIES OF COMMUNICATIONS TO: JOHN P. DRISCOLL, JR., ESQUIRE NEIL GOLD, ESQUIRE NUTTER, MCCLENNEN & FISH, LLP FULBRIGHT & JAWORSKI L.L.P. ONE INTERNATIONAL PLACE 666 FIFTH AVENUE BOSTON, MA 02110 NEW YORK, NY 10103 (617) 439-2000 (212) 318-3000 -------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If the Form is a post-effective amendment filed pursuant to Rule 426(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS BE ACCEPTED TO BUY PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 23, 1997 2,900,000 SHARES [LOGO OF CAREY APPEARS HERE] CAREY INTERNATIONAL, INC. COMMON STOCK All of the shares of Common Stock offered hereby are being offered by Carey International, Inc. ("Carey" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "CARY." SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) - -------------------------------------------------------------------------------- Per Share.................................. $ $ $ Total(3)................................... $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting offering expenses payable by the Company, estimated at $1,600,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 435,000 additional shares of Common Stock solely to cover over- allotments, if any. If the Underwriters exercise this option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the several Underwriters named herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing such shares will be made against payment therefor at the office of Montgomery Securities on or about , 1997. ----------- Montgomery Securities Ladenburg Thalmann & Co. Inc. , 1997 The Company intends to furnish its stockholders with annual reports containing audited financial statements reported on by independent auditors for each fiscal year and quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year. CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus (i) gives effect to the Recapitalization (as defined herein) of the Company (see "Recapitalization"), (ii) does not give effect to 995,228 shares of Common Stock issuable upon the exercise of outstanding options and warrants or 150,000 shares of Common Stock issuable pursuant to warrants described under the caption "Underwriting," (iii) assumes the conversion of certain convertible notes, and (iv) assumes no exercise of the Underwriters' over-allotment option to purchase 435,000 shares of Common Stock. THE COMPANY Carey International, Inc. ("Carey" or the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The "Carey" brand name has represented quality chauffeured vehicle service since the 1920s. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., South Florida and Philadelphia. In addition, the Company generates revenues from licensing the "Carey" name and providing central reservation, billing and sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated companies nor licensees. Over the past five years, the Company has invested significant capital in developing its reservation, central billing and worldwide service infrastructure. By leveraging its current infrastructure and position as a market leader, the Company intends to consolidate the highly fragmented chauffeured vehicle service industry through the acquisition of: (i) current Carey licensees, (ii) additional companies in markets in which the Company already owns and operates a chauffeured vehicle service company, and (iii) companies in other strategic markets in North America, Europe and the Pacific rim of Asia. The Carey network utilizes chauffeured sedans, limousines, vans and minibuses to provide services for airport pick-ups and drop-offs, inter-office transfers, business and association meetings, conventions, roadshows, promotional tours, special events, incentive travel and leisure travel. Businesses and business travelers utilize the Company's services primarily as a management tool, to achieve more efficient use of time and other resources. Carey's worldwide network of chauffeured vehicle service companies allows it to provide services with consistently high quality to its customers in virtually every major city in the expanding global travel market. The network is linked to over 300,000 reservation terminals in travel agencies, corporate travel departments and government offices by the Carey International Reservation System (the "CIRS"), the chauffeured vehicle service industry's most extensive centralized global reservation system. The Company estimates that the United States chauffeured vehicle service industry generated revenues of approximately $3.9 billion in 1996, and has undergone steady growth in recent years, with revenues increasing at a compound annual growth rate of 10.9% between 1990 and 1996. The industry is highly fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles. The Company believes that during 1996 no chauffeured vehicle service company accounted for more than 2% of total United States industry revenues. The Company also believes that similar fragmentation exists in the chauffeured vehicle service industry outside the United States. 3 The Company's objective is to increase its profitability and its market share in the chauffeured vehicle service industry by implementing the following growth strategies: Expand through Acquisitions. Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies that would benefit from the capital and management resources that the Company can provide. Carey intends to acquire current Carey licensees, as well as additional chauffeured vehicle service companies both in markets in which the Company already owns and operates such a business and in other strategic regions in North America, Europe and the Pacific rim of Asia. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in a substantial majority of its domestic license agreements. The Company believes that it has less than a 10% market share in each of the markets in which it owns and operates a chauffeured vehicle service company, and that there is significant potential for it to expand its business in such markets through acquisitions. As the Company acquires additional chauffeured vehicle service companies, it anticipates that cost savings can be achieved through the consolidation of certain administrative functions and the elimination of redundant facilities, equipment and personnel. Carey has successfully begun to implement its acquisition strategy. Since November 1991, the Company has acquired 15 chauffeured vehicle service companies, including, since January 1995, two of its licensees (in Ft. Lauderdale/Miami and San Francisco) and six additional chauffeured vehicle service companies (two in each of Boca Raton and San Francisco, and one in each of Washington, D.C. and London). Upon the closing of this offering, the Company will acquire Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine"), one of the largest chauffeured vehicle service companies in the metropolitan New York area and the operator of a network of approximately 300 affiliates worldwide. Manhattan Limousine generated revenues of approximately $18.4 million during its fiscal year ended September 30, 1996, representing approximately 23.4% of the Company's fiscal 1996 revenues on a pro forma basis. See "Acquisition of Manhattan Limousine" and "Pro Forma Consolidated Financial Statements." Increase International Market Share. Approximately 12.8% of the Company's revenue, net was derived from services performed outside the United States during its fiscal year ended November 30, 1996. Of these international revenues, approximately 60.8% was generated by the Company's owned and operated business in London, approximately 38.1% was generated by the Company's international licensees and the remainder was generated by the Company's international affiliates. Carey believes that its network can capture a significant portion of the growing international market for chauffeured vehicle services by acquiring or licensing additional chauffeured vehicle service companies and otherwise implementing the Carey system outside the United States. The Company intends to increase its international presence by intensifying its sales and marketing efforts, strengthening its relationships with significant domestic and international business travel arrangers, and capitalizing on the capacity of the CIRS to operate on a global scale. By enhancing its international presence, the Company also expects to increase its revenues from providing chauffeured vehicle services to international travelers both visiting the United States and travelling abroad. Expand Licensee Network Worldwide. The Company will seek to expand its worldwide network and generate additional revenues from license and marketing fees by licensing additional chauffeured vehicle service companies in smaller markets that do not justify a Company-owned presence. Ultimately, as these less strategic markets grow in size and importance to the Company, the licensees in such markets may become acquisition candidates for the Company. Convert Salaried Chauffeurs to Independent Operators. The Company believes that it can improve its profitability by continuing to convert salaried chauffeurs to independent operators in businesses acquired by Carey. The objective of Carey's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner, thereby increasing 4 the profitability of the chauffeur and the Company. Carey's independent operator program allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. In 1979, the Company was organized as a Delaware corporation and commenced operations by acquiring certain rights to the "Carey" name held by a predecessor company. Predecessor companies operated chauffeured vehicle service businesses under the "Carey" name since the 1920s. The Company's principal executive offices are located at 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. Its telephone number at that location is (202) 895-1200. As used herein, unless the context otherwise requires, "Carey" or the "Company" refers to Carey International, Inc. and its subsidiaries. THE OFFERING Common Stock being offered......................... 2,900,000 shares Common Stock to be outstanding after the offering.. 6,389,012 shares(1) Use of proceeds.................................... To repay certain indebtedness, redeem certain shares of preferred stock, pay the cash portion of the purchase price for Manhattan Limousine, fund other acquisitions and for general corporate purposes, including working capital Proposed Nasdaq National Market symbol............. CARY
- ------- (1) Excludes: (i) 995,228 shares of Common Stock issuable upon the exercise of outstanding options and warrants, (ii) 28,662 shares of Common Stock which are authorized but have not yet been granted under options pursuant to the Company's 1987 Stock Option Plan and 1992 Stock Option Plan, (iii) 150,000 shares of Common Stock issuable upon the exercise of warrants described under the caption "Underwriting," (iv) 650,000 shares of Common Stock authorized pursuant to the 1997 Equity Incentive Plan, of which options to purchase 411,500 shares of Common Stock are outstanding, and (v) 100,000 shares of Common Stock authorized pursuant to the Stock Plan for Non- Employee Directors, of which options to purchase 22,500 shares of Common Stock are outstanding. 5 SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA
THREE MONTHS ENDED --------------------------------------- FISCAL YEAR ENDED NOVEMBER 30, FEB. 29, 1996 FEB. 28, 1997 --------------------------------------------------------------- ------------- ------------------------- 1992 1993 1994 1995 1996 ------- -------- ------- ------- -------------------------- ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(2) ---------- ------------ ------------- --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net.... $27,669 $30,319 $35,525 $43,484 $59,505 $78,883 $11,558 $14,141 $19,613 Cost of reve- nue............ 20,199 22,751 24,954 29,943 40,438 52,344 7,904 9,756 13,149 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Gross profit.... 7,470 7,568 10,571 13,541 19,067 26,539 3,654 4,385 6,464 Selling, general and administrative expense........ 5,939 8,174 9,487 12,419 15,078 21,192 3,361 3,819 5,504 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Operating income (loss)......... 1,531 (606) 1,084 1,122 3,989 5,347 293 566 960 Interest income (expense) and other income (expense)...... (819) (1,308) (1,194) (1,292) (1,277) (253) (340) (245) 23 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Income (loss) before provision (benefit) for income taxes... 712 (1,914) (110) (170) 2,712 5,094 (47) 321 983 Provision (benefit) for income taxes... 53 10 19 25 (104) 2,155 11 154 413 ------- -------- ------- ------- ---------- --------- ------- --------- --------- Net income (loss)......... $ 659 $ (1,924) $ (129) $ (195) $ 2,816 $ 2,939 $ (58) $ 167 $ 570 ======= ======== ======= ======= ========== ========= ======= ========= ========= Pro forma net income per share.......... $0.89(3) $0.49 $0.07(3) $0.10 ========== ========= ========= ========= Weighted average shares outstanding.... 3,510,020(3) 6,023,785 3,518,083(3) 5,971,960
FEBRUARY 28, 1997 --------------------- NOVEMBER 30, 1996 ACTUAL PRO FORMA(4) ------------ ------- ------------ CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit)................... $(1,732) $(1,029) $ 81 Total assets................................ 42,526 39,378 73,703 Long-term debt, less current maturities..... 11,192 11,327 1,719 Deferred revenue(5)......................... 6,181 6,629 13,500 Total stockholders' equity.................. $ 6,672 $ 6,844 $39,376
- ------- (1) Gives effect to the following events as if they had occurred on December 1, 1995: (i) the acquisition of Camelot Barthropp Ltd., completed February 1996, including the interest cost related to indebtedness incurred in connection with such acquisition, (ii) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's fiscal year ended September 30, 1996) and the amortization of associated goodwill, (iii) the conversion of certain preferred stock and subordinated debt into Common Stock, see "Recapitalization," and the elimination of interest expense associated with the subordinated debt; (iv) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash portion of the purchase price for Manhattan Limousine, (c) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, (d) redeem certain preferred stock of the Company and (e) pay the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (v) the elimination of interest expense associated with debt repaid from the proceeds of this offering and (vi) other adjustments as described under "Pro Forma Consolidated Financial Statements" and the notes thereto. (2) Gives effect to the events set forth in clauses (ii) through (vi) of note (1) above as if they had occurred on December 1, 1995, except that, with respect to clause (ii), the statement of operations data is for Manhattan Limousine's three months ended December 31, 1996. (3) Gives effect to the conversion of certain preferred stock and subordinated debt into Common Stock and the elimination of associated interest expense on the subordinated debt as a result of the Recapitalization. See Notes 2 and 18 to the Company's Consolidated Financial Statements. (4) Reflects (i) the Recapitalization, see "Recapitalization," (ii) the acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine," and (iii) the issuance and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed offering price of $11.00 per share less estimated underwriting discounts and commissions and offering expenses) and the application of the net proceeds therefrom as described under "Use of Proceeds." (5) Represents the balance of the fees deferred in connection with independent operator agreements less amounts previously recognized. Such fees are recognized ratably over the terms of the agreements, which typically range from 10 to 20 years. See the Notes to the Company's Consolidated Financial Statements. 6 RISK FACTORS The following factors should be considered, together with the other information in this Prospectus, in evaluating an investment in the Company. This Prospectus contains certain forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain of the factors set forth in the following risk factors and elsewhere in this Prospectus. HISTORY OF LOSSES The Company has generated a net loss in three of the past four fiscal years. Although the Company was profitable during the fiscal year ended November 30, 1996, there can be no assurance that the Company will be able to sustain profitability. RISKS ASSOCIATED WITH ACQUISITION OF MANHATTAN LIMOUSINE The acquisition of Manhattan Limousine will be consummated simultaneously with this offering. Manhattan Limousine generated pro forma revenues of approximately $18.4 million during its fiscal year ended Septem- ber 30, 1996, representing approximately 23.4% of the Company's fiscal 1996 revenues on a pro forma basis. As a result of the acquisition of Manhattan Limousine, nearly half of the Company's revenues will be generated from services provided within the New York City metropolitan area. The eventual integration of Manhattan Limousine, which is the Company's largest acquisition to date, will place significant demands on the Company's management and infrastructure, and there can be no assurance that Manhattan Limousine's business will be successfully integrated with that of the Company, that the Company will be able to realize operating efficiencies or eliminate redundant costs, or that the combined business will be operated profitably. Further, there can be no assurance that customers of Manhattan Limousine will continue to do business with the Company. The failure of the Company in any of these respects could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds" and "Acquisition of Manhattan Limousine." RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY The Company intends to grow primarily through the acquisition of additional chauffeured vehicle service companies. Increased competition for acquisition candidates may develop, in which event there may be fewer acquisition opportunities available to the Company as well as higher acquisition costs for the opportunities that are available. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses into the Company without substantial costs, delays, or other operational or financial problems. There also can be no assurance that the Company will be able to purchase its licensees that operate in markets in which the Company does not own and operate a chauffeured vehicle service company. The success of any acquisition will depend upon the Company's ability to introduce automation and management systems, to convert salaried chauffeurs employed by the acquired businesses to independent operators and to integrate the acquired business with the Company's existing operations. Customer dissatisfaction or performance problems at a single acquired company could have an adverse effect on the reputation of the Company and the Company's sales and marketing initiatives. There can be no assurance that any businesses acquired in the future will achieve anticipated revenues and earnings. Further, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key personnel at an acquired company, risks associated with unanticipated events or liabilities and amortization of goodwill or other acquired intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Acquisition Strategy." 7 RISKS RELATED TO ACQUISITION FINANCING The Company may choose to finance future acquisitions by using shares of its Common Stock for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company might not be able to utilize Common Stock as consideration for acquisitions and would be required to utilize more of its cash resources, if available, in order to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through debt or equity financings. There can be no assurance that such financing will be available if and when needed or on terms acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." RISKS ASSOCIATED WITH RAPID GROWTH As a result of the Manhattan Limousine acquisition, the continued implementation of the Company's acquisition strategy and the expansion of the Company's licensee network, the Company may experience rapid growth which could place additional demands on the Company's administrative, operational and financial resources. Managing future growth will depend on a number of factors, including the maintenance of the quality of services the Company provides to its customers, and the recruitment, motivation and retention of qualified chauffeurs and other personnel. Sustaining growth will require enhancements to the Company's operational and financial systems as well as additional management, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations effectively or that it will be able to maintain or accelerate its growth, and any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company believes that its future operating results may continue to be subject to quarterly variations caused by such factors as seasonal business travel, variable scheduling of special events and the timing of acquisitions by the Company. The Company's least profitable quarter generally has been the first quarter (ending February 28 or 29), and its most profitable quarter generally has been the fourth quarter (ending November 30). The Company's operating results may be subject to considerable fluctuations caused by special events, such as business and trade association meetings and conventions and sporting events with national or international participation, which do not necessarily recur annually, may not be held at the same time of year and may not always be located in a city in which the Company owns and operates a chauffeured vehicle service company. In addition, adverse economic conditions may impact the Company's operating results by reducing the overall number of road shows and promotional tours. All of these factors can cause significant fluctuations in quarterly results of operations. Accordingly, results in any fiscal quarter may not be indicative of results of future quarters. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." RISKS ASSOCIATED WITH LICENSEE OPERATIONS The Company has 38 licensees serving 106 cities in the United States and 24 licensees serving 105 cities outside the United States. Although a component of the Company's strategy is to increase the number of licensees, there can be no assurance that the Company will be able to attract qualified licensees in desired locations. The failure of the Company to attract new licensees or the failure of the Company's licensees to operate successfully could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the failure of one or more of the Company's licensees to maintain the Company's service standards and conform to the Carey system could have a material adverse effect on the reputation of the Carey network and the Company's business, financial condition and results of operations. In addition, the Company is subject to federal regulation and certain state laws which govern the offer and sale of franchises. Most state franchise laws impose substantive requirements on the franchise agreement, 8 including limitations on non-competition provisions and termination or non- renewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. Violations of federal regulations and the state franchising laws could result in civil penalties against the Company and civil and criminal penalties against the executive officers of the Company. While the Company believes that it has operated in compliance with federal and state franchise laws, no assurance can be given that the Company will not be required to cease offering and selling licenses in certain states because of future changes in franchise laws or the Company's failure or inability to comply with existing franchise laws. STATUS OF INDEPENDENT OPERATORS The Company's ability to benefit from conversions of salaried chauffeurs to independent operators will depend, in part, on the Company's continued ability to classify independent operators as third party contractors rather than as employees. The Company does not pay or withhold any federal or state employment tax with respect to or on behalf of independent operators. The Internal Revenue Service (the "IRS") previously challenged the Company's independent operator policy at its owned and operated business in Philadelphia, but in March 1997 agreed to settle the challenge without an adjudication of a violation of IRS regulations. Also in March 1997, the IRS approved guidelines that chauffeured vehicle service providers such as the Company can follow in order to treat independent operators as third party contractors rather than as employees. These guidelines distinguish a third party contractor from an employee using several factors based upon whether or not the individual, among other things, (i) invests cash in the venture, (ii) has the potential to realize a profit or loss, (iii) can make his or her service available to the public and (iv) is required to comply with company policies regarding how and when to provide services. The Company believes that its practices substantially conform to these guidelines, and that, as a result, its independent operators will be treated as third party contractors. If, however, the Company's practices are determined not to conform with the guidelines, or if it is adjudicated that the Company is required to treat independent operators as employees, the Company could become responsible for certain past and future employment taxes. There can be no assurance that, in the event of such an adverse adjudication, there will not be a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Independent Operators." INDEPENDENT OPERATOR FINANCING An important component of the Company's business strategy for its owned and operated companies involves the preferred use of independent operators instead of salaried chauffeurs operating Company-owned vehicles. A chauffeur becomes an independent operator by signing an agreement to pay a fee to the Company ranging from $45,000 to $60,000. The payment of independent operator fees historically has been financed by the Company, financing companies or banks. Prior to September 1996, the Company usually sold to third parties the independent operator notes initially financed by it. Since September 1996, the Company has ceased selling such notes to third parties. Because the Company now bears most of the risk relating to payment of these notes, significant defaults in their payment could have a material adverse effect on the Company's business, financial condition and results of operations. Each new independent operator is required to own or obtain his or her vehicle. The cost of a new vehicle ranges from $35,000 to $65,000, depending upon whether it is a sedan or a limousine and the features included in the vehicle. The Company generally does not finance vehicle purchases by its independent operators. As a result, the ability of independent operators to obtain their own vehicles, a requirement for conversions from salaried chauffeurs to independent operators, will depend upon the availability of third party vehicle financing for independent operators. The inability of independent operators to obtain vehicle financing will adversely affect the Company's ability to utilize independent operators, and would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that such financing will be available if and when needed or on terms acceptable to potential independent operators. See "Business-- Independent Operators." POTENTIAL ADVERSE EFFECT OF LITIGATION The Company, certain of its subsidiaries and certain of its officers and directors currently are named as defendants in a complaint, purporting to be a class action, alleging that the plaintiff and others similarly situated 9 suffered monetary damages as a result of misrepresentations by the defendants in their use of a surface transportation billing charge. While the Company denies all claims made against it, it has reached a tentative settlement with the plaintiff and plaintiff's counsel. The settlement is subject to court approval and acceptance by the proposed class. There can be no assurance that the proposed class will agree to, or that the court will approve, the settlement. Moreover, there can be no assurance that claims under the terms of this or any other settlement entered into by the Company will not adversely affect the Company's business, financial condition and results of operations. Defense of lawsuits against the Company generally can be expensive and time- consuming, regardless of the outcome, and an adverse result in a lawsuit could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Legal Proceedings." FACTORS AFFECTING TRAVEL The Company is subject to risks generally affecting levels of business travel, including economic cycles, political changes, terrorist threats or acts and technological advances. The Company cannot predict the likelihood of occurrence of any such events. If the occurrence of any such event significantly reduces domestic or international travel, there could be a material adverse effect on the Company's business, financial condition and results of operations. INSURANCE COVERAGE AND CLAIMS The Company is exposed to claims for personal injury or death and property damage as a result of automobile accidents involving chauffeured vehicles operated by its employees and independent operators and by its licensees and their drivers. The Company maintains, and the Company's independent operators are required to maintain, levels of insurance which the Company believes to be adequate. The Company's licensees are required to maintain adequate levels of insurance and are required to name the Company as an additional insured on their insurance policies. There can be no assurance, however, that the limits and the scope of any such insurance coverage will be adequate. The cost of maintaining personal injury, property damage and workers' compensation insurance is significant. The Company and its independent operators and licensees could experience higher insurance premiums as a result of adverse claims experiences, general increases in premiums by insurance carriers or both. Significant increases in such premiums could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Independent Operators" and "Business--Insurance." DEPENDENCE ON KEY PERSONNEL While the Company has numerous senior managers with many years of experience in the chauffeured vehicle service industry, the Company's success is dependent on the efforts, abilities and leadership of its executive officers, particularly, Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President. The Company currently does not have employment agreements with any of its executive officers. The loss of the services of one or more of such officers could have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The chauffeured vehicle service industry is highly competitive and fragmented with few significant national participants operating multi-city reservation systems. Each local market usually contains numerous local participants as well as a few companies offering regional and national service. Chauffeured vehicle service companies compete primarily on the basis of price, quality, scope of service and dependability. The Company also competes with service providers offering alternative modes of transportation, such as buses, jitney services, taxis, radio cars and rental cars. The Company competes both for customers and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the market. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. Competitive market conditions could have a material adverse affect on the Company's business, financial condition and results of operations. See "Business--Competition." 10 POSSIBLE FUTURE SALES OF SHARES Sales of substantial amounts of Common Stock in the public market after this offering under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or otherwise, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Stock and could impair the future ability of the Company to raise capital through an offering of its equity securities or to use such securities as consideration in acquisitions. Upon the completion of this offering, the holders of the Company's securities who did not purchase Common Stock in this offering will beneficially own 4,634,240 shares of Common Stock, including (i) an aggregate of 1,145,228 shares issuable upon the exercise of outstanding options and warrants and (ii) an aggregate of 218,181 shares issued in connection with the acquisition of Manhattan Limousine (assuming an initial public offering price of $11.00 per share), all of which will be "restricted securities" within the meaning of the Securities Act. Subject to the contractual lockup provisions discussed below and unless the resale of the shares, or the sale of shares (in the case of employee benefit plan shares), is registered under the Securities Act, these restricted shares may not be sold in the open market unless in compliance with the applicable requirements of Rule 144. The Company and the beneficial owners of at least 4,000,000 of such shares have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Montgomery Securities, except for (i) in the case of the Company, Common Stock issued pursuant to any employee benefit plans described herein or in connection with acquisitions and (ii) in the case of the Company's directors and executive officers, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts, subject, in each case, to any remaining portion of the 180-day period applying to any shares so issued or transferred. In connection with future acquisitions, the Company may issue shares of Common Stock which, if the Company also files a registration statement under the Securities Act with respect to such shares, may be subject to immediate resale, subject to any remaining portion of the 180-day period applying to any shares so issued. See "Shares Eligible for Future Sale" and "Underwriting." CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation, By-laws and Delaware law could, together or separately, discourage potential acquisition proposals, delay or prevent a change in control of the Company and limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. Those provisions, among other things, provide for a classified Board of Directors, allow the Board of Directors to issue, without further stockholder approval, up to 1,000,000 shares of preferred stock with rights and privileges that could be senior to the Common Stock, prohibit the stockholders from calling special meetings of stockholders, restrict the ability of stockholders to nominate directors and submit proposals to be considered at stockholders' meetings, impose a supermajority voting requirement in connection with stockholders' amendments to the By-laws and prohibit stockholders after this offering from acting by written consent in lieu of a meeting. The Company also is subject to Section 203 of the Delaware General Corporation Laws (the "DGCL") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date on which such stockholder became an interested stockholder. See "Description of Capital Stock." NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or continue after this offering. The initial public offering price was determined by negotiations between the Company and the Representatives of the Underwriters, and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting" for factors considered in determining the initial public offering price. From time to time after this offering, there may be significant volatility in the market price for the Common Stock. Quarterly operating results of the Company, changes in general conditions in the economy or the chauffeured vehicle service industry, or other developments affecting the Company, its licensees and affiliates or the Company's competitors 11 could cause the market price of the Common Stock to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the operating performance of those companies. Any such fluctuations that occur following completion of this offering may adversely affect the prevailing market price of the Common Stock. IMMEDIATE AND SUBSTANTIAL DILUTION The purchasers of the shares of Common Stock offered hereby will experience immediate and substantial dilution in the net tangible book value of their shares of Common Stock in the amount of $10.92 per share. See "Dilution." 12 ACQUISITION OF MANHATTAN LIMOUSINE Simultaneously with the completion of this offering, the Company will acquire Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine") for aggregate consideration of $14.2 million, composed of (i) $7.1 million in cash, (ii) $4.7 million in promissory notes bearing interest at the rate of 8.0% per annum and payable one year from the date of the acquisition, and (iii) 218,181 shares of Common Stock (assuming an initial public offering price of $11.00 per share). In addition, the Company will assume approximately $3.7 million of outstanding indebtedness of Manhattan Limousine. If the acquisition of Manhattan Limousine is not completed by May 20, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. Pursuant to the terms of the acquisition, Manhattan Limousine will distribute to its stockholders prior to the closing approximately $3.8 million in assets and $2.3 million in liabilities. See Note 3 to "Pro Forma Consolidated Financial Statements." Manhattan Limousine is one of the largest chauffeured vehicle service companies in the New York metropolitan area, with revenues in its fiscal year ended September 30, 1996 totalling approximately $18.4 million. Manhattan Limousine also operates the Manhattan International Limousine Network of more than 300 worldwide affiliates, a significant majority of which are located in cities in which the Company already has affiliates. In some cities the Company and Manhattan Limousine share common affiliates. Approximately 89.2% of Manhattan Limousine's fiscal 1996 revenues was generated by Manhattan Limousine's New York metropolitan operations, and approximately 10.8% was generated by its affiliates outside the New York metropolitan area. See the Manhattan Limousine Consolidated Financial Statements and related notes thereto. Manhattan Limousine's independent operators are responsible for a fleet consisting of approximately 125 sedans and limousines. Manhattan Limousine derives revenues from contracts with major airlines, including Virgin Atlantic Airways and Aer Lingus, and with many of the premier hotels in New York City, including the Plaza Hotel and the Mark Hotel, as well as from other corporate and individual customers. Typically these contracts are terminable by the airline or hotel upon 30 days' notice. In its fiscal year ended September 30, 1996, approximately 18.0% of Manhattan Limousine's revenues were derived from services performed for Virgin Atlantic Airways, Manhattan Limousine's largest customer. RECAPITALIZATION At or prior to the closing of this offering, the Company shall effect the following transactions (collectively, the "Recapitalization"): (i) a one-for- 2.3255 reverse split of outstanding Common Stock; (ii) the conversion of all of the 42,070 outstanding shares of the Company's Series A Preferred Stock into the right to receive an aggregate of $2,103,500 and 86,003 shares of Common Stock; (iii) the redemption of all 10,000 shares of the Company's Series F Preferred Stock and 3,000 shares of the Company's Series G Preferred Stock for an aggregate price of $1,000,000; (iv) the conversion of 9,580 shares of the Company's Series B Preferred Stock, 46,890 shares of the Company's Series G Preferred Stock and the Company's Subordinated Convertible Promissory Note dated September 1, 1991 in the principal amount of $2,000,000 into an aggregate of 1,857,524 shares of Common Stock; (v) the exercise of a warrant to purchase 616,544 shares of Common Stock by the application of $2,867,546 due the warrant holder under a subordinated promissory note, and the repayment by the Company of the remaining outstanding principal balance of $912,454 under such note; and (vi) the amendment of the Company's Certificate of Incorporation to, among other things, (a) eliminate all previously- designated series of Preferred Stock and the designation of Class A Common Stock, and (b) increase the authorized number of shares of Common Stock from 9,512,950 to 20,000,000. 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,900,000 shares of Common Stock offered by it (assuming an initial public offering price of $11.00 per share and after deducting estimated underwriting discounts and commissions and offering expenses that have not yet been paid) are estimated to be approximately $28.4 million (approximately $32.8 million if the Underwriters' over-allotment option is exercised in full). The Company will use approximately $8.3 million of the net proceeds to repay principal with respect to certain indebtedness which was incurred to finance certain of the Company's acquisitions and for working capital purposes. Such indebtedness bears interest at rates ranging from 7.7% to 12.0%, has a weighted average interest rate of 9.6% and matures at various dates through March 1, 2001. Such indebtedness includes approximately $1.1 million in principal to be repaid to Yerac Associates, L.P. ("Yerac") and approximately $912,000 to be paid to PNC Capital Corp. ("PNC"). Vincent A. Wolfington, the Company's Chairman of the Board and Chief Executive Officer, and Don R. Dailey, President and a director of the Company, have personally guaranteed $3.7 million of the Company's indebtedness which will be repaid from the net proceeds of this offering. These personal guarantees will be terminated upon the repayment of the underlying indebtedness. See "Certain Transactions." The Company currently intends to use approximately $7.1 million of the net proceeds of this offering to pay the cash portion of the purchase price for the acquisition of Manhattan Limousine. The Company also will utilize approximately $3.5 million of the net proceeds to repay certain indebtedness assumed upon the acquisition of Manhattan Limousine. Approximately $3.1 million of the net proceeds will be used by the Company to redeem all outstanding shares of its Series A and Series F Preferred Stock and certain shares of its Series G Preferred Stock in connection with the Recapitalization. Of this amount, $1.1 million will be paid to entities affiliated with Hambrecht & Quist Group in connection with the redemption of 22,000 shares of Series A Preferred Stock held by those entities, $1.0 million will be paid to IBJS Capital Corporation in connection with the redemption of its 10,000 shares of Series F and 3,000 shares of Series G Preferred Stock, and $20,250 and $13,650, respectively, will be paid to each of Messrs. Wolfington and Dailey in connection with the redemption of 405 shares and 273 shares of Series A Preferred Stock, respectively, beneficially owned by each of them. See "Recapitalization" and "Certain Transactions." The balance of the net proceeds from this offering, approximately $6.4 million, will be used for acquisitions and other general corporate purposes, including working capital. Except for the acquisition of Manhattan Limousine, the Company currently has no existing commitment or agreement with respect to any acquisition. The Company regularly reviews potential acquisition candidates and has held preliminary discussions with a number of such candidates. Pending such uses, the Company intends to invest the net proceeds in short- term, investment grade securities. 14 DILUTION The deficit in the pro forma net tangible book value of the Company as of February 28, 1997, after giving effect to the issuance of shares of Common Stock as part of the Recapitalization, was approximately $7.4 million, or $(2.32) per share. The deficit in net tangible book value is determined by subtracting franchise rights, goodwill and all other intangible assets from total stockholders' equity. After giving effect to (i) the sale by the Company of 2,900,000 shares of Common Stock in this offering at an assumed initial public offering price of $11.00 per share after deducting estimated underwriting discounts and commissions and offering expenses, (ii) the acquisition of Manhattan Limousine and (iii) the conversion of a convertible note into 43,001 shares of Common Stock, the pro forma net tangible book value at February 28, 1997 would have been approximately $541,000, or $.08 per share. This offering represents an immediate increase in net tangible book value of $2.40 per share to the existing stockholders, and an immediate dilution in net tangible book value per share of $10.92 to new investors in this offering. The following table illustrates the dilution on a per share basis, assuming no exercise by the Underwriters of their over-allotment option: Assumed initial public offering price....................... $11.00 Deficit in pro forma net tangible book value before offering................................................. $(2.32) Increase in pro forma net tangible book value attributable to sale of shares to new investors....................... 2.40 ------ Pro forma net tangible book value after offering............ .08 ------ Dilution to new investors................................... $10.92 ======
The following table sets forth, on a pro forma basis as of February 28, 1997, the number of shares of Common Stock acquired from the Company, the total consideration paid and the average price per share paid by (i) the Company's debt holders and preferred stockholders who are acquiring shares of Common Stock in the Recapitalization and (ii) new investors for (a) the 2,900,000 shares of Common Stock offered hereby and (b) the 218,181 shares of Common Stock that constitute a portion of the consideration for the acquisition of Manhattan Limousine (see "Acquisition of Manhattan Limousine"):
SHARES PURCHASED TOTAL CONSIDERATION ----------------- ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- ------------- Debt holders and preferred stockholders............. 2,560,071 45.1% $10,082,710 22.7% $ 3.94 New investors............. 3,118,181 54.9 34,299,991 77.3 $11.00 --------- ----- ----------- ----- Total................... 5,678,252 100.0% $44,382,701 100.0% ========= ===== =========== =====
15 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company (i) as of February 28, 1997 and (ii) on a pro forma basis to give effect to (a) the Recapitalization, see "Recapitalization," (b) the issuance and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed offering price of $11.00 per share, after deducting estimated underwriting discounts and commissions and offering expenses) and the application of the net proceeds therefrom as described under "Use of Proceeds," (c) the acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine," and (d) the conversion of a convertible note into 43,001 shares of Common Stock. This table should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto included elsewhere in this Prospectus.
FEBRUARY 28, 1997 ------------------ ACTUAL PRO FORMA ------- --------- (IN THOUSANDS) Short-term debt and current maturities of long-term obligations............................................. $ 4,837 $ 5,699 ======= ======= Long-term obligations, net of current maturities......... $11,327 $ 1,719 Stockholders' equity: Preferred Stock (1)..................................... 1,115 -- Common Stock, $.01 par value; 9,512,950 shares authorized, 655,773 shares issued and outstanding; 20,000,000 shares authorized, 6,377,026 shares issued and outstanding on a pro forma basis (2)............... 7 64 Paid-in-capital......................................... 7,357 41,046 Accumulated deficit..................................... (1,635) (1,734) ------- ------- Total stockholders' equity.............................. 6,844 39,376 ------- ------- Total capitalization................................. $18,171 $41,095 ======= =======
- -------- (1) See Notes 10 and 18 to the Company's Consolidated Financial Statements. (2) Excludes Class A Common Stock, $.01 par value, none of which is issued and outstanding. The Class A Common Stock will be eliminated as a result of the Recapitalization. DIVIDEND POLICY Following this offering, the Company intends to retain all earnings to finance the growth and development of its business and does not anticipate paying cash dividends on the Common Stock in the foreseeable future. Any future determination as to the payment of dividends on the Common Stock will depend upon the Company's future earnings, results of operations, capital requirements and financial condition and any other factor the Board of Directors of the Company may consider. The Company's agreements with its principal lenders prohibit dividend payments. 16 SELECTED CONSOLIDATED FINANCIAL DATA The selected actual consolidated financial data as of November 30, 1992, 1993, 1994, 1995 and 1996 and for each of the five years in the period ended November 30, 1996 have been derived from the consolidated financial statements of the Company audited by Coopers & Lybrand L.L.P., independent accountants. The selected actual consolidated financial data as of and for the three months ended February 29, 1996 and February 28, 1997 have been derived from the unaudited consolidated financial statements of the Company. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the consolidated financial position and the consolidated results of operations of the Company. The consolidated results of operations for the three-month period ended February 28, 1997 are not necessarily indicative of the consolidated results of operations to be expected for the year ended November 30, 1997. The selected actual and pro forma consolidated financial data of the Company should be read in conjunction with the Company's Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained elsewhere in this Prospectus.
FISCAL YEAR ENDED NOVEMBER 30, THREE MONTHS ENDED ------------------------------------------------------------- --------------------------------------- 1992 1993 1994 1995 1996 FEB. 29, 1996 FEB. 28, 1997 ------- ------- ------- ------- ------------------------- ------------- ------------------------- ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(2) --------- ------------ ------------- --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net...... $27,669 $30,319 $35,525 $43,484 $59,505 $78,883 $11,558 $14,141 $19,613 Cost of revenue... 20,199 22,751 24,954 29,943 40,438 52,344 7,904 9,756 13,149 ------- ------- ------- ------- --------- --------- ------- --------- --------- Gross profit...... 7,470 7,568 10,571 13,541 19,067 26,539 3,654 4,385 6,464 Selling, general and administrative expense.......... 5,939 8,174 9,487 12,419 15,078 21,192 3,361 3,819 5,504 ------- ------- ------- ------- --------- --------- ------- --------- --------- Operating income (loss)........... 1,531 (606) 1,084 1,122 3,989 5,347 293 566 960 Interest income (expense) and other income (expense)........ (819) (1,308) (1,194) (1,292) (1,277) (253) (340) (245) 23 ------- ------- ------- ------- --------- --------- ------- --------- --------- Income (loss) before provision (benefit) for income taxes..... 712 (1,914) (110) (170) 2,712 5,094 (47) 321 983 Provision (benefit) for income taxes..... 53 10 19 25 (104) 2,155 11 154 413 ------- ------- ------- ------- --------- --------- ------- --------- --------- Net income (loss)........... $ 659 $(1,924) $ (129) $ (195) $ 2,816 $ 2,939 $ (58) $ 167 $ 570 ======= ======= ======= ======= ========= ========= ======= ========= ========= Pro forma net in- come per share... $0.89(3) $0.49 $0.07(3) $0.10 ========= ========= ========= ========= Weighted average shares outstanding...... 3,510,020(3) 6,023,785 3,518,083(3) 5,971,960
NOVEMBER 30, FEBRUARY 28, 1997 ----------------------------------------- --------------------- 1992 1993 1994 1995 1996 ACTUAL PRO FORMA(4) ------- ------- ------- -------- ------- ------- ------------ CONSOLIDATED BALANCE SHEET DATA: Working capital (defi- cit).................. $ 1,740 $ 1,484 $ 1,298 $ (1,407) $(1,732) $(1,029) $ 81 Total assets........... 28,855 27,941 27,109 35,897 42,526 39,378 73,703 Long-term debt, less current maturities.... 10,293 12,083 11,090 13,217 11,192 11,327 1,719 Deferred revenue(5).... 3,270 4,300 4,485 4,726 6,181 6,629 13,500 Total stockholders' eq- uity.................. $ 5,843 $ 4,388 $ 4,165 $ 3,912 $ 6,672 $ 6,844 $39,376
- ------- (1) Gives effect to the following events as if they had occurred on December 1, 1995: (i) the acquisition of Camelot Barthropp Ltd., completed February 1996, including the interest cost relating to indebtedness incurred in connection with such acquisition, (ii) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's fiscal year ended September 30, 1996) and the amortization of associated goodwill, (iii) the conversion of certain preferred stock and subordinated debt into Common Stock, see "Recapitalization", (iv) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash portion of the purchase price for Manhattan Limousine, (c) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, (d) redeem certain preferred stock of the Company and (e) pay the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (v) the elimination of interest expense associated with debt repaid from the proceeds of this offering and (vi) other adjustments as described under "Pro Forma Consolidated Financial Statements" and the notes thereto. (2) Gives effect to the events set forth in clauses (ii) through (vi) of note (1) above as if they had occurred on December 1, 1995, except that, with respect to clause (ii), the statement of operations data is for Manhattan Limousine's three months ended December 31, 1996. (3) Gives effect to the conversion of certain preferred stock and subordinated debt into Common Stock and the elimination of associated interest expense on the subordinated debt as a result of the Recapitalization. See Notes 2 and 18 to the Company's Consolidated Financial Statements. (4) Reflects (i) the Recapitalization, see "Recapitalization," (ii) the acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine," and (iii) the issuance and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed offering price of $11.00 per share less estimated underwriting discounts and commissions and offering expenses) and the application of the net proceeds therefrom as described under "Use of Proceeds." (5) Represents the balance of the fees deferred in connection with independent operator agreements less amounts previously recognized. Such fees are recognized ratably over the terms of the agreements, which typically range from 10 to 20 years. See the Notes to the Company's Consolidated Financial Statements. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto and "Selected Consolidated Financial Data" appearing elsewhere in this Prospectus. Unless otherwise indicated or the context otherwise requires, each reference to a year is to the Company's fiscal year which ends on November 30 of such year. OVERVIEW The Company generates revenues primarily from chauffeured vehicle services provided by (i) Carey's owned and operated businesses and (ii) Carey's licensees and affiliates when services provided by such licensees and affiliates are billed through the Company's central reservation and billing system. In 1995 and 1996, approximately 74.7% and 73.6%, respectively, of the Company's revenue, net was generated by chauffeured vehicle services provided by the Company's owned and operated businesses, approximately 16.3% and 15.6%, respectively, was generated by chauffeured vehicle services provided by the Company's licensees and billed by the Company, and approximately 2.5% and 2.0%, respectively, was generated by chauffeured vehicle services provided by the Company's affiliates and billed by the Company. Carey also generates revenues from its licensees through fees (both initial and monthly) related to (i) licensing the use of its name and service mark, (ii) its central reservation and billing services and (iii) its marketing activities. In 1995 and 1996, approximately 2.7% and 3.2%, respectively, of the Company's revenue, net was generated from its licensees through such fees. To a lesser extent, the Company derives revenues from the payment of fees by independent operators. The Company recognizes revenues from these fees ratably over the terms of the independent operators' agreements with the Company, which typically range from 10 to 20 years. As of February 28, 1997, the Company had $6.6 million of deferred revenue on its balance sheet ($13.5 million on a pro forma basis reflecting the acquisition of Manhattan Limousine). Cost of revenue primarily consists of amounts due to the Company's independent operators. The amount due to independent operators is a percentage (ranging from 60% to 65%) of the charges for services provided, net of discounts and commissions. Cost of revenue also includes amounts due to the Company's licensees and affiliates for chauffeured vehicle services provided by them and billed by the Company. Such amounts generally include the charges for services provided less a referral fee ranging from 15% to 25% of net vehicle service revenue. Cost of revenue also includes salaries and benefits paid to chauffeurs employed by the Company. To a lesser extent, cost of revenue includes costs associated with owning and maintaining the vehicles owned by the Company, telecommunications expenses, salaries and benefits for reservationists, marketing expenses for the benefit of licensees, and commissions due to travel agents and credit card companies. Selling, general and administrative expenses consist primarily of compensation and related benefits for the Company's officers and administrative personnel, marketing and promotional expenses for the Company's owned and operated chauffeured vehicle service companies, and professional fees, as well as amortization costs related to the intangibles recorded as a result of the Company's acquisitions. In addition to internal growth from the Company's sales and marketing efforts, an important component in the Company's growth to date has been the acquisition of its licensees and other chauffeured vehicle service companies. Since December 1994, Carey has acquired eight chauffeured vehicle service companies. Each of these acquisitions was made for cash and the issuance or assumption of notes and was accounted for using the purchase method of accounting. A substantial majority of the purchase price paid by the Company in each such acquisition represented goodwill, franchise rights (if a licensee was acquired) and/or other intangibles. Such franchise rights and goodwill are amortized over 30 years on a straight-line basis and amounted to $12.5 million (net of accumulated amortization) as of February 28, 1997. As a result of the acquisition of Manhattan Limousine, the Company will recognize an additional $19.7 million of goodwill. 18 The results of operations for the acquired companies have been included in the Company's consolidated financial statements from their respective dates of acquisition. Carey expects to benefit from its acquisitions by consolidating general and administrative functions, increasing operating efficiencies, and, as a result of converting salaried chauffeurs to independent operators, eliminating the overhead and capital costs associated with employing salaried chauffeurs, leasing garages, maintaining parts and fuel inventories, and owning and operating vehicles. The Company generally realizes these benefits within six to twelve months after an acquisition, depending upon whether the acquisition is of a chauffeured vehicle service company in a location in which the Company already operates, or of a licensee in a market where Carey has yet to establish operations. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data for the Company expressed as a percentage of revenue, net. With respect to the pro forma data, see "Pro Forma Consolidated Financial Statements" and the notes thereto.
FISCAL YEAR ENDED NOVEMBER 30, THREE MONTHS ENDED ------------------------------------- ----------------------------- 1994 1995 1996 FEB. 29, 1996 FEB. 28, 1997 ------- ------- ----------------- ------------- --------------- PRO PRO ACTUAL FORMA ACTUAL ACTUAL FORMA -------- ------- ------------- ------- ------ Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenue......... 70.2 68.9 68.0 66.3 68.4 69.0 67.0 ------- ------- ------- ------- ----- ------ ------ Gross profit............ 29.8 31.1 32.0 33.7 31.6 31.0 33.0 Selling, general and administrative expense................ 26.7 28.6 25.3 26.9 29.1 27.0 28.1 ------- ------- ------- ------- ----- ------ ------ Operating income........ 3.1 2.5 6.7 6.8 2.5 4.0 4.9 Interest expense and other income (expense).............. (3.4) (3.0) (2.1) (0.3) 2.9 (1.7) 0.1 ------- ------- ------- ------- ----- ------ ------ Income (loss) before provision (benefit) for income taxes........... (0.3) (0.5) 4.6 6.5 (0.4) 2.3 5.0 Provision (benefit) for income taxes........... 0.1 -- (0.2) 2.8 0.1 1.1 2.1 ------- ------- ------- ------- ----- ------ ------ Net income (loss)....... (0.4)% (0.5)% 4.8% 3.7% (0.5)% 1.2% 2.9% ======= ======= ======= ======= ===== ====== ======
THREE MONTHS ENDED FEBRUARY 28, 1997 (THE "1997 PERIOD") COMPARED TO THREE MONTHS ENDED FEBRUARY 29, 1996 (THE "1996 PERIOD") Revenue, Net. Revenue, net increased approximately $2.5 million or 22.4% from $11.6 million in the 1996 Period to $14.1 million in the 1997 Period. Of the increase, approximately $1.6 million was contributed by existing operations as a result of expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers, and approximately $930,000 was due to revenues of the Company's operations in London which were not included in the 1996 Period. Cost of Revenue. Cost of revenue increased approximately $1.9 million or 23.4% from $7.9 million in the 1996 Period to $9.8 million in the 1997 Period. The increase was primarily attributable to higher costs due to increased business levels. Cost of revenue increased as a percentage of revenue, net from 68.4% in the 1996 Period to 69.0% in the 1997 Period primarily as a result of seasonally higher operating costs as a percentage of revenues in the Company's London operations for the 1997 Period. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $459,000 or 13.6% from $3.4 million in the 1996 Period to $3.8 million in the 1997 Period. The increase was largely due to the costs of additional personnel, increased marketing expenses and increased 19 administrative expenses as a result of the Company's acquisition in London in February 1996. Selling, general and administrative expense decreased as a percentage of revenue, net from 29.1% in the 1996 Period to 27.0% in the 1997 Period as a result of an increase in revenue, net without a corresponding increase in administrative costs. Interest Expense. Interest expense was approximately $422,000 in the 1996 Period and approximately $392,000 in the 1997 Period. Interest expense decreased as a percentage of revenue, net from 3.7% in the 1996 Period to 2.8% in the 1997 Period. Provision For Income Taxes. The provision for income taxes increased approximately $142,000 from approximately $12,000 in the 1996 Period to approximately $153,000 in the 1997 Period. The increase primarily related to the increase in pre-tax income of the Company from a pre-tax loss of approximately $46,000 in the 1996 Period to pre-tax income of approximately $321,000 in the 1997 Period. Net Income (Loss). As a result of the foregoing, the Company had net income of approximately $167,000 in the 1997 Period compared to a net loss of approximately $58,000 in the 1996 Period. YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995 Revenue, Net. Revenue, net increased approximately $16.0 million or 36.8% from $43.5 million in 1995 to $59.5 million in 1996. Of the increase, approximately $9.6 million was contributed by existing operations as a result of expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers, and approximately $6.4 million was due to revenues of companies which were acquired from December 1994 through February 1996. Cost of Revenue. Cost of revenue increased approximately $10.5 million or 35.1% from $29.9 million in 1995 to $40.4 million in 1996. The increase was primarily attributable to higher costs due to increased business levels. Cost of revenue decreased as a percentage of revenue, net from 68.9% in 1995 to 68.0% in 1996 as a result of spreading the fixed costs of the Company's reservations infrastructure over a larger revenue base. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.7 million or 21.4% from $12.4 million in 1995 to $15.1 million in 1996. The increase was largely due to higher administrative costs associated with additional personnel, increased marketing and promotional expenses, and higher amortization of intangibles as a result of acquisitions. Selling, general and administrative expenses decreased as a percentage of revenue, net from 28.6% in 1995 to 25.3% in 1996 as a result of an increase in revenue without a corresponding increase in administrative costs. Interest Expense. Interest expense was $1.7 million in each of 1995 and 1996. Interest expense decreased as a percentage of revenue, net from 3.0% in 1995 to 2.1% in 1996. Provision (Benefit) for Income Taxes. The provision for income taxes was nominal in 1995. In 1996, the Company had a tax benefit of $104,000. Prior to 1996, the Company recorded a valuation allowance against its net deferred tax assets. This allowance was reversed in 1996 in accordance with generally accepted accounting principles. The reversal reduced the provision for income taxes in 1996 by approximately $1.5 million. The increase in the provision recordable in 1996, which was offset by the effect of reducing the valuation allowance against deferred tax assets, was attributable to the Company's increased pretax profit level in 1996 which exceeded the beneficial tax effect of net operating loss carryforwards of prior years. The Company has utilized the full amount of its net operating loss carryforwards. Net Income (Loss). As a result of the foregoing, the Company had net income of $2.8 million in 1996 compared to a net loss of approximately $195,000 in 1995. 20 YEAR ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED NOVEMBER 30, 1994 Revenue, Net. Revenue, net increased approximately $8.0 million or 22.4% from $35.5 million in 1994 to $43.5 million in 1995. Of the increase, approximately $4.7 million was due to revenues of companies acquired from December 1994 through August 1995, as well as the full year effect in 1995 of companies acquired in 1994. Approximately $3.3 million of the increase was contributed by existing operations as a result of an increase in business from corporate travel customers, business travel arrangers, special event business, and the implementation in mid-1995 of charges to licensees for central reservation and billing services. Cost of Revenue. Cost of revenue increased approximately $4.9 million or 20.0% from $25.0 million in 1994 to $29.9 million in 1995. The increase was primarily attributable to higher operating costs due to increased business levels and to operating costs related to acquired companies. Cost of revenue decreased as a percentage of revenue, net from 70.2% in 1994 to 68.9% in 1995 as a result of increased utilization of the Company's operating resources and the implementation, in mid-1995, of charges to licensees for central reservation and billing services which did not result in a corresponding increase in cost. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.9 million or 30.9% from $9.5 million in 1994 to $12.4 million in 1995. This increase was largely due to higher costs associated with additional personnel, increased marketing and promotional expense, and the increase in the amortization of intangibles recorded as a result of acquisitions. Selling, general and administrative expenses increased as a percentage of revenue, net from 26.7% in 1994 to 28.6% in 1995 as a result of relatively higher levels of administrative costs in existing operations and additional expenses related to companies acquired late in 1995 whose operations were not consolidated with the Company's operations until 1996. Interest Expense. Interest expense increased approximately $334,000 or 24.8% from approximately $1.4 million in 1994 to $1.7 million in 1995. This increase was due to net increases in debt in 1995 to fund acquisitions. Interest expense as a percentage of revenue, net increased slightly from 3.8% in 1994 to 3.9% in 1995. Provision for Income Taxes. The provision for income taxes was nominal in 1994 and in 1995. Net Loss. As a result of the foregoing, the Company had a net loss of approximately $195,000 in 1995 compared to a net loss of approximately $129,000 in 1994. 21 QUARTERLY RESULTS The following table presents unaudited quarterly financial information for 1995, 1996 and the first quarter of 1997. This information has been prepared by the Company on a basis consistent with the Company's audited financial statements and includes all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair presentation of the results for such quarters.
QUARTER ENDED -------------------------------------------------------------------------------- 1995 1996 1997 ----------------------------------- ---------------------------------- ------- FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB. 28 31 31 30 29 31 31 30 28 ------ ------- ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS) Revenue, net............ $8,333 $10,320 $10,235 $14,596 $11,558 $15,043 $14,575 $18,330 $14,141 Gross profit............ 2,647 3,113 2,980 4,800 3,654 4,835 4,737 5,841 4,385 Operating income (loss)................. (101) 235 (216) 1,204 293 1,037 987 1,673 566 QUARTER ENDED -------------------------------------------------------------------------------- 1995 1996 1997 ----------------------------------- ---------------------------------- ------- FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB. 28 31 31 30 29 31 31 30 28 ------ ------- ------- ------- ------- ------- ------- ------- ------- Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit............ 31.8 30.2 29.1 32.9 31.6 32.1 32.5 31.9 31.0 Operating income (loss)................. (1.3)% 2.2% (2.1)% 8.2% 2.5% 6.8% 6.7% 9.1% 4.0%
The Company believes that its future operating results may continue to be subject to quarterly variations caused by such factors as seasonal business travel, variable scheduling of special events and the timing of acquisitions by the Company. The Company's least profitable quarter generally has been the first quarter (ending February 28 or 29), and its most profitable quarter generally has been the fourth quarter (ending November 30). LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funding have been cash flow from operations, proceeds from the bulk sale of independent operator notes, commercial bank credit facilities, notes issued by the Company to sellers of acquired chauffeured vehicle service companies and, to a lesser extent, the sale of vehicles obtained from acquired companies. For the period from December 1, 1993 through February 28, 1997, the Company generated $7.6 million in cash from operating activities, had aggregate borrowings to fund acquisitions of $6.5 million and had proceeds from bulk sales of notes from independent operators of approximately $2.6 million. The Company anticipates that in addition to the net proceeds from this offering, cash flow from operations and borrowings under credit facilities will be its principal sources of funding. The Company has discontinued its practice of selling notes received from independent operators. The Company's principal uses of cash have been, and will continue to be, the funding of acquisitions, repayment of debt, and investment in both its centralized reservation facility and its automated operation and information systems. Net cash used in operating activities increased from approximately $304,000 in the 1996 Period to approximately $364,000 in the 1997 Period. Net cash provided by operating activities increased by $1.9 million, from $2.7 million in 1995 to $4.6 million in 1996, primarily as a result of an increase in operating income, as adjusted for depreciation and amortization of fixed assets, franchise rights and goodwill from acquired operations. Net cash provided by operating activities increased by approximately $2.0 million, from approximately $701,000 in 1994 to $2.7 million in 1995, primarily as a result of the timing of payments to independent operators and as a result of its acquisition activities and internal growth. As of February 28, 1997, the Company's working capital deficit and current ratio were approximately $1.0 million and 0.92, respectively, as a result of the high level of short-term debt generated from the Company's practice of borrowing against its cash flow rather than its assets, many of which are intangible in nature. The Company may continue to experience working capital deficits as a result of short-term borrowings to finance its acquisition strategy. 22 Cash used in investing activities was approximately $988,000 in the 1996 Period compared to cash provided by investing activities of approximately $94,000 in the 1997 Period. Cash was used in the 1996 Period to acquire operations in London, whereas relatively little acquisition activity occurred in the 1997 Period. Cash used in investing activities decreased by $2.1 million, from $4.1 million in 1995 to $2.0 million in 1996. Cash was used in investing activities in 1995 and 1996 primarily for the acquisition of chauffeured vehicle service companies. In 1994, relatively little acquisition activity occurred and cash for investment purposes of approximately $388,000 was used primarily for capital expenditures. In all periods, funds used for acquisitions and capital expenditures were offset in part by proceeds from the sale of fixed assets, primarily vehicles acquired in connection with the purchase of chauffeured vehicle service businesses. Cash provided by financing activities was approximately $87,000 in the 1996 Period compared to cash used in financing activities of $1.0 million in the 1997 Period, primarily as a result of the net payment of notes payable during the 1997 Period. Cash provided by financing activities was $1.4 million in 1995, compared to cash used in financing activities of $1.2 million in 1996, primarily as a result of net repayment of notes payable in 1996. Cash used in financing activities was $1.3 million in 1994, primarily as a result of repaying notes payable. At February 28, 1997, the Company had borrowings, exclusive of notes payable to sellers of chauffeured vehicle service companies, in the amount of approximately $14.0 million. This debt was composed of (i) a $3.7 million term loan collateralized by the stock of the Company's United States subsidiaries, (ii) a $1.1 million term loan collateralized by an assignment of the Carey name and service mark and license agreements related thereto, (iii) $5.8 million in subordinated debt and (iv) $3.4 million in debt to commercial banks, which debt is typically collateralized by a subsidiary's accounts receivable and other assets. Of the Company's total debt at February 28, 1997, approximately $8.5 million will be repaid from the net proceeds of this offering. See "Use of Proceeds." As part of the Recapitalization, a further $4.9 million of the debt will be converted to Common Stock of the Company, approximately $1.3 million of the Company's Series G and Series F Preferred Stock will be redeemed for cash in the amount of $1.0 million, and all outstanding shares of the Company's Series A Preferred Stock will be redeemed for $2.1 million in cash and 86,003 shares of Common Stock. All payments as a result of the Recapitalization will be made from the proceeds of this offering. See "Recapitalization." The Company has received a commitment letter from a bank for a credit facility consisting of a secured revolving line of credit and subsequent term loan of $20.0 million. The bank has agreed to use its best efforts to syndicate an additional $5.0 million for the facility. The facility, which may be used for acquisitions and working capital, will be collateralized by the assets of the Company and its existing and future subsidiaries. Loans made under the revolving line of credit shall bear interest at the Company's option of either the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per annum will be payable on the unused portion of the revolving line of credit. On the second anniversary of the closing of this offering, the revolving line of credit will convert into a five-year term loan, which loan will bear interest either at a fixed rate (subject to availability) or at a variable LIBOR rate with adjustments determined based on the Company's earnings. The credit facility (i) will prohibit the payment of dividends by the Company, (ii) will not permit the Company to incur or assume other indebtedness that is not subordinated to the bank and (iii) will require the Company to comply with certain financial covenants. The ability of the Company to obtain the credit facility is subject to the completion of negotiations with the bank as well as the satisfaction of certain conditions, including the closing of this offering and the execution of appropriate loan documentation. In the event that the Company is unable to obtain the credit facility, the Company believes that sufficient alternative sources of financing will be available on reasonable terms. While there can be no assurance, management believes that cash flow from operations, funds from the credit facility and the net proceeds to the Company from this offering will be adequate to meet the Company's capital requirements for the next 12 months, depending on the methods of financing and size of potential acquisitions. While the Company historically has financed acquisitions primarily with cash, it may seek to finance future acquisitions by using Common Stock for a portion or all of the consideration to be paid. IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS The Company does not believe that inflation and foreign currency fluctuation has had, or will have, a material impact on the financial position and results of operation. 23 BUSINESS Carey International, Inc. is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The "Carey" brand name has represented quality chauffeured vehicle services since the 1920s. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., South Florida and Philadelphia. In addition, the Company generates revenues from licensing the "Carey" name and providing central reservation, billing and sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated companies nor licensees. Over the past five years, the Company has invested significant capital in developing its reservation, central billing and worldwide service infrastructure. By leveraging its current infrastructure and position as a market leader, the Company intends to consolidate the highly fragmented chauffeured vehicle service industry through the acquisition of: (i) current Carey licensees, (ii) additional companies in markets in which the Company already owns and operates a chauffeured vehicle service company, and (iii) companies in other strategic markets in North America, Europe and the Pacific rim of Asia. The Carey network utilizes chauffeured sedans, limousines, vans and minibuses to provide services for airport pick-ups and drop-offs, inter-office transfers, business and association meetings, conventions, roadshows, promotional tours, special events, incentive travel and leisure travel. Businesses and business travelers utilize the Company's services primarily as a management tool, to achieve more efficient use of time and other resources. Carey's worldwide network of chauffeured vehicle service companies allows it to provide services with consistently high quality to its customers in virtually every major city in the expanding global travel market. The network is linked to over 300,000 reservation terminals in travel agencies, corporate travel departments and government agencies by the Carey International Reservation System (the "CIRS"), the chauffeured vehicle service industry's most extensive centralized global reservation system. MARKET OVERVIEW The Company estimates that the United States chauffeured vehicle service industry generated revenues of approximately $3.9 billion in 1996, and has undergone steady growth in recent years, with revenues increasing at a compound annual growth rate of 10.9% between 1990 and 1996. The industry is highly fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles. The Company believes that during 1996 no chauffeured vehicle service company accounted for more than 2% of total United States industry revenues. The Company also believes that similar fragmentation exists in the chauffeured vehicle service industry outside the United States. The chauffeured vehicle service industry serves businesses in virtually all industrial and financial sectors of the economy. The Company believes that business customers are becoming increasingly sophisticated in their use of ground vehicle services and are demanding a broader array of "meet-and-greet" and other services, as well as business amenities such as cellular phones. Although there are other forms of transportation that compete with chauffeured vehicles, such as buses, jitney services, taxis, radio cars and rental cars, the Company believes that none of those forms of transportation provides the quality, dependability and value-added services of chauffeur-driven vehicles. The Company also believes that businesses place a premium on service providers that are able to coordinate the travel itinerary of each member of a large group over many locations with a single reservation and billing system. 24 BUSINESS STRATEGY The Company's objective is to increase its profitability and its market share in the chauffeured vehicle service industry by implementing the following growth strategies: Expand through Acquisitions. Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies that would benefit from the capital and management resources that the Company can provide. Carey intends to acquire current Carey licensees, as well as additional chauffeured vehicle service companies both in markets in which the Company already owns and operates such a company and in other strategic regions in North America, Europe and the Pacific rim of Asia. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in a substantial majority of its domestic license agreements. The Company has successfully begun to implement its acquisition strategy, having acquired 15 chauffeured vehicle service companies since November 1991. Upon the closing of this offering, the Company will acquire Manhattan Limousine, one of the largest chauffeured vehicle service companies in the New York metropolitan area and the operator of the Manhattan International Limousine Network. Increase International Market Share. Approximately 12.8% of the Company's revenue, net was derived from services performed outside the United States during its fiscal year ended November 30, 1996. Of these international revenues, approximately 60.8% was generated by the Company's owned and operated business in London, approximately 38.1% was generated by the Company's international licensees and the remainder was generated by the Company's international affiliates. Carey believes that its network can capture a significant portion of the growing international market for chauffeured vehicle services by acquiring or licensing additional chauffeured vehicle service companies and otherwise implementing the Carey system outside the United States. The Company intends to increase its international presence by intensifying its sales and marketing efforts, strengthening its relationships with significant domestic and international business travel arrangers, and capitalizing on the capacity of the CIRS to operate on a global scale. By enhancing its international presence, the Company also expects to increase its revenues from providing chauffeured vehicle services to international travelers both visiting the United States and travelling abroad. Expand Licensee Network Worldwide. The Company will seek to expand its worldwide network and generate additional revenues from license and marketing fees by licensing additional chauffeured vehicle service companies in smaller markets that do not justify a Company-owned presence. Ultimately, as these less strategic markets grow in size and importance to the Company, the licensees in such markets may become acquisition candidates for the Company. Convert Salaried Chauffeurs to Independent Operators. The Company believes that it can improve its profitability by continuing to convert salaried chauffeurs to independent operators in businesses acquired by Carey. The objective of Carey's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner, thereby increasing the profitability of the chauffeur and the Company. Carey's independent operator program allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. ACQUISITION STRATEGY Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies as a result of: (i) the highly fragmented and increasingly global nature of the industry, (ii) industry participants' capital requirements and desire for liquidity, and (iii) the pressures of increasing competition. The Company intends to continue to pursue its acquisition program in order to strengthen its position in its existing markets and to acquire operations in new markets. Carey intends to pursue acquisitions that will allow the Company to own and operate chauffeured vehicle service companies in new geographic markets. The Company currently owns and operates chauffeured vehicle 25 service companies in six of the largest United States travel markets and in London, the largest European travel market, and will seek to acquire Carey licensees in other significant travel markets in North America, Europe, and the Pacific rim of Asia. The Company believes that its ability to acquire its licensees will be enhanced by a right of first refusal that is contained in a substantial majority of its domestic license agreements and the limited terms of most of its international license agreements. The Company's preference is to retain key management, operating and sales personnel of an acquired company in a new market in order to maintain continuity of operations and customer service. The Company believes that it has a market share of less than 10% in each of the markets in which it owns and operates a chauffeured vehicle service company, and that there is significant potential for it to expand its business in such markets through acquisitions. When justified by the size of an existing market acquisition, the Company expects to retain key management and sales personnel of the acquired company and to seek to improve that company's profitability through implementation of the Company's operating strategies. In most instances, acquired operations can be integrated into the Company's existing operations in a market, resulting in elimination of duplicative overhead and operating costs. The Company believes that there are significant advantages to consolidating the chauffeured vehicle service industry. Carey believes it can increase revenues of acquired companies by marketing the worldwide services of its network to customers of such companies, and by increasing the productivity of chauffeurs at the acquired companies through the implementation of training and quality assurance programs. Moreover, Carey believes that cost savings can be achieved following acquisitions through (i) the consolidation of certain administrative functions and increased use of automation, (ii) the elimination of redundant facilities, equipment and personnel and (iii) the conversion of salaried chauffeurs driving company-owned vehicles into independent operators driving their own vehicles. Carey has successfully begun its acquisition strategy, having acquired 15 chauffeured vehicle service companies since November 1991. The following table lists the date of acquisition, location of each such chauffeured vehicle service company and whether the acquired company was a licensee or affiliate of the Company or other chauffeured vehicle service company: ACQUISITION HISTORY NOVEMBER 1991--PRESENT
DATE LOCATION ACQUIRED COMPANY ---- -------- ---------------- November 1991................... Washington, DC Other September 1992.................. Los Angeles, CA Other August 1993..................... Wilmington, DE Licensee September 1993.................. West Palm Beach, FL Licensee November 1993................... New York, NY Other June 1994....................... Washington, DC Other June 1994....................... Los Angeles, CA Other December 1994................... Boca Raton, FL Other January 1995.................... San Francisco, CA Licensee April 1995...................... Washington, DC Other April 1995...................... Ft. Lauderdale/Miami, FL Licensee May 1995........................ San Francisco, CA Other August 1995..................... San Francisco, CA Other August 1995..................... Boca Raton, FL Other February 1996................... London, England Affiliate/(1)/ June 1997/(2)/.................. New York, NY Other
- -------- (1) Prior to the acquisition, the Company had no licensee in London. (2) The acquisition will be completed upon the closing of this offering. See "Acquisition of Manhattan Limousine." 26 The Company has analyzed significant data on the chauffeured vehicle service industry and individual businesses within that industry and believes that it is well positioned to further implement its acquisition program following this offering. The Company believes that management's lengthy tenure with the Company, extensive experience in the chauffeured vehicle service industry and relationships with acquisition candidates provide the Company with significant knowledge that will assist the Company in its attempts to acquire licensees of the Company and other chauffeured vehicle service companies. The Company regularly reviews various strategic acquisition opportunities and periodically engages in discussions regarding such possible acquisitions. Currently, other than with respect to the acquisition of Manhattan Limousine, the Company is not a party to any agreements regarding any material acquisitions; however, as the result of the Company's process of regularly reviewing acquisition prospects, negotiations and such acquisition agreements may occur from time to time if appropriate opportunities arise. The acquisition of Manhattan Limousine is intended to solidify the Company's presence in the New York metropolitan area and diversify its customer base. In particular, the Company intends to capitalize on Manhattan Limousine's contracts with many New York-based participants in the airline and hotel industries, including airlines such as Virgin Atlantic Airways and Aer Lingus, and hotels such as the Plaza Hotel and the Mark Hotel. Typically these arrangements are terminable by the airline or hotel upon 30 days' notice. During its fiscal year ended September 30, 1996, approximately 18.0% of Manhattan Limousine's revenues were derived from services performed for Virgin Atlantic Airways. While the Company intends to consolidate certain administrative operations of Manhattan Limousine with its own and to eliminate redundant facilities, equipment and personnel, Manhattan Limousine otherwise will retain its separate identity for at least 12 months following the consummation of the acquisition. Manhattan Limousine provides services solely through independent operators rather than salaried chauffeurs. As a result, Carey will not be able to realize the benefits of converting salaried chauffeurs into independent operators following the acquisition. See "--Independent Operators." Manhattan Limousine's network is composed of approximately 300 affiliates from which Manhattan Limousine receives fees for referred business. A significant majority of Manhattan Limousine's affiliates are located in cities in which the Company already has affiliates, and in some cities the companies share common affiliates. As consideration for future acquisitions, the Company intends to use various combinations of shares of Common Stock, cash and notes. Some or all of any shares of Common Stock issued in connection with acquisitions may be registered under the Securities Act. SERVICE PROVIDER NETWORK Carey's international network of owned and operated chauffeured vehicle service companies, licensees and affiliates, serving 420 cities in 65 countries, enables it to provide its customers chauffeured vehicles in virtually every significant travel market throughout the world. Carey believes that its network is the most extensive in the industry, and intends to expand the network by adding qualified licensees and affiliates in locations justifying new or expanded service. The Company believes that the trend toward globalization is opening more cities for business and personal travel around the world. The Company monitors and evaluates cities in which a demand for chauffeured vehicle services may warrant a "Carey" presence. The Company's network provides chauffeured vehicle services for airport pickups and drop-offs, inter-office transfers, business and association meetings, conventions, road shows, promotional tours, special events, incentive travel and leisure travel. Of these activities, the Company derived approximately 9.3% of its 1996 pro forma revenues from hotel contracts, approximately 8.3% from financial services customers and approximately 5.1% from contracts with airlines. The Company also offers its clients travel and tour planning services, "meet-and-greet" services, destination management services, group movement coordination services, direct and central billing in U.S. dollars, and access to the Company's 24-hour worldwide computerized reservation system, the CIRS. 27 The Company's fleet in its owned and operated locations contains four types of vehicles consisting of chauffeured sedans, limousines, vans and minibuses, some of which can carry up to 30 persons. In addition, the Company subcontracts from time to time for buses that can carry a greater number of passengers. The fleets of the Company's licensees and affiliates in larger markets are similar to the Company's fleet, and in smaller markets generally consist of only chauffeured sedans and limousines. All vehicles are driven by uniformed professional chauffeurs, most of whom own the vehicles that they drive. Each such chauffeur drives a clean, late model vehicle with amenities important to the business traveler, such as cellular telephones and daily newspapers. Owned and Operated Companies. The Company owns and operates chauffeured vehicle service companies in New York, San Francisco, Los Angeles, London, Washington, D.C., South Florida and Philadelphia. Revenue provided by these companies represented approximately 74.7% of the Company's revenue, net in fiscal 1995 and 73.6% in fiscal 1996. Licensees. The Company has 38 licensees serving 106 cities in the United States and 24 licensees serving 105 cities outside the United States, all of which operate under the Carey name. Revenue, net provided by the Company's licensees represented approximately 19.0% and 18.8% of the Company's revenue, net in fiscal 1995 and 1996, respectively. The domestic license fee ranges from $15,000 to $75,000, depending upon the size of the market. The sum of the continuing fees paid by the domestic licensee varies, but annually is generally less than 10% of its revenues or, in some cases, less than 10% of an excess above a specified base. Substantially all candidates appointed as domestic licensees have been in business for at least 10 years prior to the grant of a license. The term of a domestic license agreement entered into prior to January 1, 1996 is perpetual and subsequent to January 1, 1996 is 10 years. International licensees historically have not paid annual license fees; rather, they have paid a commission on business referred to them. The term of an international license agreement usually is from year to year, although in a few cases it is perpetual. Under the domestic license agreement, the Company provides the licensee with (i) the right to use the "Carey" name, (ii) participation in the CIRS, (iii) various consulting services, (iv) identification in various travel directories, (v) access to bulk purchasing arrangements for automobiles, parts and maintenance materials and (vi) national sales and marketing services. In the event of a proposed transfer of a license or a licensee, the Company has the right to approve the transferee. In addition, for most license agreements executed prior to January 1, 1996 and all license agreements executed on or after January 1, 1996, Carey retains a right of first refusal by which it may acquire any license or licensee upon the same terms as the license or licensee is proposed to be sold. Typically, a licensee candidate acts as an affiliate before being selected as a licensee. Licensees operate according to strict service guidelines specified by the Company and market the Carey name in conjunction with the Company's overall marketing program. The Company conducts ongoing quality assurance programs and annual audits of licensees to insure that the licensees have met the high service standards set forth by the Company. The Company has the right to terminate any license if the licensee fails to comply with such standards. Affiliates. The Company utilizes affiliates to provide services to its clients in cities where the Company does not have Company-owned operations or licensees. Affiliates are not licensed to use the Carey name and do not pay license fees to the Company, but must meet the Company's quality standards in order to receive referred business. Pursuant to oral agreements between the Company and its affiliates, the Company is entitled to receive a commission of 15% of net vehicle revenues for all referred business. The Company's affiliates are located in 121 cities in the United States and 67 cities outside the United States. Revenue, net provided by the Company's affiliates represented approximately 2.5% and 2.0% of the Company's revenue, net in fiscal 1995 and 1996, respectively. 28 CAREY INTERNATIONAL RESERVATION SYSTEM (CIRS) The hub of the Company's network of service providers is the CIRS, the Carey International Reservation System. The CIRS is operated on a 24-hour basis by Carey's central reservation department, which processes reservations through the Company's proprietary computer system. The central reservation department receives reservations through the Company's toll free "800" telephone number (800-336-4646), by fax or telex, or through one of the six major airline reservation systems, SABRE, APOLLO, WORLDSPAN, GALILEO, BABS and SITA. These airline systems allow travel agencies, corporate travel departments and government offices to access the CIRS through over 300,000 reservation terminals worldwide. The Company bills a licensee or affiliate for each reservation referred to the licensee or affiliate through the CIRS. The CIRS can be accessed for up-to-date tariffs both in dollars and in foreign currency for 420 cities throughout the world. Through the CIRS, the Company's reservation and customer service personnel have instant access to all rates, services offered, types of vehicles available and special airport greeting capabilities in each individual city. Individual customer profiles are maintained, including vehicle and chauffeur preferences, frequent pick-up points, addresses and directions, billing requirements and account status. The CIRS is used to make arrangements for a broad range of business and consumer applications such as transportation to and from airports, association and industry meetings and functions, road shows, transportation related to incentive travel, board of directors meetings and sight seeing tours. Special customer service facilities are available with direct phone lines, including a special service desk, executive VIP desk, international tour desk, special event desk and road show desk. The CIRS utilizes client/server architecture and proprietary software developed over a five-year period which allows constant input into a complex international network linking more than 65 countries. A primary strength of the CIRS is the reliability of its reporting and control systems which verify all reservations for complete information, customer service requirements and accounting authorizations. The CIRS also contains customer invoicing programs to allow central billing directly through the system for all services used worldwide. In addition, the system's ability to track reservations allows more accurate and detailed analyses for marketing purposes. In 1992, the Company began leasing its reservation and operating systems to its licensees. These systems create a basis for certain licensees to have direct access to the CIRS and provide them with the ability to book local reservations, dispatch vehicles and account for chauffeured vehicle services. MARKETING, SALES AND CUSTOMER SERVICE The Company believes that "Carey," a registered service mark, is a highly recognized name in the chauffeured vehicle service and travel industries worldwide. The Company intends to continue to expand recognition of the "Carey" name through its marketing and promotional efforts. Carey has developed an extensive marketing program directed at both the travel arranger and the end user of chauffeured vehicle services. The program consists of directory listings, advertising, direct mail, public relations, cooperative promotional and joint marketing programs, attendance at and sponsorship of travel-related conventions and workshops, and direct selling. The direct sales force serving the Company and its licensees currently consists of 20 professionals. Carey is listed in 95 travel directories which are used by travel arrangers to obtain information on travel related services. Advertising targeted at travel arrangers is placed in over 35 trade journals including Business Travel Executive, Travel Weekly, Travel Trade and Business Travel News. In addition, the Company advertises extensively in magazines and newspapers, consumer association books, hotel room information books and the Yellow Pages, and on radio and television in selected markets. The Company's continuing direct mail program is targeted at both the travel arranger and the end user. The program distributes approximately two million promotional pieces annually. Most major travel arrangers receive at least six direct mail pieces per year which include announcements of new services, news on service providers 29 and reservation programs, the Carey Newsletter and listings of rates. End users and arrangers receive promotional pieces on Carey when they are billed for the Company's services. The Company's marketing program seeks to build upon brand name acceptance, customer loyalty, service know-how, technology and strategic market relationships with other market leaders in the travel and tourism industry, such as airlines, travel agencies, credit card companies and central reservation systems. The Company's sales force calls on thousands of accounts annually and participates in trade shows, seminars and association meetings. The Company also is involved in promotional and cooperative agreements with American Express Platinum Card and Gold Card, Diner's Club "Club Chauffeur" program, British Airways, Air France and various cruise lines. The Company believes that the retention and expansion of existing business is as important as new sales. Carey has established a base of loyal customers in part by monitoring the standard of service through its quality assurance and customer service programs. To assure that the Company continues to provide consistently high quality and reliable service, Carey operates a five-part quality assurance program. The Company's quality assurance program utilizes survey cards that are sent to customers and travel arrangers. Approximately 90% of the quality assurance cards returned to Carey during the twelve-month period ended November 30, 1996 rated the Company's reservation services, chauffeurs and vehicles as "excellent." Carey's quality assurance program includes evaluations performed by an independent consultant to measure the quality of chauffeur services, the appearance of chauffeurs and vehicles, and the availability of other amenities, such as cellular phones and daily newspapers. INDEPENDENT OPERATORS An important component of Carey's strategy involves the preferred use of independent operators instead of salaried chauffeurs operating Company-owned vehicles. An independent operator takes responsibility for owning, operating and maintaining his or her own vehicle. The Company believes that acting as an independent operator creates incentives for the chauffeur to become more productive, efficient and service-oriented, thereby increasing the profitability of the chauffeur and the Company. The objective of the Company's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner. The use of independent operators allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. Because of the greater responsibility borne by independent operators, the Company is able to allocate fewer resources to oversee its vehicle operations. As a result, the Company can focus to a greater extent on support services, business development, administration, billing, quality assurance, and sales and marketing. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle consistent with the Company's standards. The cost of a new vehicle ranges from $35,000 to $65,000, depending upon whether it is a sedan or a limousine and the features included in the vehicle. Each new independent operator agrees to pay an initial fee to the Company, acquires his or her vehicle and pays all of the maintenance and operating expenses of such vehicle, including gasoline. Prior to December 1996, the Company's typical agreement with an independent operator had a term of 10 years and provided for a fee ranging from $30,000 to $45,000 (depending on the local market) that was financed by the Company at an annual interest rate of 8% to 12%. The notes evidencing such financing generally were sold by the Company to third parties. Since December 1996, the independent operator agreements entered into by the Company generally have provided for, and the Company intends that future agreements will provide for, a term of 15 years, fees of $45,000 to $60,000 and an interest rate of 14% per year. In certain markets, such as New York, the Company may provide longer terms and higher fees in its independent operator agreements. Currently, the Company does not intend to continue its former practice of selling to third parties notes evidencing independent operator financing. To date, the Company has not incurred any material losses as a result of defaults under such notes, and any potential future losses will be mitigated from an accounting perspective because of the Company's policy of deferral of revenue recognition in connection with independent operator fees. 30 The independent operator agreement provides that the Company will bill and collect all revenues (as defined in the agreement) and remit to the independent operator 60% to 65% of such revenues. In this arrangement, the Company assumes the risk of collecting from each customer and generally pays the independent operator his or her share regardless of whether the Company is paid by the customer. An independent operator's failure to meet the high standards of service associated with the Carey name constitutes a breach of the agreement and gives rise to a right of the Company to terminate the agreement. Independent operators also generally require financing to purchase their vehicles. Typically, independent operators have utilized banks, vehicle financing companies or CLI Fleet, Inc. ("CLI Fleet"), a finance company that specializes in providing financing to the chauffeured vehicle service industry. See "Certain Transactions." On occasion, the Company has provided secured vehicle financing to independent operators with repayment terms of three to five years. CUSTOMERS The Company's customer list exceeds 75,000 individuals and organizations that are dispersed across many different industries and geographic locations. No client accounted for more than 5% of the Company's revenue, net in 1996. The Company's major clients include companies in the finance, travel and related services, manufacturing, pharmaceutical, airline, insurance, publishing, oil and gas exploration, entertainment, tobacco, and food and beverage industries. COMPETITION The chauffeured vehicle service industry is highly competitive and fragmented, with few significant national participants operating a multi-city reservation system. Each local market usually contains numerous local participants as well as a few companies offering regional and national service. Chauffeured vehicle service providers compete primarily on the basis of price, quality, scope of service and dependability. The Company also competes with service providers offering alternative modes of transportation, such as buses, jitney services, taxis, radio cars and rental cars. The Company believes that its high quality of service and dependability have allowed the Company to compete effectively in its markets. Carey competes both for customers and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the industry. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. GOVERNMENT REGULATION The Company's chauffeured vehicle service operations are subject to various state and local regulations and, in many instances, require permits and licenses from state and local authorities. In addition, the Company is regulated by the Federal Highway Administration with respect to, among other things, minimum vehicular insurance requirements. The Company believes that it has all required permits and licenses to conduct its operations and that it is in substantial compliance with applicable regulatory requirements relating to its operations. The Company is subject to federal and state laws, rules and regulations governing the offer and sale of franchises. A number of states have enacted laws that require detailed disclosure in the offer and sale of franchises and/or the registration of the franchisor with state administrative agencies. The Company is also subject to Federal Trade Commission regulations relating to disclosure requirements in the sale of franchises. Certain states have enacted, and others may enact, legislation governing certain aspects of the franchise relationship and limiting the ability of the franchisor to terminate or refuse to renew a franchise. The law applicable to franchise sales and relationships is rapidly developing, and the Company is unable to predict the effect on its franchise system of additional requirements or restrictions that may be enacted or promulgated or of court decisions that may be adverse to franchisors. Due to the scope of the Company's business, and the complexity of franchise regulation, compliance problems may be encountered from time to time. 31 INSURANCE The Company is subject to accident claims as a result of the normal operation of its fleet of vehicles, which claims and the defense thereof generally are covered by insurance. The Company purchases automobile liability, automobile collision and comprehensive damage, general liability, comprehensive property damage, workers' compensation and other insurance coverages that management considers adequate for the protection of the Company's assets and operations, although there can be no assurance that the coverages and limits of such policies will be adequate. The Company's standard license agreement requires that its licensees purchase similar types of insurance and name the Company as a named insured in such insurance policies. A successful claim against the Company beyond the scope of its or its licensees' insurance coverage or in excess of its or its licensees' limits could have a material adverse effect on the Company's business, financial condition and results of operations. FACILITIES The Company owns a facility in Alexandria, Virginia used by its owned and operated chauffeured vehicle service company providing services in Washington, D.C. The Company leases its corporate headquarters in Washington, D.C. and also leases nine administrative and/or operating facilities in California, New York, Pennsylvania, Florida and London. Management believes that the Company's facilities are adequate for its present needs and that suitable additional or replacement space will be available as required. EMPLOYEES AND INDEPENDENT OPERATORS As of March 31, 1997, the Company had approximately 255 full-time employees (approximately 41 of whom were chauffeurs) and approximately 99 part-time employees (approximately 71 of whom were chauffeurs). As of March 31, 1997, the Company also had agreements with approximately 334 independent operators. The Company is not a party to any collective bargaining agreement. INTELLECTUAL PROPERTY The Company is the registered owner of two United States service marks covering the "Carey" name. The Company believes that customer and travel arranger recognition of these marks has contributed to its success. The Company is not affiliated with Carey Transportation, Inc., a company that provides bus transportation services in the metropolitan New York City area. Except in this area, the Company believes it has the exclusive right to use the "Carey" name in connection with transportation services in all locations in which it either owns and operates a chauffeured vehicle service company or maintains a licensee. LEGAL PROCEEDINGS The Company and certain of its officers and directors were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania (Case No. 96-CV-3702) entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge (the "STC"). The STC is billed by Carey to its customers and represents a surcharge on account of various fees and service costs incurred by it in its provision of services to such customers. The plaintiff seeks damages in excess of $1.0 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. A class has not yet been certified in this case. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. The Company has reached a tentative settlement with the plaintiff and plaintiff's counsel, which is subject to court approval and acceptance by the proposed class. The settlement calls for the Company to deposit up to $950,000 into a settlement fund for a class consisting of all persons who paid the STC during the period from 32 May 15, 1992 through March 15, 1997. Following court approval of the settlement, the Company will change its disclosure concerning the STC, and each class member showing proper authentication of a claim shall be entitled to receive either (i) cash totalling 10% of the STC paid during the period described above or (ii) a nontransferable credit to be applied toward future use of the Company's services in an amount equal to 30% of such STC. This settlement has been agreed to by the plaintiff and plaintiff's counsel, but there can be no assurance that the court will approve, or the proposed class will accept, the settlement. The Company is indemnifying and defending its officers and directors who were named defendants in the case, subject to conditions imposed by applicable law. Although the Company does not believe the litigation described above will have a material adverse effect on its business, financial condition and results of operations, the defense of the litigation could be expensive and time-consuming, regardless of the outcome, and, if the proposed settlement is not approved and accepted, an adverse result in such litigation could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. The Company is a party to other litigation in the ordinary course of business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 33 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information pertaining to the directors and executive officers and the director nominee of the Company. The director nominee has agreed to become a director of the Company upon the closing of this offering.
NAME AGE CURRENT POSITION ---- --- ---------------- Vincent A. Wolfington.......... 57 Chairman of the Board and Chief Executive Officer Don R. Dailey.................. 60 President and Director Guy C. Thomas.................. 59 Executive Vice President--Operations David H. Haedicke.............. 50 Executive Vice President and Chief Financial Officer Richard A. Anderson, Jr........ 51 Senior Vice President Sally A. Snead................. 37 Senior Vice President--Information Systems John C. Wintle................. 50 Senior Vice President--Europe Paul A. Sandt.................. 36 Vice President and Chief Accounting Officer Devin J. Murphy................ 31 Senior Vice President and Chief Development Officer Robert W. Cox.................. 59 Director William R. Hambrecht........... 61 Director David McL. Hillman............. 44 Director Nicholas J. St. George......... 58 Director nominee
Set forth below is a description of the backgrounds of each of the directors and executive officers and the director nominee of the Company. Vincent A. Wolfington, a co-founder of the Company, has served as its Chairman of the Board of Directors and Chief Executive Officer since 1979. For over 25 years, Mr. Wolfington has been involved in the limousine industry and directly associated with the Carey system of licensees and affiliates. Mr. Wolfington has served as a consultant to the National Academy of Sciences Transportation Research Board, President of the National Para-transit Association and a member of the International Limousine Association. Mr. Wolfington currently is a member of the Executive Committee of the World Travel and Tourism Council. Don R. Dailey has been President and a director of the Company, which he co- founded, since 1979. Mr. Dailey has been directly involved in the limousine business for over 30 years. Mr. Dailey serves on a number of boards and committees related to the travel industry, including the National Business Travel Association, the International Business Travel Associates, the Association of Corporate Travel Executives, the National Limousine Association and the International Limousine Association (as its past president and member of its executive committee). Guy C. Thomas has served as Executive Vice President--Operations of the Company since 1987. Mr. Thomas has served on a number of boards and committees related to the travel industry, including the National Business Travel Association, the Greater Washington Area Passenger Traffic Association, the American Society of Association Executives, Meeting Planners International, the Association of Corporate Travel Executives, the National Limousine Association and the International Taxicab and Livery Association. David H. Haedicke has been an Executive Vice President and Chief Financial Officer of the Company since October 1996. From August 1996 to October 1996, he was Senior Vice President and Chief Financial Officer of Infotechnology, Inc., Hadron, Inc. and Comtex Scientific Corporation, an affiliated group of companies engaged in systems management and software development. From September 1993 to May 1996, he was Chief Financial Officer of Walcoff & Associates, Inc., a communications and information management firm. From June 1991 to September 1993, he was Chief Financial Officer and Vice President of Xsirus, Inc., a high technology research and development company. Mr. Haedicke also was a partner at Ernst & Young L.L.P. from 1985 to June 1991, and was an employee at that firm from 1973 to 1985. Mr. Haedicke is a Certified Public Accountant. 34 Richard A. Anderson, Jr. has served as a Senior Vice President of the Company since December 1988. Mr. Anderson also has been Chief Operating Officer of the Company's New York subsidiary, Carey Limousine NY, Inc., since December 1988. Mr. Anderson is Chairman of the New York Taxi and Limousine Commission's Limousine Advisory Board, a former Board Member of the Association of Corporate Travel Executives, and a member of the National Business Travel Association and Meeting Planners International. Sally A. Snead has served as the Company's Senior Vice President-- Information Systems since June 1993. From January 1987 to June 1993, she was Executive Vice President and General Manager of Carey Limousine L.A., Inc. She is a member of Executive Women International, the National Business Travel Association, the Association of Corporate Travel Executives and the National Limousine Association. John C. Wintle has served as the Company's Senior Vice President--Europe since May 1996 and as Executive Vice President and Managing Director of Carey U.K. Ltd., a subsidiary of the Company, since March 1996. From 1982 to February 1996, Mr. Wintle served Savoy Hotel PLC ("Savoy") and its affiliates, including Camelot Barthropp Ltd. ("Camelot"), in various capacities. From March 1993 to February 1996, Mr. Wintle was Executive Vice Chairman of Camelot, which was acquired by Carey U.K. Ltd. in February 1996. Previously, from 1989 to 1993, Mr. Wintle was General Manager, Restaurant Division, of several entities affiliated with Savoy. From 1982 to 1989, Mr. Wintle had been Group Financial Controller at Savoy. Paul A. Sandt has served as a Vice President and Chief Accounting Officer of the Company since October 1994. From May 1992 through September 1994, Mr. Sandt was a staff member with the Securities and Exchange Commission, and from December 1990 through May 1992, he was Director of Finance of The Kline Automotive Group. From 1984 through 1990, he was employed by Coopers & Lybrand L.L.P. Mr. Sandt is a Certified Public Accountant. Devin J. Murphy has served as a Vice President of the Company since May 1996, and became Senior Vice President and Chief Development Officer in April 1997. Mr. Murphy received a Master's Degree in Business Administration from Duke University in May 1996. For the six years prior to the commencement of his MBA program in September 1994, Mr. Murphy held various sales and marketing positions at companies within the information technology industry. These companies include Bay Networks, Inc., where Mr. Murphy was Marketing Manager from January 1993 to August 1994, Motorola Inc., where he was Manager, Major Accounts from February 1991 to January 1993, and Hewlett-Packard Co. Inc., where he was Territory Manager from 1988 to 1991. Robert W. Cox has served as a director of the Company since 1995. From 1969 until his retirement in 1994, Mr. Cox was a partner in the New York and Chicago offices of the law firm Baker & McKenzie. From 1984 to 1992, Mr. Cox was Chairman of the Executive Committee and Managing Partner of the firm, and from 1993 to 1994, Mr. Cox was Chairman of the Policy Committee. Mr. Cox currently is a director of Hon Industries, Inc. William R. Hambrecht has served as a director of the Company since 1995. Mr. Hambrecht is Chairman of Hambrecht & Quist LLC, an investment banking firm which he co-founded in 1968. Mr. Hambrecht also serves as a director of Adobe Systems, Inc. David McL. Hillman has served as a director of the Company since 1994. Mr. Hillman is Executive Vice President of PNC Capital Corp. and Executive Vice President and Director of PNC Equity Management Corp., which he co-founded in 1982. Mr. Hillman is a director of several privately-held companies in connection with PNC Capital Corp.'s investments in such companies. Nicholas J. St. George will become a director of the Company upon consummation of this offering. Mr. St. George has been President and Chief Executive Officer of Oakwood Homes Corporation ("Oakwood"), a manufacturer and retailer of manufactured homes, since February 1979. Mr. St. George serves as a director of Oakwood, and also is a director of American Bankers Insurance Group, Inc. and Legg Mason, Inc. 35 BOARD OF DIRECTORS The Company's Board of Directors is divided into three classes with staggered three-year terms. After the completion of this offering, the initial term of Messrs. Hambrecht and Hillman expire at the Company's 1998 annual meeting, the initial terms of Messrs. Cox and St. George expire at the Company's 1999 annual meeting, and the initial terms of Messrs. Wolfington and Dailey expire at the Company's 2000 annual meeting. Successors to the directors whose terms expire at each annual meeting are elected for three-year terms. A director holds office until the annual meeting for the year in which his term expires and until his successor is elected and qualified. Executive Committee. After the completion of this offering, the members of the Executive Committee of the Company's Board of Directors will be Messrs. Wolfington, Cox and Dailey. The Executive Committee will exercise all the powers of the Board of Directors between meetings of the Board of Directors, except such powers that are reserved to the Board of Directors by applicable law. Audit Committee. After the completion of this offering, the members of the Audit Committee of the Company's Board of Directors will be Messrs. Hillman and St. George. The Audit Committee will make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans for and results of the audit, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Company's internal accounting controls. Compensation Committee. After the completion of this offering, the members of the Compensation Committee of the Company's Board of Directors will be Messrs. Cox and St. George. The Compensation Committee will establish a general compensation policy for the Company and approve increases in directors' fees and salaries paid to officers and senior employees of the Company. The Compensation Committee will administer the Company's equity incentive plans and will determine, subject to the provisions of the Company's plans, the directors, officers and employees of the Company eligible to participate in any of the plans, the extent of such participation and terms and conditions under which benefits may be vested, received or exercised. DIRECTOR COMPENSATION Members of the Board of Directors who also serve as officers of the Company do not receive compensation for serving on the Board. Each other member of the Board receives an annual retainer of $15,000 for serving on the Board, plus a fee of $1,000 for each Board of Directors' meeting attended. In addition, such directors receive an additional fee of $500 for each committee meeting attended, except that only one fee is paid in the event that more than one such meeting is held on a single day. All directors receive reimbursement of reasonable expenses incurred in attending Board and committee meetings and otherwise carrying out their duties. The Company's Board of Directors has adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A maximum of 100,000 shares of Common Stock may be delivered upon the exercise of options granted under the Directors' Plan and elections to receive shares in lieu of cash compensation. Only directors of the Company who are not employees of the Company or any of its subsidiaries (the "Non-Employee Directors") are eligible to participate in the Directors' Plan. While grants of stock options under the Directors' Plan are automatic and non-discretionary, all questions of interpretation of the Directors' Plan are determined by the Board of Directors. The Directors' Plan provides that on the date of this Prospectus, an option to purchase 7,500 shares of Common Stock will be granted to each Non-Employee Director. On the date of each subsequent annual meeting of stockholders, each Non-Employee Director continuing in office will be granted an option covering 2,500 shares. Any newly elected Non-Employee Director will be granted an option covering 5,000 shares on the date of his or her election (whether such election occurs at an annual meeting or otherwise). The option exercise price for each option granted under the Directors' Plan will be the closing price of a share of the Common Stock as reported on the Nasdaq National Market on the date the option is granted, except that options awarded on the date of this Prospectus will have an exercise price equal to the initial public offering price in this 36 offering. All options granted under the Directors' Plan become fully exercisable six months after the date of grant. Unless sooner terminated following the death, disability or termination of service of a director, options granted under the Directors' Plan will remain exercisable until the fifth anniversary of the date of grant. In addition, upon certain transactions involving a change of control or the dissolution or liquidation of the Company, all options held by Non-Employee Directors will terminate; provided, however, that for a period of 20 days prior to the effective date of any such transaction, dissolution or liquidation, all options outstanding under the Directors' Plan that are not otherwise exercisable shall immediately vest and become exercisable. Under the Directors' Plan, a Non-Employee Director may elect to be paid all or a portion of his or her annual retainer in shares of Common Stock. Any such election must be made in writing at least 30 days prior to the date the annual retainer would be paid by the Company. The number of shares to be delivered to a Non-Employee Director upon such election is determined by dividing the amount of the annual retainer to be received in shares of Common Stock by the closing price of a share of Common Stock as reported on the Nasdaq National Market on the date the annual retainer is to be paid. The Board of Directors may at any time or times amend the Directors' Plan for any purpose which at the time may be permitted by law. EXECUTIVE COMPENSATION Summary Compensation Table The following table contains a summary of the compensation paid to the Chief Executive Officer of the Company and the other executive officers whose salary and bonus for the Company's fiscal year ended November 30, 1996 exceeded $100,000.
ANNUAL COMPENSATION ----------------------------------------------------- NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(1) - ------------------ --------- -------- --------------- ------------------ Vincent A. Wolfington.... $231,620 -- -- $57,000 Chairman and Chief Executive Officer Don R. Dailey............ 205,001 -- -- 57,000 President and Director Guy C. Thomas............ 115,000 -- $13,020(2) 6,300 Executive Vice President--Operations and Chief Operating Officer
- -------- (1) Includes with respect to each of Messrs. Wolfington and Dailey $45,000 paid for providing certain personal guarantees on behalf of the Company and $12,000 in life insurance premiums, and with respect to Mr. Thomas, $6,300 in life insurance premiums. (2) Includes a car allowance of $11,820. 37 OPTIONS TO PURCHASE SHARES OF COMMON STOCK Messrs. Wolfington, Dailey and Thomas hold options to purchase the following shares of Common Stock, all of which options are exercisable at a price of approximately $4.65 per share. The aggregate values of the options are as set forth below, assuming a fair market value of $11.00 per share of Common Stock. The named officers neither were granted nor exercised options during the fiscal year ended November 30, 1996.
NUMBER OF SECURITIES NAME UNDERLYING OPTIONS VALUE ---- ------------------ -------- Vincent A. Wolfington......................... 105,706 $671,127 Don R. Dailey................................. 105,706 $671,127 Guy C. Thomas................................. 32,018 $203,282
EQUITY INCENTIVE PLANS The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan") and the 1992 Stock Option Plan (the "1992 Plan"), both of which provide for the award of incentive and non-statutory stock options by the Company. The Company has adopted the 1997 Equity Incentive Plan (the "1997 Plan"), which provides for the award of up to 650,000 shares of Common Stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, performance stock units and other stock units which are valued by reference to the value of the Common Stock. The 1987 Plan, 1992 Plan and 1997 Plan are hereinafter referred to collectively as the "Equity Plans." Options are outstanding to purchase an aggregate of 447,275 shares of Common Stock under the 1987 Plan and the 1992 Plan, and an aggregate of 28,655 shares of Common Stock are authorized but have not yet been granted under options pursuant to such plans. The Company has granted to employees options to purchase an aggregate of 411,500 shares of Common Stock pursuant to the 1997 Plan having an exercise price equal to the initial public offering price. Of these options, Messrs. Wolfington and Dailey each received an option to purchase 100,000 shares of Common Stock, and Mr. Thomas received an option to purchase 15,000 shares of Common Stock. The options issued to Messrs. Wolfington and Dailey will vest in full 90 days from the date of this Prospectus. The balance of the options issued under the 1997 Plan will vest with respect to one-quarter of the underlying shares on each of the first four anniversaries of the date of grant. Officers, key employees, non-employee directors of and consultants to the Company have participated in the 1987 Plan and the 1992 Plan. The 1987 Plan and the 1992 Plan are administered by the Compensation Committee of the Board of Directors. Among other things, the Compensation Committee determines, subject to the provisions of said plans, who shall receive awards, the types of awards to be made, and the terms and conditions of each award. No incentive stock option may be granted under the 1987 Plan and the 1992 Plan at an exercise price less than the fair market value of the shares of Common Stock at the time the option is granted (and, in the case of stock options granted to holders of more than 10% of the Common Stock, no option may be granted at an exercise price less than 110% of the fair market value of the shares of Common Stock at the time the option is granted). All employees and directors of, and consultants and advisers to, the Company and any of its subsidiaries are eligible to participate in the 1997 Plan. The 1997 Plan will be administered by the Compensation Committee, which will determine who shall receive awards from those eligible to participate in the 1997 Plan, the type of award to be made, the number of shares of Common Stock which may be acquired pursuant to the award and the specific terms and conditions of each award, including the purchase price, term, vesting schedule, restrictions on transfer and any other conditions and limitations applicable to the awards or their exercise. Options that are intended to qualify as incentive stock options may be exercisable for not more than 10 years after the date the option is awarded and may not be granted at an exercise price less than the fair market value of the shares of Common Stock at the time the option is granted. The Compensation Committee may at any time, including in connection with a change in control of the Company, accelerate the exercisability of all or any portion of any option issued under the 1997 Plan. 38 The Compensation Committee may amend, modify or terminate any outstanding award under the Company's Equity Plans with the participant's consent, except consent shall not be required if the Compensation Committee determines that such action will not materially and adversely affect the participant. The Board may amend, suspend or terminate any of the Equity Plans, or any part of such plans, at any time, except that no amendment may be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement. INDEMNIFICATION AND LIMITATION OF LIABILITIES OF OFFICERS AND DIRECTORS As permitted by the Delaware General Corporation Law, the Company's Certificate of Incorporation provides for the elimination, subject to certain conditions, of the personal liability of directors of the Company for monetary damages for breach of their fiduciary duties. The directors, however, remain subject to equitable remedies even if their liability for monetary damages is eliminated. The Company's Certificate of Incorporation also provides that the Company shall indemnify its directors and officers. In addition, the Company maintains an indemnification insurance policy covering all directors and officers of the Company. In general, the Company's Certificate of Incorporation and the indemnification insurance policy attempt to provide the maximum protection permitted by Delaware law with respect to indemnification of directors and officers. Under the indemnification provisions of the Company's Certificate of Incorporation and the indemnification insurance policy, the Company will pay certain amounts incurred by a director or officer in connection with any civil or criminal action or proceeding, and specifically including actions by or in the name of the Company (derivative suits), where the individual's involvement is by reason of the fact that he is or was a director or officer of the Company. Such amounts include, to the maximum extent permitted by law, attorney's fees, judgments, civil or criminal fines, settlement amounts, and other expenses customarily incurred in connection with legal proceedings. A director or officer will not receive indemnification if he is found not to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. 39 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of Common Stock before and after the completion of this offering for each beneficial owner of more than 5% of the Company's Common Stock, each director and the director nominee of the Company, each named executive officer of the Company and all directors, executive officers and the director nominee as a group. Except as indicated in the footnotes below, the persons named in this table have sole investment and voting power with respect to the shares beneficially owned by them. The information contained in the table and the footnotes thereto gives effect to the Recapitalization and the post-offering beneficial ownership percentages also give effect to the acquisition of Manhattan Limousine and the assumed conversion of certain convertible notes.
PERCENT OWNED ----------------- SHARES BEFORE AFTER BENEFICIALLY THE THE NAME OWNED OFFERING OFFERING - ---- ------------ -------- -------- Vincent A. Wolfington.......................... 316,228(1) 9.5% 4.9% Don R. Dailey.................................. 315,176(2) 9.5% 4.9% Guy C. Thomas.................................. 94,800(3) 2.9% 1.5% Robert W. Cox.................................. 12,900(4) * * William R. Hambrecht........................... 945,060(5) 29.3% 14.8% David McL. Hillman............................. 616,544(6) 19.1% 9.7% Nicholas J. St. George......................... -- -- -- H&Q London Ventures............................ 444,093 13.8% 7.0% One Bush St. San Francisco, CA 94104 H&Q Ventures International C.V.(7)............. 175,197 5.4% 2.7% H&Q Ventures IV(7)............................. 175,197 5.4% 2.7% PNC Capital Corp. ............................. 616,544(6) 19.1% 9.7% One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222 Yerac Associates, L.P. ........................ 516,018(8) 15.6% 8.1% 45 Belden Place San Francisco, CA 94104 All directors, executive officers and the director nominee as a group (13 persons).................................. 2,350,261(9) 66.6% 35.1%
- -------- * Less than 1%. (1) Includes options to purchase 105,706 shares of Common Stock that currently are exercisable. Also includes 1,182 shares of Common Stock currently held by a company controlled by Mr. Wolfington. Excludes shares held by Yerac Associates, L.P., a limited partnership of which Mr. Wolfington is a limited partner, with respect to which shares Mr. Wolfington has no voting or investment power. Mr. Wolfington's address is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. (2) Includes options to purchase 105,706 shares of Common Stock that currently are exercisable. Excludes shares held by Yerac Associates, L.P., a limited partnership of which Mr. Dailey is a limited partner,with respect to which shares Mr. Dailey has no voting or investment power. Mr. Dailey's address is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. (3) Includes options to purchase 32,018 shares of Common Stock that currently are exercisable. (4) Represents options to purchase shares of Common Stock that currently are exercisable. (5) Includes the following number of shares of Common Stock held by the following venture capital funds, as to which Mr. Hambrecht disclaims beneficial ownership: H&Q Ventures International C.V. (175,197 shares); H&Q London Ventures (444,093 shares); H&Q Ventures IV (175,197 shares); Hamquist (10,727 shares); and Hambrecht & Quist California (31,227 shares). Also includes (i) 85,816 shares of Common 40 Stock with respect to which Mr. Hambrecht shares record and beneficial ownership with Hamco Capital Corp. and (ii) 22,803 shares of Common Stock with respect to which Mr. Hambrecht shares record and beneficial ownership with the Hambrecht 1980 Revocable Trust. See "Certain Transactions." Mr. Hambrecht's address is c/o Hambrecht & Quist California, One Bush Street, San Francisco, CA 94104. (6) David McL. Hillman is Executive Vice President of PNC Capital Corp. Mr. Hillman disclaims beneficial ownership of the shares held by PNC Capital Corp. (7) This entity shares the same address as H&Q London Ventures. (8) Includes shares of Common Stock issuable upon exercise of a warrant to purchase 86,003 shares of Common Stock at a price of approximately $4.65 per share. The warrant is exercisable at any time until September 1, 2001. (9) See Notes 1, 2, 3, 4, 5 and 6. Also includes 49,553 shares of Common Stock issuable upon exercise of the vested portions of options held by other executive officers of the Company. 41 CERTAIN TRANSACTIONS During 1993, for an aggregate purchase price of $850,000, the Company acquired 85 shares of non-voting redeemable preferred stock of CLI Fleet, Inc. ("CLI Fleet") a privately-held finance company formed for the purpose of financing the chauffeured vehicle service industry. As a holder of CLI Fleet preferred stock, the Company is currently entitled to receive an annual dividend of $500 per share. The Company waived the right to receive any dividends accrued in respect of its preferred stock through April 30, 1996, but during 1995 received referral fees totalling $100,000 from CLI Fleet. Also during 1995, CLI Fleet redeemed 10 shares of preferred stock held by the Company for an aggregate redemption price of $100,000. The remaining shares of preferred stock are subject to mandatory redemption by redemption payments of $100,000, $100,000 and $550,000 in May 1998, 1999 and 2000, respectively. Under the terms of an agreement with CLI Fleet, commencing in April 1997, the Company has an exclusive option to purchase all of the outstanding shares of common stock of CLI Fleet at a purchase price equal to the greater of $187,500 or CLI Fleet's liquidating value as determined by an independent appraisal. To date, CLI Fleet has provided financing to the Company's independent operators, without recourse to the Company, for both initial fees due under the Company's independent operator agreements and with respect to vehicles purchased by independent operators. Each of the Company's owned and operated chauffeured vehicle service companies has entered into a Finance & Service Agreement with CLI Fleet, which provides that the Company will recommend and refer independent operators to CLI Fleet for financing of vehicles. To date, CLI Fleet also has purchased from the Company notes receivable due from independent operators in exchange for cash or demand notes on a non-recourse basis. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to CLI Fleet for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. These promissory notes are due on demand, although monthly principal payments generally are received. These notes bear interest at rates ranging from 5% to 7%. The Company generally no longer sells notes receivables from independent operators to CLI Fleet, although CLI Fleet continues to provide vehicle financing to the Company's independent operators. In May 1996, the exercise price of a warrant issued to PNC was reduced from $6.14 to $4.65 per share. In addition, in connection with the Recapitalization, upon the closing of this offering, Carey will repay approximately $912,000 of the $3.8 million in principal outstanding on its subordinated note held by PNC and apply the balance of the outstanding principal to pay the purchase price for 616,544 shares of Common Stock to be issued to PNC upon exercise of the warrant held by it. David McL. Hillman, a director of the Company, is Executive Vice President of PNC. Also in connection with the Recapitalization, IBJS Capital Corporation ("IBJS") will receive $1.0 million in connection with the redemption of 10,000 shares of Series F Preferred Stock (representing all of the outstanding shares of such series) and 3,000 shares of Series G Preferred Stock held by IBJS. In May 1996, the exercise price of a warrant to purchase 86,003 shares of Common Stock owned by Yerac was reduced from $6.14 to $4.65 per share. In addition, in connection with the Recapitalization, Yerac will convert the entire outstanding balance of a $2.0 million subordinated note held by it into approximately 430,000 shares of Common Stock. From the net proceeds of this offering, the Company will repay approximately $1.1 million of additional outstanding indebtedness to Yerac. Messrs. Wolfington and Dailey are limited partners of Yerac. See "Use of Proceeds" and "Principal Stockholders." In connection with the Recapitalization, the Company will redeem 22,000 shares of Series A Preferred Stock held by entities affiliated with Hambrecht & Quist California (collectively "H&Q") for an aggregate of $1.1 million in cash plus 44,974 shares of Common Stock. Also in connection with the Recapitalization, (i) the conversion price of the Series G Preferred Stock will be reduced from $7.41 to approximately $6.14, and (ii) H&Q will receive 900,089 shares of Common Stock as a result of the conversion of 5,500 shares of Series B Preferred Stock and 31,864 shares of Series G Preferred Stock. William R. Hambrecht, a director of the Company, is a director and chairman of Hambrecht & Quist California and Hamco Capital Corporation, and a general partner of Hambrecht & Quist Venture Partners which, in turn, is the general partner of H&Q London Ventures, H&Q Ventures International C.V., and H&Q Ventures IV. Mr. Hambrecht also is a trustee of The Hambrecht 1980 Revocable Trust. See "Principal Stockholders." 42 Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President, each has personally guaranteed certain indebtedness of the Company in the original principal amount of $4.5 million. The outstanding balance of this indebtedness totalled approximately $3.7 million as of February 28, 1997. The Company paid Messrs. Wolfington and Dailey $45,000 each during 1996 as a fee for guaranteeing such indebtedness. The Company will use part of the net proceeds of this offering to repay the entire outstanding amount of such indebtedness, and following the repayment the guarantees will be terminated. In connection with the Recapitalization, Messrs. Wolfington and Dailey will receive $20,250 and $13,650, respectively, and 7,569 shares and 5,123 shares of Common Stock, respectively, as a result of the redemption of the shares of Series A Preferred Stock and the conversion of the shares of Series G Preferred Stock beneficially owned by each of them. 43 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock, $.01 par value per share ("Preferred Stock"). The following summary description of the Common Stock and the Preferred Stock is qualified by reference to the Company's Amended and Restated Certificate of Incorporation included as an exhibit to the Registration Statement of which this Prospectus is a part. COMMON STOCK Upon the closing of this offering, including the shares offered hereby, there will be 6,389,012 shares of Common Stock outstanding, and outstanding options and warrants to purchase an aggregate of 1,145,228 shares of Common Stock. A total of 94,170 shares of Common Stock are reserved for issuance under the 1987 Plan, 388,647 shares are reserved for issuance under the 1992 Plan, 650,000 shares of Common Stock are reserved for issuance under the 1997 Plan and 100,000 shares of Common Stock are reserved for issuance under the Directors' Plan. Holders of Common Stock are entitled to one vote for each share held of record on all matters to be submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors of the Company out of funds legally available therefor. The Company's agreements with its principal lenders prohibit dividend payments. See "Dividend Policy." All outstanding shares of Common Stock are, and the shares to be sold in this offering when issued and paid for will be, fully paid and nonassessable and the holders thereof will have no preferences or conversion, exchange or pre-emptive rights. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all of the Company's debts and obligations and liquidation payments to holders of outstanding shares of Preferred Stock, if any. PREFERRED STOCK After the completion of this offering, no shares of Preferred Stock of the Company will be issued and outstanding. Thereafter, Preferred Stock may be issued in one or more series without further stockholder authorization, and the Board of Directors is authorized to fix and determine the terms, limitations and relative rights and preferences of the Preferred Stock, to establish series of Preferred Stock and to fix and determine the variations as among series. Preferred Stock, if issued, would have priority over the Common Stock with respect to dividends and to other distributions, including the distribution of assets upon liquidation, and may be subject to repurchase or redemption by the Company. The Board of Directors, without approval of the holders of the Common Stock, can issue Preferred Stock with voting and conversion rights (including multiple voting rights) which could adversely affect the rights of holders of Common Stock. In addition to having a preference with respect to dividends or liquidation proceeds, Preferred Stock, if issued, may be entitled to the allocation of capital gains from the sale of the Company's assets. Although the Company has no present plans to issue any shares of Preferred Stock following the closing of this offering, the issuance of shares of Preferred Stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring or preventing a change in control of the Company or an unsolicited acquisition proposal. CLASSIFIED BOARD OF DIRECTORS The Restated Certificate of Incorporation and By-laws of the Company provide for the Board of Directors to be divided into three classes of directors, as nearly equal in number as is reasonably possible, serving staggered terms so that directors' initial terms will expire either at the 1998, 1999 or 2000 annual meeting of stockholders. Starting with the 1998 annual meeting of stockholders, one class of directors will be elected each year for a three- year term. See "Management." 44 The Company believes that a classified Board of Directors will help to assure the continuity and stability of the Board of Directors and the Company's business strategies and policies as determined by the Board of Directors, since a majority of the directors at any given time will have had prior experience as directors of the Company. The Company believes that such continuity and stability, in turn, will permit the Board of Directors to represent more effectively the interests of its stockholders. With a classified Board of Directors, at least two annual meetings of stockholders, instead of one, generally will be required to effect a change in the majority of the Board of Directors. As a result, a provision relating to a classified Board of Directors may discourage proxy contests for the election of directors or purchases of a substantial block of the Common Stock because the provision could operate to prevent a rapid change in control of the Board of Directors. The classification provision also could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company. Under the DGCL, unless a corporation's certificate of incorporation otherwise provides, a director on a classified board may be removed by the stockholders of the corporation only for cause. ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS The By-laws establish an advance notice procedure with regard to the nomination by the stockholders of the Company of candidates for election as directors (the "Nomination Procedure") and with regard to other matters to be brought by stockholders before a meeting of stockholders of the Company (the "Business Procedure"). The Nomination Procedure requires that a stockholder give written notice to the Secretary of the Company, delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting, in proper form, of a planned nomination for the Board of Directors. Detailed requirements as to the form and timing of that notice are specified in the By-laws. If the Chairman determines that a person was not nominated in accordance with the Nomination Procedure, such person will not be eligible for election as a director. Under the Business Procedure, a stockholder seeking to have any business conducted at any meeting must give written notice to the Secretary of the Company, delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting, in proper form, subject to the requirements of the proxy solicitation rules under the Securities Exchange Act of 1934. Detailed requirements as to the form and timing of that notice are specified in the By- laws. If the Chairman determines that the other business was not properly brought before such meeting in accordance with the Business Procedure, such business will not be conducted at such meeting. Although the By-laws do not give the Board of Directors any power to approve or disapprove of stockholder nominations for the election of directors or of any other business desired by stockholders to be conducted at an annual or any other meeting, the By-laws (i) may have the effect of precluding nominations for the election of directors or precluding the conduct of business at a particular annual meeting if the proper procedures are not followed or (ii) may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its stockholders. OTHER PROVISIONS Special Meetings of the Stockholders of the Company. The Company's By-laws provide that a special meeting of the stockholders of the Company only may be called by the Chairman of the Board, or by order of the Board of Directors. That provision prevents stockholders from calling a special meeting of stockholders and potentially limits the stockholders' ability to offer proposals to the annual meetings of stockholders, if no special meetings are otherwise called by the Chairman or the Board. Amendment of the By-laws. The Company's Restated Certificate of Incorporation provides that the By-laws only may be amended by a vote of the Board of Directors or by a vote of at least 75% of the outstanding shares of the Company's stock entitled to vote in the election of directors. 45 No Action by Written Consent. The Company's Restated Certificate of Incorporation does not permit the Company's stockholders to act by written consent. As a result, any action to be taken by the Company's stockholders must be taken at a duly called meeting of the stockholders. DELAWARE ANTI-TAKEOVER STATUTE The Company is subject to Section 203 of the DGCL which, with certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder, unless: (a) prior to such date, the Board of Directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, (b) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (i) by persons who are directors and officers and (ii) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or (c) on or after such date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. An "interested stockholder" is defined as any person that is (y) the owner of 15% or more of the outstanding voting stock of the corporation or (z) an affiliate or associate of the Company and was the owner of 15% or more of the outstanding voting stock of the Company at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder. SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering and the acquisition of Manhattan Limousine, the Company will have 6,389,012 shares of Common Stock outstanding. Of these shares, 2,900,000 shares sold pursuant to this offering (3,335,000 shares if the Underwriters exercise their over-allotment option in full) will be freely tradeable without restriction under the Securities Act, except for any shares which may be acquired by an "affiliate" of the Company (as that term is defined in Rule 144). The 3,489,012 remaining shares constitute "restricted securities" within the meaning of Rule 144 and, except for shares held by affiliates of the Company and the 218,181 shares issued in connection with the acquisition of Manhattan Limousine, will be eligible for sale in the open market subject to the applicable requirements of Rule 144(k) described below. Following the completion of this offering, if issued upon the exercise of outstanding warrants, 263,953 shares of Common Stock also will be restricted securities within the meaning of Rule 144 and will be eligible for sale in the open market subject to the applicable requirements of Rule 144 discussed below. Also following the completion of this offering, there will be a total of 881,275 shares of Common Stock issuable upon the exercise of outstanding options under the Company's Equity Plans and Directors' Plan and an additional 344,662 shares of Common Stock reserved for future award or grant under such plans. The Company intends to file a registration statement on Form S-8 to register the issuance of shares under the Equity Plans and Directors' Plan. Common Stock issued after the effective date of such registration statement upon exercise of outstanding vested options granted pursuant to the Equity Plans and Directors' Plan, other than Common Stock issued to affiliates of the Company, would be available for immediate resale in the open market. In general, under Rule 144, if a period of at least one year has elapsed between the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from an affiliate, then the holder of such restricted securities (including an affiliate) is entitled to sell that number of shares within any three-month period that does not exceed the greater of (i) one percent of the then outstanding shares of the Common Stock or (ii) the average weekly reported volume of trading of the Common Stock during the four calendar weeks preceding such sales. Sales under Rule 144 also are subject to certain requirements pertaining to the manner of such sales, notices of such sales and the availability of current public information 46 concerning the Company. Any shares not constituting restricted securities sold by affiliates must be sold in accordance with the foregoing volume limitations and other requirements but without regard to the one year holding period. Under Rule 144(k), if a period of at least two years has elapsed from the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from the affiliate, a holder of such restricted securities who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. The Company and the beneficial owners of at least 4,000,000 shares of Common Stock (including all of the Company's officers and directors and those individuals who will be issued Common Stock in the Manhattan Limousine acquisition) have agreed that they will not offer, sell, contract to sell, pledge, grant any option for the sale of, or otherwise dispose or cause the disposition of any shares of Common Stock or securities convertible into or exchangeable or exercisable for such shares, for a period of 180 days after the date of this Prospectus without the prior written consent of Montgomery Securities, except for (i) in the case of the Company, Common Stock issued pursuant to any employee or director benefit plan described herein or in connection with acquisitions or (ii) in the case of directors and executive officers, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts, subject in each case to any remaining portion of the 180-day period applying to shares so issued or transferred. In evaluating any request for a waiver of the 180-day lock-up period, Montgomery Securities will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market for the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. The holder of 218,181 shares of Common Stock to be issued in connection with the acquisition of Manhattan Limousine will be entitled to certain demand and piggy-back registration rights one year after completion of this offering. After the offering, sales of substantial amounts of Common Stock by existing stockholders could have an adverse impact on the prevailing market price of the Common Stock. No predictions can be made as to the effect, if any, that market sales of shares by existing stockholders or the availability of such shares for future sale will have on the market price of shares of Common Stock prevailing from time to time. 47 UNDERWRITING The Underwriters named below (the "Underwriters"), represented by Montgomery Securities and Ladenburg Thalmann & Co. Inc. (the "Representatives"), have severally agreed, subject to the terms and conditions in the underwriting agreement (the "Underwriting Agreement") by and between the Company and the Underwriters, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names, at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters are committed to purchase all of the shares of Common Stock, if they purchase any.
NUMBER OF UNDERWRITERS SHARES ------------ --------- Montgomery Securities............................................ Ladenburg Thalmann & Co. Inc. ................................... --------- Total........................................................ 2,900,000 =========
The Representatives have advised the Company that the Underwriters propose initially to offer the Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow selected dealers a concession of not more than $ per share; and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the initial public offering, the public offering price and other selling terms may be changed by the Representatives. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 435,000 additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial shares to be purchased by the Underwriters. To the extent that the Underwriters exercise such over- allotment option, the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with this offering. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. The Company's officers and directors and certain of the shareholders of the Company (including the holders of shares issued in connection with the acquisition of Manhattan Limousine) who, immediately following this offering, collectively will beneficially own an aggregate of at least 4,000,000 shares of Common Stock (including shares issuable upon the exercise of outstanding options and warrants), have agreed that for a period of 180 days after the date of this Prospectus they will not, without the prior written consent of Montgomery Securities, directly or indirectly sell, offer, contract or grant any option to sell, pledge, transfer, establish an open put equivalent position or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stocks. The Company has also agreed not to issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities for a period of 180 days after the effective date of this offering without the prior written consent of Montgomery Securities, except for securities issued by the Company in connection with 48 acquisitions and for grants and exercises of stock options, subject in each case to any remaining portion of the 180-day period applying to shares so issued or transferred. In evaluating any request for a waiver of the 180-day lock-up period, Montgomery Securities will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market for the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. See "Shares Eligible for Future Sale." In connection with this offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Common Stock. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M under the Securities Exchange Act of 1934, pursuant to which such persons may bid for or purchase Common Stock for the purpose of stabilizing its market price. The Underwriters also may create a short position for the account of the Underwriters by selling more Common Stock in connection with the offering than they are committed to purchase from the Company, and in such case may purchase Common Stock in the open market following completion of this offering to cover all or a portion of such short position. The Underwriters may also cover all or a portion of such short position, up to 435,000 shares of Common Stock, by exercising the Underwriters' over-allotment option referred to above. In addition, Montgomery Securities, on behalf of the Underwriters, may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in this offering), for the account of the other Underwriters, the selling concession with respect to Common Stock that is distributed in this offering but subsequently purchased for the account of the Underwriters in the open market. Any of the transactions described in this paragraph may result in the maintenance of the price of the Common Stock at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time. The Representatives have informed the Company that the Underwriters do not expect to make sales of Common Stock offered by this Prospectus to accounts over which they exercise discretionary authority in excess of 5% of the number of shares of Common Stock offered hereby. In recognition of financial advisory services provided to the Company prior to this offering, the Company has agreed to issue to each of Montgomery Securities and Ladenburg Thalmann & Co. Inc. warrants (the "Warrants") to purchase 67,500 shares of Common Stock, exercisable for a period of five years commencing on the date of this offering, at a price equal to 120% of the initial offering price, subject to adjustment in certain events. Each Warrant contains certain registration rights relating to the shares issuable thereunder. The Company also has agreed to issue warrants to purchase an aggregate of 15,000 shares of Common Stock to LP Associates, William Russell and Michael Press as a finder's fee in connection with this offering. These warrants will contain identical terms to the Warrants. Prior to this offering, there has been no public trading market for the Common Stock. Consequently, the initial public offering price of the Common Stock has been determined by negotiations between the Company and the Representatives. Among the factors considered in such negotiations were the history of, and the prospects for, the Company and the industry in which the Company competes, an assessment of the Company's management, its financial conditions, its past and present earnings and the trend of such earnings, the prospects for future earnings of the Company, the present state of the Company's development, the general condition of the economy and the securities markets at the time of this offering and the market prices of and demand for publicly traded common stock of comparable companies in recent periods. 49 LEGAL MATTERS The validity of the shares offered will be passed upon for the Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York. EXPERTS The consolidated financial statements of the Company as of November 30, 1995 and 1996 and for each of the three years in the period ended November 30, 1996 included in this Prospectus have been included herein in reliance on the report, which includes an explanatory paragraph relating to the restatement of such financial statements, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined financial statements of Manhattan Limousine as of September 30, 1996 and for the year ended September 30, 1996 included in this Prospectus have been included herein in reliance on the report, which includes an explanatory paragraph relating to the restatement of such financial statements, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) as of and for the years ended December 31, 1994 and December 31, 1995, included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand, Chartered Accountants and Registered Auditors, given on the authority of that firm as experts in accounting and auditing. The financial statements of Camelot Barthropp Limited (formerly Speed 6060 Limited) as of December 31, 1995 and for the period from August 4, 1995 to December 31, 1995, included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand, Chartered Accountants and Registered Auditors, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act and the rules and regulations promulgated thereunder, with respect to the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained in this Prospectus concerning the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete with respect to each such contract, agreement or document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matters involved, and each such statement shall be deemed qualified by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement or any part thereof may be obtained from such office, upon payment of the fees prescribed by the Commission. The Commission maintains a Web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that submit electronic filings to the Commission. 50 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CAREY INTERNATIONAL, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Pro Forma Balance Sheet as of February 28, 1997........................... F-3 Pro Forma Statement of Operations for three months ended February 28, 1997..................................................................... F-4 Pro Forma Statement of Operations for the year ended November 30, 1996.... F-5 Notes to Pro Forma Consolidated Financial Statements...................... F-6 HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS Unaudited Consolidated Financial Statements Balance Sheet as of February 28, 1997..................................... F-8 Statements of Operations for three months ended February 29, 1996 and February 28, 1997........................................................ F-9 Statements of Cash Flows for three months ended February 29, 1996 and February 28, 1997........................................................ F-10 Note to Consolidated Financial Statements................................. F-11 Audited Consolidated Financial Statements Report of Independent Accountants......................................... F-15 Balance Sheets as of November 30, 1995 and 1996........................... F-16 Statements of Operations for the years ended November 30, 1994, 1995 and 1996..................................................................... F-17 Statements of Changes in Stockholders' Equity for the years ended November 30, 1994, 1995 and 1996................................................................. F-18 Statements of Cash Flows for the years ended November 30, 1994, 1995 and 1996..................................................................... F-19 Notes to Consolidated Financial Statements................................ F-20 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK, LTD. AND AFFILIATE Combined Financial Statements Report of the Independent Accountants..................................... F-36 Balance Sheets as of September 30, 1996 and February 28, 1997 (unaudited).............................................................. F-37 Statements of Operations for the year ended September 30, 1996 and the five months ended February 28, 1997 (unaudited)............................................ F-38 Statements of Cash Flows for the year ended September 30, 1996 and the five months ended February 28, 1997 (unaudited)............................................ F-39 Notes to Combined Financial Statements.................................... F-40 CAMELOT BARTHROPP LIMITED Audited Financial Statements Report of the Independent Accountants..................................... F-46 Statement of Operations for the period from August 4, 1995 to December 31, 1995..................................................................... F-47 Balance Sheet at December 31, 1995........................................ F-48 Notes to the Financial Statements......................................... F-49 SPEED 6060 LIMITED Audited Financial Statements Report of the Independent Accountants..................................... F-58 Statements of Operations for the years ended December 31, 1994 and 1995... F-59 Balance Sheets at December 31, 1994 and 1995.............................. F-60 Notes to the Financial Statements......................................... F-61
F-1 PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The Pro Forma Consolidated Balance Sheet as of February 28, 1997 and the Pro Forma Consolidated Statement of Operations for the year ended November 30, 1996 and for the three months ended February 28, 1997 are based on the historical consolidated financial statements of Carey International, Inc. and subsidiaries (the "Company"), Manhattan International Limousine Network Ltd. and Affiliate ("Manhattan Limousine") and Camelot Barthropp Limited. The Pro Forma Consolidated Balance Sheet has been prepared assuming the acquisition of Manhattan Limousine occurred on February 28, 1997. For purposes of the Pro Forma Balance Sheet, the Combined Balance Sheet of Manhattan Limousine as of December 31, 1996, its most recent quarter-end, has been combined with the Consolidated Balance Sheet of the Company as of February 28, 1997. The Pro Forma Consolidated Statement of Operations for the year ended November 30, 1996 and for the three months ended February 28, 1997 have been prepared assuming the acquisitions of Camelott Barthropp Limited and Manhattan Limousine occurred on December 1, 1995. For purposes of the Pro Forma Consolidated Statements of Operations for the year ended November 30, 1996 and the three months ended February 28, 1997, Manhattan Limousine's Statement of Operations for the year ended September 30, 1996 has been combined with the Consolidated Statement of Operations of the Company for the year ended November 30, 1996 and Manhattan Limousine's Statement of Operations for the three months ended December 31, 1996 has been combined with the Consolidated Statement of Operations of the Company for the three months ended February 28, 1997. The Pro Forma Consolidated Statements of Operations also reflect the issuance of 2,192,695 shares of Common Stock (at the estimated initial public offering price of $11.00 per share, net of estimated underwriting discounts) required to: (i) repay certain existing debt of the Company, (ii) pay the cash portion of the purchase price for Manhattan Limousine, (iii) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, and (iv) redeem certain preferred stock of the Company. The Pro Forma Consolidated Statement of Operations also reflects the issuance of an aggregate of 2,821,253 shares of Common Stock in connection with (i) the acquisition of Manhattan Limousine (at the estimated initial public offering price of $11.00 per share), (ii) the issuance of shares of Common Stock as part of the Recapitalization and (iii) the assumed conversion of certain debt into Common Stock upon the closing of the initial public offering. These 5,013,948 shares are assumed to have been issued, the debt repaid or converted and the preferred stock redeemed at the beginning of the period presented, and thus interest expense attributable to such debt has been eliminated. The Pro Forma Consolidated Balance Sheet reflects the assumed issuance as of February 28, 1997 of 2,900,000 shares of Common Stock in this offering at the estimated initial public offering price of $11.00 per share, and the application of the proceeds (net of estimated underwriting discounts and offering expenses payable by the Company) to: (i) repay certain existing debt of the Company, (ii) pay the cash portion of the purchase price for the acquisition of Manhattan Limousine, (iii) repay certain debt assumed in connection with the acquisition of Manhattan Limousine and (iv) redeem certain preferred stock of the Company, with the remaining net proceeds added to working capital. The Pro Forma Consolidated Financial Statements do not purport to represent what the Company's actual results of operations or financial position would have been had the acquisitions occurred as of such dates, or to project the Company's results of operations or financial position for any period or date, nor does it give effect to any matters other than those described in the notes thereto. In addition, the allocation of purchase price to the assets and liabilities of Manhattan Limousine is preliminary and the final allocation may differ from the amounts reflected herein. The Pro Forma Consolidated Financial Statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. F-2 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1997 ------------------------------------------------------------------------------------------- ACTUAL ------------------------ MANHATTAN ACQUISITION RECAPITALIZATION OFFERING COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(1) PRO FORMA ----------- ----------- ----------- ---------------- -------------- ----------- ASSETS Cash and cash equivalents............ $ 1,458,633 $ 24,932 $ (24,932)(4) $ -- $28,369,224 $ 7,396,580 (7,607,622) (7,060,000) (3,747,703) (4,015,952)(6) Accounts receivable, net.................... 7,474,537 2,550,658 (2,550,658)(4) -- -- 7,474,537 Notes receivable from contracts, current portion................ 434,562 478,707 -- -- -- 913,269 Prepaid expenses and other current assets... 2,663,215 51,499 -- -- (1,227,563) 1,487,151 ----------- ----------- ----------- ---------- ----------- ----------- Total current assets............. 12,030,947 3,105,796 (2,575,590) -- 4,710,384 17,271,537 Fixed assets, net....... 3,179,839 735,108 1,250,000 (5) -- -- 5,164,947 Notes receivable from contracts, excluding current portion........ 1,256,900 7,498,445 -- -- -- 8,755,345 Franchise rights, net... 5,289,286 -- -- -- -- 5,289,286 Trade name and contract rights, net............ 6,637,275 -- -- -- -- 6,637,275 Goodwill, net........... 7,230,853 -- 19,677,031 (5) -- -- 26,907,884 Deferred tax assets..... 2,461,573 -- -- -- -- 2,461,573 Deposits and other assets................. 1,291,556 1,227,814 (1,204,927)(4) -- (99,439)(3) 1,215,004 ----------- ----------- ----------- ---------- ----------- ----------- Total assets........ $39,378,229 $12,567,163 $17,146,514 $ -- $ 4,610,945 $73,702,851 =========== =========== =========== ========== =========== =========== LIABILITIES AND STOCK- HOLDERS' EQUITY Current portion of notes payable................ $ 3,967,163 $ 2,769,013 $(1,685,964)(4) $ -- $(3,193,148) $ 5,489,026 4,740,000 (5) (908,038) (200,000)(2) Payable to seller....... -- -- 7,060,000 (5) -- (7,060,000) -- Current portion of capital leases......... 210,227 -- -- -- -- 210,227 Current portion of subordinated notes payable................ 660,000 -- -- -- (660,000)(6) -- Accounts payable and accrued expenses....... 8,222,819 4,375,872 (182,000)(4) -- (925,339) 11,491,352 ----------- ----------- ----------- ---------- ----------- ----------- Total current liabilities........ 13,060,209 7,144,885 9,932,036 -- (12,946,525) 17,190,605 Notes payable, excluding current portion........ 5,527,830 2,445,743 520,000 (5) -- (4,414,474) 1,039,434 (200,000)(2) (2,839,665) Capital leases, excluding current portion................ 679,215 -- -- -- -- 679,215 Subordinated notes payable, excluding current portion........ 5,120,000 -- -- (4,867,548)(6) (252,452)(6) -- Deferred rent and other long-term liabilities.. 74,307 866,401 (466,624)(4) -- -- 474,084 Deferred tax liabilities............ 1,444,163 -- -- -- -- 1,444,163 Deferred revenue........ 6,628,564 6,871,236 -- -- -- 13,499,800 Stockholders' equity: Preferred stock....... 1,115,400 -- -- (775,050)(6) (340,350)(6) -- Common stock.......... 6,558 1,100 (1,100)(5) 25,600 (6) 29,000 63,770 2,182 (5) 430 (2) Additional paid in capital.............. 7,357,064 176,940 (176,940)(5) 5,616,998 (6) 28,038,000 41,046,300 2,397,818 (5) (2,763,150)(6) 399,570(2) Accumulated deficit... (1,635,081) (4,939,142) 4,939,142 (4,5) -- (99,439)(3) (1,734,520) ----------- ----------- ----------- ---------- ----------- ----------- Total stockholders' equity............. 6,843,941 (4,761,102) 7,161,102 4,867,548 25,264,061 39,375,550 ----------- ----------- ----------- ---------- ----------- ----------- Total liabilities and stockholders' equity........... $39,378,229 $12,567,163 $17,146,514 $ -- $ 4,610,945 $73,702,851 =========== =========== =========== ========== =========== ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-3 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997 ------------------------------------------------------------------------------------ ACTUAL ----------------------- MANHATTAN ACQUISITION RECAPITALIZATION OFFERING COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ----------- ---------- ----------- ---------------- ----------- ----------- Revenue, net............ $14,141,383 $5,471,384 $ -- $ -- $ -- $19,612,767 Cost of revenue......... 9,756,260 3,393,076 -- -- -- 13,149,336 ----------- ---------- --------- -------- -------- ----------- Gross profit.......... 4,385,123 2,078,308 -- -- -- 6,463,431 Selling, general and administrative expense................ 3,819,432 1,491,857 (46,865)(7) -- 37,500 (12) 5,503,401 201,477 (8) -- ----------- ---------- --------- -------- -------- ----------- Operating income (loss)............... 565,691 586,451 (154,612) -- (37,500) 960,030 Other income (expense) Interest expense...... (392,347) (224,810) (28,281)(9) 125,000(11) 379,199 (12) (141,239) Interest and other income............... 147,285 16,500 -- -- -- 163,785 ----------- ---------- --------- -------- -------- ----------- Income before provision for income taxes....... 320,629 $ 378,141 $(182,893) $125,000 $341,699 982,576 ========== ========= ======== ======== Provision for income taxes.................. 153,223 412,682 (13) ----------- ----------- Net income ............. $ 167,406 $ 569,894 =========== =========== Pro forma net income per common share........... $ .10 (14) =========== Weighted average shares outstanding............ 5,971,960 (14) ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-4 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1996 -------------------------------------------------------------------------------------------------- ACTUAL ----------------------------------- CAMELOT BARTHROPP MANHATTAN ACQUISITION RECAPITALIZATION OFFERING COMPANY LIMITED LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ----------- --------- ----------- ----------- ---------------- ----------- ----------- Revenue, net............ $59,505,698 $ 938,656 $18,438,547 $ -- $ -- $ -- $78,882,901 Cost of revenue......... 40,438,449 865,336 11,040,017 -- -- -- 52,343,802 ----------- --------- ----------- -------- -------- ---------- ----------- Gross profit.......... 19,067,249 73,320 7,398,530 -- -- -- 26,539,099 Selling, general and administrative expense................ 15,077,553 211,097 5,821,899 (874,475)(7) -- 150,000 (12) 21,191,984 805,910 (8) -- ----------- --------- ----------- -------- -------- ---------- ----------- Operating income (loss)............... 3,989,696 (137,777) 1,576,631 68,565 -- (150,000) 5,347,115 Other income (expense) Interest expense...... (1,704,187) (21,375) (881,854) (76,608)(9) 500,000(11) 1,504,370 (12) (679,654) Interest and other income............... 426,349 -- 66,000 (66,000)(10) -- -- 426,349 ----------- --------- ----------- -------- -------- ---------- ----------- Income before provision (benefit) for income taxes.................. 2,711,858 $(159,152) $ 760,777 $(74,043) $500,000 $1,354,370 5,093,810 ========= =========== ======== ======== ========== Provision (benefit) for income taxes........... (104,246) 2,154,682 (13) ----------- ----------- Net income ............. $ 2,816,104 $ 2,939,128 =========== =========== Pro forma net income per common share........... $ .49 (14) =========== Weighted average shares outstanding............ 6,023,785 (14) ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-5 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS To date, all of the Company's acquisitions have been accounted for under the purchase method of accounting with the results of the acquired companies included in the Company's statements of operations beginning on the date of the acquisition. (1) Gives effect to the sale by the Company of 2,900,000 shares of Common Stock in this offering (the "IPO") at an estimated offering price of $11.00 per share. After estimated underwriting discounts and commissions and offering expenses of $3.8 million, of which approximately $300,000 has been paid, the estimated net proceeds of $28.4 million will be applied to: (i) the repayment of certain existing debt of the Company of $7.6 million, (ii) the repayment of the cash portion of the purchase price for the acquisition of Manhattan Limousine of $7.1 million, (iii) the repayment of $3.7 million of debt assumed upon the acquisition of Manhattan Limousine and (iv) the redemption of certain preferred stock of the Company for $3.1 million and the repayment of subordinated debt of approximately $912,000 as part of the Recapitalization (see Note 6, below). The balance of the net proceeds, estimated to be approximately $5.9 million, will be added to working capital. (2) Gives effect to the assumed conversion of $400,000 of debt into Common Stock at the election of the debt holder. (3) Reflects the elimination of approximately $99,000 of capitalized financing fees related to certain debt repaid out of the net proceeds of the offering. (4) Gives effect to the retention by the stockholders of Manhattan Limousine of certain assets and liabilities consisting of: (i) cash of approximately $25,000, (ii) $2.6 million of accounts receivable, net, (iii) $1.2 million of deposits and other assets, (iv) debt of $1.7 million collateralized by accounts receivable and (v) certain liabilities of approximately $649,000. (5) Gives effect to the acquisition of Manhattan Limousine for $14.2 million, as if such acquisition occurred on February 28, 1997. The adjustments reflect: (i) a cash payment of $7.1 million, (ii) promissory notes issued in the aggregate amount of $4.7 million and (iii) the issuance of $2.4 million of Common Stock. After taking into account all acquisition adjustments, the liabilities of Manhattan Limousine exceed its assets. Accordingly, the allocation of the purchase price to the estimated fair value of the assets and liabilities assumed will result in the recognition by the Company of $19.7 million in goodwill. As part of the fair value allocation, the Company valued the facility at which Manhattan Limousine operates at its estimated fair market value of $1.1 million and certain radio frequencies used in the conduct of Manhattan Limousine's business at their estimated fair market value of $200,000. In January 1997, Manhattan Limousine increased the mortgage on this facility by approximately $520,000 to $800,000. The entire mortgage was included in the acquired liabilities. (6) Gives effect to the Recapitalization, which will be implemented upon the closing of the IPO. Pursuant to the Recapitalization: (i) the $2.0 million subordinated convertible note dated September 1, 1991, and $2.9 million of the $3.8 million subordinated note dated July 30, 1992 will be converted or exchanged for an aggregate of 1,046,559 shares of Common Stock, (ii) the Series A Preferred Stock will be redeemed in part for $2.1 million and converted in part into 86,003 shares of Common Stock, (iii) all of the Series F and 3,000 shares of the Series G Preferred Stock will be redeemed for $1.0 million and (iv) the remaining Series G Preferred Stock and the Series B Preferred Stock will be converted into an aggregate of 1,427,509 shares of Common Stock. (7) Gives effect to the elimination from the Combined Statement of Operations of Manhattan Limousine of: (i) a one-time charge related to advances to a non-combined affiliate of Manhattan Limousine which were approximately $7,000 and $218,000 for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, (ii) redundant administrative and other costs immediately identifiable at the time of the acquisition (relating to salary and benefits of a stockholder of Manhattan Limousine and members of his family which will not be incurred by the Company) of approximately $40,000 and $591,000 for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, and (iii) approximately $65,000 for the year ended November 30, 1996 of financing fees associated with debt retained by a stockholder of Manhattan Limousine. F-6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (8) Gives effect to (i) the amortization of approximately $164,000 and $656,000 for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, of goodwill recognized with respect to the acquisition of Manhattan Limousine, and (ii) $37,500 and $150,000 for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, of consulting fees to be paid pursuant to a consulting agreement entered into in connection with the acquisition of Manhattan Limousine. Goodwill will be amortized over a 30-year period. (9) Gives effect to an increase in interest associated with the promissory notes in the aggregate amount of $4.8 million used to acquire Manhattan Limousine and the increase of $520,000 in Manhattan Limousine's mortgage note in January 1997, both of which will be repaid out of the proceeds of the offering. Also gives effect to a decrease in interest expense associated with the debt retained by a stockholder of Manhattan Limousine. (10) Gives effect to the elimination of interest income related to a note receivable retained by a stockholder of Manhattan Limousine. (11) Reflects the elimination of approximately $125,000 and $500,000 for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, of interest on certain debt converted into Common Stock. (12) Reflects directors' and officers' insurance costs the Company anticipates to incur in connection with being a public registrant and the elimination of approximately $379,000 and $1.5 million for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, of interest on certain current and long-term debt repaid from the proceeds of this offering or converted into Common Stock. (13) Reflects the estimated provision for income taxes at an assumed rate of 42.0% and 42.3% for the three months ended February 28, 1997 and the year ended November 30, 1996, respectively, after giving consideration to nondeductible goodwill expense. (14) Pro forma net income per share was computed by dividing the pro forma net income for the three months ended February 28, 1997 and the year ended November 30, 1996 by the pro forma weighted average number of shares outstanding for each of the periods. Pro forma weighted average shares outstanding include common share equivalents, and give retroactive effect as of December 1, 1995 for the following: (i) the repayment of certain existing debt of the Company, (ii) the payment of the cash and stock portions of the purchase price for the acquisition of Manhattan Limousine, (iii) the repayment of $3.7 million of debt assumed upon the acquisition of Manhattan Limousine, (iv) the redemption of certain preferred stock of the Company for $3.1 million and the repayment of subordinated debt of the Company in the principal amount of approximately $912,000 as part of the Recapitalization and (v) the assumed conversion of $400,000 of convertible debt, the conversion of $4,867,546 of subordinated debt and the partial conversion of the Series A and G Preferred Stock into Common Stock. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the 12 months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $11.00 per share, have been included in the calculation of pro forma net income per share. All share numbers give effect to the reverse stock split of one-for-2.3255 that is part of the Recapitalization. F-7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
FEBRUARY 28, 1997 ------------ (UNAUDITED) ASSETS Cash and cash equivalents......................................... $ 1,458,633 Accounts receivable, net of allowance for doubtful accounts of $546,000......................................................... 7,474,537 Notes receivable from contracts, current portion.................. 434,562 Prepaid expenses and other current assets......................... 2,663,215 ----------- Total current assets.......................................... 12,030,947 Fixed assets, net of accumulated depreciation and amortization of $2,593,000....................................................... 3,179,839 Notes receivable from contracts, excluding current portion........ 1,256,900 Franchise rights, net of accumulated amortization of $1,788,000... 5,289,286 Trade name, trademark and contract rights, net of accumulated amortization of $1,020,000....................................... 6,637,275 Goodwill and other intangible assets, net of accumulated amortization of $894,000......................................... 7,230,853 Deferred tax assets............................................... 2,461,573 Deposits and other assets......................................... 1,291,556 ----------- Total assets................................................ $39,378,229 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable.................................. $ 3,967,163 Current portion of capital leases................................. 210,227 Current portion of subordinated notes payable..................... 660,000 Accounts payable and accrued expenses............................. 7,297,480 Accrued offering costs............................................ 925,339 ----------- Total current liabilities..................................... 13,060,209 Notes payable, excluding current portion.......................... 5,527,830 Capital leases, excluding current portion......................... 679,215 Subordinated notes payable, excluding current portion............. 5,120,000 Deferred tax and other long-term liabilities...................... 1,518,470 Deferred revenue.................................................. 6,628,564 Commitments and contingencies Stockholders' equity: Preferred stock................................................. 1,115,400 Class A common stock, $.01 par value; 314,000 authorized shares, none issued and outstanding.................................... -- Common stock, $.01 par value; 9,512,950 authorized shares, 655,773 issued and outstanding shares.......................... 6,558 Additional paid-in capital...................................... 7,357,064 Accumulated deficit............................................. (1,635,081) ----------- Total stockholders' equity.................................... 6,843,941 ----------- Total liabilities and stockholders' equity.................. $39,378,229 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-8 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED -------------------------- FEBRUARY 29, FEBRUARY 28, 1996 1997 ------------ ------------ (UNAUDITED) Revenue, net....................................... $11,557,885 $14,141,383 Cost of revenue.................................... 7,903,979 9,756,260 ----------- ----------- Gross profit................................... 3,653,906 4,385,123 Selling, general and administrative expense........ 3,360,726 3,819,432 ----------- ----------- Operating income............................... 293,180 565,691 Other income (expense): Interest expense............................... (422,222) (392,347) Interest income................................ 23,168 28,174 Gain on sales of fixed assets.................. 59,399 119,111 ----------- ----------- Income (loss) before provision for income taxes.... (46,475) 320,629 Provision for income taxes......................... 11,722 153,223 ----------- ----------- Net income (loss).................................. $ (58,197) $ 167,406 =========== =========== Pro forma net income per common share.............. $ .07 =========== Weighted average common shares outstanding......... 3,518,083 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-9 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED ------------------------- FEBRUARY 29, FEBRUARY 28, 1996 1997 ------------ ------------ (UNAUDITED) Cash flows from operating activities: Net income (loss).................................. $ (58,197) $ 167,406 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization of fixed assets.... 217,307 267,496 Amortization of intangible assets................ 248,721 239,760 Gain on sales of fixed assets.................... (59,399) (119,111) Provision for deferred taxes..................... -- 46,500 Change in deferred revenue....................... 426,999 447,417 Changes in operating assets and liabilities Accounts receivable............................ 1,442,819 2,667,195 Notes receivable from contracts................ (493,135) (519,510) Prepaid expenses, deposits and other assets.... (128,394) (695,335) Accounts payable and accrued expenses.......... (1,897,456) (2,829,078) Deferred rent and other long-term liabilities.. (2,791) (36,974) ---------- ---------- Net cash used in operating activities........ (303,526) (364,234) ---------- ---------- Cash flows from investing activities: Proceeds from sales of fixed assets................ 194,540 274,949 Purchases of fixed assets.......................... (62,406) (145,554) Acquisitions of chauffeured vehicle service compa- nies.............................................. (1,120,417) (35,812) ---------- ---------- Net cash provided by (used in) investing ac- tivities.................................... (988,283) 93,583 ---------- ---------- Cash flows from financing activities: Principal payments under capital lease obliga- tions............................................. (101,778) (50,016) Payments of notes payable.......................... (798,571) (1,224,976) Proceeds from notes payable........................ 1,085,000 400,000 Payment of offering costs.......................... -- (150,000) Redemption of Series E preferred stock............. (97,500) -- ---------- ---------- Net cash provided by (used in) financing ac- tivities.................................... 87,151 (1,024,992) ---------- ---------- Net decrease in cash and cash equivalents............ (1,204,658) (1,295,643) Cash and cash equivalents at beginning of period..... 1,438,659 2,754,276 ---------- ---------- Cash and cash equivalents at end of period........... $ 234,001 $1,458,633 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-10 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1.BACKGROUND AND ORGANIZATION General Carey International, Inc. (the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in the following cities: New York (Carey Limousine N.Y., Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited), Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company generates revenues from licensing the "Carey" name, and from providing central reservations, billing, sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated locations nor licensees. Acquisitions and licensees The Company is engaged in a program of acquiring chauffeured vehicle service businesses, including licensees operating under the Carey name and trademark. These acquisitions are accounted for as purchases. The carrying value of the assets acquired is determined by the negotiated purchase price. In addition to acquiring licensees operating under the Carey name, the Company has acquired chauffeured vehicle service businesses in cities in which the Company operates. In 1995, these acquisitions included chauffeured vehicle service companies operating in Washington, D.C., Miami, West Palm Beach and San Francisco. In 1996, the Company acquired a chauffeured vehicle service company in London, England. Reverse stock split On February 25, 1997, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock in an initial public offering (the "IPO"). The Board of Directors, at the same meeting and subject to stockholder approval, authorized a reverse stock split of approximately one-for-2.3255 of the outstanding shares of the Company's common stock. A majority of the Company's stockholders have approved the reverse stock split. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. The Board of Directors also authorized a Recapitalization Plan (see Note 7) on February 25, 1997. 2.BASIS OF PRESENTATION The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements and notes do not include all of the disclosures made in the Company's consolidated financial statements for the years ended November 30, 1994, 1995 and 1996, which should be read in conjunction with these statements. The financial information included herein has not been audited. However, F-11 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED) in the opinion of management, the statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of the periods reflected. The results for these periods are not necessarily indicative of the results for the full fiscal year. Pro forma net income per common share Consistent with Staff Accounting Bulletin 1B-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the following matters pursuant to the Recapitalization (see Note 7). The recalculated net income per common share is determined by (i) adjusting net income to reflect the elimination in interest expense, net of taxes, resulting from the conversion of $4,867,546 of subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from the conversion of such debt, as well as the partial conversion of the Series A and G Preferred Stock. 3.ACQUISITIONS On February 29, 1996, the Company acquired the common stock of a chauffeured vehicle service company in London, England for approximately $1,500,000. The acquisition was financed through the incurrence of $950,000 in debt and a payment of $550,000. Additional contingent consideration of up to $1,000,000 may be payable with respect to each of the two years in the period ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of February 28, 1997, the Company has paid $278,304 in contingent consideration in the acquisition of the London company. On March 28, 1997, the Company made an additional payment of approximately $270,000 for contingent consideration in the acquisition of the London company. In addition, the Company is required to pay a standard commission to the seller of the acquired chauffeured vehicle service company for business referral, which is expensed as incurred. The Company has historically accounted for all of its acquisitions as purchases. The net assets acquired and results of operations have been included in the financial statements as of and from, respectively, the effective dates of the acquisitions. Total consideration is allocated to the assets acquired based upon their estimated fair values with any remaining consideration, including contingent consideration when paid, allocated to either franchise rights or goodwill. In the periods ended February 29, 1996 and February 28, 1997, the following acquisition activity was recorded by the Company:
THREE MONTHS ENDED ------------------------- FEBRUARY 29, FEBRUARY 28, 1996 1997 ------------ ------------ Fair Value of Net Assets and Liabilities Ac- quired: Receivables and other assets..................... $ 632,554 $ -- Fixed assets..................................... 928,377 -- Franchise rights................................. 16,072 -- Goodwill......................................... 65,865 35,812 Trade liabilities................................ (522,451) -- ---------- ------- Fair value of assets and liabilities acquired.... $1,120,417 $35,812 ========== ======= Cash payments (exclusive of $223,695 cash ac- quired in 1996)................................. $1,120,417 $35,812 ========== =======
4.COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial position, the results of operations or cash flows of the Company. F-12 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED) The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge. The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. A class has not yet been certified in this case. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. The Company has agreed to indemnify and defend its offices and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company has reached a tentative settlement with the plaintiff and plaintiff's counsel, which is subject to court approval and acceptance by the proposed class. The Company does not believe that this litigation will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. 5.NOTES PAYABLE Pursuant to an agreement with the lender dated March 24, 1997, the Company extended the maturity dates of the $750,000 and $200,000 bank lines of credit to March 31, 1998. The borrowings under these lines of credit have accordingly been included in non-current notes payable in the accompanying consolidated balance sheet. 6.NET INCOME PER COMMON SHARE Net income per common share, on a historical basis, are as follows:
THREE MONTHS ENDED ------------------------- FEBRUARY 29, FEBRUARY 28, 1996 1997 ------------ ------------ Net income (loss) available to common sharehold- ers............................................ $ (58,197) $ 167,406 Weighted average common shares outstanding...... 2,419,185 2,430,436 Net income (loss) per common share.............. $ (.02) $ .07
Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of shares issuable upon (a) the conversion of Series B, F and G preferred stock and (b) the assumed exercise of vested outstanding stock options and warrants. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the twelve months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $11.00 per share, have been included in the calculation of net income per common share. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 simplifies the existing earnings per share (EPS) computations under Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises disclosure requirements, and increases the comparability of EPS data on an international basis. In simplifying the EPS computations, the presentation of primary EPS is replaced with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS. In addition, FAS 128 requires dual presentation of basic and diluted EPS. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997. The Company's pro forma basic EPS under FAS 128 would have been $0.26 and dilutive EPS under FAS 128 would not differ significantly from the reported pro forma net income per share. F-13 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED) 7.RECAPITALIZATION AND EQUITY PLANS On February 25, 1997, pursuant to an agreement reached in May 1996, the Board of Directors authorized a recapitalization (the "Recapitalization"), which will be implemented at the time of the IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 will be converted or exchanged for 1,046,559 shares of common stock and payment of $912,454. The Series A preferred stock will be converted in part into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of the Series G preferred stock will be redeemed for an aggregate of $1,000,000. The remaining preferred stock will be converted into 1,427,509 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 will be converted in part into 2,560,071 shares of common stock and repaid or redeemed in part for $4,015,952 in cash. All of the cash amounts will be paid out of the proceeds of the IPO. On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock are reserved for issuance under the 1997 Plan. The Board of Directors also granted options to purchase at the IPO price a total of 411,500 shares of common stock under the 1997 Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A total of 100,000 shares of common stock of the Company are reserved for issuance under the Directors' Plan. Options to purchase at the IPO price a total of 22,500 shares of common stock will be granted under the Directors' Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors approved amendments to the Company's Certificate of Incorporation increasing the number of authorized shares of the Company's Common Stock from 9,512,950 to 20,000,000, and increasing the number of authorized shares of the Company's preferred stock from 173,050 to 1,000,000. 8.SUBSEQUENT EVENT On March 1, 1997, the Company entered into an agreement to purchase the stock of Manhattan International Limousine Network Ltd. and an affiliated company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of the largest providers of chauffeured vehicle services in the New York metropolitan area. The Company expects to consummate the acquisition at the time of the IPO. If the acquisition of Manhattan Limousine is not completed by May 20, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. F-14 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. We have audited the accompanying consolidated balance sheets of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carey International, Inc. and Subsidiaries as of November 30, 1995, and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles. As discussed in Note 16 to the consolidated financial statements, the accompanying consolidated balance sheet as of November 30, 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended November 30, 1995 have been restated for a change in the revenue recognition method. Washington, D.C. January 31, 1997, except for Notes 1, 2 and 18 as to which the date is March 1, 1997 F-15 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- ASSETS Cash and cash equivalents............................ $ 1,438,659 $ 2,754,276 Accounts receivable, net of allowance for doubtful accounts of $294,000 in 1995 and $535,000 in 1996... 9,023,016 10,141,732 Notes receivable from contracts, current portion..... 659,609 402,751 Prepaid expenses and other current assets............ 364,741 1,936,961 ----------- ----------- Total current assets............................. 11,486,025 15,235,720 Fixed assets, net of accumulated depreciation of $2,779,000 in 1995 and $2,619,000 in 1996........... 2,185,071 3,379,246 Notes receivable from contracts, excluding current portion............................................. 193,298 769,201 Franchise rights, net of accumulated amortization of $1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264 Trade name, trademark and contract rights, net of accumulated amortization of $781,000 in 1995 and $973,000 in 1996.................................... 6,876,578 6,685,135 Goodwill and other intangible assets, net of accumulated amortization of $574,000 in 1995 and $827,000 in 1996.................................... 7,113,684 7,262,203 Deferred tax assets.................................. 892,993 2,461,573 Deposits and other assets............................ 1,615,316 1,384,787 ----------- ----------- Total assets................................... $35,896,921 $42,526,129 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable..................... $ 4,585,703 $ 5,131,227 Current portion of capital leases.................... 206,031 199,224 Current portion of subordinated notes payable........ 100,000 440,000 Accounts payable and accrued expenses................ 8,000,972 11,196,949 ----------- ----------- Total current liabilities........................ 12,892,706 16,967,400 Notes payable, excluding current portion............. 7,361,749 5,188,742 Capital leases, excluding current portion............ 74,879 663,030 Subordinated notes payable, excluding current portion............................................. 5,780,000 5,340,000 Deferred rent and other long-term liabilities........ 148,195 111,281 Deferred tax liabilities............................. 1,001,480 1,402,611 Deferred revenue..................................... 4,726,134 6,181,147 Commitments and contingencies Stockholders' equity: Preferred stock.................................... 1,212,900 1,115,400 Class A common stock, $.01 par value; authorized 314,000 shares, none issued and outstanding....... Common stock, $.01 par value; authorized 9,512,950 shares, issued and outstanding, 655,773 shares.... 6,558 6,558 Additional paid-in capital......................... 7,357,064 7,357,064 Accumulated deficit................................ (4,664,744) (1,807,104) ----------- ----------- Total stockholders' equity....................... 3,911,778 6,671,918 ----------- ----------- Total liabilities and stockholders' equity..... $35,896,921 $42,526,129 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-16 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Revenue, net........................... $35,525,309 $43,483,947 $59,505,698 Cost of revenue........................ 24,953,904 29,942,961 40,438,449 ----------- ----------- ----------- Gross profit......................... 10,571,405 13,540,986 19,067,249 Selling, general and administrative expense............................... 9,486,797 12,419,062 15,077,553 ----------- ----------- ----------- Operating income..................... 1,084,608 1,121,924 3,989,696 Other income (expense): Interest expense..................... (1,348,883) (1,682,884) (1,704,187) Interest income...................... 172,641 259,852 156,695 Gain (loss) on sale of fixed assets.. (18,359) 130,913 269,654 ----------- ----------- ----------- Income (loss) before provision for income taxes.......................... (109,993) (170,195) 2,711,858 Provision (benefit) for income taxes .. 19,000 25,000 (104,246) ----------- ----------- ----------- Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104 =========== =========== =========== Pro forma net income per common share.. $ .89 =========== Weighted average common shares outstanding........................... 3,510,020 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-17 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK -------------- SERIES A SERIES B SERIES E SERIES F SERIES G ADDITIONAL TOTAL PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PAID-IN ACCUMULATED STOCKHOLDERS' STOCK STOCK STOCK STOCK STOCK SHARES $ CAPITAL DEFICIT EQUITY --------- --------- --------- --------- --------- ------- ------ ---------- ----------- ------------- Balance at November 30, 1993........... $420,700 $95,800 $266,250 $100,000 $498,900 623,091 $6,231 $7,335,796 $(4,336,178) $4,387,499 Accretion of redeemable preferred stock.......... -- -- 8,750 -- -- -- -- (8,750) -- -- Redemption of Series E preferred stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500) Payment of accrued dividends...... -- -- (26,250) -- -- -- -- -- -- (26,250) Payment of Series E dividends...... -- -- -- -- -- -- -- -- (4,378) (4,378) Net loss........ -- -- -- -- -- -- -- -- (128,993) (128,993) -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1994........... 420,700 95,800 186,250 100,000 498,900 623,091 6,231 7,327,046 (4,469,549) 4,165,378 Accretion of redeemable preferred stock.......... -- -- 4,375 -- -- -- -- (4,375) -- -- Redemption of Series E preferred stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500) Payment of accrued dividends...... -- -- (30,625) -- -- -- -- -- -- (30,625) Issuance of stock.......... -- -- -- -- -- 32,682 327 34,393 -- 34,720 Net loss........ -- -- -- -- -- -- -- -- (195,195) (195,195) -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1995........... 420,700 95,800 97,500 100,000 498,900 655,773 6,558 7,357,064 (4,664,744) 3,911,778 Redemption of Series E preferred stock.......... -- -- (97,500) -- -- -- -- -- -- (97,500) Cumulative effect of currency translation.... -- -- -- -- -- -- -- -- 41,536 41,536 Net income...... -- -- -- -- -- -- -- -- 2,816,104 2,816,104 -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1996........... $420,700 $95,800 $ -- $100,000 $498,900 655,773 $6,558 $7,357,064 $(1,807,104) $6,671,918 ======== ======= ======== ======== ======== ======= ====== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-18 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization of fixed assets............................... 1,233,267 1,265,934 1,100,320 Amortization of intangible assets..... 641,309 712,348 1,062,406 (Gain) loss on sales of fixed assets.. 18,359 (130,913) (269,654) Deferred income tax benefit........... -- -- (1,370,557) Change in deferred revenue............ 184,220 237,306 1,455,013 Changes in operating assets and liabilities: Accounts receivable.................. (962,523) (2,516,952) (486,162) Notes receivable from contracts...... (519,155) 11,000 (1,052,838) Prepaid expenses, deposits and other assets.............................. (433,963) (192,666) (660,870) Accounts payable and accrued expenses............................ 679,233 3,389,540 2,003,427 Deferred rent and other long-term liabilities......................... (10,407) 87,490 (36,914) ----------- ----------- ----------- Net cash provided by operating activities......................... 701,347 2,667,892 4,560,275 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of fixed assets..... 172,747 565,510 862,980 Purchases of fixed assets.............. (445,967) (615,117) (1,134,910) Software development costs............. -- (203,529) -- Redemption of investment in affiliate.. -- 100,000 -- Acquisitions of chauffeured vehicle service companies, net of cash acquired.............................. (114,521) (3,949,393) (1,730,232) ----------- ----------- ----------- Net cash used in investing activities......................... (387,741) (4,102,529) (2,002,162) ----------- ----------- ----------- Cash flows from financing activities: Proceeds upon sale of notes receivable from independent operators............ 378,733 1,493,399 733,793 Principal payments under capital lease obligations........................... (384,181) (436,169) (243,485) Preferred stock dividends.............. (30,628) (30,625) -- Payment of notes payable............... (2,277,466) (2,658,521) (3,867,747) Proceeds from notes payable............ 1,119,515 3,106,808 2,232,443 Issuance of common stock............... -- 34,720 -- Redemption of Series E preferred stock................................. (62,500) (62,500) (97,500) ----------- ----------- ----------- Net cash provided by (used in) financing activities............... (1,256,527) 1,447,112 (1,242,496) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............................ (942,921) 12,475 1,315,617 Cash and cash equivalents at beginning of year................................ 2,369,105 1,426,184 1,438,659 ----------- ----------- ----------- Cash and cash equivalents at end of year................................... $ 1,426,184 $ 1,438,659 $ 2,754,276 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-19 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION General Carey International, Inc. (the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in the following cities: New York (Carey Limousine N.Y., Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited), Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company generates revenues from licensing the "Carey" name, and from providing central reservations, billing, sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated locations nor licensees. Acquisitions and franchises The Company is engaged in a program of acquiring chauffeured vehicle service businesses, including licensees operating under the Carey name and trademark. These acquisitions are accounted for as purchases. The carrying value of the assets acquired is determined by the negotiated purchase price. In addition to acquiring licensees operating under the Carey name, the Company has acquired chauffeured vehicle service businesses in cities in which the Company operates. In 1995, these acquisitions included chauffeured vehicle service companies operating in Washington, D.C., Miami, West Palm Beach and San Francisco. In 1996, the Company acquired a chauffeured vehicle service company in London, England. Reverse Stock Split On February 25, 1997, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock in an initial public offering (the "IPO"). The Board of Directors, at the same meeting and subject to stockholder approval, authorized a reverse stock split of approximately one-for-2.3255 of the outstanding shares of the Company's common stock. A majority of the Company's stockholders have approved the reverse stock split. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. The Board of Directors also authorized a Recapitalization (see Note 18) on February 25, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. F-20 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes receivable from contracts An important component of the Company's operating strategy involves the preferred use of non-employee independent operators chauffeuring their own vehicles rather than employee chauffeurs operating Company-owned vehicles. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle which he or she owns and for which he or she pays all of the maintenance and operating expenses, including gasoline. The Company, under the independent operator agreement, agrees to bill and collect all revenues and remit to the independent operator 60% to 65% of revenues, as defined in the agreement. Each new operator agrees to pay a one- time fee generally ranging from $30,000 to $45,000 to the Company under the terms of the independent operator agreement. Through 1996, the term of the independent operator agreement generally ranged from 10 years to perpetuity. (See "Revenue recognition"). The Company typically receives a promissory note from the independent operator as payment for the one-time fee due under the terms of the Standard Independent Operator Agreement (see Note 4) and records the note in notes receivable from contracts. The notes evidencing such financing generally were sold on a non-recourse basis by the Company to third party finance companies (see Note 11) in exchange for cash and promissory notes. Since September 1996, the Company has ceased selling notes to third parties. Such promissory notes due from finance companies have also been recorded in notes receivable from contracts in the consolidated balance sheets. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and notes receivable from contracts. The Company maintains its cash and cash equivalents with various financial institutions. In order to limit exposure to any one institution, the Company's cash equivalents are composed mainly of overnight repurchase agreements collateralized by U.S. Government securities. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographies. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of selected transactions. Notes receivable from contracts are also geographically dispersed and are supported by the underlying base of revenue serviced by each respective independent operator (see Notes 4 and 11). The Company performs ongoing evaluations of each independent operator's productivity and payment capacity and has utilized third-party financing to reduce credit exposure. Fixed assets Furniture, equipment, vehicles, leasehold improvements and land and building are stated at cost. Equipment under capital leases is stated at the lower of the present value of minimum lease payments or the fair market value at the inception of the lease. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the straight-line method over the estimated useful lives of the assets, generally three to five years. The building owned by the Company is depreciated over 40 years on a straight-line basis. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in results of operations. Intangible assets Effective September 1, 1991, the Company acquired the Carey name and trademark and the contract rights to all royalty fee payments by various Carey licensees for a purchase price of $7 million. These assets are held by Carey Licensing, Inc. and are being amortized over 40 years. F-21 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has acquired chauffeured vehicle service companies, all of which have been accounted for as purchases. For each business acquired which is a licensee of the Company, the excess of cost over the fair market value of the net assets acquired is allocated to franchise rights in the consolidated balance sheet. With respect to acquired businesses which are not licensees of the Company, the excess of cost over the net assets acquired is allocated to goodwill. Additional purchase price attributable to the operating performance of the acquired entities is recorded as goodwill or franchise rights when determined (see Note 13). Goodwill and franchise rights are amortized over 30 years using the straight-line method. Such amortization is included in selling, general and administrative expense in the consolidated statement of operations. The Company evaluates the recoverability of its intangible assets based on estimated undiscounted cash flows over the lesser of the remaining amortization periods or calculated lives, giving consideration to revenue expected to be realized. This determination is based on an evaluation of such factors as the occurrence of a significant change in the environment in which the business operates or the expected future net cash flows (undiscounted and without interest). There have been no adjustments to the carrying value of intangible assets resulting from this evaluation. Revenue recognition Chauffeured vehicle services--The Company's principal source of revenue is from chauffeured vehicle services provided by its operating subsidiaries. Such revenue, net of discounts, is recorded when such services are provided. The Company, through the Carey International Reservation System ("CIRS"), has a central reservation system capable of booking reservations on behalf of its licensees and affiliates. Under most circumstances, central reservations are billed by the Company to the customer when the Company receives a service invoice from the licensee or affiliate that provided the service. At such time, the Company also records the gross revenue for the transaction. Fees from licensees--The Company charges an initial license fee under its domestic license agreement and records the fee as revenue on signing of the agreement. The Company also charges its domestic licensees monthly franchise and marketing fees equal to stated percentages of monthly revenues, as defined in the licensing agreement. Monthly fees to domestic licensees are generally less than 10% of the licensee's monthly revenues. The Company records such fees as revenues as they are charged to the licensees. International licensees and the Company's domestic and international affiliates historically have not paid fees to the Company, but have instead given a discount on business referred to them through CIRS. Such discounts reduce the amount of service invoices to the Company from such licensees and affiliates for services provided to customers whose reservations have been booked and invoiced centrally by the Company. Independent operator fees--The Company enters into contracts with independent operators ("Standard Independent Operator Agreements") to provide chauffeured vehicle services exclusively to the Company's customers. When independent operator agreements are executed, the Company defers revenue equal to the amount of the one-time fees and recognizes the fees as revenue over the terms of the contracts or over 20 years for perpetual contracts. Upon termination of an independent operator agreement, the remaining deferred revenue associated with the specific contract, less any amounts due from the independent operator deemed uncollectible, is recognized as revenue. Income taxes The provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax liabilities or assets. Deferred income tax liabilities and assets are determined based on the differences between the financial statement and tax bases of liabilities and assets using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. F-22 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Pro forma net income per common share Consistent with Staff Accounting Bulletin 1B-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the following matters pursuant to the Recapitalization (see Note 18). The recalculated net income per common share is determined by (i) adjusting net income available to common shareholders to reflect the elimination in interest expense, net of taxes, resulting from the conversion of $4,867,546 of subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from the conversion of such debt, as well as the partial conversion of the Series A and G Preferred Stock. Stock-based compensation In October 1995, the Financial Accounting Standards Boards issued Statement of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock- Based Compensation, which is effective for the Company's financial statements for fiscal years beginning after December 15, 1995. SFAS 123 allows companies to either account for stock-based compensation under the new provisions of SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees. The Company will continue to apply the provisions of APB 25 and provide pro forma disclosure in the notes to the financial statements. Foreign operations The Consolidated Balance Sheets include foreign assets and liabilities of $3.7 million and $2.7 million as of November 30, 1996. The net effects of foreign currency transactions reflected in income were immaterial. Assets and liabilities of the Company's foreign operations are translated into United States dollars using exchange rates in effect at the balance sheet date and results of operations items are translated using the average exchange rate prevailing throughout the period. Reclassifications Certain accounts in 1994 and 1995 have been reclassified to conform with the 1996 presentation. 3. FEES FROM LICENSEES The total of all domestic license fees, franchise fees and marketing fees earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and $2,180,540, respectively. Amounts due from licensees of $46,520 and $143,041 at November 30, 1995 and 1996, respectively, are included in accounts receivable in the consolidated balance sheets of the Company. 4. TRANSACTIONS WITH INDEPENDENT OPERATORS The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in 1994, 1995 and 1996, respectively, as deferred revenue relating to fees from new agreements with independent operators. Amounts of deferred revenue recognized as revenues in 1994, 1995 and 1996 amounted to approximately $969,000, $889,000 and $936,000, respectively. Notes receivable from contracts include approximately $305,000 and $917,000 at November 30, 1995 and 1996, respectively, for amounts due from independent operators and approximately $548,000 and $255,000 at November 30, 1995 and 1996, respectively, for amounts due from a related party financing company (see Note 11). F-23 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the normal course of business, the Company's independent operators are responsible for financing their own vehicles through third parties. From time to time, the Company has arranged lease and purchase financing for certain vehicles and has in turn leased back such vehicles to independent operators on terms and conditions similar to those under which the Company is obligated (see Note 5). 5. FIXED ASSETS Fixed assets consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Vehicles.............................................. $2,692,079 $2,337,947 Equipment............................................. 1,699,803 2,200,094 Furniture............................................. 319,597 525,202 Leasehold improvements................................ 252,366 404,888 Land and building..................................... -- 529,634 ---------- ---------- 4,963,845 5,997,765 Less accumulated depreciation and amortization........ 2,778,774 2,618,519 ---------- ---------- Net fixed assets...................................... $2,185,071 $3,379,246 ========== ==========
The Company is obligated under various vehicle and equipment capital leases. Vehicles and equipment under capital leases included in fixed assets are as follows:
NOVEMBER 30, ------------------- 1995 1996 -------- ---------- Equipment............................................... $444,983 $1,048,633 Vehicles................................................ 352,796 621,420 -------- ---------- 797,779 1,670,053 Less accumulated amortization........................... 536,713 561,871 -------- ---------- $261,066 $1,108,182 ======== ==========
6. NOTES PAYABLE Notes payable consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Bank revolving credit/term loan dated April 13, 1995, modified December 1, 1996. Collateralized by accounts receivable of the Company and the pledge of common stock of the Company's U.S. subsidiaries. Interest only payable until June 30, 1996; beginning July 1, 1996, quarterly principal payments are required in an amount sufficient to amortize the outstanding balance over a four-year period. Interest is payable monthly at a floating rate based on the Wall Street Journal prime plus 1.25% (9.5% at November 30, 1996). This loan is guaranteed by the Chairman of the Board and the President of the Company............................... $4,500,000 $3,937,500 Note payable dated September 1, 1991, at an annual rate of interest of 7.74%, collateralized by the assets of Carey Licensing, Inc. Pursuant to an agreement with the lender effective November 30, 1996, principal payments of $220,000 are due quarterly from December 31, 1996 through December 31, 1997 and a final principal payment of $240,000 is due March 1, 1998....................... 2,220,000 1,340,000
F-24 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ------------------- 1995 1996 --------- --------- Bank line of credit of $1,000,000, dated October 17, 1994, and collateralized by accounts receivable of Carey NY and an assignment of license agreement between the Parent and Carey NY; due April 30, 1997. Interest is payable monthly at a variable interest rate of .75% above the bank's prime rate (9.0% at November 30, 1996)................... 990,000 990,000 Various installment notes payable, with interest rates ranging from 9% to 14.5%, collateralized by certain vehicles and equipment of the Company's subsidiaries; principal and interest are payable monthly over 36-month terms.................................................... 693,002 254,279 Installment notes payable to sellers under acquisition agreements dated various dates from June 30, 1994 to September 8, 1995. Interest rates range from 7.5% to 8.5%. Interest is generally payable monthly. Principal is payable in varying installments.......................... 2,339,418 1,305,574 Convertible note payable to seller under acquisition agreement dated September 30, 1993 at an annual rate of 7.5%, interest payable quarterly; principal due in two equal annual installments of $116,667 on January 2, 1996 and 1997. The note was repaid in January 1997............ 233,333 116,666 Bank line of credit of $200,000, dated October 31, 1995 at a variable interest rate (10% at November 30, 1995), collateralized by accounts receivable of Carey DC. This facility was refinanced by a term loan with the same bank on March 1, 1996......................................... 200,000 -- Amount payable to a seller under acquisition agreement dated January 1, 1995. Due 30 days after receipt of an audit of the predecessor company. Amount of the payment is subject to reduction based on the results of the audit. The audit has been completed and the amount was subsequently reduced in 1996 to $210,821 and has been repaid................................................... 250,000 -- Note payable to bank, dated September 30, 1995, payable in monthly installments of $4,167 plus interest. Interest rate is variable at bank's prime plus 1% (10.0% at November 30, 1996)....................................... 241,667 191,717 Note payable to bank, dated August 30, 1993, collateralized by accounts receivable, fixed assets and intangible assets of Carey DC; monthly payments of $9,401 for principal and interest through August 31, 1996. Interest rate is fixed at 8%. This note was refinanced on March 1, 1996 by a term loan with the same bank.......... 90,631 -- Note payable to bank dated October 17, 1994, collateralized by accounts receivable and fixed assets of Carey NY. Principal and interest payments of $2,848 are payable monthly. Remaining balance is due October 17, 1999. Interest rate is fixed at 9.25%.................... 189,401 149,001 Bank line of credit of $750,000, dated February 26, 1996 collateralized by accounts receivable of Carey Licensing, Inc.; due March 31, 1997. Interest is payable monthly at 1% above the Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996)....................................... -- 750,000 Bank line of credit of $200,000, dated February 26, 1996, collateralized by accounts receivable of Carey FLA.; due March 31, 1997. Interest is payable monthly at 1% above Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996).................................................... -- 200,000 Note payable to bank, dated March 1, 1996, collateralized by accounts receivable of Carey DC. Monthly payments of $12,735 of principal and interest through March 1, 2001. Interest is payable monthly at .5% above the bank's Prime Rate (9.5% at November 30, 1996)......................... -- 662,053
F-25 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ---------------------- 1995 1996 ----------- ---------- Note payable to bank, dated May 10, 1996, collateralized by the land and building held by Carey DC; monthly payments of $3,863 of principal and interest are due through April 10, 2001 and a balloon payment of $375,468 on May 10, 2001. Interest fixed at 8.75%...... -- 423,179 ----------- ---------- Total notes payable..................................... 11,947,452 10,319,969 Less current installments............................... 4,585,703 5,131,227 ----------- ---------- Long-term portion....................................... $ 7,361,749 $5,188,742 =========== ========== Subordinated notes payable consist of the following: Subordinated convertible note dated September 1, 1991, with the principal of $2,000,000 due on August 30, 2000; interest payable quarterly at a fixed rate of 7.74%. After September 1, 1992, this debt is convertible into shares of common stock of the Company at the discretion of the holder at a conversion price of $6.14. A warrant for the purchase of 86,003 shares of common stock of the Company was issued in connection with the note. The warrant is exercisable immediately, expires at the earlier of the third anniversary of an initial public offering or November 30, 2001, and has an exercise price of $6.14 per share. The note contains certain antidilutive provisions which lower its conversion price in the event dilutive securities are subsequently issued by the Company at prices below the note's conversion price. The warrant has not been exercised. The terms of the agreement have been modified as part of the Recapitalization (see Notes 15 and 18)................................................ $ 2,000,000 $2,000,000 Subordinated note dated July 30, 1992; interest only payable quarterly until September 30, 1995. The interest rate is fixed at 12%. Principal of $220,000 was paid on September 30, 1995. Pursuant to an agreement with the lender dated November 30, 1996, no further payments of principal are due until June 30, 1997, when $220,000 is due. Thereafter, quarterly principal payments of $220,000 are due until March 31, 1998. On June 30, 1998, the loan balance of $2,240,000 is due. A warrant for the purchase of 616,544 shares of Class A common stock or common stock was issued, in connection with the note. The warrant is exercisable immediately, has an exercise price of $6.14 per share and expires at the earlier of the fifth anniversary of the repayment of the note in full or July 30, 2000. The warrant contains certain antidilutive provisions which lower the exercise price in the event dilutive securities are subsequently issued by the Company at prices below the warrant exercise price. The warrant has not been exercised. The terms of the agreement have been modified as part of the Recapitalization (see Note 18).................................................... 3,780,000 3,780,000 Convertible note payable to seller under acquisition agreement, dated September 30, 1992; interest payable quarterly at a fixed rate of 7.74%. The note was repaid in September, 1996. ................................... 100,000 -- ----------- ---------- Total subordinated notes payable........................ 5,880,000 5,780,000 Less current installments............................... 100,000 440,000 ----------- ---------- Subordinated notes payable, excluding current install- ments.................................................. $ 5,780,000 $5,340,000 =========== ==========
F-26 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future annual principal payments on all notes payable at November 30, 1996 are as follows:
YEAR ENDING NOVEMBER 30: - ------------------------ 1997............................................................ $ 5,571,227 1998............................................................ 5,622,403 1999............................................................ 1,486,254 2000............................................................ 881,183 2001 and thereafter............................................. 2,538,902 ----------- $16,099,969 ===========
Certain loan agreements, principally the Company's line of credit agreement, contain restrictive covenants which include financial ratios related to working capital, debt service coverage, debt to net worth and maintenance of a minimum tangible net worth, and submission of audited financial statements, prepared in accordance with generally accepted accounting principles, within 120 days after the end of the fiscal year. Additionally, these covenants restrict the Company's capital expenditures and prohibit the payment of dividends on the Company's common and preferred stock, except for the Series E preferred stock. The Company did not meet certain covenants related to the timely submission of financial statements, working capital, debt to net worth and maintenance of a minimum tangible net worth at November 30, 1996. The Company obtained waivers for compliance with these covenants through and including November 30, 1996. The carrying value of notes payable approximates the current value of the notes payable at November 30, 1996. (See Note 17 for discussions of the fair value for the subordinated debt). Interest paid during the years ended November 30, 1994, 1995, and 1996 was approximately $1,358,000, $1,662,000 and $1,682,000, respectively. 7. LEASES The Company has several noncancelable operating leases, primarily for office space and equipment, that expire over the next five years. Certain of the Company's facilities are under operating leases which provide for rent adjustments based on increases of defined indexes, such as the Consumer Price Index. These agreements also typically include renewal options. F-27 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future minimum lease payments under noncancelable operating leases and the present value of future minimum capital lease payments as of November 30, 1996 are as follows:
CAPITAL OPERATING YEAR ENDING NOVEMBER 30 LEASES LEASES ----------------------- -------- ---------- 1997................................................... $233,778 $1,395,093 1998................................................... 171,653 1,277,009 1999................................................... 155,984 662,698 2000................................................... 155,984 245,746 2001................................................... 138,659 219,128 Thereafter............................................. 138,169 -- -------- ---------- Total minimum lease payments........................... 994,227 $3,799,674 ========== Less estimated executory costs......................... 5,189 -------- 989,038 Less amount representing interest (at rates ranging from 9% to 12%)....................................... 126,784 -------- Present value of net minimum capital lease payments.... 862,254 Less current portion of obligations under capital lease................................................. 199,224 -------- Obligations under capital leases, excluding current portion............................................... $663,030 ========
During the years ended November 30, 1994, 1995 and 1996 the Company recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental revenue under vehicle sublease arrangements with independent operators and others. During the years ended November 30, 1994, 1995 and 1996, the Company entered into capital lease obligations of $79,414, $346,666 and $810,993, respectively, related to the acquisition of vehicles and equipment. Total rental expense for operating leases in 1994, 1995 and 1996 was $1,023,372, $1,314,301 and $2,203,490, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses is composed of the following:
NOVEMBER 30, ---------------------- 1995 1996 ---------- ----------- Trade accounts payable............................... $5,222,306 $ 5,341,834 Accrued expenses and other liabilities............... 2,332,681 4,570,975 Gratuities payable................................... 445,985 458,801 Accrued offering costs............................... -- 825,339 ---------- ----------- $8,000,972 $11,196,949 ========== ===========
F-28 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. INCOME TAXES The provision (benefit) for income taxes is composed of the following:
NOVEMBER 30, --------------------------- 1994 1995 1996 ------- ------- ----------- Federal: Current...................................... $14,000 $15,000 $ 1,043,689 Deferred..................................... -- -- (1,220,799) ------- ------- ----------- 14,000 15,000 (177,110) ------- ------- ----------- State and local: Current...................................... 5,000 10,000 78,251 Deferred..................................... -- -- (149,758) ------- ------- ----------- 5,000 10,000 (71,507) ------- ------- ----------- Foreign: Current...................................... -- -- 144,371 ------- ------- ----------- Total income tax provision (benefit)........... $19,000 $25,000 $ (104,246) ======= ======= ===========
The Company's tax provision (benefit) for the years ended November 30, 1994, 1995 and 1996, respectively, differs from the statutory rate for federal income taxes as a result of the tax effect of the following factors:
YEARS ENDED NOVEMBER 30, ------------------------------ 1994 1995 1996 -------- -------- -------- Statutory rate.......... 34.0% 34.0% 34.0% State income tax, net of federal benefit........ (2.8) (2.4) (3.5) Goodwill amortization... (13.0) (13.0) .8 Non-deductible life insurance.............. (9.9) (23.8) .4 Meals and entertainment expenses............... (12.2) (36.5) 1.5 Valuation allowance..... (13.4) 28.1 (38.5) Other................... -- (1.1) 1.5 -------- -------- -------- (17.3)% (14.7)% (3.8)% ======== ======== ========
The source and tax effects of temporary differences are composed of the following:
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- Allowance for bad debts............................ $ 108,000 $ 176,000 Net operating loss carryforward.................... 266,000 -- Deferred revenue................................... 1,701,000 2,040,000 Deferred state taxes and other..................... 425,000 558,000 ----------- ----------- Gross deferred tax asset........................... 2,500,000 2,774,000 Valuation allowance................................ (1,499,000) -- ----------- ----------- 1,001,000 2,774,000 ----------- ----------- Amortization of intangible assets.................. (951,000) (1,350,000) Other.............................................. (50,000) (53,000) ----------- ----------- Gross deferred tax liability....................... (1,001,000) (1,403,000) ----------- ----------- Net deferred tax asset............................. $ -- $ 1,371,000 =========== ===========
F-29 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A valuation allowance was provided in 1994 and 1995 to reduce the net deferred tax asset to $0. In the fourth quarter of 1996, the Company concluded that it was more likely than not that the net deferred tax asset would be realized and therefore recorded a deferred tax benefit from the reversal of the valuation allowance of $1,499,000. Income taxes paid during the years ended November 30, 1994, 1995 and 1996 amounted to $0, $10,375 and $210,437, respectively. 10. PREFERRED STOCK The Company has the following series of preferred stock:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Series A, par value $10.00, authorized 43,000 shares, issued and outstanding 42,070 shares (liquidation preference of $4,207,000 and non-cumulative dividends of $7.00 per share per annum when declared by the Board of Directors).......................... $ 420,700 $ 420,700 Series B, par value $10.00, authorized 10,000 shares, issued and outstanding 9,580 shares (liquidation preference of $958,000 and non-cumulative dividends of $5.00 per share per annum when declared by the Board of Directors)................................. 95,800 95,800 Series E, par value $10.00, authorized 50 shares, issued and outstanding 12.5 shares at November 30, 1995 (liquidation preference of $97,500)............ 97,500 -- Series F, par value $10.00, authorized 10,000 shares, issued and outstanding 10,000 shares (liquidation preference of $1,000,000 and non-cumulative dividends of $5.00 per share per annum when declared by the Board of Directors).......................... 100,000 100,000 Series G, par value $10.00, authorized 110,000 shares, issued and outstanding 49,890 shares (liquidation preference of $4,989,900 and non- cumulative dividends of $5.00 per share per annum when declared by the Board of Directors)............ 498,900 498,900 ---------- ---------- $1,212,900 $1,115,400 ========== ==========
At the option of preferred stockholders or upon the closing of an underwritten public offering yielding net proceeds to the Company of at least $10,000,000 and having an offering price of at least $14.81 per share, each share of Series B, F and G preferred stock is convertible into the number of shares of common stock equal to 500, 100 and 100 divided by the conversion price, respectively. The conversion price as of November 30, 1996 was $7.216, $7.406 and $7.406 for Series B, F and G preferred stock, respectively. The Company has reserved 663,759, 135,025 and 633,393 shares of common stock, respectively, for conversion of the Series B, F, and G preferred stock. Antidilutive provisions lower the conversion price if certain securities are issued by the Company at a price below the respective conversion prices then in effect. The Company must redeem, on a pro rata basis, the outstanding shares of Series A preferred stock plus for $100 per share any declared and unpaid dividends upon the completion of an initial public offering yielding net proceeds to the Company of at least $10,000,000. Series A, B and G preferred stock have voting rights and Series F preferred stock is non-voting, except under certain circumstances. (See Note 18 for discussion of the Recapitalization, pursuant to which all of the preferred stock will be redeemed or converted into common stock.) F-30 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. RELATED-PARTY TRANSACTIONS The Company has invested $750,000 in non-voting redeemable preferred stock of a privately-held finance company formed for the purpose of providing financing to the chauffeured vehicle services industry. This entity provides financing to the Company's independent operators, without recourse to the Company, for both automobiles and amounts due under independent operator agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to this related-party finance company for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. The unpaid balances of the promissory notes were $547,930 and $255,664 at November 30, 1995 and 1996, respectively, and are included in notes receivable from contracts. These promissory notes are due on demand and, generally, monthly principal payments are received by the Company. These notes generally bear interest rates of 7%. It is not practicable to estimate the fair value of the preferred stock investment in a privately-held company. As a result, the Company's investment in the privately-held finance company noted above is carried at its original cost (less redemptions) of $750,000. At April 30, 1996, the total assets reported by the privately-held company were $10,502,234 and stockholders' equity was $1,108,448, revenues were $1,088,720 and net income was $96,681. Pursuant to a stock ownership agreement between the common stockholders of the related-party finance company and the Company, the Company has an option to purchase all of the outstanding common stock of the affiliate at $12,500 per common share or market value, if higher. The option is not exercisable until April 15, 1998. A guarantee fee of $45,000 has been paid to both the Chairman of the Board and the President of the Company for guaranteeing certain indebtedness (see Note 6). 12. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial position, results of operations or cash flows of the Company. The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge. The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. A class has not yet been certified in this case. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. The Company has agreed to indemnify and defend its officers and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company has reached a tentative settlement with the plaintiff and plaintiff's counsel, which is subject to court approval and acceptance by the proposed class. The Company does not believe that this litigation will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. 13. ACQUISITIONS In December 1994, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in Boca Raton, Florida and consolidated the operations within its existing operations in West Palm Beach. Subsequently, the Company acquired an additional chauffeured vehicle service company in Boca Raton F-31 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (in August 1995) and the Carey licensee in Fort Lauderdale--Miami (in April 1995) and consolidated the two additional businesses into the Carey South Florida operations. In January 1995, the Company acquired certain assets and liabilities of the Carey licensee in San Francisco, California ("Carey SF"). Subsequently, the Company acquired the business of two additional chauffeured service companies (in May and August 1995) and combined the acquired operations with those of Carey SF. In April 1995, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in the Washington, DC area and combined the acquired operations with those of Carey Limousine D.C., Inc. In February 1996, the Company acquired the common stock of a chauffeured vehicle service company in London, England for approximately $1,500,000. The acquisition was financed through the incurrence of $950,000 in debt and a payment of $550,000. Additional contingent consideration of up to $1,000,000 may be payable with respect to each of the two years ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of November 30, 1996, the Company has paid $278,304 in contingent consideration in the acquisition of the London company. In addition, the Company is required to pay a standard commission to the seller of the acquired chauffeured vehicle service company for business referral, which will be expensed as incurred. All acquisitions have been accounted for as purchases. The net assets acquired and results of operations have been included in the financial statements as of and from, respectively, the effective dates of the acquisitions. The total consideration was allocated to the assets acquired based upon their estimated fair values with any remaining consideration allocated to either franchise rights or goodwill, as follows:
YEAR ENDED NOVEMBER 30, ----------------------------- 1994 1995 1996 ------- ---------- ---------- NET ASSETS PURCHASED Receivables and other assets.............. $ -- $ -- $ 632,554 Fixed assets.............................. -- 1,703,521 928,377 Franchise rights.......................... -- 1,527,402 89,243 Goodwill.................................. 75,000 4,697,958 447,269 Accounts payable and accrued expenses..... -- -- (367,211) ------- ---------- ---------- Fair value of assets acquired............. $75,000 $7,928,881 $1,730,232 ======= ========== ========== CONSIDERATION Cash (exclusive of $223,695 cash acquired in 1996)................................. $75,000 $3,633,620 $1,730,232 Capital leases assumed related to vehicle acquisitions............................. -- 346,666 -- Notes assumed related to vehicle acquisi- tions.................................... -- 895,571 -- Uncollateralized promissory notes issued to sellers............................... -- 3,053,024 -- ------- ---------- ---------- Total consideration..................... $75,000 $7,928,881 $1,730,232 ======= ========== ==========
Certain of these acquisitions require the payment of contingent consideration based on percentages of annual net revenue of the acquired entities over a defined future period. The Company paid $39,521, $315,773 and F-32 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $291,755 in the years ended November 30, 1994, 1995 and 1996, respectively, in contingent consideration and increased goodwill by the same amounts (see Note 2) which is reflected in the table above. Of the total uncollateralized promissory notes issued to sellers in 1995, two notes totaling $303,000 were subject to reduction based upon the results of the acquired entities (see Note 6). The two notes were repaid in 1996 for approximately $211,000 and the difference of approximately $92,000 reduced by recorded goodwill. The unaudited pro forma summary consolidated results of operations assuming all the acquisitions had occurred for the purposes of the 1995 summary at the beginning of fiscal 1995, and for the purposes of the 1996 summary at the beginning of fiscal 1996, are as follows:
YEAR ENDED NOVEMBER 30, -------------------------- 1995 1996 ------------ ------------ (UNAUDITED) Revenue.......................................... $ 51,490,000 $ 60,444,000 Cost of revenue.................................. (35,089,000) (41,304,000) Other expense, net............................... (16,256,000) (16,570,000) Benefit (provision) for income taxes............. (58,000) 164,000 ------------ ------------ Net income....................................... $ 87,000 $ 2,734,000 ============ ============ Net income per common share...................... $ .04 $ 1.13 ============ ============ Weighted average common shares outstanding....... 2,387,954 2,422,373 ============ ============
14. 401(K) PLAN The Company sponsors (but has made no contributions to) a defined contribution plan established pursuant to Section 401(k) of the Internal Revenue Code for the benefit of employees of the Company. 15. STOCK OPTION PLANS On December 1, 1987, the Company established a Stock Option Plan (the "1987 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1987 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price and the manner in which payment of the option price shall be made. The 1987 Plan provides for the options to be exercised 25% each year beginning after the year following the grant. The options are exercisable for a period of ten years after the grant date. The total number of options authorized under the 1987 Plan is 195,656. On July 28, 1992, the Company established a Stock Option Plan (the "1992 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1992 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price, the time or times during the exercise period at which each such option will become exercisable, and the manner in which payment of the option price shall be made. The options are exercisable for a period of ten years after grant date. The total number of options authorized under the 1992 Plan is 388,647. F-33 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock activity under the 1987 Plan and the 1992 Plan is as follows:
1987 PLAN 1992 PLAN ---------------------- ------------------ OPTION OPTION PRICE PER PRICE PER SHARES SHARE SHARES SHARE ------- ------------- ------- --------- Balance, December 1, 1993........... 64,502 $ 1.44 385,139 $7.40 Granted............................. -- -- 8,600 7.40 Exercised........................... -- -- -- -- Forfeited........................... -- -- (13,287) -- ------- ------------- ------- ----- Balance, November 30, 1994.......... 64,502 1.44 380,452 7.40 Granted............................. -- -- 21,673 7.40 Exercised........................... (32,681) -- -- -- Forfeited........................... (860) -- (60,985) -- ------- ------------- ------- ----- Balance, November 30, 1995.......... 30,961 1.44 341,140 7.40 Granted............................. 38,701 4.65 46,373 4.65 Exercised........................... -- -- Forfeited........................... -- (3,010) ------- ------- Balance, November 30, 1996.......... 69,662 $1.44 - $4.65 384,502 $4.65 ======= ======= Vested and exercisable at November 30, 1996........................... 43,861 $1.44 - $4.65 340,873 $4.65 ======= ============= ======= =====
In May 1996, the options granted under the 1992 Plan and a warrant to purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65. The options and warrant were repriced at the determined fair market value as of the date of repricing (see Note 18). On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18). 16. REVENUE RECOGNITION METHOD The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period pursuant to a Standard Independent Operator Agreement. Upon signing the Standard Independent Operator Agreement, the Company is entitled to receive a one-time fee from the independent operator. Previously, the Company would recognize the one-time fee as revenue upon signing of the independent operator agreement and when collection of the fee was reasonably assured. In accordance with APB 20, the financial statements have been retroactively restated to report such fees as deferred revenue which are recognized as revenue over the terms of the contracts (see Note 2). The effect of such restatements was to reduce 1994 and 1995 revenue, results of operations and stockholders' equity by $665,391 and $1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994 and 1995, respectively). 17. NET INCOME PER COMMON SHARE Net income per common share, on a historical basis, are as follows:
NOVEMBER 30, ---------------------------------- 1994 1995 1996 ---------- ---------- ---------- Net income (loss) available to common shareholders.............................. $ (137,743) $ (199,570) $2,816,104 Weighted average common shares outstand- ing....................................... 2,392,879 2,387,954 2,422,373 Net income (loss) per common share......... $ (.06) $ (.08) $ 1.16
F-34 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of common shares issuable upon (a) conversion of Series B, F and G preferred stock and (b) the assumed exercise of outstanding stock options and warrants. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the twelve months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $11.00 per share, have been included in the calculation of net income per common share. Net income (loss) available to common shareholders is the net income (loss) for the fiscal year less accretion of dividends on the Series E preferred stock of $8,750, $4,376 and $0 for 1994, 1995 and 1996, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128 simplifies the existing earnings per share (EPS) computations under Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises disclosure requirements, and increases the comparability of EPS data on an international basis. In simplifying the EPS computations, the presentation of primary EPS is replaced with basic EPS, with the principal difference being that common stock equivalents are not considered in computing basic EPS. In addition, FAS 128 requires dual presentation of basic diluted EPS. FAS 128 is effective for financial statements issued for periods ending after December 15, 1997. The Company's pro forma basic EPS under FAS 128 would have been $4.29 and dilutive EPS under FAS 128 would not differ significantly from the reported pro forma net income per share. 18. SUBSEQUENT EVENTS On February 25, 1997, pursuant to an agreement reached in May 1996, the Board of Directors authorized a recapitalization (the "Recapitalization"), which will be implemented at the time of the IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 will be converted or exchanged for 1,046,559 shares of common stock and payment of $912,454. The Series A preferred stock will be converted in part into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of the Series G preferred stock will be redeemed for an aggregate of $1,000,000. The remaining preferred stock will be converted into 1,427,509 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 will be converted in part into 2,560,071 shares of common stock and repaid or redeemed in part for $4,015,952 in cash. All of the cash amounts will be paid out of the proceeds of the IPO. On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock are reserved for issuance under the 1997 Plan. The Board of Directors also granted options to purchase at the IPO price a total of 411,500 shares of common stock under the 1997 Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors, subject to stockholder approval, adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A total of 100,000 shares of common stock of the Company are reserved for issuance under the Directors' Plan. Options to purchase at the IPO price a total of 22,500 shares of common stock will be granted under the Directors' Plan, such grants to be effective upon the execution of an underwriting agreement in connection with the IPO. Also on February 25, 1997, the Board of Directors, approved amendments to the Company's Certificate of Incorporation increasing the number of authorized shares of the Company's Common Stock from 9,512,950 to 20,000,000, and increasing the number of authorized shares of the Company's preferred stock from 173,050 to 1,000,000. On March 1, 1997, the Company entered into an agreement to purchase the stock of Manhattan International Limousine Network Ltd. and an affiliated company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of the largest providers of chauffeured vehicle services in the New York metropolitan area. The Company expects to consummate the acquisition at the time of the IPO. If the acquisition of Manhattan Limousine is not completed by May 20, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. F-35 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders Manhattan International Limousine Network Ltd. and Affliliate We have audited the accompanying combined balance sheet of Manhattan International Limousine Network Ltd. and Affliliate (collectively, the "Company") as of September 30, 1996, and the related combined statements of operations and retained earnings (accumulated deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Manhattan International Limousine Network Ltd. and Affliliate as of September 30, 1996, and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 10 to the combined financial statements, the accompanying combined balance sheet as of September 30, 1996, and the related combined statement of operations and retained earnings (accumulated deficit) and cash flows for the year then ended have been restated. COOPERS & LYBRAND L.L.P. Washington, D.C. March 1, 1997, except for Note 10 as to which the date is April 22, 1997 F-36 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED BALANCE SHEETS
SEPTEMBER 30, FEBRUARY 28, 1996 1997 ------------- ------------ (UNAUDITED) ASSETS Cash and cash equivalents......................... $ 130,494 $ 108,637 Accounts receivable, net of allowances for doubt- ful accounts of $181,000 and $194,000, respec- tively........................................... 2,466,134 2,298,735 Receivables from independent operators, current portion.......................................... 271,086 346,946 Prepaid expenses and other current assets......... 51,499 58,499 ----------- ----------- Total current assets........................... 2,919,213 2,812,817 Fixed assets, net................................. 805,724 691,752 Receivables from independent operators, less cur- rent portion..................................... 7,375,219 7,586,141 Other assets...................................... 1,221,885 1,277,389 ----------- ----------- Total assets...................................... $12,322,041 $12,368,099 =========== =========== LIABILITIES Current portion of notes payable.................. $ 1,232,457 $ 2,440,445 Accounts payable, trade........................... 1,520,295 1,691,082 Accounts payable, independent operators........... 1,738,072 1,840,487 Accrued expenses.................................. 529,761 538,593 Other current liabilities......................... 240,059 253,339 ----------- ----------- Total current liabilities...................... 5,260,644 6,763,946 Notes payable, less current portion............... 4,523,171 2,926,232 Other liabilities................................. 862,875 820,803 Deferred revenue.................................. 6,801,965 6,932,930 Commitments and contingencies STOCKHOLDERS' DEFICIENCY MILN common stock, $1 par value, 200 shares autho- rized, 100 shares issued and outstanding......... 100 100 ILN common stock, $1 par value, 200 shares autho- rized, 200 shares issued and outstanding......... 1,000 1,000 MILN additional paid-in capital................... 176,940 176,940 Retained earnings (accumulated deficit): MILN............................................ (5,439,073) (5,386,919) ILN............................................. 134,419 133,067 ----------- ----------- Total stockholders' deficiency................. (5,126,614) (5,075,812) ----------- ----------- Total liabilities and stockholders' deficien- cy............................................ $12,322,041 $12,368,099 =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-37 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED FOR THE FIVE MONTHS ENDED SEPTEMBER 30, FEBRUARY 28, 1996 1997 ------------------ ------------------------- (UNAUDITED) Revenues: Service revenues, net........... $17,218,728 $ 7,820,209 Interest from independent opera- tor financing.................. 1,219,819 486,070 ----------- ----------- Total revenues.................. 18,438,547 8,306,279 Cost of revenues.................. 11,040,017 5,294,032 ----------- ----------- Gross profit.................... 7,398,530 3,012,247 Selling, general and administra- tive expenses.................... 5,821,899 2,491,047 ----------- ----------- Operating income................ 1,576,631 521,200 Interest expense.................. (881,854) (379,898) Interest income................... 66,000 16,500 ----------- ----------- Income before provision for in- come taxes..................... 760,777 157,802 Provision for income taxes........ 55,014 -- ----------- ----------- Net income...................... 705,763 157,802 Accumulated deficit, beginning of period........................... (5,907,417) (5,304,654) Distribution to S corporation stockholder...................... (103,000) (107,000) ----------- ----------- Accumulated deficit, end of peri- od............................... ($5,304,654) ($5,253,852) =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-38 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF CASH FLOWS
FOR THE FIVE FOR THE YEAR ENDED MONTHS ENDED SEPTEMBER 30, 1996 FEBRUARY 28, 1997 ------------------ ----------------- (UNAUDITED) Cash flows from operating activities: Net income............................... $705,763 $ 157,802 Adjustments necessary to reconcile net income to net cash provided by operating activities: Depreciation and amortization........... 258,439 117,335 Change in deferred revenue.............. (279,625) 130,965 Changes in operating assets and liabilities: Accounts receivable.................... (377,793) 167,399 Receivables from independent opera- tors.................................. 139,363 (286,782) Other assets........................... (103,240) (62,504) Accounts payable and accrued expenses.. (152,519) 179,619 Accounts payable, independent opera- tors.................................. 293,731 102,415 Other liabilities...................... (193,582) (28,792) -------- --------- Net cash provided by operating activities........................... 290,537 477,457 -------- --------- Cash flows from investing activities: Purchases of fixed assets................ (256,248) (3,363) -------- --------- Net cash used in investing activities........................... (256,248) (3,363) -------- --------- Cash flows from financing activities: Net borrowings (payments) on line of credit.................................. 261,802 (436,053) Proceeds from borrowings under notes payable................................. 310,000 800,000 Principal payments on notes payable...... (412,643) (752,898) Distribution to S corporation stockholder............................. (103,000) (107,000) -------- --------- Net cash provided by (used in) financing activities................. 56,159 (495,951) -------- --------- Net change in cash and cash equivalents... 90,448 (21,857) Cash and cash equivalents, beginning of period................................... 40,046 130,494 -------- --------- Cash and cash equivalents, end of period.. $130,494 $ 108,637 ======== =========
The accompanying notes are an integral part of these combined financial statements. F-39 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION Manhattan International Limousine Network Ltd. and its wholly-owned subsidiary (collectively, "MILN") are engaged primarily in the business of providing chauffeured vehicle services in New York City and the surrounding areas, and providing reservation and billing services to both individual and corporate customers worldwide through an affiliation with a network of independent chauffeured vehicle service companies. International Limousine Network Ltd. ("ILN") is an affiliated company (the "Affiliate") engaged in sales and marketing activities exclusively on behalf of MILN. The accompanying financial statements combine the accounts of MILN and ILN because such entities are under common control. All intercompany transactions have been eliminated. The combined entities are referred to herein as the "Company." ILN operates on a calendar year. As a result, the accompanying financial statements as of and for the year ended September 30, 1996 include the effects of combining the financial statements of ILN as of and for the year ended December 31, 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Receivables from Independent Operators and Accounts Payable, Independent Operators The Company enters into agreements with independent operators (franchisees) under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over the contract period. Upon signing the agreement, the Company is entitled to receive a one-time fee from the independent operator. The Company generally receives a minimal down payment from the independent operator together with a promissory note (see Note 3) and records the note as a receivable from the independent operator, but does not recognize revenue at that time. (See Revenue Recognition.) In addition, the Company collects all billings for services rendered by the independent operator and has the right to withhold and remit, from the independent operator's earnings, all payments due to the Company and certain third parties for, among other things, note payments, two-way radio charges and lease obligations on vehicles, on a monthly basis. The Company is then obligated to remit the balance of the independent operator's earnings on a monthly basis. The unpaid balance due to independent operators at the end of a given period is reflected as accounts payable, independent operators in the accompanying balance sheet. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash and cash equivalents, accounts receivable and receivables from independent operators. The Company maintains its cash and cash equivalents with various financial institutions. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of certain transactions. Receivables from independent operators are supported by the underlying base of revenues serviced by each respective independent operator. The Company performs ongoing evaluations of the productivity and payment capacity of each independent operator in order to manage its credit risk. F-40 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Fixed Assets Fixed assets are stated at cost. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the declining balance method over the estimated useful lives of the assets or the leaseholds, generally three to five years. Buildings and improvements are depreciated on the straight line method over 20 years. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains and losses on sales of property are reflected in the results of operations. Intangible Assets The Company owns Federal Communications Commission licenses to three radio frequencies which it uses in the dispatch of vehicles used in its business. The licenses have been fully amortized in prior years. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of 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. Revenue Recognition Service revenues include fees derived from chauffeured vehicle services provided by the Company's independent operators. Revenue is recorded for chauffeured vehicle services when those services are provided. When the Company enters into an agreement with an independent operator, the Company defers revenue equal to the amount of the contract and recognizes those fees over the term of the contract, typically 20 years. Amortization of deferred revenue is also included in independent operator service revenues in the accompanying combined statements of operations. Upon termination of an agreement, the remaining deferred revenue associated with the contract, less any amounts due from the independent operators deemed uncollectible, is recognized as revenue immediately. As described above, the Company typically provides extended financing terms to its independent operators for payment of the independent operator fee. Interest income is recognized as earned over the term of the loan agreement with the independent operator. The Company provides reservation services to its customers for service in other locations through its affiliation with a network of independent service companies. Revenue related to services provided by a member of the network is recognized as chauffeured vehicle service revenue when a gross service bill is received from the member. The corresponding liability to the member, reduced by the Company's discount, is recorded as a cost of revenue by the Company at such time. Income Taxes For MILN, the provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax assets or liabilities. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. F-41 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) ILN has elected to be treated as an "S corporation" under provisions of the Internal Revenue Code. As such, the income tax effects of ILN's operations are borne directly by the stockholder, and no provision for ILN income taxes is recorded in the accompanying financial statements. Unaudited Interim Financial Statements The combined financial statements as of and for the five-month period ended February 28, 1997 are unaudited. In the opinion of management, those unaudited financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present the financial statements on a basis substantially consistent with the annual audited financial statements contained herein. All disclosures herein related to February 28, 1997 and for the five-month period ended February 28, 1997 are unaudited. 3. TRANSACTIONS WITH INDEPENDENT OPERATORS At the time the Company enters into an agreement with an independent operator, the Company is entitled to receive a one-time fee. Those fees are typically financed by the Company over 20 years at an interest rate of 15.75% per annum. Independent operator fees are recognized as revenue ratably over the terms of the agreements. In the opinion of management, the carrying value of the loans approximates their fair value. Revenue recognized from independent operator fees was $514,632 and $203,118 for the year ended September 30, 1996 and for the five-month period ended February 28, 1997, respectively. The Company's independent operators are responsible for financing their own vehicles through third parties. Under programs the Company has established with several automotive leasing organizations, the Company guarantees lease payments until the independent operator has made twelve monthly lease payments. As of September 30, 1996, the Company's independent operators had aggregate lease obligations of $2,203,158 under these programs. 4. FIXED ASSETS Fixed assets consist of the following:
SEPTEMBER 30, FEBRUARY 28, 1996 1997 ------------- ------------ Land............................................... $ 62,569 $ 62,569 Buildings and improvements......................... 676,730 677,557 Furniture, fixtures and equipment.................. 3,086,224 3,088,760 Vehicles........................................... 344,170 344,170 ---------- ---------- 4,169,693 4,173,056 Less accumulated depreciation...................... 3,363,969 3,481,304 ---------- ---------- Net fixed assets................................... $ 805,724 $ 691,752 ========== ==========
Depreciation expense was $258,439 and $117,335 for the year ended September 30, 1996 and for the five-month period ended February 28, 1997, respectively. F-42 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. NOTES PAYABLE Notes payable consist of the following:
SEPTEMBER 30, FEBRUARY 28, 1996 1997 ------------- ------------ Line of credit of up to $2,000,000 under agreement dated December 27, 1994, collateralized by substantially all of the Company's assets; availability up to 80% of eligible accounts receivable at any date; interest payable monthly at prime plus 6%. In addition to interest obligations, agreement requires payment of annual facility fee equal to 1% of total line, as well as monthly and quarterly administration fees. The agreement terminates on December 27, 1997, after which it is automatically renewable unless terminated by either party as of any anniversary date, with 60 days prior written notice. Certain stockholders of the Company are guarantors on the Company's behalf......................................... $ 1,864,967 $ 1,428,914 First mortgage note on headquarters premises dated April 12, 1989, original principal of $1,200,000, subject to fixed monthly installments of principal, and interest at a rate of 14.75%......................................... 310,000 -- First mortgage note on headquarters premises dated January 17, 1997, original principal of $800,000, interest at 10.75% for the first year, after which rate becomes variable at prime plus 2.5%. Interest and principal payments due monthly based on 15-year amortization, with balloon payment due on fifth anniversary......................... -- 790,000 Various installment notes payable with interest rates ranging from 10.75% to 14.75%, and collateralized by certain independent operator agreements and receivables from independent operators of the Company. Principal and interest payments are due monthly over 60-month terms.... 3,228,364 2,876,391 Notes payable, collateralized by certain equipment, principal and interest due monthly over terms of 24-39 months................................................... 352,297 271,372 ----------- ----------- 5,755,628 5,366,677 Less current portion 1,232,457 2,440,445 ----------- ----------- Notes payable, less current portion $ 4,523,171 $ 2,926,232 =========== ===========
In the opinion of management, the carrying amount of the notes payable approximates their fair value. Aggregate principal payments under the Company's note payable arrangements as of September 30, 1996 are due as follows: 1997.............................. $1,232,457 1998.............................. 2,747,898 1999.............................. 542,673 2000.............................. 588,368 2001.............................. 175,732 Thereafter........................ 468,500 ---------- Total............................. $5,755,628 ==========
F-43 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 6. INCOME TAXES The provision for income taxes consists of the following:
FOR THE YEAR FOR THE FIVE ENDED MONTHS ENDED SEPTEMBER 30, FEBRUARY 28, 1996 1997 ------------- ------------- Federal--Current................................. $ 15,845 $ -- State and local--Current......................... 39,169 -- --------- ----- Total income tax provision....................... $ 55,014 $ -- ========= =====
The Company's effective income tax rates differed from the applicable Federal statutory rate due to the following:
FOR THE YEAR ENDED FOR THE FIVE SEPTEMBER 30, MONTHS ENDED 1996 FEBRUARY 28, 1997 ------------- ----------------- Federal statutory rate...................... 34% 34% State and local income taxes................ 13 13 Effect of income of S corporation........... (9) -- Reduction as a result of deferred tax asset valuation allowance........................ (43) (35) Other, primarily nondeductible travel and entertainment.............................. 12 (12) --- --- Effective income tax rate................... 7% 0% === ===
As of September 30, 1996, for federal income tax purposes, the Company had net operating loss (NOL) carryforwards of $1,955,055 available to offset future taxable income, which expire from 2004 to 2010. The source and tax effects of temporary differences are as follows:
SEPTEMBER 30, FEBRUARY 28, 1996 1997 ------------- ------------ NOL carryforwards................................. $ 914,574 $ 731,140 Revenue recognition of independent operator fees.. 857,606 877,700 Other............................................. -- 111,152 Valuation allowance............................... (1,772,180) (1,719,992) ----------- ----------- Net deferred tax asset (liability)................ $ -- $ -- =========== ===========
Income taxes paid amounted to $14,505 and $0 for the year ended September 30, 1996 and for the five-month period ended February 28, 1997, respectively. F-44 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 7. RELATED PARTY TRANSACTIONS Included in other noncurrent liabilities are loans from officers of the Company with remaining principal balances of $358,444 and $288,672 as of September 30, 1996 and February 28, 1997, respectively. The loans have interest rates of 12.5% and are payable in equal installments of principal and interest over terms of 15 years. Aggregate principal payments under the loans were due as follows as of September 30, 1996: 1997......................... $ 77,786 1998......................... 10,781 1999......................... 12,209 2000......................... 13,825 2001......................... 15,656 Thereafter................... 228,187 -------- Total........................ $358,444 ========
During the year ended September 30, 1996 and the five-month period ended February 28, 1997, the Company took one-time charges related to advances to a non-combined affiliate of approximately $218,000 and $7,000, respectively, which are included in selling, general and administrative expenses. 8. CONTINGENCIES The Company is involved in various legal actions which arise in the normal course of business. Management of the Company does not believe the ultimate resolution of these actions will have a material effect on the financial position, results of operations or cash flows of the Company. 9. MAJOR CUSTOMER The Company has one customer which accounted for approximately 18.0% of service revenues for the year and five-month periods ended September 30, 1996 and February 28, 1997, respectively. 10. RESTATEMENTS The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period. Upon signing the contract, the Company is entitled to receive a one-time fee from the independent operator. Previously, the Company recognized the one-time fee as revenue upon signing of the agreement. In accordance with Opinion No. 20 of the Accounting Principles Board, "Accounting Changes", the financial statements have been retroactively restated to report such fees as deferred revenue which are recognized as revenue over the terms of the contracts (see Note 2). The effects of such restatements were to increase results of operations and stockholders' equity by $5,996 for the year ended September 30, 1996. The Company uses a network of independent service companies to provide chauffeured vehicle services to its customers. Certain previously unrecognized costs related to these services have been retroactively recorded. The effects of such restatements were to decrease results of operations by $301,984 for the year ended September 30, 1996, and to increase stockholders' deficiency by $432,671 as of September 30, 1996. 11. SUBSEQUENT EVENT On March 1, 1997, the stockholders of MILN and ILN agreed to sell their stock to Carey International, Inc., a company providing chauffeured vehicle services. F-45 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors of Camelot Barthropp Limited (formerly Speed 6060 Limited): We have audited the accompanying balance sheet of Camelot Barthropp Limited as of December 31, 1995, and the related statement of operations for the period from August 4, 1995 to December 31, 1995, all expressed in pounds sterling. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform our 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 presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Camelot Barthropp Limited as of December 31, 1995, and the results of its operations for the period from August 4, 1995 to December 31, 1995, in conformity with accounting principles generally accepted in the United Kingdom (which differ in certain respects from generally accepted accounting principles in the United States--see note 16). Coopers & Lybrand Chartered Accountants and Registered Auditors London, England February 26, 1996, except notes 15 and 16 which are dated February 25, 1997 F-46 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) STATEMENT OF OPERATIONS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
NOTE 1995 ---- --------- (Pounds) Revenues--continuing operations.................................. 1,266,924 Other operating income........................................... 4 7,700 --------- 1,274,624 Expenditures--continuing operations Vehicle operating costs........................................ 97,119 Other external charges......................................... 362,520 Staff costs.................................................... 3 423,286 Depreciation................................................... 4 114,914 Other operating charges........................................ 4 163,363 --------- 1,161,202 --------- Net income on ordinary activities before taxation................ 113,422 Tax on ordinary activities....................................... 5 60,256 --------- Net income on ordinary activities after taxation................. 53,166 Dividends payable................................................ -- --------- Net income retained.............................................. 53,166 =========
The Company has no recognized gains or losses other than the income above and therefore no separate statement of total recognized gains and losses has been presented. There is no difference between the income on ordinary activities before taxation and the retained income for the period stated above and their historical cost equivalents. The Company was incorporated on August 4, 1995, and as a result, there are no comparative figures. The accompanying notes are an integral part of these financial statements. F-47 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) BALANCE SHEET AT DECEMBER 31, 1995
NOTE 1995 ---- --------- (Pounds) Fixed assets Tangible assets................................................ 6 659,293 --------- Current assets Inventories.................................................... 7 9,747 Receivables.................................................... 8 548,103 Called up share capital not paid............................... 911,000 Cash at bank and in hand....................................... 366,912 --------- 1,835,762 Current liabilities.............................................. 9 1,530,889 --------- Net current assets............................................... 304,873 --------- 964,166 ========= Represented by: Shareholders' equity Called up share capital........................................ 11 92,000 Share premium account.......................................... 11 819,000 Retained earnings.............................................. 12 53,166 --------- Total shareholders' equity................................... 964,166 =========
The accompanying notes are an integral part of these financial statements. F-48 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 1. BASIS OF PREPARATION The accompanying financial statements of Camelot Barthropp Limited (previously Speed 6060 Limited) have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"), and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds sterling ("(Pounds)"). The accompanying financial statements do not represent the U.K. statutory financial statements of Camelot Barthropp Limited, as certain reclassifications and changes in presentation and disclosure have been made to the U.K. financial statements prepared on a statutory basis in order to conform, more closely with accounting presentation and disclosure requirements applicable in the United States. The financial statements of Camelot Barthropp Limited for the period from August 4, 1995 to December 31, 1995, on which the auditors' report was unqualified, were the first prepared since its incorporation. These were not full statutory financial statements and therefore have not been delivered to the Registrar of Companies in England and Wales. The ultimate parent undertaking of Camelot Barthropp Limited was The Savoy Hotel PLC, a company incorporated under the laws of England throughout the period from August 4, 1995 to December 31, 1995, of these financial statements. 2. ACCOUNTING POLICIES USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP 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 for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that Camelot Barthropp Limited's actual results may differ from the amounts reported and disclosed in the financial statements. DEPRECIATION Depreciation is provided so as to write off the cost being the market value of motor vehicles acquired from a fellow subsidiary undertaking less the estimated residual value of fixed assets over their expected useful lives. Depreciation on a straight line basis, mainly at the following annual rates: Motor vehicles --25% Furniture and equipment --10%-20% Improvements to premises --10%
INVENTORIES Inventories are valued at the lower of cost or net realizable value. DEFERRED TAXATION Provision is made for deferred taxation using the liability method at current taxation rates on all material timing differences to the extent that it is probable that a liability or asset will crystallize. REVENUES Revenues represent the invoiced value of services provided, excluding sales related taxes. F-49 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 FOREIGN CURRENCIES Assets and liabilities in foreign currencies have been translated into sterling at the rates ruling at the balance sheet date. OPERATING LEASES Rentals paid under operating leases are charged to operations on a straight line basis over the lease term. PENSION COSTS The Company contributes into both defined benefit and defined contribution schemes. An appropriate share of the costs of the pension schemes administered by the parent undertaking, which are a defined benefit scheme and a defined contribution scheme, are charged to operations for this Company in respect of staff who are members of these schemes. Full details of these schemes are disclosed in the financial statements of The Savoy Hotel PLC. The pension cost charge for defined contribution schemes represents the amounts payable to insurance companies in respect of the funds for the year to December 31. F-50 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 3. STAFF COSTS
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------- (Pounds) Wages and salaries.......................................... 391,924 Social security costs....................................... 28,242 Pension costs............................................... 3,120 --------------- (Pounds)423,286 =============== Pension costs comprise: Payments to funded defined contribution schemes........... 320 Charges in respect of group scheme........................ 2,800 --------------- (Pounds) 3,120 =============== The average weekly number of employees during the period was as follows: NUMBER --------------- Chauffeurs and support staff................................ 43 Administration.............................................. 6 --------------- 49 =============== Directors' remuneration was as follows: Remuneration as executives................................ Nil Pension contributions..................................... Nil Compensation for loss of office........................... Nil --------------- (Pounds) Nil =============== Emoluments excluding pension: Chairman's emoluments..................................... (Pounds) Nil =============== Highest paid director's emoluments........................ (Pounds) Nil ===============
The number of directors (including the chairman and highest paid director) who received emoluments (excluding pension contributions) in the following ranges was: NUMBER ------ (Pounds)0-(Pounds)5,000............. 4 ======
No director waived emoluments in respect of the period ended December 31, 1995. The statement of operations for the period from August 4, 1995 to December 31, 1995 includes no head office management recharges from the parent undertaking in respect to the services provided by the directors of Camelot Barthropp Limited and other corporate overheads. F-51 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 4. INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------ (Pounds) The income on ordinary activities before taxation is stated after charging: Marketing recharge from parent........................... 27,484 Depreciation............................................. 114,914 Operating leases--hire of plant and machinery............ 4,217 --other operating leases................................. 10,000 ======= and after crediting: Rent receivable.......................................... 5,526 Sundry income............................................ 417 Gain on disposal of tangible fixed assets................ 1,757 Other operating income................................... 7,700 =======
5. TAXATION
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------ (Pounds) UK corporation tax on ordinary activities for the period at 33%....................................................... 60,256 ======
6. TANGIBLE FIXED ASSETS
SHORT LEASEHOLD MOTOR FURNITURE AND PREMISES VEHICLES EQUIPMENT TOTAL --------------- -------- ------------- -------- (Pounds) (Pounds) (Pounds) (Pounds) Cost At August 4, 1995............ -- -- -- -- Additions.................... 7,591 763,686 57,952 829,229 Disposals.................... -- (55,022) -- (55,022) ----- ------- ------ ------- At December 31, 1995......... 7,591 708,664 57,952 774,207 ----- ------- ------ ------- Accumulated depreciation At August 4, 1995............ -- -- -- -- Charge for the Year.......... 770 104,144 10,000 114,914 Disposals.................... -- -- -- -- ----- ------- ------ ------- At December 31, 1995......... 770 104,144 10,000 114,914 ----- ------- ------ ------- Net Book Value At December 31, 1995......... 6,821 604,520 47,952 659,293 ===== ======= ====== =======
F-52 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 7.INVENTORIES
1995 --------- (Pounds) Raw materials and consumables: Vehicle spare parts.............................................. 5,369 Petrol and oil................................................... 4,378 --------- 9,747 ========= 8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade receivables.................................................. 337,960 Amounts owed by parent undertaking................................. 155,164 Other receivables.................................................. 4,784 Prepayments and accrued income..................................... 50,195 --------- 548,103 ========= 9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade accounts payable............................................. 95,414 Borrowings from parent undertaking................................. 230,607 Borrowings from fellow subsidiary.................................. 936,674 Corporation tax.................................................... 60,256 Other taxes and social security.................................... 73,542 Other creditors.................................................... 5,605 Accruals........................................................... 128,791 --------- 1,530,889 =========
10.DEFERRED TAXES Provision for deferred taxes has been made in the financial statements in accordance with the Company's accounting policy. The provision and the full potential liability are as follows:
1995 ------------------------ POTENTIAL PROVISION LIABILITY --------- -------------- Accelerated capital allowances..................... -- (Pounds)17,875 === ==============
11.SHARE CAPITAL AND SHARE PREMIUM
1995 -------- (Pounds) Authorized: Ordinary Shares of (Pounds)1...................................... 100,000 =======
F-53 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 The Company was incorporated on August 4, 1995 with 1,000 Ordinary Shares of (Pounds)1 each. On August 30, 1995 the authorized share capital of the Company was increased by 99,000 Ordinary Shares of (Pounds)1 each.
NUMBER NOMINAL SHARE TOTAL ISSUED VALUE PREMIUM CONSIDERATION ------ ------- ------- ------------- Allotted, called up and fully paid: Ordinary Shares of (Pounds)1............ 92,000 92,000 819,000 911,000 ====== ====== ======= =======
On August 8, 1995, 1,000 shares were issued to The Savoy Hotel PLC at par. On August 30, a further 91,000 shares were issued to The Savoy Hotel PLC at a price of (Pounds)10.00 per share 12. RETAINED EARNINGS
1995 -------- (Pounds) At August 4, 1995................................................... -- Retained income for the period...................................... 53,166 ------- At December 31, 1995................................................ 53,166 ======= 13. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY 1995 -------- (Pounds) Opening shareholders' equity........................................ -- Issue of share capital.............................................. 92,000 Share premium....................................................... 819,000 Total recognized gains for the period............................... 53,166 ------- Closing shareholders' equity........................................ 964,166 =======
14. FINANCIAL COMMITMENTS a) The Company has annual commitments under operating leases as set out below:
1995 ------------------ LAND AND BUILDINGS OTHER --------- -------- (Pounds) (Pounds) Leases which expire: In the next year...................................... -- 3,363 In the second to fifth years.......................... -- 5,504 After five years...................................... -- -- --- ----- -- 8,867 === =====
b) Capital commitments:
1995 -------- (Pounds) Capital expenditure contracted for but not provided in the fi- nancial statements............................................ -- === Capital expenditure approved by the directors but not con- tracted for................................................... -- ===
F-54 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 15. POST BALANCE SHEET EVENTS The parent undertaking sold Camelot Barthropp Limited to Carey International, Inc. for an initial consideration of (Pounds)788,843. Further consideration of (Pounds)672,752 will become payable on the parent undertaking providing certain thresholds of business for Camelot Barthropp Limited are achieved during the period to March 31, 1998. 16. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). These accounting principles differ in certain material respects from the accoounting principles generally accepted in the United States ("U.S. GAAP"). Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income and shareholders' equity which are set forth in the tables that follow. TRANSFER OF ASSETS BETWEEN FELLOW SUBSIDIARIES Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their fair value. The difference between the fair value and the historical cost of these assets will result in an intragroup gain or loss in the statement of operations of the subsidiary selling the assets. The assets would remain at their fair value in the subsidiary that acquired the assets and the associated depreciation charge would be provided on these fair values. Under U.S. GAAP, assets can only be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their historical cost. As a result, under U.S. GAAP, no intragroup gain or loss would arise from the transaction, the assets would remain at historical cost and the associated depreciation charge would be provided on these historical costs. ALLOCATION OF EXPENSES IN A "CARVE OUT" SITUATION Under U.K. GAAP, certain costs incurred by the parent undertaking may not be reflected in the subsidiary financial statements; however, disclosure of this fact is generally provided in the subsidiary financial statements. Under U.S. GAAP, historical income statements of a subsidiary should reflect all costs incurred by the parent undertaking on its behalf, such as officer salaries and corporate overheads. DEFERRED TAXES Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability will crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is provided for on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realized. Where doubt exists as to whether a deferred tax asset will be realized, an appropriate valuation allowance is established. STOCK SUBSCRIPTIONS Under U.K. GAAP the amount of the shares issued, including those issued pursuant to a stock subscription receivable, is shown on the face of the balance sheet. Any subscription receivable due on these shares would be shown separately in the balance sheet. Under U.S. GAAP, the net amount of the shares being the amount of the shares issued after deducting any subscriptions receivable therefrom, is shown on the face of the balance sheet. F-55 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 The effect of the above noted differences between U.K. and U.S. GAAP are as follows: (A)NET INCOME The approximate effects on net income of material differences between U.K. and U.S. GAAP are as follows:
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 -------------------- (Pounds) Net income reported under U.K. GAAP................... 53,166 Transfer of assets -- depreciation adjustment......... 15,590 Allocation of expenses................................ (21,170) Deferred taxes........................................ (17,875) Tax effect of U.S. GAAP reconciling adjustments....... 1,844 -------- Net income reported in accordance with U.S. GAAP...... 31,555 ======== (B)SHAREHOLDERS' EQUITY The approximate effects on shareholders' equity of material differences between U.K. and U.S. GAAP are as follows: AT DECEMBER 31, 1995 -------------------- (Pounds) Shareholders' equity reported under U.K. GAAP......... 964,166 Gain on transfer of assets--fixed assets.............. (112,500) --amounts payable..................................... 112,500 --depreciation adjustment............................. 15,590 Allocation of expenses................................ (21,170) Stock subscriptions................................... (911,000) Deferred taxes........................................ (17,875) Tax effect of U.S. GAAP reconciling adjustments....... 1,844 -------- Shareholders' equity reported in accordance with U.S. GAAP................................................. 31,555 ========
F-56 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 (C)STATEMENTS OF CASH FLOWS Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are established under the law of any European Community State are exempt from including a statement of cash flows in their financial statements. Under U.S. GAAP, the statement of cash flows is required and therefore is shown below:
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 -------------------- (Pounds) Cash flows from operating activities Net income.......................................... 31,555 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets..... 99,324 Gain on sale of fixed assets...................... (1,757) Change in operating assets and liabilities: Receivables..................................... (548,103) Inventories..................................... (9,747) Current liabilities............................. 738,861 -------- Net cash provided by operating activities..... 310,133 -------- Cash flows from investing activities: Proceeds from gain of fixed assets.................. 56,779 -------- Net cash provided by investing activities..... 56,779 -------- Net increase in cash and cash equivalents............. 366,912 Cash and cash equivalents at beginning of year........ -- -------- Cash and cash equivalents at end of year.............. 366,912 ========
F-57 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors of Speed 6060 Limited (formerly Camelot Barthropp Limited): We have audited the accompanying balance sheets of Speed 6060 Limited as of December 31, 1994 and 1995, and the related statements of operations for each of the two years in the period ended December 31, 1995, all expressed in pounds sterling. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform our 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 presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Speed 6060 Limited as of December 31, 1994 and 1995, and the results of its operations for each of the two years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United Kingdom (which differ in certain respects from generally accepted accounting principles in the United States--see note 16). Coopers & Lybrand Chartered Accountants and Registered Auditors London, England February 26, 1996, except note 16 which is dated February 28, 1997 F-58 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
NOTE 1994 1995 ---- --------- --------- (Pounds) (Pounds) Revenues--discontinued operations................... 2,694,693 1,849,242 Other operating income.............................. 4 79,056 38,142 --------- --------- 2,773,749 1,887,384 --------- --------- Expenditures--discontinued operations Vehicle operating costs........................... 329,701 216,200 Other external charges............................ 537,423 403,330 Staff costs....................................... 3 1,086,203 710,084 Other operating charges........................... 4 647,327 509,688 --------- --------- 2,600,654 1,839,302 --------- --------- Operating income.................................... 173,095 48,082 Gain on the disposal of fixed assets to a fellow subsidiary......................................... -- 112,500 --------- --------- Income on ordinary activities before tax............ 173,095 160,582 Tax on ordinary activities.......................... 5 62,252 30,604 --------- --------- Net income on ordinary activities after taxation.... 110,843 129,978 Dividend payable.................................... 110,000 275,000 --------- --------- Net income (loss) retained.......................... 843 (145,022) ========= =========
The Company has no recognized gains or losses other than the income (losses) above and therefore no separate statement of total recognized gains and losses has been presented. There is no difference between the income on ordinary activities before taxation for the years stated above and their historical cost equivalents. The Company ceased trading at close of business on August 31, 1995 and consequently the statement of operations for 1995 only reflects the results to this date. The accompanying notes are an integral part of these financial statements. F-59 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) BALANCE SHEETS AT DECEMBER 31, 1994 AND 1995
NOTE 1994 1995 ---- --------- -------- (Pounds) (Pounds) Fixed assets Tangible assets..................................... 6 848,058 -- --------- ------- Current assets Inventories......................................... 7 19,650 -- Receivables......................................... 8 377,519 936,674 Cash at bank and in hand............................ 220,248 -- --------- ------- 617,417 936,674 Current liabilities--amounts falling due within one year................................................. 9 415,112 31,333 --------- ------- Net current assets.................................... 202,305 905,341 --------- ------- Total assets less current liabilities............. 1,050,363 905,341 ========= ======= Represented by: Shareholders' equity Called up share capital............................. 11 43,329 43,329 Retained earnings................................... 12 1,007,034 862,012 --------- ------- Total shareholders' equity........................ 1,050,363 905,341 ========= =======
The accompanying notes are an integral part of these financial statements. F-60 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 1. BASIS OF PREPARATION The accompanying financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"), and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds sterling ("(Pounds)"). The accompanying financial statements do not represent the U.K. statutory financial statements of Speed 6060 Limited, as certain reclassifications and changes in presentation and disclosure have been made to the U.K. financial statements prepared on a statutory basis in order to conform, more closely with accounting presentation and disclosure requirements applicable in the United States. The financial statements of Speed 6060 Limited for the year ended December 31, 1995, on which the auditors' report was unqualified, were the latest financial statements to have been delivered to the Registrar of Companies in England and Wales. The ultimate parent undertaking of Speed 6060 Limited was The Savoy Hotel PLC, a company incorporated under the laws of England throughout the period being January 1, 1994 to December 31, 1995, of these financial statements. 2. ACCOUNTING POLICIES USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP 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 for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that Speed 6060 Limited's actual results may differ from the amounts reported and disclosed in the financial statements. DEPRECIATION Depreciation is provided so as to write off the cost less estimated residual value of fixed assets over their expected useful lives. Depreciation is provided on a straight line basis, mainly at the following annual rates: Motor vehicles --25% Furniture and equipment --10%-20% Improvements to premises --10%
INVENTORIES Inventories are valued at the lower of cost or net realizable value. DEFERRED TAXATION Provision is made for deferred taxation using the liability method at current taxation rates on all material timing differences to the extent that it is probable that a liability or asset will crystallize. F-61 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 REVENUES Revenues represent the invoiced value of services provided, excluding sales related taxes. FOREIGN CURRENCIES Assets and liabilities in foreign currencies have been translated into sterling at the rates ruling at the balance sheet date. LEASES Assets held under capital leases are capitalized in the balance sheet and are depreciated over their useful lives. The interest element of the repayments is charged to operations over the period of the contract on a straight line basis. Rentals paid under operating leases are charged to operations on a straight line basis over the lease term. PENSION COSTS The Company contributes into both defined benefit and defined contribution schemes. An appropriate share of the costs of the pension schemes administered by the Parent Undertaking, which are a defined benefit scheme and a defined contribution scheme, are charged to operations for this Company in respect of staff who are members of these schemes. Full details of these schemes are disclosed in the financial statements of The Savoy Hotel PLC. The pension cost charge for defined contribution schemes represents the amounts payable to insurance companies in respect of the funds for the year to December 31. F-62 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 3.STAFF COSTS
1994 1995 ----------------- --------------- (Pounds) (Pounds) Wages and salaries....................... 1,002,012 653,498 Social security costs.................... 74,588 50,508 Other pension costs...................... 9,603 6,078 ----------------- --------------- (Pounds)1,086,203 (Pounds)710,084 ================= =============== Other pension costs comprise: Payments to funded defined contribution schemes................................. 1,160 640 Charges in respect of group scheme....... 8,443 5,438 ----------------- --------------- (Pounds) 9,603 (Pounds) 6,078 ================= =============== The average weekly number of employees during the year was as follows: NUMBER NUMBER ----------------- --------------- Chauffeurs and support staff........... 40 39 Administration......................... 6 5 ----------------- --------------- 46 44 ================= =============== Directors' remuneration was as follows: Remuneration as executives............. Nil Nil Pension contributions.................. Nil Nil Compensation for loss of office........ Nil Nil ----------------- --------------- (Pounds) Nil (Pounds) Nil ----------------- --------------- Emoluments excluding pension scheme contributions: Chairman's emoluments.................. (Pounds) Nil (Pounds) Nil ================= =============== Highest paid directors' emoluments..... (Pounds) Nil (Pounds) Nil ================= ===============
The number of directors (including the chairman and highest paid director) who received emoluments (excluding pension contributions) in the following ranges was:
NUMBER NUMBER ------ ------ (Pounds)0-(Pounds)5,000........................................ 5 4 === ===
No director waived emoluments in respect of the years ended December 31, 1994 and 1995. The statements of operations for the years ended December 31, 1994 and 1995 include no head office management recharges from the parent undertaking in respect to the services provided by the directors of Speed 6060 Limited and other corporate overheads. F-63 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 4.INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION The income on ordinary activities before taxation is stated after charging:
1994 1995 -------- -------- (Pounds) (Pounds) Auditors' remuneration...................................... 10,000 6,000 Marketing recharge from parent.............................. -- 49,001 Depreciation................................................ 343,428 215,588 Operating leases--hire of plant and machinery............... 9,332 6,155 --other............................................... 35,250 20,000 ======= ======= and after crediting: Rent receivable............................................. 14,182 9,027 Sundry income............................................... 1,388 438 Gain on disposal of tangible fixed assets................... 63,486 28,677 Other operating income...................................... 79,056 38,142 ======= ======= 5.TAXATION UK corporation tax on income on ordinary activities for the years at 33%............................................... 63,000 31,333 UK corporation tax credit in respect of previous years...... (748) (729) ------- ------- 62,252 30,604 ======= =======
In 1995, the primary reason for the difference between the effective tax rate (19%) and the nominal rate of UK corporation tax (33%) is that the transfer of the traded assets of the Company was intra-group and therefore not subject to corporation tax. F-64 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 6.TANGIBLE FIXED ASSETS
SHORT FURNITURE LEASEHOLD MOTOR AND PREMISES VEHICLES EQUIPMENT TOTAL --------- ---------- --------- ---------- (Pounds) (Pounds) (Pounds) (Pounds) Cost At January 1, 1994............... 36,675 1,464,752 92,233 1,593,660 Additions........................ -- 402,593 49,053 451,646 Disposals........................ -- (382,634) (249) (382,883) Fully depreciated assets......... (11,355) -- (34,031) (45,386) ------- ---------- -------- ---------- At December 31, 1994............. 25,320 1,484,711 107,006 1,617,037 ------- ---------- -------- ---------- Additions........................ -- 115,800 8,075 123,875 Disposals........................ (25,320) (1,600,511) (115,081) (1,740,912) ------- ---------- -------- ---------- At December 31, 1995............. -- -- -- -- ======= ========== ======== ========== Accumulated Depreciation At January 1, 1994............... 25,234 709,265 54,039 788,538 Charge for the year.............. 2,310 319,191 21,927 343,428 Disposals........................ -- (317,352) (249) (317,601) Fully depreciated assets......... (11,355) -- (34,031) (45,386) ------- ---------- -------- ---------- At December 31, 1994............. 16,189 711,104 41,686 768,979 Charge for the year.............. 1,540 197,965 16,083 215,588 Disposals........................ (17,729) (909,069) (57,769) (984,567) ------- ---------- -------- ---------- At December 31, 1995............. -- -- -- -- ======= ========== ======== ========== Net Book Value At December 31, 1994............. 9,131 773,607 65,320 848,058 ======= ========== ======== ========== At December 31, 1995............. -- -- -- -- ======= ========== ======== ==========
In 1995, in accordance with the transfer agreement whereby the assets and business of the Company were transferred, an exceptional gain on disposal of (Pounds)112,500 was made. This gain specifically related to the transfer of motor vehicles which were transferred at fair market value. All other assets were transferred at net book value. 7.INVENTORIES
1994 1995 -------- -------- (Pounds) (Pounds) Raw materials and consumables: Vehicle spare parts........................................... 15,605 -- Petrol and oil................................................ 4,045 -- ------- ------- 19,650 -- ======= ======= 8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade receivables............................................. 184,969 -- Amounts owed by parent undertaking............................ 104,027 -- Amounts owed by fellow subsidiary............................. -- 936,674 Other receivables............................................. 4,224 -- Prepayments and accrued income................................ 84,299 -- ------- ------- 377,519 936,674 ======= =======
F-65 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
1994 1995 -------- -------- (Pounds) (Pounds) Trade accounts payable..................................... 76,057 -- Borrowings from parent undertaking......................... 34,915 -- Corporation tax............................................ 63,000 31,333 Other taxes and social security............................ 49,699 -- Other creditors............................................ 11,299 -- Capital lease installments................................. 4,638 -- Accruals................................................... 65,504 -- Dividends payable.......................................... 110,000 -- ------- ------ 415,112 31,333 ======= ======
10.DEFERRED TAXES Provision for deferred taxes has been made in the financial statements in accordance with the Company's accounting policy. The provision and the full potential liability are as follows:
1994 1995 ------------------------- ------------------- POTENTIAL POTENTIAL PROVISION LIABILITY PROVISION LIABILITY --------- --------------- --------- --------- Accelerated capital allowances................. -- (Pounds) 15,534 -- --
11.SHARE CAPITAL
1994 1995 -------- -------- (Pounds) (Pounds) Authorized: "A' Ordinary Shares of (Pounds)1......................... 20,000 20,000 "B' Ordinary Shares of (Pounds)1......................... 30,000 30,000 ------ ------ 50,000 50,000 ====== ====== Allotted, called up and fully paid: "A' Ordinary Shares of (Pounds)1......................... 17,329 17,329 "B' Ordinary Shares of (Pounds)1......................... 26,000 26,000 ------ ------ 43,329 43,329 ====== ======
12.RETAINED EARNINGS
1994 1995 --------- --------- (Pounds) (Pounds) At January 1.......................................... 1,006,191 1,007,034 Transfer to (from) retained earnings.................. 843 (145,022) --------- --------- At December 31........................................ 1,007,034 862,012 ========= ========= 13.RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY 1994 1995 --------- --------- (Pounds) (Pounds) Opening shareholders' equity.......................... 1,049,520 1,050,363 Total recognized (losses)/gains for the financial year................................................. 843 (145,022) --------- --------- Closing shareholders' equity.......................... 1,050,363 905,341 ========= =========
F-66 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 14.FINANCIAL COMMITMENTS a) The Company has annual commitments under operating leases as set out below:
1994 1995 ------------------ ------------------ LAND AND LAND AND BUILDINGS OTHER BUILDINGS OTHER --------- -------- --------- -------- (Pounds) (Pounds) (Pounds) (Pounds) Leases which expire: In the next year.................... 30,000 360 -- -- In the second to fifth years........ -- 9,038 -- -- After five years.................... -- -- -- -- ------ ----- --- --- 30,000 9,398 -- -- ====== ===== === ===
b) Capital commitments: The Company has no capital commitments at December 31, 1994 and 1995 15.GUARANTEE The Company has entered into a Composite Accounting Agreement with Barclays Bank PLC under which it has executed an unlimited guarantee in respect of the bank overdraft and other banking facility of the Parent Undertaking and certain Fellow Subsidiary Undertakings. 16.SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). These accounting principles differ in certain material respects from the accounting principles generally accepted in the United States ("U.S. GAAP"). Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income and shareholders' equity which are set forth in the tables that follow: Transfer of assets between fellow subsidiaries Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their fair value. The difference between the fair value and the historical cost of these assets will result in an intragroup gain or loss in the statement of operations of the subsidiary selling the assets. The assets would remain at their fair value in the subsidiary that acquired the assets. Under U.S. GAAP, assets can only be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their historical cost. As a result, under U.S. GAAP no intragroup gain or loss would arise from the transaction, and the assets would remain at historical cost. Allocation of expenses in a "carve out" situation Under U.K. GAAP, certain costs incurred by the parent undertaking may not be reflected in the subsidiary financial statements; however, disclosure of the fact is generally provided in the subsidiary financial statements. Under U.S. GAAP, historical statements of operations of a subsidiary should reflect all costs incurred by the parent undertaking on its behalf, such as officer salaries and corporate overheads. F-67 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 Deferred taxes Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability will crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is provided for on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realized. Where doubt exists as to whether a deferred tax asset will be realized, an appropriate valuation allowance is established. Proposed dividends Under U.K. GAAP dividends paid and proposed are usually shown on the face of the statement of operations as an appropriation of current year earnings. Proposed dividends are provided on the basis of recommendation by the directors and may include dividends that are subject to subsequent approval by shareholders before they are declared. Under U.S. GAAP, only dividends approved during the current year are included in the statement of operations. The effect of the above noted differences between U.K. and U.S. GAAP are as follows: (A) NET INCOME The approximate effects on net income (loss) of material differences between U.K. and U.S. GAAP are as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1994 1995 --------- --------- (Pounds) (Pounds) Net income reported under U.K. GAAP....................... 110,843 129,978 Gain on transfer of assets................................ -- (112,500) Allocation of expenses.................................... (68,350) (42,341) Deferred taxes............................................ 2,161 15,534 Tax effect of U.S. GAAP reconciling adjustments........... 22,556 13,973 -------- --------- Net income reported in accordance with U.S. GAAP.......... 67,210 4,644 ======== =========
(B) SHAREHOLDERS' EQUITY The approximate effects on shareholders' equity of material differences between U.K. and U.S. GAAP are as follows:
AT DECEMBER 31, ------------------- 1994 1995 --------- -------- (Pounds) (Pounds) Shareholders' equity reported under U.K. GAAP............ 1,050,363 905,341 Gain on transfer of assets............................... -- (112,500) Allocation of expenses................................... (68,350) (110,691) Deferred taxes........................................... (15,534) -- Proposed dividend........................................ 110,000 -- Tax effect of U.S. GAAP reconciling adjustments.......... 22,556 36,529 --------- -------- Shareholders' equity reported in accordance with U.S. GAAP.................................................... 1,099,035 718,679 ========= ========
F-68 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (C) STATEMENTS OF CASH FLOWS Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are established under the law of any European Community State are exempt from including a statement of cash flows in their financial statements. Under U.S. GAAP, the statement of cash flows is required and therefore is shown below:
YEAR ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- (Pounds) (Pounds) Cash flows from operating activities: Net income................................ 67,210 4,644 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed as- sets..................................... 343,428 215,588 Gain on sale of fixed assets.............. (63,486) (28,677) Change in operating assets and liabili- ties: Receivables............................. 54,058 166,047 Inventories............................. 3,797 19,650 Current liabilities..................... (79,729) (156,918) -------- -------- Net cash provided by operating activi- ties................................. 325,278 220,334 -------- -------- Cash flows from investing activities: Proceeds from sale of fixed assets........ 128,768 68,293 Purchases of fixed assets................. (451,646) (123,875) Net cash used in financing activi- ties................................. (322,878) (55,582) -------- -------- Cash flows from financing activities: Dividends paid.......................... -- (385,000) Net cash used in financing activi- ties................................. -- (385,000) -------- -------- Net increase (decrease) in cash and cash equivalents.............................. 2,400 (220,248) Cash and cash equivalents at beginning of year..................................... 217,848 220,248 -------- -------- Cash and cash equivalents at end of year.. 220,248 -- ======== ========
F-69 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell or the solicitation of any offer to buy any security other than the shares of Common Stock offered by this Prospectus, nor does it constitute an offer to sell or a solicitation of any offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that information contained herein is correct as of any time subsequent to the date hereof. ------------------- TABLE OF CONTENTS -------------------
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 Acquisition of Manhattan Limousine....................................... 13 Recapitalization......................................................... 13 Use of Proceeds.......................................................... 14 Dilution................................................................. 15 Capitalization........................................................... 16 Dividend Policy.......................................................... 16 Selected Consolidated Financial Data..................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 18 Business................................................................. 24 Management............................................................... 34 Principal Stockholders................................................... 40 Certain Transactions..................................................... 42 Description of Capital Stock............................................. 44 Shares Eligible for Future Sale.......................................... 46 Underwriting............................................................. 48 Legal Matters............................................................ 50 Experts.................................................................. 50 Additional Information................................................... 50 Index to Financial Statements............................................ F-1
--------------- Until , 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the Common Stock offered hereby, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,900,000 SHARES [LOGO OF CAREY APPEARS HERE] CAREY INTERNATIONAL, INC. COMMON STOCK --------------- PROSPECTUS --------------- Montgomery Securities Ladenburg Thalmann & Co. Inc. , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than underwriting discounts and commissions. All of the amounts shown are estimated except the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq listing fee. SEC registration fee.......................................... $ 13,138 NASD filing fee............................................... 4,836 Nasdaq listing fee............................................ 38,546 Printing and engraving expenses............................... 500,000 Legal fees and expenses....................................... 550,000 Accounting fees and expenses.................................. 350,000 Blue sky fee.................................................. 5,000 Transfer agent and registrar fees............................. 5,000 Miscellaneous................................................. 133,480 ---------- TOTAL..................................................... $1,600,000 ==========
The Company will bear all of the foregoing fees and expenses. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Delaware corporation. Reference is made to Section 145 of the DGCL, as amended, which provides that a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite an adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The Company's Restated Certificate of Incorporation further provides that the Company shall indemnify its directors and officers to the full extent permitted by the law of the State of Delaware. The Company's Certificate of Incorporation provides that the Company's directors shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent II-1 that exculpation from liability is not permitted under the DGCL as in effect at the time such liability is determined. The Certificate of Incorporation also provides that each person who was or is made a party to, or is involved in, any action, suit, proceeding or claim by reason of the fact that he or she is or was a director, officer or employee of the Registrant (or is or was serving at the request of the Registrant as a director, officer, trustee employee or agent of any other enterprise including service with respect to employee benefit plans) shall be indemnified and held harmless by the Registrant, to the full extent permitted by Delaware law, as in effect from time to time, against all expenses (including attorneys' fees and expenses), judgments, fines, penalties and amounts to be paid in settlement incurred by such person in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim. The rights to indemnification and the payment of expenses provided by the Certificate of Incorporation do not apply to any action, suit, proceeding or claim initiated by or on behalf of a person otherwise entitled to the benefit of such provisions. Any person seeking indemnification under the Certificate of Incorporation shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of such indemnification provisions shall not adversely affect any right or protection of a director or officer with respect to any conduct of such director or officer occurring prior to such repeal or modification. The Company maintains an indemnification insurance policy covering all directors and officers of the Company and its subsidiaries. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (1) In April and October, 1995, two of the Company's employees purchased 8,600 and 24,080 shares of Common Stock, respectively, for approximately $1.44 per share upon the exercise of options granted under the 1987 Stock Option Plan. In May 1997, a former director of the Company purchased 6,880 shares of Common Stock for approximately $1.44 per share upon the exercise of options granted under the 1987 Stock Option Plan. (2) The Company granted options to purchase Common Stock pursuant to the 1987 and 1992 Stock Option Plans to individuals who were employees at the time of grant on the following dates and in the indicated amounts: October 28, 1994 (8,600 shares); February 29, 1996 (12,900 shares); June 1, 1996 (47,017 shares); and June 10, 1996 (12,900 shares). In addition, the Company granted an option to purchase 12,900 shares of Common Stock pursuant to the 1992 Stock Option Plan to one of its directors on March 30, 1995. The Company also granted an option to purchase 12,900 shares of Common Stock pursuant to the 1992 Stock Option Plan to a consultant on June 10, 1996. (3) In June 1994, in connection with the acquisition of a chauffeured vehicle service company, the Company issued a Convertible Promissory Note to the seller of the acquired company in the original principal amount of $190,000. Under certain circumstances, any and all of the outstanding principal balance under the Note (currently $95,000) is convertible into shares of Common Stock at a conversion price of $9.30 per share. (4) In August 1995, in connection with the acquisition of a chauffeured vehicle service company, the Company issued a Convertible Promissory Note to the seller of the acquired company in the original principal amount of $600,000. Under certain circumstances, any and all of the outstanding principal balance under the Note (currently $400,000) is convertible into shares of Common Stock at a conversion price of $9.30 per share. (5) In June 1996, the Company issued two warrants, each to purchase 3,225 shares of Common Stock, to two stockholders of the Company. The securities issued in the foregoing transactions were not registered under the Securities Act in reliance upon exemptions from registration set forth in Section 4(2) of the Securities Act. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS (A) EXHIBITS.
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- +1 Form of Underwriting Agreement *2.1 Stock Purchase Agreement dated as of March 1, 1997, by and among Carey International, Inc., Alfred J. Hemlock and Lupe C. Hemlock *2.2 Agreement and Plan of Merger dated as of March 1, 1997, by and among Carey International, Inc., Manhattan International Limousine Network Ltd., MLC Acquisition Corporation and Michael Hemlock +2.3 Form of Stockholder Action by Written Consent Adopted in Connection with the Recapitalization *3.1 Form of Amended and Restated Certificate of Incorporation of the Company *3.2 Amended and Restated Bylaws of the Company +4.1 Specimen Stock Certificate +4.2 Form of Warrants *4.3 Carey International, Inc. Common Stock Purchase Warrant dated September 1, 1991, issued to Yerac Associates, L.P. *4.4 Form of Registration Rights Agreement between Carey International, Inc. and Michael Hemlock *5 Opinion of Nutter, McClennen & Fish, LLP *10.1 1997 Equity Incentive Plan *10.2 1992 Stock Option Plan *10.3 1987 Stock Option Plan *10.4 Stock Plan for Non-Employee Directors *10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue, Washington, D.C., between Carey International, Inc. and 4530 Wisconsin Associates, as lessor, including Addendum, Exhibit B and Exhibit C; and Second Amendment to Lease dated August 6, 1993, including Exhibit A *10.6 Form of Escrow Agreement by and among Michael Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named *10.7 Current form of Standard Master License Agreement *10.8 Current form of Standard International License Agreement *10.9 Form of Promissory Notes in connection with Acquisition of Manhattan Limousine *10.10 Current form of Standard Independent Operator Agreement *11 Statements Regarding Computation of Per Share Earnings +21 Subsidiaries of the Registrant +23.1 Consent of Coopers & Lybrand L.L.P. +23.2 Consent of Coopers & Lybrand L.L.P. +23.3 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors +23.4 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors *23.5 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) *23.6 Consent of Nicholas J. St. George *24 Power of Attorney (contained in the signature page to this Registration Statement) *27 Financial Data Schedule
- -------- * Previously filed. + Filed herewith. II-3 (B) FINANCIAL STATEMENT SCHEDULE: The following Financial Statement Schedule is filed as part of this Registration Statement. Report of Independent Accountants Schedule VIII--Valuation and Qualifying Accounts ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A under the Securities Act and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, THE DISTRICT OF COLUMBIA, ON THE 23RD DAY OF MAY 1997. Carey International, Inc. By: /s/ Vincent A. Wolfington --------------------------------- VINCENT A. WOLFINGTON CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE /s/ Vincent A. Wolfington Chairman of the May 23, 1997 - ------------------------------------- Board and Chief VINCENT A. WOLFINGTON Executive Officer /s/ Don R. Dailey* President and May 23, 1997 - ------------------------------------- Director DON R. DAILEY /s/ David H. Haedicke* Chief Financial May 23, 1997 - ------------------------------------- Officer DAVID H. HAEDICKE /s/ Paul A. Sandt* Principal Accounting May 23, 1997 - ------------------------------------- Officer PAUL A. SANDT /s/ David McL. Hillman* Director May 23, 1997 - ------------------------------------- DAVID MCL. HILLMAN /s/ William R. Hambrecht* Director May 23, 1997 - ------------------------------------- WILLIAM R. HAMBRECHT /s/ Robert W. Cox* Director May 23, 1997 - ------------------------------------- ROBERT W. COX
*By: /s/ Vincent A. Wolfington -------------------------------- VINCENT A. WOLFINGTON ATTORNEY-IN-FACT Powers of Attorney have been filed with this Registration Statement. II-5 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. In connection with our audits of the consolidated financial statements of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and for each of the three years in the period ended November 30, 1996, which financial statements are included in the Prospectus, we have also audited the consolidated financial statement schedule listed in Item 16(b) of Part II of the Registration Statement herein. In our opinion, this consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Washington, D.C. January 31, 1997, except for Notes 1, 2 and 18 as to which the date is March 1, 1997 1 SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
BALANCE AT BEGINNING CHARGED TO COSTS DEDUCTIONS-- BALANCE AT END DESCRIPTION OF PERIOD AND EXPENSE WRITE-OFFS OF PERIOD ----------- -------------------- ---------------- ------------ -------------- Year ended November 30, 1996 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $293,796 $498,786 $(257,174) $535,408 Year ended November 30, 1995 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $203,872 $391,964 $(302,040) $293,796 Year ended November 30, 1994 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $219,979 $251,733 $(267,840) $203,872
2 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- +1 Form of Underwriting Agreement *2.1 Stock Purchase Agreement dated as of March 1, 1997, by and among Carey International, Inc., Alfred J. Hemlock and Lupe C. Hemlock *2.2 Agreement and Plan of Merger dated as of March 1, 1997, by and among Carey International, Inc., Manhattan International Limousine Network Ltd., MLC Acquisition Corporation and Michael Hemlock +2.3 Form of Stockholder Action by Written Consent Adopted in Connection with the Recapitalization *3.1 Form of Amended and Restated Certificate of Incorporation of the Company *3.2 Amended and Restated Bylaws of the Company +4.1 Specimen Stock Certificate +4.2 Form of Warrants *4.3 Carey International, Inc. Common Stock Purchase Warrant dated September 1, 1991, issued to Yerac Associates, L.P. *4.4 Form of Registration Rights Agreement between Carey International, Inc. and Michael Hemlock *5 Opinion of Nutter, McClennen & Fish, LLP *10.1 1997 Equity Incentive Plan *10.2 1992 Stock Option Plan *10.3 1987 Stock Option Plan *10.4 Stock Plan for Non-Employee Directors *10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue, Washington, D.C., between Carey International, Inc. and 4530 Wisconsin Associates, as lessor, including Addendum, Exhibit B and Exhibit C; and Second Amendment to Lease dated August 6, 1993, including Exhibit A *10.6 Form of Escrow Agreement by and among Michael Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named *10.7 Current Form of Standard Master License Agreement *10.8 Form of Standard International License Agreement *10.9 Form of Promissory Notes in connection with Acquisition of Manhattan Limousine *10.10 Current Form of Standard Independent Operator Agreement *11 Statements Regarding Computation of Per Share Earnings +21 Subsidiaries of the Registrant +23.1 Consent of Coopers & Lybrand L.L.P. +23.2 Consent of Coopers & Lybrand L.L.P. +23.3 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors +23.4 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors *23.5 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) *23.6 Consent of Nicholas J. St. George *24 Power of Attorney (contained in the signature page to this Registration Statement) *27 Financial Data Schedule
- -------- * Previously filed. + Filed herewith. EX-1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1 2,900,000 SHARES CAREY INTERNATIONAL, INC. COMMON STOCK UNDERWRITING AGREEMENT DATED _____________, 1997 TABLE OF CONTENTS
Page ---- Section 1. Representations and Warranties of the Company............... 2 Compliance with Registration Requirements................... 2 Offering Materials Furnished to Underwriters................ 3 Distribution of Offering Material By the Company............ 3 The Underwriting Agreement.................................. 3 Authorization of the Common Shares.......................... 3 No Applicable Registration or Other Similar Rights.......... 3 No Material Adverse Change.................................. 3 Independent Accountants..................................... 4 Preparation of the Financial Statements..................... 4 Incorporation and Good Standing of the Company and its Subsidiaries................................... 5 Capitalization and Other Capital Stock Matters.............. 5 Stock Exchange Listing...................................... 6 Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required................... 6 No Material Actions or Proceedings.......................... 7 Intellectual Property Rights................................ 7 All Necessary Permits, etc.................................. 7 Title to Properties......................................... 7 Tax Law Compliance.......................................... 8 Company Not an "Investment Company"......................... 8 Insurance................................................... 8 No Price Stabilization or Manipulation...................... 8 Related Party Transactions.................................. 8 No Unlawful Contributions or Other Payments................. 8 Company's Accounting System................................. 9 Compliance with Environmental Laws.......................... 9 ERISA Compliance............................................ 10 Recapitalization............................................ 10 Manhattan Agreements........................................ 10 Representations in Manhattan Agreements..................... 11 Section 2. Purchase, Sale and Delivery of the Common Shares............ 11 The Firm Common Shares...................................... 11 The First Closing Date...................................... 11 The Optional Common Shares; the Second Closing Date......... 11 Public Offering of the Common Shares........................ 12 Payment for the Common Shares............................... 12 Delivery of the Common Shares............................... 13 Delivery of Prospectus to the Underwriters.................. 13
-i- Section 3. Additional Covenants of the Company......................... 13 Representatives' Review of Proposed Amendments and Supplements........................................ 13 Securities Act Compliance................................... 13 Amendments and Supplements to the Prospectus and Other Securities Act Matters................................. 13 Copies of any Amendments and Supplements to the Prospectus.. 14 Blue Sky Compliance......................................... 14 Use of Proceeds............................................. 15 Transfer Agent.............................................. 15 Earnings Statement.......................................... 15 Periodic Reporting Obligations.............................. 15 Agreement Not To Offer or Sell Additional Securities........ 15 Future Reports to the Representatives....................... 16 Section 4. Payment of Expenses......................................... 16 Section 5. Conditions of the Obligations of the Underwriters........... 17 Accountants' Comfort Letter................................. 17 Compliance with Registration Requirements; No Stop Order; No Objection from NASD.......................... 17 No Material Adverse Change.................................. 18 Opinion of Counsel for the Company.......................... 18 Opinion of Counsel for the Underwriters..................... 18 Officers' Certificate....................................... 18 Bring-down Comfort Letter................................... 18 Manhattan Closing........................................... 19 Manhattan Agreements........................................ 19 Lock-Up Agreement from Certain Stockholders of the Company.. 19 Recapitalization............................................ 19 Additional Documents........................................ 19 Section 6. Reimbursement of Underwriters' Expenses..................... 20 Section 7. Effectiveness of this Agreement............................. 20 Section 8. Indemnification............................................. 20 Indemnification of the Underwriters......................... 21 Indemnification of the Company, its Directors and Officers.. 22 Notifications and Other Indemnification Procedures.......... 22 Settlements................................................. 23 Section 9. Contribution................................................ 24 Section 10. Default of One or More of the Several Underwriters.......... 25
-ii- Section 11. Termination of this Agreement............................... 26 Section 12. Representations and Indemnities to Survive Delivery......... 27 Section 13. Notices..................................................... 27 Section 14. Successors.................................................. 28 Section 15. Partial Unenforceability.................................... 28 Section 16. Governing Law Provisions.................................... 28 Consent to Jurisdiction..................................... 28 Section 17. General Provisions.......................................... 28
-iii- UNDERWRITING AGREEMENT , 1997 MONTGOMERY SECURITIES LADENBURG THALMANN & CO. INC. As Representatives of the several Underwriters c/o MONTGOMERY SECURITIES 600 Montgomery Street San Francisco, California 94111 Ladies and Gentlemen: INTRODUCTORY. Carey International, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the several underwriters named in Schedule A (the "Underwriters") an aggregate of 2,900,000 shares (the "Firm - ---------- Common Shares") of its Common Stock, par value $.01 per share (the "Common Stock"). In addition, the Company has granted to the Underwriters an option to purchase up to an additional 435,000 shares (the "Optional Common Shares") of Common Stock, as provided in Section 2. The Firm Common Shares and, if and to the extent such option is exercised, the Optional Common Shares are collectively called the "Common Shares". Montgomery Securities and Ladenburg Thalmann & Co. Inc. have agreed to act as representatives of the several Underwriters (in such capacity, the "Representatives") in connection with the offering and sale of the Common Shares. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (File No. 333-22651), which contains a form of prospectus to be used in connection with the public offering and sale of the Common Shares. Such registration statement, as amended, including the financial statements, exhibits and schedules thereto, in the form in which it was declared effective by the Commission under the Securities Act of 1933 and the rules and regulations promulgated thereunder (collectively, the "Securities Act"), including any information deemed to be a part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is called the "Registration Statement". Any registration statement filed by the Company pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b) Registration Statement", and from and after the date and time of filing of the Rule 462(b) Registration Statement the term "Registration Statement" shall include the Rule 462(b) Registration Statement. Such prospectus, in the form first used by the Underwriters to confirm sales of the Common Shares, is called the "Prospectus"; provided, however, if the Company has, with the consent of the Representatives, elected to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the Company's prospectus subject to completion (each, a "preliminary prospectus") dated May 5, 1997 (such preliminary prospectus is called the "Rule 434 preliminary prospectus"), together with the applicable term sheet (the "Term Sheet") prepared and filed by the Company with the Commission under Rules 434 and 424(b) under the Securities Act and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. All references in this Agreement to the Registration Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any amendments or supplements to any of the foregoing, shall include any copy thereof filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR"). The Company hereby confirms its agreements with the Underwriters as follows: SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents, warrants and covenants to each Underwriter as follows: (a) Compliance with Registration Requirements. The Registration Statement and any Rule 462(b) Registration Statement have been declared effective by the Commission under the Securities Act. The Company has complied to the Commission's satisfaction with all requests of the Commission for additional or supplemental information. No stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement is in effect and no proceedings for such purpose have been instituted or are pending or, to the best knowledge of the Company, are contemplated or threatened by the Commission. Each preliminary prospectus and the Prospectus when filed complied in all material respects with the Securities Act and, if filed by electronic transmission pursuant to EDGAR (except as may be permitted by Regulation S-T under the Securities Act), was identical to the copy thereof delivered to the Underwriters for use in connection with the offer and sale of the Common Shares. Each of the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendment thereto, at the time it became effective and at all subsequent times during which a Prospectus is required to be delivered, complied and will comply in all material respects with the Securities Act and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, as amended or supplemented, as of its date and at all subsequent times, did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties set forth in the two immediately preceding sentences do not apply to statements in or omissions from the Registration Statement, any Rule 462(b) Registration Statement, or any post- -2- effective amendment thereto, or the Prospectus, or any amendments or supplements thereto, made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by the Representatives expressly for use therein. There are no contracts or other documents required to be described in the Prospectus or to be filed as exhibits to the Registration Statement which have not been described or filed as required. (b) Offering Materials Furnished to Underwriters. The Company has delivered to the Representatives two complete manually signed copies of the Registration Statement and of each consent and certificate of experts filed as a part thereof, and conformed copies of the Registration Statement (without exhibits) and preliminary prospectuses and the Prospectus, as amended or supplemented, in such quantities and at such places as the Representatives have reasonably requested for each of the Underwriters. (c) Distribution of Offering Material By the Company. The Company has not distributed and will not distribute, prior to the later of the Second Closing Date (as defined below) and the completion of the Underwriters' distribution of the Common Shares, any offering material in connection with the offering and sale of the Common Shares other than a preliminary prospectus, the Prospectus or the Registration Statement. (d) The Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principles. (e) Authorization of the Common Shares. The Common Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement, will be validly issued, fully paid and nonassessable. (f) No Applicable Registration or Other Similar Rights. There are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by this Agreement, except for such rights as have been duly waived. (g) No Material Adverse Change. Except as otherwise disclosed in the Prospectus, subsequent to the respective dates as of which information is given in the Prospectus: (i) there has been no material adverse change, or any development that could reasonably be expected to result in a material adverse change, in the condition, financial or otherwise, or in the earnings, business, operations or prospects, whether -3- or not arising from transactions in the ordinary course of business, of the Company and its subsidiaries, considered as one entity (any such change is called a "Material Adverse Change"); (ii) the Company and its subsidiaries, considered as one entity, have not incurred any material liability or obligation, indirect, direct or contingent, not in the ordinary course of business nor entered into any material transaction or agreement not in the ordinary course of business; (iii) there has been no material adverse change with respect to franchise rights, goodwill and other intangible assets (collectively, the "Intangible Assets") such that, as of the date hereof, the Intangible Assets, net of accumulated amortization, do not have a value at least equal to the value reflected in the Company's financial statements and no part of the Intangible Assets are required to be written down in conformity with generally accepted accounting principles applied on a basis consistent with prior periods; and (iv) there has been no dividend or distribution of any kind declared, paid or made by the Company or, except for dividends paid to the Company or other subsidiaries, any of its subsidiaries on any class of capital stock or repurchase or redemption by the Company or any of its subsidiaries of any class of capital stock. (h) Independent Accountants. Coopers & Lybrand L.L.P. and Coopers & Lybrand, Chartered Accountants and Registered Auditors, who have expressed their opinion with respect to the financial statements (which term as used in this Agreement includes the related notes thereto) and supporting schedules filed with the Commission as a part of the Registration Statement and included in the Prospectus, are independent public or certified public accountants with respect to the Company, Speed (hereinafter defined), Camelot (hereinafter defined) and Manhattan (hereinafter defined) as required by the Securities Act. (i) Preparation of the Financial Statements. The consolidated financial statements of the Company and its subsidiaries filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the consolidated financial position of the Company and its subsidiaries as of and at the dates indicated and the results of their operations and cash flows for the periods specified. The supporting schedules included in the Registration Statement present fairly the information required to be stated therein. The financial statements of Speed 6060 Limited ("Speed"), Camelot Barthropp Limited ("Camelot") and Manhattan International Limousine Network, Ltd. and affiliate (collectively "Manhattan") filed with the Commission as a part of the Registration Statement and included in the Prospectus present fairly the financial position of each of such companies as of and at the dates indicated and the results of their operations and cash flows for the periods specified. Such financial statements and supporting schedules of the Company and its subsidiaries and of Manhattan have been prepared in conformity with generally accepted accounting principles as applied in the United States applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto, and the financial statements of each of Speed and Camelot have been prepared in conformity with generally accepted accounting principles as set forth in the opinions with respect thereto applied on a consistent basis throughout the periods involved, except as may be expressly stated in the related notes thereto. The financial data set forth in the -4- Prospectus under the captions "Prospectus Summary--Summary and Pro Forma Consolidated Financial Data", "Selected Consolidated Financial Data" and "Capitalization" fairly present the information set forth therein on a basis consistent with that of the audited and pro forma financial statements contained in the Registration Statement. The pro forma consolidated financial statements of the Company and its subsidiaries and the related notes thereto included under the captions "Prospectus Summary--Summary and Pro Forma Consolidated Financial Data", "Selected Consolidated Financial Data," "Pro Forma Consolidated Financial Statements" and elsewhere in the Prospectus and in the Registration Statement fairly present the information contained therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly presented on the basis described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are reasonably appropriate to give effect to the transactions and circumstances referred to therein. No other financial statements or supporting schedules are required to be included in the Registration Statement. (j) Incorporation and Good Standing of the Company and its Subsidiaries. Each of the Company and its subsidiaries has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and, in the case of the Company, to enter into and perform its obligations under this Agreement. Each of the Company and each subsidiary is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. All of the issued and outstanding capital stock of each subsidiary (i) has been duly authorized and validly issued, is fully paid and nonassessable and is owned by the Company, directly or through subsidiaries, and (ii) simultaneously with the closing on the First Closing Date will be free and clear of any security interest, mortgage, pledge, lien, encumbrance or claim, except as otherwise disclosed in the Prospectus or any amendments or supplements thereto. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Registration Statement, except as otherwise disclosed in the Prospectus or any amendments or supplements thereto. (k) Capitalization and Other Capital Stock Matters. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under the caption "Capitalization" (other than for subsequent issuances, if any, pursuant to employee benefit plans described in the Prospectus or upon exercise of outstanding options or warrants described in the Prospectus). The Common Stock (including the Common Shares) conforms in all material respects to the description thereof contained in the Prospectus. All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and -5- nonassessable and have been issued in compliance with federal and state securities laws. None of the outstanding shares of Common Stock were issued in violation of any preemptive rights, rights of first refusal or other similar rights to subscribe for or purchase securities of the Company. Simultaneously with the closing on the First Closing Date, there will be no authorized or outstanding options, warrants, preemptive rights, rights of first refusal or other rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the Company or any of its subsidiaries other than those accurately described in the Prospectus. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown under the Securities Act with respect to such plans, arrangements, options and rights. (l) Stock Exchange Listing. The Common Shares have been approved for inclusion on the Nasdaq National Market, subject only to official notice of issuance. (m) Non-Contravention of Existing Instruments; No Further Authorizations or Approvals Required. Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or is in default (or, with the giving of notice or lapse of time, would be in default) ("Default") under any indenture, mortgage, loan or credit agreement, note, contract, franchise, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject (each, an "Existing Instrument"), except for such Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. The Company's execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus (i) have been duly authorized by all necessary corporate action and will not result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, (ii) will not conflict with or constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, or require the consent of any other party to (except consents which have been obtained or waived), any Existing Instrument, except for such conflicts, breaches, Defaults, liens, charges or encumbrances as would not, individually or in the aggregate, result in a Material Adverse Change; and (iii) will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary. Except for the filing of a final Prospectus under Rule 424 of the Securities Act, no consent, approval, authorization or other order of, or registration or filing with, any court or other governmental or regulatory authority or agency, is required for the Company's execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby and by the Prospectus, except such as have been obtained or made by the Company and are in full force and effect under the Securities Act, applicable state securities or blue sky laws and from the National Association of Securities Dealers, Inc. (the "NASD"). -6- (n) No Material Actions or Proceedings. Except as otherwise disclosed in the Prospectus, there are no legal or governmental actions, suits or proceedings pending or, to the best of the Company's knowledge, threatened (i) against or affecting the Company or any of its subsidiaries, (ii) which has as the subject thereof any officer or director of, or property owned or leased by, the Company or any of its subsidiaries or (iii) relating to environmental or discrimination matters, where in any such case (A) there is a reasonable possibility that such action, suit or proceeding might be determined adversely to the Company or such subsidiary and (B) any such action, suit or proceeding, if so determined adversely, would reasonably be expected to result in a Material Adverse Change or adversely affect the consummation of the transactions contemplated by this Agreement. No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the best of the Company's knowledge, is threatened or imminent. (o) Intellectual Property Rights. The Company and its subsidiaries own or possess sufficient trademarks, trade names, patent rights, copyrights, licenses, approvals, trade secrets and other similar rights (collectively, "Intellectual Property Rights") reasonably necessary to conduct their businesses as now conducted; and the expected expiration of any of such Intellectual Property Rights would not result in a Material Adverse Change. Neither the Company nor any of its subsidiaries has received any notice of infringement or conflict with asserted Intellectual Property Rights of others, which infringement or conflict, if the subject of an unfavorable decision, would result in a Material Adverse Change. (p) All Necessary Permits, etc. The Company and each subsidiary possess such valid and current certificates, authorizations or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct their respective businesses, except where the failure to possess any such certificate, authorization or permit would not result in a Material Adverse Change, and neither the Company nor any subsidiary has received any notice of proceedings relating to the revocation or modification of, or non- compliance with, any such certificate, authorization or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, could result in a Material Adverse Change. (q) Title to Properties. Simultaneously with the closing on the First Closing Date, the Company and each of its subsidiaries will have good and marketable title to all the properties and assets reflected as owned in the financial statements referred to in Section 1(i) above (or elsewhere in the Prospectus), in each case free and clear of any security interests, mortgages, liens, encumbrances, equities, claims and other defects, except such as (i) do not materially and adversely affect the value of such property and do not materially interfere with the use made or proposed to be made of such property by the Company or such subsidiary or (ii) are disclosed in the Prospectus or any amendments or supplements thereto. The real property, improvements, equipment and personal property held under lease by the Company or any subsidiary are held under valid and enforceable leases, with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real -7- property, improvements, equipment or personal property by the Company or such subsidiary. (r) Tax Law Compliance. The Company and its subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and have paid all taxes required to be paid by any of them and, if due and payable, any related or similar assessment, fine or penalty levied against any of them. The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in Section 1(i) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of its subsidiaries has not been finally determined. The Company has no knowledge of any tax deficiency which might be asserted against the Company or any subsidiary which could result in a Material Adverse Change. (s) Company Not an "Investment Company". The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Company is not, and after receipt of payment for the Common Shares will not be, an "investment company" within the meaning of Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act. (t) Insurance. Each of the Company and its subsidiaries are insured by recognized, financially sound and reputable institutions with policies in such amounts and with such deductibles and covering such risks as the Company reasonably determines to be adequate for their businesses including, but not limited to, policies covering real and personal property owned or leased by the Company and its subsidiaries. The Company has no reason to believe that it or any subsidiary will not be able (i) to renew its existing insurance coverage as and when such policies expire or (ii) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Change. Neither of the Company nor any subsidiary has been denied any insurance coverage which it has sought or for which it has applied. (u) No Price Stabilization or Manipulation. The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Shares. (v) Related Party Transactions. There are no business relationships or related-party transactions involving the Company or any subsidiary or any other person required under the Securities Act to be described in the Prospectus which have not been described as required. (w) No Unlawful Contributions or Other Payments. Neither the Company nor any of its subsidiaries nor, to the best of the Company's knowledge, any employee or agent of the Company or any subsidiary, has made any contribution or -8- other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character required under the Securities Act to be disclosed in the Prospectus. (x) Company's Accounting System. The Company maintains a system of accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles as applied in the United States and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (y) Compliance with Environmental Laws. Except as would not, individually or in the aggregate, result in a Material Adverse Change (i) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign law or regulation relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including without limitation, laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum and petroleum products (collectively, "Materials of Environmental Concern"), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environment Concern (collectively, "Environmental Laws"), which violation includes, but is not limited to, noncompliance with any permits or other governmental authorizations required for the operation of the business of the Company or its subsidiaries under applicable Environmental Laws, or noncompliance with the terms and conditions thereof, nor has the Company or any of its subsidiaries received any written communication, whether from a governmental authority, citizens group, employee or otherwise, that alleges that the Company or any of its subsidiaries is in violation of any Environmental Law; (ii) there is no claim, action or cause of action filed with a court or governmental authority, no investigation with respect to which the Company has received written notice, and no written notice by any person or entity alleging potential liability for investigatory costs, cleanup costs, governmental responses costs, natural resources damages, property damages, personal injuries, attorneys' fees or penalties arising out of, based on or resulting from the presence, or release into the environment, of any location owned, leased or operated by the Company or any of its subsidiaries, now or in the past (collectively, "Environmental Claims"), pending or, to the best of the Company's knowledge, threatened against the Company or any of its subsidiaries or any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law; and (iii) to the best of the Company's knowledge, there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge, presence or disposal of any Material of Environmental -9- Concern, that reasonably could result in a violation of any Environmental Law or form the basis of a potential Environmental Claim against the Company or any of its subsidiaries or against any person or entity whose liability for any Environmental Claim the Company or any of its subsidiaries has retained or assumed either contractually or by operation of law. (z) ERISA Compliance. The Company and its subsidiaries and any "employee benefit plan" (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, "ERISA")) established or maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in all material respects with ERISA. "ERISA Affiliate" means, with respect to the Company or a subsidiary, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the "Code") of which the Company or such subsidiary is a member. No "reportable event" (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates, if such "employee benefit plan" were terminated, would have any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification. (aa) Recapitalization. The Recapitalization (as such term is defined in the Prospectus) has been duly authorized and approved by the Board of Directors and stockholders of the Company and no other corporate action is required in order to authorize the consummation of all of the transactions contemplated by the Recapitalization. (ab) Manhattan Agreements. The Company has entered into that certain Stock Purchase Agreement dated as of March 1, 1997, as amended on __________________, 1997, among the Company, Alfred J. Hemlock and Lupe C. Hemlock with respect to the acquisition by the Company of International Limousine Network Ltd. ("ILN") and that certain Agreement and Plan of Merger dated as of March 1, 1997, as amended on _______________, 1997, among the Company, MLC Acquisition Corporation, Manhattan International Limousine Network Ltd. ("MILN") and Michael Hemlock with respect to the acquisition of MILN by the Company through the merger of MILN with a subsidiary of the Company. Said Stock Purchase Agreement and Agreement and Plan of Merger, both as amended on __________________, 1997, are collectively referred to herein as the "Manhattan Agreements." The Manhattan Agreements are in full force -10- and effect, have been duly and validly authorized, executed and delivered by the parties thereto, and are valid and binding on the parties thereto in accordance with their terms, except as the enforcement of the Manhattan Agreements may be limited by applicable law and by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights and remedies of creditors or by general equitable principals, and none of the parties thereto is in default in any respect thereunder, other than any default which individually or together with any other default would not result in a Material Adverse Change. A complete and correct copy of the Manhattan Agreement (including exhibits and schedules) has been delivered to the Representatives and no changes therein will be made subsequent hereto and prior to the Closing Date. (ac) Representations in Manhattan Agreements. The representations and warranties made in the Manhattan Agreement by the Company, MILN and ILN are true and correct in all material respects, except for such changes permitted or contemplated by the Manhattan Agreement. Any certificate signed by an officer of the Company and delivered to the Representatives or to counsel for the Underwriters pursuant to this Agreement shall be deemed solely to be a representation and warranty by the Company to each Underwriter as to the matters set forth therein. SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES. The Firm Common Shares. The Company agrees to issue and sell to the several Underwriters the Firm Common Shares upon the terms herein set forth. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Underwriters agree, severally and not jointly, to purchase from the Company the respective number of Firm Common Shares set forth opposite their names on Schedule A. The purchase price per Firm Common Share to be paid by the several - ---------- Underwriters to the Company shall be $___ per share. The First Closing Date. Delivery of certificates for the Firm Common Shares to be purchased by the Underwriters and payment therefor shall be made at the offices of Montgomery Securities, 600 Montgomery Street, San Francisco, California (or such other place as may be agreed to by the Company and the Representatives) at 6:00 a.m. San Francisco time, on ____________, 1997 or such other time and date not later than 10:30 a.m. San Francisco time, on ____________, 1997 as the Representatives shall designate by notice to the Company (the time and date of such closing are called the "First Closing Date"). The Company hereby acknowledges that circumstances under which the Representatives may provide notice to postpone the First Closing Date as originally scheduled include, but are in no way limited to, any determination by the Company or the Representatives to recirculate to the public copies of an amended or supplemented Prospectus or a delay as contemplated by the provisions of Section 10. -11- The Optional Common Shares; the Second Closing Date. In addition, on the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth, the Company hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to an aggregate of 435,000 Optional Common Shares from the Company at the purchase price per share to be paid by the Underwriters for the Firm Common Shares. The option granted hereunder is for use by the Underwriters solely in covering any over-allotments in connection with the sale and distribution of the Firm Common Shares. The option granted hereunder may be exercised at any time (but not more than once) upon notice by the Representatives to the Company, which notice may be given at any time within 30 days from the date of this Agreement. Such notice shall set forth (i) the aggregate number of Optional Common Shares as to which the Underwriters are exercising the option, (ii) the names and denominations in which the certificates for the Optional Common Shares are to be registered and (iii) the time, date and place at which such certificates will be delivered (which time and date may be simultaneous with, but not earlier than, the First Closing Date; and in such case the term "First Closing Date" shall refer to the time and date of delivery of certificates for the Firm Common Shares and the Optional Common Shares). Such time and date of delivery, if subsequent to the First Closing Date, is called the "Second Closing Date" and shall be determined by the Representatives and shall not be earlier than three nor later than five full business days after delivery of such notice of exercise. If any Optional Common Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Optional Common Shares (subject to such adjustments to eliminate fractional shares as the Representatives may determine) that bears the same proportion to the total number of Optional Common Shares to be purchased as the number of Firm Common Shares set forth on Schedule A opposite the name of ---------- such Underwriter bears to the total number of Firm Common Shares. The Representatives may cancel the option at any time prior to its expiration by giving written notice of such cancellation to the Company. Public Offering of the Common Shares. The Representatives hereby advise the Company that the Underwriters intend to offer for sale to the public, as described in the Prospectus, their respective portions of the Common Shares as soon after this Agreement has been executed and the Registration Statement has been declared effective as the Representatives, in their sole judgment, have determined is advisable and practicable. Payment for the Common Shares. Payment for the Common Shares shall be made at the First Closing Date (and, if applicable, at the Second Closing Date) by wire transfer of immediately available funds to the order of the Company. It is understood that the Representatives have been authorized, for their own account and the accounts of the several Underwriters, to accept delivery of and receipt for, and make payment of the purchase price for, the Firm Common Shares and any Optional Common Shares the Underwriters have agreed to purchase. Montgomery Securities, individually and not as a Representative of the Underwriters, may (but shall -12- not be obligated to) make payment for any Common Shares to be purchased by any Underwriter whose funds shall not have been received by the Representatives by the First Closing Date or the Second Closing Date, as the case may be, for the account of such Underwriter, but any such payment shall not relieve such Underwriter from any of its obligations under this Agreement. Delivery of the Common Shares. The Company shall deliver, or cause to be delivered, to the Representatives for the accounts of the several Underwriters certificates for the Firm Common Shares at the First Closing Date, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The Company shall also deliver, or cause to be delivered, to the Representatives for the accounts of the several Underwriters, certificates for the Optional Common Shares the Underwriters have agreed to purchase at the First Closing Date or the Second Closing Date, as the case may be, against the irrevocable release of a wire transfer of immediately available funds for the amount of the purchase price therefor. The certificates for the Common Shares shall be in definitive form and registered in such names and denominations as the Representatives shall have requested at least two full business days prior to the First Closing Date (or the Second Closing Date, as the case may be) and shall be made available for inspection on the business day preceding the First Closing Date (or the Second Closing Date, as the case may be) at a location in New York City as the Representatives may designate. Time shall be of the essence, and delivery at the time and place specified in this Agreement is a further condition to the obligations of the Underwriters. Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m. on the second business day following the date the Common Shares are released by the Underwriters for sale to the public, the Company shall deliver or cause to be delivered copies of the Prospectus in such quantities and at such places as the Representatives shall request. SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. The Company further covenants and agrees with each Underwriter as follows: (a) Representatives' Review of Proposed Amendments and Supplements. During such period beginning on the date hereof and ending on the later of the First Closing Date or such date, as in the opinion of counsel for the Underwriters, the Prospectus is no longer required by law to be delivered in connection with sales by an Underwriter or dealer (the "Prospectus Delivery Period"), prior to amending or supplementing the Registration Statement (including any registration statement filed under Rule 462(b) under the Securities Act) or the Prospectus, the Company shall furnish to the Representatives for review a copy of each such proposed amendment or supplement, and the Company shall not file any such proposed amendment or supplement to which the Representatives reasonably object. -13- (b) Securities Act Compliance. After the date of this Agreement, the Company shall promptly advise counsel for the Underwriters and, if requested, confirm such advice in writing, (i) of the receipt of any comments of, or requests for additional or supplemental information from, the Commission, (ii) of the time and date of any filing of any post-effective amendment to the Registration Statement or any amendment or supplement to any preliminary prospectus or the Prospectus, (iii) of the time and date that any post-effective amendment to the Registration Statement becomes effective and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any proceedings to remove, suspend or terminate from listing or quotation the Common Stock from any securities exchange upon which the it is listed for trading or included or designated for quotation, or of the threatening or initiation of any proceedings for any of such purposes. If the Commission shall enter any such stop order at any time, the Company will use its best efforts to obtain the lifting of such order at the earliest possible moment. Additionally, the Company agrees that it shall comply with the provisions of Rules 424(b), 430A and 434, as applicable, under the Securities Act and will use its reasonable efforts to confirm that any filings made by the Company under such Rule 424(b) are received in a timely manner by the Commission. (c) Amendments and Supplements to the Prospectus and Other Securities Act Matters. If, during the Prospectus Delivery Period, any event shall occur or condition exist as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if in the opinion of the Representatives or counsel for the Underwriters it is otherwise necessary to amend or supplement the Prospectus to comply with law, the Company agrees to promptly prepare (subject to Section 3(a) hereof), file with the Commission and furnish at its own expense to the Underwriters and to dealers, amendments or supplements to the Prospectus so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus, as amended or supplemented, will comply with law. (d) Copies of any Amendments and Supplements to the Prospectus. The Company agrees to furnish the Representatives, without charge, during the Prospectus Delivery Period, as many copies of the Prospectus and any amendments and supplements thereto as the Representatives may request. (e) Blue Sky Compliance. The Company shall cooperate with the Representatives and counsel for the Underwriters to qualify or register the Common Shares for sale under (or obtain exemptions from the application of) the Blue Sky or state securities laws of those jurisdictions reasonably designated by the Representatives, shall comply with such laws and shall continue such qualifications, registrations and exemptions in effect so long as reasonably required for the distribution of the Common Shares. The Company shall not be required to qualify as a foreign corporation or to -14- take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it would be subject to taxation as a foreign corporation. The Company will advise the Representatives promptly of the suspension of the qualification or registration of (or any such exemption relating to) the Common Shares for offering, sale or trading in any jurisdiction or any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any order suspending such qualification, registration or exemption, the Company shall use its best efforts to obtain the withdrawal thereof at the earliest possible moment. (f) Use of Proceeds. The Company shall apply the net proceeds from the sale of the Common Shares sold by it in the manner described under the caption "Use of Proceeds" in the Prospectus. (g) Transfer Agent. The Company shall engage and maintain, at its expense, a registrar and transfer agent for the Common Stock. (h) Earnings Statement. As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement (which need not be audited) covering the twelve-month period ending May 31, 1998 that satisfies the provisions of Section 11(a) of the Securities Act. (i) Periodic Reporting Obligations. During the Prospectus Delivery Period the Company shall file, on a timely basis, with the Commission and the Nasdaq National Market all reports and documents required to be filed under the Exchange Act. Additionally, the Company shall file with the Commission all reports on Form SR as may be required under Rule 463 under the Securities Act. (j) Agreement Not To Offer or Sell Additional Securities. During the period of 180 days following the date of the Prospectus, the Company will not, without the prior written consent of Montgomery Securities (which consent may be withheld at the sole discretion of Montgomery Securities), directly or indirectly, sell, offer, contract or grant any option to sell, pledge, transfer or establish an open "put equivalent position" within the meaning of Rule 16a- 1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce the offering of, or file any registration statement under the Securities Act (other than on Form S-4 or S-8) in respect of, any shares of Common Stock, options or warrants to acquire shares of the Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stock (other than as contemplated by this Agreement with respect to the Common Shares); provided, however, that the Company may issue shares of its Common Stock or options to purchase its Common Stock, or shares of Common Stock upon exercise of options, pursuant to any stock option, stock bonus or other stock plan or arrangement described in the Prospectus and may issue shares of Common Stock in connection with the acquisition of additional chauffeured vehicle service providers, but only if the holders of such shares, options, or shares issued upon exercise of such options, agree in writing not to sell, offer, dispose of or otherwise transfer any such shares or options during such 180 day period without the prior written consent of -15- Montgomery Securities (which consent may be withheld at the sole discretion of the Montgomery Securities). (k) Future Reports to the Representatives. During the period of five years after the date of this Agreement the Company will furnish to the Representatives (i) as soon as practicable after it is mailed to stockholders, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholders' equity and cash flows for the year then ended and the opinion thereon of the Company's independent public or certified public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report filed by the Company with the Commission, the NASD or any securities exchange; and (iii) as soon as available, copies of any other report or communication of the Company mailed generally to holders of its capital stock. The Representatives, on behalf of the several Underwriters, may, in their sole discretion, waive in writing the performance by the Company of any one or more of the foregoing covenants or extend the time for their performance. SECTION 4. PAYMENT OF EXPENSES. (a) The Company agrees to pay all costs, fees and expenses incurred in connection with the performance of its obligations hereunder and in connection with the transactions contemplated hereby, including without limitation (i) all expenses incident to the issuance and delivery of the Common Shares (including all printing and engraving costs), (ii) all fees and expenses of the registrar and transfer agent of the Common Stock, (iii) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of the Company's counsel, independent public or certified pubic accountants and other advisors, (v) all costs and expenses incurred in connection with the preparation, printing, filing, shipping and distribution of the Registration Statement (including financial statements, exhibits, schedules, consents and certificates of experts), each preliminary prospectus and the Prospectus, and all amendments and supplements thereto, (vi) all filing fees, attorneys' fees and expenses incurred by the Company or the Underwriters in connection with qualifying or registering (or obtaining exemptions from the qualification or registration of) all or any part of the Common Shares for offer and sale under the Blue Sky laws, and, if requested by the Representatives, preparing and printing a "Blue Sky Survey" or memorandum, and any supplements thereto, advising the Underwriters of such qualifications, registrations and exemptions, (vii) the filing fees incident to, and the reasonable fees and expenses of counsel for the Underwriters in connection with, the NASD's review and approval of the Underwriters' participation in the offering and distribution of the Common Shares, (viii) the fees and expenses associated with including the Common Shares on the Nasdaq National Market, (ix) warrants to purchase an aggregate of 15,000 shares of Common Stock to LP Associates, William Russell and Michael Press as a finder's fee in connection with the Offering, and (x) all -16- other fees, costs and expenses referred to in Item 14 of Part II of the Registration Statement. Except as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the Underwriters shall pay their own expenses, including the fees and disbursements of their counsel. (b) In recognition of financial advisory services provided to the Company prior to the Offering, the Company agrees to issue to each of the Representatives, in their individual capacities, warrants to purchase 67,500 shares of Common Stock, exercisable for a period of five years from the effective date of the offering, at a price equal to 120% of the initial offering price, subject to adjustment in certain events. SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters to purchase and pay for the Common Shares as provided herein on the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date, shall be subject to the accuracy of the representations and warranties on the part of the Company set forth in Section 1 hereof as of the date hereof and as of the First Closing Date as though then made and, with respect to the Optional Common Shares, as of the Second Closing Date as though then made, to the timely performance by the Company of its covenants and other obligations hereunder, and to each of the following additional conditions: (a) Accountants' Comfort Letter. On the date hereof, the Representatives shall have received from Coopers & Lybrand L.L.P., independent public accountants for the Company, a letter dated the date hereof addressed to the Underwriters, in form and substance satisfactory to the Representatives, containing statements and information of the type ordinarily included in accountant's "comfort letters" to underwriters, delivered according to Statement of Auditing Standards No. 72 (or any successor bulletin), with respect to the audited and unaudited financial statements and certain financial information contained in the Registration Statement and the Prospectus (and the Representative shall have received an additional [___] conformed copies of such accountants' letter for each of the several Underwriters). (b) Compliance with Registration Requirements; No Stop Order; No Objection from NASD. For the period from and after effectiveness of this Agreement and prior to the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date: (i) the Company shall have filed the Prospectus with the Commission (including the information required by Rule 430A under the Securities Act) in the manner and within the time period required by Rule 424(b) under the Securities Act; or the Company shall have filed a post-effective amendment to the Registration Statement containing the information required by such Rule 430A, and such post-effective amendment shall have become effective; or, if the Company elected to rely upon Rule 434 under the Securities Act and obtained the Representative's consent thereto, the Company shall have filed a Term Sheet -17- with the Commission in the manner and within the time period required by such Rule 424(b); (ii) no stop order suspending the effectiveness of the Registration Statement, any Rule 462(b) Registration Statement, or any post-effective amendment to the Registration Statement, shall be in effect and no proceedings for such purpose shall have been instituted or threatened by the Commission; and (iii) the NASD shall have raised no objection to the fairness and reasonableness of the underwriting terms and arrangements. (c) No Material Adverse Change. For the period from and after the date of this Agreement and prior to the First Closing Date and, with respect to the Optional Common Shares, the Second Closing Date, in the judgment of the Representatives there shall not have occurred any Material Adverse Change. (d) Opinion of Counsel for the Company. On each of the First Closing Date and the Second Closing Date the Representatives shall have received the favorable opinion of Nutter, McClennen & Fish, LLP, counsel for the Company, dated as of such Closing Date, the form of which is attached as Exhibit A (and --------- the Representatives shall have received an additional [___] conformed copies of such counsel's legal opinion for each of the several Underwriters). (e) Opinion of Counsel for the Underwriters. On each of the First Closing Date and the Second Closing Date the Representatives shall have received the favorable opinion of Fulbright & Jaworski L.L.P., counsel for the Underwriters, dated as of such Closing Date, with respect to the Common Shares, the Registration Statement and the Prospectus and such other related matters as the Representatives may reasonably request (and the Representatives shall have received an additional [___] conformed copies of such counsel's legal opinion for each of the several Underwriters). (f) Officers' Certificate. On each of the First Closing Date and the Second Closing Date the Representatives shall have received a written certificate executed by the Chairman of the Board, Chief Executive Officer or President of the Company and the Chief Financial Officer or Chief Accounting Officer of the Company, dated as of such Closing Date, to the effect set forth in subsections (b)(ii) of this Section 5, and further to the effect that: (i) for the period from and after the date of this Agreement and prior to such Closing Date, there has not occurred any Material Adverse Change; (ii) the representations, warranties and covenants of the Company set forth in Section 1 of this Agreement are true and correct in all material respects with the same force and effect as though expressly made on and as of such Closing Date; and -18- (iii) the Company has complied in all material respects with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date. (g) Bring-down Comfort Letter. On each of the First Closing Date and the Second Closing Date the Representatives shall have received from Coopers & Lybrand L.L.P., independent public accountants for the Company, a letter dated such date, in form and substance satisfactory to the Representatives, to the effect that they reaffirm the statements made in the letter furnished by them pursuant to subsection (a) of this Section 5, except that the specified date referred to therein for the carrying out of procedures shall be no more than three business days prior to the First Closing Date or Second Closing Date, as the case may be (and the Representatives shall have received an additional [___] conformed copies of such accountants' letter for each of the several Underwriters). (h) Manhattan Closing. With respect to the acquisition of MILN and ILN by the Company: (i) Each condition to the obligations of the Company set forth in Section ___ of the Manhattan Agreement shall have been satisfied. (ii) A copy of each certificate delivered to the Company on behalf of MILN or ILN pursuant to the Manhattan Agreements shall have also been delivered to the Representatives. (iii) Counsel for MILN and ILN shall have furnished to the Representatives a letter, in form and substance satisfactory to the Representatives, to the effect that they are entitled to rely on the opinion of such counsel delivered to the Company pursuant to the Manhattan Agreements as if such opinion were addressed to them. (i) Manhattan Agreements. The Manhattan Agreements shall be in full force and effect and none of the parties thereto shall be in default thereunder. The Representatives shall have received assurances reasonably satisfactory to them that all documents required to be filed in the respective states in order to effectuate the consummation of the Merger (as defined in the Manhattan Agreements) shall have been approved for filing by the appropriate authorities in each state and that all of such Merger documents shall be filed substantially concurrently with the consummation of the transactions pursuant to this Agreement. (j) Lock-Up Agreement from Certain Stockholders of the Company. On the date hereof, the Company shall have furnished to the Representatives an agreement in the form of Exhibit B hereto from the beneficial holders of an --------- aggregate of at least 4,000,000 shares of Common Stock (including all of the Company's officers and directors and each person who will receive shares of Common Stock pursuant to the terms of the Manhattan Agreements), and such agreement shall be in full force and -19- effect on each of the First Closing Date and the Second Closing Date; provided that beneficial ownership shall be defined and determined according to Rule 13d- 3 under the Exchange Act, except that a one hundred eighty day period shall be used rather than the sixty day period set forth therein. (k) Recapitalization. All of the transactions constituting a part of the Recapitalization shall have occurred and shall be in full force and effect. (l) Additional Documents. On or before each of the First Closing Date and the Second Closing Date, the Representatives and counsel for the Underwriters shall have received such information, documents and opinions as they may reasonably require for the purposes of enabling them to pass upon the issuance and sale of the Common Shares as contemplated herein, or in order to evidence the accuracy of any of the representations and warranties, or the satisfaction of any of the conditions or agreements, herein contained. If any condition specified in this Section 5 is not satisfied when and as required to be satisfied, this Agreement may be terminated by the Representatives by notice to the Company at any time on or prior to the First Closing Date and, with respect to the Optional Common Shares, at any time prior to the Second Closing Date, which termination shall be without liability on the part of any party to any other party, except that Section 4, Section 6, Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is terminated by the Representatives pursuant to Section 5, Section 7, Section 10 or Section 11, or if the sale to the Underwriters of the Common Shares on the First Closing Date is not consummated because of any refusal, inability or failure on the part of the Company to perform any agreement herein or to comply with any provision hereof, the Company agrees to reimburse the Representatives and the other Underwriters (or such Underwriters as have terminated this Agreement with respect to themselves), severally, upon demand for all out-of- pocket expenses that shall have been reasonably incurred by the Representatives and the Underwriters in connection with the proposed purchase and the offering and sale of the Common Shares, including but not limited to fees and disbursements of counsel, printing expenses, travel expenses, postage, facsimile and telephone charges. SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not become effective until the later of (i) the execution of this Agreement by the parties hereto and (ii) notification by the Commission to the Company and the Representative of the effectiveness of the Registration Statement under the Securities Act. -20- Prior to such effectiveness of the Registration Statement, this Agreement may be terminated by any party by notice to each of the other parties hereto, and any such termination shall be without liability on the part of (a) the Company to any Underwriter, except that the Company shall be obligated to reimburse the expenses of the Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to the Company, or (c) of any party hereto to any other party except that the provisions of Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 8. INDEMNIFICATION. (a) Indemnification of the Underwriters. The Company agrees to indemnify and hold harmless each Underwriter, its officers and employees, and each person, if any, who controls any Underwriter within the meaning of the Securities Act and the Exchange Act against any loss, claim, damage, liability or expense, as incurred, to which such Underwriter or such controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of the Company), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based (i) upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or any amendment thereto, including any information deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the Securities Act, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading; or (ii) upon any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (iii) in whole or in part upon any inaccuracy in the representations and warranties of the Company contained herein; or (iv) in whole or in part upon any failure of the Company to perform its obligations hereunder or under law; or (v) any act or failure to act or any alleged act or failure to act by any Underwriter in connection with, or relating in any manner to, the Common Stock or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon any matter covered by clause (i) or (ii) above, provided that the Company shall not be liable under this clause (v) to the extent that a court of competent jurisdiction shall have determined by a final judgment that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Underwriter through its gross negligence or willful misconduct; and to reimburse each Underwriter and each such controlling person for any and all expenses (including the fees and disbursements of counsel chosen by Montgomery Securities) as such expenses are reasonably incurred by such Underwriter or such controlling person in connection with investigating, defending, settling, compromising -21- or paying any such loss, claim, damage, liability, expense or action; provided, however, that the foregoing indemnity agreement shall not apply to any loss, claim, damage, liability or expense to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company by the Representatives expressly for use in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and provided, further, that with respect to any preliminary prospectus, the foregoing indemnity agreement shall not inure to the benefit of any Underwriter from whom the person asserting any loss, claim, damage, liability or expense purchased Common Shares, or any person controlling such Underwriter, if copies of the Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the Common Shares to such person, and if the Prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage, liability or expense. The indemnity agreement set forth in this Section 8(a) shall be in addition to any liabilities that the Company may otherwise have. (b) Indemnification of the Company, its Directors and Officers. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, against any loss, claim, damage, liability or expense, as incurred, to which the Company, or any such director, officer or controlling person may become subject, under the Securities Act, the Exchange Act, or other federal or state statutory law or regulation, or at common law or otherwise (including in settlement of any litigation, if such settlement is effected with the written consent of such Underwriter), insofar as such loss, claim, damage, liability or expense (or actions in respect thereof as contemplated below) arises out of or is based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or arises out of or is based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, any preliminary prospectus, the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by the Representatives expressly for use therein; and to reimburse the Company, or any such director, officer or controlling person for any legal and other expense reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating, defending, settling, compromising or paying any such loss, claim, damage, liability, expense or action. The Company hereby acknowledges that the only information that the Underwriters have furnished to the Company expressly for use in the Registration -22- Statement, any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) are the statements set forth (A) as the last paragraph on the inside front cover page of the Prospectus concerning stabilization by the Underwriters, (B) in the table after the first paragraph, and the second, sixth and seventh paragraphs, under the caption "Underwriting" in the Prospectus and (C) in the last paragraph of the cover page of the Prospectus; and the Underwriters confirm that such statements are correct. The indemnity agreement set forth in this Section 8(b) shall be in addition to any liabilities that each Underwriter may otherwise have. (c) Notifications and Other Indemnification Procedures. Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof, but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party for contribution or otherwise than under the indemnity agreement contained in this Section 8 or to the extent it is not prejudiced as a proximate result of such failure. In case any such action is brought against any indemnified party and such indemnified party seeks or intends to seek indemnity from an indemnifying party, the indemnifying party will be entitled to participate in, and, to the extent that it shall elect, jointly with all other indemnifying parties similarly notified, by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that a conflict may arise between the positions of the indemnifying party and the indemnified party in conducting the defense of any such action or that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of such indemnifying party's election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel (together with local counsel), approved by the indemnifying party (Montgomery Securities in the case of Section 8(b) and Section 9), representing the indemnified parties who are parties to such action) or (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying party. -23- (d) Settlements. The indemnifying party under this Section 8 shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party against any loss, claim, damage, liability or expense by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel as contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by such indemnifying party of the aforesaid request and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement, compromise or consent to the entry of judgment in any pending or threatened action, suit or proceeding in respect of which any indemnified party is or could have been a party and indemnity was or could have been sought hereunder by such indemnified party, unless such settlement, compromise or consent includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action, suit or proceeding. SECTION 9. CONTRIBUTION. If the indemnification provided for in Section 8 is for any reason held to be unavailable to or otherwise insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount paid or payable by such indemnified party, as incurred, as a result of any losses, claims, damages, liabilities or expenses referred to therein (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Common Shares pursuant to this Agreement or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other hand, in connection with the statements or omissions or inaccuracies in the representations and warranties herein which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Common Shares pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Common Shares pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the front cover page of the Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding location on the Term Sheet) bear to the aggregate initial public offering price of the Common Shares as set forth on such cover. The relative fault of the -24- Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact or any such inaccurate or alleged inaccurate representation or warranty relates to information supplied by the Company, on the one hand, or the Underwriters, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 8(c), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The provisions set forth in Section 8(c) with respect to notice of commencement of any action shall apply if a claim for contribution is to be made under this Section 9; provided, however, that no additional notice shall be required with respect to any action for which notice has been given under Section 8(c) for purposes of indemnification. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 9. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Common Shares underwritten by it and distributed to the public. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 9 are several, and not joint, in proportion to their respective underwriting commitments as set forth opposite their names in Schedule A. For purposes of this Section 9, each officer and employee of an - ---------- Underwriter and each person, if any, who controls an Underwriter within the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company with the meaning of the Securities Act and the Exchange Act shall have the same rights to contribution as the Company. SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the several Underwriters shall fail or refuse to purchase Common Shares that it or they have agreed to purchase hereunder on such date, and the aggregate number of Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase does not exceed 10% of the aggregate number of the Common Shares to be -25- purchased on such date, the other Underwriters shall be obligated, severally, in the proportions that the number of Firm Common Shares set forth opposite their respective names on Schedule A bears to the aggregate number of Firm Common ---------- Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as may be specified by the Representatives with the consent of the non-defaulting Underwriters, to purchase the Common Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date. If, on the First Closing Date or the Second Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Common Shares and the aggregate number of Common Shares with respect to which such default occurs exceeds 10% of the aggregate number of Common Shares to be purchased on such date, and arrangements satisfactory to the Representatives and the Company for the purchase of such Common Shares are not made within 48 hours after such default, this Agreement shall terminate without liability of any party to any other party except that the provisions of Section 4, Section 6, Section 8 and Section 9 shall at all times be effective and shall survive such termination. In any such case either the Representative or the Company shall have the right to postpone the First Closing Date or the Second Closing Date, as the case may be, but in no event for longer than seven days in order that the required changes, if any, to the Registration Statement and the Prospectus or any other documents or arrangements may be effected. As used in this Agreement, the term "Underwriter" shall be deemed to include any person substituted for a defaulting Underwriter under this Section 10. Any action taken under this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing Date this Agreement maybe terminated by the Representative by notice given to the Company if at any time (i) trading or quotation in any of the Company's securities shall have been suspended or limited by the Commission or by the Nasdaq Stock Market or trading in securities generally on either the Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or limited, or minimum or maximum prices shall have been generally established on any of such stock exchanges by the Commission or the NASD; (ii) a general banking moratorium shall have been declared by any of federal, New York or California authorities; (iii) there shall have occurred any outbreak or escalation of national or international hostilities or any crisis or calamity, or any change in the United States or international financial markets, or any substantial change or development involving a prospective substantial change in United States or international political, financial or economic conditions, as in the judgment of the Representatives is material and adverse and makes it impracticable to market the Common Shares in the manner and on the terms described in the Prospectus or to enforce contracts for the sale of securities; (iv) in the judgment of the Representatives there shall have occurred any Material Adverse Change; or (v) the Company shall have sustained a loss by strike, fire, flood, earthquake, accident or other calamity of such character as in the judgment of the Representatives may interfere materially with the -26- conduct of the business and operations of the Company regardless of whether or not such loss shall have been insured. Any termination pursuant to this Section 11 shall be without liability on the part of (a) the Company to any Underwriter, except that the Company shall be obligated to reimburse the expenses of the Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company, or (c) any party hereto to any other party except that the provisions of Section 8 and Section 9 shall at all times be effective and shall survive such termination. SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The respective indemnities, agreements, representations, warranties and other statements of the Company, of its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of its or their partners, officers or directors or any controlling person, as the case may be, and will survive delivery of and payment for the Common Shares sold hereunder and any termination of this Agreement. SECTION 13. NOTICES. All communications hereunder shall be in writing and shall be mailed, hand delivered or telecopied and confirmed to the parties hereto as follows: If to the Representatives: Montgomery Securities 600 Montgomery Street San Francisco, California 94111 Facsimile: 415-249-5558 Attention: Richard A. Smith with a copy to: Montgomery Securities 600 Montgomery Street San Francisco, California 94111 Facsimile: (415) 249-5553 Attention: David A. Baylor, Esq. If to the Company: Carey International, Inc. 4530 Wisconsin Avenue, N.W. Washington, D.C. 20016 Facsimile: 202-895-1201 -27- Attention: Vincent A. Wolfington with a copy to: Nutter, McClennen & Fish, LLP One International Place Boston, Massachusetts 02110 Facsimile: (617) 973-9748 Attention: James E. Dawson, Esq. Any party hereto may change the address for receipt of communications by giving written notice to the others. SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and be binding upon the parties hereto, including any substitute Underwriters pursuant to Section 10 hereof, and to the benefit of the employees, officers and directors and controlling persons referred to in Section 8 and Section 9, and in each case their respective successors, and no other person will have any right or obligation hereunder. The term "successors" shall not include any purchaser of the Common Shares as such from any of the Underwriters merely by reason of such purchase. SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. SECTION 16. GOVERNING LAW PROVISIONS. (A) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE. (b) Consent to Jurisdiction. Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby ("Related Proceedings") may be instituted in the federal courts of the United States of America located in the City and County of San Francisco or the courts of the State of California in each case located in the City and County of San Francisco (collectively, the "Specified Courts"), and each party irrevocably submits to the jurisdiction of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party's address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of -28- any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum. SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. This Agreement may be executed in two or more counterparts, each one of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement may not be amended or modified unless in writing by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party whom the condition is meant to benefit. The Table of Contents and the Section headings herein are for the convenience of the parties only and shall not affect the construction or interpretation of this Agreement. Each of the parties hereto acknowledges that it is a sophisticated business person who was adequately represented by counsel during negotiations regarding the provisions hereof, including, without limitation, the indemnification provisions of Section 8 and the contribution provisions of Section 9, and is fully informed regarding said provisions. Each of the parties hereto further acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the risks in light of the ability of the parties to investigate the Company, its affairs and its business in order to assure that adequate disclosure has been made in the Registration Statement, any preliminary prospectus and the Prospectus (and any amendments and supplements thereto), as required by the Securities Act and the Exchange Act. -29- If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Company the enclosed copies hereof, whereupon this instrument, along with all counterparts hereof, shall become a binding agreement in accordance with its terms. Very truly yours, CAREY INTERNATIONAL, INC. By: ____________________________ [Title] The foregoing Underwriting Agreement is hereby confirmed and accepted by the Representatives in San Francisco, California as of the date first above written. MONTGOMERY SECURITIES LADENBURG THALMANN & CO. INC. Acting as Representatives of the several Underwriters named in the attached Schedule A. BY MONTGOMERY SECURITIES By:____________________________ -30- SCHEDULE A NUMBER OF FIRM COMMON SHARES UNDERWRITERS TO BE PURCHASED Montgomery Securities ........................... Ladenburg Thalmann & Co. Inc. ................... Total ...................................... ========== -31- EXHIBIT A Opinion of counsel for the Company to be delivered pursuant to Section 5(e) of the Underwriting Agreement. References to the Prospectus in this Exhibit A include any supplements --------- thereto at the Closing Date. (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus (and any amendment or supplement thereto) and to enter into and perform its obligations under the Underwriting Agreement. The Company and each of its subsidiaries have all necessary authorizations, approvals, consents, licenses, certificates and permits of and from all Federal and state governmental or regulatory bodies or officials, to conduct all the activities conducted by them, to own or lease all the assets owned or leased by them and to conduct their businesses, all as described in the Registration Statement and the Prospectus, and no such authorization, approval, consent, order, license, certificate or permit contains a materially burdensome restriction other than as disclosed in the Registration Statement and the Prospectus. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business as described in the Registration Statement, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. (iv) Each subsidiary listed in Exhibit 21 to the Registration Statement has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus (and any amendment or supplement thereto) and, to the best knowledge of such counsel, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except for such jurisdictions where the failure to so qualify or to be in good standing would not, individually or in the aggregate, result in a Material Adverse Change. (v) All of the issued and outstanding capital stock of each such subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of any perfected security interest and, to the knowledge of such counsel, any other security interest, mortgage, pledge, lien, encumbrance or any pending or threatened claim. (vi) The authorized, issued and outstanding capital stock of the Company (including the Common Stock) conforms to the descriptions thereof set forth in the Prospectus. All of the outstanding shares of Common Stock have been duly authorized and validly issued, are fully paid and nonassessable and, to the best of such counsel's knowledge, have been issued in compliance in all material respects with the registration and qualification requirements of federal and state securities laws. The form of certificate used to evidence the Common Stock is in due and proper form and complies with all applicable requirements of the charter and by-laws of the Company and the General Corporation Law of the State of Delaware. The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus fairly presents, in all material respects, the information required to be shown with respect to such plans, arrangements, options and rights. (vii) No stockholder of the Company or any other person has any preemptive right, right of first refusal or other similar right to subscribe for or purchase securities of the Company arising (a) by operation of the charter or by-laws of the Company or the General Corporation Law of the State of Delaware or (b) to the knowledge of such counsel. (viii) The Underwriting Agreement has been duly authorized, executed and delivered by, and is a valid and binding agreement of, the Company, enforceable in accordance with its terms, except as rights to indemnification thereunder may be limited by applicable law and except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles. (ix) The Common Shares to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale pursuant to the Underwriting Agreement and, when issued and delivered by the Company pursuant to the Underwriting Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable. The shares of Common Stock to be issued in connection with the Manhattan Agreements have been duly authorized for issuance and, when issued and delivered by the Company, will be validly issued, fully paid and nonassessable. (x) Each of the Registration Statement and the Rule 462(b) Registration Statement, if any, has been declared effective by the Commission under the Securities Act. To the knowledge of such counsel, no stop order suspending the effectiveness of either of the Registration Statement or the Rule 462(b) Registration Statement, if any, has been issued under the Securities Act and no proceedings for such purpose have been instituted or are pending or are contemplated or threatened by the Commission. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b). (xi) The Registration Statement, including any Rule 462(b) Registration Statement, the Prospectus and each amendment or supplement to the Registration Statement and the Prospectus, as of their respective effective or issue dates (other than the financial statements and supporting schedules included therein or in exhibits to or excluded from the Registration Statement, as to which no opinion need be rendered) comply as to form in all material respects with the applicable requirements of the Securities Act. (xii) The Common Shares have been approved for listing on the Nasdaq National Market. (xiii) The statements (a) in the Prospectus under the captions "Risk Factors--Status of Independent Operators", "Risk Factors--Certain Anti- Takeover Provisions", "Description of Capital Stock", "Business--Government Regulation", "Business--Legal Proceedings" and "Shares Eligible for Future Sale", and (b) in Item 14 and Item 15 of the Registration Statement, insofar as such statements constitute matters of law, summaries of legal matters, the Company's charter or by-law provisions, documents or legal proceedings, or legal conclusions, have been reviewed by such counsel and fairly present and summarize, in all material respects, the matters referred to therein. (xiv) To the knowledge of such counsel, there are no legal or governmental actions, suits or proceedings pending or threatened which are required to be disclosed in the Registration Statement, other than those disclosed therein. (xv) To the knowledge of such counsel, there are no Existing Instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto; and the descriptions thereof and references thereto are correct in all material respects. (xvi) No consent, approval, authorization or other order of, or registration or filing with, any court or other governmental authority or agency, is required for the Company's execution, delivery and performance of the Underwriting Agreement and consummation of the transactions contemplated thereby and by the Prospectus, except as required under the Securities Act and from the NASD. (xvii) The execution and delivery of the Underwriting Agreement by the Company and the performance by the Company of its obligations thereunder (other than performance by the Company of its obligations under the indemnification section of the Underwriting Agreement, as to which no opinion need be rendered) (a) have been duly authorized by all necessary corporate action on the part of the Company; (b) will not result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary; (c) will not constitute a breach of, or Default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, to the knowledge of such counsel, any other material Existing Instrument; or (d) to the best knowledge of such counsel, will not result in any violation of any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary. (xviii) The Company is not, and after receipt of payment for the Common Shares will not be, an "investment company" within the meaning of Investment Company Act. (xix) Except as disclosed in the Prospectus under the caption "Shares Eligible for Future Sale", to the knowledge of such counsel, there are no persons with registration or other similar rights to have any equity or debt securities registered for sale under the Registration Statement or included in the offering contemplated by the Underwriting Agreement, except for such rights as have been duly waived. (xx) To the knowledge of such counsel, neither the Company nor any subsidiary is in violation of its charter or by-laws or any law, administrative regulation or administrative or court decree applicable to the Company or any subsidiary or is in Default in the performance or observance of any obligation, agreement, covenant or condition contained in any material Existing Instrument, except in each such case for such violations or Defaults as would not, individually or in the aggregate, result in a Material Adverse Change. (xxi) The Recapitalization (as such term is defined in the Prospectus) has been duly authorized and approved by the Board of Directors and stockholders of the Company and no other corporate action is required in order to consummate all of the transactions contemplated by the Recapitalization. (xxii) The Manhattan Agreements have been duly and validly authorized, executed and delivered by the parties thereto, are valid and binding on the parties thereto in accordance with their respective terms and, to the best knowledge of such counsel, none of the parties thereto is in default in any respect thereunder. The Merger of MLC Acquisition Corporation with MILN pursuant to the Manhattan Agreements has become effective. Such Merger was consummated in accordance with the provisions of the Manhattan Agreements which have been duly authorized by the Company, MILN, ILN and their respective stockholders, and complies in all respects with applicable law. In addition, such counsel shall state that they have participated in conferences with officers and other representatives of the Company, representatives of the independent public or certified public accountants for the Company and with representatives of the Underwriters at which the contents of the Registration Statement and the Prospectus, and any supplements or amendments thereto, and related matters were discussed and, although such counsel is not passing upon, does not assume any responsibility for and did not undertake to determine or verify independently the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (other than as specified above), and any supplements or amendments thereto, on the basis of the foregoing (relying as to factual matters on the opinions of officers and other representatives of the Company), no facts have come to their attention which would lead them to believe that either the Registration Statement or any amendments thereto, at the time the Registration Statement or such amendments became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, as of its date or at the First Closing Date or the Second Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief as to the financial statements or schedules, the notes thereto, or other financial or accounting data included in the Registration Statement or the Prospectus or any amendments or supplements thereto). In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the General Corporation Law of the State of Delaware, the Commonwealth of Massachusetts or the federal law of the United States, to the extent they deem proper and specified in such opinion, upon the opinion (which shall be dated the First Closing Date or the Second Closing Date, as the case may be, shall be satisfactory in form and substance to the Underwriters, shall expressly state that the Underwriters may rely on such opinion as if it were addressed to them and shall be furnished to the Representative) of other counsel of good standing whom they believe to be reliable and who are reasonably satisfactory to counsel for the Underwriters; provided, however, that such counsel shall further state that they believe that they and the Underwriters are justified in relying upon such opinion of other counsel, and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. EXHIBIT B , 1997 Montgomery Securities Ladenburg Thalmann & Co. Inc. As Representatives of the Several Underwriters c/o Montgomery Securities 600 Montgomery Street San Francisco, California 94111 RE: Carey International, Inc. (the "Company") ----------------------------------------- Ladies & Gentlemen: The undersigned is an owner of record or beneficially of certain shares of Common Stock of the Company ("Common Stock") or securities convertible into or exchangeable or exercisable for Common Stock. The Company proposes to carry out a public offering of Common Stock (the "Offering") for which you will act as the representatives of the underwriters. The undersigned recognizes that the Offering will be of benefit to the undersigned and will benefit the Company by, among other things, raising additional capital for its operations. The undersigned acknowledges that you and the other underwriters are relying on the representations and agreements of the undersigned contained in this letter in carrying out the Offering and in entering into underwriting arrangements with the Company with respect to the Offering. In consideration of the foregoing, the undersigned hereby agrees that the undersigned will not, without the prior written consent of Montgomery Securities (which consent may be withheld in its sole discretion), directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock, or securities exchangeable or exercisable for or convertible into shares of Common Stock currently or hereafter owned either of record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the undersigned, or publicly announce the undersigned's intention to do any of the foregoing, for a period commencing on the date hereof and continuing through the close of trading on the date 180 days after the date of the final Prospectus used in connection with the Offering. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company's transfer agent and registrar against the transfer of shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock held by the undersigned except in compliance with the foregoing restrictions. With respect to the Offering only, the undersigned waives any registration rights relating to registration under the Securities Act of any Common Stock owned either of record or beneficially by the undersigned, including any rights to receive notice of the Offering. This agreement is irrevocable and will be binding on the undersigned and the respective successors, heirs, personal representatives, and assigns of the undersigned. __________________________________________________ Printed Name of Holder By:_______________________________________________ Signature __________________________________________________ Printed Name of Person Signing (and indicate capacity of person signing if signing as custodian, trustee, or on behalf of an entity) EX-2.3 3 FORM OF STOCKHOLDER ACTION EXHIBIT 2.3 ----------- FORM OF STOCKHOLDER ACTION BY WRITTEN CONSENT ADOPTED IN CONNECTION WITH THE RECAPITALIZATION I. CONSENT AND AGREEMENT TO FURTHER AMEND AND RESTATE THE RESTATED CERTIFICATE OF INCORPORATION, ISSUE COMMON STOCK IN AN INITIAL PUBLIC OFFERING AND CERTAIN OTHER ACTIONS. WHEREAS, Sections 242 and 245 of the Delaware General Corporation Law provide that a corporation may amend or amend and restate its Certificate of Incorporation if the Board of Directors deems such action advisable and if a majority of the outstanding shares of stock entitled to vote thereon, and a majority of each class entitled to vote thereon as a class, vote in favor of the amendment or amendment and restatement; WHEREAS, the Board of Directors of the Corporation has unanimously deemed it advisable to amend the Restated Certificate of Incorporation of the Corporation in order to effect a 2.3255-for-1 reverse split of all outstanding shares of Common Stock, and subsequently to amend and restate the Restated Certificate of Incorporation in order to (i) eliminate the various designations of series of Preferred Stock and Class A Common Stock, (ii) increase the authorized capital stock of the corporation, and (iii) make certain other changes to the Restated Certificate of Incorporation; WHEREAS, Section 4.2 of that certain Series F Preferred Stock Purchase Agreement dated December 30, 1988, as amended on December 19, 1991, between the Corporation and the Purchaser named therein (the "Series F Agreement") requires the approval of the holder(s) of two-thirds of the shares of Series F Preferred Stock purchased thereunder in order to amend the Corporation's Restated Certificate of Incorporation to eliminate the authorized but unissued Class A Common Stock; and WHEREAS, Section 4.1.1 of that certain Series G Preferred Stock Purchase Agreement dated as of November 30, 1991, among the Corporation and various Purchasers named therein (the "Series G Agreement") requires the approval of a majority of the shares of Series G Preferred Stock purchased thereunder in order (i) to amend the Corporation's Restated Certificate of Incorporation and (ii) to issue shares of Common Stock; NOW, THEREFORE, (i) the undersigned holders of the Corporation's Common Stock and Series A, Series B and Series G Preferred Stock, voting together as a class, (ii) the holder of the Series F Preferred Stock (only with respect to items 4, 5 and 6 below), (iii) the undersigned holders of the Series G Preferred Stock (only with respect to items 1, 2, 3, 4, 5, 6 and 8 below) and (iv) the undersigned holders of the Series A, Series B, Series F and Series G Preferred Stock, each voting as a separate series and/or class, to the extent required by the Delaware General Corporation Law or the Series F Agreement or the Series G Agreement, each hereby irrevocably consent and agree to the following (all of which is described on a post-reverse split basis, assuming stockholder approval of items 1, 2 and 3 below): 1. That the Corporation's Restated Certificate of Incorporation be amended in the form of the Certificate of Amendment set forth in Exhibit A --------- hereto (the "Certificate of Amendment"), to effect a 2.3255 for-1 reverse split of all outstanding shares of Common Stock. 2. That the Certificate of Amendment be filed with the Delaware Secretary of State at an appropriate time to be determined by the Corporation prior to the closing of the Offering (as defined below). 3. That the Board of Directors be, and hereby is, authorized to abandon the Certificate of Amendment authorized by the foregoing at any time prior to the effective date of such amendment filed with the Secretary of State of Delaware without further action by the stockholders. 4. That upon and subject to the closing of the Corporation's underwritten initial public offering of up to 3,335,000 shares (including 435,000 shares issuable pursuant to an option granted to the underwriters solely to cover over-allotments) of Common Stock, par value $.01 per share (the "Common Stock") (or such greater number of shares of Common Stock as are approved by the Corporation's Board of Directors, which greater number of shares shall not exceed 50% of the outstanding shares of the Corporation on a fully-diluted, post-offering basis), pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Offering"), notwithstanding any provision currently contained in the Corporation's existing Restated Certificate of Incorporation, the Corporation's Restated Certificate of Incorporation be amended and restated as set forth in the Amended and Restated Certificate of Incorporation set forth in Exhibit B --------- hereto (the "Amended and Restated Certificate") in order to effect certain changes (the "Recapitalization") to the Corporation's capitalization and certain other changes to its Restated Certificate of Incorporation, including without limitation the following (on a post-reverse split basis): (a) each of the 42,070 shares of Series A Preferred Stock issued and outstanding immediately prior to such filing shall be redeemed by the Corporation at a price of $50 plus 2.04428357499 shares of Common Stock; (b) each of the 9,580 shares of Series B Preferred Stock issued and outstanding immediately prior to such filing shall be automatically converted into and exchanged for 69.2861743215 shares of Common Stock; (c) each of 46,890 shares of Series G Preferred Stock issued and outstanding immediately prior to such filing (other than 3,000 shares of such Series G Preferred Stock held by IBJS Capital Corporation) shall be automatically converted into and exchanged for 16.288448923 shares of Common Stock; (d) all of the 10,000 shares of Series F Preferred Stock issued and outstanding immediately prior to such filing, and all of the 3,000 shares of Series G -2- Preferred Stock held by IBJS Capital Corporation, shall be redeemed by the Corporation at an aggregate price of $1,000,000; (e) the number of shares of stock authorized for issuance shall be increased from 10,000,000 to 21,000,000; (f) the number of shares of Common Stock authorized for issuance shall be increased from 9,512,950 to 20,000,000; (g) the number of shares of Preferred Stock authorized for issuance shall be increased from 173,050 to 1,000,000; (h) the authorized but unissued shares of Class A Common Stock shall be eliminated; (i) the designations of Class A Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock shall be eliminated and replaced with a "blank check" Preferred Stock provision entitling the Board of Directors to designate the rights and preferences of Preferred Stock; and (j) the Board of Directors shall be divided into three classes of directors serving staggered three-year terms. The undersigned stockholders acknowledge and agree that, in connection with and after giving effect to the reverse stock split and the Recapitalization, cash will be distributed in lieu of any fractional share that otherwise would be distributed to any holder of Common Stock as a consequence of such holder's aggregate holdings in an amount determined by multiplying such fraction by the Offering price to the public. 5. That the Amended and Restated Certificate be filed with the Delaware Secretary of State simultaneously with the closing of the Offering. 6. That the Board of Directors be, and hereby is, authorized to abandon the amendment and restatement of the Restated Certificate of Incorporation authorized by the foregoing items 4 and 5 at any time prior to the effective date of such amendments and restatement filed with the Secretary of State of Delaware without further action by the stockholders. 7. That the officers of the Corporation be, and each of them hereby is, authorized, in the name and on behalf of the Corporation, to execute and deliver all other instruments, and to take all other action, as such officer shall deem to be necessary or appropriate and in the best interests of the Corporation in order to carry out the -3- intent of all of the resolutions set forth in all parts of this Stockholder Action by Written Consent. 8. That the issuance of up to 3,335,000 shares of Common Stock in connection with the Offering (or such greater number of shares as are approved by the Corporation's Board of Directors, which greater number of shares shall not exceed 50% of the outstanding shares of the Corporation on a fully-diluted, post-Offering basis) is hereby approved. 9. That in connection with and as a part of the Recapitalization, the following additional changes to the outstanding securities of the Corporation are hereby ratified, approved and confirmed (all on a post-reverse split basis): (a) The Yerac Associates, L.P. $2,000,000 convertible subordinated note will have its conversion price reduced from approximately $6.14, to approximately $4.65, and will be converted to acquire 430,015 shares of Common Stock; and the strike price of Yerac's warrant to purchase 86,003 shares of Common Stock will be reduced from approximately $6.14 to approximately $4.65 per share; (b) The PNC Capital Corp. warrant, representing the right to purchase 616,544 shares of Common Stock, will have its strike price reduced from approximately $6.14 to approximately $4.65 per share, and will be exercised in full by reducing the outstanding amount owed by the Corporation under PNC's subordinated promissory note (held by the warrant holder) by $2,867,546.00; (c) Other warrants to purchase an aggregate of 27,950 shares of Common Stock will have their strike prices reduced from approximately $6.14 to approximately $4.65 per share; and (d) Stock options to purchase an aggregate of 337,484 shares of Common Stock which have exercise prices in excess of approximately $4.65 will have their exercise prices reduced to approximately $4.65 per share. -4- II. CONSENT AND AGREEMENT BY THE FOUNDERS AND THE HOLDERS OF SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK, SERIES F PREFERRED STOCK AND SERIES G PREFERRED STOCK TO THE TERMINATION AND MODIFICATION OF VARIOUS RIGHTS AND OBLIGATIONS. WHEREAS, the Corporation and the underwriters (the "Underwriters") of the proposed Offering have requested, as an inducement to the Corporation and the Underwriters to proceed with the Offering, that the holders of shares of the Corporation's Series A, Series B, Series F and Series G Preferred Stock agree to terminate certain agreements to which such holders and the Corporation are parties, effective upon the closing of the Offering; WHEREAS, Section 11.4 of that certain Series A and Series B Preferred Stock Purchase Agreement dated December 31, 1986, as amended, among the Corporation and various Purchasers and Founders (as such terms are defined therein) (the "Series A and B Agreement") provides it may be amended or terminated by the written consent of the Corporation and the holders of a majority in interest of the aggregate of the then-outstanding Series A Preferred Stock and Series B Preferred Stock; WHEREAS, Section 9.3 of each of the Series F Agreement and the Series G Agreement provides that any provision thereof may be amended by the Corporation and the holder(s) of a majority of the Shares of Series F and Series G Preferred Stock purchased under each respective Agreement; WHEREAS, that certain Voting Agreement dated December 31, 1986, as amended, and that certain Stock Ownership Agreement dated December 31, 1986, executed in connection with the Series A and B Agreement; that certain Co-Sale Agreement dated December 30, 1988, executed in connection with the Series F Agreement; and that certain Co-Sale Agreement dated July 30, 1992, executed in connection with the PNC Venture Corp. financing (the "Other Agreements"), all may be terminated by written action of all the parties to each of such Other Agreements; and WHEREAS, the Corporation has consented to the following terminations of, and amendments to, various rights and agreements; NOW, THEREFORE, the undersigned Founders and the undersigned holders of the Series A, Series B, Series F and Series G Preferred Stock, each acting separately as to the termination of certain of their rights in the Series A and B Agreement, the Series F Agreement, the Series G Agreement and the Other Agreements (collectively, the "Stock Purchase Agreements"), to the extent that they are parties to each respective Stock Purchase Agreement, hereby irrevocably consent and agree to the following actions: 1. That any and all provisions of the Stock Purchase Agreements relating to rights with respect to registration of the Company's Common Stock under applicable securities laws in connection with the Offering are hereby waived as of the effective date of this Consent. -5- 2. That all of the Stock Purchase Agreements, and each and every provision thereof, shall be terminated as of the closing date of the Offering. III. AMENDMENT OF THE BY-LAWS. WHEREAS, Article XXVII of the By-laws of the Corporation states that the By-laws may be amended, altered, repealed or added to by either the affirmative vote of holders of a majority of the stock entitled to vote thereon or a majority of the Board of Directors; WHEREAS, Article III, Section 2, of the By-laws, relating to calling special meetings of stockholders, states that said Section 2 may be altered, amended or repealed only by the stockholders; and WHEREAS, in connection with the Offering, the Board of Directors, on advice of counsel, has approved the amendment and restatement of the By-laws; NOW, THEREFORE, the undersigned holders of the Corporation's Common Stock and Series A, Series B and Series G Preferred Stock, voting together as a class, hereby consent to the following actions: 1. That the Corporation's By-laws be and hereby are amended by deleting the last sentence of Article III, Section 2 thereof in its entirety. 2. That the Board of Directors' amendment and restatement of the By-Laws in the form recommended by counsel to the Corporation and attached as Exhibit C hereto is hereby ratified, approved and confirmed. --------- IV. APPROVAL OF THE CREATION AND ADOPTION OF THE 1997 EQUITY INCENTIVE PLAN AND THE STOCK PLAN FOR NON-EMPLOYEE DIRECTORS. WHEREAS, the Board of Directors has unanimously approved, subject to stockholder approval, (i) the 1997 Equity Incentive Plan (the "Plan"), pursuant to which a total of 650,000 shares (on a post-reverse stock split basis) of the Corporation's Common Stock may be issued under incentive stock options, non- qualified stock options and other equity incentive awards, and (ii) the Stock Plan for Non-Employee Directors (the "Directors' Plan"), pursuant to which a total of 100,000 shares (on a post-reverse stock split basis) of the Corporation's Common Stock may be issued under non-qualified options and elections to receive shares of Common Stock in lieu of cash compensation; WHEREAS, pursuant to Section 4.1.4 of the Series G Agreement, in order to adopt any new stock option plan the Corporation must obtain the approval of at least a majority of the then outstanding shares of Series G Preferred Stock purchased thereunder; and -6- WHEREAS, in order to qualify ISOs and other Awards to Participants (all as defined in the Plan) which may be granted under the Plan and pursuant to the Internal Revenue Code, stockholder approval of the Plan is required; NOW, THEREFORE, the undersigned holders of the Corporation's Common Stock and Series A, Series B and Series G Preferred Stock, voting together as a class, and the undersigned holders of the Series G Preferred Stock voting separately as a class, hereby consent to and approve the Plan and the Directors' Plan substantially in the forms attached hereto as Exhibit D and Exhibit E, --------- --------- respectively. V. ELECTION OF DIRECTORS BY WRITTEN CONSENT IN LIEU OF SPECIAL MEETING IN LIEU OF ANNUAL MEETING WHEREAS, the Chairman of the Corporation has requested that the stockholders of the Corporation entitled to vote for the election of directors reelect the directors of the Corporation for the ensuing year and until their successors are elected and qualified; NOW, THEREFORE, the undersigned holders of the Corporation's Common Stock and Series A, Series B and Series G Preferred Stock, each voting together and as a separate series and/or class, to the extent required by the Delaware General Corporation Law and any Stock Purchase Agreement, hereby irrevocably consent to the election of the following persons as directors of the Corporation, each to serve until his successor is duly elected and qualified at the 1998 annual meeting of stockholders (or later annual meetings of stockholders, in the event of the approval of a classified Board of Directors): Robert W. Cox Don R. Dailey William R. Hambrecht David McL. Hillman Vincent A. Wolfington -7- EX-4.1 4 SPECIMEN STOCK CERTIFICATE
NUMBER CAREY SHARES CI- COMMON STOCK SEE REVERSE FOR CAREY INTERNATIONAL, INC. CERTAIN DEFINITIONS INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 141750 10 9 THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE OF --------------------------------------------- ------------------------------------------- - --------------------------------------------------- CAREY INTERNATIONAL, INC. -------------------------------------------------- --------------------------------------------- ------------------------------------------- transferable on the books of the Company by the holder hereof in person or by its duly authorized attorney upon surrender of this Certificate properly endorsed or assigned. This Certificate and the shares represented hereby are issued and shall be held subject to the laws of the State of Delaware and the provisions of the Certificate of Incorporation and the By-laws of the Company, as amended from time to time to whcich the holder be acceptance hereof assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal fo the Company and the facsimile signatures of its duly authorized officers. Dated: [SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE] [CAREY INTERNATIONAL, INC. SEAL APPEARS HERE] PRESIDENT AND SECRETARY CHAIRMAN OF THE BOARD COUNTERSIGNED AND REGISTERED AMERICAN SECURITIES TANSFER & TRUST, INC. P.O. BOX 1590 DENVER, COLORADO 80201 BY TRANSFER AGENT AUTHORIZED SIGNATURE
CAREY INTERNATIONAL, INC. The Company is authorized to issue more than one class or series of stock. Upon written request the Company will furnish without charge to each stockholder a copy of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - ________________, Custodian ______________________ (Cust) (Minor) Under Uniform Gifts To Minors Act _______________________ (State) Additional abbreviations may also be used through not in the above list. For value received, __________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - ----------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within named Company with full power of substitution in the promises. Dated________________________ ---------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: - ------------------------------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAMS), PURSUANT TO S.E.C. RULE 17Ad-15. EX-4.2 5 FORM OF WARRANTS EXHIBIT 4.2 CAREY INTERNATIONAL, INC. WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK -------------------------------------------------- No. 1 ___________ Shares FOR VALUE RECEIVED, Carey International, Inc., a Delaware corporation (the "COMPANY"), hereby certifies that _____________________________ or its permitted assigns is entitled to purchase from the Company, at any time or from time to time commencing on , 1997 and prior to 5:00 P.M., New York City time, on , 2002, ___________________________ (____________) fully paid and non-assessable shares of the common stock, $.01 par value per share, of the Company for an aggregate purchase price of $__________ (computed on the basis of $______ per share). (Hereinafter, (i) said common stock, together with any other equity securities which may be issued by the Company with respect thereto or in substitution therefor, is referred to as the "COMMON STOCK," (ii) the shares of the Common Stock purchasable hereunder or under any other Warrant (as hereinafter defined) are referred to individually as a "WARRANT SHARE" and collectively as the "WARRANT SHARES," (iii) the aggregate purchase price payable for the Warrant Shares hereunder is referred to as the "AGGREGATE WARRANT PRICE," (iv) the price payable for each of the Warrant Shares hereunder is referred to as the "PER SHARE WARRANT PRICE," (v) this Warrant, all similar Warrants issued on the date hereof and all Warrants hereafter issued in exchange or substitution for this Warrant or such similar Warrants are referred to as the "WARRANTS" and (vi) the holder of this Warrant is referred to as the "HOLDER" and the holder of this Warrant and all other Warrants or Warrant Shares issued upon the exercise of any Warrant are referred to as the "HOLDERS.") The Aggregate Warrant Price is not subject to adjustment. The Per Share Warrant Price is subject to adjustment as hereinafter provided; in the event of any such adjustment, the number of Warrant Shares shall be adjusted by dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect immediately after such adjustment. 1. EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant, ------------------- in whole or in part, as follows: (i) By presentation and surrender of this Warrant to the Company at the address set forth in Subsection 9(a) hereof, with the Subscription Form annexed hereto (or a reasonable facsimile thereof) duly executed and accompanied by payment of the Per Share Warrant Price for each Warrant Share to be purchased. Payment for Warrant Shares shall be made by certified or official bank check payable to the order of the Company; or (ii) By presentation and surrender of this Warrant to the Company at the address set forth in Subsection 9(a) hereof, with a Cashless Exercise Form annexed hereto (or a reasonable facsimile thereof) duly executed (a "CASHLESS EXERCISE"). Such presentation and surrender shall be deemed a waiver of the Holder's obligation to pay all or any portion of the Aggregate Warrant Price. In the event of a Cashless Exercise, the Holder shall exchange its Warrant for that number of shares of Common Stock determined by multiplying the number of Warrant Shares being exercised by a fraction, the numerator of which shall be the positive difference between the then current market price per share of the Common Stock and the Per Share Warrant Price, and the denominator of which shall be the then current market price per share of Common Stock. For purposes of any computation under this Section 1, the then current market price per share of Common Stock at any date shall be deemed to be the average for the thirty consecutive business days immediately prior to the Cashless Exercise of the daily closing prices of the Common Stock on the principal national securities exchange on which the Common Stock is admitted to trading or listed, or if not listed or admitted to trading on any such exchange, the closing prices as reported by the Nasdaq National Market, or if not then listed on the Nasdaq National Market, the average of the highest reported bid and lowest reported asked prices as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or if not then publicly traded, the fair market price of the Common Stock as determined by the Board of Directors. (b) If this Warrant is exercised in part, this Warrant must be exercised for a number of whole shares of the Common Stock, and the Holder is entitled to receive a new Warrant covering the Warrant Shares which have not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon surrender of this Warrant in connection with any exercise thereof, the Company will (i) issue a certificate or certificates, in such denominations as are requested for delivery by the Holder, in the name of the Holder for the largest number of whole shares of the Common Stock to which the Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of any fractional share of the Common Stock to which the Holder shall be entitled, pay to the Holder cash in an amount equal to the then current market price of a share of Common Stock multiplied by such fraction, and (ii) deliver the other securities and properties receivable upon the exercise of this Warrant, or the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of this Warrant. On and after the date of exercise of this Warrant, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. 2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that, -------------------------------------- prior to the expiration of this Warrant, the Company will at all times (a) have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Common Stock and other securities and properties as from time to time shall be receivable upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer (other than those imposed by -2- applicable law) and free and clear of all preemptive rights and rights of first refusal and (b) if the Company hereafter lists its Common Stock on any national securities exchange, keep the shares of the Common Stock receivable upon the exercise of this Warrant authorized for listing on such exchange upon notice of issuance. 3. PROTECTION AGAINST DILUTION. (a) In case the Company shall --------------------------- hereafter (i) pay a dividend or make a distribution on its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Per Share Warrant Price shall be adjusted so that the Holder upon the exercise hereof shall be entitled to receive the number of shares of Common Stock or other capital stock of the Company which he would have owned immediately following such action had such Warrant been exercised immediately prior thereto. An adjustment made pursuant to this Subsection 3(a) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. (b) If, at any time or from time to time after the date of this Warrant, the Company shall issue or distribute to the holders of shares of Common Stock evidences of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a subdivision, combination or reclassification, or dividend or distribution payable in shares of Common Stock, referred to in Subsection 3(a), and also excluding cash dividends or cash distributions paid out of net profits legally available therefor if the full amount thereof, together with the value of other dividends and distributions made substantially concurrently therewith or pursuant to a plan which includes payment thereof, is equivalent to not more than 5% of the Company's net worth) (any such nonexcluded event being herein called a "SPECIAL DIVIDEND"), the Per Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price then in effect by a fraction, the numerator of which shall be the then current market price of the Common Stock (defined as the average for the thirty consecutive business days immediately prior to the record date of the daily closing price of the Common Stock as reported by the national securities exchange upon which the Common Stock is then listed or if not listed on any such exchange, the average of the closing prices as reported by Nasdaq National Market, or if not then listed on the Nasdaq National Market, the average of the highest reported bid and lowest reported asked prices as reported by NASDAQ, or if not then publicly traded, the fair market price as determined by the Company's Board of Directors) less the fair market value (as determined by the Company's Board of Directors) of the evidences of indebtedness, cash, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock and the denominator of which shall be such then current market price per share of Common Stock. An adjustment made pursuant to this Subsection 3(b) shall become effective immediately after the record date of any such Special Dividend. -3- (c) In case of any capital reorganization or reclassification, or any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), the Holder of this Warrant shall have the right thereafter to receive on the exercise of this Warrant the kind and amount of securities, cash or other property which the Holder would have owned or have been entitled to receive immediately after such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance had this Warrant been exercised immediately prior to the effective date of such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 3 with respect to the rights and interests thereafter of the Holder of this Warrant to the end that the provisions set forth in this Section 3 shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant. The above provisions of this Subsection 3(c) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, statutory exchanges, sales or conveyances. The issuer of any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant shall be responsible for all of the agreements and obligations of the Company hereunder. Notice of any such reorganization, reclassification, consolidation, merger, statutory exchange, sale or conveyance and of said provisions so proposed to be made, shall be mailed to the Holders of the Warrants not less than 15 days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. (d) In case any event shall occur as to which the other provisions of this Section 3 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof then, in each such case, the Holders of Warrants representing the right to purchase a majority of the Warrant Shares subject to all outstanding Warrants may appoint a firm of independent public accountants of recognized national standing reasonably acceptable to the Company, which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the purchase rights represented by the Warrants. Upon receipt of such opinion, the Company will promptly mail a copy thereof to the Holder of this Warrant and shall make the adjustments described therein. The fees and expenses of such independent public accountants shall be borne by the Company. (e) No adjustment in the Per Share Warrant Price shall be required unless such adjustment would require an increase or decrease of at least $0.05 per share of Common Stock; provided, however, that any adjustments which by -------- ------- reason -4- of this Subsection 3(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided further, however, that -------- ------- adjustments shall be required and made in accordance with the provisions of this Section 3 (other than this Subsection 3(e)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the Holder of this Warrant or Common Stock issuable upon exercise hereof. All calculations under this Section 3 shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. Anything in this Section 3 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Per Share Warrant Price, in addition to those required by this Section 3, as it in its discretion shall deem to be advisable in order that any stock dividend, subdivision of shares or distribution of rights to purchase stock or securities convertible or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable. (f) Whenever the Per Share Warrant Price is adjusted as provided in this Section 3 and upon any modification of the rights of a Holder of Warrants in accordance with this Section 3, the Company shall promptly deliver a certificate signed by its Chief Financial Officer setting forth the Per Share Warrant Price and the number of Warrant Shares after such adjustment or the effect of such modification, a brief statement of the facts requiring such adjustment or modification and the manner of computing the same and cause copies of such certificate to be mailed to the Holders of the Warrants. (g) If the Board of Directors of the Company shall (i) declare any dividend or other distribution with respect to the Common Stock, other than a cash dividend subject to the first parenthetical in Subsection 3(b), (ii) offer to the holders of shares of Common Stock any additional shares of Common Stock, any securities convertible into or exercisable for shares of Common Stock or any rights to subscribe thereto, or (iii) propose a dissolution, liquidation or winding up of the Company, the Company shall mail notice thereof to the Holders of the Warrants not less than 15 days prior to the record date fixed for determining stockholders entitled to participate in such dividend, distribution, offer or subscription right or to vote on such dissolution, liquidation or winding up. (h) If, as a result of an adjustment made pursuant to this Section 3, the Holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to the Holder of any Warrant promptly after such adjustment) shall determine the allocation of the adjusted Per Share Warrant Price between or among shares or such classes of capital stock or shares of Common Stock and other capital stock. 4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the ----------------------- Common Stock represented by each and every certificate for Warrant Shares delivered on the exercise of this Warrant shall, at the time of such delivery, be validly -5- issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights or rights of first refusal, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Common Stock is at all times equal to or less than the then Per Share Warrant Price. The Company further covenants and agrees that it will pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes which may be payable in respect of the issue of any Warrant Share or certificate therefor. 5. REGISTRATION UNDER SECURITIES ACT OF 1933. ----------------------------------------- (a) The Company agrees that if, at any time during the period commencing on , 1998 and ending on , 2002, the Holder and/or the Holders of any other Warrants and/or Warrant Shares who or which shall hold not less than 25% of the Warrants and/or Warrant Shares outstanding at such time and not previously sold pursuant to this Section 5 shall request that the Company file, under the Securities Act of 1933 (the "ACT"), a registration statement under the Act covering not less than 25% of the Warrant Shares issued or issuable upon the exercise of the Warrants and not so previously sold, the Company will (i) promptly notify each Holder of the Warrants and each holder of Warrant Shares not so previously sold that such registration statement will be filed and that the Warrant Shares which are then held, and/or may be acquired upon exercise of the Warrants by the Holder and such Holders, will be included in such registration statement at the Holder's and such Holders' request, (ii) cause such registration statement to be filed with the Securities and Exchange Commission within thirty days of such request and to cover all Warrant Shares which it has been so requested to include, (iii) use its best efforts to cause such registration statement to become effective as soon as practicable and (iv) take all other action necessary under any Federal or state law or regulation of any governmental authority to permit all Warrant Shares which it has been so requested to include in such registration statement to be sold or otherwise disposed of, and will maintain such compliance with each such Federal and state law and regulation of any governmental authority for the period necessary for such Holders to effect the proposed sale or other disposition. The Company shall be required to effect a registration or qualification pursuant to this Subsection 5(a) on one occasion only. Notwithstanding the foregoing, the Company need not include any Warrant Shares owned by any Holder in any registration statement provided for under this Subsection 5(a) or notify any other Holder that a registration statement will be filed if in the opinion of counsel for the Company reasonably satisfactory to the Holder (which shall be deemed to include Nutter, McClennen & Fish, LLP), registration of such shares under the Act is not necessary for the Holder to dispose of all of such shares in the public market in compliance with the Act; provided that, in such case, the opinion of such counsel shall be in writing addressed to the Holder and shall be rendered within 20 days after the Company receives the Holder's request for registration. (b) The Company agrees that if, at any time and from time to time during the period commencing on , 1997 and ending on , 2004, the Board of Directors of the Company shall authorize the filing of a registration -6- statement (any such registration statement being hereinafter called a "SUBSEQUENT REGISTRATION STATEMENT") under the Act (otherwise than pursuant to Subsection 5(a) hereof, or other than a registration statement on Form S-8 or other form which does not include substantially the same information as would be required in a form for the general registration of securities) in connection with the proposed offer of any of its securities by it or any of its stockholders, the Company will (i) promptly notify the Holder and each of the Holders, if any, of other Warrants and/or Warrant Shares not previously sold pursuant to this Section 5 that such Subsequent Registration Statement will be filed and that the Warrant Shares which are then held, and/or which may be acquired upon the exercise of the Warrants, by the Holder and such Holders, will, at the Holder's and such Holders' request, be included in such Subsequent Registration Statement, (ii) upon the written request of a Holder made within 20 days after the giving of such notice by the Company, include in the securities covered by such Subsequent Registration Statement all Warrant Shares which it has been so requested to include, (iii) use its best efforts to cause such Subsequent Registration Statement to become effective as soon as practicable and (iv) take all other action necessary under any Federal or state law or regulation of any governmental authority to permit all Warrant Shares which it has been so requested to include in such Subsequent Registration Statement to be sold or otherwise disposed of, and will maintain such compliance with each such Federal and state law and regulation of any governmental authority for the period necessary for the Holder and such Holders to effect the proposed sale or other disposition. (c) Whenever the Company is required pursuant to the provisions of this Section 5 to include Warrant Shares in a registration statement, the Company shall (i) furnish each Holder of any such Warrant Shares and each underwriter of such Warrant Shares with such copies of the prospectus, including the preliminary prospectus, conforming to the Act (and such other documents as each such Holder or each such underwriter may reasonably request) in order to facilitate the sale or distribution of the Warrant Shares, (ii) use its best efforts to register or qualify such Warrant Shares under the blue sky laws (to the extent applicable) of such jurisdiction or laws (to the extent applicable) of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares and each underwriter of Warrant Shares being sold by such Holders shall reasonably request and (iii) take such other actions as may be reasonably necessary or advisable to enable such Holders and such underwriters to consummate the sale or distribution in such jurisdiction or jurisdictions in which such Holders shall have reasonably requested that the Warrant Shares be sold. Nothing contained in this Warrant shall be construed as requiring a Holder to exercise its Warrant prior to the closing of an offering pursuant to a registration statement referred to in Subsection 5(a) or 5(b). (d) The Company shall furnish to each Holder participating in an offering pursuant to a registration statement under this Section 5 and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, an opinion -7- dated the date of the closing under the underwriting agreement), and (ii) a "comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by the independent public accountants who have issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (e) The Company shall enter into an underwriting agreement with the managing underwriters selected by Holders holding 50% of the Warrant Shares requested to be included in a registration statement filed pursuant to Section 5(a). Such agreement shall be reasonably satisfactory in form and substance to the Company, each Holder and such managing underwriters, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Warrant Shares and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. (f) The Company shall pay all expenses incurred in connection with any registration statement or other action pursuant to the provisions of this Section 5, including the reasonable fees and expenses of one counsel representing the Holders of Warrant Shares included in any such registration statement, other than underwriting discounts and applicable transfer taxes relating to the Warrant Shares. (g) The Company will indemnify, and, if such indemnity is unavailable, will agree to just and equitable contribution to, the Holders of Warrant Shares which are included in each registration statement referred to in Subsections 5(a) and 5(b), and the underwriters of such Warrant Shares, substantially to the same extent as the Company has indemnified, and agreed to just and equitable contribution to, the underwriters (the "UNDERWRITERS") of its public offering of Common Stock pursuant to the Underwriting Agreement (the "Underwriting Agreement"), dated ______, 1997, by and among the Company, Montgomery Securities, Ladenburg Thalmann & Co. Inc. and the other underwriters named in Schedule A thereto. Each selling Holder of Warrant Shares, severally and not jointly, will indemnify and hold harmless the Company, its directors, its officers who shall have signed any such registration statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act to the same extent as the foregoing indemnity from -8- the Company, but in each case to the extent, and only to the extent, that any statement in or omission from or alleged omission from such registration statement, any final prospectus, or any amendment or supplement thereto was made in reliance upon information furnished in writing to the Company by such selling Holder specifically for use in connection with the preparation of such registration statement, any final prospectus or any such amendment or supplement thereto; provided, however, that the obligation of any Holder of Warrant Shares -------- ------- to indemnify the Company under the provisions of this Subsection (g) shall be limited to the excess of (1) the product of (A) the number of Warrant Shares ------ -- being sold by the selling Holder and (B) the market price of the Common Stock on the date of the sale to the public of such Warrant Shares over (2) the aggregate ---- amount, if any, paid to the Company by such Holder in connection with the issuance of such Warrant Shares. (h) Each Holder shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in connection with any registration, qualification or compliance referred to herein. 6. LIMITED TRANSFERABILITY. This Warrant may not be sold, ----------------------- transferred, assigned or hypothecated by the Holder (a) except in compliance with the provisions of the Act, and (b) until the first anniversary hereof except (i) to any successor firm or corporation of Ladenburg, Thalmann & Co. Inc. or Montgomery Securities (ii) to any of the officers of Ladenburg, Thalmann & Co. Inc. Montgomery Securities, or of any such successor firm or (iii) in the case of an individual, pursuant to such individual's last will and testament or the laws of descent and distribution, and is so transferable only upon the books of the Company which it shall cause to be maintained for the purpose. The Company may treat the registered Holder of this Warrant as he or it appears on the Company's books at any time as the Holder for all purposes. The Company shall permit any Holder of a Warrant or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered holders of Warrants. All Warrants issued upon the transfer or assignment of this Warrant will be dated the same date as this Warrant, and all rights of the Holder thereof shall be identical to those of the Holder. 7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to ---------------------- the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. 8. WARRANT HOLDER NOT STOCKHOLDER. Except as otherwise provided ------------------------------ herein, this Warrant does not confer upon the Holder any right to vote or to consent to or receive notice as a stockholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a stockholder, prior to the exercise hereof. -9- 9. NOTICES. All notices and other communications required or ------- permitted to be given under this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or by facsimile transmission, or sent by recognized overnight courier or by certified mail, return receipt requested, postage paid, to the parties hereto as follows: (a) if to the Company at 4530 Wisconsin Avenue, N.W., 5th Floor, Washington, D.C. 20016, Att.: Vincent A. Wolfington, facsimile no. 202-895-1201, or such other address as the Company has designated in writing to the Holder, or (b) if to the Holder at , Att.: , facsimile no. , or such other address or facsimile number as the Holder has designated in writing to the Company. 10. HEADINGS. The headings of this Warrant have been inserted as a -------- matter of convenience and shall not affect the construction hereof. 11. APPLICABLE LAW. This Warrant shall be governed by and construed -------------- in accordance with the law of the State of New York without giving effect to the principles of conflicts of law thereof. IN WITNESS WHEREOF, Carey International, Inc. has caused this Warrant to be signed by its Chairman of the Board and its corporate seal to be hereunto affixed and attested by its Secretary this ____ day of ____________, 1997. CAREY INTERNATIONAL, INC. By:______________________ Chairman of the Board ATTEST: _________________________ Secretary [Corporate Seal] -10- ASSIGNMENT FOR VALUE RECEIVED ____________________________ hereby sells, assigns and transfers unto __________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint _______________________, attorney, to transfer said Warrant on the books of _________________________. Dated: _____________________________ Signature:___________________________ Address: ____________________________ PARTIAL ASSIGNMENT FOR VALUE RECEIVED __________________________ hereby assigns and transfers unto ____________________________ the right to purchase ______________ shares of the Common Stock of _________________________ covered by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint _____________________, attorney, to transfer that part of said Warrant on the books of ______________________________. Dated: _____________________________ Signature:___________________________ Address: ____________________________ -11- SUBSCRIPTION FORM (To be executed upon exercise of Warrant pursuant to Section 1 (a)(i)) The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for, and to purchase thereunder, ______________ shares of Common Stock, as provided for in Section 1(a)(i), and tenders herewith payment of the purchase price in full in the form of cash or a certified or official bank check in the amount of $___________. Please issue a certificate or certificates for such Common Stock in the name of, and pay any cash for any fractional share to: Name _____________________________________ (Please Print Name, Address and Social Security No.) Address ___________________________________ ___________________________________________ Social ____________________________________ Security Number Signature _________________________________ NOTE: The above signature should correspond exactly with the name on the first page of this Warrant or with the name of the assignee appearing in the assignment form below. Date_______________________________________ And if said number of shares shall not be all the shares purchasable under the within Warrant, a new Warrant is to be issued in the name of said undersigned for the balance remaining of the shares purchasable thereunder. -12- CASHLESS EXERCISE FORM (To be executed upon exercise of Warrant pursuant to Section 1(a)(ii)) The undersigned hereby irrevocably elects to surrender _______ shares purchasable under this Warrant for such shares of Common Stock issuable in exchange therefor pursuant to the Cashless Exercise provisions of the within Warrant, as provided for in Section 1(a)(ii) of such Warrant. Please issue a certificate or certificates for such Common Stock in the name of, and pay cash for fractional shares to: Name ______________________________________ (Please Print Name, Address and Social Security No.) Address ___________________________________ ___________________________________________ Social ____________________________________ Security Number Signature _________________________________ NOTE: The above signature should correspond exactly with the name on the first page of this Warrant or with the name of the assignee appearing in the assignment form below. Date_______________________________________ And if said number of shares shall not be all the shares exchangeable or purchasable under the within Warrant, a new Warrant is to be issued in the name of the undersigned for the balance remaining of the shares purchasable thereunder. -13- EX-21 6 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 ---------- SUBSIDIARIES OF CAREY INTERNATIONAL, INC. (unless otherwise noted, all subsidiaries are wholly-owned) Carey Services, Inc. Carey Licensing, Inc. Squire Limousine, Inc. Carey South Florida, Inc. Carey Limousine Corporation d/b/a Carey Philadelphia, Inc.* Carey Limousine D.C., Inc.* Carey Limousine Florida, Inc.* Carey Limousine L.A., Inc. d/b/a Carey Huntington Limousine, Inc.* Carey Limousine NY, Inc.* Carey Limousine S.F., Inc.* Carey UK Limited* Herzog Cadillac Rental Service NY, Inc.* International Limousine Network Ltd.** Manhattan International Limousine Network Ltd.** MILN Acquisition Corporation*** ______________ * Wholly-owned subsidiary of Carey Services, Inc. ** Will become a wholly-owned subsidiary of Carey International, Inc. upon the closing of this offering. *** Will be merged with and into Manhattan International Limousine Network Ltd. upon the closing of this offering, at which point its legal existence will terminate. EX-23.1 7 CONSENT OF COOPERS & LYBRAND L.L.P. Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. 333-22651) of our report dated January 31, 1997, except for Notes 1,2 and 18, as to which the date is March 1, 1997, on our audits of the consolidated financial statements and financial statement schedule of Carey International, Inc. and Subsidiaries as of November 30, 1996 and 1995 and for each year in the three year period ended November 30, 1996, which includes an explanatory paragraph relating to a restatement for a change in the revenue recognition method. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Washington, D.C. May 23, 1997 EX-23.2 8 CONSENT OF COOPERS & LYBRAND L.L.P. Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. 333-22651) of our report dated March 1, 1997, except for Note 10, as to which the date is April 22, 1997, on our audit of the combined financial statements of Manhattan International Limousine Network, Ltd. and Affiliate as of September 30, 1996 and for the year then ended, which includes an explanatory paragraph relating to a restatement for a change in the revenue recognition method and to record previously unrecorded costs related to services provided by independent service companies. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Washington, D.C. May 23, 1997 EX-23.3 9 CONSENT OF COOPERS & LYBRAND L.L.P., ACCNTS & ADTR EXHIBIT 23.3 Consent of Independent Accountants We consent to the inclusion in this registration statement on Form S-1 of our report dated February 26, 1996, except for note 16 which is dated February 28, 1997, on our audits of the financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) for the years ended December 31, 1994 and 1995. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand ------------------------- COOPERS & LYBRAND Chartered Accountants and Registered Auditors London, United Kingdom May 23, 1997 EX-23.4 10 CONSENT OF COOPERS & LYBRAND L.L.P., ACCNTS & ADTR Exhibit 23.4 Consent of Independent Accountants We consent to the inclusion in this registration statement on Form S-1 of our report dated February 26, 1996, except for notes 15 and 16 which are dated February 25, 1997, on our audit of the financial statements of Camelot Barthropp Limited (formerly Speed 6060 Limited) for the year ended December 31, 1995. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand -------------------------- Coopers & Lybrand Chartered Accountants and Registered Auditors London, United Kingdom May 23, 1997 -----END PRIVACY-ENHANCED MESSAGE-----