<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 2000
REGISTRATION STATEMENT NO. 333-45200
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
RAILAMERICA, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Delaware 65-0328006
------------------------------ ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Gary O. Marino
Chairman, Chief Executive Officer and President
RailAmerica, Inc. RailAmerica, Inc.
5300 Broken Sound Blvd., N.W. 5300 Broken Sound Blvd., N.W.
Boca Raton, Florida 33487 Boca Raton, Florida 33487
(561) 994-6015 (561) 994-6015
----------------------------------------------------------------- ---------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices) Include Area Code, of Agent for Service)
</TABLE>
COPIES OF COMMUNICATIONS TO:
Fern S. Watts, Esq.
Greenberg Traurig, P.A.
1221 Brickell Avenue
Miami, Florida 33131
(305) 579-0500
(Facsimile) (305) 579-0717
--------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
--------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
PROSPECTUS
RAILAMERICA, INC.
COMMON STOCK
WARRANTS TO PURCHASE COMMON STOCK
THE OFFERING:
o This prospectus relates to the resale of up to 130,000 warrants to
purchase shares of our common stock by the holders named under the
heading "Warrantholders" in this prospectus or in an accompanying
supplement to this prospectus.
o This prospectus also relates to the issuance and sale of up to
1,411,414 shares of our common stock which are initially issuable upon
the exercise of the warrants, plus a presently indeterminable number of
shares of our common stock, if any, as shall be issuable from time to
time as required pursuant to adjustments under the warrants.
o All of the warrants and shares of our common stock being registered may
be offered and sold from time to time by the named holders.
USE OF PROCEEDS:
o We will not receive any proceeds from the sale of warrants or the
shares of our common stock by the selling holders, other than payment
of the exercise price of the warrants.
TRADING MARKET:
o There is no public market for the warrants. We do not intend to apply,
and are not obligated to apply, for listing of the warrants on any
securities exchange or any automated quotation system.
o Our common stock is listed and quoted on the Nasdaq National Market
under the symbol "RAIL."
OFFERING EXPENSES:
o We have agreed to bear specific expenses in connection with the
registration and sale of the warrants and underlying shares of common
stock being offered by the selling holders.
RISK FACTORS:
o See "Risk Factors" on page 4 of this prospectus for a discussion of
risks that you should consider before purchasing the warrants or shares
of common stock.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS DETERMINED
WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. NOR HAVE THEY MADE, NOR WILL
THEY MAKE, ANY DETERMINATION AS TO WHETHER ANYONE SHOULD BUY THESE SECURITIES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This date of this prospectus is October 25, 2000.
<PAGE> 3
TABLE OF CONTENTS
Page
----
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Cautionary Note Regarding Forward-Looking Statements........ 11
Use of Proceeds............................................. 13
Warrantholders.............................................. 14
Description of the Warrants................................. 20
Certain United States Federal Income Tax Considerations..... 24
Description of Capital Stock................................ 30
Plan of Distribution........................................ 34
Legal Matters............................................... 35
Experts..................................................... 35
Where You Can Find More Information......................... 35
Index to Financial Statements............................... F-1
<PAGE> 4
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION AND DOES NOT CONTAIN ALL
THE INFORMATION THAT IS IMPORTANT TO YOU. WE URGE YOU TO READ THE ENTIRE
PROSPECTUS AND THE DOCUMENTS WE HAVE REFERRED YOU TO IN "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 35 FOR MORE INFORMATION ABOUT OUR COMPANY AND OUR FINANCIAL
STATEMENTS. YOU SHOULD PAY SPECIAL ATTENTION TO THE RISKS OF INVESTING IN THE
WARRANTS AND OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." EXCEPT WHERE THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "WE," "US," "OUR" OR "RAILAMERICA" REFER
TO THE BUSINESS OF RAILAMERICA, INC. AND ITS CONSOLIDATED SUBSIDIARIES. ALL
DOLLAR AMOUNTS ARE EXPRESSED IN U.S. DOLLARS.
UNLESS OTHERWISE NOTED, ALL FINANCIAL INFORMATION AND OPERATING DATA
INCLUDED IN THIS PROSPECTUS:
o GIVE PRO FORMA EFFECT TO THE ACQUISITION OF RAILTEX ON
FEBRUARY 4, 2000;
o GIVE PRO FORMA EFFECT TO THE ACQUISITIONS OF THE TOLEDO,
PEORIA AND WESTERN RAILROAD, RAILINK, AND FREIGHT AUSTRALIA IN
1999; AND
o EXCLUDE KALYN/SIEBERT, INC. WHICH IS CONSIDERED A DISCONTINUED
OPERATION AND IS BEING HELD FOR SALE.
OUR BUSINESS
We are the largest owner and operator of short line freight railroads
in North America and a leading owner and operator of regional freight railroads
in Australia and Chile. We own, operate or have equity interests in, a
diversified portfolio of 47 railroads with approximately 12,000 miles of track
located in the United States, Australia, Canada and Chile. Through our
diversified portfolio of rail lines, we operate in numerous geographic regions
with varying concentrations of commodities hauled. We believe individual
economic and seasonal cycles in each region may partially offset each other.
On February 4, 2000, we acquired RailTex for approximately $128.0
million in cash and approximately 6.6 million shares of RailAmerica common
stock, valued at $60.8 million. We also refinanced approximately $105.3 million
of RailTex indebtedness and substantially all of our indebtedness. RailTex owns
and operates 25 short line freight railroads with approximately 4,100 miles of
track concentrated in the southeastern, midwestern, Great Lakes and New England
regions of the United States and eastern Canada. In connection with the
acquisition, we and some of our subsidiaries entered into a credit agreement
providing $330.0 million of senior term loans and $50.0 million of senior
revolving loans. In addition, RailAmerica Transportation, a wholly-owned
indirect subsidiary of RailAmerica, issued $95.0 million of subordinated bridge
notes and Palm Beach Rail Holding, Inc., the direct parent of RailAmerica
Transportation, issued $55.0 million of asset sale bridge notes, in connection
with the acquisition.
For the year ended December 31, 1999, we generated revenues of $365.5
million and EBITDA of $96.6 million. For the six months ended June 30, 2000, we
generated revenues of $191.1 million and EBITDA of $55.8 million.
OUR NORTH AMERICAN OPERATIONS
We own, lease and operate 40 rail properties in North America and have
equity interests in five additional rail properties. All of our North American
rail properties are short line railroads that provide transportation services
for both on-line customers and Class I railroads which interchange with our rail
lines. Short line railroads are typically less than 350 miles long, serve a
particular class of customers in a small geographic area and interchange with
Class I railroads. Short line rail operators primarily serve customers on their
line by transporting products to and from the Class I interchanges. Each of our
North American rail lines is typically the only rail carrier directly serving
its customers. The ability to haul heavy and large quantities of freight as part
of a long-distance haul make rail services generally a more effective,
lower-cost alternative to other modes of transportation, including motor
carriers.
1
<PAGE> 5
In 1999, we moved over 900,000 carloads of freight in North America,
most of which interchanged with Class I railroads. As of June 30, 2000, 36 of
our 40 owned or leased North American short line rail properties generated
freight revenue on a fixed-rate basis under long-term contracts. We believe this
substantially reduces pricing volatility.
UNITED STATES. We own/lease and operate 31 short line rail properties
in the United States with approximately 4,500 miles of track. Our United States
properties are geographically diversified and operate in 24 states. We have
clusters of rail properties in the southeastern, midwestern, Great Lakes and New
England regions of the United States. We believe that this cluster strategy
provides economies of scale and helps us achieve operational synergies. In 1999,
our United States rail properties generated $187.0 million of revenue or 51% of
our total revenue. For the six months ended June 30, 2000, these properties
generated $92.2 million of revenue or 48% of our total revenue.
CANADA. We own/lease and operate nine short line rail properties in
Canada with approximately 2,200 miles of track. Our Canadian properties are
geographically diversified and operate in five provinces and the Northwest
Territory. We have clusters of rail properties in Alberta, southern Ontario and
eastern Quebec. In 1999, our Canadian rail properties generated $59.4 million of
revenue or 16% of our total revenue. For the six months ended June 30, 2000,
these properties generated $34.5 million of revenue or 18% of our total revenue.
We also own a 26% equity interest in Quebec Railway Corporation, a railroad
company operating five railroads in southeastern Canada with approximately 750
miles of track.
OUR INTERNATIONAL OPERATIONS
AUSTRALIA. In Australia, we own Freight Victoria, now doing business as
Freight Australia, a regional freight railroad operating in the States of
Victoria and New South Wales. Freight Australia is our wholly owned Australian
subsidiary that purchased the assets of V/Line Freight Corporation from the
Government of the State of Victoria on April 30, 1999 for total consideration of
approximately $103 million. The assets we purchased from V/Line Freight
Corporation include 106 locomotives and over 2,600 rail cars. As a part of the
total consideration, Freight Australia prepaid to the State of Victoria the
rental payments of a 45-year lease to operate 3,150 miles of track. The present
value of the lease payments totaled approximately $60 million. Freight
Australia's customers span a variety of industries, with particular emphasis on
companies in the Australian agricultural industry for which Freight Australia
carries bulk grain and other agricultural products. Freight Australia generates
a substantial percentage of its revenue from contracts with the Australian Wheat
Board. In addition, Freight Australia receives a substantial percentage of its
revenue from fees received for providing access to track on which V/Line
Passenger operates a passenger railroad servicing the State of Victoria. In
1999, our Australian rail property generated $97.9 million of revenue or 27% of
our total revenue. For the six months ended June 30, 2000, this property
generated $53.3 million of revenue or 28% of our total revenue.
CHILE. Through a wholly-owned subsidiary, RailAmerica de Chile S.A., we
own 55% of the outstanding voting stock of Ferronor. Ferronor owns and operates
approximately 1,400 miles of rail line in northern Chile. In 1999, Ferronor
generated revenues of $19.1 million or 5% of our total revenue. For the six
months ended June 30, 2000, Ferronor generated revenues of $10.3 million or 5%
of our total revenue.
OUR BUSINESS STRATEGY
INTEGRATE RAILTEX INTO OUR OPERATIONS. We expect that the acquisition
and integration of RailTex will generate approximately $11.0 million of annual
cost savings and synergies. A key element to our strategy has been the
implementation of a comprehensive integration plan focusing on areas such as
rationalizing staffing, regionalizing operations, centralizing corporate
functions and management information systems and the elimination of other
duplicative costs including public company costs and board of director fees. To
date, we believe that we have achieved a substantial portion of these cost
savings.
GROW INTERNALLY THROUGH FOCUSED SALES, MARKETING EFFORTS AND CUSTOMER
SERVICE. We will continue to focus on increasing traffic in each of our markets
by aggressively marketing our customer service to our customers and
2
<PAGE> 6
bolstering our sales efforts. In many cases, we believe customer service and
sales and marketing at railroads that we have acquired have been neglected by
the previous owners. We purchased a number of our rail lines from Class I
railroads. Due to the size of the Class I railroads and their concentration on
long-haul traffic, we believe the Class I operators typically have not
effectively marketed these branch line operations.
MAINTAIN CLOSE RELATIONSHIPS WITH CLASS I RAILROADS. Since most of our
North American short line rail properties interchange with at least one Class I
railroad, we maintain close relationships with substantially all of the North
American Class I rail operators. We believe that these relationships will enable
us to pursue new business opportunities on existing rail line properties and
acquire additional short line freight rail lines from the Class I railroads.
CONTINUE TO GROW THROUGH SELECTIVE ACQUISITIONS. We expect that
opportunities to acquire selected North American short line rail properties will
continue to become available over the next several years. We also expect to make
acquisitions, in economically and politically stable international markets as a
result of an increasing number of governments seeking to privatize their
national rail systems.
FOCUS ON CORE OPERATIONS THROUGH STRATEGIC DIVESTITURES. We believe
that in order to capitalize on opportunities more profitable to our overall
portfolio and to minimize the amount of management time and effort on the
smaller properties in our portfolio and to reduce debt we may from time to time
divest some of our non-core railroad properties. We have announced a plan to
divest approximately $100 million of these properties and other assets,
including our announced plan to sell Kalyn/Siebert. As part of this plan, as of
June 2000, we sold a corridor of land owned by the West Texas and Lubbock
Railroad for $9.3 million and other assets for approximately $2.0 million. In
August 2000, we sold two rail lines for gross proceeds of approximately $4.6
million. In October 2000, we sold approximately 200 miles of our Lakeland &
Waterways Railway in Canada for approximately $4.5 million. We believe a market
for these divestitures exists among other smaller short line operating companies
and selected strategic buyers. We cannot assure you that we will be able to sell
any of these properties or assets on acceptable terms, if at all.
OFFERING OF OUTSTANDING NOTES
In August 2000, RailAmerica Transportation, our wholly-owned
subsidiary, sold units consisting of $130.0 million of 12-7/8% senior
subordinated notes due 2010 and warrants to purchase 1,411,414 shares of our
common stock in a private offering, for gross proceeds of $122.2 million after
deducting the initial purchasers' discount. The price per unit was $940.38. The
net proceeds we received from the issuance of the units were used to repay all
$95.0 million of subordinated bridge notes issued by RailAmerica Transportation,
$20.0 million of the asset sale bridge notes issued by Palm Beach Rail Holding,
Inc. and approximately $1.8 million of term loans under our senior credit
facilities. The warrants sold as a component of the units and the shares of
common stock issuable upon exercise of these warrants comprise the securities
being offered by the selling holders under this prospectus.
ASSETS HELD FOR SALE
As part of our strategy to focus on our core railroad business, we have
determined to sell Kalyn/Siebert, our truck trailer manufacturing business.
Kalyn/Siebert is a wholly-owned subsidiary of Palm Beach Rail Holding, Inc. and
is classified as a discontinued operation for purposes of our consolidated
financial statements. We intend to use the net proceeds from the sale of
Kalyn/Siebert to repay a majority of the remaining asset sale bridge notes
issued by Palm Beach Rail Holding, Inc.
RECENT DEVELOPMENTS
In August 2000, we were selected to be one of four final bidders with
respect to the proposed sale by the Government of the State of Western Australia
of the rail freight business of the Western Australian Government Railways
Commission, known as Westrail. In addition, on August 14, 2000, we appointed
Gary M. Spiegel as our Executive Vice President and Chief Operating Officer,
North American Rail Group. Prior to joining us, Mr. Spiegel was Senior Vice
President - Operations at CSX Transportation. Prior to joining CSX in 1998, Mr.
Spiegel was employed by Conrail, a Class I carrier, and its predecessor
railroads for 28 years in various capacities, most recent of which was Vice
President - Service Delivery. In October 2000, Ferronor executed an agreement
with Belgrano Cargas, S.A., the operator of the General Belgrano railroad in
Argentina. Under the terms of this agreement, Ferronor will operate freight
trains 618 kilometers from Chile's border city of Socompa to Guerres, Argentina.
The agreement has an initial term of one year and automatically renews for
successive one-year terms unless either party gives notice of termination.
CORPORATE INFORMATION
We are a Delaware corporation with our principal executive offices
located at 5300 Broken Sound Boulevard, N.W., Boca Raton, Florida 33487. Our
telephone number is (561) 994-6015.
3
<PAGE> 7
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS OCCURS, OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED. IN
THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT
LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE SUBSTANTIAL DEBT AND DEBT SERVICE REQUIREMENTS WHICH COULD HAVE ADVERSE
CONSEQUENCES ON OUR BUSINESS.
In August 2000, RailAmerica Transportation issued 130,000 units
consisting of $130.0 million of senior subordinated notes and warrants to
purchase 1,411,414 shares of our common stock, which yielded gross proceeds to
us of $122.2 million. On a pro forma basis as if the issuance of the units and
the application of the net proceeds had occurred on June 30, 2000, we would have
had approximately $559.4 million of total indebtedness outstanding. On a pro
forma basis as if the acquisition of RailTex and the related financings,
including our borrowings under the senior credit facility, the issuance of the
units and the application of the net proceeds had occurred on January 1, 1999,
our cash interest expense would have been approximately $52.7 million for the
year ended December 31, 1999 and $26.0 million for the six months ended June 30,
2000. The degree to which we are leveraged could have important consequences,
including the following:
o our ability to borrow additional amounts for working capital,
capital expenditures, potential acquisition opportunities,
general corporate purposes and other purposes may be limited
or financing may not be available on terms favorable to us or
at all;
o a substantial portion of our cash flows from operations must
be used to pay our interest expense and repay our debt, which
would reduce the funds that would otherwise be available to us
for our operations and future business opportunities;
o we may be more vulnerable to economic downturns, may be
limited in our ability to withstand competitive pressures and
may have reduced flexibility in responding to changing
business, regulatory and economic conditions; and
o fluctuations in market interest rates will affect the cost of
our borrowings to the extent not covered by interest rate
hedge agreements because the interest under our credit
facilities is payable at variable rates.
DESPITE CURRENT INDEBTEDNESS LEVELS, WE MAY STILL BE ABLE TO INCUR SUBSTANTIALLY
MORE DEBT, WHICH WILL INTENSIFY THE RISKS DISCUSSED ABOVE.
Our senior credit facilities and the indenture governing the senior
subordinated notes permit us, subject to specified limitations, to be able to
incur substantial additional indebtedness in the future. Our revolving credit
facility allows us to borrow a total of $50.0 million. As of October 23, 2000,
we had outstanding borrowings of approximately $20.5 million under our revolving
credit facility. If new debt is added to our current debt levels, the related
risks that we face could intensify.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE
REQUIREMENTS.
We cannot assure you that our future cash flows will be sufficient to
meet our debt obligations and commitments. Any insufficiency would have a
negative impact on our business. Our ability to generate cash flow from
operations sufficient to make scheduled payments on our debt as they become due
will depend on our future performance and our ability to implement our business
strategy successfully. Our performance will be affected by prevailing economic
conditions and financial, business, regulatory and other factors. Most of these
factors are beyond our control. Failure to pay our interest expense or make our
principal payments would result in a default. A
4
<PAGE> 8
default, if not waived, could result in acceleration of our indebtedness, in
which case the debt would become immediately due and payable. If this occurs, we
may be forced to reduce or delay capital expenditures and implementation of our
business strategy, sell assets, obtain additional equity capital or refinance or
restructure all or a portion of our outstanding debt. In the event that we are
unable to do so, we may be left without sufficient liquidity and we may not be
able to repay our debt and the lenders will be able to foreclose on our assets.
Even if new financing is available, it may not be on terms that are acceptable
to us.
OUR SENIOR CREDIT FACILITIES AND THE INDENTURE GOVERNING THE SENIOR SUBORDINATED
NOTES CONTAIN COVENANTS THAT SIGNIFICANTLY RESTRICT OUR OPERATIONS.
Our senior credit facilities and the indenture governing the senior
subordinated notes contain numerous covenants imposing financial and operating
restrictions on our business. These restrictions may affect our ability to
operate our business and may limit our ability to take advantage of potential
business opportunities as they arise. These covenants place restrictions on our
ability to, among other things:
o incur more debt;
o pay dividends, redeem or repurchase our stock or make other
distributions;
o make acquisitions or investments;
o use assets as security in other transactions;
o enter into transactions with affiliates;
o merge or consolidate with others;
o dispose of assets or use asset sale proceeds;
o create liens on our assets; and
o extend credit.
In addition, our senior credit facilities also require us to meet a
number of financial ratios and tests. Our ability to meet these ratios and tests
and to comply with other provisions of our credit facilities and the indenture
can be affected by changes in economic or business conditions or other events
beyond our control. Our failure to comply with the obligations in our senior
credit facilities and the indenture could result in an event of default under
these facilities and the indenture, which, if not cured or waived, could permit
acceleration of our indebtedness under the senior credit facilities, the senior
subordinated notes or our other indebtedness which could have a material adverse
effect on us.
OUR INABILITY TO INTEGRATE ACQUIRED BUSINESSES SUCCESSFULLY COULD HAVE ADVERSE
CONSEQUENCES FOR OUR BUSINESS.
We have experienced significant growth through acquisitions.
Acquisitions result in greater administrative burdens and operating costs and,
to the extent financed with debt, additional interest costs. We cannot assure
you that we will be able to manage or integrate the acquired companies or
businesses successfully. The process of combining RailTex into our operations
and integrating our other acquired businesses may be disruptive to our business
5
<PAGE> 9
and may cause an interruption of, or a loss of momentum in, our business as a
result of the following factors, among others:
o loss of key employees or customers;
o possible inconsistencies in standards, controls, procedures
and policies among the combined companies and the need to
implement company-wide financial, accounting, information and
other systems;
o failure to maintain the quality of services that the companies
have historically provided;
o the need to coordinate geographically diverse organizations;
and
o the diversion of management's attention from our day-to-day
business as a result of the need to deal with any disruptions
and difficulties and the need to add management resources to
do so.
These disruptions and difficulties, if they occur, may cause us to fail
to realize the cost savings, revenue enhancements and other benefits that we
currently expect to result from that integration and may cause material adverse
short- and long-term effects on our operating results and financial condition.
WE EXPECT TO CONTINUE TO ACQUIRE OTHER BUSINESSES, WHICH MAY ADVERSELY AFFECT
OUR OPERATING RESULTS, FINANCIAL CONDITION AND EXISTING BUSINESS.
The success of our acquisition program will depend on, among other
things:
o the availability of suitable candidates;
o competition from other companies for the purchase of available
candidates;
o our ability to value those candidates accurately and negotiate
favorable terms for those acquisitions;
o the availability of funds to finance acquisitions;
o our ability to fund acquisitions in accordance with the
restrictions contained in our senior credit facilities and the
indenture governing the senior subordinated notes; and
o the availability of management resources to oversee the
integration and operation of the acquired businesses.
If our acquisition program is not successful, our operating results,
financial condition and existing business may be adversely affected.
Financing for acquisitions may come from several sources, including
cash on hand and proceeds from the incurrence of indebtedness or the issuance of
additional common stock, preferred stock, convertible debt or other securities.
Additional debt would increase our leverage and interest costs.
WE MAY NOT REALIZE THE ANTICIPATED COST SAVINGS AND OTHER BENEFITS FROM OUR
ACQUISITION OF RAILTEX AND OUR OTHER ACQUISITIONS.
Even if we are able to integrate the operations of RailTex and other
acquired businesses into our operations, we may not realize the full benefits of
the cost savings, revenue enhancements or other benefits that we currently
expect to result. The potential cost savings are based on analyses completed by
members of our management. These analyses necessarily involve assumptions as to
future events, including general business and
6
<PAGE> 10
industry conditions, costs to operate our business and competitive factors, many
of which are beyond our control and may not materialize. While we believe these
analyses and their underlying assumptions to be reasonable, they are estimates
which are difficult to predict and necessarily speculative in nature. If we
achieve the expected benefits, they may not be achieved within the anticipated
time frame. Also, the cost savings and other synergies from these acquisitions
may be offset by costs incurred in integrating the companies, increases in other
expenses, operating losses or problems in the business unrelated to these
acquisitions.
WE FACE COMPETITION FROM OTHER TYPES OF TRANSPORTATION AND FROM OTHER RAIL
OPERATORS.
We compete directly with other modes of transportation, including motor
carriers and, to a lesser extent, ships and barges. Competition is based
primarily upon the rate charged and the transit time required, as well as the
quality and reliability of the service provided. While we must build or acquire
and maintain our rail system, trucks are able to use public roadways. Any future
improvements or expenditures materially increasing the quality of these
alternative modes of transportation in the locations in which we operate, or
legislation granting materially greater latitude for motor carriers with respect
to size or weight limitations, could have a material adverse effect on our
results of operations and financial condition.
In addition, we compete for domestic acquisition opportunities with
other short-line operators and for foreign acquisitions with other U.S. and
foreign rail operators. Some of these competitors have significantly greater
resources than we do and may possess greater local market knowledge as well.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE CONDITIONS IN THE
AGRICULTURAL INDUSTRY BECAUSE A SUBSTANTIAL PORTION OF OUR RAILROAD TRAFFIC
CONSISTS OF AGRICULTURAL COMMODITIES.
Factors that negatively affect the agricultural industry in the regions
in which we operate could have a material adverse effect on our results of
operations and financial condition. These factors include weather conditions,
export and domestic demand and total world supply, and fluctuations in
agricultural prices. A significant portion of our revenues for the year ended
December 31, 1999 and the six months ended June 30, 2000 were derived from the
agricultural industry. We believe that agricultural commodities will continue to
represent a principal component of our rail traffic base in the near future. As
a result, we will continue to be affected by unfavorable conditions affecting
the agricultural industry in general.
WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS IN FOREIGN COUNTRIES.
We have railroad operations in Australia, Chile and Canada. We may also
consider acquisitions in other foreign countries. The risks of doing business in
foreign countries include:
o adverse changes in the economy of those countries;
o adverse effects of currency exchange controls;
o restrictions on the withdrawal of foreign investment and
earnings;
o government policies against ownership of businesses by
non-nationals; and
o the potential instability of foreign governments.
Our operations in foreign countries are also subject to economic
uncertainties, including among others, risk of renegotiation or modification of
existing agreements or arrangements with governmental authorities, exportation
and transportation tariffs, foreign exchange restrictions and changes in
taxation structure.
7
<PAGE> 11
BECAUSE SOME OF OUR SIGNIFICANT SUBSIDIARIES TRANSACT BUSINESS IN FOREIGN
CURRENCIES, FUTURE EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR RESULTS
OF OPERATIONS.
While our operations are predominantly in U.S. dollars, some of our
significant subsidiaries transact business in foreign currencies, including the
Australian dollar and the Canadian dollar. Changes in the relation of these and
other currencies to the U.S. dollar could affect our revenues, result in
exchange losses and result in the writedown of our investments in those foreign
countries. The impact of future exchange rate fluctuations on our results of
operations cannot be accurately predicted. Historically, we have not engaged in
hedging transactions with respect to foreign currency exchange rates. However,
if circumstances change, we may seek to limit our exposure to the risk of
currency fluctuations by engaging in hedging or other transactions. We cannot
assure you that we will successfully manage our exposure to currency
fluctuations.
BECAUSE WE DEPEND ON CLASS I RAILROADS FOR OUR NORTH AMERICAN OPERATIONS, OUR
BUSINESS AND FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED IF OUR RELATIONSHIPS
WITH CLASS I CARRIERS DETERIORATE.
The railroad industry in the United States and Canada is dominated by a
small number of Class I carriers that have substantial market control and
negotiating leverage. Almost all of the traffic on our North American railroads
is interchanged with Class I carriers. A decision by any of these Class I
carriers to discontinue transporting commodities or to use alternate modes of
transportation, such as motor carriers, could have a material adverse effect on
our business and results of operations. Our ability to provide rail service to
our customers in North America depends in large part upon our ability to
maintain cooperative relationships with Class I carriers with respect to, among
other matters, freight rates, car supply, reciprocal switching, interchange and
trackage rights. A deterioration in the operations of or service provided by
those interchange partners, or in our relationship with our interchange
partners, would adversely affect our business. In addition, much of the freight
transported by our North American railroads moves on railcars supplied by Class
I carriers. If the number of railcars supplied by Class I carriers is
insufficient, we might not be able to obtain replacement railcars on favorable
terms and shippers may seek alternate forms of transportation.
Portions of our North American rail properties are operated under
leases, operating agreements or trackage rights agreements with Class I
carriers. Failure of our railroads to comply with these leases and agreements in
all material respects could result in the loss of operating rights with respect
to those rail properties, which would adversely affect our results of operations
and financial condition. Class I carriers also have traditionally been
significant sources of business for us, as well as sources of potential
acquisition candidates as they continue to divest themselves of branch lines to
smaller rail operators. Because we depend on Class I carriers for our North
American operations, our business and financial results may be adversely
affected if our relationships with those carriers deteriorate.
WE ARE SUBJECT TO SIGNIFICANT GOVERNMENTAL REGULATION OF OUR RAILROAD
OPERATIONS. THE FAILURE TO COMPLY WITH GOVERNMENTAL REGULATION COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
We are subject to governmental regulation by a significant number of
foreign, federal, state and local regulatory authorities with respect to our
railroad operations and a variety of health, safety, labor, environmental and
other matters. Our failure to comply with applicable laws and regulations could
have a material adverse effect on us. Governments may change the legislative
framework within which we operate without providing us with any recourse for any
adverse effects that the change may have on our business. Also, some of the
regulations require us to obtain and maintain various licenses, permits and
other authorizations and we cannot assure you that we will continue to be able
to do so.
WE MAY INCUR SIGNIFICANT EXPENSES IN CONNECTION WITH AUSTRALIA'S OPEN ACCESS
REGIME.
In Australia, where a significant portion of our operations are
located, the applicable legislative framework enables third party rail operators
to gain access to the railway infrastructure on which we operate for access
fees. As
8
<PAGE> 12
part of this regime, we have executed and may be required to execute access
agreements governing access to the railway infrastructure. We may be required to
make significant expenditures and to incur significant expenses in order to
comply with the applicable regulatory framework and these access agreements.
WE MAY BE REQUIRED TO PAY PENALTY FEES UNDER SOME CIRCUMSTANCES TO A THIRD PARTY
RAIL OPERATOR THAT HAS ACCESS TO THE AUSTRALIAN RAILWAYS.
Our access agreement with V/Line Passenger in Australia contains
penalty provisions if trains using the railway infrastructure are delayed, early
or cancelled under a variety of circumstances resulting from our actions. The
formulas for calculation of the penalty are complex. The penalties apply unless
the penalty event is primarily due to acts of God, which includes, but is not
limited to, events such as natural disasters, war, changes in applicable laws
and power shortages. We cannot assure you that we will not incur significant
penalties under the Australian access agreement.
OUR LONG-TERM LEASE OF THE RAILWAY INFRASTRUCTURE IN AUSTRALIA MAY BE TERMINATED
FOLLOWING SPECIFIED DEFAULTS.
The director of public transport for the State of Victoria, Australia
may terminate the lease in specified circumstances, including: (1) if we fail to
maintain all necessary accreditations, (2) if we fail to maintain railway
infrastructure and (3) if we fail to maintain insurance. The termination of the
lease would have a material adverse effect on our financial condition, results
of operations and business.
TERMINATION OF OUR AGREEMENT WITH THE AUSTRALIAN WHEAT BOARD WOULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
If we fail to perform our obligations under our agreement with the
Australian Wheat Board, they may terminate the agreement by giving us one
month's notice in writing. Before giving us this one month's notice, the
Australian Wheat Board must give us the opportunity to remedy the failure by
giving us six weeks notice of our failure to perform. In addition to terminating
the agreement for our failure to perform, the Wheat Board may terminate the
agreement if we cease to exist in our present form as a result of a
reconstruction or merger and a conflict of interest arises as a result. If our
agreement is terminated, for any reason, our financial condition and results of
operations would be adversely affected.
WE COULD INCUR SIGNIFICANT COSTS FOR VIOLATIONS OF APPLICABLE ENVIRONMENTAL LAWS
AND REGULATIONS.
Our railroad and manufacturing operations and real estate ownership are
subject to extensive foreign, federal, state and local environmental laws and
regulations concerning, among other things, emissions to the air, discharges to
waters, and the handling, storage, transportation and disposal of waste and
other materials and cleanup of hazardous material or petroleum releases.
Environmental liability can extend to previously owned or operated properties,
leased properties and properties owned by third parties, as well as to
properties currently owned and used by us. Environmental liabilities may also
arise from claims asserted by adjacent landowners or other third parties in
toxic tort litigation. We may be subject to allegations or findings to the
effect that we have violated, or are strictly liable under, these laws or
regulations. We could incur significant costs as a result. We may be required to
incur significant expenses to investigate and remediate environmental
contamination. Some reports prepared in connection with our recent acquisition
of V/Line Freight and the Toledo, Peoria and Western Railroad Corporation
identified a number of contaminated sites on the properties leased or licensed
to us, which we may be required to remediate. In addition, some transactions,
including the RailTex acquisition, may subject us to various requirements to
investigate and remediate contamination at other properties.
LOSS OF KEY PERSONNEL COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Our operations and prospects depend in large part on the performance of
our senior management team. We cannot be sure that we would be able to find
qualified replacements for any of these individuals if their services
9
<PAGE> 13
were no longer available. The loss of the services of one or more members of our
senior management team, particularly Gary O. Marino, our chairman, president and
chief executive officer, could have a material adverse effect on our business,
financial condition and results of operations.
SOME OF OUR EMPLOYEES BELONG TO LABOR UNIONS AND STRIKES OR WORK STOPPAGES COULD
ADVERSELY AFFECT OUR OPERATIONS.
We are a party to collective bargaining agreements with various labor
unions in the United States, Australia, Chile and Canada. Some of these
agreements expire within the next two years. Our inability to negotiate
acceptable contracts with these unions could result in, among other things,
strikes, work stoppages or other slowdowns by the affected workers. If the
unionized workers were to engage in a strike, work stoppage or other slowdown,
or other employees were to become unionized or the terms and conditions in
future labor agreements were renegotiated, we could experience a significant
disruption of our operations and higher ongoing labor costs.
WE MAY FACE LIABILITY FOR CASUALTY LOSSES WHICH ARE NOT COVERED BY INSURANCE.
We have obtained insurance coverage for losses arising from personal
injury and for property damage in the event of derailments or other accidents or
occurrences. However, losses or other liabilities may arise that are not covered
by insurance. In addition, under catastrophic circumstances our liability could
exceed our insurance limits. Insurance is available from a limited number of
insurers and may not continue to be available or, if available, may not be
obtainable on terms acceptable to us.
IF WE DO NOT COMPLETE OUR ANNOUNCED PLAN TO SELL KALYN/SIEBERT WE MAY BE UNABLE
TO REPAY OUR ASSET SALE BRIDGE NOTES.
In November 1999, we announced our intention to sell our trailer
manufacturing business, Kalyn/Siebert. In connection with our acquisition of
RailTex and refinancing of debt in February 2000, we entered into a $55.0
million asset sale bridge note facility that is secured by the assets of
Kalyn/Siebert and is expected to be repaid in part out of the net proceeds of
the sale of Kalyn/Siebert. We used $20.0 million from the net proceeds of the
sale of the senior subordinated notes and related warrants to repay a portion of
the asset sale bridge notes. To the extent that we are unable to sell
Kalyn/Siebert on acceptable terms or at all, we may need to seek alternative
means of financing our repayment of the remaining asset sale bridge notes. While
recourse under the asset sale bridge notes is limited to the assets and stock of
Kalyn/Siebert and the assets of Kalyn/Siebert Canada, we cannot assure you as to
what the ultimate effect of our failure to fully repay the asset sale bridge
notes in a timely manner would be.
RISING FUEL COSTS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
Fuel costs constitute a significant portion of our transportation
expenses. Fuel costs were approximately 12.2% of our historical transportation
expenses for the six months ended June 30, 2000, 13.9% for the year ended
December 31, 1999 and 10.4% for the year ended December 31, 1998. Recently,
diesel fuel prices have increased dramatically, and this increase may have a
material adverse effect on our business and results of operations.
Fuel prices and supplies are influenced significantly by international
political and economic circumstances. If a fuel supply shortage were to arise
from OPEC production curtailments, a disruption of oil imports or otherwise,
higher fuel prices and any price increases would materially affect our operating
results. We do not generally engage in fuel hedge contracts.
YOU MAY NOT RECEIVE DIVIDENDS ON OUR COMMON STOCK.
We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. In addition, the agreements governing our indebtedness,
including the terms of the indenture governing the senior subordinated notes and
our senior credit facilities, will restrict our ability to pay dividends on our
common stock or
10
<PAGE> 14
service our indebtedness. Holders of the warrants will not have the right to
receive any dividends so long as their warrants are unexercised.
THE WARRANTS MAY HAVE NO VALUE IN A BANKRUPTCY.
In the event a bankruptcy or reorganization is commenced by or against
us, a bankruptcy court may hold that unexercised warrants are executory
contracts which may be subject to rejection by us with approval of the
bankruptcy court. As a result, holders of the warrants may, even if sufficient
funds are available, not be entitled to receive any consideration or may receive
an amount less than they would be entitled to if they had exercised their
warrants prior to the commencement of any such bankruptcy or reorganization.
OUR OBLIGATIONS TO THE HOLDERS OF OUR REDEEMABLE PREFERRED STOCK MUST BE
SATISFIED BEFORE ANY PAYMENTS ARE MADE TO THE HOLDERS OF OUR COMMON STOCK.
If we are liquidated, the holders of RailAmerica's redeemable preferred
stock will be entitled to be paid in full before any payments are made to the
holders of our common stock. As of June 30, 2000, the redeemable preferred stock
had a liquidation preference in the aggregate amount of $7.3 million. In
addition, the holders of the redeemable preferred stock are entitled to
dividends, which are payable in cash, at a rate of $1.875 per share per annum.
Any funds used to pay to holders of the redeemable preferred stock will restrict
our ability to use those funds for operations and must be paid before any
amounts may be paid to the holders of common stock. See "Description of Capital
Stock -- Common and Preferred Stock -- Preferred Stock."
NO PUBLIC MARKET EXISTS FOR THE WARRANTS.
The warrants are new issues of securities with no established trading
market and will not be listed on any securities exchange. The initial purchasers
of the senior subordinated notes have informed us that they intend to make a
market in the warrants. However, the initial purchasers may cease their
market-making at any time. Under the registration rights agreement applicable to
the warrants we are required to use our best efforts to file and have declared
effective a shelf-registration statement registering the warrants and the
warrant shares. The registration statement of which this prospectus forms a part
is intended to satisfy that requirement. However, we cannot assure you that an
active trading market for the warrants will develop.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains some forward-looking statements, within the
meaning of federal securities laws, about our financial condition, results of
operations and business. You can find many of these statements by looking for
words like "will," "should," "believes," "expects," "project," "could,"
"anticipates," "estimates," "intends," "may," "pro forma" or similar expressions
used in this prospectus. These forward-looking statements are subject to
numerous assumptions, risks and uncertainties that may cause our actual results
or performance to be materially different from any future results or performance
expressed or implied by the forward-looking statements. The risks and
uncertainties include those risks and uncertainties identified under the heading
"Risk Factors" in this prospectus. These factors include, but are not limited
to, the following:
o our level of leverage;
o our ability to meet our debt service obligations;
o the restrictions imposed upon us by the indenture governing
the senior subordinated notes and by our senior credit
facilities;
o our relationships with Class I railroads;
11
<PAGE> 15
o our ability to find suitable acquisition opportunities and to
finance and complete acquisitions and integrate acquired
businesses; and
o our ability to successfully market and sell non-core
properties and assets.
Because these forward-looking statements are subject to risks and
uncertainties, we caution you not to place undue reliance on these statements,
which speak only as of the date of this prospectus. We do not undertake any
responsibility to review or confirm analysts' expectations or estimates or to
release publicly any revisions to these forward-looking statements to take into
account events or circumstances that occur after the date of this prospectus.
Additionally, we do not undertake any responsibility to update you on the
occurrence of unanticipated events which may cause actual results to differ from
those expressed or implied by these forward-looking statements.
12
<PAGE> 16
USE OF PROCEEDS
All of the warrants and common stock offered under this prospectus are
being sold by the warrantholders. We will not receive any of the proceeds from
the sale of the warrants or the common stock issued upon exercise of the
warrants, other than the payment of the exercise price of the warrants.
Expenses expected to be incurred by us in connection with this offering
are estimated to be approximately $45,000.00.
13
<PAGE> 17
WARRANTHOLDERS
Below is information with respect to the number of warrants and shares
of our common stock issuable upon exercise of the warrants owned by each of the
warrantholders. The warrants are being registered to permit public secondary
trading of the warrants and the shares of our common stock issued upon the
exercise of the warrants. The warrantholders may offer the warrants and shares
of our common stock issued upon the exercise of the warrants for resale from
time to time. See "Plan of Distribution."
We have filed with the SEC a registration statement, of which this
prospectus forms a part, with respect to the resale of the warrants and the
issuance and resale of the shares of our common stock issued upon the exercise
of the warrants from time to time, under Rule 415 under the Securities Act, in
the over-the-counter market, in privately negotiated transactions, in
underwritten offerings or by a combination of these methods for sale. We have
agreed to use our best efforts to keep this registration statement effective
until the later of (1) two years following the effective date of this
registration statement and (2) the earlier of (A) the expiration of the warrants
and (B) the first date as of which all of the warrants have been exercised,
though we are required to keep this registration statement effective so long as
any affiliate of ours holds warrants or shares of our common stock issued upon
exercise of the warrants.
The warrants and the shares of our common stock issued upon the
exercise of the warrants offered by this prospectus may be offered from time to
time by the persons or entities named below. The following table sets forth
certain information with respect to (1) in column one, the amount of
outstanding shares of our common stock that are beneficially owned by the named
selling holders and (2) in column two, the number of shares of our common stock
that would beneficially be owned by the named selling sharesholders upon
exercise of warrants. The percentages listed below are adjusted to reflect the
sale of the shares of common stock offered. The following table assumes that
each of the selling holders: (A) exercises all of its warrants as applicable;
and (B) sells all of its warrants and exercised shares of common stock
offered under this prospectus, as applicable.
<TABLE>
<CAPTION>
OWNERSHIP OF
SHARES OF COMMON STOCK AND WARRANTS NUMBER OF OWNERSHIP OF SHARES
PRIOR TO OFFERING SHARES OFFERED OF OUTSTANDING COMMON
----------------------------------- NUMBER OF AND ISSUABLE STOCK AFTER OFFERING
COMMON WARRANTS UPON EXERCISE ------------------------
NAME AND ADDRESS SHARES WARRANTS PERCENTAGE OFFERED OF WARRANTS SHARES PERCENTAGE
---------------- ------ --------- ----------- --------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AELTUS CBO IV, LTD. 0 21,714 * 2,000 21,714 0 *
c/o Aeltus Investment
Management, Inc.
10 State House Square
Hartford, CT 06103
AETNA LIFE INSURANCE
AND ANNUITY COMPANY 0 32,571 * 3,000 32,571 0 *
c/o Aeltus Investment
Management, Inc.
10 State House Square
Hartford, CT 06103
AIM CAPITAL STRATEGIC
INCOME FUND 0 542 * 50 542 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
AIM GLOBAL INCOME FUND 0 4,071 * 375 4,071 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
AIM HIGH YIELD FUND II 0 12,485 * 1,150 12,485 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
AIM HIGH YIELD FUND 0 156,069 * 14,375 156,069 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
AIM INCOME FUND 0 14,114 * 1,300 14,114 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
AIM STRATEGIC INCOME
FUND 0 3,528 * 325 3,528 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
AIM VI DIVERSIFIED
INCOME FUND 0 2,171 * 200 2,171 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
</TABLE>
14
<PAGE> 18
<TABLE>
<CAPTION>
OWNERSHIP OF
SHARES OF COMMON STOCK AND WARRANTS NUMBER OF OWNERSHIP OF SHARES
PRIOR TO OFFERING SHARES OFFERED OF OUTSTANDING COMMON
---------------------------------- NUMBER OF AND ISSUABLE STOCK AFTER OFFERING
COMMON WARRANTS UPON EXERCISE ------------------------
NAME AND ADDRESS SHARES WARRANTS PERCENTAGE OFFERED OF WARRANTS SHARES PERCENTAGE
---------------- ------ --------- ---------- --------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
AIM VI HIGH YIELD FUND 0 1,899 * 175 1,899 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
BLACKROCK HIGH YIELD
BOND FUND 0 10,857 * 1,000 10,857 0 *
c/o BlackRock Financial
Management, Inc.,
as Investment Manager
345 Park Avenue,
29th Floor
New York, New York 10154
BLACKROCK HIGH YIELD
TRUST, INC. 0 10,857 * 1,000 10,857 0 *
c/o BlackRock Financial
Management, Inc.,
as Investment Manager
345 Park Avenue,
29th Floor
New York, New York 10154
BRANT POINT CBO
1999-1, LTD. 0 21,714 * 2,000 21,714 0 *
c/o Sankaty Advisors
Two Copley Place
Boston, MA 02116
BRANT POINT II
2000-1, LTD. 0 21,714 * 2,000 21,714 0 *
c/o Sankaty Advisors
Two Copley Place
Boston, MA 02116
Deutsche Asset
Management 0 4,342 * 400 4,342 0 *
BT PYRAMID HI YIELD
885 Third Avenue
New York, NY 10022
CENTURY FUNDING
LIMITED/SIGLER AND CO. 0 32,571 * 3,000 32,571 0 *
Conseco Capital
Management
11825 N. Pennsylvania
Street
Carmel, IN 46032
Deutsche Asset Management 0 1,465 * 135 1,465 0 *
CHI OPERATING HIGH YIELD
885 Third Avenue
New York, NY 10022
</TABLE>
15
<PAGE> 19
<TABLE>
<CAPTION>
OWNERSHIP OF
SHARES OF COMMON STOCK AND WARRANTS NUMBER OF OWNERSHIP OF SHARES
PRIOR TO OFFERING SHARES OFFERED OF OUTSTANDING COMMON
---------------------------------- NUMBER OF AND ISSUABLE STOCK AFTER OFFERING
COMMON WARRANTS UPON EXERCISE ------------------------
NAME AND ADDRESS SHARES WARRANTS PERCENTAGE OFFERED OF WARRANTS SHARES PERCENTAGE
---------------- ------ --------- ---------- --------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Deutsche Asset Management 0 705 0 65 705 0 *
CHI RETIREMENT HIGH YIELD
885 Third Avenue
New York, NY 10022
Deutsche Asset Management 0 1,682 0 155 1,682 0 *
CITY OF PHILADELPHIA HIGH
YIELD
885 Third Avenue
New York, NY 10022
COHANZICK HIGH YIELD
PARTNERS, L.P. 0 542 0 50 542 0 *
427 Bedford Road,
Suite 230
Pleasantville, NY 10570
EMERGING MARKET CURRENCY
FUND 0 54,285 0 5,000 54,285 0 *
c/o CIBC Bank & Trust
Company (Cayman) Limited
P.O. Box 694,
Edward Street,
Georgetown, Grand Cayman
Cayman Islands,
British West Indies
Deutsche Asset Management 0 325 0 30 325 0 *
FIRST INITIATIVES HIGH
YIELD
885 Third Avenue
New York, NY 10022
FORTIS SERIES FUND INC.
- MULTISECTOR BOND SERIES 0 542 0 50 542 0 *
AIM Capital Management
11 Greenway Plaza,
Suite 100
Houston, TX 77046
GREAT POINT CBO
1998-1, LTD. 0 21,714 0 2,000 21,714 0 *
c/o SanKaty Advisors
Two Copley Place
Boston, MA 02116
GREAT POINT CLO
1999-1, LTD. 0 10,857 0 1,000 10,857 0 *
c/o SanKaty Advisors
Two Copley Place
Boston, MA 02116
LAZARD ASSET MANAGEMENT
ON BEHALF OF AN ADVISOR 0 16,611 0 1,530 16,611 0 *
CLIENT
30 Rockefeller Plaza,
49th Floor
New York, NY 10112-6300
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
OWNERSHIP OF
SHARES OF COMMON STOCK AND WARRANTS NUMBER OF OWNERSHIP OF SHARES
PRIOR TO OFFERING SHARES OFFERED OF OUTSTANDING COMMON
---------------------------------- NUMBER OF AND ISSUABLE STOCK AFTER OFFERING
COMMON WARRANTS UPON EXERCISE ------------------------
NAME AND ADDRESS SHARES WARRANTS PERCENTAGE OFFERED OF WARRANTS SHARES PERCENTAGE
---------------- ------ --------- ---------- --------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
LAZARD ASSET MANAGEMENT
ON BEHALF OF
AN ADVISOR 0 38,162 * 3,515 38,162 0 *
CLIENT
30 Rockefeller Plaza,
49th Floor
New York, NY 10112-6300
LAZARD HIGH YIELD FUND 0 21,225 * 1,955 21,225 0 *
30 Rockefeller Plaza,
49th Floor
New York, NY 10112-6300
LUTHERAN BROTHERHOOD 0 21,714 * 2,000 21,714 0 *
625 4th Avenue South
Minneapolis, MN 55415
LUTHERAN BROTHERHOOD
HIGH YIELD FUND 0 32,571 * 3,000 32,571 0 *
625 4th Avenue South
Minneapolis, MN 55415
MAGNETITE ASSET
INVESTORS L.L.C. 0 21,714 * 2,000 21,714 0 *
c/o BlackRock Financial
Management, Inc., as
Investment Manager
345 Park Avenue,
29th Floor
New York, New York 10154
MAGNETITE CBO II, LTD. 0 32,571 * 3,000 32,571 0 *
c/o BlackRock Financial
Management, Inc., as
Investment Manager
345 Park Avenue,
29th Floor
New York, New York 10154
MASON STREET FUNDS, INC.
FOR THE ASSET ALLOCATION 0 542 * 50 542 0 *
FUND
720 East Wisconsin Avenue
Milwaukee, WI 53202
MASON STREET FUNDS, INC.
FOR THE HIGH YIELD BOND 0 4,342 * 400 4,342 0 *
FUND
720 East Wisconsin Avenue
Milwaukee, WI 53202
Deutsche Asset Management 0 25,893 * 2,385 25,893 0 *
MGIT HIGH YIELD FUND
885 Third Avenue
New York, NY 10022
</TABLE>
17
<PAGE> 21
<TABLE>
<CAPTION>
OWNERSHIP OF
SHARES OF COMMON STOCK AND WARRANTS NUMBER OF OWNERSHIP OF SHARES
PRIOR TO OFFERING SHARES OFFERED OF OUTSTANDING COMMON
---------------------------------- NUMBER OF AND ISSUABLE STOCK AFTER OFFERING
COMMON WARRANTS UPON EXERCISE ------------------------
NAME AND ADDRESS SHARES WARRANTS PERCENTAGE OFFERED OF WARRANTS SHARES PERCENTAGE
---------------- ------ --------- ---------- --------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Deutsche Asset Management 0 597 * 55 597 0 *
MOBIL MEDICAL HIGH YIELD
885 Third Avenue
New York, NY 10022
NORTHWESTERN MUTUAL
SERIES FUND, INC.
FOR ITS HIGH 0 15,199 * 1,400 15,199 0 *
YIELD BOND PORTFOLIO
720 East Wisconsin Avenue
Milwaukee, WI 53202
Deutsche Asset Management 0 2,985 * 275 2,985 0 *
PSERS ASSET ALLOC - HY
885 Third Avenue
New York, NY 10022
STEIN ROE HIGH YIELD
PORTFOLIO 0 16,285 * 1,500 16,285 0 *
1 South Wacker Drive,
33rd Floor
Chicago, IL 60606
STRONG BALANCED FUND, INC. 0 21,714 * 2,000 21,714 0 *
100 Heritage Reserve
Menomonee Falls, WI 53051
STRONG HIGH YIELD CBO II 0 32,571 * 3,000 32,571 0 *
c/o Strong Capital
Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
STRONG I ML CBO 0 32,571 * 3,000 32,571 0 *
c/o Strong Capital
Management, Inc.
100 Heritage Reserve
Menomonee Falls, WI 53051
SYCAMORE CBO LIMITED 0 48,856 * 4,500 48,856 0 *
Conseco Capital Management
11825 N. Pennsylvania Street
Carmel, IN 46032
TCW GROUP, INC. 0 119,427 * 11,000 119,427 0 *
865 South Figueroa Street
Los Angeles, CA 90017
THE JORDAN TRUST 0 2,171 * 200 2,171 0 *
427 Bedford Road,
Suite 230
Pleasantville, NY 10570
</TABLE>
18
<PAGE> 22
<TABLE>
<CAPTION>
OWNERSHIP OF
SHARES OF COMMON STOCK AND WARRANTS NUMBER OF OWNERSHIP OF SHARES
PRIOR TO OFFERING SHARES OFFERED OF OUTSTANDING COMMON
---------------------------------- NUMBER OF AND ISSUABLE STOCK AFTER OFFERING
COMMON WARRANTS UPON EXERCISE ------------------------
NAME AND ADDRESS SHARES WARRANTS PERCENTAGE OFFERED OF WARRANTS SHARES PERCENTAGE
---------------- ------ --------- ---------- --------- -------------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
THE NORTHWESTERN MUTUAL
LIFE INSURANCE
COMPANY FOR 0 17,914 * 1,650 17,914 0 *
ITS GROUP ANNUITY
SEPARATE ACCOUNT
720 East Wisconsin Avenue
Milwaukee, WI 53202
TITANIUM CBO I LIMITED 0 32,571 * 3,000 32,571 0 *
c/o BlackRock Financial
Management, Inc.,
as Investment Manager
345 Park Avenue, 29th Floor
New York, New York 10154
</TABLE>
--------
* Indicates less than 1%.
** Assumes all of the warrants and shares of common stock offered by this
prospectus are sold.
None of the holders named above has, or had, any position, office or
other material relationship with us or any of our affiliates.
Because the selling holders may, under this prospectus, offer all or
some portion of the warrants or the common stock issued upon exercise of the
warrants, no estimate can be given as to the number of the warrants or shares of
common stock issued upon exercise of the warrants that will be held by the
selling holders upon termination of any sales. In addition, the selling holders
above may have sold, transferred or otherwise disposed of all or any portion of
their warrants, since the date on which they provided the information regarding
their warrants, in transactions exempt from the registration requirements of the
Securities Act. See "Plan of Distribution."
Only selling holders identified above who beneficially own the
securities set forth opposite each selling holder's name in the table above on
the effective date of the registration statement of which this prospectus forms
a part may sell those securities under the registration statement. Prior to any
use of this prospectus in connection with an offering of the warrants and/or the
shares of our common stock issued upon exercise of the warrants by any holder
not identified above, this prospectus will be supplemented to set forth the name
and number of warrants and/or shares of our common stock beneficially owned by
the selling securityholder intending to sell such warrants and/or shares of
common stock, and the number of warrants and/or shares of common stock to be
offered. The prospectus supplement will also disclose whether any selling
securityholder selling in connection with the prospectus supplement has held any
position or office with, been employed by or otherwise has had a material
relationship with, us or any of our subsidiaries or affiliates during the three
years prior to the date of the prospectus supplement if this information has not
been disclosed in this prospectus.
19
<PAGE> 23
DESCRIPTION OF THE WARRANTS
We issued the warrants under a warrant agreement between us and Wells
Fargo Bank Minnesota, N.A., as warrant agent. The following summary of some
provisions of the warrant agreement does not purport to be complete and is
qualified in its entirety by reference to the warrant agreement, which is filed
as an exhibit to the registration statement of which this prospectus forms a
part.
GENERAL
Each warrant, when exercised, will entitle the holder to receive
10.85703077 fully paid and nonassessable shares of our common stock, at an
exercise price of $6.60 per share of our common stock, subject to adjustment.
The exercise price and the number of warrant shares are both subject to
adjustment in specified cases referred to below. The holders of the warrants
would be entitled, in the aggregate, to purchase shares of our common stock
representing approximately 5.0% of our common stock on a fully diluted basis on
August 15, 2000. The warrants are currently exercisable. Unless exercised, the
warrants will automatically expire at 5:00 p.m. New York City time on August 15,
2010.
The holders of the warrants will have no right to vote on matters
submitted to our stockholders and will have no right to receive dividends. The
holders of the warrants will not be entitled to share in our assets in the event
of our liquidation, dissolution or our winding up. In the event a bankruptcy or
reorganization is commenced by or against us, a bankruptcy court may hold that
unexercised warrants are executory contracts which may be subject to rejection
by us with approval of the bankruptcy court, and the holders of the warrants
may, even if sufficient funds are available, receive nothing or a lesser amount
as a result of the bankruptcy case than they would be entitled to if they had
exercised their warrants prior to the commencement of the bankruptcy case.
In the event of a taxable distribution to holders of our common stock
that results in an adjustment to the number of warrant shares or other
consideration for which a warrant may be exercised, the holders of the warrants
may, in certain circumstances, be deemed to have received a distribution subject
to United States federal income tax as a dividend. See "Certain U.S. Federal
Income Tax Considerations."
Certificates for warrants will be issued in fully registered form only.
Subject to the terms of the warrant Agreement, the warrant certificates
evidencing the warrants may be surrendered for exercise or exchange, and the
transfer of warrant certificates will be registrable, at our office or agency
maintained for that purpose, which is currently the corporate trust office of
the warrant agent in Minneapolis, Minnesota. No service charge will be made for
registration of transfer or exchange of any warrant certificate so surrendered.
We may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of warrant certificates.
SEPARATION
The warrants are separately transferable from the senior subordinated
notes upon the earliest to occur of (1) 180 days after the closing of the
offering, (2) the date on which a registration statement for a registered
exchange offer with respect to the senior subordinated notes is declared
effective under the Securities Act, (3) the date a shelf registration statement
with respect to the senior subordinated notes or the warrants is declared
effective under the Securities Act, (4) such date as Donaldson, Lufkin &
Jenrette Securities Corporation in its sole discretion shall determine and (5)
the date on which an event of default with respect to the senior subordinated
notes has occurred or, in the event of a change of control, the date we mail the
requisite notice to the holders. On September 25, 2000, a registration statement
for a registered exchange offer with respect to the senior subordinated notes
was declared effective under the Securities Act by the Securities and Exchange
Commission. On that day, the warrants became separately transferable. We refer
to this date as the "separation date."
20
<PAGE> 24
EXERCISE
The warrants may be exercised by surrendering to us the warrants to be
exercised with the accompanying form of election to purchase properly completed
and executed, together with payment of the exercise price. Payment of the
exercise price may be made at the holder's election (i) in cash in United States
dollars by wire transfer or by certified or official bank check to our order or
(ii) by the surrender of one or more warrant certificates (and without the
payment of the exercise price in cash) in exchange for a number of shares of our
common stock equal to the product of (a) the number of shares of our common
stock for which the warrant is exercisable as of the exercise date (if the
exercise price were being paid in cash), and (b) the cashless exercise ratio.
The "cashless exercise ratio" shall equal a fraction, the numerator of which is
the excess of the current market value per share (as defined) of our common
stock on the exercise date over the exercise price per share as of the exercise
date and the denominator of which is the current market value per share of our
common stock on the exercise date. Upon surrender of a warrant certificate
representing more than one warrant, the number of shares of our common stock
deliverable upon a cashless exercise shall be equal to the product of the number
of shares of our common stock issuable in respect of those warrants that the
holder specifies are to be exercised pursuant to a cashless exercise multiplied
by the cashless exercise ratio. All provisions of the warrant agreement shall be
applicable with respect to an exercise of a warrant certificate in a cashless
exercise for less than the full number of warrants represented by that
certificate.
Upon surrender of the warrants and payment of the exercise price, we
will deliver or cause to be delivered, to or upon the written order of the
holder, stock certificates representing the number of whole warrant shares to
which the holder is entitled. If less than all of the warrants evidenced by a
warrant certificate are to be exercised, a new warrant certificate will be
issued for the remaining number of warrants. Holders of warrants will be able to
exercise their warrants only if a registration statement relating to the warrant
shares underlying the warrants is then in effect, or the exercise of the
warrants is exempt from the registration requirements of the Securities Act, and
those securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of
warrants or other persons to whom it is proposed that warrant shares be issued
on exercise of the warrants reside.
No fractional warrant shares will be issued upon exercise of the
warrants. We will pay to the holder of the warrant at the time of exercise an
amount in cash equal to the current market value of any such fractional warrant
shares less a corresponding fraction of the exercise price.
ADJUSTMENTS
The number of warrant shares purchasable upon exercise of warrants and
the exercise price will be subject to adjustment in specified events including:
(i) the payment by us of dividends and other distributions in
the form of capital stock on our common stock;
(ii) subdivisions, combinations and reclassifications of our
common stock;
(iii) the issuance to all holders of our common stock or to an
affiliate of ours of common stock or of securities convertible into or
exchangeable or exercisable for shares of common stock or of rights,
options or warrants entitling them to subscribe for our common stock or
securities convertible into, or exchangeable or exercisable for, our
common stock, in each case, at a price which is less than the current
market value per share (as defined) of our common stock; and
(iv) specified extraordinary dividends or distributions on our
common stock, in each case, other than (1) in connection with the
exercise of the warrants, (2) in connection with any security
convertible into, or exchangeable or exercisable for, shares of common
stock outstanding as of the issue date, (3) upon
21
<PAGE> 25
the conversion, exchange or exercise of any convertible, exchangeable
or exercisable security as to which the issuance thereof has previously
been the subject of any required adjustment under the warrant agreement
and (4) upon the conversion, exchange or exercise of our convertible,
exchangeable or exercisable securities outstanding on the issue date
(to the extent in accordance with the terms of those securities as in
effect on that date).
Notwithstanding the foregoing, no adjustment in the exercise price will
be required in respect of:
(a) the grant of any stock option or other stock incentive award under
any stock option or stock incentive plan or other specified arrangement,
(b) the grant of any stock option or stock incentive award at an
exercise price at least equal to the current market value per share (as
defined),
(c) the grant of any other stock option or stock incentive award to any
of our officers, directors or employees or any of our subsidiaries under any
compensatory plan or arrangement that has been approved by our board of
directors, or
(d) the exercise of any such option or award.
If we, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of our properties and assets to another person or group of affiliated persons or
are a party to a merger or binding share exchange which reclassifies or changes
our outstanding common stock, as a condition to consummating any such
transaction the person formed by or surviving this consolidation or merger if
other than us or the person to whom that transfer has been made shall enter into
a supplemental warrant agreement. We refer to any such transaction as a
"fundamental transaction." The supplemental warrant agreement shall provide:
(a) that the holder of a warrant then outstanding may exercise it for
the kind and amount of securities, cash or other assets which the holder would
have received immediately after the fundamental transaction if the holder had
exercised the warrant immediately before the effective date of the transaction,
regardless of whether the warrants are then exercisable and without giving
effect to the cashless exercise option, assuming, to the extent applicable, that
the holder (1) was not a constituent person or an affiliate of a constituent
person to that transaction, (2) made no election with respect to that
transaction and (3) was treated alike with the plurality of non-electing
holders, and
(b) that the surviving person shall succeed to and be substituted for
every right and obligation of ours in respect of the warrant agreement and the
warrants.
The surviving person shall mail to holders of warrants at the addresses
appearing on the warrant register a notice briefly describing the supplemental
warrant agreement. If the issuer of securities deliverable upon exercise of
warrants is an affiliate of the surviving person, that issuer shall join in the
supplemental warrant agreement.
Notwithstanding the foregoing, if we enter into a fundamental
transaction with another person, other than a subsidiary of ours, and
consideration is payable to holders of the shares of our capital stock, or other
securities or property, issuable or deliverable upon exercise of the warrants
that are exercisable in exchange for those shares in connection with that
fundamental transaction which consists solely of cash, then the holders of
warrants shall be entitled to receive distributions on the date of that event on
an equal basis with holders of those shares (or other securities issuable upon
exercise of the warrants) as if the warrants had been exercised immediately
prior to that event, less the exercise price therefor. Upon receipt of that
payment, if any, the rights of a holder of a warrant shall terminate and cease
and that holder's warrants shall expire.
22
<PAGE> 26
If there is an adjustment to the number of shares of common stock or
other consideration for which such a warrant may be exercised, the holders of
the warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain U.S. Federal Income Tax Considerations."
Fractional shares of common stock are not required to be issued upon
exercise of warrants, but in lieu thereof we will pay a cash adjustment, except
in limited circumstances.
If any event occurs as to which the foregoing provisions are not
strictly applicable or, if strictly applicable, would not, in the good faith
judgment of our board of directors, fairly and adequately protect the rights of
the warrants in accordance with the essential intent and principles of those
provisions, then our board of directors shall make such adjustments in the
application of those provisions, in accordance with those essential intent and
principles, as shall be reasonably necessary, in the good faith opinion of that
board of directors, to protect those rights as stated above, but in no event
shall any such adjustment have the effect of decreasing the exercise price or
decreasing the number of warrant shares issuable upon exercise of the warrants.
"Current market value" per share of any class of our common stock
at any date shall mean:
(1) if no class of common stock is then (A) registered under the
Exchange Act and (B) traded on a national securities exchange or on the Nasdaq
National Market System, (a) the value of that class of common stock, determined
in good faith by our board of directors and certified in a board resolution,
taking into account the most recently completed arms-length transaction between
us and a Person other than an affiliate of ours and the closing of which occurs
on that date or shall have occurred within the six-month period preceding that
date, or (b) if no such transaction shall have occurred on that date or within
that six-month period, the fair market value of the security as determined by a
nationally recognized independent financial expert (as defined), provided that,
in the case of the calculation of current market value for determining the cash
value of fractional shares, any such determination within six months that is, in
the good faith judgment of our board of directors, a reasonable determination of
value, may be utilized; or
(2) (a) if any class of common stock is then (A) registered under the
Exchange Act and (B) traded on a national securities exchange or on the Nasdaq
National Market System, the average of the daily closing sales prices of that
class of common stock for the 20 consecutive trading days immediately preceding
that date, or (b) if that class of common stock has been registered under the
Exchange Act and traded on a national securities exchange or on the Nasdaq
National Market System for less than 20 consecutive trading days before that
date, then the average of the daily closing sales prices for all of the trading
days before that date for which closing sales prices are available, in the case
of each of (a) and (b), as certified to the warrant agent by our chief executive
officer, our president, or any executive vice president or the chief financial
officer or treasurer of ours. The closing sales price of each trading day shall
be the closing sales price, regular way, on that day, or if no sale takes place
on that day, the average of the closing bid and asked prices on that day.
"Independent financial expert" means a nationally recognized
independent investment banking, appraisal or accounting firm.
No adjustment in the exercise price will be required unless that
adjustment would require an increase or decrease of at least one percent (1.0%)
in the exercise price; PROVIDED, HOWEVER, that any adjustment that is not made
will be carried forward and taken into account in any subsequent adjustment.
RESERVATION OF SHARES
We have authorized and reserved for issuance and will at all times
reserve and keep available that number of shares of our common stock as will be
issuable upon the exercise of all outstanding warrants. Those shares of our
common stock, when paid for and issued, will be duly and validly issued, fully
paid
23
<PAGE> 27
and non-assessable, free of preemptive rights and free from all taxes, liens,
charges and security interests with respect to the issuance thereof.
AMENDMENT
From time to time, we and the warrant agent, without the consent of the
holders of the warrants, may amend or supplement the warrant agreement for
specified purposes, including curing ambiguities, defects or inconsistencies or
making any change that does not adversely affect the legal rights of any holder.
Any amendment or supplement to the warrant agreement that adversely affects the
legal rights of the holders of the warrants will require the written consent of
the holders of a majority of the then outstanding warrants, excluding warrants
held by us or any of our affiliates. The consent of each holder of the warrants
affected will be required for any amendment under which the exercise price would
be increased or the number of warrant shares purchasable upon exercise of
warrants would be decreased, other than pursuant to adjustments provided in the
warrants agreement, or any of the adjustment provisions in the warrant agreement
would be changed in a manner that would have any such effect.
SEC REPORTS AND OTHER INFORMATION
We shall at all times provide the warrant agent and holders of warrants
with such annual reports and such information, documents and other reports as
are specified in Sections 13 and 15(d) of the Exchange Act to be so provided at
the times specified for the filing of such information, documents and reports
under such Sections. In addition, for so long as any warrants remain
outstanding, we will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered under Rule 144A(d)(4) under the Securities Act, and, to beneficial
holders of warrants, if not obtainable from the SEC, information of the type
that would be filed with the SEC under the foregoing provisions, upon the
request of any holder.
NO RIGHTS AS STOCKHOLDERS
The holders of unexercised warrants are not entitled, by virtue of
being such holders, to vote, to consent, to exercise any preemptive rights or to
receive notice as our stockholders in respect of any stockholders' meeting for
the election of our directors or any other purpose, or to exercise any other
rights whatsoever as our stockholders.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This general discussion of certain U.S. federal income and estate tax
considerations with respect to the acquisition, ownership and disposition of a
registered warrant, and of a share of common stock acquired upon exercise of a
registered warrant, applies to you if you acquire a registered warrant in
exchange for an original warrant and if you acquired the original warrant for
cash on its original issuance at the issue price of the unit consisting of an
original note and original warrants and if you hold the original warrant and the
registered warrant and any common stock acquired on exercise of the registered
warrant as capital assets within the meaning of section 1221 of the Internal
Revenue Code of 1986, as amended.
This discussion is based upon the Internal Revenue Code, Treasury
regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, each of which is subject to change at any time by
legislative, administrative, or judicial action, possibly with retroactive
effect. The discussion does not discuss every aspect of U.S. federal income and
estate taxation that may be relevant to a particular taxpayer in light of its
24
<PAGE> 28
personal circumstances or to persons who are otherwise subject to special tax
treatment. For example, special rules not discussed here may apply to you if you
are:
o a bank or a broker-dealer;
o an insurance company;
o a pension or other employee benefit plan;
o a tax exempt organization or entity;
o a U.S. expatriate or former long-term resident of the
United States;
o a trader in securities that elects mark-to-market accounting
treatment;
o a person holding registered warrants or common stock as a part
of a hedging or conversion transaction or a straddle;
o a hybrid entity or an owner of interests therein; or
o a holder whose functional currency is not the U.S. dollar.
In addition, this discussion does not address the effect of any
applicable foreign, state, local or other tax laws. We have not sought and will
not seek any rulings from the Internal Revenue Service concerning the tax
consequences of the acquisition, ownership or disposition of a registered
warrant or a share of common stock acquired on exercise of a registered warrant
and, accordingly, we cannot assure you that the Internal Revenue Service will
not successfully challenge the tax consequences described below. WE URGE YOU TO
CONSULT YOUR TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL INCOME AND ESTATE TAX
CONSIDERATIONS RELEVANT TO ACQUIRING, HOLDING AND DISPOSING OF A REGISTERED
WARRANT OR A SHARE OF COMMON STOCK AS WELL AS ANY TAX CONSIDERATIONS APPLICABLE
UNDER THE LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
U.S. HOLDERS
If you are a "U.S. Holder," as defined below, this section applies to
you. Otherwise, the section "Non-U.S. Holders" applies to you. You are a U.S.
Holder if you are the beneficial owner of a registered warrant or share of
common stock acquired on exercise of a registered warrant and you are:
o a citizen or individual resident (as defined in
section 7701(b) of the Internal Revenue Code) of the United
States;
o a corporation (or an entity treated as a corporation) created
or organized in the United States or under the laws of the
United States, any state or the District of Columbia;
o an estate the income of which is subject to U.S. federal
income tax regardless of its source; or
o a trust if (a) a U.S. court is able to exercise primary
supervision over the administration of the trust and one or
more United States persons have the authority to control all
substantial decisions of the trust or (b) the trust was in
existence on August 20, 1996 and properly elected to
continue to be treated as a United States person.
25
<PAGE> 29
TAX TREATMENT OF REGISTERED WARRANTS. No gain or loss will be
recognized for U.S. federal income tax purposes upon exercise of a registered
warrant (except that gain or loss will be recognized to the extent cash is
received in lieu of a fractional share). The holding period for common stock
acquired upon exercise of a registered warrant will begin on the date of
exercise of the registered warrant. The tax basis of your shares of common stock
acquired upon exercise of a registered warrant will be equal to the sum of (i)
your tax basis in the registered warrant and (ii) the exercise price, if any. A
U.S. Holder's tax basis in a registered warrant will equal that portion of the
issue price of a unit consisting of an original note and an original warrant
that was allocated to the original warrant based upon the relative fair market
values of the original note and the original warrants comprising the unit.
Because the unit was issued for money, the "issue price" of the unit was the
first price at which a substantial amount of the units was sold for money. For
purposes of determining the issue price of the units, sales to bond houses,
brokers, or similar persons or organizations acting in the capacity as
underwriters, placement agents or wholesalers are ignored. Under Treasury
regulations, we have allocated the issue price of the units between the original
notes and the original warrants. That allocation will be binding on all holders
of units, unless a holder explicitly discloses (on a form prescribed by the
Internal Revenue Service and attached to the holder's timely-filed U.S. federal
income tax return for the taxable year that includes the acquisition date of the
unit) that its allocation of the issue price of a unit is different from the
issuer's allocation. Our allocation is not, however, binding on the Internal
Revenue Service. Based on our allocation, the initial tax basis of each original
warrant was $39.00.
In general, you will recognize gain or loss on a sale, exchange or
other taxable disposition of a registered warrant in an amount equal to the
difference between the amount realized on the sale, exchange or other
disposition and your tax basis in the registered warrant. That gain or loss
generally will be long-term capital gain or loss if you held the registered
warrant for more than one year at the time of the disposition. Non-corporate
taxpayers are generally subject to a maximum regular U.S. federal income tax
rate of 20 percent on net long-term capital gain. The deductibility of capital
losses is subject to certain limitations.
The expiration of a registered warrant generally should result in a
capital loss equal to your tax basis in the registered warrant, and that loss
will be long-term capital gain or loss if you held the registered warrant for
more than one year at the time of the expiration.
An adjustment made to the number of shares that may be acquired on the
exercise of a registered warrant, or the failure to make an adjustment, may
result in a constructive distribution to you on a registered warrant or on
common stock. As a result, you might be required to include amounts in income
even though you will not have received any related cash or other property.
TAX TREATMENT OF COMMON STOCK ACQUIRED ON EXERCISE OF A REGISTERED
WARRANT. Cash distributed on common stock will be treated as a dividend to the
extent of our current and accumulated earnings and profits attributable to the
distribution as determined under U.S. federal income tax principles. If the
amount of a distribution exceeds our current and accumulated earnings and
profits attributable to the distribution, the distribution next will be treated
as a nontaxable return of capital that will be applied against and reduce your
adjusted tax basis in the common stock, on a share-by-share basis, but not below
zero and thereafter as gain from a constructive sale of the common stock.
Corporate U.S. Holders of common stock generally should be eligible
for the 70% dividends-received deduction with respect to the portion of any
distribution on the stock taxable as a dividend. However, corporate investors
should consider certain provisions that may limit the availability of a
dividends-received deduction, including but not
26
<PAGE> 30
limited to the holding period rules of section 246(c) of the Internal Revenue
Code, the rules of section 246A of the Internal Revenue Code that reduce the
dividends-received deduction on dividends on certain debt-financed stock, and
the rules in section 1059 of the Internal Revenue Code that reduce the basis of
stock (and may require recognition of taxable gain) in respect of certain
extraordinary dividends, as well as the effect of the dividends-received
deduction on the determination of alternative minimum tax liability.
If you sell or dispose of your common stock in a taxable transaction,
you will recognize capital gain or loss equal to the difference between the sum
of the cash and the fair market value of any property received and your tax
basis in the common stock. A U.S. Holder's tax basis in shares of common stock
acquired upon exercise of a registered warrant will be determined in the manner
set forth in "--U.S. Holders --Tax Treatment of Registered Warrants" above. The
gain or loss will be long-term capital gain or loss if your holding period for
your stock exceeds one year. For corporate taxpayers, long-term capital gains
are taxed at the same rate as ordinary income. For individual taxpayers, net
capital gain -- the excess of the taxpayer's net long-term capital gains over
short-term capital losses -- is subject to a maximum tax rate of 20 percent. The
deductibility of capital losses is restricted and generally may be used only to
reduce capital gains to the extent thereof.
INFORMATION REPORTING AND BACKUP WITHHOLDING. A U.S. Holder of a
registered warrant or share of common stock may be subject, under certain
circumstances, to information reporting and backup withholding at a rate of 31
percent with respect to certain reportable payments, including dividends on the
common stock and the gross proceeds from a disposition of a registered warrant
or share of common stock. The backup withholding rules apply if the holder,
among other things,
o fails to furnish a social security number or other taxpayer
identification number, known as a TIN, certified under penalties
of perjury within a reasonable time after the request therefor,
o furnishes an incorrect TIN,
o fails to report properly the receipt of interest or dividends or
o under certain circumstances, fails to provide a certified
statement, signed under penalties of perjury, that the TIN
furnished is the correct number and that the holder is not subject
to backup withholding.
A U.S. Holder who does not provide us with its correct TIN also may be
subject to penalties. Backup withholding will not apply with respect to
payments made to certain holders, including corporations and tax-exempt
organizations, provided their exemptions from backup withholding are properly
established. We will report annually to the Internal Revenue Service and to
each U.S. Holder of a registered warrant or share of common stock the amount of
any reportable payments and the amount of tax withheld, if any, with respect to
those payments.
Any amounts withheld under the backup withholding rules from a payment
to a U.S. Holder will be allowed as a refund or as a credit against that U.S.
Holder's U.S. federal income tax liability, provided the requisite procedures
are followed.
NON-U.S. HOLDERS
The following discussion is limited to U.S. federal income and estate
tax consequences relevant to a Non-U.S. Holder. As used herein, a "Non-U.S.
27
<PAGE> 31
Holder" is a beneficial owner of a registered warrant, or share of common stock
acquired on exercise of a registered warrant, that, for U.S. federal income tax
purposes, is
o a nonresident alien individual;
o a corporation (or an entity treated as a corporation) created
or organized in or under the law of a country (or a political
subdivision thereof) other than the United States; or
o a foreign estate or trust, which generally is an estate or
trust that is not a U.S. Holder.
For purposes of the withholding tax discussed below (other than backup
withholding), a Non-U.S. Holder includes a nonresident fiduciary of an estate or
trust. This discussion does not address tax consequences relevant to an
expatriate or former long-term resident of the United States or to a person who
holds a registered warrant or share of common stock through a partnership. A
person who holds a registered warrant or share of common stock through a hybrid
entity (that is, an entity that is fiscally transparent for U.S. federal income
tax purposes but not for foreign tax purposes) may not be entitled to the
benefits of a tax treaty. For example, a person who is a partner in a foreign
partnership or beneficiary of a foreign trust or estate and who is subject to
U.S. federal income tax because of his own status, for example, as a U.S.
resident or a foreign person engaged in trade or business in the United States,
may be subject to U.S. federal income tax even though the foreign partnership,
trust or estate is not itself subject to U.S. federal income tax. For purposes
of the following discussion, "U.S. trade or business income" of a Non-U.S.
Holder generally means a dividend on common stock or gain on a sale, exchange or
retirement of a registered warrant or share of common stock if the dividend or
gain is (i) effectively connected with trade or business conducted by the
Non-U.S. Holder within the United States or (ii) in most cases of a resident of
a country with which the United States has an income tax treaty, attributable to
a permanent establishment (or fixed base) of the Non-U.S. Holder in the United
States.
TAX TREATMENT OF REGISTERED WARRANTS. A Non-U.S. Holder will not
recognize any gain or loss upon exercise of a registered warrant in exchange
for common stock. The holding period for common stock acquired upon exercise of
a registered warrant will begin on the date of exercise of the registered
warrant. Non-U.S. Holder's initial tax basis in a registered warrant will be
equal to the portion of the issue price of the unit allocable to the registered
warrant, as described above under "--U.S. Holders--The Notes Original Issue
Discount." The tax basis of a Non-U.S. Holder's shares of common stock
acquired upon exercise of a registered warrant will be equal to the sum of
(i) the tax basis in the registered warrant and (ii) the exercise price, if any.
An adjustment to the exercise price of the registered warrants, or the
failure to make an adjustment, in certain circumstances may result in a
constructive distribution to the holders of the registered warrants that could
be taxable as a dividend under Section 305 of the Code. In that event, a
holder's tax basis in the registered warrant would increase by the amount of the
dividend.
DIVIDENDS ON COMMON STOCK. In general, dividends paid to a Non-U.S.
Holder of common stock will be subject to withholding of U.S. federal income
tax at a 30 percent rate unless an applicable tax treaty reduces the rate.
Dividends paid to an address in a foreign country generally are presumed (absent
actual knowledge to the contrary) to be paid to a resident of that country for
purposes of the withholding discussed above and for purposes of determining the
applicability of a tax treaty rate. Under new Treasury regulations (generally
effective January 1, 2001), a Non-U.S. Holder of common stock who wishes to
claim the benefit of an applicable treaty rate will be required to satisfy
certain certification and other requirements, which will include the requirement
that the Non-U.S. Holder file a Form W-8BEN containing the holder's name and
address, and may require the Non-U.S. Holder to provide certain documentary
evidence issued by foreign governmental authorities as proof of residence in the
foreign country. A Non-U.S. Holder of common stock that is eligible for a
reduced rate of U.S. withholding tax pursuant to a tax treaty may obtain a
refund of any excess amount withheld by filing an appropriate claim for a refund
with the Internal Revenue Service.
Dividends that are U.S. trade or business income are generally subject
to U.S. federal income tax on a net basis at regular income tax rates and are
not subject to U.S. withholding tax if the Non-U.S. Holder provides the
appropriate form to the payer. Any U.S. trade or business income received by a
Non-U.S. Holder that is a corporation may be eligible for the dividends received
deduction but also, under certain circumstances, may be subject to an additional
"branch profits tax" at a 30 percent rate or lower rate that may apply under a
tax treaty.
28
<PAGE> 32
TAXABLE DISPOSITION OF A REGISTERED WARRANT OR SHARE OF COMMON STOCK.
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange,
redemption or other disposition of a registered warrant or of a share of common
stock generally will not be subject to U.S. federal income tax, unless (1) that
gain is U.S. trade or business income (in which case the branch profits tax also
may apply), (2) subject to certain exceptions, the Non-U.S. Holder is an
individual, who is present in the United States for 183 days or more during the
taxable year of the disposition, and certain other conditions are present, or we
are or have been a United States real property holding corporation, known as a
USRPHC, for U.S. federal income tax purposes. Under the rules applicable to
USRPHCs, however, our common stock will not be treated as stock in a USRPHC,
gain on the disposition of which is subject to tax, in the case of a Non-U.S.
Holder that holds and has held not more than five percent of our common stock
within the five-year (or, in certain cases, shorter) period ending on the date
of the sale or other disposition, if our common stock is treated as regularly
traded on an established securities market. We believe that we currently are not
a USRPHC. However, because the rules defining what constitutes a USRPHC are
technical and complicated, and because our status as a USRPHC depends on whether
the value of our U.S. real property interests exceeds the sum of the values of
our real property interests outside the U.S. and of our other trade or business
assets as those values may exist from time to time, no assurance can be given
that we are not currently a USRPHC or that we will not become a USRPHC in the
future. In addition, if we are or become a USRPHC, because the rules determining
when stock is regularly traded on an established securities market are unclear,
it is possible that our stock would not be treated as so traded. One portion of
the Treasury regulations provides that a class of stock that is traded on an
established securities market in the United States is treated as regularly
traded for any calendar quarter during which it is regularly quoted by brokers
or dealers making a market in that stock. A broker or dealer makes a market in
stock only if the broker or dealer holds himself out to buy or sell the stock at
the quoted price. Our common stock would be treated as regularly traded on an
established securities market under that rule. Another portion of the Treasury
regulations provides that a class of stock is treated as not regularly traded on
an established securities market if at any time during a calendar quarter 100 or
fewer persons own 50 percent or more of the outstanding shares of that class.
Our common stock would not be treated as regularly traded on an established
securities market under that rule. If our common stock is not treated as so
traded, any gain recognized by a Non-U.S. Holder on a sale, exchange, redemption
or other disposition of a registered warrant or of common stock will be subject
to U.S. federal income tax, even if the Non-U.S. Holder has not owned more than
five percent of our common stock within the relevant five-year (or shorter)
period. In general, a purchaser of stock in a USRPHC is required to withhold,
and to remit to the Internal Revenue Service, ten percent of the seller's amount
realized from the sale, unless the purchaser receives a certification in
appropriate form from the seller that the seller is not a United States person,
or unless another exemption from withholding applies. This withholding
obligation does not apply upon the acquisition of an interest in a USRPHC if any
class of the corporation's stock is regularly traded on an established
securities market. If our common stock is not treated as so traded, and if we
are a USRPHC, this withholding obligation could apply upon purchases of our
stock, unless another exemption from withholding applies.
A Non-U.S. Holder's tax basis in a registered warrant will be equal to
the portion of the holder's tax basis in a unit that is allocated to the
original warrant as described in "Certain U.S. Federal Tax Consequences -- U.S.
Holders -- Tax Treatment of Warrants" above. A Non-U.S. Holder's tax basis in
shares of common stock acquired upon exercise of a warrant will be determined in
the manner set forth in "--U.S. Holders -- Tax Treatment of Warrants" above.
FEDERAL ESTATE TAX. In the case of an individual who is not a citizen
of the United States and who is not domiciled in the United States at the time
of death,
o a warrant that is owned, or treated as owned, at the time of
death may be subject to U.S. federal estate tax, except as an
applicable estate tax treaty provides to the contrary; and
o a share of our common stock will be subject to U.S. federal
estate tax, except as an applicable estate tax treaty provides
to the contrary.
In the case of an individual who is not a citizen of the United States
but who is domiciled in the United States at the time of death, a warrant and a
share of our common stock will be subject to U.S. federal estate tax, regardless
of whether the individual is not a resident of the United States, except as an
applicable estate tax treaty provides to the contrary.
INFORMATION REPORTING; BACKUP WITHHOLDING. Under the current Treasury
regulations, backup withholding generally will not apply to dividends paid to a
Non-U.S. Holder at an address outside the United States, unless the payer has
actual knowledge that the payee is a United States person. Backup withholding
and information reporting generally will apply, however, to dividends paid on
our common stock to a Non-U.S. Holder at an address in the United States, if
that holder fails to establish an exemption or to provide certain other
information to the payer. Under new Treasury regulations that generally will be
effective for payments made after December 31, 2000, a Non-U.S. Holder will be
subject to backup withholding of tax unless applicable certification
requirements are met.
29
<PAGE> 33
The payment of the proceeds from the disposition of a registered
warrant or share of common stock to or through the U.S. office of any broker,
U.S. or foreign, is subject to information reporting and possible backup
withholding unless the owner certifies under penalties of perjury that it is not
a U.S. Holder or otherwise establishes an exemption (provided that the broker
does not have actual knowledge that the holder is not a Non-U.S. Holder or that
the conditions of any other exemption are not, in fact, satisfied).
The proceeds of a disposition of a registered warrant or share of
common stock by a Non-U.S. Holder to or through a foreign office of a broker
will not be subject to backup withholding. However, information reporting will
apply in the case of a "U.S. related broker" unless the broker has documentary
evidence in its files of the Non-U.S. Holder's foreign status and has no actual
knowledge to the contrary or unless the Non-U.S. Holder otherwise establishes an
exemption. A broker is a "U.S. related broker" if the broker is a United States
person, a controlled foreign corporation for U.S. federal income tax purposes, a
foreign person 50 percent or more of whose income from all sources for a
designated period is from activities that are effectively connected with the
conduct of trade or business within the United States or, with respect to
payments made after December 31, 2000, a foreign partnership that, at any time
during its taxable year, is owned 50 percent or more (by income or capital
interest) by United States persons or is engaged in the conduct of trade or
business in the United States. The new Treasury regulations provide certain
presumptions under which a Non-U.S. Holder will be subject to backup withholding
and information reporting unless the Non-U.S. Holder provides a certification as
to its status as a Non-U.S. Holder.
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder will be allowed as a refund or as a credit against the
Non-U.S. Holder's U.S. federal income tax liability, provided the requisite
procedures are followed.
THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES IS FOR GENERAL INFORMATION ONLY AND DOES NOT CONSTITUTE TAX
ADVICE. ACCORDINGLY, EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISER AS
TO THE PARTICULAR TAX CONSEQUENCES TO IT OF ACQUIRING, HOLDING AND DISPOSING OF
A REGISTERED WARRANT OR SHARE OF COMMON STOCK, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN
APPLICABLE LAWS.
DESCRIPTION OF CAPITAL STOCK
COMMON AND PREFERRED STOCK
Our authorized capital stock consists of 60,000,000 shares of common
stock, $.001 par value, and 1,000,000 shares of preferred stock, $.001 par
value. As of October 24, 2000, there were 18,622,653 shares of common stock
outstanding and 278,400 shares of series A preferred stock outstanding.
COMMON STOCK. The holders of the common stock are entitled to one vote
per share of record on all matters to be voted upon by stockholders and to vote
together as a single class for the election of directors and in respect of other
corporate matters. At a meeting of stockholders at which a quorum is present,
for all matters other than the election of directors, a majority of the votes
cast decides all questions, unless the matter is one upon which a different vote
is required by express provision of law or the Certificate of Incorporation or
Bylaws. Directors will be elected by a plurality of the votes of the shares
present at a meeting. There is no cumulative voting with respect to the election
of directors or any other matter.
The holders of common stock have no preemptive rights and have no
rights to convert their common stock into any other securities. Subject to the
rights of holders of preferred stock, if any, in the event of a liquidation,
dissolution or winding up of our company, holders of common stock are entitled
to participate equally and ratably in all assets remaining after payment of
liabilities and distribution of any preferential amount.
The holders of common stock are entitled to receive ratably any
dividends declared by the board of directors of funds legally available
therefor, when and if so declared, subject to any preference in favor of
outstanding shares of preferred stock, if any. The payment of dividends, if any,
rests within the discretion of our board of directors and will depend upon our
results of operations, financial condition and capital expenditure plans, as
well as other factors considered relevant by the board of directors.
PREFERRED STOCK. Our certificate of incorporation authorizes the
issuance of 1,000,000 shares of "blank check" preferred stock with the
designations, rights and preferences as may be determined from time to time by
the board of directors. Accordingly, the board of directors is authorized,
without action by the stockholders, to issue preferred stock from time to time
with the dividend, liquidation, conversion, voting and other rights and
restrictions as it may determine.
Our board of directors has designated 1,000,000 shares as series A
convertible redeemable preferred stock. As of October 24, 2000, 278,400 shares
of series A preferred stock are outstanding and 182,000 shares have been
converted into common stock. The holders of series A preferred stock have no
voting rights except as required by law, except that the affirmative vote of the
holders of a majority of the outstanding shares of series A preferred
30
<PAGE> 34
stock is necessary for (1) the issuance of capital stock ranking on a parity
with, or senior to, the series A preferred stock, (2) the authorization or
issuance of securities convertible into the parity or senior securities, or (3)
the amendment to our certificate of incorporation which adversely affects the
series A preferred stock, or waiver of any other covenants.
The holders of the series A preferred stock are entitled to receive
dividends, payable semi-annually in arrears, at the rate of $1.875 per share per
annum, payable in cash. In the event of voluntary or involuntary liquidation,
dissolution or winding up of our company, holders of the series A preferred
stock will be entitled to receive $25.00 per share, known as the Liquidation
Value, plus accrued and unpaid dividends. Each holder of the series A preferred
stock has the right, at the holder's option, to convert any or all of its shares
of series A preferred stock into common stock, at any time, at a conversion
price of $8.25, subject to adjustment under selected circumstances. We may
redeem the series A preferred stock if the average closing price of the common
stock, as reported on the Nasdaq National Market, equals or exceeds 150% of the
conversion price for any 10 trading days within a 30 consecutive trading day
period, at a redemption price per share equal to the Liquidation Value plus
accrued and unpaid dividends. We are required to redeem the outstanding shares
of series A preferred stock on December 31, 2003, at a redemption price per
share equal to the Liquidation Value plus accrued and unpaid dividends. Upon a
change in control of our company, each holder of the series A preferred stock
will have the option to require us to repurchase the holder's shares of series A
preferred stock at a price per share equal to the Liquidation Value plus accrued
and unpaid dividends.
WARRANTS
In April 1999, in connection with the US$100.0 million bridge loan
provided by Barclays Bank PLC for the acquisition of the business of V/Line
Freight Corporation, we issued to Barclays Bank PLC warrants to purchase 750,000
shares of our common stock at an exercise price of $9.75 per share, subject to
adjustment under selected circumstances. These warrants are exercisable during
the five-year period ending April 30, 2004.
In August 1999, we issued warrants to purchase an aggregate of 676,363
shares of common stock in connection with a private offering of $22.5 million
principal amount of our junior convertible subordinated debentures. The warrants
are exercisable during the five-year period ending August 5, 2004 at an exercise
price of $10.50 per share, subject to adjustment under selected circumstances.
On November 30, 1999, we became obligated to issue to Barclays Bank PLC
warrants to purchase 50,000 shares of our common stock at an exercise price of
$7.875. These warrants are exercisable during the five year period ending
November 30, 2004.
We have also issued warrants to placement agents in connection with
previous securities offerings, including the following:
o warrants to purchase 140,727 shares of common stock at an
exercise price of $10.125 per share during the two-year period
ending January 15, 2001; and
o warrants to purchase 200,000 shares of common stock at an
exercise price of $10.50 per share during the two-year period
ending July 31, 2001.
The exercise prices may be adjusted under selected circumstances.
In connection with the issuance of the asset sale bridge notes, the
purchasers of those notes are entitled to receive warrants to purchase common
stock at an exercise price of $7.75 per share commencing in August 2000 to the
extent the asset sale bridge notes are then outstanding. The maximum number of
shares issuable upon exercise
31
<PAGE> 35
of all these warrants would be 577,679, subject to specified anti-dilution
adjustments. In August 2000, 288,840 of those warrants were issued.
On June 22, 2000, we issued three-year warrants to purchase 150,000
shares of our common stock to JWGenesis. Of these warrants, 75,000 are at an
exercise price of $5.50 and 75,000 are at an exercise price of $6.50.
In August 2000, we issued the warrants offered by this prospectus. See
"Description of the Warrants."
JUNIOR CONVERTIBLE SUBORDINATED DEBENTURES
In August 1999, we issued $22.5 million aggregate principal amount of
our junior convertible subordinated debentures. Interest on the debentures
accrues at the rate of 6% per annum and is payable semi-annually, commencing
January 31, 2000. The debentures are convertible, at the option of the holder,
into shares of our common stock equal to the aggregate principal amount of the
debentures being converted divided by $10.00, subject to adjustment in selected
circumstances. The debentures mature on July 31, 2004, are general unsecured
obligations and rank subordinate in right of payment to all senior indebtedness
(as the term is defined in the debentures). At our option, the debentures may be
redeemed at par, plus accrued but unpaid interest thereon to the date of
redemption, in whole or in part, if the closing price of our common stock is
above 200% of the conversion price for 10 consecutive trading days. In July
2000, holders of debentures with an aggregate principal amount of $350,000
converted their debentures into shares of our common stock.
PROVISIONS WITH POSSIBLE ANTITAKEOVER EFFECT
Selected provisions of Delaware law and of our certificate of
incorporation, summarized in the following paragraphs, may be considered to have
an anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in his
best interest, including attempts that may result in payment of a premium over
the market price for shares held by stockholders. These provisions may also have
the effect of rendering changes in the board of directors and management of our
company more difficult. Any discouraging effect upon takeover attempts could
potentially depress the market price of the common stock or inhibit temporary
fluctuations in the market price of the common stock that otherwise could result
from actual or rumored takeover attempts.
DELAWARE ANTI-TAKEOVER LAW. We are a Delaware corporation and are
subject to Section 203 of Delaware Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% more of a
corporation's outstanding voting stock) from engaging in a "business
combination" with specified Delaware corporations for three years following the
date that person became an interested stockholder unless (1) the corporation has
elected in its certificate of incorporation not to be governed by Section 203
(we have made this election); (2) before that person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination; (3) upon consummation of the transaction that resulted
in the interested stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (excluding stock held by directors who are
also officers of the corporation and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be voted or tendered in a tender or exchange offer); or (4)
following the transaction in which that person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of two-thirds of the outstanding voting stock of the corporation
not owned by the interested stockholder. The restrictions in Section 203 also do
not apply to some business combinations proposed by an interested stockholder
following the announcement or notification of an extraordinary transaction
involving the corporation and a person who had not been an interested
stockholder during the previous three years or a person who became an interested
stockholder with the approval of a majority of the corporation's directors. The
term "business combination" is defined generally to include mergers or
consolidations between a Delaware corporation
32
<PAGE> 36
and an "interested stockholder," transactions with an "interested stockholder"
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock.
RIGHTS PLAN. In January 1998, we implemented a Common Stock Purchase
Rights Plan and distributed one right for each share of our common stock
outstanding. Each right has an initial exercise price of $36 for one share of
our common stock. The rights are not exercisable or transferable, apart from our
common stock, until after a person or group acquires, or has the right to
acquire, beneficial ownership of 15% (except in specific instances) or more of
our common stock (which threshold may, under some circumstances, be reduced to
10%) or announces a tender or exchange offer to acquire 15% or more of our
common stock. Upon this occurrence, each right, other than rights owned by the
person or group, will entitle the holder to purchase from us, or the particular
acquiring person or group under some circumstances and conditions, the number of
shares of our, or, the person's or group's, common stock having a market value
equal to twice the exercise price of the right. The rights are redeemable by our
board of directors under circumstances set forth in the rights agreement. The
rights plan could have the effect of making it more difficult for a third party
to acquire, or discourage a third party from attempting to acquire, control of
us without negotiating with our board of directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer and Trust Company.
33
<PAGE> 37
PLAN OF DISTRIBUTION
The warrants and the shares of our common stock issued upon the
exercise of the warrants offered by this prospectus may be sold by the
warrantholders or their permitted transferees from time to time in:
o transactions in the over-the-counter market;
o negotiated transactions;
o underwritten offerings; or
o a combination of those methods of sale.
The warrantholders or their permitted transferees may sell the warrants
and the shares of our common stock issued upon the exercise of the warrants at:
o fixed prices which may be changed;
o market prices prevailing at the time of sale;
o prices related to prevailing market prices; or
o negotiated prices.
The warrantholders or their permitted transferees may effect these
transactions by selling the warrants and shares of our common stock issued upon
the exercise of the warrants to or through broker-dealers, and these
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the warrantholders or their permitted transferees and/or the
purchasers of the warrants for whom those broker-dealers may act as agents or to
whom they sell as principals, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions).
We are required to keep this registration statement effective until
the later of (1) two years after the date the registration statement of which
this prospectus is a part becomes effective and (2) the earlier of (A) the date
the warrants expire and (B) the first date as of which all of the warrants will
have been exercised by the holders.
In order to comply with the securities laws of particular states, if
applicable, the warrants and shares of our common stock will be sold in the
jurisdictions only through registered or licensed brokers or dealers. In
addition, in particular states, the warrants and shares of our common stock may
not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The warrantholders or their permitted transferees and any
broker-dealers or agents that participate with the warrantholders or their
permitted transferees in the distribution of the warrants or the shares of our
common stock issued upon the exercise of the warrants may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933. Any commissions
received by them and any profit on the resale of the warrants or the shares of
our common stock issued upon the exercise of the warrants purchased by them may
be deemed to be underwriting commissions or discounts under the Securities Act
of 1933.
Each warrantholder or his/her permitted transferee will be subject to
applicable provisions of the Securities Exchange Act of 1934 and the rules and
regulations under that Act, which provisions may limit the timing of purchases
and sales of shares of our common stock by the warrantholders or their permitted
transferees.
Warrantholders or their permitted transferees also may resell all or a
portion of the shares of our common stock in open market transactions in
reliance upon Rule 144 under the Securities Act, provided they meet the criteria
and conform to the requirements of that Rule.
34
<PAGE> 38
We will pay for all costs of the registration of the warrants, and
shares of common stock issuable upon exercise of the warrants including, without
limitation, SEC filing fees and expenses of compliance with state securities or
"blue sky" laws; except that, the selling holders will pay all underwriting
discounts and selling commissions, if any. We have agreed to indemnify the
selling holders against particular civil liabilities, including some liabilities
under the Securities Act of 1933, or we will compensate them for some of these
liabilities incurred in connection therewith.
LEGAL MATTERS
The validity of the warrants and the issuance of the shares of common
stock offered by this prospectus will be passed upon for us by Greenberg
Traurig, P.A., Miami, Florida.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for the
three years in the period ended December 31, 1999, incorporated by reference
from RailAmerica's Annual Report on Form 10-K in this prospectus, except as they
relate to Empresa De Transporte Ferrovario S.A., have been audited by
PricewaterhouseCoopers LLP, independent accountants, and, insofar as they relate
to Empresa De Transporte Ferrovario S.A. as of December 31, 1998 and 1999 and
for the years then ended, by Arthur Andersen Langton Clarke, independent
accountants. Such financial statements have been so included in reliance on the
reports of such independent accountants given on the authority of such firms as
experts in accounting and auditing.
The financial statements of V/Line Freight Corporation as of June 30,
1998 and for the year then ended, incorporated into this prospectus by reference
from RailAmerica's Current Report on Form 8-K/A, dated July 16, 1999, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of RaiLink Ltd. as of December 31, 1998 and
for the year then ended, incorporated into this prospectus by reference from
RailAmerica's Current Report on Form 8-K/A, dated October 5, 1999, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The financial statements of The Toledo, Peoria and Western Railroad
Corporation as of December 31, 1998 and for the year then ended, incorporated
into this prospectus by reference from RailAmerica's Current Report on Form
8-K/A, dated November 12, 1999, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon, and are incorporated
in reliance upon such report, given on the authority of such firm as experts in
accounting and auditing.
The financial statements and schedules of RailTex incorporated by
reference in this prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are incorporated herein in
reliance upon the authority of said firm as experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document that we file
at the Public Reference Room of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may also inspect our filings at the regional offices of the SEC
located at 7 World Trade Center, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov. You can also inspect reports and other
information we file at the offices of The Nasdaq Stock Market, Inc., 1735 K
Street, Washington, D.C. 20006.
35
<PAGE> 39
The SEC allows us to "incorporate by reference" some of the documents
that we file with it into this prospectus, which means:
o incorporated documents are considered part of this prospectus;
o we can disclose important information to you by referring you
to those documents; and
o information that we file with the SEC will automatically
update and supersede this incorporated information.
We incorporate by reference the documents listed below, which were
filed with the SEC under the Securities Exchange Act of 1934:
o our annual report on Form 10-K for the year ended December 31,
1999;
o our quarterly reports on Form 10-Q for the periods ended March
31, 2000 and June 30, 2000; and
o our current reports on Form 8-K filed on (1) May 17, 1999, as
amended on July 16, 1999, (2) August 6, 1999, as amended on
October 5, 1999, (3) September 20, 1999, as amended on
November 12, 1999, (4) February 4, 2000, (5) April 18, 2000,
(6) August 1, 2000 and (7) September 1, 2000.
We also incorporate by reference each of the following documents that
we will file with the SEC after the date of this prospectus:
o any reports filed under Sections 13(a) and (c) of the
Securities Exchange Act;
o definitive proxy or information statements filed under Section
14 of the Securities Exchange Act in connection with any
subsequent stockholders' meetings; and
o any reports filed under Section 15(d) of the Securities
Exchange Act.
You should assume that the information appearing in this prospectus is
accurate as of the date of this prospectus only. Our business, financial
position and results of operations may have changed since that date. You may
request a copy of any filings referred to above (excluding exhibits), at no
cost, by contacting us at the following address:
RailAmerica, Inc.
5300 Broken Sound Boulevard, N.W.,
Boca Raton, Florida 33487
(561) 994-6015
Attn: Donald D. Redfearn, Secretary
36
<PAGE> 40
================================================================================
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN
THIS PROSPECTUS. NEITHER ANY UNDERWRITER NOR WE HAS AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS
IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN
ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE
SECURITIES.
================================================================================
RAILAMERICA, INC.
COMMON STOCK
WARRANTS TO PURCHASE COMMON STOCK
___________________
PROSPECTUS
___________________
October 25, 2000
================================================================================
<PAGE> 41
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
The following table sets forth the costs and expenses (subject to
future contingencies) incurred or expected to be incurred by the Registrant in
connection with the issuance and distribution of the securities being registered
pursuant to this Registration Statement. The Registrant has agreed to pay all
the costs and expenses of this offering.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................................. $ 2,459.24
Accounting Fees and Expenses........................................................ 15,000.00
Legal Fees and Expenses............................................................. 20,000.00
Printing Expenses................................................................... 6,000.00
Miscellaneous....................................................................... 1,540.76
----------
Total...................................................................... $45,000.00
==========
</TABLE>
-------------------------
(1) The amounts set forth above are estimated, except for the SEC fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant has authority under Section 145 of the Delaware General
Corporation Law to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Amended and Restated Certificate of
Incorporation provides for indemnification of the Registrant's officers and
directors to the extent permitted under the Delaware General Corporation Law.
The Registrant's Amended and Restated Certificate of Incorporation
limits the liability of Directors to the maximum extent permitted by Delaware
General Corporation Law. Delaware law provides that the directors of a
corporation will not be personally liable to such corporation or its
stockholders for monetary damages for breach of their fiduciary duties as
directors, except for liability (i) for any breach of their duty of loyalty to
the corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation Law;
or (iv) for any transaction from which the director derives an improper personal
benefit. The Registrant's Amended and Restated Certificate of Incorporation
provides that the Registrant shall indemnify its Directors and officers to the
fullest extent permitted by Delaware law, except against actions by the
Registrant approved by the Board of Directors, and requires the Registrant to
advance expenses to such Directors and officers to defend any action for which
rights of indemnification are provided in the Certificate of Incorporation, and
also permits the Board of Directors to grant such rights to its employees and
agents.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim of indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
II-1
<PAGE> 42
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
ITEM 16. EXHIBITS
The following exhibits are included as part of this Registration
Statement:
Exhibits Description
-------- -----------
1.1 Purchase Agreement, dated August 9, 2000, between RailAmerica
Transportation Corp., RailAmerica, Inc., the Guarantors named
therein, Donaldson, Lufkin & Jenrette Securities Corporation,
Barclays Bank PLC and Social Capital (USA) Inc.(1)
5.1 Opinion of Greenberg Traurig, P.A.
4.1 Warrant Agreement, dated August 14, 2000, between RailAmerica,
Inc. and Wells Fargo Bank Minnesota, N.A.*
4.2 Warrant Registration Rights Agreement, dated August 14, 2000,
between RailAmerica, Inc., Donaldson Lufkin & Jenrette
Securities Corporation, Barclays Bank PLC and Scotia Capital
(USA) Inc.*
23.1 Consent of Greenberg Traurig, P.A. (contained in exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP (RailAmerica, Inc.)
23.3 Consent of Arthur Andersen Langton Clarke (Ferronor)
23.4 Consent of PricewaterhouseCoopers LLP (V/Line Freight
Corporation)
23.5 Consent of PricewaterhouseCoopers LLP (RaiLink Ltd.)
23.6 Consent of Ernst & Young LLP (The Toledo, Peoria and Western
Railroad Corporation)
23.7 Consent of Arthur Andersen LLP (RailTex, Inc.)
24.1 Power of Attorney*
-------------------------
(1) Incorporated by reference to the exhibit of the same number filed as part
of the Registrant's Registration Statement on Form S-4, Registration No.
333-45196-48.
* Previously Filed
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 43
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 44
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this Registration Statement on Form S-3 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boca Raton, State of
Florida, on the 24th day of October, 2000.
RAILAMERICA, INC.
By: /s/ Donald D. Redfearn
---------------------------------
Donald D. Redfearn
Chief Administrative Officer,
Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act, this Amendment No.
1 to this Registration Statement on Form S-3 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Chairman of the Board, Chief Executive officer October 24, 2000
-------------------------------------- and President (Principal Executive Officer)
Gary O. Marino
/s/ DONALD D. REDFEARN Chief Administrative Officer, October 24, 2000
-------------------------------------- Executive Vice President, Secretary and
Donald D. Redfearn Director
** Chief Financial Officer (Principal Financial October 24, 2000
-------------------------------------- Officer)
Bennett Marks
** Director October 24, 2000
--------------------------------------
John H. Marino
** Director October 24, 2000
--------------------------------------
Douglas R. Nichols
** Director October 24, 2000
--------------------------------------
Richard Rampell
** Director October 24, 2000
--------------------------------------
Charles Swinburn
** Director October 24, 2000
--------------------------------------
John M. Sullivan
** Director October 24, 2000
--------------------------------------
Ferd. C. Meyer, Jr.
** Director October 24, 2000
--------------------------------------
William G. Pagonis
</TABLE>
**By: /s/ DONALD D. REDFEARN
----------------------
Donald D. Redfearn
Attorney-in-Fact
