<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-3972
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
GENESEE & WYOMING INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
4011 06-0984624
DELAWARE
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
71 LEWIS STREET
GREENWICH, CT 06830
(203) 629-3722
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MORTIMER B. FULLER, III
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
GENESEE & WYOMING INC.
71 LEWIS STREET
GREENWICH, CT 06830
(203) 629-3722
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
SUSAN MASCETTE BRANDT, ESQ. JOEL S. KLAPERMAN, ESQ.
HARTER, SECREST & EMERY SHEARMAN & STERLING
700 MIDTOWN TOWER 599 LEXINGTON AVENUE
ROCHESTER, NY 14604 NEW YORK, NY 10022
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
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. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a) MAY DETERMINE.
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<PAGE>
GENESEE & WYOMING INC.
----------------
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(a) AND ITEM 501(b) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NO. FORM S-1 CAPTION PROSPECTUS CAPTION
-------- ---------------- ------------------
<C> <S> <C>
1 Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus..... Outside Front Cover Page
2 Inside Front and Outside
Back Cover Pages of Inside Front Cover Page; Outside Back Cover
Prospectus............. Page
3 Summary Information,
Risk Factors and Ratio Outside Front Cover Page; Prospectus
of Earnings to Fixed Summary; Selected Consolidated Financial
Charges................ and Operating Data; Risk Factors
4 Use of Proceeds......... Use of Proceeds
5 Determination of
Offering Price......... Outside Front Cover Page; Underwriting
6 Dilution................ Dilution
7 Selling Security
Holders................ Not Applicable
8 Plan of Distribution.... Outside Front Cover Page; Underwriting
9 Description of
Securities to be Outside Front Cover Page; Description of
Registered............. Capital Stock
10 Interests of Named
Experts and Counsel.... Legal Matters; Experts
11 Information With Respect
to the Registrant
(a)Description of
Business .......... Business; Recent Developments
(b)Description of
Property .......... Property
(c)Legal Proceedings ... Business
(d)Market Price of and
Dividends on the
Registrant's Common Outside Front Cover Page; Dividend Policy;
Equity and Related Principal Stockholders; Shares Eligible
Stockholder Matters for Future Sale
...................
(e)Financial Statements Financial Statements; Pro Forma Financial
................... Information
(f)Selected Financial Selected Consolidated Financial and
Data .............. Operating Data
(g)Supplementary
Financial
Information ....... Not Applicable
(h)Management's
Discussion and
Analysis of Management's Discussion and Analysis of
Financial Condition Financial Condition and Results of
and Results of Operations
Operations ........
(i)Changes in and
Disagreements with
Accountants on
Accounting and
Financial
Disclosure ........ Not Applicable
(j)Directors and
Executive Officers
................... Management
(k)Executive
Compensation ...... Management
(l)Security Ownership of
Certain Beneficial
Owners and
Management ........ Principal Stockholders
(m)Certain Relationships
and Related
Transactions....... Certain Transactions
12 Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............ Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY 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 JUNE 7, 1996
2,500,000 SHARES
GENESEE & WYOMING INC.
CLASS A COMMON STOCK
($.01 PAR VALUE)
All of the shares of Class A Common Stock offered hereby are being sold by
the Company. Prior to this offering, there has been no public market for the
Class A Common Stock of the Company. It is currently anticipated that the
initial public offering price will be between $14.00 and $16.00 per share. See
"Underwriting" for information relating to the method of determining the
initial public offering price.
The Company's authorized capital stock consists of Class A Common Stock and
Class B Common Stock. The Class A Common Stock is substantially identical to
the Class B Common Stock, except with respect to voting rights, convertibility
and dividends. The Class A Common Stock is entitled to one vote per share and
the Class B Common Stock is entitled to ten votes per share. Each share of
Class B Common Stock is freely convertible into one share of Class A Common
Stock. Shares of Class A Common Stock are entitled to a 10% dividend preference
over shares of Class B Common Stock when, as and if dividends are declared by
the Board of Directors. See "Description of Capital Stock."
The Class A Common Stock has been approved for quotation, subject to official
notice of issuance, on the Nasdaq Stock Market's National Market (the "Nasdaq
National Market") under the symbol "GNWR."
FOR INFORMATION CONCERNING CERTAIN FACTORS RELATING TO THIS OFFERING, SEE
"RISK FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting estimated expenses of $875,000 payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Class A Common Stock at the Price to
Public, less Underwriting Discounts and Commissions shown above, solely to
cover over-allotments, if any. If this option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively. See "Underwriting."
The shares of Class A Common Stock offered hereby are being offered by the
several Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that the Class A Common Stock will be available for
delivery on or about , 1996 at the offices of Schroder Wertheim & Co.
Incorporated, New York, New York.
SCHRODER WERTHEIM & CO. FURMAN SELZ
, 1996
<PAGE>
[ART TO COME]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus. All references to "GWI" or the "Company" in this
Prospectus mean Genesee & Wyoming Inc., a Delaware corporation, and its
subsidiaries. Unless otherwise indicated, all information in this Prospectus
(i) assumes an initial public offering price of $15.00 per share of Class A
Common Stock,(ii) assumes that the Underwriters' over-allotment option is not
exercised, and (iii) gives effect to an 18.5:1 stock split and reclassification
of the Company's common stock into Class A Common Stock and Class B Common
Stock (collectively, the "Common Stock") which will become effective
immediately prior to the Offering.
THE COMPANY
GWI is a leading operator of short line and regional freight railroads, based
on revenues and total track miles. In 1977, when Mortimer B. Fuller, III
purchased a controlling interest in the Company and became its Chief Executive
Officer, the Company operated a single 14-mile railroad that generated $3.9
million in operating revenues, substantially all of which were attributable to
shipments of salt by Akzo Nobel Salt, Inc. ("Akzo"). As a result of the
Company's acquisition and marketing strategies, the Company has grown to
operate over approximately 1,500 miles of track and, in 1995, the Company
generated $53.4 million in operating revenues. The Company now operates in four
regions of the United States: Western New York and Pennsylvania; Illinois;
Louisiana and Texas; and Oregon.
The Company's growth to date has been the result of its acquisition of rail
properties and its marketing efforts. This growth has largely been "stair-step"
in nature--large revenue increases resulting primarily from acquisitions,
followed by more gradual, incremental revenue growth as the Company implements
its marketing and operating strategies. The Company's growth has resulted in an
expanded customer base, a more diversified commodity mix and decreased
dependence on any one customer. The success of the Company's growth strategy is
evidenced by the fact that it has continued to maintain a stable revenue base
despite the collapse and subsequent closure of the salt mine operated by Akzo,
the Company's largest freight customer until 1994. See "Management's Discussion
and Analysis of Financial Condition and Results in Operations--Akzo Mine."
The Company's strategy is to become the dominant provider of rail freight
transportation in the markets it serves by (i) growing its business through
acquisitions to establish new regions or increase its presence in existing
regions, (ii) expanding its revenue base within each region through marketing
efforts, and (iii) improving its operating efficiency through rationalization
and consolidation of overhead expenses.
The Company's fundamental acquisition strategy is to acquire properties that
have large industrial customers which will provide the Company with a stable
revenue base and the potential to generate incremental revenues and additional
customers upon implementation of a focused marketing plan. In the first four
months of 1996, the Company completed two acquisitions, one which established a
new region and another which increased and diversified its customer base in the
New York and Pennsylvania region. In both cases, the Company acquired rail
properties that serve large industrial customers.
In February 1996, the Company formed Illinois & Midland Railroad, Inc.
("Illinois & Midland") which acquired certain railroad assets from Chicago &
Illinois Midland Railway Company ("CIMR") (the "Illinois & Midland
Acquisition"). In 1995, CIMR generated operating revenues of $13.7 million and
transported 48,104 carloads, 91% of which consisted of coal shipments to two
power plants operated by Commonwealth Edison Company ("ComEd"). In April 1996,
the Company formed Pittsburg & Shawmut Railroad, Inc. ("Pittsburg & Shawmut"),
which acquired certain railroad assets owned by three operating subsidiaries of
the Arthur T. Walker Estate Corporation (the "ATWEC Railroads") (the "Pittsburg
& Shawmut Acquisition"). Pittsburg & Shawmut
3
<PAGE>
interchanges with one of the Company's other railroads in three locations. In
1995, the ATWEC Railroads generated operating revenues of $5.9 million and
transported approximately 17,500 carloads, 93% of which were shipments of coal
from four mines located along its lines. See "Recent Developments."
The Illinois & Midland Acquisition established the Company in a new region
and broadened the Company's base of major industrial customers. This
acquisition provides the Company with an immediate presence in the midwest and
a strong base for additional growth in the region. The Pittsburg & Shawmut
Acquisition expanded the Company's presence in its New York and Pennsylvania
region and further broadened its customer base. The Company believes that the
proximity of Pittsburg & Shawmut to one of the Company's other railroads offers
an excellent opportunity for rationalization and consolidation of overhead
expenses as well as market extension and diversification.
The Company's marketing strategy is to build each region on a base of major
industrial customers, to grow that base business through marketing efforts
directed at its major customers and to generate incremental revenues outside
the base of major customers by attracting smaller customers and providing
ancillary services which generate non-freight revenues. The Company believes
that over the long term, its strategy of building its regions around a core of
major industrial customers provides a stable revenue base and allows the
Company to focus its efforts on additional growth opportunities within a
region.
The Company's operating strategy is to empower local managers with the
resources and authority to increase revenues, lower operating costs and
rationalize track where appropriate to make operations more efficient. GWI has
established incentive compensation programs that reward local managers for
improving results. The Company also seeks to increase the profitability of its
railroads by spreading regional and corporate overhead expenses over an
expanding revenue base.
The Company's principal executive offices are located at 71 Lewis Street,
Greenwich, Connecticut 06830. Its telephone number is (203) 629-3722.
4
<PAGE>
THE OFFERING(1)
<TABLE>
<S> <C>
Class A Common Stock offered........................ 2,500,000 shares
Common Stock to be outstanding after the Offering:
Class A Common Stock(2)........................... 4,001,937 shares(3)
Class B Common Stock(2)........................... 846,556 shares
---------
Total........................................... 4,848,493 shares(3)
=========
To repay debt. See "Use of
Use of proceeds..................................... Proceeds."
Nasdaq National Market symbol....................... GNWR
</TABLE>
- --------
(1) The offering of shares of Class A Common Stock by the Company is referred
to herein as the "Offering."
(2) The Class A Common Stock is entitled to one vote per share. The Class B
Common Stock is entitled to ten votes per share. The Class B Common Stock
is convertible into Class A Common Stock on a one-to-one basis at the
option of the holder and, with certain exceptions, automatically converts
upon transfer by the original holder thereof. The Class A Common Stock is
entitled to a 10% dividend preference over the Class B Common Stock when,
as and if dividends are declared by the Board of Directors. The Class A
Common Stock and Class B Common Stock vote together as a single class
except as required by law, and are substantially identical except with
respect to voting rights, convertibility and dividends. See "Description of
Capital Stock."
(3) Excludes (i) an aggregate of 500,000 shares of Class A Common Stock
reserved for issuance under the Company's 1996 Stock Option Plan and Stock
Option Plan for Outside Directors, of which options to purchase 350,500
shares of Class A Common Stock are currently outstanding, (ii) 450,000
shares of Class A Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan, and (iii) 41,847 shares of Class A Common
Stock reserved for issuance upon exercise of the Bank Warrant. See
"Management--Stock Options," "Management--Employee Stock Purchase Plan" and
"Description of Capital Stock--Bank Warrant."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The summary consolidated financial and operating data below has been taken or
derived from the audited consolidated financial statements and other records of
the Company. The summary consolidated financial and operating data should be
read in conjunction with the Consolidated Financial Statements and accompanying
Notes contained in this Prospectus. The results of operations for the interim
periods are not necessarily indicative of results of operations for the full
year. See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The pro forma financial and operating data is based
upon certain pro forma adjustments to reflect (i) the sale of 2,500,000 shares
of Class A Common Stock in the Offering and the application of the estimated
net proceeds of the Offering as set forth under "Use of Proceeds," (ii) the
amendment and restatement of the Credit Facilities and (iii) the closing of the
Illinois & Midland and Pittsburg & Shawmut Acquisitions. The pro forma
unaudited condensed consolidated balance sheet data assumes that the Pittsburg
& Shawmut Acquisition occurred on March 31, 1996, and the pro forma unaudited
condensed consolidated income statement and operating data assumes that the
Illinois & Midland and Pittsburg & Shawmut Acquisitions and the amendment and
restatement of the Credit Facilities occurred on January 1, 1995.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, PRO FORMA
------------------------------------------------ ---------------- -------------------------
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- ------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...... $ 20,536 $ 32,940 $ 49,645 $ 55,419 $ 53,387 $13,391 $16,608 $ 73,042 $19,448
Operating income........ 275 2,748 6,144 8,038 6,572 1,526 2,814 12,416 3,558
Interest expense........ (1,583) (2,319) (2,864) (3,212) (3,405) (766) (1,274) (4,020) (948)
Net income (loss)....... (884) 637 1,624 3,011 1,657 502 965 6,104 1,620
Earnings per common
share:
Income before extraor-
dinary item and cumu-
lative effect of ac-
counting change....... $ (0.39) $ 0.28 $ 0.88 $ 1.31 $ 0.92 $ 0.21 $ 0.41 $ 1.36 $ 0.33
Net income (loss)...... $ (0.39) $ 0.28 $ 0.70 $ 1.31 $ 0.71 $ 0.21 $ 0.41 $ 1.26 $ 0.33
Weighted average number
of common shares
outstanding............ 2,258 2,258 2,304 2,304 2,348 2,348 2,348 4,848 4,848
OPERATING DATA:
Total track mile-
age(1)(2).............. 298 555 841 808 839 808 964 1,160 1,236
Total carloads.......... 43,077 73,429 115,301 119,051 118,673 30,966 39,345 184,277 49,674
Total employees(2)...... 176 266 357 380 397 399 462 485 489
Operating revenues per
carload................ $ 477 $ 449 $ 431 $ 466 $ 450 $ 432 $ 422 $ 396 $ 392
Operating revenues per
employee............... $116,682 $123,835 $139,062 $145,839 $134,476 $33,561 $35,948 $150,602 $39,771
Carloads per employee... 245 276 323 313 299 78 85 380 102
Operating ratio(3)...... 98.7% 91.7% 87.6% 85.5% 87.7% 88.6% 83.1% 83.0% 81.7%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(4) ADJUSTED(5)
-------- -------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................ $115,859 $125,027 $125,027
Total debt.................................. 66,207 72,207 38,207
Stockholders' equity........................ 11,952 11,952 45,952
</TABLE>
- --------
(1) Excludes track miles operated under trackage rights and operating
contracts. See "Property."
(2) Based on monthly averages over the respective periods, except for pro forma
data which is as of December 31, 1995 and March 31, 1996.
(3) Operating expenses divided by operating revenues.
(4) As adjusted to give effect to the Pittsburg & Shawmut Acquisition. See
"Recent Developments."
(5) As further adjusted to give effect to the sale of 2,500,000 shares of Class
A Common Stock in the Offering and the application of the estimated net
proceeds of the Offering as described in "Use of Proceeds."
6
<PAGE>
RISK FACTORS
Potential purchasers of the Class A Common Stock should carefully consider
the following factors, as well as the other information contained in this
Prospectus, before deciding to purchase shares of the Class A Common Stock
offered hereby.
AVAILABILITY OF ACQUISITION OPPORTUNITIES
The Company's ability to continue to grow is dependent in part upon its
ability to acquire additional rail properties. In making acquisitions the
Company competes with other short line and regional rail operators, some of
which are larger and have greater financial resources than the Company. There
can be no assurance that acquisition opportunities will be available to the
Company in the future or that the Company will be able to compete successfully
for available properties. The Company's ability to acquire additional rail
properties and related railroad assets may also be dependent upon its ability
to obtain financing for such acquisitions. Financing may not be available or
may be available only on terms and conditions unfavorable to the Company. In
addition, the Company's Credit Facilities contain certain limitations on the
Company's ability to make acquisitions. See "Business--Strategy--Acquisition
of Rail Properties," "Business--Competition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
FLUCTUATIONS IN REVENUES AND EXPENSES
The Company has historically experienced fluctuations in revenues and
expenses due to unpredictable events such as one-time freight moves, customer
plant expansions and shut-downs, railcar sales, accidents and derailments. The
occurrence of such events in the future could cause further fluctuations in
revenues and expenses and negatively affect the Company's financial
performance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--General."
CUSTOMER CONCENTRATION
In 1995, the Company's ten largest customers accounted for approximately 50%
of the Company's operating revenues. The Company's two largest customers in
1995 were Akzo and Georgia-Pacific Corporation ("Georgia Pacific"), which
accounted for 9% and 8% of operating revenues, respectively. As a result of
the Illinois & Midland Acquisition, the Company anticipates that ComEd will
become its largest customer. On a pro forma basis after giving effect to both
the Illinois & Midland Acquisition and the Pittsburg & Shawmut Acquisition,
ComEd represented 16% of operating revenues in 1995. See "Pro Forma Financial
Information." The Company's business could be adversely affected if its
customers suffer significant reductions in their businesses or reduce
shipments of commodities transported by the Company. See "Business--Railroad
Operations--Customers."
RELIANCE ON KEY PERSONNEL
The Company's success to date has been largely dependent on the leadership
of Mortimer B. Fuller, III, its Chairman, President and Chief Executive
Officer. While the Company has a decentralized organizational structure and an
experienced management team, the loss of Mr. Fuller's services could adversely
affect the Company's operations. See "Business--Railroad Operations--
Management" and "Management."
RELATIONSHIPS WITH CLASS I RAILROADS
The railroad industry in the United States is dominated by a small number of
large Class I carriers that have substantial market control and negotiating
leverage. Almost all of the traffic on the Company's railroads is interchanged
with Class I carriers. A decision by any of these Class I carriers to
discontinue transporting certain commodities or to use alternate modes of
transportation, such as motor carriers, could adversely affect the Company's
business. See "Business--Industry Overview."
The Company's ability to provide rail service to its customers depends in
large part upon its ability to maintain cooperative relationships with Class I
connecting carriers with respect to, among other matters, freight rates, car
supply, reciprocal switching, interchange and trackage rights. A deterioration
in the operations of or
7
<PAGE>
service provided by those connecting carriers, or in the Company's
relationship with its connecting carriers, could adversely affect the
Company's business. In addition, much of the freight transported by the
Company's railroads moves on railcars supplied by Class I carriers. Were these
carriers to reduce the number of railcars available for use by its railroads,
the Company might not be able to obtain replacement railcars on favorable
terms. See "Business--Railroad Operations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."
Portions of the Company's rail properties are operated under leases,
operating agreements or trackage rights agreements with Class I carriers.
Failure of the Company's railroads to comply with such leases and agreements
in all material respects could result in the loss of operating rights with
respect to such rail properties, which would adversely affect the Company's
business. See "Property."
COMPETITION
Each of the Company's railroads is typically the only rail carrier directly
serving its customers; however, the Company's railroads compete directly with
other modes of transportation, including motor carriers and, to a lesser
extent, ships and barges. Competition is based primarily upon the rate charged
and the transit time required, as well as the quality and reliability of the
service provided. Any improvement in the cost or quality of these alternate
modes of transportation could increase competition from these other modes of
transportation and adversely affect the Company's business. Approximately
12.8% of the Company's 1995 freight revenues was generated by overhead traffic
(i.e. traffic neither originating nor terminating on one of its railroads).
Overhead traffic is subject to diversion based on service and prices charged
by other railroads. See "Business--Competition" and "Business--Railroad
Operations--Rail Traffic."
REGULATION
The Company's railroads are subject to regulation by the Surface
Transportation Board ("STB"), the Federal Railroad Administration ("FRA"),
state departments of transportation and some state and local regulatory
agencies. See "Business--Regulation." Despite deregulation in recent years,
federal and state regulation continues to affect profitability and
competitiveness in the railroad industry. The federal and state regulatory
schemes negatively affect the Company through, among other things, the delays
and costs associated with protracted abandonment proceedings and the legal
costs associated with acquisition proceedings. Although the recently enacted
ICC Termination Act of 1995 (the "ICCTA") purports to aim at eliminating or
reducing such costs, the ICCTA has not been in effect long enough to determine
the extent to which it will be successful in this regard. In reducing
regulation, an effect of the ICCTA may be diminished regulatory protection for
small railroads, which negatively affects their competitive position with
their Class I connections. See "Business--Railroad Operations" and "Business--
Regulation."
LIABILITY FOR CASUALTY LOSSES
The Company has obtained for each of its railroads insurance coverage for
losses arising from personal injury and for property damage in the event of
derailments or other accidents or occurrences. The Company believes that its
insurance coverage is adequate based on its experience. However, under
catastrophic circumstances such as accidents involving passenger trains or
spillage of hazardous materials, the Company's liability could exceed its
insurance limits. Insurance is available from only a very limited number of
insurers and there can be no assurance that insurance protection at the
Company's current levels will continue to be available or, if available, will
be obtainable on terms acceptable to the Company. The occurrence of losses or
other liabilities which are not covered by insurance or which exceed the
Company's insurance limits could materially adversely affect the financial
condition of the Company. See "Business--Insurance."
ENVIRONMENTAL MATTERS
The Company's railroad operations and real estate ownership are subject to
extensive federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters,
and the handling, storage, transportation and disposal of waste and other
materials. The Company's railroads regularly transport hazardous materials for
shippers, and also periodically use hazardous materials in their own
8
<PAGE>
operations. As a result, the Company's business involves the risk of
substantial environmental liability as a result of current and past
operations. See "Business--Environmental Matters."
LABOR MATTERS
Five of the Company's railroads have employees who are subject to collective
bargaining agreements. Strikes and work stoppages, whether brought against the
Company's railroads or against the Class I carriers with which they connect,
could adversely affect the operations of the Company's railroads. See
"Business--Railroad Operations--Employees."
DILUTION
Purchasers of Class A Common Stock in the Offering will experience an
immediate and substantial dilution of $9.12 per share in the net tangible book
value of their shares. See "Dilution."
CONCENTRATION OF VOTING POWER
Upon completion of the Offering, the directors and executive officers of the
Company will beneficially own approximately 27.9% of the outstanding shares of
Class A Common Stock and approximately 99.0% of the outstanding shares of
Class B Common Stock, representing approximately 76.2% of the voting power of
the Company (including approximately 57.5% of the voting power of the Company
controlled by Mortimer B. Fuller, III, the Company's Chairman, President and
Chief Executive Officer). As a result, Mr. Fuller and the other directors and
executive officers of the Company will have the ability to affect the vote of
the Company's stockholders on significant corporate actions requiring
stockholder approval, including mergers, share exchanges or sales of all or
substantially all of the Company's assets. With such voting power, Mr. Fuller
and the other directors and executive officers of the Company may also have
the ability to delay or prevent a change in control of the Company. See
"Principal Stockholders," "Certain Transactions" and "Description of Capital
Stock."
NO PRIOR PUBLIC MARKET FOR CLASS A COMMON STOCK
Prior to the Offering, there has been no public market for the Class A
Common Stock. Although the Company has applied for quotation of the Class A
Common Stock on the Nasdaq National Market, there can be no assurance that an
active trading market for the Class A Common Stock will develop or, if it does
develop, that such trading market will be sustained after the completion of
the Offering. The initial public offering price will be determined through
negotiations between GWI and representatives of the Underwriters and may not
be indicative of the market price for the Class A Common Stock after the
Offering. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price of the Class A
Common Stock. The market price of the Class A Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results and other factors. In addition, general market price declines or
market volatility in the future could affect the market price of the Class A
Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 1,501,937 shares of Class A Common Stock outstanding immediately
prior to the Offering will be eligible for sale subject to the volume and
other limitations of Rule 144 under the Securities Act of 1933, as amended
(the "Act"). In addition, all of the 846,556 shares of Class B Common Stock
outstanding immediately prior to the Offering are freely convertible into
shares of Class A Common Stock and, if so converted, will be eligible for sale
subject to the volume and other limitations of Rule 144. Holders of the Bank
Warrant are also entitled under certain circumstances to demand and "piggy-
back" registration rights with respect to the shares issuable upon exercise
thereof. No prediction can be made as to the effect, if any, that future sales
of shares of Class A Common Stock, or the availability of shares of Class A
Common Stock for future sales, will have on the market price of the Class A
Common Stock prevailing from time to time. Sales of substantial amounts of
Class A Common Stock (including shares issued upon the exercise of options,
warrants or the conversion of Class B Common Stock, or under the Company's
Employee Stock Purchase Plan), or the perception that such sales could occur,
could adversely affect prevailing market prices for the Class A Common Stock.
See "Management--Stock Options," "Management--Employee Stock Purchase Plan"
and "Description of Capital Stock--Bank Warrant."
9
<PAGE>
The Company, its officers and directors and certain other stockholders have
agreed not to sell or otherwise dispose of any shares of Common Stock, subject
to certain exceptions, for a period of 180 days after the date of this
Prospectus without the prior written consent of Schroder Wertheim & Co.
Incorporated. Following the Offering, an aggregate of 1,952,783 shares, or
40.3% of the total shares outstanding, will be subject to these restrictions.
See "Shares Eligible for Future Sale" and "Underwriting."
LIMITATIONS ON TAKEOVERS
Certain provisions of the Company's Certificate of Incorporation and By-laws
may have the effect of discouraging a third party from making an acquisition
proposal for the Company and may thereby inhibit a change in control of the
Company under circumstances that could give the stockholders the opportunity
to realize a premium over the then-prevailing market prices. Specifically,
mergers and certain other corporate actions require the approval of two-thirds
of the total votes represented by all Class A Common Stock and Class B Common
Stock, the Board of Directors is divided into three classes, with the members
of each class serving for staggered three-year terms, and the Board is
expressly authorized to consider a variety of factors and constituencies in
determining the Company's best interests. In addition, under certain
circumstances Section 203 of the Delaware General Corporation Law makes it
more difficult for an "interested stockholder" (generally a 15% stockholder)
to effect certain business combinations with a corporation for a three-year
period. See "Description of Capital Stock--Limitations on Takeovers."
RECENT DEVELOPMENTS
ILLINOIS & MIDLAND ACQUISITION
On February 8, 1996, the Company established its Illinois region when
Illinois & Midland acquired certain railroad operating assets from CIMR. The
purchase price was $27.5 million (including the assumption of certain
liabilities and $159,000 of related costs) and was financed by the proceeds of
the term loan described below.
The Illinois & Midland Acquisition is an example of the Company's strategy
of acquiring rail properties that service major industrial customers. In 1995,
CIMR generated operating revenues of $13.7 million and income from continuing
operations of $2.5 million and transported 48,104 carloads, approximately 91%
of which consisted of coal shipments to two power plants operated by ComEd.
Illinois & Midland has the exclusive right to serve these power plants and the
majority of the shipments are under long-term contracts extending until 2002.
A second coal customer, Illinois Power Company, began to receive coal
shipments at a power plant located in Havana, Illinois in 1996. Illinois Power
Company has entered into a contract to receive an average of 7,000 carloads
annually through 1999. The Company believes that these contracts will provide
a stable revenue base from which to grow other freight revenues and non-
freight revenues. In addition to coal, Illinois & Midland also transports
flour, roofing granules, ethanol and lumber.
The assets acquired by Illinois & Midland consist primarily of a 126-mile
line extending from Peoria, Illinois, through Springfield to Taylorville,
Illinois, a small number of railcars which will be used for maintenance of
way, and certain rights under real property leases. The rail line consists of
111 miles of FRA Class III track and 15 miles of FRA Class II track. The
Company believes that the track is in excellent condition and that a
relatively low level of capital expenditures will be required in the near
future. Illinois & Midland interchanges with 11 railroads, including six Class
I railroads, and also connects with the Illinois River through an unloading
facility owned by ComEd and operated by Illinois & Midland. The Company
believes there will be opportunities for additional expansion through
acquisitions in the midwest.
In connection with the acquisition, Illinois & Midland hired 70 former CIMR
employees, including 55 operating and hourly employees who had been
represented by 12 different labor unions. Illinois & Midland, through
negotiation with the United Transportation Union ("UTU"), has entered into an
agreement whereby the UTU will represent all of these operating and hourly
employees. The agreement simplifies operating rules contained in the prior
agreements.
10
<PAGE>
PITTSBURG & SHAWMUT ACQUISITION
On April 29, 1996, Pittsburg & Shawmut acquired substantially all of the
operating assets of the ATWEC Railroads. These railroad assets were previously
operated by ATWEC subsidiaries Pittsburg & Shawmut Railroad Company, Mountain
Laurel Railroad Company and Red Bank Railroad Company. The purchase price was
approximately $15.2 million (including the assumption of a grant from the
Commonwealth of Pennsylvania and $250,000 of related costs). In addition, the
purchase and sale agreement provides for additional contingency payments of up
to $2.5 million in the event that coal revenues exceed certain agreed upon
levels. The purchase price was financed by the proceeds of the term loan
described below.
The 237-mile line acquired by Pittsburg & Shawmut consists of a main line
that extends from Driftwood, Pennsylvania through DuBois to Freeport,
Pennsylvania, and branch lines that extend to Reidsburg and Lawsonham,
Pennsylvania. In 1995, the ATWEC Railroads generated operating revenues of
$5.9 million and transported approximately 17,500 carloads, 93% of which were
shipments of coal from four mines located along its lines. Pittsburg & Shawmut
has entered into a seven-year agreement covering the shipments by its largest
customer, which represented 60% of coal hauled by the ATWEC Railroads in 1995.
The Pittsburg & Shawmut Acquisition is an example of the Company's strategy
of acquiring rail properties in its existing regions in order to capitalize on
operating efficiencies. Pittsburg & Shawmut consists of three separate rail
lines, which interchange with another of the Company's railroads in three
locations. The Company believes that the proximity of these two railroads
offers an excellent opportunity for rationalization as well as market
extension and diversification. The assets acquired by Pittsburg & Shawmut
consist of 237 miles of track, 859 railcars, 19 locomotives and various other
related assets necessary to operate the rail lines. As a result of operating
efficiencies obtained with the Company's existing railroads in the New York
and Pennsylvania region, Pittsburg & Shawmut plans to liquidate 42 miles of
track and sell a significant portion of the railcars and locomotives, thereby
reducing the effective purchase price of the acquisition.
AMENDMENT AND RESTATEMENT OF CREDIT FACILITIES
On February 8, 1996, the Company and each of its subsidiaries entered into
an Amended and Restated Revolving Credit and Term Loan Agreement (the "Credit
Agreement") whereby the Company restructured its credit facilities (the
"Credit Facilities") with The First National Bank of Boston, as agent for a
syndicate of banks (the "Bank of Boston"). The Credit Agreement provides for a
five-year $34 million revolving credit facility and a five-year $40 million
loan. The term loan was made available to the Company in two tranches. The
Company borrowed $26 million in February 1996 to consummate the Illinois &
Midland Acquisition, and an additional $12 million was used in April 1996 to
consummate the Pittsburg & Shawmut Acquisition. In connection with the Credit
Agreement, the Company issued to the Bank of Boston a warrant to purchase
41,847 shares of Class A Common Stock at a price of $.0005 per share (the
"Bank Warrant"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Capital Stock--Bank Warrant."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $34.0
million ($39.2 million ifthe Underwriters' over-allotment option is exercised
in full), after deducting underwriting discounts and commissions and estimated
expenses of the Offering payable by the Company.
The Company intends to use all of the net proceeds of the Offering to repay
borrowings under the Credit Facilities. Borrowings under the Credit Facilities
were used as follows: (i) $26.1 million in connection with the Illinois &
Midland Acquisition, (ii) $11.7 million in connection with the Pittsburg &
Shawmut Acquisition, (iii) $14.3 million to repay outstanding debt, including
$701,000 in debt held by or for the benefit of directors and officers of the
Company and members of their respective families (see "Certain Transactions")
and $2.7 million in prepayment and other financing costs, (iv) $8.3 million to
purchase rolling stock and locomotives, and (v) $700,000 to construct a
locomotive facility. As of May 31, 1996, the Company had $59.3 million
outstanding under the Credit Facilities at an interest rate of 8.53% per
annum. The interest rate fluctuates at increments over prime or London Inter-
Bank Offered Rates ("LIBOR"), based on the Company's ratio of debt to EBITDA.
Following application of the net proceeds of the Offering, the Credit
Facilities will be available to the Company to finance future acquisitions.
See "Recent Developments" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has historically paid quarterly dividends in order to provide
limited liquidity to its stockholders. In 1994, 1995 and the first quarter of
1996, the Company paid total cash dividends of $63,000, $191,000 and $32,000,
respectively. Dividends in 1994 were reduced in anticipation of decreased net
income as a result of the loss of production at the Akzo mine. Because the
Company's net income increased in 1994 despite Akzo's decreased production, a
larger than usual dividend was paid in the first quarter of 1995 to offset the
lower dividends paid in 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Akzo Mine." Although the
Company has paid dividends in the past, it currently intends to retain all
earnings to support its operations and future growth and, therefore, does not
anticipate the payment of cash dividends on the Common Stock in the
foreseeable future. In addition, the Credit Facilities have certain covenant
limitations on the payment of dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to (i) the Pittsburg & Shawmut
Acquisition and (ii) the sale of 2,500,000 shares of Class A Common Stock in
the Offering and the application of the estimated net proceeds of the Offering
as described in "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------
AS FURTHER
ACTUAL AS ADJUSTED(1) ADJUSTED(2)
------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt:
Current portion of long-term debt......... $ 2,894 $ 4,690 $ 2,730
Long-term debt, excluding current portion. 63,313 67,517 35,477
------- ------- -------
Total long-term debt.................... 66,207 72,207 38,207
------- ------- -------
Stockholders' equity:
Class A Common Stock, $.01 par value,
12,000,000 shares authorized; 1,501,937
outstanding and outstanding as adjusted;
4,001,937 outstanding as further
adjusted(3)(4)........................... 15 15 40
Class B Common Stock, $.01 par value,
1,500,000 shares authorized; 846,556
outstanding(4)........................... 8 8 8
Additional paid-in capital................ 1,340 1,340 35,315
Warrants outstanding(5)................... 471 471 471
Retained earnings......................... 10,118 10,118 10,118
------- ------- -------
Total stockholders' equity.............. 11,952 11,952 45,952
------- ------- -------
Total capitalization.................. $78,159 $84,159 $84,159
======= ======= =======
</TABLE>
- --------
(1) As adjusted to give effect to the Pittsburg & Shawmut Acquisition as if it
had occurred on March 31, 1996. See "Recent Developments."
(2) As further adjusted to give effect to the sale of 2,500,000 shares of
Class A Common Stock in the Offering and the application of the estimated
net proceeds of the Offering as described in "Use of Proceeds."
(3) Excludes (i) an aggregate of 500,000 shares of Class A Common Stock
reserved for issuance under the Company's 1996 Stock Option Plan and Stock
Option Plan for Outside Directors, of which options to purchase 350,500
shares of Class A Common Stock are currently outstanding and (ii) 450,000
shares of Class A Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan. See "Management--Stock Options" and
"Management--Employee Stock Purchase Plan."
(4) For a description of the Class A Common Stock and the Class B Common
Stock, see "Description of Capital Stock."
(5) For a description of the Bank Warrant, see "Description of Capital Stock--
Bank Warrant."
13
<PAGE>
DILUTION
Pro forma net tangible book value per share before the Offering takes into
consideration the Pittsburg & Shawmut Acquisition as if it had occurred on
March 31, 1996. The Company's pro forma net tangible book value at March 31,
1996 was $(5.5) million, or $(2.33) per share of Common Stock. Pro forma net
tangible book value per share is determined by dividing the pro forma tangible
net worth of the Company (total tangible assets less total liabilities) by the
total number of shares of Class A Common Stock and Class B Common Stock
outstanding. After giving effect to the sale by the Company of 2,500,000
shares of Class A Common Stock in the Offering and the application of the net
proceeds as described in "Use of Proceeds," the Company's pro forma net
tangible book value at March 31, 1996 would have been $28.5 million, or $5.88
per share. This represents an immediate increase in net tangible book value of
$8.21 per share to existing stockholders and an immediate dilution in net
tangible book value of $9.12 per share to new investors purchasing shares of
Class A Common Stock in the Offering. The following table illustrates the pro
forma per share dilution at March 31, 1996:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $15.00
Pro forma net tangible book value per share before the Offer-
ing(1)........................................................ $(2.33)
Increase per share attributable to new investors............... 8.21
------
Pro forma net tangible book value per share after giving effect
to the Offering(1).............................................. 5.88
------
Dilution per share to new investors.............................. $ 9.12
======
</TABLE>
- --------
(1) Tangible assets include leasehold interests. Intangible assets include
unamortized service assurance agreement (see note 1 to audited condensed
consolidated financial statements), organization costs and financing costs
in the amount of $17.4 million.
The following table shows, on a pro forma basis at March 31, 1996, the
difference between existing stockholders and new investors with respect to the
number of shares purchased from the Company and the total consideration and
average price per share paid to the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION AVERAGE
----------------------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------------------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(2).... 2,348,493 48.4% $ 1,362,995 3.5% $ 0.58
New investors............... 2,500,000 51.6 37,500,000 96.5 15.00
----------- ------- ----------- -----
Total..................... 4,848,493 100.0% $38,862,995 100.0%
=========== ======= =========== =====
</TABLE>
- --------
(1) The Class A Common Stock is entitled to one vote per share and the Class B
Common Stock is entitled to ten votes per share. The Class A Common Stock
and the Class B Common Stock vote together as a single class, except as
required by law. After giving effect to the Offering, the outstanding
shares of Class A Common Stock held by new investors will represent
approximately 20.1% of the total combined voting power of both classes of
Common Stock outstanding, and the outstanding shares of Class A Common
Stock and Class B Common Stock held by existing stockholders will
represent approximately 79.9% of the total combined voting power of both
classes of Common Stock outstanding. See "Risk Factors--Concentration of
Voting Power" and "Description of Capital Stock."
(2) The information presented assumes no exercise of outstanding options or
warrants. See "Management--Stock Options" and "Description of Capital
Stock--Bank Warrant."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
The following selected consolidated income statement data and selected
consolidated balance sheet data of the Company for the years ended December
31, 1991, 1992, 1993, 1994 and 1995, and the three months ended March 31, 1995
and 1996, have been derived from the Company's consolidated financial
statements. The results of operations for the interim periods are not
necessarily indicative of results of operations for the full year. The
following selected consolidated operating data for the years ended December
31, 1991, 1992, 1993, 1994 and 1995, and the three months ended March 31, 1995
and 1996, have been derived from the records of the Company. All of the
information should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Prospectus. See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, PRO FORMA(1)
------------------------------------------------ ----------------- ----------------------
THREE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1995 1996
-------- -------- -------- -------- -------- ------- -------- ------------ ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...... $ 20,536 $ 32,940 $ 49,645 $ 55,419 $ 53,387 $13,391 $ 16,608 $ 73,042 $ 19,448
Operating expenses...... 20,261 30,192 43,501 47,381 46,815 11,865 13,794 60,626 15,890
-------- -------- -------- -------- -------- ------- -------- -------- --------
Operating income........ 275 2,748 6,144 8,038 6,572 1,526 2,814 12,416 3,558
Interest expense........ (1,583) (2,319) (2,864) (3,212) (3,405) (766) (1,274) (4,020) (948)
Other income............ 105 643 165 192 456 105 81 2,711 113
-------- -------- -------- -------- -------- ------- -------- -------- --------
Income (loss) before
income taxes,
extraordinary item and
cumulative effect of
accounting change...... (1,203) 1,072 3,445 5,018 3,623 865 1,621 11,107 2,723
Income taxes............ 319 (435) (1,428) (2,007) (1,472) 363 656 4,509 1,103
-------- -------- -------- -------- -------- ------- -------- -------- --------
Income (loss) before
extraordinary item and
cumulative effect of
accounting change...... (884) 637 2,017 3,011 2,151 502 965 6,598 1,620
Extraordinary item...... -- -- -- -- (494) -- -- (494) --
Cumulative effect of ac-
counting change(2)..... -- -- (393) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------- -------- --------
Net income (loss)....... $ (884) $ 637 $ 1,624 $ 3,011 $ 1,657 $ 502 $ 965 $ 6,104 $ 1,620
======== ======== ======== ======== ======== ======= ======== ======== ========
Earnings per common
share:
Income (loss) before
extraordinary item and
cumulative effect of
accounting change..... $ (0.39) $ 0.28 $ 0.88 $ 1.31 $ 0.92 $ 0.21 $ 0.41 $ 1.36 $ 0.33
Extraordinary item..... -- -- -- -- (0.21) -- -- (0.10) --
Cumulative effect of
accounting change(2).. -- -- (0.18) -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------- -------- --------
Net income (loss)...... $ (0.39) $ 0.28 $ 0.70 $ 1.31 $ 0.71 $ 0.21 $ 0.41 $ 1.26 $ 0.33
======== ======== ======== ======== ======== ======= ======== ======== ========
Dividends per common
share.................. $ 0.05 $ 0.05 $ 0.05 $ 0.03 $ 0.08 $ 0.04 $ 0.01
Weighted average number
of common shares
outstanding............ 2,258 2,258 2,304 2,304 2,348 2,348 2,348 4,848 4,848
OPERATING DATA:
Total track mile-
age(3)(4).............. 298 555 841 808 839 808 964 1,160 1,236
Total carloads.......... 43,077 73,429 115,301 119,051 118,673 30,966 39,345 184,277 49,674
Total employees(4)...... 176 266 357 380 397 399 462 485 489
Operating revenues per
carload................ $ 477 $ 449 $ 431 $ 466 $ 450 $ 432 $ 422 $ 396 $ 392
Operating revenues per
employee............... $116,682 $123,835 $139,062 $145,839 $134,476 $33,561 $ 35,948 $150,602 $ 39,771
Carloads per employee... 245 276 323 313 299 78 85 380 102
Operating ratio(5)...... 98.7% 91.7% 87.6% 85.5% 87.7% 88.6% 83.1% 83.0% 81.7%
BALANCE SHEET DATA AS OF
PERIOD END:
Total assets............ $ 44,404 $ 56,965 $ 63,653 $ 69,888 $ 78,429 $67,334 $115,859 $125,027
Total debt.............. 26,592 32,109 35,095 32,640 39,941 31,415 66,207 38,207
Stockholders' equity.... 4,030 4,575 6,074 9,082 10,548 9,488 11,952 45,952
</TABLE>
- --------
(1) The pro forma financial information presented is based upon certain pro
forma adjustments to reflect (i) the sale of 2,500,000 shares of Class A
Common Stock in the Offering and the application of the estimated net
proceeds of the Offering as set forth under "Use of Proceeds," (ii) the
amendment and restatement of the Credit Facilities, and (iii) the closing
of the Illinois & Midland and Pittsburg & Shawmut Acquisitions. The pro
forma unaudited condensed consolidated balance sheet data assumes that the
Pittsburg & Shawmut Acquisition occurred on March 31, 1996, and the pro
forma unaudited condensed consolidated income statement and operating data
assumes that the Illinois & Midland and Pittsburg & Shawmut Acquisitions
and the amendment and restatement of the Credit Facilities occurred on
January 1, 1995.
(2) Represents the adoption, as of January 1, 1993, of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions."
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Accounting Matters."
(3) Excludes track miles operated under trackage rights and operating
contracts. See "Property."
(4) Based on monthly averages over the respective periods, except for pro
forma data which is as of December 31, 1995 and March 31, 1996.
(5) Operating expenses divided by operating revenues.
15
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Unaudited Condensed Consolidated Statements assume
(i) the sale of 2,500,000 shares of Class A Common Stock in the Offering and
the application of the estimated net proceeds of the Offering as set forth
under "Use of Proceeds," (ii) the amendment and restatement of the Credit
Facilities and (iii) the closing of the Illinois & Midland and Pittsburg &
Shawmut Acquisitions. The Pro Forma Unaudited Condensed Consolidated Balance
Sheet assumes that the Pittsburg & Shawmut Acquisition occurred on March 31,
1996, and the Pro Forma Unaudited Condensed Consolidated Statement of Income
assumes that the Illinois & Midland and Pittsburg & Shawmut Acquisitions and
the amendment and restatement of the Credit Facilities occurred on January 1,
1995.
The Pro Forma Unaudited Condensed Consolidated Income Statement for the year
ended December 31, 1995 reflects the audited income statement of the Company
for the year ended December 31, 1995 and the audited income statements of CIMR
and the ATWEC Railroads for the year ended December 31, 1995 on a historical
basis.
The Pro Forma Unaudited Condensed Consolidated Income Statement for the
period ended March 31, 1996 reflects the unaudited income statement of the
Company for the period ended March 31, 1996 and the unaudited income
statements of CIMR and the ATWEC Railroads for the period ended February 8,
1996 and March 31, 1996, respectively, on a historical basis.
The pro forma financial information is a presentation of historical results
with accounting and other adjustments. The pro forma financial information
does not reflect the effects of any of the anticipated changes to be made by
the Company in the Illinois & Midland and Pittsburg & Shawmut operations from
the historical operations of CIMR and the ATWEC Railroads.
THE PRO FORMA STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE COMPANY'S FINANCIAL POSITION
OR RESULTS OF OPERATIONS HAD THE TRANSACTIONS BEEN CONSUMMATED ON THE DATES
ASSUMED AND DO NOT PROJECT THE COMPANY'S RESULTS OF OPERATIONS FOR ANY FUTURE
PERIOD. SEE "RECENT DEVELOPMENTS."
The following Pro Forma Unaudited Condensed Consolidated Statements and
accompanying notes should be read in conjunction with the financial statements
and the financial information pertaining to the Company, CIMR and the ATWEC
Railroads included elsewhere in this Prospectus.
16
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CHICAGO & THE
GENESEE & ILLINOIS MIDLAND ATWEC PRO
WYOMING INC. RAILWAY COMPANY RAILROADS COMBINED ADJUSTMENTS FORMA
------------ ---------------- --------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $53,387 $13,733 $ 5,922 $ 73,042 $ -- $73,042
------- ------- ------- -------- ------- -------
Operating Expenses:
Transportation......... 14,262 2,593 1,027 17,882 -- 17,882
Maintenance of ways and
structures............ 6,127 1,814 806 8,747 -- 8,747
Maintenance of equip-
ment.................. 12,230 1,659 846 14,735 -- 14,735
General and administra-
tive.................. 10,309 2,203 1,918 14,430 (631)(1) 13,799
Depreciation and amor-
tization.............. 3,887 1,437 1,808 7,132 (1,669)(2,3) 5,463
------- ------- ------- -------- ------- -------
Total operating
expenses............. 46,815 9,706 6,405 62,926 (2,300) 60,626
Operating Income........ 6,572 4,027 (483) 10,116 2,300 12,416
Interest Expense........ (3,405) (1,461) (481) (5,347) 1,327 (4) (4,020)
Other Income............ 456 1,525 730 2,711 -- 2,711
Loss on Sale of Assets . -- (16,082) (10,288) (26,370) 26,370 (5) --
------- ------- ------- -------- ------- -------
Income Before Income
Taxes.................. 3,623 (11,991) (10,522) (18,890) 29,997 11,107
Income Taxes............ 1,472 (4,545) (4,214) (7,287) 11,796 (6) 4,509
------- ------- ------- -------- ------- -------
Income From Continuing
Operations............. $ 2,151 $(7,446) $(6,308) $(11,603) $18,201 $ 6,598
======= ======= ======= ======== ======= =======
Income From Continuing
Operations Per Common
Share.................. $ 0.92 $ 1.36
Weighted Average Number
of Common Shares
Outstanding............ 2,348 4,848
</TABLE>
See accompanying notes to pro forma unaudited condensed consolidated financial
statements.
17
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CHICAGO &
ILLINOIS MIDLAND
RAILWAY COMPANY THE
GENESEE & (THROUGH ATWEC PRO
WYOMING INC. FEBRUARY 8, 1996) RAILROADS COMBINED ADJUSTMENTS FORMA
------------ ----------------- --------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues...... $16,608 $1,420 $1,420 $19,448 $ -- $19,448
Operating Expenses:
Transportation......... 4,480 532 261 5,273 -- 5,273
Maintenance of ways and
structures............ 2,186 411 210 2,807 -- 2,807
Maintenance of equip-
ment.................. 2,994 390 215 3,599 -- 3,599
General and administra-
tive.................. 2,809 757 400 3,966 (1,291)(1) 2,675
Depreciation and
amortization.......... 1,325 184 442 1,951 (415)(2,3) 1,536
------- ------ ------ ------- ------ -------
Total operating
expenses............. 13,794 2,274 1,528 17,596 (1,706) 15,890
Operating Income........ 2,814 (854) (108) 1,852 1,706 3,558
Interest Expense........ (1,274) (107) (78) (1,459) 511 (4) (948)
Other Income............ 81 17 15 113 -- 113
------- ------ ------ ------- ------ -------
Income Before Income
Taxes.................. 1,621 (944) (171) 506 2,217 2,723
Income Taxes............ 656 (360) (70) 226 877 (6) 1,103
------- ------ ------ ------- ------ -------
Income From Continuing
Operations............. $ 965 $ (584) $ (101) $ 280 $1,340 $ 1,620
======= ====== ====== ======= ====== =======
Income From Continuing
Operations Per Common
Share.................. $ 0.41 $ 0.33
Weighted Average Number
of Common Shares
Outstanding............ 2,348 4,848
</TABLE>
See accompanying notes to pro forma unaudited condensed consolidated financial
statements.
18
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE
GENESEE & ATWEC PRO
WYOMING INC. RAILROADS COMBINED ADJUSTMENTS FORMA
------------ --------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equiva-
lents................. $ 6,588 $ 2,697 $ 9,285 $ (2,697)(7) $ 6,588
Accounts receivable,
net................... 14,764 710 15,474 (710)(7) 14,764
Materials and supplies. 2,295 183 2,478 (183)(7) 2,295
Prepaid expenses....... 1,747 298 2,045 (298)(7) 1,747
Deferred income tax as-
sets, net............. 1,364 -- 1,364 -- 1,364
-------- ------- -------- -------- --------
Total current assets.. 26,758 3,888 30,646 (3,888) 26,758
Note Receivable......... -- 1,249 1,249 (1,249)(7) --
Property and Equipment,
net.................... 70,609 14,480 85,089 (5,312)(8) 79,777
Service Assurance Agree-
ment, net.............. 14,851 -- 14,851 -- 14,851
Other Assets, net....... 3,641 84 3,725 (84)(7) 3,641
-------- ------- -------- -------- --------
Total assets.......... $115,859 $19,701 $135,560 $(10,533) $125,027
======== ======= ======== ======== ========
LIABILITIES AND STOCK-
HOLDERS' EQUITY
Current Liabilities:
Current portion of
long-term debt........ $ 2,894 $ 125 $ 3,019 $ (289)(7,9) $ 2,730
Accounts payable....... 17,103 784 17,887 (784)(7) 17,103
Accrued expenses....... 4,431 433 4,864 (433)(7) 4,431
-------- ------- -------- -------- --------
Total current liabili-
ties................. 24,428 1,342 25,770 (1,506) 24,264
Long-Term Debt.......... 63,313 3,900 67,213 (31,736)(7,9) 35,477
Other Liabilities....... 2,055 333 2,388 (333)(7) 2,055
Deferred Income Taxes,
net.................... 4,489 1,921 6,410 (1,921)(7) 4,489
Deferred Items--grants.. 9,622 3,168 12,790 -- 12,790
Stockholders' Equity:
Class A common stock... 15 194 209 (169)(7,10) 40
Class B common stock... 8 150 158 (150)(7) 8
Treasury stock......... -- (33) (33) 33 (7) --
Additional paid-in cap-
ital.................. 1,340 7,653 8,993 26,322 (7,10) 35,315
Warrants outstanding... 471 -- 471 -- 471
Retained earnings...... 10,118 1,157 11,275 (1,157)(7) 10,118
Pension liability ad-
justment.............. -- (84) (84) 84 (7) --
-------- ------- -------- -------- --------
Total stockholders'
equity............... 11,952 9,037 20,989 24,963 45,952
-------- ------- -------- -------- --------
Total liabilities and
stockholders' equity. $115,859 $19,701 $135,560 $(10,533) $125,027
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to pro forma unaudited condensed consolidated financial
statements.
19
<PAGE>
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes identify the pro forma adjustments made to the
historical amounts in the pro forma unaudited condensed consolidated financial
statements.
1. For the fiscal year ended December 31, 1995, represents the elimination of
compensation of executive officers of acquired railroads not retained or
replaced by the Company ($406,000), occupancy and other costs of the
offices of the parent company of the ATWEC Railroads which were not
acquired ($168,000) and retiree benefits retained by the selling railroads
($57,000). For the three months ended March 31, 1996, represents the
elimination of transaction bonuses ($286,000), severance payments
($920,000), occupancy and other costs of the offices of the parent company
of the ATWEC Railroads which were not acquired ($77,000) and retiree
benefits retained by the selling railroads ($8,000).
2. Represents the decrease in depreciation expense resulting from a decrease
in the depreciable basis and a change in the depreciable lives of certain
assets. Depreciation expense of CIMR and the ATWEC Railroads for the year
ended December 31, 1995 and the three months ended March 31, 1996 was
approximately $2,740,000 and $573,000, respectively. Pro forma
depreciation expense of CIMR and the ATWEC Railroads, calculated on a
straight-line basis, was approximately $1,200,000 and $173,000,
respectively, or a difference of approximately $1,530,000 and $400,000,
respectively. Pro forma depreciation expense was calculated using the
composite depreciable lives utilized by the Company and the asset basis of
the Illinois & Midland and Pittsburg & Shawmut Acquisitions.
3. Represents the increase in amortization expense for the year ended
December 31, 1995 and the three months ended March 31, 1996 of
approximately $179,000 and $20,000, respectively, resulting from a
reduction in the amortization period for intangible assets, including the
service assurance agreement from the acquisition of CIMR.
4. Represents a decrease in interest expense associated with the reduction of
debt as a result of the Offering, plus the effect of the reduced interest
expense associated with the replacement of CIMR's and the ATWEC Railroads'
credit facilities with the Company's Credit Facilities. Included in the
pro forma interest expense is approximately $94,000 of amortization of the
debt discount associated with the Bank Warrant for the year ended December
31, 1995 and $10,000 for the three months ended March 31, 1996. The debt
bears interest at an assumed rate of approximately 8.5%. Also included is
the amortization of approximately $1,640,000 of debt financing fees over
five years. An increase in the assumed interest rate of 1/8% would
decrease net income by approximately $31,000 and $17,000 for the year
ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
5. Represents the elimination of the write down of assets of CIMR and the
ATWEC Railroads to the purchase price paid by the Company.
6. Represents the income tax effects of the pro forma adjustments. The
Company's pro forma income tax rate is 40.6% for the year ended December
31, 1995 and 40.5% for the three months ended March 31, 1996.
7. Represents the elimination of assets (other than operating rail assets)
and liabilities the ATWEC Railroads which the Company did not acquire or
assume in connection with the Pittsburg & Shawmut Acquisition.
8. The total purchase price for the ATWEC Railroads of approximately
$15,194,000 includes approximately $250,000 of costs related to the
Pittsburg & Shawmut Acquisition. The purchase price was allocated to
property and equipment, less the anticipated sale of assets of
approximately $6,000,000.
9. Represents reduction of debt through the application of the estimated net
proceeds of the Offering, after giving effect to the additional debt
incurred by the Company in connection with the Pittsburg & Shawmut
Acquisition.
10. Represents estimated net proceeds to the Company in the Offering of $34
million.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
consolidated financial statements, related notes and other financial
information included elsewhere in this Prospectus.
GENERAL
GWI is a holding company whose subsidiaries own and operate short line and
regional freight railroads and provide related rail services. The Company
generates revenues primarily from the movement of freight over track owned or
operated by its railroads. The Company also generates non-freight revenues
primarily by providing related rail services such as railcar leasing, railcar
repair, switching and storage to shippers along its lines and to the Class I
railroads that connect with its lines.
The Company's operating expenses include wages and benefits, equipment rents
(including car hire), purchased services, depreciation and amortization,
diesel fuel, casualties and insurance, materials and other expenses. Car hire
is a charge paid by a railroad to the owners of railcars used by that railroad
in moving freight. Other expenses generally include property and other non-
income taxes, professional services, communication and data processing costs
and general overhead expense.
When comparing the Company's results of operations from one reporting period
to another, the following factors should be taken into consideration. First,
in 1994 and 1995, the Company experienced a substantial decrease in revenues
and operating income as a result of the collapse of Akzo's salt mine and
subsequent loss of salt production. See "--Akzo Mine." Second, the Company has
historically experienced fluctuations in revenues and expenses due to
unpredictable events such as one-time freight moves, customer plant expansions
and shut-downs, railcar sales, accidents and derailments. In periods when
these events occur, results of operations are not easily comparable to other
periods. Finally, much of the Company's growth to date has resulted from
acquisitions and this growth has been "stair-step" in nature--periods with
large revenue increases primarily as a result of these acquisitions, followed
by periods of more gradual, incremental growth as the Company implements its
marketing and operating strategies. The Company acquired two rail properties
in 1993, one in 1994 and one in 1995. In addition, the Company completed the
Illinois & Midland and Pittsburg & Shawmut Acquisitions during the first four
months of 1996. See "Recent Developments." Because of variations in the
structure, timing and size of these acquisitions and differences in economics
among the Company's railroads resulting from differences in the rates and
other material terms established through negotiation, the Company's results of
operations in any reporting period may not be directly comparable to its
results of operations in other reporting periods.
AKZO MINE
The major customer of one of the Company's railroads is Akzo, which operated
a rock salt mine in Retsof, New York. In 1993, the last year the salt mine was
fully operational, Akzo accounted for $9.7 million or 19.5% of the Company's
operating revenues, $5.9 million or 15.2% of its freight revenues and $3.8
million or 37.0% of its non-freight revenues. In March 1994, a section of the
mine's roof collapsed, causing flooding from an underground aquifer. The mine
closed in September 1995. Akzo had previously announced its intention to
construct a new mine. In anticipation of the construction of a new mine, the
Company incurred approximately $600,000 of costs in connection with
construction of a rail spur. Akzo announced in April 1996 that a new mine will
not be constructed and that the Retsof location will be converted to a rock
salt distribution center. While the Company anticipates that it will be
reimbursed for these costs, there can be no assurance that such reimbursement
will occur.
The Akzo mine flooding negatively affected the Company's freight revenues in
1994 and 1995. Freight revenues attributable to Akzo totaled $2.8 million in
1994 and $1.9 million in 1995. The Company anticipates that freight revenues
attributable to Akzo will be minimal in 1996 and thereafter. The flooding has
not affected non-freight revenues from Akzo, which consist primarily of income
from railcar leases under long-term contracts. Non-freight revenues from Akzo
totaled $2.9 million in 1995 compared to $3.6 million in 1994.
21
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Operating Revenues
Operating revenues were $16.6 million in the first three months of 1996
compared to $13.4 million in the first three months of 1995, an increase of
$3.2 million or 24.0%. The increase was attributable to a $2.4 million
increase in freight revenues and an $834,000 increase in non-freight revenues.
Freight revenues were $13.0 million in the first three months of 1996
compared to $10.6 million in the first three months of 1995, an increase of
$2.4 million or 22.6%. The following table compares freight revenues, carloads
and average freight revenues per carload for the first three months of 1995
and 1996:
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
---------------------------- -------------------------- -----------
% OF % OF % OF % OF
COMMODITY GROUP 1995 TOTAL 1996 TOTAL 1995 TOTAL 1996 TOTAL 1995 1996
- --------------- ------- ----- ------- ----- ------ ----- ------ ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores....... $ 694 6.6% $ 3,007 23.2% 3,324 10.7% 11,941 30.3% $209 $252
Petroleum Products...... 2,125 20.1 2,270 17.5 4,383 14.2 4,542 11.6 485 500
Pulp & Paper............ 1,691 16.0 1,793 13.8 4,610 14.9 4,772 12.1 367 376
Lumber & Forest Prod-
ucts................... 1,051 9.9 1,269 9.8 3,102 10.0 4,123 10.5 339 308
Metals.................. 1,065 10.1 1,220 9.4 4,098 13.2 4,715 12.0 260 259
Chemicals & Plastics.... 1,008 9.5 967 7.5 2,078 6.7 1,841 4.7 485 525
Farm & Food Products.... 508 4.8 787 6.1 1,468 4.7 2,282 5.8 346 345
Autos & Auto Parts...... 582 5.5 764 5.9 1,085 3.5 1,463 3.7 536 522
Minerals & Stone........ 394 3.7 277 2.1 1,007 3.3 915 2.3 391 303
Salt.................... 1,125 10.7 72 0.6 4,057 13.1 388 1.0 277 186
Other................... 327 3.1 528 4.1 1,754 5.7 2,363 6.0 186 223
------- ----- ------- ----- ------ ----- ------ ----- ----- -----
Total.................. $10,570 100.0% $12,954 100.0% 30,966 100.0% 39,345 100.0% $341 $329
======= ===== ======= ===== ====== ===== ====== ===== ===== =====
</TABLE>
The increase in freight revenues was largely attributable to the
commencement of operations on Illinois & Midland, which generated freight
revenues of $2.5 million, $2.3 million of which were revenues from the
shipment of coal. A new line acquired in August 1995 in the Oregon region
generated an additional $591,000 in revenues in the first three months of
1996, primarily from shipments of grain and lumber. Excluding freight revenues
from the Akzo mine, freight revenues from all other operations increased
$389,000. These increases offset the continuing effect of the loss of
production at the Akzo mine. See "--Akzo Mine."
Total carloads were 39,345 in the first three months of 1996 compared to
30,966 in the first three months of 1995, an increase of 8,379 or 27.1%. The
increase was attributable to 9,720 carloads transported by Illinois & Midland,
which consisted primarily of coal and 2,682 carloads from a new Oregon line.
These increases were offset by a decrease of 4,023 carloads from other
operations, most of which were related to the closure of the Akzo mine.
Non-freight revenues were $3.7 million in the first three months of 1996
compared to $2.8 million in the first three months of 1995, an increase of
$834,000 or 29.6%. Revenues from car hire and car rentals were $1.3 million in
the first three months of 1996 compared to $818,000 in the first three months
of 1995, an increase of $491,000 or 60.1%. This increase includes a gain on
the sale of railcars of $593,000. Revenues from switching and storage
activities were $1.1 million in the first three months of 1996 compared to
$821,000 in the first three months of 1995, an increase of $307,000 or 37.4%.
The increase reflects the effect of increased capacity at the Company's
railcar storage facility in 1996 compared to 1995, and switching revenues
generated by Illinois & Midland.
Operating revenues per carload were $422 in the first three months of 1996
compared to $432 in the first three months of 1995, a decrease of $10 or 2.3%.
The decrease is primarily due to the decline in average freight revenues per
carload associated with increased coal shipments.
22
<PAGE>
Operating Expenses
Operating expenses were $13.8 million in the first three months of 1996
compared to $11.9 million in the first three months of 1995, an increase of
$1.9 million or 16.3%. Expenses associated with the Illinois & Midland
Acquisition represented $1.4 million of the increase. The Company's operating
ratio improved to 83.1% in the first three months of 1996 from 88.6% in the
first three months of 1995.
The following table sets forth a comparison of the Company's operating
expenses for the first three months of 1995 and 1996:
OPERATING EXPENSE COMPARISON
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
----------------- -----------------
% OF % OF
OPERATING OPERATING
$ REVENUES $ REVENUES
------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Labor and benefits.......................... $ 4,764 35.6% $ 5,452 32.8%
Equipment rents............................. 1,884 14.1 1,880 11.3
Purchased services.......................... 779 5.8 780 4.7
Depreciation and amortization............... 926 6.9 1,340 8.1
Diesel fuel................................. 892 6.7 1,065 6.4
Casualties and insurance.................... 635 4.7 1,157 7.0
Materials................................... 881 6.6 706 4.3
Other....................................... 1,104 8.2 1,414 8.5
------- ---- ------- ----
Total..................................... $11,865 88.6% $13,794 83.1%
======= ==== ======= ====
</TABLE>
Labor and benefits expense was $5.5 million in the first three months of
1996 compared to $4.8 million in the first three months of 1995, an increase
of $688,000 or 14.4%, primarily due to the commencement of operations on
Illinois & Midland. Labor costs decreased as a percentage of revenues,
however, to 32.8% in the first three months of 1996 from 35.6% in the first
three months of 1995. The decrease reflects the efficiency of the unit coal
train operations on Illinois & Midland.
Depreciation and amortization expense was $1.3 million in the first three
months of 1996 compared to $926,000 in the first three months of 1995, an
increase of $414,000 or 44.7%. The increase reflects depreciation and
amortization related to the Illinois & Midland Acquisition and the
depreciation of rolling stock purchased during the second and third quarters
of 1995. Casualties and insurance expense was $1.2 million in the first three
months of 1996 compared to $635,000 in the first three months of 1995, an
increase of $522,000 or 82.2%. The majority of this increase reflects
increased derailment expenses.
Interest Expense and Income Taxes
Interest expense in the first three months of 1996 was $1.3 million compared
to $766,000 in the first three months of 1995, an increase of $507,000 or
66.2%. The increase reflects the higher overall debt outstanding due to the
financing of the Illinois & Midland Acquisition and the financing of rolling
stock. The Company's effective income tax rate was 40.5% in the first three
months of 1996 compared to 42.0% in the first three months of 1995.
Net Income
The Company's net income in the first three months of 1996 was $965,000
compared to $502,000 in the first three months of 1995, an increase of
$463,000 or 92.0%.
23
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Operating Revenues
Operating revenues were $53.4 million in 1995 compared to $55.4 million in
1994, a decrease of $2.0 million or 3.7%. This decrease was attributable to a
$1.4 million decrease in non-freight revenues coupled with a $633,000 decrease
in freight revenues.
Freight revenues were $42.4 million in 1995 compared to $43.0 million in
1994, a decrease of $633,000 or 1.5%. The following table compares freight
revenues, carloads and average freight revenues per carload for 1994 and 1995:
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
---------------------------- ---------------------------- -----------
% OF % OF % OF % OF
COMMODITY GROUP 1994 TOTAL 1995 TOTAL 1994 TOTAL 1995 TOTAL 1994 1995
- --------------- ------- ----- ------- ----- ------- ----- ------- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores....... $ 2,828 6.6% $ 2,656 6.3% 12,867 10.8% 12,398 10.5% $ 220 $ 214
Petroleum Products...... 8,341 19.4 8,487 20.0 17,186 14.4 17,559 14.8 485 483
Pulp & Paper............ 6,354 14.8 6,797 16.1 17,070 14.3 18,667 15.7 372 364
Lumber & Forest Prod-
ucts................... 4,610 10.7 4,496 10.6 13,711 11.5 14,022 11.8 336 321
Metals.................. 4,862 11.3 4,459 10.5 16,606 14.0 17,014 14.3 293 262
Chemicals & Plastics.... 3,673 8.6 3,321 7.9 5,942 5.0 6,641 5.6 618 500
Farm & Food Products.... 2,112 4.9 2,756 6.5 6,525 5.5 5,778 4.9 324 477
Autos & Auto Parts...... 3,960 9.2 3,490 8.2 6,624 5.6 6,381 5.4 598 547
Minerals & Stone........ 1,860 4.3 1,407 3.3 5,037 4.2 4,189 3.5 369 336
Salt.................... 2,835 6.6 2,215 5.2 10,621 8.9 7,865 6.6 267 282
Other................... 1,550 3.6 2,268 5.4 6,862 5.8 8,159 6.9 226 278
------- ----- ------- ----- ------- ----- ------- ----- ----- -----
Total.................. $42,985 100.0% $42,352 100.0% 119,051 100.0% 118,673 100.0% $ 361 $ 357
======= ===== ======= ===== ======= ===== ======= ===== ===== =====
</TABLE>
The decrease in freight revenues was largely attributable to the continuing
effect of the loss of production at the Akzo mine. See "--Akzo Mine." Freight
revenues from Akzo totaled $1.9 million in 1995 on 6,934 carloads compared to
$2.8 million on 10,423 carloads in 1994. Excluding Akzo, total carloads
increased by 3,111 or 2.9% in 1995 compared to 1994, while total freight
revenues increased $233,000 or 0.6% in 1995 compared to 1994. In 1995, the
Company realized $673,000 in additional freight revenues attributable to the
acquisition of a new rail line in the Oregon region. This increase was
partially offset by a $470,000 decrease in freight revenues from autos and
auto parts to $3.5 million in 1995 from $4.0 million in 1994. Freight revenues
from autos and auto parts in 1994 included a large one-time move of finished
vehicles diverted to the Company by another carrier, which was not repeated in
1995.
Non-freight revenues were $11.0 million in 1995 compared to $12.4 million in
1994, a decrease of $1.4 million or 11.2%. Revenues from car hire and car
rentals were $3.2 million in 1995 compared to $5.2 million in 1994, a decrease
of $2.0 million or 38.7%. Revenues from car hire and rentals were unusually
high in 1994 due to a gain on the sale of railcars. The Company also had a
reduced operating fleet in 1995 as a result of a sale of railcars in 1994,
which reduced rental revenue. Revenues from switching and storage activities
were $3.6 million in 1995 compared to $2.7 million in 1994, an increase of
$934,000 or 34.5%. The increase reflects the operation of the Company's
railcar storage facility for a full year. Car repair revenues were $1.6
million in 1995 compared to $1.9 million in 1994, a decrease of $349,000 or
18.3%. The decrease was attributable to a lower number of cars required to
haul salt and the improvement in the quality of cars received in interchange.
Operating revenues per carload were $450 in 1995 compared to $466 in 1994, a
decrease of $16 or 3.4%. The $1.4 million decrease in non-freight revenues
accounts for $12 of the per carload decline. The remainder is attributable to
a $4 decrease in average freight revenues per carload.
24
<PAGE>
Operating Expenses
Operating expenses were $46.8 million in 1995 compared to $47.4 million in
1994, a decrease of $565,000 or 1.2%. The Company's operating ratio increased
to 87.7% in 1995 from 85.5% in 1994.
The following table sets forth a comparison of the Company's operating
expenses in 1994 and 1995:
OPERATING EXPENSE COMPARISON
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
1994 1995
----------------- -----------------
% OF % OF
OPERATING OPERATING
$ REVENUES $ REVENUES
------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Labor and benefits....................... $18,092 32.6% $18,683 35.0%
Equipment rents.......................... 8,634 15.6 7,434 13.9
Purchased services....................... 2,737 4.9 2,530 4.7
Depreciation and amortization............ 3,577 6.5 3,887 7.3
Diesel fuel.............................. 3,410 6.2 3,249 6.1
Casualties and insurance................. 2,742 5.0 3,673 6.9
Materials................................ 3,401 6.1 2,531 4.7
Other.................................... 4,788 8.6 4,828 9.1
------- ---- ------- ----
Total.................................. $47,381 85.5% $46,815 87.7%
======= ==== ======= ====
</TABLE>
Labor and benefits expense was $18.7 million in 1995 compared to $18.1
million in 1994, an increase of $591,000 or 3.3%. Labor costs increased as a
percentage of revenues to 35.0% in 1995 compared to 32.6% in 1994. The
increase was attributable to the start-up costs in connection with additional
lines in Oregon and expansion of operations in Texas.
Equipment rents were $7.4 million in 1995 compared to $8.6 million in 1994,
a decrease of $1.2 million or 13.9%. The decrease reflects a reduction in the
number of operating leases and lower car hire expense. In 1995, the Company
purchased railcars and locomotives subject to an operating lease, which
reduced equipment rent expense under this operating lease to $606,000 in 1995
compared to $1.7 million in 1994. Car hire expense decreased to $4.2 million
in 1995 compared to $5.4 million in 1994, reflecting a concerted management
effort to reduce this expense. Depreciation expense was $3.9 million in 1995
compared to $3.6 million in 1994, an increase of $310,000 or 8.7%. The
majority of this increase reflects depreciation expense associated with
railcars and locomotives purchased in 1995.
Casualties and insurance expense, including claims brought under the Federal
Employers' Liability Act, was $3.7 million in 1995 compared to $2.7 million in
1994, an increase of $931,000 or 34.0%. Additions to reserves for third party
liability were $1.4 million in 1995 compared to $669,000 in 1994, an increase
of $736,000. The majority of the increase in 1995 related to incidents
occurring prior to 1995. While the Company establishes reserves for incidents
as they occur, an unexpected legal action brought in 1995, together with
changes in circumstances relating to prior incidents, necessitated this
increase. In August 1994, the Company reduced its self-insured retention. If
this level of coverage had been in place when these incidents occurred,
necessary additions to reserves in 1995 would have been reduced by $400,000.
The remainder of the increase in casualties and insurance expense reflects an
increase in derailment expense.
Materials expense was $2.5 million in 1995 compared to $3.4 million in 1994,
a decrease of $870,000 or 25.6%. The decrease was largely attributable to a
reduction in car repairs.
Interest Expense and Income Taxes
Interest expense was $3.4 million in 1995 compared to $3.2 million in 1994,
an increase of $193,000 or 6.0%. The increase reflects higher overall debt
outstanding related to the financing of rolling stock. During 1995, the
Company refinanced the majority of its outstanding debt into the Credit
Facilities, resulting in an effective
25
<PAGE>
rate of interest that was lower than in 1994. See "--Liquidity and Capital
Resources." Penalties and fees paid to lenders related to the repayment of
debt resulted in an extraordinary charge of $494,000, net of related income
taxes of $357,000. The Company's effective income tax rate was 40.6% in 1995
compared to 40.0% in 1994.
Net Income
The Company's net income in 1995 was $1.7 million (or $2.2 million before an
extraordinary expense of $494,000 in connection with the early extinguishment
of debt) compared to net income in 1994 of $3.0 million. Excluding the effect
of this extraordinary expense, net income in 1995 decreased $860,000 or 28.6%
compared to 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Operating Revenues
Operating revenues were $55.4 million in 1994 compared to $49.6 million in
1993, an increase of $5.8 million or 11.6%. Of this increase, $4.0 million was
attributable to increases in freight revenues and $1.7 million was
attributable to increases in non-freight revenues.
Freight revenues were $43.0 million in 1994 compared to $39.0 million in
1993, an increase of $4.0 million or 10.3%. The following table compares
freight revenues, carloads and average freight revenues per carload for 1993
and 1994:
FREIGHT REVENUES AND CARLOADS COMPARISON BY COMMODITY GROUP
YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
AVERAGE
FREIGHT
REVENUES
FREIGHT REVENUES CARLOADS PER CARLOAD
---------------------------- ---------------------------- -----------
% OF % OF % OF % OF
COMMODITY GROUP 1993 TOTAL 1994 TOTAL 1993 TOTAL 1994 TOTAL 1993 1994
- --------------- ------- ----- ------- ----- ------- ----- ------- ----- ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores....... $ 3,514 9.0% $ 2,828 6.6% 15,915 13.8% 12,867 10.8% $ 221 $ 220
Petroleum Products...... 8,202 21.1 8,341 19.4 16,946 14.7 17,186 14.4 484 485
Pulp & Paper............ 4,360 11.2 6,354 14.8 11,789 10.2 17,070 14.3 370 372
Lumber & Forest Prod-
ucts................... 3,208 8.2 4,610 10.7 10,020 8.7 13,711 11.5 320 336
Metals.................. 3,137 8.1 4,862 11.3 13,626 11.8 16,606 14.0 230 293
Chemicals & Plastics.... 2,766 7.1 3,673 8.6 4,446 3.9 5,942 5.0 622 618
Farm & Food Products.... 1,259 3.2 2,112 4.9 3,960 3.4 6,525 5.5 318 324
Autos & Auto Parts...... 1,152 3.0 3,960 9.2 2,206 1.9 6,624 5.6 522 598
Minerals & Stone........ 1,664 4.3 1,860 4.3 5,558 4.8 5,637 4.2 300 369
Salt.................... 5,980 15.3 2,835 6.6 24,525 21.3 10,621 8.9 244 267
Other................... 3,711 9.5 1,550 3.6 6,310 5.5 6,862 5.8 588 226
------- ----- ------- ----- ------- ----- ------- ----- ----- -----
Total.................. $38,953 100.0% $42,985 100.0% 115,301 100.0% 119,051 100.0% $ 338 $ 361
======= ===== ======= ===== ======= ===== ======= ===== ===== =====
</TABLE>
The increase in freight revenues was attributable to a 3.3% increase in
carloads, to 119,051 in 1994 from 115,301 in 1993, combined with a 6.8%
increase in average freight revenues per carload, to $361 in 1994 from $338 in
1993. The increase in carloads occurred despite the collapse of Akzo's salt
mine which significantly decreased production from the mine. The loss of
production was primarily responsible for a 52.6% decrease in the Company's
freight revenues attributable to shipments of salt, to $2.8 million in 1994
from $6.0 million in 1993. See "--Akzo Mine."
Total carloads of commodities other than salt were 108,430 in 1994 compared
to 90,776 in 1993, an increase of 17,654 or 19.4%. Autos and auto parts
shipments increased by 4,418 carloads due to new contracts with Canadian auto
plants and a large short-term movement of finished vehicles diverted to the
Company by another carrier. Pulp and paper shipments increased by 5,281
carloads due to plant expansion and increased production from plants located
on the Company's lines. Shipments of lumber and forest products increased by
3,691
26
<PAGE>
carloads primarily due to a new contract with a paper mill. These increases
were offset by a 3,048 carload decrease in shipments of coal, coke and ores in
1994 compared to 1993 primarily due to lower shipments to a Canadian utility.
Non-freight revenues were $12.4 million in 1994 compared to $10.7 million in
1993, an increase of $1.7 million or 16.3%. Revenues from car hire and car
rentals were $5.2 million in 1994 compared to $4.4 million in 1993, an
increase of $792,000 or 17.8%. The increase was primarily attributable to a
gain on the sale of railcars. Railcar repair revenue was $1.9 million in 1994
compared to $1.5 million in 1993, an increase of $373,000 or 24.3%. This
increase was primarily attributable to the increased volume of freight traffic
in 1994. Other non-freight revenues were $5.3 million in 1994 compared to $4.7
million in 1993, an increase of $579,000 or 12.3%. The increase was primarily
due to higher demurrage and storage charges and easement sales.
Operating revenues per carload were $466 in 1994 compared to $431 in 1993,
an increase of $35 or 8.1%. The increase reflects a $23 increase in average
freight revenues per carload combined with the $1.7 million increase in non-
freight revenues.
Operating Expenses
Operating expenses were $47.4 million in 1994 compared to $43.5 million in
1993, an increase of $3.9 million or 8.9%. The Company's operating ratio
improved to 85.5% in 1994 from 87.6% in 1993.
The following table sets forth a comparison of the Company's operating
expenses in 1993 and 1994:
OPERATING EXPENSE COMPARISON
YEARS ENDED DECEMBER 31, 1993 AND 1994
<TABLE>
<CAPTION>
1993 1994
----------------- -----------------
% OF % OF
OPERATING OPERATING
$ REVENUES $ REVENUES
------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Labor and benefits....................... $16,499 33.2% $18,092 32.6%
Equipment rents.......................... 6,726 13.5 8,634 15.6
Purchased services....................... 3,407 6.9 2,737 4.9
Depreciation and amortization............ 3,115 6.3 3,577 6.5
Diesel fuel.............................. 2,788 5.6 3,410 6.2
Casualties and insurance................. 2,446 4.9 2,742 5.0
Materials................................ 3,680 7.4 3,401 6.1
Other.................................... 4,840 9.8 4,788 8.6
------- ---- ------- ----
Total.................................. $43,501 87.6% $47,381 85.5%
======= ==== ======= ====
</TABLE>
Labor and benefits expense was $18.1 million in 1994 compared to $16.5
million in 1993, an increase of $1.6 million or 9.7%. However, labor and
benefits expense decreased as a percentage of operating revenues to 32.6% in
1994 from 33.2% in 1993.
Equipment rents were $8.6 million in 1994 compared to $6.7 million in 1993,
an increase of $1.9 million or 28.3%. Equipment rents increased as a
percentage of operating revenues to 15.6% in 1994 from 13.5% in 1993. The
increase was primarily due to higher car hire costs resulting from the change
in mix of commodities hauled. The Company's railroads pay minimal car hire on
shipments of minerals, which declined from 1993 to 1994, but pay relatively
high car hire fees on shipments of autos and auto parts, which increased from
1993 to 1994.
Purchased services expense was $2.7 million in 1994 compared to $3.4 million
in 1993, a decrease of $670,000 or 19.7%. Purchased services expense decreased
as a percentage of operating revenues to 4.9% in 1994
27
<PAGE>
from 6.9% in 1993. The decrease was attributable to a reduction in contracted
maintenance of way expense and a reduction in repairs performed by third
parties on railcars owned or leased by GWI railroads.
Diesel fuel expense was $3.4 million in 1994 compared to $2.8 million in
1993, an increase of $622,000 or 22.3%. Diesel fuel expense increased as a
percentage of operating revenues to 6.2% in 1994 from 5.6% in 1993. The
increase was caused by an increase in fuel prices and severe winter weather
conditions in 1994.
Other expense was $4.8 million in both 1994 and 1993, but decreased as a
percentage of operating revenues to 8.6% in 1994 from 9.8% in 1993 as a result
of the relatively fixed nature of these expenses. Other expense included
write-offs of other assets of $675,000 and $180,000 in 1994 and 1993,
respectively, both as a result of rail line abandonments.
Interest Expense and Income Taxes
Interest expense was $3.2 million in 1994 compared to $2.9 million in 1993,
an increase of $348,000 or 12.2%. The increase reflects generally higher
interest rates on the Company's debt in 1994. The Company's effective income
tax rate decreased to 40.0% in 1994 from 41.5% in 1993 due to lower state and
other income taxes.
Net Income
The Company's net income in 1994 was $3.0 million compared to net income in
1993 of $1.6 million (or $2.0 million before a cumulative change of accounting
for postretirement benefits of $393,000). Excluding the effect of the
accounting change, net income in 1994 increased $994,000 or 49.3% compared to
1993.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1996, the Company generated cash from
operations of $6.0 million, which includes the effect of a $3.5 million
increase in net trade payables associated with the commencement of operations
of Illinois & Midland. In addition, the Company received $1.6 million in
proceeds from the sale of equipment and invested $970,000 in track and other
fixed assets (apart from its investment in the Illinois & Midland
Acquisition).
During 1995, the Company generated cash from operations of $2.6 million,
generated cash from asset sales of $318,000, received $3.5 million in state
grant funds for track rehabilitation, and had net new borrowings of $6.7
million. During the year the Company invested $8.6 million in equipment and
rolling stock and $8.0 million in track maintenance and buildings.
During 1994, the Company generated cash from operations of $7.3 million and
cash from asset sales of $824,000, and received $1.8 million in state grants
for rehabilitation of track. The cash generated was used to fund $6.2 million
in capital expenditures and to repay a net $2.5 million in long-term debt and
capital leases. Track and track structures accounted for $5.3 million of these
capital expenditures, while the balance was invested in equipment.
The Company has budgeted $7.3 million in capital expenditures in 1996,
primarily for track rehabilitation, of which $970,000 was expended during the
first three months of 1996. In connection with its lease of a rail line, one
of the Company's railroads has committed to install a minimum of five miles of
100 lb. rail or better in each of the next five years. The annual cost of this
obligation is included in the 1996 capital budget.
In June 1995, the Company borrowed under the Credit Facilities to
restructure a majority of its long-term debt and finance the purchase of rail
equipment. The Company repaid $14.3 million in debt maturing at various dates
between 1996 and 2001 and bearing interest rates ranging from 6.75% to 15.0%
per annum, including the repayment of $701,000 in debt held by or for the
benefit of directors and officers of the Company and members of their
respective families. See "Certain Transactions." The Company borrowed $6.0
million under the Credit Facilities to purchase rolling stock which had been
under an operating lease.
At March 31, 1996, the Company had long term debt (including current
portion) totaling $66.2 million, which comprised 84.7% of its total
capitalization. This compares to long term debt of $39.9 million, comprising
28
<PAGE>
79.1% of total capitalization at December 31, 1995, and long term debt of
$32.6 million, comprising 78.2% of total capitalization, at December 31, 1994.
In February 1996, the Company amended and restated its Credit Facilities to
provide funding for the Illinois & Midland and Pittsburg & Shawmut
Acquisitions. As amended, the Credit Facilities include a $40.0 million term
loan and a $34.0 million revolving credit facility. The term loan requires
varying quarterly principal payments beginning September 30, 1996, with the
remaining balance payable in February 2001. The revolving credit facility
provides for a mandatory commitment reduction of $2.0 million on December 31,
1997 with the remaining balance payable in February 2001. The interest rate on
the facilities is a varying increment over the Bank of Boston's prime rate or
LIBOR, based on the Company's ratio of debt to EBITDA. The Credit Facilities
are secured by a blanket first-priority lien on all of the Company's railroad
assets except real estate, and a pledge of all capital stock of the Company's
subsidiaries. In conjunction with the financing, the Company paid a fee to the
Bank of Boston of $1.5 million and issued the Bank Warrant. See "Description
of Capital Stock--Bank Warrant."
The Company's railroads have entered into a number of rehabilitation grants
with state and federal agencies. The grant funds are used as a supplement to
the Company's normal capital programs. In return for the grants, the railroads
pledge to maintain various levels of service and maintenance on the rail lines
that have been rehabilitated. The Company believes that the levels of service
and maintenance required under the grants are not materially different from
those that would be required without the grant obligation. While the Company
has benefited in recent years from these grant funds, there can be no
assurance that the funds will continue to be available.
The Company has historically relied primarily on cash generated from
operations to fund working capital and capital expenditures relating to
ongoing operations, while relying on borrowed funds to finance acquisitions
and equipment needs (primarily rolling stock) related to acquisitions. The
Company believes that its cash flow from operations together with available
amounts under the Credit Facilities will enable the Company to meet its
liquidity and capital expenditure requirements relating to ongoing operations
for at least the next four years.
INFLATION
In recent years, inflation has not had a significant impact on the Company's
operations. The Company's contracts with connecting carriers typically include
clauses that adjust the rates based on specific inflation factors.
SEASONALITY
Historically, the Company's operating revenues from existing operations have
not been subject to significant seasonal changes.
ACCOUNTING MATTERS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The cumulative effect of the accounting change
resulted in an after-tax charge to 1993 earnings of $393,000. The Company does
not provide postemployment benefits to its employees. Accordingly, the
adoption of Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" will have no effect on the Company.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" (effective for fiscal years beginning after December 15,
1995), in the first quarter of 1996. The adoption did not have a material
impact on the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
based Compensation" (effective for fiscal years beginning after December 15,
1995) encourages, but does not require, employers to adopt a fair value method
of accounting for employee stock-based compensation, and requires increased
stock-based compensation disclosures if the fair value method is not adopted.
The Company does not intend to elect the fair value method for stock options.
Accordingly, implementation of this Statement will have no effect on the
Company's operating results or financial condition.
29
<PAGE>
BUSINESS
The Genesee and Wyoming Railroad Company, the Company's predecessor, was
founded in 1899 by E.L. Fuller and his partners. From its founding through
1977, the Company was dependent on a single commodity, salt, produced by a
single customer. In 1977, when Mortimer B. Fuller, III purchased a controlling
interest in the Company and became its Chief Executive Officer, the Company
generated $3.9 million in operating revenues over its 14 miles of track. In
1978, under the leadership of Mr. Fuller, the Company began a strategy of
diversifying its sources of revenues, initially in the railcar leasing
business and then through rail line acquisitions. As a result of the Company's
acquisition and marketing strategies, the Company has become a diversified
rail operation extending over approximately 1,500 miles of track and serving
over 280 customers in six states. In 1995, the Company generated $53.4 million
in operating revenues.
INDUSTRY OVERVIEW
The railroad industry in the United States has undergone significant change
since the passage of the Staggers Rail Act of 1980 (the "Staggers Rail Act"),
which deregulated the pricing and types of services provided by railroads.
Since 1980, Class I railroads in the United States and Canada have taken
aggressive steps to improve profitability and recapture market share. In
furtherance of that goal, these Class I railroads have focused their
management and capital resources on their long-haul core systems, and certain
of them have sold branch lines to smaller and more cost-efficient rail
operators that are willing to commit the resources necessary to meet the needs
of the shippers located on these lines. Divestment of branch lines enables
Class I carriers to minimize incremental capital expenditures, concentrate
traffic density, improve operating efficiency and avoid traffic losses
associated with rail line abandonment.
The commitment of Class I carriers to increase efficiency and profitability
has also led to an increase in merger activity among long haul railroads, such
as the mergers between Union Pacific Corporation and Chicago and North Western
Holdings Corp. and between Burlington Northern Inc. and Santa Fe Pacific
Corporation, and the pending merger between Union Pacific Corporation and
Southern Pacific Rail Corporation. Such merger activity is expected to lead to
additional short line divestments, as overlapping routes are sold and the
merged railroads seek to achieve operational synergies.
The Company believes that there will continue to be opportunities to acquire
lines from Class I railroads in the United States and that there may be
opportunities to make acquisitions among the over 500 existing short line and
regional railroads. The Company believes there may be acquisition
opportunities in Canada and Mexico as well, although governmental regulations
may limit acquisition opportunities in these countries. Both Canadian National
Railway Company and Canadian Pacific Limited have divestment programs, and
Mexico has announced a privatization program of the National Railroad of
Mexico which could include the disposition of rail lines.
Since 1980, more than 300 short line and regional railroads, operating
approximately 36,500 miles of track, have been created, largely through
divestments and other dispositions of track by Class I railroads. Reflecting
the downsizing and operations rationalization that has been occurring among
the Class I railroads, the proportion of total track miles operated by short
line and regional railroads in the United States has increased from
approximately 15% of total track miles in 1980 to approximately 27% in 1994
(the latest year for which information is available).
STRATEGY
The Company's strategy is to become the dominant provider of rail freight
transportation in the markets it serves by (i) growing its business through
acquisitions to establish new regions or increase its presence in existing
regions, (ii) expanding its revenue base within each region through marketing
efforts, and (iii) improving its operating efficiency through rationalization
and consolidation of overhead expenses. The Company's growth to date has been
the result of the acquisition of rail properties, which has expanded the
Company's customer base and diversified its commodity mix, and its marketing
efforts. The Company intends to continue to grow its business in each of its
four regions and to acquire rail properties in new regions to build on its
experience and further diversify its geographic and customer base.
30
<PAGE>
Acquisition of Rail Properties
The Company seeks to expand its business through the selective acquisition
of rail properties, both in new regions and in regions in which it currently
operates. The Company's fundamental acquisition strategy is to identify
properties that have large industrial customers which will provide the Company
with a stable revenue base and the potential to generate incremental revenues
and additional customers upon implementation of a focused marketing plan. In
new regions, the Company targets rail properties that have adequate size to
establish a presence in the region, provide a basis for growth in the region
and attract qualified management. When acquiring rail properties in its
existing regions, in addition to seeking properties with large industrial
customers, the Company targets rail properties where it believes the
successful implementation of its operating strategy is likely to generate
significant operating efficiencies.
In evaluating acquisition opportunities, the Company considers, among other
matters, the size of the rail operations, opportunities for expansion,
commodity and customer diversification, revenue stability, connecting
carriers, track condition and maintenance requirements, and expected financial
returns. The Company also considers acquisition opportunities that have the
potential to enable its railroads to provide better or more cost-effective
service to major shippers or to increase and diversify the overall customer
base of its railroads. The Company develops acquisition prospects through its
relationships with Class I carriers and its reputation in the industry. In
addition, the Company currently has four consultants on retainer to assist in
the identification and development of acquisition opportunities. The Company
has successfully integrated eleven acquisitions of varying sizes and operating
characteristics, of which four were existing short lines and seven were Class
I divestitures.
The Company acquires rail properties by purchase of assets, lease or
operating contract. Typically, the Company bids against other short line and
regional operators for available properties. The structure of each transaction
is determined by the seller based upon economic and strategic considerations.
In addition to the financial terms of the transaction, sellers consider more
subjective criteria such as a prospective acquiror's operating experience, its
reputation among shippers, and its ability to close a transaction and commence
operations smoothly. The Company believes it has established an excellent
record in each of these areas. In addition, by growing revenues on its
acquired lines and providing improved service to shippers, the Company is able
to provide increased revenue to the Class I carriers that connect with its
lines. The Company sees this ability to provide increased revenue to Class I
carriers as an advantage in bidding for properties.
Marketing
The Company's marketing strategy is to build each region on a base of major
industrial customers, to grow that base business through marketing efforts
directed at its major customers and to generate incremental revenues outside
the base of major customers by attracting smaller customers and providing
ancillary services which generate non-freight revenues. The Company believes
that over the long term, its strategy of building its regions around a core of
major industrial customers provides a stable revenue base and allows the
Company to focus its efforts on additional growth opportunities within a
region. Of the 13 customers that generated freight revenues in excess of $1
million in 1995, all but two depend exclusively on the Company for rail
service to support their facilities, and the Company believes that each of
these facilities is strategically important to the respective customers. While
the other two customers are not dependent on the Company, the Company's
railroads provide the best route for them to move their products by rail.
Through implementation of its marketing strategy, the Company intends to
increase further the number of major customers so that, over time, the
Company's reliance on any one customer will be reduced.
Consistent with its decentralized management structure, the Company's sales
and marketing activity is coordinated in each region by a marketing manager.
The marketing manager works closely with personnel of each of the Company's
railroads and with other department heads to develop marketing plans to
increase shipments from existing customers and develop new business. The
Company focuses on providing rail service to its customers that is easily
accessible, reliable and cost-effective. The Company considers all of its
employees to be customer service representatives and encourages them to
initiate and maintain regular contact with shippers.
31
<PAGE>
Because most of the traffic transported by the Company's railroads is
interchanged with Class I carriers, the Company's marketing efforts are often
aimed at enhancing its railroads' relationships with Class I carriers as well
as shippers. The Company provides related rail services such as railcar
leasing, railcar repair, switching, storage, weighing and blocking and bulk
transfer, which enable Class I carriers and customers to move freight more
easily and cost-effectively. For example, the Company supplies cars to its
customers or its railroads when, among other things, a customer has a need
which cannot be filled by cars supplied by Class I railroads or the Company
has an opportunity to provide cars on a cost basis that both meets customer
needs and improves the economics of a freight move to the Company. The Company
actively manages its railcar portfolio, buying and selling equipment to take
advantage of changes in market value in conjunction with changes in its
customers needs.
Operations
The Company's operating strategy is to increase efficiency and profitability
in each region in which it operates. When acquiring new rail properties within
an existing region, the Company capitalizes on operating efficiencies created
by the presence of its other railroads within that region. For example, in
connection with the Pittsburg & Shawmut Acquisition, the Company will be able
to liquidate 42 miles of track and sell a number of locomotives and railcars.
In addition, consolidation of revenue and accounting functions often allows
the Company to operate new railroads with fewer employees, as was the case
with both the Illinois & Midland and Pittsburg & Shawmut Acquisitions. The
Company rationalizes its track, where appropriate, to make its operations more
efficient. Abandonments are planned on Buffalo & Pittsburgh, Louisiana & Delta
and Pittsburg & Shawmut in 1996 and 1997. The Company also seeks and grants
trackage rights to improve regional rail infrastructure efficiency.
The Company intends to continue to improve the operating efficiency of its
railroads by track rehabilitation, especially where maintenance has been
deferred by the prior owner. Because of the importance of certain of the
Company's shippers to the economic stability and or development of the regions
where they are located, and because of the importance of certain of the
Company's railroads to the economic infrastructure of those regions,
approximately $17.5 million in state and federal grants for track
rehabilitation and service improvements has been invested in the Company's
rail properties since 1987.
RAILROAD OPERATIONS
Management
The Company's decentralized management structure is an important element of
its railroad operations. The Company's Chief Executive Officer and Chief
Financial Officer have responsibility for overall strategic and financial
planning. Significant operational discretion is given to local management of
the Company's railroads, with each regional Senior Vice President responsible
for implementing a strategic plan for the region based on annual budgets,
quarterly reviews and incentive compensation tied to results. Regional Senior
Vice Presidents and local managers also have specific operational objectives
for continuous improvement such as reducing car hire expense or on-the-job
lost time injuries. The plan for each region is updated annually and
constitutes a basis for incentive compensation. Each railroad is given
significant freedom in pricing, staffing, purchasing, marketing and
operations, enabling the railroad's management to be more responsive to
customer needs and emerging business opportunities. Managers from all regions
meet periodically to discuss operational matters such as marketing, safety and
locomotive acquisition and maintenance. Senior management of the Company also
meets monthly to review each railroad's operations.
The Company believes that through its decentralized management structure it
has developed a culture that encourages employees to take initiative and
responsibility which is rewarded through performance-based profit sharing and
bonus programs.
Customers
The Company's railroads serve over 280 customers in its four operating
regions. Through 1995, the Company's largest customer was Akzo, which
accounted for approximately 20% of operating revenues in 1993,
32
<PAGE>
12% in 1994 and 9% in 1995. Since 1994, revenues from Akzo have been
negatively affected by the flooding of the Akzo mine. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Akzo
Mine." As a result of the Illinois & Midland Acquisition, the Company
anticipates that its largest customer in 1996 will be ComEd. The Company's ten
largest customers accounted for 50% of operating revenues in 1995. These same
ten customers accounted for 51.6% of operating revenues in 1994. Assuming
continuation of the Company's acquisition strategy, management expects the
Company's reliance on any one customer to diminish over time. The Company
typically ships freight pursuant to transportation contracts among the
Company, its connecting carriers and the shipper. These contracts are in
accordance with industry norms and vary in duration from one to seven years.
In recent years, the Company has benefited from the expansion of customers'
facilities on its railroads. For example, Willamette Industries recently
completed a $600 million expansion of its paper mill in Johnsonburg,
Pennsylvania, which contributed to a $1.6 million increase in freight revenues
from 1993 to 1995. A $98 million expansion at Armco Advanced Materials
Company's Butler, Pennsylvania plant contributed to an increase in freight
revenues from Armco of $478,000 from 1993 to 1995.
Certain other customers have recently made or announced capital expansions
at facilities served by the Company's railroads. Georgia Pacific's pulp and
paper mill in Toledo, Oregon is undergoing a $100 million expansion that will
increase capacity by 300 tons per day and also increase the input of raw
materials. In 1995, Cascade Rolling Mills in McMinnville, Oregon began a two-
phased investment of $42 million to construct and install a new wire rod and
bar mill designed to roll an additional 500,000 tons per year. The Company
believes it is well-positioned to realize an increase in freight revenues from
these plant expansions. There can be no assurance, however, that these plant
expansions, or the Company's marketing efforts, will lead to increased freight
revenues.
Commodities
The Company's railroads transport a wide variety of commodities for their
customers. Some of the Company's railroads have a well-diversified commodity
mix while others transport one or two principal commodities. In 1995, pulp and
paper and petroleum products were the two largest commodity groups transported
by the Company's railroads, constituting 15.7% and 14.8%, respectively, of
total carloads. On a pro forma basis after giving effect to both the Illinois
& Midland Acquisition and the Pittsburg & Shawmut Acquisition, coal accounted
for approximately 39.5% of total carloads in 1995. In 1996, the Company
expects that coal will be the largest commodity transported by the Company's
railroads as a result of the Illinois & Midland and Pittsburg & Shawmut
Acquisitions. The following table summarizes the aggregate traffic volume of
the Company's railroads by commodity group:
CARLOADS CARRIED BY COMMODITY GROUP
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
------------------- ------------------- -------------------
COMMODITY CARLOADS % OF TOTAL CARLOADS % OF TOTAL CARLOADS % OF TOTAL
- --------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Coal, Coke & Ores....... 12,867 10.8% 12,398 10.5% 11,941 30.3%
Pulp & Paper............ 17,070 14.3 18,667 15.7 4,772 12.1
Metals.................. 16,606 14.0 17,014 14.3 4,715 12.0
Petroleum Products...... 17,186 14.4 17,559 14.8 4,542 11.6
Lumber & Forest Prod-
ucts................... 13,711 11.5 14,022 11.8 4,123 10.5
Farm & Food Products.... 6,525 5.5 5,778 4.9 2,282 5.8
Chemicals & Plastics.... 5,942 5.0 6,641 5.6 1,841 4.7
Autos & Auto Parts...... 6,624 5.6 6,381 5.4 1,463 3.7
Minerals & Stone........ 5,037 4.2 4,189 3.5 915 2.3
Salt.................... 10,621 8.9 7,865 6.6 388 1.0
Other................... 6,862 5.8 8,159 6.9 2,363 6.0
------- ----- ------- ----- ------ -----
Total................. 119,051 100.0% 118,673 100.0% 39,345 100.0%
======= ===== ======= ===== ====== =====
</TABLE>
33
<PAGE>
Coal, coke and ores consist primarily of shipments of coal to utilities and
industrial customers.
Pulp and paper consist primarily of inbound shipments of pulp and outbound
shipments of kraft and fine papers.
Metals consist primarily of scrap metal and finished steel products shipped
to and from two steel mills, and coated pipe.
Petroleum products consist primarily of fuel oil and crude oil.
Lumber and forest products consist primarily of finished lumber used in
construction, particleboard used in furniture manufacturing, and wood chips
and pulpwood used in paper manufacturing.
Farm and food products consist primarily of sugar, molasses, rice and other
grains and fertilizer.
Chemicals and plastics consist primarily of various chemicals used in
manufacturing.
Autos and auto parts consist primarily of finished automobiles.
Minerals and stone consist primarily of gravel and stone used in
construction.
Salt consists of mined rock salt used for roadway ice control.
Rail Traffic
Rail traffic is classified as on-line or overhead traffic. On-line traffic
is traffic that either originates or terminates with shippers located on a
railroad and is interchanged with another rail carrier. On-line traffic that
both originates and terminates on a railroad is referred to as local traffic.
Overhead traffic neither originates nor terminates on a railroad, but rather
passes over a railroad from one connecting carrier to another.
The Company believes that on-line shipments provide it with a stability of
revenues because such traffic represents shipments to or from shippers located
along its lines which cannot easily be diverted to other rail carriers. While
overhead traffic is more easily diverted, it is less costly to handle. To
offset the potential for diversion of overhead traffic, the Company has sought
long-term contracts, based on a percentage of the shipper's annual rail
volume, on its significant overhead traffic. In 1995, approximately two-thirds
of GWI's overhead traffic was transported under such multi-year contracts. In
1995, 12.8% of freight revenues was generated by overhead traffic. On a pro
forma basis after giving effect to both the Illinois & Midland Acquisition and
the Pittsburg & Shawmut Acquisition, approximately 9.0% of freight revenues
was generated by overhead traffic in 1995.
The following table summarizes freight revenues by type of traffic carried
by the Company's railroads.
FREIGHT REVENUES BY TRAFFIC TYPE
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED THREE MONTHS
DECEMBER 31, 1994 DECEMBER 31, 1995 ENDED MARCH 31, 1996
------------------ ------------------ ---------------------
% OF % OF % OF
TRAFFIC TYPE AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------------ --------- -------- --------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
On-line
Originated............ $ 18,784 43.7% $ 16,770 39.6% $ 3,862 29.8%
Terminated............ 16,504 38.4 17,104 40.4 6,836 52.8
Local................. 1,964 4.6 3,068 7.2 1,035 8.0
--------- ------- --------- ------- ----------- ---------
Total On-line....... 37,252 86.7 36,942 87.2 11,733 90.6
Overhead................ 5,733 13.3 5,410 12.8 1,221 9.4
--------- ------- --------- ------- ----------- ---------
Total Traffic....... $ 42,985 100.0% $ 42,352 100.0% $ 12,954 100.0%
========= ======= ========= ======= =========== =========
</TABLE>
34
<PAGE>
Safety
GWI's safety program involves all employees and focuses on the prevention of
accidents and injuries. The Senior Vice President of each region is
accountable for the results of the program, and each has an officer
responsible for day-to-day program administration. Line supervisors have
direct responsibility for the safety and training of their personnel.
The Company maintains a corporate-wide safety policy facilitated by a full-
time Safety Director. The Company's safety program also gives each railroad
the flexibility to develop its own safety rules based on local requirements or
practices. Each railroad complies fully with all federal, state and local
government regulations. Operating personnel are trained and certified in train
operations, hazardous materials handling, proper radio procedures and all
other areas subject to governmental rules and regulations.
The Company also participates in governmental and industry sponsored safety
programs. Members of the Company's management serve on the Board of Directors
of Operation Lifesaver (the national grade crossing awareness program), the
New Program Committee of Operation Lifesaver and the American Short Line
Railroad Association Safety Committee. In addition, the Company has a "working
team" consisting of the safety officers from each railroad. This team is
charged with ongoing development and refinement of the Company's safety
program and coordination with each railroad to insure compliance with and
implementation of all safety rules and regulations.
Employees
As of May 31, 1996, the Company had 484 full-time employees, 88 of whom were
hired in 1996 in connection with the Illinois & Midland and Pittsburg &
Shawmut Acquisitions. Of this total, 146 are members of national labor
organizations, including 52 employees hired in connection with the Illinois &
Midland Acquisition. The Company has seven contracts with these national labor
organizations which have expiration dates ranging from August 1997 to June
1999. The Company has also entered into collective bargaining agreements with
an additional 61 employees who represent themselves, all of which expire in
1999.
In March 1994, approximately 40 employees of one of the Company's railroads
began an illegal work stoppage to protest the use of management on train
crews. A temporary restraining order was issued and the underlying dispute was
subsequently resolved in arbitration. The work stoppage did not have a
material effect on the Company's operations and the Company believes the work
stoppage has not had an adverse effect on its overall employee relations. The
Company has not experienced any other strikes or work stoppages for over 20
years. The Company believes that its railroads' relations with their employees
are good.
INSURANCE
The Company has obtained for each of its railroads insurance coverage for
losses arising from personal injury and for property damage in the event of
derailments or other accidents or occurrences. The liability policies have
self-insured retentions ranging from $25,000 to $250,000 per occurrence. In
addition, the Company maintains an excess liability policy which provides
supplemental coverage for losses in excess of primary policy limits. With
respect to the transportation of hazardous commodities, the Company's
liability policy covers sudden releases of hazardous materials, including
expenses related to evacuation. Personal injuries associated with grade
crossing accidents are also covered under the Company's liability policy. The
Company also maintains all-risk property damage coverage, subject to a
standard pollution exception and self-insured retentions ranging from $10,000
to $250,000.
Employees of the Company's railroads are covered by the Federal Employers'
Liability Act ("FELA"), a fault-based system under which injuries and deaths
of railroad employees are settled by negotiation or litigation based on the
comparative negligence of the employee and the employer. FELA-related claims
are covered under the Company's liability insurance policies.
35
<PAGE>
The Company believes its insurance coverage is adequate in light of its
experience and the experience of the rail industry. However, there can be no
assurance as to the adequacy, availability or cost of insurance in the future.
See "Risk Factors--Liability for Casualty Losses."
COMPETITION
In acquiring rail properties, the Company competes with other short line and
regional railroad operators, some of which are larger and have greater
financial resources than the Company. Competition for rail properties is based
primarily upon price, operating history and financing capability. The Company
believes its established reputation as a successful acquiror and operator of
short line rail properties, in combination with its managerial and financial
resources, effectively positions it to take advantage of future acquisition
opportunities. See "--Strategy--Acquisition of Rail Properties."
Each of the Company's railroads is typically the only rail carrier directly
serving its customers; however, the Company's railroads compete directly with
other modes of transportation, principally motor carriers and, to a lesser
extent, ship and barge operators. The extent of this competition varies
significantly among the Company's railroads. Competition is based primarily
upon the rate charged and the transit time required, as well as the quality
and reliability of the service provided, for an origin-to-destination
transportation package. To the extent other carriers are involved in
transporting a shipment, the Company cannot control the cost and quality of
such service. Cost reductions achieved by major rail carriers over the past
several years have generally improved their ability to compete with alternate
modes of transportation.
REGULATION
The Company's railroads are subject to regulation by the STB, the FRA, state
departments of transportation and some state and local regulatory agencies.
The STB is the successor to certain regulatory functions previously
administered by the Interstate Commerce Commission. Established by the ICCTA
in 1995, the STB has jurisdiction over, among other things, service levels and
compensation of carriers for use of their railcars by other carriers. It also
must authorize extension or abandonment of rail lines, the acquisition of rail
lines, and consolidation, merger or acquisition of control of rail common
carriers; in limited circumstances, it may condition such authorization upon
the payment of severance benefits to affected employees. The STB may review
rail carrier pricing only in response to a complaint concerning rates charged
for transportation where there is an absence of effective competition. The FRA
has jurisdiction over safety and railroad equipment standards and also assists
in coordinating projects for railroad route simplification.
In 1980, the Staggers Rail Act fundamentally changed federal regulatory
policy by emphasizing the promotion of revenue adequacy (the opportunity to
earn revenues sufficient to cover costs and attract capital) for the railroads
and allowing competition to determine to a greater extent rail prices and
route and service options. The ICCTA continues the trend towards limiting
regulation of rail prices. As a result of these changes in legislative policy,
the railroad industry's rate structure has evolved from a system of
interrelated prices that applied over different routes between the same points
to a combination of market based prices that are now subject to limited
regulatory constraints. While federal regulation of rail prices has been
significantly curtailed, federal regulation of services continues to affect
profitability and competitiveness in the railroad industry.
To date, the most significant impact on the Company of the federal and state
regulatory schemes has been the delays and costs associated with protracted
abandonment proceedings and the legal costs associated with acquisition
proceedings. Although the ICCTA purports to aim at eliminating or reducing
such costs, the ICCTA has not been in effect long enough to determine if it
will be successful in this regard. In reducing regulation an effect of the
ICCTA may be diminished regulatory recourse for small railroads which
negatively affects their competitive position with their Class I connections.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. These environmental laws and
36
<PAGE>
regulations, which are implemented principally by the Environmental Protection
Agency and comparable state agencies, govern the management of hazardous
wastes, the discharge of pollutants into the air and into surface and
underground waters, and the manufacture and disposal of certain substances.
There are no material environmental claims currently pending or, to the
Company's knowledge, threatened against the Company or any of its railroads.
In addition, the Company believes that the operations of its railroads are in
material compliance with current laws and regulations. The Company estimates
that any expenses incurred in maintaining compliance with current laws and
regulations will not have a material effect on the Company's earnings or
capital expenditures. However, there can be no assurance that the current
regulatory requirements will not change, or that currently unforeseen
environmental incidents will not occur, or that past non-compliance with
environmental laws will not be discovered on the Company's properties.
LEGAL PROCEEDINGS
The Company currently has no claims or legal actions pending other than
claims arising in the ordinary course of its business. The Company believes
these claims, taking into account reserves and applicable insurance, will not
have a material adverse effect on the Company.
37
<PAGE>
PROPERTY
The Company currently operates twelve railroads in six states, of which nine
are owned, two are leased and one is operated under an operating agreement.
The Company's railroads own or lease 1,236 miles of track and operate over an
additional 270 miles pursuant to trackage rights and haulage contracts. These
rail properties typically consist of the track and the underlying land. Real
estate adjacent to the railroad rights-of-way is generally retained by the
seller, and the Company's holdings of such property are not material.
Similarly, the seller typically retains mineral rights and rights to grant
fiber optic and other easements in the properties acquired by the Company's
railroads.
The following table sets forth certain information with respect to the
Company's railroads:
<TABLE>
<CAPTION>
TRACK CONNECTING
RAILROAD AND LOCATION MILES STRUCTURE CARRIERS(1)
- --------------------- ----- --------- -----------
<S> <C> <C> <C>
Allegheny & Eastern Railroad, 153 (2) Owned BPRR, CR
Inc. ("ALY")................
Pennsylvania
Bradford Industrial Railroad, 4 (3) Owned BPRR, CR
Inc. ("BR").................
New York, Pennsylvania
Buffalo & Pittsburgh Rail- 279 (4) Owned/Leased ALY, BLE, BR, CN,
road, Inc. ("BPRR")......... CPRS, CR, CSX, NS,
New York, Pennsylvania PS, RSR, SB
The Dansville & Mount Morris 8 Owned GNWR
Railroad Company ("DMM")....
New York
Genesee and Wyoming Railroad 26 (5) Owned (5) CPRS, CR, DMM, RSR
Company ("GNWR")............
New York
Pittsburg & Shawmut Railroad, 224 (6) Owned BPRR, CR
Inc. ("PS").................
Pennsylvania
Rochester & Southern Rail- 66 (7) Owned BPRR, CPRS, CR,
road, Inc. ("RSR").......... GNWR, NS
New York
Illinois & Midland Railroad, 97 (8) Owned BNSF, CR, GWWR,
Inc. ("IMR")................ IAIS, IC, KJRY, NS,
Illinois PPU, SP, TPW, UP
Portland & Western Railroad, 107 (9) Leased BNSF, SP, WPRR,
Inc. ("PNWR")............... POTB
Oregon
Willamette & Pacific Rail- 185 (10) Leased SP, PNWR
road, Inc. ("WPRR").........
Oregon
Louisiana & Delta Railroad, 87 (11) Owned/Leased SP
Inc. ("LDRR")...............
Louisiana
GWI Switching Services, L.P. 0 (12) Operating Agreement SP
("GWSW")....................
Texas
</TABLE>
- --------
(1) See Legend of Connecting Carriers following this table.
(2) In addition, ALY operates by trackage rights over 3 miles of CR.
(3) In addition, BR operates by trackage rights over 14 miles of BPRR.
(4) Includes 92 miles under perpetual leases and 9 miles under a lease
expiring in 2090. In addition, BPRR operates by trackage rights over 27
miles of CSX under an agreement expiring in 2018.
(5) Track has been conveyed to a county industrial development agency and
leased back to GNWR. In addition, GNWR operates by trackage rights over
an aggregate of 49 miles of RSR.
(6) In addition, PS operates over 13 miles pursuant to an operating contract.
(7) In addition, RSR has a haulage contract over 52 miles of CP.
(8) In addition, IMR operates by trackage rights over 15 miles of IC, 9 miles
of PPU and 5 miles of UP.
(9) In addition, PNWR operates by trackage rights over 2 miles of SP and 4
miles of POTB.
(10) All under lease expiring in 2013, with renewal options subject to both
parties' consent. In addition, WPRR operates over 41 miles of SP under a
concurrent trackage rights agreement.
(11) Includes 14 miles under a lease expiring in 2011. In addition, LDRR
operates by trackage rights over 91 miles of SP under an agreement
terminable by either party after 1997 and has a haulage contract with
M.A. Patout & Sons over 4 miles of track.
(12) GWSW operates via trackage rights over 5 miles of SP.
38
<PAGE>
LEGEND OF CONNECTING CARRIERS
<TABLE>
<S> <C>
BLE Bessemer and Lake Erie Railroad Company
BNSF Burlington Northern Santa Fe Corp.
CN Canadian National
CPRS CP Rail Systems
CR Consolidated Rail Corporation
CSX CSX Transportation, Inc.
GWWR Gateway Western Railway
IAIS Iowa Interstate Railroad, Ltd.
IC Illinois Central Railroad Company
</TABLE>
<TABLE>
<S> <C>
KJRY Keokuk Junction Railway
NS Norfolk Southern Corp.
POTB Port of Tillamook Bay Railroad
PPU Peoria & Pekin Union Railway
SB South Buffalo Railway Company
SP Southern Pacific Transportation Company
TPW Toledo, Peoria & Western Railway Corp.
UP Union Pacific Railroad Company
</TABLE>
The following is a description of each of the twelve railroads operated by
the Company:
Allegheny & Eastern Railroad, Inc.
In 1992, ALY acquired from International Paper 153 miles of track between
Erie and Emporium, Pennsylvania. Connections are made with CR at Erie and
Emporium, Pennsylvania and with BPRR at Johnsonburg, Pennsylvania. Traffic in
1995 totaled 5,769 carloads, which included petroleum products, pulpwood, wood
pulp, chemicals and paper. In addition, a CR unit train operates over ALY
between International Paper plants in Lock Haven and Erie, Pennsylvania.
Bradford Industrial Railroad, Inc.
In 1992 BR acquired 4 miles of track running from East Bradford to Bradford,
Pennsylvania and 14 miles of trackage rights from Bradford to Salamanca, New
York, where BR connects with CR and BPRR. Traffic in 1995 totaled 722 carloads
which included paper products, petroleum products and plastics.
Buffalo & Pittsburgh Railroad, Inc.
BPRR purchased and leased 365 miles of track and obtained 27 miles of
trackage rights from CSX in 1991. BPRR conveyed its interest in the 26-mile
Clearfield Branch to CR in 1992. In 1993, BPRR discontinued service over the
60-mile Indiana Branch leased from CSX. BPRR connects with every Class I
railroad in the eastern United States and Canada. In 1995, BPRR handled 49,057
carloads. Principal commodities included aggregates, automobiles, chemicals,
coal, petroleum products, lumber, paper products and steel.
The Dansville & Mount Morris Railroad Company
DMM operates 8 miles of track from a connection with GNWR at Groveland, New
York to Dansville, New York, where it serves the Foster Wheeler Energy
Corporation. In 1995, DMM handled 21 carloads of steel and machinery. DMM was
acquired in 1985. In 1988, its 60-90 lb. rail was replaced with 131 lb.
continuous welded rail.
Genesee and Wyoming Railroad Company
GNWR commenced operations in 1899. The 26-mile GNWR mainline runs from
Groveland, New York to P&L Junction in Caledonia, New York. In addition, GNWR
operates via trackage rights over 49 miles of RSR to interchange with CR in
Rochester, New York. GNWR also interchanges with CPRS at Silver Springs, New
York. The principal commodity handled by GNWR is rock salt for snow and ice
control. Traffic in 1995 totaled 7,741 carloads and was negatively affected by
the collapse and closure of the Akzo mine. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Akzo Mine."
Pittsburg & Shawmut Railroad, Inc.
The assets of PS were acquired on April 29, 1996. See "Recent Developments."
PS operates over 237 miles of track in western Pennsylvania, connecting with
BPRR in three locations and CR. Coal is the primary commodity hauled by PS.
39
<PAGE>
Rochester & Southern Railroad, Inc.
The 93-mile RSR mainline and 6 miles of branch lines between Ashford and
Rochester, New York were acquired from CSX in 1986. RSR abandoned 33 miles
between Silver Springs and Machias, New York in 1991, leaving 60 miles of
mainline. RSR interchanges with CR at Rochester and Silver Springs, with CPRS
at Silver Springs, with GNWR at P&L Junction and with BPRR in Buffalo, New
York via a haulage contract with CPRS. Traffic in 1995 totaled 4,290 carloads
which included fuel oil, chemicals, coal, lumber and auto parts.
Illinois & Midland Railroad, Inc.
The assets of IMR were acquired on February 8, 1996. See "Recent
Developments." IMR is headquartered in Springfield, Illinois and operates
between Taylorville and Peoria, Illinois over 97 miles of owned track, 15
miles of trackage rights over IC, 9 miles of trackage rights over PPU and 5
miles of trackage rights over UP. IMR handles principally coal to two ComEd
power plants. IMR connects with BNSF, CR, GWWR, IAIS, IC, KJRY, NS, PPU, SP,
TPW and UP and with the Illinois River through an unloading facility owned by
ComEd and operated by IMR at Havana, Illinois. Coal is the primary commodity
hauled by IMR.
Portland & Western Railroad, Inc.
PNWR acquired by lease 53 miles of SP's remaining Oregon branch lines on
August 18, 1995. The lease runs for 20 years with a 10-year renewal unless
terminated by either party. PNWR has trackage rights from Willsburg Junction,
Oregon to interchange with SP at Brooklyn Yard in Portland. On October 1, 1995
PNWR leased 54 miles of BNSF's former Oregon Electric subdivision for three
years with three-year renewals subject to termination by either party. PNWR
also interchanges with BNSF at Brooklyn Yard. In the last five months of 1995,
PNWR handled 3,753 carloads comprised principally of lumber and grain.
Willamette & Pacific Railroad, Inc.
In 1993 WPRR acquired, under a 20-year lease with renewal options subject to
both parties' consent, 185 miles of SP's Westside Branches between Portland
and Eugene, Oregon. WPRR operates under a trackage rights agreement over 41
miles of SP from Albany, Oregon to interchange with SP at Eugene Yard. Traffic
in 1995 totaled 35,281 carloads. Major commodities shipped on WPRR include
paper, newsprint, wood chips, lumber, steel, grain, scrap steel, fertilizer
and grass seed.
Louisiana & Delta Railroad, Inc.
In 1987 LDRR purchased and leased certain SP branch lines between Raceland
and New Iberia, Louisiana. Seven separate branches total 92 miles and are
connected by 93 miles of trackage rights over the SP mainline. Service to an
eighth branch, acquired by a shipper, began in 1989. LDRR handled 12,039
carloads in 1995. Principal commodities carried by LDRR are carbon black,
sugar and molasses, pipe, plastics, rice, salt and paper products.
GWI Switching Services, L.P.
GWSW began operation of a Dayton, Texas plastic pellet car storage yard in
1994 under a long-term contract. The yard was completed in December 1995 and
has capacity to hold 3,000 cars. The yard is located on over 100 acres along
SP's Baytown branch and contains over 50 miles of track. GWSW operates over 5
miles of SP under trackage rights to move the cars to and from the storage
yard and SP's Dayton rail yard. The yard has capacity to be expanded, at SP's
option, to hold approximately 4,500 cars.
TRACK CONDITION
The Company's railroads conduct freight operations on 1,506 miles of track.
Of this total, 829 miles of track are owned by the Company's railroads, 407
miles of track are leased and the Company operates over 202 miles of track
pursuant to trackage rights agreements. In addition, the Company has a haulage
contract whereby it pays a connecting carrier to carry its customers' freight
over 56 miles of the connecting carrier's line. The remaining 12 miles are
operated by Pittsburg & Shawmut pursuant to an operating contract.
40
<PAGE>
Of the 1,506 miles of track operated on or by the Company's railroads, 13%
was in FRA Class IV condition, permitting speeds of up to 60 miles per hour
for freight trains. An additional 45% was in FRA Class III condition,
permitting speeds of up to 40 miles per hour, while 21% was in FRA Class II
condition, permitting speeds of up to 25 miles per hour. The remaining 21% was
in FRA Class I or FRA Excepted Class I condition, which permits maximum speeds
of 10 miles per hour. The following table summarizes the track condition of
the Company's railroads:
TRACK CONDITION
<TABLE>
<CAPTION>
FRA CLASS
----------------------------
IV III II I EXCEPTED TOTAL %
--- --- --- --- -------- ----- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Owned.................................. - 528 170 95 36 829 55%
Leased................................. - 119 120 46 122 407 27
Trackage rights........................ 146 31 18 7 - 202 13
Contract............................... 50 2 3 13 - 68 5
--- --- --- --- --- ----- ---
Total miles............................ 196 680 311 161 158 1,506 100%
=== === === === === ===== ===
FRA Class as percentage of miles....... 13% 45% 21% 11% 10% 100%
=== === === === === =====
</TABLE>
The Company's track maintenance policy is to maintain its railroads' track,
ties and roadbed consistent with safe operations and with the volume of
traffic transported over their lines. Safety-related maintenance receives the
highest maintenance priority, followed by high-density track segments on which
the highest volume of traffic is transported. Low-density segments, sidings
and lines for which higher transit speeds are not essential to providing
timely and effective service are maintained at lower FRA Class conditions.
In connection with its lease of the SP rail line, WPRR installed 30,600
railroad ties and has committed to upgrade approximately 25 miles of rail. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
EQUIPMENT
As of March 31, 1996, rolling stock of the Company's railroads consisted of
113 locomotives and 1,133 freight cars, some of which were owned and some of
which were leased from others. The average age of the Company's locomotive
fleet is approximately 28 years. The following tables summarize the aggregate
fleet of the Company's railroads at March 31, 1996(1):
LOCOMOTIVES
<TABLE>
<CAPTION>
HORSEPOWER PER UNIT OWNED LEASED TOTAL
------------------- ----- ------ -----
<S> <C> <C> <C>
3000 to 3200.............................................. 18 7 25
2000 to 3000.............................................. 28 6 34
1800 and under............................................ 24 30 54
--- --- ---
Total................................................... 70 43 113
=== === ===
</TABLE>
FREIGHT CARS
<TABLE>
<CAPTION>
CAR TYPE OWNED LEASED MANAGED TOTAL
-------- ----- ------ ------- -----
<S> <C> <C> <C> <C>
Covered hopper.................................... 651 19 162 832
Plain box car..................................... 25 - 101 126
Equipped box car.................................. - 50 - 50
Gondola........................................... - 115 - 115
Wood chip gondola................................. - 10 - 10
--- --- --- -----
Total........................................... 676 194 263 1,133
=== === === =====
</TABLE>
- --------
(1) In addition, in connection with the Pittsburg & Shawmut Acquisition, the
Company acquired an additional 859 railcars and 19 locomotives, a
significant portion of which will be sold.
41
<PAGE>
MANAGEMENT
The following table sets forth information regarding the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mortimer B. Fuller, III. 54 Chairman of the Board of Directors, President and
Chief Executive Officer
Senior Vice President, Chief Financial Officer and
Mark W. Hastings........ 46 Treasurer
Forrest L. Becht........ 52 Senior Vice President-Louisiana and Texas
Charles W. Chabot....... 49 Senior Vice President-New York and Pennsylvania
Robert I. Melbo......... 53 Senior Vice President-Oregon
Spencer D. White........ 36 Senior Vice President-Illinois
Alan R. Harris.......... 48 Senior Vice President and Chief Accounting Officer
James M. Fuller(1)...... 55 Director
Louis S. Fuller(2)...... 55 Director
John M. Randolph(1)(2).. 70 Director
Philip J. Ringo(1)(2)... 54 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
The Company's Board of Directors is divided into three classes and directors
serve for staggered three-year terms. The current terms of office of James M.
Fuller and John M. Randolph expire in 1997, the current terms of office of
Louis S. Fuller and Philip J. Ringo expire in 1998, and the current term of
office of Mortimer B. Fuller, III expires in 1999.
Mortimer B. Fuller, III has been President and Chief Executive Officer of
the Company since 1977. He has been a director of the Company since 1973 and
also serves as Chairman of the Board and of the Board's Executive Committee.
He is a graduate of Princeton University, Boston University School of Law and
Harvard Business School. Mr. Fuller is a director of the American Short Line
Railroad Association. He is a founding member of the Regional Railroads of
America, and serves on that Association's executive committee. He also serves
on the Board of Directors of Detection Systems, Inc. Mr. Fuller is a first
cousin of James M. Fuller and Louis S. Fuller.
Mark W. Hastings, Senior Vice President, Chief Financial Officer and
Treasurer, has been the Company's chief financial officer since he joined the
Company in 1978. Prior to joining GWI, Mr. Hastings was a credit analyst for
Marine Midland Bank. He currently represents the short line industry on the
Board of the Railroad Clearing House, which has been established to create the
administrative systems and banking functions for the electronic settlement of
all rail industry interline freight payments.
Forrest L. Becht, Senior Vice President-Louisiana and Texas, joined the
Company in 1987 as General Manager of Louisiana & Delta Railroad, Inc., and
now serves as its President and General Manager. His 25-year career in the
railroad industry has included service with The Atchison, Topeka and Santa Fe
Railway from 1968 to 1981 in a succession of staff and line positions in its
mechanical and operating departments. Mr. Becht is a director of the American
Short Line Railroad Association and is active in several other railroad
operating associations.
Charles W. Chabot, Senior Vice President-New York and Pennsylvania, joined
the Company as Senior Vice President--Marketing and Sales in 1991. He became
President of Buffalo & Pittsburgh Railroad, Inc. in 1992. Prior to joining the
Company, Mr. Chabot was employed for over ten years by the Chessie System
Railroad (predecessor of CSX Transportation, Inc.), where he served in various
capacities in marketing and freight equipment planning, including Director,
Minerals Marketing, Assistant Vice President, Chemical Marketing, and
Assistant Vice President, Planning and Equipment. He also served as a
management consultant with Booz, Allen and Hamilton. Mr. Chabot represents the
short line railroad industry on the Board of Directors of Operation Lifesaver,
Inc.
42
<PAGE>
Robert I. Melbo, Senior Vice President-Oregon, has served as General Manager
of Willamette & Pacific Railroad, Inc. since 1993. He joined the Company in
1993 after over 25 years of service in operations with Southern Pacific
Transportation Company in various capacities, including Manager-Field
Operations, Northern Willamette Valley, and Superintendent of the Oregon
Division.
Spencer D. White, Senior Vice President-Illinois, joined the Company in 1988
as Chief Engineer of Buffalo & Pittsburgh Railroad, Inc. after serving in
progressive engineering positions with CSX Transportation since 1982. He has
served the Company as Vice President-Operations of Buffalo & Pittsburgh
Railroad, Inc. and Chief Engineer of the New York and Pennsylvania railroads.
He assumed his current position in February 1996, following the Illinois &
Midland Acquisition.
Alan R. Harris, Senior Vice President and Chief Accounting Officer, joined
the Company in 1990 as its Chief Accounting Officer. Mr. Harris is a certified
public accountant and from 1985 to 1990, he was Director of Accounting, and
subsequently Secretary and Treasurer, of Preston Trucking Company, Inc., an
interstate carrier.
James M. Fuller has been a director of the Company since 1974. In 1995 he
became Regional Sales Manager of the Harvey Salt Co., a distributor of salt
and water purification chemicals. From 1983 until 1993, Mr. Fuller was
National Account Manager-Export for Akzo, where he served for over 25 years.
Mr. Fuller is a first cousin of Mortimer B. Fuller, III and Louis S. Fuller.
Louis S. Fuller, has been a director of the Company since 1974. Since 1991,
he has been a member of Courtright and Associates, an executive search firm.
Mr. Fuller serves on the Advisory Board of Pioneer American Bank. He is a
first cousin of Mortimer B. Fuller, III and James M. Fuller.
John M. Randolph, a financial consultant and private investor for more than
the past five years, has been a director of the Company since 1986. In 1965
Mr. Randolph founded and was Chief Executive Officer of Randolph Computer
Corporation, one of the first computer leasing companies. He subsequently
served as Chairman and Chief Executive Officer of J.M. Randolph and
Associates, a company created to manage certain computer leasing assets
acquired by the Bank of Boston. Mr. Randolph currently serves as a director of
Leasing Technologies International Inc. and as Vice Chairman and a director of
Financing for Science International, Inc.
Philip J. Ringo has been a director of the Company since 1978. Since 1995,
he has been President of Chemical Leaman Tank Lines Inc., a trucking firm.
From 1992 to 1995, Mr. Ringo served as President and Chief Operating Officer
of The Morgan Group, Inc. and Chairman and Chief Executive Officer of Morgan
Drive Away, Inc., a common and contract carrier for the manufactured housing
and recreational vehicle industries. From 1988 to 1992, he was Chief Executive
Officer and President of Energy Innovations, Inc., a monitoring and
communications equipment firm. Prior to that, he served as President of Ryder
Public Transportation Services and its predecessor company, ATE Management and
Service Co., Inc. (international transportation services). Mr. Ringo is a
Trustee of the Bartlett Capital Trust and the Bartlett Management Trust, and a
director of Chemical Leaman, Inc.
43
<PAGE>
EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to the Company in all capacities during
1995, paid by the Company to those persons who were, at the end of 1995, the
Chief Executive Officer and each other executive officer of the Company whose
salary and bonus in 1995 exceeded $100,000 (collectively, the "Named
Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- --------------------------
AWARDS PAYOUTS
------------------ -------
OTHER
ANNUAL RESTRICTED ALL OTHER
COMPEN- STOCK LTIP COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) SATION AWARDS OPTIONS PAYOUTS SATION(2)
- --------------------------- ---- -------- -------- ------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortimer B. Fuller, III, 1995 $286,456 $70,400 - - - - $8,933
.......................
Chairman of the Board,
President and Chief Ex-
ecutive Officer
Mark W. Hastings ....... 1995 $115,375 $22,700 - - - - $7,086
Senior Vice President,
Chief Financial Officer
and Treasurer
Charles W. Chabot ...... 1995 $138,116 $15,400 - - - - $9,557
Senior Vice President-
New York and Pennsylva-
nia
</TABLE>
- --------
(1) The bonuses shown were awarded and paid in 1996 for services rendered
during 1995.
(2) The amounts shown include (i) Company contributions to the Company's
401(k) Savings Plan (see "--401(k) Savings Plan") on behalf of the Named
Executives as follows: Mr. Fuller-$1,613, Mr. Hastings-$1,459 and Mr.
Chabot-$1,613; (ii) the value of insurance premiums paid by the Company,
and the economic benefit (projected on an actuarial basis) to the Named
Executives, under split dollar life insurance arrangements as follows: Mr.
Fuller-$6,845, Mr. Hastings-$5,152 and Mr. Chabot-$7,469; and (iii) $475
in life insurance premiums paid by the Company for the benefit of each
Named Executive under a group life insurance program.
STOCK OPTIONS
No options were granted or exercised during 1995 and no options to purchase
Common Stock were outstanding at the end of 1995.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "Stock Option Plan") provides for
the grant of incentive stock options, within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and non-statutory
options to executives and other employees of the Company to purchase up to an
aggregate of 450,000 shares of Class A Common Stock. The Stock Option Plan is
administered by a Stock Option Committee comprised of at least two
disinterested directors within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. The Stock Option Committee is
authorized to determine the recipients of options, the type of options
granted, the number of shares subject to each option, the term of each option,
exercise prices and other option features. The term of an option may not
exceed ten years, except that if an incentive stock option is granted to an
optionee who would thereafter own stock possessing more than 10% of the
combined voting power of the Common Stock (a "10% Stockholder"), the term of
the option may not exceed five years. The exercise price must at least equal
the market value of the Class A Common Stock on the grant date of the option,
except that if an incentive stock option is granted to a 10% Stockholder, the
exercise price must at least equal 110% of such value. Options are not
transferable except by will or intestacy, and lapse within stated periods
following the death of the optionee or the termination of the optionee's
employment with the Company. The Stock Option Plan contains customary anti-
dilution provisions and provides for the acceleration of the vesting of
options upon a change in control of the Company. The Stock Option Plan
terminates in 2006. Options to purchase an aggregate of 350,500 shares of
Class A Common Stock at the initial public offering price are currently
outstanding.
44
<PAGE>
Stock Option Plan for Outside Directors
The Company's Stock Option Plan for Outside Directors (the "Outside
Directors' Plan") provides for the grant to non-employee directors of the
Company of non-statutory options to purchase up to an aggregate of 50,000
shares of Class A Common Stock. The Outside Directors' Plan provides for three
categories of option grants: (i) options to purchase 8,000 shares of Class A
Common Stock at the initial public offering price, granted to each of the
Company's four current outside directors on the closing date of the Offering;
(ii) options to purchase 2,000 shares of Class A Common Stock at its market
value on the option grant date, granted to each new outside director of the
Company upon his or her election to the Board; and (iii) options to purchase
1,000 shares of Class A Common Stock at its market value on the option grant
date, granted to each such new outside director on fixed dates in 1997 and
1998 provided that the Company's net income after taxes for the most recently
completed year exceeds by at least 10% its net income after taxes for the
immediately preceding year. Options vest over a three-year period in
increments of one-third on each anniversary of the grant date, and expire on
the tenth anniversary. Options are not transferable except by will or
intestacy, and lapse within stated periods following the death of the optionee
or cessation of his service as a director. The Outside Directors' Plan
contains customary anti-dilution provisions and provides for the acceleration
of the vesting of options upon a change in control of the Company.
EMPLOYMENT AGREEMENTS
The Company is a party to employment agreements with each of its seven
executive officers which provide that upon termination of the officer's
employment with the Company within three years after a defined change in
control of the Company, the officer will receive a cash amount equal to three
times the average annual compensation payable to him by the Company during the
immediately preceding five years. The agreements provide for reduction of the
amounts paid pursuant thereto to the extent that such amounts would otherwise
be non-deductible to the Company under Section 280G of the Code.
CASH BONUS PLAN
The Company awards annual bonuses to ten employees (including its seven
executive officers) based on pre-tax earnings targets and individual
performance objectives. Earnings targets, individual performance objectives
and bonus percentages are established at the beginning of each year by the
Compensation Committee of the Board. Maximum bonus percentages currently range
from 15% to 50% of annual salary.
401(K) SAVINGS PLAN
The Company's 401(k) Savings Plan (the "401(k) Plan") provides retirement,
death and disability benefits to certain employees with a cash or deferred
arrangement intended to qualify under the Code. It became effective in 1994
and covers employees other than union employees covered by a collective
bargaining agreement with a union local (which employees are covered by a
separate 401(k) plan of the Company). Each participant may defer and have
contributed to his account under the 401(k) Plan up to 15% of compensation
each year, including any bonuses. The Company and its subsidiaries make
matching contributions annually equal to 25% of each participant's
contribution. The maximum matching contribution is 1 1/2% of the participant's
annual compensation. Each employer may make an additional discretionary
contribution for its employees which is allocated to participants' accounts in
proportion to their total compensation for the plan year for which the
contribution is made.
DIRECTORS' COMPENSATION
The Company currently pays its outside directors $2,100 per Board meeting
attended, $500 per Board Committee meeting attended not in conjunction with a
Board meeting, $250 per Committee meeting attended in conjunction with a Board
meeting and $250 per meeting attended by telephone. All of the Company's
directors other than Mortimer B. Fuller, III qualify for such payments. In
addition, during 1995 the Company provided medical insurance on behalf of
Louis S. Fuller and John M. Randolph at a cost of $5,448 and $5,818,
respectively.
45
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995 the Compensation Committee of the Board of Directors was
composed of Louis S. Fuller, John M. Randolph and Philip J. Ringo. Mortimer B.
Fuller, III participates in the deliberations of the Compensation Committee
for the purpose of providing evaluations and recommendations with respect to
the compensation paid to officers other than himself. However, Mr. Fuller
neither participates nor is otherwise involved in the deliberations of the
Compensation Committee with respect to his own compensation, and those
deliberations are conducted by the Compensation Committee in executive session
without Mr. Fuller present.
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's Employee Stock Purchase Plan (the "Stock Purchase
Plan"), all full-time employees who have been employed by the Company for at
least two years are eligible to purchase from the Company shares of Class A
Common Stock by payroll deduction at market price. The Stock Purchase Plan is
administered by a committee composed of at least two disinterested directors.
An aggregate of 450,000 shares of Class A Common Stock (subject to customary
anti-dilution provisions) may be purchased under the Stock Purchase Plan.
During any year, a participating employee may purchase under the Stock
Purchase Plan shares having an aggregate market value of up to $25,000,
provided that after any such purchase, he or she would own no more than 5% of
the total combined voting power of the Company. The Stock Purchase Plan will
become effective upon the effectiveness of the Company's registration
statement on Form S-8 under the Act covering the shares subject to the Stock
Purchase Plan.
CERTAIN TRANSACTIONS
In 1983, the Company issued $598,365 in aggregate principal amount of
subordinated debentures maturing in 1998, including (i) a debenture in
$260,865 principal amount issued to Louis S. Fuller, a director of the
Company, and his wife, and (ii) debentures in $337,500 aggregate principal
amount issued to trusts for the benefit of James M. Fuller, a director of the
Company, and others. The debentures bore interest at the rate of 10% per annum
and contained customary loan covenants. Such transactions were at arm's
length, on terms and conditions identical to those offered to non-affiliated
third parties. In June 1995, the Company repaid all such debt with borrowings
under the Credit Facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In May 1994, a subsidiary of the Company issued $990,000 in aggregate
principal amount of subordinated notes maturing in 2001, including (i) a note
in $100,000 principal amount issued to Louis S. Fuller, (ii) a note in
$100,000 principal amount issued to Frances A. Fuller, the mother of Mortimer
B. Fuller, III, and (iii) notes in $50,000 aggregate principal amount issued
to trusts for the benefit of John M. Randolph, a director of the Company, and
his wife. The notes bore interest at the rate of 12% per annum and contained
customary loan covenants. Such transactions were at arm's length, on terms and
conditions identical to those offered to non-affiliated third parties. In June
1995, the Company repaid all of such debt with borrowings under the Credit
Facilities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The Company, Mortimer B. Fuller, III, the other executive officers of the
Company (the "Other Executives") and all of the holders of the Class B Common
Stock are parties to a Class B Stockholders' Agreement dated as of May 20,
1996. Under that agreement, if a party proposes to transfer shares of Class B
Common Stock in a transaction that will not result in the automatic conversion
of those shares into shares of Class A Common Stock (see "Description of
Capital Stock"), the Other Executives have the right to purchase up to an
aggregate of 50% of those shares, and Mr. Fuller has the right to purchase the
balance, all at the then-current market price of the Class A Common Stock. If
Mr. Fuller does not purchase the entire balance of the shares, the Other
Executives have the right to purchase whatever shares remain. Such purchase
rights also apply if the employment of any of the Other Executives is
terminated for any reason. The effect of this agreement will be to concentrate
ownership of the Class B Common Stock, which enjoys ten times the voting power
of the Class A Common Stock, in the hands of management of the Company,
particularly Mr. Fuller. See "Principal Stockholders."
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of May 31, 1996 certain information
concerning shares of both classes of the Company's Common Stock held by (i)
each stockholder known by the Company to own beneficially more than 5% of
either class, (ii) each director of the Company, (iii) each Named Executive
(see "Management--Executive Compensation"), and (iv) all directors and
executive officers of the Company as a group. The address for each of the
directors and Named Executives is the address of the Company.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
---------------------------- ----------------------------
CLASS A CLASS B CLASS A CLASS B
NAME AND ADDRESS OF COMMON COMMON COMMON COMMON
BENEFICIAL OWNER(1) STOCK STOCK PERCENT(2) STOCK STOCK PERCENT(2)
------------------- --------- ------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mortimer B. Fuller, 651,347 651,347 55.5% 651,347 651,347 26.9%(4)
III(3).................
James M. Fuller(5)...... 283,901 11,100 12.6 283,901 11,100 6.1
Louis S. Fuller(6)...... 160,894 160,894 13.7 160,894 160,894 6.6
John M. Randolph(7)..... 7,400 7,400 0.6 7,400 7,400 0.3
Philip J. Ringo(8)...... 3,700 -- 0.2 3,700 -- 0.1
Mark W. Hastings(9)..... 7,400 7,400 0.6 7,400 7,400 0.3
Charles W. Chabot....... -- -- -- -- -- --
ATE Management and Serv- 148,000 -- 6.3 148,000 -- 3.1
ice Co., Inc...........
49 East Fourth Street
Suite 700
Cincinnati, OH 45202
Nancy E. Putney, Trustee 159,470 -- 6.8 159,470 -- 3.3
.......................
Putney Family Trust
4833 Leland Street
Chevy Chase, MD 20815
All Directors and Execu-
tive Officers as a
Group (11 persons)..... 1,114,642 838,141 83.2% 1,114,642 838,141 40.3%(4)
</TABLE>
- --------
(1) Unless otherwise indicated, each stockholder shown on the table has sole
voting and investment power with respect to the shares beneficially owned
by him or it.
(2) Percentages are based on ownership of both Class A Common Stock and Class
B Common Stock.
(3) The amounts shown include: (i) 351,592 shares of Class A Common Stock and
351,592 shares of Class B Common Stock owned by Mr. Fuller individually;
(ii) 188,607 shares of Class A Common Stock and 188,607 shares of Class B
Common Stock held by a family trust for the benefit of Mr. Fuller and
others, of which Mr. Fuller is a co-trustee; (iii) 83,583 shares of Class
A Common Stock and 83,583 shares of Class B Common Stock held by another
family trust for the benefit of Mr. Fuller and others, of which Mr. Fuller
is a co-trustee; (iv) 925 shares of Class A Common Stock and 925 shares of
Class B Common Stock owned by Mr. Fuller's wife, as to which shares Mr.
Fuller disclaims beneficial ownership; (v) 10,915 shares of Class A Common
Stock and 10,915 shares of Class B Common Stock owned by Mr. Fuller's
mother which, together with the shares held by the above-mentioned family
trusts, are subject to a Voting Agreement pursuant to which Mr. Fuller has
been granted irrevocable proxies to vote all such shares through March 20,
2008; and (vi) 15,725 shares of Class A Common Stock and 15,725 shares of
Class B Common Stock held by a family trust for the benefit of Mr. Fuller
and others, of which Mr. Fuller is the Trustee.
(4) Because the Class A Common Stock is entitled to one vote per share and the
Class B Common Stock is entitled to ten votes per share, immediately after
the Offering the stock ownership of Mortimer B. Fuller, III will represent
57.5% of the voting power of the Company and the stock ownership of all
directors and executive officers as a group will represent 76.2% of the
voting power of the Company.
(5) The amounts shown include 11,100 shares of Class A Common Stock and 11,100
shares of Class B Common Stock held by Mr. Fuller individually, and an
aggregate of 272,801 shares of Class A Common Stock held by family trusts
for the benefit of Mr. Fuller and others, of which Mr. Fuller is a co-
trustee.
(6) The amounts shown include 133,144 shares of Class A Common Stock and
133,144 shares of Class B Common Stock held by Mr. Fuller individually,
and an aggregate of 27,750 shares of Class A Common Stock and 27,750
shares of Class B Common Stock owned by Mr. Fuller's children (as to which
shares he disclaims beneficial ownership).
(7) Such shares are held by a trust for the benefit of Mr. Randolph, of which
he is a co-trustee.
(8) Such shares are owned by Mr. Ringo's wife, and he disclaims beneficial
ownership thereof.
(9) Such shares are owned by Mr. Hastings jointly with his wife.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Restated Certificate of
Incorporation and By-laws of the Company.
IN GENERAL
The Company's authorized capital stock consists of 12,000,000 shares of
Class A Common Stock, par value $.01 per share, and 1,500,000 shares of Class
B Common Stock, par value $.01 per share. At the date of this Prospectus,
1,501,937 shares of Class A Common Stock and 846,556 shares of Class B Common
Stock were issued and outstanding, and there were 31 holders of record of
Class A Common Stock and 18 holders of record of Class B Common Stock.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting. Holders of Class A Common Stock are entitled to one vote per share.
Holders of Class B Common Stock are entitled to ten votes per share. All
actions submitted to a vote of stockholders are voted on by the holders of
Class A Common Stock and Class B Common Stock voting together as a single
class, except as otherwise required by law. Under current Delaware law, the
holders of the outstanding shares of a class are entitled to vote as a class
upon a proposed charter amendment that would change the aggregate number of
authorized shares of such class, change the par value of the shares of such
class or change the powers, preferences or special rights of the shares of
such class so as to affect them adversely. Holders of the Company's Common
Stock are not entitled to cumulate voting in the election of directors.
Conversion. Class A Common Stock has no conversion rights. Each share of
Class B Common Stock is convertible into one share of Class A Common Stock (i)
at any time at the option of the holder of the Class B Common Stock and (ii)
automatically upon any transfer by the holder thereof other than (a) a
transfer to a spouse, child or grandchild of the transferor by gift or upon
the transferor's death, or (b) a transfer to an individual or entity that is,
at the time of transfer, a holder of record of Class B Common Stock or an
executive officer of the Company.
Dividends. Dividends are payable on the outstanding shares of (i) only Class
A Common Stock or (ii) both Class A Common Stock and Class B Common Stock, in
each case, when, as and if declared by the Board of Directors. If the Board
determines to pay a dividend on the Class B Common Stock, each share of Class
A Common Stock will receive a dividend in an amount 10% greater than the
amount of the dividend per share paid on the Class B Common Stock. Subject to
the foregoing, dividends in the form of stock can only be paid in shares of
Class A Common Stock. Although the Company has paid dividends in the past, it
currently intends to retain all earnings to support its operations and future
growth and, therefore, does not anticipate the payment of cash dividends on
the Common Stock in the foreseeable future. See "Dividend Policy."
Liquidation. In the event of liquidation, holders of Class A Common Stock
and Class B Common Stock will share with each other on a ratable basis as a
single class in the net assets of the Company available for distribution after
payment or provision for the liabilities of the Company.
Other Terms. Neither the Class A Common Stock nor the Class B Common Stock
may be subdivided, consolidated, reclassified or otherwise changed unless
contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner. In any merger, consolidation, reorganization or other
business combination, the consideration to be received per share by holders of
either Class A Common Stock or Class B Common Stock must be identical to that
received by holders of the other class. Neither the holders of Class A Common
Stock nor the holders of Class B Common Stock are entitled to preemptive
rights, and neither the Class A Common Stock nor the Class B Common Stock is
subject to redemption.
Listing. The Class A Common Stock has been approved for quotation, subject
to official notice of issuance, on the Nasdaq National Market under the symbol
"GNWR."
48
<PAGE>
BANK WARRANT
As part of the consideration for the availability of the Credit Facilities
(see "Recent Developments"), in February 1996 the Company paid a fee of $1.5
million and issued to the Bank of Boston, for no additional consideration, a
warrant to purchase 41,847 shares of Class A Common Stock at a price of
approximately $.0005 per share (the "Bank Warrant"), subject to customary
anti-dilution adjustments. The Bank Warrant is immediately exercisable, is
transferable to members of the banking syndicate and their affiliates, and
expires in 2006. Holders of the Bank Warrant are entitled under certain
circumstances to demand and "piggy-back" registration rights, at the Company's
expense (subject to certain limitations), with respect to the shares issuable
upon exercise thereof.
LIMITATIONS ON TAKEOVERS
Super-Majority Voting Provision. The Company's Restated Certificate of
Incorporation requires the affirmative vote of the holders of at least two-
thirds of the combined voting power of the Class A Common Stock and Class B
Common Stock, voting together as one class, for approval of the following
actions: (i) any merger or consolidation unless the Company is the surviving
corporation in such transaction and no change of control (defined as any
person or group becoming the beneficial owner of shares of Class A Common
Stock and Class B Common Stock representing 50% or more of the votes
represented by all outstanding shares of Class A Common Stock and Class B
Common Stock) has occurred, (ii) any sale, lease or other disposition of all
or substantially all of the assets of the Company and (iii) any amendment of
the super-majority voting provision. These voting requirements could have the
effect of delaying, deferring or preventing such transactions.
Classified Board of Directors. The Company's Board of Directors is divided
into three classes, with the members of each class serving for staggered
three-year terms. The classification of the directors will have the effect of
making it more difficult for stockholders to force an immediate change in the
composition of the Board of Directors. The Board of Directors believes that
the longer time required to elect a majority of a classified Board of
Directors helps to ensure the continuity and stability of the Company's
management and policies since a majority of the directors at any given time
will have had prior experience as directors of the Company.
Consideration of Non-Price Issues. The Company's Restated Certificate of
Incorporation permits the Board of Directors, in considering the best
interests of the Company, to consider the effects of any action upon
employees, general agents, customers, creditors, communities, the state and
national economies and the long-term as well as short-term interests of the
Company and its stockholders, including the possibility that these interests
may be best served by the continued independence of the Company, and all other
pertinent factors.
Delaware General Corporation Law Section 203. Section 203 of the Delaware
General Corporation Law provides that, subject to certain exceptions specified
therein, a corporation may not engage in any business combination (which
includes a merger or a sale of more than 10% of the corporation's assets) with
an "interested stockholder" for a three-year period following the time that
such stockholder becomes an interested stockholder unless (i) prior to such
time, the Board of Directors of the corporation approved either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction that
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 certain shares),
or (iii) at or subsequent to such time, the business combination is approved
by the Board of Directors of the corporation and by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. Except as specified in Section 203, an interested
stockholder is defined to include (a) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within three years
immediately prior to the date of determination and (b) the affiliates and
associates of any such person. Under certain circumstances, Section 203 makes
it more difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period.
49
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is The First
National Bank of Boston.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 1,501,937 shares of Class A Common Stock outstanding immediately
prior to the Offering will be eligible for sale subject to the volume and
other limitations of Rule 144 under the Act. In addition, all of the 846,556
shares of Class B Common Stock outstanding immediately prior to the Offering
are freely convertible into shares of Class A Common Stock and, if so
converted, will be eligible for sale subject to the volume and other
limitations of Rule 144 under the Act.
In general, under Rule 144 as currently in effect, a holder (or holders
whose shares are aggregated) of "restricted securities," including persons who
may be deemed affiliated with the Company, whose shares meet a two-year
holding period requirement are entitled to sell, within any three-month
period, a number of those shares that does not exceed the greater of 1% of the
then outstanding shares of Class A Common Stock (36,742 shares of Class A
Common Stock immediately after the Offering) or the average weekly reported
trading volume in the Class A Common Stock during the four calendar weeks
preceding the date on which notice of the sale is given, provided certain
manner of sale and notice requirements and requirements as to the availability
of current public information about the Company are satisfied. Under Rule
144(k), a holder of "restricted securities" who is deemed not to have been an
affiliate of the Company during the three months preceding a sale by him, and
whose shares meet a three-year holding period requirement, is entitled to sell
those shares without regard to these restrictions and requirements. However,
affiliates of the Company must comply with the restrictions and requirements
of Rule 144, other than the two-year holding period requirement, in order to
sell shares of Class A Common Stock which are not "restricted securities"
(such as shares acquired by affiliates in the Offering).
The Company, its officers and directors and certain other stockholders have
agreed not to sell or otherwise dispose of any shares of Common Stock, subject
to certain exceptions, for a period of 180 days after the date of this
Prospectus without the prior written consent of Schroder Wertheim & Co.
Incorporated. Following the Offering, an aggregate of 1,952,783 shares, or
40.3% of the total shares outstanding, will be subject to these restrictions.
An aggregate of 450,000 shares of Class A Common Stock is available for
issuance under the Company's 1996 Stock Option Plan (including 350,500 shares
subject to outstanding options, none of which are currently exercisable), and
an aggregate of 450,000 shares of Class A Common Stock is available for
issuance under the Company's Employee Stock Purchase Plan. The Company expects
to file a registration statement on Form S-8 under the Act immediately after
the closing of the Offering to register all of the shares issuable under both
such Plans. In addition, an aggregate of 50,000 shares of Class A Common Stock
is available for issuance under the Company's Stock Option Plan for Outside
Directors, which shares, if issued, will be eligible for sale subject to the
volume and other limitations of Rule 144 under the Act. See "Management--Stock
Options" and "Management--Employee Stock Purchase Plan." The holders of the
Bank Warrant are entitled under certain circumstances to demand and "piggy-
back" registration rights with respect to the shares issuable upon exercise
thereof. See "Description of Capital Stock--Bank Warrant."
Prior to the Offering, there has been no public market for the Class A
Common Stock and no determination can be made as to the effect, if any, that
sales of shares of Class A Common Stock or the availability of shares for sale
will have on the market price of the Class A Common Stock prevailing from time
to time. Nevertheless, sales of substantial amounts of the Class A Common
Stock in the public market (including shares issued upon exercise of options
or warrants, the conversion of Class B Common Stock, or under the Company's
Employee Stock Purchase Plan) could adversely affect the market price of the
Class A Common Stock and could impair the Company's future ability to raise
capital through an offering of its equity securities.
50
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters") have severally agreed to
purchase and the Company has agreed to sell to them, severally, the aggregate
number of shares of Class A Common Stock set forth opposite their respective
names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Schroder Wertheim & Co. Incorporated............................
Furman Selz LLC.................................................
---------
Total..................................................... 2,500,000
=========
</TABLE>
The Underwriting Agreement provides that the several Underwriters are
obligated, subject to the approval of certain legal matters by their counsel
and certain other conditions, to purchase all the shares of Class A Common
Stock offered hereby (other than those covered by the Underwriters' over-
allotment option described below), if any are purchased. Schroder Wertheim &
Co. Incorporated and Furman Selz LLC, as representatives of the several
Underwriters (the "Representatives"), have advised the Company that the
Underwriters propose to offer the shares to the public at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters
propose initially to allow a concession not in excess of $ per share to
certain dealers, including the Underwriters; that the Underwriters and such
dealers may initially allow a discount of not in excess of $ per share to
other dealers; and that the initial public offering price and the concession
and discount to dealers may be changed by the Representatives after the
initial public offering.
The Company has granted to the Underwriters an option, expiring at the close
of business on the 30th day after the date of the Underwriting Agreement, to
purchase up to an additional 375,000 shares of Class A Common Stock, at the
initial public offering price set forth on the cover page of this Prospectus,
less underwriting discounts and commissions. The Underwriters may exercise the
option only to cover over-allotments, if any, in the sale of shares of Class A
Common Stock in the Offering. To the extent that the Underwriters exercise
this option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of additional shares proportionate to such
Underwriter's initial commitment.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Act.
The Company, certain management stockholders, directors and certain other
stockholders have agreed not to offer to sell, sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock, subject to
certain exceptions, for a period of 180 days after the date of this Prospectus
without the prior written consent of Schroder Wertheim & Co. Incorporated.
Prior to the Offering, there has been no public market for the Class A
Common Stock. Consequently, the initial public offering price of the Class A
Common Stock will be determined by negotiations between the Company and the
Representatives. Among the factors to be considered in such negotiations are
the Company's
51
<PAGE>
results of operations and financial condition, the prospects for the Company
and for the industry in which the Company operates, the Company's capital
structure and prevailing conditions in the securities market.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority in excess of % of the total number of shares offered hereby.
NOTICE TO ONTARIO RESIDENTS
The distribution of the shares of Class A Common Stock in the Province of
Ontario, Canada is being made only on a private placement basis and is exempt
from the requirement that the Company prepare and file a prospectus with the
relevant Canadian securities regulatory authorities. Accordingly, any resale
of the shares of Class A Common Stock must be made in accordance with
applicable securities laws, which may require resales to be made in accordance
with exemptions from registration and prospectus requirements. Purchasers are
advised to seek legal advice prior to any resale of the shares of Class A
Common Stock.
Each Ontario purchaser who receives a purchase confirmation regarding the
purchase of shares of Class A Common Stock will be deemed to represent to the
Company and to the dealer from whom such confirmation is received that such
purchaser is entitled under applicable Ontario securities laws to purchase
such shares of Class A Common Stock without the benefit of a prospectus
qualified under such securities laws.
Ontario purchasers of shares of Class A Common Stock should consult their
own legal and tax advisors with respect to the tax consequences of an
investment in the shares of Class A Common Stock in their particular
circumstances and with respect to the eligibility of the shares of Class A
Common Stock for investment by purchaser under relevant Canadian legislation.
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the Company's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the Company or such persons. All or a substantial portion of the assets
of the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against the Company or persons outside of Canada.
LEGAL MATTERS
The validity of the Class A Common Stock offered by this Prospectus is being
passed on for the Company by Harter, Secrest & Emery, Rochester, New York.
Certain legal matters will be passed upon for the Underwriters by Shearman &
Sterling, New York, New York.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
52
<PAGE>
ADDITIONAL INFORMATION
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited interim financial information for the
first three quarters of each year.
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-l under the Act for registration of the
shares of Class A Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to do not purport to be complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved and each statement shall be deemed qualified in its
entirety by this reference. The Registration Statement and the exhibits and
schedules thereto may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the public reference
facilities of the Commission's Regional Offices: New York Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048; and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
53
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Genesee & Wyoming Inc. and Subsidiaries:
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March
31, 1996 (Unaudited)................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1993,
1994 and 1995, and the Three Months Ended March 31, 1995 (Unaudited),
and March 31, 1996 (Unaudited)......................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995, and the Three Months Ended March 31,
1996 (Unaudited)....................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995, and the Three Months Ended March 31, 1995
(Unaudited), and March 31, 1996 (Unaudited)............................ F-6
Notes to Consolidated Financial Statements.............................. F-7
Chicago & Illinois Midland Railway Company:
Report of Independent Public Accountants................................ F-20
Balance Sheets as of December 31, 1994 and 1995, and February 8, 1996
(Unaudited)............................................................ F-21
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995, and the One Month and Eight Day Period Ended February 8, 1996
(Unaudited)............................................................ F-22
Statements of Shareholder's Equity for the Years Ended December 31,
1993, 1994 and 1995, and the One Month and Eight Day Period Ended
February 8, 1996 (Unaudited)........................................... F-23
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995, and the One Month and Eight Day Period Ended February 8, 1996
(Unaudited)............................................................ F-24
Notes to Financial Statements........................................... F-25
Pittsburg & Shawmut Railroad Company, Mountain Laurel Railroad Company and
Red Bank Railroad Company:
Report of Independent Public Accountants................................ F-30
Combined Balance Sheets as of December 31, 1994 and 1995, and March 31,
1996 (Unaudited)....................................................... F-31
Combined Statements of Operations for the Years Ended December 31, 1993,
1994 and 1995, and the Three Months Ended March 31, 1995 (Unaudited),
and March 31, 1996 (Unaudited)......................................... F-32
Combined Statements of Shareholder's Equity for the Years Ended December
31, 1993, 1994 and 1995, and the Three Months Ended March 31, 1996
(Unaudited)............................................................ F-33
Combined Statements of Cash Flows for the Years Ended December 31, 1993,
1994 and 1995, and the Three Months Ended March 31, 1995 (Unaudited),
and March 31, 1996 (Unaudited)......................................... F-34
Notes to Combined Financial Statements.................................. F-35
</TABLE>
F-1
<PAGE>
UPON CONSUMMATION OF THE STOCK SPLIT DISCUSSED IN NOTE 14 TO THE
CONSOLIDATED FINANCIAL STATEMENTS, WE EXPECT TO BE IN A POSITION TO RENDER THE
FOLLOWING OPINION.
ARTHUR ANDERSEN LLP
CHICAGO, ILLINOIS
FEBRUARY 16, 1996
(EXCEPT WITH RESPECT TO MATTERS DISCUSSED IN
NOTE 14 AS TO WHICH THE DATE IS APRIL 22, 1996,
APRIL 29, 1996 AND JUNE , 1996)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
the Stockholders of
Genesee & Wyoming Inc.:
We have audited the accompanying consolidated balance sheets of GENESEE &
WYOMING INC. (a Delaware corporation) AND SUBSIDIARIES as of December 31, 1994
and 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Genesee & Wyoming Inc. and
Subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 8 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for
postretirement benefits other than pensions.
F-2
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 5,884 $ 2,115 $ 6,588
Accounts receivable, net......................... 10,698 9,441 14,764
Materials and supplies........................... 1,550 1,512 2,295
Prepaid expenses and other....................... 1,005 1,455 1,747
Deferred income tax assets, net.................. 1,075 1,278 1,364
------- ------- --------
Total current assets........................... 20,212 15,801 26,758
------- ------- --------
PROPERTY AND EQUIPMENT, net........................ 49,263 61,574 70,609
------- ------- --------
SERVICE ASSURANCE AGREEMENT, net................... -- -- 14,851
------- ------- --------
OTHER ASSETS, net.................................. 413 1,054 3,641
------- ------- --------
Total assets................................. $69,888 $78,429 $115,859
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................ $ 4,230 $ 1,239 $ 2,894
Accounts payable................................. 13,501 8,408 17,103
Accrued expenses................................. 3,062 3,404 4,431
------- ------- --------
Total current liabilities...................... 20,793 13,051 24,428
------- ------- --------
LONG-TERM DEBT..................................... 28,410 38,702 63,313
------- ------- --------
OTHER LIABILITIES.................................. 1,629 2,043 2,055
------- ------- --------
DEFERRED INCOME TAX LIABILITIES, net............... 3,125 4,139 4,489
------- ------- --------
DEFERRED ITEMS--grants from governmental agencies.. 6,849 9,946 9,622
------- ------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY:
Class A common stock, $0.01 par value; 12,000,000
shares authorized; 1,501,937 shares issued and
outstanding..................................... 15 15 15
Class B common stock, $0.01 par value; 1,500,000
shares authorized; 846,556 shares issued and
outstanding..................................... 8 8 8
Additional paid-in capital....................... 1,340 1,340 1,340
Warrants outstanding............................. -- -- 471
Retained earnings................................ 7,719 9,185 10,118
------- ------- --------
Total stockholders' equity..................... 9,082 10,548 11,952
------- ------- --------
Total liabilities and stockholders' equity... $69,888 $78,429 $115,859
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES............ $ 49,645 $ 55,419 $ 53,387 $13,391 $16,608
OPERATING EXPENSES:
Transportation............... 11,444 13,357 14,262 3,663 4,480
Maintenance of ways and
structures.................. 7,293 6,632 6,127 1,644 2,186
Maintenance of equipment..... 12,365 14,533 12,230 3,198 2,994
General and administrative... 9,284 9,282 10,309 2,434 2,809
Depreciation and
amortization................ 3,115 3,577 3,887 926 1,325
-------- -------- -------- ------- -------
Total operating expenses.... 43,501 47,381 46,815 11,865 13,794
-------- -------- -------- ------- -------
Income from operations...... 6,144 8,038 6,572 1,526 2,814
INTEREST EXPENSE.............. (2,864) (3,212) (3,405) (766) (1,274)
OTHER INCOME.................. 165 192 456 105 81
-------- -------- -------- ------- -------
Income before provision for
income taxes, extraordinary
item and cumulative effect
of accounting change....... 3,445 5,018 3,623 865 1,621
PROVISION FOR INCOME TAXES.... (1,428) (2,007) (1,472) (363) (656)
-------- -------- -------- ------- -------
Income before extraordinary
item and cumulative effect
of accounting change....... 2,017 3,011 2,151 502 965
EXTRAORDINARY ITEM FROM EARLY
EXTINGUISHMENT OF DEBT, net
of related income tax benefit
of $357,000.................. -- -- (494) -- --
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE FOR
POSTRETIREMENT BENEFITS, net
of related income tax benefit
of $263,000.................. (393) -- -- -- --
-------- -------- -------- ------- -------
NET INCOME.................... $ 1,624 $ 3,011 $ 1,657 $ 502 $ 965
======== ======== ======== ======= =======
EARNINGS PER COMMON SHARE:
Income before extraordinary
item and cumulative effect
of accounting change....... $ 0.88 $ 1.31 $ 0.92 $ 0.21 $ 0.41
Extraordinary item.......... -- -- (0.21) -- --
Cumulative effect of
accounting change.......... (0.18) -- -- -- --
-------- -------- -------- ------- -------
Net Income.................. $ 0.70 $ 1.31 $ 0.71 $ 0.21 $ 0.41
======== ======== ======== ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.... 2,304 2,304 2,348 2,348 2,348
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- -----------------
SHARES $0.01 SHARES $0.01 ADDITIONAL STOCKHOLDERS'
ISSUED AND PAR ISSUED AND PAR PAID-IN WARRANTS RETAINED EQUITY
OUTSTANDING VALUE OUTSTANDING VALUE CAPITAL OUTSTANDING EARNINGS TOTAL
----------- ----- ----------- ----- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1992................... 1,480 $ 15 824 $ 8 $1,280 $ -- $ 3,272 $ 4,575
Net income............ -- -- -- -- -- -- 1,624 1,624
Cash dividends--$0.05
per share............ -- -- -- -- -- -- (125) (125)
----- ---- --- ---- ------ ----- ------- -------
BALANCE, December 31,
1993................... 1,480 15 824 8 1,280 -- 4,771 6,074
Stock options
exercised ........... 22 -- 22 -- 60 -- -- 60
Net income............ -- -- -- -- -- -- 3,011 3,011
Cash dividends--$0.03
per share............ -- -- -- -- -- -- (63) (63)
----- ---- --- ---- ------ ----- ------- -------
BALANCE, December 31,
1994................... 1,502 15 847 8 1,340 -- 7,719 9,082
Net income............ -- -- -- -- -- -- 1,657 1,657
Cash dividends--$0.08
per share............ -- -- -- -- -- -- (191) (191)
----- ---- --- ---- ------ ----- ------- -------
BALANCE, December 31,
1995................... 1,502 15 847 8 1,340 -- 9,185 10,548
Proceeds from issuance
of stock warrants
(Unaudited).......... -- -- -- -- -- 471 -- 471
Net income
(Unaudited).......... -- -- -- -- -- -- 965 965
Cash dividends--$0.01
per share
(Unaudited).......... -- -- -- -- -- -- (32) (32)
----- ---- --- ---- ------ ----- ------- -------
BALANCE, March 31, 1996
(Unaudited)............ 1,502 $ 15 847 $ 8 $1,340 $ 471 $10,118 $11,952
===== ==== === ==== ====== ===== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- -----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.................... $ 1,624 $ 3,011 $ 1,657 $ 502 $ 965
Adjustments to reconcile net
income to net cash provided
by operating activities--
Cumulative effect of
accounting change........... 393 -- -- -- --
Depreciation and
amortization................ 3,115 3,577 3,887 926 1,325
Deferred income taxes........ 952 738 811 279 264
Gain on disposition of
property and equipment...... (55) (169) (195) (8) (627)
Write-off of other assets.... 180 675 -- -- --
Changes in assets and
liabilities--
Receivables................. 633 (3,226) 1,257 1,511 (5,042)
Materials and supplies...... (99) (214) 38 (5) (33)
Prepaid expenses and other.. (29) (236) (450) (439) (292)
Accounts payable and accrued
expenses................... 497 2,855 (4,751) (2,158) 9,227
Other assets and
liabilities, net........... 38 279 310 19 235
------- ------- -------- ------- --------
Net cash provided by
operating activities..... 7,249 7,290 2,564 627 6,022
------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of assets of Chicago
& Illinois Midland Railway
Company...................... -- -- -- -- (26,335)
Purchase of property and
equipment.................... (7,600) (6,153) (16,632) (1,135) (970)
Proceeds from disposition of
property..................... 166 824 318 8 1,555
------- ------- -------- ------- --------
Net cash used in investing
activities............... (7,434) (5,329) (16,314) (1,127) (25,750)
------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-
term borrowings, including
capital leases............... (4,951) (4,962) (16,999) (1,225) (326)
Proceeds from issuance of
long-term debt............... 7,557 2,476 24,300 -- 25,925
Debt issuance costs........... -- -- (641) -- (1,642)
Net proceeds (payments) on
grants....................... 243 1,755 3,512 405 (195)
Dividends paid................ (125) (63) (191) (95) (32)
Proceeds from issuance of
stock warrants............... -- -- -- -- 471
Proceeds from exercise of
stock options................ -- 60 -- -- --
------- ------- -------- ------- --------
Net cash provided by (used
in) financing activities. 2,724 (734) 9,981 (915) 24,201
------- ------- -------- ------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............... 2,539 1,227 (3,769) (1,415) 4,473
CASH AND CASH EQUIVALENTS,
beginning of period............ 2,118 4,657 5,884 5,884 2,115
------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, end
of period...................... $ 4,657 $ 5,884 $ 2,115 $ 4,469 $ 6,588
======= ======= ======== ======= ========
CASH PAID DURING THE PERIOD FOR:
Interest...................... $ 2,850 $ 3,075 $ 3,204 $ 538 $ 1,240
Income taxes.................. 184 1,023 1,022 445 65
======= ======= ======== ======= ========
SUPPLEMENTAL NON-CASH INVESTING
ACTIVITY:
Assumption of liabilities in
connection with purchase of
assets of Chicago &
Illinois Midland Railway
Company.................... $ -- $ -- $ -- $ -- $ 1,162
======= ======= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Data with respect to the three months ended March 31, 1995 and 1996, are
unaudited.)
1. THE COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Genesee & Wyoming Inc. and Subsidiaries (the "Company") operates 11 short-
line and regional railroads in New York, Pennsylvania, Louisiana, Oregon,
Texas and, beginning in 1996, Illinois (see Note 14), through its various
subsidiaries. The Company, through its leasing subsidiary, also buys, sells,
leases and manages railroad transportation equipment primarily for customers
served by the Company's subsidiaries.
In the opinion of management, the unaudited financial statements for the
three-month periods ended March 31, 1995 and 1996, are presented on a basis
consistent with the audited financial statements and contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The results of operations for interim periods are not
necessarily indicative of results of operations for the full year.
On May 18, 1995, the Company changed its name from Genesee & Wyoming
Industries, Inc. to Genesee & Wyoming Inc.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated in consolidation.
Revenue Recognition
Revenues are estimated and recognized as shipments initially move onto the
Company's tracks, which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as shipments progress.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents for purposes of
classification in the consolidated balance sheets and consolidated statements
of cash flows. Cash equivalents are stated at cost, which approximates fair
market value.
Materials and Supplies
Materials and supplies consist of items for improvement and maintenance of
road property and equipment, and are stated at the lower of average cost or
market.
Property and Equipment
Property and equipment are carried at historical cost. Acquired railroad
property is recorded at the purchased cost. Major renewals or betterments are
capitalized while routine maintenance and repairs, which do not improve or
extend asset lives, are charged to expense when incurred. Gains or losses on
sales or other dispositions are credited or charged to other income. Gains of
approximately $790,000 and $593,000 realized by the leasing subsidiary on the
sale or disposition of transportation equipment during fiscal year 1994 and
the first quarter of 1996, respectively are classified in operating revenues.
Depreciation is provided on the straight-line method over the useful lives of
the property and are as follows:
<TABLE>
<S> <C>
Road properties................................................ 20-50 years
Equipment...................................................... 3-20 years
</TABLE>
F-7
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Service Assurance Agreement
The service assurance agreement represents a commitment from a significant
customer of the Company, through its subsidiary Illinois & Midland Railroad,
Inc. (see Notes 2 and 14), which grants the Company the exclusive right to
service three of the customer's facilities indefinitely. The service assurance
agreement is amortized on a straight-line basis over the same period as the
related track structure, which is 20 years. The Company continually evaluates
whether later events and circumstances have occurred that indicate the
remaining estimated useful life of the asset may not be recoverable. When
factors indicate that the asset should be evaluated for possible impairment,
the Company uses an estimate of the related undiscounted future cash flows
over the remaining life of the asset in measuring whether the asset is
recoverable.
Net Income per Share
Net income per share is determined by dividing net income by the weighted
average number of common shares outstanding during the periods, as adjusted
for the stock split discussed in Note 14. The dilutive effect of unexercised
stock options and stock warrants have not been included in the calculation as
the effect would not be material.
Significant Customer Relationship
A large portion of the Company's operating revenues is attributable to
customers operating in the salt, forest products and petroleum industries. The
largest ten customers accounted for approximately 51%, 53% and 50% of the
Company's revenues in 1993, 1994 and 1995, respectively. One customer in the
salt industry accounted for approximately 20%, 12% and 9% of the Company's
revenue in 1993, 1994 and 1995, respectively (see Note 14 for a discussion of
recent developments of this significant customer). The Company regularly
grants trade credit to all of its customers. In addition, the Company grants
trade credit to other railroads through the routine interchange of traffic.
Although the Company's accounts receivable include a diverse number of
customers and railroads, the collection of these receivables is substantially
dependent upon the economies of the regions in which the Company operates, the
salt, forest products and petroleum industries, and the railroad sector of the
economy in general.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:
Current assets and current liabilities: The carrying value approximates
fair value due to the short maturity of these items.
Long-term debt: The fair value of the Company's long-term debt is based
on secondary market indicators. Since the Company's debt is not quoted,
estimates are based on each obligation's characteristics, including
remaining maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates
fair value.
Management 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 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.
F-8
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. EXPANSION OF RAILROAD OPERATIONS:
Portland & Western Railroad, Inc.--In 1995 the Company formed a new
subsidiary, the Portland & Western Railroad, Inc. ("P&W"). This subsidiary
operates 107 miles of track in Oregon under two lease agreements. See Note 5
for further discussion.
Finger Lakes Railway Corporation--In July of 1995, the Company invested
$175,000 to acquire 44% of the outstanding common stock of this entity. The
Company also provided a $150,000 irrevocable letter of credit in order to
provide assurance that the entity will comply with a certain agreement. This
investment will be recorded on the equity method. The results of operations
and financial position of this entity are not material.
Illinois & Midland Railroad, Inc.--Subsequent to year-end, the Company
formed the Illinois & Midland Railroad, Inc. to purchase certain assets of the
Chicago & Illinois Midland Railway Company for approximately $27.5 million.
See Note 14 for further discussion of this acquisition.
Pittsburg & Shawmut Railroad, Inc.--Subsequent to year-end, the Company
formed the Pittsburg & Shawmut Railroad, Inc. to purchase certain assets of
the Pittsburg & Shawmut Railroad Company, Mountain Laurel Railroad Company and
Red Bank Railroad Company for approximately $15.2 million. See Note 14 for
further discussion of this acquisition.
3. PROPERTY AND EQUIPMENT:
Major classifications of property and equipment are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Road properties..................................... $41,420 $48,691 $57,203
Equipment and other................................. 21,596 30,540 32,323
------- ------- -------
63,016 79,231 89,526
Less--Accumulated depreciation and amortization..... 13,753 17,657 18,917
------- ------- -------
$49,263 $61,574 $70,609
======= ======= =======
</TABLE>
4. OTHER ASSETS:
Other assets includes approximately $605,000 of deferred financing costs at
December 31, 1995, net of accumulated amortization, which were capitalized in
conjunction with the refinancing transaction during 1995 (see Note 6). These
costs are amortized over the period covered by the related revolving credit
agreement using the straight-line method, which is not materially different
from the amortization computed using the effective-interest method.
In 1993 and 1994, the Company wrote off all road property which was being
held for sale or future use to state the property at net realizable value.
These write-offs (approximately $180,000 and $675,000 in 1993 and 1994,
respectively) were recorded as a charge to maintenance of ways and structures
expense.
5. LEASES:
Lessor
A subsidiary leases rolling stock to third parties under agreements that are
accounted for as operating leases. The property held for lease on December 31,
1995, totaled $15,334,000 less accumulated depreciation of
F-9
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$2,904,000. The following is a schedule of minimum future rentals receivable
on noncancelable operating leases (amounts in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 3,335
1997.............................................................. 3,198
1998.............................................................. 2,910
1999.............................................................. 1,160
2000.............................................................. 1,160
Thereafter........................................................ 3,402
-------
$15,165
=======
</TABLE>
Lessee
The Company has entered into several leases for rolling stock, locomotives
and other equipment. Operating lease expense for the years ended December 31,
1993, 1994 and 1995, was approximately $2,264,000, $2,275,000 and $2,173,000,
respectively. The following is a summary of future minimum payments under
noncancelable leases (amounts in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
1996....................................................... $1,537 $479
1997....................................................... 1,220 --
1998....................................................... 957 --
1999....................................................... 581 --
2000....................................................... 263 --
Thereafter................................................. 181 --
------ ----
Total minimum payments..................................... $4,739 479
======
Less: Amount representing interest......................... (26)
----
Present value of minimum lease payments.................... $453
====
</TABLE>
Also, the Company entered into a lease agreement with a Class I carrier for
one of its subsidiaries to operate 185 miles of track in Oregon in 1992, and
the subsidiary began operations in 1993. The Company has assumed all operating
and financial responsibilities including maintenance and regulatory
compliance. Under the lease, no payments to the lessor are required as long as
the subsidiary only interchanges its freight traffic with the lessor. Through
December 31, 1995, no payments were required under this lease arrangement. The
lease is subject to an initial 20 year term and shall be renewed for
successive ten year renewal terms, unless either party elects not to renew the
lease. If the lessor terminates the lease for any reason, the lessor must
reimburse the Company for its depreciated basis in the property.
In August, 1995, the P&W signed an agreement with a Class I carrier to lease
and operate 53 miles of track in Oregon. The lease is subject to an initial 20
year term and shall be renewed for an additional ten years, unless either
party elects not to renew the lease. Under the lease, no payments to the
lessor are required as long as the subsidiary maintains minimum levels of
traffic and provided the subsidiary interchanges its freight traffic with only
the lessor and certain permitted carriers. The maximum annual lease payment
required if the P&W did not move any traffic would be $1.3 million. In
October, 1995, the P&W signed an agreement with another Class I carrier to
lease and operate an additional 54 miles of connecting track in Oregon. The
lease is subject to an initial three year term and shall be renewed for
successive three year intervals, unless either party elects not to renew the
lease. Under the lease, no payments to the lessor are required as long as the
subsidiary interchanges its freight traffic with only the lessor and certain
permitted carriers. Under both of these arrangements, the Company has assumed
all operating and financial responsibilities including maintenance and
regulatory compliance. Through December 31, 1995, no payments were required
under either lease arrangement.
F-10
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A subsidiary of the Company has entered into a trackage rights agreement to
operate over 91 miles of a Class I carrier. This agreement is terminable by
either party after 1997.
6. LONG-TERM DEBT:
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Credit facilities with variable interest depending
upon certain financial ratios of the Company, as
defined (8.44% at December 31, 1995), due
partially in quarterly installments, with balance
due in 2001...................................... $ -- $24,300 $50,201
Promissory note payable with interest at 8% and
principal payments due annually of $1,188,000 if
certain conditions, as specified in the
agreement, are met, with balance due in 1999..... 9,306 9,122 9,122
Term loan payable in quarterly installments,
variable maturities through 2005 with interest
adjusted quarterly at 90-day treasury bill rate
plus 3.25%....................................... 6,691 6,066 5,895
Capital lease obligations with interest at 12.47%,
payable in monthly installments of $47,885
through 1996 (see Note 5)........................ 937 453 322
Secured promissory note with the State of
Illinois, interest at 3%, payable in annual
installments over 10 years beginning on the first
anniversary of the project completion date....... -- -- 667
Other long-term debt with interest rates varying
from 6.75% to 15%, refinanced in 1995 (see
below)........................................... 15,706 -- --
------- ------- -------
32,640 39,941 66,207
Less--Current portion............................. 4,230 1,239 2,894
------- ------- -------
Long-term debt, less current portion.............. $28,410 $38,702 $63,313
======= ======= =======
</TABLE>
On June 2, 1995, the Company refinanced approximately $14.3 million ($15.7
million as of December 31, 1994) of previously existing notes and purchased
approximately $6 million of rolling stock previously under an operating lease
by entering into a credit facilities agreement. In conjunction with this
refinancing transaction, an extraordinary charge for prepayment penalties and
other financing costs on the early extinguishment of debt for approximately
$851,000 ($494,000 net of income taxes) was incurred. These amounts have been
recorded in the accompanying consolidated income statement as an extraordinary
item, net of income taxes.
Subsequent to year-end, on February 8, 1996, the Company amended and
restated the credit facilities agreement. In conjunction with this
transaction, the Company incurred additional indebtedness of approximately
$28.0 million, primarily for the purchase of certain assets of the Chicago &
Illinois Midland Railway Company (see Note 14 for further discussion). The
amended and restated credit facilities provide for a $40 million term loan and
a $34 million revolving credit facility. The term loan requires varying
quarterly principal payments beginning September 30, 1996, with the remaining
balance payable in February, 2001. The revolving credit facility provides for
a mandatory commitment reduction of $2.0 million on December 31, 1997, with
the remaining balance payable in February, 2001. The Company may voluntarily
reduce the commitment on the revolving credit facility at any time without
penalty, provided that no reinstatement of the commitment amounts may occur.
In conjunction with the amendment and restatement, the Company paid debt
financing fees of $1.6
F-11
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
million, primarily to a financial institution. These costs have been
capitalized in the accompanying balance sheets as of March 31, 1996 as an
other asset and are being amortized over the period covered by the related
credit facilities agreement using the straight-line method, which is not
materially different from the amortization computed using the effective-
interest method.
Both the term loan and the revolving credit facility accrue interest at
prime or the Eurodollar rate, at the option of the Company, plus the
applicable margin, which varies from 0% to 3% depending upon the Company's
funded debt to EBITDA ratio, as defined in the agreement. Interest is payable
in arrears based on certain elections of the Company, never to exceed three
months outstanding. The Company pays a 1/2% per annum commitment fee on all
unused portions of the credit facilities. Both the term loan and the revolving
credit facility require mandatory prepayments when certain events occur. These
events include, among other things, the generation of excess cash flow, the
disposition of certain levels of assets not subject to prior liens and the
sale of Company stock, all as defined in the agreement. These credit
facilities are secured by substantially all the assets of the Company and the
stock of certain subsidiaries. These facilities require the maintenance of
certain covenants, including, but not limited to, funded debt to EBITDA,
funded debt to net worth, cash flow coverage, EBIT to interest and minimum net
worth, all as defined in the agreement. The Company is also limited in its
ability to incur additional indebtedness, create liens on its assets, make
certain capital expenditures and pay dividends greater than $32,000 in any one
quarter.
The following is a summary of the maturities of long-term debt as of
December 31, 1995, as adjusted to reflect the payment terms of the amended and
restated credit facilities (amounts in thousands):
<TABLE>
<S> <C>
1996............................................................ $ 1,239
1997............................................................ 2,035
1998............................................................ 2,002
1999............................................................ 7,434
2000............................................................ 825
2001............................................................ 24,775
Thereafter...................................................... 1,631
-------
$39,941
=======
</TABLE>
The promissory note payable with an outstanding balance of $9,122,000 at
December 31, 1995, provides for annual principal payments of $1,188,000
provided that certain levels of revenue and cash flow are met. In accordance
with these provisions, the Company was not required to make any principal
payments in 1994 or 1995. The Company did, however, make principal payments of
$177,000 and $184,000 in 1994 and 1995, respectively, due to additional
requirements regarding the sale of assets, as defined in the agreement.
Management believes that the Company will be required to make the full
principal payments beginning in 1997 through the due date of the note. The
annual debt maturity schedule has been adjusted accordingly.
The Company's debt has been secured by substantially all the assets of the
Company and the stock of certain subsidiaries. Certain obligations require the
maintenance of covenants including, but not limited to, funded debt to
EBITDAR, funded debt to net worth, EBIT to interest, cash flow and the
incurrence of additional indebtedness, as defined in the agreement. The
Company and its subsidiaries were in compliance with the provisions of these
covenants as of December 31, 1995.
7. INTEREST RATE RISK MANAGEMENT:
The Company uses derivative financial instruments, specifically interest
rate caps and interest rate swaps, to manage its variable interest rate risk
on long-term debt.
F-12
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Rate Cap--In August, 1995, the Company entered into a three-year
interest rate cap agreement whereby the Company paid $90,000 to a financial
institution in order to cap the rate on three-month dollar deposits, as
defined, to a fixed rate of 8.0%. The notional amount under this agreement
reduces on a quarterly basis in varying amounts from $15,250,000 at September
30, 1995, to $11,438,000 at September 30, 1998 ($15,000,000 at December 31,
1995). The fees paid by the Company for the interest rate cap were capitalized
and are amortized over the period covered by the agreement.
Interest Rate Swap--On February 14, 1996, the Company entered into a three-
year interest rate swap agreement with a financial institution whereby the
Company fixed its LIBOR interest rate at 5.14% by exchanging its variable
interest rate on long-term debt for a fixed interest rate. The notional amount
under this agreement is $10.0 million. Any fees paid or received under this
arrangement are accrued as earned, the effect of which results in fixed
interest expense over the period covered by the agreement.
Interest Rate Risk Management Commitment--In conjunction with amending and
restating the Company's existing credit facilities as discussed in Note 6, the
Company entered a commitment to provide interest rate protection for at least
50% of the commitment amount ($37.0 million as of February 8, 1996) under the
credit facilities by June 30, 1996. This commitment will be waived if the
Company's ratio of funded debt to net worth, as defined, is less than 1.50 to
1.00 as of June 30, 1996.
8. EMPLOYEE BENEFIT PLANS:
Pension
The Company administers a noncontributory defined benefit plan for the
employees of a subsidiary who are members of a union and who meet minimum
service requirements. Benefits are determined based on a fixed amount per year
of credited service. The Company's funding policy is to make contributions for
pension benefits based on actuarial computations which reflect the long-term
nature of the plan. Contributions are subject to Board of Directors approval.
The Company has met the minimum funding requirements according to the Employee
Retirement Income Security Act.
Pension costs for 1993, 1994 and 1995 were approximately $13,000, $13,000,
and $14,000, respectively. The pension liability recognized in the
accompanying consolidated balance sheet at December 31, 1994 and 1995, was
approximately $85,000 and $80,000, respectively. The projected benefit
obligation was determined using a discount rate of 7.8%. The long-term rate of
return on plan assets was 7.5%. The plan assets, which consist of fixed income
securities, were approximately $109,000 and $117,000, respectively, at
December 31, 1994 and 1995. The unrecognized net transition obligation is
being amortized over the remaining service lives of plan participants.
Postretirement Benefits
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (FAS
106), on January 1, 1993. This statement requires that employers recognize the
cost of providing benefits other than pensions to retirees during the years an
employee provides services.
Historically, the Company has provided certain health care and life
insurance benefits for certain retired employees. Eligible employees include
union employees for one of its subsidiaries, and certain nonunion employees
who have reached the age of 55 with 30 or more years of service. The Company
funds the plan on a pay-as-you-go basis.
F-13
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total postretirement benefit costs for the years ended December 31, 1993,
1994 and 1995, were $711,000, $55,000 and $49,000, respectively, $656,000 of
which in 1993 represented the immediate recognition of the transition
obligation on the cumulative effect of accounting change for postretirement
benefits. The funded status of the plan at December 31, 1994 and 1995, was as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation--
Fully eligible active participants.............................. $ 3 $ 4
Other active participants....................................... 114 145
Retirees........................................................ 460 486
---- ----
577 635
Plan assets at fair value......................................... -- --
---- ----
Accumulated postretirement benefit obligation in excess of plan
assets........................................................... 577 635
Unrecognized net gain resulting from change in actuarial assump-
tions............................................................ 99 51
---- ----
Accrued postretirement benefit cost............................... $676 $686
==== ====
</TABLE>
For measurement purposes, a 10.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1996 and 1997. The rate
was then assumed to gradually decrease to 5% by the year 2002, at which time
the rate was assumed to remain level. To illustrate the effect of these
assumptions, increasing the assumed health care cost trend by 1% each year
would increase the accumulated postretirement benefit obligation as of
December 31, 1995, by approximately $65,000 and the net periodic
postretirement benefit cost for 1995 by approximately $6,000.
Relevant assumptions used in accounting for the postretirement benefit plan
as of December 31 were as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Weighted average discount rate................................... 7.5% 7.5%
Long-term rate of return on plan assets.......................... N/A N/A
=== ===
</TABLE>
Employee Bonus Programs
The Company has performance-based bonus programs which include a majority of
nonunion employees. Key employees are granted bonuses on a discretionary
basis. Total compensation of approximately $92,000, $314,000 and $308,000 was
awarded under the various bonus plans in 1993, 1994 and 1995, respectively.
Profit Sharing
The Company maintains a defined contribution profit-sharing plan for two
subsidiaries. There were no contributions in 1993, 1994 or 1995.
Effective January 1, 1994, the Company established two 401(k) plans covering
union and nonunion employees who have met specified length of service
requirements. The 401(k) plans qualify under Section 401(k) of the Internal
Revenue Code as salary reduction plans. Employees may elect to contribute a
certain percentage of their salary on a before-tax basis. For nonunion
employees, the Company matches the participants contributions up to 1 1/2% of
the participants salary. The Company's contributions to the plans in 1994 and
1995 were approximately $70,000 and $83,000, respectively.
F-14
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Postemployment Benefits
The Company does not provide postemployment benefits to its employees.
9. INCOME TAXES:
The Company files consolidated U.S. federal income tax returns which include
all of its subsidiaries. The components of the provision for income taxes on
income before extraordinary item and cumulative effect of accounting change
are as follows (amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- ---------------
1993 1994 1995 1995 1996
------ ------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current--
Federal.................................. $ 473 $1,123 $ 550 $ 54 $ 332
State.................................... 3 146 111 30 60
Deferred................................... 952 738 811 279 264
------ ------ ------ ------- -------
$1,428 $2,007 $1,472 $ 363 $ 656
====== ====== ====== ======= =======
</TABLE>
The provision for income taxes on income before extraordinary item and
cumulative effect of accounting change in each period differs from that which
would be computed by applying the statutory U.S. federal income tax rate to
the income before taxes. The following is a summary of the effective tax rate
reconciliation:
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
---------------- --------------
1993 1994 1995 1995 1996
---- ---- ---- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax provision at statutory rate.............. 34.0% 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit..................................... 6.9 4.6 4.0 6.3 4.5
Other, net................................... .6 1.4 2.6 1.7 2.0
---- ---- ---- ------ ------
41.5% 40.0% 40.6% 42.0% 40.5%
==== ==== ==== ====== ======
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax
liability, which is classified between current and long-term in the
accompanying consolidated balance sheets (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets--
Accruals and reserves not deducted for tax pur-
poses until paid.............................. $ 1,349 $ 1,438 $ 1,554
Alternative minimum tax credits................ 2,487 2,903 3,258
Net operating losses........................... 219 489 111
Investment tax credits......................... 156 52 --
Postretirement benefits........................ 271 272 272
Other.......................................... 140 74 63
------- ------- -------
4,622 5,228 5,258
Deferred tax liability--differences in deprecia-
tion and amortization........................... (6,672) (8,089) (8,383)
------- ------- -------
Net deferred tax liability................... $(2,050) $(2,861) $(3,125)
======= ======= =======
</TABLE>
F-15
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's alternative minimum tax credits can be carried forward
indefinitely; however, the Company must achieve future regular taxable income
in order to realize this credit. The Company's net operating loss
carryforwards expire between 2008 and 2010. The investment tax credits expire
in 2000. Management does not believe that a valuation allowance is required
for the deferred tax assets based on anticipated future profit levels and the
reversal of current temporary differences.
10. GRANTS FROM GOVERNMENTAL AGENCIES:
During 1995, a subsidiary of the Company received a grant from the State of
Pennsylvania of $3,500,000 for rehabilitation of a portion of the subsidiary's
track. The agreement requires the State of Pennsylvania to reimburse the
subsidiary for 75% of the total costs of the project. This project was
approximately 85% completed as of December 31, 1995. Another subsidiary of the
Company received a grant from the State of Louisiana of $300,000 for
rehabilitation of a portion of the subsidiary's track. This project was
substantially completed as of December 31, 1995.
During 1994, three subsidiaries of the Company received grants totaling
approximately $1,755,000 from the State of Pennsylvania for the rehabilitation
of a portion of each subsidiary's track. The agreements require the State to
reimburse each subsidiary for 70%-75% of the total costs for each
rehabilitation project. Each of these rehabilitation projects was completed by
December 31, 1994.
During a prior year, a subsidiary of the Company received a grant from the
State of New York of $4,000,000 for the rehabilitation of a portion of the
subsidiary's track. This subsidiary also received a grant of $900,000 from the
Federal Railroad Administration for the same rehabilitation project. The State
of New York is entitled to 63.8% of the net liquidation value of the
rehabilitated track upon abandonment. The State of New York agreement also
requires the subsidiary to maintain the track structure by making capital
improvements with a value equal to or less than $4,000,000, payable over a 10
year period beginning on April 1, 1994. The capital improvements are computed
based on the number of loaded cars moved over the subsidiary's track. Failure
by the Company to propose the capital improvements by March 1 of the following
year will result in the State of New York assessing a penalty in the form of a
usage fee, thereby requiring the Company to repay a portion of the grant equal
to the required capital improvements. The Company believes that it has
proposed and/or performed capital improvements which eliminate any repayments
associated with the grant.
All of the aforementioned grants do not represent a future liability of the
Company unless the Company abandons the rehabilitated track structure within a
specified period of time, as defined in the respective agreements. As the
Company does not intend to abandon the track, the Company has recorded
additions to road property and has deferred the amount of the grants as the
rehabilitation expenditures have been incurred. The amortization of the
deferred grant is a noncash offset to depreciation expense over the useful
life of the related assets and is not included as taxable income. During the
years ended December 31, 1993, 1994 and 1995, the Company recorded offsets to
depreciation expense from grant amortization of $279,000, $313,000 and
$415,000, respectively.
11. COMMITMENTS AND CONTINGENCIES:
The Company has built its portfolio of railroad properties through the
purchase or lease of road and track structure and through operating
agreements. These transactions have related only to the physical assets of the
railroad property. Historically, the Company does not assume the operations or
liabilities of the divesting railroads.
In connection with the Company's lease of its 185-mile line in Oregon, the
Company has committed to the lessor to rehabilitate 25 miles of track over
five years, beginning February, 1993, at an estimated total cost of
approximately $5.0 million. As of December 31, 1995, the Company has completed
approximately $1.0 million of this rehabilitation.
F-16
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is a defendant in certain lawsuits resulting from the railroad
operations. Management believes that adequate provision has been made in the
financial statements for any expected liabilities which may result from
disposition of such lawsuits. While it is possible that some of the foregoing
matters may be settled at a cost greater than that provided for, it is the
opinion of management that the ultimate liability, if any, will not be
material to the Company.
12. STOCKHOLDERS' EQUITY:
The Company entered into an agreement in 1978 (extended in 1987) with its
president whereby options to purchase 90,650 shares were granted. In 1994, the
remaining outstanding options to purchase 44,400 shares were exercised.
In conjunction with the amendment and restatement of the Company's credit
facilities as discussed in Note 6, detachable warrants were issued to a
financial institution to purchase 41,847 shares of Class A Common Stock at an
exercise price of $0.0005 per share. These warrants are exercisable at any
time through March 1, 2006. Issuance of additional warrants for the purchase
of 11,950 shares of Class A Common Stock are required if the Company does not
successfully complete an initial public offering of at least $30 million in
net proceeds by December 31, 1996. These warrants provide a put option whereby
the warrant holder can require the Company to repurchase the shares based on
market value, as defined in the agreement. This put option is exercisable
under certain conditions after March 1, 2001. The warrants also provide a call
option whereby the Company can elect to repurchase the shares based on market
value, as defined in the agreement. This call option is exercisable under
certain conditions after March 1, 2003. Management has valued the warrants at
approximately $471,000, the amount of which was recorded as a debt discount in
the three-month period ending March 31, 1996. The discount is being amortized
over the period covered by the related credit facilities agreement using the
straight-line method, which is not materially different from the amortization
computed using the effective-interest method.
13. ACCOUNTING PRONOUNCEMENTS:
In March, 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("FAS 121") was issued. Under FAS 121, an impairment loss
must be recognized for long-lived assets and certain identifiable intangibles
to be held and used by an entity whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. FAS 121
is effective for financial statements issued for fiscal years beginning after
December 15, 1995, and must be adopted on a prospective basis. Restatement of
previously issued financial statements is not permitted. The Company adopted
FAS 121 prospectively in the first quarter of 1996, the adoption of which did
not have a material impact on the financial condition or results of operations
of the Company.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
based Compensation" (effective for fiscal years beginning after December 15,
1995) encourages, but does not require, employers to adopt a fair value method
of accounting for employee stock-based compensation, and requires increased
stock-based compensation disclosures if the fair value method is not adopted.
The Company does not intend to elect the fair value method for stock options.
Accordingly, implementation of this Statement will have no effect on the
Company's operating results or financial condition.
14. POST DECEMBER 31, 1995 EVENTS:
Illinois & Midland Railroad, Inc.--On February 8, 1996, a newly-formed
subsidiary, the Illinois & Midland Railroad, Inc., purchased certain assets,
primarily road and track structure, of the Chicago & Illinois Midland Railway
Company for approximately $27.5 million, including related costs and the
assumption of certain
F-17
<PAGE>
liabilities. The purchase price was allocated to purchased inventory
($750,000), assumed note receivable ($1,220,000), property ($10,546,000), and
the service assurance agreement ($14,981,000). This subsidiary will operate
approximately 126 miles of track in the State of Illinois. A significant
portion of this subsidiary's operating revenues (83% in 1995) is attributable
to coal shipments for one customer which is an electric utility. The
acquisition was accounted for as a purchase. The allocation of the purchase
price is based on preliminary estimates and may be revised at a later date.
Pittsburg & Shawmut Railroad, Inc.--On April 29, 1996, a newly formed
subsidiary, the Pittsburg & Shawmut Railroad, Inc. purchased certain assets,
primarily road and track structure, of the Pittsburg & Shawmut Railroad
Company, Mountain Laurel Railroad Company, and Red Bank Railroad Company for
approximately $15.2 million, including related costs and the assumption of a
grant from the Commonwealth of Pennsylvania. In addition, the purchase and
sale agreement provides for additional contingency payments of up to $2.5
million. A portion of these payments are required (up to a maximum of
$500,000) if certain coal shipments during any calendar year from 1997-1999,
as defined, exceed 290,000 tons. The remaining contingency payments (up to a
maximum of $2.0 million) are calculated as 25% of the gross revenues
attributable to certain coal shipments that exceed 564,793 tons during any
calendar year from 2000-2009, as defined. Upon resolution of the amount of the
contingency payments, there will be an additional element of cost related to
the transaction, which will be recorded as excess cost over the fair market
value of tangible net assets acquired and amortized over the same period as
the related track structure, which is 20 years. A significant portion of this
subsidiary's revenue is attributable to coal shipments. The acquisition was
accounted for as a purchase. The allocation of the purchase price is based on
preliminary estimates and may be revised at a later date.
Pro Forma for Acquisitions--Results for the operations of the Illinois &
Midland Railroad, Inc. and the Pittsburg & Shawmut Railroad, Inc. are included
within the consolidated financial statements subsequent to February 8, 1996,
and April 29, 1996, respectively. Unaudited pro forma results assuming both
acquisitions had been made as of January 1, 1995, are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 31, 1995 MARCH 31, 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.......................................... $18,204 $19,448
Net income........................................ 1,393 280
Net income per share.............................. $0.59 $0.12
======= =======
</TABLE>
The above information reflects adjustments for only depreciation,
amortization and interest expense based on the new cost basis and debt
structure of the Company. Income per share information has been adjusted for
the stock split, but not for the underwritten initial public offering.
Recent Developments of Significant Customer--As discussed in Note 1, a
significant portion of the Company's revenue is attributable to a customer
operating in the salt industry. This customer accounted for approximately 9%
of the Company's revenue for 1995, of which 40% was for freight hauling and
60% represented car rental revenue. Similar amounts for 1993 were 20%, 61% and
39%, respectively. Similar amounts for 1994 were 12%, 43% and 57%,
respectively. On March 12, 1994, this customer experienced a subsidence and
subsequent flooding at its Retsof, New York, salt mine. Salt shipments by rail
ceased until August, 1994. Rail shipments then resumed and continued, at a
lower level than experienced before the subsidence, until September, 1995,
when the mine closed. Car rental revenue from long-term operating leases with
this customer is unaffected.
This customer had previously announced its intentions to construct a new
mine. On April 22, 1996, this customer announced that a new mine will not be
constructed and that the closed mine will be converted to a distribution
center. In anticipation of the construction of a new mine, the Company
incurred approximately $600,000 of costs in connection with construction of a
rail spur. While management anticipates that it will be reimbursed for these
costs, there can be no assurance that such reimbursement will occur.
F-18
<PAGE>
GENESEE & WYOMING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Initial Public Offering and Related Stock Transactions--The Company intends
to file a registration statement with the Securities and Exchange Commission
for an underwritten initial public offering of between 2.5 and 3.0 million
shares of Class A Common Stock (the Common Stock Offering). The proceeds of
the Common Stock Offering will be used to pay down borrowings on the credit
facilities.
In connection with the Common Stock Offering, the Company, effective June ,
1996, changed the par value of its Class A and Class B Common Stock from $10
per share to $.01 per share and increased the shares authorized to 12 million
and 1.5 million shares, respectively. The rights and privileges of Class B
Common Stock changed to substantially the same as Class A Common Stock, except
it will carry 10 votes per share, be convertible into Class A Common Stock and
have transfer restrictions. The Class A Common Stock also has a 10% dividend
preference over Class B Common Stock, as and if dividends are declared by the
Board of Directors. Also, the Company executed an 18.5 to 1 stock split and
reclassified the Company's outstanding Class A Common Stock into Class A and
Class B Common Stock, depending on the election of the shareholder. For
purposes of this statement the reclassification has been assumed to be equal
between Class A and Class B Common Stock.
Also, the Company established an incentive and nonqualified stock option
plan for key employees and a nonqualified stock option plan for nonemployee
directors that will allow employees and directors to purchase up to an
aggregate of 500,000 shares of Class A Common Stock. In addition, the Company
established an employee stock purchase plan and reserved 450,000 shares under
the plan. The plan allows employees to purchase stock at market value.
All references in the consolidated financial statements of the Company to
the number of shares authorized and outstanding of Class A and Class B Common
Stock have been retroactively adjusted to reflect the reclassification of the
capital stock and the stock split.
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Genesee & Wyoming Inc.:
We have audited the accompanying balance sheets of CHICAGO & ILLINOIS
MIDLAND RAILWAY COMPANY (an Illinois corporation) as of December 31, 1994 and
1995, and the related statements of operations, shareholder's equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chicago & Illinois Midland
Railway Company as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for the each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois,
April 4, 1996
F-20
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- FEBRUARY 8,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 46 $ 419 $ 124
Accounts receivable............................. 3,972 4,360 3,127
Materials and supplies.......................... 993 733 750
Other current assets............................ 541 302 859
------- ------- -------
Total current assets.......................... 5,552 5,814 4,860
------- ------- -------
PROPERTY AND EQUIPMENT, NET....................... 27,321 10,630 10,546
------- ------- -------
LONG-TERM RECEIVABLE FROM AFFILIATE............... 360 439 439
------- ------- -------
OTHER ASSETS, NET................................. 15,888 15,790 15,711
------- ------- -------
Total assets................................. $49,121 $32,673 $31,556
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable................................ $ 7,029 $ 8,367 $ 8,129
Accrued expenses................................ 1,509 1,286 1,740
------- ------- -------
Total current liabilities..................... 8,538 9,653 9,869
------- ------- -------
LONG-TERM DEBT:
Affiliates...................................... 8,500 8,500 8,500
Other........................................... 9,323 5,281 4,712
------- ------- -------
Total long-term debt.......................... 17,823 13,781 13,212
------- ------- -------
OTHER LIABILITIES................................. 1,395 1,252 1,095
------- ------- -------
DEFERRED INCOME TAX LIABILITIES, NET.............. 12,394 6,462 6,439
------- ------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDER'S EQUITY:
Common stock, no par value; 10,000,000 shares
authorized; 3,130,016 shares issued and out-
standing....................................... 3,524 3,524 3,524
Retained earnings (deficit)..................... 5,447 (1,999) (2,583)
------- ------- -------
Total shareholder's equity.................... 8,971 1,525 941
------- ------- -------
Total liabilities and shareholder's equity... $49,121 $32,673 $31,556
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-21
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH AND
EIGHT DAY
YEARS ENDED DECEMBER 31, PERIOD ENDED
---------------------------- FEBRUARY 8,
1993 1994 1995 1996
-------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING REVENUES................. $ 13,983 $ 9,365 $ 13,733 $1,420
OPERATING EXPENSES:
Transportation.................... 3,017 2,547 2,593 532
Maintenance of ways and struc-
tures............................ 1,702 1,752 1,814 411
Maintenance of equipment.......... 1,401 2,579 1,659 390
General and administrative........ 2,693 2,134 2,203 757
Depreciation and amortization..... 1,569 1,579 1,437 184
-------- -------- -------- ------
Total operating expenses....... 10,382 10,591 9,706 2,274
-------- -------- -------- ------
Income (loss) from operations.. 3,601 (1,226) 4,027 (854)
INTEREST EXPENSE................... (1,345) (1,613) (1,461) (107)
OTHER INCOME....................... 2,162 533 1,525 17
LOSS ON SALE OF ASSETS (Note 11)... -- -- (16,082) --
-------- -------- -------- ------
Income (loss) before income
taxes......................... 4,418 (2,306) (11,991) (944)
PROVISION (BENEFIT) FOR INCOME TAX-
ES................................ 1,747 (850) (4,545) (360)
-------- -------- -------- ------
NET INCOME (LOSS).................. $ 2,671 $ (1,456) $ (7,446) $ (584)
======== ======== ======== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------
RETAINED
EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
------ ------ --------- -------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1993....................... 3,130 $3,524 $ 4,232 $ 7,756
Net income................................... -- -- 2,671 2,671
----- ------ ------- -------
BALANCE, December 31, 1993..................... 3,130 3,524 6,903 10,427
Net loss..................................... -- -- (1,456) (1,456)
----- ------ ------- -------
BALANCE, December 31, 1994..................... 3,130 3,524 5,447 8,971
Net loss..................................... -- -- (7,446) (7,446)
----- ------ ------- -------
BALANCE, December 31, 1995..................... 3,130 3,524 (1,999) 1,525
Net loss (Unaudited)......................... -- -- (584) (584)
----- ------ ------- -------
BALANCE, February 8, 1996 (Unaudited).......... 3,130 $3,524 $(2,583) $ 941
===== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH AND
EIGHT DAY
YEARS ENDED DECEMBER 31, PERIOD ENDED
-------------------------- FEBRUARY 8,
1993 1994 1995 1996
------- -------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $ 2,671 $ (1,456) $(7,446) $(584)
Adjustments to reconcile net income
(loss) to net cash (used in) pro-
vided by operating activities--
Depreciation and amortization...... 1,569 1,579 1,439 184
Deferred income taxes.............. 387 (850) (5,932) (23)
Gain on disposition of equipment... -- -- (1,074) --
Loss on sale of assets (Note 11)... -- -- 16,082 --
Changes in assets and liabilities--
Accounts receivable.............. (250) 697 (388) 1,233
Materials and supplies........... 190 294 (167) (17)
Other current assets............. (63) (76) 239 (557)
Accounts payable and accrued ex-
penses.......................... (2,357) (1,624) 1,115 216
Other assets and liabilities,
net............................. (2,582) 146 (176) (131)
------- -------- ------- -----
Net cash (used in) provided by
operating
activities...................... (435) (1,290) 3,692 321
------- -------- ------- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.. (874) (1,362) (2,829) (47)
Proceeds from disposition of prop-
erty and equipment................. 83 66 4,007 --
Deposit on equipment................ -- -- (376) --
Advances to affiliate, net.......... -- (360) (79) --
------- -------- ------- -----
Net cash (used in) provided by
investing activities............ (791) (1,656) 723 (47)
------- -------- ------- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt............................... 1,075 2,498 271 11
Principal payments on long-term
debt............................... -- -- (4,313) (580)
------- -------- ------- -----
Net cash provided by (used in)
financing
activities...................... 1,075 2,498 (4,042) (569)
------- -------- ------- -----
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS......................... (151) (448) 373 (295)
CASH AND CASH EQUIVALENTS, beginning
of period........................... 645 494 46 419
------- -------- ------- -----
CASH AND CASH EQUIVALENTS, end of pe-
riod................................ $ 494 $ 46 $ 419 $ 124
======= ======== ======= =====
CASH PAID DURING THE PERIOD FOR:
Interest........................... $ 1,350 $ 1,498 $ 1,548 $ 269
Income taxes (refunds)............. 1,830 (275) 1,574 --
======= ======== ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
NOTES TO FINANCIAL STATEMENTS
(DATA WITH RESPECT TO THE ONE MONTH AND EIGHT DAY PERIOD ENDED FEBRUARY 8,
1996 ARE UNAUDITED)
1. THE COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Chicago & Illinois Midland Railway Company (the "Company") is a short-line
railroad located in Illinois that operates over 126 miles of track, including
29 miles of trackage rights over two Class I carriers and a terminal switching
carrier. The Company is a wholly-owned subsidiary of Pawnee Railroad Company
("Pawnee").
In the opinion of management, the unaudited financial statements for the one
month and eight day period ended February 8, 1996, are presented on a basis
consistent with the audited financial statements and contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The results of operations for the interim period are not
necessarily indicative of results of operations for the full year.
Revenue Recognition
Revenues are estimated and recognized as shipments initially move onto the
Company's tracks, which, due to the relatively short length of haul, is not
materially different from the recognition of revenues as shipments progress.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less when purchased to be cash equivalents for purposes of
classification in the balance sheets and statements of cash flows. Cash
equivalents are stated at cost, which approximates fair market value.
Materials and Supplies
Materials and supplies, consisting primarily of fuel and replacement parts,
are valued at the lower of average cost or market.
Property and Equipment
Property and equipment are carried at historical cost. Major renewals or
betterments are capitalized while routine maintenance and repairs, which do
not improve or extend asset lives, are charged to expense when incurred. Gains
or losses on sales or other dispositions are credited or charged to other
income. Depreciation is provided using the straight-line method over the
estimated useful lives of the property and are as follows:
<TABLE>
<S> <C>
Road properties............................................... 24-79 years
Equipment..................................................... 8-33 years
</TABLE>
The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of the property and
equipment may not be recoverable. When factors indicate that the asset should
be evaluated for possible impairment, the Company uses an estimate of the
related undiscounted future cash flows over the remaining useful life of the
asset in measuring whether the asset is recoverable.
Income Taxes
The Company is a member of a group that files a consolidated tax return. The
consolidated amount of current and deferred tax expense is allocated among the
members of the group based on each entitys tax attributes using a separate
return approach.
F-25
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Significant Customer Relationship
A large portion of the Company's operating revenues is attributable to the
shipment of coal for an electric utility. This customer accounted for
approximately 77%, 78% and 83% of the Company's operating revenues in 1993,
1994 and 1995, respectively. This traffic is covered under a service assurance
agreement. See Note 4 for further discussion.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Company:
Current assets and current liabilities: The carrying amount approximates
fair value due to the short maturity of these items.
Long-term debt: The fair value of the Company's long-term debt is based on
secondary market indicators. Since the Company's debt is not quoted,
estimates are based on each obligation's characteristics, including
remaining maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair
value.
Management 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 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.
2. OTHER INCOME:
In 1993, the Company settled a significant lawsuit for a third-party
crossing accident. Total cash paid for the settlement was $600,000, resulting
in a gain, from reversal of the related reserve, of $1,900,000 which is
included in other income.
In 1995, the Company sold various railcars and locomotives to third-parties
for proceeds of approximately $4,007,000. The Company realized a gain on these
transactions of approximately $1,074,000 which is included in other income.
3. PROPERTY AND EQUIPMENT:
Major classifications of property and equipment are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- FEBRUARY 8,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Road properties..................................... $26,922 $27,696 $27,550
Equipment and other................................. 6,046 2,741 2,922
------- ------- -------
32,968 30,437 30,472
Less--Accumulated depreciation...................... 5,647 19,807 19,926
------- ------- -------
$27,321 $10,630 $10,546
======= ======= =======
</TABLE>
F-26
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. OTHER ASSETS:
Other assets at December 31, 1994 and 1995, consist of the following
(amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- FEBRUARY 8,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Service assurance agreement with significant cus-
tomer............................................. $17,238 $17,238 $17,238
Organization costs................................. 446 446 446
Other.............................................. 210 617 591
------- ------- -------
17,894 18,301 18,275
Less--Accumulated amortization..................... 2,006 2,511 2,564
------- ------- -------
$15,888 $15,790 $15,711
======= ======= =======
</TABLE>
The service assurance agreement represents a commitment from the Company's
significant customer which grants the Company the exclusive right to service
three of the customer's facilities indefinitely. The service assurance
agreement is being amortized on a straight-line basis over a 40-year period
through the year 2029. Organization costs are being amortized over seven years
through 1998. Amortization included in the statements of operations for each
of the three years in the period ended December 31, 1995, was $505,000.
5. OPERATING LEASE AGREEMENTS:
The Company has entered into several leases for rolling stock. As of
December 31, 1995, the Company is a lessee for 110 rotary gondolas. This
agreement requires payments of $230 per car per month ($303,600 annually)
through December 31, 1999, for total future minimum lease payments as of
December 31, 1995 of $1,214,000. The Company subleases the same 110 rotary
gondolas to another party. Actual future rental receipts from this sublease
are dependent, in part, upon usage by the lessee. Minimum future rentals to be
received under noncancelable leases in effect at December 31, 1995, are
$442,000, all of which are due in 1996. The net effect of all lease
arrangements are classified as a reduction in maintenance of equipment expense
in the accompanying statements of income. Net reductions in maintenance of
equipment expense for the years ended December 31, 1993, 1994 and 1995 were
approximately $939,000, $1,249,000 and $358,000, respectively. Subsequent to
year-end, the Company assigned both of the above lease arrangements to
Illinois & Midland Railroad, Inc. in conjunction with the transaction
discussed in Note 11.
6. LONG-TERM DEBT:
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- FEBRUARY 8,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured senior notes due to affiliate with
interest at 10.5%, due December 31, 1998.......... $ 8,500 $ 8,500 $ 8,500
Revolving line of credit with interest at prime or
the Eurodollar rate, as appropriate, plus an
applicable margin, as defined (9.00% and 7.94%,
respectively, at December 31, 1995), due according
to annual commitment reduction amounts with the
balance due on April 10, 1998, secured by
substantially all the assets of the Company....... 8,938 4,625 4,045
Secured promissory note with the State of Illinois,
interest at 3%, payable in annual installments
over 10 years beginning on the first anniversary
of the project completion date.................... 385 656 667
------- ------- -------
Total long-term debt............................. $17,823 $13,781 $13,212
======= ======= =======
</TABLE>
F-27
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Subsequent to year-end, on February 8, 1996, all of the Company's long-term
debt was either paid in full or assumed by Illinois & Midland Railroad, Inc.
See Note 11 for further discussion.
Both the unsecured senior notes and the revolving line of credit require the
maintenance of certain covenants, including, but not limited to, minimum net
worth, minimum fixed obligation coverage and maximum debt to net worth. The
Company was in compliance with the provisions of these covenants as of
December 31, 1995.
7. RELATED PARTIES:
The unsecured senior notes for $8,500,000 (see Note 6) are payable to
stockholders of Pawnee. As of December 31, 1994 and 1995, the Company owed
interest totaling $223,000 on these notes. Interest expense on these notes for
each of the three years ended December 31, 1995, was $893,000. Included in
other current assets at December 31, 1994 and 1995, are $367,000 and $155,000,
respectively, due from Pawnee and related entities.
During 1994, the Company advanced $1,360,600 at 8% interest to Pawnee
Transportation Company ("PTC"), a wholly owned subsidiary of Pawnee, in
connection with the construction of a coal unloading facility located at the
Company's rail yard in Kincaid, Illinois. At December 31, 1994 and 1995, PTC
owed $360,000 and $439,000, respectively, to the Company under this
arrangement. Included in other income for the years ended December 31, 1994
and 1995, is $54,000 and $93,000, respectively, of interest earned from PTC.
8. EMPLOYEE BENEFIT PLANS:
Retirement benefits for all employees of the Company are provided for in
accordance with the Railroad Retirement Act.
The Company has 401(k) plans in effect for all management and certain union
employees. The 401(k) plans qualify under Section 401(k) of the Internal
Revenue Code as salary reduction plans. Employees may elect to contribute a
certain percentage of their salary on a before-tax basis. The Company matches
50% of eligible employee contributions up to a maximum percentage of the
employee's salary, as approved by the Board of Directors. Such percentage was
6% in 1993 and ranged from 1% to 6% for 1994 and 3% to 4% in 1995. For the
years ended December 31, 1993, 1994 and 1995, the Company contributed $44,000,
$60,000 and $41,000, respectively, to those plans on behalf of its employees.
9. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD ENDED
--------------------- FEBRUARY 8,
1993 1994 1995 1996
------ ----- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current--
Federal................................ $ 955 $ -- $ 1,113 $(274)
State.................................. 221 -- 274 (63)
Deferred--
Federal ............................... 471 (701) (4,913) (19)
State.................................. 100 (149) (1,019) (4)
------ ----- ------- -----
$1,747 $(850) $(4,545) $(360)
====== ===== ======= =====
</TABLE>
F-28
<PAGE>
CHICAGO & ILLINOIS MIDLAND RAILWAY COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision (benefit) for income taxes differs from that which would be
computed by applying the statutory U.S. federal income tax rate to income
(loss) before taxes. The following is a summary of the effective tax rate
reconciliation:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD ENDED
------------------- FEBRUARY 8,
1993 1994 1995 1996
---- ----- ----- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax provision (benefit) at statutory
rate.................................... 34.0% (34.0)% (34.0)% (34.0) %
State income taxes, net of federal income
tax benefit............................. 4.8 (4.3) (4.9) (4.7)
Other, net............................... .7 1.4 1.0 .6
---- ----- ----- -----
39.5% (36.9)% (37.9)% (38.1)%
==== ===== ===== =====
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax
liability in the accompanying balance sheets (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- FEBRUARY 8,
1994 1995 1996
------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax liability--differences in depre-
ciation and amortization..................... $13,512 $6,993 $6,970
Accruals for casualty claims.................. (595) (518) (518)
Other......................................... (33) (13) (13)
NOL........................................... (490) -- --
------- ------ ------
Net deferred tax liability................ $12,394 $6,462 $6,439
======= ====== ======
</TABLE>
Management does not believe that a valuation allowance is required for the
deferred tax assets based on anticipated future profit levels and the reversal
of current temporary differences.
10. COMMITMENTS AND CONTINGENCIES:
The Company is a defendant in certain lawsuits resulting from its railroad
operations. Management believes that adequate provision has been made in the
financial statements for any expected liabilities which may result from
disposition of such lawsuits. While it is possible that some of the foregoing
matters may be settled at a cost greater than that provided for, it is the
opinion of management that the ultimate liability, if any, will not be
material to the Company's results of operations or financial position.
11. SUBSEQUENT EVENT:
Subsequent to year-end, on February 8, 1996, the common stock of Pawnee was
sold to Stanford PRC Acquisition Corporation ("Stanford"), and Stanford and
Pawnee were merged into the Company. Also on this date, substantially all of
the assets of the Company, primarily road and track structure, were sold to
Illinois & Midland Railroad, Inc. (an unrelated entity) for approximately
$27.5 million, including related costs and the assumption of certain
liabilities. The sale of assets represented a loss of approximately $16.1
million, as the book value of the assets sold exceeded the purchase price. The
Company recognized a loss on the sale of assets in the 1995 financial
statements to write down the property and equipment ($15,655,000) and the
materials and supplies ($427,000) to net realizable value. The proceeds from
this transaction were used to pay off the remaining debt instruments. The
Company is in the process of liquidating its remaining assets and liabilities.
Operations of the railroad by the Company have ceased.
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Genesee & Wyoming Inc.:
We have audited the accompanying combined balance sheets of THE PITTSBURG &
SHAWMUT RAILROAD COMPANY, MOUNTAIN LAUREL RAILROAD COMPANY AND RED BANK
RAILROAD COMPANY (Pennsylvania corporations) as of December 31, 1994 and 1995,
and the related combined statements of operations, shareholder's equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Companies'
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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Pittsburg & Shawmut
Railroad Company, Mountain Laurel Railroad Company and Red Bank Railroad
Company as of December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 4 to the financial statements, effective January 1,
1994, the Companies adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Arthur Andersen LLP
Chicago, Illinois
March 8, 1996 (except with respect to
matters discussed in Note 11 as to
which the date is April 29, 1996)
F-30
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................... $ 1,421 $ 2,205 $ 2,697
Accounts receivable, net...................... 2,535 901 710
Materials and supplies........................ 322 192 183
Prepaid expenses and other.................... 240 254 298
Notes receivable from related parties......... 2,659 1,584 1,249
------- ------- -------
Total current assets........................ 7,177 5,136 5,137
PROPERTY AND EQUIPMENT, net..................... 26,789 14,944 14,480
OTHER ASSETS.................................... 1,218 105 84
------- ------- -------
Total assets........................... $35,184 $20,185 $19,701
======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt............. $ 1,675 $ -- $ 125
Accounts payable.............................. 1,549 971 784
Accrued expenses.............................. 583 530 433
------- ------- -------
Total current liabilities................... 3,807 1,501 1,342
------- ------- -------
LONG-TERM DEBT.................................. 5,584 4,025 3,900
------- ------- -------
OTHER LIABILITIES............................... 474 336 333
------- ------- -------
DEFERRED INCOME TAX LIABILITIES, net............ 6,491 1,991 1,921
------- ------- -------
DEFERRED ITEMS--grants from governmental agen-
cies........................................... 3,296 3,194 3,168
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDER'S EQUITY:
Preferred stock, $1 par value; 215,000 shares
authorized; 194,263 shares issued and 161,500
shares outstanding........................... 194 194 194
Common stock, $1 par value; 150,000 shares au-
thorized; 150,000 shares issued and outstand-
ing.......................................... 150 150 150
Additional paid-in capital.................... 7,653 7,653 7,653
Preferred stock held in treasury, 32,763
shares....................................... (33) (33) (33)
Pension liability adjustment.................. (141) (84) (84)
Unrealized gain on marketable securities...... 143 -- --
Retained earnings............................. 7,566 1,258 1,157
------- ------- -------
Total shareholder's equity.................. 15,532 9,138 9,037
------- ------- -------
Total liabilities and shareholder's eq-
uity.................................. $35,184 $20,185 $19,701
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER THREE MONTHS
31, ENDED MARCH 31,
----------------------- ----------------
1993 1994 1995 1995 1996
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES.................. $9,558 $8,795 $ 5,922 $1,675 $1,420
OPERATING EXPENSES:
Transportation.................... 1,747 1,561 1,027 377 261
Maintenance of ways and struc-
tures............................ 928 950 806 296 210
Maintenance of equipment.......... 1,138 1,275 846 233 215
General and administrative........ 2,477 3,021 1,918 499 400
Depreciation and amortization..... 1,732 1,801 1,808 462 442
------ ------ ------- ------- -------
Total operating expenses........ 8,022 8,608 6,405 1,867 1,528
------ ------ ------- ------- -------
Income (loss) from operations... 1,536 187 (483) (192) (108)
INTEREST EXPENSE.................... (725) (595) (481) (146) (78)
OTHER INCOME, net................... 331 334 730 132 15
LOSS ON SALE OF PROPERTY AND
EQUIPMENT (Note 11)................ -- -- (10,288) -- --
------ ------ ------- ------- -------
Income (loss) before income tax-
es............................. 1,142 (74) (10,522) (206) (171)
PROVISION (BENEFIT) FOR INCOME TAX-
ES................................. 457 -- (4,214) (84) (70)
------ ------ ------- ------- -------
NET INCOME (LOSS)................... $ 685 $ (74) $(6,308) $ (122) $ (101)
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-32
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON PREFERRED
PREFERRED STOCK STOCK ADDITIONAL TREASURY STOCK
------------------ ------------- PAID-IN ----------------- RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS
------- -------- ------ ------ ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993................... 194 $ 194 150 $150 $7,653 (33) $ (33) $ 7,157
Net income............ -- -- -- -- -- -- -- 685
Dividends............. -- -- -- -- -- -- -- (152)
------- -------- --- ---- ------ ------ ------- -------
BALANCE AT DECEMBER 31,
1993................... 194 194 150 150 7,653 (33) (33) 7,690
Net loss.............. -- -- -- -- -- -- -- (74)
Dividends............. -- -- -- -- -- -- -- (50)
------- -------- --- ---- ------ ------ ------- -------
BALANCE AT DECEMBER 31,
1994................... 194 194 150 150 7,653 (33) (33) 7,566
Net loss.............. -- -- -- -- -- -- -- (6,308)
------- -------- --- ---- ------ ------ ------- -------
BALANCE AT DECEMBER 31,
1995................... 194 194 150 150 7,653 (33) (33) 1,258
Net loss (Unaudited).. -- -- -- -- -- -- -- (101)
------- -------- --- ---- ------ ------ ------- -------
BALANCE AT MARCH 31,
1996 (Unaudited)....... 194 $194 150 $150 $7,653 (33) $(33) $ 1,157
======= ======== === ==== ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-33
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
YEARS ENDED DECEMBER31, 31,
-------------------------- --------------
1993 1994 1995 1995 1996
------- -------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ 685 $ (74) $(6,308) $ (122) $ (101)
Adjustments to reconcile net
income (loss) to net cash (used
in) provided by operating
activities--
Depreciation and amortization.... 1,732 1,801 1,808 462 442
Deferred income taxes............ (274) (169) (4,500) (84) (70)
Gain on disposition of property
and marketable securities....... (123) (131) (497) -- --
Write-off of note receivable..... 164 -- -- -- --
Loss on sale of property and
equipment (Note 11)............. -- -- 10,288 -- --
Changes in assets and
liabilities--
Account receivable, net........ (3,419) 2,014 1,634 823 191
Materials and supplies......... 94 53 130 9 9
Prepaid expenses and other..... (59) (50) (14) 3 (44)
Accounts payable and accrued
expenses...................... (1,453) 1,439 (632) (535) (284)
Other assets and liabilities,
net........................... (16) (15) (40) (2) 14
------- -------- ------- ------ ------
Net cash (used in) provided by
operating activities......... (2,669) 4,868 1,869 554 157
------- -------- ------- ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment........................ (1,524) (793) (407) (53) --
Proceeds from disposition of
property and equipment........... 134 246 287 -- --
Issuance of notes receivable, from
related parties.................. (188) (910) -- -- (575)
Receipts on notes receivable, from
related parties.................. 637 20 1,075 -- 910
Purchase of marketable securities. -- -- (548) -- --
Proceeds from sale of marketable
securities....................... 332 -- 1,742 -- --
------- -------- ------- ------ ------
Net cash (used in) provided by
investing activities......... (609) (1,437) 2,149 (53) 335
------- -------- ------- ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-term
debt............................. (1,774) (3,168) (3,234) (108) --
Proceeds from grants.............. 3,500 -- -- -- --
Dividends paid.................... (152) (50) -- -- --
------- -------- ------- ------ ------
Net cash provided by (used in)
financing activities......... 1,574 (3,218) (3,234) (108) --
------- -------- ------- ------ ------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................ (1,704) 213 784 393 492
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 2,912 1,208 1,421 1,421 2,205
------- -------- ------- ------ ------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 1,208 $ 1,421 $ 2,205 $1,814 $2,697
======= ======== ======= ====== ======
CASH PAID DURING THE PERIOD FOR:
Interest.......................... $ 732 $ 602 $ 488 $ 107 $ 112
======= ======== ======= ====== ======
Income taxes...................... $ 1,012 $ -- $ -- $ -- $ --
======= ======== ======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-34
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(DATA WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 ARE
UNAUDITED)
1. THE COMPANIES' BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements include the financial statements of
The Pittsburg & Shawmut Railroad Company (P&S), Mountain Laurel Railroad
Company (MNL) and Red Bank Railroad Company (RBK) (the Companies). The
Companies are wholly owned subsidiaries of Arthur T. Walker Estate Corporation
(ATWEC) which is wholly owned by Dumaines, a private trust. The Companies are
short-line railroads that operate over approximately 237 miles of track in the
Commonwealth of Pennsylvania.
In the opinion of management, the unaudited financial statements for the
three-month periods ended March 31, 1995 and 1996, are presented on a basis
consistent with the audited financial statements and contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation. The results of operations for interim periods are not
necessarily indicative of results of operations for the full year.
Principles of Combination
The combined financial statements include the accounts of the Companies. All
significant intercompany transactions and accounts have been eliminated in
combination.
Revenue Recognition
Revenues are recognized based on the waybill, which, due to the relatively
short length of haul, is not materially different from the recognition of
revenues as shipments progress.
Cash Equivalents
The Companies consider all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents for purposes of
classification in the combined balance sheets and combined statements of cash
flows. Cash equivalents are stated at cost, which approximates fair market
value.
Materials and Supplies
Materials and supplies consist of items for improvement and maintenance of
road property and equipment, and are stated at the lower of average cost or
market.
Property and Equipment
Property and equipment are carried at historical cost. Major renewals or
betterments are capitalized while routine maintenance and repairs, which do
not improve or extend asset lives, are charged to expense when incurred. Gains
or losses on sales or other dispositions are credited or charged to other
income. Depreciation is provided on the straight-line method over the useful
lives of the property as follows:
<TABLE>
<S> <C>
Road properties............................................... 10-35 years
Equipment..................................................... 5-20 years
</TABLE>
Income Taxes
The Companies are members of a group that file a consolidated tax return.
The consolidated amounts of current and deferred tax expense is allocated
among the members of the group based on each entity's tax attributes using a
separate return approach.
Significant Customer Relationship
A large portion of the Companies' operating revenue is generated from
shipments of bituminous coal. The five largest coal shippers in 1993, 1994 and
1995 accounted for 65% or more of the Companies' revenue.
F-35
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Revenue has decreased over the past two years primarily due to reductions in
coal shipments. The Companies regularly grant trade credit to all their
customers. In addition, the Companies grant trade credits to other railroads
through the routine interchange of traffic. The collection of the Companies'
accounts receivable is substantially dependent upon the economy of the region
in which the Companies operate, the coal industry, and the railroad sector of
the economy in general.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument held by the Companies:
Current assets and current liabilities: The carrying value approximates
fair value due to the short maturity of these items.
Long-term debt: Since the Companies' debt is not quoted, estimates are
based on each obligation's characteristics, including remaining maturities,
interest rate, credit rating, collateral, amortization schedule and
liquidity. The carrying amount approximates fair value.
Management 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 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.
2. NOTES RECEIVABLE FROM RELATED PARTIES:
The Companies have notes receivable from the following related entities
(amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ATWEC................................................ $1,581 $ 674 $1,249
Brookport Resources Company, an affiliate company.... 168 0 0
Shawmut Development Corporation, an affiliate compa-
ny.................................................. 910 910 0
------ ------ ------
$2,659 $1,584 $1,249
====== ====== ======
</TABLE>
3. PROPERTY AND EQUIPMENT:
Major classifications of property and equipment are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Road properties..................................... $30,026 $30,212 $30,212
Equipment and other................................. 19,230 18,973 18,973
------- ------- -------
49,256 49,185 49,185
Less--Accumulated depreciation...................... 22,467 34,241 34,705
------- ------- -------
$26,789 $14,944 $14,480
======= ======= =======
</TABLE>
F-36
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The notes are non-interest-bearing and are payable upon demand. Subsequent
to December 31, 1995, the note from Shawmut Development Corporation was paid
in full. The Companies issued an additional $575,000 demand note to ATWEC in
two separate distributions, in January and March of 1996.
4. OTHER ASSETS:
Included in other assets are marketable securities of $1,074,000 in 1994.
Effective January 1, 1994, the Companies adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The adoption of SFAS No.
115 requires that equity securities that have readily determinable fair values
shall be classified as "available-for-sale" if not held for the objective of
generating profits on short-term differences in price. Based on the Companies'
intentions, the debt and equity securities are classified and treated as
available-for-sale. At December 31, 1994, debt and equity securities were
stated at lower of aggregate cost or market.
SFAS No. 115 further requires that unrealized holding gains and losses
related to available-for-sale securities shall be excluded from earnings and
reported as a net amount in a separate component of shareholder's equity until
realized.
The following summarizes the effect of applying SFAS No. 115 (in thousands):
<TABLE>
<S> <C>
Cost basis........................................................ $ 931
------
Gross unrealized holding--
Gains........................................................... 171
Losses.......................................................... (28)
------
Net unrealized gain........................................... 143
------
Market value at December 31, 1994................................. $1,074
======
</TABLE>
All of the marketable securities were sold in 1995 for a realized gain of
approximately $264,000 that is included in other income.
5. EMPLOYEE BENEFIT PLANS:
Pension
ATWEC administers a noncontributory defined benefit plan and a deferred
compensation arrangement for the employees of its subsidiaries. The specific
attributes of the defined benefit plan and the deferred compensation
arrangement are allocated to each subsidiary (including the Companies) based
on the Projected Benefit Obligation per individual per entity. Benefits are
determined based on years of service, compensation during the last five years
of employment and participation in the profit sharing plan or the defined
benefit plan. For the deferred compensation arrangement, benefits are based on
a fixed amount per year. The Companies' funding policy is to make
contributions for pension and deferred compensation benefits based on
actuarial computations which reflect the long-term nature of the plans. The
Companies have met the minimum funding requirements according to the Employee
Retirement Income Security Act.
F-37
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Pension cost for both plans combined for 1993, 1994 and 1995 was
approximately $53,000, $50,000 and $31,000, respectively. The funded status at
December 31, 1994 and 1995, was as follows (amounts in thousands):
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations................
Vested benefits............................................. $ 779 $ 656
Nonvested benefits.......................................... -- --
----- -----
Accumulated benefit obligation and projected benefit obliga-
tion......................................................... 779 656
Plan assets................................................... 266 294
----- -----
Projected benefit obligation in excess of plan assets......... (513) (362)
Unrecognized net transition obligation........................ 99 84
Unrecognized prior service costs.............................. 21 14
Unrecognized net loss......................................... 145 69
Adjustment to recognize minimum liability..................... (265) (167)
----- -----
Pension liability recognized in the combined balance sheet.... $(513) $(362)
===== =====
</TABLE>
The projected benefit obligation was determined using a discount rate of 7%.
The long-term rate of return on plan assets was 8%.
Profit Sharing
ATWEC has a profit sharing program for all non-collective bargaining
employees. Benefits for profit sharing are determined based on earnings of
ATWEC. Allocations to employees are based on eligible wages. Profit sharing
contributions were approximately $14,000, $14,000 and $56,000 in 1993, 1994
and 1995, respectively. Contributions are subject to Board of Directors
approval.
6. LONG-TERM DEBT:
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note A payable to ATWEC bearing interest at 6%,
payable in annual principal payments of $120,000
beginning in January of 1998 and interest payable
semiannually, secured by all the property with the
balance due January 1, 2017......................... $2,400 $2,400 $2,400
Note B payable to ATWEC bearing interest at 6%,
payable in annual principal payments of $125,000 and
interest payable semiannually, secured by all
property, due in January of 1997.................... 250 125 125
Note payable to Dumaines bearing interest at prime
plus 2% on the effective date of the note, interest
payable quarterly, with principal and interest
balance due December of 1997........................ 1,500 1,500 1,500
Loan payable bearing interest at prime and repaid in
1995................................................ 1,849 -- --
Term note bearing interest at prime and repaid in
1995................................................ 1,260 -- --
------ ------ ------
7,259 4,025 4,025
Less--Current portion................................ 1,675 -- 125
------ ------ ------
Long-term debt................................... $5,584 $4,025 $3,900
====== ====== ======
</TABLE>
F-38
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is a summary of the maturities of long-term debt as of
December 31, 1995 (amounts in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 0
1997.............................................................. 1,625
1998.............................................................. 120
1999.............................................................. 120
2000.............................................................. 120
Thereafter........................................................ 2,040
------
$4,025
======
</TABLE>
At December 31, 1995, the prime interest rate was 8.5%.
7. TRANSACTIONS WITH RELATED PARTIES:
Revenue
Included within revenues are $891,000, $461,000 and $167,000 for 1993, 1994
and 1995, respectively, for shipments for ATWEC subsidiaries.
Interest Expense
Included within interest expense is approximately $296,000, $288,000 and
$319,000 for 1993, 1994 and 1995, respectively, for notes payable to related
parties.
Management Fees
Walker Management Company, a wholly owned subsidiary of ATWEC, allocates to
the Companies compensation and benefits for executives to perform certain
accounting, legal, communications, data processing, administrative and other
services ("corporate services") that are not specifically attributable to the
Companies. In addition, occupancy and other corporate office costs are
allocated to the Companies. These fees are approximately $324,000, $350,000,
$308,000 and $77,000 in the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996, and are included in general and
administrative expenses in the combined statements of operations. Management
believes that the Walker Management Company corporate services allocated to
the Companies represent the cost of the services provided and that the costs
are reasonable.
8. INCOME TAXES:
The components of the provision for income taxes are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------- ----------------
1993 1994 1995 1995 1996
---- ----- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current--
Federal................................ $339 $ 145 $ 67 $ -- $ --
State.................................. 66 26 (7) -- --
Deferred................................. 52 (171) (4,274) (84) (70)
---- ----- ------- ------- -------
$457 $ -- $(4,214) $ (84) $ (70)
==== ===== ======= ======= =======
</TABLE>
F-39
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The provision for taxes on income in each period differs from that which
would be computed by applying the statutory U.S. federal income tax rate to
the income before taxes. The following is a summary of the major items
affecting the provision (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------- ----------------
1993 1994 1995 1995 1996
---- ----- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Tax expense at statutory rate (34%). $388 $ (25) $(3,577) $ (70) $ (58)
State income taxes, net of federal
income tax benefit................. 101 7 (940) (18) (15)
Effect of change in state tax rates
on deferred taxes.................. -- 19 226 -- --
Other, net.......................... (32) (1) 77 4 3
---- ----- ------- ------- -------
$457 $ -- $(4,214) $ (84) $ (70)
==== ===== ======= ======= =======
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax
liability in the accompanying combined balance sheets (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets--
Accruals and reserves not deducted for tax
purposes until paid.......................... $ (289) $ (173) $ (173)
Alternative minimum tax credits............... (387) (463) (463)
Net operating losses.......................... (302) (188) (143)
Other......................................... (408) (548) (548)
Deferred tax liability--differences in deprecia-
tion........................................... 7,877 3,363 3,248
------ ------ ------
Net deferred tax liability.................... $6,491 $1,991 $1,921
====== ====== ======
</TABLE>
The Companies' alternative minimum tax credits can be carried forward
indefinitely; however, the Companies must achieve future regular taxable
income in order to realize this credit. The Companies' net operating loss
carryforwards (NOL) consist entirely of federal NOLs as state NOLs were used,
and excesses lost, in 1995. The Companies' federal net operating loss
carryforwards begin to expire in 2009.
Management does not believe that a valuation allowance is required for the
deferred tax assets based on anticipated tax gain from the sale of the assets
(see Note 11) and the reversal of current temporary differences.
9. GRANTS FROM GOVERNMENTAL AGENCIES:
During 1993, the MNL received a grant from the Commonwealth of Pennsylvania
of $3.5 million for acquisition and initial start up costs as well as rail
rehabilitation. The agreement required the Commonwealth of Pennsylvania to
reimburse the MNL for 50% of the total costs of the project ($7 million). This
project was completed as of December 31, 1993.
The aforementioned grant does not represent a future liability of MNL unless
MNL abandons the rehabilitated track structure within a specified period of
time, as defined in the agreement. As MNL does not intend to abandon the
track, MNL has recorded additions to road property and has deferred the amount
of the grant as the rehabilitation expenditures have been incurred. The
amortization of the deferred grant is a noncash offset to depreciation expense
over the useful life of the related assets and is not included as taxable
income.
F-40
<PAGE>
THE PITTSBURG & SHAWMUT RAILROAD COMPANY,
MOUNTAIN LAUREL RAILROAD COMPANY AND
RED BANK RAILROAD COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
10. COMMITMENTS AND CONTINGENCIES:
The Companies are defendants in certain lawsuits resulting from the railroad
operations. Management believes that adequate provision has been made in the
financial statements for any expected liabilities which may result from
disposition of such lawsuits. While it is possible that the foregoing matters
may be settled at a cost greater than that provided for, it is the opinion of
management that the ultimate liability, if any, will not be material to the
Companies' results of operations and financial position.
The RBK operates under a lease and operating agreement which is renewable on
a year-to-year basis beginning in 1996. The lease agreement requires payments
to be made by MNL based on per ton of traffic moved on the RBK. Lease expense
related to this agreement in 1993, 1994 and 1995 was $338,000, $244,000 and
$121,000, respectively.
11. SUBSEQUENT EVENT:
Subsequent to year-end, on April 29, 1996, substantially all of the assets
of the Companies, primarily property and equipment, were sold to Pittsburg &
Shawmut Railroad, Inc. (an unrelated entity) for approximately $11.7 million
in cash, excluding related costs and the assumption of the grant from the
Commonwealth of Pennsylvania. In addition, the purchase and sale agreement
provides that ATWEC or the Companies may receive additional contingency
payments of up to $2.5 million in the event coal revenues exceed certain
agreed upon levels. The sale of road property represented a loss of
approximately $10.3 million, as the book value of the assets sold exceeded the
purchase price. The Companies recognized a loss on the sale of property and
equipment in the 1995 financial statements to write down property and
equipment to net realizable value.
F-41
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE
AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAW-
FUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR SINCE THE DATES AS OF WHICH THE INFORMATION IS FURNISHED.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Recent Developments....................................................... 10
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Consolidated Financial and Operating Data........................ 15
Pro Forma Financial Information........................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 29
Property.................................................................. 37
Management................................................................ 41
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 46
Description of Capital Stock.............................................. 47
Shares Eligible for Future Sale........................................... 49
Underwriting.............................................................. 50
Notice to Ontario Residents...............................................
Legal Matters............................................................. 51
Experts................................................................... 51
Additional Information.................................................... 52
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGA-
TION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
GENESEE & WYOMING INC.
CLASS A COMMON STOCK
($.01 PAR VALUE)
---------------
SCHRODER WERTHEIM & CO.
FURMAN SELZ
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the offering are estimated as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
Registration fee................................................ $ 15,863
NASD fee........................................................ 5,100
Nasdaq National Market application fee.......................... 29,243
Blue sky fees and expenses...................................... *
Printing expenses............................................... *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Transfer agent and registrar fees............................... *
Miscellaneous expenses.......................................... *
--------
Total......................................................... $875,000
========
</TABLE>
- --------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Paragraph 10 of the Registrant's Restated Certificate of Incorporation
provides that the Registrant shall indemnify its directors and officers to the
fullest extent authorized by the Delaware General Corporation Law (the
"DGCL").
With respect to indemnification of directors and officers, Section 145 of
the DGCL provides that a corporation shall have the power to indemnify any
person who was or is a party 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 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 in connection with
such action, suit or proceeding, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Under this provision of
the DGCL, the termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Furthermore, the DGCL provides that a corporation shall have the power to
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 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 in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he 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 Court of Chancery or the
court in which such action or suit was brought shall
II-1
<PAGE>
determine upon application that, despite the adjudication of liability but in
view of all 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.
Paragraph 9 of the Registrant's Restated Certificate of Incorporation
contains a provision, authorized by Section 102(b)(7) of the DGCL, which
provides that a director of the Registrant shall not be personally liable to
the Registrant or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability of the director (a) for any
breach of the director's duty of loyalty to the Registrant or its
stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the DGCL, relating to the payment of unlawful dividends or unlawful stock
repurchases or redemptions, or (d) for any transaction from which the director
derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1993, the Registrant has sold the following shares of
common stock which were not registered under the Securities Act of 1933, as
amended (the "Act") (the following does not give effect to the stock split and
reclassification of the Registrant's common stock referenced in the Prospectus
forming a part of this Registration Statement):
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
DATE OF SALE NAME OF INVESTOR SHARES CONSIDERATION
------------ ---------------- --------- -------------
<S> <C> <C> <C>
10/22/93 John M. Randolph................................ 800 $20,000
11/5/93 Sandra B. Ringo................................. 200 $ 5,000
Mark W. Hastings and Susan M. Hastings, as joint
12/22/93 tenants......................................... 800 $20,000
10/25/94 Mortimer B. Fuller, III......................... 2,400 $30,000
</TABLE>
The sale to Mr. Fuller was upon exercise by him of stock options granted in
1978. All of the other sales were made following the Registrant's repurchase
of the shares from a stockholder. All of the shares listed on the table were
sold for cash except those sold to Mr. and Mrs. Hastings, for which Mr.
Hastings executed a promissory note which has since been paid.
On February 8, 1996, the Registrant issued to The First National Bank of
Boston, for a purchase price of $0, a warrant to purchase 2,262 shares of
common stock at an exercise price of $.01 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
In May 1994, Willamette & Pacific Railroad, Inc., a subsidiary of the
Registrant, issued $990,000 in aggregate principal amount of Subordinated
Secured Promissory Notes, guaranteed by the Registrant, to ten accredited
investors, including four related parties. See "Certain Transactions."
Each of the issuances of securities described above was made by private
offering in reliance on the exemption from the registration provisions of the
Act provided by Section 4(2) of the Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation and Certificates of Amendment dated
October 12, 1989, February 21, 1991 and May 18, 1995
**3.2 Form of Restated Certificate of Incorporation
3.3 By-laws
4 The exhibits referenced under "3" hereof are incorporated herein by
reference.
*4.1 Specimen stock certificate representing shares of Class A Common
Stock.
**4.2 Form of Class B Stockholders' Agreement dated as of May 20, 1996,
among the Registrant, its executive officers and its Class B
stockholders
4.3 Promissory Note dated December 28, 1989 of GWI Leasing Corporation in
favor of Deutsche Credit Corporation
4.4 Railcar Finance Notes dated July 8, 1991 and November 27, 1991 of GWI
Leasing Corporation in favor of Deutsche Credit Corporation
4.5 Railcar Finance Notes, dated November 27, 1991 and December 31, 1991
of GWI Leasing Corporation in favor of Deutsche Credit Corporation
4.6 Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc.
4.7 Amended and Restated Loan and Security Agreement dated December 28,
1989 between GWI Leasing Corporation and Deutsche Credit Corporation,
and Amendment No. 1 dated December 28, 1989
4.8 Loan and Security Agreement dated December 27, 1990 between GWI
Leasing Corporation and Deutsche Credit Corporation, and Amendments
dated June 28, 1991 and November 22, 1991
4.9 Guaranty dated December 27, 1990 of the Registrant in favor of
Deutsche Credit Corporation
4.10 Amended and Restated Revolving Credit and Term Loan Agreement dated as
of February 8, 1996 among the Registrant and certain of its
Subsidiaries, The First National Bank of Boston, as agent, and the
Banks party thereto
4.11 Revolving Credit Note dated as of February 8, 1996 of the Registrant
and certain of its subsidiaries in favor of The First National Bank of
Boston
4.12 Term Note dated as of February 8, 1996 of the Registrant and certain
of its Subsidiaries in favor of The First National Bank of Boston
4.13 Amended and Restated Security Agreement dated as of February 8, 1996
among the Registrant, certain of its Subsidiaries and The First
National Bank of Boston
4.14 Amended and Restated Stock Pledge Agreement dated as of February 8,
1996 between the Registrant and The First National Bank of Boston
4.15 Amended and Restated Collateral Assignment of Partnership Interests
dated as of February 8, 1996 of the Registrant and GWI Dayton, Inc. in
favor of The First National Bank of Boston
**4.16 Amendment No. 1 to Amended and Restated Revolving Credit and Term Loan
Agreement dated as of April 26, 1996 among the Registrant and certain
of its Subsidiaries, The First National Bank of Boston, as agent and
the Banks' party thereto.
*5.1 Opinion of Harter, Secrest & Emery
9.1 Voting Agreement and Stock Purchase Option dated March 21, 1980 among
Mortimer B. Fuller, III, Mortimer B. Fuller, Jr. and Frances A.
Fuller, and amendments thereto dated May 7, 1988 and March 29, 1996
10 The exhibits referenced under "4" hereof are incorporated herein by
reference.
**10.1 Form of Genesee & Wyoming Inc. 1996 Stock Option Plan
**10.2 Form of Genesee & Wyoming Inc. Stock Option Plan for Outside Directors
10.3 Form of Employment Agreement between the Registrant and each of its
executive officers
**10.4 Form of Genesee & Wyoming Inc. Employee Stock Purchase Plan
10.5 Agreement dated December 7, 1994 between Allegheny & Eastern Railroad,
Inc. and its Engineering Department Employees
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.6 Agreement dated March 29, 1995 between Allegheny & Eastern Railroad,
Inc. and its Mechanical Department Employees
10.7 Agreement dated July 1, 1992 between Buffalo & Pittsburgh Railroad,
Inc. and its Car Repair Department Employees, and the proposed changes
thereto dated September 16, 1994
10.8 Agreement dated December 1, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and its Engineering Department Employees
10.9 Agreement dated April 30, 1991 between Buffalo & Pittsburgh Railroad,
Inc. and the American Train Dispatchers Association
10.10 Agreement dated February 9, 1995 between Buffalo & Pittsburgh
Railroad, Inc. and the International Association of Machinists
10.11 Agreement dated August 22, 1994 between Buffalo & Pittsburgh Railroad,
Inc. and the United Transportation Union (Train and Engine Service
Employees)
10.12 Agreement dated November 7, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and the United Transportation Union (Representing
Clerks and Storekeepers)
10.13 Agreement dated November 1, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and the United Transportation Union (Representing
Yardmasters)
10.14 Agreement dated September 1, 1990 between Genesee & Wyoming Railroad
Company and the United Transportation Union, and Tentative Agreement
dated February 21, 1995 between Genesee & Wyoming Railroad Company and
United Transportation Union Local Union 982
10.15 United Transportation Union Agreement dated May 1, 1994 between
Rochester & Southern Railroad, Inc. and its employees represented by
United Transportation Union
10.16 Shared Use Agreement for Albany Yard dated February 20, 1993 between
Southern Pacific Transportation Company and Willamette & Pacific
Railroad, Inc.
10.17 Trackage Rights Agreement (Albany-Eugene Yard) dated February 20, 1993
between Southern Pacific Transportation Company and Willamette &
Pacific Railroad, Inc.
10.18 Westside Oregon Lines Cooperative Marketing Agreement dated February
20, 1993 between Willamette & Pacific Railroad, Inc. and Southern
Pacific Transportation Company
10.19 Trackage Rights Agreement dated March 11, 1987 between Southern
Pacific Transportation Company and Louisiana & Delta Railroad, Inc.
10.20 Trackage Rights Agreement dated July 1, 1986 between Rochester &
Southern Railroad, Inc. and Genesee and Wyoming Railroad Company, and
undated Modification
10.21 Master Supplemental Agreement dated October 7, 1991 between CSX
Transportation, Inc., Buffalo, Rochester and Pittsburgh Railway
Company and Buffalo & Pittsburgh Railroad, Inc.
10.22 Assignment and Assumption Agreement for the Allegheny and Western
Railway Company Lease dated October 7, 1991 among CSX Transportation,
Inc., Buffalo, Rochester and Pittsburgh Railway Company and Buffalo &
Pittsburgh Railroad, Inc.
10.23 Mortgage and Assignment of Leases, Rents, Issues and Profits (New
York) dated as of October 7, 1991 by Buffalo & Pittsburgh Railroad,
Inc. in favor of CSX Transportation, Inc.
10.24 Security Agreement (New York) dated as of October 7, 1991 between
Buffalo & Pittsburgh Railroad, Inc. and CSX Transportation, Inc.
10.25 Mortgage and Assignment of Leases, Rents, Issues and Profits
(Pennsylvania) dated as of October 7, 1991 by Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc.
10.26 Security Agreement (Pennsylvania) dated as of October 7, 1991 between
Buffalo & Pittsburgh Railroad, Inc. and CSX Transportation, Inc.
10.27 Lease Agreement for Real Property between Butler, Pennsylvania and
Eidenau, Pennsylvania dated as of October 7, 1991 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.28 Lease Agreement for Personal Property associated with Butler to
Eidenau dated as of October 7, 1991 between CSX Transportation, Inc.
and Buffalo & Pittsburgh Railroad, Inc.
10.29 Memorandum of Lease dated October 7, 1991 between CSX Transportation,
Inc. and Buffalo & Pittsburgh Railroad, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+10.30 Lease Agreement for Real Property on the Northern Subdivision dated as
of October 7, 1991 between CSX Transportation, Inc. and Buffalo &
Pittsburgh Railroad, Inc.
+10.31 Lease Agreement for Personal Property on the Northern Subdivision
dated as of October 7, 1991 between CSX Transportation, Inc. and
Buffalo & Pittsburgh Railroad, Inc.
10.32 Lease Agreement for Real Property at Buffalo Creek Yard dated as of
October 7, 1991 among CSX Transportation, Inc., Buffalo, Rochester and
Pittsburgh Railway Company, Inc. and Buffalo & Pittsburgh Railroad,
Inc.
10.33 Memorandum of Lease dated October 7, 1991 among CSX Transportation,
Inc., Buffalo, Rochester and Pittsburgh Railway Company, Inc. and
Buffalo & Pittsburgh Railroad, Inc.
10.34 Agreement Relating to Interchange at Buffalo, NY dated as of July 18,
1988 between CSX Transportation, Inc. and Buffalo & Pittsburgh
Railroad, Inc.
10.35 Agreement Relating to Interchange at New Castle, PA dated as of July
18, 1988 between CSX Transportation, Inc. and Buffalo & Pittsburgh
Railroad, Inc.
10.36 Agreement Relating to Trackage Rights between New Castle, PA and
Eidenau, PA dated as of July 18, 1988 between CSX Transportation, Inc.
and Buffalo & Pittsburgh Railroad, Inc.
10.37 Agreement Relating to Fallback Trackage Rights between Eidenau and WS
Tower, PA dated as of July 18, 1988 between CSX Transportation, Inc.
and Buffalo & Pittsburgh Railroad, Inc.
+10.38 Lease Agreement dated December 30, 1992 between Southern Pacific
Transportation Company and Willamette & Pacific Railroad, Inc.
10.39 Lease Agreement dated September 1, 1994 between Railcar, Ltd. and GWI
Leasing Corporation
10.40 Locomotive Lease Agreement and Letter Agreement (Equipment Schedule
01) dated October 17, 1994 between Keycorp Leasing Ltd. and GWI
Leasing Corporation
10.41 Lease Agreement dated May 3, 1994 between Greenbrier Railcar, Inc. and
GWI Leasing Corporation
+10.42 Allegheny-International Paper Transportation Service Agreement dated
November 24, 1992 between Allegheny & Eastern Railroad, Inc. and
International Paper Company
+10.43 Conrail-Allegheny Operating Contract dated November 24, 1992 between
Consolidated Rail Corporation and Allegheny & Eastern Railroad, Inc.
10.44 Lease recorded December 19, 1881 between The Seneca Nation of New York
Indians and The Great Valley & Bradford Railroad Co.
10.45 Assignment and Agreement dated September 20, 1994 among CMC Railroad
I, Ltd., GWI Switching Services, L.P. and Southern Pacific
Transportation Company
+10.46 Buffalo Terminal Operating Agreement dated July 18, 1988 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.47 First Amendment to Buffalo Terminal Operating Agreement dated December
, 1990 between CSX Transportation, Inc. and Buffalo & Pittsburgh
Railroad, Inc.
+10.48 Operating Agreement and Car Storage Yard Agreement Consent to
Assignments dated as of September 20, 1994 between NCC Charlie Company
and GWI Switching Services L.P. with Exhibit I (Amended and Restated
Car Storage Yard Agreement dated September 20, 1994 between Southern
Pacific Transportation Company and CMC Railroad I, Ltd.) and Exhibit
II (Amended and Restated Car Storage Yard Agreement dated September
20, 1994 between Southern Pacific Transportation Company and CMC
Railroad I, Ltd.)
10.49 Trackage Rights Agreement dated March 12, 1994 between Southern
Pacific Transportation Company and GWI Switching Services L.P.
10.50 First Amendment to Trackage Rights Agreement dated September 20, 1994
between Southern Pacific Transportation Company and GWI Switching
Services L.P.
10.51 Indenture of Lease and Option to Purchase Agreement dated January 17,
1992 between Southern Pacific Transportation Company and Louisiana and
Delta Railroad, Inc.
10.52 Lease Agreement dated November 7, 1991 between CIS Corporation and
Buffalo & Pittsburgh Railroad, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.53 Notice and Acknowledgement of Assignment dated as of November 1, 1993
between James P. Hassett as Trustee for CIS Corporation, Buffalo &
Pittsburgh Railroad, Inc. and ATEL Financial Corporation
10.54 Agreement relating to Trackage Rights dated July 18, 1988 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.55 Commercial Agreement dated March 11, 1987 between Louisiana & Delta
Railroad, Inc. and Southern Pacific Transportation Company
10.56 Assignment and Assumption Agreement dated March 11, 1987 between
Louisiana & Delta Railroad, Inc. and Southern Pacific Transportation
Company
10.57 Administrative Agreement dated as of February 19, 1985 between
Consolidated Rail Corporation and Genesee & Wyoming Railroad Company
10.58 Interchange Agreement (Goodman Street Yard) dated December 13, 1984
between Consolidated Rail Corporation and Genesee & Wyoming Railroad
Company
10.59 Revolver A Note dated June 2, 1995 of the Registrant in favor of The
First National Bank of Boston, as Agent
10.60 Revolver B Note dated June 2, 1995 of the Registrant in favor of The
First National Bank of Boston, as Agent
10.61 Asset Purchase Agreement dated as of February 8, 1996 between
Illinois & Midland Railroad, Inc. and Stanford PRC Acquisition Corp.
10.62 Guaranty dated as of February 8, 1996 of the Registrant in favor of
Stanford PRC Acquisition Corp.
10.63 Assignment and Assumption Agreements dated as of February 8, 1996
between Chicago & Illinois Midland Railway Company and Illinois &
Midland Railroad, Inc. (six)
10.64 Warrant Purchase Agreement dated as of February 8, 1996 between the
Registrant and The First National Bank of Boston
10.65 Agreement dated February 6, 1996 between Illinois & Midland Railroad,
Inc. and the United Transportation Union
+10.66 Lease Agreement dated as of August 18, 1995 between Southern Pacific
Transportation Company and Portland & Western Railroad, Inc.
+10.67 Lease Agreement dated September 15, 1995 between Burlington Northern
Railroad Company and Portland & Western Railroad, Inc.
10.68 Lease Agreement dated as of October 1, 1982 between Livingston County
Industrial Development Agency and Genesee and Wyoming Railroad
10.69 Lease Agreement dated as of February 1, 1995 between Livingston
County Industrial Development Agency and Genesee and Wyoming Railroad
Company
**+10.70 Asset Purchase Agreement dated April 19, 1996 among Pittsburg &
Shawmut Railroad, Inc., Genesee & Wyoming Inc., The Pittsburg &
Shawmut Railroad Company, Red Bank Railroad Company, Mountain Laurel
Railroad Company and Arthur T. Walker Estate Corporation, and
Amendment No. 1 to Asset Purchase Agreement dated April 19, 1996
**10.71 Amendment No. 1 to Warrant Purchase Agreement dated as of May 31,
1996 between the Registrant and FSC Corp.
**11.1 Statement re computation of per share earnings
12.1 Exhibit has been omitted because the required information is included
in the financial statements or notes thereto forming part of this
Registration Statement.
**21.1 Subsidiaries of the Registrant
**23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Harter, Secrest & Emery (contained in Exhibit 5.1)
24.1 Officers' and Directors' Power of Attorney
**27 Financial Data Schedule (EDGAR filed only)
</TABLE>
- --------
**Filed with this Amendment.
*To be filed by amendment.
+ Confidential treatment requested as to certain portions, which have been
filed separately with the Commission pursuant to an application for such
treatment.
II-6
<PAGE>
(b) Financial Statement Schedules:
All schedules have been omitted either as inapplicable or because the
required information is included in the financial statements or notes thereto
forming part of this Registration Statement.
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 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 Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time that it was declared effective.
(2) For the purpose of determining any liability under the Act, 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-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW
YORK, STATE OF NEW YORK, ON THE 7TH DAY OF JUNE, 1996.
Genesee & Wyoming Inc.
/s/ Mortimer B. Fuller, III
By: _________________________________
MORTIMER B. FULLER, III
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES INDICATED AND ON THE 7TH DAY OF JUNE, 1996.
SIGNATURE TITLE
/s/ Mortimer B. Fuller, III Chairman of the Board, President and
- ------------------------------------- Chief Executive Officer (Principal
MORTIMER B. FULLER, III Executive Officer)
/s/ Mark W. Hastings Senior Vice President, Chief
- ------------------------------------- Financial Officer and Treasurer
MARK W. HASTINGS (Principal Financial Officer)
/s/ Alan R. Harris Senior Vice President and Chief
- ------------------------------------- Accounting Officer (Principal
ALAN R. HARRIS Accounting Officer)
* Director
- -------------------------------------
JAMES M. FULLER
* Director
- -------------------------------------
LOUIS S. FULLER
* Director
- -------------------------------------
JOHN M. RANDOLPH
* Director
- -------------------------------------
PHILIP J. RINGO
/s/ Mortimer B. Fuller, III
*By: ________________________________
MORTIMER B. FULLER, III
ATTORNEY-IN-FACT
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation and Certificates of Amendment
dated October 12, 1989, February 21, 1991 and May 18, 1995
**3.2 Form of Restated Certificate of Incorporation
3.3 By-laws
4 The exhibits referenced under "3" hereof are incorporated
herein by reference.
*4.1 Specimen stock certificate representing shares of Class A
Common Stock.
**4.2 Form of Class B Stockholders' Agreement dated as of May 20,
1996, among the Registrant, its executive officers and its
Class B stockholders
4.3 Promissory Note dated December 28, 1989 of GWI Leasing
Corporation in favor of Deutsche Credit Corporation
4.4 Railcar Finance Notes dated July 8, 1991 and November 27, 1991
of GWI Leasing Corporation in favor of Deutsche Credit
Corporation
4.5 Railcar Finance Notes, dated November 27, 1991 and December 31,
1991 of GWI Leasing Corporation in favor of Deutsche Credit
Corporation
4.6 Promissory Note dated October 7, 1991 of Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc.
4.7 Amended and Restated Loan and Security Agreement dated December
28, 1989 between GWI Leasing Corporation and Deutsche Credit
Corporation, and Amendment No. 1 dated December 28, 1989
4.8 Loan and Security Agreement dated December 27, 1990 between GWI
Leasing Corporation and Deutsche Credit Corporation, and
Amendments dated June 28, 1991 and November 22, 1991
4.9 Guaranty dated December 27, 1990 of the Registrant in favor of
Deutsche Credit Corporation
4.10 Amended and Restated Revolving Credit and Term Loan Agreement
dated as of February 8, 1996 among the Registrant and certain
of its Subsidiaries, The First National Bank of Boston, as
agent, and the Banks party thereto
4.11 Revolving Credit Note dated as of February 8, 1996 of the
Registrant and certain of its subsidiaries in favor of The
First National Bank of Boston
4.12 Term Note dated as of February 8, 1996 of the Registrant and
certain of its Subsidiaries in favor of The First National Bank
of Boston
4.13 Amended and Restated Security Agreement dated as of February 8,
1996 among the Registrant, certain of its Subsidiaries and The
First National Bank of Boston
4.14 Amended and Restated Stock Pledge Agreement dated as of
February 8, 1996 between the Registrant and The First National
Bank of Boston
4.15 Amended and Restated Collateral Assignment of Partnership
Interests dated as of February 8, 1996 of the Registrant and
GWI Dayton, Inc. in favor of The First National Bank of Boston
**4.16 Amendment No. 1 to Amended and Restated Revolving Credit and
Term Loan Agreement dated as of April 26, 1996 among the
Registrant and certain of its Subsidiaries, The First National
Bank of Boston, as agent and the Banks' party thereto.
*5.1 Opinion of Harter, Secrest & Emery
9.1 Voting Agreement and Stock Purchase Option dated March 21, 1980
among Mortimer B. Fuller, III, Mortimer B. Fuller, Jr. and
Frances A. Fuller, and amendments thereto dated May 7, 1988 and
March 29, 1996
10 The exhibits referenced under "4" hereof are incorporated
herein by reference.
**10.1 Form of Genesee & Wyoming Inc. 1996 Stock Option Plan
**10.2 Form of Genesee & Wyoming Inc. Stock Option Plan for Outside
Directors
10.3 Form of Employment Agreement between the Registrant and each of
its executive officers
**10.4 Form of Genesee & Wyoming Inc. Employee Stock Purchase Plan
10.5 Agreement dated December 7, 1994 between Allegheny & Eastern
Railroad, Inc. and its Engineering Department Employees
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.6 Agreement dated March 29, 1995 between Allegheny & Eastern
Railroad, Inc. and its Mechanical Department Employees
10.7 Agreement dated July 1, 1992 between Buffalo & Pittsburgh
Railroad, Inc. and its Car Repair Department Employees, and the
proposed changes thereto dated September 16, 1994
10.8 Agreement dated December 1, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and its Engineering Department Employees
10.9 Agreement dated April 30, 1991 between Buffalo & Pittsburgh
Railroad, Inc. and the American Train Dispatchers Association
10.10 Agreement dated February 9, 1995 between Buffalo & Pittsburgh
Railroad, Inc. and the International Association of Machinists
10.11 Agreement dated August 22, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and the United Transportation Union (Train and
Engine Service Employees)
10.12 Agreement dated November 7, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and the United Transportation Union
(Representing Clerks and Storekeepers)
10.13 Agreement dated November 1, 1994 between Buffalo & Pittsburgh
Railroad, Inc. and the United Transportation Union
(Representing Yardmasters)
10.14 Agreement dated September 1, 1990 between Genesee & Wyoming
Railroad Company and the United Transportation Union, and
Tentative Agreement dated February 21, 1995 between Genesee &
Wyoming Railroad Company and United Transportation Union Local
Union 982
10.15 United Transportation Union Agreement dated May 1, 1994 between
Rochester & Southern Railroad, Inc. and its employees
represented by United Transportation Union
10.16 Shared Use Agreement for Albany Yard dated February 20, 1993
between Southern Pacific Transportation Company and Willamette
& Pacific Railroad, Inc.
10.17 Trackage Rights Agreement (Albany-Eugene Yard) dated February
20, 1993 between Southern Pacific Transportation Company and
Willamette & Pacific Railroad, Inc.
10.18 Westside Oregon Lines Cooperative Marketing Agreement dated
February 20, 1993 between Willamette & Pacific Railroad, Inc.
and Southern Pacific Transportation Company
10.19 Trackage Rights Agreement dated March 11, 1987 between Southern
Pacific Transportation Company and Louisiana & Delta Railroad,
Inc.
10.20 Trackage Rights Agreement dated July 1, 1986 between Rochester
& Southern Railroad, Inc. and Genesee and Wyoming Railroad
Company, and undated Modification
10.21 Master Supplemental Agreement dated October 7, 1991 between CSX
Transportation, Inc., Buffalo, Rochester and Pittsburgh Railway
Company and Buffalo & Pittsburgh Railroad, Inc.
10.22 Assignment and Assumption Agreement for the Allegheny and
Western Railway Company Lease dated October 7, 1991 among CSX
Transportation, Inc., Buffalo, Rochester and Pittsburgh Railway
Company and Buffalo & Pittsburgh Railroad, Inc.
10.23 Mortgage and Assignment of Leases, Rents, Issues and Profits
(New York) dated as of October 7, 1991 by Buffalo & Pittsburgh
Railroad, Inc. in favor of CSX Transportation, Inc.
10.24 Security Agreement (New York) dated as of October 7, 1991
between Buffalo & Pittsburgh Railroad, Inc. and CSX
Transportation, Inc.
10.25 Mortgage and Assignment of Leases, Rents, Issues and Profits
(Pennsylvania) dated as of October 7, 1991 by Buffalo &
Pittsburgh Railroad, Inc. in favor of CSX Transportation, Inc.
10.26 Security Agreement (Pennsylvania) dated as of October 7, 1991
between Buffalo & Pittsburgh Railroad, Inc. and CSX
Transportation, Inc.
10.27 Lease Agreement for Real Property between Butler, Pennsylvania
and Eidenau, Pennsylvania dated as of October 7, 1991 between
CSX Transportation, Inc. and Buffalo & Pittsburgh Railroad,
Inc.
10.28 Lease Agreement for Personal Property associated with Butler to
Eidenau dated as of October 7, 1991 between CSX Transportation,
Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.29 Memorandum of Lease dated October 7, 1991 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+10.30 Lease Agreement for Real Property on the Northern Subdivision
dated as of October 7, 1991 between CSX Transportation, Inc.
and Buffalo & Pittsburgh Railroad, Inc.
+10.31 Lease Agreement for Personal Property on the Northern
Subdivision dated as of October 7, 1991 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.32 Lease Agreement for Real Property at Buffalo Creek Yard dated
as of October 7, 1991 among CSX Transportation, Inc., Buffalo,
Rochester and Pittsburgh Railway Company, Inc. and Buffalo &
Pittsburgh Railroad, Inc.
10.33 Memorandum of Lease dated October 7, 1991 among CSX
Transportation, Inc., Buffalo, Rochester and Pittsburgh Railway
Company, Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.34 Agreement Relating to Interchange at Buffalo, NY dated as of
July 18, 1988 between CSX Transportation, Inc. and Buffalo &
Pittsburgh Railroad, Inc.
10.35 Agreement Relating to Interchange at New Castle, PA dated as of
July 18, 1988 between CSX Transportation, Inc. and Buffalo &
Pittsburgh Railroad, Inc.
10.36 Agreement Relating to Trackage Rights between New Castle, PA
and Eidenau, PA dated as of July 18, 1988 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
10.37 Agreement Relating to Fallback Trackage Rights between Eidenau
and WS Tower, PA dated as of July 18, 1988 between CSX
Transportation, Inc. and Buffalo & Pittsburgh Railroad, Inc.
+10.38 Lease Agreement dated December 30, 1992 between Southern
Pacific Transportation Company and Willamette & Pacific
Railroad, Inc.
10.39 Lease Agreement dated September 1, 1994 between Railcar, Ltd.
and GWI Leasing Corporation
10.40 Locomotive Lease Agreement and Letter Agreement (Equipment
Schedule 01) dated October 17, 1994 between Keycorp Leasing
Ltd. and GWI Leasing Corporation
10.41 Lease Agreement dated May 3, 1994 between Greenbrier Railcar,
Inc. and GWI Leasing Corporation
+10.42 Allegheny-International Paper Transportation Service Agreement
dated November 24, 1992 between Allegheny & Eastern Railroad,
Inc. and International Paper Company
+10.43 Conrail-Allegheny Operating Contract dated November 24, 1992
between Consolidated Rail Corporation and Allegheny & Eastern
Railroad, Inc.
10.44 Lease recorded December 19, 1881 between The Seneca Nation of
New York Indians and The Great Valley & Bradford Railroad Co.
10.45 Assignment and Agreement dated September 20, 1994 among CMC
Railroad I, Ltd., GWI Switching Services, L.P. and Southern
Pacific Transportation Company
+10.46 Buffalo Terminal Operating Agreement dated July 18, 1988
between CSX Transportation, Inc. and Buffalo & Pittsburgh
Railroad, Inc.
10.47 First Amendment to Buffalo Terminal Operating Agreement dated
December , 1990 between CSX Transportation, Inc. and Buffalo &
Pittsburgh Railroad, Inc.
+10.48 Operating Agreement and Car Storage Yard Agreement Consent to
Assignments dated as of September 20, 1994 between NCC Charlie
Company and GWI Switching Services L.P. with Exhibit I (Amended
and Restated Car Storage Yard Agreement dated September 20,
1994 between Southern Pacific Transportation Company and CMC
Railroad I, Ltd.) and Exhibit II (Amended and Restated Car
Storage Yard Agreement dated September 20, 1994 between
Southern Pacific Transportation Company and CMC Railroad I,
Ltd.)
10.49 Trackage Rights Agreement dated March 12, 1994 between Southern
Pacific Transportation Company and GWI Switching Services L.P.
10.50 First Amendment to Trackage Rights Agreement dated September
20, 1994 between Southern Pacific Transportation Company and
GWI Switching Services L.P.
10.51 Indenture of Lease and Option to Purchase Agreement dated
January 17, 1992 between Southern Pacific Transportation
Company and Louisiana and Delta Railroad, Inc.
10.52 Lease Agreement dated November 7, 1991 between CIS Corporation
and Buffalo & Pittsburgh Railroad, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
10.53 Notice and Acknowledgement of Assignment dated as of November
1, 1993 between James P. Hassett as Trustee for CIS
Corporation, Buffalo & Pittsburgh Railroad, Inc. and ATEL
Financial Corporation
10.54 Agreement relating to Trackage Rights dated July 18, 1988
between CSX Transportation, Inc. and Buffalo & Pittsburgh
Railroad, Inc.
10.55 Commercial Agreement dated March 11, 1987 between Louisiana &
Delta Railroad, Inc. and Southern Pacific Transportation
Company
10.56 Assignment and Assumption Agreement dated March 11, 1987
between Louisiana & Delta Railroad, Inc. and Southern Pacific
Transportation Company
10.57 Administrative Agreement dated as of February 19, 1985 between
Consolidated Rail Corporation and Genesee & Wyoming Railroad
Company
10.58 Interchange Agreement (Goodman Street Yard) dated December 13,
1984 between Consolidated Rail Corporation and Genesee &
Wyoming Railroad Company
10.59 Revolver A Note dated June 2, 1995 of the Registrant in favor
of The First National Bank of Boston, as Agent
10.60 Revolver B Note dated June 2, 1995 of the Registrant in favor
of The First National Bank of Boston, as Agent
10.61 Asset Purchase Agreement dated as of February 8, 1996 between
Illinois & Midland Railroad, Inc. and Stanford PRC Acquisition
Corp.
10.62 Guaranty dated as of February 8, 1996 of the Registrant in
favor of Stanford PRC Acquisition Corp.
10.63 Assignment and Assumption Agreements dated as of February 8,
1996 between Chicago & Illinois Midland Railway Company and
Illinois & Midland Railroad, Inc. (six)
10.64 Warrant Purchase Agreement dated as of February 8, 1996
between the Registrant and The First National Bank of Boston
10.65 Agreement dated February 6, 1996 between Illinois & Midland
Railroad, Inc. and the United Transportation Union
+10.66 Lease Agreement dated as of August 18, 1995 between Southern
Pacific Transportation Company and Portland & Western
Railroad, Inc.
+10.67 Lease Agreement dated September 15, 1995 between Burlington
Northern Railroad Company and Portland & Western Railroad,
Inc.
10.68 Lease Agreement dated as of October 1, 1982 between Livingston
County Industrial Development Agency and Genesee and Wyoming
Railroad
10.69 Lease Agreement dated as of February 1, 1995 between
Livingston County Industrial Development Agency and Genesee
and Wyoming Railroad Company
**+10.70 Asset Purchase Agreement dated April 19, 1996 among Pittsburg
& Shawmut Railroad, Inc., Genesee & Wyoming Inc., The
Pittsburg & Shawmut Railroad Company, Red Bank Railroad
Company, Mountain Laurel Railroad Company and Arthur T. Walker
Estate Corporation, and Amendment No. 1 to Asset Purchase
Agreement dated April 19, 1996
**10.71 Amendment No. 1 to Warrant Purchase Agreement dated as of May
31, 1996 between the Registrant and FSC Corp.
**11.1 Statement re computation of per share earnings
12.1 Exhibit has been omitted because the required information is
included in the financial statements or notes thereto forming
part of this Registration Statement.
**21.1 Subsidiaries of the Registrant
**23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Harter, Secrest & Emery (contained in Exhibit 5.1)
24.1 Officers' and Directors' Power of Attorney
**27 Financial Data Schedule (EDGAR filed only)
</TABLE>
- --------
**Filed with this Amendment.
*To be filed by amendment.
+ Confidential treatment requested as to certain portions, which have been
filed separately with the Commission pursuant to an application for such
treatment.
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
GENESEE & WYOMING INC.
DULY ADOPTED IN ACCORDANCE WITH SECTIONS 245 AND 242
OF THE DELAWARE GENERAL CORPORATION LAW
INCORPORATED ON SEPTEMBER 1, 1977
This Restated Certificate of Incorporation restates and integrates, and
further amends, the provisions of the Corporation's Certificate of Incorporation
as heretofore amended or supplemented. The amendments effected by this Restated
Certificate of Incorporation are:
(i) changes in the designation of Class A Voting Common Stock to
"Class A Common Stock" and Class B Non-Voting Common Stock to
"Class B Common Stock;"
(ii) an increase in the number of authorized shares of:
(a) Class A Common Stock from 150,000 shares to 12,000,000
shares; and
(b) Class B Common Stock from 10,000 shares to 1,500,000 shares;
(iii) changes in the par values and voting, conversion and dividend
rights of Class A Common Stock and Class B Common Stock;
(iv) changes in the provisions of the Corporation's Certificate of
Incorporation relating to liability of directors and
indemnification;
(v) addition of a provision requiring the affirmative vote of not
less than two-thirds of the combined voting power of all of the
outstanding shares of common stock of the Corporation for
approval of certain actions;
(vi) addition of a provision permitting the Board of Directors to
consider a variety of factors in determining the best interests
of the Corporation; and
(vii) addition of a provision instituting a classified Board of
Directors.
<PAGE>
The Certificate of Incorporation of the Corporation, as amended and restated
in its entirety, is set forth as follows:
1. Name. The name of the Corporation is Genesee & Wyoming Inc.
----
2. Registered Agent. The address of its registered office in the State of
----------------
Delaware is 100 West Tenth Street, in the City of Wilmington, County of New
Castle. The registered agent at such address is The Corporation Trust Company.
3. Purposes. The nature of the business or purposes to be conducted or
--------
promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. Capitalization. The aggregate number of shares which the Corporation
--------------
shall have authority to issue is Thirteen Million Five Hundred Thousand
(13,500,000) shares of Common Stock (the "Common Stock"), consisting of:
A. Twelve Million (12,000,000) shares of Class A Common Stock, par value
$.01 per share (the "Class A Common"); and
B. One Million Five Hundred Thousand (1,500,000) shares of Class B Common
Stock, par value $.01 per share (the "Class B Common").
The Class A Common and the Class B Common shall be identical in all respects
and shall entitle the holders thereof to the same rights, privileges and
limitations, except as otherwise provided herein. The relative rights,
privileges and limitations of the Class A Common and the Class B Common are as
follows:
(a) Voting Rights. The holders of Class A Common and Class B Common shall
-------------
have the following rights:
(i) The holders of Class A Common and Class B Common shall be
entitled to vote as separate classes on all matters as to which a
class vote is now, or hereafter may be, required by law.
(ii) On all other matters, the holders of Class A Common and
Class B Common shall vote together as a single class, provided that
the holders of Class A Common shall have one vote per share and the
holders of Class B Common shall have ten votes per share.
(iii) There shall be no cumulative voting of any shares of
either the Class A Common or the Class B Common.
2
<PAGE>
(b) Conversion.
----------
(i) No Conversion of Class A Common. The Class A Common shall
-------------------------------
not be convertible into any class of the securities of the
Corporation.
(ii) Voluntary Conversion of Class B Common. Each holder of
--------------------------------------
record of a share of Class B Common may at any time or from time to
time, without cost to such holder and at such holder's option, convert
any whole number or all of such holder's shares of Class B Common into
fully paid and nonassessable shares of Class A Common at the rate of
one share of Class A Common for each share of Class B Common
surrendered for conversion. Any such conversion may be effected by
any holder of Class B Common by surrendering such holder's certificate
or certificates for the shares of Class B Common to be converted, duly
endorsed, at the office of the Corporation or the office of any
transfer agent for the Class A Common, together with a written notice
to the Corporation at such office that such holder elects to convert
all or a specified number of such shares of Class B Common.
Thereafter, the Corporation shall cause its transfer agent to issue
and deliver to such holder a certificate or certificates for the
number of shares of Class A Common to which such holder shall be
entitled as aforesaid. Such conversion shall be made as of the close
of business on the tenth business day following the date of such
surrender, and the person or persons entitled to receive the shares of
Class A Common issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Class A
Common on such date.
(iii) Automatic Conversion of Class B Common Upon Certain
---------------------------------------------------
Transfers. Upon any transfer, other than an Excluded Transfer (as
---------
hereinafter defined), of a share or shares of Class B Common by the
holder of record thereof, such share or shares of Class B Common shall
automatically convert into and become an equal number of shares of
Class A Common. For purposes of this Article 4(b)(iii), the term
"Excluded Transfers" shall mean: (a) any transfer to an individual or
entity that is, at the time of such transfer, a holder of record of
any shares of Class B Common or an "Executive Officer" (as hereinafter
defined) of the Corporation; (b) any transfer by gift to a spouse,
child or grandchild of a holder of record of any shares of Class B
Common, or to a trust for the benefit thereof; or (c) any transfer to
a spouse, child or grandchild of a holder of record of any shares of
Class B Common, or to a trust for the benefit thereof, which results,
whether by bequest, operation of the laws of intestate succession or
otherwise, from the death of such holder of record. For purposes of
this Article 4(b)(iii), the term "Executive Officer" shall mean an
officer of the Corporation within the meaning of Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended.
The transferor of the Class B Common shall surrender the certificate
or certificates representing the transferred shares at the principal
office of the Corporation at any time during normal business hours,
together with (a) a written notice
3
<PAGE>
stating that such holder has transferred the shares, or a stated
number of the shares, represented by such certificate or certificates
and (b) a written statement advising as to whether or not the transfer
is an Excluded Transfer. In the event that, according to such
statement, the transfer is an Excluded Transfer, the transferor shall
also deliver to the Corporation proof acceptable to the Corporation
and its counsel of the nature of the Excluded Transfer. If the
transferor does not claim an Excluded Transfer, the transfer of shares
and automatic conversion of shares of Class B Common into shares of
Class A Common under this Article 4(b)(iii) shall be deemed to have
been effected as of the close of business on the date on which the
transferor surrenders such certificate or certificates representing
shares of Class B Common and delivers such notice, and at such time
the rights of the holder of record of the converted shares of Class B
Common shall cease and the person or persons in whose name or names
the certificate or certificates for shares of Class A Common are to be
issued because of the conversion shall be deemed to have become the
holder or holders of record of the Class A Common represented thereby.
If the transferor claims an Excluded Transfer, the transfer shall be
deemed to have been effected as of the close of business on the date
on which the transferor surrenders such certificate or certificates
representing shares of Class B Common, but only following the
determination by the Corporation and its counsel that the proof of
Excluded Transfer submitted by the transferor is acceptable. In the
event the transferor claims an Excluded Transfer and the Corporation
and its counsel determine that the submitted proof is not acceptable,
the Corporation shall so advise the transferor by written notice
accompanied by any share certificates and stock powers previously
tendered by the transferor.
(iv) Reserves of Class A Common. The Corporation will at all
--------------------------
times reserve and keep available, solely for the purpose of issue upon
conversion of the outstanding shares of Class B Common, such number of
shares of Class A Common as shall be issuable upon the conversion of
all outstanding shares of Class B Common, provided that the foregoing
shall not be considered to preclude the Corporation from satisfying
its obligations in respect of the conversion of the outstanding shares
of Class B Common by delivery of shares of Class A Common which are
held in the treasury of the Corporation.
(c) Dividends. Subject to the rights of the Class A Common set forth
---------
in Article 4(d) hereof, the Board of Directors, acting in its sole discretion,
may declare in accordance with law a dividend payable in cash, in property or in
shares of Class A Common on only the Class A Common or on both the Class A
Common and the Class B Common. No dividends may be declared payable (i) in
shares of Class B Common or (ii) only to holders of Class B Common. If a
dividend is to be paid on the Class B Common, a dividend shall also be paid on
the Class A Common such that the market price of the dividend paid on each share
of the Class A Common exceeds the market price of the
4
<PAGE>
dividend paid on each share of Class B Common by ten percent (rounded up, if
necessary, to the nearest one-hundredth of a cent).
(d) Rights Upon Liquidation. Holders of Class A Common and Class B
-----------------------
Common shall have identical rights in the event of liquidation of the
Corporation, and shall be treated as a single class for purposes thereof.
(e) Other Terms. Neither the Class A Common Stock nor the Class B
-----------
Common Stock may be subdivided, consolidated, reclassified or otherwise changed
unless contemporaneously therewith the other class of shares is subdivided,
consolidated, reclassified or otherwise changed in the same proportion and in
the same manner. In any merger, consolidation, reorganization or other business
combination, the consideration to be received per share by holders of either
Class A Common Stock or Class B Common Stock must be identical to that received
by holders of the other class. Holders of Common Stock are not entitled to
preemptive rights, and neither the Class A Common Stock nor the Class B Common
Stock is subject to redemption.
5. Perpetual Existence. The Corporation is to have perpetual
-------------------
existence.
6. By-laws. In furtherance and not in limitation of the powers
-------
conferred by statute, the Board of Directors is expressly authorized to make,
alter or repeal the By-laws of the Corporation.
7. Stockholders. Meetings of stockholders may be held within or
------------
without the State of Delaware, as the By-laws may provide. The books of the
Corporation may be kept (subject to any provision contained in the statutes)
outside the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the By-laws of the Corporation.
Elections of directors need not be by written ballot unless the By-laws of the
Corporation shall so provide.
8. Amendment. The Corporation reserves the right to amend, alter,
---------
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
9. Liability of Directors. A member of the Corporation's Board of
----------------------
Directors shall not be personally liable to the Corporation or its stockholders
for monetary damages for a breach of fiduciary duty as a director, except for
liability of the director (a) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under Section 174 of the Delaware General Corporation Law, relating to the
payment of unlawful dividends or unlawful stock repurchases or redemptions, or
(d) for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is hereafter amended to
further eliminate or limit the liability of a director of a corporation, then a
director of the Corporation, in addition to the circumstances set forth herein,
shall have no liability as a director (or such liability shall be
5
<PAGE>
limited) to the fullest extent permitted by the Delaware General Corporation Law
as so amended. No repeal or modification of the foregoing provisions of this
Article 9 nor, to the fullest extent permitted by law, any modification of law,
shall adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
10. Indemnification.
---------------
(a) Right to Indemnification. Each person who was or is made a party
------------------------
or is threatened to be made party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by the indemnitee in connection
therewith, and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in section (b) of this Article 10 with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred by this Article 10 shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law so requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including
without limitation service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Article 10 or otherwise.
(b) Right of Indemnitee to Bring Suit. If a claim under section (a)
---------------------------------
of this Article 10 is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at
6
<PAGE>
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim. If successful in whole or in part in any such suit, or in
a suit brought by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the indemnitee shall be entitled to be paid also
the expense of prosecuting or defending such suit. In any suit brought by an
indemnitee to enforce a right to indemnification hereunder (other than a suit
brought by an indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. In any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not met the applicable standard of
conduct set forth in the Delaware General Corporation Law. Neither the failure
of the Corporation (including its Board of Directors, independent legal counsel,
or stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense of such a suit. In any suit brought by the indemnitee
to enforce a right to indemnification or to an advancement of expenses
hereunder, or by the Corporation to recover an advancement of expenses pursuant
to the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to such indemnification or to such advancement of expenses, under this
Article 10 or otherwise, shall be on the Corporation.
(c) Non-Exclusive Rights. The rights to indemnification and to the
--------------------
advancement of expenses conferred by this Article 10 shall not be exclusive of
any other right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation, as amended or
supplemented, By-law, agreement, vote of stockholders or disinterested directors
or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation, or another corporation, partnership, joint venture, trust or other
enterprise, against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
(e) Indemnification of Employees and Agents. The Corporation may, to
---------------------------------------
the extent authorized from time to time by the Board of Directors, grant rights
to indemnification and to the advancement of expenses to any employee or agent
of the Corporation to the fullest extent of the provisions of this Article 10
with respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
7
<PAGE>
11. Super-Majority Voting Requirement.
---------------------------------
(a) Without the affirmative vote of sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the Common Stock of the Corporation
entitled to vote thereon (voting together as one class), the Corporation shall
not:
(i) consolidate with or merge into or with any other Person (as
hereinafter defined) unless the Corporation is the survivor of such
consolidation or merger and no Change of Control (as hereinafter defined) has
occurred thereby; or
(ii) sell, lease, exchange, transfer (by liquidation or otherwise),
or otherwise dispose of all or substantially all of its properties and assets
(or the properties and assets of all of its Subsidiaries (as hereinafter
defined), taken as a whole) to any Person or Persons, whether in a single
transaction or a series of related transactions; or
(iii) amend or otherwise modify or repeal this Article 11.
(b) For the purposes of this Article 11, the following terms shall
have the following meanings:
(i) "Affiliate" of a Person is any other Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, such Person.
(ii) "Change of Control" shall be deemed to have occurred if and when
any Person or Persons shall become the beneficial owner or owners, directly or
indirectly, of shares of the Class A Common and/or the Class B Common which
represent 50 percent or more of the votes represented by all outstanding shares
of Class A Common and Class B Common.
(iii) "Control" (including the terms "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
(iv) "Person" means and includes any individual, partnership,
corporation, trust, unincorporated organization or other entity, and any
government or governmental authority, agency or political subdivision thereof.
The term "Persons" shall include a Person and all Affiliates of such Person.
The term "Person" and "Persons" shall also include any person or group of
persons within the meaning of the Securities Exchange Act of 1934, as amended.
(v) "Subsidiaries" means, with respect to the Corporation, all
corporations, partnerships, joint ventures, trusts and other entities of which
the Corporation, directly or indirectly, owns an amount of voting securities, or
possesses other ownership
8
<PAGE>
interests, having the power, direct or indirect, to elect a majority of the
Board of Directors or other governing body thereof.
12. Relevant Considerations. In discharging the duties of their
-----------------------
respective positions, the Board of Directors, committees of the Board of
Directors and individual Directors may, in considering the best interests of the
Corporation, consider the effects of any action upon employees, general agents,
and other customers and creditors of the Corporation and its subsidiaries,
communities in which offices or other establishments of the Corporation are
located, the economy of the state and nation, and the long-term as well as the
short-term interests of the Corporation and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the Corporation, and all other pertinent factors.
13. Classified Board of Directors. Effective as of the annual
-----------------------------
meeting of stockholders held in 1996, the Board of Directors shall be divided
into three classes, designated Class I, Class II and Class III, as nearly equal
in number as possible, and the term of office of Directors of one class shall
expire at each annual meeting of stockholders, and in all cases as to each
Director, until his successor shall be elected and qualified or until his
earlier resignation, removal from office, death or incapacity. Additional
directorships resulting from an increase in number of Directors shall be
apportioned among the classes as equally as possible. Members of all three
classes shall be elected at the annual meeting of stockholders held in 1996.
The initial term of office of Directors of Class I shall expire at the annual
meeting of stockholders held in 1997; that of Class II shall expire at the
annual meeting of stockholders in 1998; and that of Class III shall expire at
the annual meeting of stockholders in 1999. At each annual meeting of
stockholders, the number of Directors equal to the number of Directors of the
class whose term expires at the time of such meeting (or if less, the number of
Directors properly nominated and qualified for election) shall be elected to
hold office until the third succeeding annual meeting of stockholders after
their election.
Immediately prior to the effectiveness of this Restated Certificate of
Incorporation, there were issued and outstanding 126,946 shares of Class A
Voting Common Stock, no shares of Class B Non-Voting Common Stock, and a warrant
to purchase 2,262 shares of Class A Voting Common Stock (the "Warrant").
Immediately upon the effectiveness of this Restated Certificate of
Incorporation, each issued and outstanding share of Class A Voting Common Stock
and each share of Class A Voting Common Stock underlying the Warrant, without
further act or deed on the part of the holder of such share or Warrant, shall
become either (i) 18.5 shares of Class A Common or (ii) if, prior to the
effectiveness of this Restated Certificate of Incorporation, the holder of such
share or Warrant has executed a Class B Stockholders' Agreement in the form
offered by the Corporation which restricts the transfer of shares of Class B
Common, 9.25 shares of Class A Common and 9.25 shares of Class B Common. In
connection therewith, the Corporation shall not issue any fractional shares of
Class A Common or Class B Common. In the event that any holder of Class A
Voting Common Stock is entitled to a fractional share of Class A
9
<PAGE>
Common or Class B Common, the Corporation shall pay to such holder the fair
value of such fractional share, as determined by the Board of Directors.
This Restated Certificate of Incorporation shall be effective on the
date of filing by the Secretary of State of the State of Delaware.
We, the undersigned Chairman of the Board, President and Chief
Executive Officer and Secretary, respectively, of the Corporation, for the
purpose of restating and integrating, and further amending, the provisions of
the Certificate of Incorporation of the Corporation, as heretofore amended or
supplemented, hereby certify: that this Restated Certificate of Incorporation,
and the amendments contained herein, were duly adopted by the Board of Directors
of the Corporation, declaring their advisability, at a meeting duly called and
in accordance with Sections 242 and 245 of the Delaware General Corporation Law;
that thereafter, this Restated Certificate of Incorporation, and the amendments
contained herein, were proposed by the Board of Directors and duly authorized
and approved by the stockholders of the Corporation in accordance with Sections
242 and 245 of the Delaware General Corporation Law at a meeting of the
stockholders of the Corporation duly called and held upon notice in accordance
with Section 222 of the Delaware General Corporation Law; and that the capital
of the Corporation shall not be reduced under or by reason of the amendments
contained herein. Accordingly, we have hereunder set our hands and seal this
______ day of ____________________, 1996, and hereby affirm the truth of the
statements contained herein under the penalties of perjury.
_____________________________
Mortimer B. Fuller, III
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
__________________________________
James B. Gray, Jr.
Secretary
[SEAL]
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<PAGE>
EXHIBIT 4.2
CLASS B STOCKHOLDERS' AGREEMENT
-------------------------------
THIS AGREEMENT dated as of May 20, 1996 is made by and among Genesee &
Wyoming Inc., a Delaware corporation (the "Corporation"), Mortimer B. Fuller,
III ("Fuller"), the undersigned Executive Officers of the Corporation (as
defined below), and the undersigned holders of record of shares of the
Corporation's Class B Common Stock (the "Stockholders").
Effective upon the filing of the Restated Certificate of Incorporation
of the Corporation, Fuller, the Stockholders and certain Executive Officers will
own, in the aggregate, all of the issued and outstanding shares of the Class B
Common Stock, par value $.01 per share, of the Corporation (the "Class B Common
Stock"), and the parties believe it to be in their respective best interests to
restrict the transfer of any and all shares of the Class B Common Stock now or
hereafter owned by any of the parties hereto (collectively, the "Shares"), to
grant certain options to purchase the Shares and to provide for the disposition
of the Shares upon the occurrence of certain events.
The parties therefore agree as follows:
Article 1. Definitions.
-----------
As used herein, the following terms shall have the following
meanings:
1.1 "Excluded Transfer" shall mean any Transfer of Shares: (i) by
-----------------
gift to a spouse, child or grandchild of a holder of record of any Shares, or to
a trust for the benefit thereof; (ii) to a spouse, child or grandchild of a
holder of record of any Shares, or to a trust for the benefit thereof, which
results, whether by bequest, operation of the laws of intestate succession or
otherwise, from the death of such holder of record; or (iii) to Fuller or any
Executive Officer.
1.2 "Executive Officer" shall mean any person, other than Fuller, who
-----------------
is both (i) an officer of the Corporation within the meaning of Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended, and (ii) a
party to this Agreement.
1.3 "Transfer" shall mean any transfer, including transfers by
--------
operation of law, gift, sale, assignment, bequest, pledge or other encumbrance
or disposal.
Article 2. Restrictions on Transfer.
------------------------
Neither Fuller nor any Stockholder nor any Executive Officer shall,
during his lifetime or upon his death, cause or permit any Transfer of Shares
now or hereafter owned by him except in accordance with this Agreement. The
parties agree that they shall not cause nor permit the transfer on the books of
the Corporation of any Shares now or hereafter owned by Fuller, any Stockholder
or any Executive Officer unless the transfer is made in accordance with this
Agreement.
<PAGE>
Article 3. Permitted Transfers.
-------------------
Fuller, each Stockholder and each Executive Officer may, subject to
the restrictions contained in this Agreement, cause or permit any Permitted
Transfer. For purposes of this Agreement, the term "Permitted Transfer" shall
mean any Transfer of Shares that: (i) results in conversion, automatic or
voluntary, of the transferred Shares to shares of the Class A Common Stock, par
value $.01 per share, of the Corporation; (ii) is permitted by Article 4 of this
Agreement; or (iii) is an Excluded Transfer; provided, however, that the
--------
recipient of such Shares agrees, as a condition of the Transfer (and as provided
by Article 12), to be bound by all of the terms and conditions of this Agreement
as if an original party hereto.
Article 4. Options Upon Proposed Transfer.
------------------------------
4.1 Initial Options of the Executive Officers. If Fuller or any
-----------------------------------------
Stockholder or any Executive Officer (each, an "Offering Stockholder") wishes to
transfer all or any portion of his Shares to an individual or entity that is
then a holder of record of any Shares, other than in an Excluded Transfer, he
shall first give to Fuller, each Executive Officer and the Corporation notice of
such intention. Such notice of intention to transfer shall state the name of
the proposed transferee, the number of Shares proposed to be transferred (the
"Offered Shares") and the terms and conditions of the proposed transfer, and
shall constitute the Offering Stockholder's offer to sell up to 50 percent of
the Offered Shares (the "Executive Shares") to the Executive Officers and all or
any of the remaining Offered Shares (including any remaining Executive Shares)
to Fuller. Upon the giving of such notice, each of the Executive Officers shall
then have the option, exercisable by giving notice to the Offering Stockholder,
Fuller, each other Executive Officer and the Corporation within 10 days
following the date on which the Offering Stockholder's notice was given, to
purchase all or any portion of the Executive Shares. If more than one Executive
Officer shall exercise such option, then unless they shall otherwise agree, they
shall purchase the Executive Shares in equal proportions.
4.2 Option of Fuller. Upon expiration of the 10-day option period
----------------
provided by Section 4.1, Fuller shall have the option, exercisable by giving
notice to the Offering Stockholder, each of the Executive Officers and the
Corporation within the next 10 days, to purchase all or any portion of the
remaining Offered Shares (including any remaining Executive Shares).
4.3 Final Options of the Executive Officers. If, upon expiration of
---------------------------------------
the 10-day option period provided by Section 4.2, Fuller has not exercised his
option so as to purchase, in the aggregate, all of the remaining Offered Shares,
then each of the Executive Officers shall have the option, exercisable by giving
notice to the Offering Stockholder and the Corporation within the next 10 days,
to purchase all or any portion of the remaining Offered Shares. If more than
one Executive Officer shall exercise such option, then unless they shall
otherwise agree, they shall purchase the remaining Offered Shares in equal
proportions.
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<PAGE>
4.4 Purchase Price and Terms. Each purchase of Shares made pursuant
------------------------
to this Article 4 shall be made for the per share purchase price provided by
Article 6, and upon the terms and conditions set forth in Article 7.
4.5 Transfer to Proposed Transferee. If, upon the expiration of the
-------------------------------
option period provided by Section 4.3, Fuller and the Executive Officers have
not exercised their options so as to purchase, in the aggregate, all of the
remaining Offered Shares, then the Offering Stockholder shall be free to
transfer his remaining Offered Shares, but only to the same transferee and upon
the same terms and conditions stated in his notice of intention to transfer.
Such transfer must be completed within 30 days following the expiration of the
option period provided by Section 4.3. Thereafter, the remaining Offered Shares
shall again be restricted by, and may not be transferred without full compliance
with, this Agreement.
Article 5. Termination of Employment.
-------------------------
Notwithstanding any other provision hereof to the contrary, if the
employment of any Executive Officer (the "Departing Executive") by the
Corporation shall terminate for any reason, including his death or disability,
then he shall be deemed to have offered, as of the date of termination of his
employment, to sell all Shares held of record or beneficially by him (the
"Terminated Shares") pursuant to all of the provisions of Article 4, except that
if, upon expiration of the option period provided by Section 4.3, Fuller and the
Executive Officers have not exercised their options so as to purchase, in the
aggregate, all of the remaining Terminated Shares, then such remaining
Terminated Shares shall thereupon be converted into shares of the Class A Common
Stock, $.01 par value per share, of the Corporation, in accordance with the
procedure for voluntary conversion of the Class B Common Stock of the
Corporation described in the Restated Certificate of Incorporation of the
Corporation. For purposes of this Article 5, the Terminated Shares shall
include, without limitation, all Shares held of record by the Departing
Executive, his spouse, his children and his grandchildren, and all Shares held
in trust for the benefit thereof.
Article 6. Purchase Price for Shares.
-------------------------
The price at which all Shares shall be purchased hereunder shall be
the fair market value per share (the "Market Value") of the Class A Common Stock
of the Corporation (the "Class A Common Stock") on the date of such purchase.
For purposes of this Agreement, the Market Value of the Class A Common Stock
shall be the closing price of the Class A Common Stock on the principal national
securities exchange on which the Class A Common Stock is then listed or admitted
to trading (if the Class A Common Stock is then listed or admitted to trading on
any national securities exchange), and the closing price shall be the last
reported sale price regular way or, in case no such sale takes place on such
date, the last reported sale price regular way on the next preceding day on
which a sale took place. If the Class A Common Stock is not then so listed on a
national securities exchange, the Market Value of the Class A Common Stock on
-3-
<PAGE>
any date shall be the closing price (the last reported sale price regular way)
in the over-the-counter market as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System ("Nasdaq"), if the closing
price of the Class A Common Stock is then reported by Nasdaq. If the closing
price of the Class A Common Stock is not then reported by Nasdaq, the Market
Value of the Class A Common Stock on any date shall be deemed to be the mean
between the representative closing bid and asked prices of the Class A Common
Stock in the over-the-counter market as reported by Nasdaq. If the Class A
Common Stock is not then reported by Nasdaq, the Market Value of the Class A
Common Stock on any date shall be as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by the
Corporation for that purpose. If no member of the National Association of
Securities Dealers, Inc. furnishes quotes with respect to the Class A Common
Stock, Market Value shall be determined by such other reasonable method as is
adopted by resolution of the Corporation's Board of Directors.
Article 7. Terms and Conditions of Purchases.
---------------------------------
7.1 Closings. The closing of any purchase of Shares made under this
--------
Agreement shall take place at a time and place mutually agreeable to the seller
and each buyer, but no later than 30 days following the expiration of the last
option period in respect of the particular transaction.
7.2 Payment. Payment of the purchase price by the buyer to the
-------
seller for any Shares purchased pursuant to this Agreement shall be in cash or
by bank cashier's check at the closing.
7.3 Documents Delivered by Seller. At the closing, the seller shall
-----------------------------
(a) represent and warrant in writing to each buyer that he has good title to the
Shares then being sold by him, free and clear of all liens, encumbrances,
restrictions and charges of any kind (except those created by this Agreement),
(b) deliver to each buyer all stock certificates representing the Shares then
being purchased by such buyer, duly endorsed for transfer and with any necessary
stock transfer tax stamps affixed (or funds in lieu thereof provided), and (c)
if such seller is the personal representative of the owner of record of the
Shares then being sold, deliver to each buyer due evidence of his authority so
to act.
Article 8. Legend.
------
Every certificate representing any Shares which is now or hereafter
issued to any Stockholder shall bear the following legend:
Transfer of the shares represented by this certificate is restricted
by the terms of a certain Class B Stockholders' Agreement dated as of
May 20, 1996 among the Corporation and its Class B stockholders, a
copy of which is on file at the office of the Corporation.
-4-
<PAGE>
Article 9. Termination.
-----------
9.1 Termination as to All Parties. This Agreement shall terminate with
-----------------------------
respect to all of the parties hereto, and shall be of no further force or
effect, immediately upon the occurrence of any of the following events:
(a) the consummation of a merger, consolidation or other corporate
reorganization to which the Corporation is a party which provides for the
issuance of cash, securities or other property to the holders of Shares in
exchange for such Shares; or
(b) the consummation of a transaction by which any one person or entity
acquires all of the Shares then outstanding; or
(c) the bankruptcy, receivership, liquidation or dissolution of the
Corporation; or
(d) the execution by all of the parties hereto of a mutual agreement to
terminate this Agreement.
9.2 Termination as to Any Party. This Agreement shall terminate with
---------------------------
respect to any party, and he shall have no further rights or obligations
hereunder, immediately upon the conversion or the disposition, in any manner, of
all of his Shares.
Article 10. Injunctive Relief.
-----------------
The parties acknowledge that any breach of this Agreement will result in
immediate harm to the other parties which will not be measurable or compensable
in money damages. Therefore, if any party (or his personal representative)
commences any action or proceeding to enforce the provisions of this Agreement,
the party against whom the action or proceeding is brought hereby waives any
claim or defense therein that the aggrieved party has an adequate remedy at law.
In addition to any other legal remedy which may be available, the party
commencing the action or proceeding shall be entitled to injunctive relief with
respect to any breach or threatened breach of this Agreement and to specific
performance of its terms.
Article 11. Benefit; Assignment.
-------------------
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective legal representatives, successors and assigns.
Notwithstanding the foregoing, no party shall assign or attempt to assign this
Agreement or any interest herein without the prior written consent of all of the
other parties hereto.
Article 12. New Parties.
-----------
Any person or entity which hereafter acquires, in any manner, any Shares
shall, and any
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<PAGE>
person who hereafter becomes an officer of the Corporation within the meaning of
Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as amended,
may, become a party to this Agreement by dating and executing a copy hereof and
delivering it to the Corporation. In such event, such person or entity shall
be bound by all of the terms and conditions hereof and entitled to the benefits
hereunder, as of the date of such execution.
Article 13. General Provisions.
------------------
13.1 Notices. Any notice given pursuant to this Agreement shall be in
-------
writing and shall be deemed to have been given when delivered by hand or
deposited for certified mail delivery in the United States mail with postage
prepaid and addressed to the party for whom it is intended at his address as set
forth herein or at such other address as to which the parties may from time to
time notify each other in like manner.
13.2 Gender. Whenever used herein, the masculine pronoun shall be
------
construed to include both the feminine and the neuter, as appropriate to the
context.
13.3 Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware without regard to its
principles of conflicts of laws.
13.4 Severability. If any of the provisions of this Agreement are or
------------
become unenforceable, the remainder of this Agreement shall nevertheless remain
binding to the fullest extent possible, taking into consideration the purposes
and spirit of this Agreement.
13.5 Entire Agreement; Amendment. This Agreement contains the entire
---------------------------
understanding of the parties hereto with regard to the subject matter hereof,
and may not be amended or modified, nor may any of its provisions be waived,
except by a writing executed by all of the parties hereto or, in the case of a
waiver, by each party waiving compliance.
-6-
<PAGE>
IN WITNESS WHEREOF, we have executed this Agreement as of the day and year
first above written.
Address
-------
71 Lewis Street GENESEE & WYOMING INC.
Greenwich, CT 06830
By:
----------------------------------
Mortimer B. Fuller, III
President
71 Lewis Street ----------------------------------
Greenwich, CT 06830 Mortimer B. Fuller, III
71 Lewis Street ----------------------------------
Greenwich, CT 06830 Mark W. Hastings
402 West Washington Street
New Iberia, LA 70560 ----------------------------------
Forrest L. Becht
201 North Penn Street
Punxsutawney, PA 15767 ----------------------------------
Charles W. Chabot
110 West 10th Avenue
P.O. Box 942
Albany, OR 97321 ----------------------------------
Robert I. Melbo
P.O. Box 139
15th and North Grand Avenue, East
Springfield, IL 62705 ----------------------------------
Spencer D. White
3 Parkway
P.O. Box 247
Leicester, NY 14481 ----------------------------------
Alan R. Harris
-7-
<PAGE>
CLASS B STOCKHOLDERS
[Complete your address, sign here and print name under signature
to agree to be bound by this Agreement]
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- --------------------------------- -----------------------------------
- --------------------------------- -----------------------------------
(address of stockholder) (name and signature of stockholder)
- ---------------------------------
- --------------------------------- -----------------------------------
- --------------------------------- -----------------------------------
(address of stockholder) (name and signature of stockholder)
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<PAGE>
EXHIBIT 4.16
AMENDMENT NO. 1 TO
AMENDED AND RESTATED REVOLVING
CREDIT AND TERM LOAN AGREEMENT
This AMENDMENT NO. 1 (this "Amendment"), dated as of April 26, 1996, among (a)
Genesee & Wyoming Inc., Rochester & Southern Railroad, Inc., Louisiana & Delta
Railroad, Inc., Genesee and Wyoming Railroad Company, Buffalo & Pittsburgh
Railroad, Inc., Allegheny & Eastern Railroad, Inc., Willamette & Pacific
Railroad, Inc., The Dansville and Mount Morris Railroad Company, GWI Leasing
Corporation, Bradford Industrial Rail, Inc., Railroad Services, Inc., GWI
Dayton, Inc., GWI Rail Management Corporation, Genesee & Wyoming Investors,
Inc., GWI Switching Services, L.P., Portland & Western Railroad, Inc., Illinois
& Midland Railroad, Inc., and such other Borrower Subsidiaries which may become
Borrowers hereunder from time to time (collectively, the "Borrowers" and each
individually, a "Borrower"), (b) The First National Bank of Boston ("FNBB") and
the other lending institutions listed on Schedule 1 to the Credit Agreement (as
----------
hereinafter defined) from time to time (collectively, the "Banks") and (c) The
First National Bank of Boston as agent for the Banks (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent are parties to that certain
Amended and Restated Revolving Credit and Term Loan Agreement dated as of
February 8, 1996 (as amended and in effect from time to time, the "Credit
Agreement"), pursuant to which the Banks, upon certain terms and conditions,
have made loans to and may issue letters of credit for the benefit of the
Borrowers; and
WHEREAS, the Borrowers have requested that the Banks agree, and the Banks have
agreed, on the terms and subject to the conditions set forth herein, to make
certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
(S)1. DEFINED TERMS. Capitalized terms which are used herein without
-------------
definition and which are defined in the Credit Agreement shall have the same
meanings herein as in the Credit Agreement.
(S)2. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is hereby amended
-----------------------------
as follows:
(a) The preamble to the Credit Agreement is amended by:
(i) inserting after the word "hereto" in clause (b) of the preamble,
the following clause: ", (c) THE FIRST NATIONAL BANK OF CHICAGO and KEY
BANK OF NEW YORK, as co-agents for such lending institutions"; and
<PAGE>
-2-
(ii) deleting the parenthetical "(c)", and substituting therefor the
parenthetical "(d)".
(b) Section 1.1 of the Credit Agreement is amended by inserting the
following new definitions in the appropriate places in the alphabetical sequence
thereof:
Co-Agents. Collectively, The First National Bank of Chicago, a
---------
national banking association, and Key Bank of New York, a New York State
Chartered Banking Corporation.
Kittanning. Kittanning Equipment Leasing Company, a Pennsylvania
----------
corporation and wholly owned Subsidiary of PSR.
Oregon Rail Acquisition. The acquisition by WPR from A&K Railroad
-----------------------
Materials, Inc., a California corporation, of 18 miles of continuous welded
rail and related assets on terms and conditions and subject to
documentation satisfactory to the Agent for an aggregate purchase price not
to exceed $1,840,500.
Oregon Rail Acquisition Date. See (S)3.1.3.
----------------------------
PSR. Pittsburg & Shawmut Railroad, Inc., a Delaware corporation and
---
wholly owned Subsidiary of GWI.
PSR Stock Pledge Agreement. The Stock Pledge Agreement dated on or
--------------------------
about April 29, 1996, between PSR and the Agent and in form substance
satisfactory to the Banks and the Agent.
Tranche C. With respect to the Term Loan, the Tranche made or to be
---------
made by the Banks to the Borrowers pursuant to (S)3.1.3, on the Oregon Rail
Acquisition Date but in no event later than June 30, 1996, in an aggregate
principal amount of up to $1,840,500.
Tranche C Request. See (S)3.1.3.
-----------------
(c) The definition of "Consolidated Cash Flow" set forth in (S)1.1 of the
Credit Agreement is amended by:
(i) deleting the word "or" at the end of clause (c)(ii), and
substituting therefor a comma; and
(ii) inserting at the end of clause (c)(iii) the following clause:
"or (iv) in respect of the Oregon Rail Acquisition".
(d) The definition of "Walker Acquisition" set forth in (S)1.1 of the
Credit Agreement is amended by inserting after the word "GWI" the parenthetical
"(or a wholly owned Subsidiary of GWI)".
<PAGE>
-3-
(e) The definition of "Walker Collateral Assignment" set forth in (S)1.1
of the Credit Agreement is amended by inserting after the word "GWI" the
parenthetical "(or a wholly owned Subsidiary of GWI)".
(f) The definitions of "Loan Request", "Security Documents", "Term Loan",
"Tranche", and "Tranche B" set forth in (S)1.1 of the Credit Agreement are
amended and restated as follows:
Loan Request. Collectively, Revolving Credit Requests, the Tranche B
------------
Request and the Tranche C Request.
Security Documents. The Security Agreement, the Stock Pledge
------------------
Agreement, the PSR Stock Pledge Agreement, the Partnership Pledge
Agreement, the CIMR Mortgage, the LDR Mortgage, the CIMR Collateral
Assignment and the Walker Collateral Assignment.
Term Loan. The term loan facility made available by the Banks to the
---------
Borrowers on the Closing Date and, with respect to the Tranche B, on the
Walker Acquisition Date and, with respect to Tranche C, on the Oregon Rail
Acquisition Date, in an aggregate principal amount of up to $40,000,000
pursuant to (S)3.1.
Tranche. With respect to the Term Loan, a drawing of a portion of the
-------
Term Loan designated as Tranche A, Tranche B or Tranche C of the Term Loan.
Tranche B. With respect to the Term Loan, the Tranche made or to be
---------
made by the Banks to the Borrowers pursuant to (S)3.1.2, on the Walker
Acquisition Date, but in no event later than April 30, 1996, in an
aggregate principal amount of up to $12,159,500.
(g) Section 3.1.2 of the Credit Agreement is amended by:
(i) deleting the dollar amount "$14,000,000" set forth in the first
sentence of such section and substituting therefor the dollar amount
"$12,159,500";
(ii) deleting the phrase "or an integral multiple thereof" in clause
(b)(i) of such subsection; and
(iii) deleting the last two sentences of such section and
substituting therefor the following sentence: "Upon delivery of the
Tranche B Request, the aggregate Term Loan Commitments of the Banks shall
immediately be reduced by the amount (if any) by which $12,159,500 exceeds
the principal amount requested in the Tranche B Request."
(h) Section 3.1 of the Credit Agreement is further amended by inserting a
new subsection 3.1.3 as follows:
3.1.3. TRANCHE C.
---------
<PAGE>
-4-
In addition to the other terms and conditions set forth in this Credit
Agreement, the availability of Tranche C of the Term Loan is subject to the
fulfillment of the additional conditions that (a) the proceeds of such Loan
shall be used by the Borrowers to finance the Oregon Rail Acquisition on
terms and conditions and subject to documentation in form and substance
satisfactory to the Agent, and (b) no less than three (3) Business Days
prior to the proposed Oregon Rail Acquisition Date, the Borrowers shall
have given to the Agent written notice in substantially the form of Exhibit
-------
C-3 hereto (the "Tranche C Request") specifying (i) the principal amount of
---
Term Loan requested, which shall be in a minimum aggregate amount of
$500,000 up to a maximum principal amount of $1,840,500, (ii) the proposed
Drawdown Date of such Term Loan (the "Oregon Rail Acquisition Date"), which
shall in no event be later than June 30, 1996, (iii) the Interest Period
for such Loan and (iv) the Type of such Loan. Subject to fulfillment of
all of the conditions referred to in the preceding sentence, each Bank
agrees to lend to the Borrowers on the Oregon Rail Acquisition Date the
amount of its Term Loan Commitment Percentage of the principal amount of
Term Loan requested in the Tranche C Request. The Tranche C Request may be
delivered once only, shall be irrevocable and binding on the Borrowers, and
shall oblige the Borrowers to accept Tranche C of the Term Loan in the
principal amount requested from the Banks on the Oregon Rail Acquisition
Date. Upon delivery of the Tranche C Request, the aggregate Term Loan
Commitments of the Banks shall immediately be reduced by the amount (if
any) by which $1,840,500 exceeds the principal amount requested in the
Tranche C Request. The Total Term Loan Commitment shall terminate on the
earlier to occur of (A) funding of Tranche C of the Term Loan or (B) June
30, 1996.
(i) Section 3.2. of the Credit Agreement is amended by deleting the date
"April 30, 1996", and substituting therefor the date "June 30, 1996".
(j) Section 3.3 of the Credit Agreement is amended by deleting the words
"and Tranche B" in the second sentence of such section, and substituting
therefor the words ", Tranche B and Tranche C".
(k) Section 3.4 of the Credit Agreement is amended by:
(i) deleting the date "April 1, 1996" set forth in the first sentence
of such section, and substituting therefor the phrase "May 1, 1996 plus, in
----
the event the Total Term Loan Commitment has not been terminated as of May
1, 1996, $1,840,500"; and
(ii) deleting the heading "Percentage of Term Loan Outstanding on
April 1, 1996" set forth in the heading of the table contained in such
section, and substituting therefor the phrase "Percentage Payable".
(l) Section 8.17 of the Credit Agreement is amended by:
(i) deleting the words "and the Walker Acquisition" set forth in the
first sentence of such section, and substituting therefor the words ", the
Walker Acquisition and the Oregon Rail Acquisition"; and
<PAGE>
-5-
(ii) deleting the "and" in the section sentence of such section, and
substituting therefor a comma; and
(iii) inserting before the period at the end of the second sentence
of such section the phrase "and the proceeds of Tranche C of the Term Loan
shall be used by the Borrowers solely to finance the Oregon Rail
Acquisition".
(m) Section 9.15 of the Credit Agreement is amended by inserting at the
end of such section the following sentences: "Notwithstanding the foregoing, so
long as Kittanning does not own assets having a gross book value in excess of
$50,000 and does not have any Subsidiaries, Kittanning will not be subject to
the provisions of this (S)9.15 and will not become a Borrower under this
Agreement. In the event Kittanning at any time owns assets having a gross book
value in excess of $50,000 or has any Subsidiaries, the Borrowers will promptly
comply with the provisions of this (S)9.15 with respect to Kittanning."
(n) Section 10.1 of the Credit Agreement is amended by:
(i) deleting the period and the end of clause (o), and substituting
therefor a semi-colon; and
(ii) inserting a new paragraph as follows:
"provided, however, that the Borrowers will not permit Kittanning to
-------- --------
create, incur, assume, guarantee or be or remain liable, contingently or
otherwise, with respect to any Indebtedness."
(o) Section 10.3(k) of the Credit Agreement is amended by:
(i) deleting the period at the end of clause (v), and substituting
therefor a semi-colon; and
(ii) inserting a new paragraph at the end of (S)10.3(k) as follows:
"provided further that, notwithstanding the provisions of this (S)10.3(k),
----------------
Investments by the Borrowers in Kittanning, other than Investments existing
on the Walker Acquisition Date immediately after giving effect to the
Walker Acquisition, will not be permitted;"
(p) Section 11.6 of the Credit Agreement is amended by deleting the
parenthetical set forth in the first sentence thereof after the words "Capital
Expenditures", and substituting therefor the following parenthetical: "(net of
those Capital Expenditures reimbursed by third parties, in respect of
Construction Projects for which reimbursements have been received or will be
received from third parties, or in respect of the Oregon Rail Acquisition)".
<PAGE>
-6-
(q) Section 13.5 of the Credit Agreement is amended by deleting the dollar
amount "$14,000,000" set forth in clause (c) of such section, and substituting
therefor the dollar amount "$12,159,500".
(r) Section 13 of the Credit Agreement is further amended by inserting a
new subsection 13.6 as follows:
13.6. TRANCHE C TERM LOAN.
-------------------
In addition to all other conditions to borrowing hereunder, in the case of
a Tranche C Request, (a) the Agent shall be satisfied with the terms and
conditions and documentation relating to the Oregon Rail Acquisition, (b)
the Oregon Rail Acquisition shall have been duly consummated on the Oregon
Rail Acquisition Date and, after giving effect thereto, WPR shall own the
assets conveyed to it therein free and clear of all security interests,
liens and encumbrances, (c) the purchase price of the assets acquired
pursuant to the Oregon Rail Acquisition and all expenditures and
transaction costs associated therewith shall not exceed $1,840,500 in the
aggregate, (d) the Agent shall have received evidence that all consents and
approvals necessary to complete the Oregon Rail Acquisition shall have been
obtained and such consents and approvals shall be in form and substance
satisfactory to the Agent, (e) the Borrowers shall have taken all actions
necessary to grant to the Agent a first priority perfected security
interest in the assets acquired in the Oregon Rail Acquisition, and (f) the
Borrowers shall have complied with the provisions of (S)3.1.3 hereof.
(s) Section 14.3 of the Credit Agreement is amended by deleting the word
"B-ank" and substituting therefor the word "Bank".
(t) Section 16.3 of the Credit Agreement is amended by deleting the phrase
"may be liable" set forth in the last sentence of such section, and substituting
therefor the phrase "shall be liable".
(u) Section 16.7 of the Credit Agreement is amended and restated in its
entirety as follows:
16.7. INDEMNITY. The Banks ratably (computed by reference to each
---------
Bank's percentage of the Total Revolving Credit Commitment and the Term
Loan) agree hereby to indemnify and hold harmless the Agent and each of the
Co-Agents from and against any and all claims, actions and suits (whether
groundless or otherwise), losses, damages, costs, expenses (including any
expenses for which the Agent or such Co-Agent has not been reimbursed by
the Borrowers as required by (S)17), and liabilities of every nature and
character arising out of or related to this Credit Agreement, the Notes, or
any of the other Loan Documents or the transactions contemplated or
evidenced hereby or thereby, or the Agent's or such Co-Agent's actions
taken hereunder or thereunder, except to the extent that any of the same
shall be directly caused by the Agent's or such Co-Agent's willful
misconduct or gross negligence.
<PAGE>
-7-
(u) Section 16 of the Credit Agreement is further amended by inserting a
new subsection 16.12 as follows:
16.12. DUTIES OF CO-AGENTS. The Co-Agents as such shall have no
-------------------
duties or responsibilities to the Borrowers, the Banks or the Agent
hereunder.
(v) Section 27 of the Credit Agreement is amended by inserting after the
phrase "the definition of Majority Banks may not be amended" set forth in the
second sentence of such section the words "and the release of all or
substantially all of the Collateral will not be permitted".
(S)3. AFFIRMATION AND ACKNOWLEDGMENT OF THE BORROWERS. Each of the
-----------------------------------------------
Borrowers hereby ratifies and confirms all of its Obligations to the Banks,
including, without limitation the Loans, and each of the Borrowers hereby
affirms its absolute and unconditional promise to pay to the Banks the Loans and
all other amounts due under the Credit Agreement as amended hereby. Each of the
Borrowers hereby confirms that the Obligations are and remain secured pursuant
to the Security Documents and pursuant to all other instruments and documents
executed and delivered by such Borrower as security for the Obligations.
(S)4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby
------------------------------
represents and warrants to the Banks as follows:
(a) The execution and delivery by such Borrower of this Amendment and
all other instruments and agreements required to be executed and delivered
by such Borrower in connection with the transactions contemplated hereby or
referred to herein (collectively, the "Amendment Documents"), and the
--------- ---------
performance by such Borrower of its obligations and agreements under the
Amendment Documents and the Credit Agreement as amended hereby, are within
the corporate authority of such Borrower, have been authorized by all
necessary corporate proceedings on behalf of such Borrower, and do not and
will not contravene any provision of law or any of such Borrower's charter,
other incorporation papers, by-laws or any stock provision or any amendment
thereof or of any indenture, agreement, instrument or undertaking binding
upon such Borrower.
(b) The Amendment Documents and the Credit Agreement as amended
hereby constitute legal, valid and binding obligations of such Borrower,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental
agency or authority is required to make valid and legally binding the
execution, delivery or performance by such Borrower of the Amendment
Documents or the Credit Agreement as amended hereby, or the consummation by
such Borrower of the transactions among the parties contemplated hereby and
thereby or referred to herein.
<PAGE>
-8-
(d) The representations and warranties contained in (S)8 of the
Credit Agreement were correct at and as of the date made. Except to the
extent that the facts upon which such representations and warranties were
based have changed in the ordinary course of business (which changes,
either singly or in the aggregate, have not been materially adverse) and
after giving effect to the provisions hereof, such representations and
warranties also are correct at and as of the date hereof.
(e) Such Borrower has performed and complied in all material respects
with all terms and conditions herein required to be performed or complied
with by it prior to or at the time hereof, and as of the date hereof, after
giving effect to the provisions hereof, there exists no Event of Default or
Default.
(S)5. EFFECTIVENESS. The effectiveness of this Amendment shall be subject
-------------
to the satisfaction of the following conditions:
(a) Delivery. Each of the Borrowers, the Majority Banks and the
--------
Agent shall have executed and delivered this Amendment.
(b) Proceedings and Documents. All proceedings in connection with
-------------------------
the transactions contemplated by this Amendment and all documents incident
thereto shall be reasonably satisfactory in substance and form to the
Banks, the Agent and the Agent's Special Counsel, and the Banks, the Agent
and such counsel shall have received all information and such counterpart
originals or certified or other copies of such documents as the Agent may
reasonably request.
(S)6. MISCELLANEOUS PROVISIONS.
------------------------
(a) Except as otherwise expressly provided by this Amendment, all of
the terms, conditions and provisions of the Credit Agreement shall remain
the same. It is declared and agreed by each of the parties hereto that the
Credit Agreement, as amended hereby, shall continue in full force and
effect, and that this Amendment and the Credit Agreement shall be read and
construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In
making proof of this Amendment it shall not be necessary to produce or
account for more than one counterpart signed by each party hereto by and
against which enforcement hereof is sought.
(d) The Borrowers hereby agree to pay to the Agent, on demand by the
Agent, all reasonable out-of-pocket costs and expenses incurred or
sustained by the Agent in connection with the preparation of this Amendment
(including reasonable legal fees).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
THE FIRST NATIONAL BANK
OF BOSTON, individually and as Agent
By: /s/ Barbara W. Wilson
--------------------------
Name: Barbara W. Wilson
Title: Director
THE FIRST NATIONAL BANK OF CHICAGO, individually
and as Co-Agent
By: /s/ Karen J. Andrews
-------------------------
Name: Karen J. Andrews
Title: Vice President
KEY BANK OF NEW YORK, individually
and as Co-Agent
By: /s/ Timothy O. Merriman VP
---------------------------
Name: Timothy O. Merriman
Title: Vice President
NATWEST BANK, N.A.
By: /s/ Louise M. Schneider
-------------------------
Name: Louise M. Schneider
Title: Vice President
<PAGE>
CORESTATES BANK, N.A.
By: /s/ Verna R. Prentice
------------------------
Name: Verna R. Prentice
Title: Vice President
NATIONAL CITY BANK, KENTUCKY
By:/s/ Don Pullen
-----------------
Name: Don Pullen
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By:/s/ Anthony B. Kwee
----------------------
Name: Anthony B. Kwee
Title: Vice President
LASALLE NATIONAL BANK
By:/s/ Kent Hammerstrom
-----------------------
Name: Kent Hammerstrom
Title: First Vice President
<PAGE>
GENESEE & WYOMING INC.
ROCHESTER & SOUTHERN
RAILROAD, INC.
LOUISIANA & DELTA RAILROAD,INC.
GENESEE AND WYOMING
RAILROAD COMPANY
BUFFALO & PITTSBURGH
RAILROAD, INC.
ALLEGHENY & EASTERN
RAILROAD, INC.
WILLAMETTE & PACIFIC
RAILROAD, INC.
GWI LEASING CORPORATION
GWI DAYTON, INC.
GWI RAIL MANAGEMENT CORPORATION
GENESEE & WYOMING INVESTORS,INC.
ILLINOIS & MIDLAND RAILROAD, INC.
By: /s/ Mark W. Hastings, Treasurer
-----------------------------
Mark W. Hastings, Treasurer
THE DANSVILLE AND MOUNT
MORRIS RAILROAD COMPANY
BRADFORD INDUSTRIAL
RAIL, INC.
RAILROAD SERVICES, INC.
By:/s/ Alan R. Harris, Treasurer
------------------------------
Alan R. Harris, Treasurer
GWI SWITCHING SERVICES, L.P.
BY: GWI DAYTON, INC.
ITS GENERAL PARTNER
By:/s/ Mark W. Hastings, Treasurer
----------------------------------
Mark W. Hastings, Treasurer
<PAGE>
PORTLAND & WESTERN RAILROAD,INC.
By:/s/ Anthony W. Mogytych
---------------------------------
Anthony W. Mogytych, President
<PAGE>
EXHIBIT 10.1
GENESEE & WYOMING INC.
1996 STOCK OPTION PLAN
1. PURPOSE.
The Genesee & Wyoming Inc. 1996 Stock Option Plan (the "Plan"), effective
________________, 1996, is designed to create an incentive for executive and
other employees of Genesee & Wyoming Inc., a Delaware corporation (the
"Company"), and its subsidiaries, to remain in the employ of the Company and its
subsidiaries and to contribute to their success by providing the opportunity for
stock ownership. The Company may grant under the Plan both incentive stock
options within the meaning of Section 422 of the Internal Revenue Code
("Incentive Stock Options") and stock options that do not qualify for treatment
as Incentive Stock Options ("Nonstatutory Stock Options"). Unless expressly
provided to the contrary, all references herein to "Options" include both
Incentive Stock Options and Nonstatutory Stock Options.
2. ADMINISTRATION.
(a) The Plan shall be administered by a committee (the "Stock Option
Committee") which shall be comprised of two or more members of the Board of
Directors of the Company.
(b) Each member of the Stock Option Committee shall be a disinterested
director of the Company within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(c) Subject to the express provisions of the Plan, the Stock Option
Committee shall have the authority, in its discretion and without limitation:
(i) to determine the individuals to whom Options are granted, whether an
Option is intended to be an Incentive Stock Option or a Nonstatutory Stock
Option, the times when such individuals shall be granted Options, the number
of shares to be subject to each Option, the term of each Option, the date
when each Option shall become exercisable, whether an Option shall be
exercisable in whole or in part in installments, the number of shares to be
subject to each installment, the date each installment shall become
exercisable, the term of each installment, and the option price of each
Option;
<PAGE>
(ii) to accelerate the date of exercise of any Option or any installment
thereof (irrespective of any vesting schedule that may have been part of the
grant of such Option); and
(iii) to make all other determinations necessary or advisable for
administering the Plan.
(d) The Stock Option Committee shall act by majority vote. The decision of
the Stock Option Committee on any question concerning or involving the
interpretation or administration of the Plan shall, as between the Company and
Option holders, be final and conclusive. The Stock Option Committee may consult
with counsel, who may be counsel for the Company, and shall not incur any
liability for any action taken in good faith in reliance upon the advice of
counsel.
3. ELIGIBILITY.
(a) Participants in the Plan shall be selected by the Stock Option Committee
from among the full-time employees of the Company, including those who are also
directors or officers thereof. An employee on leave of absence may be
considered as still in the employ of the Company for purposes of eligibility for
participation in the Plan. All references in this Plan to employees of the
Company shall include employees of any parent or subsidiary of the Company, as
those terms are defined in Section 424 of the Internal Revenue Code.
(b) The right of the Company to terminate the employment of a Plan
participant at any time, with or without cause, shall in no way be restricted by
the existence of the Plan, any Option granted hereunder, or any stock option
agreement relating thereto.
4. NUMBER OF SHARES.
Subject to the provisions of Section 5, the total number of shares of the
Company's Class A Common Stock, par value $.01 per share (the "Class A Common
Stock"), which may be issued under Options granted pursuant to the Plan shall
not exceed 450,000. Shares subject to the Plan may be either authorized but
unissued shares or shares that were once issued and subsequently reacquired by
the Company. If any Option is surrendered before exercise, or lapses without
exercise, or for any other reason ceases to be exercisable, the shares reserved
therefor shall continue to be available for the grant of Options under the Plan.
The Plan shall terminate on ________________, 2006, or the earlier dissolution
of the Company, and no Option shall be granted after such date.
-2-
<PAGE>
5. ADJUSTMENT PROVISIONS.
In the event that:
(a) in connection with a merger or consolidation of the Company or a
sale by the Company of all or a part of its assets, the outstanding shares
of Class A Common Stock are exchanged for a different number or class of
shares of stock or other securities of the Company, or for shares of the
stock or other securities of any other entity; or
(b) new, different or additional shares or other securities of the
Company or of another entity are received by the holders of Class A Common
Stock, whether by way of recapitalization or otherwise; or
(c) any dividend in the form of stock is made to the holders of Class A
Common Stock, or any stock split or reverse split pertaining to Class A
Common Stock is effected;
then the Stock Option Committee shall make the appropriate adjustment to:
(i) the number and kind of shares or other securities that may be issued
upon exercise of Options yet to be granted;
(ii) the option price per share to be paid upon exercise of each
outstanding Option; and
(iii) the number and kind of shares or other securities covered by each
outstanding Option.
6. ANNUAL LIMITATION ON INCENTIVE STOCK OPTIONS.
The aggregate fair market value (determined as of the date the Option is
granted) of the shares with respect to which Incentive Stock Options are
exercisable for the first time by a grantee during any calendar year (under all
plans of the Company and any parent and subsidiaries of the Company) shall not
exceed $100,000.
7. OPTION PRICE.
(a) For purposes of the Plan, the term "Grant Date" shall mean the date on
which the grant of an Option is duly authorized by the Stock Option Committee.
The
-3-
<PAGE>
option price at which an Option shall be exercisable shall be at least the fair
market value per share of the Class A Common Stock on the Grant Date of such
Option. However, if an Incentive Stock Option is granted to any person who
would, after the grant of such Option, be deemed to own stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company, or of any parent or subsidiary of the Company (a "Ten Percent
Stockholder"), the option price shall be not less than 110 percent of the fair
market value per share of the Class A Common Stock on the Grant Date of such
Option.
(b) For purposes of the Plan, the fair market value per share of the Class A
Common Stock on any date ("Fair Market Value") shall be the closing price of the
Class A Common Stock on the principal national securities exchange on which the
Class A Common Stock is then listed or admitted to trading, and the closing
price shall be the last reported sale price regular way on such date (or, if no
sale takes place on such date, the last reported sale price regular way on the
next preceding date on which such sale took place), as reported by such
exchange. If the Class A Common Stock is not then so listed or admitted to
trading on a national securities exchange, then Fair Market Value shall be the
closing price (the last reported sale price regular way) of the Class A Common
Stock in the over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"), if the closing price
of the Class A Common Stock is then reported by NASDAQ. If the Class A Common
Stock closing price is not then reported by NASDAQ, then Fair Market Value shall
be the mean between the representative closing bid and closing asked prices of
the Class A Common Stock in the over-the-counter market as reported by NASDAQ.
If the Class A Common Stock bid and asked prices are not then reported by
NASDAQ, then Fair Market Value shall be the quote furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If no member of the National Association of
Securities Dealers, Inc. then furnishes quotes with respect to the Class A
Common Stock, then Fair Market Value shall be determined by resolution of the
Company's Board of Directors. Notwithstanding the foregoing provisions of this
Section 7(b), if the Board of Directors shall at any time determine that it is
impracticable to apply the foregoing methods of determining Fair Market Value,
then the Board of Directors is hereby empowered to adopt any other reasonable
method for such purpose.
8. TERM OF OPTIONS.
Subject to the provisions of Section 18, the term of each Option shall be
determined by the Stock Option Committee, but in no event shall an Option be
exercisable, either in whole or in part, after the expiration of ten years from
the Grant Date of such Option. Notwithstanding the foregoing, an Incentive
Stock Option
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<PAGE>
granted to a Ten Percent Stockholder shall not be exercisable, either in whole
or in part, after the expiration of five years from the Grant Date of such
Option. The Stock Option Committee and an Option holder may at any time by
mutual agreement terminate any Option held by such Option holder.
9. STOCK OPTION AGREEMENTS.
Each Option shall be evidenced by a written agreement which sets forth: (a)
the number of shares subject to the Option; (b) the option price; (c) the
vesting schedule of the Option or a statement that the Option is immediately
exercisable in full; (d) the expiration date of the Option; (e) the method of
payment on exercise of the Option; (f) whether the Option is an Incentive Stock
Option or a Nonstatutory Stock Option; and (g) such additional provisions, not
inconsistent with the Plan, as the Stock Option Committee may prescribe.
10. EXERCISE OF OPTIONS.
(a) Each Option, or any installment thereof, shall be exercised, whether in
whole or in part, by giving written notice to the Company at its principal
office, specifying the number of shares of Class A Common Stock being purchased
and the purchase price being paid, and accompanied by payment in full of the
purchase price.
(b) An Option holder shall pay for the shares subject to the Option by one
or any combination of the following methods, as determined by the Stock Option
Committee on the Grant Date of the Option: (i) in cash, or (ii) by delivery of
shares of Class A Common Stock already owned by the Option holder. Any shares
of Class A Common Stock that are so delivered to pay the option price shall be
valued at Fair Market Value on the date of such Option exercise.
(c) The exercise of an Option shall be conditioned upon the Option holder
making arrangements satisfactory to the Stock Option Committee for the payment
to the Company of the amount of all taxes required by any governmental authority
to be withheld and paid over by the Company to the governmental authority on
account of the exercise. The payment of such withholding taxes to the Company
shall be made by one or any combination of the following methods, as determined
by the Stock Option Committee on the Grant Date of the Option: (i) in cash, or
(ii) by the Company withholding such taxes from any other compensation owed to
the Option holder by the Company or any of its subsidiaries.
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<PAGE>
11. NON-ASSIGNMENT.
Each Option by its terms shall provide that it is not transferable by the
grantee otherwise than by will or the laws of descent and distribution, and that
during the lifetime of the grantee, it is exercisable only by him.
12. DEATH OF GRANTEE.
In the event that a grantee shall die (i) while he is an employee of the
Company, or within three months after termination of such employment, and (ii)
prior to the complete exercise of Options granted to him under the Plan, then
any such remaining Options with exercise periods outstanding may be exercised,
in whole or in part, within one year after the date of the grantee's death and
then only:
(a) by the grantee's estate or by such person(s) to whom the grantee's
rights hereunder shall have passed under his will or the laws of descent and
distribution;
(b) to the extent that the grantee was entitled to exercise the Option
on the date of his death, and subject to all of the conditions on exercise
imposed hereby; and
(c) prior to the expiration of the term of the Option.
13. TERMINATION OF EMPLOYMENT.
(a) During the lifetime of a grantee, an Option shall be exercisable only
while he is an employee of the Company and has been an employee continuously
since the Grant Date of the Option, or within three months after the date on
which he ceases to be such an employee for any reason; provided, however, that
in the case of a grantee who is permanently and totally disabled (within the
meaning of Section 22(e)(3) of the Internal Revenue Code), such three-month
period shall instead be one year.
(b) Any Option that is exercisable after termination of employment, as
provided by Section 13(a), shall be exercisable only to the extent that the
grantee would have been entitled to exercise the Option on the date of
termination of employment; and further, no Option shall be exercisable after the
expiration of the term thereof.
(c) For purposes of this Section 13, an employment relationship shall be
treated as continuing during the period when a grantee is on military duty, sick
leave or other bona fide leave of absence if the period of such leave does not
exceed 90 days or, if
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longer, so long as a statute or contract guarantees the grantee's right to re-
employment with the Company. When the period of leave exceeds 90 days and the
individual's right to re-employment is not so guaranteed, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
14. ADDITIONAL REQUIREMENTS.
Each grant of an Option under the Plan, and (unless a Registration Statement
with respect thereto shall then be effective under the Securities Act of 1933,
as amended (the "Securities Act")) each issuance of shares of Class A Common
Stock upon exercise of an Option, shall be conditioned upon the Company's prior
receipt of a duly executed letter of investment intent, in form and content
satisfactory to counsel for the Company, of the Option holder that such Option
and such shares are being acquired by such holder solely for investment and not
with a view to, or for sale in connection with, any distribution thereof, nor
with any present intention of selling, transferring or disposing of the same.
Any shares of Class A Common Stock acquired by the holder upon exercise of the
Option may not thereafter be offered for sale, sold or otherwise transferred
unless (a) a Registration Statement with respect thereto shall then be effective
under the Securities Act, and the Company shall have been furnished with proof
satisfactory to it that such holder has complied with applicable state
securities laws, or (b) the Company shall have received an opinion of counsel in
form and substance satisfactory to counsel for the Company that the proposed
offer for sale, sale or transfer is exempt from the registration requirements of
the Securities Act and may otherwise be transferred in compliance with the
Securities Act and in compliance with any other applicable law, including all
applicable state securities laws; and the Company may withhold transfer,
registration and delivery of such securities until one of the foregoing
conditions shall have been met.
15. LISTING AND REGISTRATION.
The Company, in its discretion, may postpone the issuance and delivery of
shares upon any exercise of an Option until completion of such stock exchange
listing, or registration or other qualification of such shares under any state
or federal law, rule or regulation, as the Company may consider appropriate; and
may require any person exercising an Option to make such representations and
furnish such information as it considers appropriate in connection with the
issuance of the shares in compliance with applicable law, including without
limitation federal or state laws regulating the sale or issuance of securities.
Notwithstanding the foregoing, the Company shall be under no obligation
whatsoever to list, register or otherwise qualify any shares subject to Options
under the Plan.
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<PAGE>
16. RIGHTS AS A STOCKHOLDER.
No Option holder shall have any rights as a stockholder with respect to the
shares of Class A Common Stock purchased by him pursuant to the exercise of an
Option until the date of the issuance to him of a stock certificate representing
such shares. No adjustment shall be made for dividends or for distributions of
any other kind with respect to shares for which the record date is prior to the
date of the issuance to the Option holder of a certificate for the shares.
17. EFFECT OF ACQUISITION, REORGANIZATION OR LIQUIDATION.
Notwithstanding any provision to the contrary in this Plan or in any
agreement evidencing Options granted hereunder, all Options with exercise
periods then currently outstanding shall become immediately exercisable in full
and remain exercisable until their expiration in accordance with their
respective terms upon the occurrence of either of the following events:
(a) the first purchase of shares pursuant to a tender or exchange offer
which is intended to effect the acquisition of more than 50% of the voting
power of the Company (other than a tender or exchange offer made by the
Company); or
(b) approval by the Company's stockholders of: (i) a merger or
consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation
and which does not result in any reclassification or reorganization of the
shares), (ii) a sale or disposition of all or substantially all of the
Company's assets, or (iii) a plan of complete liquidation or dissolution of
the Company.
18. CONDITIONAL OPTIONS.
Prior to approval and ratification of the Plan by the stockholders of the
Company, the Stock Option Committee may grant "Conditional Options" under the
Plan. In addition, in the event that any amendment to the Plan requires
approval and ratification by the stockholders, then prior to such approval and
ratification the Stock Option Committee may grant Conditional Options under the
Plan. Conditional Options may be granted under the Plan only under the
following conditions: (a) a Conditional Option shall be clearly identified as a
Conditional Option; (b) the grant of a Conditional Option shall be expressly
conditioned upon the approval and ratification of the Plan (or of the amendment
to the Plan, as the case may be) by the stockholders of the Company; (c) such
stockholder approval and ratification shall occur no later than the
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<PAGE>
Annual Meeting of Stockholders of the Company next following the effective date
of the Plan (or of the amendment to the Plan, as the case may be); and (d)
notwithstanding any other provision of the Plan, no holder of a Conditional
Option shall have any right to exercise such Option prior to such approval and
ratification of the Plan (or of the amendment to the Plan, as the case may be)
by the stockholders. Notwithstanding any other provision of the Plan, prior to
approval and ratification of the Plan (or of the amendment to the Plan, as the
case may be) by the stockholders of the Company, no holder of a Conditional
Option shall have any right to sell, assign, transfer, pledge or encumber the
Conditional Option, or the shares underlying the Conditional Option, except by
will or the laws of descent and distribution (unless, in the case of a holder
who is subject to the provisions of Section 16 of the Exchange Act, transfer by
will or the laws of descent and distribution would cause the Option to fail to
satisfy the requirements of a conditional option under Rule 16b-3 promulgated
under the Exchange Act). If the stockholders of the Company fail to approve and
ratify the Plan (or the amendment to the Plan, as the case may be) at such
Annual Meeting of Stockholders, then all Conditional Options granted hereunder
conditioned upon such approval and ratification shall be automatically cancelled
and shall immediately become null and void.
19. AMENDMENT OF PLAN.
The Plan may be amended at any time by the Board of Directors, provided that
(except for amendments made pursuant to Section 5) no amendment made without the
approval and ratification of the stockholders of the Company shall increase the
total number of shares which may be issued under Options granted pursuant to the
Plan, reduce the minimum option price, extend the latest date upon which Options
may be granted or shall be exercisable, change the class of employees eligible
to be granted Options, or otherwise materially increase the benefits accruing to
participants under the Plan.
20. NO RESERVATION OF SHARES.
The Company shall be under no obligation to reserve shares of Class A Common
Stock or other securities to satisfy the exercise of Options. The grant of
Options hereunder shall not be construed as constituting the establishment of a
trust of such shares, and no particular shares shall be identified as optioned
or reserved for issuance hereunder. The Company shall have complied with the
terms of the Plan if, at the time of its delivery of shares upon the exercise of
any Option, it has a sufficient number of shares authorized and unissued, or
issued and held in its treasury, which may then be delivered under the Plan,
irrespective of the date on which such shares were authorized.
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<PAGE>
21. APPLICATION OF PROCEEDS.
The proceeds of the sale of shares of Class A Common Stock by the Company
under the Plan will constitute general funds of the Company and may be used by
the Company for any purpose.
22. CHOICE OF LAW.
The validity, interpretation and administration of the Plan and of any
rules, regulations, determinations or decisions made hereunder, and the rights
of any and all persons having or claiming to have any interest herein or
hereunder, shall be determined exclusively in accordance with the laws of the
State of Delaware (without regard to the choice of law provisions of such laws).
23. RULE 16B-3 QUALIFICATION.
Some or all of the Options granted under the Plan are intended to qualify
under Rule 16b-3 promulgated under the Exchange Act.
24. IN GENERAL.
(a) As used herein, the masculine pronoun shall include the feminine and the
neuter, as appropriate to the context.
(b) As used herein, the term "Section" shall mean the appropriate Section of
the Plan.
* * * * *
THE FOREGOING GENESEE & WYOMING INC. 1996 STOCK OPTION PLAN WAS DULY ADOPTED BY
THE BOARD OF DIRECTORS OF GENESEE & WYOMING INC. ON _____________, 1996, AND
DULY APPROVED AND RATIFIED BY THE STOCKHOLDERS THEREOF ON ____________, 1996.
_______________________________
James B. Gray, Jr., Secretary
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EXHIBIT 10.2
GENESEE & WYOMING INC.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
This GENESEE & WYOMING INC. STOCK OPTION PLAN FOR OUTSIDE DIRECTORS (this
"Plan"), effective ___________, 1996, is established to attract, retain and
compensate highly qualified individuals who are not employees or affiliates of
Genesee & Wyoming Inc., a Delaware corporation (the "Company"), or any of its
subsidiaries, for their service as members of the Board of Directors of the
Company (the "Board of Directors"), and to enable them to increase their
ownership of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common Stock"). As used herein, the term "Shares" shall mean the Class
A Common Stock or such other securities, if any, as may result from an
adjustment under Section 10 hereof.
1. ELIGIBILITY. Each member of the Board of Directors (including any
member elected after the effective date of this Plan) who is neither an employee
of the Company or any of its subsidiaries, nor an employee or other
representative of a significant stockholder of the Company (each, a
"Participating Director"), is eligible to participate in this Plan.
2. STOCK OPTIONS. All stock options granted under this Plan ("Options")
shall be non-statutory stock options to purchase Shares.
3. SHARES AVAILABLE. Subject to adjustment as provided by Section 10
hereof, the total number of Shares which may be issued pursuant to Options
granted hereunder shall not exceed 50,000. Shares subject to Options may be
either authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Company. If any Option is surrendered before
exercise, or lapses without exercise, or for any other reason ceases to be
exercisable, in whole or in part, the Shares reserved for the unexercised
portion thereof shall continue to be available for the grant of Options
hereunder.
4. GRANTS OF OPTIONS.
(a) GRANT DATES; NUMBER OF SHARES. As of the closing date of the
initial public offering of the Company's securities (the "Closing Date"), each
Participating Director shall automatically be granted an Option to purchase
8,000 Shares. Each person who becomes a member of the Board of Directors after
the Closing Date (a "New Director"), shall automatically be granted an Option to
purchase 2,000 Shares
<PAGE>
on the date he first becomes a Participating Director. On each of [May 12],
1997 and [May 24], 1998 (each, a "Grant Date"), each New Director in office on
such date shall automatically be granted an Option to purchase 1,000 Shares;
provided, however that no Options shall be granted on such Grant Dates unless
the Company's net income, after taxes, for the then most recently completed
fiscal year, as shown on the Company's audited financial statements for that
fiscal year, exceeds by at least 10 percent the Company's net income, after
taxes, for the immediately preceding fiscal year.
(b) ELECTION TO DECLINE OPTION. Any Participating Director may, by
written notice received by the Company prior to the Grant Date of such Option,
elect to decline an Option, in which case such Option shall not be granted to
him; provided, however, that at no time shall the Company pay or provide to such
Participating Director anything of value in lieu of the declined Option. In
addition, any Participating Director may, by written notice received by the
Company prior to the Grant Date of such Option, revoke a previous election to
decline an Option.
5. EXERCISE PRICE. The price at which each Option shall be exercisable
shall be the fair market value per share (the "Fair Market Value") of the Shares
on the Grant Date of such Option. The Fair Market Value of the Shares on the
Closing Date shall be the price at which the Shares are sold in the Company's
initial public offering. The Fair Market Value of the Shares on any subsequent
date shall be the closing price of the Shares on the principal national
securities exchange on which the Shares are then listed or admitted to trading
(if the Shares are then listed or admitted to trading on any national securities
exchange), and the closing price shall be the last reported sale price regular
way on such date (or, in case no such sale takes place on such date, the last
reported sale price regular way on the next preceding date on which such sale
took place), as reported by such exchange. If the Shares are not then so listed
on a national securities exchange, the Fair Market Value of the Shares on any
date shall be the closing price (the last reported sale price regular way) in
the over-the-counter market as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), if the closing
price of the Shares is then reported by NASDAQ. If the closing price of the
Shares is not then reported by NASDAQ, the Fair Market Value of the Shares on
any date shall be deemed to be the mean between the representative closing bid
and asked prices of the Shares in the over-the-counter market as reported by
NASDAQ. If the Shares are not then reported by NASDAQ, the Fair Market Value of
the Shares on any date shall be as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by the
Company for that purpose. If no member of the National Association of
Securities Dealers, Inc. furnishes quotes with respect to the Shares,
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Fair Market Value shall be determined by such other reasonable method as is
adopted by resolution of the Board of Directors.
6. VESTING; EXPIRATION. Each Option shall vest and become exercisable over
a three-year period, in increments of one-third on each anniversary date of the
Grant Date. Each Option shall expire on the tenth anniversary of the Grant
Date, and to the extent any Option remains unexercised on such tenth
anniversary, it shall be forfeited.
7. CESSATION OF SERVICE.
(a) CESSATION OF SERVICE. Upon a Participating Director's cessation of
service as a member of the Board of Directors for any reason other than his
death, only those Options (or portions thereof) that have vested by the date of
cessation of service shall thereafter be exercisable by him, and such Options
must be exercised within 90 days after cessation of service (but in no event
after the expiration of the Option) or they shall be forfeited.
(b) LOSS OF ELIGIBILITY. If a Participating Director becomes an
employee of the Company or otherwise no longer satisfies the requirements for
eligibility set forth in Section 1 hereof, then all Options already granted to
him hereunder shall continue in full force and effect, in accordance with their
original terms, for so long as he remains a member of the Board of Directors,
but he shall be entitled to no further grants of Options hereunder.
8. DEATH. Upon the death of a Participating Director while serving as a
member of the Board of Directors, only those Options (or portions thereof) that
have vested by the date of death shall thereafter be exercisable by his legal
representative, and such Options must be exercised within six months after the
date of death (but in no event after the expiration of the Option) or they shall
be forfeited.
9. METHOD OF EXERCISE. An Option shall be exercised by written notice to
the Company specifying the number of whole Shares to be purchased and
accompanied by full payment, in cash, for such Shares. Alternatively, the
exercise price of an Option may be paid, in whole or in part, by delivery of
Shares already owned by the Participating Director (or his estate), which will
be accepted in exchange at the Fair Market Value of the Shares on the date of
exercise. Upon determining that compliance with this Plan has occurred,
including compliance with such reasonable requirements as the Company may impose
pursuant to Section 11 hereof, the Company shall issue certificates for the
Shares purchased.
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10. ADJUSTMENT PROVISIONS. In the event (but only in the event) that:
(a) in connection with a merger or consolidation of the Company or a
sale by the Company of all or a part of its assets, the outstanding Shares
are exchanged for a different number or class of shares of stock or other
securities of the Company, or for shares of the stock or other securities of
any other entity; or
(b) new, different or additional shares or other securities of the
Company or of another entity are received by the holders of Shares; or
(c) any dividend in the form of stock is paid to the holders of Shares,
or any stock split or reverse split pertaining to the Shares is effected;
then appropriate adjustments shall be made to:
(i) the number and kind of shares or other securities that may be issued
upon exercise of Options not yet granted;
(ii) the exercise price per share to be paid upon exercise of each
outstanding Option; and
(iii) the number and kind of shares or other securities covered by each
outstanding Option.
11. TAXES; COMPLIANCE WITH LAWS.
(a) TAXES. The Company, if necessary or desirable, may pay or withhold
the amount of any tax attributable to any Shares deliverable under this Plan,
and the Company may defer making delivery until it is reimbursed or indemnified
to its satisfaction for that tax.
(b) SECURITIES LAWS COMPLIANCE. Each grant of an Option hereunder, and
(unless a Registration Statement with respect thereto shall then be effective
under the Securities Act of 1933, as amended (the "1933 Act")) each issuance of
Shares upon exercise of an Option, shall be conditioned upon the Company's prior
receipt of a duly executed letter of investment intent, in form and content
satisfactory to counsel for the Company, of the Option holder that such Option
and such Shares are being acquired by such Option holder solely for investment
and not with a view to, or for sale in connection with, any distribution
thereof, nor with any present intention of
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selling, transferring or disposing of the same. Any Shares acquired by the
Option holder upon exercise of the Option may not thereafter be offered for
sale, sold or otherwise transferred unless (i) a Registration Statement with
respect thereto shall then be effective under the 1933 Act, and the Company
shall have been furnished with proof satisfactory to it that such Option holder
has complied with applicable state securities laws, or (ii) the Company shall
have received an opinion of counsel in form and substance satisfactory to
counsel for the Company that the proposed offer for sale, sale or transfer is
exempt from the registration requirements of the 1933 Act and the Shares may
otherwise be transferred in compliance with the 1933 Act and in compliance with
any other applicable law, including all applicable state securities laws; and
the Company may withhold transfer, registration and delivery of such securities
until one of the foregoing conditions shall have been met. Unless a
Registration Statement with respect thereto shall then be effective under the
1933 Act, each certificate representing Shares issued upon exercise of an Option
shall bear an appropriate legend reflecting the foregoing. Options are
exercisable, and Shares can be delivered under this Plan, only in compliance
with all applicable federal and state laws and the rules of all stock exchanges
or trading markets on which the Shares are listed or traded at any time. An
Option may not be exercised, and Shares may not be issued under any Option,
until the Company has obtained the necessary consent or approval, if any, of
every regulatory body, federal or state, having jurisdiction over such matters
as the Company deems advisable.
12. NOTICES. All notices and other communications required or permitted
under this Plan shall be written, and shall be either delivered personally or
sent by registered or certified first-class mail, postage prepaid and return
receipt requested, or by telex or telecopier, addressed as follows: if to the
Company, to the Company's principal office at 71 Lewis Street, Greenwich,
Connecticut 06830; and if to a Participating Director or his legal
representative, to the address last furnished by such person to the Company.
Each such notice and communication that is (a) delivered personally shall be
deemed to have been given when delivered, (b) given by mail shall be deemed to
have been given when it is deposited in the United States mail in the manner
specified herein, and (c) given by telex or telecopier shall be deemed to have
been given when it is so transmitted and the appropriate answer back is
received. A party may change its address for the purpose hereof by giving
notice in accordance with the provisions of this Section 12 (provided the notice
of change of address shall be deemed given only when received).
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<PAGE>
13. EFFECT OF ACQUISITION, REORGANIZATION OR LIQUIDATION.
Notwithstanding any provision to the contrary in this Plan or in any
agreement evidencing Options granted hereunder, all Options with exercise
periods then currently outstanding shall become immediately exercisable in full
and remain exercisable until their expiration in accordance with their
respective terms upon the occurrence of either of the following events:
(a) the first purchase of shares pursuant to a tender or exchange offer
which is intended to effect the acquisition of more than 50% of the voting
power of the Company (other than a tender or exchange offer made by the
Company); or
(b) approval by the Company's stockholders of: (i) a merger or
consolidation of the Company with or into another corporation (other than a
merger or consolidation in which the Company is the surviving corporation
and which does not result in any reclassification or reorganization of the
shares), (ii) a sale or disposition of all or substantially all of the
Company's assets, or (iii) a plan of complete liquidation or dissolution of
the Company.
14. ADMINISTRATION AND AMENDMENT OF PLAN. This Plan shall be administered
by the Board of Directors. This Plan may be terminated or amended by the Board
of Directors as it deems advisable; provided, however, that any amendment that
changes the timing of the grant of Options, the eligibility requirements for
Participating Directors, the method of determining the exercise price of
Options, the vesting schedule or expiration date of Options, or the number of
Shares subject to Options shall not be made more frequently than every six
months unless otherwise necessary to comply with the Internal Revenue Code of
1986, as amended, the Employee Retirement Income Security Act of 1974, as
amended, or any regulations thereunder. No amendment of this Plan may revoke or
alter in a manner adverse to a Participating Director any Options then
outstanding.
15. NONTRANSFERABILITY. No Option granted under this Plan is transferable
other than by will or the laws of descent and distribution. During a
Participating Director's lifetime, an Option may only be exercised by him.
16. NO ADDITIONAL RIGHTS. Except as provided in this Plan, no Participating
Director shall have any claim or right to be granted an Option under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any person any right to continue to serve as a member of the Board of Directors.
No
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<PAGE>
person, estate or other entity shall have any rights as a stockholder of the
Company with respect to Shares subject to Options until a certificate for such
Shares has been delivered to the person exercising the Option in accordance with
the terms of this Plan.
17. CHOICE OF LAW. The validity, interpretation and administration of this
Plan and of any rules, regulations, determinations or decisions made hereunder,
and the rights of any and all persons having or claiming to have any interest
herein or hereunder, shall be determined exclusively in accordance with the laws
of the State of Delaware (without regard to the choice of law provisions of such
laws).
18. INTERPRETATION. As used herein, and as appropriate to the context, the
masculine pronoun shall include the feminine and the neuter, and the singular
shall include the plural.
* * * * * *
THE FOREGOING GENESEE & WYOMING INC. STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
WAS DULY ADOPTED BY THE BOARD OF DIRECTORS OF GENESEE & WYOMING INC. ON
_______________, 1996, AND DULY APPROVED AND RATIFIED BY THE STOCKHOLDERS
THEREOF ON __________________, 1996.
---------------------------------
JAMES B. GRAY, JR., SECRETARY
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EXHIBIT 10.4
GENESEE & WYOMING INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE AND EFFECT OF PLAN
The purpose of the Plan is to secure for the Company and its stockholders
the benefits of the incentive inherent in the ownership of common stock by
present and future employees of the Company and its subsidiaries. The Plan is
intended to conform with the provisions of Rule 16b-3 of the Act and the terms
of Code section 423.
2. DEFINITIONS
Where indicated by initial capital letters, the following terms shall have
the following meanings:
a. Act: The Securities Exchange Act of 1934, as amended.
b. Base Compensation: The regular earnings of an Eligible Employee,
including overtime and bonuses, and salary reduction contributions pursuant to
elections under a plan subject to Code sections 125 or 401(k).
c. Board: The Board of Directors of the Company.
d. Code: The Internal Revenue Code of 1986, as amended, or any
subsequently enacted federal revenue law. A reference to a particular section
of the Code shall include a reference to any regulations issued under the
section and to the corresponding section of any subsequently enacted federal
revenue law.
e. Committee: The committee established pursuant to Section 4 to be
responsible for the general administration of the Plan.
f. Class A Common Stock: The Company's Class A Common Stock, $.01 par
value per share.
g. Company: Genesee & Wyoming Inc. and any successor by merger,
consolidation or otherwise.
h. Custodian: Has the meaning given it by Section 13.
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i. Eligible Employee: Any employee of the Company or any subsidiary of the
Company that meets the eligibility requirements of Section 5.
j. Enrollment Form: The form filed with the Committee authorizing payroll
deductions pursuant to Section 6.
k. Fair Market Value: The last reported sale price, regular way, of the
Class A Common Stock as reported by Nasdaq on the date in question, or, if the
Class A Common Stock shall not have traded on Nasdaq on such date, the last
reported sale price, regular way, so reported on the first day prior thereto on
which the Class A Common Stock so traded.
l. Investment Account: Has the meaning given it by Section 13.
m. Investment Date: The second to last business day of each calendar month
on which shares of Class A Common Stock are or could be traded on Nasdaq.
n. Issuance Date: The date on or about which certificates representing
shares of Common Stock held in a Participating Employee's Investment Account are
issued to the Participating Employee or sold pursuant to his direction.
o. Nasdaq: The Nasdaq Stock Market.
p. Participating Employee: An Eligible Employee who elects to participate
in the Plan by filing an Enrollment Form pursuant to Section 6.
q. Payroll Deduction Account: The account established for a Participating
Employee to hold payroll deductions pursuant to Section 6.
r. Plan: The "Genesee & Wyoming Inc. Employee Stock Purchase Plan," as set
forth herein and as amended from time to time.
s. Purchase Price: The price for each share of Class A Common Stock, which
shall be the Fair Market Value of such share on the Investment Date.
t. Section: The appropriate section of the Plan.
3. SHARES SUBJECT TO THE PLAN
Subject to the provisions of Section 12, the total number of shares of Class
A Common Stock which may be purchased by employees under the Plan shall not
exceed 450,000. Shares subject to the Plan may be either authorized but
unissued shares or shares that were once issued and subsequently reacquired by
the Company.
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4. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee appointed by the Board which
shall be comprised of two or more members of the Board. Each member of the
Committee shall be a disinterested director of the Company within the meaning of
Rule 16b-3 promulgated under the Act. The Committee shall be the Stock Option
Committee under the Genesee & Wyoming Inc. 1996 Stock Option Plan unless the
Board shall appoint another committee to administer the Plan.
Subject to the express provisions of the Plan, the Committee shall have the
authority to take any and all actions necessary to implement the Plan and to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations necessary or advisable in
administering the Plan. All of such determinations shall be final and binding
upon all persons. A quorum of the Committee shall consist of a majority of its
members and the Committee may act by vote of a majority of its members at a
meeting at which a quorum is present, or without a meeting by a written consent
to the action taken signed by all members of the Committee. The Committee may
request advice or assistance or employ such other persons as are necessary for
proper administration of the Plan.
5. ELIGIBLE EMPLOYEES
Any employee of the Company or of any subsidiary of the Company shall be
eligible to participate in the Plan, except an employee (a) whose customary
employment is twenty hours or less per week, or (b) who has been employed for
less than two years. No director of the Company who is not an employee shall be
eligible to participate in the Plan.
6. ELECTION TO PARTICIPATE
An employee may become a Participating Employee effective on the first day
of any calendar month coincident with or following the date he becomes an
Eligible Employee by filing with the Committee an Enrollment Form authorizing
specified regular payroll deductions from his Base Compensation. Such regular
payroll deductions shall be subject to a maximum deduction of 10% of Base
Compensation for each pay period. All regular payroll deductions shall be
credited to the Payroll Deduction Account that the Company has established in
the name of the Participating Employee.
A Participating Employee may at any time withdraw from the Plan and cease to
be a Participating Employee. An employee who ceases to be a Participating
Employee shall receive a refund of the amount in his Payroll Deduction Account
and may not again become a Participating Employee for six months. A
Participating Employee
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may, to be effective as of the first day of the next following calendar month,
increase or decrease his payroll deduction by filing a new Enrollment Form.
Enrollment Forms must be filed with the Committee not less than ten days
before the beginning of a calendar month to be effective for that month, unless
a shorter period of time is prescribed by the Committee. An Enrollment Form not
filed within the prescribed filing period shall be effective the first day of
the calendar month following the calendar month when it would otherwise become
effective.
As a condition of participation in the Plan, each Participating Employee
agrees to notify the Company if he sells or otherwise disposes of any Class A
Common Stock purchased by him under the Plan within two years of the Investment
Date on which such shares were purchased.
7. PURCHASE OF SHARES
Each Participating Employee having eligible funds in his Payroll Deduction
Account on an Investment Date shall be deemed, without any further action, to
have purchased the number of shares which the eligible funds in his Payroll
Deduction Account could purchase at the Purchase Price on that Investment Date.
The Payroll Deduction Account of each such Participating Employee shall be
charged for the amount of such purchase and shares shall be issued to the
Participating Employee as of the Investment Date. Such shares may be
uncertificated and held by the Custodian in accordance with Section 13.
8. REGISTRATION OF SHARES
Shares of Class A Common Stock will be registered only in the name of the
Participating Employee or, if he so indicates on his Enrollment Form, in his
name jointly with one other person, with right of survivorship.
9. LIMITATION ON PURCHASES
(a) During any one calendar year, no Participating Employee shall have the
right to purchase under the Plan (and all other plans qualified under Code
section 423) shares of stock of the Company and its subsidiaries having a Fair
Market Value (determined at the time such right is granted) in excess of
$25,000. The purpose of this limitation is to comply with Code section
423(b)(8) and shall be interpreted accordingly.
(b) A Participating Employee's Payroll Deduction Account may not be used to
purchase Class A Common Stock on any Investment Date to the extent that after
such purchase the Participating Employee would own (or be considered as owning
within
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the meaning of Code section 424(d)) stock possessing 5 percent or more of the
total combined voting power or value of all classes of stock of the Company or
of its subsidiaries. For this purpose, stock which the Participating Employee
may purchase under any outstanding option shall be treated as owned by such
Participating Employee. As of the first Investment Date on which this Section
9(b) limits a Participating Employee's ability to purchase Class A Common Stock,
the employee shall cease to be a Participating Employee.
10. RIGHTS AS A STOCKHOLDER
None of the rights or privileges of a stockholder of the Company shall exist
with respect to shares of Class A Common Stock purchased under the Plan until
the date as of which such shares are issued.
11. RIGHTS NOT TRANSFERABLE
Except as expressly provided in Section 14, neither compensation deductions
credited to a Participating Employee's Payroll Deduction Account nor any rights
with regard to participation in the Plan nor the right to receive shares of
Class A Common Stock shall be transferable in any way by a Participating
Employee.
12. CHANGE IN CAPITAL STRUCTURE
In the event of a stock dividend, stock split or combination of shares,
recapitalization or merger in which the Company is the surviving corporation or
other change in the Company's capital stock applicable to all stockholders
generally, the number and kind of shares of stock or other securities of the
Company to be subject to the Plan, the maximum number of shares or other
securities which may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Committee, whose determination shall be
binding on all persons.
If the Company is a party to a consolidation or a merger in which the
Company is not the surviving corporation, a transaction that results in the
acquisition of substantially all of the Company's outstanding stock by a single
person or entity, or a sale or transfer of substantially all of the Company's
assets, the Committee may take such actions with respect to the Plan as the
Committee deems appropriate.
Notwithstanding anything in the Plan to the contrary, the Committee may take
the foregoing actions without the consent of any Participating Employee, and the
Committee's determination shall be conclusive and binding on all persons for all
purposes.
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13. INVESTMENT ACCOUNT
Notwithstanding any other provision of the Plan to the contrary, the Board,
in its sole discretion, may appoint a custodian to hold the Class A Common Stock
purchased under the Plan (the "Custodian"). The Custodian shall maintain a
separate account for each Participating Employee (the "Investment Account").
Each Investment Account shall be in the name of the Participating Employee or,
if he so indicates on his Enrollment Form, in his name jointly with one other
person, with right of survivorship.
A Participating Employee shall have the right at any time, by written
instruction to the Custodian, to obtain a certificate for the whole shares then
credited to his Investment Account, or to direct that any whole shares then
credited to his Investment Account be sold by the Custodian on the open market
and the net proceeds thereof be remitted to him (with all expenses incurred in
the sale of such shares being paid by the Participating Employee). In either
such case, any fractional shares then credited to the Participating Employee's
Investment Account shall remain so credited or, if the Participating Employee so
instructs the Custodian, the Fair Market Value thereof, as of the Issuance Date,
shall be paid to him in cash. When so requested by a Participating Employee or
otherwise required by the terms of the Plan, the Custodian shall direct the
Company's transfer agent to issue in the name of the Participating Employee (of,
if he so indicates on his Enrollment Form, in the name of such Participating
Employee jointly with one other person with right of survivorship) a stock
certificate representing the whole shares of Common Stock then credited to his
Investment Account. Notwithstanding the foregoing, if on any Issuance Date the
Company does not have a currently effective Registration Statement on Form S-8
under the Securities Act of 1933, as amended, covering the shares subject to the
Plan, then the Custodian may postpone the issuance of the Participating
Employee's stock certificates or the sale of such shares until such Registration
Statement is effective.
Expenses incurred in the purchase of shares and all expenses of the
Custodian shall be paid by the Company.
14. RETIREMENT, TERMINATION AND DEATH
In the event of a Participating Employee's death or retirement or
termination of employment for any reason, or in the event that a Participating
Employee ceases to be such, then no further purchase of shares shall be made by
him under the Plan. In such event, the amount remaining in his Payroll
Deduction Account shall be refunded to him, and a certificate shall be issued,
as provided in Section 13, representing the whole shares then credited to his
Investment Account (with the Fair Market Value, as of the date of such event, of
any fractional shares paid to him in cash). In the event of a Participating
Employee's death, the amount in his Payroll Deduction Account
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shall be delivered to the beneficiary designated by the Participating Employee
in a writing filed with the Company. If no beneficiary has been designated, or
if the designated beneficiary does not survive the Participating Employee, such
amount shall be delivered to his estate.
15. AMENDMENT OF THE PLAN
The Board may at any time, or from time to time, amend the Plan in any
respect; provided, however, that the stockholders of the Company must approve
any amendment that would materially (i) increase the benefits accruing to
Participating Employees under the Plan, (ii) increase (other than pursuant to
Section 12) the number of securities that may be issued under the Plan, or (iii)
modify the requirements as to eligibility for participation in the Plan.
16. TERMINATION OF THE PLAN
The Plan and all rights of employees hereunder shall terminate:
(a) on the Investment Date that Participating Employees become entitled to
purchase a number of shares greater than the number of shares remaining
available for purchase; or
(b) at any date at the discretion of the Board of Directors.
In the event that the Plan terminates under circumstances described in (a)
above, the shares remaining as of the termination date shall be purchased by
Participating Employees on a pro rata basis. Upon termination of the Plan, all
amounts in an employee's Payroll Deduction Account that are not used to purchase
Class A Common Stock will be refunded to him, and certificates shall be issued,
as provided in Section 13, representing the whole shares then credited to each
Participating Employee's Investment Account (with the Fair Market Value, as of
the date on which the Plan was terminated, of any fractional shares paid to him
in cash).
17. EFFECTIVE DATE OF PLAN
The Plan shall become effective upon (a) due approval of the Plan by the
stockholders of the Company, and (b) the effectiveness of a Registration
Statement on Form S-8 under the Securities Act of 1933, as amended, covering the
shares of Class A Common Stock subject to the Plan.
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18. GOVERNMENT AND OTHER REGULATIONS
The Plan, and the grant and exercise of the rights to purchase shares
hereunder, and the Company's obligation to sell and deliver shares upon the
exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or government agency as may, in the opinion of counsel for the
Company, be required.
19. INDEMNIFICATION OF COMMITTEE
Service on the Committee shall constitute service as a director of the
Company so that members of the Committee shall be entitled to indemnification
and reimbursement as directors of the Company pursuant to its Certificate of
Incorporation and Bylaws.
20. INTERPRETATION
As used herein, and as appropriate to the context, the masculine pronoun
shall include the feminine and the neuter, and the single shall include the
plural.
* * * * * *
THE FOREGOING GENESEE & WYOMING INC. EMPLOYEE STOCK PURCHASE PLAN WAS DULY
ADOPTED BY THE BOARD OF DIRECTORS OF GENESEE & WYOMING INC. ON __________, 1996.
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JAMES B. GRAY, JR., SECRETARY
THE EFFECTIVE DATE OF THE PLAN, AS DEFINED IN SECTION 17 OF THE PLAN, IS
_______________________.
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JAMES B. GRAY, JR., SECRETARY
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EXHIBIT 10.70
CONFIDENTIAL TREATMENT REQUESTED AS TO THOSE PORTIONS MARKED WITH AN ASTERISK OR
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A BRACKET AND THOSE PORTIONS HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
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ASSET PURCHASE AGREEMENT
THIS AGREEMENT, dated April 19, 1996 is made by and among Pittsburg &
Shawmut Railroad, Inc., a Delaware corporation ("BUYER"), Genesee & Wyoming
Inc., a Delaware corporation ("GWI"), The Pittsburg & Shawmut Railroad Company,
a Pennsylvania corporation ("P&S"), Red Bank Railroad Company, a Pennsylvania
corporation ("RED BANK"), Mountain Laurel Railroad Company, a Pennsylvania
corporation ("MOUNTAIN LAUREL") and Arthur T. Walker Estate Corporation, a
Delaware corporation ("ATWEC"). P&S, Red Bank and Mountain Laurel are each
referred to individually herein as a "SELLER" and collectively as "SELLERS".
In consideration of the mutual covenants and agreements contained herein,
the parties hereto agree as follows:
ARTICLE 1. PURCHASE AND SALE
SECTION 1.1 TRANSFER OF ASSETS. Subject to all of the terms and conditions
of this Agreement, at the Closing (as hereinafter defined), each Seller agrees
to sell, transfer, convey, assign and deliver to Buyer, and Buyer agrees to
purchase and accept from each Seller, all of the following:
(a) Each Seller's real property and interests therein described in
Schedule 1.1(a), including railroad ties and track bed (the "REAL
PROPERTY");
(b) Each Seller's tangible personal property (excluding inventories),
including but not limited to tracks, rails, switches, crossings, bridges,
buildings, signals, crossing protection devices, communication lines, poles
and radio masts which may be affixed as of the date of this Agreement to the
Real Property, equipment, machinery, furniture, fixtures, leasehold
improvements, vehicles and supplies (as described in Schedule 1.1(b)),
including those described in Schedule 1.1(b) (the "TANGIBLE PERSONAL
PROPERTY"); provided, however, Buyer is not purchasing those assets
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identified as "Excluded Assets" on Schedule 1.1(b) (the "EXCLUDED ASSETS");
(c) Sellers' inventories and stores selected by Buyer in its sole
discretion and as described in Schedule 1.1(c), having an aggregate book
value of $50,000.00 (the "INVENTORIES");
(d) all of Sellers' interest in and to all of the contracts identified
in Schedule 2.1, including but not limited to product and service warranties
(the "CONTRACTS");
(e) all of Sellers' interest in and to (1) all patents, applications for
patents, copyrights, license agreements, assumed names, trade names,
trademark and/or service mark registrations, applications for trademark
and/or service mark registrations, trademarks and service marks of Sellers,
as more particularly described in Sche-
<PAGE>
dule 1.1(e), and the goodwill associated therewith, and all variants
thereof, including all rights to use the names "The Pittsburg & Shawmut
Railroad Company", "Red Bank Railroad Company" and "Mountain Laurel Railroad
Company" to the exclusion of Sellers and ATWEC, and (2) all of Sellers'
other proprietary information, including trade secrets, know-how, product
designs and specifications, operating data, customer lists and other
information pertaining to their respective businesses (other than those
relating to Excluded Assets) (the "INTANGIBLE ASSETS");
(f) copies or originals (as mutually determined by Sellers and Buyer) of
all of each Seller's business and operational records, including employee
records of any employee of any Seller who is hired by Buyer, office and
sales records, blueprints, marketing strategies, business plans, studies and
inventory lists and records (but expressly excluding each Seller's capital
stock records, corporate minute books, bank account records and tax returns)
(the "RECORDS"); and
(g) all of the issued and outstanding capital stock of Kittanning
Equipment Leasing Company (the "KITTANNING STOCK").
The Real Property, the Tangible Personal Property, the Inventories, the
Contracts, the Intangible Assets, the Records and the Kittanning Stock are
collectively referred to herein as the "PURCHASED ASSETS".
SECTION 1.2 USE OF SELLERS' NAMES. In furtherance of the purchase and sale
of the Purchased Assets hereunder, at the Closing, each Seller and ATWEC shall
cause each Seller's corporate name to be changed to a name completely dissimilar
to "The Pittsburg & Shawmut Railroad Company", "Red Bank Railroad Company" and
"Mountain Laurel Railroad Company", and thereafter shall not adopt, use, cause
to be used, or approve or sanction the use of any such names, or any names so
similar as to cause confusion therewith.
SECTION 1.3 PURCHASE PRICE.
SECTION 1.4 PAYMENT OF PURCHASE PRICE. Subject to the terms and conditions
of this Agreement, at the Closing Buyer shall pay the Purchase Price to Sellers
in immediately available funds by wire transfer or other means acceptable to
Sellers.
SECTION 1.5 SUPPLEMENTAL PURCHASE PRICE. A supplemental purchase price (the
"Supplemental Purchase Price") shall be paid as additional consideration for the
Purchased Assets under, and contingent upon, the following terms and conditions.
(a)
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(b)
(c) Coal Revenues.
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(d) Access to Records. Within ninety (90) days after the end of 1997
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and each year thereafter, Buyer shall deliver to ATWEC, or its designee, a
notice certifying the amount due, if any, pursuant to this Section 1.5 with
respect to such year along with (i) a check for any such amount and (ii) a
calculation of such amount due based on tonnage shipped. ATWEC or its
designee shall have the right annually to inspect
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Buyer's books and records with respect to the shipments which are the
subject of this Section 1.5.
(e) Definition of "Buyer". For purposes of this Section 1.5, the term
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"Buyer" shall include Buyer's direct and indirect successors and assigns.
ARTICLE 2. LIABILITIES AND CONTRACTS
SECTION 2.1 CONTRACTS ASSUMED. Subject to the terms and conditions of this
Agreement, at the Closing, Buyer shall assume and become responsible to pay,
perform and discharge the Contracts of Sellers identified (or otherwise
described) in Schedule 2.1 and each other Contract of Sellers which, at or
before the Closing, is placed (or otherwise described) on a revised Schedule 2.1
executed by Buyer and Sellers.
SECTION 2.2 NO ASSUMPTION OF LIABILITIES OR OTHER CONTRACTS. Except as
provided in Section 2.1 or Article 10, it is expressly understood and agreed
that Buyer does not assume nor shall it be liable for any liability, obligation,
claim against or Contract of Sellers of any kind or nature, at any time existing
or asserted, whether or not accrued, whether fixed, contingent or otherwise,
whether known or unknown, and whether or not recorded on the books and records
of Sellers, arising out of or by reason of this or any other transaction or
event occurring prior or subsequent to the Closing.
ARTICLE 3. SELLERS' AND ATWEC'S REPRESENTATIONS AND WARRANTIES
Each Seller, with respect to its own affairs, and ATWEC, with respect to its
own affairs, hereby represents and warrants to Buyer and to GWI, except as set
forth in Schedule 3, the Disclosure Statement, as follows:
SECTION 3.1 SELLER ORGANIZATION, STANDING AND QUALIFICATION. Each Seller is
a duly organized, validly existing corporation, chartered and in good standing,
under the laws of the Commonwealth of Pennsylvania; is duly licensed, qualified
to do business, and in good standing in each jurisdiction in which the ownership
and operation of its business requires such licensing or qualifications except
for those states or jurisdictions in which the failure to be so qualified will
not have a Material Adverse Effect; and has full corporate power and authority
and all permits, consents and authorizations necessary to own and lease its
properties and to carry on its business as now conducted, including but not
limited to, any fictitious name registrations required to be filed, the absence
of which will not have a Material Adverse Effect. For purposes of this
Agreement, the term "Material Adverse Effect" means a material adverse effect on
the financial condition of the Sellers in the aggregate or their assets,
properties, liabilities, operations or conditions taken as a whole.
SECTION 3.2 ATWEC ORGANIZATION, STANDING AND QUALIFICATION. ATWEC is a
duly organized, validly existing corporation, chartered and in good standing,
under the laws
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of the State of Delaware. ATWEC has all necessary corporate power and authority
to execute and deliver this Agreement, to comply with the provisions hereof and
to consummate the transactions contemplated hereby.
SECTION 3.3 SUBSIDIARIES. Each Seller has no subsidiaries, other than
Kittanning Equipment Leasing Company ("KELC"), a subsidiary of P&S.
SECTION 3.4 CAPITALIZATION OF SELLER. All of the issued and outstanding
shares of each Seller's capital stock are owned by ATWEC.
SECTION 3.5 CORPORATE DOCUMENTS. All of Sellers' corporate books are
accurate as to the actions contained therein, and the Bylaws contained therein
are the Bylaws of each Seller as of the date of this Agreement and shall be the
Bylaws of such Seller as of the Closing Date.
SECTION 3.6 AUTHORIZATION. Each Seller's and ATWEC's execution and delivery
of this Agreement, its compliance with the provisions hereof and the
consummation of all of the transactions contemplated hereby have all been duly
and validly authorized by all necessary corporate action on the part of each
Seller and ATWEC, and this Agreement is valid and binding upon each Seller and
ATWEC in accordance with its terms.
SECTION 3.7 NO CONFLICT. Neither the execution and delivery of this
Agreement by any Seller or ATWEC, nor compliance by any Seller or ATWEC with any
of the provisions hereof, nor the consummation of the transactions contemplated
hereby, will:
(a) conflict with or result in a breach of any provision of such
Seller's or ATWEC's respective Certificate of Incorporation or By-laws;
(b) result in a default, or give rise to any right of termination,
cancellation or acceleration, under any term, condition or provision of any
Contract, Encumbrance or other instrument or obligation to which such
Seller, any subsidiary of such Seller is a party or by which they or any of
their respective properties or assets may be bound which default or right
will have a Material Adverse Effect; or
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such Seller, any subsidiary of such Seller, or any
of their respective properties or assets which violation will have a
Material Adverse Effect.
For purposes of this Agreement the term "ENCUMBRANCE" means and includes (a) all
interests securing obligations owed to any Person, whether based on common law,
statute or Contract, including those arising from mortgages, indentures, deeds
of trust, leases, collateral assignments of lease and rights, liens, pledges,
conditional sales contracts, consignments and bailments, (b) all reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, charges, claims, leases and other similar title exceptions and
encumbrances, (c) all liens of any taxing authority, and (d) all landlords',
mechanics', materialmen's, warehousemen's, carriers' and similar liens.
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SECTION 3.8 FINANCIAL STATEMENTS. True and correct copies of Balance
Sheets for each Seller as of December 31, 1994, and December 31, 1995, true and
accurate copies of Operating and Revenue Statements for each Seller for the
twelve (12) month periods ending December 31, 1994 and December 31, 1995,
respectively, have been furnished to Buyer by Sellers. Within forty-five (45)
days after the Closing Date, true and correct copies of the Balance Sheet, as of
the Closing Date, as well as Operating and Revenue Statements for Seller from
December 31, 1995 through the Closing Date shall be furnished to Buyer by
Sellers. All of the foregoing Balance Sheets, Operating and Revenue Statements
shall collectively constitute the "FINANCIAL STATEMENTS". The Financial
Statements (1) are in accordance with the books and records of Sellers in all
material respects; and (2) present fairly the financial condition of Sellers at
the dates of such Financial Statements and their results of operations for the
respective period then ending; and (3) except for the interim statements
described above, the same have been prepared in accordance with generally
accepted accounting principles, consistently applied with prior periods.
SECTION 3.9 UNDISCLOSED LIABILITIES. Except as set forth in the Financial
Statements and except with respect to Environmental Laws which are separately
treated in Section 3.14, each Seller has no outstanding debt, liability or other
obligation, whether accrued, absolute, contingent or otherwise and whether due
or to become due other than debts, liabilities or obligations incurred in the
ordinary course of business or which would not have a Material Adverse Effect.
SECTION 3.10 TAXES, TAX RETURNS AND AUDITS.
(a) All federal, state and local tax returns as to the operations of
each Seller which are required by law to be filed on or before the Closing
Date have been timely filed, and all taxes, interest, penalties and
assessments for said periods which were due and owing pursuant to said tax
returns, or pursuant to any assessments or otherwise for any taxable periods
ending on or prior to the Closing Date for or which returns were due prior
to the Closing Date have been paid, except for any such tax, interest,
penalty or assessment which is being contested in good faith by such Seller
and with respect to which such Seller has set aside adequate reserves on its
books and except where the failure to file any such return or to pay any
such tax, interest, penalty or assessment would not have a Material Adverse
Effect. True and correct copies of all federal and state tax returns for
each Seller's 1993 and 1994 tax years have been furnished to Buyer by such
Seller.
(b) To the knowledge of each Seller, there are no pending investigations
or proceedings relating to, or claims asserted for, taxes or assessments
against such Seller. Each Seller has timely paid in full all property taxes
and other assessments levied on its assets and properties which have
heretofore become due and payable except for any such tax or other
assessment which is being contested in good faith by each Seller and with
respect to which each Seller has set aside adequate reserves on its books
and except where the failure to file any such return or to pay any such tax,
interest, penalty or assessment would not have a Material Adverse Effect.
There are in effect no agreements, waivers or other arrangements providing
for an extension of time with
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regard to the assessment of any tax, or any deficiency with respect thereto,
against any Seller. There are no actions, suits, proceedings,
investigations or claims now pending against any Seller relating to any
taxes or assessments, or any claims or deficiencies with respect thereto.
(c) All applicable estimated federal, state and local income tax
payments or deposits for 1995 which were due and payable prior to the date
hereof, including the quarterly estimates for the third and fourth quarters
of 1995 have been made.
SECTION 3.11 TITLE TO ASSETS. Each Seller has good title to Purchased
Assets other than the Real Property being transferred by it, free and clear of
restrictions on, or conditions to, transfer or assignment, and of mortgages,
liens, pledges, charges, encumbrances and security interests, except minor liens
or encumbrances that, in the aggregate with all other Sellers, are not material
in amount and do not materially detract from or materially interfere with the
present use of any material properties, or materially impair the business
operations of Sellers in the aggregate (the foregoing collectively referred to
as "PERMITTED ENCUMBRANCES").
SECTION 3.12 REAL PROPERTY. Since December 31, 1993, no Seller has
received any written notice that the operations on and use of the Real Property
by Seller do not conform to all applicable zoning and similar laws, rules and
regulations. To each Seller's knowledge, the operations on and use of the Real
Property by each Seller conform to all applicable zoning and similar laws, rules
and regulations except to the extent non-compliance would not have a Material
Adverse Effect.
SECTION 3.13 NO THIRD PARTY RIGHTS OR OPTIONS. Except for certain
statutory rights of the Commonwealth of Pennsylvania to a priority in acquiring
abandoned railroad property or rights of reversion in the event the Real
Property ceases to be used for railroad purposes and except with respect to any
leased assets, there are no outstanding rights or options in any third party to
acquire any Purchased Assets or any interest therein, or to acquire any assets
or other properties of any Seller or any interest therein (excluding, however,
any such rights or options which may have been granted by Buyer or GWI).
SECTION 3.14 COMPLIANCE WITH LAWS. Since December 31, 1993, no Seller has
received any written notice from any governmental agency of any violations of
any applicable federal, state or local law or regulation affecting its assets or
the operation of its business, except for any such notice which has been or will
be complied with prior to the Closing. Since December 31, 1993, no Seller has
received any written notice from any governmental agency that it must remove,
repair or restore any bridge or grade crossing, except for any such notice which
has been or will be complied with prior to the Closing. Sellers warrant that,
to Sellers' knowledge, Sellers are in substantial compliance with all material
federal, state and local laws and regulations applicable to its business,
including without limitation, those respecting the health and safety of its
employees, the benefit or welfare plans provided for its employees, the hiring,
firing and conditions of employment of its employees and the protection of the
environment. Except in compliance with then applicable Environmental Laws (as
defined below) and in the ordinary course of business, Sellers further represent
and
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warrant that (i) no Seller has stored, dumped or deposited nor participated in
the storing, dumping or depositing of any Hazardous Substance upon any of its
properties or elsewhere in violation of then applicable law, and (ii) no Seller
has at any time received, nor does it have any knowledge of any facts or
circumstances that would cause it to reasonably believe that it is likely to
receive, notice of an alleged violation of any then applicable Environmental
Law, rule or regulation from any governmental authority or any notice from any
federal, state or local governmental agency, or any other person, that any
Seller may have liability arising from or related to the discharge, disposal,
release, or threatened release, of any Hazardous Substance at or from a
"facility" (as defined in (S)101(9) of CERCLA), which liability would have a
Material Adverse Effect.
(a) "ENVIRONMENTAL LAWS" shall mean the Federal Water Pollution Control
Act, the Clean Air Act, the Resource Conservation Recovery Act ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), the Superfund Amendment and Reauthorization Act, the Toxic
Substances Control Act ("TSCA"), the Hazardous Materials Transportation Act
("HMTA"), and any other applicable federal, state or local statute, rule,
ordinance, law or regulation that pertains to the protection of the
environment or human health as enacted and in effect on the date hereof and
all licenses, orders, permits, certificates or like authorizations
promulgated under any Environmental Law.
(b) "HAZARDOUS SUBSTANCE" means, without limitation, any flammable
explosives, radon, radioactive materials, friable asbestos, polychlorinated
biphenyls, petroleum and petroleum products, hazardous materials, hazardous
wastes, hazardous or toxic substances, as defined in CERCLA, HMTA, RCRA,
TSCA, or any other federal, state or local environmental statute, rule,
ordinance, law or regulation as enacted and in effect as of the Closing
Date.
SECTION 3.15 CONTRACTS. Except for the leases and contracts set forth on
the Disclosure Statement and contracts set forth on Schedule 2.1 to this
Agreement (true copies of which have been delivered or made available to Buyer
by Sellers), no Seller is bound by any written or oral:
(a) Agreement or understanding not made in the ordinary course of its
business;
(b) Employment contract or contract for personal services not terminable
at will;
(c) Continuing contract for the future purchase of material, supplies,
machinery, or other equipment in excess of the requirements of its business
now booked or of normal operating requirements;
(d) Sales agency agreement or advertising contracts;
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(e) Contract or commitment for capital expenditures, in excess of One
Thousand Dollars ($1,000.00) in the aggregate;
(f) Contract or agreement containing covenants by Seller not to compete
in any lines or business or with any person; or
(g) Lease for premises pursuant to which any Seller makes or receives
payments in excess of Five Thousand Dollars ($5,000) per year and which is
not cancelable upon not greater than forty (40) days notice.
SECTION 3.16 LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Seller, threatened in any court
or before any governmental agency or instrumentality against any Seller or its
properties or assets which if adversely decided would have a Material Adverse
Effect, or which would prevent the carrying out of this Agreement or any of the
transactions contemplated hereby or declare the same unlawful or cause the
recision thereof.
SECTION 3.17 ABSENCE OF ADVERSE CHANGES OR OTHER EVENTS. Except as set
forth on the Disclosure Statement and except as contemplated by this Agreement,
since December 31, 1995 no Seller has:
(a) Created or incurred any liability (absolute or contingent) except
for trade debt and similar unsecured current liabilities, under oral or
written contracts other than debts, liabilities or obligations incurred in
the ordinary course of business or which would not have a Material Adverse
Effect;
(b) Other than in the ordinary course of business, loaned any money or
otherwise pledged the credit of Seller or mortgaged, pledged, or subjected
its assets to any tangible or intangible lien or encumbrance;
(c) Sold or otherwise disposed of, or contracted to sell or dispose of,
any of Purchased Assets, tangible or intangible; or canceled any debts owed
it or claims held by it against a third party other than in the ordinary
course of business;
(d) Terminated or amended or suffered the termination or amendment of
any material contract, lease, agreement or license or other instrument to
which it is or was a party;
(e) Made or become a party to any contract or commitment or renewed,
extended, amended, or modified any contract or commitment which in any one
case involves an amount in excess of Five Thousand Dollars ($5,000.00) and a
term in excess of forty (40) days (other than automatic extensions or
renewals);
(f) Except as otherwise provided in Schedule 2.1 with respect to the
ongoing agreements of any Seller and except as done in the ordinary course
of business, paid or agreed to pay, conditionally or otherwise, any bonus,
extra compensation, or severance
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pay to any employee listed on Schedule 3.17(f) not required under any
existing agreement disclosed to Buyer prior to the date of this Agreement,
or increased the compensation, including salaries, fees, commissions,
bonuses, profit sharing, incentive, pension, retirement, or other similar
payments paid to any of its employees listed on Schedule 3.17(f);
(g) Made any change in its business or operations or the manner of
conducting its business or operations, other than minor changes in the
lawful and ordinary course of business, which in the aggregate have not had
a Material Adverse Effect;
(h) Suffered any damage, destruction or loss having a Material Adverse
Effect; or
(i) Entered into any contract, agreement or arrangement to do or perform
any of the foregoing actions.
SECTION 3.18 UNION, EMPLOYEE COLLECTIVE BARGAINING UNIT OR ORGANIZING
ACTIVITY. No Seller is signatory to any collective bargaining agreement and is
not currently subject to any labor collective bargaining process or organizing
efforts by any union or other collective bargaining representative; and no
Seller has knowledge that any Seller employee, union or collective bargaining
representative is considering or threatening to organize any Seller's employees
to form a union or collective bargaining unit.
SECTION 3.19 EMPLOYEE BENEFITS. No Seller maintains or contributes to any
"employee pension benefit plans" or "employee welfare benefit plans" (as
described in Section 3(2) and (1), respectively, of Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA")) or any "multi-employer plan"
(as defined in Section 414(f) of the Internal Revenue Code ("CODE")), nor does
it have any form of plan or agreement with any of its current employees
providing for present or future employee benefits or deferred compensation of
any nature whatsoever, stock options, stock purchase or any other material
employee benefits. The Disclosure Statement contains a summary of all documents
creating or evidencing any such plan or agreement. At the request of Buyer,
true, correct and complete copies of any such documents creating or evidencing
any such plan or agreement will be delivered to Buyer within five (5) days after
such request.
SECTION 3.20 EMPLOYEES AND COMPENSATION. The Disclosure Statement includes
(i) a true and complete list of all employees of each Seller as of December 31,
1995 and (ii) the job titles, salary rate or other compensation basis, and all
other types of compensation for each employee listed on Schedule 3.17(f). There
has been no material change in this list since December 31, 1995.
SECTION 3.21 CUSTOMERS. No current customer of any Seller which, during
the twelve-month period ended December 31, 1995, purchased goods or services
from the Seller in an amount in excess of $250,000 has furnished written notice
to terminate or intent to terminate transacting business with such Seller; no
Seller has knowledge which would
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indicate that any such current customer presently intends to terminate
transacting business with such Seller.
SECTION 3.22 BOOKS AND RECORDS. The books and records of each Seller are
true, complete and correct in all material respects and have been prepared in
the usual and customary manner. No changes or additions to the books and
records of any Seller have been made from the date such books and records were
first examined by Arthur Andersen LLP and nothing which should be set forth in
said books and records, if prepared in the usual and customary manner of such
Seller, has occurred from the date such books were first examined by Arthur
Andersen LLP, except for such changes, additions or events which have been made
or have occurred, as the case may be, in the ordinary course of the business of
such Seller consistent with the prior practice of such Seller or in connection
with the 1995 audit conducted by Arthur Andersen LLP.
SECTION 3.23 BROKERS AND FINDERS. Neither Sellers nor ATWEC nor any of
their respective officers, directors, employees or agents has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated hereby;
provided, however, ATWEC and Sellers have engaged the services of The Meridian
Group and ATWEC and Sellers shall be solely responsible for any compensation due
and payable, or to become due and payable, to The Meridian Group as a result of
the closing or negotiations of the transactions contemplated herein.
SECTION 3.24 KELC REPRESENTATIONS.
(a) The authorized capital stock of KELC and the number of shares issued
and outstanding are as set forth in the Disclosure Statement. All of the
issued and outstanding shares of KELC's capital stock are owned by P&S.
(b) Other than the permits listed on Schedule 3.24(b) (the "Permits"),
KELC has neither assets nor liabilities in excess of Ten Thousand Dollars
($10,000).
(c) KELC has good title to the Permits and the Permits were duly issued
to KELC.
(d) KELC has never had any employees.
(e) The Disclosure Statement lists all officers and directors of KELC.
(f) Sellers have delivered to Buyer true copies of KELC's certificate of
incorporation, by-laws and minute book as presently in effect.
SECTION 3.25 MATERIAL MISSTATEMENTS OR OMISSIONS. No representation or
warranty of any Seller or of ATWEC made in this Agreement (including any
Schedule or Exhibit hereto), nor any document or statement required to be
delivered to Buyer by any Seller and/or ATWEC in connection with the Closing,
contains (or will when furnished
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contain) any untrue statement of a material fact, or omits (or will then omit)
to state a material fact necessary in order to make the statement of facts made
therein not misleading.
For purposes of this Article 3, "KNOWLEDGE", with respect to any Seller
shall mean the actual knowledge after reasonable due inquiry, as of the date of
this Agreement or any certificate delivered pursuant hereto, of the following
employees and/or officers of Seller: Gealy Wallwork, Dennis Hinderliter, Kevin
Bowser, or Jack Hubbard.
ARTICLE 4. BUYER'S AND GWI'S REPRESENTATIONS AND WARRANTIES
Buyer, with respect to its affairs, and GWI, with respect to its affairs,
hereby represents and warrants to Sellers and to ATWEC as follows:
SECTION 4.1 BUYER ORGANIZATION, STANDING AND POWER. Buyer is a duly
organized, validly existing corporation, chartered and in good standing under
the laws of the State of Delaware. Buyer has all necessary corporate power and
authority to execute and deliver this Agreement, to comply with the provisions
hereof and to consummate the transactions contemplated hereby.
SECTION 4.2 GWI ORGANIZATION, STANDING AND POWER. GWI is a duly organized,
validly existing corporation, chartered and in good standing under the laws of
the State of Delaware. GWI has all necessary corporate power and authority to
execute and deliver this Agreement, to comply with the provisions hereof and to
consummate the transactions contemplated hereby. GWI will be the beneficial
owner of all of the outstanding stock of Buyer through a trust arrangement.
SECTION 4.3 AUTHORIZATION. Buyer's and GWI's execution and delivery of this
Agreement, its compliance with the provisions hereof and the consummation of all
of the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of Buyer and GWI, and this Agreement
is valid and binding upon Buyer and GWI in accordance with its terms.
SECTION 4.4 NO CONFLICT. Neither the execution and delivery of this
Agreement by Buyer or GWI, nor compliance by Buyer or GWI with any of the
provisions hereof, nor the consummation of the transactions contemplated hereby
will:
(a) conflict with or result in a breach of any provision of Buyer's or
GWI's respective Certificate of Incorporation or By-laws;
(b) result in a default, or give rise to any right of termination,
cancellation or acceleration, under any term, condition or provision of any
Contract, Encumbrance or other instrument or obligation to which Buyer or
GWI is a party or by which it or any of its properties or assets may be
bound; or
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(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Buyer or GWI, or any of its respective properties
or assets.
SECTION 4.5 LITIGATION. There are no actions, suits, proceedings or
investigations pending or, to the knowledge of Buyer or GWI threatened, in any
court or before any governmental agency or instrumentality against, by or
affecting Buyer or GWI or their respective business, financial condition or any
of the properties or assets of either, or which would prevent the carrying out
of this Agreement or any of the transactions contemplated hereby or declare the
same unlawful or cause the recision thereof.
SECTION 4.6 COMPLIANCE WITH LAWS. Buyer is currently in compliance and has
heretofore complied in all respects with all material applicable statutes,
ordinances, orders, writs, injunctions, decrees, rules and regulations
promulgated by any federal, state, municipal or other governmental authority,
and Buyer has not received any notice of a violation of any such statute,
ordinance, order writ, injunction, decree, rule or regulation.
SECTION 4.7 GOVERNMENT APPROVALS AND CONSENTS. No consent, waiver,
approval, or authorization of, or registration, qualification, designation,
declaration or filing with, or notification to, any federal, state or local
governmental authority or administrative agency or any other third party is
required in connection with the execution, delivery and performance of this
Agreement or any agreement, instrument or document to be executed, delivered and
performed in connection herewith or the consummation of any of the transaction
contemplated hereby or thereby, by Buyer or GWI, except for such consents,
waivers, approvals, or authorizations which will be obtained by Buyer prior to
the Closing.
SECTION 4.8 FINANCING. GWI and/or Buyer has obtained a loan agreement which
provides a commitment to lend funds sufficient to enable GWI and/or Buyer to
fulfill its obligations to pay the Purchase Price, which commitment expires on
April 30, 1996.
ARTICLE 5. SELLERS' AND ATWEC'S COVENANTS
SECTION 5.1 TITLE MATTERS. To the extent tax, title and court searches are
desired by Buyer, Buyer may obtain such at its costs; provided, however, Sellers
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shall reimburse Buyer at the Closing for an aggregate amount of Seven Thousand
Dollars ($7,000) of such costs. Sellers shall cooperate with the title
companies and search companies selected by Buyer by providing access to Sellers'
deeds and records. Sellers shall provide prior to the Closing an executed
affidavit(s) in substantially the form of affidavit(s) attached as Schedule 5.1.
At the Closing, Sellers shall deliver the Real Property to Buyer free and clear
of the encumbrance of any mortgage or security interest securing the General
Mortgage Bonds of P&S in favor of ATWEC dated January 1, 1957.
SECTION 5.2 AFFIRMATIVE COVENANTS OF SELLERS PRIOR TO CLOSING. During the
period from the date hereof to the Closing Date, each Seller shall:
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(a) conduct such Seller's business and its operations in all material
respects in the same manner in which the same have heretofore been
conducted, and maintain its books of account in the same manner as
heretofore maintained;
(b) use reasonable efforts to maintain and preserve such Seller's
business and preserve such Seller's relationships with its customers,
employees and others having business relations with such Seller so that such
Seller's business shall be unimpaired in all material respects on the
Closing Date; and
(c) use reasonable efforts to maintain each Contract of such Seller
listed in Schedule 2.1 in full force and effect in accordance with its
terms.
SECTION 5.3 NEGATIVE COVENANTS OF SELLERS PRIOR TO CLOSING. During the
period from the date hereof to the Closing Date, no Seller shall, unless Buyer
shall have given its consent thereto in writing:
(a) create, assume or permit to exist any material Encumbrance attaching
to the Purchased Assets after the date of this Agreement, other than a
Permitted Encumbrance, on any of the Purchased Assets;
(b) sell, lease or otherwise transfer any of the Purchased Assets, or
cancel any of such Seller's material rights or claims, other than in the
ordinary course of business;
(c) enter into any material Contract not in the ordinary course of
business, or cancel, modify adversely, assign, encumber or in any way
discharge or terminate (other than by performance) any material Contract;
(d) allow to occur or exist any event of default by Seller under any
material Contract to which such Seller is a party unless such event of
default shall be cured or waived prior to the Closing Date; or
(e) make any material commitment (through negotiations or otherwise) or
incur any liability to any labor organization other than pursuant to any
agreement existing as of the date hereof and disclosed to Buyer or the
matters described in Schedule 5.3 hereof.
SECTION 5.4 NOTICES TO AND CONSENTS OF THIRD PARTIES. Each Seller shall in
a timely fashion give all notices to and make all filings with all governmental
authorities and other Persons (as hereafter defined) required to be given or
made by such Seller under any significant license, authorization, Contract or
other instrument in connection with the transactions contemplated by this
Agreement, including but not limited to those items set forth on Schedule 5.4.
Each Seller shall use its reasonable efforts to obtain, as soon as practicable
after the date hereof but in any event prior to the Closing Date, all written
consents or waivers of all governmental authorities and other Persons required
to be obtained by such Seller under any significant license, authorization,
Contract or other instrument or otherwise in connection with the transactions
contemplated by this Agreement. For purposes
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of this Section 5.4, "significant" means, as to any Contract or other
instrument, a Contract or instrument which will involve the payment to or by
Buyer of more than $250,000 annually or a Contract the absence of which would
have a Material Adverse Effect on the operation of the railroad lines purchased
hereunder. For purposes of this Agreement, a "PERSON" means and includes any
individual, partnership, corporation, trust, unincorporated organization or
other entity, and any government or governmental authority, agency or political
subdivision thereof.
SECTION 5.5 ATWEC'S CONTINUING EXISTENCE. For a period commencing on the
Closing Date and ending thirty-six (36) months after the Closing Date (the
"Maintenance Period"), ATWEC hereby covenants and agrees to maintain, in full
force and effect, and in compliance with all applicable corporate law, its
corporate status, and books and records.
SECTION 5.6 REMOVAL OF ITEMS NOT TRANSFERRED. Within one hundred eighty
(180) days following the Closing, each Seller shall remove from any of Real
Property all of such Seller's inventory and other items not purchased by Buyer
pursuant to this Agreement.
ARTICLE 6. BUYER'S AND GWI'S COVENANTS
SECTION 6.1 NOTICES TO AND CONSENTS OF THIRD PARTIES. Buyer and GWI shall
in a timely fashion give all notices to and make all filings with all
governmental authorities and other Persons required to be given or made by Buyer
or GWI under any license, authorization, Contract or other instrument, statute,
regulation or otherwise in connection with consummation of the transactions
contemplated by this Agreement. Buyer and GWI shall use its reasonable efforts
to obtain, as soon as practicable after the date hereof but in any event prior
to the Closing Date, all written approvals, consents or waivers of all
governmental authorities and other Persons required to be obtained by Buyer or
GWI under any license, authorization, Contract or other instrument, statute,
regulation or otherwise in connection with consummation of the transactions
contemplated by this Agreement. The authority which Buyer shall seek to obtain
in such manner from the Surface Transportation Board shall include the right to
operate the railroad lines operated by all three Sellers and shall be that
available under 49 U.S.C. Section 10901. Buyer shall provide to Seller prior to
filing a draft of materials to be filed with the Surface Transportation Board.
SECTION 6.2 SELLER ACCESS POST-CLOSING. For a period of one hundred eighty
(180) days following the Closing, to enable Sellers to remove inventory or other
items not being purchased hereunder, Buyer will permit each Seller, upon
reasonable advance notice to Buyer and in compliance with reasonable conditions
imposed by Buyer, to enter onto the Real Property and remove such inventory or
other items.
SECTION 6.3 EMPLOYEES.
(a) Buyer will give preference, both at the time of Closing, and for one
year thereafter, to hiring individuals who immediately prior to the Closing
were employees of any Seller. Buyer agrees to offer employment to an
aggregate of at least twenty-six
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(26) hourly employees of Seller to commence on the date of Closing (the
"DESIGNATED EMPLOYEES"). Any offer of employment to a Designated Employee
will involve a total compensation package, including wages and benefits,
substantially similar to those then being paid to similarly situated
employees employed on railroads operated by existing affiliates of Buyer.
Upon termination of employment by the Sellers, Sellers agree to pay the
Designated Employees for all previously earned but unused vacation time.
(b) If the Closing occurs on or after May 1, 1996, then Buyer shall
reimburse Seller for vacation time earned in 1996 for use in 1997 and for
which Seller has paid the Designated Employees, an amount for each such
Designated Employee equal to that paid for such 1997 unused vacation
multiplied by a fraction the numerator of which is the number of days
actually worked for Buyer in 1996 and the denominator of which is all days
actually worked in 1996 for either Seller or Buyer.
(c) Buyer agrees to permit the Designated Employees to use (subject to
Buyer's then current vacation policy) all such previously earned vacation
time, but shall have no obligation to pay the Designated Employees for such
vacation time.
(d) Buyer will give Designated Employees full credit for their prior
service with Seller with respect to Buyer's vacation benefit programs and,
within each applicable unit, certain applicable bumping rights.
ARTICLE 7. CONDITIONS TO PARTIES' OBLIGATIONS
SECTION 7.1 CONDITIONS TO BUYER'S AND GWI'S OBLIGATIONS. The obligations of
Buyer and GWI to complete the transactions provided for herein shall be subject,
at its election, to satisfaction on or before the Closing Date of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES: All representations and
warranties of each Seller contained in this Agreement shall be true and
correct in all respects as of the date hereof and as of the Closing Date as
though made on and as of the Closing Date (except as may be otherwise
provided in this Agreement), and Buyer shall have received a certificate to
that effect, dated the Closing Date, signed by the acting Executive Vice
President or Treasurer of each Seller and ATWEC to such effect;
(b) PRE-CLOSING OBLIGATIONS: Each Seller shall have performed all
obligations required to be performed by it hereunder, the performance of
which has not been waived by Buyer, and Buyer shall have received a
certificate to that effect, dated the Closing Date, signed by the Executive
Vice President and the Treasurer of each Seller;
(c) SELLER'S DUE AUTHORIZATION: Each Seller's execution and delivery
of this Agreement, its compliance with the provisions hereof and the
consummation of all of the transactions contemplated hereby shall have been
duly and validly authorized by all necessary corporate action on the part
of such Seller, and Buyer
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shall have received a duly certified copy of all actions taken by such
Seller's Board of Directors and by its shareholder effecting the same;
(d) ATWEC'S DUE AUTHORIZATION: ATWEC's execution and delivery of this
Agreement, its compliance with the provisions hereof and the consummation
of all of the transactions contemplated hereby shall have been duly and
validly authorized by all necessary corporate action on the part of ATWEC,
and Buyer shall have received a duly certified copy of all actions taken by
ATWEC's Board of Directors effecting the same;
(e) SELLERS' CONSENTS, ETC.: All notices, filings, consents, waivers
and approvals set forth in Schedule 7.1(e) shall have been given, made or
obtained, as the case may be, by the appropriate Seller, and Buyer shall
have received a true copy of each thereof;
(f) BUYER'S CONSENTS, ETC.: All notices, filings, consents, waivers
and approvals set forth in Section 6.1 or in Schedule 7.1(f) shall have
been given, made or obtained, as the case may be, by Buyer; and
(g) NO BAR: There shall not be in effect any judgment, decree or
order of, or position taken by, any court or administrative body of
competent jurisdiction, nor shall there have been any action, suit,
proceeding or known investigation instituted or threatened, nor shall any
law or regulation have been enacted or any action taken thereunder, which
would restrain or prohibit, make illegal, or subject Buyer to material
damage as a result of, the consummation of the transactions contemplated
hereby.
(h) FURTHER CLOSING DOCUMENTS: Each Seller shall have delivered, or
caused to be delivered, to Buyer the following documents and instruments in
form reasonably satisfactory to counsel to Buyer:
(1) A copy of the Certificate of Incorporation of such Seller and
of all amendments thereto, certified as of a date reasonably proximate
to the Closing Date by the Secretary of the Commonwealth of
Pennsylvania;
(2) Certificates of the Secretary of the Commonwealth of
Pennsylvania attesting to the good standing of such Seller in such
jurisdiction as of a date reasonably proximate to the Closing Date;
(3) A copy of the Certificate of Incorporation of ATWEC and of
all amendments thereto, certified as of a date reasonably proximate to
the Closing Date by the Secretary of the State of Delaware;
(4) Certificates of the Secretary of the State of Delaware
attesting to the good standing of ATWEC in such jurisdiction as of a
date reasonably proximate to the Closing Date;
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(5) A copy of the Certificate of Incorporation of KELC and of all
amendments thereto, certified as of a date reasonably proximate to the
Closing Date by the Secretary of the Commonwealth of Pennsylvania;
(6) Certificates of the Secretary of the Commonwealth of
Pennsylvania attesting to the good standing of KELC in such
jurisdiction as of a date reasonably proximate to the Closing Date;
(7) One or more quit claim deeds in the form attached hereto as
Exhibit C and other appropriate instruments of conveyance sufficient
to convey all of such Seller's interest in the Real Property, which
shall be duly executed by such Seller, acknowledged and in recordable
form;
(8) The affidavits described in Section 5.1, redated to the
Closing Date;
(9) Bills of sale, assignments and other instruments of transfer
and conveyance, each duly executed by such Seller, transferring to
Buyer title or other interest to the Purchased Assets being
transferred by such Seller other than the Real Property;
(10) An assignment, duly executed by such Seller, of each
Contract listed in Schedule 2.1 to which such Seller is a party; and
(11) Stock certificate(s) representing all of the Kittanning
Stock, duly endorsed in blank.
(12) Resignations of all the officers and directors of KELC.
(i) REAL ESTATE TAXES, ETC.: except as otherwise expressly provided
herein, all taxes, assessments, utilities, insurance and water charges on
the Real Property shall be prorated between Buyer and Sellers to the
Closing Date;
(j) OPINION OF COUNSEL: Buyer shall have received an opinion
addressed to Buyer, dated the Closing Date, of counsel to Sellers and to
ATWEC, in the form of Exhibit A;
(k) CLOSING OF RELATED TRANSACTIONS: The sale of the coal business of
certain subsidiaries of ATWEC to Stanford Energy Company (the
"Stanford/ATWEC Transaction") shall be closing contemporaneously with the
Closing;
(l) CRC AGREEMENT:
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(m) TITLE REPORT: Buyer shall have received a title report covering
the railroad operating property portion of the Real Property being conveyed
by such Sellers, marked up by a representative of the title insurance
company referred to in Section 5.1 to evidence that all matters to be
disposed of prior to the issuance of a title policy insuring the absence of
liens other than Permitted Encumbrances and the state of title sufficient
to allow Buyer to operate such operating portion of the Real Property as a
continuous line of railroad; and
(n) OTHER MATTERS: Buyer shall have received such other instruments
and documents as shall have been reasonably requested by counsel to Buyer
on or before the Closing Date.
SECTION 7.2 CONDITIONS TO SELLERS' OBLIGATIONS. The obligations of
Sellers to complete the transactions provided for herein shall be subject, at
their election, to satisfaction on or before the Closing Date of each of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES: all representations and
warranties of Buyer and GWI contained in this Agreement shall be true and
correct in all respects as of the date hereof and as of the Closing Date as
though made on and as of the Closing Date (except as may be otherwise
provided in this Agreement), and Sellers
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shall have received a certificate to that effect, dated the Closing Date,
signed by the Chief Executive Officer or Treasurer of Buyer and GWI;
(b) PRE-CLOSING OBLIGATIONS: Buyer shall have performed all
obligations required to be performed by it hereunder, the performance of
which has not been waived by Sellers, and Sellers shall have received a
certificate to that effect, dated the Closing Date, signed by the Chief
Executive Officer of Buyer;
(c) BUYER'S DUE AUTHORIZATION: Buyer's execution and delivery of this
Agreement, its compliance with the provisions hereof and the consummation
of all of the transactions contemplated hereby shall have been duly and
validly authorized by all necessary corporate action on the part of Buyer,
and Sellers shall have received a duly certified copy of all actions taken
by Buyer's Board of Directors effecting the same;
(d) GWI'S DUE AUTHORIZATION: GWI's execution and delivery of this
Agreement, its compliance with the provisions hereof and the consummation
of all of the transactions contemplated hereby shall have been duly and
validly authorized by all necessary corporate action on the part of GWI,
and Sellers shall have received a duly certified copy of all actions taken
by GWI's Board of Directors effecting the same;
(e) SELLER'S CONSENTS, ETC.: all notices, filings, consents, waivers
and approvals set forth in Schedule 7.1(e) shall have been given, made or
obtained, as the case may be, by the appropriate Seller;
(f) BUYER'S CONSENTS, ETC.: all notices, filings, consents, waivers
and approvals set forth in Section 6.1 or in Schedule 7.1(f) shall have
been given, made or obtained, as the case may be, by Buyer, and Sellers
shall have received a true copy of each thereof;
(g) NO BAR: there shall not be in effect any judgment, decree or
order of, or position taken by, any court or administrative body of
competent jurisdiction, nor shall there have been any action, suit,
proceeding or known investigation instituted or threatened, nor shall any
law or regulation have been enacted or any action taken thereunder, which
would, in Sellers' reasonable judgment, restrain or prohibit, make illegal,
or subject Sellers to material damage as a result of, the consummation of
the transactions contemplated hereby;
(h) FURTHER CLOSING DOCUMENTS: Buyer shall have delivered to Sellers
the following documents and instruments in form reasonably satisfactory to
counsel to Sellers:
(1) A copy of the Certificate of Incorporation of Buyer and of
all amendments thereto, certified as of a date reasonably proximate to
the Closing Date by the Secretary of State of Delaware;
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(2) A copy of the Certificate of Incorporation of GWI and of all
amendments thereto, certified as of a date reasonably proximate to the
Closing Date by the Secretary of State of Delaware;
(3) The amount provided by Section 1.4, in immediately available
funds; and
(4) Assumption of the Contracts referred to in Section 2.1, duly
executed by Buyer, in form and substance reasonably satisfactory to
Sellers.
(i) REAL ESTATE TAXES, ETC.: except as otherwise expressly provided
herein, all taxes, assessments, utilities, insurance and water charges on
the Real Property shall have been prorated between Buyer and Sellers to the
Closing Date;
(j) CLOSING OF RELATED TRANSACTIONS: All transactions contemplated by
Stanford/ATWEC Transaction shall be closing contemporaneously with the
Closing;
(k) OPINION OF COUNSEL: Sellers shall have received an opinion
addressed to Sellers, dated the Closing Date, of counsel to Buyer and GWI,
in the form of Exhibit B; and
(l) OTHER MATTERS: Sellers shall have received such other instruments
and documents as shall have been reasonably requested by counsel to Sellers
on or before the Closing Date.
ARTICLE 8. CLOSING
SECTION 8.1 CLOSING. The Closing shall take place at the offices of
Goodwin, Procter & Hoar LLP at 10:00 a.m. on April 25, 1996, or at such other
time and place as the parties may agree (the "CLOSING DATE"). The parties agree
that they shall take such actions, including the delivery of documents in
escrow, in order to facilitate completion on the Closing Date of all of the
transactions contemplated hereby.
SECTION 8.2 FAILURE TO CLOSE; TERMINATION. This Agreement may be
terminated at any time prior to the Closing Date, as follows:
(a) By the mutual consent of Buyer and each Seller; or
(b) By Buyer, upon notice to each Seller, if events occur which,
without any breach by Buyer of its obligations hereunder, render impossible
compliance with one or more of the conditions set forth in Section 7.1 (and
such compliance is not waived by Buyer); or
(c) By any Seller, upon notice to Buyer, if events occur which,
without breach by any Seller of its obligations hereunder, render
impossible compliance with
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one or more of the conditions set forth in Section 7.2 (and such compliance
is not waived by Sellers); or
(d) By Buyer or by any Seller, upon notice to all other parties
hereto, at any time after April 29, 1996.
In the event of any termination as provided by this Section 8.2, this Agreement
shall thereupon become void and of no effect, without any liability on the part
of any party; provided, however, that the obligations of the parties contained
in Section 9.2 and Section 9.3 shall survive.
ARTICLE 9. FURTHER COVENANTS
SECTION 9.1 TAXES ON TRANSACTION. All sales or use taxes and all
transfer taxes payable by reason of the sale and transfer of any of the
Purchased Assets hereunder, and any tax due under any applicable gains tax law,
shall be paid 50% by Buyer and 50% by Sellers.
SECTION 9.2 EXPENSES OF THE PARTIES. Except as otherwise expressly
provided in this Agreement, all expenses involved in the preparation,
negotiation, authorization and consummation of this Agreement and the
transactions contemplated hereby, including all fees and expenses of agents,
representatives, counsel and accountants, shall be borne solely by the party who
shall have incurred the same, and no other party shall have any responsibility
with respect thereto.
SECTION 9.3 CONFIDENTIALITY. Except for necessary disclosure to such
party's directors, officers, employees, counsel, accountants, bankers and other
agents, and except for the disclosure contemplated by Sections 5.4 and 6.1, each
party shall keep the provisions of this Agreement confidential both prior and
subsequent to the Closing Date. Without limiting the generality of the
foregoing, no party shall make any press release or advertisement with respect
to the transactions contemplated hereby without the prior consent of Buyer and
Sellers, unless such party determines, upon the advice of counsel, that such
action is required by law. Anything to the contrary herein notwithstanding,
Sellers and ATWEC recognize that in the event GWI intends to offer its
securities for sale information concerning Sellers and the transactions
contemplated by this Agreement may be included in a registration statement or
offering circular or memorandum used in connection with any such offer. Prior
to the first filing of such registration statement or offering circular or
memorandum with the Securities and Exchange Commission ("SEC"), GWI shall
deliver a copy of such registration statement (without exhibits) to ATWEC. If
GWI thereafter proposes to change any information therein with respect to the
Sellers or the transactions contemplated by this Agreement, it will provide
ATWEC with a copy of such proposed changes before filing them with the SEC.
ATWEC agrees to keep confidential the information contained in such document and
the fact that GWI is contemplating such offering until such first filing.
SECTION 9.4 FURTHER ASSURANCES. Each party shall cooperate with the
others, take such further action, and execute and deliver such further
documents, as may be reasonably
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requested by any other party in order to carry out the terms and purposes of
this Agreement. Without limiting the generality of the foregoing, from and
after the Closing Date:
(a) Each party shall file all tax returns consistent with the
allocation of the Purchase Price set forth in Schedule 1.3, and no party
shall take any position on audit or in litigation which is inconsistent
with such allocation if such position would result in the payment of any
additional tax by, or the disallowance of any deduction or credit to, any
other party; and
(b) On the request of Buyer, Sellers and ATWEC shall take such action
and deliver to Buyer such powers of attorney and further instruments of
assignment, conveyance or transfer and other similar documents of further
assurance as in the opinion of counsel to Buyer may be reasonably necessary
to assure, complete and evidence the full and effective transfer,
conveyance and assignment of the Purchased Assets and possession thereof to
Buyer, its successors and assigns, and the performance of this Agreement by
Sellers and ATWEC in all respects.
SECTION 9.5 COLLECTION OF RECEIVABLES AND PAYMENT OF PAYABLES . Sellers
may, at their option, request that Buyer, as paying agent of Sellers, beginning
ninety (90) days after the Closing hereunder, (i) collect Sellers' accounts
receivables which are (a) interline settlements, (b) freight receivables from
shippers and (c) carhire receivables, and (ii) pay any payables of Sellers'
which are (x) interline payables or (y) carhire payables. Upon such request,
which request shall be (1) received prior to the end of such 90 day period, (2)
accompanied by originals or copies of all necessary records with respect to any
such receivables and payables and (3) accompanied by authorization necessary to
permit Buyer to negotiate checks or other instruments payable to any Seller in
connection with such service, Buyer shall perform such service for a period of
one hundred eighty (180) days from the end of such 90 day period. Buyer shall
collect receivables and pay payables with its own funds, and within thirty (30)
days of the end of each month shall deliver to Sellers (I) a report indicating
its paying agent activity for such month, including by account all accounts paid
and all revenue received, and (II) either a bill or a check for the net amount
of such activity, as the case may be. If Buyer renders to Sellers a bill for
such month, Sellers shall pay any amount due hereunder to Buyer within five (5)
business days of the receipt of such bill.
ARTICLE 10. ALLOCATION OF LIABILITY
SECTION 10.1 DEFINITION OF "OBLIGATIONS". As used in this section, the
term "Obligations" shall be broadly construed and shall include, without
limitation, legal obligations, responsibilities, and liabilities to any Person,
and the legal responsibility to assume losses, damages, and costs, that arise
out of, by virtue of, or pursuant to:
(a) any federal or state statute, principle of common law, or
municipal ordinance;
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(b) any rule, regulation, order, decision, judgment, decree, mandate
or directive of any court or other tribunal, or of any governmental agency,
body, instrumentality, or political subdivision; or
(c) any deed, contract or other legal instrument.
"OBLIGATIONS," as defined herein, shall also include, without limitation,
and whether accrued before or after Closing, all obligations, responsibilities,
losses, and liabilities in connection with, in respect to, or arising out of,
(i) damage to or the loss of any property, or personal injury or wrongful death,
of any Person, (ii) costs and expenses incurred for any purpose whatsoever
(including reasonable attorneys' fees and expenses and costs incurred for
remedial or corrective action, containment, clean-up, repair work and response
to claims and actions) in order to discharge or satisfy the Obligations, and
(iii) assessments, fees, fines, penalties, judgments, awards, orders and
decrees.
SECTION 10.2 ALLOCATION OF SPECIFIC OBLIGATIONS. Except as otherwise
agreed by the parties in any other document and to the extent stated in such
other documents, the parties shall, as between themselves, allocate Obligations
pertaining to the Purchased Assets in accordance with this Section, without
regard to consideration of fault or negligence. With respect to any Obligation
allocated to ATWEC and/or the Sellers, subject to the limitations set forth in
Section 10.2(f) below, ATWEC and the Sellers shall indemnify, defend and hold
harmless Buyer and GWI and their respective officers, directors, employees,
shareholders and affiliates. With respect to any Obligation allocated to GWI
and/or Buyer, subject to the limitations set forth in Section 10.2(g) below, GWI
and Buyer shall indemnify, defend and hold harmless ATWEC and the Sellers and
their respective officers, directors, employees, shareholders and affiliates,
including without limitation, any trustee of any affiliate of ATWEC or Seller.
(a) LICENSES AND AGREEMENTS: Buyer and GWI shall be jointly and
severally responsible for all Obligations arising after Closing or
allocable to the period after Closing under the Contracts. Sellers and
ATWEC shall each be jointly and severally responsible for any such
Obligations arising before or allocable to the period before Closing.
(b) PERSONAL INJURY AND PROPERTY DAMAGE: Buyer and GWI shall be
jointly and severally responsible for all Obligations arising out of
personal injury to or the death of Persons or loss of, or damage to,
property (including the employees and property of the parties hereto)
occurring on or about the Real Property after Closing. Sellers and ATWEC
will each be jointly and severally responsible for all such Obligations
occurring on or about the Real Property on or prior to Closing.
(c) HAZARDOUS SUBSTANCES:
(1) Buyer and GWI shall be jointly and severally responsible for
Obligations which arise from the existence or presence of Hazardous
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Substances in, on or about the Real Property (hereinafter "TOXIC
CONTAMINATION") after Closing.
(2) ATWEC and each Seller shall be jointly and severally
responsible for Obligations arising from Toxic Contamination, provided
that such Toxic Contamination resulted from a condition created by
ATWEC or any Seller during the time the Real Property was owned and
occupied by ATWEC or any Seller and further provided that such Toxic
Contamination was a violation of common law duty or exceeded allowable
limits or was otherwise in violation of applicable Environmental Laws
during such time. Neither ATWEC nor any Seller shall be liable for
any Obligation resulting from any condition created prior to the
acquisition of ownership of the Real Property by ATWEC or any Seller
even if such Obligations arise from ongoing, continuous, migrating
contamination that occurred during the ownership and control of the
Real Property by ATWEC or any Seller. Subject to the further
limitations set forth at Paragraph 10.2(f) below, ATWEC's and each
Seller's liability for any Obligation for which it is otherwise
responsible hereunder shall be no greater than that resulting from the
condition of the Real Property at Closing. Buyer and GWI shall be
jointly and severally responsible for all other Obligations arising
from Toxic Contamination which occurred prior to or after the Closing
including responsibility for any Obligation arising from Toxic
Contamination resulting from a condition created by Buyer's possession
of, or operations on, the Real Property, or from any ongoing,
continuing, migrating or subsequent release or contamination, or from
any increases in remediation or containment costs or liability,
created by or resulting from events occurring after Closing, including
the passage of time.
(3) If at any time after Closing any Toxic Contamination is
discovered which is or may be the responsibility of ATWEC or any
Seller pursuant to subsection (2) above, ATWEC and each Seller shall
be notified of such Toxic Contamination by Buyer and shall have the
opportunity and right to investigate, determine its responsibility
therefor, determine in connection with appropriate governmental or
regulatory bodies the appropriate response or remedy for such Toxic
Contamination, and remedy, with its own forces or contractors and at
its own expense, such Toxic Contamination to the satisfaction of
appropriate regulatory bodies or to the additional extent deemed
appropriate by ATWEC and Sellers. Buyer shall grant such rights of
entry or other rights to ATWEC and Sellers, upon reasonable terms and
without compensation, as may be necessary to allow ATWEC and Sellers
to perform the inspections, remediations or other actions necessary to
comply with this subsection. In the event of dispute concerning
ATWEC's and Sellers' responsibility for any obligation hereunder, the
parties shall cooperate to resolve such dispute as quickly as
possible, and Buyer, unless required by valid judicial or regulatory
order to take action to remedy a specific condition, shall during the
resolution of such dispute take no actions inconsistent with ATWEC's
and Sellers' right to seek a determination from the appropriate
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regulatory or judicial body of the remedy required by law and to
remedy the Toxic Contamination with its own forces or contractors.
ATWEC and Sellers shall not be liable to Buyer for any damages, costs
or expenses incurred as a result of such Obligation, except that if
Buyer is required by valid judicial or administrative order as
provided above to take action to remedy any Obligation which is later
determined to be the responsibility of ATWEC or any Seller hereunder,
Buyer shall be able to recover its actual and reasonable costs from
ATWEC and Sellers.
(d) OTHER PHYSICAL CONDITION OF THE REAL PROPERTY: Except as
otherwise provided in this Article 10, Buyer and GWI shall be jointly and
severally responsible for:
(1) all Obligations that arise out of, in respect to, or in
connection with, the physical condition, safety, utility, adequacy,
marketability, value, suitability or fitness of the Real Property, or
any portion thereof, or any defects therein, including without
limitation, Obligations relating to (a) public or private street,
bridge, underpass or others crossings, (b) the removal or remediation
of contaminating materials or substances (other than Hazardous
Substances) (c) the demolition of structures or abatement of
nuisances, (d) the flow or obstruction of surface waters, (e) the
stability of the soil on, above, over, or adjacent to the property,
(f) support for or by, adjacent property or the collapse of soil or
other materials or buildings onto adjacent property, and (g) the
construction, repair, rehabilitation, alteration, maintenance, or use
of the Real Property;
(2) Obligations imposed by the regulations or orders of any
regulatory or licensing agency or by agencies or governmental bodies
responsible for preserving the public health or safety, the
environment, natural resources, wildlife, historic sites, vegetation,
public parks or forests, or wetlands; and
(3) Obligations imposed by buildings or construction codes, or
licensing, subdivision or zoning requirements, including Obligations
relating to licensing, permits, notices, and fees.
(e) BREACHES OF REPRESENTATIONS, WARRANTIES AND COVENANTS:
(1) ATWEC and Sellers shall each be jointly and severally liable
and responsible to Buyer for all Obligations that arise out of, in
respect to, or in connection with, the failure or breach by ATWEC or
any Seller of any representation or warranty made in this Agreement,
or any breach or nonfulfillment by ATWEC or any Seller of any covenant
or agreement made in this Agreement.
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(2) Buyer and GWI shall each be jointly and severally liable and
responsible to Sellers and ATWEC for all Obligations that arise out
of, in respect to, or in connection with any failure or breach by
Buyer or GWI of any representation or warranty, or any breach or
nonfulfillment of any covenant or agreement, of Buyer or GWI in this
Agreement.
(f) LIMITATIONS ON OBLIGATIONS ALLOCATED TO ATWEC AND SELLERS:
Notwithstanding any other provision of this Agreement, the obligation of
ATWEC and the Sellers, in the aggregate, to indemnify Buyer and GWI or
their respective officers, directors or affiliates, and the responsibility
or liability of ATWEC and the Sellers, in the aggregate, with respect to
all Obligations allocated to ATWEC or any Seller hereunder shall be subject
to the following limitations:
(1) Any claim relating to an Obligation must be made in
accordance with Section 10.3 below prior to the second anniversary of
the Closing Date, except that any claim with respect to any Federal
Employers Liability Act claim asserted by any person employed by ATWEC
or any Seller on the date hereof must be made prior to the third
anniversary of the date hereof.
(2) The indemnification obligations of ATWEC and the Sellers and
the responsibility or liability of ATWEC and the Sellers relating to
Obligations pursuant to Paragraph 10.2(c) above (the "Environmental
Obligations") shall be limited to, and in no event shall exceed, an
aggregate amount of $1,000,000 and the indemnification obligations of
ATWEC and the Sellers and the responsibility or liability of ATWEC and
the Sellers relating to all Obligations shall be limited to, and in no
event shall exceed, and in no circumstance shall ATWEC and the Sellers
be required to pay more than, an aggregate amount of $5,000,000.
(3) The indemnification obligations of ATWEC and the Sellers and
the responsibility or liability of ATWEC and the Sellers with respect
to Environmental Obligations hereunder shall be limited solely to
Environmental Obligations arising out of or resulting from: (1) a
post-closing investigation or remedial action required by
Environmental Laws, conducted by a government agency or pursuant to an
order issued by a governmental agency with authority to administer the
Environmental Laws and having jurisdiction over the property or the
matter in question; (2) a third party claim or (3) the discovery of
the presence or release of Hazardous Substances as the result of a
facility expansion or renovation (excluding any losses, liabilities,
damages, or costs relating to or resulting from the removal of non-
friable or non-damaged asbestos containing material during such
activities which shall not constitute or be deemed or constitute an
Obligation or an Environmental Obligation hereunder), it being
understood that neither Buyer nor any affiliate thereof will, prior
to the second anniversary of the Closing, commence any plan to, or
conduct any studies or investigation with respect to, any such
expansion or renovation without the prior written approval of ATWEC.
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(4) No claim for indemnification by ATWEC or any Seller or for the payment
of any Obligation shall be payable by ATWEC or any Seller with respect
to any Obligation allocated to any such party for the first $150,000
in the aggregate of such Obligations.
(g) LIMITATIONS ON OBLIGATIONS ALLOCATED TO BUYER AND GWI:
Notwithstanding any other provision of this Agreement, the obligation of
GWI and Buyer, in the aggregate, to indemnify ATWEC, each Seller or any of
their respective officers, directors, affiliates or shareholders or
trustees of any affiliate, and the responsibility or liability of GWI and
Buyer with respect to any Obligation allocated to GWI or Buyer hereunder
shall be subject to the following limitations: any claim relating to an
Obligation must be made in accordance with Section 10.3 below prior to the
second anniversary of the Closing Date, except that any claim with respect
to any Environmental Obligation must be prior to the fifth anniversary of
the date hereof.
(h) REGISTRATION STATEMENT FOR GWI SECURITIES: Buyer and GWI shall be
responsible to ATWEC and Sellers for all Obligations that arise out of, in
respect to, or in connection with, the use by GWI of financial information
obtained from Seller and of any other information relating to the
transactions contemplated by this Agreement or relating to Seller's
business in a registration statement filed with the Securities and Exchange
Commission or in a private placement memorandum circulated in connection
with the issuance by GWI of its securities, except when there has been a
finding by a court of competent jurisdiction that any such information
which caused the Obligation contains any untrue statement of a material
fact, or omits to state a material fact necessary in order to make such
information not misleading and any such untrue statement or omission was
made by Sellers or ATWEC.
SECTION 10.3 PROCEDURE FOR ENFORCEMENT OF OBLIGATIONS. Any party (the
"Demanding Party") seeking to hold any other party to this Agreement (the
"Receiving Party") responsible for any Obligation in accordance with this
Article 10 shall give to such Receiving Party notice of such demand, stating in
reasonable detail the nature thereof. If any demand relates to an Obligation
arising out of a claim made by any Person not a party to or affiliated with a
party to this Agreement, the notice shall also state whether the Demanding Party
(a) has made payment in full of the claim, (b) has compromised and made payment
of the compromised claim, or (c) disputes the claim and intends to defend
against it. The Receiving Party shall have the right to defend the claim. If
the Receiving Party shall defend against such claim, the Demanding Party shall
cooperate with the Receiving Party in such defense, shall make available to the
Receiving Party all records and other materials reasonably required by the
Receiving Party in such defense, and shall have the right to participate in such
defense, but the Receiving Party shall at all times control such defense. If
the Receiving Party does not intend to defend against the claim then the
Demanding Party may defend. If the Demanding Party shall defend against the
claim, the Receiving Party shall cooperate with it in such defense, shall make
available to the Demanding Party all records and other materials reasonably
required by it in such defense, and shall have the right to participate in such
defense, but the Demanding Party shall at all times control such
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defense. Upon the giving of any written notice in accordance with this Section
10.3 of any claim by any Demanding Party against any Receiving Party with
respect to any Obligation within the time periods described in Paragraphs
10.2(f)(1) and Section 10.2(g) above, the right to indemnification with respect
to such claim shall remain in effect until such matter shall have been finally
determined and disposed of, and indemnification due in respect thereof shall
have been paid.
SECTION 10.4 REMEDIES. This Article 10 sets forth the exclusive remedies
of ATWEC, each Seller, Buyer and GWI with respect to any Obligation as a result
of the breach of, or the failure to perform or satisfy, any of the
representations, warranties, covenants and agreements of any party under this
Agreement or any other claim with respect to this Agreement or the transactions
contemplated hereby (other than intentional fraud); provided that the foregoing
shall not limit the availability prior to or (with the exception of any such
remedies as may be available under any Environmental Law or with respect to
environmental matters) after the Closing of any equitable remedy, including,
without limitation, any equitable remedy which may result in a monetary recovery
by Buyer or GWI (but in no case shall Buyer or GWI be entitled to any monetary
recovery or rescission or a similar remedy after the Closing).
ARTICLE 11. GENERAL PROVISIONS
SECTION 11.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
Subject to the provisions of Section 10.4 hereof, the several representations,
warranties and covenants of the parties herein contained, and the provisions
hereof which by their terms are to be performed after the Closing Date, shall
survive the Closing Date and shall be effective regardless of any investigation
which may have been or may be made at the time by or on behalf of the party to
whom such representations, warranties, covenants and agreements are made.
SECTION 11.2 AMENDMENT AND WAIVER. This Agreement may be amended only by
a writing executed by each of the parties hereto. No waiver of compliance with
any provision or condition hereof, and no consent provided for herein, shall be
effective unless evidenced by an instrument in writing duly executed by the
party sought to be charged therewith. No failure on the part of any party to
exercise, and no delay in exercising, any of its rights hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise by any party of
any right preclude any other or future exercise thereof or the exercise of any
other right.
SECTION 11.3 ASSIGNMENT. The Agreement may be freely assigned without
notice to, or consent by, Sellers or ATWEC to a corporation or other business
entity wholly owned by Buyer, but no such assignment shall relieve Buyer or GWI
of its obligations and liabilities hereunder. Sellers (other than to ATWEC or a
wholly owned subsidiary of ATWEC after notice to Buyer and GWI) and ATWEC may
not assign this Agreement for a period of thirty-six (36) months following the
Closing Date, after which period Sellers and ATWEC shall be free to assign this
Agreement without notice to, or consent by, Buyer. This Agreement shall
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be binding upon and inure to the benefit of Sellers, ATWEC, GWI and Buyer, and
their respective successors and assigns.
SECTION 11.4 NOTICES, ETC. Each notice, report, demand, waiver, consent
and other communication required or permitted to be given hereunder shall be in
writing and shall be sent either by registered or certified first-class mail,
postage prepaid and return receipt requested, or by telex or telecopier,
addressed as follows:
If to Buyer or to GWI: Pittsburg & Shawmut Railroad, Inc.
201 N. Penn Street
Punxsutawney, PA 15767
Attention: President
Genesee & Wyoming Inc.
71 Lewis Street
Greenwich, CT 06830
Attention: Mortimer B. Fuller III
with a copy to: Harter, Secrest & Emery
700 Midtown Tower
Rochester, New York 14604-2070
Attention: James B. Gray, Jr. Esq.
If to any Seller or to ATWEC: Arthur T. Walker Estate Corporation
One Glade Park, East R.D. 8, Box 46
Kittanning, PA 16201
Attention: President
with a copy to: Dumaines
201 Devonshire Street
Fourth Floor
Boston, MA 02110
Attention: Gerard J. Sarnie
Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Attention: Stephen W. Carr, P.C.
Each such notice and other communication given by mail shall be deemed to have
been given when it is deposited in the United States mail in the manner
specified herein, and each such notice and other communication given by telex or
telecopier shall be deemed to have been given when it is so transmitted and the
appropriate answer back is received. Any party may change its address for the
purpose hereof by giving notice in accordance with the provisions of this
Section 11.4.
- 30 -
<PAGE>
SECTION 11.5 BINDING EFFECT. Subject to the provisions of Section 11.3,
this Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. This Agreement creates no
rights of any nature in any Person not a party hereto.
SECTION 11.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
applicable to agreements made and to be performed entirely within the
Commonwealth of Pennsylvania.
SECTION 11.7 EFFECT OF AGREEMENT. This Agreement sets forth the entire
understanding of the parties, and supersedes any and all prior agreements,
arrangements and understandings, written or oral, relating to the subject matter
hereof.
SECTION 11.8 HEADINGS; COUNTERPARTS. The Article and Section headings of
this Agreement are for convenience of reference only and do not form a part
hereof and do not in any way modify, interpret or construe the intention of the
parties. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first written above.
SELLERS:
THE PITTSBURG & SHAWMUT RAILROAD
COMPANY
By:/s/ Walter E. Travis
---------------------
Its [ ] Director
RED BANK RAILROAD COMPANY
By:/s/ Walter E. Travis
---------------------
Its [ ] Director
MOUNTAIN LAUREL RAILROAD COMPANY
By:/s/ Walter E. Travis
---------------------
Its [ ] Director
- 31 -
<PAGE>
BUYER:
PITTSBURG & SHAWMUT RAILROAD, INC.
By:
---------------------
Its [ ]
ATWEC:
ARTHUR T. WALKER ESTATE CORPORATION
By:/s/ Walter E. Travis
---------------------
Its [ ] Chairman
GWI:
GENESEE & WYOMING INC.
By:
-----------------------
Its [ ]
- 32 -
<PAGE>
BUYER:
PITTSBURG & SHAWMUT RAILROAD, INC.
By:/s/ Mark W. Hastings
---------------------
Its [ ] Treasurer
ATWEC:
ARTHUR T. WALKER ESTATE CORPORATION
By:
---------------------
Its [ ]
GWI:
GENESEE & WYOMING INC.
By: /s/ Mortimer B. Fuller
-----------------------
Its [ ] President
- 33 -
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
* Exhibit A Form of Opinion of Sellers' and ATWEC's
Counsel
* Exhibit B Form of Opinion of Buyer's and GWI's Counsel
* Exhibit C Form of Deed
* Schedule 1.1(a) Real Property
* Schedule 1.1(b) Tangible Personal Property
* Schedule 1.1(c) Inventories
* Schedule 1.1(e) Intangible Assets
* Schedule 1.3 Allocation of Purchase Price
* Schedule 2.1 Contracts Assumed
* Schedule 2.4(b) KELC Permits
* Schedule 3 Disclosure Statement
* Schedule 3.17(f) Employees
* Schedule 5.1 Form of Seller's Real Property Affidavit
* Schedule 5.3 Continuing Health Care Benefits
* Schedule 5.4 Consents
* Schedule 7.1(e) Seller's Consents
* Schedule 7.1(f) Buyer's Consents
* Schedule 7.1(l)(3) Coal Destinations
* OMITTED EXHIBITS AND SCHEDULES
UPON WRITTEN REQUEST, THE REGISTRANT WILL PROVIDE COPIES OF ANY OF THE
REFERENCED OMITTED EXHIBITS AND SCHEDULES, SUBJECT TO REQUESTS FOR
CONFIDENTIAL TREATMENT.
- 34 -
<PAGE>
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
THIS AMENDMENT No. 1 to Asset Purchase Agreement, dated April 19, 1996,
among Pittsburg & Shawmut Railroad, Inc., a Delaware corporation, Genesee &
Wyoming Inc., a Delaware corporation, The Pittsburg & Shawmut Railroad Company,
a Pennsylvania corporation, Red Bank Railroad Company, a Pennsylvania
corporation, Mountain Laurel Railroad Company, a Pennsylvania corporation, and
Arthur T. Walker Estate Corporation, a Delaware corporation.
1. Section 11.5 of the Asset Purchase Agreement, is hereby amended by
deleting the last sentence thereof and substituting in its place:
"Except as specifically provided in Section 10.2 hereof, this
Agreement creates no rights of any nature in any Person not a party
hereto."
2. Except as set forth above, all other terms and conditions of the Asset
Purchase Agreement remain the same.
3. This Consent may be executed in various counterpart copies, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 on the
date first written above.
THE PITTSBURG & SHAWMUT RAILROAD
COMPANY
By:/s/ Walter E. Travis
---------------------
Its: Director
RED BANK RAILROAD COMPANY
By:/s/ Walter E. Travis
---------------------
Its: Director
MOUNTAIN LAUREL RAILROAD COMPANY
By:/s/ Walter E. Travis
---------------------
Its: Director
<PAGE>
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
[signatures continued]
PITTSBURG & SHAWMUT RAILROAD, INC.
By:
------------------------
Its:
ARTHUR T. WALKER ESTATE CORPORATION
By:/s/ Walter E. Travis
---------------------
Its: Chairman
GENESEE & WYOMING INC.
By:
-----------------------
Its:
<PAGE>
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
[signatures continued]
PITTSBURG & SHAWMUT RAILROAD, INC.
By: /s/ Mark W. Hastings
------------------------
Its: Treasurer
ARTHUR T. WALKER ESTATE CORPORATION
By:
---------------------
Its:
GENESEE & WYOMING INC.
By:/s/ Mortimer B. Fuller
-----------------------
Its: President
<PAGE>
EXHIBIT 10.71
-------------
AMENDMENT NO. 1 TO
WARRANT PURCHASE AGREEMENT
This AMENDMENT NO. 1 (this "Amendment") to Warrant Purchase Agreement,
dated as of May 31, 1996, between Genesee & Wyoming Inc. (the "Company") and FSC
Corp. (successor by assignment to The First National Bank of Boston and the sole
Investor, as defined in the Warrant Purchase Agreement as hereinafter defined)
("FSC").
WHEREAS, the Company and FSC are parties to that certain Warrant Purchase
Agreement dated as of February 8, 1996 (as amended and in effect from time to
time, the "Warrant Purchase Agreement"), pursuant to which the Company, upon
certain terms and conditions, has granted FSC a warrant to purchase stock of the
Company; and
WHEREAS, in connection with the Company's Initial Public Offering, the
Company has requested that FSC waive its Piggyback Registration rights with
respect to such offering;
WHEREAS, FSC has agreed to waive its Piggyback Registration rights with
respect to the Initial Public Offering provided that the Company agree, and the
Company has agreed, on the terms and subject to the conditions set forth herein,
to make certain changes to the Warrant Purchase Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
(S)1. DEFINED TERMS. Capitalized terms which are used herein without
-------------
definition and which are defined in the Warrant Purchase Agreement shall have
the same meanings herein as in the Warrant Purchase Agreement.
(S)2. AMENDMENT OF WARRANT PURCHASE AGREEMENT. The Warrant Purchase
---------------------------------------
Agreement is hereby amended as follows:
(a) Section 1.1 of the Warrant Purchase Agreement is amended by
inserting the following new definitions in the appropriate places in the
alphabetical sequence thereof:
"Demand Registration" has the meaning ascribed to such term in
------ ------------
(S)8.1A(a) hereof.
"Minimum Number" means, in relation to a Demand Registration, more
--------------
than twenty-five percent (25%) of all Registrable Securities at the time
not yet registered.
(b) Article I of the Warrant Purchase Agreement is amended by inserting
after the preamble of such article a new (S)8.1A as follows:
(S)8.1A. DEMAND REGISTRATION.
------ ------------
<PAGE>
-2-
(a) Requests for Demand Registration.
-------- --- ------ ------------
(i) Subject to the limitations contained in the following paragraphs
of this (S)8.1A, the Holders of not less than twenty-five percent (25%) of
the Registrable Securities at any time outstanding may at any time and from
time to time give to the Company, pursuant to this clause (i), a written
request for the registration by the Company under the Securities Act of all
or any part of the Registrable Securities of such Holders (such
registration being herein called a "Demand Registration"). Within ten (10)
------ ------------
days after the receipt by the Company of any such written request, the
Company will give written notice of such registration request to all
Holders of Registrable Securities.
(ii) Subject to the limitations contained in the following paragraphs
of this (S)8.1A, after the receipt of each such written request for a
Demand Registration, (A) the Company will be obligated and required to
include in such Demand Registration all Registrable Securities with respect
to which the Company shall receive from Holders of Registrable Securities,
within thirty (30) days after the date on which the Company shall have
given to all Holders a written notice of registration request pursuant to
(S)8.1(a)(i) hereof, the written requests of such Holders for inclusion in
such Demand Registration, and (B) the Company will use its best efforts in
good faith to effect promptly the registration of all such Registrable
Securities. All written requests made by Holders of Registrable Securities
pursuant to this clause (ii) will specify the number of shares of
Registrable Securities to be registered and will also specify the intended
method of disposition thereof. Such method of disposition shall not, in
any case, be an underwritten offering unless the Company so requests.
(b) Limitations on Demand Registration.
----------- -- ------ ------------
(i) The Holders of Registrable Securities will only be entitled to
require the Company to effect four Demand Registrations on Form S-3 (or
other comparable forms adopted by the Commission) and will not be entitled
to require Demand Registrations on any other form.
(ii) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to (S)8.1A(a)
hereof unless and until the Holders shall have requested, pursuant to
(S)8.1A(a)(ii) hereof, the inclusion in such Demand Registration of not
less than the Minimum Number of Registrable Securities applicable to such
Demand Registration.
(iii) Any registration initiated by Holders of Registrable Securities
as a Demand Registration pursuant to (S)8.1A(a) hereof shall not, for
purposes of this (S)8.1A, count as a Demand Registration unless and until
such registration shall have become effective and all Registrable
Securities included in such registration, and which were actually offered
for sale by the holder thereof, shall have been actually sold.
<PAGE>
-3-
(iv) The Company shall not be obligated or required to effect any
Demand Registration of any Registrable Securities pursuant to (S)8.1A(a)
hereof during the period commencing on the date falling sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date
ninety (90) days following the effective date of, any Registration
Statement pertaining to any underwritten registration initiated by the
Company, for the account of the Company, if the written request of Holders
for such Demand Registration pursuant to (S)8.1A(a)(i) hereof shall have
been received by the Company after the Company shall have given to all
Holders of Registrable Securities a written notice stating that the Company
is commencing an underwritten registration initiated by the Company;
provided, however, that the Company will use its best efforts in good faith
-------- -------
to cause any such Registration Statement to be filed and to become
effective as expeditiously as shall be reasonably possible.
(c) Effective Registration - Expenses. In any registration initiated
--------- ------------ --------
by the Holders as a Demand Registration pursuant to (S)8.1A(a) hereof, the
Company will pay all Registration Expenses of each such registration
regardless of whether such registration constitutes a Demand Registration
for purposes of this (S)8.1A, provided that the sum of all registration and
--------
filing fees, fees and expenses of compliance with securities or Blue Sky
laws, printing expenses, messenger, telephone and delivery expenses, and
reasonable fees and disbursements of all attorneys and independent
certified public accountants (including the expenses relating to the
preparation and delivery of any special audit or "cold comfort" letters
required by or incident to such registration) incurred or sustained in
connection with or arising out of all registrations pursuant to (S)8.1A
hereof for which the Company shall be responsible, and in any event not
including any expenses referenced in the last sentence of (S)8.5(a), shall
not exceed $25,000, and provided further that the Holders participating in
----------------
such registration shall be responsible for all expenses referenced in the
foregoing proviso in excess of $25,000. The dollar limitation contained in
this (S)8.1A(c) shall apply solely to that portion of the fees and expenses
of such registration relating to registration of the Holders' securities
and not to the registration of the securities of any other participant in
such registration.
(d) Limitation on Rights to Piggyback on Demand Registrations.
---------- -- ------ -- --------- -- ------ -------------
(i) Neither the Company nor any of its securityholders (other than
Holders of Registrable Securities in their capacity as Holders) shall have
the right or otherwise be entitled to include any of the Company's
securities in any registration initiated by Holders of Registrable
Securities as a Demand Registration pursuant to (S)8.1A(a) hereof, unless
(A) such securities are of the same class as the Registrable Securities to
be included in such Demand Registration, and (B) if such Demand
Registration is an underwritten offering, the Company or (as the case may
be) such securityholders shall have duly and properly agreed in writing to
sell their securities on the same terms and conditions as shall apply to
the Registrable Securities to be included in such Demand Registration.
(ii) The Company will not grant or agree to grant to any Persons any
registration rights which will conflict or be inconsistent in any respect
with any of
<PAGE>
-4-
the provisions of clause (i) of this (S)8.1A(d). In the event of any such
conflict or inconsistency, the provisions of such clause (i) shall in any
case prevail and be controlling.
(c) Section 8.1(a)(i) of the Warrant Purchase Agreement is amended by
inserting after the words "Securities Act" in such section, the parenthetical
"(other than pursuant to a Demand Registration)".
(d) Section 8.1(a)(ii) of the Warrant Purchase Agreement is amended by
inserting at the end of such section the following sentence: "Any registration
of Registrable Securities pursuant to this (S)8.1 shall not be counted as a
Demand Registration pursuant to (S)8.1A hereof."
(e) Section 8.5(a) of the Warrant Purchase Agreement is amended by
inserting after the section reference "(S)8.1" in the first sentence thereof,
the words "or (S)8.1A (subject to the dollar limitation contained in (S)8.1A(c)
hereof)".
(S)3. EFFECTIVENESS. The effectiveness of this Amendment shall be subject
-------------
to the execution and delivery by each of the Company and FSC of this Amendment.
(S)4. MISCELLANEOUS PROVISIONS.
------------------------
(a) Except as otherwise expressly provided by this Amendment, all of
the terms, conditions and provisions of the Warrant Purchase Agreement
shall remain the same. It is declared and agreed by each of the parties
hereto that the Warrant Purchase Agreement, as amended hereby, shall
continue in full force and effect, and that this Amendment and the Warrant
Purchase Agreement shall be read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER
SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In
making proof of this Amendment it shall not be necessary to produce or
account for more than one counterpart signed by each party hereto.
(d) The Company hereby agree to pay to the Agent, on demand by the
Agent, all reasonable out-of-pocket costs and expenses incurred or
sustained by the Agent in connection with the preparation of this Amendment
(including reasonable legal fees).
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
GENESEE & WYOMING INC.
By: /s/ Mark W. Hastings
--------------------------------
Mark W. Hastings, Treasurer
FSC CORP., as sole Investor
By: /s/ Mary Josephs Reily
--------------------------------
Name:
Title: Vice President
<PAGE>
EXHIBIT 11.1
GENESEE & WYOMING INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
-------------------- -------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Net Income................................. $1,624 $3,011 $1,657 $ 502 $ 965
Weighted average number of shares of Com-
mon Stock outstanding................... 2,304 2,304 2,348 2,348 2,348
====== ====== ====== ====== ======
Earnings per share--basic................ $ 0.70 $ 1.31 $ 0.71 $ 0.21 $ 0.41
====== ====== ====== ====== ======
PRIMARY AND FULLY DILUTED EARNINGS PER
SHARE:
Net Income................................. $1,624 $3,011 $1,657 $ 502 $ 965
Weighted average number of Common Stock
shares and common stock equivalents out-
standing:
Weighted average number of shares of Com-
mon Stock outstanding................... 2,304 2,304 2,348 2,348 2,348
Weighted average number of Common Stock
equivalents applicable to stock war-
rants................................... 42 42 42 42 42
Weighted average number of Common Stock
equivalents applicable to stock options. 24 24 -- -- --
------ ------ ------ ------ ------
Common Stock and Common Stock equiva-
lents................................... 2,370 2,370 2,390 2,390 2,390
====== ====== ====== ====== ======
Earnings per share--primary and fully di-
luted (1)............................... $ 0.69 $ 1.27 $ 0.69 $ 0.21 $ 0.40
====== ====== ====== ====== ======
</TABLE>
- --------
(1) This calculation is submitted in accordance with item 601(b)11 of
regulation S-K although it is not required by APB Opinion No. 15 because
it results in dilution of less than 3%.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY STATE OF FORMATION
---------- ------------------
CORPORATIONS:
- -------------
Allegheny & Eastern Railroad, Inc. Delaware
Bradford Industrial Railroad, Inc. Delaware
Buffalo & Pittsburgh Railroad, Inc. Delaware
The Dansville & Mount Morris Railroad Company New York
Genesee & Wyoming Investors, Inc. Delaware
Genesee and Wyoming Railroad Company New York
GWI Dayton, Inc. Delaware
GWI Leasing Corporation Delaware
GWI Rail Management Corporation Delaware
Illinois & Midland Railroad, Inc. Delaware
Louisiana & Delta Railroad, Inc. Delaware
Pittsburg & Shawmut Railroad, Inc. Delaware
Portland & Western Railroad, Inc. New York
Railroad Services, Inc. Delaware
Rochester & Southern Railroad, Inc. New York
Willamette & Pacific Railroad, Inc. New York
LIMITED PARTNERSHIP:
- -------------------
GWI Switching Services, L.P. Texas
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made part of this
Registration Statement on Amendment No. 1 to Form S-1.
Arthur Andersen LLP
Chicago, Illinois
June 7, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 2,115 6,588
<SECURITIES> 0 0
<RECEIVABLES> 9,441 14,764
<ALLOWANCES> 0 0
<INVENTORY> 1,512 2,295
<CURRENT-ASSETS> 15,801 25,758
<PP&E> 79,231 89,526
<DEPRECIATION> 17,659 18,917
<TOTAL-ASSETS> 78,429 115,859
<CURRENT-LIABILITIES> 13,051 24,428
<BONDS> 38,702 63,313
0 0
0 0
<COMMON> 23 23
<OTHER-SE> 10,525 11,929
<TOTAL-LIABILITY-AND-EQUITY> 78,429 115,859
<SALES> 53,387 16,608
<TOTAL-REVENUES> 53,387 16,608
<CGS> 46,815 13,794
<TOTAL-COSTS> 46,815 13,794
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,405 1,274
<INCOME-PRETAX> 3,623 1,621
<INCOME-TAX> 1,472 656
<INCOME-CONTINUING> 2,151 965
<DISCONTINUED> 0 0
<EXTRAORDINARY> (494) 0
<CHANGES> 0 0
<NET-INCOME> 1,657 965
<EPS-PRIMARY> .69 .40
<EPS-DILUTED> .69 .40
</TABLE>
