SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(b) OR 12(g) OF THE SECURITIES ACT OF 1934
NEW YORK REGIONAL RAIL CORPORATION
(Name of Small Business Issuer in Its Charter)
Delaware 13-3881577
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
4302 First Avenue, Brooklyn, NY, 11232
(Address of Principal Executive Offices)
(718) 788-3690
(Company's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
None None
- -------------------------------- ----------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common stock, $0.0001 par value
(Title of Class)
-------------------------------
(Title of Class)
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Description of Business
Item 2. Management's Discussion and Analysis and Plan of Operation
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers, Promoters and Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
PART II
Item 1. Market Price of and Dividends on the Company's Common Equity and
Other Shareholder Matters
Item 2. Legal Proceedings
Item 3. Changes in and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Directors and Officers
PART F/S
Index to Financial Statements
PART III
Index to Exhibits
SIGNATURES
<PAGE>
PART I
Item 1. Description of Business.
The Company was incorporated in Delaware in April 1994. Between 1994 and
June 1996, the Company had been engaged in several business ventures.
In May 1996 the Company acquired all of the issued and outstanding common
stock of the New York Regional Rail Corporation ("NYRR") in consideration for
the issuance of 87,000,000 shares of the Company's common stock. NYRR is a
short-line railroad which transports freight via barges across the New York City
Harbor. As a result of this acquisition, the Company changed its name to "New
York Regional Rail Corp". NYRR owns 93% of New York Cross Harbor Railroad, Inc.
("NYCH"), the corporation which transports the rail freight, and a 95% interest
in CH Proprietary, Inc. ("CHP"), a corporation which owns the equipment used by
NYCH in conducting its rail freight transportation business. Unless otherwise
indicated, any reference to the Company includes NYRR and any reference to NYRR
includes CHP and NYCH.
In April 1999 the Company acquired a 51% interest in J.S. Transportation, Inc.
("JST"), a short haul regional trucking company. Unless otherwise indicated, any
reference to the Company also includes JST.
The Company's offices are located at 4302 First Avenue, Brooklyn, NY,
11232. The Company's telephone number is (718) 788-3690 and its facsimile number
is (718) 788-4462.
Railroad Operations
NYCH is part of the national railroad system and holds the only Surface
Transportation Board certificate of convenience and necessity for the movement
of rail freight by rail barge across the New York City Harbor. NYCH has
approximately 13 miles of track on the New Jersey and Brooklyn waterfront and
exchanges rail cars with the Canadian Pacific, Norfolk Southern and CSXT
Railroads in New Jersey and with the New York and Atlantic Railroad in Brooklyn.
NYCH has approximately 40 customers. CHP owns substantially all of the equipment
used by NYCH in conducting its rail freight transportation business, with NYRR
owning the balance.
While at its peak, rail traffic across the New York Harbor exceeded 2,000
carloads per day, currently it is less than 20 carloads per day. Demand for
direct rail service, however, is growing as a result of truck congestion on
bridges, tunnels and on city streets and due to an emerging market for rail
shipment of hazardous and non-hazardous wastes, and the recent access provided
to three class one railroads to the New York City (NYC), Long Island (LI),
Southern New England (SNE) regions. The Company believes that there is a
significant opportunity to capitalize on this increasing demand by providing
better service at lower costs for freight moving between New York and New
Jersey.
<PAGE>
The New York City metropolitan region is the only major economic area in
the United States that has a freight transportation system that is almost
completely dependent on its highway system. In the New York City metropolitan
area, 97% of freight is moved via truck verses 3% by rail. All other major
metropolitan regions are roughly balanced at 60% truck verses 40% via rail.
Rail traffic into the New York City metropolitan area is estimated to be
19,500 railcars per year, of which 3,500 are handled by the Company.
Additionally, there are 10,950,000 estimated truck crossings per year (a truck
crossing occurs when a truck travels over a bridge or through a tunnel). Modern
"high-cube" cargo containers on trailers reach 13' 16" height, exceeding Lincoln
and Holland Tunnel vertical clearances, forcing more heavy-duty truck traffic
onto the George Washington and Verazanno Narrows Bridges, increasing distance,
time and truck freight costs into the region. As a result of the foregoing, the
Company believes that it can capture a portion of the freight presently
transported by truck.
Operating from its main base of operations at the Bush Terminal in
Brooklyn, New York, NYRR receives freight for transport to New Jersey and points
beyond. NYRR transports the freight via floatbarge across New York Harbor to
NYRR's Greenville Yard in Jersey City, New Jersey. When the freight arrives at
the Greenville Yard, it is placed on the national rail network for further
transportation. For incoming freight from New Jersey and points beyond, NYRR
reverses this operation and connects with the LIRR Freight Division (operated by
the New York and Atlantic Railroad) on the east side of New York Harbor.
The Company provides a fast, relatively inexpensive and dependable
rail-float link across the New York City harbor by means of Company-owned
floatbridges. The 2.5 mile floatbarge trip across the Harbor takes approximately
45 minutes and eliminates a 35 to 50 mile truck trip across the New York City
regional bridge, highway and tunnel system. The capacity of a floatbarge is
roughly one dozen rail freight cars, or the equivalent of about 30 to 40 truck
loads.
Diesel-fueled locomotives are used by NYRR to switch railcars at its Bush
Terminal and Greenville facilities. NYRR uses tugboats to move floatbarges
(carrying railfreight cars) between Jersey City, New Jersey and Brooklyn, New
York.
The Bush Terminal in South Brooklyn is currently operated by NYRR on a
month-to month permit with New York City. Although this facility is fully
operational, it currently operates at less than 10% of its total capacity. The
Greenville Yard has always served as the primary rail carfloat facility in New
Jersey and connects by rail to the main Conrail freight yard in Newark, New
Jersey. NYRR's terminal operation at the Greenville Yard is situated on a one
mile long, 14.6 acre parcel leased to NYRR until 2023.
As of November 30, 1999 the Company was transporting approximately 200
carloads per month. The Company projects it will need to transport approximately
300 carloads per month in order to become marginally profitable. The Company
believes that its revenues will increase, in part, as a result of the June 1999
acquisition of Conrail by CSX and Norfolk Southern. Conrail in the past resisted
using the Company's rail system, preferring to transport freight destined for
New York City/Long Island over Conrail's land based tracks. Since Conrail's
operations were effectively acquired by CSX and Norfolk Southern in June 1999
Norfolk Southern has used the Company more frequently to transport freight
between New Jersey and the New York/Long Island areas. The Company also believes
that the demand for its services will increase as a result of truck congestion
on bridges, tunnels and on city streets. There can be no assurance that the
Company will be able to increase revenues to the level required to generate
profits.
<PAGE>
The Company is of the opinion that it will be able to transport
approximately 25,000 carloads per year without any additional repairs to its
existing facilities.
Trucking Operations
In April 1999 the Company acquired 51% of the common stock of J.S.
Transportation, Inc. ("JST") in exchange for 6,000,000 shares of the Company's
common stock. A total of 5,000,000 shares were issued to the shareholders of JST
in return for 51% of the common stock of JST and an additional 1,000,000 shares
were provided to JST to be used for the repayment of certain liabilities of JST.
JST is a short-haul regional trucking company which hauls and disposes of
garbage, rubbish, trash and other solid waste. JST has an agreement with
Gloucester County Landfill Authority which allows JST to dump waste at the
Gloucester County Landfill at a fixed price per ton. The agreement with the
Gloucester County Landfill Authority expires on December 31, 2000, and has a one
year renewal option.
The equipment owned by JST is leased to a subcontractor which hauls and
disposes of the waste for JST's customers. JST does not collect trash and solid
waste from residential or commercial customers, but rather collects trash and
other solid waste from transfer stations operated by trash, garbage and rubbish
collection companies. The waste collected from the transfer stations is then
hauled to various waste dumps and landfills. JST does not haul or dispose of
hazardous, toxic, or medical waste.
JST permits its customers which own their own trucking equipment to
directly transport waste to the Gloucester County landfill. JST charges these
customers an amount over and above the amount charged by the Gloucester County
landfill to JST.
As of November 30, 1999 JST's trucking equipment was transporting
approximately 24,000 tons of waste per month. JST believes it can expand its
business by acquiring other smaller trucking companies that are involved in the
collection of waste. As of November 30, 1999, JST did not have any agreements
relating to the acquisition of any trucking companies. In addition, JST has
learned that the Gloucester County landfill plans to install new scales which
will permit increased truck traffic through the landfill. As a result, JST
believes that the amount of waste which it transports to the Gloucester County
landfill will increase.
<PAGE>
Certain unaudited financial information concerning JST as of September 30,
1999 follows:
Current Assets $266,409
Total Assets $1,673,331
Current Liabilities $284,884
Total Liabilities $1,191,732
Working Capital (deficit) $(18,475)
Stockholders' Equity $481,599
Nine Months Ending
September 30, 1999
Revenues $2,913,566
Cost of Sales (2,681,113)
General and Administrative
Expenses (73,308)
Net Income $159,145
During the nine months ending September 30, 1999 approximately 29% of
JST's revenues were derived from collection services provided to a single
customer.
Competition
The transportation industry is highly competitive. The Company competes
with, and expects to continue to compete with, numerous national, regional and
local railroad and trucking companies, many of which have significantly larger
operations, greater financial, marketing, human, and other resources than the
Company. The Company anticipates that competition may increase in the future.
There can be no assurance that the Company will successfully compete in any
market in which it conducts or may conduct operations.
Regulation
The Company is 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 ICC. Established by the ICCTA in l995, the STB has jurisdiction over, among
other things, service levels and compensation of carriers for use of the
railcars by other carriers. It also must authorize extension or abandonment of
rail lines, the acquisition of rail lines and the consolidation, merger or
acquisition of control of rail common carriers. In limited circumstances, the
<PAGE>
STB 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.
<PAGE>
Since l980, federal regulatory policy has emphasized the promotion of
revenue adequacy (e.g., the opportunity to earn revenues sufficient to cover
costs and attract capital) for the railroads and has allowed competition to
determine to a great extent rail prices and route and service options. 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. While federal regulation of rail prices has been significantly
curtailed, federal regulation of services continues to have a material effect on
profitability and competitiveness in the railroad industry.
Environmental Matters
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment. These
environmental laws and regulations, which have become increasingly stringent,
are implemented principally by the United States Environmental Protection Agency
and comparable state agencies and 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. In addition, the Company believes that its
operations are in compliance in all material respects 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 current regulatory requirements will not change, that currently
unforeseen environmental incidents will not occur, that past non-compliance with
environmental laws will not be discovered on the Company's properties in any of
such events, the business, prospectus, financial condition and results of
operations of the Company could be materially adversely effected.
Loan Agreement
During 1999 the Company borrowed $1,424,000 from a group of private
investors, including CCC Financing, Inc. ("CCC"). CCC is a private investment
company and is controlled by Steven Hirsch, a beneficial owner of more than 5%
of the Company's common stock. See Part I, Item 4 of this Registration
Statement. The loans from the investors bear interest at the rate of 10% per
annum and are convertible into shares of the Company's common stock at the lower
of $0.14 per share, or 90% of the average closing price of the Company's common
stock for the ten trading days preceding the date of conversion. In the event
the investors convert all or a part of the amount owed by the Company into
shares of the Company's common stock, the investors will be entitled to options
which allow the investors to acquire one additional share of the Company's
common stock for every two shares received upon conversion. The options are
exercisable at a price of $0.18 per share and expire on the later of April 30,
2000 or 90 days following the date the shares issuable upon the exercise of the
options have been registered for public sale with the Securities and Exchange
Commission. The amounts borrowed from the investors were used to pay accrued
liabilities, purchase fixed assets, and fund the Company's operations. For
providing loans and financial services to the Company, CCC was given the right
to designate two members to the Company's Board of Directors. At the request of
CCC, Ira Levy and Ronald Kuzon were appointed directors of the Company.
Employees
<PAGE>
As of November 30, 1999, the Company had 14 full-time employees.
Contingent upon the Company obtaining sufficient capital, the Company intends to
hire such number of additional employees as may be required by the level of the
Company's operations.
Item 2. Management's Discussion and Analysis or Plan of Operations
Summary Financial Data:
Balance Sheet Data December 31,
1998 1997
Current Assets $ 132,938 125,776
Total Assets 3,117,712 3,409,698
Current Liabilities 4,709,164 4,614,848
Total Liabilities 4,949,889 4,690,643
Working Capital (Deficit) (4,576,226) (4,489,072)
Stockholders' (Deficit) (1,832,177) (1,280,945)
Operating Data Years Ending December 31,
- -------------- ---------------------------------------
1998 1997 1996
---- ---- ----
Operating revenues $1,178,507 $1,335,468 $1,330,990
Operating expenses 1,002,428 1,226,524 812,793
Administrative expenses 2,029,070 1,602,653 1,610,064
Interest expense 589,880 357,274 103,096
Loss on disposition of equipment 110,000 167,095 --
Write-off of investment -- -- 750,000
----------------------------------------------
Net Loss $(2,552,871)$(2,018,078) $(1,944,963)
======================== ============
Results of Operations
The Company has incurred substantial losses since it was formed. From the
date of its formation through December 31, 1998, the Company incurred net losses
of approximately $(8,115,000). During the year ended December 31, 1998 the
Company had a loss of $(2,552,871). The Company expects to continue to incur
losses until such time, if ever, it earns net income.
Prior to 1976, the New York City region benefited from significant rail
freight competition. A considerable amount of rail freight entered the New York
City region via NYCH, now a subsidiary of the Company NYCH was handling close to
1,000 cars daily prior to 1976.
In 1976, Conrail was formed. Rail freight operations in the New York metro
area became dependent on Conrail, which served as the area's exclusive rail link
to the balance of the national rail network. Conrail was in a position to
control the movement and pricing of rail freight in and around the New York
greater metropolitan area.
<PAGE>
In 1976, Conrail elected to focus on rail delivery west of the Hudson
River by developing "reload centers" in northern New Jersey for reloading goods
from railcars onto trucks for delivery to destinations in NYC/LI. The NYC/LI
shipper, therefore, had the added burden of drayage (or highway transportation).
Conrail had a secondary policy of routing a significant portion of
railcars destined for LI/NYC/SNE and originating from southern and western
regions of the U.S. to Oak Island, NJ, then north to the Selkirk, NY bridge and
down the east side of the Hudson to the Oak Point Yard. This added one way 288
miles and 1-4 days to the trip rather than the three-mile trip to the Company's
Greenville, NJ Yard and then a forty-five minute trip across New York Harbor.
This policy discouraged many customers from using rail altogether.
Conrail's policies led to a decline in NYCH's rail traffic, and resulted
in financial problems for the Company.
In January 1995 the Company's docking facility in Greenville, New Jersey
required repairs resulting in the inability of the Company to move freight for a
14 week period. As a result of the failure of the docking facility, rail
traffic, which would otherwise have been carried by the Company, was rerouted
along track north of New York City. Much of the rail traffic which was rerouted
did not return to the Company following the repair of the docking facility,
resulting in a decline in the Company's revenues during 1995 and thereafter. In
order to become profitable, the Company will, among other things, need to
increase the amount of freight it transports across the New York City Harbor.
In 1997, Norfolk Southern and CSX announced their joint acquisition of
Conrail. This acquisition was approved by the Surface Transportation Board and
the operational control of Conrail's assets was transferred on June 1, 1999.
Operating revenues increased slightly in 1997 due to increased bridge
traffic and the development of two waste transportation contracts. During 1998
operating revenues decreased by almost 12% from the prior year. Although the
Company experienced an increase in bridge traffic, this was offset by the loss
of the two waste contracts obtained in 1997.
During 1997 operating expenses were 92% of operating revenues. Operating
expenses as a percent of operating revenues decreased to 85% during 1998. This
reduction was the direct result of management developing and implementing a
logistical control system which allowed for a more efficient traffic flow. These
efficiencies along with a more favorable marine towing subcontractor accounted
for the reduction in the overall operating expenses.
Interest expenses increased in 1997 and 1998 as the result of the Company
participating in various types of convertible debt financing with several
private institutions and individuals .
The loss on disposition of equipment represents the confiscation of one
tugboat and the abandonment of another. In addition, the Company retired a
locomotive and used its parts to service the Company's other locomotives.
<PAGE>
In July 1995, the Company acquired the outstanding capital stock of
Electronic Display Technologies, Inc. ("EDT"), a company involved in the
development of technology for electronic signage, in consideration for the
issuance of 765,000 shares of Common Stock. In July 1996, the Company sold EDT
to two former officers and directors of the Company in exchange for shares of
the preferred stock of EDT. The Company is of the opinion that EDT's preferred
stock is without any value and in 1996 the Company's investment in EDT
($750,000) was written off.
During the three year period ending December 31, 1998 the Company recorded
significant expenses as the result of the issuance of common stock at below
market prices or as the result of the issuance of options and warrants with
exercise prices below market prices. These charges did not require the use of
cash and were offset by corresponding credits to stockholders' equity. The
amounts expensed by the Company as a result of the foregoing were:`
1996: $904,331
1997: $685,581
1998: $967,361
As of November 30, 1999 the Company was transporting approximately 200
carloads per month. The Company projects that it will need to transport
approximately 300 carloads per month in order to become marginally profitable.
Liquidity and Capital Resources
In April 1999 the Company acquired a 51% in JST. JST has been, and is
expected to remain, profitable. However, the Company's 51% interest in the net
income of JST has not been enough to offset the losses sustained by the
Company's railroad operations.
Although during fiscal 2000 the Company expects that its operations will
begin to generate net income, the Company nevertheless anticipates that it will
suffer losses of approximately $200,000 until the Company becomes profitable.
As of June 30, 1999 the Company had the following liabilities:
Accounts and accrued expenses $1,551,340
Notes payable and current maturities of
long-term debt 2,569,065
Accrued real estate taxes 870,173
Payroll and payroll taxes payable 602,235
----------
$5,592,813
Accounts payable and accrued liabilities include $345,000 owed to a
customer for advances and tugboat charges, and $360,000 owed to a financing
company. The Company believes the amount owed to the customer can be satisfied
through the issuance of not more than 700,000 shares of the Company's common
stock. In addition, the Company is of the opinion that the amount owed to the
financing company can be settled through the issuance of shares of the Company's
common stock and future financing arrangements.
<PAGE>
The notes payable are more fully described in Note C to the table shown in
Part II, Item 1 of this Registration Statement. The Company is of the opinion
that all or substantially all of these notes will be converted into shares of
the Company's commons tock.
Based upon discussions the Company has had with local taxing authorities,
the Company believes that its liability for real estate taxes can be settled for
approximately $150,000.00.
Based upon the foregoing, the Company's anticipated capital needs during
the year ending December 31, 2000 are:
Operating Losses $200,000
Payment of trade payables and accrued
liabilities $300,000
Repairs to Bush and Greenville terminals $200,000
Repairs to locomotives and car floats $150,000
Payroll taxes, real estate taxes, and
related interest and penalties $750,000
The Company does not have any available credit, bank financing or other
external sources of liquidity. Due to historical operating losses, the Company's
operations have not been a source of liquidity. During the year ended December
31, 1998 the Company's operations used approximately $1,070,000 of cash. In
order to fund its operating losses, the Company sold shares of its common stock
and convertible notes in private offerings.
Until such time as the Company becomes profitable, the Company's continued
operations will depend upon the availability of additional funding. In order to
obtain capital, the Company may need to sell additional shares of its common
stock or borrow funds from private lenders. There can be no assurance that the
Company will be able to obtain additional funding, if needed, or, if available,
on terms satisfactory to the Company. There can be no assurance that the Company
will be able to generate sufficient revenues and become profitable.
Year 2000 Issue
The "Year 2000" issue affects the Company's installed computer systems,
software applications and other business systems that have time-sensitive
programs that may not properly reflect or recognize the Year 2000. Because many
computers and computer applications define dates by the last two digits of the
year, "00" may not be properly identified as the Year 2000. This error could
result in miscalculations or system failures. The Company does not believe that
the Year 2000 issue will materially affect the Company's computer systems,
software or other business systems. The Company has conducted a review to
identify areas that could be affected and has developed an implementation plan
to ensure compliance. The Company believes that with modifications to existing
software the issue will not pose significant operational concerns nor have a
material impact on financial position or results of operations. The costs of
modifications is not expected to be material and will be expensed as incurred.
However, failures of computer systems maintained by third parties could have a
material impact on the Company's ability to conduct business. The Company has
requested that connecting rail carriers and certain support providers confirm
that they will be Year 2000 compliant.
<PAGE>
Item 3.Description of Property.
See Item 1 of this registration statement for information concerning the
property owned by the Company. See Note G to the Company's financial statements
for information concerning the terms of the leases pertaining to property leased
to the Company.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table identifies as of November 30, 1999 the ownership of
Common Stock by (i) each person or entity known by the Company to be the
beneficial owner of more than five percent of the Company's common stock, (ii)
each director and executive director of the Company and (iii) all the directors
and executive officers of the Company as a group.
Unless otherwise indicated, all shares are owned of record.
The first table shows the shares owned by the foregoing persons without
giving effect to the exercise of option or warrants or the conversion of notes
and other securities (collectively referred to as the "derivative securities")
of the Company. The second table shows the shares which would be owned by the
foregoing persons assuming the issuance of shares of the Company's common stock
upon the exercise or conversion of all derivative securities.
Share Ownership Assuming No Exercise or Conversion of Derivative Securities
Shares of
Name Common Stock Percent of Class (1)
W. Robert Bentley -- --
Ira A. Levy -- --
Darryl Caplan 983,425 *
Irene Bodkin 225,986 *
Donald P. Boehm 475,986 *
Ronald Kuzon --
Sabato Catucci --
<PAGE>
Robert R. Crawford 11,319,279 7.3%
Arline C. Crawford 6,227,582 4%
R. Bruce Crawford 10,400,689 6.7%
Estate of A. S. Daniels (1) 4,704,944 3%
Citrus Springs Trust (1) 31,199,786 20.1%
All Officers and Directors
as a Group (7 persons) 1,685,397 1.1%
Share Ownership Assuming Exercise or Conversion of all Derivative Securities
Shares of
Name Common Stock Percent of Class (1)
W. Robert Bentley -- --
Ira A. Levy -- --
Darryl Caplan 1,981,256 (2) *
Irene Bodkin 225,986 *
Donald P. Boehm 475,986 *
Ronald Kuzon -- --
<PAGE>
Sabato Catucci -- --
Robert R. Crawford 11,890,101 5.4%
Arline C. Crawford 9,903,376 4.5%
R. Bruce Crawford 10,400,689 4.8%
Estate of A. S. Daniels (1) 4,704,944 2.1%
Citrus Springs Trust (1) 31,651,270 14.5%
John Marsala 15,041,864 6.9%
Steven Hirsch 13,451,220 (3) 6.2%
All Officers and Directors
as a Group (7 persons) 2,683,228 1.2%
(*) Less than 1%
(1) Arline C. Crawford is the personal representative of the estate of A.S.
Daniels and the trustee of the Citrus Springs Trust.
(2) Includes options held by Mr. Caplan's law firm.
(3) Includes shares of common stock issuable upon the conversion of derivative
securities held by CCC Financial, Inc. and the Hi-Tel Group, Inc.,
corporations controlled by Mr.
Hirsch.
Item 5. Directors and Executive Officers
Set forth below is certain information concerning the management of the
Company:
<PAGE>
Name Age Position
W. Robert Bentley 56 President and a Director
Ira A. Levy 39 Vice President of Finance, Chief Financial
Officer and a Director
Darryl Caplan 38 Vice President of Corporate Affairs and
a Director
Irene Bodkin 50 Director
Donald Boehm 74 Director
Ronald Kuzon 54 Director
Sabato Catucci 61 Director
W. Robert Bentley has been the President of the Company since January 1999
and a Director of the Company since March 1998. Mr. Bentley has also been the
President of NYCH since January 1998. From 1983 until joining the Company, Mr.
Bentley had served as President of the Massachusetts Central Railroad
(MassCentral). Mr. Bentley graduated from the University of Connecticut with a
B.S. in Mechanical Engineering
Ira Levy has been an officer and a director of the Company since May 1999.
Prior to joining the Company, Mr. Levy was a partner at Goldenberg Rosenthal,
where he was employed for 15 years. Prior to his tenure at Goldenberg Rosenthal,
he was a senior auditor at Arthur Anderson & Co.
Darryl Caplan has been an officer and director of the Company since August
1999. Mr. Caplan has been an attorney in private practice since 1986. Mr. Caplan
is a graduate of Rutgers University and a member of the New Jersey Bar.
Irene Bodkin has been a director of the Company since June l996. Ms.
Bodkin has been an advisor to NYRR since February 1994 and a director of
NYRR since October 1995. Since 1990, Ms. Bodkin has been an accountant in
private practice.
Donald P. Boehm has been a director of the Company since March 1998. Since
1970, Mr. Boehm has been the Chief Executive Officer of Connelly Industries,
Inc., an investment banker in the fields of marine technology, petrochemical
technology and real estate agricultural development. Prior to 1970, Mr. Boehm
was President of marine shipyard corporations building marine vessels for the
U.S. Navy and various private parties.
Ronald Kuzon has been a director of the Company since June 1999. Mr.
Kuzon is a successful entrepreneur and he has an extensive background in
business negotiations. He is a graduate of Boston College Law School and is
a member of the Massachusetts Bar.
Sabato Catucci has been a director of the Company since July 1999. Mr.
Catucci is the founder and CEO of American Warehousing and American
Stevedoring. He also owns a number of other businesses. Mr. Catucci is one
of the persons responsible for establishing the New York Task Force on
Port, Rail and Industrial Development. He sits on the Advisory Committee of
the New York City Economic Development Corporations Cross Harbor Major
Investment Study (MIS).
<PAGE>
Ira Levy and Ronald Kuzon were appointed directors at the request of CCC
Financial, Inc. See Part I, Item 1 of this Registration Statement for
information concerning the loan agreement between the Company and CCC Financial,
Inc. Item 6. Executive Compensation.
The following table sets forth in summary form the compensation received
by (i) the Chief Executive Officer of the Company and (ii) by each other
executive officer of the Company who received in excess of $100,000 during the
fiscal years indicated.
Other Annual Restricted Options
Name and Fiscal Salary Bonus Compensation Stock Awards Granted
Principal Position Year (1) (2) (3) (4) (5)
Robert Crawford, 1998 -- -- -- -- --
President and Chief 1997 $45,000 -- -- -- --
Executive Officer 1996 -- -- -- $42,500 --
Prior to December 1998
W. Robert Bentley, 1998 $75,000 -- 8,400 -- --
President since
January 1999,
President of NYCH
since January 1998
(1)The dollar value of base salary (cash and non-cash) received. Amounts include
the compensation paid by the Company's subsidiaries.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or bonus,
including perquisites and other personal benefits, securities or property.
Amounts in the table represents housing and automobile allowances.
(4) Amounts reflect the value of the shares of the Company's common stock
issued as compensation for services. In August 1996, the Company issued
1,000,000 shares of common stock to Robert Crawford, then the Company's
President and Treasurer, in consideration for services rendered. The shares
were valued at $42,500 at the time of issuance.
The table below shows the number of shares of the Company's Common Stock
owned by the officers listed above, and the value of such shares as of December
31, 1998.
Name Shares Value
Robert Crawford 15,709,279 $2,827,670
W. Robert Bentley -- --
(5) The shares of Common Stock to be received upon the exercise of all stock
options granted during the fiscal years shown in the table. In 1999 Mr.
Crawford and Mr. Bentley were both granted options to purchase 500,000
shares of the Company's common stock. See "Options Granted" below.
<PAGE>
The following shows the amount which the Company expects to pay to its
executive officers during the year to December 31, 1999, and the time which the
Company's executive officers plan to devote to the Company's business.
Proposed Time to be Devoted
Name Compensation To Company's Business
W. Robert Bentley $75,000 100%
Ira Levy $37,500 50%
Darryl Caplan (1) (1)
(1) The Company does not expect to compensate Mr. Caplan for acting as an
officer and director of the Company. However, Mr. Caplan's law firm
provides legal services to the Company. See Part I, Item 7 of this
Registration Statement for information concerning the compensation paid to
Mr. Caplan's law firm.
The Company's Board of Directors may increase the compensation paid to the
Company's officers depending upon the results of the Company's future
operations.
Change in Management
As of January 1, 1998 Robert Crawford was the Company's President,
Treasurer and a director. In November 1998 Mr. Crawford resigned as the
Company's President. Following Mr. Crawford's resignation, W. Robert Bentley was
appointed the Company's President. During 1998 Arline Crawford, the wife of
Robert Crawford, was the Company's Vice President of Operations, Secretary and a
director. Ms. Crawford resigned as an officer and director in July 1999. During
1998 Bruce Crawford, the son of Robert and Arline Crawford, was the Company's
Assistant Secretary, Assistant Treasurer and a director. In July 1999 Bruce
Crawford resigned as a director. During 1999 Ira Levy, Darryl Caplan, Ronald
Kuzon and Sabato Catucci became officers and/or directors of the Company. See
Item 5 of this registration statement for information concerning the Company's
new officers and directors.
Employment Contracts
W. Robert Bentley has an employment contract with the Company whereby Mr.
Bentley is employed as the President of the Company's subsidiary, New York Cross
Harbor Railroad ("NYCH"), until January 5, 1998 at an annual salary of $75,000
per year. The employment agreement also provides that Mr. Bentley will be
provided with family health insurance, a company vehicle, four weeks of paid
vacation per year, and 1,000,000 shares of the Company's common stock. As of
December 31, 1998 the 1,000,000 shares of the Company's common stock have not
been issued to Mr. Bentley. During 1998 Mr. Bentley also received a housing
allowance of $8,400 which is payable annually at the discretion of the Company.
With the exception of the Company's employment agreement with Mr. Bentley, the
Company does not have employment agreements with any of its executive officers.
<PAGE>
Options Granted
The following tables set forth information concerning the options granted,
during the fiscal year ended December 31, 1998 and the ten months ending
November 30, 1999, to the persons who served as the Company's executive officers
and directors during these periods, and the value as of November 30, 1999 of all
unexercised options (regardless of when granted) held by these persons. The
options listed below were not granted pursuant to the Company's incentive or
non-qualified stock option plans. The options in the table exclude shares
issuable upon conversion of notes and exercise of warrants held by the persons
named in the table. See Part II, Item 1 of this Registration Statement.
% of Total
Options Granted to Exercise
Date of Options Employees in Price Per Expiration
Name Grant Granted (#) Fiscal Year Share Date
W. Robert Bentley 1/01/99 500,000 25% $0.12 1/2001
Darryl Caplan (2) 9/28/99 500,000 25% $0.40 9/2000
Robert Crawford 1/01/99 500,000 25% $0.12 1/2001
Arline Crawford 1/01/99 500,000 25% $0.12 1/2001
Options were issued to Mr. Caplan's law firm for past and future legal
services. The exercise price for the options is $0.40 per share or 90% of the
average closing price of the Company's common stock for the ten trading days
preceding the date of exercise.
Option Exercises and Option Values
<TABLE>
<S> <C> <C> <C> <C>
Number of Securities
Underlying Unexercised Value of Unexercised
In-the-Money Options In-the-Money Options
Shares at November 30, 1999 at November 30, 1999
Acquired on Value Exercisable/ Exercisable/
Name Exercise (1) Realized (2) Unexercisable (3) Unexercisable (4)
- --------- ------------ ----------- ------------------ --------------------
W. Robert Bentley -- -- 500,000/-- $190,000/--
Darryl Caplan 300,000 $27,000 200,000/-- $ 20,000/--
Robert Crawford -- -- 500,000/-- $190,000/--
Arline Crawford -- -- 500,000/-- $190,000/--
</TABLE>
(1) The number of shares of common stock received upon exercise of options
during the fiscal year ended December 31, 1998 and the ten months ending
November 30, 1999. Excludes shares issuable upon conversion of notes and
exercise of warrants held by the persons named in the table. See Part II,
Item 1 of this Registration Statement.
(2) With respect to options exercised during the Company's fiscal year December
31, 1998 and the ten months ending November 30, 1999 the dollar value of
the difference between the option exercise price and the market value of
the option shares purchased on the date of the exercise of the options.
(3) The total number of unexercised options held as of November 30, 1999,
separated between those options that were exercisable and those options
that were not exercisable.
<PAGE>
(4) For all unexercised options held as of November 30, 1999, the excess of the
market value of the stock underlying those options (as of November 30,
1999) and the exercise price of the option.
Long Term Incentive Plans - Awards in Last Fiscal Year
None.
Employee Pension, Profit Sharing or Other Retirement Plans
Except as provided in the Company's employment agreements with its
executive officers, the Company does not have a defined benefit, pension plan,
profit sharing or other retirement plan, although the Company may adopt one or
more of such plans in the future.
Compensation of Directors
Standard Arrangements. At present the Company does not pay its directors
for attending meetings of the Board of Directors, although the Company expects
to adopt a director compensation policy in the future. The Company has no
standard arrangement pursuant to which directors of the Company are compensated
for any services provided as a director or for committee participation or
special assignments.
Except as disclosed elsewhere in this report no director of the Company
received any form of compensation from the Company during the year ended
December 31, 1998.
Stock Option and Bonus Plans.
The Company has an Incentive Stock Option Plan, a Non-Qualified Stock
Option Plan and a Stock Bonus Plan. A summary description of these Plans
follows. In some cases these Plans are collectively referred to as the "Plans".
Incentive Stock Option Plan.
The Incentive Stock Option Plan collectively authorize the issuance of up
to 2,000,000 shares of the Company's Common Stock to persons that exercise
options granted pursuant to the Plan. Only Company employees may be granted
options pursuant to the Incentive Stock Option Plan.
To be classified as incentive stock options under the Internal Revenue
Code, options granted pursuant to the Plans must be exercised prior to the
following dates:
(a) The expiration of three months after the date on which an option
holder's employment by the Company is terminated (except if such termination is
due to death or permanent and total disability);
(b) The expiration of 12 months after the date on which an option holder's
employment by the Company is terminated, if such termination is due to the
Employee's permanent and total disability;
<PAGE>
(c) In the event of an option holder's death while in the employ of the
Company, his executors or administrators may exercise, within three months
following the date of his death, the option as to any of the shares not
previously exercised;
The total fair market value of the shares of Common Stock (determined at
the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
Options may not be exercised until one year following the date of grant.
Options granted to an employee then owning more than 10% of the Common Stock of
the Company may not be exercisable by its terms after five years from the date
of grant. Any other option granted pursuant to the Plan may not be exercisable
by its terms after ten years from the date of grant.
The purchase price per share of Common Stock purchasable under an option
is determined by the Committee but cannot be less than the fair market value of
the Common Stock on the date of the grant of the option (or 110% of the fair
market value in the case of a person owning more than 10% of the Company's
outstanding shares).
Non-Qualified Stock Option Plan.
The Non-Qualified Stock Option Plan authorizes the issuance of up to
2,000,000 shares of the Company's Common Stock to persons that exercise options
granted pursuant to the Plans. The Company's employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant to the
Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Committee but cannot be less than the market
price of the Company's Common Stock on the date the option is granted.
Stock Bonus Plan.
Up to 1,000,000 shares of Common Stock may be granted under the Stock
Bonus Plan. Such shares may consist, in whole or in part, of authorized but
unissued shares, or treasury shares. Under the Stock Bonus Plan, the Company's
employees, directors, officers, consultants and advisors are eligible to receive
a grant of the Company's shares, provided however that bona fide services must
be rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
Other Information Regarding the Plans.
The Plans are administered by the Company's Compensation Committee ("the
Committee"), each member of which is a director of the Company. The members of
the Committee were selected by the Company's Board of Directors and serve for a
one-year tenure and until their successors are elected. A member of the
Committee may be removed at any time by action of the Board of Directors. Any
vacancies which may occur on the Committee will be filled by the Board of
<PAGE>
Directors. The Committee is vested with the authority to interpret the
provisions of the Plans and supervise the administration of the Plans. In
addition, the Committee is empowered to select those persons to whom shares or
options are to be granted, to determine the number of shares subject to each
grant of a stock bonus or an option and to determine when, and upon what
conditions, shares or options granted under the Plans will vest or otherwise be
subject to forfeiture and cancellation.
In the discretion of the Committee, any option granted pursuant to the
Plans may include installment exercise terms such that the option becomes fully
exercisable in a series of cumulating portions. The Committee may also
accelerate the date upon which any option (or any part of any options) is first
exercisable. Any shares issued pursuant to the Stock Bonus Plan and any options
granted pursuant to the Incentive Stock Option Plan or the Non-Qualified Stock
Option Plan will be forfeited if the "vesting" schedule established by the
Committee administering the Plan at the time of the grant is not met. For this
purpose, vesting means the period during which the employee must remain an
employee of the Company or the period of time a non-employee must provide
services to the Company. At the time an employee ceases working for the Company
(or at the time a non-employee ceases to perform services for the Company), any
shares or options not fully vested will be forfeited and cancelled. At the
discretion of the Committee payment for the shares of Common Stock underlying
options may be paid through the delivery of shares of the Company's Common Stock
having an aggregate fair market value equal to the option price, provided such
shares have been owned by the option holder for at least one year prior to such
exercise. A combination of cash and shares of Common Stock may also be permitted
at the discretion of the Committee.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Committee when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner they
deem appropriate, provided that such amendment, termination or suspension will
not adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
Summary.
The following sets forth certain information, as of November 30, 1999,
concerning the stock options and stock bonuses granted by the Company. Each
option represents the right to purchase one share of the Company's Common Stock.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ------------- ----------- -------------
Incentive Stock Option Plan 2,000,000 -- N/A 2,000,000
Non-Qualified Stock Option 2,000,000 -- N/A 2,000,000
Plan
Stock Bonus Plan 1,000,000 N/A -- 1,000,000
</TABLE>
Item 7.Transactions with Affiliates and Certain Beneficial Owners
In April 1999 the Company acquired a 51% interest in J.S. Transportation,
Inc. ("JST"), a short haul regional trucking company. Unless otherwise
indicated, any reference to the Company also includes JST. JST was formed in
November 1999 by Todd Sage, the present general manager of JST, Darryl Caplan
(who became an officer and director of the Company in August 1999) and by John
Marsala and Steven Hirsch, two of the Company's shareholders. See Item 1 of this
registration statement for additional information concerning JST. The following
table sets forth certain additional information concerning the acquisition of
JST.
Cost of
Shares of JST Shares
Company's exchanged Remaining
common stock for Shares of percentage
received for Company's interest Position
Name shares of JST common stock in JST with JST
Todd Sage 1,500,000 $180,000 14.7% General Manager
Darryl Caplan 983,425 $115,000 9.6% None
John Marsala 1,777,371 $207,843 17.4% None
Steven Hirsch 739,204 $ 86,441 (1) None
(1) Subsequent to the Company's acquisition of JST, Steven Hirsch sold his
remaining interest in JST to an unrelated third party.
Darryl Caplan's law firm receives a monthly retainer of $2,500 from the
Company for general legal services. Fees for legal services in excess of $2,500
per month are billed to the Company at rates ranging between $150 and $220 per
hour. In addition to the foregoing, in August 1999 Mr. Caplan's law firm
received options in consideration for past and future legal services which allow
for the purchase of 500,000 shares of the Company's common stock at a price of
$0.40 per share. In November 1999 options for the purchase of 300,000 shares
were exercised.
See Part I, Item 6 of this report for information concerning options
granted to Mr. Caplan's law firm and to the Company's former and present
officers and directors.
<PAGE>
As explained more fully in Part II, Item 1 of this registration statement
the Company has sold convertible promissory notes to a number of persons. The
notes are convertible into shares of the Company's common stock a varying rates.
In connection with the sale of these notes the Company issued warrants to the
note holders which allow the note holders to acquire additional shares of the
Company's common stock. The following table shows (i) the amount of convertible
notes held by former and present officers and directors of the Company and by
those shareholders who are the beneficial owners of more than 5% of the
Company's common stock and (ii) the number of shares issued or issuable upon the
conversion of the notes and/or the exercise of warrants held by such persons.
Shares of Common Shares of
Stock Issuable Common Stock
upon Conversion Issued upon
of Notes and/or Conversion of
Convertible Exercise Amount of Notes and/or
Notes Held of Warrants Notes Converted Exercise of Warrants
----------- ----------- -------------- -----------------
Name (1) (2) (3) (4)
Ronald Kuzon -- -- (5) 28,125
Robert Crawford $ 45,666 570,794 -- --
Arline Crawford $229,550 3,675,794 -- --
John Marsala $495,120 13,264,493 $ 99,346 1,203,590
Steven Hirsch $526,282 10,912,016 $448,565 5,348,752
(1) Represents principal amount of notes held by person in table which were
outstanding as of November 30, 1999. Amount includes accrued interest
through November 30, 1999.
(2) The notes are generally convertible at the lower of a fixed price or as a
percentage discount to the market price of the Company's common stock prior
to conversion. For purposes of computing the shares issuable upon
conversion, the fixed conversion price was the lower of the two prices and
was used for purposes of the computation.
(3) Represents amount of principal and interest converted by person named in
table prior to November 30, 1999.
(4) Represents shares of common stock issued as of November 30, 1999 to
person named in table upon conversion of note and/or exercise of warrant.
(5) In 1998 notes and accrued interest of $23,069 were repaid to Mr. Kuzon.
Robert Crawford and Arline Crawford are former officers and directors of
the Company. John Marsala and Steven Hirsch are the beneficial owners of more
than 5% of the Company's common stock.
In the case of Steven Hirsch, includes notes held by CCC Financial,
Inc. and the HiTel Group, Inc., corporations controlled by Mr. Hirsch.
<PAGE>
Item 8. Description of Securities
Common Stock
The Company is authorized to issue 200,000,000 shares of Common Stock (the
"Common Stock"). As of November 30, 1999 the Company had 155,214,679 shares of
Common Stock issued and outstanding. Holders of Common Stock are each entitled
to cast one vote for each share held of record on all matters presented to
shareholders. Cumulative voting is not allowed and the holders of a majority of
the outstanding Common Stock can elect all directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend and it is not anticipated that dividends will be
paid in the foreseeable future.
Holders of Common Stock do not have preemptive rights to subscribe to
additional shares if issued by the Company. There are no conversion, redemption,
sinking fund or similar provisions regarding the Common Stock. All of the
outstanding shares of Common Stock are fully paid and non-assessable and all of
the shares of Common stock offered hereby will be, upon issuance, fully paid and
non-assessable.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of Preferred Stock.
The Company's Articles of Incorporation provide that the Board of Directors has
the authority to divide the Preferred Stock into series and, within the
limitations provided by Delaware statute, to fix by resolution the voting power,
designations, preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish the terms of,
and to issue, the Preferred Stock without shareholder approval, the Preferred
Stock could be issued to defend against any attempted takeover of the Company.
In November 1996, the Board of Directors established the Company's Series
A Preferred Stock and authorized the issuance of up to 1,000 shares of Series A
Preferred Stock as part of this series. Each share of Series A Preferred Stock
was entitled to an annual dividend of $1.50 per share when, as and if declared
by the Board of Directors out of funds legally available for the payment of
dividends. Each Series A Preferred Share was convertible into 2,785 shares of
Common Stock. Subsequent to the establishment of the Series A Preferred Stock,
the Company sold 1,000 shares of its Series A Preferred Stock to an unrelated
third party for $25,000. As of November 30, 1999 all shares of the Series A
Preferred Stock had been converted into 2,785,000 shares of Common Stock.
<PAGE>
In February 1997, the Board of Directors established the Company's Series
B Preferred Stock and authorized the issuance of up to 5,250 shares of Series B
Preferred Stock as part of this series. Each share of Series B Preferred Stock
is entitled to an annual dividend of $9.00 per share when, as and if declared by
the Board of Directors out of funds legally available for the payment of
dividends. Dividends not declared by the Board of Directors cumulate. Upon any
liquidation or dissolution of the Company, each outstanding share of Series B
Preferred Stock is entitled to distribution of $100 per share (plus any unpaid
dividends) prior to any distribution to the holders of the Common Stock. The
Series B Preferred shares do not have any voting rights. Each share of the
Series B Preferred Stock is convertible into 1,100 shares of the Common Stock.
As of November 30, 1999, 12,680 shares of the Series B Preferred Stock had not
been converted into shares of Common Stock.
PART II
Item 1. Market Price of and Dividends on the Company's Common Equity and Other
Shareholder Matters.
As of November 30, 1999, there were approximately 10,000 beneficial owners
of the Company's Common Stock. Set forth below are the range of high and low bid
quotations for the periods indicated as reported by National Quotation Bureau.
The market quotations reflect interdealer prices, without retail mark-up,
mark-down or commissions and may not necessarily represent actual transactions.
Quarter Ending High Low
March 30, 1997 $0.19 $0.31
June 30, 1997 0.26 0.13
September 30, 1997 0.19 0.09
December 31, 1997 0.14 0.06
Quarter Ending High Low
March 30, 1998 $0.23 $0.06
June 30, 1998 0.45 0.17
September 30, 1998 0.25 0.16
December 31, 1998 0.22 0.11
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of the
Company's assets after payment of liabilities. The Board of Directors is not
obligated to declare a dividend. The Company has not paid any dividends on it's
common stock and the Company does not have any current plans to pay any common
stock dividends.
The provisions in the Company's Certificate of Incorporation relating to
the Company's Preferred Stock would allow the Company's directors to issue
Preferred Stock with rights to multiple votes per share and dividends rights
which would have priority over any dividends paid with respect to the Company's
common stock. The issuance of Preferred Stock with such rights may make more
difficult the removal of management even if such removal would be considered
beneficial to shareholders generally, and will have the effect of limiting
shareholder participation
<PAGE>
in certain transactions such as mergers or tender offers if such transactions
are not favored by incumbent management.
As of November 30, 1999, the Company had 155,214,679 shares of common
stock issued and outstanding. The following table lists additional shares of the
Company's common stock be issued as the result of the exercise of outstanding
options, warrants or the conversion of other securities issued by the Company.
Number of Shares Note Reference
Shares outstanding as of November 30,199 (1) 155,214,679
Shares issuable to officer and director 1,000,000 A
Shares issuable to former officer and director 13,750,000 B
Shares issuable upon conversion of notes
and exercise of warrants sold in private
offerings. 44,259,053 C
Shares issuable upon exercise of options
granted to current and former officers and
employees 1,700,000 D
Shares issuable upon the exercise of options
granted to financial consultant 1,900,000 E
Shares issuable upon exercise of
options held by other third parties 500,000 F
Shares issuable upon conversion of Series B
Preferred Stock. 249,055 G
A. W. Robert Bentley has an employment contract with the Company whereby Mr.
Bentley is employed as the President of the Company's subsidiary, New York Cross
Harbor Railroad, until January 5, 1998 at an annual salary of $75,000 per year.
The employment agreement provides in part that Mr. Bentley will receive
1,000,000 shares of the Company's common stock. As of December 31, 1998 the
1,000,000 shares of the Company's common stock have not been issued to Mr.
Bentley.
B. In September 1998 the Company needed to issue shares of its common stock in
order to obtain capital and to allow for the conversion of certain convertible
notes (See Note C below). However, in September 1998 the Company's authorized
capitalization was 150,000,000 shares of common stock and the Company had
148,970,062 shares of common stock which were outstanding. To permit the
issuance of additional shares of common stock, Robert Crawford, who was then the
<PAGE>
Company's President and a Director, surrendered 10,000,000 shares of common
stock which he owned for cancellation. In return for the surrender of these
shares the Company in December 1998 issued 12,500 Series B Preferred shares to
Mr. Crawford. The Series B Preferred Shares are, at the option of Mr. Crawford,
convertible into 13,750,000 shares of the Company's common stock.
C. As of November 30, 1999 the Company owed approximately $2,630,000 to holders
of convertible notes previously issued by the Company. The notes bear interest
at a of 10% per annum and are presently due and payable. The notes are
convertible into 24,420,000 shares of the Company's common stock at conversion
prices ranging between $0.075 and $0.55 per share. In connection with the sale
of certain of these notes, the Company issued options which allow the holders of
the notes to acquire up to 19,838,000 additional shares of the Company's common
stock upon the conversion of the notes. The options are exercisable at prices
ranging between $0.12 and $0.75 and expire at various dates between December
1999 and September 2000.
D. Options are held by present and former officers and directors of the Company.
The options may be exercised at prices ranging between $0.12 and $0.40 per share
and expire at various dates between September 2000 and January 2001. All options
are currently exercisable. Includes options held by Darryl Caplan's law firm.
See Part I, Item 6 of this report for further information concerning these
options.
E. Options are held by consultants. Options for the purchase of 500,000 shares
are presently exercisable. Options for the purchase of the remaining 1,400,000
shares may only be exercised in the event the consultants are successful in
obtaining certain agreements from connecting railroads, the City of New York and
other third parties which agreements would increase rail traffic and otherwise
benefit the Company's railroad operations. The options are exercisable at a
price of $0.40 per share and expire on August 14, 2001.
F. Options are held by a public relations consultant. Options for the purchase
of 250,000 shares are exercisable at a price of $0.68 per share. Options for the
purchase of 250,000 shares are exercisable at a price of $0.85 per share. The
options expire on February 28, 2000.
G. In July 1997 the Company sold 4,846 shares of its Series B Preferred Stock to
certain private investors for $484,600. The Series B Preferred Shares are
convertible into shares of the Company's common stock. As of November 30, 1999,
180 of the Series B preferred shares sold in 1997 remained outstanding and were
convertible into 249,055 shares of the Company's common stock. See Note B above
for information concerning Series B preferred shares held by a former officer
and director.
The Company's authorized capitalization is 200,000,000 shares of common
stock. The Company plans to increase its authorized capital so as allow for the
issuance of the additional shares of common stock described above.
Item 2. Legal Proceedings.
The City of New York has brought suit against the Company, its operating
subsidiary and the former President and Chairman in U.S. District Court,
Southern District of New York for the purpose of recovering the cost of removal
and cleanup of certain hazardous substances and petroleum. The suit alleges that
certain parties were instructed by the Company to dispose of said substances in
<PAGE>
an illegal manner. The plaintiff is seeking recovery of approximately $600,000
which it claims to have spent on the investigation and cleanup of the alleged
disposal, as well as all future investigation and cleanup costs and the cost of
this litigation. The Company intends to vigorously defend this action. The
lawsuit is presently in the early stages of discovery; accordingly the ultimate
resolution of this matter is not ascertainable at this time. No provision has
been made in the financial statements related to this matter.
The Company was named in a lawsuit by its former factoring agent for
approximately $350,000. The balance resulted from a dispute involving a
factoring agreement which the Company entered into in December 1995. The
arrearage represents a combination of uncollected accounts receivable, factoring
fees and fees charged due to the Company's inability to meet certain
predetermined minimum factoring levels. In March 1999, the case was dismissed in
New Jersey. The plaintiff has the right to file the action as an arbitration
case in New York. As of the report date, the plaintiff has not filed an
arbitration case. Currently, the Company is negotiating a settlement with the
plaintiff and believes a settlement will be reached. The Company has reflected
the plaintiffs liability as a current liability in the Company's financial
statements.
The Company has been named in a suit involving a former employee. The suit
claims the Company failed to make certain payments for services rendered and
reimbursement for certain funds advanced. These alleged services and advances
were performed prior to the reverse merger. The plaintiff is seeking recovery of
approximately $250,000. The Company has recognized a liability of approximately
$53,000 . The Company believes this claim is without merit and intends to
vigorously defend it. The ultimate resolution of this matter is not
ascertainable at this time. No additional provision has been made in the
financial statements related to this matter.
In June 1997, the Company filed suit in federal court against Conrail for
$901 million dollars. The suit involves the Company's claim that Conrail was in
violation of federal antitrust laws. Specific allegations are that Conrail
adopted policies and procedures which were designed to restrain trade and
undermine interstate commerce. The suit further alleges that Conrail established
a systematic policy of "predatory and preferential rates for shippers to move
freight on Conrail through Albany thereby re-routing rail traffic away from the
Company." The Company is currently in preliminary settlement negotiations with
Conrail.
In addition, to the foregoing, the Company is party to routine claims and
suits brought against it in the ordinary course of business. In the opinion of
management, the outcome of such claims is not expected to have a material
adverse effect on the Company's business, financial condition, or results of
operations.
Item 3. Changes in and Disagreements with Accountants.
Not applicable.
<PAGE>
Item 4. Recent Sales of Unregistered Securities.
A. Between April 1996 and January 1999 the Company issued 30,780,209 shares
of its common stock, having a value of $1,765,727, for cash, in payment of debt
and for services rendered.
B. In November 1996 the Company sold 1,000 shares of its Series A Preferred
Stock to one person for $25,000.
C. In March 1997 the Company issued 2,985,000 shares of its common stock to
four persons in payment of liabilities owed by the Company to such persons and
for services rendered.
D. In May 1997 the Series A Preferred shares referred to in Note B were
converted into 2,785,000 shares of the Company's common stock.
E. Between May 1997 and November 1999 the Company sold $3,495,000 of
convertible promissory notes, as well as warrants for the purchase of up to
20,335,000 shares of the Company's common stock, to 36 persons.
F. In July 1997 the Company sold 4,846 shares of its Series B Preferred
Stock to two persons for $484,600 in cash.
G. Between July and December 1997 the Company issued 11,666,667 shares of
its common stock to 18 persons in exchange for shares in New York Cross Harbor
Railroad, Inc. ("NYCH") and CH Partners, Inc. ("CHP"). As described in Item 1 of
this registration statement, NYCH and CHP are subsidiaries of the Company.
H. Between September and December 1997 4,666 Series B Preferred Shares were
converted into 5,132,300 shares of the Company's common stock.
I. In December 1997 the Company issued 400,000 shares of its common stock
to one person for services rendered.
J. In August 1998 the Company issued 66,666 shares of its common stock to
one person as a result of the exercise of an option previously granted by the
Company.
K. In October 1998 the Company issued 388,888 shares of its common stock to
one person as a result of the exercise of an option previously granted by the
Company.
L. In December 1998 the Company issued 12,500 shares of its Series B
Preferred stock to a person, who was then the Company's president, in return for
10,000,000 shares of the Company's common stock. The 10,000,000 shares of common
stock were then cancelled by the Company and returned to the status of
authorized by unissued shares.
<PAGE>
M. In April 1999 the Company acquired 51% of the common stock of J.S.
Transportation, Inc. ("JST") in exchange for 6,000,000 shares of the Company's
common stock. A total of 5,000,000 shares were issued to the four shareholders
of JST in return for 51% of the common stock of JST and an additional 1,000,000
shares were provided to JST to be used for the repayment of certain liabilities
of JST. As of November 30, 1999 160,000 shares had been issued to two creditors
of JST in payment of amount owed by JST to these creditors.
N. Between May 1997 and November 30, 1999 the Company issued 12,180,259
shares of its common stock to 10 persons upon the conversion of $1,228,817 of
the notes, plus accrued interest, referred to in Note E.
O. Between May 1997 and November 30, 1999 the Company issued 523,507 shares
of its common stock to 6 persons upon the exercise of certain of the warrants
referred to in Note E.
The issuance of the shares of the Company's common stock referred to in
Notes A, D and H was exempt from registration pursuant to Rule 504 of the
Securities and Exchange Commission.
The sales of the securities referred to in Notes B, C, E, F, G, I, J, K,
M, and O were exempt from registration pursuant to Section 4 (2) of the
Securities Act of 1933. The shares issued in these transactions were acquired
for investment purposes only and without a view to distribution. The persons
that acquired these shares were fully informed about matters concerning the
Company, including its business, financial affairs and other matters and
acquired the securities for their own accounts. The securities referred to in
this paragraph are "restricted" securities as defined in Rule 144 of the
Securities and Exchange Commission. Except as indicated in this Item 4 no
underwriters were used and no commissions were paid in connection with the
issuance of these shares.
The issuance of the shares referred to in Notes L and N were exempt
pursuant to Section 3 (a) (9) of the Securities Act of 1933. The shares issued
in reliance upon the exemption provided by Section 3 (a) (9) are restricted
securities as that term is defined in Rule 144 of the Securities and Exchange
Commission.
Item 5. Indemnification of Directors and Officers.
The Delaware General Corporation Law and the Company's Bylaws provide that
the Company may indemnify any and all of its officers, directors, employees or
agents or former officers, directors, employees or agents, against expenses
actually and necessarily incurred by them, in connection with the defense of any
legal proceeding or threatened legal proceeding, except as to matters in which
such persons shall be determined not to have acted in good faith and in the best
interest of the Company. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers, or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act of 1933 and is therefore unenforceable.
<PAGE>
PART F/S
<PAGE>
NEW YORK REGIONAL RAIL
CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 and 1996
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants F-1
Consolidated Financial Statements
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Deficit F-4
Statements of Cash Flows F-5 - F-6
Notes to Financial Statements F-7 - F-35
<PAGE>
Report of Independent Accountants
To the Board of Directors
New York Regional Rail Corporation
We have audited the accompanying consolidated balance sheets of New York
Regional Rail Corporation (the "Company") at December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' deficit, and cash
flows for each of the years in the three-year period ended December 31, 1998.
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 fiscal 1998 financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company at December 31, 1997 and 1998 and the consolidated results of
operations and cash flows for each of the years in the three-year period ended
December 31, 1998.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note N to the
financial statements, the Company has suffered recurring losses from operations
and working capital deficits that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note N. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Schneider Ehrlich & Associates LLP
November 30, 1999
Jericho, New York
<PAGE>
NEW YORK REGIONAL RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1998 1997
---- ----
ASSETS
Current assets
Cash $ 8,291 $ 12,429
Accounts receivable, net of allowance
for doubtful accounts of $13,715 and
$13,715, respectively 114,152 93,623
Other current assets 10,495 19,724
--------- -------
Total current assets 132,938 125,776
Property, plant and equipment - net 2,882,824 3,169,147
Other assets 101,950 114,775
------------ -----------
Total assets $3,117,712 $3,409,698
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT LIABILITIES
Current liabilities
Current maturities of long-term debt $ 46,000 $ --
Convertible promissory notes:
Related parties 624,003 244,300
Others 61,800 50,000
Other short-term debt:
Related parties 166,327 207,876
Others 787,448 901,980
Accounts payable 566,967 508,599
Accrued expenses 1,634,049 1,567,918
Payroll taxes payable 822,570 1,134,175
---------- ---------
Total current liabilities 4,709,164 4,614,848
--------- ---------
Noncurrent liabilities:
Deferred rent payable 87,000 75,795
Long-term debt 153,725 --
------- ---------
Total noncurrent liabilities 240,725 75,795
------- -------
Total liabilities 4,949,889 4,690,643
========= =========
Commitments and contingent liabilities (see notes)
STOCKHOLDERS' DEFICIT
Series A Convertible Preferred Stock,
$.001 par value, 1,000 shares authorized;
no shares issued and outstanding -- --
Series B
Convertible Preferred Stock, $.001 par value,
15,000 shares authorized; 12,680 and 180 shares
issued and outstanding, respectively; stated
at liquidation value 1,268,000 18,000
Common stock, $.0001 par value, 150,000,000
shares authorized; 145,619,459 and
144,512,610 shares issued and outstanding,
respectively 14,562 14,451
Additional paid-in capital 5,000,392 4,248,864
Accumulated deficit (8,115,131) (5,562,260)
----------- -----------
Total stockholders' deficit (1,832,177) (1,280,945)
----------- -----------
Total liabilities and stockholders' deficit $3,117,712 $3,409,698
========== ==========
See Notes to Consolidated Financial Statements.
<PAGE>
NEW YORK REGIONAL RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
Operating revenues $1,178,507 $1,335,468 $1,330,990
Operating expenses 1,002,428 1,226,524 812,793
--------- --------- -------
Income from operations 176,079 108,944 518,197
Administrative expenses 2,029,070 1,602,653 1,610,064
--------- --------- ---------
Loss before other expenses (1,852,991) (1,493,709) (1,091,867)
Other expenses
Interest expense (589,880) (357,274) (103,096)
Write off of investment in EDTI -- -- (750,000)
Loss on disposition of equipment (110,000) (167,095) --
--------- ----------- ---------
Total other expenses (699,880) (524,369) (853,096)
--------- --------- ---------
Net loss (2,552,871) (2,018,078) (1,944,963)
Preferred stock dividends -- (444,686) (25,000)
------------ ----------- ----------
Net loss applicable to common stock $(2,552,871) $(2,462,764)$(1,969,963)
============ ========== ==========
Per share data:
Basic and diluted $ (0.02) $ (0.02) $ (0.02)
=========== =========== ==========
Weighted average number of common
shares used in basic and diluted
loss per share 147,930,994 128,538,466 102,103,351
=========== =========== ===========
See Notes to Consolidated Financial Statements.
<PAGE>
NEW YORK REGIONAL RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
Increase (decrease) in cash Cash flows
from operating activities:
Net loss $(2,552,871) $(2,018,078)$(1,944,963)
Adjustments to reconcile net loss
to net cash used in operating
activities Depreciation and
amortization 178,232 217,369 212,479
Write off of investment in EDTI -- -- 750,000
Loss on disposition of equipment 110,000 167,095 --
Common stock and options issued for
services 642,499 273,793 335,003
Beneficial conversion feature of
convertible debt 444,150 174,552 --
Other non-cash charges 63,597 36,334 11,325
Changes in operating assets and
liabilities:
Accounts receivable (20,529) (46,681) 283,120
Other current assets 9,229 10,010 21,029
Decrease in other assets 1,500 92,000 (8,259)
Accounts payable 58,368 (228,176) 167,380
Accrued expenses 295,224 239,418 (785,313)
Payroll taxes payable (311,605) (222,417) 444,499
Deferred rent payable 11,205 15,159 15,160
---------- --------- ------------
Total adjustments 1,481,870 728,456 1,446,423
--------- ------- ---------
Net cash used in operating activities (1,071,001) (1,289,622) (498,540)
----------- ----------- --------
Cash flows from investing activities:
Purchase of property, plant and
equipment (1,759) (49,020) 2,741
Investment in EDTI -- -- (250,000)
------------------------ ---------
Net cash used in investing activities (1,759) (49,020) (250,000)
Cash flows from financing activities:
Convertible notes - other 325,000 264,400 --
Convertible notes - related party 899,703 244,300 --
Other current debt - related party (41,549) 40,452 26,900
Other current debt - other (114,532) 255,913 (46,437)
Proceeds from issuance of common
stock -- -- 750,401
Proceeds from issuance of convertible
preferred stock -- 484,600 25,000
--------- --------- --------
Net cash provided by financing activities 1,068,622 1,289,665 755,864
--------- --------- -------
Net increase (decrease) in cash (4,138) (48,977) 7,324
Cash at beginning of year 12,429 61,406 54,082
------ -------- ------
Cash at end of year $8,291 $12,429 $61,406
====== ======= =======
See Notes to Consolidated Financial Statements.
<PAGE>
NEW YORK REGIONAL RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,138 $ -- $ --
Non-cash transactions:
Conversion of accounts payable to
common stock $ -- $ 29,518 $ --
Conversion of debt to common stock $ 914,990 $ 339,409 $ --
Conversion of Series A Convertible
Preferred Stock to common stock$ -- $ 25,000 $ --
Conversion of Series B Convertible
Preferred Stock to common stock $ 466,600 $ -- $ --
See Notes to Consolidated Financial Statements.
<PAGE>
NEW YORK REGIONAL RAIL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM JANUARY 1, 1996 TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Preferred Series A Preferred Series B Additional Accumulated
Shares Amount Shares Amount Shares Amount Paid-in Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $82,496,223 $ 8,250 _____ $______ ______ $_____ $ 241,750 $(1,599,219) (1,349,219)
Issuance of common stock in
connection with reverse
merger 15,044,659 1,504 425,225 426,729
Private offering of common
stock 12,684,615 1,269 749,132 750,401
Common stock issued for
services 8,851,806 885 334,118 335,003
Issuance of Series A
Convertible Preferred Stock 1,000 25,000 25,000
Net loss for the year (1,944,963) (1,944,963)
----------- ----- ----- ------ ------- ------ ------- ---------- ----------
Balances at December 31, 1996 119,077,303 11,908 1,000 25,000 -- -- 1,750,225 (3,544,182) (1,757,049)
Issuance of Series B
Convertible Preferred Stock 4,846 484,600 484,600
Common stock issued for
services 2,474,400 247 267,671 267,918
Common stock issued to retire
debt 1,982,615 198 99,802 100,000
Conversion of Series A
Convertible Preferred Stock
into common stock 2,785,000 279 (1,000) (25,000) 24,721 --
Conversion of debt into common
stock 1,393,025 139 239,270 239,409
Common stock issued in exchange
for subsidiary shares 11,667,667 1,167 1,220,661 1,221,828
Value assigned to beneficial
conversion feature of
convertible notes 174,552 174,552
Conversion of Series B
Convertible Preferred Stock
into common stock 5,132,600 513 (4,666) (466,600) 466,087 --
Stock options issued for services 5,875 5,875
Net loss for the year (2,018,078) (2,018,078)
--------- ------ ------ ------- ------ ------- ------- --------- ---------
Balances at December 31, 1997 144,512,610 14,451 -- -- 180 18,000 4,248,864 (5,562,260) (1,280,945)
Common stock issued to settle
accounts payable 400,000 40 29,478 29,518
Conversion of debt into common
stock 10,251,295 1,025 884,447 885,472
Value assigned to beneficial
conversion feature of
convertible notes 444,150 444,15
Stock options issued for services 11,695 11,695
Exercise of stock options 455,554 46 44,954 45,000
Stock options issued in
connection with convertible debt 18,616 18,616
Exchange of common stock for
Series B Convertible Preferred
Stock by former president (10,000,000) (1,000) 12,500 1,250,000 (681,812) 567,188
Net loss for the year (2,552,871) (2,552,871)
---------- ----- ------ -------- ------ --------- -------- ---------- ---------
Balances at December 31, 1998 145,619,459 $14,562 -- $ -- 12,680 $1,268,000 $5,000,392 $(8,115,131) $(1,832,177)
=========== ======= ====== ========= ====== ========== ========== ========== ==========
</TABLE>
<PAGE>
NEW YORK REGIONAL RAIL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE AND ORGANIZATION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of the Merger with New York Regional Rail Corporation
New York Regional Rail Corporation (the Company), a Delaware corporation
formerly known as Bestsellers Group, Inc. (BSLR) was incorporated on April
19, 1994 under the laws of the state of Delaware. From April 1994 through
July 1995, BSLR was engaged in the purchase of various businesses in
diverse markets, including gift distribution, magazine and music
publishing, electronic signage technology, and product licensing. As of
the date of the proposed merger, BSLR did not have operations or
significant assets, as its businesses had either been discontinued, sold
or were in the process of being sold, or were in the early stages of
development.
In May 1996, BSLR merged with New York Regional Rail Corporation (NYRR)
pursuant to an Agreement to Exchange Stock dated May 20, 1996 by and
between the BSLR and NYRR (the "Merger Agreement"). Under terms of the
Merger Agreement, NYRR exchanged all of its issued and outstanding shares
for 82,496,223 Company shares. After the merger, the Company owned 84.57%
of the outstanding common stock of the combined entity and became the
surviving corporation to the merger. In addition, the Articles of
Incorporation and the Bylaws of NYRR became the Articles of Incorporation
and Bylaws of the Company, the directors and officers of NYRR became the
directors and officers of the Company, and the Company, the legal parent
company, changed its name to New York Regional Rail Corporation. This
transaction is considered a reverse merger.
Application of reverse merger accounting results in the following:
1. The consolidated financial statements of the combined entity are issued
under the name of the legal parent, but the entity is considered a
continuation of the legal subsidiary (NYRR).
2. As NYRR is deemed to be the acquirer for accounting purposes, its assets
and liabilities are included in the consolidated financial statements of
the continuing entity at their carrying values.
3. Amounts presented for periods prior to May 1996 are those of NYRR, the
legal subsidiary. All shares for periods prior to May 1996 have been
retroactively adjusted for the recapitalization of shares.
<PAGE>
4. Costs related to the transaction with the Company were expensed during
1996.
Description of Business
The Company operates an ICC certified railroad through its majority-owned
subsidiary, New York Cross Harbor Railroad Terminal Corporation ("NYCH").
Its business is to transport rail traffic and to deliver that rail traffic
via barges across New York Harbor and the East River, thus connecting the
Long Island Railroad and other lines. In addition, it receives and
delivers railcars at certain industrial facilities located on a ten and
one-half mile stretch of partially owned and partially leased track on the
Brooklyn, New York waterfront, and two and one-half miles of its own tract
located at its Greenville Yard in Jersey City, New Jersey. Another
majority-owned subsidiary, CH Proprietary, Inc., formerly CH Partners,
Inc. ("CHP") holds title to the railroad, marine and terminal equipment
used in the business. At December 31, 1998, the Company owned 93.4% and
94.5% of NYCH and CHP, respectively.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries, NYCH and CHP. All intercompany
transactions and balances have been eliminated.
Revenue Recognition
The Company recognizes revenue as earned on the date of freight delivery
to the consignee or other commercial carrier.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. The cost of additions and improvements are capitalized,
while maintenance and repairs are charged to expense when incurred.
Depreciation and amortization is calculated using the straight-line
method. The estimated depreciable lives are 5 years for machinery and
equipment , 20 years for marine assets, between 10 and 40 years for track
and roadbed and between 10 and 20 years for operating equipment.
<PAGE>
Major customers
The Company had sales to major customers as follows:
December 31,
1998 1997 1996
-------- -------- -------
Customer A $134,312 $419,380 $138,024
Customer B 544,504 428,676 351,446
Customer C 350,252 402,634 546,616
Concentration of credit risk
At December 31, 1998, 61% of accounts receivable was concentrated in one
customer. Credit is extended to customers based on an evaluation of each
customer's financial condition, generally without requiring collateral or
other security. Due to the historical concentration of receivables and
relatively small customer base, the Company could be exposed to a large
loss if one of its major customers were not able to fulfill its financial
obligations.
Minority interests
The minority interest accounts have been reduced to zero for all periods
presented as a result of cumulative operating losses. Accordingly, the
portion of the losses that would normally be assigned to the minority
interest stockholders ("excess losses") are recognized by the Company. The
Company will recognize 100% of any subsequent profits until such time as
the excess losses previously recognized by the Company have been
recovered.
Beneficial conversion feature of convertible securities
Since 1996, the Company has issued convertible debt and equity securities
with nondetachable conversion features that have intrinsic value at the
date of issue. In accordance with applicable accounting rules, the Company
measures this beneficial conversion feature at the issue date by
multiplying the number of shares into which the security can be converted
by the spread between the market price of its common stock and the
conversion price of the security. The resulting discount is recognized by
allocating a portion of the proceeds equal to the discount to additional
paid-in capital. For convertible debt securities, the discount is
amortized to interest expense over the period ending on the date the
security first becomes convertible. For convertible preferred stock, the
discount is amortized as a dividend charge. The amount of the discount is
limited to the amount of proceeds allocated to the convertible instrument.
<PAGE>
Income taxes
The Company accounts for its income taxes using the liability method,
which requires the establishment of a deferred tax asset or liability for
the recognition of future deductible or taxable amounts and operating loss
carryforwards. Deferred tax expense or benefit is recognized as a result
of the changes in the assets and liabilities during the year. Valuation
allowances are established when necessary to reduce deferred tax assets to
amounts expected to be realized.
Long-lived assets
In accordance with SFAS No. 123, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of", the
Company records impairment losses on long-lived assets used in operations,
when events and circumstances indicate that the assets might be impaired
and the undiscounted cash flows estimated to be generated by those assets
are less than the carrying amounts of those assets.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount 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 year. Actual results could differ from those estimates.
Earnings per share
Basic loss per share is computed using the weighted average number of
shares of outstanding common stock. Diluted loss per share for the years
ended December 31, 1998, 1997 and 1996 is based only on the weighted
average number of common shares outstanding during each of those years, as
the inclusion of 2,785,000, 7,956,680, and 30,181,881 common stock
equivalents, respectively, would have been anti-dilutive. Common stock
equivalents consist of stock options, warrants, convertible preferred
stock, and convertible debt.
Since December 31, 1998, the Company has issued a total of 9,595,220
shares of common stock, and approximately 26,000,000 common stock
equivalents.
<PAGE>
Effect of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information,
which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the new way that public
enterprises report information about operating segments in annual
financial statements, and requires reporting of selected information about
operating segments in interim financial statements issued to the public.
It also establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS No. 131 defines
operating segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance. The adoption of SFAS No. 131 by the Company in
1998 did not have a significant impact on the Company's current
disclosures.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, Employers' Disclosures about Pensions and Other Post-retirement
Benefits, which standardizes the disclosure requirements for pension and
other post-retirement benefits. The adoption of SFAS No. 132 did not
materially impact the Company's current disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS
No. 133 requires companies to recognize all derivative contracts as either
assets or liabilities in the Balance Sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of
gain or loss recognition on the hedging derivative with the recognition of
(i) the changes in the fair value of the hedged asset or liability that
are attributable to the hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized as income in the period
of change. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. The Company believes that the
adoption of SFAS No. 133 on January 1, 2000 will not have a significant
effect on its financial statements.
In June 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-5, Reporting on the Costs of Start-up Activities. SOP 98-5
requires all start-up and organizational costs to be expensed as incurred.
It also requires all remaining historically capitalized amounts of these
costs existing at the date of adoption to be expensed and reported as the
cumulative effect of a change in accounting principle. SOP 98-5 is
effective for all fiscal years beginning after December 31, 1998. The
Company believes that the adoption of SOP 98-5 will not have a significant
effect on its financial statements.
In February 1999 the Financial Accounting Standards Board issued SFAS No 135,
Rescission of Financial Accounting Standards Board No. 75 (SFAS No. 75) and
Technical Corrections. SFAS No. 135 rescinds SFAS No. 75 and amends
Statement of Financial Accounting Standards Board No. 35. SFAS No. 135 also
amends other existing authoritative literature to make various technical
corrections, clarify meanings, or describe applicability under changed
conditions. SFAS No. 135 is effective for financial statements issued for
fiscal years ending after February 15, 1999. The Company believes that the
adoption of SFAS No. 135 will not have a significant effect on its
financial statements.
<PAGE>
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
1998 1997
---- ----
Marine equipment and dock facilities $1,334,092 $1,334,092
Railroad locomotive cars and equipment 215,205 215,205
Track and related land improvements 1,210,498 1,210,498
Idle property and equipment 1,450,000 1,450,000
Other 256,165 404,256
--------- ---------
4,465,960 4,614,051
Less: Accumulated depreciation 1,583,136 1,444,904
---------------------
$2,882,824 $3,169,147
========= =========
Fixed assets include certain railroad operating assets acquired
under a Lease and Asset Agreement dated January 20, 1993 between
Consolidated Rail Corporation ("Conrail"), CRC Properties, Inc., an
affiliate of Conrail ("CRCP") and NYCH. Under terms of the
agreement, Conrail sold to NYCH for $1.00 all of the assets located
on Conrail-owned property in Greenville, New Jersey that NYCH is
renting pursuant to a 30-year lease. (See Note G). The assets,
consisting principally of float bridges, roadbeds and track, and
marine mooring cells, were recorded on the Company's books at the
$1.00 purchase price. Based on independent valuations, the assets
have an estimated current value of approximately $3,023,000.
In the event that it cancels or otherwise terminates the lease, the
Company will be obligated to remove the assets from the property.
Conrail, however, may elect at its sole option to repurchase the
assets for $1.00, in which case the Company would be relieved of the
removal obligation.
Idle property and equipment includes i) three of the Company's four
carfloat barges with an original cost of $875,000 (net book value of
$611,170), which have been idle since 1995. The barges are in
working order but were taken out of service due to unfavorable
business conditions. Two of the barges were returned to service in
1999; ii) terminal infrastructure with an original cost of $425,000
( net book value of $212,500) located at an idle terminal which the
Company plans to re-open; and iii) three locomotives with an
original cost of $150,000 (net book value of $51,097), which require
repair work. Depreciation expense totaled $178,232, $217,369 and
$212,479 for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE C - PAYROLL TAXES PAYABLE
Payroll taxes payable includes overdue federal, state and local
taxes, plus estimated penalties and interest. In 1999, the Company
paid approximately $510,000 in settlement of various outstanding
federal payroll tax liabilities, and received a refund from the
Internal Revenue Service ("IRS") of approximately $80,000 for
overcharges. Also in 1999, the Company filed approximately $165,000
of additional federal penalty abatement claims. The IRS has not yet
decided on these claims.
<PAGE>
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of the following:
December 31,
1998 1997
Property taxes - City of New York $ 398,700 $ 377,896
Property taxes - New Jersey 236,390 145,745
Reserve for contingencies 234,000 234,000
Other accrued expense 764,959 810,277
--------- ---------
Total $1,634,049 $1,567,918
========= =========
The Company is involved in a long-standing dispute with the City of
New York over property tax assessments dating back to 1984 (see Note
I).
New Jersey property tax accruals as of December 31,1998 cover the
periods from 1996 to 1998, and include interest of approximately
$47,000.
NOTE E - SHORT-TERM DEBT
A. Convertible Notes Payable
1998 1997
Related party lenders:
Private investor $289,003 $184,300
Former president 40,000
Former officer/wife of former president 200,000 60,000
Private investment company 45,000
Stockholder in private investment company 50,000 _______
-------
$624,003 $244,300
Private investor
Note payable issued in 1997 in the original amount of $184,300
bearing interest at 10% per annum with an original maturity of
December 31, 1998. Due date extended at various times, with current
maturity of December 31, 1999. The note is convertible into shares
of common stock at the lower of $.075 per share, or 90% of the
average closing bid price of the common shares for the five trading
days preceding the date of conversion. In the event of conversion,
the note grants an option to purchase for $.12 per share, one
<PAGE>
additional share of common stock for each share acquired in the
conversion through the later of December 31, 1999 or 90 days from
the effective date of an SEC stock registration. In 1998, the
noteholder converted $47,262 of loan principal into 630,160 shares
of common stock, and received an option to purchase an additional
630,160 shares for $.12 per share. In consideration of extending the
loan, the Company increased the ratio of the remaining contingent
option to 1.5 shares for each share acquired on conversion,
effective in 1999. Additional note principal of $100,000 was
converted into 1,333,333 shares of common stock in January 1999,
which entitled the noteholder to an option to purchase an additional
2,000,000 shares at $.12 per share.
Note payable in the amount of $50,000 bearing interest at 10% per
annum, with an original maturity of September 30, 1998. Due date
extended at various times, with current maturity of December 31,
1999. The original note contained a detachable option to purchase
56,250 shares at the lower of $.20 per share or 90% of the average
closing price of the common shares for the five trading days
preceding the date of conversion through January 31, 1999. In
consideration of extending the loan, the Company added a conversion
feature entitling the noteholder to convert the debt into shares of
common stock at the lower of $.08 per share, based on the lowest
debt conversion price subsequently offered to a third party , or 90%
of the average closing bid price of the common shares for the five
trading days preceding the date of conversion. The Company also
granted an additional option to purchase 59,624 shares on the same
terms as the initial option. In the event of conversion, the revised
note grants an option to purchase for $.12 per share, as adjusted,
three-quarters of an additional share of common stock, as adjusted,
for each share acquired in the conversion through the later of
December 31, 1999 or 90 days from the effective date of an SEC stock
registration.
Note payable in the amount of $101,965 bearing interest at 10% per
annum, with an original maturity of March 31, 1999. Due date
extended at various times, with current maturity of December 31,
1999. The note is convertible into shares of common stock at the
lower of $.08 per share, based on the lowest debt conversion price
subsequently offered to a third party, or 90% of the average closing
bid price of the common shares for the five trading days preceding
the date of conversion. In the event of conversion, the note grants
an option to purchase for $.12 per share, as adjusted,
three-quarters of an additional share of common stock, as adjusted,
for each share acquired in the conversion through the later of
December 31, 1999 or 90 days from the effective date of an SEC stock
registration.
During 1998, the private investor converted additional loan
principal and accrued interest of $52,084 into 458,744 shares. As a
result of the conversions, the lender received options to purchase
114,944 shares for $.25 per share.
<PAGE>
Former president
Note payable in the amount of $40,000 bearing interest at 10% per
annum and due March 31, 1999. Due date extended at various times,
with current maturity of December 31, 1999. The note is convertible
into shares of common stock at the lower of $.08 per share, based on
the lowest debt conversion price subsequently offered to a third
party, or 90% of the average closing bid price of the common shares
for the five trading days preceding the date of conversion.
Former officer/wife of former president
Note payable issued in 1997 in the amount of $60,000 bearing
interest at 10% per annum, with an original maturity of December 31,
1998. Due date extended at various times, with current maturity of
December 31, 1999. The note is convertible into shares of common
stock at the lower of $.075 per share, or 90% of the average closing
bid price of the common shares for the five trading days preceding
the date of conversion. Note principal of $25,000 was converted into
333,333 shares of common stock in January 1999.
Note payable in the amount of $25,000 bearing interest at 10% per
annum, with an original maturity of December 31, 1998. Due date
extended at various times, with current maturity of December 31,
1999. The note is convertible into shares of common stock at the
lower of $.20 per share, or 90% of the average closing bid price of
the common shares for the five trading days preceding the date of
conversion.
Note payable in the amount of $35,000 bearing interest at 10% per
annum, with an original maturity of September 30, 1998. Due date
extended at various times, with current maturity of December 31,
1999. The original note contained a detachable option to purchase
43,750 shares at the lower of $.20 per share or 90% of the average
closing price of the common shares for the five trading days
preceding the date of conversion through January 31, 1999. In
consideration of extending the loan, the Company added a conversion
feature entitling the noteholder to convert the debt into shares of
common stock at the lower of $.08 per share, based on the lowest
debt conversion price subsequently offered to a third party, or 90%
of the average closing bid price of the common shares for the five
trading days preceding the date of conversion. The Company also
granted an additional option to purchase 46,375 shares on the same
terms as the initial option.
Note payable in the amount of $80,000 bearing interest at 10% per
annum, with an original maturity of March 31, 1999. Due date
extended at various times, with current maturity of December 31,
1999. The note is convertible into shares of common stock at the
lower of $.08 per share, based on the lowest debt conversion price
subsequently offered to a third party, or 90% of the average closing
bid price of the common shares for the five trading days preceding
the date of conversion.
<PAGE>
Private investment company
Note payable in the amount of $45,000 bearing interest at 10% per
annum, with an original maturity of September 30, 1998. Due date
extended at various times, with current maturity of December 31,
1999. The original note contained a detachable option to purchase
43,750 shares at the lower of $.20 per share or 90% of the average
closing price of the common shares for the five trading days
preceding the date of conversion through January 31, 1999. In
consideration of extending the loan, the Company added a conversion
feature entitling the noteholder to convert the debt into shares of
common stock at the lower of $.08 per share, based on the lowest
debt conversion price subsequently offered to a third party, or 90%
of the average closing bid price of the common shares for the five
trading days preceding the date of conversion. The Company also
granted an additional option to purchase 72,500 shares on the same
terms as the initial option. In the event of conversion, the revised
note grants the noteholder an option to purchase for $.12 per share,
as adjusted, three-quarters of an additional share of common stock,
as adjusted, for each share acquired in the conversion through the
later of December 31, 1999 or 90 days from the effective date of an
SEC stock registration.
During 1998, the private investment company converted additional
loan principal and accrued interest of $448,565 into 5,348,752
shares. As a result of the conversions, the lender received warrants
to purchase the following: 1,250,000 shares for $.12 per share,
550,000 shares for $.15 per share, 1,250,000 shares for $.20 per
share, and 178,292 shares for $.25 per share. The warrants are
exercisable through the later of December 31, 1999 or 90 days from
the effective date of an SEC stock registration.
Stockholder in private investment company
Note payable in the amount of $50,000 bearing interest at 10% per
annum, with an original maturity of March 31, 1999. Due date
extended at various times, with current maturity of December 31,
1999. The note is convertible into shares of common stock at the
lower of $.08 per share, based on the lowest debt conversion price
subsequently offered to a third party, or 90% of the average closing
bid price of the common shares for the five trading days preceding
the date of conversion. In the event of conversion, the note grants
an option to purchase for $.12 per share, as adjusted,
three-quarters of an additional share of common stock, as adjusted,
for each share acquired in the conversion through the later of
December 31, 1999 or 90 days from the effective date of an SEC stock
registration.
<PAGE>
Other lenders:
1998 1997
a) Note payable $ - $50,000
b) Note payable 50,000
c) Note payable 11,800 --
------ --------
Total $61,800 $50,000
====== ======
a) Note payable in the amount of $50,000 bearing interest at 10%.
The note principal and accrued interest were converted into 744,013
shares in 1998.
b) Note payable in the amount of $50,000 bearing interest at 10% per
annum, with an original maturity of September 30, 1998. Due date
extended at various times, with current maturity of December 31,
1999. The original note contained a detachable option to purchase
62,500 shares at the lower of $.20 per share or 90% of the average
closing price of the common shares for the five trading days
preceding the date of conversion through January 31, 1999. In
consideration of extending the loan, the Company added a conversion
feature entitling the noteholder to convert the debt into shares of
common stock at the lower of $.08 per share, based on the lowest
debt conversion price subsequently offered to a third party, or 90%
of the average closing bid price of the common shares for the five
trading days preceding the date of conversion. The Company also
granted an additional option to purchase 66,250 shares on the same
terms as the initial option. In the event of conversion, the revised
note grants the noteholder an option to purchase for $.12 per share,
as adjusted, three-quarters of an additional share of common stock,
as adjusted, for each share acquired in the conversion through the
later of December 31, 1999 or 90 days from the effective date of an
SEC stock registration.
c) Note payable in the original amount of $25,000 bearing interest
at 10% per annum with an original maturity of September 30, 1998.
Due date extended at various times, with current maturity of
December 31, 1999. The note is convertible into shares of common
stock at the lower of $.08 per share, based on the lowest debt
conversion price subsequently offered to a third party, or 90% of
the average closing bid price of the common shares for the five
trading days preceding the date of conversion. The noteholder
converted $14,166 of note principal and accrued interest into
127,059 shares during the year, which entitled him to receive an
option to purchase 31,765 additional shares for $.25 per share. In
consideration of extending the balance of the note, the revised note
grants the noteholder an option to purchase for $.12 per share, as
adjusted, three-quarters additional share of common stock, as
adjusted, for each share acquired upon conversion through the later
of December 31, 1999 or 90 days from the effective date of an SEC
stock registration.
<PAGE>
B. Other Current Debt
1998 1997
Related parties:
Unsecured noninterest-bearing advances from a
Company attorney; due on demand. $ -- $ 9,501
Notes payable at 10% per annum due to the
wife of the former president, maturing in
2000; collateralized by accounts receivable of
NYCH. Currently in default. 67,446 67,446
Unsecured noninterest-bearing advances from the
Company's former president; due on demand. 98,881 130,929
Total $166,327 $207,876
======== ========
1998 1997
Other lenders:
a) Loan payable - factor $359,468 $474,000
b) Notes payable - investors 234,209 234,209
c) Loans payable - investors 77,500 77,500
d) Loan payable - vendor 63,000 63,000
e) Loan payable - former consultant 53,271 53,271
------- -------
Total $787,448 $901,980
======= =======
<PAGE>
a) Loan payable under an expired factoring agreement. The balance
includes net advances, estimated interest charges , and surcharges
assessed by the factor when the Company failed to meet minimum
financing levels. The factor has maintained a security interest in
substantially all of the Company's assets, and has attempted
unsuccessfully to recover the loan balance through litigation in New
Jersey (see Note I). The Company has accrued the asserted claim, but
believes the charges are excessive and is attempting to settle the
matter.
b) Notes bearing interest at 10% per annum and maturing in 2000;
collateralized by accounts receivable of NYCH. Currently in default.
c) Unsecured noninterest bearing loans, due on demand. One loan, for
$50,000, was repaid in 1999.
d) Unsecured loan payable to a vendor for track maintenance;
noninterest-bearing and due on demand. The Company settled with the
vendor in 1999 (See Note I).
e) Unsecured loan payable to Ameril Group; no set repayment terms or
interest rate. This loan is currently the subject of litigation (See
Note I).
NOTE F - LONG-TERM DEBT
Note in the amount of $199,725 payable to the Seafarers Union for
dues arrears; a lump sum payment of $25,000 due June 1999 with
monthly payments of $3,500 thereafter beginning July 1999 through
August 2003. Interest is payable at 5% per annum.
Maturities of long-term debt are as follows:
Year ending
December 31,
1999 $ 46,000
2000 42,000
2001 42,000
2002 42,000
2003 27,725
-------
$199,725
<PAGE>
NOTE G - LEASE COMMITMENT
The lease portion of the 1993 Agreement signed with Conrail (see
Note B) provides a 30-year land lease to the Company for the use of
Conrail's railroad operating property and water rights in
Greenville, New Jersey. The agreement contains rent concessions
early in the lease term, but eventually requires the Company to pay
a maximum of 10% of the fair market rent, determined on the basis of
an average of appraised values supplied by independent appraisers
selected by each party.
To date, Conrail Shared Assets Operation ("CSAO"), the successor to
Conrail, has not submitted its appraisal of the leased property.
Accordingly, the Company has computed its rent expense based on the
results of its own appraisal and its interpretation of the terms and
conditions of the lease. While the Company has used its best efforts
to retain a professional appraiser with knowledge of the property
and related market values, Conrail's appraisal could be higher than
the Company's, resulting in additional rent expense.
Rent expense under the lease has been recognized on a straight-line
basis to account for the rent concessions provided during the lease
term, resulting in a deferred rent liability of $87,000 as of
December 31, 1998.
Estimated future minimum lease payments under this lease as of
December 31, 1998 are as follows:
Year ending
December 31,
1999 $ 16,961
2000 20,916
2001 24,870
2002 28,825
2003 28,825
Thereafter 547,675
--------
$668,072
NYCH leases its Bush Terminal property in Brooklyn, New York from
the Economic Development Corporation of New York City on a
month-to-month basis at $2,200 per month.
Aggregate rent expense for each of the years ended December 31,
1998, 1997 and 1996 was $50,611, respectively.
NOTE H - EMPLOYMENT AGREEMENT
In January 1998, the Company entered into an employment agreement
with the president of NYCH expiring December 31, 2001. The agreement
provides for an annual salary of $75,000 plus customary fringe
benefits, and a grant of 1,000,000 shares of the Company's common
stock. The shares, when issued, will be subject to an as yet
undetermined vesting schedule.
<PAGE>
NOTE I - LEGAL MATTERS AND OTHER CONTINGENCIES
The City of New York ("plaintiff") has brought suit against the
Company, NYCH, and its former President in U.S. District Court,
Eastern District of New York for the purpose of recovering the cost
of removal and cleanup of certain hazardous substances and
petroleum. The suit alleges that certain parties were instructed by
the Company to dispose of the substances in an illegal manner. The
plaintiff is seeking recovery of approximately $600,000 which it
claims to have spent on the investigation and cleanup of the alleged
disposal, as well as all future investigation and cleanup costs and
the cost of this litigation. The Company intends to vigorously
defend this action. The lawsuit is presently in the early stages of
discovery; accordingly the ultimate resolution of this matter is not
ascertainable at this time.
The Company was named in a lawsuit by its former factoring agent
("plaintiff"), which seeks approximately $360,000 allegedly due it
for uncollected accounts receivable, factoring fees, and surcharges
for the Company's failure to meet certain predetermined minimum
factoring levels. The claim is based on a factoring agreement
between the parties dated December 1995. In March 1999, the case was
dismissed in New Jersey Superior Court. The plaintiff has the right
to file for arbitration in New York, but has not yet done so. The
Company is attempting to negotiate a settlement with the plaintiff
and believes, but cannot give assurance, that a settlement will be
reached. The Company has accrued the plaintiff's claim as a current
liability in its financial statements.
In June 1997, the Company filed a complaint in U.S. District Court,
Eastern District of New York against Conrail, claiming that Conrail
violated federal antitrust laws by adopting policies and procedures
which were designed to restrain trade and undermine interstate
commerce. The suit further alleges that Conrail established a
systematic policy of offering predatory and preferential rates for
shippers to move freight on Conrail through its Albany route,
thereby re-routing rail traffic away from the Company. The Company
is seeking damages of $901 million. The court declined Conrail's
request for a dismissal, and required that the Company's claims be
heard by an arbitrator. Pending arbitration, the Company is
exploring the possibility of a settlement with CSX Transportation
("CSXT") and Norfolk Southern Railroad ("NSR"), the acquirers of
Conrail. The Company cannot give any assurance that discussions with
CSXT or NSR will lead to a settlement of the claims.
In February 1998, the Company was named in a suit filed in federal
district court by a former consultant to BSLR ("plaintiff"). The
suit claims that the Company failed to make certain payments for
services rendered and reimbursement for certain funds advanced to
BSLR prior to the reverse merger (See Note A). The plaintiff is
seeking recovery of approximately $250,000. The Company believes
this claim is without merit and intends to vigorously defend it. The
plaintiff's motion for summary judgment was denied by the court. The
ultimate resolution of this matter is not ascertainable at this
time. The Company has recognized a liability of approximately
$53,000 relating to this matter.
The Company is also a party to routine claims and suits brought
against it in the ordinary course of business. Some of these matters
are covered by insurance. In the opinion of management, the outcome
of these claims is not expected to have a material adverse effect on
the Company's business, financial condition, or results of
operations. The Company has established a reserve of $234,000 for
the estimated costs of litigation and settlements.
<PAGE>
The City of New York has billed the Company in excess of $3,200,000
for property taxes dating back to 1984. The Company claims that the
tax assessments are for the most part erroneous because they relate
either to real property that the Company does not own or lease, or
to property which is not subject to the real property tax. The
Company further claims that New York City taxing authorities have
assessed taxes based on flawed valuations, resulting in substantial
overcharges. The New York State Board of Equalization and Assessment
has proposed significant reductions to these valuations, subject to
the approval of the New York City Corporation Counsel. Preliminary
negotiations are underway between the Company's representatives, the
New York City Real Estate Tax Assessor, and the Corporation
Counsel's office. Pending a settlement of the tax arrears, the
Company has recorded a liability on its books of $398,700,
representing the tax due on the Bush Terminal property, the only
parcel currently used in the rail operations. Management expects,
but cannot give assurance, that the outstanding liabilities will be
settled for a lesser amount.
NOTE J - CAPITAL TRANSACTIONS
In May 1996, the Company sold 12,684,615 shares of common stock in a
private offering at prices ranging from $.05 to $.08 per share. The
offering raised proceeds of $805,000 before offering costs of
$54,600.
In November 1996, the Company's board of directors authorized the
issuance of up to 1,000 shares of a Series A Convertible Preferred
Stock with the following features:
Par value: $.001 per share
Dividends: $1.50 per share payable annually out of legally
available funds; unpaid dividends to be cumulative.
Voting rights: None
Conversion feature: Shares are convertible on the basis of 2,785
shares of common stock for each preferred share.
In December 1996, the Company sold 1,000 Series A shares to an
investor for $25,000, or $25 per share. The investor converted the
preferred shares into 2,785,000 common shares in May 1997. In
connection with the offering, the Company recorded a $25,000
dividend to reflect the value of the beneficial conversion feature
of the preferred shares. Due to the lack of accumulated earnings,
the dividend was charged to additional paid-in capital.
<PAGE>
During 1996, the Company issued a total of 4,551,806 shares to
employees, including 1,000,000 shares to the Company's then
president and Chairman, in consideration of services rendered. The
Company also issued a total of 4,300,000 shares to various
consultants for services rendered. These shares were valued at their
fair value on the date of issuance resulting in a noncash charge to
income of $335,003.
In January 1997, the Company's board of directors authorized the
issuance of up to 5,250 shares of a Series B Convertible Preferred
Stock with the following features:
Par value: $.001 per share
Dividends: Annual dividend of $9.00 per share payable annually
out of legally available funds; unpaid dividends to
be cumulative.
Voting rights: None
Liquidation preference: $100 per share
Conversion feature: Shares are convertible on the basis of
1,100 shares of common stock for each
preferred share at any time after June 30,
1997.
In May 1997, the Company raised proceeds of $484,600, or $100 per
share in an offering of 4,846 Series B shares. In connection with
the offering, the Company recorded a dividend of $444,686 to reflect
the value of the beneficial conversion feature. Due to the lack of
accumulated earnings, the dividend was charged to additional paid-in
capital. A total of 4,666 shares were converted into 5,132,600
shares of common stock during the year.
During 1997, a total of $239,409 of note principal and accrued
interest was converted into 1,393,025 shares of common stock.
In November 1997, the Company issued 500,000 common stock purchase
warrants to an attorney for services rendered. The warrants are
exercisable at $.09 per share for a two-year period expiring on
December 31, 1999. The Company valued the warrants at $5,875 using
the Black-Scholes option pricing model, and charged this amount to
1997 operations. The warrantholder purchased 388,888 shares in
October 1998 by applying $35,000 of accrued legal fees towards the
exercise price. The remaining 111,112 shares were purchased in May
1999.
<PAGE>
In December 1997, a group of investors converted debt in NYCH valued
at $1,221,828 into a combination of NYCH common and preferred
shares, and simultaneously exchanged the subsidiary shares into
11,667,667 shares of the Company's common stock representing an
equivalent value.
During 1997, the Company issued a total of 1,982,615 shares of
common stock in satisfaction of various loans valued at $100,000.
During 1997, a total of 2,474,400 shares of common stock were issued
to various consultants and vendors for services to the Company
during the year. These shares were valued at their fair market value
on the date of issuance resulting in a noncash charge to income of
$267,918.
During 1997, the Company recorded an increase in additional paid-in
capital of $174,552 to reflect the value of the beneficial
conversion feature of certain convertible debt. The offsetting
interest charge was expensed to operations.
During 1998, the Company issued 10,251,295 shares of common stock on
conversion of $885,472 of convertible debt principal and interest.
In connection with the issuance of certain convertible debt in 1998,
the Company granted six-month detachable options to purchase 275,000
shares of common stock for the lower of $.20 per share or 90% of the
average common stock closing price for the five days preceding the
exercise date. Holders of these notes who agreed to extend the
maturity date of their loans received a second one-year option grant
to purchase a total of 246,437 shares on the same terms as the
initial grant. The options were valued at $18,616. All of the
options were exercised in January 1999 at an exercise price of $.11.
In 1998, the Company issued 400,000 shares of common stock to a
contractor in payment of repair work valued at $29,518.
In March 1998, the Company issued 200,000 common stock purchase
warrants to an attorney for services rendered. The warrants are
exercisable at $.15 per share for a twenty-month period through
December 31, 1999. The Company valued the warrants at $11,695 using
the Black-Scholes option pricing model and expensed this amount in
its 1998 financial statements. The warrantholder purchased 66,666
shares in May 1998 by applying $10,000 of accrued legal fees towards
the exercise price.
In December 1998, the former president of the Company returned to
treasury 10,000,000 shares of common stock in exchange for 12,500
shares of Series B Convertible Preferred Stock. The Company's board
of directors had approved an increase in the number of authorized
Series B shares to 15,000 prior to the transaction. Based on the
conversion rate of the Series B shares, the stockholder is entitled
to convert his preferred shares into 13,750,000 shares of common
stock. The Company assigned a value of $567,188 to the 3,750,000
additional common shares based on the per share trading price on the
date of exchange. This amount was recorded as an increase in
additional paid-in capital with an offsetting compensation charge to
1998 operations. The Company canceled the 10,000,000 treasury shares
upon receipt and charged the $1,250,000 value assigned to those
shares to additional paid-in capital.
<PAGE>
During 1998, the Company recorded an increase in additional paid-in
capital of $444,150 to reflect the value of the beneficial
conversion feature of certain convertible debt. The offsetting
interest charge was expensed to operations.
In connection with the issuance of convertible debt in 1997 and
1998, the Company provided to certain noteholders nondetachable
options to purchase additional shares upon conversion of their debt.
The total number of shares subject to a contingent option grant is
stated either as a fixed number or is based on a percentage of
shares acquired by the noteholder on conversion. During 1998, an
option to purchase 630,160 shares at $.12 per share was granted to a
related party upon conversion of his debt. As of December 31, 1998,
there were 5,264,147 additional shares subject to contingent options
at exercise prices ranging from $.12 to $.18 per share, of which
5,026,420 shares were subject to contingent options issued to
related parties.
NOTE K - INCOME TAXES
The Company has not recorded any provision for federal and state
income taxes through December 31, 1998. The actual tax expense for
1998, 1997 and 1996 differs from "expected" tax expense (computed by
applying the statutory U.S. federal corporate tax rate of 34% to
income before income taxes) as follows:
Years ended December 31,
1998 1997 1996
Computed "expected"tax benefit $(868,000) $(686,000) $(661,000)
State income tax benefit, net of
federal income tax benefit (153,000) (121,000) (117,000)
Change in valuation allowance
for deferred tax assets allocated
to income tax expense 782,000 531,000 634,000
Permanent differences 239,000 276,000 144,000
-------- -------- --------
$ - $ - $ -
======= ======== =======
The sources and tax effects of temporary differences giving rise to
the Company's deferred tax assets (liabilities) at December 31, 1998
and 1997 are as follows:
1998 1997
Current:
Accruals and reserves $ 151,000 $ 124,000
Other 5,000 5,000
-------- ---------
156,000 129,000
Valuation allowance for net current deferred tax asset (156,000) (129,000)
-------- --------
Total net current deferred tax asset $ -- $ --
======== =========
Noncurrent:
Net operating losses $2,886,000 $2,149,000
Property, plant and equipment (86,000) (99,000)
Deferred rent 35,000 30,000
---------- ---------
2,835,000 2,080,000
Valuation allowance for net noncurrent
deferred tax asset
(2,835,000) (2,080,000)
Total net noncurrent deferred tax asset $ -- $ --
========= ==========
As a result of significant pretax losses in 1998, 1997 and 1996,
management cannot conclude that it is more likely than not that the
deferred tax asset will be realized. Accordingly, a valuation
allowance has been established against the total net deferred tax
asset for all periods presented. The Company has net operating
losses of approximately $7,200,000 available to offset future
taxable income. The losses expire at various dates ranging between
1999 and 2018. Utilization of these losses may be limited based on
IRS and state change-of-ownership rules.
The Company and its subsidiaries file separate federal and state
income tax returns.
<PAGE>
NOTE L - COLLECTIVE BARGAINING AGREEMENT
NYCH has entered into a collective bargaining agreement with the
local chapter of the Seafarers Union and United, Industrial,
Service, Transportation, Professional and Government Workers of
North America, covering those employees in the transportation and
delivery of rail traffic. This agreement covers 100% of the
non-management employees associated with NYCH. The contract
presently runs year-to-year and was renewed through December 31,
1999.
NOTE M - WRITE-OFF OF INVESTMENT IN EDTI
As a condition of the Company's reverse merger, and based upon
representations made by BSLR management, BSLR's wholly owned
subsidiary Electronic Display Technologies, Inc. (EDTI) was sold to
two former officers and directors of the Company in exchange for
convertible preferred stock of EDTI. The preferred stock was valued
at $500,000, BSLR's original investment in EDTI. EDTI was a
development stage Company involved in the development of technology
for electronic signage. As a further condition, the Company was
required to capitalize the entity with an equity contribution of
$250,000. These funds were to be used for the completion of the
technology and for the initial production of inventory. This funding
occurred on June 6, 1996. Shortly thereafter it became apparent that
the management of EDTI was unable to achieve certain milestones in
accordance with its business plan. In addition, EDTI management was
unable to provide an accounting regarding the use of funds,
prospective contracts or the status of product development. Numerous
requests for information were made by management in an attempt to
determine the status of the Company's investment, all without
success.
In December 1996, management determined that the investment in EDT
was impaired and required a complete write-off. Management is
contemplating legal action in an effort to recover the Company's
investment.
NOTE N - GOING CONCERN
During the year ended December 31, 1998, the Company experienced,
and continues to experience, certain liquidity problems. As
indicated in the consolidated financial statements, the Company has
incurred substantial operating losses in recent years, including a
net loss of approximately $2,553,000 in 1998, and its consolidated
financial position reflects a working capital deficiency of
approximately $4,576,000 at December 31, 1998. Operating losses and
cash flow deficits are continuing. In addition, the Company
continues to be delinquent in payments to various trade creditors
and taxing authorities. These delinquencies could ultimately lead to
asset liens and seizures. The Company is also involved in litigation
and other disputes whose outcome is uncertain, but for which the
Company would likely require financial assistance from outside
sources in the event of a material adverse monetary judgment.
Management's plan with respect to these matters encompass the following
actions:
1. Anticipated Increase in Rail Revenue
The acquisition of Conrail in 1999 by CSXT and NSR has led to a
more open, competitive market for freight service in the New
York metropolitan area. In 1999, the Company entered into new
interchange agreements with CSXT, NSR and Canadian Pacific
Railroad. Given the improved business environment, these
agreements are expected to lead to a significant increase in
rail revenue. Also in 1999, the Company signed a transportation
contract with a major local food producer and has agreements
pending with two waste hauling companies.
<PAGE>
2. New Financing
The Company has raised $1,724,000 of additional financing in
1999 through the issuance of convertible notes. The proceeds of
the notes have been used to pay accrued liabilities, to provide
working capital for current operations, and to fund
infrastructure improvements. (See Note P).
3. Business Acquisition
In April 1999, the Company issued 6,000,000 shares of common stock to
acquire a 51% interest in J. S. Transportation, Inc. (JST), a short haul
regional trucking company specializing in the transportation and disposal
of municipal solid waste (See Note P). JST is expected to provide operating
cash flow to the combined business.
Management cannot provide any assurance that its plans will be
successful in alleviating the Company's liquidity position and
bringing the Company to the point of sustained profitability. The
accompanying financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
NOTE O - VALUATION AND QUALIFYING ACCOUNTS
December 31,
1998 1997 1996
Balance - beginning of year $ 13,715 $ - $ 60,001
Charged to expense 38,224 13,715 43,544
Write-offs, net of recoveries (38,224) -- (103,545)
------- -------- --------
Balance, end of year $ 13,715 $13,715 $ -
======= ====== ========
NOTE P - SUBSEQUENT EVENTS
In January 1999, the board of directors approved option grants to
three employee members of the board of directors for services
rendered to the Company in 1998. The current president, the former
president, and his wife each received a two-year option to purchase
500,000 shares at $.12 per share. The spread between the stock price
and the exercise price on the date of grant of $54,300 was accrued
in 1998 as a compensation cost.
In January 1999, the Company issued 350,000 shares of common stock
to its attorneys in payment of past services valued at $31,638. The
value of the services was accrued in 1998.
In January 1999, various noteholders exercised options to purchase
521,437 shares of common stock for $.11 per share.
In February 1999, the Company completed a $300,000 financing of
convertible notes. The notes bear interest at 10% per annum and are
convertible at the lower of $.08 per share or 90% of the average
closing price for the five days preceding the date of conversion. In
the event of conversion, the noteholder will receive an option to
purchase for $.12 per share, three-quarters of an additional share
of common stock, as adjusted, for each share acquired in the
conversion through the later of December 31, 1999 or 90 days from
the effective date of an SEC stock registration.
<PAGE>
In April 1999, the Company purchased a 51% interest in JST in
exchange for 5,000,000 shares of unregistered common stock, and
escrowed an additional 1,000,000 shares to settle outstanding JST
liabilities. JST, formed in 1998, is a regional trucking company in
the business of short-haul freight transportation and landfill
management. Related parties owned a combined 70% interest in JST
prior to the acquisition. The transaction will be accounted for as a
purchase.
During 1999, the Company completed a $1,424,000 financing of
convertible notes. The notes bear interest at the rate of 10% per
annum and are convertible at the lower of $.14 per share, or 90% of
the average closing price of the common stock for the ten trading
days preceding the date of conversion. The notes also contain a
contingent option provision granting the noteholder one-half share
of common stock for every share acquired on conversion of the note.
The contingent options are exercisable at $.18 per share and expire
on the later of April 30, 2000 or 90 days following the effective
date of an SEC registration of the Company's common stock. The note
proceeds were used to pay accrued liabilities, purchase fixed
assets, and provide operating capital.
In May 1999, the Company entered into three-year employment
agreements with two officers. The agreements provide for annual
salaries of $60,000 and $37,000, respectively, plus customary fringe
benefits. One of the employees is a former Company director.
In August 1999, the Company granted two-year options to purchase up
to 1,900,000 shares of common stock for $.40 per share to two
consultants. A total of 500,000 vested immediately for services
previously performed; the balance of the options vest in accordance
with a schedule of services to be rendered over a two-year period.
In September 1999, the Company settled a $63,000 debt owed to a
vendor for track maintenance by the issuance of 200,000 shares of
common stock valued at $33,000,and a $30,000 unsecured promissory
note bearing interest at 10% per annum. The note is convertible into
common stock at the lower of $.55 per share or 90% of the average
closing price of the common shares for the ten trading days
preceding the date of conversion. In the event of conversion, the
noteholder will be entitled to an option to purchase for $.75 per
share, an additional one-half share for every share of common stock
acquired on conversion through December 31, 2000. The note matures
on August 31, 2000.
In September 1999, the Company filed a certificate of amendment with
the State of Delaware authorizing an increase in the number of
common shares to 200,000,000, and an increase in the number of
preferred shares to 1,000,000.
In September 1999, the Company granted options to purchase 500,000
shares of common stock to the law firm in which its general counsel
is a partner. The options are exercisable at the lower of $.40 per
share or 90% of the average closing price of the common shares for
the ten days preceding the date of exercise. Options to purchase
300,000 shares were issued for services rendered prior to the grant;
the balance is for future services. The firm purchased 300,000
shares at $.40 by applying $120,000 of accrued legal fees towards
the exercise price.
In September 1999, the Company granted to consultants options to
purchase 250,000 shares at $.68 per share and 250,000 shares at $.85
per share.
<PAGE>
PART III
Index to Exhibits
Exhibit 2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation, etc. None
Exhibit 3 Articles of Incorporation, as amended, and Bylaws _____
Exhibit 4 Instruments Defining the Rights of Security Holders
4.1 Incentive Stock Option Plan _____
4.2 Non-Qualified Stock Option Plan _____
4.3 Stock Bonus Plan _____
4.4 Designation of Series B Preferred Stock _____
Exhibit 9 Voting Trust Agreement None
Exhibit 10 Material Contracts None
Exhibit 21 Subsidiaries of the Registrant _____
Exhibit 27 Financial Data Schedule _____
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Company caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
NEW YORK REGIONAL RAIL CORPORATION
Date: _____________________ By: _____________________________________
W. Robert Bentley, President
By: _____________________________________
Ira Levy, Chief Financial Officer
CERTIFICATE OF INCORPORATION
OF
THE BESTSELLERS GROUP, INC.
FIRST: The name of this corporation shall be:
The Bestsellers Group, Inc.
SECOND: Its registered office in the State of Delaware is to be
located at 1013 Centre Road, in the City of Wilmington, County of New
Castle and its registered agent at such address is CORPORATION SERVICE
COMPANY.
THIRD: The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of stock which this corporation is
authorized to issue is:
Twenty Million (20,000,000) shares with a par value of One cent ($0.01)
per share, amounting to Two Hundred Thousand Dollars ($200,000).
FIFTH: The name and address of the incorporator is as follows:
Jane S. Krayer
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH: The Board of Directors shall have the power to adopt, amend
or repeal the by-laws.
SEVENTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this nineteenth day of April, A.D., 1994.
----------------------------
Jane S. Krayer
Incorporator
<PAGE>
BESTSELLERS GROUP, INC.
AMENDMENT
to the
CERTIFICATE OF INCORPORATION
Pursuant to the provisions of the Delaware Corporation Law,
Bestsellers Group, Inc. adopts the following Articles of Amendment to its
Certificate of Incorporation:
FIRST: The following amendment was adopted on April 30, 1996, pursuant
to Section 242 of the Delaware Corporation Law, in the manner marked with an "X"
below:
Such amendment was adopted by the Board of Directors when no
payment
has been received for any shares and no shares have been issued.
X Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for
approval.
Article Four of the Corporation's Certificate of Incorporation was
amended to read as follows:
ARTICLE FOUR
The authorized capital stock of the Corporation shall consist of
50,000,000 shares of common stock with a par value of $0.0001 per share and
1,000,000 shares of preferred stock with a par value of $0.001 per share.
(a) No share of the common stock shall have any preference over or
limitation in respect to any other share of such common stock. All shares of
common stock shall have equal rights and privileges, including the following:
l. All shares shall share equally in dividends. Subject to the
applicable provisions of the laws of the State of Delaware, the
Board of Directors of the Corporation may, from time to time,
declare and the Corporation may pay dividends in cash, property,
or its own shares, except when the Corporation is insolvent or
when the payment thereof would render the Corporation insolvent or
when the declaration or payment thereof would be contrary to any
restrictions contained in these Articles of Incorporation. When
any dividend is paid or any other distribution is made, in whole
or in part, from sources other than unreserved and unrestricted
earned surplus, such dividend or distribution shall be identified
as such, and the source and amount per share paid from each source
shall be disclosed to the stockholder receiving the same
concurrently with the distribution thereof and to all other
stockholders not later than six months after the end of the
Corporation's fiscal year during which such distribution was made.
2. All stockholders shall share equally in distributions in
partial liquidation. Subject to the applicable provisions of the laws of the
State of Delaware, the Board of Directors of the Corporation may distribute,
from time to time, to its stockholders in partial liquidation, out of stated
capital or capital surplus of the Corporation, a portion of its assets in cash
or property, except when the Corporation is insolvent or when such distribution
would render the Corporation insolvent. Each such distribution, when made, shall
be identified as a distribution in partial liquidation, out of stated capital or
capital surplus, and the source and amount per share paid from each source shall
be disclosed to all stockholders of the Corporation con- currently with the
distribution thereof. Any such distribution may be made by the Board of
Directors from stated capital without the affirmative vote of any stockholders
of the Corporation.
3. Each outstanding share shall be entitled to one vote at
stockholders' meetings, either in person or by proxy.
(b) The designations, powers, rights, preferences, qualifications,
restrictions and limitations of the preferred stock shall be established from
time to time by the Corporation's Board of Directors, in accordance with the
Delaware Corporation Law.
(c) Cumulative voting shall not be allowed in elections of directors or
for any purpose.
<PAGE>
(d) No holders of shares of common stock of the Corporation shall be
entitled, as such, to any preemptive or preferential right to subscribe to any
unissued stock or any other securities which the Corporation may now or here-
after be authorized to issue. The Board of Directors of the Corporation, how-
ever, in its discretion by resolution, may determine that any unissued
securities of the Corporation shall be offered for subscription solely to the
holders of common stock of the Corporation, or solely to the holders of any
class or classes of such stock, which the Corporation may now or hereafter be
authorized to issue, in such proportions based on stock ownership as said board
in its discretion may determine.
(e) The Board of Directors may restrict the transfer of any of the
Corporation's stock issued by giving the Corporation or any stockholder "first
right of refusal to purchase" the stock, by making the stock redeemable, or by
restricting the transfer of the stock under such terms and in such manner as the
directors may deem necessary and as are not inconsistent with the laws of
Delaware. Any stock so restricted must carry a conspicuous legend noting the
restriction and the place where such restriction may be found in the records of
the Corporation.
<PAGE>
(f) The judgment of the Board of Directors as to the adequacy of any
consideration received or to be received for any shares, options, or any other
securities which the Corporation at any time may be authorized to issue or sell
or otherwise dispose of shall be conclusive in the absence of fraud, subject to
the provisions of these Articles of Incorporation and any applicable law.
BESTSELLERS GROUP, INC.
By Douglas Morgan,
President
By Alan Angrist,
Secretary
<PAGE>
THE BESTSELLERS GROUP, INC.
AMENDMENT
to the
CERTIFICATE OF INCORPORATION
Pursuant to the provisions of the Delaware Corporation Law, The
Bestsellers Group, Inc. adopts the following Articles of Amendment to its
Certificate of Incorporation:
FIRST: The following amendment was adopted on May 18, 1996, pursuant to
Section 242 of the Delaware Corporation Law, in the manner marked with an "X"
below:
Such amendment was adopted by the Board of Directors when no
payment has been received for any shares and no shares have been
issued.
X Such amendment was adopted by a vote of the shareholders. The
number of shares voted for the amendment was sufficient for
approval.
Amendment
1. The name of the Corporation will be New York Regional Rail Corporation.
2. The first paragraph of Article Four is amended to read as follows:
The authorized capital stock of the Corporation shall consist of
150,000,000 shares of common stock with a par value of $0.0001 per share and
1,000,000 shares of preferred stock with a par value of $0.00l per share.
THE BESTSELLERS GROUP, INC.
By Douglas Morgan
President
By Alan Angrist
Secretary
<PAGE>
NEW YORK REGIONAL RAIL CORPORATON
AMENDMENT
to the
CERTIFICATE OF INCORPORATION
Pursuant to the provisions of the Delaware Corporation Law, New York
Regional Rail Corporation adopts the following Amendment to its Certificate of
Incorporation.
The following amendment was adopted on March 20, l998, pursuant to Section
242 of the Delaware Corporation Law. Such amendment was adopted by the consent
of shareholders owning a majority of the Corporation's issued and outstanding
shares of common stock. Notice of this amendment has been sent to all
shareholders of record pursuant to Section 228 of the Delaware Corporation Law.
Amendment
The first paragraph of Article Four is amended to read as follows:
The authorized capital stock of the Corporation shall consist of
200,000,000 shares of common stock with a par value of $0.0001 per share and
1,000,000 shares of preferred stock with a par value of $0.001 per share.
NEW YORK REGIONAL RAIL CORPORATON
By Robert R. Crawford
President
<PAGE>
BY-LAWS
OF
NEW YORK REGIONAL RAIL CORPORATION
ARTICLE I
OFFICES
Section l. Offices:
The principal office of the Corporation shall be at 4302 First Avenue,
Brooklyn, New York 11232, and the Corporation shall have other offices at such
places as the Board of Directors may from time to time determine.
ARTICLE II
STOCKHOLDER'S MEETINGS
Section l. Place:
The place of stockholders' meetings shall be the principal office of
the Corporation unless some other place shall be determined and designated from
time to time by the Board of Directors.
Section 2. Annual Meeting:
The annual meeting of the stockholders of the Corporation for the
election of directors to succeed those whose terms expire, and for the
transaction of such other business as may properly come before the meeting,
shall be determined by the Board of Directors, beginning in the year 1994. If
the annual meeting of the stockholders be not held, or if held and directors
shall not have been elected for any reason, then the election of directors may
be held at any meeting of stockholders thereafter called pursuant to these
By-laws and the laws of Delaware.
Section 3. Special Meetings:
Special meetings of the stockholders for any purpose or purposes may be
called by the President, the Board of Directors, or the holders of ten percent
(l0%) or more of all the shares entitled to vote at such meeting, by the giving
of notice in writing as hereinafter described.
Section 4. Voting:
At all meetings of stockholders, voting may be viva voce; but any
qualified voter may demand a stock vote, whereupon such vote shall be taken by
ballot and the Secretary shall record the name of the stockholder voting, the
number of shares voted, and, if such vote shall be by proxy, the name of the
proxy holder. Voting may be in person or by proxy appointed in writing, manually
signed by the stockholder or his duly authorized attorney infact. No proxy shall
be valid after eleven months from the date of its execution, unless otherwise
provided therein.
Each stockholder shall have such rights to vote as the Articles of
Incorporation provide for each share of stock registered in his name on the
books of the Corporation, except where the transfer books of the Corporation
shall have been closed or a date shall have been fixed as a record date, not to
exceed, in any case, fifty (50) days preceding the meeting, for the
determination of stockholders entitled to vote. The Secretary of the Corporation
shall make, at least ten (l0) days before each meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of and the
number of shares held by each, which list, for a period of ten (l0) days prior
to such meeting, shall be kept on file at the principal office of the
Corporation and shall be subject to inspection by any stockholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting.
<PAGE>
Section 5. Order of Business:
The order of business at any meeting of stockholders shall be as
follows:
l. Calling the meeting to order.
2. Calling of roll.
3. Proof of notice of meeting.
4. Report of the Secretary of the stock represented at the meeting and
the existence or lack of a quorum.
5. Reading of minutes of last previous meeting and disposal of any
unapproved minutes.
6. Reports of officers.
7. Reports of committees.
8. Election of directors, if appropriate.
9. Unfinished business.
10. New business.
11. Adjournment.
12. To the extent that these By-laws do not apply, Roberts' Rules of
Order shall prevail.
Section 6. Notices:
Written or printed notice stating the place, day, and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (l0) nor more than fifty
(50) days before the date of the meeting, either personally or by mail, by or at
the direction of the President, the Secretary, or the officer or persons calling
the meeting, to each stockholder of record entitled to vote at such meeting,
except that, if the authorized capital stock is to be increased, at least thirty
(30) days' notice shall be given. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail addressed to the shareholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid.
<PAGE>
Section 7. Quorum:
A quorum at any annual or special meeting shall consist of the
representation in person or by proxy of a majority in number of shares of the
outstanding capital stock of the Corporation entitled to vote at such meeting.
In the event a quorum be not present, the meeting may be adjourned by those
present for a period not to exceed sixty (60) days at any one adjournment; and
no further notice of the meeting or its adjournment shall be required. The
stockholders entitled to vote, present either in person or by proxy at such
adjourned meeting, shall, if equal to a majority of the shares entitled to vote
at the meeting, constitute a quorum, and the votes of a majority of those
present in numbers of shares entitled to vote shall be deemed the act of the
shareholders at such adjourned meeting.
Section 8. Action by Shareholders Without a Meeting:
Any action required to be or which may be taken at a meeting of the
shareholders of the Corporation may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by a majority of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III
BOARD OF DIRECTORS
Section l. Organization and Powers:
The Board of Directors shall constitute the policymaking or legislative
authority of the Corporation. Management of the affairs, property, and business
of the Corporation shall be vested in the Board of Directors, which shall
consist of not less than one nor more than ten members, who shall be elected at
the annual meeting of stockholders by a plurality vote for a term of one (l)
year, and shall hold office until their successors are elected and qualify.
Directors need not be stockholders. Directors shall have all powers with respect
to the management, control, and determination of policies of the Corporation
that are not limited by these By-laws, the Articles of Incorporation, or the
statutes of the Delaware Corporation Law, and the enumeration of any power shall
not be considered a limitation thereof.
Section 2. Vacancies:
Any vacancy in the Board of Directors, however caused or created, shall
be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board, or at a special meeting of the
stockholders called for that purpose. The directors elected to fill vacancies
shall hold office for the unexpired term and until their successors are elected
and qualify.
Section 3. Regular Meetings:
A regular meeting of the Board of Directors shall be held, without
other notice than this By-law, immediately after and at the same place as the
annual meeting of stockholders or any special meeting of stockholders at which a
director or directors shall have been elected. The Board of Directors may
provide by resolution the time and place, either within or without the State of
Delaware, for the holding of additional regular meetings without other notice
than such resolution.
Section 4. Special Meetings:
Special meetings of the Board of Directors may be held at the principal
office of the Corporation, or such other place as may be fixed by resolution of
the Board of Directors for such purpose, at any time on call of the President or
of any member of the Board, or may be held at any time and place without notice,
by unanimous written consent of all the members, or with the presence and
participation of all members at such meeting. A resolution in writing signed by
all the directors shall be as valid and effectual as if it had been passed at a
meeting of the directors duly called, constituted, and held.
<PAGE>
Section 5. Notices:
Notices of both regular and special meetings, save when held by
unanimous consent or participation, shall be mailed by the Secretary to each
member of the Board not less than three (3) days before any such meeting and
notices of special meetings may state the purposes thereof. No failure or
irregularity of notice of any regular meeting shall invalidate such meeting or
any proceeding thereat.
Section 6. Quorum and Manner of Acting:
A quorum for any meeting of the Board of Directors shall be a majority
of the Board of Directors as then constituted. Any act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. Any action of such majority, although not at a regularly
called meeting, and the record thereof, if assented to in writing by all of the
other members of the Board, shall always be as valid and effective in all
respects as if otherwise duly taken by the Board of Directors.
Section 7. Executive Committee:
The Board of Directors may by resolution of a majority of the Board
designate two (2) or more directors to constitute an executive committee, which
committee, to the extent provided in such resolution, shall have and may
exercise all of the authority of the Board of Directors in the management of the
Corporation; but the designation of such committee and the delegation of
authority thereto shall not operate to relieve the Board of Directors, or any
member thereof, of any responsibility imposed on it or him by law.
Section 8. Order of Business:
The order of business at any regular or special meeting of the Board of
Directors, unless otherwise prescribed for any meeting by the Board, shall be as
follows:
l. Reading and disposal of any unapproved minutes.
2. Reports of officers and committees.
3. Unfinished business.
4. New business.
5. Adjournment.
6. To the extent that these By-laws do not apply, Roberts' Rules of
Order shall prevail.
Section 9. Remuneration:
No stated salary shall be paid to directors for their services as such,
but, by resolution of the Board of Directors, a fixed sum and expenses of
attendance, if any, may be allowed for attendance at each regular or special
meeting of the Board. Members of special or standing committees may be allowed
like compensation for attending meetings. Nothing herein contained shall be
construed to preclude any director from receiving compensation for serving the
Corporation in any other capacity, subject to such resolutions of the Board of
Directors as may then govern receipt of such compensation.
<PAGE>
ARTICLE IV
OFFICERS
Section l. Titles:
The officers of the Corporation shall consist of a President, one or
more Vice Presidents, a Secretary, and a Treasurer, the last two of which
offices may be combined and held by one person, who shall be elected for one (l)
year by the directors at their first meeting following the annual meeting of
stockholders. Such officers shall hold office until their successors are elected
and qualify. The Board of Directors may appoint from time to time such
subordinate officers as it deems desirable. Subordinate officers shall serve
during such terms as may be fixed by the Board at a duly held meeting.
Section 2. President:
The President shall preside at all meetings of stockholders and, in the
absence of a, or the, Chairman of the Board of Directors, at all meetings of the
directors. He shall be generally vested with the power of the chief executive
officer of the Corporation and shall countersign all certificates, contracts,
and other instruments of the Corporation as authorized by the Board of Directors
or required by law. He shall make reports to the Board of Directors and
stockholders and shall perform such other duties and services as may be required
of him from time to time by the Board of Directors.
Section 3. Vice President:
The Vice President shall perform all the duties of the President if the
President is absent or for any other reason is unable to perform his duties and
shall have such other duties as the Board of Directors shall authorize or
direct.
Section 4. Secretary:
The Secretary shall issue notices of all meetings of stockholders and
directors, shall keep minutes of all such meetings, and shall record all
proceedings. He shall have custody and control of the corporate records and
books, excluding the books of account, together with the corporate seal. He
shall make such reports and perform such other duties as may be consistent with
his office or as may be required of him from time to time by the Board of
Directors.
Section 5. Treasurer:
The Treasurer shall have custody of all moneys and securities of the
Corporation and shall have supervision over the regular books of account. He
shall deposit all moneys, securities, and other valuable effects of the
Corporation in such banks and depositories as the Board of Directors may
designate and shall disburse the funds of the Corporation in payment of just
debts and demands against the Corporation, or as they may be ordered by the
Board of Directors, shall render such account of his transactions as may be
required of him by the President or the Board of Directors from time to time and
shall otherwise perform such duties as may be required of him by the Board of
Directors.
The Board of Directors may require the Treasurer to give a bond
indemnifying the Corporation against larceny, theft, embezzlement, forgery,
misappropriation, or any other act of fraud or dishonesty resulting from his
duties as Treasurer of the Corporation, which bond shall be in such amount as
appropriate resolution or resolutions of the Board of Directors may require.
<PAGE>
Section 6. Vacancies or Absences:
If a vacancy in any office arises in any manner, the directors then in
office may choose, by a majority vote, a successor to hold office for the
unexpired term of the officer. If any officer shall be absent or unable for any
reason to perform his duties, the Board of Directors, to the extent not
otherwise inconsistent with these By-laws, may direct that the duties of such
officer during such absence or inability shall be performed by such other
officer or subordinate officer as seems advisable to the Board.
Section 7. Compensation:
No officer shall receive any salary or compensation for his services
unless and until the Board of Directors authorizes and fixes the amount and
terms of such salary or compensation.
ARTICLE V
STOCK
Section l. Certificates of Shares:
Each holder of stock of the Corporation shall be entitled to a stock
certificate signed by the President or Vice President and also by the Secretary
or an assistant secretary of the Corporation. The certificates of shares shall
be in such form, not inconsistent with the Certificate of Incorporation or
Articles of Incorporation, as shall be prepared or approved by the Board of
Directors. (All certificates shall be prepared or approved by the Board of
Directors). All certificates shall be consecutively numbered. Each certificate
shall state upon its face that the Corporation is organized under the laws of
this state; the name of the person to whom issued; the number and class of
shares; and the designation of the series, if any, which such certificate
represents; the par value of each share represented by the certificate, or a
statement that the shares are without par value. The name of the person owning
the shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the Corporation's books, and no certificate shall be
valid unless it be signed by the President or Vice President and by the
Secretary or an assistant secretary of the Corporation. The seal of the
Corporation affixed to stock certificates may be a facsimile. The signatures of
officers as above described on any such certificate may be a facsimile if the
certificate is countersigned by a transfer agent, or registered by a registrar,
other than the Corporation itself or an employee of the Corporation.
Section 2. New Certificates:
All certificates surrendered to the Corporation shall be canceled and
no new certificate shall be issued, except to evidence transfer of stock from
the unissued stock or treasury of the Corporation, or, in the case of a lost
certificate, except upon posting a bond of indemnity in such form and with such
surety or sureties and for such amount as shall be satisfactory to the directors
and upon producing by affidavit or otherwise such evidence of loss or
destruction as the Board may require, until the former certificates for the same
number of shares have been surrendered and canceled.
Section 3. Transfer of Shares:
Shares in the capital stock of the Corporation shall be transferred
only on the books of the Corporation by the holder thereof in person, or by his
attorney, upon surrender and cancellation of certificates for a like number of
shares. The delivery of a certificate of stock of this Corporation to a bona
fide purchaser or pledgee for value, together with a written transfer of the
same or a written power of attorney to sell, assign, and transfer the same,
signed by the owner of the certificate, shall be a sufficient delivery to
transfer the title against all persons except the Corporation. No transfer of
stock shall be valid against the Corporation until it shall have been registered
upon the books of the Corporation.
<PAGE>
Section 4. Closing of Transfer Books or Provisions for Record Date:
The stock transfer books may be closed by the Board of Directors for a
period not exceeding fifty (50) days prior to any meeting of the stockholders or
prior to the payment of dividends; or the Board of Directors may fix in advance
a day not more than fifty (50) days prior to the holding of any such meeting of
stockholders or payment of dividends as the day as of which stockholders
entitled to notice of and to vote at such meeting or to payment of dividends, as
the case may be, shall be determined; and only stockholders of record on such
day shall be entitled to notice or to vote at such meeting, or to receive
dividends, as the case may be.
Section 5. Regulations:
The Board of Directors shall have power and authority to take all such
rules and regulations as they deem expedient concerning the issue, transfer, and
registration of certificates for shares of the capital stock of the Corporation.
The Board of Directors may appoint a Transfer Agent and a Registrar and may
require all stock certificates to bear the signature of such Transfer Agent or
such Registrar.
<PAGE>
Section 6. Restrictions on Stock:
The Board of Directors may restrict any stock issued by giving the
Corporation or any stockholder "first right of refusal to purchase" the stock,
by making the stock redeemable or by restricting the transfer of the stock,
under such terms and in such manner as the directors may deem necessary and as
are not inconsistent with the Articles of Incorporation or the laws of the State
of Delaware. Any stock so restricted must carry a stamped legend setting out the
restriction or conspicuously noting the restriction and stating where it may be
found in the records of the Corporation.
ARTICLE VI
DIVIDENDS AND FINANCES
Section l. Dividends:
Dividends may be declared by the directors and paid out of any funds
legally available therefor under the laws of Delaware, as may be deemed
advisable from time to time by the Board of Directors of the Corporation. Before
declaring any dividends, the Board of Directors may set aside out of net profits
or earned or other surplus such sums as the Board may think proper as a reserve
fund to meet contingencies or for other purposes deemed proper and to the best
interests of the Corporation.
Section 2. Monies:
The moneys, securities, and other valuable effects of the Corporation
shall be deposited in the name of the Corporation in such banks or trust
companies as the Board of Directors shall designate and shall be drawn out or
removed only as may be authorized by the Board of Directors from time to time.
Section 3. Fiscal Year:
The Board of Directors by resolution shall determine the fiscal year of
the Corporation.
ARTICLE VII
SEAL
The Board of Directors shall provide a corporate seal which shall be in
the form of a circle and shall have inscribed thereon the name of the
Corporation and the words "SEAL, Delaware," and shall be entrusted in the care
of the Secretary or such other officer of the Corporation as the Board of
Directors shall designate.
<PAGE>
ARTICLE VIII
NOTICES
Section l. Requirements:
Whenever a notice shall be required by the statutes of the State of
Delaware or by these By-laws, such notice may be given in writing by depositing
the same in the United States mails in a postpaid, sealed envelope addressed to
the person for whom such notice is intended to his or her home or other address,
as the same shall appear on the stock transfer books of the Corporation. The
time of mailing shall be deemed to be the time of giving such notice. A waiver
of any notice in writing, signed by a stockholder, director, or officer, whether
before, at, or after the time stated in such waiver for holding a meeting, shall
be deemed the equivalent of duly giving such notice.
Section 2. Presence:
The presence of any officer at a meeting, or the presence of any
stockholder or director at a meeting, unless such presence is for the sole
purpose of objecting to the holding of such meeting on the ground that it is not
duly held or convened, shall in all events be considered a waiver of notice
thereof; and failure to vote thereat shall not defeat the effectiveness of such
waiver.
Section 3. Ratification:
The ratification or approval in writing of the minutes of any meeting
of officers, stockholders, or directors shall have the same force and effect as
if the ratifying or approving officer, director, or stockholder were present in
person at said meeting.
ARTICLE IX
AMENDMENTS
These By-laws may be altered, amended, or repealed by the Board of
Directors by resolution of a majority of the Board.
ARTICLE X
INDEMNIFICATION
The Corporation shall indemnify any and all of its directors or
officers, or former directors or officers, or any person who may have served at
its request as a director or officer of another corporation in which this
Corporation owns shares of capital stock or of which it is a creditor and the
personal representatives of all such persons, against expenses actually and
necessarily incurred in connection with the defense of any action, suit, or
proceeding in which they, or any of them, were made parties, or a party, by
reason of being or having been directors or officers or a director or officer of
the Corporation, or of such other corporation, except in relation to matters as
to which any such director or officer or person shall have been adjudged in such
action, suit, or proceeding to be liable for negligence or misconduct in the
performance of any duty owed to the Corporation. Such indemnification shall not
be deemed exclusive of any other rights to which those indemnified may be
entitled, independently of this Article X, by law, under any By-law agreement,
vote of stockholders, or otherwise.
<PAGE>
ARTICLE XI
CONFLICTS OF INTEREST
No contract or other transaction of the Corporation with any other
persons, firms or corporations, or in which the Corporation is interested, shall
be affected or invalidated by the fact that any one or more of the directors or
officers of the Corporation is interested in or is a director or officer of such
other firm or corporation; or by the fact that any director or officer of the
Corporation, individually or jointly with others, may be a party to or may be
interested in any such contract or transaction; and relieves every person who
may become a director or officer of the Corporation from any liability that
might otherwise arise by reason of his contracting with the Corporation for the
benefit of himself or any firm or corporation in which he may in any way be
interested.
CERTIFICATE
I do hereby certify that I was Secretary of the Board of Directors
duly called and held on the 4th day of April, 1994, and I do hereby certify that
the above and foregoing By-laws were duly adopted as the By-laws of said
Corporation at such meeting.
Alan Angrist
Secretary
(SEAL)
NEW YORK REGIONAL RAIL CORPORATION
INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Incentive Stock Option Plan (the "Plan")
is to advance the interests of New York Regional Rail Corporation and any
subsidiary corporation (hereinafter referred to as the "Company") and all of its
shareholders, by strengthening the Company's ability to attract and retain in
its employ individuals of training, experience, and ability, and to furnish
additional incentive to officers and valued employees upon whose judgment,
initiative, and efforts the successful conduct and development of its business
largely depends, by encouraging such officers and employees to become owners of
capital stock of the Company.
This will be effected through the granting of stock options as
herein provided, which options are intended to qualify as "Incentive Stock
Options" within the meaning of Section 422 of the Internal Revenue Code, as
amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer the
Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted under
the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not expired,
has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
<PAGE>
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed ____________. The shares of Common Stock
to be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
The aggregate fair market value (determined as of the time any option
is granted) of the stock for which any employee may be granted options which are
first exercisable in any single calendar year under this Plan (and any other
plan of the Company meeting the requirements for Incentive Stock Option Plans)
shall not exceed $100,000.
5. Participants. Options will be granted only to persons who are
employees of the Company and/or its subsidiaries and only in connection with any
such person's employment. The term "employees" shall include officers as well as
other employees, and the officers and other employees who are directors of the
Company. The Committee will determine the employees to be granted options and
the number of shares subject to each option.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The purchase price of each option shall not be less
than 100% of the fair market value of the Company's common stock at the time of
the granting of the option provided, however, if the optionee, at the time the
option is granted, owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, the purchase price of the
option shall not be less than 110% of the fair market value of the stock at the
time of the granting of the option.
(b) Period of Option. The maximum period for exercising an option shall
be 10 years from the date upon which the option is granted, provided, however,
if the optionee, at the time the option is granted, owns stock possessing more
than l0% of the total combined voting power of all classes of stock of the
Company, the maximum period for exercising an option shall be five years from
the date upon which the option is granted and provided further, however, that
these periods may be shortened in accordance with the provisions of Paragraph 7
below.
Subject to the foregoing, the period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee.
If an optionee shall cease to be employed by the Company due to
disability, as defined in Section 22(e)(3) of the Code, he may, but only within
the one year next succeeding such cessation of employment, exercise his option
to the extent that he was entitled to exercise it on the date of such cessation.
The Plan will not confer upon any optionee any right with respect to continuance
of employment by the Company, nor will it interfere in any way with his right,
or his employer's right, to terminate his employment at any time.
<PAGE>
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time to
time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable. An Option shall not be exercisable in whole or in part prior to
the date of shareholder approval of the Plan.
Options may be exercised in part from time to time during the
option period. The exercise of any option will be contingent upon compliance by
the Optionee (or purchaser acting pursuant to Section 6(b)) with the provisions
of Section 10 below and upon receipt by the Company of either (i) cash or
certified bank check payable to its order in the amount of the purchase price of
such shares (ii) shares of Company stock having a fair market value equal to the
purchase price of such shares, or (iii) a combination of (i) and (ii). If any
law or regulation requires the Company to take any action with respect to the
shares to be issued upon exercise of any option, then the date for delivery of
such stock shall be extended for the period necessary to take such action.
(e) Nontransferability of Option. No Option shall be transferable or
assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Optionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
(f) Death of Optionee. In the event of the death of an optionee while
in the employ of the Company, the option theretofore granted to him shall be
exercisable only within the three months succeeding such death and then only (i)
by the person or persons to whom the optionee's rights under the option shall
pass by the optionee's will or by the laws of descent and distribution, and (ii)
if and to the extent that he was entitled to exercise the option at the date of
his death.
7. Assumed Options. In connection with any transaction to which Section
424(a) of the Code is applicable, options may be granted pursuant hereto in
substitution of existing options or existing options may be assumed as
prescribed by that Section and any regulations issued thereunder.
Notwithstanding anything to the contrary contained in this Plan, options granted
pursuant to this Paragraph shall be at prices and shall contain such terms,
provisions, and conditions as may be determined by the Committee and shall
include such provisions and conditions as may be necessary to meet the
requirements of Section 424(a) of the Code.
8. Certain Dispositions of Shares. Any options granted pursuant to this
Plan shall be conditioned such that if, within the earlier of (i) the two-year
period beginning on the date of grant of an option or (ii) the one-year period
beginning on the date after which any share of stock is transferred to an
individual pursuant to his exercise of an option, such an individual makes a
disposition of such share of stock by way of sale, exchange, gift, transfer of
legal title, or otherwise, such individual shall promptly report such
disposition to the Company in writing and shall furnish to the Company such
details concerning such disposition as the Company may reasonably request.
<PAGE>
9. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporaton shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
10. Restrictions on Issuing Shares. The exercise of each Option shall
be subject to the condition that if at any time the Company shall determine in
its discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock covered by the Plan have been registered
with the Securities and Exchange Commission pursuant to Section 5 of the
Securities Act of l933, each optionee shall, by accepting an option, represent
and agree, for himself and his transferrees by will or the laws of descent and
distribution, that all shares of stock purchased upon the exercise of the option
will be acquired for investment and not for resale or distribution. Upon such
exercise of any portion of an option, the person entitled to exercise the same
shall, upon request of the Company, furnish evidence satisfactory to the Company
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for investment and not for resale or
distribution. Furthermore, the Company may, if it deems appropriate, affix a
legend to certificates representing shares of stock purchased upon exercise of
options indicating that such shares have not been registered with the Securities
and Exchange Commission and may so notify its transfer agent. Such shares may be
disposed of by an optionee in the following manner only: (l) pursuant to an
effective registration statement covering such resale or reoffer, (2) pursuant
to an applicable exemption from registration as indicated in a written opinion
of counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
11. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
12. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan, but may not, without the
approval of a majority of those holders of the Company's Common Stock voting in
person or by proxy at any meeting of the Company's shareholders, make any
alteration or amendment thereof which operates to (a) make any material change
in the class of eligible employees as defined in Section 5, (b) extend the term
of the Plan or the maximum option periods provided in paragraph 6, (c) decrease
the minimum option price provided in paragraph 6, except as provided in
paragraph 9, or (d) materially increase the benefits accruing to employees
participating under this Plan.
<PAGE>
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan. No
Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
13. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
14. Governing Law. The Plan shall be governed by the laws of the State
of Delaware.
l5. Expenses of Administration. All costs and expenses
incurred in the operation and adminstration of this Plan shall be borne by
the Company.
NEW YORK REGIONAL RAIL CORPORATION
NON-QUALIFIED STOCK OPTION PLAN
l. Purpose. This Non-Qualified Stock Option Plan (the "Plan") is
intended to advance the interests of New York Regional Rail (the "Company") and
its shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock. Options granted under the Plan are intended to be Options which do not
meet the requirements of Section 422 of the Internal Revenue Code of 1954, as
amended (the "Code").
2. Definitions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer the
Plan.
(c) "Common Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted under
the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not expired,
has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covering
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
<PAGE>
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 2,000,000. The shares of Common Stock to
be issued upon the exercise of Options may be authorized but unissued shares,
shares issued and reacquired by the Company or shares bought on the market for
the purposes of the Plan. In the event any Option shall, for any reason,
terminate or expire or be surrendered without having been exercised in full, the
shares subject to such Option but not purchased thereunder shall again be
available for Options to be granted under the Plan.
5. Participants. Options may be granted under the Plan to the Company's
employees, directors and officers, and consultants or advisors to the Company
(or to the Company's subsidiaries), provided however that bona fide services
shall be rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capital-raising
transaction.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitations and conditions:
(a) Option Price. The Option Price per share with respect to each
Option shall be determined by the Committee but shall in no instance be less
than the par value of the Common Stock.
(b) Period of Option. The period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee, but, notwithstanding any provision of the Plan to the contrary, such
expiration date shall not be more than ten years from the date of Grant.
(c) Vesting of Shareholder Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchaseable thereunder in any period or periods of time during which the Option
is exercisable.
(e) Nontransferability of Option. No Option shall be transferable
or assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Opionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
<PAGE>
(f) Death of Optionee. If an Optionee dies while holding an Option
granted hereunder, his Option privileges shall be limited to the shares which
were immediately purchasable by him at the date of death and such Option
privileges shall expire unless exercised by his successor within four months
after the date of death.
7. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporaton shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
8. Restrictions on Issuing Shares. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
Unless the shares of stock covered by the Plan have been
registered with the Securities and Exchange Commission pursuant to Section 5 of
the Securities Act of l933, each optionee shall, by accepting an option,
represent and agree, for himself and his transferrees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution. Upon such exercise of any portion of an option, the person
entitled to exercise the same shall, upon request of the Company, furnish
evidence satisfactory to the Company (including a written and signed
representation) to the effect that the shares of stock are being acquired in
good faith for investment and not for resale or distribution. Furthermore, the
Company may, if it deems appropriate, affix a legend to certificates
representing shares of stock purchased upon exercise of options indicating that
such shares have not been registered with the Securities and Exchange Commission
and may so notify the Company's transfer agent. Such shares may be disposed of
by an optionee in the following manner only: (l) pursuant to an effective
registration statement covering such resale or reoffer, (2) pursuant to an
applicable exemption from registration as indicated in a written opinion of
counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If shares of
stock covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
optionees who are directors, officers, or principal shareholders of the Company.
Such persons may dispose of shares only by one of the three aforesaid methods.
9. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
<PAGE>
l0. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan, but may not, without the
approval of a majority of those holders of the Company's Common Stock voting in
person or by proxy at any meeting of the Company's shareholders, make any
alteration or amendment thereof which operates to (a) abolish the Committee,
change the qualification of its members, or withdraw the administration of the
Plan from its supervision, (b) make any material change in the class of eligible
employees as defined in paragraph 5, (c) increase the total number of shares
reserved for purposes of this Plan except as provided in paragraph 7, (d)
increase the total number of shares for which an option or options may be
granted to any one employee, (e) extend the term of the Plan or the maximum
option periods provided in paragraph 6, (f) decrease the minimum option price
provided in paragraph 6, except as provided in paragraph 7, or (g) materially
increase the benefits accruing to employees participating under this Plan.
Unless the Plan shall theretofore have been terminated by the
Board, the Plan shall terminate ten years after the effective date of the Plan.
No Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without an
Optionee's consent, alter or impair any of the rights or obligations under any
Option theretofore granted to such Optionee under the Plan.
11. Limitations. Every right of action by any person receiving options
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
12. Governing Law. The Plan shall be governed by the laws of
the State of Delaware.
13. Expenses of Administration. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the Company.
NEW YORK REGIONAL RAIL CORPORATION
STOCK BONUS PLAN
l. Purpose. The purpose of this Stock Bonus Plan is to advance the
interests of New York Regional Rail Corporation (the "Company") and its
shareholders, by encouraging and enabling selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock, to keep personnel of experience and ability in the employ of the Company
and to compensate them for their contributions to the growth and profits of the
Company and thereby induce them to continue to make such contributions in the
future.
2. Definitions.
A. "Board" shall mean the board of directors of the Company.
B. "Committee" means the directors duly appointed to administer the Plan.
C. "Plan" shall mean this Stock Bonus Plan.
D. "Bonus Share" shall mean the shares of common stock of the Company
reserved pursuant to Section 4 hereof and any such shares issued to a Recipient
pursuant to this Plan.
E. "Recipient" shall mean any individual rendering services for the
Company to whom shares are granted pursuant to this Plan.
3. Administration of Plan. The Plan shall be administered by a committee
of two or more directors appointed by the Board (the "Committee"). The Committee
shall report all action taken by it to the Board. The Committee shall have full
and final authority in its discretion, subject to the provisions of the Plan, to
determine the individuals to whom and the time or times at which Bonus Shares
shall be granted and the number of Bonus Shares; to construe and interpret the
Plan; and to make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of the Plan. All such
actions and determinations shall be conclusively binding for all purposes and
upon all persons.
4. Bonus Share Reserve. There shall be established a Bonus Share Reserve
to which shall be credited 750,000 shares of the Company's common stock. In the
event that the shares of common stock of the Company should, as a result of a
stock split or stock dividend or combination of shares or any other change, or
exchange for other securities by reclassification, reorganization, merger,
consolidation, recapitalization or otherwise, be increased or decreased or
changed into or exchanged for, a different number or kind of shares of stock or
other securities of the Company or of another corporation, the number of shares
then remaining in the Bonus Share Reserve shall be appropriately adjusted to
reflect such action. Upon the grant of shares hereunder, this reserve shall be
reduced by the number of shares so granted. Distributions of Bonus Shares may,
as the Committee shall in its sole discretion determine, be made from authorized
but unissued shares or from treasury shares. All authorized and unissued shares
issued as Bonus Shares in accordance with the Plan shall be fully paid and
nonassessable and free from preemptive rights.
<PAGE>
5. Eligibility, and Granting and Vesting of Bonus Shares. Bonus Shares may
be granted under the Plan to the Company's employees, directors and officers,
and consultants or advisors to the Company, provided however that bona fide
services shall be rendered by such consultants or advisors and such services
must not be in connection with the offer or sale of securities in a
capital-raising transaction.
The Committee, in its sole discretion, is empowered to grant to an
eligible Participant a number of Bonus Shares as it shall determine from time to
time. Each grant of these Bonus Shares shall become vested according to a
schedule to be established by the Committee directors at the time of the grant.
For purposes of this plan, vesting shall mean the period during which the
recipient must remain an employee or provide services for the Company. At such
time as the employment of the Recipient ceases, any shares not fully vested
shall be forfeited by the Recipient and shall be returned to the Bonus Share
Reserve. The Committee, in its sole discretion, may also impose restrictions on
the future transferability of the bonus shares, which restrictions shall be set
forth on the notification to the Recipient of the grant.
The aggregate number of Bonus Shares which may be granted pursuant to this
Plan shall not exceed the amount available therefore in the Bonus Share Reserve.
6. Form of Grants. Each grant shall specify the number of Bonus Shares
subject thereto, subject to the provisions of Section 5 hereof.
At the time of making any grant, the Committee shall advise the Recipient
by delivery of written notice, in the form of Exhibit A hereto annexed.
7. Recipients' Representations.
A. The Committee may require that, in acquiring any Bonus Shares, the
Recipient agree with, and represent to, the Company that the Recipient is
acquiring such Bonus Shares for the purpose of investment and with no present
intention to transfer, sell or otherwise dispose of shares except such
distribution by a legal representative as shall be required by will or the laws
of any jurisdiction in winding-up the estate of any Recipient. Such shares shall
be transferrable thereafter only if the proposed transfer shall be permissable
pursuant to the Plan and if, in the opinion of counsel (who shall be
satisfactory to the Committee), such transfer shall at such time be in
compliance with applicable securities laws.
B. To effectuate Paragraph A above, the Recipient shall deliver to
the Committee, in duplicate, an agreement in writing, signed by the Recipient,
in form and substance as set forth in Exhibit B hereto annexed, and the
Committee shall forthwith acknowledge its receipt thereof.
<PAGE>
8. Restrictions Upon Issuance. A. Bonus Shares shall forthwith after the
making of any representations required by Section 6 hereof, or if no
representations are required then within thirty (30) days of the date of grant,
be duly issued and transferred and a certificate or certificates for such shares
shall be issued in the Recipient's name. The Recipient shall thereupon be a
shareholder with respect to all the shares represented by such certificate or
certificates, shall have all the rights of a shareholder with respect to all
such shares, including the right to vote such shares and to receive all
dividends and other distributions (subject to the provisions of Section 7(B)
hereof) paid with respect to such shares. Certificates of stock representing
Bonus Shares shall be imprinted with a legend to the effect that the shares
represented thereby are subject to the provisions of this Agreement, and to the
vesting and transfer limitations established by the Committee, and each transfer
agent for the common stock shall be instructed to like effect with respect of
such shares.
B. In the event that, as the result of a stock split or stock dividend or
combination of shares or any other change, or exchange for other securities, by
reclassification, reorganization, merger, consolidation, recapitalization or
otherwise, the Recipient shall, as owner of the Bonus Shares subject to
restrictions hereunder, be entitled to new or additional or different shares of
stock or securities, the certificate or certificates for, or other evidences of,
such new or additional or different shares or securities, together with a stock
power or other instrument of transfer appropriately endorsed, shall also be
imprinted with a legend as provided in Section 7(A), and all provisions of the
Plan relating to restrictions herein set forth shall thereupon be applicable to
such new or additional or different shares or securities to the extent
applicable to the shares with respect to which they were distributed.
C. The grant of any Bonus Shares shall be subject to the condition that if
at any time the Company shall determine in its discretion that the satisfaction
of withholding tax or other withholding liabilities, or that the listing,
registration, or qualification of any Bonus Shares upon such exercise upon any
securities exchange or under any state or federal law, or that the consent or
approval of any regulatory body, is necessary or desirable as a condition of, or
in connection with, the issuance of any Bonus Shares, then in any such event,
such exercise shall not be effective unless such withholding, listing,
registration, qualification, consent, or approval shall have been ef- fected or
obtained free of any conditions not acceptable to the Company.
D. Unless the Bonus Shares covered by the Plan have been registered with
the Securities and Exchange Commission pursuant to Section 5 of the Securities
Act of l933, each Recipient shall, by accepting a Bonus Share, represent and
agree, for himself and his transferrees by will or the laws of descent and
distribution, that all Bonus Shares were acquired for investment and not for
resale or distribution. The person entitled to receive Bonus Shares shall, upon
request of the Committee, furnish evidence satisfactory to the Committee
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for investment and not for resale or
distribution. Furthermore, the Committee may, if it deems appropriate, affix a
legend to certificates representing Bonus Shares indicating that such Bonus
Shares have not been registered with the Securities and Exchange Commission and
may so notify the Company's transfer agent. Such shares may be disposed of by a
Recipient in the following manner only: (l) pursuant to an effective
registration statement covering such resale or reoffer, (2) pursuant to an
applicable exemption from registration as indicated in a written opinion of
counsel acceptable to the Company, or (3) in a transaction that meets all the
requirements of Rule l44 of the Securities and Exchange Commission. If Bonus
Shares covered by the Plan have been registered with the Securities and Exchange
Commission, no such restrictions on resale shall apply, except in the case of
Recipients who are directors, officers, or principal shareholders of the
Company. Such persons may dispose of shares only by one of the three aforesaid
methods.
<PAGE>
9. Limitations. Neither the action of the Company in establishing the
Plan, nor any action taken by it nor by the Committee under the Plan, nor any
provision of the Plan, shall be construed as giving to any person the right to
be retained in the employ of the Company.
Every right of action by any person receiving shares of common stock
pursuant to this Plan against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from the date of the act or
omission in respect of which such right of action arises.
10. Amendment, Suspension or Termination of the Plan. The Board of
Directors may alter, suspend, or discontinue the Plan at any time.
Unless the Plan shall theretofore have been terminated by the Board, the
Plan shall terminate ten years after the effective date of the Plan. No Bonus
Share may be granted during any suspension or after the termination of the Plan.
No amendment, suspension, or termination of the Plan shall, without a
recipient's consent, alter or impair any of the rights or obligations under any
Bonus Share theretofore granted to such recipient under the Plan.
11. Governing Law. The Plan shall be governed by the laws of the State
of Delaware.
12. Expenses of Administration. All costs and expenses incurred in the
operation and adminstration of this Plan shall be borne by the Company.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF THE SERIES B PREFERRED STOCK
OF
NEW YORK REGIONAL RAIL CORPORATION
I, Robert R. Crawford, the President and Chief Executive Officer,
and Assistant Secretary of New York Regional Rail Corporation, a Delaware
corporation, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Articles of Incorporation, the Board of Directors on January 21, 1997,
adopted the following resolution creating a series of preferred shares, $0.001
par value per share, designated as the Series B Preferred Shares.
The relative rights and preferences of the Series B Preferred Stock are
as follows:
1. Designation and Amount. The shares of such series shall be designed
as the "Series B Preferred Shares" (the "Series B Preferred Shares"), and the
number of shares constituting such series shall be 5,250. The number of shares
constituting such series may, unless prohibited by the Articles of
Incorporation, be decreased by resolution of the Board of Directors; provided
that no decrease shall reduce the number of Series B Preferred Shares to a
number less than the number of shares then outstanding plus the number of shares
issuable upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Shares.
2. Dividends and Distributions
(i) The holders of Series B Preferred Shares, in preference to the
holders of Common Shares, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose, annual
dividends payable in cash (each such date being referred to herein as a
"Dividend Payment Date"), commencing twelve months from the date of the issuance
of the Series B Preferred Shares, at the rate of $9.00 per share.
(ii) Dividends which are not declared will accrue. Dividends not
declared will be cumulative. Accrued but unpaid dividends shall bear interest.
Dividends paid on the Series B Preferred Shares in an amount less than the total
amount of such dividends at the time such dividends are declared and become
payable shall be allocated pro rata on a share-by- share basis among all such
shares outstanding at that time. The Board of Directors may fix a record date
for the determination of holders of Series A Preferred Shares entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than fifteen (15) days prior to the date fixed for the
payment thereof.
<PAGE>
(iii) The Corporation will have the right to pay any dividend with
shares of its common stock for each dollar of dividend.
3. Voting Rights. Except as otherwise provided by law, the holders of
Series B Preferred Shares shall have no voting rights and their consent shall
not be required (except to the extent required by law) for taking any corporate
action.
4. Certain Restrictions
(i) Whenever dividends declared or other distributions payable on the
Series B Preferred Shares as provided in Section 2 hereof are in arrears,
thereafter and until all unpaid dividends and distributions on Series B
Preferred Shares outstanding shall have been paid in full, the Corporation shall
not:
(a) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Shares;
(b) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series B Preferred Shares,
except dividends paid ratably on the Series B Preferred Shares and all such
parity stock on which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Shares, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of stock of the Corporation ranking
junior (both as to dividends and upon liquidation, dissolution or winding up) to
the Series B Preferred Shares; or
(d) redeem or purchase or otherwise acquire for consideration any
Series B Preferred Shares, or any shares of stock ranking on a parity with the
Series B Preferred Shares, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series of
classes.
<PAGE>
(ii) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under subparagraph (i) of this Section
4, purchase or otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any Series B Preferred Shares purchased or
otherwise acquired by the Corporation in any manner whatsoever shall constitute
authorized but unissued Preferred Shares and may be reissued as part of a new
series of Preferred Shares by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein, in the Articles of Incorporation, or in any other Certificate of
Designation creating a series of Preferred Shares or as otherwise required by
law.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Shares unless,
prior thereto, the holders of Series B Preferred Shares shall have received $100
per share, plus an amount equal to declared and unpaid dividends and
distributions thereon to the date of such payment.
7. Consolidation, Merger, Exchange, etc. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the Common Shares are exchanged for or changed into
other stock or securities, money and/or any other property, then in any such
case the Series B Preferred Shares shall at the same time be similarly exchanged
or changed into preferred shares of the surviving entity providing the holders
of such Preferred Shares with (to the extent possible) the same relative rights
and preferences as the Series B Preferred Shares.
8. Redemption. At any time prior to June 30, 1997, the Corporation may
redeem any or all of the Series B Preferred Shares by sending to the holder (or
holders) of the Series B Preferred Shares whose shares are to be redeemed a
notice of redemption, together with payment by Corporation check in the amount
of $120 for each Series B Preferred Share to be redeemed. Notice of the
redemption shall be effective when the Corporation deposits such notice,
together with the required payment, in the United States mails, postage prepaid
and addressed to the record holder of the Series B Preferred Shares at the
address last shown on the Corporation's records.
9. Conversion.
(a) At the option of the holder of Series B Preferred Shares, the
Preferred Shares are convertible on or after June 30, 1997 on the basis of one
share of Preferred Stock for 1,100 shares of the Corporation's Common Stock.
Notice of the conversion shall be effective when such notice is received by the
Corporation, signed by the record holder of the Series B preferred shares, and
specifying the number of shares to be converted.
<PAGE>
(b) If at the time a Series B Preferred Share is converted into
common stock the Corporation does not have a current registration statement in
effect with the Securities and Exchange Commission covering the resale of such
shares, then the Corporation will issue to the holder of such preferred share an
additional 300 shares of the Corporation's common stock. The Corporation will
not have any liability to the holders of the Series B Preferred Shares for the
failure to register the common stock issuable upon the conversion of the Series
B Preferred Shares other than the issuance of 300 additional shares of its
common stock.
(c) In the event the Corporation shall at any time after March 1,
1997 declare or pay any dividend on Common Shares payable in Common Shares, or
effect a subdivision or combination or consolidation of the outstanding Common
Shares (by reclassification or otherwise) into a greater or lesser number of
Common Shares, then in each such case the number of Common Shares issuable upon
the conversion of each Series B Preferred Share shall be determined as follows:
X
Y x CA = Shares issuable upon the conversion of each Share of
Series B Preferred Stock.
X = the number of Common Shares that were outstanding immediately prior
to such event.
Y = the number of Common Shares outstanding immediately after such event.
CA = Conversion Amount in effect immediately prior to such event. Initial
.Conversion Amount is 1,100 shares, provided, however if at the time a Series B
Preferred Share is converted into common stock the Corporation does not have a
current registration statement in effect with the Securities and Exchange
Commission covering the resale of such shares, then the Initial Conversion
Amount will be 1,400 shares. The Corporation will not have any liability to the
holders of the Series B Preferred Shares for the failure to register the common
stock issuable upon the conversion of the Series B Preferred Shares other than
the issuance of the additional shares of its common stock as provided above.
<PAGE>
IN WITNESS WHEREOF, I have executed this Certificate of Designation,
Preferences and Rights this 20th day of June, 1997.
Robert Crawford
President and Secretary
STATE OF Colorado )
)ss.
COUNTY OF Denver )
Subscribed and sworn to before me this 20th day of June, 1997, by
Robert Crawford, President and Secretary of New York Regional Rail Corporation
on behalf of such Corporation.
Witness my hand and official seal.
Notary Public
My commission expires:
SUBSIDIARIES
State of Named Used by Subsidiary
Name Incorporation to Conduct Business
New York State Regional Delaware New York Regional Rail Corporation
Rail corporation
New York Cross Harbor New York New York Cross Harbor Railroad, Inc.
Railroad, Inc.
CH Proprietary, Inc. New Jersey None
J.S. Transportation, Inc. New Jersey J.S. Transportation, Inc.
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<NAME> New York Regional Rail Corporation
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1,268,000
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