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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File Number 0-20618
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RAILAMERICA, INC.
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(Name of small business issuer in its charter)
DELAWARE 65-0328006
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(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification Number)
301 Yamato Road, Suite 1190
Boca Raton, Florida 33431
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 994-6015
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Class B Callable Stock Purchase Warrants
Check whether the issuer (1) has 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 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. ( )
The registrant's revenues for the fiscal year ended December 31, 1996
were $25,658,241.
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 28, 1997 computed by reference to the high/ask and
low/bid prices of registrant's common stock reported on NASDAQ on such date was
$31,451,000.
The number of shares outstanding of registrant's Common Stock, $.001
par value per share, as of March 28, 1997 was 7,958,417
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
RailAmerica, Inc. (together with its consolidated subsidiaries, the
"Company") is a multi- modal transportation company that acquires, develops and
operates shortline railroads formed primarily through the acquisition of light
density rail lines from larger railroads. The Company has expanded its
operations in the transportation industry through its acquisition of
Kalyn/Siebert, Inc. ("Kalyn"), a manufacturer of a broad range of truck
trailers, located in Gatesville, Texas. Through Kalyn, the Company has
established trailer manufacturing operations and substantially increased the
Company's assets, liabilities, revenue, expenses and income.
The Company's objectives are to create a diversified transportation
company by acquiring additional railroads and other transportation-related
companies. In accordance with this strategy, in June 1996, the Company acquired
approximately 40 miles of rail line in the state of Indiana; in September 1996,
the Company acquired 131 miles of rail line in north central Washington; in
October 1996, the Company acquired all of the issued and outstanding stock of
Otter Tail Valley Railroad Inc. ("OTVR"), a short line railroad headquartered in
Fergus Falls, Minnesota; in November 1996, the Company acquired substantially
all of the assets and business of the Gettysburg Railroad in southern
Pennsylvania; and in December 1996 the Company acquired approximately 204 miles
of rail line in northern Minnesota. In addition, in February 1997, the Company
purchased a majority interest in the stock of Empressa de Transporte Ferrovario
S.A. ("Ferronor"), a railroad serving northern Chile with approximately 1,400
miles of rail line.
The Company's business presently is conducted through twenty
wholly-owned consolidated subsidiaries - Huron and Eastern Railway Company, Inc.
("HESR"), Saginaw Valley Railway Company, Inc. ("SGVY"), Kalyn, OTVR, South
Central Tennessee Railroad Corporation ("SCTR"), Huron Distribution Services,
Inc. ("HDS"), Delaware Valley Railway Company, Inc. ("DVRC"), RailAmerica
Intermodal Services, Inc. ("RIS"), RailAmerica Carriers, Inc. ("RAC"), Prairie
Holding Corporation ("PHC"), Dakota Rail, Inc. ("Dakota Rail"), RailAmerica
Equipment Corporation ("REC"), West Texas and Lubbock Railroad Company, Inc.
("WTLR"), Plainview Terminal Company ("PTC"), Cascade and Columbia River
Railroad, Inc. ("CCRR"), Gettysburg Scenic Rail Tours, Inc., Evansville Terminal
Company ("ETC"), Minnesota Northern Railroad, Inc. ("MNR"), RailAmerica de
Chile, S.A and Steel City Carriers, Inc. ("Steel City Carriers"). All references
to the operations of the "Company" discussed in this Form 10-KSB describe the
operations of its subsidiaries. All of the Company's revenue from continuing
operations for 1995 was derived from the operations of HESR, SGVY, Kalyn, DVRC,
SCTR, Dakota Rail, WTLR, PTC.
The Company was incorporated in Delaware on March 31, 1992 to acquire
all of the outstanding capital stock of two pre-existing railroad companies -
HESR and SGVY. Over the last two and a half years, the Company has completed 13
acquisitions, including numerous short line railroads and other
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transportation related companies. These acquisitions have been integrated into
the Company's current operations and serve as a platform for the historical
growth experienced by the Company. The Company's principal executive office is
located at 301 Yamato Road, Suite 1190, Boca Raton, Florida 33431, and its
telephone number at that location is (561) 994-6015.
RAILROAD OPERATIONS
The Company's railroad subsidiaries operated approximately 930 miles
and 450 miles of rail line as of December 31, 1996 and 1995, respectively.
Currently, the Company's rail lines consist of: (i) 136 miles of rail line which
it owns in Michigan; (ii) 4 miles of trackage rights and 45 miles of rail line
which are owned by the State of Michigan and operated pursuant to an agreement
with Michigan Department of Transportation; (iii) 49 miles of rail line leased
from the South Central Tennessee Railroad Authority near Nashville, Tennessee
and 3 miles of trackage rights; (iv) 45 miles of rail line in Pennsylvania, 18
miles of which the Company has agreed to purchase from the Commonwealth of
Pennsylvania for a price to be determined and 27 miles of which are operated
under a freight easement with the Commonwealth of Pennsylvania; (v) 10 miles of
rail line in Delaware made available to Company pursuant to a ten-year lease
with the Wilmington & Northern Railroad Company; (vi) 44 miles of rail line
which the Company is operating pursuant to a contract with the State of
Minnesota; (vii) 104 miles of rail line and 4 miles of trackage rights in West
Texas; (viii) 51 miles of rail line in the state of Indiana, 18 miles of which
it owns and 33 miles of which it operates under an operating agreement; (ix) 131
miles of rail line which it owns in the state of Washington; (x) 23 miles of
rail line which it owns in southern Pennsylvania; (xi) 72 miles of rail line
which it owns in central Minnesota; and (xii) 174 miles of rail line it owns in
northern Minnesota and 37 miles of trackage rights.
In February 1997, the Company acquired a majority interest in the stock
of Ferronor, which operates approximately 1,400 miles of rail line in northern
Chile.
The Company provides it customers with local rail freight services with
access to the nation's rail system for delivery of products both domestically
and internationally. The Company hauls products for its customers based upon
market demands in its local operating areas. The Company's haulage of products
in Michigan include agricultural commodities, automotive parts, chemicals and
fertilizer, ballast and other stone products. The Company's haulage of products
in Tennessee includes wood chips, paper, chemicals and processed food products.
The Company's haulage of products in Pennsylvania and Delaware includes iron and
steel products, chemicals, agricultural products, lumber and processed food
products. The Company's haulage of products in Minnesota includes plastics,
lumber, denatured alcohol, coal, scrap iron and steel. The Company's haulage of
products in Texas consists of cotton, sodium sulfate, chemicals, fertilizer,
scrap iron and steel. The Company's haulage of products in Indiana consists of
agricultural commodities and plastics. The Company's haulage of products in
Washington consist of woodchips, lumber, minerals, cement and various
agricultural products.
In keeping with the general nature of business in the Michigan, Texas
and Minnesota market areas, agricultural commodities have represented a
significant portion of the Company's
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annual carloadings. Although the acquisition of SCTR, DVRC, Dakota Rail, WTLR,
PTC, and CCRR have helped to diversify the Company's traffic base and mitigate
seasonal fluctuations, the Company believes that, absent additional acquisitions
in industrial areas, agricultural commodities will continue to represent the
primary component of the Company's rail traffic base. As a result, the Company's
operations could be materially and adversely affected by factors such as adverse
weather conditions and fluctuations in grain prices. Additionally, sellers of
commodities tend to hold shipments if they anticipate price increases for their
commodities. Such actions could cause the Company's results of operations to
fluctuate from period to period as a result of fluctuations in the prices of
those commodities. Moreover, agricultural commodities are generally shipped from
September to May and the Company handles most of its traffic during such
periods. The Company anticipates that in the future the acquisition of Ferronor
will help insulate it from its dependence on agricultural commodities.
ACQUISITION OF EVANSVILLE TERMINAL COMPANY. On June 30, 1996, the
Company acquired 40 miles of rail line in the state of Indiana. The Company
simultaneously sold approximately 22 miles of the rail line to an unrelated
party and sold a railcar repair shop which was located along the rail line to
another unrelated party. The Company continues to own the remaining 18 miles of
rail line and operates the 22 miles pursuant to an operating agreement through a
newly formed subsidiary ETC. Such rail lines are used to haul primarily
agricultural products and plastics.
ACQUISITION OF CASCADE AND COLUMBIA RIVER RAILROAD. On September 6,
1996, the Company, through its newly formed subsidiary CCRR, completed the
purchase of a 131 mile rail line in north central Washington from Burlington
Northern Sante Fe ("BNSF"). The line extends from Oroville to Wenatchee,
Washington, were it interchanges with BNSF. Such rail line is used to carry
primarily woodchips, lumber, minerals, cement and agricultural products.
ACQUISITION OF OTTER TAIL VALLEY RAILROAD, INC. Effective October 1,
1996 the Company, through its wholly-owned subsidiary Dakota Rail, Inc.,
acquired all of the outstanding stock of OTVR. OTVR operates a 72 mile freight
rail line in western Minnesota from Fergus Falls, MN to an interchange with BNSF
near Fargo, North Dakota. Such rail line is used to carry primarily coal, grain
and fertilizer.
ACQUISITION OF GETTYSBURG RAILROAD. In November 1996, the Company,
through its wholly owned subsidiary DVRC, acquired substantially all of the
assets and business of the Gettysburg Railroad Company. The new Gettysburg
Railway operates 23 miles of rail line in south central Pennsylvania between
Gettysburg and Mount Holly Springs, and interchanges freight traffic with both
Conrail and CSX Transportation. Such line is used to carry primarily
agricultural commodities, canned goods, food and paper products and chemicals.
As part of the transaction, the Company has also acquired an existing
scenic rail tour business, which will be managed by the Company's newly-formed
subsidiary, Gettysburg Scenic Rail Tours ("Scenic"). It is anticipated that
Scenic will commence the proposed rail tour excursions in the Spring of 1997.
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ACQUISITION OF MINNESOTA NORTHERN RAILROAD. In December 1996, the
Company, through its newly formed subsidiary MNR, completed the purchase of a
cluster of rail lines in and around Crookston, Minnesota from BNSF. MNR operates
over 241 miles of track (including 37 miles of trackage rights), with traffic
from these lines interchanged with BNSF at Crookston.
These lines, which serve northwestern Minnesota, extend north to
Warroad, near the Canadian border and as far south as Perley, near Fargo, North
Dakota. Rail traffic handled on these lines consists of agricultural products,
primarily grains and fertilizer, as well as aggregates, and coal.
ACQUISITION OF FERRONOR. In February 1997, the Company through a newly
formed wholly-owned subsidiary, RailAmerica de Chile S.A., acquired 55% of the
outstanding voting stock of Ferronor. Ferronor owns and operates approximately
1,400 miles of rail line serving northern Chile. RailAmerica was joined in the
purchase of Ferronor by Andres Pirazzoli y Cia, Ltda. ("APCO"), a family-owned
Chilean transportation and distribution company.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico, S.A., to its northern terminus at Iquique,
approximately 120 miles south of the Peruvian border. It also operates several
east-west branch lines that link a number of iron, copper and limestone mines
and production facilities with several Chilean Pacific port cities. Ferronor
also serves Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.
Ferronor currently operates approximately 30 locomotives and 700 rail
cars. Ferronor employed approximately 350 people as of the date of acquisition.
As contemplated by management, significant reductions in the work force are
being effectuated.
COMPETITION. The Company's primary source of competition in its rail
operations comes from over-the-road trucks. While the Company must build or
acquire and maintain its rail system, trucks are able to use public roadways.
Any future expenditures materially increasing the roadway system in the
Company's present or proposed areas of operation (or legislation granting
materially greater latitude for trucks with respect to size or weight
limitations) could have a significant adverse effect on the Company's
competitiveness and results of operations.
TRAILER MANUFACTURING OPERATIONS
Kalyn, located in Gatesville, Texas, was established in 1968 and
manufactures a broad range of specialty truck trailers. Kalyn products are
marketed to customers in the construction, trucking, agricultural, railroad,
utility, and oil industries. In addition, a substantial portion of Kalyn's sales
are to the military and several other local and federal government agencies.
Kalyn currently offers over 40 standard trailer models in approximately
100 different variations. The light and medium trailer category consists of a
diverse group of products. The
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trailer types in this category, ranked by sales volume, include mini-platform,
utility, gooseneck, agricultural, hydraulic dump, specialized concession
trailers and vans, and tilt and fork lift trailers.
Since Kalyn's acquisition of Siebert Trailers, Inc. ("Siebert") in
1991, Kalyn's product mix has shifted towards sales of heavy equipment and
specialty trailers. Previously located in Stockton, California, Siebert
manufactured a highly specialized detachable gooseneck trailer constructed of
high yield steel. The Siebert products include up to 300-ton capacity units. The
trailer types in the heavy equipment category, ranked by historical sales
volume, include specialized trailers (such as car haulers, truck haulers, and
jeep haulers), fixed neck lowbed, detachable lowbed, flats and platforms, drops
and double drops, folding neck low-bed, and used trailers.
The majority of Kalyn's sales are based on existing Kalyn trailer
designs which are modified with standard options. However, approximately 20% of
sales must be customized to satisfy customers' specifications. Kalyn's "Pro
Engineer" 3-D based solid modeler drafting system and computer aided drafting
system "CAD" allows its engineers to readily modify trailer component design and
generate new designs, based on customer needs.
MANUFACTURING FACILITY. Kalyn builds all the structural parts of its
trailers using primarily steel bars and plates. The major manufacturing steps
include cutting, bending and welding of steel and, once assembled, sand
blasting, cleaning and painting. The axles and running gears are purchased as
sub-assemblies which are integrated into the Kalyn trailer design. Kalyn
contracts out any necessary machining. Kalyn exercises strict quality control by
screening suppliers and conducting inspections throughout the production
process.
As a consequence of significant increases in sales order volume, during
1995 Kalyn expanded its manufacturing facility to partially address this
increased demand by building additional manufacturing space upon land that Kalyn
owns. The expansion was also completed to accommodate the receipt of a contract
with the U.S. Army Tank Automotive Command ("TACOM") pursuant to which Kalyn has
agreed to exclusively produce over a three-year period all of TACOM's
requirements for twelve-ton, tactical semi-trailer vans ("Tactical Vans"). TACOM
has advised Kalyn that over the term of this agreement, orders could be placed
for up to approximately 345 Tactical Vans, which could generate sales of up to
approximately $27 million. In February 1996, Kalyn was awarded an additional
requirements contract by TACOM. Pursuant to the terms of such agreements, TACOM
is not required to purchase a minimum number of Tactical Vans or other trailers.
During 1996, Kalyn also built a new paint booth building to accommodate the
additional volume of trailer orders. Kalyn's plant is currently operating one
shift, although Kalyn believes manufacturing capacity can be increased by adding
a partial second shift.
Kalyn's ability to manufacture trailers is dependent upon receiving
supplies or components and raw materials from a limited number of sources. To
date, Kalyn has experienced no material difficulties in procuring supplies,
components or materials. However, if deliveries of such items are delayed,
Kalyn's production ability may be decreased which could have a negative effect
on Kalyn's and the Company's results of operations.
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CUSTOMERS. Kalyn serves a variety of customers in a range of
industries. Since 1990, commercial accounts have represented approximately 60%
to 70% of sales, with military or governmental agency sales representing the
balance. During 1995 and 1996, sales to governmental agencies, including TACOM,
represented 29% and 20% of Kalyn's revenue, respectively while sales to
commercial accounts represented 71% and 80%, respectively, of Kalyn's revenues.
The majority of sales in the government segment are to the General
Services Administration ("GSA"), the purchasing arm of most non-military
agencies, and to TACOM, a Department of Defense unit established to consolidate
purchases for various branches of the military. Kalyn has been awarded "Blue
Ribbon Contractor" status which provides Kalyn with a 10% preference on bids for
certain contracts.
BACKLOG. As of December 31, 1996 and March 27, 1997, the Company's
backlog of orders was approximately $8.6 million and $13.0 million,
respectively, compared to $3.4 million and $10.7 million as of December 31, 1995
and March 1, 1996, respectively. Substantially all of the backlog at March 27,
1997 represented orders under the TACOM agreements. Kalyn includes in its
backlog only those orders for trailers for which a confirmed customer order has
been received. Kalyn manufactures trailers mostly to customer or dealer orders
and does not typically maintain an inventory of "stock" trailers in anticipation
of future orders.
DISTRIBUTION AND MARKETING. Kalyn sells through a dealer base
consisting of approximately 170 independent dealers in 49 states, Canada and
Mexico. Historically, as much as 50% of all of Kalyn's commercial sales are to
dealers, with the balance representing direct retail sales by its sales force.
Kalyn's sales staff consists of a vice president, four sales managers, an
advertising manager and three additional employees. The sales staff is supported
by two registered mechanical design engineers and five draftsmen. Historically,
Kalyn's dealers have not inventoried Kalyn trailers due to the broad variety of
specific options and trailer types. During 1995, certain dealers began
maintaining some inventory of Kalyn trailers.
Sales leads are generated through publication advertising, literature
mailings, trade show exhibitions, dealers, repeat customers, and word-of-mouth.
Kalyn exhibits at approximately five trade shows per year. Kalyn's management
believes that these trade shows are effective in maintaining Kalyn's name and
reputation and developing sales leads.
Additionally, Kalyn places advertisements in trade publications such as
Truck, Truckers USA, Texas Agriculture, Heavy Duty Trucks, Lifting and
Transportation, Overdrive, Equipment World and Truck Market News. In recent
years, Kalyn has shifted resources from advertising to
trade shows, which are more cost effective.
During the first quarter of 1995, Kalyn entered into a Wholesale and
Retail Financing Agreement with Associates Commercial Corporation and Associates
Commercial Corporation of Canada, Ltd. to stimulate and facilitate the sale and
financing of its new and used trailers. Additionally, in December of 1996, the
Company entered into an Operating Agreement with NewCourt Financial Ltd. in
order to provide wholesale and retail financing for its dealers located in
Canada. Each of these agreements provides floor plan financing for eligible
dealers and lease
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and/or purchase financing for endmarket purchasers. Under certain circumstances,
these agreements also provide for the repurchase of products sold to customers
by Kalyn and contingent responsibility for certain expenses. To date, the
Company has not experienced any losses or been required to advance funds in
connection with these agreements.
COMPETITION. The Company faces significant competition in the truck
trailer manufacturing industry which is highly competitive and has relatively
low barriers to entry. Kalyn competes with a number of other trailer
manufacturers, some of which have greater financial resources and higher sales
than Kalyn. Furthermore, Kalyn's products compete with alternative forms of
shipping, such as intermodal containers. There can be no assurance that Kalyn
will be able to continue to compete effectively with existing or potential
competitors or alternative forms of shipping containers.
MOTOR CARRIER OPERATIONS (DISCONTINUED OPERATIONS)
On February 10, 1995, the Company acquired substantially all of the
assets of Steel City, a regional motor carrier located in Sault Ste. Marie,
Ontario, Canada. Steel City operates a fleet of approximately 120 tractors and
trailers, and currently serves more than 50 customers in the steel, paper and
lumber industries by transporting a broad variety of products within Canada and
between Canada and the United States, particularly Michigan, Ohio, Indiana, New
York, and Wisconsin. Steel City Carriers currently has 50 full-time employees,
as well as 32 independent contract drivers who own and operate their own
vehicles.
For the years ended December 31, 1996 and 1995, one customer in the
Company's motor carrier division accounted for approximately 31% and 18%,
respectively, of the Company's motor carrier transportation revenue. For the
year ended December 31, 1996, a second customer accounted for approximately 14%
of the Company's motor carrier transportation revenue.
Since the Company's acquisition of Steel City, its financial
performance and development have not met the Company's expectations.
Accordingly, in March 1997 the Company adopted a formal plan to dispose of its
motor carrier operations and refocus the Company's efforts on expanding its core
railroad business. The Company's Board of Directors approved this plan on March
20, 1997.
REGULATION
OVERVIEW. In addition to environmental safety and other regulations
applicable to all businesses, the Company's railroad subsidiaries are subject to
regulation by various government agencies and regulations, including, among
others, (i) regulation by the Surface Transportation Board ("STB") and the
Federal Railroad Administration ("FRA"); (ii) certain labor related statutes
including the Railway Labor Act, Railroad Retirement Act, the Railroad
Unemployment Insurance Act, and the Federal Employer's Liability Act, and (iii)
regulation by agencies in the states in which the Company
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does business. Additionally, the Company is subject to STB regulation in
connection with the acquisition of new railroad properties. As a result of the
Staggers Rail Act amendments to the Interstate Commerce Act in 1980 and the
enactment of the ICC Termination Act of 1995, there has been a significant
relaxation in regulation governing rail carriers which management believes has
greatly simplified the purchase and sale of shortline railroad properties and
expedited the consummation of such transactions. The Company believes its
operations are in material compliance with all applicable regulations.
STB. The STB has jurisdiction over, among other matters, the
construction, acquisition, or abandonment of rail lines, the consolidation or
merger of railroads, the assumption of control of one carrier (including
railroads and interstate motor and water carriers) by another carrier (or entity
controlling another carrier), the use by one railroad of another railroad's
tracks ("trackage rights"), the rates charged by railroads for their
transportation services, and the service of rail carriers. Legislation enacted
in 1995 replaced the Interstate Commerce Commission ("ICC") with the STB and
abolished labor protective conditions applicable to numerous types of rail
transactions. Today, most transactions involving shortline railroads are no
longer subject to protective conditions imposed by labor agencies. Certain types
of transactions involving mid-size "regional railroads" (annual revenues between
$20 million and $250 million) are still subject to limited labor protective
conditions for adversely affected employees (in absence of any other
arrangements negotiated between management and labor, affected employees receive
one year's severance pay for acquisition transactions).
While imposition of labor protective conditions on line sales and
transfers does not subject a rail line buyer to the seller's collective
bargaining agreements, rates of pay, and other labor practices and does not
unionize the buyer's operating and maintenance employees, it entitles employees
of buyer or seller who are "adversely affected" by the transaction in terms of
job loss, pay cuts, loss of overtime, loss of hours, loss of benefits, and
moving expenses, to receive payments over a period of four years representing
compensation for those losses. Generally, in a line sale or transfer, only the
seller's or transferor's employees are affected.
As a result of the 1980 Staggers Rail Act amendments, railroads
received considerable rate and market flexibility including the ability to
obtain wholesale exemptions from numerous provisions of the Interstate Commerce
Act. Under the Staggers Rail Act, all containerized and truck trailer traffic
handled by railroads was deregulated. On regulated traffic, railroads and
shippers are permitted to enter into contracts for rates and provision of
transportation services without the need to file tariffs. Moreover, on regulated
traffic, the Staggers Rail Act amendments have allowed railroads considerable
freedom to raise or lower rates without objection from captive shippers. While
the ICC termination retained maximum rate regulation on traffic over which
railroads have exclusive control, the new law relieved railroads from the
requirements of filing tariffs and rate contracts with the STB on all traffic
other than agricultural products.
FUTURE OF THE STB. Under the ICC Termination Act the STB is presently
authorized through September 30, 1998. It is unclear whether the STB will be
reauthorized in its present form, whether its functions will be expanded to
include regulation of ocean shipping presently
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under the jurisdiction of the Federal Maritime Commission and to prescribe "open
access" for captive rail shippers such as utility companies, or whether the STB
will be disbanded and its functions split between the U.S. Departments of
Transportation and Justice.
FRA. The FRA regulates railroad safety and equipment standards,
including track maintenance, handling of hazardous shipments, locomotive and
rail car inspection and repair requirements, and operating practices and crew
qualifications. The FRA recently abolished regulations allowing it to impose
user fees on rail carriers subject to its jurisdiction.
STATES. Under the ICC Termination Act states lost their jurisdiction
over economic regulation of intrastate transportation. All states retain some
jurisdiction over safety related matters, including such matters as grade
crossings, bridges and track conditions. Local governments may have ordinances
regulating train speeds, noise and environmental issues.
TRUCKING. Steel City Carriers is a for-hire motor carrier that operates
under licenses previously granted by the ICC, authorizing it to engage in the
interstate transportation of goods. It is regulated by the STB, the Federal
Highway Administration ("FHWA") of the U.S. Department of Transportation
("DOT"), and various state agencies in the United States and provinces in
Canada. These regulatory authorities have powers, generally governing highway
safety, vehicle size and weight and handling hazardous cargo, periodic financial
reporting, driver licensing, hours of service and to a limited extent, rates and
charges. The ICC's jurisdiction over motor carriers was transferred to the DOT
(carrier registration and insurance) and to the STB.
Motor carrier operations are also subject to safety regulations
governing interstate operations prescribed by the DOT. Such matters as gross
weight and dimension of equipment are also subject to federal and state
regulations. The failure of the Company to comply with the rules and regulations
of the STB, DOT, FHWA or state agencies could result in substantial fines or
revocation of the Company's operating licenses. The trucking industry is also
subject to regulatory and legislative changes which can affect the economics of
the industry by requiring changes in operating practices or influencing the
demand for, and the cost of providing, services to shippers. Previously, the
Motor Carrier Act of 1980 and the Trucking Industry Reform Act of 1994
materially reduced federal regulation of interstate motor freight carriers.
In August 1994, the Federal Aviation Administration Authorization Act
of 1994 (the "1994 FAA Act") became law. Effective January 1, 1995, the 1994 FAA
Act preempts certain state and local laws regulating the prices, routes or
services of motor carriers. The 1994 FAA Act does not limit the authority of a
state or other political subdivision to impose safety regulations or highway
route limitations or controls based on the size or weight of the motor vehicle,
the hazardous nature of cargo being transported by motor vehicles or financial
responsibility requirements relating to insurance and self-insurance
authorization. Although it is too early to evaluate fully the effect of the ICC
Termination Act and the 1994 FAA Act on the motor carrier industry or the
Company, it may ease the regulatory burden on certain aspects of the Company's
business and may increase price competition within inter and intrastate markets.
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EMPLOYEES; LABOR CONSIDERATIONS
The Company currently has approximately 275 full-time employees in
North America and approximately 32 independent contract drivers. None of the
Company's employees are members of a union. The Company's railroad operations
are somewhat seasonal. Most agricultural shipments occur from September through
May, and much of the Company's track maintenance is performed in the summer
months. Temporary layoffs of personnel, hiring of part-time or short-term
employees, or use of independent contractors are sometimes required to adjust to
the seasonal nature of track maintenance work and other business requirements.
The Company currently has approximately 90 full-time employees in its railroad
operations.
Kalyn currently has 120 full-time employees consisting of 28
administrative and sales personnel and 92 production workers. Kalyn's
administrative staff includes its four in-house salesmen and eight-person
engineering department.
Steel City Carriers currently has approximately 50 full-time employees
consisting of 9 administrative staff, 15 mechanics, shop and yard workers and 26
drivers. Steel City Carriers also uses approximately 32 independent contract
drivers.
Ferronor operated with approximately 350 employees as of the date that
the Company acquired majority ownership. As contemplated by management,
significant reductions in the work force are being effectuated. It is
anticipated that the work force will be reduced to between 150 and 200 full-time
employees by the end of the first year of operations.
ITEM 2. DESCRIPTION OF PROPERTY
MICHIGAN PROPERTIES
The majority of the Company's 185 miles of Michigan rail line consists
of 90 pound or heavier welded and jointed rail. In 1995, the Company retired 10
miles of rail line that had been abandoned. In addition, a two mile segment of
85 pound jointed rail was replaced with heavier rail in connection with the
Company's 1996 capital improvement program. The Company anticipates that it will
replace an additional 2 miles of rail during 1997. The Company's track standards
allow for maximum operating speeds ranging from 10 m.p.h. to 25 m.p.h. The
Company owns approximately 1,260 acres of operating and non-operating real
estate in Michigan. The Company's Michigan rail properties serve as collateral
for the Company's financing with National Bank of Canada. (See Note 8 to Notes
to Consolidated Financial Statements)
The Company maintains its Midwest regional headquarters office in a
building it leases in Saginaw, Michigan. The monthly payments under the lease
are $1,267 through December 1998. This facility houses management, staff,
engineering, accounting and marketing personnel. The Company also maintains an
operations center in a building it owns in Bad Axe, Michigan, which includes
equipment repair, track maintenance and real property management. The Company
owns a locomotive shop which was constructed in 1987, a maintenance-of-way
11
<PAGE> 12
equipment repair building completed in 1989 and a warehouse facility now used as
a maintenance headquarters.
TENNESSEE PROPERTIES
SCTR leases approximately 49 miles of rail line and approximately 450
acres of related real estate from the South Central Tennessee Railroad
Authority. The lease provides for base lease payments of $2,083 per month, plus
10% of taxable income of SCTR up to $100,000, and 15% of taxable income of SCTR
in excess of $100,000. The lease expires in October 1998 and upon expiration of
the lease term SCTR will acquire the leased property without further payment.
SCTR also has an option to acquire the property prior to expiration of the lease
term for $350,000 with a full credit allowed for rents paid under the lease.
SCTR owns a locomotive shop and general office facility which houses
all of its operating personnel in Centerville, Tennessee. SCTR also owns related
maintenance and office equipment. The Company's rights to the lease of the SCTR
property, as well as the common stock of SCTR owned by the Company and SCTR's
other equipment, serve as collateral under the Company's financing with General
Electric Capital Corporation obtained in connection with the Company's
acquisition of SCTR. (See Note 8 to Notes to Consolidated Financial Statements).
DELAWARE AND PENNSYLVANIA PROPERTIES
DVRC operates approximately 55 miles of rail line, of which 45 miles
are located in southeastern Pennsylvania, and 10 miles of contiguous line
extending into the State of Delaware, where the Company interchanges with CSX
Transportation at Elsmere, Delaware. The Pennsylvania rail line was operated
pursuant to an agreement between DVRC and the Commonwealth of Pennsylvania. The
rail line in Delaware was operated by DVRC pursuant to a 10-year lease with the
Wilmington & Northern Railroad Company. DVRC terminated that lease on June 30,
1996 and has since been operating over that rail segment on a month-to-month
basis. DVRC continues to receive grants from the Commonwealth for track
maintenance and improvements which require local matching. Such funds were
provided by DVRC in 1994 through 1996. In 1996, DVRC entered into a purchase
agreement to purchase a segment of the rail line owned by the Commonwealth of
Pennsylvania subject to a satisfactory appraised value.
The Company owns approximately 23 miles of rail line, between
Gettysburg and Mt. Holly Springs, Pennsylvania. The total land owned is
approximately 169 acres. In addition to the rail line and land, the Company owns
two buildings in Gettysburg.
MINNESOTA PROPERTIES
Dakota Rail operates approximately 44 miles of rail line, between
Hutchinson and Wayzata, Minnesota. The rail line is being purchased pursuant to
a contract for deed from the State of Minnesota. Dakota Rail also owns certain
non-operating real estate parcels. The total land owned by Dakota Rail both
operating and non-operating equals approximately 580 acres.
12
<PAGE> 13
In addition to the rail line and land, Dakota Rail also owns six buildings
including two depots, two diesel houses and two other buildings.
MNR currently owns approximately 174 miles of rail. The rail line
includes five branch lines, divided into seven segments in northern Minnesota.
MNR also owns approximately 2,600 acres of operating and non-operating land. MNR
sold approximately 30 miles of rail line in December 1996.
TEXAS RAILROAD PROPERTIES
WTLR owns approximately 104 miles of rail line, extending from the City
of Lubbock to both Seagraves and Whiteface. WTLR sold approximately 9 miles of
rail line during 1996. The total land owned by WTLR is approximately 1,500
acres. PTC has operating rights over 4 miles of track owned by the Burlington
Northern and Santa Fe Railroad in Plainview, Texas. In addition to the rail line
and land, WTLR owns four buildings. These buildings consist of a one story
storefront office building used as the railroad general offices in Brownfield,
Texas, as well as a maintenance building and a storage shed, in Brownfield and a
polebarn in Lubbock. The Company's Texas railroad properties serve as collateral
for the Company's financing with National Bank of Canada. (See Note 8 to Notes
to Consolidated Financial Statements).
WASHINGTON RAILROAD PROPERTIES
CCRR owns 131 miles of rail line, between Oroville and Wenatchee,
Washington. The total land owned by CCRR is approximately 1,600 acres. In
addition to the rail line and land, CCRR owns two buildings. These buildings
consist of an office building in Omak, Washington and a storage building in
Omak. The Company's Washington railroad properties serve as collateral for the
Company's financing with National Bank of Canada. (See Note 8 to Notes to
Consolidated Financial Statements).
INDIANA RAILROAD PROPERTY
ETC owns approximately 18 miles of rail line in southern Indiana. ETC
operates an additional 33 miles of rail line pursuant to an operating agreement.
CHILEAN PROPERTY
In February 1997, the Company through a newly formed wholly-owned
subsidiary, RailAmerica de Chile S.A., acquired 55% of the outstanding voting
stock of Ferronor. Ferronor owns and operates approximately 1,400 miles of rail
line serving northern Chile. RailAmerica was joined in the purchase of Ferronor
by APCO, a family-owned Chilean transportation and distribution company.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's southern
railway, Ferrocarril del Pacifico,
13
<PAGE> 14
S.A., to its northern terminus at Iquique, approximately 120 miles south of the
Peruvian border. It also operates several east-west branch lines that link a
number of iron, copper and limestone mines and production facilities with
several Chilean Pacific port cities. Ferronor also serves Argentina and Bolivia
through traffic interchanged with the General Belgrano Railroad and the
Ferrocarriles Antofagasta Bolivia.
TEXAS MANUFACTURING PROPERTIES
Kalyn's manufacturing operations are conducted in thirteen Company
owned buildings, totaling approximately 198,000 square feet on an 25.5-acre
site, which were constructed over the period from 1969 to 1996. Kalyn expanded
its manufacturing facility during 1995 and 1996. The Company's Texas
manufacturing properties serve as collateral for the Company's financing with
National Bank of Canada. (See Note 8 to Notes to Consolidated Financial
Statements). The Company expects that this site will be able to meet its
manufacturing goals in the foreseeable future.
ONTARIO PROPERTIES
Steel City Carriers operates from a terminal it owns located in Sault
Ste. Marie, Ontario, Canada, which includes an office building housing
administrative and dispatch offices, fabricating and service and a shop
building. The service facility has three bays which provide adequate space for
repairs and maintenance of Steel City Carriers' tractors and trailers as well as
some owner-operators' tractors. A 5-1/2 acre lot provides adequate space for the
normal loading, unloading, movement and parking of tractors and trailers as well
as for temporarily storing and transferring some shipments. The Company's
Ontario properties serve as collateral for the Company's financing with National
Bank of Canada. (See Note 8 to Notes to Consolidated Financial Statements).
ROLLING STOCK
As of December 31, 1996, the Company's domestic railroad rolling stock
consisted of 34 locomotives and 495 freight cars, some of which were owned and
some of which are leased from third parties. For most rail cars, the Company
pays no rental fees for their use and may retain such cars as long as the
Company demonstrates adequate utilization of the cars with connecting railroads
who must pay standard car hire charges for their use. The remainder of the cars
are subject to fixed monthly lease payments which are offset, in part, by fees
charged by the Company to connecting railroads and shippers. All of the
Company's locomotives are owned and serve as collateral under financing
agreements. (See Note 8 to Notes to Consolidated Financial Statements) The
Company also owns various other equipment used in the maintenance and operation
of its railroads. The following tables summarize the composition of the
Company's domestic railroad equipment fleet as of December 31, 1996:
14
<PAGE> 15
<TABLE>
<CAPTION>
Freight Cars
------------
Type Owned Leased Total
- ---- ----- ------ -----
<S> <C> <C> <C>
Covered hopper cars -- 229 229
Tank cars 98 -- 98
Box cars -- 80 80
Wood chip cars -- 78 78
Flat cars 10 -- 10
--- --- ---
108 387 495
=== === ===
<CAPTION>
Horsepower/Unit Locomotives
- --------------- -----------
3000 and over 2
1500 to 2000 27
Under 1500 5
---
34
===
</TABLE>
As of March, 1, 1997 Ferronor operated approximately 30 locomotives and
700 rail cars in Chile.
Based on current and forecasted traffic levels on the Company's
railroads, management believes that its present equipment, combined with the
availability of other rail cars for hire, is adequate to support its operations.
Management believes that the Company's insurance coverage with respect to its
property and equipment is adequate.
ADMINISTRATIVE OFFICES
The Company maintains its principal executive office in Boca Raton,
Florida. This office consists of approximately 3,600 square feet and is leased
through January 2001. The lease calls for monthly rental payments of
approximately $3,300 with annual increases. The Company signed an amendment to
the lease in the first quarter of 1997 which calls for the rental of an
additional approximately 3,000 square feet at such facility. It is anticipated
that this increased space will be ready for occupancy in May of 1997. In
addition, the Company maintains a corporate office in Alexandria, Virginia,
consisting of approximately 1,000 square feet and leased through March 1998,
with monthly rental payments of $1,459. The Company subleases a corporate office
in San Francisco, California, consisting of approximately 1,000 square feet and
leased through June 2001, with lease payments of approximately $550 per month.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims some of which are currently
pending. Litigation is subject to many uncertainties, the outcome of individual
litigated matters is not predictable with
15
<PAGE> 16
assurance, and it is reasonably possible that some of these matters may be
decided unfavorably to the Company. It is possible that the Company's financial
position, results of operations or cash flows could be materially affected by an
ultimate unfavorable outcome, if any, of such pending litigation. Other than
ordinary routine litigation incidental to the Company's business, no other
litigation exists, except as described below.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
16
<PAGE> 17
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Effective March 6, 1997 the Company's common stock began trading on the
Nasdaq National Market under the symbol "Rail". Prior to March 6, 1997, the
Company's common stock traded on the Nasdaq SmallCap Market tier of The Nasdaq
Stock Market. Set forth below is high and low bid information for the common
stock as reported on the NASDAQ system for each quarter of 1995 and 1996. All
such quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions and may not reflect actual transactions.
<TABLE>
<CAPTION>
1995 High Bid Price Low Bid Price
- ---- -------------- -------------
<S> <C> <C>
First Quarter $ 4 3/8 $ 2 15/16
Second Quarter 5 1/4 3 13/16
Third Quarter 5 1/16 3 1/2
Fourth Quarter 4 5/32 3 3/8
<CAPTION>
1996 High Bid Price Low Bid Price
- ---- -------------- -------------
First Quarter $ 4 1/16 $ 3 1/8
Second Quarter 4 3/16 3 3/16
Third Quarter 4 3/8 3 3/8
Fourth Quarter 5 3/4 4 1/8
<CAPTION>
1997 High Bid Price Low Bid Price
- ---- -------------- -------------
First Quarter (through March 27) $ 6 1/8 $ 4 5/8
</TABLE>
As of March 28, 1997, there were 290 holders of record of the common stock
and approximately 3,000 beneficial shareholders. The Company has never declared
or paid a dividend on its common stock. The ability of the Company to pay
dividends in the future will depend on, among other things, restrictive
covenants contained in loan or other agreements to which the Company may be
subject.
17
<PAGE> 18
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The results of operations of the Company for the year ended December
31, 1996 include the operations of ETC from July 1, 1996, CCRR from September 6,
1996, OTVR from October 1, 1996, Gettysburg Railway from November 18, 1996 and
MNR from December 28, 1996. The results of operations of the Company for the
year ended December 31, 1995 include the operations of Dakota Rail from
September 1, 1995 and WTLR and PTC from November 1, 1995. As a result, the
Company's financial position as of December 31, 1996 and its results of
operations for the years ended December 31, 1996 and 1995 are not comparable to
the prior year in certain material respects. In March 1997, the Company adopted
a formal plan to discontinue the operations of its motor carrier division. The
revenue and expenses for this division are not included in the consolidated
results of continuing operations of the Company for either 1996 or 1995. The
results of operations for the motor carrier division have been presented as
discontinued operations in the Company's 1996 and 1995 statements of income.
The Company's revenues increased by $0.6 million, or 2.3%, from $25.1
million for the year ended December 31, 1995 to $25.7 million for the year ended
December 31, 1996. Operating expenses decreased by $0.1 million, or less than
one percent, from $21.9 million for the year ended December 31, 1995 to $21.8
million for the year ended December 31, 1996. Other expenses, net increased by
$1.0 million, or 87.8%, from $1.1 million for the year ended December 31, 1995
to $2.1 million for the year ended December 31, 1996. Income from continuing
operations remained fairly constant at $1.1 million from 1995 to 1996. Increases
in revenue, operating expenses, and other expenses were primarily due to the
acquisition of additional rail lines and related operations in 1995 and 1996.
Primary earnings per share was $0.04 in 1995 compared to $0.10 in 1996.
Earnings per share in 1995 reflects a reduction of $666,665 to net income
available to common shareholders. Such reduction relates to a non-recurring
charge in connection with a deemed preferred stock dividend on the retirement of
such stock. On October 1, 1995, the Company was notified by the shareholders of
its redeemable convertible preferred stock of their intention to convert such
stock into shares of Common Stock. The Company redeemed the convertible
preferred stock at 97.5% of the then market value of the underlying common stock
for an aggregate redemption price of $1,666,665. The excess of the redemption
price over the book value of the preferred stock was deemed a non-recurring
dividend which reduced net income available to common shareholders by $666,665
or $0.14 per share.
Set forth below is a discussion of the results of operations for the
Company's railroad operations, trailer manufacturing operations and motor
carrier operations (discontinued operations). The corporate overhead, which
benefits all of the Company's segments, has not been allocated to the business
segments for the purposes of this analysis. The Company believes that this
presentation facilitates a better understanding of the relevant changes in the
results of the Company's operations. Corporate overhead, which is included in
selling, general and administrative expenses in the consolidated statements of
income, increased by $483,000, or 24.1%, to $2.5 million in 1996 compared to
$2.0 million for
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<PAGE> 19
1995. The increase was related to the additional costs incurred to manage the
assets and businesses acquired during 1995 and 1996 including Dakota Rail, OTVR,
WTLR, PTC, ETC, CCRR, Gettysburg Railway and MNR. Certain corporate overhead was
also included in depreciation and amortization in the consolidated statements of
income. This depreciation and amortization increased by $51,000, or 213.9%, to
$75,000 in 1996 compared to $24,000 in 1995.
RESULTS OF RAILROAD OPERATIONS
The following discussion reflects the consolidated results of the
Company's railroad operations for the years ended December 31, 1996 and 1995. As
a result of the acquisitions discussed above, the results of operations for the
years ended December 31, 1996 and 1995 are not comparable to the prior years in
certain material respects.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
The table below compares the components of the Company's revenues from
its railroad operations for the periods shown.
<TABLE>
<CAPTION>
For the Year Ended
--------------------------------------------------------
December 31, 1996 December 31, 1995
------------------------ ------------------------
Gross % Change Gross % Change
Revenues From 1995 Revenues From 1994
------------ --------- ----------- ---------
<S> <C> <C> <C> <C>
Transportation revenues $ 9,783,041 44.6% $ 6,767,530 34.5%
Other revenues 1,921,160 340.0% 436,586 272.1%
------------ -----------
Total revenues $ 11,704,201 62.5% $ 7,204,116 39.9%
============ ===========
</TABLE>
TRANSPORTATION REVENUES. Transportation revenues for the year ended
December 31, 1996 increased by $3.0 million, or 44.6%, compared to the prior
year primarily due the acquisitions which occurred during 1996 and the second
half of 1995. WTLR, which was acquired in November 1995, had revenue of
approximately $255,000 for the two months ended December 31, 1995 and
approximately $1.8 million for 1996, an increase of $1.5 million. Dakota Rail,
which was acquired in September 1995, had revenue of approximately $230,000 for
the four months ended December 31, 1995 and $590,000 in 1996, an increase of
$360,000. CCRR, which was acquired in September 1996, had revenue of
approximately $750,000 in 1996. OTVR, which was acquired in October 1996, had
revenue of approximately $560,000 in 1996. In addition to the foregoing
acquisitions, SCTR's revenue increased by approximately $400,000 due to
increased carloads and demurrage earned from certain shippers, offset by a
decrease in HESR's revenue of approximately $796,000 due to a reduction in
carloads in the second half of 1996 compared to 1995. The transportation revenue
per carload increased from $366 in 1995 to $378 in 1996 due primarily to
increased rates and divisions of revenue with
19
<PAGE> 20
connecting carriers. Carloads handled by the Company's railroads totaled 25,871
for the year ended December 31, 1996, an increase of 7,366, or 39.8%, compared
to 18,505 for the year ended December 31, 1995. The increase was primarily the
result of acquisitions of WTLR, whose carloads increased by 3,630 from 1995 to
1996, Dakota Rail, whose carloads increased by 550 from 1995 to 1996, CCRR,
whose carloads totalled 1,892 in 1996, OTVR, whose carloads totalled 1,730 in
1996 and ETC, whose carloads totalled 715 carloads in 1996. Additionally, SCTR's
carloads increased by 242 in 1996 as compared to 1995. These increases were
partially offset by a decrease in HESR's carloads of 1,408 resulting from a
decrease in agricultural shipments in the second half of 1996.
OTHER REVENUES. Other revenues increased by approximately $1.5 million,
or 340.0%, from $436,586 for the year ended December 31, 1995 to $1.9 million
for the year ended December 31, 1996. Other revenues for 1996 included gains on
sales of certain operating assets, rental income and other miscellaneous items
of income. The increase was primarily due to the gain of (i) approximately
$582,000 from the sale of 22 miles of track and a rail car repair shop in
Indiana, (ii) approximately $579,000 from the sale of 30 miles of track in
Minnesota, and (iii) approximately $230,000 from the sale of 9 miles of track in
Texas. Additionally, during 1996 the Company sold a permanent easement in
Michigan for $106,000. Rental income increased as a result of assets acquired in
1995 and 1996.
OPERATING EXPENSES. The table below is a comparison of operating
expenses (which do not include interest expense and other income) for the
periods shown.
<TABLE>
<CAPTION>
For The Year Ended
--------------------------
December 31, 1996 December 31, 1995
--------------------- -------------------
% Change % Change
Expenses From 1995 Expenses From 1994
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Maintenance of way $ 1,309,976 66.5% $ 786,708 136.3%
Maintenance of equipment 625,177 33.0% 470,058 36.9%
Transportation 2,074,897 34.0% 1,548,084 25.5%
Equipment rental 387,834 69.2% 229,218 (24.4%)
Selling, general and administrative 1,381,169 72.4% 801,187 0.0%
Depreciation and amortization $ 961,383 20.5% $ 797,614 41.0%
----------- -----------
Total operating expenses $ 6,740,436 45.5% $ 4,632,869 29.4%
=========== ===========
</TABLE>
Operating expenses increased by $2.1 million, or 45.5%, from $4.6
million for the year ended December 31, 1995 to $6.7 million for the year ended
December 31, 1996. Maintenance of way expenses increased by approximately
$520,000, or 66.5%,
20
<PAGE> 21
from $786,708 for the year ended December 31, 1995 to approximately $1.3 million
for the year ended December 31, 1996 primarily due to certain acquisitions which
occurred in 1996 and the second half of 1995. WTLR, which was acquired November
1, 1995, had maintenance of way expenses of approximately $53,000 for the two
months ended December 31, 1995 compared to maintenance of way expenses of
approximately $370,000 in 1996, an increase of $317,000. Dakota Rail, which was
acquired September 1, 1995, had maintenance of way expenses of approximately
$40,000 for the four months ended December 31, 1995 compared to maintenance of
way expenses of approximately $150,000 in 1996, an increase of $110,000. CCRR,
which was acquired in September 1996, had maintenance of way expenses of
approximately $57,000 in 1996. OTVR, which was acquired October 1, 1996, had
maintenance of way expenses of approximately $49,000 in 1996. ETC, which was
acquired in June 1996, had maintenance of way expenses of approximately $47,000
in 1996. Maintenance of equipment expenses increased by approximately $155,000,
or 33.0%, primarily due to certain acquisitions which occurred in the second
half of 1995. WTLR, which was acquired November 1, 1995, had maintenance of
equipment expenses of approximately $18,000 for the two months ended December
31, 1995 compared to maintenance of equipment expenses of approximately $132,000
in 1996, an increase of $114,000. Transportation expenses increased by
approximately $530,000, or 34.0%, primarily due to certain acquisitions which
occurred in 1996 and the second half of 1995. WTLR, which was acquired November
1, 1995, had transportation expenses of approximately $71,000 for the two months
ended December 31, 1995 compared to transportation expenses of approximately
$322,000 in 1996, an increase of $251,000. CCRR, which was acquired in September
1996, had transportation expenses of approximately $144,000 in 1996. Dakota
Rail, which was acquired September 1, 1995, had transportation expenses of
approximately $34,000 for the four months ended December 31, 1995 compared to
transportation expenses of approximately $98,000 in 1996, an increase of
$64,000. OTVR, which was acquired October 1, 1996, had transportation expenses
of approximately $59,000 in 1996. ETC, which was acquired in June 1996, had
transportation expenses of approximately $42,000 in 1996. These increases in
transportation expenses were partially offset by a decrease in transportation
costs of approximately $28,000 at the Company's railroads in Pennsylvania
related to decreased carloads from 1995 to 1996. Equipment rental increased
approximately $160,000, or 69.2%, for the period primarily due to an increase of
approximately $157,000 in the costs associated with increased carloads from the
acquisitions in 1996 and late 1995 and increased car hire expense at SCTR of
approximately $82,000, partially offset by decreased costs at HESR of
approximately $75,000 due to decreased car loads from 1995 to 1996. Selling,
general and administrative expenses increased approximately $580,000, or 72.4%,
compared to the prior period. Such increase was due primarily to additional
costs of approximately $515,000 related to the acquisitions in 1996 and the
second half of 1995.
Operating expenses, as a percentage of transportation revenue, were
68.9% and 68.5% for 1996 and 1995, respectively. The change was primarily due to
higher maintenance of way expenses and equipment rental costs as a percentage of
total revenue for certain of the acquisitions. Management anticipates that
operating expenses as a percentage of revenue will remain fairly constant over
the next twelve months.
OTHER INCOME (EXPENSE). Interest expense
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<PAGE> 22
increased by approximately $695,000, or 111.7%, from $605,000 for the year ended
December 31, 1995 to $1.3 million for the year ended December 31, 1996. The
increase is primarily due to the interest expense related to the acquisitions of
CCRR (interest of $254,432), OTVR (interest of $77,756), and WTLR (interest of
$326,332).
RESULTS OF TRAILER MANUFACTURING OPERATIONS
The discussion of the results of operations that follows reflects the
results of Kalyn, REC and RailAmerica Financial Services ("RFS") for the years
ended December 31, 1996 and 1995. REC and RFS are leasing companies. REC
currently leases railroad tank cars, flat cars and locomotives to various
railroads and shippers. RFS was merged into REC in November 1996.
COMPARISON OF OPERATING RESULTS OF KALYN FOR THE YEARS ENDED DECEMBER 31, 1996
AND 1995.
The following table sets forth the income and expense items of Kalyn
for the years ended December 31, 1996 and 1995 and the percentage relationship
of income and expense items to net sales:
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 31, 1996 December 31, 1995
------------------------ -------------------
<S> <C> <C> <C> <C>
Net Sales $ 13,637,978 100.0% $17,872,777 100.0%
Cost of Goods Sold 10,447,827 76.6% 13,398,740 75.0%
------------ -----------
Gross Profit 3,190,151 23.4% 4,474,037 25.0%
Selling, General and
Administrative expenses 1,399,646 10.3% 1,383,812 7.7%
Depreciation and amortization 433,353 3.2% 408,139 2.3%
------------- -----------
Income from Operations 1,357,152 9.9% 2,682,086 15.0%
Other Expenses (net) 348,430 2.5% 530,789 3.0%
------------- -----------
Income Before Taxes $ 1,008,722 7.4% $ 2,151,297 12.0%
============= ===========
</TABLE>
NET SALES. Net sales consist of trailer sales, part sales and repair
income. Net sales decreased by approximately $4.3 million, or 31.6%, from $17.9
million for the year ended December 31, 1995 to $13.6 million for the year ended
December 31, 1996. Trailer sales represented approximately 96% of the net sales
in both 1996 and 1995. Kalyn sold 547 trailers
22
<PAGE> 23
during 1996 and 875 trailers during 1995. The average price per trailer sold was
approximately $24,000 for the year ended December 31, 1996 and approximately
$20,000 for the year ended December 31, 1995. Sales to governmental agencies
represented 20% and 29% of Kalyn's net sales for 1996 and 1995, respectively.
During the first half of 1996, Kalyn was in the process of building 5 prototype
trailers in connection with the October 1995 TACOM contract. Full production
under the contract began immediately after acceptance by TACOM of the
prototypes. The decrease in sales for 1996 compared to 1995 was partially due
to the above contract work as well as the federal government budget impasse
during the fourth quarter of 1995 and early 1996, which resulted in a suspension
of new trailer orders from the government.
COST OF GOODS SOLD. Cost of goods sold decreased by approximately $3.0
million, or 28.8%, from $13.4 million for the year ended December 31, 1995 to
$10.4 million for the year ended December 31, 1996. Cost of goods sold
represented 76.6% of net sales for the year ended December 31, 1996 compared to
75.0% for the comparable period. The increase was partially due to certain fixed
costs of manufacturing being spread over a smaller revenue base in 1996.
Additionally, commercial orders represented a higher percentage of sales in 1996
than in 1995. Commercial trailers have more variations in design which generally
require greater expertise in the manufacturing process. Government contracts are
typically for larger quantities of similar style trailers creating greater
economies of scale in the production process which results in a relatively lower
cost per unit produced. Historically, commercial sales have had a higher cost of
goods sold and lower gross profit margins than government sales. Management
anticipates gross profit as a percentage of net revenue to increase over the
next twelve months as a relatively larger percentage of sales will be
attributable to government agencies as orders are received and processed under
the TACOM agreements that were entered into during the fourth quarter of 1995
and first quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative costs remained fairly constant during 1996 compared to 1995.
REC AND RFS. Revenue for REC and RFS for the year ended December 31,
1996 increased by $316,037 compared to the prior year as a result of tank car
leases and locomotive leases entered into during 1996. Selling, general and
administrative expense increased by $108,641 from $35,443 in the year ended
December 31, 1995 to $144,084 for the year ended December 31, 1996. The increase
was primarily due to costs associated with the management and operation of the
tank car leases. Depreciation and amortization expenses also increased to
$56,557 in 1996 from $1,907 in the prior period due to the addition of the tank
cars and locomotives. Interest expense of $83,570 in 1996 represented interest
from financing the purchase of tank cars and locomotives.
RESULTS OF MOTOR CARRIER OPERATIONS (DISCONTINUED OPERATIONS)
The discussion of results of operations that follows reflects the
results of Steel City Carriers and RIS from February 10, 1995 through December
31, 1996.
Since the Company's acquisition of Steel City, its financial
performance and development have not met the Company's expectations.
Accordingly, in March 1997 the
23
<PAGE> 24
Company adopted a formal plan to discontinue its motor carrier operations and
refocus the Company's efforts on expanding its core railroad business. The
Company's Board of Directors approved the plan of discontinuance on March 20,
1997. Management anticipates selling either substantially all of the assets or
the stock of the Company's motor carrier subsidiaries during 1997.
<TABLE>
<CAPTION>
For the Period from
For the Year Ended February 10, 1995 to
December 31, 1996 December 31, 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
Transportation revenue $ 7,216,301 100.0% $ 5,083,238 100.0%
------------ -----------
Direct operating expenses 6,541,528 90.6% 4,468,306 87.9%
Selling, General and
Administrative expenses 801,201 11.1% 520,881 10.2%
Depreciation and amortization 365,088 5.1% 243,755 4.8%
------------ -----------
Total operating expenses 7,707,817 106.8% 5,232,942 102.9%
------------ -----------
Operating loss 491,516 6.8% 149,704 2.9%
Other expenses (net) 406,158 5.6% 203,014 4.0%
------------ -----------
Net loss before taxes $ 897,674 12.4% $ 352,718 6.9%
============ ===========
</TABLE>
TRANSPORTATION REVENUE - Transportation revenue increased by
approximately $2.1 million, or 41.2%, from $5.1 million for the year ended
December 31, 1995 to $7.2 million for the year ended December 31, 1996. The
increase was primarily due to the increase in miles driven by Steel City
carriers during 1996 and the inclusion of RIS operations in 1996. RIS had
transportation revenue of $230,266 for 1996 compared to $27,556 for the prior
year.
DIRECT OPERATING EXPENSES - Direct operating expenses increased by
approximately $2.0 million, or 44.4%, from $4.5 million for the year ended
December 31, 1995 to $6.5 million for the year ended December 31, 1996. Direct
operating expenses represented 90.6% of transportation revenue for the year
ended December 31, 1996 compared to 87.9% for the period ended December 31,
1995. The increase was due to increased equipment maintenance and repairs, a
significant increase in fuel costs from 1995 to 1996 and the unusually extreme
winter weather in early 1996. The extreme winter weather caused many roads in
Ontario and the northern United States to be closed for extended periods of
time, resulting in lost revenue and increased costs.
GENERAL AND ADMINISTRATIVE - General and administrative expenses
decreased slightly as a percentage of transportation revenue for the year ended
December 31, 1996 compared to the period ended December 31, 1995. This decrease
was due to economies of scale achieved due to
24
<PAGE> 25
increased revenue in 1996.
OTHER EXPENSE (NET) - Other expenses, net increased by approximately
$200,000, or 100%, due primarily to losses from the disposal of certain old
equipment of approximately $125,000 and increased interest expense of
approximately $100,000.
LIQUIDITY AND CAPITAL RESOURCES - COMBINED OPERATIONS
The discussion of liquidity and capital resources that follows reflects
the consolidated results of the Company, including all subsidiaries.
The Company's cash provided by operating activities was $2.2 million
for the year ended December 31, 1996. However approximately $1.8 million of cash
provided by operating activities, net of acquisitions during the period, is
attributable to an increase in accounts receivable. The Company's accounts
receivable increased from $2.2 million as of December 31, 1995 to $4.6 million
as of December 31, 1996 primarily as a result of orders placed by TACOM under
requirements contracts with Kalyn, which accounts receivable were collected in
early 1997, and accounts receivable related to acquisitions.
Cash used in investing activities was $5.4 million for the year ended
December 31, 1996. One of the Company's main uses of cash during 1996 was for
the purchase of property, plant and equipment. Property, plant and equipment
increased $28.3 million during 1996 primarily due to the purchase of 131 miles
of rail line in the state of Washington, the purchase of 276 miles of rail line
in central and northern Minnesota, the purchase of 23 miles of rail line in
Pennsylvania, improvements made to the Company's various other rail lines,
Kalyn's new plant construction and the acquisition of transportation equipment
for the motor carrier and railroad segments, less current depreciation. During
late 1995, Kalyn began construction of additional space at its manufacturing
facility upon land that it owns to accommodate production under the TACOM
agreement. The expansion was completed in 1996. This expansion cost
approximately $300,000 and was funded through operating cash flow and advance
payments from TACOM.
The Company's cash provided by financing activities for 1996 was $3.6
million and consisted of the net proceeds from borrowings under the Company's
revolving line of credit with the National Bank of Canada, net proceeds of
approximately $4.0 million from the issuance of 1,250,000 shares of the
Company's common stock in a private placement transaction and $2.34 million
received in December 1996 as part of a private placement transaction which was
completed in January 1997.
25
<PAGE> 26
The Company's long term debt represents financing of property and
equipment, as well as the acquisition financing for SCTR, Kalyn, Steel City
Carriers, Dakota Rail, WTLR, PTC, ETC, CCRR, MNR, OTVR and Gettysburg Railway.
Certain of this indebtedness was refinanced through a $15 million revolving line
of credit (the "Revolver") with National Bank of Canada. The Revolver bears
interest, at the option of the Company, at either the bank's prime rate plus
0.5% or the one, three or six month LIBOR plus 2.5%. The Revolver is
collateralized by substantially all of the assets of the Company, Kalyn, HESR,
SGVY, RIS, CCRR, Steel City Carriers, WTLR and OTVR.
In October 1996, the Company increased the Revolver by $10.0 million.
The increased facility bears interest at the rate of 0.5% above prime. The
maturity date of the entire $25 million revolver was extended to October 1999.
On March 3, 1997, the Company received a loan commitment from National
Bank of Canada and Comerica Bank N.A. to further increase the Revolver to $40
million. It is anticipated that this additional increase will be finalized in
April 1997.
As of December 31, 1996, the Company had working capital of $5.1
million compared to working capital of $3.0 million as of December 31, 1995.
Cash on hand as of December 31, 1996 was $3.9 million compared to $3.5 million
as of December 31, 1995. The increase in cash from December 31, 1995 to December
31, 1996 is due primarily to cash received in December 1996 as part of a private
placement that was completed in January 1997 and cash received from the sale of
track assets in December 1996. The Company's cash flows from operations have
historically been sufficient to meet its ongoing operating requirements, capital
expenditures for property, plant and equipment, and to satisfy the Company's
interest requirements.
The Company expects that its future cash flow will be sufficient for
its current and contemplated operations for at least the next twelve months and
will be used for, among other things, anticipated capital expenditures for the
upgrading of existing rail lines and purchases of locomotives and equipment of
approximately $1.5 million and capital expenditures at Kalyn of approximately
$100,000. The Company does not presently anticipate any other significant
capital expenditures over the next twelve months. To the extent possible, the
Company will seek to finance any further acquisitions of property, plant and
equipment in order to allow its cash flow from operations to be devoted to other
uses, including debt reduction and acquisition requirements.
The Company's long-term business strategy includes the selective
acquisition of additional transportation-related businesses. Accordingly,
Company may require additional equity and/or debt capital in order to consummate
an acquisition or undertake major development activities. It is impossible to
predict the amount of capital that may be required for such acquisitions or
development, and there is no assurance that sufficient financing for such
activities will be available on terms acceptable to the Company, if at all. The
Company's $25 million revolving line of credit allows acquisition loan advances
of up to $20 million for such acquisitions. The Company borrowed $8.9 million
under the Revolver in order to fund its acquisition of
26
<PAGE> 27
ETC and CCRR. In addition, the Company borrowed $4.5 million from Comerica Bank
to acquire MNR. It is anticipated that the balance of this loan will be rolled
into the increased $40 million Revolver. Upon the closing of the increase in the
Revolver, the Company will have approximately $13.5 million available for future
acquisitions. As of March 1, 1997, the Company had approximately $3.0 million
of availability under the $25 million Revolver.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, Statements of Financial Accounting Standards ("SFAS"_
No. 128 "Earnings Per Share" was issued. SFAS No. 128 established new standards
for computing and presenting earnings per share ("EPS"). This statement
replaces the presentation of primary EPS and will require a duel presentation
of basic and diluted EPS. SFAS No. 128 is effective for financial statements
issued for periods ended after December 15, 1997 and requires restatement of
all prior-period EPS data presented. The Company has not yet determined the
impact, if any, the adoption of SFAS No. 128 will have on the Company's
financial statements.
INFLATION
Inflation in recent years has not had a significant adverse impact on
the Company's operations, and it is not expected to adversely affect the Company
in the future unless it increases substantially, and the Company is unable to
pass through the increases in its freight rates and trailer prices.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1993, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events, including the following: statements regarding the further growth
in transportation-related assets; the acquisition of additional railroads and
other transportation-related companies; the development of additional
transportation-related businesses; the increased usage of the Company's existing
rail lines; the development of synergy among the consolidated group; the growth
of gross revenues; and the sufficiency of the Company's cash flow for the
Company's future liquidity and capital resource needs. The Company cautions that
these statements are further qualified by important factors that could cause
actual results to differ materially from those in the forward-looking
statements, including, without limitations, the following: decline in demand for
transportation services; the effect of economic conditions generally and
particularly in the markets served by the Company; orders under the TACOM
agreements; the Company's dependence upon the agricultural industry as a
significant user of the Company's rail services; the Company's dependence upon
the availability of financing for acquisitions of railroads and other
transportation-related companies and the development of additional
transportation-related businesses; a decline in the market acceptability of
trucking or railroad services; the effect of competitive pricing; the
regulation of the Company by federal, state and local regulatory authorities.
Any material adverse change in the financial condition or results of operations
of Kalyn would have a material adverse impact on the Company. Results actually
achieved thus may differ materially from expected results included in these
statements.
ITEM 7. FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company, the accompanying
notes thereto and the independent auditor's report are included as part of this
Form 10-KSB and immediately follow the signature page of this Form 10-KSB.
27
<PAGE> 28
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. - None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Board of Directors of the Company (sometimes referred to herein as
the "Board") is divided into three classes. The directors are elected by the
stockholders of the Company for staggered three-year terms, or until their
successors are elected and qualified. The current term of the Class I director
terminates on the date of the Company's 1999 annual meeting of stockholders; the
current term of the Class II directors terminates on the date of the 1997 annual
meeting of stockholders; and the current term of the Class III directors
terminates on the date of the 1998 annual meeting of stockholders. At each
annual meeting of stockholders, successors to the class of directors whose term
expires at that annual meeting are elected for a three-year term. Messrs. Donald
Redfearn and Charles Swinburn currently serve as Class I directors. Messrs. John
Marino, John Sullivan and Robert Toia currently serve as Class II directors, and
Messrs. Gary Marino, Richard Rampell and Douglas Nichols currently serve as
Class III directors.
At the July 1996 meeting of the Company's Board of Directors, the Board
voted to expand the size of the board. Robert Toia and Douglas Nichols were
elected at the Annual Meeting of Shareholders in July 1996 to fill such
vacancies.
The following table sets forth information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Gary O. Marino(1) 52 Chairman of the Board, Chief Executive Officer, President,
Treasurer
John H. Marino(1) 57 Vice Chairman of the Board, Senior Transportation Officer,
Assistant Secretary
Donald D. Redfearn 44 Executive Vice President, Secretary,
Director
W. Graham Claytor, III 46 Senior Vice President - Rail Group
Robert B. Coward 51 Senior Vice President - Manufacturing Group
John M. Sullivan 72 Director
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Charles Swinburn 54 Director
Richard Rampell 44 Director
Douglas Nichols 44 Director
Robert F. Toia 67 Director
- ----------------------
</TABLE>
(1) John H. Marino and Gary O. Marino are brothers.
Pursuant to the terms of the Underwriting Agreement relating to the
Company's November 1992 initial public offering, the Representatives of the
Underwriters of such offering have the right, until September 1997, to have a
designee attend all meetings of the Board of Directors of the Company and to
cause the Company to nominate and use its best efforts to obtain election to the
Board of Directors of a person designated by the Representatives. Mr. Sullivan
was elected to the Board after designation by the Underwriters.
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. Information
concerning the principal occupations and employment of the directors and
executive officers of the Company for, at least, the past five years is set
forth below.
GARY O. MARINO - Mr. Marino has been Chairman, a director and Treasurer
of the Company since its inception in April 1992, Chief Executive Officer since
March 1, 1994 and President since July 1996, and has been Chairman, a director
and Treasurer of HESR since 1986. Mr. Marino joined the Company on a full-time
basis in March 1994. Mr. Marino was also the Chairman of Huron Transportation
Group, Inc. ("HTG") from its inception in 1987 until HTG merged with RailAmerica
Services Corporation in December 1993 (the "HTG Merger"). From 1984 until
October 1993 Mr. Marino was the Chairman, President and Chief Executive Officer
of Boca Raton Capital Corporation ("BRCC"), a publicly-traded venture capital
firm. He received his B.A. from Colgate University in 1966 and an M.B.A. from
Fordham University in 1973. From 1966 to 1969 Mr. Marino served as an officer
with the United States Army Ordnance Corps.
JOHN H. MARINO - Mr. Marino has been Vice Chairman of the Company since
July 1996 and a director of the Company since its inception in April 1992 and
has been President and a director of HESR since 1986. Mr. Marino was President
and Chief Operating Officer from the Company's inception until July 1996. Mr.
Marino was also the President of HTG from its formation in January 1987 until
the HTG Merger in December 1993. Prior to founding HESR in 1985, Mr. Marino
served as President and Chief Executive Officer of several shortline railroads,
as an officer of the Reading Railroad, and with the United States Railway
Association, Washington D.C. Mr. Marino received his B.S. in civil engineering
from Princeton University
29
<PAGE> 30
in 1961 and his M.S. in transportation engineering from Purdue University in
1963. From 1963 to 1965, Mr. Marino served as an officer with the United States
Army Corps of Engineers.
DONALD D. REDFEARN - Mr. Redfearn has been Executive Vice President,
Administration and Secretary of the Company since December 1994. Mr. Redfearn
has been an officer and director since the Company's inception in April 1992 and
HESR since 1986. Mr. Redfearn joined the Company on a full-time basis in January
1996. Mr. Redfearn was president of Jenex Financial Services, Inc., a financial
consulting firm from September 1993 until September 1995. From 1984 until
September 1993 Mr. Redfearn served in various capacities at BRCC where he served
as Senior Vice President, Assistant Secretary and Treasurer. Mr. Redfearn was
also a Vice President of HTG until the HTG merger. He received his B.A. in
Business Administration from the University of Miami in Florida and graduated
from the School of Banking of the South at Louisiana State University, Baton
Rouge, Louisiana.
W. GRAHAM CLAYTOR, III - Mr. Claytor serves as the Company's Senior
Vice President, Rail Group. Mr. Claytor joined the Company in March 1996. Mr.
Claytor was Managing Director of Southern Pacific ("SP")'s Plant Rationalization
function, charged with selling, leasing and abandoning surplus branch and
mainline trackage. Prior to his six-year tenure at Southern Pacific in short
line sales, Mr. Claytor served as Superintendent of the Buffalo & Pittsburgh
Railroad and as Trainmaster for Norfolk Southern Corporation, and supervised
marine terminal operations of the Virginia Maryland Railroad. He received a B.S.
degree from Boston University.
ROBERT B. COWARD - Mr. Coward serves as the Company's Senior Vice
President, Manufacturing Group. Mr. Coward served as President and General
Manager of Kalyn from 1981, when he arranged the management buyout of the
company from its prior stockholders, until the acquisition of Kalyn by
RailAmerica. Mr. Coward continued with Kalyn as Vice President and General
Manager after RailAmerica acquired Kalyn in 1994. Mr. Coward started with Kalyn
as Production Manager in 1968. He was promoted to General Manager in 1969, and
has performed all functions related to the Company's government contracting
business. Mr. Coward earned his B.S. degree in Industrial Arts from Tarleton
State University in 1967.
JOHN M. SULLIVAN - Mr. Sullivan was elected a director in January 1993.
From 1977 until 1981 Mr. Sullivan served, upon appointment by President Carter,
as head of the United States Federal Railroad Administration. From 1982 until
1990, Mr. Sullivan was President and Chief Executive Officer of Haug Die
Casting, Inc., where he remains as a director. Mr. Sullivan received his B.S. in
engineering from the United States Naval Academy and served with the United
States Navy as an officer, and ultimately as a carrier aviator, from 1946 until
1954.
CHARLES SWINBURN - Mr. Swinburn joined the Board of Directors of the
Company effective February 1, 1995. Mr. Swinburn is currently a practicing
attorney in the Washington, D.C. office of Morgan, Lewis & Bockius, where he
specializes in environmental law. From April 1990 through August 1993, Mr.
Swinburn served as a consultant to private industry and the government. Prior to
that time, Mr. Swinburn served as Vice President of Rollins Environmental
Services, Inc. Mr. Swinburn served in various capacities at the U.S. Department
of
30
<PAGE> 31
Transportation, most recently as Deputy Assistant Secretary for Policy and
International Affairs. Mr. Swinburn received his B.A. from Princeton University
in 1969, his M.B.A. from Harvard Business School in 1971 and his J.D. from the
University of Pennsylvania in 1993.
RICHARD RAMPELL - Mr. Rampell joined the Board of Directors of the
Company effective, July 27, 1995. Mr. Rampell, a certified public accountant, is
currently the Chief Executive of Rampell and Rampell, P.A., of Palm Beach,
Florida. Mr. Rampell is past president of the Palm Beach Tax Institute and a
past president of the Florida Institute of CPA's, East Coast Chapter. Mr.
Rampell graduated with honors from Princeton University with an AB degree and
received his M.B.A. from the Wharton School at the University of Pennsylvania.
ROBERT TOIA - Mr. Toia was elected a director in July 1996. Mr. Toia
was the former President of the Brandywine Valley Railroad, the Upper Merion &
Plymouth Railroad and the South Central Florida Railroad. Mr. Toia served as a
transportation consultant to the Lukens Steel Company from 1957 until he joined
the company as a Supervisor, Traffic and Transportation. From 1967 to 1992, Mr,
Toia served in various capacities with Lukens Steel Company, including from 1982
to 1992, as the company's Corporate General Manager, Rail Division where he was
responsible for managing Lukens' in-plant railroads. In all, Mr. Toia has over
forty years experience in the transportation industry. Mr. Toia completed
executive management programs at the University of Michigan and Columbia
University. From 1951 to 1953, Mr. Toia served in the Judge Advocate Corps of
the United States Army.
DOUGLAS R. NICHOLS - Mr. Nichols was elected a director in July 1996.
Mr. Nichols is a certified public accountant and the founder, President and
principal stockholder of First London Securities Corporation, a securities
broker-dealer specializing in equity trading and investment banking. From 1989
to 1991, Mr. Nichols was a Vice President with the Dallas, Texas office of Smith
Barney and, from 1986 to 1989, was a broker with the Dallas branch of Shearson
Lehman Brothers. Mr. Nichols is a member of the National Railway Historical
Society. Mr. Nichols received his B.A. from Allegheny College, Meadville
Pennsylvania in 1974.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership in common stock of the Company
with the Securities and Exchange Commission ("SEC"). Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it,
the Company believes that, during the year ended December 31, 1996 and with
respect thereto, all filing requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied with except a Form 3,
covering one transaction, was filed late by Douglas Nichols, a Form 4, covering
one transaction, was filed late by W. Graham Clayton, III and a Form 3 and
31
<PAGE> 32
Form 4, covering two separate transactions, were filed late by Robert Toia.
ITEM 10. EXECUTIVE COMPENSATION
BOARD OF DIRECTORS COMPENSATION
During 1995, each director of the Company who was not an employee of
the Company received a retainer of $1,000 per month and was paid $500 per Board
meeting attended and $400 for each additional day spent on Company business. All
directors are reimbursed for reasonable out-of-pocket expenses associated with
travel to Board meetings and other Company business.
Effective March 1, 1996, the compensation for directors that are not
employees of the Company changed to a retainer of $2,000 per month, and will be
paid $500 for each Board meeting attended and $400 for each committee meeting
attended ($600 for the Chairman).
1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN. The Board of Directors of
the Company has adopted, effective January 1, 1995, the 1995 Non-Employee
Director Stock Option Plan (the "Directors Plan"), under which 250,000 shares of
common stock have been reserved for issuance. Pursuant to the Directors Plan,
directors of the Company who are not also employees of the Company
("Non-Employee Directors") are granted options to purchase Common Stock. The
Directors Plan is administered by the Compensation Committee, the members of
which are also participants therein. Subject to the provisions of the Directors
Plan, the Compensation Committee has sole discretionary authority to construe,
interpret and apply the terms of the Directors Plan, to determine all questions
thereunder, and to adopt and amend rules and regulations for the administration
thereof as it may deem desirable.
Under the terms of the Directors Plan, each Non-Employee Director will
be granted an option to purchase 50,000 shares of common stock on the date such
person is first elected to become a director of the Company. The term of the
Directors Plan is ten years from the effective date, after which no further
options will be granted thereunder. Options granted under the Directors Plan
expire ten years from the date of grant. The exercise price per share of each
option granted under the Directors Plan will be the fair market value of the
Common Stock on the date prior to the date the option is granted. Options
granted under the Directors Plan vest over a period of three years at the rate
of one-third annually on each anniversary date of the grant, provided the
Non-Employee Director to whom the options are granted continues to serve as a
director on each such vesting date.
As of the date hereof, options to purchase 10,000 shares of the
Company's Common Stock have been granted to Donald D. Redfearn under the
Directors Plan, at an exercise price of $3.50 per share, options to purchase
50,000 shares of the Company's Common Stock have been granted to Charles
Swinburn under the Directors Plan at an exercise price of $4.19 per share,
options to purchase 50,000 shares of the Company's Common Stock have been
granted to Richard Rampell under the Directors Plan at an exercise price of
$4.81 per share and options to purchase 50,000 shares of the Company's Common
Stock each have been granted to Robert Toia and Douglas
32
<PAGE> 33
Nichols at an exercise price of $3.50 per share.
EXECUTIVE COMPENSATION
The Company entered into employment agreements with each of Messrs.
Gary O. Marino and John H. Marino effective as of March 1, 1994. Under Gary
Marino's employment arrangement, which provided that he serve as Chief Executive
Officer of the Company, he received a base salary of $150,000 from March 1, 1994
through August 31, 1994, $175,000 from September 1, 1994 through December 31,
1994 and $200,000 per year as of January 1, 1995. Mr. Marino's base salary is
subject to increase in accordance with the Consumer Price Index, as well as any
additional increases in the discretion of the Board of Directors. Commencing
January 1, 1996 and January 1, 1997, Gary Marino's base salary was increased to
$210,000 and $250,000, respectively. Mr. Marino is also entitled to a $642
monthly car allowance, subject to annual increase in accordance with the
Consumer Price Index. Under the arrangement, Gary Marino is entitled to such
benefits (including medical, dental, disability and life insurance) as the
Company typically provided to its senior executive officers. The arrangement
also provides that Mr. Marino receive an annual cash payment in lieu of
participating in a retirement benefits plan.
In addition, Gary Marino's employment arrangement provides that he be
issued an aggregate of 50,000 shares of the Company's Common Stock upon the
execution of a formal employment agreement. All of these shares were issued to
Mr. Marino in July 1995 upon his execution of a written employment agreement.
Pursuant to Mr. Marino's employment agreement, Mr. Marino was also granted
non-qualified options to purchase an aggregate of 350,000 shares of Common Stock
of the Company at varying exercise prices and exercise dates. Options for 87,500
shares of Common Stock at an exercise price of $3.10 and 87,500 shares of Common
Stock at an exercise price of $3.40 were immediately exercisable by Mr. Marino
upon execution of his written employment agreement. Additional options for
87,500 shares of Common Stock became exercisable under the agreement on March 1,
1996 at an exercise price of $3.75 and options for 87,500 shares of Common Stock
became exercisable under the agreement on March 1, 1997 at an exercise price
equal of $4.15 per share. All such options have ten year terms from the date
they become exercisable. The agreement has an initial term expiring on March 1,
1998, and is subject to automatic one year renewal terms, unless either party
notifies the other of non-renewal 180 days prior to the expiration of the
current term. In the event Mr. Marino's employment is terminated without cause
pursuant to a change in control of the Company, Mr. Marino is entitled to
receive as of the date of termination a lump sum equal to 150% of his total
compensation in the 12 months prior to the date of termination. The agreement
contains certain non-competition provisions applicable to Mr. Marino should he
resign from the Company or be terminated with cause.
John Marino's employment agreement provided for him to serve as
President of the Company and its transportation and distribution subsidiaries.
Under this agreement, Mr. Marino received a base salary of $120,000 per year for
March 1, 1994 through August 31, 1994, $135,000 from September 1, 1994 through
December 31, 1994 and $150,000 per year commencing January 1, 1995. Mr. Marino's
base salary is subject to increase in accordance with
33
<PAGE> 34
the Consumer Price Index, as well as any additional increases in the discretion
of the Board of Directors. Commencing January 1, 1996 and January 1, 1997, John
Marino's base salary was increased to $154,200 and $158,828, respectively. Mr.
Marino is also entitled to a $642 per month car allowance, subject to annual
increase in accordance with the Consumer Price Index. Under the agreement, John
Marino is entitled to such benefits (including medical, dental, disability and
life insurance) as the Company typically provide for its senior executive
officers. The agreement also provides that Mr. Marino receive annual cash
payments in lieu of participating in a retirement benefits plan. The agreement
has an initial term ending March 1, 1998, and is subject to automatic one year
renewal terms, unless either party notifies the other of non-renewal 180 days
prior to the expiration of the current term. In the event that Mr. Marino's
employment is terminated without cause pursuant to a change in control of the
Company, he is entitled to receive as of the date of termination a lump sum
equal to 150% of his total compensation in the 12 months prior to the date of
termination. The agreement contains certain non-competition provisions
applicable to Mr. Marino should he resign from the Company or be terminated with
cause.
The following table sets forth compensation awarded to the Chief
Executive Officer of the Company and other executive officers (the "Executive
Officers") who, for the fiscal year ended December 31, 1996, received total
salary and bonus payments in excess of $100,000. Except as set forth below, no
executive officer of the Company had a salary and bonus during the year ended
December 31, 1996 that exceeded $100,000 for services rendered in all capacities
to the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Other
Name & Annual Long-Term Compensation
Principal Position Year Salary Bonus Compensation Award Payments
- ------------------ ---- ------ ----- ------------ -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Gary O. Marino
Chairman 1996 $230,000(1) - $30,567(2) N/A N/A
(Chief Executive Officer)
1995 $200,000 $124,034(4) N/A N/A N/A
1994 $169,379 $140,000 N/A N/A N/A
John H. Marino
(Vice Chairman) 1996 $154,200 - $31,561(3) N/A N/A
1995 $150,000 $37,650(5) 15,000 N/A N/A
1994 $137,584 $ 30,000 N/A N/A N/A
Donald D. Redfearn 1996 $113,750 - N/A N/A N/A
(Executive Vice President)
</TABLE>
- ----------
34
<PAGE> 35
(1) Includes $20,000 payment in lieu of his participation in a retirement
benefits plan.
(2) Includes payment of medical, dental, disability and life insurance benefits
of $20,857, car allowance of $7,710 and group 401(k) plan contributions of
$1,000.
(3) Includes payment of medical, dental, disability and life insurance benefits
of $7,431, car allowance of $7,710 and group 401(k) plan contributions of
$1,000, as well as $15,420 pursuant to a deferred compensation plan.
(4) Includes a bonus of 50,000 shares of the Company's Common Stock granted
pursuant to Mr. Marino's employment agreement, which bonus was valued at $93,750
as of the date of execution of the agreement in July 1995. Also includes a bonus
of $30,284 which was paid to Mr. Marino in 1996 based upon the performance of
the Company for the year ended December 31, 1995.
(5) Represents a bonus paid to Mr. John Marino in 1996 based upon the
performance of the Company and its transportation subsidiaries for the year
ended December 31, 1995.
NONQUALIFIED DEFERRED COMPENSATION TRUST
Effective January 3, 1997, the Company adopted certain nonqualified
deferred compensation plans and established a trust to which the Company will
make contributions under the Plans (the "Trust"). In connection with the
foregoing, the Company, executed Nonqualified Deferred Compensation Agreements
(the "Deferred Compensation Agreement") with Gary O. Marino, the Company's
Chairman of the Board, President and Chief Executive Officer and John Marino,
the Company's Vice Chairman of the Board, pursuant to which such individuals may
defer a percentage of their respective compensation and contribute such amount
to their retirement pay. Any amount of compensation or bonus deferred by the
employee shall be transferred to the Trust and thereafter be invested and
reinvested by trustee and paid to the employee in accordance with the Trust and
the Deferred Compensation Agreement. In addition to each employee's requested
deferral, the Company shall transfer to the Trust for the employee's benefit
each calendar year at least $20,000, which amounts shall be invested and
reinvested by the trustee in accordance with the Trust and the Deferral
Compensation Agreements. In January 1997, the Company contributed an aggregate
of $21,000 to the Trust on behalf of Gary O. Marino which represented amounts
deferred by Mr. Marino under his employment agreement for 1995 and 1996. In
addition, in January 1997, the Company contributed an aggregate of $30,420 to
the Trust on behalf of John H. Marino which represented amounts deferred by Mr.
Marino under his employment agreement for 1995 and 1996.
Information regarding certain options granted to Executive Officers of
the Company, is set forth below:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS TO EMPLOYEES EXERCISE ($/SH) EXPIRATION
NAME YEAR GRANTED IN FISCAL YEAR PRICE DATE
- ---- ---- ------- -------------- ----- ----
<S> <C> <C> <C> <C> <C>
Gary O. Marino 1996 10,000 3% $3.625 Jan 1, 2006
John H. Marino 1996 50,000 17% $3.625 Jan 1, 2006
Donald D. Redfearn 1996 50,000 17% $5.00 Nov 1, 2006
</TABLE>
1992 STOCK OPTION PLAN
The Company maintains a 1992 Stock Option Plan which provides officers,
employees and consultants of the Company that are not directors of the Company
or 5% stockholders (directly or indirectly) of the Company, with the ability to
receive grants of incentive stock options (as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended), and provides such individuals and
non-employee directors that are not 5% stockholders with the ability to receive
non-qualified stock options. The 1992 Stock Option Plan was approved by the
Company's stockholders as of July 1, 1992, and became effective as of such date.
The Company has reserved 250,000 shares of Common Stock for the grant of options
under the 1992 Stock Option Plan, all of which have been granted and are
currently outstanding at an exercise price of $3.50 per share.
35
<PAGE> 36
BONUS PLAN
In May 1995, the Board of Directors adopted the Corporate Senior
Executive Bonus Plan (the "Bonus Plan") pursuant to which participants in the
Bonus Plan shall receive cash bonuses based upon the annual performance of the
Company and the its subsidiaries, commencing with the 1995 fiscal year. Bonuses
will be paid to designated individuals based on Company's performance on a
consolidated basis, the Company's subsidiaries performance or a combination of
both.
Participants in the Bonus Plan which are subsidiary-specific shall
receive cash bonuses based upon objective, auditable and performance-related
criteria relating to the Company's subsidiaries. No subsidiary-specific
participant will be paid a bonus greater than 50% of the salary earned by that
participant for the full year. Subsidiary-specific participants will be
designated by the Chief Executive Officer subject to ratification by the
Compensation Committee. Bonuses paid to participants for consolidated Company
performance will be paid from a bonus pool equal to 12% of any pre-tax
consolidated income in excess of that amount required to achieve a 12% return on
average shareholders' equity. The initial participants in the Bonus Plan to
receive awards based on consolidated Company performance were Messrs. Gary
Marino, John Marino, Jack Conser, Robert Coward, Larry Bush and Robert
Huddleston. Mr. Donald Redfearn and Mr. Rick Jany have been subsequently added
to the consolidated bonus plan. No participant will be paid a bonus based on
consolidated Company performance greater than the salary earned by that
participant for the full year.
1995 STOCK PLANS
The following plans were approved by the Company's stockholders at the
Company's 1995 Annual Meeting, in July 1995:
1995 STOCK INCENTIVE PLAN. The Board of Directors of the Company has
adopted, effective January 1, 1995, a 1995 Stock Incentive Plan (the "Stock
Incentive Plan"). Pursuant to the Stock Incentive Plan, key personnel of the
Company who have been selected as participants are eligible to receive awards of
various forms of equity-based incentive compensation, including stock options,
stock appreciation rights, stock bonuses, restricted stock awards, performance
units and phantom stock, and awards consisting of combinations of such
incentives. The Stock Incentive Plan is administered by the Compensation
Committee. Subject to the provisions of the Stock Incentive Plan, the
Compensation Committee has sole discretionary authority to interpret the Stock
Incentive Plan and to determine the type of awards to grant, when, if and to
whom awards are granted, the number of shares covered by each award and the
terms and conditions of the award. Options granted under the Stock Incentive
Plan may be "incentive stock options" ("ISOs"), within the meaning of Section
422 of the Code, or nonqualified stock options ("NQSOs"). The exercise price of
the options is determined by the Compensation Committee at the time the options
are granted, subject to a minimum price in the case of ISOs equal to the fair
market value of the Common Stock on the date of grant and a minimum price in the
case of NQSOs of the par value of the Common Stock.
36
<PAGE> 37
The Company has reserved 250,000 shares of Common Stock for issuance
under the Stock Incentive Plan. Options to purchase 141,000 and 105,000 shares
of the Company's Common Stock were granted January 1, 1995 and January 1, 1996,
respective under the Stock Incentive Plan. The January 1, 1995 and 1996 options
have exercise prices of $3.50 and $3.625 per share, respectively. Options to
purchase 27,500 shares of Common Stock have been exercised and options to
purchase 9,500 shares of Common Stock have expired due to certain employees
leaving the Company as of March 1, 1997.
1995 EMPLOYEE STOCK PURCHASE PLAN. The Board of Directors of the
Company has adopted, effective January 1, 1995, the 1995 Employee Stock Purchase
Plan (the "Stock Purchase Plan"), under which 250,000 shares of Common Stock are
reserved for issuance. During the first quarter of 1996, the Company implemented
the Stock Purchase Plan. The Stock Purchase Plan, which is designed to qualify
under Section 423 of the Code, is designed to encourage stock ownership by
employees of the Company. Employees of the Company other than members of the
Board of Directors and owners of 5% or more of the Company's Common Stock are
eligible to participate in the Stock Purchase Plan, with certain exceptions, if
they are employed by the Company for at least 20 hours per week and more than
five months per year. No employee is eligible to participate who, after the
grant of options under the Stock Purchase Plan, owns (including all shares which
may be purchased under any outstanding options) 5% or more of the Company's
Common Stock.
On January 1 of each year ("Enrollment Date"), the Company will grant
to each participant an option to purchase on December 31 of each such year
("Exercise Date") at a price determined as described below (the "Purchase
Price") the number of shares of Common Stock which his or her accumulated
payroll deductions on the Exercise Date will purchase at the Purchase Price. The
Purchase Price will be the lesser of (i) a percentage (not less than 85%) of the
fair market value of the Common Stock on the Enrollment Date, or (ii) a
percentage (not less than 85%) of the fair market value of the Common Stock on
the Exercise Date. As soon as practicable after any Exercise Date on which a
purchase of shares occurs, the Company will deliver to each participant, a
certificate representing the shares purchased, upon exercise of his or her
option; however, the Compensation Committee may determine to hold a
participant's certificates until the participant ceases participation in the
Stock Purchase Plan or requests delivery of the certificates.
Common Stock of the Company was issued to employees in January 1997
pursuant to the Stock Purchase Plan in an aggregate amount of 17,908 shares.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares and percentage
owned of the Company's Common Stock beneficially owned as of March 15, 1997 by
(i) owners of more than five percent of the Common Stock, (ii) each director of
the Company, (iii) the President and the Chairman of the Company and each other
executive officer of the Company, and (iv) all executive officers and directors
of the Company as a group.
37
<PAGE> 38
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF
PRINCIPAL STOCKHOLDERS OTHER SHARES OF COMMON PERCENTAGE
THAN EXECUTIVE OFFICERS OR DIRECTORS STOCK OWNED OWNED (1)
- ------------------------------------ ---------------- ------------
<S> <C> <C>
Luther King Capital Management Corporation
301 Commerce, Suite 1600
Fort Worth, TX 76102 1,040,000 13.07%
NAME AND ADDRESS OF
EXECUTIVE OFFICER OR DIRECTOR
- -----------------------------
Gary O. Marino
301 Yamato Road, Suite 1190
Boca Raton, FL 33431 474,500(4) 5.68%
John H. Marino
RailAmerica, Inc.
King Street Station
Suite 150, 1800 Diagonal Road
Alexandria, VA 22314 412,500(2) 5.15%
Donald D. Redfearn
301 Yamato Road, Suite 1190
Boca Raton, FL 33431 122,301(5) 1.52%
John M. Sullivan
10279 SW Stones Throw Terrace
Palm City, FL 34990 51,100(3) 0.64%
Charles Swinburn
1713 Maple Hill Place
Alexandria, VA 22302 51,000(6) 0.64%
Richard Rampell
122 North County Road
Palm Beach, FL 33480 51,000(7) 0.64%
Douglas Nichols 343,000(8) 4.13%
260 State Street
Dallas, TX 75201
Robert Toia 51,000(9) 0.64%
574 Broadmoor Court
Sanford, NC 27330
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
<S> <C> <C>
W. Graham Claytor, III
Pier 33 North
San Francisco, CA 94133 11,000(10) 0.14%
Robert Coward
U.S Highway 84 West
Gatesville, TX 76528 101,479(11) 1.26%
All Executive Officers and Directors 1,668,880 18.23%
</TABLE>
(1) Based on 7,954,387 shares of Common Stock issued and outstanding on the
date of the filing hereof. Does not include issuance of 478,729 shares
of Common Stock upon exercise of the Company's outstanding, publicly
traded Class B Warrants.
(2) Includes options to purchase 50,000 shares of Common Stock at $3.625
per share, pursuant to options granted January 1, 1996 under the
Company's 1995 Stock Incentive Plan.
(3) Includes options to purchase 50,000 shares of Common Stock at $3.50 per
share, pursuant to options granted in 1993 under the Company's 1992
Stock Option Plan.
(4) Includes options to purchase 40,000 shares of Common Stock at $3.50 per
share granted in 1993 under the Company's 1992 Stock Option Plan and
10,000 shares of Common Stock at $3.625 per share granted January 1,
1996 under the 1995 Stock Incentive Plan. Also includes, options to
purchase 87,500 shares of Common Stock at $3.10 per share, 87,500
shares of Common Stock at $3.40 per share, 87,500 shares of Common
Stock at $3.75 per share and 87,500 shares of Common Stock at $4.15
per share issued pursuant to Mr. Marino's employment agreement.
(5) Includes options to purchase 40,000 shares of Common Stock at $3.50 per
share granted to Mr. Redfearn in 1993 under the Company's 1992 Stock
Option Plan, options to purchase 10,000 shares of Common Stock at $3.50
per share granted to Mr. Redfearn under the Company's 1995 Non-Employee
Directors Stock Option Plan and options to purchase 50,000 shares of
Common Stock at $5.00 granted November 1, 1996.
(6) Includes options to purchase 50,000 shares of Common Stock at $4.19 per
share granted to Mr. Swinburn as of February 1, 1995, under the
Company's 1995 Non-Employee Director Stock Option Plan.
(7) Includes options to purchase 50,000 shares of Common Stock at $4.81 per
share granted to Mr. Rampell as of July 27, 1995, under the Company's
1995 Non-Employee Director Stock Option Plan.
(8) Includes options to purchase 50,000 shares of Common Stock at $3.50 per
share granted to Mr. Nichols as of July 24, 1996, under the Company's
1995 Non-Employee Director Stock Option Plan. Also includes, warrants
to purchase 125,000 shares of Common Stock at $4.60 per share and
warrants to purchase 167,000 shares of Common Stock at $5.75 per share
owned by First London Securities Corporation. Mr. Nichols is President
and principal shareholder of First London Securities Corporation.
(9) Includes options to purchase 50,000 shares of Common Stock at $3.50 per
share granted to Mr. Toia as of July 24, 1996, under the Company's
1995 Non-Employee Director Stock Option Plan.
39
<PAGE> 40
(10) Includes options to purchase 10,000 shares of Common Stock at $3.65
granted to Mr. Clayton as of March 15, 1996.
(11) Includes a $225,000 convertible subordinated note, which is currently
convertible into Common Stock at $2.25 per share (100,000 shares of
common stock).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Donald Redfearn and Jenex Financial Corporation, a company in which he
was a principal shareholder, received $72,000 in fees during 1995 for consulting
services performed for the benefit of the Company and its subsidiaries.
First London Securities Corporation ("First London"), of which Douglas
Nichols is President and principal shareholder, served as the exclusive
placement agent for the Company's private placement which closed in September
1996 and also the Company's private placement which closed in January 1997.
First London received as part of the September 1996 private placement a $225,000
placement fee, $45,000 nonaccountable expense fee and warrants exercisable in
one-year to purchase 125,000 shares of Common Stock at an exercise price of
$4.60 per share. First London received as part of the January 1997 private
placement a $375,750 placement fee, $75,150 nonaccountable expense fee and
warrants exercisable in one-year to purchase 167,000 shares of Common Stock at
an exercise price of $5.75 per share.
The Company believes that all of the transactions described above are
on terms comparable to those that might have been obtained from unaffiliated
parties.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith (each management contract
or compensatory plan or arrangement included below is designated as an
"Executive Compensation Plan or Arrangement"):
<TABLE>
<CAPTION>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of Registrant, as amended(10)
3.2 By-laws of Registrant(1)
4.2 Class B Warrant(2)
4.3 Unit Purchase Warrant(2)
4.4 Series A Convertible Subordinated Debentures(8)
10.14 RailAmerica, Inc. 1992 Stock Option Plan(1)+
10.23 Loan Agreement among RailAmerica, Inc., South Central Tennessee Railroad
Corporation, South Central Tennessee Railroad Company, Inc. and Charter
Financial, Inc., dated as of December 31, 1993.(5)
10.24 Lease Agreement between South Central Tennessee Railroad Authority and South
Central Tennessee Railroad Company, Inc. dated October 16, 1984.(3)
10.32 Stock Purchase Agreement between Steel City Truck Lines Limited, Josef Bichler
and RailAmerica, Inc. dated December 19, 1994.(11)
10.33 Stock Purchase Agreement between 823215 Ontario, Inc. and RailAmerica, Inc.
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
<S> <C>
dated February 6, 1995.(11)
10.35 Employment Agreement between Robert B. Coward and Kalyn Siebert,
Incorporated.(6)
10.36 Loan documents in connection with RailAmerica's acquisition of the assets of
Steel City Truck Lines Limited(7)
10.37 Stock Purchase Agreement, dated July 11, 1995, among RailAmerica, Inc., Brian
E. Muir, Elli M.A. Mills and Kimberly Hughes, Prairie Holding Corporation and
Dakota Rail, Inc.(8)
10.38 Settlement Agreement, entered into March 15, 1995, by Eric D. Gerst and
RailAmerica, Inc., RailAmerica Services Corporation and Huron & Eastern
Railway Company, Inc.(8)
10.39 Loan Agreement, dated September 29, 1995, by and between
RailAmerica, Inc., Kalyn/Siebert Incorporated, RailAmerica
Intermodal Services, Inc., RailAmerica Carriers, Inc., Steel
City Carriers, Inc., Saginaw Valley Railway Company, Inc.,
Huron & Eastern Railway Company, Inc. and National Bank of
Canada(10)
10.40 Asset Purchase Agreement, dated October 11, 1995, by and among Seagraves,
Whiteface & Lubbock Railroad Co., American Railway Corporation, TEMCO
Corporation and RailAmerica, Inc.(9)
10.41 Employment Agreement between Gary O. Marino and RailAmerica, Inc.(10)+
10.42 Employment Agreement between John H. Marino and RailAmerica, Inc.(10)+
10.43 Stock Option Agreement, dated November 11, 1994, between RailAmerica, Inc.
and Gary O. Marino(10)+
10.44 RailAmerica, Inc. 1995 Stock Incentive Plan(10)+
10.45 RailAmerica, Inc. 1995 Non-Employee Director Stock Option Plan(10)
10.46 RailAmerica, Inc. 1995 Employee Stock Purchase Plan(10)
10.47 RailAmerica, Inc. Corporate Senior Executive Bonus Plan(10)+
10.49 Purchase and Sale Agreement dated November 30, 1995, by and between CSX
Transportation, Inc. and Saginaw Valley Railway Company, Inc.(11)
10.50 Stock Repurchase Agreement dated October 1, 1995 by and between
RailAmerica, Inc. and the holders of all the issued and outstanding shares of the
Company's Preferred Stock.(11)
10.51 Asset Purchase Agreement dated January 26, 1996 by and between
Temco Corporation and RailAmerica Equipment Corporation(11)
10.52 Agreement of Sale dated July 18, 1996 by and between the
Commonwealth's Department of Transportation and Delaware
Valley Railway Company, Inc., a wholly-owned subsidiary of
RailAmerica, Inc.(12)
10.53 Agreement entered into by and between R. Frank Unger, Trustee of Sagamore
National Corporation, Indiana HiRail Corporation and RailAmerica, Inc.(12)
10.54 Asset Purchase Agreement, dated August 5, 1996, by and among
Burlington Northern Railroad Company and Cascade and Columbia
river Railroad Company, a subsidiary of RailAmerica, Inc.(13)
10.55 Confidential Private Placement Memorandum dated September 20, 1996(14)
10.56 Stock Purchase Agreement, dated as of September 20, 1996, by and among Otter
Tail Valley Railroad Company, Inc. and Dakota Rail, Inc.(15)
10.57 Commitment letter relating to $40,000,000 Revolving Line of Credit/Term Loan
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C>
Facility, dated March 3, 1997, by and between National Bank of
Canada, Comerica Bank, RailAmerica, Inc., Kalyn/Siebert,
Incorporated, RailAmerica Intermodal Services, Inc.,
RailAmerica Carriers, Inc., Steel City Carriers, Inc., Saginaw
Valley Railway Company, Inc., Huron and Eastern Railway
Company, Inc., West Texas and Lubbock Railroad Company, Inc.,
Plainview Terminal Company, Cascade and Columbia River
Railroad Company, Inc., Minnesota Northern Railroad Company,
Inc. and Delaware Valley Railway Company, Inc.
10.58 Agreement for sale of certain assets, rights and obligations
of Burlington Northern Railroad Company to Minnesota Northern
Railroad, Inc.
10.59 RailAmerica, Inc. Nonqualified Deferred Compensation Trust+
10.60 Nonqualified Deferred Compensation Agreement between RailAmerica, Inc. and
Gary O. Marino+
10.61 Nonqualified Deferred Compensation Agreement between RailAmerica, Inc. and
John H. Marino+
11 Computation of Per Share Earnings
21 Subsidiaries of Registrant
27 Financial Data Schedule (for SEC use only).
</TABLE>
(1) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Registration Statement on Form S-1, Registration No.
33-49026.
(2) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Post-Effective Amendment No. 3 on Form SB-2, dated
November 25, 1994, Registration No. 33-49026.
(3) Incorporated by reference to the same exhibit number filed as part of
the Company's annual report on Form 10-KSB, filed with the Securities
and Exchange Commission on March 31, 1993.
(4) Incorporated by reference to the same exhibit number filed as part of
the Registrant's Post-Effective Amendment No. 4 on Form SB-2, dated
December 14, 1994, Registration No. 33-49026.
(5) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for the year ended December 31, 1993, filed
with the Securities and Exchange Commission on April 15, 1994.
(6) Incorporated by reference to the same exhibit number filed as a part of
the Registrant's Post-Effective Amendment No. 2 on Form SB-2, dated
October 17, 1994, Registration No. 33-49026.
(7) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for the year ended December 31, 1994, filed
with the Securities and Exchange Commission on March 30, 1995.
(8) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended June 30, 1995, filed
with the Securities and Exchange Commission on August 9, 1995.
42
<PAGE> 43
(9) Incorporated by reference to the exhibit number 2.1 filed as part of
the Company's Form 8-K as of November 1, 1995, filed with the
Securities and Exchange Commission on November 3, 1995.
(10) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended September 30, 1995,
filed with the Securities and Exchange Commission on November 12, 1995.
(11) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-KSB for the year ended December 31, 1995, filed
with the Securities and Exchange Commission on April 12, 1996.
(12) Incorporated by reference to the same exhibit number filed as part of
the Company's Form 10-QSB for the quarter ended July 30, 1996, filed
with the Securities and Exchange Commission on August 12, 1996
(13) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of September 6, 1996, filed with the Securities
and Exchange Commission on September 12, 1996.
(14) Incorporated by reference to the exhibit A filed as part of the
Company's Form 8-K as of September 30, 1996, filed with the Securities
and Exchange Commission on October 17, 1996.
(15) Incorporated by reference to the exhibit 2.1 filed as part of the
Company's Form 8-K as of October 11, 1996, filed with the Securities
and Exchange Commission on October 25, 1996.
+ Executive Compensation Plan or Arrangement.
(b) Reports on Form 8-K.
The Company filed the following reports on Form 8-K during the last
quarter of fiscal year 1996:
1. A Form 8-K dated September 30, 1996, was filed on October 17,
1996, as a result of completing a Private Placement of
1,250,000 shares of the Company's common stock.
2. A Form 8-K dated October 11, 1996, was filed on October 25,
1996, as a result of completing the purchase of all of the
outstanding stock of Otter Tail Valley Railroad, Inc. for
$4.25 million.
3. A Form 8-K/A amending Form 8-K, dated October 11, 1996, was
filed on December 11, 1996, to disclose both the financial
statements of the Otter Tail Valley Railroad, Inc., which was
acquired by the Company, and the Company's financial
statements following the acquisition. The following is a list
of financial statements that were filed:
(a) Financial Statements of Otter Tail Valley Railroad
43
<PAGE> 44
Independent Auditor's Report on 1995 and 1994 Financial
Statements
Balance Sheets as of December 31, 1995 and 1994
Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995 and
1994
Notes to the 1995 and 1994 financial statements
Unaudited Balance Sheet as of September 30, 1996
Unaudited Statement of Income for the nine and three months
ended September 30, 1996
Unaudited Statement of Cash Flows for the nine months ended
September 30, 1996
(b) Pro Forma Financial Statements
Pro Forma Consolidated Balance Sheet as of September 30, 1996
Pro Forma Consolidated Statement of Income for the nine months
ended September 30, 1996
Pro Forma Consolidated Statement of Income for the year ended
December 31, 1995
Notes to Pro Forma Consolidated Financial Statements
44
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange act
of 1934, the Company has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
RAILAMERICA, INC.
By: /s/ Gary O Marino
---------------------------------------
Gary O. Marino, Chief Executive Officer
By: /s/ Larry W. Bush
---------------------------------------
Larry W. Bush, Controller
(Principal Accounting Officer)
Dated March 31, 1997
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Company in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Gary O. Marino Chairman, President, Chief Executive March 31, 1997
- ----------------------------- Officer and Director (Principal Financial Officer)
Gary O. Marino
/s/ John H. Marino Vice Chairman/Sr. Transportation Officer March 31, 1997
- ----------------------------- and Director
John H. Marino
/s/ Donald D. Redfearn Executive Vice President, Secretary March 31, 1997
- ----------------------------- and Director
Donald D. Redfearn
/s/ Douglas R. Nichols Director March 31, 1997
- -----------------------------
Douglas R. Nichols
/s/ Richard Rampell Director March 31, 1997
- -----------------------------
Richard Rampell
/s/ Charles Swinburn Director March 31, 1997
- -----------------------------
Charles Swinburn
/s/ John M. Sullivan Director March 31, 1997
- -----------------------------
John M. Sullivan
/s/ Robert F. Toia Director March 31, 1997
- -----------------------------
Robert F. Toia
</TABLE>
45
<PAGE> 46
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
PRIMARY EARNINGS PER SHARE FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Net earnings attributable to common shares:
<S> <C>
Net income $ 868,333
Deemed dividend on redemption of convertible
preferred stock (666,665)
-----------
Net earnings attributable to common shares $ 201,668
===========
Actual weighted average shares outstanding 4,554,285
Primary earnings per share $ 0.04
===========
FULLY DILUTED EARNINGS PER SHARE FOR THE YEAR ENDED DECEMBER 31, 1995
Net earnings attributable to common shares:
Net income $ 868,333
Deemed dividend on redemption of convertible
preferred stock (666,665)
-----------
Net earnings attributable to common shares $ 201,668
===========
Actual weighted average shares outstanding 4,554,285
Fully diluted earnings per share $ 0.04
===========
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
Subsidiary and Name Under Which Subsidiary Does Business State of Incorporation
- -------------------------------------------------------- ----------------------
<S> <C>
Cascade and Columbia River Railroad Company, Inc. Delaware
Dakota Rail, Inc. South Dakota
Delaware Valley Railway Company, Inc. Delaware
Evansville Terminal Company Delaware
Florida Rail Lines, Inc. Delaware
Gettysburg Scenic Rail Tours, Inc. Delaware
Huron and Eastern Railway Company, Inc. Michigan
Huron Distribution Services, Inc. Delaware
Kalyn/Siebert Incorporated Texas
Minnesota Northern Railroad, Inc. Delaware
Otter Tail Valley Railroad Company, Inc. Minnesota
Plainview Terminal Company Texas
Prairie Holding Corporation Florida
RailAmerica de Chile, S.A. Chile
RailAmerica Carriers, Inc. Ontario, Canada
RailAmerica Equipment Corporation Delaware
RailAmerica Intermodal Services, Inc. Delaware
Saginaw Valley Railway Company, Inc. Delaware
South Central Tennessee Railroad Corporation Delaware
Steel City Carriers, Inc. Ontario, Canada
U.S. Rail Lines, Inc. Delaware
West Texas and Lubbock Railroad Company, Inc. Texas
</TABLE>
<PAGE> 48
RAILAMERICA, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS
-------
The following consolidated financial statements of RailAmerica, Inc. and
Subsidiaries are referred to in Item 7:
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets - December 31, 1996 and 1995 F-3
Consolidated Statements of Income - Years Ended
December 31, 1996 and 1995 F-4
Consolidated Statement of Stockholders' Equity - Years
Ended December 31, 1996 and 1995 F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 - F-28
</TABLE>
F-1
<PAGE> 49
Report of Independent Accountants
---------------------------------
To the Shareholders of
RailAmerica, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of RailAmerica,
Inc. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of RailAmerica, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Coopers & Lybrand LLP
West Palm Beach, Florida
March 21, 1997
F-2
<PAGE> 50
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash $ 3,879,972 $ 3,488,866
Restricted cash -- 175,000
Accounts receivable 4,575,958 2,194,828
Inventories 3,104,555 3,360,838
Other current assets 462,867 415,870
Deferred income taxes -- 329,000
------------ ------------
Total current assets 12,023,352 9,964,402
Property, plant and equipment, net 54,148,966 25,547,541
Other, net 2,426,615 1,519,827
Excess of cost over net assets of companies acquired, net 2,965,853 3,032,192
------------ ------------
Total assets $ 71,564,786 $ 40,063,962
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,752,926 $ 969,929
Current maturities of subordinated debt 212,392 1,879,057
Accounts payable 3,162,953 2,093,740
Income taxes payable 105,538 560,788
Accrued expenses 1,706,201 1,420,227
------------ ------------
Total current liabilities 6,940,010 6,923,741
------------ ------------
Long-term debt, less current maturities 38,401,119 17,181,288
------------ ------------
Subordinated debt, less current maturities 3,477,882 3,690,274
------------ ------------
Deferred income taxes 6,753,668 3,120,000
------------ ------------
Commitments and contingencies
Redeemable convertible preferred stock, $.001 par value,
1,000,000 shares authorized -- --
Stockholders' equity:
Common stock, $.001 par value, 30,000,000 shares
authorized; 6,125,410 and 4,848,991 issued at
December 31, 1996 and 1995; 5,888,410 and 4,658,991
outstanding at December 31, 1996 and 1995 6,125 4,849
Additional paid-in capital 11,773,036 7,599,313
Common stock subscribed 2,340,000 --
Retained earnings 2,944,774 2,439,895
Cumulative translation adjustment 67,441 70,355
Less treasury stock (237,000 and 190,000
shares at cost, respectively) (1,139,269) (965,753)
------------ ------------
Total stockholders' equity 15,992,107 9,148,659
------------ ------------
$ 71,564,786 $ 40,063,962
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 51
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating revenues:
Transportation - railroad $ 9,783,041 $ 6,767,530
Manufacturing 13,637,978 17,872,777
Other 2,237,222 437,797
------------ -----------
25,658,241 25,078,104
------------ -----------
Operating expenses:
Transportation - railroad 4,397,884 3,034,068
Cost of goods sold - manufacturing 10,447,827 13,398,740
Selling, general and administrative 5,413,153 4,225,949
Depreciation and amortization 1,526,510 1,231,622
------------ -----------
21,785,374 21,890,379
------------ -----------
Operating income 3,872,867 3,187,725
Interest expense (2,078,383) (1,277,837)
Other (expense) income (8,642) 166,654
------------ ------------
Income from continuing operations before
income taxes 1,785,842 2,076,542
Provision for income taxes 705,405 950,299
------------ ------------
Income from continuing operations 1,080,437 1,126,243
Discontinued operations
Loss from operations of discontinued Motor
Carrier segment (less applicable income tax
benefit of $322,000 and $172,000, respectively) (575,558) (257,910)
Net Income $ 504,879 $ 868,333
============ ============
Net earnings attributable to common
shares $ 504,879 $ 201,668
============ ============
Primary earnings per common share
Continuing operations $ 0.22 $ 0.10
Discontinued operations (0.12) (0.06)
------------ ------------
Net income $ 0.10 $ 0.04
============ ============
Fully diluted earnings per common share
Continuing operations $ 0.22 $ 0.10
Discontinued operations (0.12) (0.06)
------------ ------------
Net income $ 0.10 $ 0.04
============ ============
Weighted average common shares outstanding:
Primary 4,966,296 4,554,285
============ ===========
Fully Diluted 4,966,296 4,554,285
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 52
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Stockholders' Equity
---------------------------------------------------------------------------------------------------
Additional Common Cumulative
Par Paid-in Stock Retained Translation Treasury
Value Capital Subscribed Earnings Adjustment Shares Total
----- ------- ---------- -------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $3,679 $ 4,132,325 $ -- $ 2,271,560 $ -- $ -- $ 6,407,564
Net Income -- -- -- 868,333 -- -- 868,333
Issuance of common stock 1,170 3,466,988 -- -- -- -- 3,468,158
Purchase of treasury stock -- -- -- -- -- (965,753) (965,753)
Preferred stock dividends -- -- -- (33,333) -- -- (33,333)
Cumulative translation -- -- -- -- 70,355 -- 70,355
Redemption of preferred stock -- -- -- (666,665) -- -- (666,665)
------ ----------- ---------- ----------- -------- ----------- ------------
Balance, December 31, 1995 4,849 7,599,313 -- 2,439,895 70,355 (965,753) 9,148,659
Net income -- -- -- 504,879 -- -- 504,879
Issuance of common stock 1,264 4,128,735 -- -- -- -- 4,129,999
Purchase of treasury stock -- -- -- -- -- (173,516) (173,516)
Exercise of stock options 12 44,988 -- -- -- -- 45,000
Subscription of common stock -- -- 2,340,000 -- -- -- 2,340,000
Cumulative translation -- -- -- -- (2,914) -- (2,914)
------ ----------- ---------- ----------- -------- ----------- ------------
Balance, December 31, 1996 $6,125 $11,773,036 $2,340,000 $ 2,944,774 $ 67,441 $(1,139,269) $ 15,992,107
====== =========== ========== =========== ======== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 53
RAILAMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 504,879 $ 868,333
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,047,684 1,840,298
Sale of properties 455,932 185,755
Write off of deferred acquisition costs 138,010 92,526
Employee stock grants 48,554 109,571
Deferred income taxes 263,668 61,533
Forgiveness of debt (20,576) --
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (1,816,862) 668,086
Inventories 291,825 (678,959)
Other current assets (41,203) (151,486)
Note receivable 21,312 15,121
Accounts payable 1,031,238 459,616
Income taxes payable (455,250) 444,788
Accrued liabilities (128,307) (68,859)
Deposits and other (135,165) (91,185)
------------ ------------
Net cash provided by operating activities 2,205,739 3,755,138
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (4,487,909) (2,549,199)
Acquisition of Steel City -- (993,423)
Acquisition of Dakota Rail, Inc. net of cash acquired -- (1,530,254)
Acquisition of West Texas and Lubbock Railroad -- (274,000)
Acquisition of Otter Tail Valley Railroad, net of cash acquired (103,908) --
Deferred acquisition costs and other (825,026) (188,156)
------------ ------------
Net cash used in investing activities (5,416,843) (5,535,032)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases 10,033,070 34,533,216
Principal payments on debt and capital leases (12,503,210) (30,842,067)
Sale of common stock 6,466,445 2,383,209
Purchase of treasury stock (173,516) (965,753)
Preferred stock dividends paid -- (50,000)
Decrease in restricted cash 175,000 290,000
Deferred financing costs (98,741) (106,704)
Deferred loan costs (296,838) (443,355)
------------ ------------
Net cash provided by financing activities 3,602,210 4,798,546
------------ ------------
Net increase in cash 391,106 3,018,652
Cash, beginning of period 3,488,866 470,214
------------ ------------
Cash, end of period $ 3,879,972 $ 3,488,866
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 2,377,474 $ 1,369,430
============ ============
Cash paid during the year for income taxes $ 602,154 $ 202,575
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 54
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of RailAmerica, Inc. and all of its wholly-owned subsidiaries (the
"Company"). All significant intercompany transactions have been
eliminated in the preparation of the consolidated financial statements.
The Company is a multi-modal transportation company that was
incorporated in Delaware on March 31, 1992. The Company historically
has developed short-line and regional railroads formed primarily
through the acquisition of branch and light density rail lines from
larger railroads. During 1994, the Company expanded its operations in
the transportation area through its acquisition of Kalyn/Siebert, Inc.
("Kalyn"), a manufacturer of truck trailers located in Gatesville,
Texas and during 1995 through its acquisition of Steel City Carriers,
Inc. ("Steel City"), a regional motor carrier located in Sault Ste.
Marie, Ontario, Canada. Steel City's functional currency is the
Canadian dollar. Steel City has been included in discontinued
operations, see note 2.
The Company's principal operations include rail transportation and
manufacturing. The Company hauls varied products for its customers
corresponding to their local operating areas, primarily agricultural
commodities in Michigan and Texas. The Company's production facility,
in Texas, manufactures a broad range of specialty truck trailers which
are marketed to a customer base from the private, commercial and
government sectors.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates.
Inventories
Inventories are stated at the lower of cost or market, net of advances
related to materials acquired, with cost determined using the average
cost method.
Revenue Recognition
Transportation
The Company recognizes transportation revenue after services are
provided. For the years ended December 31, 1996 and 1995, approximately
51% and 80%, respectively, of the Company's railroad transportation
revenue was derived from interchanging traffic with CSX and for the
year ended December 31, 1996, approximately 34% from interchanging
traffic with Burlington Northern Sante Fe.
F-7
<PAGE> 55
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Commercial Trailer Sales
The Company recognizes revenue from the commercial (non-governmental)
sale of trailers when title and risk of ownership are transferred to
the customer, which generally is upon shipment or customer pick-up. In
certain instances prior to shipment or customer pick-up, the Company
receives full payment for a trailer. At that time, the Company issues a
certificate of title or statement of origin to the customer and revenue
is recognized. In these cases, the customer has made a fixed, written
commitment to purchase, the trailer has been completed and is available
for pick-up or delivery, and the customer has requested the Company to
hold the trailer until the customer determines the most economical
means of taking possession. In such cases, the Company has no further
obligation except to segregate the trailer and hold it for a short
period of time, as is customary in the industry, generally less than
one month, until pick-up or delivery. Trailers are built to customer
specifications and no right of return or exchange privileges are
granted. Accordingly, no provision for sales allowances or returns is
recorded.
Governmental Trailer Sales
The Company recognizes revenue from the sale of trailers to
governmental agencies when title and risks of ownership are
transferred, which is upon completion, inspection and acceptance of
trailers by the governmental agency. At that time, the governmental
agency has made a fixed written commitment to purchase in the form of a
contract, the trailer has been completed and is available for pick-up
or delivery, and the governmental agency has requested the Company to
hold the trailer until the governmental agency determines the
appropriate means of taking possession. The Company has no further
obligation except to segregate the trailer and hold it for a short
period of time, as is customary in the industry, generally less than
one month, until pick-up or delivery. The trailers are built to the
government's specifications pursuant to a written contract and are
inspected and accepted for delivery by the governmental agency. The
contract terms provide for prepayments by the government of up to 90%
of the trailer's cost. These prepayments are recorded as advances
against the inventory.
Sales to governmental agencies represented 20% and 29% of the Company's
manufacturing revenue for the years ended December 31, 1996 and 1995,
respectively.
Concentration of Credit Risk
The Company maintains its cash in demand deposit accounts which at
times may exceed FDIC insurance limits. As of December 31, 1996, the
Company had approximately $3.3 million of cash in excess of FDIC
insurance limits.
F-8
<PAGE> 56
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Property, Plant and Equipment
Property, plant and equipment are recorded at historical cost. Costs
assigned to property purchased as part of an acquisition are based on
the fair value of such assets on the date of acquisition. Improvements
are capitalized, and expenditures for maintenance and repairs are
charged to operations as incurred. Gains or losses on sales and
retirements of properties are included in the determination of the
results of operations.
Depreciation has been computed using the straight-line method for
financial reporting purposes based on estimated useful lives as
follows:
Railroad track and improvements 3-30 years
Buildings and improvements 20-33 years
Locomotives, transportation and other equipment 5-15 years
The Company re-evaluated the estimated remaining useful lives of its
property, plant and equipment during 1996 and made an adjustment in the
fourth quarter of $280,000 to reduce depreciation.
Deferred Loan Origination Costs and Deferred Acquisition and Other
Costs
Deferred loan origination costs are being amortized utilizing the
interest method over the term of the respective term loans.
Deferred acquisition and other costs include costs incurred associated
with the investigation of potential acquisitions and also costs related
to capital raising. These costs will be allocated to the assets
acquired and liabilities assumed upon consummation of successful
acquisitions or against the proceeds received from capital raised.
Costs related to potential acquisitions are charged to operations in
the quarter in which the investigation of, or negotiation with, the
potential acquisition candidate is terminated.
Income Taxes
The Company utilizes the liability method of accounting for deferred
income taxes. This method requires recognition of deferred tax assets
and liabilities for the expected future tax consequences of events that
have been included in the financial statement or tax returns. Under
this method, deferred tax assets and liabilities are determined based
on the difference between the financial and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred tax assets are also
established for the future tax benefits of loss and credit carryovers.
F-9
<PAGE> 57
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Excess of Cost Over Net Assets of Companies Acquired
The acquisitions of Kalyn and Steel City resulted in purchase price in
excess of the fair market value of net assets acquired in the amounts
of approximately $2.5 million and $0.9 million, respectively, which are
reflected in the balance sheet at December 31, 1996 and 1995, net of
accumulated amortization. The amounts are being amortized on a
straight-line basis over twenty years. The Company periodically
evaluates the carrying value and the periods of amortization based on
the current and expected future cash flows of the entities giving rise
to the excess of cost over net assets acquired. Amortization expense
related to the excess of cost over net assets of companies acquired for
the years ended December 31, 1996 and 1995 are $190,348 and $156,216.
Earnings per Common Share
For the year ended December 31, 1996, primary earnings per common share
is based on the weighted average number of common shares outstanding
during the year. The stock options and warrants outstanding are
anti-dilutive and have been excluded from weighted average number of
common shares outstanding. Fully diluted earnings per share was
computed, in addition to the above computation using the higher of the
average market price or the end of the year market price. Assumed
conversion of the convertible subordinated notes payable is
anti-dilutive and has been excluded from the weighted average shares
outstanding.
For the year ended December 31, 1995, earnings per common share is
based on the weighted average number of common shares outstanding
during the year. The stock options and warrants outstanding are
anti-dilutive and have been excluded from weighted average number of
common shares outstanding. On October 1, 1995, the Company was notified
by the shareholders of its redeemable convertible preferred stock of
their intent to convert such stock. As part of an overall plan to
acquire its common stock at favorable prices, the Company redeemed the
convertible preferred stock at 97.5% of the then market value of the
underlying common stock ($1,666,665). The excess of the redemption
price over the book value of the preferred stock was considered a
non-recurring deemed dividend which reduced 1995 net income available
to common shareholders by $666,665 or $0.14 per share.
F-10
<PAGE> 58
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Profit Sharing Plan
The Company maintains a contributory profit sharing plan as defined
under Section 401(k) of the U.S. Internal Revenue Code. The Company
made contributions to this plan at a rate of 50% of the employees
contribution up to a maximum annual contribution of $1,000 per eligible
employee. An employee becomes 100% vested with respect to the employer
contributions after completing six years of service. Employer
contributions during the years ended December 31, 1996 and 1995 were
approximately $61,000 and $48,000, respectively.
Recent Accounting Pronouncements
In February 1997, Statements of Financial Accounting Standards ("SFAS")
No. 128 "Earnings Per Share" was issued. SFAS No. 128 established new
standards for computing and presenting earnings per share ("EPS"). This
statement replaces the presentation of primary EPS and will require a
dual presentation of basic and diluted EPS. SFAS No. 128 is effective
for financial statements issued for periods ended after December 15,
1997 and requires restatement of all prior-period EPS data presented.
The Company has not yet determined the impact, if any, the adoption of
SFAS No. 128 will have on the Company's financial statements.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
Assets to be Disposed of" is applicable to the Company in fiscal 1996.
This statement requires that long-lived assets and certain intangibles
to be held and used by the Company be reviewed for impairment. This
pronouncement did not have a material impact on the financial
statements of the Company.
Reclassifications
Certain 1995 amounts have been reclassified to conform to the
presentation adopted in 1996.
2. DISCONTINUED OPERATIONS:
In March 1997, the Company adopted a formal plan to discontinue its
motor carrier division. The motor carrier division consists of Steel
City Carriers and RailAmerica Intermodal Services, both wholly-owned
subsidiaries of the Company. As part of the plan, the Company intends
to sell the stock or assets of the subsidiaries. Revenues for the motor
carrier division for the years ended December 31, 1996 and 1995 were
$7.2 million and $5.1 million, respectively.
F-11
<PAGE> 59
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
2. DISCONTINUED OPERATIONS, continued
The assets and liabilities of the discontinued operations consist of
the following as of December 31, 1996:
Accounts receivable $ 764,955
Inventory 127,673
Other current assets 60,254
Property, plant and equipment, net 4,126,418
Other assets 1,085,587
----------
Total assets $6,164,887
Accounts payable $ 541,730
Accrued liabilities 371,410
Long-term debt 3,267,880
Deferred income taxes 488,599
-----------
Total liabilities $4,669,619
3. ACQUISITIONS:
On October 11, 1996, the Company, through its wholly-owned subsidiary
Dakota Rail, Inc. ("Dakota"), completed the purchase of all of the
outstanding stock of Otter Tail Valley Railroad, Inc. ("OTVR"). The
acquisition was accounted for as a purchase. Accordingly, the purchase
price, which amounted to approximately $4.25 million, was allocated to
the assets acquired and liabilities assumed, based on the fair values
of the assets acquired at the date of acquisition. The results of OTVR
have been consolidated with those of the Company commencing as of
October 1, 1996.
On February 10, 1995, the Company, through its subsidiaries RailAmerica
Intermodal Services, Inc. and RailAmerica Carriers, Inc., completed the
purchase of substantially all of the assets and business of Steel City
Truck Lines Limited ("SCTL"). The acquisition was accounted for as a
purchase. Accordingly, the purchase price, which amounted to
approximately $2.3 million was allocated to the assets acquired and
liabilities assumed, based on the fair values of the assets acquired at
the date of acquisition. The results of SCTL have been consolidated
with those of the Company commencing as of the date of the acquisition.
The results of SCTL have been included in discontinued operations in
the statements of income.
Effective August 31, 1995, the Company acquired all of the outstanding
stock of Prairie Holding Corporation ("PHC") which owns Dakota. The
purchase price was approximately $1.6 million paid in cash. The
acquisition was accounted for as a purchase. Accordingly, the purchase
price was allocated to the assets acquired and liabilities assumed,
based on the fair values of the assets acquired at the date of
acquisition. The results of PHC and Dakota have been consolidated with
those of the Company commencing as of the date of acquisition.
F-12
<PAGE> 60
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
3. ACQUISITIONS, continued
On November 1, 1995, the Company acquired substantially all of the
assets of the Seagraves, Whiteface and Lubbock Railroad Company and the
Floydada and Plainview Railroad Company from Chicago-based American
Railway Corporation. The Company, in connection with the purchase,
formed two new wholly-owned subsidiaries, West Texas and Lubbock
Railroad Company, Inc. ("WTLR") and Plainview Terminal Company ("PTC").
The acquisitions were accounted for as purchases. Accordingly, the
purchase price, which amounted to approximately $4.6 million including
costs, was allocated to the assets acquired based on the fair values of
the assets acquired at the date of acquisition. The results of WTLR and
PTC have been consolidated with those of the Company commencing as of
the date of the acquisitions.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisitions had occurred at the
beginning of the periods presented and do not purport to be indicative
of what would have occurred had the acquisitions been made as of those
dates or of results which may occur in the future.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Transportation and other revenues $27,234,618 $29,543,732
Income from continuing operations before income taxes $ 2,013,019 $ 2,743,668
Net income $ 650,256 $ 1,473,416
Net income per share $ .13 $ .18
</TABLE>
The significant adjustments related to the above years represent the
inclusion of depreciation differences on the revaluation of property,
plant and equipment, additional interest expense based on an increase
in long-term obligations, amortization of intangible assets and the
related income tax effects.
4. INVENTORIES:
Inventories consist of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Raw materials $ 2,284,683 $1,737,683
Work in process 635,780 642,265
Finished goods 881,817 771,842
Replacement or repair parts for equipment
and road property 381,309 209,048
----------- ----------
4,183,589 3,360,838
Less, advances related to materials (1,079,034) --
----------- ----------
Inventories in excess of contract advances $ 3,104,555 $3,360,838
=========== ==========
</TABLE>
F-13
<PAGE> 61
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following as of December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land $14,881,734 $ 5,669,201
Buildings and improvements 3,344,128 2,656,577
Railroad track and improvements 27,369,412 11,948,501
Locomotives, vehicles and other equipment 13,671,118 8,880,137
----------- -----------
59,266,392 29,154,416
Less accumulated depreciation 5,117,426 3,606,875
----------- -----------
$54,148,966 $25,547,541
=========== ===========
</TABLE>
Depreciation expense was approximately $1.3 million and $1.0 million
for the years ended December 31, 1996 and 1995, respectively.
6. OTHER ASSETS:
Other assets consist of the following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Notes receivable $ 263,567 $ 24,879
Deferred loan costs, net 1,052,365 641,834
Deferred acquisition costs 462,535 325,218
Deferred financing costs 146,001 115,824
Deposits and other 502,147 412,072
---------- ----------
$2,426,615 $1,519,827
========== ==========
</TABLE>
Deferred acquisition and financing costs include legal and accounting
fees, appraisal fees, consulting fees and other costs paid to unrelated
parties relating to potential acquisitions and equity raising.
7. RELATED PARTY TRANSACTIONS:
During 1995, the Company incurred $18,470 of costs to related parties
associated with the investigation of potential acquisitions.
F-14
<PAGE> 62
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
7. RELATED PARTY TRANSACTIONS, continued
First London Securities Corporation ("First London"), of which Douglas
Nichols, a director of the Company, is President and principal
shareholder, served as the exclusive placement agent for the Company's
private placement which closed in September 1996 and also the Company's
private placement which closed in January 1997. First London received
as part of the September 1996 private placement a $225,000 placement
fee, $45,000 nonaccountable expense fee and one-year warrants to
purchase 125,000 shares of Common Stock at an exercise price of $4.60
per share. First London received as part of the January 1997 private
placement a $375,750 placement fee, $75,150 nonaccountable expense fee
and one-year warrants to purchase 167,000 shares of Common Stock at an
exercise price of $5.75 per share.
8. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
Revolving line of credit. See below $24,991,465 $12,933,012
Acquisition loan. See below 3,650,000 --
Note payable, financial institution, bearing interest at
9.50%, due in fixed monthly installments of
$24,516 (including interest), with a final payment
of $554,076 in February 1999. Certain equipment,
inventory, accounts receivable, capital leases and
South Central Tennessee Railroad Corp. ("SCTR")
common stock serve as collateral 1,009,018 1,197,513
Equipment note, with interest imputed at 9.92%, due in fixed monthly
installments of $7,055 (including interest) through March
1998.Certain equipment
serves as collateral 234,130 291,958
Equipment notes, with interest imputed at 9.06%, due in fixed monthly
installments of $9,812 (including interest) through October 2003
Certain railroad
equipment serves as collateral 646,567 --
Equipment notes, with interest imputed at 8.33%, due in fixed monthly
installments of $16,441 (including interest) through March 2003
Certain railroad
equipment serves as collateral 1,169,056 --
</TABLE>
F-15
<PAGE> 63
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. LONG-TERM DEBT, continued
<TABLE>
<S> <C>
Equipment notes, with interest imputed at 8.90%, due in fixed monthly
installments of $9,334 (including interest) through December 2001.
Certain railroad
equipment serves as collateral. 434,723 -
Equipment notes, with interest imputed at 8.76%, due in fixed monthly
installments of $8,988 (including interest) through October 2003.
Certain locomotives
equipment serves as collateral. 603,830 -
Equipment notes, with interest imputed at rates from 9.28% to
11.63%, due in fixed monthly installments of $17,691 (including
interest) with varying maturities through
February 2000. Certain equipment serves as collateral 351,619 516,692
Equipment note payable, bearing interest at 8.89%, due in fixed monthly
installments of $27,250 (including interest) through December 2000
with final payment of $140,026 January
2001. Certain equipment serves as collateral. 1,194,791 1,405,262
Equipment note payable, bearing interest at 10.06%, due in fixed
monthly installments of $16,434 (including interest) through
July 2001. Certain equipment serves as collateral. 721,172 -
Equipment note payable, bearing interest at 9.4%, due in fixed monthly
installments of $2,409 (including interest) through
October 1998. Certain equipment serves as collateral. 48,505 71,656
Burlington Northern Sante Fe ("BNSF") rail facilities installment
purchase obligation, annual payments of $250,000, including
interest at 10%, maturing in October 2116. If car loads at OTVR
fall below 6,500 in a year, BNSF will credit payments
on this debt at a rate of $250 per car. 2,181,164 -
Contract for deed, principal due at the earlier of December 1, 2008 or
180 days following the date that rail service ceases to be
provided on the Minnesota line operated by Dakota. The Contract
for deed is non-interest bearing and is discounted to yield 9%.
The unamortized discount at December 31, 1996 and 1995 is $878,169
and $917,781,
respectively. Railroad property serves as collateral. 486,146 448,235
Note payable to the State of Minnesota, payable in quarterly
installments of $6,024 through July 1, 2004. The note is
non-interest bearing and is discounted to yield 9%. The
unamortized discount at December 31, 1996 and 1995 is $50,330 and
$59,533, respectively. Railroad property
and equipment serves as collateral. 130,394 142,089
</TABLE>
F-16
<PAGE> 64
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. LONG-TERM DEBT, continued
<TABLE>
<S> <C> <C>
Note payable to the Central Prairie Rail Shippers Corporation, payable
in quarterly installments with final payment due not later than
September 13, 2000. The note is non-interest bearing and is
discounted to yield 9%. The unamortized discount at December 31,
1996 and 1995 is $680 and $6,400, respectively. Railroad property
and equipment serves as collateral 39,868 64,902
Capital lease obligations 2,234,813 1,079,898
Other 26,784 --
----------- -----------
40,154,045 18,151,217
Less current maturities 1,752,926 969,929
----------- -----------
Long-term debt, less current maturities $38,401,119 $17,181,288
=========== ===========
</TABLE>
On September 29, 1995, the Company entered into a $15 million revolving
credit loan facility ("Revolver") with National Bank of Canada ("NBC").
On October 21, 1996, the Company closed on a $10 million increase in
its Revolver. The Revolver's maturity date was extended to October
1999. The Revolver bears interest at either the bank's prime rate
(which was 8.5% at December 31, 1996) plus 0.5% or the one, three or
six month LIBOR plus 2.5%, at the option of the Company. The Revolver
is collateralized by substantially all the assets of the Company, Huron
and Eastern Railway Company, Inc., Saginaw Valley Railway Company,
Inc., Cascade and Columbia River Railroad, OTVR, RIS, Steel City, WTLR
and Kalyn.
The proceeds from the Revolver were used to refinance approximately $7
million of existing debt, including debt associated with the 1994
acquisition of Kalyn, the 1995 acquisition of Steel City and the
borrowings with First of America Bank, Mid-Michigan, N.A.
The Revolver includes restrictive covenants prohibiting the Company
from incurring debt, except liabilities incurred in the normal course
of business, guaranteeing the payment of an obligation of a third
party, and selling, transferring or otherwise assigning substantially
all of its assets. The Revolver also contains certain financial
covenants which include requiring the Company to maintain a maximum
debt to tangible net worth and interest coverage ratios. The Revolver
also contains a covenant which restricts payment of dividends on the
Company's Common Stock. The Company was not in compliance with certain
of the covenants during 1996 and received the appropriate waivers from
NBC. As of December 31, 1996, the Company's Revolver was substantially
fully funded.
F-17
<PAGE> 65
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. LONG-TERM DEBT, continued
In December 1996, the Company entered into an acquisition financing
transaction with Comerica Bank N.A. ("Comerica") to acquire rail lines
in Minnesota from BNSF. The interest rate on the financing was at the
prime rate (8.5% at December 31, 1996) plus one percent and was
scheduled to mature in 90 days from closing, which was subsequently
extended to April 30, 1997. The acquisition loan is collateralized by
substantially all of the assets acquired.
During the first quarter of 1997, the Company negotiated and received a
bank commitment which will increase its Revolver from $25 million to
$40 million by bringing Comerica as an additional lender into the
Revolver. It is anticipated that the acquisition loan will be rolled
into the Revolver.
The aggregate annual maturities of long-term debt are as follows net of
discount amortization:
<TABLE>
<S> <C>
1997 $ 1,752,926
1998 1,903,815
1999 30,536,040
2000 1,192,501
2001 970,070
Thereafter 3,798,693
---------------
$ 40,154,045
===============
</TABLE>
During the years ended December 31, 1996 and 1995 interest of
approximately $41,000 and $42,000, respectively, was capitalized.
Capital Leases
The Company entered into equipment finance leases for certain
locomotives, tractors, trailers and other equipment expiring at various
times through 2001. These leases are accounted for as capital leases.
The financing of the purchase of the locomotives, tractors, trailers
and equipment under these capital leases was capitalized using the
interest rate appropriate at the inception of the respective leases.
The Company also leases certain railroad properties under a capital
lease which expires in 1998. The lease includes a purchase option for
$350,000 with a full credit allowed to the purchaser for rents paid
under the lease. The lease provides for base lease payments of $2,083
per month, plus 10% of taxable income of SCTR up to $100,000, and
15% of taxable income of SCTR in excess of $100,000.
The following is an analysis of the Company's assets under capital
leases at December 31, 1996:
<TABLE>
<S> <C>
Property under capital leases $ 2,603,690
Less accumulated amortization 283,764
----------------
$ 2,319,926
</TABLE>
F-18
<PAGE> 66
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
8. LONG-TERM DEBT, continued
Minimum annual lease commitments at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1997 $ 730,228 $ 780,096
1998 824,207 771,025
1999 617,316 584,353
2000 549,945 71,309
2001 391,389 23,283
Thereafter - 49,920
------------- ---------------
Total 3,113,085 $ 2,279,986
===============
Less amount representing interest 878,272
-------------
Present value of future minimum
lease payments 2,234,813
Less current portion 557,465
Noncurrent portion $ 1,677,348
=============
</TABLE>
During 1995, due to the passage of time and other factors management
determined that a contingent liability from the SCTR acquisition in the
amount of approximately $337,000 no longer existed. The reversal of
this contingent liability is included in other income in the
accompanying consolidated statement of income for the year ended
December 31, 1995.
Rental expense under operating leases was approximately $780,000 and
$193,000 for the years ended December 31, 1996 and 1995, respectively.
9. SUBORDINATED DEBT:
Subordinated debt consists of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
---------- -------
<S> <C> <C>
Convertible subordinated debentures, bearing interest at the prime rate
(which was 8.5% at December 31, 1996) adjusted annually, payable
semi-annually. Principal payments are due in 20 equal quarterly
installments beginning November 1999. Convertible into common stock
of the Company at $2.25 beginning August 31, 1995. $ 1,000,000 $ 1,000,000
Subordinated debentures, bearing interest at the prime
rate adjusted annually, payable semi-annually.
Principal payments are due in 20 equal quarterly
installments beginning May 1995. 690,274 902,666
</TABLE>
F-19
<PAGE> 67
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
9. SUBORDINATED DEBT, continued
<TABLE>
<S> <C> <C>
Series A Convertible Subordinated debentures, bearing interest at 8%
payable semi-annually on January 1 and July 1. Convertible into
common stock of the Company at $5.48 per share beginning
January 1, 1996. Maturing June 30, 2005. 2,000,000 2,000,000
Subordinated promissory note bearing interest at 5%
maturing January 1996 -- 1,666,665
--------------- ----------------
3,690,274 5,569,331
Less current maturities 212,392 1,879,057
--------------- ----------------
$ 3,477,882 $ 3,690,274
=============== ================
</TABLE>
The aggregate annual maturities of subordinated debt are as follows:
<TABLE>
<S> <C>
1997 212,392
1998 212,392
1999 262,392
2000 253,098
2001 200,000
Thereafter 2,550,000
------------
$ 3,690,274
</TABLE>
10. OTHER REVENUE:
Other revenue as of December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gain on sale of properties and
easements $ 1,498,738 $ 243,078
Rental income 577,712 136,262
Other 160,772 58,457
------------- -------------
$ 2,237,222 $ 437,797
============= =============
</TABLE>
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
On August 31, 1994, the Company issued 100,000 Series A Convertible
Preferred Shares ("Series A Shares") to the former shareholders of
Kalyn. The Series A Shares were convertible into the Company's common
stock at a price of $2.25 per share at any time commencing one year
after the date of issuance. The Series A Shares paid a nonparticipating
cumulative annual dividend at the rate of $.50 per share. The Company
redeemed all Series A Shares as of October 1, 1995 at a price of $3.75
per share ($1,666,665) with subordinated promissory notes which matured
in January 1996.
F-20
<PAGE> 68
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
12. INCOME TAX PROVISION:
The provision for income taxes for the years ended December 31, 1996
and 1995 consists of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal income taxes:
Current $ 45,000 $ 400,000
Deferred 411,405 250,643
-------------- ------------
456,405 650,643
State income taxes:
Current 75,000 160,788
Deferred 4,000 62,560
-------------- ------------
79,000 223,348
Foreign income taxes:
Current -- --
Deferred (152,000) (95,692)
--------------- -------------
Total income tax provision $ 383,405 $ 778,299
============== ============
</TABLE>
The following summarizes the total income tax provisions for each of
the years ended December 31, 1996 and 1995:
<TABLE>
<S> <C> <C>
Continuing operations $ 705,405 $ 950,299
Discontinued operations (322,000) (172,000)
-------------- ------------
Total income tax provision $ 383,405 $ 778,299
============== ============
</TABLE>
The Company joins in the filing of a consolidated U.S income tax return
with its domestic subsidiaries. For state income tax purposes, the
Company and each of its domestic subsidiaries generally file on a
separate return basis in the states in which they do business. The
Company's Canadian subsidiaries, RailAmerica Carriers and Steel City
Carriers, file Canadian income tax returns.
The differences between the U.S. federal statutory tax rate and the
Company's effective rate from continuing operations are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Income tax provision, at 35% $ 625,045 $ 726,790
Statutory federal Surtax exemption (17,858) (20,765)
State income tax, net of federal benefit 51,350 145,176
Non-deductible expenses 45,100 41,000
Other, net 1,768 28,098
Valuation allowance - 30,000
----------- -----------
$ 705,405 $ 950,299
=========== ===========
</TABLE>
F-21
<PAGE> 69
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
12. INCOME TAX PROVISION, continued
The components of deferred income tax assets and liabilities as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 864,000 $ 650,000
Land 84,000 84,000
Alternative minimum tax credit 557,000 512,000
-------------- --------------
Total deferred assets 1,505,000 1,246,000
Less: valuation allowance (183,000) (183,000)
--------------- --------------
Total deferred assets, net 1,322,000 1,063,000
Deferred tax liabilities:
Depreciation and amortization 8,075,668 3,854,000
-------------- --------------
Net deferred tax liability $ (6,753,668) $ (2,791,000)
============== ==============
</TABLE>
The liability method of accounting for deferred income taxes requires a
valuation allowance against deferred tax assets if, based on the weight
of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. The Company has
established a valuation allowance against tax assets of $183,000 at
December 31, 1996 and 1995. It is management's belief that it is more
likely than not that a portion of the deferred tax assets will not be
realized.
As a part of certain acquisitions, the Company acquired approximately
$1,042,000 of net operating loss carryforwards for federal and state
income tax purposes. The utilization of the acquired tax loss
carryforwards is further limited by the Internal Revenue Code Section
382 to approximately $100,000 each year. The tax loss carryforwards
expire in the years 2001 through 2010.
The U.S. Income Tax Return for 1993 was examined by the Internal
Revenue Service. During the first quarter of 1997, the examination
was completed with no changes to the returns as originally filed.
F-22
<PAGE> 70
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
13. WARRANTS:
In conjunction with the Company's initial public offering there were
576,886 Class A warrants, 576,886 Class B warrants and 55,000
underwriter unit purchase warrants issued. At the time of the issuance,
each Class A warrant entitled its holder to purchase one share of
common stock at a price of $3.85 per share. Each Class B warrant
entitled its holder to purchase one share of common stock at a price of
$4.55 per share. Each underwriter unit purchase warrant entitled its
holder to two shares of the Company's Common Stock, one Class A warrant
and one Class B warrant at a price of $11.55. Such exercise prices have
been adjusted, as described below.
Under Statement of Rights, Terms and Conditions for Class A and Class B
Callable Stock Purchase Warrants the exercise price and the number of
shares exercisable per Warrant is subject to adjustment in the event of
certain occurrences. The Class A, Class B and Unit Purchase Warrants
were adjusted as of September 2, 1994 based on a series of events that
primarily involved the sale and issuance of common stock, and
securities convertible into common stock, which occurred in connection
with the Company's acquisition of Kalyn. The adjusted exercise price
for the Class A and Class B Warrants became $3.09 and $3.50 per share,
respectively, and the adjusted exercise price of the Unit Purchase
Warrants became $8.32. The Unit Purchase Warrants were subsequently
adjusted to $7.97. The adjusted number of shares exercisable for the
Class B Warrants and the Unit Purchase Warrants became 749,951 and
79,704, respectively.
In the first quarter of 1995, all of the Class A warrants except 10,445
were exercised. The remaining shares expired as of March 31, 1995. In
addition, during the first quarter half of the unit purchase warrants
were exercised. The Class B warrants are exercisable and subject to
being called by the Company beginning November 9, 1993 (until November
9, 1997). The Unit Purchase Warrants are exercisable until November 9,
1997. The Company may call the Class B warrants at $.05 per warrant
with 30 days written notice during their exercise period if, during any
period of 20 consecutive trading days ending not more than 10 days
prior to the notice, the high closing bid price of the common stock has
equaled or exceeded $5.6875 per share. The Company exercised its option
to call the Class B warrants in February 1997. Class B Warrants must be
converted by March 31, 1997 or the Company will repurchase those
warrants surrendered to it for $.05 per warrant.
In June 1995, the Company granted 127,500 warrants exercisable at $4.25
per share, subsequently adjusted to $4.09 per share, in settlement of
certain litigation. These warrants were outstanding at December 31,
1996 and exercisable until September 15, 1998.
14. STOCK OPTIONS:
In July 1992, the Company implemented a stock option plan (the "Plan")
for certain officers, consultants, employees and outside directors of
the Company. The aggregate number of shares which may be issued
pursuant to the Plan is 250,000 shares. The entire 250,000 options,
which were issued prior to 1995, exercisable at $3.50 per share, are
outstanding as of December 31, 1996. 110,000 of the options mature
February 23, 1998 the remaining balance mature October 5, 2003.
F-23
<PAGE> 71
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
14. STOCK OPTIONS, continued
The Company granted an additional 275,000 stock options during 1994 to
outside consultants. The stock options exercise prices ranged from
$2.00 to $3.55 and were exercisable upon grant. The entire 275,000
options expired during 1995.
Effective January 1, 1995, the Company implemented three new stock
option plans: the 1995 Stock Incentive Plan, the 1995 Non-Employee
Director Stock Option Plan and the 1995 Employee Stock Purchase Plan.
Each plan calls for 250,000 shares to be reserved for future issuance.
During 1995, 141,000 shares were issued under the 1995 Stock Incentive
Plan, exercisable at $3.50 per share at the date of grant, and 110,000
were issued under the Non-Employee Director Stock Option Plan at prices
ranging from $3.50 to $4.81 per share with 1/3 exercisable at the date
of grant, 1/3 exercisable at the first anniversary of the grant date
and 1/3 exercisable at the second anniversary of the grant date. During
1996, 105,000 options were granted under the 1995 Stock Incentive Plan,
exercisable at $3.625 per share (and 100,000 options were granted under
the Non-Employee Director Stock Option Plan, exercisable at $3.50 per
share. All the options granted under the Non-Employee Director Option
Plan and the Stock Incentive Plan have a 10 year life from the date of
grant.
During November 1994, the Company's Board of Directors approved an
employment arrangement with Mr. Gary Marino for him to serve as Chief
Executive Officer of the Company and its subsidiaries. Under this
employment arrangement Mr. Marino was issued 50,000 shares of the
Company's common stock as a signing bonus. The Company recognized
compensation expense equal to the number of shares issued at the fair
market value at the time of issuance. This compensation expense was
recognized in the third quarter of 1995.
Mr. Marino's arrangement also provides that he will be granted
non-qualified options to purchase an aggregate of 350,000 shares of
common stock of the Company at varying exercise prices and exercise
dates. Options for 87,500 shares at an exercise price of $3.10, the
fair market value of the common stock at the time the Board of
Directors approved the arrangement, and 87,500 shares at an exercise
price of $3.40 were immediately exercisable upon Mr. Marino's execution
of his written employment agreement. Additional options for 87,500
shares each became exercisable under the employment agreement on each
of March 1, 1996 and 1997 at exercise prices equal to $3.75 and $4.15
per share, respectively. The Company recognized no compensation expense
since the exercise prices at the date of grant were either equal to or
in excess of the fair market value. Mr. Marino's options have a 10 year
life from the date of grant and expire November 11, 2004.
During 1996, the Company issued options to purchase an aggregate of
90,000 shares of common stock to certain employees at exercise prices
equal to $3.65 per share for 10,000 of the options and $5.00 per share
for the remaining 80,000 options. Each of these options have a 10 year
life from the date of the grant.
F-24
<PAGE> 72
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
14. STOCK OPTIONS, continued
The Company has adopted the disclosure-only provisions of Statements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". Accordingly, no compensation costs have been recognized
for the stock options issued during 1995 and 1996. Had compensation
cost for the Company's stock options issued been determined based on
the fair value at the grant date for awards in 1996 and 1995 consistent
with the provisions of SFAS No. 123, the Company's net income and net
income per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
-------------- ---------
<S> <C> <C>
Net income - as reported $ 504,879 $ 868,333
============== ==============
Net (loss) income - pro forma $ (260,911) $ 341,469
============== ==============
Net income per share - as reported $ 0.10 $ 0.04
======= ======
Net (loss) per share - pro forma $ (0.05) $(0.07)
======== =======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1995: dividend
yield 0.0%; expected volatility of 45%; risk-free interest rate of
6.36% -7.8%; and expected lives of 10 years.
Information regarding the above options for 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 848,500 $ 3.66 875,000 $ 3.38
Options granted 295,000 $ 3.96 251,000 $ 3.90
Options exercised 12,500 $ 3.60 -- -
Options expired 7,000 $ 3.50 277,500 $ 3.00
Options outstanding, end of year 1,124,000 $ 3.74 848,500 $ 3.66
Options exercisable, end of year 933,167 $ 3.69 600,167 $ 3.48
Option price range at December 31, 1996 $ 3.50 to $ 5.00
</TABLE>
15. NONCASH INVESTING AND FINANCING ACTIVITIES:
On August 31, 1994, the Company issued 100,000 Series A Convertible
Preferred Shares ("Series A Shares") to the former shareholders of
Kalyn as part of the acquisition. The Series A Shares were redeemed on
October 1, 1995, for $1,666,665 of 5% subordinated promissory notes,
which matured January 1996.
F-25
<PAGE> 73
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
15. NONCASH INVESTING AND FINANCING ACTIVITIES, continued
The Company issued 5,000 and 4,200 shares of common stock to employees
in the first quarter of 1995 and the first quarter of 1996,
respectively, and 50,000 shares of common stock to the Company's Chief
Executive Officer in the third quarter of 1995. Additionally, the
Company issued 9,719 shares of common stock to certain employees in the
first quarter of 1996 pursuant to employment contracts.
The Company incurred approximately $16.1 million in debt to acquire
property, plant and equipment during 1996. These amounts included
acquisition of a 131 mile rail line in Washington, 234 miles of rail
line in Minnesota, 100 tank cars and other transportation equipment
including locomotives, tractor and trailers.
The Company assumed $2.2 million of long-term debt and $3.7 million of
deferred tax liabilities related to the acquisition of OTVR.
Capital lease obligations of $516,746 were incurred when the Company
entered into leases for tractors and trailers during 1995.
16. RESTRICTED CASH
In 1994, the Company had set aside $335,000 of restricted cash from the
proceeds of the acquisition financing of SCTR. The restricted cash was
held as collateral for the debt issued in conjunction with the
financing of the SCTR acquisition. The restricted cash consisted of two
certificates of deposit. During 1995, $160,000 of the cash was
released. During the first quarter of 1997, the remaining $175,000 was
released. This amount has been included in cash on the balance sheet as
of December 31, 1996.
The Company had set aside $130,000 of restricted cash from the proceeds
of the acquisition of Kalyn. The restricted cash was being held back
until the former shareholders completed certain requirements. These
requirements were met in the third quarter of 1995 and the $130,000 was
released.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Management believes that the fair value of its long-term debt
approximates its carrying value for the revolving line of credit based
on the variable nature of the financing; the bridge acquisition
financing based on its short maturity; and for all other long-term debt
based on current borrowing rates available with similar terms and
maturities.
F-26
<PAGE> 74
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
18. CONTINGENCIES:
In the ordinary course of conducting its business, the Company becomes
involved in various legal actions and other claims which are pending or
could be asserted against the Company. Litigation is subject to many
uncertainties, the outcome of individual litigated matters is not
predictable with assurance, and it is reasonably possible that some of
these matters may be decided unfavorably to the Company. It is the
opinion of management that the ultimate liability, if any, with respect
to these matters will not be material. The Company is involved in an
arbitration proceeding related to the termination of a lease by its
wholly-owned subsidiary DVRC. Management believes that it terminated
the lease properly and that the Company will ultimately prevail in the
arbitration. If the Company does not prevail the estimated costs could
be approximately $120,000.
Effective January 23, 1995, the Company, through its wholly-owned
subsidiary Kalyn, entered into a Wholesale and Retail Financing
Agreement with Associates Commercial Corporation. The agreement
provides for dealer and customer financing and for the repurchase of
products sold in the event of default by the customer or dealer to the
finance company. The Company is obligated to repurchase a maximum of
$300,000, in the aggregate. Since inception of the Agreement, there
have been no defaults which would have required the Company to
repurchase products sold. The Company is involved in an arbitration
proceeding related to the termination of a lease by its wholly-owned
subsidiary DVRC. Management believes that it terminated the lease
properly and that the Company will ultimately prevail in the
arbitration. If the Company does not prevail the estimated costs would
be approximately $120,000.
19. SEGMENT INFORMATION:
The Company's continuing operations have been classified into two
business segments: rail transportation and manufacturing. The rail
transportation segment includes the operations of the Company's
railroad subsidiaries and the manufacturing segment includes the
operations of Kalyn and RailAmerica Equipment Corporation.
Business segment information for the year ended December 31, 1996
(dollar amounts in thousands):
<TABLE>
<CAPTION>
Rail Corporate
Consolidated Transportation Manufacturing Overhead
------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
Revenue $ 25,658 $ 11,704 $ 13,954 $ -
Operating income (loss) $ 3,873 $ 4,978 $ 1,473 $ (2,578)
Identifiable assets $ 66,152 $ 46,129 $ 12,932 $ 7,091
Depreciation and
amortization $ 1,527 $ 991 $ 490 $ 46
Capital expenditures $ 29,766 $ 26,849 $ 2,809 $ 108
Business segment information for the year ended December 31, 1995
(dollar amounts in thousands):
</TABLE>
<TABLE>
<CAPTION>
Rail Corporate
Consolidated Transportation Manufacturing Overhead
------------ -------------- ------------- --------
<S> <C> <C> <C> <C>
Revenue $ 25,078 $ 7,205 $ 17,873 $ -
Operating income(loss) $ 3,188 $ 2,670 $ 2,646 $ (2,128)
Identifiable assets $ 35,058 $ 18,856 $ 10,706 $ 5,496
Depreciation and
amortization $ 1,232 $ 824 $ 408
Capital expenditures $ 2,300 $ 1,724 $ 576
</TABLE>
F-27
<PAGE> 75
RAILAMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
20. SUBSEQUENT EVENTS (UNAUDITED):
On February 19, 1997, the Company acquired, through its wholly-owned
subsidiary RailAmerica de Chile, S.A., a majority interest in the stock
of Empressa de Transporte Ferroviario S.A. ("Ferronor"), a 1,400 mile
railroad serving northern Chile. RailAmerica has joined in the purchase
of Ferronor with Andres Pirazzoli y Cia, Ltda ("APCO"), a family-owned
Chilean transportation and distribution company. The purchase price
paid by RailAmerica/APCO for substantially all of the stock of Ferronor
was approximately $12 million and was funded 55% ($6.6 million) by
RailAmerica and 45% ($5.4 million) by APCO.
Ferronor operates the only north-south railroad in northern Chile,
extending from La Calera near Santiago, where it connects with Chile's
southern railway, Ferrocarril del Pacifico, S.A., to its northern
terminus at Iquique, approximately 120 miles south of the Peruvian
border. It also operates several east-west branch lines that link a
number of iron, copper and limestone mines and production facilities
with several Chilean Pacific port cities. Ferronor also serves
Argentina and Bolivia through traffic interchanged with the General
Belgrano Railroad and the Ferrocarriles Antofagasta Bolivia.
On January 15, 1997 the Company, pursuant to Regulation D promulgated
under the Securities Act of 1933, as amended, completed a private
placement of 1,670,000 shares of its Common Stock, par value $.001 per
share at a purchase price per share of $4.50 (aggregate proceeds of
$7,515,000). Included in the line item Common stock subscribed on the
December 31, 1996 balance sheet is $2,340,000 received during 1996
related to this private placement.
F-28
<PAGE> 1
[NATIONAL BANK OF CANADA LETTERHEAD]
March 3, 1997
RAILAMERICA, INC.
KALYN/SIEBERT, INCORPORATED
RAILAMERICA INTERMODAL SERVICES, INC.
RAILAMERICA CARRIERS, INC.
STEEL CITY CARRIERS INC.
SAGINAW VALLEY RAILWAY COMPANY, INC.
HURON AND EASTERN RAILWAY COMPANY, INC.
WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.
PLAINVIEW TERMINAL COMPANY
CASCADE AND COLUMBIA RIVER RAILROAD COMPANY
OTTER TAIL VALLEY RAILROAD COMPANY, INC.
MINNESOTA NORTHERN RAILROAD, INC.
DELAWARE VALLEY RAILWAY COMPANY, INC.
301 Yamato Road
Suite 1190
Boca Raton, Florida 33431
ATTN: GARY O. MARINO, CEO and President
Re: $40,000,000.00 Revolving Line of Credit / Term Loan Facility
Dear Gary:
NATIONAL BANK OF CANADA, a Canadian Chartered Bank ("NBC"), as agent,
and as sixty-two and one-half (62.5%) percent pro-rata lender, and COMERICA
BANK, a Michigan banking corporation ("Comerica"), as thirty-seven and one-half
(37.5%) percent pro-rata lender, are pleased to offer a credit facility in the
form of a revolving line of credit/term loan facility in the amount of Forty
Million and 00/100 Dollars ($40,000,000.00) (the "Loan") to RAILAMERICA, INC.,
a Delaware corporation, KALYN/SIEBERT, INCORPORATED, a Texas corporation,
RAILAMERICA INTERMODAL SERVICES, INC., a Delaware corporation, RAILAMERICA
CARRIERS, INC., a corporation organized under the laws of the Province of
Ontario, STEEL CITY CARRIERS INC., a corporation organized under the laws of
the Province of Ontario, SAGINAW VALLEY RAILWAY COMPANY, INC., a Delaware
corporation, HURON AND EASTERN RAILWAY COMPANY, INC., a Michigan corporation,
WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC., a Texas corporation, PLAINVIEW
TERMINAL COMPANY, a Texas corporation, CASCADE AND COLUMBIA RIVER RAILROAD
COMPANY, a Delaware corporation, OTTER TAIL VALLEY RAILROAD COMPANY, INC., a
Minnesota corporation, MINNESOTA NORTHERN RAILROAD, INC., a Delaware
corporation, and, DELAWARE VALLEY RAILWAY COMPANY, INC., a Delaware corporation
(sometimes hereinafter collectively referred to as "Borrower" or "Borrowers").
NBC and Comerica are sometimes hereinafter collectively referred to as "Lender"
or "Lenders". In connection with the administration of the Loan, it is
<PAGE> 2
March 3, 1997
Page 2
acknowledged that NBC shall act as agent on behalf of the Lenders, such that
all requests and information required to be provided to Lenders in connection
with the funding and administration of the Loan shall be provided to NBC, on
behalf of the Lenders, at the local office of NBC in Boca Raton, Florida. It
is further acknowledged that in connection with all decisions to be made by the
Lenders in connection with the administration of the Loan, all monetary matters
shall require the consent of all of the Lenders, and all non-monetary matters
shall require the consent of Lenders holding sixty-six and two-thirds (66 2/3%)
percent or greater percentage participation interests in the Loan in the
aggregate. A more detailed description of the funding, administration and
enforcement actions to be taken in connection with the Loan by the Lenders
shall be set forth in the Loan Agreement to be entered into by and between the
Borrowers and the Lenders at the time of the closing of the Loan. The Loan is
more particularly described below, which Loan shall be subject to all of the
following terms and conditions.
1. LOAN AMOUNT: Forty Million and 00/100 Dollar ($40,000,000.00)
Revolving Line of Credit/Term Loan facility.
2. PURPOSE OF THE LOANS AND USE OF PROCEEDS: The purpose of the
Loan is to (i) refinance an existing Fifteen Million and 00/100 Dollar
($15,000,000.00) Line of Credit facility and an existing Ten Million and 00/100
Dollar ($10,000,000.00) Acquisition Line of Credit facility currently
outstanding and due and owing by certain of the Borrowers to NBC, (ii)
refinance an existing Four Million Five Hundred Thousand and 00/100 Dollar
($4,500,000.00) Term Loan facility currently outstanding and due and owing by
MINNESOTA NORTHERN RAILROAD, INC., a Delaware corporation ("Minnesota") to
Comerica, (iii) support short term working capital requirements of the
Borrowers, and, (iv) provide for the financing of future acquisitions by one or
more of the Borrowers or by an entity owned by or affiliated with one or more
of the Borrowers (hereinafter referred to as an "Affiliate") of transportation
related businesses, said acquisitions to be subject to review by and the
consent of Lender, which consent shall not be unreasonably withheld; provided
further that the assets acquired pursuant to an acquisition financed by Lender
shall be pledged in favor of Lender as security for the Loan in the event the
pro-forma asset ratio coverage of the Borrowers immediately after the time of
the acquisition advance does not meet the required Minimum Asset Ratio (as said
term is defined herein) of not less than 1.4 to 1 (as more particularly
described herein). Any funds disbursed for the above set forth acquisition
purposes are hereinafter referred to individually as an "Acquisition Advance"
and collectively as "Acquisition Advances". Any Acquisition Advance
effectuated under the Loan which does not meet the required Minimum Asset Ratio
and therefore requires a pledge of the acquired assets in favor of Lender, is
sometimes hereinafter referred to as a "Collateralized Acquisition Advance".
For purposes of this letter, "Eligible Receivables" shall be defined
as accounts receivable of Borrowers which are accounts receivable arising out
of sales of tangible personal property made by Borrowers or services provided
by Borrowers in the ordinary course of their
<PAGE> 3
March 3, 1997
Page 3
businesses, which are no more than ninety (90) days old from its invoice date,
according to the original terms of sale or the original terms and provisions of
the services, and, the payment of which is not in dispute and in which the
Lender has a first priority security interest. The Lender may treat any
Receivable as ineligible (i) if any warranty contained in this or any related
agreement is breached with respect thereto; (ii) if the customer or account
debtor has disputed liability or made any claim with respect to the Receivable
or the Receivable due from said customer to Borrowers; (iii) if the customer or
account debtor has filed a petition for bankruptcy or any other application for
relief under the Bankruptcy Act has been filed against the said customer or
account debtor, or if the customer or account debtor has failed, suspended
business, become insolvent, or had or suffered a receiver or trustee to be
appointed for any of its assets or affairs; (iv) if the customer or account
debtor is located outside the United States, provided however, that Canadian
Receivables of Steel City Carriers Inc. shall be included as Eligible
Receivables within the Borrowing Base, provided that Lender is able to obtain a
perfected security interest in said Canadian Receivables, and provided further
that all Canadian Receivables will be adjusted to U.S. Dollars for purposes of
inclusion with in the Borrowing Base; (v) if the Receivable is due and owing
from an account debtor who is also a creditor of Borrowers; (vi) if the
Receivable is a government receivable in which the Lender will not be able to
perfect its lien under the Federal Assignment of Claims Act for any reason
whatsoever; (vii) if the Receivable arises from a progress billing for work not
yet completed and delivered to the customer; or (viii) if the Lender believes,
in its credit judgment based on Lender's sole discretion, that collection of
such Receivable is insecure or that it may not be paid by reason of financial
inability to pay or otherwise or that such Receivable is not suitable for use
as collateral hereunder. It is acknowledged that a more expanded definition of
Eligible Receivables shall be set forth in the Loan Agreement, to be entered
into between Borrowers and Lender at the time of closing.
For purposes of this letter, "Eligible Inventory" shall be defined as
Borrower's raw material and finished goods inventory, which inventory must be
satisfactory to Lender, provided that Lender shall determine in its reasonable
discretion, which inventory shall be eligible for financing hereunder, provided
however, that in connection with Canadian Eligible Inventory, the same will be
converted into U.S. Dollars for valuation purposes.
For purposes of this letter, "Real Estate" shall be defined as the
Texas Real Property, the Michigan Real Property, the Ontario Real Property, the
West Texas and Lubbock Real Property, the Washington Real Property, the
Minnesota Real Property and the Gettysburg Real Property (as such terms are
hereinafter defined).
For purposes of this letter, "Machinery and Equipment" shall be
defined as all machinery, equipment, furniture, fixtures, computer hardware and
software, hand and power tools, trucks, forklifts, automobiles, heavy
equipment, railroad equipment and other equipment, rolling stock (exclusive of
locomotives financed by other lenders) and other motor vehicles,
<PAGE> 4
March 3, 1997
Page 4
trucks, machinery and equipment of all classes, together with parts thereof and
accessions thereto, wherever located, now owned or hereafter acquired by any of
the Borrowers excluding (i) locomotives and other Machinery and Equipment
financed by other Lenders or with purchase money financing and (ii) new assets
acquired by any of the Borrowers for cash or through financing sources other
than Lender, except for any new assets acquired by any Borrower which are
replacements of any existing Machinery and Equipment.
For purposes of this letter, "Railroad Trackage" shall be defined as
all rails, tracks, trackage, track materials, ties and timber owned by the
Borrowers or any of them, whether now owned or hereafter acquired, by them or
any of them, including but not limited to (i) all rail and track owned by
Borrowers, but not yet affixed to any real estate or incorporated within
existing railroad lines, and (ii) all rail and track owned by Borrowers and
affixed to real estate or incorporated within existing railroad lines, together
with all fixtures, equipment, machinery, structures, buildings, tracks, rails,
ties, switches, crossings, bridges, trestles, culverts, signals, crossing
protection devices, loading platforms, pools, communication lines, powerlines
and appurtenances of every kind or nature, used or useful in connection with
laying, maintaining and operating such rail and track, including without
limitation all rails, tracks, trackage, track materials, ties and timber
described and set forth in that certain Amended, Restated and Consolidated
Security Agreement entered into by and between NBC and certain of the Borrowers
dated as of the 21st day of October, 1996 (the "Existing NBC Security
Agreement"), as additionally described and set forth in that certain Security
Agreement entered into by and between Comerica and Minnesota dated as of the
27th day of December, 1996, and as additionally described in the Gettysburg
Railroad Trackage Appraisal (as defined herein).
For purposes of this letter, "Franchises" shall be defined as all
franchises, sanctions, rights, licenses, privileges and operating agreements or
authorities, including without limitation agreement(s) between Borrowers or any
of them and the State of Michigan Department of Transportation, to operate over
153 miles of track, or thereabouts, the State of Texas Department of
Transportation, to operate over 131 miles of track, or thereabouts, the State
of Washington Department of Transportation, to operate over 131 miles of track,
or thereabouts, the State of Minnesota Department of Transportation, to operate
over 235 miles of track, or thereabouts, and the State of Pennsylvania
Department of Transportation, to operate over ___ miles of track or
thereabouts.
Except as specifically otherwise noted herein, for purposes of this
letter, all references to dollar ($) amounts shall be in United States dollars.
The aggregate amounts advanced under the Loans shall not exceed an
amount equal to (i) the Eligible Receivables, less such reserves as Lender, in
its reasonable discretion elects to establish, provided further that a
receivable may be devalued in such amount as shall be determined by Lender in
its reasonable discretion due to "Dilution" which is defined as and is
<PAGE> 5
March 3, 1997
Page 5
the result of non-cash credits posted against the Receivable which results in
payment or other satisfaction of all or any portion of the Receivable for
reasons other than full payment of the Receivable in cash, together with an
amount equal to (ii) the Eligible Inventory, together with an amount equal to
(iii) the appraised aggregate fair market value of the Real Estate as
determined by that certain Real Property "Market Value" Appraisal dated May 9,
1994, as updated by Appraisal Update dated August 19, 1996, both the appraisal
and the update prepared by M.B. Valuation Services, Inc. in connection with the
Texas Real Property, that certain Appraisal of Corridors, Land and Buildings,
HURON & EASTERN RAILWAY COMPANY, INC., SAGINAW VALLEY RAILWAY COMPANY, INC.,
State of Michigan, dated February 28, 1994 prepared by Oetzel Hanton Williams
in connection with the Michigan Real Property, said appraisals updated by two
(2) appraisal updates prepared by Main Line Management Services, Inc., both
updates dated August 30, 1996, that certain Appraisal of Commercial Property
located at 710 Second Line West, Sault Ste. Marie, Ontario, prepared by Area
Real Estate Appraisals, Inc. dated August 1994 in connection with the Ontario
Real Property, that certain Development of Net Liquidation Value Appraisal
prepared by Main Line Management Services, Inc., dated October 17, 1995, as
updated by update appraisal prepared by Main Line Management Services, Inc.,
dated August 16, 1996, in connection with the West Texas and Lubbock Real
Property, that certain Fair Market Value of Real Property prepared by Main Line
Management Services, Inc., dated August 13, 1996, in connection with the
Washington Real Property, and, that certain Fair Market Value Appraisal of the
Real Property and the Railroad Trackage prepared by Main Line Management
Services, Inc., dated December 12, 1996 in connection with the Minnesota Real
Property and an appraisal of the Gettysburg Real Property to be provided by
Borrower to Lender, which appraisal must be in form and content satisfactory to
Lender, in its sole and absolute discretion, in order for the Gettysburg Real
Property to be eligible for financing under the Loan (it being acknowledged
that no valuation attributed to any of the Railroad Trackage as set forth in
the above set forth Real Estate Appraisals shall be included within the
valuation attributable to the Real Estate), which (aggregate) fair market
values as determined by the above set forth appraisals are subject to
adjustment by the Lender, as set forth below, together with an amount equal to
(iv) the forced liquidation value of the Machinery and Equipment as determined
by a Machinery and Equipment Appraisal prepared by Truck Locators, Inc., dated
January 20, 1995 (related to STEEL CITY CARRIERS, INC.) which (aggregate)
forced liquidation value is subject to adjustment by the Lender as set forth
below, together with an amount equal to (v) the net liquidation value of the
Railroad Trackage as determined by the Railroad Trackage Appraisal (as defined
in that certain Loan Agreement entered into by and between NBC and certain of
the Borrowers dated as of the 21st day of October, 1996) as further determined
by the Real Estate/Railroad Trackage Appraisal (as defined in that certain Loan
Agreement entered into by and between Comerica and Minnesota dated as of the
27th day of December, 1996), and as determined by an appraisal (the "Gettysburg
Railroad Trackage Appraisal") of the Railroad Trackage owned by DELAWARE VALLEY
RAILWAY COMPANY, INC. located in Gettysburg, Pennsylvania (the "Gettysburg
Railroad Trackage") to be provided by Borrower to Lender, which must result in
findings satisfactory to
<PAGE> 6
March 3, 1997
Page 6
Lender, in its sole and absolute discretion, in order for the Gettysburg
Railroad Trackage to be eligible for financing under the Loan (it being
acknowledged that no value attributed to the Real Estate as set forth in the
Railroad Trackage Appraisal, the Real Estate/Railroad Trackage Appraisal or the
Gettysburg Railroad Trackage Appraisal shall be included in the valuation
attributable to the Railroad Trackage), which net liquidation value is subject
to adjustment by the Lender as set forth below, such that all of the above set
forth appraisals and values shall be subject to adjustment by Lender, such that
the final amounts of the fair market values, the forced liquidation values and
the net liquidation values, shall be determined by Lender in their sole and
absolute discretion (the "Borrowing Base"); or, the aggregate sum of Forty
Million and 00/100 Dollars ($40,000,000.00), whichever is less, provided that
in connection with the Loan that up to Five Million and 00/100 Dollars
($5,000,000.00) of the Loan may be used for the issuance of Trade Letters of
Credit and Standby Letters of Credit (collectively the "Letters of Credit")
provided, however, that collateral for the Letters of Credit will be one
hundred (100%) percent reserved and will reduce availability for direct
borrowings under the Loan on a dollar-for-dollar basis in an amount equal to
the face amount of the Letters of Credit outstanding, and provided further that
the outstanding amount of the Loan shall in no event exceed the maximum sum of
Forty Million and 00/100 Dollars ($40,000,000.00), and provided further, that
at no time shall the Minimum Asset Ratio be less than 1.4 to 1, which "Minimum
Asset Ratio" is defined as the Borrowing Base divided by the total outstanding
principal amount of the Loan ("Minimum Asset Ratio"), and in the event that the
Minimum Asset Ratio is less than 1.4 to 1, then the outstanding principal
balance of the Loan must be reduced by the amount necessary to achieve a
Minimum Asset Ratio of equal to or greater than 1.4 to 1. The principal
payment necessary to effectuate such reduction shall be due and payable in full
on DEMAND.
Advances will be made based on the most recent "Minimum Asset Ratio
Certificate" submitted by Borrower to NBC, which must be submitted by Borrower
to NBC no less than one (1) time in each month within thirty (30) days of the
end of the prior month evidencing the Minimum Asset Ratio for the immediately
preceding month, provided however, that the Minimum Asset Ratio Certificate
must also be submitted by Borrower to NBC each time an Advance is requested,
reflecting the above borrowing formula, the form of said Minimum Asset Ratio
Certificate to be provided by Lender to Borrower at the time of the closing of
the Loan.
In connection with any requests for an Acquisition Advance, said
request shall be subject to Lender's approval, which approval will not be
unreasonably withheld. ADDITIONALLY, ALL ACQUISITIONS BY ONE OR MORE OF THE
BORROWERS OR BY AN AFFILIATE OF TRANSPORTATION RELATED BUSINESSES OR ANY OTHER
BUSINESSES MUST BE APPROVED BY LENDER, WHICH APPROVAL WILL NOT BE UNREASONABLY
WITHHELD. In connection with the same, Borrower shall provide to NBC at the
time of the request for an Acquisition Advance or at the time Borrower seeks
approval from Lender in connection with a proposed acquisition by Borrower, as
applicable, certified copies of the Contract for Purchase and Sale and all
associated documentation associated with the applicable
<PAGE> 7
March 3, 1997
Page 7
Borrower's acquisition of a transportation related business, including, without
limitation, all contracts, breakout of purchase price, cash flow analysis,
projected income from the acquisition, historical performance of the business
being acquired, and all appraisals and environmental audits related to the
property being acquired by a Borrower or an Affiliate. Based upon Lender's
review of all of the above, Lender may effectuate or not effectuate the
Acquisition Advance or approve or not approve the acquisition, as applicable,
in Lender's reasonable discretion. Lender shall approve or not approve each
request for an Acquisition Advance, or approve or not approve an acquisition,
as applicable, no later than five (5) business days after the time that NBC has
received the last item required to be reviewed by Lender in connection with the
applied for Acquisition Advance or approval of an acquisition, as applicable.
Lender shall approve or not approve each request for a Collateralized
Acquisition Advance no later ten (10) business days after the time that NBC has
received the last item required to be reviewed by Lender in connection with the
applied for Collateralized Acquisition Advance. Borrower shall additionally
provide to NBC copies of all closing documentation associated with the
acquisition and sale at the time of the closing of said acquisition and shall
execute all documentation required by Lender, in order to evidence and perfect
Lender's security interest in the newly acquired assets.
3. INTEREST RATE, REPAYMENT TERMS AND MATURITY DATE: The Loan shall
be evidenced by the execution and delivery of two (2) master revolving/term
promissory notes, one from Borrower in favor of NBC in the amount of Twenty
Five Million and 00/100 Dollars ($25,000,000.00) and one from Borrower in favor
of Comerica in the amount of Fifteen Million and 00/100 Dollars
($15,000,000.00), which notes are sometimes hereinafter collectively referred
to as the "Note" or the "Notes". Advances made pursuant to the Note shall bear
interest (at the option of Borrower) at a rate of one-quarter of one (.25%)
percent over the Prime Rate (as defined herein) in effect from time to time, to
be adjusted daily with any change in said Prime Rate, OR, an interest rate of
two and one-half (2.5%) percent above the Libor Rate (as defined herein), which
rate shall be fixed for each calendar month, 3-month period or 6-month period,
the applicable interest rate to be chosen by Borrower, during the term of the
Loan, and, shall be calculated using the Libor Rate published two (2) days
prior to renewal of an existing Libor Rate contract. In the event and at such
time as the Borrower elects to have interest charged under the Note based upon
the Libor Rate, said rate shall remain in effect for the following calendar
month, 3-month period or 6-month period, as applicable, so as to correspond
with the Libor Rate chosen by the Borrower. The same rate of interest shall be
charged under both Notes at all times. For the first year of the Note,
payments of interest only shall be due and payable on a monthly basis, with the
first payment due and owing on the first day of the first month, following the
date of the execution of the Note, with monthly payments of interest only (all
of said payments to be debited from Borrower's depository account held with
NBC), due and payable on like date each month thereafter, through and until the
Change Date (as defined and set forth below). On a date being one (1) year
from the date of the execution of the Note (the "Change Date") the outstanding
principal balance under the Note on the Change Date
<PAGE> 8
March 3, 1997
Page 8
(the "Outstanding Principal Balance") will convert into a term loan such that
the Outstanding Principal Balance shall amortize over a ten (10) year period
with monthly payments of principal (based upon a ten (10) year amortization of
the Outstanding Principal Balance) plus accrued interest (all of said payments
to be debited from Borrower's depository account held with NBC), due and
payable on a monthly basis on the first day of each month, through and until
the Maturity Date (as defined and set forth below) with additional monthly
payments of interest only due and payable on the remaining revolving portion of
the Note on the first day of each month (all of said payments to be debited
from Borrower's depository account held with NBC) through and until the
Maturity Date with the entire principal balance and all accrued and unpaid
interest under the Note together with all other applicable charges to be
payable in full three (3) years from the date of the execution of the Note (the
"Maturity Date").
Interest on the Loan shall be calculated on the basis of a year
containing three hundred sixty (360) days for the actual number of days
elapsed.
"Prime Rate" shall be defined as the interest rate announced by
National Bank of Canada as its United States Prime Lending Rate, which rate is
purely discretionary and is not necessarily the best or lowest rate charged
borrowing customers of the Lender (the "Prime Rate").
"LIBOR Rate" shall be defined as the interest rate published daily in
Dow Jones Telerate, page 3750 for promissory notes maturing one (1) month,
three (3) months or six (6) months, as applicable, after issuance under the
caption "Money Rates, London Interbank Offered Rates (LIBOR)", which rate is
not necessarily the best or lowest rate charged to borrowing customers of the
Lender (the "LIBOR Rate").
Borrower shall advise Lender, in writing, as to the interest rate
which is to be applied at the time of the execution of the Notes, and, prior to
the first day of any calendar month in which Borrower wishes for the Libor Rate
option to become effective. Failure of Borrower to provide Lender with said
notice shall be deemed an election by Borrower to have interest charged at an
interest rate of one-quarter of one (.25%) percent above the Prime Rate in
effect from time to time, adjusted on a daily basis.
In the event of a default, the Loan shall bear interest at the
maximum rate permitted by law. Regardless of the above, in connection with the
Loan, said interest rate shall never exceed the maximum rate permitted by law.
4. LATE CHARGE: A late charge equal to three (3%) percent of the
amount of any payment shall be due and payable with the payment then due and
owing in the event such payment is not made within ten (10) days after the date
such payment is due under the Loan.
<PAGE> 9
March 3, 1997
Page 9
5. PREPAYMENT: If during the term of the Loan (i) the Loan is
paid down to a zero (0) balance or (ii) the Lender's obligation to make
advances under the Loan ceases for reasons other than the fact that there is no
availability under the Borrowing Base for the effectuation of an advance, the
Borrower shall pay to the Lender a prepayment fee in an amount equal to (i)
three-quarters of one (.75%) percent of the face amount of the Note during the
first year; (ii) one-half of one (.50%) percent of the face amount of the Note
during the second year, and (iii) one-quarter of one (.25%) percent of the face
amount of the Note during the third year.
The above set forth prepayment fee shall be due and payable whether
such prepayment or cessation of Lenders' obligation to make advances is
voluntary or involuntary, or a result of an event of default and/or the result
of acceleration of all or other sums due as a result of such acceleration or
default.
6. LOAN CLOSING FEE AND OTHER FEES: In connection with the Loan,
the Loan Closing Fee due and owing from Borrower shall be in the amount of One
Hundred Thousand and 00/100 Dollars ($100,000.00). It is acknowledged that in
consideration of the issuance of this letter and the reserving of sufficient
funds by the Lender from which to make Loan disbursements, Lender has earned
the above set forth NON-REFUNDABLE Loan Closing Fee in the amount of One
Hundred Thousand and 00/100 Dollars ($100,000.00), which Loan Closing Fee shall
be due and payable as follows:
A. Receipt of the sum of Fifteen Thousand and 00/100
Dollars ($15,000.00) is hereby acknowledged by Lender, which sum shall
be applied against closing costs.
B. The sum of One Hundred Thousand and 00/100 Dollars
($100,000.00) shall be due and payable in full on the date of the
closing of the Loan.
AUDIT FEES: There shall be semi-annual audits (the frequency of which
may be adjusted at any time by Lender, in the event Lender deems the same
necessary due to an adverse change or trend in the Borrower's business) of the
Borrower performed in each fiscal year of Borrower during the term of the Loan.
There shall be a semi-annual audit fee due and owing from Borrower to Lender in
connection with said audits based upon a charge of Four Hundred and 00/100
Dollars ($400.00) per day plus expenses, provided further that so long as
audits are not conducted more often than on a semi-annual basis, the annual
fees for said audits shall not exceed the sum of Nine Thousand and 00/100
Dollars ($9,000.00) plus expenses.
UNUSED LINE FEE: An unused line fee shall be charged in connection
with the Loans, such that the unused portion of the Loans shall be subject to an
annual fee of one-quarter of one (.25%) percent per annum, to be calculated and
payable upon a quarterly basis.
<PAGE> 10
March 3, 1997
Page 10
ADMINISTRATIVE FEE - COLLATERALIZED ACQUISITION ADVANCES: An
administrative fee in the sum of Five Thousand and 00/100 Dollars ($5,000.00)
shall be due and payable at the time of the effectuation of a Collateralized
Acquisition Advance, for each Collateralized Acquisition Advance effectuated
under the Loan. No administrative fee shall be due and owing in connection
with the effectuation of an Acquisition Advance which is not collateralized.
LETTER OF CREDIT FEES: A fee of one and one-quarter (1.25%) percent
per annum shall be charged in connection with all Standby Letters of Credit.
There shall be standard, customary Letter of Credit fees and charges
for all Trade Letters of Credit issued under the Line of Credit, which shall
include all customary bank charges associated therewith.
7. COLLATERAL FOR THE LOAN: The Loan shall be secured by:
A. A first priority security interest in all accounts
receivable, inventory, chattel paper, general intangibles, fixtures,
furniture, Machinery and Equipment, Franchises, instruments and
personal property now owned or hereafter acquired by Borrower, and,
all proceeds of the foregoing. Additionally, in connection with any
government accounts receivable, the same shall be perfected by filing
such assignments and other documents as shall be required by the
Federal Assignment of Claims Act. Additionally, any assets acquired
by Borrower from the proceeds of an Acquisition Advance shall, as
applicable, be the subject of a negative pledge and encumbrance
agreement in favor of Lender or shall be pledged in favor of Lender as
additional security for the Loan, all as set forth in Paragraph 2
above. A specific listing of Machinery and Equipment shall be set
forth in the security documentation associated with the Loan. The
security agreement, financing statements and other lien instruments
associated therewith shall be filed in such jurisdictions as shall be
required by Lender and its counsel, including without limitation the
Surface Transportation Board.
B. A first priority deed of trust on certain real
property previously encumbered in favor of NBC, located in Gatesville,
Texas owned by KALYN/SIEBERT, INCORPORATED, a Texas corporation (the
"Texas Real Property"), which deed of trust shall be in the amount of
Two Million Forty Five Thousand and 00/100 Dollars ($2,045,000.00)
together with all improvements, fixtures and appurtenances, now
located or hereafter placed and/or located thereon, and, a first
priority security interest in all machinery, equipment, licenses,
contract rights, goods, general intangibles, rents, receivables,
issues, proceeds, profits and agreements affecting the Texas Real
Property, and all other personal property (tangible or intangible),
now located thereon, or usable
<PAGE> 11
March 3, 1997
Page 11
in connection with the Texas Real Property, and all replacements
thereof, and, which is owned by the applicable Borrower, at any given
time.
C. A first priority mortgage lien on certain real
property previously encumbered in favor of NBC, located in Saginaw
County, Tuscola County, Huron County and Sanilac County, Michigan,
owned by HURON & EASTERN RAILWAY COMPANY, INC., a Michigan railroad
corporation, and SAGINAW VALLEY RAILWAY COMPANY, INC., a Delaware
corporation, as applicable (the "Michigan Real Property"), which
mortgage shall be in the amount of One Million Seven Hundred Forty
Thousand and 00/100 Dollars ($1,740,000.00), together with all
improvements, fixtures and appurtenances, now located or hereafter
placed and/or located thereon, and, a first priority security interest
in all machinery, equipment (excluding locomotives and other machinery
and equipment acquired with cash or financed by other lenders or with
purchase money financing), licenses, contract rights, goods, general
intangibles, rents, receivables, issues, proceeds, profits and
agreements affecting the Michigan Real Property and all replacements
thereof, and all other personal property (tangible or intangible), now
located thereon, or usable in connection with the Michigan Real
Property, and, which is owned by the applicable Borrower, at any given
time.
D. A first priority mortgage lien on certain real
property, previously encumbered in favor of NBC, located at 710 Second
Line West, Sault Ste. Marie, Ontario, owned by Steel City Carriers
Inc. (the "Ontario Real Property"), which mortgage shall be in the
amount of Five Hundred Thirty Thousand and 00/100 Canadian Dollars
(C$530,000.00), together with all improvements, fixtures and
appurtenances, now located or hereafter placed and/or located thereon,
and, a first priority security interest in all machinery, equipment,
licenses, contract rights, goods, general intangibles, rents,
receivables, issues, proceeds, profits and agreements affecting the
Ontario Real Property, and all other personal property (tangible or
intangible), now located thereon, or usable in connection with the
Ontario Real Property and all replacements thereof, and, which is
owned by the applicable Borrower, at any given time.
E. A first priority deed of trust on certain real
property, previously encumbered in favor of NBC, located in Lubbock
County, Hockley County, Cochran County, Terry County, and Gaines
County, Texas, owned by WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.,
a Texas corporation (the "West Texas and Lubbock Real Property"), in
the amount of Three Million Six Hundred Ninety Nine Thousand and
00/100 Dollars ($3,699,000.00), together with all improvements,
fixtures and appurtenances, now located or hereafter placed and/or
located thereon, and, a first priority security interest in all
machinery, equipment, licenses, contract rights, goods, general
intangibles, rents, receivables, issues, proceeds, profits and
agreements affecting the West Texas and Lubbock Real Property, and all
other personal property (tangible or
<PAGE> 12
March 3, 1997
Page 12
intangible), now located thereon, or usable in connection with the
West Texas and Lubbock Real Property and all replacements thereof,
and, which is owned by the applicable Borrower, at any given time.
F. A first priority deed of trust on certain real
property previously encumbered in favor of NBC located in Chelan
County and Okanogan County, Washington, owned by CASCADE AND COLUMBIA
RIVER RAILROAD COMPANY, a Delaware corporation (the "Washington Real
Property"), in the amount of Seven Million Eight Hundred Thousand and
00/100 Dollars ($7,800,000.00), together with all improvements,
fixtures and appurtenances, now located or hereafter placed and/or
located thereon, and, a first priority security interest in all
machinery, equipment, licenses, contract rights, goods, general
intangibles, rents, receivables, issues, proceeds, profits and
agreements affecting the Washington Real Property, and all other
personal property (tangible or intangible), now located thereon, or
usable in connection with the Washington Real Property and all
replacements thereof, and, which is owned by the applicable Borrower,
at any given time.
G. A first priority mortgage lien on certain real
property previously encumbered in favor of Comerica located in Red
Lake County, Polk County, Norman County, Pennington County, Marshall
County, and Roseau County, Minnesota, owned by Minnesota (the
"Minnesota Real Property"), in the amount of One Million Five Hundred
Thousand and 00/100 Dollars ($1,500,000.00), together with all
improvements, fixtures and appurtenances, now located or hereafter
placed and/or located thereon, and, a first priority security interest
in all machinery, equipment, licenses, contract rights, goods, general
intangibles, rents, receivables, issues, proceeds, profits and
agreements affecting the Minnesota Real Property, and all other
personal property (tangible or intangible), now located thereon, or
usable in connection with the Minnesota Real Property and all
replacements thereof, and, which is owned by the applicable Borrower,
at any given time.
H. A first priority mortgage lien on certain real
property owned by DELAWARE VALLEY RAILWAY COMPANY, INC., located in
Gettysburg, Pennsylvania (the "Gettysburg Real Property"), in an
amount of not less than One Million and 00/100 Dollars ($1,000,000.00)
together with all improvements, fixtures and appurtenances, now
located or hereafter placed and/or located thereon, and, a first
priority security interest in all machinery, equipment, licenses,
contract rights, goods, general intangibles, rents, receivables,
issues, proceeds, profits and agreements affecting the Gettysburg Real
Property, and all other personal property (tangible or intangible),
now located thereon, or usable in connection with the Gettysburg Real
Property and all replacements thereof, and, which is owned by the
applicable Borrower, at any given time.
<PAGE> 13
March 3, 1997
Page 13
I. A first priority lien and security interest in all
corridor use of real property rights (including, without limitation
the corridor use of real property rights associated with the Michigan
Real Property, the West Texas and Lubbock Real Property, the
Washington Real Property, the Minnesota Real Property and the
Gettysburg Real Property) and Railroad Trackage (including, without
limitation, all of the Gettysburg Railroad Trackage) now owned or
possessed by any Borrower, and all proceeds of the foregoing.
J. If applicable, a first priority security interest
and/or mortgage lien and/or deed of trust, as applicable, in all
property, real and personal, and all other assets acquired from the
proceeds of a Collateralized Acquisition Advance, all in accordance
with the terms and provisions of Paragraph 2 above.
NOTE: Notwithstanding anything to the contrary set forth above, the first
priority security interest in the above described collateral shall be
subject to any liens permitted under the terms and provisions of
Section 4 of the Existing NBC Security Agreement.
(The above are hereinafter collectively referred to as the
"Collateral").
8. CONDITIONS PRECEDENT: Lender's obligations hereunder are
wholly contingent upon the following:
A. Tangible Net Worth: At the time of closing, the
tangible net worth of the Borrowers must exceed the sum of Twenty
Million and 00/100 Dollars ($20,000,000.00).
B. No Material Adverse Change: No material adverse
change shall have occurred in the business or financial condition of
any of the Borrowers as represented in the September 30, 1996
Consolidated Financial Statements and no financial covenant default
shall be in existence at the time of the closing of the Loan.
C. Evidence of Title and Lien and Judgment Searches:
Lender and Lender's Counsel shall be in receipt of satisfactory
evidence of title concerning all real property pledged in favor of
Lender as security for the Loan, together with Lender's and Lender's
Counsel's receipt of satisfactory lien and judgment searches and
Surface Transportation Board searches in all jurisdictions required by
Lender in connection with each Borrower, which searches must result in
findings satisfactory to Lender and Lender's Counsel in their sole and
absolute discretion.
D. Compliance with Post Closing Letters: Borrower shall
have complied in full with all matters set forth in that certain
Closing Letter, as marked-up, executed
<PAGE> 14
March 3, 1997
Page 14
between Comerica and Minnesota dated December 27, 1996, excepting for
items A, B, and C contained on pages 2 and 3 of said Closing Letter,
which items have either been satisfied or are no longer applicable, a
copy of which letter is attached hereto and made a part hereof as
Exhibit "A", and shall have additionally complied with all
requirements set forth in that certain letter, as marked-up, from
NBC's Counsel to Borrower's Counsel dated January 16, 1997 (the "NBC
Letter"), excepting for the requirement of the Modification and
Spreader Agreement set forth in item No. 3 of said letter, which is no
longer applicable, due to the fact that the same shall be encumbered
by the new deed of trust to be executed in favor of Lender, and
excepting for item No. 5 of said letter, which item has been
satisfied, a copy of which letter is attached hereto and made a part
hereof as Exhibit "B". Certain additional items set forth in the NBC
Letter have been satisfied as evidenced by that certain letter from
Kelleher, Laidlaw, Paciocco, Priddle, Melville to Borrower's Counsel
dated February 21, 1997 (the "Kelleher Letter") a copy of which is
appended hereto and made a part hereof as Exhibit "C", provided
however, that the items set forth on page 2 of the Kelleher Letter
must be satisfied prior to the time of closing.
IT IS AGREED, ACKNOWLEDGED AND UNDERSTOOD THAT COMPLIANCE WITH THE
ABOVE SET FORTH CONDITIONS AND ALL OTHER CONDITIONS SET FORTH IN THIS LETTER
ARE CONDITIONS PRECEDENT TO LENDER'S OBLIGATIONS HEREUNDER AND THE CLOSING OF
THE LOAN.
9. LENDER'S COUNSEL: The Lender's counsel, in connection with
the closing of the Loan, is Mombach, Boyle & Hardin, P.A. The Lender's
counsel's fees shall be in the range of Fifty Two Thousand Five Hundred and
00/100 Dollars ($52,500.00) to Fifty Five Thousand and 00/100 Dollars
($55,000.00), provided however, that under no circumstances shall said fees
exceed the sum of Fifty Five Thousand and 00/100 Dollars ($55,000.00)
(exclusive of title insurance and costs). Additionally, as set forth in
previous letters from Mombach, Boyle & Hardin, P.A. to Borrower in connection
with any Collateralized Acquisition Advance closed by Mombach, Boyle & Hardin,
P.A. on behalf of the Lender, Lender's Counsels Fees shall not exceed the sum
of Ten Thousand and 00/100 Dollars ($10,000.00) per Collateralized Acquisition
Advance. Borrower shall be jointly and severally responsible for the payment
of Lender's foregoing counsel fees and expenses.
NOTE: LENDER SHALL REQUIRE SPECIAL LOCAL COUNSEL IN THE STATE OF
TEXAS, THE STATE OF MICHIGAN, THE STATE OF WASHINGTON, THE
STATE OF MINNESOTA, THE STATE OF PENNSYLVANIA, AND THE
PROVINCE OF ONTARIO, AND, BORROWER SHALL BE RESPONSIBLE FOR
THE PAYMENT OF ALL OF SUCH LOCAL COUNSEL'S FEES AND EXPENSES
INCURRED IN CONNECTION THEREWITH. SUCH LOCAL COUNSEL SHALL BE
REQUIRED TO
<PAGE> 15
March 3, 1997
Page 15
PROVIDE LENDER AND ITS COUNSEL WITH SUCH REASONABLE OPINIONS
AS SHALL BE REQUIRED BY LENDER AND ITS COUNSEL. THE ABOVE SET
FORTH LOCAL COUNSEL MAY BE HIRED DIRECTLY BY THE BORROWER,
PROVIDED THAT SUCH COUNSEL MUST BE REASONABLY ACCEPTABLE TO
LENDER AND LENDER'S COUNSEL, IN THEIR REASONABLE DISCRETION.
10. QUALITY OF LOAN: Each document and item required to be
submitted to Lender pursuant to this letter shall be satisfactory in form and
substance to Lender and its counsel. All instruments and documents required
hereby or affecting the Collateral for the Loan or relating to Borrowers'
capacity and authority to enter into the Loan, and to execute the Loan
documents and such other documents, opinions and assurances as Lender or its
counsel may reasonably request, and all procedures in connection herewith shall
be subject to approval as to form and substance of the Lender and its counsel.
All such documents shall be submitted to the Lender for approval within five
(5) business days prior to actual closing.
11. LOAN DOCUMENTS AND ITEMS REQUIRED FOR CLOSING: At least five
(5) days prior to the closing of the Loan, Lender shall have received the
following documents at the Borrower's expense:
A. The Notes: The Notes evidencing the Loan, which shall contain
the terms and provisions set forth above.
B. Security Agreements: Security agreements or reaffirmations
thereof, wherein each Borrower grants to Lender a first
priority security interest in the applicable portion of the
Collateral, including, without limitation, all accounts,
accounts receivable, inventory, chattel paper, general
intangibles, all Machinery and Equipment, Franchises, corridor
use rights, railroad rights of way, railroad trackage,
railroad equipment and railroad rolling stock, used in
connection with the Borrower's business operations, together
with UCC-1 Financing Statements or other applicable and
appropriate instruments associated therewith. A specific
description of particular equipment and machinery shall be
annexed as an exhibit to each security agreement. All of the
above security instruments shall be filed with all required
jurisdictions, at all state and county levels as required in
the United States and the Province of Ontario (at the local,
state and federal levels), together with filing with the
Surface Transportation Board, as necessary and as required by
Lender and its counsel, in their sole discretion.
NOTE: Additionally, Borrower shall execute such documentation as
shall be required by Lender and its counsel in order to
perfect Lender's security interest in governmental receivables
under the Federal Assignment of Claims Act.
<PAGE> 16
March 3, 1997
Page 16
C. Uniform Commercial Code Financing Statements: UCC-1 Financing
Statements executed, recorded, and filed with the appropriate
Secretaries of States, and, the Public Records of applicable
cities and counties of the States of Florida, Michigan, Texas,
Washington, Minnesota, Delaware, Pennsylvania, and all such
other jurisdictions as shall reasonably be required by Lender
and its counsel, and such governmental offices as shall be
required in Ontario, Canada and other parts of Canada, and,
any other necessary jurisdiction, creating a perfected
security interest in the foregoing Collateral. A specific
description of particular equipment and machinery shall be
annexed as an exhibit to each UCC-1 Financing Statement.
D. UCC-3 Amendment Statements: If and as necessary, UCC-3
Amendment Statements executed, recorded, and filed with the
appropriate Secretaries of States, and, the Public Records of
applicable cities and counties of the States of Florida,
Michigan, Texas, Washington, Minnesota, Delaware, the Province
of Ontario, and all such other jurisdictions as shall be
required by Lender and its counsel.
NOTE: SURFACE TRANSPORTATION BOARD SEARCHES AND UCC LIEN AND
JUDGMENT SEARCHES OF EACH BORROWER SHALL BE CONDUCTED IN SUCH
JURISDICTIONS AS SHALL BE REQUIRED BY LENDER, WHICH MUST
RESULT IN FINDINGS SATISFACTORY TO LENDER AND ITS COUNSEL,
INCLUDING POST-CLOSING SEARCHES, AS SHALL BE REQUIRED BY
LENDER. ALL OF SAID SEARCHES SHALL BE AT BORROWER'S SOLE COST
AND EXPENSE.
E. Loan Agreement, which shall contain such provisions and such
other affirmative and negative covenants, as may be required
by the Lender.
F. Deed of Trust: A deed of trust (the "Deed of Trust") shall be
a perfected first lien and title priority on the Texas Real
Property. NOTE: THE LEGAL DESCRIPTION INCLUDED WITHIN THE
DEED OF TRUST SHALL INCLUDE ALL ADDITIONAL PROPERTY ACQUIRED
BY KALYN/SIEBERT, INCORPORATED AS DESCRIBED IN WRITING BY
BORROWER'S COUNSEL TO LENDER'S COUNSEL.
G. Security Agreement and Financing Statements: A security
agreement shall be combined with the Deed of Trust instrument
form. It and the financing statements shall provide a
perfected, first priority, security interest in all fixtures,
appurtenances and personal property now located on the Texas
Real Property and any replacements thereof and/or necessary or
useable in connection with the
<PAGE> 17
March 3, 1997
Page 17
operation of the Texas Real Property for its intended uses,
which is owned by the Borrower, and shall cover all tangible
and intangible personal property relating to the Texas Real
Property in which Borrower has any proprietary interest. The
financing statements shall be executed and recorded with the
Texas Secretary of State and in the Public Records of the
appropriate county where the Texas Real Property is located in
Texas.
H. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
Texas Real Property (including rights to receive rents).
I. Subordination of Leases: If applicable, a subordination of
all leases affecting the Texas Real Property to the lien and
effect of the Deed of Trust and related collateral.
J. Title Insurance: A standard ALTA mortgagee policy or
endorsement, as required by Lender and Lender's Counsel,
insuring the Deed of Trust which shall encumber the Texas Real
Property, from a national title company approved by Lender.
It shall provide coverage in the amount of Two Million Forty
Five Thousand and 00/100 Dollars ($2,045,000.00), and shall
not contain any title exceptions not approved by Lender or its
counsel. A title insurance binder or commitment and copies of
documents creating title insurance exceptions shall be
submitted to Lender's counsel at least fifteen (15) days prior
to the intended date of the Loan closing. The title
commitment and the title policy shall provide for a
Comprehensive Endorsement, a Variable Rate Endorsement and an
Environmental Lien Endorsement, if possible, a Survey
Endorsement, together with any other endorsements required by
Lender or Lender's Counsel.
K. Mortgage Instrument: A mortgage (the "Michigan Mortgage")
shall be a perfected first lien and title priority on the
Michigan Real Property.
L. Security Agreement and Financing Statements: A security
agreement shall be combined with the Michigan Mortgage
instrument form. It and the financing statements shall
provide a perfected, first priority, security interest in all
fixtures, appurtenances and personal property now located on
the Michigan Real Property and any replacements thereof and/or
necessary or useable in connection with the operation of the
Michigan Real Property for its intended uses, which is owned
by the Borrower, and shall cover all tangible and intangible
personal property relating to the Michigan Real Property in
which Borrower has any proprietary interest. The financing
statements shall be executed and recorded with the
<PAGE> 18
March 3, 1997
Page 18
Michigan Secretary of State and in the Public Records of the
appropriate counties where the Michigan Real Property is
located in Michigan.
M. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
Michigan Real Property (including rights to receive rents).
N. Subordination of Leases: A subordination of all leases
affecting the Michigan Real Property to the lien and effect of
the Michigan Mortgage and related collateral.
O. Title Evidence: Such title evidence as shall be acceptable to
Lender and its counsel.
P. Mortgage Instrument: A mortgage instrument (the "Ontario
Mortgage") shall be a perfected first lien and title priority
on the Ontario Real Property.
Q. Security Agreement and Financing Statements: A security
agreement shall be combined with the Ontario Mortgage
instrument form. It and the financing statements shall
provide a perfected, first priority, security interest in all
fixtures, appurtenances and personal property now located on
the Ontario Real Property and any replacements thereof and/or
necessary or useable in connection with the operation of the
Ontario Real Property for its intended uses, which is owned by
the Borrower, and shall cover all tangible and intangible
personal property relating to the Ontario Real Property in
which Borrower has any proprietary interest. The financing
statements shall be executed and recorded with the Ministry of
Consumer and Commercial Relations in Ontario, and if
applicable, in the Land Registry Office of the appropriate
region where the Ontario Real Property is located in Ontario,
and/or in such other governmental offices as are appropriate
in the Province of Ontario.
R. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
Ontario Real Property (including rights to receive rents).
S. Subordination of Leases: A subordination of all leases
affecting the Ontario Real Property to the lien and effect of
the Ontario Mortgage and related collateral.
T. Title Insurance: A standard mortgagee policy insuring the
Ontario Mortgage, from a national title company approved by
Lender. It shall provide coverage in the amount of Five
Hundred Thirty Thousand and 00/100 Canadian Dollars
<PAGE> 19
March 3, 1997
Page 19
(C$530,000.00), and shall not contain any title exceptions not
approved by Lender or its counsel. A title insurance binder
or commitment and copies of documents creating title insurance
exceptions shall be submitted to Lender's counsel at least
fifteen (15) days prior to the intended date of the Loan
closing. The title commitment and the title policy shall
provide for all endorsements required by Lender and Lender's
counsel.
U. Deed of Trust: A deed of trust (the "West Texas Deed of
Trust") shall be a perfected first lien and title priority on
the West Texas and Lubbock Real Property.
V. Security Agreement and Financing Statements: A security
agreement shall be combined with the West Texas Deed of Trust
instrument form. It and the financing statements shall
provide a perfected, first priority, security interest in all
fixtures, appurtenances and personal property now located on
the West Texas and Lubbock Real Property and any replacements
thereof and/or necessary or useable in connection with the
operation of the West Texas and Lubbock Real Property for its
intended uses, which is owned by the Borrower, and shall cover
all tangible and intangible personal property relating to the
West Texas and Lubbock Real Property in which Borrower has any
proprietary interest. The financing statements shall be
executed and recorded with the Texas Secretary of State and in
the Public Records of the appropriate counties where the West
Texas and Lubbock Real Property is located in Texas.
W. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
West Texas and Lubbock Real Property (including rights to
receive rents).
X. Subordination of Leases: If applicable, a subordination of
all leases affecting the West Texas and Lubbock Real Property
to the lien and effect of the West Texas Deed of Trust and
related collateral.
Y. Title Evidence: Such title evidence as shall be acceptable to
Lender and its counsel.
Z. Deed of Trust: A deed of trust (the "Washington Deed of
Trust") shall be a perfected first lien and title priority on
the Washington Real Property.
AA. Security Agreement and Financing Statements: A security
agreement shall be combined with the Washington Deed of Trust
instrument form. It and the financing statements shall
provide a perfected, first priority, security interest in
<PAGE> 20
March 3, 1997
Page 20
all fixtures, appurtenances and personal property now located
on the Washington Real Property and any replacements thereof
and/or necessary or useable in connection with the operation
of the Washington Real Property for its intended uses, which
is owned by the Borrower, and shall cover all tangible and
intangible personal property relating to the Washington Real
Property in which Borrower has any proprietary interest. The
financing statements shall be executed and recorded with the
Washington Secretary of State and in the Public Records of the
appropriate counties where the Washington Real Property is
located in Washington.
BB. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
Washington Real Property (including rights to receive rents).
CC. Subordination of Leases: If applicable, a subordination of
all leases affecting the Washington Real Property to the lien
and effect of the Washington Deed of Trust and related
collateral.
DD. Title Evidence: Such title evidence as shall be acceptable to
Lender and its counsel.
EE. Mortgage Instrument: A mortgage (the "Minnesota Mortgage")
shall be a perfected first lien and title priority on the
Minnesota Real Property.
FF. Security Agreement and Financing Statements: A security
agreement shall be combined with the Minnesota Mortgage
instrument form. It and the financing statements shall
provide a perfected, first priority, security interest in all
fixtures, appurtenances and personal property now located on
the Minnesota Real Property and any replacements thereof
and/or necessary or useable in connection with the operation
of the Minnesota Real Property for its intended uses, which is
owned by the Borrower, and shall cover all tangible and
intangible personal property relating to the Minnesota Real
Property in which Borrower has any proprietary interest. The
financing statements shall be executed and recorded with the
Minnesota Secretary of State and in the Public Records of the
appropriate counties where the Minnesota Real Property is
located in Minnesota.
GG. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
Minnesota Real Property (including rights to receive rents).
<PAGE> 21
March 3, 1997
Page 21
HH. Subordination of Leases: A subordination of all leases
affecting the Minnesota Real Property to the lien and effect
of the Minnesota Mortgage and related collateral.
II. Title Evidence: Such title evidence as shall be acceptable to
Lender and its counsel.
JJ. Mortgage Instrument: A mortgage (the "Gettysburg Mortgage")
shall be a perfected first lien and title priority on the
Gettysburg Real Property.
KK. Security Agreement and Financing Statements: A security
agreement shall be combined with the Gettysburg Mortgage
instrument form. It and the financing statements shall
provide a perfected, first priority, security interest in all
fixtures, appurtenances and personal property now located on
the Gettysburg Real Property and any replacements thereof
and/or necessary or useable in connection with the operation
of the Gettysburg Real Property for its intended uses, which
is owned by the Borrower, and shall cover all tangible and
intangible personal property relating to the Gettysburg Real
Property in which Borrower has any proprietary interest. The
financing statements shall be executed and recorded with the
Pennsylvania Secretary of State and in the Public Records of
the appropriate counties where the Gettysburg Real Property is
located in Pennsylvania.
LL. Assignment of Leases: A perfected, first priority, assignment
of Borrower's interest in all present and future leases of the
Gettysburg Real Property (including rights to receive rents).
MM. Subordination of Leases: A subordination of all leases
affecting the Gettysburg Real Property to the lien and effect
of the Gettysburg Mortgage and related collateral.
NN. Title Evidence: Such title evidence as shall be acceptable to
Lender and its counsel.
NOTE: IN CONNECTION WITH ALL SECURITY INTERESTS AND LIENS DESCRIBED
AND SET FORTH IN THE SECURITY DOCUMENTATION SET FORTH ABOVE,
THE SAME SHALL BE SUBJECT TO ALL PERMITTED LIENS AND
ENCUMBRANCES AS PERMITTED UNDER THE TERMS AND PROVISIONS OF
SECTION 4 OF THE EXISTING NBC SECURITY AGREEMENT.
ADDITIONALLY, IF DEEMED ACCEPTABLE BY LENDER'S COUNSEL AND
APPLICABLE LOCAL COUNSEL, AND, AS SHALL BE DETERMINED BY
LENDER AND ITS COUNSEL, IN THEIR
<PAGE> 22
March 3, 1997
Page 22
SOLE AND ABSOLUTE DISCRETION, BORROWER MAY EXECUTE CERTAIN
ASSIGNMENTS AND MODIFICATION AGREEMENTS AND/OR AMENDED AND
RESTATED AGREEMENTS IN LIEU OF NEW SECURITY DOCUMENTATION IN
CONNECTION WITH CERTAIN OF THE SECURITY DOCUMENTATION SET
FORTH ABOVE.
OO. Authority and Capacity Instruments: Documents appropriate to
the form of each borrowing entity which evidence the necessary
authorization of, and capacity for, the actions to be taken by
each Borrower in connection with this letter and the Loan.
Appropriate documents can include borrowing resolutions and
certificates of good standing for corporations, partnership
agreements and certificates of partnership for general and
limited partnerships and joint venture agreements and
appropriate certificates for joint venturers.
PP. Survey: Five (5) copies of a recent survey of the Texas Real
Property and the Ontario Real Property by a registered
surveyor. Each survey shall be certified to Lender, the title
insurer, and the issuing agent, and shall show all boundaries
of the Texas Real Property and the Ontario Real Property, with
courses and distances indicated, including chord bearings and
arc and chord distances for all curves, and shall show
dimensions and locations of all existing improvements and of
all easements, roads, encroachments, and utility lines, and
shall shown the distances to, and names of, the nearest
intersecting streets, and other facts in any way affecting the
Texas Real Property and the Ontario Real Property and shall
show in other details as Lender may request. The land area
must also be included, together with a certification as to the
location of the Texas Real Property and the Ontario Real
Property within any special flood hazard area. The survey
shall be required to be delivered to Lender and its counsel,
at least fifteen (15) days prior to the date of the Loan
closing.
QQ. Flood Hazards: At least fifteen (15) days prior to the
closing of the Loan, evidence as to whether or not the Texas
Real Property and the Gettysburg Real Property, if applicable,
are located within an area identified pursuant to the Flood
Disaster Protection Act of 1973 as having special flood
hazards.
RR. Casualty Insurance: "All-risk" casualty insurance policies
insuring the Texas Real Property, the Michigan Real Property,
the Ontario Real Property, the West Texas and Lubbock Real
Property, the Washington Real Property, the Minnesota Real
Property, the Gettysburg Real Property and the Collateral in
favor of Borrower, naming Lender as mortgagee and loss-payee,
and written through a company and in an amount as shall be
satisfactory to Lender, with a standard mortgagee and
loss-payee endorsement in favor of Lender, and providing at
least
<PAGE> 23
March 3, 1997
Page 23
30-days written notice of any cancellation, modification or
non-renewal of the insurance coverage, shall be in effect
throughout the term of the Loan.
SS. Flood Insurance: In the event the Texas Real Property or the
Gettysburg Real Property is located in a federally designated
flood hazard area, a Flood Insurance Policy naming the Lender
as mortgagee and loss-payee, and written through a company and
in an amount as shall be satisfactory to Lender, with a
standard mortgagee endorsement in favor of Lender, and
providing at least thirty (30) days' written notice of
cancellation, modification or non-renewal of the insurance
coverage, shall be in effect throughout the term of the Loan.
TT. Liability Insurance: Liability Insurance Policies in favor of
Borrower, and written through a company and in an amount as
shall be satisfactory to Lender, with a standard mortgagee and
additional insured endorsement in favor of Lender, naming
Lender as mortgagee and additional insured, shall be in effect
throughout the term of the Loan.
With regard to the insurance set forth above, policies or certificates
of insurance coverage in favor of Borrower shall be delivered to Lender, with
coverage types and amounts satisfactory to Lender, and satisfactory evidence of
premium payments must also be provided.
UU. Mortgagor's No-Lien Affidavits: To be executed by an
appropriate officer of each Borrower, as applicable, at the
time of closing.
VV. Anti-Coercion Acknowledgments: A written acknowledgement from
Borrower as to receipt of notice from Lender regarding the
anti-coercion provisions of the Florida insurance laws.
WW. Certificates of Good Standing evidencing that the each
Borrower is in good standing under the laws of the state or
province of their incorporation and in any other states in
which they conduct business.
XX. Corporate Resolutions and Incumbency Certificate of each
Borrower authorizing effectuation of the Loan.
YY. Attorney's Opinion: A written opinion, addressed to Lender,
from Borrower's attorney(s), as may be approved by Lender,
concerning, without limitation, the following matters:
<PAGE> 24
March 3, 1997
Page 24
(i) Usury: The fees and interest charged or to be charged
by Lender in connection with the Loan do not violate
any usury or other similar federal laws or laws of
the State of New York.
(ii) Security Interests: The security agreements,
assignments, financing statements and all related
security instruments provide to Lender perfected
security interests of the priorities required by
Lender, which is of a first priority security
interest in the described personal property,
receivables, inventory, fixtures, railroad corridors,
railroad rights of way, railroad trackage, railroad
equipment, railroad rolling stock and all associated
property.
(iii) Mortgages and Deed of Trust: That the Mortgages
and/or Deeds of Trust, as applicable, provide to
Lender a valid mortgage or deed of trust, as
applicable.
(iv) Good Standing of Borrower:
(a) RAILAMERICA, INC. is a Delaware corporation
in good standing under the laws of the State
of Delaware and in all states in which it
conducts business, including, without
limitation, the State of Florida.
RAILAMERICA, INC. has all requisite power and
authority to own, mortgage and encumber its
property, and, to the best of counsel's
knowledge, RAILAMERICA, INC. is in compliance
with all material laws affecting its
business.
(b) KALYN/SIEBERT, INCORPORATED is a Texas
corporation in good standing under the laws
of the State of Texas and in all states in
which it conducts business. KALYN/SIEBERT,
INCORPORATED has all requisite power and
authority to own, mortgage and encumber its
property, and, to the best of counsel's
knowledge, KALYN/SIEBERT, INCORPORATED is in
compliance with all material laws affecting
its business.
(c) RAILAMERICA INTERMODAL SERVICES, INC. is a
Delaware corporation in good standing under
the laws of the State of Delaware and in all
states in which it conducts business.
RAILAMERICA INTERMODAL SERVICES, INC. has all
requisite power and authority to own,
mortgage and encumber its property, and, to
the best of counsel's knowledge,
<PAGE> 25
March 3, 1997
Page 25
RAILAMERICA INTERMODAL SERVICES, INC. is in
compliance with all material laws affecting
its business.
(d) RAILAMERICA CARRIERS, INC. is a corporation
organized under the laws of the Province of
Ontario, and, is in good standing under the
laws of the Province of Ontario and in all
other jurisdictions in which it conducts
business. RAILAMERICA CARRIERS, INC. has all
requisite power and authority to own,
mortgage and encumber its property, and, to
the best of counsel's knowledge, RAILAMERICA
CARRIERS, INC. is in compliance with all
material laws affecting its business.
(e) STEEL CITY CARRIERS INC. is a corporation
organized under the laws of the Province of
Ontario, and, is in good standing under the
laws of the Province of Ontario and in all
other jurisdictions in which it conducts
business. STEEL CITY CARRIERS INC. has all
requisite power and authority to own,
mortgage and encumber its property, and, to
the best of counsel's knowledge, STEEL CITY
CARRIERS INC. is in compliance with all
material laws affecting its business.
(f) SAGINAW VALLEY RAILWAY COMPANY, INC. is a
Delaware corporation in good standing under
the laws of the State of Delaware and in all
states in which it conducts business,
including, without limitation, the State of
Michigan. SAGINAW VALLEY RAILWAY COMPANY,
INC. has all requisite power and authority to
own, mortgage and encumber its property, and,
to the best of counsel's knowledge, SAGINAW
VALLEY RAILWAY COMPANY, INC. is in compliance
with all material laws affecting its
business.
(g) HURON AND EASTERN RAILWAY COMPANY, INC. is a
Michigan corporation in good standing under
the laws of the State of Michigan and in all
states in which it conducts business. HURON
AND EASTERN RAILWAY COMPANY, INC. has all
requisite power and authority to own,
mortgage and encumber its property, and, to
the best of counsel's knowledge, HURON AND
EASTERN RAILWAY COMPANY, INC. is in
compliance with all material laws affecting
its business.
<PAGE> 26
March 3, 1997
Page 26
(h) WEST TEXAS AND LUBBOCK RAILROAD COMPANY, INC.
is a Texas corporation in good standing under
the laws of the State of Texas and in all
states in which it conducts business. WEST
TEXAS AND LUBBOCK RAILROAD COMPANY, INC. has
all requisite power and authority to own,
mortgage and encumber its property, and, to
the best of counsel's knowledge, WEST TEXAS
AND LUBBOCK RAILROAD COMPANY, INC. is in
compliance with all material laws affecting
its business.
(i) PLAINVIEW TERMINAL COMPANY is a Texas
corporation in good standing under the laws
of the State of Texas and in all states in
which it conducts business. PLAINVIEW
TERMINAL COMPANY has all requisite power and
authority to own, mortgage and encumber its
property, and, to the best of counsel's
knowledge, PLAINVIEW TERMINAL COMPANY is in
compliance with all material laws affecting
its business.
(j) CASCADE AND COLUMBIA RIVER RAILROAD COMPANY
is a Delaware corporation in good standing
under the laws of the State of Delaware and
in all states in which it conducts business,
including, without limitation, the State of
Washington. CASCADE AND COLUMBIA RIVER
RAILROAD COMPANY has all requisite power and
authority to own, mortgage and encumber its
property, and, to the best of counsel's
knowledge, CASCADE AND COLUMBIA RIVER
RAILROAD COMPANY is in compliance with all
material laws affecting its business.
(k) OTTER TAIL VALLEY RAILROAD, INC. is a
Minnesota corporation in good standing under
the laws of the State of Minnesota and in all
states in which it conducts business. OTTER
TAIL VALLEY RAILROAD, INC. has all requisite
power and authority to own, mortgage and
encumber its property, and, to the best of
counsel's knowledge, OTTER TAIL VALLEY
RAILROAD, INC. is in compliance with all
material laws affecting its business.
(l) MINNESOTA NORTHERN RAILROAD, INC. is a
Delaware corporation in good standing under
the laws of the State of Delaware and in all
states in which it conducts business,
including without limitation, the State of
Minnesota. MINNESOTA NORTHERN RAILROAD, INC.
has all requisite power and
<PAGE> 27
March 3, 1997
Page 27
authority to own, mortgage and encumber its
property, and, to the best of counsel's
knowledge, MINNESOTA NORTHERN RAILROAD, INC.
is in compliance with all material laws
affecting its business.
(m) DELAWARE VALLEY RAILWAY COMPANY, INC. is a
Delaware corporation in good standing under
the laws of the State of Delaware and in all
states in which it conducts business,
including without limitation, the State of
Pennsylvania. DELAWARE VALLEY RAILWAY
COMPANY, INC. has all requisite power and
authority to own, mortgage and encumber its
property, and, to the best of counsel's
knowledge, DELAWARE VALLEY RAILWAY COMPANY,
INC. is in compliance with all material laws
affecting its business.
(v) Authorization: Execution of the Loan documents has
been duly authorized by all necessary actions of each
Borrower and such executions have been performed by
the persons authorized to do so.
(vi) Enforceability: All of the loan documents establish
binding obligations of each Borrower, as applicable,
and, each such document is enforceable in accordance
with its terms, subject to any applicable bankruptcy,
insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally.
(vii) No Conflict: There is no charter, partnership
agreement, by-law or preference stock provision of
any Borrower, and, no provision of any existing
mortgage, indenture, contract or agreement known to
be binding on any Borrower affecting its property
which would conflict with or in any way prevent the
execution, delivery and carrying out of the terms of
the Loan Documents. Accordingly, the Borrower's
execution of the Loan Documents does not violate any
other instrument, agreement, order or decree to which
any Borrower is a party or by which any Borrower is
bound.
(viii) Documentary Stamp Tax, Transfer and Recording Taxes:
Payment of all applicable documentary stamp, if any,
required by the State of Florida and transfer and
recording taxes required by the State of Texas, the
State of Michigan, the State of Washington, the State
of Minnesota, the State of Pennsylvania, the Province
of Ontario and any local municipalities in
<PAGE> 28
March 3, 1997
Page 28
connection with the closing of the Loan have been
collected and remitted to the proper taxing
authorities.
(ix) Litigation: To the best of counsel's knowledge, each
Borrower is not a party to any pending litigation,
which, if adversely determined, would impair the
ability of any of them to meet its obligations to
Lender under the Loan.
(x) Such other matters as shall be required by Lender and
its counsel.
ZZ. Fees and Charges: Payment of all fees and charges as required
for the Loan closing and matters related thereto, including
all legal fees, closing costs, recording fees and any other
charges.
AAA. Covenants and Restrictions: Copies of all covenants and
restrictions affecting the Texas Real Property, the Michigan
Real Property, the Ontario Real Property, the West Texas and
Lubbock Real Property, the Washington Real Property, the
Minnesota Real Property, and the Gettysburg Real Property
which shall be subject to the approval of Lender.
BBB. Affidavit of Leases having attached thereto certified copies
of all leases affecting each Borrower and its business
operations.
CCC. Landlord's Waiver of Lien Agreement to be executed by each
Landlord of each Borrower, for each of Borrower's business
locations.
DDD. Default: There shall be no default in existence with regard
to any other obligations of Borrower to Lender.
EEE. Leases: Duplicate originals or certified copies of all leases
and any lease amendments affecting all or any part of the
Texas Real Property, the Michigan Real Property, the Ontario
Real Property, the West Texas and Lubbock Real Property, the
Washington Real Property, the Minnesota Real Property, and the
Gettysburg Real Property together with the standard form lease
to be used in future leasing. The leases and form must be
satisfactory to Lender, and the leases shall be subordinate to
the mortgage or deed of trust instrument.
FFF. Miscellaneous: All other Loan documents or items that are
customarily provided in loan transactions of this type and all
other Loan documents or items as may be required by Lender or
its counsel.
<PAGE> 29
March 3, 1997
Page 29
12. GENERAL TERMS AND CONDITIONS: At or prior to the closing of
the Loan, and, for so long as the Loan is outstanding, the Borrower shall
comply with the following terms and conditions:
A. Each of the Borrowers, together with all subsidiary
corporations of RailAmerica, Inc. (the "Subsidiary
Corporations") shall on a consolidated basis comply with all
of the covenants, terms and conditions set forth on Exhibit
"D" appended hereto and made a part hereof. For purposes of
the Exhibit, each reference to the Borrower shall refer to the
Borrowers, together with the Subsidiary Corporations on a
collective basis.
B. Assignability: Neither this letter nor any interest in it may
be assigned by Borrower without Lender's prior written
approval.
C. Expenses: Unless otherwise expressly provided in this letter,
each Borrower shall jointly and severally be responsible and
liable for, and shall hold Lender harmless from, and shall
pay, all costs and expenses incurred in connection with the
Loan (pre- and post-closing) including, but not limited to:
Loan fees, title, hazard and other insurance premiums;
surveys; appraisals, brokerage commissions and claims of
brokerage; property, document and intangible taxes; attorney's
fees; UCC lien searches; and recording charges. Borrower
shall reimburse Lender for all such costs and expenses paid by
Lender.
D. Operating and Rent Statements: Borrower shall, at Lender's
request, submit to Lender financial statements of income and
expenses accurately setting forth the operations of the Texas
Real Property, the Michigan Real Property, the Ontario Real
Property, the West Texas and Lubbock Real Property, the
Washington Real Property, the Minnesota Real Property, and the
Gettysburg Real Property for each fiscal year and/or monthly
financial statements, in form and substance acceptable to
Lender. Also, when so requested, Borrower will submit to
Lender rent schedules showing, among other things as may be
required by Lender, occupied tenant space, rents and vacant
space and proposed rents.
E. Publicity: The Lender shall have the right to secure printed
publicity (at Lender's sole expense) through newspapers and
other media concerning the Loan.
F. Subordinate Financing and Alienation: There shall be no
subordinate financing of the personal or real property
included in the Collateral, and no sale or transfer of
ownership of the Texas Real Property, the Michigan Real
Property, the Ontario Real Property, the West Texas and
Lubbock Real Property, the Washington Real Property, the
Minnesota Real Property, or the Gettysburg Real
<PAGE> 30
March 3, 1997
Page 30
Property and no changes in any borrowing entity without
Lender's prior consent, which shall not be unreasonably
withheld. Notwithstanding anything to the contrary set forth
above, the liens and encumbrances permitted under the terms
and provisions of Section 4 of the Existing NBC Security
Agreement shall continue to be permitted.
G. Additional Leases: Borrower shall provide Lender with
duplicate originals or certified copies of each lease entered
into in connection with the Texas Real Property, the Michigan
Real Property, the Ontario Real Property, the West Texas and
Lubbock Real Property, the Washington Real Property, the
Minnesota Real Property, and the Gettysburg Real Property for
all leases entered into subsequent to the time of closing, if
any.
H. Loan Application: The issuance of this letter is based upon
the accuracy of your representations and statements, any loan
application and all additional information, representations,
exhibits and other matters submitted to Lender for its
consideration. Lender shall have the option to declare this
commitment to be breached if there shall have been any
material misrepresentation or misstatement or any material
error in anything submitted to Lender, or, if prior to the
initial disbursement under the Loan, there shall have been a
material adverse change in the state of facts submitted to
Lender, or any Borrower has become insolvent, bankrupt or
incapacitated.
I. Anti-Coercion Notice: The insurance laws of the State of
Florida provide that Lender may not require Borrower to take
insurance through any particular insurance agent or company to
insure the Collateral. Borrower, subject to the rules adopted
by the Florida Insurance Commissioner, has the right to have
insurance placed with the insurance agent or company of
Borrower's choice, provided the company meets Lender's
requirements. Lender has the right to designate reasonable
financial requirements as to the company and the adequacy of
the insurance coverage.
J. Hazardous Wastes: By its acceptance of this letter, the
Borrowers expressly warrant and represent to the Lender that:
(i) the Texas Real Property, the Michigan Real Property, the
Ontario Real Property, the West Texas and Lubbock Real
Property, the Washington Real Property, the Minnesota Real
Property, and the Gettysburg Real Property are not currently
used in a manner by Borrowers, which violates any applicable
federal, state or local environmental laws; (ii) except as set
forth in prior loan documents in connection with the Michigan
Real Property, neither the Borrower nor any tenant has
received any notice from a government agency for violation of
such laws, and, if such notice is received, the
<PAGE> 31
March 3, 1997
Page 31
Borrower shall immediately notify the Lender; (iii) the
Borrower shall not cause nor permit any tenant to cause a
violation of any applicable federal, state or local
environmental laws, nor permit any environmental liens to be
placed on the Texas Real Property, the Michigan Real Property,
the Ontario Real Property, the West Texas and Lubbock Real
Property, the Washington Real Property, the Minnesota Real
Property, and the Gettysburg Real Property; (iv) the
Borrowers, jointly and severally, shall indemnify Lender for
all costs incurred by Lender in connection with the removal of
hazardous wastes from the Texas Real Property, the Michigan
Real Property, the Ontario Real Property, the West Texas and
Lubbock Real Property, the Washington Real Property, the
Minnesota Real Property, and the Gettysburg Real Property
regardless of whether Borrower has caused the presence of such
hazardous wastes; and (v) Borrowers, jointly and severally,
shall indemnify Lender against any loss, cost, damage or
expense that Lender may incur, directly or indirectly, as a
result of or in connection with the assertion against Lender
of any claims relating to the presence or removal of any
hazardous wastes on the Texas Real Property, the Michigan Real
Property, the Ontario Real Property, the West Texas and
Lubbock Real Property, the Washington Real Property, the
Minnesota Real Property, or the Gettysburg Real Property.
In connection with the above, Borrower agrees to provide
Lender, throughout the term of the Loan, with copies of all
reports issued by environmental agencies, concerning the Texas
Real Property, the Michigan Real Property, the Ontario Real
Property, the West Texas and Lubbock Real Property, the
Washington Real Property, the Minnesota Real Property, and the
Gettysburg Real Property including, but not limited to, any
Environmental Protection Agency ("EPA") Reports. Further,
Lender shall have the right, prior to making advances under
the Loan, and throughout the term of the Loan to directly
contact the EPA and other governmental agencies regarding the
status of the Texas Real Property, the Michigan Real Property,
the Ontario Real Property, the West Texas and Lubbock Real
Property, the Washington Real Property, the Minnesota Real
Property, and the Gettysburg Real Property, and, in the event
of any violations, the same must be cured before the closing
of the Loan.
Borrowers shall execute Hazardous Substance Certificates and
Indemnification Agreements in connection with the Texas Real
Property, the Michigan Real Property, the Ontario Real
Property, the West Texas and Lubbock Real Property, the
Washington Real Property, the Minnesota Real Property, and the
Gettysburg Real Property at the time of closing.
<PAGE> 32
March 3, 1997
Page 32
K. Closing: Closing of the Loan, in accordance with the terms
and conditions of this letter, shall take place on or before
April 25, 1997, at such hour and place as designated by
Lender.
L. Applicable Law: This letter, and such of the Loan instruments
as do not otherwise provide, shall be construed in accordance
with the internal laws (and not the laws of conflicts) of the
STATE OF NEW YORK.
M. No Waiver of Rights by Lender: Neither any failure nor any
delay on the part of Lender in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other
or further exercise or the exercise of any other right, power
or privilege.
N. Survival of Representations: All covenants, agreements,
representations and warranties made herein shall survive the
funding by Lender of the Loan herein described, and shall
continue in full force and effect so long as any portion of
said Loan is outstanding and unpaid. In this letter,
reference to any of the parties herein shall be deemed in
include the successors and assigns of such party. All
covenants, promises and agreements by or on behalf of the
Borrower which are contained in this letter, or in any other
loan instrument, shall inure to the benefit of the successors
and assigns of Lender. In the event of any conflict between
the terms and provisions of this letter and the terms and
provisions of the Loan documents, the terms and provisions of
the Loan documents shall control and prevail.
O. Americans with Disabilities Act: Borrower shall comply with,
as applicable, the Americans with Disabilities Act, and, all
other laws and regulations affecting the Texas Real Property,
the Michigan Real Property, the West Texas and Lubbock Real
Property, the Washington Real Property, the Minnesota Real
Property, and the Gettysburg Real Property. Borrowers shall
execute an Americans with Disabilities Act Certificate and
Indemnification Agreement at the time of closing for each of
said properties.
P. Documentary Stamps and Intangible Tax: Borrowers do hereby
jointly and severally indemnify and shall jointly and
severally hold harmless Lender of and from any and all
liability in connection with the payment or non-payment of any
and all necessary documentary stamp tax, intangible tax and
all other governmental taxes due and owing in connection with
the Loan, including without limitation, any and all
non-recurring intangible tax due and owing in connection with
the Mortgages and the Deeds of Trust securing the Loan, which
<PAGE> 33
March 3, 1997
Page 33
indemnification shall survive this letter and the closing of
and repayment of the Loan.
Q. Severability: In the event that any one or more of the
provisions contained in this letter, or any documentation
incident hereto, should be invalid, illegal or unenforceable
in any respect, the validity, legality or enforceability of
the remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby.
R. Commercial Use: Borrower warrants and represents that the
proceeds of the Loan shall be used for commercial purposes.
S. Modification: This letter may be amended or modified only by
written instrument signed by Borrower and Lender. any waiver
or consent granted hereunder shall be effective only in the
specific instance and for the purpose for which given.
T. Termination of this Letter: The Lender may terminate all
rights provided under this letter by notice in writing to the
Borrower that, in the event (i) any Borrower shall fail and
refuse to comply in a timely way with any of the requirements
or conditions of this letter, or (ii) prior to the closing of
the Loan, any material or adverse change shall occur in the
financial condition of any Borrower from the condition
represented in the Loan application or any supporting
documentation or (iii) prior to the closing of the Loan, any
Borrower shall either admit in writing their inability to pay
their debts generally as they become due, or (iv) consent to
the appointment of a Receiver of all or any part of their
property or make any assignment for the benefit of creditors,
or file a petition in bankruptcy, or for reorganization
pursuant to the Federal Bankruptcy Act, or similar law, or (v)
prior to the closing of the Loan any of the creditors of any
Borrower shall file a Petition in Bankruptcy against any
Borrower or for the reorganization or liquidation of any
Borrower pursuant to the Federal Bankruptcy Act or similar
law. Upon such termination, the obligations and liability of
Lender under this letter shall cease and terminate without
further act.
U. Entire Agreement: This letter, when accepted, shall
constitute the entire agreement between Borrower and Lender,
and it may not be altered or amended unless agreed to in
writing by Lender and Borrower.
INTENTIONALLY LEFT BLANK
<PAGE> 34
March 3, 1997
Page 34
V. Waiver of Jury Trial: THE BORROWER AND THE LENDER HEREBY
MUTUALLY, KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER THE BORROWER OR LENDER AGAINST THE OTHER AND
BASED UPON, ARISING OUT OF, OR CONNECTED WITH, THIS LETTER OR
ANY OTHER DOCUMENT EXECUTED IN CONNECTION WITH THE LOAN.
The credit facility offered by this letter will expire on Monday, March 10,
1997, unless this original letter is signed where indicated, and returned to my
attention, prior to said expiration date. Unless the Loan closes on or before
April 25, 1997, Lender's obligations hereunder shall terminate. By your
acceptance of the credit facility set forth in this letter, the Borrowers,
jointly and severally agree to pay any out-of-pocket expenses incurred by the
Lender in connection with the underwriting of the Loan including, but not
limited to, applicable documentary stamps and intangible taxes, recording fees,
lien searches, and the reasonable fees and expenses of Lender's counsel, where
applicable, whether or not the Loan is closed and the proceeds disbursed
thereunder.
This letter replaces and supersedes that certain credit facility letter dated
January 31, 1997, the terms and provisions of which are null and void.
We are pleased to be able to offer this Loan and look forward to its closing.
Very truly yours,
NATIONAL BANK OF CANADA
/s/ Michael S. Bloomenfeld
--------------------------
Michael S. Bloomenfeld
Vice President
/s/ Jean E. Page
--------------------------
Jean E. Page
Vice President
COMERICA BANK
/s/ Michael J. Orozco
--------------------------
Michael J. Orozco
Vice President
<PAGE> 35
March 3, 1997
Page 35
ACCEPTED this ____ day of March, 1997.
RAILAMERICA, INC., a Delaware
corporation
By: /s/ Gary O. Marino
----------------------------------------
Its: /s/Chairman, President, C.E.O.
----------------------------------------
(Corporate Seal)
KALYN/SIEBERT, INCORPORATED, a
Texas corporation
By: /s/ Gary O. Marino
----------------------------------------
Its: Chairman, President & C.E.O.
----------------------------------------
(Corporate Seal)
RAILAMERICA INTERMODAL
SERVICES, INC., a Delaware
corporation
By: /s/ Gary O. Marino
----------------------------------------
Its: Chairman, C.E.O. & Treasurer
----------------------------------------
(Corporate Seal)
<PAGE> 36
March 3, 1997
Page 36
RAILAMERICA CARRIERS, INC., an
Ontario corporation
By: /s/ Gary O. Marino
---------------------------------------
Its: Chairman, President & C.E.O.
---------------------------------------
(Corporate Seal)
STEEL CITY CARRIERS INC., an Ontario
corporation
By: /s/ Gary O. Marino
---------------------------------------
Its: Chairman, C.E.O., Executive V.P.
---------------------------------------
(Corporate Seal)
SAGINAW VALLEY RAILWAY
COMPANY, INC., a Delaware
corporation
By: /s/ Gary O. Marino
---------------------------------------
Its: Chairman, C.E.O., Treasurer
---------------------------------------
(Corporate Seal)
<PAGE> 37
March 3, 1997
Page 37
HURON AND EASTERN RAILWAY
COMPANY, INC., a Michigan corporation
By: /s/ Gary O. Marino
----------------------------------------
Its: Chairman, C.E.O., Treasurer
----------------------------------------
(Corporate Seal)
WEST TEXAS AND LUBBOCK
RAILROAD COMPANY, INC. a Texas
corporation
By: /s/ Gary O. Marino
----------------------------------------
Its: Chairman, C.E.O., Treasurer
----------------------------------------
(Corporate Seal)
PLAINVIEW TERMINAL COMPANY, a
Texas corporation
By: /s/ Gary O. Marino
----------------------------------------
Its: Chairman, C.E.O., Treasurer
----------------------------------------
(Corporate Seal)
<PAGE> 38
March 3, 1997
Page 38
CASCADE AND COLUMBIA RIVER
RAILROAD COMPANY, a Delaware
corporation
By: /s/ Gary O. Marino
----------------------------------
Its: Chairman, President & C.E.O.
----------------------------------
(Corporate Seal)
OTTER TAIL VALLEY RAILROAD,
INC., a Minnesota corporation
By: /s/ Gary O. Marino
----------------------------------
Its: C.E.O., Treasurer
----------------------------------
(Corporate Seal)
MINNESOTA NORTHERN RAILROAD,
INC., a Delaware corporation
By: /s/ Gary O. Marino
----------------------------------
Its: Chairman, President & C.E.O.
----------------------------------
(Corporate Seal)
DELAWARE VALLEY RAILWAY
COMPANY, INC., a Delaware
corporation
By: /s/ Gary O. Marino
----------------------------------
Its: Chairman, C.E.O., Treasurer
----------------------------------
(Corporate Seal)
<PAGE> 39
RAILAMERICA, INC. NONQUALIFIED DEFERRED COMPENSATION TRUST
This RailAmerica, Inc. Nonqualified Deferred Compensation Trust
Agreement is made this 3rd day of January, 1997 by and between RailAmerica,
Inc. (the "Company") and Donald D. Redfearn (the "Trustee");
WHEREAS, the Company has adopted the nonqualified deferred
compensation Plans as listed in Appendix One hereto and may adopt additional
nonqualified deferred compensation Plans for the benefit of eligible employees
(the "Plan");
WHEREAS, the Company has incurred or expects to incur liability under
the terms of such Plans with respect to the individuals participating in such
Plans;
WHEREAS, the Company wishes to establish a trust (hereinafter called
"Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plans
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust the
amount shown on Appendix Two hereto, which shall become the
principal of the Trust to be held, administered and disposed
of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is irrevocable.
(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of Plan
participants and general creditors as herein set forth.
Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in,
any assets of the Trust. Any rights created under the Plans
and this Trust Agreement shall be mere unsecured contractual
rights of Plan participants and their beneficiaries against the
Company. Any assets held by the Trust will be subject to the
claims of the Company's general creditors under federal and
state law in the event of Insolvency, as defined in Section
3(a) herein.
<PAGE> 40
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement. Neither the Trustee nor any
Plan participant or beneficiary shall have any right to compel
such additional deposits.
2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES.
(a) The Company shall deliver to the Trustee a schedule (the
"Payment Schedule") that indicates the amounts payable in
respect of each Plan participant (and his or her
beneficiaries), that provides a formula or other instructions
acceptable to the Trustee for determining the amounts so
payable, the form in which such amount is to be paid (as
provided for or available under the Plans), and the time of
commencement for payment of such amounts. Except as otherwise
provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such
Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes
that may be required to be withheld with respect to the
payment of benefits pursuant to the terms of the Plans and
shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported,
withheld and paid by the Company.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plans shall be determined
by the Company or such party as it shall designate under the
Plans, and any claim for such benefits shall be considered and
reviewed under the procedures set out in the Plans.
(c) The Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under
the terms of the Plans. The Company shall notify the Trustee
of its decision to make payment of benefits directly prior to
the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust,
and any earnings thereon, are not sufficient to make payments
of benefits in accordance with the terms of the Plans, the
Company shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company where
principal and earnings are not sufficient.
3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of benefits to Plan
participants and their beneficiaries if the Company is
Insolvent. The Company shall be considered "Insolvent" for
purposes of this Trust Agreement if (i) the Company is unable
to pay its debts as they become due, or (ii) the Company is
subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law as set forth below.
(1) The Board of Directors and the Chief
Executive Officer of the Company shall have the duty to inform the Trustee in
writing of the Company's Insolvency. If a person claiming to be a creditor
of the Company alleges in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company is Insolvent
-2-
<PAGE> 41
and, pending such determination, the Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
(2) Unless the Trustee has actual knowledge of
the Company's Insolvency, or has received notice from the Company or a person
claiming to be a creditor alleging that the Company is Insolvent, the
Trustee shall have no duty to inquire whether the Company is Insolvent. The
Trustee may in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that provides the Trustee with a
reasonable basis for making a determination concerning the Company's solvency.
(3) If at any time the Trustee has determined
that the Company is Insolvent, the Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold the assets of the Trust for
the benefit of the Company's general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of Plan participants or their beneficiaries
to pursue their rights as general creditors of the Company with respect to
benefits due under the Plans or otherwise.
(4) The Trustee shall resume the payment of
benefits to Plan participants or their beneficiaries in accordance with Section
2 of this Trust Agreement only after the Trustee has determined that the
Company is not Insolvent (or is no longer Insolvent).
(a) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plans for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance.
4. PAYMENTS TO COMPANY.
Except as provided in Section 3 hereof, after the Trust has become
irrevocable, the Company shall have no right or power to direct the Trustee to
return to the Company or to divert to others any of the Trust assets before all
payment of benefits have been made to Plan participants and their beneficiaries
pursuant to the terms of the Plans.
5. INVESTMENT AUTHORITY.
(a) The Trust Fund shall be held in trust by the Trustee and shall
be invested and reinvested as provided in this Section 5, without distinction
between principal and income and without regard to the restrictions of
the laws of the State of Florida, or any other jurisdiction, relating to the
investment of Trust Funds. The Trustee shall invest and reinvest the Trust Fund
in its discretion, except as otherwise directed by the Company, or in accordance
with Section 5(d) in accordance with the directions of an Investment Manager.
The Trustee shall be under no duty or obligation to review any investment to be
acquired, held or disposed of pursuant to such directions nor to make any
recommendation with respect to the disposition or continued retention of any
such investment.
(b) In addition to the more general investment powers provided
below, the Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued
-3-
<PAGE> 42
by the Company. All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Plan participants. The Company shall
have the right at anytime, and from time to time in its sole discretion, to
substitute assets of equal fair market value for any asset held by the Trust.
This right is exercisable by the Company in a nonfiduciary capacity without the
approval or consent of any person in a fiduciary capacity.
(c) The Company shall establish specific investment policies and
guidelines for Trust Funds. The Trustee shall be responsible only for investing
the Trust Fund in accordance with such policies and guidelines. If any
change in such policies or guidelines is subsequently deemed appropriate,
notice of such change shall be promptly communicated by the Company to the
Trustee, but the Trustee shall be under no duty to take or refrain from taking
any action based on such changes prior to receiving such notice.
(d) The Company may appoint one or more than one Investment
Manager to direct the investment of the Trust Fund. Upon the effective date of
such appointment, such Investment Manager shall have the sole power,
without prior consultation with the Trustee, to manage and direct the
acquisition and disposition of the Trust Fund. The Investment Manager shall
keep such records and make such reports to the Trustee as may be specified in
the agreement appointing such Investment Manager. The Company at its discretion
also may terminate the appointment of any Investment Manager. The Company shall
notify the Trustee of such termination and, in the absence of specific
directions from the Company or the appointment of a successor Investment Manager
for the Investment Account, the Company shall be responsible for the management
and control of the assets formerly managed by the Investment Manager.
(e) To the extent neither the Company nor an Investment Manager
furnishes directions as to the investment of the Trust Fund, the Trustee may
retain uninvested cash or cash balances, without being required to pay
interest thereon, or may invest such assets in short-term investments and one of
the commingled funds described in Section 5(f)(8).
(f) The Trustee shall have the power to do all things and execute
such instruments as it may deem necessary or proper to carry out its
responsibilities under this Trust Agreement, including the following powers:
(1) To invest any and all monies in stock of the
Company, other stocks, bonds, securities, insurance policies insuring the
lives of employees covered by any Plan, mutual funds, investment company or
trust shares, mortgages, notes, choses in action, real estate, improvements
thereon, and other property acceptable to the Trustee;
(2) To sell, exchange, or otherwise dispose of
any property at any time held or acquired by the Trust Fund, at public or
private sale, for cash or on terms, without advertisement, including the right
to lease for any term;
(3) To vote in person or by proxy any corporate
stock or other security and to agree to or take, or refrain from taking, any
other action necessary or appropriate for a shareholder or owner in regard to
any reorganization, merger, consolidation, liquidation, bankruptcy or other
procedure or proceeding affecting any stock, bond, note or other property;
-4-
<PAGE> 43
(4) To compromise, settle, adjust or otherwise
act in any reasonable manner whatsoever on any claim or demand by or against
the Trust Fund and to agree to any rescission or modification of any contract
or agreement affecting the Trust Fund;
(5) To deposit any stock, bond or other security
in any depository or other similar institution and to register any stock, bond
or other security in the name of any nominee, ithout the addition of words
indicating that such security is held in a fiduciary capacity, but accurate
records shall be maintained showing that such security is a Trust Fund asset
and the Trustee shall be responsible for the acts of such depository or
nominee;
(6) To hold cash (including, without limitation,
in non-interest bearing accounts) in such amounts and for such time as may be
in its opinion reasonable for the proper management of the Trust Fund;
(7) To grant, sell, purchase, or exercise any
option of any kind or description whatsoever to purchase or sell any security
or other property which is a permissible investment under this Section 5,
provided the Trustee in no event shall grant or sell any option under which any
person can require the Trust Fund to sell any security or other property
which the Trust Fund at the time of such grant or sale does not hold in an
amount sufficient to cover such option and any other outstanding option granted
or sold by the Trustee, and the Trustee in no event shall dispose of any
security or other property covering any option until such option is exercised
or otherwise expires;
(8) To invest all, or any part, of the assets of
the Trust Fund in any common, collective or group trust fund which is
maintained under section 584 of the Code or Revenue Ruling 81-100, 1981-1 C.B.
326, by the Trustee or any bank which is a member of an "affiliated group" (as
that term is defined in section 1504 of the Code) with the Trustee, the
provisions of which common, collective or group trust fund upon such investment
shall automatically be adopted and made a part of this Trust Agreement for the
period such investment is made in such common, collective or group trust fund;
(9) To make such other investments without regard
to any law now or hereafter in force limiting the investments of trustees
or other fiduciaries.
(g) With respect to any policy of life insurance
that the Trustee owns or under which the death benefits are made payable
to the Trustee, the Trustee shall have the following specific powers and
responsibilities:
(1) If the Trustee is the owner of any such
policy, the Trustee reserves all available benefits, privileges, payments,
dividends, surrender values, options, conversion rights and elections,
including the right at any time or times to change the beneficiary, to borrow
or otherwise receive the surrender value, to pledge or assign the policy or its
proceeds as collateral security for any loan which the owner or owners may
obtain from any lender, including a Trustee under this agreement individually
or a parent or affiliate company, and to withdraw the policy if deposited with
the trustees, without any duty on the trustees to see its return.
(2) Upon the death of the insured under the
policy the Trustee shall take such action as they deem best to collect the
policy proceeds, paying the expenses of collection from the Trust Fund,
but the Trustee need not enter into or maintain any litigation to
-5-
<PAGE> 44
enforce payment on the policy until indemnified to their satisfaction against
all expenses and liabilities to which it might by any such litigation be
subjected. The Trustee may release the insurance company from its liability
under the policy and make any compromise which the trustees deem proper.
(3) The insurance company shall not take notice
of the provisions of this Agreement or see to the application of the policy
proceeds, and the Trustee's receipt to the insurance company shall be a
complete release for any payment made and shall bind every participant or
beneficiary under this Agreement.
6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
7. ACCOUNTING BY TRUSTEE.
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be agreed upon in writing between the
Company and the Trustee. Within 90 days following the close of each calendar
year and within 30 days after the removal or resignation of the Trustee, the
Trustee shall deliver to the Company a written account of its administration of
the Trust during such year or during the period from the close of the last
preceding year to the date of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions effected by it,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash, securities and
other property held in the Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
8. RESPONSIBILITY OF TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that the
Trustee shall incur no liability to any person for any action taken
pursuant to a direction, request or approval given by the Company which is
contemplated by, and in conformity with, the terms of the Plans or this Trust
and is given in writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of competent jurisdiction
to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify the Trustee against
the Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee may obtain payment from
the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its duties or
obligations hereunder.
-6-
<PAGE> 45
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to assist it
in performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred
on Trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the
Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of
the policy to a different form) other than to a successor Trustee, or to loan
to any person the proceeds of any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall not have any
power that could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
9. COMPENSATION AND EXPENSES OF TRUSTEE.
The Company shall pay all administrative and the Trustee's
fees and expenses. If not so paid, the fees and expenses shall be paid from
the Trust.
10. RESIGNATION AND REMOVAL OF TRUSTEE.
(a) The Trustee may resign at any time by written notice
to the Company, which shall be effective 45 days after receipt of such notice
unless the Company and the Trustee agree otherwise.
(b) The Trustee may be removed by the Company on 30 days
notice or upon shorter notice accepted by the Trustee.
(c) Upon a Change of Control, as defined herein, the
Trustee may not be removed by the Company for 5 years.
(d) If the Trustee resigns or is removed within 5 years of
a Change of Control, as defined herein, the Trustee shall select asuccessor
Trustee in accordance with the provisions of Section 11(b) hereof prior to the
effective date of the Trustee's resignation or removal.
(e) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed within
30 days after receipt of notice of resignation, removal or transfer, unless the
Company extends the time limit.
(f) If the Trustee resigns or is removed, a successor
shall be appointed, in accordance with Section 11 hereof, by the effective date
of resignation or removal under paragraphs (a) and (b) of this section.
If no such appointment has been made, the Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for instructions. All
expenses of the Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
-7-
<PAGE> 46
11. APPOINTMENT OF SUCCESSOR.
(a) If the Trustee resigns or is removed in accordance with Section
10(a) or (b) hereof, the Company may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace the Trustee upon resignation or
removal. The appointment shall be effective when accepted in writing by the new
Trustee, who shall have all of the rights and powers of the former Trustee,
including ownership rights in the Trust assets. The former Trustee shall
execute any instrument necessary or reasonably requested by the Company or the
successor Trustee to evidence the transfer.
(b) If the Trustee resigns or is removed pursuant to the provisions
of Section 10(d) hereof and selects a successor Trustee, the Trustee may
appoint any third party such as a bank trust department or other party that may
be granted corporate trustee powers under state law. The appointment of a
successor Trustee shall be effective when accepted in writing by the new
Trustee. The new Trustee shall have all the rights and powers of the
former Trustee, including ownership rights in Trust assets. The former Trustee
shall execute any instrument necessary or reasonably requested by the successor
Trustee to evidence the transfer.
12. AMENDMENT AND TERMINATION.
(a) The Trust is irrevocable but this Agreement may be amended with
the written consent of the Trustee and all beneficiaries. No amendment will be
permitted that would vest the assets of the Trust in, or at the direction
of, the Company except as required pursuant to Section 1(d) hereof.
(b) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plans. Upon termination of the Trust, any
assets remaining in the Trust shall be returned to the Company.
13. MISCELLANEOUS.
(a) Any provisions of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or
in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
(d) For purposes of this Trust, Change of Control shall mean the
purchase or other acquisition by any person, entity or group of persons,
within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of
1934 ('Act'), or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or
more of either the outstanding shares of common stock or the combined
-8-
<PAGE> 47
voting power of the Company's then outstanding voting securities entitled to
vote generally, or the approval by the stockholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to which
persons who were stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated the
Company's then outstanding securities, or a liquidation or dissolution of the
Company or of the sale of all or substantially all of the Company's assets.
14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be
January 3, 1997.
The Company and the Trustee have executed this Trust Agreement
effective as provided herein.
RAILAMERICA, INC.
By:/s/ Donald Redfearn
-----------------------------
TITLE: EXECUTIVE VICE PRESIDENT
ATTEST:
(CORPORATE SEAL)
By:/s/ Larry W. Bush
------------------------
Ass't. Secretary
TRUSTEE:
/s/ Donald D. Redfearn
--------------------------------
Donald D. Redfearn
-9-
<PAGE> 48
APPENDIX ONE
TO
RAILAMERICA, INC. NONQUALIFIED DEFERRED COMPENSATION TRUST
Plans Currently in Place Reflecting Agreements with the Following Employees:
1. Nonqualified Deferred Compensation Agreement with Gary O. Marino.
2. Nonqualified Deferred Compensation Agreement with John Marino.
<PAGE> 49
APPENDIX TWO
TO
RAILAMERICA, INC. NONQUALIFIED DEFERRED COMPENSATION TRUST
The amount of the initial deposit to the RailAmerica, Inc.
Nonqualified Deferred Compensation Trust is ___________________________
Dollars ($____________).
<PAGE> 50
NONQUALIFIED DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, made and entered into as of this 3rd day of January,
1997, by and between RailAmerica, Inc., a corporation headquartered in Boca
Raton, Florida (the "Employer"), and Gary O. Marino, a resident of the State of
Florida (the "Employee").
WHEREAS, the Employee has been employed by the Employer as its
Chairman;
WHEREAS, the Employer recognizes the value of the services performed
by the Employee and wishes to encourage his continued employment;
WHEREAS, the Employee wishes to be afforded the opportunity to defer
payment of compensation until a future date and the Employer desires to
facilitate that goal and to also contribute an additional amount toward the
Employee's retirement pay;
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Employee may defer compensation and the Employer may contribute
toward the Employee's retirement pay; and
WHEREAS, the parties hereto intend that this Agreement be considered
an unfunded arrangement, maintained primarily to provide deferred compensation
and retirement benefits for the Employee, a member of a select group of
management or highly compensated employees of the Employer, for purposes of the
Employee Retirement Income Security Act of 1974, as amended;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the parties hereto agree as follows:
1. DEFERRAL OF COMPENSATION OR BONUS. Commencing with the date
of this Agreement, and continuing through the date on which the Employee's
employment terminates because of his death or any other cause, the Employee and
the Employer agree that the Employee shall be entitled to elect to defer any
percentage of the compensation that the Employee would otherwise be entitled to
receive from the Employer in each Fiscal Year of the Employer. In addition,
the Employee shall be entitled to elect to defer all or any portion of any
bonus that the Employer may award during or for any Fiscal Year.
2. ELECTION TO DEFER COMPENSATION. The Employee may elect to
defer compensation or bonus hereunder by filing a written notice to that effect
with the Employer, referred to as an Election of Deferral. Any such Election
of Deferral shall be made before the Employee has earned the right to the
compensation or bonus deferred and shall continue until changed in writing by
the Employee. Any change in the Employee's Election of Deferral shall be
effective with the first payment of compensation or bonus that the Employee
earns and that otherwise would be paid following delivery of notice of a change
in the Employee's Election of Deferral. Any amount of compensation or bonus
deferred shall be referred to as the "Deferral Amount."
3. TRANSFER OF DEFERRAL AMOUNT TO TRUSTEE. The Employer shall
transfer to the then acting trustee (the "Trustee") of the RailAmerica, Inc.
Nonqualified Deferred Compensation Trust (the "Trust") the Employee's Deferral
Amount, as soon as practical following the date that the Deferral Amount
otherwise would have been paid to the Employee but for the Employee's Election
of Deferral. The Deferral Amount shall thereafter be invested and reinvested
by such trustee and paid from the Trust to the Employee, or his designated
<PAGE> 51
beneficiary, in accordance with this Agreement and the Trust. The Trust and
any assets held by the Trust to assist it in meeting its obligations hereunder
will conform to the substantive terms of the trust described in Internal
Revenue Service Revenue Procedure 92-64.
4. EMPLOYER'S ADDITIONS TO DEFERRAL AMOUNT. In addition to the
Employee's Deferral Amount, the Employer also shall transfer to the Trust for
the Employee's benefit each calendar year at least $20,000, with the first
payment to be made as soon as practical following execution of this Agreement
and subsequent payments to be made during the first quarter of each subsequent
calendar year. This amount shall be referred to as the "Employer's Additions,"
shall be invested and reinvested by such trustee and paid from the Trust to the
Employee, or his designated beneficiary, in accordance with this Agreement and
the Trust.
5. EMPLOYEE'S DEFERRAL ACCOUNT.
a. DEFERRAL ACCOUNT ESTABLISHED UNDER TRUST. The Employee's
Deferral Amount, the Employer's Additions and the proceeds of the investment
and reinvestment of both, shall be credited to an account maintained by the
Trustee, called the Employee's Deferral Account, and shall be accounted for
separately so long as any amount remains to be paid to the Employee or his
beneficiary hereunder. The Employer shall cause the Trustee to provide to the
Employee periodically, and no less often than once every 12 months, a statement
of the Employee's Deferral Account that shows the current investment status of
the Employee's Deferral Account.
b. TRUST'S INVESTMENT OF DEFERRAL ACCOUNT IN INSURANCE
POLICY. As described in the agreement establishing the Trust, the Trustee may
also invest the assets of the Employee's Deferral Account in one or more life
insurance policies issued on the life of the Employee. If the Trustee elects
to invest all or any portion of the Deferral Account in any life insurance
policy issued on the life of the Employee, then the Employee agrees to assist
the Trustee in making application for any such policy by submitting to any
required physical examination and supplying any information necessary for
completion of such application. To the extent that the Trustee invests the
Deferral Account in any life insurance policy, the value of the Deferral
Account attributable to such investment shall be as provided under such life
insurance policy to the owner thereof. If the Trust elects to invest all or
any portion of the Deferral Account in any life insurance policy paying a death
benefit to the Employer upon the Employee's death, then the amount of any such
proceeds shall be deemed to have been paid to the Deferral Account and shall
increase the death benefit payable under Section 7 hereof to the Employee's
designated beneficiary.
6. TERMINATION BENEFIT. From and after the termination of the
Employee from the service of the Employer, the Trustee thereafter shall
distribute to the Employee's Deferral Account held under the Trust to the
Employee in 120 substantially equal monthly payments. The Employee at his sole
option may make an election before the date benefit payments begin from his
Deferral Account to receive his Deferral Account in equal monthly installment
payments over a shorter period or commencing at a later date than otherwise
would apply, or in a single payment. The election referred to in the preceding
sentence must be made at least 15 days before the date benefit payments are
scheduled to begin and shall be irrevocable. The first designated monthly
payment hereunder or the single payment, as the case may be, shall be due and
payable on the first business day of the second month following the Employee's
termination of employment. Subsequent monthly payments, if any, shall be made
on the first business day of each month thereafter for the applicable payment
period. In addition to the
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election referred to above, the Employee at his sole option at least 15 days
before each annual anniversary date of the commencement of monthly payments
hereunder also may make an election to receive the balance of his Deferral
Account in equal monthly installment payments over a shorter period than
otherwise would apply, or in a single payment. Notwithstanding the foregoing,
the Employer may at any time direct the Trustee to accelerate payments to the
Employee hereunder.
7. DEATH BENEFIT.
a. BEFORE PAYMENT OF TERMINATION BENEFIT BEGINS. In
event of the Employee's death before commencement of termination benefits
hereunder, the Employee's Deferral Account held under the Trust shall be paid
in 120 substantially equal monthly payment to the Employee's designated
beneficiary, in accordance with the last such designation received by the
Employer from the Employee before his death. Alternatively, the designated
beneficiary at his or her sole option may make an election before the date
benefit payments begin to receive monthly installment payments over a shorter
period or commencing at a later date than otherwise would apply, or in a single
payment. The election referred to in the preceding sentence must be made at
least 15 days before the date benefits payments are scheduled to begin and
shall be irrevocable. In any event, the first designated monthly payment or
the single payment, as the case may be, shall be due and payable on the first
business day of the second month following the Employee's death. Subsequent
monthly payments, if any, shall be made on the first business day of each month
thereafter for the applicable payment period. Notwithstanding the foregoing,
the Employer may at any time direct the Trustee to accelerate payments to the
Employee's designated beneficiary hereunder.
b. AFTER PAYMENT OF TERMINATION BENEFIT BEGINS. In the
event of the Employee's death after commencement of termination benefits
hereunder but before completion of all such payments due and owning
hereunder, the Trustee shall continue to make such payments, in equal monthly
installments, over the remainder of the period during which the Employee would
have received such payments, and at the time and in the same manner, had the
Employee survived, Such continuing payments shall be made to the Employee's
designated beneficiary, in accordance with the last such designation
received by the Employer from the Employee before his death. Notwithstanding
the foregoing, the Employer may at any time direct the Trustee to accelerate
payments to the Employee's designated beneficiary hereunder.
c. DESIGNATED BENEFICIARY. The Employee's designated
beneficiary shall be the person(s) named in accordance with the last such
designation received by the Employer from the Employee before his death. If no
such designation has been received by the Employer from the Employee before his
death, said payments shall be made to the Employee's surviving spouse, so long
as she shall live and thereafter to such person or persons, including her
estate, as the Employee's surviving spouse may appoint under her Will, making
specific reference hereto. If the Employee is not survived by a spouse or if
she shall fail to so appoint, then said payments shall be made to the then
living children of the Employee, if any, in equal shares, or to the survivor of
such children.
8. HARDSHIP BENEFIT. In the event the Employee suffers a
financial hardship (as hereinafter defined), the Trustee may, if it deems it to
be in the Employee's best interests, distribute to or on behalf of the Employee
as a hardship benefit (the "Hardship Benefit") any portion of the Employee's
Deferral Account attributable to the Employee's Deferral Amount, including
earnings thereon. Financial hardship shall mean an immediate and heavy
financial need of the Employee caused by temporary or permanent disability or
incapacity of the
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Employee or a dependent of the Employee, medical or educational expenses of any
dependent of the Employee, the purchase or maintenance of a residence of the
Employee or a dependent of the Employee, death of the Employee's spouse or a
material reduction in the Employee's family income (the Employee's and spouse's
income).
9. BENEFIT UPON CHANGE IN CONTROL OF EMPLOYER. In the event of a
Change of Control of the Employer, as defined herein, the Trustee immediately
shall distribute the Employee's Deferral Account held under the Trust to the
Employee in a lump sum. For purposes of this Agreement, Change of Control
shall mean (a) the purchase or other acquisition by any person, entity or group
of persons, within the meaning of section 13(d) or 14(d) of the Securities
Exchange Act of 1934 (the "Act"), or any comparable successor provisions, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Act) of 30 percent or more of either the outstanding shares of common stock or
the combined voting power of the Employer's then outstanding voting securities
entitled to vote generally, (b) the approval by the stockholders of the
Employer of a reorganization, merger, or consolidation, with respect to which
persons who were stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated Employer's
then outstanding securities, (c) a liquidation or dissolution of the Employer
or (d) the sale of all or substantially all of the Employer's assets.
10. ADDITIONAL PERMITTED DISTRIBUTION. In the event that the
Employer and the Employee enter into a salary continuation agreement, or the
Employer institutes a salary continuation plan covering the Employee, the
Employee shall be permitted to request distribution of all or a portion of the
Employee's aggregate Deferral Amount through the date of such agreement or
plan, and the Trustee shall make prompt distribution to the Employee pursuant
to such request. The Employee shall have a limited period of 30 days from the
date of such agreement or plan within which to request such a distribution from
the Trust.
11. NON-COMPETITION DURING EMPLOYMENT. In consideration of the
foregoing agreements of the Employer, the Employee hereby agrees that, so long
as he remains employed by the Employer, he will devote substantially all of his
time, skill, diligence and attention to the business of the Employer, and will
not actively engage, either directly or indirectly, in any business or other
activity which is or may be deemed to be in any way competitive with or adverse
to the best interests of the business of the Employer.
12. DETERMINATION OF BENEFITS, CLAIMS
PROCEDURE AND ADMINISTRATION.
a. REQUEST FOR BENEFIT. A person who believes that he
is being denied a benefit to which he is entitled under this Agreement
(hereinafter referred to as a "Claimant") may file a written request for such
benefit with the Employer, setting forth his claim. The request must be
addressed to the Chairman of the Board of Directors of the Employer at its then
principal place of business.
b. CLAIM PROCEDURE. Upon receipt of a claim, the
Employer shall advise the Claimant that a reply will be forthcoming within
ninety (90) days and shall, in fact, deliver such reply within such period.
The Employer may, however, extend the reply period for an additional ninety
(90) days for reasonable cause. If the claim is denied in whole or in part,
the Employer shall adopt a written opinion, using language calculated to be
understood by the Claimant, setting forth: (a) the specific reason or reasons
for such denial; (b) the specific
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reference to pertinent provisions of this Agreement on which such denial is
based; (c) a description of any additional material or information necessary
for the Claimant to perfect his claim and an explanation why such material or
such information is necessary; (d) appropriate information as to the steps to
be taken if the Claimant wishes to submit the claim for review; and (e) the
time limits for requesting a review under subsection c and for review under
subsection d hereof.
c. REQUEST FOR REVIEW. Within sixty (60) days after the
receipt by the Claimant of the written opinion described above, the Claimant
may request in writing that the Secretary of the Employer review the
determination of the corporation. Such request must be addressed to the
Secretary of the Employer, at its then principal place of business. The
Claimant or his duly authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing for consideration
by the Employer. If the Claimant does not request a review of the
corporation's determination by the Secretary of the Employer within such sixty
(60) day period, he shall be barred and estopped from challenging the
Employer's determination.
d. DECISION ON REVIEW. Within sixty (60) days after the
Secretary's receipt of a request for review, he will review the Employer's
determination. After consideration of all materials presented by the Claimant,
the Secretary will render a written opinion, written in a manner calculated to
be understood by the Claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Agreement on which the decision is based. If special circumstances require
that the sixty (60) day time period be extended, the Secretary will so notify
the Claimant and will render the decision as soon as possible, but no later
than one hundred twenty (120) days after receipt of the request for review.
13. BINDING ARBITRATION. If any dispute arises with respect to
this Agreement, each party shall use its best efforts to resolve the dispute
using the claims procedure provided above. If, after 30 days the dispute has
not been resolved, either party may elect to submit the dispute to mediation by
an independent certified circuit civil mediator selected jointly by the parties
by giving notice to the other party of its election to mediate (the "Mediation
Notice"). If a party elects to mediate a dispute, the other party must mediate
the dispute, although the result of the mediation will not be binding on either
party. The mediator shall convene a meeting of the parties to the dispute
within 60 days after his or her appointment.
Either party may elect to submit the dispute to binding
arbitration before a panel of arbitrators in accordance with the Florida
Arbitration Code and the Florida Evidence Code after the conclusion of the
mediation of the dispute by giving the other party a notice of arbitration in
accordance with section 12 (the "Arbitration Notice"). If the parties do not
resolve the dispute through mediation, arbitration will be the sole and
exclusive method of resolving the dispute. All parties must arbitrate the
dispute, and each party will be barred from filing a lawsuit concerning the
subject matter of the dispute, except to obtain an equitable remedy.
The parties shall select a mutually acceptable Florida
corporate lawyer who is rated "AV" by the Martindale-Hubbell law directory to
arbitrate the dispute. If within ten (10) days after the effective date of the
Arbitration Notice the parties are unable to select such an arbitrator, an
arbitration panel will be selected. The arbitration panel will consist of
three arbitrators selected by agreement of the parties. At least one of the
arbitrators must be a Florida corporate lawyer who is rated "AV" by the
Martindale-Hubbell law directory. Each party shall select an arbitrator within
twenty (20) days after the effective date of the Arbitration Notice. A party
who fails to select an arbitrator within the prescribed 20-day period waives
the right to
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select an arbitrator, and the arbitrators chosen by the other party will
constitute the "arbitration panel" for purposes of this Agreement. If each
party selects an arbitrator, the two arbitrators so selected shall select the
third arbitrator.
Every mediator or arbitrator must be independent (not a lawyer
or relative of a party to this Agreement or an officer, director, employee, or
shareholder of the Employer) without any economic or financial interest of any
kind in the outcome of the mediation or arbitration. Each arbitrator's conduct
will be governed by the Code of Ethics for Arbitrators in Commercial Disputes
(1986) that has been approved and recommended by the American Bar Association
and the American Arbitration Association.
Within 60 days after the effective date of their election or
appointment, the arbitration panel shall convene a hearing for the dispute to
be held on such date and at such time and place in Broward County or Palm Beach
County, Florida, as the arbitration panel designates upon 45 days' advance
notice to the parties. The arbitration panel shall render its decision within
30 days after the conclusion of the hearing. The decision of the arbitration
panel will be binding and conclusive as to all the parties and, upon the
pleading of any party, any court having jurisdiction may enter a judgment of
any award rendered in the arbitration, which may include an award of any
damages. The arbitration panel shall hear and decide the dispute based on the
evidenced produced, notwithstanding the failure or refusal to appear by a party
who has been duly notified of the date, time and place of the hearing.
14. NON-ASSIGNABILITY OF BENEFITS. Neither the Employee, his
designated beneficiary nor any other beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate or
otherwise encumber any part or all of the amounts payable hereunder, which are
expressly declared to be unassignable and non- transferable. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement; the Employer shall thereupon have no further liability hereunder.
No amount payable hereunder shall, before actual payment thereof, be subject to
seizure by any creditor of any such beneficiary for the payment of any debt,
judgment or other obligation, by a proceeding at law or in equity, nor
transferable by operation of law in the event of the bankruptcy, insolvency or
death of the Employee, his designated beneficiary or any other beneficiary
hereunder.
15. AMENDMENT. This Agreement may not be amended, altered or
modified, except by a written instrument signed by the parties hereto or their
respective successors and may not be otherwise terminated except as provided
herein.
16. INUREMENT. This Agreement shall be binding upon and inure to
the benefit of the Employer and its successors and assigns, and the Employee,
his successors, heirs, executors, administrators and beneficiaries.
17. INTENDED TAX CONSEQUENCES. The parties acknowledge that it is
their intent that the Employee's Deferral Amount, the Employer's Additions and
any earnings thereon while held by the Trust will not be subject to income
taxes to the Employee until the Employee (or his Designated Beneficiary)
receives any amount hereunder and will not be deductible by the Employer until
payment hereunder. The Employee's Deferral Amount and the Employer's Additions
may be subject to employment taxes, with respect to which the Employer shall
report and withhold appropriately.
18. NOTICES. Any notice, consent or demand required or permitted
to be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party
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giving or making the same. If such notice, consent or demand is mailed to a
party hereto, it shall be sent by United States certified mail, postage
prepaid, addressed to such party's last known address as shown on the records
of the Employer. The date of such mailing shall be deemed the date of notice,
consent or demand.
19. GOVERNING LAW; VENUE. This Agreement, and the rights of the
parties hereunder, shall be governed by and construed in accordance with the
laws of the State of Florida. This Agreement shall be subject to the exclusive
jurisdiction of the courts of Broward County or Palm Beach County, Florida.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in Broward County or
Palm Beach County, Florida, and further irrevocably waive any claim that any
suit, action or proceeding brought in Broward County or Palm Beach County,
Florida has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in duplicate, as of the day and year first above written.
RAILAMERICA, INC.
ATTEST:/s/ Larry W. Bush By:/s/ Donald Redfearn
----------------- ------------------------
Ass't. Secretary EXECUTIVE VICE PRESIDENT
/s/ Gary O. Marino
---------------------------
GARY O. MARINO
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<PAGE> 57
NONQUALIFIED DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT, made and entered into as of this 3rd day of January,
1997, by and between RailAmerica, Inc., a corporation headquartered in Boca
Raton, Florida (the "Employer"), and John H. Marino, a resident of the State of
Virginia (the "Employee").
WHEREAS, the Employee has been employed by the Employer as its
President and Chief Operating Officer;
WHEREAS, the Employer recognizes the value of the services performed
by the Employee and wishes to encourage his continued employment;
WHEREAS, the Employee wishes to be afforded the opportunity to defer
payment of compensation until a future date and the Employer desires to
facilitate that goal and to also contribute an additional amount toward the
Employee's retirement pay;
WHEREAS, the parties hereto wish to provide the terms and conditions
upon which the Employee may defer compensation and the Employer may contribute
toward the Employee's retirement pay; and
WHEREAS, the parties hereto intend that this Agreement be considered
an unfunded arrangement, maintained primarily to provide deferred compensation
and retirement benefits for the Employee, a member of a select group of
management or highly compensated employees of the Employer, for purposes of the
Employee Retirement Income Security Act of 1974, as amended;
NOW, THEREFORE, in consideration of the premises and of the mutual
promises herein contained, the parties hereto agree as follows:
1. DEFERRAL OF COMPENSATION OR BONUS. Commencing with the date
of this Agreement, and continuing through the date on which the Employee's
employment terminates because of his death or any other cause, the Employee and
the Employer agree that the Employee shall be entitled to elect to defer any
percentage of the compensation that the Employee would otherwise be entitled to
receive from the Employer in each Fiscal Year of the Employer. In addition,
the Employee shall be entitled to elect to defer all or any portion of any
bonus that the Employer may award during or for any Fiscal Year.
2. ELECTION TO DEFER COMPENSATION. The Employee may elect to
defer compensation or bonus hereunder by filing a written notice to that effect
with the Employer, referred to as an Election of Deferral. Any such Election
of Deferral shall be made before the Employee has earned the right to the
compensation or bonus deferred and shall continue until changed in writing by
the Employee. Any change in the Employee's Election of Deferral shall be
effective with the first payment of compensation or bonus that the Employee
earns and that otherwise would be paid following delivery of notice of a change
in the Employee's Election of Deferral. Any amount of compensation or bonus
deferred shall be referred to as the "Deferral Amount."
3. TRANSFER OF DEFERRAL AMOUNT TO TRUSTEE. The Employer shall
transfer to the then acting trustee (the "Trustee") of the RailAmerica, Inc.
Nonqualified Deferred Compensation Trust (the "Trust") the Employee's Deferral
Amount, as soon as practical following the date that the Deferral Amount
otherwise would have been paid to the Employee but for the Employee's Election
of Deferral. The Deferral Amount shall thereafter be invested
<PAGE> 58
and reinvested by such trustee and paid from the Trust to the Employee, or his
designated beneficiary, in accordance with this Agreement and the Trust. The
Trust and any assets held by the Trust to assist it in meeting its obligations
hereunder will conform to the substantive terms of the trust described in
Internal Revenue Service Revenue Procedure 92-64.
4. EMPLOYER'S ADDITIONS TO DEFERRAL AMOUNT. In addition to the
Employee's Deferral Amount, the Employer also shall transfer to the Trust for
the Employee's benefit each calendar year at least $20,000, with the first
payment to be made as soon as practical following execution of this Agreement
and subsequent payments to be made during the first quarter of each subsequent
calendar year. This amount shall be referred to as the "Employer's Additions,"
shall be invested and reinvested by such trustee and paid from the Trust to the
Employee, or his designated beneficiary, in accordance with this Agreement and
the Trust.
5. EMPLOYEE'S DEFERRAL ACCOUNT.
a. DEFERRAL ACCOUNT ESTABLISHED UNDER TRUST. The Employee's
Deferral Amount, the Employer's Additions and the proceeds of the investment
and reinvestment of both, shall be credited to an account maintained by the
Trustee, called the Employee's Deferral Account, and shall be accounted for
separately so long as any amount remains to be paid to the Employee or his
beneficiary hereunder. The Employer shall cause the Trustee to provide to the
Employee periodically, and no less often than once every 12 months, a statement
of the Employee's Deferral Account that shows the current investment status of
the Employee's Deferral Account.
b. TRUST'S INVESTMENT OF DEFERRAL ACCOUNT IN INSURANCE
POLICY. As described in the agreement establishing the Trust, the Trustee may
also invest the assets of the Employee's Deferral Account in one or more life
insurance policies issued on the life of the Employee. If the Trustee elects
to invest all or any portion of the Deferral Account in any life insurance
policy issued on the life of the Employee, then the Employee agrees to assist
the Trustee in making application for any such policy by submitting to any
required physical examination and supplying any information necessary for
completion of such application. To the extent that the Trustee invests the
Deferral Account in any life insurance policy, the value of the Deferral
Account attributable to such investment shall be as provided under such life
insurance policy to the owner thereof. If the Trust elects to invest all or
any portion of the Deferral Account in any life insurance policy paying a death
benefit to the Employer upon the Employee's death, then the amount of any such
proceeds shall be deemed to have been paid to the Deferral Account and shall
increase the death benefit payable under Section 7 hereof to the Employee's
designated beneficiary.
6. TERMINATION BENEFIT. From and after the termination of the
Employee from the service of the Employer, the Trustee thereafter shall
distribute to the Employee's Deferral Account held under the Trust to the
Employee in 120 substantially equal monthly payments. The Employee at his sole
option may make an election before the date benefit payments begin from his
Deferral Account to receive his Deferral Account in equal monthly installment
payments over a shorter period or commencing at a later date than otherwise
would apply, or in a single payment. The election referred to in the preceding
sentence must be made at least 15 days before the date benefit payments are
scheduled to begin and shall be irrevocable. The first designated monthly
payment hereunder or the single payment, as the case may be, shall be due and
payable on the first business day of the second month following the Employee's
termination of employment. Subsequent monthly payments, if any, shall be made
on the first
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business day of each month thereafter for the applicable payment period. In
addition to the election referred to above, the Employee at his sole option at
least 15 days before each annual anniversary date of the commencement of
monthly payments hereunder also may make an election to receive the balance of
his Deferral Account in equal monthly installment payments over a shorter
period than otherwise would apply, or in a single payment. Notwithstanding the
foregoing, the Employer may at any time direct the Trustee to accelerate
payments to the Employee hereunder.
7. DEATH BENEFIT.
a. BEFORE PAYMENT OF TERMINATION BENEFIT BEGINS. In
event of the Employee's death before commencement of termination benefits
hereunder, the Employee's Deferral Account held under the Trust shall be paid
in 120 substantially equal monthly payment to the Employee's designated
beneficiary, in accordance with the last such designation received by the
Employer from the Employee before his death. Alternatively, the designated
beneficiary at his or her sole option may make an election before the date
benefit payments begin to receive monthly installment payments over a shorter
period or commencing at a later date than otherwise would apply, or in a single
payment. The election referred to in the preceding sentence must be made at
least 15 days before the date benefits payments are scheduled to begin and
shall be irrevocable. In any event, the first designated monthly payment or
the single payment, as the case may be, shall be due and payable on the first
business day of the second month following the Employee's death. Subsequent
monthly payments, if any, shall be made on the first business day of each month
thereafter for the applicable payment period. Notwithstanding the foregoing,
the Employer may at any time direct the Trustee to accelerate payments to the
Employee's designated beneficiary hereunder.
b. AFTER PAYMENT OF TERMINATION BENEFIT BEGINS. In the
event of the Employee's death after commencement of termination benefits
hereunder but before completion of all such payments due and owning hereunder,
the Trustee shall continue to make such payments, in equal monthly installments,
over the remainder of the period during which the Employee would have received
such payments, and at the time and in the same manner, had the Employee
survived, Such continuing payments shall be made to the Employee's designated
beneficiary, in accordance with the last such designation received by the
Employer from the Employee before his death. Notwithstanding the foregoing, the
Employer may at any time direct the Trustee to accelerate payments to the
Employee's designated beneficiary hereunder.
c. DESIGNATED BENEFICIARY. The Employee's designated
beneficiary shall be the person(s) named in accordance with the last such
designation received by the Employer from the Employee before his death. If no
such designation has been received by the Employer from the Employee before his
death, said payments shall be made to the Employee's surviving spouse, so long
as she shall live and thereafter to such person or persons, including her
estate, as the Employee's surviving spouse may appoint under her Will, making
specific reference hereto. If the Employee is not survived by a spouse or if
she shall fail to so appoint, then said payments shall be made to the then
living children of the Employee, if any, in equal shares, or to the survivor of
such children.
8. HARDSHIP BENEFIT. In the event the Employee suffers a
financial hardship (as hereinafter defined), the Trustee may, if it deems it to
be in the Employee's best interests, distribute to or on behalf of the Employee
as a hardship benefit (the "Hardship Benefit") any portion of the Employee's
Deferral Account attributable to the Employee's Deferral Amount, including
earnings thereon. Financial hardship shall mean an immediate and heavy
financial
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need of the Employee caused by temporary or permanent disability or incapacity
of the Employee or a dependent of the Employee, medical or educational expenses
of any dependent of the Employee, the purchase or maintenance of a residence of
the Employee or a dependent of the Employee, death of the Employee's spouse or
a material reduction in the Employee's family income (the Employee's and
spouse's income).
9. BENEFIT UPON CHANGE IN CONTROL OF EMPLOYER. In the event of a
Change of Control of the Employer, as defined herein, the Trustee immediately
shall distribute the Employee's Deferral Account held under the Trust to the
Employee in a lump sum. For purposes of this Agreement, Change of Control
shall mean (a) the purchase or other acquisition by any person, entity or group
of persons, within the meaning of section 13(d) or 14(d) of the Securities
Exchange Act of 1934 (the "Act"), or any comparable successor provisions, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Act) of 30 percent or more of either the outstanding shares of common stock or
the combined voting power of the Employer's then outstanding voting securities
entitled to vote generally, (b) the approval by the stockholders of the
Employer of a reorganization, merger, or consolidation, with respect to which
persons who were stockholders of the Employer immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own
more than 50 percent of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated Employer's
then outstanding securities, (c) a liquidation or dissolution of the Employer
or (d) the sale of all or substantially all of the Employer's assets.
10. ADDITIONAL PERMITTED DISTRIBUTION. In the event that the
Employer and the Employee enter into a salary continuation agreement, or the
Employer institutes a salary continuation plan covering the Employee, the
Employee shall be permitted to request distribution of all or a portion of the
Employee's aggregate Deferral Amount through the date of such agreement or
plan, and the Trustee shall make prompt distribution to the Employee pursuant
to such request. The Employee shall have a limited period of 30 days from the
date of such agreement or plan within which to request such a distribution from
the Trust.
11. NON-COMPETITION DURING EMPLOYMENT. In consideration of the
foregoing agreements of the Employer, the Employee hereby agrees that, so long
as he remains employed by the Employer, he will devote substantially all of his
time, skill, diligence and attention to the business of the Employer, and will
not actively engage, either directly or indirectly, in any business or other
activity which is or may be deemed to be in any way competitive with or adverse
to the best interests of the business of the Employer.
12. DETERMINATION OF BENEFITS, CLAIMS
PROCEDURE AND ADMINISTRATION.
a. REQUEST FOR BENEFIT. A person who believes that he
is being denied a benefit to which he is entitled under this Agreement
(hereinafter referred to as a "Claimant") may file a written request for such
benefit with the Employer, setting forth his claim. The request must be
addressed to the Chairman of the Board of Directors of the Employer at its then
principal place of business.
b. CLAIM PROCEDURE. Upon receipt of a claim, the
Employer shall advise the Claimant that a reply will be forthcoming within
ninety (90) days and shall, in fact, deliver such reply within such period.
The Employer may, however, extend the reply period for an additional ninety
(90) days for reasonable cause. If the claim is denied in whole or in part,
the Employer shall adopt a written opinion, using language calculated to be
understood by the
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<PAGE> 61
Claimant, setting forth: (a) the specific reason or reasons for such denial;
(b) the specific reference to pertinent provisions of this Agreement on which
such denial is based; (c) a description of any additional material or
information necessary for the Claimant to perfect his claim and an explanation
why such material or such information is necessary; (d) appropriate information
as to the steps to be taken if the Claimant wishes to submit the claim for
review; and (e) the time limits for requesting a review under subsection c and
for review under subsection d hereof.
c. REQUEST FOR REVIEW. Within sixty (60) days after the
receipt by the Claimant of the written opinion described above, the Claimant
may request in writing that the Secretary of the Employer review the
determination of the corporation. Such request must be addressed to the
Secretary of the Employer, at its then principal place of business. The
Claimant or his duly authorized representative may, but need not, review the
pertinent documents and submit issues and comments in writing for consideration
by the Employer. If the Claimant does not request a review of the
corporation's determination by the Secretary of the Employer within such sixty
(60) day period, he shall be barred and estopped from challenging the
Employer's determination.
d. DECISION ON REVIEW. Within sixty (60) days after the
Secretary's receipt of a request for review, he will review the Employer's
determination. After consideration of all materials presented by the Claimant,
the Secretary will render a written opinion, written in a manner calculated to
be understood by the Claimant, setting forth the specific reasons for the
decision and containing specific references to the pertinent provisions of this
Agreement on which the decision is based. If special circumstances require
that the sixty (60) day time period be extended, the Secretary will so notify
the Claimant and will render the decision as soon as possible, but no later
than one hundred twenty (120) days after receipt of the request for review.
13. BINDING ARBITRATION. If any dispute arises with respect to
this Agreement, each party shall use its best efforts to resolve the dispute
using the claims procedure provided above. If, after 30 days the dispute has
not been resolved, either party may elect to submit the dispute to mediation by
an independent certified circuit civil mediator selected jointly by the parties
by giving notice to the other party of its election to mediate (the "Mediation
Notice"). If a party elects to mediate a dispute, the other party must mediate
the dispute, although the result of the mediation will not be binding on either
party. The mediator shall convene a meeting of the parties to the dispute
within 60 days after his or her appointment.
Either party may elect to submit the dispute to binding
arbitration before a panel of arbitrators in accordance with the Florida
Arbitration Code and the Florida Evidence Code after the conclusion of the
mediation of the dispute by giving the other party a notice of arbitration in
accordance with section 12 (the "Arbitration Notice"). If the parties do not
resolve the dispute through mediation, arbitration will be the sole and
exclusive method of resolving the dispute. All parties must arbitrate the
dispute, and each party will be barred from filing a lawsuit concerning the
subject matter of the dispute, except to obtain an equitable remedy.
The parties shall select a mutually acceptable Florida
corporate lawyer who is rated "AV" by the Martindale-Hubbell law directory to
arbitrate the dispute. If within ten (10) days after the effective date of the
Arbitration Notice the parties are unable to select such an arbitrator, an
arbitration panel will be selected. The arbitration panel will consist of
three arbitrators selected by agreement of the parties. At least one of the
arbitrators must be a Florida corporate lawyer who is rated "AV" by the
Martindale-Hubbell law directory. Each party shall select an arbitrator within
twenty (20) days after the effective date of the Arbitration Notice.
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<PAGE> 62
A party who fails to select an arbitrator within the prescribed 20-day period
waives the right to select an arbitrator, and the arbitrators chosen by the
other party will constitute the "arbitration panel" for purposes of this
Agreement. If each party selects an arbitrator, the two arbitrators so
selected shall select the third arbitrator.
Every mediator or arbitrator must be independent (not a lawyer
or relative of a party to this Agreement or an officer, director, employee, or
shareholder of the Employer) without any economic or financial interest of any
kind in the outcome of the mediation or arbitration. Each arbitrator's conduct
will be governed by the Code of Ethics for Arbitrators in Commercial Disputes
(1986) that has been approved and recommended by the American Bar Association
and the American Arbitration Association.
Within 60 days after the effective date of their election or
appointment, the arbitration panel shall convene a hearing for the dispute to
be held on such date and at such time and place in Broward County or Palm Beach
County, Florida as the arbitration panel designates upon 45 days' advance
notice to the parties. The arbitration panel shall render its decision within
30 days after the conclusion of the hearing. The decision of the arbitration
panel will be binding and conclusive as to all the parties and, upon the
pleading of any party, any court having jurisdiction may enter a judgment of
any award rendered in the arbitration, which may include an award of any
damages. The arbitration panel shall hear and decide the dispute based on the
evidenced produced, notwithstanding the failure or refusal to appear by a party
who has been duly notified of the date, time and place of the hearing.
14. NON-ASSIGNABILITY OF BENEFITS. Neither the Employee, his
designated beneficiary nor any other beneficiary under this Agreement shall
have any power or right to transfer, assign, anticipate, hypothecate or
otherwise encumber any part or all of the amounts payable hereunder, which are
expressly declared to be unassignable and non- transferable. Any such
attempted assignment or transfer shall be void and shall terminate this
Agreement; the Employer shall thereupon have no further liability hereunder.
No amount payable hereunder shall, before actual payment thereof, be subject to
seizure by any creditor of any such beneficiary for the payment of any debt,
judgment or other obligation, by a proceeding at law or in equity, nor
transferable by operation of law in the event of the bankruptcy, insolvency or
death of the Employee, his designated beneficiary or any other beneficiary
hereunder.
15. AMENDMENT. This Agreement may not be amended, altered or
modified, except by a written instrument signed by the parties hereto or their
respective successors and may not be otherwise terminated except as provided
herein.
16. INUREMENT. This Agreement shall be binding upon and inure to
the benefit of the Employer and its successors and assigns, and the Employee,
his successors, heirs, executors, administrators and beneficiaries.
17. INTENDED TAX CONSEQUENCES. The parties acknowledge that it is
their intent that the Employee's Deferral Amount, the Employer's Additions and
any earnings thereon while held by the Trust will not be subject to income
taxes to the Employee until the Employee (or his Designated Beneficiary)
receives any amount hereunder and will not be deductible by the Employer until
payment hereunder. The Employee's Deferral Amount and the Employer's Additions
may be subject to employment taxes, with respect to which the Employer shall
report and withhold appropriately.
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<PAGE> 63
18. NOTICES. Any notice, consent or demand required or permitted
to be given under the provisions of this Agreement shall be in writing, and
shall be signed by the party giving or making the same. If such notice,
consent or demand is mailed to a party hereto, it shall be sent by United
States certified mail, postage prepaid, addressed to such party's last known
address as shown on the records of the Employer. The date of such mailing
shall be deemed the date of notice, consent or demand.
19. GOVERNING LAW; VENUE. This Agreement, and the rights of the
parties hereunder, shall be governed by and construed in accordance with the
laws of the State of Florida. This Agreement shall be subject to the exclusive
jurisdiction of the courts of Broward County or Palm Beach County, Florida.
The parties irrevocably waive, to the fullest extent permitted by law, any
objection which they may now or hereafter have to the laying of venue of any
suit, action or proceeding arising out of or relating to this Agreement, or any
judgment entered by any court in respect hereof brought in Broward County or
Palm Beach County, Florida, and further irrevocably waive any claim that any
suit, action or proceeding brought in Broward County or Palm Beach County,
Florida has been brought in an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
in duplicate, as of the day and year first above written.
RAILAMERICA, INC.
ATTEST:/s/ Larry W. Bush By:/s/ Donald Redfearn
---------------- ------------------------
Ass't. Secretary EXECUTIVE VICE PRESIDENT
/s/ John H. Marino
------------------------
JOHN H. MARINO
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<PAGE> 1
AGREEMENT FOR
SALE OF CERTAIN ASSETS, RIGHTS
AND OBLIGATIONS
OF
BURLINGTON NORTHERN RAILROAD COMPANY
TO
MINNESOTA NORTHERN RAILROAD, INC.
<PAGE> 2
AGREEMENT FOR
SALE OF CERTAIN ASSETS, RIGHTS
AND OBLIGATIONS
OF
BURLINGTON NORTHERN RAILROAD COMPANY
TO
MINNESOTA NORTHERN RAILROAD, INC.
TABLE OF CONTENTS
Page
----
<TABLE>
<S> <C> <C> <C>
1. Description of Business Sold. 2
2. Consideration for the Sale. 8
3. Governmental Approval. 12
4. Representations and Warranties. 12
5. Inspection and Condition of Rail Lines. 18
6. Liability and Indemnity. 19
7. Assignment; Seller's Right of First Refusal. 26
8. Obligations are Continuing. 27
9. Liens and Encumbrances. 28
10. Pending Public Works Projects. 29
11. Buyer to Offer to Hire Seller's Qualified Employees. 30
12. Closing. 30
13. Proration. 32
14. Interchange. 32
15. Car Hire Costs. 33
16. Liability Insurance. 34
17. Seller's Authority to Establish Through Routes
and Offer Through Routes. 35
18. Division of Revenue. 36
19. Transfer of Operations. 37
20. Collection of Revenue 37
21. Transfer of Liabilities; Payment of Charges. 39
22. Electronic Data Interchange. 39
23. Assignment of Freight Transportation Contracts. 40
24. Applicable Law. 40
25. Effect of Waiver. 40
26. Notices. 41
27. Confidentiality. 42
28. Entire Agreement; Integration of Agreement. 42
Exhibit A Quitclaim Deed
Exhibit B Bill of Sale
Exhibit C Agreements To Be Assigned To Buyer In Whole
Or In Part
Exhibit D Division Payments to Buyer
</TABLE>
<PAGE> 3
AGREEMENT FOR
SALE OF CERTAIN ASSETS, RIGHTS
AND OBLIGATIONS
OF
BURLINGTON NORTHERN RAILROAD COMPANY
TO
MINNESOTA NORTHERN RAILROAD, INC.
This Agreement is entered into as of this ______ day of November, 1996,
between BURLINGTON NORTHERN RAILROAD COMPANY, a Delaware corporation
(hereinafter referenced as "Seller"), and MINNESOTA NORTHERN RAILROAD, INC., a
Delaware corporation (hereinafter referenced as "Buyer").
WHEREAS, Seller desires to sell and convey to Buyer, on the terms and
conditions set forth in this Agreement, Seller's ownership interest in five rail
line segments located in northwest Minnesota, Seller's right to conduct rail
operations over the rail line between Erskine and Thief River Falls, Minnesota,
the rail freight transportation business which Seller conducts on these six rail
line segments, and certain other rights, obligations and assets as specified in
this Agreement; and
WHEREAS, Buyer desires to purchase, pursuant to the terms and
conditions set forth in this Agreement, Seller's interest in these five rail
line segments in northwest Minnesota, Seller's trackage rights over the
Erskine-Thief River Falls rail line, the rail freight transportation business
which Seller conducts on these six rail line segments, and certain other
assets, rights and obligations as specified in this Agreement.
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<PAGE> 4
NOW THEREFORE, Buyer and Seller agree as follows:
1. Description of Business Sold.
(a) Seller shall convey to Buyer, on the date of Closing, by a Quitclaim
Deed delivered to Buyer on the date of Closing, all of Seller's interest, except
as set forth in this Agreement and in the Quitclaim Deed, in the following five
rail line segments of Seller:
1. MN Junction - Ada, Minnesota, between Ada Subdivision Mileposts
80.25 and 47.0;
2. Redland Junction - Fertile, Minnesota, between Fertile
Subdivision Mileposts 65.7 and 45.1;
3. Tilden Junction - Red Lake Falls, Minnesota, between Grand Forks
Subdivision Mileposts 56.84 and 13.0 miles East;
4. MN Junction - Perley, Minnesota, between P line Subdivision
Mileposts 65.25 and 21.0 ("Perley Line"); and
5. St. Hilaire - Warroad, Minnesota, between Warroad Subdivision
Mileposts 11.0 and 104.0.
This conveyance shall be subject to the terms and conditions set forth in this
Agreement, the Bill of Sale and/or any agreement assigned by Seller to Buyer by
the terms of this Agreement, and the terms, conditions and reservations set
forth in the Quitclaim Deed, including Seller's retained interests, as specified
in more detail in the Quitclaim Deed, plus Seller's retention of certain related
parcels as specified in Attachment 1 of the Quitclaim Deed, for: (i) a
nonexclusive, permanent easement for construction,
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<PAGE> 5
maintenance and operation or one or more pipelines or fiber optics communication
lines, together with related facilities and appurtenances in, under, across,
along and through all of any portion of the rail line segments to be conveyed;
(ii) mineral rights and related permanent access easements; (iii) a nonexclusive
permanent right to use, develop and market water rights, together with related
permanent access, construction, maintenance and water pipeline rights; and (iv)
overhead trackage rights to provide rail freight service over the Perley Line,
on the following terms applicable to both Buyer and Seller:
(A) Seller shall provide to Buyer at least ten days' written notice of
Seller's commencement of operations of these trackage rights;
(B) Seller shall pay to Buyer a fee of $1.5 mils per gross ton mile
(lading and tare weight) for these trackage rights, this charge to be
full compensation to Buyer for Buyer's maintenance, replacement and
renewal of the Perley Line to the condition that the Perley Linen is
in on the date of this Agreement, Buyer's dispatching and operating
supervision of train movements over the Perley Line and all other
amounts due to Buyer for Seller's use of these trackage rights;
(C) Seller shall conduct all of its operations over these trackage rights
using Seller's trains, operated by Seller's employees, subject to
dispatching control and direction of Buyer.
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<PAGE> 6
(D) Buyer shall maintain the Perley Line to at least the condition the
Perley Line is in on the date of this Agreement.
(E) Seller shall have the right to require Buyer promptly to upgrade the
Perley Line, at Seller's sole expense, to standards and specifications
established by Seller.
The five rail line segments being sold, including Seller's related rail corridor
real property interests being conveyed, are described specifically in Attachment
1 to the Quitclaim Deed, set forth in Exhibit A attached hereto, and are
referenced hereinafter as "Rail Lines". Seller's retained trackage rights, as
described in item (iv) above, shall be referenced hereinafter as "Seller's
Trackage Rights."
(b) Seller shall convey to Buyer, effective on the date of Closing, the
rail freight transportation business which Seller conducts on the Rail Lines,
subject to the terms and conditions set forth in this Agreement, in the
Quitclaim Deed, the Bill of Sale and/or any agreement assigned by Seller to
Buyer by the terms of this Agreement.
(c) Seller shall convey to Buyer, on the date of Closing, by delivering to
Buyer on the date of Closing a Bill of Sale identical in form to the Bill of
Sale set forth in Exhibit B attached hereto, all of Seller's interest in all
rail, ties, spikes, tie plates, rail anchors, bridges, culverts, signalling
equipment, and other supporting structures, ballast, track materials and
supplies
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<PAGE> 7
(excluding any vehicles, maintenance equipment on wheels, radios or computer
equipment) that, on the date of the Closing, are not improvements that
constitute the Rail Lines, but which then are present on the real property
comprising the Rail Lines, and Seller shall leave behind all uninstalled rail
and other track material. This conveyance shall be subject to the terms and
conditions set forth in this Agreement, the Bill of Sale, the QuitClaim Deed
and/or any agreement assigned by Seller to Buyer by the terms of this Agreement.
(d) Seller shall grant to Buyer, effective on the date of Closing,
incidental trackage rights to operate overhead rail freight service only, for
the sole purposes of: (1) interchanging rail freight cars and equipment between
Buyer and Seller only at Seller's Crookston, Minnesota rail yard only; and (2)
moving locomotives, cars and equipment between the Rail Lines over Seller's
Grand Forks Subdivision rail line between Milepost 81.5, west of Crookston,
Minnesota, and Milepost 31.0 at Erskine, Minnesota, and also over all yard
tracks in Seller's Crookston, Minnesota rail yard. This line shall be referenced
in this Agreement as "Trackage Rights Line." Buyer may enter or leave the
Trackage Rights Line at Erskine, Tilden Junction, Redland Junction and MN
Junction. Buyer must block all traffic for Seller at Crookston into two blocks:
eastbound and westbound from Crookston. Buyer shall conduct all of its
operations over the Trackage Rights Line using Buyer's trains, operated by
Buyer's employees, subject to dispatching control and direction of Seller.
Seller shall
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<PAGE> 8
maintain the Trackage Rights Line as reasonably required.
(e) Seller shall assign to Buyer, effective on the date of Closing,
Seller's trackage rights authority and, subject to final Soo Line Railroad
Company consent, Seller's trackage rights agreement to operate over the Soo Line
Railroad Company between Milepost 273.0, at or near Erskine, Minnesota, and
Milepost 309.5, at or near Thief River Falls, Minnesota.
(f) Seller hereby assigned to Buyer, effective on the date of Closing,
subject to all terms and conditions set forth in this Agreement, the QuitClaim
Deed, the Bill of Sale and/or any agreement assigned by Seller to Buyer by the
terms of this Agreement, all assignable rights and obligations of Seller which
are performable after the Closing, to the extent that they are related to the
Rail Lines and are set forth in any agreement identified in Exhibit C attached
hereto. Buyer hereby accepts the assignment of all such rights and obligations,
effective on the date of Closing in accordance with their terms and the terms of
this Agreement. Seller, and not Buyer, shall be responsible for performing all
of Seller's duties in assigned agreements which are required to be performed on
or before the date of Closing. Buyer, and not Seller, shall be responsible for
performing all assigned duties in assigned agreements which are required to be
performed after the date of Closing. Seller reserves all rights and
obligations set forth in any agreement identified in Exhibit C to the extent
those rights are related to one or more other rail lines or property of Seller.
If any contract is related to the Rail
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<PAGE> 9
Lines and inadvertently is not identified in Exhibit C, Seller promptly shall
provide to Buyer a copy of any such contract immediately upon locating it, and
Buyer shall assume the rights and obligations in such contract to the extent
they are related to the Rail Lines, so long as such assumption does not
materially adversely affect Buyer or increase Buyer's risk in connection with
its ownership and operation of the Rail Lines. Buyer shall make no claim against
Seller arising out of any failure to obtain a consent to assignment from any
party to any agreement assigned by Seller to Buyer, in whole or in part. It is
the intent of both Seller and Buyer that all assignments of rights and
obligations related to the Rail Lines shall be effective on the date of Closing.
(g) Seller further agrees to transport for Buyer the locomotives that Buyer
will use to operate over the Rail Lines, at no charge to Buyer, so that Buyer
has sufficient locomotives to operate efficiently over the Rail Lines on the
day following the date of Closing.
(h) Seller agrees that, subject to agreement on times and conditions of
operation by Seller's local transportation management, Buyer on occasion may
operate only maintenance of way equipment or locomotives, but not any revenue
freight trains, over Seller's rail lines between Perley, Minnesota, and the
connection with Otter Tail Valley Railroad Company near Fargo, North Dakota,
such operation to be conducted by Buyer's employees, to be subject to Seller's
dispatching control and operating and safety rules, and to be subject to the
liability allocation provisions of Paragraph
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<PAGE> 10
6 that are applicable to Buyer's activities or operations on or near the
Trackage Rights Lines.
2. Consideration for the Sale.
(a) In consideration for Seller's sale of its interest in the Rail Lines,
and Seller's conveyance to Buyer of the other rights, interests and obligations
described in Paragraph 1 of this Agreement, Buyer agrees to all of the
following:
(1) To accept all transferred real and personal property "AS IS, WHERE
IS" and "with all faults", except for the specific representations and
warranties set forth in this Agreement, the Quitclaim Deed and the
Bill of Sale.
(2) To conduct rail freight transportation business on the Rail Lines for
as long as it is economically reasonable to do so.
(3) To pay Seller on the date of this Agreement, by certified check, an
earnest money deposit toward the purchase price, in the amount of
$180,000.00. This amount shall be applied at Closing toward the full
purchase price for Seller's assets, rights and obligations to be
conveyed to Buyer as set forth herein, of THREE MILLION, SIX HUNDRED
AND FIFTY THOUSAND DOLLARS ($3,650,000.00). Consequently, at Closing,
Buyer shall pay $3,470,000.00 by wire transfer to either: (i) Seller,
or (ii) Apex Property & Burlington Exchange, Inc. ("APEX"), Seller's
intended assignee of Seller's right to
-8-
<PAGE> 11
receive payment of the purchase price for the Rail Lines. The wire
transfer by Buyer shall be made in accordance with written wire
transfer instructions provided to Buyer by Seller. APEX is a qualified
intermediary within the meaning of Section 1031 of the Internal
Revenue Code of 1986, as amended, and Treasury Regulation Section
1.1031(k)-1(g). Seller intends to assign to APEX Seller's right to
receive payment of the purchase price for the Rail Lines, for the
purpose of Seller completing a tax-deferred exchange. Seller shall
retain the earnest money deposit as liquidated damages if for any
reason this transaction does not close on December 27, 1996 or some
earlier date agreed to by the parties in writing, except that Seller
shall not have the right to retain this deposit if this transaction
does not close because some event beyond Buyer's control, and despite
Buyer's best efforts to control such event and close this transaction,
occurs after November 26, which event either materially reduces the
value of the Rail Lines or materially adversely affects Buyer's
ability to operate over the Rail Lines.
(4) To cooperate with Seller with respect to any tax-deferred exchange,
and to execute such documents as may be required to effect any
tax-deferred exchange. Seller shall indemnify, defend and hold
harmless Buyer fully against all reasonable and necessary additional
costs, expenses, and liabilities which Buyer may incur as a
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<PAGE> 12
result of any tax-deferred exchange.
(5) To pay in addition to the purchase price all costs of Closing (except
Seller's cost of preparation of documents to be delivered at Closing),
including, but not limited to, any escrow and service fees, real
estate transfer taxes, excise taxes, recording fees and sales taxes
associated with this Agreement or any of the conveyances governed by
this Agreement.
(6) Because the purchase price for the Rail Lines does not include the
franchise value and going concern value to Seller of the traffic now
or in the future originating or terminating on or along the Warroad
Subdivision of the Rail Lines, Buyer agrees that, with respect to
traffic originating or terminating on or along the Warroad Subdivision
of the Rail Lines, in return for the lower purchase price set forth in
this Agreement and the right to use the trackage rights set forth in
Paragraph 1(d) of this Agreement, for each carload of traffic
originating or terminating on the Warroad Subdivision of the Rail
Lines, that Buyer interchanges to a railroad other than Seller, or
Seller's successor or affiliate, at either Warroad or Thief River
Falls, Buyer shall pay to Seller $600 per loaded car, adjusted as set
forth in Paragraph 18(b) of this Agreement.
(7) To submit to Seller monthly a report of all carloads originating and
terminating on the Warroad Subdivision of
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<PAGE> 13
the Rail Lines that Buyer interchanges to a railroad other than
Seller, or Seller's successor or affiliate, and also to permit Seller
to audit periodically Buyer's records to determine the number of
carloads originating or terminating on the Rail Lines that Buyer
interchanges to a railroad other than Seller or Seller's successor or
affiliate.
(8) Because the purchase price of the Rail Lines does not include any
payment to Seller for the franchise value and going concern value to
Seller or traffic now or in the future originating or terminating on
or along the Rail Lines, not to request, participate in, cooperate
with (except in compliance with subpoenas), or support any effort in
any legal or administrative proceeding to obtain the right to
interchange rail traffic, at any location other than Warroad or Thief
River Falls, Minnesota, directly with any railroad other than Seller
or Seller's successor or affiliate.
(9) Because the purchase price for the Rail Lines does not include any
payment to Seller for the franchise value and going concern value to
Seller of the traffic now or in the future originating or terminating
on or along the Rail Lines, not to build or allow to be built, or,
either directly or through any corporate affiliate, cooperate, finance
or participate in building, any track or track structures to connect
the Rail Lines to any railroad
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<PAGE> 14
other than Seller or Seller's successor or affiliate.
(b) This transaction and the consideration paid by Buyer is not divisable;
however, Buyer and Seller agree that the purchase price shall be allocated as
follows among the various assets being conveyed under the terms of this
Agreement:
<TABLE>
<S> <C>
Rail $ 2,400,000
Ties 800,000
Ballast 200,000
Land 250,000
----------
Total $ 3,650,000
</TABLE>
3. Governmental Approval.
(a) Buyer represents that Buyer is not a "rail carrier" within the meaning
of 49 U.S.C. Section 10102(2). Promptly following execution of this Agreement,
Buyer, at its sole expense, shall prepare and file such documents as may be
required to secure approval, or exemption from approval, of this transaction by
the Surface Transportation Board of the United State Department of
Transportation ("STB"), as appropriate. Buyer shall make all reasonable efforts
to obtain this approval or exemption in time for this transaction to close on
December 20, 1996. Buyer shall permit Seller to review prior to filing all
documents proposed by Buyer to be filed with the STB or any court to secure
legal approval or exemption of this transaction.
4. Representations and Warranties.
(a) Seller hereby represents and warrants to Buyer, and Buyer's successors
and assignees, the following facts, as of the date of this Agreement and as of
the date of Closing:
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<PAGE> 15
(1) Seller is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Delaware, and is qualified to
do business as a foreign corporation in the State of Minnesota;
(2) Seller has the corporate power and authority to enter into this
Agreement and carry out its obligations under this Agreement;
(3) The execution, delivery and performance of this Agreement have been
duly authorized and approved by all necessary corporate actions of
Seller, and no further corporate proceedings of Seller are required to
complete the transactions covered by this Agreement;
(4) All of Seller's obligations set forth in this Agreement constitute
legal, valid and binding obligations of Seller which are enforceable
against Seller in accordance with their terms, except to the extent
enforcement may be limited by bankruptcy, insolvency or reorganization
law;
(5) There is no provision in the Certificate of Incorporation or By-Laws
of Seller which prohibits the execution of this Agreement or
consummation of the transactions covered by this Agreement;
(6) The negotiations related to this Agreement have been handled by Seller
on its own behalf, without
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<PAGE> 16
intervention of any agent or other person, so that no party has a
valid claim on this basis for any finder's fee, brokerage commission,
or other similar payment in connection with any of the transactions
included in this Agreement;
(7) Seller has duly filed with the appropriate agencies of the United
States, the State of Minnesota, and appropriate local governments or
political subdivisions in Minnesota, all tax returns and reports
required to be filed; Seller either has paid in full, or will pay in
full as finally determined, and will indemnify and hold Buyer harmless
from, all taxes, interest, penalties, assessments or deficiencies
which are due for the period up to the date of Closing; and Seller
has made all withholdings of tax which are required to be made under
all applicable regulations of the United States, the State of
Minnesota, and local governments in Minnesota;
(8) To Seller's knowledge, there is no pending or threatened litigation or
arbitration proceeding, or administrative proceeding or
investigation, against or affecting the properties or assets
comprising the Rail Lines, or Seller's rights to conduct rail freight
transportation operations over the Rail Lines as Seller conducts those
operations on the
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<PAGE> 17
date of this Agreement, the result of which forseeably would
materially adversely affect Buyer's ability to conduct rail freight
transportation operations over the Rail Lines following the date of
Closing;
(9) Seller has received no written notice of any pending or threatened
civil, criminal, or administrative actions with respect to any
hazardous or toxic substance on or adjacent to the Rail Lines (as used
herein, "written notice" shall mean written notice delivered to either
Seller's Assistant Vice President - Environmental and Hazardous
Materials, or Seller's Director Environmental Remediation and Special
Projects, who are the people designated by Seller to receive notice of
such matters);
(10) The physical condition of the Rail Lines, and Seller's title to the
Rail Lines, will be sufficient on the date of Closing to enable Buyer
to conduct rail freight transportation operations over all or any
portion of the Rail Lines on the day following the date of Closing,
and the rail corridors described in Attachment 1 to Exhibit A
constitute continuous rail corridors between the endpoints of the Rail
Lines; and
(11) No representation or warranty by Seller in this Agreement contains any
untrue statement of a material fact, nor omits any material fact that
is necessary to make any representation or warranty not materially
misleading.
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(b) Buyer hereby represents and warrants to Seller, and Seller's
successors and assignees, the following facts as of the date of this Agreement
and as of the date of Closing, except where specifically noted to be as of the
date of Closing only:
(1) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and by the
date of Closing will be qualified to do business in the State of
Minnesota;
(2) Buyer has all requisite corporate authority to purchase Seller's
rights and properties which are conveyed to Buyer by this
Agreement; to enter into this Agreement; to conduct rail freight
transportation business on the Rail Lines (as of the date of
Closing only); and to perform all of Buyer's obligations under
this Agreement;
(3) The execution of this Agreement and consummation of the
transactions which are a part of this Agreement have been duly
authorized and approved by all necessary corporate actions by
Buyer, and immediately upon execution of this Agreement by
Buyer's authorized representative, all of Buyer's obligations set
forth in or referenced in this Agreement shall constitute legal,
valid and binding obligations of Buyer, or Buyer's successors or
assignees, which obligations are enforceable
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against Buyer in accordance with their terms against Buyer or
Buyer's successors or assignees;
(4) There is no provision in the Articles of Incorporation or By-Laws
of Buyer which prohibits the execution of this Agreement or
consummation of the transactions covered by this Agreement;
(5) As of the date of Closing only, Buyer shall have obtained all
legal authority which is necessary to enable Buyer lawfully to
conduct rail freight transportation operations over the Rail
Lines as a common carrier and under one or more rail freight
transportation contracts, commencing at 12:01 a.m. on the day
following the date of Closing;
(6) The negotiations related to this Agreement have been handled by
Buyer on its own behalf, without intervention of any agent or
party, and in such manner as not to give rise to any valid claim
by any party for any finder's fee, brokerage commission, or other
similar payment in connection with any of the transactions
included in this Agreement;
(7) Neither Buyer nor any of Buyer's equity owners or financing
sources, nor any of their partners, is a Class I railroad or
affiliated with a Class I railroad; and
(8) No representation or warranty by Buyer in this
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Agreement contains any untrue statement of a material
fact, nor omits any material fact that is necessary to make
any representation or warranty not materially misleading.
(5) Inspection and Condition of Rail Lines.
(a) By signing this Agreement, Buyer acknowledges that Buyer has inspected
the Rail Lines, including all improvements and structures on the Rail Lines.
Buyer further acknowledges that: (i) except as set forth in Paragraphs 4(a)(8),
4(a)(9), and 4(a)(10) of this Agreement, no representation has been made by
Seller to Buyer concerning the state or condition of the Rail Lines, or the age
of any improvements of the Rail Lines; (ii) Buyer has not relied upon any
statement or declaration of Seller, oral or in writing, as an inducement to
entering into this Agreement, other than as stated in the Agreement; and (iii)
the sole consideration for execution of this Agreement by Buyer is set forth in
this Agreement.
(b) EXCEPT AS SET FORTH IN PARAGRAPH 4(A) OF THIS AGREEMENT SELLER HEREBY
DISCLAIMS ANY REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED, AS TO THE
DESIGN OR CONDITION OF THE RAIL LINES, THEIR MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE RAIL
LINES, OR THE CONFORMITY OF THE RAIL LINES TO THEIR INTENDED USES. SELLER SHALL
NOT BE LIABLE TO BUYER FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
STRICT LIABILITY IN TORT) WITH RESPECT TO THE DESIGN, CONDITION, QUALITY,
SAFETY, MERCHANTABILITY, OR FITNESS FOR
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ANY PARTICULAR PURPOSE, OF THE RAIL LINES, OR THE CONFORMITY OF THE RAIL LINES
TO THEIR INTENDED USES. SELLER OFFERS, AND BUYER ACCEPTS, THE RAIL LINES IN "AS
IS, WHERE IS" AND "WITH ALL FAULTS" CONDITION, AND SUBJECT TO ALL LIMITATIONS ON
SELLER'S RIGHTS, INTEREST, AND TITLE TO THE PROPERTY COMPRISING THE RAIL LINES.
6. Liability and Indemnity.
(a) Cooperation in Defense. Buyer and Seller agree that, for three years
following the date of Closing, they will cooperate as necessary in defense of
any claim, demand, investigation or litigation arising out of Seller's or
Buyer's ownership or operation of the Rail Line.
(b) Definition of Losses. In this Agreement, the term "Losses" shall
include all costs, expenses, fees or liabilities of, or in any way related to:
(i) any violation of law or regulation, (ii) any damage to property, the
environment or natural resources, (iii) any bodily injury or death of any
person, or (iv) the breach of any contract, including this Agreement of the
extent set forth in this Agreement. "Losses" shall include, but not be limited
to, all costs of claims, activities in response to enforcement, costs of
investigation and remediation, damages, judgments, awards, orders, decrees,
payments, fines, penalties, assessments, court costs, and attorney, consultant
and expert witness fees, and shall include cost recovery or contribution claims
made pursuant to CERCLA or similar federal or state laws.
(c) General Liability and Indemnity.
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(1) Seller's General Liability and Indemnity. Except as provided in
Paragraph 6(d) of this Agreement (environmental liability),
Seller shall be responsible for, and shall indemnify, defend and
hold harmless Buyer fully against, all Losses, which: (i) arise
out of Seller's ownership or operation of the Rail Lines on or
prior to the date of Closing; (ii) result from any breach by
Seller of any of its representations and warranties set forth in
Paragraphs 4(a) and 9 of this Agreement, or, except as covered by
clause (iv) just below, any failure by Seller to perform any of
its obligations under this Agreement; (iii) result from claims of
third parties caused by Seller's performance or nonperformance,
or Buyer's nonperformance only where Buyer has no knowledge of
the existence of the duty to perform, under any material
contract, lease, permit, license, easement or commitment related
to the Rail Lines that is not identified in this Agreement or on
Exhibit C; or (iv) are directly related to Buyer's activities or
operations on the Trackage Rights Lines, or Seller activities or
operations on Seller's Trackage Rights, to the extent such losses
are proximately caused by Seller's negligence.
(2) Buyer's General Liability and Indemnity. Except as
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provided in Paragraph 6(d) of this Agreement, and further except for
Losses resulting from one or more of Seller's representations or
warranties set forth in this Agreement containing any untrue or
materially misleading statement of a material fact, or omitting any
material fact that is necessary to prevent that representation or
warranty from being materially misleading, Buyer shall be responsible
for, and shall indemnify, defend and hold harmless Seller fully
against, regardless of any negligence or alleged negligence of Seller,
all Losses which: (i) arise out of Buyer's ownership or operation of
the Rail Lines after 12:01 a.m. on the day following the date of
Closing; (ii) result from any breach by Buyer of any of its
representations or warranties set forth in Paragraph 4(b) of this
Agreement, or any failure by Buyer to perform any of its obligations
under this Agreement; (iii) result from claims of third parties caused
by Buyer's nonperformance or required performance under any material
contract, lease, permit, license, easement or commitment relating to
the Rail Lines, where that contract, lease, permit, easement or
commitment is identified in Exhibit C, or Buyer has specific knowledge
of it, but then only from the time Buyer acquired such specific
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knowledge, or (iv) arise out of, or are related or attributable
to any of Buyer's activities or operations on or near the
Trackage Rights Lines, or Seller's activities and operations on
Seller's Trackage Rights, except to the extent such losses are
proximately caused by Seller's negligence.
(d) Environmental Liability and Indemnity.
(1) Buyer's Acknowledgments with Respect to the Rail Lines. Buyer
acknowledges that Seller has provided Buyer with full access to
inspect the Rail Lines. Buyer further acknowledges that Seller
makes only those representations and warranties to Buyer
concerning the existence of any hazardous or toxic substances on
or near the Rail Lines, or compliance of the Rail Lines with any
statutes, ordinances, rules, regulations, orders or decisions
with regard to hazardous or toxic substances on or near the Rail
Lines, which are expressly set forth in Paragraph 4(a)(9) of this
Agreement.
(2) Seller's Environmental Liability and Indemnity. Notwithstanding
any other liability or indemnification provision in this
Agreement, Seller shall be responsible for, and shall indemnify,
defend and hold harmless Buyer (including its successors and
assignees) fully against, Losses
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incurred due to any claim, demand or litigation, to the extent it is
based on any violation or requirement of any applicable environmental
statute, ordinance, rule, regulation, order or decision, and the
Losses arise from: (i) any chemical, material or substance that is
now, or at the time in question is, regulated or governed by any law,
the release of which creates any liability under any applicable law;
or (ii) any other material which, when released, would cause
significant ecological damage (items described by (i) or (ii) above
are referenced hereinafter as "Hazardous Materials") located on, under
or near the Rail Lines, where such Losses:
(a) were caused by one or more acts of Seller that occurred on or
prior to the date of Closing; and
(b) result from any written claim made by a party other than Buyer or
one of Buyer's affiliates ("Claims") that is delivered to Seller
within three years following the date of Closing; and
(c) exceed $10,000 in the aggregate in any year.
(3) Buyer's Environmental Liability and Indemnity. As part of the
consideration for this Agreement, and notwithstanding any other
liability or indemnification provision in this Agreement, Buyer
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shall be responsible for, and shall indemnify, defend, and hold
harmless Seller fully against, regardless of any negligence or
alleged negligence of Seller, Losses incurred due to any claim,
demand or litigation, to the extent it is based on any violation
or requirement of any applicable environmental statute,
ordinance, rule, regulation, order or decision, and the Losses
arise from any Hazardous Materials located on, under or near the
Rail Lines, where such Losses either:
(a) were not caused by Hazardous Materials located on, under or
near the Rail Lines or prior to the date of Closing; or
(b) regardless of cause, do not result from a Claim delivered to
Seller within three years following the date of Closing; or
(c) were not caused by one of more acts of Seller that occurred
prior to the date of Closing and result from a Claim
delivered to Seller within three years of the date following
Closing, but only up to $10,000 in the aggregate in any
year.
Buyer also shall be responsible for, and shall indemnify, defend
and hold harmless Seller fully against, Losses incurred due to
any claim, demand or litigation, to the extent it is based on any
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violation of any applicable environmental statute, ordinance,
rule, regulation, order or decision, and the Losses arise from
any Hazardous Materials on or near the Trackage Rights Line, to
the extent such Losses arise out of, or are attributable to, any
of the Buyer's activities or operations on or near the Trackage
Rights Lines, except to the extent such Losses are proximately
caused by Seller's negligence.
(4) Arbitration of Allocation of Liability Between Buyer and Seller.
Any dispute between Seller and Buyer as to allocation between
them of Losses for which both Seller and Buyer are responsible
under the terms of this Paragraph 6 shall be settled by binding
arbitration in accordance with the rules of the American
Arbitration Association.
(5) Buyer To Comply With Hazardous Materials Laws. Buyer agrees to
comply with all federal, state and local laws, regulations and
rules concerning handling and disposal of Hazardous Materials in
connection with Buyer's ownership of, and activities on, the Rail
Lines.
(6) Liability Remedies and Obligations Are Exclusive. Buyer and
Seller agree that the remedies and obligations set forth in this
Paragraph 6 shall be exclusive remedies and obligations of each
one to
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the other with respect to any Losses relating to the release or
existence of Hazardous Materials on or near the Rail Lines.
(e) Seller to Deliver Property Records to Buyer. Seller shall deliver to
Buyer, on or soon following the date of Closing, originals or copies of whatever
records, prints, archival information, or other evidence Seller locates in a
reasonable search of Seller's records, which bears upon the use of, maintenance,
or title to the real estate comprising the Rail Lines during the time the Rail
Lines were operated by Seller as a common carrier lines of railroad. If, at any
time after Closing, Seller locates any other documents which bear upon the use
of, maintenance, or title to the real estate comprising the Rail Lines, Seller
promptly shall provide originals or copies of those documents to the Buyer.
7. Assignment; Seller's Right of First Refusal.
(a) Buyer shall not assign this Agreement, or any rights or obligations
under this Agreement, to another railroad, or any party or individual who at the
time of the assignment is affiliated with or working for another railroad,
without the prior written consent of Seller. Any assignee, including any
successor in interest, of Buyer's or Seller's rights under or property acquired
by this Agreement, shall assume in writing all of Buyer's or Seller's continuing
and existing or thereafter arising obligations under this Agreement, and under
any then effective contract assigned by
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Seller to Buyer, in whole or in part, in accordance with the terms of this
Agreement, which obligations are related to the property or rights involved in
the assignment.
(b) Any subsequent agreement by Buyer to sell the Rail Lines, any
individual Rail Line, or any portion of any Rail Line route (i.e. any real
estate within 15 feet of any main line track) that has not been abandoned
pursuant to applicable STB procedures, must contain the effective right for
Seller to purchase from Buyer the Rail Lines or portions being sold on the same
basis as that set forth in the subsequent sale agreement. Buyer shall deliver
to Seller a copy of the executed subsequent sale agreement within seven days
following its execution. After receiving such copy, Seller shall have thirty
days to accept or reject purchase of the Rail Lines or portions being sold. If
Seller, at any time during these thirty days, offers in writing to purchase
from Buyer the Rail Lines or portions being sold, on the same basis as that set
forth in the subsequent sale agreement, Buyer, within seven days, shall accept
such offer, and within thirty days thereafter, shall convey such property to
Seller.
8. Obligations are Continuing.
The representations, warranties and obligations of Buyer and Seller in this
Agreement are continuing and survive the Closing, and delivery of the Quitclaim
Deed. Terms of continuing obligations in this Agreement are subject to amendment
only by a written contract signed by both Buyer and Seller, or their
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respective successors or assignees.
9. Liens and Encumbrances.
The Rail Lines are subject to four general mortgages of Seller: (i) the
Prior Lien Mortgage, dated November 10, 1896, between Northern Pacific Railway
Company and The Mercantile Trust Company, as supplemented; (ii) the General Lien
Mortgage, dated November 10, 1896, between Northern Pacific Railway Company and
The Mercantile Trust Company, as supplemented; (iii) General Gold Bond Mortgage,
dated January 1, 1921, between Great Northern Railway Company and The First
National Bank of the City of New York, as supplemented; and (iv) Consolidated
Mortgage, dated March 3, 1970, between Burlington Northern, Inc., and Morgan
Guaranty Trust Company of New York, as supplemented (collectively, "Mortgages").
Seller shall deliver to Buyer, within 30 days after the date of Closing,
executed releases of the Rail Lines from the liens of the Mortgages. Seller
shall pay the amount demanded by any of the Mortgages' Trustees as required to
deliver executed releases of the Rail Lines from the liens of the Mortgages
within 30 days after the date of Closing. Until such releases are delivered to
Buyer, Seller shall indemnify Buyer, and the party lending to Buyer the purchase
price for the Rail Lines, against any Losses that Buyer incurs after Closing
which result from Seller not yet having delivered to Buyer executed releases of
the Rail Lines from the liens of the Mortgages. Seller represents, warrants and
covenants that, to the best of Seller's current knowledge, other than the liens
of the Mortgages, Seller has not caused or suffered, and will not cause or
suffer prior to the date of Closing, any liens or encumbrances to be filed
against the Rail Lines which would
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materially adversely affect Buyer's ability to conduct rail freight
transportation operations on the Rail Lines on the day following the date of
Closing. Buyer agrees to take title to the Rail Lines subject to all liens and
encumbrances on the Rail Lines, except for the liens that would violate one or
more of Seller's representations and warranties in Paragraph 4(a) or this
Paragraph. Other than the Mortgages, the only encumbrances on the Rail Lines of
which Seller is aware are related to the agreements identified in Part I of
Exhibit C, attached hereto, and may encumber the Rail Lines on the terms and
conditions set forth in those agreements. If, other than the Mortgages, there is
a lien for payment of money that exists as of the date of Closing, and Buyer
notifies Seller in writing that there is a lien, Seller will release the lien
within 30 days of the date Seller receives such notice, or indemnify Buyer for
any harm to Buyer that results from Seller's failure to so release any such
lien.
10. Pending Public Works Projects.
Seller shall notify Buyer prior to closing of all pending public works
projects on the Rail Lines of which Seller is aware. Seller shall pay the
railroad's share of the cost of whatever work is performed on pending public
works projects before the date of Closing, and Buyer shall pay the railroad's
share of the cost of whatever work is performed on these projects after the date
of Closing. Any payments received by Buyer or Seller from any government body
for a pending public works project shall be
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apportioned on the basis that Seller shall receive that share of the payments
applicable to work performed on these projects prior to date of Closing, and
Buyer shall receive that share of the payments applicable to work performed on
these projects after the date of Closing. Buyer shall be responsible to
determine who owns materials present on the Rail Lines in connection with
pending public works projects.
11. Buyer to Offer to Hire Seller's Qualified Employees.
Buyer shall attempt to interview for employment positions on the Rail
Lines all of Seller's employees who are eligible to work on the Rail Lines on
the date of this Agreement. Buyer shall give priority hiring consideration
to employees of Seller who work on the Rail Lines and are representated by the
Brotherhood of Maintenance of Way Employee. Buyer shall offer to hire, at
salary levels and other terms and conditions of employment that are determined
by Buyer to be appropriate, all of those employees who Buyer, in Buyer's
discretion, determines to be qualified and needed by Buyer. Buyer promptly
shall notify Seller of the name of each of Seller's current employees who Buyer
offers to hire, and also the name of each of these employees who Buyer actually
hires. Buyer shall assume a neutral stance in any Brotherhood of Maintenance of
Way Employee union organizing effort.
12. Closing.
(a) The closing of this transaction shall occur on December
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27, 1996, or an earlier date mutually agreeable to the parties (referenced
herein as "Closing").
(b) At Closing, Seller shall deliver to Buyer the following documents:
(1) A sufficient number of original counterparts of an executed
Quitclaim Deed to the Rail Lines, in exact form as the Quitclaim
Deed attached hereto as Exhibit A, to enable Buyer to file an
original Quitclaim Deed in each county in which the real property
comprising the Rail Lines as located;
(2) An executed Bill of Sale in exact form as the Bill of Sale
attached hereto as Exhibit B;
(3) A copy of Seller's Articles of Incorporation and By-Laws; and
(4) An opinion of counsel for Seller to Buyer with respect to those
items represented by Seller to Buyer in Paragraphs 4(a)(1),
4(a)(2), 4(a)(3), 4(a)(4), 4(a)(5) and 4(a)(8) of this Agreement.
(c) At Closing, Buyer shall deliver to Seller:
(1) A copy of Buyer's Articles of Incorporation and By-Laws;
(2) A Certificate of Insurance establishing that Buyer has effective
liability insurance meeting the requirements of Paragraph 16 of
this Agreement; and
(3) An opinion of counsel for Buyer to Seller with respect to those
items represented by Buyer to
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Seller in Paragraphs 4(b)(1), 4(b)(2), 4(b)(3), 4(b)(4) and
4(b)(5) for this Agreement.
(d) At Closing, Buyer shall deliver to Seller or APEX, as designated by
Seller, the balance of the purchase price, or $3,470,000, as set forth in
Paragraph 2 of this Agreement.
(13) Proration.
Real estate taxes, prepaid rentals, utilities, and other income or fees
attributable to the Rail Line interests transferred to Buyer under the terms of
this Agreement, shall be prorated between Seller and Buyer in such manner as to
allocate to Seller all income, taxes and expenses attributable to the Rail Lines
on or prior to the date of Closing, and to allocate to Buyer all income, taxes
and expenses attributable to the Rail Lines after the date of Closing. The sum
paid by Buyer to Seller or Apex at Closing shall not be adjusted based on this
proration, but payment settling in full all prorated items shall be made no
later than 60 days following the date of Closing.
(14) Interchange.
(a) Buyer and Seller shall interchange rail freight cars and equipment to
and from each at the Crookston, Minnesota rail yard. All of Seller's
yard tracks at the Crookston, Minnesota rail yard shall be referenced
hereinafter as "Interchange Tracks".
(b) Cars and their contents that are delivered by one party
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to the other an Interchange Track shall be deemed to be in the
possession of the receiving party as of the time they are placed on the
Interchange Track and uncoupled from the delivering party's train or
engine, except that if any such car is rejected by the receiving party
under the Interchange Rules of the Association of American Railroads
("AAR") or any successor rules, the refused car shall be deemed to
remain in the possession of the delivering party until that car is
accepted by the receiving party.
15. Car Hire Costs.
The party in possession of any car shall be responsible for all car hire
costs, per diem expenses and mileage allowances payable with respect to such
car, for any per diem charges for trailers or containers carried by such car, or
for any equipment use charges applicable to any RoadRailer equipment or similar
carless intermodal technology, except that Seller agrees that Buyer shall be
entitled to per diem relief in connection with all loaded and empty rail
equipment moving in rail freight transportation service and interchanged between
Buyer and Seller on an Interchange Track, according to the following schedule:
(a) Three days of per diem relief at the stations of Wilds and Halstead,
Minnesota;
(b) Five days of per diem relief at the station of St. Hilaire, Minnesota
and on the MN Junction-Perley,
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Minnesota rail line (except at Wilds and Halstead) and
Tilden Junction-Red Lake Falls, Minnesota rail line; and
(c) Seven days of per diem relief on the MN Junction-Ada,
Minnesota, Redland Junction-Fertile, Minnesota and St.
Hilaire-Warroad, Minnesota (except at St. Hilaire) rail
lines.
Seller shall make reasonable efforts to make freight cars available at Buyer's
request on an Interchange Track, as needed by Buyer, on a non-discriminatory
basis between Seller's car needs on similar rail lines and Buyer's shippers' car
needs.
16. Liability Insurance.
(a) For so long as Buyer conducts any activities on or near the Trackage
Rights Line, Buyer shall maintain a comprehensive general form of insurance
covering liability in connection with any of Buyer's activities or operations on
or near the Trackage Rights Line, including but not limited to Public Liability,
Personal Injury and Property Damage, Federal Employers Liability Act Liability,
Bill of Lading and Foreign Rolling Stock Liability, and Contractual Liability,
with such limits (consistent with the terms set forth below), deductibles and
exclusions as Seller may agree are satisfactory, provided however, that: (i)
such limits shall not be less than $2 million per occurrence or $4 million in
the aggregate, except on the Erskine-Thief River Falls line of Soo Line Railroad
Company, where such limits shall not be less than $10
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million per occurrence and $10 million in the aggregate; and (ii) policy terms
shall not exclude or limit coverage where activities or operations are on
or near railroad tracks. Seller shall be named as an ADDITIONAL INSURED on such
liability insurance policy. Such liability insurance must be purchased from an
insurance company licensed to do business in Minnesota, and possessing a
current Best's Insurance Guide Rating of B and Class X, or better.
(b) Buyer shall provide Seller with evidence of its liability insurance
coverage at Closing, with copies of its insurance policies and any amendments,
as soon as they are available, and with evidence of continued insurance coverage
on January 1 and July 1 of each year. Buyer's failure to provide such evidence,
within 7 days of any request therefore, shall entitle Seller to purchase such
liability insurance, and withhold from the divisions payment forwarded to Buyer
the cost of this insurance.
17. Seller's Authority to Establish Through Routes and Offer Through
Routes.
Buyer and seller agree that, for ninety-nine years following the date of
Closing, Seller shall have authority to establish through routes and offer
through freight rates via through routes involving both Buyer and Seller with
interchange between Buyer and Seller at Crookston, Minnesota. Seller shall
specify junctions and routes for all such traffic, effective the day following
the date of Closing. For this same ninety-nine year period, Buyer automatically
concurs in all such through rates established by Seller, whether for present or
future freight traffic, so long as
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Buyer shall receive for transporting the traffic the division of revenues that
is set forth in Paragraph 18 of this Agreement.
18. Division of Revenue.
(a) Buyer and Seller agree that, for so long as Seller establishes through
freight rates for interline freight transportation service involving both Buyer
and Seller, the through revenue accruing on all existing and future carload
traffic movements originating or terminating on or along the Rail Lines, and
interchanged between Buyer and Seller at Crookston, Minnesota, shall be
divided between Buyer and Seller as shown in Exhibit D.
(b) For twenty-five (25) years following the date of Closing, the divisions
set forth in Paragraph 18(a) shall be adjusted annually, commencing as of
January 1, 1998, based on 50% of the increase or decrease between the fourth
calendar quarter of 1997 compared to the fourth quarter of 1996, in the Rail
Cost Adjustment Factor, unadjusted for productivity (or, if it ceases to be
used, some similar rail cost index), and thereafter as of each January 1, based
on the 50% of increase or decrease (but for the first three years not any
decrease) in the Rail Cost Adjustment Factor in the fourth calendar quarter of
the preceding calendar year, compared to the fourth calendar quarter of the year
before that. After January 1, 2003, if this index does not adequately allow
Buyer to recover its reasonable cost increases, then Buyer and Seller shall meet
to determine whether to adjust Buyer's division, and if they cannot agree, an
arbitrator acceptable to both parties shall determine
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whether an additional increase is appropriate and what that increase shall be.
Similarly, after January 1, 2003, if this index overstates Buyer's reasonable
cost increases, or understates Buyer's reasonable cost reductions per car, then
Buyer and Seller shall meet to determine whether to adjust Buyer's division, and
if they cannot agree, an arbitrator acceptable to both parties shall determine
whether a reduction in Buyer's division is appropriate and what that reduction
shall be. Any decision of an arbitrator with respect to these issues shall be
binding on both Buyer and Seller. After December 6, 2021, further changes in
Buyer's divisions shall be subject to mutual agreement between Buyer and Seller.
(c) Nothing in this Agreement shall preclude Seller and Buyer from
negotiating and mutually agreeing to different divisions than those specified in
this Paragraph. Divisions of revenue shall be paid only where Seller earns
linehaul revenues for a shipment. Buyer shall not impose any surcharge on any
traffic without Seller's prior written consent.
19. Transfer of Operations.
All rail operations on the Rail Lines shall be transferred from Seller to
Buyer at 12:01 a.m. on the day following the date of Closing.
20. Collection of Revenues.
(a) Seller shall submit freight bills or interline
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settlements for, and shall collect, all revenues due for movements over the Rail
Line of all shipments moved through Crookston, Minnesota, on or before the date
of Closing. Seller shall assess and collect all charges due for all switching
services performed on the Rail Lines on or before the date of Closing. Seller
shall assess and collect all demurrage and miscellaneous charges relating to car
supply and other services performed on the Rail Lines on or before the date of
Closing.
(b) Except as otherwise provided by freight transportation contracts, all
shipments which move through Crookston, Minnesota, after 12:01 a.m. on the day
following the date of Closing shall be settled between Buyer and Seller on the
basis of a modified junction settlement plan, with Seller paying division of
revenue payments to Buyer on a weekly basis within five working days following
the date on which Seller issues the revenue waybill for the movement. Seller
shall submit freight bills for, and shall collect all revenues due for, all
shipments originating or terminating on the Rail Lines and interchanged between
Seller and Buyer, including all prepaid shipments that originate on the Rail
Lines, and all collect shipments that terminate on the Rail Lines, except for
shipments where Seller does not receive line haul revenues. Seller has the right
to grant, or refuse to grant, credit to any customer on the Rail Lines
concerning any such shipments. Buyer shall assess and collect all charges due
for all switching services performed on the Rail Lines at and after 12:01 a.m.
on the day following the date of Closing. Buyer shall assess and collect
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<PAGE> 41
all demurrage and miscellaneous charges relating to car supply and other
services performed on the Rail Lines at and after 12:01 a.m. on the day
following the date of Closing.
21. Transfer of Liabilities; Payment of Charges.
For the period before and including the day of Closing, Seller shall be
responsible for: (a) all common carrier rail operations, including car supply,
on the Rail Lines; (b) any freight loss and damage claims attributable to rail
operations over the Rail Lines; and (c) all car accounting and all car hire and
car mileage allowance payments relating to rail operations over the Rail Lines.
At and after 12:01 a.m. on the day following the date of Closing; Buyer shall be
responsible for: (d) all common carrier rail operations, including car supply,
on the Rail Lines; (e) any freight loss and damage claims attributable to rail
operations over the Rail Lines; and (f) all car accounting and all car hire and
car mileage allowance payments relating to rail operations over the Rail Lines.
22. Electronic Data Interchange.
Within nine months following the date of Closing, Buyer must have the
ability to send and receive electronically waybills, advanced consists, and
bills of lading; as well as Train II reports and passing/placement reportings
for performance purposes. Transaction reporting should be at industry standard
levels or one level behind.
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<PAGE> 42
23. Assignment of Freight Transportation Contracts.
The parties agree that, notwithstanding any other provision of this
Agreement, the only freight transportation contracts to be assigned by this
Agreement are: (a) freight transportation contracts that apply to traffic moving
to or from facilities on or along the Rail Lines; or (b) freight transportation
contracts with or involving shippers or receivers that have facilities on or
along the Rail Lines, and which would apply to one or more shipments to or from
a facility on or along the Rail Lines. Seller agrees to send on the date of
Closing to each shipper (or consignee), and each railroad, who is a party to any
freight transportation contract involving any existing or potential freight
traffic movement to or from any rail origin or destination on the Rail Lines, a
Notice of Assignment, advising those parties of the following: (i) the
occurrence of this sale; (ii) the fact that all rates and service (and in the
case of other railroads, revenue divisions) terms in each such contract will
remain the same; and (iii) the fact that Buyer will replace Seller as the party
responsible for all rail service to be performed over all or any portion of the
Rail Lines under each such contract.
24. Applicable Law.
This agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
25. Effect of Waiver.
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<PAGE> 43
Any waiver by either Buyer or Seller, or failure of either Buyer or Seller
to insist upon full and complete performance by Seller or Buyer of its
obligations set forth in this Agreement, shall not constitute a waiver or
release of such party's right to insist upon full and completed performance of
any other obligations in this Agreement, or a waiver or release of such party's
right to insist upon full and complete performance of the obligations that were
waived or not enforced for periods prior to, or following, the waiver or failure
to insist upon full and complete performance. This Agreement shall be amended or
modified only by written agreement signed by the parties hereto.
26. Notices.
All notices and other communications under this Agreement shall be in
writing and deemed properly served if delivered by hand to the party addressed
or, if mailed, when received by the United States Postal Service in registered
or certified mail, postage prepaid, or, if sent by a national overnight service,
when received by the carrier service in a prepaid mailer, return receipt
requested, addressed as follows:
Seller: Mr. Jerome M. Johnson
Assistant Vice President
Asset Planning & Rationalization
Burlington Northern Railroad Company
777 Main Street
Fort Worth, Texas 76102-5384
Buyer: Mr. Gary Marino
Rail America, Inc.
301 Yamato Road, Suite 1190
Boca Raton, Florida 33431
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<PAGE> 44
with a copy to:
Jack Conser
Rail America, Inc.
Huron & Eastern Railway Company, Inc.
3720 E. Washington Road
Saginaw, Michigan 48601
Either party hereto may change its address or addressee to which notices are to
be given by providing written notice of the change to the other party.
27. Confidentiality.
Except to the extent that the terms of this Agreement are required to be
disclosed by the STB, by order of any court of competent jurisdiction or any
governmental agency, or by parties involved in financing this purchase, each
party to this Agreement shall not disclose the contents of this Agreement to any
other party, without the prior written consent of the other party to this
Agreement. Any party who learns of any of the terms of this Agreement shall be
required by the party to this Agreement who is disclosing the information not to
disclose those terms to any other party without the prior written consent of
both parties to this Agreement. The parties agree to a joint press release
acknowledging this transaction at closing.
28. Entire Agreement; Integration of Agreement.
This document, together with all Exhibits attached hereto, constitutes the
entire agreement between Buyer and Seller relating to this transaction. Any
other prior or contemporaneous
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<PAGE> 45
agreements, understandings, representations or statements, whether oral or
written, relating to this transaction are merged herein. The headings and titles
to provisions in this Agreement are for convenience only, and shall not be
deemed to modify or affect the rights or duties of Buyer or Seller. All rights
and obligations of Buyer and Seller set forth in this Agreement, or in any
Exhibit attached hereto, are integral parts of this Agreement. The consideration
inducing Buyer and Seller to enter into this Agreement includes all of the
commitments by Buyer to Seller, and by Seller to Buyer, as set forth in this
Agreement, including terms set forth in the Exhibits attached hereto.
IN WITNESS WHEREOF, authorized representatives of the parties have executed
this agreement as of this ____ day of November, 1996.
BURLINGTON NORTHERN ------------------------
RAILROAD COMPANY MINNESOTA NORTHERN
RAILROAD, INC.
By:/s/ Douglas J. Babb By:/s/ Gary O. Marino
-------------------------- ---------------------
Title: Senior Vice President Title: President
and Chief of Staff
-43-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,879,972
<SECURITIES> 0
<RECEIVABLES> 4,575,958
<ALLOWANCES> 0
<INVENTORY> 3,104,555
<CURRENT-ASSETS> 12,023,352
<PP&E> 54,148,966
<DEPRECIATION> 0
<TOTAL-ASSETS> 71,564,786
<CURRENT-LIABILITIES> 6,940,010
<BONDS> 38,401,119
0
0
<COMMON> 6,125
<OTHER-SE> 15,985,982
<TOTAL-LIABILITY-AND-EQUITY> 71,564,786
<SALES> 13,637,978
<TOTAL-REVENUES> 25,658,241
<CGS> 10,447,827
<TOTAL-COSTS> 21,785,374
<OTHER-EXPENSES> 8,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,078,383
<INCOME-PRETAX> 1,785,842
<INCOME-TAX> 705,405
<INCOME-CONTINUING> 1,080,437
<DISCONTINUED> (575,558)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504,879
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
