-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K8pbVvGBxO5FpggWmLBpi+E7/rq/4amqr9ZUz98bMqrvXa/NC5whvi7zMBhQk3PR RA2daHqHjs9Ezj4PWYefiA== 0000927016-97-000641.txt : 19970304 0000927016-97-000641.hdr.sgml : 19970304 ACCESSION NUMBER: 0000927016-97-000641 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19970303 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAREY INTERNATIONAL INC CENTRAL INDEX KEY: 0000747201 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 521171965 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22651 FILM NUMBER: 97549385 BUSINESS ADDRESS: STREET 1: 4530 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20016 BUSINESS PHONE: 2028951200 MAIL ADDRESS: STREET 1: 4530 WISCONSIN AVE NW CITY: WASHINGTON STATE: DC ZIP: 20016 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- CAREY INTERNATIONAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) -------------- DELAWARE 4119 52-1171965 (STATE OR OTHER (PRIMARY STANDARD 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: JOHN P. DRISCOLL, JR., ESQUIRE NEIL GOLD, ESQUIRE NUTTER, MCCLENNEN & FISH, LLP FULBRIGHT & JAWORSKI L.L.P. ONE INTERNATIONAL PLACE 666 FIFTH AVENUE BOSTON, MA 02110 NEW YORK, NY 10103 (617) 439-2000 (212) 318-3000 -------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If the Form is a post-effective amendment filed pursuant to Rule 426(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] -------------- CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - --------------------------------------------------------------------------------------------------- Common Stock (par value $.01 per share)....... 3,335,000 shares $13.00 $43,355,000 $13,138.00
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- (1) Includes 435,000 shares that the Underwriters have the option to purchase to cover over-allotments. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended. -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS BE ACCEPTED TO BUY PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MARCH 3, 1997 PROSPECTUS 2,900,000 SHARES CAREY INTERNATIONAL, INC. COMMON STOCK All of the shares of Common Stock offered hereby are being offered by Carey International, Inc. ("Carey" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Company has applied for quotation of the Common Stock on the Nasdaq National Market under the symbol "CARY." SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Underwriting Price to Discounts and Proceeds to Public Commissions(1) Company(2) - -------------------------------------------------------------------------------- Per Share.................................. $ $ $ Total(3)................................... $ $ $
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting offering expenses payable by the Company, estimated at $1,200,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to 435,000 additional shares of Common Stock solely to cover over- allotments, if any. If the Underwriters exercise this option in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting." The shares of Common Stock are offered by the several Underwriters named herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing such shares will be made against payment therefor at the office of Montgomery Securities on or about , 1997. ----------- Montgomery Securities______________________________Ladenburg Thalmann & Co. Inc. The date of this Prospectus is , 1997. MAP OR PHOTOGRAPH(S) TO COME The Company intends to furnish its stockholders with annual reports containing audited financial statements reported on by independent auditors for each fiscal year and quarterly reports containing unaudited financial statements for the first three quarters of each fiscal year. ---------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information contained in this Prospectus (i) gives effect to the Recapitalization (as defined herein) of the Company (see "Description of Capital Stock- Recapitalization"), (ii) does not give effect to 993,336 shares of Common Stock issuable upon the exercise of outstanding options and warrants or 150,000 shares of Common Stock issuable pursuant to warrants described under the caption "Underwriting" and (iii) assumes no exercise of the Underwriters' over- allotment option to purchase 435,000 shares of Common Stock. THE COMPANY Carey International, Inc. ("Carey" or the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The "Carey" brand name has represented quality chauffeured vehicle service since the 1920s. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., South Florida and Philadelphia. In addition, the Company generates revenues from licensing the "Carey" name and providing central reservation, billing and sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated companies nor licensees. Over the past five years, the Company has invested significant capital in developing its reservation, central billing and worldwide service infrastructure. By leveraging its current infrastructure and position as a market leader, the Company intends to consolidate the highly fragmented chauffeured vehicle service industry through the acquisition of: (i) current Carey licensees, (ii) additional companies in markets in which the Company already owns and operates a chauffeured vehicle service company, and (iii) companies in other strategic markets in North America, Europe and the Pacific rim of Asia. The Carey network utilizes chauffeured sedans, limousines, vans and minibuses to provide services for airport pick-ups and drop-offs, inter-office transfers, business and association meetings, conventions, roadshows, promotional tours, special events, incentive travel and leisure travel. Businesses and business travelers utilize the Company's services primarily as a management tool, to achieve more efficient use of time and other resources. Carey's worldwide network of chauffeured vehicle service companies allows it to provide services with consistently high quality to its customers in virtually every major city in the expanding global travel market. The network is linked to over 300,000 reservation terminals in travel agencies, corporate travel departments and government offices by the Carey International Reservation System (the "CIRS"), the chauffeured vehicle service industry's most extensive centralized global reservation system. The Company estimates that the United States chauffeured vehicle service industry generated revenues of approximately $3.9 billion in 1996, and has undergone steady growth in recent years, with revenues increasing at a compound annual growth rate of 10.9% between 1990 and 1996. The industry is highly fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles. The Company believes that during 1996 no chauffeured vehicle service company accounted for more than 2% of total United States industry revenues. The Company also believes that similar fragmentation exists in the chauffeured vehicle service industry outside the United States. 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 3 resources that the Company can provide. Carey intends to acquire current Carey licensees, as well as additional chauffeured vehicle service companies both in markets in which the Company already owns and operates such a business and in other strategic regions in North America, Europe and the Pacific rim of Asia. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in a substantial majority of its domestic license agreements. The Company believes that it has less than a 10% market share in each of the markets in which it owns and operates a chauffeured vehicle service company, and that there is significant potential for it to expand its business in such markets through acquisitions. As the Company acquires additional chauffeured vehicle service companies, it anticipates that cost savings can be achieved through the consolidation of certain administrative functions and the elimination of redundant facilities, equipment and personnel. Carey has successfully begun to implement its acquisition strategy. Since October 1991, the Company has acquired 15 chauffeured vehicle service companies, including, since December 1994, two of its licensees (in Ft. Lauderdale/Miami and San Francisco) and six additional chauffeured vehicle service companies (two in each of Boca Raton and San Francisco, and one in each of Washington, D.C. and London). Upon the closing of this offering, the Company will acquire Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine"), one of the largest chauffeured vehicle service companies in the metropolitan New York area and the operator of a network of approximately 300 affiliates worldwide. Manhattan Limousine generated revenues of approximately $18.4 million during its fiscal year ended September 30, 1996, representing approximately 23.4% of the Company's fiscal 1996 revenues on a pro forma basis. See "Acquisition of Manhattan Limousine" and "Pro Forma Consolidated Financial Statements." Increase International Market Share. Currently, approximately 12.8% of the Company's revenues are derived from services performed outside the United States. Carey believes that its network can capture a significant portion of the growing international market for chauffeured vehicle services by acquiring or licensing additional chauffeured vehicle service companies and otherwise implementing the Carey system outside the United States. The Company intends to increase its international presence by intensifying its sales and marketing efforts, strengthening its relationships with significant domestic and international business travel arrangers, and capitalizing on the capacity of the CIRS to operate on a global scale. By enhancing its international presence, the Company also expects to increase its revenues from providing chauffeured vehicle services to international travelers both visiting the United States and travelling abroad. Expand Licensee Network Worldwide. The Company will seek to expand its worldwide network and generate additional revenues from license and marketing fees by licensing additional chauffeured vehicle service companies in smaller markets that do not justify a Company-owned presence. Ultimately, as these less strategic markets grow in size and importance to the Company, the licensees in such markets may become acquisition candidates for the Company. Convert Salaried Chauffeurs to Independent Operators. The Company believes that it can improve its profitability by continuing to convert salaried chauffeurs to independent operators. 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. The Company was organized as a Delaware corporation in 1979. The Company's principal executive offices are located at 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. Its telephone number at that location is (202) 895- 1200. As used herein, unless the context otherwise requires, "Carey" or the "Company" refers to Carey International, Inc. and its subsidiaries. 4 THE OFFERING Common Stock being offered......................... 2,900,000 shares Common Stock to be outstanding after the offering.. 6,315,844 shares(1) Use of proceeds.................................... To repay certain indebtedness, redeem certain shares of preferred stock, pay the cash and note portions of the purchase price for Manhattan Limousine, fund other acquisitions and for general corporate purposes, including working capital Proposed Nasdaq National Market symbol............. CARY
- ------- (1) Excludes: (i) 559,336 shares of Common Stock issuable upon the exercise of outstanding options and warrants, (ii) 150,000 shares of Common Stock issuable upon the exercise of warrants described under the caption "Underwriting," (iii) 650,000 shares of Common Stock authorized pursuant to the 1997 Equity Incentive Plan, of which options to purchase 411,500 shares of Common Stock will be granted upon consummation of this offering and (iv) 100,000 shares of Common Stock authorized pursuant to the Stock Plan for Non-Employee Directors, of which options to purchase 22,500 shares of Common Stock will be granted upon consummation of this offering. 5 SUMMARY AND PRO FORMA CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED NOVEMBER 30, ---------------------------------------------------------- 1992 1993 1994 1995 1996 ------- -------- ------- ------- --------------------- ACTUAL PRO FORMA(1) ------- ------------ CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net........... $27,669 $30,319 $35,525 $43,484 $59,505 $78,883 Cost of revenue........ 20,199 22,751 24,954 29,943 40,438 52,042 ------- -------- ------- ------- ------- --------- Gross profit........... 7,470 7,568 10,571 13,541 19,067 26,841 Selling, general and administrative expense............... 5,939 8,174 9,487 12,419 15,078 21,022 ------- -------- ------- ------- ------- --------- Operating income (loss)................ 1,531 (606) 1,084 1,122 3,989 5,819 Interest expense and other income (expense)............. (819) (1,308) (1,194) (1,292) (1,277) 91 ------- -------- ------- ------- ------- --------- Income (loss) before provision (benefit) for income taxes...... 712 (1,914) (110) (170) 2,712 5,910 Provision (benefit) for income taxes.......... 53 10 19 25 (104) 2,503 ------- -------- ------- ------- ------- --------- Net income (loss)...... $ 659 $ (1,924) $ (129) $ (195) $ 2,816 $ 3,407 ======= ======== ======= ======= ======= ========= Pro forma net income per share............. $ .55 ========= Weighted average shares outstanding........... 6,218,667
NOVEMBER 30, 1996 --------------------- ACTUAL PRO FORMA(2) ------- ------------ CONSOLIDATED BALANCE SHEET DATA: Working capital (deficit)............................ $(1,732) $ 3,026 Total assets......................................... 42,526 74,068 Long-term debt, less current maturities.............. 11,192 1,950 Deferred revenue(3).................................. 6,181 13,052 Total stockholders' equity........................... $ 6,672 $41,858
- -------- (1) Gives effect to the following events as if they had occurred on December 1, 1995: (i) the acquisition of Camelot Barthropp Ltd. completed February 1996, including the interest cost related to indebtedness incurred in connection with such acquisition, (ii) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's fiscal year ended September 30, 1996) and the amortization of associated goodwill, (iii) the conversion of certain preferred stock and subordinated debt into Common Stock, see "Description of Capital Stock-- Recapitalization," and the elimination of interest expense associated with the subordinated debt; (iv) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash 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, (v) the elimination of interest expense associated with debt repaid from the proceeds of this offering and (vi) other adjustments as described under "Pro Forma Consolidated Financial Statements" and the notes thereto. (2) Reflects (i) the Recapitalization, see "Description of Capital Stock-- Recapitalization," (ii) the acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine," and (iii) the issuance and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed offering price of $12.00 per share less estimated underwriting discounts and commissions and offering expenses) and the application of the net proceeds therefrom as described under "Use of Proceeds." (3) Represents the balance of the fees deferred in connection with independent operator agreements less amounts previously recognized. Such fees are recognized ratably over the term of the agreement, which typically ranges from 10 to 20 years. See Note 2 to the Company's Consolidated Financial Statements. 6 RISK FACTORS The following factors should be considered, together with the other information in this Prospectus, in evaluating an investment in the Company. This Prospectus contains certain forward-looking statements which involve risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain of the factors set forth in the following risk factors and elsewhere in this Prospectus. HISTORY OF LOSSES The Company has generated a net loss in three of the past four fiscal years. Although the Company was profitable during the fiscal year ended November 30, 1996, there can be no assurance that the Company will be able to sustain profitability. RISKS ASSOCIATED WITH ACQUISITION OF MANHATTAN LIMOUSINE The acquisition of Manhattan Limousine will be consummated simultaneously with this offering. Manhattan Limousine generated pro forma revenues of approximately $18.4 million during its fiscal year ended September 30, 1996, representing approximately 23.4% of the Company's fiscal 1996 revenues on a pro forma basis. As a result of the acquisition of Manhattan Limousine, nearly half of the Company's revenues will be generated from services provided within the New York City metropolitan area. The eventual integration of Manhattan Limousine, which is the Company's largest acquisition to date, will place significant demands on the Company's management and infrastructure, and there can be no assurance that Manhattan Limousine's business will be successfully integrated with that of the Company, that the Company will be able to realize operating efficiencies or eliminate redundant costs, or that the combined business will be operated profitably. Further, there can be no assurance that customers of Manhattan Limousine will continue to do business with the Company. The failure of the Company in any of these respects could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds" and "Acquisition of Manhattan Limousine." RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY The Company intends to grow primarily through the acquisition of additional chauffeured vehicle service companies. Increased competition for acquisition candidates may develop, in which event there may be fewer acquisition opportunities available to the Company as well as higher acquisition costs for the opportunities that are available. There can be no assurance that the Company will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses into the Company without substantial costs, delays, or other operational or financial problems. There also can be no assurance that the Company will be able to purchase its licensees that operate in markets in which the Company does not own and operate a chauffeured vehicle service company. The success of any acquisition will depend upon the Company's ability to introduce automation and management systems, to convert salaried chauffeurs employed by the acquired businesses to independent operators and to integrate the acquired business with the Company's existing operations. Customer dissatisfaction or performance problems at a single acquired company could have an adverse effect on the reputation of the Company and the Company's sales and marketing initiatives. There can be no assurance that any businesses acquired in the future will achieve anticipated revenues and earnings. Further, acquisitions involve a number of special risks, including possible adverse effects on the Company's operating results, diversion of management's attention, failure to retain key personnel at an acquired company, risks associated with unanticipated events or liabilities and amortization of goodwill or other acquired intangible assets, some or all of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Acquisition Strategy." 7 RISKS RELATED TO ACQUISITION FINANCING The Company may choose to finance future acquisitions by using shares of its Common Stock for a portion or all of the consideration to be paid. In the event that the Common Stock does not maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept Common Stock as part of the consideration for the sale of their businesses, the Company might not be able to utilize Common Stock as consideration for acquisitions and would be required to utilize more of its cash resources, if available, in order to maintain its acquisition program. If the Company does not have sufficient cash resources, its growth could be limited unless it is able to obtain additional capital through debt or equity financings. There can be no assurance that such financing will be available if and when needed or on terms acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." RISKS ASSOCIATED WITH RAPID GROWTH As a result of the Manhattan Limousine acquisition, the continued implementation of the Company's acquisition strategy and the expansion of the Company's licensee network, the Company may experience rapid growth which could place additional demands on the Company's administrative, operational and financial resources. Managing future growth will depend on a number of factors, including the maintenance of the quality of services the Company provides to its customers, and the recruitment, motivation and retention of qualified chauffeurs and other personnel. Sustaining growth will require enhancements to the Company's operational and financial systems as well as additional management, operational and financial resources. There can be no assurance that the Company will be able to manage its expanding operations effectively or that it will be able to maintain or accelerate its growth, and any failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. SEASONALITY AND QUARTERLY FLUCTUATIONS The Company believes that its future operating results may continue to be subject to quarterly variations caused by such factors as seasonal business travel, variable scheduling of special events and the timing of acquisitions by the Company. The Company's least profitable quarter generally has been the first quarter (ending February 28 or 29), and its most profitable quarter generally has been the fourth quarter (ending November 30). The Company's operating results may be subject to considerable fluctuations caused by special events, such as business and trade association meetings and conventions and sporting events with national or international participation, which do not necessarily recur annually, may not be held at the same time of year and may not always be located in a city in which the Company owns and operates a chauffeured vehicle service company. In addition, adverse economic conditions may impact the Company's operating results by reducing the overall number of road shows and promotional tours. All of these factors can cause significant fluctuations in quarterly results of operations. Accordingly, results in any fiscal quarter may not be indicative of results of future quarters. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." RISKS ASSOCIATED WITH LICENSEE OPERATIONS The Company has 38 licensees serving 106 cities in the United States and 24 licensees serving 105 cities outside the United States. Although a component of the Company's strategy is to increase the number of licensees, there can be no assurance that the Company will be able to attract qualified licensees in desired locations. The failure of the Company to attract new licensees or the failure of the Company's licensees to operate successfully could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the failure of one or more of the Company's licensees to maintain the Company's service standards and conform to the Carey system could have a material adverse effect on the reputation of the Carey network and the Company's business, financial condition and results of operations. In addition, the Company is subject to federal regulation and certain state laws which govern the offer and sale of franchises. Most state franchise laws impose substantive requirements on the franchise agreement, 8 including limitations on non-competition provisions and termination or non- renewal of a franchise. Some states require that certain materials be registered before franchises can be offered or sold in that state. Violations of federal regulations and the state franchising laws could result in civil penalties against the Company and civil and criminal penalties against the executive officers of the Company. 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 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 has challenged the Company with respect to that policy. Recently, the IRS adopted 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. The Company believes that its practices conform to such guidelines. If, however, the Company's practices are determined not to conform with the guidelines, or if it is adjudicated that the Company is required to treat independent operators as employees, the Company could become responsible for certain past and future employment taxes. There can be no assurance that, in the event of such an adverse adjudication, there will not be a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Independent Operators." INDEPENDENT OPERATOR FINANCING An important component of the Company's business strategy for its owned and operated companies involves the preferred use of independent operators instead of salaried chauffeurs operating Company-owned vehicles. A chauffeur becomes an independent operator by signing an agreement to pay a fee to the Company. The payment of independent operator fees historically has been financed by the Company, financing companies or banks. Prior to September 1996, the Company usually sold to third parties the independent operator notes initially financed by it. Since September 1996, the Company has ceased selling such notes to third parties. Because the Company now bears most of the risk relating to payment of these notes, significant defaults in their payment could have a material adverse effect on the Company's business, financial condition and results of operations. Each new independent operator is required to own or obtain his or her vehicle. The Company generally does not finance vehicle purchases by its independent operators. As a result, the ability of independent operators to obtain their own vehicles, a requirement for conversions from salaried chauffeurs to independent operators, will depend upon the availability of third party vehicle financing for independent operators. The inability of independent operators to obtain vehicle financing will adversely affect the Company's ability to utilize independent operators, and would have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that such financing will be available if and when needed or on terms acceptable to potential independent operators. See "Business--Independent Operators." POTENTIAL ADVERSE EFFECT OF LITIGATION The Company, certain of its subsidiaries and certain of its officers and directors currently are named as defendants in a complaint, purporting to be a class action, alleging that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the defendants in their use of a surface transportation billing charge. The Company has denied all claims made against it and intends to vigorously defend the lawsuit. Defense of lawsuits against the Company can be expensive and time- consuming, regardless of the outcome, and an adverse result in a lawsuit could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Legal Proceedings." FACTORS AFFECTING TRAVEL The Company is subject to risks generally affecting levels of business travel, including economic cycles, political changes, terrorist threats or acts and technological advances. The Company cannot predict the likelihood 9 of occurrence of any such events. If the occurrence of any such event significantly reduces domestic or international travel, there could be a material adverse effect on the Company's business, financial condition and results of operations. INSURANCE COVERAGE AND CLAIMS The Company is exposed to claims for personal injury or death and property damage as a result of automobile accidents involving chauffeured vehicles operated by its employees and independent operators and by its licensees and their drivers. The Company maintains, and the Company's independent operators are required to maintain, levels of insurance which the Company believes to be adequate. The Company's licensees are required to maintain adequate levels of insurance and are required to name the Company as an additional insured on their insurance policies. There can be no assurance, however, that the limits and the scope of any such insurance coverage will be adequate. The cost of maintaining personal injury, property damage and workers' compensation insurance is significant. The Company and its independent operators and licensees could experience higher insurance premiums as a result of adverse claims experiences, general increases in premiums by insurance carriers or both. Significant increases in such premiums could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Independent Operators" and "Business--Insurance." DEPENDENCE ON KEY PERSONNEL While the Company has numerous senior managers with many years of experience in the chauffeured vehicle service industry, the Company's success is dependent on the efforts, abilities and leadership of its executive officers, particularly, Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President. The Company currently does not have employment agreements with any of its executive officers. The loss of the services of one or more of such officers could have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The chauffeured vehicle service industry is highly competitive and fragmented with few significant national participants operating multi-city reservation systems. Each local market usually contains numerous local participants as well as a few companies offering regional and national service. Chauffeured vehicle service companies compete primarily on the basis of price, quality, scope of service and dependability. The Company also competes with service providers offering alternative modes of transportation, such as buses, jitney services, taxis, radio cars and rental cars. The Company competes both for customers and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the market. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. Competitive market conditions could have a material adverse affect on the Company's business, financial condition and results of operations. See "Business--Competition." POSSIBLE FUTURE SALES OF SHARES Sales of substantial amounts of Common Stock in the public market after this offering under Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or otherwise, or the perception that such sales could occur, may adversely affect prevailing market prices of the Common Stock and could impair the future ability of the Company to raise capital through an offering of its equity securities or to use such securities as consideration in acquisitions. Upon the completion of this offering, the holders of the Company's securities who did not purchase Common Stock in this offering will hold 4,559,180 shares of Common Stock, including (i) an aggregate of 1,143,336 shares issuable upon the exercise of outstanding options and warrants and (ii) an aggregate of 200,000 shares issued in connection with the acquisition of Manhattan Limousine (assuming an initial public offering price of $12.00 per share), all of which will be "restricted securities" within the meaning 10 of the Securities Act. Subject to the contractual lockup provisions discussed below and unless the resale of the shares is registered under the Securities Act, these shares may not be sold in the open market unless in compliance with the applicable requirements of Rule 144. The Company and the holders of at least 4,000,000 of such shares have agreed not to offer, sell, contract to sell or otherwise dispose of any shares of Common Stock, or any securities convertible into or exercisable or exchangeable for Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of Montgomery Securities except for (i) in the case of the Company, Common Stock issued pursuant to any employee or director plan described herein or in connection with acquisitions and (ii) in the case of the Company's directors and executive officers, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts, subject, in each case, to any remaining portion of the 180-day period applying to any shares so issued or transferred. In connection with future acquisitions, the Company may issue shares of Common Stock which, if the Company also files a registration statement under the Securities Act with respect to such shares, may be subject to immediate resale, subject to any remaining portion of the 180-day period applying to any shares so issued. See "Shares Eligible for Future Sale" and "Underwriting." CERTAIN ANTI-TAKEOVER PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation, By-laws and Delaware law could, together or separately, discourage potential acquisition proposals, delay or prevent a change in control of the Company and limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. Those provisions, among other things, provide for a classified Board of Directors, allow the issuance, without further stockholder approval, of preferred stock with rights and privileges that could be senior to the Common Stock, prohibit the stockholders from calling special meetings of stockholders, restrict the ability of stockholders to nominate directors and submit proposals to be considered at stockholders' meetings, impose a supermajority voting requirement in connection with stockholders' amendments to the By-laws and prohibit stockholders after this offering from acting by written consent in lieu of a meeting. The Company also is subject to Section 203 of the Delaware General Corporation Laws (the "DGCL") which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date on which such stockholder became an interested stockholder. See "Description of Capital Stock." NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock, and there can be no assurance that an active public market for the Common Stock will develop or continue after this offering. The initial public offering price was determined by negotiations between the Company and the Representatives of the Underwriters, and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting" for factors considered in determining the initial public offering price. From time to time after this offering, there may be significant volatility in the market price for the Common Stock. Quarterly operating results of the Company, changes in general conditions in the economy or the chauffeured vehicle service industry, or other developments affecting the Company, its licensees and affiliates or the Company's competitors could cause the market price of the Common Stock to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have been unrelated to the operating performance of those companies. Any such fluctuations that occur following completion of this offering may adversely affect the prevailing market price of the Common Stock. IMMEDIATE AND SUBSTANTIAL DILUTION The purchasers of the shares of Common Stock offered hereby will experience immediate and substantial dilution in the net tangible book value of their shares of Common Stock in the amount of $11.45 per share. See "Dilution." 11 ACQUISITION OF MANHATTAN LIMOUSINE Simultaneously with the completion of this offering, the Company will acquire Manhattan International Limousine Network Ltd. and an affiliated company ("Manhattan Limousine") for aggregate consideration of $14.2 million, composed of (i) $7.1 million in cash, (ii) $4.7 million in promissory notes bearing interest at the rate of 8.0% per annum and payable one year from the date of the acquisition, and (iii) 200,000 shares of Common Stock (assuming an initial public offering price of $12.00 per share). In addition, the Company will assume approximately $3.7 million of outstanding indebtedness of Manhattan Limousine. If the acquisition of Manhattan Limousine is not completed by May 20, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. Pursuant to the terms of the acquisition, Manhattan Limousine will distribute to its stockholders prior to the closing approximately $3.8 million in assets and $2.3 million in liabilities. See Note 3 to "Pro Forma Consolidated Financial Statements." Manhattan Limousine is one of the largest chauffeured vehicle service companies in the New York metropolitan area, with revenues in 1996 totalling approximately $18.4 million. Manhattan Limousine also operates the Manhattan International Limousine Network of more than 300 worldwide affiliates, a significant majority of which are located in cities in which the Company already has affiliates. In some cities the Company and Manhattan Limousine share common affiliates. See the Manhattan Limousine Consolidated Financial Statements and related notes thereto. Manhattan Limousine's independent operators are responsible for a fleet consisting of approximately 125 sedans and limousines. Manhattan Limousine derives revenues from contracts with major airlines, including Virgin Atlantic and Aer Lingus, and with many of the premier hotels in New York City, including the Four Seasons and the Plaza Hotel, as well as from other corporate and individual customers. In 1996, approximately 18.0% of Manhattan Limousine's revenues were derived from services performed for Virgin Atlantic. USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,900,000 shares of Common Stock offered by it (assuming an initial public offering price of $12.00 per share and after deducting estimated underwriting discounts and commissions and offering expenses) are estimated to be approximately $31.2 million (approximately $36.0 million if the Underwriters' over-allotment option is exercised in full). The Company will use approximately $9.1 million of the net proceeds to repay principal and interest with respect to certain indebtedness which was incurred to finance certain of the Company's acquisitions and for working capital purposes. Such indebtedness bears interest at rates ranging from 9.0% to 12.0%, has a weighted average interest rate of 10.0% and matures at various dates through March 1, 2001. Vincent A. Wolfington, the Company's Chairman of the Board and Chief Executive Officer, and Don R. Dailey, President and a director of the Company, have personally guaranteed $3.9 million of such indebtedness. These personal guarantees will be terminated upon the repayment of the underlying indebtedness. The Company currently intends to use approximately $11.8 million of the net proceeds of this offering to pay the cash and note portion of the purchase price for the acquisition of Manhattan Limousine. The Company also will utilize approximately $3.7 million of the net proceeds to repay certain indebtedness assumed upon the acquisition of Manhattan Limousine. Approximately $3.1 million of the net proceeds will be used by the Company to redeem all outstanding shares of its Series A and Series F Preferred Stock and certain shares of its Series G Preferred Stock in connection with the Recapitalization. See "Certain Transactions" and "Description of Capital Stock--Recapitalization." The balance of the net proceeds from this offering, approximately $3.4 million, will be used for acquisitions and other general corporate purposes, including working capital. Except for the acquisition of Manhattan Limousine, the Company currently has no existing commitment or agreement with respect to any acquisition. The Company regularly reviews potential acquisition candidates and has held preliminary discussions with a number of such candidates. Pending such uses, the Company intends to invest the net proceeds in short- term, investment grade securities. 12 DILUTION The deficit in the pro forma net tangible book value of the Company as of November 30, 1996, after giving effect to the issuance of shares of Common Stock as part of the Recapitalization, was approximately $7.8 million, or $(2.41) per share. The deficit in net tangible book value is determined by subtracting franchise rights, goodwill and all other intangible assets from total stockholders' equity. After giving effect to (i) the sale by the Company of 2,900,000 shares of Common Stock in this offering at an assumed initial public offering price of $12.00 per share after deducting underwriting discounts and estimated offering expenses, and (ii) the acquisition of Manhattan Limousine, the pro forma net tangible book value at November 30, 1996 would have been approximately $3.5 million, or $.55 per share. This offering represents an immediate increase in net tangible book value of $2.96 per share to the existing stockholders, and an immediate dilution in net tangible book value per share of $11.45 to new investors in this offering. The following table illustrates the dilution on a per share basis, assuming no exercise by the Underwriters of their over-allotment option: Assumed initial public offering price....................... $12.00 Deficit in pro forma net tangible book value before offering................................................. $(2.41) Increase in pro forma net tangible book value attributable to sale of shares to new investors....................... 2.96 ------ Pro forma net tangible book value after offering............ .55 ------ Dilution to new investors................................... $11.45 ======
13 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company (i) as of November 30, 1996 and (ii) on a pro forma basis to give effect to (a) the Recapitalization, see "Description of Capital Stock-- Recapitalization," (b) the issuance and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed offering price of $12.00 per share, after deducting estimated underwriting discounts and offering expenses) and the application of the net proceeds therefrom as described under "Use of Proceeds," and (c) the acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine." This table should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto included elsewhere in this Prospectus.
NOVEMBER 30, 1996 ------------------ ACTUAL PRO FORMA ------- --------- (IN THOUSANDS) Short-term debt and current maturities of long-term obligations........................................ $ 5,770 $ 1,313 ======= ======= Long-term obligations, net of current maturities.... $11,192 $ 1,950 Stockholders' equity: Preferred Stock (1)................................ 1,115 -- Common Stock (2), $.01 par value; 4,090,711 shares authorized, 655,773 shares issued and outstanding; 20,000,000 shares authorized, 6,315,844 shares issued and outstanding on a pro forma basis....... 7 63 Paid-in-capital.................................... 7,357 43,602 Accumulated deficit................................ (1,807) (1,807) ------- ------- Total stockholders' equity......................... 6,672 41,858 ------- ------- Total capitalization............................ $17,864 $43,808 ======= =======
- -------- (1) See Notes 10 and 18 to the Company's Consolidated Financial Statements. (2) Excludes Class A Common Stock, $.01 par value, none of which is issued and outstanding. The Class A Common Stock will be eliminated as a result of the Recapitalization. DIVIDEND POLICY Following this offering, the Company intends to retain all earnings to finance the growth and development of its business and does not anticipate paying cash dividends on the Common Stock in the foreseeable future. Any future determination as to the payment of dividends on the Common Stock will depend upon the Company's future earnings, results of operations, capital requirements and financial condition and any other factor the Board of Directors of the Company may consider. The Company's agreements with its principal lenders currently prohibit dividend payments. 14 SELECTED CONSOLIDATED FINANCIAL DATA The selected actual consolidated financial data as of November 30, 1992, 1993, 1994, 1995 and 1996 and for each of the five years in the period ended November 30, 1996 have been derived from the consolidated financial statements of the Company audited by Coopers & Lybrand L.L.P., independent accountants. The selected actual and pro forma financial information of the Company should be read in conjunction with the Company's Consolidated Financial Statements, Management's Discussion and Analysis of Financial Condition and Results of Operations and Pro Forma Financial Statements contained elsewhere in this Prospectus.
FISCAL YEAR ENDED NOVEMBER 30, -------------------------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- -------- ------------------------- ACTUAL PRO FORMA(1) --------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenue, net........... $27,669 $30,319 $35,525 $ 43,484 $59,505 $78,883 Cost of revenue........ 20,199 22,751 24,954 29,943 40,438 52,042 ------- ------- ------- -------- --------- --------- Gross profit........... 7,470 7,568 10,571 13,541 19,067 26,841 Selling, general and administrative expense............... 5,939 8,174 9,487 12,419 15,078 21,022 ------- ------- ------- -------- --------- --------- Operating income (loss)................ 1,531 (606) 1,084 1,122 3,989 5,819 Interest expense and other income (expense)............. (819) (1,308) (1,194) (1,292) (1,277) 91 ------- ------- ------- -------- --------- --------- Income (loss) before provision (benefit) for income taxes...... 712 (1,914) (110) (170) 2,712 5,910 Provision (benefit) for income taxes.......... 53 10 19 25 (104) 2,503 ------- ------- ------- -------- --------- --------- Net income (loss)...... $ 659 $(1,924) $ (129) $ (195) $ 2,816 $ 3,407 ======= ======= ======= ======== ========= ========= Supplemental pro forma net income per share.. $ .88(2) ========= Pro forma net income per share............. $ .55 ========= Weighted average shares outstanding........... 3,521,821(2) 6,218,667 NOVEMBER 30, -------------------------------------------------------------- 1992 1993 1994 1995 1996 ------- ------- ------- -------- ------------------------- PRO FORMA(3) ACTUAL AS ADJUSTED --------- ------------ CONSOLIDATED BALANCE SHEET DATA: Working capital (defi- cit).................. $ 1,740 $ 1,484 $ 1,298 $ (1,407) $ (1,732) $ 3,026 Total assets........... 28,855 27,941 27,109 35,004 42,526 74,068 Long-term debt, less current maturities.... 10,293 12,083 11,090 13,217 11,192 1,950 Deferred revenue(4).... 3,270 4,300 4,485 4,726 6,181 13,052 Total stockholders' eq- uity.................. $ 5,843 $ 4,388 $ 4,165 $ 3,912 $ 6,672 $ 41,858
- -------- (1) Gives effect to the following events as if they had occurred on December 1, 1995: (i) the acquisition of Camelot Barthropp Ltd. completed February 1996, including the interest cost relating to indebtedness incurred in connection with such acquisition, (ii) the acquisition of Manhattan Limousine (using statement of operations data for Manhattan Limousine's fiscal year ended September 30, 1996) and the amortization of associated goodwill, (iii) the conversion of certain preferred stock and subordinated debt into Common Stock, see "Description of Capital Stock-- Recapitalization", (iv) the issuance of shares of Common Stock to (a) repay certain existing debt of the Company, (b) pay the cash and note portions of the purchase price for Manhattan Limousine, (c) repay certain debt assumed in connection with the acquisition of Manhattan Limousine, (d) redeem certain preferred stock of the Company and (e) pay the stock portion of the purchase price in connection with the acquisition of Manhattan Limousine, (v) the elimination of interest expense associated with debt repaid from the proceeds of this offering, and (vi) other adjustments as described under "Pro Forma Consolidated Financial Statements" and the notes thereto. (2) Gives effect to the conversion of certain preferred stock and subordinated debt into Common Stock and the elimination of associated interest expense on the subordinated debt as a result of the Recapitalization. See Notes 2 and 18 to the Company's Consolidated Financial Statements. (3) Reflects (i) the Recapitalization, see "Description of Capital Stock-- Recapitalization," (ii) the acquisition of Manhattan Limousine, see "Acquisition of Manhattan Limousine," and (iii) the issuance and sale of the 2,900,000 shares of Common Stock offered hereby (at an assumed offering price of $12.00 per share less estimated underwriting discounts and commissions and offering expenses) and the application of the net proceeds therefrom as described under "Use of Proceeds." (4) Represents the balance of the fees deferred in connection with independent operator agreements less amounts previously recognized. Such fees are recognized ratably over the term of the agreement, which typically ranges from 10 to 20 years. See Note 2 to the Company's Consolidated Financial Statements. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes thereto and "Selected Consolidated Financial Data" appearing elsewhere in this Prospectus. Unless otherwise indicated or the context otherwise requires, each reference to a year is to the Company's fiscal year which ends on November 30 of such year. OVERVIEW The Company generates revenues primarily from chauffeured vehicle services provided by (i) Carey's owned and operated businesses and (ii) Carey's licensees and affiliates when services provided by such licensees and affiliates are billed through the Company's central reservation and billing system. In 1995 and 1996, approximately 74.7% and 73.6%, respectively, of the Company's revenue, net was generated by chauffeured vehicle services provided by the Company's owned and operated businesses. 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 May 1995, the Company began charging its licensees for the use of its central reservation and billing services. To a lesser extent, the Company derives revenues from the payment of fees by independent operators. The Company recognizes revenue from these fees ratably over the term of the independent operator's agreement with the Company, which typically ranges from 10 to 20 years. As of November 30, 1996, the Company had $6.2 million of deferred revenue on its balance sheet ($13.1 million on a pro forma basis reflecting the acquisition of Manhattan Limousine). Cost of revenue primarily consists of amounts due to the Company's independent operators. The amount due to independent operators is a percentage (ranging from 60% to 65%) of the charges for services provided, net of discounts and commissions. Cost of revenue also includes amounts due to the Company's licensees and affiliates for chauffeured vehicle services provided by them and billed by the Company. Such amounts generally include the charges for services provided less a referral fee ranging from 15% to 25% of net vehicle service revenue. Cost of revenue also includes salaries and benefits paid to chauffeurs employed by the Company. To a lesser extent, cost of revenue includes costs associated with owning and maintaining the vehicles owned by the Company, telecommunications expenses, salaries and benefits for reservationists, marketing expenses for the benefit of licensees, and commissions due to travel agents and credit card companies. Selling, general and administrative expenses consist primarily of compensation and related benefits for the Company's officers and administrative personnel, marketing and promotional expenses for the Company's owned and operated chauffeured vehicle service companies, and professional fees, as well as amortization costs related to the intangibles recorded as a result of the Company's acquisitions. In addition to internal growth from the Company's sales and marketing efforts, an important component in the Company's growth to date has been the acquisition of its licensees and other chauffeured vehicle service companies. Since December 1994, Carey has acquired eight chauffeured vehicle service companies. Each of these acquisitions was made for cash and the issuance or assumption of notes and was accounted for using the purchase method of accounting. A substantial majority of the purchase price paid by the Company in each such acquisition represented goodwill, franchise rights (if a licensee was acquired) and/or other intangibles. Such franchise rights and goodwill are amortized over 30 years on a straight-line basis and amounted to $12.6 million (net of accumulated amortization) as of November 30, 1996. As a result of the acquisition of Manhattan Limousine, the Company will recognize an additional $19.1 million of goodwill. The results of operations for the acquired companies have been included in the Company's consolidated financial statements from their respective dates of acquisition. Carey expects to benefit from each of its acquisitions by consolidating general and administrative functions, increasing operating efficiencies, and, as a 16 result of converting salaried chauffeurs to independent operators, eliminating the overhead and capital costs associated with employing salaried chauffeurs, leasing garages, maintaining parts and fuel inventories, and owning and operating vehicles. The Company generally realizes these benefits within six to twelve months after an acquisition, depending upon whether the acquisition is of a chauffeured vehicle service company in a location in which the Company already operates, or of a licensee in a market where Carey has yet to establish operations. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data for the Company expressed as a percentage of revenue, net. With respect to the pro forma data, see "Pro Forma Consolidated Financial Statements" and the notes thereto.
FISCAL YEAR ENDED NOVEMBER 30, ----------------------------------- 1994 1995 1996 ------- ------- ----------------- PRO ACTUAL FORMA -------- ------- Revenue, net............................. 100.0% 100.0% 100.0% 100.0% Cost of revenue.......................... 70.2 68.9 68.0 66.0 ------- ------- ------- ------- Gross profit............................. 29.8 31.1 32.0 34.0 Selling, general and administrative expense................................. 26.7 28.6 25.3 26.6 ------- ------- ------- ------- Operating income......................... 3.1 2.5 6.7 7.4 Interest expense and other income (expense)............................... (3.4) (3.0) (2.1) 0.1 ------- ------- ------- ------- Income (loss) before provision (benefit) for income taxes........................ (0.3) (0.5) 4.6 7.5 Provision (benefit) for income taxes..... 0.1 -- (0.2) 3.2 ------- ------- ------- ------- Net income (loss)........................ (0.4) (0.5) 4.8 4.3 ======= ======= ======= =======
YEAR ENDED NOVEMBER 30, 1996 COMPARED TO YEAR ENDED NOVEMBER 30, 1995 Revenue, Net. Revenue, net increased approximately $16.0 million or 36.8% from $43.5 million in 1995 to $59.5 million in 1996. Of the increase, approximately $9.6 million was contributed by existing operations as a result of expanded use of the Carey network, including an increase in business from corporate travel customers and business travel arrangers, and approximately $6.4 million was due to revenues of companies which were acquired from December 1994 through February 1996. Cost of Revenue. Cost of revenue increased approximately $10.5 million or 35.1% from $29.9 million in 1995 to $40.4 million in 1996. The increase was primarily attributable to higher costs due to increased business levels. Cost of revenue decreased as a percentage of revenue from 68.9% in 1995 to 68.0% in 1996 as a result of spreading the fixed costs of the Company's reservations infrastructure over a larger revenue base. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.7 million or 21.4% from $12.4 million in 1995 to $15.1 million in 1996. The increase was largely due to higher administrative costs associated with additional personnel, increased marketing and promotional expenses, and higher amortization of intangibles as a result of acquisitions. Selling, general and administrative expenses decreased as a percentage of net revenue from 28.6% in 1995 to 25.3% in 1996 as a result of an increase in revenue without a comparable increase in administrative costs. Interest Expense. Interest expense was approximately $1.7 million in each of 1995 and 1996. Interest expense decreased as a percentage of net revenue from 3.0% in 1995 to 2.1% in 1996. Provision (benefit) for Income Taxes. The provision for income taxes was nominal in 1995 and in 1996. Prior to 1996, the Company recorded a valuation allowance against its net deferred tax assets. This allowance was reversed in 1996 in accordance with generally accepted accounting principles. The reversal reduced the 17 provision for income taxes in 1996 by approximately $1.5 million. The increase in the provision recordable in 1996, which was offset by the effect of reducing the valuation allowance against deferred tax assets, was attributable to the Company's increased pretax profit level in 1996 which exceeded the beneficial tax effect of net operating loss carryforwards of prior years. The Company has utilized the full amount of its net operating loss carryforwards. Net Income (Loss). As a result of the foregoing, the Company had net income of approximately $2.8 million in 1996 compared to a net loss of approximately $195,000 in 1995. YEAR ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED NOVEMBER 30, 1994 Revenue, Net. Revenue, net increased approximately $8.0 million or 22.4% from $35.5 million in 1994 to $43.5 million in 1995. Of the increase, approximately $4.7 million was due to revenues of companies acquired from December 1994 through August 1995, as well as the full year effect in 1995 of companies acquired in 1994. Approximately $3.3 million of the increase was contributed by existing operations as a result of an increase in business from corporate travel customers, business travel arrangers, special event business, and the implementation in mid-1995 of charges to licensees for central reservation and billing services. Cost of Revenue. Cost of revenue increased approximately $4.9 million or 20.0% from $25.0 million in 1994 to $29.9 million in 1995. The increase was primarily attributable to higher operating costs due to increased business levels and to operating costs related to acquired companies. Cost of revenue decreased as a percentage of revenue from 70.2% in 1994 to 68.9% in 1995 as a result of increased utilization of the Company's operating resources and the implementation, in mid-1995, of charges to licensees for central reservation and billing services which did not result in a corresponding increase in cost. Selling, General and Administrative Expense. Selling, general and administrative expenses increased approximately $2.9 million or 30.9% from $9.5 million in 1994 to $12.4 million in 1995. This increase was largely due to higher costs associated with additional personnel, increased marketing and promotional expense, and the increase in the amortization of intangibles recorded as a result of acquisitions. Selling, general and administrative expenses increased as a percentage of revenue from 26.7% in 1994 to 28.6% in 1995 as a result of relatively higher levels of administrative costs in existing operations and additional expenses related to companies acquired late in 1995 whose operations were not consolidated with the Company's operations until 1996. Interest Expense. Interest expense increased approximately $334,000 or 24.8% from approximately $1.4 million in 1994 to $1.7 million in 1995. This increase was due to net increases in debt in 1995 to fund acquisitions. Interest expense as a percentage of revenue increased slightly from 3.8% in 1994 to 3.9% in 1995. Provision for Income Taxes. The provision for income taxes was nominal in 1994 and in 1995. Net Loss. As a result of the foregoing, the Company had a net loss of approximately $195,000 in 1995 compared to a net loss of approximately $129,000 in 1994. 18 QUARTERLY RESULTS The following table presents unaudited quarterly financial information for 1995 and 1996. This information has been prepared by the Company on a basis consistent with the Company's audited financial statements and includes all adjustments (consisting only of normal recurring adjustments) which management considers necessary for a fair presentation of the results for such quarters.
QUARTER ENDED --------------------------------------------------------------------- 1995 1996 --------------------------------- ---------------------------------- FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. 28 31 31 30 29 31 31 30 ------ ------- ------- ------- ------- ------- ------- ------- (IN THOUSANDS) Revenue, net............ $8,333 $10,320 $10,235 $14,596 $11,558 $15,043 $14,575 $18,330 Gross profit............ 2,647 3,113 2,980 4,800 3,654 4,835 4,737 5,841 Operating income (loss)................. (101) 235 (216) 1,204 293 1,037 987 1,673 QUARTER ENDED --------------------------------------------------------------------- 1995 1996 --------------------------------- ---------------------------------- FEB. MAY AUG. NOV. FEB. MAY AUG. NOV. 28 31 31 30 29 31 31 30 ------ ------- ------- ------- ------- ------- ------- ------- Revenue, net............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Gross profit............ 31.8 30.2 29.1 32.9 31.6 32.1 32.5 31.9 Operating income (loss)................. (1.3) 2.2 (2.1) 8.2 2.5 6.8 6.7 9.1
The Company believes that its future operating results may continue to be subject to quarterly variations caused by such factors as seasonal business travel, variable scheduling of special events and the timing of acquisitions by the Company. The Company's least profitable quarter generally has been the first quarter (ending February 28 or 29), and its most profitable quarter generally has been the fourth quarter (ending November 30). LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funding have been cash flow from operations, proceeds from the bulk sale of independent operator notes, commercial bank credit facilities, notes issued by the Company to sellers of acquired chauffeured vehicle service companies and, to a lesser extent, the sale of vehicles obtained from acquired companies. For the three-year period ended November 30, 1996, the Company generated $7.9 million in cash from operating activities, had aggregate borrowings to fund acquisitions of $6.5 million and had proceeds from bulk sales of notes from independent operators of approximately $2.6 million. The Company anticipates that in addition to the proceeds from this offering, cash flow from operations and borrowings under credit facilities will be its principal sources of funding. The Company has discontinued its practice of selling notes received from independent operators. The Company's principal uses of cash have been, and will continue to be, the funding of acquisitions, repayment of debt, and investment in both its centralized reservation facility and its automated operation and information systems. Net cash provided by operating activities increased by $1.9 million from 1995 to 1996 primarily as a result of an increase in operating income, as adjusted for depreciation and amortization of fixed assets, franchise rights and goodwill from acquired operations. Net cash provided by operating activities increased by approximately $2.0 million from 1994 to 1995 primarily as a result of the timing of payments to independent operators to support increased working capital requirements and as a result of its acquisition activities and internal growth. As of November 30, 1996, the Company's working capital deficit and current ratio were approximately $1.7 19 million and 0.90, respectively, as a result of the high level of short term debt generated as a result of the Company's practice of borrowing against its cash flow rather than its assets, many of which are intangible in nature. The Company may continue to experience working capital deficits as a result of short term borrowings to finance its acquisition strategy. Cash was used in investing activities in 1995 and 1996 primarily for the acquisition of chauffeured vehicle service companies. In 1994, relatively little acquisition activity occurred and cash for investment purposes was used primarily for capital expenditures unrelated to acquisitions. In all periods, funds used for acquisitions and capital expenditures were offset to some degree by proceeds from the sale of fixed assets, primarily vehicles acquired in connection with the purchase of chauffeured vehicle service businesses. Cash used in financing activities increased by $2.7 million from 1995 to 1996 primarily as a result of increased repayment of notes payable related to acquisitions. Cash provided by financing activities increased by $2.7 million from 1994 to 1995 primarily as a result of increased borrowings and increases in the bulk sale of notes receivable from independent operators. At November 30, 1996, the Company had borrowings, exclusive of notes payable to sellers of chauffeured vehicle service companies, in the amount of approximately $14.7 million. This debt was composed of (i) a $3.9 million term loan which is collateralized by the stock of the Company's United States subsidiaries, (ii) $1.3 million term loan which is collateralized by an assignment of the Carey name and trademark and license agreements related thereto, (iii) $5.8 million in subordinated debt, and (iv) $3.7 million in debt to commercial banks, which borrowings are typically collateralized by a subsidiary's accounts receivable and other assets. Of the Company's total debt at November 30, 1996, approximately $9.1 million will be repaid from the proceeds of this offering. See "Use of Proceeds." As part of the Recapitalization, a further $4.9 million of the debt will be converted to Common Stock of the Company, approximately $1.3 million of the Company's Series G and Series F Preferred Stock will be redeemed for cash in the amount of $1,000,000, and all outstanding shares of the Company's Series A Preferred Stock will be redeemed for $2,103,500 in cash and 86,003 shares of Common Stock, which payment will be made from the proceeds of this offering. See "Description of Capital Stock--Recapitalization." The Company intends to establish a senior credit facility of approximately $25 million in the aggregate subject to the completion of this offering, to be used primarily for acquisitions. There can be no assurance that the Company will be successful in obtaining such a credit facility or that, if obtained, it will be on terms and conditions favorable to the Company. While there can be no assurance, management believes that cash flow from operations, funds from any new credit facilities established and net proceeds to the Company from this offering will be adequate to meet the Company's capital requirements for the next 12 months, depending on the size and methods of financing potential acquisitions. While the Company historically has financed acquisitions primarily with cash, it may seek to finance future acquisitions by using Common Stock for a portion or all of the consideration to be paid. IMPACT OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS The Company does not believe that inflation and foreign currency fluctuation has had, or will have, a material impact on the financial position and results of operation. 20 BUSINESS Carey International, Inc. is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The "Carey" brand name has represented quality chauffeured vehicle services since the 1920s. The Company owns and operates its service providers in New York, San Francisco, Los Angeles, London, Washington D.C., South Florida and Philadelphia. In addition, the Company generates revenues from licensing the "Carey" name and providing central reservation, billing and sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated companies nor licensees. Over the past five years, the Company has invested significant capital in developing its reservation, central billing and worldwide service infrastructure. By leveraging its current infrastructure and position as a market leader, the Company intends to consolidate the highly fragmented chauffeured vehicle service industry through the acquisition of: (i) current Carey licensees, (ii) additional companies in markets in which the Company already owns and operates a chauffeured vehicle service company, and (iii) companies in other strategic markets in North America, Europe and the Pacific rim of Asia. The Carey network utilizes chauffeured sedans, limousines, vans and minibuses to provide services for airport pick-ups and drop-offs, inter-office transfers, business and association meetings, conventions, roadshows, promotional tours, special events, incentive travel and leisure travel. Businesses and business travelers utilize the Company's services primarily as a management tool, to achieve more efficient use of time and other resources. Carey's worldwide network of chauffeured vehicle service companies allows it to provide services with consistently high quality to its customers in virtually every major city in the expanding global travel market. The network is linked to over 300,000 reservation terminals in travel agencies, corporate travel departments and government agencies by the Carey International Reservation System (the "CIRS"), the chauffeured vehicle service industry's most extensive centralized global reservation system. MARKET OVERVIEW The Company estimates that the United States chauffeured vehicle service industry generated revenues of approximately $3.9 billion in 1996, and has undergone steady growth in recent years, with revenues increasing at a compound annual growth rate of 10.9% between 1990 and 1996. The industry is highly fragmented, with approximately 9,000 companies utilizing over 100,000 vehicles. The Company believes that during 1996 no chauffeured vehicle service company accounted for more than 2% of total United States industry revenues. The Company also believes that similar fragmentation exists in the chauffeured vehicle service industry outside the United States. The chauffeured vehicle service industry serves businesses in virtually all industrial and financial sectors of the economy. The Company believes that business customers are becoming increasingly sophisticated in their use of ground vehicle services and are demanding a broader array of "meet-and-greet" and other services, as well as business amenities such as cellular phones. Although there are other forms of transportation that compete with chauffeured vehicles, such as buses, jitney services, taxis, radio cars and rental cars, the Company believes that none of those forms of transportation provides the quality, dependability and value-added services of chauffeur-driven vehicles. The Company also believes that businesses place a premium on service providers that are able to coordinate the travel itinerary of each member of a large group over many locations with a single reservation and billing system. 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 21 operates such a company and in other strategic regions in North America, Europe and the Pacific rim of Asia. Carey believes it has a competitive advantage in acquiring licensees because of a right of first refusal contained in a substantial majority of its domestic license agreements. The Company has successfully begun to implement its acquisition strategy, having acquired 15 chauffeured vehicle service companies since October 1991. Upon the closing of this offering, the Company will acquire Manhattan Limousine, one of the largest chauffeured vehicle service companies in the New York metropolitan area and the operator of the Manhattan International Limousine Network. Increase International Market Share. Currently, approximately 12.8% of the Company's revenues are derived from services performed outside the United States. Carey believes that its network can capture a significant portion of the growing international market for chauffeured vehicle services by acquiring or licensing additional chauffeured vehicle service companies and otherwise implementing the Carey system outside the United States. The Company intends to increase its international presence by intensifying its sales and marketing efforts, strengthening its relationships with significant domestic and international business travel arrangers, and capitalizing on the capacity of the CIRS to operate on a global scale. By enhancing its international presence, the Company also expects to increase its revenues from providing chauffeured vehicle services to international travelers both visiting the United States and travelling abroad. Expand Licensee Network Worldwide. The Company will seek to expand its worldwide network and generate additional revenues from license and marketing fees by licensing additional chauffeured vehicle service companies in smaller markets that do not justify a Company-owned presence. Ultimately, as these less strategic markets grow in size and importance to the Company, the licensees in such markets may become acquisition candidates for the Company. Convert Salaried Chauffeurs to Independent Operators. The Company believes that it can improve its profitability by continuing to convert salaried chauffeurs to independent operators. The objective of Carey's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner, thereby increasing the profitability of the chauffeur and the Company. Carey's independent operator program allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. ACQUISITION STRATEGY Carey believes that there are significant opportunities to acquire additional chauffeured vehicle service companies as a result of: (i) the highly fragmented and increasingly global nature of the industry, (ii) industry participants' capital requirements and desire for liquidity, and (iii) the pressures of increasing competition. The Company intends to continue to pursue its acquisition program in order to strengthen its position in its existing markets and to acquire operations in new markets. The Company believes that it has a market share of less than 10% in each of the markets in which it owns and operates a chauffeured vehicle service company, and that there is significant potential for it to expand its business in such markets through acquisitions. When justified by the size of an existing market acquisition, the Company expects to retain key management and sales personnel of the acquired company and to seek to improve that company's profitability through implementation of the Company's operating strategies. In most instances, acquired operations can be integrated into the Company's existing operations in a market, resulting in elimination of duplicative overhead and operating costs. Carey intends to pursue acquisitions that will allow the Company to own and operate chauffeured vehicle service companies in new geographic markets. The Company currently owns and operates chauffeured vehicle service companies in six of the largest United States travel markets and in London, the largest European travel market, and will seek to acquire Carey licensees in other significant travel markets in North America, Europe, and the Pacific rim of Asia. The Company believes that its ability to acquire its licensees will be enhanced by a right of first refusal that is contained in a substantial majority of its domestic license agreements and the 22 limited terms of most of its international license agreements. The Company's preference is to retain key management, operating and sales personnel of an acquired company in a new market in order to maintain continuity of operations and customer service. The Company believes that there are significant advantages to consolidating the chauffeured vehicle service industry. Carey believes it can increase revenues of acquired companies by marketing the worldwide services of its network to customers of such companies, and by increasing the productivity of chauffeurs at the acquired companies through the implementation of training and quality assurance programs. Moreover, Carey believes that cost savings can be achieved following acquisitions through (i) the consolidation of certain administrative functions and increased use of automation, (ii) the elimination of redundant facilities, equipment and personnel and (iii) the conversion of salaried chauffeurs driving company-owned vehicles into independent operators driving their own vehicles. Carey has successfully begun its acquisition strategy, having acquired 15 chauffeured vehicle service companies since October 1991. The following table lists the date of acquisition, location of each such chauffeured vehicle service company and whether the acquired company was a licensee or affiliate of the Company or other chauffeured vehicle service company: ACQUISITION HISTORY OCTOBER 1991--PRESENT
DATE LOCATION ACQUIRED COMPANY ---- -------- ---------------- October 1991.................... Washington, D.C. Other September 1992.................. Los Angeles, CA Other July 1993....................... Wilmington, DE Licensee September 1993.................. West Palm Beach, FL Licensee November 1993................... New York, NY Other June 1994....................... Washington, D.C. 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(/1/) April 1997(/2/)................. New York, NY Other
- -------- (1) Prior to the acquisition, the Company had no licensee in London. (2) The acquisition will be completed upon the closing of this offering. See "Acquisition of Manhattan Limousine." The Company has analyzed significant data on the chauffeured vehicle service industry and individual businesses within that industry and believes that it is well positioned to further implement its acquisition program following this offering. The Company believes that management's lengthy tenure with the Company, extensive experience in the chauffeured vehicle service industry and relationships with acquisition candidates provide the Company with significant knowledge that will assist the Company in its attempts to acquire licensees of the Company and other chauffeured vehicle service companies. The Company regularly reviews various strategic acquisition opportunities and periodically engages in discussions regarding such possible acquisitions. Currently, other than with respect to the acquisition of Manhattan Limousine, the Company is not a party to any agreements regarding any material acquisitions; however, as the result of the Company's process of regularly reviewing 23 acquisition prospects, negotiations and such acquisition agreements may occur from time to time if appropriate opportunities arise. The acquisition of Manhattan Limousine is intended to solidify the Company's presence in the New York metropolitan area and diversify its customer base. In particular, the Company intends to capitalize on Manhattan Limousine's strategic partnering arrangements with many New York-based participants in the hotel and airline industries, including hotels such as the Four Seasons and Plaza Hotel and airlines such as Virgin Atlantic and Aer Lingus. In 1996, approximately 18.0% of Manhattan Limousine's revenues were derived from services performed for Virgin Atlantic. While the Company intends to consolidate certain administrative operations of Manhattan Limousine with its own and to eliminate redundant facilities, equipment and personnel, Manhattan Limousine otherwise will retain its separate identity for at least 12 months following the consummation of the acquisition. Manhattan Limousine provides services solely through independent operators rather than salaried chauffeurs. As a result, Carey will not be able to realize the benefits of converting salaried chauffeurs into independent operators following the acquisition. See "--Independent Operators." Manhattan Limousine's network is composed of approximately 300 affiliates from which Manhattan Limousine receives fees for referred business. A significant majority of Manhattan Limousine's affiliates are located in cities in which the Company already has affiliates, and in some cities the companies share common affiliates. As consideration for future acquisitions, the Company intends to use various combinations of shares of Common Stock, cash and notes. Some or all of any shares of Common Stock issued in connection with acquisitions may be registered under the Securities Act. SERVICE PROVIDER NETWORK Carey's international network of owned and operated chauffeured vehicle service companies, licensees and affiliates, serving 420 cities in 65 countries, enables it to provide its customers chauffeured vehicles in virtually every significant travel market throughout the world. Carey believes that its network is the most extensive in the industry, and intends to expand the network by adding qualified licensees and affiliates in locations justifying new or expanded service. The Company believes that the trend toward globalization is opening more cities for business and personal travel around the world. The Company monitors and evaluates cities in which a demand for chauffeured vehicle services may warrant a "Carey" presence. The Company's network provides chauffeured vehicle services for airport pickups and drop-offs, inter-office transfers, business and association meetings, conventions, road shows, promotional tours, special events, incentive travel and leisure travel. Of these activities, the Company derived approximately 9.3% of its 1996 pro forma revenues from hotel contracts, approximately 8.3% from financial services customers and approximately 5.1% from contracts with airlines. The Company also offers its clients travel and tour planning services, "meet-and-greet" services, destination management services, group movement coordination services, direct and central billing in U.S. dollars, and access to the Company's 24-hour worldwide computerized reservation system, the CIRS. The Company's fleet in its owned and operated locations contains four types of vehicles consisting of chauffeured sedans, limousines, vans and minibuses, some of which can carry up to 30 persons. In addition, the Company subcontracts from time to time for buses that can carry a greater number of passengers. The fleets of the Company's licensees and affiliates in larger markets are similar to the Company's fleet, and in smaller markets generally consist of only chauffeured sedans and limousines. All vehicles are driven by uniformed professional chauffeurs, most of whom own the vehicles that they drive. Each such chauffeur drives a clean, late model vehicle with amenities important to the business traveler, such as cellular telephones and daily newspapers. Owned and Operated Companies. The Company owns and operates chauffeured vehicle service companies in New York, San Francisco, Los Angeles, London, Washington, D.C., South Florida and 24 Philadelphia. Revenue from these companies represented approximately 74.7% of the Company's revenue, net in fiscal 1995 and 73.6% in fiscal 1996. Licensees. The Company has 38 licensees serving 106 cities in the United States and 24 licensees serving 105 cities outside the United States, all of which operate under the Carey name. 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 the domestic license agreement prior to January 1, 1996 is perpetual and subsequent to January 1, 1996 is 10 years. International licensees historically have not paid annual license fees; rather, they have paid a commission on business referred to them. The term of the agreement of the international licensee usually is from year to year, although in a few cases they are perpetual. Under the domestic license agreement, the Company provides the licensee with (i) the right to use the "Carey" name, (ii) participation in the CIRS, (iii) various consulting services, (iv) identification in various travel directories, (v) access to bulk purchasing arrangements for automobiles, parts and maintenance materials and (vi) national sales and marketing services. In the event of a proposed transfer of a license or a licensee, the Company has the right to approve the transferee. In addition, for most license agreements executed prior to January 1, 1996 and all license agreements executed on or after January 1, 1996, Carey retains a right of first refusal by which it may acquire any license or licensee upon the same terms as the license or licensee is proposed to be sold. Typically, a licensee candidate acts as an affiliate before being selected as a licensee. Licensees operate according to strict service guidelines specified by the Company and market the Carey name in conjunction with the Company's overall marketing program. The Company conducts ongoing quality assurance programs and annual audits of licensees to insure that the licensees have met the high service standards set forth by the Company. The Company has the right to terminate any license if the licensee fails to comply with such standards. Affiliates. The Company utilizes affiliates to provide services to its clients in cities where the Company does not have Company-owned operations or licensees. Affiliates are not licensed to use the Carey name and do not pay license fees to the Company, but must meet the Company's quality standards in order to receive referred business. Pursuant to oral agreements between the Company and its affiliates, the Company is entitled to receive a commission of 15% of net vehicle revenues for all referred business. The Company's affiliates are located in 121 cities in the United States and 67 cities outside the United States. CAREY INTERNATIONAL RESERVATION SYSTEM (CIRS) The hub of the Company's network of service providers is the CIRS, the Carey International Reservation System. The CIRS is operated on a 24-hour basis by Carey's central reservation department, which processes reservations through the Company's proprietary computer system. The central reservation department receives reservations through the Company's toll free "800" telephone number (800-336-4646), by fax or telex, or through one of the six major airline reservation systems, SABRE, APOLLO, WORLDSPAN, GALILEO, BABS and SITA. These airline systems allow travel agencies, corporate travel departments and government offices to access the CIRS through over 300,000 reservation terminals worldwide. The Company bills a licensee or affiliate for each reservation referred to the licensee or affiliate through the CIRS. The CIRS can be accessed for up-to-date tariffs both in dollars and in foreign currency for 420 cities throughout the world. Through the CIRS, the Company's reservation and customer service personnel have instant access to all rates, services offered, types of vehicles available and special airport greeting capabilities in each individual city. Individual customer profiles are maintained, including vehicle and chauffeur preferences, frequent pick-up points, addresses and directions, billing requirements and account status. 25 The CIRS is used to make arrangements for a broad range of business and consumer applications such as transportation to and from airports, association and industry meetings and functions, road shows, transportation related to incentive travel, board of directors meetings and sight seeing tours. Special customer service facilities are available with direct phone lines, including a special service desk, executive VIP desk, international tour desk, special event desk and road show desk. The CIRS utilizes client/server architecture and proprietary software developed over a five-year period which allows constant input into a complex international network linking more than 65 countries. A primary strength of the CIRS is the reliability of its reporting and control systems which verify all reservations for complete information, customer service requirements and accounting authorizations. The CIRS also contains customer invoicing programs to allow central billing directly through the system for all services used worldwide. In addition, the system's ability to track reservations allows more accurate and detailed analyses for marketing purposes. In 1992, the Company began leasing its reservation and operating systems to its licensees. These systems create a basis for certain licensees to have direct access to the CIRS and provide them with the ability to book local reservations, dispatch vehicles and account for chauffeured vehicle services. MARKETING, SALES AND CUSTOMER SERVICE The Company believes that "Carey," a registered service mark, is a highly recognized name in the chauffeured vehicle service and travel industries worldwide. The Company intends to continue to expand recognition of the "Carey" name through its marketing and promotional efforts. Carey has developed an extensive marketing program directed at both the travel arranger and the end user of chauffeured vehicle services. The program consists of directory listings, advertising, direct mail, public relations, cooperative promotional and joint marketing programs, attendance at and sponsorship of travel-related conventions and workshops, and direct selling. The direct sales force serving the Company and its licensees currently consists of 20 professionals. Carey is listed in 95 travel directories which are used by travel arrangers to obtain information on travel related services. Advertising targeted at travel arrangers is placed in over 35 trade journals including Business Travel Executive, Travel Weekly, Travel Trade and Business Travel News. In addition, the Company advertises extensively in magazines and newspapers, consumer association books, hotel room information books and the Yellow Pages, and on radio and television in selected markets. The Company's continuing direct mail program is targeted at both the travel arranger and the end user. The program distributes approximately two million promotional pieces annually. Most major travel arrangers receive at least six direct mail pieces per year which include announcements of new services, news on service providers and reservation programs, the Carey Newsletter and listings of rates. End users and arrangers receive promotional pieces on Carey when they are billed for the Company's services. The Company's marketing program seeks to build upon brand name acceptance, customer loyalty, service know-how, technology and strategic market relationships with other market leaders in the travel and tourism industry, such as airlines, travel agencies, credit card companies and central reservation systems. The Company's sales force calls on thousands of accounts annually and participates in trade shows, seminars and association meetings. The Company also is involved in promotional and cooperative agreements with American Express Platinum Card and Gold Card, Diner's Club "Club Chauffeur" program, British Airways, Air France and various cruise lines. The Company believes that the retention and expansion of existing business is as important as new sales. Carey has established a base of loyal customers in part by monitoring the standard of service through its quality assurance and customer service programs. To assure that the Company continues to provide consistently high 26 quality and reliable service, Carey operates a five-part quality assurance program. The Company's quality assurance program utilizes survey cards that are sent to customers and travel arrangers. Approximately 90% of the quality assurance cards returned to Carey during the twelve-month period ended November 30, 1996 rated the Company's reservation services, chauffeurs and vehicles as "excellent." Carey's quality assurance program includes evaluations performed by an independent consultant to measure the quality of chauffeur services, the appearance of chauffeurs and vehicles, and the availability of other amenities, such as cellular phones and daily newspapers. INDEPENDENT OPERATORS An important component of Carey's strategy involves the preferred use of independent operators instead of salaried chauffeurs operating Company-owned vehicles. An independent operator takes responsibility for owning, operating and maintaining his or her own vehicle. The Company believes that acting as an independent operator creates incentives for the chauffeur to become more productive, efficient and service-oriented, thereby increasing the profitability of the chauffeur and the Company. The objective of the Company's independent operator strategy is to instill in each chauffeur the sense of purpose, responsibility and dedication characteristic of an independent business owner. The use of independent operators allows the Company to reduce its labor and capital costs, convert fixed costs to variable costs and generate revenues from fees paid by independent operators. Because of the greater responsibility borne by independent operators, the Company is able to allocate fewer resources to oversee its vehicle operations. As a result, the Company can focus to a greater extent on support services, business development, administration, billing, quality assurance, and sales and marketing. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle consistent with the Company's standards. Each new independent operator agrees to pay an initial fee to the Company, acquires his or her vehicle and pays all of the maintenance and operating expenses of such vehicle, including gasoline. Prior to December 1996, the Company's typical agreement with an independent operator had a term of 10 years and provided for a fee ranging from $30,000 to $45,000 (depending on the local market) that was financed by the Company at an annual interest rate of 8% to 12%. The notes evidencing such financing generally were sold by the Company to third parties. Since December 1996, the independent operator agreements entered into by the Company generally have provided for, and the Company intends that future agreements will provide for, a term of 15 years, fees of $45,000 to $60,000 and an interest rate of 14% per year. In certain markets, such as New York, the Company may provide longer terms and higher fees in its independent operator agreements. Currently, the Company does not intend to continue its former practice of selling to third parties notes evidencing independent operator financing. The independent operator agreement provides that the Company will bill and collect all revenues (as defined in the agreement) and remit to the independent operator 60% to 65% of such revenues. In this arrangement, the Company assumes the risk of collecting from each customer and generally pays the independent operator his or her share regardless of whether the Company is paid by the customer. An independent operator's failure to meet the high standards of service associated with the Carey name constitutes a breach of the agreement and gives rise to a right of the Company to terminate the agreement. Independent operators also generally require financing to purchase their vehicles. Typically, independent operators have utilized banks, vehicle financing companies or CLI Fleet, Inc. ("CLI Fleet"), a finance company that specializes in providing financing to the chauffeured vehicle service industry. See "Certain Transactions." On occasion, the Company has provided secured vehicle financing to independent operators with repayment terms of three to five years. CUSTOMERS The Company's customer list exceeds 75,000 individuals and organizations that are dispersed across many different industries and geographic locations. No client accounted for more than 5% of the Company's revenue, 27 net in 1996. The Company's major clients include companies in the finance, travel and related services, manufacturing, pharmaceutical, airline, insurance, publishing, oil and gas exploration, entertainment, tobacco, and food and beverage industries. COMPETITION The chauffeured vehicle service industry is highly competitive and fragmented, with few significant national participants operating a multi-city reservation system. Each local market usually contains numerous local participants as well as a few companies offering regional and national service. Chauffeured vehicle service providers compete primarily on the basis of price, quality, scope of service and dependability. The Company also competes with service providers offering alternative modes of transportation, such as buses, jitney services, taxis, radio cars and rental cars. The Company believes that its high quality of service and dependability have allowed the Company to compete effectively in its markets. Carey competes both for customers and for possible acquisitions. The Company expects its business to become more competitive as existing competitors expand and additional companies enter the industry. Certain of the Company's existing competitors have, and any new competitors that enter the industry may have, access to significantly greater financial resources than the Company. GOVERNMENT REGULATION The Company's chauffeured vehicle service operations are subject to various state and local regulations and, in many instances, require permits and licenses from state and local authorities. In addition, the Company is regulated by the Federal Highway Administration with respect to, among other things, minimum vehicular insurance requirements. The Company believes that it has all required permits and licenses to conduct its operations and that it is in substantial compliance with applicable regulatory requirements relating to its operations. The Company is subject to federal and state laws, rules and regulations governing the offer and sale of franchises. A number of states have enacted laws that require detailed disclosure in the offer and sale of franchises and/or the registration of the franchisor with state administrative agencies. The Company is also subject to Federal Trade Commission regulations relating to disclosure requirements in the sale of franchises. Certain states have enacted, and others may enact, legislation governing certain aspects of the franchise relationship and limiting the ability of the franchisor to terminate or refuse to renew a franchise. The law applicable to franchise sales and relationships is rapidly developing, and the Company is unable to predict the effect on its franchise system of additional requirements or restrictions that may be enacted or promulgated or of court decisions that may be adverse to franchisors. Due to the scope of the Company's business, and the complexity of franchise regulation, compliance problems may be encountered from time to time. INSURANCE The Company is subject to accident claims as a result of the normal operation of its fleet of vehicles, which claims and the defense thereof generally are covered by insurance. The Company purchases automobile liability, automobile collision and comprehensive damage, general liability, comprehensive property damage, workers' compensation and other insurance coverages that management considers adequate for the protection of the Company's assets and operations, although there can be no assurance that the coverages and limits of such policies will be adequate. The Company's standard license agreement requires that its licensees purchase similar types of insurance and name the Company as a named insured in such insurance policies. A successful claim against the Company beyond the scope of its or its licensees' insurance coverage or in excess of its or its licensees' limits could have a material adverse effect on the Company's business, financial condition and results of operations. FACILITIES The Company owns a facility in Alexandria, Virginia used by its owned and operated chauffeured vehicle service company providing services in Washington, D.C. The Company leases its corporate headquarters in 28 Washington, D.C. and also leases nine administrative and/or operating facilities in California, New York, Pennsylvania, Florida and London. Management believes that the Company's facilities are adequate for its present needs and that suitable additional or replacement space will be available as required. EMPLOYEES AND INDEPENDENT OPERATORS As of November 30, 1996, the Company had approximately 307 full-time employees (approximately 97 of whom were chauffeurs) and approximately 81 part-time employees (approximately 52 of whom were chauffeurs). As of November 30, 1996, the Company also had agreements with approximately 317 independent operators. The Company is not a party to any collective bargaining agreement. INTELLECTUAL PROPERTY The Company is the registered owner of two United States service marks covering the "Carey" name. The Company believes that customer and travel arranger recognition of these marks has contributed to its success. The Company is not affiliated with Carey Transportation, Inc., a company that provides bus transportation services in the metropolitan New York City area. Except in this area, the Company believes it has the exclusive right to use the "Carey" name in connection with transportation services in all locations in which it either owns and operates a chauffeured vehicle service company or maintains a licensee. LEGAL PROCEEDINGS The Company and certain of its officers and directors were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania (Case No. 96-CV-3702) entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge. The surface transportation charge is billed by Carey to its customers and represents a surcharge on account of various fees and service costs incurred by it in its provision of services to such customers. The plaintiff seeks damages in excess of $1.0 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. A class has not yet been certified in this case. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. The Company currently is engaging in settlement discussions with the plaintiff's counsel. There can be no assurance that the Company will be able to obtain a settlement on acceptable terms or at all. The Company is indemnifying and defending its officers and directors who were named defendants in the case, subject to conditions imposed by applicable law. Although the Company does not believe the litigation described above will have a material adverse effect on its business, financial condition and results of operations, the defense of the litigation could be expensive and time-consuming, regardless of the outcome, and an adverse result in such litigation could have a material adverse effect on the Company's business, financial condition, results of operations and cash flows. The Company is a party to other litigation in the ordinary course of business. The Company does not anticipate an unfavorable result in any such litigation or believe that an unfavorable result, if it occurred, would have a material adverse effect on its business, financial condition and results of operations. 29 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information pertaining to the directors, executive officers and director nominees of the Company. Each director nominee has agreed to become a director of the Company upon the closing of this offering.
NAME AGE CURRENT POSITION ---- --- ---------------- Vincent A. Wolfington.......... 56 Chairman of the Board and Chief Executive Officer Don R. Dailey.................. 59 President and Director Guy C. Thomas.................. 58 Executive Vice President--Operations David H. Haedicke.............. 50 Executive Vice President and Chief Financial Officer Richard A. Anderson, Jr........ 51 Senior Vice President Sally A. Snead................. 37 Senior Vice President--Information Systems John C. Wintle................. 50 Senior Vice President--Europe Paul Sandt..................... 36 Vice President and Chief Accounting Officer Devin J. Murphy................ 30 Vice President--Corporate Development Robert W. Cox.................. 59 Director William R. Hambrecht........... 61 Director David McL. Hillman............. 43 Director Nicholas J. St. George......... 58 Director nominee
Set forth below is a description of the backgrounds of each of the directors, executive officers and director nominees 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 each of Infotechnology, Inc., Hadron, Inc. and Comtex Scientific Corporation, an affiliated group of companies. 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 an employee at Ernst & Young from 1973 to 1985, and was a partner from 1985 to June 1991. Mr. Haedicke is a Certified Public Accountant. 30 Richard A. Anderson, Jr. has served as a Senior Vice President of the Company since December 1988. Mr. Anderson also has been Chief Operating Officer of the Company's New York subsidiary, Carey Limousine NY, Inc., since December 1988. Mr. Anderson is Chairman of the New York Taxi and Limousine Commission's Limousine Advisory Board, a former Board Member of the Association of Corporate Travel Executives, and a member of the National Business Travel Association and Meeting Planners International. Sally A. Snead has served as the Company's Senior Vice President-- Information Systems since June 1993. From January 1987 to June 1993, she was Executive Vice President and General Manager of Carey Limousine L.A., Inc. She is a member of Executive Women International, the National Business Travel Association, the Association of Corporate Travel Executives and the National Limousine Association. John C. Wintle has served as the Company's Senior Vice President--Europe since May 1996 and as Executive Vice President and Managing Director of Carey U.K. Ltd., a subsidiary of the Company, since March 1996. From 1982 to February 1996, Mr. Wintle served Savoy Hotel PLC ("Savoy") and its affiliates, including Camelot Barthropp Ltd. ("Camelot"), in various capacities. From March 1993 to February 1996, Mr. Wintle was Executive Vice Chairman of Camelot, which was acquired by Carey U.K. Ltd. in February 1996. Previously, from 1989 to 1993, Mr. Wintle was General Manager, Restaurant Division, of several entities affiliated with Savoy. From 1982 to 1989, Mr. Wintle had been Group Financial Controller at Savoy. Paul 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 the Company's Vice President--Corporate Development since May 1996. 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, where he was Territory Manager from 1988 to 1991. Robert W. Cox has served as a director of the Company since 1995. From 1969 until his retirement in 1994, Mr. Cox was a partner in the New York and Chicago offices of the law firm Baker & McKenzie. From 1984 to 1992, Mr. Cox was Chairman of the Executive Committee and Managing Partner of the firm, and from 1993 to 1994, Mr. Cox was Chairman of the Policy Committee. Mr. Cox currently is a director of Hon Industries, Inc. William R. Hambrecht has served as a director of the Company since 1995. Mr. Hambrecht is Chairman of Hambrecht & Quist LLC, an investment banking firm which he co-founded in 1968. Mr. Hambrecht also serves as a director of Adobe Systems, Inc. David McL. Hillman has served as a director of the Company since 1994. Mr. Hillman is Executive Vice President of PNC Capital Corp. and Executive Vice President and Director of PNC Equity Management Corp., which he co-founded in 1982. Mr. Hillman is a director of several privately-held companies in connection with PNC Capital Corp.'s investments in such companies. Nicholas J. St. George will become a director of the Company upon consummation of this offering. Mr. St. George has been President and Chief Executive Officer of Oakwood Homes Corporation ("Oakwood"), a manufacturer and retailer of manufactured homes, since February 1979. Mr. St. George serves as a director of Oakwood, and also is a director of American Bankers Insurance Group, Inc. and Legg Mason, Inc. 31 BOARD OF DIRECTORS The Company's Board of Directors is divided into three classes with staggered three-year terms. After the completion of this offering, the initial term of Messrs. Hambrecht and Hillman expire at the Company's 1997 annual meeting, the initial terms of Messrs. Cox and St. George expire at the Company's 1998 annual meeting, and the initial terms of Messrs. Wolfington and Dailey expire at the Company's 1999 annual meeting. Successors to the directors whose terms expire at each annual meeting are elected for three-year terms. A director holds office until the annual meeting for the year in which his term expires and until his successor is elected and qualified. Executive Committee. After the completion of this offering, the members of the Executive Committee of the Company's Board of Directors will be Messrs. Wolfington, Cox and Dailey. The Executive Committee will exercise all the powers of the Board of Directors between meetings of the Board of Directors, except such powers that are reserved to the Board of Directors by applicable law. Audit Committee. After the completion of this offering, the members of the Audit Committee of the Company's Board of Directors will be Messrs. Hillman and St. George. The Audit Committee will make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans for and results of the audit, approve professional services provided by the independent public accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Company's internal accounting controls. Compensation Committee. After the completion of this offering, the members of the Compensation Committee of the Company's Board of Directors will be Messrs. Cox and Hambrecht. The Compensation Committee will establish a general compensation policy for the Company and approve increases in directors' fees and salaries paid to officers and senior employees of the Company. The Compensation Committee will administer the Company's equity incentive plans and will determine, subject to the provisions of the Company's plans, the directors, officers and employees of the Company eligible to participate in any of the plans, the extent of such participation and terms and conditions under which benefits may be vested, received or exercised. DIRECTOR COMPENSATION Members of the Board of Directors who also serve as officers of the Company do not receive compensation for serving on the Board. Each other member of the Board receives an annual retainer of $15,000 for serving on the Board, plus a fee of $1,000 for each Board of Directors' meeting attended. In addition, such directors receive an additional fee of $500 for each committee meeting attended, except that only one fee is paid in the event that more than one such meeting is held on a single day. All directors receive reimbursement of reasonable expenses incurred in attending Board and committee meetings and otherwise carrying out their duties. The Company's Board of Directors has adopted the Stock Plan for Non-Employee Directors (the "Directors' Plan"). A maximum of 100,000 shares of Common Stock may be delivered upon the exercise of options granted under the Directors' Plan and elections to receive shares in lieu of cash compensation. Only directors of the Company who are not employees of the Company or any of its subsidiaries (the "Non-Employee Directors") are eligible to participate in the Directors' Plan. While grants of stock options under the Directors' Plan are automatic and non-discretionary, all questions of interpretation of the Directors' Plan are determined by the Board of Directors. The Directors' Plan provides that on the date of this Prospectus, an option to purchase 7,500 shares of Common Stock will be granted to each Non-Employee Director. On the date of each subsequent annual meeting of stockholders, each Non-Employee Director continuing in office will be granted an option covering 2,500 shares and any newly elected Non-Employee Director will be granted an option covering 5,000 shares. The option exercise price for each option granted under the Directors' Plan will be the closing price of a share of the Common Stock as reported on the Nasdaq National Market on the date the option is granted, except that options 32 awarded on the date of this Prospectus will have an exercise price equal to the initial public offering price in this offering. All options granted under the Directors' Plan become fully exercisable six months after the date of grant. Unless sooner terminated following the death, disability or termination of service of a director, options granted under the Directors' Plan will remain exercisable until the fifth anniversary of the date of grant. In addition, upon certain transactions involving a change of control or the dissolution or liquidation of the Company, all options held by Non-Employee Directors will terminate; provided, however, that for a period of 20 days prior to the effective date of any such transaction, dissolution or liquidation, all options outstanding under the Directors' Plan that are not otherwise exercisable shall immediately vest and become exercisable. Under the Directors' Plan, a Non-Employee Director may elect to be paid all or a portion of his or her annual retainer in shares of Common Stock. Any such election must be made in writing at least 30 days prior to the date the annual retainer would be paid by the Company. The number of shares to be delivered to a Non-Employee Director upon such election is determined by dividing the amount of the annual retainer to be received in shares of Common Stock by the closing price of a share of Common Stock as reported on the Nasdaq National Market on the date the annual retainer is to be paid. The Board of Directors may at any time or times amend the Directors' Plan for any purpose which at the time may be permitted by law. EXECUTIVE COMPENSATION Summary Compensation Table The following table contains a summary of the compensation paid to the Chief Executive Officer of the Company and the other executive officers whose salary and bonus for the Company's fiscal year ended November 30, 1996 exceeded $100,000.
ANNUAL COMPENSATION ----------------------------------------------------- NAME AND OTHER ANNUAL ALL OTHER PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) COMPENSATION($)(1) - ------------------ --------- -------- --------------- ------------------ Vincent A. Wolfington.... $211,620 -- -- $57,000 Chairman and Chief Executive Officer Don R. Dailey............ 185,001 -- -- 57,000 President and Director Guy C. Thomas............ 115,000 -- $13,020(2) 6,300 Executive Vice President--Operations and Chief Operating Officer
- -------- (1) Includes with respect to each of Messrs. Wolfington and Dailey $45,000 paid for providing certain personal guarantees on behalf of the Company and $12,000 in life insurance premiums, and with respect to Mr. Thomas, $6,300 in life insurance premiums. (2) Includes a car allowance of $11,820. 33 OPTIONS TO PURCHASE SHARES OF COMMON STOCK Messrs. Wolfington, Dailey and Thomas hold options to purchase the following amounts of Common Stock, all of which options were exercisable at a price of approximately $4.65 per share. The aggregate values of the options are as set forth below, assuming a fair market value of $12.00 per share of Common Stock. The named officers neither were granted nor exercised options during the fiscal year ended November 30, 1996.
NUMBER OF SECURITIES NAME UNDERLYING OPTIONS VALUE ---- ------------------ -------- Vincent A. Wolfington......................... 105,706 $776,833 Don R. Dailey................................. 105,706 $776,833 Guy C. Thomas................................. 32,018 $235,300
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. Prior to the closing of this offering, the Company will adopt the 1997 Equity Incentive Plan (the "1997 Plan"), which provides for the award of up to 650,000 shares of Common Stock in the form of incentive stock options, non- statutory stock options, stock appreciation rights, restricted stock, performance stock units and other stock units which are valued by reference to the value of the Common Stock. The 1987 Plan, 1992 Plan and 1997 Plan are hereinafter referred to collectively as the "Equity Plans." Options are outstanding to purchase an aggregate of 445,383 shares of Common Stock under the 1987 Plan and the 1992 Plan. Prior to the closing of this offering, the Company intends to issue to employees options to purchase an aggregate of 411,500 shares of Common Stock pursuant to the 1997 Plan having an exercise price equal to the initial public offering price. Of these options, Messrs. Wolfington and Dailey each will receive an option to purchase 100,000 shares of Common Stock, and Mr. Thomas will receive an option to purchase 15,000 shares of Common Stock. The options issued to Messrs. Wolfington and Dailey will vest in full 90 days from the date of this Prospectus. The balance of the options issued under the 1997 Plan will vest with respect to one-quarter of the underlying shares on each of the first four anniversaries of the date of grant. Officers, key employees, non-employee directors of and consultants to the Company have participated in the 1987 Plan and the 1992 Plan. The 1987 Plan and the 1992 Plan both are administered by the Compensation Committee of the Board of Directors. Among other things, the Compensation Committee determines, subject to the provisions of said plans, who shall receive awards, the types of awards to be made, and the terms and conditions of each award. No incentive stock option may be granted under the 1987 Plan and the 1992 Plan at an exercise price less than the fair market value of the shares of Common Stock at the time the option is granted (and, in the case of stock options granted to holders of more than 10% of the Common Stock, no option may be granted at an exercise price less than 110% of the fair market value of the shares of Common Stock at the time the option is granted). All employees of the Company (including employees who also are directors) and any of its subsidiaries are eligible to participate in the 1997 Plan. The 1997 Plan will be administered by the Compensation Committee, which will determine who shall receive awards from those employees and directors eligible to participate in the 1997 Plan, the type of award to be made, the number of shares of Common Stock which may be acquired pursuant to the award and the specific terms and conditions of each award, including the purchase price, term, vesting schedule, restrictions on transfer and any other conditions and limitations applicable to the awards or their exercise. Options that are intended to qualify as incentive stock options may be exercisable for not more than one day less than 10 years after the date the option is awarded and may not be granted at an exercise price less than the fair market value of the shares of Common Stock at the time the option is granted. The Compensation Committee may at any time accelerate the exercisability of all or any portion of any option issued under the 1997 Plan. The Compensation Committee may amend, modify or terminate any outstanding award under the Company's Equity Plans with the participant's consent, except consent shall not be required if the Compensation Committee determines that such action will not materially and adversely affect the participant. The Board may amend, suspend or terminate any of the Equity Plans, or any part of such plans, at any time, except that no amendment may be made without stockholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement. 34 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of Common Stock before and after the completion of this offering for each beneficial owner of more than 5% of the Company's Common Stock, each director and director nominee of the Company, each named executive officer of the Company and all directors, director nominees 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. The information contained in the table and the footnotes thereto gives effect to the Recapitalization.
PERCENT OWNED ----------------- SHARES BEFORE AFTER BENEFICIALLY THE THE NAME OWNED OFFERING OFFERING - ---- ------------ -------- -------- Vincent A. Wolfington.......................... 316,228(1) 9.5% 4.9% Don R. Dailey.................................. 315,176(2) 9.5% 4.9% Guy C. Thomas.................................. 94,800(3) 2.9% 1.5% Robert W. Cox.................................. 12,900(4) * * William R. Hambrecht........................... 945,060(5) 29.4% 15.0% David McL. Hillman............................. -- (6) -- Nicholas J. St. George......................... -- -- H&Q London Ventures............................ 444,093 13.8% 7.0% One Bush St. San Francisco, CA 94104 H&Q Ventures International C.V.(7)............. 175,197 5.4% 2.8% H&Q Ventures IV(7)............................. 175,197 5.4% 2.8% PNC Capital Corp. ............................. 616,544(6) 19.2% 9.8% One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222 Yerac Associates, L.P. ........................ 516,018(8) 16.0% 8.2% 45 Belden Place San Francisco, CA 94104 All directors, director nominees and executive officers as a group (13 persons).................................. 1,716,517(9) 49.0% 26.0%
- -------- * Less than 1%. (1) Includes options to purchase 105,706 shares of Common Stock that currently are exercisable. Also includes 1,182 shares of Common Stock currently held by a company controlled by Mr. Wolfington. Excludes shares held by Yerac Associates, L.P., a limited partnership of which Mr. Wolfington is a limited partner, with respect to which shares Mr. Wolfington has no voting or investment power. Mr. Wolfington's address is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. (2) Includes options to purchase 105,706 shares of Common Stock that currently are exercisable. Excludes shares held by Yerac Associates, L.P., a limited partnership of which Mr. Dailey is a limited partner,with respect to which shares Mr. Dailey has no voting or investment power. Mr. Dailey's address is c/o Carey International, Inc., 4530 Wisconsin Avenue, N.W., Washington, D.C. 20016. (3) Includes options to purchase 32,018 shares of Common Stock that currently are exercisable. (4) Represents options to purchase shares of Common Stock that currently are exercisable. (5) Includes the following number of shares of Common Stock held by the following venture capital funds, as to which Mr. Hambrecht disclaims beneficial ownership: H&Q Ventures International C.V. (175,197 shares); H&Q London Ventures (444,093 shares); H&Q Ventures IV (175,197 shares); Hamquist (10,727 shares); Hambrecht & Quist, Inc. (21,454 shares) and Hambrecht & Quist Group (9,773 shares). Also includes (i) 85,816 shares of Common Stock with respect to which Mr. Hambrecht shares record and 35 beneficial ownership with Hamco Capital Corp., and (ii) 22,803 shares of Common Stock with respect to which Mr. Hambrecht shares record and beneficial ownership with the Hambrecht 1980 Revocable Trust. See "Certain Transactions." Mr. Hambrecht's address is c/o One Bush Street, San Francisco, CA 94104. (6) David McL. Hillman is Executive Vice President of PNC Equity Management Corp., an affiliate of PNC Capital Corp. Mr. Hillman disclaims beneficial ownership of the shares held by PNC Capital Corp. (7) This entity shares the same address as H&Q London Ventures. (8) Includes shares of Common Stock issuable upon exercise of a warrant to purchase 86,003 shares of Common Stock at a price of approximately $4.65 per share. The warrant is exercisable at any time until September 1, 2001. (9) See Notes 1, 2, 3, 4 and 5. Also includes 45,253 shares of Common Stock issuable upon exercise of the vested portions of options held by other executive officers of the Company. 36 CERTAIN TRANSACTIONS During 1993, for an aggregate purchase price of $850,000, the Company acquired 85 shares of non-voting redeemable preferred stock of CLI Fleet, Inc. ("CLI Fleet") a privately-held finance company formed for the purpose of financing the chauffeured vehicle service industry. As a holder of CLI Fleet preferred stock, the Company is currently entitled to receive an annual dividend of $500 per share. The Company waived the right to receive any dividends accrued in respect of its preferred stock through April 30, 1996, but during 1995 received referral fees totalling $100,000 from CLI Fleet. Also during 1995, CLI Fleet redeemed 10 shares of preferred stock held by the Company for an aggregate redemption price of $100,000. The remaining shares of preferred stock are subject to mandatory redemption by redemption payments of $100,000, $100,000 and $550,000 in May 1998, 1999 and 2000, respectively. Under the terms of an agreement with CLI Fleet, commencing in April 1998, the Company has an option to purchase all of the outstanding shares of common stock of CLI Fleet. To date, CLI Fleet has provided financing to the Company's independent operators, without recourse to the Company, for both initial fees due under the Company's independent operator agreements and with respect to vehicles purchased by independent operators. Each of the Company's owned and operated chauffeured vehicle service companies has entered into a Finance & Service Agreement with CLI Fleet, which provides that the Company will recommend and refer independent operators to CLI Fleet for financing of vehicles. To date, CLI Fleet also has purchased from the Company notes receivable due from independent operators in exchange for cash or demand notes on a non-recourse basis. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to CLI Fleet for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. These promissory notes are due on demand, although monthly principal payments generally are received. These notes bear interest at rates ranging from 5% to 7%. The Company generally no longer sells notes receivables from independent operators to CLI Fleet, although CLI Fleet continues to provide vehicle financing to the Company's independent operators. In connection with the Recapitalization, the exercise price of a warrant issued to PNC Capital Corp. ("PNC") will be reduced from approximately $6.14 to approximately $4.65 per share. In addition, upon the closing of this offering, Carey will repay approximately $912,000 of the $3.8 million in principal outstanding on its subordinated note held by PNC and apply the balance of the outstanding principal to pay the purchase price for 616,544 shares of Common Stock to be issued to PNC upon exercise of the warrant held by it. David McL. Hillman, a director of the Company, is Executive Vice President of PNC Equity Management Corp., an affiliate of PNC. In connection with the Recapitalization, the exercise price of a warrant to purchase 86,003 shares of Common Stock owned by Yerac Associates, L.P. ("Yerac") will be reduced from approximately $6.14 to approximately $4.65 per share. In addition, Yerac will convert the entire outstanding balance of a $2.0 million subordinated note held by it into approximately 430,000 shares of Common Stock. Messrs. Wolfington and Dailey are limited partners of Yerac. In connection with the Recapitalization, the Company will redeem 22,000 shares of Series A Preferred Stock held by entities affiliated with Hambrecht & Quist Group (collectively "H&Q") at a price of $1,100,000 in cash plus approximately 104,600 shares of Common Stock. Also in connection with the Recapitalization, (i) the conversion price of the Series G Preferred Stock will be reduced from $7.41 to approximately $6.14, and (ii) H&Q will receive approximately 2,093,200 shares of Common Stock as a result of the conversion of 5,500 shares of Series B Preferred Stock and 21,800 shares of Series G Preferred Stock. William R. Hambrecht, a director of the Company, is a director and chairman of Hambrecht & Quist Group, Hambrecht and Quist California, and Hamco Capital Corporation, and a general apartner of Hambrecht & Quist Venture Partners which, in turn, is the general partner of H&Q London Ventures, H&Q Ventures International C.V., and H&Q Ventures IV. Mr. Hambrecht is also a trustee of The Hambrecht 1980 Revocable Trust. Vincent A. Wolfington, the Company's Chairman and Chief Executive Officer, and Don R. Dailey, the Company's President, each has personally guaranteed certain indebtedness of the Company in the original principal amount of $4.5 million. The outstanding balance of this indebtedness totalled approximately $3.9 million as of November 30, 1996. The Company paid Messrs. Wolfington and Dailey $45,000 each during 1996 as a fee for guaranteeing such indebtedness. The Company will use part of the net proceeds of this offering to repay the entire outstanding amount of such indebtedness, and following the repayment the guarantees will be terminated. 37 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 in its entirety 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. RECAPITALIZATION At or prior to the closing of this offering, the Company shall effect the following transactions (collectively, the "Recapitalization"): (i) the one- for-2.3255 reverse split of outstanding Common Stock; (ii) the conversion of all of the 42,070 outstanding shares of the Company's Series A Preferred Stock into the right to receive an aggregate of $2,103,500 and an aggregate of 86,003 shares of Common Stock; (iii) the redemption of all 10,000 shares of the Company's Series F Preferred Stock and 3,000 shares of the Company's Series G Preferred Stock at an aggregate price of $1,000,000; (iv) the conversion of 9,580 shares of the Company's Series B Preferred Stock, 46,890 shares of the Company's Series G Preferred Stock and the Company's Subordinated Convertible Promissory Note dated September 1, 1991 in the principal amount of $2,000,000 into an aggregate of 1,857,542 shares of Common Stock; (v) the exercise of a warrant to purchase 616,544 shares of Common Stock by the application of $2,867,546 due the warrant holder under a subordinated promissory note, and the repayment by the Company of the remaining outstanding principal balance of $912,454 under such note; and (vi) the amendment of the Company's Restated Certificate of Incorporation to, among other things, (A) eliminate all previously-designated series of Preferred Stock and the designation of Class A Common Stock, and (B) increase the authorized number of shares of Common Stock from 9,512,950 to 20,000,000. COMMON STOCK As of the date of this Prospectus, there are 3,215,844 outstanding shares of Common Stock and outstanding options and warrants to purchase an aggregate of 559,336 shares of Common Stock. A total of 650,000 shares of Common Stock are reserved for issuance under the 1997 Plan and a total of 100,000 shares of Common Stock are reserved for issuance under the Directors' Plan. Holders of Common Stock are entitled to one vote for each share held of record on all matters to be submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors of the Company out of funds legally available therefor. See "Dividend Policy." All outstanding shares of Common Stock are, and the shares to be sold in this offering when issued and paid for will be, fully paid and nonassessable and the holders thereof will have no preferences or conversion, exchange or pre-emptive rights. In the event of any liquidation, dissolution or winding-up of the affairs of the Company, holders of Common Stock will be entitled to share ratably in the assets of the Company remaining after payment or provision for payment of all of the Company's debts and obligations and liquidation payments to holders of outstanding shares of Preferred Stock, if any. PREFERRED STOCK After the completion of this offering, no shares of Preferred Stock of the Company will be issued and outstanding. Thereafter, Preferred Stock may be issued in one or more series without further stockholder authorization, and the Board of Directors is authorized to fix and determine the terms, limitations and relative rights and preferences of the Preferred Stock, to establish series of Preferred Stock and to fix and determine the variations as among series. Preferred Stock, if issued, would have priority over the Common Stock with respect to dividends and to other distributions, including the distribution of assets upon liquidation, and may be subject to repurchase or redemption by the Company. The Board of Directors, without approval of the holders of the Common Stock, can issue Preferred Stock with voting and conversion rights (including multiple voting rights) which could adversely affect the rights of holders of Common Stock. In addition to having a preference with respect to dividends or liquidation proceeds, Preferred Stock, if issued, may be entitled to the allocation of capital 38 gains from the sale of the Company's assets. Although the Company has no present plans to issue any shares of Preferred Stock following the closing of this offering, the issuance of shares of Preferred Stock, or the issuance of rights to purchase such shares, may have the effect of delaying, deferring or preventing a change in control of the Company or an unsolicited acquisition proposal. CLASSIFIED BOARD OF DIRECTORS The Restated Certificate of Incorporation and By-laws of the Company provide for the Board of Directors to be divided into three classes of directors, as nearly equal in number as is reasonably possible, serving staggered terms so that directors' initial terms will expire either at the 1997, 1998 or 1999 annual meeting of stockholders. Starting with the 1997 annual meeting of stockholders, one class of directors will be elected each year for a three- year term. See "Management." The Company believes that a classified Board of Directors will help to assure the continuity and stability of the Board of Directors and the Company's business strategies and policies as determined by the Board of Directors, since a majority of the directors at any given time will have had prior experience as directors of the Company. The Company believes that such continuity and stability, in turn, will permit the Board of Directors to represent more effectively the interests of its stockholders. With a classified Board of Directors, at least two annual meetings of stockholders, instead of one, generally will be required to effect a change in the majority of the Board of Directors. As a result, a provision relating to a classified Board of Directors may discourage proxy contests for the election of directors or purchases of a substantial block of the Common Stock because the provision could operate to prevent a rapid change in control of the Board of Directors. The classification provision also could have the effect of discouraging a third party from making a tender offer or otherwise attempting to obtain control of the Company. Under the DGCL, unless a corporation's certificate of incorporation otherwise provides, a director on a classified board may be removed by the stockholders of the corporation only for cause. ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS OF DIRECTORS The By-laws establish an advance notice procedure with regard to the nomination by the stockholders of the Company of candidates for election as directors (the "Nomination Procedure") and with regard to other matters to be brought by stockholders before a meeting of stockholders of the Company (the "Business Procedure"). The Nomination Procedure requires that a stockholder give written notice to the Secretary of the Company, delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting, in proper form, of a planned nomination for the Board of Directors. Detailed requirements as to the form and timing of that notice are specified in the By-laws. If the Chairman determines that a person was not nominated in accordance with the Nomination Procedure, such person will not be eligible for election as a director. Under the Business Procedure, a stockholder seeking to have any business conducted at any meeting must give written notice to the Secretary of the Company, delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the meeting, in proper form. 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 39 slate of directors or otherwise attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its stockholders. OTHER PROVISIONS Special Meetings of the Stockholders of the Company. The Company's By-laws provide that a special meeting of the stockholders of the Company only may be called by the Chairman of the Board, or by order of the Board of Directors. That provision prevents stockholders from calling a special meeting of stockholders and potentially limits the stockholders' ability to offer proposals to the annual meetings of stockholders, if no special meetings are otherwise called by the Chairman or the Board. Amendment of the By-laws. The Company's Restated Certificate of Incorporation provides that the By-laws only may be amended by a vote of the Board of Directors or by a vote of at least 75% of the outstanding shares of the Company's stock entitled to vote in the election of directors. 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. TRANSFER AGENT AND EXCHANGE LISTING The transfer agent and registrar for the Company will be selected prior to the closing of this offering. 40 SHARES ELIGIBLE FOR FUTURE SALE Upon the completion of this offering and the acquisition of Manhattan Limousine, the Company will have 6,315,844 shares of Common Stock outstanding, and 1,143,336 shares of Common Stock issuable upon the exercise of outstanding options and warrants. Of these shares, 2,900,000 shares sold pursuant to this offering (3,335,000 shares if the Underwriters exercise their over-allotment option in full) will be freely tradeable without restriction under Securities Act, except for any shares which may be acquired by an "affiliate" of the Company (as that term is defined in Rule 144). The 4,559,180 remaining shares constitute "restricted securities" within the meaning of Rule 144 and only will be eligible for sale in the open market subject to the contractual lockup provisions and applicable requirements of Rule 144 described below. In general, under Rule 144 as in effect as of May 1997, 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) as in effect as of May 1997, if a period of at least two years has elapsed from the later of the date on which restricted securities were acquired from the Company and the date on which they were acquired from the affiliate, a holder of such restricted securities who is not an affiliate at the time of the sale and has not been an affiliate for at least three months prior to the sale would be entitled to sell the shares immediately without regard to the volume limitations and other conditions described above. The Company and the holders of at least 4,000,000 shares of Common Stock (including all of the Company's officers and directors and those individuals who will be issued Common Stock in the Manhattan Limousine acquisition) have agreed that they will not offer, sell, contract to sell, pledge, grant any option for the sale of, or otherwise dispose or cause the disposition of any shares of Common Stock or securities convertible into or exchangeable or exercisable for such shares, for a period of 180 days after the date of this Prospectus without the prior written consent of Montgomery Securities, except for (i) in the case of the Company, Common Stock issued pursuant to any employee or director benefit plan described herein or in connection with acquisitions or (ii) in the case of directors and executive officers, the exercise of stock options pursuant to benefit plans described herein and shares of Common Stock disposed of as bona fide gifts, subject in each case to any remaining portion of the 180-day period applying to shares so issued or transferred. In evaluating any request for a waiver of the 180-day lock-up period, Montgomery Securities will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market for the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. The holder of 200,000 shares of Common Stock to be issued in connection with the acquisition of Manhattan Limousine will be entitled to certain demand and piggy-back registration rights one year after completion of this offering. An additional 100,000 shares of Common Stock will be reserved for issuance under the Directors' Plan and 650,000 shares will be reserved for issuance under the 1997 Plan. The Company presently intends to file a registration statement under the Securities Act to register Common Stock to be issued pursuant to exercise of options granted or to be granted under the Directors' Plan and the 1997 Plan. Common Stock issued after the effective date of such registration statement upon exercise of outstanding vested options granted pursuant to the Directors' Plan and 1997 Plan, other than Common Stock issued to affiliates of the Company, would be available for immediate resale in the open market. After the offering, sales of substantial amounts of Common Stock by existing stockholders could have an adverse impact on the prevailing market price of the Common Stock. No predictions can be made as to the effect, if any, that market sales of shares by existing stockholders or the availability of such shares for future sale will have on the market price of shares of Common Stock prevailing from time to time. 41 UNDERWRITING The Underwriters named below (the "Underwriters"), represented by Montgomery Securities and Ladenburg Thalmann & Co. Inc. (the "Representatives"), have severally agreed, subject to the terms and conditions in the underwriting agreement (the "Underwriting Agreement") by and between the Company and the Underwriters, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names, at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters are committed to purchase all of the shares of Common Stock, if they purchase any.
NUMBER OF UNDERWRITERS SHARES ------------ --------- Montgomery Securities............................................ Ladenburg Thalmann & Co. Inc. ................................... --------- Total........................................................ 2,900,000 =========
The Representatives have advised the Company that the Underwriters propose initially to offer the Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow selected dealers a concession of not more than $ per share; and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the initial public offering, the public offering price and other selling terms may be changed by the Representatives. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of 435,000 additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial shares to be purchased by the Underwriters. To the extent that the Underwriters exercise such over- allotment option, the Underwriters will be committed, subject to certain conditions, to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with this offering. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. The Company's officers and directors and certain of the shareholders of the Company (including the holders of shares issued in connection with the acquisition of Manhattan Limousine) who, immediately following this offering, collectively will beneficially own an aggregate of at least 4,000,000 shares of Common Stock (including shares issuable upon the exercise of outstanding options and warrants), have agreed that for a period of 180 days after the date of this Prospectus they will not, without the prior written consent of Montgomery Securities, directly or indirectly sell, offer, contract or grant any option to sell, pledge, transfer, establish an open put equivalent position or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable or exercisable for or convertible into shares of Common Stocks. The Company has also agreed not to issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities for a period of 180 days after the effective date of this offering without 42 the prior written consent of Montgomery Securities, except for securities issued by the Company in connection with acquisitions and for grants and exercises of stock options, subject in each case to any remaining portion of the 180-day period applying to shares so issued or transferred. In evaluating any request for a waiver of the 180-day lock-up period, Montgomery Securities will consider, in accordance with their customary practice, all relevant facts and circumstances at the time of the request, including, without limitation, the recent trading market for the Common Stock, the size of the request and, with respect to a request by the Company to issue additional equity securities, the purpose of such an issuance. See "Shares Eligible for Future Sale." The Representatives have informed the Company that the Underwriters do not expect to make sales of Common Stock offered by this Prospectus to accounts over which they exercise discretionary authority in excess of 5% of the number of shares of Common Stock offered hereby. In recognition of financial advisory services provided to the Company prior to this offering, the Company has agreed to issue to each of Montgomery Securities and Ladenburg Thalmann & Co. Inc. warrants (the "Warrants") to purchase 67,500 shares of Common Stock, exercisable for a period of five years commencing on the date of this offering, at a price equal to 120% of the initial offering price, subject to adjustment in certain events. Each Warrant contains certain registration rights relating to the shares issuable thereunder. The Company also has agreed to issue warrants to purchase an aggregate of 15,000 shares of Common Stock as a finder's fee in connection with this offering. These warrants will contain identical terms to the Warrants. Prior to this offering, there has been no public trading market for the Common Stock. Consequently, the initial public offering price of the Common Stock has been determined by negotiations between the Company and the Representatives. Among the factors considered in such negotiations were the history of, and the prospects for, the Company and the industry in which the Company competes, an assessment of the Company's management, its financial conditions, its past and present earnings and the trend of such earnings, the prospects for future earnings of the Company, the present state of the Company's development, the general condition of the economy and the securities markets at the time of this offering and the market prices of and demand for publicly traded common stock of comparable companies in recent periods. LEGAL MATTERS The validity of the shares offered will be passed upon for the Company by Nutter, McClennen & Fish, LLP, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York. EXPERTS The consolidated financial statements of the Company as of November 30, 1995 and 1996 and for each of the three years in the period ended November 30, 1996 included in this Prospectus have been included herein in reliance on the report, which includes an explanatory paragraph relating to the restatement of such financial statements, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. The combined financial statements of Manhattan Limousine as of September 30, 1996 and for the year ended September 30, 1996 included in this Prospectus have been included herein in reliance on the report, which includes an explanatory paragraph relating to the restatement of such financial statements, of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. 43 The financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) as of and for the years ended December 31, 1994 and December 31, 1995, included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand, Chartered Accountants and Registered Auditors, given on the authority of that firm as experts in accounting and auditing. The financial statements of Camelot Barthropp Limited (formerly Speed 6060 Limited) as of December 31, 1995 and for the period from August 4, 1995 to December 31, 1995, included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand, Chartered Accountants and Registered Auditors, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act and the rules and regulations promulgated thereunder, with respect to the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained in this Prospectus concerning the provisions or contents of any contract, agreement or any other document referred to herein are not necessarily complete with respect to each such contract, agreement or document filed as an exhibit to the Registration Statement, reference is made to such exhibit for a more complete description of the matters involved, and each such statement shall be deemed qualified in its entirety 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. 44 INDEX TO FINANCIAL STATEMENTS
PAGE ---- CAREY INTERNATIONAL, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS Pro Forma Balance Sheet as of November 30, 1996........................... F-3 Pro Forma Statement of Operations for the year ended November 30, 1996.... F-4 Notes to Pro Forma Consolidated Financial Statements...................... F-5 HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements Report of Independent Accountants......................................... F-7 Balance Sheets as of November 30, 1995 and 1996........................... F-8 Statements of Operations for the years ended November 30, 1994, 1995 and 1996..................................................................... F-9 Statements of Changes in Stockholders' Equity for the years ended November 30, 1994, 1995 and 1996................................................................. F-10 Statements of Cash Flows for the years ended November 30, 1994, 1995 and 1996..................................................................... F-11 Notes to Consolidated Financial Statements................................ F-12 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK, LTD. AND AFFILIATE Combined Financial Statements Report of the Independant Accountants..................................... F-28 Balance Sheets as of September 30, 1996 and December 31, 1996 (unaudited).............................................................. F-29 Statements of Operations for the year ended September 30, 1996 and the three months ended December 31, 1996 (unaudited)............................................ F-30 Statements of Cash Flows for the year ended September 30, 1996 and the three months ended December 31, 1996 (unaudited)............................................ F-31 Notes to Combined Financial Statements.................................... F-32 CAMELOT BARTHROPP LIMITED Audited Financial Statements Report of the Independant Accountants..................................... F-50 Statement of Operations for the period from August 4, 1995 to December 31, 1995..................................................................... F-51 Balance Sheet at December 31, 1995........................................ F-52 Notes to the Financial Statements......................................... F-53 SPEED 6060 LIMITED Audited Financial Statements Report of the Independant Accountants..................................... F-38 Statements of Operations for the years ended December 31, 1994 and 1995... F-39 Balance Sheets at December 31, 1994 and 1995.............................. F-40 Notes to the Financial Statements......................................... F-41
F-1 PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The Pro Forma Consolidated Balance Sheet as of November 30, 1996 and the Pro Forma Consolidated Statement of Operations for the year ended November 30, 1996 are based on the historical financial statements of Carey International, Inc. and subsidiaries (the "Company") and Manhattan International Limousine Network Ltd. and Affiliate ("Manhattan Limousine") and the unaudited financial statements of Camelot Barthropp Limited for the quarter ended February 29, 1996. The Pro Forma Consolidated Balance Sheet has been prepared assuming the acquisition of Manhattan Limousine occurred on November 30, 1996. For purposes of the Pro Forma Balance Sheet, the Combined Balance Sheet of Manhattan Limousine as of December 31, 1996, its most recent quarter-end, has been combined with the Consolidated Balance Sheet of the Company as of November 30, 1996. The Pro Forma Consolidated Statement of Operations for the year ended November 30, 1996 has been prepared assuming the acquisitions of Camelott Barthropp Limited and Manhattan Limousine occurred on December 1, 1995. For purposes of the Pro Forma Consolidated Statement of Operations, Manhattan Limousine's Statement of Operations for the year ended September 30, 1996 has been combined with the Consolidated Statement of Operations of the Company for the year ended November 30, 1996. The Pro Forma Consolidated Statement of Operations also reflects the issuance of 2,489,599 shares of Common Stock (at the estimated initial public offering price of $12.00 per share, net of estimated underwriting discounts) required to: (i) repay certain existing debt of the Company, (ii) pay the cash and note portions of the purchase price for Manhattan Limousine, (iii) repay certain debt assumed in connection with the acquisition of Manhattan Limousine and (iv) redeem certain preferred stock of the Company. The Pro Forma Consolidated Statement of Operations also reflects the issuance of an aggregate of 2,760,089 shares of Common Stock in connection with (i) the acquisition of Manhattan Limousine (at the estimated initial public offering price of $12.00 per share) and (ii) the issuance of shares of Common Stock as part of the Recapitalization. These 5,249,688 shares are assumed to have been issued, the debt repaid and the preferred stock redeemed at the beginning of the period presented, and thus interest expense attributable to such debt has been eliminated. The Pro Forma Consolidated Balance Sheet reflects the assumed issuance as of November 30, 1996 of 2,900,000 shares of Common Stock in this offering at the estimated initial public offering price of $12.00 per share, and the application of the proceeds (net of estimated underwriting discounts and offering expenses payable by the Company) to: (i) repay certain existing debt of the Company, (ii) pay the cash and note portions of the purchase price for the acquisition of Manhattan Limousine, (iii) repay certain debt assumed in connection with the acquisition of Manhattan Limousine and (iv) redeem certain preferred stock of the Company, with the remaining net proceeds added to working capital. The Pro Forma Consolidated Financial Statements do not purport to represent what the Company's actual results of operations or financial position would have been had the acquisitions occurred as of such dates, or to project the Company's results of operations or financial position for any period or date, nor does it give effect to any matters other than those described in the notes thereto. In addition, the allocation of purchase price to the assets and liabilities of Manhattan Limousine is preliminary and the final allocation may differ from the amounts reflected herein. The Pro Forma Consolidated Financial Statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in this Prospectus. F-2 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1996 ------------------------------------------------------------------------------------------- ACTUAL ------------------------ MANHATTAN ACQUISITION RECAPITALIZATION OFFERING COMPANY LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS(1) PRO FORMA ----------- ----------- ----------- ---------------- -------------- ----------- ASSETS Cash and cash equivalents............ $ 2,754,276 $ 24,932 $ (24,932)(3) $ -- $31,164,000 $ 6,286,574 (8,220,271) (7,060,000) (4,740,000) (3,747,703) (4,015,952)(5) 152,224 (2) Accounts receivable, net.................... 10,141,732 2,550,658 (2,550,658)(3) -- -- 10,141,732 Notes receivable from contracts, current portion................ 402,751 478,707 -- -- -- 881,458 Prepaid expenses and other current assets... 1,936,961 51,499 -- -- (977,563)(2) 1,010,897 ----------- ----------- ----------- ---------- ----------- ----------- Total current assets............. 15,235,720 3,105,796 (2,575,590) -- 2,554,735 18,320,661 Fixed assets, net....... 3,379,246 735,108 1,250,000 (4) -- -- 5,364,354 Notes receivable from contracts, excluding current portion........ 769,201 7,498,445 -- -- -- 8,267,646 Franchise rights, net... 5,348,264 -- -- -- -- 5,348,264 Trade name and contract rights, net............ 6,685,135 -- -- -- -- 6,685,135 Goodwill, net........... 7,262,203 -- 19,092,795 (4) -- -- 26,354,998 Deferred tax assets..... 2,461,573 -- -- -- -- 2,461,573 Deposits and other assets................. 1,384,787 1,227,814 (1,204,927)(3) -- (141,870)(2) 1,265,804 ----------- ----------- ----------- ---------- ----------- ----------- Total assets........ $42,526,129 $12,567,163 $16,562,278 $ -- $ 2,412,865 $74,068,435 =========== =========== =========== ========== =========== =========== LIABILITIES AND STOCK- HOLDERS' EQUITY Current portion of notes payable................ $ 5,131,227 $ 2,769,013 $(1,685,964)(3) $ -- $(4,192,115) $ 1,114,123 4,740,000 (4) (4,740,000) (908,038) Payable to seller....... -- -- 7,060,000 (4) -- (7,060,000) -- Current portion of capital leases......... 199,224 -- -- -- -- 199,224 Current portion of subordinated notes payable................ 440,000 -- -- -- (440,000)(5) -- Accounts payable and accrued expenses....... 11,196,949 3,791,636 (182,000)(3) -- (825,339)(2) 13,981,246 ----------- ----------- ----------- ---------- ----------- ----------- Total current liabilities........ 16,967,400 6,560,649 9,932,036 -- (18,165,492) 15,294,593 Notes payable, excluding current portion........ 5,188,742 2,445,743 520,000 (4) -- (4,028,156) 1,286,664 (2,839,665) Capital leases, excluding current portion................ 663,030 -- -- -- -- 663,030 Subordinated notes payable, excluding current portion........ 5,340,000 -- -- (4,867,548)(5) (472,452)(5) -- Deferred rent and other long-term liabilities.. 111,281 866,401 (466,624)(3) -- -- 511,058 -- Deferred tax liabilities............ 1,402,611 -- -- -- -- 1,402,611 Deferred revenue........ 6,181,147 6,871,236 -- -- -- 13,052,383 Stockholders' equity: Preferred stock....... 1,115,400 -- -- (775,050)(5) (340,350)(5) -- Common stock.......... 6,558 1,100 (1,100)(4) 25,600 (5) 29,000 63,158 2,000 (4) Additional paid in capital.............. 7,357,064 176,940 (176,940)(4) 5,616,998 (5) 31,135,000 43,602,042 2,398,000 (4) (2,763,150)(5) (141,870)(2) Accumulated deficit... (1,807,104) (4,354,906) 4,354,906 (3,4) -- -- (1,807,104) ----------- ----------- ----------- ---------- ----------- ----------- Total stockholders' equity............. 6,671,918 (4,176,866) 6,576,866 4,867,548 27,918,630 41,858,096 ----------- ----------- ----------- ---------- ----------- ----------- Total liabilities and stockholders' equity........... $42,526,129 $12,567,163 $16,562,278 $ -- $ 2,412,865 $74,068,435 =========== =========== =========== ========== =========== ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-3 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1996 ----------------------------------------------------------------------------------------------------- ACTUAL --------------------------------------- CAMELOT BARTHROPP MANHATTAN ACQUISITION RECAPITALIZATION OFFERING COMPANY LIMITED LIMOUSINE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA ----------- --------- ----------- ----------- ---------------- ----------- ----------- Revenue, net....... $59,505,698 $ 938,656 $18,438,547 $ -- $ -- $ -- $78,882,901 Cost of revenue.... 40,438,449 865,336 10,738,033 -- -- -- 52,041,818 ----------- --------- ----------- -------- -------- ---------- ----------- Gross profit..... 19,067,249 73,320 7,700,514 -- -- -- 26,841,083 Selling, general and administrative expense........... 15,077,553 211,097 5,821,899 (874,475)(6) -- 150,000 (11) 21,022,500 636,426 (7) -- ----------- --------- ----------- -------- -------- ---------- ----------- Operating income (loss).......... 3,989,696 (137,777) 1,878,615 238,049 -- (150,000) 5,818,583 Other income (expense) Interest expense......... (1,704,187) (21,375) (881,854) (76,608)(8) 500,000(10) 1,848,648 (11) (335,376) Interest and other income.... 426,349 -- 66,000 (66,000)(9) -- -- 426,349 ----------- --------- ----------- -------- -------- ---------- ----------- Income before provision (benefit) for income taxes...... 2,711,858 $(159,152) $ 1,062,761 $ 95,441 $500,000 $1,698,648 5,909,556 ========= =========== ======== ======== ========== Provision (benefit) for income taxes.. (104,246) 2,503,000 (12) ----------- ----------- Net income ........ $ 2,816,104 $ 3,406,556 =========== =========== Supplemental pro forma net income per share......... $ .88 (13) =========== Pro forma net income per share.. $ .55 (14) =========== Weighted average shares outstanding....... 3,521,821 (13) 6,218,667 (14) =========== ===========
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-4 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS To date, all of the Company's acquisitions have been accounted for under the purchase method of accounting with the results of the acquired companies included in the Company's statements of operations beginning on the date of the acquisition. (1) Gives effect to the sale by the Company of 2,900,000 shares of Common Stock in this offering at an estimated offering price of $12.00 per share. After estimated underwriting discounts and offering expenses of $3.6 million, the estimated net proceeds of $31.2 million will be applied to: (i) the repayment of certain existing debt of the Company of $8.2 million, (ii) the repayment of the cash and note portions of the purchase price for the acquisition of Manhattan Limousine of $7.1 million and $4.7 million, respectively, (iii) the repayment of $3.7 million of debt assumed upon the acquisition of Manhattan Limousine, and (iv) the redemption of certain preferred stock of the Company for $3.1 million and the repayment of subordinated debt of approximately $912,000 as part of the Recapitalization (see Note 5, below). The balance of the net proceeds, estimated to be approximately $3.4 million, will be added to working capital. (2) Reflects deferred costs recorded of approximately $977,000 for offering expenses of which approximately $825,000 have been accrued for and approximately $152,000 have been paid. Also reflects the elimination of approximately $142,000 of capitalized financing fees related to certain debt repaid out of the proceeds of the offering. (3) Gives effect to the retention by the sellers of Manhattan Limousine of certain assets and liabilities consisting of: (i) cash of approximately $25,000, (ii) $2.6 million of accounts receivable, net, (iii) $1.2 million of deposits and other assets, (iv) debt of $1.7 million collateralized by accounts receivable, and (v) certain liabilities of approximately $649,000. (4) Gives effect to the acquisition of Manhattan Limousine for $14.2 million, as if it occurred on November 30, 1996. The adjustments reflect: (i) a cash payment of $7.1 million, (ii) promissory notes issued in the aggregate amount of $4.7 million; and (iii) the issuance of $2.4 million of Common Stock. After taking into account all acquisition adjustments, the liabilities of Manhattan Limousine exceed its assets. Accordingly, the allocation of the purchase price to the estimated fair value of the assets and liabilities assumed will result in the recognition by the Company of $19.1 million in goodwill. As part of the fair value allocation, the Company valued the facility at which Manhattan Limousine operates at its estimated fair market value of $1.1 million and certain radio frequencies used in the conduct of Manhattan Limousine's business at their estimated fair market value of $200,000. In January 1997, Manhattan Limousine increased the mortgage on this facility by approximately $520,000 to $800,000. The entire mortgage was included in the acquired liabilities. (5) Gives effect to the Recapitalization, which will be implemented at the time of the IPO. Pursuant to the Recapitalization: (i) the $2.0 million subordinated convertible note, dated September 1, 1991, and $2.9 million of the $3.8 million subordinated note dated July 30, 1992 will be converted or exchanged for an aggregate of 1,046,559 shares of Common Stock, (ii) the Series A Preferred Stock will be redeemed in part for $2.1 million and converted in part into 86,003 shares of Common Stock, (iii) all of the Series F and 3,000 shares of the Series G Preferred Stock will be redeemed for $1.0 million and (iv) the remaining Series G Preferred Stock and the Series B Preferred Stock will be converted into an aggregate of 1,427,527 shares of Common Stock. (6) Gives effect to the elimination from the Combined Statement of Operations of Manhattan Limousine of: (i) a one-time charge related to accounts receivable of approximately $218,000; (ii) redundant administrative and other costs immediately identifiable at the time of the acquisition of approximately $591,000; and (iii) approximately $65,000 of financing fees associated with debt retained by the seller. (7) Gives effect to the annual amortization of approximately $636,000 of goodwill recognized with respect to the acquisition of Manhattan Limousine. (8) Gives effect to an increase in interest associated with the promissory notes in the aggregate amount of $4.8 million used to acquire Manhattan Limousine and the increase of $520,000 in the mortgage, both of which will be repaid out of the proceeds of the offering. Also gives effect to a decrease in interest expense associated with the debt retained by the seller. (9) Gives effect to the elimination of interest income related to a note receivable retained by the seller. F-5 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (10) Reflects the elimination of approximately $500,000 of interest on certain debt converted into Common Stock. (11) Reflects directors' and officers' insurance costs the Company anticipates to incur in connection with being a public registrant and the elimination of $1.8 million of interest on certain current and long-term debt repaid from the proceeds of this offering. (12) Reflects the estimated provision for income taxes at an assumed rate of 42.3%, after giving consideration to nondeductible goodwill expense. (13) Reflects the historical weighted average shares outstanding and supplemental pro forma net income per share to give effect to the Recapitalization. The supplemental pro forma net income per share is determined by (i) adjusting net income to reflect the elimination in interest expense, net of taxes, resulting from the conversion of a portion of the subordinated debt into common stock and (ii) increasing the weighted average shares outstanding by the number of shares of Common Stock resulting from such conversion of subordinated debt and the partial conversion of the Series A preferred stock pursuant to the Recapitalization. (14) Pro forma net income per share was computed by dividing the pro forma net income for the year ended November 30, 1996 by the pro forma weighted average number of shares outstanding for that period. Pro forma weighted average shares outstanding include common share equivalents, and give retroactive effect as of December 1, 1995 for the following: (i) the repayment of certain existing debt of the Company in the principal amount of $8.2 million, (ii) the payment of the cash and note portions of the purchase price for the acquisition of Manhattan Limousine of $7.1 million and $4.7 million, respectively, (iii) the repayment of $3.7 million of debt assumed upon the acquisition of Manhattan Limousine, and (iv) the redemption of certain preferred stock of the Company for $3.1 million and the repayment of subordinated debt of the Company in the principal amount of approximately $912,000 as part of the Recapitalization. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the twelve months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $12.00 per share, have been included in the calculation of pro forma net income per share. All share numbers give effect to the reverse stock split of one- for-2.3255 that is part of the Recapitalization. F-6 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. We have audited the accompanying consolidated balance sheets of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Carey International, Inc. and Subsidiaries as of November 30, 1995, and 1996, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles. As discussed in Note 16 to the consolidated financial statements, the accompanying consolidated balance sheet as of November 30, 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended November 30, 1995 have been restated for a change in the revenue recognition method. Washington, D.C. January 31, 1997, except for Notes 1, 2 and 18 as to which the date is March 1, 1997 F-7 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- ASSETS Cash and cash equivalents............................ $ 1,438,659 $ 2,754,276 Accounts receivable, net of allowance for doubtful accounts of $294,000 in 1995 and $535,000 in 1996... 9,023,016 10,141,732 Notes receivable from contracts, current portion..... 659,609 402,751 Prepaid expenses and other current assets............ 364,741 1,936,961 ----------- ----------- Total current assets............................. 11,486,025 15,235,720 Fixed assets, net of accumulated depreciation of $2,779,000 in 1995 and $2,619,000 in 1996........... 2,185,071 3,379,246 Notes receivable from contracts, excluding current portion............................................. 193,298 769,201 Franchise rights, net of accumulated amortization of $1,494,000 in 1995 and $1,729,000 in 1996........... 5,533,956 5,348,264 Trade name, trademark and contract rights, net of accumulated amortization of $781,000 in 1995 and $973,000 in 1996.................................... 6,876,578 6,685,135 Goodwill and other intangible assets, net of accumulated amortization of $574,000 in 1995 and $827,000 in 1996.................................... 7,113,684 7,262,203 Deferred tax assets.................................. 892,993 2,461,573 Deposits and other assets............................ 1,615,316 1,384,787 ----------- ----------- Total assets................................... $35,896,921 $42,526,129 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of notes payable..................... $ 4,585,703 $ 5,131,227 Current portion of capital leases.................... 206,031 199,224 Current portion of subordinated notes payable........ 100,000 440,000 Accounts payable and accrued expenses................ 8,000,972 11,196,949 ----------- ----------- Total current liabilities........................ 12,892,706 16,967,400 Notes payable, excluding current portion............. 7,361,749 5,188,742 Capital leases, excluding current portion............ 74,879 663,030 Subordinated notes payable, excluding current portion............................................. 5,780,000 5,340,000 Deferred rent and other long-term liabilities........ 148,195 111,281 Deferred tax liabilities............................. 1,001,480 1,402,611 Deferred revenue..................................... 4,726,134 6,181,147 Commitments and contingencies Stockholders' equity: Preferred stock.................................... 1,212,900 1,115,400 Class A common stock, $.01 par value; authorized 314,000 shares, none issued and outstanding....... Common stock, $.01 par value; authorized 4,090,711 shares, issued and outstanding, 655,773 shares.... 6,558 6,558 Additional paid-in capital......................... 7,357,064 7,357,064 Accumulated deficit................................ (4,664,744) (1,807,104) ----------- ----------- Total stockholders' equity....................... 3,911,778 6,671,918 ----------- ----------- Total liabilities and stockholders' equity..... $35,896,921 $42,526,129 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-8 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Revenue, net........................... $35,525,309 $43,483,947 $59,505,698 Cost of revenue........................ 24,953,904 29,942,961 40,438,449 ----------- ----------- ----------- Gross profit......................... 10,571,405 13,540,986 19,067,249 Selling, general and administrative expense............................... 9,486,797 12,419,062 15,077,553 ----------- ----------- ----------- Operating income..................... 1,084,608 1,121,924 3,989,696 Other income (expense): Interest expense..................... (1,348,883) (1,682,884) (1,704,187) Interest income...................... 172,641 259,852 156,695 Gain (loss) on sale of fixed assets.. (18,359) 130,913 269,654 ----------- ----------- ----------- Income (loss) before provision for income taxes.......................... (109,993) (170,195) 2,711,858 Provision (benefit) for income taxes .. 19,000 25,000 (104,246) ----------- ----------- ----------- Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104 =========== =========== =========== Supplemental pro forma earnings per share................................. $ .88 =========== Weighted average common shares outstanding........................... 3,521,821 ===========
The accompanying notes are an integral part of these consolidated financial statements. F-9 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK -------------- SERIES A SERIES B SERIES E SERIES F SERIES G ADDITIONAL TOTAL PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED PAID-IN ACCUMULATED STOCKHOLDERS' STOCK STOCK STOCK STOCK STOCK SHARES $ CAPITAL DEFICIT EQUITY --------- --------- --------- --------- --------- ------- ------ ---------- ----------- ------------- Balance at November 30, 1993........... $420,700 $95,800 $266,250 $100,000 $498,900 623,091 $6,231 $7,335,796 $(4,336,178) $4,387,499 Accretion of redeemable preferred stock.......... -- -- 8,750 -- -- -- -- (8,750) -- -- Redemption of Series E preferred stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500) Payment of accrued dividends...... -- -- (26,250) -- -- -- -- -- -- (26,250) Payment of Series E dividends...... -- -- -- -- -- -- -- -- (4,378) (4,378) Net loss........ -- -- -- -- -- -- -- -- (128,993) (128,993) -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1994........... 420,700 95,800 186,250 100,000 498,900 623,091 6,231 7,327,046 (4,469,549) 4,165,378 Accretion of redeemable preferred stock.......... -- -- 4,375 -- -- -- -- (4,375) -- -- Redemption of Series E preferred stock.......... -- -- (62,500) -- -- -- -- -- -- (62,500) Payment of accrued dividends...... -- -- (30,625) -- -- -- -- -- -- (30,625) Issuance of stock.......... -- -- -- -- -- 32,682 327 34,393 -- 34,720 Net loss........ -- -- -- -- -- -- -- -- (195,195) (195,195) -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1995........... 420,700 95,800 97,500 100,000 498,900 655,773 6,558 7,357,064 (4,664,744) 3,911,778 Redemption of Series E preferred stock.......... -- -- (97,500) -- -- -- -- -- -- (97,500) Cumulative effect of currency translation.... -- -- -- -- -- -- -- -- 41,536 41,536 Net income...... -- -- -- -- -- -- -- -- 2,816,104 2,816,104 -------- ------- -------- -------- -------- ------- ------ ---------- ----------- ---------- Balance at November 30, 1996........... $420,700 $95,800 $ -- $100,000 $498,900 655,773 $6,558 $7,357,064 $(1,807,104) $6,671,918 ======== ======= ======== ======== ======== ======= ====== ========== =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-10 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss)...................... $ (128,993) $ (195,195) $ 2,816,104 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization of fixed assets............................... 1,233,267 1,265,934 1,100,320 Amortization of intangible assets..... 641,309 712,348 1,062,406 (Gain) loss on sales of fixed assets.. 18,359 (130,913) (269,654) Deferred income tax benefit........... -- -- (1,370,557) Change in deferred revenue............ 184,220 237,306 1,455,013 Changes in operating assets and liabilities: Accounts receivable.................. (962,523) (2,516,952) (486,162) Notes receivable from contracts...... (519,155) 11,000 (1,052,838) Prepaid expenses, deposits and other assets.............................. (433,963) (192,666) (660,870) Accounts payable and accrued expenses............................ 679,233 3,389,540 2,003,427 Deferred rent and other long-term liabilities......................... (10,407) 87,490 (36,914) ----------- ----------- ----------- Net cash provided by operating activities......................... 701,347 2,667,892 4,560,275 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of fixed assets..... 172,747 565,510 862,980 Purchases of fixed assets.............. (445,967) (615,117) (1,134,910) Software development costs............. -- (203,529) -- Redemption of investment in affiliate.. -- 100,000 -- Acquisitions of chauffeured vehicle service companies, net of cash acquired.............................. (114,521) (3,949,393) (1,730,232) ----------- ----------- ----------- Net cash used in investing activities......................... (387,741) (4,102,529) (2,002,162) ----------- ----------- ----------- Cash flow from financing activities: Proceeds upon sale of notes receivable from independent operators............ 378,733 1,493,399 733,793 Principal payments under capital lease obligations........................... (384,181) (436,169) (243,485) Preferred stock dividends.............. (30,628) (30,625) -- Payment of notes payable............... (2,277,466) (2,658,521) (3,867,747) Proceeds from notes payable............ 1,119,515 3,106,808 2,232,443 Issuance of common stock............... -- 34,720 -- Redemption of Series E preferred stock................................. (62,500) (62,500) (97,500) ----------- ----------- ----------- Net cash provided by (used in) financing activities............... (1,256,527) 1,447,112 (1,242,496) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents............................ (942,921) 12,475 1,315,617 Cash and cash equivalents at beginning of year................................ 2,369,105 1,426,184 1,438,659 ----------- ----------- ----------- Cash and cash equivalents at end of year................................... $ 1,426,184 $ 1,438,659 $ 2,754,276 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-11 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION General Carey International, Inc. (the "Company") is one of the world's largest chauffeured vehicle service companies, providing services through a worldwide network of owned and operated companies, licensees and affiliates serving 420 cities in 65 countries. The Company owns and operates service providers in the form of wholly-owned subsidiaries in the following cities: New York (Carey Limousine N.Y., Inc.), San Francisco (Carey Limousine SF, Inc.), Los Angeles (Carey Limousine L.A., Inc.), London (Carey UK Limited), Washington, D.C. (Carey Limousine D.C., Inc.), South Florida (Carey Limousine Florida, Inc.) and Philadelphia (Carey Limousine Corporation, Inc.). In addition, the Company generates revenues from licensing the "Carey" name, and from providing central reservations, billing, sales and marketing services to its licensees. The Company's worldwide network also includes affiliates in locations in which the Company has neither owned and operated locations nor licensees. Acquisitions and franchises The Company is engaged in a program of acquiring chauffeured vehicle service businesses, including licensees operating under the Carey name and trademark. These acquisitions are accounted for as purchases. The carrying value of the assets acquired is determined by the negotiated purchase price. In addition to acquiring licensees operating under the Carey name, the Company has acquired chauffeured vehicle service businesses in cities in which the Company operates. In 1995, these acquisitions included chauffeured vehicle service companies operating in Washington, D.C., Miami, West Palm Beach and San Francisco. In 1996, the Company acquired a chauffeured vehicle service company in London, England. Reverse Stock Split On February 25, 1997, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock in an initial public offering (the "IPO"). The Board of Directors, at the same meeting and subject to stockholder approval, authorized a reverse stock split of approximately one-for-2.3255 of the outstanding shares of the Company's common stock. A majority of the Company's stockholders have approved the reverse stock split. All references to common stock, options, warrants and per share data have been restated to give effect to the reverse stock split. The Board of Directors also authorized a Recapitalization Plan (see Note 18) on February 25, 1997. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. F-12 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Notes receivable from contracts An important component of the Company's operating strategy involves the preferred use of non-employee independent operators chauffeuring their own vehicles rather than employee chauffeurs operating Company-owned vehicles. Each independent operator enters into an agreement with the Company to provide prompt and courteous service to the Company's customers with a properly maintained, late model vehicle which he or she owns and for which he or she pays all of the maintenance and operating expenses, including gasoline. The Company, under the independent operator agreement, agrees to bill and collect all revenues and remit to the independent operator 60% to 65% of revenues, as defined in the agreement. Each new operator agrees to pay a one- time fee generally ranging from $30,000 to $45,000 to the Company under the terms of the independent operator agreement. Through 1996, the term of the independent operator agreement generally ranged from 10 years to perpetuity. (See "Revenue recognition"). The Company typically receives a promissory note from the independent operator as payment for the one-time fee due under the terms of the Standard Independent Operator Agreement (see Note 4) and records the note in notes receivable from contracts. The notes evidencing such financing generally were sold on a non-recourse basis by the Company to third party finance companies (see Note 11) in exchange for cash and promissory notes. Since September 1996, the Company has ceased selling notes to third parties. Such promissory notes due from finance companies have also been recorded in notes receivable from contracts in the consolidated balance sheets. Concentration of credit risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, accounts receivable and notes receivable from contracts. The Company maintains its cash and cash equivalents with various financial institutions. In order to limit exposure to any one institution, the Company's cash equivalents are composed mainly of overnight repurchase agreements collateralized by U.S. Government securities. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and geographies. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of selected transactions. Notes receivable from contracts are also geographically dispersed and are supported by the underlying base of revenue serviced by each respective independent operator (see Notes 4 and 11). The Company performs ongoing evaluations of each independent operator's productivity and payment capacity and has utilized third-party financing to reduce credit exposure. Fixed assets Furniture, equipment, vehicles, leasehold improvements and land and building are stated at cost. Equipment under capital leases is stated at the lower of the present value of minimum lease payments or the fair market value at the inception of the lease. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the straight-line method over the estimated useful lives of the assets, generally three to five years. The building owned by the Company is depreciated over 40 years on a straight-line basis. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains or losses on sales and retirements of property are reflected in results of operations. Intangible assets Effective September 1, 1991, the Company acquired the Carey name and trademark and the contract rights to all royalty fee payments by various Carey licensees for a purchase price of $7 million. These assets are held by Carey Licensing, Inc. and are being amortized over 40 years. F-13 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has acquired chauffeured vehicle service companies, all of which have been accounted for as purchases. For each business acquired which is a licensee of the Company, the excess of cost over the fair market value of the net assets acquired is allocated to franchise rights in the consolidated balance sheet. With respect to acquired businesses which are not licensees of the Company, the excess of cost over the net assets acquired is allocated to goodwill. Additional purchase price attributable to the operating performance of the acquired entities is recorded as goodwill or franchise rights when determined (see Note 13). Goodwill and franchise rights are amortized over 30 years using the straight-line method. Such amortization is included in selling, general and administrative expense in the consolidated statement of operations. The Company evaluates the recoverability of its intangible assets based on estimated undiscounted cash flows over the lesser of the remaining amortization periods or calculated lives, giving consideration to revenue expected to be realized. This determination is based on an evaluation of such factors as the occurrence of a significant change in the environment in which the business operates or the expected future net cash flows (undiscounted and without interest). There have been no adjustments to the carrying value of intangible assets resulting from this evaluation. Revenue recognition Chauffeured vehicle services--The Company's principal source of revenue is from chauffeured vehicle services provided by its operating subsidiaries. Such revenue, net of discounts, is recorded when such services are provided. The Company, through the Carey International Reservation System ("CIRS"), has a central reservation system capable of booking reservations on behalf of its licensees and affiliates. Under most circumstances, central reservations are billed by the Company to the customer when the Company receives a service invoice from the licensee or affiliate that provided the service. At such time, the Company also records the gross revenue for the transaction. Fees from licensees--The Company charges an initial license fee under its domestic license agreement and records the fee as revenue on signing of the agreement. The Company also charges its domestic licensees monthly franchise and marketing fees equal to stated percentages of monthly revenues, as defined in the licensing agreement. Monthly fees to domestic licensees are generally less than 10% of the licensee's monthly revenues. The Company records such fees as revenues as they are charged to the licensees. International licensees and the Company's domestic and international affiliates historically have not paid fees to the Company, but have instead given a discount on business referred to them through CIRS. Such discounts reduce the amount of service invoices to the Company from such licensees and affiliates for services provided to customers whose reservations have been booked and invoiced centrally by the Company. Independent operator fees--The Company enters into contracts with independent operators ("Standard Independent Operator Agreements") to provide chauffeured vehicle services exclusively to the Company's customers. When independent operator agreements are executed, the Company defers revenue equal to the amount of the one-time fees and recognizes the fees as revenue over the terms of the contracts or over 20 years for perpetual contracts. Upon termination of an independent operator agreement, the remaining deferred revenue associated with the specific contract, less any amounts due from the independent operator deemed uncollectible, is recognized as revenue. Income taxes The provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax liabilities or assets. Deferred income tax liabilities and assets are determined based on the differences between the financial statement and tax bases of liabilities and assets using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. F-14 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Supplemental pro forma net income per common share Consistent with Staff Accounting Bulletin 4-C, the Company has recalculated historical weighted average common shares outstanding and net income per common share to give effect to the following matters pursuant to the Recapitalization (see Note 18). The recalculated net income per common share is determined by (i) adjusting net income available to common shareholders to reflect the elimination in interest expense, net of taxes, resulting from the conversion of a portion of the subordinated debt into common stock and (ii) increasing the weighted average common shares outstanding by the number of common shares resulting from such conversion of $4,867,548 subordinated debt and 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 fiscal years beginning after December 15, 1995. SFAS 123 allows companies to either account for stock-based compensation under the new provisions of SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees. The Company will continue to apply the provisions of APB 25 and provide pro forma disclosure in the notes to the financial statements. Foreign operations The Consolidated Balance Sheets include foreign assets and liabilities of $3.7 million and $2.7 million as of November 30, 1996. The net effects of foreign currency transactions reflected in income were immaterial. Assets and liabilities of the Company's foreign operations are translated into United States dollars using exchange rates in effect at the balance sheet date and results of operations items are translated using the average exchange rate prevailing throughout the period. Reclassifications Certain accounts in 1994 and 1995 have been reclassified to conform with the 1996 presentation. 3. FEES FROM LICENSEES The total of all domestic license fees, franchise fees and marketing fees earned in each of 1994, 1995 and 1996 was $1,466,588, $1,228,472 and $2,180,540, respectively. Amounts due from licensees of $46,520 and $143,041 at November 30, 1995 and 1996, respectively, are included in accounts receivable in the consolidated balance sheets of the Company. 4. TRANSACTIONS WITH INDEPENDENT OPERATORS The Company recorded approximately $1,153,000, $1,130,000 and $2,371,000 in 1994, 1995 and 1996, respectively, as deferred revenue relating to fees from new agreements with independent operators. Amounts of deferred revenue recognized as revenues in 1994, 1995 and 1996 amounted to approximately $969,000, $889,000 and $936,000, respectively. Notes receivable from contracts include approximately $305,000 and $917,000 at November 30, 1995 and 1996, respectively, for amounts due from independent operators and approximately $548,000 and $255,000 at November 30, 1995 and 1996, respectively, for amounts due from a related party financing company (see Note 11). F-15 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In the normal course of business, the Company's independent operators are responsible for financing their own vehicles through third parties. From time to time, the Company has arranged lease and purchase financing for certain vehicles and has in turn leased back such vehicles to independent operators on terms and conditions similar to those under which the Company is obligated (see Note 5). 5. FIXED ASSETS Fixed assets consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Vehicles.............................................. $2,692,079 $2,337,947 Equipment............................................. 1,699,803 2,200,094 Furniture............................................. 319,597 525,202 Leasehold improvements................................ 252,366 404,888 Land and building..................................... -- 529,634 ---------- ---------- 4,963,845 5,997,765 Less accumulated depreciation and amortization........ 2,778,774 2,618,519 ---------- ---------- Net fixed assets...................................... $2,185,071 $3,379,246 ========== ==========
The Company is obligated under various vehicle and equipment capital leases. Vehicles and equipment under capital leases included in fixed assets are as follows:
NOVEMBER 30, ------------------- 1995 1996 -------- ---------- Equipment............................................... $444,983 $1,048,633 Vehicles................................................ 352,796 621,420 -------- ---------- 797,779 1,670,053 Less accumulated amortization........................... 536,713 561,871 -------- ---------- $261,066 $1,108,182 ======== ==========
6. NOTES PAYABLE Notes payable consist of the following:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Bank revolving credit/term loan dated April 13, 1995, modified December 1, 1996. Collateralized by accounts receivable of the Company and the pledge of common stock of the Company's U.S. subsidiaries. Interest only payable until June 30, 1996; beginning July 1, 1996, quarterly principal payments are required in an amount sufficient to amortize the outstanding balance over a four-year period. Interest is payable monthly at a floating rate based on the Wall Street Journal prime plus 1.25% (9.5% at November 30, 1996). This loan is guaranteed by the Chairman of the Board and the President of the Company............................... $4,500,000 $3,937,500 Note payable dated September 1, 1991, at an annual rate of interest of 7.74%, collateralized by the assets of Carey Licensing, Inc. Pursuant to an agreement with the lender effective November 30, 1996, principal payments of $220,000 are due quarterly from December 31, 1996 through December 31, 1997 and a final principal payment of $240,000 is due March 1, 1998....................... 2,220,000 1,340,000
F-16 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ------------------- 1995 1996 --------- --------- Bank line of credit of $1,000,000, dated October 17, 1994, and collateralized by accounts receivable of Carey NY and an assignment of license agreement between the Parent and Carey NY; due April 30, 1997. Interest is payable monthly at a variable interest rate of .75% above the bank's prime rate (9.0% at November 30, 1996)................... 990,000 990,000 Various installment notes payable, with interest rates ranging from 9% to 14.5%, collateralized by certain vehicles and equipment of the Company's subsidiaries; principal and interest are payable monthly over 36-month terms.................................................... 693,002 254,279 Installment notes payable to sellers under acquisition agreements dated various dates from June 30, 1994 to September 8, 1995. Interest rates range from 7.5% to 8.5%. Interest is generally payable monthly. Principal is payable in varying installments.......................... 2,339,418 1,305,574 Convertible note payable to seller under acquisition agreement dated September 30, 1993 at an annual rate of 7.5%, interest payable quarterly; principal due in two equal annual installments of $116,667 on January 2, 1996 and 1997. The note was repaid in January 1997............ 233,333 116,666 Bank line of credit of $200,000, dated October 31, 1995 at a variable interest rate (10% at November 30, 1995), collateralized by accounts receivable of Carey DC. This facility was refinanced by a term loan with the same bank on March 1, 1996......................................... 200,000 -- Amount payable to a seller under acquisition agreement dated January 1, 1995. Due 30 days after receipt of an audit of the predecessor company. Amount of the payment is subject to reduction based on the results of the audit. The audit has been completed and the amount was subsequently reduced in 1996 to $210,821 and has been repaid................................................... 250,000 -- Note payable to bank, dated September 30, 1995, payable in monthly installments of $4,167 plus interest. Interest rate is variable at bank's prime plus 1% (10.0% at November 30, 1996)....................................... 241,667 191,717 Note payable to bank, dated August 30, 1993, collateralized by accounts receivable, fixed assets and intangible assets of Carey DC; monthly payments of $9,401 for principal and interest through August 31, 1996. Interest rate is fixed at 8%. This note was refinanced on March 1, 1996 by a term loan with the same bank.......... 90,631 -- Note payable to bank dated October 17, 1994, collateralized by accounts receivable and fixed assets of Carey NY. Principal and interest payments of $2,848 are payable monthly. Remaining balance is due October 17, 1999. Interest rate is fixed at 9.25%.................... 189,401 149,001 Bank line of credit of $750,000, dated February 26, 1996 collateralized by accounts receivable of Carey Licensing, Inc.; due March 31, 1997. Interest is payable monthly at 1% above the Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996)....................................... -- 750,000 Bank line of credit of $200,000, dated February 26, 1996, collateralized by accounts receivable of Carey FLA.; due March 31, 1997. Interest is payable monthly at 1% above Wall Street Journal's "Prime Rate" (9.25% at November 30, 1996).................................................... -- 200,000 Note payable to bank, dated March 1, 1996, collateralized by accounts receivable of Carey DC. Monthly payments of $12,735 of principal and interest through March 1, 2001. Interest is payable monthly at .5% above the bank's Prime Rate (9.5% at November 30, 1996)......................... -- 662,053
F-17 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, ---------------------- 1995 1996 ----------- ---------- Note payable to bank, dated May 10, 1996, collateralized by the land and building held by Carey DC; monthly payments of $3,863 of principal and interest are due through April 10, 2001 and a balloon payment of $375,468 on May 10, 2001. Interest fixed at 8.75%...... -- 423,179 ----------- ---------- Total notes payable..................................... 11,947,452 10,319,969 Less current installments............................... 4,585,703 5,131,227 ----------- ---------- Long-term portion....................................... $ 7,361,749 $5,188,742 =========== ========== Subordinated notes payable consist of the following: Subordinated convertible note dated September 1, 1991, with the principal of $2,000,000 due on August 30, 2000; interest payable quarterly at a fixed rate of 7.74%. After September 1, 1992, this debt is convertible into shares of common stock of the Company at the discretion of the holder at a conversion price of $6.14. A warrant for the purchase of 86,003 shares of common stock of the Company was issued in connection with the note. The warrant is exercisable immediately, expires at the earlier of the third anniversary of an initial public offering or November 30, 2001, and has an exercise price of $6.14 per share. The note contains certain antidilutive provisions which lower its conversion price in the event dilutive securities are subsequently issued by the Company at prices below the note's conversion price. The warrant has not been exercised. The terms of the agreement have been modified as part of the Recapitalization (see Note 18).................................................... $ 2,000,000 $2,000,000 Subordinated note dated July 30, 1992; interest only payable quarterly until September 30, 1995. The interest rate is fixed at 12%. Principal of $220,000 was paid on September 30, 1995. Pursuant to an agreement with the lender dated November 30, 1996, no further payments of principal are due until June 30, 1997, when $220,000 is due. Thereafter, quarterly principal payments of $220,000 are due until March 31, 1998. On June 30, 1998, the loan balance of $2,240,000 is due. A warrant for the purchase of 616,544 shares of Class A common stock or common stock was issued, in connection with the note. The warrant is exercisable immediately, has an exercise price of $6.14 per share and expires at the earlier of the fifth anniversary of the repayment of the note in full or July 30, 2000. The warrant contains certain antidilutive provisions which lower the exercise price in the event dilutive securities are subsequently issued by the Company at prices below the warrant exercise price. The warrant has not been exercised. The terms of the agreement have been modified as part of the Recapitalization (see Note 18).................................................... 3,780,000 3,780,000 Convertible note payable to seller under acquisition agreement, dated September 30, 1992; interest payable quarterly at a fixed rate of 7.74%. The note was repaid in September, 1996. ................................... 100,000 -- ----------- ---------- Total subordinated notes payable........................ 5,880,000 5,780,000 Less current installments............................... 100,000 440,000 ----------- ---------- Subordinated notes payable, excluding current install- ments.................................................. $ 5,780,000 $5,340,000 =========== ==========
F-18 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future annual principal payments on all notes payable at November 30, 1996 are as follows:
EAR ENDING NOVEMBER 30:Y - ------------------------ 1997............................................................ $ 5,571,227 1998............................................................ 5,622,403 1999............................................................ 1,486,254 2000............................................................ 881,183 2001 and thereafter............................................. 2,538,902 ----------- $16,099,969 ===========
Certain loan agreements, principally the Company's line of credit agreement, contain restrictive covenants which include financial ratios related to working capital, debt service coverage, debt to net worth and maintenance of a minimum tangible net worth, and submission of audited financial statements, prepared in accordance with generally accepted accounting principles, within 120 days after the end of the fiscal year. Additionally, these covenants restrict the Company's capital expenditures and prohibit the payment of dividends on the Company's common and preferred stock, except for the Series E preferred stock. The Company did not meet certain covenants related to the timely submission of financial statements, working capital, debt to net worth and maintenance of a minimum tangible net worth at November 30, 1996. The Company obtained waivers for compliance with these covenants through and including November 30, 1996. The carrying value of notes payable approximates the current value of the notes payable at November 30, 1996. (See Note 17 for discussions of the fair value for the subordinated debt). Interest paid during the years ended November 30, 1994, 1995, and 1996 was approximately $1,358,000, $1,662,000 and $1,682,000, respectively. 7. LEASES The Company has several noncancelable operating leases, primarily for office space and equipment, that expire over the next five years. Certain of the Company's facilities are under operating leases which provide for rent adjustments based on increases of defined indexes, such as the Consumer Price Index. These agreements also typically include renewal options. F-19 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future minimum lease payments under noncancelable operating leases and the present value of future minimum capital lease payments as of November 30, 1996 are as follows:
CAPITAL OPERATING YEAR ENDING NOVEMBER 30 LEASES LEASES ----------------------- -------- ---------- 1997................................................... $233,778 $1,395,093 1998................................................... 171,653 1,277,009 1999................................................... 155,984 662,698 2000................................................... 155,984 245,746 2001................................................... 138,659 219,128 Thereafter............................................. 138,169 -- -------- ---------- Total minimum lease payments........................... 994,227 $3,799,674 ========== Less estimated executory costs......................... 5,189 -------- 989,038 Less amount representing interest (at rates ranging from 9% to 12%)....................................... 126,784 -------- Present value of net minimum capital lease payments.... 862,254 Less current portion of obligations under capital lease................................................. 199,224 -------- Obligations under capital leases, excluding current portion............................................... $663,030 ========
During the years ended November 30, 1994, 1995 and 1996 the Company recognized $1,004,818, $508,724 and $252,355, respectively, of sublease rental revenue under vehicle sublease arrangements with independent operators and others. During the years ended November 30, 1994, 1995 and 1996, the Company entered into capital lease obligations of $79,414, $346,666 and $810,993, respectively, related to the acquisition of vehicles and equipment. Total rental expense for operating leases in 1994, 1995 and 1996 was $1,023,372, $1,314,301 and $2,203,490, respectively. 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses is composed of the following:
NOVEMBER 30, ---------------------- 1995 1996 ---------- ----------- Trade accounts payable............................... $5,222,306 $ 5,341,834 Accrued expenses and other liabilities............... 2,332,681 4,570,975 Gratuities payable................................... 445,985 458,801 Accrued offering costs............................... -- 825,339 ---------- ----------- $8,000,972 $11,196,949 ========== ===========
F-20 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. INCOME TAXES The provision (benefit) for income taxes is composed of the following:
NOVEMBER 30, --------------------------- 1994 1995 1996 ------- ------- ----------- Federal: Current...................................... $14,000 $15,000 $ 1,043,689 Deferred..................................... -- -- (1,220,799) ------- ------- ----------- 14,000 15,000 (177,110) ------- ------- ----------- State and local: Current...................................... 5,000 10,000 78,251 Deferred..................................... -- -- (149,758) ------- ------- ----------- 5,000 10,000 (71,507) ------- ------- ----------- Foreign: Current...................................... -- -- 144,371 ------- ------- ----------- Total income tax provision (benefit)........... $19,000 $25,000 $ (104,246) ======= ======= ===========
The Company's tax provision (benefit) for the years ended November 30, 1994, 1995 and 1996, respectively, differs from the statutory rate for federal income taxes as a result of the tax effect of the following factors:
YEARS ENDED NOVEMBER 30, ------------------------------ 1994 1995 1996 -------- -------- -------- Statutory rate.......... 34.0% 34.0% 34.0% State income tax, net of federal benefit........ (2.8) (2.4) (3.5) Goodwill amortization... (13.0) (13.0) .8 Non-deductible life insurance.............. (9.9) (23.8) .4 Meals and entertainment expenses............... (12.2) (36.5) 1.5 Valuation allowance..... (13.4) 28.1 (38.5) Other................... -- (1.1) 1.5 -------- -------- -------- (17.3)% (14.7)% (3.8)% ======== ======== ========
The source and tax effects of temporary differences are composed of the following:
NOVEMBER 30, ------------------------ 1995 1996 ----------- ----------- Allowance for bad debts............................ $ 108,000 $ 176,000 Net operating loss carryforward.................... 266,000 -- Deferred revenue................................... 1,701,000 2,040,000 Deferred state taxes and other..................... 425,000 558,000 ----------- ----------- Gross deferred tax asset........................... 2,500,000 2,774,000 Valuation allowance................................ (1,499,000) -- ----------- ----------- 1,001,000 2,774,000 ----------- ----------- Amortization of intangible assets.................. (951,000) (1,350,000) Other.............................................. (50,000) (53,000) ----------- ----------- Gross deferred tax liability....................... (1,001,000) (1,403,000) ----------- ----------- Net deferred tax asset............................. $ -- $ 1,371,000 =========== ===========
F-21 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A valuation allowance was provided in 1994 and 1995 to reduce the net deferred tax asset to $0. In the fourth quarter of 1996, the Company concluded that it was more likely than not that the net deferred tax asset would be realized and therefore recorded a deferred tax benefit from the reversal of the valuation allowance of $1,499,000. Income taxes paid during the years ended November 30, 1994, 1995 and 1996 amounted to $0, $10,375 and $210,437, respectively. 10. PREFERRED STOCK The Company has the following series of preferred stock:
NOVEMBER 30, --------------------- 1995 1996 ---------- ---------- Series A, par value $10.00, authorized 43,000 shares, issued and outstanding 42,070 shares (liquidation preference of $4,207,000 and non-cumulative dividends of $7.00 per share per annum when declared by the Board of Directors).......................... $ 420,700 $ 420,700 Series B, par value $10.00, authorized 10,000 shares, issued and outstanding 9,580 shares (liquidation preference of $958,000 and non-cumulative dividends of $5.00 per share per annum when declared by the Board of Directors)................................. 95,800 95,800 Series E, par value $10.00, authorized 50 shares, issued and outstanding 12.5 shares at November 30, 1995 (liquidation preference of $97,500)............ 97,500 -- Series F, par value $10.00, authorized 10,000 shares, issued and outstanding 10,000 shares (liquidation preference of $1,000,000 and non-cumulative dividends of $5.00 per share per annum when declared by the Board of Directors).......................... 100,000 100,000 Series G, par value $10.00, authorized 110,000 shares, issued and outstanding 49,890 shares (liquidation preference of $4,989,900 and non- cumulative dividends of $5.00 per share per annum when declared by the Board of Directors)............ 498,900 498,900 ---------- ---------- $1,212,900 $1,115,400 ========== ==========
At the option of preferred stockholders or upon the closing of an underwritten public offering yielding net proceeds to the Company of at least $10,000,000 and having an offering price of at least $14.81 per share, each share of Series B, F and G preferred stock is convertible into the number of shares of common stock equal to 500, 100 and 100 divided by the conversion price, respectively. The conversion price as of November 30, 1996 was $7.216, $7.406 and $7.406 for Series B, F and G preferred stock, respectively. The Company has reserved 663,759, 135,025 and 633,393 shares of common stock, respectively, for conversion of the Series B, F, and G preferred stock. Antidilutive provisions lower the conversion price if certain securities are issued by the Company at a price below the respective conversion prices then in effect. The Company must redeem, on a pro rata basis, the outstanding shares of Series A preferred stock plus for $100 per share any declared and unpaid dividends upon the completion of an initial public offering yielding net proceeds to the Company of at least $10,000,000. Series A, B and G preferred stock have voting rights and Series F preferred stock is non-voting, except under certain circumstances. (See Note 18 for discussion of the Recapitalization, pursuant to which all of the preferred stock will be redeemed or converted into common stock.) F-22 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. RELATED-PARTY TRANSACTIONS The Company has invested $750,000 in non-voting redeemable preferred stock of a privately-held finance company formed for the purpose of providing financing to the chauffeured vehicle services industry. This entity provides financing to the Company's independent operators, without recourse to the Company, for both automobiles and amounts due under independent operator agreements. The Company sold $378,733, $1,762,345 and $1,015,897 of independent operator notes receivable to this related-party finance company for cash of $378,733, $1,290,899 and $733,793 and demand promissory notes of $0, $471,446 and $282,104 in 1994, 1995 and 1996, respectively. The unpaid balances of the promissory notes were $547,930 and $255,664 at November 30, 1995 and 1996, respectively, and are included in notes receivable from contracts. These promissory notes are due on demand and, generally, monthly principal payments are received by the Company. These notes generally bear interest rates of 7%. It is not practicable to estimate the fair value of the preferred stock investment in a privately-held company. As a result, the Company's investment in the privately-held finance company noted above is carried at its original cost (less redemptions) of $750,000. At April 30, 1996, the total assets reported by the privately-held company were $10,502,234 and stockholders' equity was $1,108,448, revenues were $1,088,720 and net income was $96,681. Pursuant to a stock ownership agreement between the common stockholders of the related-party finance company and the Company, the Company has an option to purchase all of the outstanding common stock of the affiliate at $12,500 per common share or market value, if higher. The option is not exercisable until April 15, 1998. A guarantee fee of $45,000 has been paid to both the Chairman of the Board and the President of the Company for guaranteeing certain indebtedness (see Note 6). 12. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is subject to various legal actions which are not material to the financial position, results of operations or cash flows of the Company. The Company, certain of the Company's subsidiaries and certain officers and directors of the Company were named in a civil action filed on May 15, 1996 in the United States District Court for the Eastern District of Pennsylvania entitled "Felix v. Carey International, Inc., et al." The plaintiff's complaint, which purports to be a class action, alleges that the plaintiff and others similarly situated suffered monetary damages as a result of misrepresentations by the various defendants in their use of a surface transportation billing charge. The plaintiff seeks damages in excess of $1 million on behalf of the class for each of the counts in the complaint including fraud, negligent misrepresentation and violations of the Racketeer Influenced and Corrupt Organizations law of 1970, which permits the recovery of treble damages and attorneys' fees. A class has not yet been certified in this case. The Company filed a motion to dismiss that was denied, and subsequently has filed an answer denying any liability in connection with this complaint. The Company has agreed to indemnify and defend its officers and directors who were named as defendants in the case, subject to conditions imposed by applicable law. The Company is engaging in settlement discussions with the plaintiff's counsel and does not believe that this litigation will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. 13. ACQUISITIONS In December 1994, the Company acquired certain assets and liabilities of a chauffeured vehicle service company in Boca Raton, Florida and consolidated the operations within its existing operations in West Palm Beach. Subsequently, the Company acquired an additional chauffeured vehicle service company in Boca Raton F-23 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (in August 1995) and the Carey licensee in Fort Lauderdale--Miami (in April 1995) and consolidated the two additional businesses into the Carey South Florida operations. In January 1995, the Company acquired certain assets and liabilities of the Carey licensee in San Francisco, California ("Carey SF"). Subsequently, the Company acquired the business of two additional chauffeured service companies (in May and August 1995) and combined the acquired operations with those of Carey SF. In April 1995, the Company acquired certain assets and liabilities of a chauffeured vehicle services company in the Washington, DC area and combined the acquired operations with those of Carey Limousine D.C., Inc. In February 1996, the Company acquired the common stock of a chauffeured vehicle service company in London, England for approximately $1,500,000. The acquisition was financed through the incurrence of an additional $950,000 in debt and a payment of $550,000. Additional contingent consideration of up to $1,000,000 may be payable with respect to each of the two years ending February 28, 1998 based on the level of revenues referred to the acquired company by the seller. As of November 30, 1996, the Company has paid $278,304 in contingent consideration in the acquisition of the London company. In addition, the Company is required to pay a standard commission to the seller of the acquired chauffeured vehicle service company for business referral, which will be expensed as incurred. All acquisitions have been accounted for as purchases. The net assets acquired and results of operations have been included in the financial statements as of and from, respectively, the effective dates of the acquisitions. The total consideration was allocated to the assets acquired based upon their estimated fair values with any remaining consideration allocated to either franchise rights or goodwill, as follows:
YEAR ENDED NOVEMBER 30, ----------------------------- 1994 1995 1996 ------- ---------- ---------- NET ASSETS PURCHASED Receivables and other assets.............. $ -- $ -- $ 632,554 Fixed assets.............................. -- 1,703,521 928,377 Franchise rights.......................... -- 1,527,402 89,243 Goodwill.................................. 75,000 4,697,958 447,269 Accounts payable and accrued expenses..... -- -- (367,211) ------- ---------- ---------- Fair value of assets acquired............. $75,000 $7,928,881 $1,730,232 ======= ========== ========== CONSIDERATION Cash (exclusive of $223,695 cash acquired in 1996)................................. $75,000 $3,633,620 $1,730,232 Capital leases assumed related to vehicle acquisitions............................. -- 346,666 -- Notes assumed related to vehicle acquisi- tions.................................... -- 895,571 -- Uncollateralized promissory notes issued to sellers............................... -- 3,053,024 -- ------- ---------- ---------- Total consideration..................... $75,000 $7,928,881 $1,730,232 ======= ========== ==========
Certain of these acquisitions require the payment of contingent consideration based on percentages of annual net revenue of the acquired entities over a defined future period. The Company paid $39,521, $315,773 and F-24 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $291,755 in the years ended November 30, 1994, 1995 and 1996, respectively, in contingent consideration and increased goodwill by the same amounts (see Note 2) which is reflected in the table above. Of the total uncollateralized promissory notes issued to sellers in 1995, two notes totaling $303,000 were subject to reduction based upon the results of the acquired entities (see Note 6). The two notes were repaid in 1996 for approximately $211,000 and the difference of approximately $92,000 reduced by recorded goodwill. The unaudited pro forma summary consolidated results of operations assuming all the acquisitions had occurred for the purposes of the 1995 summary at the beginning of fiscal 1995, and for the purposes of the 1996 summary at the beginning of fiscal 1996, are as follows:
YEAR ENDED NOVEMBER 30, -------------------------- 1995 1996 ------------ ------------ (UNAUDITED) Revenue.......................................... $ 51,490,000 $ 60,444,000 Cost of revenue.................................. (35,089,000) (41,304,000) Other expense, net............................... (16,256,000) (16,570,000) Benefit (provision) for income taxes............. (58,000) 164,000 ------------ ------------ Net income....................................... $ 87,000 $ 2,734,000 ============ ============ Net income per common share...................... $ .04 $ 1.12 ============ ============ Weighted average common shares outstanding....... 2,409,090 2,434,182 ============ ============
14. 401(K) PLAN The Company sponsors (but has made no contributions to) a defined contribution plan established pursuant to Section 401(k) of the Internal Revenue Code for the benefit of employees of the Company. 15. STOCK OPTION PLANS On December 1, 1987, the Company established a Stock Option Plan (the "1987 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1987 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price and the manner in which payment of the option price shall be made. The 1987 Plan provides for the options to be exercised 25% each year beginning after the year following the grant. The options are exercisable for a period of ten years after the grant date. The total number of options authorized under the 1987 Plan is 143,624. On July 28, 1992, the Company established a Stock Option Plan (the "1992 Plan") that included all officers and key employees of the Company, non- employee directors of the Company, and certain persons retained by the Company as consultants. In accordance with the 1992 Plan, the Company's Board of Directors may, from time to time, determine the persons to whom the stock options are to be granted, the number of shares under option, the option price, the time or times during the exercise period at which each such option will become exercisable, and the manner in which payment of the option price shall be made. The options are exercisable for a period of ten years after grant date. The total number of options authorized under the 1992 Plan is 388,647. F-25 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock activity under the 1987 Plan and the 1992 Plan is as follows:
1987 PLAN 1992 PLAN ------------------ ------------------ OPTION OPTION PRICE PER PRICE PER SHARES SHARE SHARES SHARE ------- --------- ------- --------- Balance, December 1, 1993............... 74,822 $1.44 388,647 $7.40 Granted................................. -- -- -- -- Exercised............................... -- -- -- -- Forfeited............................... -- -- -- -- ------- ----- ------- ----- Balance, November 30, 1994.............. 74,822 1.44 388,647 7.40 Granted................................. -- -- -- -- Exercised............................... (32,681) -- -- -- Forfeited............................... (4,300) -- (23,143) -- ------- ----- ------- ----- Balance, November 30, 1995.............. 37,841 1.44 365,504 7.40 Granted................................. -- -- 42,038 4.65 Exercised............................... -- -- -- -- Forfeited............................... -- -- -- -- ------- ----- ------- ----- Balance, November 30, 1996.............. 37,841 $1.44 407,542 $4.65 ======= ===== ======= ===== Vested and exercisable at November 30, 1996................................... 37,841 $1.44 343,040 $4.65 ======= ===== ======= =====
In May 1996, the options granted under the 1992 Plan and a warrant to purchase 86,003 shares of common stock (see Note 6) were repriced to $4.65. The options and warrant were repriced at the determined fair market value as of the date of repricing. On February 25, 1997, the Board of Directors adopted the 1997 Equity Incentive Plan and the Stock Plan for Non-Employee Directors (see Note 18). 16. REVENUE RECOGNITION METHOD The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period pursuant to a Standard Independent Operator Agreement. Upon signing the Standard Independent Operator Agreement, the Company is entitled to receive a one-time fee from the independent operator. Previously, the Company would recognize the one-time fee as revenue upon signing of the independent operator agreement and when collection of the fee was reasonably assured. In accordance with APB 20, the financial statements have been retroactively restated to report such fees as deferred revenue which are recognized as revenue over the terms of the contracts. (See Note 2). The effect of such restatements was to reduce 1994 and 1995 revenue, results of operations and stockholders' equity by $665,391 and $1,144,511, respectively (net of income taxes of $0 and $586,680 for 1994 and 1995, respectively). 17. EARNINGS PER SHARE Earnings per share, on a historical basis, are as follows:
NOVEMBER 30, ---------------------------------- 1994 1995 1996 ---------- ---------- ---------- Net income (loss) available to common shareholders.............................. $ (137,734) $ (199,570) $2,816,104 Weighted average common shares outstand- ing....................................... 2,403,823 2,409,090 2,434,182 Net income (loss) per common share......... $ (.06) $ (.08) $ 1.16
F-26 CAREY INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Common equivalent shares are included in the per share calculations where the effect of their inclusion would be dilutive. Common equivalent shares consist of Series B, F and G preferred stock as well as substantially all of the subordinated debt of the Company and the assumed exercise of outstanding stock options and warrants. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83, the common equivalent shares issued by the Company during the twelve months preceding the anticipated effective date of the Registration Statement relating to the Company's initial public offering, using the treasury stock method and an assumed public offering price of $12.00 per share, have been included in the calculation of pro forma net income per common share. Net income (loss) available to common shareholders is the net income (loss) for the fiscal year less accretion of dividends on the Series E preferred stock of $8,750, $4,376 and $0 for 1994, 1995 and 1996, respectively. 18. SUBSEQUENT EVENTS On February 25, 1997, the Board of Directors authorized a Recapitalization Plan ("Recapitalization"), which will be implemented at the time of the IPO. Under the Recapitalization, the $2,000,000 subordinated convertible note dated September 1, 1991 and the $3,780,000 subordinated note dated July 30, 1992 will be converted or exchanged for 1,046,559 shares of common stock and $912,454, with the cash portion paid out of the proceeds of the offering. The Series A preferred stock will be converted in part into 86,003 shares of common stock and redeemed in part for $2,103,500. All of the Series F preferred stock and 3,000 shares of the Series G preferred stock will be redeemed for an aggregate of $1,000,000. The remaining preferred stock will be converted into 1,427,527 shares of common stock. As a result of the Recapitalization, preferred stock with a liquidation preference of $11,154,900 and subordinated debt with a principal amount of $5,780,000 will be converted in part into 2,560,089 shares of common stock and repaid or redeemed in part for $4,015,952 in cash. On March 1, 1997, the Company entered into an agreement to purchase the stock of Manhattan International Limousine Network Ltd. and an affiliated company (jointly "Manhattan Limousine"). Manhattan Limousine is one of the largest providers of chauffeured vehicle services in New York City and the surrounding areas. The Company expects to consummate the acquisition at the time of the IPO. If the acquisition of Manhattan Limousine is not completed by May 20, 1997, the Company has agreed to pay additional purchase price in the amount of $7,500 for each day after such date until the closing of the acquisition, up to an aggregate of $675,000. On February 25, 1997, the Board of Directors, subject to stockholder approval, adopted the 1997 Equity Incentive Plan ("the 1997 Plan"). A total of 650,000 shares of common stock are reserved for issuance under the 1997 Plan. The Board of Directors also granted options to purchase a total of 411,500 shares of common stock under the 1997 Plan, such grants to be effective upon the effectiveness of the Registration Statement filed by the Company in connection with the IPO. Also on February 25, 1997, the Board of Directors, subject to stockholder approval, adopted the Stock Plan for Non-Employee Directors ("the Directors' Plan"). A total of 100,000 shares of common stock of the Company are reserved for issuance under the Directors' Plan. Options to purchase a total of 22,500 shares of common stock under the Directors' Plan were granted by the Board of Directors, such grants to be effective upon the effectiveness of the Registration Statement filed by the Company in connection with the IPO. F-27 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders Manhattan International Limousine Network Ltd. and Affliliate We have audited the accompanying combined balance sheet of Manhattan International Limousine Network Ltd. and Affliliate (collectively, the "Company") as of September 30, 1996, and the related combined statements of operations and retained earnings (accumulated deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Manhattan International Limousine Network Ltd. and Affliliate as of September 30, 1996, and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 10 to the combined financial statements, the accompanying combined balance sheet as of September 30, 1996, and the related combined statement of operations and retained earnings (accumulated deficit) and cash flows for the year then ended have been restated for a change in the revenue recognition method. COOPERS & LYBRAND L.L.P. Washington, D.C. March 1, 1997 F-28 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1996 1996 ------------- ------------ (UNAUDITED) ASSETS Cash and cash equivalents......................... $ 130,494 $ 24,932 Accounts receivable, net of allowances for doubt- ful accounts of $181,000 and $192,000, respec- tively........................................... 2,466,134 2,550,658 Receivables from independent operators, current portion.......................................... 271,086 478,707 Prepaid expenses and other current assets......... 51,499 51,499 ----------- ----------- Total current assets........................... 2,919,213 3,105,796 Fixed assets, net................................. 805,724 735,108 Receivables from independent operators, less cur- rent portion..................................... 7,375,219 7,498,445 Other assets...................................... 1,221,885 1,227,814 ----------- ----------- Total assets...................................... $12,322,041 $12,567,163 =========== =========== LIABILITIES Current portion of notes payable.................. $ 1,232,457 $ 2,769,013 Accounts payable, trade........................... 1,087,624 971,274 Accounts payable, independent operators........... 1,738,072 1,867,308 Accrued expenses.................................. 529,761 683,610 Other current liabilities......................... 240,059 269,444 ----------- ----------- Total current liabilities...................... 4,827,973 6,560,649 Notes payable, less current portion............... 4,523,171 2,445,743 Other liabilities................................. 862,875 866,401 Deferred revenue.................................. 6,801,965 6,871,236 Commitments and contingencies STOCKHOLDERS' DEFICIENCY MILN common stock, $1 par value, 200 shares authorized, 100 shares issued and outstanding.... 100 100 ILN common stock, $1 par value, 200 shares authorized, 200 shares issued and outstanding.... 1,000 1,000 ILN additional paid-in capital.................... 176,940 176,940 Retained earnings (accumulated deficit): MILN............................................ (5,006,402) (4,489,325) ILN............................................. 134,419 134,419 ----------- ----------- Total stockholders' deficiency................. (4,693,943) (4,176,866) ----------- ----------- Total liabilities and stockholders' deficiency.................................... $12,322,041 $12,567,163 =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-29 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED SEPTEMBER 30, DECEMBER 31, ------------------ -------------------------- 1996 1996 ------------------ -------------------------- (UNAUDITED) Revenues: Service revenues, net.......... $17,218,728 $ 5,203,279 Interest from independent operator financing............ 1,219,819 268,105 ----------- ----------- Total revenues................. 18,438,547 5,471,384 Cost of revenues................. 10,738,033 3,241,511 ----------- ----------- Gross profit................... 7,700,514 2,229,873 Selling, general and administra- tive expenses................... 5,821,899 1,491,857 ----------- ----------- Operating income............... 1,878,615 738,016 Interest expense................. (881,854) (224,810) Interest income.................. 66,000 16,500 ----------- ----------- Income before provision for income taxes.................. 1,062,761 529,706 Provision for income taxes....... 55,014 12,629 ----------- ----------- Net income..................... 1,007,747 517,077 Accumulated deficit, beginning of period.......................... (5,776,730) (4,871,983) Distribution to S corporation stockholder..................... (103,000) -- ----------- ----------- Accumulated deficit, end of period.......................... ($4,871,983) ($4,354,906) =========== ===========
The accompanying notes are an integral part of these combined financial statements. F-30 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE FOR THE YEAR ENDED MONTHS ENDED SEPTEMBER 30, 1996 DECEMBER 31, 1996 ------------------ ----------------- (UNAUDITED) Cash flows from operating activities: Net income............................... $1,007,747 $ 517,077 Adjustments necessary to reconcile net income to net cash provided by operating activities: Depreciation and amortization........... 258,439 71,487 Change in deferred revenue.............. (279,625) 69,271 Changes in operating assets and liabilities: Accounts receivable.................... (377,793) (84,524) Receivables from independent opera- tors.................................. 139,363 (330,847) Other assets........................... (103,240) (5,929) Accounts payable and accrued expenses.. (454,503) 37,499 Accounts payable, independent opera- tors.................................. 293,731 129,236 Other liabilities...................... (193,582) 32,911 ---------- --------- Net cash provided by operating activities........................... 290,537 436,181 ---------- --------- Cash flows from investing activities: Purchases of fixed assets................ (256,248) (871) ---------- --------- Net cash used in investing activities........................... (256,248) (871) ---------- --------- Cash flows from financing activities: Net borrowings (payments) on line of credit.................................. 261,802 (179,003) Proceeds from borrowings under notes payable................................. 310,000 -- Principal payments on notes payable...... (412,643) (361,869) Distribution to S corporation stockholder............................. (103,000) -- ---------- --------- Net cash provided by (used in) financing activities................. 56,159 (540,872) ---------- --------- Net change in cash and cash equivalents... 90,448 (105,562) Cash and cash equivalents, beginning of period................................... 40,046 130,494 ---------- --------- Cash and cash equivalents, end of period.. $ 130,494 $ 24,932 ========== =========
The accompanying notes are an integral part of these combined financial statements. F-31 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS 1. BACKGROUND AND ORGANIZATION Manhattan International Limousine Network Ltd. and its wholly-owned subsidiary (collectively, "MILN") are engaged primarily in the business of providing chauffeured vehicle services in New York City and the surrounding areas, and providing reservation and billing services to both individual and corporate customers worldwide through an affiliation with a network of independent chauffeured vehicle service companies. International Limousine Network Ltd. ("ILN") is an affiliated company (the "Affiliate") engaged in sales and marketing activities exclusively on behalf of MILN. The accompanying financial statements combine the accounts of MILN and ILN because such entities are under common control. All intercompany transactions have been eliminated. The combined entities are referred to herein as the "Company." ILN operates on a calendar year. As a result, the accompanying financial statements as of and for the year ended September 30, 1996 include the effects of combining the financial statements of ILN as of and for the year ended December 31, 1996. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents The Company considers all short-term investments with original maturities of three months or less to be cash equivalents. Receivables from Independent Operators and Accounts Payable, Independent Operators The Company enters into agreements with independent operators (franchisees) under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over the contract period. Upon signing the agreement, the Company is entitled to receive a one-time fee from the independent operator. The Company generally receives a minimal down payment from the independent operator together with a promissory note (see Note 3) and records the note as a receivable from the independent operator, but does not recognize revenue at that time. (See Revenue Recognition.) In addition, the Company collects all billings for services rendered by the independent operator and has the right to withhold and remit, from the independent operator's earnings, all payments due to the Company and certain third parties for, among other things, note payments, two-way radio charges and lease obligations on vehicles, on a monthly basis. The Company is then obligated to remit the balance of the independent operator's earnings on a monthly basis. The unpaid balance due to independent operators at the end of a given period is reflected as accounts payable, independent operators in the accompanying balance sheet. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk include cash and cash equivalents, accounts receivable and receivables from independent operators. The Company maintains its cash and cash equivalents with various financial institutions. Accounts receivable are generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations of its customers, and may require credit card documentation or prepayment of certain transactions. Receivables from independent operators are supported by the underlying base of revenues serviced by each respective independent operator. The Company performs ongoing evaluations of the productivity and payment capacity of each independent operator in order to manage its credit risk. F-32 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) Fixed Assets Fixed assets are stated at cost. Depreciation on furniture, equipment, vehicles and leasehold improvements is calculated on the declining balance method over the estimated useful lives of the assets or the leaseholds, generally three to five years. Buildings and improvements are depreciated on the straight line method over 20 years. Sales and retirements of fixed assets are recorded by removing the cost and accumulated depreciation from the accounts. Gains and losses on sales of property are reflected in the results of operations. Intangible Assets The Company owns Federal Communications Commission licenses to three radio frequencies which it uses in the dispatch of vehicles used in its business. The licenses have been fully amortized in prior years. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Service revenues include fees derived from chauffeured vehicle services provided by the Company's independent operators. Revenue is recorded for chauffeured vehicle services when those services are provided. When the Company enters into an agreement with an independent operator, the Company defers revenue equal to the amount of the contract and recognizes those fees over the term of the contract, typically 20 years. Amortization of deferred revenue is also included in independent operator service revenues in the accompanying combined statements of operations. Upon termination of an agreement, the remaining deferred revenue associated with the contract, less any amounts due from the independent operators deemed uncollectible, is recognized as revenue immediately. As described above, the Company typically provides extended financing terms to its independent operators for payment of the independent operator fee. Interest income is recognized as earned over the term of the loan agreement with the independent operator. The Company provides reservation services to its customers for service in other locations through its affiliation with a network of independent service companies. Revenue related to services provided by a member of the network is recognized as chauffeured vehicle service revenue when a gross service bill is received from the member. The corresponding liability to the member, reduced by the Company's discount, is recorded as a cost of revenue by the Company at such time. Income Taxes For MILN, the provision for income taxes includes income taxes currently payable and the change during the year in the net deferred tax assets or liabilities. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the net deferred tax asset, if any, to a level which, more likely than not, will be realized. F-33 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) ILN has elected to be treated as an "S corporation" under provisions of the Internal Revenue Code. As such, the income tax effects of ILN's operations are borne directly by the stockholder, and no provision for ILN income taxes is recorded in the accompanying financial statements. Unaudited Interim Financial Statements The combined financial statements as of and for the three-month period ended December 31, 1996 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 December 31, 1996 and for the three-month period ended December 31, 1996 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 $120,729 for the year ended September 30, 1996 and for the three-month period ended December 31, 1996, respectively. The Company's independent operators are responsible for financing their own vehicles through third parties. Under programs the Company has established with several automotive leasing organizations, the Company guarantees lease payments until the independent operator has made twelve monthly lease payments. As of September 30, 1996, the Company's independent operators had aggregate lease obligations of $2,203,158 under these programs. 4. FIXED ASSETS Fixed assets consist of the following:
SEPTEMBER 30, DECEMBER 31, 1996 1996 ------------- ------------ Land............................................... $ 62,569 $ 62,569 Buildings and improvements......................... 676,730 676,730 Furniture, fixtures and equipment.................. 3,086,224 3,087,095 Vehicles........................................... 344,170 344,170 ---------- ---------- 4,169,693 4,170,564 Less accumulated depreciation...................... 3,363,969 3,435,456 ---------- ---------- Net fixed assets................................... $ 805,724 $ 735,108 ========== ==========
Depreciation expense was $258,439 and $71,487 for the year ended September 30, 1996 and for the three-month period ended December 31, 1996, respectively. F-34 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 5. NOTES PAYABLE Notes payable consist of the following:
SEPTEMBER 30, DECEMBER 31, 1996 1996 ------------- ------------ 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 $ 1,685,964 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%......................................... 310,000 280,000 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 2,947,702 Notes payable, collateralized by certain equipment, principal and interest due monthly over terms of 24-39 months................................................... 352,297 301,090 ----------- ----------- 5,755,628 5,214,756 Less current portion 1,232,457 2,769,013 ----------- ----------- Notes payable, less current portion $ 4,523,171 $ 2,445,743 =========== ===========
F-35 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) In the opinion of management, the carrying amount of the notes payable approximates their fair value. Aggregate principal payments under the Company's note payable arrangements as of September 30, 1996 are due as follows: 1997.............................. $1,232,457 1998.............................. 2,747,898 1999.............................. 542,673 2000.............................. 588,368 2001.............................. 175,732 Thereafter........................ 468,500 ---------- Total............................. $5,755,628 ==========
On January 17, 1997, the Company refinanced its existing mortgage note on its headquarters facility. The new note has a principal balance of $800,000 and is due five years from the date of origination. Interest is incurred at a rate of 10.75% for the first year, after which the rate becomes variable at prime plus 2.5%. Interest and principal payments are due monthly based on a 15-year amortization, with a balloon payment due at maturity. 6. INCOME TAXES The provision for income taxes consists of the following:
FOR THE YEAR FOR THE THREE ENDED MONTHS ENDED SEPTEMBER 30, DECEMBER 31, 1996 1996 ------------- -------------- Federal--Current................................ $ 15,845 $ -- State and local--Current........................ 39,169 12,629 --------- --------- Total income tax provision...................... $ 55,014 $ 12,629 ========= =========
The Company's effective income tax rates differed from the applicable Federal statutory rate due to the following:
FOR THE YEAR FOR THE THREE ENDED MONTHS ENDED SEPTEMBER 30, DECEMBER 31, 1996 1996 ------------- ------------- Federal statutory rate.......................... 34% 34% State and local income taxes.................... 13 13 Effect of income of S corporation............... (9) -- Reduction as a result of deferred tax asset val- uation allowance............................... (43) (57) Others, primarily nondeductible travel and en- tertainment.................................... 10 12 --- --- Effective income tax rate....................... 5% 2% === ===
As of September 30, 1996, for federal income tax purposes, the Company had net operating loss (NOL) carryforwards of $1,955,055 available to offset future taxable income, which expire from 2004 to 2010. F-36 MANHATTAN INTERNATIONAL LIMOUSINE NETWORK LTD. AND AFFILIATE NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) The source and tax effects of temporary differences are as follows:
SEPTEMBER 30, DECEMBER 31, 1996 1996 ------------- ------------ NOL carryforwards................................. $ 914,574 $ 671,685 Revenue recognition of independent operator fees.. 857,606 793,672 Valuation allowance............................... (1,772,180) (1,465,357) ----------- ----------- Net deferred tax asset (liability)................ $ -- $ -- =========== ===========
Income taxes paid amounted to $14,505 and $0 for the year ended September 30, 1996 and for the three-month period ended December 31, 1996, respectively. 7. RELATED PARTY TRANSACTIONS Included in other noncurrent liabilities are loans from officers of the Company with remaining principal balances of $358,444 and $294,944 as of September 30, 1996 and December 31, 1996, respectively. The loans have interest rates of 12.5% and are payable in equal installments of principal and interest over terms of 15 years. Aggregate principal payments under the loans were due as follows as of September 30, 1996: 1997......................... $ 77,786 1998......................... 10,781 1999......................... 12,209 2000......................... 13,825 2001......................... 15,656 Thereafter................... 228,187 -------- Total........................ $358,444 ========
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 three-month periods ended September 30, 1996 and December 31, 1996, respectively. 10. REVENUE RECOGNITION METHOD The Company enters into agreements with independent operators under which the independent operator contracts to provide chauffeured vehicle services exclusively to the Company's customers over a contract period. 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 and $252,541 for the year ended September 30, 1996 and the three-month period ended December 31, 1996, respectively. 11. SUBSEQUENT EVENT On March 1, 1997, the stockholders of MILN and ILN agreed to sell their stock to Carey International, Inc., a company providing chauffeured vehicle services. F-37 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors of Camelot Barthropp Limited (formerly Speed 6060 Limited): We have audited the accompanying balance sheet of Camelot Barthropp Limited as of December 31, 1995, and the related statement of operations for the period from August 4, 1995 to December 31, 1995, all expressed in pounds sterling. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Camelot Barthropp Limited as of December 31, 1995, and the results of its operations for the period from August 4, 1995 to December 31, 1995, in conformity with accounting principles generally accepted in the United Kingdom (which differ in certain respects from generally accepted accounting principles in the United States--see note 16). Coopers & Lybrand Chartered Accountants and Registered Auditors London, England February 26, 1996, except notes 15 and 16 which are dated February 25, 1997 F-38 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) STATEMENT OF OPERATIONS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995
NOTE 1995 ---- --------- (Pounds) Revenues--continuing operations.................................. 1,266,924 Other operating income........................................... 4 7,700 --------- 1,274,624 Expenditures--continuing operations Vehicle operating costs........................................ 97,119 Other external charges......................................... 362,520 Staff costs.................................................... 3 423,286 Depreciation................................................... 4 114,914 Other operating charges........................................ 4 163,363 --------- 1,161,202 --------- Net income on ordinary activities before taxation................ 113,422 Tax on ordinary activities....................................... 5 60,256 --------- Net income on ordinary activities after taxation................. 53,166 Dividends payable................................................ -- --------- Net income retained.............................................. 53,166 =========
The Company has no recognized gains or losses other than the income above and therefore no separate statement of total recognized gains and losses has been presented. There is no difference between the income on ordinary activities before taxation and the retained income for the period stated above and their historical cost equivalents. The Company was incorporated on August 4, 1995, and as a result, there are no comparative figures. The accompanying notes are an integral part of these financial statements. F-39 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) BALANCE SHEET AT DECEMBER 31, 1995
NOTE 1995 ---- --------- (Pounds) Fixed assets Tangible assets................................................ 6 659,293 --------- Current assets Inventories.................................................... 7 9,747 Receivables.................................................... 8 548,103 Called up share capital not paid............................... 911,000 Cash at bank and in hand....................................... 366,912 --------- 1,835,762 Current liabilities.............................................. 9 1,530,889 --------- Net current assets............................................... 304,873 --------- 964,166 ========= Represented by: Shareholders' equity Called up share capital........................................ 11 92,000 Share premium account.......................................... 11 819,000 Retained earnings.............................................. 12 53,166 --------- Total shareholders' equity................................... 964,166 =========
The accompanying notes are an integral part of these financial statements. F-40 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 1. BASIS OF PREPARATION The accompanying financial statements of Camelot Barthropp Limited (previously Speed 6060 Limited) have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"), and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds sterling ("(Pounds)"). The accompanying financial statements do not represent the U.K. statutory financial statements of Camelot Barthropp Limited, as certain reclassifications and changes in presentation and disclosure have been made to the U.K. financial statements prepared on a statutory basis in order to conform, more closely with accounting presentation and disclosure requirements applicable in the United States. The financial statements of Camelot Barthropp Limited for the period from August 4, 1995 to December 31, 1995, on which the auditors' report was unqualified, were the first prepared since its incorporation. These were not full statutory financial statements and therefore have not been delivered to the Registrar of Companies in England and Wales. The ultimate parent undertaking of Camelot Barthropp Limited was The Savoy Hotel PLC, a company incorporated under the laws of England throughout the period from August 4, 1995 to December 31, 1995, of these financial statements. 2. ACCOUNTING POLICIES USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that Camelot Barthropp Limited's actual results may differ from the amounts reported and disclosed in the financial statements. DEPRECIATION Depreciation is provided so as to write off the cost being the market value of motor vehicles acquired from a fellow subsidiary undertaking less the estimated residual value of fixed assets over their expected useful lives. Depreciation on a straight line basis, mainly at the following annual rates: Motor vehicles --25% Furniture and equipment --10%-20% Improvements to premises --10%
INVENTORIES Inventories are valued at the lower of cost or net realizable value. DEFERRED TAXATION Provision is made for deferred taxation using the liability method at current taxation rates on all material timing differences to the extent that it is probable that a liability or asset will crystallize. REVENUES Revenues represent the invoiced value of services provided, excluding sales related taxes. F-41 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 FOREIGN CURRENCIES Assets and liabilities in foreign currencies have been translated into sterling at the rates ruling at the balance sheet date. OPERATING LEASES Rentals paid under operating leases are charged to operations on a straight line basis over the lease term. PENSION COSTS The Company contributes into both defined benefit and defined contribution schemes. An appropriate share of the costs of the pension schemes administered by the parent undertaking, which are a defined benefit scheme and a defined contribution scheme, are charged to operations for this Company in respect of staff who are members of these schemes. Full details of these schemes are disclosed in the financial statements of The Savoy Hotel PLC. The pension cost charge for defined contribution schemes represents the amounts payable to insurance companies in respect of the funds for the year to December 31. F-42 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 3. STAFF COSTS
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------- (Pounds) Wages and salaries.......................................... 391,924 Social security costs....................................... 28,242 Pension costs............................................... 3,120 --------------- (Pounds)423,286 =============== Pension costs comprise: Payments to funded defined contribution schemes........... 320 Charges in respect of group scheme........................ 2,800 --------------- (Pounds) 3,120 =============== The average weekly number of employees during the period was as follows: NUMBER --------------- Chauffeurs and support staff................................ 43 Administration.............................................. 6 --------------- 49 =============== Directors' remuneration was as follows: Remuneration as executives................................ Nil Pension contributions..................................... Nil Compensation for loss of office........................... Nil --------------- (Pounds) Nil =============== Emoluments excluding pension: Chairman's emoluments..................................... (Pounds) Nil =============== Highest paid director's emoluments........................ (Pounds) Nil ===============
The number of directors (including the chairman and highest paid director) who received emoluments (excluding pension contributions) in the following ranges was: NUMBER ------ (Pounds)0-(Pounds)5,000............. 4 ======
No director waived emoluments in respect of the period ended December 31, 1995. The statement of operations for the period from August 4, 1995 to December 31, 1995 includes no head office management recharges from the parent undertaking in respect to the services provided by the directors of Camelot Barthropp Limited and other corporate overheads. F-43 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 4. INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------ (Pounds) The income on ordinary activities before taxation is stated after charging: Marketing recharge from parent........................... 27,484 Depreciation............................................. 114,914 Operating leases--hire of plant and machinery............ 4,217 --other operating leases................................. 10,000 ======= and after crediting: Rent receivable.......................................... 5,526 Sundry income............................................ 417 Gain on disposal of tangible fixed assets................ 1,757 Other operating income................................... 7,700 =======
5. TAXATION
FOR THE PERIOD AUGUST 4, 1995 TO DECEMBER 31, 1995 ------------------ (Pounds) UK corporation tax on ordinary activities for the period at 33%....................................................... 60,256 ======
6. TANGIBLE FIXED ASSETS
SHORT LEASEHOLD MOTOR FURNITURE AND PREMISES VEHICLES EQUIPMENT TOTAL --------------- -------- ------------- -------- (Pounds) (Pounds) (Pounds) (Pounds) Cost At August 4, 1995............ -- -- -- -- Additions.................... 7,591 763,686 57,952 829,229 Disposals.................... -- (55,022) -- (55,022) ----- ------- ------ ------- At December 31, 1995......... 7,591 708,664 57,952 774,207 ----- ------- ------ ------- Accumulated depreciation At August 4, 1995............ -- -- -- -- Charge for the Year.......... 770 104,144 10,000 114,914 Disposals.................... -- -- -- -- ----- ------- ------ ------- At December 31, 1995......... 770 104,144 10,000 114,914 ----- ------- ------ ------- Net Book Value At December 31, 1995......... 6,821 604,520 47,952 659,293 ===== ======= ====== =======
F-44 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 7.INVENTORIES
1995 --------- (Pounds) Raw materials and consumables: Vehicle spare parts.............................................. 5,369 Petrol and oil................................................... 4,378 --------- 9,747 ========= 8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade receivables.................................................. 337,960 Amounts owed by parent undertaking................................. 155,164 Other receivables.................................................. 4,784 Prepayments and accrued income..................................... 50,195 --------- 548,103 ========= 9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade accounts payable............................................. 95,414 Borrowings from parent undertaking................................. 230,607 Borrowings from fellow subsidiary.................................. 936,674 Corporation tax.................................................... 60,256 Other taxes and social security.................................... 73,542 Other creditors.................................................... 5,605 Accruals........................................................... 128,791 --------- 1,530,889 =========
10.DEFERRED TAXES Provision for deferred taxes has been made in the financial statements in accordance with the Company's accounting policy. The provision and the full potential liability are as follows:
1995 ------------------------ POTENTIAL PROVISION LIABILITY --------- -------------- Accelerated capital allowances..................... -- (Pounds)17,875 === ==============
11.SHARE CAPITAL AND SHARE PREMIUM
1995 -------- (Pounds) Authorized: Ordinary Shares of (Pounds)1...................................... 100,000 =======
F-45 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 The Company was incorporated on August 4, 1995 with 1,000 Ordinary Shares of (Pounds)1 each. On August 30, 1995 the authorized share capital of the Company was increased by 99,000 Ordinary Shares of (Pounds)1 each.
NUMBER NOMINAL SHARE TOTAL ISSUED VALUE PREMIUM CONSIDERATION ------ ------- ------- ------------- Allotted, called up and fully paid: Ordinary Shares of (Pounds)1............ 92,000 92,000 819,000 911,000 ====== ====== ======= =======
On August 8, 1995, 1,000 shares were issued to The Savoy Hotel PLC at par. On August 30, a further 91,000 shares were issued to The Savoy Hotel PLC at a price of (Pounds)10.00 per share 12. RETAINED EARNINGS
1995 -------- (Pounds) At August 4, 1995................................................... -- Retained income for the period...................................... 53,166 ------- At December 31, 1995................................................ 53,166 ======= 13. RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY 1995 -------- (Pounds) Opening shareholders' equity........................................ -- Issue of share capital.............................................. 92,000 Share premium....................................................... 819,000 Total recognized gains for the period............................... 53,166 ------- Closing shareholders' equity........................................ 964,166 =======
14. FINANCIAL COMMITMENTS a) The Company has annual commitments under operating leases as set out below:
1995 ------------------ LAND AND BUILDINGS OTHER --------- -------- (Pounds) (Pounds) Leases which expire: In the next year...................................... -- 3,363 In the second to fifth years.......................... -- 5,504 After five years...................................... -- -- --- ----- -- 8,867 === =====
b) Capital commitments:
1995 -------- (Pounds) Capital expenditure contracted for but not provided in the fi- nancial statements............................................ -- === Capital expenditure approved by the directors but not con- tracted for................................................... -- ===
F-46 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 15. POST BALANCE SHEET EVENTS The parent undertaking sold Camelot Barthropp Limited to Carey International, Inc. for an initial consideration of (Pounds)788,843. Further consideration of (Pounds)672,752 will become payable on the parent undertaking providing certain thresholds of business for Camelot Barthropp Limited are achieved during the period to March 31, 1998. 16. SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). These accounting principles differ in certain material respects from the accoounting principles generally accepted in the United States ("U.S. GAAP"). Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income and shareholders' equity which are set forth in the tables that follow. TRANSFER OF ASSETS BETWEEN FELLOW SUBSIDIARIES Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their fair value. The difference between the fair value and the historical cost of these assets will result in an intragroup gain or loss in the statement of operations of the subsidiary selling the assets. The assets would remain at their fair value in the subsidiary that acquired the assets and the associated depreciation charge would be provided on these fair values. Under U.S. GAAP, assets can only be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their historical cost. As a result, under U.S. GAAP, no intragroup gain or loss would arise from the transaction, the assets would remain at historical cost and the associated depreciation charge would be provided on these historical costs. ALLOCATION OF EXPENSES IN A "CARVE OUT" SITUATION Under U.K. GAAP, certain costs incurred by the parent undertaking may not be reflected in the subsidiary financial statements; however, disclosure of this fact is generally provided in the subsidiary financial statements. Under U.S. GAAP, historical income statements of a subsidiary should reflect all costs incurred by the parent undertaking on its behalf, such as officer salaries and corporate overheads. DEFERRED TAXES Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability will crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is provided for on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realized. Where doubt exists as to whether a deferred tax asset will be realized, an appropriate valuation allowance is established. STOCK SUBSCRIPTIONS Under U.K. GAAP the amount of the shares issued, including those issued pursuant to a stock subscription receivable, is shown on the face of the balance sheet. Any subscription receivable due on these shares would be shown separately in the balance sheet. Under U.S. GAAP, the net amount of the shares being the amount of the shares issued after deducting any subscriptions receivable therefrom, is shown on the face of the balance sheet. F-47 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 The effect of the above noted differences between U.K. and U.S. GAAP are as follows: (A)NET INCOME The approximate effects on net income of material differences between U.K. and U.S. GAAP are as follows:
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 -------------------- (Pounds) Net income reported under U.K. GAAP................... 53,166 Transfer of assets -- depreciation adjustment......... 15,590 Allocation of expenses................................ (21,170) Deferred taxes........................................ (17,875) Tax effect of U.S. GAAP reconciling adjustments....... 1,844 -------- Net income reported in accordance with U.S. GAAP...... 31,555 ======== (B)SHAREHOLDERS' EQUITY The approximate effects on shareholders' equity of material differences between U.K. and U.S. GAAP are as follows: AT DECEMBER 31, 1995 -------------------- (Pounds) Shareholders' equity reported under U.K. GAAP......... 964,166 Gain on transfer of assets--fixed assets.............. (112,500) --amounts payable..................................... 112,500 --depreciation adjustment............................. 15,590 Allocation of expenses................................ (21,170) Stock subscriptions................................... (911,000) Deferred taxes........................................ (17,875) Tax effect of U.S. GAAP reconciling adjustments....... 1,844 -------- Shareholders' equity reported in accordance with U.S. GAAP................................................. 31,555 ========
F-48 CAMELOT BARTHROPP LIMITED (FORMERLY SPEED 6060 LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 (C)STATEMENTS OF CASH FLOWS Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are established under the law of any European Community State are exempt from including a statement of cash flows in their financial statements. Under U.S. GAAP, the statement of cash flows is required and therefore is shown below:
FOR THE PERIOD FROM AUGUST 4, 1995 TO DECEMBER 31, 1995 -------------------- (Pounds) Cash flows from operating activities Net income.......................................... 31,555 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed assets..... 99,324 Gain on sale of fixed assets...................... (1,757) Change in operating assets and liabilities: Receivables..................................... (548,103) Inventories..................................... (9,747) Current liabilities............................. 738,861 -------- Net cash provided by operating activities..... 310,133 -------- Cash flows from investing activities: Proceeds from gain of fixed assets.................. 56,779 -------- Net cash provided by investing activities..... 56,779 -------- Net increase in cash and cash equivalents............. 366,912 Cash and cash equivalents at beginning of year........ -- -------- Cash and cash equivalents at end of year.............. 366,912 ========
F-49 REPORT OF INDEPENDENT ACCOUNTANTS To the Directors of Speed 6060 Limited (formerly Camelot Barthropp Limited): We have audited the accompanying balance sheets of Speed 6060 Limited as of December 31, 1994 and 1995, and the related statements of operations for each of the two years in the period ended December 31, 1995, all expressed in pounds sterling. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with United Kingdom auditing standards which do not differ in any significant respect from United States generally accepted auditing standards. These standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Speed 6060 Limited as of December 31, 1994 and 1995, and the results of its operations for each of the two years in the period ended December 31, 1995, in conformity with accounting principles generally accepted in the United Kingdom (which differ in certain respects from generally accepted accounting principles in the United States--see note 16). Coopers & Lybrand Chartered Accountants and Registered Auditors London, England February 26, 1996, except note 16 which is dated February 28, 1997 F-50 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
NOTE 1994 1995 ---- --------- --------- (Pounds) (Pounds) Revenues--discontinued operations................... 2,694,693 1,849,242 Other operating income.............................. 4 79,056 38,142 --------- --------- 2,773,749 1,887,384 --------- --------- Expenditures--discontinued operations Vehicle operating costs........................... 329,701 216,200 Other external charges............................ 537,423 403,330 Staff costs....................................... 3 1,086,203 710,084 Other operating charges........................... 4 647,327 509,688 --------- --------- 2,600,654 1,839,302 --------- --------- Operating income.................................... 173,095 48,082 Gain on the disposal of fixed assets to a fellow subsidiary......................................... -- 112,500 --------- --------- Income on ordinary activities before tax............ 173,095 160,582 Tax on ordinary activities.......................... 5 62,252 30,604 --------- --------- Net income on ordinary activities after taxation.... 110,843 129,978 Dividend payable.................................... 110,000 275,000 --------- --------- Net income (loss) retained.......................... 843 (145,022) ========= =========
The Company has no recognized gains or losses other than the income (losses) above and therefore no separate statement of total recognized gains and losses has been presented. There is no difference between the income on ordinary activities before taxation for the years stated above and their historical cost equivalents. The Company ceased trading at close of business on August 31, 1995 and consequently the statement of operations for 1995 only reflects the results to this date. The accompanying notes are an integral part of these financial statements. F-51 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) BALANCE SHEETS AT DECEMBER 31, 1994 AND 1995
NOTE 1994 1995 ---- --------- -------- (Pounds) (Pounds) Fixed assets Tangible assets..................................... 6 848,058 -- --------- ------- Current assets Inventories......................................... 7 19,650 -- Receivables......................................... 8 377,519 936,674 Cash at bank and in hand............................ 220,248 -- --------- ------- 617,417 936,674 Current liabilities--amounts falling due within one year................................................. 9 415,112 31,333 --------- ------- Net current assets.................................... 202,305 905,341 --------- ------- Total assets less current liabilities............. 1,050,363 905,341 ========= ======= Represented by: Shareholders' equity Called up share capital............................. 11 43,329 43,329 Retained earnings................................... 12 1,007,034 862,012 --------- ------- Total shareholders' equity........................ 1,050,363 905,341 ========= =======
The accompanying notes are an integral part of these financial statements. F-52 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 1. BASIS OF PREPARATION The accompanying financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) have been prepared in conformity with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"), and are presented under the historical cost convention. These principles differ in certain material respects from generally accepted accounting principles in the United States ("U.S. GAAP"); see note 16. All amounts are expressed in pounds sterling ("(Pounds)"). The accompanying financial statements do not represent the U.K. statutory financial statements of Speed 6060 Limited, as certain reclassifications and changes in presentation and disclosure have been made to the U.K. financial statements prepared on a statutory basis in order to conform, more closely with accounting presentation and disclosure requirements applicable in the United States. The financial statements of Speed 6060 Limited for the year ended December 31, 1995, on which the auditors' report was unqualified, were the latest financial statements to have been delivered to the Registrar of Companies in England and Wales. The ultimate parent undertaking of Speed 6060 Limited was The Savoy Hotel PLC, a company incorporated under the laws of England throughout the period being January 1, 1994 to December 31, 1995, of these financial statements. 2. ACCOUNTING POLICIES USE OF ESTIMATES Preparation of financial statements in conformity with U.K. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for an accounting period. Such estimates and assumptions could change in the future as more information becomes known or circumstances alter, such that Speed 6060 Limited's actual results may differ from the amounts reported and disclosed in the financial statements. DEPRECIATION Depreciation is provided so as to write off the cost less estimated residual value of fixed assets over their expected useful lives. Depreciation is provided on a straight line basis, mainly at the following annual rates: Motor vehicles --25% Furniture and equipment --10%-20% Improvements to premises --10%
INVENTORIES Inventories are valued at the lower of cost or net realizable value. DEFERRED TAXATION Provision is made for deferred taxation using the liability method at current taxation rates on all material timing differences to the extent that it is probable that a liability or asset will crystallize. F-53 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 REVENUES Revenues represent the invoiced value of services provided, excluding sales related taxes. FOREIGN CURRENCIES Assets and liabilities in foreign currencies have been translated into sterling at the rates ruling at the balance sheet date. LEASES Assets held under capital leases are capitalized in the balance sheet and are depreciated over their useful lives. The interest element of the repayments is charged to operations over the period of the contract on a straight line basis. Rentals paid under operating leases are charged to operations on a straight line basis over the lease term. PENSION COSTS The Company contributes into both defined benefit and defined contribution schemes. An appropriate share of the costs of the pension schemes administered by the Parent Undertaking, which are a defined benefit scheme and a defined contribution scheme, are charged to operations for this Company in respect of staff who are members of these schemes. Full details of these schemes are disclosed in the financial statements of The Savoy Hotel PLC. The pension cost charge for defined contribution schemes represents the amounts payable to insurance companies in respect of the funds for the year to December 31. F-54 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 3.STAFF COSTS
1994 1995 ----------------- --------------- (Pounds) (Pounds) Wages and salaries....................... 1,002,012 653,498 Social security costs.................... 74,588 50,508 Other pension costs...................... 9,603 6,078 ----------------- --------------- (Pounds)1,086,203 (Pounds)710,084 ================= =============== Other pension costs comprise: Payments to funded defined contribution schemes................................. 1,160 640 Charges in respect of group scheme....... 8,443 5,438 ----------------- --------------- (Pounds) 9,603 (Pounds) 6,078 ================= =============== The average weekly number of employees during the year was as follows: NUMBER NUMBER ----------------- --------------- Chauffeurs and support staff........... 40 39 Administration......................... 6 5 ----------------- --------------- 46 44 ================= =============== Directors' remuneration was as follows: Remuneration as executives............. Nil Nil Pension contributions.................. Nil Nil Compensation for loss of office........ Nil Nil ----------------- --------------- (Pounds) Nil (Pounds) Nil ----------------- --------------- Emoluments excluding pension scheme contributions: Chairman's emoluments.................. (Pounds) Nil (Pounds) Nil ================= =============== Highest paid directors' emoluments..... (Pounds) Nil (Pounds) Nil ================= ===============
The number of directors (including the chairman and highest paid director) who received emoluments (excluding pension contributions) in the following ranges was:
NUMBER NUMBER ------ ------ (Pounds)0-(Pounds)5,000........................................ 5 4 === ===
No director waived emoluments in respect of the years ended December 31, 1994 and 1995. The statements of operations for the years ended December 31, 1994 and 1995 include no head office management recharges from the parent undertaking in respect to the services provided by the directors of Speed 6060 Limited and other corporate overheads. F-55 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 4.INCOME ON ORDINARY ACTIVITIES BEFORE TAXATION The income on ordinary activities before taxation is stated after charging:
1994 1995 -------- -------- (Pounds) (Pounds) Auditors' remuneration...................................... 10,000 6,000 Marketing recharge from parent.............................. -- 49,001 Depreciation................................................ 343,428 215,588 Operating leases--hire of plant and machinery............... 9,332 6,155 --other............................................... 35,250 20,000 ======= ======= and after crediting: Rent receivable............................................. 14,182 9,027 Sundry income............................................... 1,388 438 Gain on disposal of tangible fixed assets................... 63,486 28,677 Other operating income...................................... 79,056 38,142 ======= ======= 5.TAXATION UK corporation tax on income on ordinary activities for the years at 33%............................................... 63,000 31,333 UK corporation tax credit in respect of previous years...... (748) (729) ------- ------- 62,252 30,604 ======= =======
In 1995, the primary reason for the difference between the effective tax rate (19%) and the nominal rate of UK corporation tax (33%) is that the transfer of the traded assets of the Company was intra-group and therefore not subject to corporation tax. F-56 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 6.TANGIBLE FIXED ASSETS
SHORT FURNITURE LEASEHOLD MOTOR AND PREMISES VEHICLES EQUIPMENT TOTAL --------- ---------- --------- ---------- (Pounds) (Pounds) (Pounds) (Pounds) Cost At January 1, 1994............... 36,675 1,464,752 92,233 1,593,660 Additions........................ -- 402,593 49,053 451,646 Disposals........................ -- (382,634) (249) (382,883) Fully depreciated assets......... (11,355) -- (34,031) (45,386) ------- ---------- -------- ---------- At December 31, 1994............. 25,320 1,484,711 107,006 1,617,037 ------- ---------- -------- ---------- Additions........................ -- 115,800 8,075 123,875 Disposals........................ (25,320) (1,600,511) (115,081) (1,740,912) ------- ---------- -------- ---------- At December 31, 1995............. -- -- -- -- ======= ========== ======== ========== Accumulated Depreciation At January 1, 1994............... 25,234 709,265 54,039 788,538 Charge for the year.............. 2,310 319,191 21,927 343,428 Disposals........................ -- (317,352) (249) (317,601) Fully depreciated assets......... (11,355) -- (34,031) (45,386) ------- ---------- -------- ---------- At December 31, 1994............. 16,189 711,104 41,686 768,979 Charge for the year.............. 1,540 197,965 16,083 215,588 Disposals........................ (17,729) (909,069) (57,769) (984,567) ------- ---------- -------- ---------- At December 31, 1995............. -- -- -- -- ======= ========== ======== ========== Net Book Value At December 31, 1994............. 9,131 773,607 65,320 848,058 ======= ========== ======== ========== At December 31, 1995............. -- -- -- -- ======= ========== ======== ==========
In 1995, in accordance with the transfer agreement whereby the assets and business of the Company were transferred, an exceptional gain on disposal of (Pounds)112,500 was made. This gain specifically related to the transfer of motor vehicles which were transferred at fair market value. All other assets were transferred at net book value. 7.INVENTORIES
1994 1995 -------- -------- (Pounds) (Pounds) Raw materials and consumables: Vehicle spare parts........................................... 15,605 -- Petrol and oil................................................ 4,045 -- ------- ------- 19,650 -- ======= ======= 8.RECEIVABLES--AMOUNTS FALLING DUE WITHIN ONE YEAR Trade receivables............................................. 184,969 -- Amounts owed by parent undertaking............................ 104,027 -- Amounts owed by fellow subsidiary............................. -- 936,674 Other receivables............................................. 4,224 -- Prepayments and accrued income................................ 84,299 -- ------- ------- 377,519 936,674 ======= =======
F-57 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 9.CURRENT LIABILITIES--AMOUNTS FALLING DUE WITHIN ONE YEAR
1994 1995 -------- -------- (Pounds) (Pounds) Trade accounts payable..................................... 76,057 -- Borrowings from parent undertaking......................... 34,915 -- Corporation tax............................................ 63,000 31,333 Other taxes and social security............................ 49,699 -- Other creditors............................................ 11,299 -- Capital lease installments................................. 4,638 -- Accruals................................................... 65,504 -- Dividends payable.......................................... 110,000 -- ------- ------ 415,112 31,333 ======= ======
10.DEFERRED TAXES Provision for deferred taxes has been made in the financial statements in accordance with the Company's accounting policy. The provision and the full potential liability are as follows:
1994 1995 ------------------------- ------------------- POTENTIAL POTENTIAL PROVISION LIABILITY PROVISION LIABILITY --------- --------------- --------- --------- Accelerated capital allowances................. -- (Pounds) 15,534 -- --
11.SHARE CAPITAL
1994 1995 -------- -------- (Pounds) (Pounds) Authorized: "A' Ordinary Shares of (Pounds)1......................... 20,000 20,000 "B' Ordinary Shares of (Pounds)1......................... 30,000 30,000 ------ ------ 50,000 50,000 ====== ====== Allotted, called up and fully paid: "A' Ordinary Shares of (Pounds)1......................... 17,329 17,329 "B' Ordinary Shares of (Pounds)1......................... 26,000 26,000 ------ ------ 43,329 43,329 ====== ======
12.RETAINED EARNINGS
1994 1995 --------- --------- (Pounds) (Pounds) At January 1.......................................... 1,006,191 1,007,034 Transfer to (from) retained earnings.................. 843 (145,022) --------- --------- At December 31........................................ 1,007,034 862,012 ========= ========= 13.RECONCILIATION OF MOVEMENTS ON SHAREHOLDERS' EQUITY 1994 1995 --------- --------- (Pounds) (Pounds) Opening shareholders' equity.......................... 1,049,520 1,050,363 Total recognized (losses)/gains for the financial year................................................. 843 (145,022) --------- --------- Closing shareholders' equity.......................... 1,050,363 905,341 ========= =========
F-58 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 14.FINANCIAL COMMITMENTS a) The Company has annual commitments under operating leases as set out below:
1994 1995 ------------------ ------------------ LAND AND LAND AND BUILDINGS OTHER BUILDINGS OTHER --------- -------- --------- -------- (Pounds) (Pounds) (Pounds) (Pounds) Leases which expire: In the next year.................... 30,000 360 -- -- In the second to fifth years........ -- 9,038 -- -- After five years.................... -- -- -- -- ------ ----- --- --- 30,000 9,398 -- -- ====== ===== === ===
b) Capital commitments: The Company has no capital commitments at December 31, 1994 and 1995 15.GUARANTEE The Company has entered into a Composite Accounting Agreement with Barclays Bank PLC under which it has executed an unlimited guarantee in respect of the bank overdraft and other banking facility of the Parent Undertaking and certain Fellow Subsidiary Undertakings. 16.SUMMARY OF DIFFERENCES BETWEEN U.K. AND U.S. GAAP The financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom ("U.K. GAAP"). These accounting principles differ in certain material respects from the accounting principles generally accepted in the United States ("U.S. GAAP"). Described below are the material differences between U.K. GAAP and U.S. GAAP affecting the net income and shareholders' equity which are set forth in the tables that follow: Transfer of assets between fellow subsidiaries Under U.K. GAAP, assets can be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their fair value. The difference between the fair value and the historical cost of these assets will result in an intragroup gain or loss in the statement of operations of the subsidiary selling the assets. The assets would remain at their fair value in the subsidiary that acquired the assets. Under U.S. GAAP, assets can only be transferred from one subsidiary to a fellow subsidiary with the same parent undertaking, at their historical cost. As a result, under U.S. GAAP no intragroup gain or loss would arise from the transaction, and the assets would remain at historical cost. Allocation of expenses in a "carve out" situation Under U.K. GAAP, certain costs incurred by the parent undertaking may not be reflected in the subsidiary financial statements; however, disclosure of the fact is generally provided in the subsidiary financial statements. Under U.S. GAAP, historical statements of operations of a subsidiary should reflect all costs incurred by the parent undertaking on its behalf, such as officer salaries and corporate overheads. F-59 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 Deferred taxes Under U.K. GAAP, deferred taxation is accounted for using the liability method to the extent that it is considered probable that a liability will crystallize in the foreseeable future. Under U.S. GAAP, deferred taxation is provided for on all temporary differences and carryforwards. Deferred tax assets are recognised to the extent that it is more likely than not that they will be realized. Where doubt exists as to whether a deferred tax asset will be realized, an appropriate valuation allowance is established. Proposed dividends Under U.K. GAAP dividends paid and proposed are usually shown on the face of the statement of operations as an appropriation of current year earnings. Proposed dividends are provided on the basis of recommendation by the directors and may include dividends that are subject to subsequent approval by shareholders before they are declared. Under U.S. GAAP, only dividends approved during the current year are included in the statement of operations. The effect of the above noted differences between U.K. and U.S. GAAP are as follows: (A) NET INCOME The approximate effects on net income (loss) of material differences between U.K. and U.S. GAAP are as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------- 1994 1995 --------- --------- (Pounds) (Pounds) Net income reported under U.K. GAAP....................... 110,843 129,978 Gain on transfer of assets................................ -- (112,500) Allocation of expenses.................................... (68,350) (42,341) Deferred taxes............................................ 2,161 15,534 Tax effect of U.S. GAAP reconciling adjustments........... 22,556 13,973 -------- --------- Net income reported in accordance with U.S. GAAP.......... 67,210 4,644 ======== =========
(B) SHAREHOLDERS' EQUITY The approximate effects on shareholders' equity of material differences between U.K. and U.S. GAAP are as follows:
AT DECEMBER 31, ------------------- 1994 1995 --------- -------- (Pounds) (Pounds) Shareholders' equity reported under U.K. GAAP............ 1,050,363 905,341 Gain on transfer of assets............................... -- (112,500) Allocation of expenses................................... (68,350) (110,691) Deferred taxes........................................... (15,534) -- Proposed dividend........................................ 110,000 -- Tax effect of U.S. GAAP reconciling adjustments.......... 22,556 36,529 --------- -------- Shareholders' equity reported in accordance with U.S. GAAP.................................................... 1,099,035 718,679 ========= ========
F-60 SPEED 6060 LIMITED (FORMERLY CAMELOT BARTHROPP LIMITED) NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995 (C) STATEMENTS OF CASH FLOWS Under U.K. GAAP, wholly owned subsidiaries of a parent undertaking that are established under the law of any European Community State are exempt from including a statement of cash flows in their financial statements. Under U.S. GAAP, the statement of cash flows is required and therefore is shown below:
YEAR ENDED YEAR ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 ----------------- ----------------- (Pounds) (Pounds) Cash flows from operating activities: Net income................................ 67,210 4,644 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of fixed as- sets..................................... 343,428 215,588 Gain on sale of fixed assets.............. (63,486) (28,677) Change in operating assets and liabili- ties: Receivables............................. 54,058 166,047 Inventories............................. 3,797 19,650 Current liabilities..................... (79,729) (156,918) -------- -------- Net cash provided by operating activi- ties................................. 325,278 220,334 -------- -------- Cash flows from investing activities: Proceeds from sale of fixed assets........ 128,768 68,293 Purchases of fixed assets................. (451,646) (123,875) Net cash used in financing activi- ties................................. (322,878) (55,582) -------- -------- Cash flows from financing activities: Dividends paid.......................... -- (385,000) Net cash used in financing activi- ties................................. -- (385,000) -------- -------- Net increase (decrease) in cash and cash equivalents.............................. 2,400 (220,248) Cash and cash equivalents at beginning of year..................................... 217,848 220,248 -------- -------- Cash and cash equivalents at end of year.. 220,248 -- ======== ========
F-61 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- No dealer, salesman or any other person has been authorized to give any information or to make any representations other than those contained in this Prospectus in connection with the offer made by this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or any of the Underwriters. This Prospectus does not constitute an offer to sell or the solicitation of any offer to buy any security other than the shares of Common Stock offered by this Prospectus, nor does it constitute an offer to sell or a solicitation of any offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized, or in which the person making such offer or solicitation is not qualified to do so, or to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that information contained herein is correct as of any time subsequent to the date hereof. ------------------- TABLE OF CONTENTS -------------------
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 Acquisition of Manhattan Limousine....................................... 12 Use of Proceeds.......................................................... 12 Dilution................................................................. 13 Capitalization........................................................... 14 Dividend Policy.......................................................... 14 Selected Consolidated Financial Data..................................... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Business................................................................. 21 Management............................................................... 30 Principal Stockholders................................................... 35 Certain Transactions..................................................... 37 Description of Capital Stock............................................. 38 Shares Eligible for Future Sale.......................................... 41 Underwriting............................................................. 42 Legal Matters............................................................ 43 Experts.................................................................. 43 Additional Information................................................... 44 Index to Financial Statements............................................ F-1
--------------- Until , 1997 (25 days after the date of this Prospectus), all dealers effecting transactions in the Common Stock offered hereby, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwriters and with respect to their unsold allotments or subscriptions. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2,900,000 SHARES CAREY INTERNATIONAL, INC. COMMON STOCK --------------- PROSPECTUS --------------- Montgomery Securities Ladenburg Thalmann & Co. Inc. , 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered, other than underwriting discounts and commissions. All of the amounts shown are estimated except the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq listing fee. SEC registration fee.......................................... $ 13,138 NASD filing fee............................................... 4,836 Nasdaq listing fee............................................ 38,172 Printing and engraving expenses............................... 300,000 Legal fees and expenses....................................... 400,000 Accounting fees and expenses.................................. 300,000 Blue sky fee.................................................. 5,000 Transfer agent and registrar fees............................. 5,000 Miscellaneous................................................. 133,854 ---------- TOTAL..................................................... $1,200,000 ==========
The Company will bear all of the foregoing fees and expenses. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company is a Delaware corporation. Reference is made to Section 145 of the DGCL, as amended, which provides that a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe his or her conduct was unlawful. Section 145 further provides that a corporation similarly may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite an adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. The Company's Restated Certificate of Incorporation further provides that the Company shall indemnify its directors and officers to the full extent permitted by the law of the State of Delaware. The Company's Certificate of Incorporation provides that the Company's directors shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent II-1 that exculpation from liability is not permitted under the DGCL as in effect at the time such liability is determined. The Certificate of Incorporation also provides that each person who was or is made a party to, or is involved in, any action, suit, proceeding or claim by reason of the fact that he or she is or was a director, officer or employee of the Registrant (or is or was serving at the request of the Registrant as a director, officer, trustee employee or agent of any other enterprise including service with respect to employee benefit plans) shall be indemnified and held harmless by the Registrant, to the full extent permitted by Delaware law, as in effect from time to time, against all expenses (including attorneys' fees and expenses), judgments, fines, penalties and amounts to be paid in settlement incurred by such person in connection with the investigation, preparation to defend or defense of such action, suit, proceeding or claim. The rights to indemnification and the payment of expenses provided by the Certificate of Incorporation do not apply to any action, suit, proceeding or claim initiated by or on behalf of a person otherwise entitled to the benefit of such provisions. Any person seeking indemnification under the Certificate of Incorporation shall be deemed to have met the standard of conduct required for such indemnification unless the contrary shall be established. Any repeal or modification of such indemnification provisions shall not adversely affect any right or protection of a director or officer with respect to any conduct of such director or officer occurring prior to such repeal or modification. The Company maintains an indemnification insurance policy covering all directors and officers of the Company and its subsidiaries. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (1) In April and October, 1995, two of the Company's employees purchased 8,600 and 34,401 shares of Common Stock, respectively, for approximately $1.44 per share upon the exercise of options granted under the 1987 Stock Option Plan. (2) The Company granted options to purchase Common Stock pursuant to the 1992 Stock Option Plan to individuals who were employees at the time of grant on the following dates and in the indicated amounts: June 2, 1994 (645 shares); October 1, 1994 (3,440 shares); October 28, 1994 (8,600 shares); February 29, 1996 (12,900 shares); June 10, 1996 (12,900 shares); and September 7, 1996 (25,800 shares). In addition, the Company granted an option to purchase 12,900 shares of Common Stock pursuant to the 1992 Stock Option Plan to one of its directors on March 30, 1995. The Company also granted an option to purchase 12,900 shares of Common Stock pursuant to the 1992 Stock Option Plan to a consultant on June 1, 1996. The securities issued in the foregoing transactions were not registered under the Securities Act in reliance upon exemptions from registration set forth in Section 4(2) of the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS (A) EXHIBITS. Unless otherwise indicated, the following exhibits will be filed by amendment to this Registration Statement.
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- 1 Form of Underwriting Agreement 2.1 Stock Purchase Agreement dated as of March 1, 1997, by and among Carey International, Inc., Alfred J. Hemlock and Lupe C. Hemlock
II-2
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- 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 3.1 Amended and Restated Certificate of Incorporation of the Company 3.2 Amended and Restated Bylaws of the Company 4.1 Specimen Stock Certificate 4.2 Form of Warrants *4.3 Carey International, Inc. Common Stock Purchase Warrant dated September 1, 1991, issued to Yerac Associates, L.P. 4.4 Form of Registration Rights Agreement between Carey International, Inc. and Michael Hemlock 5 Opinion of Nutter, McClennen & Fish, LLP *10.1 1997 Equity Incentive Plan *10.2 1992 Stock Option Plan *10.3 1987 Stock Option Plan *10.4 Stock Plan for Non-Employee Directors *10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue, Washington, D.C., between Carey International, Inc. and 4530 Wisconsin Associates, as lessor, including Addendum, Exhibit B and Exhibit C; and Second Amendment to Lease dated August 6, 1993, including Exhibit A 10.6 Form of Escrow Agreement by and among Michael Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named *10.7 Current Form of Standard Master License Agreement 10.8 Form of Standard International License Agreement 10.9 Form of Promissory Notes in connection with Acquisition of Manhattan Limousine *21 Subsidiaries of the Registrant *23.1 Consent of Coopers & Lybrand L.L.P. *23.2 Consent of Coopers & Lybrand L.L.P. *23.3 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors *23.4 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors 23.5 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) *23.6 Consent of Nicholas J. St. George *24 Power of Attorney (contained in the signature page to this Registration Statement) *27 Financial Data Schedule
- -------- * Filed herewith. (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 II-3 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A under the Securities Act and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS 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 3RD DAY OF MARCH 1997. Carey International, Inc. /s/ Vincent A. Wolfington By: _________________________________ VINCENT A. WOLFINGTON CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below on this Registration Statement hereby constitutes and appoints Vincent A. Wolfington, David H. Haedicke, John P. Driscoll, Jr. and James E. Dawson, and each of them, with full power to act without the other, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments (including post-effective amendments and amendments thereto) to this Registration Statement on Form S-1 of the registrant, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he or she might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Vincent A. Wolfington Chairman of the March 3, 1997 - ------------------------------------- Board and Chief VINCENT A. WOLFINGTON Executive Officer /s/ Don R. Dailey President and March 3, 1997 - ------------------------------------- Director DON R. DAILEY /s/ David H. Haedicke Chief Financial March 3, 1997 - ------------------------------------- Officer DAVID H. HAEDICKE /s/ Paul A. Sandt Principal Accounting March 3, 1997 - ------------------------------------- Officer PAUL A. SANDT /s/ David McL. Hillman Director March 3, 1997 - ------------------------------------- DAVID MCL. HILLMAN /s/ William R. Hambrecht Director March 3, 1997 - ------------------------------------- WILLIAM R. HAMBRECHT /s/ Robert W. Cox Director March 3, 1997 - ------------------------------------- ROBERT W. COX II-5 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Carey International, Inc. In connection with our audits of the consolidated financial statements of Carey International, Inc. and Subsidiaries as of November 30, 1995 and 1996, and for each of the three years in the period ended November 30, 1996, which financial statements are included in the Prospectus, we have also audited the consolidated financial statement schedule listed in Item 16(b) of Part II of the Registration Statement herein. In our opinion, this consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Washington, D.C. January 31, 1997, except for Notes 1, 2 and 18 as to which the date is March 1, 1997 1 SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS CAREY INTERNATIONAL, INC. AND SUBSIDIARIES
BALANCE AT BEGINNING CHARGED TO COSTS DEDUCTIONS-- BALANCE AT END DESCRIPTION OF PERIOD AND EXPENSE WRITE-OFFS OF PERIOD ----------- -------------------- ---------------- ------------ -------------- Year ended November 30, 1996 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $293,796 $498,786 $(257,174) $535,408 Year ended November 30, 1995 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $203,872 $391,964 $(302,040) $293,796 Year ended November 30, 1994 Reserve and allowance from asset accounts: Allowance for doubtful accounts............. $219,979 $251,733 $(267,840) $203,872
2 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. ----------- ----------- ---------- 1 Form of Underwriting Agreement 2.1 Stock Purchase Agreement dated as of March 1, 1997, by and among Carey International, Inc., Alfred J. Hemlock and Lupe C. Hemlock 2.2 Agreement and Plan of Merger dated as of March 1, 1997, by and among Carey International, Inc., Manhattan International Limousine Network Ltd., MLC Acquisition Corporation and Michael Hemlock 3.1 Amended and Restated Certificate of Incorporation of the Company 3.2 Amended and Restated Bylaws of the Company 4.1 Specimen Stock Certificate 4.2 Form of Warrants *4.3 Carey International, Inc. Common Stock Purchase Warrant dated September 1, 1991, issued to Yerac Associates, L.P. 4.4 Form of Registration Rights Agreement between Carey International, Inc. and Michael Hemlock 5 Opinion of Nutter, McClennen & Fish, LLP *10.1 1997 Equity Incentive Plan *10.2 1992 Stock Option Plan *10.3 1987 Stock Option Plan *10.4 Stock Plan for Non-Employee Directors *10.5 Lease dated July 5, 1989 for 4530 Wisconsin Avenue, Washington, D.C., between Carey International, Inc. and 4530 Wisconsin Associates, as lessor, including Addendum, Exhibit B and Exhibit C; and Second Amendment to Lease dated August 6, 1993, including Exhibit A 10.6 Form of Escrow Agreement by and among Michael Hemlock, Alfred J. Hemlock, Lupe C. Hemlock and a bank to be named *10.7 Current Form of Standard Master License Agreement 10.8 Form of Standard International License Agreement 10.9 Form of Promissory Notes in connection with Acquisition of Manhattan Limousine *21 Subsidiaries of the Registrant *23.1 Consent of Coopers & Lybrand L.L.P. *23.2 Consent of Coopers & Lybrand L.L.P. *23.3 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors *23.4 Consent of Coopers & Lybrand, Chartered Accountants and Registered Auditors 23.5 Consent of Nutter, McClennen & Fish, LLP (contained in Exhibit 5) *23.6 Consent of Nicholas J. St. George *24 Power of Attorney (contained in the signature page to this Registration Statement) *27 Financial Data Schedule
- -------- * Filed herewith. EX-4.3 2 COMMON STOCK PURCHASE WARRANT EXHIBIT 4.3 ----------- [NOTE: THE FOLLOWING DOCUMENT HAS NOT BEEN REVISED TO REFLECT THE EFFECTS OF EITHER (I) THE COMPANY'S REVERSE STOCK-SPLIT OR (II) THE RECAPITALIZATION (AS DEFINED IN THE REGISTRATION STATEMENT).] WARRANT THE SECURITIES REPRESENTED HEREBY AND THE SECURITIES WHICH MAY BE ACQUIRED UPON THE EXERCISE OF THIS COMMON STOCK PURCHASE WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT. Void after September 1, 2001 Right to Purchase 200,000 Shares of Common Stock of Carey International, Inc. (subject to adjustment as provided herein) CAREY INTERNATIONAL, INC. COMMON STOCK PURCHASE WARRANT Carey International, Inc., a Delaware corporation, (the "Company") for value received and subject to the terms set forth below, hereby grants to Carey Associates, L.P., a California limited partnership, its registered successors and assigns, (the "Holder") the right to purchase from the Company at any time or from time to time after the date hereof and prior to the earlier of (i) 3:00 p.m., Washington DC time, on the third anniversary of a Public Offering (as defined below), or (ii) 3:00 p.m., Washington DC time, on November 30, 2001, Two Hundred Thousand (200,000) fully paid and non-assessable shares of the Common Stock, par value $0.01 per share, of the Company, at the purchase price of $2.64 per share (the "Exercise Price"). The Exercise Price and the number and character of such shares of Common Stock purchasable pursuant to the rights granted under this Warrant are subject to adjustment as provided herein. This Warrant is subject to the following provisions: 1. Definitions. As used herein the following terms have the meanings ----------- ascribed to them below: (a) "Common Stock" means all stock of any class or classes (however ------------ designated) of the Company, authorized upon the Issue Date or thereafter, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency). (b) "Issue Date" means September 1, 1991. ---------- (c) "Market Price" means, as to shares of the Common Stock: (i) if the ------------ shares of the Common Stock are listed on any national securities exchange or quoted on the National Association of Security Dealers, Inc. Automated Quotation System ("NASDAQ"), National Market Systems ("NMS"), the average of the daily closing prices for the fifteen (15) consecutive business days commencing twenty (20) business days before the day in question (the "Trading Period"); (ii) if the shares of the Common Stock are not listed on any national securities exchange or quoted on NASDAQ/NMS but otherwise are quoted on NASDAQ, the average of the high and low bids as reported by NASDAQ for the Trading Period; or (iii) if the shares of the Common Stock are neither listed on any national securities exchange nor quoted on NASDAQ, the higher of (x) the Exercise Price then in effect, or (y) the tangible book value per share of Common Stock as of the end of the Company's immediately preceding fiscal year. (d) "Other Securities" means any stock (other than Common Stock) and other ---------------- securities of the Company or any other Person (corporate or other) which the Holder of this Warrant at any time shall be entitled to receive, or shall have received, upon the exercise of this Warrant in lieu or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 3.2 hereof or otherwise. (e) "Person" means, without limitation, an individual, a partnership, a ------ corporation, a trust, a joint venture, an unincorporated organization, or a government or any department or agency thereof. (f) "Public Offering" means an initial underwritten public offering --------------- pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock for the account of the Company. (g) "This Warrant" means, collectively, this Warrant and all other stock ------------ purchase warrants issued in exchange therefor or replacement thereof. 2. Exercise of Warrant. ------------------- 2.1 Exercise Period. The Holder may exercise this Warrant, in whole or in --------------- part (but not as to a fractional share of Common Stock), at any time and from time to time after the date hereof and prior to the earlier of (i) 3:00 p.m., Washington DC time, on the third anniversary of a Public offering, or (ii) 3:00 p.m., Washington DC time, on November 30, 2001. -2- 2.2 Exercise Procedure. ------------------ (a) This Warrant will be deemed to have been exercised at such time as the Company has received all of the following items (the "Exercise Date"): (i) a completed Subscription Agreement as described in Section 2.4 hereof, executed by the Person exercising all or part of the purchase rights represented by this Warrant (the "Purchaser"); (ii) this Warrant; (iii) if this Warrant is not registered in the name of the Purchaser, an Assignment or Assignments in the form set forth in Exhibit B hereto, evidencing the assignment of this Warrant to the Purchaser together with any documentation required pursuant to Section 9(a) hereof; and (iv) a check payable to the owner of the company in an amount equal to the product of the Exercise Price multiplied by the number of shares of Common Stock being purchased upon such exercise. (b) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within ten (10) days after the Exercise Date, the Company at its expense will cause to be issued in the name of and delivered to the Holder hereof, or as the Holder (upon payment by the Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock (or Other Securities) to which the Holder shall be entitled upon such exercise, together with any other stock or other securities and property (including cash, where applicable) to which the Holder is entitled upon exercise. (c) Unless this Warrant has expired or all of the purchase rights represented hereby have been exercised, the Company at its expense will, within ten (10) days after the Exercise Date, issue and deliver to or upon the order of the Holder hereof a new Warrant or Warrants of like tenor, in the name of the Holder or as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock remaining issuable under this warrant. (d) The Common Stock (or Other Securities) issuable upon the exercise of this Warrant will be deemed to have been issued to the Purchaser on the Exercise Date, and the Purchaser will be deemed for all purposes to have become the record holder of such Common Stock (or Other Securities) on the Exercise Date. (e) The issuance of certificates for shares of Common Stock (or Other Securities) upon exercise of this Warrant will be made without -3- charge to the Holder or the Purchaser for any issuance tax in respect thereof or any other cost incurred by the Company in connection with such exercise and the related issuance of shares of Common Stock (or other Securities). 2.3 Acknowledgment of Continuing Obligations. The Company will, at the ---------------------------------------- time of the exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing its continuing obligation to afford to the Holder any rights to which the Holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, provided that if the Holder shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to the Holder any such rights. 2.4 Subscription Agreement. The Subscription Agreement will be ---------------------- substantially in the form set forth in Exhibit A hereto, except that if the shares of Common Stock (or Other Securities) issuable upon exercise of this Warrant are not to be issued in the name of the Holder hereof, the Subscription Agreement will also state the name of the Person to whom the certificates for the shares of Common Stock (or Other Securities) are to be issued, and if the number of shares of Common Stock (or Other Securities) to be issued does not include all the shares of Common Stock (or Other Securities) issuable hereunder, it will also state the name of the Person to whom a new Warrant for the unexercised portion of the rights hereunder is to be delivered. 2.5 Fractional Shares. If a fractional share of Common Stock would, but ----------------- for the provisions of Section 2.1 hereof, be issuable upon exercise of the rights represented by this Warrant, the Company will, within ten (10) days after the Exercise Date, deliver to the Purchaser a check payable to the Purchaser in lieu of such fractional share, in an amount equal to the Market price of such fractional share as of the close of business on the Exercise Date. 3. Adjustments. ----------- 3.1 Adjustments for Stock Splits, Etc. If the Company shall at any time --------------------------------- after the Issue Date subdivide its outstanding Common Stock or Other Securities, by split-up or otherwise, or combine its outstanding Common Stock or Other Securities, or issue additional shares of its capital stock in payment of a stock dividend in respect of its Common Stock or Other Securities, the number of shares issuable on the exercise of the unexercised portion of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of combination, and the Exercise Price then applicable to shares covered by the unexercised portion of this Warrant shall forthwith be proportionately decreased in the case of a subdivision or stock dividend, or proportionately increased in the case of combination. -4- 3.2 Adjustment for Reclassification, Reorganization . Etc. In case of any ----------------------------------------------------- reclassification, capital reorganization, or change of the outstanding Common Stock or Other Securities (other than as a result of a subdivision, combination or stock dividend), or in the case of any consolidation of the Company with, or merger of the Company into, another Person (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock or Other Securities of the Company, or in case of any sale or conveyance to one or more Persons of the property of the Company as an entirety or substantially, as an entirety at any time prior to the expiration of this Warrant, then, as a condition of such reclassification, reorganization, change, consolidation, merger, sale or conveyance, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder of this Warrant, so that the Holder of this Warrant shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock or Other Securities of the Company as to which this Warrant was exercisable immediately prior to such reclassification, reorganization, change, consolidation, merger, sale or conveyance, and in any such case appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock, and other securities and property, thereafter deliverable upon exercise hereof. If, as a consequence of any such transaction, solely cash, and no securities or other property of any kind, is deliverable upon exercise of this Warrant, then, in such event, the Company may terminate this Warrant by giving the Holder hereof written notice thereof. such notice shall specify the date (at least thirty (30) days subsequent to the date on which notice is given) on which, at 3:00 p.m., Washington, DC time, this Warrant shall terminate. Notwithstanding any such notice, this Warrant shall remain exercisable, and otherwise in full force and effect, until such time of termination. 3.3 Adjustment for Dividends. In case the Company shall, at any time or ------------------------ from time to time after the Issue Date, pay any dividend or make any other distribution upon its Common Stock (or Other Securities) payable in cash, property or securities of a corporation other than the Company, then forthwith upon the payment of such dividend, or the making of such other distribution, as the case may be, the Exercise Price then in effect shall be reduced by the amount of such dividend or other distribution in respect of each outstanding share of Common Stock (or Other Securities). The Board of Directors -5- of the Company shall determine the fair value of any dividend or other distribution made upon Common Stock of the Company payable in property or securities of a corporation other than the Company. 3.4 Certificate of Adjustment. Whenever the Exercise Price or the number ------------------------- of shares issuable hereunder is adjusted, as herein provided, the Company shall promptly deliver to the registered Holder of this Warrant a certificate of the Treasurer of the Company, which certificate shall state (i) the Exercise Price and the number of shares of Common Stock (or other Securities) issuable hereunder after such adjustment, (ii) the facts requiring such adjustment, and (iii) the method of calculation for such adjustment and increase or decrease. 3.5 Small Adjustments. No adjustment in the Exercise Price shall be ----------------- required unless such adjustment would require an increase or decrease in the Exercise Price of at least one percent; provided, however, that any adjustments which by reason of this Section 3.5 are not required to be made immediately shall be carried forward and taken into account at the time of exercise of this Warrant or any subsequent adjustment in the Exercise Price which, singly or in combination with any adjustment carried forward, is required to be made under Sections 3.1, 3.2 or 3.3. 4. No Dilution or Impairment. The Company will not, by amendment of its ------------------------- Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all action as may be necessary or appropriate in order to protect the rights of the Holder of this Warrant against dilution, or other impairment. 5. Right to Convert Warrant into Common Stock. ------------------------------------------ (a) Right to Convert. The Holder shall have the right to require the ---------------- Company to convert this Warrant (the "Conversion Right") into shares of Common Stock as provided in this Section 5. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without payment by the Holder of any Exercise Price) that number of shares of Common Stock equal to the quotient obtained by dividing (x) the value of this Warrant at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price in effect immediately prior to the exercise of the Conversion Right from the aggregate fair market value of the Shares issuable upon exercise of this Warrant immediately prior to the exercise of the Conversion Right) by (y) the fair market value of one share of Common Stock immediately prior to the exercise of the Conversion Right. -6- (b) Method of Exercise. The Conversion Right may be exercised by the ------------------ Holder by the surrender of this Warrant at the principal office of the Company together with a written statement specifying that the Holder thereby intends to exercise the Conversion Right. Certificates for the shares of Common Stock issuable upon exercise of the Conversion Right shall be delivered to the Holder within thirty (30) days following the Company's receipt of this Warrant together with the aforesaid written statement. (c) Determination of Fair Market Value. For purposes of this Section 5, ---------------------------------- fair market value of a share of Common Stock as of a particular date (the "Determination Date") shall mean: (i) If the Company's Common Stock is traded on an exchange or is quoted on the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market System, then the closing or last sale price, respectively, reported for the business day immediately preceding the Determination Date. (ii) If the Company's Common Stock is not traded on an exchange or on the NASDAQ National Market System but is quoted on NASDAQ, then the mean of the closing bid and asked prices reported for the business day immediately preceding the Determination Date. (iii) If the Company's Common Stock is not publicly traded, then as determined in good faith by the Company's Board of Directors upon a review of relevant factors. 6. Notices of Record Date, Etc. In the event of: ---------------------------- (a) any taking by the Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase, or otherwise acquire any shares of stock of any class of the Company or any other securities or property, or to receive any other right; or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all of the assets of the Company to or consolidation or merger of the Company with or into any other Person; or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company; or -7- (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities of the Company, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities of the Company (other than (i) the issue of Common Stock (or Other Securities) on the exercise of this Warrant, (ii) stock options to purchase shares of Common Stock which may be granted to employees of the Company or the issuance of such shares pursuant to the exercise of such options, and (iii) any shares issued in transactions to which Sections 3.1 or 3.2 of this Warrant applies); then and in each such event the Company will mail or cause to be mailed to the Holder of this Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or other Securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock of any class or other securities of the Company, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least twenty (20) days prior to the date therein specified. 7. Reservation of Stock, etc., Issuable on Exercise of Warrant. The ----------------------------------------------------------- Company will at all times reserve and keep available solely for issuance and delivery upon the exercise of this Warrant, all shares of Common Stock (or Other Securities) from time to time issuable upon the exercise of this Warrant. 8. Purchase Rights. If at any time the Company grants, issues or sells --------------- any rights or options to subscribe for or to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (or Other Securities) (the "Purchase Rights"), then the Holder of this Warrant will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock (or Other Securities) acquirable upon exercise of this warrant had this Warrant been fully exercised immediately prior to the date on which a record was taken for the grant, issuance or sale of such Purchase Rights, or, if no such record was taken, the date as of which the record holders of Common Stock (or Other Securities) were determined for the grant, issuance or sale of such Purchase Rights. -8- 9. Disposition of This Warrant, Common Stock, Etc. ---------------------------------------------- (a) The Holder of this Warrant and any transferee hereof or of the Common Stock (or Other Securities) with respect to which this Warrant may be exercisable, by their acceptance hereof, hereby understand and agree that this Warrant and the Common Stock (or Other Securities) with respect to which this Warrant may be exercisable have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be sold, pledged, hypothecated, donated, or otherwise transferred (whether or not for consideration) without an effective registration statement under the Act or an opinion of counsel satisfactory to the Company and/or submission to the Company of such other evidence as may be satisfactory to counsel to the Company, in each such case, to the effect that any such transfer shall not be in violation of the Act. It shall be a condition to the transfer of this Warrant that any transferee thereof deliver to the Company its written agreement to accept and be bound by all of the terms and conditions of this Warrant. (b) The stock certificates of the Company that will evidence the shares of Common Stock (or Other Securities) with respect to which this Warrant may be exercisable will be imprinted with a conspicuous legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT$'), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION SATISFACTORY TO THE COMPANY OF COUNSEL SATISFACTORY TO THE COMPANY OF SUCH OTHER EVIDENCE AS ANY BE SATISFACTORY TO COUNSEL TO THE COMPANY. IN EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT." The Company does not file, and does not in the foreseeable future contemplate filing, periodic reports with the Securities and Exchange Commission ("SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as amended. Except as otherwise provided in the Registration Rights Agreement of even date herewith between the parties hereto, the Company has not agreed to register any of the Holder's shares of Common Stock (or Other Securities) of the Company with respect to which this Warrant may be exercisable for distribution in accordance with the provisions of the Act, and the Company has not agreed to comply with any exemption from registration under the Act for the resale of the Holder's shares of Common Stock (or Other Securities) with respect to which this Warrant may be exercised. Hence, it is the understanding of the Holder of this Warrant that by virtue of the provisions of certain rules respecting "restricted securities" promulgated by the SEC, the shares of Common Stock (or Other Securities) of the Company with respect to which this Warrant may be exercisable may be required to be held indefinitely, -9- unless and until registered under the Act, unless an exemption from such registration is available, in which case the Holder may still be limited as to the number of shares of Common Stock (or Other Securities) of the Company with respect to which this Warrant may be exercised that may be sold from time to time. 10. Rights and Obligations of Warrant Holder. The Holder of this Warrant ---------------------------------------- shall not, by virtue hereof, be entitled to any voting rights or other rights as a stockholder of the Company. No provision of this Warrant, in the absence of affirmative actions by the Holder to purchase common Stock (or Other Securities) of the Company by exercising this Warrant and no enumeration in this Warrant of the rights or privileges of the Holder, will give rise to any liability of such Holder for the Exercise Price of Common Stock (or Other Securities) acquirable by exercise hereof or as a stockholder of the Company. 11. Transfer of Warrants. Subject to compliance with the restrictions on -------------------- transfer applicable to this Warrant referred to in Section 9 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the registered Holder, upon surrender of this Warrant with a properly executed Assignment (in substantially the form attached hereto as Exhibit B), to the Company, and the Company at its expense will issue and deliver to or upon the order of the Holder hereof a new Warrant or Warrants in such denomination or denominations as may be requested but otherwise of like tenor, in the name of the Holder or as the Holder (upon payment of any applicable transfer taxes) may direct. 12. Replacement of Warrants. Upon receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor. 13. Remedies. The Company stipulates that the remedies at law of the -------- Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. Company Records. Until this Warrant is transferred on the books of --------------- the Company, the Company may treat the registered -10- Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 15. Miscellaneous. ------------- 15.1 Notices. All notices and other communications from the Company to ------- the Holder of this Warrant shall be mailed by first class mail, postage prepaid, to such address as may have been furnished to the company in writing by such Holder, or, until an address is so furnished, to and at the address of the last Holder of this Warrant who has so furnished an address to the Company. All communications from the Holder of this Warrant to the Company shall be mailed by first class mail, postage prepaid, to the Company at 4530 Wisconsin Avenue, N.W., Washington, DC 20016, Attn: President or Chairman of the Board, or such other address as may have been furnished to the Holder in writing by the Company. 15.2 Amendment and Waiver. Except as otherwise provided herein, this -------------------- Warrant and any term hereof may be amended, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such amendment, waiver, discharge or termination is sought. 15.3 Governing Law; Descriptive Headings. This Warrant shall be construed ----------------------------------- and enforced in accordance with and governed by the laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. CORPORATE CAREY INTERNATIONAL, INC. By:________________________________ Its Dated: As of September 1, 1991. ATTEST: _______________________________ Title: -11- EXHIBIT A SUBSCRIPTION AGREEMENT (To be signed only upon exercise of Warrant) To: CAREY INTERNATIONAL, INC. Date: The undersigned, the Holder of the within Warrant, pursuant to the provisions set forth in the within Warrant, hereby irrevocably elects to exercise the purchase rights represented by such Warrant for, and agrees to subscribe for and purchase thereunder, _________________ shares of the Common Stock (or Other Securities) covered by such Warrant and herewith makes payment of $_____________ therefor, and requests that the certificates for such shares be issued in the amount of and delivered to ____________________________________ whose address is: ________________________________________. If said number of shares is less than all the shares covered by such Warrant, a new Warrant shall be registered in the name of the undersigned and delivered to the address stated below. Signature_______________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant or on the form of Assignment attached as Exhibit B thereto.) Address_________________________________ _________________________________ Signature Guarantee: EXHIBIT B ASSIGNMENT [To be signed only upon transfer of Warrant] For value received, the undersigned hereby sells, assigns and transfers all of the rights of the undersigned under the within Warrant with respect to the number of shares of the Common Stock (or Other Securities) covered thereby set forth below, unto: Name of Assignee Address No. of Shares - ---------------- ------- ------------- Dated: Signature______________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Warrant.) Address________________________________ ________________________________ Signature Guarantee: -13- EX-10.1 3 1997 EQUITY INCENTIVE PLAN EXHIBIT 10.1 ------------ CAREY INTERNATIONAL, INC. 1997 EQUITY INCENTIVE PLAN SECTION 1 PURPOSE AND DURATION 1.1 Purposes. The purposes of the Plan are to attract, retain and -------- motivate employees and consultants of the Company, its Parent (if any), and any present or future Subsidiaries and to enable them to participate in the growth of the Company by providing for or increasing the proprietary interests of such persons in the Company. 1.2 Effective Date. The Plan is effective as of the date of its -------------- adoption by the Board. 1.3 Expiration Date. The Plan shall expire one day less than ten --------------- years from the date of the adoption of the Plan by the Board. In no event shall any Awards be made under the Plan after such expiration date, but Awards previously granted may extend beyond such date. SECTION 2 DEFINITIONS As used in the Plan, the following capitalized words shall have the meanings indicated below: "1933 Act" means the Securities Act of 1933, as amended. "1934 Act" means the Securities Exchange Act of 1934, as amended. "Award" means, individually or collectively, a grant under the Plan of Options, SARs, Performance Shares, Restricted Stock or Stock Units. "Award Agreement" means the written agreement setting forth the terms and provisions applicable to an Award granted under the Plan. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee of the Board appointed by the Board to administer the Plan in accordance with Section 3.1. "Company" means Carey International, Inc., a Delaware corporation, or any successor thereto. "Director" means any individual who is a member of the Board. "Fair Market Value" means, with respect to a Share, the fair market thereof as of the relevant date of determination, as determined in accordance with a valuation methodology approved by the Board in good faith but in no event less than, in the case of newly issued stock, the par value per Share; provided that if the Board does not adopt or employ any such valuation methodology and Shares are traded on an exchange or quoted on The Nasdaq National Market, fair market value shall mean, on the relevant date of determination, the closing price of a Share traded on the principal exchange for the Shares or, if the Shares are so traded, the closing or last price quoted on The Nasdaq National Market. "Grant Date" means the effective date of an Award as specified by the Board and set forth in the applicable Award Agreement. "Incentive Stock Option" or "ISO" means an option to purchase Shares awarded to a Participant under Section 6 of the Plan that is intended to meet the requirements of Section 422 of the Code. "Non-Employee Director" means a "non-employee director" as that term is defined in Rule 16b-3 promulgated under the 1934 Act. "Nonqualified Stock Option" or "NQO" means an option to purchase Shares awarded to a Participant under Section 6 of the Plan that is not intended to be an ISO. "Option" means an ISO or an NQO. "Parent" means a "parent corporation" as that term is defined in Section 424 of the Code. "Participant" means an individual who has been selected by the Board to receive an Award under the Plan. "Performance Cycle" means the period of time selected by the Board during which performance is measured for the purpose of determining the extent to which an Award of Performance Shares has been earned. More than one Performance Cycle may be in progress at any one time and the duration of Performance Cycles may differ. -2- "Performance Share" means a Share awarded to a Participant under Section 8 of the Plan that entitles the Participant to acquire Shares upon the attainment of specified performance goals. "Plan" means the 1997 Equity Incentive Plan set forth in this document and as hereafter amended from time to time in accordance with Section 13. "Restricted Period" means the period of time selected by the Board during which Shares of Restricted Stock are subject to forfeiture and/or restrictions on transferability. "Restricted Stock" means Shares awarded to a Participant under Section 9 of the Plan pursuant to an Award that entitles the Participant to acquire Shares for a purchase price (which may be zero), subject to such conditions, including a Company right during a specified period or periods to repurchase the Shares at their original purchase price (or to require forfeiture of the Shares if the purchase price was zero) upon the Participant's termination of employment. "SAR" or "Stock Appreciation Right" means an Award that is designated as an SAR pursuant to Section 7 of the Plan, granted alone or in connection with a related Award, entitling a Participant to receive an amount in cash or Shares or a combination thereof having a value equal to (or if the Board shall so determine at time of grant, less than) the excess of the Fair Market Value of a Share on the date of exercise over the Fair Market Value of a Share on the Grant Date (or over the Option exercise price, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of Shares with respect to which the Stock Appreciation Right is exercised. "Shares" means shares of the Company's common stock, par value $0.01 per share. "Stock Unit" means an Award of a Share or a unit valued in whole or in part by reference to, or otherwise based on, the value of a Share, granted to a Participant under Section 10 of the Plan. "Subsidiary" means a "subsidiary corporation" as that term is defined in Section 424 of the Code. SECTION 3 ADMINISTRATION OF THE PLAN 3.1 The Board. The Plan shall be administered by the Board. The --------- Board may, in its discretion, delegate some or all of its powers with respect to the Plan to the Committee, in which event all references in the Plan to the Board (except references in -3- Section 13.1) shall be deemed to refer to the Committee. The Committee, if one is appointed, shall consist of at least two Non-Employee Directors. 3.2 Authority of the Board. The Board shall have the authority to ---------------------- adopt, alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan as it shall consider advisable from time to time, to interpret the provisions of the Plan and any Award, and to decide all disputes arising in connection with the Plan. The Board's decisions and interpretations shall be final and binding. SECTION 4 ELIGIBILITY OF PARTICIPANTS The persons eligible to receive Awards under the Plan shall be all executive officers of the Company, its Parent (if any), and any Subsidiaries and other employees, consultants and advisers who, in the opinion of the Board, are in a position to make a significant contribution to the success of the Company, its Parent (if any), and any Subsidiaries. Directors, including directors who are not employees, of the Company, its Parent (if any), and any Subsidiaries, shall be eligible to receive Awards under the Plan. SECTION 5 STOCK AVAILABLE FOR AWARDS 5.1 Number of Shares. Awards may be made under the Plan for up to ---------------- Six Hundred Fifty Thousand (650,000) Shares. Shares issued under the Plan may consist in whole or in part of authorized but unissued Shares or treasury Shares. 5.2 Lapsed, Forfeited or Expired Awards. If any Award in respect of ----------------------------------- Shares expires or is terminated before exercise or is forfeited for any reason, the Shares subject to such Award, to the extent of such expiration, termination, or forfeiture, shall again be available for award under the Plan. 5.3 Maximum Number of Shares to a Single Participant in any Calendar ---------------------------------------------------------------- Year. In no event shall any Participant receive in any calendar year Awards - --- under the Plan and any other grants for more than One Hundred Thousand (100,000) Shares. SECTION 6 STOCK OPTIONS 6.1 Grant of Options. Subject to the terms and provisions of the ---------------- Plan, the Board may award Options and determine the number of shares to be covered by each Option, the exercise price therefor, the term of the Option, and any other conditions -4- and limitations applicable to the exercise of the Option. The Board may grant ISOs, NQOs or a combination thereof. 6.2 Exercise Price. Subject to the provisions of this Section 6, the -------------- exercise price for each Option shall be determined by the Board in its sole discretion. 6.3 Restrictions on Option Transferability and Exercisability. No --------------------------------------------------------- Option shall be transferable by the Participant other than by will or the laws of descent and distribution, and all Options shall be exercisable, during the Participant's lifetime, only by the Participant; provided, however, that the Board may provide that an Option is transferable by the Participant and exercisable by persons other than the Participant upon such terms and conditions as the Board shall determine. 6.4 Certain Additional Provisions for Incentive Stock Options --------------------------------------------------------- 6.4.1 Exercise Price. In the case of an ISO, the exercise price -------------- shall be not less than one hundred percent (100%) of the Fair Market Value on the Grant Date of the Shares subject to the Option; provided, however, that if on the Grant Date the Participant (together with persons whose stock ownership is attributed to the Participant pursuant to Section 424(d) of the Code) owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, its Parent (if any) or any Subsidiaries, the exercise price shall be not less than one hundred and ten percent (110%) of the Fair Market Value on the Grant Date of the Shares subject to the Option. 6.4.2 Exercisability. Subject to Section 12.3 and 12.4, the aggregate -------------- Fair Market Value (determined on the Grant Date(s)) of the Shares with respect to which ISOs are exercisable for the first time by any Participant during any calendar year (under all plans of the Company, its Parent (if any) and any Subsidiaries) shall not exceed $100,000. 6.4.3 Eligibility. ISOs may be granted only to persons who are ----------- employees of the Company, its Parent (if any) or any Subsidiaries on the Grant Date. 6.4.4 Expiration. No ISO may be exercised after the expiration of one ---------- day less than ten (10) years from the Grant Date; provided, however, that if the Option is granted to a Participant who, together with persons whose stock ownership is attributed to the Participant pursuant to Section 424(d) of the Code, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, its Parent (if any) or any Subsidiaries, the ISO may not be exercised after the expiration of one day less than five (5) years from the Grant Date. -5- 6.4.5 Compliance with Section 422 of the Code. The terms and --------------------------------------- conditions of ISOs shall be subject to and comply with Section 422 of the Code or any successor provision. 6.4.6 Notice to Company of Disqualifying Disposition. Each Participant ---------------------------------------------- who receives an ISO agrees to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any Shares received pursuant to the exercise of an ISO. The term "Disqualifying Disposition" means any disposition (including any sale) of Shares before the later of (a) two years after the Participant was granted the ISO under which the Participant acquired such Shares, or (b) one year after the Participant acquired the Shares by exercising the ISO. 6.4.7 Substitute Options. Notwithstanding the provisions of Section ------------------ 6.4.1, in the event that the Company, its Parent (if any) or any Subsidiary consummates a transaction described in Section 424(a) of the Code (relating to the acquisition of property or stock from an unrelated corporation), individuals who become employees or consultants of the Company, its Parent (if any) or any Subsidiary on account of such transaction may be granted ISOs in substitution for options granted by their former employer. The Board, in its sole discretion and consistent with Section 424(a) of the Code, shall determine the exercise price of such substitute Options. 6.5 NQO Presumption. Options granted pursuant to the Plan shall be --------------- presumed to be NQOs unless expressly designated ISOs in the Award Agreement. SECTION 7 GRANT OF STOCK APPRECIATION RIGHTS Subject to the terms and provisions of the Plan, the Board may award SARs in tandem with another Award (at or after the Grant Date of the other Award), or alone and unrelated to another Award, and may determine the terms and conditions applicable thereto, including the form of payment. SECTION 8 PERFORMANCE SHARES 8.1 Grant of Performance Shares. The Board may award Performance --------------------------- Shares to Participants and determine the performance goals applicable to each such Award, the number of Shares for each Performance Cycle, the duration of each Performance Cycle and all other limitations and conditions applicable to the awarded Performance Shares. The payment value of each Performance Share shall be equal to the Fair Market Value of one Share on the date the Performance Share is earned or, in the discretion of the Board, on the date the Board determines that the Performance Share has been earned. -6- 8.2 Adjustment of Performance Goals. Except as provided in an Award, ------------------------------- during any Performance Cycle, the Board may adjust the performance goals for the Performance Cycle as it deems equitable in recognition of unusual or non- recurring events affecting the Company or its Shares, changes in applicable tax laws or accounting principles, or such other factors as the Board shall determine. 8.3 Written Certification. As soon as practical after the end of a --------------------- Performance Cycle, the Board shall certify in writing the extent to which the performance goals applicable to each Participant for the Performance Cycle were achieved or exceeded and the number of Performance Shares which have been earned on the basis of performance in relation to the established performance goals. SECTION 9 RESTRICTED STOCK 9.1 Grant of Restricted Stock. The Board may award Shares of ------------------------- Restricted Stock and determine the purchase price, if any, therefor, the duration of the Restricted Period, the conditions under which the Shares may be forfeited to or repurchased by the Company and any other terms and conditions of the Awards. The Board may modify or waive any restrictions, terms and conditions with respect to any Restricted Stock. Shares of Restricted Stock may be issued for whatever consideration is determined by the Board, subject to applicable law. 9.2 Transferability. Shares of Restricted Stock may not be sold, --------------- assigned, transferred, pledged or otherwise encumbered, except as permitted by the Board, during the Restricted Period. 9.3 Evidence of Award. Shares of Restricted Stock shall be ----------------- evidenced in such manner as the Board may determine. Any certificates issued in respect of Shares of Restricted Stock shall be registered in the name of the Participant and unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company. At the expiration of the Restricted Period, the Company shall deliver the certificates and stock power to the Participant. 9.4 Shareholder Rights. A Participant shall have all the rights of a ------------------ shareholder with respect to Restricted Stock awarded, including voting and dividend rights, unless otherwise provided in the Award Agreement. -7- SECTION 10 STOCK UNITS 10.1 Grant of Stock Units. Subject to the terms and provisions of the -------------------- Plan, the Board may award Stock Units subject to such terms, restrictions, conditions, performance criteria, vesting requirements and payment rules as the Board shall determine. 10.2 Consideration. Shares awarded in connection with a Stock Unit ------------- shall be issued for whatever consideration is determined by the Board, subject to applicable law. SECTION 11 OTHER AWARDS The Board shall have the authority to specify the terms and provisions of other forms of equity-based or equity-related Awards not described above which the Board determines to be consistent with the purposes of the Plan and the interests of the Company, which Awards may provide for cash payments based in whole or in part on the value or future value of Shares, for the acquisition or future acquisition of Shares, or any combination thereof. Other Awards may also include cash payments (including the cash payment of dividend equivalents) under the Plan which may be based on one or more criteria determined by the Board that are unrelated to the value of the Shares and that may be granted in tandem with, or independent of, other Awards under the Plan. SECTION 12 GENERAL PROVISIONS APPLICABLE TO AWARDS 12.1 Legal and Regulatory Matters. The delivery of Shares shall be ---------------------------- subject to compliance with (i) applicable federal and state laws and regulations, (ii) if the outstanding Shares are listed at the time on any stock exchange, the listing requirements of such exchange, and (iii) the Company's counsel's approval of all other legal matters in connection with the issuance and delivery of the Shares. If the sale of the Shares has not been registered under the 1933 Act, the Company may require, as a condition to delivery of the Shares, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing the Shares bear an appropriate legend restricting transfer. 12.2 Award Agreement. The terms and provisions of an Award shall be --------------- set forth in an Award Agreement approved by the Board and delivered or made available to the Participant as soon as practicable following the Grant Date. -8- 12.3 Determination of Restrictions on the Award. The vesting, ------------------------------------------ exercisability, payment and other restrictions applicable to an Award (which may include, without limitation, restrictions on transferability or provision for mandatory resale to the Company) shall be determined by the Board and set forth in the applicable Award Agreement. Notwithstanding the foregoing, the Board may accelerate (i) the vesting or payment of any Award (including an ISO), (ii) the lapse of restrictions on any Award (including an Award of Restricted Stock) and (iii) the date on which any Option or SAR first becomes exercisable. 12.4 Mergers, etc. Notwithstanding any other provision of the Plan, ------------ in the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding shares by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of substantially all the Company's assets, then if the Board so determines, all outstanding Awards shall terminate, provided that at least twenty (20) days prior to the effective date of any such merger, consolidation or sale of assets, the Board shall either (i) make all outstanding Awards exercisable immediately prior to the consummation of such merger, consolidation or sale of assets or (ii) if there is a surviving or acquiring corporation, arrange, subject to consummation of the merger, consolidation or sale of assets, to have that corporation or an affiliate of that corporation grant to Participants replacement Awards, which Awards in the case of ISOs shall satisfy, in the discretion of the Board, the requirements of section 424(a) of the Code. 12.5 Termination of Employment. For purposes of the Plan, the ------------------------- following events shall not be deemed a termination of employment of a Participant: (i) a transfer to the employment of the Company from its Parent (if any) or from a Subsidiary, or from the Company to its Parent (if any) or to a Subsidiary, or from one Subsidiary to another, or from the Company's Parent (if any) to a Subsidiary, or from a Subsidiary to the Company's Parent (if any); or (ii) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the Participant's right to employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Board otherwise so provides in writing. For purposes of the Plan, employees of a Subsidiary or Parent (if any) shall be deemed to have terminated their employment on the date on which such Subsidiary or Parent ceases to be a Subsidiary or Parent of the Company, as the case may be. 12.6 Date of and Effect of Termination of Employment. The date of a ----------------------------------------------- Participant's termination of employment for any reason shall be determined in the sole discretion of the Board. The Board shall have full authority to determine and specify in the applicable Award Agreement the effect, if any, that a Participant's termination of employment for any reason will have on the vesting, exercisability, payment or lapse of restrictions applicable to an outstanding Award. -9- 12.7 Grant of Awards. Each Award may be made alone, in addition to --------------- or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly. 12.8 Settlement of Awards. No Shares shall be delivered pursuant to -------------------- any exercise of an Award until payment in full of the price therefor, if any, is received by the Company. Such payment may be made in whole or in part in cash or by certified or bank check or, to the extent permitted by the Board at or after the Grant Date, by delivery of a note or Shares, including Restricted Stock, valued at their Fair Market Value on the date of delivery, or such other lawful consideration as the Board shall determine. 12.9 Withholding Requirements and Arrangements. The Participant shall ----------------------------------------- pay to the Company or make provision satisfactory to the Board for payment of any taxes required by law to be withheld in respect of Awards under the Plan no later than the date of the event creating the tax liability. In the Board's discretion, such tax obligations may be paid in whole or in part in Shares, including Shares retained from the Award creating the tax obligation, valued at their Fair Market Value on the date of delivery. The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to the Participant. 12.10 No Effect on Employment. The Plan shall not give rise to any ----------------------- right on the part of any Participant to continue in the employ of the Company, its Parent (if any) or any Subsidiary. The loss of existing or potential profit in Awards granted under the Plan shall not constitute an element of damages in the event of termination of the relationship of a Participant even if the termination is in violation of an obligation of the Company to the Participant by contract or otherwise. 12.11 No Rights as Shareholder. Subject to the provisions of the Plan ------------------------ and the applicable Award Agreement, no Participant shall have any rights as a shareholder with respect to any Shares to be distributed under the Plan until he or she becomes the holder thereof. 12.12 Adjustments. Upon the happening of any of the following ----------- described events, a Participant's rights with respect to Awards granted hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in the Award Agreement. 12.12.1 Stock Splits and Recapitalizations. In the event the Company ---------------------------------- issues any of its Shares as a stock dividend upon or with respect to the Shares, or in the event Shares shall be subdivided or combined into a greater or smaller number of Shares, or if, upon a merger or consolidation (except those described in Section 12.4), reorganization, split-up, liquidation, combination, recapitalization or the like of the Company, Shares shall be exchanged for other securities of the Company, securities of -10- another entity, cash or other property, each Participant upon exercising an Award (for the purchase price to be paid under the Award) shall be entitled to purchase such number of Shares, other securities of the Company, securities of such other entity, cash or other property as the Participant would have received if the Participant had been the holder of the Shares with respect to which the Award is exercised at all times between the Grant Date of the Award and the date of its exercise, and appropriate adjustments shall be made in the purchase price per Share. 12.12.2 Restricted Stock. If any person owning Restricted Stock receives ---------------- new or additional or different shares or securities ("New Securities") in connection with a corporate transaction described in Section 12.12.1 as a result of owning such Restricted Stock, the New Securities shall be subject to all of the conditions and restrictions applicable to the Restricted Stock with respect to which such New Securities were issued. 12.12.3 Board Determination. Notwithstanding any provision to the ------------------- contrary, no adjustments shall be made pursuant to this Section 12.12 with respect to ISOs unless (i) the Board, after consulting with counsel for the Company, determines that such adjustments would not constitute a "modification," "extension" or "renewal" of such ISOs as such terms are defined in Section 424 of the Code, (ii) would cause any adverse tax consequences for the holders of such ISOs or (iii) the holders of such ISOs consent to the adjustment. No adjustments to ISOs shall be made for dividends paid in cash or in property other than securities of the Company. 12.12.4 Fractional Shares. No fractional Shares shall be issued under ----------------- the Plan. Any fractional Shares which, but for this Section, would have been issued shall be deemed to have been issued and immediately sold to the Company for their Fair Market Value, and the Participant shall receive from the Company cash in lieu of such fractional Shares. 12.12.5 Other Distributions. The Board may adjust the number of Shares ------------------- subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property, or any other event if it is determined by the Board that such adjustment is appropriate to avoid distortion in the operation of the Plan. 12.12.6 Further Adjustment. Upon the happening of any of the events ------------------ described in Sections 12.12.1 or 12.12.5, the class and aggregate number of Shares set forth in Sections 5.1 and 5.3 hereof that are subject to Awards which previously have been or subsequently may be granted under the Plan shall be appropriately adjusted to reflect the events described in such Sections. The Board shall determine the specific adjustments to be made under this Section 12.12.6. -11- SECTION 13 AMENDMENT AND TERMINATION 13.1 Amendment, Suspension, Termination of the Plan. The Board may ---------------------------------------------- modify, amend, suspend or terminate the Plan in whole or in part at any time; provided, however, that no modification, amendment, suspension or termination of the Plan shall be made without shareholder approval if such approval is necessary to comply with any applicable tax or regulatory requirement; provided, further, that such modification, amendment, suspension or termination shall not, without a Participant's consent, affect adversely the rights of such Participant with respect to any Award previously made. 13.2 Amendment, Suspension, Termination of an Award. The Board may ---------------------------------------------- modify, amend or terminate any outstanding Award, including, without limitation, substituting therefor another Award of the same or a different type, changing the date of exercise or realization and converting an ISO to a NQO; provided, however, that the Participant's consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant. SECTION 14 LEGAL CONSTRUCTION 14.1 Captions. The captions provided herein are included solely for -------- convenience of reference and shall not affect the meaning of any of the provisions of the Plan or serve as a basis for interpretation or construction of the Plan. 14.2 Severability. In the event any provision of the Plan is held ------------ invalid or illegal for any reason, the illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 14.3 Governing Law. The Plan and all rights under the Plan shall be ------------- construed in accordance with and governed by the internal laws of the State of Delaware. -12- EX-10.2 4 1992 STOCK OPTION PLAN EXHIBIT 10.2 [NOTE: THE FOLLOWING DOCUMENT HAS NOT BEEN REVISED TO REFLECT THE EFFECTS OF THE COMPANY'S REVERSE STOCK SPLIT.] CAREY INTERNATIONAL, INC. 1992 STOCK OPTION PLAN Effective July 28, 1992 1. Purposes. The purpose of the Carey International, Inc. 1992 Stock Option --------- Plan (the "Plan") is to further the growth and development of Carey International, Inc. ("Carey") and any subsidiary and parent corporations, as hereinafter defined (Carey and such subsidiary and parent corporations are collectively herein referred to, unless the context otherwise requires, as the "Company"), by granting to those employees of the Company and the other persons rendering services to the Company referred to in Section 6, as an incentive and encouragement to stock ownership, options ("Options") to purchase shares of the Company's common stock, par value $.01 per share ("Common Stock"), and thereby obtain a proprietary interest in the enterprise and a more direct stake in its continuing welfare. 2. Administration. The Plan shall be administered by the Board of --------------- Directors of the Company (the "Board"). 3. Grant of Options. Options shall be granted on behalf of the Company ----------------- by the Board; provided, however, that no Options under the Plan may be granted after July 28, 2002. The Board shall, from time to time and within the limits of the Plan, determine the persons to whom Options are to be granted, the number of shares to be optioned, the option price, the manner in which such option price shall be payable, and the time or times during the Exercise Period (as defined in Section 8) at which each such Option shall become exercisable. Options granted under the Plan may be either incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-statutory stock options. Each Option granted under the Plan shall be designated by the Board at the time the Option is granted as either an incentive stock option or a non-statutory stock option. 4. Definitions. As used herein, the terms "subsidiary corporation" and ------------ "parent corporation" shall mean a "subsidiary corporation" and a "parent corporation" as such terms are defined in Section 425 of the Code. As used herein, the term "10% shareholder" is an employee who, at the time an Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of Carey or any of its parent or subsidiary corporations. 5. Shares Subject to the Plan. An aggregate of up to 903,800 shares of -------------------------- the Common Stock shall be available for the grant of Options under the Plan. Such shares may be authorized and unissued shares or shares held in Carey's treasury. All shares subject to Options that shall have terminated or shall have been cancelled for any reason (other than by surrender for cancellation upon any exercise of all or part of such Options) shall be available for subsequent optioning under the Plan. 6. Participants. All officers and other key employees of the Company ------------ shall be eligible to receive incentive or non-statutory stock options and thereby become participants in the Plan. All non-employee directors of the Company and all persons retained by the Company solely as consultants shall be eligible to receive non-statutory stock options and thereby become participants in the Plan. In granting Options the Board may include or exclude previous participants in the Plan as the Board may determine. 7. Option Price. The price at which shares may from time to time be ------------ optioned under the Plan shall be, in the case of incentive stock options granted to employees other than 10% shareholders, not less than the fair market value of such shares at the time the Option is granted, as determined in good faith by the Board at each time that such Options are granted by it. In the case of incentive stock options granted to 10% shareholders, such price shall be not less than 110% of such fair market value, and in the case of non-statutory stock options, such price shall be not less than par value. 8. Exercise Period. Subject to the provisions of Section 15 and the --------------- following provisions of this Section 8, and unless otherwise provided in the option agreement entered into with respect to each Option granted by the Company to the participants (the "Option Agreement"), the period for exercising an Option (the "Exercise Period") shall be ten years from the date the Option was granted. Notwithstanding any provisions hereof to the contrary, the Exercise Period for an incentive stock option shall in no event be longer than the ten-year period beginning with the date of grant, or in the case of an incentive stock option granted to a 10% shareholder, the five-year period beginning with such date of grant. Unless otherwise provided in the Option Agreement, if a participant retires from the employ of the Company during the Exercise Period, the Option shall be exercisable by him or her only during the three months following his or her retirement (but in no event after the expiration of the Exercise Period) and only as to the number of shares, if any, as to which it was exercisable immediately prior to retirement. -2- Unless otherwise provided in the Option Agreement, if a participant ceases to be an employee, director or consultant of the Company by reason of his or her death during the Exercise Period, the Option shall be exercisable by either his or her executor or administrator or, if not so exercised, by the legatees or the distributees of his or her estate, only during the six months following his or her death (but in no event after the expiration of the Exercise Period); provided that a legatee or distributee can exercise such option only if such legatee or distributee is the participants's spouse, issue or a trustee or trustee principally for the benefit of such spouse and/or any of such issue. During such six-month period, the option shall be exercisable only as to the number of shares, if any, as to which it was exercisable immediately prior to death. Unless otherwise provided in the Option Agreement, if a participant ceases to be an employee, director or consultant of the Company by reason of that participant's permanent and total disability (as determined conclusively by the Company) during the Exercise Period, the Option shall be exercisable by him or her only during the six months following such cessation (but in no event after the expiration of the Exercise Period) and only as to the number of shares, if any, as to which it was exercisable immediately prior to such cessation. Unless otherwise provided in the Option Agreement, if a participant ceases to be an employee, director or consultant of the Company for any cause other than retirement, death or permanent and total disability during the Exercise Period, the Option shall be exercisable by him or her only during the thirty days following such cessation (but in no event after the expiration of the Exercise Period) and only as to the number of shares, if any, as to which it was exercisable immediately prior to such cessation. 9. Payment for Shares and Related Matters. Full payment for shares -------------------------------------- purchased, together with the amount of any tax or excise due in respect of the sale and issue thereof, shall be paid at the time of exercise and shall be made in cash or by certified or bank cashier's check or, in the discretion of the Board, in whole or in part by delivery of shares of the Common Stock having a fair market value at the date of such delivery (determined in a manner approved by the Board) of not less than the amount for which payment is being made by delivery of the shares. Carey will issue no certificates for shares until (a) full payment therefor has been made and (b) the person purchasing such shares provides for payment to (or withholding by) the Company of all amounts, if any, required under then applicable provisions of the Code and state and local tax laws to be withheld with respect to such purchase. A participant shall have none of the rights of a stockholder until certificates for the shares purchased are issued to him or her. -3- 10. Nonassignability. Each Option by its terms shall not be transferable ----------------- otherwise than by will or the laws of descent and distribution and shall be exercisable, during a participant's lifetime, only by him or her. 11. Conditions to Exercise of Options. The Board may, in its discretion, ---------------------------------- require as conditions to the exercise of Options and the issuance of shares thereunder either (a) that a registration statement under the Securities Act of 1933, as amended, with respect to the Options and the shares to be issued on the exercise thereof shall have become, and continue to be, effective, or (b) that the participant (i) shall have represented, warranted and agreed, in form and substance satisfactory to the Company, at the time of exercising the Option, that he or she is acquiring the shares for his or her own account, for investment and not with a view to or in connection with any distribution, (ii) shall have agreed to restrictions on transfer in form and substance satisfactory to the Company, and (iii) shall have agreed to an endorsement which makes appropriate reference to such representations, warranties, agreements and restrictions on the certificate(s) representing the shares. In addition, all shares issued to participants upon exercise of Options shall be subject to any and all restrictions on transfer, including without limitation rights of first refusal, imposed by applicable state or federal securities laws or by the Articles of Organization or the By-Laws of Carey as then in effect. 12. Conditions to Effectiveness of the Plan. The Plan shall not become ---------------------------------------- effective and any Options granted hereunder shall not be exercisable unless and until the Plan shall have been duly approved by the stockholders of Carey. 13. Termination or Amendment. The Board may terminate or amend the Plan at ------------------------- any time, and from time to time. The Board may not, however, increase the maximum number of shares in the aggregate that may be offered for sale under Options or change the manner of determining the option price or the class of employees eligible to receive incentive stock options under the Plan or, without the consent of the participant, alter or impair any Option previously granted to him or her under the Plan, except as provided in Sections 14 and 15. 14. Effect of Changes in Common Stock. If Carey shall combine, subdivide ---------------------------------- or reclassify the shares of Common Stock which have been or may be optioned, or shall declare thereon any dividend payable in shares of Common Stock, or shall take any other action of a similar nature affecting the Common Stock, then the number and class of shares of stock as to which Options may thereafter be granted (in the aggregate and to any participant) shall be appropriately adjusted and, in the case of each Option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased -4- pursuant to such Option and the option price per share shall likewise be appropriately adjusted, all to such extent as may be determined by the Board, with the approval of counsel, to be necessary to preserve unimpaired the rights of the participant. Each and every such determination shall be conclusive and binding upon such participant. 15. Effect of Reorganizations. In case of any one or more ------------------------- reclassifications, changes or exchanges of outstanding shares of Common Stock or other stock (other than as provided in Section 14), or consolidations of Carey with, or mergers of Carey into, other corporations, or other recapitalizations or reorganizations (other than consolidations with a subsidiary in which Carey is the continuing corporation and which do not result in any reclassifications, changes or exchanges of shares of Carey), or in case of any one or more sales or conveyances to any other corporation of the property of the Company as an entirety, or substantially as an entirety, any and all of which are hereinafter in this Section called "Reorganizations," a participant shall have the right, upon any subsequent exercise of an Option, to acquire the same kind and amount of securities and property which such participant would then have if such participant had exercised such Option immediately before the first of any such Reorganizations and continued to hold all securities and property which came to such participant as a result of that and subsequent Reorganizations, less all securities and property surrendered or cancelled pursuant to any of same, the adjustment rights in Section 14 and this Section being continuing and cumulative. Notwithstanding any provision of Section 8 or any foregoing provision of this Section to the contrary, the Board shall have the right in connection with any Reorganization, upon not less than 30 days' written notice to the participants, to terminate the Exercise Period, and in such event all outstanding Options may be exercised only at a time prior to or simultaneously with the consummation of such Reorganization. In connection with such termination of the Exercise Period, the Board may in its discretion cause some or all of such Options to become fully exercisable notwithstanding any contrary terms of the Plan or of the Option Agreements relating to such Options. In the event of the sale of all of the capital stock of Carey for cash or the liquidation of Carey, unless the Board votes otherwise and so notifies all persons holding Options prior to such sale or liquidation, all outstanding Options to the extent not already exercisable shall become fully exercisable at the time of such sale or liquidation and, notwithstanding any provision of Section 8 to the contrary, the Exercise Period for such Options shall terminate immediately after such sale or liquidation. 16. Interpretation. The Board shall interpret the Plan and make and amend --------------- such regulations with regard to the Plan as it may deem appropriate. -5- EX-10.3 5 1987 STOCK OPTION PLAN EXHIBIT 10.3 [NOTE: THE FOLLOWING DOCUMENT HAS NOT BEEN REVISED TO REFLECT THE EFFECTS OF THE COMPANY'S REVERSE STOCK SPLIT.] CAREY INTERNATIONAL, INC. 1987 STOCK OPTION PLAN Effective December 1, 1987 1. Purposes. The purpose of the Carey International, Inc. 1987 Stock -------- Option Plan (the "Plan") is to further the growth and development of Carey International, Inc. ("Carey") and any subsidiary and parent corporations, as hereinafter defined (Carey and such Subsidiary and parent corporations are collectively herein referred to, unless the context otherwise requires, as the "Company"), by granting to those employees of the Company and the other persons rendering services to the Company referred to in Section 6, as an incentive and encouragement to stock ownership, options ("Options") to purchase shares of Carey's common stock, par value $.01 per share ("Common Stock), and thereby obtain a proprietary interest in the enterprise and a more direct stake in its continuing welfare. 2. Administration. The Plan shall be administered by the Board of ------------- Directors of Carey (the "Board"). 3. Grant of Options. Options shall be granted on behalf of Carey by the ---------------- Board; provided, however, that no Options under the Plan may be granted after November 30, 1997. The Board shall, from time to time and within the limits of the Plan, determine the persons to whom Options are to be granted, the number of shares to be optioned, the option price, the manner in which such option price shall be payable, and the time or times during the Exercise Period (as defined in Section 8) at which each such Option shall become exercisable. Options granted under the Plan may be either incentive stock options, within the meaning of Section 422A of the Internal Revenue Code of 1986 (the "Code"), or non- statutory stock options. Each Option granted under the Plan shall be designated by the Board at the time the Option is granted as either an incentive stock option or a non-statutory stock option. 4. Definitions. As used herein, the terms "subsidiary corporation" and ----------- "parent corporation" shall mean a "subsidiary corporation" and a "parent corporation" as such terms are defined in Section 425 of the Code. 5. Shares Subject to the Plan. An aggregate of up to 334,000 shares of -------------------------- the Common Stock shall be available for the grant of Options under the Plan. Such shares may be authorized and unissued shares or shares held in Carey's treasury. All shares subject to Options that shall have terminated or shall have been cancelled for any reason (other than by surrender for cancellation upon any exercise of all or part of such Options) will be available for subsequent optioning under the Plan. 6. Participants. All officers and other key employees of the Company ------------ shall be eligible to receive incentive or non-statutory stock options and thereby become participants in the Plan. All non-employee directors of the Company and all persons retained by the Company solely as consultants shall be eligible to receive non-statutory stock options and thereby become participants in the Plan. In granting Options the Board may include or exclude previous participants in the Plan as the Board may determine. 7. Option Price. The price at which shares may from time to time be ------------ optioned under the Plan shall be, in the case of incentive stock options granted to employees other than 10% shareholders, not less than the fair market value of such shares at the time the Option is granted, as determined in good faith by the Board at each time that such Options are granted by it. In the case of incentive stock options granted to 10% shareholders, such price shall be not less than 110% of such fair market value, and in the case of non-statutory stock options, such price shall be not less than par value. For purposes of this Section 7 and Section 8, a "10% shareholder" is an employee who, at the time an Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of Carey or any of its parent or subsidiary corporations. 8. Exercise Period. Subject to the provisions of Section 15 and the --------------- following provisions of this Section 8, and unless otherwise provided in the option agreement entered into with respect to each Option granted by the Company to the participants (the "Option Agreement"), the period for exercising an Option (the "Exercise Period") shall be ten years from the date the Option was granted. Notwithstanding any provisions hereof to the contrary, the Exercise Period for an incentive stock option shall in no event be longer than the ten-year period beginning with the date of grant, or in the case of an incentive stock option granted to a 10% shareholder, the five-year period beginning with such date of grant. Subject to the provisions of Section 15 and unless otherwise provided in the Option Agreement, an Option shall be exercisable during the Exercise Period only to the following extent, decreased in each case by the aggregate number of shares as to which it has previously been exercised: (i) until January 1 of the first calendar year beginning after the date on which the Option was granted (the "grant date"), the Option shall not be exercisable; (ii) during the first calendar year beginning after the grant date, the Option shall be exercisable for up to 25% of the total number of shares subject to the Option Agreement; -2- (iii) during the second calendar year beginning after the grant date, the Option shall be exercisable for up to 50% of the total number of shares subject to the Option Agreement; (iv) during the third calendar year beginning after the grant date, the Option shall be exercisable for up to 75% of the total number of shares subject to the Option Agreement; (v) during the period beginning on January 1 of the fourth calendar year beginning after the grant date and ending at the expiration of the Exercise Period, the Option shall be exercisable for up to 100% of the total number of shares subject to the Option Agreement. Unless otherwise provided in the Option Agreement, if a participant retires from the employ of the Company during the Exercise Period, such option shall be exercisable by him or her only during the three months following his or her retirement (but in no event after the expiration of the Exercise Period) and only as to the number of shares, if any, as to which it was exercisable immediately prior to retirement. Unless otherwise provided in the Option Agreement, if a participant ceases to be an employee, director or consultant of the Company by reason of his or her death during the Exercise Period, such option shall be exercisable by either his or her executor or administrator or, if not so exercised, by the legatees or the distributees of his or her estate, only during the six months following his or her death (but in no event after the expiration of the Exercise Period); provided that a legatee or distributee can exercise such option only if such legatee or distributee is the participant's spouse, issue or a trustee or trustee principally for the benefit of such spouse and/or any of such issue. During such six month period, the option shall be exercisable only as to the number of shares, if any, as to which it was exercisable immediately prior to death. Unless otherwise provided in the Option Agreement, if a participant ceases to be an employee, director or consultant of the Company by reason of that participant's permanent and total disability (as determined conclusively by the Company) during the Exercise Period, such option shall be exercisable by him or her only during the six months following such cessation (but in no event after the expiration of the Exercise Period) and only as to the number of shares, if any, as to which it was exercisable immediately prior to such cessation. -3- Unless otherwise provided in the Option Agreement, if a participant ceases to be an employee, director or consultant of the Company for any cause other than retirement, death or permanent and total disability during the Exercise Period, such option shall be exercisable by him or her only during the thirty days following such cessation (but in no event after the expiration of the Exercise Period) and only as to the number of shares, if any, as to which it was exercisable immediately prior to such cessation. 9. Payment for Shares and Related Matters. Full payment for shares -------------------------------------- purchased, together with the amount of any tax or excise due in respect of the sale and issue thereof, shall be paid at the time of exercise and shall be made in cash or by certified or bank cashier's check or, in the discretion of the Board, in whole or in part by delivery of shares of the Common Stock having a fair market value at the date of such delivery (determined in a manner approved by the Board) of not less than the amount for which payment is being made by delivery of the shares. Carey will issue no certificates for shares until (a) full payment therefor has been made and (b) the person purchasing such shares provides for payment to (or withholding by) the Company of all amounts, if any, required under then applicable provisions of the Code and state and local tax laws to be withheld with respect to such purchase, and a participant shall have none of the rights of a stockholder until certificates for the shares purchased are issued to him or her. 10. Nonassignability. Each Option by its terms shall not be transferable ---------------- otherwise than by will or the laws of descent and distribution and shall be exercisable, during a participant's lifetime, only by him or her. 11. Conditions to Exercise of Options. The Board may, in its discretion, --------------------------------- require as conditions to the exercise of Options and the issuance of shares thereunder either (a) that a registration statement under the Securities Act of 1933, as amended, with respect to the Options and the shares to be issued on the exercise thereof shall have become, and continue to be, effective, or (b) that the participant (i) shall have represented, warranted and agreed, in form and substance satisfactory to the Company, at the time of exercising the Option, that he or she is acquiring the shares for his or her own account, for investment and not with a view to or in connection with any distribution, (ii) shall have agreed to restrictions on transfer in form and substance satisfactory to the Company, and (iii) shall have agreed to an endorsement which makes appropriate reference to such representations, warranties, agreements and restrictions on the certificate(s) representing the shares. In addition, all shares issued to participants upon exercise of Options shall be subject to any and all restrictions on transfer, including without limitation -4- rights of first refusal, imposed by applicable state or federal securities laws or by the charter or the by-laws of Carey as then in effect. 12. Conditions to Effectiveness of the Plan. The Plan shall not become --------------------------------------- effective and any Options granted hereunder shall not be exercisable unless and until the Plan shall have been duly approved by the stockholders of Carey. 13. Termination or Amendment. The Board may terminate or amend the Plan ------------------------ at any time, and from time to time. The Board may not, however, increase the maximum number of shares in the aggregate that may be offered for sale under Options or change the manner of determining the option price or the class of employees eligible to receive incentive stock options under the Plan, or, without the consent of the participant, alter or impair any Option previously granted to him or her under the Plan, except as provided in Sections 14 and 15. 14. Effect of Changes in Common Stock. If Carey shall combine, --------------------------------- subdivide or reclassify the shares of Common Stock which have been or may be optioned, or shall declare thereon any dividend payable in shares of Common Stock, or shall take any other action of a similar nature affecting the Common Stock, then the number and class of shares of stock as to which Options may thereafter be granted (in the aggregate and to any participant) shall be appropriately adjusted and, in the case of each Option outstanding at the time of any such action, the number and class of shares which may thereafter be purchased pursuant to such Option and the option price per share shall likewise be appropriately adjusted, all to such extent as may be determined by the Board, with the approval of counsel, to be necessary to preserve unimpaired the rights of the participant. Each and every such determination shall be conclusive and binding upon such participant. 15. Effective of Reorganizations. In case of any one or more ---------------------------- reclassifications, changes or exchanges of outstanding shares of Common Stock or other stock (other than as provided in Section 14), or consolidations of Carey with, or mergers of Carey into, other corporations, or other recapitalizations or reorganizations (other than consolidations with a subsidiary in which Carey is the continuing corporation and which do not result in any reclassifications, changes or exchanges of shares of Carey), or in case of any one or more sales or conveyances to another corporation of the property of the Company as an entirety, or substantially as an entirety, any and all of which are hereinafter in this Section called "Reorganizations," a participant shall have the right, upon any subsequent exercise of an Option, to acquire the same kind and amount of securities and property which such participant would then have if such participant had exercised such Option immediately before the -5- first of any such Reorganizations and continued to hold all securities and property which came to such participant as a result of that and subsequent Reorganizations, less all securities and property surrendered or cancelled pursuant to any of same, the adjustment rights in Section 14 and this Section being continuing and cumulative. Notwithstanding any provision of Section 8 or any foregoing provision of this Section to the contrary, the Board shall have the right in connection with any Reorganization, upon not less than 30 days' written notice to the participants, to terminate the Exercise Period, and in such event all outstanding Options may be exercised only at a time prior to or simultaneously with the consummation of such Reorganization. In connection with such termination of the Exercise Period, the Board may in its discretion cause some or all of such Options to become fully exercisable notwithstanding any contrary terms of the Plan or of the Option Agreements relating to such Options. In the event of the sale of all of the capital stock of Carey for cash or the liquidation of Carey, unless the Board votes otherwise and so notifies all persons holding Options prior to such sale or liquidation, all outstanding Options, to the extent not already exercisable shall become fully exercisable at the time of such sale or liquidation and, notwithstanding any provision of Section 8 to the contrary, the Exercise Period for such Options shall terminate immediately after such sale or liquidation. 16. Interpretation. The Board shall interpret the Plan and make and amend -------------- such regulations with regard to the Plan as it may deem appropriate. -6- EX-10.4 6 STOCK PLAN FOR NON-EMPLOYEE EXHIBIT 10.4 ------------ CAREY INTERNATIONAL, INC. STOCK PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSE The purpose of this Stock Plan for Non-Employee Directors (the "Plan") is to advance the interests of Carey International, Inc. (the "Company") by increasing the proprietary interest in the Company of non-employee members of the Company's Board of Directors by providing a portion of their compensation in options to acquire shares ("Shares") of the Company's common stock ("Common Stock") and also by providing the opportunity to receive in Shares all or a portion of the cash compensation otherwise due them. 2. ADMINISTRATION Except as otherwise provided herein, the Plan shall be administered by the Board of Directors (the "Board") of the Company. The Committee shall have authority, not inconsistent with the express provisions of the Plan, (a) to administer the issuance of options granted in accordance with the formula set forth in this Plan to such directors as are eligible to receive options; (b) to prescribe the form or forms of instruments evidencing options and any other instruments required under the Plan and to change such forms from time to time; and (c) to adopt, amend and rescind rules and regulations for the administration of the Plan. The Board shall have the authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Committee or the Board, as the case may be, shall be conclusive and shall bind all parties. Transactions under this plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under Section 16 of the Securities Exchange Act of 1934 ("Rule 16b-3"). To the extent any provision of the Plan or action by the Committee or the Board fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Board. 3. EFFECTIVE DATE OF PLAN The Plan shall become effective on the date approved by the requisite percentage of the directors of the Company. 4. SHARES SUBJECT TO THE PLAN (a) NUMBER OF SHARES. The maximum number of Shares that may be delivered upon the exercise of options granted under the Plan and elections to receive Shares in lieu of cash compensation shall be 100,000 Shares. If any option granted under the Plan terminates without having been exercised in full or any election to receive Shares in lieu of cash compensation is not paid in full, the number of Shares as to which such option was not exercised or such election was not paid shall be available for future grants and/or elections within the foregoing limit. (b) SHARES TO BE DELIVERED. Shares delivered under the Plan shall be authorized but unissued Shares or, if the Board so decides in its sole discretion, previously issued Shares acquired by the Company and held in treasury. No fractional Shares shall be delivered under the Plan. (c) CHANGES IN STOCK; RESTRUCTURING, ETC. In the event of a stock dividend, stock split or combination of shares, the number and kind of shares of stock or securities of the Company subject to options then outstanding or subsequently granted under the Plan, the maximum number of shares or securities that may be delivered under the Plan, the exercise price, and other relevant provisions shall be appropriately adjusted by the Committee. In the event of any other recapitalization, reorganization, extraordinary dividend or distribution or restructuring transaction affecting the Common Stock, the number of shares issuable under the Plan shall be subject to such adjustment as the Committee may deem appropriate, and the number of shares issuable pursuant to any option theretofore granted (whether or not then exercisable) and/or the option price per share of such option shall be subject to such adjustment as the Committee may deem appropriate with a view toward preserving the value of such option. 5. ELIGIBILITY FOR OPTIONS Directors eligible to receive options under the Plan and to elect to receive Shares in lieu of cash compensation ("Non-Employee Directors") shall be those directors who are not present or former employees of the Company or of any subsidiary of the Company. 6. TERMS AND CONDITIONS OF OPTIONS (a) NUMBER OF OPTIONS. On the date of the closing of the Company's initial public offering of Common Stock (the "Closing Date"), each Non-Employee Director then in office shall be awarded an option covering 7,500 Shares. On the date of each subsequent annual meeting of the Company's stockholders, each Non- Employee Director continuing in office shall be awarded an option covering 2,500 Shares and each newly elected Non-Employee Director shall be awarded an option covering 5,000 Shares. For purposes of this paragraph, each Non-Employee Director elected to office at a special meeting of stockholders or by the Board since the then last annual meeting (or since the Closing Date) shall be treated as a newly elected Non-Employee Director. -2- (b) EXERCISE PRICE. The exercise price of each option shall be the fair market value per Share at the time the option is granted, except that options awarded on the Closing Date will have an exercise price equal to the initial public offering price. In no event, however, shall the option price be less, in the case of an original issue of authorized stock, than par value per share. For purposes of this subsection, the fair market value of a Share on any date shall be the last sale price of a share of Common Stock on such day as reported on the Nasdaq National Market ("NASDAQ") (or if the Common Stock is then listed or admitted to unlisted trading privileges on a national securities exchange, the last sale price of a share of Common Stock regular way on the principal national securities exchange on which the Common Stock is then listed or admitted to unlisted trading privileges) or, if there was no such reported price on such day, the latest day prior thereto on which there was such a reported price. (c) DURATION OF OPTIONS. The latest date on which an option may be exercised (the "Final Exercise Date") shall be the date which is five years from the date the option was granted. (d) EXERCISE OF OPTIONS. (1) Each option shall become exercisable to the full extent of all Shares covered thereby six months after the date of the grant. No such option shall become exercisable to any extent prior to the expiration of such six-month period. (2) Any exercise of an option shall be in writing, signed by the proper person and delivered or mailed to the Company, accompanied by (i) any documentation required by the Committee and (ii) payment in full for the number of Shares for which the option is exercised. (3) If an option is exercised by the executor or administrator of a deceased director, or by the person or persons to whom the option has been transferred by the director's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver Shares pursuant to such exercise until the Company is satisfied as to the authority of the person or persons exercising the option. (e) PAYMENT FOR AND DELIVERY OF SHARES. Shares purchased under the Plan shall be paid for as follows: (i) by certified or bank check or other instrument acceptable to the Committee (in accordance with guidelines established for this purpose), (ii) through the delivery of shares of Common Stock (which, in the case of shares acquired from the Company, have been outstanding for at least six months) having a fair market value on the last business day preceding the date of exercise equal to the purchase price, (iii) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the -3- Company sufficient funds to pay the exercise price or (iv) by any combination of the permissible forms of payment. (f) NON-TRANSFERABILITY OF OPTIONS. No option may be transferred other than by will or by the laws of descent and distribution, and during a director's lifetime an option may be exercised only by him or her. (g) DEATH, RETIREMENT AND DISABILITY OF A DIRECTOR. Upon departure from the Board by reason of death or disability (as determined by the Committee), all options outstanding hereunder that are not otherwise exercisable shall become immediately exercisable. All options held by such director may be exercised by such director or by his or her executor or administrator, or by the person or persons to whom the option is transferred by will or the applicable laws of descent and distribution, at any time within one year after such departure. After completion of the one-year period, such options shall terminate to the extent not previously exercised. Notwithstanding the foregoing, options held by a director who dies following departure by reason of disability shall remain exercisable for one year following death. In no event shall any option referred to in this paragraph 6(g) be exercisable beyond its stated term, if earlier. (h) OTHER TERMINATION OF STATUS OF DIRECTOR. If a director's service with the Company terminates for any reason other than death or disability as specified in paragraph 6(g), all options held by the director that are not then exercisable shall terminate. Options that are exercisable on the date of termination shall continue to be exercisable for a period of sixty days (but not beyond their stated term if earlier). After completion of that sixty-day period, such options shall terminate to the extent not previously exercised, expired or terminated. (i) MERGERS, ETC. In the event of a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding Common Stock by a single person or entity or by a group or persons and/or entities acting in concert, or in the event of a sale of all or substantially all assets or a dissolution or liquidation of the Company, all options hereunder will terminate; provided, however, that 20 days prior to the effective date of any such merger, consolidation, sale, dissolution, or liquidation, all options outstanding hereunder that are not otherwise exercisable shall become immediately exercisable. 7. ELECTION TO BE PAID ANNUAL CASH RETAINER IN SHARES (a) ELECTION. A Non-Employee Director may elect to be paid his or her annual retainer as a director of the Company in whole or in part in shares of Common Stock. Any such election must be in writing, must state what percentage of the annual retainer the director elects to receive in shares of Common Stock, and must be received by the Company at least 30 days prior to the date such annual retainer will be paid by the Company. Failure -4- to make any such election in accordance with the provisions of the second preceding sentence shall mean that the annual retainer shall be paid solely in cash. (b) VALUATION. For purposes of determining the number of shares of Common Stock to be delivered to a director pursuant to an election duly made pursuant to the immediately preceding subsection (a), the amount of the annual retainer shall be divided by the fair market value of a share of Common Stock on the date the annual retainer is to be paid (but in the event of an original issue of authorized stock, in no event shall the value of a share of Common Stock be less than the par value of a share of Common Stock). Cash shall be paid to the directors in lieu of any fractional share. For purposes of this subsection, the fair market value of a share of Common Stock on any date shall be the last sale price of a share of Common Stock on such day as reported on NASDAQ (or if the Common Stock is then listed or admitted to unlisted trading privileges on a national securities exchange, the last sale price of a share of Common Stock regular way on the principal national securities exchange on which the Common Stock is then listed or admitted to unlisted trading privileges) or, if there was no reported price on such day, the latest day prior thereto on which there was a reported price. 8. MISCELLANEOUS (a) RIGHTS AS A SHAREHOLDER. Any option holder and any Non-Employee Director who shall have elected to receive Shares under the Plan in lieu of cash compensation shall not have the rights of a shareholder with regard to awards and/or elections under the Plan except as to Shares actually received by him or her under the Plan. (b) COMPLIANCE WITH SECURITIES LAWS. The Company shall not be obligated to deliver any Shares until (1), in the opinion of the Company's counsel, all applicable federal, state and foreign laws and regulations have been complied with, (2) if the Common Stock outstanding is at the time listed on any stock exchange or automated quotation system, the Shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance, and (3) all other legal matters in connection with the issuance and delivery of such Shares have been approved by the Company's counsel. If the sale of Shares has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the option, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Shares bear an appropriate legend restricting transfer. 9. EFFECT, TERMINATION AND AMENDMENT The Committee may at any time terminate the Plan, but options previously granted and elections previously made shall not be affected thereby. The Board may at any time or times amend the Plan for any purpose which may at the time be permitted by law. -5- EX-10.5 7 LEASE DATED JULY 5, 1989 EXHIBIT 10.5 OFFICE LEASE 4530 WISCONSIN AVENUE THIS LEASE made this 5th day of July, 1989 by and between 4530 WISCONSIN ASSOCIATES [a District of Columbia Partnership] hereinafter referred to as "Landlord", and CAREY INTERNATIONAL, INC. hereinafter referred to as "Tenant". WITNESSETH WHEREAS, Landlord is or will be the owner of an office building and other improvements known or to be known by street address as 4530 Wisconsin Avenue (hereinafter referred to as "Building") on or in Washington, D.C. and Tenant desires to lease a portion of the space in said Building. NOW, THEREFORE, in consideration of the rents herein reserved by Landlord to be paid by Tenant, and for other good and valuable consideration from each of the parties moving to the other, the receipt and sufficiency whereof are hereby acknowledged, the parties covenant and agree as follows: 1. DEMISED PREMISES. Landlord hereby rents, demises and leases to Tenant, and Tenant hereby takes, hires and rents of Landlord, for the term, at the rental and upon the conditions, covenants and agreements hereinafter set forth, the following premises: (A) Approximately 8,353 square feet of space (which amount includes 13.5% public or core factor) on the 5TH floor(s) of said Building now or to be designated as Suite(s) 500. It is expressly understood and agreed that the exact rentable area cannot be determined until after preparation of Tenant's plans. Accordingly, at such time as Tenant's final plans are approved, this lease will be amended if necessary to substitute, in lieu of the area shown, the exact rentable area. (SEE ADDENDUM) (B) Together with the right in common with other tenants in the Building to use of the public lobby, lavatories, public corridors, stairways and elevators. (C) The exterior walls, floor and ceiling and the area above and beneath the demised premises, including the roof of the Building (the "Excluded Areas") are not included in the demised premises. Landlord reserves to itself the right to (a) use the Excluded Areas, (b) install, maintain, use, repair and replace pipes, ducts, conduits, wires and structural elements serving other parts of the Building leading through the demised premises in locations which will not materially interfere with Tenant's use thereof. 2. TERM OF LEASE. (A) The term of this lease shall be seven (7) year(s) commencing on the 1st day of October, 1989, and fully ending at midnight on the 30TH day of September, 1996; provided, however, that if by the scheduled commencement date the demised premises are not ready for Tenant's occupancy, the expiration date of this lease shall be extended until the last day of the month in which the term actually commences in accordance with 2(B) below. (B) Should the demised premises not be ready for delivery of possession by the date set forth in paragraph 2(A) hereof, the actual delivery date and term commencement shall be the day the Landlord certifies to Tenant that the demised premises are fully completed and ready for occupancy, or when Tenant commences doing business therein, whichever is sooner. In no event shall Landlord be liable to Tenant for damages caused by delay in making the demised premises ready for Tenant's occupancy; but if the demised premises are not completed and ready by ninety (90) days from the date set forth in paragraph 2(A) hereof, either Landlord or Tenant may cancel this lease before the demised premises shall have been completed by written notice to the other. 3. RENTAL. (A) Basic Rental. Tenant hereby covenants and agrees to take and hold the demised premises as Tenant of Landlord, for the term hereinabove set forth, and agrees to pay to Landlord as basic annual rental therefor the sum of ONE HUNDRED SIXTY FIVE THOUSAND ONE HUNDRED SEVENTY-EIGHT & NO/100 Dollars ($165,178.00), payable in monthly installments of THIRTEEN THOUSAND SEVEN HUNDRED SIXTY-FOUR & 83/100 Dollars ($13,764.83), in advance on the first day of each month, without deduction or demand, except that if the first rent commences to accrue and be payable on a day other than the first day of a calendar month, the rent for the fractional part of such first month shall be prorated. In the event Tenant's monthly rent payment is not received by Landlord within five (5) business days of the due date, then Tenant covenants to pay Landlord a "late charge" of five percent (5%) of the amount due, in addition to the aforesaid monthly rent payment. In the event such payment shall not be received by Landlord within ten (10) days after such due date, then Tenant hereby covenants and agrees to pay to Landlord an "additional late charge" of one-half of one percent (0.5%) of the total amount due for each and every day beyond ten (10) days after said due date until the total payment is made. In the event Tenant pays his rent by check and said check is returned by the bank unpaid, Tenant shall pay to Landlord the sum of Twenty-Five Dollars ($25.00) to cover the costs and expenses of processing the returned check, in addition to the aforesaid monthly rent payment, and any late charges which may be involved. At such time as the exact rentable area is determined, if different than 6,353 square feet, the basic annual rental will be recomputed using the annual rate of $26.00 per square foot times the actual rentable area and this lease will be revised accordingly. (SEE ADDENDUM) 1 (B) Adjusted Rental. After the first full Lease year (first twelve (12) months) of the term of this Lease, Tenant shall pay to Landlord, as adjusted annual rental, the amount computed as hereinafter provided: The rental payable for each lease year subsequent to the first full lease year shall be the above basic annual rental adjusted (upward only) to The Revised Consumer Price Index for Urban Wage Earners and Clerical Workers (revised CPI-W) as determined and published by the United States Department of Labor based on all items for the period 1982-1984 equals One Hundred (1982-1984 = 100), or its successor or most nearly comparable successor at the commencement of each new lease year by adding to said basic annual rental thirty percent 30% of any increase resulting from multiplying the basic annual rental by a fraction, the denominator of which shall be such Index published three (3) months preceding the month of the execution of this lease, and numerator of which fraction shall be such Index published three (3) months preceding the month of the commencement of the new lease year. The basic annual rental adjusted as aforesaid shall be the rental for the ensuing lease year; provided, however, that in no event shall the adjusted annual rental be less than the annual rental for the preceding lease year. If no such index shall exist, Landlord, at its option, may select any other published index which reasonably reflects the cost of living or inflation, or both. The annual rental, adjusted as aforesaid, shall be due and payable in equal monthly installments in advance on the first day of each month throughout the lease year, except, however, when retroactive payments are made necessary by delay in the publication of the appropriate Index. (C) Additional Rental - Increases in Real Estate Taxes and Building Operating Expenses. Tenant covenants and agrees to pay to Landlord as additional rental a proportionate share of (i) any increases in real estate taxes levied or assessed on the land and the improvements thereon (whether due to rate or assessment) over and above the annual aggregate of such real estate taxes for FY 1990 ("base taxes"), and (ii) any increase in annual Building operating expenses -- over those prevailing for the calendar year ending December 31, 1990 ("Building -- operating expenses"). The term "proportionate share" is defined as meaning (i) in the case of real estate taxes, the ratio that exists between the space demised to Tenant and the total rentable space in the Building, excluding all garage and storage space (i.e., 8,353 S.F./38,942 S.F. or 15.91%) and (ii) in the case of Building ----- ------ operating expenses, the ratio that exists between the space demised to Tenant and the total rentable space in the building excluding all garage, storage and first floor space which is separately metered or submetered for utilities and the tenant's supply their own janitorial and maintenance services (8,353 ----- S.F./25,412 S.F. or 25.00%). ------ ------ "Building Operating Expenses" are defined as meaning any and all expenses incurred by the Landlord in connection with the servicing, operation, repair, maintenance and management of the Building and its appurtenances, which, in accordance with generally-accepted accounting practices, are properly chargeable to the operation and maintenance of the Building, improvements and parking facilities and the land on which they are situated and such Building operating expenses shall not include real estate taxes or federal or other income taxes, expenditures which materially add to the value of the Building, the amount of expenses for any services or installation furnished to a particular tenant in excess of those furnished or available to Tenant, lessing fees and advertising costs, interest and amortization of mortgages, depreciation of the Building and compensation paid to officers of Landlord unless such compensation is for services directly associated with the building. "Building Operating Expenses" may also include reasonable attorney fees and other expenses incurred in contesting proposed increases in assessed values and/or tax rates and capital expenses for equipment or systems installed to reduce operating expenses. "Landlord shall furnish to Tenant an annual statement (on a calendar year basis), setting forth the Building operating expenses for the preceding calendar year and facsimile copies of real estate tax bills issued by the appropriate authority and such statement and/or tax bills shall be accepted by Tenant as conclusive evidence of the amount of such operating expenses and real estate taxes; except, however, as hereinafter provided in the following subparagraph. Tenant's share of an increase in real estate taxes or Building operating expenses, if any, shall be payable by Tenant to Landlord within ten (10) days after demand is made therefor. For a period of one (1) year following receipt by Tenant of the annual statement provided for hereinabove, Tenant, or an independent, certified public accountant designated by Tenant, shall have the right, during regular business hours and after giving ten (10) days' written notice to Landlord, to inspect and audit Landlord's (or Landlord's agent's) books and records relating to the Building operating expenses incurred for such period. Landlord agrees to cooperate with Tenant and Tenant's accountant in providing all pertinent information relating to the Building operating expenses. If such audit shows that the amounts paid by Tenant to Landlord on account of increases in Building operating expenses exceeded the amounts to which Landlord was entitled hereunder, Landlord shall promptly refund the excess to Tenant. All costs and expenses of any such audit shall be paid by Tenant, except that if such audits shows that the aggregate amount of the Building operating expenses for such year was overstated by Landlord by more than three percent (3%), Landlord shall reimburse Tenant for the reasonable costs and expenses incurred in such audit. In addition, the Landlord and Tenant recognize that increases in Real Estate Taxes and Building Operating Expenses for each year over those expenses incurred during the Base Year may be determined or fairly estimated from periodic billings prior to the expiration of the Base or subsequent years. In such event, Landlord, to avoid accumulation of charges, may make a reasonable estimate of Tenant's pro rate shares of such increases projected for a given year against the Base Year. Tenant agrees to pay said estimate as additional rent to the Landlord in payments to be made in equal monthly installments in advance (namely one-twelfth (1/12) of the annual estimated increases aforesaid) on the first day of each month in addition to the basic monthly rental charge stipulated herein. Following the end of each year, Landlord shall render Tenant a statement of Tenant's pro rata shares of increases in Real Estate Taxes and Building Operating Expenses and shall refund to Tenant any excess collected by Landlord as additional rent upon its estimate, or Tenant shall pay any deficiency, as the case may be within thirty (30) days after delivery of such statement (including any statement delivered after the expiration or termination of the term of this Lease). Copies of a statement of 2 Building Operating Expenses prepared by Landlord shall be supplied to Tenant within a reasonable time after receipt of Tenant's written request. In the event the Lease term commences or expires during a calendar year, the increases in real estate taxes and Building operating expenses to be paid by Tenant for such calendar year shall be prorated and Tenant's liability for its proportionate share of such increases in the real estate taxes and Building operating expenses for the last calendar year falling entirely or partly within the Lease term (and Landlord's obligation to refund to Tenant any overpayment) shall survive the expiration of the lease term. (D) Landlord's Agent. All installments of rent and all other payments required by the terms of this lease to be paid by Tenant to Landlord shall be payable to end at the office of Landlord's Agent, THE DONOHOE COMPANIES, INC., JOHN F. DONOHOE & SONS DIVISION, 2101 WISCONSIN AVENUE, N.W., WASHINGTON, D.C. 20007, or to such other person or at such other place as may from time to time be designated by Landlord. 4. PREPARATION OF TENANT'S SPACE. Landlord agrees to prepare the interior of the space demised to Tenant as provided (i) in the Layout entitled Exhibit A, and (ii) in the Schedule of Standard Building Finishes and Allowances entitled Exhibit B, both of which exhibits are attached hereto. (SEE ADDENDUM) 5. TENANT'S RIGHT TO INSTALL FIXTURES. (A) Tenant shall have the right to enter into and upon demised premises for purposes of placing normal office furniture and equipment therein and, subject to 5(B) below, for the purpose of installing any of his furnishings and fixtures and performing any of his construction items therein at any time prior to commencement of the term of this lease, provided (i) Building, if new, is sufficiently completed to permit same; (ii) possession has been delivered by any present occupant; (iii) the activities of Tenant or his contractors and employees shall not interfere with the construction of the Building, and the type of labor supplied or used by Tenant in connection with the performance of any construction work or the placing of his furniture, furnishings and equipment in the demised premises shall not conflict with the type of labor employed by Landlord in connection with the construction of the Building; if there be such interference or conflict, notice thereof shall be given to Tenant, and within two (2) days after receipt of such notice Tenant shall be required to cease such interference or substitute different and nonconflicting labor or suspend the use of conflicting labor until commencement of the term of this lease; and (iv) Tenant shall not move into Building any safes or other heavy equipment without the prior consent of Landlord, and any damage done to Building by moving into, using or removing safes or other heavy equipment shall be repaired at Tenant's expense. (B) Tenant shall not make any alterations, installations, changes, replacements, additions, or improvements (structural or otherwise) in or to the demised premises or any part thereof, without the prior written consent of the Landlord. All alterations, installations (including, but not by the way of limitation, carpeting or shelving), changes, replacements, additions to or improvements upon the demised premises (whether with or without the Landlord's consent and without regard to whether installed at the cost of the Tenant or Landlord), shall at the election of the Landlord remain upon the demised premises and be surrendered with the demised premises at the expiration of this lease without disturbance, molestation or injury. Should the Landlord elect that alterations, installations, changes, replacements, additions to or improvements made by Tenant upon the demised premises be removed at the termination of this lease or upon termination of any renewal period thereof, the Tenant hereby agrees to cause same to be removed at the Tenant's sole cost and expense and should Tenant fail to remove the same, then and in such event the Landlord may cause same to be removed at the Tenant's expense and the Tenant hereby agrees to reimburse the Landlord for the cost of such removal together with any and all damages which the Landlord may suffer and sustain by reason of the failure of the Tenant to remove same. 6. SIGNS. Tenant shall not erect nor maintain on the exterior of the Building, or in the interior common areas, any sign or signs without the prior written consent of Landlord. Landlord agrees, however, to furnish, install and maintain in the lobby the usual tenant directory in which the name of Tenant will be listed. Landlord reserves the right to limit the number of listings. (SEE ADDENDUM) 7. UTILITIES, REPAIRS, MAINTENANCE, SUPPLIES AND CLEANING. (A) Landlord shall furnish during normal business hours (i.e., weekdays 8:00 a.m. to 9:00 p.m., Saturdays 8:00 a.m. to 4:00 p.m., excluding Federal legal public holidays) electric current (for lighting and operation of normal desk-type office machines), water, lavatory supplies, automatically operated elevator service, heat during the appropriate seasons of the year and air conditioning as reasonably required; and, after normal business hours Monday through Friday, excluding holidays, cleaning and char service, all without further cost to Tenant. The rents reserved hereunder are based on use of the demised premises during normal business hours only and in the event Tenant uses the demised premises at other than the normal business hours and days aforesaid, Landlord reserves the right to make an additional charge for such use and Tenant covenants and agrees to pay Landlord therefor, upon demand, as additional rent. (SEE ADDENDUM) (B) Tenant covenants that he will not install or operate in the premises any electrically operated equipment or other machinery, other than typewriters, adding machines, personal computers and such other electrically operated office machinery and equipment, but not including computers or data processing equipment, requiring special environmental conditions (i.e., raised flooring or air conditioning), normally used in modern offices, without first obtaining the prior written consent of the Landlord, who may condition such consent upon the payment by the Tenant of additional rent as compensation for such excess consumption of water and/or electricity as may be occasioned by the operating of said equipment or machinery; nor shall the Tenant install any other equipment of any kind or nature whatsoever which will or may necessitate any changes, replacements or additions to or require the use of the water system, plumbing system, heating system, air conditioning system or the electrical system of the demised premises without the prior written consent of the Landlord. (C) Landlord shall not be liable to Tenant for damages resulting from temporary discontinuance of any said utilities or services due to interruption or breakdown of equipment, or from strikes, lockouts, labor 3 disturbances, casualties, or Acts of God, or any conditions or situations beyond the reasonable control of Landlord. In any such event the Landlord will promptly take all steps which appear necessary to restore the utilities or services so discontinued. (D) Tenant agrees to pay for the cost of any repair to the demised premises or the Building necessitated by the fault or negligence of the Tenant, his employees, agents, licensees or invitees. Tenant shall not be liable to make repairs resulting from usual or normal wear, except as hereafter provided. (E) Tenant agrees to pay the cost of the maintenance, repair and/or replacement of any special installation (finishes, equipment, or other facilities) (including, without limitation, plumbing, electrical, lighting, heating, ventilating or air conditioning) required for Tenant's use and occupancy of the demised premises (whether or not such special items are located within or without said demised premises) in excess of the Building Standard Finishes and Allowances set forth in Exhibit B or the services to be provided by Landlord pursuant to 7(A) above. In addition, Tenant agrees to pay for any damages to the demised premises or other areas of the building or other tenant's property therein occasioned by Tenant's special installations or Tenant's use thereof. (F) Unless otherwise elected by Landlord, as provided in 5(B) above, at expiration or termination of this lease, or, if renewed, at expiration or termination of the renewal term hereof, Tenant covenants and agrees to surrender the demised premises to Landlord in as good condition and repair as the same are in upon delivery of possession thereof to Tenant, subject only to the consequence and effect of reasonable wear and tear or damage by fire or other casualty. 8. INDEMNITY AND LIABILITY INSURANCE. Tenant covenants and agrees to indemnify and save harmless Landlord against and from any and all claims by or on behalf of any person or persons, organization, firm or corporation, arising out of acts or negligence of Tenant, his employees, agents, licensees or invitees in or about the demised premises and common areas. In confirmation thereof, Tenant agrees that he will, at all times during the original term and any extension or renewal thereof, at his own expense, carry and keep in full force and effect public liability insurance in good and responsible companies authorized to do business in such jurisdiction with limits of at least FIVE HUNDRED THOUSAND Dollars ($500,000) for injury, including death, to any one person, and at least ONE MILLION Dollars ($1,000,000) for injury, including death, in any one casualty, (provided, however, if Tenant's carrier no longer writes multiple limits then Tenant shall provide at least FIVE HUNDRED THOUSAND Dollars ($500,000) single limit bodily injury, including death, coverage) and with property damage of at least ONE HUNDRED THOUSAND Dollars ($100,000). Such policies shall name Landlord and Tenant as parties insured, and shall contain a provision that the same may not be cancelled without giving Landlord at least ten (10) days prior written notice. Each such policy, or a certificate showing the same to be in effect, shall be delivered to Landlord at the commencement of the term, and renewals thereof shall be delivered to Landlord throughout the entire tenancy at least ten (10) days prior to the expiration of any such policy. Landlord reserves the right to review such insurance coverage from time to time and Tenant covenants and agrees, if Landlord so requests, to increase the limits and/or coverage of such public liability insurance to levels then deemed reasonable in the opinion of the insurance broker retained by Landlord. 9. ASSIGNMENT AND SUBLETTING. Tenant covenants and agrees that he will not transfer or assign this lease, or any estate or interest therein, nor sublet the demised premises, or any part thereof, including desk space, without Landlord's prior written consent, nor shall any transfer, assignment or subletting be effected by operation of law or otherwise than by prior written consent of Landlord. In the event Tenant desires to sublet all or any portion of the demised premises, Tenant shall give Landlord thirty (30) days' prior written notice of Tenant's intention so to do ("Sublet Notice") and, within thirty (30) days following receipt of Tenant's Sublet Notice, Landlord shall have the right, exercisable by sending written notice to Tenant, to sublet from Tenant that portion of the demised premises Tenant intends to sublet as specified in Tenant's Sublet Notice as aforesaid at the same rental rate per square foot Tenant is then obligated to pay Landlord hereunder or, in the alternative, to recapture the space proposed for subletting and to terminate this lease with respect to the proposed sublease space. If such recapture notice is given, it shall serve to terminate this lease with respect to the proposed sublease space or, if the proposed subLease covers the entire leased premises, it shall serve to terminate the entire remaining term of this lease, in either instance as of the proposed effective date and as fully and completely as if that date had been definitely fixed for the expiration of the lease term. If this lease is canceled pursuant to the foregoing with respect to less than the entire leased premises, the rent, additional rent, and the escalation percentage provisions (Paragraph 3(c), supra) of this lease shall be adjusted on the basis of the proportion of rentable square feet retained by Tenant to the leasable square feet originally leased, and this lease as so amended shall continue thereafter in full force and effect. If Landlord, on receiving Tenant's Sublet Notice as to any such space, shall not exercise its right to recapture as aforesaid, Landlord shall not unreasonably withhold or delay its consent to Tenant's subletting the space covered by its Sublet Notice, subject, however, to all the other provisions of this Article. If the rental reserved in any sublease of all or any part of the leased premises exceeds the rental or pro rata portion of the rental, as the case may be, for such space reserved in the lease, Tenant shall pay Landlord each month, as additional rent, at the same time as the monthly installments of rent become due hereunder, the excess of the rental reserved in the sublease over the rental reserved in this lease applicable to the space so subleased. 10. USE OF PREMISES. Demised premises may be used by Tenant for any lawful office business purpose, provided, that all such uses shall be for dignified office purposes, and be carried on in compliance with all requirements of law or of any governmental agency and in keeping with the standards of the Building and the quiet enjoyment of other tenants and occupants of Building. 11. RULES AND REGULATIONS. The Tenant covenants that the following rules and regulations and such other and further rules and regulations as the Landlord may make and which in the Landlord's judgment are 4 needed for the general well-being, safety, care and cleanliness of the demised premises and the Building of which they are a part together with their appurtenances, shall be faithfully kept, observed and performed by the Tenant, and by his agents, servants, employees, and guests unless waived in writing by the Landlord: (A) The sidewalks, driveways, entries, passages, elevators, public corridors, and staircases and other parts of the Building and grounds which are not occupied by the Tenant shall not be obstructed or used for any other purpose than ingress or egress. (B) The Tenant shall not install or permit the installation of any awnings, shades, and the like other than those approved by the Landlord in writing. (C) No additional locks shall be placed upon any doors of the demised premises; and the doors leading to the corridors or main halls shall be kept closed during business hours except as they may be used for ingress or egress. (D) The Tenant shall not construct, maintain, use or operate within said demised premises or elsewhere in the Building of which the demised premises form a part or on the outside of the Building, any equipment or machinery which produces music, sound, or noise which is audible beyond the demised premises. (E) Electric and telephone floor distribution boxes must remain accessible at all times. (F) Canvassing, soliciting and peddling in the building is prohibited and each tenant shall cooperate to prevent same. (G) No bicycles, vehicles, or animals shall be brought into or kept in or about the demised premises or the Building. (H) Landlord shall have the right to control and operate the public portions of the Building, and the facilities furnished for common use of Tenants, in such manner as Landlord deems best for the benefit of Tenants generally. (I) The water, wash closets and other plumbing fixtures (collectively "Fixtures") shall not be used for any purposes other than those for which they were constructed, and no debris, rubbish, rags or other substances shall be thrown therein. All damage resulting from any misuse of the fixtures shall be paid immediately upon demand by Landlord to Tenant who causes the same. (J) There shall be no marking, painting, drilling into or defacement of the Building or any part of the demised premises, including in particular any such part that is visible from public areas of the Building. (K) Tenant shall not throw anything out of the doors or windows of the Building. (L) No flammable, combustible or explosive fluid, chemical or substance shall be brought into or kept upon the demised premises. (M) Tenant shall not (a) manufacture any goods in the demised premises, whether or not for sale in the ordinary course of business, or (b) sell at auction any merchandise, goods or property of any kind. (N) The demised premises shall not be used at any time for lodging or sleeping or for any immoral or illegal purpose. (O) Landlord's employees shall not, and Tenant shall not request them to, perform any work or do anything outside of their regular duties for Landlord, except pursuant to prior arrangements between Tenant and Landlord, acting through management of the Building, subject in every instance to be paid by Tenant with the next monthly base rent. Tenant shall not make any payment to Landlord's employees. (P) All deliveries to, or shipments from, or service to, the demised premises shall be conducted in such fashion and at such times as will not unreasonably interfere with or obstruct the orderly flow of traffic, both pedestrian and vehicular, on the streets and sidewalks abutting the Building nor in any way prevent ingress to or egress from the Building and the parking facilities thereof. (Q) Landlord shall have the right to prohibit any advertising by any Tenant which, in Landlord's sole opinion, tends to impair the reputation of the Building or its desirability as a building for office and retail use, and upon written notice from Landlord, such tenant shall refrain from or discontinue such advertising. (R) Employees of Landlord other than those expressly authorized by Landlord are prohibited from receiving any packages or other articles delivered to the Building for any Tenant. In all events any such receipt shall be as agent of Tenant and not Landlord, who shall have no responsibility. (S) Tenant shall not install or permit installation of a television antenna or any other object whatsoever on the roof of the Building or in the windows or upon the exterior of the demised premises, or elsewhere in the Building. (T) Tenant shall not tie in, or permit others to tie in, to the electrical or water supply in the Building, without prior written consent of the Building Management. (U) Tenant shall not place any vending machines in any part of the demised premises of the Building. 12. SUBORDINATION. At the option of the mortgagee(s) or trustees of a first mortgage or first deed of trust loan only, and no others, now or hereafter affecting the Building: (A) This lease shall be paramount and superior to any said loan, and Tenant agrees not to subordinate this lease to any deed of trust or mortgage; or (B) If the lender(s) so elect, the lease and all rights of Tenant hereunder shall be subject and subordinate to any mortgage or deed of trust now or hereafter constituting a lien against the demised premises, the Building or any part thereof, and to any and all renewals, modifications, consolidations, replacements, and extensions thereof, and, in the event of said election, this provision shall thereupon be self-operative and no further instrument shall be required to effect such subordination of this lease; provided, however, that as long as Tenant continues payment of rent and performs, keeps and observes all his covenants hereunder, the rights of Tenant, including, but not limited to possession of the premises, shall not be terminated or adversely affected in any way by reason of any foreclosure or other action or proceeding under any such mortgage or deed of trust; provided, further that notwithstanding the foregoing provisions above, the party or parties secured by such mortgage or deed of trust shall have the absolute right to recognize this lease and, in the event of any foreclosure sale under any such mortgage or deed of trust, this lease shall continue in full force and effect, and, at the written request of the party or parties secured thereby or the purchaser under any such foreclosure sale, Tenant shall attorn to such party or parties secured or to such purchaser; and 5 Tenant covenants and agrees to execute and deliver to Landlord on request any further instruments to carry out the intent of said subordination, as shall be desired by any such lender, and Tenant hereby irrevocably appoints Landlord as attorney-in-fact for Tenant with full power and authority to execute and deliver in the name of Tenant any such instruments. In addition, Tenant agrees at such time as said lender may require, to execute and deliver to Landlord, in such form as may be prescribed by the lender, a Tenant Estoppel Certificate evidencing, inter alia, that this lease is in full force and effect and that all of the obligations thereunder are current. 13. INSURANCE. (A) Landlord shall obtain at its sole expense, and maintain in effect at all times during the term fire and extended coverage insurance insuring the Building (but not the property or equipment of Tenant, his employees, agents, licensees or invitees) against loss or damage by fire either with all-risk insurance or with extended coverage, in a reputable company or companies licensed to do business in such jurisdiction, to the extent required by the eighty percent (80%) co-insurance clause by policies that shall provide that the loss, if any, shall be payable to Landlord. The premiums on all such insurance shall be paid by Landlord. Landlord and Tenant agree that in the event the demised premises or its contents are damaged or destroyed by fire or other insured casualty, the rights, if any, of either party against the other with respect to such damage or destruction are waived; and that all policies of fire and/or extended coverage insurance covering the demised premises or its contents shall contain a clause or endorsement providing in substance that the insurance shall not be prejudiced if the assureds have waived right of recovery from any person or persons prior to the date and time of such loss or damage, if any. (B) Tenant agrees that he will not carry on any activity in the demised premises, nor do or permit anything to be done therein, which would increase the basic rate of fire insurance as established by the Insurance Rating Bureau of such jurisdiction or any successor organization. For purposes of definition herein, the "basic rate" shall be such rate as published by the Rating Bureau, exclusive, however, of any excess or surcharges appended thereon by virtue of or directly attributable to so-called faults of management. If Tenant's use of the demised premises causes an increase in the final rate of Building over and above the basic rate for construction of this type, Tenant, upon notice by Landlord, shall immediately take all necessary steps to eliminate the cause for excess charge attributable to such faults of management. Should Tenant refuse or fail to take such action, Tenant shall pay to Landlord on demand the portion of the insurance premium caused by such excess charge on all outstanding fire insurance carried on Building. 14. DAMAGE BY FIRE. If the demised premises shall be partially damaged by fire or other casualty, the damage shall be repaired by and at the expense of Landlord, and the rent until such repairs shall be made shall be apportioned according to the part of the demised premises which is usable by Tenant, Landlord shall incur no liability on account of any delay in the completion of such repairs which may arise by reason of adjustment of insurance, labor difficulties or any other cause beyond Landlord's control. If all or substantially all of the demised premises, or Building, become unfit for occupancy as a result of fire or other casualty, Landlord may elect (i) to terminate this lease as of the time when the demised premises or Building are made unfit for occupancy, by written notice to Tenant within (30) days after that date, whereupon rent shall be adjusted to the date the demised premises become unfit for occupancy, or (ii) to repair, restore or rehabilitate Building or demised premises, in which latter event the lease shall not terminate but rent shall be abated on a per diam basis while the premises are unfit for occupancy. If the damage is so extensive that the premises are not substantially repaired and restored within six (6) months from the occurrence of said fire or other casualty, Tenant may cancel this lease. 15. LOSS OR DAMAGE TO PROPERTY OR PERSON. All personal property belonging to Tenant, located in the demised premises or in the parking area or other common areas, shall be there at the sole risk of Tenant and Landlord shall not be liable for the theft or misappropriation thereof nor for any damage or injury thereto, nor for damage or injury to Tenant or any of his employees, agents, licensees or invitees or to other persons or to any property caused by fire, explosion, water, gas, electricity, leaks from the roof or other portions of Building, the bursting or leaking of pipes, plumbing, electrical wiring and equipment and fixtures of any kind, or by any act or neglect of other tenants or occupants of Building, or due to any cause whatsoever, unless resulting from the willful acts or the negligence of Landlord or his employees. Tenant shall give prompt notice to Landlord in case of fire or accident in the demised premises or common areas, or of any defects, damage or injury therein or in any fixtures or equipment. 16. COMPLIANCE WITH GOVERNMENTAL ORDERS. Tenant shall at his own expense properly and promptly comply with and execute all laws, ordinances, rules, regulations and requirements as the same now exist or as they may hereafter be enacted, amended or promulgated, of or by any Federal, State, City, District or County authority or any department or agency thereof, and of the Board of Fire or Casualty Underwriters, or any similar organization, relating to Tenant's use of the demised premises or of the operation of Tenant's business therein; provided, however, that Landlord covenants and agrees that at the commencement of the term of this lease the demised premises will be in compliance with any such laws, ordinances, rules, regulations or requirements; and further provided, that Tenant shall not be required to perform any structural work or make any repairs to Building as the result of any such laws, ordinances, rules, regulations or requirements. 17. BANKRUPTCY. If Tenant shall file a voluntary petition or similar pleading under any Federal or State Law or statute relating to bankruptcy or if any involuntary proceedings in any court or tribunal shall be instituted by or against Tenant to declare Tenant insolvent or unable to pay Tenant's debts or for reorganization or for an arrangement or for a composition or for the appointment of a receiver or a trustee of all or part of Tenant's property, or assignment for benefit of creditors, and such proceedings are not dismissed and discharged within forty-five (45) days after the same are instituted, then and in any such event 8 Tenant's right to possession of the demised premises shall cease and come to an end, and Landlord may at his option with or without further notice terminate this lease. Notwithstanding the termination of this lease, as aforesaid, the Landlord shall have the right to prove and obtain as liquidated damages by reason of such termination the maximum amount allowed by the applicable statute or law in effect at that time governing the proceedings in which such damages are to be proved. 18. DEFAULTS. Tenant shall be deemed to be in default hereunder if: (A) Tenant shall fail to pay any installment of rent herein reserved, or any other costs and expenses for which Tenant shall be responsible hereunder, within five (5) days after written notice from Landlord specifying the item or items then due and unpaid. (B) Tenant shall fail or neglect to keep and perform each and every of the other covenants, conditions and agreements herein contained and on the part of Tenant to be kept and performed, within fifteen (15) days after written notice from Landlord specifying the items alleged to be in default, unless (i) the curing of such default will take more than fifteen (15) days, in which event Tenant shall be deemed to be in default only if he does not commence the curing of such default within the said fifteen (15) day period and carry it, in good faith, to prompt completion; or (ii) Tenant shall, in good faith, dispute the existence of any default or the extent of his liability therefor, in which event Tenant shall be deemed to be in default only if he fails, within three (3) days after agreement or final adjudication, to commence the curing of such default as is judged to exist or which Landlord and Tenant shall agree exists, and to carry it in good faith, to prompt completion. (C) Tenant abandons the demised premises, or attempts to remove therefrom any substantial portion of his furniture or equipment without prior permission of Landlord, or (D) An execution is levied against Tenant's interest in the term hereby demised, and it is not satisfied, stayed, discharged or stricken off within thirty (30) days. 19. REMEDIES OF LANDLORD. If a default shall exist because of any reason set forth in Article 18, above, then and in any such event, in addition to any and all rights and remedies allowed by law, Landlord may, at his option, with or without notice, forthwith terminate this lease and Tenant's right to possession of the demised premises. Upon such termination: (A) Tenant shall surrender possession and vacate the premises immediately, and Landlord may enter into and repossess said premises with or without process of law and remove all persons and property of Tenant therefrom (subject to Landlord's right to retain said property pursuant to his security rights therein as herein provided) and for purpose of such entry and repossession Tenant waives any notice to quit or any other notice provided by law or otherwise to be given in connection therewith. (B) Landlord may, at his election, remove from the premises any and all property of Tenant found therein and such repossession shall not release Tenant from his obligation to pay the rents herein provided. (C) Any and all property which may be removed from the premises by Landlord may be handled, removed, stored or otherwise disposed of by Landlord at the risk and expense of Tenant, and Landlord shall in no event be responsible for the preservation or the safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as it shall be in Landlord's possession or under Landlord's control. (D) Further, Landlord at his sole option shall have an immediate claim against Tenant for the balance of the rent herein reserved, plus the costs of any unusual repairs, less the avails of any re-letting of the premises in whole or in part by Landlord to others. Tenant will pay all real estate broker's fees, court costs and reasonable attorney's fees in the event Tenant shall become in default and it is necessary for Landlord to incur the same in connection with obtaining possession of said premises or in the enforcement of any covenant, condition or agreement herein contained, whether through legal proceedings or otherwise and whether or not any such legal proceedings be prosecuted to a final judgment. (E) A waiver by Landlord of any default by Tenant in the performance of any of the covenants, terms or conditions hereof shall not constitute or be deemed a waiver of any subsequent or other default. A delay on the part of Landlord to exercise or enforce any of his rights, powers or privileges hereunder shall not be deemed a waiver of such right, power or privilege. The rights and remedies of Landlord under this lease shall be cumulative and in addition to any rights and remedies given to Landlord by law. The exercise by the Landlord of any right or remedy herein provided shall not impair Landlord's right to exercise any other remedy provided by law. (F) If, under the provisions of this lease, any proceedings are taken by Landlord and a compromise settlement should be made, either before or after judgment, whereby Tenant shall be allowed to retain possession of said premises, this lease shall not merge in such judgment, if any, and such proceedings or agreement shall not operate to terminate this lease or be held to constitute a waiver of any of the covenants, conditions and agreements herein contained; and no waiver of any breach of any covenant, condition or agreement herein shall operate as a waiver of the lease itself. 20. RIGHTS RESERVED BY LANDLORD. (A) Landlord reserves the right to enter the demised premises at all reasonable times (i) for the making or inspections and repairs to premises or Building as Landlord may deem necessary or desirable, (ii) to exhibit the premises to others during the last six (6) months of the term of this lease, and (iii) for any purpose whatsoever relating to the safety, protection or preservation of Building of which the demised premises form a part. (B) Tenant shall not be entitled to any reduction in rent, nor shall Tenant have any claim for damages by reason of any inconvenience, annoyance, injury to business, or loss of natural light or ventilation, arising out of any repairs, replacements or alterations made in either the demised premises or the Building of which they are a part, except as provided in Article 14., above. 7 21. TENANT HOLDING OVER. If Tenant shall, with the knowledge and consent of Landlord, continue to remain in the premises after the expiration of the term of this lease, then and in that event Tenant shall, by virtue of this Agreement, become a Tenant by the month but otherwise upon the same terms, annually adjusted rental as provided in paragraph 3(B), supra, covenants and conditions as are in this lease set forth, so far as applicable, commencing said monthly tenancy with the next first day after the end of the term above demised; and Tenant shall give to Landlord at least thirty (30) days written notice (to expire on the day of the month from which the tenancy commenced to run) of any intention to quit said premises, and Tenant shall be entitled to like written notice to vacate said premises, except in the event of nonpayment of rent in advance or of the breach of any other covenant by Tenant, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) days notice to quit being hereby expressly waived; provided, however, that in the event that Tenant shall hold over after the expiration of the term as aforesaid, then at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord, at his option, may forthwith re-enter and take possession of said premises without process, or by any legal process in force. 22. COMMISSIONS. Tenant represents that Tenant has dealt directly with and only with Larson, Ball & Gould & The Donohoe Companies, Inc. as broker(s) in connection with this lease, and that insofar as Tenant knows, no other broker has negotiated this lease or is entitled to any commission by reason of representing Tenant in connection herewith. 23. NOTICES. All notices hereunder shall be deemed to have been duly given if hand delivered or mailed in a certified or registered postpaid envelope addressed to Landlord or Tenant, respectively, at the following address: If to Landlord: The Donohoe Companies, Inc. John F. Donohoe & Sons Division 2101 Wisconsin Avenue, N.W. Washington, D.C. 20007 If to Tenant: At the demised premises. Either party may from time to time change the address to which notice is to be given, by notice via certified or registered mail to the other party. 24. EMINENT DOMAIN. If the demised premises shall be taken or condemned by any competent authority for any public use or purpose, or conveyed to such authority in lieu of a threatened or imminent condemnation, then the term of this lease shall cease and terminate from the date of such taking or conveyance. In such case, the current rental shall be abated as of the effective date of such taking or conveyance, and the full amount of the award shall be free of any claim or right therein of Tenant. 25. QUIET POSSESSION. Landlord agrees that Tenant, upon payment of the rents as herein specified and the performance and fulfillment of all the terms, covenants and conditions herein expressed on the part of Tenant to be performed, shall peacefully and quietly have, hold and enjoy the demised premises for the term of the lease. 26. ESTOPPEL CERTIFICATES. (A) Tenant shall at any time upon not less than ten (10) days' prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing (1) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modifications and certifying that this Lease, as so modified, is in full force and effect) and the date to which the rent, security deposit, and other charges are paid in advance, if any, and (ii) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder or specifying such defaults, if any, which are claimed. Any such statement may be conclusively relied upon by any prospective purchaser of the premises. (B) Tenant's failure to deliver such statement within such time shall be conclusive upon Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that no more than one (1) month's rent has been paid in advance. (C) If Landlord desires to finance or refinance the premises, or any part thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by such lender. All such financial statements shall be received by Landlord in confidence and shall be used for the purpose herein set forth. 27.SALES, USE, OR OTHER TAXES. If during the term of this lease, any govermental authority having jurisdiction levies or assesses any tax on the LandLord, the demised premises, the Building, or the rents payable hereunder, in the nature of a sales tax, a use tax or any other tax except (i) income taxes (including corporate franchise or unincorporated business taxes); (ii) estate or inheritance taxes; or (iii) ad valorem real estate taxes, then and in any such event, Tenant hereby agrees to pay the same to Landlord as additional rent at the time of, and together with, the first rental payment due following receipt by Tenant of written notice of the amount thereof. If any such tax is levied or assessed in such manner that the amount thereof required to be paid by Tenant is not ascertainable because the tax relates to more than the demised premises or the rents payable hereunder, then, and in such event, Tenant shall pay a proportionate share of the total tax calculated on such pro rata share thereof as is aquitable under the circumstances given the nature of the tax and the property interest on account of which the tax is assessed. Any default by Tenant in the payment of any tax required hereunder shall be deemed to be a default in the payment of rent. 8 28. DEPOSIT. Tenant has deposited with Landlord the sum of Thirteen Thousand Seven Hundred Sixty-Four & 83/100 Dollars ($13,784.83) which is to be held by Landlord as collateral security to insure the Tenant's performance of this Agreement. At the end of the term of this Agreement, this deposit, less the amount of any damage to the property for which the Tenant may properly be held liable, shall be returned together with all interest accrued at an annual passbook rate of five percent (5%), unless Tenant is in default in which event this deposit or a portion of it may be forfeited. 29. SPECIAL PROVISIONS. (A) Parking. I. Landlord hereby provides and leases to Tenant, and Tenant takes and hires from Landlord, throughout the term of the lease 12 automobile parking spaces in the garage under the building, and Tenant covenants and agrees to pay to Landlord as monthly rent therefor, the amount of SEVENTY-FIVE DOLLARS ($75.00) plus District of Columbia parking tax for each such parking space, payable in advance on the first (1st) day of each and every month without setoff, deduction or demand (together with the rental payments for the demised space), except, however, if the first parking rent commences to accrue on a day other than the first day of a calendar month, the rent payable for the fractional part of such first month shall be prorated. It is further agreed that, with thirty (30) days advance written notice, Landlord may raise the parking rent from time to time if such action is necessary to match the then prevailing rate for comparable parking spaces in the area, and Tenant covenants and agrees to increase his monthly rental payments accordingly. (SEE ADDENDUM) II. Landlord shall not be required to provide an attendant to enforce Tenant's exclusive use, nor shall Tenant be entitled to reduction of rent or other relief against Landlord due to unauthorized use of said space by others. III. If use of the aforementioned parking spaces is precluded because of a discontinuance of a variance issued therefor, or due to construction of improvements on said property, or for other valid reasons, Landlord may relocate or redesignate the parking spaces for Tenant's use, provided, however, that Landlord will cooperate with Tenant in an effort to arrange for or furnish substitute parking space within the vicinity of the Building. IV. Landlord reserves the right to permit others to use said parking spaces after six o'clock (6:00) p.m., Mondays through Fridays, and during any hours on Saturdays, Sundays and legal holidays, provided such spaces are not then being used by Tenant. V. Landlord will keep the parking area in reasonably good condition and lighted during normal working hours as may be required, but Landlord shall incur no liability on account of inaccessability or disrepair of said parking area, or of any substitute parking area, due directly or indirectly to inclement weather, accidents, or other reasons beyond Landlord's control, nor shall Landlord be liable for any property damage or personal injury occurring in or about any such parking area or its means of ingress or egress. VI. In addition to the rental provided for hereinabove, if any additional sales, use or other tax (except income taxes) is levied by Federal Government, State or County Government or any other authority having jurisdiction thereof, Tenant agrees to pay same to Landlord, commencing with the first rent payment due after the receipt of written notice from Landlord setting forth the amount hereof. VII. Anything to the contrary contained herein notwithstanding, Landlord reserves the right at any time, and from time to time, to retain the services of a parking management company ("PMC") to operate the aforesaid parking facilities and in such event Tenant, upon written notice from Landlord or Landlord's Agent, covenants and agrees to pay the monthly rental for such parking spaces, together with applicable tax thereon, to such PMC and further, to abide by and comply with such rules and regulations as may from time to time be promulgated by such PMC for the use and operations of said parking facilities. In the event Landlord exercises his right to use a "PMC", Landlord agrees that the monthly rate for said parking spaces shall not exceed one hundred six percent (106%) of the previous month's parking rate. In no event will the rate be increased more than once a year. 30. GENERAL PROVISIONS. (A) The captions of the several paragraphs of this lease are inserted only as a matter of convenience and for reference, and in no way define, limit or describe the scope or intent of such paragraph or of this lease. (B) The terms, covenants and conditions contained in this lease shall bind and inure to the benefit of the Landlord and Tenant, and their respective heirs, legal representatives, successors and assigns. (C) This lease is subject and subordinate to the provisions of any underlying ground lease which may now or hereafter affect the real estate improved by the said Building. (D) No change, waiver or modification of the terms hereof shall be binding unless in writing and signed by the parties hereto. (E) Landlord shall not be liable to Tenant, his employees, agents, licensees, invitees, or any other persons claiming through Tenant, for any claims, damages, or injuries resulting from any acts or negligence of any co-tenant or any co-tenant's employees, agents, licensees, invitees, or any uninvited person(s), in or about the demised premises, the Building or common areas thereof. (F) Feminine or neuter pronouns shall be substituted for those of the masculine form and the plural shall be substituted for the singular number in any place or places herein where the context may require such substitution or substitutions. (G) All provisions relating to the protection of Landlord shall apply equally to Landlord's Agent, THE DONOHOE COMPANIES, INC., JOHN F. DONOHOE & SONS DIVISION, and the liability of said Agent shall be and is solely that of agent for Landlord of the demised premises. (H) If through any law, regulation or court decision, any provision of this lease becomes inoperative, the balance of the lease shall remain in full force and effect. (I) All exhibits referred to herein and initialed by Landlord and Tenant are expressly incorporated in 9 and made a part of this Lease agreement. (J) Landlord agrees not to unreasonably withhold his consent or approval in any instance where the terms and conditions of this lease set forth the requirement on the part of Tenant to obtain Landlord's prior written consent or approval. (K) Nothing contained in this Lease shall in any way be considered or construed as creating the legal relation of a partnership between the Landlord and Tenant, it being expressly understood and agreed by the parties hereto that the relationship between the parties shall be that of Landlord and Tenant only. (L) During the term of this Lease the Tenant shall not use the name of the Landlord or Owner of said demised premises in connection with any business operation which the Tenant conducts in, on, or about the demised premises. (M) It is further understood and agreed by and between the parties that this contract contains the final and entire agreement between the parties hereto, and that they shall not be bound by any terms, statements, conditions or representations, oral or written, not herein contained. (N) This lease shall be construed and enforced in accordance with the laws of the jurisdiction in which the real property, on which the Building and of which the demised premises are part is situate. (O) This lease shall be executed in no less than three (3) counterparts and each executed counterpart shall be construed to be an original. IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to be signed and sealed (duly executed and attested) the day and year first above written. LANDLORD 4530 WISCONSIN ASSOCIATES ATTEST: By: The Donohoe Companies, Inc. General Partner /s/ John E. Stinchfield By: /s/ Robert A. Plitt [SEAL] - ---------------------------------- ----------------------------- John E. Stinchfield Secretary Robert A. Plitt, Senior Vice-President Witness: By: Warren K. Montouri, Trustee General Partner /s/ By: /s/ Warren K. Montouri, Jr [SEAL] - ---------------------------------- ----------------------------- Warren K. Montouri TENANT Witness/Attest: CAREY INTERNATIONAL, INC. /s/ Don R. Dailey By: /s/ Vincent A. Wolfington - ---------------------------------- ----------------------------------- (Secretary & Seal, if corporation) Vincent A Wolfington, Chief Executive Officer 10 ADDENDUM -------- THE ARTICLES of the attached Lease by and between 4530 WISCONSIN ASSOCIATES, "Landlord" and CAREY INTERNATIONAL, INC., "Tenant" relating to the fifth (5th) floor (Suite 500) of the building located at 4530 Wisconsin Avenue, N.W., Washington, D.C. are hereby modified or amended as follows: ARTICLE 1. DEMISED PREMISES --------------------------- Add the following language to the end of paragraph (A): "Tenant shall have the right to lease up to approximately 1,600 gross rentable square feet on the North side of the fourth (4th) floor of the Building upon the same terms and conditions as apply to the original demised premises. Said right shall be available up to such time as a lease is fully executed by both parties for the demised premises at which time all rights to additional space shall be deemed to be expired. Should tenant desire to take additional space, said expansion shall be recorded in the form of an amendment to this Lease signed and attested by the parties. Said amendment shall be consistent with the terms of the Lease for the original demised premises but shall adjust those articles affected by an increased square footage of leased space." ARTICLE 3. RENTAL ----------------- Add the following language to the end of paragraph (A) thereof; "Notwithstanding the foregoing, Landlord shall abate twelve (12) months base rental and storage rental at the commencement of the Lease term." ARTICLE 4. PREPARATION OF TENANT'S SPACE ---------------------------------------- Add the following language to the end thereof: "Landlord further agrees to "turnkey" the premises using unlimited but reasonable quantities of building standard finishes as outlined in Exhibit "B" and those above standard items outlined in Exhibit "C" and attached hereto. Although some items are not specified by make and model, Landlord shall provide finishes of a consistent and matching nature. Final selections of some above standard items may be made at the sole discretion of Landlord while still meeting the specifications of Exhibit "C"." 1 ARTICLE 8. SIGNS ---------------- Add the following language to the end thereof; "Tenant shall have the right to place a sign upon the building exterior subject to Landlord's prior written approval and all applicable Washington, D.C. building codes and zoning restrictions. The design, installation and maintenance of said sign shall be the sole cost and responsibility of Tenant." ARTICLE 7. UTILITIES, REPAIRS, MAINTENANCE, SUPPLIES AND CLEANING ----------------------------------------------------------------- Add the following language to the end of paragraph (A); "Landlord agrees to furnish additional HVAC services to tenant on an overtime basis at the initial rate of Twenty-Five Dollars ($25.00) an hour. Said rate shall be guaranteed for one (1) year from the lease commencement date. Landlord reserves the right to adjust the rate on not more than an annual basis thereafter and said adjustment shall result in a rate not more than one hundred five percent (105%) of the previous year's rate." "The installation, maintenance, and operation of the seperate HVAC unit that will serve Tenant's reservations area 24 hours a day; 365 days a year (and is outlined in Exhibit "C") will be the sole responsibility of Landlord. Landlord further warrants that at least one elevator will be available via a key access system on a twenty-four (24) hours a day basis for access to the demised premises." ARTICLE 29. SPECIAL PROVISIONS ------------------------------ Add the following language to the end of paragraph (A).(I): "Tenant may stack park up to five additional cars in the drive lane of the lower garage level at no additional cost and in a manner that is consistent with the attached stacked park as long as, in Landlord's reasonable judgment, Tenant's stack parking does not interfere with other tenant's vehicles or their guests, invitees or visitors." (B) Storage. Landlord agrees to make available to Tenant up to approximately two hundred (200) square feet of storage space in the lower garage of the Building. Landlord reserves the right to relocate said storage space upon not less than thirty (30) days advanced written notice to tenant. The rental for said storage space shall be Thirteen and 75/100 Dollars ($13.75) per square foot, payable in equal monthly installments along with the rental for the demised premises. All conditions of this Lease applicable to the payment of rental for the demised premises shall 2 also apply to the payment of rental for said storage space, including but not limited to an annual escalation based on 30% of any increase in the Consumer Price Index (CPI) as delineated in Article 3(B). Landlord shall construct said storage space from drywall partitions which shall be slab-to-slab and shall place a building standard interior door with locking passage set as an entrance to said storage space. Landlord will provide only interior lighting in the storage area and will provide no services whatsoever to this area. Tenant shall be obligated to rent said storage space from Landlord, once constructed, for the entire term of the Lease. ALL OTHER TERMS, COVENANTS AND CONDITIONS not to the contrary thereof shall remain as set forth in said Lease which this Addendum is a part. Signed for Landlord /s/ Robert A. Plitt -------------------- Signed for Tenant ____________________ 3 EXHIBIT B 45 30 WISCONSIN AVENUE, N.W. SCHEDULE OF STANDARD BUILDING FINISHES AND ALLOWANCES The following Tenant work shall be provided by and at the expense of the Landlord: PARTITIONS: Up to one linear foot of partitioning for each twelve square feet of office space, constructed of 2-1/2" steel studs and channel framing with 1/2" gypsum wallboard panels, having no visible joints, and with sound-reducing insulation between suites. All partitions within the demised premises and fifty percent (50%) of corridor walls and partitions between the demised premises and adjoining suites will be included in computing Tenant's partitioning allowance and excess costs, if any. DOORS: One solid-core wood door finished to building standard in painted hollow metal buck, with building standard lock set. Doors within tenant suites will be flush hollow doors painted to match partitioning, with standard building passage sets and door hardware included (no door closers or key locks). Quantity, including closet doors, not to exceed one door for each 300 square feet of tenant's net useable space. If more than this allowance is used, the Tenant will be charged for the additional doors, door frames and hardware. DOOR LETTERING: On Tenant entrance door, building standard sign with lettering limited to two lines in addition to suite number. PAINTING: Tenant may select colors from building standards. Painting will consist of two costs of latex flat on all columns and partitions; two costs of matching semi-gloss enamel on doors, frames and metal trim. FLOOR COVERING: Building standard carpet. CEILINGS: Building standard mineral-fissured 2x2 acoustical tile on suspended grid. LIGHTING: Fully-recessed fluorescent fixtures with glare-reducing diffusers or equivalent; one 4-light, forty-eight inch fixture for each 80 square feet of net usable space. TELEPHONE AND ELECTRICAL OUTLETS: Up to one 120-V, duplex electrical wall outlet per 150 square feet and one wall telephone outlet for each 200 square feet of office space. (Floor outlets and any other special outlets shall be provided and installed at Tenant's expense.) WINDOW COVERING: Building standard venetian blinds on all windows, so as to provide a uniform appearance from the building exterior. FLOOR LOADS: Floors are designed for 100 pound per square foot load. INTERIOR SPACE DESIGN: A reasonable amount of consultation with the Landlord's architect and preparation of Tenant's plans for interior layout is available at Landlord's expense. SPRINKLER HEADS: Where prevailing building codes require a sprinkler system for standard office space, there will be an allowance of one sprinkler head for every 225 net square feet of net useable area. If more than the above allowance are used due to the requirements of the Tenant's space plan, the Tenant will be charged for the additional sprinkler heads used. In addition, if the sprinkler system must be modified or re-engineered to accommodate the tenant's space plan, the cost of such modifications and re-engineering will be borne by the Tenant. FIRE ALARM STATIONS: One fire alarm pull station and bell per tenant suite, if required by local code. ALLOWANCES: These specifications and allowances as outlined above will be provided in reasonable quantities at no cost to Tenant. PLANS AND SPECIFICATIONS: Landlord shall furnish Tenant with all necessary architectural, electrical, and mechanical drawings for building standard items of work with respect to the building of Tenant's space. Special design details are not included, and any architectural and engineering costs not due to building standards shall be borne by Tenant. Tenant agrees to furnish to the Landlord its partition, electrical, telephone and all other requirements by July 26, 1989 and approve working drawings with revisions, if necessary, within five (5) working days after submission of working plans by Landlord's architect. All plans must be approved by Tenant prior to commencement of the construction of the demised premises. Any and all costs for working drawings of non-standard improvements and/or any changes to the Floor plan requested by Tenant after it has been approved by the time set forth above to furnish Landlord any and all necessary information to prepare the floor plan, or should Tenant or its agents otherwise cause any delay in Landlord's completion of the premises, thereby delaying Tenant's occupancy of the premises beyond the commencement date of this lease as set forth herein, then the Landlord may at its option require the Tenant to commence payment of rental on the date the premises would have been ready if it were not for Tenant's delay. EXHIBIT "C" TO THE LEASE BETWEEN 4530 WISCONSIN ASSOCIATES AND CAREY INTERNATIONAL, INC. Landlord agrees to provide the following above standard items: ELECTRICAL REQUIREMENTS: - ------------------------ 1. Telephone outlet at every desk 2. Duplex outlet at every desk except reservation dept. which require quadruplex outlets. 3. Dedicated Lines: (1) Workroom/Computer room (5) Airline with quadruplex at each station (1) Telephone closet (1) Executive Secretary area LIGHTING: - --------- 1. Down lights in reception area 2. Board Room - wall washers on 3 walls - down lights (over built in) - 2x2/2x4 (over conf. room table) BUILT INS: - ---------- - Reception desk - built in countertop with work surface below and box drawers. - Glass in Reservation area (2) 9' x 48" x 8' - Sidelights (5) 30" x 7' - Built-in countertop in Airline/dispatch area - Executive Directors office, built in credenza (16" x 36' x 18"). Built-in cabinet on either side of the heat pump units. - Conference room - built in credenza similar to Executive Director's office, Automatic projection screen, and box from ceiling to house projector. KITCHEN: - -------- - Full height refrigerator - Dishwasher - Garbage disposal - Built in countertop with base building cabinets above and below. OTHER ABOVE BUILDING ITEMS: - --------------------------- - Upgraded carpet ($30.00 p.y.) (direct glue) - Build out storage in parking garage as marked on stacked parking plan to include a reasonable amount of shelving on the load bearing wall only. - Closets (4) with shelf & rod - Shelving for supply closet (adjustable) - Shelving in computer room similar to supply closet. - Shelving in mailroom - Package HVAC unit to service reservations area, and computer room. - Shelving in executive secretarial area. (Revised 8/5/93) SECOND AMENDMENT TO LEASE ------------------------- THIS SECOND AMENDMENT TO LEASE made this 6TH day of AUGUST, 1993, by and between 4530 WISCONSIN ASSOCIATES, a District of Columbia limited partnership ("Landlord"), and CAREY INTERNATIONAL, INC. ("Tenant"), amends that certain Office Lease between Landlord and Tenant dated July 5, 1989, as previously amended by a First Amendment dated November 2, 1989 (the "Lease"). In consideration of the mutual agreements and covenants set forth below and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree to amend the Lease as follows: 1. Expansion of Demised Premises. Tenant agrees to lease from Landlord, ----------------------------- and Landlord agrees to lease to Tenant, additional rentable square feet amounting to approximately 1,507 square feet of rentable area on the third (3rd) floor of the Building, the additional area being identified on the attached floor plan and made part of this Second Amendment as Exhibit A and referred to as the "Third Floor Space". From and after the Commencement Date for the Third Floor Space, all references in the Lease to the demised premises or premises shall be deemed to include the Third Floor Space and the 6,353 square feet on the fifth floor originally demised to Tenant under the Lease (the "Fifth Floor Space"), for a total of 7,860 rentable square feet of demised premises. Landlord represents that the Third Floor Space contains 1,507 square feet as measured in accordance with the WDCAR Standard Method of Measurement. 2. Term. The term of the Lease with respect to the Third Floor Space ---- shall commence on the date (the "Commencement Date") of Landlord's substantial completion of tenant improvements in the Third Floor Space in accordance with the requirements of Paragraph 3 (excepted to occur by October 1, 1993), and shall expire on October 31, 2001. The term of the Lease with respect to the Fifth Floor Space is hereby extended to October 31, 2001. 3. Tenant Improvements. The Fifth Floor Space is currently occupied by ------------------- Tenant and is leased to Tenant "as is". Landlord shall provide Tenant with a Tenant Allowance in the amount of $25.00 per square foot of Third Floor Space, or $37,675.00 based on 1,507 square feet of Third Floor Space. The Tenant Allowance shall be applied to pay the cost of Landlord's construction of tenant improvements in the Third Floor Space in accordance with working drawings approved by Tenant (the "Approved Plan" build-out). The Approved Plan build-out shall include a separate air conditioning unit separately metered to Tenant (i.e., not connected to the electric meter for the third floor) with the capability of running 24 hours a day, seven days per week. To the extent that the cost of the Approved Plan build-out, and any change orders thereto requested by Tenant, exceeds the Tenant Allowance amount of $37,675.00, such excess amounts shall be paid for by Tenant, fifty percent (50%) upon approval of the Approved Plan or change order by Landlord and Tenant and fifty percent (50%) upon the Commencement Date for the Third Floor Space. To the extent that the cost of the Approved Plan build-out, and any change orders thereto requested by Tenant, is less than the Tenant Allowance amount of $37,675.00, Tenant may apply the available amount of the Tenant Allowance to pay the cost of tenant improvements to the Fifth Floor Space, including but not limited to painting and replacing or cleaning of carpeting. 4. Basic Rental. Effective as of the execution date of this Second ------------ Amendment to Lease, basic annual rental for the Fifth Floor Space shall be reduced to $136,589.50 ($21.50 per square foot), payable in monthly installments of $11,382.46. Effective as of the Commencement Date for the Third Floor Space, basic annual rental for the Third Floor Space shall be due in the amount of $33,907.50 ($22.50 per square foot multiplied by 1,507 square feet, payable in monthly installments of $2,825.63. Notwithstanding the foregoing, but provided Tenant shall not be in default hereunder and further provided Tenant shall take possession of the Third Floor Space, Landlord agrees to waive one hundred percent (100%) of each monthly installment of basic annual rental due with respect to the Third Floor Space for the first five (5) months of the Term (the "Rent Waiver"). Said Rent Waiver, in the total amount of $14,128.15, shall not apply to any other month of the initial Term, nor during any extended, renewal or holdover term. It is further understood and agreed that such Rent Waiver shall not be applicable to Tenant's obligation to pay real estate tax and operating expense increases with respect to the Third Floor Space in accordance with Paragraph 6 below. Notwithstanding the foregoing, the granting of the Rent Waiver as Provided hereunder shall not affect the Commencement Date for the Third Floor Space and in the event of any termination of the Lease by Landlord based upon a default by Tenant, in addition to any and all other remedies of Landlord, the entire amount of basic annual rent with respect to the Third Floor Space which would have otherwise been due and payable hereunder in the absence of the Rent Waiver shall immediately become due and payable and any remaining Rent Waiver hereunder shall be of no force or effect. The foregoing shall in no event be construed to be an agreement to abate rent or any portion thereof applicable to the Fifth Floor Space. 5. Basic Rental Adjustment. Commencing on the day which is twelve (12) ----------------------- months after the execution date of this Second Amendment, and on the first day of each successive lease year thereafter, basic annual rental due with respect to the Fifth Floor Space and the Third Floor Space shall be increased by adding to said basic annual rental thirty percent (30%) of any increase resulting from multiplying the basic annual rental by a fraction, the denominator of which shall be the Revised Consumer Price Index for Urban Wage Earners and Clerical Workers must recently published prior to September 1, 1993, and the numerator of which fraction shall be such Index most recently published prior to such adjustment date, in accordance with the provisions of Article 3(B) of the Lease. 6. Increases in Real Estate Taxes and Building Operating Expenses. With -------------------------------------------------------------- the addition of the Third Floor Space to the Demised Premises, the percentage of Tenant's proportionate share of real estate tax increases as set forth in Article 3(C) of the Lease shall be increased from 15.91% to 19.68% (7,860 s.f./39,942 s.f.), and the percentage of Tenant's proportionate share of increases in Building operating expenses shall be increased from 25% to 30.9% (7,860 s.f./25,412 s.f.). As originally provided in Article 3(C) of the Lease, the base year for real estate taxes shall continue to be Fiscal Year 1990 and the base year for Building operating expenses shall continue to be the calendar year ending December 31, 1990. Notwithstanding the foregoing, Tenant shall not be responsible for any increases in Real Estate Taxes and Operating Expenses with respect to the Third Floor Space for the first year after the execution date of this Second Amendment. Landlord represents that the Building areas of 39,942 s.f. and 25,412 s.f. set forth above have been measured in accordance with the WDCAR standard method of measurement. The Third Floor Space is leased to Tenant as a "full service" basis, with Landlord providing and paying for electricity for air conditioning, heating, and office lighting and equipment as provided in the Lease. However, the Fifth Floor Space, originally leased to Tenant on a full service basis, shall be leased to tenant "net of electric" effective as of the commencement date of the 2 Third Floor Space. Accordingly, the Fifth Floor Space shall be separately metered to Tenant and Tenant shall pay all metered charges for electricity directly to the electric utility. For purposes of calculating Tenant's proportionate share of increases in Building Operating Expenses with respect to the Fifth Floor Space, there shall be excluded from the definition of "Building Operating Expenses" in Article 3(C) of the Lease all charges for electricity provided to the fifth floor and other floors of the Building; provided, however, that there shall be included in "Building Operating Expenses" for this purpose charges on the "house" meter which meters electrical consumption by the Landlord's central heating and air conditioning equipment. 7. Utilities; Cleaning. Notwithstanding anything to the contrary in ------------------- Article (7A) of the Lease, Landlord shall furnish heating, ventilation and air conditioning (i) to the Fifth Floor Space, from 8 a.m. to 8 p.m. Monday through Friday and from 9 a.m. to 1 p.m. on Saturday, and (ii) to the Third Floor Space, from 8 a.m. to 6 p.m. Monday through Friday and from 9 a.m. to 1 p.m. on Saturday, excluding holidays. Landlord reserves the right to make an additional charge (net of any mark-up) for any HVAC use by Tenant outside the aforesaid normal business hours and Tenant covenants and agrees to pay Landlord therefor, upon demand, as additional rent. 8. Assignment and Subletting. As provided in Article 9 of the Lease, ------------------------- Landlord shall not unreasonably withhold or delay its consent to a proposed assignment or subletting of the demised premises (or a portion thereof) by Tenant, provided that Tenant shall remain fully liable for the performance of its obligations under this Lease and the proposed assignment or subletting shall meet the following conditions: (i) the assignee or sublessee has a good business reputation and substantial business experience related to its proposed use of the demised premises; (ii) the financial condition of the assignee or sublessee is such that it can reasonably be expected to satisfy its financial obligations with respect to the demised premises; (iii) in the case of an assignment, the assignee shall assume in writing, for the benefit of Landlord, all of Tenant's obligations hereunder; and (iv) an event of default by Tenant shall not exist on the effective date of the assignment or subletting. 9. Parking. In addition to the twelve (12) parking spaces provided for ------- in Article 29(A) of the Lease, Tenant shall have the right to lease two (2) additional parking spaces on the same terms (including market increases) as the parking spaces originally leased to Tenant. 10. Security; Access. Tenant shall have access to the Building and the ---------------- Demised Premises and to the parking garage serving the Building, and use of the Building elevators, twenty-four (24) hours per day, three hundred sixty-five (365) days per year. Tenant agrees that Landlord's existing security system for the Building is satisfactory and Landlord agrees to maintain the security system in a condition comparable to the security systems installed in first class office buildings in Washington, D.C. from time to time. 11. Compliance with Laws. Landlord represents and warrants that to the -------------------- best of its knowledge, the Building and the Demised Premises (excluding any improvements installed or to be installed by Tenant and any legal requirements applicable to the operation of Tenant's business) comply with all federal, state and local laws, regulations and ordinances. Should the laws of the District of 3 Columbia or the United States require that barrier-free access be provided for the public or for any employee of Tenant to the Demised Premises or to amenities in the Building (including restrooms), Landlord agrees to make the Building comply with such legal requirements at Landlord's sole cost and expense. 12. Right of First Refusal. Tenant shall have a right of first refusal ---------------------- with respect to any space on the third floor of the Building that becomes available for lease from time to time, exercisable as follows. Prior to leasing any space on the third floor to a third party, Landlord will provide Tenant with written notice describing the amount of space, term, rental, rent concessions, tenant allowance, and other terms and conditions of the proposed lease and offering the Tenant a ten (10) day period to exercise its right of first refusal. If Tenant accepts Landlord's offer in writing within said ten (10) day period, Landlord and Tenant shall enter into a lease of the space on the terms and conditions described in Landlord's notice, and otherwise upon the terms and conditions of Landlord's standard Building lease, within ten (10) days after Tenant's acceptance. If Tenant fails to respond to Landlord's offer within said ten (10) day period, or rejects Landlord's offer, or fails to execute a Lease within ten (10) days after accepting Landlord's offer, Landlord shall be free to lease the space to the third party and thereafter the space shall be free of Tenant's right of first refusal. If Landlord fails to execute a lease with the third party within 180 days after Landlord's offer to Tenant, Landlord may not lease the space without first offering the space to Tenant in the manner provided hereinabove. Tenant's right of first refusal shall be fully subject and subordinate to option, extension, renewal, expansion, first refusal, first offer and similar rights of tenants in the Building under leases and lease amendments executed prior to the date of this Second Amendment. 13. Option to Renew. Provided that Tenant shall not then be in default --------------- and shall be occupying the Premises (without regard to any sublease), then and only in such event, Tenant shall have the right and option, by giving notice as set forth below, to extend and renew the term of this Lease for one (1) additional term of five (5) years (hereinafter the "Option to Renew") beginning on the day immediately following expiration of the initial term hereof (the "Renewal Term") and upon the same terms and conditions as the original term of this Lease [excluding basic annual rent which shall be at ninety-five percent (95%) of the prevailing market rate, in effect as of the commencement of the Renewal Term, as determined by Landlord (the "Fair Market Rental")]. However, in no event shall the basic annual rent be less than the basic annual rent in effect as of the last Lease Year of the initial Lease term. In addition, the terms and conditions for any increases in annual rental during the Renewal Term shall be adjusted to reflect the then prevailing market increases. Notwithstanding the foregoing, Tenant shall not be entitled to any Rent Waiver, Tenant Allowance or Landlord's Work otherwise applicable during the initial term of this Lease. If Tenant desires to exercise the Option to Renew, Tenant shall give Landlord written notice of Tenant's desire to obtain information with respect to the Renewal Term at least six (6) months prior to the commencement of the Renewal Term. In the event of any earlier termination of this Lease, of if Tenant shall fail to timely exercise the aforesaid right to obtain information then and in such event, all rights of Tenant to the Renewal Term shall be of no further force or effect. In the event Tenant gives Landlord written notice of its desire to obtain information with respect to the Renewal Term, Landlord shall within thirty (30) days of its receipt of Tenant's notice give Tenant written notice of the new basic annual rental rate determined by Landlord in accordance with the foregoing provisions, together with written notice of any changes in other terms or provisions (e.g. annual increases during the Renewal Term, etc.) desired by Landlord. In the event Tenant shall desire to accept such terms as stated in Landlord's notice, Tenant must accept same in writing within (30) days 4 following delivery to Tenant by Landlord of Landlord's notice setting forth the new basic annual rent and other terms desired by Landlord. In the event Tenant is unwilling to accept Landlord's terms, the parties agree that the Fair Market Rental shall be determined by a board of three (3) licensed real estate brokers, one of whom shall be named by Landlord, one by Tenant, and the third selected by the two (2) brokers selected by the Landlord and the Tenant. Each of said brokers shall be licensed real estate brokers in the District of Columbia specializing in commercial leasing in the central business district having not less than ten (10) years experience and recognized as ethical and reputable within their industry (said Brokers being defined herein as a "Qualified Broker"). The parties agree to select their respective designated brokers within ten (10) days after written request from the other party. The third broker shall be selected within fifteen (15) days after both of the first two (2) brokers have been selected. Within fifteen (15) days after the third broker has been selected all of the brokers shall meet to attempt to agree upon the prevailing market rate. If they are unable to reach agreement, they shall within said fifteen (15) day period submit in writing the prevailing market rate they deem appropriate and the prevailing market rate shall be the amount which is the mean between the two (2) closest amounts determined by two (2) of the brokers. Each of the parties shall pay for the costs of the services of the broker selected by it and the costs of the third broker shall be divided equally between the Landlord and Tenant. It is understood and agreed by the parties that the determination of the brokers shall be binding upon the parties. In the event Tenant shall accept Landlord's terms, or in the event the Fair Market Rental is determined by the Qualified Brokers, as aforesaid, the parties shall execute an addendum to the Lease to recognize the rent so determined and to confirm the extended term and the terms and conditions of said extended term. ALL OTHER TERMS COVENANTS AND CONDITIONS OF THE LEASE, not to the contrary hereof, remain in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to be signed and sealed (duly executed and attested) the day and year first above written. LANDLORD: --------- 4530 WISCONSIN ASSOCIATES Attest: By: The Donohoe Companies, Inc. General Partner /s/ John E. Stinchfield By: /s/ Robert A. Plitt (SEAL) - ------------------------------- ---------------------------- Secretary (Corporate Seal) Executive Vice President Witness/Attest: By: Warren K. Montouri, Trustee By: /s/ Warren K. Montouri, Jr - ------------------------------- --------------------------- Warren K. Montouri TENANT: ------- Attest: CAREY INTERNATIONAL, INC. - ------------------------------- By: /s/ Don R. Dailey (SEAL) ---------------------------- Don R. Dailey (Corporate Seal) President 5 EXHIBIT A --------- [DESCRIPTION OF GRAPHICS] The floor plan of the third floor of the Headquarters of Carey International, Inc. Located at 4530 Wisconsin Avenue, N.W. Washington, D.C. 20016 EX-10.7 8 CURRENT FORM OF STANDARD MASTER LICENSE AGREEMENT Exhibit 10.7 Date:_____________ CAREY LICENSE AGREEMENT SUMMARY PAGES ------------- These pages summarize the attached License Agreement, the details of which shall control in the event of any conflict with this summary. 1. Licensee: ______________________ 2. Initial License Fee: ______________________ Total due: ______________________ Amount due upon signing Agreement: ______________________ Amount Financed: ______________________ Monthly Note Payment: ______________________ 3. Monthly License Fee: Five Percent (5%) of Total Revenue 4. Minimum Monthly License Fee: ______________________ 5. Monthly Advertising & Marketing Fee: Two and one-half percent (2.5%) of Total Revenue (subject to change. See Section 5.b.) 6. Minimum Monthly Advertising & Marketing Fee: ______________________ 7. Monthly Base Revenue (If any): ______________________ Carey Initials _____ Licensee Initials _____ i 8. Office Location: _________________________________ _________________________________ Street and Number _________________________________ City, State and Zip Code _________________________________ Phone Number _________________________________ Facsimile Number 9. Licensee's Operator: _________________________________ 10. Licensee's Agent to Receive Service of Process: Name: _________________________________ Address: _________________________________ 11. Effective Date: _________________________________ 12. Expiration Date: _________________________________ 13. Send Notices to Carey to: _________________________________ Name: _________________________________ Address: _________________________________ _________________________________ _________________________________ Fax Number: _________________________________ Carey Initials _____ Licensee Initials _____ ii 14. Send Notices to Licensee to: Name: _________________________________ Address: _________________________________ _________________________________ _________________________________ Fax Number: _________________________________ 15. Confidential Standards Manual Control Number: _________________________________ Carey Initials _____ Licensee Initials _____ iii TABLE OF CONTENTS -----------------
PAGE ---- 1. PARTIES AND RECITALS............................................... 1 2. GRANT OF LICENSE................................................... 2 3. TERM AND RENEWAL................................................... 2 4. OPERATING ASSISTANCE............................................... 3 5. FEES AND PAYMENTS.................................................. 4 6. LICENSED MARKS..................................................... 4 7. STANDARDS OF OPERATION............................................. 5 8. CONFIDENTIAL STANDARDS MANUAL; CUSTOMER LISTS...................... 7 9. ADVERTISING AND MARKETING.......................................... 8 10. STATEMENTS AND RECORDS............................................. 8 11. COVENANTS.......................................................... 8 12. TRANSFER AND ASSIGNMENT OF AGREEMENT............................... 10 13. DEFAULT AND TERMINATION............................................ 11 14. POST TERM OBLIGATIONS.............................................. 13 15. TAXES, PERMITS AND INDEBTEDNESS.................................... 13 16. INDEMNIFICATION, SECURITY AND INDEPENDENT CONTRACTOR............... 14 17. WRITTEN APPROVALS, WAIVERS, ENTIRE AGREEMENT AND AMENDMENT.......................................................... 14 18. ENFORCEMENT........................................................ 15 19. NOTICES............................................................ 16
20. GOVERNING LAW, CHOICE OF FORUM, AND WAIVER OF JURY TRIAL.......... 16 21. SEVERABILITY AND CONSTRUCTION..................................... 16 22. ACKNOWLEDGMENTS................................................... 17
SCHEDULE 1, LICENSEE'S TERRITORY SCHEDULE 2, PROMISSORY NOTE SCHEDULE 3, GUARANTY OF LICENSEE'S AGREEMENT SCHEDULE 4, SECURITY AGREEMENT 1. PARTIES AND RECITALS a. This License Agreement ("Agreement") is made as of ________, 19 ___ , by and between Carey Licensing, Inc., a Delaware corporation, with its principal place of business at 1900 Delaware Avenue, Wilmington, Delaware 19806 ("We" or "Carey" or "Us"), and ________________________________________________ ("You" or "Licensee"), a _______________________________________ with a principal place of business at_______________________________________________________ . b. We and our predecessors have developed a plan for conducting a chauffeur driven vehicle business ("Chauffeur Driven Vehicle Business" or "Licensed Business") which plan or system includes furnishing to our Licensees information and advice regarding: standards and methods of operation, marketing, advertising and public relations, courtesy and appearance standards, charge card services, reservation services, insurance programs and equipment standards for conducting a Chauffeur Driven Vehicle Business called the "Carey System" or "System." We may modify the System to reflect improvements in operating procedures that you may use, and in the mix of products and services you may sell to your customers as a Carey Licensee. c. The use and promotion of our "Licensed Marks, " including "CAREY" is a major part of our System. Our "Confidential Standards Manual" or "Manual" details our System, and contains the requirements and restrictions which determine how you may use the System to operate your Chauffeur Driven Business using the Licensed Marks. d. As our Licensee you agree to operate your Chauffeur Driven Vehicle Business only in the manner explained in this Agreement and in our Confidential Standards Manual, and you agree to change the way you operate your Chauffeur Driven Vehicle Business whenever changes in the Manual require you and other Licensee operating under this Agreement to do so, even if the changes require you to spend money. You acknowledge that the success of us and the success of our Licensee Network depends on each of our Licensees to diligently present a consistent image and to operate in the same manner. You also acknowledge that Carey Licensees have signed different License Agreements at different times, that we have allowed some Licensees to conduct business in ways which differ from the standard requirements of our System, and that we will continue to do so if and when we think it is appropriate. However, such variations will have no effect whatsoever on your rights and duties as a Carey Licensee operating under this Agreement. e. You acknowledge that on the date of this Agreement we have delegated management responsibility for fulfilling our obligations to you under this Agreement to Carey International, Inc. , a Delaware corporation, with its principal place of business in Washington, D.C. Notwithstanding our delegation of management responsibilities, we alone are responsible to you for fulfilling our obligations under this Agreement. 2. GRANT OF LICENSE We hereby grant you a Carey License which authorizes you, and you alone, to operate a Carey Chauffeur Driven Vehicle Business from a location within the Territory described on Schedule 1. We will not permit another Carey Chauffeur Driven Business to be headquartered in your Territory, or to operate from business premises located there; nor shall we publish in any directories or advertising materials that we or any other Carey Licensee operate a Chauffeur Driven Business in your Territory. We may obtain telephone listings in phone directories in your Territory for phones which will be answered at our reservation center. Neither we nor other Carey Licensees are prohibited from providing services to clients in your Territory. We also may refer clients to other chauffeur driven vehicle businesses in your Territory if, in our judgment, you cannot adequately service such client(s) at the time. We may conduct business in your Territory through a business which is not identified by the Licensed Marks, and we may use the Licensed Marks in the conduct of a business other than a Chauffeur Driven Vehicle Business. 3. TERM AND RENEWAL a. This Agreement becomes effective when we sign it (the "Effective Date") and its term extends until the Expiration Date stated on the Summary Pages. b. So long as you have complied with all requirements of this Agreement during its term, we will grant you a renewal license which will become effective on the Expiration Date. As a condition of our signing your renewal license agreement you will be required to: i. Pay us 30% of the standard license fee we then charge for territories of the same size as your Territory as a renewal administration fee; ii. Execute a general release of claims you may have against us on the form we provide; iii. Sign our then current form of renewal license agreement. It may have terms and conditions which differ materially from this Agreement, e.g., (without limitation) different fees or Territorial boundaries; and iv. Give us written notice of your desire to sign a renewal license agreement not less than 6 and no more than 12 months before the Expiration Date. 2 4. OPERATING ASSISTANCE We agree to provide you with no less than the following to help you operate your Carey Chauffeur Driven Business so long as you are current in providing us with monthly and annual reports and license fees: a. Our Confidential Standards Manual; b. Advertising, as defined in Section 9, including: i. telephonic consultation with our advertising, sales promotion, reservations and public relations staff concerning increasing and developing your business; ii. for purchase at our standard prices, signs, business forms, decalomonias and promotional materials; iii. for dissemination to travel agents, former clients and targeted potential clients, directories and tariffs identifying your business and the equipment and services you offer, as well as other advertising materials; and iv. benefits of worldwide promotion of the Carey System. c. For our standard fees, participation in the Carey reservation center program; d. For our standard fees, participation in the Carey central billing program; e. Telephonic consultation about business and management problems of operating your Chauffeur Driven Vehicle Business; f. Bulletins and other written materials containing information and advice related to your Chauffeur Driven Vehicle Business; and g. For our standard prices, participation in our national purchasing programs. 5. FEES AND PAYMENTS a. To become our Licensee you must pay us the nonrefundable initial license fee in the amount and at the times stated on the Summary Pages. b. Once you commence business under the License Agreement, you must deliver to us by the 20th of each month a monthly license fee equal to the higher of the Minimum Monthly 3 Service Fee specified on the Summary Pages or 5% of your Total Revenue for the previous month. c. Once you commence business under the License Agreement you must pay us a monthly advertising and marketing fee which is no less than the Minimum Monthly Advertising and Marketing Fee specified on the Summary Pages. We may set monthly advertising and marketing contributions at any rate we select, at rates of up to 5% of your Total Revenue. We shall notify you at least 30 days before changing the contribution rate. d. Once each year we may change the minimum monthly amounts specified in Section 5.b. & c. by as much as the percentage increase in the United States Consumer Price Index or any other national index of inflation that we select. For the purpose of computing the fees due us pursuant to Section 5.b. & c. , we shall subtract from your Total Revenue, the Monthly Base Revenue amount specified on the Summary Pages, if any. e. "Total Revenue" means as all revenue which is derived from your Chauffeur Driven Business, including all types of vehicles used, whether owned by you, leased, provided by independent operators or farm-outs, greeter, consulting and coordination fees, phone revenues, driver only and surface transportation charges ("STC") -- less tips, taxes, tolls and funeral revenue, as we may define such items from time to time. f. You shall pay us a service charge equal to the lesser of the compounded daily equivalent of 18% per year of all amounts you owe us which are overdue by more than 5 days, or the highest rate then permitted by applicable law for each day such amount is past due. 6. LICENSED MARKS a. You may only use our Licensed Marks for the purpose of operating the Licensed Business, and in the manner prescribed in this Agreement and in the Manual. This Agreement gives you no ownership in the Licensed Marks, or any right to a payment for goodwill when the Agreement expires or terminates. You may never directly or indirectly commit any act of infringement, or contest or aid others in contesting the validity of our right to use the Licensed Marks, or take any other action in derogation of our rights. You may not sublicense, subdivide or otherwise dispose of any right to use our Licensed Marks, unless we have given you our prior written approval to do so. b. You shall promptly notify us of any unauthorized attempt to use, or use of the Licensed Marks, or any variation of them, or any other mark or name in which we claim a proprietary interest. Once you learn of violation of any of our rights to the Licensed Marks, you shall diligently obtain details of the violation, and, after obtaining our prior approval, take all actions necessary to protect our interests. At our expense, you shall assist us in taking any action we decide is appropriate to halt such activities. You shall take no action nor incur any 4 expenses on our behalf without our prior approval. c. We may designate new, modified or replacement Licensed Marks for your use, and require you to use them in addition to or in lieu of any previously designated Licensed Marks. You must pay your own expenses associated with implementing required changes. 7. STANDARDS OF OPERATION a. You must always operate the Licensed Business in the way which is described in this Agreement and in the Manual, including without limitation, the following, and you must use: i. the forms we prescribe; ii. the Licensed Marks as we prescribe or approve; iii. the signs we prescribe for use at your premises; iv. only nondeceptive methods of promoting your business and representing your services; v. Advertising programs and materials we prescribe in the way we prescribe; vi. products and services purchased from Preferred Suppliers we select and which have been approved by our Licensees following the procedures we establish; vii. central purchasing programs involving the Designated Suppliers we prescribe which provide materials and services which, when evaluated as a group, cost you less than you would pay for such items from other approved sources; viii. the charges and rates for your services which we publish at your request. The rates must be submitted on an annual basis by December 1 for the following year, and must be valid for the entire year. When billing your clients, you alone shall set your rates and charges; ix. the promotional materials we provide you, and participate in all Advertising and promotional activities and programs (as defined. in Section 9) which we prescribe; x. all reasonable means available to you in your Territory to encourage use 5 of Carey chauffeur driven services throughout the world, and solicit, without a commission to you, reservations for our chauffeur driven services throughout the world. However, if you accept the billing and collection responsibility for a reservation, you are entitled to collect a 10% commission. Also, if you accept a reservation from us or another Carey Licensee or Carey affiliate who agrees to accept billing and collection responsibility for the reservation, you must pay that entity a 10% commission on each such reservation; xi. Any computer software or hardware communication system we prescribe for use as part of the System. b. You must maintain your fleet of vehicles and premises, train and monitor your drivers, and diligently implement the quality assurance procedures we prescribe. c. You must maintain the types and amounts of liability insurance that we prescribe and all coverages required by law, name us an additional insured, provide us the notices of coverage we request, and direct all of your insurance carriers to give us 30 days advance written notice of the cancellation of any policy we require you to maintain. d. You must honor all reservations placed through our reservation service, and comply with all our policies and procedures related to reservations. e. You must offer to the clients all services we prescribe, using all the equipment and vehicle types we prescribe, including, without limitation, limousines, luxury sedans, vans, minibuses and motorcoaches. f. Only the individual designated as the Operator on the Summary Pages may manage and operate the Chauffeur Driven Vehicle Business. The Operator shall be directly responsible to us for assuring that the Chauffeur Driven Vehicle Business is conducted as this Agreement requires. You may not designate a new Operator without our prior written approval. If you are the Operator, and if you become incapacitated or disabled to the extent which we conclude interferes with your ability to normally conduct the affairs of the Licensed Business, at our option we may require the designation of a new Operator whom we approve, or we may require your shareholders, partners, conservator, or guardian to transfer or sell the Chauffeur Driven Vehicle Business to a third party whom we approve. Any such transfer (as defined in Section 12) must be concluded within a reasonable time from our request, not to exceed six (6) months. g. You only may promote the telephone, facsimile, Internet, electronic mail and similar numbers (collectively "Telephone Numbers") for your Chauffeur Driven Business which we publish in our directories, or which we otherwise approve in writing. You may not directly or indirectly promote Chauffeur Driven Service through other Telephone Numbers. 6 h. You must participate in all customer satisfaction and customer service programs we prescribe, using all hardware, software and other communications media we specify for use in the programs. You must assume all costs of providing chauffeur driven services to customer satisfaction representatives which we retain to evaluate your compliance with our Standards. i. You must participate in such promotional programs as we prescribe, including, without limitation, coop programs with other travel-related companies, direct sales, advertising, direct mail and public relations programs, and you must attend the travel-related trade shows and workshops we designate. 8. CONFIDENTIAL STANDARDS MANUAL; CUSTOMER LISTS a. Our Confidential Standards Manual ("Manual") and customer lists contain trade secrets and confidential information which we have developed at considerable expense, and which we own. You may not disclose the Manual's contents or our customer list to anyone but your employees who have signed confidentiality and noncompetition agreements which we approve. b. You may not copy or disseminate contents of the Manual or our customer lists without our written approval. You must keep your Manual current and in a secure place. Unauthorized use or disclosure of the Manual's contents will cause irreparable harm to us and the System. Because legal damages could not adequately compensate us, you agree that a court should enjoin you from any further unauthorized use or disclosure of the Manual or its contents if we sue you. 9. ADVERTISING AND MARKETING We will administer and direct all expenses of the advertising and marketing fund ("Fund") in a way we deem best. The Fund consists of all advertising and marketing fees we collect. We may use the Fund for any expenses reasonably related to advertising, public relations, promotional activities, reservations, market research and telemarketing (collectively "Advertising") including, without limitation, the cost of salaries, agencies, equipment and associated overhead. We are not obliged to advertise in your Territory or to provide you or any Licensee with Advertising which benefits you directly or which is proportionate to your contributions. 10. STATEMENTS AND RECORDS a. You shall maintain at least three years original and complete records which accurately reflect all information we prescribe in the Manual. We or our designee may examine 7 and audit all your records, including, but not limited to, all books, schedules, journals, bank accounts, tax returns, whether filed corporately or individually, and any other documents we deem necessary. We are entitled to examine them where they are kept in the ordinary course of business, and we may visit your premises at any reasonable time. b. You must provide us monthly income statements, and complete financial statements and business tax returns and records within 30 days of your receipt of our request. You must provide us with an independent audit of your financial statements at your expense within 90 days of your receipt of our request. 11. COVENANTS a. During the term of this Agreement, you and your guarantor(s) covenant, individually: i. Not to engage in, work in or for, or own more than 2% of any business which derives 10% or more of its gross income from providing chauffeur driven services, other than the Licensed Business anywhere in the world, without our prior approval. For purposes of this Section, chauffeur driven services includes, without limitation, all ground transportation services in which the services of a driver are provided to a customer. You and your guarantor(s) who are not specifically excluded from this obligation, agree to devote your full-time and best efforts to the operation of the Chauffeur Driven Business; and ii. Not to divert or attempt to divert any business or any actual or potential customers of us, you or other Carey Licensees to any competitive business; b. For two years after this Agreement expires or is terminated, neither you nor your guarantor(s) shall: i. Contact, for the purpose of selling any service similar to any Chauffeur Driven Vehicle Services, any person or organization which was, at any time during the two-year period prior to such expiration or termination, a customer who was referred to you through the Carey reservation service, by a Carey Licensee or Carey Affiliate, or through a marketing program we have sponsored or developed; and ii. Participate in, own any interest in, work for or be a licensee, franchisee or affiliate of any organization or network which offers chauffeur driven services from locations which are within your Territory, within an area 8 which is no more than 10 miles outside the border of your Territory, or in the territory of any Carey Licensee operating pursuant to a Carey License Agreement on the date this Agreement is terminated or expires. c. Each covenant in this Agreement shall be construed independently of any other covenant or provision of this Agreement. If all or any portion of a covenant is held unenforceable by a court or tribunal having valid jurisdiction in an unappealed final decision to which we are a party, you shall be bound by any lesser covenant imposing the maximum duty permitted by law that is subsumed within the terms of such covenant, as if the resulting covenant were separately stated in and made a part of this Agreement. The existence of any claim you may have against us, whether or not arising from this Agreement, shall not constitute a defense to our enforcement of the covenants in this Agreement. d. We may reduce the restrictions placed on you by any covenant in this Agreement without your consent, effective immediately upon your receipt of our notice. You shall comply immediately with any covenant as so modified. 12. TRANSFER AND ASSIGNMENT OF AGREEMENT a. We may freely transfer our rights and duties under this Agreement, and the transfer shall be binding upon and inure to the benefit of our successors and assigns. b. The rights and duties set forth in this Agreement are personal to you and others who own an interest in the License or the Chauffeur Driven Business (collectively "you"). We granted you this License in reliance on your personal character and financial capacity. Accordingly, you may not, without our prior written consent, give away, sell, assign, pledge, lease, license, devise or otherwise transfer, either directly or in any other manner, this Agreement, any of your rights or obligations under this Agreement, or any interest or shares of stock of any kind or nature in your Chauffeur Driven Business, or any significant asset of the Chauffeur Driven Business, including without limitation, any accounts, customers or clients of the Licensed Business (any such transaction being referred to as a "Transfer"). We may prohibit a Transfer or a change of control of assets of the Licensed Business which does not also involve a Transfer of the License Agreement or a Transfer to another Carey Licensee. c. Any Transfer which does not comply with the terms of Section 12 shall be null and void. d. Before completing a Transfer, you must comply with our then current Transfer policies and procedures which need not be written, pay us our standard transfer fee, and give us a 30 day right of first refusal to purchase whatever you propose to Transfer. Our duty to act upon your request, and the time within which we must act upon our first refusal rights both 9 commence only after we have received all information we have requested from you and your prospective transferee. In exercising our first refusal rights, we need only match the economic terms of the proposed Transfer, less any brokerage fees and commissions. If the proposed Transfer involves items in addition to the Chauffeur Driven Business, we may allocate a portion of the purchase price to the Chauffeur Driven Business and acquire it without having to purchase the other items. We may require any transferee to guarantee your obligations under this Agreement or under any new License Agreement he enters with us. e. Regardless of Subsection 12.d. above, if your heirs or personal representatives desire to acquire or retain your interest in the Agreement, the Licensed Business, or its assets after your death, they must agree to be bound by the terms of this Agreement and any personal guarantees associated with it and persuade us that they are compatible with us and are qualified in all respects to operate the Licensed Business. Otherwise, your heirs or personal representatives must Transfer the interest to someone whom we approve within a reasonable time, not to exceed six months. The Transfer is subject to our first refusal right and must comply with the procedures described above, and the Licensed Business must be conducted in compliance with this Agreement at all times prior to the Transfer's conclusion. 13. DEFAULT AND TERMINATION a. Without waiving our other legal and equitable rights, we may terminate this Agreement and all your rights granted in this Agreement, upon the occurrence of any of the following defaults: i. If you do not timely pay any financial obligation created in this Agreement, and if you fail to cure such nonpayment within 30 days after we give you a notice to cure; ii. If you do not perform, or if you breach any covenant, obligation, term, condition, warranty or certification of this Agreement and if you fail to cure such non-compliance within 30 days after we give you a notice to cure; iii. If you do not commence business within 60 days of the Effective Date; iv. If you make, or have made, any materially false statement or report to us in connection with this Agreement or your application for this License; v. If you do not operate the Chauffeur Driven Business in or as specified in the Manual, and if you fail to cure such deficiency within thirty (30) days after we give you a notice to cure; 10 vi. If there is any violation of our Transfer requirements; vii. If in the same calendar year we send you two or more notices to cure defaults or violations of this Agreement; viii. If you abandon or cease to operate the Chauffeur Driven Business; ix. If you or any person owning an interest in you are convicted of a felony, a crime of moral turpitude, or any other crime or offense relating to the operation of the Chauffeur Driven Business, or if you fail to comply with any laws applicable to the operation of the Chauffeur Driven Business; x. If you (or your principal owner(s)) become insolvent or incapacitated, and if a receiver or trustee is appointed for your Chauffeur Driven Business and the requirements of Section 7(g) are not fulfilled to our satisfaction; xi. If you or any of your guarantors default in any other agreement with us, and the default is not cured in accordance with the terms of such other agreement; xii. If you violate or permit a violation of any covenant of confidentiality or nondisclosure contained in Section 8 of this Agreement or any agreement you have made with us; xiii. If, based upon standards communicated to you in our Manual, or otherwise, we reasonably determine that you have failed to satisfactorily perform your duties under, or to participate in the Carey System, and you fail to cure your default within 30 days after we have given you written notice of your default; and xiv. If your Total Revenue for any 24-month period is less than 75% of 24 times the Monthly Base Revenue stated on the Summary Pages. b. If a different notice or cure period or good cause standard is prescribed by applicable law, it shall apply to a termination of this Agreement. c. At any time following the first anniversary of the Effective Date, you may terminate this Agreement without cause by giving us at least 60 days prior written notice, and by paying us all amounts you owe us, plus an amount equal to 24 times the highest monthly license fee you owed us at any time during the term of this License Agreement. Otherwise, you may terminate this Agreement only if we have committed two or more material breaches of our obligations under this Agreement within a calendar year, and have failed to cure such breach within 60 days after you have provided us with written notice to cure each such breach. 11 14. POST TERM OBLIGATIONS a. Upon the expiration or termination of this Agreement, you shall immediately: i. Cease to be a Carey Licensee, and cease to use the Licensed Marks or the System in any way; ii. Pay all you owe us under the License Agreement, plus costs and expenses we incur as a result of your default; iii. Return to us all copies of the Manual and all our customer lists; trade secrets and confidential materials and all our other property. You shall retain no copy or record of any of the foregoing, except your copy of this Agreement, any correspondence between the parties, and any other document which you reasonably need for compliance with applicable laws; and iv. Take such action as we request to transfer to us or our designee white and yellow page telephone references and advertisements, your Telephone Numbers, and all trade and similar name registrations and business licenses, and to cancel any interest which you may have in them. If you don't turn over to us or our designee all Telephone Numbers you have used in association with the Licensed Marks, you agree to pay us, as liquidated damages and not as a penalty, the base sum of $500 per day for each day until you do surrender the Telephone Numbers to us or our designee, plus any additional damages we may prove. 15. TAXES, PERMITS AND INDEBTEDNESS a. You shall promptly pay when due any and all federal, state and local taxes, including without limitation, unemployment, workers compensation, and sales taxes, levied or assessed with respect to any services or products furnished pursuant to this Agreement and all accounts or other indebtedness of every kind you incur in the operation of the Chauffeur Driven Business. b. You shall comply with all federal, state and local laws, rules and regulations and timely obtain any and all permits, certificates and licenses for the full and proper conduct of the Licensed Business. c. You hereby acknowledge and accept full and sole responsibility for any and all debts and obligations incurred in the operation of the Chauffeur Driven Business. 12 16. INDEMNIFICATION, SECURITY AND INDEPENDENT CONTRACTOR a. You agree to protect, defend, indemnify and hold us, our affiliates, and our respective partners, directors, officers, employees and shareholders, jointly and severally, harmless from and against all claims, actions, proceedings, damages, costs, expenses and other losses and liabilities, consequently, directly or indirectly incurred (including, without limitation, attorneys' and accountants' fees) as a result of, arising out of, or connected with the your negligent operation of the Chauffeur Driven Business, your breach of contract or your tortious conduct. b. To secure all your obligations arising under the License Agreement, you hereby grant us a security interest in this Agreement, in your Chauffeur Driven Business and its assets, including, without limitation its accounts receivables You agree to sign all documents and to help us in any other way we may reasonably request to perfect our security interest. c. This Agreement is not intended to create a fiduciary relationship between us, nor to constitute you as our agent, legal representative, subsidiary, joint venturer, partner, employee or servant for any purpose whatsoever. You are an independent contractor, and you are not authorized to make any contract, warranty or representation or to create any obligation on our behalf. d. You are not intended to be a third party beneficiary of any agreement between us and anyone else unless this Agreement expressly so provides. Our agreements with other Licensees may be different from yours, and we have no duty to enforce any agreement we have with a third party for your benefit. This Agreement does not give you standing to sue any third party because of any breach of their duties to us. 17. WRITTEN APPROVALS, WAIVERS, ENTIRE AGREEMENT AND AMENDMENT a. Whenever this Agreement requires our prior approval, you shall make a timely written request. Unless the Agreement specifies a different time period, we shall respond with our approval or disapproval within 15 business days. If we have not specifically approved a request within such period, our failure to respond shall be deemed a disapproval of your request. b. Our failure to exercise any power reserved to us by this Agreement, and any customs or practices in which we engage which vary from the terms of this Agreement, shall not constitute a waiver of our right to demand your exact compliance with any of the terms of this Agreement or the Manual. Our waiver or approval of any particular default, or our acceptance of any payments due under this Agreement shall not be considered a waiver or approval of any preceding or subsequent breach of this Agreement. 13 c. We may modify the System and any and all of our standards and bases for approving or disapproving your requests, through changes to the Manual and otherwise, so long as such modifications don't conflict with your express rights created by this Agreement. Otherwise no amendment or variance from this Agreement shall be binding on either of us without both parties written agreement. d. This Agreement constitutes the entire final and binding agreement between you and us relating to its subject matter. It supersedes all prior and contemporaneous negotiations, understandings, representations and agreements, if any. 18. ENFORCEMENT a. We shall be entitled to obtain, without bond, declarations, temporary and permanent injunctions, and orders of specific performance, to enforce the provisions of this Agreement. b. The prevailing party in any litigation or arbitration concerning this Agreement shall be entitled to receive from the non-prevailing party all its costs and expenses of obtaining such relief, including, but not limited to, court costs and reasonable attorneys' fees which may be incorporated into the terms of any judgment, order or relief granted to the prevailing party. c. If you prevail in any dispute against us or any of our partners, affiliates, officers, agents, employees or representatives as a result of any dispute arising out of the License Agreement, or the awarding of the License, the damages awarded you shall not exceed the actual amounts you have paid us to acquire and to operate the License Business. Your recovery shall be subject to set off for income you have received from operating the Chauffeur Driven Business. 14 19. NOTICES Any notice required to be given hereunder shall be in writing and shall be mailed by registered or certified mail, return receipt requested or personally delivered. Notices also may be provided by overnight express, e.g., Federal Express or fax. Notices sent by overnight express shall be deemed received the second business day following their being sent. Any mailed notice complying with the provisions hereof shall be deemed to be received on the fourteenth day after it was deposited in the mail with proper postage affixed. Fax notices shall be deemed received upon receipt of confirmation of receipt by the party to whom they are sent. Personally delivered notices shall be deemed received when they are actually delivered to a principal or officer of the receiving party. Notices to Licensee and Licensor shall be addressed to them at their addresses or fax number listed on the Summary Pages or to such other addresses or fax numbers as the parties may hereafter prescribe. 20. GOVERNING LAW, CHOICE OF FORUM, AND WAIVER OF JURY TRIAL This Agreement is accepted by us in the District of Columbia and it shall be governed by and interpreted in accordance with the laws of the District of Columbia, (except for its rules governing conflicts of law) which law shall prevail in the event of any conflict of law. You and we consent to exclusive personal and subject matter jurisdiction and exclusive venue in the Superior Court of Washington, D.C., or in the Federal District Court for the District of Columbia. Both parties and their guarantors hereby waive their right to trial by jury. 21. SEVERABILITY AND CONSTRUCTION a. Should any part of this Agreement, for any reason, be declared invalid by a court of competent jurisdiction, such decision or determination shall not affect the validity of any remaining portion, and such remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion eliminated; provided, however, that in the case of a declaration of invalidity, the provision declared invalid shall not be invalidated in its entirety, but shall be observed and performed by the parties to the extent such provision is valid and enforceable. The parties hereby agree that any such provision shall be deemed to be altered and amended to the extent necessary to effect such validity and enforceability. b. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but such counterparts together shall constitute one and the same instrument. c. The headings and captions contained herein are for the purposes of convenience and reference only and are not to be construed as a part of this Agreement. All terms and words 15 used herein shall he construed to include the number and gender as the context of this Agreement may require. 22. ACKNOWLEDGMENTS You acknowledge that: a. A Carey License involves business risks, and that your volume, profit, income and success is dependent primarily upon your efforts as an independent business operator; b. No one associated with us has warranted or guaranteed, expressly or by implication, the potential volume, profit, income or success you will achieve as a Carey Licensee; c. We gave you a Franchise Offering Circular no later than the earlier of the first personal meeting held to discuss the sale of a Carey License, ten (10) business days before the execution of this Agreement, or ten (10) business days before any payment of any consideration. You have read our Franchise Offering Circular and understand its contents; d. We gave you a copy of this Agreement and all related documents, fully completed, at least five (5) business days before you signed the Agreement; e. You have had ample opportunity to consult with Carey Licensees and your own attorneys, accountants and other advisors. Our attorneys have not advised or represented you with respect to this Agreement; and f. Our ability to assist you in overcoming operational, financial or other problems depends in substantial part upon whether you make us aware of such problems. You, therefore, agree to promptly notify us if you believe that you are unable to meet your obligations arising from this Agreement, if you are unable to satisfy your expectations or needs relating to the Licensed Business, or if you believe we are not fulfilling our obligations to you. You agree that we will under no circumstances be liable to you for any loss suffered by you which resulted from a problem or default which you did not bring to our attention promptly after it arose. 16 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal on the date first written above. LICENSOR: Carey Licensing, Inc. Witness: By: ------------------------ --------------------------------- Title: ------------------------------- Date: ---------------------- LICENSEE: Witness: By: ------------------------ --------------------------------- Title: ------------------------------- Date: ---------------------- Witness: By: ------------------------ --------------------------------- Title: ------------------------------- Date: ---------------------- 17 SCHEDULE 1 LICENSEE'S TERRITORY The Licensee's Territory includes all of the following: (a map depicting the borders of the Territory may be attached if it is initialled and dated by both parties). SCHEDULE 2 PROMISSORY NOTE $ __________________ Washington, D.C. __________________, 199 __ FOR VALUE RECEIVED, the undersigned promises to pay to the order of Carey Licensing, Inc., at such place as hereinafter may be designated in writing, the principal sum of _____________________________________Dollars over a ___________________ (___). year period, plus interest at the rate of ________________ percent per annum. Principal and accrued interest shall be payable in equal monthly installments of _______________________ __________Dollars ( $) with the first payment due on _________________________. All unpaid interest and principal shall be due and payable on or before ________________________________________ . This Note may be prepaid without penalty or cost to the undersigned and at no discount to the undersigned. In the event of any default in the payment of any installment of principal or interest, or any part thereof, when due hereunder, then the principal sum, together with accrued interest, may, at the option of the holder of this Note, be declared immediately due and payable. Failure to exercise this option, however, shall not constitute a waiver of the right to exercise it thereafter. The undersigned hereby waives presentment, demand for payment, notice of dishonor, notice of protest, protest and all other notices or demands in connection with the delivery, acceptance, performance or default of this Note. ATTEST: _______________________ ______________________________________ SCHEDULE 3 GUARANTY OF LICENSEE'S AGREEMENT In consideration of, and as an inducement to, the execution of the foregoing License Agreement ("Agreement") dated the ________________________________ day of ____________ __________________, 19__, by Carey Licensing, Inc. ("Carey"), each of the undersigned hereby guarantees unto Carey that _____________________________________________________________ __________________ ("Licensee") will perform during the term of this Agreement each and every covenant, payment, agreement and undertaking on the part of Licensee contained and set forth in or arising out of such Agreement, and any instruments or agreements related thereto including, without limitation, the covenants set forth in Sections 5, 6, 8, 12, 14, 16, 18 and 20. Carey, its successors and assigns, may from time to time, without notice to the undersigned (a) resort to the undersigned for payment of any of the liabilities, whether or not it or its successors have resorted to any property securing any of the liabilities or proceeded against any other of the undersigned or any party primarily or secondarily liable on any of the liabilities, (1)) release or compromise any liability of any of the undersigned hereunder or any liability of any party or parties primarily or secondarily liable on any of the liabilities, and (c) extend, renew or credit any of the liabilities for any period (whether or not longer than the original period); alter, amend or exchange any of the liabilities; or give any other form of indulgence, whether under the Agreement or not. The undersigned further waives presentment, demand, notice of dishonor, protest, nonpayment and all other notices whatsoever, including without limitation: notice of acceptance hereof; notice of all contracts and commitments; notice of the existence or creation of any liabilities under the foregoing Agreement and of the amount and terms thereof; and notice of all defaults, disputes or controversies between Licensee and Carey resulting from such Agreement or otherwise, and the settlement, compromise or adjustment thereof. The undersigned agrees to pay all expenses paid or incurred by Carey in attempting to enforce the foregoing Agreement and this Guaranty against Licensee and against the undersigned and in attempting to collect any amounts due thereunder and hereunder, including reasonable attorneys' fees if such enforcement or collection is by or through an attorney-at-law. Any waiver, extension of time or other indulgence granted from time to time by Carey or its agents, successors or assigns, with respect to the foregoing Agreement, shall in no way modify or amend this Guaranty, which shall be continuing, absolute, unconditional and irrevocable. If more than one person has executed this Guaranty, the term "the undersigned," as used herein shall refer to each such person, and the liability of each of the undersigned hereunder shall be joint and several and primary as sureties. IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty under seal effective as of the date of the foregoing Agreement. i _______________________________________ Signature _______________________________________ Printed Name _______________________________________ Home Address _______________________________________ Home Telephone _______________________________________ Business Address _______________________________________ Business Telephone _______________________________________ Date _______________________________________ Signature _______________________________________ Printed Name _______________________________________ Home Address _______________________________________ Home Telephone _______________________________________ Business Address _______________________________________ Business Telephone _______________________________________ Date _______________________________________ Signature _______________________________________ Printed Name ii _______________________________________ Home Address _______________________________________ Home Telephone _______________________________________ Business Address _______________________________________ Business Telephone _______________________________________ Date _______________________________________ Signature _______________________________________ Printed Name _______________________________________ Home Address _______________________________________ Home Telephone _______________________________________ Business Address _______________________________________ Business Telephone _______________________________________ Date iii SCHEDULE 4 SECURITY AGREEMENT ______________________, whose address is______________________________________ ______________________________________________________________________________ ______________________________________________________________________________ [hereinafter collectively (if more than one/debtor) called "Debtor"] and Carey Licensing, Inc., a Delaware Corporation with its principal place of business at 1900 Delaware Avenue, Wilmington, Delaware 19806 (hereinafter called "Secured Party") agree as follows: In order to further secure the obligations described in that certain License Agreement dated __________________________ between debtor and Secured Party (herein "License Agreement"), as amended, and all other indebtedness and liabilities of all kinds of Debtor to Secured Party (whether created directly or acquired by Secured Party by assignment or otherwise, and whether now existing or hereafter arising, absolute or contingent, joint and/or several, due or to become due, primary or secondary, and all renewals and extensions thereof), Debtor herein below grants to Secured Party a security interest in the collateral described herein. NOW, THEREFORE, for and in consideration of the premises, and in order to perfect a security interest, the parties agree as follows: 23. Indebtedness. The Security Interest (defined below) is herein created ------------ to secure all obligations, liabilities and indebtedness (collectively, "Indebtedness") to Secured Party, direct or indirect, now existing or hereafter arising, of whatsoever kind or character, whenever or however created or incurred of Debtor, including without limitation: a. All indebtedness arising pursuant to the provisions of this Security Agreement and all indebtedness arising pursuant to the License Agreement, including interest, collection and attorneys' fees as therein provided; b. All outstanding loans and advances which Secured Party has heretofore, contemporaneously herewith and may hereafter make to Debtor; c. All other and additional debts, obligations and liabilities of every kind and character of Debtor, now or hereafter existing in favor of Secured Party; and d. Any and all renewal of extensions of any of the foregoing debts, obligations and liabilities or any part thereof. 24. Agreement and Collateral. For value received, Debtor hereby grants to ------------------------ Secured Party, a Security Interest ("Security Interest") in all of Debtor's right, title and interest and to the following described property ("Collateral"): a. All present and hereafter existing or acquired accounts, money deposits, credits, securities, claims, demands, contract rights and general intangibles including, without limitation, the rights and interests of Debtor under the License Agreement. b. All personal property located within or used in connection with the premises located at the address hereinafter designated for Debtor, including without limitation, automobiles , equipment, furnishings, inventory supplies, and mobile equipment of all kinds and replacements therefor. All other terms used herein which are defined in the Uniform Commercial Code of the state in which the Collateral is located shall have the meanings therein stated. 25. Debtor's Warranties, Covenants and Further Agreements. ------------------------------------------------------ - i - a. Title. Debtor has, or on acquisition will have, fee simple tide to the ----- Collateral free from any lien, security interest, encumbrance or claim (except liens for current taxes not due or liens previously disclosed to Secured Party and except for such claims, liens and Security Interests, if any, described in Exhibit "A" hereto) and Debtor will, during the term of this Security Agreement, at Debtor's cost, keep the Collateral free from other liens, security interests, encumbrances or claims, and defend any action which may affect the Security Interest or Debtor's title to the Collateral. This Security Agreement and any account, instrument or document which is, or shall be, included in the Collateral is, and shall be, genuine and legally enforceable and free from any set off, counterclaim or defense. No notice of bankruptcy or insolvency of any account debtor has been received by Debtor. b. Perfection. No financing statement covering the Collateral or any part ---------- or proceeds thereof is on file in any public office except as may be on file with respect to the claims, liens and security interests, if any, described in Exhibit "A" and, at Secured Party's request, Debtor will join in executing all financing statements and other instruments deemed necessary by Secured Party to perfect the Security Interest and to assist Secured party in complying with Federal Assignment of Claims Act and will pay all cost thereof. c. Assignment. Notwithstanding any other provision hereof, Debtor will not ---------- process, sell, lease or otherwise dispose of all or part of the Collateral (except, as to supplies, in the ordinary course of business). Secured Party may assign or transfer all or part of its right in, and obligations, if any, under the Indebtedness, the Collateral and this Security Agreement. d. Additional Property. The Collateral includes all proceeds, increases, ------------------- substitutions, replacements, products, accessions, and attachments thereof, including, without limitation, all proceeds, securities, subscription rights, dividends or other property or benefits which Debtor is entitled to receive on account of the Collateral. e. Delivery of Receipts to Secured Party. Upon Secured Party's demand, Debtor ------------------------------------- will, upon receipt of any remittance in payment of or for the Collateral, immediately deposit all of same properly endorsed in a special bank account maintained with Secured Party over which Secured Party alone has power of withdrawal. The funds in said bank account shall be held by Secured Party as security for the indebtedness. Secured Party may, from time to time, apply all or part of said collected funds against the Indebtedness. f. Maintained Securitv Interest, Reports. In addition to all other --------------------------------------- provisions hereof, the undersigned will, from time to time; at the expense of the Debtor, perform any and all steps requested by the Secured Party, at any time, to perfect and maintain the Secured Party's security interest in the Collateral. If at any time, part or all of the Collateral shall be in the possession or control of any of the Debtor's baileens, agents or processors, the Debtor will notify such persons of the Secured Party's security interest therein and upon the Secured Party's request, the Debtor will instruct such persons to hold all such Collateral for the Secured Party's account and subject to the Secured Party's instructions and the Debtor will obtain and deliver to the Secured Party such instruments(s) requested by the Secured Party pursuant to which such persons consent to the security interest granted herein, disclaim any interest in the Collateral, waive, in favor of the Secured Party, all liens upon and claims to the Collateral or any part thereof, and authorize the Secured Party, at any time, to enter upon and remove the Collateral from any premises upon which the same may be located. g. Further Documentation. The Debtor shall, at its sole cost and --------------------- expense, upon the request of the Secured Party, at any time and from time to time, execute and deliver to the Secured party one or more financing statements pursuant to the Uniform Commercial Code, and any other papers, documents or instruments required by the Secured Party in connection herewith. The Debtor hereby authorizes the Secured Party to execute and file, at any time and from time to time; on behalf of the Debtor, one or more financing statements with respect to all or any part of the Collateral, the filing of which is advisable, in the sole judgment of the Secured Party, pursuant to the law of the state in which the Collateral is located, although the same may have been executed only by the Secured Party as secured party. The Debtor also irrevocably appoints - ii - the Secured Party, its agents, representatives and designeens, as the Debtor's agent and attorney-in-fact, to execute and file, from time to time on behalf of the Debtor, one or more financing statements; with respect to all or any part of the Collateral. h. Settlement of Accounts. The Secured Party is authorized and empowered ---------------------- to compromise or extend the time for payment of any of the Collateral, for such amounts and upon such terms as the Secured Party may determine, and to accept the return of goods represented by any of the Collateral, all without notice to or consent by the Debtor and without discharging or affecting the obligations of the Debtor hereunder. i. Payment of Debtor's Obligation. Reimbursement. The Secured Party may, in --------------------------------------------- its discretion, for the account and expense of the Debtor: (i) pay any amount or do any act which is required to be paid or done by the Debtor under this Security Agreement (including, but not limited to, the repair and insuring of Collateral and payment of taxes) and which the Debtor fails to do or pay as herein required; (ii) pay any sums due and owing by the Debtor to the landlord(s) of any premises where any Collateral is located; and (iii) pay or discharge any lien, security interest or encumbrance in favor of anyone other than the Secured Party which covers or affects the Collateral or any part thereof. The Debtor will promptly reimburse and pay the Secured Party for any and all sums, costs and expenses which the Secured Party may pay or incur by reason of defending, protecting or enforcing the security interest herein granted or the priority thereof or in enforcing payment of the Indebtedness or in discharging any lien or claim against the Collateral or any part thereof or in the exchange, collection, compromise or settlement of any of the Collateral or receipt of the proceeds thereof or for the care of the Collateral, by litigation or otherwise, and with respect to either the Debtor, account debtors, guarantors of the Debtor and other persons, including but not limited to all court costs, collection charges, travel and reasonable attorneys' fees (not less than 15% of the outstanding Indebtedness where permitted by applicable law). All sums paid and all costs, expenses and liabilities incurred by the Secured Party pursuant to the foregoing provisions, together with interest thereon at the Maximum Rate specified in the Note and described in the License Agreement shall be added to and become part of the Indebtedness secured hereby. 26. Rights of Secured Party. The extent permitted by applicable law, Debtor ----------------------- hereby appoints Secured Party as Debtor's attorney-in-fact to do any act which Debtor is obligated by this Agreement to do, to exercise all rights, voting and otherwise, of Debtor in the Collateral, and to do all things deemed necessary by Secured Party and to perfect the Security Interest and to preserve, collect, enforce and protect the Collateral and any insurance proceeds hereunder, all at Debtor's cost. Whether or not an event of default has occurred, the right is expressly granted to the Secured Party to the extent permitted by applicable law, at its discretion: whether or not any of the Indebtedness be due, in its name or in the name of the Debtor or otherwise, to notify any account debtor or the obligor of any instrument to make payment to the Secured Party, demand, sue for, collect or receive any money or property, at any time, payable or receivable on account of or in exchange for, or make any compromise or settlement deemed desirable by the Secured Party with resect to, any of the Collateral, but shall be under no obligation to do so, and/or the Secured Party may extend the time of payment, arrange for payment in installments or otherwise modify the terms of, or release any of the Collateral without thereby incurring responsibility to, or discharging or otherwise affecting any liability of, the Debtor. At any time the Secured Party may assign, transfer and/or deliver to any transferee of any of the Indebtedness any or all of the Collateral, and thereafter the Secured Party shall be fully discharged from all responsibility with respect to the Collateral so assigned, transferred and/or delivered. Such transferee shall be vested with all the powers and right of the Secured Party hereunder with respect to such Collateral, but the Secured Party shall retain all rights and powers hereby given with respect to any of the Collateral not so assigned, transferred or delivered. 27. Events of Default. The Debtor shall be in default under this Agreement ----------------- upon the happening of any of the following events or conditions: a. Default in the timely payment or performance of the Indebtedness, any obligation, covenant or agreement contained herein, secured - iii - hereby or otherwise made or owed to Secured Party; b. Any warranty, representation or statement made to Secured Party by or on behalf of Debtor proves to have been false in any material respect when made; c. Any time the Secured Party believes that the prospect of payment of all or part of the Indebtedness or performance of this Agreement is impaired; or d. If Debtor defaults under its Carey License Agreement, or if the License Agreement is terminated or not renewed. 28. Remedies of Secured Party Upon Default. When an event of default -------------------------------------- occurs, and at any time thereafter, Secured Party may, without notice to or demand of any kind upon Debtor, declare all or part of the Indebtedness immediately due and payable and may proceed to enforce payment of same and to exercise any and all of the rights and remedies provided by the Uniform Commercial Code ("Code"), as well as all other rights and remedies possessed by Secured Party under this Security Agreement or otherwise at law or in equity. The Secured Party shall have the following rights and remedies in addition to all rights and remedies under the License Agreement and in addition to all rights and remedies of a Secured Party under the Uniform Commercial Code or other applicable statute or rule, in any jurisdiction in which enforcement is sought, all such rights and remedies being cumulative and not exclusive: a. Secured Party Deposits. Balances. Etc. The Secured Party may ------------------------------------- appropriate, set off and apply for the payment of any or all of the Indebtedness, any and all balances, sums, property, claims, credits, deposits, accounts, reserves, collections, drafts, notes, or other items or proceeds of the Collateral in or coming into the possession of the Secured Party or its agents and belonging or owing to the Debtor, without notice to the Debtor, and in such manner as the Secured Party may in its discretion determine. b. Proceeds. Any of the proceeds of the Collateral received by the Debtor shall -------- not be co-mingled with other property of the Debtor, but shall be segregated, held by the Debtor in trust for the Secured Party as the exclusive property of the Secured Party and the Debtor will immediately deliver to the Secured Party the identical checks, monies, or other proceeds of collateral received, and the Secured Party shall have the right to endorse the name of the Debtor on any and all checks, or other forms of remittance received, where such endorsement is required to effect collections. The Debtor hereby designates, constitutes and appoints the Secured Party and any designee or agent of the Secured Party as an attorney-in-fact of the Debtor, irrevocably and with power of substitution, with authority to receive, open and dispose of all mail addressed to the Debtor, to notify the Post Office authorities to change the address for delivery of mail addressed to the Debtor to such address as the Secured Party may designate; to endorse the name of the Debtor on any notes, acceptances, checks, drafts, money orders or other evidences of payment or proceeds of the Collateral that may come into the Secured Party's possession; to sign the name of the Debtor on any invoices, documents, drafts against accounts of the debtors of the Debtor, assignments, requests for verification of accounts and notices to debtors of Debtor's to execute any endorsements, assignments or other instruments or conveyance or transfer; and to do all other acts and things necessary and advisable in the sole direction of the Secured Party to carry out and enforce this Security Agreement. All acts of said attorney or designee are hereby ratified and approved and said attorney or designee shall not be liable for any acts of commission or omission nor for any error of judgment or mistake of fact or law. This power of attorney being coupled with an interest is irrevocable while any of the Indebtedness shall remain unpaid. Secured Party may also require Debtor to assemble the Collateral and make it available to Secured Party at any place to be designated by Secured Party which is reasonably convenient to both parties. For purposes of the notice requirements of the Code, Secured Party and Debtor agree that notice given at least five (5) calendar days prior to the related action hereunder is reasonable. Secured Party shall be entitled to immediate possession of the Collateral and all books and records evidencing the same and shall have authority to enter upon any premises, upon which said items may be situated, and remove same therefrom. Expenses of retaking, holding, preparing for sale, selling, or the like, shall include, without limitation, Secured Party's - iv - reasonable attorneys' fees and all such expenses shall be recovered by Secured Party before; applying the proceeds from the disposition of the Collateral toward the Indebtedness. To the extent allowed by the Code, Secured Party may use its discretion in applying the proceeds of any disposition of the Collateral and Debtor will remain liable for any deficiency remaining after such disposition. All rights and remedies of Secured Party hereunder are cumulative and may be exercised singly or concurrently. The exercise of any right or remedy will not be a wavier of any other. 29. General. -------- a. Liability Disclaimer. Under no circumstances whatsoever shall the -------------------- Secured Party be deemed to assume any responsibility for or obligation or duty with respect to any part or all of the Collateral, of any nature or kind whatsoever, or any matter or proceedings arising out of or relating thereto. The Secured Party shall not be required to take any action of any kind to collect or protect any interest in the Collateral, including but not limited to any action necessary to preserve its or the Debtor's rights against prior parties to any of the Collateral. The Secured Party shall not be liable or responsible in any way for the safekeeping, care or custody of any of the Collateral, or for any loss or damage thereto, or for any diminution in the value thereof, or for any act or default of any agent or bailee of the Secured Party or the Debtor, or of any carrier, forwarding agency or other person whomsoever, or for the collection of any proceeds, but the same shall be at the Debtor's sole risk at all times. The Debtor hereby releases the Secured Party from any claims, causes of action and demands at any time arising out of or with respect to this Security Agreement or the Indebtedness, and any actions taken or omitted to be taken by the Secured Party with respect thereto, and the debtor hereby agrees to hold the Secured Party harmless from and with respect to any and all such claims, cause of action and demands. The Secured Party's prior recourse to any part or all of the Collateral shall not constitute a condition of any demand for payment or the Indebtedness or of any suit or other proceeding for the collection of the Indebtedness. b. Waiver by Secured Party. No failure or delay on the part of the ----------------------- Secured Party in exercising any of its rights and remedies hereunder or otherwise shall constitute a waiver thereof, and no single or partial waiver by the Secured Party of any default or other right or remedy which it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy of a future occasion. c. Waiver by Debtor. The Debtor hereby waives presentment, notice of ---------------- dishonor and protest of all instruments included in or evidencing any of the Indebtedness or the Collateral and any and all other notices and demands whatsoever (except as expressly provided herein) whether or not relating to such instruments. In the event of any litigation at any time arising with respect to any matter connected with this Security Agreement or the Indebtedness, the Debtor hereby waives the right to a trial by jury and any and all defenses, rights of set off and rights to interpose counterclaims of any nature. d. Parties Bound. This Agreement shall be binding upon and inure to the ------------- benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors, receivers, trustees and assigns where permitted by this Agreement. All representations and warranties and agreements of Debtor are joint and several if Debtor is more than one. This Agreement shall constitute a continuing agreement, applying to all future as well as existing transactions, such future transactions being contemplated by Debtor and Secured Party. e. State Law to Apply. This Agreement shall be construed in accordance ------------------ with the Uniform Commercial Code (the definitions of which apply herein) and other applicable laws of the state in which the Collateral is located. f. Notice. Notice shall be given or sent when mailed postage prepaid to ------ Debtor' address shown below or to Debtor's most recent address as shown by notice of change on file with Secured Party. g. Construction. If there is any conflict between the provisions hereof ------------ and the provisions of the Indebtedness, the latter shall control. The captions herein are for convenience of reference only and not for definition or interpretation. h. Modification. No provision hereof ------------ - v - shall be modified, altered, or limited except by a written instrument expressly referring to this Security Agreement and to the provision so modified or limited, and executed by the party to be charged. i. Authorization. The execution and delivery of this Security Agreement ------------- has been authorized by the Boards of Directors of the Debtor and by any necessary vote or consent of stockholders (if any) of the Debtor. j. Binding Effect. This Security Agreement and all Indebtedness of the --------------- Debtor hereunder shall be binding upon the successors or assigns of the Debtor shall, together with the rights and remedies of the Secured party hereunder, inure to the benefit of the Secured Party and its successors, endorsees and assigns; and shall constitute a continuing Security Agreement applying to all future as well as existing transactions, whether or not of the nature contemplated at the date of this Security Agreement. k. Additional Terms. All annexes and schedules attached hereto, if any, ---------------- are hereby made a part hereon. IN WITNESS WHEREOF, the Debtor has executed or caused this Security Agreement to be executed in Washington, D.C. as of _____________________ _________________, 19 ___ . - vi - DEBTOR: ___________________________________________ by: ___________________________________________ Title: ___________________________________________ by: ___________________________________________ Title: ___________________________________________ by: ___________________________________________ Title: ___________________________________________ by: ___________________________________________ Title: ___________________________________________ SECURED PARTY: CAREY LICENSING, INC. by: ___________________________________________ Title: ___________________________________________ - vii - The chief place of business, the location of the books and records pertaining to the Collateral of Debtor and the location of the Collateral is: Carey Licensing, Inc. c/o Carey International, Inc. 4530 Wisconsin Avenue, N.W. Washington, D.C. 20016 All Notices to be sent to Debtor pursuant to this Security Agreement shall be sent to: Carey Licensing, Inc. c/o Carey International, Inc. 4530 Wisconsin Avenue, N.W. Washington, D.C. 20016 All Notices to be sent to Secured Party pursuant to this Security Agreement shall be sent to: Carey Licensing, Inc. c/o Carey International, Inc. 4530 Wisconsin Avenue, N.W. Washington, D.C. 20016 EX-21 9 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 ---------- SUBSIDIARIES OF CAREY INTERNATIONAL, INC. (unless otherwise noted, all subsidiaries are wholly-owned) Carey Licensing, Inc. Carey Limousine Corporation, Inc. d/b/a Carey Philadelphia, Inc. Carey Limousine D.C., Inc. Carey Limousine Florida, Inc. Carey Limousine L.A., Inc. Carey Limousine N.Y., Inc. Carey Limousine SF, Inc. Carey UK Limited Herzog Cadillac Rental Service NY, Inc.* International Limousine Network Ltd.** Manhattan International Limousine Network Ltd.** ______________ * Wholly-owned subsidiary of Carey Limousine N.Y., Inc. ** Will become a wholly-owned subsidiary of Carey International, Inc. upon the closing of this offering. EX-23.1 10 CONSENT OF COOPERS & LYBRAND LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated January 31, 1997, except for Notes 1,2, 17 and 18, as to which the date is March 3, 1997, on our audits of the consolidated financial statements and financial statement schedule of Carey International, Inc. and Subsidiaries as of November 30, 1996 and 1995 and for the three years in the period ended November 30, 1996, which includes an explanatory paragraph relating to a restatement for a change in the revenue recognition method. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Washington, D.C. March 3, 1997 EX-23.2 11 CONSENT OF COOPERS & LYBRAND LLP Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-1 (File No. ) of our report dated February 24, 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. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P. Washington, D.C. March 3, 1997 EX-23.3 12 CONSENT OF COOPERS & LYBRAND EXHIBIT 23.3 Consent of Independent Accountants We consent to the inclusion in this registration statement on Form S-1 of our report dated February 26, 1996, except for note 16 which is dated February 25, 1997, on our audits of the financial statements of Speed 6060 Limited (formerly Camelot Barthropp Limited) for the years ended December 31, 1994 and December 31, 1995. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand ------------------------- COOPERS & LYBRAND Chartered Accountants and Registered Auditors London, United Kingdom February 25, 1997 EX-23.4 13 CONSENT OF COOPERS & LYBRAND Exhibit 23.4 Consent of Independent Accountants We consent to the inclusion in this registration statement on Form S-1 of our report dated February 26, 1996, except for notes 15 and 16 which are dated February 25, 1997, on our audit of the financial statements of Camelot Barthropp Limited (formerly Speed 6060 Limited) for the year ended December 31, 1995. We also consent to the reference to our firm under the caption "Experts". /s/ Coopers & Lybrand -------------------------- Coopers & Lybrand Chartered Accountants and Registered Auditors London, United Kingdom February 25, 1997 EX-23.6 14 CONSENT OF NICHOLAS J. ST. GEORGE EXHIBIT 23.6 CONSENT TO SERVE AS A DIRECTOR OF CAREY INTERNATIONAL, INC. If nominated or otherwise chosen to be a director of Carey International, Inc. ("Carey"), I hereby consent to being named in Carey's Registration Statement on Form S-1 as an individual who has agreed to serve in such capacity. /s/ Nicholas J. St. George ----------------------------------- Dated: December 1, 1996 EX-27 15 FINANCIAL DATA SCHEDULE
5 YEAR YEAR NOV-30-1995 NOV-30-1996 DEC-01-1994 DEC-01-1995 NOV-30-1995 NOV-30-1996 1,438,659 2,754,276 0 0 9,976,625 11,079,483 294,000 535,000 0 0 364,741 1,936,961 4,963,845 5,997,765 2,778,774 2,618,519 35,896,921 42,526,129 12,892,706 16,967,400 0 0 0 0 1,212,900 1,115,400 6,558 6,558 2,692,320 5,549,960 35,896,921 42,526,129 0 0 43,483,947 59,505,698 29,942,961 40,438,449 42,362,023 55,516,002 130,913 269,654 0 0 1,423,032 1,547,492 (170,195) 2,711,858 25,000 (104,246) 0 0 0 0 0 0 0 0 (195,195) 2,816,014 (.08) 1.16 (.08) 1.16 INTEREST EXPENSE IS NET OF INTEREST INCOME OF $259,852 AND $156,695 FOR THE YEARS ENDED 1995 AND 1996, RESPECTIVELY.
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