<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 1998
REGISTRATION NO. 333-34897
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CAREY INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 4119 52-1171965
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
4530 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 895-1200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
VINCENT A. WOLFINGTON
CAREY INTERNATIONAL, INC.
4530 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 895-1200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES OF COMMUNICATIONS TO:
JAMES E. DAWSON, ESQUIRE
NUTTER, MCCLENNEN & FISH, LLP
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
(617) 439-2000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------------------------------------
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE(/1/) AGGREGATE OFFERING PRICE(/1/) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value 1,500,000 shares $14.5625 $21,843,750.00 $6,619.32(2)
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, based upon the average of the high and low prices per share of
Common Stock reported on The Nasdaq National Market on August 26, 1997.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
1,500,000 SHARES
LOGO
CAREY INTERNATIONAL, INC.
COMMON STOCK
----------------
This Prospectus relates to 1,500,000 shares of Common Stock, $.01 par value
per share (the "Common Stock"), of Carey International, Inc. (the "Company")
that may be offered and issued by the Company from time to time in connection
with acquisitions of other businesses or properties by the Company. As of the
date of this Prospectus, 906,119 shares of Common Stock have been issued
hereunder.
Carey intends to concentrate its acquisitions within the chauffeured vehicle
service industry. If the opportunity arises, however, Carey may attempt to
make acquisitions that are either complementary to its present operations or
which it considers advantageous even though they may be dissimilar to its
present activities. The consideration for any such acquisition may consist of
shares of Common Stock, cash, notes or other evidences of debt, assumptions of
liabilities or a combination thereof, as determined from time to time by
negotiations between Carey and the owners or controlling persons of businesses
or properties to be acquired.
The shares covered by this Prospectus may be issued in exchange for shares
of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or other entities, in
exchange for assets used in or related to the business of such companies or
entities, or otherwise pursuant to the agreements providing for such
acquisitions. The terms of such acquisitions and of the issuance of shares of
Common Stock under acquisition agreements will generally be determined by
direct negotiations with the owners or controlling persons of the businesses
or properties to be acquired or, in the case of entities that are more widely
held, through exchange offers to stockholders or documents soliciting the
approval of statutory mergers, consolidations or sales of assets. It is
anticipated that the shares of Common Stock issued in any such acquisition
will be valued at a price reasonably related to the market value of the Common
Stock either at the time of agreement on the terms of an acquisition or at or
about the time of delivery of the shares.
It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with issuances of shares of Common Stock under
this Prospectus. However, finders' fees or brokers' commissions may be paid
from time to time in connection with specific acquisitions, and such fees may
be paid through the issuance of shares of Common Stock covered by this
Prospectus. Any person receiving such a fee may be deemed to be an underwriter
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
The Company's Common Stock is listed on The Nasdaq National Market under the
symbol "CARY." The closing market price of the Common Stock on The Nasdaq
National Market on May 22, 1998 was $23.50.
----------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
THE SECTION "RISK FACTORS" BEGINNING ON PAGE 8.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 26, 1998
<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............................................................. 8
Recent Acquisitions...................................................... 13
Price Range of Common Stock.............................................. 14
Capitalization........................................................... 14
Dividend Policy.......................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 32
Principal Stockholders................................................... 39
Certain Transactions..................................................... 41
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 46
Plan of Distribution..................................................... 47
Legal Matters............................................................ 48
Experts.................................................................. 48
Available Information.................................................... 48
Index to Financial Statements............................................ F-1
</TABLE>
<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.
THE COMPANY
Carey International, Inc. is one of the world's largest chauffeured vehicle
service companies, providing services through a worldwide network of owned and
operated companies, licensees and affiliates serving 420 cities in 65
countries. The "Carey" brand name has represented quality chauffeured vehicle
service since the 1920s. The Company owns and operates service providers in
Boston, Indianapolis, London, Los Angeles, New York, Philadelphia, San
Francisco, South Florida and Washington, D.C. 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
central reservations and billing system and worldwide service infrastructure.
By leveraging its current infrastructure and position as a market leader, the
Company is consolidating the highly fragmented chauffeured vehicle service
industry through the acquisition of: (i) current Carey licensees, (ii)
additional companies in markets in which the Company already owns and operates
a chauffeured vehicle service company, and (iii) companies in other strategic
markets in North America and Europe. Carey also intends to add to its global
presence by acquiring or establishing strategic alliances with companies in the
Pacific rim of Asia and Latin America.
In June 1997, the Company completed its initial public offering of 3,335,000
shares of Common Stock (the "IPO") and simultaneously acquired Manhattan
International Limousine Ltd. and an affiliate (together, "Manhattan
Limousine"), one of the largest chauffeured vehicle service companies in the
New York metropolitan area. From June 1997 through April 1998, the Company
acquired six additional chauffeured vehicle service companies located in
Boston, Indianapolis, London, Los Angeles and Miami. During that period, the
Company also added three new domestic licensees and enhanced its sales and
marketing capabilities by, among other things, adding a Senior Vice President
of Sales and Marketing, implementing a sales training program, increasing the
size of its sales and marketing staff from 20 to 30 persons and expanding its
emphasis on global and national accounts.
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.
3
<PAGE>
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 over 9,000 companies utilizing over 100,000 vehicles. The
Company believes that during 1997, no chauffeured vehicle service company
accounted for more than 3% 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 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 and Europe. Carey also intends to
acquire or establish strategic alliances with companies in the Pacific rim
of Asia and Latin America. Carey believes it has a competitive advantage in
acquiring licensees because of a right of first refusal contained in the
substantial majority of its domestic license agreements. With the exception
of Indianapolis, 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.
Increase International Market Share. The Company believes it has
significant opportunities to generate revenues from international markets.
Through acquisitions and increased marketing efforts, the Company increased
its international revenues 30.6%, from $7.6 million in its fiscal year
ended November 30, 1996 to $9.9 million in its fiscal year ended November
30, 1997. Of its fiscal 1997 international revenues, approximately 72.0%
was generated by the Company's owned and operated business in London,
approximately 27.2% was generated by the Company's international licensees
and the remainder was generated by the Company's international affiliates.
In December 1997, the Company acquired in a "tuck-in" acquisition an
additional chauffeured vehicle service company located in London. 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. From June 1997 through April 1998, the Company added licensees
in Jacksonville, Florida, Maui, Hawaii and Syracuse, New York.
4
<PAGE>
Convert Salaried Chauffeurs to Independent Operators. The Company
believes that it can improve its profitability by continuing to convert
salaried chauffeurs to independent operators in certain businesses acquired
by Carey. The objective of Carey's independent operator strategy is to
instill in each chauffeur the sense of purpose, responsibility and
dedication characteristic of an independent business owner, thereby
increasing the profitability of the chauffeur and the Company. Carey's
independent operator program allows the Company to reduce its labor and
capital costs, convert fixed costs to variable costs and generate revenues
from fees paid by independent operators.
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.
5
<PAGE>
SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
------------------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- ------------------ ------- -------
PRO
ACTUAL FORMA(1)
-------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS
DATA(2)(3):
Revenue, net.......... $33,651 $40,314 $48,969 $ 65,545 $ 86,378 $96,264 $15,595 $23,651
Cost of revenue....... 24,495 27,700 33,027 43,649 57,890 64,017 10,469 16,177
------- ------- ------- -------- -------- ------- ------- -------
Gross profit.......... 9,156 12,614 15,942 21,896 28,488 32,247 5,126 7,474
Selling, general and
administrative
expense.............. 9,336 11,043 14,081 16,727 20,112 23,539 4,214 5,849
------- ------- ------- -------- -------- ------- ------- -------
Operating income
(loss)............... (180) 1,571 1,861 5,169 8,376 8,708 912 1,625
Interest income
(expense) and other
income (expense)..... (1,367) (1,446) (1,492) (1,380) (690) 4 (278) (27)
------- ------- ------- -------- -------- ------- ------- -------
Income (loss) before
provision for income
taxes................ (1,547) 125 369 3,789 7,686 8,712 634 1,598
Provision for income
taxes................ 10 163 271 294 3,163 3,585 268 681
------- ------- ------- -------- -------- ------- ------- -------
Net income (loss)..... $(1,557) $ (38) $ 98 $ 3,495 $ 4,523 $ 5,127 $ 366 $ 917
======= ======= ======= ======== ======== ======= ======= =======
Net income (loss) per
common share--
basic(4)............. $ (1.18) $ (0.04) $ 0.07 $ 2.57 $ 1.00 $ 0.67 $ 0.27 $ 0.12
======= ======= ======= ======== ======== ======= ======= =======
Net income (loss) per
common share--
diluted(4)........... $ (1.16) $ (0.03) $ 0.03 $ 1.01 $ 0.77 $ 0.64 $ 0.11 $ 0.11
======= ======= ======= ======== ======== ======= ======= =======
Weighted average
common shares used in
computing net income
per common share--
basic(4)............. 1,323 1,323 1,333 1,359 4,506 7,642 1,378 7,652
======= ======= ======= ======== ======== ======= ======= =======
Weighted average
common shares used in
computing net income
per common share--
diluted(4)........... 1,348 1,348 2,817 3,794 6,137 8,003 4,086 8,064
======= ======= ======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................... $ 3,577 $ 32,065
Total assets.......................................... 82,905 110,240
Long-term debt and capital leases, less current
maturities .......................................... 3,532 2,200
Deferred revenue(6)................................... 13,638 13,638
Total stockholders' equity............................ 49,336 79,156
</TABLE>
See footnotes on following page.
6
<PAGE>
(1) Gives effect to the following events as if they occurred on December 1,
1996: (i) the acquisition of Manhattan Limousine (using statement of
operations data for Manhattan Limousine's six months ended March 31, 1997)
and the amortization of associated goodwill, (ii) the conversion of certain
preferred stock and subordinated debt into Common Stock, see Note 17 to the
Company's Consolidated Financial Statements, and the elimination of
interest expense associated with the subordinated debt, (iii) the issuance
of shares of Common Stock to (a) repay certain debt of the Company, (b) pay
the cash and note portions of the purchase price for Manhattan Limousine,
(c) repay certain debt assumed in connection with the acquisition of
Manhattan Limousine, (d) redeem certain preferred stock of the Company and
(e) pay the stock portion of the purchase price in connection with the
acquisition of Manhattan Limousine, (iv) the elimination of interest
expense associated with debt repaid from the proceeds of the Company's June
1997 initial public offering of Common Stock and (v) other adjustments as
described in the Pro Forma Consolidated Financial Statement and the notes
thereto.
(2) On October 31, 1997, the Company merged with Indy Connection Limousine,
Inc. and a subsidiary ("Indy Connection"). The merger was accounted for as
a pooling-of-interests and, accordingly, the consolidated financial
statements of the Company have been restated to include the accounts and
operations of Indy Connection for all periods presented.
(3) The results of operations of chauffeured vehicle service companies acquired
by the Company in New York (June 1997), Los Angeles (October 1997) and
London (December 1997) have been included in the statement of operations
data from their respective dates of acquisition.
(4) Net income per common share has been restated to comply with Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. See
Note 5 and Note 16 to the Company's Consolidated Interim Financial
Statements and Consolidated Financial Statements, respectively.
(5) Adjusted to give effect to the issuance and sale of 1,450,000 shares of
Common Stock offered by the Company in connection with the public offering
of 2,486,300 shares of Common Stock completed in May 1998 and the
application of $2.5 million of the net proceeds therefrom to repay certain
indebtedness of the Company and one of its operating subsidiaries.
(6) 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.
7
<PAGE>
RISK FACTORS
The following factors should be considered, together with the other
information in this Prospectus, in evaluating an investment in the Company. An
investment in the shares of Common Stock offered hereby involves a high degree
of risk. Prospective investors should carefully consider the following risk
factors, in addition to other information contained in this Prospectus, in
connection with an investment in the Common Stock offered hereby.
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934 (the "Exchange Act"). Those statements appear in a number of
places in this Prospectus and include statements regarding the intent, belief
or current expectations of the Company, its directors or its officers with
respect to, among other things: (i) trends affecting the Company's financial
condition or results of operations; (ii) the Company's financing plans; (iii)
the Company's business, acquisition and growth strategies; and (iv) the
declaration and payment of dividends. Prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as a result
of various factors. The accompanying information contained in this Prospectus,
including without limitation the information set forth under the headings
"Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," identifies important factors that
could cause such differences.
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 any salaried
chauffeurs employed by the acquired business to independent operators (if the
Company elects to do so) and to integrate the acquired business with the
Company's existing operations. Customer dissatisfaction or performance
problems at a single acquired company could have an adverse effect on the
reputation of the Company and the Company's sales and marketing initiatives.
There can be no assurance that any businesses acquired in the future will
achieve anticipated revenues and earnings. Further, acquisitions involve a
number of special risks, including possible adverse effects on the Company's
operating results, diversion of management's attention, failure to retain key
personnel at an acquired company, risks associated with unanticipated events
or liabilities and amortization of goodwill or other acquired intangible
assets, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Acquisition Strategy."
RISKS RELATED TO ACQUISITION FINANCING
The Company has financed acquisitions and 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,
8
<PAGE>
its growth could be limited unless it is able to obtain additional capital
through debt or equity financings. There can be no assurance that such
financing will be available if and when needed or on terms acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
RISKS ASSOCIATED WITH RAPID GROWTH
As a result of the continued implementation of the Company's acquisition
strategy and the expansion of the Company's licensee network, the Company may
experience rapid growth which could place additional demands on the Company's
administrative, operational and financial resources. Managing future growth
will depend on a number of factors, including the maintenance of the quality
of services the Company provides to its customers, and the recruitment,
motivation and retention of qualified chauffeurs and other personnel.
Sustaining growth will require enhancements to the Company's operational and
financial systems as well as additional management, operational and financial
resources. There can be no assurance that the Company will be able to manage
its expanding operations effectively or that it will be able to maintain or
accelerate its growth, and any failure to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company believes that its future operating results may continue to be
subject to quarterly variations caused by such factors as seasonal business
travel, variable scheduling of special events and the timing of acquisitions
by the Company. The Company's least profitable quarter generally has been the
first quarter (ending February 28 or 29), and its most profitable quarter
generally has been the fourth quarter (ending November 30). The Company's
operating results may be subject to considerable fluctuations caused by
special events, such as business and trade association meetings and
conventions and sporting events with national or international participation,
which do not necessarily recur annually, may not be held at the same time of
year and may not always be located in a city in which the Company owns and
operates a chauffeured vehicle service company. In addition, adverse economic
conditions may impact the Company's operating results by reducing the overall
number of road shows and promotional tours. All of these factors can cause
significant fluctuations in quarterly results of operations. Accordingly,
results in any fiscal quarter may not be indicative of results of future
quarters. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results."
RISKS ASSOCIATED WITH LICENSEE OPERATIONS
The Company has 40 licensees serving 108 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 regulations and certain state
laws which govern the offer and sale of franchises. Most state franchise laws
impose substantive requirements on the franchise agreement, including
limitations on non-competition provisions and termination or non-renewal of a
franchise. Some states require that certain materials be registered before
franchises can be offered or sold in that state. The Company also is subject
to Federal Trade Commission and state regulations relating to disclosure
requirements in the sale of franchises. 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. Violations of federal regulations and the state franchising
laws could result in civil penalties against the Company and civil and
criminal penalties against
9
<PAGE>
the executive officers of the Company. While the Company believes that it has
operated in compliance with federal and state franchise laws, no assurance can
be given that the Company will not be required to cease offering and selling
licenses in certain states because of future changes in franchise laws or the
Company's failure or inability to comply with existing franchise laws.
STATUS OF INDEPENDENT OPERATORS
The Company's ability to benefit from conversions of salaried chauffeurs to
independent operators will depend, in part, on the Company's continued ability
to classify independent operators as third party contractors rather than as
employees. The Company does not pay or withhold any federal or state
employment tax with respect to or on behalf of independent operators. The
Internal Revenue Service (the "IRS") previously challenged the Company's
independent operator policy at its owned and operated business in
Philadelphia, but in March 1997 agreed to settle the challenge without an
adjudication of a violation of IRS regulations. Also in March 1997, the IRS
approved guidelines that chauffeured vehicle service providers such as the
Company can follow in order to treat independent operators as third party
contractors rather than as employees. These guidelines distinguish a third
party contractor from an employee using several factors based upon whether or
not the individual, among other things, (i) invests cash in the venture, (ii)
has the potential to realize a profit or loss, (iii) can make his or her
service available to the public and (iv) is required to comply with company
policies regarding how and when to provide services. The Company believes that
its practices substantially conform to these guidelines, and that, as a
result, its independent operators will be treated as third party contractors.
If, however, the Company's practices are determined not to conform with the
guidelines, or if it is adjudicated that the Company is required to treat its
independent operators as employees, the Company could become responsible for
certain past and future employment taxes. There can be no assurance that, in
the event of such an adverse adjudication, there will not be a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Independent Operators."
INDEPENDENT OPERATOR FINANCING
An important component of the Company's business strategy for its owned and
operated companies involves the preferred use of independent operators instead
of salaried chauffeurs operating Company-owned vehicles. A chauffeur becomes
an independent operator by signing an agreement to pay a fee to the Company
ranging from $45,000 to $75,000. While the payment of independent operator
fees historically has been financed by the Company, financing companies or
banks, the Company currently finances the majority of such payments. 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."
The federal income tax returns of one of the corporations acquired by the
Company have been examined by the IRS for periods prior to the acquisition
date. The IRS has notified the acquired corporation of challenges to its
methods of accounting for independent operator fees and the tax treatment of
certain items in those tax returns. The Company believes that any assessments
ultimately sustainable by the IRS in this matter would be offset, at least in
part, by indemnification payments pursuant to the related acquisition
agreements. However, there can be no assurance that such examination will not
result in a material adverse effect on the Company's business, financial
condition and results of operations.
10
<PAGE>
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 standard license agreement requires that its licensees
maintain adequate levels of insurance and to name the Company as an additional
insured on their insurance policies. There can be no assurance, however, that
the limits and the scope of any such insurance coverage will be adequate. The
cost of maintaining personal injury, property damage and workers' compensation
insurance is significant. The Company and its independent operators and
licensees could experience higher insurance premiums as a result of adverse
claims experiences, general increases in premiums by insurance carriers or
both. Significant increases in such premiums, or a successful claim against
the Company beyond the scope of its or its licensees' insurance coverage or in
excess of the limits of the policies 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 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.
Competitive market conditions could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Business--Competition."
POSSIBLE FUTURE SALES OF SHARES
Sales of substantial amounts of Common Stock in the public market during or
after this offering, or the perception that such sales could occur, may
adversely affect prevailing market prices of the Common Stock and could impair
the future ability of the Company to raise capital through an offering of its
equity securities or to use such securities as consideration in acquisitions.
During May 1998, the Company completed a public offering of 2,486,300 shares
of Common Stock (the "1998 Offering"), of which 1,450,000 shares were sold by
the
11
<PAGE>
Company and 1,036,300 were sold by certain existing stockholders (the "Selling
Stockholders"). As of May 22, 1998, the Company had 9,308,144 shares
outstanding. Of these shares, 7,870,751 shares will be freely tradeable
without restriction under the Securities Act. The remaining 1,437,393 shares
represent (i) shares beneficially owned by "affiliates" of the Company (as
that term is defined in Rule 144 under the Securities Act) and (ii) shares
issued to affiliates of companies acquired by the Company during the past
year, none of which restricted shares may be sold in the open market except in
compliance with the applicable requirements of Rule 144. In addition, 798,738
shares may be issued by the Company pursuant to outstanding exercisable
options and warrants (exclusive of 977,000 shares of Common Stock that may be
issued upon the exercise of options granted subject to stockholder approval of
the 1997 Equity Incentive Plan, as amended). The Company and certain
stockholders who beneficially own an aggregate of 1,863,182 shares of Common
Stock (including 610,292 shares that may be acquired pursuant to options and
warrants which currently are exercisable or will become exercisable within 60
days) 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, prior to August 5, 1998, without the prior
written consent of NationsBanc Montgomery Securities LLC, 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 said stockholders, 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 90 day period applying
to any shares so issued or transferred. One group of stockholders affiliated
with H&Q London Ventures (collectively, "H&Q"), which beneficially own an
aggregate of 207,485 shares of Common Stock, has agreed not to sell such
shares prior to July 6, 1998 on terms otherwise identical to those described
above. See "Shares Eligible for Future Sale."
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 from acting by written consent in lieu of a meeting.
The Company also is subject to Section 203 of the Delaware General Corporation
Laws (the "DGCL") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any of a broad range of business combinations
with any "interested stockholder" for a period of three years following the
date on which such stockholder became an interested stockholder. See
"Description of Capital Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
From time to time during or after this offering, there may be significant
volatility in the market price for the Common Stock. Quarterly operating
results of the Company, changes in general conditions in the economy or the
chauffeured vehicle service industry, or other developments affecting the
Company, its licensees and affiliates or the Company's competitors could cause
the market price of the Common Stock to fluctuate substantially. The equity
markets have, on occasion, experienced significant price and volume
fluctuations that have affected the market prices for many companies'
securities and have been unrelated to the operating performance of those
companies. Any such fluctuations that occur during or after this offering may
adversely affect the prevailing market price of the Common Stock.
12
<PAGE>
RECENT ACQUISITIONS
Since the IPO in June 1997, the Company has acquired six chauffeured vehicle
service companies. The acquisition of Indy Connection was accounted for as a
pooling-of-interests, and the acquisitions of the other five acquired
companies were accounted for using the purchase method of accounting. The
following is a brief description of the six companies.
Commonwealth Limousine Services, Ltd. ("Commonwealth"), based in Los
Angeles, California, was acquired in October 1997. Founded in 1990,
Commonwealth was an affiliate of Manhattan Limousine prior to its acquisition
and provides sedan and limousine services in the Los Angeles metropolitan
area. Commonwealth's operations have been integrated with the Company's
existing Los Angeles operations. In its fiscal year ended December 31, 1996,
Commonwealth had revenues of approximately $1.7 million.
Indy Connection, based in Indianapolis, Indiana, was acquired in October
1997. Founded in 1986, Indy Connection provides chauffeured vehicle services
to businesses and business travelers, and also operates a "shared ride"
airport service utilizing limousines. The Company entered the Indianapolis
market as an operator through the acquisition of Indy Connection, which
previously had been a Carey affiliate. In its fiscal year ended September 30,
1997, Indy Connection had revenues of approximately $6.8 million.
TWW Plc ("TWW"), based in London, England, was acquired in December 1997.
Founded in 1961, TWW provides sedan and limousine services in the London
metropolitan area. TWW's operations have been integrated with the Company's
existing London operations. In its fiscal year ended December 31, 1997, TWW
had revenues of approximately $2.0 million.
Custom Transportation Services, Inc. ("Custom Transportation"), based in the
Boston, Massachusetts area, was acquired in March 1998. Founded in 1989,
Custom Transportation provided chauffeured vehicle services to businesses and
business travelers, including executive sedan services. The Company entered
the Boston market as an operator through the acquisition of Custom
Transportation. In its fiscal year ended December 31, 1997, Custom
Transportation had revenues of approximately $5.0 million.
Certain assets of A and A Limousine Renting, Inc. ("A and A"), based in the
Boston, Massachusetts area, were acquired in April 1998. Founded in 1924, A
and A has been the Carey licensee in the Boston market since 1970. In its
fiscal year ended December 31, 1997, A and A had revenues of approximately
$3.7 million.
Certain assets of American VIP Limousine, Inc. ("VIP"), a chauffeured
vehicle service company based in the Miami, Florida area, were acquired in
April 1998. Founded in 1985, VIP had revenues of approximately $1.2 million in
its fiscal year ended December 31, 1997.
The aggregate consideration paid by the Company for the six acquired
companies consisted of approximately $5.5 million in cash and notes and
906,119 shares of Common Stock. In addition, the sellers of Custom
Transportation may be entitled to receive additional consideration of up to
$3.5 million in Common Stock based on that company's earnings before taxes for
the nine months ended November 30, 1998 and the year ended November 30, 1999.
13
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is quoted on the Nasdaq National Market ("Nasdaq") under
the symbol "CARY." The following table sets forth the high and low sales
prices for the Common Stock from May 28, 1997, the date of the Company's
initial public offering, through May 22, 1998. The initial public offering
price of the Common Stock was $10.50 per share. For purposes of this table,
each reference to a year is to the Company's fiscal year, which ends on
November 30 in such year.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
----
Third Quarter (from May 28, 1997)........................... $15.88 $11.00
Fourth Quarter ............................................. 18.00 13.50
1998
----
First Quarter............................................... 19.00 14.00
Second Quarter (through May 22, 1998)....................... 26.50 18.13
</TABLE>
On May 22, 1998, the last reported sale price of the Common Stock was $23.50
and there were 93 holders of record of Common Stock.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company (i) as of February 28, 1998 and (ii) as adjusted to give effect to the
issuance and sale of 1,450,000 shares of Common Stock offered by the Company
in connection with the 1998 (after deducting the underwriting discount and
offering expenses) and the application of $2.5 million of the net proceeds
therefrom to repay certain indebtedness of the Company and one of its
operating subsidiaries. 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, 1998
-------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term
obligations............................................... $ 1,218 $ 1,218
======= =======
Long-term obligations, net of current maturities........... $ 3,532 $ 2,200
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000 shares
authorized, none issued and outstanding, actual and as
adjusted................................................ -- --
Common Stock, $.01 par value; 20,000,000 shares
authorized; 7,687,143 issued and outstanding, actual;
9,137,143 shares issued and outstanding, as adjusted.... 77 91
Additional paid-in capital............................... 45,348 75,154
Retained earnings........................................ 3,911 3,911
------- -------
Total stockholders' equity............................... 49,336 79,156
------- -------
Total capitalization................................... $52,868 $81,356
======= =======
</TABLE>
14
<PAGE>
DIVIDEND POLICY
The Company intends to retain all earnings to finance the growth and
development of its business and does not anticipate paying cash dividends on
the Common Stock in the foreseeable future. Any future determination as to the
payment of dividends on the Common Stock will depend upon the Company's future
earnings, results of operations, capital requirements and financial condition
and any other factor the Board of Directors of the Company may consider. The
Company's agreements with its principal lenders prohibit dividend payments.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected actual consolidated financial data as of and for each of the
five years in the period ended November 30, 1997 have been derived from the
consolidated financial statements of the Company. The selected actual
consolidated financial data for the three months ended February 28, 1997, and
as of and for the three months ended February 28, 1998, 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 results of operations
of the Company. The consolidated results of operations for the three months
ended February 28, 1998 are not necessarily indicative of the consolidated
results of operations to be expected for the year ended November 30, 1998.
The selected consolidated financial data of the Company should be read in
conjunction with the Company's Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ----------------- --------- ---------
PRO
ACTUAL FORMA(1)
------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(2)(3):
Revenue, net.......... $33,651 $40,314 $48,969 $65,545 $86,378 $96,264 $ 15,595 $ 23,651
Cost of revenue....... 24,495 27,700 33,027 43,649 57,890 64,017 10,469 16,177
------- ------- ------- ------- ------- ------- --------- ---------
Gross profit.......... 9,156 12,614 15,942 21,896 28,488 32,247 5,126 7,474
Selling, general and
administrative
expense.............. 9,336 11,043 14,081 16,727 20,112 23,539 4,214 5,849
------- ------- ------- ------- ------- ------- --------- ---------
Operating income
(loss)............... (180) 1,571 1,861 5,169 8,376 8,708 912 1,625
Interest income
(expense) and other
income (expense)..... (1,367) (1,446) (1,492) (1,380) (690) 4 (278) (27)
------- ------- ------- ------- ------- ------- --------- ---------
Income (loss) before
provision for income
taxes................ (1,547) 125 369 3,789 7,686 8,712 634 1,598
Provision for income
taxes................ 10 163 271 294 3,163 3,585 268 681
------- ------- ------- ------- ------- ------- --------- ---------
Net income (loss)..... $(1,557) $ (38) $ 98 $ 3,495 $ 4,523 $ 5,127 $ 366 $ 917
======= ======= ======= ======= ======= ======= ========= =========
Net income (loss) per
common share--
basic(4)............. $ (1.18) $ (0.04) $ 0.07 $ 2.57 $ 1.00 $ 0.67 $ 0.27 $ 0.12
======= ======= ======= ======= ======= ======= ========= =========
Net income (loss) per
common share--
diluted(4)........... $ (1.16) $ (0.03) $ 0.03 $ 1.01 $ 0.77 $ 0.64 $ 0.11 $ 0.11
======= ======= ======= ======= ======= ======= ========= =========
Weighted average
common shares used in
computing net income
per common share--
basic(4)............. 1,323 1,323 1,333 1,359 4,506 7,642 1,378 7,652
======= ======= ======= ======= ======= ======= ========= =========
Weighted average
common shares used in
computing net income
per common share--
diluted(4)........... 1,348 1,348 2,817 3,794 6,137 8,003 4,086 8,064
======= ======= ======= ======= ======= ======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA(2):
Working capital
(deficit)............... $ 903 $ 531 $(1,948) $(2,188) $4,999 $3,577
Total assets............. 30,028 29,494 38,729 43,967 85,394 82,905
Long-term debt and
capital leases, less
current maturities...... 12,827 12,276 14,502 12,039 4,132 3,532
Deferred revenue(5)...... 4,330 4,484 4,726 6,181 13,396 13,638
Total stockholders'
equity.................. 4,771 4,218 4,197 7,573 48,300 49,336
</TABLE>
- -------
(1) Gives effect to the following events as if they occurred on December 1,
1996: (i) the acquisition of Manhattan Limousine (using statement of
operations data for Manhattan Limousine's six months ended March 31, 1997)
and the amortization of associated goodwill, (ii) the conversion of
certain preferred stock and subordinated debt into Common Stock, see Note
17 to the Company's Consolidated Financial Statements, and the elimination
of interest expense associated with the subordinated debt, (iii) the
issuance of shares of Common Stock to (a) repay certain debt of the
Company, (b) pay the cash and note portions of the purchase price for
Manhattan Limousine, (c) repay certain debt assumed in connection with the
acquisition of Manhattan Limousine, (d) redeem certain preferred stock of
the Company and (e) pay the stock portion of the purchase price in
connection with the acquisition of Manhattan Limousine, (iv) the
elimination of interest expense associated with debt repaid from the
proceeds of the IPO and (v) other adjustments as described in the Pro
Forma Consolidated Financial Statement and the notes thereto.
(2) On October 31, 1997, the Company merged with Indy Connection. The merger
was accounted for as a pooling-of-interests and, accordingly, the
consolidated financial statements of the Company have been restated to
include the accounts and operations of Indy Connection for all periods
presented.
(3) The results of operations of chauffeured vehicle service companies
acquired by the Company in New York (June 1997), Los Angeles (October
1997) and London (December 1997) have been included in the statement of
operations data from their respective dates of acquisition.
(4) Net income per common share has been restated to comply with SFAS No. 128,
Earnings per Share. See Note 5 and Note 16 to the Company's Consolidated
Interim Financial Statements and Consolidated Financial Statements,
respectively.
(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.
16
<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 appearing elsewhere in this
document. Unless otherwise indicated or the context otherwise requires, each
reference to a year is to the Company's fiscal year which ends on November 30
of such year.
OVERVIEW
The Company generates revenues primarily from chauffeured vehicle services
provided by (i) Carey's owned and operated businesses and (ii) Carey's
licensees and affiliates when services provided by such licensees and
affiliates are billed through the Company's central reservation and billing
system. In 1996 and 1997, approximately 76.1% and 81.2%, respectively, of the
Company's revenue, net was generated by chauffeured vehicle services provided
by the Company's owned and operated businesses, approximately 14.1% and 12.2%,
respectively, was generated by chauffeured vehicle services provided by the
Company's licensees and billed by the Company, and approximately 1.8% and
1.3%, respectively, was generated by chauffeured vehicle services provided by
the Company's affiliates and billed by the Company. Carey also generates
revenues from its licensees through fees (both initial and monthly) related to
(i) licensing the use of its name and service mark, (ii) its central
reservation and billing services and (iii) its marketing activities. In 1996
and 1997, approximately 3.0% and 2.6%, respectively, of the Company's revenue,
net was generated from its licensees through such fees. To a lesser extent,
the Company derives revenues from the payment of fees by independent
operators. The Company recognizes revenues from these fees ratably over the
terms of the independent operators' agreements with the Company, which
typically range from 10 to 20 years.
Cost of revenue primarily consists of amounts due to the Company's
independent operators. The amount due to independent operators is a percentage
(ranging from 60% to 67%) of the charges of services provided, net of
discounts and commissions. Cost of revenue also includes amounts due to the
Company's licensees and affiliates for chauffeured vehicle services provided
by them and billed by the Company. Such amounts generally include the charges
for service provided less a referral fee ranging from 15% to 25% of net
vehicle service revenue. Cost of revenue also includes amounts due to
subcontractors, or "farm-outs," for chauffeured vehicle services provided by
them and billed by the Company, costs associated with owning and maintaining
the vehicles owned by the Company, telecommunications expense, salaries and
benefits for reservationists, marketing expenses for the benefit of licensees,
and commissions due to travel agents and credit card companies.
Selling, general and administrative expenses consist primarily of
compensation and related benefits for the Company's officers and
administrative personnel, marketing and promotional expenses for the Company's
owned and operated chauffeured vehicle service companies, and professional
fees, as well as amortization costs related to the intangibles recorded as a
result of the Company's acquisitions.
In addition to internal growth from the Company's sales and marketing
efforts, an important component in the Company's growth to date has been the
acquisition of its licensees and other chauffeured vehicle service companies.
From December 1994 through April 1998, Carey acquired 15 chauffeured vehicle
service companies. Fourteen of these acquisitions were made for cash, the
issuance or assumption of notes, and/or issuance of Common Stock and were
accounted for using the purchase method of accounting. A substantial majority
of the purchase price paid by the Company in each such acquisition represented
goodwill, franchise rights (if a license was acquired) and/or intangibles. The
Company's October 1997 acquisition of Indy Connection was a tax-free, stock-
for-stock merger and was accounted for as a pooling-of-interests.
The results of operations for the acquired companies accounted for by the
purchase method have been included in the Company's consolidated financial
statements from their respective dates of acquisition. Carey expects to
benefit from its acquisitions by consolidating general and administrative
functions, increasing operating efficiencies, and, in acquisitions where it
converts salaried chauffeurs to independent operators, eliminating the
overhead and capital costs associated with employing salaried chauffeurs,
leasing garages,
17
<PAGE>
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 Statement" and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30,
--------------------------------------
THREE MONTHS ENDED
1997 FEBRUARY 28,
-------------------- --------------------
1995 1996 ACTUAL PRO FORMA 1997 1998
------- ------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue......... 67.4 66.6 67.0 66.5 67.1 68.4
------- ------- ------- ------- --------- ---------
Gross profit............ 32.6 33.4 33.0 33.5 32.9 31.6
Selling, general and
administrative
expense................ 28.8 25.5 23.3 24.5 27.1 24.7
------- ------- ------- ------- --------- ---------
Operating income........ 3.8 7.9 9.7 9.0 5.8 6.9
Interest income
(expense) and other
income (expense)....... (3.0) (2.1) (0.8) 0.0 (1.7) (0.1)
------- ------- ------- ------- --------- ---------
Income before provision
for income taxes....... 0.8 5.8 8.9 9.0 4.1 6.8
Provision for income
taxes.................. 0.6 0.5 3.7 3.7 1.8 2.9
------- ------- ------- ------- --------- ---------
Net income.............. 0.2% 5.3% 5.2% 5.3% 2.3% 3.9%
======= ======= ======= ======= ========= =========
</TABLE>
THREE MONTHS ENDED FEBRUARY 28, 1998 (THE "1998 PERIOD") COMPARED TO THREE
MONTHS ENDED FEBRUARY 28, 1997 (THE "1997 PERIOD")
Revenue, Net. Revenue, net increased $8.1 million or 51.7% from $15.6
million in the 1997 Period to $23.7 million in the 1998 Period. Of the
increase, $2.1 million resulted from expanded use of the Carey network,
including an increase in business from corporate travel customers and business
travel arrangers. A further $6.0 million of the increase was due to the
revenues from companies acquired by Carey, including Manhattan Limousine,
which was acquired on June 2, 1997, Commonwealth, which was acquired on
October 1, 1997, and TWW, which was acquired on December 1, 1997.
Cost of Revenue. Cost of revenue increased $5.7 million or 54.5% from $10.5
million in the 1997 Period to $16.2 million in the 1998 Period. The increase
was primarily attributable to higher costs due to increased business levels
and to increased costs associated with businesses acquired by Carey subsequent
to the 1997 Period. Cost of revenue increased as a percentage of revenue, net
from 67.1% in the 1997 Period to 68.4% in the 1998 Period, primarily
reflecting relatively greater reliance on subcontractors, or "farm-outs," to
service higher levels of business during peak periods as well as increases in
costs for businesses acquired during the 1998 Period that were not fully
integrated into the Company's operations.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $1.6 million or 38.8% from $4.2 million in
the 1997 Period to $5.8 million in the 1998 Period. The increase largely was
due to costs associated with higher overall business levels and acquired
businesses, including additional personnel, administrative and marketing
costs, and increased amortization of intangibles relating to acquisitions.
Selling, general and administrative expense decreased as a percentage of
revenue, net from 27.1% in the 1997 Period to 24.7% in the 1998 Period,
primarily as a result of an increase in revenue, net without a corresponding
increase in administrative costs.
18
<PAGE>
Interest Expense. Interest expense decreased from approximately $428,000 in
the 1997 Period to approximately $114,000 in the 1998 Period, primarily as a
result of both the use of proceeds from the IPO to repay outstanding debt and
the conversion of subordinated and certain other debt to Common Stock in
connection with the IPO.
Provision for Income Taxes. The provision for income taxes increased from
approximately $268,000 in the 1997 Period to approximately $681,000 in the
1998 Period. The increase primarily was a result of the increase in pre-tax
income of the Company from approximately $634,000 in the 1997 Period to $1.6
million in the 1998 Period.
Net Income. As a result of the foregoing, the Company's net income increased
from approximately $366,000 in the 1997 Period to approximately $917,000 in
the 1998 Period.
YEAR ENDED NOVEMBER 30, 1997 COMPARED TO YEAR ENDED NOVEMBER 30, 1996
Revenue, Net. Revenue, net increased $20.8 million or 31.8% from $65.5
million in 1996 to $86.4 million in 1997. Of the increase, $8.8 million
resulted from expanded use of the Carey network, including an increase in
business from corporate travel customers and business travel arrangers. The
remaining $12.0 million of the increase was due to the revenues from companies
acquired by Carey, including Manhattan Limousine, which was acquired on June
2, 1997, and Commonwealth, which was acquired on October 1, 1997.
Cost of Revenue. Cost of revenue increased $14.2 million or 32.6% from $43.6
million in 1996 to $57.9 million in 1997. The increase was primarily
attributable to higher costs due to increased business levels and to cost of
revenue of acquired corporations. Cost of revenue increased as a percentage of
revenue, net from 66.6% in 1996 to 67.0% in 1997, primarily reflecting
increases in telephone, chauffeur and certain other costs as a percentage of
revenue, net.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $3.4 million or 20.2% from $16.7 million in
1996 to $20.1 million in 1997. The increase was largely due to the costs of
additional personnel, increased marketing expenses and increased
administrative expenses related to acquired operations and generally higher
business levels. Selling, general and administrative expense decreased as a
percentage of revenue, net from 25.5% in 1996 to 23.3% in 1997, primarily as a
result of an increase in revenue, net without a corresponding increase in
administrative costs.
Interest Expense. Interest expense decreased from $1.9 million in 1996 to
$1.1 million in 1997, primarily as a result of the use of proceeds from the
IPO to repay outstanding debt and the conversion of subordinated and certain
other debt to Common Stock in connection with the IPO.
Provision for Income Taxes. The provision for income taxes increased from
approximately $294,000 in 1996 to $3.2 million in 1997. The increase was the
result of the increase in pre-tax income of the Company and the effect of the
reversal of a valuation allowance against the Company's net deferred tax
asset. The reversal reduced the provision for income taxes in 1996 by
approximately $1.5 million. As a result, the Company's effective tax rate was
7.8% in 1996 and 41.2% in 1997.
Net Income. As a result of the foregoing, the Company's net income increased
from $3.5 million in 1996 to $4.5 million in 1997.
YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995
Revenue, Net. Revenue, net increased $16.6 million or 33.8% from $49.0
million in 1995 to $65.5 million in 1996. Of the increase, $10.2 million was
contributed by existing operations as a result of expanded use of the
19
<PAGE>
Carey network, including an increase in business from corporate travel
customers and business travel arrangers, and approximately $6.4 million was
due to increased revenues contributed by companies which were acquired from
December 1994 through February 1996.
Cost of Revenue. Cost of revenue increased $10.6 million or 32.2% from $33.0
million in 1995 to $43.6 million in 1996. The increase was primarily
attributable to higher costs due to increased business levels. Cost of revenue
decreased as a percentage of revenue, net from 67.4% in 1995 to 66.6% in 1996
as a result of spreading the fixed costs of the Company's reservations
infrastructure over a larger revenue base.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $2.6 million or 18.8% from $14.1 million in
1995 to $16.7 million in 1996. The increase was largely due to higher
administrative costs associated with additional personnel, increased marketing
expenses, and higher amortization of intangibles as a result of acquisitions.
Selling, general and administrative expense decreased as a percentage of
revenue, net from 28.8% in 1995 to 25.5% in 1996, primarily as a result of an
increase in revenue, net without a corresponding increase in administrative
costs.
Interest Expense. Interest expense was $1.9 million in 1995 and 1996,
respectively.
Provision for Income Taxes. The provision for income taxes increased from
approximately $271,000 in 1995 to approximately $294,000 in 1996. Prior to
1996, the Company recorded a valuation allowance against its net deferred tax
assets. This allowance was eliminated in 1996 in accordance with generally
accepted accounting principles and this reduced the net provision for income
taxes in 1996 by $1.5 million. The increase in the provision recordable in
1996, which was offset by the effect of eliminating the valuation allowance
against deferred tax assets, was attributable to the Company's increased
pretax profit level in 1996 which exceeded the beneficial tax effect of NOLs
of prior years. The Company utilized the full amount of its remaining NOLs in
1996.
Net Income. As a result of the foregoing, the Company's net income increased
from approximately $98,000 in 1995 to $3.5 million in 1996.
20
<PAGE>
QUARTERLY RESULTS
The following table presents unaudited quarterly financial information for
1996, 1997 and the first quarter of 1998. 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
-------------------------------------------------------------------------------
1996 1997 1998
---------------------------------- ---------------------------------- -------
FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB.
29 31 31 30 28 31 31 30 28
------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue, net............ $12,892 $16,695 $16,073 $19,885 $15,595 $18,690 $22,932 $29,161 $23,651
Gross profit............ 4,232 5,674 5,472 6,518 5,126 6,495 7,574 9,293 7,474
Operating income........ 490 1,459 1,343 1,877 912 1,990 2,022 3,452 1,625
Net income.............. 36 750 681 2,028 366 1,008 1,180 1,969 917
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
1996 1997 1998
---------------------------------- ---------------------------------- -------
FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. FEB.
29 31 31 30 28 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............ 32.8 34.0 34.0 32.8 32.9 34.8 33.0 31.9 31.6
Operating income........ 3.8 8.7 8.4 9.4 5.8 10.6 8.8 11.8 6.9
Net income.............. 0.3% 4.5% 4.2% 10.2% 2.3% 5.4% 5.1% 6.8% 3.9%
</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, 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. In June 1997,
the Company completed the IPO from which it received net proceeds of $30.8
million and in May 1998 the Company completed the 1998 Offering in which it
sold 1,450,000 shares of Common Stock and received net proceeds of
approximately $29.8 million. The Company anticipates that in addition to the
net proceeds from the 1998 Offering, cash flow from operations and borrowings
under its credit facility will be its principal sources of funding.
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 the CIRS
and its automated operation and information systems.
Net cash used in operating activities was approximately $13,000 in the 1997
Period, compared to net cash provided by operating activities of approximately
$404,000 in the 1998 Period. Net cash provided by operating activities
decreased by $2.7 million, from $6.1 million in 1996 to $3.4 million in 1997,
primarily as a result of the Company fully utilizing its NOLs in 1996 and
subsequently paying taxes throughout the year in 1997. As of February 28,
1998, the Company's working capital and current ratio improved to
approximately $3.6 million and 1.22, respectively, as a result of the use of
the net proceeds of the IPO to repay debt and continued increases in cash flow
from operations.
Cash used in investing activities was approximately $166,000 in the 1997
Period compared to cash used in investing activities of $1.4 million in the
1998 Period. Cash was used in the 1998 Period primarily to acquire operations
in London. Cash used in investing activities was $3.0 million in 1996 and
$11.0 million in 1997. Cash was used in investing activities in 1996 and 1997
primarily for the acquisition of chauffeured vehicle service
21
<PAGE>
companies and investments in the CIRS and the Company's automated operations
and information systems. 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 companies.
Cash used in financing activities was approximately $930,000 in the 1997
Period compared to approximately $549,000 in the 1998 Period, primarily as a
result of the net repayment of notes payable during 1997. Cash used in
financing activities was $1.8 million in 1996, compared to cash provided by
financing activities of $10.0 million in 1997. The increase in cash provided
by financing activities during 1997 primarily was a result of the net proceeds
of the IPO of $30.8 million, less a net repayment of debt of $16.5 million and
payments of $4.0 million in connection with the Company's Recapitalization (as
defined in Note 17 to the Company's Consolidated Financial Statements).
Of the net proceeds from the IPO of $30.8 million, the Company repaid
principal on indebtedness of approximately $7.1 million and funded the
Recapitalization by repaying principal on subordinated indebtedness of
approximately $912,000 and redeeming preferred stock for $3.1 million.
Additionally, the Company completed its acquisition of Manhattan Limousine by
paying $11.8 million to the sellers of Manhattan Limousine and repaying $3.5
million of indebtedness of Manhattan Limousine. The remaining net proceeds
have been used for acquisitions and other general corporate purposes,
including working capital. As part of the Recapitalization, a further $4.9
million of debt was converted to Common Stock.
As of February 28, 1998, the Company had aggregate borrowings of $3.3
million, approximately $783,000 of which is to be repaid over the next 12
months.
On August 15, 1997, the Company entered into a senior credit facility with
three banks consisting of a secured revolving line of credit of $25.0 million
(the "Facility"). The Facility, which may be used for acquisitions and working
capital, is collateralized by the assets of the Company, the assets and stock
of certain of its domestic subsidiaries, and a pledge of the stock of its
international subsidiary. The Facility also provides availability for the
issuance of letters of credit. Loans made under the revolving line of credit
bear interest at the Company's option at either the bank's prime lending rate
or 2.0% above the LIBOR rate. Commitment fees equal to 0.375% per annum are
payable on the unused portion of the revolving line of credit. On the second
anniversary of the Facility, outstanding balances under the Facility will
convert to a five-year term loan, which will bear interest either at a fixed
rate (subject to availability) or at a variable LIBOR or prime-based rate with
adjustments determined based on the Company's earnings. The terms of the
Facility (i) prohibit the payment of dividends by the Company, (ii) with
certain exceptions, prevent the Company from incurring or assuming other
indebtedness that is not subordinated to borrowings under the Facility and
(iii) require the Company to comply with certain financial covenants. As of
February 28, 1998, the Company had $1.3 million of borrowings outstanding
under the Facility. The Company intends to pay down all amounts outstanding
under the Facility from the net proceeds of this offering.
While there can be no assurance, and depending on the methods of financing
and size of potential acquisitions, management believes that cash flow from
operations, the net proceeds from this offering and funds from the Facility
will be adequate to meet the Company's capital requirements for the next 12
months. As consideration for future acquisitions, the Company intends to use
various combinations of shares of Common Stock, cash and notes.
The Company is in the process of upgrading the CIRS, certain other computer
systems and the platform on which they operate. The upgrades are designed to
provide enhanced customer service and management information. These upgrades,
which will continue throughout 1998 and 1999, also are designed to allow such
systems to overcome what commonly is referred to as the "Year 2000 Problem."
The Year 2000 Problem, which is common to most corporations, concerns the
inability of certain information systems, primarily computer software
programs, to properly recognize and process date-sensitive information related
to the year 2000 and beyond. The Company does not anticipate that the cost of
these upgrades will have a material adverse effect on its financial condition
and results of operations in any single future year.
22
<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 1920's. The Company owns and operates service providers in
Boston, Indianapolis, London, Los Angeles, New York, Philadelphia, San
Francisco, South Florida and Washington, D.C. 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
central reservations and billing system and worldwide service infrastructure.
By leveraging its current infrastructure and position as a market leader, the
Company is consolidating the highly fragmented chauffeured vehicle service
industry through the acquisition of: (i) current Carey licensees, (ii)
additional companies in markets in which the Company already owns and operates
a chauffeured vehicle service company, and (iii) companies in other strategic
markets in North America and Europe. The Company also intends to add to its
global presence by acquiring or establishing strategic alliances with
companies in the Pacific rim of Asia and Latin America.
In June 1997, the Company completed the IPO and simultaneously acquired
Manhattan Limousine, one of the largest chauffeured vehicle service companies
in the New York metropolitan area. From June 1997 through April 1998, the
Company acquired six additional chauffeured vehicle service companies located
in Boston, Indianapolis, London, Los Angeles and Miami. During that period,
the Company also added three new domestic licensees and enhanced its sales and
marketing capabilities by, among other things, adding a Senior Vice President
of Sales and Marketing, implementing a sales training program, increasing the
size of its sales and marketing staff from 20 to 30 persons and expanding its
emphasis on global and national accounts.
The Carey network utilizes chauffeured sedans, limousines, vans and
minibuses to provide services for airport pick-ups and drop-offs, inter-office
transfers, business and association meetings, conventions, road shows,
promotional tours, special events, incentive travel and leisure travel.
Businesses and business travelers utilize the Company's services primarily as
a management tool to achieve more efficient use of time and other resources.
Carey's worldwide network of chauffeured vehicle service companies allows it
to provide services with consistently high quality to its customers in
virtually every major city in the expanding global travel market. The network
is linked to over 300,000 reservation terminals in travel agencies, corporate
travel departments and government agencies by the CIRS, the chauffeured
vehicle service industry's most extensive centralized global reservation
system.
MARKET OVERVIEW
The Company estimates that the United States chauffeured vehicle service
industry generated revenues of approximately $3.9 billion in 1996, 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 over 9,000 companies utilizing over 100,000 vehicles.
The Company believes that during 1997, no chauffeured vehicle service company
accounted for more than 3% 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.
23
<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 business and in other
strategic regions in North America and Europe. Carey also intends to add to
its global presence by acquiring or establishing strategic alliances with
companies in the Pacific rim of Asia and Latin America. Carey believes it
has a competitive advantage in acquiring licensees because of a right of
first refusal contained in the substantial majority of its domestic license
agreements. The Company has successfully begun to implement its acquisition
strategy, having acquired 22 chauffeured vehicle service companies from
November 1991 through April 1998.
Increase International Market Share. The Company believes it has
significant opportunities to generate revenues from international markets.
Through acquisitions and increased marketing efforts, the Company increased
its international revenues 30.6%, from $7.6 million in its fiscal year
ended November 30, 1996 to $9.9 million in its fiscal year ended November
30, 1997. Of its fiscal 1997 international revenues, approximately 72.0%
was generated by the Company's owned and operated business in London,
approximately 27.2% was generated by the Company's international licensees
and the remainder was generated by the Company's international affiliates.
In December 1997, the Company acquired in a "tuck-in" acquisition an
additional chauffeured vehicle service company located in London. Carey
believes that its network can capture a significant portion of the growing
international market for chauffeured vehicle services by acquiring or
licensing additional chauffeured vehicle service companies and otherwise
implementing the Carey system outside the United States. The Company
intends to increase its international presence by intensifying its sales
and marketing efforts, strengthening its relationship with significant
domestic and international business travel arrangers, and capitalizing on
the capacity of the CIRS to operate on a global scale. By enhancing its
international presence, the Company also expects to increase its revenues
from providing chauffeured vehicle services to international travelers both
visiting the United States and 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. From June 1997 through April 1998, the Company added licensees
in Jacksonville, Florida, Maui, Hawaii and Syracuse, New York.
Convert Salaried Chauffeurs to Independent Operators. The Company
believes that it can improve its profitability by continuing to convert
salaried chauffeurs to independent operators in certain businesses acquired
by Carey. The objective of Carey's independent operator strategy is to
instill in each chauffeur the sense of purpose, responsibility and
dedication characteristic of an independent business owner, thereby
increasing the profitability of the chauffeur and the Company. Carey's
independent operator program allows the Company to reduce its labor and
capital costs, convert fixed costs to variable costs and generate revenues
from fees paid by independent operators.
ACQUISITION STRATEGY
Carey believes that there are significant opportunities to acquire
additional chauffeured vehicle service companies as a result of: (i) the
highly fragmented and increasingly global nature of the industry, (ii)
industry participants' capital requirements and desire for liquidity, and
(iii) the pressures of increasing competition. The Company intends to continue
to pursue its acquisition program in order to strengthen its position in its
existing markets and to acquire operations or establish strategic alliances in
new markets.
Carey intends to pursue acquisitions that will allow the Company to own and
operate chauffeured vehicle service companies in new geographic markets. The
Company currently owns and operates chauffeured vehicle
24
<PAGE>
service companies in eight of the largest United States travel markets and in
London, the largest European travel market, and will seek to acquire Carey
licensees in other significant travel markets in North America and Europe. The
Company also intends to add to its global presence by acquiring or
establishing strategic alliances with companies in the Pacific rim of Asia and
Latin America. The Company believes that its ability to acquire its licensees
will be enhanced by a right of first refusal that is contained in a
substantial majority of its domestic license agreements and the limited terms
of most of its international license agreements. The Company's preference is
to retain key management, operating and sales personnel of an acquired company
in a new market in order to maintain continuity of operations and customer
service.
With the exception of Indianapolis, the Company believes that it has a
market share of less than 10% in each of the markets in which it owns and
operates a chauffeured vehicle service company, and that there is significant
potential for it to expand its business in such markets through acquisitions.
When justified by the size of an existing market acquisition, the Company
expects to retain key management and sales personnel of the acquired company
and to seek to improve that company's profitability through implementation of
the Company's operating strategies. In most instances, acquired operations can
be integrated into the Company's existing operations in a market, resulting in
the elimination of duplicative overhead and operating costs.
The Company believes that there are significant advantages to consolidating
the chauffeured vehicle service industry. Carey believes it can increase
revenues of acquired companies by marketing the worldwide services of its
network to customers of such companies, and by increasing the productivity of
chauffeurs at the acquired companies through the implementation of training
and quality assurance programs. Moreover, Carey believes that cost savings can
be achieved following acquisitions through (i) the consolidation of certain
administrative functions and increased use of automation, (ii) the elimination
of redundant facilities, equipment and personnel, and (iii) the conversion
(where appropriate) of salaried chauffeurs driving company-owned vehicles into
independent operators driving their own vehicles.
Carey is successfully implementing its acquisition strategy, having acquired
22 chauffeured vehicle service companies from November 1991 through April
1998. The following table lists the date, location of each such chauffeured
vehicle service company and whether the acquired company was a licensee or
affiliate of Company or other chauffeured vehicle service company:
ACQUISITION HISTORY
NOVEMBER 1991--PRESENT
<TABLE>
<CAPTION>
DATE LOCATION ACQUIRED COMPANY
---- -------- ----------------
<S> <C> <C>
November 1991.................... Washington D.C. Other
September 1992................... Los Angeles, CA Other
August 1993...................... Wilmington, DE Licensee
September 1993................... West Palm Beach, FL Licensee
November 1993.................... New York, NY Other
June 1994........................ Washington, DC Other
June 1994........................ Los Angeles, CA Other
December 1994.................... Boca Raton, FL Other
January 1995..................... San Francisco, CA Licensee
April 1995....................... Washington, D.C. Other
April 1995....................... Ft. Lauderdale/Miami, FL Licensee
May 1995......................... San Francisco, CA Other
August 1995...................... San Francisco, CA Other
August 1995...................... Boca Raton, FL Other
February 1996.................... London, England Affiliate
June 1997........................ New York, NY Other
October 1997..................... Indianapolis, IN Affiliate
October 1997..................... Los Angeles, CA Affiliate
December 1997.................... London, England Other
March 1998....................... Boston, MA Other
April 1998....................... Boston, MA Licensee
April 1998....................... Miami, FL Other
</TABLE>
25
<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. 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. As the result of this review
process, negotiations and acquisition agreements may occur from time to time
if appropriate opportunities arise.
As consideration for future acquisitions, the Company intends to use various
combinations of shares of Common Stock, cash and notes.
SERVICE PROVIDER NETWORK
Carey's international network of owned and operated chauffeured vehicle
service companies, licensees and affiliates, serving 420 cities in 65
countries, enables it to provide its customers chauffeured vehicles in
virtually every significant travel market throughout the world. Carey believes
that its network is the most extensive in the industry, and intends to expand
the network by adding qualified licensees and affiliates in locations
justifying new or expanded service. The Company believes that the trend toward
globalization is opening more cities for business and personal travel around
the world. The Company monitors and evaluates cities in which a demand for
chauffeured vehicle services may warrant a "Carey" presence.
The Company's network provides chauffeured vehicle services for airport
pickups and drop-offs, inter- office transfers, business and association
meetings, conventions, road shows, promotional tours, special events,
incentive travel and leisure travel. The Company also offers its clients
travel and tour planning services, "meet-and-greet" services, destination
management services for airport arrivals, group movement coordination
services, direct and central billing in U.S. dollars, and access to the
Company's 24-hour worldwide computerized reservation system, the CIRS.
The Company's fleet, consisting primarily of vehicles which are owned and
operated by independent operators in the owned and operated locations,
contains four types of vehicles: chauffeured sedans, limousines, vans and
minibuses, some of which can carry up to 30 persons. In addition, the Company
subcontracts from time to time for buses that can carry a greater number of
passengers. The vehicles of the Company's licensees and affiliates in larger
markets are similar to the Company's fleet, and in smaller markets generally
consist of only chauffeured sedans and limousines. All vehicles are driven by
uniformed professional chauffeurs, most of whom own the vehicles that they
drive. Each such chauffeur drives a clean, late model vehicle with amenities
important to the business traveler, such as cellular telephones and daily
newspapers.
Owned and Operated Companies. The Company owns and operates chauffeured
vehicle service companies providing service in Boston, Indianapolis, London,
Los Angeles, New York, Philadelphia, San Francisco, South Florida and
Washington, D.C. Revenue, net provided by these companies represented
approximately 76.1% of the Company's revenue, net in fiscal 1996 and 81.2% in
fiscal 1997.
Licensees. The Company has 40 licensees serving 108 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 17.1% and 14.7% of the Company's revenue,
net in fiscal 1996 and 1997, respectively.
The domestic license fee ranges from $15,000 to $75,000, depending upon the
size of the market. The sum of the continuing fees paid by the domestic
licensee varies, but annually is generally less than 10% of its revenues or,
in some cases, less than 10% of an excess above a specified base.
Substantially all candidates appointed as domestic licensees have been in
business for at least 10 years prior to the grant of a license. The term of a
domestic license agreement entered into prior to January 1, 1996 is perpetual
and subsequent to January 1, 1996 is 10 years.
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International licensees historically have not paid annual license fees;
rather, they have paid a commission on business referred to them. The term of
an international license agreement usually is from year to year, although in a
few cases it is perpetual.
Under the domestic license agreement, the Company provides the licensee
with: (i) the right to use the "Carey" name, (ii) participation in the CIRS,
(iii) various consulting services, (iv) identification in various travel
directories, (v) access to bulk purchasing arrangements for automobiles, parts
and maintenance materials, and (vi) national sales and marketing services. In
the event of a proposed transfer of a license or a licensee, the Company has
the right to approve the transfer. In addition, for most license agreements
executed prior to January 1, 1996 and all license agreements executed on or
after January 1, 1996, Carey retains a right of first refusal by which it may
acquire any license or licensee upon the same terms as the license or licensee
is proposed to be sold.
Typically, a licensee candidate acts as an affiliate before being selected
as a licensee. Licensees operate according to strict service guidelines
specified by the Company and market the Carey name in conjunction with the
Company's overall marketing program. The Company conducts ongoing quality
assurance programs and annual audits of licensees to insure that the licensees
have met the high service standards set forth by the Company. The Company has
the right to terminate any license if the licensee fails to comply with such
standards.
Affiliates. The Company utilizes affiliates to provide services to its
clients in cities where the Company does not have Company-owned operations or
licensees. Affiliates are not licensed to use the Carey name and do not pay
license fees to the Company, but must meet the Company's quality standards in
order to receive referred business. Pursuant to oral agreements between the
Company and its affiliates, the Company is entitled to receive a commission of
15% to 20% of net vehicle revenues for all referred business. The Company's
affiliates are located in 121 cities in the United States and 67 cities
outside the United States. Revenue provided by the Company's affiliates
represented approximately 1.8% and 1.3% of the Company's revenue, net in
fiscal 1996 and 1997, respectively.
CAREY INTERNATIONAL RESERVATION SYSTEM (CIRS)
The hub of the Company's network of service providers is the CIRS, the Carey
International Reservation System. The CIRS is operated on a 24-hour basis by
Carey's central reservation department, which processes reservations through
the Company's proprietary computer system. The central reservation department
receives reservations through the Company's toll free "800" telephone number
(800-336-4646), by fax or telex, or through one of the six major airline
reservation systems, SABRE, APOLLO, WORLDSPAN, GALILEO, BABS and SITA. These
airline systems allow travel agencies, corporate travel departments and
government offices to access the CIRS through over 300,000 reservation
terminals worldwide. The Company charges a licensee or affiliate for each
reservation referred to the licensee or affiliate through the CIRS.
The CIRS can be accessed for up-to-date tariffs both in dollars and foreign
currency for 420 cities throughout the world. Through the CIRS, the Company's
reservation and customer service personnel have instant access to all rates,
services offered, types of vehicles available and special airport greeting
capabilities in each 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
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complete information, customer service requirements and accounting
authorizations. The CIRS also contains customers' invoicing programs to allow
central billing directly through the system for all services used worldwide.
In addition, the system's ability to track reservations allows more accurate
and detailed analyses for marketing purposes.
In 1992, the Company began leasing its reservation and operating systems to
its licensees. These systems create a basis for certain licensees to have
direct access to the CIRS and provide them with the ability to book local
reservations, dispatch vehicles and account for chauffeured vehicle services.
The Company is in the process of upgrading the CIRS and certain other
computer systems and the platform on which they operate. The upgrades are
designed to provide enhanced customer service and management information.
These upgrades, which will continue throughout 1998 and 1999, also are
designed to allow such systems to overcome the Year 2000 Problem. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MARKETING, SALES AND CUSTOMER SERVICE
The Company believes that "Carey," a registered service mark, is a highly
recognized name in the chauffeured vehicle service and travel industries
worldwide. The Company intends to continue to expand recognition of the
"Carey" name through its marketing and promotional efforts. Carey has
developed an extensive marketing program directed at both the travel arranger
and the end user of chauffeured vehicle services. The program consists of
directory listings, advertising, direct mail, public relations, cooperative
promotional and joint marketing programs, attendance at and sponsorship of
travel-related conventions and workshops and direct selling. The direct sales
force serving the Company and its licensees currently consists of
approximately 30 professionals. Since the IPO, Carey has enhanced its sales
and marketing capabilities by, among other things, adding a Senior Vice
President of Sales and Marketing, implementing a sales training program,
increasing the size of its sales and marketing staff by 10 persons and
expanding its emphasis on global and national accounts.
Carey is listed in approximately 95 travel directories which are used by
travel arrangers to obtain information on travel related services. Advertising
targeted at travel arrangers is placed in over 35 trade journals including
Business Travel Executive, Travel Weekly 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 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 leaders in the travel and tourism industry, such as
airlines, travel agencies, credit card companies and central reservation
systems. The Company also is involved in promotional and cooperative
agreements with American Express, 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, 1997 rated the Company's reservation services,
chauffeurs and vehicles as "excellent." Carey's quality assurance program
includes evaluations performed by an independent consultant to measure the
quality of chauffeur services, the appearance of chauffeurs and vehicles and
the availability of amenities, such as cellular phones and daily newspapers.
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INDEPENDENT OPERATORS
An important component of Carey's strategy involves the preferred use of
independent operators rather than salaried chauffeurs operating Company-owned
vehicles. An independent operator takes responsibility for owning, operating
and maintaining his or her own vehicle. The Company believes that acting as an
independent operator creates incentives for the chauffeur to become more
productive, efficient and service-oriented, thereby increasing the
profitability of the chauffeur and the Company. The objective of the Company's
independent operator strategy is to instill in each chauffeur the sense of
responsibility and dedication characteristic of an independent business owner.
The use of independent operators allows the Company to reduce its labor and
capital costs, convert fixed costs to variable costs and generate revenues
from fees paid by independent operators. Because of the greater responsibility
borne by independent operators, the Company is able to allocate fewer
resources to oversee its vehicle operations. As a result, the Company can
focus to a greater extent on support services, business development,
administration, billing, quality assurance and sales and marketing.
Each independent operator enters into an agreement with the Company to
provide prompt and courteous service to the Company's customers with a
properly maintained, late model vehicle consistent with the Company's
standards. The cost of a new vehicle ranges from $35,000 to $65,000, depending
upon whether it is a sedan or a limousine and the features included in the
vehicle. Each new independent operator agrees to pay an initial fee to the
Company, acquire his or her vehicle and pay all of the maintenance and
operating expenses of the vehicle, including gasoline.
Prior to December 1996, the Company's typical agreement with an independent
operator had a term of 10 years and provided for a fee ranging from $30,000 to
$45,000 (depending on the local market) that was financed by the Company at an
annual interest rate of 9% to 12%. The independent operator agreements
currently used by the Company generally provide for a term of 15 years, fees
of $45,000 to $75,000 that generally are financed by the Company and an annual
interest rate of 15.75%. To date, the Company has not incurred any material
losses as a result of defaults under notes financed by it, and any potential
future losses will be mitigated from an accounting perspective because of the
Company's policy of deferral of revenue recognition in connection with
independent operator fees.
The independent operator agreement provides that the Company will bill and
collect all revenues (as defined in the agreement) and remit to the
independent operator 60% to 67% of such revenues. In this arrangement, the
Company assumes the risk of collecting from each customer and generally pays
the independent operator his or her share regardless of whether the Company is
paid by the customer. An independent operator's failure to meet the high
standards of service associated with the Carey name constitutes a breach of
the agreement and gives rise to a right of the Company to terminate the
agreement.
Independent operators also generally require financing to purchase their
vehicles. Typically, independent operators have utilized banks, vehicle
financing companies or CLI Fleet, Inc. ("CLI Fleet"), a finance company that
specializes in providing financing to the chauffeured vehicle service
industry. See "Certain Transactions."
CUSTOMERS
The Company's customer list exceeds 75,000 individuals and organizations
that are dispersed across many different industries and geographic locations.
No client accounted for more than 5% of the Company's revenue, net in fiscal
1997. The Company's major clients include companies in the airline, travel and
related services, finance, manufacturing, pharmaceutical, insurance,
publishing, oil and gas exploration, entertainment, tobacco and food and
beverage industries. The Company has contracts to provide chauffeured vehicle
services to the customers of several major hotels and airlines, including the
Plaza Hotel and Mark Hotel in New York, the Savoy Hotel Group in London,
Virgin Atlantic Airways, British Airways and Aer Lingus. Typically, these
arrangements are terminable by the hotel or airline upon 30 days' notice. The
Company intends to expand its airline and hotel relationships to cover
additional cities serviced by the airlines and hotels in which Carey has a
presence.
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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
believes that its high quality of service and dependability have allowed it to
compete effectively in its markets. Carey competes both for customers and for
possible acquisitions. The Company expects its business to become more
competitive as existing competitors expand and additional companies enter the
industry. Certain of the Company's existing competitors have, and any new
competitors that enter the industry may have, access to significantly greater
financial resources than the Company.
GOVERNMENT REGULATION
The Company's chauffeured vehicle service operations are subject to various
state and local regulations and, in many instances, require permits and
licenses from state and local authorities. In addition, the Company is
regulated by the Federal Highway Administration with respect to, among other
things, minimum vehicular insurance requirements. The Company believes that it
has all permits and licenses required 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 regulations and certain state laws which
govern the offer and sale of franchises. Most state franchise laws impose
substantive requirements on the franchise agreement, including limitations on
non-competition provisions and termination or non-renewal of a franchise. Some
states require that certain materials be registered before franchises can be
offered or sold in that state. The Company also is subject to Federal Trade
Commission and state regulations relating to disclosure requirements in the
sale of franchises. The law applicable to franchise sales and relationships is
rapidly developing, and the Company is unable to predict the effect on its
franchise system of additional requirements or restrictions that may be
enacted or promulgated or of court decisions that may be adverse to
franchisors. Due to the scope of the Company's business and the complexity of
franchise regulation, compliance problems may be encountered from time to
time.
INSURANCE
The Company is exposed to claims for personal injury or death and property
damage as a result of automobile accidents involving chauffeured vehicles
operated by its employees and independent operators and by its licensees and
their drivers. The Company maintains, and the Company's independent operators
are required to maintain, automobile liability, automobile collision and
comprehensive damage, general liability, comprehensive property damage 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 an additional 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 the limits
of the policies could have a material adverse effect on the Company's
business, financial condition and results of operations.
FACILITIES
The Company owns facilities in Alexandria, Virginia and Long Island City,
New York used by owned and operated chauffeured vehicle service companies
providing services in the Washington, DC and New York metropolitan areas,
respectively. The Company leases its corporate headquarters in Washington, DC
and also leases ten administrative and/or operating facilities in California,
Florida, Indiana, Massachusetts, New York, Pennsylvania 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.
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EMPLOYEES AND INDEPENDENT OPERATORS
As of March 31, 1998, the Company had 519 full-time employees (123 of whom
were chauffeurs) and 170 part-time employees (116 of whom were chauffeurs).
Also as of March 31, 1998, the Company also had agreements with 496
independent operators. The Company is not a party to any collective bargaining
agreement.
INTELLECTUAL PROPERTY
The Company is the registered owner of two United States service marks
covering the "Carey" name. The Company believes that customer and travel
arranger recognition of these marks has contributed to its success. The
Company is not affiliated with Carey Transportation, Inc., a company that
provides bus transportation services in the metropolitan New York City area.
Except for Carey Transportation, Inc., the Company believes it has the
exclusive right to use the "Carey" name in connection with transportation
services in all locations in which it either owns and operates a chauffeured
vehicle service company or maintains a licensee.
LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of business. Management believes that no pending legal
proceeding will have a material adverse effect on the business, financial
condition or results of operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information pertaining to the
Company's directors and executive officers as of May 22, 1998.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Vincent A. Wolfington.......... 58 Chairman of the Board and Chief Executive
Officer
Don R. Dailey.................. 61 President and Director
Guy C. Thomas.................. 60 Executive Vice President--Operations
David H. Haedicke.............. 51 Executive Vice President and Chief
Financial Officer
Richard A. Anderson, Jr........ 52 Senior Vice President
Sally A. Snead................. 38 Senior Vice President--Information Systems
John C. Wintle................. 51 Senior Vice President--Europe
Paul A. Sandt.................. 38 Vice President and Chief Accounting Officer
Devin J. Murphy................ 32 Senior Vice President and Chief Development
Officer
S. Terrell Mellen.............. 41 Senior Vice President--Sales and Marketing
Michael P. O'Callaghan......... 32 Senior Vice President and Director of
Acquisitions
Robert W. Cox.................. 60 Director
William R. Hambrecht........... 62 Director
David McL. Hillman............. 45 Director
Nicholas J. St. George......... 59 Director
</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 was Chief Operating Officer of
the Company's New York subsidiary, Carey Limousine NY, Inc., from December
1988 until August 1997. Mr. Anderson is Chairman of the New York Taxi and
Limousine 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 a Senior Vice President and Chief Development Officer in
April 1997. Mr. Murphy received a Master's Degree in Business Administration
from Duke University in May 1996. For the six years prior to the commencement
of his MBA program in September 1994, Mr. Murphy held various sales and
marketing positions at companies within the information technology industry.
These companies include Bay Networks, Inc., where Mr. Murphy was Marketing
Manager from January 1993 to August 1994, Motorola Inc., where he was Manager,
Major Accounts from February 1991 to January 1993, and Hewlett-Packard Co.
Inc., where he was Territory Manager from 1988 to 1991.
S. Terrell Mellen has served as Senior Vice President--Sales and Marketing
of the Company since September 1997. From September 1994 until September 1997,
Ms. Mellen was Executive Director of the Association of Corporate Travel
Executives (ACTE), a professional organization serving 1,800 members in
thirteen countries. From October 1988 until September 1994, Ms. Mellen was
Director of Marketing and Industry Relations for the Air Travel Card, a
corporate payment system issued by seven major US airlines.
Michael P. O'Callaghan has served as a Senior Vice President and Director of
Acquisitions of the Company since June 1997. From September 1995 through June
1996, Mr. O'Callaghan was an Associate Special Counsel to the United States
Senate Special Committee Investigation of Whitewater Development Corporation
and Other Related Matters, and from September 1992 through September 1995 he
was a staff attorney with the Enforcement Division of the United States
Securities and Exchange Commission. Mr. O'Callaghan received a Juris Doctor
Degree from Fordham University in May 1992.
Robert W. Cox has served as a director of the Company since 1995. From 1969
until his retirement in 1994, Mr. Cox was a partner in the New York and
Chicago offices of the law firm Baker & McKenzie. From 1984 to 1992, Mr. Cox
was Chairman of the Executive Committee and Managing Partner of the firm, and
from 1993 to 1994, Mr. Cox was Chairman of the Policy Committee. Mr. Cox
currently is a director of Hon Industries, Inc.
William R. Hambrecht has served as a director of the Company since 1995. Mr.
Hambrecht is President of W. R. Hambrecht & Co., LLC, an entrepreneurial
investment firm. Until December 31, 1997, Mr. Hambrecht was 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. Mr. Hambrecht
is not seeking re-election as a director at the Company's 1998 annual meeting
to be held in June.
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<PAGE>
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 has served as a director of the Company since June
1997. Mr. St. George has been President and Chief Executive Officer of Oakwood
Homes Corporation ("Oakwood"), a manufacturer and retailer of manufactured
homes, since February 1979. Mr. St. George serves as a director of Oakwood,
and also is a director of American Bankers Insurance Group, Inc. and Legg
Mason, Inc.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with
staggered three-year terms. The initial term of Messrs. Hambrecht and Hillman
expire at the Company's 1998 annual meeting, the initial terms of Messrs. Cox
and St. George expire at the Company's 1999 annual meeting, and the initial
terms of Messrs. Wolfington and Dailey expire at the Company's 2000 annual
meeting. Successors to the directors whose terms expire at each annual meeting
are elected for three-year terms. A director holds office until the annual
meeting for the year in which his term expires and until his successor is
elected and qualified. Messrs. Hambrecht and Hillman are retiring from the
Board at the Company's 1998 annual meeting. The following individuals have
been nominated for election to the Board of Directors at the 1998 annual
meeting of stockholders as members of the class of directors whose terms
expire at the 2001 annual meeting:
Dennis I. Meyer, age 62, has been a partner in the law firm of Baker &
McKenzie since 1965. Mr. Meyer has previously served as Chairman of the
Executive Committee and Managing Partner of Baker & McKenzie and currently
serves as the managing partner of the North American offices of the firm. Mr.
Meyer also is a founding partner of Potomac Investment Associates, a global
real estate developer specializing in golf-oriented residential developments.
Mr. Meyer serves as a director of Oakwood Homes Corporation as well as United
Financial Banking Companies, Inc., Jordan Kitt's Music, Inc. and Daily
Express, Inc.
Joseph V. Vittoria, age 63, has been the Chairman and Chief Executive
Officer of Travel Services International, Inc. ("Travel Services") since
Travel Services completed its initial public offering in July 1997. From
September 1987 to February 1997 Mr. Vittoria was the Chairman and Chief
Executive Officer of Avis, Inc. ("Avis"), a multinational auto rental company
where he was employed for over 26 years. Mr. Vittoria was responsible for the
purchase of Avis by its employees in 1987 by creating one of the world's
largest Employee Stock Ownership Plans. He was a founding member of the World
Travel and Tourism Council, a global organization of the chief executive
officers of companies engaged in all sectors of the travel and tourism
industry. Mr. Vittoria serves as a director of CD Radio, Inc., Transmedia
Europe, Transmedia Asia and various non-profit associations.
The Company has the following committees of the Board of Directors:
Executive Committee. The members of the Executive Committee of the Company's
Board of Directors are Messrs. Wolfington, Cox and Dailey. The Executive
Committee exercises all the powers of the Board of Directors between meetings
of the Board of Directors, except such powers that are reserved to the Board
of Directors by applicable law.
Audit Committee. The members of the Audit Committee of the Company's Board
of Directors are Messrs. Hillman and St. George. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with the independent public accountants the plans for and results of
the audit, approves professional services provided by the independent public
accountants, reviews the independence of the independent public accountants,
considers the range of audit and non-audit fees and reviews the adequacy of
the Company's internal accounting controls.
Compensation Committee. The members of the Compensation Committee of the
Company's Board of Directors are Messrs. Cox and St. George. The Compensation
Committee establishes a general compensation policy for the Company and
approves increases in directors' fees and salaries paid to officers and senior
employees of the Company. The Compensation Committee administers the Company's
equity incentive plans
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<PAGE>
and determines, subject to the provisions of the Company's plans, the
directors, officers and employees of the Company eligible to participate in
any of the plans, the extent of such participation and terms and conditions
under which benefits may be vested, received or exercised.
DIRECTOR COMPENSATION
Members of the Board of Directors who also serve as officers of the Company
do not receive compensation for serving on the Board. Each other member of the
Board receives an annual retainer of $20,000 for serving on the Board, plus a
fee of $1,000 for each Board of Directors' meeting attended and $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.
At his or her election, a director may defer all or a portion of the fees
paid to him or her by the Company. If such an election is made, the deferred
fees are credited to the director's account at the end of each fiscal quarter
in the form of phantom shares of Common Stock. Each phantom share is equal to
one share of Common Stock, and the total number of phantom shares credited to
the account during any fiscal quarter is determined based on the average
closing price of the Common Stock on Nasdaq during the last 20 trading days of
such fiscal quarter. The account reaches maturity on the last day of the
Company's fiscal year in which the director ceases to be a member of the Board
of Directors. Upon maturity, payment will be made at the director's election
either in cash, shares of Common Stock equal to the number of phantom shares
in the director's account, or a combination of the two. If all or a portion of
the payment is made in cash, the value of the phantom shares at maturity is
determined based on the average closing price of the Common Stock on Nasdaq
during the last 20 trading days of the Company's fiscal quarter in which
maturity occurs. To date, elections to defer director's fees have been made by
Messrs. Cox, Hambrecht and St. George.
The Company maintains the Stock Plan for Non-Employee Directors (the
"Directors' Plan"). A maximum of 100,000 shares of Common Stock may be
delivered upon the exercise of options granted under the Directors' Plan and
elections to receive shares in lieu of cash compensation. Only directors of
the Company who are not employees of the Company or any of its subsidiaries
(the "Non-Employee Directors") are eligible to participate in the Directors'
Plan. While grants of stock options under the Directors' Plan are automatic
and non-discretionary, all questions of interpretation of the Directors' Plan
are determined by the Board of Directors.
On the date of each annual meeting of stockholders, each Non-Employee
Director continuing in office will be granted an option pursuant to the
Directors' Plan covering 5,000 shares. Any newly elected Non-Employee Director
will be granted an option pursuant to the Directors' Plan covering 5,000
shares on the date of his or her election (whether such election occurs at an
annual meeting or otherwise). The option exercise price for all options
granted under the Directors' Plan is the closing price of a share of the
Common Stock as reported on Nasdaq on the date the option is granted. All
options granted under the Directors' Plan become fully exercisable six months
after the date of grant. Unless sooner terminated following the death,
disability or termination of service of a director, options granted under the
Directors' Plan will remain exercisable until the 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 Nasdaq 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.
35
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table contains a summary of the compensation paid or accrued
during the fiscal years ended November 30, 1996 and 1997 to the Chief
Executive Officer of the Company and the four other most highly compensated
executive officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------------------------
LONG-TERM
COMPENSATION
NAME AND OTHER ANNUAL AWARDS--SHARES ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION UNDERLYING OPTIONS COMPENSATION
- ------------------ ---- -------- ------- ------------ ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Wolfington
...................... 1997 $231,620 $85,000 $ -- 100,000 $12,000 (1)
Chairman and Chief 1996 231,620 20,000 -- -- 57,000 (1)
Executive Officer
Don R. Dailey.......... 1997 205,001 70,000 -- 100,000 12,000 (2)
President and Director 1996 205,001 20,000 -- -- 57,000 (2)
David H. Haedicke...... 1997 135,000 55,000 -- 30,000 --
Executive Vice 1996 20,510 (3) 2,500 -- 25,800 --
President and Chief
Financial Officer
Guy C. Thomas.......... 1997 115,000 25,000 -- 15,000 9,900 (4)
Executive Vice 1996 115,000 10,000 13,020 (5) -- 9,900
President--Operations
Richard A. Anderson.... 1997 91,000 18,950 11,200 (6) 10,000 8,219 (7)
Senior Vice President 1996 91,000 12,000 11,200 (6) -- 9,513
</TABLE>
- --------
(1) Includes the annual payment of premiums of $12,000 on a life insurance
policy for a beneficiary designated by Mr. Wolfington. For 1996, also
includes $45,000 paid for providing personal guarantees on behalf of the
Company.
(2) Includes the annual payment of premiums of $12,000 on a life insurance
policy for a beneficiary designated by Mr. Dailey. For 1996, also includes
$45,000 paid for providing personal guarantees on behalf of the Company.
(3) Mr. Haedicke commenced his employment with the Company on October 7, 1996.
(4) Represents premiums on a life insurance policy for a beneficiary
designated by Mr. Thomas.
(5) Includes a car allowance of $11,820.
(6) Consists of a car allowance of $6,600 and a club membership of $4,600.
(7) Represents premiums on a life insurance policy for a beneficiary
designated by Mr. Anderson.
36
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options granted
during the fiscal year ended November 30, 1997 by the Company to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
- ------------------------------------------------------------------------ -------------------
NUMBER OF % OF TOTAL
SHARES OPTIONS GRANTED EXERCISE
UNDERLYING TO EMPLOYEES OR BASE
OPTIONS IN FISCAL PRICE EXPIRATION
NAME GRANTED YEAR ($/SHARE) DATE 5% 10%
- ---- ---------- --------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Vincent A. Wolfington... 100,000 19.7% $10.50 5/27/07 $660,339 $1,673,430
Don R. Dailey........... 100,000 19.7% 10.50 5/27/07 660,339 1,673,430
David H. Haedicke....... 30,000 5.9% 10.50 5/27/07 198,102 502,029
Guy C. Thomas........... 15,000 3.0% 10.50 5/27/07 99,051 251,014
Richard A. Anderson..... 10,000 2.0% 10.50 5/27/07 66,034 167,343
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END STOCK OPTION
VALUES
There were no options exercised by any of the Named Executive Officers
during the fiscal year ended November 30, 1997. The following table indicates
the aggregate value of all unexercised options held by each Named Executive
Officer as of November 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
AT NOVEMBER 30, 1997 NOVEMBER 30, 1997 (1)
------------------------------ -------------------------
NUMBER OF NUMBER OF
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME SHARES SHARES VALUE VALUE
- ---- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Vincent A. Wolfington 205,706 -- $1,286,925 $ --
Don R. Dailey 205,706 -- 1,286,925 --
David H. Haedicke 17,200 38,600 156,520 175,760
Guy C. Thomas 32,018 15,000 291,364 48,750
Richard A. Anderson 4,386 10,000 39,913 32,500
</TABLE>
- --------
(1) Value of unexercised in-the-money options based upon $13.75, the closing
price of the Company's Common Stock on Nasdaq on November 28, 1997.
EQUITY INCENTIVE PLANS
The Company currently maintains the 1987 Stock Option Plan (the "1987 Plan")
and the 1992 Stock Option Plan (the "1992 Plan"), both of which provide for
the award of incentive and non-statutory stock options by the Company. The
Company also maintains the 1997 Equity Incentive Plan (the "1997 Plan"), which
provides for the award of up to 650,000 shares of Common Stock in the form of
incentive stock options, non-statutory stock options, stock appreciation
rights, restricted stock, performance stock units and other stock units which
are valued by reference to the value of the Common Stock. The Board has
amended the 1997 Plan to increase by 900,000 the number of shares of Common
Stock that may be issued thereunder, subject to stockholder approval. The
Company intends to seek approval of the 1997 Plan as amended, at its annual
meeting of stockholders, currently scheduled to be held on June 3, 1998. The
1987 Plan, 1992 Plan and 1997 Plan are hereinafter referred to collectively as
the "Equity Plans."
As of May 22, 1998, options were outstanding to purchase an aggregate of
834,828 shares of Common Stock under the Equity Plans, and an aggregate of
146,668 shares of Common Stock are authorized but have not yet been granted
under awards made pursuant to such plans (including 142,523 shares pursuant to
the 1997 Plan). In addition, the Company has granted options, subject to
stockholder approval of the 1997 Plan, as amended, to purchase an aggregate of
977,000 shares of Common Stock to 20 employees for a purchase price of $22.125
per share. The options were granted in connection with the Compensation
Committee's review of the Company's
37
<PAGE>
executive compensation policies and practices, and was based, in part, upon
compensation information provided by an executive compensation consulting firm
retained by the Company. Options to purchase 747,000 of such shares are
performance options (the "Performance Options") and vest (i) after the price
of Common Stock on the Nasdaq or any exchange on which it may be traded
exceeds for 30 consecutive trading days the following benchmark prices; $25,
$30, $35, $40, $45 and $50 or (ii) on April 29, 2006. Each time one of the
price benchmarks is exceeded, the Performance Options vest with respect to
one-sixth of the shares for which they were originally exercisable. The
options to purchase the other 230,000 shares of Common Stock vested (subject
to stockholder approval) upon the closing of the 1998 Offering (the "Other
Options").
Officers, key employees, non-employee directors of and consultants to the
Company are eligible to participate in the Equity Plans. The Equity Plans are
administered by the Compensation Committee of the Board of Directors. Among
other things, the Compensation Committee determines, subject to the provisions
of said plans, who shall receive awards, the types of awards to be made, and
the terms and conditions of each award. Options that are intended to qualify
as incentive stock options under the Equity Plans may be exercisable for not
more than 10 years after the date the option is awarded and may not be granted
at an exercise price less than the fair market value of the shares of Common
Stock at the time the option is granted (and, in the case of stock options
granted to holders of more than 10% of the Common Stock, may not be granted at
an exercise price less than 110% of the fair market value of the shares of
Common Stock at the time the options are granted). The Compensation Committee
may at any time, including in connection with a change in control of the
Company, accelerate the exercisability of all or any portion of any option
issued under the Equity Plans.
Under the 1997 Plan, in the event a merger or other transaction occurs that
results in the Common Stock not being registered under Section 12 of the
Exchange Act, all awards shall terminate upon the completion of the
transaction, provided, however, that 20 days prior to the effective date of
any such merger or other transaction all awards outstanding under the Plan
shall become fully exercisable and realizable. If the transaction is intended
to be treated as a pooling of interests for accounting purposes, then the
Compensation Committee or the Board of Directors shall cause the acquiring or
surviving corporation or one of its affiliates to grant replacement awards to
participants. Otherwise, the Compensation Committee or the Board of Directors
may either arrange for replacement awards or provide for a cash payment in
connection with the termination of the awards.
The Compensation Committee may amend, modify or terminate any outstanding
award under the 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 DGCL, 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 or she 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 or she is found not
to have 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 Company.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock, as of May 22, 1998, of (i) each
beneficial owner of more than 5% of the Company's Common Stock, (ii) each
director and director nominee of the Company, (iii) each of the Named
Executive Officers, and (iv) all directors and executive officers as a group.
Except as indicated in the footnotes below, the persons named in this table
have sole investment and voting power with respect to the shares beneficially
owned by them.
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY OWNED
----------------------
NUMBER (1) PERCENT (2)
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS ---------- -----------
<S> <C> <C>
Vincent A. Wolfington(3)............................... 305,989 3.2%
Don R. Dailey(4)....................................... 295,176 3.1
David H. Haedicke(5)................................... 24,700 *
Guy C. Thomas(6)....................................... 78,550 *
Richard A. Andersen(7)................................. 15,486 *
Robert W. Cox(8)....................................... 20,400 *
William R. Hambrecht(9)................................ 94,806 1.0
David McL. Hillman(10)................................. 314,744 3.4
Nicholas J. St. George(11)............................. 12,500 *
Dennis I. Meyer(12).................................... 5,000 *
Joseph V. Vittoria..................................... -- --
All directors and executive officers as a group
(15 persons)(13)...................................... 1,218,593 12.4
OTHER 5% STOCKHOLDERS
Kaufman Fund, Inc.(14)................................. 850,000 9.2
140 East 45th St.
43rd Floor
New York, NY 10017
Yerac Associates, L.P.(15) ............................ 466,018 5.0
45 Belden Place
San Francisco, CA 94104
</TABLE>
- --------
* Less than 1%.
(1) Excludes Performance Options and Other Options granted to certain
executive officers, subject to approval of the 1997 Plan, as amended, at
the 1998 annual meeting of stockholders, including (i) Performance
Options to purchase the indicated number of shares to the following: Mr.
Wolfington (180,000 shares), Mr. Dailey (180,000 shares), Mr. Haedicke
(120,000 shares), Mr. Thomas (60,000 shares), Mr. Anderson (6,000 shares)
and all executive officers as a group (693,000 shares); and (ii) Other
Options to purchase the indicated number of shares to the following: Mr.
Wolfington (100,000 shares), Mr. Dailey (100,000 shares), Mr. Thomas
(30,000 shares) and all executive officers as a group (230,000 shares).
See "Management--Equity Incentive Plans."
(2) Percentages are based on 9,308,144 shares outstanding as of May 22, 1998.
(3) Includes options to purchase 205,706 shares of Common Stock. Also
includes (i) 1,183 shares of Common Stock currently held by a company
controlled by Mr. Wolfington, (ii) 1,560 shares held by a limited
partnership which are attributable to Mr. Wolfington's wife (780 shares)
and one of his children (780 shares) and (iii) 450 shares held by one of
his children. Excludes shares held by Yerac Associates, L.P. ("Yerac"), a
limited partnership of which Mr. Wolfington is a limited partner, with
respect to which shares Mr. Wolfington has no voting or investment power.
(4) Includes options to purchase 155,707 shares of Common Stock. Excludes
shares held by Yerac, a limited partnership of which Mr. Dailey is a
limited partner,with respect to which shares Mr. Dailey has no voting or
investment power.
(5) Represents options to purchase shares of Common Stock.
(6) Includes options to purchase 35,768 shares of Common Stock.
(7) Includes options to purchase 6,886 shares of Common Stock.
(8) Represents options to purchase shares of Common Stock.
(9) Includes options to purchase 7,500 shares of Common Stock. Also includes
(i) 60,816 shares of Common Stock with respect to which Mr. Hambrecht
shares record and beneficial ownership with Hamco Capital Corp. (of which
25,000 shares are being offered in this offering) and (ii) 26,490 shares
of Common Stock with respect to which Mr. Hambrecht shares record and
beneficial ownership with the Hambrecht 1980 Revocable Trust. See
"Certain Transactions."
(10) Represents (i) options to purchase 7,500 shares of Common Stock, and (ii)
307,244 shares held by PNC Capital Corp., a Company of which Mr. Hillman
is Executive Vice President. Mr. Hillman disclaims beneficial ownership
of the shares held by PNC Capital Corp.
39
<PAGE>
(11) Includes options to purchase 7,500 shares of Common Stock.
(12) Represents shares held by Mr. Meyer's wife as to which Mr. Meyer
disclaims beneficial ownership.
(13) See Notes 3 through 11. Includes options to purchase 52,622 shares of
Common Stock held by executive officers of the Company not listed in the
table above.
(14) Information is based upon the Schedule 13G dated July 16, 1997 filed by
Kaufman Fund, Inc.
(15) 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.
40
<PAGE>
CERTAIN TRANSACTIONS
CLI FLEET
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 (when declared) of $500 per share. The Company waived the right to
receive any dividends accrued in respect of its preferred stock through April
30, 1997, but during 1995 and 1997 received referral fees totalling $100,000
and $37,500, respectively, from CLI Fleet. 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, the Company currently 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.
CLI Fleet 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 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. 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 $1.8
million and $1.0 million of independent operator notes receivable to CLI Fleet
for cash of $1.3 million and approximately $730,000 and demand promissory
notes of approximately $470,000 and approximately $280,000 in 1995 and 1996,
respectively. These promissory notes are due to CLI Fleet on demand, although
monthly principal payments generally are received, and bear interest at rates
ranging from 5% to 7%. The Company generally no longer sells notes receivable
from independent operators to CLI Fleet, although CLI Fleet continues to
provide vehicle financing to the Company's independent operators.
PNC
In May 1996, the exercise price of a warrant issued to PNC Capital Corp.
("PNC") was reduced from $6.14 to $4.65 per share. In addition, in connection
with the Recapitalization (as defined in Note 17 in the Company's Consolidated
Financial Statements), Carey repaid approximately $912,000 of the $3.8 million
in principal outstanding on its subordinated note held by PNC and applied the
balance of the outstanding principal to pay the purchase price for 616,544
shares of Common Stock issued to PNC upon exercise of the warrant held by it.
David McL. Hillman, a director of the Company, is Executive Vice President of
PNC.
YERAC
In May 1996, the exercise price of a warrant to purchase 86,003 shares of
Common Stock owned by Yerac Associates, L.P. ("Yerac") was reduced from $6.14
to $4.65 per share. In addition, in connection with the Recapitalization,
Yerac converted the entire outstanding balance of a $2.0 million subordinated
note held by it into approximately 430,000 shares of Common Stock. From the
net proceeds of the IPO, the Company repaid approximately $1.1 million of
additional outstanding indebtedness to Yerac. Messrs. Wolfington and Dailey
are limited partners of Yerac. See "Principal and Selling Stockholders."
OTHER TRANSACTIONS INVOLVING OFFICERS AND DIRECTORS
In connection with the Recapitalization, the Company redeemed 22,000 shares
of its Series A Preferred Stock held by H&Q and entities then affiliated with
H&Q for an aggregate of $1.1 million in cash plus 44,974 shares of Common
Stock. Also in connection with the Recapitalization, such entities received an
aggregate of 900,089 shares of Common Stock as a result of the conversion of
5,500 shares of Series B Preferred Stock and
41
<PAGE>
31,864 shares of Series G Preferred Stock. William R. Hambrecht, a director of
the Company, is a director and chairman of Hamco Capital Corporation and a
trustee of The Hambrecht 1980 Revocable Trust. Prior to January 1, 1998, Mr.
Hambrecht was affiliated in different capacities with the various entities
comprising H&Q, including as a general partner of Hambrecht & Quist Venture
Partners ("Partners"). Partners currently is the general partner of H&Q London
Ventures. Certain of the entities comprising H&Q are Selling Stockholders. See
"Principal and Selling Stockholders."
Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer,
and Don R. Dailey, the Company's President, each personally guaranteed certain
indebtedness of the Company in the original principal amount of $4.5 million
and was paid $45,000 during 1996 for such guarantee. The Company used part of
the net proceeds of the IPO to repay the entire outstanding amount of the
underlying indebtedness, and following the repayment the guarantees were
terminated. In connection with the Recapitalization, Messrs. Wolfington and
Dailey received $20,250 and $13,650, respectively, and 7,569 shares and 5,123
shares of Common Stock, respectively, as a result of the redemption of the
shares of Series A Preferred Stock and the conversion of the shares of Series
G Preferred Stock beneficially owned by each of them.
42
<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
As of May 22, 1998, there were 9,308,144 shares of Common Stock outstanding,
and outstanding options and warrants to purchase an aggregate of 1,128,781
shares of Common Stock (exclusive of 977,000 shares of Common Stock that may
be purchased upon the exercise of options granted subject to stockholder
approval of the 1997 Plan, as amended). A total of 4,145 additional shares of
Common Stock are reserved for issuance under the 1992 Plan, 142,523 additional
shares of Common Stock are reserved for issuance under the 1997 Plan and
70,000 additional shares of Common Stock are reserved for issuance under the
Directors' Plan. The Board of Directors has amended the 1997 Plan to increase
by 900,000 the number of shares of Common Stock that may be issued thereunder,
subject to stockholder approval. See "Management--Equity Incentive Plans."
Holders of Common Stock are entitled to one vote for each share held of record
on all matters to be submitted to a vote of the stockholders, and do not have
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors of the Company out of funds legally available
therefor. The Company's agreements with its principal lenders prohibit
dividend payments. See "Dividend Policy." All outstanding shares of Common
Stock are fully paid and nonassessable and the holders thereof have no
preferences or conversion, exchange or pre-emptive rights. In the event of any
liquidation, dissolution or winding-up of the affairs of the Company, holders
of Common Stock will be entitled to share ratably in the assets of the Company
remaining after payment or provision for payment of all of the Company's debts
and obligations and liquidation payments to holders of outstanding shares of
Preferred Stock, if any.
PREFERRED STOCK
Currently, there are no shares of Preferred Stock of the Company issued and
outstanding. Preferred Stock may be issued in one or more series without
further stockholder authorization, and the Board of Directors is authorized to
fix and determine the terms, limitations and relative rights and preferences
of the Preferred Stock, to establish series of Preferred Stock and to fix and
determine the variations as among series. Preferred Stock, if issued, would
have priority over the Common Stock with respect to dividends and to other
distributions, including the distribution of assets upon liquidation, and may
be subject to repurchase or redemption by the Company. The Board of Directors,
without approval of the holders of the Common Stock, can issue Preferred Stock
with voting and conversion rights (including multiple voting rights) which
could adversely affect the rights of holders of Common Stock. In addition to
having a preference with respect to dividends or liquidation proceeds,
Preferred Stock, if issued, may be entitled to the allocation of capital gains
from the sale of the Company's assets. Although the Company has no present
plans to issue any shares of Preferred Stock, the issuance of shares of
Preferred Stock, or the issuance of rights to purchase such shares, may have
the effect of delaying, deferring or preventing a change in control of the
Company or an unsolicited acquisition proposal.
CLASSIFIED BOARD OF DIRECTORS
The Restated Certificate of Incorporation and By-laws of the Company provide
for the Board of Directors to be divided into three classes of directors, as
nearly equal in number as is reasonably possible, serving staggered terms so
that directors' initial terms will expire either at the 1998, 1999 or 2000
annual meeting of stockholders. Starting with the 1998 annual meeting of
stockholders, one class of directors will be elected each year for a three-
year term. See "Management."
43
<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 neither 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 neither 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 Exchange Act. 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.
44
<PAGE>
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.
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.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
During May 1998, the Company completed the 1998 Offering, pursuant to which
1,450,000 shares of Common Stock were issued and sold to the public by the
Company and 1,036,300 were sold by the Selling Stockholders. As of May 22,
1998, the Company had 9,308,144 shares outstanding. Of these shares, 7,870,751
shares will be freely tradeable without restriction under the Securities Act.
The remaining 1,437,393 shares represent (i) shares beneficially owned by
"affiliates" of the Company (as that term is defined in Rule 144) and (ii)
shares issued to affiliates of companies acquired by the Company during the
past year, none of which shares may be sold in the open market except in
compliance with the applicable requirements of Rule 144.
Also, if issued upon the exercise of outstanding warrants, 263,953 shares of
Common Stock also will constitute restricted securities within the meaning of
Rule 144 and will be eligible for sale in the open market subject to the
applicable requirements of Rule 144 discussed below.
As of May 22, 1998 there were 864,828 shares of Common Stock issuable upon
the exercise of outstanding options under the Company's Equity Plans and
Directors' Plan and an additional 216,668 shares of Common Stock reserved for
future award or grant under such plans (exclusive of 977,000 shares of Common
Stock that may be purchased upon the exercise of options granted subject to
stockholder approval of the 1997 Plan, as amended). The Board of Directors has
amended the 1997 Plan to increase by 900,000 the number of shares of Common
Stock that may be issued thereunder, subject to stockholder approval. See
"Management--Equity Incentive Plans." The Company has filed a registration
statement on Form S-8 to register shares of Common Stock for issuance under
the Equity Plans and Directors' Plan. Common Stock issued pursuant to such
registration statement upon exercise of outstanding vested options granted
pursuant to the Equity Plans and Directors' Plan, other than Common Stock
issued to affiliates of the Company, is available for immediate resale in the
open market.
In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired
from the Company and the date on which they were acquired from an affiliate,
then the holder of such restricted securities (including an affiliate) is
entitled to sell that number of shares within any three-month period that does
not exceed the greater of (i) one percent of the then outstanding shares of
the Common Stock or (ii) the average weekly reported volume of trading of the
Common Stock during the four calendar weeks preceding such sales. Sales under
Rule 144 also are subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information 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 an
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 and without
regard to the volume limitations and other conditions described above.
The Company and certain stockholders who beneficially own an aggregate of
1,863,182 shares of Common Stock (including 610,292 shares that may be
acquired pursuant to options and warrants which currently are exercisable or
will become exercisable within 60 days 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, prior to
August 5, 1998 without the prior written consent of NationsBanc Montgomery
Securities LLC, except for (i) in the case of the Company, Common Stock issued
pursuant to any employee or director benefit plans described herein or in
connection with acquisitions and (ii) in the case of said stockholders, 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 90-day period applying to shares so issued or
transferred. One group of stockholders affiliated with H&Q, which beneficially
own an aggregate of 207,485 shares of Common Stock,
46
<PAGE>
has agreed not to sell such shares prior to July 6, 1998 on terms otherwise
identical to those described above. In evaluating any request for a waiver of
the 60-day or 90-day lock-up period, NationsBanc Montgomery Securities LLC
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 178,571 shares of Common Stock issued in connection with the
acquisition of Manhattan Limousine will be entitled to certain demand and
piggy-back registration rights beginning June 2, 1998. Holders of warrants to
purchase 150,000 shares of Common Stock currently are entitled to certain
piggy-back registration rights, and will be entitled to certain demand
registration rights beginning June 2, 1998.
Sales of substantial amounts of Common Stock by existing stockholders could
have an adverse impact on the prevailing market price of the Common Stock. No
predictions can be made as to the effect, if any, that market sales of shares
by existing stockholders or the availability of such shares for future sale
will have on the market price of shares of Common Stock prevailing from time
to time.
PLAN OF DISTRIBUTION
This Prospectus relates to 1,500,000 shares of Common Stock, $.01 par value
per share (the "Common Stock"), of Carey International, Inc. (the "Company")
that may be offered and issued by the Company from time to time in connection
with acquisitions of other businesses or properties by the Company. As of the
date of this Prospectus, 906,119 shares of Common Stock have been issued
hereunder and 593,881 remain available for issuance (including up to 144,330
shares, assuming a per share price of $24.25, which may be issued in
connection with previously completed acquisitions).
Carey intends to concentrate its acquisitions within the chauffeured vehicle
service industry. If the opportunity arises, however, Carey may attempt to
make acquisitions that are either complementary to its present operations or
which it considers advantageous even though they may be dissimilar to its
present activities. The consideration for any such acquisition may consist of
shares of Common Stock, cash, notes or other evidences of debt, assumptions of
liabilities or a combination thereof, as determined from time to time by
negotiations between Carey and the owners or controlling persons of businesses
or properties to be acquired.
The shares covered by this Prospectus may be issued in exchange for shares
of capital stock, partnership interests or other assets representing an
interest, direct or indirect, in other companies or other entities, in
exchange for assets used in or related to the business of such companies or
entities, or otherwise pursuant to the agreements providing for such
acquisitions. The terms of such acquisitions and of the issuance of shares of
Common Stock under acquisition agreements will generally be determined by
direct negotiations with the owners or controlling persons of the businesses
or properties to be acquired or, in the case of entities that are more widely
held, through exchange offers to stockholders or documents soliciting the
approval of statutory mergers, consolidations or sales of assets. It is
anticipated that the shares of Common Stock issued in any such acquisition
will be valued at a price reasonably related to the market value of the Common
Stock either at the time of agreement on the terms of an acquisition or at or
about the time of delivery of the shares.
It is not expected that underwriting discounts or commissions will be paid
by the Company in connection with issuances of shares of Common Stock under
this Prospectus. However, finders' fees or brokers' commissions may be paid
from time to time in connection with specific acquisitions, and such fees may
be paid through the issuance of shares of Common Stock covered by this
Prospectus. Any person receiving such a fee may be deemed to be an underwriter
within the meaning of the Securities Act.
47
<PAGE>
Affiliates of companies acquired by Carey who receive Common Stock under
this Prospectus are subject for one year to the restrictions of Rule 145 under
the Securities Act, including the volume of sale limitations and manner of
sale requirements thereof. The requirements of Rule 145 may limit the ability
of such affiliates to resell Common Stock they may receive under this
Prospectus.
LEGAL MATTERS
The validity of the shares offered will be passed upon for the Company by
Nutter, McClennen & Fish, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of November 30, 1996
and 1997, and for each of the three years in the period ended November 30,
1997, included in this Prospectus have been included herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The combined financial statements of Manhattan Limousine as of September 30,
1996, and for the year ended September 30, 1996, included in this Prospectus
have been included herein in reliance on the report, which includes an
explanatory paragraph relating to the restatement of such financial
statements, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Stock offered hereby. This Prospectus
omits certain information contained in the Registration Statement, and
reference is made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the Common
Stock offered hereby. Statements contained in this Prospectus concerning the
provisions or contents of any contract, agreement or any other document
referred to herein are not necessarily complete with respect to each such
contract, agreement or document filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description
of the matters involved, and each such statement shall be deemed qualified by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1204, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of the Registration Statement or any part thereof may be obtained from
such office, upon payment of the fees prescribed by the Commission. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that submit electronic filings to the Commission.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files periodic reports and other
information with the Commission. For further information with respect to the
Company, reference hereby is made to such reports and other information which
can be inspected and copied at the public reference facilities maintained by
the Commission referenced above.
The Company's Common Stock is quoted on Nasdaq under the trading symbol
"CARY." Reports, proxy statements and other information about the Company also
may be inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, DC 20006.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CAREY INTERNATIONAL, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
Pro Forma Statement of Operations for year ended November 30, 1997........ F-3
Notes to Pro Forma Consolidated Financial Statement....................... F-4
CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements
Balance Sheet as of February 28, 1998..................................... F-5
Statements of Operations for the three months ended February 28, 1997 and
1998..................................................................... F-6
Statements of Cash Flows for the three months ended February 28, 1997 and
1998..................................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
Audited Consolidated Financial Statements
Report of Independent Accountants......................................... F-11
Balance Sheets as of November 30, 1996 and 1997........................... F-12
Statements of Operations for the years ended November 30, 1995, 1996 and
1997..................................................................... F-13
Statements of Changes in Stockholders' Equity for the years ended November
30, 1995, 1996
and 1997................................................................. F-14
Statements of Cash Flows for the years ended November 30, 1995, 1996 and
1997..................................................................... F-15
Notes to Consolidated Financial Statements................................ F-16
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
Combined Financial Statements
Report of Independent Accountants......................................... F-34
Balance Sheets as of September 30, 1996 and April 30, 1997 (unaudited).... F-35
Statements of Operations and Accumulated Deficit for the year ended
September 30, 1996 and the
seven months ended April 30, 1997 (unaudited)............................ F-36
Statements of Cash Flows for the year ended September 30, 1996 and the
seven months ended
April 30, 1997 (unaudited)............................................... F-37
Notes to Combined Financial Statements.................................... F-38
</TABLE>
F-1
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
BASIS OF PRESENTATION
The Pro Forma Consolidated Statement of Operations for the year ended
November 30, 1997 is based on the consolidated financial statements of Carey
International, Inc. and subsidiaries (the "Company") and Manhattan
International Limousine Network Ltd. and Affiliate ("Manhattan Limousine").
The Pro Forma Consolidated Statement of Operations for the year ended November
30, 1997 has been prepared assuming the acquisition of Manhattan Limousine
occurred on December 1, 1996. For purposes of the Pro Forma Consolidated
Statement of Operations for the year ended November 30, 1997, Manhattan
Limousine's Statement of Operations for the six months ended March 31, 1997
has been combined with the Consolidated Statement of Operations of the Company
for the year ended November 30, 1997. The Pro Forma Consolidated Statement of
Operations also reflects the issuance of shares of Common Stock (net of
underwriting discounts) required to: (i) repay certain existing debt of the
Company, (ii) pay the cash and note portions of the purchase price for
Manhattan Limousine, (iii) repay certain debt assumed in connection with the
acquisition of Manhattan Limousine, and (iv) redeem certain preferred stock of
the Company. The Pro Forma Consolidated Statement of Operations also reflects
the issuance of shares of Common Stock in connection with (i) the acquisition
of Manhattan Limousine, (ii) the Recapitalization and (iii) the conversion of
certain debt into Common Stock upon the closing of the initial public offering
(the "IPO"). All of the aforementioned shares are assumed to have been issued,
the debt repaid or converted and the preferred stock redeemed at the beginning
of the period presented, and thus interest expense attributable to such debt
has been eliminated.
The Pro Forma Consolidated Statement of Operations does not purport to
represent what the Company's actual results of operations would have been had
the acquisition of Manhattan Limousine occurred as of such date, or to project
the Company's results of operations for any period or date, nor does it give
effect to any matters other than those described in the notes thereto. The Pro
Forma Consolidated Financial Statement 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 STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1997
-----------------------------------------------------------------------------------
ACTUAL
-----------------------
MANHATTAN ACQUISITION RECAPITALIZATION OTHER
COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ---------- ----------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue, net............ $86,378,313 $9,885,506 $ -- $ -- $ -- $96,263,819
Cost of revenue......... 57,890,393 6,126,205 -- -- -- 64,016,598
----------- ---------- --------- -------- -------- -----------
Gross profit.......... 28,487,920 3,759,301 -- -- -- 32,247,221
Selling, general and
administrative
expense................ 20,111,590 3,010,144 (46,865)(1) -- 75,000 (6) 23,539,702
389,833 (2)
----------- ---------- --------- -------- -------- -----------
Operating income...... 8,376,330 749,157 (342,968) -- (75,000) 8,707,519
Other income (expense)
Interest expense...... (1,141,946) (457,017) (37,310)(3) 250,000(5) 939,267 (6) (447,006)
Interest and other
income............... 451,388 16,500 (16,500)(4) -- -- 451,388
----------- ---------- --------- -------- -------- -----------
Income before provision
for income taxes....... 7,685,772 $ 308,640 $(396,778) $250,000 $864,267 8,711,901
========== ========= ======== ========
Provision for income
taxes.................. 3,162,282 3,585,098 (7)
----------- -----------
Net income ............. $ 4,523,490 $ 5,126,803
=========== ===========
Pro forma net income per
common share--basic.... $ 0.67 (8)
===========
Pro forma net income per
common
share--diluted......... $ 0.64 (8)
===========
Pro forma weighted
average common shares
outstanding used in
computing net income
per share--basic....... 7,641,861 (8)
===========
Pro forma weighted
average common shares
outstanding used in
computing net income
per share--diluted..... 8,003,489 (8)
===========
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
financial statement.
F-3
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENT
To date, all of the Company's acquisitions have been accounted for under the
purchase method of accounting with the results of the acquired companies
included in the Company's statement of operations beginning on the date of the
acquisition, except for Indy Connection which has been accounted for under the
pooling-of-interests method.
(1) Gives effect to the elimination from the Combined Statement of Operations
of Manhattan Limousine of a one-time charge related to advances to a non-
combined affiliate of Manhattan Limousine which were approximately $7,000
for the year ended November 30, 1997 and redundant administrative and
other costs immediately identifiable at the time of the acquisition
(relating to salary and benefits of a stockholder of Manhattan Limousine
and members of his family which will not be incurred by the Company) of
approximately $40,000 for the year ended November 30, 1997.
(2) Gives effect to the amortization of approximately $340,000 for the year
ended November 30, 1997 of goodwill recognized with respect to the
acquisition of Manhattan Limousine and $50,000 for the year ended November
30, 1997 of consulting fees to be paid pursuant to a consulting agreement
entered into in connection with the acquisition of Manhattan Limousine.
Goodwill is being amortized over a 30-year period.
(3) Gives effect to an increase in interest associated with the promissory
notes in the aggregate amount of $4.8 million used to acquire Manhattan
Limousine and the interest on the increase of $520,000 in Manhattan
Limousine's mortgage note in January 1997, both of which were repaid out
of the proceeds of the IPO (see (6) below). Also gives effect to a
decrease in interest expense associated with the debt retained by a
stockholder of Manhattan Limousine.
(4) Gives effect to the elimination of interest income related to a note
receivable retained by a stockholder of Manhattan Limousine.
(5) Reflects the elimination of approximately $250,000 for the year ended
November 30, 1997 of interest on certain debt converted into Common Stock.
(6) Reflects directors' and officers' insurance costs incurred by the Company
in connection with being a public registrant and the elimination of
approximately $939,000 for the year ended November 30, 1997 of interest on
certain current and long-term debt repaid from the proceeds of the IPO or
converted into Common Stock.
(7) Reflects the estimated provision for income taxes at an assumed rate of
41.1% for the year ended November 30, 1997 after giving consideration to
nondeductible goodwill expense.
(8) Pro forma net income per share-basic was computed by dividing the pro
forma net income for the year ended November 30, 1997 by the pro forma
weighted average number of shares outstanding for the year. Diluted pro
forma net income per common share assumes an increase in common shares
outstanding for options and warrants that are exercisable for a specified
price. The dilutive effect of the options and warrants is measured using
the treasury method.
F-4
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 28,
1998
------------
(UNAUDITED)
<S> <C>
ASSETS
Cash and cash equivalents......................................... $ 3,786,533
Accounts receivable, net ......................................... 13,219,513
Notes receivable from contracts, current portion.................. 729,030
Prepaid expenses and other current assets......................... 1,784,834
-----------
Total current assets.......................................... 19,519,910
Fixed assets, net................................................. 9,182,979
Notes receivable from contracts, excluding current portion........ 8,444,485
Franchise rights, net............................................. 5,053,367
Trade name, trademark and contract rights, net.................... 6,448,942
Goodwill and other intangible assets, net......................... 31,886,854
Deferred tax assets............................................... 736,301
Deposits and other assets......................................... 1,631,915
-----------
Total assets.................................................. $82,904,753
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable.................................. $ 782,824
Current portion of capital leases................................. 435,294
Accounts payable and accrued expenses............................. 14,724,983
-----------
Total current liabilities..................................... 15,943,101
Notes payable, excluding current portion.......................... 2,530,971
Capital leases, excluding current portion......................... 1,000,668
Deferred tax and other long-term liabilities...................... 456,132
Deferred revenue.................................................. 13,638,079
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 20,000,000 authorized shares,
7,687,143 issued and outstanding shares........................ 76,871
Additional paid-in capital...................................... 45,347,752
Retained earnings............................................... 3,911,179
-----------
Total stockholders' equity.................................... 49,335,802
-----------
Total liabilities and stockholders' equity.................. $82,904,753
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
------------------------
1997 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue, net........................................ $15,594,829 $23,650,588
Cost of revenue..................................... 10,468,948 16,176,915
----------- -----------
Gross profit.................................... 5,125,881 7,473,673
Selling, general and administrative expense......... 4,214,347 5,848,261
----------- -----------
Operating income................................ 911,534 1,625,412
Other income (expense):
Interest expense................................ (428,380) (114,420)
Interest income................................. 29,819 54,794
Gain on sales of fixed assets................... 121,479 32,198
----------- -----------
Income before provision for income taxes............ 634,452 1,597,984
Provision for income taxes.......................... 268,741 680,741
----------- -----------
Net income.......................................... $ 365,711 $ 917,243
=========== ===========
Net income per common share--basic.................. $ 0.27 $ 0.12
=========== ===========
Net income per common share--diluted................ $ 0.11 $ 0.11
=========== ===========
Weighted average common shares used in computing net
income per common share--basic..................... 1,377,556 7,651,953
=========== ===========
Weighted average common shares used in computing net
income per common share--diluted................... 4,086,211 8,064,323
=========== ===========
Pro forma net income per common share--basic........ $ 0.12
===========
Pro forma net income per common share--diluted ..... $ 0.11
===========
Pro forma weighted average common shares used in
computing net income per common share--basic....... 3,877,351
===========
Pro forma weighted average common shares used in
computing net income per common share--diluted .... 4,172,214
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
FEBRUARY 28, FEBRUARY 28,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 365,711 $ 917,243
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization of fixed assets.... 426,461 633,310
Amortization of intangible assets................ 240,222 409,702
Gain on sales of fixed assets.................... (121,479) (32,198)
Provision for deferred taxes..................... (133,810) (74,756)
Change in deferred revenue....................... 447,417 241,975
Changes in operating assets and liabilities
Accounts receivable............................ 2,701,016 3,230,432
Notes receivable from contracts................ (519,510) (338,912)
Prepaid expenses, deposits and other assets.... (684,642) (483,683)
Accounts payable and accrued expenses.......... (2,864,825) (3,361,407)
Deferred rent and other long-term liabilities.. 130,388 (737,445)
----------- -----------
Net cash provided by (used in) operating
activities.................................. (13,051) 404,261
----------- -----------
Cash flows from investing activities:
Proceeds from sales of fixed assets................ 402,062 518,584
Purchases of fixed assets.......................... (532,150) (749,530)
Acquisitions of chauffeured vehicle service
companies......................................... (35,811) (1,171,636)
----------- -----------
Net cash used in investing activities........ (165,899) (1,402,582)
----------- -----------
Cash flows from financing activities:
Principal payments under capital lease
obligations....................................... (50,016) (248,733)
Payments of notes payable.......................... (1,280,042) (474,802)
Proceeds from notes payable........................ 400,000 --
Proceeds from issuance of stock.................... -- 174,987
----------- -----------
Net cash used in financing activities........ (930,058) (548,548)
----------- -----------
Net decrease in cash and cash equivalents............ (1,109,008) (1,546,869)
Cash and cash equivalents at beginning of period..... 2,867,711 5,333,402
----------- -----------
Cash and cash equivalents at end of period........... $ 1,758,703 $ 3,786,533
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BACKGROUND AND ORGANIZATION
General
Carey International, Inc. (the "Company") provides 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:
Indianapolis (Carey Limousine Indiana, Inc., See Note 3), London, England
(Carey UK Limited), Los Angeles (Carey Limousine L.A., Inc.), New York (Carey
Limousine N.Y., Inc. and Manhattan International Limousine Network, Ltd.),
Philadelphia (Carey Limousine Corporation, Inc.), San Francisco (Carey
Limousine SF, Inc.), South Florida (Carey Limousine Florida, Inc.) and
Washington, D.C. (Carey Limousine D.C., Inc.). In addition, the Company
licenses the "Carey" name, and provides central reservations, billing, and
sales and marketing services to its licensees. The Company's worldwide network
includes affiliates in locations in which the Company has neither owned and
operated locations nor licensees. The Company provides central reservations
and billing services to such affiliates.
Acquisitions
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses. The chauffeured vehicle service businesses that the Company seeks
to acquire may be in cities in which the Company has owned and operated
service providers, licensees operating under the Carey name and trademark, and
affiliates of the Company. In fiscal 1997 the Company acquired chauffeured
vehicle service companies in New York, Los Angeles and Indianapolis. In the
first quarter of fiscal 1998, the Company acquired a chauffeured vehicle
service company in London, England (See Note 3).
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and these notes do not
include all of the disclosures included in the Company's audited consolidated
financial statements for the years ended November 30, 1995, 1996 and 1997, and
should be read in conjunction with those financial statements. For further
information, such as the significant accounting policies followed by the
Company, refer to the notes to the Company's consolidated audited financial
statements.
The consolidated financial statements included herein have not been audited.
However, in the opinion of management, the consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results for 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 IB-2, the Company has recalculated
historical weighted average common shares outstanding and net income per
common share to give effect to a recapitalization as if it occurred at
December 1, 1996 (see Note 17 to the audited consolidated financial
statements). The recalculated pro forma net income per common share is
determined by (i) adjusting net income available to common shareholders to
reflect the elimination in interest expense, net of taxes, resulting from the
conversion of $4,867,546 of subordinated debt into Common Stock and (ii)
increasing the weighted average common shares outstanding by the number of
common shares resulting from the conversion of such debt, as well as the
partial conversion of the Series A Preferred Stock.
F-8
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
In the periods ended February 28, 1997 and 1998, the following acquisition
activity was recorded by the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
------------------
1997 1998
------- ----------
<S> <C> <C>
Fair value of net assets and liabilities acquired:
Receivables and other assets............................. $ -- $ 551,281
Fixed assets............................................. -- 815,616
Goodwill and other intangibles........................... 35,811 1,171,787
Deferred taxes........................................... -- 160,000
Accounts payable and accrued expenses.................... -- (975,657)
Capital leases........................................... -- (551,391)
------- ----------
Fair value of assets and liabilities acquired............ $35,811 $1,171,636
======= ==========
Cash payments............................................ $35,811 $1,171,636
======= ==========
</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 condition, results of
operations or cash flows of the Company.
The federal income tax returns of one of the corporations acquired by the
Company have been examined by the Internal Revenue Service ("IRS") for periods
prior to the acquisition date. The IRS has notified the acquired corporation
of challenges to its methods of accounting and the tax treatment of certain
items in those tax returns. The Company believes that any assessments
ultimately sustainable by the IRS in this matter would be offset, in large
part, by indemnification payments under the acquisition agreements, and would
not have a material effect on the financial position, results of operations or
cash flows of the Company.
5. NET INCOME PER COMMON SHARE
In 1998, the Company adopted SFAS No. 128, Earnings Per Share. Basic net
income per common share has been computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted net income per common share has been computed by dividing net income
by the weighted average number of common shares outstanding plus an assumed
increase in common shares outstanding for dilutive securities. Dilutive
securities consist of convertible securities which are dilutive, preferred
stock, and options and warrants to acquire common stock for a specified price
and their dilutive effect is measured using the treasury method. Net income
per common share amounts for all other periods presented have been restated to
conform to SFAS No. 128.
F-9
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net income per common share, on a historical basis, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
Net income.............................................. $ 365,711 $ 917,243
Effect of conversion of subordinated debt............... 88,268 --
---------- ----------
Net income available to common stockholders plus effect
of conversions......................................... $ 453,979 $ 917,243
========== ==========
Weighted average common shares outstanding--basic....... 1,377,556 7,651,953
Dilutive effect of:
Stock options.......................................... 231,375 342,171
Warrants............................................... 63,488 70,199
Convertible preferred stock:
Series B preferred stock.............................. 663,761 --
Series F preferred stock.............................. 135,025 --
Series G preferred stock.............................. 673,638 --
Effect of conversion of subordinated debt.............. 941,368 --
---------- ----------
Weighted average common shares outstanding--diluted..... 4,086,211 8,064,323
========== ==========
Net income per share--basic............................. $ 0.27 $ 0.12
========== ==========
Net income per share--diluted........................... $ 0.11 $ 0.11
========== ==========
</TABLE>
6. SUBSEQUENT EVENTS
In March 1998, the Company acquired a chauffeured vehicle limousine company
in Boston and entered into a definitive agreement to acquire certain assets of
an additional company in Boston.
F-10
<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, 1996 and 1997, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
November 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Carey
International Inc. and Subsidiaries as of November 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended November 30, 1997, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
January 30, 1998, except as to
Note 16, for which the
date is February 28, 1998
F-11
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................ $ 2,867,711 $ 5,333,402
Accounts receivable, net of allowance for doubtful
accounts of $535,000 in 1996 and $639,000 in 1997....... 10,542,331 15,932,426
Notes receivable from contracts, current portion......... 402,751 670,266
Prepaid expenses and other current assets................ 2,061,738 1,435,176
----------- -----------
Total current assets................................. 15,874,531 23,371,270
Fixed assets, net of accumulated depreciation of
$4,687,000 in 1996 and $5,116,000 in 1997............... 5,790,391 9,278,319
Notes receivable from contracts, excluding current
portion................................................. 769,201 8,164,337
Franchise rights, net of accumulated amortization of
$1,729,000 in 1996 and $1,965,000 in 1997............... 5,348,264 5,112,348
Trade name, trademark and contract rights, net of
accumulated amortization of $973,000 in 1996 and
$1,164,000 in 1997...................................... 6,685,135 6,493,693
Goodwill and other intangible assets, net of accumulated
amortization of $840,000 in 1996 and $1,500,000 in
1997.................................................... 7,285,933 30,991,450
Deferred tax assets...................................... 949,962 501,545
Deposits and other assets................................ 1,263,525 1,481,252
----------- -----------
Total assets......................................... $43,966,942 $85,394,214
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of notes payable......................... $ 5,858,249 $ 996,575
Current portion of capital leases........................ 199,224 321,965
Current portion of subordinated notes payable............ 440,000 --
Accounts payable and accrued expenses.................... 11,564,963 17,054,081
----------- -----------
Total current liabilities............................ 18,062,436 18,372,621
Notes payable, excluding current portion................. 6,035,964 2,792,022
Capital leases, excluding current portion................ 663,030 1,339,666
Subordinated notes payable, excluding current portion.... 5,340,000 --
Deferred rent and other long-term liabilities............ 111,281 1,193,577
Deferred revenue......................................... 6,181,147 13,396,104
Commitments and contingencies
Stockholders' equity:
Preferred stock ....................................... 1,115,400 --
Class A common stock, $.01 par value; authorized
314,000 shares, none issued and outstanding as of
November 30, 1996; none authorized as of November 30,
1997.................................................. -- --
Common stock, $0.01 par value; authorized 20,000,000
shares; issued and outstanding 1,377,556 shares as of
November 30, 1996 and 7,630,007 as of November 30,
1997.................................................. 13,776 76,300
Additional paid-in capital............................. 7,841,371 45,173,336
Retained earnings (accumulated deficit)................ (1,397,463) 3,050,588
----------- -----------
Total stockholders' equity........................... 7,573,084 48,300,224
----------- -----------
Total liabilities and stockholders' equity........... $43,966,942 $85,394,214
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue, net............................ $48,969,395 $65,544,942 $86,378,313
Cost of revenue......................... 33,027,209 43,649,178 57,890,393
----------- ----------- -----------
Gross profit.......................... 15,942,186 21,895,764 28,487,920
Selling, general and administrative
expense................................ 14,081,152 16,726,610 20,111,590
----------- ----------- -----------
Operating income...................... 1,861,034 5,169,154 8,376,330
Other income (expense):
Interest expense...................... (1,910,966) (1,898,231) (1,141,946)
Interest income....................... 262,647 162,711 231,384
Gain on sales of fixed assets......... 156,005 355,754 220,004
----------- ----------- -----------
Income before provision for income
taxes.................................. 368,720 3,789,388 7,685,772
Provision for income taxes.............. 270,599 294,421 3,162,282
----------- ----------- -----------
Net income.............................. $ 98,121 $ 3,494,967 $ 4,523,490
=========== =========== ===========
Net income per common share--basic ..... $ 0.07 $ 2.57 $ 1.00
=========== =========== ===========
Net income per common share--diluted.... $ 0.03 $ 1.01 $ 0.77
=========== =========== ===========
Weighted average common shares
outstanding used in computing net
income per common share--basic......... 1,332,878 1,359,126 4,506,108
=========== =========== ===========
Weighted average common shares
outstanding used in computing net
income per common share--diluted....... 2,817,091 3,794,291 6,137,418
=========== =========== ===========
Pro forma net income per common share--
basic.................................. $ 0.81
===========
Pro forma net income per common share--
diluted................................ $ 0.76
===========
Pro forma weighted average common shares
outstanding used in computing net
income per common share--basic......... 5,819,145
===========
Pro forma weighted average common shares
outstanding used in computing net
income per common share--diluted ...... 6,180,773
===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES E SERIES F SERIES G CAREY INDIANA COMMON STOCK ADDITIONAL
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED ----------------- PAID-IN
STOCK STOCK STOCK STOCK STOCK STOCK SHARES $ CAPITAL
--------- --------- --------- --------- --------- ------------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
November 30,
1994............ $ 420,700 $ 95,800 $186,250 $100,000 $498,900 $ 80,000 1,325,032 $13,250 $ 7,791,552
Issuance of
common stock.... -- -- -- -- -- -- 32,682 327 34,393
Accretion of
redeemable
preferred
stock........... -- -- 4,375 -- -- -- -- -- (4,375)
Redemption of
preferred
stock........... -- -- (62,500) -- -- (40,000) -- -- --
Payment of
preferred stock
dividends....... -- -- (30,625) -- -- -- -- -- --
Payment of
common stock
dividends....... -- -- -- -- -- -- -- -- --
Net income...... -- -- -- -- -- -- -- -- --
--------- -------- -------- -------- -------- -------- --------- ------- -----------
Balance at
November 30,
1995............ 420,700 95,800 97,500 100,000 498,900 40,000 1,357,714 13,577 7,821,570
Redemption of
preferred
stock........... -- -- (97,500) -- -- (40,000) -- -- --
Issuance of
stock........... -- -- -- -- -- -- 19,842 199 19,801
Payment of
preferred stock
dividends....... -- -- -- -- -- -- -- -- --
Payment of
common stock
dividends....... -- -- -- -- -- -- -- -- --
Cumulative
effect of
currency
translation..... -- -- -- -- -- -- -- -- --
Net income...... -- -- -- -- -- -- -- -- --
--------- -------- -------- -------- -------- -------- --------- ------- -----------
Balance at
November 30,
1996............ 420,700 95,800 -- 100,000 498,900 -- 1,377,556 13,776 7,841,371
Issuance of
common stock and
redemption of
preferred stock
under
Recapitalization
Plan............ (420,700) (95,800) -- (100,000) (498,900) -- 2,560,071 25,601 2,853,841
Issuance of
common stock in
initial public
offering........ -- -- -- -- -- -- 3,335,000 33,350 30,580,511
Issuance of
common stock in
purchases of
chauffeured
vehicle
companies....... -- -- -- -- -- -- 292,066 2,920 3,397,080
Issuance of
common stock
under option
plans........... -- -- -- -- -- -- 17,207 172 53,514
Conversion of
debt for common
stock........... -- -- -- -- -- -- 48,107 481 447,019
Payment of
common stock
dividends....... -- -- -- -- -- -- -- -- --
Cumulative
effect of
currency
translation..... -- -- -- -- -- -- -- -- --
Net income...... -- -- -- -- -- -- -- -- --
--------- -------- -------- -------- -------- -------- --------- ------- -----------
Balance at
November 30,
1997............ $ -- $ -- $ -- $ -- $ -- $ -- 7,630,007 $76,300 $45,173,336
========= ======== ======== ======== ======== ======== ========= ======= ===========
<CAPTION>
RETAINED
EARNINGS TOTAL
(ACCUMULATED STOCKHOLDERS'
DEFICIT) EQUITY
------------- -------------
<S> <C> <C>
Balance at
November 30,
1994............ $(4,968,229) $ 4,218,223
Issuance of
common stock.... -- 34,720
Accretion of
redeemable
preferred
stock........... -- --
Redemption of
preferred
stock........... -- (102,500)
Payment of
preferred stock
dividends....... -- (30,625)
Payment of
common stock
dividends....... (20,901) (20,901)
Net income...... 98,121 98,121
------------- -------------
Balance at
November 30,
1995............ (4,891,009) 4,197,038
Redemption of
preferred
stock........... -- (137,500)
Issuance of
stock........... -- 20,000
Payment of
preferred stock
dividends....... (900) (900)
Payment of
common stock
dividends....... (42,057) (42,057)
Cumulative
effect of
currency
translation..... 41,536 41,536
Net income...... 3,494,967 3,494,967
------------- -------------
Balance at
November 30,
1996............ (1,397,463) 7,573,084
Issuance of
common stock and
redemption of
preferred stock
under
Recapitalization
Plan............ -- 1,764,042
Issuance of
common stock in
initial public
offering........ -- 30,613,861
Issuance of
common stock in
purchases of
chauffeured
vehicle
companies....... -- 3,400,000
Issuance of
common stock
under option
plans........... -- 53,686
Conversion of
debt for common
stock........... -- 447,500
Payment of
common stock
dividends....... (101,857) (101,857)
Cumulative
effect of
currency
translation..... 26,418 26,418
Net income...... 4,523,490 4,523,490
------------- -------------
Balance at
November 30,
1997............ $ 3,050,588 $48,300,224
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 98,121 $ 3,494,967 $ 4,523,490
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization of
fixed assets........................ 2,087,370 2,095,439 2,039,968
Amortization of intangible assets.... 714,199 1,064,255 1,313,456
Gain on sales of fixed assets........ (156,005) (355,754) (220,004)
Provision (benefit) for deferred
income taxes........................ 102,000 (1,346,557) 799,650
Change in deferred revenue........... 237,306 1,455,013 565,997
Change in operating assets and
liabilities:
Accounts receivable................. (2,601,429) (545,421) (5,234,779)
Notes receivable from contracts..... 11,000 (1,052,838) (1,063,192)
Prepaid expenses, deposits and other
assets............................. (189,180) (665,084) (912,875)
Accounts payable and accrued
expenses........................... 3,306,393 2,021,101 542,789
Deferred rent and other long-term
liabilities........................ 87,490 (36,914) 1,082,296
----------- ----------- ------------
Net cash provided by operating
activities........................ 3,697,265 6,128,207 3,436,796
----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sale of fixed assets.... 1,639,766 1,788,380 1,486,780
Purchases of fixed assets............. (2,768,982) (3,091,353) (2,740,603)
Software development costs............ (203,529) -- (1,348,814)
Redemption of investment in
affiliate............................ 100,000 -- --
Acquisitions of chauffeured vehicle
service companies.................... (3,949,393) (1,730,232) (8,396,017)
----------- ----------- ------------
Net cash used in investing
activities........................ (5,182,138) (3,033,205) (10,998,654)
----------- ----------- ------------
Cash flow from financing activities:
Proceeds from sale of notes receivable
from independent operators........... 1,493,399 733,793 --
Principal payments under capital lease
obligations.......................... (436,169) (297,549) (237,359)
Preferred stock dividends............. (30,625) (900) --
Payment of notes payable.............. (4,496,659) (5,976,357) (19,164,223)
Proceeds from notes payable........... 5,141,022 3,857,568 2,704,162
Issuance of common stock.............. 34,720 20,000 30,842,778
Payments under Recapitalization Plan.. -- -- (4,015,952)
Common stock dividends................ (20,901) (42,057) (101,857)
Redemption of preferred stock......... (102,500) (137,500) --
----------- ----------- ------------
Net cash provided by (used in)
financing activities.............. 1,582,287 (1,843,002) 10,027,549
----------- ----------- ------------
Net increase in cash and cash
equivalents........................... 97,414 1,252,000 2,465,691
Cash and cash equivalents at beginning
of year............................... 1,518,297 1,615,711 2,867,711
----------- ----------- ------------
Cash and cash equivalents at end of
year.................................. $ 1,615,711 $ 2,867,711 $ 5,333,402
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-15
<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: New York (Carey Limousine NY, Inc. and
Manhattan International Limousine Network, Ltd.), San Francisco (Carey
Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey
UK Limited), Indianapolis (Carey Limousine Indiana, Inc., See Note 2),
Washington, DC (Carey Limousine DC, Inc.), South Florida (Carey Limousine
Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In
addition, the Company generates revenues from licensing the "Carey" name, and
from providing central reservations, billing, sales and marketing services to
its licensees. The Company's worldwide network also included affiliates in
locations in which the Company has neither owned and operated locations nor
licensees. The Company provides central reservations and billing services to
such affiliates.
Acquisitions
The Company is engaged in a program of acquiring chauffeured vehicle service
businesses. Such acquisitions include unaffiliated chauffeured vehicle service
businesses, some of which may be in cities in which the Company has owned and
operated service providers, licensees operating under the Carey name and
trademark, and affiliates of the Company. In 1995, these acquisitions included
chauffeur vehicle service companies operating in Washington, DC, South Florida
and San Francisco. In 1996, the Company acquired a chauffeured vehicle service
company in London, England. In 1997, the Company acquired chauffeured vehicle
service companies in New York, Los Angeles and Indianapolis.
Reverse Stock Split
In connection with the Company's initial public offering ("IPO") completed
June 2, 1997, the Company's Board of Directors authorized a one for 2.3255
reverse stock split of the outstanding shares of the Company's common stock.
All references to common stock, options, warrants and per share data have been
restated to give effect to the reverse stock split. On February 25, 1997, the
Board of Directors also authorized a Recapitalization Plan the
("Recapitalization"), which is more fully described in Note 17.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of Carey International, Inc. and
subsidiaries have been prepared to give retroactive effect to the merger of
Indy Connection Limousines, Inc. and subsidiary (Indy Connection) with and
into Carey International, Inc. and subsidiaries on October 31, 1997 (See Note
13). The consolidated financial statements include the financial statements of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all short-term investments with original maturities of
three months or less to be cash equivalents.
F-16
<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 67% of
revenues, as defined in the agreement. Each new operator agrees to pay a one-
time fee generally ranging from $30,000 to $75,000 to the Company under the
terms of the independent operator agreement (See "Revenue recognition").
The Company typically receives a promissory note from the independent
operator as payment for the one-time fee under the terms of the Standard
Independent Operator Agreement (see Note 4) and records the note in notes
receivable from contracts. Prior to September 1996, the notes evidencing such
financing generally were sold on a non-recourse basis by the Company to third
party finance companies (see Note 11) in exchange for cash and promissory
notes. Since September 1996, the Company has ceased selling notes to third
parties. Such promissory notes due from finance companies also have been
recorded in notes receivable from contracts in the consolidated balance
sheets.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash
equivalents, accounts receivable and notes receivable from contracts. The
Company maintains its cash and cash equivalents with various financial
institutions. In order to limit exposure to any one institution, the Company's
cash equivalents are composed mainly of overnight repurchase agreements
collateralized by U.S. Government securities. Accounts receivable are
generally diversified due to the large number of entities comprising the
Company's customer base and their dispersion across many different industries.
The Company performs ongoing credit evaluations of its customers, and may
require credit card documentation or prepayment of selected transactions.
Notes receivable from contracts are supported by the underlying base of
revenue serviced by each respective independent operator (see Notes 4 and 11).
The Company performs ongoing evaluations of each independent operator's
productivity and payment capacity and has utilized third-party financing to
reduce credit exposure.
Fixed assets
Furniture, equipment, vehicles and leasehold improvements are stated at
cost. Equipment under capital leases is stated at the lower of the present
value of minimum lease payments or the fair market value at the inception of
the lease. Depreciation on furniture, equipment, vehicles and leasehold
improvements is calculated on the straight-line method over the estimated
useful lives of the assets, generally three to five years. The buildings owned
by the Company are depreciated over 40 years on a straight-line basis. Sales
and retirements of fixed assets are recorded by removing the cost and
accumulated depreciation from the accounts. Gains or losses on sales and
retirements of property are reflected in results of operations.
The Company capitalizes software development costs relating to a
computerized system which includes applications for reservations, dispatch,
billing and accounting functions. Amortization of these costs occurs over
their estimated economic life of 60 months and commences upon the installation
of the software.
F-17
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Intangible assets
Effective September 1, 1991, the Company acquired the Carey name and
trademark and the contract rights to all royalty fee payments by various Carey
licensees for a purchase price of $7 million. These assets are being amortized
over 40 years.
The Company has acquired chauffeured vehicle service companies, all of which
have been accounted for as purchases, except for Indy Connection which has
been accounted for as a pooling-of-interests. For each business acquired which
is a licensee of the Company, the excess of cost over the fair market value of
the net assets acquired is allocated to franchise rights in the balance sheet.
With respect to acquired businesses which are not licensees of the Company,
the excess of cost over the net assets acquired is allocated to goodwill.
Goodwill and franchise rights are amortized over 30 years using the straight-
line method. Such amortization is included in selling, general and
administrative expense in the statement of operations. The Company evaluates
the recoverability of its intangible assets at least annually based on
estimated undiscounted cash flows over the lesser of the remaining
amortization periods or calculated lives, giving consideration to revenue
expected to be realized. This determination is based on an evaluation of such
factors as the occurrence of a significant change in the environment in which
the business operates or the expected future net cash flows (undiscounted and
without interest). There have been no adjustments to the carrying value of
intangible assets resulting from this evaluation.
Revenue recognition
Chauffeured vehicle services--The Company's principal source of revenue is
from chauffeured vehicle services provided by its operating subsidiaries. Such
revenue, net of discounts, is recorded when such services are provided. The
Company, through the Carey International Reservation System ("CIRS"), has a
central reservation system capable of booking reservations on behalf of its
licensees and affiliates. Under most circumstances, central reservations are
billed by the Company to the customer when the Company receives a service
invoice from the licensee or affiliate that provided the service. At such
time, the Company also records the gross revenue for the transaction.
Fees from licensees--The Company charges an initial license fee under its
domestic license agreement and records the fee as revenue on signing of the
agreement. The Company also charges its domestic licensees monthly franchise
and marketing fees equal to stated percentages of monthly revenues, as defined
in the licensing agreement. Monthly fees to domestic licensees are generally
less than 10% of the licensee's monthly revenues. The Company records such
fees as revenues as they are charged to the licensees.
International licensees and the Company's domestic and international
affiliates historically have not paid fees to the Company, but have instead
given a discount on business referred to them through CIRS. Such discounts
reduce the amount of service invoices to the Company from such licensees and
affiliates for services provided to customers whose reservations have been
booked and invoiced centrally by the Company.
Independent operator fees--The Company enters into contracts with
independent operators ("Standard Independent Operator Agreements") to provide
chauffeured vehicle services exclusively to the Company's customers. When
independent operator agreements are executed, the Company defers revenue equal
to the amount of the one--time fees and recognizes the fees as revenue over
the terms of the contracts or over 20 years for perpetual contracts. Upon
termination of an independent operator agreement, the remaining deferred
revenue associated with the specific contract, less any amounts due from the
independent operator deemed uncollectible, is recognized as revenue.
F-18
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes
The provision for income taxes includes income taxes currently payable and
the change during the year in the net deferred tax liabilities or assets.
Deferred income tax liabilities and assets are determined based on the
differences between the financial statement and tax bases of liabilities and
assets using enacted tax rates in effect for the year in which the differences
are expected to reverse. A valuation allowance is provided to reduce the net
deferred tax asset, if any, to a level which, more likely than not, will be
realized.
Pro forma net income per common share
Consistent with Staff Accounting Bulletin IB-2, the Company has recalculated
historical weighted average common shares outstanding and net income per
common share to give effect to the Recapitalization (see Note 17) as if it
occurred at December 1, 1997. The recalculated pro forma net income per common
share is determined by (i) adjusting net income available to common
shareholders to reflect the elimination in interest expense, net of taxes,
resulting from the conversion of $4,867,546 of subordinated debt into common
stock and (ii) increasing the weighted average common shares outstanding by
the number of common shares resulting from the conversion of such debt, as
well as the partial conversion of the Series A Preferred Stock.
Stock-based Compensation
In October 1995, the Financial Accounting Standards Boards issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123") Accounting for Stock-
Based Compensation, which is effective for the Company's financial statements
for the fiscal year ended November 30, 1997. SFAS 123 allows companies to
either account for stock-based compensation under the fair value method of
SFAS 123 or under the provisions of Accounting Principles Board Option No. 25
("APB 25"), Accounting for Stock Issued to Employees. The Company has
continued to apply the provisions of APB 25 and has provided pro forma
disclosure in the notes to the financial statements. (See Note 15)
Foreign operations
The consolidated financial statements include foreign assets, liabilities
and revenues of $5.0 million, $3.6 million and $7.2 million, respectively, as
of November 30, 1997. The consolidated financial statements include foreign
assets, liabilities and revenues of $3.7 million, $2.7 million and $4.6
million, respectively, as of November 30, 1996. The net effects of foreign
currency transactions reflected in operations were immaterial. Assets and
liabilities of the Company's foreign operations are translated into United
States dollars using exchange rates in effect at the balance sheet date and
results of operations items are translated using the average exchange rate
prevailing throughout the period.
Reclassifications
Certain accounts in 1995 and 1996 have been reclassified to conform with the
1997 presentation.
3. FEES FROM LICENSEES
The total of all domestic license fees, franchises fees and marketing fees
earned in each of 1995, 1996 and 1997 was $1,228,472, $2,180,540 and
$2,479,503, respectively. Amounts due from licensees of $143,041 and $130,215
at November 30, 1996 and 1997, respectively, are included in accounts
receivable in the consolidated balance sheets of the Company.
4. TRANSACTIONS WITH INDEPENDENT OPERATORS
The Company recorded approximately $1,130,000, $2,371,000 and $1,815,000 in
1995, 1996 and 1997, respectively, as deferred revenue relating to fees from
new agreements with independents operators. Amounts of
F-19
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
deferred revenue recognized as revenues in 1995, 1996 and 1997 amounted to
approximately $889,000, $936,000 and $923,000, respectively.
Notes receivable from contracts include approximately $917,000 and
$8,605,000 at November 30, 1996 and 1997, respectively, for amounts due from
independent operators and approximately $255,000 and $229,000 at November 30,
1996 and 1997, respectively, for amounts due from a related party financing
company (see Note 11).
In the normal course of business, the Company's independent operators are
responsible for financing their own vehicles through third parties. From time
to time, the Company has arranged lease and purchase financing for certain
vehicles and has in turn leased back such vehicles to independent operators on
terms and conditions similar to those under which the Company is obligated
(see Note 5).
5. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1996 1997
---------- -----------
<S> <C> <C>
Vehicles............................................. $5,026,897 $ 5,586,060
Equipment............................................ 2,303,348 3,039,845
Software development costs........................... 1,448,593 2,658,257
Furniture............................................ 749,840 1,057,644
Leasehold improvements............................... 419,232 469,999
Land and building.................................... 529,634 1,582,406
---------- -----------
10,477,544 14,394,211
Less accumulated depreciation and amortization....... 4,687,153 5,115,892
---------- -----------
Net fixed assets..................................... $5,790,391 $ 9,278,319
========== ===========
</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,
----------------------
1996 1997
---------- -----------
<S> <C> <C>
Equipment............................................ $1,048,633 $ 731,720
Vehicles............................................. 621,420 1,449,687
---------- -----------
1,670,053 2,181,407
Less accumulated amortization........................ 561,871 505,091
---------- -----------
$1,108,182 $ 1,676,316
========== ===========
</TABLE>
F-20
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Senior credit facility with three banks, dated August
15, 1997, consisting of a secured revolving line of
credit of $25.0 million (the Facility). The Facility,
which may be used for acquisitions and working capital,
is collateralized by the assets of the Company, the
assets and stock of certain of its domestic
subsidiaries, and a pledge of the stock of its
international subsidiary. The Facility also provides
availability for the issuance of letters of credit.
Loans made under the revolving line bear interest at
the Company's option at either the bank's prime lending
rate (8.5% at November 30, 1997) or 2% above the LIBOR
rate. Commitment fees equal to 0.375% per annum are
payable on the unused portion of the revolving line of
credit. On the second anniversary of the Facility,
outstanding balances under the Facility will convert to
a five-year term loan, which will bear interest either
at a fixed rate (subject to availability) or at a
variable LIBOR or prime-based rate with adjustments
determined based on the Company's earnings............. $ -- $1,322,053
Bank revolving credit/term loan dated April 13, 1995,
modified December 1, 1996. Collateralized by accounts
receivable of the Company and the pledge of common
stock of the Company's U.S. subsidiaries. Interest only
was payable until June 30, 1996; beginning July 1,
1996, quarterly principal payments required in an
amount sufficient to amortize the outstanding balance
over a four-year period. Interest payable monthly at a
floating rate based on the Wall Street Journal prime
plus 1.25%. This loan was guaranteed by the Chairman of
the Board and the President of the Company............. 3,937,500 --
Note payable dated September 1, 1991, at an annual rate
of interest of 7.74%, collateralized by the assets of
Carey Licensing, Inc. Pursuant to an agreement with the
lender effective November 30, 1996, principal payments
of $220,000 were due quarterly from December 31, 1996
through December 31, 1997 and a final principal payment
of $240,000 due March 1, 1998.......................... 1,340,000 --
Bank line of credit of $1,000,000, dated October 17,
1994, collateralized by accounts receivable of Carey NY
and assignment of license agreement between the Company
and Carey NY; due April 30, 1997. Interest was payable
monthly at a variable interest rate of .75% above the
bank's prime rate...................................... 990,000 --
Various installment notes payable, with interest rates
ranging from 8.75% to 14.5%, collateralized by certain
vehicles and equipment of the Company's subsidiaries;
principal and interest are payable monthly over 36-
month terms............................................ 555,834 287,641
Notes payable to bank, dated March 26, 1996, at the
prime rate (8.0% at November 30, 1997) plus 1.0% per
annum and matures on January 31, 1998. The notes are
collateralized by substantially all Carey Limousine In-
diana, Inc.'s assets. Under the terms of the agreement,
Carey Limousine Indiana, Inc. is subject to various
general covenants...................................... 497,582 928,174
</TABLE>
F-21
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Discretionary credit agreement with a bank that allows
the Company to purchase revenue earning vehicles un-
der installment notes. Separate notes are required
for each vehicle purchase with a maximum term of
thirty-six months. These notes bear interest at rates
ranging from 8.9% to 11.0% The notes were collateral-
ized by Indy Connection's accounts receivable, inven-
tory and equipment and were subject to various re-
strictive covenants. The agreement was subsequently
renegotiated at similar terms........................ 411,402 --
Two notes payable to bank, with interest at a fixed
rate of 9.25% and 48 and 84 month terms, respective-
ly. The notes require monthly principal and interest
payments of $4,413. The notes are collateralized by
vehicles. The agreement subjects Carey Limousine In-
diana, Inc. to various general covenants ........... 363,705 429,911
Installment notes payable to sellers under acquisition
agreements dated various dates from September 30,
1993 to September 8, 1995. Interest rates range from
7.5% to 8.5% Interest is generally payable monthly.
Principal is payable in varying installments......... 1,422,240 406,873
Notes payable to banks, with various dates, payable in
monthly installments. Interest rates were determined
on the banks' prime rate of interest................. 853,770 --
Note payable to bank, dated October 17, 1994, collat-
eralized by accounts receivable and fixed assets of
Carey NY. Principal and interest payments of $2,848
were payable monthly. Interest rate was fixed at
9.25%................................................ 149,001 --
Bank lines of credit of $950,000, dated February 26,
1996, collateralized by accounts receivable of Carey
Licensing, Inc. and Carey FLA; due March 31, 1997.
Interest was payable monthly at 1% above the Wall
Street Journal's "Prime Rate"........................ 950,000 --
Note payable to bank, dated May 10, 1996, collateral-
ized by the land and building held by Carey DC;
monthly payments of $3,863 of principal and interest
are due through April 10, 2001 and a balloon payment
of $375,468 on May 10, 2001. Interest fixed at
8.75%................................................ 423,179 413,945
----------- -----------
Total notes payable................................... 11,894,213 3,788,597
Less current installments............................. 5,858,249 996,575
----------- -----------
Long-term portion..................................... $ 6,035,964 $ 2,792,022
=========== ===========
</TABLE>
F-22
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------
1996 1997
----------- ----
<S> <C> <C>
Subordinated convertible note, dated September 1, 1991, with
the principal of $2,000,000 was due on August 30, 2000; in-
terest payable quarterly at a fixed rate of 7.74%. After Sep-
tember 1, 1992, this debt is convertible into shares of com-
mon stock of the Company at the discretion of the holder at a
conversion price of $6.14. A warrant for the purchase of
86,003 shares of common stock of the Company was issued in
connection with the note. The warrant is exercisable immedi-
ately, expires at the earlier of the third anniversary of an
initial public offering or November 30, 2001, and has an ex-
ercise price of $4.65 per share and remains outstanding. The
note contains certain antidilutive provisions which lower its
conversion price in the event dilutive securities are subse-
quently issued by the Company at prices below the note's con-
version price. The warrant has not been exercised. The terms
of the agreement have been modified as part of the "Recapi-
talization" (see Notes 15 and 17)............................ $ 2,000,000 $--
Subordinated note dated July 30, 1992, interest only payable
quarterly until September 30, 1995. The interest rate was
fixed at 12%. Principal of $220,000 was paid on September 30,
1995. Pursuant to an agreement with the lender effective No-
vember 30, 1996, principal payments of $220,000 are due from
June 30, 1997 until December 31, 1997; an installment of
principal of $880,000 is due March 31, 1998; and a final pay-
ment of principal of $2,240,000 is due June 30, 1998. A war-
rant for the purchase of 616,544 shares of Class A common
stock or common stock was issued in connection with the note
and was exercised as part of the Recapitalization. The terms
of the agreement have been modified as part of the "Recapi-
talization" (see Note 17).................................... 3,780,000 --
----------- ----
Total subordinated notes payable.............................. 5,780,000 --
Less current installments..................................... 440,000 --
----------- ----
Subordinated notes payable, excluding current installments.... $ 5,340,000 $--
=========== ====
</TABLE>
Future annual principal payments on all notes payable at November 30, 1997
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING NOVEMBER 30:
------------------------
<S> <C>
1998............................................................ $ 996,575
1999............................................................ 622,986
2000............................................................ 522,795
2001............................................................ 855,679
2002............................................................ 303,253
2003 and thereafter............................................. 487,309
----------
$3,788,597
==========
</TABLE>
Certain loan agreements contain restrictive covenants which include
financial ratios related to working capital, debt service coverage, debt to
net worth and maintenance of a minimum tangible net worth, and submission of
audited financial statements, prepared in accordance with generally accepted
accounting principles. Additionally, these covenants restrict the Company's
capital expenditures and prohibit the payment of dividends on the Company's
common and preferred stock, except for the Series E preferred stock and Indy
Connection preferred stock.
The carrying value of notes payable approximates the current value of the
notes payable at November 30, 1997. Interest paid during the years ended
November 30, 1995, 1996, and 1997 was approximately $1,878,000, $1,883,000 and
$1,274,000, respectively.
F-23
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. LEASES
The Company has several noncancelable operating leases, primarily for office
space and equipment, that expire over the next five years. Certain of the
Company's facilities are under operating leases which provide for rent
adjustments based on increases of defined indexes, such as the Consumer Price
Index. These agreements also typically include renewal options.
Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments as of November 30, 1997
are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING NOVEMBER 30 LEASES LEASES
- ----------------------- ---------- ----------
<S> <C> <C>
1998.................................................... $ 483,421 $1,336,517
1999.................................................... 609,284 1,004,736
2000.................................................... 822,155 695,832
2001.................................................... 149,889 422,114
Thereafter.............................................. 271 33,844
---------- ----------
Total minimum lease payments............................ 2,065,020 $3,493,043
==========
Less estimated executory costs.......................... 32,003
----------
2,033,017
Less amount representing interest (at rates ranging from
9% to 12%)............................................. 371,386
----------
Present value of net minimum capital lease payments..... 1,661,631
Less current portion of obligations under capital
leases................................................. 321,965
----------
Obligations under capital leases, excluding current por-
tion................................................... $1,339,666
==========
</TABLE>
During the years ended November 30, 1995, 1996 and 1997 the Company
recognized $508,724, $252,355 and $278,218, respectively, of sublease rental
revenue under vehicle sublease arrangements with independent operators and
others.
During the years ended November 30, 1995, 1996 and 1997, the Company entered
into capital lease obligations of $346,666, $810,993 and $875,187,
respectively, related to the acquisition of vehicles and equipment.
Total rental expense for operating leases in 1995, 1996 and 1997 was
$1,362,518, $2,250,335 and $2,103,037, respectively.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Included in accounts payable and accrued expenses are the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Trade accounts payable................................. $ 5,385,328 $ 9,547,571
Accrued expenses and other liabilities................. 4,895,495 6,974,808
Gratuities payable..................................... 458,801 531,702
Accrued offering costs................................. 825,339 --
----------- -----------
$11,564,963 $17,054,081
=========== ===========
</TABLE>
F-24
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------------
1995 1996 1997
-------- ----------- ----------
<S> <C> <C> <C>
Federal:
Current................................... $139,401 $ 1,368,311 $1,967,356
Deferred.................................. 87,000 (1,197,799) 794,593
-------- ----------- ----------
226,401 170,512 2,761,949
-------- ----------- ----------
State and local:
Current................................... 29,198 128,296 253,896
Deferred.................................. 15,000 (148,758) 5,057
-------- ----------- ----------
44,198 (20,462) 258,953
-------- ----------- ----------
Foreign
Current................................... -- 144,371 141,380
-------- ----------- ----------
Total income tax provision.................. $270,599 $ 294,421 $3,162,282
======== =========== ==========
</TABLE>
The Company's tax provision for the years ended November 30, 1995, 1996 and
1997, respectively, differs from the statutory rate for federal income taxes
as a result of the tax effect of the following factors:
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory rate.................................. 34.0% 34.0% 34.0%
State income tax, net of federal benefit........ 7.2 (1.5) 3.4
Goodwill amortization........................... 6.0 .6 1.0
Non-deductible life insurance................... 10.9 .3 .4
Meals and entertainment expenses................ 16.9 1.1 .6
Valuation allowance............................. (13.0) (27.6) --
Other........................................... 11.4 .9 1.7
-------- -------- -------
73.4% 7.8% 41.1%
======== ======== =======
</TABLE>
F-25
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The source and tax effects of temporary differences are composed of the
following:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------
1996 1997
----------- ----------
<S> <C> <C>
Allowances for bad debts............................ $ 176,000 $ 208,000
Acquired net operating losses....................... -- 1,500,000
Capital loss carryforward........................... 74,000 74,000
Deferred revenue.................................... 2,040,000 2,360,000
Deferred state taxes and other...................... 558,000 259,000
----------- ----------
Gross deferred tax assets........................... 2,848,000 4,401,000
Valuation allowance................................. (74,000) (1,574,000)
----------- ----------
2,774,000 2,827,000
----------- ----------
Amortization of intangible assets................... (1,350,000) (1,600,000)
Software development costs.......................... (53,000) (493,000)
Other............................................... (109,000) (24,000)
----------- ----------
Gross deferred tax liabilities...................... (1,512,000) (2,117,000)
----------- ----------
Net deferred tax assets............................. $ 1,262,000 $ 710,000
=========== ==========
</TABLE>
A valuation allowance was provided in 1995 to reduce the net deferred tax
asset to $0. In the fourth quarter of 1996, the Company concluded that it was
more likely than not that substantially all of the deferred tax assets would
be realized and reduced the valuation allowance by $1,499,000.
In 1997, the Company acquired net operating loss carryforwards on which a
full valuation allowance has been provided. As the Company utilizes these net
operating loss carryforwards, the benefit will be offset against acquired
goodwill. In 1997, the Company utilized $115,000 of the acquired net operating
loss carryforwards.
Income taxes paid during the years ended November 30, 1995, 1996 and 1997
amounted to approximately $187,000, $616,000, and $2,021,000, respectively.
F-26
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PREFERRED STOCK
The Company had the following series of preferred stock:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------
1996 1997
---------- -----
<S> <C> <C>
Series A, par value $10.00, authorized 43,000 shares,
issued and outstanding 42,070 shares, at November 30,
1996 (none at November 30, 1997) (liquidation preference
of $4,207,000, redeemable at option of the Company). Non-
cumulative dividend of $7.00 per annum when declared by
the Board of Directors................................... $ 420,700 $ --
Series B, par value $10.00, authorized 10,000 shares,
issued and outstanding 9,580 shares, at November 30, 1996
(none at November 30, 1997) (liquidation preference of
$958,000). Non-cumulative dividend of $5.00 per annum
when declared by the Board of Directors.................. 95,800 --
Series F, par value $10.00, authorized 10,000 shares,
issued and outstanding 10,000 shares, at November 30,
1996 (none at November 30, 1997) (liquidation preference
of $1,000,000). Non-cumulative dividend of $5.00 per
annum when declared by the Board of Directors............ 100,000 --
Series G, par value $10.00, authorized 110,000 shares,
issued and outstanding 49,890 shares, at November 30,
1996 (none at November 30, 1997) (liquidation preference
of $4,989,900). Non-cumulative dividend of $5.00 per
annum when declared by the Board of Directors............ 498,900 --
---------- -----
$1,115,400 $ --
========== =====
</TABLE>
See Note 17 for discussion of the Recapitalization, pursuant to which all of
the preferred stock was redeemed or converted into common stock.
11. RELATED-PARTY TRANSACTIONS
The Company has invested $750,000 in non-voting redeemable preferred stock
of a privately-held finance company formed for the purpose of providing
financing to the chauffeured vehicle service industry. This entity provides
financing to the Company's independent operators, without recourse to the
Company, for both automobiles and amounts due under independent operator
agreements. The Company sold $1,762,345 and $1,015,897 of independent operator
notes receivable to this related-party finance company for cash of $1,290,899
and $733,793 and demand promissory notes of $471,446 and $282,104 in 1995 and
1996, respectively. The unpaid balances of the promissory notes were $255,664
and $229,329 at November 30, 1996 and 1997, respectively, and are included in
notes receivable from contracts. These promissory notes are due on demand and,
generally, monthly principal payments are received by the Company. These notes
generally bear interest at rates of 7% to 10%.
It is not practicable to estimate the fair value of a preferred stock
investment in a privately-held company. As a result; the Company's investment
in the privately-held finance company noted above is carried at its original
cost (less redemptions) of $750,000. At April 30, 1997, the total assets
reported by the privately-held company were $10,075,613 and stockholders'
equity was $1,244,857, revenues were $1,442,344 and net income was $136,409.
F-27
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to a stock ownership agreement between the common stockholders of
the related party finance company and the Company, the Company has an
exclusive option to purchase all of the outstanding common stock of the
affiliate at a purchase price equal to the greater of $187,500 or the related
finance company's liquidating value as determined by an independent appraisal.
The option is not exercisable until April 15, 1998.
12. COMMITMENTS AND CONTINGENCIES
The Company, certain of the Company's subsidiaries and certain officers and
directors of the Company were named in a civil action filed on May 16, 1996 in
the United States District Court for the Eastern District of Pennsylvania
entitled "Felix v. Carey International, Inc., et al." The Company has reached
a final settlement with the plaintiff and plaintiff's counsel. The settlement
did not have a material effect on the Company's business, financial condition,
results of operations or cash flows.
13. ACQUISITIONS
Effective October 31, 1997, the Company issued 721,783 shares of its common
stock in exchange for all the outstanding common stock of Indy Connection
based on a conversion ratio of 1.008 shares (the merger exchange ratio) of the
Company's common stock for each share of Indy Connection common stock, for a
total value of approximately $12.0 million. The merger qualified as a tax-free
reorganization and has been accounted for as a pooling-of-interests.
Accordingly, the Company's consolidated financial statements have been
restated for all periods prior to the business combination to include the
combined financial results of Carey International, Inc. and Indy Connection
(See Note 2).
Revenue, net and net income (loss) for the individual companies reported
prior to the merger are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenue, net:
Carey International, Inc............... $43,483,947 $59,505,698 $79,477,393
Indy Connection........................ 5,485,448 6,080,105 6,969,779
Elimination............................ -- (40,861) (68,859)
----------- ----------- -----------
Total................................ $48,969,395 $65,544,942 $86,378,313
=========== =========== ===========
Net income (loss):
Carey International, Inc............... $ (195,195) $ 2,816,104 $ 3,567,053
Indy Connection........................ 293,316 678,863 956,437
----------- ----------- -----------
Total................................ $ 98,121 $ 3,494,967 $ 4,523,490
=========== =========== ===========
</TABLE>
Conforming the accounting practices of the Company and Indy Connection
resulted in no adjustments to net income (loss) or stockholders' equity.
The Company estimates that transaction costs associated with the merger will
be approximately $200,000. All fees and transaction expenses related to the
merger and the restructuring of the combined companies will be expensed as
required under the pooling-of-interests accounting method.
In October 1997, the Company acquired the stock of Commonwealth Limousine
Services, Ltd. ("Commonwealth"). The Company is in the process of combining
Commonwealth's operations with the existing Los Angeles operations.
F-28
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In March 1997, the Company entered into an agreement to purchase the stock
of Manhattan International Limousine Network Ltd. and an affiliated company
(collectively, "Manhattan Limousine"). Manhattan Limousine is one of the
largest providers of chauffeured vehicle services in the New York metropolitan
area. The Company consummated the acquisition at the time of the IPO.
In February 1996, the Company acquired all of the outstanding stock of a
chauffeured vehicle service company in London, England. As of November 30,
1997, approximately $275,000 of additional contingent consideration may be
payable based on the level of revenues referred to the acquired company by the
seller. In addition, the Company is required to pay a standard commission to
the seller of the acquired chauffeured vehicle service company for business
referral, which is expensed as incurred.
In April 1995, the Company acquired certain assets and liabilities of a
chauffeured vehicle service company in the Washington, DC area and combined
the acquired operations with those of Carey DC.
In January 1995, the Company acquired certain assets and liabilities of the
Carey licensee in San Francisco, California (Carey SF). Subsequently, the
Company acquired the business of two additional chauffeured service companies
(in May and August 1995) and combined the acquired operations with those of
Carey SF.
All acquisitions have been accounted for as purchases (except for the
pooling as described above). The net assets acquired and results of operations
have been included in the financial statements as of and from, respectively,
the effective dates of the acquisitions. The total consideration was allocated
to the assets acquired based upon their estimated fair values with any
remaining considerations allocated to either franchise rights or goodwill, as
follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------------------
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
NET ASSETS PURCHASED
Receivables and other assets............... $ -- $ 632,554 $ 324,964
Notes from contracts..................... -- -- 6,599,459
Fixed assets............................. 1,703,521 928,377 1,800,441
Franchise rights......................... 1,527,402 89,243 --
Goodwill................................. 5,013,731 447,269 24,480,299
Accounts payable and accrued expenses.... -- (367,211) (5,796,692)
Deferred revenue......................... -- -- (6,648,960)
---------- ---------- -----------
Fair value of assets acquired............ $8,244,654 $1,730,232 $20,759,511
========== ========== ===========
CONSIDERATION:
Cash (exclusive of $223,695 and $274,855
cash acquired in 1996 and 1997
respectively)........................... $3,949,393 $1,730,232 $ 8,396,017
Capital leases assumed related to vehicle
acquisitions............................ 346,666 -- 161,549
Notes assumed related to vehicle
acquisitions............................ 895,571 -- 3,061,945
Uncollateralized promissory notes issued
to sellers.............................. 3,053,024 -- 5,740,000
Common stock............................. -- -- 3,400,000
---------- ---------- -----------
Total consideration.................... $8,244,654 $1,730,232 $20,759,511
========== ========== ===========
</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 $315,773, $291,755 and
$610,872 for the years ended November 30, 1995, 1996 and 1997, respectively,
as contingent consideration which is reflected in the table above.
F-29
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Of the total uncollateralized promissory notes issued to sellers in 1995,
two notes totaling $303,000 were subject to reduction based upon the results
of the acquired entities (see Note 6). The two notes were repaid in 1996 for
approximately $211,000 and the difference of approximately $92,000 reduced
recorded goodwill.
The unaudited pro forma summary consolidated results of operations assuming
the acquisitions accounted for as purchases had occurred for the purposes of
the 1996 summary at the beginning of fiscal 1996, and for the purposes of the
1997 summary at the beginning of fiscal 1997, are as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Revenue, net.................................... $ 86,630,000 $ 97,870,000
Cost of revenue................................. (56,547,000) (64,927,000)
Other expense, net.............................. (24,872,000) (24,825,000)
Provision for income taxes...................... (778,000) (3,348,000)
------------ ------------
Net income...................................... $ 4,433,000 $ 4,770,000
============ ============
Pro forma net income per common share--basic.... $ 2.68 $ 1.02
============ ============
Pro forma net income per common share--diluted.. $ 1.17 $ 0.78
============ ============
Pro forma weighted average common shares
outstanding used in computing pro forma net
income per common share--basic................. 1,651,192 4,674,217
============ ============
Pro forma weighted average common shares
outstanding used in computing pro forma net
income per common share--diluted............... 4,086,357 6,305,527
============ ============
</TABLE>
14. 401 (K) PLAN
The Company sponsors a defined contribution plan established pursuant to
Section 401 (k) of the Internal Revenue Code for the benefit of employees of
the Company. The Company made $0, $0, and $60,162 in contributions in 1995,
1996 and 1997, respectively.
15. STOCK OPTION PLANS
On December 1, 1987, the Company established a Stock Option Plan (the "1987
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1987 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option price
and the manner in which payment of the option price shall be made. The 1987
Plan provides for the options to be exercised 25% each year beginning after
the year following the grant. The options are exercisable for a period of ten
years after grant date. The total number of shares authorized to be issued
under the 1987 Plan is 195,656.
On July 28, 1992, the Company established a Stock Option Plan (the "1992
Plan") that included all officers and key employees of the Company, non-
employee directors of the Company, and certain persons retained by the Company
as consultants. In accordance with the 1992 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option
price, the time or times during the exercise period at which each such option
shall become exercisable, and the manner in which payment of the option price
shall be made. The options are exercisable for a period of ten years after
grant date. The total number of shares authorized to be issued under the 1992
plan is 388,647.
On February 25, 1997, the Company established a Stock Option Plan (the "1997
Plan") that included all officers and key employees of the Company, non-
employee directors, and certain persons retained by the Company as
consultants. In accordance with the 1997 Plan, the Company's Board of
Directors may, from time to time, determine the persons to whom the stock
options are to be granted, the number of shares under option, the option
price, the time or times during the exercise period at which each such option
shall become exercisable,
F-30
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and the manner in which payment of the option price shall be made. The options
are exercisable for a period of ten years after grant date. The total number
of shares authorized to be issued under the 1997 Plan is 650,000.
On February 25, 1997, the Board of Directors, subject to stockholder
approval, adopted the Stock Plan for Non-Employee Directors (the "Directors'
Plan"). A total of 100,000 shares of common stock of the Company are reserved
for issuance under the Directors' Plan. Options to purchase at the IPO price a
total of 30,000 shares of common stock were granted under the Directors' Plan,
such grants to be effective upon and vest six months from execution of an
underwriting agreement in connection with the IPO.
Stock activity under the 1987 Plan, the 1992 Plan and the 1997 Plan is as
follows:
<TABLE>
<CAPTION>
1987 PLAN 1992 PLAN 1997 PLAN/DIRECTORS' PLAN
--------------------- --------------------- --------------------------
OPTION PRICE OPTION PRICE OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
------- ------------ ------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 1,
1994................... 64,502 $ 1.44 383,247 $ 4.65
Granted................. -- -- 21,673 4.65
Exercised............... (32,681) 1.44 -- --
Forfeited............... (860) 1.44 (60,985) 4.65
------- ----------- ------- ------
Balance, November 30,
1995................... 30,961 1.44 343,935 4.65
Granted................. 38,701 4.65 43,578 4.65
Forfeited............... -- -- (3,011) 4.65
------- ----------- ------- ------
Balance, November 30,
1996................... 69,662 1.44-4.65 384,502 4.65
Granted................. -- -- -- -- 505,389 $ 10.50-15.75
Exercised............... (12,042) 1.44 (3,167) 4.65 -- --
------- ----------- ------- ------ ---------- ---------------
Balance, November 30,
1997................... 57,620 $ 1.44-4.65 381,335 $ 4.65 505,389 $ 10.50-15.75
======= =========== ======= ====== ========== ===============
Vested and exercisable
at November 30, 1997... 40,421 $1.44-$4.65 335,530 $ 4.65 200,000 $ 10.50
======= =========== ======= ====== ========== ===============
</TABLE>
Information with respect to stock options outstanding at November 30, 1997
is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER REMAINING
PRICE OF OPTIONS CONTRACTUAL LIFE
---------------------------------------------------------------------------------
<S> <C> <C>
$ 1.44 18,919 0.1
$ 4.65 420,036 5.7
$10.50 431,500 9.5
$14.00 15,000 9.6
$15.00 50,000 9.8
$15.75 8,889 9.8
---------------------------------------------------------------------------------
944,344 7.6
---------------------------------------------------------------------------------
</TABLE>
F-31
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
YEAR OF OPTION OF EXERCISE
EXPIRATION OPTIONS PRICE PRICE RANGE
-------------- ------- -------- --------------
<S> <C> <C> <C>
1998....................................... 18,920 $ 1.44 $ 1.44
2002....................................... 270,503 $ 4.65 $ 4.65
2003....................................... 33,541 $ 4.65 $ 4.65
2004....................................... 12,685 $ 4.65 $ 4.65
2005....................................... 21,672 $ 4.65 $ 4.65
2006....................................... 81,634 $ 4.65 $ 4.65
2007....................................... 505,389 $11.14 $10.50--$15.75
------- ------ --------------
All Years.................................. 944,344 $ 8.06 $ 1.44--$15.75
======= ====== ==============
</TABLE>
In May of 1996, the options granted under the 1992 Plan and a warrant to
purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65.
The options and warrant were repriced at the determined fair market value as
of the date of repricing (see Note 18).
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation costs for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards in 1996 and 1997 under those plans
consistent with the recognition method of FASB Statement No. 123, the
Company's net income and income per share would have been reduced to the pro
forma amounts presented below:
<TABLE>
<CAPTION>
1996 1997
------- -------
(DOLLARS IN
THOUSANDS,
EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net income...................................... As reported $ 3,495 $ 4,523
Pro forma 3,482 4,320
Net income per common share--basic.............. As reported $ 2.57 $ 1.00
Pro forma 2.56 0.96
Net income per common share--diluted............ As reported $ 1.01 $ 0.77
Pro forma 1.01 0.73
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Expected life (years).......................................... 6 6
Interest rate.................................................. 6.63% 6.66%
Volatility..................................................... 40.0 40.0
Dividend yield................................................. 0.00% 0.00%
Weighted average fair value.................................... $2.31 $5.56
</TABLE>
16. NET INCOME PER COMMON SHARE
For the quarter ended February 28, 1998, the Company adopted SFAS No. 128,
Earnings Per Share. Basic net income per common share has been computed by
dividing net income by the weighted average number of common shares
outstanding during the period. Diluted net income per common share has been
computed by dividing net income by the weighted average number of common
shares outstanding plus an assumed increase in common shares outstanding for
dilutive securities. Dilutive securities consist of convertible securities
which are dilutive, preferred stock, and options and warrants to acquire
common stock for a specified price and for which the dilutive effect is
measured using the treasury method. Net income per common share amounts for
all periods presented have been restated to conform to SFAS No. 128.
F-32
<PAGE>
CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net income per common share, on a historical basis, is as follows:
<TABLE>
<CAPTION>
RESTATEMENT OF THE YEAR ENDED
NOVEMBER 30,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income................................. $ 98,121 $3,494,967 $4,523,490
Preferred stock dividends.................. (4,375) (900) --
---------- ---------- ----------
Net income available to common
stockholders.............................. 93,746 3,494,067 4,523,490
Effect of conversion of subordinated debt.. -- 352,872 176,436
---------- ---------- ----------
Net income available to common stockholders
plus effect of conversions................ $ 93,746 $3,846,939 $4,699,926
========== ========== ==========
Weighted average common shares
outstanding--basic........................ 1,332,878 1,359,126 4,506,108
Dilutive effect of:
Stock options............................. 11,789 21,373 288,078
Warrants.................................. -- -- 73,550
Convertible preferred stock:
Series B preferred stock................. 663,761 663,761 334,609
Series F preferred stock................. 135,025 135,025 68,067
Series G preferred stock................. 673,638 673,638 339,588
Effect of conversion of subordinated
debt..................................... -- 941,368 527,418
---------- ---------- ----------
Weighted average common shares
outstanding--diluted...................... 2,817,091 3,794,291 6,137,418
========== ========== ==========
Net income per share--basic................ $ 0.07 $ 2.57 $ 1.00
========== ========== ==========
Net income per share--diluted.............. $ 0.03 $ 1.01 $ 0.77
========== ========== ==========
</TABLE>
17. RECAPITALIZATION PLAN
On February 25, 1997, pursuant to an agreement reached in May 1996, the
Board of Directors authorized a recapitalization plan ("Recapitalization"),
which was implemented at the time of the IPO. Under the Recapitalization, the
$2,000,000 subordinated convertible note dated September 1, 1991 and the
$3,780,000 subordinated note dated July 30, 1992 were converted or exchanged
for 1,046,559 shares of common stock and payment of $912,452. The Series A
preferred stock was converted into 86,003 shares of common stock and redeemed
in part for $2,103,500. All of the Series F preferred stock and 3,000 shares
of Series G preferred stock was redeemed for an aggregate of $1,000,000. The
remaining preferred stock was converted into 1,427,509 shares of common stock.
As a result of the Recapitalization, preferred stock which had a liquidation
preference of $11,154,900 and subordinated debt with a principal amount of
$5,780,000 was converted in part into 2,560,071 shares of common stock and
repaid or redeemed in part for $4,015,952 in cash. All of the cash amounts
were paid out of the proceeds of the IPO.
F-33
<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-34
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
1996 1997
------------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents........................... $ 130,494 $ 77,275
Accounts receivable, net of allowances for doubtful
accounts of $181,000 and $194,000, respectively.... 2,466,134 1,781,923
Receivables from independent operators, current por-
tion............................................... 271,086 368,335
Prepaid expenses and other current assets........... 51,499 51,499
----------- -----------
Total current assets............................. 2,919,213 2,279,032
Fixed assets, net................................... 805,724 644,264
Receivables from independent operators, less current
portion............................................ 7,375,219 7,638,554
Other assets........................................ 1,221,885 1,282,872
----------- -----------
Total assets........................................ $12,322,041 $11,844,722
=========== ===========
<CAPTION>
LIABILITIES
<S> <C> <C>
Current portion of notes payable.................... $ 1,232,457 $ 1,958,293
Accounts payable, trade............................. 1,520,295 1,526,330
Accounts payable, independent operators............. 1,738,072 1,809,248
Accrued expenses.................................... 529,761 456,233
Other current liabilities........................... 240,059 232,002
----------- -----------
Total current liabilities........................ 5,260,644 5,982,106
Notes payable, less current portion................. 4,523,171 3,266,567
Other liabilities................................... 862,875 783,491
Deferred revenue.................................... 6,801,965 6,940,762
Commitments and contingencies
<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) (5,477,392)
ILN............................................... 134,419 171,148
----------- -----------
Total stockholders' deficiency................... (5,126,614) (5,128,204)
----------- -----------
Total liabilities and stockholders' deficiency... $12,322,041 $11,844,722
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-35
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
FOR THE SEVEN
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, APRIL 30,
1996 1997
------------------ -------------
(UNAUDITED)
<S> <C> <C>
Revenues:
Service revenues, net....................... $17,218,728 $10,819,794
Interest from independent operator financ-
ing........................................ 1,219,819 690,700
----------- -----------
Total revenues.............................. 18,438,547 11,510,494
Cost of revenues.............................. 11,040,017 7,011,225
----------- -----------
Gross profit................................ 7,398,530 4,499,269
Selling, general and administrative expenses.. 5,821,899 3,536,845
----------- -----------
Operating income............................ 1,576,631 962,424
Interest expense.............................. (881,854) (575,937)
Interest income............................... 66,000 16,500
----------- -----------
Income before provision for income taxes.... 760,777 402,987
Provision for income taxes.................... 55,014 37,839
----------- -----------
Net income.................................. 705,763 365,148
Accumulated deficit, beginning of period...... (5,907,417) (5,304,654)
Distribution to S corporation stockholder..... (103,000) (366,738)
----------- -----------
Accumulated deficit, end of period............ ($5,304,654) ($5,306,244)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-36
<PAGE>
MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SEVEN
FOR THE YEAR ENDED MONTHS ENDED
SEPTEMBER 30, 1996 APRIL 30, 1997
------------------ --------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................. $705,763 $ 365,148
Adjustments necessary to reconcile net
income
to net cash provided by operating
activities:
Depreciation and amortization.............. 258,439 164,823
Change in deferred revenue................. (279,625) 138,797
Changes in operating assets and
liabilities:
Accounts receivable....................... (377,793) 684,211
Receivables from independent operators.... 139,363 (360,584)
Other assets.............................. (103,240) (60,987)
Accounts payable and accrued expenses..... (152,519) (67,493)
Accounts payable, independent operators... 293,731 71,176
Other liabilities......................... (193,582) (87,441)
-------- ---------
Net cash provided by operating
activities.............................. 290,537 847,650
-------- ---------
Cash flows from investing activities:
Purchases of fixed assets................... (256,248) (3,363)
-------- ---------
Net cash used in investing activities.... (256,248) (3,363)
-------- ---------
Cash flows from financing activities:
Proceeds from advances from officer of com-
pany....................................... -- 224,093
Net borrowings (payments) on line of
credit..................................... 261,802 (595,361)
Proceeds from borrowings under notes
payable.................................... 310,000 800,000
Principal payments on notes payable......... (412,643) (959,500)
Distribution to S corporation stockholder... (103,000) (366,738)
-------- ---------
Net cash provided by (used in) financing
activities.............................. 56,159 (897,506)
-------- ---------
Net change in cash and cash equivalents...... 90,448 (53,219)
Cash and cash equivalents, beginning of
period...................................... 40,046 130,494
-------- ---------
Cash and cash equivalents, end of period..... $130,494 $ 77,275
======== =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-37
<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-38
<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-39
<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 seven-month period ended
April 30, 1997 are unaudited. In the opinion of management, those unaudited
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present the financial statements on a
basis substantially consistent with the annual audited financial statements
contained herein. All disclosures herein related to April 30, 1997 and for the
seven-month period ended April 30, 1997 are unaudited.
3. TRANSACTIONS WITH INDEPENDENT OPERATORS
At the time the Company enters into an agreement with an independent
operator, the Company is entitled to receive a one-time fee. Those fees are
typically financed by the Company over 20 years at an interest rate of 15.75%
per annum. Independent operator fees are recognized as revenue ratably over
the terms of the agreements. In the opinion of management, the carrying value
of the loans approximates their fair value. Revenue recognized from
independent operator fees was $514,632 and $288,787 for the year ended
September 30, 1996 and for the seven-month period ended April 30, 1997,
respectively.
The Company's independent operators are responsible for financing their own
vehicles through third parties. Under programs the Company has established
with several automotive leasing organizations, the Company guarantees lease
payments until the independent operator has made twelve monthly lease
payments. As of September 30, 1996, the Company's independent operators had
aggregate lease obligations of $2,203,158 under these programs.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
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 3,528,792
---------- ----------
Net fixed assets.................................... $ 805,724 $ 644,264
========== ==========
</TABLE>
Depreciation expense was $258,439 and $164,823 for the year ended September
30, 1996 and for the seven-month period ended April 30, 1997, respectively.
F-40
<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, APRIL 30,
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 $1,269,606
First mortgage note on headquarters premises dated April
12, 1989, original principal of $1,200,000, subject to
fixed monthly installments of principal, and interest at
a rate of 14.75%......................................... 310,000 --
First mortgage note on headquarters premises dated January 17,
1997, original principal of $800,000, interest at 10.75%
for the first year, after which rate becomes variable at
prime plus 2.5%. Interest and principal payments due
monthly based on 15-year amortization, with balloon
payment due on fifth anniversary......................... -- 770,000
Various installment notes payable with interest rates
ranging from 10.75% to 14.75%, and collateralized by
certain independent operator agreements and receivables
from independent operators of the Company. Principal and
interest payments are due monthly over 60-month terms.... 3,228,364 2,719,650
Advances from officer of the company..................... -- 224,093
Notes payable, collateralized by certain equipment,
principal and interest due monthly over terms of 24-39
months................................................... 352,297 241,511
---------- ----------
5,755,628 5,224,860
Less current portion 1,232,457 1,958,293
---------- ----------
Notes payable, less current portion $4,523,171 $3,266,567
========== ==========
</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-41
<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 SEVEN
ENDED MONTHS ENDED
SEPTEMBER 30, APRIL 30,
1996 1997
------------- --------------
<S> <C> <C>
Federal--Current................................ $ 15,845 $ --
State and local--Current........................ 39,169 37,839
--------- ---------
Total income tax provision...................... $ 55,014 $ 37,839
========= =========
</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 SEVEN
SEPTEMBER 30, MONTHS ENDED
1996 APRIL 30, 1997
------------- --------------
<S> <C> <C>
Federal statutory rate......................... 34% 34%
State and local income taxes................... 13 13
Effect of income of S corporation.............. (9) (54)
Effect of changes in deferred tax asset valua-
tion allowance................................ (43) 2
Other, primarily nondeductible travel and en-
tertainment................................... 12 14
--- ---
Effective income tax rate...................... 7% 9%
=== ===
</TABLE>
As of September 30, 1996, for federal income tax purposes, the Company had
net operating loss (NOL) carryforwards of $1,959,595 available to offset
future taxable income, which expire from 2004 to 2010.
The source and tax effects of temporary differences are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, APRIL 30,
1996 1997
------------- -----------
<S> <C> <C>
NOL carryforwards.................................. $ 914,574 $ 916,694
Revenue recognition of independent operator fees... 857,606 773,517
Other.............................................. -- 116,138
Valuation allowance................................ (1,772,180) (1,806,349)
----------- -----------
Net deferred tax asset (liability)................. $ -- $ --
=========== ===========
</TABLE>
Income taxes paid amounted to $14,505 and $0 for the year ended September
30, 1996 and for the seven-month period ended April 30, 1997, respectively.
F-42
<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 as of September 30,
1996. The loans have interest rates of 12.5% and are payable in equal
installments of principal and interest over terms of 15 years. Aggregate
principal payments under the loans were due as follows as of September 30,
1996:
<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 seven-month period ended
April 30, 1997, the Company took one-time charges related to advances to a
non-combined affiliate of approximately $218,000 and $7,000, respectively,
which are included in selling, general and administrative expenses.
8. CONTINGENCIES
The Company is involved in various legal actions which arise in the normal
course of business. Management of the Company does not believe the ultimate
resolution of these actions will have a material effect on the financial
position, results of operations or cash flows of the Company.
9. MAJOR CUSTOMER
The Company has one customer which accounted for approximately 18.0% of
service revenues for the year and seven-month periods ended September 30, 1996
and April 30, 1997, respectively.
10. RESTATEMENTS
The Company enters into agreements with independent operators under which
the independent operator contracts to provide chauffeured vehicle services
exclusively to the Company's customers over a contract period. Upon signing
the contract, the Company is entitled to receive a one-time fee from the
independent operator. Previously, the Company recognized the one-time fee as
revenue upon signing of the agreement. In accordance with Opinion No. 20 of
the Accounting Principles Board, "Accounting Changes", the financial
statements have been retroactively restated to report such fees as deferred
revenue which are recognized as revenue over the terms of the contracts (see
Note 2). The effects of such restatements were to increase results of
operations and stockholders' equity by $5,996 for the year ended September 30,
1996. The Company uses a network of independent service companies to provide
chauffeured vehicle services to its customers. Certain previously unrecognized
costs related to these services have been retroactively recorded. The effects
of such restatements were to decrease results of operations by $301,984 for
the year ended September 30, 1996, and to increase stockholders' deficiency by
$432,671 as of September 30, 1996.
11. SUBSEQUENT EVENT
On June 2, 1997, the stockholders of MILN and ILN sold their stock to Carey
International, Inc., a company providing chauffeured vehicle services.
F-43
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is a Delaware corporation. Reference is made to Section 145 of
the DGCL, as amended, which provides that a corporation may indemnify any
person who was or is a party to or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal action
or proceedings, had no reasonable cause to believe his or her conduct was
unlawful. Section 145 further provides that a corporation similarly may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he or she is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite an adjudication of liability, but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. The Company's Restated Certificate of
Incorporation further provides that the Company shall indemnify its directors
and officers to the full extent permitted by the law of the State of Delaware.
The Company's Certificate of Incorporation provides that the Company's
directors shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent that
exculpation from liability is not permitted under the DGCL as in effect at the
time such liability is determined.
The Certificate of Incorporation also provides that each person who was or
is made a party to, or is involved in, any action, suit, proceeding or claim
by reason of the fact that he or she is or was a director, officer or employee
of the Registrant (or is or was serving at the request of the Registrant as a
director, officer, trustee employee or agent of any other enterprise including
service with respect to employee benefit plans) shall be indemnified and held
harmless by the Registrant, to the full extent permitted by Delaware law, as
in effect from time to time, against all expenses (including attorneys' fees
and expenses), judgments, fines, penalties and amounts to be paid in
settlement incurred by such person in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim.
The rights to indemnification and the payment of expenses provided by the
Certificate of Incorporation do not apply to any action, suit, proceeding or
claim initiated by or on behalf of a person otherwise entitled to the benefit
of such provisions. Any person seeking indemnification under the Certificate
of Incorporation shall be deemed to have met the standard of conduct required
for such indemnification unless the contrary shall be established. Any repeal
or modification of such indemnification provisions shall not adversely affect
any right or protection of a director or officer with respect to any conduct
of such director or officer occurring prior to such repeal or modification.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
*2.1 Stock Purchase Agreement dated as of March 1, 1997, by and
among Carey International, Inc., Alfred J. Hemlock and Lupe
C. Hemlock
*2.2 Agreement and Plan of Merger dated as of March 1, 1997, by
and among Carey International, Inc., Manhattan International
Limousine Network Ltd., MLC Acquisition Corporation and
Michael Hemlock
*2.3 Form of Stockholder Action by Written Consent Adopted in
Connection with the Recapitalization
++2.4 Amended and Restated Agreement and Plan of Merger made as of
October 10, 1997 by and among Carey International, Inc.,
Carey Limousine Indiana, Inc., Indy Connection Limousines,
Inc., Transit Tours, Inc., K.D. & Associates Professional
Corporation, Craig Del Fabro and Kim Del Fabro
*3.1 Form of Amended and Restated Certificate of Incorporation of
the Company
*3.2 Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
*4.2 Form of Warrants Issued in June 1997
*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, as amended
*10.2 1992 Stock Option Plan
*10.3 1987 Stock Option Plan
*10.4 Stock Plan for Non-Employee Directors
*10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue,
Washington, D.C., between Carey International, Inc. and 4530
Wisconsin Associates, as lessor, including Addendum, Exhibit
B and Exhibit C; and Second Amendment to Lease dated August
6, 1993, including Exhibit A
*10.6 Form of Escrow Agreement by and among Michael Hemlock,
Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named
*10.7 Current form of Standard Master License Agreement
*10.8 Current form of Standard International License Agreement
*10.9 Form of Promissory Notes in connection with Acquisition of
Manhattan Limousine
*10.10 Current form of Standard Independent Operator Agreement
+10.11 Form of Revolving Credit and Term Loan Agreement by and
among Carey International, Inc., certain of its direct and
indirect wholly-owned subsidiaries, and Fleet Bank, N.A.,
Banco Popular de Puerto Rico and George Mason Bank
**10.12 Form of Director's Deferment of Compensation Agreement
**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 Nutter, McClennen & Fish, LLP (contained in
Exhibit 5)
+24 Power of Attorney (contained in the signature page to this
Registration Statement)
**99.1 Consent of Dennis I. Meyer
**99.2 Consent of Joseph V. Vittoria
</TABLE>
- --------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-22651).
**Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-50245).
***Filed herewith.
+ Previously filed with this Registration Statement.
++Incorporated by reference from the Company's Current Report on Form 8-K dated
November 13, 1997.
+++ Incorporated by reference from the Company's definitive Proxy Statement
dated May 6, 1998.
II-2
<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 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF WASHINGTON, THE
DISTRICT OF COLUMBIA, ON THE 26TH DAY OF MAY 1998.
Carey International, Inc.
/s/ David H. Haedicke
By: _________________________________
DAVID H. HAEDICKE
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE DATE
/s/ Vincent A. Wolfington* Chairman of the May 26, 1998
- ------------------------------------- Board and Chief
VINCENT A. WOLFINGTON Executive Officer
/s/ Don R. Dailey* President and May 26, 1998
- ------------------------------------- Director
DON R. DAILEY
/s/ David H. Haedicke Chief Financial May 26, 1998
- ------------------------------------- Officer
DAVID H. HAEDICKE
/s/ Paul A. Sandt* Principal Accounting May 26, 1998
- ------------------------------------- Officer
PAUL A. SANDT
/s/ David McL. Hillman* Director May 26, 1998
- -------------------------------------
DAVID MCL. HILLMAN
Director
- -------------------------------------
WILLIAM R. HAMBRECHT
/s/ Robert W. Cox* Director May 26, 1998
- -------------------------------------
ROBERT W. COX
/s/ Nicholas J. St. George* Director May 26, 1998
_____________________________________
NICHOLAS J. ST. GEORGE
/s/ David H. Haedicke
By: _________________________________
DAVID H. HAEDICKE
ATTORNEY-IN-FACT
* Powers of Attorney have been filed with this Registration Statement.
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S> <C>
*2.1 Stock Purchase Agreement dated as of March 1, 1997, by and
among Carey International, Inc., Alfred J. Hemlock and Lupe
C. Hemlock
*2.2 Agreement and Plan of Merger dated as of March 1, 1997, by
and among Carey International, Inc., Manhattan International
Limousine Network Ltd., MLC Acquisition Corporation and
Michael Hemlock
*2.3 Form of Stockholder Action by Written Consent Adopted in
Connection with the Recapitalization
++2.4 Amended and Restated Agreement and Plan of Merger made as of
October 10, 1997 by and among Carey International, Inc.,
Carey Limousine Indiana, Inc., Indy Connection Limousines,
Inc., Transit Tours, Inc., K.D. & Associates Professional
Corporation, Craig Del Fabro and Kim Del Fabro.
*3.1 Form of Amended and Restated Certificate of Incorporation of
the Company
*3.2 Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
*4.2 Form of Warrants Issued in June 1997
*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, as amended
*10.2 1992 Stock Option Plan
*10.3 1987 Stock Option Plan
*10.4 Stock Plan for Non-Employee Directors
*10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue,
Washington, D.C., between Carey International, Inc. and 4530
Wisconsin Associates, as lessor, including Addendum, Exhibit
B and Exhibit C; and Second Amendment to Lease dated
August 6, 1993, including Exhibit A
*10.6 Form of Escrow Agreement by and among Michael Hemlock,
Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named
*10.7 Current Form of Standard Master License Agreement
*10.8 Form of Standard International License Agreement
*10.9 Form of Promissory Notes in connection with Acquisition of
Manhattan Limousine
*10.10 Current Form of Standard Independent Operator Agreement
+10.11 Form of Revolving Credit and Term Loan Agreement by and
among Carey International, Inc., certain of its direct and
indirect wholly-owned subsidiaries, and Fleet Bank, N.A,
Banco Popular de Puerto Rico and George Mason Bank
**10.12 Form of Director's Deferment of Compensation Agreement
**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 Nutter, McClennen & Fish, LLP (contained in
Exhibit 5)
+24 Power of Attorney (contained in the signature page to this
Registration Statement)
**99.1 Consent of Dennis I. Meyer
**99.2 Consent of Joseph V. Vittoria
</TABLE>
- --------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-22651).
** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-50245).
***Filed herewith.
+ Previously filed with this Registration Statement.
++Incorporated by reference from the Company's Current Report on Form 8-K dated
November 13, 1997.
+++ Incorporated by reference from the Company's definitive Proxy Statement
dated May 6, 1998.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated January 30, 1998 except as to Note 16, for which the date is
February 28, 1998, on our audits of the consolidated financial statements and
financial statement schedule of Carey International, Inc. and subsidiaries as
of November 30, 1997 and 1996, and for each year in the three year period
ended November 30, 1997. We also consent to the reference to our firm under
the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
_________________________________
Coopers & Lybrand L.L.P.
Washington, D.C.
May 19, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of our
report dated March 1, 1997, except for Note 10, as to which the date is April
22, 1997, on our audit of the combined financial statements of Manhattan
International Limousine Network, Ltd. and Affiliate as of September 30, 1996,
and for the year then ended, which includes 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 19, 1998
