-----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, DNJx52//Eao6QMcGQKlPIAI8b7xYMRHc9cwqLadlT/k5Oq8yHeonh0TWBU2N9z7a crWo/ZGO+CmfaKvcUjbSEw== 0000928385-98-000416.txt : 19980622 0000928385-98-000416.hdr.sgml : 19980622 ACCESSION NUMBER: 0000928385-98-000416 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980309 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREY INTERNATIONAL INC CENTRAL INDEX KEY: 0000747201 STANDARD INDUSTRIAL CLASSIFICATION: 4100 IRS NUMBER: 521171965 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-34897 FILM NUMBER: 98560582 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-4/A 1 POST-EFFECTIVE AMENDMENT NO.1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1998 REGISTRATION NO. 333-34897 - - - ------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-4 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 INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 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: JAMES E. DAWSON, ESQUIRE NUTTER, MCCLENNEN & FISH, LLP ONE INTERNATIONAL PLACE BOSTON, MA 02110 (617) 439-2000 -------------- 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. [X] If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] -------------- CALCULATION OF REGISTRATION FEE - - - ------------------------------------------------------------------------------------------------------------ - - - ------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF PROPOSED MAXIMUM SECURITIES AMOUNT TO BE OFFERING PROPOSED MAXIMUM AMOUNT OF TO BE REGISTERED REGISTERED PRICE PER SHARE(/1/) AGGREGATE OFFERING PRICE(/1/) REGISTRATION FEE - - - ------------------------------------------------------------------------------------------------------------ Common Stock, $.01 par value 1,500,000 shares $14.5625 $21,843,750.00 $6,619.32(2) - - - ------------------------------------------------------------------------------------------------------------ - - - ------------------------------------------------------------------------------------------------------------
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon the average of the high and low prices per share of Common Stock reported on The Nasdaq National Market on August 26, 1997. (2) Previously paid. 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. - - - ------------------------------------------------------------------------------- - - - ------------------------------------------------------------------------------- PROSPECTUS 1,500,000 SHARES [LOGO OF CAREY APPEARS HERE] CAREY INTERNATIONAL, INC. COMMON STOCK ----------- This Prospectus relates to 1,500,000 shares of Common Stock, $.01 par value per share (the "Common Stock"), of Carey International, Inc. (the "Company") that may be offered and issued by the Company from time to time in connection with acquisitions of other businesses or properties by the Company. Carey intends to concentrate its acquisitions within the chauffeured vehicle service industry. If the opportunity arises, however, Carey may attempt to make acquisitions that are either complementary to its present operations or which it considers advantageous even though they may be dissimilar to its present activities. The consideration for any such acquisition may consist of shares of Common Stock, cash, notes or other evidences of debt, assumptions of liabilities or a combination thereof, as determined from time to time by negotiations between Carey and the owners or controlling persons of businesses or properties to be acquired. The shares covered by this Prospectus may be issued in exchange for shares of capital stock, partnership interests or other assets representing an interest, direct or indirect, in other companies or other entities, in exchange for assets used in or related to the business of such companies or entities, or otherwise pursuant to the agreements providing for such acquisitions. The terms of such acquisitions and of the issuance of shares of Common Stock under acquisition agreements will generally be determined by direct negotiations with the owners or controlling persons of the businesses or properties to be acquired or, in the case of entities that are more widely held, through exchange offers to stockholders or documents soliciting the approval of statutory mergers, consolidations or sales of assets. It is anticipated that the shares of Common Stock issued in any such acquisition will be valued at a price reasonably related to the market value of the Common Stock either at the time of agreement on the terms of an acquisition or at or about the time of delivery of the shares. It is not expected that underwriting discounts or commissions will be paid by the Company in connection with issuances of shares of Common Stock under this Prospectus. However, finders' fees or brokers' commissions may be paid from time to time in connection with specific acquisitions, and such fees may be paid through the issuance of shares of Common Stock covered by this Prospectus. Any person receiving such a fee may be deemed to be an underwriter within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). The Company's Common Stock is listed on The Nasdaq National Market under the symbol "CARY." The closing market price of the Common Stock on The Nasdaq National Market on February 27, 1998 was $18.00. ----------- PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER THE SECTION "RISK FACTORS" BEGINNING ON PAGE 7. ----------- 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. THE DATE OF THIS PROSPECTUS IS FEBRUARY 28, 1998 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 TO BUY BE ACCEPTED 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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION. 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 Recent Acquisitions...................................................... 11 Price Range of Common Stock.............................................. 12 Dividend Policy.......................................................... 12 Selected Consolidated Financial Data..................................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 14 Business................................................................. 19 Management............................................................... 28 Principal Stockholders................................................... 34 Certain Transactions..................................................... 35 Description of Capital Stock............................................. 37 Shares Eligible for Future Sale.......................................... 39 Plan of Distribution..................................................... 40 Legal Matters............................................................ 41 Experts.................................................................. 41 Additional Information................................................... 41 Index to Financial Statements............................................ F-1
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. THE COMPANY 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. (Unless the context otherwise requires, "Carey" or the "Company" refers to Carey International, Inc. and its subsidiaries.) 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., Indianapolis, 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 the 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. From November 1991 through February 1998, the Company acquired 19 chauffeured vehicle service companies, including, since December 1994, two of its licensees (in Ft. Lauderdale/Miami and San Francisco) and ten additional chauffeured vehicle service companies (two in each of Boca Raton, San Francisco and London, and one in each of New York, Los Angeles, Indianapolis, and Washington, D.C.). In June 1997, the Company acquired 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 pro forma revenues of approximately $20.7 million representing approximately 21.5% of the Company's fiscal 1997 revenues on a pro forma basis. See "Pro Forma Consolidated Financial Statements." Increase International Market Share. Approximately 11.5% of the Company's revenue, net was derived from services performed outside the United States during its fiscal year ended November 30, 1997. Of these international revenues, approximately 72.0% was generated by the Company's owned and operated business in London, approximately 27.2% 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. 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 certain 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 4 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. 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. 5 SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA The selected consolidated financial data as of November 30, 1993, 1994, 1995, 1996, and 1997 and for each of the five years in the period ended November 1997 have been derived from the consolidated financial statements of the Company. The selected consolidated financial data and the consolidated financial statements of the Company give effect to the merger of Indy Connection Limousine, Inc. and subsidiary ("Indy Connection") with and into the Company on October 31, 1997. The merger was accounted for as a pooling-of-interests. The selected 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 document.
FISCAL YEAR ENDED NOVEMBER 30, NOVEMBER 30, --------------------------------------------------- 1997 1993 1994 1995 1996 1997 PRO FORMA(3) -------- ------- -------- --------- --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net.......... $33,651 $40,314 $48,969 $ 65,545 $ 86,378 $ 96,264 Cost of revenue....... 24,495 27,700 33,027 43,649 57,890 64,017 -------- ------- -------- --------- --------- --------- Gross profit.......... 9,156 12,614 15,942 21,896 28,488 32,247 Selling, general and administrative expense.............. 9,336 11,043 14,081 16,727 20,112 23,539 -------- ------- -------- --------- --------- --------- Operating income (loss)............... (180) 1,571 1,861 5,169 8,376 8,708 Interest income (expense) and other income (expense)..... (1,367) (1,446) (1,492) (1,380) (690) 4 -------- ------- -------- --------- --------- --------- Income (loss) before provision for income taxes................ (1,547) 125 369 3,789 7,686 8,712 Provision for income taxes................ 10 163 271 294 3,163 3,585 -------- ------- -------- --------- --------- --------- Net income (loss)..... $ (1,557) $ (38) $ 98 $ 3,495 $ 4,523 $ 5,127 ======== ======= ======== ========= ========= ========= Pro forma net income per share............ $ 0.90(1) $ 0.76(1) $ 0.65 ========= ========= ========= Pro forma weighted average shares outstanding.......... 4,213,320(1) 6,188,010(1) 7,941,065 ========= ========= ========= CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit)............ $ 903 $ 531 $ (1,948) $ (2,188) $ 4,999 Total assets.......... 30,028 29,494 38,729 43,967 85,394 Long-term debt and capital leases, less current maturities .. 12,827 12,276 14,502 12,039 4,132 Deferred revenue(2)... 4,330 4,484 4,726 6,181 13,396 Total stockholders' equity............... $ 4,771 $ 4,218 $ 4,197 $ 7,573 $ 48,300
- - - ------- (1) 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 (defined in Note 17 to the Company's Consolidated Financial Statements). (2) 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. (3) Gives effect to the following events as if they occurred on December 1, 1996: (i) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's six month ended March 31, 1997) and the amortization of associated goodwill, (ii) the conversion of certain preferred stock and subordinated debt into Common Stock, see Note 17 to the Company's Consolidated Financial Statements, and the elimination of interest expense associated with the subordinated debt, (iii) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash and note portions 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 the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (iv) the elimination of interest expense associated with debt repaid from the proceeds of the IPO and (v) other adjustments as described in the Pro Forma Consolidated Financial Statements and the notes thereto. 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. RISKS ASSOCIATED WITH ACQUISITION OF MANHATTAN LIMOUSINE The acquisition of Manhattan Limousine was consummated simultaneously with the Company's underwritten initial public offering of Common Stock in June 1997 (the "IPO"). Manhattan Limousine generated pro forma revenues of approximately $20.7 million representing approximately 21.5% of the Company's fiscal 1997 revenues on a pro forma basis. During fiscal 1997, approximately 41.2% of the Company's revenues on a pro forma basis were generated from services provided within the New York City metropolitan area. The 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 "Business--Acquisition Strategy." 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 business 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." 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 7 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 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 39 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, 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 8 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 its 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 $75,000. 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." 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. 9 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 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." POSSIBLE FUTURE SALES OF SHARES Sales of substantial amounts of Common Stock in the public market during or after this offering, 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. As of February 27, 1998, the Company had 7,680,691 shares outstanding. Of these shares, 4,455,127 shares are freely tradeable without restriction under the Securities Act, except for any such shares which may be beneficially owned by an "affiliate" of the Company (as that term is defined in Rule 144). The remaining 3,225,564 shares represent (i) shares issued pursuant to this Prospectus to affiliates of companies acquired by the Company; or (ii) shares issued prior to the completion of the Company's IPO or in connection with the acquisition of Manhattan Limousine which are deemed to be "restricted securities" under Rule 144. Unless the resale is registered under the Securities Act, such restricted shares may not be sold in the open market only in compliance with the applicable requirements of Rule 144. Except for shares held by affiliates of the Company and the 228,571 shares issued in connection with the acquisition of Manhattan Limousine, all of such restricted shares are currently eligible for resale under Rule 144. See "Shares Eligible for Future Sale." 10 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." POSSIBLE VOLATILITY OF STOCK PRICE AND LIMITATIONS ON RESALE There can be no assurance that an active public market for the Common Stock will continue during or after this offering. From time to time during or 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 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 during or after this offering may adversely affect the prevailing market price of the Common Stock. Affiliates of companies acquired by Carey who receive Common Stock under this Prospectus are subject for one year to the restrictions of Rule 145 under the Securities Act, including the volume of sale limitations and manner of sale requirements thereof. The requirements of Rule 145 may limit the ability of such affiliates to resell Common Stock they may receive under this Prospectus. RECENT ACQUISITIONS Effective October 31, 1997, the Company issued 721,783 shares of its common stock in exchange for all the outstanding common stock of Indy Connection based on a conversion ratio of 1.008 shares (the merger exchange ratio) of the Company's common stock for each share of Indy Connection's common stock, for a total value of approximately $12.0 million. The merger qualified as a tax-free reorganization and has been accounted for as a pooling-of-interests. 11 PRICE RANGE OF COMMON STOCK The Company's Common Stock is quoted on The Nasdaq National Market under the symbol "CARY." The following table sets forth for each period indicated the high and low sale prices for the Common Stock as reported by The Nasdaq National Market.
HIGH LOW ----- ---- May 28, 1997 through August 31, 1997 $15 7/8 $11 September 1, 1997 through November 30, 1997 18 13 1/2 December 1, 1997 through February 27, 1998 19 14
On February 27, 1998, the last reported sale price of the Common Stock was $18.00 and there were approximately 108 holders of record of Common Stock. DIVIDEND POLICY 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. 12 SELECTED CONSOLIDATED FINANCIAL DATA The selected actual consolidated financial data as of November 30, 1993, 1994, 1995, 1996, and 1997 and for each of the five years in the period ended November 1997 have been derived from the consolidated financial statements of the Company. The selected consolidated financial data and the consolidated financial statements of the Company give effect to the merger of Indy Connection Limousine, Inc. and subsidiary ("Indy Connection") with and into the Company on October 31, 1997. The transaction was accounted for as a pooling-of-interests. The selected 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 document.
FISCAL YEAR ENDED NOVEMBER 30, NOVEMBER 30, ---------------------------------------------------- 1997 1993 1994 1995 1996 1997 PRO FORMA(3) -------- -------- -------- --------- --------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net.......... $ 33,651 $ 40,314 $ 48,969 $ 65,545 $ 86,378 $ 96,264 Cost of revenue....... 24,495 27,700 33,027 43,649 57,890 64,017 -------- -------- -------- --------- --------- --------- Gross profit.......... 9,156 12,614 15,942 21,896 28,488 32,247 Selling, general and administrative expense.............. 9,336 11,043 14,081 16,727 20,112 23,539 -------- -------- -------- --------- --------- --------- Operating income (loss)............... (180) 1,571 1,861 5,169 8,376 8,708 Interest income (expense) and other income (expense)..... (1,367) (1,446) (1,492) (1,380) (690) 4 -------- -------- -------- --------- --------- --------- Income (loss) before provision for income taxes................ (1,547) 125 369 3,789 7,686 8,712 Provision for income taxes................ 10 163 271 294 3,163 3,585 -------- -------- -------- --------- --------- --------- Net income (loss)..... $ (1,557) $ (38) $ 98 $ 3,495 $ 4,523 $ 5,127 ======== ======== ======== ========= ========= ========= Pro forma net income per share............ $ 0.90(1) $ 0.76(1) $ 0.65 ========= ========= ========= Pro forma weighted average shares outstanding.......... 4,213,320(1) 6,188,010(1) 7,941,065 ========= ========= ========= CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit)............ $ 903 $ 531 $ (1,948) $ (2,188) $ 4,999 Total assets.......... 30,028 29,494 38,729 43,967 85,394 Long-term debt and capital leases, less current maturities... 12,827 12,276 14,502 12,039 4,132 Deferred revenue(2)... 4,330 4,484 4,726 6,181 13,396 Total stockholders' equity............... $ 4,771 $ 4,218 $ 4,197 $ 7,573 $ 48,300
- - - -------- (1) 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 (defined in Note 17 to the Company's Consolidated Financial Statements). (2) 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. (3) Gives effect to the following events as if they occurred on December 1, 1996: (i) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's six month ended March 31, 1997) and the amortization of associated goodwill, (ii) the conversion of certain preferred stock and subordinated debt into Common Stock, see Note 17 to the Company's Consolidated Financial Statements, and the elimination of interest expense associated with the subordinated debt, (iii) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash and note portions 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 the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (iv) the elimination of interest expense associated with debt repaid from the proceeds of the IPO and (v) other adjustments as described in the Pro Forma Consolidated Financial Statements and the notes thereto. 13 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 appearing elsewhere in this document. 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 1996 and 1997, approximately 76.1% and 81.2%, respectively, of the Company's revenue, net was generated by chauffeured vehicle services provided by the Company's owned and operated businesses, approximately 14.1% and 12.2%, respectively, was generated by chauffeured vehicle services provided by the Company's licensees and billed by the Company, and approximately 1.8% and 1.3%, 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 1996 and 1997 approximately 3.0% and 2.6%, 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. 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 67%) of the charges of 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 service provided less a referral fee ranging from 15% to 25% of net vehicle service revenue. Cost of revenue includes costs associated with owning and maintaining the vehicles owned by the Company, telecommunications expense, 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. From December 1994 through February 1998, Carey acquired 12 chauffeured vehicle service companies. Eleven of these acquisitions were made for cash, the issuance or assumption of notes, and/or issuance of Common Stock and were 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 license was acquired) and/or intangibles. The Company's October 1997 acquisition of Indy Connection was accounted for as a pooling-of-interests. The results of operations for the acquired companies accounted for by the purchase method 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, in acquisitions where it converts salaried chauffeurs to independent operators, 14 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. In June 1997 the Company completed an initial public offering of 3,335,000 shares of Common Stock (the "IPO"). 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.
FISCAL YEAR ENDED NOVEMBER 30, ---------------------------------- 1995 1996 1997 ---------- ---------- ---------- Revenue, net.............................. 100.0% 100.0% 100.0% Cost of revenue........................... 67.4 66.6 67.0 ---------- ---------- ---------- Gross profit.............................. 32.6 33.4 33.0 Selling, general and administrative expense.................................. 28.8 25.5 23.3 ---------- ---------- ---------- Operating income.......................... 3.8 7.9 9.7 Interest income (expense) and other income (expense)................................ (3.0) (2.1) (0.8) ---------- ---------- ---------- Income before provision for income taxes.. 0.8 5.8 8.9 Provision for income taxes................ 0.6 0.5 3.7 ---------- ---------- ---------- Net income................................ 0.2% 5.3% 5.2% ========== ========== ==========
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996 Revenue, Net. Revenue, net increased $20.8 million or 31.8% from $65.5 million in 1996 to $86.4 million in 1997. Of the increase, $8.8 million resulted from expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers. The remaining $12.0 million of the increase was due to the revenues from companies acquired by Carey, including Manhattan Limousine, which was acquired on June 2, 1997, and Commonwealth Limousine Services, Inc. ("Commonwealth") in Los Angeles, which was acquired on October 1, 1997. Cost of Revenue. Cost of revenue increased $14.2 million or 32.6% from $43.6 million in 1996 to $57.9 million in 1997. The increase was primarily attributable to higher costs due to increased business levels and to cost of revenue of acquired corporations, which was not included in 1996. Cost of revenue increased slightly as a percentage of revenue, net from 66.6% in 1996 to 67.0% in 1997, primarily reflecting increases in telephone, chauffeur and certain other costs as a percentage of revenue, net. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased approximately $3.4 million or 20.2% from $16.7 million in 1996 to $20.1 million in 1997. The increase was largely due to the costs of additional personnel, increased marketing expenses and increased administrative expenses related to acquired operations and generally in support of higher business levels. Selling, general and administrative expenses decreased as a percentage of revenue, net from 25.5% in 1996 to 23.3% in 1997 largely due to the fact that the Company's revenue, net has increased more rapidly than its administrative costs. Interest Expense. Interest expense decreased approximately $756,000 or 39.8% from approximately $1.9 million in 1996 to approximately $1.1 million in 1997. Interest expense decreased as a percentage of revenue, net from 2.9% in 1996 to 1.3% in 1997. The decrease resulted from both the use of proceeds from the Company's IPO to repay outstanding debt and the conversion of subordinated and certain other debt to Common Stock coincident with the IPO. 15 Provision for Income Taxes. The provision for income taxes increased approximately $2.9 million from approximately $294,000 in 1996 to approximately $3.2 million in 1997. The increase primarily related to the increase in pre-tax income of the Company from approximately $3.8 million in the 1996 to $7.7 million in the 1997. In addition, the Company utilized the benefit of net operating loss carryovers ("NOLs") in determining its provision for income taxes in 1996, but such NOLs were not available to the Company in 1997. Net Income. As a result of the foregoing, the Company's net income increased approximately $1.0 million or 29.4% from approximately $3.5 million in 1996 to approximately $4.5 million in 1997. YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995 Revenue, Net. Revenue, net increased approximately $16.6 million or 33.8% from $49.0 million in 1995 to $65.5 million in 1996. Of the increase, approximately $10.2 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 $10.6 million or 32.2% from $33.0 million in 1995 to $43.6 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 67.4% in 1995 to 66.6% 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 Expenses. Selling, general and administrative expenses increased approximately $2.6 million or 18.8% from $14.1 million in 1995 to $16.7 million in 1996. The increase was largely due to higher administrative costs associated with additional personnel, increased marketing expenses, and higher amortization of intangibles as a result of the acquisitions. Selling, general and administrative expenses decreased as a percentage of revenue, net from 28.8% in 1995 to 25.5% in 1996 as a result of an increase in revenue without a corresponding increase in administrative costs. Interest Expense. Interest expense was $1.9 million in 1995 and 1996, respectively. Interest expense decreased as a percentage of revenue, net from 3.9% in 1995 to 2.9% in 1996. Provision for Income Taxes. The provision for income taxes increased approximately $24,000 from approximately $271,000 in 1995 to approximately $294,000 in 1996. Prior to 1996, the Company recorded a valuation allowance against its net deferred tax assets. This allowance was eliminated in 1996 in accordance with generally accepted accounting principles and this reduced the net 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 eliminating 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 utilized the full amount of its remaining NOLs in 1996. Net Income. As a result of the foregoing, the Company's net income increased approximately $3.4 million to approximately $3.5 million in 1996 compared to a net income of approximately $98,000 in 1995. 16 QUARTERLY RESULTS The following table presents unaudited quarterly financial information for 1995, 1996 and 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.
QUARTERLY RESULTS ------------------------------------------------------------------ $ % -------------------------------- -------------------------------- (IN THOUSANDS) OPERATING NET OPERATING NET REVENUE, GROSS INCOME INCOME REVENUE, GROSS INCOME INCOME NET PROFIT (LOSS) (LOSS) NET PROFIT (LOSS) (LOSS) -------- ------ --------- ------ -------- ------ --------- ------ 1997 February 28............ $15,595 $5,126 $ 912 $ 366 100.0% 32.9% 5.8% 2.3% May 31................. 18,690 6,495 1,990 1,008 100.0 34.8 10.6 5.4 August 31.............. 22,932 7,574 2,022 1,180 100.0 33.0 8.8 5.1 November 30............ 29,161 9,293 3,452 1,969 100.0 31.9 11.8 6.8 1996 February 29............ 12,892 4,232 490 36 100.0 32.8 3.8 0.3 May 31................. 16,695 5,674 1,459 750 100.0 34.0 8.7 4.5 August 31.............. 16,073 5,472 1,343 681 100.0 34.0 8.4 4.2 November 30............ 19,885 6,518 1,877 2,028 100.0 32.8 9.4 10.2 1995 February 28............ 9,503 3,081 (42) (385) 100.0 32.4 (0.4) (4.1) May 31................. 11,865 3,874 548 111 100.0 32.7 4.6 0.9 August 31.............. 11,686 3,610 (27) (538) 100.0 30.9 (0.2) (4.6) November 30............ 15,916 5,377 1,382 910 100.0 33.8 8.7 5.7
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 Cash and cash equivalents increased $2.5 million from $2.9 million at November 30, 1996 to $5.3 million at November 30, 1997. Operating activities provided net cash of $3.4 million during 1997. The overall net increase in cash and cash equivalents during 1997 primarily related to the cash proceeds to the Company from its IPO and net cash provided by operations, offset by the use of such cash to retire debt, acquire Manhattan Limousine and redeem certain preferred shares of stock. Cash used in investing activities increased by $8.0 million over 1996. Cash of $1.7 million was used in 1996 to acquire operations in London, whereas $8.4 million of cash was used in 1997 to acquire Manhattan Limousine and Commonwealth and to make additional payments of contingent consideration for the London acquisition. Cash provided by financing activities increased by $11.9 million over 1996, primarily as a result of the net proceeds from the IPO, after using such proceeds to retire debt and complete the Recapitalization. In connection with the IPO, the Company issued a total of 3,335,000 shares of Common Stock and received proceeds, net of underwriters' discounts and commissions and offering costs, of $30.6 million. The Company utilized the net proceeds from the IPO to repay principal on indebtedness of approximately $7.1 million and to fund the Recapitalization by repaying principal on subordinated indebtedness of approximately $912,000 and 17 redeeming preferred stock for $3.1 million. Additionally, the Company completed its acquisition of Manhattan Limousine by paying $11.8 million to the sellers of Manhattan Limousine and repaying $3.5 million of indebtedness of Manhattan Limousine. The remaining net proceeds have been used for acquisitions and other general corporate purposes, including working capital. As part of the Recapitalization, a further $4.9 million of debt was converted to Common Stock of the Company. At November 30, 1997, the Company had borrowings of $3.8 million, approximately $997,000 of which is to be repaid over the next 12 months. On August 15, 1997, the Company entered into a senior credit facility with three banks consisting of a secured revolving line of credit of $25.0 million (the "Facility"). The Facility, which may be used for acquisitions and working capital, is collateralized by the assets of the Company and its domestic operating subsidiaries and by a pledge of the stock of its international subsidiary. The Facility also provides availability for the issuance of letters of credit. Loans made under the revolving line of credit bear interest at the Company's option at either the bank's prime lending rate or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per annum are payable on the unused portion of the revolving line of credit. On the second anniversary of the Facility, outstanding balances under the Facility will convert to a five- year term loan, which will bear interest either at a fixed rate (subject to availability) or at a variable LIBOR or prime-based rate with adjustments determined based on the Company's earnings. The terms of the Facility (i) prohibit the payment of dividends by the Company, (ii) with certain exceptions, prevent the Company from incurring or assuming other indebtedness that is not subordinated to borrowings under the Facility and (iii) require the Company to comply with certain financial covenants. While there can be no assurance, and depending on the methods of financing and size of potential acquisitions, management believes that cash flow from operations, the remaining net proceeds from the IPO and funds from the credit Facility will be adequate to meet the Company's capital requirements for 1998. 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. The Company is in the process of upgrading the CIRS and certain other computer systems. The upgrades are designed to provide enhanced customer service and management information. These upgrades, which will continue throughout 1998 and 1999, also are designed to provide such systems functionality with respect to the "Year 2000" millenium change. The Company does not anticipate that the cost of these upgrades will be material to its liquidity, financial position and results of operations in any single future year. FACTORS TO BE CONSIDERED The information set forth above contains 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. Readers should refer to discussion under "Risk Factors" contained in the Company's Registration Statement on Form S-1 (No. 333-22651) filed with the Securities and Exchange Commission, which is incorporated herein by reference, concerning certain factors which could cause the Company's actual results to differ materially from the results anticipated in the forward-looking statements contained herein. 18 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 1920's. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., Indianapolis, 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 and Europe. The Company also intends to add to its global presence by establishing strategic alliances with companies in the Pacific rim of Asia and in Latin America. 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, road shows, 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 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, the latest year for which statistics are available, 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 1997 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. 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. The Company believes that there are significant opportunities to acquire additional chauffeured vehicle service companies that would benefit from the capital and 19 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 and Europe. Carey also intends to establish strategic alliances with companies in the Pacific rim of Asia and in Latin America. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in the substantial majority of its domestic license agreements. The Company has successfully begun to implement its acquisition strategy, having acquired 19 chauffeured vehicle service companies from November 1991 through February 1998. Increase International Market Share. Approximately 11.5% of the Company's revenue, net was derived from services performed outside the United States during its fiscal year ended November 30, 1997. Of these international revenues, approximately 72.0% was generated by the Company's owned and operated business in London, approximately 27.2% 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 relationship 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 traveling 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. 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 certain 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 or establish strategic alliances 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 service companies in seven 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 and Europe, and establish strategic alliances with companies in the Pacific rim of Asia and in Latin America. 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. 20 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 the 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 19 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 Company or other chauffeured vehicle service company: ACQUISITION HISTORY NOVEMBER 1991--PRESENT
DATE LOCATION ACQUIRED COMPANY ---- -------- ---------------- November 1991.................... Washington D.C. 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, D.C. 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 June 1997........................ New York, NY Other October 1997..................... Indianapolis, IN Affiliate October 1997..................... Los Angeles, CA Affiliate December 1997.................... London, England Other
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. 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 21 opportunities and periodically engages in discussions regarding such possible acquisitions. As the result of this review process, negotiations and acquisition agreements may occur from time to time if appropriate opportunities arise. The acquisition of Manhattan Limousine in June 1997 has solidified the Company's presence in the New York metropolitan area and diversified its customer base. The Company has benefitted from 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 Mark Hotel. Typically these arrangements are terminable by the airline or hotel upon 30 days' notice. While the Company has begun to consolidate certain administrative operations of Manhattan Limousine with its own to eliminate redundant facilities, equipment and personnel, Manhattan Limousine otherwise will retain its separate identity until June 1998, if not later. Manhattan Limousine historically provided services solely through independent operators rather than salaried chauffeurs. See "Independent Operators." As a result of the acquisition, Carey assumed Manhattan Limousine's network of approximately 300 affiliates from which Manhattan Limousine received 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 Manhattan Limousine and the Company share common affiliates. As consideration for future acquisitions, the Company intends to use various combinations of shares of Common Stock, cash and notes. The Company has filed a Resgistration Statement on Form S-4 under which it may issue up to 1,500,000 shares of Common Stock in connection with acquisition. 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. The Company also offers its clients travel and tour planning services, "meet-and-greet" services, destination management services for airport arrivals, 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. The Company's fleet, primarily vehicles which are owned and operated by independent operators in the owned and operated locations, contains four types of vehicles: 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 vehicles 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 providing service to New York, San Francisco, Indianapolis, Los Angeles, London, Washington, D.C., South Florida, Palm Beach, Boca Raton, Miami and Philadelphia. Revenue, net provided by these companies represented approximately 76.1% of the Company's revenue, net in fiscal 1996 and 81.2% in fiscal 1997. 22 Licensees. The Company has 39 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 provided by the Company's licensees represented approximately 17.1% and 14.7% of the Company's revenue, net in fiscal 1996 and 1997, 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 transfer. 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 provided by the Company's affiliates represented approximately 1.8% and 1.3% of the Company's revenue, net in fiscal 1996 and 1997, respectively. 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 charges 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 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 23 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 meeting and functions, road shows, transportation related to incentive travel, boards 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 customers' 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. The Company is in the process of upgrading the CIRS and certain other computer systems. The upgrades are designed to provide enhanced customer service and management information. These upgrades, which will continue throughout 1998 and 1999, also are designed to provide such systems functionality with respect to the "Year 2000" millenium change. The Company does not anticipate that the cost of these upgrades will be material to its liquidity, financial position and results of operations in any single future year. 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 approximately 20 professionals. Carey is listed in approximately 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 arrangers and the end users. 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 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 relationship with other leaders in the travel and tourism industry, such as airlines, travel agencies, credit card companies and central reservation systems. 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 24 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, 1997 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 rather than 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 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, acquire his or her vehicle and pay all of the maintenance and operating expenses of the 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 9% 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 $75,000 and an interest rate of 15% per year. 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. 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 67% 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. 25 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 fiscal 1997. The Company's major clients include companies in the airline, travel and related services, finance, manufacturing, pharmaceutical, 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 it 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 and state 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. INSURANCE 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 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. 26 FACILITIES The Company owns facilities in Alexandria, Virginia and Long Island City, New York used by owned and operated chauffeured vehicle service companies providing services in the Washington, DC and New York metropolitan areas, respectively. The Company leases its corporate headquarters in Washington, DC and also leases seven administrative and/or operating facilities in California, New York, Indiana, 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 November 30, 1997, the Company had 488 full-time employees (125 of whom were chauffeurs) and 178 part-time employees (116 of whom were chauffeurs). As of November 30, 1997, the Company also had agreements with 452 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 for Carey Transportation, Inc., 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. 27 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information pertaining to the directors and executive officers.
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.............. 51 Executive Vice President and Chief Financial Officer Richard A. Anderson, Jr........ 52 Senior Vice President Sally A. Snead................. 38 Senior Vice President--Information Systems John C. Wintle................. 51 Senior Vice President--Europe Paul A. Sandt.................. 37 Vice President and Chief Accounting Officer Devin J. Murphy................ 31 Senior Vice President and Chief Development Officer S. Terrell Mellen.............. 41 Senior Vice President--Sales and Marketing Michael P. O'Callaghan......... 32 Senior Vice President and Director of Acquisitions Robert W. Cox.................. 60 Director William R. Hambrecht........... 62 Director David McL. Hillman............. 44 Director Nicholas J. St. George......... 59 Director
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. Richard A. Anderson, Jr. has served as a Senior Vice President of the Company since December 1988. Mr. Anderson also was Chief Operating Officer of the Company's New York subsidiary, Carey Limousine NY, Inc., from December 1988 until August 1997. Mr. Anderson is Chairman of the New York Taxi and Limousine 28 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. S. Terrell Mellen has served as Senior Vice President--Sales and Marketing of the Company since September 1997. From September 1994 until September 1997 Ms. Mellen was Executive Director of the Association of Corporate Travel Executives (ACTE), a professional organization serving 1,800 members in thirteen countries. From October 1988 until September 1994 Ms. Mellen was Director of Marketing and Industry Relations for the Air Travel Card, a corporate payment system issued by seven major US airlines. Prior to joining Air Travel Card, Ms. Mellen held sales positions at Computer Associates International and Piedmont Airlines. Michael P. O'Callaghan has served as a Senior Vice President and Director of Acquisitions of the Company since June 1997. From September 1995 through June 1996, Mr. O'Callaghan was an Associate Special Counsel to the United States Senate Special Committee Investigation of Whitewater Development Corporation and Other Related Matters, and from September 1992 through September 1995 he was a staff attorney with the Enforcement Division of the United States Securities and Exchange Commission. Mr. O'Callaghan received a Juris Doctor Degree from Fordham University in May 1992. 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. 29 Nicholas J. St. George has served as a director of the Company since June 1997. 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. BOARD OF DIRECTORS The Company's Board of Directors is divided into three classes with staggered three-year terms. 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. The members of the Executive Committee of the Company's Board of Directors are Messrs. Wolfington, Cox and Dailey. The Executive Committee exercises 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. The members of the Audit Committee of the Company's Board of Directors are Messrs. Hillman and St. George. The Audit Committee makes recommendations concerning the engagement of independent public accountants, reviews with the independent public accountants the plans for and results of the audit, approves professional services provided by the independent public accountants, reviews the independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of the Company's internal accounting controls. Compensation Committee. The members of the Compensation Committee of the Company's Board of Directors are Messrs. Cox and St. George. The Compensation Committee establishes a general compensation policy for the Company and approves increases in directors' fees and salaries paid to officers and senior employees of the Company. The Compensation Committee administers the Company's equity incentive plans and determines, 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 maintains 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. On the date of each annual meeting of stockholders, each Non-Employee Director continuing in office will be granted an option pursuant to the Directors' Plan covering 2,500 shares. Any newly elected Non-Employee Director will be granted an option pursuant to the Directors' Plan 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 all options granted under the Directors' Plan is the closing price of a share of the Common Stock as reported on the Nasdaq National Market on the date the option is granted. 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 30 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 or accrued during the fiscal year ended November 30, 1997 to the Chief Executive Officer of the Company and the four other most highly compensated executive officers (the "Named Executive Officers").
ANNUAL COMPENSATION ------------------------------------------------------------------- LONG-TERM COMPENSATION NAME AND OTHER ANNUAL AWARDS--SHARES ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS COMPENSATION - - - ------------------ ---- -------- ------- ------------ ------------------ ------------ Vincent A. Wolfington ...................... 1997 $231,620 $85,000 -- 100,000 $12,000 (1) Chairman and Chief Executive Officer 1996 231,620 20,000 -- -- 57,000 (1) Don R. Dailey.......... 1997 205,001 70,000 -- 100,000 12,000 (2) President and Director 1996 205,001 20,000 -- -- 57,000 (2) David H. Haedicke...... 1997 135,000 55,000 -- 30,000 -- Executive Vice 1996 20,510 (3) 2,500 -- 25,800 -- President and Chief Financial Officer Guy C. Thomas.......... 1997 115,000 25,000 -- 15,000 9,900 (4) Executive Vice President--Operations 1996 115,000 10,000 $13,020 (5) -- 9,900 Richard A. Anderson.... 1997 91,000 18,950 11,200 (6) 10,000 8,219 (7) Senior Vice President 1996 91,000 12,000 11,200 (6) -- 9,513
- - - -------- (1) Includes the annual payment of premiums of $12,000 on a life insurance policy for a beneficiary designated by Mr. Wolfington. As to 1996, also includes $45,000 paid for providing personal guarantees on behalf of the Company. (2) Includes the annual payment of premiums of $12,000 on a life insurance policy for a beneficiary designated by Mr. Dailey. As to 1996, also includes $45,000 paid for providing personal guarantees on behalf of the Company. (3) Mr. Haedicke's 1996 salary reflects the fact that his employment with the Company began in October 7, 1996. (4) Represents premiums on a life insurance policy for a beneficiary designated by Mr. Thomas. (5) Includes a car allowance of $11,820. (6) Includes a car allowance of $6,600 and a club membership of $4,600. (7) Represents premiums on a life insurance policy for a beneficiary designated by Mr. Anderson. 31 OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth certain information regarding options granted during the fiscal year ended November 30, 1997 by the Company to each of the Named Executive Officers:
POTENTIAL REALIZABLE VALUE AT ASSUMED RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM - - - ------------------------------------------------------------------------ ------------------- NUMBER OF % OF TOTAL SHARES OPTIONS GRANTED EXERCISE UNDERLYING TO EMPLOYEES OR BASE OPTIONS IN FISCAL PRICE EXPIRATION NAME GRANTED YEAR ($/SHARE) DATE 5% 10% - - - ---- ---------- --------------- --------- ---------- -------- ---------- Vincent A. Wolfington... 100,000 19.8% $10.50 5/27/07 $660,339 $1,673,430 Don R. Dailey........... 100,000 19.8% $10.50 5/27/07 660,339 1,673,430 David H. Haedicke....... 30,000 5.9% $10.50 5/27/07 198,102 502,029 Guy C. Thomas........... 15,000 3.0% $10.50 5/27/07 99,051 251,014 Richard A. Anderson..... 10,000 2.0% $10.50 5/27/07 66,034 167,343
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END STOCK OPTION VALUES There were no options exercised by any of the Named Executive Officers during the fiscal year ended November 30, 1997. The following table indicates the aggregate value of all unexercised options held by each Named Executive Officer as of November 30, 1997.
NUMBER OF SHARES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT AT NOVEMBER 30, 1997 NOVEMBER 30, 1997 (1) ------------------------------ ------------------------- NUMBER OF NUMBER OF EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME SHARES SHARES VALUE VALUE - - - ---- --------------- ---------------- ----------- ------------- Vincent A. Wolfington 205,706 * $1,286,925 $ -- Don R. Dailey 205,706 * $1,286,925 $ -- David H. Haedicke 24,700 31,100 $ 180,895 $151,385 Guy C. Thomas 35,768 11,250 $ 303,551 $ 36,563 Richard A. Anderson 6,886 7,500 $ 48,038 $ 24,375
(1) Value of unexercised in-the-money options based upon the closing price of the Company's Common Stock on the Nasdaq National Market on November 28, 1997 (the last trading day prior to November 30, 1997). 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 also maintains 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." As of February 27, 1998, options were outstanding to purchase an aggregate of 939,336 shares of Common Stock under the Equity Plans, and an aggregate of 153,756 shares of Common Stock are authorized but have not yet been granted under options pursuant to such plans (including 149,611 shares pursuant to the 1997 Plan). 32 Officers, key employees, non-employee directors of and consultants to the Company are eligible to participate in the Equity Plans. The Equity Plans 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. Options that are intended to qualify as incentive stock options under the Equity Plans 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 (and, in the case of stock options granted to holders of more than 10% of the Common Stock, may not be granted at an exercise price less than 110% of the fair market value of the shares of Common Stock at the time the options are 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 Equity Plans. 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. 33 PRINCIPAL STOCKHOLDERS The following table sets forth, as of February 27, 1998, certain information with respect to the beneficial ownership of Common Stock for each beneficial owner of more than 5% of the Company's Common Stock, each director of the Company, each Named Executive Officer of the Company and all directors and executive officers 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.
SHARES BENEFICIALLY PERCENT NAME OWNED OWNED - - - ---- ------------ ------- Vincent A. Wolfington................................... 355,989(1) 4.6% Don R. Dailey........................................... 345,176(2) 4.5% David H. Haedicke....................................... 24,700(3) * Guy C. Thomas........................................... 98,550(4) 1.3% Richard A. Andersen..................................... 15,486(5) * Robert W. Cox........................................... 20,400(6) * William R. Hambrecht.................................... 921,333(7) 12.0% David McL. Hillman...................................... 624,044(8) 8.2% Nicholas J. St. George.................................. 12,500 * Kaufman Fund, Inc....................................... 850,000 11.1% H&Q London Ventures..................................... 444,093 5.8% One Bush St. San Francisco, CA PNC Capital Corp. ...................................... 616,544 8.1% One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222 Yerac Associates, L.P. ................................. 516,018(9) 6.8% 45 Belden Place San Francisco, CA 94104 All directors and executive officers as a group ........ 2,469,545(10) 32.2%
- - - -------- * Less than 1%. (1) Includes options to purchase 205,706 shares of Common Stock that currently are exercisable. Also includes (i) 1,183 shares of Common Stock currently held by a company controlled by Mr. Wolfington and (ii) 1,560 shares held by a limited partnership which are attributable to Mr. Wolfington's wife (780 shares) and one of his children (780 shares) and (iii) 450 held by one of his children. Excludes shares held by Yerac Associates, L.P. ("Yerac"), 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 205,706 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) Represents options to purchase shares of Common Stock that currently are exercisable. (4) Includes options to purchase 35,768 shares of Common Stock that currently are exercisable. (5) Includes options to purchase 6,886 shares of Common Stock that currently are exercisable. (6) Represents options to purchase shares of Common Stock that currently are exercisable. (7) Includes options to purchase 7,500 shares of Common Stock that currently are exercisable and also 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 Venture Partners (171,063) Venture Associates (BVI) Limited (4,134 shares); H&Q London Ventures (444,093 shares); H&Q Ventures IV (175,197 shares); and Hamquist (10,727 shares). Also includes (i) 85,816 shares of Common 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. (8) Includes options to purchase 7,500 shares of Common Stock that currently are exercisable; also includes 616,544 shares held by PNC Capital Corp, of which Mr. Hillman is Executive Vice President. Mr. Hillman disclaims beneficial ownership of the shares held by PNC Capital Corp. (9) 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. (10) See Notes 1, 2, 3, 4, 5 and 6. Also includes 49,967 shares of Common Stock issuable upon exercise of the vested portions of options held by other executive officers of the Company. 34 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 (as defined in Note 17 in the Company's Consolidated Financial Statements), Carey repaid approximately $912,000 of the $3.8 million in principal outstanding on its subordinated note held by PNC and applied the balance of the outstanding principal to pay the purchase price for 616,544 shares of Common Stock 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. 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 converted 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 the IPO, the Company repaid approximately $1.1 million of additional outstanding indebtedness to Yerac. Messrs. Wolfington and Dailey are limited partners of Yerac. See "Principal Stockholders." In connection with the Recapitalization, the Company redeemed 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, H&Q received 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." Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President, each 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 35 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 used part of the net proceeds of the IPO to repay the entire outstanding amount of such indebtedness, and following the repayment the guarantees were terminated. In connection with the Recapitalization, Messrs. Wolfington and Dailey received $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. 36 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 As of February 27, 1998, there were 7,680,691 shares of Common Stock outstanding, and outstanding options and warrants to purchase an aggregate of 1,233,289 shares of Common Stock. Including the foregoing shares underlying outstanding options, a total of 87,293 shares of Common Stock are reserved for issuance under the 1987 Plan, 385,480 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 fully paid and nonassessable and the holders thereof 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 Currently, there are no shares of Preferred Stock of the Company issued and outstanding. 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, 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." 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 37 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. 38 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 As of February 27, 1998, the Company had 7,680,691 shares of Common Stock outstanding. Of these shares, 4,455,127 shares are freely tradeable without restriction under the Securities Act, except for any such shares which may be beneficially owned by an "affiliate" of the Company (as that term is defined in Rule 144). The remaining 3,225,564 shares represent (i) shares issued pursuant to this Prospectus to affiliates of companies acquired by the Company; or (ii) shares issued prior to the completion of the Company's IPO or in connection with the acquisition of Manhattan Limousine which are deemed to be "restricted securities" under Rule 144. Unless the resale is registered under the Securities Act, such restricted shares may be sold in the open market only in compliance with the applicable requirements of Rule 144. Except for shares held by affiliates of the Company and the 228,571 shares issued in connection with the acquisition of Manhattan Limousine, all of such restricted shares are currently eligible for resale under Rule 144(k) described below. Also as of February 27, 1998, if issued upon the exercise of outstanding warrants, 263,953 shares of Common Stock also will constitute 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. As of February 27, 1998 there were 969,336 shares of Common Stock issuable upon the exercise of outstanding options under the Company's Equity Plans and Directors' Plan and an additional 223,756 shares of Common Stock reserved for future award or grant under such plans. The Company has filed a registration statement on Form S-8 to register the issuance of shares under the Equity Plans and Directors' Plan. Common Stock issued pursuant to 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, is 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 39 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 holder of 228,571 shares of Common Stock issued in connection with the acquisition of Manhattan Limousine will be entitled to certain demand and piggy-back registration rights beginning June 2, 1998. 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. PLAN OF DISTRIBUTION This Prospectus relates to 1,500,000 shares of Common Stock that may be offered and issued by the Company from time to time in connection with acquisition of other businesses or properties by the Company. Carey intends to concentrate its acquisitions within the chauffeured vehicle service industry. If the opportunity arises, however, Carey may attempt to make acquisitions that are either complementary to its present operations or advantageous even though they may be dissimilar to its present activities. The consideration for any such acquisition may consist of shares of Common Stock, cash, notes or other evidences of debt, assumptions of liabilities or a combination thereof, as determined from time to time by negotiations between Carey and the owners or controlling persons of businesses or properties to be acquired. The shares covered by this Prospectus may be issued in exchange for shares of capital stock, partnership interests or other assets representing an interest, direct or indirect, in other companies or other entities, in exchange for assets used in or related to the business of such companies or entities, or otherwise pursuant to the agreements providing for such acquisitions. The terms of such acquisitions and of the issuance of shares of Common Stock under acquisition agreements will generally be determined by direct negotiations with the owners or controlling persons of the business or properties to be acquired or, in the case of entities that are more widely held, through exchange offers to stockholders or documents soliciting the approval of statutory mergers, consolidations or sales of assets. It is anticipated that the shares of Common Stock issued in any such acquisition will be valued at a price reasonably related to the market value of the Common Stock either at the time of agreement on the terms of an acquisition or at or about the time of delivery of the shares. It is not expected that underwriting discounts or commissions will be paid by the Company in connection with issuances of shares of Common Stock under this Prospectus. However, finders' fees or brokers' commissions may be paid from time to time in connection with specific acquisitions, and such fees may be paid through the issuance of shares of Common Stock covered by this Prospectus. Any person receiving such a fee may be deemed to an underwriter within the meaning of the Securities Act. Affiliates of companies acquired by Carey who receive Common Stock under this Prospectus are subject for one year to the restrictions of Rule 145 under the Securities Act, including the volume of sale limitations and manner of sale requirements thereof. The requirements of Rule 145 may limit the ability of such affiliates to resell Common Stock they may receive under this Prospectus. 40 LEGAL MATTERS The validity of the shares offered will be passed upon for the Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts. EXPERTS The consolidated financial statements of the Company as of November 30, 1996 and 1997 and for each of the three years in the period ended November 30, 1997 included in this Prospectus have been included herein in reliance on the reports 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. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-4 (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. The Company is subject to the informational requirements of the Exchange Act, and, in accordance therewith, files periodic reports and other information with the Commission. For further information with respect to the Company, reference hereby is made to such reports and other information which can be inspected and copied at the public reference facilities maintained by the Commission referenced above. The Company's Common Stock is quoted on The Nasdaq National Market under the trading symbol "CARY." Reports, proxy statements and other information about the Company also may be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, DC 20006. 41 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CAREY INTERNATIONAL, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENT Pro Forma Statement of Operations for year ended November 30, 1997........ F-3 Notes to Pro Forma Consolidated Financial Statement....................... F-4 CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements Report of Independent Accountants......................................... F-5 Balance Sheets as of November 30, 1996 and 1997........................... F-6 Statements of Operations for the years ended November 30, 1995, 1996 and 1997..................................................................... F-7 Statements of Changes in Stockholders' Equity for the years ended November 30, 1995, 1996 and 1997................................................................. F-8 Statements of Cash Flows for the years ended November 30, 1995, 1996 and 1997..................................................................... F-9 Notes to Consolidated Financial Statements................................ F-10 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK, LTD. AND AFFILIATE Combined Financial Statements Report of the Independent Accountants..................................... F-28 Balance Sheets as of September 30, 1996 and April 30, 1997 (unaudited).... F-29 Statements of Operations for the year ended September 30, 1996 and the seven months ended April 30, 1997 (unaudited)............................................... F-30 Statements of Cash Flows for the year ended September 30, 1996 and the seven months ended April 30, 1997 (unaudited)............................................... F-31 Notes to Combined Financial Statements.................................... F-32
F-1 PRO FORMA CONSOLIDATED FINANCIAL STATEMENT BASIS OF PRESENTATION The Pro Forma Consolidated Statement of Operations for the year ended November 30, 1997 is based on the consolidated financial statements of Carey International, Inc. and subsidiaries (the "Company") and Manhattan International Limousine Network Ltd. and Affiliate ("Manhattan Limousine"). The Pro Forma Consolidated Statement of Operations for the year ended November 30, 1997 has been prepared assuming the acquisition of Manhattan Limousine occurred on December 1, 1996. For purposes of the Pro Forma Consolidated Statement of Operations for the year ended November 30, 1997, Manhattan Limousine's Statement of Operations for the six months ended March 31, 1997 has been combined with the Consolidated Statement of Operations of the Company for the year ended November 30, 1997. The Pro Forma Consolidated Statements of Operations also reflect the issuance of shares of Common Stock (net of underwriting discounts) required to: (i) repay certain existing debt of the Company, (ii) pay the cash and note portions 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 3,335,000 shares of Common Stock in connection with (i) the acquisition of Manhattan Limousine, (ii) the issuance of shares of Common Stock as part of the Recapitalization and (iii) the conversion of certain debt into Common Stock upon the closing of the initial public offering. All of the aforementioned 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 Statement of Operations does not purport to represent what the Company's actual results of operations would have been had the acquisition occurred as of such date, or to project the Company's results of operations for any period or date, nor does it give effect to any matters other than those described in the notes thereto. 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 STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1997 ------------------------------------------------------------------------------------------- ACTUAL ----------------------- MANHATTAN ACQUISITION RECAPITALIZATION OTHER COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ----------- ---------- ----------- ---------------- ----------- ----------- Revenue, net............ $86,378,313 $9,885,506 $ -- $ -- $ -- $96,263,819 Cost of revenue......... 57,890,393 6,126,205 -- -- -- 64,016,598 ----------- ---------- --------- -------- -------- ----------- Gross profit.......... 28,487,920 3,759,301 -- -- -- 32,247,221 Selling, general and administrative expense................ 20,111,590 3,010,144 (46,865)(1) -- 75,000 (6) 23,539,702 389,833 (2) ----------- ---------- --------- -------- -------- ----------- Operating income...... 8,376,330 749,157 (342,968) -- (75,000) 8,707,519 Other income (expense) Interest expense...... (1,141,946) (457,017) (37,310)(3) 250,000(5) 939,267 (6) (447,006) Interest and other income............... 451,388 16,500 (16,500)(4) -- -- 451,388 ----------- ---------- --------- -------- -------- ----------- Income before provision for income taxes....... 7,685,772 $ 308,640 $(396,778) $250,000 $864,267 8,711,901 ========== ========= ======== ======== Provision for income taxes.................. 3,162,282 3,585,098 (7) ----------- ----------- Net income ............. $ 4,523,490 $ 5,126,803 =========== =========== Pro forma net income per common share........... $ 0.65 (8) =========== Pro forma weighted average shares outstanding............ 7,941,065 (8) ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-3 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT 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 statement of operations beginning on the date of the acquisition, except for Indy Connection which has been accounted for under the pooling-of-interests method. (1) Gives effect to the elimination from the Combined Statement of Operations of Manhattan Limousine of a one-time charge related to advances to a non- combined affiliate of Manhattan Limousine which were approximately $7,000 for the year ended November 30, 1997 and 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 for the year ended November 30, 1997. (2) Gives effect to the amortization of approximately $340,000 for the year ended November 30, 1997 of goodwill recognized with respect to the acquisition of Manhattan Limousine and $50,000 for the year ended November 30, 1997 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. (3) 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 interest on the increase of $520,000 in Manhattan Limousine's mortgage note in January 1997, both of which were repaid out of the proceeds of the IPO (see (6) below). Also gives effect to a decrease in interest expense associated with the debt retained by a stockholder of Manhattan Limousine. (4) Gives effect to the elimination of interest income related to a note receivable retained by a stockholder of Manhattan Limousine. (5) Reflects the elimination of approximately $250,000 for the year ended November 30, 1997 of interest on certain debt converted into Common Stock. (6) Reflects directors' and officers' insurance costs the Company anticipates to incur in connection with being a public registrant and the elimination of approximately $939,000 for the year ended November 30, 1997 of interest on certain current and long-term debt repaid from the proceeds of the IPO or converted into Common Stock. (7) Reflects the estimated provision for income taxes at an assumed rate of 41.1% for the year ended November 30, 1997 after giving consideration to nondeductible goodwill expense. (8) Pro forma net income per share was computed by dividing the pro forma net income for the year ended November 30, 1997 by the pro forma weighted average number of shares outstanding for the year. Pro forma weighted average shares outstanding include common shares and common share equivalents. 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 effective date of the Registration Statement relating to the Company's IPO, using the treasury stock method and the public offering price of $10.50 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 was part of the Recapitalization. (9) The Pro Forma Consolidated Statement of Operations for the year ended November 30, 1997 weighted average shares includes approximately 489,000 shares of common stock issued for cash at the beginning of June 1997 for approximately $4,775,000. Had the Company invested the funds received from the issuance of common stock in investments yielding a 6.0% return, the Company would have recognized an additional $143,000 of pre-tax income. The Company has not included any such adjustment within the Pro Forma Statements of Operations. F-4 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, 1996 and 1997, 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, 1997. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Carey International Inc. and Subsidiaries as of November 30, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Washington, D.C. January 30, 1998 F-5 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, ------------------------ 1996 1997 ----------- ----------- A S S E T S Cash and cash equivalents........................................ $ 2,867,711 $ 5,333,402 Accounts receivable, net of allowance for doubtful accounts of $535,000 in 1996 and $639,000 in 1997........................... 10,542,331 15,932,426 Notes receivable from contracts, current portion................. 402,751 670,266 Prepaid expenses and other current assets........................ 2,061,738 1,435,176 ----------- ----------- Total current assets......................................... 15,874,531 23,371,270 Fixed assets, net of accumulated depreciation of $4,687,000 in 1996 and $5,116,000 in 1997..................................... 5,790,391 9,278,319 Notes receivable from contracts, excluding current portion....... 769,201 8,164,337 Franchise rights, net of accumulated amortization of $1,729,000 in 1996 and $1,965,000 in 1997.................................. 5,348,264 5,112,348 Trade name, trademark and contract rights, net of accumulated amortization of $973,000 in 1996 and $1,164,000 in 1997......... 6,685,135 6,493,693 Goodwill and other intangible assets, net of accumulated amortization of $840,000 in 1996 and $1,500,000 in 1997......... 7,285,933 30,991,450 Deferred tax assets.............................................. 949,962 501,545 Deposits and other assets........................................ 1,263,525 1,481,252 ----------- ----------- Total assets................................................. $43,966,942 $85,394,214 =========== =========== L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y Current portion of notes payable................................. $ 5,858,249 $ 996,575 Current portion of capital leases................................ 199,224 321,965 Current portion of subordinated notes payable.................... 440,000 -- Accounts payable and accrued expenses............................ 11,564,963 17,054,081 ----------- ----------- Total current liabilities.................................... 18,062,436 18,372,621 Notes payable, excluding current portion......................... 6,035,964 2,792,022 Capital leases, excluding current portion........................ 663,030 1,339,666 Subordinated notes payable, excluding current portion............ 5,340,000 -- Deferred rent and other long-term liabilities.................... 111,281 1,193,577 Deferred revenue................................................. 6,181,147 13,396,104 Commitments and contingencies Stockholders' equity: Preferred stock................................................ 1,115,400 -- Class A common stock, $.01 par value; authorized 314,000 shares, none issued and outstanding........................... -- -- Common stock, $0.01 par value; authorized 20,000,000 shares; issued and outstanding 1,377,556 shares in 1996 and 7,630,007 in 1997....................................................... 13,776 76,300 Additional paid-in capital..................................... 7,841,371 45,173,336 Retained earnings (accumulated deficit)........................ (1,397,463) 3,050,588 ----------- ----------- Total stockholders' equity................................... 7,573,084 48,300,224 ----------- ----------- Total liabilities and stockholders' equity................... $43,966,942 $85,394,214 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-6 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Revenue, net........................... $48,969,395 $65,544,942 $86,378,313 Cost of revenue........................ 33,027,209 43,649,178 57,890,393 ----------- ----------- ----------- Gross profit......................... 15,942,186 21,895,764 28,487,920 Selling, general and administrative expense............................... 14,081,152 16,726,610 20,111,590 ----------- ----------- ----------- Operating income..................... 1,861,034 5,169,154 8,376,330 Other income (expense): Interest expense..................... (1,910,966) (1,898,231) (1,141,946) Interest income...................... 262,647 162,711 231,384 Gain on sales of fixed assets........ 156,005 355,754 220,004 ----------- ----------- ----------- Income before provision for income taxes................................. 368,720 3,789,388 7,685,772 Provision for income taxes............. 270,599 294,421 3,162,282 ----------- ----------- ----------- Net income............................. $ 98,121 $ 3,494,967 $ 4,523,490 =========== =========== =========== Pro forma net income per common share.. $ 0.90 $ 0.76 =========== =========== Pro forma weighted average common shares outstanding.................... 4,213,320 6,188,010 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SERIES A SERIES B SERIES E SERIES F SERIES G CAREY INDIANA PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED STOCK STOCK STOCK STOCK STOCK STOCK --------- --------- --------- --------- --------- ------------- Balance at November 30, 1994................... $ 420,700 $ 95,800 $186,250 $100,000 $498,900 $ 80,000 Issuance of common stock.................. -- -- -- -- -- -- Accretion of redeemable preferred stock........ -- -- 4,375 -- -- -- Redemption of preferred stock.................. -- -- (62,500) -- -- (40,000) Payment of preferred stock dividends........ -- -- (30,625) -- -- -- Payment of common stock dividends.............. -- -- -- -- -- -- Net income.............. -- -- -- -- -- -- --------- -------- -------- -------- -------- -------- Balance at November 30, 1995................... 420,700 95,800 97,500 100,000 498,900 40,000 Redemption of preferred stock.................. -- -- (97,500) -- -- (40,000) Issuance of stock....... -- -- -- -- -- -- Payment of preferred stock dividends........ -- -- -- -- -- -- Payment of common stock dividends.............. -- -- -- -- -- -- Cumulative effect of currency translation... -- -- -- -- -- -- Net income.............. -- -- -- -- -- -- --------- -------- -------- -------- -------- -------- Balance at November 30, 1996................... 420,700 95,800 -- 100,000 498,900 -- Issuance of common stock and redemption of preferred stock under Recapitalization Plan.. (420,700) (95,800) -- (100,000) (498,900) -- Issuance of common stock in initial public offering............... -- -- -- -- -- -- Issuance of common stock in purchases of chauffeured vehicle companies.............. -- -- -- -- -- -- Issuance of common stock under option plans..... -- -- -- -- -- -- Conversion of debt for common stock........... -- -- -- -- -- -- Payment of common stock dividends.............. -- -- -- -- -- -- Cumulative effect of currency translation... -- -- -- -- -- -- Net income.............. -- -- -- -- -- -- --------- -------- -------- -------- -------- -------- Balance at November 30, 1997................... $ -- $ -- $ -- $ -- $ -- $ -- ========= ======== ======== ======== ======== ========
RETAINED COMMON STOCK ADDITIONAL EARNINGS TOTAL ----------------- PAID-IN (ACCUMULATED STOCKHOLDERS' SHARES $ CAPITAL DEFICIT) EQUITY --------- ------- ----------- ------------ ------------- Balance at November 30, 1994................... 1,325,032 $13,250 $ 7,791,552 $(4,968,229) $ 4,218,223 Issuance of common stock.................. 32,682 327 34,393 -- 34,720 Accretion of redeemable preferred stock........ -- -- (4,375) -- -- Redemption of preferred stock.................. -- -- -- -- (102,500) Payment of preferred stock dividends........ -- -- -- -- (30,625) Payment of common stock dividends.............. -- -- -- (20,901) (20,901) Net income.............. -- -- -- 98,121 98,121 --------- ------- ----------- ----------- ----------- Balance at November 30, 1995................... 1,357,714 13,577 7,821,570 (4,891,009) 4,197,038 Redemption of preferred stock.................. -- -- -- -- (137,500) Issuance of stock....... 19,842 199 19,801 -- 20,000 Payment of preferred stock dividends........ -- -- -- (900) (900) Payment of common stock dividends.............. -- -- -- (42,057) (42,057) Cumulative effect of currency translation... -- -- -- 41,536 41,536 Net income.............. -- -- -- 3,494,967 3,494,967 --------- ------- ----------- ----------- ----------- Balance at November 30, 1996................... 1,377,556 13,776 7,841,371 (1,397,463) 7,573,084 Issuance of common stock and redemption of preferred stock under Recapitalization Plan.. 2,560,071 25,601 2,853,841 -- 1,764,042 Issuance of common stock in initial public offering............... 3,335,000 33,350 30,580,511 -- 30,613,861 Issuance of common stock in purchases of chauffeured vehicle companies.............. 292,066 2,920 3,397,080 -- 3,400,000 Issuance of common stock under option plans..... 17,207 172 53,514 -- 53,686 Conversion of debt for common stock........... 48,107 481 447,019 -- 447,500 Payment of common stock dividends.............. -- -- -- (101,857) (101,857) Cumulative effect of currency translation... -- -- -- 26,418 26,418 Net income.............. -- -- -- 4,523,490 4,523,490 --------- ------- ----------- ----------- ----------- Balance at November 30, 1997................... 7,630,007 76,300 $45,173,336 $ 3,050,588 $48,300,224 ========= ======= =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-8 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NOVEMBER 30, -------------------------------------- 1995 1996 1997 ----------- ----------- ------------ Cash flows from operating activities: Net income............................ $ 98,121 $ 3,494,967 $ 4,523,490 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets........................ 2,087,370 2,095,439 2,039,968 Amortization of intangible assets.... 714,199 1,064,255 1,313,456 Gain on sales of fixed assets........ (156,005) (355,754) (220,004) Provision (benefit) for deferred income taxes........................ 102,000 (1,346,557) 799,650 Change in deferred revenue........... 237,306 1,455,013 565,997 Change in operating assets and liabilities: Accounts receivable................. (2,601,429) (545,421) (5,234,779) Notes receivable from contracts..... 11,000 (1,052,838) (1,063,192) Prepaid expenses, deposits and other assets............................. (189,180) (665,084) (912,875) Accounts payable and accrued expenses........................... 3,306,393 2,021,101 542,789 Deferred rent and other long-term liabilities........................ 87,490 (36,914) 1,082,296 ----------- ----------- ------------ Net cash provided by operating activities........................ 3,697,265 6,128,207 3,436,796 ----------- ----------- ------------ Cash flows from investing activities: Proceeds from sale of fixed assets.... 1,639,766 1,788,380 1,486,780 Purchases of fixed assets............. (2,768,982) (3,091,353) (2,740,603) Software development costs............ (203,529) -- (1,348,814) Redemption of investment in affiliate............................ 100,000 -- -- Acquisitions of chauffeured vehicle service companies.................... (3,949,393) (1,730,232) (8,396,017) ----------- ----------- ------------ Net cash used in investing activities........................ (5,182,138) (3,033,205) (10,998,654) ----------- ----------- ------------ Cash flow from financing activities: Proceeds from sale of notes receivable from independent operators........... 1,493,399 733,793 -- Principal payments under capital lease obligations.......................... (436,169) (297,549) (237,359) Preferred stock dividends............. (30,625) (900) -- Payment of notes payable.............. (4,496,659) (5,976,357) (19,164,223) Proceeds from notes payable........... 5,141,022 3,857,568 2,704,162 Issuance of common stock.............. 34,720 20,000 30,842,778 Payments under Recapitalization Plan.. -- -- (4,015,952) Common stock dividends................ (20,901) (42,057) (101,857) Redemption of preferred stock......... (102,500) (137,500) -- ----------- ----------- ------------ Net cash provided by (used in) financing activities.............. 1,582,287 (1,843,002) 10,027,549 ----------- ----------- ------------ Net increase in cash and cash equivalents........................... 97,414 1,252,000 2,465,691 Cash and cash equivalents at beginning of year............................... 1,518,297 1,615,711 2,867,711 ----------- ----------- ------------ Cash and cash equivalents at end of year.................................. $ 1,615,711 $ 2,867,711 $ 5,333,402 =========== =========== ============
The accompanying notes are an integral part of the consolidated financial statements. F-9 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: New York (Carey Limousine NY, Inc. and Manhattan International Limousine Network, Ltd.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited), Indianapolis (Carey Limousine Indiana, Inc., See Note 2), Washington, DC (Carey Limousine DC, 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 included affiliates in locations in which the Company has neither owned and operated locations nor licensees. The Company provides central reservations and billing services to such affiliates. Acquisitions The Company is engaged in a program of acquiring chauffeured vehicle service businesses. Such acquisitions include unrelated chauffeured vehicle service businesses, some of which may be in cities in which the Company has owned and operated service providers, licensees operating under the Carey name and trademark, and affiliates of the Company. In 1995, these acquisitions included chauffeur vehicle service companies operating in Washington, DC, South Florida and San Francisco. In 1996, the Company acquired a chauffeured vehicle service company in London, England. In 1997, the Company acquired chauffeured vehicle service companies in New York, Los Angeles and Indianapolis. Reverse Stock Split In connection with the Company's initial public offering ("IPO") completed June 2, 1997, the Company's Board of Directors authorized a one for 2.3255 reverse stock split of the outstanding shares of the Company's common stock. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. On February 25, 1997, the Board of Directors also authorized a Recapitalization Plan the ("Recapitalization"), which is more fully described in Note 17. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements of Carey International, Inc. and subsidiaries have been prepared to give retroactive effect to the merger of Indy Connection Limousines, Inc. and subsidiary (Indy Connection) with and into Carey International, Inc. and subsidiaries on October 31, 1997 (See Note 13). 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-10 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 67% of revenues, as defined in the agreement. Each new operator agrees to pay a one- time fee generally ranging from $30,000 to $75,000 to the Company under the terms of the independent operator agreement (See "Revenue recognition"). The Company typically receives a promissory note from the independent operator as payment for the one-time fee under the terms of the Standard Independent Operator Agreement (see Note 4) and records the note in notes receivable from contracts. Prior to September 1996, 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 also have 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. 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 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 and leasehold improvements 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 buildings owned by the Company are 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. The Company capitalizes software development costs relating to a computerized system which includes applications for reservations, dispatch, billing and accounting functions. Amortization of these costs occurs over their estimated economic life of 60 months and commences upon the installation of the software. F-11 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 being amortized over 40 years. The Company has acquired chauffeured vehicle service companies, all of which have been accounted for as purchases, except for Indy Connection which has been accounted for as a pooling-of-interests. 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 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. 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 statement of operations. The Company evaluates the recoverability of its intangible assets at least annually 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. F-12 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. Pro forma net income per common share Consistent with Staff Accounting Bulletin IB-2, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the Recapitalization (see Note 17). The recalculated pro forma 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 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 the fiscal year ended November 30, 1997. SFAS 123 allows companies to either account for stock-based compensation under the fair value method of SFAS 123 or under the provisions of Accounting Principles Board Option No. 25 ("APB 25"), Accounting for Stock Issued to Employees. The Company has continued to apply the provisions of APB 25 and has provided pro forma disclosure in the notes to the financial statements. (See Note 15) Foreign operations The consolidated financial statements include foreign assets, liabilities and revenues of $5.0 million, $3.6 million and $7.2 million, respectively, as of November 30, 1997. The consolidated financial statements include foreign assets, liabilities and revenues of $3.7 million, $2.7 million and $4.6 million, respectively, as of November 30, 1996. The net effects of foreign currency transactions reflected in operations 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 1995 and 1996 have been reclassified to conform with the 1997 presentation. 3. FEES FROM LICENSEES The total of all domestic license fees, franchises fees and marketing fees earned in each of 1995, 1996 and 1997 was $1,228,472, $2,180,540 and $2,479,503, respectively. Amounts due from licensees of $143,041 and $130,215 at November 30, 1996 and 1997, respectively, are included in accounts receivable in the consolidated balance sheets of the Company. 4. TRANSACTIONS WITH INDEPENDENT OPERATORS The Company recorded approximately $1,130,000, $2,371,000 and $1,815,000 in 1995, 1996 and 1997, respectively, as deferred revenue relating to fees from new agreements with independents operators. Amounts of F-13 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) deferred revenue recognized as revenues in 1995, 1996 and 1997 amounted to approximately $889,000, $936,000 and $923,000, respectively. Notes receivable from contracts include approximately $917,000 and $8,605,000 at November 30, 1996 and 1997, respectively, for amounts due from independent operators and approximately $255,000 and $229,000 at November 30, 1996 and 1997, respectively, for amounts due from a related party financing company (see Note 11). 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, ---------------------- 1996 1997 ---------- ----------- Vehicles............................................. $5,026,897 $ 5,586,060 Equipment............................................ 2,303,348 3,039,845 Software development costs........................... 1,448,593 2,658,257 Furniture............................................ 749,840 1,057,644 Leasehold improvements............................... 419,232 469,999 Land and building.................................... 529,634 1,582,406 ---------- ----------- 10,477,544 14,394,211 Less accumulated depreciation and amortization....... 4,687,153 5,115,892 ---------- ----------- Net fixed assets..................................... $5,790,391 $ 9,278,319 ========== ===========
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, ---------------------- 1996 1997 ---------- ----------- Equipment............................................ $1,048,633 $ 731,720 Vehicles............................................. 621,420 1,449,687 ---------- ----------- 1,670,053 2,181,407 Less accumulated amortization........................ 561,871 505,091 ---------- ----------- $1,108,182 $ 1,676,316 ========== ===========
F-14 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 6. NOTES PAYABLE Notes payable consist of the following:
NOVEMBER 30, --------------------- 1996 1997 ---------- ---------- Senior credit facility with three banks, dated August 15, 1997, consisting of a secured revolving line of credit of $25.0 million (the Facility). The Facility, which may be used for acquisitions and working capital, is collateralized by the assets of the Company and its domestic operating subsidiaries and by a pledge of the stock of its international subsidiary. The Facility also provides availability for the issuance of letters of credit. Loans made under the revolving line bear interest at the Company's option at either the bank's prime lending rate (8.5% at November 30, 1997) or 2% above the LIBOR rate. Commitment fees equal to 0.375% per annum are payable on the unused portion of the revolving line of credit. On the second anniversary of the Facility, outstanding balances under the Facility will convert to a five-year term loan, which will bear interest either at a fixed rate (subject to availability) or at a variable LIBOR or prime-based rate with adjustments determined based on the Company's earnings............................................... $ -- $1,322,053 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 was payable until June 30, 1996; beginning July 1, 1996, quarterly principal payments required in an amount sufficient to amortize the outstanding balance over a four-year period. Interest payable monthly at a floating rate based on the Wall Street Journal prime plus 1.25%. This loan was guaranteed by the Chairman of the Board and the President of the Company............. 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 were due quarterly from December 31, 1996 through December 31, 1997 and a final principal payment of $240,000 due March 1, 1998.......................... 1,340,000 -- Bank line of credit of $1,000,000, dated October 17, 1994, collateralized by accounts receivable of Carey NY and assignment of license agreement between the Company and Carey NY; due April 30, 1997. Interest was payable monthly at a variable interest rate of .75% above the bank's prime rate...................................... 990,000 -- Various installment notes payable, with interest rates ranging from 8.75% to 14.5%, collateralized by certain vehicles and equipment of the Company's subsidiaries; principal and interest are payable monthly over 36- month terms............................................ 555,834 287,641 Notes payable to bank, dated March 26, 1996, at the prime rate (8.0% at November 30, 1997) plus 1.0% per annum and matures on January 31, 1998. The notes are collateralized by substantially all Carey Limousine In- diana, Inc.'s assets. Under the terms of the agreement, Carey Limousine Indiana, Inc. is subject to various general covenants...................................... 497,582 928,174
F-15 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ----------------------- 1996 1997 ----------- ----------- Discretionary credit agreement with a bank that allows the Company to purchase revenue earning vehicles un- der installment notes. Separate notes are required for each vehicle purchase with a maximum term of thirty-six months. These notes bear interest at rates ranging from 8.9% to 11.0% The notes were collateral- ized by Indy Connection's accounts receivable, inven- tory and equipment and were subject to various re- strictive covenants. The agreement was subsequently renegotiated at similar terms........................ 411,402 -- Two notes payable to bank, with interest at a fixed rate of 9.25% and 48 and 84 month terms, respective- ly. The notes require monthly principal and interest payments of $4,413. The notes are collateralized by vehicles. The agreement subjects Carey Limousine In- diana, Inc. to various general covenants ........... 363,705 429,911 Installment notes payable to sellers under acquisition agreements dated various dates from September 30, 1993 to September 8, 1995. Interest rates range from 7.5% to 8.5% Interest is generally payable monthly. Principal is payable in varying installments......... 1,422,240 406,873 Notes payable to banks, with various dates, payable in monthly installments. Interest rates were determined on the banks' prime rate of interest................. 853,770 -- Note payable to bank, dated October 17, 1994, collat- eralized by accounts receivable and fixed assets of Carey NY. Principal and interest payments of $2,848 were payable monthly. Interest rate was fixed at 9.25%................................................ 149,001 -- Bank lines of credit of $950,000, dated February 26, 1996, collateralized by accounts receivable of Carey Licensing, Inc. and Carey FLA; due March 31, 1997. Interest was payable monthly at 1% above the Wall Street Journal's "Prime Rate"........................ 950,000 -- Note payable to bank, dated May 10, 1996, collateral- ized 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%................................................ 423,179 413,945 ----------- ----------- Total notes payable................................... 11,894,213 3,788,597 Less current installments............................. 5,858,249 996,575 ----------- ----------- Long-term portion..................................... $ 6,035,964 $ 2,792,022 =========== ===========
F-16 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ---------------- 1996 1997 ----------- ---- Subordinated convertible note, dated September 1, 1991, with the principal of $2,000,000 was due on August 30, 2000; in- terest payable quarterly at a fixed rate of 7.74%. After Sep- tember 1, 1992, this debt is convertible into shares of com- mon 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 immedi- ately, expires at the earlier of the third anniversary of an initial public offering or November 30, 2001, and has an ex- ercise price of $4.65 per share and remains outstanding. The note contains certain antidilutive provisions which lower its conversion price in the event dilutive securities are subse- quently issued by the Company at prices below the note's con- version price. The warrant has not been exercised. The terms of the agreement have been modified as part of the "Recapi- talization" (see Notes 15 and 17)............................ $ 2,000,000 $-- Subordinated note dated July 30, 1992, interest only payable quarterly until September 30, 1995. The interest rate was fixed at 12%. Principal of $220,000 was paid on September 30, 1995. Pursuant to an agreement with the lender effective No- vember 30, 1996, principal payments of $220,000 are due from June 30, 1997 until December 31, 1997; an installment of principal of $880,000 is due March 31, 1998; and a final pay- ment of principal of $2,240,000 is due June 30, 1998. A war- rant for the purchase of 616,544 shares of Class A common stock or common stock was issued in connection with the note and was exercised as part of the Recapitalization. The terms of the agreement have been modified as part of the "Recapi- talization" (see Note 17).................................... 3,780,000 -- ----------- ---- Total subordinated notes payable.............................. 5,780,000 -- Less current installments..................................... 440,000 -- ----------- ---- Subordinated notes payable, excluding current installments.... $ 5,340,000 $-- =========== ====
Future annual principal payments on all notes payable at November 30, 1997 are as follows:
YEAR ENDING NOVEMBER 30: ------------------------ 1998............................................................ $ 996,575 1999............................................................ 622,986 2000............................................................ 522,795 2001............................................................ 855,679 2002............................................................ 303,253 2003 and thereafter............................................. 487,309 ---------- $3,788,597 ==========
Certain loan agreements 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. 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 and Indy Connection preferred stock. The carrying value of notes payable approximates the current value of the notes payable at November 30, 1997. Interest paid during the years ended November 30, 1995, 1996, and 1997 was approximately $1,878,000, $1,883,000 and $1,274,000, respectively. F-17 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. Future minimum lease payments under noncancelable operating leases and the present value of future minimum capital lease payments as of November 30, 1997 are as follows:
CAPITAL OPERATING YEAR ENDING NOVEMBER 30 LEASES LEASES - - - ----------------------- ---------- ---------- 1998.................................................... $ 483,421 $1,336,517 1999.................................................... 609,284 1,004,736 2000.................................................... 822,155 695,832 2001.................................................... 149,889 422,114 Thereafter.............................................. 271 33,844 ---------- ---------- Total minimum lease payments............................ 2,065,020 $3,493,043 ========== Less estimated executory costs.......................... 32,003 ---------- 2,033,017 Less amount representing interest (at rates ranging from 9% to 12%)............................................. 371,386 ---------- Present value of net minimum capital lease payments..... 1,661,631 Less current portion of obligations under capital leases................................................. 321,965 ---------- Obligations under capital leases, excluding current por- tion................................................... $1,339,666 ==========
During the years ended November 30, 1995, 1996 and 1997 the Company recognized $508,724, $252,355 and $278,218, respectively, of sublease rental revenue under vehicle sublease arrangements with independent operators and others. During the years ended November 30, 1995, 1996 and 1997, the Company entered into capital lease obligations of $346,666, $810,993 and $875,187, respectively, related to the acquisition of vehicles and equipment. Total rental expense for operating leases in 1995, 1996 and 1997 was $1,362,518, $2,250,335 and $2,103,037, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Included in accounts payable and accrued expenses are the following:
NOVEMBER 30, ----------------------- 1996 1997 ----------- ----------- Trade accounts payable................................. $ 5,385,328 $ 9,547,571 Accrued expenses and other liabilities................. 4,895,495 6,974,808 Gratuities payable..................................... 458,801 531,702 Accrued offering costs................................. 825,339 -- ----------- ----------- $11,564,963 $17,054,081 =========== ===========
F-18 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. INCOME TAXES The provision for income taxes is composed of the following:
NOVEMBER 30, -------------------------------- 1995 1996 1997 -------- ----------- ---------- Federal: Current................................... $139,401 $ 1,368,311 $1,967,356 Deferred.................................. 87,000 (1,197,799) 794,593 -------- ----------- ---------- 226,401 170,512 2,761,949 -------- ----------- ---------- State and local: Current................................... 29,198 128,296 253,896 Deferred.................................. 15,000 (148,758) 5,057 -------- ----------- ---------- 44,198 (20,462) 258,953 -------- ----------- ---------- Foreign Current................................... -- 144,371 141,380 -------- ----------- ---------- Total income tax provision.................. $270,599 $ 294,421 $3,162,282 ======== =========== ==========
The Company's tax provision for the years ended November 30, 1995, 1996 and 1997, 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, ---------------------------- 1995 1996 1997 -------- -------- -------- Statutory rate.................................. 34.0% 34.0% 34.0% State income tax, net of federal benefit........ 7.2 (1.5) 3.4 Goodwill amortization........................... 6.0 .6 1.0 Non-deductible life insurance................... 10.9 .3 .4 Meals and entertainment expenses................ 16.9 1.1 .6 Valuation allowance............................. (13.0) (27.6) -- Other........................................... 11.4 .9 1.7 -------- -------- ------- 73.4% 7.8% 41.1% ======== ======== =======
F-19 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The source and tax effects of temporary differences are composed of the following:
NOVEMBER 30, ----------------------- 1996 1997 ----------- ---------- Allowances for bad debts............................ $ 176,000 $ 208,000 Acquired net operating losses....................... -- 1,500,000 Capital loss carryforward........................... 74,000 74,000 Deferred revenue.................................... 2,040,000 2,360,000 Deferred state taxes and other...................... 558,000 259,000 ----------- ---------- Gross deferred tax assets........................... 2,848,000 4,401,000 Valuation allowance................................. (74,000) (1,574,000) ----------- ---------- 2,774,000 2,827,000 ----------- ---------- Amortization of intangible assets................... (1,350,000) (1,600,000) Software development costs.......................... (53,000) (493,000) Other............................................... (109,000) (24,000) ----------- ---------- Gross deferred tax liabilities...................... (1,512,000) (2,117,000) ----------- ---------- Net deferred tax assets............................. $ 1,262,000 $ 710,000 =========== ==========
A valuation allowance was provided in 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 substantially all of the deferred tax assets would be realized and reduced the valuation allowance by $1,499,000. In 1997, the Company acquired net operating loss carryforwards on which a full valuation allowance has been provided. As the Company utilizes these net operating loss carryforwards, the benefit will be offset against acquired goodwill. In 1997, the Company utilized $115,000 of the acquired net operating loss carryforwards. Income taxes paid during the years ended November 30, 1995, 1996 and 1997 amounted to approximately $187,000, $616,000, and $2,021,000, respectively. F-20 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 10. PREFERRED STOCK The Company had the following series of preferred stock:
NOVEMBER 30, ---------------- 1996 1997 ---------- ----- Series A, par value $10.00, authorized 43,000 shares, issued and outstanding 42,070 shares, at November 30, 1996 (none at November 30, 1997) (liquidation preference of $4,207,000, redeemable at option of the Company). Non- cumulative dividend of $7.00 per annum when declared by the Board of Directors................................... $ 420,700 $ -- Series B, par value $10.00, authorized 10,000 shares, issued and outstanding 9,580 shares, at November 30, 1996 (none at November 30, 1997) (liquidation preference of $958,000). Non-cumulative dividend of $5.00 per annum when declared by the Board of Directors.................. 95,800 -- Series F, par value $10.00, authorized 10,000 shares, issued and outstanding 10,000 shares, at November 30, 1996 (none at November 30, 1997) (liquidation preference of $1,000,000). Non-cumulative dividend of $5.00 per annum when declared by the Board of Directors............ 100,000 -- Series G, par value $10.00, authorized 110,000 shares, issued and outstanding 49,890 shares, at November 30, 1996 (none at November 30, 1997) (liquidation preference of $4,989,900). Non-cumulative dividend of $5.00 per annum when declared by the Board of Directors............ 498,900 -- ---------- ----- $1,115,400 $ -- ========== =====
See Note 17 for discussion of the Recapitalization, pursuant to which all of the preferred stock was redeemed or converted into common stock. 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 service 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 $1,762,345 and $1,015,897 of independent operator notes receivable to this related-party finance company for cash of $1,290,899 and $733,793 and demand promissory notes of $471,446 and $282,104 in 1995 and 1996, respectively. The unpaid balances of the promissory notes were $255,664 and $229,329 at November 30, 1996 and 1997, 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 at rates of 7% to 10%. It is not practicable to estimate the fair value of a 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, 1997, the total assets reported by the privately-held company were $10,075,613 and stockholders' equity was $1,244,857, revenues were $1,442,344 and net income was $136,409. F-21 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 12. COMMITMENTS AND CONTINGENCIES 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 16, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et al." The Company has reached a final settlement with the plaintiff and plaintiff's counsel. The settlement did not have a material effect on the Company's business, financial condition, results of operations or cash flows. 13. ACQUISITIONS Effective October 31, 1997, in connection with a merger, the Company issued 721,783 shares of its common stock in exchange for all the outstanding common stock of Indy Connection based on a conversion ratio of 1.008 shares (the merger exchange ratio) of the Company's common stock for each share of Indy Connection common stock, for a total value of approximately $12.0 million. The merger qualified as a tax-free reorganization and has been accounted for as a pooling-of-interests. Accordingly, the Company's consolidated financial statements have been restated for all periods prior to the business combination to include the combined financial results of Carey International, Inc. and Indy Connection (See Note 2). Revenue, net and net income (loss) for the individual companies reported prior to the merger are as follows:
NOVEMBER 30, ------------------------------------- 1995 1996 1997 ----------- ----------- ----------- Revenue, net: Carey International, Inc............... $43,483,947 $59,505,698 $79,477,393 Indy Connection........................ 5,485,448 6,080,105 6,969,779 Elimination............................ -- (40,861) (68,859) ----------- ----------- ----------- Total................................ $48,969,395 $65,544,942 $86,378,313 =========== =========== =========== Net income (loss): Carey International, Inc............... $ (195,195) $ 2,816,104 $ 3,567,053 Indy Connection........................ 293,316 678,863 956,437 ----------- ----------- ----------- Total................................ $ 98,121 $ 3,494,967 $ 4,523,490 =========== =========== ===========
Conforming the accounting practices of the Company and Indy Connection resulted in no adjustments to net income (loss) or stockholders' equity. The Company estimates that transaction costs associated with the merger will be approximately $200,000. All fees and transaction expenses related to the merger and the restructuring of the combined companies will be expensed as required under the pooling-of-interests accounting method. In October 1997, the Company acquired the stock of Commonwealth Limousine Services, Ltd. ("Commonwealth"). The Company is in the process of combining Commonwealth's operations with the existing Los Angeles operations. F-22 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In March 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 consummated the acquisition at the time of the IPO. In February 1996, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in London, England. 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. 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. 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 DC. 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. All acquisitions have been accounted for as purchases (except for the pooling as described above). 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 considerations allocated to either franchise rights or goodwill, as follows:
NOVEMBER 30, ---------------------------------- 1995 1996 1997 ---------- ---------- ----------- NET ASSETS PURCHASED Receivables and other assets............... $ -- $ 632,554 $ 324,964 Notes from contracts..................... -- -- 6,599,459 Fixed assets............................. 1,703,521 928,377 1,800,441 Franchise rights......................... 1,527,402 89,243 -- Goodwill................................. 5,013,731 447,269 24,480,299 Accounts payable and accrued expenses.... -- (367,211) (5,796,692) Deferred revenue......................... -- -- (6,648,960) ---------- ---------- ----------- Fair value of assets acquired............ $8,244,654 $1,730,232 $20,759,511 ========== ========== =========== CONSIDERATION: Cash (exclusive of $223,695 and $274,855 cash acquired in 1996 and 1997 respectively)........................... $3,949,393 $1,730,232 $ 8,396,017 Capital leases assumed related to vehicle acquisitions............................ 346,666 -- 161,549 Notes assumed related to vehicle acquisitions............................ 895,571 -- 3,061,945 Uncollateralized promissory notes issued to sellers.............................. 3,053,024 -- 5,740,000 Common stock............................. -- -- 3,400,000 ---------- ---------- ----------- Total consideration.................... $8,244,654 $1,730,232 $20,759,511 ========== ========== ===========
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 $315,773, $291,755 and $610,872 for the years ended November 30, 1995, 1996 and 1997, respectively, as contingent consideration which is reflected in the table above. F-23 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 recorded goodwill. The unaudited pro forma summary consolidated results of operations assuming the acquisitions accounted for as purchases had occurred for the purposes of the 1996 summary at the beginning of fiscal 1996, and for the purposes of the 1997 summary at the beginning of fiscal 1997, are as follows:
NOVEMBER 30, -------------------------- 1996 1997 ------------ ------------ Revenue, net................................... $ 66,483,000 $ 97,870,000 Cost of revenue................................ (44,515,000) (64,927,000) Other expense, net............................. (18,320,000) (24,825,000) Provision for income taxes..................... (235,000) (3,348,000) ------------ ------------ Net income..................................... $ 3,413,000 $ 4,770,000 ============ ============ Pro forma net income per common share.......... $ 1.30 $ 0.82 ============ ============ Pro forma weighted average common shares outstanding................................... 3,417,739 5,807,988 ============ ============
14. 401 (K) PLAN The Company sponsors a defined contribution plan established pursuant to Section 401 (k) of the Internal Revenue Code for the benefit of employees of the Company. The Company made $0, $0, and $60,162 in contributions in 1995, 1996 and 1997, respectively. 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 grant date. The total number of shares authorized to be issued 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 shall 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 shares authorized to be issued under the 1992 plan is 388,647. On February 25, 1997, the Company established a Stock Option Plan (the "1997 Plan") that included all officers and key employees of the Company, non- employee directors, and certain persons retained by the Company as consultants. In accordance with the 1997 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 shall become exercisable, F-24 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 shares authorized to be issued under the 1997 Plan is 650,000. 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 30,000 shares of common stock were granted under the Directors' Plan, such grants to be effective upon and vest six months from execution of an underwriting agreement in connection with the IPO. Stock activity under the 1987 Plan, the 1992 Plan and the 1997 Plan is as follows:
1987 PLAN 1992 PLAN 1997 PLAN/DIRECTORS' PLAN --------------------- --------------------- -------------------------- OPTION PRICE OPTION PRICE OPTION PRICE SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE ------- ------------ ------- ------------ ---------- --------------- Balance, December 1, 1994................... 64,502 $ 1.44 383,247 $ 4.65 Granted................. -- -- 21,673 4.65 Exercised............... (32,681) 1.44 -- -- Forfeited............... (860) 1.44 (60,985) 4.65 ------- ----------- ------- ------ Balance, November 30, 1995................... 30,961 1.44 343,935 4.65 Granted................. 38,701 4.65 43,578 4.65 Forfeited............... -- -- (3,011) 4.65 ------- ----------- ------- ------ Balance, November 30, 1996................... 69,662 1.44-4.65 384,502 4.65 Granted................. -- -- -- -- 505,389 $ 10.50-15.75 Exercised............... (12,042) 1.44 (3,167) 4.65 -- -- ------- ----------- ------- ------ ---------- --------------- Balance, November 30, 1997................... 57,620 $ 1.44-4.65 381,335 $ 4.65 505,389 $ 10.50-15.75 ======= =========== ======= ====== ========== =============== Vested and exercisable at November 30, 1997... 40,421 $1.44-$4.65 335,530 $ 4.65 200,000 $ 10.50 ======= =========== ======= ====== ========== ===============
Information with respect to stock options outstanding at November 30, 1997 is as follows:
---------------------------------------------------------------- WEIGHTED AVERAGE NUMBER REMAINING PRICE OF OPTIONS CONTRACTUAL LIFE ---------------------------------------------------------------- $ 1.44 18,919 0.1 $ 4.65 420,036 5.7 $10.50 431,500 9.5 $14.00 15,000 9.6 $15.00 50,000 9.8 $15.75 8,889 9.8 ---------------------------------------------------------------- 944,344 7.6 ================================================================
F-25 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
WEIGHTED NUMBER AVERAGE YEAR OF OPTION OF EXERCISE EXPIRATION OPTIONS PRICE PRICE RANGE -------------- ------- -------- -------------- 1998....................................... 18,920 $ 1.44 $ 1.44 2002....................................... 270,503 $ 4.65 $ 4.65 2003....................................... 33,541 $ 4.65 $ 4.65 2004....................................... 12,685 $ 4.65 $ 4.65 2005....................................... 21,672 $ 4.65 $ 4.65 2006....................................... 81,634 $ 4.65 $ 4.65 2007....................................... 505,389 $11.14 $10.50--$15.75 ------- ------ -------------- All Years.................................. 944,344 $ 8.06 $ 1.44--$15.75 ======= ====== ==============
In May of 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). The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation costs for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards in 1996 and 1997 under those plans consistent with the recognition method of FASB Statement No. 123, the Company's net income and income per share would have been reduced to the pro forma amounts presented below:
1996 1997 ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income....................................... As reported $ 3,495 $ 4,523 Pro forma 3,482 4,320 Net income per share............................. As reported $ 0.90 $ 0.76 Pro forma 0.89 0.72
The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
1996 1997 ----- ----- Expected life (years).......................................... 6 6 Interest rate.................................................. 6.63% 6.66% Volatility..................................................... 40.0 40.0 Dividend yield................................................. 0.00% 0.00% Weighted average fair value.................................... $2.31 $5.56
16. NET INCOME PER COMMON SHARE
NOVEMBER 30, ------------------------------- 1995 1996 1997 --------- ---------- ---------- Net income available to common shareholders............................. $ 93,746 $3,494,097 $4,523,490 ========= ========== ========== Weighted average common shares outstanding.............................. 3,089,895 3,125,673 5,639,879 ========= ========== ========== Net income per common share............... $ 0.03 $ 1.12 $ 0.80 ========= ========== ==========
F-26 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 available to common shareholders is the net income for the fiscal year less accretion of dividends on the preferred stock of $4,375, $900 and $0 for 1995, 1996 and 1997, respectively. In February 1997, the Financial Accounting Standards Boards 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 $1.00 and dilutive EPS under FAS 128 would not differ significantly from the reported pro forma net income per share. 17. RECAPITALIZATION PLAN On February 25, 1997, pursuant to an agreement reached in May 1996, the Board of Directors authorized a recapitalization plan ("Recapitalization"), which was 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 were converted or exchanged for 1,046,559 shares of common stock and payment of $912,452. The Series A preferred stock was converted 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 Series G preferred stock was redeemed for an aggregate of $1,000,000. The remaining preferred stock was converted into 1,427,509 shares of common stock. As a result of the Recapitalization, preferred stock which had a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 was 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 were paid out of the proceeds of the IPO. F-27 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-28 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED BALANCE SHEETS
SEPTEMBER 30, APRIL 30, 1996 1997 ------------- ----------- (UNAUDITED) ASSETS Cash and cash equivalents........................... $ 130,494 $ 77,275 Accounts receivable, net of allowances for doubtful accounts of $181,000 and $194,000, respectively.... 2,466,134 1,781,923 Receivables from independent operators, current por- tion............................................... 271,086 368,335 Prepaid expenses and other current assets........... 51,499 51,499 ----------- ----------- Total current assets............................. 2,919,213 2,279,032 Fixed assets, net................................... 805,724 644,264 Receivables from independent operators, less current portion............................................ 7,375,219 7,638,554 Other assets........................................ 1,221,885 1,282,872 ----------- ----------- Total assets........................................ $12,322,041 $11,844,722 =========== =========== LIABILITIES Current portion of notes payable.................... $ 1,232,457 $ 1,958,293 Accounts payable, trade............................. 1,520,295 1,526,330 Accounts payable, independent operators............. 1,738,072 1,809,248 Accrued expenses.................................... 529,761 456,233 Other current liabilities........................... 240,059 232,002 ----------- ----------- Total current liabilities........................ 5,260,644 5,982,106 Notes payable, less current portion................. 4,523,171 3,266,567 Other liabilities................................... 862,875 783,491 Deferred revenue.................................... 6,801,965 6,940,762 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) (5,477,392) ILN............................................... 134,419 171,148 ----------- ----------- Total stockholders' deficiency................... (5,126,614) (5,128,204) ----------- ----------- Total liabilities and stockholders' deficiency... $12,322,041 $11,844,722 =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-29 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SEVEN FOR THE YEAR ENDED MONTHS ENDED SEPTEMBER 30, APRIL 30, 1996 1997 ------------------ ------------- (UNAUDITED) Revenues: Service revenues, net....................... $17,218,728 $10,819,794 Interest from independent operator financ- ing........................................ 1,219,819 690,700 ----------- ----------- Total revenues.............................. 18,438,547 11,510,494 Cost of revenues.............................. 11,040,017 7,011,225 ----------- ----------- Gross profit................................ 7,398,530 4,499,269 Selling, general and administrative expenses.. 5,821,899 3,536,845 ----------- ----------- Operating income............................ 1,576,631 962,424 Interest expense.............................. (881,854) (575,937) Interest income............................... 66,000 16,500 ----------- ----------- Income before provision for income taxes.... 760,777 402,987 Provision for income taxes.................... 55,014 37,839 ----------- ----------- Net income.................................. 705,763 365,148 Accumulated deficit, beginning of period...... (5,907,417) (5,304,654) Distribution to S corporation stockholder..... (103,000) (366,738) ----------- ----------- Accumulated deficit, end of period............ ($5,304,654) ($5,306,244) =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-30 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF CASH FLOWS
FOR THE SEVEN FOR THE YEAR ENDED MONTHS ENDED SEPTEMBER 30, 1996 APRIL 30, 1997 ------------------ -------------- (UNAUDITED) Cash flows from operating activities: Net income.................................. $705,763 $ 365,148 Adjustments necessary to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............. 258,439 164,823 Change in deferred revenue................. (279,625) 138,797 Changes in operating assets and liabilities: Accounts receivable....................... (377,793) 684,211 Receivables from independent operators.... 139,363 (360,584) Other assets.............................. (103,240) (60,987) Accounts payable and accrued expenses..... (152,519) (67,493) Accounts payable, independent operators... 293,731 71,176 Other liabilities......................... (193,582) (87,441) -------- --------- Net cash provided by operating activities.............................. 290,537 847,650 -------- --------- 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: Proceeds from advances from officer of com- pany....................................... -- 224,093 Net borrowings (payments) on line of credit..................................... 261,802 (595,361) Proceeds from borrowings under notes payable.................................... 310,000 800,000 Principal payments on notes payable......... (412,643) (959,500) Distribution to S corporation stockholder... (103,000) (366,738) -------- --------- Net cash provided by (used in) financing activities.............................. 56,159 (897,506) -------- --------- Net change in cash and cash equivalents...... 90,448 (53,219) Cash and cash equivalents, beginning of period...................................... 40,046 130,494 -------- --------- Cash and cash equivalents, end of period..... $130,494 $ 77,275 ======== =========
The accompanying notes are an integral part of these combined financial statements. F-31 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-32 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-33 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 seven-month period ended April 30, 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 April 30, 1997 and for the seven-month period ended April 30, 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 $288,787 for the year ended September 30, 1996 and for the seven-month period ended April 30, 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, APRIL 30, 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 3,528,792 ---------- ---------- Net fixed assets.................................... $ 805,724 $ 644,264 ========== ==========
Depreciation expense was $258,439 and $164,823 for the year ended September 30, 1996 and for the seven-month period ended April 30, 1997, respectively. F-34 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. NOTES PAYABLE Notes payable consist of the following:
SEPTEMBER 30, APRIL 30, 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 $1,269,606 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......................... -- 770,000 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 2,719,650 Advances from officer of the company..................... -- 224,093 Notes payable, collateralized by certain equipment, principal and interest due monthly over terms of 24-39 months................................................... 352,297 241,511 ---------- ---------- 5,755,628 5,224,860 Less current portion 1,232,457 1,958,293 ---------- ---------- Notes payable, less current portion $4,523,171 $3,266,567 ========== ==========
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-35 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 SEVEN ENDED MONTHS ENDED SEPTEMBER 30, APRIL 30, 1996 1997 ------------- -------------- Federal--Current................................ $ 15,845 $ -- State and local--Current........................ 39,169 37,839 --------- --------- Total income tax provision...................... $ 55,014 $ 37,839 ========= =========
The Company's effective income tax rates differed from the applicable Federal statutory rate due to the following:
FOR THE YEAR ENDED FOR THE SEVEN SEPTEMBER 30, MONTHS ENDED 1996 APRIL 30, 1997 ------------- -------------- Federal statutory rate......................... 34% 34% State and local income taxes................... 13 13 Effect of income of S corporation.............. (9) (54) Effect of changes in deferred tax asset valua- tion allowance................................ (43) 2 Other, primarily nondeductible travel and en- tertainment................................... 12 14 --- --- Effective income tax rate...................... 7% 9% === ===
As of September 30, 1996, for federal income tax purposes, the Company had net operating loss (NOL) carryforwards of $1,959,595 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, APRIL 30, 1996 1997 ------------- ----------- NOL carryforwards.................................. $ 914,574 $ 916,694 Revenue recognition of independent operator fees... 857,606 773,517 Other.............................................. -- 116,138 Valuation allowance................................ (1,772,180) (1,806,349) ----------- ----------- Net deferred tax asset (liability)................. $ -- $ -- =========== ===========
Income taxes paid amounted to $14,505 and $0 for the year ended September 30, 1996 and for the seven-month period ended April 30, 1997, respectively. F-36 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 as of September 30, 1996. 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 seven-month period ended April 30, 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 seven-month periods ended September 30, 1996 and April 30, 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 June 2, 1997, the stockholders of MILN and ILN sold their stock to Carey International, Inc., a company providing chauffeured vehicle services. F-37 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, 1996 and 1997, and for each of the three years in the period ended November 30, 1997, 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 30, 1998 1 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. 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 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. II-1 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS.
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- *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 ++2.4 Amended and Restated Agreement of Plan of Merger made as of October 10, 1997 by and amoung Carey International, Inc., Carey Limousine Indiana, Inc., Indy Connection Limousines, Inc., Transit Tours, Inc., K.D. & Associates Professional Corporation, Craig Del Fabro and Kim Del Fabro *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 **10.11 Form of Revolving Credit and Term Loan Agreement by and among Carey International, Inc., certain of its direct and indirect wholly-owned subsidiaries, and Fleet Bank, N.A., Banco Popular de Puerto Rico and George Mason Bank +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. **23.7 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) **24 Power of Attorney (contained in the signature page to this Registration Statement)
- - - -------- * Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-22651). **Previously filed. + Filed herewith. ++Incorporated by reference to the Company's Current Report on Form 8-K dated October 31, 1997. II-2 (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 22. UNDERTAKINGS 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: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (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. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (5) That every prospectus (i) that is filed pursuant to paragraph (4) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment 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. (6) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (7) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, THE DISTRICT OF COLUMBIA, ON THE 6TH DAY OF MARCH 1998. Carey International, Inc. /s/ David H. Haedicke By: _________________________________ DAVID H. HAEDICKE CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT 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 March 6, 1998 - - - ------------------------------------- Board and Chief VINCENT A. WOLFINGTON Executive Officer /s/ Don R. Dailey* President and March 6, 1998 - - - ------------------------------------- Director DON R. DAILEY /s/ David H. Haedicke Chief Financial March 6, 1998 - - - ------------------------------------- Officer DAVID H. HAEDICKE /s/ Paul A. Sandt* Principal Accounting March 6, 1998 - - - ------------------------------------- Officer PAUL A. SANDT /s/ David McL. Hillman* Director March 6, 1998 - - - ------------------------------------- DAVID MCL. HILLMAN Director March 6, 1998 - - - ------------------------------------- WILLIAM R. HAMBRECHT /s/ Robert W. Cox* Director March 6, 1998 - - - ------------------------------------- ROBERT W. COX /s/ Nicholas J. St. George* Director March 6, 1998 _____________________________________ NICHOLAS J. ST. GEORGE /s/ David H. Haedicke By: _________________________________ DAVID H. HAEDICKE ATTORNEY-IN-FACT * Powers of Attorney have been filed with this Registration Statement. II-4 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- *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 ++2.4 Amended and Restated Agreement of Plan of Merger made as of October 10, 1997 by and among Carey International, Inc., Carey Limousine Indiana, Inc., Indy Connection Limousines, Inc., Transit Tours, Inc., K.D. & Associates Professional Corporation, Craig Del Fabro and Kim Del Fabro. *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 **10.11 Form of Revolving Credit and Term Loan Agreement by and among Carey International, Inc., certain of its direct and indirect wholly-owned subsidiaries, and Fleet Bank, N.A, Banco Popular de Puerto Rico and George Mason Bank +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. **23.7 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) **24 Power of Attorney (contained in the signature page to this Registration Statement)
- - - -------- * Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 333-22651). ** Previously filed. + Filed herewith. ++Incorporated by reference to the Company's Current Report on Form 8-K dated October 31, 1997. EX-11 2 STATEMENTS - PER SHARE EARNINGS EXHIBIT 11 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS HISTORICAL EARNINGS PER SHARE
November 30, November 30, November 30, 1995 1996 1997 ------------ ------------ ------------ Net income available to common shareholders: Net income................................................. $ 98,121 $3,494,967 $4,523,490 Preferred stock dividends.................................. (4,375) (900) - ---------- ---------- ---------- Net income available to common shareholders........................................... $ 93,746 $3,494,067 $4,523,490 ========== ========== ========== Common Stock and Common Stock Equivalents: Weighted average shares outstanding........................ 1,332,879 1,359,073 4,506,108 Convertible Securities: Series B Preferred Stock............................... 663,761 663,761 334,609 Series F Preferred Stock............................... 135,025 135,025 68,067 Series G Preferred Stock............................... 673,638 673,638 339,588 Options (calculated on Treasury Method) 1987 Plan................................................... 11,790 21,374 16,939 Options and warrants issued within one year of the offering (calculated on Treasury Method): Vested options repriced or granted..................... 207,020 207,020 292,862 Warrants repriced...................................... 65,782 65,782 81,706 ---------- ---------- ---------- 272,802 272,802 374,568 ---------- ---------- ---------- Total common stock and common stock equivalents...................................... 3,089,895 3,125,673 5,639,879 ========== ========== ========== Earnings per common share.......................................... $ 0.03 $ 1.12 $ 0.80 ========== ========== ==========
11.1 EXHIBIT 11 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED) PRO FORMA EARNINGS PER SHARE TO GIVE EFFECT TO THE RECAPITALIZATION (Presented on the face of the November 30, 1996 and 1997 Statements of Operations)
November 30, November 30, 1996 1997 ------------ ------------ Pro forma net income: Net income........................................................................... $ 3,494,967 $ 4,523,490 Add back interest (tax effected) on debt included in Recapitalization: $2,867,546 subordinated note (12.0%) converted to stock in Recapitalization.................................................................. 206,464 103,232 $2,000,000 subordinated note (7.74%) converted to stock in Recapitalization.................................................................. 92,879 46,440 ------------ ------------ Pro forma net income................................................................. $ 3,794,310 $ 4,673,162 ============ ============ Common Stock and Common Stock Equivalents: Historical weighted average shares outstanding....................................... 3,125,673 5,639,879 Add back: Less common stock equivalents included in historical earnings per share: Series B Preferred Stock......................................................... (663,761) (334,609) Series F Preferred Stock......................................................... (135,025) (68,067) Series G Preferred Stock......................................................... (673,638) (339,588) Add effect of Recapitalization: Series A Preferred Stock......................................................... 86,003 43,355 Series B Preferred Stock......................................................... 663,761 334,609 Series F & G Preferred Stock..................................................... 763,748 385,013 Shares for $2,867,546 of subordinated debt....................................... 616,544 310,806 Shares for $2,000,000 of subordinated debt....................................... 430,015 216,612 ------------ ------------ Total pro forma common stock and common stock equivalents............................ 4,213,320 6,188,010 ============ ============ Pro forma earnings per common share...................................................... $ 0.90 $ 0.76 ============ ============
11.2 STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS (CONTINUED) PRO FORMA EARNINGS PER SHARE TO GIVE EFFECT TO THE RECAPITALIZATION AND THE OFFERING (Presented on the face of the Pro Forma Statement of Operations)
November 30, 1997 ------------ Pro forma net income................................. $ 5,126,803 ============ Common Stock and Common Stock Equivalents: Weighted average shares outstanding of the Company................................. 4,506,108 ------------ Adjustments to reflect share activity to have occurred at the beginning of the year: Shares used to convert subordinated debt: Shares for $2,867,546 of subordinated debt....... 310,806 Shares for $2,000,000 of subordinated debt....... 216,775 Shares used to convert preferred stock: Series A Preferred Stock....................... 43,355 Series B Preferred Stock....................... 334,608 Series F Preferred Stock....................... 385,013 ------------ Adjustment for shares issued in connection with Recapitalization....... 1,290,557 ------------ Adjustment for shares issued in acquisition of Manhattan Limousine............................ 115,225 ------------ Adjustment for shares issued in conversion of debt............................. 24,251 ------------ Adjustment for shares issued in connection with the IPO: Shares to pay off debt in connection with the offering..................................... 408,220 Shares used to provide cash for purchase of Manhattan Limousine.......................... 350,601 Shares used to pay off debt from acquisition of Manhattan Limousine....................... 235,389 Shares used to pay off debt assumed in Manhattan Limousine acquisition.............. 186,111 Shares used to pay off debt and redeem preferred stock as part of Recapitalization.. 199,433 Shares issued for cash......................... 250,602 ------------ Shares used in offering....... 1,630,356 ------------ Total weighted average shares outstanding............ 7,566,497 ------------ Common stock equivalents (calculated on Treasury Method): Vested Options outstanding......................... 292,862 Warrants outstanding............................... 81,706 ------------ Common stock equivalents...... 374,568 ------------ Total common stock and common stock equivalents...... 7,941,065 ============ Pro forma earnings per common share.................. $ 0.65 ============
EX-23.1 3 CONSENT Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated January 30, 1998, on our audits of the consolidated financial statements and financial statement schedule of Carey International, Inc. and subsidiaries as of November 30, 1997 and 1996, and for each year in the three year period ended November 30, 1997. 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. March 5, 1998 EX-23.2 4 CONSENT Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 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 as 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 LLP Washington, D.C. March 5, 1998 -----END PRIVACY-ENHANCED MESSAGE-----