<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997
REGISTRATION NO. 333-22651
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CAREY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 4119 52-1171965
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION
ORGANIZATION) CODE NUMBER)
4530 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 895-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
VINCENT A. WOLFINGTON
CAREY INTERNATIONAL, INC.
4530 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 895-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES OF COMMUNICATIONS TO:
JOHN P. DRISCOLL, JR., ESQUIRE NEIL GOLD, ESQUIRE
NUTTER, MCCLENNEN & FISH, LLP FULBRIGHT & JAWORSKI L.L.P.
ONE INTERNATIONAL PLACE 666 FIFTH AVENUE
BOSTON, MA 02110 NEW YORK, NY 10103
(617) 439-2000 (212) 318-3000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If the Form is a post-effective amendment filed pursuant to Rule 426(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS BE ACCEPTED TO BUY PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 23, 1997
2,900,000 SHARES
[LOGO OF CAREY APPEARS HERE]
CAREY INTERNATIONAL, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being offered by Carey
International, Inc. ("Carey" or the "Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $10.00 and $12.00 per share. See "Underwriting" for a
discussion of the factors considered in determining the initial public offering
price. The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "CARY."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(3)................................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$1,600,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 435,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ , and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1997.
-----------
Montgomery Securities Ladenburg Thalmann & Co. Inc.
, 1997
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing audited financial statements reported on by independent auditors
for each fiscal year and quarterly reports containing unaudited financial
statements for the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
contained in this Prospectus (i) gives effect to the Recapitalization (as
defined herein) of the Company (see "Recapitalization"), (ii) does not give
effect to 995,228 shares of Common Stock issuable upon the exercise of
outstanding options and warrants or 150,000 shares of Common Stock issuable
pursuant to warrants described under the caption "Underwriting," (iii) assumes
the conversion of certain convertible notes, and (iv) assumes no exercise of
the Underwriters' over-allotment option to purchase 435,000 shares of Common
Stock.
THE COMPANY
Carey International, Inc. ("Carey" or the "Company") is one of the world's
largest chauffeured vehicle service companies, providing services through a
worldwide network of owned and operated companies, licensees and affiliates
serving 420 cities in 65 countries. The "Carey" brand name has represented
quality chauffeured vehicle service since the 1920s. The Company owns and
operates its service providers in New York, San Francisco, Los Angeles, London,
Washington D.C., South Florida and Philadelphia. In addition, the Company
generates revenues from licensing the "Carey" name and providing central
reservation, billing and sales and marketing services to its licensees. The
Company's worldwide network also includes affiliates in locations in which the
Company has neither owned and operated companies nor licensees. Over the past
five years, the Company has invested significant capital in developing its
reservation, central billing and worldwide service infrastructure. By
leveraging its current infrastructure and position as a market leader, the
Company intends to consolidate the highly fragmented chauffeured vehicle
service industry through the acquisition of: (i) current Carey licensees, (ii)
additional companies in markets in which the Company already owns and operates
a chauffeured vehicle service company, and (iii) companies in other strategic
markets in North America, Europe and the Pacific rim of Asia.
The Carey network utilizes chauffeured sedans, limousines, vans and minibuses
to provide services for airport pick-ups and drop-offs, inter-office transfers,
business and association meetings, conventions, roadshows, promotional tours,
special events, incentive travel and leisure travel. Businesses and business
travelers utilize the Company's services primarily as a management tool, to
achieve more efficient use of time and other resources.
Carey's worldwide network of chauffeured vehicle service companies allows it
to provide services with consistently high quality to its customers in
virtually every major city in the expanding global travel market. The network
is linked to over 300,000 reservation terminals in travel agencies, corporate
travel departments and government offices by the Carey International
Reservation System (the "CIRS"), the chauffeured vehicle service industry's
most extensive centralized global reservation system.
The Company estimates that the United States chauffeured vehicle service
industry generated revenues of approximately $3.9 billion in 1996, and has
undergone steady growth in recent years, with revenues increasing at a compound
annual growth rate of 10.9% between 1990 and 1996. The industry is highly
fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles.
The Company believes that during 1996 no chauffeured vehicle service company
accounted for more than 2% of total United States industry revenues. The
Company also believes that similar fragmentation exists in the chauffeured
vehicle service industry outside the United States.
3
<PAGE>
The Company's objective is to increase its profitability and its market share
in the chauffeured vehicle service industry by implementing the following
growth strategies:
Expand through Acquisitions. Carey believes that there are significant
opportunities to acquire additional chauffeured vehicle service companies
that would benefit from the capital and management resources that the
Company can provide. Carey intends to acquire current Carey licensees, as
well as additional chauffeured vehicle service companies both in markets in
which the Company already owns and operates such a business and in other
strategic regions in North America, Europe and the Pacific rim of Asia.
Carey believes it has a competitive advantage in acquiring licensees
because of a right of first refusal contained in a substantial majority of
its domestic license agreements. The Company believes that it has less than
a 10% market share in each of the markets in which it owns and operates a
chauffeured vehicle service company, and that there is significant
potential for it to expand its business in such markets through
acquisitions. As the Company acquires additional chauffeured vehicle
service companies, it anticipates that cost savings can be achieved through
the consolidation of certain administrative functions and the elimination
of redundant facilities, equipment and personnel.
Carey has successfully begun to implement its acquisition strategy. Since
November 1991, the Company has acquired 15 chauffeured vehicle service
companies, including, since January 1995, two of its licensees (in Ft.
Lauderdale/Miami and San Francisco) and six additional chauffeured vehicle
service companies (two in each of Boca Raton and San Francisco, and one in
each of Washington, D.C. and London). Upon the closing of this offering,
the Company will acquire Manhattan International Limousine Network Ltd. and
an affiliated company ("Manhattan Limousine"), one of the largest
chauffeured vehicle service companies in the metropolitan New York area and
the operator of a network of approximately 300 affiliates worldwide.
Manhattan Limousine generated revenues of approximately $18.4 million
during its fiscal year ended September 30, 1996, representing approximately
23.4% of the Company's fiscal 1996 revenues on a pro forma basis. See
"Acquisition of Manhattan Limousine" and "Pro Forma Consolidated Financial
Statements."
Increase International Market Share. Approximately 12.8% of the Company's
revenue, net was derived from services performed outside the United States
during its fiscal year ended November 30, 1996. Of these international
revenues, approximately 60.8% was generated by the Company's owned and
operated business in London, approximately 38.1% was generated by the
Company's international licensees and the remainder was generated by the
Company's international affiliates. Carey believes that its network can
capture a significant portion of the growing international market for
chauffeured vehicle services by acquiring or licensing additional
chauffeured vehicle service companies and otherwise implementing the Carey
system outside the United States. The Company intends to increase its
international presence by intensifying its sales and marketing efforts,
strengthening its relationships with significant domestic and international
business travel arrangers, and capitalizing on the capacity of the CIRS to
operate on a global scale. By enhancing its international presence, the
Company also expects to increase its revenues from providing chauffeured
vehicle services to international travelers both visiting the United States
and travelling abroad.
Expand Licensee Network Worldwide. The Company will seek to expand its
worldwide network and generate additional revenues from license and
marketing fees by licensing additional chauffeured vehicle service
companies in smaller markets that do not justify a Company-owned presence.
Ultimately, as these less strategic markets grow in size and importance to
the Company, the licensees in such markets may become acquisition
candidates for the Company.
Convert Salaried Chauffeurs to Independent Operators. The Company
believes that it can improve its profitability by continuing to convert
salaried chauffeurs to independent operators in businesses acquired by
Carey. The objective of Carey's independent operator strategy is to instill
in each chauffeur the sense of purpose, responsibility and dedication
characteristic of an independent business owner, thereby increasing
4
<PAGE>
the profitability of the chauffeur and the Company. Carey's independent
operator program allows the Company to reduce its labor and capital costs,
convert fixed costs to variable costs and generate revenues from fees paid
by independent operators.
In 1979, the Company was organized as a Delaware corporation and commenced
operations by acquiring certain rights to the "Carey" name held by a
predecessor company. Predecessor companies operated chauffeured vehicle service
businesses under the "Carey" name since the 1920s. The Company's principal
executive offices are located at 4530 Wisconsin Avenue, N.W., Washington, D.C.
20016. Its telephone number at that location is (202) 895-1200. As used herein,
unless the context otherwise requires, "Carey" or the "Company" refers to Carey
International, Inc. and its subsidiaries.
THE OFFERING
<TABLE>
<C> <S>
Common Stock being offered......................... 2,900,000 shares
Common Stock to be outstanding after the offering.. 6,389,012 shares(1)
Use of proceeds.................................... To repay certain
indebtedness, redeem
certain shares of
preferred stock, pay the
cash portion of the
purchase price for
Manhattan Limousine, fund
other acquisitions and for
general corporate
purposes, including
working capital
Proposed Nasdaq National Market symbol............. CARY
</TABLE>
- -------
(1) Excludes: (i) 995,228 shares of Common Stock issuable upon the exercise of
outstanding options and warrants, (ii) 28,662 shares of Common Stock which
are authorized but have not yet been granted under options pursuant to the
Company's 1987 Stock Option Plan and 1992 Stock Option Plan, (iii) 150,000
shares of Common Stock issuable upon the exercise of warrants described
under the caption "Underwriting," (iv) 650,000 shares of Common Stock
authorized pursuant to the 1997 Equity Incentive Plan, of which options to
purchase 411,500 shares of Common Stock are outstanding, and (v) 100,000
shares of Common Stock authorized pursuant to the Stock Plan for Non-
Employee Directors, of which options to purchase 22,500 shares of Common
Stock are outstanding.
5
<PAGE>
SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------
FISCAL YEAR ENDED NOVEMBER 30, FEB. 29, 1996 FEB. 28, 1997
--------------------------------------------------------------- ------------- -------------------------
1992 1993 1994 1995 1996
------- -------- ------- ------- --------------------------
ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(2)
---------- ------------ ------------- --------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Revenue, net.... $27,669 $30,319 $35,525 $43,484 $59,505 $78,883 $11,558 $14,141 $19,613
Cost of reve-
nue............ 20,199 22,751 24,954 29,943 40,438 52,344 7,904 9,756 13,149
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Gross profit.... 7,470 7,568 10,571 13,541 19,067 26,539 3,654 4,385 6,464
Selling, general
and
administrative
expense........ 5,939 8,174 9,487 12,419 15,078 21,192 3,361 3,819 5,504
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Operating income
(loss)......... 1,531 (606) 1,084 1,122 3,989 5,347 293 566 960
Interest income
(expense) and
other income
(expense)...... (819) (1,308) (1,194) (1,292) (1,277) (253) (340) (245) 23
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Income (loss)
before
provision
(benefit) for
income taxes... 712 (1,914) (110) (170) 2,712 5,094 (47) 321 983
Provision
(benefit) for
income taxes... 53 10 19 25 (104) 2,155 11 154 413
------- -------- ------- ------- ---------- --------- ------- --------- ---------
Net income
(loss)......... $ 659 $ (1,924) $ (129) $ (195) $ 2,816 $ 2,939 $ (58) $ 167 $ 570
======= ======== ======= ======= ========== ========= ======= ========= =========
Pro forma net
income per
share.......... $0.89(3) $0.49 $0.07(3) $0.10
========== ========= ========= =========
Weighted average
shares
outstanding.... 3,510,020(3) 6,023,785 3,518,083(3) 5,971,960
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
---------------------
NOVEMBER 30,
1996 ACTUAL PRO FORMA(4)
------------ ------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................... $(1,732) $(1,029) $ 81
Total assets................................ 42,526 39,378 73,703
Long-term debt, less current maturities..... 11,192 11,327 1,719
Deferred revenue(5)......................... 6,181 6,629 13,500
Total stockholders' equity.................. $ 6,672 $ 6,844 $39,376
</TABLE>
- -------
(1) Gives effect to the following events as if they had occurred on December 1,
1995: (i) the acquisition of Camelot Barthropp Ltd., completed February
1996, including the interest cost related to indebtedness incurred in
connection with such acquisition, (ii) the acquisition of Manhattan
Limousine (using statement of operations data for Manhattan Limousine's
fiscal year ended September 30, 1996) and the amortization of associated
goodwill, (iii) the conversion of certain preferred stock and subordinated
debt into Common Stock, see "Recapitalization," and the elimination of
interest expense associated with the subordinated debt; (iv) the issuance
of shares of Common Stock to (a) repay certain existing debt of the
Company, (b) pay the cash portion of the purchase price for Manhattan
Limousine, (c) repay certain debt assumed in connection with the
acquisition of Manhattan Limousine, (d) redeem certain preferred stock of
the Company and (e) pay the stock portion of the purchase price in
connection with the acquisition of Manhattan Limousine, (v) the elimination
of interest expense associated with debt repaid from the proceeds of this
offering and (vi) other adjustments as described under "Pro Forma
Consolidated Financial Statements" and the notes thereto.
(2) Gives effect to the events set forth in clauses (ii) through (vi) of note
(1) above as if they had occurred on December 1, 1995, except that, with
respect to clause (ii), the statement of operations data is for Manhattan
Limousine's three months ended December 31, 1996.
(3) Gives effect to the conversion of certain preferred stock and subordinated
debt into Common Stock and the elimination of associated interest expense
on the subordinated debt as a result of the Recapitalization. See Notes 2
and 18 to the Company's Consolidated Financial Statements.
(4) Reflects (i) the Recapitalization, see "Recapitalization," (ii) the
acquisition of Manhattan Limousine, see "Acquisition of Manhattan
Limousine," and (iii) the issuance and sale of the 2,900,000 shares of
Common Stock offered hereby (at an assumed offering price of $11.00 per
share less estimated underwriting discounts and commissions and offering
expenses) and the application of the net proceeds therefrom as described
under "Use of Proceeds."
(5) Represents the balance of the fees deferred in connection with independent
operator agreements less amounts previously recognized. Such fees are
recognized ratably over the terms of the agreements, which typically range
from 10 to 20 years. See the Notes to the Company's Consolidated Financial
Statements.
6
<PAGE>
RISK FACTORS
The following factors should be considered, together with the other
information in this Prospectus, in evaluating an investment in the Company.
This Prospectus contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from the results anticipated in these forward-looking statements as a result
of certain of the factors set forth in the following risk factors and
elsewhere in this Prospectus.
HISTORY OF LOSSES
The Company has generated a net loss in three of the past four fiscal years.
Although the Company was profitable during the fiscal year ended November 30,
1996, there can be no assurance that the Company will be able to sustain
profitability.
RISKS ASSOCIATED WITH ACQUISITION OF MANHATTAN LIMOUSINE
The acquisition of Manhattan Limousine will be consummated simultaneously
with this offering. Manhattan Limousine generated pro forma revenues of
approximately $18.4 million during its fiscal year ended Septem- ber 30, 1996,
representing approximately 23.4% of the Company's fiscal 1996 revenues on a
pro forma basis. As a result of the acquisition of Manhattan Limousine, nearly
half of the Company's revenues will be generated from services provided within
the New York City metropolitan area. The eventual integration of Manhattan
Limousine, which is the Company's largest acquisition to date, will place
significant demands on the Company's management and infrastructure, and there
can be no assurance that Manhattan Limousine's business will be successfully
integrated with that of the Company, that the Company will be able to realize
operating efficiencies or eliminate redundant costs, or that the combined
business will be operated profitably. Further, there can be no assurance that
customers of Manhattan Limousine will continue to do business with the
Company. The failure of the Company in any of these respects could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Use of Proceeds" and "Acquisition of Manhattan
Limousine."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to grow primarily through the acquisition of additional
chauffeured vehicle service companies. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to the Company as well as higher acquisition costs for
the opportunities that are available. There can be no assurance that the
Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into the Company
without substantial costs, delays, or other operational or financial problems.
There also can be no assurance that the Company will be able to purchase its
licensees that operate in markets in which the Company does not own and
operate a chauffeured vehicle service company.
The success of any acquisition will depend upon the Company's ability to
introduce automation and management systems, to convert salaried chauffeurs
employed by the acquired businesses to independent operators and to integrate
the acquired business with the Company's existing operations. Customer
dissatisfaction or performance problems at a single acquired company could
have an adverse effect on the reputation of the Company and the Company's
sales and marketing initiatives. There can be no assurance that any businesses
acquired in the future will achieve anticipated revenues and earnings.
Further, acquisitions involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of management's
attention, failure to retain key personnel at an acquired company, risks
associated with unanticipated events or liabilities and amortization of
goodwill or other acquired intangible assets, some or all of which could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Acquisition Strategy."
7
<PAGE>
RISKS RELATED TO ACQUISITION FINANCING
The Company may choose to finance future acquisitions by using shares of its
Common Stock for a portion or all of the consideration to be paid. In the
event that the Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common
Stock as part of the consideration for the sale of their businesses, the
Company might not be able to utilize Common Stock as consideration for
acquisitions and would be required to utilize more of its cash resources, if
available, in order to maintain its acquisition program. If the Company does
not have sufficient cash resources, its growth could be limited unless it is
able to obtain additional capital through debt or equity financings. There can
be no assurance that such financing will be available if and when needed or on
terms acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
RISKS ASSOCIATED WITH RAPID GROWTH
As a result of the Manhattan Limousine acquisition, the continued
implementation of the Company's acquisition strategy and the expansion of the
Company's licensee network, the Company may experience rapid growth which
could place additional demands on the Company's administrative, operational
and financial resources. Managing future growth will depend on a number of
factors, including the maintenance of the quality of services the Company
provides to its customers, and the recruitment, motivation and retention of
qualified chauffeurs and other personnel. Sustaining growth will require
enhancements to the Company's operational and financial systems as well as
additional management, operational and financial resources. There can be no
assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth, and
any failure to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company believes that its future operating results may continue to be
subject to quarterly variations caused by such factors as seasonal business
travel, variable scheduling of special events and the timing of acquisitions
by the Company. The Company's least profitable quarter generally has been the
first quarter (ending February 28 or 29), and its most profitable quarter
generally has been the fourth quarter (ending November 30). The Company's
operating results may be subject to considerable fluctuations caused by
special events, such as business and trade association meetings and
conventions and sporting events with national or international participation,
which do not necessarily recur annually, may not be held at the same time of
year and may not always be located in a city in which the Company owns and
operates a chauffeured vehicle service company. In addition, adverse economic
conditions may impact the Company's operating results by reducing the overall
number of road shows and promotional tours. All of these factors can cause
significant fluctuations in quarterly results of operations. Accordingly,
results in any fiscal quarter may not be indicative of results of future
quarters. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results of Operations."
RISKS ASSOCIATED WITH LICENSEE OPERATIONS
The Company has 38 licensees serving 106 cities in the United States and 24
licensees serving 105 cities outside the United States. Although a component
of the Company's strategy is to increase the number of licensees, there can be
no assurance that the Company will be able to attract qualified licensees in
desired locations. The failure of the Company to attract new licensees or the
failure of the Company's licensees to operate successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the failure of one or more of the
Company's licensees to maintain the Company's service standards and conform to
the Carey system could have a material adverse effect on the reputation of the
Carey network and the Company's business, financial condition and results of
operations.
In addition, the Company is subject to federal regulation and certain state
laws which govern the offer and sale of franchises. Most state franchise laws
impose substantive requirements on the franchise agreement,
8
<PAGE>
including limitations on non-competition provisions and termination or non-
renewal of a franchise. Some states require that certain materials be
registered before franchises can be offered or sold in that state. Violations
of federal regulations and the state franchising laws could result in civil
penalties against the Company and civil and criminal penalties against the
executive officers of the Company. While the Company believes that it has
operated in compliance with federal and state franchise laws, no assurance can
be given that the Company will not be required to cease offering and selling
licenses in certain states because of future changes in franchise laws or the
Company's failure or inability to comply with existing franchise laws.
STATUS OF INDEPENDENT OPERATORS
The Company's ability to benefit from conversions of salaried chauffeurs to
independent operators will depend, in part, on the Company's continued ability
to classify independent operators as third party contractors rather than as
employees. The Company does not pay or withhold any federal or state
employment tax with respect to or on behalf of independent operators. The
Internal Revenue Service (the "IRS") previously challenged the Company's
independent operator policy at its owned and operated business in
Philadelphia, but in March 1997 agreed to settle the challenge without an
adjudication of a violation of IRS regulations. Also in March 1997, the IRS
approved guidelines that chauffeured vehicle service providers such as the
Company can follow in order to treat independent operators as third party
contractors rather than as employees. These guidelines distinguish a third
party contractor from an employee using several factors based upon whether or
not the individual, among other things, (i) invests cash in the venture, (ii)
has the potential to realize a profit or loss, (iii) can make his or her
service available to the public and (iv) is required to comply with company
policies regarding how and when to provide services. The Company believes that
its practices substantially conform to these guidelines, and that, as a
result, its independent operators will be treated as third party contractors.
If, however, the Company's practices are determined not to conform with the
guidelines, or if it is adjudicated that the Company is required to treat
independent operators as employees, the Company could become responsible for
certain past and future employment taxes. There can be no assurance that, in
the event of such an adverse adjudication, there will not be a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Independent Operators."
INDEPENDENT OPERATOR FINANCING
An important component of the Company's business strategy for its owned and
operated companies involves the preferred use of independent operators instead
of salaried chauffeurs operating Company-owned vehicles. A chauffeur becomes
an independent operator by signing an agreement to pay a fee to the Company
ranging from $45,000 to $60,000. The payment of independent operator fees
historically has been financed by the Company, financing companies or banks.
Prior to September 1996, the Company usually sold to third parties the
independent operator notes initially financed by it. Since September 1996, the
Company has ceased selling such notes to third parties. Because the Company
now bears most of the risk relating to payment of these notes, significant
defaults in their payment could have a material adverse effect on the
Company's business, financial condition and results of operations. Each new
independent operator is required to own or obtain his or her vehicle. The cost
of a new vehicle ranges from $35,000 to $65,000, depending upon whether it is
a sedan or a limousine and the features included in the vehicle. The Company
generally does not finance vehicle purchases by its independent operators. As
a result, the ability of independent operators to obtain their own vehicles, a
requirement for conversions from salaried chauffeurs to independent operators,
will depend upon the availability of third party vehicle financing for
independent operators. The inability of independent operators to obtain
vehicle financing will adversely affect the Company's ability to utilize
independent operators, and would have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that such financing will be available if and when needed or on
terms acceptable to potential independent operators. See "Business--
Independent Operators."
POTENTIAL ADVERSE EFFECT OF LITIGATION
The Company, certain of its subsidiaries and certain of its officers and
directors currently are named as defendants in a complaint, purporting to be a
class action, alleging that the plaintiff and others similarly situated
9
<PAGE>
suffered monetary damages as a result of misrepresentations by the defendants
in their use of a surface transportation billing charge. While the Company
denies all claims made against it, it has reached a tentative settlement with
the plaintiff and plaintiff's counsel. The settlement is subject to court
approval and acceptance by the proposed class. There can be no assurance that
the proposed class will agree to, or that the court will approve, the
settlement. Moreover, there can be no assurance that claims under the terms of
this or any other settlement entered into by the Company will not adversely
affect the Company's business, financial condition and results of operations.
Defense of lawsuits against the Company generally can be expensive and time-
consuming, regardless of the outcome, and an adverse result in a lawsuit could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Legal Proceedings."
FACTORS AFFECTING TRAVEL
The Company is subject to risks generally affecting levels of business
travel, including economic cycles, political changes, terrorist threats or
acts and technological advances. The Company cannot predict the likelihood of
occurrence of any such events. If the occurrence of any such event
significantly reduces domestic or international travel, there could be a
material adverse effect on the Company's business, financial condition and
results of operations.
INSURANCE COVERAGE AND CLAIMS
The Company is exposed to claims for personal injury or death and property
damage as a result of automobile accidents involving chauffeured vehicles
operated by its employees and independent operators and by its licensees and
their drivers. The Company maintains, and the Company's independent operators
are required to maintain, levels of insurance which the Company believes to be
adequate. The Company's licensees are required to maintain adequate levels of
insurance and are required to name the Company as an additional insured on
their insurance policies. There can be no assurance, however, that the limits
and the scope of any such insurance coverage will be adequate. The cost of
maintaining personal injury, property damage and workers' compensation
insurance is significant. The Company and its independent operators and
licensees could experience higher insurance premiums as a result of adverse
claims experiences, general increases in premiums by insurance carriers or
both. Significant increases in such premiums could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Independent Operators" and "Business--Insurance."
DEPENDENCE ON KEY PERSONNEL
While the Company has numerous senior managers with many years of experience
in the chauffeured vehicle service industry, the Company's success is
dependent on the efforts, abilities and leadership of its executive officers,
particularly, Vincent A. Wolfington, the Company's Chairman and Chief
Executive Officer, and Don R. Dailey, the Company's President. The Company
currently does not have employment agreements with any of its executive
officers. The loss of the services of one or more of such officers could have
a material adverse effect on the Company's business, financial condition and
results of operations.
COMPETITION
The chauffeured vehicle service industry is highly competitive and
fragmented with few significant national participants operating multi-city
reservation systems. Each local market usually contains numerous local
participants as well as a few companies offering regional and national
service. Chauffeured vehicle service companies compete primarily on the basis
of price, quality, scope of service and dependability. The Company also
competes with service providers offering alternative modes of transportation,
such as buses, jitney services, taxis, radio cars and rental cars. The Company
competes both for customers and for possible acquisitions. The Company expects
its business to become more competitive as existing competitors expand and
additional companies enter the market. Certain of the Company's existing
competitors have, and any new competitors that enter the industry may have,
access to significantly greater financial resources than the Company.
Competitive market conditions could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Business--Competition."
10
<PAGE>
POSSIBLE FUTURE SALES OF SHARES
Sales of substantial amounts of Common Stock in the public market after this
offering under Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), or otherwise, or the perception that such sales could
occur, may adversely affect prevailing market prices of the Common Stock and
could impair the future ability of the Company to raise capital through an
offering of its equity securities or to use such securities as consideration
in acquisitions. Upon the completion of this offering, the holders of the
Company's securities who did not purchase Common Stock in this offering will
beneficially own 4,634,240 shares of Common Stock, including (i) an aggregate
of 1,145,228 shares issuable upon the exercise of outstanding options and
warrants and (ii) an aggregate of 218,181 shares issued in connection with the
acquisition of Manhattan Limousine (assuming an initial public offering price
of $11.00 per share), all of which will be "restricted securities" within the
meaning of the Securities Act. Subject to the contractual lockup provisions
discussed below and unless the resale of the shares, or the sale of shares (in
the case of employee benefit plan shares), is registered under the Securities
Act, these restricted shares may not be sold in the open market unless in
compliance with the applicable requirements of Rule 144. The Company and the
beneficial owners of at least 4,000,000 of such shares have agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock, for a period of 180 days after the date of this Prospectus
without the prior written consent of Montgomery Securities, except for (i) in
the case of the Company, Common Stock issued pursuant to any employee benefit
plans described herein or in connection with acquisitions and (ii) in the case
of the Company's directors and executive officers, the exercise of stock
options pursuant to benefit plans described herein and shares of Common Stock
disposed of as bona fide gifts, subject, in each case, to any remaining
portion of the 180-day period applying to any shares so issued or transferred.
In connection with future acquisitions, the Company may issue shares of Common
Stock which, if the Company also files a registration statement under the
Securities Act with respect to such shares, may be subject to immediate
resale, subject to any remaining portion of the 180-day period applying to any
shares so issued. See "Shares Eligible for Future Sale" and "Underwriting."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation,
By-laws and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company and
limit the price that certain investors might be willing to pay in the future
for shares of the Common Stock. Those provisions, among other things, provide
for a classified Board of Directors, allow the Board of Directors to issue,
without further stockholder approval, up to 1,000,000 shares of preferred
stock with rights and privileges that could be senior to the Common Stock,
prohibit the stockholders from calling special meetings of stockholders,
restrict the ability of stockholders to nominate directors and submit
proposals to be considered at stockholders' meetings, impose a supermajority
voting requirement in connection with stockholders' amendments to the By-laws
and prohibit stockholders after this offering from acting by written consent
in lieu of a meeting. The Company also is subject to Section 203 of the
Delaware General Corporation Laws (the "DGCL") which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date on which such stockholder became an
interested stockholder. See "Description of Capital Stock."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or continue after this offering. The initial public
offering price was determined by negotiations between the Company and the
Representatives of the Underwriters, and may not be indicative of the market
price for the Common Stock after this offering. See "Underwriting" for factors
considered in determining the initial public offering price. From time to time
after this offering, there may be significant volatility in the market price
for the Common Stock. Quarterly operating results of the Company, changes in
general conditions in the economy or the chauffeured vehicle service industry,
or other developments affecting the Company, its licensees and affiliates or
the Company's competitors
11
<PAGE>
could cause the market price of the Common Stock to fluctuate substantially.
The equity markets have, on occasion, experienced significant price and volume
fluctuations that have affected the market prices for many companies'
securities and have been unrelated to the operating performance of those
companies. Any such fluctuations that occur following completion of this
offering may adversely affect the prevailing market price of the Common Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of Common Stock in the amount of $10.92 per share. See "Dilution."
12
<PAGE>
ACQUISITION OF MANHATTAN LIMOUSINE
Simultaneously with the completion of this offering, the Company will
acquire Manhattan International Limousine Network Ltd. and an affiliated
company ("Manhattan Limousine") for aggregate consideration of $14.2 million,
composed of (i) $7.1 million in cash, (ii) $4.7 million in promissory notes
bearing interest at the rate of 8.0% per annum and payable one year from the
date of the acquisition, and (iii) 218,181 shares of Common Stock (assuming an
initial public offering price of $11.00 per share). In addition, the Company
will assume approximately $3.7 million of outstanding indebtedness of
Manhattan Limousine. If the acquisition of Manhattan Limousine is not
completed by May 20, 1997, the Company has agreed to pay additional purchase
price in the amount of $7,500 for each day after such date until the closing
of the acquisition, up to an aggregate of $675,000. Pursuant to the terms of
the acquisition, Manhattan Limousine will distribute to its stockholders prior
to the closing approximately $3.8 million in assets and $2.3 million in
liabilities. See Note 3 to "Pro Forma Consolidated Financial Statements."
Manhattan Limousine is one of the largest chauffeured vehicle service
companies in the New York metropolitan area, with revenues in its fiscal year
ended September 30, 1996 totalling approximately $18.4 million. Manhattan
Limousine also operates the Manhattan International Limousine Network of more
than 300 worldwide affiliates, a significant majority of which are located in
cities in which the Company already has affiliates. In some cities the Company
and Manhattan Limousine share common affiliates. Approximately 89.2% of
Manhattan Limousine's fiscal 1996 revenues was generated by Manhattan
Limousine's New York metropolitan operations, and approximately 10.8% was
generated by its affiliates outside the New York metropolitan area. See the
Manhattan Limousine Consolidated Financial Statements and related notes
thereto.
Manhattan Limousine's independent operators are responsible for a fleet
consisting of approximately 125 sedans and limousines. Manhattan Limousine
derives revenues from contracts with major airlines, including Virgin Atlantic
Airways and Aer Lingus, and with many of the premier hotels in New York City,
including the Plaza Hotel and the Mark Hotel, as well as from other corporate
and individual customers. Typically these contracts are terminable by the
airline or hotel upon 30 days' notice. In its fiscal year ended September 30,
1996, approximately 18.0% of Manhattan Limousine's revenues were derived from
services performed for Virgin Atlantic Airways, Manhattan Limousine's largest
customer.
RECAPITALIZATION
At or prior to the closing of this offering, the Company shall effect the
following transactions (collectively, the "Recapitalization"): (i) a one-for-
2.3255 reverse split of outstanding Common Stock; (ii) the conversion of all
of the 42,070 outstanding shares of the Company's Series A Preferred Stock
into the right to receive an aggregate of $2,103,500 and 86,003 shares of
Common Stock; (iii) the redemption of all 10,000 shares of the Company's
Series F Preferred Stock and 3,000 shares of the Company's Series G Preferred
Stock for an aggregate price of $1,000,000; (iv) the conversion of 9,580
shares of the Company's Series B Preferred Stock, 46,890 shares of the
Company's Series G Preferred Stock and the Company's Subordinated Convertible
Promissory Note dated September 1, 1991 in the principal amount of $2,000,000
into an aggregate of 1,857,524 shares of Common Stock; (v) the exercise of a
warrant to purchase 616,544 shares of Common Stock by the application of
$2,867,546 due the warrant holder under a subordinated promissory note, and
the repayment by the Company of the remaining outstanding principal balance of
$912,454 under such note; and (vi) the amendment of the Company's Certificate
of Incorporation to, among other things, (a) eliminate all previously-
designated series of Preferred Stock and the designation of Class A Common
Stock, and (b) increase the authorized number of shares of Common Stock from
9,512,950 to 20,000,000.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,900,000 shares of
Common Stock offered by it (assuming an initial public offering price of
$11.00 per share and after deducting estimated underwriting discounts and
commissions and offering expenses that have not yet been paid) are estimated
to be approximately $28.4 million (approximately $32.8 million if the
Underwriters' over-allotment option is exercised in full).
The Company will use approximately $8.3 million of the net proceeds to repay
principal with respect to certain indebtedness which was incurred to finance
certain of the Company's acquisitions and for working capital purposes. Such
indebtedness bears interest at rates ranging from 7.7% to 12.0%, has a
weighted average interest rate of 9.6% and matures at various dates through
March 1, 2001. Such indebtedness includes approximately $1.1 million in
principal to be repaid to Yerac Associates, L.P. ("Yerac") and approximately
$912,000 to be paid to PNC Capital Corp. ("PNC"). Vincent A. Wolfington, the
Company's Chairman of the Board and Chief Executive Officer, and Don R.
Dailey, President and a director of the Company, have personally guaranteed
$3.7 million of the Company's indebtedness which will be repaid from the net
proceeds of this offering. These personal guarantees will be terminated upon
the repayment of the underlying indebtedness. See "Certain Transactions."
The Company currently intends to use approximately $7.1 million of the net
proceeds of this offering to pay the cash portion of the purchase price for
the acquisition of Manhattan Limousine. The Company also will utilize
approximately $3.5 million of the net proceeds to repay certain indebtedness
assumed upon the acquisition of Manhattan Limousine.
Approximately $3.1 million of the net proceeds will be used by the Company
to redeem all outstanding shares of its Series A and Series F Preferred Stock
and certain shares of its Series G Preferred Stock in connection with the
Recapitalization. Of this amount, $1.1 million will be paid to entities
affiliated with Hambrecht & Quist Group in connection with the redemption of
22,000 shares of Series A Preferred Stock held by those entities, $1.0 million
will be paid to IBJS Capital Corporation in connection with the redemption of
its 10,000 shares of Series F and 3,000 shares of Series G Preferred Stock,
and $20,250 and $13,650, respectively, will be paid to each of Messrs.
Wolfington and Dailey in connection with the redemption of 405 shares and 273
shares of Series A Preferred Stock, respectively, beneficially owned by each
of them. See "Recapitalization" and "Certain Transactions."
The balance of the net proceeds from this offering, approximately $6.4
million, will be used for acquisitions and other general corporate purposes,
including working capital. Except for the acquisition of Manhattan Limousine,
the Company currently has no existing commitment or agreement with respect to
any acquisition. The Company regularly reviews potential acquisition
candidates and has held preliminary discussions with a number of such
candidates.
Pending such uses, the Company intends to invest the net proceeds in short-
term, investment grade securities.
14
<PAGE>
DILUTION
The deficit in the pro forma net tangible book value of the Company as of
February 28, 1997, after giving effect to the issuance of shares of Common
Stock as part of the Recapitalization, was approximately $7.4 million, or
$(2.32) per share. The deficit in net tangible book value is determined by
subtracting franchise rights, goodwill and all other intangible assets from
total stockholders' equity. After giving effect to (i) the sale by the Company
of 2,900,000 shares of Common Stock in this offering at an assumed initial
public offering price of $11.00 per share after deducting estimated
underwriting discounts and commissions and offering expenses, (ii) the
acquisition of Manhattan Limousine and (iii) the conversion of a convertible
note into 43,001 shares of Common Stock, the pro forma net tangible book value
at February 28, 1997 would have been approximately $541,000, or $.08 per
share. This offering represents an immediate increase in net tangible book
value of $2.40 per share to the existing stockholders, and an immediate
dilution in net tangible book value per share of $10.92 to new investors in
this offering.
The following table illustrates the dilution on a per share basis, assuming
no exercise by the Underwriters of their over-allotment option:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $11.00
Deficit in pro forma net tangible book value before
offering................................................. $(2.32)
Increase in pro forma net tangible book value attributable
to sale of shares to new investors....................... 2.40
------
Pro forma net tangible book value after offering............ .08
------
Dilution to new investors................................... $10.92
======
</TABLE>
The following table sets forth, on a pro forma basis as of February 28,
1997, the number of shares of Common Stock acquired from the Company, the
total consideration paid and the average price per share paid by (i) the
Company's debt holders and preferred stockholders who are acquiring shares of
Common Stock in the Recapitalization and (ii) new investors for (a) the
2,900,000 shares of Common Stock offered hereby and (b) the 218,181 shares of
Common Stock that constitute a portion of the consideration for the
acquisition of Manhattan Limousine (see "Acquisition of Manhattan Limousine"):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Debt holders and preferred
stockholders............. 2,560,071 45.1% $10,082,710 22.7% $ 3.94
New investors............. 3,118,181 54.9 34,299,991 77.3 $11.00
--------- ----- ----------- -----
Total................... 5,678,252 100.0% $44,382,701 100.0%
========= ===== =========== =====
</TABLE>
15
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company (i) as of February 28, 1997 and (ii) on a pro forma basis to give
effect to (a) the Recapitalization, see "Recapitalization," (b) the issuance
and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed
offering price of $11.00 per share, after deducting estimated underwriting
discounts and commissions and offering expenses) and the application of the
net proceeds therefrom as described under "Use of Proceeds," (c) the
acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine,"
and (d) the conversion of a convertible note into 43,001 shares of Common
Stock. This table should be read in conjunction with the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
------------------
ACTUAL PRO FORMA
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term
obligations............................................. $ 4,837 $ 5,699
======= =======
Long-term obligations, net of current maturities......... $11,327 $ 1,719
Stockholders' equity:
Preferred Stock (1)..................................... 1,115 --
Common Stock, $.01 par value; 9,512,950 shares
authorized, 655,773 shares issued and outstanding;
20,000,000 shares authorized, 6,377,026 shares issued
and outstanding on a pro forma basis (2)............... 7 64
Paid-in-capital......................................... 7,357 41,046
Accumulated deficit..................................... (1,635) (1,734)
------- -------
Total stockholders' equity.............................. 6,844 39,376
------- -------
Total capitalization................................. $18,171 $41,095
======= =======
</TABLE>
- --------
(1) See Notes 10 and 18 to the Company's Consolidated Financial Statements.
(2) Excludes Class A Common Stock, $.01 par value, none of which is issued and
outstanding. The Class A Common Stock will be eliminated as a result of
the Recapitalization.
DIVIDEND POLICY
Following this offering, the Company intends to retain all earnings to
finance the growth and development of its business and does not anticipate
paying cash dividends on the Common Stock in the foreseeable future. Any
future determination as to the payment of dividends on the Common Stock will
depend upon the Company's future earnings, results of operations, capital
requirements and financial condition and any other factor the Board of
Directors of the Company may consider. The Company's agreements with its
principal lenders prohibit dividend payments.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected actual consolidated financial data as of November 30, 1992,
1993, 1994, 1995 and 1996 and for each of the five years in the period ended
November 30, 1996 have been derived from the consolidated financial statements
of the Company audited by Coopers & Lybrand L.L.P., independent accountants.
The selected actual consolidated financial data as of and for the three months
ended February 29, 1996 and February 28, 1997 have been derived from the
unaudited consolidated financial statements of the Company. In the opinion of
management, the unaudited consolidated financial statements reflect all
adjustments, consisting only of normal, recurring adjustments, necessary to
present fairly the consolidated financial position and the consolidated
results of operations of the Company. The consolidated results of operations
for the three-month period ended February 28, 1997 are not necessarily
indicative of the consolidated results of operations to be expected for the
year ended November 30, 1997.
The selected actual and pro forma consolidated financial data of the Company
should be read in conjunction with the Company's Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, THREE MONTHS ENDED
------------------------------------------------------------- ---------------------------------------
1992 1993 1994 1995 1996 FEB. 29, 1996 FEB. 28, 1997
------- ------- ------- ------- ------------------------- ------------- -------------------------
ACTUAL PRO FORMA(1) ACTUAL ACTUAL PRO FORMA(2)
--------- ------------ ------------- --------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA:
Revenue, net...... $27,669 $30,319 $35,525 $43,484 $59,505 $78,883 $11,558 $14,141 $19,613
Cost of revenue... 20,199 22,751 24,954 29,943 40,438 52,344 7,904 9,756 13,149
------- ------- ------- ------- --------- --------- ------- --------- ---------
Gross profit...... 7,470 7,568 10,571 13,541 19,067 26,539 3,654 4,385 6,464
Selling, general
and
administrative
expense.......... 5,939 8,174 9,487 12,419 15,078 21,192 3,361 3,819 5,504
------- ------- ------- ------- --------- --------- ------- --------- ---------
Operating income
(loss)........... 1,531 (606) 1,084 1,122 3,989 5,347 293 566 960
Interest income
(expense) and
other income
(expense)........ (819) (1,308) (1,194) (1,292) (1,277) (253) (340) (245) 23
------- ------- ------- ------- --------- --------- ------- --------- ---------
Income (loss)
before provision
(benefit) for
income taxes..... 712 (1,914) (110) (170) 2,712 5,094 (47) 321 983
Provision
(benefit) for
income taxes..... 53 10 19 25 (104) 2,155 11 154 413
------- ------- ------- ------- --------- --------- ------- --------- ---------
Net income
(loss)........... $ 659 $(1,924) $ (129) $ (195) $ 2,816 $ 2,939 $ (58) $ 167 $ 570
======= ======= ======= ======= ========= ========= ======= ========= =========
Pro forma net in-
come per share... $0.89(3) $0.49 $0.07(3) $0.10
========= ========= ========= =========
Weighted average
shares
outstanding...... 3,510,020(3) 6,023,785 3,518,083(3) 5,971,960
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28, 1997
----------------------------------------- ---------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(4)
------- ------- ------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital (defi-
cit).................. $ 1,740 $ 1,484 $ 1,298 $ (1,407) $(1,732) $(1,029) $ 81
Total assets........... 28,855 27,941 27,109 35,897 42,526 39,378 73,703
Long-term debt, less
current maturities.... 10,293 12,083 11,090 13,217 11,192 11,327 1,719
Deferred revenue(5).... 3,270 4,300 4,485 4,726 6,181 6,629 13,500
Total stockholders' eq-
uity.................. $ 5,843 $ 4,388 $ 4,165 $ 3,912 $ 6,672 $ 6,844 $39,376
</TABLE>
- -------
(1) Gives effect to the following events as if they had occurred on December
1, 1995: (i) the acquisition of Camelot Barthropp Ltd., completed February
1996, including the interest cost relating to indebtedness incurred in
connection with such acquisition, (ii) the acquisition of Manhattan
Limousine (using statement of operations data for Manhattan Limousine's
fiscal year ended September 30, 1996) and the amortization of associated
goodwill, (iii) the conversion of certain preferred stock and subordinated
debt into Common Stock, see "Recapitalization", (iv) the issuance of
shares of Common Stock to (a) repay certain existing debt of the Company,
(b) pay the cash portion of the purchase price for Manhattan Limousine,
(c) repay certain debt assumed in connection with the acquisition of
Manhattan Limousine, (d) redeem certain preferred stock of the Company and
(e) pay the stock portion of the purchase price in connection with the
acquisition of Manhattan Limousine, (v) the elimination of interest
expense associated with debt repaid from the proceeds of this offering and
(vi) other adjustments as described under "Pro Forma Consolidated
Financial Statements" and the notes thereto.
(2) Gives effect to the events set forth in clauses (ii) through (vi) of note
(1) above as if they had occurred on December 1, 1995, except that, with
respect to clause (ii), the statement of operations data is for Manhattan
Limousine's three months ended December 31, 1996.
(3) Gives effect to the conversion of certain preferred stock and subordinated
debt into Common Stock and the elimination of associated interest expense
on the subordinated debt as a result of the Recapitalization. See Notes 2
and 18 to the Company's Consolidated Financial Statements.
(4) Reflects (i) the Recapitalization, see "Recapitalization," (ii) the
acquisition of Manhattan Limousine, see "Acquisition of Manhattan
Limousine," and (iii) the issuance and sale of the 2,900,000 shares of
Common Stock offered hereby (at an assumed offering price of $11.00 per
share less estimated underwriting discounts and commissions and offering
expenses) and the application of the net proceeds therefrom as described
under "Use of Proceeds."
(5) Represents the balance of the fees deferred in connection with independent
operator agreements less amounts previously recognized. Such fees are
recognized ratably over the terms of the agreements, which typically range
from 10 to 20 years. See the Notes to the Company's Consolidated Financial
Statements.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related notes thereto and "Selected Consolidated
Financial Data" appearing elsewhere in this Prospectus. Unless otherwise
indicated or the context otherwise requires, each reference to a year is to
the Company's fiscal year which ends on November 30 of such year.
OVERVIEW
The Company generates revenues primarily from chauffeured vehicle services
provided by (i) Carey's owned and operated businesses and (ii) Carey's
licensees and affiliates when services provided by such licensees and
affiliates are billed through the Company's central reservation and billing
system. In 1995 and 1996, approximately 74.7% and 73.6%, respectively, of the
Company's revenue, net was generated by chauffeured vehicle services provided
by the Company's owned and operated businesses, approximately 16.3% and 15.6%,
respectively, was generated by chauffeured vehicle services provided by the
Company's licensees and billed by the Company, and approximately 2.5% and
2.0%, respectively, was generated by chauffeured vehicle services provided by
the Company's affiliates and billed by the Company. Carey also generates
revenues from its licensees through fees (both initial and monthly) related to
(i) licensing the use of its name and service mark, (ii) its central
reservation and billing services and (iii) its marketing activities. In 1995
and 1996, approximately 2.7% and 3.2%, respectively, of the Company's revenue,
net was generated from its licensees through such fees. To a lesser extent,
the Company derives revenues from the payment of fees by independent
operators. The Company recognizes revenues from these fees ratably over the
terms of the independent operators' agreements with the Company, which
typically range from 10 to 20 years. As of February 28, 1997, the Company had
$6.6 million of deferred revenue on its balance sheet ($13.5 million on a pro
forma basis reflecting the acquisition of Manhattan Limousine).
Cost of revenue primarily consists of amounts due to the Company's
independent operators. The amount due to independent operators is a percentage
(ranging from 60% to 65%) of the charges for services provided, net of
discounts and commissions. Cost of revenue also includes amounts due to the
Company's licensees and affiliates for chauffeured vehicle services provided
by them and billed by the Company. Such amounts generally include the charges
for services provided less a referral fee ranging from 15% to 25% of net
vehicle service revenue. Cost of revenue also includes salaries and benefits
paid to chauffeurs employed by the Company. To a lesser extent, cost of
revenue includes costs associated with owning and maintaining the vehicles
owned by the Company, telecommunications expenses, salaries and benefits for
reservationists, marketing expenses for the benefit of licensees, and
commissions due to travel agents and credit card companies.
Selling, general and administrative expenses consist primarily of
compensation and related benefits for the Company's officers and
administrative personnel, marketing and promotional expenses for the Company's
owned and operated chauffeured vehicle service companies, and professional
fees, as well as amortization costs related to the intangibles recorded as a
result of the Company's acquisitions.
In addition to internal growth from the Company's sales and marketing
efforts, an important component in the Company's growth to date has been the
acquisition of its licensees and other chauffeured vehicle service companies.
Since December 1994, Carey has acquired eight chauffeured vehicle service
companies. Each of these acquisitions was made for cash and the issuance or
assumption of notes and was accounted for using the purchase method of
accounting. A substantial majority of the purchase price paid by the Company
in each such acquisition represented goodwill, franchise rights (if a licensee
was acquired) and/or other intangibles. Such franchise rights and goodwill are
amortized over 30 years on a straight-line basis and amounted to $12.5 million
(net of accumulated amortization) as of February 28, 1997. As a result of the
acquisition of Manhattan Limousine, the Company will recognize an additional
$19.7 million of goodwill.
18
<PAGE>
The results of operations for the acquired companies have been included in
the Company's consolidated financial statements from their respective dates of
acquisition. Carey expects to benefit from its acquisitions by consolidating
general and administrative functions, increasing operating efficiencies, and,
as a result of converting salaried chauffeurs to independent operators,
eliminating the overhead and capital costs associated with employing salaried
chauffeurs, leasing garages, maintaining parts and fuel inventories, and
owning and operating vehicles. The Company generally realizes these benefits
within six to twelve months after an acquisition, depending upon whether the
acquisition is of a chauffeured vehicle service company in a location in which
the Company already operates, or of a licensee in a market where Carey has yet
to establish operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data for the Company expressed as a percentage of revenue, net. With respect
to the pro forma data, see "Pro Forma Consolidated Financial Statements" and
the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, THREE MONTHS ENDED
------------------------------------- -----------------------------
1994 1995 1996 FEB. 29, 1996 FEB. 28, 1997
------- ------- ----------------- ------------- ---------------
PRO PRO
ACTUAL FORMA ACTUAL ACTUAL FORMA
-------- ------- ------------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 70.2 68.9 68.0 66.3 68.4 69.0 67.0
------- ------- ------- ------- ----- ------ ------
Gross profit............ 29.8 31.1 32.0 33.7 31.6 31.0 33.0
Selling, general and
administrative
expense................ 26.7 28.6 25.3 26.9 29.1 27.0 28.1
------- ------- ------- ------- ----- ------ ------
Operating income........ 3.1 2.5 6.7 6.8 2.5 4.0 4.9
Interest expense and
other income
(expense).............. (3.4) (3.0) (2.1) (0.3) 2.9 (1.7) 0.1
------- ------- ------- ------- ----- ------ ------
Income (loss) before
provision (benefit) for
income taxes........... (0.3) (0.5) 4.6 6.5 (0.4) 2.3 5.0
Provision (benefit) for
income taxes........... 0.1 -- (0.2) 2.8 0.1 1.1 2.1
------- ------- ------- ------- ----- ------ ------
Net income (loss)....... (0.4)% (0.5)% 4.8% 3.7% (0.5)% 1.2% 2.9%
======= ======= ======= ======= ===== ====== ======
</TABLE>
THREE MONTHS ENDED FEBRUARY 28, 1997 (THE "1997 PERIOD") COMPARED TO THREE
MONTHS ENDED FEBRUARY 29, 1996 (THE "1996 PERIOD")
Revenue, Net. Revenue, net increased approximately $2.5 million or 22.4%
from $11.6 million in the 1996 Period to $14.1 million in the 1997 Period. Of
the increase, approximately $1.6 million was contributed by existing
operations as a result of expanded use of the Carey network, including an
increase in business from corporate travel customers and business travel
arrangers, and approximately $930,000 was due to revenues of the Company's
operations in London which were not included in the 1996 Period.
Cost of Revenue. Cost of revenue increased approximately $1.9 million or
23.4% from $7.9 million in the 1996 Period to $9.8 million in the 1997 Period.
The increase was primarily attributable to higher costs due to increased
business levels. Cost of revenue increased as a percentage of revenue, net
from 68.4% in the 1996 Period to 69.0% in the 1997 Period primarily as a
result of seasonally higher operating costs as a percentage of revenues in the
Company's London operations for the 1997 Period.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased approximately $459,000 or 13.6% from $3.4
million in the 1996 Period to $3.8 million in the 1997 Period. The increase
was largely due to the costs of additional personnel, increased marketing
expenses and increased
19
<PAGE>
administrative expenses as a result of the Company's acquisition in London in
February 1996. Selling, general and administrative expense decreased as a
percentage of revenue, net from 29.1% in the 1996 Period to 27.0% in the 1997
Period as a result of an increase in revenue, net without a corresponding
increase in administrative costs.
Interest Expense. Interest expense was approximately $422,000 in the 1996
Period and approximately $392,000 in the 1997 Period. Interest expense
decreased as a percentage of revenue, net from 3.7% in the 1996 Period to 2.8%
in the 1997 Period.
Provision For Income Taxes. The provision for income taxes increased
approximately $142,000 from approximately $12,000 in the 1996 Period to
approximately $153,000 in the 1997 Period. The increase primarily related to
the increase in pre-tax income of the Company from a pre-tax loss of
approximately $46,000 in the 1996 Period to pre-tax income of approximately
$321,000 in the 1997 Period.
Net Income (Loss). As a result of the foregoing, the Company had net income
of approximately $167,000 in the 1997 Period compared to a net loss of
approximately $58,000 in the 1996 Period.
YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995
Revenue, Net. Revenue, net increased approximately $16.0 million or 36.8%
from $43.5 million in 1995 to $59.5 million in 1996. Of the increase,
approximately $9.6 million was contributed by existing operations as a result
of expanded use of the Carey network, including an increase in business from
corporate travel customers and business travel arrangers, and approximately
$6.4 million was due to revenues of companies which were acquired from
December 1994 through February 1996.
Cost of Revenue. Cost of revenue increased approximately $10.5 million or
35.1% from $29.9 million in 1995 to $40.4 million in 1996. The increase was
primarily attributable to higher costs due to increased business levels. Cost
of revenue decreased as a percentage of revenue, net from 68.9% in 1995 to
68.0% in 1996 as a result of spreading the fixed costs of the Company's
reservations infrastructure over a larger revenue base.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased approximately $2.7 million or 21.4% from
$12.4 million in 1995 to $15.1 million in 1996. The increase was largely due
to higher administrative costs associated with additional personnel, increased
marketing and promotional expenses, and higher amortization of intangibles as
a result of acquisitions. Selling, general and administrative expenses
decreased as a percentage of revenue, net from 28.6% in 1995 to 25.3% in 1996
as a result of an increase in revenue without a corresponding increase in
administrative costs.
Interest Expense. Interest expense was $1.7 million in each of 1995 and
1996. Interest expense decreased as a percentage of revenue, net from 3.0% in
1995 to 2.1% in 1996.
Provision (Benefit) for Income Taxes. The provision for income taxes was
nominal in 1995. In 1996, the Company had a tax benefit of $104,000. Prior to
1996, the Company recorded a valuation allowance against its net deferred tax
assets. This allowance was reversed in 1996 in accordance with generally
accepted accounting principles. The reversal reduced the provision for income
taxes in 1996 by approximately $1.5 million. The increase in the provision
recordable in 1996, which was offset by the effect of reducing the valuation
allowance against deferred tax assets, was attributable to the Company's
increased pretax profit level in 1996 which exceeded the beneficial tax effect
of net operating loss carryforwards of prior years. The Company has utilized
the full amount of its net operating loss carryforwards.
Net Income (Loss). As a result of the foregoing, the Company had net income
of $2.8 million in 1996 compared to a net loss of approximately $195,000 in
1995.
20
<PAGE>
YEAR ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED NOVEMBER 30, 1994
Revenue, Net. Revenue, net increased approximately $8.0 million or 22.4%
from $35.5 million in 1994 to $43.5 million in 1995. Of the increase,
approximately $4.7 million was due to revenues of companies acquired from
December 1994 through August 1995, as well as the full year effect in 1995 of
companies acquired in 1994. Approximately $3.3 million of the increase was
contributed by existing operations as a result of an increase in business from
corporate travel customers, business travel arrangers, special event business,
and the implementation in mid-1995 of charges to licensees for central
reservation and billing services.
Cost of Revenue. Cost of revenue increased approximately $4.9 million or
20.0% from $25.0 million in 1994 to $29.9 million in 1995. The increase was
primarily attributable to higher operating costs due to increased business
levels and to operating costs related to acquired companies. Cost of revenue
decreased as a percentage of revenue, net from 70.2% in 1994 to 68.9% in 1995
as a result of increased utilization of the Company's operating resources and
the implementation, in mid-1995, of charges to licensees for central
reservation and billing services which did not result in a corresponding
increase in cost.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased approximately $2.9 million or 30.9% from
$9.5 million in 1994 to $12.4 million in 1995. This increase was largely due
to higher costs associated with additional personnel, increased marketing and
promotional expense, and the increase in the amortization of intangibles
recorded as a result of acquisitions. Selling, general and administrative
expenses increased as a percentage of revenue, net from 26.7% in 1994 to 28.6%
in 1995 as a result of relatively higher levels of administrative costs in
existing operations and additional expenses related to companies acquired late
in 1995 whose operations were not consolidated with the Company's operations
until 1996.
Interest Expense. Interest expense increased approximately $334,000 or 24.8%
from approximately $1.4 million in 1994 to $1.7 million in 1995. This increase
was due to net increases in debt in 1995 to fund acquisitions. Interest
expense as a percentage of revenue, net increased slightly from 3.8% in 1994
to 3.9% in 1995.
Provision for Income Taxes. The provision for income taxes was nominal in
1994 and in 1995.
Net Loss. As a result of the foregoing, the Company had a net loss of
approximately $195,000 in 1995 compared to a net loss of approximately
$129,000 in 1994.
21
<PAGE>
QUARTERLY RESULTS
The following table presents unaudited quarterly financial information for
1995, 1996 and the first quarter of 1997. This information has been prepared
by the Company on a basis consistent with the Company's audited financial
statements and includes all adjustments (consisting only of normal recurring
adjustments) which management considers necessary for a fair presentation of
the results for such quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
1995 1996 1997
----------------------------------- ---------------------------------- -------
FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB.
28 31 31 30 29 31 31 30 28
------ ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ $8,333 $10,320 $10,235 $14,596 $11,558 $15,043 $14,575 $18,330 $14,141
Gross profit............ 2,647 3,113 2,980 4,800 3,654 4,835 4,737 5,841 4,385
Operating income
(loss)................. (101) 235 (216) 1,204 293 1,037 987 1,673 566
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
1995 1996 1997
----------------------------------- ---------------------------------- -------
FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB.
28 31 31 30 29 31 31 30 28
------ ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 31.8 30.2 29.1 32.9 31.6 32.1 32.5 31.9 31.0
Operating income
(loss)................. (1.3)% 2.2% (2.1)% 8.2% 2.5% 6.8% 6.7% 9.1% 4.0%
</TABLE>
The Company believes that its future operating results may continue to be
subject to quarterly variations caused by such factors as seasonal business
travel, variable scheduling of special events and the timing of acquisitions
by the Company. The Company's least profitable quarter generally has been the
first quarter (ending February 28 or 29), and its most profitable quarter
generally has been the fourth quarter (ending November 30).
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funding have been cash flow from
operations, proceeds from the bulk sale of independent operator notes,
commercial bank credit facilities, notes issued by the Company to sellers of
acquired chauffeured vehicle service companies and, to a lesser extent, the
sale of vehicles obtained from acquired companies. For the period from
December 1, 1993 through February 28, 1997, the Company generated $7.6 million
in cash from operating activities, had aggregate borrowings to fund
acquisitions of $6.5 million and had proceeds from bulk sales of notes from
independent operators of approximately $2.6 million. The Company anticipates
that in addition to the net proceeds from this offering, cash flow from
operations and borrowings under credit facilities will be its principal
sources of funding. The Company has discontinued its practice of selling notes
received from independent operators.
The Company's principal uses of cash have been, and will continue to be, the
funding of acquisitions, repayment of debt, and investment in both its
centralized reservation facility and its automated operation and information
systems.
Net cash used in operating activities increased from approximately $304,000
in the 1996 Period to approximately $364,000 in the 1997 Period. Net cash
provided by operating activities increased by $1.9 million, from $2.7 million
in 1995 to $4.6 million in 1996, primarily as a result of an increase in
operating income, as adjusted for depreciation and amortization of fixed
assets, franchise rights and goodwill from acquired operations. Net cash
provided by operating activities increased by approximately $2.0 million, from
approximately $701,000 in 1994 to $2.7 million in 1995, primarily as a result
of the timing of payments to independent operators and as a result of its
acquisition activities and internal growth. As of February 28, 1997, the
Company's working capital deficit and current ratio were approximately $1.0
million and 0.92, respectively, as a result of the high level of short-term
debt generated from the Company's practice of borrowing against its cash flow
rather than its assets, many of which are intangible in nature. The Company
may continue to experience working capital deficits as a result of short-term
borrowings to finance its acquisition strategy.
22
<PAGE>
Cash used in investing activities was approximately $988,000 in the 1996
Period compared to cash provided by investing activities of approximately
$94,000 in the 1997 Period. Cash was used in the 1996 Period to acquire
operations in London, whereas relatively little acquisition activity occurred
in the 1997 Period. Cash used in investing activities decreased by $2.1
million, from $4.1 million in 1995 to $2.0 million in 1996. Cash was used in
investing activities in 1995 and 1996 primarily for the acquisition of
chauffeured vehicle service companies. In 1994, relatively little acquisition
activity occurred and cash for investment purposes of approximately $388,000
was used primarily for capital expenditures. In all periods, funds used for
acquisitions and capital expenditures were offset in part by proceeds from the
sale of fixed assets, primarily vehicles acquired in connection with the
purchase of chauffeured vehicle service businesses.
Cash provided by financing activities was approximately $87,000 in the 1996
Period compared to cash used in financing activities of $1.0 million in the
1997 Period, primarily as a result of the net payment of notes payable during
the 1997 Period. Cash provided by financing activities was $1.4 million in
1995, compared to cash used in financing activities of $1.2 million in 1996,
primarily as a result of net repayment of notes payable in 1996. Cash used in
financing activities was $1.3 million in 1994, primarily as a result of
repaying notes payable.
At February 28, 1997, the Company had borrowings, exclusive of notes payable
to sellers of chauffeured vehicle service companies, in the amount of
approximately $14.0 million. This debt was composed of (i) a $3.7 million term
loan collateralized by the stock of the Company's United States subsidiaries,
(ii) a $1.1 million term loan collateralized by an assignment of the Carey
name and service mark and license agreements related thereto, (iii) $5.8
million in subordinated debt and (iv) $3.4 million in debt to commercial
banks, which debt is typically collateralized by a subsidiary's accounts
receivable and other assets. Of the Company's total debt at February 28, 1997,
approximately $8.5 million will be repaid from the net proceeds of this
offering. See "Use of Proceeds." As part of the Recapitalization, a further
$4.9 million of the debt will be converted to Common Stock of the Company,
approximately $1.3 million of the Company's Series G and Series F Preferred
Stock will be redeemed for cash in the amount of $1.0 million, and all
outstanding shares of the Company's Series A Preferred Stock will be redeemed
for $2.1 million in cash and 86,003 shares of Common Stock. All payments as a
result of the Recapitalization will be made from the proceeds of this
offering. See "Recapitalization."
The Company has received a commitment letter from a bank for a credit
facility consisting of a secured revolving line of credit and subsequent term
loan of $20.0 million. The bank has agreed to use its best efforts to
syndicate an additional $5.0 million for the facility. The facility, which may
be used for acquisitions and working capital, will be collateralized by the
assets of the Company and its existing and future subsidiaries. Loans made
under the revolving line of credit shall bear interest at the Company's option
of either the bank's prime lending rate or 2.0% above the LIBOR rate.
Commitment fees equal to 0.375% per annum will be payable on the unused
portion of the revolving line of credit. On the second anniversary of the
closing of this offering, the revolving line of credit will convert into a
five-year term loan, which loan will bear interest either at a fixed rate
(subject to availability) or at a variable LIBOR rate with adjustments
determined based on the Company's earnings. The credit facility (i) will
prohibit the payment of dividends by the Company, (ii) will not permit the
Company to incur or assume other indebtedness that is not subordinated to the
bank and (iii) will require the Company to comply with certain financial
covenants. The ability of the Company to obtain the credit facility is subject
to the completion of negotiations with the bank as well as the satisfaction of
certain conditions, including the closing of this offering and the execution
of appropriate loan documentation. In the event that the Company is unable to
obtain the credit facility, the Company believes that sufficient alternative
sources of financing will be available on reasonable terms.
While there can be no assurance, management believes that cash flow from
operations, funds from the credit facility and the net proceeds to the Company
from this offering will be adequate to meet the Company's capital
requirements for the next 12 months, depending on the methods of financing and
size of potential acquisitions. While the Company historically has financed
acquisitions primarily with cash, it may seek to finance future acquisitions
by using Common Stock for a portion or all of the consideration to be paid.
IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
The Company does not believe that inflation and foreign currency fluctuation
has had, or will have, a material impact on the financial position and results
of operation.
23
<PAGE>
BUSINESS
Carey International, Inc. is one of the world's largest chauffeured vehicle
service companies, providing services through a worldwide network of owned and
operated companies, licensees and affiliates serving 420 cities in 65
countries. The "Carey" brand name has represented quality chauffeured vehicle
services since the 1920s. The Company owns and operates its service providers
in New York, San Francisco, Los Angeles, London, Washington D.C., South
Florida and Philadelphia. In addition, the Company generates revenues from
licensing the "Carey" name and providing central reservation, billing and
sales and marketing services to its licensees. The Company's worldwide network
also includes affiliates in locations in which the Company has neither owned
and operated companies nor licensees. Over the past five years, the Company
has invested significant capital in developing its reservation, central
billing and worldwide service infrastructure. By leveraging its current
infrastructure and position as a market leader, the Company intends to
consolidate the highly fragmented chauffeured vehicle service industry through
the acquisition of: (i) current Carey licensees, (ii) additional companies in
markets in which the Company already owns and operates a chauffeured vehicle
service company, and (iii) companies in other strategic markets in North
America, Europe and the Pacific rim of Asia.
The Carey network utilizes chauffeured sedans, limousines, vans and
minibuses to provide services for airport pick-ups and drop-offs, inter-office
transfers, business and association meetings, conventions, roadshows,
promotional tours, special events, incentive travel and leisure travel.
Businesses and business travelers utilize the Company's services primarily as
a management tool, to achieve more efficient use of time and other resources.
Carey's worldwide network of chauffeured vehicle service companies allows it
to provide services with consistently high quality to its customers in
virtually every major city in the expanding global travel market. The network
is linked to over 300,000 reservation terminals in travel agencies, corporate
travel departments and government agencies by the Carey International
Reservation System (the "CIRS"), the chauffeured vehicle service industry's
most extensive centralized global reservation system.
MARKET OVERVIEW
The Company estimates that the United States chauffeured vehicle service
industry generated revenues of approximately $3.9 billion in 1996, and has
undergone steady growth in recent years, with revenues increasing at a
compound annual growth rate of 10.9% between 1990 and 1996. The industry is
highly fragmented, with approximately 9,000 companies utilizing over 100,000
vehicles. The Company believes that during 1996 no chauffeured vehicle service
company accounted for more than 2% of total United States industry revenues.
The Company also believes that similar fragmentation exists in the chauffeured
vehicle service industry outside the United States.
The chauffeured vehicle service industry serves businesses in virtually all
industrial and financial sectors of the economy. The Company believes that
business customers are becoming increasingly sophisticated in their use of
ground vehicle services and are demanding a broader array of "meet-and-greet"
and other services, as well as business amenities such as cellular phones.
Although there are other forms of transportation that compete with chauffeured
vehicles, such as buses, jitney services, taxis, radio cars and rental cars,
the Company believes that none of those forms of transportation provides the
quality, dependability and value-added services of chauffeur-driven vehicles.
The Company also believes that businesses place a premium on service providers
that are able to coordinate the travel itinerary of each member of a large
group over many locations with a single reservation and billing system.
24
<PAGE>
BUSINESS STRATEGY
The Company's objective is to increase its profitability and its market
share in the chauffeured vehicle service industry by implementing the
following growth strategies:
Expand through Acquisitions. Carey believes that there are significant
opportunities to acquire additional chauffeured vehicle service companies
that would benefit from the capital and management resources that the
Company can provide. Carey intends to acquire current Carey licensees, as
well as additional chauffeured vehicle service companies both in markets in
which the Company already owns and operates such a company and in other
strategic regions in North America, Europe and the Pacific rim of Asia.
Carey believes it has a competitive advantage in acquiring licensees
because of a right of first refusal contained in a substantial majority of
its domestic license agreements. The Company has successfully begun to
implement its acquisition strategy, having acquired 15 chauffeured vehicle
service companies since November 1991. Upon the closing of this offering,
the Company will acquire Manhattan Limousine, one of the largest
chauffeured vehicle service companies in the New York metropolitan area and
the operator of the Manhattan International Limousine Network.
Increase International Market Share. Approximately 12.8% of the Company's
revenue, net was derived from services performed outside the United States
during its fiscal year ended November 30, 1996. Of these international
revenues, approximately 60.8% was generated by the Company's owned and
operated business in London, approximately 38.1% was generated by the
Company's international licensees and the remainder was generated by the
Company's international affiliates. Carey believes that its network can
capture a significant portion of the growing international market for
chauffeured vehicle services by acquiring or licensing additional
chauffeured vehicle service companies and otherwise implementing the Carey
system outside the United States. The Company intends to increase its
international presence by intensifying its sales and marketing efforts,
strengthening its relationships with significant domestic and international
business travel arrangers, and capitalizing on the capacity of the CIRS to
operate on a global scale. By enhancing its international presence, the
Company also expects to increase its revenues from providing chauffeured
vehicle services to international travelers both visiting the United States
and travelling abroad.
Expand Licensee Network Worldwide. The Company will seek to expand its
worldwide network and generate additional revenues from license and
marketing fees by licensing additional chauffeured vehicle service
companies in smaller markets that do not justify a Company-owned presence.
Ultimately, as these less strategic markets grow in size and importance to
the Company, the licensees in such markets may become acquisition
candidates for the Company.
Convert Salaried Chauffeurs to Independent Operators. The Company
believes that it can improve its profitability by continuing to convert
salaried chauffeurs to independent operators in businesses acquired by
Carey. The objective of Carey's independent operator strategy is to instill
in each chauffeur the sense of purpose, responsibility and dedication
characteristic of an independent business owner, thereby increasing the
profitability of the chauffeur and the Company. Carey's independent
operator program allows the Company to reduce its labor and capital costs,
convert fixed costs to variable costs and generate revenues from fees paid
by independent operators.
ACQUISITION STRATEGY
Carey believes that there are significant opportunities to acquire
additional chauffeured vehicle service companies as a result of: (i) the
highly fragmented and increasingly global nature of the industry, (ii)
industry participants' capital requirements and desire for liquidity, and
(iii) the pressures of increasing competition. The Company intends to continue
to pursue its acquisition program in order to strengthen its position in its
existing markets and to acquire operations in new markets.
Carey intends to pursue acquisitions that will allow the Company to own and
operate chauffeured vehicle service companies in new geographic markets. The
Company currently owns and operates chauffeured vehicle
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<PAGE>
service companies in six of the largest United States travel markets and in
London, the largest European travel market, and will seek to acquire Carey
licensees in other significant travel markets in North America, Europe, and
the Pacific rim of Asia. The Company believes that its ability to acquire its
licensees will be enhanced by a right of first refusal that is contained in a
substantial majority of its domestic license agreements and the limited terms
of most of its international license agreements. The Company's preference is
to retain key management, operating and sales personnel of an acquired company
in a new market in order to maintain continuity of operations and customer
service.
The Company believes that it has a market share of less than 10% in each of
the markets in which it owns and operates a chauffeured vehicle service
company, and that there is significant potential for it to expand its business
in such markets through acquisitions. When justified by the size of an
existing market acquisition, the Company expects to retain key management and
sales personnel of the acquired company and to seek to improve that company's
profitability through implementation of the Company's operating strategies. In
most instances, acquired operations can be integrated into the Company's
existing operations in a market, resulting in elimination of duplicative
overhead and operating costs.
The Company believes that there are significant advantages to consolidating
the chauffeured vehicle service industry. Carey believes it can increase
revenues of acquired companies by marketing the worldwide services of its
network to customers of such companies, and by increasing the productivity of
chauffeurs at the acquired companies through the implementation of training
and quality assurance programs. Moreover, Carey believes that cost savings can
be achieved following acquisitions through (i) the consolidation of certain
administrative functions and increased use of automation, (ii) the elimination
of redundant facilities, equipment and personnel and (iii) the conversion of
salaried chauffeurs driving company-owned vehicles into independent operators
driving their own vehicles.
Carey has successfully begun its acquisition strategy, having acquired 15
chauffeured vehicle service companies since November 1991. The following table
lists the date of acquisition, location of each such chauffeured vehicle
service company and whether the acquired company was a licensee or affiliate
of the Company or other chauffeured vehicle service company:
ACQUISITION HISTORY
NOVEMBER 1991--PRESENT
<TABLE>
<CAPTION>
DATE LOCATION ACQUIRED COMPANY
---- -------- ----------------
<S> <C> <C>
November 1991................... Washington, DC Other
September 1992.................. Los Angeles, CA Other
August 1993..................... Wilmington, DE Licensee
September 1993.................. West Palm Beach, FL Licensee
November 1993................... New York, NY Other
June 1994....................... Washington, DC Other
June 1994....................... Los Angeles, CA Other
December 1994................... Boca Raton, FL Other
January 1995.................... San Francisco, CA Licensee
April 1995...................... Washington, DC Other
April 1995...................... Ft. Lauderdale/Miami, FL Licensee
May 1995........................ San Francisco, CA Other
August 1995..................... San Francisco, CA Other
August 1995..................... Boca Raton, FL Other
February 1996................... London, England Affiliate/(1)/
June 1997/(2)/.................. New York, NY Other
</TABLE>
- --------
(1) Prior to the acquisition, the Company had no licensee in London.
(2) The acquisition will be completed upon the closing of this offering. See
"Acquisition of Manhattan Limousine."
26
<PAGE>
The Company has analyzed significant data on the chauffeured vehicle service
industry and individual businesses within that industry and believes that it
is well positioned to further implement its acquisition program following this
offering. The Company believes that management's lengthy tenure with the
Company, extensive experience in the chauffeured vehicle service industry and
relationships with acquisition candidates provide the Company with significant
knowledge that will assist the Company in its attempts to acquire licensees of
the Company and other chauffeured vehicle service companies. The Company
regularly reviews various strategic acquisition opportunities and periodically
engages in discussions regarding such possible acquisitions. Currently, other
than with respect to the acquisition of Manhattan Limousine, the Company is
not a party to any agreements regarding any material acquisitions; however, as
the result of the Company's process of regularly reviewing acquisition
prospects, negotiations and such acquisition agreements may occur from time to
time if appropriate opportunities arise.
The acquisition of Manhattan Limousine is intended to solidify the Company's
presence in the New York metropolitan area and diversify its customer base. In
particular, the Company intends to capitalize on Manhattan Limousine's
contracts with many New York-based participants in the airline and hotel
industries, including airlines such as Virgin Atlantic Airways and Aer Lingus,
and hotels such as the Plaza Hotel and the Mark Hotel. Typically these
arrangements are terminable by the airline or hotel upon 30 days' notice.
During its fiscal year ended September 30, 1996, approximately 18.0% of
Manhattan Limousine's revenues were derived from services performed for Virgin
Atlantic Airways. While the Company intends to consolidate certain
administrative operations of Manhattan Limousine with its own and to eliminate
redundant facilities, equipment and personnel, Manhattan Limousine otherwise
will retain its separate identity for at least 12 months following the
consummation of the acquisition.
Manhattan Limousine provides services solely through independent operators
rather than salaried chauffeurs. As a result, Carey will not be able to
realize the benefits of converting salaried chauffeurs into independent
operators following the acquisition. See "--Independent Operators." Manhattan
Limousine's network is composed of approximately 300 affiliates from which
Manhattan Limousine receives fees for referred business. A significant
majority of Manhattan Limousine's affiliates are located in cities in which
the Company already has affiliates, and in some cities the companies share
common affiliates.
As consideration for future acquisitions, the Company intends to use various
combinations of shares of Common Stock, cash and notes. Some or all of any
shares of Common Stock issued in connection with acquisitions may be
registered under the Securities Act.
SERVICE PROVIDER NETWORK
Carey's international network of owned and operated chauffeured vehicle
service companies, licensees and affiliates, serving 420 cities in 65
countries, enables it to provide its customers chauffeured vehicles in
virtually every significant travel market throughout the world. Carey believes
that its network is the most extensive in the industry, and intends to expand
the network by adding qualified licensees and affiliates in locations
justifying new or expanded service. The Company believes that the trend toward
globalization is opening more cities for business and personal travel around
the world. The Company monitors and evaluates cities in which a demand for
chauffeured vehicle services may warrant a "Carey" presence.
The Company's network provides chauffeured vehicle services for airport
pickups and drop-offs, inter-office transfers, business and association
meetings, conventions, road shows, promotional tours, special events,
incentive travel and leisure travel. Of these activities, the Company derived
approximately 9.3% of its 1996 pro forma revenues from hotel contracts,
approximately 8.3% from financial services customers and approximately 5.1%
from contracts with airlines. The Company also offers its clients travel and
tour planning services, "meet-and-greet" services, destination management
services, group movement coordination services, direct and central billing in
U.S. dollars, and access to the Company's 24-hour worldwide computerized
reservation system, the CIRS.
27
<PAGE>
The Company's fleet in its owned and operated locations contains four types
of vehicles consisting of chauffeured sedans, limousines, vans and minibuses,
some of which can carry up to 30 persons. In addition, the Company
subcontracts from time to time for buses that can carry a greater number of
passengers. The fleets of the Company's licensees and affiliates in larger
markets are similar to the Company's fleet, and in smaller markets generally
consist of only chauffeured sedans and limousines. All vehicles are driven by
uniformed professional chauffeurs, most of whom own the vehicles that they
drive. Each such chauffeur drives a clean, late model vehicle with amenities
important to the business traveler, such as cellular telephones and daily
newspapers.
Owned and Operated Companies. The Company owns and operates chauffeured
vehicle service companies in New York, San Francisco, Los Angeles, London,
Washington, D.C., South Florida and Philadelphia. Revenue provided by these
companies represented approximately 74.7% of the Company's revenue, net in
fiscal 1995 and 73.6% in fiscal 1996.
Licensees. The Company has 38 licensees serving 106 cities in the United
States and 24 licensees serving 105 cities outside the United States, all of
which operate under the Carey name. Revenue, net provided by the Company's
licensees represented approximately 19.0% and 18.8% of the Company's revenue,
net in fiscal 1995 and 1996, respectively.
The domestic license fee ranges from $15,000 to $75,000, depending upon the
size of the market. The sum of the continuing fees paid by the domestic
licensee varies, but annually is generally less than 10% of its revenues or,
in some cases, less than 10% of an excess above a specified base.
Substantially all candidates appointed as domestic licensees have been in
business for at least 10 years prior to the grant of a license. The term of a
domestic license agreement entered into prior to January 1, 1996 is perpetual
and subsequent to January 1, 1996 is 10 years.
International licensees historically have not paid annual license fees;
rather, they have paid a commission on business referred to them. The term of
an international license agreement usually is from year to year, although in a
few cases it is perpetual.
Under the domestic license agreement, the Company provides the licensee with
(i) the right to use the "Carey" name, (ii) participation in the CIRS, (iii)
various consulting services, (iv) identification in various travel
directories, (v) access to bulk purchasing arrangements for automobiles, parts
and maintenance materials and (vi) national sales and marketing services. In
the event of a proposed transfer of a license or a licensee, the Company has
the right to approve the transferee. In addition, for most license agreements
executed prior to January 1, 1996 and all license agreements executed on or
after January 1, 1996, Carey retains a right of first refusal by which it may
acquire any license or licensee upon the same terms as the license or licensee
is proposed to be sold.
Typically, a licensee candidate acts as an affiliate before being selected
as a licensee. Licensees operate according to strict service guidelines
specified by the Company and market the Carey name in conjunction with the
Company's overall marketing program. The Company conducts ongoing quality
assurance programs and annual audits of licensees to insure that the licensees
have met the high service standards set forth by the Company. The Company has
the right to terminate any license if the licensee fails to comply with such
standards.
Affiliates. The Company utilizes affiliates to provide services to its
clients in cities where the Company does not have Company-owned operations or
licensees. Affiliates are not licensed to use the Carey name and do not pay
license fees to the Company, but must meet the Company's quality standards in
order to receive referred business. Pursuant to oral agreements between the
Company and its affiliates, the Company is entitled to receive a commission of
15% of net vehicle revenues for all referred business. The Company's
affiliates are located in 121 cities in the United States and 67 cities
outside the United States. Revenue, net provided by the Company's affiliates
represented approximately 2.5% and 2.0% of the Company's revenue, net in
fiscal 1995 and 1996, respectively.
28
<PAGE>
CAREY INTERNATIONAL RESERVATION SYSTEM (CIRS)
The hub of the Company's network of service providers is the CIRS, the Carey
International Reservation System. The CIRS is operated on a 24-hour basis by
Carey's central reservation department, which processes reservations through
the Company's proprietary computer system. The central reservation department
receives reservations through the Company's toll free "800" telephone number
(800-336-4646), by fax or telex, or through one of the six major airline
reservation systems, SABRE, APOLLO, WORLDSPAN, GALILEO, BABS and SITA. These
airline systems allow travel agencies, corporate travel departments and
government offices to access the CIRS through over 300,000 reservation
terminals worldwide. The Company bills a licensee or affiliate for each
reservation referred to the licensee or affiliate through the CIRS.
The CIRS can be accessed for up-to-date tariffs both in dollars and in
foreign currency for 420 cities throughout the world. Through the CIRS, the
Company's reservation and customer service personnel have instant access to
all rates, services offered, types of vehicles available and special airport
greeting capabilities in each individual city. Individual customer profiles
are maintained, including vehicle and chauffeur preferences, frequent pick-up
points, addresses and directions, billing requirements and account status.
The CIRS is used to make arrangements for a broad range of business and
consumer applications such as transportation to and from airports, association
and industry meetings and functions, road shows, transportation related to
incentive travel, board of directors meetings and sight seeing tours. Special
customer service facilities are available with direct phone lines, including a
special service desk, executive VIP desk, international tour desk, special
event desk and road show desk.
The CIRS utilizes client/server architecture and proprietary software
developed over a five-year period which allows constant input into a complex
international network linking more than 65 countries. A primary strength of
the CIRS is the reliability of its reporting and control systems which verify
all reservations for complete information, customer service requirements and
accounting authorizations. The CIRS also contains customer invoicing programs
to allow central billing directly through the system for all services used
worldwide. In addition, the system's ability to track reservations allows more
accurate and detailed analyses for marketing purposes.
In 1992, the Company began leasing its reservation and operating systems to
its licensees. These systems create a basis for certain licensees to have
direct access to the CIRS and provide them with the ability to book local
reservations, dispatch vehicles and account for chauffeured vehicle services.
MARKETING, SALES AND CUSTOMER SERVICE
The Company believes that "Carey," a registered service mark, is a highly
recognized name in the chauffeured vehicle service and travel industries
worldwide. The Company intends to continue to expand recognition of the
"Carey" name through its marketing and promotional efforts. Carey has
developed an extensive marketing program directed at both the travel arranger
and the end user of chauffeured vehicle services. The program consists of
directory listings, advertising, direct mail, public relations, cooperative
promotional and joint marketing programs, attendance at and sponsorship of
travel-related conventions and workshops, and direct selling. The direct sales
force serving the Company and its licensees currently consists of 20
professionals.
Carey is listed in 95 travel directories which are used by travel arrangers
to obtain information on travel related services. Advertising targeted at
travel arrangers is placed in over 35 trade journals including Business Travel
Executive, Travel Weekly, Travel Trade and Business Travel News. In addition,
the Company advertises extensively in magazines and newspapers, consumer
association books, hotel room information books and the Yellow Pages, and on
radio and television in selected markets.
The Company's continuing direct mail program is targeted at both the travel
arranger and the end user. The program distributes approximately two million
promotional pieces annually. Most major travel arrangers receive at least six
direct mail pieces per year which include announcements of new services, news
on service providers
29
<PAGE>
and reservation programs, the Carey Newsletter and listings of rates. End
users and arrangers receive promotional pieces on Carey when they are billed
for the Company's services.
The Company's marketing program seeks to build upon brand name acceptance,
customer loyalty, service know-how, technology and strategic market
relationships with other market leaders in the travel and tourism industry,
such as airlines, travel agencies, credit card companies and central
reservation systems. The Company's sales force calls on thousands of accounts
annually and participates in trade shows, seminars and association meetings.
The Company also is involved in promotional and cooperative agreements with
American Express Platinum Card and Gold Card, Diner's Club "Club Chauffeur"
program, British Airways, Air France and various cruise lines.
The Company believes that the retention and expansion of existing business
is as important as new sales. Carey has established a base of loyal customers
in part by monitoring the standard of service through its quality assurance
and customer service programs. To assure that the Company continues to provide
consistently high quality and reliable service, Carey operates a five-part
quality assurance program. The Company's quality assurance program utilizes
survey cards that are sent to customers and travel arrangers. Approximately
90% of the quality assurance cards returned to Carey during the twelve-month
period ended November 30, 1996 rated the Company's reservation services,
chauffeurs and vehicles as "excellent." Carey's quality assurance program
includes evaluations performed by an independent consultant to measure the
quality of chauffeur services, the appearance of chauffeurs and vehicles, and
the availability of other amenities, such as cellular phones and daily
newspapers.
INDEPENDENT OPERATORS
An important component of Carey's strategy involves the preferred use of
independent operators instead of salaried chauffeurs operating Company-owned
vehicles. An independent operator takes responsibility for owning, operating
and maintaining his or her own vehicle. The Company believes that acting as an
independent operator creates incentives for the chauffeur to become more
productive, efficient and service-oriented, thereby increasing the
profitability of the chauffeur and the Company. The objective of the Company's
independent operator strategy is to instill in each chauffeur the sense of
purpose, responsibility and dedication characteristic of an independent
business owner.
The use of independent operators allows the Company to reduce its labor and
capital costs, convert fixed costs to variable costs and generate revenues
from fees paid by independent operators. Because of the greater responsibility
borne by independent operators, the Company is able to allocate fewer
resources to oversee its vehicle operations. As a result, the Company can
focus to a greater extent on support services, business development,
administration, billing, quality assurance, and sales and marketing.
Each independent operator enters into an agreement with the Company to
provide prompt and courteous service to the Company's customers with a
properly maintained, late model vehicle consistent with the Company's
standards. The cost of a new vehicle ranges from $35,000 to $65,000, depending
upon whether it is a sedan or a limousine and the features included in the
vehicle. Each new independent operator agrees to pay an initial fee to the
Company, acquires his or her vehicle and pays all of the maintenance and
operating expenses of such vehicle, including gasoline.
Prior to December 1996, the Company's typical agreement with an independent
operator had a term of 10 years and provided for a fee ranging from $30,000 to
$45,000 (depending on the local market) that was financed by the Company at an
annual interest rate of 8% to 12%. The notes evidencing such financing
generally were sold by the Company to third parties. Since December 1996, the
independent operator agreements entered into by the Company generally have
provided for, and the Company intends that future agreements will provide for,
a term of 15 years, fees of $45,000 to $60,000 and an interest rate of 14% per
year. In certain markets, such as New York, the Company may provide longer
terms and higher fees in its independent operator agreements. Currently, the
Company does not intend to continue its former practice of selling to third
parties notes evidencing independent operator financing. To date, the Company
has not incurred any material losses as a result of defaults under such notes,
and any potential future losses will be mitigated from an accounting
perspective because of the Company's policy of deferral of revenue recognition
in connection with independent operator fees.
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<PAGE>
The independent operator agreement provides that the Company will bill and
collect all revenues (as defined in the agreement) and remit to the
independent operator 60% to 65% of such revenues. In this arrangement, the
Company assumes the risk of collecting from each customer and generally pays
the independent operator his or her share regardless of whether the Company is
paid by the customer. An independent operator's failure to meet the high
standards of service associated with the Carey name constitutes a breach of
the agreement and gives rise to a right of the Company to terminate the
agreement.
Independent operators also generally require financing to purchase their
vehicles. Typically, independent operators have utilized banks, vehicle
financing companies or CLI Fleet, Inc. ("CLI Fleet"), a finance company that
specializes in providing financing to the chauffeured vehicle service
industry. See "Certain Transactions." On occasion, the Company has provided
secured vehicle financing to independent operators with repayment terms of
three to five years.
CUSTOMERS
The Company's customer list exceeds 75,000 individuals and organizations
that are dispersed across many different industries and geographic locations.
No client accounted for more than 5% of the Company's revenue, net in 1996.
The Company's major clients include companies in the finance, travel and
related services, manufacturing, pharmaceutical, airline, insurance,
publishing, oil and gas exploration, entertainment, tobacco, and food and
beverage industries.
COMPETITION
The chauffeured vehicle service industry is highly competitive and
fragmented, with few significant national participants operating a multi-city
reservation system. Each local market usually contains numerous local
participants as well as a few companies offering regional and national
service. Chauffeured vehicle service providers compete primarily on the basis
of price, quality, scope of service and dependability. The Company also
competes with service providers offering alternative modes of transportation,
such as buses, jitney services, taxis, radio cars and rental cars. The Company
believes that its high quality of service and dependability have allowed the
Company to compete effectively in its markets. Carey competes both for
customers and for possible acquisitions. The Company expects its business to
become more competitive as existing competitors expand and additional
companies enter the industry. Certain of the Company's existing competitors
have, and any new competitors that enter the industry may have, access to
significantly greater financial resources than the Company.
GOVERNMENT REGULATION
The Company's chauffeured vehicle service operations are subject to various
state and local regulations and, in many instances, require permits and
licenses from state and local authorities. In addition, the Company is
regulated by the Federal Highway Administration with respect to, among other
things, minimum vehicular insurance requirements. The Company believes that it
has all required permits and licenses to conduct its operations and that it is
in substantial compliance with applicable regulatory requirements relating to
its operations.
The Company is subject to federal and state laws, rules and regulations
governing the offer and sale of franchises. A number of states have enacted
laws that require detailed disclosure in the offer and sale of franchises
and/or the registration of the franchisor with state administrative agencies.
The Company is also subject to Federal Trade Commission regulations relating
to disclosure requirements in the sale of franchises. Certain states have
enacted, and others may enact, legislation governing certain aspects of the
franchise relationship and limiting the ability of the franchisor to terminate
or refuse to renew a franchise. The law applicable to franchise sales and
relationships is rapidly developing, and the Company is unable to predict the
effect on its franchise system of additional requirements or restrictions that
may be enacted or promulgated or of court decisions that may be adverse to
franchisors. Due to the scope of the Company's business, and the complexity of
franchise regulation, compliance problems may be encountered from time to
time.
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<PAGE>
INSURANCE
The Company is subject to accident claims as a result of the normal
operation of its fleet of vehicles, which claims and the defense thereof
generally are covered by insurance. The Company purchases automobile
liability, automobile collision and comprehensive damage, general liability,
comprehensive property damage, workers' compensation and other insurance
coverages that management considers adequate for the protection of the
Company's assets and operations, although there can be no assurance that the
coverages and limits of such policies will be adequate. The Company's standard
license agreement requires that its licensees purchase similar types of
insurance and name the Company as a named insured in such insurance policies.
A successful claim against the Company beyond the scope of its or its
licensees' insurance coverage or in excess of its or its licensees' limits
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FACILITIES
The Company owns a facility in Alexandria, Virginia used by its owned and
operated chauffeured vehicle service company providing services in Washington,
D.C. The Company leases its corporate headquarters in Washington, D.C. and
also leases nine administrative and/or operating facilities in California, New
York, Pennsylvania, Florida and London. Management believes that the Company's
facilities are adequate for its present needs and that suitable additional or
replacement space will be available as required.
EMPLOYEES AND INDEPENDENT OPERATORS
As of March 31, 1997, the Company had approximately 255 full-time employees
(approximately 41 of whom were chauffeurs) and approximately 99 part-time
employees (approximately 71 of whom were chauffeurs). As of March 31, 1997,
the Company also had agreements with approximately 334 independent operators.
The Company is not a party to any collective bargaining agreement.
INTELLECTUAL PROPERTY
The Company is the registered owner of two United States service marks
covering the "Carey" name. The Company believes that customer and travel
arranger recognition of these marks has contributed to its success. The
Company is not affiliated with Carey Transportation, Inc., a company that
provides bus transportation services in the metropolitan New York City area.
Except in this area, the Company believes it has the exclusive right to use
the "Carey" name in connection with transportation services in all locations
in which it either owns and operates a chauffeured vehicle service company or
maintains a licensee.
LEGAL PROCEEDINGS
The Company and certain of its officers and directors were named in a civil
action filed on May 15, 1996 in the United States District Court for the
Eastern District of Pennsylvania (Case No. 96-CV-3702) entitled "Felix v.
Carey International, Inc., et al." The plaintiff's complaint, which purports
to be a class action, alleges that the plaintiff and others similarly situated
suffered monetary damages as a result of misrepresentations by the various
defendants in their use of a surface transportation billing charge (the
"STC"). The STC is billed by Carey to its customers and represents a surcharge
on account of various fees and service costs incurred by it in its provision
of services to such customers. The plaintiff seeks damages in excess of $1.0
million on behalf of the class for each of the counts in the complaint
including fraud, negligent misrepresentation and violations of the Racketeer
Influenced and Corrupt Organizations law of 1970, which permits the recovery
of treble damages and attorneys' fees. A class has not yet been certified in
this case. The Company filed a motion to dismiss that was denied, and
subsequently has filed an answer denying any liability in connection with this
complaint.
The Company has reached a tentative settlement with the plaintiff and
plaintiff's counsel, which is subject to court approval and acceptance by the
proposed class. The settlement calls for the Company to deposit up to $950,000
into a settlement fund for a class consisting of all persons who paid the STC
during the period from
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<PAGE>
May 15, 1992 through March 15, 1997. Following court approval of the
settlement, the Company will change its disclosure concerning the STC, and
each class member showing proper authentication of a claim shall be entitled
to receive either (i) cash totalling 10% of the STC paid during the period
described above or (ii) a nontransferable credit to be applied toward future
use of the Company's services in an amount equal to 30% of such STC. This
settlement has been agreed to by the plaintiff and plaintiff's counsel, but
there can be no assurance that the court will approve, or the proposed class
will accept, the settlement. The Company is indemnifying and defending its
officers and directors who were named defendants in the case, subject to
conditions imposed by applicable law.
Although the Company does not believe the litigation described above will
have a material adverse effect on its business, financial condition and
results of operations, the defense of the litigation could be expensive and
time-consuming, regardless of the outcome, and, if the proposed settlement is
not approved and accepted, an adverse result in such litigation could have a
material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
The Company is a party to other litigation in the ordinary course of
business. The Company does not anticipate an unfavorable result in any such
litigation or believe that an unfavorable result, if it occurred, would have a
material adverse effect on its business, financial condition and results of
operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information pertaining to the
directors and executive officers and the director nominee of the Company. The
director nominee has agreed to become a director of the Company upon the
closing of this offering.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Vincent A. Wolfington.......... 57 Chairman of the Board and Chief Executive
Officer
Don R. Dailey.................. 60 President and Director
Guy C. Thomas.................. 59 Executive Vice President--Operations
David H. Haedicke.............. 50 Executive Vice President and Chief
Financial Officer
Richard A. Anderson, Jr........ 51 Senior Vice President
Sally A. Snead................. 37 Senior Vice President--Information Systems
John C. Wintle................. 50 Senior Vice President--Europe
Paul A. Sandt.................. 36 Vice President and Chief Accounting Officer
Devin J. Murphy................ 31 Senior Vice President and Chief Development
Officer
Robert W. Cox.................. 59 Director
William R. Hambrecht........... 61 Director
David McL. Hillman............. 44 Director
Nicholas J. St. George......... 58 Director nominee
</TABLE>
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.
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Richard A. Anderson, Jr. has served as a Senior Vice President of the
Company since December 1988. Mr. Anderson also has been Chief Operating
Officer of the Company's New York subsidiary, Carey Limousine NY, Inc., since
December 1988. Mr. Anderson is Chairman of the New York Taxi and Limousine
Commission's Limousine Advisory Board, a former Board Member of the
Association of Corporate Travel Executives, and a member of the National
Business Travel Association and Meeting Planners International.
Sally A. Snead has served as the Company's Senior Vice President--
Information Systems since June 1993. From January 1987 to June 1993, she was
Executive Vice President and General Manager of Carey Limousine L.A., Inc. She
is a member of Executive Women International, the National Business Travel
Association, the Association of Corporate Travel Executives and the National
Limousine Association.
John C. Wintle has served as the Company's Senior Vice President--Europe
since May 1996 and as Executive Vice President and Managing Director of Carey
U.K. Ltd., a subsidiary of the Company, since March 1996. From 1982 to
February 1996, Mr. Wintle served Savoy Hotel PLC ("Savoy") and its affiliates,
including Camelot Barthropp Ltd. ("Camelot"), in various capacities. From
March 1993 to February 1996, Mr. Wintle was Executive Vice Chairman of
Camelot, which was acquired by Carey U.K. Ltd. in February 1996. Previously,
from 1989 to 1993, Mr. Wintle was General Manager, Restaurant Division, of
several entities affiliated with Savoy. From 1982 to 1989, Mr. Wintle had been
Group Financial Controller at Savoy.
Paul A. Sandt has served as a Vice President and Chief Accounting Officer of
the Company since October 1994. From May 1992 through September 1994, Mr.
Sandt was a staff member with the Securities and Exchange Commission, and from
December 1990 through May 1992, he was Director of Finance of The Kline
Automotive Group. From 1984 through 1990, he was employed by Coopers & Lybrand
L.L.P. Mr. Sandt is a Certified Public Accountant.
Devin J. Murphy has served as a Vice President of the Company since May
1996, and became Senior Vice President and Chief Development Officer in April
1997. Mr. Murphy received a Master's Degree in Business Administration from
Duke University in May 1996. For the six years prior to the commencement of
his MBA program in September 1994, Mr. Murphy held various sales and marketing
positions at companies within the information technology industry. These
companies include Bay Networks, Inc., where Mr. Murphy was Marketing Manager
from January 1993 to August 1994, Motorola Inc., where he was Manager, Major
Accounts from February 1991 to January 1993, and Hewlett-Packard Co. Inc.,
where he was Territory Manager from 1988 to 1991.
Robert W. Cox has served as a director of the Company since 1995. From 1969
until his retirement in 1994, Mr. Cox was a partner in the New York and
Chicago offices of the law firm Baker & McKenzie. From 1984 to 1992, Mr. Cox
was Chairman of the Executive Committee and Managing Partner of the firm, and
from 1993 to 1994, Mr. Cox was Chairman of the Policy Committee. Mr. Cox
currently is a director of Hon Industries, Inc.
William R. Hambrecht has served as a director of the Company since 1995. Mr.
Hambrecht is Chairman of Hambrecht & Quist LLC, an investment banking firm
which he co-founded in 1968. Mr. Hambrecht also serves as a director of Adobe
Systems, Inc.
David McL. Hillman has served as a director of the Company since 1994. Mr.
Hillman is Executive Vice President of PNC Capital Corp. and Executive Vice
President and Director of PNC Equity Management Corp., which he co-founded in
1982. Mr. Hillman is a director of several privately-held companies in
connection with PNC Capital Corp.'s investments in such companies.
Nicholas J. St. George will become a director of the Company upon
consummation of this offering. Mr. St. George has been President and Chief
Executive Officer of Oakwood Homes Corporation ("Oakwood"), a manufacturer and
retailer of manufactured homes, since February 1979. Mr. St. George serves as
a director of Oakwood, and also is a director of American Bankers Insurance
Group, Inc. and Legg Mason, Inc.
35
<PAGE>
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with
staggered three-year terms. After the completion of this offering, the initial
term of Messrs. Hambrecht and Hillman expire at the Company's 1998 annual
meeting, the initial terms of Messrs. Cox and St. George expire at the
Company's 1999 annual meeting, and the initial terms of Messrs. Wolfington and
Dailey expire at the Company's 2000 annual meeting. Successors to the
directors whose terms expire at each annual meeting are elected for three-year
terms. A director holds office until the annual meeting for the year in which
his term expires and until his successor is elected and qualified.
Executive Committee. After the completion of this offering, the members of
the Executive Committee of the Company's Board of Directors will be Messrs.
Wolfington, Cox and Dailey. The Executive Committee will exercise all the
powers of the Board of Directors between meetings of the Board of Directors,
except such powers that are reserved to the Board of Directors by applicable
law.
Audit Committee. After the completion of this offering, the members of the
Audit Committee of the Company's Board of Directors will be Messrs. Hillman
and St. George. The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans for and results of the audit, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.
Compensation Committee. After the completion of this offering, the members
of the Compensation Committee of the Company's Board of Directors will be
Messrs. Cox and St. George. The Compensation Committee will establish a
general compensation policy for the Company and approve increases in
directors' fees and salaries paid to officers and senior employees of the
Company. The Compensation Committee will administer the Company's equity
incentive plans and will determine, subject to the provisions of the Company's
plans, the directors, officers and employees of the Company eligible to
participate in any of the plans, the extent of such participation and terms
and conditions under which benefits may be vested, received or exercised.
DIRECTOR COMPENSATION
Members of the Board of Directors who also serve as officers of the Company
do not receive compensation for serving on the Board. Each other member of the
Board receives an annual retainer of $15,000 for serving on the Board, plus a
fee of $1,000 for each Board of Directors' meeting attended. In addition, such
directors receive an additional fee of $500 for each committee meeting
attended, except that only one fee is paid in the event that more than one
such meeting is held on a single day. All directors receive reimbursement of
reasonable expenses incurred in attending Board and committee meetings and
otherwise carrying out their duties.
The Company's Board of Directors has adopted the Stock Plan for Non-Employee
Directors (the "Directors' Plan"). A maximum of 100,000 shares of Common Stock
may be delivered upon the exercise of options granted under the Directors'
Plan and elections to receive shares in lieu of cash compensation. Only
directors of the Company who are not employees of the Company or any of its
subsidiaries (the "Non-Employee Directors") are eligible to participate in the
Directors' Plan. While grants of stock options under the Directors' Plan are
automatic and non-discretionary, all questions of interpretation of the
Directors' Plan are determined by the Board of Directors.
The Directors' Plan provides that on the date of this Prospectus, an option
to purchase 7,500 shares of Common Stock will be granted to each Non-Employee
Director. On the date of each subsequent annual meeting of stockholders, each
Non-Employee Director continuing in office will be granted an option covering
2,500 shares. Any newly elected Non-Employee Director will be granted an
option covering 5,000 shares on the date of his or her election (whether such
election occurs at an annual meeting or otherwise). The option exercise price
for each option granted under the Directors' Plan will be the closing price of
a share of the Common Stock as reported on the Nasdaq National Market on the
date the option is granted, except that options awarded on the date of this
Prospectus will have an exercise price equal to the initial public offering
price in this
36
<PAGE>
offering. All options granted under the Directors' Plan become fully
exercisable six months after the date of grant. Unless sooner terminated
following the death, disability or termination of service of a director,
options granted under the Directors' Plan will remain exercisable until the
fifth anniversary of the date of grant. In addition, upon certain transactions
involving a change of control or the dissolution or liquidation of the
Company, all options held by Non-Employee Directors will terminate; provided,
however, that for a period of 20 days prior to the effective date of any such
transaction, dissolution or liquidation, all options outstanding under the
Directors' Plan that are not otherwise exercisable shall immediately vest and
become exercisable.
Under the Directors' Plan, a Non-Employee Director may elect to be paid all
or a portion of his or her annual retainer in shares of Common Stock. Any such
election must be made in writing at least 30 days prior to the date the annual
retainer would be paid by the Company. The number of shares to be delivered to
a Non-Employee Director upon such election is determined by dividing the
amount of the annual retainer to be received in shares of Common Stock by the
closing price of a share of Common Stock as reported on the Nasdaq National
Market on the date the annual retainer is to be paid.
The Board of Directors may at any time or times amend the Directors' Plan
for any purpose which at the time may be permitted by law.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table contains a summary of the compensation paid to the Chief
Executive Officer of the Company and the other executive officers whose salary
and bonus for the Company's fiscal year ended November 30, 1996 exceeded
$100,000.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
-----------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(1)
- ------------------ --------- -------- --------------- ------------------
<S> <C> <C> <C> <C>
Vincent A. Wolfington.... $231,620 -- -- $57,000
Chairman and Chief
Executive Officer
Don R. Dailey............ 205,001 -- -- 57,000
President and Director
Guy C. Thomas............ 115,000 -- $13,020(2) 6,300
Executive Vice
President--Operations
and Chief
Operating Officer
</TABLE>
- --------
(1) Includes with respect to each of Messrs. Wolfington and Dailey $45,000
paid for providing certain personal guarantees on behalf of the Company
and $12,000 in life insurance premiums, and with respect to Mr. Thomas,
$6,300 in life insurance premiums.
(2) Includes a car allowance of $11,820.
37
<PAGE>
OPTIONS TO PURCHASE SHARES OF COMMON STOCK
Messrs. Wolfington, Dailey and Thomas hold options to purchase the following
shares of Common Stock, all of which options are exercisable at a price of
approximately $4.65 per share. The aggregate values of the options are as set
forth below, assuming a fair market value of $11.00 per share of Common Stock.
The named officers neither were granted nor exercised options during the
fiscal year ended November 30, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
NAME UNDERLYING OPTIONS VALUE
---- ------------------ --------
<S> <C> <C>
Vincent A. Wolfington......................... 105,706 $671,127
Don R. Dailey................................. 105,706 $671,127
Guy C. Thomas................................. 32,018 $203,282
</TABLE>
EQUITY INCENTIVE PLANS
The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan")
and the 1992 Stock Option Plan (the "1992 Plan"), both of which provide for
the award of incentive and non-statutory stock options by the Company. The
Company has adopted the 1997 Equity Incentive Plan (the "1997 Plan"), which
provides for the award of up to 650,000 shares of Common Stock in the form of
incentive stock options, non-statutory stock options, stock appreciation
rights, restricted stock, performance stock units and other stock units which
are valued by reference to the value of the Common Stock. The 1987 Plan, 1992
Plan and 1997 Plan are hereinafter referred to collectively as the "Equity
Plans."
Options are outstanding to purchase an aggregate of 447,275 shares of Common
Stock under the 1987 Plan and the 1992 Plan, and an aggregate of 28,655 shares
of Common Stock are authorized but have not yet been granted under options
pursuant to such plans. The Company has granted to employees options to
purchase an aggregate of 411,500 shares of Common Stock pursuant to the 1997
Plan having an exercise price equal to the initial public offering price. Of
these options, Messrs. Wolfington and Dailey each received an option to
purchase 100,000 shares of Common Stock, and Mr. Thomas received an option to
purchase 15,000 shares of Common Stock. The options issued to Messrs.
Wolfington and Dailey will vest in full 90 days from the date of this
Prospectus. The balance of the options issued under the 1997 Plan will vest
with respect to one-quarter of the underlying shares on each of the first four
anniversaries of the date of grant.
Officers, key employees, non-employee directors of and consultants to the
Company have participated in the 1987 Plan and the 1992 Plan. The 1987 Plan
and the 1992 Plan are administered by the Compensation Committee of the Board
of Directors. Among other things, the Compensation Committee determines,
subject to the provisions of said plans, who shall receive awards, the types
of awards to be made, and the terms and conditions of each award. No incentive
stock option may be granted under the 1987 Plan and the 1992 Plan at an
exercise price less than the fair market value of the shares of Common Stock
at the time the option is granted (and, in the case of stock options granted
to holders of more than 10% of the Common Stock, no option may be granted at
an exercise price less than 110% of the fair market value of the shares of
Common Stock at the time the option is granted).
All employees and directors of, and consultants and advisers to, the Company
and any of its subsidiaries are eligible to participate in the 1997 Plan. The
1997 Plan will be administered by the Compensation Committee, which will
determine who shall receive awards from those eligible to participate in the
1997 Plan, the type of award to be made, the number of shares of Common Stock
which may be acquired pursuant to the award and the specific terms and
conditions of each award, including the purchase price, term, vesting
schedule, restrictions on transfer and any other conditions and limitations
applicable to the awards or their exercise. Options that are intended to
qualify as incentive stock options may be exercisable for not more than 10
years after the date the option is awarded and may not be granted at an
exercise price less than the fair market value of the shares of Common Stock
at the time the option is granted. The Compensation Committee may at any time,
including in connection with a change in control of the Company, accelerate
the exercisability of all or any portion of any option issued under the 1997
Plan.
38
<PAGE>
The Compensation Committee may amend, modify or terminate any outstanding
award under the Company's Equity Plans with the participant's consent, except
consent shall not be required if the Compensation Committee determines that
such action will not materially and adversely affect the participant. The
Board may amend, suspend or terminate any of the Equity Plans, or any part of
such plans, at any time, except that no amendment may be made without
stockholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement.
INDEMNIFICATION AND LIMITATION OF LIABILITIES OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation provides for the elimination, subject to certain
conditions, of the personal liability of directors of the Company for monetary
damages for breach of their fiduciary duties. The directors, however, remain
subject to equitable remedies even if their liability for monetary damages is
eliminated. The Company's Certificate of Incorporation also provides that the
Company shall indemnify its directors and officers. In addition, the Company
maintains an indemnification insurance policy covering all directors and
officers of the Company. In general, the Company's Certificate of
Incorporation and the indemnification insurance policy attempt to provide the
maximum protection permitted by Delaware law with respect to indemnification
of directors and officers.
Under the indemnification provisions of the Company's Certificate of
Incorporation and the indemnification insurance policy, the Company will pay
certain amounts incurred by a director or officer in connection with any civil
or criminal action or proceeding, and specifically including actions by or in
the name of the Company (derivative suits), where the individual's involvement
is by reason of the fact that he is or was a director or officer of the
Company. Such amounts include, to the maximum extent permitted by law,
attorney's fees, judgments, civil or criminal fines, settlement amounts, and
other expenses customarily incurred in connection with legal proceedings. A
director or officer will not receive indemnification if he is found not to
have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Company.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock before and after the completion of this
offering for each beneficial owner of more than 5% of the Company's Common
Stock, each director and the director nominee of the Company, each named
executive officer of the Company and all directors, executive officers and the
director nominee as a group. Except as indicated in the footnotes below, the
persons named in this table have sole investment and voting power with respect
to the shares beneficially owned by them. The information contained in the
table and the footnotes thereto gives effect to the Recapitalization and the
post-offering beneficial ownership percentages also give effect to the
acquisition of Manhattan Limousine and the assumed conversion of certain
convertible notes.
<TABLE>
<CAPTION>
PERCENT OWNED
-----------------
SHARES BEFORE AFTER
BENEFICIALLY THE THE
NAME OWNED OFFERING OFFERING
- ---- ------------ -------- --------
<S> <C> <C> <C>
Vincent A. Wolfington.......................... 316,228(1) 9.5% 4.9%
Don R. Dailey.................................. 315,176(2) 9.5% 4.9%
Guy C. Thomas.................................. 94,800(3) 2.9% 1.5%
Robert W. Cox.................................. 12,900(4) * *
William R. Hambrecht........................... 945,060(5) 29.3% 14.8%
David McL. Hillman............................. 616,544(6) 19.1% 9.7%
Nicholas J. St. George......................... -- -- --
H&Q London Ventures............................ 444,093 13.8% 7.0%
One Bush St.
San Francisco, CA 94104
H&Q Ventures International C.V.(7)............. 175,197 5.4% 2.7%
H&Q Ventures IV(7)............................. 175,197 5.4% 2.7%
PNC Capital Corp. ............................. 616,544(6) 19.1% 9.7%
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222
Yerac Associates, L.P. ........................ 516,018(8) 15.6% 8.1%
45 Belden Place
San Francisco, CA 94104
All directors, executive officers and the
director nominee as a group
(13 persons).................................. 2,350,261(9) 66.6% 35.1%
</TABLE>
- --------
* Less than 1%.
(1) Includes options to purchase 105,706 shares of Common Stock that currently
are exercisable. Also includes 1,182 shares of Common Stock currently held
by a company controlled by Mr. Wolfington. Excludes shares held by Yerac
Associates, L.P., a limited partnership of which Mr. Wolfington is a
limited partner, with respect to which shares Mr. Wolfington has no voting
or investment power. Mr. Wolfington's address is c/o Carey International,
Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016.
(2) Includes options to purchase 105,706 shares of Common Stock that currently
are exercisable. Excludes shares held by Yerac Associates, L.P., a limited
partnership of which Mr. Dailey is a limited partner,with respect to which
shares Mr. Dailey has no voting or investment power. Mr. Dailey's address
is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington,
D.C. 20016.
(3) Includes options to purchase 32,018 shares of Common Stock that currently
are exercisable.
(4) Represents options to purchase shares of Common Stock that currently are
exercisable.
(5) Includes the following number of shares of Common Stock held by the
following venture capital funds, as to which Mr. Hambrecht disclaims
beneficial ownership: H&Q Ventures International C.V. (175,197 shares);
H&Q London Ventures (444,093 shares); H&Q Ventures IV (175,197 shares);
Hamquist (10,727 shares); and Hambrecht & Quist California (31,227
shares). Also includes (i) 85,816 shares of Common
40
<PAGE>
Stock with respect to which Mr. Hambrecht shares record and beneficial
ownership with Hamco Capital Corp. and (ii) 22,803 shares of Common Stock
with respect to which Mr. Hambrecht shares record and beneficial ownership
with the Hambrecht 1980 Revocable Trust. See "Certain Transactions." Mr.
Hambrecht's address is c/o Hambrecht & Quist California, One Bush Street,
San Francisco, CA 94104.
(6) David McL. Hillman is Executive Vice President of PNC Capital Corp. Mr.
Hillman disclaims beneficial ownership of the shares held by PNC Capital
Corp.
(7) This entity shares the same address as H&Q London Ventures.
(8) Includes shares of Common Stock issuable upon exercise of a warrant to
purchase 86,003 shares of Common Stock at a price of approximately $4.65
per share. The warrant is exercisable at any time until September 1, 2001.
(9) See Notes 1, 2, 3, 4, 5 and 6. Also includes 49,553 shares of Common Stock
issuable upon exercise of the vested portions of options held by other
executive officers of the Company.
41
<PAGE>
CERTAIN TRANSACTIONS
During 1993, for an aggregate purchase price of $850,000, the Company
acquired 85 shares of non-voting redeemable preferred stock of CLI Fleet, Inc.
("CLI Fleet") a privately-held finance company formed for the purpose of
financing the chauffeured vehicle service industry. As a holder of CLI Fleet
preferred stock, the Company is currently entitled to receive an annual
dividend of $500 per share. The Company waived the right to receive any
dividends accrued in respect of its preferred stock through April 30, 1996,
but during 1995 received referral fees totalling $100,000 from CLI Fleet. Also
during 1995, CLI Fleet redeemed 10 shares of preferred stock held by the
Company for an aggregate redemption price of $100,000. The remaining shares of
preferred stock are subject to mandatory redemption by redemption payments of
$100,000, $100,000 and $550,000 in May 1998, 1999 and 2000, respectively.
Under the terms of an agreement with CLI Fleet, commencing in April 1997, the
Company has an exclusive option to purchase all of the outstanding shares of
common stock of CLI Fleet at a purchase price equal to the greater of $187,500
or CLI Fleet's liquidating value as determined by an independent appraisal.
To date, CLI Fleet has provided financing to the Company's independent
operators, without recourse to the Company, for both initial fees due under
the Company's independent operator agreements and with respect to vehicles
purchased by independent operators. Each of the Company's owned and operated
chauffeured vehicle service companies has entered into a Finance & Service
Agreement with CLI Fleet, which provides that the Company will recommend and
refer independent operators to CLI Fleet for financing of vehicles. To date,
CLI Fleet also has purchased from the Company notes receivable due from
independent operators in exchange for cash or demand notes on a non-recourse
basis. The Company sold $378,733, $1,762,345 and $1,015,897 of independent
operator notes receivable to CLI Fleet for cash of $378,733, $1,290,899 and
$733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994,
1995 and 1996, respectively. These promissory notes are due on demand,
although monthly principal payments generally are received. These notes bear
interest at rates ranging from 5% to 7%. The Company generally no longer sells
notes receivables from independent operators to CLI Fleet, although CLI Fleet
continues to provide vehicle financing to the Company's independent operators.
In May 1996, the exercise price of a warrant issued to PNC was reduced from
$6.14 to $4.65 per share. In addition, in connection with the
Recapitalization, upon the closing of this offering, Carey will repay
approximately $912,000 of the $3.8 million in principal outstanding on its
subordinated note held by PNC and apply the balance of the outstanding
principal to pay the purchase price for 616,544 shares of Common Stock to be
issued to PNC upon exercise of the warrant held by it. David McL. Hillman, a
director of the Company, is Executive Vice President of PNC. Also in
connection with the Recapitalization, IBJS Capital Corporation ("IBJS") will
receive $1.0 million in connection with the redemption of 10,000 shares of
Series F Preferred Stock (representing all of the outstanding shares of such
series) and 3,000 shares of Series G Preferred Stock held by IBJS.
In May 1996, the exercise price of a warrant to purchase 86,003 shares of
Common Stock owned by Yerac was reduced from $6.14 to $4.65 per share. In
addition, in connection with the Recapitalization, Yerac will convert the
entire outstanding balance of a $2.0 million subordinated note held by it into
approximately 430,000 shares of Common Stock. From the net proceeds of this
offering, the Company will repay approximately $1.1 million of additional
outstanding indebtedness to Yerac. Messrs. Wolfington and Dailey are limited
partners of Yerac. See "Use of Proceeds" and "Principal Stockholders."
In connection with the Recapitalization, the Company will redeem 22,000
shares of Series A Preferred Stock held by entities affiliated with Hambrecht
& Quist California (collectively "H&Q") for an aggregate of $1.1 million in
cash plus 44,974 shares of Common Stock. Also in connection with the
Recapitalization, (i) the conversion price of the Series G Preferred Stock
will be reduced from $7.41 to approximately $6.14, and (ii) H&Q will receive
900,089 shares of Common Stock as a result of the conversion of 5,500 shares
of Series B Preferred Stock and 31,864 shares of Series G Preferred Stock.
William R. Hambrecht, a director of the Company, is a director and chairman of
Hambrecht & Quist California and Hamco Capital Corporation, and a general
partner of Hambrecht & Quist Venture Partners which, in turn, is the general
partner of H&Q London Ventures, H&Q Ventures International C.V., and H&Q
Ventures IV. Mr. Hambrecht also is a trustee of The Hambrecht 1980 Revocable
Trust. See "Principal Stockholders."
42
<PAGE>
Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer,
and Don R. Dailey, the Company's President, each has personally guaranteed
certain indebtedness of the Company in the original principal amount of $4.5
million. The outstanding balance of this indebtedness totalled approximately
$3.7 million as of February 28, 1997. The Company paid Messrs. Wolfington and
Dailey $45,000 each during 1996 as a fee for guaranteeing such indebtedness.
The Company will use part of the net proceeds of this offering to repay the
entire outstanding amount of such indebtedness, and following the repayment
the guarantees will be terminated. In connection with the Recapitalization,
Messrs. Wolfington and Dailey will receive $20,250 and $13,650, respectively,
and 7,569 shares and 5,123 shares of Common Stock, respectively, as a result
of the redemption of the shares of Series A Preferred Stock and the conversion
of the shares of Series G Preferred Stock beneficially owned by each of them.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"). The following summary
description of the Common Stock and the Preferred Stock is qualified by
reference to the Company's Amended and Restated Certificate of Incorporation
included as an exhibit to the Registration Statement of which this Prospectus
is a part.
COMMON STOCK
Upon the closing of this offering, including the shares offered hereby,
there will be 6,389,012 shares of Common Stock outstanding, and outstanding
options and warrants to purchase an aggregate of 1,145,228 shares of Common
Stock. A total of 94,170 shares of Common Stock are reserved for issuance
under the 1987 Plan, 388,647 shares are reserved for issuance under the 1992
Plan, 650,000 shares of Common Stock are reserved for issuance under the 1997
Plan and 100,000 shares of Common Stock are reserved for issuance under the
Directors' Plan. Holders of Common Stock are entitled to one vote for each
share held of record on all matters to be submitted to a vote of the
stockholders, and do not have cumulative voting rights. Subject to preferences
that may be applicable to any outstanding shares of Preferred Stock, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors of the Company out of
funds legally available therefor. The Company's agreements with its principal
lenders prohibit dividend payments. See "Dividend Policy." All outstanding
shares of Common Stock are, and the shares to be sold in this offering when
issued and paid for will be, fully paid and nonassessable and the holders
thereof will have no preferences or conversion, exchange or pre-emptive
rights. In the event of any liquidation, dissolution or winding-up of the
affairs of the Company, holders of Common Stock will be entitled to share
ratably in the assets of the Company remaining after payment or provision for
payment of all of the Company's debts and obligations and liquidation payments
to holders of outstanding shares of Preferred Stock, if any.
PREFERRED STOCK
After the completion of this offering, no shares of Preferred Stock of the
Company will be issued and outstanding. Thereafter, Preferred Stock may be
issued in one or more series without further stockholder authorization, and
the Board of Directors is authorized to fix and determine the terms,
limitations and relative rights and preferences of the Preferred Stock, to
establish series of Preferred Stock and to fix and determine the variations as
among series. Preferred Stock, if issued, would have priority over the Common
Stock with respect to dividends and to other distributions, including the
distribution of assets upon liquidation, and may be subject to repurchase or
redemption by the Company. The Board of Directors, without approval of the
holders of the Common Stock, can issue Preferred Stock with voting and
conversion rights (including multiple voting rights) which could adversely
affect the rights of holders of Common Stock. In addition to having a
preference with respect to dividends or liquidation proceeds, Preferred Stock,
if issued, may be entitled to the allocation of capital gains from the sale of
the Company's assets. Although the Company has no present plans to issue any
shares of Preferred Stock following the closing of this offering, the issuance
of shares of Preferred Stock, or the issuance of rights to purchase such
shares, may have the effect of delaying, deferring or preventing a change in
control of the Company or an unsolicited acquisition proposal.
CLASSIFIED BOARD OF DIRECTORS
The Restated Certificate of Incorporation and By-laws of the Company provide
for the Board of Directors to be divided into three classes of directors, as
nearly equal in number as is reasonably possible, serving staggered terms so
that directors' initial terms will expire either at the 1998, 1999 or 2000
annual meeting of stockholders. Starting with the 1998 annual meeting of
stockholders, one class of directors will be elected each year for a three-
year term. See "Management."
44
<PAGE>
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the
Company's business strategies and policies as determined by the Board of
Directors, since a majority of the directors at any given time will have had
prior experience as directors of the Company. The Company believes that such
continuity and stability, in turn, will permit the Board of Directors to
represent more effectively the interests of its stockholders.
With a classified Board of Directors, at least two annual meetings of
stockholders, instead of one, generally will be required to effect a change in
the majority of the Board of Directors. As a result, a provision relating to a
classified Board of Directors may discourage proxy contests for the election
of directors or purchases of a substantial block of the Common Stock because
the provision could operate to prevent a rapid change in control of the Board
of Directors. The classification provision also could have the effect of
discouraging a third party from making a tender offer or otherwise attempting
to obtain control of the Company. Under the DGCL, unless a corporation's
certificate of incorporation otherwise provides, a director on a classified
board may be removed by the stockholders of the corporation only for cause.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER
NOMINATIONS OF DIRECTORS
The By-laws establish an advance notice procedure with regard to the
nomination by the stockholders of the Company of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before a meeting of stockholders of the Company (the
"Business Procedure").
The Nomination Procedure requires that a stockholder give written notice to
the Secretary of the Company, delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the meeting, in proper form, of a planned nomination for the
Board of Directors. Detailed requirements as to the form and timing of that
notice are specified in the By-laws. If the Chairman determines that a person
was not nominated in accordance with the Nomination Procedure, such person
will not be eligible for election as a director.
Under the Business Procedure, a stockholder seeking to have any business
conducted at any meeting must give written notice to the Secretary of the
Company, delivered to or mailed and received at the principal executive
offices of the Company not less than 60 days nor more than 90 days prior to
the meeting, in proper form, subject to the requirements of the proxy
solicitation rules under the Securities Exchange Act of 1934. Detailed
requirements as to the form and timing of that notice are specified in the By-
laws. If the Chairman determines that the other business was not properly
brought before such meeting in accordance with the Business Procedure, such
business will not be conducted at such meeting.
Although the By-laws do not give the Board of Directors any power to approve
or disapprove of stockholder nominations for the election of directors or of
any other business desired by stockholders to be conducted at an annual or any
other meeting, the By-laws (i) may have the effect of precluding nominations
for the election of directors or precluding the conduct of business at a
particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company, even if the conduct of such solicitation or such
attempt might be beneficial to the Company and its stockholders.
OTHER PROVISIONS
Special Meetings of the Stockholders of the Company. The Company's By-laws
provide that a special meeting of the stockholders of the Company only may be
called by the Chairman of the Board, or by order of the Board of Directors.
That provision prevents stockholders from calling a special meeting of
stockholders and potentially limits the stockholders' ability to offer
proposals to the annual meetings of stockholders, if no special meetings are
otherwise called by the Chairman or the Board.
Amendment of the By-laws. The Company's Restated Certificate of
Incorporation provides that the By-laws only may be amended by a vote of the
Board of Directors or by a vote of at least 75% of the outstanding shares of
the Company's stock entitled to vote in the election of directors.
45
<PAGE>
No Action by Written Consent. The Company's Restated Certificate of
Incorporation does not permit the Company's stockholders to act by written
consent. As a result, any action to be taken by the Company's stockholders
must be taken at a duly called meeting of the stockholders.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is subject to Section 203 of the DGCL which, with certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period
of three years following the date that such stockholder became an interested
stockholder, unless: (a) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (i) by persons who are directors and officers
and (ii) by employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer, or (c) on or after such date,
the business combination is approved by the Board of Directors and authorized
at an annual or special meeting of stockholders by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. An "interested stockholder" is defined as any person
that is (y) the owner of 15% or more of the outstanding voting stock of the
corporation or (z) an affiliate or associate of the Company and was the owner
of 15% or more of the outstanding voting stock of the Company at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering and the acquisition of Manhattan
Limousine, the Company will have 6,389,012 shares of Common Stock outstanding.
Of these shares, 2,900,000 shares sold pursuant to this offering (3,335,000
shares if the Underwriters exercise their over-allotment option in full) will
be freely tradeable without restriction under the Securities Act, except for
any shares which may be acquired by an "affiliate" of the Company (as that
term is defined in Rule 144). The 3,489,012 remaining shares constitute
"restricted securities" within the meaning of Rule 144 and, except for shares
held by affiliates of the Company and the 218,181 shares issued in connection
with the acquisition of Manhattan Limousine, will be eligible for sale in the
open market subject to the applicable requirements of Rule 144(k) described
below.
Following the completion of this offering, if issued upon the exercise of
outstanding warrants, 263,953 shares of Common Stock also will be restricted
securities within the meaning of Rule 144 and will be eligible for sale in the
open market subject to the applicable requirements of Rule 144 discussed
below.
Also following the completion of this offering, there will be a total of
881,275 shares of Common Stock issuable upon the exercise of outstanding
options under the Company's Equity Plans and Directors' Plan and an additional
344,662 shares of Common Stock reserved for future award or grant under such
plans. The Company intends to file a registration statement on Form S-8 to
register the issuance of shares under the Equity Plans and Directors' Plan.
Common Stock issued after the effective date of such registration statement
upon exercise of outstanding vested options granted pursuant to the Equity
Plans and Directors' Plan, other than Common Stock issued to affiliates of the
Company, would be available for immediate resale in the open market.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired
from the Company and the date on which they were acquired from an affiliate,
then the holder of such restricted securities (including an affiliate) is
entitled to sell that number of shares within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of
the Common Stock or (ii) the average weekly reported volume of trading of the
Common Stock during the four calendar weeks preceding such sales. Sales under
Rule 144 also are subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information
46
<PAGE>
concerning the Company. Any shares not constituting restricted securities sold
by affiliates must be sold in accordance with the foregoing volume limitations
and other requirements but without regard to the one year holding period.
Under Rule 144(k), if a period of at least two years has elapsed from the
later of the date on which restricted securities were acquired from the
Company and the date on which they were acquired from the affiliate, a holder
of such restricted securities who is not an affiliate at the time of the sale
and has not been an affiliate for at least three months prior to the sale
would be entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.
The Company and the beneficial owners of at least 4,000,000 shares of Common
Stock (including all of the Company's officers and directors and those
individuals who will be issued Common Stock in the Manhattan Limousine
acquisition) have agreed that they will not offer, sell, contract to sell,
pledge, grant any option for the sale of, or otherwise dispose or cause the
disposition of any shares of Common Stock or securities convertible into or
exchangeable or exercisable for such shares, for a period of 180 days after
the date of this Prospectus without the prior written consent of Montgomery
Securities, except for (i) in the case of the Company, Common Stock issued
pursuant to any employee or director benefit plan described herein or in
connection with acquisitions or (ii) in the case of directors and executive
officers, the exercise of stock options pursuant to benefit plans described
herein and shares of Common Stock disposed of as bona fide gifts, subject in
each case to any remaining portion of the 180-day period applying to shares so
issued or transferred. In evaluating any request for a waiver of the 180-day
lock-up period, Montgomery Securities will consider, in accordance with their
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the
Common Stock, the size of the request and, with respect to a request by the
Company to issue additional equity securities, the purpose of such an
issuance. The holder of 218,181 shares of Common Stock to be issued in
connection with the acquisition of Manhattan Limousine will be entitled to
certain demand and piggy-back registration rights one year after completion of
this offering.
After the offering, sales of substantial amounts of Common Stock by existing
stockholders could have an adverse impact on the prevailing market price of
the Common Stock. No predictions can be made as to the effect, if any, that
market sales of shares by existing stockholders or the availability of such
shares for future sale will have on the market price of shares of Common Stock
prevailing from time to time.
47
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities and Ladenburg Thalmann & Co. Inc. (the "Representatives"), have
severally agreed, subject to the terms and conditions in the underwriting
agreement (the "Underwriting Agreement") by and between the Company and the
Underwriters, to purchase from the Company the number of shares of Common
Stock indicated below opposite their respective names, at the initial public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent and that the
Underwriters are committed to purchase all of the shares of Common Stock, if
they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities............................................
Ladenburg Thalmann & Co. Inc. ...................................
---------
Total........................................................ 2,900,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow selected dealers
a concession of not more than $ per share; and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 435,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such over-
allotment option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Company's officers and directors and certain of the shareholders of the
Company (including the holders of shares issued in connection with the
acquisition of Manhattan Limousine) who, immediately following this offering,
collectively will beneficially own an aggregate of at least 4,000,000 shares
of Common Stock (including shares issuable upon the exercise of outstanding
options and warrants), have agreed that for a period of 180 days after the
date of this Prospectus they will not, without the prior written consent of
Montgomery Securities, directly or indirectly sell, offer, contract or grant
any option to sell, pledge, transfer, establish an open put equivalent
position or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stocks. The Company has
also agreed not to issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities for a period of 180 days
after the effective date of this offering without the prior written consent of
Montgomery Securities, except for securities issued by the Company in
connection with
48
<PAGE>
acquisitions and for grants and exercises of stock options, subject in each
case to any remaining portion of the 180-day period applying to shares so
issued or transferred. In evaluating any request for a waiver of the 180-day
lock-up period, Montgomery Securities will consider, in accordance with their
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the
Common Stock, the size of the request and, with respect to a request by the
Company to issue additional equity securities, the purpose of such an
issuance. See "Shares Eligible for Future Sale."
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Securities Exchange Act of
1934, pursuant to which such persons may bid for or purchase Common Stock for
the purpose of stabilizing its market price. The Underwriters also may create
a short position for the account of the Underwriters by selling more Common
Stock in connection with the offering than they are committed to purchase from
the Company, and in such case may purchase Common Stock in the open market
following completion of this offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 435,000 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, Montgomery
Securities, on behalf of the Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may reclaim from an
Underwriter (or dealer participating in this offering), for the account of the
other Underwriters, the selling concession with respect to Common Stock that
is distributed in this offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.
In recognition of financial advisory services provided to the Company prior
to this offering, the Company has agreed to issue to each of Montgomery
Securities and Ladenburg Thalmann & Co. Inc. warrants (the "Warrants") to
purchase 67,500 shares of Common Stock, exercisable for a period of five years
commencing on the date of this offering, at a price equal to 120% of the
initial offering price, subject to adjustment in certain events. Each Warrant
contains certain registration rights relating to the shares issuable
thereunder.
The Company also has agreed to issue warrants to purchase an aggregate of
15,000 shares of Common Stock to LP Associates, William Russell and Michael
Press as a finder's fee in connection with this offering. These warrants will
contain identical terms to the Warrants.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in such negotiations were the
history of, and the prospects for, the Company and the industry in which the
Company competes, an assessment of the Company's management, its financial
conditions, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the economy and the securities
markets at the time of this offering and the market prices of and demand for
publicly traded common stock of comparable companies in recent periods.
49
<PAGE>
LEGAL MATTERS
The validity of the shares offered will be passed upon for the Company by
Nutter, McClennen & Fish, LLP, Boston, Massachusetts. Certain legal matters
will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New
York, New York.
EXPERTS
The consolidated financial statements of the Company as of November 30, 1995
and 1996 and for each of the three years in the period ended November 30, 1996
included in this Prospectus have been included herein in reliance on the
report, which includes an explanatory paragraph relating to the restatement of
such financial statements, of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined financial statements of Manhattan Limousine as of September 30,
1996 and for the year ended September 30, 1996 included in this Prospectus
have been included herein in reliance on the report, which includes an
explanatory paragraph relating to the restatement of such financial
statements, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The financial statements of Speed 6060 Limited (formerly Camelot Barthropp
Limited) as of and for the years ended December 31, 1994 and December 31,
1995, included in this Prospectus have been included herein in reliance on the
report of Coopers & Lybrand, Chartered Accountants and Registered Auditors,
given on the authority of that firm as experts in accounting and auditing.
The financial statements of Camelot Barthropp Limited (formerly Speed 6060
Limited) as of December 31, 1995 and for the period from August 4, 1995 to
December 31, 1995, included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand, Chartered Accountants and
Registered Auditors, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement, and
reference is made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the Common
Stock offered hereby. Statements contained in this Prospectus concerning the
provisions or contents of any contract, agreement or any other document
referred to herein are not necessarily complete with respect to each such
contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
of the matters involved, and each such statement shall be deemed qualified by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement or any part thereof may be obtained from
such office, upon payment of the fees prescribed by the Commission. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that submit electronic filings to the Commission.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAREY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Balance Sheet as of February 28, 1997........................... F-3
Pro Forma Statement of Operations for three months ended February 28,
1997..................................................................... F-4
Pro Forma Statement of Operations for the year ended November 30, 1996.... F-5
Notes to Pro Forma Consolidated Financial Statements...................... F-6
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements
Balance Sheet as of February 28, 1997..................................... F-8
Statements of Operations for three months ended February 29, 1996 and
February 28, 1997........................................................ F-9
Statements of Cash Flows for three months ended February 29, 1996 and
February 28, 1997........................................................ F-10
Note to Consolidated Financial Statements................................. F-11
Audited Consolidated Financial Statements
Report of Independent Accountants......................................... F-15
Balance Sheets as of November 30, 1995 and 1996........................... F-16
Statements of Operations for the years ended November 30, 1994, 1995 and
1996..................................................................... F-17
Statements of Changes in Stockholders' Equity for the years ended November
30, 1994, 1995
and 1996................................................................. F-18
Statements of Cash Flows for the years ended November 30, 1994, 1995 and
1996..................................................................... F-19
Notes to Consolidated Financial Statements................................ F-20
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK, LTD. AND AFFILIATE
Combined Financial Statements
Report of the Independent Accountants..................................... F-36
Balance Sheets as of September 30, 1996 and February 28, 1997
(unaudited).............................................................. F-37
Statements of Operations for the year ended September 30, 1996 and the
five months ended
February 28, 1997 (unaudited)............................................ F-38
Statements of Cash Flows for the year ended September 30, 1996 and the
five months ended
February 28, 1997 (unaudited)............................................ F-39
Notes to Combined Financial Statements.................................... F-40
CAMELOT BARTHROPP LIMITED
Audited Financial Statements
Report of the Independent Accountants..................................... F-46
Statement of Operations for the period from August 4, 1995 to December 31,
1995..................................................................... F-47
Balance Sheet at December 31, 1995........................................ F-48
Notes to the Financial Statements......................................... F-49
SPEED 6060 LIMITED
Audited Financial Statements
Report of the Independent Accountants..................................... F-58
Statements of Operations for the years ended December 31, 1994 and 1995... F-59
Balance Sheets at December 31, 1994 and 1995.............................. F-60
Notes to the Financial Statements......................................... F-61
</TABLE>
F-1
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The Pro Forma Consolidated Balance Sheet as of February 28, 1997 and the Pro
Forma Consolidated Statement of Operations for the year ended November 30,
1996 and for the three months ended February 28, 1997 are based on the
historical consolidated financial statements of Carey International, Inc. and
subsidiaries (the "Company"), Manhattan International Limousine Network Ltd.
and Affiliate ("Manhattan Limousine") and Camelot Barthropp Limited. The Pro
Forma Consolidated Balance Sheet has been prepared assuming the acquisition of
Manhattan Limousine occurred on February 28, 1997. For purposes of the Pro
Forma Balance Sheet, the Combined Balance Sheet of Manhattan Limousine as of
December 31, 1996, its most recent quarter-end, has been combined with the
Consolidated Balance Sheet of the Company as of February 28, 1997.
The Pro Forma Consolidated Statement of Operations for the year ended
November 30, 1996 and for the three months ended February 28, 1997 have been
prepared assuming the acquisitions of Camelott Barthropp Limited and Manhattan
Limousine occurred on December 1, 1995. For purposes of the Pro Forma
Consolidated Statements of Operations for the year ended November 30, 1996 and
the three months ended February 28, 1997, Manhattan Limousine's Statement of
Operations for the year ended September 30, 1996 has been combined with the
Consolidated Statement of Operations of the Company for the year ended
November 30, 1996 and Manhattan Limousine's Statement of Operations for the
three months ended December 31, 1996 has been combined with the Consolidated
Statement of Operations of the Company for the three months ended February 28,
1997. The Pro Forma Consolidated Statements of Operations also reflect the
issuance of 2,192,695 shares of Common Stock (at the estimated initial public
offering price of $11.00 per share, net of estimated underwriting discounts)
required to: (i) repay certain existing debt of the Company, (ii) pay the cash
portion of the purchase price for Manhattan Limousine, (iii) repay certain
debt assumed in connection with the acquisition of Manhattan Limousine, and
(iv) redeem certain preferred stock of the Company. The Pro Forma Consolidated
Statement of Operations also reflects the issuance of an aggregate of
2,821,253 shares of Common Stock in connection with (i) the acquisition of
Manhattan Limousine (at the estimated initial public offering price of $11.00
per share), (ii) the issuance of shares of Common Stock as part of the
Recapitalization and (iii) the assumed conversion of certain debt into Common
Stock upon the closing of the initial public offering. These 5,013,948 shares
are assumed to have been issued, the debt repaid or converted and the
preferred stock redeemed at the beginning of the period presented, and thus
interest expense attributable to such debt has been eliminated.
The Pro Forma Consolidated Balance Sheet reflects the assumed issuance as of
February 28, 1997 of 2,900,000 shares of Common Stock in this offering at the
estimated initial public offering price of $11.00 per share, and the
application of the proceeds (net of estimated underwriting discounts and
offering expenses payable by the Company) to: (i) repay certain existing debt
of the Company, (ii) pay the cash portion of the purchase price for the
acquisition of Manhattan Limousine, (iii) repay certain debt assumed in
connection with the acquisition of Manhattan Limousine and (iv) redeem certain
preferred stock of the Company, with the remaining net proceeds added to
working capital.
The Pro Forma Consolidated Financial Statements do not purport to represent
what the Company's actual results of operations or financial position would
have been had the acquisitions occurred as of such dates, or to project the
Company's results of operations or financial position for any period or date,
nor does it give effect to any matters other than those described in the notes
thereto. In addition, the allocation of purchase price to the assets and
liabilities of Manhattan Limousine is preliminary and the final allocation may
differ from the amounts reflected herein. The Pro Forma Consolidated Financial
Statements should be read in conjunction with the other financial statements
and notes thereto included elsewhere in this Prospectus.
F-2
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-------------------------------------------------------------------------------------------
ACTUAL
------------------------
MANHATTAN ACQUISITION RECAPITALIZATION OFFERING
COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(1) PRO FORMA
----------- ----------- ----------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $ 1,458,633 $ 24,932 $ (24,932)(4) $ -- $28,369,224 $ 7,396,580
(7,607,622)
(7,060,000)
(3,747,703)
(4,015,952)(6)
Accounts receivable,
net.................... 7,474,537 2,550,658 (2,550,658)(4) -- -- 7,474,537
Notes receivable from
contracts, current
portion................ 434,562 478,707 -- -- -- 913,269
Prepaid expenses and
other current assets... 2,663,215 51,499 -- -- (1,227,563) 1,487,151
----------- ----------- ----------- ---------- ----------- -----------
Total current
assets............. 12,030,947 3,105,796 (2,575,590) -- 4,710,384 17,271,537
Fixed assets, net....... 3,179,839 735,108 1,250,000 (5) -- -- 5,164,947
Notes receivable from
contracts, excluding
current portion........ 1,256,900 7,498,445 -- -- -- 8,755,345
Franchise rights, net... 5,289,286 -- -- -- -- 5,289,286
Trade name and contract
rights, net............ 6,637,275 -- -- -- -- 6,637,275
Goodwill, net........... 7,230,853 -- 19,677,031 (5) -- -- 26,907,884
Deferred tax assets..... 2,461,573 -- -- -- -- 2,461,573
Deposits and other
assets................. 1,291,556 1,227,814 (1,204,927)(4) -- (99,439)(3) 1,215,004
----------- ----------- ----------- ---------- ----------- -----------
Total assets........ $39,378,229 $12,567,163 $17,146,514 $ -- $ 4,610,945 $73,702,851
=========== =========== =========== ========== =========== ===========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current portion of notes
payable................ $ 3,967,163 $ 2,769,013 $(1,685,964)(4) $ -- $(3,193,148) $ 5,489,026
4,740,000 (5) (908,038)
(200,000)(2)
Payable to seller....... -- -- 7,060,000 (5) -- (7,060,000) --
Current portion of
capital leases......... 210,227 -- -- -- -- 210,227
Current portion of
subordinated notes
payable................ 660,000 -- -- -- (660,000)(6) --
Accounts payable and
accrued expenses....... 8,222,819 4,375,872 (182,000)(4) -- (925,339) 11,491,352
----------- ----------- ----------- ---------- ----------- -----------
Total current
liabilities........ 13,060,209 7,144,885 9,932,036 -- (12,946,525) 17,190,605
Notes payable, excluding
current portion........ 5,527,830 2,445,743 520,000 (5) -- (4,414,474) 1,039,434
(200,000)(2)
(2,839,665)
Capital leases,
excluding current
portion................ 679,215 -- -- -- -- 679,215
Subordinated notes
payable, excluding
current portion........ 5,120,000 -- -- (4,867,548)(6) (252,452)(6) --
Deferred rent and other
long-term liabilities.. 74,307 866,401 (466,624)(4) -- -- 474,084
Deferred tax
liabilities............ 1,444,163 -- -- -- -- 1,444,163
Deferred revenue........ 6,628,564 6,871,236 -- -- -- 13,499,800
Stockholders' equity:
Preferred stock....... 1,115,400 -- -- (775,050)(6) (340,350)(6) --
Common stock.......... 6,558 1,100 (1,100)(5) 25,600 (6) 29,000 63,770
2,182 (5) 430 (2)
Additional paid in
capital.............. 7,357,064 176,940 (176,940)(5) 5,616,998 (6) 28,038,000 41,046,300
2,397,818 (5) (2,763,150)(6)
399,570(2)
Accumulated deficit... (1,635,081) (4,939,142) 4,939,142 (4,5) -- (99,439)(3) (1,734,520)
----------- ----------- ----------- ---------- ----------- -----------
Total stockholders'
equity............. 6,843,941 (4,761,102) 7,161,102 4,867,548 25,264,061 39,375,550
----------- ----------- ----------- ---------- ----------- -----------
Total liabilities
and stockholders'
equity........... $39,378,229 $12,567,163 $17,146,514 $ -- $ 4,610,945 $73,702,851
=========== =========== =========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-3
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FEBRUARY 28, 1997
------------------------------------------------------------------------------------
ACTUAL
-----------------------
MANHATTAN ACQUISITION RECAPITALIZATION OFFERING
COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue, net............ $14,141,383 $5,471,384 $ -- $ -- $ -- $19,612,767
Cost of revenue......... 9,756,260 3,393,076 -- -- -- 13,149,336
----------- ---------- --------- -------- -------- -----------
Gross profit.......... 4,385,123 2,078,308 -- -- -- 6,463,431
Selling, general and
administrative
expense................ 3,819,432 1,491,857 (46,865)(7) -- 37,500 (12) 5,503,401
201,477 (8) --
----------- ---------- --------- -------- -------- -----------
Operating income
(loss)............... 565,691 586,451 (154,612) -- (37,500) 960,030
Other income (expense)
Interest expense...... (392,347) (224,810) (28,281)(9) 125,000(11) 379,199 (12) (141,239)
Interest and other
income............... 147,285 16,500 -- -- -- 163,785
----------- ---------- --------- -------- -------- -----------
Income before provision
for income taxes....... 320,629 $ 378,141 $(182,893) $125,000 $341,699 982,576
========== ========= ======== ========
Provision for income
taxes.................. 153,223 412,682 (13)
----------- -----------
Net income ............. $ 167,406 $ 569,894
=========== ===========
Pro forma net income per
common share........... $ .10 (14)
===========
Weighted average shares
outstanding............ 5,971,960 (14)
===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-4
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1996
--------------------------------------------------------------------------------------------------
ACTUAL
-----------------------------------
CAMELOT
BARTHROPP MANHATTAN ACQUISITION RECAPITALIZATION OFFERING
COMPANY LIMITED LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- --------- ----------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ $59,505,698 $ 938,656 $18,438,547 $ -- $ -- $ -- $78,882,901
Cost of revenue......... 40,438,449 865,336 11,040,017 -- -- -- 52,343,802
----------- --------- ----------- -------- -------- ---------- -----------
Gross profit.......... 19,067,249 73,320 7,398,530 -- -- -- 26,539,099
Selling, general and
administrative
expense................ 15,077,553 211,097 5,821,899 (874,475)(7) -- 150,000 (12) 21,191,984
805,910 (8) --
----------- --------- ----------- -------- -------- ---------- -----------
Operating income
(loss)............... 3,989,696 (137,777) 1,576,631 68,565 -- (150,000) 5,347,115
Other income (expense)
Interest expense...... (1,704,187) (21,375) (881,854) (76,608)(9) 500,000(11) 1,504,370 (12) (679,654)
Interest and other
income............... 426,349 -- 66,000 (66,000)(10) -- -- 426,349
----------- --------- ----------- -------- -------- ---------- -----------
Income before provision
(benefit) for income
taxes.................. 2,711,858 $(159,152) $ 760,777 $(74,043) $500,000 $1,354,370 5,093,810
========= =========== ======== ======== ==========
Provision (benefit) for
income taxes........... (104,246) 2,154,682 (13)
----------- -----------
Net income ............. $ 2,816,104 $ 2,939,128
=========== ===========
Pro forma net income per
common share........... $ .49 (14)
===========
Weighted average shares
outstanding............ 6,023,785 (14)
===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-5
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
To date, all of the Company's acquisitions have been accounted for under the
purchase method of accounting with the results of the acquired companies
included in the Company's statements of operations beginning on the date of
the acquisition.
(1) Gives effect to the sale by the Company of 2,900,000 shares of Common
Stock in this offering (the "IPO") at an estimated offering price of
$11.00 per share. After estimated underwriting discounts and commissions
and offering expenses of $3.8 million, of which approximately $300,000
has been paid, the estimated net proceeds of $28.4 million will be
applied to: (i) the repayment of certain existing debt of the Company of
$7.6 million, (ii) the repayment of the cash portion of the purchase
price for the acquisition of Manhattan Limousine of $7.1 million, (iii)
the repayment of $3.7 million of debt assumed upon the acquisition of
Manhattan Limousine and (iv) the redemption of certain preferred stock of
the Company for $3.1 million and the repayment of subordinated debt of
approximately $912,000 as part of the Recapitalization (see Note 6,
below). The balance of the net proceeds, estimated to be approximately
$5.9 million, will be added to working capital.
(2) Gives effect to the assumed conversion of $400,000 of debt into Common
Stock at the election of the debt holder.
(3) Reflects the elimination of approximately $99,000 of capitalized
financing fees related to certain debt repaid out of the net proceeds of
the offering.
(4) Gives effect to the retention by the stockholders of Manhattan Limousine
of certain assets and liabilities consisting of: (i) cash of
approximately $25,000, (ii) $2.6 million of accounts receivable, net,
(iii) $1.2 million of deposits and other assets, (iv) debt of $1.7
million collateralized by accounts receivable and (v) certain liabilities
of approximately $649,000.
(5) Gives effect to the acquisition of Manhattan Limousine for $14.2 million,
as if such acquisition occurred on February 28, 1997. The adjustments
reflect: (i) a cash payment of $7.1 million, (ii) promissory notes issued
in the aggregate amount of $4.7 million and (iii) the issuance of $2.4
million of Common Stock. After taking into account all acquisition
adjustments, the liabilities of Manhattan Limousine exceed its assets.
Accordingly, the allocation of the purchase price to the estimated fair
value of the assets and liabilities assumed will result in the
recognition by the Company of $19.7 million in goodwill. As part of the
fair value allocation, the Company valued the facility at which Manhattan
Limousine operates at its estimated fair market value of $1.1 million and
certain radio frequencies used in the conduct of Manhattan Limousine's
business at their estimated fair market value of $200,000. In January
1997, Manhattan Limousine increased the mortgage on this facility by
approximately $520,000 to $800,000. The entire mortgage was included in
the acquired liabilities.
(6) Gives effect to the Recapitalization, which will be implemented upon the
closing of the IPO. Pursuant to the Recapitalization: (i) the $2.0
million subordinated convertible note dated September 1, 1991, and $2.9
million of the $3.8 million subordinated note dated July 30, 1992 will be
converted or exchanged for an aggregate of 1,046,559 shares of Common
Stock, (ii) the Series A Preferred Stock will be redeemed in part for
$2.1 million and converted in part into 86,003 shares of Common Stock,
(iii) all of the Series F and 3,000 shares of the Series G Preferred
Stock will be redeemed for $1.0 million and (iv) the remaining Series G
Preferred Stock and the Series B Preferred Stock will be converted into
an aggregate of 1,427,509 shares of Common Stock.
(7) Gives effect to the elimination from the Combined Statement of Operations
of Manhattan Limousine of: (i) a one-time charge related to advances to a
non-combined affiliate of Manhattan Limousine which were approximately
$7,000 and $218,000 for the three months ended February 28, 1997 and the
year ended November 30, 1996, respectively, (ii) redundant administrative
and other costs immediately identifiable at the time of the acquisition
(relating to salary and benefits of a stockholder of Manhattan Limousine
and members of his family which will not be incurred by the Company) of
approximately $40,000 and $591,000 for the three months ended February
28, 1997 and the year ended November 30, 1996, respectively, and
(iii) approximately $65,000 for the year ended November 30, 1996 of
financing fees associated with debt retained by a stockholder of
Manhattan Limousine.
F-6
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) Gives effect to (i) the amortization of approximately $164,000 and
$656,000 for the three months ended February 28, 1997 and the year ended
November 30, 1996, respectively, of goodwill recognized with respect to
the acquisition of Manhattan Limousine, and (ii) $37,500 and $150,000 for
the three months ended February 28, 1997 and the year ended November 30,
1996, respectively, of consulting fees to be paid pursuant to a
consulting agreement entered into in connection with the acquisition of
Manhattan Limousine. Goodwill will be amortized over a 30-year period.
(9) Gives effect to an increase in interest associated with the promissory
notes in the aggregate amount of $4.8 million used to acquire Manhattan
Limousine and the increase of $520,000 in Manhattan Limousine's mortgage
note in January 1997, both of which will be repaid out of the proceeds of
the offering. Also gives effect to a decrease in interest expense
associated with the debt retained by a stockholder of Manhattan
Limousine.
(10) Gives effect to the elimination of interest income related to a note
receivable retained by a stockholder of Manhattan Limousine.
(11) Reflects the elimination of approximately $125,000 and $500,000 for the
three months ended February 28, 1997 and the year ended November 30,
1996, respectively, of interest on certain debt converted into Common
Stock.
(12) Reflects directors' and officers' insurance costs the Company anticipates
to incur in connection with being a public registrant and the elimination
of approximately $379,000 and $1.5 million for the three months ended
February 28, 1997 and the year ended November 30, 1996, respectively, of
interest on certain current and long-term debt repaid from the proceeds
of this offering or converted into Common Stock.
(13) Reflects the estimated provision for income taxes at an assumed rate of
42.0% and 42.3% for the three months ended February 28, 1997 and the year
ended November 30, 1996, respectively, after giving consideration to
nondeductible goodwill expense.
(14) Pro forma net income per share was computed by dividing the pro forma net
income for the three months ended February 28, 1997 and the year ended
November 30, 1996 by the pro forma weighted average number of shares
outstanding for each of the periods. Pro forma weighted average shares
outstanding include common share equivalents, and give retroactive effect
as of December 1, 1995 for the following: (i) the repayment of certain
existing debt of the Company, (ii) the payment of the cash and stock
portions of the purchase price for the acquisition of Manhattan
Limousine, (iii) the repayment of $3.7 million of debt assumed upon the
acquisition of Manhattan Limousine, (iv) the redemption of certain
preferred stock of the Company for $3.1 million and the repayment of
subordinated debt of the Company in the principal amount of approximately
$912,000 as part of the Recapitalization and (v) the assumed conversion
of $400,000 of convertible debt, the conversion of $4,867,546 of
subordinated debt and the partial conversion of the Series A and G
Preferred Stock into Common Stock. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent
shares issued by the Company during the 12 months preceding the
anticipated effective date of the Registration Statement relating to the
Company's initial public offering, using the treasury stock method and an
assumed public offering price of $11.00 per share, have been included in
the calculation of pro forma net income per share. All share numbers give
effect to the reverse stock split of one-for-2.3255 that is part of the
Recapitalization.
F-7
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28,
1997
------------
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents......................................... $ 1,458,633
Accounts receivable, net of allowance for doubtful accounts of
$546,000......................................................... 7,474,537
Notes receivable from contracts, current portion.................. 434,562
Prepaid expenses and other current assets......................... 2,663,215
-----------
Total current assets.......................................... 12,030,947
Fixed assets, net of accumulated depreciation and amortization of
$2,593,000....................................................... 3,179,839
Notes receivable from contracts, excluding current portion........ 1,256,900
Franchise rights, net of accumulated amortization of $1,788,000... 5,289,286
Trade name, trademark and contract rights, net of accumulated
amortization of $1,020,000....................................... 6,637,275
Goodwill and other intangible assets, net of accumulated
amortization of $894,000......................................... 7,230,853
Deferred tax assets............................................... 2,461,573
Deposits and other assets......................................... 1,291,556
-----------
Total assets................................................ $39,378,229
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable.................................. $ 3,967,163
Current portion of capital leases................................. 210,227
Current portion of subordinated notes payable..................... 660,000
Accounts payable and accrued expenses............................. 7,297,480
Accrued offering costs............................................ 925,339
-----------
Total current liabilities..................................... 13,060,209
Notes payable, excluding current portion.......................... 5,527,830
Capital leases, excluding current portion......................... 679,215
Subordinated notes payable, excluding current portion............. 5,120,000
Deferred tax and other long-term liabilities...................... 1,518,470
Deferred revenue.................................................. 6,628,564
Commitments and contingencies
Stockholders' equity:
Preferred stock................................................. 1,115,400
Class A common stock, $.01 par value; 314,000 authorized shares,
none issued and outstanding.................................... --
Common stock, $.01 par value; 9,512,950 authorized shares,
655,773 issued and outstanding shares.......................... 6,558
Additional paid-in capital...................................... 7,357,064
Accumulated deficit............................................. (1,635,081)
-----------
Total stockholders' equity.................................... 6,843,941
-----------
Total liabilities and stockholders' equity.................. $39,378,229
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue, net....................................... $11,557,885 $14,141,383
Cost of revenue.................................... 7,903,979 9,756,260
----------- -----------
Gross profit................................... 3,653,906 4,385,123
Selling, general and administrative expense........ 3,360,726 3,819,432
----------- -----------
Operating income............................... 293,180 565,691
Other income (expense):
Interest expense............................... (422,222) (392,347)
Interest income................................ 23,168 28,174
Gain on sales of fixed assets.................. 59,399 119,111
----------- -----------
Income (loss) before provision for income taxes.... (46,475) 320,629
Provision for income taxes......................... 11,722 153,223
----------- -----------
Net income (loss).................................. $ (58,197) $ 167,406
=========== ===========
Pro forma net income per common share.............. $ .07
===========
Weighted average common shares outstanding......... 3,518,083
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ (58,197) $ 167,406
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization of fixed assets.... 217,307 267,496
Amortization of intangible assets................ 248,721 239,760
Gain on sales of fixed assets.................... (59,399) (119,111)
Provision for deferred taxes..................... -- 46,500
Change in deferred revenue....................... 426,999 447,417
Changes in operating assets and liabilities
Accounts receivable............................ 1,442,819 2,667,195
Notes receivable from contracts................ (493,135) (519,510)
Prepaid expenses, deposits and other assets.... (128,394) (695,335)
Accounts payable and accrued expenses.......... (1,897,456) (2,829,078)
Deferred rent and other long-term liabilities.. (2,791) (36,974)
---------- ----------
Net cash used in operating activities........ (303,526) (364,234)
---------- ----------
Cash flows from investing activities:
Proceeds from sales of fixed assets................ 194,540 274,949
Purchases of fixed assets.......................... (62,406) (145,554)
Acquisitions of chauffeured vehicle service compa-
nies.............................................. (1,120,417) (35,812)
---------- ----------
Net cash provided by (used in) investing ac-
tivities.................................... (988,283) 93,583
---------- ----------
Cash flows from financing activities:
Principal payments under capital lease obliga-
tions............................................. (101,778) (50,016)
Payments of notes payable.......................... (798,571) (1,224,976)
Proceeds from notes payable........................ 1,085,000 400,000
Payment of offering costs.......................... -- (150,000)
Redemption of Series E preferred stock............. (97,500) --
---------- ----------
Net cash provided by (used in) financing ac-
tivities.................................... 87,151 (1,024,992)
---------- ----------
Net decrease in cash and cash equivalents............ (1,204,658) (1,295,643)
Cash and cash equivalents at beginning of period..... 1,438,659 2,754,276
---------- ----------
Cash and cash equivalents at end of period........... $ 234,001 $1,458,633
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1.BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the "Company") is one of the world's largest
chauffeured vehicle service companies, providing services through a worldwide
network of owned and operated companies, licensees and affiliates serving 420
cities in 65 countries. The Company owns and operates service providers in the
form of wholly-owned subsidiaries in the following cities: New York (Carey
Limousine N.Y., Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles
(Carey Limousine L.A., Inc.), London (Carey UK Limited), Washington, D.C.
(Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.)
and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company
generates revenues from licensing the "Carey" name, and from providing central
reservations, billing, sales and marketing services to its licensees. The
Company's worldwide network also includes affiliates in locations in which the
Company has neither owned and operated locations nor licensees.
Acquisitions and licensees
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses, including licensees operating under the Carey name and trademark.
These acquisitions are accounted for as purchases. The carrying value of the
assets acquired is determined by the negotiated purchase price. In addition to
acquiring licensees operating under the Carey name, the Company has acquired
chauffeured vehicle service businesses in cities in which the Company
operates. In 1995, these acquisitions included chauffeured vehicle service
companies operating in Washington, D.C., Miami, West Palm Beach and San
Francisco. In 1996, the Company acquired a chauffeured vehicle service company
in London, England.
Reverse stock split
On February 25, 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
initial public offering (the "IPO"). The Board of Directors, at the same
meeting and subject to stockholder approval, authorized a reverse stock split
of approximately one-for-2.3255 of the outstanding shares of the Company's
common stock. A majority of the Company's stockholders have approved the
reverse stock split. All references to common stock, options, warrants and per
share data have been restated to give effect to the reverse stock split. The
Board of Directors also authorized a Recapitalization Plan (see Note 7) on
February 25, 1997.
2.BASIS OF PRESENTATION
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The consolidated financial statements and notes do not include all of the
disclosures made in the Company's consolidated financial statements for the
years ended November 30, 1994, 1995 and 1996, which should be read in
conjunction with these statements. The financial information included herein
has not been audited. However,
F-11
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
in the opinion of management, the statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of the periods reflected. The results for these
periods are not necessarily indicative of the results for the full fiscal
year.
Pro forma net income per common share
Consistent with Staff Accounting Bulletin 1B-2, the Company has recalculated
historical weighted average common shares outstanding and net income per
common share to give effect to the following matters pursuant to the
Recapitalization (see Note 7). The recalculated net income per common share is
determined by (i) adjusting net income to reflect the elimination in interest
expense, net of taxes, resulting from the conversion of $4,867,546 of
subordinated debt into common stock and (ii) increasing the weighted average
common shares outstanding by the number of common shares resulting from the
conversion of such debt, as well as the partial conversion of the Series A and
G Preferred Stock.
3.ACQUISITIONS
On February 29, 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000. The
acquisition was financed through the incurrence of $950,000 in debt and a
payment of $550,000. Additional contingent consideration of up to $1,000,000
may be payable with respect to each of the two years in the period ending
February 28, 1998 based on the level of revenues referred to the acquired
company by the seller. As of February 28, 1997, the Company has paid $278,304
in contingent consideration in the acquisition of the London company. On March
28, 1997, the Company made an additional payment of approximately $270,000 for
contingent consideration in the acquisition of the London company. In
addition, the Company is required to pay a standard commission to the seller
of the acquired chauffeured vehicle service company for business referral,
which is expensed as incurred.
The Company has historically accounted for all of its acquisitions as
purchases. The net assets acquired and results of operations have been
included in the financial statements as of and from, respectively, the
effective dates of the acquisitions. Total consideration is allocated to the
assets acquired based upon their estimated fair values with any remaining
consideration, including contingent consideration when paid, allocated to
either franchise rights or goodwill. In the periods ended February 29, 1996
and February 28, 1997, the following acquisition activity was recorded by the
Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
Fair Value of Net Assets and Liabilities Ac-
quired:
Receivables and other assets..................... $ 632,554 $ --
Fixed assets..................................... 928,377 --
Franchise rights................................. 16,072 --
Goodwill......................................... 65,865 35,812
Trade liabilities................................ (522,451) --
---------- -------
Fair value of assets and liabilities acquired.... $1,120,417 $35,812
========== =======
Cash payments (exclusive of $223,695 cash ac-
quired in 1996)................................. $1,120,417 $35,812
========== =======
</TABLE>
4.COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial position, the results of
operations or cash flows of the Company.
F-12
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
The Company, certain of the Company's subsidiaries and certain officers and
directors of the Company were named in a civil action filed on May 15, 1996 in
the United States District Court for the Eastern District of Pennsylvania
entitled "Felix v. Carey International, Inc., et al." The plaintiff's
complaint, which purports to be a class action, alleges that the plaintiff and
others similarly situated suffered monetary damages as a result of
misrepresentations by the various defendants in their use of a surface
transportation billing charge. The plaintiff seeks damages in excess of $1
million on behalf of the class for each of the counts in the complaint
including fraud, negligent misrepresentation and violations of the Racketeer
Influenced and Corrupt Organizations law of 1970, which permits the recovery
of treble damages and attorneys' fees. A class has not yet been certified in
this case. The Company filed a motion to dismiss that was denied, and
subsequently has filed an answer denying any liability in connection with this
complaint. The Company has agreed to indemnify and defend its offices and
directors who were named as defendants in the case, subject to conditions
imposed by applicable law. The Company has reached a tentative settlement with
the plaintiff and plaintiff's counsel, which is subject to court approval and
acceptance by the proposed class. The Company does not believe that this
litigation will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
5.NOTES PAYABLE
Pursuant to an agreement with the lender dated March 24, 1997, the Company
extended the maturity dates of the $750,000 and $200,000 bank lines of credit
to March 31, 1998. The borrowings under these lines of credit have accordingly
been included in non-current notes payable in the accompanying consolidated
balance sheet.
6.NET INCOME PER COMMON SHARE
Net income per common share, on a historical basis, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
Net income (loss) available to common sharehold-
ers............................................ $ (58,197) $ 167,406
Weighted average common shares outstanding...... 2,419,185 2,430,436
Net income (loss) per common share.............. $ (.02) $ .07
</TABLE>
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of shares issuable upon (a) the conversion of Series B, F and G
preferred stock and (b) the assumed exercise of vested outstanding stock
options and warrants. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the
Company during the twelve months preceding the anticipated effective date of
the Registration Statement relating to the Company's initial public offering,
using the treasury stock method and an assumed public offering price of $11.00
per share, have been included in the calculation of net income per common
share.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being
that common stock equivalents are not considered in computing basic EPS. In
addition, FAS 128 requires dual presentation of basic and diluted EPS. FAS 128
is effective for financial statements issued for periods ending after December
15, 1997. The Company's pro forma basic EPS under FAS 128 would have been
$0.26 and dilutive EPS under FAS 128 would not differ significantly from the
reported pro forma net income per share.
F-13
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS--(CONTINUED)
7.RECAPITALIZATION AND EQUITY PLANS
On February 25, 1997, pursuant to an agreement reached in May 1996, the
Board of Directors authorized a recapitalization (the "Recapitalization"),
which will be implemented at the time of the IPO. Under the Recapitalization,
the $2,000,000 subordinated convertible note dated September 1, 1991 and the
$3,780,000 subordinated note dated July 30, 1992 will be converted or
exchanged for 1,046,559 shares of common stock and payment of $912,454. The
Series A preferred stock will be converted in part into 86,003 shares of
common stock and redeemed in part for $2,103,500. All of the Series F
preferred stock and 3,000 shares of the Series G preferred stock will be
redeemed for an aggregate of $1,000,000. The remaining preferred stock will be
converted into 1,427,509 shares of common stock. As a result of the
Recapitalization, preferred stock with a liquidation preference of $11,154,900
and subordinated debt with a principal amount of $5,780,000 will be converted
in part into 2,560,071 shares of common stock and repaid or redeemed in part
for $4,015,952 in cash. All of the cash amounts will be paid out of the
proceeds of the IPO.
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock
are reserved for issuance under the 1997 Plan. The Board of Directors also
granted options to purchase at the IPO price a total of 411,500 shares of
common stock under the 1997 Plan, such grants to be effective upon the
execution of an underwriting agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors adopted the Stock Plan for
Non-Employee Directors (the "Directors' Plan"). A total of 100,000 shares of
common stock of the Company are reserved for issuance under the Directors'
Plan. Options to purchase at the IPO price a total of 22,500 shares of common
stock will be granted under the Directors' Plan, such grants to be effective
upon the execution of an underwriting agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors approved amendments to the
Company's Certificate of Incorporation increasing the number of authorized
shares of the Company's Common Stock from 9,512,950 to 20,000,000, and
increasing the number of authorized shares of the Company's preferred stock
from 173,050 to 1,000,000.
8.SUBSEQUENT EVENT
On March 1, 1997, the Company entered into an agreement to purchase the
stock of Manhattan International Limousine Network Ltd. and an affiliated
company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of
the largest providers of chauffeured vehicle services in the New York
metropolitan area. The Company expects to consummate the acquisition at the
time of the IPO. If the acquisition of Manhattan Limousine is not completed by
May 20, 1997, the Company has agreed to pay additional purchase price in the
amount of $7,500 for each day after such date until the closing of the
acquisition, up to an aggregate of $675,000.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Carey International, Inc.
We have audited the accompanying consolidated balance sheets of Carey
International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
November 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carey
International, Inc. and Subsidiaries as of November 30, 1995, and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended November 30, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, the
accompanying consolidated balance sheet as of November 30, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the two years in the period ended November 30, 1995
have been restated for a change in the revenue recognition method.
Washington, D.C.
January 31, 1997, except for
Notes 1, 2 and 18 as to which
the date is March 1, 1997
F-15
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 1,438,659 $ 2,754,276
Accounts receivable, net of allowance for doubtful
accounts of $294,000 in 1995 and $535,000 in 1996... 9,023,016 10,141,732
Notes receivable from contracts, current portion..... 659,609 402,751
Prepaid expenses and other current assets............ 364,741 1,936,961
----------- -----------
Total current assets............................. 11,486,025 15,235,720
Fixed assets, net of accumulated depreciation of
$2,779,000 in 1995 and $2,619,000 in 1996........... 2,185,071 3,379,246
Notes receivable from contracts, excluding current
portion............................................. 193,298 769,201
Franchise rights, net of accumulated amortization of
$1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264
Trade name, trademark and contract rights, net of
accumulated amortization of $781,000 in 1995 and
$973,000 in 1996.................................... 6,876,578 6,685,135
Goodwill and other intangible assets, net of
accumulated amortization of $574,000 in 1995 and
$827,000 in 1996.................................... 7,113,684 7,262,203
Deferred tax assets.................................. 892,993 2,461,573
Deposits and other assets............................ 1,615,316 1,384,787
----------- -----------
Total assets................................... $35,896,921 $42,526,129
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable..................... $ 4,585,703 $ 5,131,227
Current portion of capital leases.................... 206,031 199,224
Current portion of subordinated notes payable........ 100,000 440,000
Accounts payable and accrued expenses................ 8,000,972 11,196,949
----------- -----------
Total current liabilities........................ 12,892,706 16,967,400
Notes payable, excluding current portion............. 7,361,749 5,188,742
Capital leases, excluding current portion............ 74,879 663,030
Subordinated notes payable, excluding current
portion............................................. 5,780,000 5,340,000
Deferred rent and other long-term liabilities........ 148,195 111,281
Deferred tax liabilities............................. 1,001,480 1,402,611
Deferred revenue..................................... 4,726,134 6,181,147
Commitments and contingencies
Stockholders' equity:
Preferred stock.................................... 1,212,900 1,115,400
Class A common stock, $.01 par value; authorized
314,000 shares, none issued and outstanding.......
Common stock, $.01 par value; authorized 9,512,950
shares, issued and outstanding, 655,773 shares.... 6,558 6,558
Additional paid-in capital......................... 7,357,064 7,357,064
Accumulated deficit................................ (4,664,744) (1,807,104)
----------- -----------
Total stockholders' equity....................... 3,911,778 6,671,918
----------- -----------
Total liabilities and stockholders' equity..... $35,896,921 $42,526,129
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue, net........................... $35,525,309 $43,483,947 $59,505,698
Cost of revenue........................ 24,953,904 29,942,961 40,438,449
----------- ----------- -----------
Gross profit......................... 10,571,405 13,540,986 19,067,249
Selling, general and administrative
expense............................... 9,486,797 12,419,062 15,077,553
----------- ----------- -----------
Operating income..................... 1,084,608 1,121,924 3,989,696
Other income (expense):
Interest expense..................... (1,348,883) (1,682,884) (1,704,187)
Interest income...................... 172,641 259,852 156,695
Gain (loss) on sale of fixed assets.. (18,359) 130,913 269,654
----------- ----------- -----------
Income (loss) before provision for
income taxes.......................... (109,993) (170,195) 2,711,858
Provision (benefit) for income taxes .. 19,000 25,000 (104,246)
----------- ----------- -----------
Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104
=========== =========== ===========
Pro forma net income per common share.. $ .89
===========
Weighted average common shares
outstanding........................... 3,510,020
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
--------------
SERIES A SERIES B SERIES E SERIES F SERIES G ADDITIONAL TOTAL
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK STOCK STOCK STOCK STOCK SHARES $ CAPITAL DEFICIT EQUITY
--------- --------- --------- --------- --------- ------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
November 30,
1993........... $420,700 $95,800 $266,250 $100,000 $498,900 623,091 $6,231 $7,335,796 $(4,336,178) $4,387,499
Accretion of
redeemable
preferred
stock.......... -- -- 8,750 -- -- -- -- (8,750) -- --
Redemption of
Series E
preferred
stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500)
Payment of
accrued
dividends...... -- -- (26,250) -- -- -- -- -- -- (26,250)
Payment of
Series E
dividends...... -- -- -- -- -- -- -- -- (4,378) (4,378)
Net loss........ -- -- -- -- -- -- -- -- (128,993) (128,993)
-------- ------- -------- -------- -------- ------- ------ ---------- ----------- ----------
Balance at
November 30,
1994........... 420,700 95,800 186,250 100,000 498,900 623,091 6,231 7,327,046 (4,469,549) 4,165,378
Accretion of
redeemable
preferred
stock.......... -- -- 4,375 -- -- -- -- (4,375) -- --
Redemption of
Series E
preferred
stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500)
Payment of
accrued
dividends...... -- -- (30,625) -- -- -- -- -- -- (30,625)
Issuance of
stock.......... -- -- -- -- -- 32,682 327 34,393 -- 34,720
Net loss........ -- -- -- -- -- -- -- -- (195,195) (195,195)
-------- ------- -------- -------- -------- ------- ------ ---------- ----------- ----------
Balance at
November 30,
1995........... 420,700 95,800 97,500 100,000 498,900 655,773 6,558 7,357,064 (4,664,744) 3,911,778
Redemption of
Series E
preferred
stock.......... -- -- (97,500) -- -- -- -- -- -- (97,500)
Cumulative
effect of
currency
translation.... -- -- -- -- -- -- -- -- 41,536 41,536
Net income...... -- -- -- -- -- -- -- -- 2,816,104 2,816,104
-------- ------- -------- -------- -------- ------- ------ ---------- ----------- ----------
Balance at
November 30,
1996........... $420,700 $95,800 $ -- $100,000 $498,900 655,773 $6,558 $7,357,064 $(1,807,104) $6,671,918
======== ======= ======== ======== ======== ======= ====== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104
Adjustments to reconcile net income
(loss) to net cash from operating
activities:
Depreciation and amortization of fixed
assets............................... 1,233,267 1,265,934 1,100,320
Amortization of intangible assets..... 641,309 712,348 1,062,406
(Gain) loss on sales of fixed assets.. 18,359 (130,913) (269,654)
Deferred income tax benefit........... -- -- (1,370,557)
Change in deferred revenue............ 184,220 237,306 1,455,013
Changes in operating assets and
liabilities:
Accounts receivable.................. (962,523) (2,516,952) (486,162)
Notes receivable from contracts...... (519,155) 11,000 (1,052,838)
Prepaid expenses, deposits and other
assets.............................. (433,963) (192,666) (660,870)
Accounts payable and accrued
expenses............................ 679,233 3,389,540 2,003,427
Deferred rent and other long-term
liabilities......................... (10,407) 87,490 (36,914)
----------- ----------- -----------
Net cash provided by operating
activities......................... 701,347 2,667,892 4,560,275
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of fixed assets..... 172,747 565,510 862,980
Purchases of fixed assets.............. (445,967) (615,117) (1,134,910)
Software development costs............. -- (203,529) --
Redemption of investment in affiliate.. -- 100,000 --
Acquisitions of chauffeured vehicle
service companies, net of cash
acquired.............................. (114,521) (3,949,393) (1,730,232)
----------- ----------- -----------
Net cash used in investing
activities......................... (387,741) (4,102,529) (2,002,162)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds upon sale of notes receivable
from independent operators............ 378,733 1,493,399 733,793
Principal payments under capital lease
obligations........................... (384,181) (436,169) (243,485)
Preferred stock dividends.............. (30,628) (30,625) --
Payment of notes payable............... (2,277,466) (2,658,521) (3,867,747)
Proceeds from notes payable............ 1,119,515 3,106,808 2,232,443
Issuance of common stock............... -- 34,720 --
Redemption of Series E preferred
stock................................. (62,500) (62,500) (97,500)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............... (1,256,527) 1,447,112 (1,242,496)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents............................ (942,921) 12,475 1,315,617
Cash and cash equivalents at beginning
of year................................ 2,369,105 1,426,184 1,438,659
----------- ----------- -----------
Cash and cash equivalents at end of
year................................... $ 1,426,184 $ 1,438,659 $ 2,754,276
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the "Company") is one of the world's largest
chauffeured vehicle service companies, providing services through a worldwide
network of owned and operated companies, licensees and affiliates serving 420
cities in 65 countries. The Company owns and operates service providers in the
form of wholly-owned subsidiaries in the following cities: New York (Carey
Limousine N.Y., Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles
(Carey Limousine L.A., Inc.), London (Carey UK Limited), Washington, D.C.
(Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.)
and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company
generates revenues from licensing the "Carey" name, and from providing central
reservations, billing, sales and marketing services to its licensees. The
Company's worldwide network also includes affiliates in locations in which the
Company has neither owned and operated locations nor licensees.
Acquisitions and franchises
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses, including licensees operating under the Carey name and trademark.
These acquisitions are accounted for as purchases. The carrying value of the
assets acquired is determined by the negotiated purchase price. In addition to
acquiring licensees operating under the Carey name, the Company has acquired
chauffeured vehicle service businesses in cities in which the Company
operates. In 1995, these acquisitions included chauffeured vehicle service
companies operating in Washington, D.C., Miami, West Palm Beach and San
Francisco. In 1996, the Company acquired a chauffeured vehicle service company
in London, England.
Reverse Stock Split
On February 25, 1997, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares of its common stock in an
initial public offering (the "IPO"). The Board of Directors, at the same
meeting and subject to stockholder approval, authorized a reverse stock split
of approximately one-for-2.3255 of the outstanding shares of the Company's
common stock. A majority of the Company's stockholders have approved the
reverse stock split. All references to common stock, options, warrants and per
share data have been restated to give effect to the reverse stock split. The
Board of Directors also authorized a Recapitalization (see Note 18) on
February 25, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
F-20
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Notes receivable from contracts
An important component of the Company's operating strategy involves the
preferred use of non-employee independent operators chauffeuring their own
vehicles rather than employee chauffeurs operating Company-owned vehicles.
Each independent operator enters into an agreement with the Company to
provide prompt and courteous service to the Company's customers with a
properly maintained, late model vehicle which he or she owns and for which he
or she pays all of the maintenance and operating expenses, including gasoline.
The Company, under the independent operator agreement, agrees to bill and
collect all revenues and remit to the independent operator 60% to 65% of
revenues, as defined in the agreement. Each new operator agrees to pay a one-
time fee generally ranging from $30,000 to $45,000 to the Company under the
terms of the independent operator agreement. Through 1996, the term of the
independent operator agreement generally ranged from 10 years to perpetuity.
(See "Revenue recognition").
The Company typically receives a promissory note from the independent
operator as payment for the one-time fee due under the terms of the Standard
Independent Operator Agreement (see Note 4) and records the note in notes
receivable from contracts. The notes evidencing such financing generally were
sold on a non-recourse basis by the Company to third party finance companies
(see Note 11) in exchange for cash and promissory notes. Since September 1996,
the Company has ceased selling notes to third parties. Such promissory notes
due from finance companies have also been recorded in notes receivable from
contracts in the consolidated balance sheets.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, accounts receivable and notes receivable from contracts. The
Company maintains its cash and cash equivalents with various financial
institutions. In order to limit exposure to any one institution, the Company's
cash equivalents are composed mainly of overnight repurchase agreements
collateralized by U.S. Government securities. Accounts receivable are
generally diversified due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries
and geographies. The Company performs ongoing credit evaluations of its
customers, and may require credit card documentation or prepayment of selected
transactions. Notes receivable from contracts are also geographically
dispersed and are supported by the underlying base of revenue serviced by each
respective independent operator (see Notes 4 and 11). The Company performs
ongoing evaluations of each independent operator's productivity and payment
capacity and has utilized third-party financing to reduce credit exposure.
Fixed assets
Furniture, equipment, vehicles, leasehold improvements and land and building
are stated at cost. Equipment under capital leases is stated at the lower of
the present value of minimum lease payments or the fair market value at the
inception of the lease. Depreciation on furniture, equipment, vehicles and
leasehold improvements is calculated on the straight-line method over the
estimated useful lives of the assets, generally three to five years. The
building owned by the Company is depreciated over 40 years on a straight-line
basis. Sales and retirements of fixed assets are recorded by removing the cost
and accumulated depreciation from the accounts. Gains or losses on sales and
retirements of property are reflected in results of operations.
Intangible assets
Effective September 1, 1991, the Company acquired the Carey name and
trademark and the contract rights to all royalty fee payments by various Carey
licensees for a purchase price of $7 million. These assets are held by Carey
Licensing, Inc. and are being amortized over 40 years.
F-21
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has acquired chauffeured vehicle service companies, all of which
have been accounted for as purchases. For each business acquired which is a
licensee of the Company, the excess of cost over the fair market value of the
net assets acquired is allocated to franchise rights in the consolidated
balance sheet. With respect to acquired businesses which are not licensees of
the Company, the excess of cost over the net assets acquired is allocated to
goodwill. Additional purchase price attributable to the operating performance
of the acquired entities is recorded as goodwill or franchise rights when
determined (see Note 13). Goodwill and franchise rights are amortized over 30
years using the straight-line method. Such amortization is included in
selling, general and administrative expense in the consolidated statement of
operations. The Company evaluates the recoverability of its intangible assets
based on estimated undiscounted cash flows over the lesser of the remaining
amortization periods or calculated lives, giving consideration to revenue
expected to be realized. This determination is based on an evaluation of such
factors as the occurrence of a significant change in the environment in which
the business operates or the expected future net cash flows (undiscounted and
without interest). There have been no adjustments to the carrying value of
intangible assets resulting from this evaluation.
Revenue recognition
Chauffeured vehicle services--The Company's principal source of revenue is
from chauffeured vehicle services provided by its operating subsidiaries. Such
revenue, net of discounts, is recorded when such services are provided. The
Company, through the Carey International Reservation System ("CIRS"), has a
central reservation system capable of booking reservations on behalf of its
licensees and affiliates. Under most circumstances, central reservations are
billed by the Company to the customer when the Company receives a service
invoice from the licensee or affiliate that provided the service. At such
time, the Company also records the gross revenue for the transaction.
Fees from licensees--The Company charges an initial license fee under its
domestic license agreement and records the fee as revenue on signing of the
agreement. The Company also charges its domestic licensees monthly franchise
and marketing fees equal to stated percentages of monthly revenues, as defined
in the licensing agreement. Monthly fees to domestic licensees are generally
less than 10% of the licensee's monthly revenues. The Company records such
fees as revenues as they are charged to the licensees.
International licensees and the Company's domestic and international
affiliates historically have not paid fees to the Company, but have instead
given a discount on business referred to them through CIRS. Such discounts
reduce the amount of service invoices to the Company from such licensees and
affiliates for services provided to customers whose reservations have been
booked and invoiced centrally by the Company.
Independent operator fees--The Company enters into contracts with
independent operators ("Standard Independent Operator Agreements") to provide
chauffeured vehicle services exclusively to the Company's customers. When
independent operator agreements are executed, the Company defers revenue equal
to the amount of the one-time fees and recognizes the fees as revenue over the
terms of the contracts or over 20 years for perpetual contracts. Upon
termination of an independent operator agreement, the remaining deferred
revenue associated with the specific contract, less any amounts due from the
independent operator deemed uncollectible, is recognized as revenue.
Income taxes
The provision for income taxes includes income taxes currently payable and
the change during the year in the net deferred tax liabilities or assets.
Deferred income tax liabilities and assets are determined based on the
differences between the financial statement and tax bases of liabilities and
assets using enacted tax rates in effect for the year in which the differences
are expected to reverse. A valuation allowance is provided to reduce the net
deferred tax asset, if any, to a level which, more likely than not, will be
realized.
F-22
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net income per common share
Consistent with Staff Accounting Bulletin 1B-2, the Company has recalculated
historical weighted average common shares outstanding and net income per
common share to give effect to the following matters pursuant to the
Recapitalization (see Note 18). The recalculated net income per common share
is determined by (i) adjusting net income available to common shareholders to
reflect the elimination in interest expense, net of taxes, resulting from the
conversion of $4,867,546 of subordinated debt into common stock and (ii)
increasing the weighted average common shares outstanding by the number of
common shares resulting from the conversion of such debt, as well as the
partial conversion of the Series A and G Preferred Stock.
Stock-based compensation
In October 1995, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock-
Based Compensation, which is effective for the Company's financial statements
for fiscal years beginning after December 15, 1995. SFAS 123 allows companies
to either account for stock-based compensation under the new provisions of
SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25
("APB 25"), Accounting for Stock Issued to Employees. The Company will
continue to apply the provisions of APB 25 and provide pro forma disclosure in
the notes to the financial statements.
Foreign operations
The Consolidated Balance Sheets include foreign assets and liabilities of
$3.7 million and $2.7 million as of November 30, 1996. The net effects of
foreign currency transactions reflected in income were immaterial. Assets and
liabilities of the Company's foreign operations are translated into United
States dollars using exchange rates in effect at the balance sheet date and
results of operations items are translated using the average exchange rate
prevailing throughout the period.
Reclassifications
Certain accounts in 1994 and 1995 have been reclassified to conform with the
1996 presentation.
3. FEES FROM LICENSEES
The total of all domestic license fees, franchise fees and marketing fees
earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and
$2,180,540, respectively. Amounts due from licensees of $46,520 and $143,041
at November 30, 1995 and 1996, respectively, are included in accounts
receivable in the consolidated balance sheets of the Company.
4. TRANSACTIONS WITH INDEPENDENT OPERATORS
The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in
1994, 1995 and 1996, respectively, as deferred revenue relating to fees from
new agreements with independent operators. Amounts of deferred revenue
recognized as revenues in 1994, 1995 and 1996 amounted to approximately
$969,000, $889,000 and $936,000, respectively.
Notes receivable from contracts include approximately $305,000 and $917,000
at November 30, 1995 and 1996, respectively, for amounts due from independent
operators and approximately $548,000 and $255,000 at November 30, 1995 and
1996, respectively, for amounts due from a related party financing company
(see Note 11).
F-23
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the normal course of business, the Company's independent operators are
responsible for financing their own vehicles through third parties. From time
to time, the Company has arranged lease and purchase financing for certain
vehicles and has in turn leased back such vehicles to independent operators on
terms and conditions similar to those under which the Company is obligated (see
Note 5).
5. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Vehicles.............................................. $2,692,079 $2,337,947
Equipment............................................. 1,699,803 2,200,094
Furniture............................................. 319,597 525,202
Leasehold improvements................................ 252,366 404,888
Land and building..................................... -- 529,634
---------- ----------
4,963,845 5,997,765
Less accumulated depreciation and amortization........ 2,778,774 2,618,519
---------- ----------
Net fixed assets...................................... $2,185,071 $3,379,246
========== ==========
</TABLE>
The Company is obligated under various vehicle and equipment capital leases.
Vehicles and equipment under capital leases included in fixed assets are as
follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1996
-------- ----------
<S> <C> <C>
Equipment............................................... $444,983 $1,048,633
Vehicles................................................ 352,796 621,420
-------- ----------
797,779 1,670,053
Less accumulated amortization........................... 536,713 561,871
-------- ----------
$261,066 $1,108,182
======== ==========
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Bank revolving credit/term loan dated April 13, 1995,
modified December 1, 1996. Collateralized by accounts
receivable of the Company and the pledge of common
stock of the Company's U.S. subsidiaries. Interest only
payable until June 30, 1996; beginning July 1, 1996,
quarterly principal payments are required in an amount
sufficient to amortize the outstanding balance over a
four-year period. Interest is payable monthly at a
floating rate based on the Wall Street Journal prime
plus 1.25% (9.5% at November 30, 1996). This loan is
guaranteed by the Chairman of the Board and the
President of the Company............................... $4,500,000 $3,937,500
Note payable dated September 1, 1991, at an annual rate
of interest of 7.74%, collateralized by the assets of
Carey Licensing, Inc. Pursuant to an agreement with the
lender effective November 30, 1996, principal payments
of $220,000 are due quarterly from December 31, 1996
through December 31, 1997 and a final principal payment
of $240,000 is due March 1, 1998....................... 2,220,000 1,340,000
</TABLE>
F-24
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------
1995 1996
--------- ---------
<S> <C> <C>
Bank line of credit of $1,000,000, dated October 17, 1994,
and collateralized by accounts receivable of Carey NY and
an assignment of license agreement between the Parent and
Carey NY; due April 30, 1997. Interest is payable monthly
at a variable interest rate of .75% above the bank's
prime rate (9.0% at November 30, 1996)................... 990,000 990,000
Various installment notes payable, with interest rates
ranging from 9% to 14.5%, collateralized by certain
vehicles and equipment of the Company's subsidiaries;
principal and interest are payable monthly over 36-month
terms.................................................... 693,002 254,279
Installment notes payable to sellers under acquisition
agreements dated various dates from June 30, 1994 to
September 8, 1995. Interest rates range from 7.5% to
8.5%. Interest is generally payable monthly. Principal is
payable in varying installments.......................... 2,339,418 1,305,574
Convertible note payable to seller under acquisition
agreement dated September 30, 1993 at an annual rate of
7.5%, interest payable quarterly; principal due in two
equal annual installments of $116,667 on January 2, 1996
and 1997. The note was repaid in January 1997............ 233,333 116,666
Bank line of credit of $200,000, dated October 31, 1995 at
a variable interest rate (10% at November 30, 1995),
collateralized by accounts receivable of Carey DC. This
facility was refinanced by a term loan with the same bank
on March 1, 1996......................................... 200,000 --
Amount payable to a seller under acquisition agreement
dated January 1, 1995. Due 30 days after receipt of an
audit of the predecessor company. Amount of the payment
is subject to reduction based on the results of the
audit. The audit has been completed and the amount was
subsequently reduced in 1996 to $210,821 and has been
repaid................................................... 250,000 --
Note payable to bank, dated September 30, 1995, payable in
monthly installments of $4,167 plus interest. Interest
rate is variable at bank's prime plus 1% (10.0% at
November 30, 1996)....................................... 241,667 191,717
Note payable to bank, dated August 30, 1993,
collateralized by accounts receivable, fixed assets and
intangible assets of Carey DC; monthly payments of $9,401
for principal and interest through August 31, 1996.
Interest rate is fixed at 8%. This note was refinanced on
March 1, 1996 by a term loan with the same bank.......... 90,631 --
Note payable to bank dated October 17, 1994,
collateralized by accounts receivable and fixed assets of
Carey NY. Principal and interest payments of $2,848 are
payable monthly. Remaining balance is due October 17,
1999. Interest rate is fixed at 9.25%.................... 189,401 149,001
Bank line of credit of $750,000, dated February 26, 1996
collateralized by accounts receivable of Carey Licensing,
Inc.; due March 31, 1997. Interest is payable monthly at
1% above the Wall Street Journal's "Prime Rate" (9.25% at
November 30, 1996)....................................... -- 750,000
Bank line of credit of $200,000, dated February 26, 1996,
collateralized by accounts receivable of Carey FLA.; due
March 31, 1997. Interest is payable monthly at 1% above
Wall Street Journal's "Prime Rate" (9.25% at November 30,
1996).................................................... -- 200,000
Note payable to bank, dated March 1, 1996, collateralized
by accounts receivable of Carey DC. Monthly payments of
$12,735 of principal and interest through March 1, 2001.
Interest is payable monthly at .5% above the bank's Prime
Rate (9.5% at November 30, 1996)......................... -- 662,053
</TABLE>
F-25
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
----------- ----------
<S> <C> <C>
Note payable to bank, dated May 10, 1996, collateralized
by the land and building held by Carey DC; monthly
payments of $3,863 of principal and interest are due
through April 10, 2001 and a balloon payment of
$375,468 on May 10, 2001. Interest fixed at 8.75%...... -- 423,179
----------- ----------
Total notes payable..................................... 11,947,452 10,319,969
Less current installments............................... 4,585,703 5,131,227
----------- ----------
Long-term portion....................................... $ 7,361,749 $5,188,742
=========== ==========
Subordinated notes payable consist of the following:
Subordinated convertible note dated September 1, 1991,
with the principal of $2,000,000 due on August 30,
2000; interest payable quarterly at a fixed rate of
7.74%. After September 1, 1992, this debt is
convertible into shares of common stock of the Company
at the discretion of the holder at a conversion price
of $6.14. A warrant for the purchase of 86,003 shares
of common stock of the Company was issued in connection
with the note. The warrant is exercisable immediately,
expires at the earlier of the third anniversary of an
initial public offering or November 30, 2001, and has
an exercise price of $6.14 per share. The note contains
certain antidilutive provisions which lower its
conversion price in the event dilutive securities are
subsequently issued by the Company at prices below the
note's conversion price. The warrant has not been
exercised. The terms of the agreement have been
modified as part of the Recapitalization (see Notes 15
and 18)................................................ $ 2,000,000 $2,000,000
Subordinated note dated July 30, 1992; interest only
payable quarterly until September 30, 1995. The
interest rate is fixed at 12%. Principal of $220,000
was paid on September 30, 1995. Pursuant to an
agreement with the lender dated November 30, 1996, no
further payments of principal are due until June 30,
1997, when $220,000 is due. Thereafter, quarterly
principal payments of $220,000 are due until March 31,
1998. On June 30, 1998, the loan balance of $2,240,000
is due. A warrant for the purchase of 616,544 shares of
Class A common stock or common stock was issued, in
connection with the note. The warrant is exercisable
immediately, has an exercise price of $6.14 per share
and expires at the earlier of the fifth anniversary of
the repayment of the note in full or July 30, 2000. The
warrant contains certain antidilutive provisions which
lower the exercise price in the event dilutive
securities are subsequently issued by the Company at
prices below the warrant exercise price. The warrant
has not been exercised. The terms of the agreement have
been modified as part of the Recapitalization (see Note
18).................................................... 3,780,000 3,780,000
Convertible note payable to seller under acquisition
agreement, dated September 30, 1992; interest payable
quarterly at a fixed rate of 7.74%. The note was repaid
in September, 1996. ................................... 100,000 --
----------- ----------
Total subordinated notes payable........................ 5,880,000 5,780,000
Less current installments............................... 100,000 440,000
----------- ----------
Subordinated notes payable, excluding current install-
ments.................................................. $ 5,780,000 $5,340,000
=========== ==========
</TABLE>
F-26
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future annual principal payments on all notes payable at November 30, 1996 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30:
- ------------------------
<S> <C>
1997............................................................ $ 5,571,227
1998............................................................ 5,622,403
1999............................................................ 1,486,254
2000............................................................ 881,183
2001 and thereafter............................................. 2,538,902
-----------
$16,099,969
===========
</TABLE>
Certain loan agreements, principally the Company's line of credit agreement,
contain restrictive covenants which include financial ratios related to
working capital, debt service coverage, debt to net worth and maintenance of a
minimum tangible net worth, and submission of audited financial statements,
prepared in accordance with generally accepted accounting principles, within
120 days after the end of the fiscal year. Additionally, these covenants
restrict the Company's capital expenditures and prohibit the payment of
dividends on the Company's common and preferred stock, except for the Series E
preferred stock. The Company did not meet certain covenants related to the
timely submission of financial statements, working capital, debt to net worth
and maintenance of a minimum tangible net worth at November 30, 1996. The
Company obtained waivers for compliance with these covenants through and
including November 30, 1996.
The carrying value of notes payable approximates the current value of the
notes payable at November 30, 1996. (See Note 17 for discussions of the fair
value for the subordinated debt). Interest paid during the years ended
November 30, 1994, 1995, and 1996 was approximately $1,358,000, $1,662,000 and
$1,682,000, respectively.
7. LEASES
The Company has several noncancelable operating leases, primarily for office
space and equipment, that expire over the next five years. Certain of the
Company's facilities are under operating leases which provide for rent
adjustments based on increases of defined indexes, such as the Consumer Price
Index. These agreements also typically include renewal options.
F-27
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of November 30, 1996
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING NOVEMBER 30 LEASES LEASES
----------------------- -------- ----------
<S> <C> <C>
1997................................................... $233,778 $1,395,093
1998................................................... 171,653 1,277,009
1999................................................... 155,984 662,698
2000................................................... 155,984 245,746
2001................................................... 138,659 219,128
Thereafter............................................. 138,169 --
-------- ----------
Total minimum lease payments........................... 994,227 $3,799,674
==========
Less estimated executory costs......................... 5,189
--------
989,038
Less amount representing interest (at rates ranging
from 9% to 12%)....................................... 126,784
--------
Present value of net minimum capital lease payments.... 862,254
Less current portion of obligations under capital
lease................................................. 199,224
--------
Obligations under capital leases, excluding current
portion............................................... $663,030
========
</TABLE>
During the years ended November 30, 1994, 1995 and 1996 the Company
recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental
revenue under vehicle sublease arrangements with independent operators and
others.
During the years ended November 30, 1994, 1995 and 1996, the Company entered
into capital lease obligations of $79,414, $346,666 and $810,993,
respectively, related to the acquisition of vehicles and equipment.
Total rental expense for operating leases in 1994, 1995 and 1996 was
$1,023,372, $1,314,301 and $2,203,490, respectively.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses is composed of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
---------- -----------
<S> <C> <C>
Trade accounts payable............................... $5,222,306 $ 5,341,834
Accrued expenses and other liabilities............... 2,332,681 4,570,975
Gratuities payable................................... 445,985 458,801
Accrued offering costs............................... -- 825,339
---------- -----------
$8,000,972 $11,196,949
========== ===========
</TABLE>
F-28
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The provision (benefit) for income taxes is composed of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
Federal:
Current...................................... $14,000 $15,000 $ 1,043,689
Deferred..................................... -- -- (1,220,799)
------- ------- -----------
14,000 15,000 (177,110)
------- ------- -----------
State and local:
Current...................................... 5,000 10,000 78,251
Deferred..................................... -- -- (149,758)
------- ------- -----------
5,000 10,000 (71,507)
------- ------- -----------
Foreign:
Current...................................... -- -- 144,371
------- ------- -----------
Total income tax provision (benefit)........... $19,000 $25,000 $ (104,246)
======= ======= ===========
</TABLE>
The Company's tax provision (benefit) for the years ended November 30, 1994,
1995 and 1996, respectively, differs from the statutory rate for federal
income taxes as a result of the tax effect of the following factors:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Statutory rate.......... 34.0% 34.0% 34.0%
State income tax, net of
federal benefit........ (2.8) (2.4) (3.5)
Goodwill amortization... (13.0) (13.0) .8
Non-deductible life
insurance.............. (9.9) (23.8) .4
Meals and entertainment
expenses............... (12.2) (36.5) 1.5
Valuation allowance..... (13.4) 28.1 (38.5)
Other................... -- (1.1) 1.5
-------- -------- --------
(17.3)% (14.7)% (3.8)%
======== ======== ========
</TABLE>
The source and tax effects of temporary differences are composed of the
following:
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1995 1996
----------- -----------
<S> <C> <C>
Allowance for bad debts............................ $ 108,000 $ 176,000
Net operating loss carryforward.................... 266,000 --
Deferred revenue................................... 1,701,000 2,040,000
Deferred state taxes and other..................... 425,000 558,000
----------- -----------
Gross deferred tax asset........................... 2,500,000 2,774,000
Valuation allowance................................ (1,499,000) --
----------- -----------
1,001,000 2,774,000
----------- -----------
Amortization of intangible assets.................. (951,000) (1,350,000)
Other.............................................. (50,000) (53,000)
----------- -----------
Gross deferred tax liability....................... (1,001,000) (1,403,000)
----------- -----------
Net deferred tax asset............................. $ -- $ 1,371,000
=========== ===========
</TABLE>
F-29
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A valuation allowance was provided in 1994 and 1995 to reduce the net
deferred tax asset to $0. In the fourth quarter of 1996, the Company concluded
that it was more likely than not that the net deferred tax asset would be
realized and therefore recorded a deferred tax benefit from the reversal of
the valuation allowance of $1,499,000.
Income taxes paid during the years ended November 30, 1994, 1995 and 1996
amounted to $0, $10,375 and $210,437, respectively.
10. PREFERRED STOCK
The Company has the following series of preferred stock:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1995 1996
---------- ----------
<S> <C> <C>
Series A, par value $10.00, authorized 43,000 shares,
issued and outstanding 42,070 shares (liquidation
preference of $4,207,000 and non-cumulative
dividends of $7.00 per share per annum when declared
by the Board of Directors).......................... $ 420,700 $ 420,700
Series B, par value $10.00, authorized 10,000 shares,
issued and outstanding 9,580 shares (liquidation
preference of $958,000 and non-cumulative dividends
of $5.00 per share per annum when declared by the
Board of Directors)................................. 95,800 95,800
Series E, par value $10.00, authorized 50 shares,
issued and outstanding 12.5 shares at November 30,
1995 (liquidation preference of $97,500)............ 97,500 --
Series F, par value $10.00, authorized 10,000 shares,
issued and outstanding 10,000 shares (liquidation
preference of $1,000,000 and non-cumulative
dividends of $5.00 per share per annum when declared
by the Board of Directors).......................... 100,000 100,000
Series G, par value $10.00, authorized 110,000
shares, issued and outstanding 49,890 shares
(liquidation preference of $4,989,900 and non-
cumulative dividends of $5.00 per share per annum
when declared by the Board of Directors)............ 498,900 498,900
---------- ----------
$1,212,900 $1,115,400
========== ==========
</TABLE>
At the option of preferred stockholders or upon the closing of an
underwritten public offering yielding net proceeds to the Company of at least
$10,000,000 and having an offering price of at least $14.81 per share, each
share of Series B, F and G preferred stock is convertible into the number of
shares of common stock equal to 500, 100 and 100 divided by the conversion
price, respectively. The conversion price as of November 30, 1996 was $7.216,
$7.406 and $7.406 for Series B, F and G preferred stock, respectively. The
Company has reserved 663,759, 135,025 and 633,393 shares of common stock,
respectively, for conversion of the Series B, F, and G preferred stock.
Antidilutive provisions lower the conversion price if certain securities are
issued by the Company at a price below the respective conversion prices then
in effect. The Company must redeem, on a pro rata basis, the outstanding
shares of Series A preferred stock plus for $100 per share any declared and
unpaid dividends upon the completion of an initial public offering yielding
net proceeds to the Company of at least $10,000,000. Series A, B and G
preferred stock have voting rights and Series F preferred stock is non-voting,
except under certain circumstances. (See Note 18 for discussion of the
Recapitalization, pursuant to which all of the preferred stock will be
redeemed or converted into common stock.)
F-30
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. RELATED-PARTY TRANSACTIONS
The Company has invested $750,000 in non-voting redeemable preferred stock
of a privately-held finance company formed for the purpose of providing
financing to the chauffeured vehicle services industry. This entity provides
financing to the Company's independent operators, without recourse to the
Company, for both automobiles and amounts due under independent operator
agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of
independent operator notes receivable to this related-party finance company
for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of
$0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. The unpaid
balances of the promissory notes were $547,930 and $255,664 at November 30,
1995 and 1996, respectively, and are included in notes receivable from
contracts. These promissory notes are due on demand and, generally, monthly
principal payments are received by the Company. These notes generally bear
interest rates of 7%.
It is not practicable to estimate the fair value of the preferred stock
investment in a privately-held company. As a result, the Company's investment
in the privately-held finance company noted above is carried at its original
cost (less redemptions) of $750,000. At April 30, 1996, the total assets
reported by the privately-held company were $10,502,234 and stockholders'
equity was $1,108,448, revenues were $1,088,720 and net income was $96,681.
Pursuant to a stock ownership agreement between the common stockholders of
the related-party finance company and the Company, the Company has an option
to purchase all of the outstanding common stock of the affiliate at $12,500
per common share or market value, if higher. The option is not exercisable
until April 15, 1998.
A guarantee fee of $45,000 has been paid to both the Chairman of the Board
and the President of the Company for guaranteeing certain indebtedness (see
Note 6).
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to various legal
actions which are not material to the financial position, results of
operations or cash flows of the Company.
The Company, certain of the Company's subsidiaries and certain officers and
directors of the Company were named in a civil action filed on May 15, 1996 in
the United States District Court for the Eastern District of Pennsylvania
entitled "Felix v. Carey International, Inc., et al." The plaintiff's
complaint, which purports to be a class action, alleges that the plaintiff and
others similarly situated suffered monetary damages as a result of
misrepresentations by the various defendants in their use of a surface
transportation billing charge. The plaintiff seeks damages in excess of $1
million on behalf of the class for each of the counts in the complaint
including fraud, negligent misrepresentation and violations of the Racketeer
Influenced and Corrupt Organizations law of 1970, which permits the recovery
of treble damages and attorneys' fees. A class has not yet been certified in
this case. The Company filed a motion to dismiss that was denied, and
subsequently has filed an answer denying any liability in connection with this
complaint. The Company has agreed to indemnify and defend its officers and
directors who were named as defendants in the case, subject to conditions
imposed by applicable law. The Company has reached a tentative settlement with
the plaintiff and plaintiff's counsel, which is subject to court approval and
acceptance by the proposed class. The Company does not believe that this
litigation will have a material adverse effect on the financial condition,
results of operations or cash flows of the Company.
13. ACQUISITIONS
In December 1994, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in Boca Raton, Florida and consolidated
the operations within its existing operations in West Palm Beach.
Subsequently, the Company acquired an additional chauffeured vehicle service
company in Boca Raton
F-31
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(in August 1995) and the Carey licensee in Fort Lauderdale--Miami (in April
1995) and consolidated the two additional businesses into the Carey South
Florida operations.
In January 1995, the Company acquired certain assets and liabilities of the
Carey licensee in San Francisco, California ("Carey SF"). Subsequently, the
Company acquired the business of two additional chauffeured service companies
(in May and August 1995) and combined the acquired operations with those of
Carey SF.
In April 1995, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in the Washington, DC area and combined
the acquired operations with those of Carey Limousine D.C., Inc.
In February 1996, the Company acquired the common stock of a chauffeured
vehicle service company in London, England for approximately $1,500,000. The
acquisition was financed through the incurrence of $950,000 in debt and a
payment of $550,000. Additional contingent consideration of up to $1,000,000
may be payable with respect to each of the two years ending February 28, 1998
based on the level of revenues referred to the acquired company by the seller.
As of November 30, 1996, the Company has paid $278,304 in contingent
consideration in the acquisition of the London company. In addition, the
Company is required to pay a standard commission to the seller of the acquired
chauffeured vehicle service company for business referral, which will be
expensed as incurred.
All acquisitions have been accounted for as purchases. The net assets
acquired and results of operations have been included in the financial
statements as of and from, respectively, the effective dates of the
acquisitions. The total consideration was allocated to the assets acquired
based upon their estimated fair values with any remaining consideration
allocated to either franchise rights or goodwill, as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------
1994 1995 1996
------- ---------- ----------
<S> <C> <C> <C>
NET ASSETS PURCHASED
Receivables and other assets.............. $ -- $ -- $ 632,554
Fixed assets.............................. -- 1,703,521 928,377
Franchise rights.......................... -- 1,527,402 89,243
Goodwill.................................. 75,000 4,697,958 447,269
Accounts payable and accrued expenses..... -- -- (367,211)
------- ---------- ----------
Fair value of assets acquired............. $75,000 $7,928,881 $1,730,232
======= ========== ==========
CONSIDERATION
Cash (exclusive of $223,695 cash acquired
in 1996)................................. $75,000 $3,633,620 $1,730,232
Capital leases assumed related to vehicle
acquisitions............................. -- 346,666 --
Notes assumed related to vehicle acquisi-
tions.................................... -- 895,571 --
Uncollateralized promissory notes issued
to sellers............................... -- 3,053,024 --
------- ---------- ----------
Total consideration..................... $75,000 $7,928,881 $1,730,232
======= ========== ==========
</TABLE>
Certain of these acquisitions require the payment of contingent
consideration based on percentages of annual net revenue of the acquired
entities over a defined future period. The Company paid $39,521, $315,773 and
F-32
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$291,755 in the years ended November 30, 1994, 1995 and 1996, respectively, in
contingent consideration and increased goodwill by the same amounts (see Note
2) which is reflected in the table above.
Of the total uncollateralized promissory notes issued to sellers in 1995,
two notes totaling $303,000 were subject to reduction based upon the results
of the acquired entities (see Note 6). The two notes were repaid in 1996 for
approximately $211,000 and the difference of approximately $92,000 reduced by
recorded goodwill.
The unaudited pro forma summary consolidated results of operations assuming
all the acquisitions had occurred for the purposes of the 1995 summary at the
beginning of fiscal 1995, and for the purposes of the 1996 summary at the
beginning of fiscal 1996, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenue.......................................... $ 51,490,000 $ 60,444,000
Cost of revenue.................................. (35,089,000) (41,304,000)
Other expense, net............................... (16,256,000) (16,570,000)
Benefit (provision) for income taxes............. (58,000) 164,000
------------ ------------
Net income....................................... $ 87,000 $ 2,734,000
============ ============
Net income per common share...................... $ .04 $ 1.13
============ ============
Weighted average common shares outstanding....... 2,387,954 2,422,373
============ ============
</TABLE>
14. 401(K) PLAN
The Company sponsors (but has made no contributions to) a defined
contribution plan established pursuant to Section 401(k) of the Internal
Revenue Code for the benefit of employees of the Company.
15. STOCK OPTION PLANS
On December 1, 1987, the Company established a Stock Option Plan (the "1987
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1987 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option price
and the manner in which payment of the option price shall be made. The 1987
Plan provides for the options to be exercised 25% each year beginning after
the year following the grant. The options are exercisable for a period of ten
years after the grant date. The total number of options authorized under the
1987 Plan is 195,656.
On July 28, 1992, the Company established a Stock Option Plan (the "1992
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1992 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option
price, the time or times during the exercise period at which each such option
will become exercisable, and the manner in which payment of the option price
shall be made. The options are exercisable for a period of ten years after
grant date. The total number of options authorized under the 1992 Plan is
388,647.
F-33
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock activity under the 1987 Plan and the 1992 Plan is as follows:
<TABLE>
<CAPTION>
1987 PLAN 1992 PLAN
---------------------- ------------------
OPTION OPTION
PRICE PER PRICE PER
SHARES SHARE SHARES SHARE
------- ------------- ------- ---------
<S> <C> <C> <C> <C>
Balance, December 1, 1993........... 64,502 $ 1.44 385,139 $7.40
Granted............................. -- -- 8,600 7.40
Exercised........................... -- -- -- --
Forfeited........................... -- -- (13,287) --
------- ------------- ------- -----
Balance, November 30, 1994.......... 64,502 1.44 380,452 7.40
Granted............................. -- -- 21,673 7.40
Exercised........................... (32,681) -- -- --
Forfeited........................... (860) -- (60,985) --
------- ------------- ------- -----
Balance, November 30, 1995.......... 30,961 1.44 341,140 7.40
Granted............................. 38,701 4.65 46,373 4.65
Exercised........................... -- --
Forfeited........................... -- (3,010)
------- -------
Balance, November 30, 1996.......... 69,662 $1.44 - $4.65 384,502 $4.65
======= =======
Vested and exercisable at November
30, 1996........................... 43,861 $1.44 - $4.65 340,873 $4.65
======= ============= ======= =====
</TABLE>
In May 1996, the options granted under the 1992 Plan and a warrant to
purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65.
The options and warrant were repriced at the determined fair market value as
of the date of repricing (see Note 18).
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18).
16. REVENUE RECOGNITION METHOD
The Company enters into agreements with independent operators under which
the independent operator contracts to provide chauffeured vehicle services
exclusively to the Company's customers over a contract period pursuant to a
Standard Independent Operator Agreement. Upon signing the Standard Independent
Operator Agreement, the Company is entitled to receive a one-time fee from the
independent operator. Previously, the Company would recognize the one-time fee
as revenue upon signing of the independent operator agreement and when
collection of the fee was reasonably assured. In accordance with APB 20, the
financial statements have been retroactively restated to report such fees as
deferred revenue which are recognized as revenue over the terms of the
contracts (see Note 2). The effect of such restatements was to reduce 1994 and
1995 revenue, results of operations and stockholders' equity by $665,391 and
$1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994 and
1995, respectively).
17. NET INCOME PER COMMON SHARE
Net income per common share, on a historical basis, are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) available to common
shareholders.............................. $ (137,743) $ (199,570) $2,816,104
Weighted average common shares outstand-
ing....................................... 2,392,879 2,387,954 2,422,373
Net income (loss) per common share......... $ (.06) $ (.08) $ 1.16
</TABLE>
F-34
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common equivalent shares are included in the per share calculations where
the effect of their inclusion would be dilutive. Common equivalent shares
consist of common shares issuable upon (a) conversion of Series B, F and G
preferred stock and (b) the assumed exercise of outstanding stock options and
warrants. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin (SAB) No. 83, the common equivalent shares issued by the Company
during the twelve months preceding the anticipated effective date of the
Registration Statement relating to the Company's initial public offering,
using the treasury stock method and an assumed public offering price of $11.00
per share, have been included in the calculation of net income per common
share.
Net income (loss) available to common shareholders is the net income (loss)
for the fiscal year less accretion of dividends on the Series E preferred
stock of $8,750, $4,376 and $0 for 1994, 1995 and 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 simplifies the existing earnings per share (EPS) computations under
Accounting Principles Board Opinion No. 15, "Earnings Per Share," revises
disclosure requirements, and increases the comparability of EPS data on an
international basis. In simplifying the EPS computations, the presentation of
primary EPS is replaced with basic EPS, with the principal difference being
that common stock equivalents are not considered in computing basic EPS. In
addition, FAS 128 requires dual presentation of basic diluted EPS. FAS 128 is
effective for financial statements issued for periods ending after December
15, 1997. The Company's pro forma basic EPS under FAS 128 would have been
$4.29 and dilutive EPS under FAS 128 would not differ significantly from the
reported pro forma net income per share.
18. SUBSEQUENT EVENTS
On February 25, 1997, pursuant to an agreement reached in May 1996, the
Board of Directors authorized a recapitalization (the "Recapitalization"),
which will be implemented at the time of the IPO. Under the Recapitalization,
the $2,000,000 subordinated convertible note dated September 1, 1991 and the
$3,780,000 subordinated note dated July 30, 1992 will be converted or
exchanged for 1,046,559 shares of common stock and payment of $912,454. The
Series A preferred stock will be converted in part into 86,003 shares of
common stock and redeemed in part for $2,103,500. All of the Series F
preferred stock and 3,000 shares of the Series G preferred stock will be
redeemed for an aggregate of $1,000,000. The remaining preferred stock will be
converted into 1,427,509 shares of common stock. As a result of the
Recapitalization, preferred stock with a liquidation preference of $11,154,900
and subordinated debt with a principal amount of $5,780,000 will be converted
in part into 2,560,071 shares of common stock and repaid or redeemed in part
for $4,015,952 in cash. All of the cash amounts will be paid out of the
proceeds of the IPO.
On February 25, 1997, the Board of Directors adopted the 1997 Equity
Incentive Plan (the "1997 Plan"). A total of 650,000 shares of common stock
are reserved for issuance under the 1997 Plan. The Board of Directors also
granted options to purchase at the IPO price a total of 411,500 shares of
common stock under the 1997 Plan, such grants to be effective upon the
execution of an underwriting agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors, subject to stockholder
approval, adopted the Stock Plan for Non-Employee Directors (the "Directors'
Plan"). A total of 100,000 shares of common stock of the Company are reserved
for issuance under the Directors' Plan. Options to purchase at the IPO price a
total of 22,500 shares of common stock will be granted under the Directors'
Plan, such grants to be effective upon the execution of an underwriting
agreement in connection with the IPO.
Also on February 25, 1997, the Board of Directors, approved amendments to
the Company's Certificate of Incorporation increasing the number of authorized
shares of the Company's Common Stock from 9,512,950 to 20,000,000, and
increasing the number of authorized shares of the Company's preferred stock
from 173,050 to 1,000,000.
On March 1, 1997, the Company entered into an agreement to purchase the
stock of Manhattan International Limousine Network Ltd. and an affiliated
company (collectively, "Manhattan Limousine"). Manhattan Limousine is one of
the largest providers of chauffeured vehicle services in the New York
metropolitan area. The Company expects to consummate the acquisition at the
time of the IPO. If the acquisition of Manhattan Limousine is not completed by
May 20, 1997, the Company has agreed to pay additional purchase price in the
amount of $7,500 for each day after such date until the closing of the
acquisition, up to an aggregate of $675,000.
F-35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
Manhattan International Limousine Network Ltd. and Affliliate
We have audited the accompanying combined balance sheet of Manhattan
International Limousine Network Ltd. and Affliliate (collectively, the
"Company") as of September 30, 1996, and the related combined statements of
operations and retained earnings (accumulated deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Manhattan
International Limousine Network Ltd. and Affliliate as of September 30, 1996,
and the combined results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
As discussed in Note 10 to the combined financial statements, the
accompanying combined balance sheet as of September 30, 1996, and the related
combined statement of operations and retained earnings (accumulated deficit)
and cash flows for the year then ended have been restated.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 1, 1997, except
for Note 10 as to which
the date is April 22, 1997
F-36
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 28,
1996 1997
------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents......................... $ 130,494 $ 108,637
Accounts receivable, net of allowances for doubt-
ful accounts of $181,000 and $194,000, respec-
tively........................................... 2,466,134 2,298,735
Receivables from independent operators, current
portion.......................................... 271,086 346,946
Prepaid expenses and other current assets......... 51,499 58,499
----------- -----------
Total current assets........................... 2,919,213 2,812,817
Fixed assets, net................................. 805,724 691,752
Receivables from independent operators, less cur-
rent portion..................................... 7,375,219 7,586,141
Other assets...................................... 1,221,885 1,277,389
----------- -----------
Total assets...................................... $12,322,041 $12,368,099
=========== ===========
<CAPTION>
LIABILITIES
<S> <C> <C>
Current portion of notes payable.................. $ 1,232,457 $ 2,440,445
Accounts payable, trade........................... 1,520,295 1,691,082
Accounts payable, independent operators........... 1,738,072 1,840,487
Accrued expenses.................................. 529,761 538,593
Other current liabilities......................... 240,059 253,339
----------- -----------
Total current liabilities...................... 5,260,644 6,763,946
Notes payable, less current portion............... 4,523,171 2,926,232
Other liabilities................................. 862,875 820,803
Deferred revenue.................................. 6,801,965 6,932,930
Commitments and contingencies
<CAPTION>
STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
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
<CAPTION>
Retained earnings (accumulated deficit):
<S> <C> <C>
MILN............................................ (5,439,073) (5,386,919)
ILN............................................. 134,419 133,067
----------- -----------
Total stockholders' deficiency................. (5,126,614) (5,075,812)
----------- -----------
Total liabilities and stockholders' deficien-
cy............................................ $12,322,041 $12,368,099
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FIVE MONTHS ENDED
SEPTEMBER 30, FEBRUARY 28,
1996 1997
------------------ -------------------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Service revenues, net........... $17,218,728 $ 7,820,209
Interest from independent opera-
tor financing.................. 1,219,819 486,070
----------- -----------
Total revenues.................. 18,438,547 8,306,279
Cost of revenues.................. 11,040,017 5,294,032
----------- -----------
Gross profit.................... 7,398,530 3,012,247
Selling, general and administra-
tive expenses.................... 5,821,899 2,491,047
----------- -----------
Operating income................ 1,576,631 521,200
Interest expense.................. (881,854) (379,898)
Interest income................... 66,000 16,500
----------- -----------
Income before provision for in-
come taxes..................... 760,777 157,802
Provision for income taxes........ 55,014 --
----------- -----------
Net income...................... 705,763 157,802
Accumulated deficit, beginning of
period........................... (5,907,417) (5,304,654)
Distribution to S corporation
stockholder...................... (103,000) (107,000)
----------- -----------
Accumulated deficit, end of peri-
od............................... ($5,304,654) ($5,253,852)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-38
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FIVE
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, 1996 FEBRUARY 28, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................... $705,763 $ 157,802
Adjustments necessary to reconcile net
income
to net cash provided by operating
activities:
Depreciation and amortization........... 258,439 117,335
Change in deferred revenue.............. (279,625) 130,965
Changes in operating assets and
liabilities:
Accounts receivable.................... (377,793) 167,399
Receivables from independent opera-
tors.................................. 139,363 (286,782)
Other assets........................... (103,240) (62,504)
Accounts payable and accrued expenses.. (152,519) 179,619
Accounts payable, independent opera-
tors.................................. 293,731 102,415
Other liabilities...................... (193,582) (28,792)
-------- ---------
Net cash provided by operating
activities........................... 290,537 477,457
-------- ---------
Cash flows from investing activities:
Purchases of fixed assets................ (256,248) (3,363)
-------- ---------
Net cash used in investing
activities........................... (256,248) (3,363)
-------- ---------
Cash flows from financing activities:
Net borrowings (payments) on line of
credit.................................. 261,802 (436,053)
Proceeds from borrowings under notes
payable................................. 310,000 800,000
Principal payments on notes payable...... (412,643) (752,898)
Distribution to S corporation
stockholder............................. (103,000) (107,000)
-------- ---------
Net cash provided by (used in)
financing activities................. 56,159 (495,951)
-------- ---------
Net change in cash and cash equivalents... 90,448 (21,857)
Cash and cash equivalents, beginning of
period................................... 40,046 130,494
-------- ---------
Cash and cash equivalents, end of period.. $130,494 $ 108,637
======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-39
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
Manhattan International Limousine Network Ltd. and its wholly-owned
subsidiary (collectively, "MILN") are engaged primarily in the business of
providing chauffeured vehicle services in New York City and the surrounding
areas, and providing reservation and billing services to both individual and
corporate customers worldwide through an affiliation with a network of
independent chauffeured vehicle service companies. International Limousine
Network Ltd. ("ILN") is an affiliated company (the "Affiliate") engaged in
sales and marketing activities exclusively on behalf of MILN.
The accompanying financial statements combine the accounts of MILN and ILN
because such entities are under common control. All intercompany transactions
have been eliminated. The combined entities are referred to herein as the
"Company."
ILN operates on a calendar year. As a result, the accompanying financial
statements as of and for the year ended September 30, 1996 include the effects
of combining the financial statements of ILN as of and for the year ended
December 31, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
Receivables from Independent Operators and Accounts Payable, Independent
Operators
The Company enters into agreements with independent operators (franchisees)
under which the independent operator contracts to provide chauffeured vehicle
services exclusively to the Company's customers over the contract period. Upon
signing the agreement, the Company is entitled to receive a one-time fee from
the independent operator.
The Company generally receives a minimal down payment from the independent
operator together with a promissory note (see Note 3) and records the note as
a receivable from the independent operator, but does not recognize revenue at
that time. (See Revenue Recognition.) In addition, the Company collects all
billings for services rendered by the independent operator and has the right
to withhold and remit, from the independent operator's earnings, all payments
due to the Company and certain third parties for, among other things, note
payments, two-way radio charges and lease obligations on vehicles, on a
monthly basis. The Company is then obligated to remit the balance of the
independent operator's earnings on a monthly basis. The unpaid balance due to
independent operators at the end of a given period is reflected as accounts
payable, independent operators in the accompanying balance sheet.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk include cash and cash equivalents, accounts
receivable and receivables from independent operators. The Company maintains
its cash and cash equivalents with various financial institutions. Accounts
receivable are generally diversified due to the large number of entities
comprising the Company's customer base and their dispersion across many
different industries. The Company performs ongoing credit evaluations of its
customers, and may require credit card documentation or prepayment of certain
transactions. Receivables from independent operators are supported by the
underlying base of revenues serviced by each respective independent operator.
The Company performs ongoing evaluations of the productivity and payment
capacity of each independent operator in order to manage its credit risk.
F-40
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Fixed Assets
Fixed assets are stated at cost. Depreciation on furniture, equipment,
vehicles and leasehold improvements is calculated on the declining balance
method over the estimated useful lives of the assets or the leaseholds,
generally three to five years. Buildings and improvements are depreciated on
the straight line method over 20 years. Sales and retirements of fixed assets
are recorded by removing the cost and accumulated depreciation from the
accounts. Gains and losses on sales of property are reflected in the results
of operations.
Intangible Assets
The Company owns Federal Communications Commission licenses to three radio
frequencies which it uses in the dispatch of vehicles used in its business.
The licenses have been fully amortized in prior years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Service revenues include fees derived from chauffeured vehicle services
provided by the Company's independent operators. Revenue is recorded for
chauffeured vehicle services when those services are provided.
When the Company enters into an agreement with an independent operator, the
Company defers revenue equal to the amount of the contract and recognizes
those fees over the term of the contract, typically 20 years. Amortization of
deferred revenue is also included in independent operator service revenues in
the accompanying combined statements of operations. Upon termination of an
agreement, the remaining deferred revenue associated with the contract, less
any amounts due from the independent operators deemed uncollectible, is
recognized as revenue immediately.
As described above, the Company typically provides extended financing terms
to its independent operators for payment of the independent operator fee.
Interest income is recognized as earned over the term of the loan agreement
with the independent operator.
The Company provides reservation services to its customers for service in
other locations through its affiliation with a network of independent service
companies. Revenue related to services provided by a member of the network is
recognized as chauffeured vehicle service revenue when a gross service bill is
received from the member. The corresponding liability to the member, reduced
by the Company's discount, is recorded as a cost of revenue by the Company at
such time.
Income Taxes
For MILN, the provision for income taxes includes income taxes currently
payable and the change during the year in the net deferred tax assets or
liabilities. Deferred income tax assets and liabilities are determined based
on the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is provided to
reduce the net deferred tax asset, if any, to a level which, more likely than
not, will be realized.
F-41
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
ILN has elected to be treated as an "S corporation" under provisions of the
Internal Revenue Code. As such, the income tax effects of ILN's operations are
borne directly by the stockholder, and no provision for ILN income taxes is
recorded in the accompanying financial statements.
Unaudited Interim Financial Statements
The combined financial statements as of and for the five-month period ended
February 28, 1997 are unaudited. In the opinion of management, those unaudited
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present the financial statements on a
basis substantially consistent with the annual audited financial statements
contained herein. All disclosures herein related to February 28, 1997 and for
the five-month period ended February 28, 1997 are unaudited.
3. TRANSACTIONS WITH INDEPENDENT OPERATORS
At the time the Company enters into an agreement with an independent
operator, the Company is entitled to receive a one-time fee. Those fees are
typically financed by the Company over 20 years at an interest rate of 15.75%
per annum. Independent operator fees are recognized as revenue ratably over
the terms of the agreements. In the opinion of management, the carrying value
of the loans approximates their fair value. Revenue recognized from
independent operator fees was $514,632 and $203,118 for the year ended
September 30, 1996 and for the five-month period ended February 28, 1997,
respectively.
The Company's independent operators are responsible for financing their own
vehicles through third parties. Under programs the Company has established
with several automotive leasing organizations, the Company guarantees lease
payments until the independent operator has made twelve monthly lease
payments. As of September 30, 1996, the Company's independent operators had
aggregate lease obligations of $2,203,158 under these programs.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 28,
1996 1997
------------- ------------
<S> <C> <C>
Land............................................... $ 62,569 $ 62,569
Buildings and improvements......................... 676,730 677,557
Furniture, fixtures and equipment.................. 3,086,224 3,088,760
Vehicles........................................... 344,170 344,170
---------- ----------
4,169,693 4,173,056
Less accumulated depreciation...................... 3,363,969 3,481,304
---------- ----------
Net fixed assets................................... $ 805,724 $ 691,752
========== ==========
</TABLE>
Depreciation expense was $258,439 and $117,335 for the year ended September
30, 1996 and for the five-month period ended February 28, 1997, respectively.
F-42
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 28,
1996 1997
------------- ------------
<S> <C> <C>
Line of credit of up to $2,000,000 under agreement dated
December 27, 1994, collateralized by substantially all of
the Company's assets; availability up to 80% of eligible
accounts receivable at any date; interest payable monthly
at prime plus 6%. In addition to interest obligations,
agreement requires payment of annual facility fee equal
to 1% of total line, as well as monthly and quarterly
administration fees. The agreement terminates on December
27, 1997, after which it is automatically renewable
unless terminated by either party as of any anniversary
date, with 60 days prior written notice. Certain
stockholders of the Company are guarantors on the
Company's behalf......................................... $ 1,864,967 $ 1,428,914
First mortgage note on headquarters premises dated April
12, 1989, original principal of $1,200,000, subject to
fixed monthly installments of principal, and interest at
a rate of 14.75%......................................... 310,000 --
First mortgage note on headquarters premises dated January 17,
1997, original principal of $800,000, interest at 10.75%
for the first year, after which rate becomes variable at
prime plus 2.5%. Interest and principal payments due
monthly based on 15-year amortization, with balloon
payment due on fifth anniversary......................... -- 790,000
Various installment notes payable with interest rates
ranging from 10.75% to 14.75%, and collateralized by
certain independent operator agreements and receivables
from independent operators of the Company. Principal and
interest payments are due monthly over 60-month terms.... 3,228,364 2,876,391
Notes payable, collateralized by certain equipment,
principal and interest due monthly over terms of 24-39
months................................................... 352,297 271,372
----------- -----------
5,755,628 5,366,677
Less current portion 1,232,457 2,440,445
----------- -----------
Notes payable, less current portion $ 4,523,171 $ 2,926,232
=========== ===========
</TABLE>
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:
<TABLE>
<S> <C>
1997.............................. $1,232,457
1998.............................. 2,747,898
1999.............................. 542,673
2000.............................. 588,368
2001.............................. 175,732
Thereafter........................ 468,500
----------
Total............................. $5,755,628
==========
</TABLE>
F-43
<PAGE>
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:
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE FIVE
ENDED MONTHS ENDED
SEPTEMBER 30, FEBRUARY 28,
1996 1997
------------- -------------
<S> <C> <C>
Federal--Current................................. $ 15,845 $ --
State and local--Current......................... 39,169 --
--------- -----
Total income tax provision....................... $ 55,014 $ --
========= =====
</TABLE>
The Company's effective income tax rates differed from the applicable
Federal statutory rate due to the following:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE FIVE
SEPTEMBER 30, MONTHS ENDED
1996 FEBRUARY 28, 1997
------------- -----------------
<S> <C> <C>
Federal statutory rate...................... 34% 34%
State and local income taxes................ 13 13
Effect of income of S corporation........... (9) --
Reduction as a result of deferred tax asset
valuation allowance........................ (43) (35)
Other, primarily nondeductible travel and
entertainment.............................. 12 (12)
--- ---
Effective income tax rate................... 7% 0%
=== ===
</TABLE>
As of September 30, 1996, for federal income tax purposes, the Company had
net operating loss (NOL) carryforwards of $1,955,055 available to offset
future taxable income, which expire from 2004 to 2010.
The source and tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, FEBRUARY 28,
1996 1997
------------- ------------
<S> <C> <C>
NOL carryforwards................................. $ 914,574 $ 731,140
Revenue recognition of independent operator fees.. 857,606 877,700
Other............................................. -- 111,152
Valuation allowance............................... (1,772,180) (1,719,992)
----------- -----------
Net deferred tax asset (liability)................ $ -- $ --
=========== ===========
</TABLE>
Income taxes paid amounted to $14,505 and $0 for the year ended September
30, 1996 and for the five-month period ended February 28, 1997, respectively.
F-44
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. RELATED PARTY TRANSACTIONS
Included in other noncurrent liabilities are loans from officers of the
Company with remaining principal balances of $358,444 and $288,672 as of
September 30, 1996 and February 28, 1997, respectively. The loans have
interest rates of 12.5% and are payable in equal installments of principal and
interest over terms of 15 years. Aggregate principal payments under the loans
were due as follows as of September 30, 1996:
<TABLE>
<S> <C>
1997......................... $ 77,786
1998......................... 10,781
1999......................... 12,209
2000......................... 13,825
2001......................... 15,656
Thereafter................... 228,187
--------
Total........................ $358,444
========
</TABLE>
During the year ended September 30, 1996 and the five-month period ended
February 28, 1997, the Company took one-time charges related to advances to a
non-combined affiliate of approximately $218,000 and $7,000, respectively,
which are included in selling, general and administrative expenses.
8. CONTINGENCIES
The Company is involved in various legal actions which arise in the normal
course of business. Management of the Company does not believe the ultimate
resolution of these actions will have a material effect on the financial
position, results of operations or cash flows of the Company.
9. MAJOR CUSTOMER
The Company has one customer which accounted for approximately 18.0% of
service revenues for the year and five-month periods ended September 30, 1996
and February 28, 1997, respectively.
10. RESTATEMENTS
The Company enters into agreements with independent operators under which
the independent operator contracts to provide chauffeured vehicle services
exclusively to the Company's customers over a contract period. Upon signing
the contract, the Company is entitled to receive a one-time fee from the
independent operator. Previously, the Company recognized the one-time fee as
revenue upon signing of the agreement. In accordance with Opinion No. 20 of
the Accounting Principles Board, "Accounting Changes", the financial
statements have been retroactively restated to report such fees as deferred
revenue which are recognized as revenue over the terms of the contracts (see
Note 2). The effects of such restatements were to increase results of
operations and stockholders' equity by $5,996 for the year ended September 30,
1996. The Company uses a network of independent service companies to provide
chauffeured vehicle services to its customers. Certain previously unrecognized
costs related to these services have been retroactively recorded. The effects
of such restatements were to decrease results of operations by $301,984 for
the year ended September 30, 1996, and to increase stockholders' deficiency by
$432,671 as of September 30, 1996.
11. SUBSEQUENT EVENT
On March 1, 1997, the stockholders of MILN and ILN agreed to sell their
stock to Carey International, Inc., a company providing chauffeured vehicle
services.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of Camelot Barthropp Limited (formerly Speed 6060 Limited):
We have audited the accompanying balance sheet of Camelot Barthropp Limited
as of December 31, 1995, and the related statement of operations for the
period from August 4, 1995 to December 31, 1995, all expressed in pounds
sterling. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. These standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Camelot Barthropp Limited as of December
31, 1995, and the results of its operations for the period from August 4, 1995
to December 31, 1995, in conformity with accounting principles generally
accepted in the United Kingdom (which differ in certain respects from
generally accepted accounting principles in the United States--see note 16).
Coopers & Lybrand
Chartered Accountants and Registered
Auditors
London, England
February 26, 1996, except notes 15 and 16
which are dated February 25, 1997
F-46
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
NOTE 1995
---- ---------
(Pounds)
<S> <C> <C>
Revenues--continuing operations.................................. 1,266,924
Other operating income........................................... 4 7,700
---------
1,274,624
Expenditures--continuing operations
Vehicle operating costs........................................ 97,119
Other external charges......................................... 362,520
Staff costs.................................................... 3 423,286
Depreciation................................................... 4 114,914
Other operating charges........................................ 4 163,363
---------
1,161,202
---------
Net income on ordinary activities before taxation................ 113,422
Tax on ordinary activities....................................... 5 60,256
---------
Net income on ordinary activities after taxation................. 53,166
Dividends payable................................................ --
---------
Net income retained.............................................. 53,166
=========
</TABLE>
The Company has no recognized gains or losses other than the income above and
therefore no separate statement of total recognized gains and losses has been
presented.
There is no difference between the income on ordinary activities before
taxation and the retained income for the period stated above and their
historical cost equivalents.
The Company was incorporated on August 4, 1995, and as a result, there are no
comparative figures.
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
BALANCE SHEET AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
NOTE 1995
---- ---------
(Pounds)
<S> <C> <C>
Fixed assets
Tangible assets................................................ 6 659,293
---------
Current assets
Inventories.................................................... 7 9,747
Receivables.................................................... 8 548,103
Called up share capital not paid............................... 911,000
Cash at bank and in hand....................................... 366,912
---------
1,835,762
Current liabilities.............................................. 9 1,530,889
---------
Net current assets............................................... 304,873
---------
964,166
=========
Represented by:
Shareholders' equity
Called up share capital........................................ 11 92,000
Share premium account.......................................... 11 819,000
Retained earnings.............................................. 12 53,166
---------
Total shareholders' equity................................... 964,166
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
1. BASIS OF PREPARATION
The accompanying financial statements of Camelot Barthropp Limited
(previously Speed 6060 Limited) have been prepared in conformity with
accounting principles generally accepted in the United Kingdom ("U.K. GAAP"),
and are presented under the historical cost convention. These principles
differ in certain material respects from generally accepted accounting
principles in the United States ("U.S. GAAP"); see note 16. All amounts are
expressed in pounds sterling ("(Pounds)").
The accompanying financial statements do not represent the U.K. statutory
financial statements of Camelot Barthropp Limited, as certain
reclassifications and changes in presentation and disclosure have been made to
the U.K. financial statements prepared on a statutory basis in order to
conform, more closely with accounting presentation and disclosure requirements
applicable in the United States. The financial statements of Camelot Barthropp
Limited for the period from August 4, 1995 to December 31, 1995, on which the
auditors' report was unqualified, were the first prepared since its
incorporation. These were not full statutory financial statements and
therefore have not been delivered to the Registrar of Companies in England and
Wales.
The ultimate parent undertaking of Camelot Barthropp Limited was The Savoy
Hotel PLC, a company incorporated under the laws of England throughout the
period from August 4, 1995 to December 31, 1995, of these financial
statements.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for an accounting period. Such estimates and assumptions could
change in the future as more information becomes known or circumstances alter,
such that Camelot Barthropp Limited's actual results may differ from the
amounts reported and disclosed in the financial statements.
DEPRECIATION
Depreciation is provided so as to write off the cost being the market value
of motor vehicles acquired from a fellow subsidiary undertaking less the
estimated residual value of fixed assets over their expected useful lives.
Depreciation on a straight line basis, mainly at the following annual rates:
<TABLE>
<S> <C>
Motor vehicles --25%
Furniture and equipment --10%-20%
Improvements to premises --10%
</TABLE>
INVENTORIES
Inventories are valued at the lower of cost or net realizable value.
DEFERRED TAXATION
Provision is made for deferred taxation using the liability method at
current taxation rates on all material timing differences to the extent that
it is probable that a liability or asset will crystallize.
REVENUES
Revenues represent the invoiced value of services provided, excluding sales
related taxes.
F-49
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies have been translated into
sterling at the rates ruling at the balance sheet date.
OPERATING LEASES
Rentals paid under operating leases are charged to operations on a straight
line basis over the lease term.
PENSION COSTS
The Company contributes into both defined benefit and defined contribution
schemes. An appropriate share of the costs of the pension schemes administered
by the parent undertaking, which are a defined benefit scheme and a defined
contribution scheme, are charged to operations for this Company in respect of
staff who are members of these schemes. Full details of these schemes are
disclosed in the financial statements of The Savoy Hotel PLC. The pension cost
charge for defined contribution schemes represents the amounts payable to
insurance companies in respect of the funds for the year to December 31.
F-50
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
3. STAFF COSTS
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1995 TO
DECEMBER 31, 1995
-------------------
(Pounds)
<S> <C>
Wages and salaries.......................................... 391,924
Social security costs....................................... 28,242
Pension costs............................................... 3,120
---------------
(Pounds)423,286
===============
Pension costs comprise:
Payments to funded defined contribution schemes........... 320
Charges in respect of group scheme........................ 2,800
---------------
(Pounds) 3,120
===============
The average weekly number of employees during the period was as follows:
NUMBER
---------------
Chauffeurs and support staff................................ 43
Administration.............................................. 6
---------------
49
===============
Directors' remuneration was as follows:
Remuneration as executives................................ Nil
Pension contributions..................................... Nil
Compensation for loss of office........................... Nil
---------------
(Pounds) Nil
===============
Emoluments excluding pension:
Chairman's emoluments..................................... (Pounds) Nil
===============
Highest paid director's emoluments........................ (Pounds) Nil
===============
</TABLE>
The number of directors (including the chairman and highest paid director)
who received emoluments (excluding pension contributions) in the following
ranges was:
<TABLE>
<S> <C>
NUMBER
------
(Pounds)0-(Pounds)5,000............. 4
======
</TABLE>
No director waived emoluments in respect of the period ended December 31,
1995.
The statement of operations for the period from August 4, 1995 to December
31, 1995 includes no head office management recharges from the parent
undertaking in respect to the services provided by the directors of Camelot
Barthropp Limited and other corporate overheads.
F-51
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
4. INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1995 TO
DECEMBER 31, 1995
------------------
(Pounds)
<S> <C>
The income on ordinary activities before taxation is stated
after charging:
Marketing recharge from parent........................... 27,484
Depreciation............................................. 114,914
Operating leases--hire of plant and machinery............ 4,217
--other operating leases................................. 10,000
=======
and after crediting:
Rent receivable.......................................... 5,526
Sundry income............................................ 417
Gain on disposal of tangible fixed assets................ 1,757
Other operating income................................... 7,700
=======
</TABLE>
5. TAXATION
<TABLE>
<CAPTION>
FOR THE PERIOD
AUGUST 4, 1995 TO
DECEMBER 31, 1995
------------------
(Pounds)
<S> <C>
UK corporation tax on ordinary activities for the period at
33%....................................................... 60,256
======
</TABLE>
6. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
SHORT LEASEHOLD MOTOR FURNITURE AND
PREMISES VEHICLES EQUIPMENT TOTAL
--------------- -------- ------------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Cost
At August 4, 1995............ -- -- -- --
Additions.................... 7,591 763,686 57,952 829,229
Disposals.................... -- (55,022) -- (55,022)
----- ------- ------ -------
At December 31, 1995......... 7,591 708,664 57,952 774,207
----- ------- ------ -------
Accumulated depreciation
At August 4, 1995............ -- -- -- --
Charge for the Year.......... 770 104,144 10,000 114,914
Disposals.................... -- -- -- --
----- ------- ------ -------
At December 31, 1995......... 770 104,144 10,000 114,914
----- ------- ------ -------
Net Book Value
At December 31, 1995......... 6,821 604,520 47,952 659,293
===== ======= ====== =======
</TABLE>
F-52
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
7.INVENTORIES
<TABLE>
<CAPTION>
1995
---------
(Pounds)
<S> <C>
Raw materials and consumables:
Vehicle spare parts.............................................. 5,369
Petrol and oil................................................... 4,378
---------
9,747
=========
8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade receivables.................................................. 337,960
Amounts owed by parent undertaking................................. 155,164
Other receivables.................................................. 4,784
Prepayments and accrued income..................................... 50,195
---------
548,103
=========
9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade accounts payable............................................. 95,414
Borrowings from parent undertaking................................. 230,607
Borrowings from fellow subsidiary.................................. 936,674
Corporation tax.................................................... 60,256
Other taxes and social security.................................... 73,542
Other creditors.................................................... 5,605
Accruals........................................................... 128,791
---------
1,530,889
=========
</TABLE>
10.DEFERRED TAXES
Provision for deferred taxes has been made in the financial statements in
accordance with the Company's accounting policy. The provision and the full
potential liability are as follows:
<TABLE>
<CAPTION>
1995
------------------------
POTENTIAL
PROVISION LIABILITY
--------- --------------
<S> <C> <C>
Accelerated capital allowances..................... -- (Pounds)17,875
=== ==============
</TABLE>
11.SHARE CAPITAL AND SHARE PREMIUM
<TABLE>
<CAPTION>
1995
--------
(Pounds)
<S> <C>
Authorized:
Ordinary Shares of (Pounds)1...................................... 100,000
=======
</TABLE>
F-53
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
The Company was incorporated on August 4, 1995 with 1,000 Ordinary Shares of
(Pounds)1 each. On August 30, 1995 the authorized share capital of the Company
was increased by 99,000 Ordinary Shares of (Pounds)1 each.
<TABLE>
<CAPTION>
NUMBER NOMINAL SHARE TOTAL
ISSUED VALUE PREMIUM CONSIDERATION
------ ------- ------- -------------
<S> <C> <C> <C> <C>
Allotted, called up and fully paid:
Ordinary Shares of (Pounds)1............ 92,000 92,000 819,000 911,000
====== ====== ======= =======
</TABLE>
On August 8, 1995, 1,000 shares were issued to The Savoy Hotel PLC at par.
On August 30, a further 91,000 shares were issued to The Savoy Hotel PLC at a
price of (Pounds)10.00 per share
12. RETAINED EARNINGS
<TABLE>
<CAPTION>
1995
--------
(Pounds)
<S> <C>
At August 4, 1995................................................... --
Retained income for the period...................................... 53,166
-------
At December 31, 1995................................................ 53,166
=======
13. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY
<CAPTION>
1995
--------
(Pounds)
<S> <C>
Opening shareholders' equity........................................ --
Issue of share capital.............................................. 92,000
Share premium....................................................... 819,000
Total recognized gains for the period............................... 53,166
-------
Closing shareholders' equity........................................ 964,166
=======
</TABLE>
14. FINANCIAL COMMITMENTS
a) The Company has annual commitments under operating leases as set out
below:
<TABLE>
<CAPTION>
1995
------------------
LAND AND
BUILDINGS OTHER
--------- --------
(Pounds) (Pounds)
<S> <C> <C>
Leases which expire:
In the next year...................................... -- 3,363
In the second to fifth years.......................... -- 5,504
After five years...................................... -- --
--- -----
-- 8,867
=== =====
</TABLE>
b) Capital commitments:
<TABLE>
<CAPTION>
1995
--------
(Pounds)
<S> <C>
Capital expenditure contracted for but not provided in the fi-
nancial statements............................................ --
===
Capital expenditure approved by the directors but not con-
tracted for................................................... --
===
</TABLE>
F-54
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
15. POST BALANCE SHEET EVENTS
The parent undertaking sold Camelot Barthropp Limited to Carey
International, Inc. for an initial consideration of (Pounds)788,843. Further
consideration of (Pounds)672,752 will become payable on the parent undertaking
providing certain thresholds of business for Camelot Barthropp Limited are
achieved during the period to March 31, 1998.
16. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP
The financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP"). These
accounting principles differ in certain material respects from the accoounting
principles generally accepted in the United States ("U.S. GAAP"). Described
below are the material differences between U.K. GAAP and U.S. GAAP affecting
the net income and shareholders' equity which are set forth in the tables that
follow.
TRANSFER OF ASSETS BETWEEN FELLOW SUBSIDIARIES
Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow
subsidiary with the same parent undertaking, at their fair value. The
difference between the fair value and the historical cost of these assets will
result in an intragroup gain or loss in the statement of operations of the
subsidiary selling the assets. The assets would remain at their fair value in
the subsidiary that acquired the assets and the associated depreciation charge
would be provided on these fair values. Under U.S. GAAP, assets can only be
transferred from one subsidiary to a fellow subsidiary with the same parent
undertaking, at their historical cost. As a result, under U.S. GAAP, no
intragroup gain or loss would arise from the transaction, the assets would
remain at historical cost and the associated depreciation charge would be
provided on these historical costs.
ALLOCATION OF EXPENSES IN A "CARVE OUT" SITUATION
Under U.K. GAAP, certain costs incurred by the parent undertaking may not be
reflected in the subsidiary financial statements; however, disclosure of this
fact is generally provided in the subsidiary financial statements. Under U.S.
GAAP, historical income statements of a subsidiary should reflect all costs
incurred by the parent undertaking on its behalf, such as officer salaries and
corporate overheads.
DEFERRED TAXES
Under U.K. GAAP, deferred taxation is accounted for using the liability
method to the extent that it is considered probable that a liability will
crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is
provided for on all temporary differences and carryforwards. Deferred tax
assets are recognised to the extent that it is more likely than not that they
will be realized. Where doubt exists as to whether a deferred tax asset will
be realized, an appropriate valuation allowance is established.
STOCK SUBSCRIPTIONS
Under U.K. GAAP the amount of the shares issued, including those issued
pursuant to a stock subscription receivable, is shown on the face of the
balance sheet. Any subscription receivable due on these shares would be shown
separately in the balance sheet. Under U.S. GAAP, the net amount of the shares
being the amount of the shares issued after deducting any subscriptions
receivable therefrom, is shown on the face of the balance sheet.
F-55
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
The effect of the above noted differences between U.K. and U.S. GAAP are as
follows:
(A)NET INCOME
The approximate effects on net income of material differences between U.K.
and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 4, 1995 TO
DECEMBER 31, 1995
--------------------
(Pounds)
<S> <C>
Net income reported under U.K. GAAP................... 53,166
Transfer of assets -- depreciation adjustment......... 15,590
Allocation of expenses................................ (21,170)
Deferred taxes........................................ (17,875)
Tax effect of U.S. GAAP reconciling adjustments....... 1,844
--------
Net income reported in accordance with U.S. GAAP...... 31,555
========
(B)SHAREHOLDERS' EQUITY
The approximate effects on shareholders' equity of material differences
between U.K. and U.S. GAAP are as follows:
<CAPTION>
AT DECEMBER 31, 1995
--------------------
(Pounds)
<S> <C>
Shareholders' equity reported under U.K. GAAP......... 964,166
Gain on transfer of assets--fixed assets.............. (112,500)
--amounts payable..................................... 112,500
--depreciation adjustment............................. 15,590
Allocation of expenses................................ (21,170)
Stock subscriptions................................... (911,000)
Deferred taxes........................................ (17,875)
Tax effect of U.S. GAAP reconciling adjustments....... 1,844
--------
Shareholders' equity reported in accordance with U.S.
GAAP................................................. 31,555
========
</TABLE>
F-56
<PAGE>
CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
(C)STATEMENTS OF CASH FLOWS
Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are
established under the law of any European Community State are exempt from
including a statement of cash flows in their financial statements. Under U.S.
GAAP, the statement of cash flows is required and therefore is shown below:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
AUGUST 4, 1995
TO DECEMBER 31, 1995
--------------------
(Pounds)
<S> <C>
Cash flows from operating activities
Net income.......................................... 31,555
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of fixed assets..... 99,324
Gain on sale of fixed assets...................... (1,757)
Change in operating assets and liabilities:
Receivables..................................... (548,103)
Inventories..................................... (9,747)
Current liabilities............................. 738,861
--------
Net cash provided by operating activities..... 310,133
--------
Cash flows from investing activities:
Proceeds from gain of fixed assets.................. 56,779
--------
Net cash provided by investing activities..... 56,779
--------
Net increase in cash and cash equivalents............. 366,912
Cash and cash equivalents at beginning of year........ --
--------
Cash and cash equivalents at end of year.............. 366,912
========
</TABLE>
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of Speed 6060 Limited (formerly Camelot Barthropp Limited):
We have audited the accompanying balance sheets of Speed 6060 Limited as of
December 31, 1994 and 1995, and the related statements of operations for each
of the two years in the period ended December 31, 1995, all expressed in
pounds sterling. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. These standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Speed 6060 Limited as of December 31, 1994
and 1995, and the results of its operations for each of the two years in the
period ended December 31, 1995, in conformity with accounting principles
generally accepted in the United Kingdom (which differ in certain respects
from generally accepted accounting principles in the United States--see note
16).
Coopers & Lybrand
Chartered Accountants and Registered
Auditors
London, England
February 26, 1996, except note 16
which is dated February 28, 1997
F-58
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
NOTE 1994 1995
---- --------- ---------
(Pounds) (Pounds)
<S> <C> <C> <C>
Revenues--discontinued operations................... 2,694,693 1,849,242
Other operating income.............................. 4 79,056 38,142
--------- ---------
2,773,749 1,887,384
--------- ---------
Expenditures--discontinued operations
Vehicle operating costs........................... 329,701 216,200
Other external charges............................ 537,423 403,330
Staff costs....................................... 3 1,086,203 710,084
Other operating charges........................... 4 647,327 509,688
--------- ---------
2,600,654 1,839,302
--------- ---------
Operating income.................................... 173,095 48,082
Gain on the disposal of fixed assets to a fellow
subsidiary......................................... -- 112,500
--------- ---------
Income on ordinary activities before tax............ 173,095 160,582
Tax on ordinary activities.......................... 5 62,252 30,604
--------- ---------
Net income on ordinary activities after taxation.... 110,843 129,978
Dividend payable.................................... 110,000 275,000
--------- ---------
Net income (loss) retained.......................... 843 (145,022)
========= =========
</TABLE>
The Company has no recognized gains or losses other than the income (losses)
above and therefore no separate statement of total recognized gains and losses
has been presented.
There is no difference between the income on ordinary activities before
taxation for the years stated above and their historical cost equivalents.
The Company ceased trading at close of business on August 31, 1995 and
consequently the statement of operations for 1995 only reflects the results to
this date.
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
BALANCE SHEETS AT DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
NOTE 1994 1995
---- --------- --------
(Pounds) (Pounds)
<S> <C> <C> <C>
Fixed assets
Tangible assets..................................... 6 848,058 --
--------- -------
Current assets
Inventories......................................... 7 19,650 --
Receivables......................................... 8 377,519 936,674
Cash at bank and in hand............................ 220,248 --
--------- -------
617,417 936,674
Current liabilities--amounts falling due within one
year................................................. 9 415,112 31,333
--------- -------
Net current assets.................................... 202,305 905,341
--------- -------
Total assets less current liabilities............. 1,050,363 905,341
========= =======
Represented by:
Shareholders' equity
Called up share capital............................. 11 43,329 43,329
Retained earnings................................... 12 1,007,034 862,012
--------- -------
Total shareholders' equity........................ 1,050,363 905,341
========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-60
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
1. BASIS OF PREPARATION
The accompanying financial statements of Speed 6060 Limited (formerly
Camelot Barthropp Limited) have been prepared in conformity with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP"), and are
presented under the historical cost convention. These principles differ in
certain material respects from generally accepted accounting principles in the
United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds
sterling ("(Pounds)").
The accompanying financial statements do not represent the U.K. statutory
financial statements of Speed 6060 Limited, as certain reclassifications and
changes in presentation and disclosure have been made to the U.K. financial
statements prepared on a statutory basis in order to conform, more closely
with accounting presentation and disclosure requirements applicable in the
United States. The financial statements of Speed 6060 Limited for the year
ended December 31, 1995, on which the auditors' report was unqualified, were
the latest financial statements to have been delivered to the Registrar of
Companies in England and Wales.
The ultimate parent undertaking of Speed 6060 Limited was The Savoy Hotel
PLC, a company incorporated under the laws of England throughout the period
being January 1, 1994 to December 31, 1995, of these financial statements.
2. ACCOUNTING POLICIES
USE OF ESTIMATES
Preparation of financial statements in conformity with U.K. GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses for an accounting period. Such estimates and assumptions could
change in the future as more information becomes known or circumstances alter,
such that Speed 6060 Limited's actual results may differ from the amounts
reported and disclosed in the financial statements.
DEPRECIATION
Depreciation is provided so as to write off the cost less estimated residual
value of fixed assets over their expected useful lives.
Depreciation is provided on a straight line basis, mainly at the following
annual rates:
<TABLE>
<S> <C>
Motor vehicles --25%
Furniture and equipment --10%-20%
Improvements to premises --10%
</TABLE>
INVENTORIES
Inventories are valued at the lower of cost or net realizable value.
DEFERRED TAXATION
Provision is made for deferred taxation using the liability method at
current taxation rates on all material timing differences to the extent that
it is probable that a liability or asset will crystallize.
F-61
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES
Revenues represent the invoiced value of services provided, excluding sales
related taxes.
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies have been translated into
sterling at the rates ruling at the balance sheet date.
LEASES
Assets held under capital leases are capitalized in the balance sheet and
are depreciated over their useful lives. The interest element of the
repayments is charged to operations over the period of the contract on a
straight line basis. Rentals paid under operating leases are charged to
operations on a straight line basis over the lease term.
PENSION COSTS
The Company contributes into both defined benefit and defined contribution
schemes. An appropriate share of the costs of the pension schemes administered
by the Parent Undertaking, which are a defined benefit scheme and a defined
contribution scheme, are charged to operations for this Company in respect of
staff who are members of these schemes. Full details of these schemes are
disclosed in the financial statements of The Savoy Hotel PLC. The pension cost
charge for defined contribution schemes represents the amounts payable to
insurance companies in respect of the funds for the year to December 31.
F-62
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
3.STAFF COSTS
<TABLE>
<CAPTION>
1994 1995
----------------- ---------------
(Pounds) (Pounds)
<S> <C> <C>
Wages and salaries....................... 1,002,012 653,498
Social security costs.................... 74,588 50,508
Other pension costs...................... 9,603 6,078
----------------- ---------------
(Pounds)1,086,203 (Pounds)710,084
================= ===============
Other pension costs comprise:
Payments to funded defined contribution
schemes................................. 1,160 640
Charges in respect of group scheme....... 8,443 5,438
----------------- ---------------
(Pounds) 9,603 (Pounds) 6,078
================= ===============
The average weekly number of employees during the year was as follows:
<CAPTION>
NUMBER NUMBER
----------------- ---------------
<S> <C> <C>
Chauffeurs and support staff........... 40 39
Administration......................... 6 5
----------------- ---------------
46 44
================= ===============
Directors' remuneration was as follows:
Remuneration as executives............. Nil Nil
Pension contributions.................. Nil Nil
Compensation for loss of office........ Nil Nil
----------------- ---------------
(Pounds) Nil (Pounds) Nil
----------------- ---------------
Emoluments excluding pension scheme contributions:
Chairman's emoluments.................. (Pounds) Nil (Pounds) Nil
================= ===============
Highest paid directors' emoluments..... (Pounds) Nil (Pounds) Nil
================= ===============
</TABLE>
The number of directors (including the chairman and highest paid director)
who received emoluments (excluding pension contributions) in the following
ranges was:
<TABLE>
<CAPTION>
NUMBER NUMBER
------ ------
<S> <C> <C>
(Pounds)0-(Pounds)5,000........................................ 5 4
=== ===
</TABLE>
No director waived emoluments in respect of the years ended December 31,
1994 and 1995.
The statements of operations for the years ended December 31, 1994 and 1995
include no head office management recharges from the parent undertaking in
respect to the services provided by the directors of Speed 6060 Limited and
other corporate overheads.
F-63
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
4.INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
The income on ordinary activities before taxation is stated after charging:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Auditors' remuneration...................................... 10,000 6,000
Marketing recharge from parent.............................. -- 49,001
Depreciation................................................ 343,428 215,588
Operating leases--hire of plant and machinery............... 9,332 6,155
--other............................................... 35,250 20,000
======= =======
and after crediting:
Rent receivable............................................. 14,182 9,027
Sundry income............................................... 1,388 438
Gain on disposal of tangible fixed assets................... 63,486 28,677
Other operating income...................................... 79,056 38,142
======= =======
5.TAXATION
UK corporation tax on income on ordinary activities for the
years at 33%............................................... 63,000 31,333
UK corporation tax credit in respect of previous years...... (748) (729)
------- -------
62,252 30,604
======= =======
</TABLE>
In 1995, the primary reason for the difference between the effective tax
rate (19%) and the nominal rate of UK corporation tax (33%) is that the
transfer of the traded assets of the Company was intra-group and therefore not
subject to corporation tax.
F-64
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
6.TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
SHORT FURNITURE
LEASEHOLD MOTOR AND
PREMISES VEHICLES EQUIPMENT TOTAL
--------- ---------- --------- ----------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Cost
At January 1, 1994............... 36,675 1,464,752 92,233 1,593,660
Additions........................ -- 402,593 49,053 451,646
Disposals........................ -- (382,634) (249) (382,883)
Fully depreciated assets......... (11,355) -- (34,031) (45,386)
------- ---------- -------- ----------
At December 31, 1994............. 25,320 1,484,711 107,006 1,617,037
------- ---------- -------- ----------
Additions........................ -- 115,800 8,075 123,875
Disposals........................ (25,320) (1,600,511) (115,081) (1,740,912)
------- ---------- -------- ----------
At December 31, 1995............. -- -- -- --
======= ========== ======== ==========
Accumulated Depreciation
At January 1, 1994............... 25,234 709,265 54,039 788,538
Charge for the year.............. 2,310 319,191 21,927 343,428
Disposals........................ -- (317,352) (249) (317,601)
Fully depreciated assets......... (11,355) -- (34,031) (45,386)
------- ---------- -------- ----------
At December 31, 1994............. 16,189 711,104 41,686 768,979
Charge for the year.............. 1,540 197,965 16,083 215,588
Disposals........................ (17,729) (909,069) (57,769) (984,567)
------- ---------- -------- ----------
At December 31, 1995............. -- -- -- --
======= ========== ======== ==========
Net Book Value
At December 31, 1994............. 9,131 773,607 65,320 848,058
======= ========== ======== ==========
At December 31, 1995............. -- -- -- --
======= ========== ======== ==========
</TABLE>
In 1995, in accordance with the transfer agreement whereby the assets and
business of the Company were transferred, an exceptional gain on disposal of
(Pounds)112,500 was made. This gain specifically related to the transfer of
motor vehicles which were transferred at fair market value. All other assets
were transferred at net book value.
7.INVENTORIES
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Raw materials and consumables:
Vehicle spare parts........................................... 15,605 --
Petrol and oil................................................ 4,045 --
------- -------
19,650 --
======= =======
8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade receivables............................................. 184,969 --
Amounts owed by parent undertaking............................ 104,027 --
Amounts owed by fellow subsidiary............................. -- 936,674
Other receivables............................................. 4,224 --
Prepayments and accrued income................................ 84,299 --
------- -------
377,519 936,674
======= =======
</TABLE>
F-65
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Trade accounts payable..................................... 76,057 --
Borrowings from parent undertaking......................... 34,915 --
Corporation tax............................................ 63,000 31,333
Other taxes and social security............................ 49,699 --
Other creditors............................................ 11,299 --
Capital lease installments................................. 4,638 --
Accruals................................................... 65,504 --
Dividends payable.......................................... 110,000 --
------- ------
415,112 31,333
======= ======
</TABLE>
10.DEFERRED TAXES
Provision for deferred taxes has been made in the financial statements in
accordance with the Company's accounting policy. The provision and the full
potential liability are as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------- -------------------
POTENTIAL POTENTIAL
PROVISION LIABILITY PROVISION LIABILITY
--------- --------------- --------- ---------
<S> <C> <C> <C> <C>
Accelerated capital
allowances................. -- (Pounds) 15,534 -- --
</TABLE>
11.SHARE CAPITAL
<TABLE>
<CAPTION>
1994 1995
-------- --------
(Pounds) (Pounds)
<S> <C> <C>
Authorized:
"A' Ordinary Shares of (Pounds)1......................... 20,000 20,000
"B' Ordinary Shares of (Pounds)1......................... 30,000 30,000
------ ------
50,000 50,000
====== ======
Allotted, called up and fully paid:
"A' Ordinary Shares of (Pounds)1......................... 17,329 17,329
"B' Ordinary Shares of (Pounds)1......................... 26,000 26,000
------ ------
43,329 43,329
====== ======
</TABLE>
12.RETAINED EARNINGS
<TABLE>
<CAPTION>
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
At January 1.......................................... 1,006,191 1,007,034
Transfer to (from) retained earnings.................. 843 (145,022)
--------- ---------
At December 31........................................ 1,007,034 862,012
========= =========
13.RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY
<CAPTION>
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
Opening shareholders' equity.......................... 1,049,520 1,050,363
Total recognized (losses)/gains for the financial
year................................................. 843 (145,022)
--------- ---------
Closing shareholders' equity.......................... 1,050,363 905,341
========= =========
</TABLE>
F-66
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
14.FINANCIAL COMMITMENTS
a) The Company has annual commitments under operating leases as set out
below:
<TABLE>
<CAPTION>
1994 1995
------------------ ------------------
LAND AND LAND AND
BUILDINGS OTHER BUILDINGS OTHER
--------- -------- --------- --------
(Pounds) (Pounds) (Pounds) (Pounds)
<S> <C> <C> <C> <C>
Leases which expire:
In the next year.................... 30,000 360 -- --
In the second to fifth years........ -- 9,038 -- --
After five years.................... -- -- -- --
------ ----- --- ---
30,000 9,398 -- --
====== ===== === ===
</TABLE>
b) Capital commitments:
The Company has no capital commitments at December 31, 1994 and 1995
15.GUARANTEE
The Company has entered into a Composite Accounting Agreement with Barclays
Bank PLC under which it has executed an unlimited guarantee in respect of the
bank overdraft and other banking facility of the Parent Undertaking and
certain Fellow Subsidiary Undertakings.
16.SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP
The financial statements are prepared in accordance with accounting
principles generally accepted in the United Kingdom ("U.K. GAAP"). These
accounting principles differ in certain material respects from the accounting
principles generally accepted in the United States ("U.S. GAAP"). Described
below are the material differences between U.K. GAAP and U.S. GAAP affecting
the net income and shareholders' equity which are set forth in the tables that
follow:
Transfer of assets between fellow subsidiaries
Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow
subsidiary with the same parent undertaking, at their fair value. The
difference between the fair value and the historical cost of these assets will
result in an intragroup gain or loss in the statement of operations of the
subsidiary selling the assets. The assets would remain at their fair value in
the subsidiary that acquired the assets. Under U.S. GAAP, assets can only be
transferred from one subsidiary to a fellow subsidiary with the same parent
undertaking, at their historical cost. As a result, under U.S. GAAP no
intragroup gain or loss would arise from the transaction, and the assets would
remain at historical cost.
Allocation of expenses in a "carve out" situation
Under U.K. GAAP, certain costs incurred by the parent undertaking may not be
reflected in the subsidiary financial statements; however, disclosure of the
fact is generally provided in the subsidiary financial statements. Under U.S.
GAAP, historical statements of operations of a subsidiary should reflect all
costs incurred by the parent undertaking on its behalf, such as officer
salaries and corporate overheads.
F-67
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
Deferred taxes
Under U.K. GAAP, deferred taxation is accounted for using the liability
method to the extent that it is considered probable that a liability will
crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is
provided for on all temporary differences and carryforwards. Deferred tax
assets are recognised to the extent that it is more likely than not that they
will be realized. Where doubt exists as to whether a deferred tax asset will
be realized, an appropriate valuation allowance is established.
Proposed dividends
Under U.K. GAAP dividends paid and proposed are usually shown on the face of
the statement of operations as an appropriation of current year earnings.
Proposed dividends are provided on the basis of recommendation by the
directors and may include dividends that are subject to subsequent approval by
shareholders before they are declared. Under U.S. GAAP, only dividends
approved during the current year are included in the statement of operations.
The effect of the above noted differences between U.K. and U.S. GAAP are as
follows:
(A) NET INCOME
The approximate effects on net income (loss) of material differences between
U.K. and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
--------------------
1994 1995
--------- ---------
(Pounds) (Pounds)
<S> <C> <C>
Net income reported under U.K. GAAP....................... 110,843 129,978
Gain on transfer of assets................................ -- (112,500)
Allocation of expenses.................................... (68,350) (42,341)
Deferred taxes............................................ 2,161 15,534
Tax effect of U.S. GAAP reconciling adjustments........... 22,556 13,973
-------- ---------
Net income reported in accordance with U.S. GAAP.......... 67,210 4,644
======== =========
</TABLE>
(B) SHAREHOLDERS' EQUITY
The approximate effects on shareholders' equity of material differences
between U.K. and U.S. GAAP are as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1994 1995
--------- --------
(Pounds) (Pounds)
<S> <C> <C>
Shareholders' equity reported under U.K. GAAP............ 1,050,363 905,341
Gain on transfer of assets............................... -- (112,500)
Allocation of expenses................................... (68,350) (110,691)
Deferred taxes........................................... (15,534) --
Proposed dividend........................................ 110,000 --
Tax effect of U.S. GAAP reconciling adjustments.......... 22,556 36,529
--------- --------
Shareholders' equity reported in accordance with U.S.
GAAP.................................................... 1,099,035 718,679
========= ========
</TABLE>
F-68
<PAGE>
SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED)
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
(C) STATEMENTS OF CASH FLOWS
Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are
established under the law of any European Community State are exempt from
including a statement of cash flows in their financial statements. Under U.S.
GAAP, the statement of cash flows is required and therefore is shown below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
(Pounds) (Pounds)
<S> <C> <C>
Cash flows from operating activities:
Net income................................ 67,210 4,644
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of fixed as-
sets..................................... 343,428 215,588
Gain on sale of fixed assets.............. (63,486) (28,677)
Change in operating assets and liabili-
ties:
Receivables............................. 54,058 166,047
Inventories............................. 3,797 19,650
Current liabilities..................... (79,729) (156,918)
-------- --------
Net cash provided by operating activi-
ties................................. 325,278 220,334
-------- --------
Cash flows from investing activities:
Proceeds from sale of fixed assets........ 128,768 68,293
Purchases of fixed assets................. (451,646) (123,875)
Net cash used in financing activi-
ties................................. (322,878) (55,582)
-------- --------
Cash flows from financing activities:
Dividends paid.......................... -- (385,000)
Net cash used in financing activi-
ties................................. -- (385,000)
-------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 2,400 (220,248)
Cash and cash equivalents at beginning of
year..................................... 217,848 220,248
-------- --------
Cash and cash equivalents at end of year.. 220,248 --
======== ========
</TABLE>
F-69
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Acquisition of Manhattan Limousine....................................... 13
Recapitalization......................................................... 13
Use of Proceeds.......................................................... 14
Dilution................................................................. 15
Capitalization........................................................... 16
Dividend Policy.......................................................... 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 24
Management............................................................... 34
Principal Stockholders................................................... 40
Certain Transactions..................................................... 42
Description of Capital Stock............................................. 44
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 48
Legal Matters............................................................ 50
Experts.................................................................. 50
Additional Information................................................... 50
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,900,000 SHARES
[LOGO OF CAREY APPEARS HERE]
CAREY INTERNATIONAL, INC.
COMMON STOCK
---------------
PROSPECTUS
---------------
Montgomery Securities
Ladenburg Thalmann & Co. Inc.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the NASD
filing fee and the Nasdaq listing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 13,138
NASD filing fee............................................... 4,836
Nasdaq listing fee............................................ 38,546
Printing and engraving expenses............................... 500,000
Legal fees and expenses....................................... 550,000
Accounting fees and expenses.................................. 350,000
Blue sky fee.................................................. 5,000
Transfer agent and registrar fees............................. 5,000
Miscellaneous................................................. 133,480
----------
TOTAL..................................................... $1,600,000
==========
</TABLE>
The Company will bear all of the foregoing fees and expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Reference is made to Section 145 of
the DGCL, as amended, which provides that a corporation may indemnify any
person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his or her conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite an adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. The Company's Restated Certificate of
Incorporation further provides that the Company shall indemnify its directors
and officers to the full extent permitted by the law of the State of Delaware.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent
II-1
<PAGE>
that exculpation from liability is not permitted under the DGCL as in effect
at the time such liability is determined.
The Certificate of Incorporation also provides that each person who was or
is made a party to, or is involved in, any action, suit, proceeding or claim
by reason of the fact that he or she is or was a director, officer or employee
of the Registrant (or is or was serving at the request of the Registrant as a
director, officer, trustee employee or agent of any other enterprise including
service with respect to employee benefit plans) shall be indemnified and held
harmless by the Registrant, to the full extent permitted by Delaware law, as
in effect from time to time, against all expenses (including attorneys' fees
and expenses), judgments, fines, penalties and amounts to be paid in
settlement incurred by such person in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses provided by the
Certificate of Incorporation do not apply to any action, suit, proceeding or
claim initiated by or on behalf of a person otherwise entitled to the benefit
of such provisions. Any person seeking indemnification under the Certificate
of Incorporation shall be deemed to have met the standard of conduct required
for such indemnification unless the contrary shall be established. Any repeal
or modification of such indemnification provisions shall not adversely affect
any right or protection of a director or officer with respect to any conduct
of such director or officer occurring prior to such repeal or modification.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(1) In April and October, 1995, two of the Company's employees purchased
8,600 and 24,080 shares of Common Stock, respectively, for approximately $1.44
per share upon the exercise of options granted under the 1987 Stock Option
Plan. In May 1997, a former director of the Company purchased 6,880 shares of
Common Stock for approximately $1.44 per share upon the exercise of options
granted under the 1987 Stock Option Plan.
(2) The Company granted options to purchase Common Stock pursuant to the
1987 and 1992 Stock Option Plans to individuals who were employees at the time
of grant on the following dates and in the indicated amounts: October 28, 1994
(8,600 shares); February 29, 1996 (12,900 shares); June 1, 1996 (47,017
shares); and June 10, 1996 (12,900 shares). In addition, the Company granted
an option to purchase 12,900 shares of Common Stock pursuant to the 1992 Stock
Option Plan to one of its directors on March 30, 1995. The Company also
granted an option to purchase 12,900 shares of Common Stock pursuant to the
1992 Stock Option Plan to a consultant on June 10, 1996.
(3) In June 1994, in connection with the acquisition of a chauffeured
vehicle service company, the Company issued a Convertible Promissory Note to
the seller of the acquired company in the original principal amount of
$190,000. Under certain circumstances, any and all of the outstanding
principal balance under the Note (currently $95,000) is convertible into
shares of Common Stock at a conversion price of $9.30 per share.
(4) In August 1995, in connection with the acquisition of a chauffeured
vehicle service company, the Company issued a Convertible Promissory Note to
the seller of the acquired company in the original principal amount of
$600,000. Under certain circumstances, any and all of the outstanding
principal balance under the Note (currently $400,000) is convertible into
shares of Common Stock at a conversion price of $9.30 per share.
(5) In June 1996, the Company issued two warrants, each to purchase 3,225
shares of Common Stock, to two stockholders of the Company.
The securities issued in the foregoing transactions were not registered
under the Securities Act in reliance upon exemptions from registration set
forth in Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
(A) EXHIBITS.
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<C> <S> <C>
+1 Form of Underwriting Agreement
*2.1 Stock Purchase Agreement dated as of March 1, 1997,
by and among Carey International, Inc., Alfred J.
Hemlock and Lupe C. Hemlock
*2.2 Agreement and Plan of Merger dated as of March 1,
1997, by and among Carey International, Inc.,
Manhattan International Limousine Network Ltd., MLC
Acquisition Corporation and Michael Hemlock
+2.3 Form of Stockholder Action by Written Consent Adopted
in Connection with the Recapitalization
*3.1 Form of Amended and Restated Certificate of
Incorporation of the Company
*3.2 Amended and Restated Bylaws of the Company
+4.1 Specimen Stock Certificate
+4.2 Form of Warrants
*4.3 Carey International, Inc. Common Stock Purchase
Warrant dated September 1, 1991, issued to Yerac
Associates, L.P.
*4.4 Form of Registration Rights Agreement between Carey
International, Inc. and Michael Hemlock
*5 Opinion of Nutter, McClennen & Fish, LLP
*10.1 1997 Equity Incentive Plan
*10.2 1992 Stock Option Plan
*10.3 1987 Stock Option Plan
*10.4 Stock Plan for Non-Employee Directors
*10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue,
Washington, D.C., between Carey International, Inc.
and 4530 Wisconsin Associates, as lessor, including
Addendum, Exhibit B and Exhibit C; and Second
Amendment to Lease dated August 6, 1993, including
Exhibit A
*10.6 Form of Escrow Agreement by and among Michael
Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a
bank to be named
*10.7 Current form of Standard Master License Agreement
*10.8 Current form of Standard International License
Agreement
*10.9 Form of Promissory Notes in connection with
Acquisition of Manhattan Limousine
*10.10 Current form of Standard Independent Operator
Agreement
*11 Statements Regarding Computation of Per Share
Earnings
+21 Subsidiaries of the Registrant
+23.1 Consent of Coopers & Lybrand L.L.P.
+23.2 Consent of Coopers & Lybrand L.L.P.
+23.3 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
+23.4 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
*23.5 Consent of Nutter, McClennen & Fish, LLP (contained
in Exhibit 5)
*23.6 Consent of Nicholas J. St. George
*24 Power of Attorney (contained in the signature page to
this Registration Statement)
*27 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
+ Filed herewith.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULE:
The following Financial Statement Schedule is filed as part of this
Registration Statement.
Report of Independent Accountants
Schedule VIII--Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A under the Securities
Act and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 3 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
CITY OF WASHINGTON, THE DISTRICT OF COLUMBIA, ON THE 23RD DAY OF MAY 1997.
Carey International, Inc.
By: /s/ Vincent A. Wolfington
---------------------------------
VINCENT A. WOLFINGTON
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 3 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Vincent A. Wolfington Chairman of the May 23, 1997
- ------------------------------------- Board and Chief
VINCENT A. WOLFINGTON Executive Officer
/s/ Don R. Dailey* President and May 23, 1997
- ------------------------------------- Director
DON R. DAILEY
/s/ David H. Haedicke* Chief Financial May 23, 1997
- ------------------------------------- Officer
DAVID H. HAEDICKE
/s/ Paul A. Sandt* Principal Accounting May 23, 1997
- ------------------------------------- Officer
PAUL A. SANDT
/s/ David McL. Hillman* Director May 23, 1997
- -------------------------------------
DAVID MCL. HILLMAN
/s/ William R. Hambrecht* Director May 23, 1997
- -------------------------------------
WILLIAM R. HAMBRECHT
/s/ Robert W. Cox* Director May 23, 1997
- -------------------------------------
ROBERT W. COX
</TABLE>
*By: /s/ Vincent A. Wolfington
--------------------------------
VINCENT A. WOLFINGTON
ATTORNEY-IN-FACT
Powers of Attorney have been filed with this Registration Statement.
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Carey International, Inc.
In connection with our audits of the consolidated financial statements of
Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996,
and for each of the three years in the period ended November 30, 1996, which
financial statements are included in the Prospectus, we have also audited the
consolidated financial statement schedule listed in Item 16(b) of Part II of
the Registration Statement herein.
In our opinion, this consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information required
to be included therein.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 31, 1997, except for
Notes 1, 2 and 18 as to
which the date is March 1, 1997
1
<PAGE>
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
BALANCE AT BEGINNING CHARGED TO COSTS DEDUCTIONS-- BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSE WRITE-OFFS OF PERIOD
----------- -------------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Year ended November 30,
1996
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............. $293,796 $498,786 $(257,174) $535,408
Year ended November 30,
1995
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............. $203,872 $391,964 $(302,040) $293,796
Year ended November 30,
1994
Reserve and allowance
from asset accounts:
Allowance for doubtful
accounts............. $219,979 $251,733 $(267,840) $203,872
</TABLE>
2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
----------- ----------- ----------
<C> <S> <C>
+1 Form of Underwriting Agreement
*2.1 Stock Purchase Agreement dated as of March 1, 1997,
by and among Carey International, Inc., Alfred J.
Hemlock and Lupe C. Hemlock
*2.2 Agreement and Plan of Merger dated as of March 1,
1997, by and among Carey International, Inc.,
Manhattan International Limousine Network Ltd., MLC
Acquisition Corporation and Michael Hemlock
+2.3 Form of Stockholder Action by Written Consent Adopted
in Connection with the Recapitalization
*3.1 Form of Amended and Restated Certificate of
Incorporation of the Company
*3.2 Amended and Restated Bylaws of the Company
+4.1 Specimen Stock Certificate
+4.2 Form of Warrants
*4.3 Carey International, Inc. Common Stock Purchase
Warrant dated September 1, 1991, issued to Yerac
Associates, L.P.
*4.4 Form of Registration Rights Agreement between Carey
International, Inc. and Michael Hemlock
*5 Opinion of Nutter, McClennen & Fish, LLP
*10.1 1997 Equity Incentive Plan
*10.2 1992 Stock Option Plan
*10.3 1987 Stock Option Plan
*10.4 Stock Plan for Non-Employee Directors
*10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue,
Washington, D.C., between Carey International, Inc.
and 4530 Wisconsin Associates, as lessor, including
Addendum, Exhibit B and Exhibit C; and Second
Amendment to Lease dated August 6, 1993, including
Exhibit A
*10.6 Form of Escrow Agreement by and among Michael
Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a
bank to be named
*10.7 Current Form of Standard Master License Agreement
*10.8 Form of Standard International License Agreement
*10.9 Form of Promissory Notes in connection with
Acquisition of Manhattan Limousine
*10.10 Current Form of Standard Independent Operator
Agreement
*11 Statements Regarding Computation of Per Share
Earnings
+21 Subsidiaries of the Registrant
+23.1 Consent of Coopers & Lybrand L.L.P.
+23.2 Consent of Coopers & Lybrand L.L.P.
+23.3 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
+23.4 Consent of Coopers & Lybrand, Chartered Accountants
and Registered Auditors
*23.5 Consent of Nutter, McClennen & Fish, LLP (contained
in Exhibit 5)
*23.6 Consent of Nicholas J. St. George
*24 Power of Attorney (contained in the signature page to
this Registration Statement)
*27 Financial Data Schedule
</TABLE>
- --------
* Previously filed.
+ Filed herewith.
<PAGE>
EXHIBIT 1
2,900,000 SHARES
CAREY INTERNATIONAL, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED _____________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Representations and Warranties of the Company............... 2
Compliance with Registration Requirements................... 2
Offering Materials Furnished to Underwriters................ 3
Distribution of Offering Material By the Company............ 3
The Underwriting Agreement.................................. 3
Authorization of the Common Shares.......................... 3
No Applicable Registration or Other Similar Rights.......... 3
No Material Adverse Change.................................. 3
Independent Accountants..................................... 4
Preparation of the Financial Statements..................... 4
Incorporation and Good Standing of the Company
and its Subsidiaries................................... 5
Capitalization and Other Capital Stock Matters.............. 5
Stock Exchange Listing...................................... 6
Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required................... 6
No Material Actions or Proceedings.......................... 7
Intellectual Property Rights................................ 7
All Necessary Permits, etc.................................. 7
Title to Properties......................................... 7
Tax Law Compliance.......................................... 8
Company Not an "Investment Company"......................... 8
Insurance................................................... 8
No Price Stabilization or Manipulation...................... 8
Related Party Transactions.................................. 8
No Unlawful Contributions or Other Payments................. 8
Company's Accounting System................................. 9
Compliance with Environmental Laws.......................... 9
ERISA Compliance............................................ 10
Recapitalization............................................ 10
Manhattan Agreements........................................ 10
Representations in Manhattan Agreements..................... 11
Section 2. Purchase, Sale and Delivery of the Common Shares............ 11
The Firm Common Shares...................................... 11
The First Closing Date...................................... 11
The Optional Common Shares; the Second Closing Date......... 11
Public Offering of the Common Shares........................ 12
Payment for the Common Shares............................... 12
Delivery of the Common Shares............................... 13
Delivery of Prospectus to the Underwriters.................. 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 3. Additional Covenants of the Company......................... 13
Representatives' Review of Proposed Amendments
and Supplements........................................ 13
Securities Act Compliance................................... 13
Amendments and Supplements to the Prospectus and Other
Securities Act Matters................................. 13
Copies of any Amendments and Supplements to the Prospectus.. 14
Blue Sky Compliance......................................... 14
Use of Proceeds............................................. 15
Transfer Agent.............................................. 15
Earnings Statement.......................................... 15
Periodic Reporting Obligations.............................. 15
Agreement Not To Offer or Sell Additional Securities........ 15
Future Reports to the Representatives....................... 16
Section 4. Payment of Expenses......................................... 16
Section 5. Conditions of the Obligations of the Underwriters........... 17
Accountants' Comfort Letter................................. 17
Compliance with Registration Requirements; No Stop
Order; No Objection from NASD.......................... 17
No Material Adverse Change.................................. 18
Opinion of Counsel for the Company.......................... 18
Opinion of Counsel for the Underwriters..................... 18
Officers' Certificate....................................... 18
Bring-down Comfort Letter................................... 18
Manhattan Closing........................................... 19
Manhattan Agreements........................................ 19
Lock-Up Agreement from Certain Stockholders of the Company.. 19
Recapitalization............................................ 19
Additional Documents........................................ 19
Section 6. Reimbursement of Underwriters' Expenses..................... 20
Section 7. Effectiveness of this Agreement............................. 20
Section 8. Indemnification............................................. 20
Indemnification of the Underwriters......................... 21
Indemnification of the Company, its Directors and Officers.. 22
Notifications and Other Indemnification Procedures.......... 22
Settlements................................................. 23
Section 9. Contribution................................................ 24
Section 10. Default of One or More of the Several Underwriters.......... 25
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 11. Termination of this Agreement............................... 26
Section 12. Representations and Indemnities to Survive Delivery......... 27
Section 13. Notices..................................................... 27
Section 14. Successors.................................................. 28
Section 15. Partial Unenforceability.................................... 28
Section 16. Governing Law Provisions.................................... 28
Consent to Jurisdiction..................................... 28
Section 17. General Provisions.......................................... 28
</TABLE>
-iii-
<PAGE>
UNDERWRITING AGREEMENT
, 1997
MONTGOMERY SECURITIES
LADENBURG THALMANN & CO. INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Carey International, Inc., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,900,000 shares (the "Firm
- ----------
Common Shares") of its Common Stock, par value $.01 per share (the "Common
Stock"). In addition, the Company has granted to the Underwriters an option to
purchase up to an additional 435,000 shares (the "Optional Common Shares") of
Common Stock, as provided in Section 2. The Firm Common Shares and, if and to
the extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares". Montgomery Securities and Ladenburg Thalmann & Co.
Inc. have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-22651), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of the Representatives, elected to
rely upon Rule 434 under the Securities Act,
<PAGE>
the term "Prospectus" shall mean the Company's prospectus subject to completion
(each, a "preliminary prospectus") dated May 5, 1997 (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times during which a Prospectus is required to be delivered, complied
and will comply in all material respects with the Securities Act and did not and
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as of its
date and at all subsequent times, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties set forth in
the two immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-
-2-
<PAGE>
effective amendment thereto, or the Prospectus, or any amendments or supplements
thereto, made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by the Representatives
expressly for use therein. There are no contracts or other documents required
to be described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives two complete manually signed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether
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or not arising from transactions in the ordinary course of business, of the
Company and its subsidiaries, considered as one entity (any such change is
called a "Material Adverse Change"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; (iii) there has been no material adverse change
with respect to franchise rights, goodwill and other intangible assets
(collectively, the "Intangible Assets") such that, as of the date hereof, the
Intangible Assets, net of accumulated amortization, do not have a value at least
equal to the value reflected in the Company's financial statements and no part
of the Intangible Assets are required to be written down in conformity with
generally accepted accounting principles applied on a basis consistent with
prior periods; and (iv) there has been no dividend or distribution of any kind
declared, paid or made by the Company or, except for dividends paid to the
Company or other subsidiaries, any of its subsidiaries on any class of capital
stock or repurchase or redemption by the Company or any of its subsidiaries of
any class of capital stock.
(h) Independent Accountants. Coopers & Lybrand L.L.P. and Coopers &
Lybrand, Chartered Accountants and Registered Auditors, who have expressed their
opinion with respect to the financial statements (which term as used in this
Agreement includes the related notes thereto) and supporting schedules filed
with the Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants with respect
to the Company, Speed (hereinafter defined), Camelot (hereinafter defined) and
Manhattan (hereinafter defined) as required by the Securities Act.
(i) Preparation of the Financial Statements. The consolidated
financial statements of the Company and its subsidiaries filed with the
Commission as a part of the Registration Statement and included in the
Prospectus present fairly the consolidated financial position of the Company and
its subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. The supporting schedules
included in the Registration Statement present fairly the information required
to be stated therein. The financial statements of Speed 6060 Limited ("Speed"),
Camelot Barthropp Limited ("Camelot") and Manhattan International Limousine
Network, Ltd. and affiliate (collectively "Manhattan") filed with the Commission
as a part of the Registration Statement and included in the Prospectus present
fairly the financial position of each of such companies as of and at the dates
indicated and the results of their operations and cash flows for the periods
specified. Such financial statements and supporting schedules of the Company
and its subsidiaries and of Manhattan have been prepared in conformity with
generally accepted accounting principles as applied in the United States applied
on a consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto, and the financial statements of
each of Speed and Camelot have been prepared in conformity with generally
accepted accounting principles as set forth in the opinions with respect thereto
applied on a consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. The financial data set forth in
the
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Prospectus under the captions "Prospectus Summary--Summary and Pro Forma
Consolidated Financial Data", "Selected Consolidated Financial Data" and
"Capitalization" fairly present the information set forth therein on a basis
consistent with that of the audited and pro forma financial statements contained
in the Registration Statement. The pro forma consolidated financial statements
of the Company and its subsidiaries and the related notes thereto included under
the captions "Prospectus Summary--Summary and Pro Forma Consolidated Financial
Data", "Selected Consolidated Financial Data," "Pro Forma Consolidated Financial
Statements" and elsewhere in the Prospectus and in the Registration Statement
fairly present the information contained therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to pro forma
financial statements and have been properly presented on the basis described
therein, and the assumptions used in the preparation thereof are reasonable and
the adjustments used therein are reasonably appropriate to give effect to the
transactions and circumstances referred to therein. No other financial
statements or supporting schedules are required to be included in the
Registration Statement.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Each of the Company and each
subsidiary is duly qualified as a foreign corporation to transact business and
is in good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except for such jurisdictions where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change. All of the issued and outstanding capital
stock of each subsidiary (i) has been duly authorized and validly issued, is
fully paid and nonassessable and is owned by the Company, directly or through
subsidiaries, and (ii) simultaneously with the closing on the First Closing Date
will be free and clear of any security interest, mortgage, pledge, lien,
encumbrance or claim, except as otherwise disclosed in the Prospectus or any
amendments or supplements thereto. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Registration Statement, except as
otherwise disclosed in the Prospectus or any amendments or supplements thereto.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All
of the issued and outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and
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<PAGE>
nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. Simultaneously
with the closing on the First Closing Date, there will be no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or any of its
subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown under the Securities Act with respect to such plans, arrangements, options
and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject (each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to (except
consents which have been obtained or waived), any Existing Instrument, except
for such conflicts, breaches, Defaults, liens, charges or encumbrances as would
not, individually or in the aggregate, result in a Material Adverse Change; and
(iii) will not result in any violation of any law, administrative regulation or
administrative or court decree applicable to the Company or any subsidiary.
Except for the filing of a final Prospectus under Rule 424 of the Securities
Act, no consent, approval, authorization or other order of, or registration or
filing with, any court or other governmental or regulatory authority or agency,
is required for the Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and by the
Prospectus, except such as have been obtained or made by the Company and are in
full force and effect under the Securities Act, applicable state securities or
blue sky laws and from the National Association of Securities Dealers, Inc. (the
"NASD").
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<PAGE>
(n) No Material Actions or Proceedings. Except as otherwise disclosed
in the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened (i)
against or affecting the Company or any of its subsidiaries, (ii) which has as
the subject thereof any officer or director of, or property owned or leased by,
the Company or any of its subsidiaries or (iii) relating to environmental or
discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined adversely
to the Company or such subsidiary and (B) any such action, suit or proceeding,
if so determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the employees of
the Company or any of its subsidiaries exists or, to the best of the Company's
knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and its subsidiaries
own or possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their businesses
as now conducted; and the expected expiration of any of such Intellectual
Property Rights would not result in a Material Adverse Change. Neither the
Company nor any of its subsidiaries has received any notice of infringement or
conflict with asserted Intellectual Property Rights of others, which
infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued by
the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, except where the failure to
possess any such certificate, authorization or permit would not result in a
Material Adverse Change, and neither the Company nor any subsidiary has received
any notice of proceedings relating to the revocation or modification of, or non-
compliance with, any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
could result in a Material Adverse Change.
(q) Title to Properties. Simultaneously with the closing on the First
Closing Date, the Company and each of its subsidiaries will have good and
marketable title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as (i) do
not materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such property
by the Company or such subsidiary or (ii) are disclosed in the Prospectus or any
amendments or supplements thereto. The real property, improvements, equipment
and personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are not material and
do not materially interfere with the use made or proposed to be made of such
real
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<PAGE>
property, improvements, equipment or personal property by the Company or such
subsidiary.
(r) Tax Law Compliance. The Company and its subsidiaries have filed
all necessary federal, state and foreign income and franchise tax returns and
have paid all taxes required to be paid by any of them and, if due and payable,
any related or similar assessment, fine or penalty levied against any of them.
The Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(i) above in respect of all
federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined. The Company has no knowledge of any tax deficiency which
might be asserted against the Company or any subsidiary which could result in a
Material Adverse Change.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt
of payment for the Common Shares will not be, an "investment company" within the
meaning of Investment Company Act and will conduct its business in a manner so
that it will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as the Company
reasonably determines to be adequate for their businesses including, but not
limited to, policies covering real and personal property owned or leased by the
Company and its subsidiaries. The Company has no reason to believe that it or
any subsidiary will not be able (i) to renew its existing insurance coverage as
and when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
Neither of the Company nor any subsidiary has been denied any insurance coverage
which it has sought or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Common
Shares.
(v) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or any
other person required under the Securities Act to be described in the Prospectus
which have not been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
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<PAGE>
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required under the
Securities Act to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign law or regulation relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment Concern
(collectively, "Environmental Laws"), which violation includes, but is not
limited to, noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its subsidiaries
under applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its subsidiaries
is in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no written
notice by any person or entity alleging potential liability for investigatory
costs, cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the environment, of
any location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental Claims"), pending
or, to the best of the Company's knowledge, threatened against the Company or
any of its subsidiaries or any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law; and (iii) to the best of
the Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without limitation,
the release, emission, discharge, presence or disposal of any Material of
Environmental
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<PAGE>
Concern, that reasonably could result in a violation of any Environmental Law or
form the basis of a potential Environmental Claim against the Company or any of
its subsidiaries or against any person or entity whose liability for any
Environmental Claim the Company or any of its subsidiaries has retained or
assumed either contractually or by operation of law.
(z) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means,
with respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such subsidiary
is a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such "employee
benefit plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by
the Company, its subsidiaries or any of their ERISA Affiliates that is intended
to be qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
(aa) Recapitalization. The Recapitalization (as such term is defined in
the Prospectus) has been duly authorized and approved by the Board of Directors
and stockholders of the Company and no other corporate action is required in
order to authorize the consummation of all of the transactions contemplated by
the Recapitalization.
(ab) Manhattan Agreements. The Company has entered into that certain Stock
Purchase Agreement dated as of March 1, 1997, as amended on __________________,
1997, among the Company, Alfred J. Hemlock and Lupe C. Hemlock with respect to
the acquisition by the Company of International Limousine Network Ltd. ("ILN")
and that certain Agreement and Plan of Merger dated as of March 1, 1997, as
amended on _______________, 1997, among the Company, MLC Acquisition
Corporation, Manhattan International Limousine Network Ltd. ("MILN") and Michael
Hemlock with respect to the acquisition of MILN by the Company through the
merger of MILN with a subsidiary of the Company. Said Stock Purchase Agreement
and Agreement and Plan of Merger, both as amended on __________________, 1997,
are collectively referred to herein as the "Manhattan Agreements." The
Manhattan Agreements are in full force
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<PAGE>
and effect, have been duly and validly authorized, executed and delivered by the
parties thereto, and are valid and binding on the parties thereto in accordance
with their terms, except as the enforcement of the Manhattan Agreements may be
limited by applicable law and by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principals, and none of the
parties thereto is in default in any respect thereunder, other than any default
which individually or together with any other default would not result in a
Material Adverse Change. A complete and correct copy of the Manhattan Agreement
(including exhibits and schedules) has been delivered to the Representatives and
no changes therein will be made subsequent hereto and prior to the Closing Date.
(ac) Representations in Manhattan Agreements. The representations and
warranties made in the Manhattan Agreement by the Company, MILN and ILN are true
and correct in all material respects, except for such changes permitted or
contemplated by the Manhattan Agreement.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters pursuant to this Agreement
shall be deemed solely to be a representation and warranty by the Company to
each Underwriter as to the matters set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
- ----------
Underwriters to the Company shall be $___ per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of Montgomery Securities, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on ____________, 1997 or such
other time and date not later than 10:30 a.m. San Francisco time, on
____________, 1997 as the Representatives shall designate by notice to the
Company (the time and date of such closing are called the "First Closing Date").
The Company hereby acknowledges that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay as contemplated by the provisions
of Section 10.
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The Optional Common Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 435,000 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
----------
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby advise
the Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Common Shares as
soon after this Agreement has been executed and the Registration Statement has
been declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall be made
at the First Closing Date (and, if applicable, at the Second Closing Date) by
wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for their
own account and the accounts of the several Underwriters, to accept delivery of
and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
Montgomery Securities, individually and not as a Representative of the
Underwriters, may (but shall
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not be obligated to) make payment for any Common Shares to be purchased by any
Underwriter whose funds shall not have been received by the Representatives by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to be
delivered, to the Representatives for the accounts of the several Underwriters
certificates for the Firm Common Shares at the First Closing Date, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The Company shall also deliver, or cause
to be delivered, to the Representatives for the accounts of the several
Underwriters, certificates for the Optional Common Shares the Underwriters have
agreed to purchase at the First Closing Date or the Second Closing Date, as the
case may be, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The certificates
for the Common Shares shall be in definitive form and registered in such names
and denominations as the Representatives shall have requested at least two full
business days prior to the First Closing Date (or the Second Closing Date, as
the case may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or the Second Closing Date, as the case may
be) at a location in New York City as the Representatives may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m. on
the second business day following the date the Common Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. The Company further
covenants and agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.
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(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise counsel for the Underwriters and, if requested,
confirm such advice in writing, (i) of the receipt of any comments of, or
requests for additional or supplemental information from, the Commission, (ii)
of the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any preliminary
prospectus or the Prospectus, (iii) of the time and date that any post-effective
amendment to the Registration Statement becomes effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any order
preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from listing
or quotation the Common Stock from any securities exchange upon which the it is
listed for trading or included or designated for quotation, or of the
threatening or initiation of any proceedings for any of such purposes. If the
Commission shall enter any such stop order at any time, the Company will use its
best efforts to obtain the lifting of such order at the earliest possible
moment. Additionally, the Company agrees that it shall comply with the
provisions of Rules 424(b), 430A and 434, as applicable, under the Securities
Act and will use its reasonable efforts to confirm that any filings made by the
Company under such Rule 424(b) are received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(a) hereof), file
with the Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto as the Representatives may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
Blue Sky or state securities laws of those jurisdictions reasonably designated
by the Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as reasonably
required for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to
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take any action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending May 31, 1998 that satisfies the provisions of Section 11(a) of the
Securities Act.
(i) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act. Additionally, the Company shall file with the Commission all
reports on Form SR as may be required under Rule 463 under the Securities Act.
(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of Montgomery Securities (which consent may be
withheld at the sole discretion of Montgomery Securities), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge, transfer
or establish an open "put equivalent position" within the meaning of Rule 16a-
1(h) under the Exchange Act, or otherwise dispose of or transfer, or announce
the offering of, or file any registration statement under the Securities Act
(other than on Form S-4 or S-8) in respect of, any shares of Common Stock,
options or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common Stock
(other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or shares of Common Stock upon
exercise of options, pursuant to any stock option, stock bonus or other stock
plan or arrangement described in the Prospectus and may issue shares of Common
Stock in connection with the acquisition of additional chauffeured vehicle
service providers, but only if the holders of such shares, options, or shares
issued upon exercise of such options, agree in writing not to sell, offer,
dispose of or otherwise transfer any such shares or options during such 180 day
period without the prior written consent of
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Montgomery Securities (which consent may be withheld at the sole discretion of
the Montgomery Securities).
(k) Future Reports to the Representatives. During the period of five
years after the date of this Agreement the Company will furnish to the
Representatives (i) as soon as practicable after it is mailed to stockholders,
copies of the Annual Report of the Company containing the balance sheet of the
Company as of the close of such fiscal year and statements of income,
stockholders' equity and cash flows for the year then ended and the opinion
thereon of the Company's independent public or certified public accountants;
(ii) as soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current
Report on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of any
other report or communication of the Company mailed generally to holders of its
capital stock.
The Representatives, on behalf of the several Underwriters, may, in their
sole discretion, waive in writing the performance by the Company of any one or
more of the foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. (a) The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws, and, if requested by the Representatives, preparing and
printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the Common
Shares on the Nasdaq National Market, (ix) warrants to purchase an aggregate of
15,000 shares of Common Stock to LP Associates, William Russell and Michael
Press as a finder's fee in connection with the Offering, and (x) all
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other fees, costs and expenses referred to in Item 14 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6,
Section 8 and Section 9 hereof, the Underwriters shall pay their own expenses,
including the fees and disbursements of their counsel.
(b) In recognition of financial advisory services provided to the Company
prior to the Offering, the Company agrees to issue to each of the
Representatives, in their individual capacities, warrants to purchase 67,500
shares of Common Stock, exercisable for a period of five years from the
effective date of the offering, at a price equal to 120% of the initial offering
price, subject to adjustment in certain events.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Representatives
shall have received from Coopers & Lybrand L.L.P., independent public
accountants for the Company, a letter dated the date hereof addressed to the
Underwriters, in form and substance satisfactory to the Representatives,
containing statements and information of the type ordinarily included in
accountant's "comfort letters" to underwriters, delivered according to Statement
of Auditing Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial information
contained in the Registration Statement and the Prospectus (and the
Representative shall have received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No Objection
from NASD. For the period from and after effectiveness of this Agreement and
prior to the First Closing Date and, with respect to the Optional Common Shares,
the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act)
in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment
to the Registration Statement containing the information required by such
Rule 430A, and such post-effective amendment shall have become effective;
or, if the Company elected to rely upon Rule 434 under the Securities Act
and obtained the Representative's consent thereto, the Company shall have
filed a Term Sheet
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with the Commission in the manner and within the time period required by
such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by
the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the date of
this Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, in the judgment of the
Representatives there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received the
favorable opinion of Nutter, McClennen & Fish, LLP, counsel for the Company,
dated as of such Closing Date, the form of which is attached as Exhibit A (and
---------
the Representatives shall have received an additional [___] conformed copies of
such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Fulbright & Jaworski L.L.P., counsel for the Underwriters,
dated as of such Closing Date, with respect to the Common Shares, the
Registration Statement and the Prospectus and such other related matters as the
Representatives may reasonably request (and the Representatives shall have
received an additional [___] conformed copies of such counsel's legal opinion
for each of the several Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) of this Section 5, and further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any Material Adverse
Change;
(ii) the representations, warranties and covenants of the Company
set forth in Section 1 of this Agreement are true and correct in all
material respects with the same force and effect as though expressly made
on and as of such Closing Date; and
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(iii) the Company has complied in all material respects with all the
agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received from Coopers &
Lybrand L.L.P., independent public accountants for the Company, a letter dated
such date, in form and substance satisfactory to the Representatives, to the
effect that they reaffirm the statements made in the letter furnished by them
pursuant to subsection (a) of this Section 5, except that the specified date
referred to therein for the carrying out of procedures shall be no more than
three business days prior to the First Closing Date or Second Closing Date, as
the case may be (and the Representatives shall have received an additional [___]
conformed copies of such accountants' letter for each of the several
Underwriters).
(h) Manhattan Closing. With respect to the acquisition of MILN and ILN by
the Company:
(i) Each condition to the obligations of the Company set forth in
Section ___ of the Manhattan Agreement shall have been satisfied.
(ii) A copy of each certificate delivered to the Company on behalf
of MILN or ILN pursuant to the Manhattan Agreements shall have also been
delivered to the Representatives.
(iii) Counsel for MILN and ILN shall have furnished to the
Representatives a letter, in form and substance satisfactory to the
Representatives, to the effect that they are entitled to rely on the
opinion of such counsel delivered to the Company pursuant to the Manhattan
Agreements as if such opinion were addressed to them.
(i) Manhattan Agreements. The Manhattan Agreements shall be in full force
and effect and none of the parties thereto shall be in default thereunder. The
Representatives shall have received assurances reasonably satisfactory to them
that all documents required to be filed in the respective states in order to
effectuate the consummation of the Merger (as defined in the Manhattan
Agreements) shall have been approved for filing by the appropriate authorities
in each state and that all of such Merger documents shall be filed substantially
concurrently with the consummation of the transactions pursuant to this
Agreement.
(j) Lock-Up Agreement from Certain Stockholders of the Company. On the
date hereof, the Company shall have furnished to the Representatives an
agreement in the form of Exhibit B hereto from the beneficial holders of an
---------
aggregate of at least 4,000,000 shares of Common Stock (including all of the
Company's officers and directors and each person who will receive shares of
Common Stock pursuant to the terms of the Manhattan Agreements), and such
agreement shall be in full force and
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effect on each of the First Closing Date and the Second Closing Date; provided
that beneficial ownership shall be defined and determined according to Rule 13d-
3 under the Exchange Act, except that a one hundred eighty day period shall be
used rather than the sixty day period set forth therein.
(k) Recapitalization. All of the transactions constituting a part of the
Recapitalization shall have occurred and shall be in full force and effect.
(l) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, the Representatives and counsel for the Underwriters
shall have received such information, documents and opinions as they may
reasonably require for the purposes of enabling them to pass upon the issuance
and sale of the Common Shares as contemplated herein, or in order to evidence
the accuracy of any of the representations and warranties, or the satisfaction
of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 5, Section 7, Section 10
or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Representatives
and the Underwriters in connection with the proposed purchase and the offering
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Representative of the effectiveness of the
Registration Statement under the Securities Act.
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Prior to such effectiveness of the Registration Statement, this Agreement
may be terminated by any party by notice to each of the other parties hereto,
and any such termination shall be without liability on the part of (a) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 4 and 6 hereof, (b) of any Underwriter to the Company, or (c) of any
party hereto to any other party except that the provisions of Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its gross negligence or willful misconduct; and to reimburse each Underwriter
and each such controlling person for any and all expenses (including the fees
and disbursements of counsel chosen by Montgomery Securities) as such expenses
are reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising
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or paying any such loss, claim, damage, liability, expense or action; provided,
however, that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the extent,
arising out of or based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Common Shares, or any
person controlling such Underwriter, if copies of the Prospectus were timely
delivered to the Underwriter pursuant to Section 2 and a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Common Shares to such
person, and if the Prospectus (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage, liability or expense. The
indemnity agreement set forth in this Section 8(a) shall be in addition to any
liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The Company
hereby acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration
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Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth (A) as the last paragraph on
the inside front cover page of the Prospectus concerning stabilization by the
Underwriters, (B) in the table after the first paragraph, and the second, sixth
and seventh paragraphs, under the caption "Underwriting" in the Prospectus and
(C) in the last paragraph of the cover page of the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity agreement
set forth in this Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (Montgomery Securities in the case of Section 8(b) and
Section 9), representing the indemnified parties who are parties to such action)
or (ii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
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(d) Settlements. The indemnifying party under this Section 8 shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any reason held to
be unavailable to or otherwise insufficient to hold harmless an indemnified
party in respect of any losses, claims, damages, liabilities or expenses
referred to therein, then each indemnifying party shall contribute to the
aggregate amount paid or payable by such indemnified party, as incurred, as a
result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, on the one hand, and the Underwriters, on the
other hand, from the offering of the Common Shares pursuant to this Agreement or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company, on the one hand, and the Underwriters, on the other hand, in
connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the
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<PAGE>
Company, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact or any such inaccurate or alleged inaccurate
representation or warranty relates to information supplied by the Company, on
the one hand, or the Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be
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<PAGE>
purchased on such date, the other Underwriters shall be obligated, severally, in
the proportions that the number of Firm Common Shares set forth opposite their
respective names on Schedule A bears to the aggregate number of Firm Common
----------
Shares set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as may be specified by the Representatives with the
consent of the non-defaulting Underwriters, to purchase the Common Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date. If, on the First Closing Date or the Second Closing Date,
as the case may be, any one or more of the Underwriters shall fail or refuse to
purchase Common Shares and the aggregate number of Common Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Common Shares
to be purchased on such date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares are not
made within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 6, Section 8 and Section 9 shall at all times be effective and shall
survive such termination. In any such case either the Representative or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement maybe terminated by the Representative by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York or
California authorities; (iii) there shall have occurred any outbreak or
escalation of national or international hostilities or any crisis or calamity,
or any change in the United States or international financial markets, or any
substantial change or development involving a prospective substantial change in
United States or international political, financial or economic conditions, as
in the judgment of the Representatives is material and adverse and makes it
impracticable to market the Common Shares in the manner and on the terms
described in the Prospectus or to enforce contracts for the sale of securities;
(iv) in the judgment of the Representatives there shall have occurred any
Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Representatives may interfere materially with the
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<PAGE>
conduct of the business and operations of the Company regardless of whether or
not such loss shall have been insured. Any termination pursuant to this Section
11 shall be without liability on the part of (a) the Company to any Underwriter,
except that the Company shall be obligated to reimburse the expenses of the
Representatives and the Underwriters pursuant to Sections 4 and 6 hereof, (b)
any Underwriter to the Company, or (c) any party hereto to any other party
except that the provisions of Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Carey International, Inc.
4530 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: 202-895-1201
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<PAGE>
Attention: Vincent A. Wolfington
with a copy to:
Nutter, McClennen & Fish, LLP
One International Place
Boston, Massachusetts 02110
Facsimile: (617) 973-9748
Attention: James E. Dawson, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. (A) THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of San Francisco or the courts
of the State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the jurisdiction of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
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<PAGE>
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
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<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
CAREY INTERNATIONAL, INC.
By: ____________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
MONTGOMERY SECURITIES
LADENBURG THALMANN & CO. INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
BY MONTGOMERY SECURITIES
By:____________________________
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<PAGE>
SCHEDULE A
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
Montgomery Securities ...........................
Ladenburg Thalmann & Co. Inc. ...................
Total ......................................
==========
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<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus (and any amendment or supplement thereto) and to enter into and
perform its obligations under the Underwriting Agreement. The Company and
each of its subsidiaries have all necessary authorizations, approvals,
consents, licenses, certificates and permits of and from all Federal and
state governmental or regulatory bodies or officials, to conduct all the
activities conducted by them, to own or lease all the assets owned or
leased by them and to conduct their businesses, all as described in the
Registration Statement and the Prospectus, and no such authorization,
approval, consent, order, license, certificate or permit contains a
materially burdensome restriction other than as disclosed in the
Registration Statement and the Prospectus.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business as described in the
Registration Statement, except for such jurisdictions where the failure to
so qualify or to be in good standing would not, individually or in the
aggregate, result in a Material Adverse Change.
(iv) Each subsidiary listed in Exhibit 21 to the Registration
Statement has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus
(and any amendment or supplement thereto) and, to the best knowledge of
such counsel, is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where
the failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change.
<PAGE>
(v) All of the issued and outstanding capital stock of each such
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any perfected security interest and, to the
knowledge of such counsel, any other security interest, mortgage, pledge,
lien, encumbrance or any pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conforms to the descriptions thereof
set forth in the Prospectus. All of the outstanding shares of Common Stock
have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been
issued in compliance in all material respects with the registration and
qualification requirements of federal and state securities laws. The form
of certificate used to evidence the Common Stock is in due and proper form
and complies with all applicable requirements of the charter and by-laws of
the Company and the General Corporation Law of the State of Delaware. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus fairly presents, in all
material respects, the information required to be shown with respect to
such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (a) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Delaware or (b) to the knowledge of such
counsel.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
The shares of Common Stock to be issued in connection with the Manhattan
Agreements have been duly authorized for issuance and, when issued and
delivered by the Company, will be validly issued, fully paid and
nonassessable.
<PAGE>
(x) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the
Commission under the Securities Act. To the knowledge of such counsel, no
stop order suspending the effectiveness of either of the Registration
Statement or the Rule 462(b) Registration Statement, if any, has been
issued under the Securities Act and no proceedings for such purpose have
been instituted or are pending or are contemplated or threatened by the
Commission. Any required filing of the Prospectus and any supplement
thereto pursuant to Rule 424(b) under the Securities Act has been made in
the manner and within the time period required by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of the
Securities Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(xiii) The statements (a) in the Prospectus under the captions "Risk
Factors--Status of Independent Operators", "Risk Factors--Certain Anti-
Takeover Provisions", "Description of Capital Stock", "Business--Government
Regulation", "Business--Legal Proceedings" and "Shares Eligible for Future
Sale", and (b) in Item 14 and Item 15 of the Registration Statement,
insofar as such statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents or legal
proceedings, or legal conclusions, have been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters
referred to therein.
(xiv) To the knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency,
<PAGE>
is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated
thereby and by the Prospectus, except as required under the Securities Act
and from the NASD.
(xvii) The execution and delivery of the Underwriting Agreement by
the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations under
the indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered) (a) have been duly authorized by all necessary
corporate action on the part of the Company; (b) will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary; (c) will not constitute a breach of, or Default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, to the knowledge of such counsel, any other material Existing
Instrument; or (d) to the best knowledge of such counsel, will not result
in any violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(xix) Except as disclosed in the Prospectus under the caption "Shares
Eligible for Future Sale", to the knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by the Underwriting Agreement, except
for such rights as have been duly waived.
(xx) To the knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to
the Company or any subsidiary or is in Default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change.
(xxi) The Recapitalization (as such term is defined in the
Prospectus) has been duly authorized and approved by the Board of Directors
and stockholders of the Company and no other corporate action is required
in order to consummate all of the transactions contemplated by the
Recapitalization.
(xxii) The Manhattan Agreements have been duly and validly
authorized, executed and delivered by the parties thereto, are valid and
binding on the
<PAGE>
parties thereto in accordance with their respective terms and, to the best
knowledge of such counsel, none of the parties thereto is in default in any
respect thereunder. The Merger of MLC Acquisition Corporation with MILN
pursuant to the Manhattan Agreements has become effective. Such Merger was
consummated in accordance with the provisions of the Manhattan Agreements
which have been duly authorized by the Company, MILN, ILN and their
respective stockholders, and complies in all respects with applicable law.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants
for the Company and with representatives of the Underwriters at which the
contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters were discussed and,
although such counsel is not passing upon, does not assume any
responsibility for and did not undertake to determine or verify
independently the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the basis
of the foregoing (relying as to factual matters on the opinions of officers
and other representatives of the Company), no facts have come to their
attention which would lead them to believe that either the Registration
Statement or any amendments thereto, at the time the Registration Statement
or such amendments became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that
the Prospectus, as of its date or at the First Closing Date or the Second
Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading (it being understood that such counsel need
express no belief as to the financial statements or schedules, the notes
thereto, or other financial or accounting data included in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the Commonwealth of Massachusetts or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Representative) of other counsel of good standing
whom they believe to be reliable and who are reasonably satisfactory to counsel
for the Underwriters; provided, however, that such counsel shall further state
that they believe that they and the Underwriters are justified in relying
<PAGE>
upon such opinion of other counsel, and (B) as to matters of fact, to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials.
<PAGE>
EXHIBIT B
, 1997
Montgomery Securities
Ladenburg Thalmann & Co. Inc.
As Representatives of the Several Underwriters
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: Carey International, Inc. (the "Company")
-----------------------------------------
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of Montgomery Securities
(which consent may be withheld in its sole discretion), directly or indirectly,
sell, offer, contract or grant any option to sell (including without limitation
any short sale), pledge, transfer, establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934,
or otherwise dispose of any shares of Common Stock, options or warrants to
acquire shares of Common Stock, or securities exchangeable or exercisable for or
convertible into shares of Common Stock currently or hereafter owned either of
record or beneficially (as defined in Rule 13d-3 under Securities Exchange Act
of 1934, as amended) by the undersigned, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date 180 days after the date
of the final Prospectus used in connection with the Offering. The undersigned
also agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock held by the undersigned except in compliance with the foregoing
restrictions.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of
<PAGE>
record or beneficially by the undersigned, including any rights to receive
notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
__________________________________________________
Printed Name of Holder
By:_______________________________________________
Signature
__________________________________________________
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf of
an entity)
<PAGE>
EXHIBIT 2.3
-----------
FORM OF STOCKHOLDER ACTION BY WRITTEN CONSENT
ADOPTED IN CONNECTION WITH THE RECAPITALIZATION
I. CONSENT AND AGREEMENT TO FURTHER AMEND AND RESTATE THE RESTATED CERTIFICATE
OF INCORPORATION, ISSUE COMMON STOCK IN AN INITIAL PUBLIC OFFERING AND
CERTAIN OTHER ACTIONS.
WHEREAS, Sections 242 and 245 of the Delaware General Corporation Law
provide that a corporation may amend or amend and restate its Certificate of
Incorporation if the Board of Directors deems such action advisable and if a
majority of the outstanding shares of stock entitled to vote thereon, and a
majority of each class entitled to vote thereon as a class, vote in favor of the
amendment or amendment and restatement;
WHEREAS, the Board of Directors of the Corporation has unanimously deemed it
advisable to amend the Restated Certificate of Incorporation of the Corporation
in order to effect a 2.3255-for-1 reverse split of all outstanding shares of
Common Stock, and subsequently to amend and restate the Restated Certificate of
Incorporation in order to (i) eliminate the various designations of series of
Preferred Stock and Class A Common Stock, (ii) increase the authorized capital
stock of the corporation, and (iii) make certain other changes to the Restated
Certificate of Incorporation;
WHEREAS, Section 4.2 of that certain Series F Preferred Stock Purchase
Agreement dated December 30, 1988, as amended on December 19, 1991, between the
Corporation and the Purchaser named therein (the "Series F Agreement") requires
the approval of the holder(s) of two-thirds of the shares of Series F Preferred
Stock purchased thereunder in order to amend the Corporation's Restated
Certificate of Incorporation to eliminate the authorized but unissued Class A
Common Stock; and
WHEREAS, Section 4.1.1 of that certain Series G Preferred Stock Purchase
Agreement dated as of November 30, 1991, among the Corporation and various
Purchasers named therein (the "Series G Agreement") requires the approval of a
majority of the shares of Series G Preferred Stock purchased thereunder in order
(i) to amend the Corporation's Restated Certificate of Incorporation and (ii) to
issue shares of Common Stock;
NOW, THEREFORE, (i) the undersigned holders of the Corporation's Common
Stock and Series A, Series B and Series G Preferred Stock, voting together as a
class, (ii) the holder of the Series F Preferred Stock (only with respect to
items 4, 5 and 6 below), (iii) the undersigned holders of the Series G Preferred
Stock (only with respect to items 1, 2, 3, 4, 5, 6 and 8 below) and (iv) the
undersigned holders of the Series A, Series B, Series F and Series G Preferred
Stock, each voting as a separate series and/or class, to the extent required by
the Delaware General Corporation Law or the Series F Agreement or the Series G
Agreement, each hereby irrevocably consent and agree to the following (all of
which is described on a post-reverse split basis, assuming stockholder approval
of items 1, 2 and 3 below):
1. That the Corporation's Restated Certificate of Incorporation be amended
in the form of the Certificate of Amendment set forth in Exhibit A
---------
hereto (the "Certificate of
<PAGE>
Amendment"), to effect a 2.3255 for-1 reverse split of all outstanding
shares of Common Stock.
2. That the Certificate of Amendment be filed with the Delaware Secretary
of State at an appropriate time to be determined by the Corporation
prior to the closing of the Offering (as defined below).
3. That the Board of Directors be, and hereby is, authorized to abandon
the Certificate of Amendment authorized by the foregoing at any time
prior to the effective date of such amendment filed with the Secretary
of State of Delaware without further action by the stockholders.
4. That upon and subject to the closing of the Corporation's underwritten
initial public offering of up to 3,335,000 shares (including 435,000
shares issuable pursuant to an option granted to the underwriters
solely to cover over-allotments) of Common Stock, par value $.01 per
share (the "Common Stock") (or such greater number of shares of Common
Stock as are approved by the Corporation's Board of Directors, which
greater number of shares shall not exceed 50% of the outstanding
shares of the Corporation on a fully-diluted, post-offering basis),
pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Offering"), notwithstanding any
provision currently contained in the Corporation's existing Restated
Certificate of Incorporation, the Corporation's Restated Certificate
of Incorporation be amended and restated as set forth in the Amended
and Restated Certificate of Incorporation set forth in Exhibit B
---------
hereto (the "Amended and Restated Certificate") in order to effect
certain changes (the "Recapitalization") to the Corporation's
capitalization and certain other changes to its Restated Certificate
of Incorporation, including without limitation the following (on a
post-reverse split basis):
(a) each of the 42,070 shares of Series A Preferred Stock issued and
outstanding immediately prior to such filing shall be redeemed by
the Corporation at a price of $50 plus 2.04428357499 shares of
Common Stock;
(b) each of the 9,580 shares of Series B Preferred Stock issued and
outstanding immediately prior to such filing shall be
automatically converted into and exchanged for 69.2861743215
shares of Common Stock;
(c) each of 46,890 shares of Series G Preferred Stock issued and
outstanding immediately prior to such filing (other than 3,000
shares of such Series G Preferred Stock held by IBJS Capital
Corporation) shall be automatically converted into and exchanged
for 16.288448923 shares of Common Stock;
(d) all of the 10,000 shares of Series F Preferred Stock issued and
outstanding immediately prior to such filing, and all of the 3,000
shares of Series G
-2-
<PAGE>
Preferred Stock held by IBJS Capital Corporation, shall be
redeemed by the Corporation at an aggregate price of $1,000,000;
(e) the number of shares of stock authorized for issuance shall be
increased from 10,000,000 to 21,000,000;
(f) the number of shares of Common Stock authorized for issuance shall
be increased from 9,512,950 to 20,000,000;
(g) the number of shares of Preferred Stock authorized for issuance
shall be increased from 173,050 to 1,000,000;
(h) the authorized but unissued shares of Class A Common Stock shall
be eliminated;
(i) the designations of Class A Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series E Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock shall be eliminated
and replaced with a "blank check" Preferred Stock provision
entitling the Board of Directors to designate the rights and
preferences of Preferred Stock; and
(j) the Board of Directors shall be divided into three classes of
directors serving staggered three-year terms.
The undersigned stockholders acknowledge and agree that, in connection
with and after giving effect to the reverse stock split and the
Recapitalization, cash will be distributed in lieu of any fractional
share that otherwise would be distributed to any holder of Common
Stock as a consequence of such holder's aggregate holdings in an
amount determined by multiplying such fraction by the Offering price
to the public.
5. That the Amended and Restated Certificate be filed with the Delaware
Secretary of State simultaneously with the closing of the Offering.
6. That the Board of Directors be, and hereby is, authorized to abandon
the amendment and restatement of the Restated Certificate of
Incorporation authorized by the foregoing items 4 and 5 at any time
prior to the effective date of such amendments and restatement filed
with the Secretary of State of Delaware without further action by the
stockholders.
7. That the officers of the Corporation be, and each of them hereby is,
authorized, in the name and on behalf of the Corporation, to execute
and deliver all other instruments, and to take all other action, as
such officer shall deem to be necessary or appropriate and in the best
interests of the Corporation in order to carry out the
-3-
<PAGE>
intent of all of the resolutions set forth in all parts of this
Stockholder Action by Written Consent.
8. That the issuance of up to 3,335,000 shares of Common Stock in
connection with the Offering (or such greater number of shares as are
approved by the Corporation's Board of Directors, which greater number
of shares shall not exceed 50% of the outstanding shares of the
Corporation on a fully-diluted, post-Offering basis) is hereby
approved.
9. That in connection with and as a part of the Recapitalization, the
following additional changes to the outstanding securities of the
Corporation are hereby ratified, approved and confirmed (all on a
post-reverse split basis):
(a) The Yerac Associates, L.P. $2,000,000 convertible subordinated
note will have its conversion price reduced from approximately
$6.14, to approximately $4.65, and will be converted to
acquire 430,015 shares of Common Stock; and the strike price
of Yerac's warrant to purchase 86,003 shares of Common Stock
will be reduced from approximately $6.14 to approximately
$4.65 per share;
(b) The PNC Capital Corp. warrant, representing the right to
purchase 616,544 shares of Common Stock, will have its strike
price reduced from approximately $6.14 to approximately $4.65
per share, and will be exercised in full by reducing the
outstanding amount owed by the Corporation under PNC's
subordinated promissory note (held by the warrant holder) by
$2,867,546.00;
(c) Other warrants to purchase an aggregate of 27,950 shares of
Common Stock will have their strike prices reduced from
approximately $6.14 to approximately $4.65 per share; and
(d) Stock options to purchase an aggregate of 337,484 shares of
Common Stock which have exercise prices in excess of
approximately $4.65 will have their exercise prices reduced to
approximately $4.65 per share.
-4-
<PAGE>
II. CONSENT AND AGREEMENT BY THE FOUNDERS AND THE HOLDERS OF SERIES A PREFERRED
STOCK, SERIES B PREFERRED STOCK, SERIES F PREFERRED STOCK AND SERIES G
PREFERRED STOCK TO THE TERMINATION AND MODIFICATION OF VARIOUS RIGHTS AND
OBLIGATIONS.
WHEREAS, the Corporation and the underwriters (the "Underwriters") of the
proposed Offering have requested, as an inducement to the Corporation and the
Underwriters to proceed with the Offering, that the holders of shares of the
Corporation's Series A, Series B, Series F and Series G Preferred Stock agree to
terminate certain agreements to which such holders and the Corporation are
parties, effective upon the closing of the Offering;
WHEREAS, Section 11.4 of that certain Series A and Series B Preferred Stock
Purchase Agreement dated December 31, 1986, as amended, among the Corporation
and various Purchasers and Founders (as such terms are defined therein) (the
"Series A and B Agreement") provides it may be amended or terminated by the
written consent of the Corporation and the holders of a majority in interest of
the aggregate of the then-outstanding Series A Preferred Stock and Series B
Preferred Stock;
WHEREAS, Section 9.3 of each of the Series F Agreement and the Series G
Agreement provides that any provision thereof may be amended by the Corporation
and the holder(s) of a majority of the Shares of Series F and Series G Preferred
Stock purchased under each respective Agreement;
WHEREAS, that certain Voting Agreement dated December 31, 1986, as amended,
and that certain Stock Ownership Agreement dated December 31, 1986, executed in
connection with the Series A and B Agreement; that certain Co-Sale Agreement
dated December 30, 1988, executed in connection with the Series F Agreement; and
that certain Co-Sale Agreement dated July 30, 1992, executed in connection with
the PNC Venture Corp. financing (the "Other Agreements"), all may be terminated
by written action of all the parties to each of such Other Agreements; and
WHEREAS, the Corporation has consented to the following terminations of, and
amendments to, various rights and agreements;
NOW, THEREFORE, the undersigned Founders and the undersigned holders of the
Series A, Series B, Series F and Series G Preferred Stock, each acting
separately as to the termination of certain of their rights in the Series A and
B Agreement, the Series F Agreement, the Series G Agreement and the Other
Agreements (collectively, the "Stock Purchase Agreements"), to the extent that
they are parties to each respective Stock Purchase Agreement, hereby irrevocably
consent and agree to the following actions:
1. That any and all provisions of the Stock Purchase Agreements relating to
rights with respect to registration of the Company's Common Stock under
applicable securities laws in connection with the Offering are hereby
waived as of the effective date of this Consent.
-5-
<PAGE>
2. That all of the Stock Purchase Agreements, and each and every provision
thereof, shall be terminated as of the closing date of the Offering.
III. AMENDMENT OF THE BY-LAWS.
WHEREAS, Article XXVII of the By-laws of the Corporation states that the
By-laws may be amended, altered, repealed or added to by either the affirmative
vote of holders of a majority of the stock entitled to vote thereon or a
majority of the Board of Directors;
WHEREAS, Article III, Section 2, of the By-laws, relating to calling
special meetings of stockholders, states that said Section 2 may be altered,
amended or repealed only by the stockholders; and
WHEREAS, in connection with the Offering, the Board of Directors, on
advice of counsel, has approved the amendment and restatement of the By-laws;
NOW, THEREFORE, the undersigned holders of the Corporation's Common Stock
and Series A, Series B and Series G Preferred Stock, voting together as a class,
hereby consent to the following actions:
1. That the Corporation's By-laws be and hereby are amended by deleting
the last sentence of Article III, Section 2 thereof in its entirety.
2. That the Board of Directors' amendment and restatement of the By-Laws
in the form recommended by counsel to the Corporation and attached as
Exhibit C hereto is hereby ratified, approved and confirmed.
---------
IV. APPROVAL OF THE CREATION AND ADOPTION OF THE 1997 EQUITY INCENTIVE PLAN
AND THE STOCK PLAN FOR NON-EMPLOYEE DIRECTORS.
WHEREAS, the Board of Directors has unanimously approved, subject to
stockholder approval, (i) the 1997 Equity Incentive Plan (the "Plan"), pursuant
to which a total of 650,000 shares (on a post-reverse stock split basis) of the
Corporation's Common Stock may be issued under incentive stock options, non-
qualified stock options and other equity incentive awards, and (ii) the Stock
Plan for Non-Employee Directors (the "Directors' Plan"), pursuant to which a
total of 100,000 shares (on a post-reverse stock split basis) of the
Corporation's Common Stock may be issued under non-qualified options and
elections to receive shares of Common Stock in lieu of cash compensation;
WHEREAS, pursuant to Section 4.1.4 of the Series G Agreement, in order to
adopt any new stock option plan the Corporation must obtain the approval of at
least a majority of the then outstanding shares of Series G Preferred Stock
purchased thereunder; and
-6-
<PAGE>
WHEREAS, in order to qualify ISOs and other Awards to Participants (all as
defined in the Plan) which may be granted under the Plan and pursuant to the
Internal Revenue Code, stockholder approval of the Plan is required;
NOW, THEREFORE, the undersigned holders of the Corporation's Common Stock
and Series A, Series B and Series G Preferred Stock, voting together as a class,
and the undersigned holders of the Series G Preferred Stock voting separately as
a class, hereby consent to and approve the Plan and the Directors' Plan
substantially in the forms attached hereto as Exhibit D and Exhibit E,
--------- ---------
respectively.
V. ELECTION OF DIRECTORS BY WRITTEN CONSENT IN LIEU OF SPECIAL MEETING IN
LIEU OF ANNUAL MEETING
WHEREAS, the Chairman of the Corporation has requested that the
stockholders of the Corporation entitled to vote for the election of directors
reelect the directors of the Corporation for the ensuing year and until their
successors are elected and qualified;
NOW, THEREFORE, the undersigned holders of the Corporation's Common Stock
and Series A, Series B and Series G Preferred Stock, each voting together and as
a separate series and/or class, to the extent required by the Delaware General
Corporation Law and any Stock Purchase Agreement, hereby irrevocably consent to
the election of the following persons as directors of the Corporation, each to
serve until his successor is duly elected and qualified at the 1998 annual
meeting of stockholders (or later annual meetings of stockholders, in the event
of the approval of a classified Board of Directors):
Robert W. Cox
Don R. Dailey
William R. Hambrecht
David McL. Hillman
Vincent A. Wolfington
-7-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
NUMBER CAREY SHARES
CI-
COMMON STOCK SEE REVERSE FOR
CAREY INTERNATIONAL, INC. CERTAIN DEFINITIONS
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 141750 10 9
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE OF
--------------------------------------------- -------------------------------------------
- --------------------------------------------------- CAREY INTERNATIONAL, INC. --------------------------------------------------
--------------------------------------------- -------------------------------------------
transferable on the books of the Company by the holder hereof in person or by its duly authorized attorney upon surrender of this
Certificate properly endorsed or assigned. This Certificate and the shares represented hereby are issued and shall be held subject
to the laws of the State of Delaware and the provisions of the Certificate of Incorporation and the By-laws of the Company, as
amended from time to time to whcich the holder be acceptance hereof assents. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal fo the Company and the facsimile signatures of its duly authorized officers.
Dated:
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
[CAREY INTERNATIONAL, INC. SEAL APPEARS HERE]
PRESIDENT AND SECRETARY CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED
AMERICAN SECURITIES TANSFER & TRUST, INC.
P.O. BOX 1590
DENVER, COLORADO 80201
BY TRANSFER AGENT AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
CAREY INTERNATIONAL, INC.
The Company is authorized to issue more than one class or series of stock.
Upon written request the Company will furnish without charge to each
stockholder a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ________________, Custodian ______________________
(Cust) (Minor)
Under Uniform Gifts To Minors
Act _______________________
(State)
Additional abbreviations may also be used through not in the above list.
For value received, __________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------- Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the promises.
Dated________________________
----------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
- -------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAMS),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.2
CAREY INTERNATIONAL, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
--------------------------------------------------
No. 1 ___________ Shares
FOR VALUE RECEIVED, Carey International, Inc., a Delaware corporation
(the "COMPANY"), hereby certifies that _____________________________ or its
permitted assigns is entitled to purchase from the Company, at any time or from
time to time commencing on , 1997 and prior to 5:00 P.M., New
York City time, on , 2002, ___________________________
(____________) fully paid and non-assessable shares of the common stock, $.01
par value per share, of the Company for an aggregate purchase price of
$__________ (computed on the basis of $______ per share). (Hereinafter, (i)
said common stock, together with any other equity securities which may be issued
by the Company with respect thereto or in substitution therefor, is referred to
as the "COMMON STOCK," (ii) the shares of the Common Stock purchasable hereunder
or under any other Warrant (as hereinafter defined) are referred to individually
as a "WARRANT SHARE" and collectively as the "WARRANT SHARES," (iii) the
aggregate purchase price payable for the Warrant Shares hereunder is referred to
as the "AGGREGATE WARRANT PRICE," (iv) the price payable for each of the Warrant
Shares hereunder is referred to as the "PER SHARE WARRANT PRICE," (v) this
Warrant, all similar Warrants issued on the date hereof and all Warrants
hereafter issued in exchange or substitution for this Warrant or such similar
Warrants are referred to as the "WARRANTS" and (vi) the holder of this Warrant
is referred to as the "HOLDER" and the holder of this Warrant and all other
Warrants or Warrant Shares issued upon the exercise of any Warrant are referred
to as the "HOLDERS.") The Aggregate Warrant Price is not subject to adjustment.
The Per Share Warrant Price is subject to adjustment as hereinafter provided; in
the event of any such adjustment, the number of Warrant Shares shall be adjusted
by dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
1. EXERCISE OF WARRANT. (a) The Holder may exercise this Warrant,
-------------------
in whole or in part, as follows:
(i) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 9(a) hereof, with the Subscription Form
annexed hereto (or a reasonable facsimile thereof) duly executed and
accompanied by payment of the Per Share Warrant Price for each Warrant
Share to be purchased. Payment for Warrant Shares shall be made by
certified or official bank check payable to the order of the Company; or
(ii) By presentation and surrender of this Warrant to the Company at
the address set forth in Subsection 9(a) hereof, with a Cashless Exercise
Form
<PAGE>
annexed hereto (or a reasonable facsimile thereof) duly executed (a
"CASHLESS EXERCISE"). Such presentation and surrender shall be deemed a
waiver of the Holder's obligation to pay all or any portion of the
Aggregate Warrant Price. In the event of a Cashless Exercise, the Holder
shall exchange its Warrant for that number of shares of Common Stock
determined by multiplying the number of Warrant Shares being exercised by a
fraction, the numerator of which shall be the positive difference between
the then current market price per share of the Common Stock and the Per
Share Warrant Price, and the denominator of which shall be the then current
market price per share of Common Stock. For purposes of any computation
under this Section 1, the then current market price per share of Common
Stock at any date shall be deemed to be the average for the thirty
consecutive business days immediately prior to the Cashless Exercise of the
daily closing prices of the Common Stock on the principal national
securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
closing prices as reported by the Nasdaq National Market, or if not then
listed on the Nasdaq National Market, the average of the highest reported
bid and lowest reported asked prices as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or if not then publicly traded, the fair market price of the
Common Stock as determined by the Board of Directors.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock, and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon surrender of this Warrant in
connection with any exercise thereof, the Company will (i) issue a certificate
or certificates, in such denominations as are requested for delivery by the
Holder, in the name of the Holder for the largest number of whole shares of the
Common Stock to which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the Common Stock to which
the Holder shall be entitled, pay to the Holder cash in an amount equal to the
then current market price of a share of Common Stock multiplied by such
fraction, and (ii) deliver the other securities and properties receivable upon
the exercise of this Warrant, or the proportionate part thereof if this Warrant
is exercised in part, pursuant to the provisions of this Warrant. On and after
the date of exercise of this Warrant, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
--------------------------------------
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer (other than those imposed by
-2-
<PAGE>
applicable law) and free and clear of all preemptive rights and rights of first
refusal and (b) if the Company hereafter lists its Common Stock on any national
securities exchange, keep the shares of the Common Stock receivable upon the
exercise of this Warrant authorized for listing on such exchange upon notice of
issuance.
3. PROTECTION AGAINST DILUTION. (a) In case the Company shall
---------------------------
hereafter (i) pay a dividend or make a distribution on its capital stock in
shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares or (iv) issue by reclassification of its
Common Stock any shares of capital stock of the Company, the Per Share Warrant
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 3(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) If, at any time or from time to time after the date of this
Warrant, the Company shall issue or distribute to the holders of shares of
Common Stock evidences of its indebtedness, any other securities of the Company
or any cash, property or other assets (excluding a subdivision, combination or
reclassification, or dividend or distribution payable in shares of Common Stock,
referred to in Subsection 3(a), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor if the full
amount thereof, together with the value of other dividends and distributions
made substantially concurrently therewith or pursuant to a plan which includes
payment thereof, is equivalent to not more than 5% of the Company's net worth)
(any such nonexcluded event being herein called a "SPECIAL DIVIDEND"), the Per
Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price
then in effect by a fraction, the numerator of which shall be the then current
market price of the Common Stock (defined as the average for the thirty
consecutive business days immediately prior to the record date of the daily
closing price of the Common Stock as reported by the national securities
exchange upon which the Common Stock is then listed or if not listed on any such
exchange, the average of the closing prices as reported by Nasdaq National
Market, or if not then listed on the Nasdaq National Market, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
if not then publicly traded, the fair market price as determined by the
Company's Board of Directors) less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness, cash, securities
or property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock and the denominator of which shall be
such then current market price per share of Common Stock. An adjustment made
pursuant to this Subsection 3(b) shall become effective immediately after the
record date of any such Special Dividend.
-3-
<PAGE>
(c) In case of any capital reorganization or reclassification, or any
consolidation or merger to which the Company is a party other than a merger or
consolidation in which the Company is the continuing corporation, or in case of
any sale or conveyance to another entity of the property of the Company as an
entirety or substantially as an entirety, or in the case of any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this Subsection 3(c) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 15 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(d) In case any event shall occur as to which the other provisions of
this Section 3 are not strictly applicable but as to which the failure to make
any adjustment would not fairly protect the purchase rights represented by this
Warrant in accordance with the essential intent and principles hereof then, in
each such case, the Holders of Warrants representing the right to purchase a
majority of the Warrant Shares subject to all outstanding Warrants may appoint a
firm of independent public accountants of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to the
adjustment, if any, on a basis consistent with the essential intent and
principles established herein, necessary to preserve the purchase rights
represented by the Warrants. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this Warrant and shall make the
adjustments described therein. The fees and expenses of such independent public
accountants shall be borne by the Company.
(e) No adjustment in the Per Share Warrant Price shall be required
unless such adjustment would require an increase or decrease of at least $0.05
per share of Common Stock; provided, however, that any adjustments which by
-------- -------
reason
-4-
<PAGE>
of this Subsection 3(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment; provided further, however, that
-------- -------
adjustments shall be required and made in accordance with the provisions of this
Section 3 (other than this Subsection 3(e)) not later than such time as may be
required in order to preserve the tax-free nature of a distribution to the
Holder of this Warrant or Common Stock issuable upon exercise hereof. All
calculations under this Section 3 shall be made to the nearest cent or to the
nearest 1/l00th of a share, as the case may be. Anything in this Section 3 to
the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Per Share Warrant Price, in addition to those required by this
Section 3, as it in its discretion shall deem to be advisable in order that any
stock dividend, subdivision of shares or distribution of rights to purchase
stock or securities convertible or exchangeable for stock hereafter made by the
Company to its stockholders shall not be taxable.
(f) Whenever the Per Share Warrant Price is adjusted as provided in
this Section 3 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 3, the Company shall promptly deliver a
certificate signed by its Chief Financial Officer setting forth the Per Share
Warrant Price and the number of Warrant Shares after such adjustment or the
effect of such modification, a brief statement of the facts requiring such
adjustment or modification and the manner of computing the same and cause copies
of such certificate to be mailed to the Holders of the Warrants.
(g) If the Board of Directors of the Company shall (i) declare any
dividend or other distribution with respect to the Common Stock, other than a
cash dividend subject to the first parenthetical in Subsection 3(b), (ii) offer
to the holders of shares of Common Stock any additional shares of Common Stock,
any securities convertible into or exercisable for shares of Common Stock or any
rights to subscribe thereto, or (iii) propose a dissolution, liquidation or
winding up of the Company, the Company shall mail notice thereof to the Holders
of the Warrants not less than 15 days prior to the record date fixed for
determining stockholders entitled to participate in such dividend, distribution,
offer or subscription right or to vote on such dissolution, liquidation or
winding up.
(h) If, as a result of an adjustment made pursuant to this Section 3,
the Holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive shares of two or more classes of capital stock or shares of
Common Stock and other capital stock of the Company, the Board of Directors
(whose determination shall be conclusive and shall be described in a written
notice to the Holder of any Warrant promptly after such adjustment) shall
determine the allocation of the adjusted Per Share Warrant Price between or
among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
-----------------------
Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly
-5-
<PAGE>
issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights or rights of first refusal, and the Company will take all such
actions as may be necessary to assure that the par value or stated value, if
any, per share of the Common Stock is at all times equal to or less than the
then Per Share Warrant Price. The Company further covenants and agrees that it
will pay, when due and payable, any and all Federal and state stamp, original
issue or similar taxes which may be payable in respect of the issue of any
Warrant Share or certificate therefor.
5. REGISTRATION UNDER SECURITIES ACT OF 1933.
-----------------------------------------
(a) The Company agrees that if, at any time during the period
commencing on , 1998 and ending on , 2002, the Holder
and/or the Holders of any other Warrants and/or Warrant Shares who or which
shall hold not less than 25% of the Warrants and/or Warrant Shares outstanding
at such time and not previously sold pursuant to this Section 5 shall request
that the Company file, under the Securities Act of 1933 (the "ACT"), a
registration statement under the Act covering not less than 25% of the Warrant
Shares issued or issuable upon the exercise of the Warrants and not so
previously sold, the Company will (i) promptly notify each Holder of the
Warrants and each holder of Warrant Shares not so previously sold that such
registration statement will be filed and that the Warrant Shares which are then
held, and/or may be acquired upon exercise of the Warrants by the Holder and
such Holders, will be included in such registration statement at the Holder's
and such Holders' request, (ii) cause such registration statement to be filed
with the Securities and Exchange Commission within thirty days of such request
and to cover all Warrant Shares which it has been so requested to include, (iii)
use its best efforts to cause such registration statement to become effective as
soon as practicable and (iv) take all other action necessary under any Federal
or state law or regulation of any governmental authority to permit all Warrant
Shares which it has been so requested to include in such registration statement
to be sold or otherwise disposed of, and will maintain such compliance with each
such Federal and state law and regulation of any governmental authority for the
period necessary for such Holders to effect the proposed sale or other
disposition. The Company shall be required to effect a registration or
qualification pursuant to this Subsection 5(a) on one occasion only.
Notwithstanding the foregoing, the Company need not include any Warrant Shares
owned by any Holder in any registration statement provided for under this
Subsection 5(a) or notify any other Holder that a registration statement will be
filed if in the opinion of counsel for the Company reasonably satisfactory to
the Holder (which shall be deemed to include Nutter, McClennen & Fish, LLP),
registration of such shares under the Act is not necessary for the Holder to
dispose of all of such shares in the public market in compliance with the Act;
provided that, in such case, the opinion of such counsel shall be in writing
addressed to the Holder and shall be rendered within 20 days after the Company
receives the Holder's request for registration.
(b) The Company agrees that if, at any time and from time to
time during the period commencing on , 1997 and ending on ,
2004, the Board of Directors of the Company shall authorize the filing of a
registration
-6-
<PAGE>
statement (any such registration statement being hereinafter called a
"SUBSEQUENT REGISTRATION STATEMENT") under the Act (otherwise than pursuant to
Subsection 5(a) hereof, or other than a registration statement on Form S-8 or
other form which does not include substantially the same information as would be
required in a form for the general registration of securities) in connection
with the proposed offer of any of its securities by it or any of its
stockholders, the Company will (i) promptly notify the Holder and each of the
Holders, if any, of other Warrants and/or Warrant Shares not previously sold
pursuant to this Section 5 that such Subsequent Registration Statement will be
filed and that the Warrant Shares which are then held, and/or which may be
acquired upon the exercise of the Warrants, by the Holder and such Holders,
will, at the Holder's and such Holders' request, be included in such Subsequent
Registration Statement, (ii) upon the written request of a Holder made within 20
days after the giving of such notice by the Company, include in the securities
covered by such Subsequent Registration Statement all Warrant Shares which it
has been so requested to include, (iii) use its best efforts to cause such
Subsequent Registration Statement to become effective as soon as practicable and
(iv) take all other action necessary under any Federal or state law or
regulation of any governmental authority to permit all Warrant Shares which it
has been so requested to include in such Subsequent Registration Statement to be
sold or otherwise disposed of, and will maintain such compliance with each such
Federal and state law and regulation of any governmental authority for the
period necessary for the Holder and such Holders to effect the proposed sale or
other disposition.
(c) Whenever the Company is required pursuant to the provisions of
this Section 5 to include Warrant Shares in a registration statement, the
Company shall (i) furnish each Holder of any such Warrant Shares and each
underwriter of such Warrant Shares with such copies of the prospectus, including
the preliminary prospectus, conforming to the Act (and such other documents as
each such Holder or each such underwriter may reasonably request) in order to
facilitate the sale or distribution of the Warrant Shares, (ii) use its best
efforts to register or qualify such Warrant Shares under the blue sky laws (to
the extent applicable) of such jurisdiction or laws (to the extent applicable)
of such jurisdiction or jurisdictions as the Holders of any such Warrant Shares
and each underwriter of Warrant Shares being sold by such Holders shall
reasonably request and (iii) take such other actions as may be reasonably
necessary or advisable to enable such Holders and such underwriters to
consummate the sale or distribution in such jurisdiction or jurisdictions in
which such Holders shall have reasonably requested that the Warrant Shares be
sold. Nothing contained in this Warrant shall be construed as requiring a
Holder to exercise its Warrant prior to the closing of an offering pursuant to a
registration statement referred to in Subsection 5(a) or 5(b).
(d) The Company shall furnish to each Holder participating in an
offering pursuant to a registration statement under this Section 5 and to each
underwriter, if any, a signed counterpart, addressed to such Holder or
underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (and, if such registration includes an
underwritten public offering, an opinion
-7-
<PAGE>
dated the date of the closing under the underwriting agreement), and (ii) a
"comfort" letter dated the effective date of such registration statement (and,
if such registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by the
independent public accountants who have issued a report on the Company's
financial statements included in such registration statement, in each case
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(e) The Company shall enter into an underwriting agreement with the
managing underwriters selected by Holders holding 50% of the Warrant Shares
requested to be included in a registration statement filed pursuant to Section
5(a). Such agreement shall be reasonably satisfactory in form and substance to
the Company, each Holder and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement
relating to an underwritten sale of their Warrant Shares and may, at their
option, require that any or all the representations, warranties and covenants of
the Company to or for the benefit of such underwriters shall also be made to and
for the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(f) The Company shall pay all expenses incurred in connection with
any registration statement or other action pursuant to the provisions of this
Section 5, including the reasonable fees and expenses of one counsel
representing the Holders of Warrant Shares included in any such registration
statement, other than underwriting discounts and applicable transfer taxes
relating to the Warrant Shares.
(g) The Company will indemnify, and, if such indemnity is
unavailable, will agree to just and equitable contribution to, the Holders of
Warrant Shares which are included in each registration statement referred to in
Subsections 5(a) and 5(b), and the underwriters of such Warrant Shares,
substantially to the same extent as the Company has indemnified, and agreed to
just and equitable contribution to, the underwriters (the "UNDERWRITERS") of its
public offering of Common Stock pursuant to the Underwriting Agreement (the
"Underwriting Agreement"), dated ______, 1997, by and among the Company,
Montgomery Securities, Ladenburg Thalmann & Co. Inc. and the other underwriters
named in Schedule A thereto. Each selling Holder of Warrant Shares, severally
and not jointly, will indemnify and hold harmless the Company, its directors,
its officers who shall have signed any such registration statement and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act to the same extent as the foregoing indemnity from
-8-
<PAGE>
the Company, but in each case to the extent, and only to the extent, that any
statement in or omission from or alleged omission from such registration
statement, any final prospectus, or any amendment or supplement thereto was made
in reliance upon information furnished in writing to the Company by such selling
Holder specifically for use in connection with the preparation of such
registration statement, any final prospectus or any such amendment or supplement
thereto; provided, however, that the obligation of any Holder of Warrant Shares
-------- -------
to indemnify the Company under the provisions of this Subsection (g) shall be
limited to the excess of (1) the product of (A) the number of Warrant Shares
------ --
being sold by the selling Holder and (B) the market price of the Common Stock on
the date of the sale to the public of such Warrant Shares over (2) the aggregate
----
amount, if any, paid to the Company by such Holder in connection with the
issuance of such Warrant Shares.
(h) Each Holder shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in connection with any registration,
qualification or compliance referred to herein.
6. LIMITED TRANSFERABILITY. This Warrant may not be sold,
-----------------------
transferred, assigned or hypothecated by the Holder (a) except in compliance
with the provisions of the Act, and (b) until the first anniversary hereof
except (i) to any successor firm or corporation of Ladenburg, Thalmann & Co.
Inc. or Montgomery Securities (ii) to any of the officers of Ladenburg, Thalmann
& Co. Inc. Montgomery Securities, or of any such successor firm or (iii) in the
case of an individual, pursuant to such individual's last will and testament or
the laws of descent and distribution, and is so transferable only upon the books
of the Company which it shall cause to be maintained for the purpose. The
Company may treat the registered Holder of this Warrant as he or it appears on
the Company's books at any time as the Holder for all purposes. The Company
shall permit any Holder of a Warrant or his duly authorized attorney, upon
written request during ordinary business hours, to inspect and copy or make
extracts from its books showing the registered holders of Warrants. All Warrants
issued upon the transfer or assignment of this Warrant will be dated the same
date as this Warrant, and all rights of the Holder thereof shall be identical to
those of the Holder.
7. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to
----------------------
the Company of the loss, theft, destruction or mutilation of this Warrant, and
of indemnity reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of this Warrant, if mutilated,
the Company shall execute and deliver to the Holder a new Warrant of like date,
tenor and denomination.
8. WARRANT HOLDER NOT STOCKHOLDER. Except as otherwise provided
------------------------------
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a stockholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
stockholder, prior to the exercise hereof.
-9-
<PAGE>
9. NOTICES. All notices and other communications required or
-------
permitted to be given under this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or by facsimile transmission, or
sent by recognized overnight courier or by certified mail, return receipt
requested, postage paid, to the parties hereto as follows:
(a) if to the Company at 4530 Wisconsin Avenue, N.W., 5th Floor,
Washington, D.C. 20016, Att.: Vincent A. Wolfington, facsimile no.
202-895-1201, or such other address as the Company has designated in
writing to the Holder, or
(b) if to the Holder at , Att.: ,
facsimile no. , or such other address or facsimile
number as the Holder has designated in writing to the Company.
10. HEADINGS. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
11. APPLICABLE LAW. This Warrant shall be governed by and construed
--------------
in accordance with the law of the State of New York without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, Carey International, Inc. has caused this Warrant
to be signed by its Chairman of the Board and its corporate seal to be hereunto
affixed and attested by its Secretary this ____ day of ____________, 1997.
CAREY INTERNATIONAL, INC.
By:______________________
Chairman of the Board
ATTEST:
_________________________
Secretary
[Corporate Seal]
-10-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ____________________________ hereby sells, assigns
and transfers unto __________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_______________________, attorney, to transfer said Warrant on the books of
_________________________.
Dated: _____________________________ Signature:___________________________
Address: ____________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns and
transfers unto ____________________________ the right to purchase ______________
shares of the Common Stock of _________________________ covered by the foregoing
Warrant, and a proportionate part of said Warrant and the rights evidenced
thereby, and does irrevocably constitute and appoint _____________________,
attorney, to transfer that part of said Warrant on the books of
______________________________.
Dated: _____________________________ Signature:___________________________
Address: ____________________________
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<PAGE>
SUBSCRIPTION FORM
(To be executed upon exercise of Warrant pursuant to Section 1 (a)(i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
______________ shares of Common Stock, as provided for in Section 1(a)(i), and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $___________.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay any cash for any fractional share to:
Name _____________________________________
(Please Print Name, Address and Social
Security No.)
Address ___________________________________
___________________________________________
Social ____________________________________
Security Number
Signature _________________________________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date_______________________________________
And if said number of shares shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder.
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<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 1(a)(ii))
The undersigned hereby irrevocably elects to surrender _______ shares
purchasable under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 1(a)(ii) of such Warrant.
Please issue a certificate or certificates for such Common Stock in
the name of, and pay cash for fractional shares to:
Name ______________________________________
(Please Print Name, Address and Social
Security No.)
Address ___________________________________
___________________________________________
Social ____________________________________
Security Number
Signature _________________________________
NOTE: The above signature should correspond
exactly with the name on the first
page of this Warrant or with the name
of the assignee appearing in the
assignment form below.
Date_______________________________________
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant, a new Warrant is to be issued in the
name of the undersigned for the balance remaining of the shares purchasable
thereunder.
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<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES OF CAREY INTERNATIONAL, INC.
(unless otherwise noted, all subsidiaries are wholly-owned)
Carey Services, Inc.
Carey Licensing, Inc.
Squire Limousine, Inc.
Carey South Florida, Inc.
Carey Limousine Corporation d/b/a Carey Philadelphia, Inc.*
Carey Limousine D.C., Inc.*
Carey Limousine Florida, Inc.*
Carey Limousine L.A., Inc. d/b/a Carey Huntington Limousine, Inc.*
Carey Limousine NY, Inc.*
Carey Limousine S.F., Inc.*
Carey UK Limited*
Herzog Cadillac Rental Service NY, Inc.*
International Limousine Network Ltd.**
Manhattan International Limousine Network Ltd.**
MILN Acquisition Corporation***
______________
* Wholly-owned subsidiary of Carey Services, Inc.
** Will become a wholly-owned subsidiary of Carey International, Inc. upon the
closing of this offering.
*** Will be merged with and into Manhattan International Limousine Network Ltd.
upon the closing of this offering, at which point its legal existence will
terminate.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-22651) of our report dated January 31, 1997, except for Notes 1,2
and 18, as to which the date is March 1, 1997, on our audits of the
consolidated financial statements and financial statement schedule of Carey
International, Inc. and Subsidiaries as of November 30, 1996 and 1995 and for
each year in the three year period ended November 30, 1996, which includes an
explanatory paragraph relating to a restatement for a change in the revenue
recognition method. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
May 23, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. 333-22651) of our report dated March 1, 1997, except for Note 10, as
to which the date is April 22, 1997, on our audit of the combined financial
statements of Manhattan International Limousine Network, Ltd. and Affiliate as
of September 30, 1996 and for the year then ended, which includes an explanatory
paragraph relating to a restatement for a change in the revenue recognition
method and to record previously unrecorded costs related to services provided by
independent service companies. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Washington, D.C.
May 23, 1997
<PAGE>
EXHIBIT 23.3
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 26, 1996, except for note 16 which is dated February 28,
1997, on our audits of the financial statements of Speed 6060 Limited (formerly
Camelot Barthropp Limited) for the years ended December 31, 1994 and
1995. We also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand
-------------------------
COOPERS & LYBRAND
Chartered Accountants and Registered
Auditors
London, United Kingdom
May 23, 1997
<PAGE>
Exhibit 23.4
Consent of Independent Accountants
We consent to the inclusion in this registration statement on Form S-1 of our
report dated February 26, 1996, except for notes 15 and 16 which are dated
February 25, 1997, on our audit of the financial statements of Camelot Barthropp
Limited (formerly Speed 6060 Limited) for the year ended December 31, 1995. We
also consent to the reference to our firm under the caption "Experts".
/s/ Coopers & Lybrand
--------------------------
Coopers & Lybrand
Chartered Accountants and
Registered Auditors
London, United Kingdom
May 23, 1997
