SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission File Number 33-6658-C
Pioneer Railcorp
(Exact name of Registrant as specified in its charter)
Iowa 37-1191206
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(State or other jurisdiction of (IRS Employer ID #)
incorporation or organization)
1318 S. Johanson Rd.
Peoria, IL 61607
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(Address of principal executive offices) (Zip code)
Registrant's telephone number: 309-697-1400
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class Name of each exchange on which registered
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Common Stock, Class A Nasdaq SmallCap Market , Chicago Stock Exchange
Securities registered pursuant to 12(g) of the Act:
Common stock, Class A ($.001 par value)
Common Stock, Class B (no par value)
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO.
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Issuer's revenues for the fiscal year ended December 31, 1996 were $10,979,218
The aggregate market value of voting stock held by non-affiliates of the
Registrant on March 26, 1997 was $5,403,072
4,588,263
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(Shares of Common Stock outstanding on March 26, 1997)
<PAGE>
PART I
Item 1. Business
General
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Pioneer Railcorp, an Iowa corporation, is a railroad holding company. As used in
this Form 10-KSB, unless the context requires otherwise, the term "Company" or
"PRC" refers to the parent, Pioneer Railcorp and its subsidiaries: West Michigan
Railroad Co. (WJ) (formerly West Jersey Railroad Co.), Wabash & Western Railway
Co. d/b/a Michigan Southern Railroad (MSO), Fort Smith Railroad Co. (FSR),
Alabama Railroad Co. (ALAB), Mississippi Central Railroad Co. (MSCI), Alabama &
Florida Railway Co., Inc. (AF), Decatur Junction Railway Co. (DT), Vandalia
Railroad Company (VRRC), Minnesota Central Railroad Co. (MCTA), Keokuk Junction
Railway Co. (KJRY), Rochelle Railroad Co. (RRCO), Columbia & Northern Railway
Co. (CNOW), Shawnee Terminal Railway Company (STR), Pioneer Railroad Equipment
Co., Ltd. (PREL), Pioneer Air, Inc. (PAR), and Pioneer Railroad Services, Inc.
(PRS).
The Company operates in two business activities - railroad transportation and
railroad equipment leasing. PRC's rail system provides shipping links for
customers along its routes and interchanges with six major railroads, Burlington
Northern Santa Fe Railroad (BNSF), Conrail, Inc. (CR), CSX Transportation (CSX),
Illinois Central Railroad (IC), Norfolk Southern Railway (NS) and Union Pacific
Railroad (UP). Additionally, the Company has interchanges with five smaller
railroads, the Kansas City Southern Railway (KCS), the Arkansas & Missouri
Railroad (AM), the Twin Cities & Western Railway (TCW), the Toledo Peoria &
Western Railway Corporation (TPW), and Indiana Northeastern Railroad Company
(IN). PRC's rail system is devoted to carrying freight. PRC also seeks to
encourage development on or near, and utilization of, its real estate right of
way by potential shippers as a source of additional revenue. The Company also
generates revenue by granting to various entities, such as utilities, pipeline
and communications companies and non-industrial tenants, the right to occupy its
railroad right of way and other real estate property. The Company also leases
rail equipment to, and repairs rail equipment owned by, others.
Railroad Operations
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On October 1, 1988, Pioneer Railcorp became the lessee and operator of a
railroad line in Salem and Gloucester counties, New Jersey. On July 1, 1990,
Pioneer Railcorp assigned its lease to the West Jersey Railroad Co. (WJ), a
Class III common carrier freight railroad and a wholly-owned subsidiary of
Pioneer Railcorp. The lease ended April 30, 1995, and the WJ's offer to renew
the lease was not accepted.
On July 7, 1991, the Fort Smith Railroad Co. (FSR), a wholly-owned subsidiary of
Pioneer Railcorp, entered into a twenty-year lease (with three twenty-year
renewals) with the Missouri Pacific Railroad Company (MP) to operate 49 miles of
track from Fort Smith to Paris, Arkansas. The FSR's primary interchange is with
the Union Pacific Railroad Company (UP), parent of the MP. FSR also interchanges
with the Arkansas & Missouri Railroad Co. (AM) and the Kansas City Southern
Railway (KCS). The traffic base on the FSR is very diversified with both inbound
and outbound shipments. The principal commodities are iron/steel, scrap, baby
food, fiberglass, particle board, charcoal, grains, frozen poultry, meal,
chemicals, alcoholic beverages, industrial sand, lumber, paper, pulpboard,
fiberboard, peanuts, fertilizer and military movements. In January of 1995 the
FSR and the MP jointly filed an abandonment application with the Interstate
Commerce Commission (ICC) to abandon approximately 31 miles of leased railroad.
On July 6, 1995 the petition was granted by the ICC effective August 19, 1995.
This action reduced the miles of track leased and operated by the FSR to 18
miles.
On October 25, 1991, the Alabama Railroad Co., a wholly-owned subsidiary of
Pioneer Railcorp, purchased 60 miles of railroad facilities and real estate from
CSX Transportation (CSX) and commenced operations soon thereafter. The line runs
from Flomaton to Corduroy, Alabama, and interchanges with CSX in Flomaton. The
railroad's principal commodities are outbound lumber products, primarily
pulpwood, particle board, and finished lumber.
On April 1, 1992, Pioneer Railcorp purchased the common stock of the Natchez
Trace Railroad from Kyle Railways, Inc. (which formed the shortline railroad and
operated it since 1982). The railroad runs from Oxford, Mississippi to Grand
Junction, Tennessee, a total of 56.5 miles, 51 of which are located in
Mississippi. The railroad interchanges with the NS at Grand Junction, Tennessee
and the BNSF at Holly Springs, Mississippi. The Company changed the name of this
wholly-owned subsidiary to Mississippi Central Railroad Co. (MSCI) in January
1993. The traffic base on the MSCI is primarily outbound finished wood products
and inbound products, such as resins, chemicals and pulpwood for the production
of finished wood products. Other products shipped on the MSCI include scrap
steel and cottonseed.
<PAGE>
On November 23, 1992, the Alabama & Florida Railway Co. (AF), a wholly-owned
subsidiary of Pioneer Railcorp, purchased the tangible assets of the A&F Inc.,
d/b/a the Alabama & Florida Railroad Company. This line runs from Georgiana to
Geneva, Alabama, a distance of 76 miles and interchanges with CSX at Georgiana.
The AF's principal commodities are inbound resins, plastic pellets, fertilizer
and outbound peanuts, scrap plastic and pulpwood.
On September 23, 1993, the Decatur Junction Railway Co. (DT), a wholly-owned
subsidiary of Pioneer Railcorp, signed a lease agreement with Cisco Co-op Grain
Company (Cisco) and on September 24, 1993 with Central Illinois Shippers,
Incorporated (CISI), for the lease of two segments of track in east central
Illinois. The Cisco segment runs from Green's Switch (Decatur) to Cisco,
Illinois, approximately thirteen (13) miles. The CISI segment runs from Elwin to
Assumption, Illinois, a distance of approximately seventeen (17) miles. The two
lines connect via trackage rights on the Illinois Central Railroad (IC) through
Decatur, Illinois, a distance of approximately eight (8) miles. Railroad
operations began on the Cisco segment December 3, 1993, and began on the CISI
segment December 7, 1993.
On October 7, 1994, Pioneer Railcorp acquired all the outstanding common stock
of the Vandalia Railroad Company. The line located in Vandalia, Illinois,
interchanges with Conrail and is approximately 3.45 miles long. The Railroad's
principal commodities are steel pipe, plastic pellets, fertilizer, and feed
ingredients.
On December 12, 1994, Pioneer Railcorp's wholly-owned subsidiary Minnesota
Central Railroad Co., acquired certain assets of MNVA Railroad, Inc. The assets
purchased included approximately 94 miles of operating railroad in southwest
Minnesota. The railroad interchanges with the BNSF at Hanley Falls, Minnesota
and the TCW at Norwood, Minnesota. The railroad's principal commodities are
grain, clay, fertilizer, canned goods, dairy products, and particle board.
On July 11, 1995, Pioneer Railcorp signed an agreement with the Trustee of the
Southwestern Michigan Railroad Company, Inc., d/b/a Kalamazoo, Lakeshore &
Chicago Railroad (KLSC), to purchase all of the tangible assets of KLSC. Those
assets include approximately 15 miles of track and right of way, extending from
Hartford to Paw Paw, in Van Buren County, Michigan. Pioneer Railcorp then
assigned its right to purchase to the West Jersey Railroad Co., a wholly owned
subsidiary of Pioneer, which had been operating the former KLSC tracks under a
Interstate Commerce Commission Directed Service Order since June 24, 1995. West
Jersey Railroad Co. amended its articles of incorporation to change its name to
"West Michigan Railroad Co." effective October 2, 1995. The sale was approved by
the Interstate Commerce Commission by order served October 18, 1995, and the
West Michigan Railroad Co. took title to the property on October 24, 1995.
On February 21, 1996, Pioneer Railcorp through its wholly-owned subsidiary
Columbia & Northern Railway Co. (CNOW) signed a lease with the Marion County
(Mississippi) Railroad Authority ("Authority") to operate approximately 29 miles
of trackage between Columbia and Silver Creek, Mississippi. In addition, CNOW
leases approximately 5 miles of track between Silver Creek and Furguson,
Mississippi, from the Illinois Central Railroad for interchange purposes.
Shipping contracts have delayed the train operations of CNOW and it is uncertain
as to when rail transportation will commence.
On March 12, 1996, Pioneer Railcorp purchased 93% of the common stock of KNRECO,
Inc., an Iowa corporation d/b/a Keokuk Junction Railway (hereinafter "KJRY")
from the shareholders, and purchased all of the remaining common shares of KJRY
in April of 1996. KJRY operates a common carrier railroad line within the City
of Keokuk, Iowa, from Keokuk to LaHarpe, Illinois, and a branch line from
Hamilton to Warsaw, Illinois, a total of approximately 38 miles. In addition,
KJRY owns all of the common stock of Keokuk Union Depot Company, an Iowa
corporation, that owns the former Keokuk Union Depot building, along with
surrounding track and real estate. KNRECO, Inc. changed its corporate name to
Keokuk Junction Railway Co. effective April 10, 1996. The KJRY interchanges with
the BNSF at Keokuk, Iowa and the TPW at LaHarpe, Illinois. The railroad's
principal commodities are corn, corn germ, corn syrup, meal, gluten feed,
calcined coal, ferro silicon, scrap iron, and railroad wheels.
On March 25, 1996, Pioneer Railcorp through its wholly-owned subsidiary Rochelle
Railroad Co. (RRCO), signed a one year lease with the city of Rochelle,
Illinois, to operate approximately 2 miles of track serving the Rochelle
Industrial Park. The line interchanges with the BNSF and the UP. Train
operations began April 15, 1996. The railroad's principal commodity is frozen
foods.
On November 13, 1996, Pioneer Railcorp purchased 100% of the common stock of the
Shawnee Terminal Railway Company. The line located in Cairo, Illinois,
interchanges with the Illinois Central Railroad and is approximately 2.5 miles
long. The railroad's principal commodities are glycol and railroad freight cars
for cleaning.
<PAGE>
On December 19, 1996, Pioneer Railcorp through its wholly-owned subsidiary
Wabash & Western Railway Co., signed a two year lease with the Michigan Southern
Railroad Company, Inc., Morris Leasing Co. Ltd. and Gordon D. Morris to operate
53 miles of track and certain railroad related assets. The lease contains an
exclusive option to purchase the stock of the Michigan Southern Railroad
Company, Inc. and the railroad assets of Morris Leasing Co., Ltd. and Gordon D.
Morris within the lease term. The railroad is comprised of three separate
non-contiguous lines, one located in southern Michigan and two located in
northern Indiana. All lines have separate interchanges with Conrail. The
Michigan line also interchanges with the Indiana Northeastern Railroad Company.
The railroad's principal commodities are scrap paper, scrap iron, fertilizer,
plastics, plywood, sugar and corn syrup.
Other Operations
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Other operations engaged in by the Company are performed by its wholly owned
subsidiaries, Pioneer Railroad Equipment Co., Ltd. (PREL) which was formed on
April 1, 1990, and Pioneer Railroad Services, Inc. (PRS) which began operations
on October 1, 1993. PREL leases equipment to the Company's subsidiary railroads
and also purchases, sells and leases equipment to and from unrelated parties.
PREL also earns income from non-company railroads on its fleet of approximately
850 railcars (as of December 31, 1996) when they carry freight on non-company
railroads. PREL also engages in retail sales of promotional items. PRS provides
accounting, management, marketing, operational and agency services to the
Company's subsidiary railroads. In addition, Pioneer Air, Inc. was formed on
August 5, 1994 and currently owns a Cessna 421B aircraft which is used by
Pioneer Railcorp subsidiaries exclusively for Company business travel.
Marketing
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The Company's marketing department was established to foster continuing business
with existing customers and to develop and attract new customers and additional
loadings on all PRC railroads. At the end of 1996, the Company had three full
time marketing employees. The Company's attention to marketing has earned
recognition in industry publications, with Class I railroads and with smaller
rail carriers. The Company's marketing department along with the Company's
operations center have become important value-added services offered to present
and potential customers. The objective of the marketing department is to provide
a customer service plan which is among the most proactive, customer oriented and
growth centered approach in the shortline railroad industry.
Distribution
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Virtually all interchange traffic is with unionized Class I carriers, and a
prolonged work stoppage on those carriers would have a material adverse impact
upon the Company; however, there has never been such a prolonged work stoppage
of the American railroad industry, and the Company considers the chances of that
to be remote.
Suppliers
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The Company does not believe that the loss of any supplier would have a material
adverse effect on its business, as there are alternative suppliers available.
Competition
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With respect to the industry in which PRC operates, the Company, like any other
railroad company, faces intense competition from the trucking industry, barge
lines and other railroads for the movement of commodities. The Company feels
(pricing and time sensitivity constant) that it has a competitive advantage due
to its integrated efforts in providing value-added rail services through its
marketing department and operations center, with continued emphasis on safe and
efficient train operations.
Competition for additional railroads as they become available on the market,
either as direct "spin-offs" from Class I Railroads or through the secondary
market, is intense. The Company believes that it has a competitive advantage for
the acquisition of future Class III Railroads due to the following factors: (1.)
the Company has acquired and currently operates multiple railroads, (2.) the
Company's experienced management team, (3.) the Company's proficiency with
industry-trend technologies desired by Class I Railroads, such as Electronic
Data Interchange (EDI), (4.) the quality of the Company's employees, and (5.)
Pioneer Railcorp's $2.5 million acquisition line of credit.
<PAGE>
Regulations
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The Company's subsidiaries are subject to regulation by the Surface
Transportation Board of the U.S. Department of Transportation, the Federal
Railroad Administration (FRA), and certain state and local jurisdictions. Such
regulation affects rates, safety rules, maintenance of track, other facilities,
and right of way, and may effect the Company's revenues and expenses. To date
there has been no material effect on the Company's operations because of
regulatory action, nor does the Company expect any such effect in the
foreseeable future.
Employees
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On December 31, 1996, the Company had 106 employees which consisted of 75
operating personnel, 27 support staff and 4 executive officers.
During 1994 the employees of the FSR voted for union representation.
Negotiations are underway with the American Train Dispatchers Department of the
Brotherhood of Locomotive Engineers, which may or may not result in a contract
in the future.
Item 2. Property
In October 1994, the Company purchased a 16,000 square foot building located in
Peoria, Illinois as a permanent corporate headquarters facility. In conjunction
with the purchase of its corporate office building, the Company assumed a land
lease for the property on which the building is located. This twenty-five year
lease is renewable for five successive periods of five years with annual rents
equal to ten percent of the appraised value of the land, payable in monthly
installments, with appraisal value reviews every five years following the
origination date. The Company is responsible for costs of maintenance,
utilities, fire protection, taxes and insurance.
A description of the Company's railroad properties as of 12/31/96 by subsidiary
follows:
a.) Fort Smith Railroad Co. (FSR): The FSR leases a line of railroad 18 miles
long from the Missouri Pacific Railroad Company (a subsidiary of the Union
Pacific Railroad Company). A twenty year lease was signed and operations began
on July 7, 1991. The line runs from Fort Smith to Paris, Arkansas. The lease
agreement contains numerous requirements including maintaining existing traffic
patterns, repair and replacement of the right of way in the condition it was
leased in and payment of any applicable real estate taxes. The Company is
entitled to a fixed rate per carload switched from the UP/MP as well as ninety
percent of new leases and easements and fifty percent of existing leases and
easements on the property. As long as these lease requirements are met, the
Company may continue to operate on the rail facilities without rent. The Company
has three twenty year renewal options. The FSR's track is in good condition.
b.) Alabama Railroad Co. (ALAB): The ALAB is a line totaling 60 miles of
operating railroad running from Flomaton to Corduroy, Alabama which was
purchased by the Company from CSX Transportation (CSX) on October 25, 1991. The
purchase included both the track materials and underlying real estate and also
included some rail assets associated with a connecting CSX line abandonment.
These rail assets which were part of the transaction included an additional 1.5
miles of real estate and track materials and an additional 3.5 miles of track
materials only, which had to be removed within twelve months of the transaction.
The purchase was funded by a mortgage note for $300,000 and the issuance of
$432,000 in preferred stock. The Company considers the track to be in good
condition.
c.) Mississippi Central Railroad Co. (MSCI): The MSCI, formerly Natchez Trace
Railroad (NTR), is a line totaling 56.5 miles of operating railroad running from
Oxford, Mississippi to Grand Junction, Tennessee. Approximately 51 of the track
miles are located in Mississippi. On April 1, 1992, 100% of the common stock of
this railroad was purchased by the Company from Kyle Railways, Inc., for
$175,000. The Mississippi portion of the line was owned by the Layfayette,
Marshall and Benton Regional Railroad Authority and operated by the MSCI under a
lease-purchase arrangement. On December 21, 1993, MSCI concluded the purchase of
the Mississippi portion of the line from the Rail Authority. The Company
considers the track to be in good condition, as several bridge and track
rehabilitations have taken place during the railroad's existence. On February
25, 1991, a large washout occurred on the line a short distance from where the
line enters the city of Oxford, Mississippi, denying access to several MSCI
customers. In late 1995 the MSCI repaired the washout and re-opened the line.
The Company is actively pursuing new business on this segment of the line;
however no significant revenues were generated in 1995 or 1996 as a result of
the washout repair.
<PAGE>
d.)Alabama & Florida Railway Co., Inc. (AF): On November 23, 1992, the Company
purchased 76 miles of track facilities and railroad equipment from A&F, Inc.,
which had been doing business as Alabama & Florida Railroad. This railroad runs
between Georgiana and Geneva, Alabama. The purchase was funded by a mortgage
note for $1,750,000 and the issuance of $431,000 in preferred stock. The Company
has an option from CSX Transportation to negotiate a purchase price for the
underlying real estate and currently leases the property for a monthly payment
of $2,305. The Company has exclusive rights to the revenues derived from the
land leases and easements. In connection with the operation of this line, the AF
also leases from the Andalusia & Conecuh Railroad Company a two mile segment of
track connecting to the AF's line in Andalusia, Alabama for a nominal fee. The
Company also absorbs the cost of all maintenance of that facility. The Company
considers the line to be in good condition.
e.) Decatur Junction Railway Co. (DT): The DT leases from Cisco Co-op Grain
Company (CISCO) a segment of track, approximately thirteen (13) miles in length,
that runs from Green's Switch (Decatur, Illinois) to Cisco, Illinois. The DT
also leases a segment of track from Central Illinois Shippers, Incorporated
(CISI), approximately seventeen (17) miles in length, that runs from Elwin to
Assumption, Illinois. The two lines are connected via trackage rights on the
Illinois Central Railroad (approximately eight miles) through Decatur, Illinois.
Both leases expire in December 2006. Both leases require the Company to perform
normal track maintenance and pay a nominal per car charge on traffic in excess
of 1,000 car loads per year. The DT's track is considered to be in good
condition, as in recent years the owners of the line received in excess of
$1,000,000 in rehabilitation grants from the Federal Railroad Administration
(FRA).
f.) Vandalia Railroad Company (VRRC): The VRRC is approximately 3.45 miles of
operating railroad located in Vandalia, Illinois. The railroad was purchased on
October 4, 1994, with $300,000 cash and the issuance of 57,500 shares of Rule
144 restricted common stock of the Registrant. The VRRC has a lease with the
City of Vandalia for the 3.45 miles of railway. This lease is renewable for ten
year periods beginning in September 2003, and the lease of $1 is prepaid through
September 2003. After September 2003, the lease payments will be equal to $10
per loaded rail car handled in interchange. The Company considers the track to
be in good condition.
g.) Minnesota Central Railroad Co. (MCTA): On December 12, 1994 the Company
purchased approximately 94 miles of operating railroad and railroad equipment
from MNVA Railroad, Inc. The purchase was funded by the assumption of debt
totaling $1,656,173. Certain sections of the line are in poor condition and the
Company made a significant effort to improve the line in 1995, and began a major
rehabilitation of the line in 1996, significantly improving a continuous 20 mile
section of railroad. The remaining sections of line are in poor condition. The
Company plans to continue efforts to rehabilitate the line using its own capital
resources. The Company believes it would take up to 4 years to completely
rehabilitate the line to satisfactory condition to allow for the efficient
handling of train operations. It is unlikely that any state grant or
rehabilitation loan funding will be available to assist the Company in funding
its rehabilitation efforts.
h.) West Michigan Railroad Co. (WJ): On July 11, 1995, Pioneer Railcorp signed
an agreement with the Trustee of the Southwestern Michigan Railroad Company,
Inc., d/b/a Kalamazoo, Lakeshore & Chicago Railroad (KLSC), to purchase all of
the tangible assets of KLSC for $300,000 cash and $200,000 of Pioneer Railcorp
common stock. The assets included approximately 15 miles of track and
right-of-way, extending from Hartford to Paw Paw, in Van Buren County, Michigan,
a depot building and parking lot in Paw Paw and various attendant licenses and
rights involving the real estate. This agreement was approved by the United
States Bankruptcy Court for the Western District of Michigan in an order that
became final on or about September 21, 1995. Pioneer Railcorp then assigned its
right to purchase to the West Jersey Railroad Co., a wholly owned subsidiary of
Pioneer Railcorp, which had been operating the former KLSC tracks under a
Interstate Commerce Commission Directed Service Order since June 24, 1995. The
West Jersey Railroad Co. amended its articles of incorporation to change its
name to "West Michigan Railroad Co." effective October 2, 1995. The sale was
approved by the Interstate Commerce Commission by order served October 18, 1995,
and the West Michigan Railroad Co. took title to the property on October 24,
1995. The track is considered to be in good condition.
<PAGE>
i. ) Columbia & Northern Railway Co. (CNOW): On February 21, 1996, Pioneer
Railcorp through its wholly-owned subsidiary Columbia & Northern Railway Co.
(CNOW) signed a lease with the Marion County (Mississippi) Railroad Authority
("Authority") to operate approximately 29 miles of trackage between Columbia and
Silver Creek, Mississippi. The lease with the Authority requires an annual
payment of $1 per year and requires the CNOW to maintain the track. The lease
was prepaid for 60 years at commencement. In addition, CNOW leases approximately
5 miles of track between Silver Creek and Furguson, Mississippi, from the
Illinois Central Railroad for interchange purposes. The track is considered to
be in average condition.
j.) Keokuk Junction Railway Co. (KJRY): On March 12, 1996, Pioneer Railcorp
purchased 93% of the common stock of KNRECO, Inc., an Iowa corporation d/b/a
Keokuk Junction Railway and completed the acquisition of 100% of said shares in
April 1996. KJRY operates a common carrier railroad line within the City of
Keokuk, Iowa, from Keokuk to LaHarpe, Illinois, and a branch line from Hamilton
to Warsaw, Illinois, a total of approximately 38 miles. The track is considered
to be in good condition. In addition, KJRY owns all of the common stock of
Keokuk Union Depot Company, an Iowa corporation, that owns the former Keokuk
Union Depot building, along with surrounding track and real estate. KNRECO, Inc.
changed its corporate name to Keokuk Junction Railway Co. effective April 10,
1996. The total consideration for the purchase of 100% of the outstanding shares
of KNRECO, Inc. was $3,125,597. This was paid by $3,124,357 in cash, and the
remainder in Pioneer Railcorp Class A common stock (342 shares). The purchase
was financed largely through a $2.5 million acquisition line of credit Pioneer
Railcorp has with Citizens Bank & Trust Company of Chillicothe, Missouri. The
remainder of the purchase price was financed through internal cash flow.
k.) Rochelle Railroad Co. (RRCO): In February 1996, Pioneer Railcorp, through
its wholly-owned subsidiary Rochelle Railroad Co. (RRCO), entered into a one
year lease with a five year renewal option, signed in March 1997, with the city
of Rochelle, Illinois, to operate approximately 2 miles of track serving the
Rochelle Industrial Park. The track is considered to be in good condition.
l.) Shawnee Terminal Railway Company (STR): On November 13, 1996, Pioneer
Railcorp purchased 100% of the common stock of the Shawnee Terminal Railway Co.
for a total consideration of $10,000 cash. The line located in Cairo, Illinois,
is approximately 2.5 miles long and considered to be in good condition.
m.) Wabash & Western Railway Co. d/b/a/ Michigan Southern Railroad (MSO): On
December 19, 1996, Pioneer Railcorp through its wholly-owned subsidiary Wabash &
Western Railway Co. signed a two year lease with the Michigan Southern Railroad
Company, Inc., Morris Leasing Co., Ltd. and Gordon D. Morris to operate 53 miles
of track and certain railroad related assets. The lease requires a fixed monthly
payment for the equipment assets and a per car charge for railroad usage. The
lease contains an exclusive option to purchase the stock of the Michigan
Southern Railroad Company, Inc. and the railroad assets of Morris Leasing Co.,
Ltd. and Gordon d. Morris within the lease term. The railroad is comprised of
three separate, non-contiguous lines totaling approximately 50 miles. One line
is 39 miles long extending from White Pigeon to Coldwater, Michigan. Two lines
are located in northern Indiana: one at Elkhart, which is approximately 10 miles
in length, and the other at Kendalville, which is approximately 1 mile in
length. All lines are considered to be in good condition.
Company management believes that all of its properties and assets are adequately
covered by insurance.
Item 3. Legal Proceedings
Several lawsuits were pending by and against Pioneer Railcorp and/or its
subsidiaries (collectively, the "Company") during 1996.
Two cases are currently pending involving a number of outstanding issues between
Minnesota Central Railroad Co. ("MCTA") and MNVA Railroad, Inc. ("MNVA") and
Dakota, Missouri Valley & Western Railroad, Inc., concerning the asset sale from
MNVA to MCTA in December 1994. One of those cases was tried to a jury in Carver
County, Minnesota in November 1996. MCTA has appealed that verdict to the
Minnesota Court of Appeals, based upon the jurisdiction of the Surface
Transportation Board. The other case, which was brought by the Company, is still
pending in the Peoria County Circuit Court.
<PAGE>
A Federal Employer's Liability Act ("FELA") lawsuit is pending against the
Alabama & Florida Railway Co. in Alabama. That action was brought by a former
employee of a track contractor (or its sub-contractor), and is being defended by
the contractor pursuant to an indemnification agreement. The Company does not
believe it has any liability in the matter, and does not believe the case will
result in a material adverse effect on the Registrant's consolidated financial
position or results of operation.
There are two cases currently pending between Ralston L. Taylor, the former
General Manager of Keokuk Junction Railway ("KJRY"), and the Company. One of
those cases, which is in the District Court of Lee County (Iowa) involves
certain allegations by Mr. Taylor relating to the termination of his employment
relationship with KJRY. Management believes that Mr. Taylor's position is
without merit, and that the case is not likely to result in a material adverse
effect on the Registrant's consolidated financial position or results of
operation. The other case was brought by KJRY in the Hancock County (Illinois)
Circuit Court, and involves unpaid car storage charges due KJRY.
A case is currently pending in the Circuit Court of Sebastian County, Arkansas,
involving a crossing accident which occurred in Fort Smith in December 1993.
Management is vigorously defending that case, and does not believe FSR has any
liability. As such, the case is not likely to result in a material adverse
effect on the Registrant's consolidated financial position or results of
operation.
Pioneer's subsidiary railroads have a number of claims against delinquent
licensees, customers and others, some of which are in litigation, and others of
which are likely to result in litigation. None of the amounts involved, however,
would have a material impact on the Company's consolidated financial position or
results of operations if they proved to be uncollectible.
In the course of business, the Company experiences crossing accidents, employee
injuries, delinquent and/or disputed accounts, and other incidents, which give
rise to claims that may result in litigation. Management vigorously pursues
settlement and release of such claims, but at any one time, some such incidents,
which could result in lawsuits by and against the Company, remain unresolved.
Management believes it has valid claims for, or good defenses to, these actions.
Management considers such claims to be a routine part of the Company's business.
In addition, KJRY has been notified that an employee who allegedly sustained an
injury on December 26, 1996, may file an FELA action. Management has inadequate
information at this time to evaluate the extent or validity of that employee's
potential claim.
As of the date of this Form-10-KSB, management is not aware of any other
incident which is likely to result in a liability that would materially effect
the Company's consolidated financial position or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to security holders for vote in the fourth
quarter 1996.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters.
The Company's common stock trades on the Nasdaq SmallCap Market tier of the
Nasdaq Stock Market under the symbol "PRRR" and the Chicago Stock Exchange under
the trading symbol "PRR". The quarterly high and low sales price of the
Company's common stock for the periods below are as follows (adjusted to reflect
a 2 for 1 stock split on 6/30/95):
95-1Q 95-2Q 95-3Q 95-4Q 96-1Q 96-2Q 96-3Q 96-4Q
----------------------------------------------------------------------
High $2.63 $4.50 $4.50 $3.38 $4.13 $ 4.00 $3.13 $3.13
Low $2.00 $2.19 $2.63 $2.00 $3.38 $ 2.75 $2.00 $1.88
As of December 31, 1996, the Company had 1,768 common stockholders of record,
including brokers who hold stock for others. No common stock cash dividends have
been declared or paid.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
- --------------------------------------------------------------------------------
The Company's net income in 1996 decreased by 78% to $102,000 down from $462,000
in 1995. Operating revenue increased by $2.4 million, or 28% to $11 million from
$8.6 million in 1995. Operating expense increased in 1996 by $2.7 million, or
40%, to $9.6 million from $6.9 million in the prior year. Operating income
decreased in 1996 by $300,000, or 18% to $1.4 million from $1.7 million in the
prior year.
Several operating subsidiaries performances were responsible for the decrease in
operating income in 1996. The Keokuk Junction Railway, acquired in March 1996,
contributed $792,000 of operating income in 1996. In addition, increased volume
and pricing resulted in 1996 operating income increases of $67,000 on the
Alabama & Florida Railway and $87,000 on the Vandalia Railroad.
The Alabama Railroad had a decrease in operating income of $188,000 in 1996 as a
result of a three month shut down of the line's largest customer due to plant
modernization. The Minnesota Central Railroad had a decrease in operating income
of $202,000 in 1996 primarily due to severe weather in the 4th quarter and the
effects of decreased grain shipping resulting from both market conditions and
weather.
Pioneer Railroad Equipment Co., Ltd. revenue was affected by the situations on
the ALAB and MCTA due to the non-utilization of box cars and grain hopper cars
assigned to these railroads. PREL operating income increased $51,000 in 1996.
The small increase in operating income combined with an increase in
non-operating expense (primarily interest expense) of $318,000 resulted in an
overall decrease in pre-tax net income of $267,000 in 1996.
The Decatur Junction Railway had a $155,000 decrease in operating income in
1996, primarily resulting form the January 1996 expiration of a non-recurring
switching contract in effect for most of 1995. Pioneer Railroad Services, Inc.
had increased expenses related to hiring and retaining several support personnel
in 1996, and other administrative costs, which decreased operating income by
$599,000.
Operating Revenue:
Operating revenue increased in 1996 by $2.4 million, or 28%, to $11 million from
$8.6 million in the prior year. The increase in operating revenue is
attributable to the Keokuk Junction Railway acquisition on March 12, 1996, the
Rochelle Railroad operating lease which began in April of 1996, and increased
revenue from the Company's railcar fleet. The Keokuk Junction Railway had
operating revenue of $2.3 million in 1996 and the Rochelle Railroad had
operating revenue of $172,000 in 1996. Carhire revenue from the Company's
railcar fleet (approximately 850 cars at 12/31/96) increased by $150,000, or 8%,
to $1.91 million from $1.76 million in the prior year. In addition, the Company
had increased revenue in 1996 from the lease of its railcars and excess
locomotives to non-affiliated entities. This activity generated $ 337,000 of
revenue in 1996 compared to $125,000 of revenue in 1995. The increase is
primarily attributable to a short term lease of 150 grain covered hopper cars
which expired in May of 1996.
Other factors affected the Company's 1996 operating revenue. In early February
1995 the Company's Decatur Junction Railway Co. began performing contract
switching for the Illinois Central Railroad. This contract was executed as a
direct result of labor disputes at certain Decatur, Illinois industries, and the
refusal of Illinois Central train crews to cross the picket lines at local
industries. This contract, which ceased January 2, 1996, generated $139,000 of
revenue in 1995. As a result of this contract expiring and a decrease in local
grain shipments, DT revenue was down $150,000 or 32 % to $313,000 from $463,000
in the prior year.
The Mississippi Central Railroad had a decrease in revenue of $124,000, or 13%
to $803,000 from $927,000 in the prior year. This decrease was a direct result
of a reduction in particle board shipments in 1996 compared to 1995.
The Alabama Railroad had a decrease in revenue of $176,000 or 24% to $572,000
from $748,000 in the prior year. This decrease was a direct result of a three
month shut down of the largest shipper on the railroad in order to facilitate
the modernization of its plant facilities.
The Vandalia Railroad had a increase in operating revenue of $135,000 or 52% to
$397,000 from $262,000 in the prior year. This increase in revenue resulted from
both increased freight volume and pricing.
<PAGE>
The Rochelle Railroad contributed $172,000 in revenue from 1996 operations. The
Shawnee Terminal Railway and the Michigan Southern Railroad, both of which began
operations in the fourth quarter 1996, did not contribute significant revenue in
1996 .
The remaining operating subsidiaries had constant overall revenue in 1996
compared to 1995.
Operating Expense:
Operating expense increased in 1996 by $2.7 million, or 40%, to $9.6 million
from $6.9 million in the prior year. The increase in operating expense is
attributable to the Keokuk Junction Railway Co. acquisition on March 12, 1996,
an increase in depreciation expense related to the growth of the Company's
railcar fleet, and increases in administrative expense resulting from the
current, and anticipated future growth of the Company. The Keokuk Junction
Railway had operating expense of $1.46 million in 1996. Depreciation expense
related to the Company's railcar fleet and equipment increased approximately
$300,000, or 74% to $705,000 from $405,000 in the prior year. Administration
expense increased $800,000 to $3.1 million, or 35% from $2.3 million in the
prior year. The Rochelle Railroad had operating expense of $139,000 in 1996. The
Shawnee Terminal Railway and the Michigan Southern Railroad, both of which began
operations in the fourth quarter, did not have significant operating expense in
1996.
Operating Expense Income Statement Line Item Discussion:
Maintenance of ways (MOW) expense increased $54,000, or 7% to $932,000 from
$878,000 in the prior year. The Keokuk Junction Railway had $70,000 of MOW
expense in 1996. The Minnesota Central had a decrease in MOW expense of $80,000
or 34% to $154,000 from $234,000 in 1996 primarily resulting from the
capitalization of $150,000 of labor related to the MCTA track rehabilitation
project in 1996. Other operating subsidiaries had constant MOW expense in 1996
compared to 1995.
Maintenance of equipment expense (MOE) increased $311,000, or 31% to $1,342,000
from $1,031,000 in the prior year. Most of this increase is attributable to the
Keokuk Junction Railway which had $300,000 of MOE expense in 1996. Approximately
$156,000 of Keokuk's MOE expense relates to a monthly railcar lease contract, in
effect at acquisition, with an unrelated third party. Other operating
subsidiaries had constant maintenance of equipment expense in 1996 compared to
1995.
Transportation expense (TRAN) increased $1,028,000, or 56% to $2,851,000 from
$1,823,000 in the prior year. The Keokuk Junction Railway had $707,000 of TRAN
expense in 1996. The Minnesota Central had an increase in TRAN expense of
$240,000 or 43% to $793,000 from $553,000 in the prior year. The MCTA increase
resulted from increased fuel expense, derailment expense and car hire expense
resulting from inefficient train operations caused by the poor track condition.
The Rochelle Railroad had $78,000 of TRAN expense in 1996. The Mississippi
Central Railroad had a decrease in transportation expense of approximately
$112,000 or 33% to $232,000 from $344,000 in the prior year. The MSCI reduction
is a result of decreased locomotive maintenance expense and fuel expense
resulting from the reduction in shipping, and a reduction in car hire expense as
a result of the increased utilization of Company owned railcars. Other operating
subsidiaries had constant transportation expense in 1996 compared to 1995.
Administration expense (ADMIN) increased $827,000 to $3,067,000, or 37% from
$2,240,000 in the prior year. The Keokuk Junction Railway had $247,000 of ADMIN
expense in 1996 and the Rochelle Railroad had $57,000 of ADMIN expense in 1996.
Expenses related to hiring and retaining several support personnel in 1996
increased administrative costs by approximately $241,000. ADMIN expense related
to executive compensation contracts increased approximately $36,000 in 1996. The
Company increased its liability insurance limits to up $10 million which
increased insurance expense approximately $86,000 in 1996. In addition, the
medical expense relating to the Company's self-funded employee health insurance
plan increased $94,000 in 1996. This increase is a result of extremely low
medical expenses in 1995 of $43,000 compared to $137,000 in 1996. The Company
health plan includes reinsurance that provides for a maximum expense cap which
protects the Company from incurring medical expenses over a specified amount.
This amount is similar to what the cost would be to the Company under a
traditional third party plan.
Depreciation and amortization expense increased $479,000, or 52%, to $1,393,000
compared to $914,000 in the prior year. Approximately 27% or $129,000 of the
increase in this expense is related to the Keokuk Junction Railway and
approximately 63% or $300,000 of this increase is related to the growth of the
Company's railcar fleet. The remainder is attributed to other miscellaneous
capital additions.
<PAGE>
Other Income and Expense Income Statement Line Item Discussion:
Other income and expense, excluding interest expense and gain on sale of assets,
increased $113,000 to $246,000 compared to $133,000 in the prior year. The
majority of this income is generated from the granting of easements and leases
for the use of railroad right of way property. Also included in this income are
revenues generated from scrap sales, and other non-operating revenues and
expenses. In 1996 the Fort Smith Railroad received $93,000 of revenue
representing its interest in track removed and scrapped from its Paris Branch
line. No other item included in this category is material when considered alone.
Equipment interest expense increased $550,000, or 70% to $1,335,000 compared to
$785,000 in the prior year. Approximately $319,000 of increased interest expense
is related to equipment financing and $230,000 is related to the financing of
the Keokuk Junction Railway acquisition and the debt assumed in the transaction.
Net gain on fixed asset dispositions increased $14,000 in 1996 to $58,000
compared to $44,000 in 1995. Approximately $30,000 of the net gain on fixed
asset dispositions was attributable to the sale of 5.3 miles of Alabama Railroad
right of way. In addition, a gain of $20,000 was realized from the sale of a
locomotive and $10,000 was realized from the sale of two trolley cars. The
remainder of the net gain resulted from the disposition of other miscellaneous
pieces of equipment, none of which was disposed of at a significant gain or
loss.
In March 1997, the accounting requirements for calculating earnings per share
were revised. Basic earnings per share for 1997 and later will be calculated
solely on average common shares outstanding. Diluted earnings per share will
reflect the potential dilution of stock options and other common stock
equivalents. All prior calculations will be restated to be comparable to the new
methods. The Company does not believe this new accounting standard will have a
material impact on its financial statements.
Liquidity and Capital Resources:
The Company primarily uses cash generated from operations to fund working
capital needs and relies on long-term financing for railcars, new operating
subsidiaries, and other significant capital expenditures.
The Company has working capital facilities totaling $1.1 million of which
$448,000 was available at the end of 1996. In addition, the Company has seen the
market value of its railcar fleet increase significantly over the last several
years. This increase in value has resulted from the short supply of railcars
compared to the increased demand for their use. The Company believes it could
refinance or sell part of its railcar fleet and generate up to $1 million in
cash.
On March 17, 1997, the Company signed a proposal to sell one hundred covered
hoppers. The sale is contingent upon inspection and acceptance of the cars by
the purchaser and the execution of a formal sale/purchase agreement by April 4,
1997. The gross proceeds from the sale of the cars will be approximately $1.4
million and the Company will generate net cash of approximately $350,000 after
paying of debt for the cars in the sales transaction.
In March of 1996, the Company negotiated a credit facility with its primary bank
to provide a $2.5 million annual revolving acquisition line of credit. This
facility is collateralized by the common stock of the Alabama Railroad Co. and
the Mississippi Central Railroad Co., as well as the Company's investment in
stock of any subsidiaries acquired under the line. The interest rate for the
line is currently 10.75%. The interest rate is adjustable quarterly to 2.5% over
New York Prime, limited to a one percent annual increase or decrease, not to
exceed 13.5% or be reduced below 10%. Any amounts drawn on the line must be
repaid monthly over a seven year period. The line has been fully drawn upon in
connection with the Company's March 12, 1996 acquisition of a controlling
interest of KNRECO, Inc. d/b/a Keokuk Junction Railway, common stock.
Long-term equipment financing has historically been readily available to the
Company for its railcar acquisition program. The Company believes it will be
able to continue obtaining long-term equipment financing should the need arise.
The Company's plans for new debt in the foreseeable future is contingent upon
new railroad acquisitions and increased needs and/or opportunities for railcars.
The Company does not expect to make significant additions to its railcar fleet
in 1997. The Company is considering and analyzing the refinancing of some of its
present debt, particularly its $2.5 million annual revolving acquisition line of
credit.
<PAGE>
On July 1, 1995, the Company's stock split and warrant issuance became payable
to shareholders. The 2 for 1 stock split increased the number of shares issued
and outstanding from 2,099,042 to 4,198,084. At the same time shareholders
became entitled to purchase an additional 4,198,084 shares through stock
warrants issued by the Company as dividends. One warrant was issued for each
share of common stock held after the split, entitling the holder to purchase 1
share of common stock for $2.00 per share. The shares purchased through the
exercise of the warrants must be held for 1 year from date of purchase. As of
December 31, 1996, a total of 57,174 warrants had been exercised, and the
Company realized $114,348 on the issuance of the warrants. The Company expects
capital to be generated by the continued exercise of warrants but is uncertain
as to the amount.
The Company granted 836,000 options to certain employees under its 1994
incentive stock option plan. The options are exercisable at prices equal to the
market value of the Company's stock at the date of grant. The exercise price
ranges from $1.50 to $4.40 per share. As of December 31, 1996, a total of 43,200
options had been exercised, and the Company realized $64,800 on the issuance of
the options. The Company expects capital to be generated by the exercise of
options in 1997 but is uncertain as to the amount.
On June 26, 1996, the Company shareholders approved a stock option plan
permitting the issuance of 407,000 shares of common stock. Options granted under
the plan are incentive based except for the options granted to the CEO whose
options are non-qualified. The options will be fully vested and will be
exercisable as of July 1, 2001. The exercise date can be accelerated if Pioneer
Railcorp common shares reach a closing price of $7.25 per share, or higher, for
any consecutive 10-day period, as reported in the Wall Street Journal. The
options will be exercisable at the market price of the common shares at the date
the options were granted, in whole or in part within 10 years from the date of
grant.
The Company anticipates favorable outcomes involving current legal proceedings.
The Company does not anticipate any material judgements against it or any of its
subsidiaries will arise out of the current proceedings.
The Company believes its cash flow from operations and its available working
capital credit lines, will be more than sufficient to meet liquidity needs
through at least 1997.
Balance Sheet and Cash Flow Items:
The Company generated net cash from operating activities of $1.8 million in 1996
and $1.4 million in 1995. Net cash from operating activities for 1996 resulted
from $102,000 of net income, $1,393,000 of depreciation and amortization,
$185,000 of deferred income taxes, and an increase in accounts payable of
$538,000, partially offset by $418,000 net cash used by changes in operating
assets and liabilities, primarily due to increases in accounts receivable of
$103,000, income tax refund claims of $202,000, and pre-paid expenses of
$104,000.
In 1996 the Company purchased approximately $6.3 million of fixed assets and
capital improvements of which approximately $4.2 million relate to railroad
acquisitions. Other fixed asset and capital additions totaling approximately
$2.1 million in 1996 included the purchase of approximately 70 railcars at a
total cost of $805,000. The majority of railcars purchased were financed with
long-term fixed rate financing. The Company capitalized approximately $425,000
related to its ongoing efforts to rehabilitate and improve the Minnesota Central
Railroad track. The rehabilitation expenditures were financed initially through
working capital which was subsequently replenished in December of 1996 through
the refinancing of 14 locomotives at a fixed rate of 10.25% for a seven year
term. The total amount borrowed in the locomotive refinancing was $1 million of
which $331,000 was used to pay off existing debt on the locomotives with the
remaining loan proceeds of $669,000 used to replenish the Company's working
capital utilized for the MCTA track rehabilitation.
In addition to the Minnesota Central Railroad track rehabilitation, the Company
capitalized approximately $626,000 of track and structure betterments in 1996 on
several other operating subsidiaries. Approximately $426,000 of these track
betterments was funded with operating cash flows and approximately $200,000 was
financed with the long-term debt related to the Alabama & Florida Railway Co.,
Inc. refinance. In 1996 the Company also purchased approximately $219,000 of
machinery and equipment and other assets and $25,000 of furniture and fixtures
for the corporate office. All these expenditures were financed with working
capital cash flow.
<PAGE>
In December of 1996 the Company refinanced the outstanding debt related to its
1992 acquisition of the Alabama & Florida Railway Co., Inc. The Company borrowed
$1.5 million at an interest rate of 9.25% and a 10 year term. The interest rate
is subject to repricing in five years to the then prevailing market rate of
interest. The principal balance of the debt retired was approximately $1.13
million dollars and had a fixed interest rate of 12%. Approximately $200,000 of
the loan proceeds were used to pay for the rehabilitation of two bridges, one
being the Pea River bridge which had been out of service for several years.
Several customers on the other side of the Pea River bridge have began shipping
by rail and it is possible that within several years the AF could be handling an
additional 1,000 car loads generating almost $500,000 in revenues as a result of
the bridge restoration. The remaining loan proceeds were used for working
capital.
Regarding Pioneer Railcorp's acquisition of the Keokuk Junction Railway Co. in
1996, the total consideration for the purchase was $6,015,604. This was paid by
$3,124,358 in cash, 342 shares of Pioneer Railcorp Class A common stock valued
at $1,240 and the assumption of liabilities and debt totaling $2,890,006. The
total liabilities assumed consisted of current liabilities of $1,496,006,
long-term debt of $446,000 and a deferred tax liability of $948,000.
The 1996 balance sheet presented has significant changes when compared to 1995
as a result of the Keokuk Junction Railway acquisition and includes the
following Keokuk Junction Railway December 31, 1996 balances (approximately):
cash $186,000, accounts receivable $697,000, income tax receivable $61,000, cash
value of life insurance $75,000, prepaid expenses $30,000, accounts payable
$1,412,000, and accrued expenses of $138,000.
Item 7. Financial Statements Continued on Page 20
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1996
<PAGE>
CONTENTS
- ----------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
- ----------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of stockholders'
equity
Consolidated statements of cash flows
Notes to consolidated financial statements
- ----------------------------------------------------------------------------
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Pioneer Railcorp
Peoria, Illinois
We have audited the accompanying consolidated balance sheets of Pioneer Railcorp
and subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pioneer Railcorp and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Peoria, Illinois
February 21, 1997
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
ASSETS
1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash ........................................................................ $ 501,212 $ 276,230
Accounts receivable, less allowance for doubtful
accounts 1996 $45,291; 1995 $15,958 ...................................... 2,071,289 1,283,124
Inventories ................................................................. 420,952 287,772
Prepaid expenses ............................................................ 261,427 123,609
Income tax refund claims .................................................... 349,881 50,998
Deferred taxes .............................................................. 25,901 35,000
---------------------------
Total current assets ................................................... 3,630,662 2,056,733
---------------------------
Investments, cash value of life insurance ...................................... 74,962 --
---------------------------
Property and Equipment, less accumulated depreciation
1996 $3,294,610; 1995 $1,979,998 ............................................ 20,131,566 15,220,168
---------------------------
Intangible Assets, less accumulated amortization
1996 $140,109; 1995 $100,493 ................................................ 1,171,114 647,031
---------------------------
$ 25,008,304 $ 17,923,932
===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable ...............................................................$ 769,535 $ 80,333
Current maturities of long-term debt ........................................ 1,813,246 1,412,552
Accounts payable ............................................................ 2,973,258 1,115,241
Accrued expenses ............................................................ 491,610 354,834
Income taxes payable ........................................................ 18,978 17,367
--------------------------
Total current liabilities .............................................. 6,066,627 2,980,327
--------------------------
Long-Term Debt, net of current maturities ...................................... 12,564,133 9,934,737
--------------------------
Deferred Taxes ................................................................. 1,967,651 843,000
--------------------------
Minority Interest in Subsidiaries .............................................. 1,188,000 1,195,000
--------------------------
Commitments and Contingencies (Note 13)
Stockholders' Equity
Common stock, Class A (voting), par value $.001 per share, authorized
20,000,000 shares, issued and outstanding 1996 4,573,343 shares; 1995
4,487,881 shares ......................................................... 4,571 4,487
Additional paid-in capital .................................................. 1,981,149 1,832,353
Retained earnings ........................................................... 1,236,173 1,134,028
--------------------------
3,221,893 2,970,868
--------------------------
$ 25,008,304 $ 17,923,932
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1995
<TABLE>
1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Railway operating revenue $ 10,979,218 $ 8,577,421
-----------------------------------
Operating expenses
Maintenance of way and structures 931,574 877,654
Maintenance of equipment 1,342,059 1,030,975
Transportation 2,851,485 1,822,982
General and administrative 3,067,191 2,240,581
Depreciation 1,343,377 871,910
Amortization 49,966 42,548
-----------------------------------
9,585,652 6,886,650
-----------------------------------
Operating income 1,393,566 1,690,771
-----------------------------------
Other income (expenses)
Interest income 7,709 3,005
Interest expense (1,335,304) (785,371)
Lease income 125,295 74,551
Gain on sale of assets 57,820 43,862
Other, net 112,584 54,738
-----------------------------------
(1,031,896) (609,215)
-----------------------------------
Income before provision for income taxes
and minority interest in preferred stock
dividends of consolidated subsidiaries 361,670 1,081,556
Provision for income taxes 135,960 495,443
-----------------------------------
Income before minority interest in preferred
stock dividends of consolidated subsidiaries 225,710 586,113
Minority interest in preferred stock dividends of
consolidated subsidiaries 123,565 124,405
-----------------------------------
Net income $ 102,145 $ 461,708
===================================
Earnings per common share $ .02 $ .11
===================================
Weighted average number of common shares used in
computing earnings per common share 4,530,379 4,244,162
===================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
<TABLE>
Common Stock
---------------------- Additional
Class A (Voting) Paid-In Retained
Shares Amount Capital Earnings
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 2,098,042 $ 2,098 $ 1,129,725 $ 674,418
Stock split July 1, 1995 2,098,042 2,098 - (2,098)
Common stock issued to acquire
property, equipment, and
inventory 272,543 272 664,139 -
Common stock issued upon
exercise of stock warrants 19,254 19 38,489 -
Net income - - - 461,708
-----------------------------------------------------
Balance at December 31, 1995 4,487,881 4,487 1,832,353 1,134,028
Common stock issued to acquire
property, equipment, and
inventory 2,342 2 8,238 -
Common stock issued upon
exercise of stock warrants
and options 83,120 82 140,558 -
Net income - - - 102,145
-----------------------------------------------------
Balance at December 31, 1996 4,573,343 $ 4,571 $ 1,981,149 $ 1,236,173
=====================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 102,145 $ 461,708
Adjustments to reconcile net income to net cash provided
by operating activities:
Minority interest in preferred stock dividends of consolidated
subsidiaries 123,565 124,405
Depreciation 1,343,377 871,910
Amortization 49,966 42,548
Increase in cash value life insurance (5,085) -
(Gain) on sale of property and equipment (57,820) (43,862)
Deferred taxes 185,625 334,000
Changes in assets and liabilities, net of effects from
acquisition of subsidiaries:
(Increase) in accounts receivable (103,068) (348,550)
(Increase) in income tax refund claims (202,292) (50,998)
(Increase) decrease in inventories 1,991 (58,635)
(Increase) in prepaid expenses (104,113) (2,145)
(Increase) in intangible assets (26,659) (85,298)
Increase in accounts payable 538,375 189,861
Increase (decrease) in accrued expenses (39,900) 72,943
Increase (decrease) in income taxes payable 1,611 (65,762)
-------------------------------
Net cash provided by operating activities 1,807,718 1,442,125
-------------------------------
Cash Flows From Investing Activities
Proceeds from sale of property and equipment 108,650 244,012
Purchase of property and equipment, net of property and
equipment from acquisition of subsidiaries (2,179,547) (5,096,695)
Acquisition of subsidiaries, net of cash acquired (2,795,644) (300,000)
-------------------------------
Net cash (used in) investing activities (4,866,541) (5,152,683)
-------------------------------
Cash Flows From Financing Activities
Proceeds from short-term borrowings, net of debt
assumed in acquisition of subsidiaries 1,443,750 1,409,911
Proceeds from long-term borrowings, net of debt assumed in
acquisition of subsidiaries 5,715,100 5,479,157
Payments on short-term borrowings (754,547) (1,483,738)
Payments on long-term borrowings (3,130,573) (1,498,060)
Proceeds from common stock issued upon exercise of
stock warrants and options 140,640 38,508
Preferred stock dividend payments to minority interest (123,565) (124,405)
Repurchase of minority interest (7,000) (14,000)
-------------------------------
Net cash provided by financing activities 3,283,805 3,807,373
-------------------------------
Net increase in cash 224,982 96,815
Cash, beginning of year 276,230 179,415
-------------------------------
Cash, end of year $ 501,212 $ 276,230
==============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 1,324,640 $ 779,914
==============================
Income taxes, net $ 151,448 $ 278,203
==============================
Supplemental Schedule of Noncash Investing and Financing Activities
Railroad acquisitions
Fair value of assets acquired, net of cash 1996 $338,714; 1995 none $ 5,686,890 $ 500,000
Cash paid for stock and assets (2,795,644) (300,000)
-----------------------------
Liabilities and debt assumed; and stock issued $ 2,891,246 $ 200,000
=============================
Reconciliation:
Liabilities assumed $ 2,444,442 $ -
Debt assumed 445,564 -
Issuance of common stock 1996 342 shares; 1995 76,190 shares 1,240 200,000
----------------------------
$ 2,891,246 $ 200,000
============================
Additional property, equipment and inventory acquired
upon issuance of common stock 1996 2,000 shares;
1995 196,353 shares $ 7,000 $ 464,411
============================
Accounts receivable applied to acquire equipment $ 4,741 $ -
============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PIONEER RAILCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business: Pioneer Railcorp is the parent company of thirteen
short-line common carrier rail- road operations, an equipment leasing company, a
subsidiary which owns an airplane, and a service company. Pioneer Railcorp and
its subsidiaries (the "Company") operate in the following states: Alabama,
Arkansas, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, and
Tennessee.
The Company's active subsidiaries include the following:
<TABLE>
<S> <C>
West Michigan Railroad Co. Pioneer Air, Inc.
Minnesota Central Railroad Co. Pioneer Railroad Services, Inc.
Vandalia Railroad Company Columbia & Northern Railway Co.
Decatur Junction Railway Co. Keokuk Junction Railway Co. and its
Alabama & Florida Railway Co., Inc. subsidiary, Keokuk Union Depot Company
Mississippi Central Railroad Co. Wabash & Western Railway Co., d/b/a
Alabama Railroad Co. Michigan Southern Railroad
Fort Smith Railroad Co. Rochelle Railroad Co.
Pioneer Railroad Equipment Co., Ltd. Shawnee Terminal Railway Company
</TABLE>
Pioneer Railroad Equipment Co., Ltd. holds title to a majority of the Company's
operating equipment, and Pioneer Air, Inc. owns an airplane utilized by the
Company for business purposes. Pioneer Railroad Services, Inc. provides
management, administrative and agency services to the Company's subsidiary
railroads. All other subsidiaries are active short-line common carrier railroad
operations.
Significant accounting policies:
Principles of consolidation: The consolidated financial statements include the
accounts of Pioneer Railcorp and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Presentation of cash flows: For the purposes of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with maturity of
three months or less to be cash equivalents. There are no cash equivalents at
December 31, 1996 and 1995.
Use of estimates in the preparation of financial statements: The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue recognition: Freight revenue, generally derived on a per car basis from
on-line customers and connecting carriers with whom the Company interchanges, is
considered earned at the time a shipment is either delivered to or received from
the connecting carrier at the point of interchange.
Inventories: Inventories consisting of various mechanical parts, track
materials, locomotive supplies and diesel fuel, are stated at the lower of cost
(determined by the average cost method) or market. Inventories are used on a
daily basis for normal operations and maintenance.
Property and equipment: Property and equipment is stated at cost. Depreciation
is computed principally on a straight-line basis over the following estimated
useful lives:
Years
----------
Roadbed 20
Transportation equipment 10-15
Railcars 10-15
Buildings 20-40
Machinery and equipment 5-10
Office equipment 5-10
Improvements to leased property are depreciated over the lesser of the lease or
life of the improvements.
<PAGE>
Maintenance and repair expenditures, which keep the rail facilities in proper
operating condition, are charged to operations as incurred. Expenditures
considered to be renewals and betterments are capitalized if such expenditures
improve the track conditions and benefit future operations with more efficient
use of the rail facilities.
The Company reviews applicable assets on a quarterly basis to determine whether
any circumstances or events would indicate an impairment. The Company does not
believe that impairment exists at December 31, 1996.
Intangible assets: Intangible assets consist principally of goodwill which is
being amortized by the straight-line method over a forty-year period. The
Company reviews intangible assets quarterly to determine potential impairment by
comparing the carrying value of the intangible with the undiscounted anticipated
future cash flows of the related property before interest charges. If future
cash flows are less than the carrying value, the Company will determine the fair
market value of the property and adjust the carrying value of the intangibles if
the fair market value is less than the carrying value. The Company does not
believe that impairment exists at December 31, 1996.
Earnings per common share: The earnings per common share were computed by
dividing the net income by the weighted average number of shares of common stock
outstanding during each of the years after giving retroactive effect to the
stock split discussed in Note 11. Common stock equivalents were excluded from
the computation since they were antidilutive in 1996 and the dilutive effect in
1995 was not material.
Income taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Self-insurance: The Company self-insures a portion of the risks associated with
medical expenses incurred by its employees and their dependents. Under the terms
of the self-insurance agreement, the Company is responsible for the first
$20,000 of qualifying medical expenses per person on an annual basis and limited
to an aggregate excess amount computed under the terms of the insurance contract
using specified participant rates. The insurance contract with Safeco Life
Insurance Company limits the insurance company's coverage to a $2,000,000
maximum lifetime reimbursement per person and specifies that individual claims
in excess of $20,000 on an annual basis and total claims exceeding the aggregate
excess will be fully covered by Safeco Life Insurance Company, subject to the
maximum lifetime reimbursement provision.
Note 2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
December 31,
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Land $ 1,352,965 $ 280,606
Roadbed 7,455,782 4,840,367
Transportation equipment 2,235,551 1,594,150
Railcars 9,659,443 8,328,207
Buildings 1,078,122 687,958
Machinery and equipment 873,279 704,117
Office equipment 379,171 297,665
Leasehold improvements 67,511 -
Capital projects 324,352 467,096
----------------------------------
23,426,176 17,200,166
Less accumulated depreciation 3,294,610 1,979,998
----------------------------------
$ 20,131,566 $ 15,220,168
==================================
</TABLE>
<PAGE>
Note 3. Pledged Assets, Notes Payable, and Long-Term Debt
The Company has a $75,000 line of credit with Citizens Bank and Trust Company,
Chillicothe, Missouri, that expires April 1998, bears interest at 10.5%, and is
collateralized by transportation equipment. The Company has an outstanding
balance under this line of credit as of December 31, 1996, of $75,000.
The Company has a $400,000 line of credit with Keokuk Savings Bank and Trust
Company, Keokuk, Iowa, that expires March 1998, bears interest at prime, as
published in The Wall Street Journal, plus 1.5%, and is collateralized by
accounts receivable, inventory and general intangibles. The Company has an
outstanding balance under this line of credit at December 31, 1996, of $204,398.
The Company has a $600,000 line of credit with First of America Bank - Illinois,
N.A., Peoria, Illinois, that expires July 1997, bears interest at prime, as
published in The Wall Street Journal, plus 1%, and is collateralized by accounts
receivable and general intangibles of certain subsidiaries. The Company has an
outstanding balance under this line of credit as of December 31, 1996, of
$347,276.
The Company has a $5,121 and $11,682 unsecured note payable to MINNRAIL, Inc. as
of December 31, 1996 and 1995, respectively. This note was assumed as part of
the asset acquisition from MNVA Railroad, Inc. The note bears no interest and
requires quarterly payments on the basis of revenue carloads received or shipped
on the Minnesota Central Railroad Co., a Pioneer Railcorp subsidiary, at the
rate of $10 per car.
The Company has various unsecured notes payable totaling $137,740 and $68,651 as
of December 31, 1996 and 1995, respectively, for the financing of insurance
premiums. These notes are due in monthly installments from $2,198 to $26,141,
including interest ranging from 8.5% to 11.11%, with final installments due from
April to August 1997.
Long-term debt at December 31, 1996 and 1995, consists of the following:
<TABLE>
1996 1995
------------------------------
<S> <C> <C>
Mortgage payable, First of America Bank - Illinois, N.A., due
in monthly installments of $3,775, including interest at 8.5%,
through through October 1, 1999. At that date and every five years
thereafter, the interest rate may be adjusted based on the Bank's
base rate, final installment due June 2008, collateralized by Pioneer
Railcorp's corporate headquarters building $ 416,112 $ 425,021
Mortgage payable, First of America Bank - Illinois, N.A., due in
monthly installments of $19,314, including interest at
9.25%, through December 2, 2001. At that date, the interest rate
adjusts to a U.S. Treasury index (5-year constant maturity) plus
3.5%, final installment due December 2006, collateralized by
real estate, rail facilities, and other assets of Alabama & Florida
Railway Co., Inc. 1,500,000 -
Mortgage payable, Camden National Bank, due in monthly install-
ments of $4,304, including interest at 12%, final installment due
July 2001, collateralized by Alabama Railroad Co. real estate and
rail facilities 192,019 218,850
Mortgage payable, State of Illinois Department of Transportation,
due in annual installments of $40,581, including interest at 2%,
final installment due December 2004, collateralized by railroad
and railroad ties (net of unamortized discount of $79,521) 217,751 -
Notes payable, Ford Motor Credit Company, due in monthly install-
ments from $418 to $525, including interest ranging from 9.5%
to 10.25%, final installments due from July 2000 to October 2000,
collateralized by vehicles 54,224 65,703
Notes payable, Commerce Bank, due in monthly installments from
$593 to $646, including interest at 8.5%, final installments due
January 1998, collateralized by vehicles 15,189 28,155
Notes payable, Norwest Equipment Finance, Inc., due in monthly
installments of $2,184 to $8,743, including interest ranging
from 8.85% to 10.75%, final installments due from May 2002
to August 2003, collateralized by railcars and equipment 1,597,880 1,059,044
-------------------------------
Balance carried forward $ 3,993,175 $ 1,796,773
-------------------------------
</TABLE>
<PAGE>
<TABLE>
1996 1995
------------------------------
<S> <C> <C>
Balance brought forward $ 3,993,175 $ 1,796,773
Note payable, Keycorp, due in monthly installments of $22,744,
including interest at 8.86%, final installment due December 2003,
collateralized by railcars 1,419,675 1,560,000
Note payable, Nations Bank, due in monthly installments of
$23,305, including interest at 8.75%, final installment due
December 2002, collateralized by railcars 1,315,557 1,460,000
Notes payable, FBS Leasing, due in monthly installments from
$510 to $12,998, including interest ranging from 8.37% to 9.6%,
final installments due from August 2001 to October 2004,
collateralized by railcars 1,218,244 1,337,721
Note payable, A&F, Inc., paid December 1996 - 1,285,600
Notes payable, US Bancorp, due in monthly installments from $637 to
$11,995, including interest ranging from 9% to 10.9%, final
installments due from September 2001 to December 2002, collateralized
by railcars 1,687,445 1,935,017
Notes payable, Concord Commercial Group, due in monthly install-
ments from $1,105 to $4,516, final installments due from June 1998
to March 1999, including interest at 9%, collateralized by railcars 234,132 348,578
Notes payable, Minnesota Valley Bank, due in monthly installments
of $4,700, including interest at prime plus 2-2.75%, final
installment due December 2001, collateralized by equipment acquired
from MNVA Railroad, Inc. 204,667 236,834
Note payable, Burling Bank, paid December 1996 - 407,143
Note payable, U.S. Small Business Administration, due in monthly
installments of $7,577, including interest at 4%, final
installment due September 2000, collateralized by track acquired
from MNVA Railroad, Inc. 314,956 391,527
Note payable, Rail Authority, interest only payments required through
October 1998, then due in monthly installments of $3,975, including
interest at 7.5%, final installment due January 2011, collateralized
by rail line acquired from MNVA Railroad, Inc. 380,000 380,000
Note payable, Citizens Bank and Trust Company, due in monthly
installments of $4,410, including interest at 9.5%, final install-
ment due June 1997, collateralized by locomotives 29,984 77,480
Note payable, Kyle Railways, Inc., due in monthly installments
of $2,630, including interest at 8%, final installment due
April 1998, unsecured 39,787 66,972
Note payable, Citizens Bank and Trust Company, due in
monthly installments of $1,683, including interest at 9%,
final installment due May 1998, collateralized by railcars 26,765 43,657
-------------------------------
Balance carried forward $ 10,864,387 $ 11,327,302
-------------------------------
</TABLE>
<PAGE>
<TABLE>
1996 1995
------------------------------
<S> <C> <C>
Balance brought forward $ 10,864,387 $ 11,327,302
Notes payable, First of America Bank, due in monthly
installments aggregating $404, including interest at 6.75%,
final installment due June 1999, collateralized by automobiles 11,113 15,060
Note payable, U.S. Small Business Administration, due in
monthly installments of $3,062, including interest at 4%, final
installment due January 2004, collateralized by second mortgage
on all subsidiary-owned real estate and a personal guarantee of
the subsidiary's former president which the Company has indemnified
(net of unamortized discount of $35,529) 187,655 -
Note payable, LDI Corporation, due in monthly installments of
$16,731, including interest of 10.25%, final installment due
December 2003, collateralized by locomotives 1,000,000 -
Note payable, Citizens Bank and Trust Company, due in monthly
installments of $42,483, including interest adjustable quarterly to
New York prime plus 2.5%, final installment due March 2003,
collateralized by common stock in Alabama Railroad Co., Mississippi
Central Railroad Co., and any property later acquired with these
loan proceeds 2,314,224 -
Various notes payable, due in monthly installments from $332
to $1,559, final installments due from April 1995 to
September 1996, including interest ranging from 7.75% to 16.5%,
collateralized by vehicles and maintenance equipment - 4,927
-------------------------------
14,377,379 11,347,289
Less current portion 1,813,246 1,412,552
-------------------------------
$ 12,564,133 $ 9,934,737
===============================
</TABLE>
Aggregate maturities required on long-term debt as of December 31, 1996, are due
in future years as follows:
Years ending December 31, Amount
- ------------------------------------------
1997 $ 1,813,246
1998 1,968,197
1999 1,998,351
2000 2,155,042
2001 1,936,010
Thereafter 4,506,533
-----------
$14,377,379
===========
Note 4. Income Tax Matters
The Company and thirteen of its subsidiaries file a consolidated federal income
tax return. Three of the subsidiaries file separate federal income tax returns.
The provision (credit) for income taxes charged to operations for the years
ended December 31, 1996 and 1995, was as follows:
1996 1995
---------------------------------
Current:
Federal $ (57,678) $ 149,781
State 8,013 11,662
Deferred 185,625 334,000
----------------------------------
$ 135,960 $ 495,443
==================================
The income tax provision differs from the amount of income tax determined by
applying the federal income tax rate to pretax income from operations for the
years ended December 31, 1996 and 1995, due to the following:
1996 1995
-------------------
Computed "expected" tax expense 35.0 % 35.0 %
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit 8.8 4.6
Other (6.2) 6.2
--------------------
37.6 % 45.8 %
====================
<PAGE>
The Company and its subsidiaries have Alternative Minimum Tax (AMT) credit
carryforwards of approximately $401,000 and $424,000 at December 31, 1996 and
1995, respectively. This excess of AMT over regular tax can be carried forward
indefinitely to reduce future federal income tax liabilities. Certain
subsidiaries of the Company also have net operating loss carryforwards totaling
approximately $2,224,000 at December 31, 1996, which can be used to offset
future taxable income of those subsidiaries. Net operating loss carryforwards
expire in the years 2006 and 2007.
Deferred tax assets and liabilities consist of the following components as of
December 31, 1996 and 1995:
1996 1995
---------------------------------
Deferred tax assets:
AMT credit carryforwards $ 401,000 $ 424,000
NOL carryforwards 832,000 278,000
Deferred compensation 25,000 -
Other 25,901 35,000
----------------------------------
1,283,901 737,000
Deferred tax liabilities:
Property and equipment (3,181,000) (1,545,000)
Other (44,651) -
----------------------------------
$ (1,941,750) $ (808,000)
==================================
The components giving rise to the deferred tax assets and liabilities described
above have been included in the consolidated balance sheets as of December 31,
1996 and 1995 as follows:
1996 1995
----------------------------------
Current deferred tax assets $ 25,901 $ 35,000
Net noncurrent deferred tax liabilities (1,967,651) (843,000)
----------------------------------
Net deferred tax liability $ (1,941,750) $ (808,000)
==================================
Note 5. Retirement Plans
The Company has a defined contribution plan covering substantially all
employees, except employees who are members of a union which has bargained
separately for retirement benefits. To be eligible for the plan, an employee
must be 21 years of age and have completed one year of service. Employees may
elect to contribute, on a tax deferred basis, up to 15% of their salary, or
$9,500, whichever is least. The Company matches 50% of the first 8% of each
employee's contribution. Keokuk Junction Railway Co. also has a separate
retirement plan with substantially similar terms. The Company intends to merge
the plans during 1997. The Company's expense under the plans was $34,778 and
$21,413 for the years ended December 31, 1996 and 1995, respectively.
Note 6. Deferred Compensation Agreements
The Company has deferred compensation agreements with one employee and one
former employee. The agreements provide monthly benefits for 15 years beginning
with the month immediately following the employees' normal retirement date, as
defined in the agreements. If an employee terminates employment with the Company
for any reason other than death prior to the employees' normal retirement date,
benefits are rendered on a pro rata basis. The present value of the estimated
liability under the agreements is being accrued using a discount rate of 7%
ratably over the remaining years to the date when the employees are first
eligible for benefits. The deferred compensation charged to expense totaled
$10,541 for the year ended December 31, 1996.
<PAGE>
Note 7. Stock Option Plans
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 prescribes a fair-value based measurement of
accounting for stock-based compensation plans with employees, including the
Company's stock option plans which are described below. The fair-value based
measurement prescribed by SFAS 123 results in the recognition of compensation
for all awards of stock to employees. The Company's present accounting is in
accordance with APB Opinion No. 25 which generally requires that the amount of
compensation cost that must be recognized is the quoted market price of the
stock at the measurement date, less the amount the employer is required to pay
to acquire the stock. SFAS 123 provides that its recognition and measurement
provisions may be adopted on or after the beginning of the fiscal year in which
it was issued, but does not require an entity to adopt those provisions. The
Company has elected not to adopt the recognition and measurement provisions of
SFAS 123.
On April 12, 1994, the Board of Directors approved a stock option plan under
which the Company granted options to key management, other employees, and
outside directors for the purchase of 760,000 shares of its common stock, as
adjusted for the stock split described in Note 11. The plan was approved by the
Company's stockholders on June 11, 1994. The options became exercisable when the
Company's stock reached a $4 trading price for a ten day period in July 1995, as
specified in the stock option plan. The exercise price is equal to the trading
price on the date of the grants and ranges from $1.50 to $3.92 per share. Since
the target price was reached by December 31, 1995, in accordance with the
provisions of the plan, additional options for 76,000 shares were granted. The
exercise price for these options is equal to or greater than the trading price
on the date of the grants and ranges from $4.00 to $4.40 per share. The options
expire at various dates from April 12, 1999 to July 5, 2000.
On May 28, 1996, the Board of Directors approved a stock option plan under which
the Company granted options to key management, other employees, and outside
directors for the purchase of 407,000 shares of its common stock. The plan was
approved by the Company's stockholders on June 26, 1996. The options become
fully vested and exercisable as of July 1, 2001, except that the vesting and
exercise date are accelerated to the tenth consecutive business day that the
Company's stock trades at a price of at least $7.25. Vested options may be
exercised in whole or in part within 10 years from the date of grant. The
exercise price for these options is $2.75, the trading price on the date of the
grants. None of the outstanding options have been exercised as of December 31,
1996.
Other pertinent information related to the plans is as follows:
<TABLE>
1996 1995
----------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
----------------------------------------------------
<S> <C> <C> <C> <C>
Shares under option, beginning of year 836,000 $ 2.15 840,000 $ 1.53
Granted 407,000 2.75 256,000 3.56
Expired (100,000) 2.75 (260,000) 1.50
Exercised (43,200) 1.50 - -
-----------------------------------------------------
Under option, end of year 1,099,800 $ 2.35 836,000 $ 2.15
=====================================================
Exercisable at end of year 792,800 836,000
=========== ===========
Weighted-average fair value per option
of options granted during the year $ 1.97 $ 1.37
=========== ===========
</TABLE>
<PAGE>
Grants under the above plans are accounted for following APB Opinion No. 25 and
related interpretations as permitted under generally accepted accounting
principles. Accordingly, no compensation cost has been recognized. Had
compensation cost for the stock-based compensation plans been determined based
on the grant date, fair values of awards (the method described in SFAS 123)
reported net income, and earnings per common share would have been reduced to
the proforma amounts shown below:
1996 1995
-----------------------------
Net income:
As reported $ 102,145 $ 461,708
Proforma $ 27,145 $ 230,708
Earnings per common share:
As reported $ .02 $ .11
Proforma $ .01 $ .05
In determining the proforma amounts above, the fair value of each option was
estimated at the grant date using the Black-Scholes option-pricing model with
the following assumptions:
1996 1995
-----------------------------
Dividend rate $ - $ -
Expected life (years) 7.5 4
Risk-free interest rate 6.55% 5.86-7.27%
Price volatility 66% 44%
Note 8. Lease Commitments and Total Rental Expense
In July 1991, the Company, through its wholly-owned subsidiary, Fort Smith
Railroad Co., entered into a twenty-year lease, with three twenty-year renewal
options, with the Missouri Pacific Railroad Company and operates 18 miles of
rail facilities in Arkansas. The agreement contains numerous requirements,
including maintaining existing traffic patterns, repair and replacement of the
right of way in the condition it was leased (substantially FRA Class I) and
payment of any applicable real estate taxes. The Company is entitled to a fixed
rate per car load switched from the Missouri Pacific Railroad Company, as well
as 90% of new leases and easements and 50% of existing leases and easements on
the property. As long as these lease requirements are met, the Company may
continue to operate on the rail facilities without additional lease costs.
The Company, through its wholly-owned subsidiary, Alabama & Florida Railway Co.,
Inc., leases a 2 mile segment of track connecting to the subsidiary's facilities
in Andalusia, Alabama, from the Andalusia & Conecuh Railroad Company, Inc. for
$375 per month, plus $15 per car on all cars over 300 per year. The Company also
bears the cost of all maintenance on the track. The subsidiary also leases the
real estate comprising the right of way from Georgiana to Geneva, Alabama, from
CSX Transportation, Inc. for $2,305 per month.
In September 1993, the Company, through its wholly-owned subsidiary, Decatur
Junction Railway Co. (DT), entered into lease agreements, which expire in
December 2006, with Cisco Co-Op Grain Company (CISCO) and with Central Illinois
Shippers, Inc. (CISI). The Company has an option to renew the CISCO line lease
for a ten-year period. The CISCO segment is approximately 13 miles, while the
CISI segment is approximately 17 miles in distance; both are located in Illinois
and connect via trackage rights on the Illinois Central Railroad. Both leases
require DT to perform normalized maintenance on the line and pay $10 per car on
all cars over 1,000 per year on each segment.
Vandalia Railroad Company has a lease with the City of Vandalia, Illinois, for
3.45 miles of railway. This lease is renewable for ten-year periods beginning in
September 2003, and the annual lease of $1 is prepaid through September 2003.
Lease payments will be equal to $10 per loaded railcar handled in interchange
beginning with the first renewal period in September 2003.
In November 1994, in conjunction with the purchase of its corporate office
building, the Company assumed a land lease for the property on which the
building is located. This lease expires in 2008 and is renewable for five
successive periods of five years with annual rents equal to ten percent of the
appraised value of the land, payable in monthly installments, and with appraisal
value reviews every five years following the origination date. The Company is
responsible for costs of maintenance, utilities, fire protection, taxes and
insurance.
In February 1996, the Company, through its wholly-owned subsidiary, Columbia &
Northern Railway Co., entered into a lease with the Marion County Railroad
Authority for 28.78 miles of railway. This ten year lease is renewable with five
ten-year renewal options, and the annual lease of $1 is prepaid through February
2056. The Company is responsible for costs of normalized maintenance.
<PAGE>
Also in February 1996, the Company, through its wholly-owned subsidiary,
Rochelle Railroad Co., entered into a one-year lease with a five-year renewal
option, signed in March 1997, with the City of Rochelle, Illinois, County of
Ogle, for the exclusive right to operate the City's rail line. The Company is
required to pay the City of Rochelle $20 per car handled on the line. The
Company also is required to install, at its own expense, a passing track on the
line for an estimated cost of $86,000 on or before August 1, 1997. The agreement
contains numerous requirements, including repair and replacement of the track in
the condition it was leased (substantially FRA Class I).
In December 1996, the Company, through its wholly-owned subsidiary, Wabash &
Western Railway Co., d/b/a Michigan Southern Railroad, entered into a lease with
Michigan Southern Railroad Co., Inc., Morris Leasing Co., Ltd., and Gordon D.
Morris for 49.6 miles of railway and equipment. The lease expires in December
1997, with a one-year renewal option, and the Company has an option to purchase
the stock and leased personal property of the railroad upon expiration of the
lease. Monthly equipment lease payments are $5,000, payable in advance of each
calendar month. Monthly railway lease payments are equal to $25 per car on all
loaded cars up to 4,000 cars per year and $15 per car thereafter. The Company is
responsible for payment of all expenses, including wages, payroll taxes, fuel,
trackage rights and lease fees, insurance, utilities, and property taxes.
The Company, through its wholly-owned subsidiary, Keokuk Junction Railway,
leases approximately 50 railcars under certain agreements which expire between
June 1997 and May 1998 and require minimum monthly rentals.
The total minimum rental commitment as of December 31, 1996, required under
noncancelable leases, and excluding executory costs and per car rentals, is due
in future years as follows:
Years Ending December 31, Amount
- -----------------------------------------------------
1997 $ 307,856
1998 187,356
1999 46,256
2000 46,256
2001 46,256
Thereafter 361,212
--------------
$ 995,192
==============
The total rental expense incurred under the leases was $273,433 and $55,109 for
the years ended December 31, 1996 and 1995, respectively.
Note 9. Major Customer
Revenue earned from a major customer amounted to approximately $1,465,000 during
the year ended December 31, 1996. Accounts receivable as of December 31, 1996,
includes approximately $344,000 due from this customer.
Note 10. Purchases of Railroad Facilities
In July 1995, the Company, through its wholly-owned subsidiary, West Michigan
Railroad Co., signed an agreement with the Trustee of the Southwestern Michigan
Railroad Company, Inc., d/b/a Kalamazoo, Lakeshore & Chicago Railroad (KLSC) to
purchase all of the tangible assets of KLSC. This acquisition was made by the
Company for $300,000 cash and the issuance of 76,190 shares of common stock, at
$2 5/8 per share, for a total acquisition cost of $500,000.
During March and April 1996, the Company acquired all the outstanding common
stock of KNRECO, Inc., d/b/a Keokuk Junction Railway, in exchange for $3,124,358
cash, the assumption of liabilities and debt of $2,890,006, and the issuance of
342 shares of common stock, at $3 5/8 per share, for a total acquisition cost of
$6,015,604. The excess of the acquisition cost over the fair value of the net
assets acquired was allocated to goodwill and is being amortized over 40 years
by the straight-line method.
In December 1996, the Company acquired all of the outstanding common stock of
Shawnee Terminal Railway Company in exchange for $10,000.
The above acquisitions have been accounted for by the purchase method of
accounting and, accordingly, operating results of these companies are included
in the consolidated statements of income from the date of acquisition.
<PAGE>
Unaudited pro forma consolidated results of operations for the years ended
December 31, 1996 and 1995, as though Keokuk Junction Railway Co. had been
acquired as of January 1, 1995, follows:
1996 1995
--------------------------------
Railway operating revenue $ 11,873,809 $ 11,769,636
Net income 57,811 725,597
Earnings per common share 0.01 0.17
The above amounts reflect adjustments for amortization of goodwill, additional
depreciation on revalued purchased assets, and interest on borrowed funds.
To include the results of operations of West Michigan Railroad Co. and Shawnee
Terminal Railway Company from January 1, 1995, to the date of acquisitions would
not have a significant effect on the consolidated results of operations for the
years ended December 31, 1996 and 1995.
Note 11. Stock Split and Stock Warrants Issued as Dividends
On May 16, 1995, the Board of Directors authorized a 2 for 1 stock split payable
to stockholders of record on June 30, 1995. In addition, on June 24, 1995, the
stockholders ratified an amendment to the Articles of Incorporation authorizing
the issuance of stock warrants as a dividend to stockholders immediately after
the stock split. Each stockholder received one warrant for each share of stock
owned, resulting in the issuance of 4,198,084 warrants. Each warrant permits
stockholders to purchase an additional share of stock at a predetermined price
of $2 per share. Stock acquired by exercise of each warrant must be held for a
one year period of time. The warrants expire July 1, 2015. There were 4,140,910
and 4,178,830 warrants outstanding at December 31, 1996 and 1995, respectively.
Note 12. Minority Interest in Subsidiaries
Three of the Company's subsidiaries have preferred stock outstanding. This stock
is accounted for as minority interest in subsidiaries and dividends on the stock
are accounted for as a current expense.
Following is a summary of the minority interest in subsidiaries as of December
31, 1996 and 1995:
<TABLE>
1996 1995
-----------------------------
<S> <C> <C>
Preferred stock of Alabama Railroad Co.
Par value - $1,000 per share
Authorized - 700 shares
Issued and outstanding - 425 and 427 shares (cumulative
12% dividend; callable at Company's option at 150% of face value)
at December 31, 1996 and 1995, respectively $ 425,000 $ 427,000
Preferred stock of Alabama & Florida Railway Co., Inc.
Par value - $1,000 per share
Authorized - 500 shares
Issued and outstanding - 422 and 423 shares (cumulative 9% dividend;
callable at Company's option after June 22, 1995, at 150%
of face value) at December 31, 1996 and 1995, respectively 422,000 423,000
Preferred stock of Mississippi Central Railroad Co.
Par value - $1,000 per share
Authorized - 1,000 shares
Issued and outstanding - 341 and 345 shares (cumulative 10% dividend;
convertible at a rate of $10 per common share, callable at Company's
option after March 1, 1996, at 110% of face value) at December 31,
1996 and 1995, respectively 341,000 345,000
----------------------------
$ 1,188,000 $ 1,195,000
============================
</TABLE>
<PAGE>
Note 13. Commitments and Contingencies
Commitments: In December 1993, the Company entered into a five-year executive
employment contract with the Company's president. The five-year agreement
provides for a base salary with annual inflation adjustments based upon the
Consumer Price Index. Should the Company acquire or form additional railroads,
the base salary will increase $25,000 for the acquisition of railroads of 125
miles or less, and $50,000 for railroads over 125 miles. Should the president's
employment be terminated, the contract requires a lump sum payment equal to
three years of his then current salary. Should the president retire, he is
entitled to a lump sum payment of one year's salary.
Contingencies: In the course of its business, the Company's subsidiaries
experience crossing accidents, employee injuries, delinquent or disputed
accounts and other incidents, which give rise to claims that may result in
litigation. Management vigorously pursues settlement of such claims, but at any
one time, some such incidents, which could result in lawsuits by and against the
Company and its subsidiary railroads, remain unresolved. Management believes it
has valid claims for, or good defenses to, these actions. Management considers
such claims to be a routine part of the Company's business and, as of the date
of this statement, management believes that no incident has the potential to
result in a liability that would materially effect the Company's consolidated
financial position or results of operations.
Note 14. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:
The carrying value of cash, cash value of life insurance, notes payable,
and variable rate long-term debt approximates fair value.
The remaining carrying value of fixed rate long-term debt collectively
approximates fair value based upon the similarity of interest rates
negotiated on debt instruments in 1996 and 1995 as compared to existing
interest rates.
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. These include, among other items, the trained work force,
customer goodwill, and similar items.
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting Financial
Disclosure
None.
PART III
Item 9. Directors and Executive Officers of the Registrant
Set forth below are the names and ages of all the directors and executive
officers of the Registrant and the positions and offices held by such persons as
of December 31, 1996.
Name (Age) Position
- ----------------------------------------------------------------------
Guy L. Brenkman (49) Director (Chairman) & President
Orvel L. Cox (54) Director
John P. Wolk (47) Director and Treasurer
John S. Fulton (63) Director
J. Michael Carr (33) Director and Assistant Treasurer
Daniel A. LaKemper (39) Secretary
Kevin L. Williams (24) Assistant Secretary
All of the above Directors and Officers were elected at the Eleventh Annual
Meeting of the Stockholders (and the board meeting which followed) on June 26,
1996 to serve until the next annual meeting. There is no family relationship
between any officer or director.
Information about Directors and Executive Officers
- --------------------------------------------------
Mr. Brenkman, Chairman of the Board of Directors and President of Pioneer
Railcorp and its subsidiaries was the incorporator of the Company and has been a
member of the Board of Directors and President of the Company since its
formation. Mr. Brenkman's past business experience includes real estate sales
and management, securities sales, and seven years of operational railroad
industry experience before managing the day to day railroad operations of
Pioneer in 1988. Mr. Brenkman, acting as agent of the Issuer conducted the
public offering of Pioneer Railcorp, which raised its initial capital, and
secondary capital for expansions.
Mr. Cox, Director, also serves as same for each of the Company's subsidiaries
and Superintendent of Transportation for same. Mr. Cox has 37 years of active
railroading experience with 31 of those years working for Class I railroads. Mr.
Cox has been a director and officer of Pioneer Railcorp since it's inception and
has been involved in all phases of the development and growth of the Company.
Mr. Wolk, Director and Treasurer for Pioneer Railcorp, was elected to the Board
in 1991. Mr. Wolk is Director of Distribution for Kimball International and
previously spent seventeen years with Peabody Coal Company, most recently as
Vice President-Treasurer & Controller. Mr. Wolk holds an MBA-Finance from St.
Louis University and a BS-Business Administration from the University of
Missouri.
Mr. Fulton, Director, was elected to the Board in 1993. Mr. Fulton has 17 years
experience in the real estate business concentrating in retail sales, real
estate development and appraising. Mr. Fulton's previous positions include
Industrial Appraising (6 years) with Cole, Layer Trumble of Dayton, Ohio, and 5
years with Pepsi-Cola. Mr. Fulton holds a BS degree in Public Administration
from Bradley University in Peoria, Illinois.
Mr. Carr, Assistant Treasurer, also serves as Treasurer for each of the
Company's subsidiaries and Chief Financial Officer for same. Mr. Carr has been
employed by the Company since March 1993. Before joining the Company, Mr. Carr
worked in public accounting and banking for seven years, most recently as
Controller for United Federal Bank. Mr. Carr is a CPA and holds a BS-Accounting
from Illinois State University, Normal, Illinois.
Mr. LaKemper, Secretary, also serves as same for each of the Registrant's
subsidiaries. Mr. LaKemper is the Company's General Counsel and serves as same
for each of the Company's subsidiaries. Mr. LaKemper has been employed by the
Company since May 1992. Before joining the Company, Mr. LaKemper practiced law
since 1982 working in solo private practice and, most recently, as General
Counsel for a manufacturing concern. Mr. LaKemper holds a Juris Doctorate from
Creighton University School of Law in Omaha, Nebraska and a BS-History from
Bradley University in Peoria, Illinois.
<PAGE>
Mr. Williams, Assistant Secretary, also serves as same for the Registrant's
subsidiaries. In addition, Mr. Williams serves as the Company's stock transfer
agent. Mr. Williams has been employed by the Company since June 1993 and has a
degree in paralegal services from Midstate College in Peoria, Illinois.
Item 10. Executive Compensation
Summary Compensation Table
- ------------------------------------
Annual
Compensation Long Term Compensation
--------------- --------------------------
Restricted
Name & Stock Other
Position Year Salary Award Options/SARs Compensation
- --------------------------------------------------------------------------------
Guy L. Brenkman, CEO 1996 $350,098 ---- 80,000 $ 4,750(a)
1995 $310,546 ---- 37,000 $ 4,500(a)
1994 $227,609 $125,000 150,000 $ 4,500(a)
(a) - Registrant's contribution to the Company's defined contribution plan.
Option/SAR Grants in Last Fiscal Year
- -------------------------------------
<TABLE>
Potential
Realizable Value
at Assumed
Annual Rates of
% of Total Stock Price
Options Granted Appreciation For
to Employees Option Term
Options in the Fiscal Exercise Expiration -------------------
Name & Position Granted Year Price Date 5% 10%
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Guy L. Brenkman - CEO 80,000 20% $3.03 6/26/07 $133,874 $385,285
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
- ---------------------------------------------------
<TABLE>
Value of
Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs
Options/SARs at FY-End At FY-End
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Guy Brenkman-CEO 0 0 60,606/206,394 $51,515/$16,485
</TABLE>
In December 1993, the Company entered into a five-year executive employment
contract with the Company's president. The five-year agreement provides for a
base salary with annual inflation adjustments based upon the Consumer Price
Index. Should the Company acquire or form additional railroads, the base salary
will increase $25,000 for the acquisition of railroads of 125 miles or less, and
$50,000 for railroads over 125 miles. At December 31, 1996, the president's base
salary was $329,230. Should the president's employment be terminated, the
contract requires a lump sum payment equal to three years of his then current
salary. Should the president retire, he is entitled to a lump sum payment of one
year's salary.
Director's of the Registrant each were compensated $1,000 in 1996.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information, as of March 26, 1997, the beneficial
ownership of all directors and officers of the Company as a group. These figures
include shares of Common Stock that the executive officers have the right to
acquire within 60 days of March 26, 1997 pursuant to the exercise of stock
options and warrants.
Title of Class: Common Stock ($.001 par value)
Beneficial Percent
Name Of Beneficial Owner Ownership Of Class
- --------------------------------------------------------------------------------
Guy L. Brenkman (2) ....................... 3,511,948 35.8%
Orvel L. Cox (3) .......................... 235,844 2.4%
Daniel A. LaKemper (4) .................... 144,393 1.5%
John P. Wolk (5) .......................... 144,000 1.5%
John S. Fulton (6) ........................ 42,000 .4%
J. Michael Carr (7) ....................... 67,716 .7%
Kevin Williams (8) ........................ 11,100 .1%
--------- --------
Directors and Executive
Officers as a Group: .................... 4,157,001 42.4%(1)
FOOTNOTES:
(1) Based on 9,814,053 shares of Common Stock and Equivalents outstanding as of
March 26, 1997.
(2) Of the total number of shares shown as owned by Mr. Brenkman, 60,606 shares
represent the number of shares Mr. Brenkman has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 1,740,800 shares represent the number of shares Mr.
Brenkman has the right to acquire within 60 days through the exercise of
Warrants. Mr. Brenkman owns all shares in joint tenancy with his wife. In
addition 10,142 shares are held by Mr. Brenkman under the Pioneer Railcorp
Retirement Savings Plan and 2,340 shares are held by Mr. Brenkman's wife,
in which he disclaims beneficial ownership.
(3) Of the total number of shares shown as owned by Mr. Cox, 66,666 shares
represent the number of shares Mr. Cox has the right to acquire within 60
days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 101,770 shares represent the number of shares Mr. Cox has
the right to acquire within 60 days through the exercise of Warrants. In
addition 2,538 shares are held by Mr. Cox under the Pioneer Railcorp
Retirement Savings Plan. Mr. Cox's shares are owned in joint tenancy with
his wife. Mr. Cox and his wife own one Preferred Share in the Mississippi
Central Railroad Co.
(4) Of the total number of shares shown as owned by Mr. LaKemper, 66,666 shares
represent the number of shares Mr. LaKemper has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 40,000 shares represent the number of shares Mr. LaKemper
has the right to acquire within 60 days through the exercise of Warrants.
In addition 727 shares are held by Mr. LaKemper under the Pioneer Railcorp
Retirement Savings Plan. Mr. LaKemper's shares are owned in joint tenancy
with his wife.
(5) Of the total number of shares shown as owned by Mr. Wolk, 22,000 shares
represent the number of shares Mr. Wolk has the right to acquire within 60
days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 61,000 shares represent the number of shares Mr. Wolk has
the right to acquire within 60 days upon the exercise of Warrants. Mr. Wolk
has 60,000 shares held in joint tenancy with his wife. Mr. Wolk and his
wife jointly own ten Preferred Shares of the Alabama Railroad Co.
(6) Of the total number of shares shown as owned by Mr.
Fulton, 22,000 shares represent the number of shares Mr. Fulton has the
right to acquire within 60 days upon the exercise of options granted under
the Company's 1994 Stock Option Plan, and 10,000 shares represent the
number of shares Mr. Fulton has the right to acquire within 60 days upon
the exercise of Warrants.
<PAGE>
(7) Of the total number of shares shown as owned by Mr. Carr, 66,666 shares
represent the number of shares Mr. Carr has the right to acquire within 60
days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 1,000 shares represent the number of shares Mr. Carr has
the right to acquire within 60 days through the exercise of Warrants. (8)
Of the total number of shares shown as owned by Mr. Williams, 11,000 shares
represent the number of shares Mr. Williams has the right to acquire within
60 days upon the exercise of options granted under the Company's 1994 Stock
Option Plan, and 100 shares represent the number of shares Mr. Williams has
the right to acquire within 60 days through the exercise of Warrants.
There are no shareholders known by the Registrant to be beneficial owners of
more than 5% of its outstanding common stock other than Mr. Brenkman.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and any persons holding more than ten percent of
the Company's common stock to report their initial ownership of the Company's
common stock and any subsequent changes in that ownership to the Securities and
Exchange Commission and to provide copies of such reports to the Company. Based
upon the Company's review of the copies of such reports received by the Company
and written representations of its directors and executive officers, the Company
believes that during the year ended December 31, 1996, all Section 16(a) filing
requirements were satisfied with the following exceptions: Orvel Cox, Director
and Daniel LaKemper, Secretary, failed to file 1996 Form 5 by the deadline date.
Both individuals have filed the Form 5 as of the date of this report.
Item 13. Exhibits and Reports on Form 8-K
Exhibit # 3(I) - Articles of Incorporation of the Company (incorporated by
reference to Exhibit 1 of the Company's registration statement of Form S-3 filed
July 7, 1995, amended August 30, 1995, September 20, 1995 and September 25,
1995).
Exhibit # 3(ii) - Bylaws of the Company (incorporated by reference to Exhibit #2
of the Company's registration statement on Form S-8 filed January 31, 1996.)
Exhibit # 10.1 - Credit Agreement, dated March 8, 1996, between the Company and
Citizens Bank and Trust Company, Chillicothe , Mo. (incorporated by reference to
Exhibit #10.1 of the Company's on Form 10-KSB filed March 27, 1996.)
Exhibit # 10.2 - Exhibits to Credit Agreement, dated March 8, 1996, between the
Company and Citizens Bank and Trust Company, Chillicothe , Mo. (incorporated by
reference to Exhibit #10.2 of the Company's on Form 10-KSB filed March 27,
1996.)
Exhibit # 10.3 - Purchase agreement, dated March between the Company and John
Warfield, regarding the Company's purchase of controlling interest in KNRECO,
Inc., d/b/a Keokuk Junction Railway (incorporated by reference to Exhibit #10.3
of the Company's on Form 10-KSB filed March 27, 1996.)
Exhibit # 10.4 - 1994 Stock Option Plan for Pioneer Railcorp, (incorporated by
reference to Exhibit #3 of the Company's registration statement on Form S-8
filed January 31, 1996).
Exhibit # 10.5 - Form of incentive stock option under the 1994 Stock Option Plan
for Pioneer Railcorp (incorporated by reference to Exhibit #4 of the Company's
registration statement on Form S-8 filed January 31, 1996).
Exhibit # 10.6 - Form of option agreement for non-employee Directors under the
1994 Stock Option Plan for Pioneer Railcorp (incorporated by reference to
Exhibit #5 of the Company's registration statement on Form S-8 filed January 31,
1996).
Exhibit # 10.7 - Executive Contract (incorporated by reference to the Company's
Form 10-KSB for the year ended December 31, 1994, filed March 31, 1995, amended
August 31, 1995 and September 20, 1995).
Exhibit # 10.8 - 1996 Stock Option Plan for Pioneer Railcorp.
Exhibit # 10.9 - Form of incentive stock option under the 1996 Stock Option Plan
for Pioneer Railcorp.
Exhibit # 10.10 - Form of option agreement for non-employee Directors under the
1996 Stock Option Plan for Pioneer Railcorp.
Exhibit # 21 - Subsidiaries of the registrant.
Exhibit # 27 - Financial Data Schedule.
No reports were filed on Form 8-K during the fourth quarter 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PIONEER RAILCORP
(Registrant)
By: /s/ Guy L. Brenkman
Guy L. Brenkman, Director, President and
Chief Executive Officer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: /s/ J. Michael Carr
J. Michael Carr, Assistant Treasurer,
Chief Financial Officer and Director
Dated: March 28, 1997
By: /s/ Orvel Cox
Orvel Cox, Director
Dated: March 28, 1997
By: /s/ John Fulton
John Fulton, Director
Dated: March 28, 1997
1996 STOCK OPTION PLAN FOR PIONEER RAILCORP
This Stock Option Plan is made as of June 26, 1996 by
Pioneer Railcorp.
Recitals
A. The Company desires to attract, retain and motivate employees of the
Company whose efforts contribute to the success of the Company. This Plan
is intended to reward such employees by providing the opportunity to
acquire or increase the proprietary interest of such employees in the
Company.
B. This Plan has been approved by the shareholders of the Company and by the
Board.
C. The options granted under this Plan to employees (other than the CEO) are
intended to be "incentive stock options" within the meaning of Code Section
422 (the Plan also includes non-employee directors, whose options may not
qualify as "incentive stock options"). Options granted to the CEO are not
intended to be "incentive stock options."
Agreements
Now therefore it is agreed as follows:
Article I - Definitions
As used herein, the following terms have the meanings hereinafter set forth
unless the context clearly indicates to the contrary:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Company" shall mean Pioneer Railcorp.
(c) "Fair Market Value" shall mean the lower of the closing bid price on the
NASDAQ, or the closing price on the Chicago Stock Exchange on the day an
Option is granted hereunder or, in the absence of any reported sales on
such day, the first preceding day on which there were such sales. The Fair
Market Value of the Stock on June 26, 1996 is $2.75 per share which is the
closing bid price on NASDAQ.
(d) "Option" shall mean an option to purchase Stock granted pursuant to the
provisions of Article V hereof.
(e) "Optionee" shall mean an employee to whom an Option has been granted
hereunder (or, where applicable, to a non-employee "outside" director to
whom an Option has been granted hereunder).
(f) "Plan" shall mean the 1996 Stock Option Plan for Pioneer Railcorp, the
terms of which are set forth herein.
(g) "Stock" shall mean the Class A Common Stock of the Company, or in the event
that the outstanding shares of Stock are hereafter changed into or
exchanged for shares of a different stock or securities of the Company or
some other corporation, such other stock or securities.
(h) "Stock Option Agreement" shall mean the agreement between the Company and
the Optionee under which the Optionee may purchase Stock hereunder.
(i) "Ten Percent Shareholder" shall mean an individual who owns stock of the
Company possessing more than 10 percent of the total combined voting power
of all classes of stock of the Company within the meaning of Code Section
422 (b)(6).
(j) "CEO" shall mean the Chief Executive Officer designated by the Board of
Directors, currently Guy L. Brenkman.
<PAGE>
Article II- Participants
Any employee (or outside director) of the Company or of a subsidiary of the
Company shall be eligible to participate in the Plan. The Board may grant
Options to any eligible person in accordance with such determinations as the
Board from time to time in its sole discretion shall make. Options may be
granted to eligible persons in the following groups:
Group Maximum Option Shares
CEO 80,000
Executive Group 80,000
Non-Executive Director Group 25,000
Employee Group 222,000
Article III- Administration
3.1 Duties and powers of the Board. The Plan shall be administered by the
Board. Subject to the express provisions of the Plan, the Board shall have
sole discretion and authority to determine from among eligible persons
those to whom and the time or times at which Options may be granted and the
number of shares of Stock to be subject to each Option. Subject to the
express provisions of the Plan, the Board shall also have complete
authority to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to it, to determine the details and provisions of each
Stock Option Agreement and to make all other determinations necessary or
advisable in the administration of the Plan.
3.2 Company assistance. The Company shall supply full and timely information to
the Board on all matters relating to eligible employees, their employment,
death, retirement, disability or other termination of employment, and such
other pertinent facts as the Board may require. The Company shall furnish
the Board with such clerical and other assistance as is necessary in the
performance of its duties.
Article IV - Shares of Stock Subject to Plan
4.1 Limitations. The number of shares of Stock which may be issued and sold
hereunder shall not exceed 407,000 shares. Such shares may be either
authorized and unissued shares or shares issued and thereafter acquired by
the Company.
4.2 Options and awards granted under Plan. Shares of stock with respect to
which an Option granted hereunder shall have been exercised, shall not
again be available for Option hereunder.
4.3 Reorganization. In the event that the outstanding shares of Stock hereafter
are changed into or exchanged for a different number or kind of shares or
other securities of the Company or of another corporation by reason of
merger, consolidation, other reorganization, recapitalization,
reclassification, combination of shares, stock split-up, or stock dividend:
(a) The aggregate number and kind of shares subject to Options which may
be granted hereunder shall be adjusted appropriately; and
(b) Rights under outstanding Options granted hereunder, both as to the
number of subject shares and the Option price, shall be adjusted
appropriately.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Board, and any such adjustment
may provide for the elimination of fractional share interests.
<PAGE>
Article V - Options
5.1 Option grant and agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Board and
by a written Stock Option Agreement dated as of the date of grant and
executed by the Company and the Optionee, which Agreement shall set forth
such terms and conditions as may be determined by the Board consistent with
the Plan.
5.2 Option price. The per share Option price of the Stock subject to each
Option shall be determined by the Board, but the per share price shall not
be less than the Fair Market Value of the Stock on the date the Option is
granted. The foregoing notwithstanding, if the Optionee is a Ten Percent
Shareholder, the Option price per share shall not be less that 110% of the
Fair Market Value of the Stock on the date the Option is granted, however,
the Options granted to the CEO are not intended to be "incentive stock
options" and his Option price will be equal to the Fair Market Value of the
Stock on the date of grant.
5.3 Option exercise. (a)The Options will be fully vested and exercisable as of
July 1, 2001. The vesting and exercise date of the Options will be
accelerated to the 10th consecutive business day that the Company stock
trades at a price of at least $4.50 greater than the price of the Company
stock on the close of business on June 26, 1996. Vested Options may be
exercised in whole or in part within 10 years from the date of grant,
provided, however, that the aggregate Fair Market Value of Stock (as
determined as of the date of grant) which first becomes exercisable with
respect to any employee Optionee, other than the CEO, in any calendar year
may not exceed $100,000, regardless of the date the Option is granted.
If the Optionee is a Ten Percent Shareholder, any Option must be exercised,
if at all, within five years from date of grant (excluding the CEO, whose
Options are not intended to be " incentive stock options).
(b) Options may be exercised in whole at any time, or in part from time to
time with respect to whole shares only, within the period permitted
for the exercise thereof, and shall be exercised by written notice of
intent to exercise the Option with respect to a specified number of
shares delivered to the Company at its principal office in the State
of Illinois, and payment in cash to the Company at said office of the
amount of the Option price for the number of shares of Stock with
respect to which the Option is the being exercised.
5.4 Nontransferability of Option. No Option shall be transferred by an Optionee
other than by will or by the laws of descent and distribution. During the
lifetime of an Optionee, the Option shall be exercisable only by the
Optionee.
5.5 Effect of death of other termination of employment. (a) Upon termination of
an Optionee's employment with the Company or subsidiary for any reason
other than death, the Optionee may, for a period of six months thereafter,
exercise any Options which were exercisable by the Optionee on the date of
termination. Any Options not so exercised shall terminate. (b) If an
Optionee dies while in the employ of the Company or subsidiary, the
Optionee's estate shall receive a pro-rata number of Options, based upon
the time the employee worked under the plan. The amount pro-rated will be
20% per each year of service, rounding up to each year (i.e. 1 year and 1
month service will be equal to 2 years vesting or 40%). The executor or
administrator of the estate of the decedent or the person or persons to
whom an Option granted hereunder shall have been validly transferred by the
executor or the administrator pursuant to will or the laws of descent and
distribution shall have the right to exercise the Optionee's Options to the
extent that it was exercisable by the Optionee at the date of termination
of employment by death.
(c) No transfer of an Option by the Optionee by will or by the laws of
descent and distribution shall be effective to bind the Company unless
the Company shall have been furnished with written notice thereof and
an authenticated copy of the will and/or such other evidence as the
Board may deem necessary to establish the validity of the transfer and
the acceptance by the transferee or transferees of the terms and
conditions of such Option.
5.6 Rights as shareholder. Any Optionee or a transferee of an Option shall have
no rights as a shareholder with respect to any shares subject to such
Option prior to the purchase of such shares by exercise of such Option as
provided herein.
<PAGE>
Article VI - Stock Certificates
The Company shall not be required to issue or deliver any certificate of shares
of Stock purchased upon the exercise of any Option granted hereunder or any
portion thereof, prior to fulfillment of all the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which the
Stock is then listed;
(b) The completion of any registration or other qualifications of such shares
under any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory
body, which the Board shall in its sole discretion deem necessary of
advisable;
(c) The obtaining of any approval or other clearance from any federal or state
governmental agency which the Board shall in its sole discretion determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the exercise of the
Option as the Board from time to time may establish for reasons of
administrative convenience.
Article VII - Directors
This Plan shall also apply to outside directors of the Company, even though the
grant of an Option to an outside director will not be an "incentive stock
option" under Code Section 422. For Options granted to outside directors
hereunder, the provisions of this Plan shall apply to directors and shall be
interpreted in a manner as though the directors were employees.
Article VIII - Termination, Amendment, and Modifications of Plan
The Board may at any time terminate and may at any time and from time to time
and in respect amend or modify, the Plan; provided, however, that no such action
of the Board without approval of the majority of the shareholders of the Company
may:
(a) Increase the total number of shares of Stock subject to the Plan;
(b) Change the manner of determining the Option price;
(c) Withdraw the administration of the Plan from the Board; and
provided further, that no termination, amendment, or modification of the Plan
shall in any manner adversely affect any Option theretofore granted under the
Plan without the consent of the Optionee or permitted transferee of the Option.
Article IX - Miscellaneous
9.1 Employment. Nothing in the Plan or in any Option granted hereunder or in
any Stock Option Agreement relating thereto shall confer upon any employee
the right to continue in the employ of the Company.
9.2 Other compensation plans. The adoption of the Plan shall not affect any
other stock option or incentive or other compensation plans in effect for
the Company, nor shall the Plan preclude the Company from establishing any
other forms of incentive or other compensation for employees of the
Company.
9.3 Plan binding on successors. The Plan shall be binding upon the successors
and assigns of the Company.
9.4 Partial invalidity. If any term or provision of this Plan shall be declared
invalid or unenforceable, all other terms and provisions hereof shall
remain in full force and effect to the fullest extent permitted by law.
9.5 Singular, plural; gender. Whenever used herein, nouns in the singular shall
include the plural, and the masculine pronoun shall include the feminine
gender.
9.6 Headings, etc., no part of plan. Headings of Articles and Section hereof
are inserted for convenience and reference; they constitute no part of the
Plan.
PIONEER RAILCORP
By: Pioneer Railcorp Board of Directors
Dated: June 26, 1996
STOCK OPTION AGREEMENT
Date of Grant June 26, 1996
THIS GRANT, dated as of the date of grant first stated above (the
"Date of Grant"), is delivered by Pioneer Railcorp ("Company") to (the
"Optionee"), who is a employee of the Company.
WHEREAS, the Board of Directors of the Company (the "Board") on
May 28, 1996, adopted, with stockholder approval on June 26, 1996, the Pioneer
Railcorp Incentive Stock Option Plan (the "Plan");
WHEREAS, the Plan provides for the granting of incentive stock
options by the Board to employees and directors of the Company to purchase, or
to exercise certain rights with respect to, shares of the Class A Common Stock
of the Company (the "Stock"), in accordance with the terms and provisions
thereof; and
WHEREAS, the Board considers the optionee to be a person who is
eligible for a grant of incentive stock options under the Plan, and has
determined that it would be in the best interest of the Company to grant the
incentive stock options documented herein.
NOW, THEREFORE, the parties agree as follows:
1. Grant of option.
Subject to the terms and conditions hereinafter set forth, the Company hereby
grants to the Optionee, as of the Date of Grant, an option to purchase up to
_____shares of Stock at a price of $___ per share, the fair market value of the
Stock on the Date of Grant. (If the optionee is a ten percent shareholder, the
option price is $___ per share, 110% of the fair market value of the stock on
the date of grant).Such option is hereinafter referred to as the "Option" and
the shares of stock purchasable upon exercise of the option are hereinafter
sometimes referred to as the "Option Shares." The Option is intended by the
parties hereto to be, and shall be treated as, an incentive stock option as such
term is defined under Section 422 of the Internal Revenue Code of 1986.
2. Exercise of Option.
The options will be fully vested and exercisable as of July 1, 2001. The vesting
and exercise date of the options will be accelerated to the 10th consecutive
business day that the stock trades at a price of at least $4.50 greater than the
price of the stock on the close of business on June 26, 1996. Vested options may
be exercised in whole or in part within 10 years from the date of grant,
provided, however, that the aggregate fair market value of stock (as determined
as of the date of grant)which first becomes exercisable with respect to any
optionee in any calendar year may not exceed $100,000, regardless of the date
the option is granted.
If the Optionee is a ten percent shareholder, any option must be exercised, if
at all, within five (5) years from the Date of Grant.
3. Termination of option.
(a) Option shares shall survive only if the option holder's employment remains
active with the Company until the options vest, unless the option holder
dies prior thereto, in which case the holder's estate shall receive a
pro-rata number of shares, based upon the time the employee worked under
the plan. Any vested, unexercised options owned by a holder at death shall
become the property of the holder's estate. (b) Upon the Optionee's
termination of employment with the Company for any reason other than death,
the Optionee may, for a period of six months thereafter, exercise any
options which were exercisable on the date of termination. Any option not
so exercised shall terminate.
4. Exercise of Options.
(a) The optionee may exercise the Option with respect to all or any part of the
number of Option Shares then exercisable hereunder by giving the Company
written notice of intent to exercise. The notice of exercise shall specify
the number of Option Shares as to which the Option is to be exercised and
the date of exercise thereof.
<PAGE>
(b) Full payment by the Optionee of the option price for the Option Shares
purchased shall be made in cash on or before the exercise date specified in
the notice of exercise.
On the exercise date specified in the optionee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to
the Optionee, a certificate or certificates for the Option Shares then
being purchased upon full payment of such option Shares. The obligation of
the Company to deliver Stock shall, however, be subject to the condition
that if at any time the Board shall determine in its discretion that the
listing, registration or qualification of the Option or the Option Shares
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the Option or the
issuance or purchase of Stock thereunder, the Option may not be exercised
in whole or in part unless such listing, registration, qualification,
consent or approval shall have been affected or obtained free of any
conditions not acceptable to the Board.
(c) If the Optionee fails to pay for any of the Option Shares specified in such
notice or fails to accept delivery thereof, the Optionee's right to
purchase such Option Shares may be terminated by the Company. The date
specified in the
Optionee's notice as the date of exercise shall be deemed the date of
exercise of the option, provided that payment in full for the Option Shares
to be purchased upon such exercise shall have been received by such date.
(d) Optionee shall comply with such additional procedures for exercise of the
Option as are from time to time established by the Board.
5. Adjustment of and Changes in Stock of the Company.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of capital stock of the Company, the Board shall
make such adjustment as it deems appropriate in the number and kind of shares of
Stock subject to the Option or in the option price; provided, however that such
adjustment shall give the Optionee any additional benefits under the Option.
6. Fair Market Value.
As used herein, the "fair market value" of a share of Stock shall be the closing
price per share of Stock on the Chicago Stock Exchange, NASDAQ, or other
recognized market source, as determined by the Board, on the applicable date of
reference hereunder, or if there is no sale on such date, then the closing price
on the last previous day on which a sale is reported. The fair market value of
the Stock on June 26, 1996 is $_______ per share.
7. No Rights of Stockholders.
Neither the Optionee nor any personal representative shall be, or shall have any
of the rights or privileges of, a stockholder of the Company with respect to any
shares of Stock purchasable or issuable upon the exercise of the Option, in
whole or in part, prior to the date of exercise of the option.
8. Non-Transferability of Option.
During the Optionee's lifetime, the option hereunder shall be exercisable only
by the Optionee or any guardian or legal representative of the Optionee, and the
Option shall not be transferable except, in case of the death of the Optionee,
by will or the laws of descent and distribution.
9. Employment Not Affected.
Neither the grant of the option nor its exercise shall be construed as granting
to the optionee any right with respect to continued employment with the Company.
<PAGE>
10. Amendment of option.
The option may be amended by the Board at any time (I) if the Board determines,
in its sole discretion, that amendment is necessary or advisable in light of the
Internal Revenue Code of 1986 or in the regulations issued thereunder, or any
federal or state securities law or other law or regulation or (ii) other than in
the circumstances described in clause (I), with the consent of the Optionee,
unless the amendment would not adversely affect the Optionee.
11. Notice.
Any notice to the Company provided for in this instrument shall be addressed to
it at its offices at Peoria, Illinois, and any notice to the Optionee shall be
addressed to the Optionee at the current address shown on the records of the
Company. Any notice shall be deemed to by duly given if and when properly
addressed and posted by registered or certified mail, postage prepaid.
12. Incorporation of Plan by Reference.
The option is granted pursuant to the terms of the Plan, the terms of which are
incorporated herein by reference, and the Option shall in all respects be
interpreted in accordance with the Plan. The Board shall interpret and construe
the Plan and this instrument, and its interpretations and determinations shall
be conclusive and binding on the parties hereto and any other person claiming an
interest hereunder, with respect to any issue arising hereunder or thereunder.
13. Governing Law.
The validity, construction, interpretation and effect of this instrument shall
exclusively be governed by and determined in accordance with the law of the
State of Illinois.
OPTIONEE PIONEER RAILCORP
__________________ By: /s/
-----------------------------------
its:
STOCK OPTION AGREEMENT
Date of Grant June 26, 1996
THIS GRANT, dated as of the date of grant first stated above (the
"Date of Grant"), is delivered by Pioneer Railcorp ("Company") to (the
"Optionee"), who is a director of the Company.
WHEREAS, the Board of Directors of the Company (the "Board") on
May 28, 1996, adopted, with stockholder approval on June 26, 1996, the Pioneer
Railcorp Stock Option Plan (the "Plan");
WHEREAS, the Plan provides for the granting of stock options by
the Board to employees and directors of the Company to purchase, or to exercise
certain rights with respect to, shares of the Class A Common Stock of the
Company (the "Stock"), in accordance with the terms and provisions thereof; and
WHEREAS, the Board considers the optionee to be a person who is
eligible for a grant of stock options under the Plan, and has determined that it
would be in the best interest of the Company to grant stock options documented
herein.
NOW, THEREFORE, the parties agree as follows:
1. Grant of option.
Subject to the terms and conditions hereinafter set forth, the Company hereby
grants to the Optionee, as of the Date of Grant, an option to purchase up to
_____shares of Stock at a price of $___ per share, the fair market value of the
Stock on the Date of Grant. Such option is hereinafter referred to as the
"Option" and the shares of stock purchasable upon exercise of the option are
hereinafter sometimes referred to as the "Option Shares."
2. Exercise of Option.
The options will be fully vested and exercisable as of July 1, 2001. The vesting
and exercise date of the options will be accelerated to the 10th consecutive
business day that the stock trades at a price of at least $4.50 greater than the
price of the stock on the close of business on June 26, 1996. Vested options may
be exercised in whole or in part within 10 years from the date of grant.
3. Termination of option.
(a) Option shares shall survive only if the option holder's employment remains
active with the Company until the options vest, unless the option holder
dies prior thereto, in which case the holder's estate shall receive a
pro-rata number of shares, based upon the time the employee worked under
the plan. Any vested, unexercised options owned by a holder at death shall
become the property of the holder's estate.
(b) Upon the Optionee's termination of employment with the Company for any
reason other than death, the Optionee may, for a period of six months
thereafter, exercise any options which were exercisable on the date of
termination. Any option not so exercised shall terminate.
4. Exercise of Options.
(a) The optionee may exercise the Option with respect to all or any part of the
number of Option Shares then exercisable hereunder by giving the Company
written notice of intent to exercise. The notice of exercise shall specify
the number of Option Shares as to which the Option is to be exercised and
the date of exercise thereof.
(b) Full payment by the Optionee of the option price for the Option Shares
purchased shall be made in cash on or before the exercise date specified in
the notice of exercise.
On the exercise date specified in the optionee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to
the Optionee, a certificate or certificates for the Option Shares then
being purchased upon full payment of such option Shares. The obligation of
the Company to deliver Stock shall, however, be subject to the condition
that if at any time the Board shall determine in its discretion that the
listing, registration or qualification of the Option or the Option Shares
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the Option or the
issuance or purchase of Stock thereunder, the Option may not be exercised
in whole or in part unless such listing, registration, qualification,
consent or approval shall have been affected or obtained free of any
conditions not acceptable to the Board.
(c) If the Optionee fails to pay for any of the Option Shares specified in such
notice or fails to accept delivery thereof, the Optionee's right to
purchase such Option Shares may be terminated by the Company. The date
specified in the
<PAGE>
Optionee's notice as the date of exercise shall be deemed the date of
exercise of the option, provided that payment in full for the Option Shares
to be purchased upon such exercise shall have been received by such date.
(d) Optionee shall comply with such additional procedures for exercise of the
Option as are from time to time established by the Board.
5. Adjustment of and Changes in Stock of the Company.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or
combination of shares, merger, consolidation, rights offering, or any other
change in the corporate structure or shares of capital stock of the
Company, the Board shall make such adjustment as it deems appropriate in
the number and kind of shares of Stock subject to the Option or in the
option price; provided, however that such adjustment shall give the
Optionee any additional benefits under the Option.
6. Fair Market Value.
As used herein, the "fair market value" of a share of Stock shall be the
closing price per share of Stock on the Chicago Stock Exchange, NASDAQ, or
other recognized market source, as determined by the Board, on the
applicable date of reference hereunder, or if there is no sale on such
date, then the closing price on the last previous day on which a sale is
reported. The fair market value of the Stock on June 26, 1996 is $_______
per share.
7. No Rights of Stockholders.
Neither the Optionee nor any personal representative shall be, or shall
have any of the rights or privileges of, a stockholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of
the Option, in whole or in part, prior to the date of exercise of the
option.
8. Non-Transferability of Option.
During the Optionee's lifetime, the option hereunder shall be exercisable
only by the Optionee or any guardian or legal representative of the
Optionee, and the Option shall not be transferable except, in case of the
death of the Optionee, by will or the laws of descent and distribution.
9. Employment Not Affected.
Neither the grant of the option nor its exercise shall be construed as
granting to the optionee any right with respect to continued employment
with the Company.
<PAGE>
10. Amendment of option.
The option may be amended by the Board at any time (I) if the Board
determines, in its sole discretion, that amendment is necessary or
advisable in light of the Internal Revenue Code of 1986 or in the
regulations issued thereunder, or any federal or state securities law or
other law or regulation or (ii) other than in the circumstances described
in clause (I), with the consent of the Optionee, unless the amendment would
not adversely affect the Optionee.
11. Notice.
Any notice to the Company provided for in this instrument shall be
addressed to it at its offices at Peoria, Illinois, and any notice to the
Optionee shall be addressed to the Optionee at the current address shown on
the records of the Company. Any notice shall be deemed to by duly given if
and when properly addressed and posted by registered or certified mail,
postage prepaid.
12. Incorporation of Plan by Reference.
The option is granted pursuant to the terms of the Plan, the terms of which
are incorporated herein by reference, and the Option shall in all respects
be interpreted in accordance with the Plan. The Board shall interpret and
construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and
any other person claiming an interest hereunder, with respect to any issue
arising hereunder or thereunder.
13. Governing Law.
The validity, construction, interpretation and effect of this instrument
shall exclusively be governed by and determined in accordance with the law
of the State of Illinois.
OPTIONEE PIONEER RAILCORP
__________________ By: /s/
-----------------------------------
its:
ex. 21
Pioneer Railcorp Subsidiaries:
Alabama & Florida Railway Co., Inc.
Alabama Railroad Co.
Columbia & Northern Railway Co.
Decatur Junction Railway Co.
Fort Smith Railroad Co.
Keokuk Junction Railway Co.
Minnesota Central Railroad Co.
Mississippi Central Railroad Co.
Pioneer Railroad Equipment Co., Ltd.
Pioneer Railroad Services, Inc. (PRS).
Pioneer Air, Inc.
Rochelle Railroad Co.
Shawnee Terminal Railway Company
Vandalia Railroad Company
Wabash & Western Railway Co. d/b/a Michigan Southern Railroad
West Michigan Railroad Co.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's December 31, 1996 Form 10-KSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 501,212
<SECURITIES> 0
<RECEIVABLES> 2,116,580
<ALLOWANCES> 45,291
<INVENTORY> 420,952
<CURRENT-ASSETS> 3,630,662
<PP&E> 23,426,176
<DEPRECIATION> 3,294,610
<TOTAL-ASSETS> 25,008,304
<CURRENT-LIABILITIES> 6,066,627
<BONDS> 0
0
0
<COMMON> 4,571
<OTHER-SE> 3,217,322
<TOTAL-LIABILITY-AND-EQUITY> 25,008,304
<SALES> 0
<TOTAL-REVENUES> 10,979,218
<CGS> 0
<TOTAL-COSTS> 9,585,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,335,304
<INCOME-PRETAX> 361,670
<INCOME-TAX> 135,960
<INCOME-CONTINUING> 225,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,145<F1>
<EPS-PRIMARY> .02
<EPS-DILUTED> 0
<FN>
<F1>The difference between Income from Continuing operations of $225,710 and Net
Income of $102,145 relates to $123,565 of dividends paid to minority interests
in 1996.
</FN>
</TABLE>
